FIRST AMERICAN STRATEGY FUNDS, INC.
STRATEGY FUNDS
1999 ANNUAL REPORT
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
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FIRST AMERICAN FAMILY OF FUNDS INVESTMENTS FOR EVERY GOAL
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HIGHER RISK/RETURN FIRST AMERICAN FUNDS OFFER A FULL RANGE
POTENTIAL OF INVESTMENT STRATEGIES TO HELP YOU
- ------------------------ CREATE A PERSONALIZED, DIVERSIFIED
PORTFOLIO. SUPPORTED BY EXTENSIVE
SECTOR FUNDS RESEARCH AND A HIGHLY DEVELOPED TEAM
APPROACH TO INVESTMENT DECISION MAKING,
INTERNATIONAL FUNDS FIRST AMERICAN FUNDS CAN HELP BUILD A
WINNING STRATEGY FOR ANY INVESTOR. 3
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
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LOWER RISK/RETURN
POTENTIAL
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TABLE OF
CONTENTS
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MESSAGE TO SHAREHOLDERS 1
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WHAT A DIFFERENCE A YEAR MAKES 2
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STRATEGY FUNDS OVERVIEW 4
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Strategy Aggressive Growth Fund 6
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Strategy Growth Fund 7
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Strategy Growth & Income Fund 8
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Strategy Income Fund 9
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REPORT OF INDEPENDENT AUDITORS 11
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STATEMENTS OF NET ASSETS 12
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STATEMENT OF ASSETS AND LIABILITIES 14
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STATEMENTS OF OPERATIONS 15
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STATEMENTS OF CHANGES IN NET ASSETS 16
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FINANCIAL HIGHLIGHTS 18
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NOTES TO FINANCIAL STATEMENTS 20
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NOTICE TO SHAREHOLDERS 25
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NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
<PAGE>
MESSAGE TO SHAREHOLDERS SEPTEMBER 30, 1999
DEAR SHAREHOLDERS:
On behalf of the entire board of directors -- thank you for the ongoing
opportunity you have given us to manage your investments. Each year we are
proud to continue supporting our long-term investors, and we are always
pleased to see the new investors that have joined the First American family
of funds.
A QUICK LOOK AT THE YEAR.
The past year was another volatile time for investors. A solid economy,
strong corporate profits plus a recovery in Asian markets combined to send
the stock market upward, with the Dow Jones Industrial Average hitting a
new high. It was reassuring to see market success beyond the large-cap
growth stocks that dominated the market in 1998, with a resurgence of
small-and mid-cap stocks, as well as international and emerging market
stocks.
In contrast, the bond market fared less well. A series of interest rate
hikes intended to keep the economy from overheating depressed bond prices,
sending the yield on the benchmark 30-year Treasury bond to 6% -- an
18-month high.
WHAT DOES IT MEAN FOR A STRATEGY FUND INVESTOR?
Market volatility is always unnerving -- but mostly to short-term
investors. As a Strategy Fund investor, your focus is on the long term,
with an emphasis on diversification.
Those of you who are invested in a Strategy Fund with a higher percentage
of bonds have weathered a tough bond market. Those of you who track
performance on a day-to-day or week-to-week basis have witnessed the effect
of a volatile equity market. The key message is `stick with it' -- a
message worth repeating in shifting financial markets.
Now more than ever, a consistent long-term approach should help you ride
out the ups and downs of short-term volatility. As a Strategy Fund
investor, you are already making a smart choice for asset allocation
through the fund-of-funds investment strategy we employ. That's why we
recommend that you stay invested and keep investing over time. The article
on the following page expands on this idea.
Once again, thank you for investing with First American Funds. As we
approach the millennium, we wish you continued success and prosperity.
Sincerely,
/s/ Virginia L. Stringer /s/ Paul A. Dow
VIRGINIA L. STRINGER PAUL A. DOW
Chairperson Chief Investment Officer and President
First American Strategy Funds, Inc. First American Asset Management
1 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
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WHAT A DIFFERENCE A YEAR MAKES
Turn back the clock to September 1998. Newspaper headlines were dominated by the
financial crisis sweeping across Asia, Latin America and Russia. At the height
of the crisis, the Dow Jones Industrial Average (DJIA) shed nearly 20% of its
value. Some predicted that the U.S. economy would slide into a recession,
erasing years of investment gains.
A year later, the DJIA has surged approximately 2,500 points, with some
financial experts alluding to a "New Economy" defined by unprecedented growth.
Yet a host of new challenges could threaten to derail these great expectations.
The Federal Reserve twice raised interest rates to quell the risk of higher
inflation, which turned the bond market bearish and triggered volatility in
equity markets.
All in all, many investors now wonder whether fundamental changes are again
underway in financial markets. Sound familiar?
SEEING THE FOREST FOR THE TREES
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Keep in mind that the same economic fundamentals have been in place in the U.S.
throughout the past year: low unemployment, low inflation and rising
productivity. For the most part, America's Goldilocks economy remains just
right. International markets are also healthy, and Japan is on the rebound.
The point is that when it comes to investing, there's always something to worry
about. Fear of the unknown causes people to lose sight of their long-term goals
as they react to the latest perceived threat.
INVESTORS WHO OVERREACTED DURING LAST YEAR'S MARKET CRISIS AND SOLD THEIR
STOCKS OR EQUITY FUNDS MISSED OUT ON THE GREATEST MARKET RALLY IN RECENT
HISTORY.
2 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
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WHAT A DIFFERENCE A YEAR MAKES
ITS BETTER TO ACT THAN REACT
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What's next for the U.S. economy? No one knows for sure. But you can be certain
that today's hot investment may become tomorrow's outcast. Or that interest
rates will rise and fall. That's the natural ebb and flow of financial markets.
