FIRST AMERICAN
FUNDS, INC.
STRATEGY
FUNDS
[PHOTOS]
[GRAPHIC] 98
1998 ANNUAL REPORT
[LOGO] FIRST AMERICAN
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
FIRST AMERICAN FAMILY OF FUNDS
- ------------------------
HIGHER RISK/RETURN
POTENTIAL
- ------------------------
SECTOR FUNDS
INTERNATINAL FUNDS
SMALL CAP FUNDS
MID CAP FUNDS
LARGE CAP FUNDS
STRATEGY FUNDS
Strategy Aggressive Growth
Strategy Growth
Strategy Growth & Income
Strategy Income
BOND FUNDS
TAX FREE BOND FUNDS
MONEY MARKET FUNDS
- ------------------------
LOWER RISK/RETURN
POTENTIAL
- ------------------------
INVESTMENTS FOR EVERY GOAL
FIRST AMERICAN FUNDS OFFER A FULL RANGE OF INVESTMENT STRATEGIES TO HELP YOU
CREATE A PERSONALIZED, DIVERSIFIED PORTFOLIO. SUPPORTED BY EXTENSIVE RESEARCH
AND A HIGHLY DEVELOPED TEAM APPROACH TO INVESTMENT DECISION MAKING, FIRST
AMERICAN FUNDS CAN HELP BUILD A WINNING STRATEGY FOR ANY INVESTOR.
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
MESSAGE TO SHAREHOLDERS 1
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STRATEGIES FOR UNCERTAIN MARKETS 2
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STRATEGY FUNDS OVERVIEW 4
- ------------------------------------------------------------------------------
Strategy Income Fund 6
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Strategy Growth And Income Fund 7
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Strategy Growth Fund 8
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Strategy Aggressive Growth Fund 9
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INDEPENDENT AUDITORS' REPORT 10
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STATEMENTS OF NET ASSETS 11
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STATEMENTS OF OPERATIONS 13
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STATEMENTS OF CHANGES IN NET ASSETS 14
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FINANCIAL HIGHLIGHTS 16
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NOTES TO FINANCIAL STATEMENTS 18
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NOTICE TO SHAREHOLDERS 21
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NOT FDIC INSURED. NO BANK GUARANTEE. MAY LOSE VALUE.
- --------------------------------------------------------------------------------
<PAGE>
MESSAGE TO SHAREHOLDERS SEPTEMBER 30, 1998
DEAR SHAREHOLDERS:
On behalf of the board of directors of First American Strategy Funds, Inc.,
I would like to extend a warm welcome to all new shareholders and express
my appreciation to our long-term shareholders for your continued support.
Investors will remember this past year as one of the most volatile
periods in recent history. During the first half of 1998, the financial
markets staged a remarkable rally that sent the Dow Jones Industrial
Average to record highs.
In mid July, the markets suddenly reversed course, all but erasing the
year's gains. Since then, the markets have fluctuated, with dramatic price
swings becoming commonplace.
During challenging times, it's more important than ever to focus on
the fundamentals, including creating balanced portfolios. First American
Strategy Funds offer broader diversification than investing in a single
mutual fund and enable investors to achieve more targeted asset allocation.
Please take a few moments to read the following article on First American
Strategy Funds. You may also want to meet with your investment professional
to review your long-term goals and fine-tune your portfolio accordingly.
As you review this annual report, you will notice that we start off
with an overview of market conditions, followed by comments from fund
managers explaining how those conditions affected each fund. We hope that
you find this format useful in understanding your investment.
Again, the board of directors thanks you for your support and
confidence in the First American family of funds.
Sincerely,
/s/ Virginia L. Stringer
VIRGINIA L. STRINGER
Chairman
First American Strategy Funds, Inc.
1 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
STRATEGIES FOR UNCERTAIN MARKETS
MEET YOUR INVESTMENT GOALS WITH ONE INVESTMENT
- --------------------------------------------------------------------------------
First American Strategy Funds differ from other kinds of mutual funds. Instead
of investing shareholders' assets directly in stocks, bonds or money market
securities, they invest in shares of other First American funds. First
American's Strategy Funds offer a fund-of-funds approach to meeting a variety of
investment goals, time horizons and risk tolerance criteria.
Funds of funds offer broader diversification than investing in a single
mutual fund because they hold shares of a variety of underlying funds, which in
turn generally hold dozens of securities. This extensive diversification may
reduce risk by smoothing out the highs and lows that are usually associated with
more concentrated portfolios. And because they invest only in shares of other
mutual funds with clearly stated investment objectives, funds of funds enable
investors to achieve more targeted asset allocation.
These broad-based portfolios may also help investors keep their portfolios
on track over time. Fund managers review each fund portfolio on a regular basis
to evaluate the consistency of their asset allocation, and the funds are
rebalanced as necessary to respond to changing market conditions.
PUT THE POWER OF DISCIPLINED INVESTING TO WORK FOR YOU
- --------------------------------------------------------------------------------
Successful investing requires insight, experience and the discipline to develop
a strategy and stick with it. First American Strategy Funds offer you a
disciplined approach to investing a consistent investment philosophy we apply to
all portfolio decisions. Our tradition of disciplined management ensures that
each fund stays true to its investment objective and to the level of risk and
return it was designed to achieve.
<PAGE>
ASSET ALLOCATIONS AS OF SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
STRATEGY INCOME FUND
- --------------------
Strategy Income Fund invests primarily in bond funds, but also invests a small
portion of its portfolio in dividend-paying stock funds to create growth
opportunities and help offset the effects of inflation.
