FIRST AMERICAN STRATEGY FUNDS, INC.
SEMI-ANNUAL REPORT
MARCH 31, 1997
[LOGO] FIRST AMERICAN FUNDS
The power of disciplined investing
TABLE OF CONTENTS
MESSAGE FROM YOUR CHAIRMAN 2
ECONOMIC & INVESTMENT REVIEW 3
STATEMENTS OF NET ASSETS 6
STATEMENTS OF OPERATIONS 10
STATEMENTS OF CHANGES IN NET ASSETS 11
FINANCIAL HIGHLIGHTS 12
NOTES TO FINANCIAL STATEMENTS 14
MESSAGE FROM YOUR CHAIRMAN MARCH 31, 1997
Dear Shareholder:
I am pleased to share with you the first financial report of the First American
Strategy Funds. The First American Strategy Funds were created to provide
investors easier, more simplified access to professional asset allocation
decisions related to specific investment objectives. Studies have indicated that
asset allocation decisions are one of the most important factors in meeting your
financial goals and objectives. The growth of the Strategy Funds after the first
six months of operation is on target and we expect even faster growth in the
next six months. The Strategy Funds are available to help investors reach their
financial goals.
On the following pages you will find an Economic and Investment Review from
First Asset Management, investment advisor to the First American Strategy Funds.
It is important to note that the portfolio managers of First Asset Management
average in excess of 20 years investment experience. These professionals have
experienced all types of markets. We cannot predict the direction of the markets
but you can be assured that your Strategy Funds are being managed by experienced
investment professionals utilizing a disciplined approach.
In closing, we want to thank you for your support of First American Strategy
Funds. We look forward to serving you now and in the future.
Sincerely,
/s/ Joseph D. Strauss
JOSEPH D. STRAUSS
Chairman
First American Strategy Funds
ECONOMIC AND INVESTMENT REVIEW MARCH 31, 1997
During the last half-year, the anomaly of an above-trend, non-inflationary
economy has many market-watchers, including Federal Reserve Chairman Alan
Greenspan, feeling uncomfortable. By all historical accounts, with economic
growth as strong as it is this late in the economic expansion, inflation should
have accelerated, but instead has held at 3% or less. In prior cycles we might
well have experienced tight monetary policy and seen the prospect of a
recession. The current expansion has avoided such an awful fate in large part
because of productivity improvements and intense competitive price pressure in
both the manufacturing and service sectors. In effect, the growth rate of
productive capacity has kept up with the growth rate of the economy, working to
stop inflation before it starts.
Of late, strong consumer demand has pushed economic growth to a faster rate than
the Fed would like. Contributing to consumers' confidence and expenditure rate
are a strong job market, tax refunds and appreciation in financial asset values.
Aggressive price discounting in almost every segment of the economy from
automobiles to long distance service has only added fuel to the consumption
fire. While discount pricing strategies combined with plenty of available credit
have caused consumer spending to get ahead of itself, we expect it to
decelerate. Having financed expenditures on credit cards or home equity loans,
many consumers have built up a significant debt burden. As they begin to pay off
their balances in the face of higher interest rates and satisfied pent-up
demand, consumers will cease to be the driver of above-trend economic growth and
the economy should settle back to a more moderate, noninflationary pace.
In addition to a slowdown in consumer expenditures, a deceleration of capital
spending should help moderate economic growth. We saw explosive growth in
capital spending in the early 1990's as companies made an effort to streamline
operations, become automated and enhance productivity. Now much of the big
spending has been completed. We can expect capital spending to remain a stable,
growing part of GDP, but not the booming sector it has been for the last several
years.
Further contributing to the moderation of economic growth is a stronger dollar,
making U.S. goods more expensive to foreign buyers and encouraging consumption
of imports at home. A deteriorating trade balance will act as a drag on economic
growth.
