FIRST AMERICAN STRATEGY FUNDS, INC.
1997 ANNUAL REPORT
THE POWER OF DISCIPLINED INVESTING
[3 PHOTOS]
<PAGE>
TABLE OF CONTENTS
September 30, 1997
Message To Shareholders........................................Page 1
Economic and Investment Review.................................Page 2
Portfolio Performance Review
Strategy Funds.................................................Page 8
Strategy Income Fund
Strategy Growth and Income Fund
Strategy Growth Fund
Strategy Aggressive Growth Fund
Independent Auditors' Report..................................Page 16
Statement of Net Assets.......................................Page 18
Statement of Operations.......................................Page 22
Statement of Changes in Net Assets............................Page 23
Financial Highlights..........................................Page 24
Notes to Financial Statements.................................Page 26
Notice to Shareholders........................................Page 31
<PAGE>
MESSAGE TO SHAREHOLERS
September 30, 1997
Dear Shareholder:
On behalf of the Board of Directors of First American Strategy Funds I am
pleased to report that the first year of operation for the Funds was a year of
solid performance and asset growth. As of the fiscal year end fund assets have
grown to $93 million. The First American Strategy Funds were designed to allow
the individual investor to invest in a diversified portfolio of mutual funds
through an innovative "fund of funds" structure. We are pleased with the first
year's success of the Funds.
The past year produced exciting and, at times breathtaking rides in the stock
and bond markets. The market fluctuations of the past year reinforce two vital
investment principles: investors should take a long-term approach; and a
balanced portfolio of stock, fixed income and money market funds tailored to
your risk tolerance and investment objectives can help to reduce the volatility
of your portfolios. The First American Strategy Funds offer an easy, convenient
way to invest in a diversified portfolio of mutual funds which may meet your
long-term investment objectives.
The Board of Directors of First American Strategy Funds thanks you for your
support and confidence in the Funds. We welcome you as Fund shareholders and
look forward to helping you meet your investment goals now and in the future.
Sincerely,
/s/ Virginia L. Stringer
Virginia L. Stringer
Chairman
First American Strategy Funds, Inc.
<PAGE>
ECONOMIC AND INVESTMENT REVIEW
September 30, 1997
The close of the First American Funds' fiscal year marked a very successful
period for investors. For the fiscal year ended September 30, 1997, the S&P 500
Composite Index produced a 40.43% total return. The Index produced 29.89% and
20.75% average annual returns for the trailing three- and five-year periods,
respectively. International equity ownership provided more modest total returns
of 12.19% for the fiscal year and 8.84% and 12.34% annualized for the three- and
five-year periods as measured by the Morgan Stanley MSCI EAFE Index. Returns
from the fixed income markets, measured by the Lehman Government/Corporate Bond
Index, were 9.59% for the fiscal year and 9.41% and 6.95% for the three- and
five-year periods. The yield on 30-year Treasury bonds fell from 7.82% at the
end of September 1994 and 7.40% in September 1992 to 6.40% at the close of the
fiscal year.
THE STOCK MARKET
Line graph depicting the yields of S&P 500 Index and NASDAQ Composite.
[PLOT POINTS GRAPH]
S&P 500 NASDAQ Composite
Jan-85 172 261
Jan 86 208 329
Jan-87 265 384
Jan-88 250 339
Jan-89 285 389
Jan-90 340 439
Jan-91 325 377
Jan-92 416 616
Jan-93 435 691
Jan-94 473 788
Jan-95 465 758
Jan-90 340 439
Jan-96 614 1025
Jan-97 766 1345
Sep-97 927 1596
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ECONOMIC AND INVESTMENT REVIEW
September 30, 1997
TREASURY YIELDS
Line graph depicting the yields of 30 year Treasury Bond and three month
Treasury Bills.
[PLOT POINTS GRAPH]
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
May-97 6.75 5.27
Jun-97 6.70 5.25
Jul-97 6.25 5.20
Aug-97 6.80 5.10
Sep-97 7.08 5.01
One need not look far to discover the confluence of favorable factors that
has supported the positive investment environment. Healthy domestic economic
growth, combined with declining inflation expectations, and an aging
population's heightened focus on investing for financial security have produced
an ideal setting for the stock and bond markets. Confident consumers have
benefited from a high level of job availability, higher real incomes, and growth
in their net worth as the securities markets advanced. Aggressive capital
spending strengthened the United States' international competitive position,
while the promise of a balanced federal budget built the confidence of our
overseas creditors.
Moderation in everything is often mentioned as a prescription for long life
for investors - so too for market advances. Clearly, economic growth at a
moderate pace that does not encourage inflation has been the source of today's
accommodative monetary policy. Knowing the importance of monetary policy to the
stock and bond
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ECONOMIC AND INVESTMENT REVIEW
September 30, 1997
markets, what is the maximum non-inflationary rate of growth for the domestic
economy? A number of well supported opinions are heard, but it would seem that
growth closer to 3.0% real Gross Domestic Product (GDP) than 2.0% is possible.