[PIE CHART]
Equity Income Fund 20.9%
Real Estate Fund 5.4%
Fixed income Fund 56.4%
Strategic Income Fund 14.2%
Prime obligations Fund 3.1%
STRATEGY GROWTH AND INCOME FUND
- -------------------------------
Strategy Growth & Income Fund invests in a mix of stock and bond fund holdings.
[PIE CHART]
Large Cap Growth Fund 11.2%
Large Cap Value Fudn 16.7%
Mid Cap Growth Fund 5.3%
Mid Cap Value Fund 5.3%
Small Cap Growth Fund 2.5%
Small Cap Value Fund 2.6%
International Fund 3.9%
Emerging Markets Fund 1.0%
Fixed Income Fund 36.7%
Strategic Income Fund 9.3%
Prime Obligations Fund 5.5%
STRATEGY GROWTH FUND
- --------------------
Strategy Growth Fund divides its assets among various categories of stock funds,
but also includes bond funds to help balance the risk associated with stock
funds.
[PIE CHART]
Large Cap Growth Fund 12.3%
Large Cap Value Fund 18.3%
Mid Cap Growth Fund 7.2%
Mid Cap Value Fund 7.4%
Small Cap Growth Fund 3.5%
Small Cap Value Fund 3.5%
International Fund 7.0%
Emerging Markets Fund 2.5%
Fixed Income Fund 24.7%
Strategic Income Fund 6.2%
Prime Obligatins Fund 7.4%
STRATEGY AGGRESSIVE GROWTH FUND
- -------------------------------
Strategy Aggressive Growth Fund concentrates on stock fund investments with
above-average prospects for long-term growth, allocating the majority of its
assets to stock funds, including sector, small cap and international funds.
[PIE CHART]
Large Cap Growth Fund 12.2%
Large Cap Value Fund 18.8%
Mid Cap Growth Fund 9.6%
Mid Cap Value Fund 9.9%
Small Cap Growth Fund 5.0%
Small Cap Value Fund 5.0%
International Fund 10.6%
Emerging Markets Fund 5.0%
Fixed Income Fund 12.4%
Strategic Income Fund 3.0%
Prime Obligations Fund 8.5%
The portfolio allocations illustrated are subject to change. The available
ranges for each fund are outlined in the prospectus.
An investment in money market funds is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the funds
seek to preserve the value of your investment at $1.00 per share, it is possible
to lose money by investing in the funds.
<PAGE>
STRATEGY
FUNDS OVERVIEW
The fiscal year ended September 30, 1998, was one of marked contrast for the
investment world in a variety of ways.
For instance, things started off rocky enough in October of 1997, as the
stock market experienced its worst one-day point decline ever. However, it
quickly bounced back, and many of the most notable equity indices, including the
Dow Jones Industrial Average and Standard & Poor's 500 Composite Index, reached
record levels by mid-July, 1998.
Then, stocks took a sharp turn in the other direction. The large-cap
indices dropped close to 20%, the historical measure of an official bear market.
Beyond that, many individual stocks went through a significant bear market
period, with a number losing as much as 50% of their value in a matter of weeks.
In particular, smaller and mid-cap stocks suffered severe declines.
While this was going on, bond markets were experiencing their own rapid
changes. Suddenly, long-term U.S. Treasury securities became the investment of
choice for many investors concerned about a volatile world economic environment.
Interest rates on these bonds reached near historic lows, bringing bond values
up. However, other parts of the bond market, including corporate securities and
high-yield bonds, were experiencing the opposite effect. Investors seemed to
veer away from these issues, and values dropped significantly, leading to a
mixed picture for the bond market as a whole.
Much of the market's activity was driven by bad economic news from
overseas. In particular, Japan's economy continued its slide, and the impact of
that began to carry over into emerging markets of Asia. Eventually, additional
problems plagued Russian and Latin American markets, leading forecasters to fear
a worldwide recession was on the horizon.
4 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
This concern led to a struggle for many foreign markets. Emerging markets,
by some measures, lost up to half of their value during the period, and other
developed markets like Japan were also down considerably. Europe proved to be
the only bright spot overseas.
While the U.S. economy continued to grow at a moderate pace with little
inflation, investor fears about the spillover effect of world economic problems
were felt in the markets. Going forward, there remain a number of questions
about the direction of the U.S. economy for the coming year.
While the threat of a recession may have increased, there are also
encouraging signs, including recent moves by the Federal Reserve to lower
short-term interest rates in an effort to keep the economy on track.
Investors should be prepared for dramatic short-term movements and continue
to position themselves for a longer-term investment posture. It is quite likely
that the markets will remain volatile in the months to come. We'll be keeping a
close eye on key measuring sticks, such as corporate earnings and consumer
spending, to determine whether a more defensive investment posture is required.
The following graphs compare First American fund performance with unmanaged
indices. Indices do not pay management fees to cover costs of shareholder
services and fund operating costs or transaction costs to buy and sell
securities. Unlike indices, mutual funds are never 100% invested because they
need cash on hand to redeem shares. In addition, the performance shown for the
funds includes the maximum initial sales charge, all fund expenses and fees. If
the operating expenses associated with the funds and the underlying funds had
been applied to the indices, their performance would have been lower. Please
remember that an index is simply a measure of performance and one cannot invest
in it directly.
Total return measures performance, assuming that all dividends and capital gains
distributions were reinvested.