With final demand decelerating and corporate profitability high in its
historical range, surprising year over year gains in corporate earnings will be
more difficult to attain in coming quarters. Despite gains in productivity,
there is a real risk that rising labor costs will pressure corporate profits
and, to the extent that competitive pressures allow, companies will try to raise
prices. We can infer that the Fed has shown concern about this possibility from
its recent tightening of credit. Given its explicit anti-inflation charter, we
can be reasonably sure that the Fed will adopt whatever level of monetary
stringency is required to offset the level of perceived inflation risk.
Tighter monetary policy and a more difficult profit environment do not
necessarily spell the end to the long term advance for equities, but they do
make the market more prone to sharp pullbacks from time to time. All told,
equity returns in 1997 are unlikely to match the robust gains of 1995 and 1996.
Even so, we still believe that the long term market advance is intact and First
Asset Management will make use of market oscillations to substitute undervalued
stocks for those holdings which have become fully priced.
THE STOCK MARKET
This line graph depicts the Stock Market value of the S&P 500 & NASDAQ Composite
S&P 500 NASDAQ Composite S&P 500 NASDAQ Composite
164 242 90 329 370
Jan-85 172 261 Jan-91 325 377
Feb-85 181 286 Feb-91 362 443
Mar-85 179 281 Mar-91 372 469
Apr-85 181 281 Apr-91 380 496
May-85 185 287 May-91 378 491
Jun-85 189 290 Jun-91 378 490
Jul-85 193 302 Jul-91 380 489
Aug-85 188 298 Aug-91 389 513
Sep-85 184 288 Sep-91 387 521
Oct-85 186 285 Oct-91 387 529
Nov-85 197 304 Nov-91 386 537
85 207 320 91 389 544
Jan 86 208 329 Jan-92 416 616
Feb 86 219 349 Feb-92 413 632
Mar-86 232 368 Mar-92 407 620
Apr-86 238 383 Apr-92 407 583
May 86 238 388 May-92 415 581
Jun-86 245 399 Jun-92 408 567
Jul-86 240 386 Jul-92 415 569
Aug-86 245 376 Aug-92 418 569
Sep-86 238 358 Sep-92 418 581
Oct-86 237 355 Oct-92 413 585
Nov-86 245 358 Nov-92 423 631
86 249 355 92 436 661
Jan-87 265 384 Jan-93 435 691
Feb-87 281 412 Feb-93 442 682
Mar-87 292 432 Mar-93 450 684
Apr-87 289 423 Apr-93 443 665
May-87 289 417 May-93 445 686
Jun-87 301 424 Jun-93 448 695
Jul-87 310 429 Jul-93 447 703
Aug-87 329 448 Aug-93 454 725
Sep-87 319 443 Sep-93 459 746
Oct-87 280 385 Oct-93 464 771
Nov-87 245 319 Nov-93 463 764
87 241 315 93 466 763
Jan-88 250 339 Jan-94 473 788
Feb-88 258 354 Feb-94 472 788
Mar-88 266 376 Mar-94 464 786
Apr-88 263 377 Apr-94 447 732
May-88 256 372 May-94 451 728
Jun-88 271 386 Jun-94 455 723
Jul-88 269 391 Jul-94 451 713
Aug-88 264 380 Aug-94 464 739
Sep-88 268 382 Sep-94 467 764
Oct-88 277 385 Oct-94 464 762
Nov-88 271 373 Nov-94 461 760
88 277 376 94 455 735
Jan-89 285 389 Jan-95 465 758
Feb-89 294 404 Feb-95 482 784
Mar-89 293 404 Mar-95 493 807
Apr-89 302 417 Apr-95 508 825
May-89 314 436 May-95 524 860
Jun-89 324 448 Jun-95 539 906
Jul-89 332 447 Jul-95 557 979
Aug-89 347 462 Aug-95 559 1010
Sep-89 347 469 Sep-95 579 1051
Oct-89 347 470 Oct-95 583 1022
Nov-89 340 455 Nov-95 596 1047
89 349 449 95 615 1047
Jan-90 340 439 Jan-96 614 1025
Feb-90 330 425 Feb-96 650 1094
Mar-90 338 436 Mar-96 647 1093
Apr-90 338 429 Apr-96 646 1136
May-90 350 443 May-96 661 1221
Jun-90 360 462 Jun-96 669 1205
Jul-90 360 456 Jul-96 644 1106
Aug-90 331 396 Aug-96 662 1134
Sep-90 315 369 Sep-96 675 1186
Oct-90 307 338 Oct-96 701 1234
Nov-90 315 348 Nov-96 736 1260
96 743 1292
Jan-97 766 1345
Feb-97 798 1349
Mar-97 729 1284
Apr-97 764 1225
Numerous factors hold sway on the bond market at the current time: Fed
tightening, inflation paranoia, balanced budget delays, and possible reduced
foreign demand for domestic bonds. For the most part, however, bonds are a
captive of the perception of the rate of economic growth. To the extent that the
economy appears overheated bonds will continue to inch up. The current momentum
of the economy suggests that this is a plausible risk. To the extent that the
economy moderates as we expect, it would be reasonable for bond yields to fall.
