[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
FUNDS OF
FUNDS
SEMIANNUAL REPORT
2000
FIRST AMERICAN
STRATEGY FUNDS, INC.
<PAGE>
FIRST AMERICAN
FAMILY OF FUNDS
INVESTMENTS FOR EVERY GOAL
First American Funds offers a full range of investment strategies to help you
create a personalized, diversified portfolio. With our disciplined focus on
consistent, competitive performance and highly developed team approach to
investment decision making, First American Funds can help build a winning
strategy for any investor.
HIGHER RISK (o)
AND RETURN POTENTIAL |
|
(*) EQUITY FUNDS
|
|
(*) FUNDS OF FUNDS
|
| STRATEGY AGGRESSIVE GROWTH
| STRATEGY GROWTH
| STRATEGY GROWTH AND INCOME
| STRATEGY INCOME
|
(*) BOND FUNDS
|
|
(*) TAX FREE BOND FUNDS
|
|
(*) MONEY MARKET FUNDS
|
|
LOWER RISK (o)
AND RETURN POTENTIAL
TABLE OF CONTENTS
Message to Shareholders 1
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Statements of Net Assets 2
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Statements of Operations 4
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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 13
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Tribute to David T. Bennett 14
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NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
<PAGE>
MESSAGE TO SHAREHOLDERS MARCH 31, 2000
DEAR SHAREHOLDERS:
On behalf of the board of directors of First American Funds, thank you for
the opportunity to manage your mutual fund investments. If you are a new
investor, we welcome you to the First American family of funds. If you are
a long-term investor, we are again proud to meet your ongoing investment
needs.
Whether you're new to investing or an experienced investor, the past six
months have been a period of rapidly changing markets and hand wringing.
The Dow Jones Industrial Average (the "Dow") moved steadily upward during
the fourth quarter of 1999, only to surrender its gains early in the first
quarter of this year due to concerns over rising interest rates. The Dow
regained momentum late in the first quarter after investors looked past
rate hikes to another period of strong corporate profits. During the same
period, the Nasdaq reached record heights only to suffer a dramatic
correction.
Asset allocation is the hallmark of the Strategy Funds. Over the past six
months, investors have witnessed the importance of asset allocation within
shifting markets. For example, the Strategy Funds capitalized on the
resurgence of mid- and small-cap stocks. With dramatic fluctuations
becoming commonplace, asset allocation combined with a disciplined
investment approach can help investors earn more balanced returns.
Within this report, you'll find financial statements on the First American
Strategy Funds during the past six months, plus a complete list of fund
holdings. In addition, the Notice to Shareholders section contains
important shareholder information.
In closing, we encourage you to maintain a diversified portfolio and to
stay the course amid volatile markets. Investors may be able to better
weather volatility through balanced portfolios coupled with a disciplined
investment approach.
Thank you for your confidence in First American Funds.
Sincerely,
/s/ Virginia L. Stringer /s/ Paul A. Dow
VIRGINIA L. STRINGER PAUL A. DOW
Chair Chief Investment Officer and President
First American Strategy Funds, Inc. First American Asset Management
FIRST AMERICAN FUNDS SEMIANNUAL REPORT 2000 1)
<PAGE>
STATEMENTS OF NET ASSETS March 31, 2000 (unaudited)
AGGRESSIVE GROWTH FUND
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
EQUITY FUNDS -- 84.4%
First American Investment Funds, Inc.
Emerging Markets Fund* 362,685 $3,921
Equity Index Fund 333,960 9,661
International Fund 454,789 11,147
Large Cap Growth Fund 542,848 12,323
Large Cap Value Fund 866,762 18,254
Mid Cap Growth Fund 387,729 7,359
Mid Cap Value Fund 579,074 7,731
Small Cap Growth Fund 85,129 2,389
Small Cap Value Fund 167,877 2,762
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TOTAL EQUITY FUNDS
(Cost $64,388) 75,547
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FIXED INCOME FUNDS -- 14.6%
First American Investment Funds, Inc.
Fixed Income Fund 984,807 10,380
Strategic Income Fund 296,372 2,667
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TOTAL FIXED INCOME FUNDS
(Cost $13,696) 13,047
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MONEY MARKET FUND -- 1.7%
First American Funds, Inc.
