FIRST AMERICAN
STRATEGY FUNDS, INC.
STRATEGY
FUNDS
1999 SEMIANNUAL REPORT
[LOGO] FIRST AMERICAN
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
FIRST AMERICAN FAMILY OF FUNDS INVESTMENTS FOR EVERY GOAL
- ------------------------ FIRST AMERICAN FUNDS OFFER A FULL RANGE OF
HIGHER RISK/RETURN INVESTMENT STRATEGIES TO HELP YOU CREATE A
POTENTIAL PERSONALIZED, DIVERSIFIED PORTFOLIO. SUPPORTED
- ------------------------ BY EXTENSIVE RESEARCH AND A HIGHLY DEVELOPED
TEAM APPROACH TO INVESTMENT DECISION
SECTOR FUNDS MAKING, FIRST AMERICAN FUNDS CAN HELP BUILD
A WINNING STRATEGY FOR ANY INVESTOR.
INTERNATIONAL 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
- ------------------------
TABLE OF
CONTENTS
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MESSAGE TO SHAREHOLDERS 1
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STATEMENTS OF NET ASSETS 3
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STATEMENTS OF OPERATIONS 5
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STATEMENTS OF CHANGES IN NET ASSETS 6
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FINANCIAL HIGHLIGHTS 8
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NOTES TO FINANCIAL STATEMENTS 10
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NOTICE TO SHAREHOLDERS 14
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NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
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<PAGE>
MESSAGE TO SHAREHOLDERS MAY 14, 1999
DEAR SHAREHOLDERS:
On behalf of the entire board of directors and management of First American
Asset Management, we are pleased to welcome all new fund shareholders and to
thank our long-term shareholders for your continued support.
The economic environment has changed dramatically since September 30, the
date of our last shareholder update. At that time, worried investors drove the
Dow Jones Industrial Average down 20 percent, fueled by fears of an economic
crisis overseas. Some economists even predicted that problems in Asia could
ultimately send the U.S. economy into a recession.
Since then, the Dow has staged a non-stop rally, rising more than 2,000
points to surpass the 10,000 barrier. Many Asian nations have partially
recovered from their financial crises, while the U.S. economy continues to
expand at an unprecedented rate. Thanks to low unemployment, low inflation,
stable interest rates and strong consumer spending, it is business as usual for
our robust economy.
No one can predict with certainty such a spectacular market movement.
That's why we believe that successful long-term investing results from asset
allocation among equity, bond and money market funds. In increasingly volatile
markets, a well-balanced portfolio may cushion you against unfavorable
developments affecting any particular investment style or asset class. In short,
an asset allocation plan can help smooth out market fluctuations to produce more
consistent returns year after year.
As an investor in First American Strategy Funds, you have the benefits of
asset allocation and professional portfolio management in a single investment
choice. First American Strategy Funds are designed to meet your investment
goals, time horizons and risk tolerance criteria. Each Strategy Fund is divided
among a range of asset classes to help protect its value from the effect of
sudden changes in any one type of investment or asset class. In addition,
Strategy Funds are evaluated periodically to ensure that they maintain their
desired asset allocation even though market conditions may have changed.
1 '99 SEMIANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
MESSAGE TO SHAREHOLDERS CONTINUED
In closing, we are pleased to announce that the First American family of
funds recently surpassed $30 billion in total assets -- a significant milestone
which illustrates the broad appeal of our team approach to management and our
commitment to disciplined investment processes.
Again, thank you for your confidence in our fund family. We look forward
to continuing to serve your investment needs.
Sincerely,
/s/ Virginia L. Stringer
VIRGINIA L. STRINGER
Chairman
First American Strategy Funds, Inc.
/s/ James S. Doak
JAMES S. DOAK
Senior Managing Director, Equities
First American Asset Management
/s/ Paul A. Dow
PAUL A. DOW
Senior Managing Director, Fixed Income
First American Asset Management
2 '99 SEMIANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
STATEMENTS OF
NET ASSETS MARCH 31, 1999 (UNAUDITED)
AGGRESSIVE GROWTH FUND
DESCRIPTION SHARES VALUE (000)
- -------------------------------------------------------------------------------
EQUITY FUNDS - 84.1%
First American Investment Funds, Inc.