5 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
STRATEGY FUNDS
STRATEGY INCOME
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
SEEKS TO PROVIDE A HIGH LEVEL OF CURRENT INCOME CONSISTENT
WITH LIMITED RISK TO CAPITAL
Led by surging U.S. Treasury securities, the Strategy Income Fund generated a
return of 8.72% for the 12-month fiscal period ended September 30, 1998.
As the year began, the fund had two-thirds of its assets invested in Fixed
Income Fund, which included a heavy weighting in intermediate to long-term
government bonds. As interest rates declined dramatically, these bonds gained in
value, providing a solid total return. Our other major holding, Equity Income
Fund, also performed well in a volatile environment for stocks.
By the end of the period, we had diversified the fixed income portion of
the portfolio by adding the Strategic Income Fund.
The Strategic Income Fund is a multi-sector bond fund focusing on U.S.
government and domestic investment grade debt securities, foreign debt
securities (both investment grade and high-yield), and domestic high-yield debt
securities. Strategic Income Fund is an effective complement to Fixed Income
Fund and is currently attractively valued compared to the U.S. government bond
sector. We anticipate the fund will benefit from this shift, generating a
competitive rate of income and total returns.
VALUE OF A $10,000 INVESTMENT
[PLOT POINTS CHART]
First American Standard & Poor's Lehman Government/
Strategy Income Fund 500 Index Corporate Bond Index
-------------------- --------- --------------------
1996 $10,000 $10,000 $10,000
1997 $11,077 $13,663 $10,709
1998 $12,043 $14,901 $12,084
PAST PERFORMANCE OF THE FUND IS NOT INDICATIVE OF FUTURE PERFORMANCE.
ANNUALIZED PERFORMANCE SINCE
1 YEAR INCEPTION
- --------------------------------------------------------------------------------
Strategy Income Fund 8.72% 10.61%
- --------------------------------------------------------------------------------
S&P 500 9.06% 23.13%
- --------------------------------------------------------------------------------
Lehman Government/Corporate 12.84% 10.38%
- --------------------------------------------------------------------------------
Past performance of the fund is not indicative of future performance.
The inception date of the fund is 10/1/96. The performance reflected in the
graph begins on 10/31/96.
Performance reflects voluntary fee waivers in effect. In absence of such fee
waivers, total returns would be reduced.
6 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
STRATEGY FUNDS
STRATEGY GROWTH & INCOME
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
SEEKS TO PROVIDE BOTH CAPITAL GROWTH AND CURRENT INCOME THROUGH A
BALANCED APPROACH TO EQUITY SECURITIES AND FIXED INCOME INVESTMENTS
In a time of divergent performance among a variety of asset classes, Strategy
Growth & Income Fund generated a return of -2.18% for the fiscal year ended
September 30, 1998.
Helping our performance was a heavy concentration in Fixed Income Fund,
which benefited from the strength of U.S. Treasury bonds, one of the best
performing asset classes over the 12-month period. On the other hand, our stock
fund holdings, which were performing well, suddenly took a turn for the worse in
the spring and summer. At that time, first small and mid-cap stock funds, and
eventually, large-cap funds as well, were hard hit by the stock market's
retreat.
By the end of the fiscal year, we had shifted some money out of the poor
performing small-cap sector and diversified more broadly with mid-cap
investments and an increased weighting in value-oriented large-cap funds. We
believe this reallocation will help temper any short-term volatility in the
markets and put the fund in a strong position to generate solid, long-term
returns for investors.
VALUE OF A $10,000 INVESTMENT
[PLOT POINTS CHART]
First American Strategy Standard & Poor's Lehman Government/
Growth and Income Fund 500 Index Corporate Bond Index
---------------------- --------- --------------------
1996 $10,000 $10,000 $10,000
1997 $11,924 $13,663 $10,709
1998 $11,664 $14,901 $12,084
PAST PERFORMANCE OF THE FUND IS NOT INDICATIVE OF FUTURE PERFORMANCE.
ANNUALIZED PERFORMANCE SINCE
1 YEAR INCEPTION
- --------------------------------------------------------------------------------
Strategy Growth and Income Fund -2.18% 8.57%
- --------------------------------------------------------------------------------
S&P 500 9.06% 23.13%
- --------------------------------------------------------------------------------
Lehman Government/Corporate 12.84% 10.38%
- --------------------------------------------------------------------------------
Past performance of the fund is not indicative of future performance.
The inception date of the fund is 10/1/96. The performance reflected in the
graph begins on 10/31/96.
Performance reflects voluntary fee waivers in effect. In absence of such fee
waivers, total returns would be reduced.
7 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
STRATEGY FUNDS
STRATEGY GROWTH
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
SEEKS TO PROVIDE CAPITAL GROWTH AND A MODERATE LEVEL OF CURRENT INCOME
A difficult market environment, primarily since April, resulted in a return of
- -5.95% for Strategy Growth Fund for the fiscal year ended September 30, 1998.
Most equity sectors were hurt by the market's decline. In particular, the
fund's investments in small and mid-cap value funds were hard hit. While we
reduced our weighting in those categories, their struggles remained a factor in
the performance of the fund. However, we did benefit from a 25% weighting in
Fixed Income Fund, which helped to offset some of the negative performance from
the equity area.
The volatile market that created these difficulties is likely to continue,
at least in the short run, and we've positioned the fund a bit more defensively,
making more use of large cap and value opportunities. Longer term, a broad range
of growth stocks should be able to benefit from increased opportunities around
the world. That will benefit patient investors who are seeking capital
appreciation to meet future goals.