In the period of recent above-trend growth and rising interest rates, we have
successfully pursued a defensive strategy.
TREASURY YIELDS
This line graph depicts the yields of the 30 year Treasury Bond and 3 month
T-bill.
30 year 3 month 30 year 3 month
bonds bills bonds bills
11.52 8.06 90 8.24 6.74
Jan-85 11.45 7.76 Jan-91 8.27 6.22
Feb-85 11.47 8.26 Feb-91 8.03 5.94
Mar-85 11.81 8.52 Mar-91 8.29 5.91
Apr-85 11.47 7.95 Apr-91 8.21 5.65
May-85 11.05 7.48 May-91 8.27 5.46
Jun-85 10.45 6.95 Jun-91 8.47 5.57
Jul-85 10.5 7.08 Jul-91 8.45 5.58
Aug-85 10.56 7.13 Aug-91 8.14 5.33
Sep-85 10.61 7.1 Sep-91 7.95 5.22
Oct-85 10.5 7.16 Oct-91 7.93 4.99
Nov-85 10.06 7.24 Nov-91 7.92 4.56
85 9.54 7.1 91 7.7 4.07
Jan-86 9.4 7.07 Jan-92 7.58 3.8
Feb-86 8.93 7.06 Feb-92 7.85 3.84
Mar-86 7.96 6.56 Mar-92 7.97 4.04
Apr-86 7.39 6.06 Apr-92 7.96 3.75
May-86 7.52 6.15 May-92 7.89 3.63
Jun-86 7.57 6.21 Jun-92 7.84 3.66
Jul-86 7.27 5.83 Jul-92 7.6 3.21
Aug-86 7.33 5.53 Aug-92 7.39 3.13
Sep-86 7.62 5.21 Sep-92 7.34 2.91
Oct-86 7.7 5.18 Oct-92 7.53 2.86
Nov-86 7.52 5.35 Nov-92 7.61 3.13
86 7.37 5.53 92 7.44 3.22
Jan-87 7.39 5.43 Jan-93 7.34 3
Feb-87 7.54 5.59 Feb-93 7.09 2.93
Mar-87 7.55 5.59 Mar-93 6.82 2.95
Apr-87 8.25 5.64 Apr-93 6.85 2.87
May-87 8.78 5.66 May-93 6.92 2.96
Jun-87 8.57 5.67 Jun-93 6.81 3.07
Jul-87 8.64 5.69 Jul-93 6.63 3.04
Aug-87 8.97 6.04 Aug-93 6.32 3.02
Sep-87 9.59 6.4 Sep-93 6 2.95
Oct-87 9.61 6.13 Oct-93 5.94 3.02
Nov-87 8.95 5.69 Nov-93 6.21 3.1
87 9.12 5.77 93 6.25 3.06
Jan-88 8.83 5.81 Jan-94 6.29 2.98
Feb-88 8.43 5.66 Feb-94 6.49 3.25
Mar-88 8.63 5.7 Mar-94 6.91 3.5
Apr-88 8.95 5.91 Apr-94 7.27 3.68
May-88 9.23 6.26 May-94 7.41 4.14
Jun-88 9 6.46 Jun-94 7.4 4.14
Jul-88 9.14 6.73 Jul-94 7.58 4.33
Aug-88 9.32 7.06 Aug-94 7.49 4.48
Sep-88 9.06 7.24 Sep-94 7.71 4.62
Oct-88 8.89 7.35 Oct-94 7.94 4.95
Nov-88 9.02 7.76 Nov-94 8.08 5.29
88 9.01 8.07 94 7.87 5.6
Jan-89 8.93 8.26 Jan-95 7.85 5.71
Feb-89 9.01 8.53 Feb-95 7.61 5.77
Mar-89 9.17 8.82 Mar-95 7.45 5.73
Apr-89 9.03 8.65 Apr-95 7.35 5.82
May-89 8.83 8.43 May-95 6.95 5.67
Jun-89 8.27 8.15 Jun-95 6.57 5.63
Jul-89 8.08 7.88 Jul-95 6.72 5.42
Aug-89 8.12 7.9 Aug-95 6.86 5.55
Sep-89 8.15 7.75 Sep-95 6.55 5.28
Oct-89 8 7.64 Oct-95 6.37 5.28
Nov-89 7.9 7.69 Nov-95 6.26 5.36
89 7.9 7.63 95 6.06 5.14
Jan-90 8.26 7.64 Jan-96 6.05 5
Feb-90 8.5 7.74 Feb-96 6.24 4.83
Mar-90 8.56 7.9 Mar-96 6.6 4.96
Apr-90 8.76 7.77 Apr-96 6.79 4.95