With this in mind, it's important to take a long-term perspective backed by a
diversified investment portfolio to weather rapidly changing financial markets.
Asset allocation--a strategy designed to create diversified portfolios from a
blend of different asset classes--forms the foundation of any diversification
strategy. That's because different asset classes often move in opposite
directions, with declines in one class offset by increases in another. It's a
tried-and-true approach that may help reduce volatility and generate more
balanced returns.
First American Strategy Funds offer diversification and asset allocation 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.
At the same time, systematic investing can make market volatility beneficial.
While systematic investing does not ensure a profit or avoid a loss, you have
the long-term potential to lower your average cost if you invest regularly
through changing market conditions.
Finally, we would like to reiterate a familiar investment message: It's time in
the market that counts, not market timing. First American adheres to this
philosophy. Across our comprehensive array of stock and bond mutual funds, we
take a long-term perspective to money management while maintaining flexibility
to benefit from short-term fluctuations. In addition, our tradition of
conservative management and innovative products can help build a winning
strategy for any investor.
3 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
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STRATEGY FUNDS OVERVIEW
The fiscal year ended September 30, 1999, was a period of exceptional volatility
for stocks and bonds. Markets changed dramatically during the course of the
year, yielding both opportunities and frustration for investors.
The U.S. economy continued to grow at a breathtaking pace during 1999, with the
Dow Jones Industrial Average (DJIA) topping 11,300 in July. However, the DJIA's
rising tide did not lift all boats equally. On the positive side, markets
broadened to boost small- and mid-cap stocks, while international, namely Japan
and emerging markets, also came back to favor after a near meltdown in 1998.
Technology remained the hottest sector, even though tech stocks fluctuated
throughout the year. In contrast, rising interest rates punished the financial
sector, while proposed government reforms sent health care stocks reeling.
The bond market was even more volatile, as sentiment turned bearish during the
second quarter. After a series of interest rate cuts following the meltdown in
global markets, the Federal Reserve reversed its course, raising rates on June
30 to slow economic growth and offset any inflationary threat. By the time the
fiscal year ended, rates had risen dramatically across the board, creating a
difficult period for the bond market. For example, the interest rate on the
benchmark 30-year Treasury bond climbed to well above 6% by July -- a full
percentage higher than at the beginning of the year.
At the same time, concerns over liquidity prior to Year 2000 prompted a surge in
the issuance of corporate debt. Prices on non-Treasury securities headed
downward, and yield spreads between Treasury and non-Treasury securities
widened. Ironically, lower-rated securities performed the best, as the majority
of the new issues were of bonds with higher credit quality.
Another interest rate increase in August helped to stabilize bond markets. While
many investors expect another rate hike later this year, signs of a slowing
economy should further benefit the bond market by suppressing the need to hike
interest rates yet again.
Going forward, the prospects of slower economic growth may trigger a
long-awaited market correction. Value and small-cap stocks should perform
relatively well in this environment. Uncertainty over the near-term direction of
interest rates could contribute to additional volatility among bonds.
4 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
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STRATEGY AGGRESSIVE GROWTH FUND STRATEGY GROWTH FUND
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Strategy Aggressive Growth Fund Strategy Growth Fund divides its
concentrates on stock fund assets among various categories of
investments with above-average stock funds, but also includes bond
prospects for long-term growth, funds to help balance the risk
allocating the majority of its associated with stock funds.
assets to stock funds, including
small-cap and international funds.
[PIE CHART] [PIE CHART]
Large Cap Growth Fund 13.5% Large Cap Growth Fund 13.5%
Large Cap Value Fund 20.2% Large Cap Value Fund 19.8%
Mid Cap Growth Fund 11.0% Mid Cap Growth Fund 8.5%
Mid Cap Value Fund 11.1% Mid Cap Value Fund 8.6%
Small Cap Growth Fund 5.7% Small Cap Growth Fund 4.1%
Small Cap Value Fund 5.6% Small Cap Value Fund 4.0%
International Fund 11.6% International Fund 8.0%
Emerging Markets Fund 5.3% Emerging Markets Fund 2.5%
Fixed Income Fund 11.4% Fixed Income Fund 23.4%
Strategic Income Fund 3.1% Strategic Income Fund 6.2%
Prime Obligations Fund 1.5% Prime Obligations Fund 1.4%
STRATEGY GROWTH & INCOME FUND STRATEGY INCOME FUND
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Strategy Growth & Income Fund Strategy Income Fund invests
invests in a mix of stock and bond primarily in bond funds, but also
fund holdings. 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] [PIE CHART]
Large Cap Growth Fund 12.0% Equity Income Fund 23.9%
Large Cap Value Fund 18.4% Real Estate Securities Fund 6.1%
Mid Cap Growth Fund 6.0% Fixed Income Fund 55.2%
Mid Cap Value Fund 6.0% Strategic Income Fund 14.1%
Small Cap Growth Fund 3.0% Prime Obligations Fund 0.7%
Small Cap Value Fund 3.0%
International Fund 4.6%
Emerging Markets Fund 1.0%
Fixed Income Fund 35.5%
Strategic Income Fund 9.2%
Prime Obligations Fund 1.3%
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.
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 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 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
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STRATEGY FUNDS
STRATEGY AGGRESSIVE GROWTH
INVESTMENT OBJECTIVE
SEEKS TO PROVIDE A HIGH LEVEL OF CAPITAL GROWTH
Domestic and international stocks picked up momentum throughout much of the
year, which contributed to the Strategy Aggressive Growth Fund's strong
performance. For the fiscal year ended September 30,1999, the fund generated a
20.54% return.