Prime Obligations Fund 1,534,367 1,534
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TOTAL MONEY MARKET FUND
(Cost $1,534) 1,534
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TOTAL INVESTMENTS -- 100.7%
(Cost $79,618) 90,128
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OTHER ASSETS AND LIABILITIES, NET -- (0.7)% (630)
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NET ASSETS:
Portfolio Capital -- ($.01 par value--
20 billion authorized) based on
6,155,317 outstanding shares $74,366
Distributions in excess of net
investment income (5)
Accumulated net realized gain on
investments 4,627
Net unrealized appreciation of
investments 10,510
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TOTAL NET ASSETS -- 100.0% $89,498
-------------
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE $ 14.54
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*Non-income producing.
GROWTH FUND
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
EQUITY FUNDS -- 69.6%
First American Investment Funds, Inc.
Emerging Markets Fund* 129,707 $ 1,402
Equity Index Fund 360,180 10,420
International Fund 305,643 7,492
Large Cap Growth Fund 591,454 13,426
Large Cap Value Fund 931,987 19,628
Mid Cap Growth Fund 363,209 6,894
Mid Cap Value Fund 540,095 7,210
Small Cap Growth Fund 64,383 1,807
Small Cap Value Fund 126,495 2,081
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TOTAL EQUITY FUNDS
(Cost $60,785) 70,360
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FIXED INCOME FUNDS -- 29.7%
First American Investment Funds, Inc.
Fixed Income Fund 2,277,694 24,007
Strategic Income Fund 671,605 6,044
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TOTAL FIXED INCOME FUNDS
(Cost $31,605) 30,051
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MONEY MARKET FUND -- 1.3%
First American Funds, Inc.
Prime Obligations Fund 1,335,089 1,335
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TOTAL MONEY MARKET FUND
(Cost $1,335) 1,335
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TOTAL INVESTMENTS -- 100.6%
(Cost $93,725) 101,746
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OTHER ASSETS AND LIABILITIES, NET -- (0.6)% (693)
-------------
NET ASSETS:
Portfolio Capital -- ($.01 par value--
20 billion authorized) based on
7,479,256 outstanding shares $86,056
Distributions in excess of net
investment income (6)
Accumulated net realized gain on
investments 6,982
Net unrealized appreciation of
investments 8,021
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TOTAL NET ASSETS -- 100.0% $101,053
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NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE $ 13.51
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*Non-income producing.
The accompanying notes are an integral part of the financial statements.
(2 FIRST AMERICAN FUNDS SEMIANNUAL REPORT 2000
<PAGE>
GROWTH & INCOME FUND
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
EQUITY FUNDS -- 54.4%
First American Investment Funds, Inc.
Emerging Markets Fund* 185,799 $ 2,009
Equity Index Fund 817,939 23,663
International Fund 349,992 8,578
Large Cap Growth Fund 1,052,204 23,885
Large Cap Value Fund 1,626,623 34,257
Mid Cap Growth Fund 460,444 8,739
Mid Cap Value Fund 661,272 8,828
Small Cap Growth Fund 117,814 3,307
Small Cap Value Fund 205,008 3,372
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TOTAL EQUITY FUNDS
(Cost $101,759) 116,638
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FIXED INCOME FUNDS -- 44.6%
First American Investment Funds, Inc.
Fixed Income Fund 7,215,722 76,054
Strategic Income Fund 2,161,547 19,454
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TOTAL FIXED INCOME FUNDS
(Cost $100,583) 95,508
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MONEY MARKET FUND -- 0.9%
First American Funds, Inc.
Prime Obligations Fund 1,893,466 1,893
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TOTAL MONEY MARKET FUND
(Cost $1,893) 1,893
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TOTAL INVESTMENTS -- 99.9%
(Cost $204,235) 214,039
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OTHER ASSETS AND LIABILITIES, NET -- 0.1% 262
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NET ASSETS:
Portfolio Capital -- ($.01 par value--
20 billion authorized) based on
17,557,308 outstanding shares $195,145
Distributions in excess of net
investment income (9)
Accumulated net realized gain on
investments 9,361
Net unrealized appreciation of
investments 9,804
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TOTAL NET ASSETS -- 100.0% $214,301
-------------
NET ASSET VALUE, OFFERING PRICE, AND
REDEMPTION PRICE PER SHARE $ 12.21
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*Non-income producing.
INCOME FUND
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
EQUITY FUNDS -- 29.8%
First American Investment Funds, Inc.
Equity Income Fund 741,710 $11,289
Equity Index Fund 471,215 13,632
Real Estate Securities Fund 262,195 2,813
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TOTAL EQUITY FUNDS
(Cost $26,846) 27,734
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FIXED INCOME FUNDS -- 69.3%
First American Investment Funds, Inc.