As the largest participant in the global economy, the United States has
benefited greatly from excess global productive capacity, competitive pricing,
and a strong dollar that has increased domestic purchasing power. Substantial
rationalization of business structures, heavy investment in productivity
enhancing technology, and restrained wage demands in favor of job security are
contributing to a potential for greater economic growth without touching off
inflation.
REAL GDP-SEASONALLY ADJUSTED ANNUAL RATE
Line graph depicting real GDP using a quarter/quarter percent change and a
year/year percent change.
[PLOT POINTS GRAPH]
Quarter/Quarter Year/Year Quarter/Quarter Year/Year
% Change % Change % Change % Change
1988 2.4 4 1994 3 3.1
4.1 4 4.7 3.8
2.4 3.7 1.8 3.7
5.1 3.5 3.6 3.3
1989 4 3.9 1995 0.9 2.7
3 3.6 0.3 1.6
2.2 3.6 3 2
0.4 2.4 2.2 1.6
1990 3.9 2.4 1996 1.8 1.8
1.2 1.9 6 3.2
-1.9 0.9 1 2.7
-4 -0.2 4.3 3.3
1991 -2.1 -1.7 1997E 4.9 4
1.8 -1.6 3.3 3.4
1 -0.8 3.3 3.9
1 0.4 3 3.6
1992 4.7 2.1 1998E 2.8 3.1
2.5 2.3 2.7 3
3 2.8 2.6 2.8
4.3 3.6 2.6 2.7
1993 0.1 2.5
2 2.3
2.1 2.1
5.3 2.4
The current expansion, now over six years old, has certainly not progressed
in a straight line, but it has possessed the capacity to correct imbalances with
a series of small inventory adjustments and interest rate fluctuations,
resulting from cautious shifts in monetary
<PAGE>
ECONOMIC AND INVESTMENT REVIEW
September 30, 1997
policy or changes in bond market psychology. No condition is present that points
to an end to the economic expansion, although its sheer age suggests a slower
pace of growth. Terminal scenarios circulating today range from inflationary
boom to deflationary bust, but we expect a period of moderate growth, averaging
slightly less than 3.0% real GDP in coming quarters.
Although inflation should be contained below 3.0%, our concern rests with a
visible shortage of skilled workers that threatens to drive labor costs beyond
that which can be offset by efficiencies. Signs of employment cost pressure
could promote tighter monetary policy and an eventual slowing of economic
growth. Monetary restraint would be a strong negative for the securities
markets. Knowing that equity ownership has expanded greatly as a portion of
household net worth in the past decade, we are concerned that a correction of
today's fully priced stock market could adversely influence consumption,
corporate profits, and capital investment, in turn.
CONSUMER PRICES
Graph depicting Consumer Prices using quarter/quarter % change and year/year %
change.
[PLOT POINTS GRAPH]
Quarter/Quarter Year/Year Quarter/Quarter Year/Year
% Change % Change % Change % Change
1988 4.665308 3.946981 1993 2.918486 3.122765
4.963709 4.109589 1.862147 2.815235
4.555087 4.302628 3.260476 2.743902
4.618315 4.700487 2.023855 2.514552
1989 6.503806 5.157268 1994 2.383030 2.380952
3.273053 4.731243 3.754603 2.853198
4.015241 4.595792 2.529234 2.670623
7.061599 5.201204 2.785411 2.861685
1990 4.121541 4.607922 1995 3.127208 3.048092
7.084450 5.560011 2.120068 2.639821
6.961204 6.299629 2.463589 2.623388
3.021696 5.282332 3.333780 2.759991
1991 2.393909 4.842865 1996 3.394325 2.826468
3.081669 3.849076 2.668529 2.964255
3.357734 2.963147 3.343406 3.184575
2.736221 2.891745 2.372276 2.943704
1992 3.110340 3.071253 1997 3.552955 2.983166
3.086342 3.072421 3.012972 3.069433
3.547542 3.119710 3.242644 3.044300
2.939935 3.170790
<PAGE>
ECONOMIC AND INVESTMENT REVIEW
September 30, 1997
The current bond market can best be described as trapped between the fear of
excess growth with the risk of higher inflation and a sense that the expansion
could progress at a pace that permits continued moderate inflation and possibly
lower bond yields. With a forecast of moderate economic growth and some wariness
regarding the continuation of very low price inflation, our bond portfolio
policy is essentially neutral. Signs of an acceleration in inflation would cause
us to shorten portfolio duration quickly.
THE BOND MARKET BALANCE
(Graphic: Scale weighted to the negatives)
NEGATIVES POSITIVES
RESILIENCE OF ECONOMY MODERATE ECONOMIC GROWTH
LABOR COST PRESSURE LOW REPORTED INFLATION
POSSIBLE REDUCED FOREIGN CAPITAL FLOWS STABLE TO RISING DOLLAR
FED TIGHTENING DIMINISHED FEDERAL DEFICIT
The strong, globally competitive position of the U.S. economy, the opening of
new business opportunities in emerging market-based economies, and the
beneficial balance of demand and capacity at low price levels suggest that the
secular advance in equities is not over. The potential for correction exists,
however. The valuation of the general market is at a very high level, apparently
incorporating assumptions about lower interest rates or profit growth that we
find exceedingly optimistic. Believing that interest rates are confined to a
fairly narrow range and expecting far more difficult profit comparisons in
coming quarters, we have placed additional emphasis on
<PAGE>
ECONOMIC AND INVESTMENT REVIEW
September 30, 1997
valuation in our disciplined approach to stock selection. In our portfolio
strategy we have balanced exposure to opportunity with a keen appreciation of
the volatility of the current market.
