1933 Act Registration No. 033-16905
1940 Act Registration No. 811-05309
As filed with the Securities and Exchange Commission on December 20, 2006
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. 84 [x]
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 84 [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) 303-7987
(Registrant's Telephone Number, including Area Code)
Richard J. Ertel
U.S. Bancorp Center
800 Nicollet Mall, BC-MN-H05F
Minneapolis, Minnesota 55402
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
[x] immediately upon filing pursuant to paragraph (b) of Rule 485.
[ ] on (date) pursuant to paragraph (b) of Rule 485.
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485.
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485.
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
December 21, 2006
PROSPECTUS
First American Investment Funds, Inc.
ASSET CLASS - STOCK FUNDS
INTERNATIONAL SELECT FUND
Class A, Class B, Class C, Class R, and Class Y Shares
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.
(FIRST AMERICAN FUNDS LOGO)
TABLE OF
CONTENTS
FUND SUMMARY
Introduction 1
Objective and Principal Investment Strategies 2
Principal Risks 3
Fund Performance 4
Fees and Expenses 5
POLICIES AND SERVICES
Purchasing, Redeeming, and Exchanging Shares 6
Managing Your Investment 16
ADDITIONAL INFORMATION
Management 18
More About the Fund 21
FOR MORE INFORMATION Back Cover
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Fund Summary
INTRODUCTION
This section of the prospectus describes the objective of the First American International Select 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 (SAI) 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.
Fund Summary
Objective and Principal Investment Strategies
OBJECTIVE
International Select Fund's objective is long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
International Select Fund invests primarily in equity securities that trade in markets other than the United States. These securities are generally issued by companies:
- that have their legal residence in countries other than the United States and the securities of which are principally traded in such countries, or
- that derive at least 50% of either their revenues or their pre-tax income from activities outside of the United States.
The fund diversifies its investments among a number of different countries throughout the world and may invest in companies of any size.
The fund employs a "multi-style, multi-manager" approach whereby the fund's advisor allocates portions of the fund's assets to different sub-advisors who employ distinct investment styles. Any assets not allocated to a sub-advisor are managed by the advisor. The fund uses the following principal investment styles, which are intended to complement one another:
- Growth Style emphasizes investments in equity securities of companies with superior growth characteristics, including superior profitability, secular growth, sustainable competitive advantage, and strong capital structure.
- Value Style emphasizes investments in equity securities of companies trading below intrinsic valuations with stable returns and companies trading at steep discounts to intrinsic valuations with catalysts for an improvement in returns.
- Emerging Markets Style emphasizes investments in equity securities of companies whose principal activities are located in emerging market countries that are believed to be undervalued based on their earnings, cash flow or asset values. A country is considered to be an "emerging market" if it is defined as such by Morgan Stanley Capital International, Inc.
See "Additional Information -- Management -- Sub-Advisors" for more information on the investment styles employed by each sub-advisor.
When determining how to allocate the fund's assets among sub-advisors, the fund's advisor considers a variety of factors. These factors include a sub-advisor's investment style and performance record, as well as the characteristics of the sub-advisor's typical portfolio investments. These characteristics may include capitalization size, growth and profitability measures, valuation measures, economic sector weightings, and earnings and price volatility statistics. The allocations among the sub-advisors will vary over time according to prospective returns and risks associated with the various investment styles.
Equity securities in which the fund invests include common and preferred stock. In addition, the fund may invest in sponsored and unsponsored American Depositary Receipts, European Depositary Receipts, and Global Depositary Receipts. The fund may also invest in exchange-traded funds and other investment companies.
In order to hedge against adverse movements in currency exchange rates, the fund may enter into forward foreign currency exchange contracts. In addition, the fund may utilize options, futures contracts, and options on futures contracts ("derivatives") in an attempt to manage market or business risk or enhance the fund's returns. The use of derivatives is speculative if the fund is primarily seeking to enhance returns, rather than offset the risk of other positions. When the fund invests in a derivative for speculative purposes, the fund will be fully exposed to the risks of loss of that derivative, which may sometimes be greater than the derivative's cost.
A portion of the fund's assets managed by the advisor are used to facilitate cash flows to and from the sub-advisors, meet redemption requests, and pay fund expenses. The advisor may also utilize these assets to increase the fund's exposure to certain companies, countries, regions, or investment styles. The advisor may invest these assets in stock and stock index futures and options contracts, forward foreign currency exchange contracts, other investment companies, exchange-traded funds, and money market instruments and other short-term securities, including money market funds advised by the advisor.
Fund Summary
Principal Risks
The value of your investment in this fund will change daily, which means you could lose money. The principal risks of investing in this fund include:
Active Management Risk. The fund is actively managed and its performance therefore will reflect in part the advisor's or sub-advisors' 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.
Additional Expenses. The fund's investment in exchange-traded funds and other investment companies involves additional expenses that would not be present in a direct investment in these underlying funds.
Common Stock Risk. Stocks may decline significantly in price over short or extended periods of time. Price changes may occur in the market as a whole, or they may occur in only a particular country, company, industry, or sector of the market. In addition, the types of stocks in which the fund invests, such as value stocks and growth stocks, may underperform the market as a whole.
Derivative Instrument Risk. The use of derivative instruments, such as options, futures contracts, and options on futures contracts, exposes the fund to additional risks and transaction costs. Risks inherent in the use of derivative instruments include: the risk that securities prices will not move in the direction that the advisor or sub-advisor anticipates; 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 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 or sub-advisor's judgment proves incorrect, the fund's performance could be worse than if it had not used these instruments.
Emerging Markets Risk. The risks of international investing are particularly
significant in emerging markets. Investing in emerging markets generally
involves exposure to economic structures that are less diverse and mature, and
to political systems that are less stable, than those of developed countries. In
addition, issuers in emerging markets typically are subject to a greater degree
of change in earnings and business prospects than are companies in developed
markets.
Foreign Currency Hedging Transaction Risk. In order to hedge against adverse
movements in currency exchange rates, the fund may enter into forward foreign
currency exchange contracts. If the advisor or sub-advisor's forecast of
exchange rate movements is incorrect, the fund may realize losses on its foreign
currency transactions. In addition, the fund's hedging transactions may prevent
the fund from realizing the benefits of a favorable change in the value of
foreign currencies.
International Investing Risk. The fund invests primarily in equity securities that trade in markets other than the United States. The fund also invests in American Depositary Receipts, European Depositary Receipts, and Global Depositary Receipts, which, unless otherwise noted below, are subject to the same risks as other foreign securities. The holder of an unsponsored depositary receipt may have limited voting rights and may not receive as much information about the issuer of the underlying securities as would the holder of a sponsored depositary receipt. International investing involves risks not typically associated with U.S. investing. These risks include:
Currency Risk. Because the foreign securities in which the fund invests, with the exception of American Depositary Receipts, generally 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.
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.
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 SAI for details.
Information Risk. Non-U.S. companies generally are not subject to uniform accounting, auditing, and financial reporting standards or to 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.
Fund Summary
Principal Risks CONTINUED
Investment Restriction Risk. 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.
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.
Mid-Cap Stock Risk. While stocks of mid-cap companies may be slightly less volatile than those of small-cap companies, they still involve substantial risk. Mid-cap companies may have limited product lines, markets or financial resources, and they may be dependent on a limited management group. Stocks of mid-cap companies may be subject to more abrupt or erratic market movements than those of larger, more established companies or the market averages in general.
Multi-Manager Risk. Because each sub-advisor makes investment decisions independently, it is possible that the security selection process of the sub-advisors may not complement one another. As a result, the fund's exposure to a given security, industry sector or market capitalization could be smaller or larger than would be the case if the fund were managed by a single sub-advisor. It is possible that one or more of the sub-advisors may, at any time, take positions that may be opposite of positions taken by other sub-advisors. In such cases, the fund will incur brokerage and other transaction costs, without accomplishing any net investment results. Sub-advisors also may be competing with one another for similar positions at the same time, which could have the result of increasing a security's cost. The multi-manager approach could increase the fund's portfolio turnover rates which may result in higher levels of realized capital gains or losses with respect to the fund's portfolio securities, higher brokerage commissions and other transaction costs. The sub-advisors selected may underperform the market generally or other sub-advisors that could have been selected for the fund.
Small-Cap Stock Risk. Stocks of small-cap companies involve substantial risk. These companies may lack the management expertise, financial resources, product diversification, and competitive strengths of larger companies. Prices of small-cap stocks may be subject to more abrupt or erratic movements than stock prices of larger, more established companies or the market averages in general. In addition, the frequency and volume of their trading may be less than is typical of larger companies, making them subject to wider price fluctuations. In some cases, there could be difficulties in selling the stocks of small-cap companies at the desired time and price. Stocks at the bottom end of the capitalization range in which the fund may invest sometimes are referred to as "micro-cap" stocks. These stocks may be subject to extreme price volatility, as well as limited liquidity and limited research.
Fund Performance
Because the fund has not been offered prior to the date of this prospectus, no performance information is presented.
Fund Summary
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(1) (FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A CLASS B CLASS C CLASS R CLASS Y ---------------------------------------------------------------------------------------------------------------- MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES (as a percentage of offering price) 5.50%(2) 0.00% 0.00% None None MAXIMUM DEFERRED SALES CHARGE (LOAD) (as a percentage of original purchase price or redemption proceeds, whichever is less) 0.00%(3) 5.00% 1.00% None None ---------------------------------------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) (as a percentage of average net assets) ---------------------------------------------------------------------------------------------------------------- Management Fees 1.00% 1.00% 1.00% 1.00% 1.00% Distribution and/or Service (12b-1) Fees 0.25% 1.00% 1.00% 0.50% None Other Expenses(4) 0.57% 0.57% 0.57% 0.57% 0.57% Total Annual Fund Operating Expenses(5,6) 1.82% 2.57% 2.57% 2.07% 1.57% -------------------------------------------------------------------------------------------------------------------- |
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 B CLASS B CLASS C CLASS C
assuming assuming no assuming assuming no
redemption redemption redemption redemption
at end of at end of at end of at end of
CLASS A each period each period each period each period CLASS R CLASS Y
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1 year $725 $760 $260 $360 $260 $210 $160
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3 years $1,091 $1,199 $799 $799 $799 $649 $496
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(1)An annual account maintenance fee of $50 may be charged under certain circumstances. See "Policies and Services -- Purchasing, Redeeming, and Exchanging Shares -- Additional Information on Purchasing, Redeeming, and Exchanging Shares -- Accounts with Low Balances."
(2)Investors may qualify for reduced sales charges. See "Policies and Services -- Purchasing, Redeeming, and Exchanging Shares -- Determining Your Share Price -- Class A Shares -- Reducing Your Sales Charge on Class A Shares."
(3)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.
(4)"Other Expenses" are based on estimated amounts for the current fiscal year.
(5)The advisor intends to voluntarily waive fees and reimburse other fund expenses through at least June 30, 2007 so that total operating expenses, after waivers, do not exceed 1.49%, 2.24%, 2.24%, 1.74%, and 1.24%, respectively, for Class A, Class B, Class C, Class R, and Class Y shares. Fee waivers and expense reimbursements will not be terminated prior to that time without the approval of the fund's board of directors.
(6)"Total Annual Fund Operating Expenses" do not include securities lending income received by the advisor. The advisor receives fees equal to 32% (25% effective January 1, 2007) of the fund's net income from securities lending transactions in connection with the lending services it provides the fund.
Policies and Services
Purchasing, Redeeming, and Exchanging Shares
GENERAL
You may purchase, redeem, or exchange shares of the fund on any day when the New York Stock Exchange (NYSE) is open, except that shares cannot be purchased by wire transfer on days that federally chartered banks are closed. Purchases, redemptions, and exchanges may be restricted in the event of an early or unscheduled close of the NYSE.
The fund has authorized certain investment professionals and financial institutions ("financial intermediaries") to accept purchase, redemption, or exchange orders on its behalf. Your purchase or redemption price will be based on the net asset value (NAV) per share next calculated by the fund after your order is received by the fund or an authorized financial intermediary in proper form. Exchanges are also made at the NAV per share next calculated by the fund after your exchange request is received in proper form. See "Additional Information on Purchasing, Redeeming, and Exchanging Shares -- Calculating Net Asset Value" below. Contact your financial intermediary to determine the time by which it must receive your order to be assured same day processing. To make sure your order is in proper form, you must follow the instructions set forth below under "Purchase, Redemption, and Exchange Procedures."
Some financial intermediaries may charge a fee for helping you purchase, redeem, or exchange shares. Contact your financial intermediary for more information. No such fee will be imposed if you purchase shares directly from the fund.
The fund may be offered only to persons in the United States. This prospectus should not be considered a solicitation or offering of fund shares outside the United States.
CHOOSING A SHARE CLASS
The fund issues its shares in five classes -- Class A, Class B, Class C, Class R, and Class Y shares -- with each class having a different cost structure. As noted below, only certain eligible investors can purchase Class R, and Class Y shares of the fund, whereas Class A, Class B, and Class C shares (the "Retail Share Classes") are generally available to investors. You should decide which share class best suits your needs.
Eligibility to Invest in Class R and Class Y Shares
CLASS R SHARES generally are available only to 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit-sharing and money purchase pension plans, defined benefit plans and nonqualified deferred compensation plans ("retirement plans"), and must be held in plan level or omnibus accounts.
Class R shares are not available to retail retirement or non-retirement accounts, Traditional and Roth Individual Retirement Accounts (IRAs), Coverdell Education Savings Accounts, SEPs, SARSEPs, SIMPLE IRAs, individual 403(b) plans, and 529 college savings plans.
CLASS Y SHARES are offered to group retirement plans and to certain persons who are charged fees for advisory, investment, consulting or similar services by a financial intermediary or other service provider. Such persons may include, but are not limited to, individuals, corporations, and endowments.
Class Share Overview
Contingent Deferred Annual 12b-1 Fees
Front-End Sales Sales Charge (as a % of net assets)
Charge (FESC) (CDSC) ----------------------
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Class A 5.50%(1) None(2) 0.25%
Class B(3) None 5.00%(4) 1.00%
Class C(5) None 1.00%(6) 1.00%
Class R None None 0.50%
Class Y None None None
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(1)The FESC is reduced for larger purchases. See "Determining Your Share
Price -- Class A Shares" below.
(2)Class A share investments of $1 million or more on which no FESC is paid may
be subject to a 1% CDSC.
(3)Class B shares automatically convert to Class A shares eight years after
purchase, which reduces future annual expenses since Class A shares have
lower annual expenses.
(4)A CDSC of up to 5.00% applies to Class B shares if you redeem shares within
six years of purchase. The CDSC declines over the six years as described
below under "Determining Your Share Price -- Class B Shares."
(5)Class C shares do not convert to Class A shares so they will continue to have
higher annual expenses than Class A shares for as long as you hold them.
(6)A 1.00% CDSC applies if you redeem your Class C shares within 12 months of
purchase.
Among the Retail Share Classes, Class A shares may be a better choice if your investment qualifies for a reduced sales charge. You should not place Class B or Class C share orders that would cause your total investment in First American Funds Class A, Class B and Class C shares (not including First American money market funds) to equal or exceed $100,000 in the case of an order for Class B shares or $1 million dollars in the case of an order for Class C shares, using the aggregation principles discussed below under "Determining Your Share Price -- Class A Shares -- Reducing Your Sales Charge on Class A Shares." To the extent operationally possible, these orders will be automatically rejected.
Class R or Class Y shares are generally a better choice than a Retail Share Class if you are eligible to purchase these share classes. However, if you intend to hold your shares for a long time, or if you are eligible to invest in Class A shares with a reduced or waived sales charge, Class A may be a better choice than an investment in Class R shares.
Policies and Services
Purchasing, Redeeming, and Exchanging Shares CONTINUED
DETERMINING YOUR SHARE PRICE
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 sales charge you pay may differ slightly from the amount set forth below because of rounding that occurs in the calculation used to determine your sales charge.
Sales Charge
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As a % As a %
of of Net
Offering Amount
Purchase Amount Price Invested
------------------------------------------------------
Less than $50,000 5.50% 5.82%
$50,000 - $99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1 million and over 0.00% 0.00%
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Reducing Your Sales Charge on Class A Shares. 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 follows.
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. You will receive credit for the current net asset value of the other Class A, Class B, and Class C shares you hold at the time of your purchase, including shares held in individual retirement, custodial or personal trust accounts. For example, let's say you're making a $10,000 investment and you already own other First American Fund Class A shares that are currently valued at $45,000. You will receive credit for the current value of these shares and your sales charge will be based on a total purchase amount of $55,000. If the current net asset value of your shares is less than their original purchase price, you may receive credit for their original purchase price instead, but only if you provide a written request to the fund and provide it with the records necessary to demonstrate the shares' purchase price.
Purchases by Related Accounts. Concurrent and prior purchases by certain other accounts of Class A, Class B, and Class C shares of any First American Fund (except a money market fund) also will be combined with your purchase to determine your sales charge. The fund will combine purchases made by you, your spouse or domestic partner, and your dependent 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 for Class A purchases 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 "Class A Share Investments of Over $1 Million" below.
It is your responsibility to determine whether you are entitled to pay a reduced sales charge. The fund is not responsible for making this determination. To receive a reduced sales charge, 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 financial intermediary, or Investor Services if you are purchasing shares directly from the fund, and they will notify the fund.
You should provide your financial intermediary with information or records regarding any other accounts in which there are holdings eligible to be aggregated, including:
- all of your accounts at your financial intermediary.
- all of your accounts at any other financial intermediary.
- all accounts of any related party (such as a spouse or dependent child) held with any financial intermediary.
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 financial intermediary may have this information.
More information on these ways to reduce your sales charge appears in the 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:
- directors, advisory board members, full-time employees and retirees of the advisor and its affiliates.
- current and retired officers and directors of the fund.
- full-time employees of any broker-dealer authorized to sell fund shares.
- full-time employees of the fund's counsel.
- members of the immediate families of any of the foregoing (i.e., a spouse or domestic partner and any dependent children).
- persons who purchase the fund through "one-stop" mutual fund networks through which the fund is made available.
- persons participating in a fee-based program sponsored and maintained by a registered broker-dealer.
Policies and Services
Purchasing, Redeeming, and Exchanging Shares CONTINUED
- trust companies and bank trust departments acting in a fiduciary, advisory, agency, custodial or similar capacity.
- group retirement plans.
You must notify the funds or your financial intermediary if you are eligible to purchase Class A shares without a sales charge.
Reinvesting After a Redemption. If you redeem 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 financial intermediary.
Class A Share Investments of Over $1 Million. There is no initial sales charge on Class A share purchases of $1 million or more (including purchases that reach the $1 million level as a result of aggregating prior purchases and purchases by related accounts). However, your financial intermediary 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. The CDSC you pay may differ slightly from this amount because of rounding that occurs in the calculation used to determine your CDSC. To find out whether you will be assessed a CDSC, ask your financial intermediary.
The CDSC is based on the value of your shares at the time of purchase or at the time of redemption, 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, Class A shares that are not subject to a CDSC will be redeemed first. The CDSC will be waived in the circumstances described below under "Waiving Contingent Deferred Sales Charges."
Additional Information on Reducing Sales Charges. A link to information regarding the fund's Class A sales charge breakpoints is available on the fund's web site at www.firstamericanfunds.com.
Class B Shares
Your purchase price for Class B shares is their net asset value -- there is no front-end sales charge. However, if you redeem your shares within six years of purchase, you will pay a CDSC, as reflected in the following table.
CDSC as a % of the value
Year since purchase of your shares
-------------------------------------------------------
First 5.00%
Second 5.00%
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CDSC as a % of the value
Year since purchase of your shares
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh 0.00%
Eighth 0.00%
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The CDSC you pay may differ slightly from the amount set forth above because of rounding that occurs in the calculation used to determine your CDSC.
Your CDSC will be based on the value of your shares at the time of purchase or at the time of redemption, 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, Class B shares that are not subject to a CDSC will be redeemed first; other Class B shares will then be redeemed in an order that minimizes your CDSC. The CDSC will be waived in the circumstances described below under "Waiving Contingent Deferred Sales Charges."
Your Class B shares and any related shares acquired by reinvesting your dividend or capital gain distributions will automatically convert to Class A shares eight years after the beginning of the month in which you purchased the shares.
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 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 you pay may differ slightly from this amount because of rounding that occurs in the calculation used to determine your CDSC. The CDSC does not apply to shares you acquired by reinvesting your dividend or capital gain distributions. To help lower your costs, Class C shares that are not subject to a CDSC will be redeemed first. The CDSC will be waived in the circumstances described below under "Waiving Contingent Deferred Sales Charges."
Unlike Class B shares, Class C shares do not convert to Class A shares after a specified period of time. Therefore, your shares will continue to have higher annual expenses than Class A shares.
Retirement Plan Availability of Class B and Class C Shares
Class B and Class C shares are available to individual plans and certain smaller group plans, such as SIMPLE and SEP plans. Class B and Class C shares are not available to certain
Policies and Services
Purchasing, Redeeming, and Exchanging Shares CONTINUED
employer-sponsored plans, such as 401(k), employer-sponsored 403(b), money purchase and profit sharing plans.
Waiving Contingent Deferred Sales Charges
CDSCs on Class A, Class B and Class C share redemptions will be waived for:
- redemptions following the death or disability (as defined in the Internal Revenue Code) of a shareholder.
- redemptions that equal the minimum required distribution from an IRA or other retirement plan to a shareholder who has reached the age of 70 1/2.
- redemptions through a systematic withdrawal plan, at a rate of up to 12% a year of your account's value. The systematic withdrawal limit will be based on the market value of your account at the time of each withdrawal.
- redemptions required as a result of over-contribution to an IRA plan.
Class R and Class Y Shares
Your purchase price for Class R and Class Y shares is their net asset value. These share classes do not have a front-end sales charge or a CDSC.
12B-1 FEES
The fund has adopted a plan pursuant to Rule 12b-1 under the Investment Company Act that allows the fund to pay its distributor an annual fee for the distribution and sale of its shares and/or for services provided to shareholders. The fund does not pay 12b-1 fees on Class Y shares. The 12b-1 fees paid by the fund are designated as distribution fees and/or shareholder servicing fees, as described here.
Annual 12b-1 Fees
(as a percentage of
average daily net assets)
----------------------------
Distribution Shareholder
Fee Servicing Fee
-------------------------------------------------------------
Class A None 0.25%
Class B 0.75% 0.25%
Class C 0.75% 0.25%
Class R 0.25% 0.25%
Class Y None None
|
Because 12b-1 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.
COMPENSATION PAID TO FINANCIAL INTERMEDIARIES
The fund's distributor receives any front-end sales charge or CDSC that you pay and any 12b-1 fees paid by the fund. From this revenue, the distributor will pay financial intermediaries for the services they provide. The fund's advisor and/or distributor may make additional payments to intermediaries from their own assets, as described below under "Additional Payments to Financial Intermediaries."
Sales Charge Reallowance
The distributor pays (or "reallows") a portion of the front-end sales charge on Class A shares to your financial intermediary, as follows.
Maximum Reallowance
as a % of
Purchase Amount Purchase Price
-----------------------------------------------------
Less than $50,000 5.00%
$50,000 - $99,999 4.00%
$100,000 - $249,999 3.25%
$250,000 - $499,999 2.25%
$500,000 - $999,999 1.75%
$1 million and over 0.00%
|
Sales Commissions
There is no initial sales charge on Class A share purchases of $1 million or more, however, your financial intermediary may receive a commission of up to 1% on your purchase. Although you pay no front-end sales charge when you buy Class B or Class C shares, the fund's distributor pays a sales commission of 4.25% of the amount invested to financial intermediaries that sell Class B shares and 1.00% of the amount invested to intermediaries selling Class C shares.
12b-1 Fees
The fund's distributor uses the 12b-1 shareholder servicing fee to compensate financial intermediaries for administrative services performed on behalf of the intermediaries' customers. These intermediaries receive shareholder servicing fees of up to 0.25% of the fund's Class A, Class B, Class C, and Class R share average daily net assets attributable to shares sold through them. For Class A and Class R shares, the distributor begins to pay shareholder servicing fees to these intermediaries immediately after you purchase shares. For Class B and Class C shares, the distributor begins to pay shareholder servicing fees to these intermediaries one year after you purchase shares, but only if you continue to hold the shares at that time. In both cases, the intermediaries continue to receive these fees for as long as you hold fund shares.
The fund's distributor uses the 12b-1 distribution fee to compensate financial intermediaries for the sale of fund shares to their customers. The fund's distributor pays intermediaries that sell Class C shares a 0.75% annual distribution fee beginning one year after the shares are sold. The fund's distributor pays intermediaries that sell Class R shares a 0.50% annual distribution fee immediately after you purchase shares. The fund's distributor retains the Class B share 0.75% annual
Policies and Services
Purchasing, Redeeming, and Exchanging Shares CONTINUED
distribution fee in order to finance the payment of sales commissions to intermediaries that sell Class B shares.
Additional Payments to Financial Intermediaries
The advisor and/or the distributor may pay additional compensation to financial intermediaries out of their own resources in connection with the sale or retention of fund shares and/or in exchange for sales and/or administrative services performed on behalf of the intermediaries' customers. The amount of these payments may be significant, and may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the fund to you. These payments are not reflected in the fees and expenses listed in the "Fund Summary" section of the prospectus because they are not paid by the fund.
These payments are negotiated and may be based on such factors as the number or value of shares that the financial intermediary sells or may sell; the value of the assets invested in the fund by the intermediary's customers; reimbursement of ticket or operational charges (fees that an intermediary charges its representatives for effecting transactions in fund shares); lump sum payment for services provided; the type and nature of services or support furnished by the intermediary; and/or other measures as determined from time to time by the advisor and/or distributor.
The advisor and/or distributor may make other payments or allow other promotional incentives to financial intermediaries to the extent permitted by SEC and NASD rules and by other applicable laws and regulations. Certain intermediaries also receive payments in recognition of sub-accounting, recordkeeping or other services they provide to shareholders or plan participants who invest in the fund or other First American Funds through their retirement plan.
You can ask your financial intermediary for information about any payments it receives from the advisor and/or the distributor and from the fund, and any services your intermediary provides, as well as about fees and/or commissions your intermediary charges. You can also find more details about payments made by the advisor, and/or the distributor in the fund's SAI.
PURCHASE, REDEMPTION, AND EXCHANGE PROCEDURES
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.
As a result, when you open an account, we will ask for your name, permanent street address, date of birth, and social security or taxpayer identification number. Addresses containing a P.O. Box will not be accepted. We may also ask for other identifying documents or information.
Purchasing Class A, Class B, and Class C Shares
You can become a shareholder in the fund by making the following minimum initial or additional investments.
Minimum Minimum
Initial Additional
Account Types Investment Investment
------------------------------------------------------
Retirement plan, Uniform Gift
to Minors Act (UGMA)/
Uniform Transfers to Minors
Act (UTMA) accounts $ 500 $ 25
All other accounts $1,000 $100
|
The fund has the right to waive these minimum investment requirements for shares offered through certain institutions and for employees of the fund's advisor and its affiliates. The fund also has the right to reject any purchase order.
By Phone. You can purchase shares by calling your financial intermediary, if they have a sales agreement with the fund's distributor. You can also place purchase orders of $100 or more by calling Investor Services at 800 677-FUND. Funds will be transferred electronically from your bank account through the Automated Clearing House (ACH) network. Before making a purchase by electronic funds transfer, you must submit a new account form to the fund and elect this option. Be sure to include all of your banking information on the form.
By Wire. You can purchase shares by making a wire transfer from your bank. Before making an initial investment by wire, you must submit a new account form to the fund. After receiving your form, a service representative will contact you with your account number and wiring instructions. Your order will be priced at the next NAV calculated after the fund's custodian receives your payment by wire. Before making any additional purchases by wire, you should call Investor Services at 800 677-FUND. 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, and mail both to:
REGULAR U.S. MAIL: OVERNIGHT EXPRESS MAIL: ------------------------ ------------------------ First American Funds First American Funds P.O. Box 3011 615 East Michigan Street Milwaukee, WI 53201-3011 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:
- All purchases must be drawn on a bank located within the United States and payable in U.S. dollars to First American Funds.
Policies and Services
Purchasing, Redeeming, and Exchanging Shares CONTINUED
- Cash, money orders, cashier's checks for less than $10,000, third-party checks, Treasury checks, credit card checks, traveler's checks, starter checks, and credit cards will not be accepted. We are unable to accept post dated checks, post dated on-line bill pay checks, or any conditional order or payment.
- If a check or ACH does not clear your bank, the fund reserves the right to cancel the purchase, and you may be charged a fee of $25 per check or transaction. You could be liable for any losses or fees incurred by the fund as a result of your check or ACH transaction failing to clear.
By Systematic Investment Plan. To purchase shares as part of a savings discipline, you may add to your investment on a regular basis:
- by having $100 or more ($25 for a retirement account or a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account) automatically withdrawn from your bank account on a periodic basis and invested in fund shares, or
- through automatic monthly exchanges of your First American fund into another First American fund of the same class.
You may apply for participation in either of these programs through your financial intermediary or by calling Investor Services at 800 677-FUND.
Redeeming Class A, Class B, and Class C Shares
When you redeem shares, the proceeds 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.
By Phone. If you purchased shares through a financial intermediary, simply call them to redeem your shares.
If you did not purchase shares through a financial intermediary, you may redeem 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 fund charges a $15 fee for wire redemptions, which in certain instances may be waived. Proceeds also can be sent directly to your bank or brokerage account via electronic funds transfer if your bank or brokerage firm is a member of the ACH network. 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 ACH network, 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 redeem shares by mail, send a written request to your financial intermediary, or to the fund at the following address:
REGULAR U.S. MAIL: OVERNIGHT EXPRESS MAIL: ------------------------ ------------------------ First American Funds First American Funds P.O. Box 3011 615 East Michigan Street Milwaukee, WI 53201-3011 Milwaukee, WI 53202 |
Your request should include the following information:
- name of the fund
- account number
- dollar amount or number of shares redeemed
- name on the account
- signatures of all registered account owners
A signature guarantee is required on written requests if:
- you would like redemption proceeds to be paid to anyone other than to the shareholder of record.
- you would like the redemption check mailed to an address or bank account other than those on the fund's records, or you have changed the address on the fund's records within the last 30 days.
- your redemption request is more than $50,000.
- bank information related to an automatic investment plan, telephone purchase or telephone redemption is changed.
In addition to the situations described above, the fund reserves the right to require a signature guarantee in other instances based on the circumstances of a particular situation.
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 intermediary to determine if it has this capability. A notary public is not an acceptable signature guarantor.
Proceeds from a written redemption request will be sent to you by check unless another form of payment is requested.
By Wire. You can call or write to have redemption proceeds sent to a bank account. See the policies for redeeming shares by phone or by mail. Before requesting to have redemption proceeds sent to a bank account, please make sure the fund has your bank account information on file. If the fund does not have this information, you will need to send written instructions with your bank's name and a voided check or savings account deposit slip. If the bank and fund accounts do not have at least one common owner, you must provide written instructions signed by all fund and bank account owners, and each individual must have their signature guaranteed.
Policies and Services
Purchasing, Redeeming, and Exchanging Shares CONTINUED
By Systematic Withdrawal Plan. 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. You may set up a systematic withdrawal when you complete a new account form or by calling your financial intermediary.
You should not make systematic withdrawals if you plan to continue investing in the fund, due to sales charges and tax liabilities.
Exchanging Class A, Class B, and Class C 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.
Generally, you may exchange your shares only for the same class of shares of the other fund, with certain exceptions, including, 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 purchase Class Y shares.
When you exchange your Class A shares of one of the funds for Class A shares of another First American fund, you do not have to pay a sales charge. When you exchange your Class B or Class C shares for Class B or 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 or, in the case of Class B shares, calculating when your shares convert to Class A shares.
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 funds have the right to limit exchanges that are deemed to constitute short-term trading. See "Additional Information on Purchasing, Redeeming, and Exchanging Shares -- Short-Term Trading of Fund Shares" below.
By Phone. If both funds have identical shareholder registrations, you may exchange shares by calling your financial intermediary or by calling the funds directly at 800 677-FUND.
By Mail. To exchange shares by written request, please follow the procedures under "Redeeming Class A, Class B, and Class C Shares" above. Be sure to include the names of both funds involved in the exchange.
By Systematic Exchange Plan. You may add to your investment on a regular basis through automatic monthly exchanges of your First American fund into another First American fund of the same class. You may apply for participation in this program through your financial intermediary or by calling Investor Services at 800 677-FUND.
Purchasing, Redeeming, and Exchanging Class R Shares
Eligible retirement plans generally may open an account and purchase Class R shares by contacting any financial intermediary or plan administrator authorized to sell the fund's shares. Participants in retirement plans generally must contact the plan's administrator to purchase, redeem or exchange shares.
Share purchases by eligible retirement plans are generally made by wire transfer. You cannot purchase shares by wire on days when federally chartered banks are closed.
Purchase orders and redemption requests from a retirement plan or participant in the plan must be received by the financial intermediary or plan administrator by the time specified by that institution to be assured same day processing. In order for shares to be purchased or sold at that day's price, the fund must receive the purchase order or redemption request from the financial intermediary or plan administrator by 3:00 p.m. Central time. It is the responsibility of the financial intermediary or plan administrator to promptly transmit orders to the fund.
If the fund 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.
Exchanging Class R 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. There is no fee to exchange shares.
To exchange your shares, call your financial intermediary or plan administrator. In order for your shares to be exchanged the same day, you must call your financial intermediary or plan administrator by the time specified by that institution and your exchange order must be received by the funds by 3:00 p.m. Central time. It is the responsibility of your financial intermediary or plan administrator to promptly transmit your exchange order to the funds.
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 funds have the right to limit exchanges that are deemed to constitute short-term trading. See "Additional Information on Purchasing, Redeeming, and Exchanging Shares -- Short-Term Trading of Fund Shares" below.
Policies and Services
Purchasing, Redeeming, and Exchanging Shares CONTINUED
Purchasing, Redeeming, and Exchanging Class Y Shares
You may purchase or redeem shares by calling your financial intermediary. When purchasing shares, payment generally must be made by wire transfer, which can be arranged by your financial intermediary. You cannot purchase shares by wire on days when federally chartered banks are closed. The fund reserves the right to impose minimum investment amounts on clients of financial intermediaries that charge the fund or the advisor transaction or recordkeeping fees.
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.
Exchanging Class Y Shares. If your investment goals or your financial needs change, you may exchange your shares for Class Y shares of another First American fund. There is no fee to exchange shares. If you are no longer eligible to purchase Class Y shares, 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 intermediary.
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 funds have the right to limit exchanges that are deemed to constitute short-term trading. See "Additional Information on Purchasing, Redeeming, and Exchanging Shares -- Short-Term Trading of Fund Shares" below.
Systematic Transactions. You may add to your investment, or redeem a specific dollar amount from your account, on a regular, automatic basis through a systematic investment or withdrawal plan. You may also move from one First American Fund to another First American Fund of the same class on a regular basis through automatic monthly exchanges. You may apply for participation in these programs through your financial intermediary.
You should not make systematic withdrawals if you plan to continue investing in a fund, due to sales charges and tax liabilities.
ADDITIONAL INFORMATION ON PURCHASING, REDEEMING, AND EXCHANGING SHARES
Calculating Net Asset Value
The fund generally calculates its NAV as of 3:00 p.m. Central time every day the
New York Stock 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. Security valuations
for the fund's investments are furnished by one or more independent pricing
services that have been approved by the fund's board of directors. 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
procedures approved by the fund's board of directors. Under these procedures,
fair values are generally determined by a pricing committee appointed by the
board of directors, except that the fund may rely on recommendations of a fair
value pricing service approved by the fund's board of directors in valuing
foreign securities. The types of securities for which such fair value pricing
might be required include, but are not limited to:
- Securities, including securities traded in foreign markets, where an event occurs after the close of the market in which such security principally trades, but before NAV is determined, that will affect the value of such security, or the closing value is otherwise deemed unreliable;
- Securities whose trading has been halted or suspended;
- Fixed-income securities that have gone into default and for which there is no current market value quotation; and
- Securities with limited liquidity, including certain high-yield securities or securities that are restricted as to transfer or resale.
Valuing securities at fair value involves greater reliance on judgment than valuing securities that have readily available market quotations. Fair value determinations can also involve reliance on quantitative models employed by a fair value pricing service. There can be no assurance that the fund could obtain the fair value assigned to a security if it were to sell the security at approximately the time at which the fund determines its NAV per share.
The fund will hold portfolio securities that trade on weekends or other days when the fund does not price its shares. Therefore, the net asset value of the fund's shares may change on days when you will not be able to purchase or redeem your fund shares.
Short-Term Trading of Fund Shares
The fund discourages purchases and redemptions of its shares in response to short-term fluctuations in the securities markets. The fund's Board of Directors has adopted policies and procedures designed to detect and deter short-term trading in the fund's shares that may disadvantage long-term fund shareholders. These policies are described below. The fund will not knowingly accommodate trading in the fund's shares in violation of these policies. As discussed below, however, there is no guarantee that the fund will be able to detect such trading in all accounts. See "Omnibus Accounts" below. These policies do not apply to purchases and sales of fund shares by other First American Funds.
PROSPECTUS - First American International Select Fund
Policies and Services Purchasing, Redeeming, and Exchanging Shares CONTINUED Risks Associated with Short-Term Trading. Short-term trading in a fund's |
shares, particularly in larger amounts, may be detrimental to long-term shareholders of the fund. Depending on various factors, including the size of a fund, the amount of assets the fund typically maintains in cash or cash equivalents, the dollar amount and number and frequency of trades, and the types of securities in which the fund typically invests, short-term trading may interfere with the efficient management of the fund's portfolio, increase the fund's transaction costs, administrative costs and taxes, and/or impact the fund's performance.
In addition, the nature of a fund's portfolio holdings may allow a shareholder engaging in a short-term trading strategy to take advantage of possible delays between the change in the value of a fund's portfolio holdings and the reflection of that change in the net asset value of the fund's shares. Such a delay may occur in funds that have significant investments in foreign securities, where the value of those securities is established some time before the fund calculates its own share price, or in funds that hold significant investments in small-cap securities, high-yield (junk) bonds and other types of investments that may not be frequently traded. This type of short-term trading is sometimes referred to as "arbitrage market timing," and there is the possibility that such trading may dilute the value of fund shares if redeeming shareholders receive proceeds (and buying shareholders receive shares) based upon net asset values which do not reflect appropriate fair value prices.
Short-Term Trading Policies. The fund's advisor monitors trading in fund shares in an effort to identify short-term trading activity that may disadvantage long-term shareholders. Only transactions that exceed a certain dollar threshold that has been determined to be potentially disruptive to the management of the fund are subject to monitoring. It is the policy of the fund to permit no more than one round trip by an investor during any 90-calendar-day period. A round trip is defined as a purchase into or redemption out of the fund (including purchases or redemptions accomplished by an exchange) paired with an opposite direction redemption out of or purchase into the fund within 10 calendar days, in a dollar amount that exceeds the monitoring threshold. If the advisor determines that a shareholder has made more than one round trip during any 90-calendar-day period, the shareholder conducting such trading will, in less serious instances, be given an initial warning to discontinue such trading. In more serious instances (generally involving larger dollar amounts), or in the case of a second violation after an initial warning has been given, the shareholder may be temporarily or permanently barred from making future purchases into the fund or, alternatively, the fund may limit the amount, number or frequency of any future purchases and/or the method by which the shareholder may request future purchases (including purchases by an exchange or transfer between the fund and any other fund). In addition to the foregoing sanctions, the fund reserves the right to reject any purchase order at any time and for any reason, without prior written notice. The fund also reserves the right to revoke the exchange privileges of any person at any time and for any reason. In making determinations concerning the rejection of purchase orders and the revocation of exchange privileges, and in considering which sanctions to impose, the fund may consider an investor's trading history in any of the First American Funds, in non-First American mutual funds, or in accounts under a person's common ownership or control.
Certain transactions are not subject to the fund's short-term trading policies. These include transactions such as systematic redemptions and purchases; retirement plan contributions, loans and distributions (including hardship withdrawals); purchase transactions involving transfers of assets, rollovers, Roth IRA conversions and IRA re-characterizations; regular portfolio re- balancings in fee-based programs of registered investment advisors, financial planners and registered broker-dealers; and similar transactions.
Omnibus Accounts. Fund shares are frequently held through omnibus account arrangements, whereby a broker-dealer, investment advisor, retirement plan sponsor or other financial intermediary maintains an omnibus account with a fund for trading on behalf of its customers. The fund seeks to apply its short-term trading policies and procedures to these omnibus account arrangements and will request that the intermediary provide individual account level detail (or participant level detail in the case of retirement plans) to the fund if more than one round trip in any 90 day period is detected at the omnibus or plan level and such round trips appear to be (a) attributable to an individual shareholder or plan participant and (b) potentially detrimental to the fund and its shareholders based on such factors as the time between transactions, the size of the transactions and the type of fund involved. If short-term trading is detected at the individual account or participant level, the fund will request that the financial intermediary take appropriate action to curtail the activity. If the financial intermediary does not take action, the fund will take such steps as are reasonably practicable to curtail the excessive trading, including terminating the relationship with the intermediary if necessary.
While the fund will request that financial intermediaries apply the fund's short-term trading policies to their customers who invest indirectly in the fund, the fund is limited in its ability to monitor the trading activity or enforce the fund's short-term trading policies with respect to customers of financial intermediaries. For example, the fund might not be able to detect any short-term trading facilitated by a financial intermediary, if this were to occur.
Telephone Transactions
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
Policies and Services
Purchasing, Redeeming, and Exchanging Shares CONTINUED
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.
Accounts with Low Balances
If your account balance falls below $500 the fund reserves the right to either:
- deduct a $50 annual account maintenance fee, or
- close your account and send you the proceeds, less any applicable contingent deferred sales charge.
Before taking any action, however, the fund will send you written notice of the action they intend to take and give you 30 days to re-establish a minimum account balance of $500.
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 liquid 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. In addition, you will bear the market risk associated with these securities until their disposition.
Policies and Services
Managing Your Investment
STAYING INFORMED
Shareholder Reports
Shareholder reports are mailed twice a year. They include financial statements and performance information, and, on an annual basis, a message from your portfolio managers and the report of independent registered public accounting firm.
In an attempt to reduce shareholder costs and help eliminate duplication, the fund will try to limit 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, but some, such as systematic purchases and dividend reinvestments are reported on your account statement. Generally, the fund does not send statements for shares held in a brokerage account or to individuals who have their shares held in an omnibus account, such as retirement plan participants. Please review your statements and confirmations as soon as you receive them and promptly report any discrepancies to your financial intermediary or to Investor Services at 800 677-FUND.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the fund's net investment income, if any, are declared and paid annually. 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, by contacting your financial intermediary, or by calling Investor Services at 800 677-FUND. If you request that your distributions be paid in cash but those distributions cannot be delivered because of an incorrect mailing address, or if a distribution check remains uncashed for six months, the undelivered or uncashed 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 SAI. 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 considered 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 short-term capital gains are taxable as ordinary income. Dividends paid from the net investment income of the fund are taxable either as ordinary income or as a "qualified dividends," which are taxable at the same rates as long-term capital gains (currently subject to a maximum rate of 15%). The fund will inform its shareholders of the portion of its dividends (if any) that constitute "qualified dividends." Distributions of the fund's long-term capital gains are taxable as long-term gains, regardless of how long you have held your shares.
Taxes on Transactions
The sale of fund shares, or the exchange of one fund's shares for shares of another 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 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 shares for another class of shares in the same fund will not be taxable.
Foreign Tax Credits
International Select Fund may be required to pay withholding and other taxes imposed by foreign countries. If the fund has more than 50% of its total assets invested in securities of foreign corporations at the end of its taxable year, it may make an election that will permit you either to claim a foreign tax credit with respect to foreign taxes paid by the fund or to deduct those amounts as an itemized deduction on your tax return. If the fund makes this election, you will be notified and provided with sufficient information to calculate the amount you may deduct as foreign taxes paid or your foreign tax credit.
Policies and Services
Managing Your Investment CONTINUED
Considerations for Retirement Plan Clients
Class R shares are offered only to tax-qualified retirement plans. Thus, Class R shareholders will not be subject to federal income tax on fund dividends or distributions or on sales or exchanges of fund shares. A plan participant whose retirement plan invests in the fund generally is not taxed on fund dividends or distributions received by the plan or on sales or exchanges of fund shares by the plan for federal income tax purposes. However, distributions to plan participants from a retirement plan generally are taxable to plan participants as ordinary income. You should consult your tax professional about federal, state and local tax considerations. More information about tax considerations that may affect the fund and its shareholders appears in the fund's SAI.
Additional Information
Management
FAF Advisors, Inc., is the fund's investment advisor. FAF Advisors provides investment management services to individuals and institutions, including corporations, foundations, pensions, and retirement plans. As of September 30, 2006, FAF Advisors and its affiliates had more than $98 billion in assets under management, including investment company assets of more than $71 billion. As investment advisor, FAF Advisors 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 management fee for providing investment advisory services equal, on an annual basis, to 1.00% of the fund's average daily net assets.
A discussion regarding the basis for the board of directors' approval of the fund's investment advisory agreement will appear in the fund's annual report to shareholders for the fiscal period ending October 31, 2007.
Direct Correspondence to:
First American Funds
P.O. Box 1330
Minneapolis, MN 55440-1330
Investment Advisor
FAF Advisors, Inc.
800 Nicollet Mall
Minneapolis, MN 55402
Sub-Advisors
Altrinsic Global Advisors, LLC
100 First Stamford Place
Stamford, CT 06902
Hansberger Global Investors, Inc.
401 East Las Olas Boulevard, Suite 1700
Fort Lauderdale, FL 33301
Lazard Asset Management LLC
30 Rockefeller Plaza
New York, NY 10112
Distributor
Quasar Distributors, LLC
615 E. Michigan Street
Milwaukee, WI 53202
ADDITIONAL COMPENSATION
FAF Advisors, U.S. Bank National Association (U.S. Bank) 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, FAF Advisors receives compensation for acting as the fund's investment advisor. FAF Advisors, U.S. Bank and their affiliates also receive compensation in connection with the following:
Administration Services. FAF Advisors and its affiliate, U.S. Bancorp Fund Services, LLC (Fund Services), act as the fund's administrator and sub-administrator, respectively, providing administration services that include general administrative and accounting services, blue sky services and shareholder services. For such services, the fund pays FAF Advisors the fund's pro rata portion of up to 0.25% of the aggregate average daily net assets of all open-end funds in the First American family of funds. FAF Advisors pays Fund Services a portion of its fee, as agreed to from time to time.
Transfer Agency Services. Fund Services provides transfer agency and dividend disbursing services, as well as certain shareholder services, to the fund. Fund Services receives fees for transfer agency and dividend disbursing services on a per shareholder account basis, subject to a minimum fee per share class. In addition, the fund may reimburse Fund Services for any out-of-pocket expenses incurred in providing transfer agency services.
Distribution Services. Quasar Distributors, LLC, an affiliate of FAF Advisors, receives distribution and shareholder servicing fees for acting as the fund's distributor.
Securities Lending Services. In connection with lending its portfolio securities, the fund pays fees to FAF Advisors which are equal to 32% of each fund's net income from these securities lending transactions. Effective January 1, 2007, FAF Advisors will receive fees of up to 25% of the fund's net income from securities lending transactions.