May-90 8.73 7.74 May-96 6.93 5.02
Jun-90 8.46 7.73 Jun-96 7.06 5.09
Jul-90 8.5 7.62 Jul-96 7.03 5.15
Aug-90 8.86 7.45 Aug-96 6.84 5.05
Sep-90 9.03 7.36 Sep-96 7.03 5.09
Oct-90 8.86 7.17 Oct-96 6.81 4.99
Nov-90 8.54 7.06 Nov-96 6.49 5.16
96 6.327 5.03
Jan-97 6.83 5.03
Feb-97 6.69 5.01
Mar-97 6.93 5.27
Apr-97 7.088 5.281
We note with pleasure that our disciplined approach to investing can be served
through our new First American Strategy Funds. The Strategy Funds are designed
to match your investment objective with the appropriate mix of First American
equity and fixed income funds.
We appreciate your confidence and look forward to serving you in the coming
year.
Sincerely,
/s/ John M. Murphy, Jr.
John M. Murphy, Jr.
Chief Investment Officer,
First Asset Management
STATEMENTS OF NET ASSETS -- MARCH 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
INCOME FUND
Description Shares Value (000)
- -----------------------------------------------------------------------------
<S> <C> <C>
EQUITY FUNDS--26.7%
First American Investment Funds, Inc.
Equity Income Fund 220,041 $ 2,935
Real Estate Securities Fund 45,531 601
TOTAL EQUITY FUNDS
Cost ($3,545) 3,536
FIXED INCOME FUND--59.7%
First American Investment Funds, Inc.
Fixed Income Fund 746,540 7,913
TOTAL FIXED INCOME FUND
Cost ($8,087) 7,913
MONEY MARKET FUND--5.6%
First American Funds, Inc.
Prime Obligations Fund 735,789 736
TOTAL MONEY MARKET FUND
Cost ($736) 736
TOTAL INVESTMENTS--92.0%
Cost ($12,368) 12,185
OTHER ASSETS AND LIABILITIES, NET--8.0% (1) 1,056
NET ASSETS:
Portfolio shares--($.01 par value--20 billion
authorized) based on 1,310,136 outstanding
shares $13,404
Distributions in excess of net
investment income (1)
Accumulated net realized gain on investments 21
Net unrealized depreciation of investments (183)
TOTAL NET ASSETS $13,241
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE $ 10.11
</TABLE>
(1) Other Assets and Liabilities, Net is made up of:
Accrued income $ 3
Capital shares sold 1,232
Other assets 27
Accrued expenses (8)
Securities purchased (133)
Capital shares redeemed (27)
Other liabilities (38)
$1,056
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STATEMENTS OF NET ASSETS -- MARCH 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
Description Shares Value (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
EQUITY FUNDS--51.2%
First American Investment Funds, Inc.