THE STOCK MARKET BALANCE
(Graphic: Scale weighted towards the negative)
NEGATIVES POSITIVES
Difficult profit comparisons ahead Sustained economic expansion
Market fairly valued Low inflation
Risk of higher interest rates Accommodative monetary policy
Demographically based demand
We are pleased to fulfill your unique investment needs through the distinct
investment portfolios of the First American Strategy Funds. Our twin focus on
competitive investment return and control of risk will help you achieve your
long term investment goals. 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
<PAGE>
PORTFOLIO PERFORMANCE REVIEW
September 30, 1997
STRATEGY FUNDS
The First American Strategy Funds are innovative investment vehicles. Instead
of investing directly in stocks and bonds like other mutual funds, the Strategy
Funds invest in a variety of First American Funds. This "fund of funds" approach
provides investors with a diversified portfolio of mutual funds based on
specific objectives. The Strategy Funds are designed to work as total investment
solutions for investors whose objectives match the Fund's objective.
The Strategy Fund management team allocates assets among the First American
Funds listed below within specific ranges determined for each Strategy Fund.
These ranges reflect the Strategy Funds' differing objectives from current
income to aggressive capital growth. As securities rise and fall in value, the
management team rebalances the Strategy Funds to maintain or change the desired
asset allocation based upon their view of economic and investment conditions.
This broad diversification can help to protect the value of your investment
from the effect of sudden changes in the stock and bond markets and adhere to
your long-term investment goals.
EQUITY FUNDS
TECHNOLOGY FUND (sector)
HEALTH SCIENCES FUND (sector)
INTERNATIONAL FUND (international)
EMERGING GROWTH FUND (small capitalization)
REGIONAL EQUITY FUND (small capitalization)
SPECIAL EQUITY FUND (mid capitalization)
DIVERSIFIED GROWTH FUND (large capitalization)
STOCK FUND (large capitalization)
EQUITY INCOME FUND (yield oriented)
REAL ESTATE SECURITIES FUND (yield oriented sector)
FIXED INCOME FUNDS
FIXED INCOME FUND (high quality fixed income)
MONEY MARKET FUNDS
PRIME OBLIGATIONS FUND
<PAGE>
PORTFOLIO PERFORMANCE REVIEW
September 30, 1997
STRATEGY INCOME FUND
INVESTMENT OBJECTIVE: SEEKS TO PROVIDE A HIGH LEVEL OF CURRENT INCOME CONSISTENT
WITH LIMITED RISK TO CAPITAL.
The Strategy Income Fund produced a cumulative total return of 12.51% from
inception on October 1, 1996, to the end of the current fiscal year. For the
period October 31, 1996 to September 30, 1997 (the period displayed graphically)
the Strategy Income Fund had a total return of 10.77%. This compares to the
return of the Income Composite Index of 12.50% for the same time period.
The Fund invests most of its assets in fixed-income mutual funds. However,
the Fund invests a limited amount of its assets in equity mutual funds to help
offset inflation and provide a source for increases in income over time. The
Fund was slightly overweighted in its yield-oriented sector fund for the year,
which enhanced performance as compared to the Income Composite Index. Over the
long-term it is anticipated that the target asset mix for this Fund will be 75%
fixed income funds, 20% equity funds and 5% money market funds. Currently, we
are still slightly overweighting the equity component of this Fund, compared to
our long-term target.
<PAGE>
PORTFOLIO PERFORMANCE REVIEW
September 30, 1997
VALUE OF A $10,000 INVESTMENT
[PLOT POINTS GRAPH]
<TABLE>
<CAPTION>
First American
Strategy Income Standard & Poor's Lehman Government/
Income Fund Composite Index* 500 Composite Index Corporate Bond Index
<S> <C> <C> <C> <C>
Oct. 1996 $10,000 $10,000 $10,000 $10,000
Sep. 1996 $11,077 $11,250 $13,664 $10,709
</TABLE>
PAST PERFORMANCE OF THE FUND IS NOT INDICATIVE OF FUTURE PERFORMANCE. THE
PERFORMANCE REFLECTED IN THE GRAPH BEGINS ON 10/31/96. THE INCEPTION DATE OF THE
FUND IS 10/1/96.
* The blended benchmark is composed of 20% Standard and Poor's 500 Composite
Index, 75% Lehman Government/Corporate Bond Index and 5% Salomon 3-Month
Treasury Bill. These weightings represent normal weightings among asset
classes for the portfolio.
STRATEGY GROWTH
AND INCOME FUND
INVESTMENT OBJECTIVE: SEEKS TO PROVIDE CAPITAL GROWTH AND CURRENT INCOME THROUGH
A BALANCED APPROACH TO EQUITY SECURITIES AND FIXED-INCOME INVESTMENTS.