Other Compensation. To the extent that fund shares are held through U.S. Bank or its broker-dealer affiliate, U.S. Bancorp Investments, Inc., those entities may receive distribution and/or shareholder servicing fees from the fund's distributor as well as other payments from the fund's distributor and/or advisor as described above under "Policies and Services -- Purchasing, Redeeming, and Exchanging Shares -- Compensation Paid to Financial Intermediaries -- Additional Payments to Financial Intermediaries."
SUB-ADVISORS
A sub-advisor or sub-advisors will provide investment advisory services to the fund. The fund and its investment advisor currently have pending with the SEC an application for exemptive relief, which, if granted by the SEC, will allow the investment advisor to engage or terminate sub-advisors, and enter into and materially amend sub-advisory agreements, upon the approval of the fund's board of directors, without obtaining shareholder approval. The fund will be required to provide shareholders, in writing, with information explaining any change in a sub-advisor or material change in the terms of a sub-advisory agreement within 90 days of the change. This type
Additional Information
Management CONTINUED
of arrangement is commonly referred to as a "manager-of-managers" structure. The fund and its investment advisor intend to request that the manager-of-managers structure automatically apply to the fund and its shareholders upon the SEC's grant of exemptive relief, without shareholder approval. It is possible, however, that the SEC may require that shareholder approval be obtained prior to application of the manager-of-managers structure to the fund. Upon effectiveness of this prospectus and for an indeterminate time thereafter, the investment advisor and/or its affiliates will own a majority of shares in the fund and anticipate voting "FOR" the manager-of-managers structure if such vote is required.
The investment advisor will monitor existing sub-advisors based on their investment styles, strategies, and results in managing their portion of the fund. Each sub-advisor will have discretion to select portfolio securities for its portion of the fund, but must select those securities according to the fund's investment objective and restrictions. The sub-advisors' fees are paid by the fund's investment advisor.
The current sub-advisors for the fund are as follows.
Altrinsic Global Advisors, LLC ("Altrinsic"). Altrinsic is an employee-owned company founded in 2000. One of those employees, John Hock, has a controlling interest in Altrinsic. As of September 30, 2006, Altrinsic had assets under management of approximately $4.6 billion.
Altrinsic's investment process is based on individual security selection and an understanding of portfolio risk profiles and exposures. Altrinsic purchases two types of securities: (1) companies trading below intrinsic valuations with stable returns and (2) companies trading at steep discounts to intrinsic valuations with catalysts for an improvement in returns. Altrinsic conducts due diligence throughout an industry's "food chain" and across geographic borders, which leads to the identification of dislocations and mispriced, undervalued investments.
Hansberger Global Investors, Inc. ("HGI"). HGI is a wholly owned subsidiary of Hansberger Group, Inc. The firm was founded in 1994. As of September 30, 2006, HGI had assets under management of approximately $8.6 billion.
HGI's investment process begins with a series of quantitative screens that identify those companies with superior growth characteristics, including superior profitability, secular growth, sustainable competitive advantage, and strong capital structure. These screens are intended to identify those companies that have consistently been industry and market leaders. The result is HGI's "Star List" of companies. The Star List companies are then rated based on their relative valuation and relative price momentum. Securities are then selected from the Star List on the basis of fundamental company-by-company analysis conducted on the top 100 to 125 stocks in the Star List. This fundamental analysis is meant to identify factors overlooked in the quantitative process, including the company's product line, management, market share, product distribution and other elements that are prerequisites to the company's success and staying power within its market. HGI generally sells a security if HGI's price target is met, the company's fundamentals change, or if the portfolio is fully invested and a better investment opportunity arises.
Lazard Asset Management LLC ("Lazard"). Lazard is a wholly owned subsidiary of Lazard Freres & Co., LLC. As of September 30, 2006, Lazard had assets under management of approximately $87.7 billion.
Lazard employs a bottom-up, relative value approach in selecting stocks that includes proprietary database screening, accounting validation, fundamental analysis, and portfolio construction/risk evaluation. Lazard seeks to identify individual stocks of companies whose principal activities are located in emerging market countries that are believed to be undervalued based on their earnings, cash flow or asset values.
PORTFOLIO MANAGEMENT
Altrinsic Global Advisors, LLC. The following individuals have been primarily responsible, since the fund's inception, for the day-to-day management of the portion of the fund managed by Altrinsic: John Hock, John I. Devita and Rehan Chaudri.
- Mr. Hock is the Chief Investment Officer, a founder of the firm, and has been a portfolio manager for the firm since 2000.
- Mr. Devita has been a Principal of the firm and a portfolio manager since 2000, with primary research responsibility for the global consumer and tech/telecom industries.
- Mr. Chaudri had been a Principal of the firm and portfolio manager of the firm since July 2003, with primary research responsibility for companies in the industrials and tech/telecom sectors. He was a Senior Vice President and portfolio manager for Lazard Asset Management from May 2001 to March 2003, where he was responsible for managing international diversified and select funds.
Hansberger Global Investors, Inc. The following individuals have been primarily responsible, since the fund's inception, for the day-to-day management of the portion of the fund managed by HGI: Tom Tibbles, CFA, and Barry Lockhart, CFA.
- Mr. Tibbles is a Managing Director and Chief Investment Officer for the Growth strategy. He has worked in investment management since 1986 and has been with HGI since 1999.
- Mr. Lockhart is a Senior Vice President of Research at HGI. He has worked in investment management since 1989 and has been with HGI since 1999.
Lazard Asset Management LLC. The following individuals have been primarily responsible, since the fund's
Additional Information
Management CONTINUED
inception, for the day-to-day management of the portion of the fund managed by Lazard: James M. Donald and John R. Reinsberg.
- Mr. Donald is a Managing Director and Head of the Emerging Markets Group at Lazard. He joined Lazard in 1996 and is a CFA Charterholder. Mr. Donald has been working in the investment industry for 21 years.
- Mr. Reinsberg is a Deputy Chairman and Head of International and Global Products at Lazard. He also oversees the day-to-day operations of Lazard's international equity investment team. He joined Lazard in 1992 and has 25 years investment experience.
FAF Advisors, Inc. The fund's investment advisor allocates fund assets among the sub-advisors and manages any fund assets that have not been allocated to the sub-advisors. Allocation of the fund's assets among the sub-advisors will be made by the investment advisor's asset allocation committee, which currently consists of David Chalupnik, CFA, Keith B. Hembre, CFA, Mark Jordahl, Tony Rodriguez and John G. Wenker. Walter A. French has been primarily responsible, since the fund's inception, for the day-to-day management of fund assets that have not been allocated to a sub-advisor.
- Mr. Chalupnik is Senior Managing Director and Head of Equities. He has served as a co-manager of the fund since its inception. Prior to joining FAF Advisors in 2002, Mr. Chalupnik served as chief investment officer for Chicago-based Duff & Phelps Investment Management Company. Mr. Chalupnik entered the financial services industry in 1984.
- Mr. French is Director, Equity Risk Management and Quantitative Products. He has served as a co-manager of the fund since its inception. Mr. French joined FAF Advisors in 1999 and entered the financial services industry in 1974.
- Mr. Hembre is the Chief Economist and Head of Quantitative Analysis. He has served as co-manager of the fund since its inception. Mr. Hembre joined FAF Advisors in 1997 and entered the financial services industry in 1992.
- Mr. Jordahl is Chief Investment Officer. He has served as co-manager of the fund since its inception. Mr. Jordahl joined FAF Advisors in 2001 and entered the financial services industry in 1982.
- Mr. Rodriguez is Senior Managing Director and Head of Fixed Income. He has served as co-manager of the fund since its inception. Prior to joining FAF Advisors in 2002, Mr. Rodriguez was the director and head of global corporate bonds at Credit Suisse Asset Management in New York. He entered the financial services industry in 1984.
- Mr. Wenker is the Head of Real Estate. He joined FAF Advisors in 1992 and entered the financial services industry in 1983.
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. This section provides information about some additional non-principal strategies that the fund's investment advisor may use 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.
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. Being invested in these securities may keep the fund from participating in a market upswing and 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. The portfolio turnover rate for the fund may be higher than the rates of other similar funds that have a single investment advisor or sub-advisor.
DISCLOSURE OF PORTFOLIO HOLDINGS
A description of the fund's policies and procedures with respect to the disclosure of the fund's portfolio securities is available in the fund's SAI.
(FIRST AMERICAN FUNDS LOGO)
FOR MORE INFORMATION
More information about the fund is available on the fund's Internet site at www.firstamericanfunds.com and in the following documents:
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.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more details about the fund and its policies and is incorporated into this prospectus by reference (which means that it is legally part of this prospectus).
You can obtain a free copy of the fund's most recent annual or semiannual reports or the SAI, request other information about the fund, or make other shareholder inquiries by calling Investor Services at 800 677-3863 (FUND) or by contacting the fund at the address below. Annual or semiannual reports and the SAI are also available on the fund's Internet site.
Information about the fund (including the SAI) can also be reviewed and copied at the Securities and Exchange Commission's (SEC) Public Reference Room in Washington, DC. To find out more about this public service, call the SEC at 1-202-942-8090. Reports and other information about the fund are also available on the EDGAR database on the SEC's Internet site at www.sec.gov, or you can receive copies of this information, for a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, DC 20549-0102.
FIRST AMERICAN FUNDS
P.O. Box 1330
Minneapolis, MN 55440-1330
FIRST AMERICAN INVESTMENT FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 21, 2006
INTERNATIONAL SELECT FUND
This Statement of Additional Information relates to the Class A, Class B, Class C, Class R and Class Y Shares of International Select 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 current Prospectus dated December 21, 2006. This Statement of Additional Information is incorporated into the Fund's Prospectus by reference. To obtain copies of the Prospectus 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
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GENERAL INFORMATION................................................ 1
ADDITIONAL INFORMATION CONCERNING FUND INVESTMENTS................. 2
Short-Term Temporary Investments................................ 2
U.S. Government Securities...................................... 3
Repurchase Agreements........................................... 3
When-Issued and Delayed Delivery Transactions................... 4
Lending of Portfolio Securities................................. 4
Options Transactions............................................ 5
Futures and Options on Futures.................................. 7
CFTC Information................................................ 8
Fixed Income Securities......................................... 8
Foreign Securities.............................................. 9
Foreign Currency Transactions................................... 10
Corporate Debt Securities....................................... 12
Debt Obligations Rated Less than Investment Grade............... 12
Fixed and Floating Rate Debt Obligations........................ 12
Preferred Stock; Convertible Securities......................... 13
Exchange Traded Funds........................................... 13
INVESTMENT RESTRICTIONS............................................ 13
DISCLOSURE OF PORTFOLIO HOLDINGS................................... 15
Public Disclosure............................................... 15
Nonpublic Disclosure............................................ 15
DIRECTORS AND EXECUTIVE OFFICERS................................... 17
Independent Directors........................................... 17
Executive Officers.............................................. 19
Standing Committees of the Board of Directors................... 20
Fund Shares Owned by the Directors.............................. 22
Compensation.................................................... 22
Sales Loads..................................................... 24
CODE OF ETHICS..................................................... 24
PROXY VOTING POLICIES.............................................. 24
INVESTMENT ADVISORY AND OTHER SERVICES FOR THE FUND................ 24
Investment Advisor.............................................. 24
Sub-Advisors.................................................... 25
Additional Payments to Financial Institutions................... 26
Administrator................................................... 29
Transfer Agent.................................................. 29
Distributor..................................................... 29
Custodians and Independent Registered Public Accounting
Firm............................................................ 30
PORTFOLIO MANAGERS................................................. 31
Other Accounts Managed.......................................... 31
Portfolio Manager Compensation.................................. 33
Ownership of Fund Shares........................................ 35
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PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE................. 35 CAPITAL STOCK...................................................... 36 NET ASSET VALUE AND PUBLIC OFFERING PRICE.......................... 37 TAXATION........................................................... 37 REDUCING SALES CHARGES............................................. 38 Class A Sales Charge............................................ 38 Sales of Class A Shares at Net Asset Value...................... 39 Reinvestment Right.............................................. 39 ADDITIONAL INFORMATION ABOUT PURCHASING CLASS Y SHARES............. 39 ADDITIONAL INFORMATION ABOUT REDEEMING SHARES...................... 39 By Telephone.................................................... 39 By Mail......................................................... 40 Redemptions Before Purchase Instruments Clear................... 41 RATINGS............................................................ Appendix A PROXY VOTING POLICIES AND PROCEDURES............................... Appendix B |
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 shares in 39 series. Each series of shares represents a separate investment portfolio with its own investment objectives and policies (in essence, a separate mutual fund) (collectively, the "Funds" or "FAIF Funds"). This Statement of Additional Information relates to the series of FAIF known as the International Select Fund (the "Fund"). The Fund is an open-end diversified investment company.
Shareholders may purchase shares of the Fund through five separate classes, Class A, Class B, 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 (the "1940 Act"), the Fund may also provide for variations in other costs among the classes. In addition, a sales load is imposed on the sale of Class A, Class B and Class C Shares of the Fund. Except for the foregoing differences among the classes pertaining to costs and 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 investment advisory contracts and amendments thereto, and for 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"); 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").
ADDITIONAL INFORMATION CONCERNING FUND INVESTMENTS
The principal investment strategies of the Fund are set forth in the Fund's Prospectus. Additional information concerning principal investment strategies of the Fund, and other investment strategies that may be used by the Fund, is set forth below. The Fund has attempted to identify investment strategies that will be employed in pursuing the Fund's 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 the Fund's 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 SAI or the Prospectus 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 limitations on borrowing. To the extent the Fund is limited to investing in securities with specified ratings or of a certain credit quality, the Fund 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. However, in no event will more than 5% of the Fund's net assets be invested in non-investment grade securities. Descriptions of the rating categories of Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. ("Standard & Poor's"), Fitch, Inc. ("Fitch") and Moody's Investors Service, Inc. ("Moody's) are contained in Appendix A.
References in this section to the Advisor also apply, to the extent applicable, to any sub-advisor to the Fund ("Sub-Advisor" or, collectively, the "Sub-Advisors").
SHORT-TERM TEMPORARY INVESTMENTS
In an attempt to respond to adverse market, economic, political or other conditions, the Fund may temporarily invest without limit 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 FAF Advisors, Inc., the Fund's investment advisor (formerly known as U.S. Bancorp Asset Management, Inc.) ("FAF Advisors" or the "Advisor"), subject to certain restrictions contained in an exemptive order issued by the 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 SEC 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. Subject to the limitations described in the Prospectus, 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, Fitch 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, Fitch and Moody's, see Appendix A.
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.
U.S. GOVERNMENT SECURITIES
The Fund may invest in U.S. government securities as a non-principal investment strategy. 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 invests principally are:
- direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes, and bonds;
- 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;
- notes, bonds, and discount notes of U.S. government agencies or instrumentalities which receive or have access to federal funding; and
- notes, bonds, and discount notes of other U.S. government instrumentalities supported only by the credit of the instrumentalities.
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.
REPURCHASE AGREEMENTS
The Fund invests in repurchase agreements as a non-principal investment strategy. Ordinarily, the Fund does not expect its investments in repurchase agreements to exceed 10% of its total assets. However, because the Fund may invest without limit in cash and short-term securities for temporary defensive purposes, there is no limit on the Fund's ability to 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 purchasing fund will seek to sell the collateral, which could involve costs or delays. Although collateral (which may consist of any fixed income security which is an eligible investment for the fund) will at all times be maintained in an amount equal to the repurchase price under the agreement (including accrued interest), the Fund would suffer a loss if the proceeds from the sale of the collateral were less than the agreed-upon repurchase price. The 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 as a non-principal investment strategy. When such a transaction is negotiated, the purchase price is fixed at the time the purchase commitment is entered, but delivery of and payment for the securities take place at a later date. The Fund will not accrue income with respect to securities purchased on a when-issued or delayed delivery basis prior to their stated delivery date. Pending delivery of the securities, the Fund will segregate cash or liquid 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.
When the Fund agrees to purchase securities on a when-issued or delayed delivery basis, the Fund 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, 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 ever 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.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, as a non-principal investment strategy 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 domestic loan arrangements with broker-dealers, banks, or other institutions which the Advisor has determined are creditworthy under guidelines established by the Fund's 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.
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 or the Fund's lending agent 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."
The Advisor acts as securities lending agent for the Fund and receives 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 32% of the Fund's income from
securities lending transactions. Effective January 1, 2007, the Advisor will receive fees of up to 25% of the Fund's income from securities lending transactions.
OPTIONS TRANSACTIONS
To the extent set forth below, the Fund may purchase put and call options on securities, stock indices, interest rate indices, commodity indices, and/or foreign currencies. These transactions will be undertaken for the purpose of reducing risk to the Fund; that is, 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 and Options on Futures."
Options on Securities. As a principal investment strategy, the Fund may purchase put and call options on securities it owns or has the right to acquire. 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.
Options on Stock Indices. As a principal investment strategy, the Fund may purchase put and call options on stock 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. Gain or loss depends on market movements with respect to specific financial instruments. 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 Call Options. As a principal investment strategy, the Fund may write (sell) covered call options covering up to 50% of the equity securities owned by the Fund. These transactions would be undertaken principally to produce additional income.
Covered Options. The Fund will write 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 segregates 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. 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 realize 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 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.
FUTURES AND OPTIONS ON FUTURES
The Fund may engage in futures transactions and options on futures as a principal investment strategy, including stock index futures contracts and options thereon. The Fund may also enter into foreign currency futures transactions, which are discussed in more detail below under "--Foreign Currency Transactions."
A futures contract is an agreement between two parties to buy and sell a security 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. An option on a futures contract gives the holder of the option the right to buy or sell a position in a futures contract to the writer of the option, at a specified price and on or before a specified expiration date.
A 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, 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. 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.
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. 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 the Fund may have to segregate additional liquid assets in accordance with applicable SEC requirements.
Although some futures contracts call for making or taking delivery of the underlying currency or security, generally these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (same exchange, underlying currency, security, 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 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.
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.
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. Futures transactions will be limited to the extent necessary to maintain the Fund's qualification as a 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.
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, are not subject to registration or regulation as a CPO under the CEA.
FIXED INCOME SECURITIES
The fixed income securities in which the Fund may invest include securities issued or guaranteed by the United States Government or its agencies or instrumentalities, nonconvertible preferred stocks, nonconvertible corporate debt securities, and short-term obligations of the kinds described above under "Short-Term Investments." The Fund may invest in these securities as a non-principal investment strategy. Investments in nonconvertible preferred stocks and nonconvertible corporate debt securities will be limited to investment-grade securities, defined as securities which are rated at the time of purchase by two of Moody's, Standard & Poor's and Fitch not less than Baa3, BBB- and BBB- (or the equivalent short-term ratings), respectively, unless only one of those rating agencies provides a rating, in which case that rating must be at least Baa3 or BBB-, or which are of comparable quality in the judgment of the Advisor.
Obligations rated BBB, Baa3 or their equivalent have speculative characteristics and carry a somewhat higher risk of default than higher rated obligations.
In addition, the Fund may invest up to 5% of its net assets, in less than investment grade convertible debt obligations. For a description of such obligations and the risks associated therewith, see "-- Debt Obligations Rated Less Than Investment Grade."
The fixed income securities specified above are subject to (i) interest rate risk (the risk that increases in market interest rates will cause declines in the value of debt securities held by the Fund); (ii) credit risk (the risk that the issuers of debt securities held by the Fund default in making required payments); and (iii) call or prepayment risk (the risk that a borrower may exercise the right to prepay a debt obligation before its stated maturity, requiring the Fund to reinvest the prepayment at a lower interest rate).
FOREIGN SECURITIES
General. The Fund invests in foreign securities as a principal investment strategy. Under normal market conditions, the Fund invests principally in foreign securities and securities of foreign issuers which are either listed on a United States securities exchange or represented by American Depositary Receipts.
Investment in foreign securities is subject to special investment risks that differ in some respects from those related to investments in securities of United States domestic issuers. These risks include political, social or economic instability in the country of the issuer, the difficulty of predicting international trade patterns, the possibility of the imposition of exchange controls, expropriation, limits on removal of currency or other assets, nationalization of assets, foreign withholding and income taxation, and foreign trading practices (including higher trading commissions, custodial charges and delayed settlements). Foreign securities also may be subject to greater fluctuations in price than securities issued by United States corporations. The principal markets on which these securities trade may have less volume and liquidity, and may be more volatile, than securities markets in the United States.
In addition, there may be less publicly available information about a foreign company than about a United States domiciled company. Foreign companies generally are not subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to United States domestic companies. There is also generally less government regulation of securities exchanges, brokers and listed companies abroad than in the United States. Confiscatory taxation or diplomatic developments could also affect investment in those countries. In addition, foreign branches of United States banks, foreign banks and foreign issuers may be subject to less stringent reserve requirements and to different accounting, auditing, reporting, and record keeping standards than those applicable to domestic branches of United States banks and United States domestic issuers.
Emerging Markets. The Fund may invest in securities issued by the governmental and corporate issuers that are located in emerging market countries as a principal investment strategy. 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 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.
American Depositary Receipts and European Depositary Receipts. United States dollar-denominated American Depositary Receipts, which are traded in the United States on exchanges or over-the-counter, are issued by domestic banks. American Depositary Receipts represent the right to receive securities of foreign issuers deposited in a domestic bank or a correspondent bank. American Depositary Receipts do not eliminate all the risk inherent in investing in the securities of foreign issuers. However, by investing in American Depositary Receipts rather than directly in foreign issuers' stock, the Fund can avoid currency risks during the settlement period for either purchases or sales. In general, there is a large, liquid market in the United States for many American Depositary Receipts. The information available for American Depositary Receipts is subject to the accounting, auditing and financial reporting standards of the domestic market or exchange on which they are traded, which standards are more uniform and more exacting than those to which many foreign issuers may be subject. The Fund also may invest in European Depositary Receipts, which are receipts evidencing an arrangement with a European bank similar to that for American Depositary Receipts and which are designed for use in the European securities markets. European Depositary Receipts are not necessarily denominated in the currency of the underlying security.
Certain American Depositary Receipts and European Depositary Receipts, typically those denominated as unsponsored, require the holders thereof to bear most of the costs of the facilities while issuers of sponsored facilities normally pay more of the costs thereof. The depository of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited securities or to pass through the voting rights to facility holders in respect to the deposited securities, whereas the depository of a sponsored facility typically distributes shareholder communications and passes through voting rights.
Foreign 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 may invest 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 therefore may enter into foreign currency transactions as a principal investment strategy.
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. The Fund 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.
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 or a Sub-Advisor's decision whether to enter into currency hedging transactions will depend in part on its view regarding the direction and amount in which exchange rates are likely to move. The forecasting of movements in exchange rates is extremely difficult, so that it is highly uncertain whether a hedging strategy, if undertaken, would be successful. To the extent that the Advisor's or a Sub-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 positions requiring it to segregate assets to cover its commitments with respect to such contracts. 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.
CORPORATE DEBT SECURITIES
The Fund may invest in corporate debt securities as a non-principal investment strategy. Corporate debt securities are fully taxable debt obligations issued by corporations. These securities fund capital improvements, expansions, debt refinancing or acquisitions that require more capital than would ordinarily be available from a single lender. Investors in corporate debt securities lend money to the issuing corporation in exchange for interest payments and repayment of the principal at a set maturity date. Rates on corporate debt securities are set according to prevailing interest rates at the time of the issue, the credit rating of the issuer, the length of the maturity and other terms of the security, such as a call feature. Corporate debt securities are subject to the risk of an issuer's inability to meet principal and interest payments on the obligations and may also be subject to price volatility due to such factors as market interest rates, market perception of the creditworthiness of the issuer and general market liquidity. In addition, corporate restructurings, such as mergers, leveraged buyouts, takeovers or similar corporate transactions are often financed by an increase in a corporate issuer's debt securities. As a result of the added debt burden, the credit quality and market value of an issuer's existing debt securities may decline significantly.
DEBT OBLIGATIONS RATED LESS THAN INVESTMENT GRADE
The Fund may invest in both investment grade and non-investment grade debt obligations. Debt obligations rated less than "investment grade" are sometimes referred to as "high yield securities" or "junk bonds." To be consistent with the ratings methodology used by Lehman Brothers, a debt obligation is considered to be rated "investment grade" if two of Moody's, Standard & Poor's and Fitch rate the security investment-grade (i.e. at least Baa3, BBB- and BBB-, respectively). If ratings are provided by only two of those rating agencies, the more conservative rating is used to determine whether the security is investment-grade. If only one of those rating agencies provides a rating, that rating is used. The Fund may invest in non-investment grade debt obligations rated at least B- by two of Standard & Poor's, Moody's and Fitch, unless only one of those rating agencies rates the security, in which case that rating must be at least B-, or in unrated securities determined to be of comparable quality by the Advisor.
The "equity securities" in which the Fund may invest include corporate debt obligations which are convertible into common stock. These convertible debt obligations may include non-investment grade obligations.
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 or Sub-Advisor's own credit analysis than is the case with investment grade obligations.
FIXED AND FLOATING RATE DEBT OBLIGATIONS
The debt obligations in which the Fund invests as a non-principal investment strategy may have either fixed or floating rates. 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
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 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.
PREFERRED STOCK; CONVERTIBLE SECURITIES
The Fund may invest in preferred stock as a non-principal investment strategy. 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.
EXCHANGE TRADED FUNDS
The Fund may invest in exchange traded funds ("ETFs") as a principal investment strategy. These are a type of index fund bought and sold on a securities exchange. An ETF trades like common stock and represents a fixed portfolio of securities designed to track a particular market index. The Fund could purchase an ETF to temporarily gain exposure to a portion of the U.S. or a foreign market while awaiting purchase of underlying securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities they are designed to track, although lack of liquidity in an ETF could result in it being more volatile and ETFs have management fees that increase their costs.
INVESTMENT RESTRICTIONS
In addition to the investment objectives and policies set forth in the Prospectus 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 8 below are fundamental and cannot be changed with respect to the Fund without approval by the holders of a majority of the outstanding shares of the Fund as defined in the 1940 Act, i.e., by the lesser of the vote of (a) 67% of the shares of the Fund present at a meeting where more than 50% of the outstanding shares are present in person or by proxy, or (b) more than 50% of the outstanding shares of the Fund.
The Fund will not:
1. 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. With respect to 75% of its total assets, purchase securities of an issuer (other than (i) securities issued by other investment companies, (ii) securities issued by the U.S. Government, its agencies, instrumentalities or authorities, or (iii) repurchase agreements fully collateralized by U.S. Government securities) if (a) such purchase would, at the time, cause more than 5% of the Fund's total assets taken at market value to be invested in the securities of such issuer; or (b) such purchase would, at the time, result in more than 10% of the outstanding voting securities of such issuer being held by the Fund.
4. Invest in companies for the primary purpose of control or management.
5. Purchase physical commodities or contracts relating to physical commodities.
6. 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.
7. 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.
8. 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 SEC, 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. The Fund will use industry classifications provided by Bloomberg and Lehman Brothers to determine its compliance with this limitation.
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 8 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
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 the Fund'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 borrowing 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.
5. Pledge any assets, except in connection with any permitted borrowing and then in amounts not in excess of one-third of the Fund's total assets, provided that for the purposes of this restriction, margin deposits, security interests, liens and collateral arrangements with respect to options, futures contracts, options on futures contracts, and other permitted investments and techniques are not deemed to be a pledge of assets for purposes of this limitation.
6. Acquire any securities of registered open-end investment companies or registered unit investment trusts in reliance on subparagraph (F) or subparagraph (G) of Section 12(d)(1) of the 1940 Act.
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.
For determining compliance with its investment restriction relating to
industry concentration, the Fund classifies asset-backed securities in its
portfolio in separate industries based upon a combination of the industry of the
issuer or sponsor and the type of collateral. The industry of the issuer or
sponsor and the type of collateral will be determined by the Advisor. For
example, an asset-backed security known as "Money Store 94-D A2" would be
classified as follows: the issuer or sponsor of the security is The Money Store,
a personal finance company, and the collateral underlying the security is
automobile receivables. Therefore, the industry classification would be Personal
Finance Companies -- Automobile. Similarly, an asset-backed security known as
"Midlantic Automobile Grantor Trust 1992-1 B" would be classified as follows:
the issuer or sponsor of the security is Midlantic National Bank, a banking
organization, and the collateral underlying the security is automobile
receivables. Therefore, the industry classification would be Banks --
Automobile. Thus, an issuer or sponsor may be included in more than one
"industry" classification, as may a particular type of collateral.
DISCLOSURE OF PORTFOLIO HOLDINGS
PUBLIC DISCLOSURE
Each Fund is required by the SEC to file its portfolio holdings schedule with the SEC on a quarterly basis. This schedule is filed with each fund's annual and semi-annual reports on form N-CSR for the second and fourth fiscal quarters and on Form N-Q for the first and third fiscal quarters. These filings are generally available within sixty days of the end of the relevant Fund's fiscal quarter. In addition, the First American Fund Family makes portfolio holdings information publicly available for all First American Funds other than Equity Index Fund, Mid Cap Index Fund and Small Cap Index Fund (the "Index Funds," series of FAIF), the series of FAF (the "Money Market Funds"), which are money market funds, and the series of the Mount Vernon Trust by posting the information on the First American Funds website on a quarterly basis. The Funds will attempt to post such information within ten days of the quarter end. Until such time as it is posted, it will be Undisclosed Holdings Information, as defined below, and subject to the Funds' procedures regarding the disclosure of Undisclosed Holdings Information.
NONPUBLIC DISCLOSURE
The Funds' board of directors has adopted policies and procedures (the "Disclosure Policies"), which prohibit the release of information concerning portfolio holdings, or information derived therefrom ("Undisclosed Holdings Information"), that has not been made public through SEC filings or the website. Different exceptions to this prohibition are made depending on the type of third party that receives the Undisclosed Holdings Information. The Disclosure Policies are designed to prevent the use of portfolio holdings information to trade against the Funds, or otherwise use the information in a way that would harm the Funds, and to prevent selected investors from having nonpublic information that will allow them to make advantageous decisions with respect to purchasing and selling Fund shares.
Because the portfolios of the Index Funds generally mirror the composition of published indices, the Index Funds are not subject to the Disclosure Policies. In addition, the Money Market Funds are not subject to the Disclosure Policies because these Funds hold only short-term money market securities that generally do not vary significantly in value over short periods of time. The Mount Vernon Trust is not subject to the Disclosure Policies because the series of the trust are not available to the general public, but are only offered in connection with the investment of collateral received in connection with securities lending. Because of the types of securities held by, or the limited purpose of, the foregoing Funds, such Funds' portfolio holdings information would not be subject to the types of misuses that the Disclosure Policies are designed to prevent.
Disclosure within FAF Advisors and Its Affiliates and to Fund Directors. Undisclosed Holdings Information and information derived therefrom may be provided (a) without prior approval, to individuals who are employed by FAF Advisors and who have a need to know the information, such as investment, compliance and treasury personnel, and (b) to individuals employed by affiliates of FAF Advisors who are not otherwise entitled to receive such information under "Disclosure to Fund Service Providers and Prospective Service Providers," below, if (1) such individuals are subject to FAF Advisors Code of Ethics, or that of an affiliate; (2) the fund to which such information relates is subject to FAF Advisors' market timing review; and (3) FAF Advisors' Internal Compliance Controls Committee has determined that improper use of such information by such individuals is not likely to affect the funds in any material respect based on factors such as the types of funds to which the Undisclosed Holdings Information relate, the flows of investment into such funds, and reports of portfolio managers regarding the stability of assets in such funds.
Undisclosed Holdings Information and information derived therefrom also may be provided to directors of the First American Funds and their service providers, such as counsel, as part of the materials for regular or special board of directors meetings without prior approval.
Disclosure to Fund Service Providers and Prospective Service Providers. Undisclosed Holdings Information and information derived therefrom may be provided to organizations that provide or propose to provide services to the First American Funds, such as sub-advisors, custodians, administrators, transfer agents, securities lending agents, outside accountants, outside counsel, entities that provide Class B share financing, proxy voting organizations, financial printers, pricing services and the like, provided that such organization has entered into a written agreement with the Funds to maintain the information in confidence, to use the information only for the purpose for which it is provided, and not to trade on the basis of any such information that is material nonpublic information.
Disclosure to Fund Ranking and Ratings Organizations. Undisclosed Holdings Information and information derived therefrom may be provided to organizations that provide mutual fund rankings and ratings, such as Morningstar, Lipper, Moody's, and Standard & Poor's, and to entities that provide investment coverage and/or analytical information regarding a Fund's portfolio, provided that the recipient has entered into a written agreement with the Fund to maintain the information in confidence, to use the information only for the purpose for which it is provided, and not to trade on the basis of any such information that is material nonpublic information.
Disclosure to Investors, Prospective Investors, and Investor Consultants. Undisclosed Holdings Information and information derived therefrom may not be provided to investors, prospective investors, or investor consultants without the prior approval of the Funds' Chief Compliance Officer in the specific instance. The Chief Compliance Officer will only approve such disclosure after concluding that it is in the best interests of the Fund in question and its shareholders and if the recipient has agreed in writing to maintain the information in confidence and not to trade on the basis of any such information that is material nonpublic information. In considering a request for such approval, the Chief Compliance Officer also shall identify and consider any conflict of interest between the Fund and its shareholders, on the one hand, and the Advisor and its affiliates, on the other, which is presented by the request. If the Chief Compliance Officer determines that there is a conflict of interest between the Fund and its shareholders on the one hand and the Advisor and its affiliates, on the other, he or she will approve such disclosure only if he or she determines that such conflict is materially mitigated by the execution of a confidentiality agreement and that, despite such conflict of interest, disclosure is in the best interests of the relevant Fund and its shareholders. The Funds' Chief Compliance Officer is responsible for the creation of a written record that states the basis for the conclusion that the disclosure is in the best interests of the relevant Fund and its shareholders.
Disclosure as Required by Applicable Law. Undisclosed Holdings Information and information derived therefrom may be disclosed to any person as required by applicable laws, rules and regulations. For example, such information may be disclosed in response to regulatory requests for information or in response to legal process in litigation matters.
Disclosure of Limited Holdings. Portfolio managers, analysts and other personnel of the Advisor and any sub-advisor may discuss portfolio information in interviews with members of the media, or in due diligence or similar meetings with clients or prospective purchasers of Fund shares or their representatives. In no case will a material number of portfolio holdings be provided that have not yet been posted on the First American Funds website or filed with the SEC unless the recipient has entered into a written agreement with the Funds to maintain the confidentiality of such information and not to trade on the basis of any such information that is material nonpublic information. In addition, brokers and dealers may be provided with individual portfolio holdings in order to obtain bids or bid and asked
prices (if securities held by a Fund are not priced by the Fund's regular pricing services) or in connection with portfolio transactions.
No Compensation or Consideration. Neither the Funds, nor the Advisor or any sub-advisor or any affiliate of either, including the Chief Compliance Officer or his or her designee, will solicit or accept any compensation or other consideration in connection with the disclosure of Undisclosed Holdings Information or information derived therefrom.
Chief Compliance Officer Reports to Fund Board. The Funds' Chief Compliance Officer must provide a quarterly report to the Funds' board of directors addressing exceptions to these policies and procedures during the preceding quarter, if any.
Detective and Corrective Action. Any unauthorized release of Undisclosed Holdings Information which comes to the attention of an employee of the Advisor shall be reported to the Chief Compliance Officer. The Chief Compliance Officer shall recommend an appropriate sanction to be imposed by the individual's supervisor if the individual releasing such information is an employee of the Advisor or other appropriate action if the individual is not an employee of the Advisor.
Designee of Chief Compliance Officer. In the event of the absence or unavailability of the Chief Compliance Officer, all of the obligations of the Chief Compliance Officer may be performed by his or her designee.
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. Each of the Directors in an independent director.
INDEPENDENT DIRECTORS
OTHER
POSITION(S) NUMBER OF PORTFOLIOS DIRECTORSHIPS
NAME, ADDRESS, HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION(S) IN FUND COMPLEX HELD BY
AND YEAR OF BIRTH WITH FUND LENGTH OF TIME SERVED DURING PAST 5 YEARS OVERSEEN BY DIRECTOR DIRECTOR*
---------------------- ----------- ---------------------- -------------------------- -------------------- -------------
Benjamin R. Field III, Director Term expiring earlier Retired; Senior Financial First American Funds None
P.O. Box 1329, of death, resignation, Advisor, Bemis Company, Complex: twelve
Minneapolis, Minnesota removal, Inc. from May 2002 to registered
55440-1329 disqualification, or March 2004; Senior Vice investment
(1938) successor duly elected President, Chief companies, including
and qualified. Financial Officer and 59 portfolios
Director of FAIF since Treasurer, Bemis Company,
September 2003 through April 2002
Roger A. Gibson, Director Term expiring earlier Director, Charterhouse First American Funds None
P.O. Box 1329, of death, resignation, Group, Inc., a private Complex: twelve
Minneapolis, MN removal, equity firm, since registered
55440-1329 disqualification, or October 2005; Vice investment
(1946) successor duly elected President and Chief companies, including
and qualified. Operating Officer, Cargo 59 portfolios
Director of FAIF since - United Airlines, from
October 1997. July 2001 through
retirement in June 2004;
Vice President, North
America-Mountain Region
for United Airlines prior
to July 2001
Victoria J. Herget, Director Term expiring earlier Investment consultant and First American Funds None
P.O. Box 1329, of death, resignation, non-profit board member Complex: twelve
Minneapolis, Minnesota removal, since 2001; Managing registered
55440-1329 disqualification, or Director of Zurich investment
(1951) successor duly elected Scudder Investments companies, including
and qualified. through 2001 59 portfolios
Director of FAIF since
September 2003
John P. Kayser Director Term expiring earlier Retired; Principal First American Funds None
P.O. Box 1329, of death, resignation, (1983-2004) and Chief Complex: twelve
Minneapolis, MN removal, Financial Officer and registered
55440-1329 disqualification, or Chief Administrative investment
(1949) successor duly elected Officer (1988-2002), companies, including
and qualified. William Blair & Company, 59 portfolios
Director of FAIF since LLC.
October 2006
|
OTHER
POSITION(S) NUMBER OF PORTFOLIOS DIRECTORSHIPS
NAME, ADDRESS, HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION(S) IN FUND COMPLEX HELD BY
AND YEAR OF BIRTH WITH FUND LENGTH OF TIME SERVED DURING PAST 5 YEARS OVERSEEN BY DIRECTOR DIRECTOR*
---------------------- ----------- ---------------------- -------------------------- -------------------- -------------
Leonard W. Kedrowski, Director Term expiring earlier Owner, Executive and First American Funds None
P.O. Box 1329, of death, resignation, Management Consulting, Complex: twelve
Minneapolis, Minnesota removal, Inc., a management registered
55440-1329 disqualification, or consulting firm; Board investment
(1941) successor duly elected member, GC McGuiggan companies, including
and qualified. Corporation (dba Smyth 59 portfolios
Director of FAIF since Companies), a label
November 1993 printer; former Chief
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. Riederer, Director Term expiring earlier Owner and CEO, RKR First American Funds Cleveland-
P.O. Box 1329, of death, resignation, Consultants, Inc. and Complex: twelve Cliffs Inc.
Minneapolis, Minnesota removal, non-profit board member registered (a producer
55440-1329 disqualification, or since 2005; Director, investment of iron ore
(1944) successor duly elected President and Chief companies, including pellets)
and qualified. Executive Officer, 59 portfolios
Director of FAIF since Weirton Steel Corporation
August 2001 through retirement in 2001
Joseph D. Strauss, Director Term expiring earlier Attorney At Law, Owner First American Funds None
P.O. Box 1329, of death, resignation, and President, Strauss Complex: twelve
Minneapolis, Minnesota removal, Management Company, a registered
55440-1329 disqualification, or Minnesota holding company investment
(1940) successor duly elected for various companies, including
and qualified. organizational management 59 portfolios
Director of FAIF since business ventures; Owner,
September 1991 Chairman and Chief
Executive Officer,
Community Resource
Partnerships, Inc., a
strategic planning,
operations management,
government relations,
transportation planning
and public relations
organization; Owner,
Chairman and Chief
Executive Officer,
Excensus(TM) LLC, a
strategic demographic
planning and application
development firm, since
2001
Virginia L. Stringer, Chair; Chair term three Governance consultant and First American Funds None
P.O. Box 1329, Director years. Director term non-profit board member; Complex: twelve
Minneapolis, Minnesota expiring earlier of Owner and President, registered
55440-1329 death, resignation, Strategic Management investment
(1944) removal, Resources, Inc., a companies, including
disqualification, or management consulting 59 portfolios
successor duly elected firm; Executive
and qualified. Chair Consultant for State Farm
of FAIF's Board since Insurance Company through
September 1997; 2003
Director of FAIF since
September 1987
James M. Wade, Director Term expiring earlier Owner and President, Jim First American Funds None
P.O. Box 1329, of death, resignation, Wade Homes, a Complex: twelve
Minneapolis, Minnesota removal, homebuilding company, registered
55440-1329 disqualification, or since 1999 investment
(1943) successor duly elected companies, including
and qualified. 59 portfolios
Director of FAIF since
August 2001
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EXECUTIVE OFFICERS
TERM OF OFFICE
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF
YEAR OF BIRTH WITH FUND TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
------------------------ ------------------- -------------------- --------------------------------------------------------------
Thomas S. Schreier, Jr., President Re-elected by the Chief Executive Officer of FAF Advisors, Inc.
FAF Advisors, Inc., Board annually;
800 Nicollet Mall, President of FAIF
Minneapolis, Minnesota since February 2001
55402 (1962) *
Mark S. Jordahl, Vice President - Re-elected by the Chief Investment Officer of FAF Advisors, Inc.
FAF Advisors, Inc. Investments Board annually;
800 Nicollet Mall, Vice President -
Minneapolis, Minnesota Investments of FAIF
55402 (1960) * since September 2001
Jeffery M. Wilson, Vice President - Re-elected by the Senior Vice President of FAF Advisors, Inc.
FAF Advisors, Inc. Administration Board annually;
800 Nicollet Mall, Vice President -
Minneapolis, Minnesota Administration of
55402 (1956) * FAIF since March
2000
Charles D. Gariboldi, Jr. Treasurer Re-elected by the Mutual Funds Treasurer, FAF Advisors, Inc., since October
FAF Advisors, Inc. Board annually; 2004; prior thereto, Vice President for investment accounting
800 Nicollet Mall, Treasurer of FAIF and fund treasurer of Thrivent Financial for Lutherans
Minneapolis, Minnesota Since December 2004
55402 (1959) *
Jill M. Stevenson, Assistant Treasurer Re-elected by the Assistant Treasurer, FAF Advisors, Inc. since September 2005;
U.S. Bancorp Asset Board annually; Director, Senior Project Manager, FAF Advisors, Inc. from May
Management, Inc. Assistant Treasurer 2003 to September 2005; prior thereto, Vice President,
800 Nicollet Mall, of FAIF since Director of Operations, Paladin Investment Associates, LLC
Minneapolis, Minnesota September 2005
55402 (1965)*
David H. Lui, Chief Compliance Re-elected by the Chief Compliance Officer of FAF Advisors, Inc. since March
U.S. Bancorp Asset Officer Board annually; 2005; Chief Compliance Officer, Franklin Advisors, Inc. and
Management, Inc. Chief Compliance Chief Compliance Counsel, Franklin Templeton Investments from
800 Nicollet Mall, Officer of FAIF March 2004 to March 2005; prior thereto, Vice President,
Minneapolis, Minnesota since Charles Schwab & Co., Inc.
55402 (1960) * March 2005
Jason Mitchell Anti-Money Re-elected by the Anti-Money Laundering Officer for First American Funds and the
FAF Advisors, Inc. Laundering Board annually; Adviser since September 2006. Compliance Manager for the
800 Nicollet Mall Officer Anti-Money Adviser since June 2006. Prior thereto, Compliance Analyst for
Minneapolis, Minnesota Laundering Officer the Adviser from October 2004 through June 2006. Prior to
55402 (1976) * of FAIF since that, Senior Systems Helpdesk Analyst for Wachovia Retirement
September 2006 Services from November 2002 through October 2004. Prior to
that, Senior Retirement Plan Specialist for PFPC, Inc.
Kathleen L. Prudhomme, Secretary Re-elected by the Deputy General Counsel, FAF Advisors, Inc., since November
FAF Advisors, Inc. Board annually; 2004; prior thereto, Partner, Dorsey & Whitney LLP, a
800 Nicollet Mall, Secretary of FAIF Minneapolis- based law firm
Minneapolis, Minnesota since December
55402 (1953) * 2004; Assistant
Secretary of FAIF
from September 1998
through December
2004
Brett L. Agnew, Assistant Secretary Re-elected by the Attorney, FAF Advisors, Inc., since August 2004; Senior
FAF Advisors, Inc. Board annually; Counsel, Thrivent Financial for Lutherans from 2001 to August
800 Nicollet Mall Assistant Secretary 2004; prior thereto, consultant, Principal Financial Group
Minneapolis, Minnesota of FAIF since
55402 (1971)* December 2004
James D. Alt, Assistant Secretary Re-elected by the Partner, Dorsey & Whitney LLP, a Minneapolis-based law firm
50 South Sixth Street, Board annually;
Suite 1500, Assistant Secretary
of
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TERM OF OFFICE
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF
YEAR OF BIRTH WITH FUND TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
------------------------ ------------------- -------------------- --------------------------------------------------------------
Minneapolis, FAIF since
Minnesota 55402 (1951) December 2004;
Secretary of FAIF
from June 2002
through December
2004; Assistant
Secretary of FAIF
from September 1998
through June 2002
James R. Arnold, Assistant Secretary Re-elected by the Vice President, U.S. Bancorp Fund Services, LLC since March
615 E. Michigan Street, Board annually; 2002; Senior Administration Services Manager, UMB Fund
Milwaukee, WI 53202 Assistant Secretary Services, Inc. through March 2002
(1957)* of FAIF since June
2003
Richard J. Ertel Assistant Secretary Re-elected by the Counsel, FAF Advisors, Inc., since May 2006; prior thereto,
FAF Advisors, Inc. Board annually; Counsel, Ameriprise Financial Services, Inc. from September
800 Nicollet Mall, Assistant Secretary 2004 to May 2006; prior to that, Counsel, FAF Advisors, Inc.
Minneapolis, Minnesota of FAIF since June from May 2003 to August 2004; prior to May 2003, Associate
55402 (1967) * 2006 and from June Counsel, Hartford Life and Accident Insurance Company.
2003 through August
2004
Douglas G. Hess, Assistant Secretary Re-elected by the Vice President, U.S. Bancorp Fund Services, LLC since November
615 E. Michigan Street, Board annually; 2002; prior thereto, Assistant Vice President, Fund Compliance
Milwaukee, WI 53202 Assistant Secretary Administrator, U.S. Bancorp Fund Services LLC
(1967) * of FAIF since
September 2001
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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.