Diversified Growth Fund 105,538 $ 1,476
Emerging Growth Fund* 51,703 663
International Fund 44,127 482
Real Estate Securities Fund 28,960 382
Regional Equity Fund 38,774 663
Stock Fund 64,931 1,494
TOTAL EQUITY FUNDS
Cost ($5,342) 5,160
FIXED INCOME FUND--38.4%
First American Investment Funds, Inc.
Fixed Income Fund 365,357 3,873
TOTAL FIXED INCOME FUND
Cost ($3,957) 3,873
MONEY MARKET FUND--5.4%
First American Funds, Inc.
Prime Obligations Fund 544,319 544
TOTAL MONEY MARKET FUND
Cost ($544) 544
TOTAL INVESTMENTS--95.0%
Cost ($9,843) 9,577
OTHER ASSETS AND LIABILITIES, NET -- 5.0% (1) 507
NET ASSETS:
Portfolio shares--($.01 par value--20 billion
authorized) based on 984,133 outstanding
shares $10,277
Distributions in excess of net
investment income (1)
Accumulated net realized gain on investments 74
Net unrealized depreciation of investments (266)
TOTAL NET ASSETS $10,084
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE $ 10.25
</TABLE>
* Non-income producing security.
(1) Other Assets and Liabilities, Net is made up of:
Accrued income $ 3
Capital shares sold 653
Other assets 27
Accrued expenses (2)
Securities purchased (68)
Capital shares redeemed (68)
Other liabilities (38)
$507
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STATEMENTS OF NET ASSETS -- MARCH 31, 1997 (Unaudited)
GROWTH FUND
Description Shares Value (000)
- -----------------------------------------------------------------------------
EQUITY FUNDS--68.5%
First American Investment Funds, Inc.
Diversified Growth Fund 43,495 $ 608
Emerging Growth Fund* 32,460 416
International Fund 38,788 424
Regional Equity Fund 24,345 416
Special Equity Fund 21,179 411
Stock Fund 26,760 616
TOTAL EQUITY FUNDS
Cost ($2,989) 2,891
FIXED INCOME FUND--25.3%
First American Investment Funds, Inc.
Fixed Income Fund 100,346 1,064
TOTAL FIXED INCOME FUND
Cost ($1,088) 1,064
MONEY MARKET FUND--6.3%
First American Funds, Inc.
Prime Obligations Fund 266,116 266
TOTAL MONEY MARKET FUND
Cost ($266) 266
TOTAL INVESTMENTS--100.1%
Cost ($4,343) 4,221
OTHER ASSETS AND LIABILITIES, NET--(0.1)% (3)
NET ASSETS:
Portfolio shares--($.01 par value--20 billion
authorized) based on 414,704 outstanding
shares $4,284
Accumulated net realized gain on investments 56
Net unrealized depreciation of investments (122)
TOTAL NET ASSETS--100.0% $4,218
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE $10.17
* Non-income producing security.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STATEMENTS OF NET ASSETS -- MARCH 31, 1997 (Unaudited)
AGGRESSIVE GROWTH FUND
Description Shares Value (000)
- -----------------------------------------------------------------------------
EQUITY FUNDS--82.2%
First American Investment Funds, Inc.
Diversified Growth Fund 28,654 $ 401
Emerging Growth Fund* 37,927 486
Health Sciences Fund 15,354 148
International Fund 52,303 572
Regional Equity Fund 28,442 486
Special Equity Fund 24,742 480
Stock Fund 19,231 442
Technology Fund* 10,226 144
TOTAL EQUITY FUNDS
Cost ($3,287) 3,159
FIXED INCOME FUND--9.9%
First American Investment Funds, Inc.
Fixed Income Fund 36,086 383
TOTAL FIXED INCOME FUND
Cost ($391) 383
MONEY MARKET FUND--5.0%
First American Funds, Inc.