The fund entered the year with a significant exposure to small- and
mid-cap stocks. This enabled it to benefit from the small-cap rally during the
third fiscal quarter of 1999. Strong performance among international and
emerging markets added to the fund's return.
In contrast, the fund's fixed-income holdings, which represent approximately 15%
of the portfolio's allocation, performed poorly due to interest rate hikes. And
while the fund's concentration in large-cap value stocks paid off during most of
April, value stocks were lukewarm the rest of the year.
We expect the U.S. economy to slow in the year ahead. We also anticipate
additional volatility within financial markets, especially as we approach the
new year. Exposure to a broad range of growth and value stocks, as well as
international and emerging markets securities should benefit investors seeking
capital growth.
VALUE OF A $10,000 INVESTMENT
[PLOT POINTS CHART]
FIRST AMERICAN S&P 500 Lipper Flexible
STRATEGY AGGRESSIVE Composite Lehman Government/ Portfolio Funds
GROWTH FUND Index Corporate Index Average
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1996 10,000 10,000 10,000 10,000
1997 12,713 13,663 10,709 12,235
1998 11,461 14,901 12,084 12,497
1999 13,815 19,043 11,889 14,435
PAST PERFORMANCE OF THE FUND IS NOT INDICATIVE OF FUTURE PERFORMANCE.
ANNUALIZED PERFORMANCE SINCE
1 YEAR INCEPTION
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Strategy Aggressive Growth Fund 20.54% 11.37%
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S&P 500 Composite Index 27.80% 24.73%
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Lehman Government/Corporate Index -1.62% 6.12%
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Lipper Flexible Portfolio Funds Average 15.51% 10.90%
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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 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
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STRATEGY FUNDS
STRATEGY GROWTH
INVESTMENT OBJECTIVE
SEEKS TO PROVIDE CAPITAL GROWTH AND A MODERATE LEVEL OF CURRENT INCOME
The Strategy Growth Fund's emphasis on diversification among equity styles more
than compensated for bleak bond markets, with the fund delivering a 16.31%
return during the fiscal year ended September 30, 1999.
Most equity sectors profited from a broadening market at home, plus an improving
economic situation abroad. Investors witnessed the comeback of small- and
mid-cap stocks during the second calendar quarter, while large-cap value and
growth stocks also performed well. These equities proved complementary
throughout the year, as various sectors--namely small-, mid- and large-cap
funds--moved in and out of favor during changing market conditions.
The fund's 30% weighting among bonds fared less well. Hardest hit were
30-year Treasury bonds, which experienced double-digit negative returns. Much of
the turmoil can be traced to the two recent moves by the Federal Reserve to
raise key interest rates to cool the economy and concern about rising inflation.
The volatile market that created opportunities within equity markets and trouble
in bond markets is likely to continue. Stable interest rates and lessening
concerns over Y2K may generate a bond rally, yet the outlook for the bond market
remains uncertain. In contrast, exposure to a broad range of growth and value
stocks as well as international and emerging markets securities should benefit
investors seeking capital growth.
VALUE OF A $10,000 INVESTMENT
[PLOT POINTS CHART]
FIRST AMERICAN S&P 500 Lipper Multi-Cap
STRATEGY Composite Lehman Government/ Value Funds
GROWTH FUND Index Corporate Index Average
---------------------------------------------------------------------
1996 10,000 10,000 10,000 10,000
1997 12,267 13,663 10,709 13,440
1998 11,537 14,901 12,084 12,598
1999 13,419 19,043 11,889 14,662
PAST PERFORMANCE OF THE FUND IS NOT INDICATIVE OF FUTURE PERFORMANCE.
ANNUALIZED PERFORMANCE SINCE
1 YEAR INCEPTION
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Strategy Growth Fund 16.31% 10.48%
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S&P 500 Composite Index 27.80% 24.73%
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Lehman Government/Corporate Index -1.62% 6.12%
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Lipper Multi-Cap Value Funds Average 16.38% 11.25%
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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 '99 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
Divergent markets pulled the Strategy Growth & Income Fund in different
directions, with the fund's equity holdings performing well, while the
portfolio's fixed-income component suffered from a series of interest rate
hikes. For the fiscal year ended September 30, 1999, the fund posted a 12.81%
return.
The year began on a bright note as equities rose amid the first signs of
abatement of the global economic crisis, which sent the stock market into a
tailspin. Equities recovered as the crisis eased, and during the third fiscal
quarter, a broadening financial market lifted the fund's mid-cap and small-cap
holdings. The fund's international holdings also fared well, as Japan finally
emerged from its prolonged slump, and emerging countries once again returned to
favor.
In contrast, the third fiscal quarter was a difficult period for bonds. Investor
concern over the continued strength of the economy and two interest rate hikes
sent bond rates to their highest level in more than 18 months. Treasury bonds
were hit hardest, with municipals, investment-grade corporate bonds and agency
bonds also ending the fiscal year in negative territory.
The fund's outlook will reflect the strength of the equity markets and the
interest rate environment. At current yield levels, the bond market offers more
value than it has for a long time. Yet despite attractive valuations, interest
rates could move higher before declining again. Tighter monetary policies may
become catalysts for value and small-cap funds, which should perform relatively
well in a challenging environment. Should that occur, the fund is positioned to
benefit from a broader market.
VALUE OF A $10,000 INVESTMENT
[PLOT POINTS CHART]
FIRST AMERICAN S&P 500 Lipper
STRATEGY GROWTH & Composite Lehman Government/ Balanced Funds
INCOME FUND Index Corporate Index Average
---------------------------------------------------------------------
1996 10,000 10,000 10,000 10,000
1997 11,924 13,663 10,709 12,198
1998 11,664 14,901 12,084 12,616
1999 13,159 19,043 11,889 14,200
PAST PERFORMANCE OF THE FUND IS NOT INDICATIVE OF FUTURE PERFORMANCE.