NUMBER OF FUND
COMPLEX
COMMITTEE
MEETINGS HELD
DURING FAIF'S
FISCAL YEAR
COMMITTEE FUNCTION COMMITTEE MEMBERS ENDED 10/31/06
-------------------------------------------------------- ------------------------- ----------------
Audit The purposes of the Committee are (1) to oversee the Leonard W. Kedrowski 8
Committee Funds' accounting and financial reporting policies and (Chair)
practices, their internal controls and, as appropriate, Benjamin R. Field III
the internal controls of certain service providers; (2) John P. Kayser
to oversee the quality of the Funds' financial Richard K. Riederer
statements and the independent audit thereof; (3) to Virginia L. Stringer
assist Board oversight of the Funds' compliance with (ex-officio)
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 portfolio Roger A. Gibson (Chair) 6
Committee securities for which market quotations are not readily James M. Wade
available, pursuant to procedures established by the Benjamin R. Field III
Board of Directors. Virginia L. Stringer
(ex-officio)
Governance The Committee has responsibilities relating to (1) Joseph D. Strauss (Chair) 3
Committee Board and Committee composition (including, James M. Wade
interviewing and recommending to the Board nominees for Victoria J. Herget
election as directors; reviewing the independence of Virginia L. Stringer
all independent directors; reviewing Board (ex-officio)
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NUMBER OF FUND
COMPLEX
COMMITTEE
MEETINGS HELD
DURING FAIF'S
FISCAL YEAR
COMMITTEE FUNCTION COMMITTEE MEMBERS ENDED 10/31/06
-------------------------------------------------------- ------------------------- ----------------
composition to determine the appropriateness of adding
individuals with different backgrounds or skills;
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; consulting with the Board
Chair on Committee assignments; and in anticipation of
the Board's request for shareholder approval of a slate
of directors, recommending to the Board the slate of
directors to be presented for Board and shareholder
approval); (2) Committee structure (including, at least
annually, reviewing each Committee's structure and
membership 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; developing and conducting
orientation sessions for new independent directors; and
managing the Board's education program in a
cost-effective manner); 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; reviewing compliance
with the prohibition from serving on the board of
directors of mutual funds that are not part of the First
American Fund Complex; if requested, assisting the Board
Chair in overseeing self-evaluation process; in
collaboration with outside counsel, developing policies
and procedures addressing matters which should come
before the Committee in the proper exercise of its
duties; reviewing the Board's adherence to industry "best
practices;" reviewing and recommending changes in Board
governance policies, procedures and practices; reporting
the Committee's activities to the Board and making such
recommendations; reviewing and, as appropriate;
recommending that the Board make changes to the
Committee's charter).
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In addition to the above committees, the Board of Directors also appoints a Fund Review Liaison. The responsibility of the Fund Review Liaison is to lead the Board of Directors, together with the Board Chair, in evaluating Fund performance, Fund service provider contracts and arrangements for execution of Fund trades. Ms. Herget is the current Fund Review Liaison.
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. Strauss), in either case at First American Funds, P.O. Box 1329, Minneapolis, Minnesota 55440-1329. At a minimum, the recommendation should include:
- the name, address, and business, educational, and/or other pertinent background of the person being recommended;
- 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;
- any other information that the Fund would be required to include in a proxy statement concerning the person if he or she was nominated; and
- 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.
AGGREGATE DOLLAR RANGE OF
DOLLAR RANGE OF EQUITY SECURITIES IN THE
NAME OF DIRECTOR EQUITY SECURITIES IN FAIF FIRST AMERICAN FUNDS COMPLEX*
--------------------- ------------------------- -----------------------------
Benjamin R. Field III $10,001-$50,000 Over $100,000
Roger A. Gibson Over $100,000 Over $100,000
Victoria J. Herget Over $100,000 Over $100,000
John P. Kayser None None
Leonard W. Kedrowski $10,001-$50,000 Over $100,000
Richard K. Riederer Over $100,000 Over $100,000
Joseph D. Strauss Over $100,000 Over $100,000
Virginia L. Stringer Over $100,000 Over $100,000
James M. Wade Over $100,000 Over $100,000
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As of October 31, 2006, 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 Funds 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 Funds.
COMPENSATION
The First American Family of Funds, which includes FAIF, FAF, FASF, and FACEF, currently pays directors who are not paid employees or affiliates of the Funds an annual retainer of $40,000 ($80,000 in the case of the Chair). The Fund Review Liaison receives an additional annual retainer of $15,000. In addition, directors are paid the following fees for attending Board and committee meetings:
- $5,000 per day for in-person attendance at Board of Directors meetings ($10,000 in the case of the Chair);
- $2,500 per day for telephonic attendance at Board of Directors meetings ($5,000 in the case of the Chair);
- $2,500 for in-person attendance at any committee meeting ($4,250 for the Audit Committee Chair; $3,750 for all other committee chairs);
- $1,250 for telephonic attendance at any committee meeting ($2,125 for the Audit Committee Chair; $1,875 for all other committee chairs); and
- $2,500 for in-person attendance at any opening executive session ($5,000 in the case of the 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.
Effective January 1, 2007, the compensation schedule for the directors will be amended as follows. Directors who are not paid employees or affiliates of the Funds will be paid an annual retainer of $115,000 ($215,000 in the case
of the Chair). The Fund Review Liaison and the Audit Committee Chair will each receive an additional annual retainer of $20,000. The other standing Committee Chairs will receive an additional annual retainer of $15,000. In addition, directors will be paid the following fees for attending Board and committee meetings:
- $1,000 for attending the first day of an in-person Board of Directors meeting ($1,500 in the case of the Chair);
- $2,000 for attending the second day of an in-person Board of Directors meeting ($3,000 in the case of the Chair), assuming the second day ends no later than early afternoon;
- $1,000 for attending the third day of an in-person Board of Directors meeting ($1,500 in the case of the Chair);
- $500 for in-person attendance at any committee meeting ($750 in the case of the Chair of each committee);
A Director who participates telephonically in any in-person Board or Committee meeting will receive half of the fee that Director would have received for attending, in-person, the Board or Committee meeting. For telephonic Board and Committee meetings, the Chair and each Director and Committee Chair, as applicable, will receive a fee equal to half the fee he or she would have received for attending an in-person meeting.
Directors will also receive $3,500 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, Assistant Secretary of FAIF, FAF, FASF, and FACEF, is a partner.
The following table sets forth information concerning aggregate compensation paid to each director of FAIF (i) by FAIF (column 2), and (ii) by FAIF, FAF, FASF, and FACEF collectively (column 5) during the fiscal year ended October 31, 2006. No executive officer or affiliated person of FAIF received any compensation from FAIF in excess of $60,000 during such fiscal year or fiscal period.
Compensation During Fiscal Year Ended October 31, 2006
TOTAL COMPENSATION
AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL FROM REGISTRANT AND
COMPENSATION FROM BENEFITS ACCRUED BENEFITS UPON FUND COMPLEX PAID TO
NAME OF PERSON, POSITION REGISTRANT (1) AS PART OF FUND EXPENSES RETIREMENT DIRECTORS (2)
------------------------ ----------------- ------------------------ ---------------- --------------------
Benjamin R. Field III, Director $81,074 -0- -0- $133,750
Roger A. Gibson, Director 70,467 -0- -0- 123,125
Victoria J. Herget, Director 71,224 -0- -0- 117,500
Leonard W. Kedrowski, Director 57,569 -0- -0- 131,750
Richard K. Riederer, Director 70,466 -0- -0- 116,250
Joseph D. Strauss, Director 66,302 -0- -0- 111,875
Virginia L. Stringer, Director &
Chair 136,386 -0- -0- 225,000
James M. Wade, Director 74,254 -0- -0- 122,500
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(2) Included in the Total Compensation are amounts deferred for the following directors pursuant to the Deferred Compensation Plan: Roger A. Gibson, $24,625; Leonard W. Kedrowski, $131,750; and Joseph D. Strauss, $8,938.
SALES LOADS
Directors of the Fund and certain other Fund affiliates may purchase the Fund's Class A shares at net asset value without a sales charge. See the prospectus for details.
CODE OF ETHICS
First American Investment Funds, Inc., FAF Advisors, Inc., Altrinsic Global Advisors, LLC, Hansberger Global Investors, Inc., Lazard Asset Management LLC, 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 SEC.
PROXY VOTING POLICIES
FAF Advisors, as investment manager for the First American family of mutual funds, has been delegated the authority by the board of directors of FAIF to vote proxies with respect to the investments held in the Fund. FAF Advisors, Inc. has delegated the responsibility of voting proxies to each Sub-Advisor of the Fund. Each Sub-Advisor is responsible for developing and enforcing proxy voting policies with regard to the portion of the Fund's assets managed by such Sub-Advisor. FAF Advisors will review these policies annually. The policies and procedures that the Fund uses to determine how to vote proxies, including the policies and procedures of FAF Advisors and each Sub-Advisor, are set forth in Appendix B.
INVESTMENT ADVISORY AND OTHER SERVICES FOR THE FUNDS
INVESTMENT ADVISOR
FAF Advisors, Inc. (the "Advisor"), 800 Nicollet Mall, Minneapolis, Minnesota 55402, serves as the investment advisor and manager of the Funds. 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 September 30, 2006, U.S. Bancorp and its consolidated subsidiaries had consolidated assets of more than $216 billion, consolidated deposits of more than $120 billion and shareholders' equity of $20.9 billion.
Pursuant to an Investment Advisory Agreement dated April 2, 1991 (the "Advisory Agreement"), as amended, the Funds 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 Fund's assets. The Advisory Agreement was assigned to the Advisor on May 2, 2001. Under the terms of the Advisory Agreement, the Fund has agreed to pay the Advisor monthly fees calculated on an annual basis equal to 1.00% of the Fund's average daily net assets.
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, accounting agent, and any sub-advisors, 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.
One or more sub-advisors provide investment advisory services to the Fund (each a "Sub-Advisor" and together, the "Sub-Advisors"). The Fund has received an exemptive order from the SEC that permits the Advisor to engage or terminate a Sub-Advisor, and to enter into and materially amend an existing sub-advisory agreement, upon the approval of the Fund's board of directors, without obtaining shareholder approval. The Advisor is responsible for selecting the Fund's investment strategies and for allocating and reallocating assets among the Sub-Advisors consistent with the Fund's investment objectives and strategies. Any assets not allocated to a Sub-Advisor are managed by the Advisor. The Advisor is also responsible for implementing procedures to ensure that each Sub-Advisor complies with the Fund's investment objective, policies and restrictions.
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. Each 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 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 Prospectus. 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.
SUB-ADVISORS
The Fund currently uses three Sub-Advisors, each providing investment advisory services to a portion of the Fund's assets:
- Altrinsic Global Advisors, LLC ("Altrinsic") has been a sub-advisor to the Fund since its inception, pursuant to an agreement with the Advisor dated November 27, 2006. Altrinsic is an employee-owned company founded in 2000. One of those employees, John Hock, has a controlling interest in Altrinsic. As of September 30, 2006, Altrinsic had assets under management of approximately $4.6 billion.
- Hansberger Global Investors, Inc. ("HGI") has been a sub-advisor to the Fund since its inception, pursuant to an agreement with the Advisor dated November 27, 2006. HGI is a wholly owned subsidiary of Hansberger Group, Inc. The firm was founded in 1994. As of September 30, 2006, HGI had assets under management of approximately $8.6 billion.
- Lazard Asset Management LLC ("Lazard") has been a sub-advisor to the Fund since its inception, pursuant to an agreement with the Advisor dated November 27, 2006. Lazard is a wholly owned subsidiary of Lazard Freres & Co., LLC. As of September 30, 2006, Lazard had assets under management of approximately $87.7 billion.
Each Sub-Advisor has discretion to select portfolio securities for its portion of the Fund (a "Sub-Advisory Portfolio"), but must select those securities according to the Fund's investment objective and restrictions. Each Sub-Advisor is paid a fee by the Advisor calculated daily and paid monthly, at the annual rates set forth in the following tables. Such rates are based on the average daily net assets of the Sub-Advisory Portfolio.
ALTRINSIC
SUB-ADVISORY PORTFOLIO ASSETS FEE PER ANNUM
------------------------------ -------------
First $150 million 0.45%
Next $325 million 0.40%
Over $475 million 0.37%
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HGI
SUB-ADVISORY PORTFOLIO ASSETS FEE PER ANNUM
------------------------------ -------------
First $100 million 0.45%
Next $325 million 0.40%
Next $112.5 million 0.35%
Over $537.5 million 0.30%
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LAZARD
SUB-ADVISORY PORTFOLIO ASSETS FEE PER ANNUM
------------------------------ -------------
First $112.5 million 0.75%
Next $37.5 million 0.70%
Next $37.5 million 0.65%
Over $187.5 million 0.60%
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ADDITIONAL PAYMENTS TO FINANCIAL INTERMEDIARIES
In addition to the sales charge payments and the distribution, service and transfer agency fees described in the prospectus and elsewhere in this Statement of Additional Information, the Advisor and/or the Distributor may make additional payments out of its own assets to selected institutions that sell shares of First American Funds (such as brokers, dealers, banks, registered investment advisors, retirement plan administrators and other institutions; hereinafter "Institutions") under the categories described below for the purposes of promoting the sale of Fund shares, maintaining share balances and/or for sub-accounting, administrative or shareholder processing services.
The amounts of these payments could be significant and may create an incentive for an Institution or its representatives to recommend or offer shares of the Funds or other First American Funds to its customers. The Institution may elevate the prominence or profile of the Funds within the Institution's organization by, for example, placement on a list of preferred or recommended funds, and/or granting the Advisor and/or the Distributor preferential or enhanced opportunities to promote the Funds in various ways within the Institution's organization.
These payments are made pursuant to agreements with Institutions and do not change the price paid by investors for the purchase of a share or the amount a Fund will receive as proceeds from such sales. Furthermore, these payments are not reflected in the fees and expenses listed in the fee table section of the Funds' prospectuses and described above because they are not paid by the Funds.
The categories of payments described below are not mutually exclusive, and a single Institution may receive payments under all categories.
Marketing Support Payments and Program Servicing Payments
The Advisor and/or the Distributor may make payments for marketing support and/or program servicing to certain Institutions that are registered as holders or dealers of record for accounts in one or more of the First American Funds, or certain Institutions that sell First American Fund shares through retirement plans and other investment programs to compensate them for a variety of services they provide to such programs.
Marketing Support Payments. Services for which an Institution receives marketing support payments may include business planning assistance, advertising, educating the Institution's personnel about the First American Funds and shareholder financial planning needs, placement on the Institution's preferred or recommended fund company list, and access to sales meetings, sales representatives and management representatives of the Institution. In addition, Institutions may be compensated for enabling Fund representatives to participate in and/or present at conferences or seminars, sales or training programs for invited registered representatives and other employees, client and investor events and other events sponsored by the Institution. The Advisor and/or the Distributor compensates Institutions differently depending upon, among other factors, sales and assets levels, redemption rates, ability to attract and retain assets, reputation in the industry and the level and/or type of marketing assistance and educational activities provided by the Institution.
Marketing support payments typically apply to retail sales and assets but may apply to other specific types of sales or assets, such as to retirement plans or fee-based advisory programs, in certain situations. The payments are
negotiated and may be based on such factors as the number or value of shares that the Institution sells or may sell, the value of the assets invested in the Funds by the Institution's customers and/or other measures as determined from time to time by the Advisor and/or the Distributor. In addition, payments may include the reimbursement of ticket or operational charges (fees that an Institution charges its representatives for effecting transactions in Fund shares) and/or the payment of a lump sum for services provided.
Program Servicing Payments. Services for which an Institution receives program servicing payments typically include recordkeeping, reporting, or transaction processing, but may also include services rendered in connection with Fund/investment selection and monitoring, employee enrollment and education, plan balance rollover or separation, or other similar services. An Institution may perform program services itself or may arrange with a third party to perform program services.
Program servicing payments typically apply to employee benefit plans, such as retirement plans, or fee-based advisory programs but may apply to retail sales and assets in certain situations. The payments are negotiated and are based on such factors as the type and nature of services or support furnished by the Institution. In addition, payments may include the reimbursement of ticket or operational charges (fees that an Institution charges its representatives for effecting transactions in Fund shares) and/or the payment of a lump sum for services provided.
The Advisor and/or the Distributor may make one-time or periodic payments to selected Institutions receiving program servicing payments to reimburse printing costs for literature for participants, for account maintenance, for ticket charges of up to $25 per purchase or exchange order placed by an Institution, or for the establishment of First American Funds on the Institution's trading system. In addition, the Advisor and/or the Distributor, at the direction of a retirement plan's sponsor, may reimburse or pay direct expenses of the plan that would otherwise be payable by the plan. These payments may cause the aggregate amount of the payments to an Institution on an annual basis to exceed the basis point amount set forth below.
Except as described in the foregoing paragraph, in the case of any one Institution (other than U.S. Bank, N.A.), marketing support and program servicing payments are not expected, with certain limited exceptions, to exceed, in the aggregate, 0.35% of the average net assets of Fund shares attributable to that Institution on an annual basis. Such exceptions include instances in which an Institution is not receiving distribution fees with respect to a Fund share class which has a distribution fee, in which case such Institution may receive up to 0.50% of the average net assets of that Fund share class attributable to that Institution on an annual basis.
Other Payments
From time to time, the Advisor and/or the Distributor, at its expense, may provide compensation to Institutions that sell or arrange for the sale of shares of the Fund(s), in addition to marketing support and program servicing payments described above. When not provided for in a marketing support or program servicing agreement, the Advisor and/or the Distributor may pay Institutions for enabling the Advisor and/or the Distributor to participate in and/or present at conferences or seminars, sales or training programs for invited registered representatives and other Institution employees, client and investor events and other Institution-sponsored events, and for travel expenses, including lodging incurred by registered representatives and other employees in connection with prospecting, asset retention and due diligence trips. These payments may vary depending upon the nature of the event. The Advisor and/or the Distributor makes payments for such events as it deems appropriate, subject to its internal guidelines and applicable law.
The Advisor and/or the Distributor occasionally sponsors due diligence meetings for registered representatives during which they receive updates on various First American Funds and are afforded the opportunity to speak with portfolio managers. Invitations to these meetings are not conditioned on selling a specific number of shares. Those who have shown an interest in First American Funds, however, are more likely to be considered. To the extent permitted by their firm's policies and procedures, registered representatives' expenses in attending these meetings may be covered by the Advisor and/or the Distributor.
Certain employees of the Advisor and its affiliates may receive cash compensation from the Advisor and/or the Distributor in connection with establishing new client relationships with the First American Funds. The total compensation of employees who have marketing and/or sales responsibilities is based in part on their generation of new client relationships, including new client relationships with the First American Funds. Other employees of the Advisor and its affiliates may receive a one-time referral fee from the Advisor and/or the Distributor for new business to the
First American Funds based on a percentage of the annual revenue generated by the new client relationship. Such compensation will not exceed 10% of the annual revenue generated, up to a maximum of $10,000.
Other compensation may be offered to the extent not prohibited by state laws or any self-regulatory agency, such as the NASD. Investors can ask their Institution for information about any payments it receives from the Advisor and/or the Distributor and the services it provides for those payments.
Investors may wish to take such payment arrangements into account when considering and evaluating any recommendations relating to Fund shares.
Institutions Receiving Additional Payments
The following is a list of Institutions receiving one or more of the types of payments discussed above as of September 30, 2006:
401(k) Investment Services, Inc.
A.G. Edwards & Sons, Inc.
Administration Resources Corporation
American Stock Transfer & Trust Company
Ameriprise Financial Services, Inc.
Bisys Retirement Services, Inc.
Ceridian Corporation
Charles Schwab & Co., Inc.
Citigroup Global Markets Inc.
City National Bank
Commonwealth Equity Services, LLP, DBA Commonwealth Financial Network
CPI Qualified Plan Consultants, Inc.
D.A. Davidson & Co.
Dyatech, LLC
ExpertPlan, Inc.
Fidelity Brokerage Services LLC/National Financial Services LLC
Fidelity Investments Institutional Operations Company, Inc.
Fidelity Investments Institutional Services Company, Inc./Fidelity Investments
Institutional Operations Company, Inc.
Fintegra, LLC
GWFS Equities, Inc.
Hewitt Associates LLC
International Clearing Trust Company
J.P. Morgan Retirement Plan Services, LLC
Leggette Actuaries, Inc.
Linsco/Private Ledger Corp.
Marshall & Ilsley Trust Company, N.A.
Massachusetts Mutual Life Insurance Company
McDonald Investments, Inc.
Mercer HR Outsourcing LLC
Merrill Lynch, Pierce, Fenner & Smith Inc.
Mid Atlantic Capital Corporation
Morgan Stanley DW Inc
MSCS Financial Services, LLC
National Investor Services Corp.
National Planning Holdings, Inc.
Pershing LLC
Principal Life Insurance Company
Prudential Investment Management Services, LLC/Prudential Investments LLC
Prudential Life Insurance Company of America (The)
Raymond James & Associates/Raymond James Financial Services, Inc.
RBC Dain Rauscher, Inc.
Reliance Trust Company
Retirement Plan Company, LLC (The)
Robert W. Baird & Co., Inc.
Stanton Trust Company N.A.
Stifel, Nicolaus & Co., Inc.
Symetra Life Insurance Company
T. Rowe Price Investment Services, Inc./T. Rowe Price Retirement Plan Services,
Inc.
TCF Investments, Inc.
U.S. Bancorp Investments, Inc.
U.S. Bank, N.A.
UBS Financial Services, Inc.
Unified Trust Company, N.A.
Wachovia Bank, N.A.
Wachovia Securities, LLC
Wells Fargo Bank, N.A.
Wilmington Trust Company
Any additions, modification or deletions to the list of Institutions identified above that have occurred since September 30, 2006 are not reflected.
ADMINISTRATOR
FAF Advisors, Inc. (the "Administrator") serves as Administrator pursuant to an Administration Agreement between the Administrator and the Funds, dated July 1, 2006. U.S. Bancorp Fund Services, LLC ("USBFS"), 615 East Michigan Street, Milwaukee, WI 53202, serves as sub-administrator pursuant to a Sub-Administration Agreement between the Administrator and USBFS dated July 1, 2005. USBFS is a subsidiary of U.S. Bancorp. Under the Administration Agreement, the Administrator provides, or compensates others to provide, services to the Funds. These services include various legal, oversight, administrative, and accounting services. The Funds pay the Administrator fees which are calculated daily and paid monthly equal to, on an annual basis, 0.25% of the aggregate average daily net assets of all open-end mutual funds in the First American Family of Funds up to $8 billion, 0.235% on the next $17 billion of the aggregate average daily net assets, 0.22% on the next $25 billion of the aggregate average daily net assets, and 0.20% of the aggregate average daily net assets in excess of $50 billion. In addition to these fees, the Fund may reimburse the Administrator for any out-of-pocket expenses incurred in providing administration services.
TRANSFER AGENT
USBFS serves as the Funds' transfer agent pursuant to a Transfer Agency and Shareholder Servicing Agreement (the "Transfer Agent Agreement") between USBFS and the Funds dated July 1, 2006. The Fund is charged transfer agent fees on a per shareholder account basis, subject to a minimum fee per share class. These fees will be charged to the Fund based on the number of accounts within the Fund. The Fund may also reimburse the USBFS for out-of-pocket expenses incurred in providing transfer agent services.
DISTRIBUTOR
Quasar Distributors, LLC ("Quasar" or the "Distributor") serves as the distributor for the Fund's shares pursuant to a Distribution Agreement dated July 1, 2005 (the "Distribution Agreement") The Distributor is a wholly owned subsidiary of U.S. Bancorp.
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 Agreement, the Fund 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 Agreement 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.
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 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 B 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 B Shares. The fee may be used by the Distributor to provide compensation for shareholder servicing activities with respect to the Class B Shares beginning one year after purchase. The Class B 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 B Shares. The distribution fee is intended to compensate the distributor for advancing a commission to institutions purchasing Class B Shares.
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 Agreement provides that it will continue in effect for a period of more than one year from the date of its 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 Distribution and Service Plan or in any agreement related to such plan.
FAIF has also adopted a Distribution and Service Plan with respect to the Class A, Class B, Class C and Class R Shares of the Fund pursuant to Rule 12b-1 under the 1940 Act (the "Plan"). 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 Plan authorizes the Distributor to retain the sales charges paid upon purchase of Class A, Class B and Class C Shares and authorize the Fund to pay the Distributor distribution and/or shareholder servicing fees. The Plan 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 the Plan are used for primary purpose of compensating broker-dealers for their sales of the Fund. The shareholder servicing fees are used primarily for the purpose of providing compensation for the ongoing servicing and/or maintenance of shareholder accounts. The Plan authorizes the Distributor to retain the contingent deferred sales charge applied on redemptions of Class B and C Shares, except that portion which is reallowed to Participating Institutions. The Plan recognizes 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 B, 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 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Custodian. State Street Bank and Trust Company, 2 Avenue de Lafayette, LCC/5 Boston, MA 02111, acts as the custodian for the Fund. The custodian takes no part in determining the investment policies of the Fund or in deciding which securities are purchased or sold by the Fund. All of the instruments representing the investments of the Fund and all cash are held by their respective custodian or, for the Fund, by a sub-custodian. The custodian or sub-custodian
delivers securities against payment upon sale and pays for securities against delivery upon purchase. The custodian also remits Fund assets in payment of Fund expenses, pursuant to instructions of FAIF's officers or resolutions of the Board of Directors.
State Street Bank and Trust Company, as custodian for the Fund, is paid reasonable compensation as agreed upon from time to time. Sub-custodian fees with respect to the Fund are paid by State Street Bank and Trust Company out of its fees from the Fund. In addition, the custodian is reimbursed for its out-of-pocket expenses incurred while providing services to the Fund. The custodian continues to serve so long as their 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.
Independent Registered Public Accounting Firm. Ernst & Young LLP, 220 South Sixth Street, Suite 1400, Minneapolis, Minnesota 55402, serves as the Fund's independent registered public accounting firm, providing audit services, including audits of the annual financial statements.
PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED
The following table sets forth the number and total assets of the mutual funds and accounts managed by the Fund's portfolio managers as of October 31, 2006.
NUMBER OF AMOUNT SUBJECT TO
PORTFOLIO MANAGER TYPE OF ACCOUNT MANAGED ACCOUNTS ASSETS PERFORMANCE-BASED FEE
-------------------------- --------------------------------- --------- -------------- ---------------------
David A. Chalupnik Registered Investment Company 7 $ 1.6 billion 0
Other Pooled Investment Vehicles 0 0 0
Other Accounts 23 $490.5 million 0
Walter A. French Registered Investment Company 4 $ 2.8 billion 0
Other Pooled Investment Vehicles 0 0 0
Other Accounts 32 $998.8 million 0
Keith B. Hembre Registered Investment Company 1 $ 9.6 million 0
Other Pooled Investment Vehicles 0 0 0
Other Accounts 0 0 0
Mark S. Jordahl Registered Investment Company 5 $673.0 million 0
Other Pooled Investment Vehicles 0 0 0
Other Accounts 0 0 0
Jose ("Tony") A. Registered Investment Company 6 $ 1.0 billion 0
Rodriguez Other Pooled Investment Vehicles 0 0 0
Other Accounts 0 0 0
John G. Wenker Registered Investment Company 5 $ 1.7 billion 0
Other Pooled Investment Vehicles 0 0 0
Other Accounts 0 0 0
John Hock Registered Investment Company 16 $ 2.0 billion 0
Other Pooled Investment Vehicles 4 $261.6 million 2 - $94.3 million
Other Accounts 29 $ 2.7 billion 0
John L. Devita Registered Investment Company 16 $ 2.0 billion 0
Other Pooled Investment Vehicles 4 $261.6 million 2 - $94.3 million
Other Accounts 29 $ 2.7 billion 0
Rehan Chaudri Registered Investment Company 16 $ 2.0 billion 0
Other Pooled Investment Vehicles 4 $261.6 million 2 - $94.3 million
Other Accounts 29 $ 2.7 billion 0
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NUMBER OF AMOUNT SUBJECT TO
PORTFOLIO MANAGER TYPE OF ACCOUNT MANAGED ACCOUNTS ASSETS PERFORMANCE-BASED FEE
-------------------------- --------------------------------- --------- -------------- ---------------------
Tom Tibbles Registered Investment Company 8 $980.4 million 0
Other Pooled Investment Vehicles 0 0 0
Other Accounts 20 $ 2.6 billion 1 - $228.0 million
Barry Lockhart Registered Investment Company 8 $980.4 million 0
Other Pooled Investment Vehicles 0 0 0
Other Accounts 20 $ 2.6 billion 1 - $228.0 million
James M. Donald Registered Investment Company 13 $ 4.8 billion 1 - $942.7 million
Other Pooled Investment Vehicles 33 $ 1.0 billion 1 - $73.1 million
Other Accounts 214 $ 2.9 billion 0
John R. Reinsberg Registered Investment Company 15 $ 3.2 billion 1 - $942.7 million
Other Pooled Investment Vehicles 31 $635.9 million 0
Other Accounts 1,064 $ 19.2 billion 0
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FAF ADVISORS SIMILAR ACCOUNTS. The Funds' portfolio managers often manage multiple accounts. The Advisor has adopted policies and procedures regarding brokerage and trade allocation and allocation of investment opportunities that it believes are reasonably designed to address potential conflicts of interest associated with managing multiple accounts for multiple clients.
ALTRINSIC SIMILAR ACCOUNTS. Altrinsic portfolio managers manage other accounts in addition to the Fund. Therefore, conflicts of interest may arise in connection with the portfolio manager's management of the Fund's investments and the investments of other accounts. Certain of these accounts may pay higher advisory fees than the Fund creating an incentive to favor the higher paying account. Altrinsic has adopted trade allocation and aggregation policies and procedures to address these conflicts.
Generally, the investment decisions for the Fund are reached independently from those for other accounts managed by Altrinsic. However, some of Altrinsic's other accounts may make investments in the same type of instruments or securities as the Fund at the same time as the Fund. Altrinsic's personnel may benefit personally or the firm may benefit as a whole from good investment performance by other accounts than by equivalent performance of the Fund. In those instances where the Fund and another client of Altrinsic's trade in the same type of instrument or security at the same time, Altrinsic has established allocation procedures to allocate such trades among its various client and the Fund fairly and equitably. In some cases, Altrinsic's allocation and aggregation procedures may operate to a disadvantage because of the size or price of a position obtainable for the Fund.
HGI SIMILAR ACCOUNTS. HGI's management of "other accounts" may give rise to potential conflicts of interest in connection with its management of the Fund's investments, on the one hand, and the investments of other accounts, on the other. The other accounts may have the same investment objective as the Fund. Therefore a potential conflict of interest may arise as a result of the identical investment objectives, whereby a portfolio manager could favor one account over another. Another potential conflict could include a portfolio manager's knowledge about the size, timing, and possible market impact of Fund trades, whereby a portfolio manager could use this information to the advantage of other accounts and to the disadvantage of the Fund. In addition, some accounts charge performance fees which could enhance conflicts of interest in the allocation of investment opportunities. However, HGI has established policies and procedures to ensure that the purchase and sale of securities among all accounts it manages are fairly and equitable allocated.
LAZARD SIMILAR ACCOUNTS. Although the potential for conflicts of interest exists when an investment advisor and portfolio managers manage other accounts with similar investment objectives and strategies as the Fund, Lazard has procedures in place that are designed to ensure that all accounts are treated fairly and that the Fund is not disadvantaged, including procedures regarding trade allocations and "conflicting trades" (e.g., long and short positions in the same security, as described below). In addition, the Fund, as a registered investment company, is subject to different regulations than certain of the Similar Accounts, and, consequently, may not be permitted to engage in all the
investment techniques or transactions, or to engage in such techniques or transactions to the same degree, as the other accounts.
Potential conflicts of interest may arise because of Lazard's management of the Fund and other accounts. For example, conflicts of interest may arise with both the aggregation and allocation of securities transactions and allocation of limited investment opportunities, as Lazard may be perceived as causing accounts it manages to participate in an offering to increase Lazard's overall allocation of securities in that offering, or to increase Lazard's ability to participate in future offerings by the same underwriter or issuer.
A potential conflict of interest may be perceived to arise if transactions in one account closely follow related transactions in a different account, such as when a purchase increases the value of securities previously purchased by the other account, or when a sale in one account lowers the sale price received in a sale by a second account. Lazard manages hedge funds that are subject to performance/incentive fees. Certain hedge funds managed by Lazard may also be permitted to sell securities short. When Lazard engages in short sales of securities of the type in which the Fund invests, Lazard could be seen as harming the performance of the Fund for the benefit of the account engaging in short sales if the short sales cause the market value of the securities to fall. As described above, Lazard has procedures in place to address these conflicts. Additionally, Lazard's portfolio managers do not manage both hedge funds that engage in short sales and long-only accounts, including open-end and closed-end registered investment companies.
PORTFOLIO MANAGER COMPENSATION
FAF ADVISORS COMPENSATION. Portfolio manager compensation consists primarily of base pay, an annual cash incentive and long term incentive payments.
Base pay is determined based upon an analysis of the portfolio manager's general performance, experience, and market levels of base pay for such position.
The Fund's portfolio managers are paid an annual cash incentive based upon investment performance, generally over the past one- and three-year periods unless the portfolio manager's tenure is shorter. The maximum potential annual cash incentive is equal to a multiple of base pay, determined based upon the particular portfolio manager's performance and experience, and market levels of base pay for such position.
For managers of the Fund, the portion of the maximum potential annual cash
incentive that is paid out is based upon performance relative to the portfolio's
benchmark and performance relative to an appropriate Lipper industry peer group.
Generally, the threshold for payment of an annual cash incentive is (i)
benchmark performance and (ii) median performance versus the peer group, and the
maximum annual cash incentive is attained at (i) a spread over the benchmark
which the Advisor believes will, over time, deliver top quartile performance and
(ii) top quartile performance versus the Lipper industry peer group.
Investment performance is measured on a pre-tax basis, gross of fees for Fund results and for the Lipper industry peer group.
Long term incentive payments are paid to portfolio managers on an annual
basis based upon general performance and expected contributions to the success
of the Advisor. Long-term incentive payments are comprised of two components:
(i) phantom equity units of the Advisor and (ii) U.S. Bancorp options and
restricted stock.
There are generally no differences between the methods used to determine compensation with respect to the Fund and the Other Accounts shown in the table above.
ALTRINSIC COMPENSATION. Altrinsic manages all accounts on a team basis and all the portfolio managers are equity partners. The value of the equity and the associated cash flows are solely determined by the team's long-term investment performance and client satisfaction. All portfolio managers receive a guaranteed fixed payment monthly, a bonus at the end of the fiscal year, allocated capital based on the firm's profitability and participation in Altrinsic's profit sharing plan. John Hock, the Chief Investment Officer determines the compensation for the portfolio managers.
All portfolio managers receive a percentage of the net profits, which is allocated to their capital account. Altrinsic maintains a discretionary Profit Sharing Plan in which all employees are eligible to participate after six months of employment.
Altrinsic's portfolio managers' bonus compensation is determined primarily on the basis of a qualitative determination of their value added in terms of their stock specific research and the overall long-term performance of client accounts versus the respective benchmarks for each account. Consideration is given to each account's objectives, policies, strategies, limitations, and the market environment during the measurement period. Additional factors include the portfolio managers' contributions to the investment management functions within Altrinsic, contributions to the development of other investment professionals and supporting staff, and overall contribution marketing, client service, and strategic planning for the organization. There are no material differences between how Altrinsic portfolio managers are compensated for the Fund and for other accounts.
HGI COMPENSATION. HGI compensates each portfolio manager for his or her management of the Fund. A portfolio manager's base salary is determined by the manager's experience and performance in the role, taking into account the ongoing compensation benchmark analyses performed by HGI's Human Resources Department. A portfolio manager's base salary is generally a fixed amount that may change as a result of an annual review, upon assumption of new duties, or when a market adjustment of the position occurs.
A Portfolio Manager's bonus is paid on an annual basis and is determined by a number of factors, including, but not limited to, performance of the Fund and other funds managed relative to expectations for how those funds should have performed as compared to their benchmarks (the Morgan Stanley Capital International All Country World Ex U.S. Index for the Fund), given their objectives, policies, strategies, and limitations, and the market environment during the measurement period. This performance factor is not based on the value of assets held in a fund's portfolio. Additional factors include the portfolio manager's contributions to the investment management functions within HGI, contributions to the development of other investment professionals and supporting staff, and overall contributions to marketing, client service, and strategic planning for the organization. The target bonus is expressed as a percentage of base salary. The actual bonus paid may be more or less than the target bonus, based on how well the portfolio manager satisfies the objectives stated above.
LAZARD COMPENSATION. Lazard compensates portfolio managers by a competitive salary and bonus structure, which is determined both quantitatively and qualitatively. Salary and bonus are paid in cash. Portfolio managers are compensated on the performance of the aggregate group of portfolios managed by them rather than for a specific fund or account. Various factors are considered in the determination of a portfolio manager's compensation. All of the portfolios managed by a portfolio manager are comprehensively evaluated to determine his or her positive and consistent performance contribution over time. Further factors include the amount of assets in the portfolios as well as qualitative aspects that reinforce Lazard's investment philosophy such as leadership, teamwork, and commitment.
Total compensation is not fixed, but rather is based on the following
factors: (1) maintenance of current knowledge and opinions on companies owned in
the portfolio; (2) generation and development of new investment ideas, including
the quality of security analysis and identification of appreciation catalysts;
(3) ability and willingness to develop and share ideas on a team basis; and (4)
the performance results of the portfolios managed by the investment team.
Variable bonus is based on the portfolio manager's quantitative performance as measured by the manager's ability to make investment decisions that contribute to the pre-tax absolute and relative returns of the accounts managed by him or her, by comparison of each account to a predetermined benchmark, including, as appropriate for the relevant account's investment strategy, the MSCI World Index, the FTSE All World Europe ex-UK Index, the MSCI European Index, and the MSCI EAFE Index, over the current year and the longer-term performance (3-, 5-, or 10-year, if applicable) of such account, as well as performance of the account relative to peers. In addition, the portfolio manager's bonus can be influenced by subjective measurement of the manager's ability to help others make investment decisions.
Portfolio managers also have an interest in the Lazard Asset Management LLC Equity Plan, an equity based incentive program for Lazard Asset Management. The plan offers permanent equity in Lazard Asset Management to a significant number of its professionals, including portfolio managers, as determined by the board of directors of Lazard Asset Management, from time to time. This plan gives certain Lazard employees a permanent equity interest in Lazard and an opportunity to participate in the future growth of Lazard.
In addition, effective May, 2005, the Lazard Ltd 2005 Equity Incentive Plan was adopted and approved by the Board of Directors of Lazard Ltd. The purpose of this plan is to give the company a competitive advantage in attracting,
retaining, and motivating officers, employees, directors, advisors, and/or consultants and to provide the company and its subsidiaries and affiliates with a stock plan providing incentives directly linked to shareholder value.
OWNERSHIP OF FUND SHARES
The Fund did not commence the public offering of shares until the date of this SAI. No shares were beneficially owned by the portfolio managers as of that date.
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 or the Sub-Advisors as it relates to the portion of the Fund's assets that they respectively manage for the Fund.
In selecting a broker-dealer to execute securities transactions, the Advisor and the Sub-Advisors consider a variety of factors, including the execution capability, financial responsibility and responsiveness of the broker-dealer in seeking best price and execution. Subject to the satisfaction of its obligation to seek best execution, other factors the Advisor and Sub-Advisors may consider include a broker-dealer's access to initial public offerings and the nature and quality of any brokerage and research products and services the broker-dealer provides. However, the Advisor and Sub-Advisor may cause the Fund to 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 Advisor and Sub-Advisor may cause the Fund to pay up in recognition of the value of brokerage and research products and services provided to the Advisor or Sub-Advisor by the broker-dealer. The broker-dealer may directly provide such products or services to the Advisor or Sub-Advisor, or purchase them form a third party and provide them to the Advisor or Sub-Advisor. In such cases, the Fund is in effect paying for the brokerage and research products and services in so-called "soft-dollars." However, the Advisor and Sub-Advisors will 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 or Sub-Advisor determined in good faith that the amount of such commission was reasonable in relation to the value of the brokerage and research products and services provided by such broker or dealer, viewed in terms of either that particular transaction or the overall responsibilities of the Advisor and Sub-Advisor with respect to the managing of its accounts.
The types of research products and services the Advisor and Sub-Advisors receive include economic analysis and forecasts, financial market analysis and forecasts, industry and company specific analysis, interest rate forecasts, and other services that assist in the investment decision making process. Research products and 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 and Sub-Advisors by, or through, broker-dealers.
The research products and services the Advisor and Sub-Advisors receive from broker-dealers are supplemental to, and do not necessarily reduce, the Advisor's or Sub-Advisors' own normal research activities. As a practical matter, however, it would be impossible for the Advisor and Sub-Advisors to generate all of the information presently provided by broker-dealers. The expenses of the Advisor and Sub-Advisors would be materially increased if they attempted to generate such additional information through their own staffs. To the extent that the Advisor and Sub-Advisors could use cash to purchase many of the brokerage and research products and services received for allocating securities transactions to broker-dealers, the Advisor and Sub-Advisors are relieved of expenses that they might otherwise bear when such services are provided by broker-dealers.
As a general matter, the brokerage and research products and services the Advisor and Sub-Advisors receive from broker-dealers are used to service all of their 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. For example, equity commissions may pay for brokerage and research products and services utilized in managing fixed income accounts.
In some cases, the Advisor or a Sub-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 or Sub-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 or Sub-Advisor has a conflict of interest in making such decisions.
Many of the Fund's portfolio transactions involve payment of a brokerage commission by the Fund. In some cases, transactions are with dealers or issuers who act as principal for their own accounts and not as brokers. Transactions effected on a principal basis, 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 their portfolio securities with any broker or dealer affiliated directly or indirectly with the Advisor, Sub-advisors 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.
When two or more clients of the Advisor or a Sub-Advisor are simultaneously engaged in the purchase or sale of the same security, the prices and amounts are allocated in a manner considered by the Advisor or the Sub-Advisor to be equitable to each client. In some cases, this system could have a detrimental effect on the price or volume of the security as far as each client is concerned. In other cases, however, the ability of the clients to participate in volume transactions may produce better executions for each client.
CAPITAL STOCK
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. On issues affecting only a particular Fund, the shares of that 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 Minnesota law and the 1940 Act.
As of the date of this Statement of Additional Information, there were 10 shares of the Fund outstanding, all of which were held by FAF Advisors, 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 Funds' Prospectus.
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 with the Fund as it 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.
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 their respective portfolios (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 regulated investment companies.
When the Fund lends portfolio securities to a borrower as described above in "Lending of Portfolio Securities," 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. Such payments in lieu of dividends are taxable as ordinary income.
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 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 "Policies and Services -- Purchasing, Redeeming, and Exchanging Shares" in the Prospectus), such exchange will be considered a taxable sale of the shares being exchanged. Furthermore, if a shareholder of Class A, Class B or Class C Shares carries out the exchange within 90 days of purchasing shares in a fund on which he or she has incurred a sales charge, the sales charge cannot be taken into account in determining the shareholder's gain or loss on the sale of those shares to the extent that the sales charge that would have been applicable to the purchase of the later-acquired shares in the other Fund is reduced because of the exchange privilege. However, the amount of any sales charge that may not be taken into account in determining the shareholder's gain or loss on the sale of the first-acquired shares may be taken into account in determining gain or loss on the eventual sale or exchange of the later-acquired shares.
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 United States or a political subdivision thereof, (iii) an estate whose income is includible in gross income for U.S. federal income tax purposes or (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
Sales charges on the purchase of Class A shares can be reduced 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 or domestic partner, and the investor's dependent children when it calculates the sales charge.
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 current net asset value 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. If the purchase price of shares that the
investor owns is higher than their current net asset value, the investor may
receive credit for this higher purchase price instead, but only if the investor
notifies the Fund of this request in advance in writing and provides written
records of the original purchase price.
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 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 Fund's 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
General. The prospectus for the Fund sets forth the categories of investors eligible to purchase Class A shares without a sales charge.
Purchases of $1 Million or More. Class A shares may be purchased without a sales charge by non-retirement accounts if the purchase, when aggregated with certain Class A, B and C share purchases as described in the Fund's 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. 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 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 the Fund.
REINVESTMENT RIGHT
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 PURCHASING CLASS Y SHARES
As set forth in the prospectus, among those eligible to purchase Class Y shares are individual investors who have at least $5 million invested in the First American open-end funds. In determining whether the $5 million dollar threshold has been reached the net asset value of the First American open-end fund shares that are being purchased will be added to the current net asset value of any shares of the First American open-end funds that you already own. In addition, your purchase will be aggregated with shares held or being concurrently purchased by your spouse or domestic partner and your dependent children, and shares held by you or any of the foregoing persons in individual retirement, custodial or personal trust accounts. You must notify your investment professional or financial institution of your eligibility to purchase Class Y shares.
ADDITIONAL INFORMATION ABOUT REDEEMING 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 Administrator 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 Administrator 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 Administrator examines each shareholder request by verifying the account number and/or tax identification number at the time such request is made. The Administrator subsequently sends confirmation of both exchange sales and exchange purchases to the shareholder for verification. If reasonable procedures are not employed, the Administrator and the Fund may be liable for any losses due to unauthorized or fraudulent telephone transactions.
BY MAIL
Any shareholder may redeem Fund shares by sending a written request to the Administrator, shareholder servicing agent, financial institution or USBFS. 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:
- a trust company or commercial bank the deposits of which are insured by the Bank Insurance Fund, which is administered by the Federal Deposit Insurance Corporation ("FDIC");
- a member firm of the New York, American, Boston, Midwest, or Pacific Stock Exchanges or of the National Association of Securities Dealers;
- a savings bank or savings and loan association the deposits of which are insured by the Savings Association;
- any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Fund, the Administrator and USBFS 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, the Administrator and USBFS 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 Administrator or USBFS is reasonably certain that the purchase payment has cleared, which could take up to fifteen calendar days from the purchase date.
APPENDIX A
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 Funds are not required to dispose of a security if its rating declines after it is purchased, although they may consider doing so.
RATINGS OF LONG-TERM CORPORATE DEBT OBLIGATIONS
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 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.
FITCH
AAA: Securities considered to be investment grade and of the highest credit quality. These ratings denote the lowest expectation of credit risk and are assigned only in case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
AA: Securities considered to be investment grade and of very high credit quality. These ratings denote a very low expectation of credit risk and indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
A: Securities considered to be investment grade and of high credit quality. These ratings denote a low expectation of credit risk and indicate strong capacity for timely payment of financial commitments. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings.
BBB: Securities considered to be investment grade and of good credit quality. These ratings denote that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investments grade category.
BB: Securities considered to be speculative. These ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade.
B: Securities are considered highly speculative. These ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment.
CCC, CC AND C: Securities have high default risk. Default is a real possibility, and capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. CC ratings indicate that default of some kind appears probable, and C ratings signal imminent default.
DDD, DD AND D: Securities are in default. The ratings of obligations in this category are based on their prospects for achieving partial or full recovery in a reorganization or liquidation of the obligor. While expected recovery values are highly speculative and cannot be estimated with any precision, the following serve as general guidelines. DDD obligations have the highest potential for recovery, around 90%-100% of outstanding amounts and accrued interest. DD indicates potential recoveries in the range of 50%-90%, and D the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their obligations. Entities rated DDD have the highest prospect for resumption of performance or continued operation with or without a formal reorganization process. Entities rated DD and D are generally undergoing a formal reorganization or liquidation process; those rated DD are likely to satisfy a higher portion of their outstanding obligations, while entities rated D have a poor prospect for repaying all obligations.
The ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show the relative standing within the major rating categories.
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:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high internal cash generation.
- Well-established access to a range of financial markets and assured sources of alternate liquidity.
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.
FITCH
Fitch 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 F3 commercial paper.