The Strategy Growth and Income Fund produced a cumulative total return of
20.47% from inception on October 1, 1996, to the end of the current fiscal year.
For the period October 31, 1996 to September 30, 1997 (the period displayed
graphically) the Fund had a total return of 19.24%. The return was just slightly
below the Growth and Income Composite Index return of 21.42% for the same time
period.
<PAGE>
PORTFOLIO PERFORMANCE REVIEW
September 30, 1997
The equity component of the Fund is diversified among large capitalization,
mid capitalization, small capitalization and international equity funds. The
fixed income component consists of a high quality fixed income mutual fund. The
performance of the Growth and Income Fund for the past year was enhanced by the
excellent performance of its mid capitalization and international mutual fund
investments, which exceeded relevant benchmarks for the time period. The large
capitalization, small capitalization and fixed income funds underperformed
somewhat, which resulted in the slight underperformance of the Fund compared to
the index. Over the long-term it is anticipated that the target asset mix for
this Fund will be 50% domestic equity funds, 5% international equity funds, 40%
fixed income funds and 5% money market funds. Currently, we are maintaining fund
allocations at approximately target weightings.
<PAGE>
PORTFOLIO PERFORMANCE REVIEW
September 30, 1997
VALUE OF A $10,000 INVESTMENT
[PLOT POINTS GRAPH]
<TABLE>
<CAPTION>
First American
Strategy Growth Growth and Income Standard & Poor's Lehman Government/
and Income Fund Composite Index* 500 Composite Index Corporate Bond Index
<S> <C> <C> <C> <C>
Oct. 1996 $10,000 $10,000 $10,000 $10,000
Sep. 1996 $11,924 $12,142 $13,664 $10,709
</TABLE>
PAST PERFORMANCE OF THE FUND IS NOT INDICATIVE OF FUTURE PERFORMANCE. THE
PERFORMANCE REFLECTED IN THE GRAPH BEGINS ON 10/31/96. THE INCEPTION DATE OF THE
FUND IS 10/1/96.
* The blended benchmark is composed of 40% Standard and Poor's 500 Composite
Index, 10% Russell 2000 Stock, 5% Morgan Stanley EAFE, 40% Lehman
Government/Corporate Bond Index and 5% Salomon 3-Month Treasury Bill. These
weightings represent normal weightings among asset classes for the portfolio.
STRATEGY GROWTH FUND
INVESTMENT OBJECTIVE: SEEKS TO PROVIDE CAPITAL GROWTH WITH A MODERATE LEVEL OF
CURRENT INCOME.
The Strategy Growth Fund produced a cumulative total return of 23.23% from
inception on October 1, 1996, to the end of the current fiscal year. For the
period October 31, 1996 to September 30, 1997 (the period displayed graphically)
the Fund had a total return of 22.67%. The Growth Composite Index produced a
slightly higher return of 24.69% for the same time period.
<PAGE>
PORTFOLIO PERFORMANCE REVIEW
September 30, 1997
The Fund invests a large amount of its assets in small capitalization and
international mutual funds. For the year, performance of the Strategy Growth
Fund was enhanced by excellent performance of the international and mid
capitalization equity fund investments. The large capitalization equity and
fixed income fund investments underperformed their benchmarks. However, our
large capitalization equity investments were underweighted, so they did not
significantly reduce performance against the index. Over the long-term, the
allocation of the Fund is expected to average 60% domestic equity funds, 10%
international equity funds, 25% fixed income funds and 5% money market funds.
Currently, we are maintaining fund allocations at approximately target
weightings.
VALUE OF A $10,000 INVESTMENT
[PLOT POINTS GRAPH]
<TABLE>
<CAPTION>
First American
Strategy Growth Standard & Poor's Lehman Government/
Growth Fund Composite Index* 500 Composite Index Corporate Bond Index
<S> <C> <C> <C> <C>
Oct. 1996 $10,000 $10,000 $10,000 $10,000
Sep. 1996 $12,267 $12,469 $13,664 $10,709
</TABLE>
PAST PERFORMANCE OF THE FUND IS NOT INDICATIVE OF FUTURE PERFORMANCE. THE
PERFORMANCE REFLECTED IN THE GRAPH BEGINS ON 10/31/96. THE INCEPTION DATE OF THE
FUND IS 10/1/96.
* The blended benchmark is composed of 40% Standard and Poor's 500 Composite
Index, 20% Russell 2000 Stock, 10% Morgan Stanley EAFE, 25% Lehman
Government/Corporate Bond Index and 5% Salomon 3-Month Treasury Bill. These
weightings represent normal weightings among asset classes for the
portfolio.
<PAGE>
PORTFOLIO PERFORMANCE REVIEW
September 30, 1997
STRATEGY AGGRESSIVE
GROWTH FUND
INVESTMENT OBJECTIVE: SEEKS TO PROVIDE A HIGH LEVEL OF CAPITAL GROWTH.
The Strategy Aggressive Growth Fund produced a cumulative total return of
27.06% from inception on October 1, 1996, to the end of the current fiscal year.