Emerging Markets Fund* 623,328 $ 3,734
International Fund 572,582 7,856
Large Cap Growth Fund 467,324 9,029
Large Cap Value Fund 602,391 13,686
Mid Cap Growth Fund* 612,175 7,469
Mid Cap Value Fund 573,716 7,447
Small Cap Growth Fund* 259,720 3,883
Small Cap Value Fund 305,158 3,692
---------
TOTAL EQUITY FUNDS
(Cost $60,414) 56,796
---------
FIXED INCOME FUNDS - 14.4%
First American Investment Funds, Inc.
Fixed Income Fund 696,761 7,699
Strategic Income Fund 213,834 2,029
---------
TOTAL FIXED INCOME FUNDS
(Cost $9,989) 9,728
---------
MONEY MARKET FUND - 1.5%
First American Funds, Inc.
Prime Obligations Fund 1,017,186 1,017
---------
TOTAL MONEY MARKET FUND
(Cost $1,017) 1,017
---------
TOTAL INVESTMENTS - 100.0%
(Cost $71,420) 67,541
---------
OTHER ASSETS AND LIABILITIES, NET - (0.0)% (11)
---------
NET ASSETS:
Portfolio Capital - ($.01 par value - 20
billion authorized) based on
5,764,592 outstanding shares $ 69,164
Undistributed net investment income 275
Accumulated net realized gain on
investments 1,970
Net unrealized depreciation of
investments (3,879)
---------
TOTAL NET ASSETS - 100.0% $ 67,530
---------
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE $ 11.71
---------
*Currently non-income producing.
GROWTH FUND
DESCRIPTION SHARES VALUE (000)
- -------------------------------------------------------------------------------
EQUITY FUNDS - 69.2%
First American Investment Funds, Inc.
Emerging Markets Fund* 365,741 $ 2,191
International Fund 517,215 7,096
Large Cap Growth Fund 608,027 11,747
Large Cap Value Fund 767,392 17,435
Mid Cap Growth Fund* 620,901 7,575
Mid Cap Value Fund 582,192 7,557
Small Cap Growth Fund* 236,404 3,534
Small Cap Value Fund 286,822 3,471
---------
TOTAL EQUITY FUNDS
(Cost $63,204) 60,606
---------
FIXED INCOME FUNDS - 29.4%
First American Investment Funds, Inc.
Fixed Income Fund 1,849,596 20,438
Strategic Income Fund 560,675 5,321
---------
TOTAL FIXED INCOME FUNDS
(Cost $26,433) 25,759
---------
MONEY MARKET FUND - 1.1%
First American Funds, Inc.
Prime Obligations Fund 927,949 928
---------
TOTAL MONEY MARKET FUND
(Cost $928) 928
---------
TOTAL INVESTMENTS - 99.7%
(Cost $90,565) 87,293
---------
OTHER ASSETS AND LIABILITIES, NET - 0.3% 284
---------
NET ASSETS:
Portfolio Capital - ($.01 par value - 20
billion authorized) based on
7,627,345 outstanding shares $ 88,044
Undistributed net investment income 299
Accumulated net realized gain on
investments 2,506
Net unrealized depreciation of
investments (3,272)
---------
TOTAL NET ASSETS - 100.0% $ 87,577
---------
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE $ 11.48
---------
*Currently non-income producing.
The accompanying notes are an integral part of the financial statements.
3 '99 SEMIANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
STATEMENTS OF
NET ASSETS MARCH 31, 1999 (UNAUDITED)
GROWTH & INCOME FUND
DESCRIPTION SHARES VALUE (000)
- -------------------------------------------------------------------------------
EQUITY FUNDS - 52.0%
First American Investment Funds, Inc.
Emerging Markets Fund* 338,007 $ 2,025
International Fund 680,495 9,336
Large Cap Growth Fund 1,273,865 24,611
Large Cap Value Fund 1,647,599 37,433
Mid Cap Growth Fund* 1,039,143 12,678
Mid Cap Value Fund 953,118 12,372
Small Cap Growth Fund* 423,763 6,335
Small Cap Value Fund 501,478 6,068
---------
TOTAL EQUITY FUNDS
(Cost $113,669) 110,858
---------
FIXED INCOME FUNDS - 42.0%
First American Investment Funds, Inc.