VALUE OF A $10,000 INVESTMENT
[PLOT POINTS CHART]
First American Standard & Poor's Lehman Government/
Strategy Growth Fund 500 Index Corporate Bond Index
-------------------- --------- --------------------
1996 $10,000 $10,000 $10,000
1997 $12,267 $13,663 $10,709
1998 $11,537 $14,901 $12,084
PAST PERFORMANCE OF THE FUND IS NOT INDICATIVE OF FUTURE PERFORMANCE.
ANNUALIZED PERFORMANCE SINCE
1 YEAR INCEPTION
- --------------------------------------------------------------------------------
Strategy Growth Fund -5.95% 7.66%
- --------------------------------------------------------------------------------
S&P 500 9.06% 23.13%
- --------------------------------------------------------------------------------
Lehman Government/Corporate 12.84% 10.38%
- --------------------------------------------------------------------------------
Past performance of the fund is not indicative of future performance.
The inception date of the fund is 10/1/96. The performance reflected in the
graph begins on 10/31/96.
Performance reflects voluntary fee waivers in effect. In absence of such fee
waivers, total returns would be reduced.
8 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
STRATEGY FUNDS
STRATEGY AGGRESSIVE GROWTH
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
SEEKS TO PROVIDE A HIGH LEVEL OF CAPITAL GROWTH
Struggles in the stock market, especially among small-cap and mid-cap issues,
had a negative effect on Strategy Aggressive Growth Fund's performance. For the
fiscal year ended September 30, 1998, the fund recorded a return of -9.85%.
For much of the year, more than 30% of the fund was invested in four funds
representing small- and mid-cap stocks. All of those funds went through a
difficult period as the stocks they emphasize were hampered by a negative market
from April through August.
Large-cap stock funds included in the portfolio did not generate much in
terms of positive returns. The best performer for the period was Fixed Income
Fund, a bond portfolio that represents a very small holding and is not a major
focus of this fund.
We expect the stock market to show better balance in the year ahead. We've
increased the weighting in large-cap value investments, as that area of the
market seems most attractively priced going forward. We've also taken a more
cautious approach to the volatile small-cap area, until more positive
developments begin to occur. Overall, we expect the investment environment to
show improved prospects for the fund.
VALUE OF A $10,000 INVESTMENT
[PLOT POINTS CHART]
First American Strategy Standard & Poor's Lehman Government/
Aggressive Growth Fund 500 Index Corporate Bond Index
---------------------- --------- --------------------
1996 $10,000 $10,000 $10,000
1997 $12,713 $13,663 $10,709
1998 $11,461 $14,901 $12,084
PAST PERFORMANCE OF THE FUND IS NOT INDICATIVE OF FUTURE PERFORMANCE.
ANNUALIZED PERFORMANCE SINCE
1 YEAR INCEPTION
- --------------------------------------------------------------------------------
Strategy Aggressive Growth Fund -9.85% 7.04%
- --------------------------------------------------------------------------------
S&P 500 9.06% 23.13%
- --------------------------------------------------------------------------------
Lehman Government/Corporate 12.84% 10.38%
- --------------------------------------------------------------------------------
Past performance of the fund is not indicative of future performance.
The inception date of the fund is 10/1/96. The performance reflected in the
graph begins on 10/31/96.
Performance reflects voluntary fee waivers in effect. In absence of such fee
waivers, total returns would be reduced.
9 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
INDEPENDENT
AUDITORS' REPORT SEPTEMBER 30, 1998
The Board of Directors and Shareholders
First American Strategy Funds, Inc.
We have audited the accompanying statements of net assets for the Income
Fund, Growth & Income Fund, Growth Fund, and Aggressive Growth Fund (funds
within First American Strategy Funds, Inc.) as of September 30, 1998, and
the related statements of operations, the statements of changes in net
assets and the financial highlights for each of the periods presented.
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. 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 financial
position of the Income Fund, Growth and Income Fund, Growth Fund, and
Aggressive Growth Fund as of September 30, 1998, and the results of their
operations, changes in their net assets and the financial highlights for
each of the periods presented, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 13, 1998
10 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
STATEMENTS OF
NET ASSETS SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
INCOME FUND GROWTH & INCOME FUND
DESCRIPTION SHARES VALUE (000) DESCRIPTION SHARES VALUE (000)
- ---------------------------------------------------------------- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIXED INCOME FUNDS - 70.5% EQUITY FUNDS - 48.5%
First American Investment Funds, Inc. First American Investment Funds, Inc.
Fixed Income Fund 5,620,784 $ 65,707 Emerging Markets Fund* 352,696 $ 1,982
Strategic Income Fund 1,788,099 16,576 International Fund 647,480 8,126
--------- Large Cap Growth Fund 1,429,606 23,303
TOTAL FIXED INCOME FUNDS Large Cap Value Fund 1,546,402 34,670
(Cost $80,570) 82,283 Mid Cap Growth Fund* 936,371 11,115
========= Mid Cap Value Fund 734,554 11,055
Small Cap Growth Fund* 446,873 5,353
EQUITY FUNDS - 26.3% Small Cap Value Fund 395,095 5,373
First American Investment Funds, Inc. --------
Equity Income Fund 1,548,931 24,380 TOTAL EQUITY FUNDS
Real Estate Securities Fund 516,617 6,297 (Cost $112,872) 100,977
--------- ========
TOTAL EQUITY FUNDS
(Cost $31,603) 30,677 FIXED INCOME FUNDS - 46.0% First American Investment Funds, Inc.