F1: Securities possess the highest credit quality. This designation indicates the strongest capacity for timely payment of financial commitments and may have an added "+" to denote any exceptionally strong credit feature.
F2: Securities possess good credit quality. This designation indicates a satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the case of the higher ratings.
F3: Securities possess fair credit quality. This designation indicates that the capacity for timely payments of financial commitments is adequate; however, near-term adverse changes could result in a reduction to non-investment grade.
APPENDIX B
FAF ADVISORS, INC.
PROXY VOTING POLICIES AND PROCEDURES
GENERAL PRINCIPLES
FAF Advisors, Inc. is the investment manager for the First American family of mutual funds and for other separately managed accounts. As such, FAF Advisors 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 FAF Advisors' duty to vote proxies in the best interests of clients. In voting proxies, FAF Advisors also seeks to maximize total investment return for clients.
In the event of a sub-adviser, FAF Advisors may delegate proxy voting to the sub-adviser. Where such delegation exists, the sub-advisor will be responsible for developing and enforcing proxy voting policies. FAF Advisors will review these policies annually.
FAF Advisors' Investment Policy Committee ("IPC"), comprised of the firm's most senior investment professionals, is charged with oversight of the proxy voting policies and procedures. The IPC is responsible for (1) approving the proxy voting policies and procedures, and (2) oversight of the activities of FAF Advisors' Proxy Voting Administration Committee ("PVAC").
The PVAC is responsible for providing an administrative framework to facilitate and monitor FAF Advisors' exercise of its fiduciary duty to vote client proxies and fulfill the obligations of reporting and recordkeeping under the federal securities laws.
POLICIES
The IPC, 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 Institutional Shareholder Services, Inc. ("ISS"), a leading national provider of proxy voting administrative and research services. As a result, such policies set forth FAF Advisors' positions on recurring proxy issues and criteria for addressing non-recurring issues. These policies are reviewed periodically and therefore are subject to change. Even though it has adopted ISS' policies, FAF Advisors maintains the fiduciary responsibility for all proxy voting decisions.
PROCEDURES
A. Supervision of Proxy Voting Service
The PVAC shall supervise the relationship with FAF Advisors' proxy voting service, ISS. ISS apprises FAF Advisors of shareholder meeting dates, forward proxy voting materials, provides research on proxy proposals and voting recommendations and casts the actual proxy votes. ISS also serves as FAF Advisors' proxy voting record keeper and generates reports on how proxies were voted.
B. Conflicts of Interest
As an affiliate of U.S. Bancorp, a large, multi-service financial institution, FAF Advisors recognizes that there are numerous situations wherein it may have a perceived 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 may have personal or familial relationships with the U.S. Bancorp enterprise and its employees that could give rise to conflicts of interest.
FAF Advisors will vote proxies in the best interest of its clients regardless of such real or perceived conflicts of interest. By adopting ISS' policies, FAF Advisors believes the risk related to conflicts will be minimized.
To further minimize this risk, the IPC will review ISS' conflict avoidance policy annually to insure it adequately addresses both the actual and perceived conflicts of interest the proxy voting service may face.
In the event the PVAC determines that ISS faces a material conflict of interest with respect to a specific vote, the PVAC shall direct ISS how to vote. The PVAC shall receive voting direction from the Head of Equity Research who will seek voting direction from appropriate investment personnel. Before doing so, however, the PVAC will confirm that FAF Advisors faces no material conflicts of the nature discussed above.
If the PVAC concludes a material conflict does exist, it will recommend a course of action designed to address the conflict to the IPC. Such actions could include, but are not limited to:
1. Obtaining instructions from the affected clients on how to vote the proxy;
2. Disclosing the conflict to the affected clients and seeking their consent to permit FAF Advisors to vote the proxy;
3. Voting in proportion to the other shareholders;
4. Recusing an IPC 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
5. Following the recommendation of a different independent third party.
In addition to all of the above, members of the IPC and the PVAC must notify FAF Advisors' 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 FAF Advisors should vote proxies. The Chief Compliance Officer will investigate the allegations and will report the findings to the FAF Advisors 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 IPC shall not consider any improper influence in determining how to vote proxies and will vote in the best interests of clients.
C. Proxy Vote Override
From time to time, a portfolio manager may initiate action to override the policy for a particular vote. Such override shall be reviewed by Legal for material conflicts. If Legal determines no material conflicts exist, the approval of one investment professional on the IPC or the Head of Equity Research shall authorize the override.
D. Review and Reports
The PVAC shall maintain a review schedule. The schedule shall include reviews for the policy, the proxy voting record, account maintenance, and other reviews as deemed prudent by the PVAC. The PVAC shall review the schedule no less than annually.
The PVAC will report all identified conflicts and how they were addressed to the IPC. These reports will include all funds, including those that are sub-advised.
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 at each of their regularly scheduled meetings.
E. Vote Disclosure to Shareholders
FAF Advisors shall disclose its proxy voting record on the First American Funds' website at www.firstamericanfunds.com and on the SEC's website at www.sec.gov. Additionally, shareholders can receive, on request, the voting records for the First American Fund mutual funds by calling a toll free number (1-800-677-3863).
FAF Advisors' separately managed account clients can contact their relationship manager for more information on FAF Advisors' policies and the proxy voting record for their account.
The information that will be available includes, name of issuer; ticker/CUSIP; shareholder meeting date; description of item and FAF Advisors' vote.
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:
- An auditor has a financial interest in or association with the company, and is therefore not independent;
- 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; or
- Fees for non-audit services are excessive.
2. BOARD OF DIRECTORS
Vote CASE-BY-CASE on director nominees, examining, but not limited to, the following factors:
- Composition of the board and key board committees;
- Attendance at board and committee meetings;
- Corporate governance provisions and takeover activity;
- Disclosures under Section 404 of the Sarbanes-Oxley Act;
- Long-term company performance relative to a market and peer index;
- Extent of the director's investment in the company;
- Existence of related party transactions;
- Whether the chairman is also serving as CEO;
- Whether a retired CEO sits on the board;
- Number of outside boards at which a director serves.
WITHHOLD from individual directors who:
- Attend less than 75 percent of the board and committee meetings without a valid excuse (such as illness, service to the nation, work on behalf of the company);
- Sit on more than six public company boards;
- Are CEOs of public companies who sit on the boards of more than two public companies besides their own (withhold only at their outside boards).
WITHHOLD from the entire board (except for new nominees, who should be considered on a CASE-BY-CASE basis) if:
- The company's poison pill has a dead-hand or modified dead-hand feature. Withhold every year until this feature is removed;
- The board adopts or renews a poison pill without shareholder approval since the beginning of 2005, does not commit to putting it to shareholder vote within 12 months of adoption or reneges on a commitment to put the pill to a vote and has not yet been withheld from for this issue;
- The board failed to act on a shareholder proposal that received approval by a majority of the shares outstanding the previous year;
- The board failed to act on a shareholder proposal that received approval of the majority of shares cast for the previous two consecutive years;
- The board failed to act on takeover offers where the majority of the shareholders tendered their shares;
- At the previous board election, any director received more than 50 percent withhold votes of the shares cast and the company has failed to address the issue(s) that caused the high withhold rate;
- A Russell 3000 company underperformed its industry group (GICS group). The test will consist of the bottom performers within each industry group (GICS) based on a weighted average TSR. The weightings are as follows: 20 percent weight on 1-year TSR; 30 percent weight on 3-year TSR; and 50 percent weight on 5-year TSR. Company's response to performance issues will be considered before withholding.
WITHHOLD from inside directors and affiliated outside directors when:
- The inside or affiliated outside director serves on any of the three key committees: audit, compensation, or nominating;
- The company lacks an audit, compensation, or nominating committee so that the full board functions as that committee;
- The full board is less than majority independent.
WITHHOLD from the members of the Audit Committee if:
- The non-audit fees paid to the auditor are excessive;
- A material weakness identified in the Section 404 disclosures rises to a level of serious concern; there are chronic internal control issues and an absence of established effective control mechanisms.
WITHHOLD from the members of the Compensation Committee if:
- There is a negative correlation between chief executive pay and company performance;
- The company fails to submit one-time transfers of stock options to a shareholder vote;
- The company fails to fulfill the terms of a burn rate commitment they made to shareholders;
- The company has poor compensation practices.
WITHHOLD from directors, individually or the entire board, for egregious actions or failure to replace management as appropriate.
Vote AGAINST proposals to classify the board. Vote FOR proposals to repeal classified boards and to elect all directors annually.
Generally vote FOR shareholder proposals requiring the position of chair be filled by an independent director unless there are compelling reasons to recommend against the proposal, such as a counterbalancing governance structure. This should include all of the following:
- Designated lead director, elected by and from the independent board members with clearly delineated and comprehensive duties. (The role may alternatively reside with a presiding director, vice chairman, or rotating lead director; however the director must serve a minimum of one year in order to qualify as a lead director.);
- Two-thirds independent board;
- All-independent key committees;
- Established governance guidelines;
- The company does not under-perform its peers.
Generally vote FOR reasonably crafted shareholders proposals calling for directors to be elected with an affirmative majority of votes cast and/or the elimination of the plurality standard for electing directors (including binding resolutions requesting that the board amend the company's bylaws), provided the proposal includes a carve-out for a plurality voting standard when there are more director nominees than board seats (e.g., contested elections). Consider voting AGAINST the shareholder proposal if the company has adopted a formal corporate governance policy that
present a meaningful alternative to the majority voting standard and provide an adequate response to both new nominees as well as incumbent nominees who fail to receive a majority of votes cast.
At a minimum, a company's policy should articulate the following elements to adequately address each director nominee who fails to receive an affirmative of majority of votes cast in an election:
- Established guidelines disclosed annually in the proxy statement concerning the process to follow for nominees who receive majority withhold votes;
- The policy needs to outline a clear and reasonable timetable for all decision-making regarding the nominee's status;
- The policy needs to specify that the process of determining the nominee's status will be managed by independent directors and must exclude the nominee in question;
- An outline of a range of remedies (for example, acceptance of the resignation, maintaining the director but curing the underlying causes of the withheld votes, etc.);
- The final decision on the nominee's status should be promptly disclosed via an SEC filing. The policy needs to include the timeframe for disclosure and require a full explanation of how the decision was reached.
In addition, the company should articulate to shareholders why its policy is the best structure for demonstrating accountability to shareholders.
3. PROXY CONTESTS
Vote CASE-BY-CASE on the election of directors in contested elections, considering the following factors:
- Long-term financial performance of the target company relative to its industry;
- Management's track record;
- Background to the proxy contest;
- Qualifications of director nominees (both slates);
- Strategic plan of dissident slate and quality of critique against management;
- Likelihood that the proposed goals and objectives can be achieved (both slates);
- Stock ownership positions.
Vote CASE-BY-CASE on proposals to reimburse proxy solicitation expenses. When voting in conjunction with support of a dissident slate, vote FOR the reimbursement of all appropriate proxy solicitation expenses associated with the election.
4. TAKEOVER DEFENSES
Vote FOR shareholder proposals requesting that the company submit its poison pill to a shareholder vote or redeem it UNLESS the company has: (1) A shareholder approved poison pill in place; or (2) The company has adopted a policy concerning the adoption of a pill in the future specifying that the board will only adopt a shareholder rights plan if either:
- Shareholders have approved the adoption of the plan; or
- The board, in its exercise of its fiduciary responsibilities, determines that it is in the best interest of shareholders under the circumstances to adopt a pill without the delay in adoption that would result from seeking stockholder approval (i.e. the "fiduciary out" provision). A poison pill adopted under this fiduciary out will be put to a shareholder ratification vote within twelve months of adoption or expire. If the pill is not approved by a majority of the votes cast on this issue, the plan will immediately terminate.
Vote FOR shareholder proposals calling for poison pills to be put to a vote within a time period of less than one year after adoption. If the company has no non-shareholder approved poison pill in place and has adopted a policy with the provisions outlined above, vote AGAINST the proposal. If these conditions are not met, vote FOR the proposal, but with the caveat that a vote within twelve months would be considered sufficient.
Vote CASE-by-CASE on management proposals on poison pill ratification, focusing on the features of the shareholder rights plan. Rights plans should contain the following attributes:
- No lower than a 20 percent trigger, flip-in or flip-over;
- A term of no more than three years;
- No dead-hand, slow-hand, no-hand or similar feature that limits the ability of a future board to redeem the pill;
- Shareholder redemption feature (qualifying offer clause); if the board refuses to redeem the pill 90 days after a qualifying offer is announced, ten percent of the shares may call a special meeting or seek a written consent to vote on rescinding the pill.
Vote AGAINST proposals to require a supermajority shareholder vote. Vote FOR proposals to lower supermajority vote requirements.
5. MERGERS AND CORPORATE RESTRUCTURINGS
For mergers and acquisitions, evaluate the proposed transaction based on these factors:
- Valuation - Is the value to be received by the target shareholders (or paid by the acquirer) reasonable?
- Market reaction - How has the market responded to the proposed deal?
- Strategic rationale - Does the deal make sense strategically? Cost and revenue synergies should not be overly aggressive or optimistic, but reasonably achievable.
- Negotiations and process - Were the terms of the transaction negotiated at arm's length? Was the process fair and equitable?
- Conflicts of interest - Are insiders benefiting from the transaction disproportionately and inappropriately as compared to non-insider shareholders? As the result of potential conflicts, the directors and officers of the company may be more likely to vote to approve a merger than if they did not hold these interests.
- Governance - Will the combined company have a better or worse governance profile than the parties to the transaction?
6. STATE OF INCORPORATION
Vote CASE-BY-CASE on proposals to change a company's state of incorporation, taking into consideration both financial and corporate governance concerns, including the reasons for reincorporating, a comparison of the governance provisions, comparative economic benefits, and a comparison of the jurisdictional laws. Vote FOR reincorporation when the economic factors outweigh any neutral or negative governance changes.
7. CAPITAL STRUCTURE
Vote CASE-BY-CASE on proposals to increase the number of shares of common stock authorized for issuance using a model developed by ISS. Vote FOR proposals to approve increases beyond the allowable increase when a company's shares are in danger of being de-listed or if a company's ability to continue to operate as a going concern is uncertain. In addition, for capital requests less than or equal to 300 percent of the current authorized shares that marginally fail the calculated allowable cap (i.e., exceed the allowable cap by no more than 5 percent), on a CASE-BY-CASE basis, vote FOR the increase based on the company's performance and whether the company's ongoing use of shares has shown prudence.
Vote AGAINST proposals that increase authorized common stock for the explicit purpose of implementing a non-shareholder approved shareholder rights plan (poison pill).
Vote AGAINST proposals authorizing the creation of new classes of preferred stock with unspecified voting, conversion, dividend distribution, and other rights ("blank check" preferred stock). Vote AGAINST proposals to increase the number of blank check preferred stock authorized for issuance when no shares have been issued or reserved for a specific purpose.
Vote FOR proposals to create "de-clawed" blank check preferred stock (stock that cannot be used as a takeover defense). Vote FOR proposals to authorize preferred stock in cases where the company specifies the voting, dividend, conversion, and other rights of such stock and the terms of the preferred stock appear reasonable. Vote CASE-BY-CASE on proposals to increase the number of blank check preferred shares after analyzing the number of preferred shares available for issue given a company's industry and performance in terms of shareholder returns.
8. EXECUTIVE AND DIRECTOR COMPENSATION
Vote CASE-BY-CASE on equity-based compensation plans. Vote AGAINST the plan if:
- The total cost of the company's equity plans is unreasonable;
- The plan expressly permits the repricing of stock options without prior shareholder approval;
- There is a disconnect between CEO pay and the company's performance;
- The company's three year burn rate exceeds the greater of 2 percent and the mean plus 1 standard deviation of its industry group; or
- The plan is a vehicle for poor pay practices.
Vote CASE-BY-CASE on compensation plans for non-employee directors, based on the cost of the plans against the company's allowable cap. Vote for the plan if ALL of the following qualitative factors in the board's compensation plan are met and disclosed in the proxy statement:
- Stock ownership guidelines with a minimum of three times the annual cash retainer.
- Vesting schedule or mandatory holding/deferral period: - A minimum vesting of three years for stock options or restricted stock; or - Deferred stock payable at the end of a three-year deferral period.
- A balanced mix between cash and equity. If the mix is heavier on equity, the vesting schedule or deferral period should be more stringent, with the lesser of five years or the term of directorship.
- No retirement/benefits and perquisites for non-employee directors; and
- A table with a detailed disclosure of the cash and equity compensation for each non-employee director for the most recent fiscal year.
Companies should provide better and more transparent disclosure related to CEO pay. Consider withhold votes in the future from the compensation committee and voting against equity plans if compensation disclosure is not improved and a tally sheet is not provided.
Vote CASE-BY-CASE on qualified employee stock purchase plans. Vote FOR plans if:
- Purchase price is at least 85 percent of fair market value;
- Offering period is 27 months or less; and
- The number of shares allocated to the plan is ten percent or less of the outstanding shares.
Vote CASE-by-CASE on nonqualified employee stock purchase plans. Vote FOR plans with:
- Broad-based participation (i.e., all employees with the exclusion of individuals with 5 percent or more of beneficial ownership of the company);
- Limits on employee contribution (a fixed dollar amount or a percentage of base salary);
- Company matching contribution up to 25 percent of employee's contribution, which is effectively a discount of 20 percent from market value;
- No discount on the stock price on the date of purchase since there is a company matching contribution.
Vote CASE-by-CASE on management proposals seeking approval to exchange/reprice options, taking into consideration historic trading patterns, rationale for the re-pricing, value-for-value exchange treatment of surrendered options, option vesting, term of the option, exercise price and participation. Vote FOR shareholder proposals to put option re-pricing to a shareholder vote.
Vote FOR shareholder proposals to require golden parachutes or executive severance agreements to be submitted for shareholder ratification, unless the proposal requires shareholder approval prior to entering into employment contracts. Vote on a CASE-BY-CASE basis on proposals to ratify or cancel golden parachutes. An acceptable parachute should include:
- A trigger beyond the control of management;
- The amount should not exceed three times base amount (defined as the average annual taxable W-2 compensation during the five years prior to the year in which the change of control occurs;
- Change-in-control payments should be double-triggered, i.e., (1) after a change in the company's ownership structure has taken place, and (2) termination of the executive as a result of the change in control.
9. CORPORATE RESPONSIBILITY
Generally vote AGAINST proposals to phase out the use of animals in product testing unless:
- The company is conducting animal testing programs that are unnecessary or not required by regulation;
- The company is conducting animal testing when suitable alternatives are accepted and used at peer firms;
- The company has been the subject of recent, significant controversy related to its testing programs.
Generally vote FOR proposals seeking a report on the company's animal welfare standards.
Generally vote AGAINST proposals requesting that companies implement specific price restraints on pharmaceutical products unless the company fails to adhere to legislative guidelines or industry norms in its product pricing. Vote CASE-BY-CASE on proposals requesting that the company evaluate their product pricing considering:
- The existing level of disclosure on pricing policies;
- Deviation from established industry pricing norms;
- The company's existing initiatives to provide its products to needy consumers;
- Whether the proposal focuses on specific products or geographic regions.
Generally vote FOR proposals requesting that companies report on the financial and legal impact of their policies regarding prescription drug re-importation unless such information is already publicly disclosed. Generally vote AGAINST proposals requesting that companies adopt specific policies to encourage or constrain prescription drug re-importation.
Vote AGAINST proposals asking companies to voluntarily label genetically engineered (GE) ingredients in their products or alternatively to provide interim labeling and eventually eliminate GE ingredients due to the costs and feasibility of labeling and/or phasing out the use of GE ingredients.
Most tobacco-related proposals (such as on second-hand smoke, advertising to youth and spin-offs of tobacco-related business) should be evaluated on a CASE-BY-CASE basis.
Generally vote FOR resolutions requesting that a company discloses its policies related to toxic chemicals. Vote CASE-BY-CASE on resolutions requesting that companies evaluate and disclose the potential financial and legal risks associated with utilizing certain chemicals. Generally vote AGAINST resolutions requiring that a company reformulate its products within a certain timeframe unless such actions are required by law in specific markets.
Generally vote AGAINST request for reports outlining potential environmental damage from drilling in the Arctic National Wildlife Refuge (ANWR) unless:
- New legislation is adopted allowing development and drilling in the ANWR region;
- The company intends to pursue operations in the ANWR; and
- The company has not disclosed an environmental risk report for its ANWR operations.
Vote FOR resolutions requesting that companies report to shareholders on the risks and liabilities associated with CAFOs unless:
- The company has publicly disclosed guidelines for its corporate and contract farming operations, including compliance monitoring; or
- The company does not directly source from CAFOs.
Generally vote FOR proposals requesting a report on greenhouse gas emissions from company operations and/or products unless this information is already publicly disclosed or such factors are not integral to the company's line of business. Generally vote AGAINST proposals that call for reduction in greenhouse gas emissions by specified amounts or within a restrictive time frame unless the company lags industry standards and has been the subject of recent, significant fines or litigation resulting from greenhouse gas emissions.
Generally vote FOR resolutions requesting that companies outline their preparations to comply with standards established by Kyoto Protocol signator markets unless:
- The company does not maintain operations in Kyoto signatory markets;
- The company already evaluates and substantially discloses such information; or,
- Greenhouse gas emissions do not significantly impact the company's core businesses.
Vote CASE-BY-CASE on proposals to improve the disclosure of a company's political contributions considering: any recent significant controversy or litigation related to the company's political contributions or governmental affairs; and the public availability of a policy on political contributions. Vote AGAINST proposals barring the company from making political contributions.
Vote CASE-BY-CASE on proposals to review ways of linking executive compensation to social factors, such as corporate downsizings, customer or employee satisfaction, community involvement, human rights, environmental performance, predatory lending, and executive/employee pay disparities.
Vote CASE-BY-CASE on proposals calling for companies to report on the risks associated with outsourcing, considering: the risks associated with certain international markets; the utility of such a report; and the existence of a publicly available code of corporate conduct that applies to international operations.
Vote CASE-BY-CASE on requests for reports detailing the company's operations in a particular country and on proposals to implement certain human rights standards at company facilities or those of its suppliers and to commit to outside, independent monitoring.
10. MUTUAL FUND PROXIES
Vote CASE-BY-CASE on the election of directors and trustees, following the same guidelines for uncontested directors for public company shareholder meetings. However, mutual fund boards do not usually have compensation committees, so do not withhold for the lack of this committee.
Vote CASE-BY-CASE on conversion proposals, considering the following factors:
- Past performance as a closed-end fund;
- Market in which the fund invests;
- Measures taken by the board to address the discount; and
- Past shareholder activism, board activity, and votes on related proposals.
Generally vote AGAINST shareholder proposals that mandate a specific minimum amount of stock that directors must own in order to qualify as a director or to remain on the board.
Vote CASE-BY-CASE on shareholder proposals to reimburse proxy solicitation expenses. When supporting the dissidents, vote FOR the reimbursement of the solicitation expenses.
Vote CASE-BY-CASE on proposals to terminate the investment advisor, considering the following factors:
- Performance of the fund's net asset value;
- The fund's history of shareholder relations;
- The performance of other funds under the advisor's management.
ALTRINSIC GLOBAL ADVISORS, LLC
PROXY VOTING POLICY AND PROCEDURES
ADOPTED 11/1/04
I. STATEMENT OF POLICY
Proxy voting is an important right of shareholders and reasonable care and diligence must be undertaken to ensure that such rights are properly and timely exercised. Altrinsic's proxy voting policy is to address only those instances where the particular fund and its investors would be materially affected. Altrinsic may choose not to participate in a proxy vote when this instance does not occur. When Altrinsic has discretion to vote the proxies of its clients, it will vote those proxies in the best interest of its clients and in accordance with these policies.
II. PROXY VOTING PROCEDURES
All proxies received by the Adviser will be sent to the Compliance Officer. The Compliance Officer will:
- Keep a record or able to readily access a report from the electronic filing of each proxy received;
- Forward the proxy to the Director of Investments;
- Determine which accounts managed by the Adviser hold the security to which the proxy relates;
- Provide the Director of Investments with a list of accounts that hold the security, together with the number of votes each account controls (reconciling any duplications), and the date by which the Adviser must vote the proxy in order to allow enough time for the completed proxy to be returned to the issuer prior to the vote taking place.
- Absent material conflicts (see Section IV below), the Director of Investments will determine how the Adviser should vote the proxy. The Director of Investments will send its decision on how the Adviser will vote a proxy to the Compliance Officer. The Compliance Officer is responsible for voting the proxy either by mail or electronically in a timely and appropriate manner.
- The Adviser may retain a third party to assist it in coordinating and voting proxies with respect to client securities. If so, the Compliance Officer will monitor the third party to assure that all proxies are being properly voted and appropriate records are being retained.
III. VOTING GUIDELINES
In the absence of specific voting guidelines from the client, the Adviser will vote proxies in the best interests of each particular client, which may result in different voting results for proxies for the same issuer. There are no general guidelines to voting. Each proposal will be evaluated separately.
IV. CONFLICTS OF INTEREST
1. The Compliance Officer will identify any conflicts that exist between the interests of the Adviser and its clients. This examination will include a review of the relationship of the Adviser and its affiliates with the issuer of each security and any of the issuer's affiliates to determine if the issuer is a client of the Adviser or an affiliate of the Adviser or has some other relationship with the Adviser or a client of the Adviser.
If a material conflict exists, the Adviser will determine whether voting in accordance with the voting guidelines and factors described above is in the best interests of the client. The Adviser will also determine whether it is appropriate to disclose the conflict to the affected clients and, except in the case of clients that are subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), give the clients the opportunity to vote their proxies themselves. In the case of ERISA clients, if the Investment Management Agreement reserves to the ERISA client the authority to vote proxies when the Adviser determines it has a material conflict that affects its best judgment as an ERISA fiduciary, the Adviser will give the ERISA client the opportunity to vote the proxies themselves, or special ERISA proxy voting procedures must provide for a pre-determined voting policy that eliminates the discretion of the Adviser when voting proxies if such a conflict exists.
V. DISCLOSURE
1. The Adviser will disclose in its Form ADV Part II that clients may contact the Compliance Officer, via e-mail or telephone, in order to obtain information on how the Adviser voted such client's proxies, and to request a copy of these policies and procedures. If a client requests this information, the Compliance Officer will prepare a written response to the client that lists, with respect to each voted proxy about which the client has inquired, (a) the name of the issuer; (b) the proposal voted upon, and (c) how the Adviser voted the client's proxy.
2. A concise summary of this Proxy Voting Policy and Procedures will be included in the Adviser's Form ADV Part II, and will be updated whenever these policies and procedures are updated. The Compliance Officer will offer a copy of this summary to be sent to all existing clients either as a separate mailing or along with a periodic account statement or other correspondence sent to clients.
VI. RECORDKEEPING
The Compliance Officer will maintain files relating to the Adviser's proxy voting procedures in an easily accessible place. Records will be maintained and preserved for five years from the end of the fiscal year during which the last entry was made on a record, with records for the first two years kept in the offices of the Adviser. Records of the following will be included in the files:
- Copies of this proxy voting policy and procedures, and any amendments thereto.
- A copy of each proxy statement that the Adviser receives, provided however that the Adviser may rely on obtaining a copy of proxy statements from the SEC's EDGAR system for those proxy statements that are so available.(1)
- A record of each vote that the Adviser casts.(2)
- A copy of each written client request for information on how the Adviser voted such client's proxies, and a copy of any written response to any (written or oral) client request for information on how the Adviser voted its proxies see Appendix M Attachment A.
(2) The Adviser may also rely on a third party to retain a copy of the votes cast (provided that the third party undertakes to provide a copy of the record promptly upon request).
HANSBERGER GLOBAL INVESTORS, INC.
PROXY VOTING POLICY AND PROCEDURES
PROXY VOTING POLICY
Hansberger Global Investors, Inc. ("HGI") generally is responsible for voting proxies with respect to securities held in client accounts, including clients that are pension plans ("plans") subject to the U.S. Employee Retirement Income Security Act of 1974, as amended ("ERISA"). This document sets forth HGI's policy with respect to proxy voting and its procedures to comply with SEC Rule 206(4)-6 under the U.S. Investment Advisers Act of 1940, as amended. Specifically, Rule 206(4)-6 requires that we:
- Adopt and implement written policies and procedures reasonably designed to ensure that we vote client securities in the best interest of clients;
- Disclose to clients how they may obtain information from us about how we voted proxies for their securities; and
- Describe our proxy voting policies and procedures to clients and furnish them a copy of our policies and procedures on request.
A. OBJECTIVE
Where HGI is given responsibility for voting proxies, we must take reasonable steps under the circumstances to ensure that proxies are received and voted in the best interest of our clients, which generally means voting proxies with a view to enhancing the value of the shares of stock held in client accounts.
The financial interest of our clients is the primary consideration in determining how proxies should be voted. In the case of social and political responsibility issues that in our view do not primarily involve financial considerations, it is not possible to represent fairly the diverse views of our clients and, thus, unless a client has provided other instructions, HGI generally votes in accordance with the recommendations of Institutional Shareholder Services, Inc. ("ISS") (see discussion below) on these issues, although, on occasion HGI abstains from voting on these issues.
When making proxy-voting decisions, HGI generally adheres to its Proxy Voting Guidelines (the "Guidelines"), as revised from time to time by HGI.(1) The Guidelines, which have been developed with reference to the positions of ISS, set forth HGI's positions on recurring issues and criteria for addressing non-recurring issues and incorporates many of ISS's standard operating policies.
B. ACCOUNTS FOR WHICH HGI HAS PROXY VOTING RESPONSIBILITY
HGI generally is responsible for voting proxies with respect to securities selected by HGI and held in client accounts. HGI's form Investment Advisory Agreement provides clients with an alternative as to whether the client or HGI will be responsible for proxy voting. However, HGI does not vote proxies for securities not selected by HGI but that are nevertheless held in a client account or where HGI otherwise is not vested with discretionary authority over securities held in a client account.
Although clients may reserve to themselves or assign to another person proxy voting responsibility, certain formalities must be observed in the case of ERISA plans. Where authority to manage ERISA plan assets has been delegated to HGI, this delegation automatically includes responsibility to vote proxies unless the named fiduciary that appointed HGI has expressly reserved to itself or another named fiduciary proxy voting responsibility. To be effective, a reservation of proxy voting responsibility for a given ERISA plan should:
- be in writing;
- state that HGI is "precluded" from voting proxies because proxy voting responsibility is reserved to an identified named fiduciary; and
- be consistent with the plan's documents (which should provide for procedures for allocating fiduciary responsibilities among named fiduciaries).
C. ADHERENCE TO CLIENT PROXY VOTING POLICIES
Although clients do not always have proxy-voting policies, if a client has such a policy and instructs HGI to follow it, HGI is required to comply with it except in any instance in which doing so would be contrary to the economic interests of the client or otherwise imprudent or unlawful. In the case of ERISA plans, HGI, as a fiduciary, is required to discharge its duties in accordance with the documents governing the plan (insofar as they are consistent with ERISA). These documents include statements of proxy voting policy.
HGI must, to the extent possible, comply with each client's proxy voting policy. If such policies conflict, HGI may vote proxies to reflect each policy in proportion to the respective client's interest in any pooled account, for example (unless in the particular situation voting in such a manner would be imprudent or otherwise inconsistent with applicable law).
D. ARRANGEMENT WITH ISS
HGI presently uses ISS to assist in voting proxies. ISS is a premier proxy research, advisory, voting and vote-reporting service that specializes in global proxy voting. ISS's primary function with respect to HGI is to apprise HGI of shareholder meeting dates of all securities holdings, translate proxy materials received from companies, provide associated research and provide considerations and recommendations for voting on particular proxy proposals.
Although we may consider ISS's and others' recommendations on proxy issues, HGI bears ultimate responsibility for proxy voting decisions. For ERISA plans for which HGI votes proxies, HGI is not relieved of its fiduciary responsibility by following directions of ISS or the ERISA plans' named fiduciaries or by delegating proxy voting responsibility to another person.
E. CONFLICTS
From time to time, proxy voting proposals may raise conflicts between the interests of HGI's clients and the interests of HGI and its employees. HGI MUST TAKE CERTAIN STEPS DESIGNED TO ENSURE, AND MUST BE ABLE TO DEMONSTRATE THAT THOSE STEPS RESULTED IN, A DECISION TO VOTE THE PROXIES THAT WAS BASED ON THE CLIENTS' BEST INTEREST AND WAS NOT THE PRODUCT OF THE CONFLICT. For example, conflicts of interest may arise when:
- Proxy votes regarding non-routine matters are solicited by an issuer that has an institutional separate account relationship with HGI;(2)
- A proponent of a proxy proposal has a business relationship with HGI;
- HGI has business relationships with participants in proxy contests, corporate directors or director candidates;
HGI's Proxy Voting Committee is primarily responsible for monitoring and resolving possible material conflicts with respect to proxy voting. Any portfolio manager or research analyst with knowledge of a personal conflict of interest relating to a particular matter shall disclose that conflict to the Chief Compliance Officer and may be required to recuse him or herself from the proxy voting process. Issues raising possible conflicts of interest are referred to the Proxy Voting Committee for resolution. Application of the Guidelines or voting in accordance with the ISS vote recommendation should, in most cases, adequately address any possible conflicts of interest.
F. SPECIAL ISSUES WITH VOTING FOREIGN PROXIES
Although HGI has arrangements with ISS, voting proxies with respect to shares of foreign stocks may involve significantly greater effort and corresponding cost due to the variety of regulatory schemes and corporate practices in foreign countries with respect to proxy voting. Logistical problems in voting foreign proxies include the following:
- Each country has its own rules and practices regarding shareholder notification, voting restrictions, registration conditions and share blocking.
- To vote shares in some countries, the shares may be "blocked" by the custodian or depository (or bearer shares deposited with a specified financial institution) for a specified number of days (usually five or fewer but sometimes longer) before or after the shareholder meeting. When blocked, shares typically may not be traded until the day after the blocking period. HGI may refrain from voting shares of foreign stocks subject to blocking restrictions where, in HGI's judgment, the benefit from voting the shares is outweighed by the interest of maintaining client
liquidity in the shares. This decision generally is made on a case-by-case basis based on relevant factors, including the length of the blocking period, the significance of the holding, and whether the stock is considered a long-term holding.
- Often it is difficult to ascertain the date of a shareholder meeting because certain countries, such as France, do not require companies to publish announcements in any official stock exchange publication.
- Time frames between shareholder notification, distribution of proxy materials, book-closure and the actual meeting date may be too short to allow timely action.
- Language barriers will generally mean that an English translation of proxy information must be obtained or commissioned before the relevant shareholder meeting.
- Some companies and/or jurisdictions require that, in order to be eligible to vote, the shares of the beneficial holders be registered in the company's share registry.
- Lack of a "proxy voting service" by custodians in certain countries.
Because the cost of voting on a particular proxy proposal could exceed the expected benefit to a client (including an ERISA plan), HGI may weigh the costs and benefits of voting on proxy proposals relating to foreign securities and make an informed decision on whether voting a given proxy proposal is prudent.
G. REPORTS
HGI's Form ADV, Part II sets forth how clients may obtain information from HGI about how we voted proxies with respect to their securities. If requested, HGI provides clients with periodic reports on HGI's proxy voting decisions and actions for securities in their accounts, in such forms or intervals as the clients reasonably request. In the case of ERISA plans, the named fiduciary that appointed HGI is required to monitor periodically HGI's activities, including our decisions and actions with regard to proxy voting. Accordingly, HGI provides these named fiduciaries on request with reports to enable them to monitor HGI's proxy voting decisions and actions, including our adherence (as applicable) to their proxy voting policies.
H. OPERATIONAL PROCEDURES
HGI's Investment Operations Group is responsible for administering the proxy voting process as set forth in these procedures. The Proxy Administrator in the Investment Operations Group works with ISS, the proxy voting service, and is responsible for ensuring that meeting notices are reviewed and proxy matters are communicated to the portfolio managers or research analysts for consideration and voting recommendations. The Proxy Administrator is also responsible for fielding questions regarding a proxy vote from ISS, and soliciting feedback from the portfolio managers and, or research analysts covering the company.
The Proxy Administrator will process proxies of a routine nature in accordance with HGI's Proxy Voting Guidelines when the vote recommendation from ISS and company management are in agreement on how the proposal should be voted. A response or feedback from the portfolio manager or research analyst covering the company will be solicited in writing by the Proxy Administrator when proposals are not covered by the Guidelines, ISS recommends a vote contrary to company management, or the Guidelines are unclear on how a proxy should be voted. Responses from portfolio managers and research analysts are required to be in writing and are maintained by the Proxy Administrator. The Proxy Administrator is responsible for the actual submission of the proxies in a timely fashion.
A portfolio manager or research analyst may submit a proxy recommendation to the Proxy Administrator for processing contrary to the Guidelines or ISS vote recommendation if he or she determines that it is in the best interest of clients. Portfolio managers or research analysts who submit voting recommendations inconsistent with the Guidelines or ISS vote recommendations are required to document the rationale for their recommendation. The Proxy Voting Committee will review the recommendation in order to determine whether the portfolio manager's or research analyst's voting rationale appears reasonable and in the best interests of clients. If the Proxy Voting Committee does not agree that the portfolio manager's or research analyst's rationale is reasonable and in the best interests of clients, the Proxy Voting Committee will vote the proxy and document the reason(s) for its decision. The Proxy Administrator is responsible for maintaining the documentation provided by portfolio managers, research analysts, and the Proxy Voting Committee, and assuring that it adequately reflects the basis for any recommendation or vote that is cast in opposition to the Guidelines or ISS vote recommendation.
I. SECURITIES SUBJECT TO LENDING ARRANGEMENTS
For various legal or administrative reasons, HGI, customarily and typically does not, and is often unable to vote securities that are, at the time of such vote, on loan pursuant to a client's securities lending arrangement with the client's custodian. HGI will refrain from voting such securities where the costs to the client and/or administrative inconvenience of retrieving securities then on loan outweighs the benefit of voting, assuming retrieval under such circumstances is even feasible and/or possible. In certain extraordinary situations, HGI may seek to have securities then on loan pursuant to such securities lending arrangements retrieved by the clients' custodians for voting purposes. This decision will generally be made on a case-by-case basis depending on whether, in HGI's judgment, the matter to be voted on has critical significance to the potential value of the securities in question, the relative cost and/or administrative inconvenience of retrieving the securities, the significance of the holding and whether the stock is considered a long-term holding. There can be no guarantee that any such securities can be retrieved for such purpose.
(2) For this purpose, HGI generally will consider as "non-routine" any matter listed in New York Stock Exchange Rule 452.11, relating to when a member firm may not vote a proxy without instructions from its customer (for example, contested matters are deemed non-routine).
HANSBERGER GLOBAL INVESTORS, INC.
PROXY VOTING GUIDELINES
GENERAL GUIDELINES
The proxy voting guidelines below summarize HGI's position on various issues of concern to investors and give a general indication of how portfolio securities held in client accounts will be voted on proposals dealing with particular issues. The guidelines are not exhaustive and do not include all potential voting issues. In addition, because proxy voting issues and circumstances of individual companies are so varied, there may be instances when HGI may not vote in strict adherence to these guidelines as outlined below. The following guidelines are grouped according to the types of proposals generally presented to shareholders.
(i) Board of Directors Issues
HGI will generally vote for all Board of Directors nominees unless certain actions by the Directors warrant votes to be withheld. These instances include Directors who:
- Attend less than 75% of the board and committee meetings unexcused;
- Ignore a shareholders' proposal that is approved by a majority of the votes cast for two (2) consecutive years;
- Have failed to act on takeover offers where the majority of the shareholders have tendered their shares;
- Are inside directors and sit on the audit, compensation or nomination committees; and
- Enacted egregious corporate governance policies.
All other items are voted on a case-by-case basis with the exception of the following, which HGI will generally oppose:
- Proposals to limit the tenure of outside directors;
- Proposals to impose mandatory retirement ages for outside directors; and
- Proposals requiring directors to own a minimum amount of company stock in order to qualify as director or remain on the board.
(ii) Auditors
HGI will generally vote for proposals to ratify auditors, unless:
- An auditor has a financial interest in or association with the company, and is therefore not independent; or
- There is reason to believe that the independent auditor has rendered an opinion that is neither accurate nor indicative of the company's financial position.
(iii) Executive and Director Compensation
HGI will generally support executive compensation plans that motivate participants to focus on long-term shareholder value and returns, encourage employee stock ownership, and more closely align employee interests with those of shareholders. HGI will also support resolutions regarding director's fees. In general, HGI will determine votes for the following on a case-by-case basis:
- Stock-based incentive plans;
- Performance-based stock option proposals;
- Stock plans in lieu of cash;
- Proposals to ratify or cancel executive severance agreements; and
- Management proposals seeking approval to re-price options.
HGI will generally vote for:
- Employee stock purchase plans where the purchase price is at least 85 percent of fair market value, offering period is 27 months or less, and potential voting power dilution is ten percent or less;
- Proposals to implement an ESOP or increase authorized shares for existing ESOPs, unless the number of shares allocated to the ESOP is excessive (more than five percent of outstanding shares);
- Proposals to implement a 401(k) savings plan for employees;
- Proposals seeking additional disclosure of executive and director pay information, provided that the information is relevant to shareholders' needs, would not put the company at a disadvantage, and is not unduly burdensome; and
- Proposals to expense stock options.
HGI will generally vote against:
- Retirement plans for non-employee directors;
- Shareholder proposals seeking to set absolute levels on compensation or otherwise dictate the amount or forms of compensation; and
- Shareholder proposals requiring director fees to be paid in stock only.
(iv) Takeover/Tender Offer Defenses
Anti-takeover proposals are analyzed on a case-by-case basis. However, since investors customarily, in our view, suffer a diminution of power as a result of the adoption of such proposals, they are generally opposed by HGI unless structured in such a way that they give shareholders the ultimate decision on any proposal or offer. Specifically, HGI will under normal circumstances oppose:
- Dual class exchange offers and dual class recapitalizations (unequal voting rights);
- Proposals to require a supermajority shareholder vote to approve charter and bylaw amendments;
- Proposals to require a supermajority shareholder vote to approve mergers and other significant business combinations; and
- Fair price provisions with shareholder vote requirements greater than a majority of disinterested shares.
HGI will generally vote in favor of the following issues:
- Proposals to adopt anti-greenmail charter by-law amendments or to otherwise restrict a company's ability to make greenmail payments; and
- Proposals to require approval of blank check preferred stock issues for other than general corporate purposes.
(v) Capital Structure and Shareholder Rights
This category consists of broad issues concerning capital structure and shareholder rights. These types of issues generally call for revisions to the corporate by- laws, which will impact shareholder ownership rights. All items are reviewed and voted on a case-by-case basis; however, HGI endeavors to balance the ownership rights of shareholders and their best interests with providing management of each corporation the greatest operational latitude.
(vi) Social and Political Responsibility Issues
In the case of social and political responsibility issues that in HGI's view do not primarily involve financial considerations, it is not possible to represent fairly the diverse views of HGI's clients. Unless a client has given us other instructions, HGI generally votes in accordance with the recommendations of Institutional Shareholder Services, Inc. ("ISS") on these social and political issues, although HGI sometimes abstains from voting on these issues.
PROXY VOTING POLICY OF
LAZARD ASSET MANAGEMENT LLC
A. INTRODUCTION
As a fiduciary, Lazard Asset Management LLC ("Lazard") is obligated to vote proxies in the best interests of its clients. Lazard has developed a structure that is designed to ensure that proxy voting is conducted in an appropriate manner, consistent with clients' best interest, and within the framework of this Proxy Voting Policy (the "Policy"). Lazard has adopted this Policy in order to satisfy its fiduciary obligation. It is intended that this Policy also satisfy the requirements of Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended (the "Advisers Act").
Lazard manages assets for a variety of clients, including individuals, Taft-Hartley plans, governmental plans, foundations and endowments, corporations, and investment companies and other collective investment vehicles. Absent specific client guidelines, Lazard's policy is to vote proxies on a given issue the same for all of its clients. This Policy is based on the view that Lazard, in its role as investment adviser, must vote proxies based on what it believes will maximize shareholder value as a long-term investor, and the votes that it casts on behalf of all its clients are intended to accomplish that objective.
This Policy recognizes that there may be times when meeting agendas or proposals may create the appearance of a material conflict of interest for Lazard. When such a conflict may appear, Lazard will seek to alleviate the potential conflict by voting consistent with pre-approved guidelines or, in situations where the pre-approved guideline is to vote case-by-case, with the recommendation of an independent source. More information on how Lazard handles conflicts is provided in Section F of this Policy.
B. RESPONSIBILITY TO VOTE PROXIES
Generally, Lazard is willing to accept delegation from its clients to vote proxies. Lazard does not delegate that authority to any other person or entity, but retains complete authority for voting all proxies on behalf of its clients. Not all clients delegate proxy-voting authority to Lazard, however, and Lazard will not vote proxies, or provide advice to clients on how to vote proxies, in the absence of a specific delegation of authority or an obligation under applicable law. For example, securities that are held in an investment advisory account, for which Lazard exercises no investment discretion, are not voted by Lazard, nor are shares that the client has authorized their custodian bank to use in a stock loan program, which passes voting rights to the party with possession of the shares.
C. GENERAL ADMINISTRATION
1. OVERVIEW
Lazard's proxy voting process is administered by its Proxy Operations Department ("ProxyOps"), which reports to Lazard's Chief Operations Officer. Oversight of the process is provided by Lazard's Legal / Compliance Department and by a Proxy Committee. The Proxy Committee meets at least semi-annually to review this Policy and consider changes to it, as well as specific proxy voting guidelines (the "Approved Guidelines"), which are discussed below. Meetings may be convened more frequently (for example, to discuss a specific proxy agenda or proposal) as requested by the Manager of ProxyOps, any member of the Proxy Committee, or Lazard's General Counsel or Chief Compliance Officer. A representative of Lazard's Legal / Compliance Department must be present at all Proxy Committee meetings.
2. ROLE OF THIRD PARTIES
To assist it in its proxy-voting responsibilities, Lazard currently subscribes to several research and other proxy-related services offered by Institutional Shareholder Services, Inc. ("ISS"), one of the world's largest providers of proxy-voting services. ISS provides Lazard with its independent analysis and recommendation regarding virtually every proxy proposal that Lazard votes on behalf of its clients, with respect to both U.S. and non-U.S. securities.
ISS provides other proxy-related administrative services to Lazard. ISS receives on Lazard's behalf all proxy information sent by custodians that hold securities of Lazard's clients. ISS posts all relevant information regarding the proxy on its password-protected website for Lazard to review, including meeting dates, all agendas and ISS's analysis. ProxyOps reviews this information on a daily basis and regularly communicates with representatives of ISS to ensure that all agendas are considered and proxies are voted on a timely basis. ISS also provides Lazard with vote execution, recordkeeping and reporting support services.
3. VOTING PROCESS
Lazard's Proxy Committee has approved specific proxy voting guidelines regarding various common proxy proposals (the "Approved Guidelines"). As discussed more fully below in Section D of this Policy, depending on the proposal, the Approved Guideline may provide that Lazard should vote for or against the proposal, or that the proposal should be considered on a case-by-case basis.
Where the Approved Guideline for a particular type of proxy proposal is to vote on a case-by case basis, Lazard believes that input from a portfolio manager or research analysts with knowledge of the issuer and its securities (collectively, "Portfolio Management") is essential. Portfolio Management is, in Lazard's view, best able to evaluate the impact that the outcome on a particular proposal will have on the value of the issuer's shares. Consequently, the Manager of ProxyOps seeks Portfolio Management's recommendation on how to vote all such proposals.