ANNUALIZED PERFORMANCE SINCE
1 YEAR INCEPTION
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Strategy Growth and Income Fund 12.81% 9.97%
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S&P 500 Composite Index 27.80% 24.73%
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Lehman Government/Corporate Index -1.62% 6.12%
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Lipper Balanced Funds Average 12.56% 11.12%
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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 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
STRATEGY FUNDS
STRATEGY INCOME
INVESTMENT OBJECTIVE
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SEEKS TO PROVIDE A HIGH LEVEL OF CURRENT INCOME CONSISTENT
WITH LIMITED RISK TO CAPITAL
A difficult year in the bond market impacted the Strategy Income Fund's
extensive fixed income holdings, with the fund registering a 1.13% return for
the fiscal year ended September 30, 1999.
With fixed income investments representing 69% of the bond's total portfolio,
developments in the bond market-namely two recent interest rate hikes by the
Federal Reserve to cool the nation's booming economy-dictated the fund's overall
performance. Total return of the 30-year Treasury bond was -12% at the close of
the fiscal year, the worst performance for long-dated bonds since 1927. The only
bright spots within the portfolio's multi-sector bond holdings were foreign debt
securities and domestic high-yield bonds, both of which managed to end the
fiscal year in positive territory.
In addition, the fund's equity sector holding, First American Real Estate
Securities Fund, also experienced a setback as REITs fell out of favor during
the year. On a positive note, the fund's large-cap equity holdings helped to
take the sting out of the bond market's woes.
The fund's near-term outlook remains clouded by the specter of additional
interest rate hikes and worries about Y2K. However, if interest rates remain
steady and concerns over Y2K prove unfounded, fund performance should be
positively impacted.
VALUE OF A $10,000 INVESTMENT
[PLOT POINTS CHART]
FIRST AMERICAN S&P 500 Lipper
STRATEGY Composite Lehman Government/ Income Funds
INCOME FUND Index Corporate Index Average
---------------------------------------------------------------------
1996 10,000 10,000 10,000 10,000
1997 11,077 13,663 10,709 11,772
1998 12,043 14,901 12,084 12,116
1999 12,179 19,043 11,889 13,045
ANNUALIZED PERFORMANCE SINCE
1 YEAR INCEPTION
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Strategy Income Fund 1.13% 7.35%
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S&P 500 Composite Index 27.80% 24.73%
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Lehman Government/Corporate Index -1.62% 6.12%
- --------------------------------------------------------------------------------
Lipper Income Funds Average 7.67% 7.98%
- --------------------------------------------------------------------------------
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 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
10 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
REPORT OF INDEPENDENT
AUDITORS SEPTEMBER 30, 1999
To the Shareholders and Board of Directors
First American Strategy Funds, Inc.
We have audited the accompanying statements of net assets of First
American Strategy Funds, Inc. (comprising, respectively, the Aggressive
Growth, Growth, Growth & Income and Income Funds) (the "Funds") as of
September 30, 1999, and the related statements of operations, statements
of changes in net assets and financial highlights for the year then
ended. We have also audited the accompanying statement of assets and
liabilities of the Growth & Income Fund as of September 30, 1999. These
financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
The statements of changes in net assets for the year ended September 30,
1998, and the financial highlights for the periods presented through
September 30, 1998, were audited by other auditors whose report dated
November 13, 1998, expressed an unqualified opinion on those statements
and financial highlights.
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
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our
procedures included confirmation of securities owned as of September 30,
1999, by correspondence with the custodian and brokers. 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 financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the respective funds constituting First American
Strategy Funds, Inc. at September 30, 1999, and the results of their
operations, changes in their net assets, and their financial highlights
for the year then ended, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
November 2, 1999
11 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
STATEMENTS OF
NET ASSETS SEPTEMBER 30, 1999
Aggressive Growth Fund
<TABLE>
<CAPTION>
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------------------
<S> <C> <C>
EQUITY FUNDS - 83.9%
First American Investment Funds, Inc.
Emerging Markets Fund* 521,308 $ 3,545
International Fund 496,421 7,769
Large Cap Growth Fund 453,877 9,005
Large Cap Value Fund 585,283 13,561
Mid Cap Growth Fund 568,942 7,396
Mid Cap Value Fund 569,704 7,401
Small Cap Growth Fund 226,734 3,836
Small Cap Value Fund 267,594 3,741
-------
TOTAL EQUITY FUNDS
(Cost $55,788) 56,254
-------
FIXED INCOME FUNDS - 14.5%
First American Investment Funds, Inc.
Fixed Income Fund 718,062 7,647
Strategic Income Fund 228,972 2,081
-------
TOTAL FIXED INCOME FUNDS
(Cost $10,324) 9,728
-------
MONEY MARKET FUND - 1.5%
First American Funds, Inc.
Prime Obligations Fund 985,877 986
-------
TOTAL MONEY MARKET FUND
(Cost $986) 986
-------
TOTAL INVESTMENTS - 99.9%
(Cost $67,098) 66,968
-------
OTHER ASSETS AND LIABILITIES, NET - 0.1% 45
-------
NET ASSETS:
Portfolio Capital - ($.01 par value - 20
billion authorized) based on
5,422,921 outstanding shares $64,872
Accumulated net realized gain on
investments 2,271
Net unrealized depreciation of
investments (130)
-------
TOTAL NET ASSETS - 100.0% $67,013
-------
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE $ 12.36
-------
</TABLE>
*Currently non-income producing.
Growth Fund
<TABLE>
<CAPTION>
DESCRIPTION SHARES VALUE (000)
- ---------------------------------------------------------------------
<S> <C> <C>
EQUITY FUNDS - 69.0%
First American Investment Funds, Inc.