========= Fixed Income Fund 6,526,155 76,291
Strategic Income Fund 2,083,369 19,313
MONEY MARKET FUND - 3.1% First American Funds, Inc. --------
Prime Obligations Fund 3,635,052 3,635 TOTAL FIXED INCOME FUNDS
--------- (Cost $93,630) 95,604
TOTAL MONEY MARKET FUND ========
(Cost $3,635) 3,635
========= MONEY MARKET FUND - 5.5% First American Funds, Inc.
TOTAL INVESTMENTS - 99.9% Prime Obligations Fund 11,387,651 11,388
(Cost $115,808) 116,595 --------
========= (Cost $11,388) 11,388
Other Assets and Liabilities, Net - 0.1% 184 ========
--------- TOTAL INVESTMENTS - 100.0%
(Cost $217,890) 207,969
NET ASSETS: ========
Portfolio Capital - ($.01 par value - 20 Other Assets and Liabilities, Net - 0.0% (62)
billion authorized) based on --------
10,396,413 outstanding shares $ 113,071
Accumulated net realized gain on NET ASSETS:
investments 2,921 Portfolio Capital - ($.01 par value - 20
Net unrealized appreciation of billion authorized) based on
investments 787 18,757,143 outstanding shares $209,990
--------- Undistributed net investment income 43
TOTAL NET ASSETS - 100.0% $ 116,779 Accumulated net realized gain on
========= investments 7,795
NET ASSET VALUE, OFFERING PRICE, AND Net unrealized depreciation of
REDEMPTION PRICE PER SHARE $ 11.23 investments (9,921)
========= --------
TOTAL NET ASSETS -- 100.0% $207,907
========
NET ASSET VALUE, OFFERING PRICE, AND
REDEMPTION PRICE PER SHARE $ 11.08
========
*Currently non-income producing.
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
STATEMENTS OF
NET ASSETS SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
GROWTH FUND AGGRESSIVE GROWTH FUND
DESCRIPTION SHARES VALUE (000) DESCRIPTION SHARES VALUE (000)
- ---------------------------------------------------------------- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIXED INCOME FUNDS - 70.5% EQUITY FUNDS - 48.5%
First American Investment Funds, Inc. First American Investment Funds, Inc.
Emerging Markets Fund* 291,372 $ 1,637 Emerging Markets Fund* 553,102 $ 3,109
International Fund 366,583 4,601 International Fund 528,939 6,638
Large Cap Growth Fund 495,262 8,073 Large Cap Growth Fund 470,299 7,666
Large Cap Value Fund 535,677 12,010 Large Cap Value Fund 526,105 11,795
Mid Cap Growth Fund* 400,605 4,755 Mid Cap Growth Fund* 520,112 6,174
Mid Cap Value Fund 322,117 4,848 Mid Cap Value Fund 410,620 6,180
Small Cap Growth Fund* 192,010 2,300 Small Cap Growth Fund* 261,533 3,133
Small Cap Value Fund 170,112 2,314 Small Cap Value Fund 229,654 3,123
--------- --------
TOTAL EQUITY FUNDS TOTAL EQUITY FUNDS
(Cost $46,467) 40,538 (Cost $55,558) 47,818
========= ========
FIXED INCOME FUNDS - 30.8% FIXED INCOME FUNDS - 15.4%
First American Investment Funds, Inc. First American Investment Funds, Inc.
Fixed Income Fund 1,382,519 16,162 Fixed Income Fund 664,051 7,763
Strategic Income Fund 437,860 4,059 Strategic Income Fund 203,820 1,889
--------- --------
TOTAL FIXED INCOME FUNDS TOTAL FIXED INCOME FUNDS
(Cost $19,912) 20,221 (Cost $9,507) 9,652
========= ========
MONEY MARKET FUND - 7.4% MONEY MARKET FUND - 8.5%
First American Funds, Inc. First American Funds, Inc.
Prime Obligations Fund 4,873,313 4,873 Prime Obligations Fund 5,307,330 5,307
--------- --------
TOTAL MONEY MARKET FUND TOTAL MONEY MARKET FUND
(Cost $4,873) 4,873 (Cost $5,307) 5,307
========= ========
TOTAL INVESTMENTS - 100.0% TOTAL INVESTMENTS - 100.2%
(Cost $71,252) 65,632 (Cost $70,372) 62,777
========= ========
Other Assets and Liabilities, Net - 0.0% 24 Other Assets and Liabilities, Net - (0.2)% (142)
--------- --------
NET ASSETS: NET ASSETS:
Portfolio Capital - ($.01 par value - 20 Portfolio Capital - ($.01 par value - 20
billion authorized) based on billion authorized) based on
5,940,617 outstanding shares $ 68,807 5,639,787 outstanding shares $ 67,683
Undistributed net investment income 10 Undistributed net investment income 13
Accumulated net realized gain on investments 2,459 Accumulated net realized gain on investments 2,534
Net unrealized depreciation of investments (5,620) Net unrealized depreciation of investments (7,595)
--------- --------
TOTAL NET ASSETS - 100.0% $ 65,656 TOTAL NET ASSETS -- 100.0% $ 62,635
========= ========
NET ASSET VALUE, OFFERING PRICE, AND NET ASSET VALUE, OFFERING PRICE, AND
REDEMPTION PRICE PER SHARE $ 11.05 REDEMPTION PRICE PER SHARE $ 11.11
========= ========
*Currently non-income producing. *Currently non-income producing.