Fixed Income Fund 6,467,942 71,471
Strategic Income Fund 1,907,177 18,099
---------
TOTAL FIXED INCOME FUNDS
(Cost $91,435) 89,570
---------
MONEY MARKET FUND - 0.7%
First American Funds, Inc.
Prime Obligations Fund 1,476,092 1,476
---------
TOTAL MONEY MARKET FUNDS
(Cost $1,476) 1,476
---------
TOTAL INVESTMENTS - 94.7%
(Cost $206,580) 201,904
---------
OTHER ASSETS AND LIABILITIES, NET - 5.3%(A) 11,365
---------
NET ASSETS:
Portfolio Capital - ($.01 par value - 20
billion authorized) based on
18,819,791 outstanding shares $ 210,642
Undistributed net investment income 684
Accumulated net realized gain on
investments 6,619
Net unrealized depreciation of
investments (4,676)
---------
TOTAL NET ASSETS - 100.0% $ 213,269
---------
NET ASSET VALUE, OFFERING PRICE, AND
REDEMPTION PRICE PER SHARE $ 11.33
---------
* Currently non-income producing.
(A)Other assets and liabilities representing greater than five percent of total
net assets include the following (000): Receivable for shares sold, $11,947
INCOME FUND
DESCRIPTION SHARES VALUE (000)
- -------------------------------------------------------------------------------
FIXED INCOME FUNDS - 69.4%
First American Investment Funds, Inc.
Fixed Income Fund 5,594,227 $ 61,816
Strategic Income Fund 1,672,671 15,873
---------
TOTAL FIXED INCOME FUNDS
(Cost $79,258) 77,689
---------
EQUITY FUNDS - 29.8%
First American Investment Funds, Inc.
Equity Income Fund 1,567,155 26,532
Real Estate Securities Fund 616,546 6,850
---------
TOTAL EQUITY FUNDS
(Cost $33,087) 33,382
---------
MONEY MARKET FUND - 0.8%
First American Funds, Inc.
Prime Obligations Fund 873,834 874
---------
TOTAL MONEY MARKET FUND
(Cost $874) 874
---------
TOTAL INVESTMENTS - 100.0%
(Cost $113,219) 111,945
---------
OTHER ASSETS AND LIABILITIES, NET - 0.0% 29
---------
NET ASSETS:
Portfolio Capital - ($.01 par value - 20
billion authorized) based on
10,279,597 outstanding shares $ 111,825
Undistributed net investment income 321
Accumulated net realized gain on
investments 1,102
Net unrealized depreciation of
investments (1,274)
---------
TOTAL NET ASSETS - 100.0% $ 111,974
---------
NET ASSET VALUE, OFFERING PRICE, AND
REDEMPTION PRICE PER SHARE $ 10.89
---------
The accompanying notes are an integral part of the financial statements.
4 '99 SEMIANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
STATEMENTS OF
OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 1999, (UNAUDITED) IN THOUSANDS
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH &
GROWTH FUND GROWTH FUND INCOME FUND INCOME FUND
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income distributions received from
underlying funds $ 557 $ 986 $ 3,281 $ 2,937
- -------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 557 986 3,281 2,937
=======================================================================================================
EXPENSES:
Investment advisory fees 85 100 261 144
Less: Waiver of investment advisory fees (85) (100) (261) (144)
Less: Reimbursement of expenses by adviser (119) (137) (277) (178)
Shareholder servicing fee 85 100 261 144
Administrator fees 37 44 113 63
Transfer agent fees 37 43 42 45
Custodian fees 10 12 31 17
Directors' fees 1 1 2 1
Registration fees 19 22 49 29
Professional fees 10 13 32 18
Printing 6 7 19 10
Other 3 3 5 4
- -------------------------------------------------------------------------------------------------------
TOTAL EXPENSES AFTER WAIVERS
AND REIMBURSEMENTS 89 108 277 153
=======================================================================================================
Investment income - net 468 878 3,004 2,784
- -------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS
ON INVESTMENTS - NET:
Capital gain distributions received
from underlying funds 5,875 5,503 14,153 2,214
Net realized gain (loss) on investments (1,503) (757) (2,235) 255
Net change in unrealized appreciation
(depreciation) of investments 3,716 2,348 5,245 (2,061)
- -------------------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS 8,088 7,094 17,163 408
=======================================================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 8,556 $ 7,972 $ 20,167 $ 3,192
=======================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
5 '99 SEMIANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
