Money Market Funds - COUNTRY Financial

Costs of Services and Profits Realized by FAF AdvisorsThe Board examined FAF Advisors’ costs in serving as the Funds’ investment manager, including the costs associated with thepersonnel and systems necessary to manage each Fund. The Board also considered the profitability of FAF Advisors and itsaffiliates resulting from their relationship with each Fund. For each Fund, the Board examined fee and expense informationas compared to that of other funds and accounts managed by FAF Advisors and of comparable funds managed by otheradvisers. The Board found that while the management fees for FAF Advisors’ institutional separate accounts are lower thanthe Funds’ management fees, the Funds receive additional services from FAF Advisors that separate accounts do not receive.Using information provided by an independent data service, the Board also evaluated each Fund’s advisory fee compared tothe median advisory fee for other mutual funds similar in size, character and investment strategy, and each Fund’s totalexpense ratio after waivers compared to the median total expense ratio of comparable funds. In connection with its review ofFund fees and expenses, the Board considered FAF Advisors’ pricing philosophy. FAF Advisors attempts generally to maintaineach Fund’s total operating expenses at a level that approximates the median of a peer group of funds selected by anindependent data service. In addition, FAF Advisors has committed to waive its investment advisory fees to the extentnecessary to maintain the Funds’ total expense ratios at levels generally in line with their respective peer groups.The Board noted that the information provided by an independent data service reflected that each Fund’s advisory fee isbelow its peer group median advisory fee. The Board also noted that, consistent with FAF Advisors’ pricing philosophy, eachFund’s total expense ratio was competitive with its peer group median total expense ratio. The Board concluded FAFAdvisors’ pricing philosophy is a reasonable one and that the Funds’ advisory fees and total expense ratios are reasonable inlight of the services provided.Economies of Scale in Providing Investment Advisory ServicesThe Board considered the extent to which each Fund’s investment advisory fee reflects economies of scale for the benefit ofFund shareholders. Based on information provided by FAF Advisors, the Board noted that profitability will likely increasesomewhat as assets grow over time. The Board considered that, although the Funds do not have advisory fee breakpoints inplace, FAF Advisors has committed to waive advisory fees to the extent necessary to keep each Fund’s total expensesgenerally in line with the median total expenses of a peer group of funds as selected by an independent data service. TheBoard considered FAF Advisors’ assertion that the median total expense ratio of a Fund’s peer group should reflect the effectof any breakpoints in the advisory fee schedules of the funds in that group and any economies of scale which those fundsrealize. Therefore, by capping a Fund’s total expense ratio at a level close to the median, Fund shareholders will effectivelyreceive the benefit of any breakpoints in the comparable funds’ advisory fee schedules and any such economies of scale. Inlight of FAF Advisors’ commitment to keep total Fund expenses competitive, the Board concluded that it would bereasonable and in the best interest of each Fund and its shareholders to renew the Agreement.Other Benefits to FAF AdvisorsIn evaluating the benefits that accrue to FAF Advisors through its relationship with the Funds, the Board noted that FAFAdvisors and certain of its affiliates serve the Funds in various capacities, including as advisor, administrator, subadministrator,transfer agent, distributor, custodian and, for certain Funds, securities lending agent, and receive compensationfrom the Funds in connection with providing services to the Funds. The Board considered that each service provided to theFunds by FAF Advisors or one of its affiliates is pursuant to a written agreement, which the Board evaluates periodically asrequired by law.After full consideration of these factors, the Board concluded that approval of the Agreement was in the best interest of eachFund and its shareholders.FIRST AMERICAN FUNDS 2008 Annual Report 47