For the period October 31, 1996 to September 30, 1997 (the period displayed
graphically) the Fund had a return of 27.13%. The Aggressive Growth Composite
Index produced a return of 28.07% for the same time period.
To achieve this objective the Fund invests a very high portion of its assets
in equity funds, including a large percentage of its assets in small
capitalization, international and sector funds. The Fund's investments in
international equity and mid capitalization equity funds performed well for the
year, exceeding their benchmarks. The Fund's investments in small capitalization
funds and sector funds underperformed their benchmarks.
Over the long-term it is anticipated that this Fund will average 70% domestic
equity funds, 15% international equity funds, 10% fixed income funds and 5%
money market funds. At present, we are approximately on target with that mix.
However, our equity investments are overweighted in small capitalization funds,
which we feel may have greater growth potential in the near term.
<PAGE>
PORTFOLIO PERFORMANCE REVIEW
September 30, 1997
VALUE OF A $10,000 INVESTMENT
[PLOT POINTS GRAPH]
<TABLE>
<CAPTION>
First American Aggressive
Strategy Aggressive Growth Standard & Poor's Lehman Government/
Growth Fund Composite Index* 500 Composite Index Corporate Bond Index
<S> <C> <C> <C> <C>
Oct. 1996 $10,000 $10,000 $10,000 $10,000
Sep. 1996 $12,713 $12,807 $13,664 $10,709
</TABLE>
PAST PERFORMANCE OF THE FUND IS NOT INDICATIVE OF FUTURE PERFORMANCE. THE
PERFORMANCE REFLECTED IN THE GRAPH BEGINS ON 10/31/96. THE INCEPTION DATE OF THE
FUND IS 10/1/96.
* The blended benchmark is composed of 45% Standard and Poor's 500 Composite
Index, 25% Russell 2000 Stock, 15% Morgan Stanley EAFE, 10% Lehman
Government/Corporate Bond Index and 5% Salomon 3-Month Treasury Bill. These
weightings represent normal weightings among asset classes for the portfolio.
<PAGE>
INDEPENDENT AUDITORS' REPORT
September 30, 1997
The Board of Directors and Shareholders
First American Strategy Funds, Inc.:
We have audited the accompanying statements of net assets of Income Fund,
Growth and Income Fund, Growth Fund and Aggressive Growth Fund (funds within
First American Strategy Funds, Inc.) as of September 30, 1997, and the related
statements of operations, the statements of changes in net assets and the
financial highlights for the period from October 1, 1996 (commencement of
operations) to September 30, 1997. These financial statements and the financial
highlights are the responsibility of the funds' management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. Investment securities held in custody are confirmed to us
by the custodian. As to securities purchased and sold but not received or
delivered, we request confirmations from brokers and where replies are not
received, we carry out other appropriate auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the
<PAGE>
INDEPENDENT AUDITORS' REPORT
September 30, 1997
financial position of each of the Income Fund, Growth and Income Fund, Growth
Fund and Aggressive Growth Funds, as of September 30, 1997, and the results of
their operations, changes in their net assets and the financial highlights from
October 1, 1996 to September 30, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 7, 1997
<PAGE>
STATEMENTS OF NET ASSETS
September 30, 1997
INCOME FUND
<TABLE>
<CAPTION>
DESCRIPTION SHARES VALUE (000)
- -------------------------------------------------------------------------------------
<S> <C> <C>
EQUITY FUNDS - 29.5%
First American Investment Funds, Inc.
Equity Income Fund 563,932 $ 8,848
Real Estate Securities Fund 120,273 1,803
-------
TOTAL EQUITY FUNDS
Cost ($9,883) 10,651
=======
FIXED INCOME FUND - 63.8%
First American Investment Funds, Inc.
Fixed Income Fund 2,101,917 23,037
-------
TOTAL FIXED INCOME FUND
Cost ($22,780) 23,037
=======
MONEY MARKET FUND - 6.6%
First American Funds, Inc.
Prime Obligations Fund 2,374,000 2,374
-------
TOTAL MONEY MARKET FUND
Cost (2,374) 2,374
=======
TOTAL INVESTMENTS - 99.9%
Cost ($35,037) 36,062
=======
Other Assets and Liabilities, Net - 0.1% 57
-------
NET ASSETS:
Portfolio shares - ($.01 par value - 20 billion authorized)
based on 3,337,762 outstanding shares $35,073
Accumulated net realized gain on investments 21
Net unrealized appreciation of investments 1,025
-------
TOTAL NET ASSETS - 100.0% $36,119
=======
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE $ 10.82
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENTS OF NET ASSETS
September 30, 1997
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
DESCRIPTION SHARES VALUE (000)
- -------------------------------------------------------------------------------------
<S> <C> <C>
EQUITY FUNDS - 53.0%
First American Investment Funds, Inc.
Diversified Growth Fund 186,741 $ 3,294
Emerging Growth Fund* 82,650 1,458
International Fund 100,462 1,329
Real Estate Securities Fund 72,087 1,081
Regional Equity Fund 63,332 1,467
Special Equity 100,342 2,672
Stock Fund 115,142 3,310
-------
TOTAL EQUITY FUNDS
Cost ($12,774) 14,611
=======
FIXED INCOME FUND - 38.5%
First American Investment Funds, Inc.