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
STATEMENTS OF
OPERATIONS FOR THE PERIOD ENDED SEPTEMBER 30, 1998 IN THOUSANDS
<TABLE>
<CAPTION>
GROWTH & AGGRESSIVE
INCOME FUND INCOME FUND GROWTH FUND GROWTH FUND
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income distributions from underlying funds $4,170 $ 6,331 $ 1,404 $ 1,071
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 4,170 6,331 1,404 1,071
=========================================================================================================
EXPENSES:
Investment advisory fees 214 480 136 140
Less: Waiver of investment advisory fees (214) (480) (136) (140)
Less: Reimbursement of expenses by adviser (295) (608) (213) (207)
Shareholder servicing fee 214 480 136 140
Administrator fees 94 211 60 62
Transfer agent fees 50 60 56 50
Amortization of organizational costs 4 4 4 4
Custodian fees 26 58 16 17
Directors' fees 2 3 1 1
Registration fees 78 143 44 43
Professional fees 25 74 18 17
Printing 13 48 12 11
Other 3 7 2 2
- ---------------------------------------------------------------------------------------------------------
TOTAL EXPENSES AFTER WAIVERS
AND REIMBURSEMENTS 214 480 136 140
=========================================================================================================
Investment income - net 3,956 5,851 1,268 931
- ---------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS
ON INVESTMENTS - NET:
Realized capital gain distributions received
from underlying funds 949 6,699 2,429 3,047
Net realized gain (loss) on investments 2,044 1,357 109 (487)
Net change in unrealized
depreciation of investments (577) (18,324) (8,431) (9,882)
- ---------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS 2,416 (10,268) (5,893) (7,322)
=========================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $6,372 $ (4,417) $ (4,625) $ (6,391)
=========================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
STATEMENTS OF
CHANGES IN NET ASSETS IN THOUSANDS
<TABLE>
<CAPTION>
INCOME FUND GROWTH & INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------
10/1/97 10/1/96 (2) 10/1/97 10/1/96 (2)
to to to to
9/30/98 9/30/97 9/30/98 9/30/97
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Investment income - net $ 3,956 $ 585 $ 5,851 $ 291
Realized capital gain distributions received from investments 949 11 6,699 52
Net realized gain (loss) on investments 2,044 12 1,357 201
Net change in unrealized appreciation (depreciation) of investments (577) 1,025 (18,324) 1,980
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 6,372 1,633 (4,417) 2,524
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment Income - net (3,956) (585) (5,809) (291)
Net realized gain on investments (86) (2) (315) (1)
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (4,042) (587) (6,124) (292)
=============================================================================================================================
CAPITAL SHARE TRANSACTIONS(1):
Proceeds from sales 116,106 43,502 121,119 33,212
Shares issued in connection with Qualivest merger 10,015 -- 139,897 --
Reinvestment of distributions 3,768 544 5,251 269
Payments for redemptions (51,559) (8,973) (75,384) (8,148)
- -----------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital share transactions 78,330 35,073 190,883 25,333
- -----------------------------------------------------------------------------------------------------------------------------
Total increase in net assets 80,660 36,119 180,342 27,565
NET ASSETS AT BEGINNING OF PERIOD 36,119 -- 27,565 --
=============================================================================================================================
NET ASSETS AT END OF PERIOD(3) $ 116,779 $ 36,119 $ 207,907 $ 27,565
=============================================================================================================================
(1)CAPITAL SHARE TRANSACTIONS:
Shares issued 10,424 4,152 10,267 3,057
Shares issued in connection with Qualivest merger 918 -- 12,099 --
Shares issued in lieu of cash distributions 337 52 447 24
Shares redeemed (4,620) (866) (6,400) (737)
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CAPITAL SHARES 7,059 3,338 16,413 2,344
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
<TABLE>
<CAPTION>
GROWTH FUND AGGRESSIVE GROWTH FUND
- ----------------------------------------------------
10/1/97 10/1/96 (2) 10/1/97 10/1/96 (2)
to to to to
9/30/98 9/30/97 9/30/98 9/30/97
- ----------------------------------------------------
<S> <C> <C> <C>
$ 1,268 $ 86 $ 931 $ 34
2,429 54 3,047 64
109 26 (487) 4
(8,431) 1,218 (9,882) 1,303
- ----------------------------------------------------
(4,625) 1,384 (6,391) 1,405
- ----------------------------------------------------
(1,257) (86) (918) (34)
(146) (1) (74) (1)
- ----------------------------------------------------
(1,403) (87) (992) (35)
====================================================
66,089 16,210 53,597 13,401
28,454 -- 32,858 --
1,320 83 966 33
(39,855) (1,914) (31,128) (1,079)
- ----------------------------------------------------
56,008 14,379 56,293 12,355
- ----------------------------------------------------
49,980 15,676 48,910 13,725
15,676 -- 13,725 --
====================================================
$ 65,656 $ 15,676 $ 62,635 $ 13,725
====================================================
5,431 1,462 4,257 1,188
2,408 -- 2,705 --
111 7 79 3
(3,302) (176) (2,492) (100)
- ----------------------------------------------------
4,648 1,293 4,549 1,091
====================================================
</TABLE>
(2) Commenced operations on October 1, 1996.
(3) Includes undistributed net investment income (000) of $0 and $0 for Income
Fund, $43 and $0 for Growth & Income Fund,$10 and $0 for Growth Fund, and
$13 and $0 for Aggressive Growth Fund at September 30, 1998 and September
30, 1997, respectively.