Emerging Markets Fund* 315,565 $2,146
International Fund 452,863 7,087
Large Cap Growth Fund 600,019 11,904
Large Cap Value Fund 754,875 17,490
Mid Cap Growth Fund 576,846 7,499
Mid Cap Value Fund 580,470 7,540
Small Cap Growth Fund 214,828 3,635
Small Cap Value Fund 253,475 3,544
--------
TOTAL EQUITY FUNDS
(Cost $59,333) 60,845
--------
FIXED INCOME FUNDS - 29.6%
First American Investment Funds, Inc.
Fixed Income Fund 1,938,993 20,651
Strategic Income Fund 602,238 5,474
--------
TOTAL FIXED INCOME FUNDS
(Cost $27,617) 26,125
--------
MONEY MARKET FUND - 1.4%
First American Funds, Inc.
Prime Obligations Fund 1,228,949 1,229
--------
TOTAL MONEY MARKET FUND
(Cost $1,229) 1,229
--------
TOTAL INVESTMENTS - 100.0%
(Cost $88,179) 88,199
--------
OTHER ASSETS AND LIABILITIES, NET - 0.0% 14
--------
NET ASSETS:
Portfolio Capital - ($.01 par value - 20
billion authorized) based on
7,444,811 outstanding shares $85,703
Distribution in excess of net
investment income (1)
Accumulated net realized gain on
investments 2,491
Net unrealized appreciation of
investments 20
--------
TOTAL NET ASSETS - 100.0% $88,213
--------
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE $ 11.85
--------
</TABLE>
*Currently non-income producing.
The accompanying notes are an integral part of the financial statements.
12 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
STATEMENTS OF
NET ASSETS SEPTEMBER 30, 1999
Growth & Income Fund
<TABLE>
<CAPTION>
DESCRIPTION SHARES VALUE (000)
- ---------------------------------------------------------------------
<S> <C> <C>
EQUITY FUNDS - 51.1%
First American Investment Funds, Inc.
Emerging Markets Fund* 283,083 $ 1,925
International Fund 584,391 9,146
Large Cap Growth Fund 1,200,581 23,820
Large Cap Value Fund 1,567,719 36,324
Mid Cap Growth Fund 908,087 11,805
Mid Cap Value Fund 915,894 11,897
Small Cap Growth Fund 355,669 6,018
Small Cap Value Fund 428,541 5,991
--------
TOTAL EQUITY FUNDS
(Cost $103,039) 106,926
--------
FIXED INCOME FUNDS - 42.3%
First American Investment Funds, Inc.
Fixed Income Fund 6,595,893 70,247
Strategic Income Fund 2,002,111 18,199
--------
TOTAL FIXED INCOME FUNDS
(Cost $93,366) 88,446
--------
MONEY MARKET FUND - 1.2%
First American Funds, Inc.
Prime Obligations Fund 2,592,342 2,592
--------
TOTAL MONEY MARKET FUND
(Cost $2,592) 2,592
--------
TOTAL INVESTMENTS - 94.6%
(Cost $198,997) 197,964
--------
OTHER ASSETS AND LIABILITIES, NET - 5.4% 11,265
--------
NET ASSETS:
Portfolio Capital - ($.01 par value - 20
billion authorized) based on
18,176,816 outstanding shares $202,934
Accumulated net realized gain on
investments 7,328
Net unrealized depreciation of
investments (1,033)
--------
TOTAL NET ASSETS - 100.0% $209,229
--------
NET ASSET VALUE, OFFERING PRICE, AND
REDEMPTION PRICE PER SHARE $ 11.51
--------
</TABLE>
*Currently non-income producing.
Income Fund
<TABLE>
<CAPTION>
DESCRIPTION SHARES VALUE (000)
- ---------------------------------------------------------------------
<S> <C> <C>
FIXED INCOME FUNDS - 69.2%
First American Investment Funds, Inc.
Fixed Income Fund 4,315,863 $ 45,964
Strategic Income Fund 1,288,179 11,710
--------
TOTAL FIXED INCOME FUNDS
(Cost $61,079) 57,674
--------
EQUITY FUNDS - 29.9%
First American Investment Funds, Inc.
Equity Income Fund 1,240,258 19,844
Real Estate Securities Fund 469,947 5,075
--------
TOTAL EQUITY FUNDS
(Cost $26,038) 24,919
--------
MONEY MARKET FUND - 0.7%
First American Funds, Inc.