Fixed Income Fund 10,621
-------
TOTAL FIXED INCOME FUND
Cost ($10,478) 969,054 10,621
=======
MONEY MARKET FUND - 5.9%
First American Funds, Inc.
Prime Obligations Fund 1,607,449 1,607
-------
TOTAL MONEY MARKET FUND
Cost ($1,607) 1,607
=======
TOTAL INVESTMENTS - 97.4%
Cost ($24,859) 26,839
=======
Other Assets and Liabilities, Net - 2.6% 726
-------
NET ASSETS:
Portfolio shares - ($.01 par value - 20 billion authorized)
based on 2,343,810 outstanding shares $25,333
Accumulated net realized gain on investments 252
Net unrealized appreciation of investments 1,980
-------
TOTAL NET ASSETS - 100.0% $27,565
=======
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE $ 11.76
=======
</TABLE>
*Currently non-income producing security.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENTS OF NET ASSETS
September 30, 1997
GROWTH FUND
<TABLE>
<CAPTION>
DESCRIPTION SHARES VALUE (000)
- -------------------------------------------------------------------------------------
<S> <C> <C>
EQUITY FUNDS - 68.4%
First American Investment Funds, Inc.
Diversified Growth Fund 129,554 $ 2,285
Emerging Growth Fund* 86,869 1,532
International Fund 116,152 1,537
Regional Equity Fund 66,564 1,542
Special Equity Fund 63,784 1,544
Stock Fund 79,876 2,296
-------
TOTAL EQUITY FUNDS
Cost ($9,550) 10,736
=======
FIXED INCOME FUND - 24.5%
First American Investment Funds, Inc.
Fixed Income Fund 350,138 3,838
-------
TOTAL FIXED INCOME FUND
Cost ($3,806) 3,838
=======
MONEY MARKET FUND - 6.9%
First American Funds, Inc.
Prime Obligations Fund 1,074,302 1,074
-------
TOTAL MONEY MARKET FUND
Cost ($1,074) 1,074
=======
TOTAL INVESTMENTS - 99.8%
Cost ($14,430) 15,648
=======
Other Assets and Liabilities, Net - 0.2% 28
-------
NET ASSETS:
Portfolio shares - ($.01 par value - 20 billion authorized)
based on 1,293,419 outstanding shares $14,379
Accumulated net realized gain on investments 79
Net unrealized appreciation of investments 1,218
-------
TOTAL NET ASSETS - 100.0% $15,676
=======
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE $ 12.12
=======
</TABLE>
*Currently non-income producing security.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENTS OF NET ASSETS
September 30, 1997
AGGRESSIVE GROWTH FUND
<TABLE>
<CAPTION>
DESCRIPTION SHARES VALUE (000)
- -------------------------------------------------------------------------------------
<S> <C> <C>
EQUITY FUNDS - 83.4%
First American Investment Funds, Inc.
Diversified Growth Fund 83,366 $ 1,471
Emerging Growth Fund* 99,096 1,748
Health Sciences Fund 44,451 537
International Fund 152,873 2,023
Regional Equity Fund 75,924 1,758
Special Equity Fund 72,756 1,761
Stock Fund 56,072 1,612
Technology Fund* 26,236 532
-------
TOTAL EQUITY FUNDS
Cost ($10,152) 11,442
=======
FIXED INCOME FUND - 9.8%
First American Investment Funds, Inc.
Fixed Income Fund 122,887 1,347
-------
TOTAL FIXED INCOME FUND
Cost ($1,334) 1,347
=======
MONEY MARKET FUND - 7.3%
First American Funds, Inc.
Prime Obligations Fund 1,007,588 1,008
-------
TOTAL MONEY MARKET FUND
Cost ($1,008) 1,008
=======
TOTAL INVESTMENTS - 100.5%
Cost ($12,494) 13,797
=======
Other Assets and Liabilities, Net - (0.5)% (72)
-------
NET ASSETS:
Portfolio shares - ($.01 par value - 20 billion authorized)
based on 1,090,679 outstanding shares $12,355
Accumulated net realized gain on investments 67
Net unrealized appreciation of investments 1,303
-------
TOTAL NET ASSETS - 100.0% $13,725
=======
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE $ 12.58
=======
</TABLE>
*Currently non-income producing security.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (000)
September 30, 1997
<TABLE>
<CAPTION>
GROWTH
AND AGGRESSIVE
INCOME INCOME GROWTH GROWTH
FUND (1) FUND (1) FUND (1) FUND (1)
.......... .......... .......... ............