15 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
FINANCIAL HIGHLIGHTS FOR THE YEARS ENDED SEPTEMBER 30
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET ASSET REALIZED AND DIVIDENDS
VALUE NET UNREALIZED FROM NET DISTRIBUTIONS
BEGINNING INVESTMENT GAINS ON INVESTMENT FROM CAPITAL
OF PERIOD INCOME INVESTMENTS INCOME GAINS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME FUND
1998 $ 10.82 $ 0.50 $ 0.43 $ (0.50) $ (0.02)
1997(1) $ 10.00 $ 0.41 $ 0.82 $ (0.41) --
GROWTH & INCOME FUND
1998 $ 11.76 $ 0.35 $ (0.59) $ (0.35) $ (0.09)
1997(1) $ 10.00 $ 0.26 $ 1.76 $ (0.26) --
GROWTH FUND
1998 $ 12.12 $ 0.28 $ (0.98) $ (0.28) $ (0.09)
1997(1) $ 10.00 $ 0.18 $ 2.12 $ (0.18) --
AGGRESSIVE GROWTH FUND
1998 $ 12.58 $ 0.20 $ (1.42) $ (0.20) $ (0.05)
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.
16 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
<TABLE>
<CAPTION>
RATIO OF
RATIO OF RATIO OF NET EXPENSES TO
NET ASSET EXPENSES TO INVESTMENT AVERAGE
VALUE NET ASSETS AVERAGE INCOME TO NET ASSETS
END OF TOTAL END OF NET AVERAGE (EXCLUDING PORTFOLIO
PERIOD RETURN PERIOD (000) ASSETS(2) NET ASSETS WAIVERS)(2) TURNOVER
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 11.23 8.72% $116,779 0.25% 4.63% 0.84% 106%
$ 10.82 12.51%+ $ 36,119 0.60% 4.39% 2.00% 29%
$ 11.08 (2.18)% $207,907 0.25% 3.05% 0.82% 158%
$ 11.76 20.47%+ $ 27,565 0.60% 2.59% 2.10% 37%
$ 11.05 (5.95)% $ 65,656 0.25% 2.33% 0.89% 143%
$ 12.12 23.23%+ $ 15,676 0.60% 1.61% 2.62% 6%
$ 11.11 (9.85)% $ 62,635 0.25% 1.66% 0.87% 152%
$ 12.58 27.06%+ $ 13,725 0.60% 0.76% 2.85% 7%
- --------------------------------------------------------------------------------------------
</TABLE>
17 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
NOTES TO
FINANCIAL STATEMENTS SEPTEMBER 30, 1998
1 ORGANIZATION
The Income Fund, Growth & Income Fund, Growth Fund, and Aggressive Growth
Fund (collectively, the "Funds") are mutual funds offered by First
American Strategy Funds, Inc. ("FASF"). FASF is registered under the
Investment Company Act of 1940, as amended, as an open-end investment
management 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 Funds'
prospectus provides a description of each Fund's, and each underlying
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 3:00 pm 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.
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 Funds 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 Advisor) manages each Fund's assets and
furnishes related office facilities, equipment, research and personnel.
The Agreement requires each Fund to pay the Advisor 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 Advisor
waived their entire fee, and reimbursed the Funds for additional expenses,
during the current period. Such waivers are voluntary and may be
discontinued at any time.
Through a separate contractual agreement, U.S. Bank National Association,
an affiliate of the Advisor, serves as the Funds' custodian.
18 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
SEI Investments Distribution Co. (SIDCO) and SEI Investments Management
Corporation (SIMC) serve as distributor and administrator of the Funds,
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. Under this
agreement, SIDCO paid $364,000 to Var & Company, an affiliate of U.S.
Bank, for the period ended September 30, 1998. SIDCO 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. To the extent that the aggregate net assets of all the
First American Family of Funds exceeds $8 billion, the percentage stated
above is reduced to 0.105% for their relative share of the excess net
assets. U.S. Bank assists the Administrator and provides
sub-administration services for the Funds. For these services, the
Administrator compensates the sub-administrator at an annual rate of up to
0.05% of each Fund's average daily net assets. The fees for the year ended
September 30, 1998 were approximately 0.022% of average daily net assets.
Under this agreement, SIMC paid $78,000 to U.S. Bank for the period ended
September 30, 1998.
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. 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, 1998, 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 year ended September 30, 1998, 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 $115,912 $ 82,520
Growth & Income Fund 248,828 222,186
Growth Fund 92,186 63,807
Aggressive Growth Fund 93,739 68,687
--------------------------------------------------------------------------
At September 30, 1998, 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 September 30, 1998, is as
follows (000):
AGGREGATE GROSS AGGREGATE GROSS
APPRECIATION DEPRECIATION NET
-------------------------------------------------------------------------
Income Fund $3,228 $ (2,441) $ 787
Growth & Income Fund 4,132 (14,053) (9,921)
Growth Fund 785 (6,405) (5,620)
Aggressive Growth Fund 615 (8,210) (7,595)
-------------------------------------------------------------------------
19 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
NOTES TO
FINANCIAL STATEMENTS SEPTEMBER 30, 1998
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.
6 MERGERS
On November 21, 1997, the following reorganization of certain Qualivest
Funds into FASF took place pursuant to a Plan of Reorganization approved
by the Qualivest shareholders on October 31, 1997:
QUALIVEST ACQUIRED FUND FASF ACQUIRING FUND
--------------------------------------------------------------------------
Allocated Conservative Fund Income Fund
Allocated Balanced Fund Growth & Income Fund
Allocated Growth Fund Growth Fund
Allocated Aggressive Fund Aggressive Growth Fund
--------------------------------------------------------------------------
The acquisition was 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 Agreement and Plan of
Reorganization, Qualivest Class A and Y shares were exchanged for shares
of FASF.