STATEMENTS OF
CHANGES IN NET ASSETS IN THOUSANDS
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND GROWTH FUND
- --------------------------------------------------------------------------------------------------------------------------------
10/1/98 10/1/97 10/1/98 10/1/97
to to to to
3/31/99 9/30/98 3/31/99 9/30/98
(unaudited) (unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Investment income - net $ 468 $ 931 $ 878 $ 1,268
Capital gain distributions received from underlying funds 5,875 3,047 5,503 2,429
Net realized gain (loss) on investments (1,503) (487) (757) 109
Net change in unrealized appreciation (depreciation) of investments 3,716 (9,882) 2,348 (8,431)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 8,556 (6,391) 7,972 (4,625)
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment Income - net (206) (918) (589) (1,257)
Net realized gain on investments (4,936) (74) (4,699) (146)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (5,142) (992) (5,288) (1,403)
================================================================================================================================
CAPITAL SHARE TRANSACTIONS(1):
Proceeds from sales 19,393 53,597 31,552 66,089
Shares issued in connection with Qualivest merger -- 32,858 -- 28,454
Reinvestment of distributions 5,126 966 4,925 1,320
Payments for redemptions (23,038) (31,128) (17,240) (39,855)
- --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share transactions 1,481 56,293 19,237 56,008
- --------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 4,895 48,910 21,921 49,980
NET ASSETS AT BEGINNING OF PERIOD 62,635 13,725 65,656 15,676
================================================================================================================================
NET ASSETS AT END OF PERIOD(2) $ 67,530 $ 62,635 $ 87,577 $ 65,656
================================================================================================================================
(1)CAPITAL SHARE TRANSACTIONS:
Shares issued 1,654 4,257 2,765 5,431
Shares issued in connection with Qualivest merger -- 2,705 -- 2,408
Shares issued in lieu of cash distributions 449 79 437 111
Shares redeemed (1,978) (2,492) (1,516) (3,302)
- --------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CAPITAL SHARES 125 4,549 1,686 4,648
================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
6 '99 SEMIANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
<TABLE>
<CAPTION>
GROWTH & INCOME FUND INCOME FUND
- -----------------------------------------------------------
10/1/98 10/1/97 10/1/98 10/1/97
to to to to
3/31/99 9/30/98 3/31/99 9/30/98
(unaudited) (unaudited)
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
$ 3,004 $ 5,851 $ 2,784 $ 3,956
14,153 6,699 2,214 949
(2,235) 1,357 255 2,044
5,245 (18,324) (2,061) (577)
- -----------------------------------------------------------
20,167 (4,417) 3,192 6,372
- -----------------------------------------------------------
(2,363) (5,809) (2,463) (3,956)
(13,094) (315) (4,288) (86) (2)Includes undistributed net
- ----------------------------------------------------------- investment income (000) of $275
(15,457) (6,124) (6,751) (4,042) and $13 for Aggressive Growth
=========================================================== Fund, $299 and $10 for Growth
Fund, $684 and $43 for Growth &
48,125 121,119 36,587 116,106 Income Fund, and $321 and $0
-- 139,897 -- 10,015 for Income Fund at March 31,
13,378 5,251 6,447 3,768 1999, and September 30, 1998,
(60,851) (75,384) (44,280) (51,559) respectively.
- -----------------------------------------------------------
652 190,883 (1,246) 78,330
- -----------------------------------------------------------
5,362 180,342 (4,805) 80,660
207,907 27,565 116,779 36,119
===========================================================
$ 213,269 $ 207,907 $ 111,974 $ 116,779
===========================================================
4,255 10,267 3,317 10,424
-- 12,099 -- 918
1,199 447 588 337
(5,391) (6,400) (4,021) (4,620)
- -----------------------------------------------------------
63 16,413 (116) 7,059
===========================================================
</TABLE>
7 '99 SEMIANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING, THROUGHOUT THE PERIODS ENDED
SEPTEMBER 30, UNLESS OTHERWISE INDICATED.