Fixed Income Fund 4,879,160 51,426
Strategic Income Fund 1,451,484 13,064
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TOTAL FIXED INCOME FUNDS
(Cost $66,956) 64,490
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MONEY MARKET FUND -- 0.2%
First American Funds, Inc.
Prime Obligations Fund 161,370 161
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TOTAL MONEY MARKET FUND
(Cost $161) 161
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TOTAL INVESTMENTS -- 99.3%
(Cost $93,963) 92,385
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OTHER ASSETS AND LIABILITIES, NET -- 0.7% 691
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NET ASSETS:
Portfolio Capital -- ($.01 par value--
20 billion authorized) based on
9,027,158 outstanding shares $97,444
Distributions in excess of net
investment income (5)
Accumulated net realized loss on
investments (2,785)
Net unrealized depreciation of
investments (1,578)
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TOTAL NET ASSETS -- 100.0% $93,076
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NET ASSET VALUE, OFFERING PRICE, AND
REDEMPTION PRICE PER SHARE $ 10.31
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The accompanying notes are an integral part of the financial statements.
FIRST AMERICAN FUNDS SEMIANNUAL REPORT 2000 3)
<PAGE>
STATEMENTS OF OPERATIONS for the six months ended March 31, 2000 (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 $ 520 $ 1,076 $ 3,419 $ 2,252
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 520 1,076 3,419 2,252
========================================================================================================
EXPENSES:
Investment advisory fees 98 118 267 105
Less: Waiver of investment advisory fees (98) (118) (267) (105)
Less: Reimbursement of expenses by adviser (117) (137) (254) (131)
Shareholder servicing fee 98 118 267 105
Administrator fees 42 51 116 45
Transfer agent fees 37 42 46 47
Custodian fees 12 14 32 13
Directors' fees 1 1 2 1
Registration fees 19 22 45 19
Professional fees 17 21 47 18
Printing 6 7 16 6
Amortization of organizational costs 2 2 2 2
Other 1 1 2 1
- --------------------------------------------------------------------------------------------------------
TOTAL EXPENSES AFTER WAIVERS
AND REIMBURSEMENTS 118 142 321 126
========================================================================================================
Investment income - net 402 934 3,098 2,126
- --------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS - NET:
Capital gain distributions received
from underlying funds 5,217 6,068 11,556 1,219
Net realized gain (loss) on investments 2,789 3,188 4,545 (3,528)
Net change in unrealized appreciation/
depreciation of investments 10,640 8,001 10,837 2,946
- --------------------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS 18,646 17,257 26,938 637
========================================================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $19,048 $18,191 $30,036 $ 2,763
========================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
(4 FIRST AMERICAN FUNDS SEMIANNUAL REPORT 2000
<PAGE>
(This page has been left blank intentionally.)
FIRST AMERICAN FUNDS SEMIANNUAL REPORT 2000 5)
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS in thousands
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND GROWTH FUND
- --------------------------------------------------------------------------------------------------------------------------------
10/1/99 10/1/98 10/1/99 10/1/98
to to to to
3/31/00 9/30/99 3/31/00 9/30/99
- --------------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
OPERATIONS:
Investment income - net $ 402 $ 821 $ 934 $ 1,711
Capital gain distributions received from underlying funds 5,217 5,874 6,068 5,504
Net realized gain (loss) on investments 2,789 (1,748) 3,188 (1,330)
Net change in unrealized appreciation/depreciation of investments 10,640 7,465 8,001 5,640
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Net increase in net assets resulting from operations 19,048 12,412 18,191 11,525
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DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment Income - net (407) (834) (939) (1,722)
Net realized gain on investments and capital gain distributions received
from underlying funds (5,650) (4,389) (4,765) (4,142)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (6,057) (5,223) (5,704) (5,864)
================================================================================================================================
CAPITAL SHARE TRANSACTIONS(1):
Proceeds from sales 23,158 30,697 16,063 52,026
Reinvestment of distributions 6,042 5,204 5,684 5,495
Payments for redemptions (19,706) (38,712) (21,394) (40,625)