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income distributions from underlying funds $ 664 $ 358 $ 118 $ 62
====== ====== ====== ======
TOTAL INVESTMENT INCOME 664 358 118 62
====== ====== ====== ======
EXPENSES:
Investment advisory fees 33 28 13 11
Waiver of investment advisory fees (33) (28) (13) (11)
Reimbursement of expenses by adviser (154) (141) (95) (92)
Administrator fees 45 44 40 40
Transfer agent fees 11 12 10 10
Amortization of organizational costs 4 4 4 4
Custodian fees 4 3 2 2
Directors' fees -- -- -- --
Registration fees 70 60 31 29
Professional fees 51 44 20 18
Printing 15 13 6 5
Shareholder servicing fee 33 28 13 11
Other -- -- 1 1
------ ------ ------ ------
TOTAL EXPENSES AFTER WAIVERS
AND REIMBURSEMENTS 79 67 32 28
====== ====== ====== ======
Investment income - net 585 291 86 34
------ ------ ------ ------
REALIZED AND UNREALIZED GAINS
ON INVESTMENTS - NET:
Realized capital gain distributions received
from investments 11 52 54 64
Net realized gain on investments 12 201 26 4
Net change in unrealized
appreciation of investments 1,025 1,980 1,218 1,303
------ ------ ------ ------
Net Gains on Investments 1,048 2,233 1,298 1,371
------ ------ ------ ------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,633 $2,524 $1,384 $1,405
====== ====== ====== ======
</TABLE>
(1) Commenced operations on October 1, 1996.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (000)
September 30, 1997
<TABLE>
<CAPTION>
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
9/30/97 (2) 9/30/97 (2) 9/30/97 (2) 9/30/97 (2)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Investment income - net $ 585 $ 291 $ 86 $ 34
Realized capital gain distributions
received from investments 11 52 54 64
Net realized gain on investments 12 201 26 4
Net change in unrealized appreciation
of investments 1,025 1,980 1,218 1,303
-------- -------- -------- --------
Net increase in net assets resulting
from operations 1,633 2,524 1,384 1,405
-------- -------- -------- --------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Investment Income - net (585) (291) (86) (34)
Realized gain on investments (2) (1) (1) (1)
-------- -------- -------- --------
TOTAL DISTRIBUTIONS (587) (292) (87) (35)
-------- -------- -------- --------
CAPITAL SHARE TRANSACTIONS (1):
Proceeds from sales 43,502 33,212 16,210 13,401
Reinvestment of distributions 544 269 83 33
Payments for redemptions (8,973) (8,148) (1,914) (1,079)
-------- -------- -------- --------
Increase in net assets from capital
share transactions 35,073 25,333 14,379 12,355
-------- -------- -------- --------
TOTAL INCREASE IN NET ASSETS 36,119 27,565 15,676 13,725
NET ASSETS AT BEGINNING OF PERIOD -- -- -- --
======== ======== ======== ========
NET ASSETS AT END OF PERIOD $ 36,119 $ 27,565 $ 15,676 $ 13,725
======== ======== ======== ========
(1) CAPITAL SHARE TRANSACTIONS:
Proceeds from sales 4,152 3,057 1,462 1,188
Reinvestment of
distributions 52 24 7 3
Payments for redemptions (866) (737) (176) (100)
-------- -------- -------- --------
NET INCREASE IN CAPITAL SHARES 3,338 2,344 1,293 1,091
======== ======== ======== ========
</TABLE>
(2) Commenced operations on October 1, 1996.
The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
September 30, 1997
<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 $0.41 $0.82 $ (0.41)
GROWTH AND INCOME FUND
1997 (1) $10.00 $0.26 $1.76 $ (0.26)
GROWTH FUND
1997 (1) $10.00 $0.18 $2.12 $ (0.18)
AGGRESSIVE GROWTH FUND
1997 (1) $10.00 $0.11 $2.58 $ (0.11)
</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.
(2) Expense ratios do not include expenses of the underlying funds.
The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
September 30, 1997
<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>
$10.82 12.51%+ $36,119 0.60%(2) 4.39% 2.00%(2) 29%
$11.76 20.47%+ $27,565 0.60%(2) 2.59% 2.10%(2) 37%
$12.12 23.23%+ $15,676 0.60%(2) 1.61% 2.62%(2) 6%
$12.58 27.06%+ $13,725 0.60%(2) 0.76% 2.85%(2) 7%
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
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. The funds invest in First American Funds, Inc.
and First American Investment Funds, Inc. mutual funds in a "fund of funds"
structure. FASF's articles of incorporation permit the Board of Directors to
create additional funds and classes in the future. The Fund's prospectus
provides a description of each fund's investment objectives, policies, and
strategies. Financial statements for the underlying mutual funds may be obtained
by calling 1-800-637-2548.
2 SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION: Investments are valued at the respective net asset
value of each underlying fund, determined at the close of the New York Stock
Exchange (generally 3:00pm central time) on the valuation date.
DISTRIBUTION TO SHAREHOLDERS: The Funds declare and pay 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. The amounts of
distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations, which may differ
from those amounts determined under generally accepted accounting principles.
These book/tax differences are either temporary or permanent in nature.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
SECURITY TRANSACTIONS AND RELATED INCOME: Security transactions are
recorded on the trade date of the security purchase or sale. Income and capital
gain distributions from underlying funds are recorded on the ex-dividend date.