Prime Obligations Fund 190,812 191
TOTAL MONEY MARKET FUND
Cost ($191) 191
TOTAL INVESTMENTS--97.1%
Cost ($3,869) 3,733
OTHER ASSETS AND LIABILITIES, NET--2.9% 110
NET ASSETS:
Portfolio shares--($.01 par value--20 billion
authorized) based on 379,328 outstanding
shares $3,911
Accumulated net realized gain on investments 68
Net unrealized depreciation of investments (136)
TOTAL NET ASSETS--100.0% $3,843
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE $10.13
* Non-income producing security.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS(000) (Unaudited)
For the period ended March 31, 1997
GROWTH
AND AGGRESSIVE
INCOME INCOME GROWTH GROWTH
FUND (1) FUND (1) FUND (1) FUND (1)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 9 $ 7 $ 3 $ 3
Dividends 131 65 23 15
Total investment income 140 72 26 18
EXPENSES:
Investment advisory fees 7 5 3 3
Waiver of investment advisory fees (7) (5) (3) (3)
Reimbursement of expenses by adviser (57) (54) (47) (46)
Administrator fees 25 25 25 25
Transfer agent fees 7 7 6 6
Amortization of organizational costs 2 2 2 2
Custodian fees 1 1 -- --
Directors' fees -- -- -- --
Registration fees 13 13 10 10
Professional fees 11 9 4 4
Printing 5 4 2 2
Shareholder servicing fee 7 5 3 3
Other 2 1 1 --
TOTAL EXPENSES AFTER WAIVERS
AND REIMBURSEMENTS 16 13 6 6
Investment income--net 124 59 20 12
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS--NET:
Realized capital gains received
from investments 11 52 54 64
Net realized gain on investments 10 22 2 4
Net change in unrealized depreciation
of investments (183) (266) (122) (136)
NET LOSSES ON INVESTMENTS (162) (192) (66) (68)
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ (38) $(133) $ (46) $ (56)
</TABLE>
(1) Commenced operations on October 1, 1996.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS (000) (Unaudited)
GROWTH
AND AGGRESSIVE
INCOME INCOME GROWTH GROWTH
FUND FUND FUND FUND
------- ------- ------- -------
10/1/96 10/1/96 10/1/96 10/1/96
to to to to
3/31/97(2) 3/31/97(2) 3/31/97(2) 3/31/97(2)
------- ------- ------- -------
<S> <C> <C> <C> <C>
OPERATIONS:
Investment income--net $ 124 $ 59 $ 20 $ 12
Realized capital gains
received from investments 11 52 54 64
Net realized gain on
investments 10 22 2 4
Net change in unrealized
depreciation of investments (183) (266) (122) (136)
Net decrease in net assets
resulting from operations (38) (133) (46) (56)
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Investment Income--net: (125) (60) (20) (12)
Total Distributions (125) (60) (20) (12)
CAPITAL SHARE TRANSACTIONS (1):
Proceeds from sales 15,236 12,355 4,901 4,396
Reinvestment of distributions 114 53 19 10
Payments for redemptions (1,946) (2,131) (636) (495)
Increase in net assets from
capital share transactions 13,404 10,277 4,284 3,911
Total increase in net assets 13,241 10,084 4,218 3,843
NET ASSETS AT BEGINNING OF
PERIOD -- -- -- --
NET ASSETS AT END
OF PERIOD (3) $ 13,241 $ 10,084 $ 4,218 $ 3,843
(1) Capital share transactions:
Proceeds from sales 1,489 1,185 474 426
Reinvestment of
distributions 11 5 2 1
Payments for redemptions (190) (206) (61) (48)
NET INCREASE IN CAPITAL SHARES 1,310 984 415 379
</TABLE>
(2) Commenced operations on October 1, 1996.
(3) Includes distributions in excess of net investment income of (000) $1 for
Income Fund, $1 for Growth and Income Fund, $0 for Growth Fund and $0 for
Aggressive Growth Fund at March 31, 1997 respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS (Unaudited)
- -------------------------------------------------------------------------------
For the period ended March 31, 1997
For a share outstanding throughout the period.