The net assets prior to reorganization, and shares issued by the
corresponding FASF funds were as follows:
FUND NET ASSETS SHARES ISSUED
--------------------------------------------------------------------------
Income Fund $54,025,309 917,583
Growth & Income Fund 43,382,026 12,099,422
Growth Fund 20,092,972 2,408,353
Aggressive Growth Fund 17,779,318 2,704,646
--------------------------------------------------------------------------
Included in the net assets from the Qualivest Funds were the following
components:
<TABLE>
<CAPTION>
UNDISTRIBUTED
(DISTRIBUTIONS IN NET
EXCESS OF) NET ACCUMULATED NET UNREALIZED NET
FUND PAID IN CAPITAL INVESTMENT INCOME REALIZED LOSS GAIN ASSETS
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allocated Conservative $ 9,682,921 $ (7) $ (7,224) $ 339,641 $ 10,015,331
Allocated Balanced 133,671,156 -- (197,753) 6,423,738 139,897,141
Allocated Growth 26,873,290 -- (11,592) 1,592,565 28,454,263
Allocated Aggressive 31,892,422 1 (18,518) 984,458 32,858,363
----------------------------------------------------------------------------------------------------------
</TABLE>
On November 21, 1997 the shares redeemed by the corresponding Qualivest
Funds were as follows:
QUALIVEST ACQUIRED FUND SHARES REDEEMED
--------------------------------------------------------------------------
Allocated Conservative 988,240
Allocated Balanced 12,938,277
Allocated Growth 2,540,239
Allocated Aggressive 2,951,493
--------------------------------------------------------------------------
20 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
NOTICE TO
SHAREHOLDERS SEPTEMBER 30, 1998
THE INFORMATION SET FORTH BELOW IS FOR EACH FUND'S FISCAL YEAR AS REQUIRED
BY FEDERAL LAW. SHAREHOLDERS, HOWEVER, MUST REPORT DISTRIBUTIONS ON A
CALENDAR YEAR BASIS FOR INCOME TAX PURPOSES THAT MAY INCLUDE DISTRIBUTIONS
FOR PORTIONS OF TWO FISCAL YEARS OF A FUND. ACCORDINGLY, THE INFORMATION
NEEDED BY SHAREHOLDERS FOR INCOME TAX PURPOSES WILL BE SENT TO THEM IN
EARLY 1999. PLEASE CONSULT YOUR TAX ADVISER FOR PROPER TREATMENT OF THIS
INFORMATION.
Dear First American Strategy Fund Shareholders:
For the fiscal year ended September 30, 1998, each fund has designated
long-term capital gains and exempt income with regard to distributions
paid during the year as follows:
<TABLE>
<CAPTION>
LONG TERM MEDIUM TERM ORDINARY
CAPITAL GAINS CAPITAL GAINS INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS QUALIFYING
FUND (TAX BASIS) (TAX BASIS) (TAX BASIS) (TAX BASIS) DIVIDENDS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Fund 0.00% 0.16% 99.84% 100.00% 9.00%
Growth & Income Fund 0.00 0.48 99.52 100.00 3.71
Growth Fund 0.00 5.23 94.77 100.00 4.97
Aggressive Growth Fund 0.00 3.01 96.99 100.00 4.68
- ------------------------------------------------------------------------------------------------------
</TABLE>
21 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
(This page has been left blank intentionally.)
22 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
(This page has been left blank intentionally.)
23 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
(This page has been left blank intentionally.)
24 '98 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
FIRST AMERICAN STRATEGY FUNDS, INC.
BOARD OF DIRECTORS
MR. DAVID BENNETT
Director of the First American Strategy Funds, Inc.
Of counsel with Gray, Plant, Mooty, Mooty and Bennett,
Owner of three privately-held businesses
- -------------------------------------------------------------------------------
MR. ROBERT DAYTON
Director of the First American Strategy Funds, Inc.
Chief Executive Officer of Okabena Company
- -------------------------------------------------------------------------------
MR. ROGER GIBSON
Director of the First American Strategy Funds, Inc.
Vice President of North America-Mountain Region for United Airlines
- -------------------------------------------------------------------------------
MR. ANDREW HUNTER III
Director of the First American Strategy Funds, Inc.
Chairman of Hunter Keith Industries
- -------------------------------------------------------------------------------
MR. LEONARD KEDROWSKI
Director of the First American Strategy Funds, Inc.
Owner and President of Executive Management Consulting, Inc.
- -------------------------------------------------------------------------------
MR. ROBERT SPIES
Director of the First American Strategy Funds, Inc.
Retired Vice President, U.S. Bank National Association
- -------------------------------------------------------------------------------
MR. JOSEPH STRAUSS
Director of the First American Strategy Funds, Inc.
Former Chairman of First American Funds,
Owner and President of Strauss Management Company
- -------------------------------------------------------------------------------
MS. VIRGINIA STRINGER
Chairman of the First American Strategy Funds, Inc.
Owner and President of Strategic Management Resources, Inc.
- -------------------------------------------------------------------------------
<PAGE>
FIRST AMERICAN STRATEGY FUNDS, INC.
1 Freedom Valley Drive
Oaks, Pennsylvania 19456
INVESTMENT ADVISOR
FIRST AMERICAN ASSET MANAGEMENT,
A DIVISION OF U.S. BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, Minnesota 55402
CUSTODIAN
U.S. BANK 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.
330 West Ninth 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.
The performance data quoted represents past performance. The principal value of
an investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
- --------------------------------------------------------------------------------
[LOGO] FIRST AMERICAN
THE POWER OF DISCIPLINED INVESTING(R)*