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), U.S. 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 waived 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 Investments Distribution Co. (SIDCO) and SEI Investments Management
Corporation (SIMC) serve as distributor and administrator of the Fund,
respectively. FASF has adopted and entered into a shareholder service plan and
agreement with SIDCO. Each Fund pays to SIDCO 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. SIDCO provides administrative
services, including certain accounting, legal, and shareholder services, at an
annual rate of 0.12% of each Fund's
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
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 exceeds $8
billion, the percentage stated above is reduced to 0.105%. Effective July 1,
1997, the funds were no longer subject to a minimum.
As well as 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. In addition to the
Fund's direct expenses, as described above, Fund shareholders also bear a
proportionate share of the underlying Fund's expenses.
For the period ended September 30, 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 Fund.
4 INVESTMENT SECURITY TRANSACTIONS
During the period ended September 30,1997, purchases of securities and
proceeds from sales of securities, other than temporary investments in
short-term securities were as follows (000):
PURCHASES SALES
......... .......
Income Fund $36,532 $3,881
Growth and Income Fund 27,236 4,186
Growth Fund 13,648 318
Aggressive Growth Fund 11,786 304
At September 30, 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
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
unrealized appreciation and depreciation for securities held by the Funds by
September 30, 1997 is as follows (000):
AGGREGATE AGGREGATE
GROSS GROSS
APPRECIATION DEPRECIATION NET
.............. ............. .......
Income Fund $1,026 $(1) $1,025
Growth and Income Fund 1,981 (1) 1,980
Growth Fund 1,223 (5) 1,218
Aggressive Growth Fund 1,305 (2) 1,303
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 were amortized over
twelve months commencing with operations.
6 SUBSEQUENT EVENTS
The Board of Directors and shareholders of the Qualivest Funds have
approved the reorganization of the following funds into FASF, on November 21,
1997:
QUALIVEST ACQUIRED FUND ACQUIRING FUND
........................... ......................
Allocated Conservative Fund Income Fund
Allocated Balanced Fund Growth and Income Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
QUALIVEST ACQUIRED FUND ACQUIRING FUND
........................ .......................
Allocated Growth Fund Growth Fund
Aggressive Fund Aggressive Growth Fund
The acquisition will be accounted for by the method of accounting for tax
free mergers of investment companies (sometimes referred to as the pooling
without restatement method). Under the proposed agreement and Plan of
Reorganization, Qualivest Class A & Y shares will be exchanged for shares of
FASF.
<PAGE>
NOTICE TO SHAREHOLDERS
THE INFORMATION SET FORTH BELOW IS FOR THE FUND'S FISCAL YEAR AS REQUIRED BY
FEDERAL LAW. SHAREHOLDERS, HOWEVER, MUST REPORT DISTRIBUTIONS ON A CALENDAR YEAR
BASIS FOR INCOME TAX PURPOSES WHICH MAY INCLUDE DISTRIBUTIONS FOR PORTIONS OF
TWO FISCAL YEARS OF THE FUND. ACCORDINGLY, THE INFORMATION NEEDED BY
SHAREHOLDERS FOR INCOME TAX PURPOSES WILL BE SENT TO THEM IN EARLY 1998. PLEASE
CONSULT YOUR TAX ADVISER FOR PROPER TREATMENT OF THIS INFORMATION.
Dear First American Strategy Fund Shareholders:
For the fiscal year ended September 30, 1997, each fund has designated long term
capital gains and exempt income with regard to distributions paid during the
year as follows:
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
LONG TERM CAPITAL GAINS ORDINARY INCOME TOTAL DISTRIBUTIONS QUALIFYING TAX EXEMPT
FUND DISTRIBUTIONS (TAX BASIS) DISTRIBUTIONS (TAX BASIS) (TAX BASIS) DIVIDENDS (1) INTEREST
.... ......................... ......................... ................... ............. ..........
<S> <C> <C> <C> <C> <C>
Income Fund 0% 100% 100% 9.50% 0%
Growth and
Income Fund 0% 100% 100% 3.28% 0%
Growth Fund 0% 100% 100% 7.35% 0%
Aggressive
Growth Fund 0% 100% 100% 9.40% 0%
</TABLE>
* Items (A) and (B) are based on a percentage of the fund's total
distributions.
** Items (D) and (E) are based on a percentage of ordinary income distributions
of the portfolio.
(1)Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
<PAGE>
(This page has been left blank intentionally)
<PAGE>
FIRST AMERICAN STRATEGY FUNDS, INC.
1 Freedom Valley Drive
Oaks, Pennsylvania 19456
INVESTMENT ADVISER
FIRST ASSET MANAGEMENT
601 Second Avenue South
Minneapolis, Minnesota 55402
CUSTODIAN
FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, Minnesota 55101
ADMINISTRATOR
SEI INVESTMENTS MANAGEMENT CORPORATION
1 Freedom Valley Drive
Oaks, Pennsylvania 19456
TRANSFER AGENT
DST SYSTEMS, INC.
210 West Tenth Street
Kansas City, Missouri 64105
DISTRIBUTOR
SEI INVESTMENTS DISTRIBUTION CO.
1 Freedom Valley Drive
Oaks, Pennsylvania 19456
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
90 South Seventh Street
Minneapolis, Minnesota 55402
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, U.S. Bank 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-1303 11/97