- --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share transactions 9,494 (2,811) 353 16,896
- --------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 22,485 4,378 12,840 22,557
NET ASSETS AT BEGINNING OF PERIOD 67,013 62,635 88,213 65,656
================================================================================================================================
NET ASSETS AT END OF PERIOD(2) $ 89,498 $ 67,013 $ 101,053 $ 88,213
================================================================================================================================
(1)CAPITAL SHARE TRANSACTIONS:
Shares issued 1,723 2,567 1,272 4,481
Shares issued in lieu of cash distributions 478 455 464 485
Shares redeemed (1,469) (3,239) (1,702) (3,462)
- --------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CAPITAL SHARES 732 (217) 34 1,504
================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
(6 FIRST AMERICAN FUNDS SEMIANNUAL REPORT 2000
<PAGE>
<TABLE>
<CAPTION>
GROWTH & INCOME FUND INCOME FUND
- --------------------------------------------------------
10/1/99 10/1/98 10/1/99 10/1/98
to to to to
3/31/00 9/30/99 3/31/00 9/30/99
- --------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
$ 3,098 $ 5,845 $ 2,126 $ 5,196
11,556 14,153 1,219 2,214
4,545 (3,117) (3,528) (185)
10,837 8,888 2,946 (5,311)
- --------------------------------------------------------
30,036 25,769 2,763 1,914
- --------------------------------------------------------
(2)Includes (distributions in
(3,107) (5,891) (2,180) (5,194) excess of net investment income)
undistributed net investment
(14,068) (11,500) (1,647) (3,732) income (000) of $(5) and $0 for
- -------------------------------------------------------- Aggressive Growth Fund, $(6) and
(17,175) (17,391) (3,827) (8,926) $(1) for Growth Fund, $(9) and
======================================================== $0 for Growth & Income Fund, and
$(5) and $49 for Income Fund at
22,235 89,303 37,072 46,294 March 31, 2000, and September
17,033 15,268 3,678 8,507 30, 1999, respectively.
(47,057) (111,627) (29,912) (81,266)
- --------------------------------------------------------
(7,789) (7,056) 10,838 (26,465)
- --------------------------------------------------------
5,072 1,322 9,774 (33,477)
209,229 207,907 83,302 116,779
========================================================
$ 214,301 $ 209,229 $ 93,076 $ 83,302
========================================================
1,899 7,800 3,638 4,206
1,485 1,362 356 781
(4,004) (9,742) (2,914) (7,435)
- --------------------------------------------------------
(620) (580) 1,080 (2,448)
========================================================
</TABLE>
FIRST AMERICAN FUNDS SEMIANNUAL REPORT 2000 7)
<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
2000* (unaudited) $ 12.36 $ 0.07 $ 3.23 $ (0.07) $ (1.05)
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
2000* (unaudited) $ 11.85 $ 0.12 $ 2.31 $ (0.13) $ (0.64)
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
2000* (unaudited) $ 11.51 $ 0.17 $ 1.49 $ (0.17) $ (0.79)
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
2000* (unaudited) $ 10.48 $ 0.26 $ 0.06 $ (0.26) $ (0.23)
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.
*For the six months ended March 31. All ratios have 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 FIRST AMERICAN FUNDS SEMIANNUAL REPORT 2000
<PAGE>
<TABLE>
<CAPTION>
RATIO OF RATIO OF NET
EXPENSES TO INVESTMENT
RATIO OF RATIO OF NET AVERAGE INCOME (LOSS)
NET ASSET EXPENSES TO INVESTMENT NET ASSETS TO AVERAGE NET
VALUE NET ASSETS AVERAGE INCOME TO (EXCLUDING ASSETS (EXCLUDING
END OF TOTAL END OF NET AVERAGE WAIVERS AND WAIVERS & PORTFOLIO
PERIOD RETURN PERIOD (000) ASSETS(2) NET ASSETS REIMBURSEMENTS)(2) REIMBURSEMENTS)(2) TURNOVER
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 14.54 28.15%+ $ 89,498 0.30% 1.03% 0.85% 0.48% 32%
12.36 20.54 67,013 0.28 1.20 0.86 0.62 39
11.11 (9.85) 62,635 0.25 1.66 0.87 1.04 152
12.58 27.06+ 13,725 0.60(3) 0.76(3) 2.85(3) (1.49)(3) 7
$ 13.51 21.22%+ $101,053 0.30% 1.98% 0.84% 1.44% 33%
11.85 16.31 88,213 0.28 2.05 0.85 1.48 34
11.05 (5.95) 65,656 0.25 2.33 0.89 1.69 143
12.12 23.23+ 15,676 0.60(3) 1.61(3) 2.62(3) (0.41)(3) 6
$ 12.21 15.09%+ $214,301 0.30% 2.90% 0.79% 2.41% 33%
11.51 12.81 209,229 0.28 2.83 0.79 2.32 41
11.08 (2.18) 207,907 0.25 3.05 0.82 2.48 158
11.76 20.47+ 27,565 0.60(3) 2.59(3) 2.10(3) 1.09(3) 37
$ 10.31 3.07%+ $ 93,076 0.30% 5.07% 0.86% 4.51% 42%
10.48 1.13 83,302 0.28 4.83 0.83 4.28 21
11.23 8.72 116,779 0.25 4.63 0.84 4.04 106
10.82 12.51+ 36,119 0.60(3) 4.39(3) 2.00(3) 2.99(3) 29
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FIRST AMERICAN FUNDS SEMIANNUAL REPORT 2000 9)
<PAGE>
NOTES TO FINANCIAL STATEMENTS March 31, 2000 (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 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.