<TABLE>
<CAPTION>
NET ASSET REALIZED AND DIVIDENDS
VALUE NET UNREALIZED FROM NET DISTRIBUTIONS
BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT FROM CAPITAL
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AGGRESSIVE GROWTH FUND
1999* (unaudited) $ 11.11 $ 0.18 $ 1.35 $ (0.13) $ (0.80)
1998 12.58 0.20 (1.42) (0.20) (0.05)
1997(1) 10.00 0.11 2.58 (0.11) --
GROWTH FUND
1999* (unaudited) $ 11.05 $ 0.21 $ 1.08 $ (0.17) $ (0.69)
1998 12.12 0.28 (0.98) (0.28) (0.09)
1997(1) 10.00 0.18 2.12 (0.18) --
GROWTH & INCOME FUND
1999* (unaudited) $ 11.08 $ 0.24 $ 0.84 $ (0.21) $ (0.62)
1998 11.76 0.35 (0.59) (0.35) (0.09)
1997(1) 10.00 0.26 1.76 (0.26) --
INCOME FUND
1999* (unaudited) $ 11.23 $ 0.32 $ (0.02) $ (0.29) $ (0.35)
1998 10.82 0.50 0.43 (0.50) (0.02)
1997(1) 10.00 0.41 0.82 (0.41) --
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* For the six months ended March 31, 1999. All ratios for the period have been
annualized.
+ Returns are for the period indicated and have not been annualized.
(1)Commenced operations on October 1, 1996.
(2)Expense ratios do not include expenses of the underlying Funds.
(3)Annualized
The accompanying notes are an integral part of the financial statements.
8 '99 SEMIANNUAL 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>
$11.71 14.07%+ $ 67,530 0.27% 1.38% 0.86% 23%
11.11 (9.85) 62,635 0.25 1.66 0.87 152
12.58 27.06+ 13,725 0.60(3) 0.76(3) 2.85(3) 7
$11.48 11.93%+ $ 87,577 0.27% 2.19% 0.86% 15%
11.05 (5.95) 65,656 0.25 2.33 0.89 143
12.12 23.23+ 15,676 0.60(3) 1.61(3) 2.62(3) 6
$11.33 9.99%+ $213,269 0.27% 2.88% 0.78% 25%
11.08 (2.18) 207,907 0.25 3.05 0.82 158
11.76 20.47+ 27,565 0.60(3) 2.59(3) 2.10(3) 37
$10.89 2.74%+ $111,974 0.27% 4.84% 0.82% 16%
11.23 8.72 116,779 0.25 4.63 0.84 106
10.82 12.51+ 36,119 0.60(3) 4.39(3) 2.00(3) 29
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
9 '99 SEMIANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
NOTES TO
FINANCIAL STATEMENTS MARCH 31, 1999 (UNAUDITED)
1 ORGANIZATION
The Aggressive Growth Fund, Growth Fund, Growth & Income Fund, and Income 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.
DISTRIBUTIONS TO SHAREHOLDERS - The Funds declare and pay income dividends
monthly. Any net realized capital gains on sales of securities for each Fund are
distributed to shareholders at least annually.
FEDERAL TAXES - It is each Fund's intention to qualify as a regulated investment
company and to distribute all of its taxable income. Accordingly, no provision
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 - The Funds record security
transactions 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 allocated to
the Funds on the basis of relative net asset value.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The preparation of
financial statements, in conformity with generally accepted accounting
principles, requires management to make estimates and assumptions that affect
the reported amount of net assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
results of operations during the reporting period. Actual results could differ
from those estimates.
10 '99 SEMIANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
3 FEES AND EXPENSES
ADVISORY FEES - 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 its entire fee, and
reimbursed the Funds for additional expenses, during the six months ended March
31, 1999. Such waivers are voluntary and may be discontinued at any time.
ADMINISTRATION FEES - SEI Investments Management Corporation (SIMC) 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 annual rate of each Fund is reduced to 0.105% for
their relative share of the excess net assets.
SUBADMINISTRATION FEES - U.S. Bank National Association 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. Under this agreement,
for the six months ended March 31, 1999, SIMC paid $58,000 to U.S. Bank National
Association, for the Funds included in this report. The fees for the six months
ended March 31, 1999, were approximately equal to an annual rate of 0.025% of
average daily net assets.