<TABLE>
<CAPTION>
NET ASSET REALIZED AND DIVIDENDS
VALUE NET UNREALIZED FROM NET
BEGINNING INVESTMENT GAINS ON INVESTMENT
OF PERIOD INCOME INVESTMENTS INCOME
------------------------------------------------------
<S> <C> <C> <C> <C>
Income Fund
1997(1) $10.00 $0.19 $0.11 $(0.19)
Growth and Income Fund
1997 (1) $10.00 $0.12 $0.25 $(0.12)
Growth Fund
1997(1) $10.00 $0.09 $0.17 $(0.09)
Aggressive Growth Fund
1997 (1) $10.00 $0.07 $0.13 $(0.07)
</TABLE>
+ Returns are for the period indicated and have not been annualized.
(1) Commenced operations on October 1, 1996. All ratios for the period have
been annualized.
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
NET ASSET RATIO OF INVESTMENT AVERAGE
VALUE NET ASSETS EXPENSES TO INCOME TO NET ASSETS
END OF TOTAL END OF AVERAGE AVERAGE (EXCLUDING PORTFOLIO
PERIOD RETURN PERIOD (000) NET ASSETS NET ASSETS WAIVERS) TURNOVER
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$10.11 2.97%+ $13,241 0.60% 4.58% 2.96% 11%
$10.25 3.70%+ $10,084 0.60% 2.85% 3.41% 19%
$10.17 2.62%+ $ 4,218 0.60% 1.90% 5.22% 7%
$10.13 1.97%+ $ 3,843 0.60% 1.14% 5.40% 12%
</TABLE>
NOTES TO FINANCIAL STATEMENTS -- MARCH 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
1 ORGANIZATION
The Income Fund, Growth and Income Fund, Growth Fund, and Aggressive Growth
Fund are mutual funds offered by the First American Strategy Funds, Inc.
(FASF). FASF (the Funds) is a corporation organized under Minnesota law
which is registered under the Investment Company Act of 1940, as amended, as
an open end, management investment company. FASF offers shares in several
different mutual funds, each of which evidences an interest in a separate
and distinct investment portfolio. FASF's articles of incorporation permit
the Board of Directors to create additional funds and classes in the future.
The Funds' prospectus provides a description of each Fund's investment
objectives, policies, and strategies.
2 SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION: Investments are valued at the respective net asset value
of each underlying First American Investment Fund determined at the close of
the New York Stock Exchange (generally 3:00pm central time) on the valuation
date.
DISTRIBUTION TO SHAREHOLDERS: FASF declares and pays income dividends
monthly.
FEDERAL INCOME TAXES: It is each Fund's intention to qualify as a regulated
investment company for Federal income tax purposes and to distribute all of
its taxable income. Accordingly, no provisions for Federal income taxes is
required. For Federal income tax purposes, required distributions related to
realized gains from security transactions are computed as of October 31st.
SECURITY TRANSACTIONS AND RELATED INCOME: Security transactions are recorded
on the trade date of the security purchase or sale. Dividend income and
capital gains are recorded on the ex-dividend date. Interest income is
recorded on the accrual basis. Security gains and losses are determined on
the basis of identified cost, which is the same basis used for Federal
income tax purposes.
EXPENSES: Expenses that are directly related to one of the Funds are charged
directly to that Fund. Other operating expenses of the Fund are prorated to
the Funds on the basis of relative net asset value.
3 FEES AND EXPENSES
Pursuant to an investment advisory agreement (the Agreement), First Bank
National Association (the Adviser) manages each Fund's assets and furnishes
related office facilities, equipment, research and personnel. The Agreement
requires each Fund to pay the Adviser a monthly fee based upon average daily
net assets. The fee for each of the Funds is equal to an annual rate of
0.25% of the average daily net assets. The adviser intends to waive their
entire fee for the current fiscal year. Such waivers are voluntary and may
be discontinued at any time.
Through a separate contractual agreement, First Trust National Association,
an affiliate of the Adviser, serves as the Funds' custodian.