Prime Obligations Fund 578,391 578
--------
TOTAL MONEY MARKET FUND
(Cost $578) 578
--------
TOTAL INVESTMENTS - 99.8%
(Cost $87,695) 83,171
--------
OTHER ASSETS AND LIABILITIES, NET - 0.2% 131
--------
NET ASSETS:
Portfolio Capital - ($.01 par value - 20
billion authorized) based on
7,947,519 outstanding shares $ 86,606
Undistributed net investment income 49
Accumulated net realized gain on
investments 1,171
Net unrealized depreciation of
investments (4,524)
--------
TOTAL NET ASSETS - 100.0% $ 83,302
--------
NET ASSET VALUE, OFFERING PRICE, AND
REDEMPTION PRICE PER SHARE $ 10.48
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
STATEMENT OF
ASSETS AND LIABILITIES SEPTEMBER 30, 1999, IN THOUSANDS
Growth & Income Fund
<TABLE>
<S> <C>
ASSETS:
Investment securities, at value
(Cost $198,997) $197,964
RECEIVABLES:
Accrued income 11
Capital shares sold 13,057
Unamortized organizational costs 6
--------
TOTAL ASSETS 211,038
--------
LIABILITIES:
PAYABLES:
Accrued expenses 99
Capital shares redeemed 1,710
--------
TOTAL LIABILITIES 1,809
--------
TOTAL NET ASSETS $209,229
--------
COMPOSITION OF NET
ASSETS:
Portfolio capital ($.01 par value --
20 billion authorized) based on
18,176,816 outstanding shares 202,934
Accumulated net realized gain on
investments 7,328
Net unrealized depreciation of
investments (1,033)
--------
TOTAL NET ASSETS $209,229
--------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER
SHARE $ 11.51
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
STATEMENTS OF
OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1999, 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 $ 1,014 $ 1,949 $ 6,428 $ 5,499
- -------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 1,014 1,949 6,428 5,499
=======================================================================================================
EXPENSES:
Investment advisory fees 171 209 516 269
Less: Waiver of investment advisory fees (171) (209) (516) (269)
Less: Reimbursement of expenses by adviser (225) (262) (534) (325)
Shareholder servicing fee 171 209 516 269
Administrator fees 74 91 224 117
Transfer agent fees 73 81 88 90
Custodian fees 21 25 62 32
Directors' fees 1 2 4 2
Registration fees 29 35 87 46
Professional fees 32 39 95 50
Printing 11 13 32 17
Amortization of organizational costs 4 4 4 4
Other 2 1 5 1
- -------------------------------------------------------------------------------------------------------
TOTAL EXPENSES AFTER WAIVERS
AND REIMBURSEMENTS 193 238 583 303
=======================================================================================================
Investment income - net 821 1,711 5,845 5,196
- -------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS - NET:
Capital gain distributions received
from underlying funds 5,874 5,504 14,153 2,214
Net realized loss on investments (1,748) (1,330) (3,117) (185)
Net change in unrealized appreciation
(depreciation) of investments 7,465 5,640 8,888 (5,311)
- -------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS 11,591 9,814 19,924 (3,282)
=======================================================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 12,412 $ 11,525 $ 25,769 $ 1,914
=======================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 '99 ANNUAL 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
9/30/99 9/30/98 9/30/99 9/30/98
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Investment income - net $ 821 $ 931 $ 1,711 $ 1,268
Capital gain distributions received from underlying funds 5,874 3,047 5,504 2,429
Net realized gain (loss) on investments (1,748) (487) (1,330) 109
Net change in unrealized appreciation (depreciation) of investments 7,465 (9,882) 5,640 (8,431)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 12,412 (6,391) 11,525 (4,625)
- -------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment Income - net (834) (918) (1,722) (1,257)
Net realized gain on investments and capital gain distributions received
from underlying funds (4,389) (74) (4,142) (146)
- -------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (5,223) (992) (5,864) (1,403)
=========================================================================================================================
CAPITAL SHARE TRANSACTIONS(1):
Proceeds from sales 30,697 53,597 52,026 66,089
Shares issued in connection with Qualivest merger -- 32,858 -- 28,454
Reinvestment of distributions 5,204 966 5,495 1,320
Payments for redemptions (38,712) (31,128) (40,625) (39,855)
- -------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share transactions (2,811) 56,293 16,896 56,008
- -------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 4,378 48,910 22,557 49,980
NET ASSETS AT BEGINNING OF PERIOD 62,635 13,725 65,656 15,676
=========================================================================================================================
NET ASSETS AT END OF PERIOD(2) $ 67,013 $ 62,635 $ 88,213 $ 65,656
=========================================================================================================================
(1)CAPITAL SHARE TRANSACTIONS:
Shares issued 2,567 4,257 4,481 5,431
Shares issued in connection with Qualivest merger -- 2,705 -- 2,408
Shares issued in lieu of cash distributions 455 79 485 111
Shares redeemed (3,239) (2,492) (3,462) (3,302)
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CAPITAL SHARES (217) 4,549 1,504 4,648
=========================================================================================================================
</TABLE>
(2)Includes undistributed net investment income (distributions in excess of net
investment income) (000) of $0 and $13 for Aggressive Growth Fund, $(1) and
$10 for Growth Fund, $0 and $43 for Growth & Income Fund, and $49 and $0 for
Income Fund at September 30, 1999, and September 30, 1998, respectively.
The accompanying notes are an integral part of the financial statements.
16 '99 ANNUAL 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
9/30/99 9/30/98 9/30/99 9/30/98
- ---------------------------------------------------------
<S> <C> <C> <C>
$ 5,845 $ 5,851 $ 5,196 $ 3,956
14,153 6,699 2,214 949
(3,117) 1,357 (185) 2,044
8,888 (18,324) (5,311) (577)
- ---------------------------------------------------------
25,769 (4,417) 1,914 6,372
- ---------------------------------------------------------
(5,891) (5,809) (5,194) (3,956)
(11,500) (315) (3,732) (86)
- ---------------------------------------------------------
(17,391) (6,124) (8,926) (4,042)
=========================================================
89,303 121,119 46,294 116,106
-- 139,897 -- 10,015
15,268 5,251 8,507 3,768
(111,627) (75,384) (81,266) (51,559)
- ---------------------------------------------------------
(7,056) 190,883 (26,465) 78,330
- ---------------------------------------------------------
1,322 180,342 (33,477) 80,660
207,907 27,565 116,779 36,119
=========================================================
$ 209,229 $ 207,907 $ 83,302 $ 116,779
=========================================================
7,800 10,267 4,206 10,424
-- 12,099 -- 918
1,362 447 781 337
(9,742) (6,400) (7,435) (4,620)
- ---------------------------------------------------------
(580) 16,413 (2,448) 7,059
=========================================================
</TABLE>
17 '99 ANNUAL 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 $ 11.11 $ 0.14 $ 2.05 $ (0.14) $ (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 $ 11.05 $ 0.25 $ 1.49 $ (0.25) $ (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 $ 11.08 $ 0.32 $ 1.05 $ (0.32) $ (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 $ 11.23 $ 0.53 $ (0.40) $ (0.53) $ (0.35)
1998 10.82 0.50 0.43 (0.50) (0.02)
1997(1) 10.00 0.41 0.82 (0.41) --
- ---------------------------------------------------------------------------------------------------------
</TABLE>
+ 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.