In seeking Portfolio Management's recommendation, the Manager of ProxyOps provides ISS's recommendation and analysis. Portfolio Management provides the Manager of ProxyOps with its recommendation and the reasons behind it. ProxyOps will generally vote as recommended by Portfolio Management, subject to situations where there may appear to be a material conflict of interest, in which case an alternative approach may be followed. (See Section F, below.) Depending on the facts surrounding a particular case-by-case proposal, or Portfolio Management's recommendation on a case-by-case proposal, the Manager of ProxyOps may consult with Lazard's Chief Compliance Officer or General Counsel, and may seek the final approval of the Proxy Committee regarding Portfolio Management's recommendation. If necessary, a meeting of the Proxy Committee will be convened to discuss the proposal and reach a final decision on Lazard's vote.
ProxyOps generally votes all routine proposals (described below) according to the Approved Guidelines. For non-routine proposals where the Approved Guideline is to vote for or against, ProxyOps Appendix H-2 February 2006 will provide Portfolio Management both the Approved Guideline, as well as ISS's recommendation and analysis. Unless Portfolio Management disagrees with the Approved Guideline for the specific proposal, ProxyOps will generally vote the proposal according to the Approved Guideline. If Portfolio Management disagrees, however, it will provide its reason for doing so. All the relevant information will be provided to the Proxy Committee members for a final determination of such non-routine items. It is expected that the final vote will be cast according to the Approved Guideline, absent a compelling reason for not doing so, and subject to situations where there may be the appearance of a material conflict of interest, in which case an alternative approach may be followed. (See Section F, below.)
D. SPECIFIC PROXY ITEMS
Shareholders receive proxies involving many different proposals. Many proposals are routine in nature, such as a non-controversial election of Directors or a change in a company's name. Others are more complicated, such as items regarding corporate governance and shareholder rights, changes to capital structure, stock option plans and other executive compensation issues, mergers and other significant transactions and social or political issues. Following are the Approved Guidelines for a significant proportion of the proxy proposals on which Lazard regularly votes. Of course, other proposals may be presented from time to time. Those proposals will be discussed with the Proxy Committee to determine how they should be voted and, if it is anticipated that they may re-occur, to adopt an Approved Guideline.
1. ROUTINE ITEMS
Lazard generally votes routine items as recommended by the issuer's management and Board of Directors, and against any shareholder proposals regarding those routine matters, based on the view that management is in a better position to evaluate the need for them. Lazard considers routine items to be those that do not change the structure,
charter, bylaws, or operations of an issuer in any way that is material to shareholder value. Routine items generally include:
- routine election or re-election of Directors;
- appointment or election of auditors, in the absence of any controversy or conflict regarding the auditors;
- issues relating to the timing or conduct of annual meetings; and
- name changes.
2. CORPORATE GOVERNANCE AND SHAREHOLDER RIGHTS MATTERS
Many proposals address issues related to corporate governance and shareholder rights. These items often relate to the Board of Directors and its committees, anti-takeover measures, and the conduct of the company's shareholder meetings.
A. BOARD OF DIRECTOR AND ITS COMMITTEES
Lazard votes in favor of provisions that it believes will increase the effectiveness of an issuer's Board of Directors. Lazard believes that in most instances, the Board and the issuer's management are in the best position to make the determination how to best increase the Board's effectiveness. Lazard does not believe that establishing burdensome requirements regarding a Board will achieve this objective. Lazard has Approved Guidelines to vote:
- FOR the establishment of an independent nominating committee, audit committee or compensation committee of a Board of Directors;
- FOR a requirement that a substantial majority (e.g. 2/3) of a US or UK company's Directors be independent;
- ON A CASE-BY-CASE BASIS regarding the election of Directors where the Board does not have independent "key committees" or sufficient independence;
- FOR proposals that the Board's committees be comprised solely of independent Directors or consist of a majority of independent directors;
- FOR proposals to limit Directors' liability; broaden indemnification of Directors; and approve indemnification agreements for officers and Directors, unless doing so would affect shareholder interests in a specific pending or threatened litigation; or for indemnification due to negligence in these cases voting is ON A CASE-BY-CASE BASIS;
- FOR proposals seeking to de-classify a Board and AGAINST proposals seeking to classify a Board;
- ON A CASE-BY-CASE BASIS on all proposals relating to cumulative voting;
- AGAINST shareholder proposals, absent a demonstrable need, proposing the establishment of additional committees; and on a case-by-case basis regarding the establishment of shareholder advisory committees;
- AGAINST shareholder proposals seeking union or special-interest representation on the Board;
- AGAINST shareholder proposals seeking to establish term limits or age limits for Directors;
- ON A CASE-BY-CASE BASIS on shareholder proposals seeking to require that the issuer's Chairman and Chief Executive Officer be different individuals;
- AGAINST shareholder proposals seeking to establish Director stock-ownership requirements; and
- AGAINST shareholder proposals seeking to change the size of a Board, requiring women or minorities to serve on a Board, or requiring two candidates for each Board seat.
B. ANTI-TAKEOVER MEASURES
Certain proposals are intended to deter outside parties from taking control of a company. Such proposals could entrench management and adversely affect shareholder rights and the value of the company's shares. Consequently, Lazard has adopted Approved Guidelines to vote:
- AGAINST proposals to adopt supermajority vote requirements, or increase vote requirements, for mergers or for the removal of directors;
- ON A CASE-BY-CASE BASIS regarding shareholder rights plans (also known as "poison pill plans") and FOR proposals seeking to require all poison pill plans be submitted to shareholder vote;
- AGAINST proposals seeking to adopt fair price provisions and FOR proposals seeking to rescind them;
- AGAINST "blank check" preferred stock; and
- ON A CASE-BY-CASE BASIS regarding other provisions seeking to amend a company's by-laws or charter regarding anti-takeover provisions.
C. CONDUCT OF SHAREHOLDER MEETINGS
Lazard generally opposes any effort by management to restrict or limit shareholder participation in shareholder meetings, and is in favor of efforts to enhance shareholder participation. Lazard has therefore adopted Approved Guidelines to vote:
- AGAINST proposals to adjourn meetings;
- AGAINST proposals seeking to eliminate or restrict shareholders' right to call a special meeting;
- FOR proposals providing for confidential voting;
- AGAINST efforts to eliminate or restrict right of shareholders to act by written consent;
- AGAINST proposals to adopt supermajority vote requirements, or increase vote requirements, and
- ON A CASE-BY-CASE BASIS on changes to quorum requirements.
3. CHANGES TO CAPITAL STRUCTURE
Lazard receives many proxies that include proposals relating to a company's capital structure. These proposals vary greatly, as each one is unique to the circumstances of the company involved, as well as the general economic and market conditions existing at the time of the proposal. The Board and management may have many legitimate business reasons in seeking to effect changes to the issuer's capital structure, including raising additional capital for appropriate business reasons, cash flow and market conditions. Lazard generally believes that these decisions are best left to management, absent apparent reasons why they should not be. Consequently, Lazard has adopted Approved Guidelines to vote:
- FOR management proposals to increase or decrease authorized common or preferred stock (unless it is believed that doing so is intended to serve as an anti-takeover measure);
- FOR stock splits and reverse stock splits;
- ON A CASE-BY-CASE BASIS on matters affecting shareholder rights, such as amending votes-per-share;
- ON A CASE-BY-CASE BASIS on management proposals to issue a new class of common or preferred shares;
- FOR management proposals to adopt or amend dividend reinvestment plans;
- AGAINST changes in capital structure designed to be used in poison pill plans; and
- ON A CASE-BY-CASE BASIS on proposals seeking to approve or amend stock ownership limitations or transfer restrictions.
4. STOCK OPTION PLANS AND OTHER EXECUTIVE COMPENSATION ISSUES
Lazard supports efforts by companies to adopt compensation and incentive programs to attract and retain the highest caliber management possible, and to align the interests of the Board, management and employees with those of shareholders. Lazard favors programs intended to reward management and employees for positive, long-term performance. However, Lazard will evaluate whether it believes, under the circumstances, that the level of compensation is appropriate or excessive. Lazard has Approved Guidelines to vote:
- ON A CASE-BY-CASE BASIS regarding all stock option plans;
- AGAINST restricted stock plans that do not involve any performance criteria;
- FOR employee stock purchase plans;
- ON A CASE-BY-CASE BASIS for stock appreciation rights plans;
- FOR deferred compensation plans;
- AGAINST proposals to approve executive loans to exercise options;
- AGAINST proposals to re-price underwater options;
- ON A CASE-BY-CASE BASIS regarding shareholder proposals to eliminate or restrict severance agreements, and For proposals to submit severance agreements to shareholders for approval; and
- AGAINST proposals to limit executive compensation or to require executive compensation to be submitted for shareholder approval, unless, with respect to the latter submitting compensation plans for shareholder approval is required by local law or practice.
5. MERGERS AND OTHER SIGNIFICANT TRANSACTIONS
Shareholders are asked to consider a number of different types of significant transactions, including mergers, acquisitions, sales of all or substantially all of a company's assets, reorganizations involving business combinations and liquidations. Each of these transactions is unique. Therefore, Lazard's Approved Guideline is to vote on each of these transactions on a case-by-case basis.
6. SOCIAL AND POLITICAL ISSUES
Proposals involving social and political issues take many forms and cover a wide array of issues. Some examples are: adoption of principles to limit or eliminate certain business activities, or limit or eliminate business activities in certain countries; adoption of certain conservation efforts; reporting of charitable contributions or political contributions or activities; or the adoption of certain principles regarding employment practices or discrimination policies. These items are often presented by shareholders and are often opposed by the company's management and its Board of Directors.
Lazard generally supports the notion that corporations should be expected to act as good citizens, but, as noted above, is obligated to vote on social and political proposals in a way that it believes will most increase shareholder value. As a result, Lazard has adopted Approved Guidelines to vote on a case-by-case basis for most social and political issue proposals. Lazard will generally vote for the approval of anti-discrimination policies.
E. VOTING NON-U.S. SECURITIES
Lazard invests in non-U.S. securities on behalf of many clients. Laws and regulations regarding shareholder rights and voting procedures differ dramatically across the world. In certain countries, the requirements or restrictions imposed before proxies may be voted may outweigh any benefit that could be realized by voting the proxies involved. For example, certain countries restrict a shareholder's ability to sell shares for a certain period of time if the shareholder votes proxies at a meeting (a practice known as "share blocking"). In other instances, the costs of voting a proxy (i.e., by being required to send a representative to the meeting) may simply outweigh any benefit to the client if the proxy is voted. The Manager of ProxyOps will consult with Portfolio Management to determine whether they believe it is in the interest of the clients to vote the proxies. In these instances, the Proxy Committee will have the authority to decide that it is in the best interest of its clients not to vote the proxies.
F. CONFLICTS OF INTEREST
1. OVERVIEW
Lazard is required to vote proxies in the best interests of its clients. It is essential, therefore, that material conflicts of interest or the appearance of a material conflict be avoided.
Potential conflicts of interest are inherent in Lazard's organizational structure and in the nature of its business. Following are examples of situations that could present a conflict of interest or the appearance of a conflict of interest:
- Lazard Freres & Co. LLC ("LF&Co."), Lazard's parent and a registered broker-dealer, or an investment banking affiliate has an investment banking relationship with a company the shares of which are held in
accounts of Lazard clients, and has provided services to the company with respect to an upcoming significant proxy proposal (i.e., a merger or other significant transaction);
- Lazard serves as an investment adviser for a company the management of which supports a particular proposal, and shares of the company are held in accounts of Lazard clients;
- Lazard serves as an investment adviser for the pension plan of an organization that sponsors a proposal; or
- A Lazard employee who would otherwise be involved in the decision-making process regarding a particular proposal has a material relationship with the issuer or owns shares of the issuer.
2. GENERAL POLICY AND CONSEQUENCES OF VIOLATIONS
All proxies must be voted in the best interest of each Lazard client, without any consideration of the interests of any other Lazard client (unrelated to the economic effect of the proposal being voted on share price), Lazard, LF&Co. or any of their Managing Directors, officers, employees or affiliates.
ProxyOps is responsible for all proxy voting in accordance with this Policy after consulting with the appropriate member or members of Portfolio Management, the Proxy Committee and/or the Legal and Compliance Department. No other Managing Directors, officers or employees of Lazard, LF&Co. or their affiliates may influence or attempt to influence the vote on any proposal. Doing so will be a violation of this Policy. Any communication between a Managing Director, officer or employee of LF&Co. and a Managing Director, officer or employee of Lazard trying to influence how a proposal should be voted is prohibited, and is a violation of this Policy. Violations of this Policy could result in disciplinary action, including letter of censure, fine or suspension, or termination of employment. Any such conduct may also violate state and Federal securities and other laws, as well as Lazard's client agreements, which could result in severe civil and criminal penalties being imposed, including the violator being prohibited from ever working for any organization engaged in a securities business.
Every Managing Director, officer and employee of Lazard who participates in any way in the decision-making process regarding proxy voting is responsible for considering whether they have a conflicting interest or the appearance of a conflicting interest on any proposal. A conflict could arise, for example, if a Managing Director, officer or employee has a family member who is an officer of the issuer or owns securities of the issuer. If a Managing Director, officer or employee believes such a conflict exists or may appear to exist, he or she should notify the Chief Compliance Officer immediately and, unless determined otherwise, should not continue to participate in the decision-making process.
3. MONITORING FOR CONFLICTS AND VOTING WHEN A MATERIAL CONFLICT EXISTS
Lazard monitors for potential conflicts of interest when it is possible that a conflict could be viewed as influencing the outcome of the voting decision. Consequently, the steps that Lazard takes to monitor conflicts, and voting proposals when the appearance of a material conflict exists, differ depending on whether the Approved Guideline for the specific item is to vote for or against, or is to vote on a case-by-case basis.
A. WHERE APPROVED GUIDELINE IS FOR OR AGAINST
Most proposals on which Lazard votes have an Approved Guideline to vote for or against. Generally, unless Portfolio Management disagrees with the Approved Guideline for a specific proposal, ProxyOps votes according to the Approved Guideline. It is therefore necessary to consider whether an apparent conflict of interest exists where Portfolio Management disagrees with the Approved Guideline. When that happens, the Manager of ProxyOps will use its best efforts to determine whether a conflict of interest or potential conflict of interest exists by inquiring whether the company itself, or the sponsor of the proposal is a Lazard client. If either is a Lazard client, the Manager of Proxy Ops will notify Lazard's Chief Compliance Officer, who will determine whether some other conflict or potential conflict exists.
If it appears that a conflict of interest exists, the Manager of ProxyOps will notify the Proxy Committee, who will review the facts surrounding the conflict and determine whether the conflict is material. Whether a conflict is "material" will depend on the facts and circumstances involved. For purposes of this Policy, the appearance of a material conflict is one that the Proxy Committee determines could be expected by a reasonable person in similar circumstances to influence or potentially influence the voting decision on the particular proposal involved.
If the Proxy Committee determines that there is no material conflict, the proxy will be voted as outlined in this Policy. If the Proxy Committee determines that a material conflict appears to exist, then the proposal will be voted according to the Approved Guideline.
B. WHERE APPROVED GUIDELINE IS CASE-BY-CASE
In situations where the Approved Guideline is to vote case-by-case and a material conflict of interest appears to exist, Lazard's policy is to vote the proxy item according to the recommendation of an independent source, currently ISS. The Manager of ProxyOps will use his best efforts to determine whether a conflict of interest or a potential conflict of interest may exist by inquiring whether the sponsor of the proposal is a Lazard client. If the sponsor is a Lazard client, the Manager of Proxy Ops will notify Lazard's Chief Compliance Officer, who will determine whether some other conflict or potential conflict exists.
If it appears that a conflict of interest exists, the Manager of ProxyOps will notify the Proxy Committee, who will review the facts surrounding the conflict and determine whether the conflict is material. There is a presumption that certain circumstances will give rise to a material conflict of interest or the appearance of such material conflict, such as LF&Co. having provided services to a company with respect to an upcoming significant proxy proposal (i.e., a merger or other significant transaction). If the Proxy Committee determines that there is no material conflict, the proxy will be voted as outlined in this Policy. If the Proxy Committee determines that a material conflict appears to exist, then the proposal will generally be voted according to the recommendation of ISS, however, before doing so, ProxyOps will obtain a written representation from ISS that it is not in a position of conflict with respect to the proxy, which could exist if ISS receives compensation from the proxy issuer on corporate governance issues in addition to the advice it provides Lazard on proxies. If ISS is in a conflicting position or if the recommendations of the two services offered by ISS, the Proxy Advisor Service and the Proxy Voter Service, are not the same, Lazard will obtain a recommendation from a third independent source that provides proxy voting advisory services, and will defer to the majority recommendation. If a recommendation for a third independent source is not available and ISS is not in a conflicting position, Lazard will follow the recommendation of ISS's Proxy Advisor Service. In addition, in the event of a conflict that arises in connection with a proposal for a Lazard mutual fund, Lazard will either follow the procedures described above or vote shares for or against the proposal in proportion to shares voted by other shareholders.
G. REVIEW OF POLICY
The Proxy Committee will review this Policy at least semi-annually to consider whether any changes should be made to it or to any of the Approved Guidelines. Questions or concerns regarding the Policy should be raised with Lazard's General Counsel or Chief Compliance Officer.
FIRST AMERICAN INVESTMENT FUNDS, INC.
PART C - OTHER INFORMATION
ITEM 23. EXHIBITS
(a)(1) Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit (1) to Post-Effective Amendment No. 21, Filed on May 15, 1995 (File Nos. 033-16905, 811-05309)).
(a)(2) Articles Supplementary, designating new series and new share classes (Incorporated by reference to Exhibit (1) to Post-Effective Amendment No. 36, Filed on April 15, 1998 (File Nos. 033-16905, 811-05309)).
(a)(3) 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. 033-16905, 811-05309)).
(a)(4) 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. 033-16905, 811-05309)).
(a)(5) 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. 033-16905, 811-05309)).
(a)(6) 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. 033-16905, 811-05309)).
(a)(7) 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. 033-16905, 811-05309).
(a)(8) Articles Supplementary designating new series (Incorporated by reference to Exhibit (a)(7) to Post-Effective Amendment No. 72, filed on September 24, 2004 (File Nos. 033-16905, 811-05309).
(a)(9) 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 (Incorporated by reference to Exhibit (d)(1) to Post-Effective Amendment No. 73, Filed on December 2, 2004 (File Nos. 033-16905, 811-05309)).
(d)(2) Supplement dated as of December 31, 1993 to Investment Advisory Agreement relating to authority to appoint a subadviser to International Fund (Incorporated by reference to Exhibit (d)(2) to Post-Effective Amendment No. 73, Filed on December 2, 2004 (File Nos. 033-16905, 811-05309)).
(d)(3) Assignment and Assumption Agreement dated May 2, 2001, relating to
assignment of Investment Advisory Agreement to U.S. Bancorp Piper
Jaffray Asset Management, Inc. (Incorporated by reference to Exhibit
(d)(3) to Post-Effective Amendment No. 73, Filed on December 2, 2004
(File Nos. 033-16905, 811-05309)).
(d)(4) Exhibit A to Investment Advisory Agreement, effective December 5, 2006.*
(d)(5) Sub-Advisory Agreement dated December 9, 2004, by and among Registrant,
FAF Advisors, Inc. and J.P. Morgan Investment Management Inc. with
respect to International Fund (Incorporated by reference to Exhibit
(d)(6) to Post-Effective Amendment No. 74, Filed on January 31, 2005
(File Nos. 033-16905, 811-05309)).
(d)(6) Sub-Advisory Agreement dated November 27,, 2006, by and between FAF Advisors, Inc. and Altrinsic Global Advisors, LLC with respect to International Select Fund.*
(d)(7) Sub-Advisory Agreement dated November 27, 2006, by and between FAF Advisors, Inc. and Hansberger Global Investors, Inc. with respect to International Select Fund.*
(d)(8) Sub-Advisory Agreement dated November 27, 2006, by and between FAF Advisors, Inc. and Lazard Asset Management LLC with respect to International Select Fund.*
(e)(1) Distribution Agreement between the Registrant and Quasar Distributors,
LLC, effective September 19, 2006 (Incorporated by reference to Exhibit
(e)(1) to Post-Effective Amendment No. 82, Filed on October 30, 2006
(File Nos. 033-16905, 811-05309)).
(e)(2) Form of Dealer Agreement (Incorporated by reference to Exhibit (e)(2) to Post-Effective Amendment No. 80, Filed on August 31, 2006 (File Nos. 033-16905, 811-05309)).
(f)(1) Deferred Compensation Plan for Directors Trust Agreement dated January 1, 2000, as amended February 2005 (Incorporated by reference to Exhibit No. (f)(1) to Post-Effective Amendment No. 76, filed May 13, 2005 (File Nos. 033-16905, 811-05309)).
(f)(2) Deferred Compensation Plan for Directors Trust Agreement, Amended Summary of Terms dated February 2005 (Incorporated by reference to Exhibit No. (f)(2) to Post-Effective Amendment No. 76, filed May 13, 2005 (File Nos. 033-16905, 811-05309)).
(g)(1) Custodian Agreement dated July 1, 2006, between the Registrant and U.S. Bank National Association (Incorporated by reference to Exhibit (g)(1) to Post-Effective Amendment No. 80, Filed on August 31, 2006 (File Nos. 033-16905, 811-05309)).
(g)(2) Custodian Agreement dated July 1, 2005, by and between Registrant and State Street Bank and Trust Company with respect to International Fund (Incorporated by reference to Exhibit (g)(5) to Post-Effective Amendment No. 77, Filed on August 3, 2005 (File Nos. 033-16905, 811-05309)).
(g)(3) Letter Amendment dated November 21, 2006 to the Custodian Agreement dated July 1, 2005 by and between Registrant and State Street Bank and Trust Company with respect to International Select Fund.*
(h)(1) Administration Agreement dated July 1, 2006, by and between Registrant and FAF Advisors, Inc. (Incorporated by reference to Exhibit (h)(1) to Post-Effective Amendment No. 80, Filed on August 31, 2006 (File Nos. 033-16905, 811-05309)).
(h)(2) Schedule A to Administration Agreement dated July 1, 2006 between
Registrant and FAF Advisors, Inc. (Incorporated by reference to Exhibit
(h)(2) to Post-Effective Amendment No. 80, Filed on August 31, 2006
(File Nos. 033-16905, 811-05309)).
(h)(3) Sub-Administration Agreement dated July 1, 2005, by and between FAF Advisors, Inc. and U.S. Bancorp Fund Services, LLC (Incorporated by reference to Exhibit (h)(2) to Post-Effective Amendment No. 77, Filed on August 3, 2005 (File Nos. 033-16905, 811-05309)).
(h)(4) Transfer Agent and Shareholder Servicing Agreement dated July 1, 2006, by and among Registrant, and U.S. Bancorp Fund Services, LLC (Incorporated by reference to Exhibit (h)(4) to Post-Effective Amendment No. 80, Filed on August 31, 2006 (File Nos. 033-16905, 811-05309)).
(i) Opinion and Consent of Dorsey & Whitney LLP dated December 20, 2006.*
(j) Not applicable.
(k) Not applicable.
(l) Not applicable.
(m) Amended and Restated Distribution and Service Plan for Class A, B, C, and R shares, effective September 19, 2006 (Incorporated by reference to Exhibit (m)(1) to Post-Effective Amendment No. 82, Filed on October 30, 2006 (File Nos. 033-16905, 811-05309)).
(n) Amended and Restated Multiple Class Plan Pursuant to Rule 18f-3, effective December 5, 2006.*
(o) Reserved.
(p)(1) First American Funds Code of Ethics adopted under Rule 17j-1 of the
Investment Company Act of 1940 and Section 406 of the Sarbanes-Oxley
Act, effective April 14, 2005 (Incorporated by reference to Exhibit
(p)(1) to Post-Effective Amendment No. 80, Filed on August 31, 2006
(File Nos. 033-16905, 811-05309)).
(p)(2) FAF Advisors, Inc. Code of Ethics adopted under Rule 17j-1 of the Investment Company Act of 1940, effective December 8, 2005 (Incorporated by reference to Exhibit (p)(2) to Post-Effective Amendment No. 80, Filed on August 31, 2006 (File Nos. 033-16905, 811-05309)).
(p)(3) J.P. Morgan Investment Management Inc. Code of Ethics adopted under
Rule 17j-1 of the Investment Company Act of 1940, effective February 1,
2005, revised September 29, 2005 (Incorporated by reference to Exhibit
(p)(3) to Post-Effective Amendment No. 80, Filed on August 31, 2006
(File Nos. 033-16905, 811-05309)).
(p)(4) Altrinsic Global Advisors, LLC Code of Ethics adopted under Rule 17j-1 of the Investment Company Act of 1940, effective November 1, 2004, as amended December 1, 2005, March 1, 2006, and May 3, 2006.*
(p)(5) Hansberger Global Investors, Inc. Code of Ethics adopted under Rule 17j-1 of the Investment Company Act of 1940, as amended February 23, 2006.*
(p)(6) Lazard Asset Management LLC Code of Ethics adopted under Rule 17j-1 of the Investment Company Act of 1940, as amended February 2006.*
(p)(7) Quasar Distributors, LLC Code of Ethics adopted under Rule 17j-1 of the Investment Company Act of 1940, effective September 1, 2005 (Incorporated by reference to Exhibit (p)(4) to Post-Effective Amendment No. 79, Filed on December 27, 2005 (File Nos. 033-16905, 811-05309)).
(q)(1) Power of Attorney dated June 20, 2006 (Incorporated by reference to Exhibit (q) to Post-Effective Amendment No. 80, Filed on August 31, 2006 (File Nos. 033-16905, 811-05309)).
(q)(2) Power of Attorney dated October 16, 2006 (Incorporated by reference to Exhibit (q)(2) to Post-Effective Amendment No. 82, Filed on October 30, 2006 (File Nos. 0333-16905, 811-05309)).
* Filed herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 25. INDEMNIFICATION
The Registrant's Articles of Incorporation and Bylaws provide that each present or former director, officer, agent and employee of the Registrant or any predecessor or constituent corporation, and each person who, at the request of the Registrant, serves or served another business enterprise in any such capacity, and the heirs and personal representatives of each of the foregoing shall be indemnified by the Registrant 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 Registrant 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 Registrant shall be empowered to enter into agreements to limit the liability of directors and officers of the Registrant. No indemnification shall be made in violation of the General Corporation Law of the State of Maryland or the Investment Company Act of 1940 (the "1940 Act"). The Registrant's Articles of Incorporation and Bylaws further provide that no director or officer of the Registrant shall be liable to the Registrant or its stockholders for money damages, except (i) to the extent that it is proved 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 Registrant against any liability to the Registrant 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 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, FAF Advisors, Inc. (the "Manager"), is described in the section of each series' 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., President and Chief Executive Officer and chair of Board of Directors, FAF Advisors, Inc. ("FAF Advisors"), Minneapolis, MN (May 2001 to present); President, First American Investment Funds, Inc. ("FAIF"), First American Funds, Inc. ("FAF"), First American Strategy Funds, Inc. ("FASF"), and eight closed-end funds advised by FAF Advisors--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, Inc. collectively referred to as the First American Closed-End Funds ("FACEF"), Minneapolis, MN (February 2001 to present); President, Mount Vernon Securities Lending Trust, Minneapolis, MN (October 2005 to present).
Mark S. Jordahl, Chief Investment Officer and director on Board of
Directors, FAF Advisors, Minneapolis, MN (July 2001 to present); Vice President
- Investments, FAIF, FAF, FASF, and FACEF, Minneapolis, MN (September 2001 to
present); Vice President -- Investments, Mount Vernon Securities Lending Trust,
Minneapolis, MN (October 2005 to present).
Charles R. Manzoni, Jr., General Counsel and Secretary and director on Board of Directors, FAF Advisors, Minneapolis, MN (June 2004 to present).
Joseph M. Ulrey, III, Chief Financial Officer and director on Board of Directors, FAF Advisors, Minneapolis, MN (December 2004 to present); Interim Chief Operating Officer, Shareholder Services and Fund Treasurer (April 2004 to December 2004).
Charles D. Gariboldi, Jr., Treasurer, FAF Advisors, Minneapolis, MN (October 2004 to present); Treasurer, FAIF, FAF, FASF, and FACEF, Minneapolis, MN (December 2004 to present); Treasurer, Mount Vernon Securities Lending Trust, Minneapolis, MN (October 2005 to present); Vice President, Investment Accounting and Fund Treasurer, Thrivent Financial for Lutherans, Minneapolis, MN (1999 to October 2004).
David H. Lui, Chief Compliance Officer, FAF Advisors, Minneapolis, MN (March 2005 to present); Chief Compliance Officer, FAIF, FAF, FASF, and FACEF, Minneapolis, MN (February 2005 to present); Chief Compliance Officer, Mount Vernon Securities Lending Trust, Minneapolis, MN (October 2005 to present); Chief Compliance Officer, Franklin Advisers, Inc. and Chief Compliance Counsel,
Franklin Templeton Investments, San Mateo, CA (2004 to February 2005); Head of Institutional Compliance and Chief Compliance Counsel, Charles Schwab & Co., Inc., San Francisco, CA (1992 to 2004).
Jason K. Mitchell, Anti-Money Laundering Officer, FAF Advisors, Minneapolis, MN (September 2006 to present); Anti-Money Laundering Officer, FAIF, FAF, FASF, FACEF, and Mount Vernon Securities Lending Trust, Minneapolis, MN (September 2006 to present); Compliance Manager, FAF Advisors, Minneapolis, MN (June 2006 to September 2006); Compliance Analyst, FAF Advisors, Minneapolis, MN (October 2004 to June 2006).
John P. Kinsella, Senior Vice President and Director of Tax, FAF Advisors, Minneapolis, MN (February 2003 to present).
ITEM 27. PRINCIPAL UNDERWRITERS
Registrant's distributor, Quasar Distributors, LLC (the "Distributor") acts as principal underwriter and distributor for the following investment companies:
AIP Alternative Strategies Funds Fund X Funds MP63 Fund AIP -- Variable Insurance Trust Geneva Advisors Muhlenkamp (Wexford Trust) Akros Absolute Return Fund Glenmede Fund, Inc. Mutuals.com Al Frank Funds Glenmede Portfolios Mutuals.com Vice Fund Allied Asset Advisors Funds Greenspring Fund Nicholas Funds Alpine Equity Trust Greenville Small Cap Growth Fund Osterweis Funds Alpine Income Trust Guinness Atkinson Funds Perkins Capital Management Alpine Series Trust Harding Loevner Funds Permanent Portfolio Funds American Trust Allegiance Fund Hennessy Funds, Inc Perritt Opportunities Funds Appleton Group Hennessy Mutual Funds, Inc. Phocas Financial Funds Ascentia Long/Short Fund Hester Total Return Fund PIA Funds Brandes Investment Trust High Pointe Funds PIC Funds Brandywine Blue Funds, Inc. Hodges Fund Portfolio 21 Brazos Mutual Funds Hotchkis and Wiley Funds Primecap Odyssey Funds Bridges Investment Fund, Inc. Intrepid Capital Management Prudent Bear Funds, Inc. Buffalo Funds Jacob Internet Fund Inc. Purisima Funds Capital Advisors Funds Jensen Portfolio Quaker Investment Trust CastleRock Fund Julius Baer Funds Rainier Funds Chase Funds Kensington Funds Rigel Capital, LLC Cookson Peirce Keystone Mutual Funds Rockland Small Cap Growth Fund Counterpoint Select Fund Kiewit Investment Fund L.P. Sincere Small Cap Fund Country Funds Kirr Marbach Partners Funds, Inc Skyhawk Small Cap Fund Cullen Funds Leader Short Term Bond Fund Snow Fund Duncan-Hurst Funds Lighthouse Capital Management Stephens Management Co. Edgar Lomax Value Fund LKCM Funds Structured Investment Fund Everest Funds M.D. Sass Summit Funds Fairholme Fund Masters' Select Fund Trust Teberg Fund FFTW Funds, Inc. Matrix Asset Advisors, Inc. Thompson Plumb (TIM) FIMCO Funds McCarthy Fund TIFF Investment Program, Inc. First American Funds, Inc. Midanek/Pak Fund Tygh Capital Management First American Investment Funds, Inc. Monetta Fund, Inc. Villere Fund First American Strategy Funds, Inc. Monetta Trust Women's Equity Fund Fort Pitt Capital Group, Inc. |
The board members and officers of Quasar Distributors, LLC and their positions or offices with the Registrant are identified in the following table. 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 WITH POSITION AND OFFICES WITH
NAME UNDERWRITER REGISTRANT
---- ------------------------- -------------------------
James R. Schoenike President, Board Member None
Joe D. Redwine Board Member None
Robert Kern Board Member None
777 East Wisconsin Avenue
Milwaukee, WI 53202
Eric W. Falkeis Board Member None
777 East Wisconsin Avenue
Milwaukee, WI 53202
Susan L. La Fond Financial Operations Principal None
Andrew M. Strnad Secretary None
Teresa Cowan Assistant Secretary 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 FAF Advisors, 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.
SIGNATURES
As required by the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement under Rule 485(b) under the Securities Act and has duly caused this Post-Effective Amendment to its Registration Statement Nos. 033-16905 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 20th day of December 2006.
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 indicated and on December 20, 2006.
SIGNATURE TITLE
/s/ Thomas S. Schreier, Jr. President
---------------------------------------------------------
Thomas S. Schreier, Jr.
/s/ Charles D. Gariboldi, Jr. Treasurer (principal financial/accounting officer)
---------------------------------------------------------
Charles D. Gariboldi, Jr.
* Director
---------------------------------------------------------
Benjamin R. Field, III
* Director
---------------------------------------------------------
Victoria J. Herget
* Director
---------------------------------------------------------
Roger A. Gibson
* Director
---------------------------------------------------------
John P. Kayser
* Director
---------------------------------------------------------
Leonard W. Kedrowski
* Director
---------------------------------------------------------
Richard K. Riederer
* Director
---------------------------------------------------------
Joseph D. Strauss
* Director
---------------------------------------------------------
Virginia L. Stringer
* Director
---------------------------------------------------------
James M. Wade
* Richard J. Ertel, by signing his name hereto, does hereby sign this document on behalf of each of the above-named Directors of
First American Investment Funds, Inc. pursuant to the powers of attorney duly executed by such persons.
By: /s/ Richard J. Ertel Attorney-in-Fact
---------------------------------------------------------
Richard J. Ertel
|
INDEX TO EXHIBITS
EXHIBIT NUMBER NAME OF EXHIBIT (a)(9) Articles Supplementary (b) Bylaws, as amended (d)(4) Exhibit A to Investment Advisory Agreement (d)(6) Sub-Advisory Agreement -- Altrinsic Global Advisors, LLC (d)(7) Sub-Advisory Agreement -- Hansberger Global Investors, Inc. (d)(8) Sub-Advisory Agreement -- Lazard Asset Management LLC (g)(3) Letter Amendment to Custodian Agreement (i) Opinion and Consent of Dorsey & Whitney LLP (n) Amended and Restated Multiple Class Plan Pursuant to Rule 18f-3 (p)(4) Code of Ethics - Altrinsic Global Advisors, LLC (p)(5) Code of Ethics - Hansberger Global Investors, Inc. (p)(6) Code of Ethics - Lazard Asset Management LLC |
Ex- 99(a)(9)
FIRST AMERICAN INVESTMENT FUNDS, INC.
ARTICLES SUPPLEMENTARY
[December 2006]
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 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) 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.
(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.
(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.
(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 II Common Shares: Two billion (2,000,000,000) Shares.
(93) Class II, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(94) Class II, 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.
(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.
(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.
(157) 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.
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 December 5, 2006, authorized an increase in the total authorized shares of the Corporation from 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), to three hundred thirty-four billion (334,000,000,000) shares of common stock, of the par value of $.0001 per share, and of the aggregate par value of thirty-three million four hundred thousand dollars ($33,400,000).
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 December 5, 2006, classified the following additional Shares out of the authorized, unissued and unclassified Shares of the Corporation:
(1) Class GGG Common Shares: Two billion (2,000,000,000) Shares.
(2) Class GGG, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(3) Class GGG, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(4) Class GGG, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(5) Class GGG, Series 5 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 thirty-four billion (334,000,000,000) 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-three million four hundred thousand dollars ($33,400,000), 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) 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.
(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.
(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.
(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 II Common Shares: Two billion (2,000,000,000) Shares.
(93) Class II, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(94) Class II, 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.
(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.
(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.
(157) 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) Class GGG Common Shares: Two billion (2,000,000,000) Shares.
(164) Class GGG, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(165) Class GGG, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(166) Class GGG, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(167) Class GGG, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(168) 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 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 Assistant Secretary on December 6, 2006.
FIRST AMERICAN INVESTMENT FUNDS, INC.
By /s/ Kathleen L. Prudhomme ------------------------------------- Kathleen L. Prudhomme, Secretary |
WITNESS:
/s/ James D. Alt ------------------------------------- James D. Alt, Assistant Secretary |
Ex-99(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; AMENDMENTS TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASS AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON DECEMBER 5, 2006.
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)
nor more than twelve (12). The number of directors may not be decreased so as to affect the term of any incumbent director. If the number be increased, the additional directors to fill the vacancies thus created may, except as hereinafter provided, by elected by majority vote of the entire Board of Directors. Any vacancy occurring for any cause may be filled by a majority of the remaining members of the Board of Directors, although such majority is less than a quorum; provided, however, that after filling any vacancy for any cause whatsoever two-thirds (2/3) of the entire Board of Directors shall have been elected by the stockholders of the Corporation. A director elected under any circumstance shall be elected to hold office until his successor is elected and qualified, or until such director's earlier death, resignation, retirement or removal.
SECTION 2. When Stockholder Meeting Required. If at any time less than a
majority of the directors holding office were elected by the stockholders of the
Corporation, the directors or the President or Secretary shall cause a meeting
of stockholders to be held as soon as possible and, in any event, within sixty
(60) days, unless extended by order of the Securities and Exchange Commission,
for the purpose of electing directors to fill any vacancy.
SECTION 3. Regular Meetings. Regular meetings of the Board of Directors may be held at such time and place as shall be determined from time to time by agreement or fixed by resolution of the Board of Directors.
SECTION 4. Special Meetings. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board or President and shall be called by the Secretary upon the written request of any two (2) directors.
SECTION 5. Notice of Meetings. Except as otherwise provided in these Bylaws, notice need not be given of regular meetings of the Board of Directors held at times fixed by agreement or resolution of the Board of Directors. Notice of special meetings of the Board of Directors, stating the place, date and time thereof, shall be given not less than two (2) days before such meeting to each director. Notice to a director may be given personally, by telegram, cable or wireless, by telephone, by mail, or by leaving such notice at his place of residence or usual place of business. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the director at his address as it appears on the records of the Corporation. Meetings may be held at any time without notice if all the directors are present, or if those not present waive notice of the meeting in writing. If the President shall determine in advance that a quorum would not be present on the date set for any regular or special meeting, such meeting may be held at such later date, time and place as he shall determine, upon at least twenty-four (24) hours' notice.
SECTION 6. Quorum. A majority of the directors then in office, at a meeting duly assembled, but not less than one-third of the entire Board of Directors nor in any event less than two directors, shall constitute a quorum for the transaction of business. The vote of a majority of directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Articles of
Incorporation or by these Bylaws. If at any meeting of the Board of Directors, there shall be less than a quorum present, a majority of those present may adjourn the meeting, without further notice, from time to time until a quorum shall have been obtained.
SECTION 7. Removal. At any meeting of stockholders, duly called and at which a quorum is present, the stockholders may, by the affirmative vote of the holders of a majority of the votes entitled to be cast thereon, remove any director or directors from office and may elect a successor or successors to fill any resulting vacancies.
SECTION 8. Committees. The Board of Directors, may, by resolution adopted by a majority of the entire Board of Directors, from time to time appoint from among its members one or more committees as it may determine. Each committee appointed by the Board of Directors shall be composed of two (2) or more directors and may, to the extent provided in such resolution, have and exercise all the powers of the Board of Directors, except the power to declare dividends, to issue stock or to recommend to stockholders any action requiring stockholder approval. Each such committee shall serve at the pleasure of the Board of Directors. Each such committee shall keep a record of its proceedings and shall adopt its own rules of procedure. It shall make reports as may be required by the Board of Directors.
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 individual serving as Chairman of the Board of Directors will not be deemed to be an "affiliated person" with respect to the Corporation (under the Investment Company Act of 1940, as amended) solely by virtue of such person's position as Chairman of the Board of Directors of the Corporation.
SECTION 4. President. The president shall be the chair executive officer of the Corporation and shall perform such other duties as from time to time may be assigned to him by the Board of Directors. He shall perform the duties of the Chairman of the Board of Directors in the event there is no Chairman or in the event the Chairman is absent.
SECTION 5. Vice Presidents. A Vice President shall perform such duties as may be assigned by the President or the Board of Directors. In the absence of the President and in accordance with such order of priority as may be established by the Board of Directors, he may perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President.
SECTION 6. Secretary. The Secretary shall (a) keep the minutes of the stockholders' and Board of Directors' meetings in one or more books provided for that purpose, and shall perform like duties for committees when requested, (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law, (c) be custodian of the corporate records and of the seal of the Corporation and see that the seal of the Corporation is affixed to all documents the execution of which on behalf of the Corporation under its seal is duly authorized or required by law, and (d) in general perform all duties incident to the office of Secretary and such other duties as may be assigned by the President or the Board of Directors.
SECTION 7. Assistant Secretaries. One or more Assistant Secretaries may be elected by the Board of Directors or appointed by the President. In the absence of the Secretary and in accordance with such order as may be established by the Board of Directors, an Assistant Secretary shall have the power to perform his duties including the certification, execution and attestation of corporate records and corporate instruments. Assistant Secretaries shall perform such other duties as may be assigned to them by the President or the Board of Directors.
SECTION 8. Treasurer. The Treasurer (a) shall be the principal financial officer of the Corporation, (b) shall see that all funds and securities of the Corporation are held by the custodian of the Corporation's assets, and (c) shall be the principal accounting officer of the Corporation.
SECTION 9. Assistant Treasurers. One or more Assistant Treasurers may be elected by the Board of Directors or appointed by the President. In the absence of the Treasurer and in accordance with such order as may be established by the Board of Directors, an Assistant
Treasurer shall have the power to perform his duties. Assistant Treasurers shall perform such other duties as may be assigned to them by the President or the Board of Directors.
SECTION 10. Other Officers. The Board of Directors may appoint or may authorize the Chairman of the Board or the President to appoint such other officers and agents as the appointer may deem necessary and proper, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the appointer.
SECTION 11. Bond. If required by the Board of Directors, the Treasurer and such other directors, officers, employees and agents of the Corporation as the Board of Directors may specify, shall give the Corporation a bond in such amount, in such form and with such security, surety or sureties, as may be satisfactory to the Board of Directors, conditioned on the faithful performance of the duties of their office and for the restoration to the Corporation, in case of their death, resignation, or removal from their office of all books, papers, vouchers, monies, securities and property of whatever kind in their possession belonging to the Corporation. All premiums on such bonds shall be paid by the Corporation.
SECTION 12. Removal. Any officer (or the Chairman of the Board of Directors) of the Corporation may be removed by the Board of Directors whenever, in its judgment, the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contractual rights, if any, of the officer (or the Chairman of the Board of Directors) so removed.
ARTICLE IV
CAPITAL STOCK
SECTION 1. Stock Certificates. Certificates representing shares of stock of the Corporation shall be in such form consistent with the laws of the State of Maryland as shall be determined by the Board of Directors. All certificates for shares of stock shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares of stock represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer records of the Corporation.
SECTION 2. Redemption and Transfer. Any holder of stock of the Corporation desiring to redeem or transfer shares of stock standing in the name of such holder on the books of the Corporation shall deliver to the Corporation or to its agent duly authorized for such purpose a written unconditional request, in form acceptable to the Corporation, for such redemption or transfer. If certificates evidencing such shares have been issued, such certificates shall also be so delivered in transferable form duly endorsed or accompanied by all necessary stock transfer stamps or currency or certified or bank cashier's check payable to the order of the Corporation for the appropriate price thereof. The Corporation or its duly authorized agent may require that the signature of a redeeming stockholder on any or all of the request, endorsement or stock power be guaranteed and that other documentation in accordance with the custom of brokers be so delivered where appropriate, such as proof of capacity and power to make request or transfer.
All documents and funds shall be deemed to have been delivered only when physically deposited at such office or other place of deposit as the Corporation or its duly authorized agent shall from time to time designate. At any time during which the right of redemption is suspended or payment for such shares is postponed pursuant to the Investment Company Act of 1940, as amended, or any rule, regulation or order thereunder, any stockholder may withdraw his request (and certificates and funds, if any) or may leave the same on deposit, in which case the redemption price shall be the net asset value next applicable after such suspension or postponement is terminated.
SECTION 3. Lost, Mutilated, Destroyed or Wrongfully Taken Certificates. Any person claiming a stock certificate to have been lost, mutilated, destroyed or wrongfully taken, and who requests the issuance of a new certificate before the Corporation has notice that the certificate alleged to have been lost, mutilated, destroyed or wrongfully taken has been acquired by a bona fide purchaser, shall make an affidavit of that fact and shall give the Corporation and its transfer agents and registrars a bond, with sufficient surety, to indemnify them against any loss or claim arising as a result of the issuance of a new certificate. The form and amount of such bond and the surety thereon shall in each case be deemed sufficient if satisfactory to the President or Treasurer of the Corporation.
ARTICLE V
GENERAL PROVISIONS
SECTION 1. Fiscal Year. The fiscal year of the Corporation shall be established by resolution of the Board of Directors.
SECTION 2. Amendments. These Bylaws may be altered, amended or repealed and new Bylaws may be adopted by a majority of the entire Board of Directors at any meeting of the Board of Directors.
SECTION 3. Names of Classes and Series of Shares. The names of the classes and series of shares which have been classified by the Corporation in its Articles of Incorporation and in Articles Supplementary shall be as follows:
Designation of Shares in Articles of Incorporation or Articles Supplementary Name of Class or Series ------------------------- ------------------------ Class 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 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 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 II Common Shares............. California Tax Free Fund, Class A Class II, Series 2 Common Shares... California Tax Free Fund, Class C Class II, 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 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 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 Class GGG, Series Common Shares.... International Select Fund, Class A Class GGG, Series 2 Common Shares.. International Select Fund, Class B Class GGG, Series 3 Common Shares.. International Select Fund, Class C Class GGG, Series 4 Common Shares.. International Select Fund, Class R Class GGG, Series 5 Common Shares.. International Select Fund, Class Y |
EXHIBIT 99(d)(4)
First American Investment Funds, Inc.
Exhibit A to Investment Advisory Agreement Effective December 5, 2006
Annual Advisory Fee as a Percentage of
Portfolio Effective Date Average Daily Net 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%
Small-Mid Cap Core Fund December 31, 1993 0.70%
International Fund December 31, 1993 1.00%
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%
Total Return Bond Fund February 1, 2000 0.60%
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 1.00%
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%
International Select Fund December 20, 2006 1.00%
|
(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.
Ex - 99(d)(6)
INVESTMENT SUB-ADVISORY AGREEMENT
FIRST AMERICAN INVESTMENT FUNDS, INC.