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 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.
(10 FIRST AMERICAN FUNDS SEMIANNUAL REPORT 2000
<PAGE>
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 six months ended March 31, 2000. Such waivers and reimbursements are
voluntary and may be discontinued at any time.
ADMINISTRATIVE FEES - SEI Investments Management Corporation ("SIMC")
provided administrative services, including certain accounting, legal, and
shareholder services to the First American Family of Funds from October 1,
1999 through December 31, 1999. Effective January 1, 2000, U.S. Bank was
appointed as the administrator and began providing administrative services
to the First American Family of Funds. Under both arrangements, the Funds
are charged an annual rate of 0.12% of each FASF Fund's average daily net
assets, with a minimum annual fee of $50,000. To the extent that aggregate
net assets of the First American Family of Funds exceed $8 billion, the
annual rate for each FASF Fund is reduced to 0.105% of their relative share
of excess net assets. Fees are computed daily and paid monthly.
SUB-ADMINISTRATION FEES - U.S. Bank assisted SIMC and provided
sub-administration services for the Funds from October 1, 1999 through
December 31, 1999. For these services SIMC compensates U.S. Bank, as
sub-administrator, monthly at an annual rate of up to 0.05% of each Fund's
daily net assets. The fees for each Fund from October 1, 1999 through
December 31, 1999, were approximately 0.03% of average daily net assets.
Under this arrangement, SIMC paid U.S. Bank $2,646,000 in aggregate for
this three month period. Effective January 1, 2000, SIMC was appointed
sub-administrator and began assisting U.S. Bank in providing
sub-administration services for the Funds. For these services, U.S. Bank
compensates SIMC monthly at an annual rate equal to 0.05% of aggregate
average daily net assets of FASF. In addition, SIMC also receives 0.015% on
assets up to $34.5 billion, 0.0075% on the next $25.5 billion and 0.005% on
assets over $60 billion for all Funds. There is a minimum $50,000 per Fund
fee (the oldest 38 Funds are excluded). U.S. Bank paid SIMC $2,820,000 in
aggregate from January 1, 2000 through March 31, 2000 for the First
American Family of Funds. For the Funds included in this semi-annual report
the amounts paid to U.S. Bank and SIMC for their respective periods were as
follows (000):
U.S. BANK SIMC
---------------------------------------------------------------------------
Aggressive Growth Fund $ 6 $ 9
Growth Fund 8 11
Growth & Income Fund 18 23
Income Fund 6 10
---------------------------------------------------------------------------
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 following amounts to
affiliates of U.S. Bank for the six months ended March 31, 2000 (000):
U.S. BANCORP
U.S. BANK PIPER JAFFRAY U.S. BANK TRUST
---------------------------------------------------------------------------
Aggressive Growth Fund $21 $ 5 $17
Growth Fund 32 9 25
Growth & Income Fund 47 11 44
Income Fund 59 9 21
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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 six months ended March 31,
2000, redemption fees paid to the Funds were as follows (000):
---------------------------------------------------------------------------
Aggressive Growth Fund $ 3
Growth Fund 2
Growth & Income Fund 7
Income Fund 18
---------------------------------------------------------------------------
FIRST AMERICAN FUNDS SEMIANNUAL REPORT 2000 11)
<PAGE>
NOTES TO FINANCIAL STATEMENTS March 31, 2000 (unaudited)
TRANSFER AGENT FEES - From October 1, 1999 to December 31, 1999 DST
Systems, Inc. provided transfer agency services for the Funds. Effective
January 1, 2000 U.S. Bank was appointed as transfer agent and dividend
disbursement agent. As the servicing agent U.S. Bank was paid $4,252,000 in
aggregate for the six month period ended March 31, 2000. For the six month
period ended March 31, 2000 fees paid to U.S. Bank for the funds included
in this report were as follows (000):
---------------------------------------------------------------------------
Aggressive Growth Fund $18
Growth Fund 21
Growth & Income Fund 21
Income Fund 18
---------------------------------------------------------------------------
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 of 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 Funds' expenses.