18 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
<TABLE>
<CAPTION>
RATIO OF
EXPENSES TO
AVERAGE
RATIO OF RATIO OF NET NET ASSETS
NET ASSET EXPENSES TO INVESTMENT (EXCLUDING
VALUE NET ASSETS AVERAGE INCOME TO WAIVERS AND
END OF TOTAL END OF NET AVERAGE REIMBURSE- PORTFOLIO
PERIOD RETURN PERIOD (000) ASSETS(2) NET ASSETS MENTS)(2) TURNOVER
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$12.36 20.54% $ 67,013 0.28% 1.20% 0.86% 39%
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
$11.85 16.31% $ 88,213 0.28% 2.05% 0.85% 34%
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
$11.51 12.81% $209,229 0.28% 2.83% 0.79% 41%
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
$10.48 1.13% $ 83,302 0.28% 4.83% 0.83% 21%
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>
19 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
NOTES TO
FINANCIAL STATEMENTS SEPTEMBER 30, 1999
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
and any capital gain distributions on underlying funds for each Fund are
distributed to shareholders at least annually.
FEDERAL TAXES - It is each Fund's intention to continue 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 September 30th and
October 31st.
Net investment income and net realized gains (losses) may differ for
financial statement and tax purposes because of temporary or permanent
book/tax differences. These differences are primarily due to losses
deferred due to wash sales.
The character of distributions made during the year from net investment
income or net realized gains may differ from its ultimate
characterization for federal income tax purposes. In addition, due to the
timing of dividend distributions, the fiscal year in which the amounts
are distributed may differ from the year that the income or realized
gains (losses) were recorded by the fund. To the extent these differences
are permanent, adjustments are made to the appropriate equity accounts in
the period that the difference arises.
On the Statement of Net Assets the following adjustments were made (000):
ACCUMULATED NET UNDISTRIBUTED NET
FUND REALIZED GAIN (LOSS) INVESTMENT INCOME
-------------------------------------------------------------------
Growth & Income $ (3) $ 3
Income (47) 47
-------------------------------------------------------------------
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.
20 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
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 assets.
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.
3 > FEES AND EXPENSES
ADVISORY FEES - Pursuant to an investment advisory agreement (the
"Agreement"), First American Asset Management (the "Advisor"), a division
of U.S. Bank National Association ("U.S. Bank"), 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 on 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 year ended September 30, 1999. Such waivers and
reimbursements are voluntary and may be discontinued at any time.
ADMINISTRATION FEES - SEI Investments Management Corporation ("SIMC"),
the Administrator, provides 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 assists the Administrator and provides
sub-administration services for the Funds. For these services, the
Administrator compensates the sub-administrator monthly at an annual rate
of up to 0.05% of each Fund's average daily net assets. Under this
agreement, for the year ended September 30, 1999, SIMC paid U.S. Bank
$8,411,000 in aggregate. The fees for the year ended September 30, 1999,
were approximately equal to an annual rate of 0.028% of average daily net
assets. For the funds included in this annual report, the amounts paid
were as follows (000):
--------------------------------------------------------------------------
Aggressive Growth Fund $19
Growth Fund 24
Growth & Income Fund 58
Income Fund 30
--------------------------------------------------------------------------
CUSTODIAN FEES - Through a separate contractual agreement, U.S. Bank
serves as the Funds' custodian. The fee for each fund is equal to an
annual rate of 0.03% of average daily net assets which is computed daily
and paid monthly.
SHAREHOLDER SERVICE 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
21 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
NOTES TO
FINANCIAL STATEMENTS SEPTEMBER 30, 1999
following amounts to affiliates of U.S. Bank for the year ended
September 30, 1999 (000):
U.S. BANCORP
U.S. BANK PIPER JAFFRAY U.S. BANK TRUST
-------------------------------------------------------------------------
Aggressive Growth Fund $ 54 $ 5 $ 99
Growth Fund 80 8 99
Growth & Income Fund 129 13 191
Income Fund 205 14 34
-------------------------------------------------------------------------
REDEMPTION FEES - Each Fund imposes a redemption fee of 1% on redemptions
made within 12 months of purchase. The fee, which is intended to
discourage short-term trading, is paid to the Fund. For the year ended
September 30, 1999, redemption fees paid to the Funds were as follows
(000):
-------------------------------------------------------------------------
Aggressive Growth Fund $ 5
Growth Fund --
Growth & Income Fund 1
Income Fund 19
-------------------------------------------------------------------------
TRANSFER AGENT FEES - DST Systems, Inc. provides transfer agency services
for the Funds. Effective October 1, 1998, FASF appointed U.S. Bank as
servicing agent to perform certain transfer agent and dividend disbursing
agent services with respect to the shares of the Funds held through
accounts at U.S. Bank and its affiliates. As the servicing agent, U.S.