INTERNATIONAL SELECT FUND
THIS AGREEMENT is made as of the 27th day of November, 2006, between FAF Advisors, Inc., a Delaware corporation (the "Advisor") and Altrinsic Global Advisors, LLC, a Delaware limited liability company (the "Sub-Advisor").
WHEREAS, the Advisor acts as the investment advisor for International Select Fund (the "Fund"), a series of First American Investment Funds, Inc. ("FAIF"), pursuant to an investment advisory agreement between the Advisor and FAIF (the "Advisory Agreement").
WHEREAS, the Advisor is responsible for the day-to-day management of the Fund and for the coordination of the investment of the Fund's assets in portfolio securities.
WHEREAS, specific portfolio purchases and sales for all or a portion of the Fund's assets may be made by one or more sub-advisors selected and appointed by the Advisor, subject to the pre-approval of the Board of Directors of FAIF (the "Board").
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants contained herein, the parties agree as follows:
1. Appointment of Sub-Advisor. The Advisor desires to engage and hereby appoints the Sub-Advisor to act as investment sub-advisor for that portion of the assets of the Fund that the Advisor determines to allocate to the Sub-Advisor from time to time (referred to herein as the "Sub-Advisory Portfolio"). The Sub-Advisor accepts the appointment and agrees to furnish the services described herein for the compensation set forth below.
2. Duties of Sub-Advisor.
The Sub-Advisor is hereby employed and authorized to conduct a continual
program of investment, evaluation and, if appropriate, sale and reinvestment of
the assets in the Sub-Advisory Portfolio. In connection therewith, the
Sub-Advisor will (a) make investment decisions for the Sub-Advisory Portfolio;
(b) place purchase and sale orders for portfolio transactions in the
Sub-Advisory Portfolio; and (c) employ professional portfolio managers and
securities analysts to provide research services relating to the Sub-Advisory
Portfolio. Subject to the supervision of the Board and the Advisor, the
Sub-Advisor will manage the assets in the Sub-Advisory Portfolio in accordance
with (a) the Fund's investment objective(s), policies and restrictions stated in
the Prospectus, the SAI and the Charter Documents (as such terms are defined
below), (b) the Guidelines (as such term is defined below), and (c) applicable
laws and regulations. In managing the Sub-Advisory Portfolio, the Sub-Advisor
will not consider any other securities, cash or other investment the Fund owns.
The duties of the Sub-Advisor with respect to the Sub-Advisory Portfolio shall
be confined to those set forth herein.
The Advisor has furnished to the Sub-Advisor the Fund's compliance procedures pursuant to Rules 10f-3, 17a-7, and 17e-1 under the Investment Company Act of 1940, as amended (the "1940 Act") (collectively, the "Compliance Procedures"), the Articles of Incorporation and Bylaws of FAIF, each as amended to date (the "Charter Documents"), the currently effective prospectus (the "Prospectus") and statement of additional information (the "SAI") of the Fund, the resolution of the Board approving the form of this Agreement, the resolution of the Board selecting the Advisor as investment advisor to the Fund and approving the form of the Advisory Agreement, the resolution adopted by the initial shareholder of the Fund approving the form of Advisory Agreement, and the Advisory Agreement. The Advisor agrees, on an ongoing basis, to provide to the Sub-Advisor, as promptly as practicable, copies of all
amendments and supplements to the Compliance Procedures, the Prospectus and the SAI and amendments to the Charter Documents. The Advisor has furnished to the Sub-Advisor all written guidelines (the "Guidelines") setting forth additional operating policies and procedures, including any limitations on the types of securities and other investment products in which the Fund is permitted to invest or on investment activities in which the Fund is permitted to engage. The Advisor retains the right, on prior written notice to the Sub-Advisor, to modify the Guidelines at any time and in any manner. The Sub-Advisor shall either comply with the amended Guidelines in accordance with a reasonable timeline agreed upon by the Advisor and Sub-Advisor or terminate this Agreement in accordance with Section 11 below.
3. Brokerage. In selecting brokers or dealers to execute transactions on behalf of the Fund, the Sub-Advisor will seek the best overall terms available. In assessing the best overall terms available for any transaction, the Sub-Advisor will consider factors it deems relevant, including, without limitation, the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer and the reasonableness of the commission, if any, for the specific transaction and on a continuing basis. In selecting brokers or dealers to execute a particular transaction, and in evaluating the best overall terms available, the Sub-Advisor is authorized to consider brokerage and research services (within the meaning of Section 28(e) of the Securities Exchange Act of 1934, as amended). The Sub-Advisor will not execute any portfolio transactions with a broker or dealer which is an "affiliated person" (as defined in the 1940 Act) of the Sub-Advisor or the Advisor, except pursuant to the Board's approved 17e-1 Policies and Procedures for affiliated brokerage transactions. The Advisor will provide the Sub-Advisor with a list of brokers and dealers that are "affiliated persons" of the Advisor.
4. Proxy Voting. The Sub-Advisor shall vote all proxies with respect to securities held in the Sub-Advisory Portfolio in accordance with the Sub-Advisor's proxy voting guidelines and procedures in effect from time to time. In the event material changes are made to such proxy voting guidelines, the Sub-Advisor agrees to provide the Advisor with a copy of the revised proxy voting guidelines. The Advisor agrees to instruct the Fund's custodian to forward all proxy materials and related shareholder communications to the Sub-Advisor promptly upon receipt. The Sub-Advisor agrees to promptly inform the Advisor and the Fund of any conflict of interest of which the Sub-Advisor is aware that the Sub-Advisor has in voting proxies with respect to securities held in the Sub-Advisory Portfolio. The Sub-Advisor shall not be liable with regard to voting of proxies or other corporate actions if the proxy materials and related communications are not received in a timely manner.
5. Information Provided to the Advisor.
(a) The Sub-Advisor will keep the Advisor informed of developments materially affecting the Fund and will, on its own initiative, furnish the Advisor from time to time with whatever information the Sub-Advisor believes is appropriate for this purpose.
(b) The Sub-Advisor will confer with the Advisor as the Advisor may reasonably request regarding the investment and management of the Sub-Advisory Portfolio. The Sub-Advisor will not advise the Advisor or act for the Advisor or the Fund in any legal proceedings, including bankruptcies or class actions, involving securities in the Sub-Advisory Portfolio or the issuers of the securities.
(c) The Sub-Advisor agrees to comply with all reporting requirements that the Board or the Advisor reasonably adopt and communicate to the Sub-Advisor in writing, including reporting requirements related to performance of the Sub-Advisory Portfolio, brokerage practices, and proxy voting.
(d) The Sub-Advisor agrees to furnish the information requested by the Advisor, consistent with the Advisor's duties and obligations under the Fund's Valuation Policies and Procedures as currently existing or hereafter modified, including, without limitation, advising the Advisor as soon as practicable of any "significant event" (as defined in the Valuation Policies and Procedures) of which the Sub-Advisor becomes aware relating to, or affecting the value of, any security or other asset held in the Sub-Advisory Portfolio. A copy of the current Valuation Policies and Procedures is attached as Exhibit A. The Advisor agrees to notify the Sub-Advisor of any modification to the Valuation Policies and Procedures applicable to the Sub-Advisor in a timely manner.
(e) The Sub-Advisor has provided the Advisor with a true and complete copy of its compliance policies and procedures that are reasonably designed to prevent violations of the "federal securities laws" (as such term is defined in Rule 38a-1 under the 1940 Act) and Rule 206(4)-7 under the Investment Advisers Act of 1940, as amended (the "Advisers Act") (the "Sub-Advisor Compliance Policies"). The Sub-Advisor's chief compliance officer (the "Sub-Advisor CCO") shall provide to FAIF's Chief Compliance Officer (the "FAIF CCO") or his or her delegate, promptly (and in no event more than 10 business days) after the occurrence of the triggering event, the following:
(i) a report of any material changes to the Sub-Advisor Compliance Policies;
(ii) a report of any "material compliance matters," as defined by Rule 38a-1 under the 1940 Act, that have occurred in connection with the Sub-Advisor Compliance Policies;
(iii) a copy of a summary of the Sub-Advisor CCO's report with respect to the annual review of the Sub-Advisor Compliance Policies pursuant to Rule 206(4)-7 under the Advisers Act; and
(iv) an annual (or more frequently as the FAIF CCO may request) certification regarding the Sub-Advisor's compliance with Rule 206(4)-7 under the Advisers Act and Section 38a-1 under the 1940 Act as well as the foregoing sub-paragraphs (i) - (iii).
(f) The Sub-Advisor will timely notify the Advisor of any material violations by the Sub-Advisor of the Fund's investment policies or restrictions, the Guidelines, or any applicable law or regulation.
6. Standard of Care. The Sub-Advisor shall exercise its best judgment in rendering the services described in paragraphs 2, 3 and 4 above. The Sub-Advisor shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund or the Advisor in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the Sub-Advisor's part in the performance of its duties or from reckless disregard by the Sub-Advisor of its obligations and duties under this Agreement (each such act or omission shall be referred to as "Disqualifying Conduct"). Neither the Sub-Advisor nor its members, partners, officers, employees and agents shall be liable to the Advisor, the Fund, its shareholders or any other person (a) for the acts, omissions, errors of judgment or mistakes of law of any other fiduciary or other person with respect to the Fund or (b) for any failure or delay in performance of the Sub-Advisor's obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of civil or military authority, national emergencies, labor difficulties, fire, mechanical breakdowns, flood or catastrophe, acts of God, insurrection, war, riots or failure of the mails, transportation, communication or power supply.
The Sub-Advisor does not guarantee the future performance of the Sub-Advisory Portfolio or any specific level of performance, the success of any investment decision or strategy that the Sub-Advisor may use, or the success of the Sub-Advisor's overall management of the Sub-Advisory Portfolio. The Advisor understands that investment decisions made for the Fund by
the Sub-Advisor are subject to various market, currency, economic, political and business risks, and that those investment decisions will not always be profitable.
7. Compensation. In consideration of the services rendered pursuant to this Agreement, the Advisor will pay the Sub-Advisor on the fifth business day of each month a fee for the previous month according to the attached Schedule A. The fee for the period from the date of this Agreement to the end of the calendar month shall be prorated according to the proportion that such period bears to the full monthly period. Upon any termination of this Agreement before the end of a month, the fee for such part of that month shall be prorated according to the proportion that such period bears to the full monthly period and shall be payable upon the date of termination of this Agreement. For the purpose of determining fees payable to the Sub-Advisor, the value of the net assets of the Sub-Advisory Portfolio shall be computed at the times and in the manner specified in the Prospectus and/or the SAI.
8. Expenses. The Sub-Advisor will bear all of its expenses in connection with the performance of its services under this Agreement. All other expenses to be incurred in the operation of the Fund will be borne by the Fund, except to the extent specifically assumed by the Sub-Advisor. The expenses to be borne by the Fund include, without limitation, the following: organizational costs, taxes, interest, brokerage fees and commissions, directors' fees, Securities and Exchange Commission fees and state Blue Sky qualification fees, advisory fees, charges of custodians, transfer and dividend disbursing agents' fees, certain insurance premiums, outside auditing and legal expenses, costs of independent pricing services, costs of maintaining existence, costs attributable to investor services (including, without limitation, telephone and personnel expenses), costs of preparing and printing prospectuses and SAIs for regulatory purposes and for distribution to existing stockholders, costs of stockholders' reports and meetings, and any extraordinary expenses.
9. Services to Other Companies or Accounts. The Advisor understands that the Sub-Advisor now acts, will continue to act and may act in the future as investment advisor to fiduciary and other managed accounts and as investment advisor to other investment companies, and the Advisor has no objection to the Sub-Advisor so acting, provided that whenever the Sub-Advisory Portfolio and one or more other accounts or investment companies advised by the Sub-Advisor have available funds for investment, investments suitable and appropriate for each will be allocated in accordance with a methodology believed to be equitable to each entity. The Sub-Advisor agrees to similarly allocate opportunities to sell securities. The Advisor recognizes that, in some cases, this procedure may limit the size of the position that may be acquired or sold for the Fund. In addition, the Advisor understands that the persons employed by the Sub-Advisor to assist in the performance of the Sub-Advisor's duties hereunder will not devote their full time to such service and nothing contained herein shall be deemed to limit or restrict the right of the Sub-Advisor or any affiliate of the Sub-Advisor to engage in and devote time and attention to other business or to render services of whatever kind or nature.
10. Books and Records. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Sub-Advisor hereby agrees that all records which it specifically maintains for the Fund are the property of the Fund and further agrees to surrender promptly to the Fund copies of any of such records upon the Fund's or the Advisor's request. The Sub-Advisor further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records relating to its activities hereunder required to be maintained by Rule 31a-1 under the 1940 Act and to preserve the records relating to its activities hereunder required by Rule 204-2 under the Advisers Act for the period specified in said Rule.
11. Term of Agreement. This Agreement shall become effective as of the date of its execution and shall continue in effect for a period of two years from the date of execution. Thereafter, this Agreement shall continue automatically for successive annual periods, provided such continuance is specifically approved at least annually by the Board in the manner required by the 1940 Act. This Agreement is terminable, without penalty, on 90 days' written notice (the
date of termination may be less than or more than 90 days after the written notice of termination so long as the duration of the notice period is agreed upon by the Advisor and Sub-Advisor) by the Advisor, by the Board, or by the Sub-Advisor, and will immediately terminate upon termination of the Advisory Agreement. This Agreement also will terminate automatically in the event of its assignment (as defined in the 1940 Act).
12. Trade Settlement at Termination. Termination will be without prejudice to the completion of any transaction already initiated. On, or after, the effective date of termination, the Sub-Advisor shall be entitled, without prior notice to the Advisor or the Fund, to direct the Fund's custodian to retain and/or realize any assets of the Fund as may be required to settle transactions already initiated. Following the date of effective termination, any new transactions will only be executed by mutual agreement between the Advisor and the Sub-Advisor.
13. Indemnification. (a) The Advisor agrees to indemnify and hold harmless the Sub-Advisor and its members, partners, officers, employees, agents, successors and assigns (each a "Sub-Advisor Indemnified Person") from and against any and all claims, losses, liabilities or damages (including reasonable attorneys' fees and other related expenses) to which any Sub-Advisor Indemnified Person may become subject as a result of the Advisor's material breach of this Agreement or as a result of the Advisor's willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations and duties hereunder or violation of applicable law; provided, however, that no Sub-Advisor Indemnified Person shall be indemnified for any claim, loss, liability or damage that may be sustained as a result of the Sub-Advisor Indemnified Person's negligence.
(b) The Sub-Advisor agrees to indemnify and hold harmless the Advisor and the Fund and their respective shareholders, members, partners, directors, officers, employees, agents, successors and assigns (each an "Advisor Indemnified Person") from and against any and all claims, losses, liabilities or damages (including reasonable attorney's fees and other related expenses) to which any Advisor Indemnified Person may become subject as a result of the Sub-Advisor's material breach of this Agreement or as a result of the Sub-Advisor's willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations and duties hereunder or violation of applicable law; provided, however, that no Advisor Indemnified Person shall be indemnified for any claim, loss, liability or damage that may be sustained as a result of the Advisor Indemnified Person's negligence.
14. Delegation to Third Parties. Except where prohibited by applicable law or regulation, the Sub-Advisor may delegate or may employ a third party to perform any accounting, administrative, reporting and ancillary services required to enable the Sub-Advisor to perform its functions under this Agreement. Notwithstanding any other provision of the Agreement, the Sub-Advisor may provide information about the Advisor and the Fund to any such third party for the purposes of this paragraph, provided that the third party is subject to a confidentiality agreement that specifically prevents the misuse of any such information, including portfolio holdings. The Sub-Advisor will act in good faith and with due diligence in the selection, use and monitoring of third parties and shall be solely responsible for any loss, mistake, gross negligence or misconduct caused by such third party.
15. Disclosure. (a) Neither the Advisor, on its own behalf or on behalf of the Fund, or the Sub-Advisor shall disclose information of a confidential nature acquired in consequence of this Agreement, except for information that they may be entitled or bound to disclose by law, regulation or that is disclosed to their advisors where reasonably necessary for the performance of their professional services or, in the case of the Sub-Advisor, as permitted in accordance with Section 14 of this Agreement.
(b) Notwithstanding the provisions of Subsection 15(a), to the extent that any market counterparty with whom the Sub-Advisor deals requires information relating to the Fund (including, but not limited to, the identity of the Advisor or the Fund and market value of the
Fund), the Sub-Advisor shall be permitted to disclose such information to the extent necessary to effect transactions on behalf of the Fund in accordance with the terms of this Agreement.
(c) Notwithstanding the provisions of Subsections 15(a) and 15(b), the Sub-Advisor acknowledges that the Advisor and the Fund intend to rely on Rule 17a-7, Rule 17a-10, Rule 10f-3, Rule 12d3-1 and Rule 17e-1 under the 1940 Act, and the Sub-Advisor hereby agrees that it (i) shall not consult with any other Sub-Advisor to the Fund with respect to transactions in securities for the Sub-Advisory Portfolio or any other transactions of Fund assets and (ii) will provide advice and otherwise perform services hereunder exclusively with respect to the Sub-Advisory Portfolio of the Fund.
16. Instruction to Custodian. The Sub-Advisor shall not have control of the investments or cash, including the investment of such cash, in the Fund but shall have authority to issue to the Fund's custodian such instructions as it may consider appropriate in connection with the settlement of any transaction relating to the Sub-Advisory Portfolio that it has initiated. In addition, the Fund's custodian shall be responsible for executing all foreign exchange transactions made or required to be made in conjunction with settling the purchase and sale of securities in the Sub-Advisory Portfolio. The Advisor shall ensure that the Fund's custodian is obliged to comply with any instructions of the Sub-Advisor given in accordance with this Agreement. The Sub-Advisor will not be responsible for supervising the Fund's custodian.
17. Money Laundering. The Advisor, on its own behalf and on behalf of the Fund, confirms that where it is acting as principal or where it is acting on behalf of another person (notwithstanding that it enters into this Agreement and any transactions as principal), it is in compliance with the anti-money laundering regulations that apply to it. The Advisor shall provide any document or information to the Sub-Advisor that the Sub-Advisor may request for complying with its own anti-money laundering regulations.
18. Representations and Warranties. (a) The Advisor represents and warrants to the Sub-Advisor that the Advisor:
(i) has full power and authority to appoint the Sub-Advisor to manage the Fund in accordance with the terms of this Agreement; and
(ii) this Agreement is valid and has been duly authorized by appropriate action of the Advisor, the Board and the Fund's shareholders, does not violate any obligation by which the Advisor is bound, and when so executed and delivered, will be binding upon the Advisor in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and general principles of equity.
(b) The Sub-Advisor represents and warrants to the Advisor that the Sub-Advisor:
(i) is registered as an "investment adviser" under the Advisers Act;
(ii) is not currently the subject of, and has not been the subject of during the last three (3) years, any enforcement action by a regulator; and
(iii) maintains insurance coverage in an appropriate amount and shall upon request provide to the Advisor any information it may reasonably require concerning the amount of or scope of such insurance.
19. Miscellaneous.
(a) Notices. All notices provided for by this Agreement shall be in writing and shall be deemed given when received, against appropriate receipt, by John Hock, Chief Investment Officer, or Deborah Judd, Chief Operating Officer, in the case of the Sub-Advisor and the
Advisor's General Counsel in the case of the Advisor, or such other person as a party shall designate by notice to the other parties.
(b) Amendment. This Agreement may be amended at any time, but only by written agreement between the Advisor and the Sub-Advisor, which amendment must be approved by the Board in the manner required by the 1940 Act.
(c) Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto and supersedes any prior agreement among the parties relating to the subject matter hereof.
(d) Severability. If any provision of this Agreement will be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement will not be affected thereby.
(e) Headings. The paragraph headings of this Agreement are for convenience of reference and do not constitute a part hereof.
(f) Governing Law. This Agreement shall be governed in accordance with the internal laws of the State of Delaware, without giving effect to principles of conflict of laws.
(g) Use of Sub-Advisor's Name. Neither the Advisor, the Fund nor any affiliate of the foregoing will use the Sub-Advisor's name or the registered trademarks, service marks, logos, names or any other proprietary designations of the Sub-Advisor, its subsidiaries and/or affiliates (collectively, "Sub-Advisor Marks") in any advertising or promotional material without the Sub-Advisor's prior written approval, which will not be unreasonably withheld. Notwithstanding the foregoing, the Advisor may identify the Sub-Advisor as a sub-advisor to the Fund in any advertising and promotional materials that contain a list of the Fund's sub-advisors. The Advisor and the Sub-Advisor will work together to develop mutually agreeable standards and procedures for the review of materials bearing Sub-Advisor Marks to facilitate the efficient creation and use of such advertising or promotional materials.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives as of the date first written above.
FAF Advisors, Inc.
By: /s/ Joseph M. Ulrey, III
--------------------------------
Name: Joseph M. Ulrey, III
Title: Chief Financial Officer
|
Altrinsic Global Advisors, LLC
By: /s/ John D. Hock
--------------------------------
Name: John D. Hock
Title: Managing Member
|
SCHEDULE A
Pursuant to Section 7, the Advisor shall pay the Sub-Advisor compensation for services rendered to the Fund, calculated daily and paid monthly, at the annual rates set forth in the following table. Such rates are based on the average daily net assets of the Sub-Advisory Portfolio.
SUB-ADVISORY PORTFOLIO ASSETS FEE PER ANNUM ----------------------------- ------------- First $150 million 0.45% Next $325 million 0.40% Over $475 million 0.37% |
Exhibit A - Page 1
Ex- 99(d)(7)
FINAL
INVESTMENT SUB-ADVISORY AGREEMENT
FIRST AMERICAN INVESTMENT FUNDS, INC.
INTERNATIONAL SELECT FUND
THIS AGREEMENT is made as of the 27th day of November, 2006, between FAF Advisors, Inc., a Delaware corporation (the "Advisor") and Hansberger Global Investors, Inc., a Delaware corporation (the "Sub-Advisor").
WHEREAS, the Advisor acts as the investment advisor for International Select Fund (the "Fund"), a series of First American Investment Funds, Inc. ("FAIF"), pursuant to an investment advisory agreement between the Advisor and FAIF (the "Advisory Agreement").
WHEREAS, the Advisor is responsible for the day-to-day management of the Fund and for the coordination of the investment of the Fund's assets in portfolio securities.
WHEREAS, specific portfolio purchases and sales for all or a portion of the Fund's assets may be made by one or more sub-advisors selected and appointed by the Advisor, subject to the pre-approval of the Board of Directors of FAIF (the "Board").
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants contained herein, the parties agree as follows:
1. Appointment of Sub-Advisor. The Advisor desires to engage and hereby appoints the Sub-Advisor to act as investment sub-advisor for that portion of the assets of the Fund that the Advisor determines to allocate to the Sub-Advisor from time to time (referred to herein as the "Sub-Advisory Portfolio"). The Sub-Advisor accepts the appointment and agrees to furnish the services described herein for the compensation set forth below.
2. Duties of Sub-Advisor.
The Sub-Advisor is hereby employed and authorized to conduct a continual
program of investment, evaluation and, if appropriate, sale and reinvestment of
the assets in the Sub-Advisory Portfolio. In connection therewith, the
Sub-Advisor will (a) make investment decisions for the Sub-Advisory Portfolio;
(b) place purchase and sale orders for portfolio transactions in the
Sub-Advisory Portfolio; and (c) employ professional portfolio managers and
securities analysts to provide research services relating to the Sub-Advisory
Portfolio. Subject to the supervision of the Board and the Advisor, the
Sub-Advisor will manage the assets in the Sub-Advisory Portfolio in accordance
with (a) the Fund's investment objective(s), policies and restrictions stated in
the Prospectus, the SAI and the Charter Documents (as such terms are defined
below), (b) the Guidelines (as such term is defined below), and (c) applicable
laws and regulations. In managing the Sub-Advisory Portfolio, the Sub-Advisor
will not consider any other securities, cash or other investment the Fund owns.
The duties of the Sub-Advisor with respect to the Sub-Advisory Portfolio shall
be confined to those set forth herein.
The Advisor has furnished to the Sub-Advisor the Fund's compliance procedures pursuant to Rules 10f-3, 17a-7, and 17e-1 under the Investment Company Act of 1940, as amended (the "1940 Act") (collectively, the "Compliance Procedures"), the Articles of Incorporation and Bylaws of FAIF, each as amended to date (the "Charter Documents"), the currently effective prospectus (the "Prospectus") and statement of additional information (the "SAI") of the Fund, the resolution of the Board approving the form of this Agreement, the resolution of the Board selecting the Advisor as investment advisor to the Fund and approving the form of the Advisory Agreement, the resolution adopted by the initial shareholder of the Fund approving the form of Advisory Agreement, and the Advisory Agreement. The Advisor agrees, on an ongoing basis, to provide to the Sub-Advisor, as promptly as practicable, copies of all
amendments and supplements to the Compliance Procedures, the Prospectus and the SAI and amendments to the Charter Documents. The Advisor has furnished to the Sub-Advisor all written guidelines (the "Guidelines") setting forth additional operating policies and procedures, including any limitations on the types of securities and other investment products in which the Fund is permitted to invest or on investment activities in which the Fund is permitted to engage. The Advisor retains the right, on prior written notice to the Sub-Advisor, to modify the Guidelines at any time and in any manner. The Sub-Advisor shall either comply with the amended Guidelines in accordance with a reasonable timeline agreed upon by the Advisor and Sub-Advisor or terminate this Agreement in accordance with Section 11 below.
3. Brokerage. In selecting brokers or dealers to execute transactions on behalf of the Fund, the Sub-Advisor will seek the best overall terms available. In assessing the best overall terms available for any transaction, the Sub-Advisor will consider factors it deems relevant, including, without limitation, the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer and the reasonableness of the commission, if any, for the specific transaction and on a continuing basis. In selecting brokers or dealers to execute a particular transaction, and in evaluating the best overall terms available, the Sub-Advisor is authorized to consider brokerage and research services (within the meaning of Section 28(e) of the Securities Exchange Act of 1934, as amended). The Sub-Advisor will not execute any portfolio transactions with a broker or dealer which is an "affiliated person" (as defined in the 1940 Act) of the Sub-Advisor or the Advisor, except pursuant to the Board's approved 17e-1 Policies and Procedures for affiliated brokerage transactions. The Advisor will provide the Sub-Advisor with a list of brokers and dealers that are "affiliated persons" of the Advisor.
4. Proxy Voting. The Sub-Advisor shall vote all proxies with respect to securities held in the Sub-Advisory Portfolio in accordance with the Sub-Advisor's proxy voting guidelines and procedures in effect from time to time. In the event material changes are made to such proxy voting guidelines, the Sub-Advisor agrees to provide the Advisor with a copy of the revised proxy voting guidelines. The Advisor agrees to instruct the Fund's custodian to forward all proxy materials and related shareholder communications to the Sub-Advisor promptly upon receipt. The Sub-Advisor agrees to promptly inform the Advisor and the Fund of any conflict of interest of which the Sub-Advisor is aware that the Sub-Advisor has in voting proxies with respect to securities held in the Sub-Advisory Portfolio. The Sub-Advisor shall not be liable with regard to voting of proxies or other corporate actions if the proxy materials and related communications are not received in a timely manner.
5. Information Provided to the Advisor.
(a) The Sub-Advisor will keep the Advisor informed of developments materially affecting the Fund and will, on its own initiative, furnish the Advisor from time to time with whatever information the Sub-Advisor believes is appropriate for this purpose.
(b) The Sub-Advisor will confer with the Advisor as the Advisor may reasonably request regarding the investment and management of the Sub-Advisory Portfolio. The Sub-Advisor will not advise the Advisor or act for the Advisor or the Fund in any legal proceedings, including bankruptcies or class actions, involving securities in the Sub-Advisory Portfolio or the issuers of the securities.
(c) The Sub-Advisor agrees to comply with all reporting requirements that the Board or the Advisor reasonably adopt and communicate to the Sub-Advisor in writing, including reporting requirements related to performance of the Sub-Advisory Portfolio, brokerage practices, and proxy voting.
(d) The Sub-Advisor agrees to furnish the information requested of the Sub-Advisor, as set forth in the Fund's Valuation Policies and Procedures, as currently existing or hereafter modified, including, without limitation, advising the Advisor as soon as practicable of any "significant event" (as defined in the Valuation Policies and Procedures) relating to, or affecting the value of, any security or other asset held in the Sub-Advisory Portfolio. A copy of the current Valuation Policies and Procedures is attached as Exhibit A. The Advisor agrees to notify the Sub-Advisor of any modification to the Valuation Policies and Procedures applicable to the Sub-Advisor in a timely manner.
(e) The Sub-Advisor has provided the Advisor with a true and complete copy of its compliance policies and procedures that are reasonably designed to prevent violations of the "federal securities laws" (as such term is defined in Rule 38a-1 under the 1940 Act) and Rule 206(4)-7 under the Investment Advisers Act of 1940, as amended (the "Advisers Act") (the "Sub-Advisor Compliance Policies"). The Sub-Advisor's chief compliance officer (the "Sub-Advisor CCO") shall provide to FAIF's Chief Compliance Officer (the "FAIF CCO") or his or her delegate, promptly (and in no event more than 10 business days) after the occurrence of the triggering event, the following:
(i) a report of any material changes to the Sub-Advisor Compliance Policies;
(ii) a report of any "material compliance matters," as defined by Rule 38a-1 under the 1940 Act, that have occurred in connection with the Sub-Advisor Compliance Policies;
(iii) a copy of a summary of the Sub-Advisor CCO's report with respect to the annual review of the Sub-Advisor Compliance Policies pursuant to Rule 206(4)-7 under the Advisers Act; and
(iv) an annual (or more frequently as the FAIF CCO may request) certification regarding the Sub-Advisor's compliance with Rule 206(4)-7 under the Advisers Act and Section 38a-1 under the 1940 Act as well as the foregoing sub-paragraphs (i) - (iii).
(f) The Sub-Advisor will timely notify the Advisor of any material violations by the Sub-Advisor of the Fund's investment policies or restrictions, the Guidelines, or any applicable law or regulation.
6. Standard of Care. The Sub-Advisor shall exercise its best judgment in rendering the services described in paragraphs 2, 3 and 4 above. The Sub-Advisor shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund or the Advisor in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the Sub-Advisor's part in the performance of its duties or from reckless disregard by the Sub-Advisor of its obligations and duties under this Agreement (each such act or omission shall be referred to as "Disqualifying Conduct"). Neither the Sub-Advisor nor its members, partners, officers, employees and agents shall be liable to the Advisor, the Fund, its shareholders or any other person (a) for the acts, omissions, errors of judgment or mistakes of law of any other fiduciary or other person with respect to the Fund or (b) for any failure or delay in performance of the Sub-Advisor's obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of civil or military authority, national emergencies, labor difficulties, fire, mechanical breakdowns, flood or catastrophe, acts of God, insurrection, war, riots or failure of the mails, transportation, communication or power supply.
The Sub-Advisor does not guarantee the future performance of the Sub-Advisory Portfolio or any specific level of performance, the success of any investment decision or strategy that the Sub-Advisor may use, or the success of the Sub-Advisor's overall management of the Sub-Advisory Portfolio. The Advisor understands that investment decisions made for the Fund by
the Sub-Advisor are subject to various market, currency, economic, political and business risks, and that those investment decisions will not always be profitable.
7. Compensation. In consideration of the services rendered pursuant to this Agreement, the Advisor will pay the Sub-Advisor on the fifth business day of each month a fee for the previous month according to the attached Schedule A. The fee for the period from the date of this Agreement to the end of the calendar month shall be prorated according to the proportion that such period bears to the full monthly period. Upon any termination of this Agreement before the end of a month, the fee for such part of that month shall be prorated according to the proportion that such period bears to the full monthly period and shall be payable upon the date of termination of this Agreement. For the purpose of determining fees payable to the Sub-Advisor, the value of the net assets of the Sub-Advisory Portfolio shall be computed at the times and in the manner specified in the Prospectus and/or the SAI.
8. Expenses. The Sub-Advisor will bear all of its expenses in connection with the performance of its services under this Agreement. All other expenses to be incurred in the operation of the Fund will be borne by the Fund, except to the extent specifically assumed by the Sub-Advisor. The expenses to be borne by the Fund include, without limitation, the following: organizational costs, taxes, interest, brokerage fees and commissions, directors' fees, Securities and Exchange Commission fees and state Blue Sky qualification fees, advisory fees, charges of custodians, transfer and dividend disbursing agents' fees, certain insurance premiums, outside auditing and legal expenses, costs of independent pricing services, costs of maintaining existence, costs attributable to investor services (including, without limitation, telephone and personnel expenses), costs of preparing and printing prospectuses and SAIs for regulatory purposes and for distribution to existing stockholders, costs of stockholders' reports and meetings, and any extraordinary expenses.
9. Services to Other Companies or Accounts. The Advisor understands that the Sub-Advisor now acts, will continue to act and may act in the future as investment advisor to fiduciary and other managed accounts and as investment advisor to other investment companies, and the Advisor has no objection to the Sub-Advisor so acting, provided that whenever the Sub-Advisory Portfolio and one or more other accounts or investment companies advised by the Sub-Advisor have available funds for investment, investments suitable and appropriate for each will be allocated in accordance with a methodology believed to be equitable to each entity. The Sub-Advisor agrees to similarly allocate opportunities to sell securities. The Advisor recognizes that, in some cases, this procedure may limit the size of the position that may be acquired or sold for the Fund. In addition, the Advisor understands that the persons employed by the Sub-Advisor to assist in the performance of the Sub-Advisor's duties hereunder will not devote their full time to such service and nothing contained herein shall be deemed to limit or restrict the right of the Sub-Advisor or any affiliate of the Sub-Advisor to engage in and devote time and attention to other business or to render services of whatever kind or nature.
10. Books and Records. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Sub-Advisor hereby agrees that all records which it specifically maintains for the Fund are the property of the Fund and further agrees to surrender promptly to the Fund copies of any of such records upon the Fund's or the Advisor's request. The Sub-Advisor further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records relating to its activities hereunder required to be maintained by Rule 31a-1 under the 1940 Act and to preserve the records relating to its activities hereunder required by Rule 204-2 under the Advisers Act for the period specified in said Rule.
11. Term of Agreement. This Agreement shall become effective as of the date of its execution and shall continue in effect for a period of two years from the date of execution. Thereafter, this Agreement shall continue automatically for successive annual periods, provided such continuance is specifically approved at least annually by the Board in the manner required by the 1940 Act. This Agreement is terminable, without penalty, on 90 days' written notice (the
date of termination may be less than or more than 90 days after the written notice of termination so long as the duration of the notice period is agreed upon by the Advisor and Sub-Advisor) by the Advisor, by the Board, or by the Sub-Advisor, and will immediately terminate upon termination of the Advisory Agreement. This Agreement also will terminate automatically in the event of its assignment (as defined in the 1940 Act).
12. Trade Settlement at Termination. Termination will be without prejudice to the completion of any transaction already initiated. On, or after, the effective date of termination, the Sub-Advisor shall be entitled, without prior notice to the Advisor or the Fund, to direct the Fund's custodian to retain and/or realize any assets of the Fund as may be required to settle transactions already initiated. Following the date of effective termination, any new transactions will only be executed by mutual agreement between the Advisor and the Sub-Advisor.
13. Indemnification. (a) The Advisor agrees to indemnify and hold harmless the Sub-Advisor and its members, partners, officers, employees, agents, successors and assigns (each a "Sub-Advisor Indemnified Person") from and against any and all claims, losses, liabilities or damages (including reasonable attorneys' fees and other related expenses) to which any Sub-Advisor Indemnified Person may become subject as a result of the Advisor's material breach of this Agreement or as a result of the Advisor's willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations and duties hereunder or violation of applicable law; provided, however, that no Sub-Advisor Indemnified Person shall be indemnified for any claim, loss, liability or damage that may be sustained as a result of the Sub-Advisor's Disqualifying Conduct.
(b) The Sub-Advisor agrees to indemnify and hold harmless the Advisor and the Fund and their respective shareholders, members, partners, directors, officers, employees, agents, successors and assigns (each an "Advisor Indemnified Person") from and against any and all claims, losses, liabilities or damages (including reasonable attorney's fees and other related expenses) to which any Advisor Indemnified Person may become subject as a result of the Sub-Advisor's material breach of this Agreement or as a result of the Sub-Advisor's willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations and duties hereunder or violation of applicable law; provided, however, that no Advisor Indemnified Person shall be indemnified for any claim, loss, liability or damage that may be sustained as a result of the Advisor's Disqualifying Conduct.
14. Delegation to Third Parties. Except where prohibited by applicable law or regulation, the Sub-Advisor may delegate or may employ a third party to perform any accounting, administrative, reporting and ancillary services required to enable the Sub-Advisor to perform its functions under this Agreement. Notwithstanding any other provision of the Agreement, the Sub-Advisor may provide information about the Advisor and the Fund to any such third party for the purposes of this paragraph, provided that the third party is subject to a confidentiality agreement that specifically prevents the misuse of any such information, including portfolio holdings. The Sub-Advisor will act in good faith and with due diligence in the selection, use and monitoring of third parties and shall be solely responsible for any loss, mistake, gross negligence or misconduct caused by such third party.
15. Disclosure. (a) Neither the Advisor, on its own behalf or on behalf of the Fund, or the Sub-Advisor shall disclose information of a confidential nature acquired in consequence of this Agreement, except for information that they may be entitled or bound to disclose by law, regulation or that is disclosed to their advisors where reasonably necessary for the performance of their professional services or, in the case of the Sub-Advisor, as permitted in accordance with Section 14 of this Agreement.
(b) Notwithstanding the provisions of Subsection 15(a), to the extent that any market counterparty with whom the Sub-Advisor deals requires information relating to the Fund (including, but not limited to, the identity of the Advisor or the Fund and market value of the
Fund), the Sub-Advisor shall be permitted to disclose such information to the extent necessary to effect transactions on behalf of the Fund in accordance with the terms of this Agreement.
(c) Notwithstanding the provisions of Subsections 15(a) and 15(b), the Sub-Advisor acknowledges that the Advisor and the Fund intend to rely on Rule 17a-7, Rule 17a-10, Rule 10f-3, Rule 12d3-1 and Rule 17e-1 under the 1940 Act, and the Sub-Advisor hereby agrees that it (i) shall not consult with any other Sub-Advisor to the Fund with respect to transactions in securities for the Sub-Advisory Portfolio or any other transactions of Fund assets and (ii) will provide advice and otherwise perform services hereunder exclusively with respect to the Sub-Advisory Portfolio of the Fund.
16. Instruction to Custodian. The Sub-Advisor shall not have control of the investments or cash, including the investment of such cash, in the Fund but shall have authority to issue to the Fund's custodian such instructions as it may consider appropriate in connection with the settlement of any transaction relating to the Sub-Advisory Portfolio that it has initiated. In addition, the Fund's custodian shall be responsible for executing all foreign exchange transactions made or required to be made in conjunction with settling the purchase and sale of securities in the Sub-Advisory Portfolio. The Advisor shall ensure that the Fund's custodian is obliged to comply with any instructions of the Sub-Advisor given in accordance with this Agreement. The Sub-Advisor will not be responsible for supervising the Fund's custodian.
17. Money Laundering. The Advisor, on its own behalf and on behalf of the Fund, confirms that where it is acting as principal or where it is acting on behalf of another person (notwithstanding that it enters into this Agreement and any transactions as principal), it is in compliance with the anti-money laundering regulations that apply to it. The Advisor shall provide any document or information to the Sub-Advisor that the Sub-Advisor may request for complying with its own anti-money laundering regulations.
18. Representations and Warranties. (a) The Advisor represents and warrants to the Sub-Advisor that the Advisor:
(i) has full power and authority to appoint the Sub-Advisor to manage the Fund in accordance with the terms of this Agreement; and
(ii) this Agreement is valid and has been duly authorized by appropriate action of the Advisor, the Board and the Fund's shareholders, does not violate any obligation by which the Advisor is bound, and when so executed and delivered, will be binding upon the Advisor in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and general principles of equity.
(b) The Sub-Advisor represents and warrants to the Advisor that the Sub-Advisor:
(i) is registered as an "investment adviser" under the Advisers Act;
(ii) is not currently the subject of, and has not been the subject of during the last three (3) years, any enforcement action by a regulator; and
(iii) maintains insurance coverage in an appropriate amount and shall upon request provide to the Advisor any information it may reasonably require concerning the amount of or scope of such insurance.
19. Miscellaneous.
(a) Notices. All notices provided for by this Agreement shall be in writing and shall be deemed given when received, against appropriate receipt, by the President with a copy to the
General Counsel in the case of the Sub-Advisor and the Advisor's General Counsel in the case of the Advisor, or such other person as a party shall designate by notice to the other parties.
(b) Amendment. This Agreement may be amended at any time, but only by written agreement between the Advisor and the Sub-Advisor, which amendment must be approved by the Board in the manner required by the 1940 Act.
(c) Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto and supersedes any prior agreement among the parties relating to the subject matter hereof.
(d) Severability. If any provision of this Agreement will be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement will not be affected thereby.
(e) Headings. The paragraph headings of this Agreement are for convenience of reference and do not constitute a part hereof.
(f) Governing Law. This Agreement shall be governed in accordance with the internal laws of the State of Delaware, without giving effect to principles of conflict of laws.
(g) Use of Sub-Advisor's Name. The Fund and the Advisor agree to submit any proposed sales literature that mentions the Sub-Advisor (other than identifying the Sub-Advisor as Sub-Advisor to the Fund) to the Sub-Advisor for review prior to use and the Sub-Advisor agrees to promptly review such materials by a reasonable and appropriate deadline. The Advisor agrees to cause the Advisor and the Fund's distributor to promptly review all such sales literature for compliance with relevant requirements, to promptly advise the Sub-Advisor of any deficiencies contained in such sales literature, and to promptly file complying sales literature with the relevant regulatory authorities. Neither the Advisor, nor the Fund nor any affiliate of the foregoing will use the registered trademarks, service marks, logos, names or any other proprietary designations of Sub-Advisor, its subsidiaries and/or affiliates (collectively, "Sub-Advisor Marks") in any advertising or promotional materials without Sub-Advisor's prior written approval, which will not be unreasonably withheld. Advisor and Sub-Advisor will work together to develop mutually agreeable standards and procedures for the review of materials bearing Sub-Advisor Marks to facilitate the efficient creation and use of such advertising or promotional materials.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives as of the date first written above.
FAF Advisors, Inc.
By: /s/ Joseph M. Ulrey, III
------------------------------------
Name: Joseph M. Ulrey, III
Title: Chief Financial Officer
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Hansberger Global Investors, Inc.
By: /s/ Ronald W. Holt
------------------------------------
Name: Ronald W. Holt
Title: President
|
SCHEDULE A
Pursuant to Section 7, the Advisor shall pay the Sub-Advisor compensation for services rendered to the Fund, calculated daily and paid monthly, at the annual rates set forth in the following table. Such rates are based on the average daily net assets of the Sub-Advisory Portfolio.
SUB-ADVISORY PORTFOLIO ASSETS FEE PER ANNUM ----------------------------- ------------- First $100 million 0.45% Next $325 million 0.40% Next $112.5 million 0.35% Over $537.5 million 0.30% |
Exhibit A - Page 1
Ex- 99(d)(8)
INVESTMENT SUB-ADVISORY AGREEMENT
FIRST AMERICAN INVESTMENT FUNDS, INC.
INTERNATIONAL SELECT FUND
THIS AGREEMENT is made as of the 27th day of November, 2006, between FAF Advisors, Inc., a Delaware corporation (the "Advisor") and Lazard Asset Management LLC, a Delaware limited liability company (the "Sub-Advisor").
WHEREAS, the Advisor acts as the investment advisor for International Select Fund (the "Fund"), a series of First American Investment Funds, Inc. ("FAIF"), pursuant to an investment advisory agreement between the Advisor and FAIF (the "Advisory Agreement").
WHEREAS, the Advisor is responsible for the day-to-day management of the Fund and for the coordination of the investment of the Fund's assets in portfolio securities.
WHEREAS, specific portfolio purchases and sales for all or a portion of the Fund's assets may be made by one or more sub-advisors selected and appointed by the Advisor, subject to the pre-approval of the Board of Directors of FAIF (the "Board").
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants contained herein, the parties agree as follows:
1. Appointment of Sub-Advisor. The Advisor desires to engage and hereby appoints the Sub-Advisor to act as investment sub-advisor for the emerging markets equity portion of the assets of the Fund that the Advisor determines to allocate to the Sub-Advisor from time to time (referred to herein as the "Sub-Advisory Portfolio"). The Sub-Advisor accepts the appointment and agrees to furnish the services described herein for the compensation set forth below.
2. Duties of Sub-Advisor.
The Sub-Advisor is hereby employed and authorized to conduct a continual
program of investment, evaluation and, if appropriate, sale and reinvestment of
the assets in the Sub-Advisory Portfolio. In connection therewith, the
Sub-Advisor will (a) make investment decisions for the Sub-Advisory Portfolio;
(b) place purchase and sale orders for portfolio transactions in the
Sub-Advisory Portfolio; and (c) employ professional portfolio managers and
securities analysts to provide research services relating to the Sub-Advisory
Portfolio. Subject to the supervision of the Board and the Advisor, the
Sub-Advisor will manage the assets in the Sub-Advisory Portfolio in accordance
with (a) the Fund's investment objective(s), policies and restrictions stated in
the Prospectus, the SAI and the Charter Documents (as such terms are defined
below), (b) the Guidelines (as such term is defined below), and (c) applicable
laws and regulations. In managing the Sub-Advisory Portfolio, the Sub-Advisor
will not consider any other securities, cash or other investment the Fund owns.
The duties of the Sub-Advisor with respect to the Sub-Advisory Portfolio shall
be confined to those set forth herein.
The Advisor has furnished to the Sub-Advisor the Fund's compliance procedures pursuant to Rules 10f-3, 17a-7, and 17e-1 under the Investment Company Act of 1940, as amended (the "1940 Act") (collectively, the "Compliance Procedures"), the Articles of Incorporation and Bylaws of FAIF, each as amended to date (the "Charter Documents"), the currently effective prospectus (the "Prospectus") and statement of additional information (the "SAI") of the Fund, the resolution of the Board approving the form of this Agreement, the resolution of the Board selecting the Advisor as investment advisor to the Fund and approving the form of the Advisory Agreement, the resolution adopted by the initial shareholder of the Fund approving the form of Advisory Agreement, and the Advisory Agreement. The Advisor agrees, on an ongoing basis, to provide to the Sub-Advisor, as promptly as practicable, copies of all
amendments and supplements to the Compliance Procedures, the Prospectus and the SAI and amendments to the Charter Documents. The Advisor has furnished to the Sub-Advisor all written guidelines (the "Guidelines") setting forth additional operating policies and procedures, including any limitations on the types of securities and other investment products in which the Fund is permitted to invest or on investment activities in which the Fund is permitted to engage. The Advisor retains the right, on prior written notice to the Sub-Advisor, to modify the Guidelines at any time and in any manner. The Sub-Advisor shall either comply with the amended Guidelines in accordance with a reasonable timeline agreed upon by the Advisor and Sub-Advisor or terminate this Agreement in accordance with Section 11 below.