CUSTODIAN FEES - Through a separate contractual agreement, U.S. Bank National
Association serves as the Funds' custodian. The fee for each fund is equal to an
annual rate of .03% of average daily net assets which is computed daily and paid
monthly.
DISTRIBUTION FEES - SEI Investments Distribution Co. (SIDCO) serves as
distributor of the Funds. 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
the shares of each Fund, which is computed daily and paid monthly. Under this
agreement, SIDCO paid the following amounts to affiliates of U.S. Bank National
Association, for the period ended March 31, 1999 (000):
- --------------------------------------------------------------------------------
U.S. Bancorp Piper Jaffray $ 10
U.S. Bank National Association 262
Var & Co. 213
- --------------------------------------------------------------------------------
REDEMPTION FEES - Each fund imposes a redemption fee of 1% on redemptions made
within 12 months of purchase. This fee, which is intended to discourage
short-term trading, is paid to the Fund. For the six months ended March 31,
1999, redemption fees paid to the Funds were as follows (000):
- --------------------------------------------------------------------------------
Aggressive Growth Fund $ 4
Growth Fund --
Growth & Income Fund --
Income Fund --
- --------------------------------------------------------------------------------
TRANSFER AGENT FEES - DST Systems, Inc. provides transfer agency services for
the Funds. Effective October 1, 1998, FASF appointed U.S. Bank National
Association as servicing agent to perform certain transfer agent and dividend
disbursing agent services
11 '99 SEMIANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
NOTES TO
FINANCIAL STATEMENTS MARCH 31, 1999 (UNAUDITED)
with respect to the shares of the Funds held through accounts at U.S. Bank
National Association and its affiliates. For the six months ended March 31,
1999, fees paid to U.S. Bank National Association for such services were as
follows (000):
- --------------------------------------------------------------------------------
Aggressive Growth Fund $1
Growth Fund 1
Growth & Income Fund 1
Income Fund 1
- --------------------------------------------------------------------------------
OTHER FEES - 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 six months ended March 31, 1999, legal fees and expenses were paid to a
law firm of which the Secretary of the Funds is a partner.
4 INVESTMENT SECURITY TRANSACTIONS
During the six months ended March 31, 1999, purchases of securities and proceeds
from sales of securities, other than temporary investments in short-term
securities were as follows (000):
PURCHASES SALES
- --------------------------------------------------------------------------------
Aggressive Growth Fund $21,682 $14,841
Growth Fund 35,532 11,517
Growth & Income Fund 51,942 51,105
Income Fund 18,163 18,246
- --------------------------------------------------------------------------------
At March 31, 1999, the total cost of securities for Federal income tax purposes,
was not materially different from amounts reported for financial reporting
purposes. The aggregate gross unrealized appreciation and depreciation for
securities held by the Funds at March 31, 1999, is as follows (000):
AGGREGATE GROSS AGGREGATE GROSS
APPRECIATION DEPRECIATION NET
- --------------------------------------------------------------------------------
Aggressive Growth Fund $1,693 $ (5,572) $ (3,879)
Growth Fund 2,162 (5,434) (3,272)
Growth & Income Fund 5,248 (9,924) (4,676)
Income Fund 1,536 (2,810) (1,274)
- --------------------------------------------------------------------------------
5 QUALIVEST MERGER
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 Aggressive Fund Aggressive Growth Fund
Allocated Growth Fund Growth Fund
Allocated Balanced Fund Growth & Income Fund
Allocated Conservative Fund Income Fund
- --------------------------------------------------------------------------------
12 '99 SEMIANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
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 class-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
- --------------------------------------------------------------------------------
Aggressive Growth Fund $17,779,318 2,704,646
Growth Fund 20,092,972 2,408,353
Growth & Income Fund 43,382,026 12,099,422
Income Fund 54,025,309 917,583
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
13 '99 SEMIANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
NOTICE TO
SHAREHOLDERS MARCH 31, 1999
ON SEPTEMBER 9, 1998, THE FUNDS' BOARD OF DIRECTORS, UPON THE RECOMMENDATION OF
THE AUDIT COMMITTEE, APPOINTED ERNST & YOUNG LLP THE INDEPENDENT ACCOUNTANTS FOR
THE FUNDS' FISCAL YEAR ENDING SEPTEMBER 30, 1999, AND DISMISSED KPMG PEAT
MARWICK LLP ("KPMG"). KPMG'S REPORTS ON THE FUNDS' FINANCIAL STATEMENTS FOR THE
PAST TWO YEARS HAVE NOT CONTAINED AN ADVERSE OPINION OR A DISCLAIMER OF OPINION
AND HAVE NOT BEEN QUALIFIED AS TO UNCERTAINTY, AUDIT SCOPE, OR ACCOUNTING
PRINCIPLES. IN ADDITION, THERE HAVE NOT BEEN ANY DISAGREEMENTS WITH KPMG DURING
THE FUNDS' TWO MOST RECENT FISCAL YEARS ON ANY MATTER OF ACCOUNTING PRINCIPLES
OR PRACTICES, FINANCIAL STATEMENT DISCLOSURE, OR AUDITING SCOPE OR PROCEDURE
WHICH, IF NOT RESOLVED TO THE SATISFACTION OF KPMG, WOULD HAVE CAUSED IT TO MAKE
A REFERENCE TO THE SUBJECT MATTER OF THE DISAGREEMENT IN CONNECTION WITH ITS
REPORTS.