SEI Financial Services Company (SFS) and SEI Financial Management
Corporation (SFM) serve as distributor and administrator of the Funds,
respectively. FASF has adopted and entered into a shareholder service plan
and agreement with SFS. Each Fund pays to SFS a shareholder servicing fee at
an annual rate of 0.25% of the average daily net asset value of all shares
of each Fund, which is computed daily and paid monthly. SFM provides
administrative services, including certain accounting, legal, and
shareholder services, at an annual rate of 0.12% of each Fund's average
daily net assets, with a minimum annual fee of $50,000 per Fund. To the
extent that the aggregate net assets of all the First American Funds
(including First American Funds, Inc. and First American Investment Funds,
Inc.) exceed $8 billion, the percentage stated above is reduced to 0.105%.
In addition to the investment advisory and management fees, custodian fees,
service fees, administrator and transfer agent fees, each Fund is
responsible for paying most other operating expenses including organization
costs, fees and expenses of outside directors, registration fees, printing
shareholder reports, legal, auditing, insurance and other miscellaneous
expenses.
For the period ended March 31, 1997, legal fees and expenses were paid to a
law firm of which the Secretary of the Funds is a partner.
DST Systems, Inc. provides transfer agent services for the Funds.
4 INVESTMENT SECURITY TRANSACTIONS
During the period ended March 31,1997, purchases of securities and proceeds
from sales of securities, other than temporary investments in short-term
securities were as follows (000):
U.S. GOVERNMENT OTHER INVESTMENT
SECURITIES SECURITIES
------------------ -------------------
PURCHASES SALES PURCHASES SALES
--------- ----- --------- -----
Income Fund $ -- $ -- $12,134 $645
Growth and Income Fund -- -- 10,092 883
Growth Fund -- -- 4,187 168
Aggressive Growth Fund -- -- 3,928 254
At March 31, 1997 the total cost of securities for Federal income tax
purposes, was not materially different from amounts reported for financial
reporting purposes. The aggregate gross unrealized appreciation and
depreciation for securities held by the Funds at March 31, 1997 is as
follows (000):
AGGREGATE AGGREGATE
GROSS GROSS
APPRECIATION DEPRECIATION NET
------------ ------------ -----
Income Fund $41 $(224) $(183)
Growth and Income Fund 23 (289) (266)
Growth Fund 17 (139) (122)
Aggressive Growth Fund 22 (158) (136)
5 DEFERRED ORGANIZATIONAL AND OFFERING COSTS
Organizational costs have been capitalized by the Funds and are being
amortized over 60 months commencing with operations on a straight-line
basis. In the event any of the initial shares are redeemed by any holder
thereof during the period that the Funds are amortizing their organizational
costs, the redemption proceeds payable to the holder thereof by the Fund
will be reduced by the unamortized organizational costs in the same ratio as
the number of initial shares being redeemed bears to the number of initial
shares outstanding at the time of the redemption. These costs include legal
fees of approximately $60,000 for organizational work performed by a law
firm of which the Secretary of the Funds is a partner.
Offering costs have been capitalized by the Funds and will be amortized over
twelve months commencing with operations.
FIRST AMERICAN STRATEGY FUNDS
Oaks, Pennsylvania 19456
INVESTMENT ADVISER
FIRST BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, Minnesota 55402
CUSTODIAN
FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, Minnesota 55101
DISTRIBUTOR
SEI FINANCIAL SERVICES COMPANY
Oaks, Pennsylvania 19456
ADMINISTRATOR
SEI FINANCIAL MANAGEMENT CORPORATION
Oaks, Pennsylvania 19456
TRANSFER AGENT
DST SYSTEMS, INC.
1004 Baltimore
Kansas City, Missouri 64105
COUNSEL
DORSEY & WHITNEY LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the corporation. The report is not
authorized for distribution to prospective investors in the corporation unless
preceded or accompanied by an effective prospectus for each of the Funds
included. Shares in the Funds are not deposits or obligations of, or guaranteed
or endorsed by, First Bank National Association or any of its affiliates. Such
shares are also not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency. Investment in the
shares involve investment risk including loss of principal amount invested.
FASF-4005 5/97