Bank was paid $4,921,000 in aggregate for the year ended September 30,
1999. For the year ended September 30, 1999, fees paid to U.S. Bank for
the funds included in this report were as follows (000):
-------------------------------------------------------------------------
Aggressive Growth Fund $4
Growth Fund 4
Growth & Income Fund 4
Income Fund 3
-------------------------------------------------------------------------
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 year ended September 30, 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 year ended September 30, 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 $28,420 $25,625
Growth Fund 49,314 27,413
Growth & Income Fund 81,865 88,845
Income Fund 22,073 46,944
-------------------------------------------------------------------------
22 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
The aggregate gross unrealized appreciation and depreciation for
securities held by the Funds and the total cost of securities for federal
income tax purposes at September 30, 1999, is as follows (000):
<TABLE>
<CAPTION>
AGGREGATE GROSS AGGREGATE GROSS FEDERAL INCOME
FUND APPRECIATION DEPRECIATION NET TAX COST
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggressive Growth $3,514 $ (6,710) $ (3,196) $ 70,164
Growth 3,727 (5,723) (1,996) 90,195
Growth & Income 7,529 (14,798) (7,269) 205,233
Income 185 (5,232) (5,047) 88,218
--------------------------------------------------------------------------------
</TABLE>
5 > DEFERRED ORGANIZATIONAL 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.
6 > 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:
<TABLE>
<CAPTION>
QUALIVEST ACQUIRED FUND FASF ACQUIRING FUND
------------------------------------------------------------------------
<S> <C>
Allocated Aggressive Aggressive Growth
Allocated Growth Growth
Allocated Balanced Growth & Income
Allocated Conservative Income
------------------------------------------------------------------------
</TABLE>
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 $17,779,318 2,704,646
Growth 20,092,972 2,408,353
Growth & Income 43,382,026 12,099,422
Income 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 Aggressive $ 31,892,422 $ 1 $ (18,518) $ 984,458 $ 32,858,363
Allocated Growth 26,873,290 -- (11,592) 1,592,565 28,454,263
Allocated Balanced 133,671,156 -- (197,753) 6,423,738 139,897,141
Allocated Conservative 9,682,921 (7) (7,224) 339,641 10,015,331
--------------------------------------------------------------------------------------------------------------
</TABLE>
23 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
NOTES TO
FINANCIAL STATEMENTS SEPTEMBER 30, 1999
On November 21, 1997, the shares redeemed by the corresponding Qualivest
Funds were as follows:
<TABLE>
<CAPTION>
QUALIVEST ACQUIRED FUND SHARES REDEEMED
-------------------------------------------------------------------------
<S> <C>
Allocated Aggressive 2,951,493
Allocated Growth 2,540,239
Allocated Balanced 12,938,277
Allocated Conservative 988,240
-------------------------------------------------------------------------
</TABLE>
24 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
<PAGE>
NOTICE TO
SHAREHOLDERS SEPTEMBER 30, 1999 (UNAUDITED)
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 2000. PLEASE CONSULT YOUR TAX ADVISER FOR PROPER
TREATMENT OF THIS INFORMATION.
Dear First American Strategy Fund Shareholders:
For the fiscal year ended September 30, 1999, 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 ORDINARY
CAPITAL GAINS INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS QUALIFYING
FUND (TAX BASIS) (TAX BASIS) (TAX BASIS) DIVIDENDS
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggressive Growth 44% 56% 100% 6%
Growth 46 54 100 7
Growth & Income 42 58 100 5
Income 14 86 100 8
-----------------------------------------------------------------------------------------
</TABLE>
25 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
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26 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
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27 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
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28 '99 ANNUAL REPORT FIRST AMERICAN FUNDS
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FIRST AMERICAN STRATEGY FUNDS, INC.
BOARD OF DIRECTORS
MR. ROBERT DAYTON
Director of First American Strategy Funds, Inc.
Chief Executive Officer of Okabena Company
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MR. ROGER GIBSON
Director of First American Strategy Funds, Inc.
Vice President of North America-Mountain Region for United Airlines
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MR. ANDREW HUNTER III
Director of First American Strategy Funds, Inc.
Chairman of Hunter Keith Industries
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MR. LEONARD KEDROWSKI
Director of First American Strategy Funds, Inc.
Owner and President of Executive Management Consulting, Inc.
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MR. JOHN MURPHY JR.
Director of First American Strategy Funds, Inc.
Executive Vice President, U.S. Bancorp
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MR. ROBERT SPIES
Director of First American Strategy Funds, Inc.
Retired Vice President, U.S. Bank National Association
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MR. JOSEPH STRAUSS
Director of First American Strategy Funds, Inc.
Former Chairman of First American Strategy Funds, Inc.
Owner and President of Strauss Management Company
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MS. VIRGINIA STRINGER
Chairperson of First American Strategy Funds, Inc.
Owner and President of Strategic Management Resources, Inc.
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<PAGE>
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 involves investment risk including loss
of principal amount invested.
Past performance does not guarantee future results. 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. 1
FIRST AMERICAN STRATEGY FUNDS, INC.
1 Freedom Valley Drive
Oaks, Pennsylvania 19456
INVESTMENT ADVISOR AND ADMINISTRATOR
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
DISTRIBUTOR
SEI INVESTMENTS DISTRIBUTION CO.
1 Freedom Valley Drive
Oaks, Pennsylvania 19456
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
1400 Pillsbury Center
200 South Sixth Street
Minneapolis, Minnesota 55402
COUNSEL
DORSEY & WHITNEY LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
- --------------------------------------------------------------------------------
FIRST AMERICAN FUNDS | Bulk Rate |
c/o Fulfillment Agent, American Financial Printing Inc. | U.S. Postage |
404 Industrial Boulevard, N.E. | PAID |
Minneapolis, MN 55413 | Mpls, MN |
| Permit No. 26388 |
In an attempt to reduce shareholder costs and help eliminate duplication, the
funds will try to limit their mailing to one report for each address that lists
one or more shareholders with the same last name. If you would like additional
copies, please call Investor Services at 1-800-637-2548.
11/1999 334-99