3. Brokerage. In selecting brokers or dealers to execute transactions on behalf of the Fund, the Sub-Advisor will seek the best overall terms available. In assessing the best overall terms available for any transaction, the Sub-Advisor will consider factors it deems relevant, including, without limitation, the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer and the reasonableness of the commission, if any, for the specific transaction and on a continuing basis. In selecting brokers or dealers to execute a particular transaction, and in evaluating the best overall terms available, the Sub-Advisor is authorized to consider brokerage and research services (within the meaning of Section 28(e) of the Securities Exchange Act of 1934, as amended). The Sub-Advisor will not execute any portfolio transactions with a broker or dealer which is an "affiliated person" (as defined in the 1940 Act) of the Sub-Advisor or the Advisor, except pursuant to the Board's approved 17e-1 Policies and Procedures for affiliated brokerage transactions. The Advisor will provide the Sub-Advisor with a list of brokers and dealers that are "affiliated persons" of the Advisor.
In connection with its management of the Sub-Advisory Portfolio and consistent with its fiduciary obligation to the Fund and other clients, the Sub-Advisor, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities to be sold or purchased in order to obtain the most favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Sub-Advisor in the manner the Sub-Advisor considers to be, over time, the most equitable and consistent with its fiduciary obligations to the Fund and to such other clients.
4. Proxy Voting. The Sub-Advisor shall vote all proxies with respect to securities held in the Sub-Advisory Portfolio in accordance with the Sub-Advisor's proxy voting guidelines and procedures in effect from time to time. In the event material changes are made to such proxy voting guidelines, the Sub-Advisor agrees to provide the Advisor with a copy of the revised proxy voting guidelines. The Advisor agrees to instruct the Fund's custodian to forward all proxy materials and related shareholder communications to the Sub-Advisor promptly upon receipt. The Sub-Advisor agrees to promptly inform the Advisor and the Fund of any conflict of interest of which the Sub-Advisor is aware that the Sub-Advisor has in voting proxies with respect to securities held in the Sub-Advisory Portfolio. The Sub-Advisor shall not be liable with regard to voting of proxies or other corporate actions if the proxy materials and related communications are not received in a timely manner.
5. Information Provided to the Advisor.
(a) The Sub-Advisor will keep the Advisor informed of developments materially affecting the Fund and will, on its own initiative, furnish the Advisor from time to time with whatever information the Sub-Advisor believes is appropriate for this purpose.
(b) The Sub-Advisor will confer with the Advisor as the Advisor may reasonably request regarding the investment and management of the Sub-Advisory Portfolio. The Sub-Advisor will not advise the Advisor or act for the Advisor or the Fund in any legal proceedings, including
bankruptcies or class actions, involving securities in the Sub-Advisory Portfolio or the issuers of the securities.
(c) The Sub-Advisor agrees to comply with all reporting requirements that the Board or the Advisor reasonably adopt and communicate to the Sub-Advisor in writing, including reporting requirements related to performance of the Sub-Advisory Portfolio, brokerage practices, and proxy voting.
(d) The Sub-Advisor agrees to furnish the information requested of the Sub-Advisor, as set forth in the Fund's Valuation Policies and Procedures, as currently existing or hereafter modified, including, without limitation, advising the Advisor as soon as practicable of any "significant event" (as defined in the Valuation Policies and Procedures) relating to, or affecting the value of, any security or other asset held in the Sub-Advisory Portfolio. A copy of the current Valuation Policies and Procedures is attached as Exhibit A. The Advisor agrees to notify the Sub-Advisor of any modification to the Valuation Policies and Procedures applicable to the Sub-Advisor in a timely manner.
(e) The Sub-Advisor has provided the Advisor with a true and complete copy of its compliance policies and procedures that are reasonably designed to prevent violations of the "federal securities laws" (as such term is defined in Rule 38a-1 under the 1940 Act) and Rule 206(4)-7 under the Investment Advisers Act of 1940, as amended (the "Advisers Act") (the "Sub-Advisor Compliance Policies"). The Sub-Advisor's chief compliance officer (the "Sub-Advisor CCO") shall provide to FAIF's Chief Compliance Officer (the "FAIF CCO") or his or her delegate, promptly (and in no event more than 10 business days) after the occurrence of the triggering event, the following:
(i) a report of any material changes to the Sub-Advisor Compliance Policies;
(ii) a report of any "material compliance matters," as defined by Rule 38a-1 under the 1940 Act, that have occurred in connection with the Sub-Advisor Compliance Policies;
(iii) a copy of a summary of the Sub-Advisor CCO's report with respect to the annual review of the Sub-Advisor Compliance Policies pursuant to Rule 206(4)-7 under the Advisers Act; and
(iv) an annual (or more frequently as the FAIF CCO may request) certification regarding the Sub-Advisor's compliance with Rule 206(4)-7 under the Advisers Act and Section 38a-1 under the 1940 Act as well as the foregoing sub-paragraphs (i) - (iii).
(f) The Sub-Advisor will timely notify the Advisor of any material violations by the Sub-Advisor of the Fund's investment policies or restrictions, the Guidelines, or any applicable law or regulation.
6. Standard of Care. The Sub-Advisor shall exercise its best judgment in rendering the services described in paragraphs 2, 3 and 4 above. The Sub-Advisor shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund or the Advisor in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the Sub-Advisor's part in the performance of its duties or from reckless disregard by the Sub-Advisor of its obligations and duties under this Agreement (each such act or omission shall be referred to as "Disqualifying Conduct"). Neither the Sub-Advisor nor its members, partners, officers, employees and agents shall be liable to the Advisor, the Fund, its shareholders or any other person (a) for the acts, omissions, errors of judgment or mistakes of law of any other fiduciary or other person with respect to the Fund or (b) for any failure or delay in performance of the Sub-Advisor's obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of civil or military authority, national emergencies, labor
difficulties, fire, mechanical breakdowns, flood or catastrophe, acts of God, insurrection, war, riots or failure of the mails, transportation, communication or power supply.
The Sub-Advisor does not guarantee the future performance of the Sub-Advisory Portfolio or any specific level of performance, the success of any investment decision or strategy that the Sub-Advisor may use, or the success of the Sub-Advisor's overall management of the Sub-Advisory Portfolio. The Advisor understands that investment decisions made for the Fund by the Sub-Advisor are subject to various market, currency, economic, political and business risks, and that those investment decisions will not always be profitable.
7. Compensation. In consideration of the services rendered pursuant to this Agreement, the Advisor will pay the Sub-Advisor on the fifth business day of each month a fee for the previous month according to the attached Schedule A. The fee for the period from the date of this Agreement to the end of the calendar month shall be prorated according to the proportion that such period bears to the full monthly period. Upon any termination of this Agreement before the end of a month, the fee for such part of that month shall be prorated according to the proportion that such period bears to the full monthly period and shall be payable upon the date of termination of this Agreement. For the purpose of determining fees payable to the Sub-Advisor, the value of the net assets of the Sub-Advisory Portfolio shall be computed at the times and in the manner specified in the Prospectus and/or the SAI.
8. Expenses. The Sub-Advisor will bear all of its expenses in connection with the performance of its services under this Agreement. All other expenses to be incurred in the operation of the Fund will be borne by the Fund, except to the extent specifically assumed by the Sub-Advisor. The expenses to be borne by the Fund include, without limitation, the following: organizational costs, taxes, interest, brokerage fees and commissions, directors' fees, Securities and Exchange Commission fees and state Blue Sky qualification fees, advisory fees, charges of custodians, transfer and dividend disbursing agents' fees, certain insurance premiums, outside auditing and legal expenses, costs of independent pricing services, costs of maintaining existence, costs attributable to investor services (including, without limitation, telephone and personnel expenses), costs of preparing and printing prospectuses and SAIs for regulatory purposes and for distribution to existing stockholders, costs of stockholders' reports and meetings, and any extraordinary expenses.
9. Services to Other Companies or Accounts. The Advisor understands that the Sub-Advisor now acts, will continue to act and may act in the future as investment advisor to fiduciary and other managed accounts and as investment advisor to other investment companies, and the Advisor has no objection to the Sub-Advisor so acting, provided that whenever the Sub-Advisory Portfolio and one or more other accounts or investment companies advised by the Sub-Advisor have available funds for investment, investments suitable and appropriate for each will be allocated in accordance with a methodology believed to be equitable to each entity. The Sub-Advisor agrees to similarly allocate opportunities to sell securities. The Advisor recognizes that, in some cases, this procedure may limit the size of the position that may be acquired or sold for the Fund. In addition, the Advisor understands that the persons employed by the Sub-Advisor to assist in the performance of the Sub-Advisor's duties hereunder will not devote their full time to such service and nothing contained herein shall be deemed to limit or restrict the right of the Sub-Advisor or any affiliate of the Sub-Advisor to engage in and devote time and attention to other business or to render services of whatever kind or nature.
10. Books and Records. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Sub-Advisor hereby agrees that all records which it specifically maintains for the Fund are the property of the Fund and further agrees to surrender promptly to the Fund copies of any of such records upon the Fund's or the Advisor's request. The Sub-Advisor further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records relating to its activities hereunder required to be maintained by Rule 31a-1 under the 1940 Act and to preserve
the records relating to its activities hereunder required by Rule 204-2 under the Advisers Act for the period specified in said Rule.
11. Term of Agreement. This Agreement shall become effective as of the date of its execution and shall continue in effect for a period of two years from the date of execution. Thereafter, this Agreement shall continue automatically for successive annual periods, provided such continuance is specifically approved at least annually by the Board in the manner required by the 1940 Act. This Agreement is terminable, without penalty, on 90 days' written notice (the date of termination may be less than or more than 90 days after the written notice of termination so long as the duration of the notice period is agreed upon by the Advisor and Sub-Advisor) by the Advisor, by the Board, or by the Sub-Advisor, and will immediately terminate upon termination of the Advisory Agreement. This Agreement also will terminate automatically in the event of its assignment (as defined in the 1940 Act).
12. Trade Settlement at Termination. Termination will be without prejudice to the completion of any transaction already initiated. On, or after, the effective date of termination, the Sub-Advisor shall be entitled, without prior notice to the Advisor or the Fund, to direct the Fund's custodian to retain and/or realize any assets of the Fund as may be required to settle transactions already initiated. Following the date of effective termination, any new transactions will only be executed by mutual agreement between the Advisor and the Sub-Advisor.
13. Indemnification. (a) The Advisor agrees to indemnify and hold harmless the Sub-Advisor and its members, partners, officers, employees, agents, successors and assigns (each a "Sub-Advisor Indemnified Person") from and against any and all claims, losses, liabilities or damages (including reasonable attorneys' fees and other related expenses) to which any Sub-Advisor Indemnified Person may become subject as a result of the Advisor's material breach of this Agreement or as a result of the Advisor's willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations and duties hereunder or violation of applicable law; provided, however, that no Sub-Advisor Indemnified Person shall be indemnified for any claim, loss, liability or damage that may be sustained as a result of the Sub-Advisor's Disqualifying Conduct.
(b) The Sub-Advisor agrees to indemnify and hold harmless the Advisor and the Fund and their respective shareholders, members, partners, directors, officers, employees, agents, successors and assigns (each an "Advisor Indemnified Person") from and against any and all claims, losses, liabilities or damages (including reasonable attorney's fees and other related expenses) to which any Advisor Indemnified Person may become subject as a result of the Sub-Advisor's material breach of this Agreement or as a result of the Sub-Advisor's willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations and duties hereunder or violation of applicable law; provided, however, that no Advisor Indemnified Person shall be indemnified for any claim, loss, liability or damage that may be sustained as a result of the Advisor's Disqualifying Conduct.
14. Delegation to Third Parties. Except where prohibited by applicable law or regulation, the Sub-Advisor may delegate or may employ a third party to perform any accounting, administrative, reporting and ancillary services required to enable the Sub-Advisor to perform its functions under this Agreement. Notwithstanding any other provision of the Agreement, the Sub-Advisor may provide information about the Advisor and the Fund to any such third party for the purposes of this paragraph, provided that the third party is subject to a confidentiality agreement that specifically prevents the misuse of any such information, including portfolio holdings. The Sub-Advisor will act in good faith and with due diligence in the selection, use and monitoring of third parties and shall be solely responsible for any loss, mistake, gross negligence or misconduct caused by such third party.
15. Disclosure. (a) Neither the Advisor, on its own behalf or on behalf of the Fund, or the Sub-Advisor shall disclose information of a confidential nature acquired in consequence of this Agreement, except for information that they may be entitled or bound to disclose by law,
regulation or that is disclosed to their advisors where reasonably necessary for the performance of their professional services or, in the case of the Sub-Advisor, as permitted in accordance with Section 14 of this Agreement.
(b) Notwithstanding the provisions of Subsection 15(a), to the extent that any market counterparty with whom the Sub-Advisor deals requires information relating to the Fund (including, but not limited to, the identity of the Advisor or the Fund and market value of the Fund), the Sub-Advisor shall be permitted to disclose such information to the extent necessary to effect transactions on behalf of the Fund in accordance with the terms of this Agreement.
(c) Notwithstanding the provisions of Subsections 15(a) and 15(b), the Sub-Advisor acknowledges that the Advisor and the Fund intend to rely on Rule 17a-7, Rule 17a-10, Rule 10f-3, Rule 12d3-1 and Rule 17e-1 under the 1940 Act, and the Sub-Advisor hereby agrees that it (i) shall not consult with any other Sub-Advisor to the Fund with respect to transactions in securities for the Sub-Advisory Portfolio or any other transactions of Fund assets and (ii) will provide advice and otherwise perform services hereunder exclusively with respect to the Sub-Advisory Portfolio of the Fund.
16. Instruction to Custodian. The Sub-Advisor shall not have control of the investments or cash, including the investment of such cash, in the Fund but shall have authority to issue to the Fund's custodian such instructions as it may consider appropriate in connection with the settlement of any transaction relating to the Sub-Advisory Portfolio that it has initiated. In addition, the Fund's custodian shall be responsible for executing all foreign exchange transactions made or required to be made in conjunction with settling the purchase and sale of securities in the Sub-Advisory Portfolio. The Advisor shall ensure that the Fund's custodian is obliged to comply with any instructions of the Sub-Advisor given in accordance with this Agreement. The Sub-Advisor will not be responsible for supervising the Fund's custodian.
17. Money Laundering. The Advisor, on its own behalf and on behalf of the Fund, confirms that where it is acting as principal or where it is acting on behalf of another person (notwithstanding that it enters into this Agreement and any transactions as principal), it is in compliance with the anti-money laundering regulations that apply to it. The Advisor shall provide any document or information to the Sub-Advisor that the Sub-Advisor may request for complying with its own anti-money laundering regulations.
18. Representations and Warranties. (a) The Advisor represents and warrants to the Sub-Advisor that the Advisor:
(i) has full power and authority to appoint the Sub-Advisor to manage the Fund in accordance with the terms of this Agreement; and
(ii) this Agreement is valid and has been duly authorized by appropriate action of the Advisor, the Board and the Fund's shareholders, does not violate any obligation by which the Advisor is bound, and when so executed and delivered, will be binding upon the Advisor in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and general principles of equity.
(b) The Sub-Advisor represents and warrants to the Advisor that the Sub-Advisor:
(i) is registered as an "investment adviser" under the Advisers Act;
(ii) is not currently the subject of, and has not been the subject of during the last three (3) years, any enforcement action by a regulator; and
(iii) maintains insurance coverage in an appropriate amount and shall upon request provide to the Advisor any information it may reasonably require concerning the amount of or scope of such insurance.
19. Miscellaneous.
(a) Notices. All notices provided for by this Agreement shall be in writing and shall be deemed given when received, against appropriate receipt, by the Sub-Advisor's General Counsel in the case of the Sub-Advisor and the Advisor's General Counsel in the case of the Advisor, or such other person as a party shall designate by notice to the other parties.
(b) Amendment. This Agreement may be amended at any time, but only by written agreement between the Advisor and the Sub-Advisor, which amendment must be approved by the Board in the manner required by the 1940 Act.
(c) Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto and supersedes any prior agreement among the parties relating to the subject matter hereof.
(d) Severability. If any provision of this Agreement will be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement will not be affected thereby.
(e) Headings. The paragraph headings of this Agreement are for convenience of reference and do not constitute a part hereof.
(f) Governing Law. This Agreement shall be governed in accordance with the internal laws of the State of Delaware, without giving effect to principles of conflict of laws.
(g) Use of Sub-Advisor's Name. The Fund and the Advisor agree to submit any proposed sales literature that mentions the Sub-Advisor (other than identifying the Sub-Advisor as Sub-Advisor to the Fund) to the Sub-Advisor for review prior to use and the Sub-Advisor agrees to promptly review such materials by a reasonable and appropriate deadline. The Advisor agrees to cause the Advisor and the Fund's distributor to promptly review all such sales literature for compliance with relevant requirements, to promptly advise the Sub-Advisor of any deficiencies contained in such sales literature, and to promptly file complying sales literature with the relevant regulatory authorities. Neither the Advisor, nor the Fund nor any affiliate of the foregoing will use the registered trademarks, service marks, logos, names or any other proprietary designations of Sub-Advisor, its subsidiaries and/or affiliates (collectively, "Sub-Advisor Marks") in any advertising or promotional materials without Sub-Advisor's prior written approval, which will not be unreasonably withheld. Advisor and Sub-Advisor will work together to develop mutually agreeable standards and procedures for the review of materials bearing Sub-Advisor Marks to facilitate the efficient creation and use of such advertising or promotional materials.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives as of the date first written above.
FAF Advisors, Inc.
By: /s/ Joseph M. Ulrey, III
------------------------------------
Name: Joseph M. Ulrey, III
Title: Chief Financial Officer
|
Lazard Asset Management LLC
By: /s/ Charles L. Carroll
------------------------------------
Name: Charles L. Carroll
Title: Deputy Chairman
|
SCHEDULE A
Pursuant to Section 7, the Advisor shall pay the Sub-Advisor compensation for services rendered to the Fund, calculated daily and paid monthly, at the annual rates set forth in the following table. Such rates are based on the average daily net assets of the Sub-Advisory Portfolio.
SUB-ADVISORY PORTFOLIO ASSETS FEE PER ANNUM ----------------------------- ------------- First $112.5 million 0.75% Next $37.5 million 0.70% Next $37.5 million 0.65% Over $187.5 million 0.60% |
Exhibit A - Page 1
Ex-99(g)(3)
[FAF ADVISORS LETTERHEAD]
November 21, 2006
State Street Bank and Trust Company
2 Avenue de Lafayette, LCC/5
Boston, MA 02111
Attention: William M. Marvin, Vice President
Re: INTERNATIONAL SELECT FUND
Ladies and Gentlemen:
Please be advised that the undersigned First American Investment Funds, Inc. (the "Fund") has established a new series of shares to be known as the International Select Fund. In accordance with Section 18.5, the Additional Funds provision, of the Custodian Agreement dated as of July 1, 2005 (the "Custodian Agreement"), by and between the Fund and State Street Bank and Trust Company (the "Custodian"), the Fund hereby requests that you act as Custodian for the aforementioned series under the terms of the Custodian Agreement.
Kindly indicate your acceptance of the foregoing by executing two copies of this letter agreement, returning one to the Fund and retaining one for your records.
Sincerely,
FIRST AMERICAN INVESTMENT FUNDS, INC.
on behalf of:
International Select Fund
By: /s/ Charles D. Gariboldi
------------------------------------
Name: Charles D. Gariboldi
Title: Mutual Fund Treasurer
Duly Authorized
|
Agreed and Accepted:
STATE STREET BANK AND TRUST COMPANY
By: /s/ Joseph L. Hooley
---------------------------------
Name: Joseph L. Hooley
Title: Executive Vice President
|
Effective Date: December 15, 2006
Ex - 99(i)
DORSEY & WHITNEY LLP
SUITE 1500
50 SOUTH SIXTH STREET
MINNEAPOLIS, MINNESOTA 55402
December 20, 2006
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 classes and series of the Company's common shares, par value $0.0001 per share, which are identified in Exhibit A to this opinion letter, which are also known by the names set forth opposite their respective class and series designations in Exhibit A. The shares of the Company identified in Exhibit A 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 (File No. 33-16905) 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 excess of the numbers authorized in the Company's 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
JDA
|
Exhibit A to December 20, 2006 Dorsey & Whitney Opinion Letter to First American Investment Funds, Inc.
Designation of Shares in Articles of
Incorporation or Articles Supplementary Name
--------------------------------------- ----
Class GGG Common Shares.................... International Select Fund, Class A
Class GGG, Series 2 Common Shares.......... International Select Fund, Class B
Class GGG, Series 3 Common Shares.......... International Select Fund, Class C
Class GGG, Series 4 Common Shares.......... International Select Fund, Class R
Class GGG, Series 5 Common Shares.......... International Select Fund, Class Y
|
EXHIBIT 99(n)
FIRST AMERICAN INVESTMENT FUNDS, INC.
Amended and Restated Multiple Class Plan Pursuant to Rule 18f-3
Effective December 5, 2006
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:
Balanced Fund Equity Income Fund Short Term Bond Fund Large Cap Growth Opportunities Fund High Income Bond Fund Large Cap Value Fund U.S. Government Mortgage Fund Large Cap Select Fund Intermediate Government Bond Fund Equity Index Fund Inflation Protected Securities Fund Mid Cap Index Fund Arizona Tax Free Fund Small Cap Index Fund California Intermediate Tax Free Fund Small Cap Growth Opportunities Fund California Tax Free Fund Mid Cap Growth Opportunities Fund Colorado Intermediate Tax Free Fund Mid Cap Value Fund Colorado Tax Free Fund Small Cap Select Fund Intermediate Tax Free Fund Small Cap Value Fund Minnesota Intermediate Tax Free Fund International Fund Minnesota Tax Free Fund Real Estate Securities Fund Missouri Tax Free Fund Small-Mid Cap Core Fund Nebraska Tax Free Fund Total Return Bond Fund Oregon Intermediate Tax Free Fund Core Bond Fund Tax Free Fund Intermediate Term Bond Fund Ohio Tax Free Fund International Select Fund Short Tax Free 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. Class A, Class B, Class C, Class R and Class Y shares), with respect to distribution arrangements, shareholder services, transfer agency services, recordkeeping services, and conversion and exchange options shall be as set forth in the following materials:
A. The Prospectuses of the various share classes 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.
B. Statements of Additional Information of the respective Funds in the forms most recently filed with the SEC prior to the date of this Plan as amended
C. First American Investment Funds, Inc. Amended and Restated Distribution and Service Plan effective September 19, 2006.
D. Administration Agreement with FAF Advisors, Inc. dated July 1, 2006.
E. Transfer Agency Agreement with U.S. Bancorp Fund Services dated July 1, 2006.
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 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, service fees, transfer agency fees and recordkeeping 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.
Ex - 99(p)(4)
ALTRINSIC GLOBAL ADVISORS, LLC
CODE OF ETHICS
(BEST PRACTICES--ANNOTATED)
Adopted 11/01/04
Amended 12/1/05; 3/1/06; 5/3/06
I. INTRODUCTION
High ethical standards are essential for the success of Altrinsic and to maintain the confidence of clients and investors in investment funds managed by Altrinsic ("clients"). Altrinsic's long-term business interests are best served by adherence to the principle that the interests of clients come first. We have a fiduciary duty to clients to act solely for the benefit of our clients. All personnel of Altrinsic, including directors, officers and employees of Altrinsic must put the interests of Altrinsic's clients before their own personal interests and must act honestly and fairly in all respects in dealing with clients. All personnel of Altrinsic must also comply with all Federal Securities Laws.
In recognition of the Advisor's fiduciary duty to its clients and Altrinsic's desire to maintain high ethical standards, Altrinsic has adopted this Code of Ethics (the "Code") pursuant to Rule 17j-1 under the Investment Company Act of 1940 (the "1940 Act") and Rule 204A-1 under the Advisers Act of 1940 (the "Advisers Act"). The Code contains provisions designed to (1) prevent improper personal trading by Access Persons of Altrinsic; (2) identify conflicts of interest; and (3) provide a means to resolve any actual or potential conflict of interest.
Adherence to the Code and the related restrictions on personal investing is considered a basic condition of employment by Altrinsic. If you have any doubt as to the propriety of any activity, you should consult with the Compliance Officer, who is charged with the administration of this Code.
II. DEFINITIONS
1. Access Person means any Supervised Person (i) who has access to nonpublic information regarding any clients' purchase or sale of securities, or nonpublic information regarding portfolio holdings of any Reportable Fund or (ii) who is involved in making securities recommendations to clients (or who has access to such recommendations that are nonpublic).
NOTE: For purposes of this Code, all Supervised Persons are considered Access Persons.
2. Automatic Investment Plan means a program in which regular, periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An Automatic Investment Plan includes a dividend reinvestment plan.
3. Beneficial Ownership includes ownership by any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect financial interest other than the receipt of an advisory fee.
4. Federal Securities Laws mean the Securities Act of 1993, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the 1940 Act, the Advisers Act, Title V of the Gramm-
Leach Bliley Act, any rules adopted by the Securities and Exchange Commission ("SEC") under any of these statutes, the Bank Secrecy Act as it applies to funds and investment advisers, and any rules adopted thereunder.
5. Initial Public Offering or IPO means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before registration, was not subject to the reporting requirements of section 13 or section 15(d) of the Securities Exchange Act of 1934.
6. Limited Offering means an offering that is exempt from registration under the Securities Act of 1933 pursuant to section 4(2) or section 4(6) of the Securities Act of 1933 or to rules 504, 505 or 506 under the Securities Act of 1933.
7. Personal Account means any account in which an Access Person has any Beneficial Ownership.
8. Reportable Security means a security as defined in section 2(a)(36) of the 1940 Act, except that it does not include:
(i) Direct obligations of the Government of the United States;
(ii) Bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements;
(iii) Shares issued by money market funds;
(iv) Shares issued by open-end funds other than Reportable Funds and exchange-traded funds; and
(v) Shares issued by unit investment trusts that are invested exclusively in one or more open-end funds, none of which are Reportable Funds.
9. Reportable Fund means any registered investment company for which Altrinsic serves as investment adviser or whose investment adviser or principal underwriter controls Altrinsic, is controlled by Altrinsic or is under common control with Altrinsic.
10. Restricted Security means any security that (i) a client owns or is in the process of buying or selling or (ii) Altrinsic is researching, analyzing or considering buying or selling for a client
11. Supervised Person means any partner, officer, director, member or employee of Altrinsic, or other person who provides investment advice on behalf of Altrinsic and is subject to the supervision and control of Altrinsic.
III. APPLICABILITY OF CODE OF ETHICS
Personal Accounts of Access Persons. This Code of Ethics applies to all Personal Accounts of all Access Persons.
A Personal Account also includes an account maintained by or for:
- An Access Person's spouse and minor children;
- Any individuals who live in the Access Person's household and over whose purchases, sales, or other trading activities the Access Person exercises control or investment discretion;
- Any persons to whom the Access Person provides primary financial support, and either (i) whose financial affairs the Access Person controls, or (ii) for whom the Access Person provides discretionary advisory services;
- Any trust or other arrangement which names the Access Person as a beneficiary or remainderman; and
- Any partnership, corporation or other entity in which the Access Person has a 25% or greater beneficial interest, or in which the Access Person exercises effective control.(1)
A comprehensive list of all Access Persons and Personal Accounts will be maintained by Altrinsic's Compliance Officer.
IV. RESTRICTIONS ON PERSONAL INVESTING AND OTHER ACTIVITIES
1. General. It is the responsibility of each Access Person to ensure that a particular securities transaction being considered for his or her Personal Account is not subject to a restriction contained in this Code of Ethics or otherwise prohibited by any applicable laws. Personal securities transactions by Access Persons may be effected ONLY in accordance with the provisions of this Section.
2. General Prohibition on Personal Trading. Except for sale transactions that have been precleared pursuant to Section IV.3. below, Access Persons are prohibited from engaging in personal securities transactions in Reportable Securities. This prohibition includes the acquisition of Beneficial Ownership of Reportable Securities offered through IPOs and Limited Offerings.
3. Preclearance of Sale Transactions in Personal Account. An Access Person MUST OBTAIN THE PRIOR WRITTEN APPROVAL of the Compliance Officer before engaging in any transaction involving the disposition or sale of any Reportable Security held in a Personal Account prior to the person's date of hire. Such sale transactions include dispositions of Reportable Securities through IPOs and Limited Offerings.
The Compliance Officer may approve the transaction if the Compliance Officer concludes that the transaction would comply with the provisions of this Code and is not likely to have any adverse economic impact on clients. A request for preclearance must be made by completing the Preclearance Form and submitting it to the Compliance Officer in advance of the contemplated transaction. A Preclearance Form is attached as Attachment A. Generally, any security appearing on the list of Restricted Securities will not be approved for personal trading.
Any approval given under this paragraph will remain in effect for 24 hours.
4. Service on Boards of Directors. A Supervised Person shall not serve as a director (or similar position) on the board of any company unless the Supervised Person has received written approval from the Compliance Officer and Altrinsic has adopted policies to address such service.
5. Gifts. Supervised Persons are prohibited from accepting any gift greater than $100 in value
from any person or company that does business with Altrinsic or a private investment vehicle managed by Altrinsic. Unsolicited business entertainment, including meals or tickets to cultural and sporting events are permitted if they are not so frequent or of such high value as to raise a question of impropriety.
V. EXCEPTIONS FROM PRECLEARANCE PROVISION (SECTION IV.3.)
The requirements of Section IV.3. of the Code shall not apply to the following:
1. Sales of Reportable Securities which are part of an Automatic Investment Plan;
2. Sales of Reportable Securities that are non-volitional on the part of the Access Person such as sales that are made pursuant to a merger, tender offer or exercise of rights;
3. Sales of Reportable Securities effected in, and the holdings of, any account over which the Access Person has no direct or indirect influence or control (i.e., blind trust, discretionary account or trust managed by a third party).
VI. REPORTING
1. Quarterly Transactions Reports. Not later than ten (10) days after the end of each calendar quarter, each Access Person must submit a written report ("Quarterly Transaction Report"), a form of which is attached hereto as Attachment B, to the Compliance Officer regarding any transaction during the previous calendar quarter in a Reportable Security in which the Access Person had any direct or indirect Beneficial Ownership.
(A) In the Quarterly Transaction Report, the Access Person will be required to provide the following information:
(i) The date of the transaction, the title, the interest rate and maturity date (if applicable), the number of shares and the principal amount of each Reportable Security involved;
(ii) The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition);
(iii) The price of the Reportable Security at which the transaction was effected;
(iv) The name of the broker, dealer or bank with or through which the transaction was effected;
(v) The date that the report is submitted by the Access Person; and
(vi) With respect to any account established by the Access Person in which any Reportable Securities were held during the previous quarter for the direct or indirect benefit of the Access Person (i.e., Personal Account):
(a) The name of the broker, dealer or bank with whom the Access Person established the account;
(b) The date the account was established; and
(c) The date that the report is submitted by the Access Person.
(B) In lieu of providing Quarterly Transaction Reports, an Access Person may direct his or
her brokers or custodians or any persons managing the Access
Person's accounts in which any Reportable Securities are held
(i.e., Personal Accounts) to supply the Compliance Officer with
(i) duplicate copies of securities trade confirmations ("Broker's
Confirmations") within ten (10) days after a transaction on
behalf of the Access Person, and (ii) the Access Person's
quarterly brokerage or account statements within ten (10) days
after the end of each calendar quarter. Such confirmations and
statements must contain the information required to be reported
in the Quarterly Transaction Reports.
(C) If an Access Person had no reportable transactions or did not open a new account during the quarter, such person is still required to submit a report. The report must indicate that there were no reportable transactions during the quarter.
2. Annual Holdings Reports. By January 31 each year, each Access Person must submit to the Compliance Officer a signed and dated Annual Holdings Report, a form of which is set forth as Attachment C, containing the following information (current as of a date not more than 45 days prior to the date of the report):
(A) The title, number of shares and principal amount of each Reportable Security in which the Access Person had any direct or indirect Beneficial Ownership;
(B) The name of any broker-dealer or financial institution with which the Access Person maintains an account in which securities are held for the direct or indirect benefit of the Access Person (i.e., a Personal Account); and
(C) The date that the report is submitted by the Access Person.
3. Initial Holdings Reports. No later than ten (10) days after commencement of employment with Altrinsic, each Access Person must submit to the Compliance Officer a signed and dated Initial Holdings Report, a form of which is set forth as Attachment C, containing the following information (current as of a date not more than 45 days prior to the date of the report):
(A) The title, number of shares and principal amount of each Reportable Security in which the Access Person had any direct or indirect Beneficial Ownership;
(B) The name of any broker-dealer or financial institution with which the Access Person maintains an account in which securities are held for the direct or indirect benefit of the Access Person (i.e., a Personal Account); and
(C) The date that the report is submitted by the Access Person.
4. Exceptions to Reporting Requirements.
(A) An Access Person need not submit any report with respect to transactions effected for and Reportable Securities held in accounts over which the Access Person has no direct or indirect influence or control.
(B) An Access Person need not submit a Quarterly Transaction Report with respect to transactions effected pursuant to an Automatic Investment Plan.
5. Supervised Persons must report immediately any suspected violation of the Code to the Compliance Officer.
VII. RECORDKEEPING
The Compliance Officer shall maintain records in the manner and extent set forth below, and
these records shall be available for examination by representatives of the Securities and Exchange Commission:
1. a copy of the Code which is, or at any time within the past five years has been, in effect shall be preserved in an easily accessible place;
2. a record of any violation of the Code and of any action taken as a result of such violation shall be preserved for a period of not less than five years following the end of the fiscal year in which the violation occurs, the first two years in an easily accessible place;
3. a copy of (i) each written acknowledgement of receipt of the Code for each person who is currently, or within the past five years was, a Supervised Person and (ii) each report made by an Access Person pursuant to the Code, and any brokerage confirmations and statements submitted in lieu of Quarterly Transaction Reports, shall be preserved for a period of not less than five years from the end of the fiscal year in which the last entry was made on such record, the first two years in an easily accessible place;
4. a list of all Access Persons who are required, or within the past five years have been required, to make reports under the Code, and all persons who are responsible for reviewing such reports pursuant to the Code shall be maintained in an easily accessible place;
5. a copy of any report furnished to the board of any registered investment company to which Altrinsic provides advisory services pursuant to Section VIII below shall be preserved for a period of not less than five years from the end of the fiscal year in which the last entry was made on such record, the first two years in an easily accessible place; and
6. a record of any decision and supporting reasons for approving a preclearance request for at least five years after the end of fiscal year in which the approval is granted.
VIII. REPORTS TO THE BOARD(S) OF REGISTERED INVESTMENT COMPANIES
No less frequently than annually, Altrinsic will furnish the Board of Directors or Trustees of any registered investment company (the "Board") to which Altrinsic provides advisory services with a written report that:
1. describes any issues arising under this Code of Ethics or procedures since the last report to the Board, including, but not limited to, information about material violations of this Code of Ethics or procedures and sanctions imposed in response to the material violations; and
2. certifies that Altrinsic has adopted procedures reasonably necessary to prevent Access Persons from violating this Code of Ethics.
IX. OVERSIGHT OF CODE OF ETHICS
1. Acknowledgment. The Compliance Officer shall annually distribute a copy of the Code of Ethics to all Supervised Persons. The Compliance Officer will also distribute promptly all amendments to the Code. All Supervised Persons are required annually to sign and acknowledge their receipt of the Code (and any amendments) by signing the form of acknowledgment attached as Attachment D or such other form as may be approved by the Compliance Officer.
2. Review of Transactions. Each Access Person's transactions in his/her Personal Account will be reviewed on a regular basis and compared with transactions for the clients and against the list of Restricted Securities. Any Access Person transaction that is believed to be a violation of this Code of Ethics will be reported promptly to the management of Altrinsic. The Director
of Investments of Altrinsic will review the Compliance Officer's transactions and preclearance requests.
3. Sanctions. Altrinsic's management, with advice of legal counsel, at their discretion, shall consider reports made to them and upon determining that a violation of this Code of Ethics has occurred, may impose such sanctions or remedial action as they deem appropriate or to the extent required by law. These sanctions may include, among other things, fines, disgorgement of profits, suspension or termination of employment and/or criminal or civil penalties.
4. Reports to the Board. Altrinsic shall report to the Board of Directors or Trustees of any registered investment company (the "Board") to which Altrinsic provides advisory services, any violation of the Code. Any person suspected of violating this Code may be called upon to explain the circumstances surrounding his or her non-clerical violation for evaluation by the Board.
5. Authority to Exempt Transactions. The Compliance Officer has the authority to exempt any Supervised Person or any personal securities transaction of an Access Person from any or all of the provisions of this Code of Ethics if the Compliance Officer determines that such exemption would not be against any interests of a client and is consistent with the requirements of Rule 17j-1 and Rule 204A-1. The Compliance Officer shall prepare and file a written memorandum of any exemption granted, describing the circumstances and reasons for the exemption.
6. ADV Disclosure. The Compliance Officer shall ensure that Altrinsic's Form ADV (1) describes the Code on Schedule F of Part II and (2) offers to provide a copy of the Code to any client or prospective client upon request.
X. CONFIDENTIALITY
All reports of personal securities transactions and any other information filed pursuant to the Code shall be treated as confidential to the extent permitted by law.
ATTACHMENT A
ALTRINSIC GLOBAL ADVISORS, LLC
PRECLEARANCE FORM
FOR TRANSACTIONS IN PERSONAL ACCOUNTS OF ACCESS PERSONS
Access Persons must complete this Preclearance Form prior to engaging in any sale transaction (unless excepted by the Code of Ethics).
INVESTMENT INFORMATION
Issuer: ______________________________
Equity Investments: _____________ Cmn _____ Pfd
Number of shares _____________________
Debt Investments
Interest rate: _______________________
Maturity date: _______________________
TRANSACTION INFORMATION
Transaction Type (please circle): Sale Estimated Trade Date: ________________ Estimated Price: _____________________ Broker/Dealer: _______________________ Is the investment an initial public offering? [ ] Y [ ] N Is the investment a private placement or investment opportunity of limited availability? [ ] Y [ ] N |
Number of transactions over the last 30 day period? ___________________________
REPRESENTATION AND SIGNATURE
By executing this form, I represent that the information contained herein is accurate and complete and that my trading in this investment is not based on any material nonpublic information. I understand that preclearance will only be in effect for 24 hours from the time of the Compliance Officer's signature.
Employee Name (please print)
------------------------------------- ---------------------------------------- Employee Signature Date DISPOSITION OF PRECLEARANCE REQUEST Approved ____________________________ ____________________ Denied ______________________________ Compliance Officer _____________________________________ Date |
ATTACHMENT B
|
ALTRINSIC GLOBAL ADVISORS, LLC
QUARTERLY TRANSACTIONS REPORTING FORM
For the Calendar Quarter Ended: ______________
During the quarter referred to above, the following transactions were effected in Reportable Securities of which I had, or by reason of such transaction acquired, direct or indirect Beneficial Ownership, and which are required to be reported pursuant to the Code. (Attach additional pages if necessary.)
Interest Dollar
Security Symbol/Cusip Shares/Units Maturity Rate Amount Purchase/Sale/Other Price Date BD or Bank
-------- ------------ ------------ -------- -------- ------ ------------------- ----- ---- ----------
|
This report (i) excludes transactions with respect to which I had no direct or indirect influence or control and (ii) other transactions not required to be reported.
Except as noted below, I hereby certify that I have no knowledge of the existence of any personal conflict of interest relationship which may involve a client of Altrinsic, such as the existence of any economic relationship between my transactions and securities held or to be acquired by Altrinsic.
I certify that I have reported on this form (i) all transactions in Reportable Securities in which I had any direct or indirect Beneficial Ownership during the period covered by this report and (ii) any accounts established during the period covered by this report.
Supervised Person Print or Type Name
------------------------------------- ---------------------------------------- Signature Date -------------------------------------------------------------------------------- Compliance Review Print or Type Name ------------------------------------- ---------------------------------------- Signature Date Comments: -------------------------------------------------------------------------------- |
ATTACHMENT C
ALTRINSIC GLOBAL ADVISORS LLC
INITIAL HOLDINGS REPORT/ANNUAL HOLDINGS REPORT
To: Compliance Officer From: [Access Person] Subject: Personal Securities Holdings |
Pursuant to the Code, each Access Person must submit an initial holdings report and an updated annual holdings report that lists all Reportable Securities (as defined in the Code) in which such Access Person has a direct or indirect Beneficial Ownership (as defined in the Code).
Each Access Person is required to complete the form below and return it to the Compliance Officer. If this is an Initial Holdings Report, it must be submitted no later than 10 days after the date on which the undersigned became an Access Person. If this is an Annual Holdings Report, it must be submitted no later than January 31 each year with respect to the Access Person's holdings for the preceding year. The information set forth in an Initial Holdings Report and an Annual Holdings Report must be current as of a date no more than 45 days prior to the date on which the report is submitted.
Title & Amount of Security Name of Broker,
(including exchange ticker symbol Dealer or Bank
or CUSIP number, number of shares Maintaining Account At Which
Date and principal amount) Any Securities are Maintained
---- --------------------------------- -----------------------------
|
(I have attached additional pages if required)
I certify that the names of any brokerage firms or banks where I have an account in which any securities are held are disclosed above.
ATTACHMENT D
CODE OF ETHICS
ACKNOWLEDGEMENT
I hereby acknowledge receipt of the Altrinsic Global Advisors, LLC Code of Ethics and certify that I have read and understand it and agree to abide by it. I hereby represent that all my personal securities transactions will be effected in compliance with the Code.
I also confirm that I have instructed all brokerage firms where I maintain an account to supply duplicate copies of my quarterly brokerage account statements to the Compliance Officer.
Ex - 99(p)(5)
HANSBERGER GLOBAL INVESTORS, INC.
AMENDED CODE OF ETHICS
This Amended Code of Ethics (the "Code") has been adopted by Hansberger Global Investors, Inc. ("HGII"). The Code is based on the principle that the officers, directors and employees of HGII owe a fiduciary duty to their advisory clients to conduct personal securities transactions in a manner that does not interfere with client transactions or otherwise take unfair advantage of their relationship with HGII and its clients. Persons covered by this Code must adhere to this general principle as well as comply with the Code's specific provisions. Technical compliance with the Code's procedures will not automatically insulate from scrutiny trades that show a pattern of abuse of the individual's fiduciary duties to HGII's advisory clients. The Code has been adopted pursuant to Rule 17j-1 under the 1940 Act and Section 204A of the Advisers Act, including 204A-1 thereof, and to comply with the recordkeeping requirements of Rule 204-2 under the Advisers Act.
I. DEFINITIONS
A. "1940 Act" means the U.S. Investment Company Act of 1940, as amended.
B. "Access Person" means any director or officer of the Company. The term also means: (i) any of HGII's Supervised Persons: (A) who has access to nonpublic information regarding any clients' purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any reportable fund, or (B) who is involved in making securities recommendations to clients, or who has access to such recommendations that are nonpublic. The term also includes any supervised person who has access to nonpublic information regarding the portfolio holdings of a Reportable Fund.
C. "Advisers Act" means the U.S. Investment Advisers Act of 1940, as amended.
D. "Automatic Investment Plan" means a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation, including, but not limited to a dividend reinvestment plan.
E. A Security is "being considered for purchase or sale" when a recommendation to purchase a Security has been made and communicated to the HGII research group or posted on the Company's research bulletin board.
F. "Beneficial Account" means all accounts in the name of or for the benefit of an Employee, his or her spouse, dependent children or any person living with an Employee or to whom an Employee contributes economic support, as well as any other non-Company client account with respect to which an Employee exercises investment discretion or provides investment advice.
G. "Beneficial Ownership" shall be interpreted in the same manner as it would be in determining whether a person is subject to the provisions of Section 16 of the U.S. Securities Exchange Act of 1934, as amended (the "1934 Act") and Rule 16a-1(a)(2) thereunder, except that the determination of direct or indirect beneficial ownership shall apply to all securities that an Access Person owns or acquires. In addition, a person should consider himself or herself the beneficial owner of securities held by his or her spouse, his or her minor children, a relative who shares his or her home, or other persons by reason of any contract, arrangement, understanding or relationship that provides him or her with sole or shared voting or investment power.
H. "Chief Compliance Officer" or "CCO" means Susan Moore-Wester or her successor.
Amended February 23, 2006
I. "Company" means HGII and its subsidiaries.
J. "Compliance Department" means the Company's compliance department located in Fort Lauderdale, Florida or its successor.
K. "Control" shall have the same meaning as that set forth in Section 2(a)(9) of the 1940 Act.
L. "Employee" means any officer or employee of the Company, but does not mean any Outside Director.
M. "Exchange-traded Fund or "ETF" means a registered investment company that operates pursuant to an order from the U.S. Securities and Exchange Commission (the "Commission") exempting the ETF from certain provisions of the 1940 Act so that the ETF may issue securities that trade in a secondary market, and which are redeemable only in large aggregations called creation units. An ETF issues and redeems its shares in creation units, at their net asset value. Individual ETF shares are purchased or sold in secondary market transactions at negotiated prices, i.e., at prices that are determined by that market. An ETF registers with the Commission under the 1940 Act either as an open-end management company or as a unit investment trust.
N. "Federal Securities Laws" means the U.S. Securities Act of 1933, the 1934 Act, U.S. Sarbanes-Oxley Act of 2002, the 1940 Act, the Advisers Act, Title V of the U.S. Gramm-Leach-Bliley Act, rules adopted under these acts, the U.S. Bank Secrecy Act as it applies to registered U.S. investment companies and registered U.S. investment advisers and rules promulgated thereunder. Each of the aforementioned acts shall include amendments made from time-to-time.
O. "General Counsel" means J. Christopher Jackson or his successor.
P. "Initial public offering" means an offering of securities registered under the U.S. Securities Act of 1933, as amended (the "1933 Act"), the issuer who, immediately before registration, was not subject to the reporting requirements of Section 13 or Section 15(d) of the 1934 Act.
Q. "Legal Department" means the Company's legal department located in Fort Lauderdale, Florida or its successor.
R. "Outside Director" means a director of the Company who is not an "interested person" of the Company within the meaning of Section 2(a)(19)(B) of the 1940 Act.
S. "Private Placement" means an offering that is exempt from registration under the 1933 Act pursuant to Section 4(2), Section 4(6), Rule 504, Rule 505 or Rule 506.
T. "Purchase or sale of a Security" includes, among other things, the writing of an option to purchase or sell a Security.
U. "Security" shall have the meaning set forth in Section 202(a)(18) of the Advisers Act and, for purposes of this Code of Ethics, shall include ETFs, options and depositary receipts on Securities and transactions in related futures contracts, closed-end investment companies, private investment funds, hedge funds and any other foreign or offshore funds, unit investment trusts and all Reportable Funds. It shall not include Registered Open-End Investment Companies, unit investment trusts that are invested exclusively in one or more Registered Open-End Investment Companies, direct obligations of the Government of the United States, high quality short-term debt securities (including repurchase agreements), bankers' acceptances, bank certificates of deposit, and commercial paper.
V. "Supervised Person" shall have the meaning set forth in Section 202(a)(25) of the Advisers Act. For purposes of the Code, all Employees shall be deemed to be Supervised Persons.
W. "Registered Open-End Investment Company" means any U.S. open-end investment company (mutual fund) other than a Reportable Fund and ETFs.
X. "Reportable Fund" means any open-end investment company (mutual fund) and closed-end investment company (collectively, "funds"), other than funds that rely on Rule 2a-7 under the 1940 Act, i.e. money market funds, for which HGII serves as an investment adviser or investment sub-adviser or any funds whose investment adviser or principal underwriter controls, is controlled by, or is under common control with, HGII. For purposes of this definition, "control" has the same meaning as set forth in Section 2 (a) (9) of the 1940 Act. A list of such funds is attached to this Code as Schedule 1, which Schedule will be amended from time-to-time.