For the six months ended March 31, 2000, 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, 2000, 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 $33,844 $24,661
Growth Fund 32,571 30,319
Growth & Income Fund 69,493 68,101
Income Fund 45,860 35,647
---------------------------------------------------------------------------
At March 31, 2000, 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, 2000, is as
follows (000):
AGGREGATE GROSS AGGREGATE GROSS
FUND APPRECIATION DEPRECIATION NET
---------------------------------------------------------------------------
Aggressive Growth Fund $12,943 $(2,433) $10,510
Growth Fund 11,195 (3,174) 8,021
Growth & Income Fund 17,248 (7,444) 9,804
Income Fund 1,467 (3,045) (1,578)
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(12 FIRST AMERICAN FUNDS SEMIANNUAL REPORT 2000
<PAGE>
NOTICE TO SHAREHOLDERS
INVESTMENT STRATEGIES
Mid Cap Growth and Small Cap Growth funds recently updated their
prospectuses to clarify that the funds frequently invested in companies at
the time of their initial public offering (IPO). By virtue of its size and
institutional nature, the advisor may have greater access than individual
investors have to IPOs, including access to so-called "hot issues" that are
generally traded in the aftermarket at prices in excess of the IPO price.
IPOs will frequently be sold within 12 months of purchase. This may result
in increased short-term capital gains that will be taxable to shareholders
as ordinary income.
Companies involved in IPOs generally have limited operating histories, and
prospects for future profitability are uncertain. Prices of IPOs may also
be unstable due to the absence of a prior public market, the small number
of shares available for trading, and limited investor information.
STRATEGY FUNDS - FEE WAIVER CHANGE
Effective May 1, 2000, the advisor intends to waive fees and reimburse
expenses during the current fiscal year so that total operating expenses
for each Strategy fund do not exceed 0.40%. The previous fee waiver did not
exceed 0.30%.
FIRST AMERICAN FUNDS SEMIANNUAL REPORT 2000 13)
<PAGE>
TRIBUTE TO DAVID T. BENNETT
As friends and colleagues, the Board of Directors of First American Funds
wishes to recognize David T. Bennett for the significant and lasting
contributions he made as a Director of First American Funds. His services
were cut short by his recent and untimely death following a 13-year battle
with cancer.
David was an attorney with the law firm of Gray, Plant, Mooty, Mooty &
Bennett since graduating from law school in 1967. David was also a
successful entrepreneur, owning controlling interests in Highland
Manufacturing, Kiefer Built, and USL Products. He also devoted countless
hours to numerous civic and charitable groups, including the Minneapolis
Institute of Arts, the Guthrie Theater, the Nature Conservancy, and
Dunwoody Institute.
His association with the funds began in 1987, when he joined the Board of
Directors of Piper Funds. First American Funds have been the beneficiary of
David's experience, wisdom, and insight during challenging periods of
change and growth. His knowledge of the industry and mutual fund board
experience were invaluable during the critical transition period
integrating the Piper and First American Fund Families. David's abilities
were particularly appreciated by the Audit, Pricing, and Board Development
Committees on which he served. The Directors with whom he served value
greatly their time spent together.
We gratefully and sincerely recognize David's contributions and extend our
sincere condolences to David's family and friends.
(14 FIRST AMERICAN FUNDS SEMIANNUAL REPORT 2000
<PAGE>
BOARD OF DIRECTORS FIRST AMERICAN STRATEGY FUNDS, INC.
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. JOHN MURPHY JR.
Director of First American Strategy Funds, Inc.
Executive Vice President, U.S. Bancorp
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 Investment Funds, Inc.
Owner and President of Strauss Management Company
MS. VIRGINIA STRINGER
Chairperson of First American Strategy Funds, Inc.
Owner and President of Strategic Management Resources, Inc.
FIRST AMERICAN FUNDS SEMIANNUAL REPORT 2000
<PAGE>
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
FIRST AMERICAN FUNDS
P.O. Box 1330
Minneapolis, MN 55440-1330
This report and the financial statements contained herein are submitted
for the general information of the shareholders of the corporation.
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.
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.
3013-00 5/2000