14 '99 SEMIANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
(This page has been left blank intentionally.)
15 '99 SEMIANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
(This page has been left blank intentionally.)
16 '99 SEMIANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
FIRST AMERICAN STRATEGY FUNDS, INC.
BOARD OF DIRECTORS
MR. DAVID BENNETT
Director of 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 First American Strategy Funds, Inc.
Chief Executive Officer of Okabena Company
- ----------------------------------------------------------------------------
MR. ROGER GIBSON
Director of First American Strategy Funds, Inc.
Vice President of North America-Mountain Region for United Airlines
- ----------------------------------------------------------------------------
MR. ANDREW HUNTER III
Director of First American Strategy Funds, Inc.
Chairman of Hunter Keith Industries
- ----------------------------------------------------------------------------
MR. LEONARD KEDROWSKI
Director of First American Strategy Funds, Inc.
Owner and President of Executive Management Consulting, Inc.
- ----------------------------------------------------------------------------
MR. ROBERT SPIES
Director of First American Strategy Funds, Inc.
Retired Vice President, U.S. Bank National Association
- ----------------------------------------------------------------------------
MR. JOSEPH STRAUSS
Director of First American Strategy Funds, Inc.
Former Chairman of First American Funds,
Owner and President of Strauss Management Company
- ----------------------------------------------------------------------------
MS. VIRGINIA STRINGER
Chairman of 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 This report and the financial
601 Second Avenue South statements contained herein
Minneapolis, Minnesota 55402 are submitted for the general
information of the
CUSTODIAN shareholders of the
U.S. BANK NATIONAL ASSOCIATION corporation. The report is not
180 East Fifth Street authorized for distribution to
St. Paul, Minnesota 55101 prospective investors in the
corporation unless preceded or
ADMINISTRATOR accompanied by an effective
SEI INVESTMENTS MANAGEMENT prospectus for each of the
CORPORATION funds included. Shares in the
1 Freedom Valley Drive funds are not deposits or
Oaks, Pennsylvania 19456 obligations of, or guaranteed
or endorsed by, U.S. Bank or
TRANSFER AGENT any of its affiliates. Such
DST SYSTEMS, INC. shares are also not federally
330 West Ninth Street insured by the Federal Deposit
Kansas City, Missouri 64105 Insurance Corporation, the
Federal Reserve Board, or any
DISTRIBUTOR other agency. Investment in
SEI INVESTMENTS DISTRIBUTION CO. the shares involve investment
1 Freedom Valley Drive risk including loss of
Oaks, Pennsylvania 19456 principal amount invested.
INDEPENDENT AUDITORS Past performance does not
ERNST & YOUNG LLP guarantee future results. The
1400 Pillsbury Center principal value of an
200 South Sixth Street investment will fluctuate so
Minneapolis, Minnesota 55402 that an investor's shares,
when redeemed, may be worth
COUNSEL more or less than their
DORSEY & WHITNEY LLP original cost.
220 South Sixth Street
Minneapolis, Minnesota 55402
- --------------------------------------------------------------------------------
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THE POWER OF DISCIPLINED INVESTING(R)
5/1999 202-99