Y. "Security held or to be acquired" means: (a) any Security which,
within the most recent 15 calendar days (i) is or has been held by a
client or (ii) is being or has been considered for purchase by the
Company for a client; and (b) any option to purchase or sell, and any
security convertible into or exchangeable for, a Security described in
(a) above.
II. STANDARDS OF CONDUCT
All Access Persons shall comply with all applicable provisions of the Federal Securities Laws, including those provisions addressed in the Code as well as the Company's compliance policies and procedures.
No Access Person shall in connection with the direct or indirect purchase or sale of a Security held or to be acquired by a Company client (including an investment company managed or advised by the Company):
A. employ any device, scheme or artifice to defraud a client;
B. make to a client any untrue statement of a material fact or omit to state to a client a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading;
C. engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon a client; or
D. engage in any manipulative practice with respect to a client.
III. EXEMPTED TRANSACTIONS
A. The prohibitions of Section IV, E., F. and G. of this Code shall not apply to:
1. Purchases that are part of an Automatic Investment Plan;
2. Purchases effected upon the exercise of rights issued by an issuer pro-rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired;
3. Purchases or sales effected in any account over which the person has no direct or indirect influence or control;
4. Purchases or sales through any profit sharing, pension or other benefit plan of the Company; and
5. Purchases or sales of ETFs, closed-end investment companies, private investment funds, hedge funds, foreign or off-shore funds, unit investment trusts or Reportable Funds.
B. The prohibitions of Section IV. A. 5 of this Code shall not apply to:
1. Purchases or sales that are nonvolitional on the part of the person;
2. Purchases that are part of an Automatic Investment Plan;
3. Purchases or sales effected in any account over which the person has no direct or indirect influence or control; and
4. Purchases or sales through any profit sharing, pension or other benefit plan of the Company.
C. In addition, the pre-clearance requirements of Section V. A. of this Code shall not apply to:
1. Purchases or sales that are nonvolitional on the part of the person;
2. Purchases that are part of an Automatic Investment Plan;
3. Purchases effected upon the exercise of rights issued by an issuer pro-rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired;
4. Purchases or sales effected in any account over which the person has no direct or indirect influence or control; and
5. Purchases and sales of ETFs, closed-end investment companies, private investment funds, hedge funds, foreign or off-shore funds or unit investment trusts.
D. The Chief Compliance Officer or General Counsel may pre-approve a purchase or sale of a Security that would otherwise violate the provisions set forth in Section IV below if he or she determines after appropriate inquiry that the transaction is consistent with the fiduciary duty owed to the Company's clients and is not potentially harmful to clients because: (a) it does not conflict with any Security being considered for purchase by any current advisory client and (b) the decision to purchase or sell the Security is not the result of information obtained in the course of a person's relationship with an advisory client or the Company.
IV. PROHIBITED CONDUCT; REQUIRED ACTIONS
A. Employees are prohibited from engaging in the following activities unless they have obtained prior written approval from the Chief Compliance Officer or the Legal Department:
1. Employees may not join an investment club or enter into an investment partnership;
2. Employees may not purchase any security in a Private Placement;
3. Employees may not serve on a board of directors of either a publicly traded or a privately held company nor may they serve as a member of any creditor committee;
4. Employees may not purchase any security in an initial public offering; and
5. Employees may not profit from the purchase and sale, or sale and purchase, of the same or equivalent Securities within 60 calendar days. Any profits realized on such trades shall be disgorged to a charitable organization.
In addition to the above, Access Persons who are not Employees must obtain prior written permission of the Chief Compliance Officer or the Legal Department before they directly or indirectly acquire Beneficial Ownership in any security in an initial public offering or in a Private Placement.
B. Every Employee shall direct his or her broker(s) (if any) to provide duplicate confirmations and monthly account statements to the Compliance Department regarding his or her own accounts and for any account in which securities were held for his or her direct or indirect benefit (together, "Beneficial Accounts"). If a broker does not provide confirmations and monthly account statements to the Compliance Department, it shall be the Employee's responsibility to do so.
C. For the purpose of purchasing Reportable Funds at net asset value, Employees may have joint accounts only with spouses, their children, parents, step-parents, parents-in-law, brothers, sisters, grandchildren or grandparents and a trustee or custodian of any qualified pension or profit sharing plan or IRA established for the benefit of such persons.
D. Employees may not speak in or to the media, on or off the record, regarding any client or security without the prior authorization of the Chief Compliance Officer or the Legal Department.
E. All Employees are prohibited from purchasing or selling any Security for ten (10) calendar days from the date that: (a) the Company first approves an initial recommendation for the Buy, Hold, Watch or Sell List; or (b) a Security already on the research database is moved from the Hold or Watch List to the Buy List or from the Hold List to the Sell List.
F. No Employee Account shall execute a Securities transaction on a day during which a Company client has a pending "buy" or "sell" order in such Security.
G. No Employee shall execute a Securities transaction within three (3) business days after a Company client has traded in the same Security.
H. No Employee shall accept a gift of more than de minimis value from any person or entity that does business with, or on behalf of the Company. For purposes of this prohibition, de minimis value is considered to be a value of $300 or less.
I. No Employee shall, by use of futures, options, options on futures, other types of derivatives or otherwise seek to indirectly accomplish any conduct expressly prohibited by the provisions set forth in this Code,
J. Each Supervised Person must report, promptly, to the Chief Compliance Officer, any violations of the Code of which he or she becomes aware, even if such violations involve another Supervised Person. Supervised Persons may submit such reports anonymously to the Chief Compliance Officer. Retaliation against any Supervised Person for reporting a violation of this Code shall be treated as a further violation of this Code subjecting the
violator to further sanctions under the Code.
V. PRE-CLEARANCE REQUIREMENT AND PROCEDURES; INITIAL AND ANNUAL REPORTING
A. No Access Person shall purchase or sell any Security for any of his or her Beneficial Accounts, unless the proposed purchase or sale has been reported to and pre-cleared by the Compliance Department or the Legal Department.
1. All proposed personal securities transactions shall be documented either on a Personal Security Trade Authorization Form (a copy of which is attached as Exhibit A) or on an electronic form provided on the Access Person's personal computer and forwarded to the Compliance Department.
2. Subject to the further provisions set forth herein, the Compliance Department or the Legal Department, shall pre-clear any requests to purchase or sell a Security if the proposed transaction does not violate this Code of Ethics or the Federal Securities Laws. Such determination shall be made by:
a. Reviewing the holdings of the portfolios managed by the Company, including the holdings of Reportable Funds; and
b. Determining if the Security is currently on the Company's then current research database or is then currently under consideration for adding to the Company's database pending review by the Company's research committee.
3. After review, if the Compliance Department or the Legal Department, determines to pre-clear a proposed trade, the Compliance Department (or Legal Department) will authorize the Access Person to execute the trade as follows.
a. The Compliance Department shall execute a Trade Authorization Form.
b. The Compliance Department shall communicate authorization of the trade to the Access Person.
c. The time at which the trade authorization is communicated to the Access Person shall be documented on the Trade Authorization Form.
4. The trade authorization is effective for two (2) business days after the pre-clearance is granted, unless otherwise indicated by the Compliance Department.
5. The Compliance Department shall maintain the originally executed Trade Authorization Form. A copy of the executed Trade Authorization Form will be available to the Access Person upon request.
B. All Access Persons shall disclose all Securities holdings for which they have Beneficial Ownership, as well as certain information regarding Beneficial Accounts, on holdings reports requesting the information set forth in Section VI. B., below upon commencement of employment or association as an Access Person, but in no event, later than ten (10) calendar days of commencement of employment or association as an Access Person and thereafter on an annual basis. Information contained in holdings reports submitted in accordance with this Code must be current as of a date no more than 45 days prior to the date of such report, which must be timely submitted to the Chief Compliance Officer. Access Persons that do not have any Securities holdings or Beneficial Account information to report must submit a report certifying that the Access Person does not
have any reportable information as of the date of the report. Any such report may contain a statement that the report shall not be construed as an admission by the person making such report that he or she has any direct or indirect Beneficial Ownership in the Security to which the report relates. The Company shall provide to each Access Person a copy of the Code as well as any amendments to the Code. All Access Persons must complete an acknowledgment upon commencement of employment or association as an Access Person, and thereafter on (i) receipt of any amendment to the Code and (ii) an annual basis (a copy of which is attached as Exhibit B).
VI. QUARTERLY REPORTING
A. Every Access Person shall submit a quarterly report to the Chief Compliance Officer with the information described in paragraph B. below with respect to any Beneficial Accounts opened during the quarter and all transactions in any Security in which such Access Person had, or by reason of such transaction acquired, any direct or indirect Beneficial Ownership in the Security during such quarter. Access Persons need not, however, report on the following transactions:
1. Purchases or sales that are non-volitional on the part of the person;
2. Purchases that are part of an Automatic Investment Plan; and
3. Purchases or sales effected in any account over which the person has no direct or indirect influence or control.
B. Quarterly reports shall be submitted to the Chief Compliance Officer no later than 30 calendar days after the end of each calendar quarter, and shall contain the following information:
1. The date of the transaction, the title and the number of shares, the exchange ticker symbol, SEDOL or CUSIP number and the principal amount, interest rate and maturity date of each Security involved;
2. The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition);
3. The price at which the transaction was effected;
4. The name of the broker, dealer or bank with or through whom the transaction was effected;
5. With respect to any Beneficial Account established during the quarter, the name of the broker, dealer or bank with whom the account was established and the date the account was established; and
6. The date the report was submitted.
C. Any such report may contain a statement that the report shall not be construed as an admission by the person making such report that he or she has any direct or indirect beneficial ownership in the security to which the report relates.
D. In accordance with sections IV.A. and B. above, all Access Persons are required to provide duplicate confirmations and account statements for each account over which the Access Person has Beneficial Ownership. Access Persons that do not have any brokerage accounts or Beneficial Ownership of Securities must submit a quarterly transaction report to certify that the Access Person has no transactions to report.
VII. INSIDER TRADING PROCEDURES UNDER ADVISERS ACT SECTION 204A
The following rules apply to all Access Persons:
A. Identifying Inside Information
Before trading for yourself, a Beneficial Account, Employee Account or Company clients (including investment companies or private accounts managed by the Company) in the securities of a company about which you may have potential inside information, ask yourself the following questions:
Is the information material? Is this information that an investor would consider important in making his or her investment decisions? Is this information that would substantially affect the market price of the securities if generally disclosed?
Common, but by no means exclusive, examples of what may be "material" include the following:
- Dividend changes
- Declarations of stock splits and stock dividends
- Financial forecasts, especially earnings estimates
- Changes in previously disclosed financial information
- Mergers, acquisitions, or tender offers
- Proposed issuances of new securities
- Stock repurchase programs
- Major litigation
- Significant changes in management or operations
- Significant increases or declines in backlog orders or the award of a significant contract
- Significant new products to be introduced and significant discoveries of oil and gas, minerals, or the like
- Extraordinary borrowings or liquidity problems
- Purchase or sale of substantial assets
- Governmental investigations, criminal actions, or indictments and any collateral consequences, including potential debarment from government contracts
Is the information non-public? To whom has this information been provided? Has the information been effectively communicated to the marketplace? (For example, published in Reuters, The Wall Street Journal or other publications of general circulation.)
If, after consideration of the above, you believe that the information may be material and non-public, you should take the steps listed below. If you have any doubts as to whether information may be material and non-public, you should assume that the information is material and non-public.
1. Report the matter immediately to the Chief Compliance Officer.
2. Do not purchase or sell the securities on behalf of yourself or others (including investment companies or private accounts managed by the Company).
3. Do not communicate the information inside or outside the Company, other than to the Chief Compliance Officer.
4. After the Chief Compliance Officer has reviewed the issue, you will be instructed either to continue the prohibitions against trading and communication noted in paragraphs 2 and 3 above, or you will be allowed to trade and communicate the information.
B. Restricting Access to Material Non-Public Information
Information in your possession that is identified, as material and non-public may not be communicated to anyone, including persons within the Company, except to the Chief Compliance Officer. In addition, care should be taken so that such information is secure. For example, files containing material non-public information should be sealed; access to computer files containing material non-public information should be restricted.
To implement the proper restriction of access to material non-public information, various Company employees and/or departments are responsible for the following:
1. General Access Control Procedures
The Company has established a process by which access to sensitive company files that may contain non-public information is limited. Since most of the Company's files that might have insider-trading implications are stored in computers, personal identification numbers, passwords and/or code access numbers are distributed to specified individuals only. The limitations on access are monitored on an ongoing basis. In addition, access to certain physical areas of the Company's offices that are likely to contain sensitive information is restricted through the use of access codes.
Access Persons are made aware of their duties with respect to information being stored in non-accessible file cabinets. Access Persons are reminded that they should log off of their computers once having completed a task so as to limit information availability; places within the Company where any non-public information would be accessible are limited; specific fax machines are used to relay sensitive, potentially non-public information; access to all areas of the Company are limited through one main reception area so that outsiders are immediately identified and escorted to their proper destinations; and draft memoranda that may contain insider information are destroyed immediately after their use.
2. Confidentiality Agreements
From time to time, the Company may enter into a confidentiality agreement with third parties as a condition to receiving material, nonpublic or other confidential information. All such requests should be referred to the Compliance Department, which, in consultation with the Legal Department, as appropriate, will ensure that the form of confidentiality agreement adequately addresses the circumstances in which the Company may share such information. No Employee is authorized to enter into any written or oral confidentiality agreement, on behalf of the Company without the express prior approval of the Compliance Department.
Where an Employee wishes to share material, nonpublic or other confidential information outside of the Company, prior to sharing the information, the Legal Department will obtain from the third party, an agreement whereby the third party (i) represents that it, together with its representatives, will not divulge the
information to any other person, or trade in the securities as to which the information relates, without the approval of the Compliance Department; and, as appropriate (ii) indemnifies the Company against any liability arising from the improper use or disclosure of such information by the third party or its representatives.
3. Personnel Department Procedures
Prior to an individual's formal offer of employment, the Personnel Department provides the individual with the Company's Insider Trading Procedures and clarifies that the Company views that the person's willingness to adhere to these policies and procedures to be a condition precedent to accepting employment with the Company.
The Chief Compliance Officer assists the Personnel Department by responding to insider policy questions from prospective Access Persons so that it is clear what they can or cannot do with respect to insider trading as an Access Person of the Company.
New Access Persons are provided with an acknowledgment form to execute before formally commencing employment in which the individual represents that he or she has received the Company's Insider Trading Procedures, has read and understands them, and that he or she understands that continued employment with the Company is dependent upon compliance with those procedures.
Annually, the Personnel Department elicits a written statement from all Company Access Persons that they have not violated any of the Company's Insider Trading Procedures.
C. Supervisory Procedures for Effectuating Compliance
The roles of the Compliance Department and the Legal Department are critical to the implementation and maintenance of HGII's Insider Trading Procedures. Supervisory procedures can be divided into three categories - Prevention of Insider Trading, Detection of Insider Trading and Control of Inside Information.
1. Prevention of Insider Trading
To prevent insider trading, the Compliance and/or Legal Departments:
a. provide, on a regular basis, an educational program to familiarize Access Persons with, and meet on a selective basis with newly hired personnel to inform them of, the Company's Insider Trading Procedures;
b. answer questions regarding the Company's Insider Trading Procedures;
c. resolve issues of whether information received by an Access Person of the Company is material and non-public; and
d. review on a regular basis and update as necessary the Company's Insider Trading Procedures.
2. Detection of Insider Trading
To detect insider trading, the Compliance Department is responsible for:
a. reviewing the trading activity reports filed by each Access Person with particular emphasis on Access Persons that have access to non-public information and sample testing of all Access Persons;
b. reviewing the trading activity of investment companies and private accounts managed by the Company;
c. reviewing the trading activity of the Company's own account;
d. coordinating the review of such reports with other appropriate Access Persons of the Company; and
e. periodically generating reports for management on those tests.
3. Control of Inside Information
When it has been determined that an Access Person of the Company has material non-public information, measures will be implemented to prevent dissemination of such information. For example:
a. All Access Persons of the Company will be notified that they are prohibited from disclosing to other persons ("tippees") inside information about the issuer in question and from trading in the securities in question in "personal securities transactions" or for the accounts of clients (notwithstanding the inclusion of such securities on any Buy, Alt-Buy or Hold Lists compiled by the Company), until further notice.
b. Following receipt of notice prohibiting certain trades and
until receipt of further notice, every Access Person with
material non-public information shall file with the Chief
Compliance Officer a weekly written report of all personal
securities transactions effected during the prior week. This
weekly report is in addition to the standard Form (Exhibit
A) filed with the Chief Compliance Officer.
c. The Compliance Department will review such reports weekly as well as the Company's records of trades for client's accounts in order to determine if these procedures or any provision in this Code of Ethics have been violated.
d. The Compliance Department will maintain and regularly update a list of every Access Person who has indicated or about whom it has been indicated that he or she has come into contact with material non-public information so that it can better monitor these particular Insiders.
e. The Compliance Department will place any written materials containing the inside information in a confidential file.
4. Special Reports to Management
Promptly upon learning of a violation of the Company's Insider Trading Procedures, the Compliance Department should determine whether a written report to senior management, the Company Executive Committee, and/or the appropriate Board of Directors is warranted taking into consideration the nature of the violation in light of all relevant facts and circumstances.
5. Annual Reports to Management and Investment Companies
On an annual basis, the Compliance Department shall prepare a written report to the Management of the Company (a) setting forth a summary of existing procedures to detect and prevent insider trading and recommendations for improvement, if any, and a description of HGII's continuing educational program regarding insider trading, (b) describing any issues arising under the Code or such procedures since the last such report, including but not limited to information about material violations of the Code or procedures and sanctions imposed in response to such violations, and (c) certifying that the Company has adopted procedures reasonably necessary to prevent Access Persons from violating the Code; and a copy of such report shall promptly be furnished to the board of directors of any investment company registered under the 1940 Act for which the Company serves as investment adviser or sub-adviser.
VIII. SANCTIONS
The Chief Compliance Officer shall report any material code violations to the Management of the Company, which may then impose such sanctions, as it deems appropriate, up to and including termination of employment.
HANSBERGER GLOBAL INVESTORS, INC. AMENDED CODE OF ETHICS
SCHEDULE 1
REPORTABLE FUNDS
1) Hansberger Institutional Series - U.S. Registered Investment Companies
- International Value Fund (Adviser)
- Emerging Markets Fund (Adviser)
- International Growth Fund (Adviser)
- International Core Fund (Adviser)
- All Countries Fund (currently inactive)
2) Harris Insight Funds - U.S. Registered Investment Companies
- Harris Insight International Fund (Sub-Adviser)
- Harris Insight Emerging Markets Fund (Sub-Adviser)
3) Smith Barney - U.S. Registered Investment Company
- Smith Barney Hansberger Global Value Fund (Sub-Adviser)
4) Vanguard Trustees' Equity Fund - U.S. Registered Investment Company
- Vanguard International Value Fund (Sub-Adviser)
5) IXIS Asset Management North America, LP
- Hansberger International Fund - U.S. Registered Investment Company
(Sub-Adviser)
- IXIS Moderate Diversified Portfolio - U.S. Registered Investment Company (Sub-Adviser)
- IXIS Equity Diversified Portfolio - U.S. Registered Investment Company
(Sub-Adviser)
- IXIS Hansberger Emerging Latin America Fund - Societe d'Investissement a Capital Variable (Sub-Adviser)
- IXIS Hansberger Global Emerging Markets Fund - Societe d'Investissement a Capital Variable (Sub-Adviser)
6) Pacific Capital - U.S. Registered Investment Company
- Pacific Capital International Stock Fund (Sub-Adviser)
7) MTB Group of Funds -- U.S. Registered Investment Company
- MTB International Equity Fund (Sub-Adviser)
8) ING - U.S. Registered Investment Company
- ING International Capital Appreciation Fund (Sub-Adviser)
Exhibit A
HANSBERGER GLOBAL INVESTORS
PERSONAL SECURITIES TRADE AUTHORIZATION FORM
NAME: __________________________________________________________________________
LEGAL NAME OF ACCOUNT: _________________________________________________________
TRANSACTION DATE: ___________________ TIME REQUESTED: ________________________
BUY ____________ SELL _____________ SECURITY: ______________________________
SEDOL NO.: _____________________________
|
NUMBER OF SHARES AND APPROX. PRICE: ____________________________________________
- OR -
TOTAL US DOLLAR AMOUNT: _____________
BROKER: _____________________________ ACCOUNT #: _____________________________
CONTACT IN COMPLIANCE DEPARTMENT: Susan Moore-Wester
To the best of my knowledge this proposed transaction does not violate the provisions of the HGI Amended Code of Ethics.
FOR COMPLIANCE USE ONLY
CONTACT IN TRADING: ____________________________________________________________
CONTACT IN RESEARCH: ___________________________________________________________
COMMENTS: This security has no pending trade tickets and the security is not currently under consideration for purchase or sale by HGI.
COMPLIANCE COMPLETED/CHECKED BY: _______________________________________________
CHIEF COMPLIANCE OFFICER: ______________________________________________________
NOTIFICATION OF APPROVAL OR DENIAL
DATE: _______________________________ TIME RESPONDED: ________________________
APPROVED: _________ DENIED: _________
COMMENTS: ______________________________________________________________________
FORM COMPLETED BY: _____________________________________________________________
EXHIBIT B
HANSBERGER GLOBAL INVESTORS, INC.
AMENDED CODE OF ETHICS
ACKNOWLEDGMENT
I have received and reviewed the Hansberger Global Investors, Inc. Amended Code of Ethics. I understand its provisions and their applicability to me and agree to comply with them.
DETACH AND RETURN THIS ACKNOWLEDGMENT TO:
XXXXXXXXXXX, 401 EAST LAS OLAS BLVD., SUITE 1700, FORT LAUDERDALE, FL 33301.
Ex- 99(p)(6)
CODE OF ETHICS AND PERSONAL INVESTMENT POLICY
FOR
LAZARD ASSET MANAGEMENT LLC
LAZARD ASSET MANAGEMENT SECURITIES LLC
LAZARD ASSET MANAGEMENT (CANADA) INC.
LAZARD ALTERNATIVES LLC
AND
CERTAIN REGISTERED INVESTMENT COMPANIES
Lazard Asset Management LLC, Lazard Asset Management Securities LLC, Lazard Asset Management (Canada) Inc., Lazard Alternatives LLC (collectively "LAM"), and those U.S.-registered investment companies advised or managed by LAM that have adopted this policy ("Funds"), have adopted this policy in order to accomplish two primary goals: first, to minimize conflicts and potential conflicts of interest between LAM employees and LAM's clients (including the Funds and shareholders of the Funds), and between Fund directors or trustees ("Directors") and their Funds, and second, to provide policies and procedures consistent with applicable law, including Rule 204-2 under the Investment Advisers Act of 1940 (the "Advisers Act") and Rule 17j-1 under the Investment Company Act of 1940 ("1940 Act"), to prevent fraudulent or manipulative practices with respect to purchases or sales of securities held or to be acquired by client accounts. In addition, it is LAM's policy that LAM employees should not be engaging in short-term investing, including so-called market timing of any mutual funds, whether or not managed by LAM. This Policy therefore prohibits certain short-term trading activity by LAM employees.
ALL EMPLOYEES OF LAM, INCLUDING EMPLOYEES WHO SERVE AS FUND OFFICERS OR DIRECTORS, ARE "COVERED PERSONS" UNDER THIS POLICY AND ARE REQUIRED TO COMPLY WITH ALL APPLICABLE FEDERAL SECURITIES LAWS. Additionally, all Directors are subject to this policy as indicated below.
A. STATEMENT OF PRINCIPLES. All Covered Persons owe a fiduciary duty to LAM's clients when conducting their personal investment transactions. Covered Persons must place the interest of clients first and avoid activities, interests and relationships that might interfere with the duty to make decisions in the best interests of the clients. All Directors owe a fiduciary duty to each Fund of which they are a director and to that Fund's shareholders when conducting their personal investment transactions. At all times and in all matters Directors shall place the interests of their Funds before their personal interests. The fundamental standard to be followed in personal securities transactions is that Covered Persons and Directors may not take inappropriate advantage of their positions.
Covered Persons are reminded that they also are subject to other policies of LAM, including policies on insider trading, and the receipt of gifts and service as a director of a publicly traded company. Covered Persons must never trade in a security while in possession of material,
non-public information about the issuer or the market for those securities, even if the Covered Person has satisfied all other requirements of this policy.
LAM's Chief Executive Officer has appointed the Chief Compliance Officer as the person who shall be responsible for the implementation of this Code of Ethics and Personal Investment Policy and all record-keeping functions mandated hereunder, including the review of all initial and annual holding reports as well as the quarterly transactions reports described below. The Chief Compliance Officer may delegate this function to others in the Legal / Compliance Department, and shall promptly report to LAM's General Counsel or the Chief Executive Officer all material violations of, or deviations from, this policy.
B. PERSONAL SECURITIES ACCOUNTS.
For purposes of this Policy, "PERSONAL SECURITIES ACCOUNTS" INCLUDE:
1. Any account in or through which securities (including open end mutual funds) can be purchased or sold, which includes, but is not limited to, a brokerage account, 401k account, or variable annuity or variable life insurance policy;
2. Accounts in the Covered Person's or Director's name or accounts in which the Covered Person or Director has a direct or indirect beneficial interest (a definition of Beneficial Ownership is included in Exhibit A);
3. Accounts in the name of the Covered Person's or Director's spouse;
4. Accounts in the name of children under the age of 18, whether or not living with the Covered Person or Director, and accounts in the name of relatives or other individuals living with the Covered Person or Director or for whose support the Covered Person or Director is wholly or partially responsible (together with the Covered Person's or Director's spouse and minor children, "Related Persons"); (1)
5. Accounts in which the Covered Person or Director or any Related Person directly or indirectly controls, participates in, or has the right to control or participate in, investment decisions.
For purposes of this Policy, PERSONAL SECURITIES ACCOUNTS DO NOT INCLUDE:
1. Estate or trust accounts in which a Covered Person, Director, or Related Person has a beneficial interest, but no power to affect investment decisions. There must be no communication between the account(s) and the Covered Person, Director or Related Person with regard to investment decisions prior to execution;
2. Fully discretionary accounts managed by LAM or another registered investment adviser are permitted if, (i) for Covered Persons and Related Persons, the Covered Persons receives permission from the Legal / Compliance Department, and (ii) for all persons covered by this Code, there is no communication between the adviser to the account and such person with regard to investment decisions prior to execution. Covered Persons with managed accounts must designate that copies of trade confirmations and monthly statements be sent to the Legal / Compliance Department;
3. Direct investment programs, which allow the purchase of securities directly from the issuer without the intermediation of a broker/dealer, provided that the timing and size of the purchases are established by a pre-arranged, regularized schedule (e.g., dividend reinvestment plans). Covered Persons must pre-clear the transaction at the time that the dividend reinvestment plan is being set up. Covered Persons also must provide documentation of these arrangements and direct periodic (monthly or quarterly) statements to the Legal / Compliance Department;
4. 401k and similar retirement accounts that permit the participant to change their investments no more frequently than once per quarter. Such accounts that allow participants to trade more frequently (such as, for example, an "Individually Directed Account"), are Personal Securities Accounts for purposes of this Code.
5. Other accounts over which the Covered Person or Director has no direct or indirect influence or control;
6. Qualified state tuition programs (also known as "529 Programs") where investment options and frequency of transactions are limited by state or federal laws.
C. OPENING AND MAINTAINING EMPLOYEE ACCOUNTS. All Covered Persons and their Related Persons must maintain their Personal Securities Accounts at Lazard Capital Markets LLC ("LCM"). If your account is a mutual fund only account, you do not need to maintain it at LCM. Additionally, if LCM does not offer a particular investment product or service, or for Related Persons who, by reason of their employment, are required to conduct their securities transactions in a manner inconsistent with this policy, or in other exceptional circumstances, Covered Persons may submit a request for exemption to the Legal / Compliance Department. For any Personal Securities Account not maintained at LCM Covered Persons and their Related Persons must arrange to have duplicate copies of trade confirmations and statements provided to the Legal and Compliance Department at the following address: Lazard Asset Management LLC, Attn: Chief Compliance Officer, 30 Rockefeller Plaza, 59th Floor, New York, NY 10112. All other provisions of this policy will continue to apply to any Personal Securities Account not maintained at LCM.
D. SECURITIES.
For purposes of this Policy, "SECURITY" INCLUDES, in general, any interest or instrument commonly known as a security including the following:
1. stocks
2. bonds
3. shares of open and closed-end funds (including exchange-traded funds) and unit investment trusts
4. hedge funds
5. private equity funds
6. limited partnerships
7. private placements or unlisted securities
8. debentures, and other evidences of indebtedness, including senior debt, subordinated debt
9. investment, commodity or futures contracts
10. all derivative instruments such as options, warrants and indexed instruments
"SECURITY" also includes securities that are "related" to a security being purchased or sold by a LAM client. A "RELATED SECURITY" is one whose value is derived from the value of another security (e.g., a warrant, option, or an indexed instrument).
For purposes of this Policy, SECURITY DOES NOT INCLUDE:
1. money market mutual funds
2. U.S. Treasury obligations
3. mortgage pass-throughs (e.g., Ginnie Maes) that are direct obligations of the U.S. government
4. bankers' acceptances
5. bank certificates of deposit
6. commercial paper
7. high quality short-term debt instruments (meaning any instrument that has a maturity at issuance of less than 366 days and that is rated in one of the two highest rating categories by a nationally recognized statistical rating organization, such as S&P or Moody's), including repurchase agreements.
E. RESTRICTIONS. The following restrictions apply to trading for Personal Securities Accounts of Covered Persons and Related Persons:
1. CONFLICTS WITH CLIENT ACTIVITY. No security, excluding open end mutual
funds, may be purchased or sold in any Personal Securities Account seven
(7) calendar days before or after a LAM client account trades in the same
security.
2. 60 DAY HOLDING PERIOD. Securities transactions, including transactions in mutual funds other than money-market mutual funds, must be for investment purposes rather than for speculation. Consequently, Covered Persons or their Related Persons may not profit from the purchase and sale, or sale and purchase, of the same or equivalent securities within sixty (60) calendar days (i.e., the security may be purchased or sold on the 61st day), calculated on a First In, First Out (FIFO) basis. All profits from short-term trades are subject to disgorgement. However, with the prior written approval of the Chief Compliance Officer, or in his absence another senior member of the Legal / Compliance Department, and only in the case of hardship, or other rare and/or unusual circumstances, a Covered Person or a Related Person may execute a short-term trade that results in a loss or in break-even status.
Notwithstanding the above, the 60-day holding period will not apply (although the obligation to pre-clear trades will apply) to shares of exchange traded funds, options on exchange traded funds and open-end mutual funds that seek to track the performance of U.S. broad-based large-capitalization indices (i.e., the QQQ or an S&P 500 Index fund). Nevertheless, short-term trading in shares of these funds is discouraged. If a pattern of frequent trading is detected, the Legal / Compliance Department may reject any order to buy or sell these shares.
3. INITIAL PUBLIC OFFERINGS (IPOS). No transaction for a Personal Securities Account may be made in securities offered pursuant to an initial public offering.
4. PRIVATE PLACEMENTS. Securities offered pursuant to a private placement (e.g., hedge funds, private equity funds or any other pooled investment vehicle the interests or shares of which are offered in a private placement) may not be purchased or sold by a Covered Person
without the prior approval of LAM's Chief Executive Officer and the Chief Compliance Officer; however, purchases or sales of Lazard sponsored hedge funds do not require such approval. The Alternative Investments Operations Department instead provides the Legal / Compliance Department on at least a quarterly basis with a report for their review of all Covered Persons' investments in Lazard sponsored hedge funds. In connection with any decision to approve such a private placement, the Legal / Compliance Department will prepare a report of the decision that explains the reasoning for the decision and an analysis of any potential conflict of interest. Any Covered Person receiving approval to acquire securities in a private placement must disclose that investment when the Covered Person participates in a LAM client's subsequent consideration of an investment in such issuer and any decision by or made on behalf of the LAM client to invest in such issuer will be subject to an independent review by investment personnel of LAM with no personal interest in the issuer.
5. HEDGE FUNDS. Hedge funds are sold on a private placement basis and as noted above, with the exception of Lazard sponsored hedge funds, are subject to prior approval by LAM's Chief Executive Officer and Chief Compliance Officer. In considering whether or not to approve an investment in a hedge fund, the Chief Compliance Officer or his designee, will review a copy of the fund's offering memorandum, subscription documents and other governing documents ("Offering Documents") in order to ensure that the proposed investment is being made on the same terms generally available to all other investors in the hedge fund. The Chief Compliance Officer may grant exceptions to this general rule under certain circumstances. For example, such as when a family relationship exists between the Covered Person and the hedge fund manager.
Upon receipt of a request by a Covered Person to invest in a hedge fund, the Legal / Compliance Department will contact the Fund of Funds Group (the "Team") and identify the fund in which the Covered Person has requested permission to invest. The Team will advise the Legal / Compliance Department if the fund is on the Team's approved list or if the Team is otherwise interested in investing clients assets in the fund. If the fund is not on the Team's approved list and the Team is not interested in investing in the fund, the Chief Compliance Officer and the Chief Executive Officer will generally approve the Covered Person's investment, unless other considerations warrant disapproving the investment. If the fund is on the approved list or the Team may be interested in investing in the fund, then the Legal / Compliance Department will determine whether the fund is subject to capacity constraints. If the fund is subject to capacity constraints, then the Covered Person's request will be denied and priority will be given to the Team to invest client assets in the fund. If the fund is not subject to capacity constraints, then the Covered Person will generally be permitted to invest along with the Team. If the fund is on the approved list or the Team may be interested in investing in the fund, then the Covered Person's investment must be made generally on the same terms available to all investors as set forth in the fund's Offering Documents.
6. SPECULATIVE TRADING. Absent approval from the appropriate compliance personnel, Covered Persons are prohibited from engaging in the trading of options or futures and from engaging in speculative trading, as opposed to investment activity. The Covered Person must wait 60 days from the date of the opening transaction before effecting the closing transaction.
7. SHORT SALES. Covered Persons are prohibited from engaging in short sales of any security. However, provided the investment is otherwise permitted under this Policy and has
received all necessary approvals, an investment in a hedge fund that engages in short selling is permitted.
8. INSIDE INFORMATION. No transaction may be made in violation of the Material Non-Public Information Policies and Procedures ("Inside Information") as outlined in Section 32 of the LAM Compliance Manual; and
9. DIRECTORSHIPS. Covered Persons may not serve on the board of directors of any corporation (other than a not-for-profit corporation or a related Lazard entity) without the prior approval of LAM's Chief Compliance Officer or General Counsel.
10. CONTROL OF ISSUER. Covered Persons and Related Persons may not acquire any security, directly or indirectly, for purposes of obtaining control of the issuer.
F. PROHIBITED RECOMMENDATIONS. No Covered Person shall recommend or execute any securities transaction for any client account, or, in the case of a Director, for the Director's Fund, without having disclosed, in writing, to the Chief Compliance Officer, or in his absence another senior member of the Legal / Compliance Department, any direct or indirect interest in such securities or issuers (including any such interest held by a Related Person). Prior written approval of such recommendation or execution also must be received from the Chief Compliance Officer, or in his absence another senior member of the Legal / Compliance Department. The interest in personal accounts could be in the form of:
1. Any direct or indirect beneficial ownership of any securities of such issuer;
2. Any contemplated transaction by the person in such securities;
3. Any position with such issuer or its affiliates; or
4. Any present or proposed business relationship between such issuer or its affiliates and the person or any party in which such person has a significant interest.
G. TRANSACTION APPROVAL PROCEDURES. All transactions by Covered Persons (including Related Persons) in Personal Securities Accounts must receive prior approval as described below. To pre-clear a transaction, Covered Persons must:
1. Electronically complete and "sign" a "New Equity Order", "New Bond Order" or "New Mutual Fund Order" trade ticket located in the Firm's Lotus-Notes e-mail application under the heading "Employee Trades."
2. The ticket is then automatically transmitted to the Legal / Compliance Department where it will be processed. If approved, the Legal / Compliance Department will route mutual fund orders directly to Securities Processing and will route equity and bond orders directly to the trading desk for execution, provided the employee selected the "Direct Execution" option when completing the equity or bond order ticket. For any account not maintained at LCM, the ticket will be returned to the employee.
Note: In completing an equity or bond order ticket, if the employee does not select the "Direct Execution" button, the ticket will be returned to her/him after Compliance approval for submission to the trading desk, or in the case of an account not maintained at LCM, to the Legal / Compliance Department to indicate that the trade will be executed. In
such case, the trade must be submitted within 2 business days or it will expire and be null and void.
The Legal / Compliance Department endeavors to preclear transactions promptly; however, transactions may not always be approved on the day in which they are received. Certain factors such as time of day the order is submitted or length of time it takes a LAM portfolio manager to confirm there is no client activity, all play a role in the length of time it takes to preclear a transaction. Mutual Fund Orders that are not received by the Legal / Compliance Department by 2:00 p.m. on any business day will most likely not be processed until the next business day (i.e., the order will not receive that business days' net asset value for the relevant mutual fund).
H. ACKNOWLEDGMENT AND REPORTING.
1. INITIAL CERTIFICATION. Within 10 days of becoming a Covered Person or Director, such Covered Person or Director must submit to the Legal / Compliance Department an acknowledgement that they have received a copy of this policy, and that they have read and understood its provisions. See Exhibit B for the form of Acknowledgement.
2. INITIAL HOLDINGS REPORT. Within 10 days of becoming a Covered Person, all LAM personnel must submit to the Legal / Compliance Department a statement of all securities in which such Covered Person has any direct or indirect beneficial ownership. This statement must include (i) the title, number of shares and principal amount of each security, (ii) the name of any broker, dealer, insurance company, mutual fund or bank with whom the Covered Person maintained an account in which any securities were held for the direct or indirect benefit of such Covered Person and (iii) the date of submission by the Covered Person. The information provided in this statement must be current as of a date no more than 45 days prior to the Covered Person's date of employment at LAM. Such information should be provided on the form attached as Exhibit B.
3. QUARTERLY REPORT. Within 30 days after the end of each calendar quarter, provide information to the Legal / Compliance Department relating to securities transactions executed during the previous quarter for all securities accounts. Any such report may contain a statement that the report shall not be construed as an admission by the person making such report that he or she has any direct or indirect beneficial ownership in the security to which the report relates.
Note: Covered Persons satisfy this requirement by holding their personal securities accounts at LCM.
4. ANNUAL REPORT. Each Covered Person shall submit an annual report to the Legal / Compliance Department showing as of a date no more than 45 days before the report is submitted (1) all holdings in securities in which the person had any direct or indirect beneficial ownership and (2) the name of any broker, dealer, insurance company, mutual fund or bank with whom the person maintains an account in which any securities are held for the direct or indirect benefit of the Covered Person or Related Persons.
Note: Covered Persons satisfy this requirement by certifying annually that all transactions during the year were executed in Internal Accounts or Outside Accounts for which the Legal and Compliance Department receives confirmations and periodic statements.
5. ANNUAL CERTIFICATION. All Covered Persons and Directors are required to certify annually that they have (i) read and understand this policy and recognize that they are subject to its terms and conditions, (ii) complied with the requirements of this policy and (iii) disclosed or reported all personal securities accounts and transactions required to be disclosed or reported pursuant to this Code of Ethics and Personal Investment Policy.
I. FUND DIRECTORS. A Director who is not an "interested person" of the Fund within the meaning of Section 2(a)(19) of the 1940 Act, and who would be required to make reports solely by reason of being a Director, is required to make the quarterly transactions reports required by Section H (3.) as to any security if at the time of a transaction by the Director in that security, he/she knew, or in the ordinary course of fulfilling his/her official duties as a Fund Director, should have known that during the 15-day period immediately preceding or following the date of that transaction, that security was purchased or sold by that Director's Fund or was being considered for purchase or sale by that Director's Fund.
If a Director introduces a hedge fund to the Team, as previously defined in
Section E (5.), the Director is required to inform the Team whether the Director
or an affiliated person of the Director has invested in the fund and the terms
of such investment. If a Director decides to invest in a hedge fund that he knew
or, in the ordinary course of fulfilling his responsibilities as a Director
should have known that the hedge fund is held by or is being considered for
purchase or sale by the Team, the Director is required, before making the
investment, to disclose this to the Team and any different terms or rights that
have been granted to the Director. If a Director learns, in the ordinary course
of fulfilling his responsibilities as a Director, that the Team has invested in
a fund in which the Director has an investment, the Director should advise the
Chief Compliance Officer of such investment.
J. EXEMPTIONS.
1. Purchases or sales of securities which receive the prior approval of the Chief Compliance Officer, or in his absence another senior member of the Legal / Compliance Department, may be exempted from certain restrictions if such purchases or sales are determined to be unlikely to have any material negative economic impact on any client account managed or advised by LAM.
2. Section E (1.) (blackout period) shall not apply to any securities transaction, or series of related transactions, involving up to 500 shares of a security, but not to exceed an aggregate transaction amount of $25,000 of any security, provided the issuer has a market capitalization greater than US $5 billion ("Large Cap/De Minimus exemption"). This exemption does not apply to shares of mutual funds or to option contracts on indices or other types of securities whose value is derived from a broad-based index.
K. SANCTIONS. The Legal / Compliance Department shall report all material violations of this Code of Ethics and Personal Investment Policy to LAM's Chief Executive Officer, who may impose such sanctions as deemed appropriate, including, among other things, a letter of censure, fine or suspension or termination of the employment of the violator.
L. CONFIDENTIALITY. All information obtained from any person pursuant to this policy shall be kept in strict confidence, except that such information will be made available to the Securities and Exchange Commission or any other regulatory or self-regulatory organization or to the Fund Boards of Directors to the extent required by law, regulation or this policy.
M. RETENTION OF RECORDS. All records relating to personal securities transactions hereunder and other records meeting the requirements of applicable law, including a copy of this policy and any other policies covering the subject matter hereof, shall be maintained in the manner and to the extent required by applicable law, including Rule 204-2 under the Advisers Act and Rule 17j-1 under the 1940 Act. The Legal / Compliance Department shall have the responsibility for maintaining records created under this policy.
N. BOARD REVIEW. Fund management shall provide to the Board of Directors of each Fund, on a quarterly basis, a written report of all material violations of this policy, and at least annually, a written report and certification meeting the requirements of Rule 17j-1 under the 1940 Act.
O. OTHER CODES OF ETHICS. To the extent that any officer of any Fund is not a Covered Person hereunder, or an investment subadviser of or principal underwriter for any Fund and their respective access persons (as defined in Rule 17j-1) are not Covered Persons hereunder, those persons must be covered by separate codes of ethics which are approved in accordance with applicable law.
P. AMENDMENTS.
1. COVERED PERSONS. Unless otherwise noted herein, this policy shall become effective as to all Covered Persons on April 1, 2005. This policy may be amended as to Covered Persons from time to time by the Legal / Compliance Department. Any material amendment of this policy shall be submitted to the Board of Directors of each Fund for approval in accordance with Rule 17j-1 under the 1940 Act.
2. FUND DIRECTORS. This policy shall become effective as to a Fund upon the approval and adoption of this policy by the Board of Directors of that Fund in accordance with Rule 17j-1 under the 1940 Act or at such earlier date as determined by the Secretary of the Fund. Any material amendment of this policy that applies to the Directors of a Fund shall become effective as to the Directors of that Fund only when the Board of Directors of that Fund has approved the amendment in accordance with Rule 17j-1 under the 1940 Act or at such earlier date as determined by the Secretary of the Fund.
EXHIBIT A
EXPLANATION OF BENEFICIAL OWNERSHIP
You are considered to have "Beneficial Ownership" of Securities if you have or share a direct or indirect "Pecuniary Interest" in the Securities.
You have a "Pecuniary Interest" in Securities if you have the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the Securities.
The following are examples of an indirect Pecuniary Interest in Securities:
1. Securities held by members of your immediate family sharing the same household; however, this presumption may be rebutted by convincing evidence that profits derived from transactions in these Securities will not provide you with any economic benefit. "Immediate family" means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and includes any adoptive relationship.
2. Your interest as a general partner in Securities held by a general or limited partnership.
3. Your interest as a manager-member in the Securities held by a limited liability company.
You do not have an indirect Pecuniary Interest in Securities held by a corporation, partnership, limited liability company or other entity in which you hold an equity interest, unless you are a controlling equityholder or you have or share investment control over the Securities held by the entity.
The following circumstances constitute Beneficial Ownership by you of Securities held by a trust:
1. Your ownership of Securities as a trustee where either you or members of your immediate family have a vested interest in the principal or income of the trust.
2. Your ownership of a vested interest in a trust.
3. Your status as a settlor of a trust, unless the consent of all of the beneficiaries is required in order for you to revoke the trust.
The foregoing is a summary of the meaning of "beneficial ownership". For purposes of the attached policy, "beneficial ownership" shall be interpreted in the same manner, as it would be in determining whether a person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder.
10 February 2006
EXHIBIT B
LAM ACKNOWLEDGEMENT & INITIAL HOLDINGS REPORT
PURSUANT TO CODE OF ETHICS AND PERSONAL INVESTMENT POLICY (THE "POLICY")
THIS REPORT MUST BE COMPLETED AND RETURNED TO THE LEGAL / COMPLIANCE DEPARTMENT WITHIN 10 DAYS OF EMPLOYMENT.
NAME: ____________________________________ DATE OF EMPLOYMENT: _______________
(PLEASE PRINT)
ACCOUNT INFORMATION:
[ ] I do not have a beneficial interest in any account(s) with any financial services firm.
[ ] I maintain the following account(s). Please list any broker, dealer, insurance company, mutual fund or bank, which holds securities for your direct or indirect benefit as of the date of your employment. This includes 401k accounts, insurance company variable insurance contracts, mutual fund-only accounts.*
Type of Account
(Brokerage,
Mutual Fund, Is this a
Name of Financial Variable Account Managed
Services Firm Annuity, 401k.) Name on Account Number Account?
----------------- --------------- --------------- ------- ---------
|
* 401k accounts and similar retirement accounts that permit the participant to change their investments no more frequently than once per quarter need not be reported.
11 February 2006
SECURITIES HOLDINGS INFORMATION:
FOR EACH OF THE ACCOUNTS LISTED ABOVE, ATTACH TO THIS REPORT A COPY OF YOUR MOST RECENT STATEMENTS(S) LISTING ALL OF YOUR SECURITIES HOLDINGS. ALL STATEMENTS MUST BE CURRENT AS OF A DATE NO MORE THAN 45 PRIOR TO YOUR DATE OF EMPLOYMENT AT LAM. In addition, please list in the space provided below holdings in hedge funds, private equity funds, limited partnerships or any other type of security that may not be held in an account listed above.
Description of Security Type of Security No. of Shares Principal Amount Invested ----------- ---------------- ------------- ------------------------- |
[ ] I have no securities holdings to report.
I certify that I have received a copy of the Policy, and that I have read and understood its provisions. I further certify that this report represents a complete and accurate description of my account(s) and securities holdings as of my initial date of employment. The information provided is current as of a date no more than 45 days prior to my employment at LAM.