<PAGE>
===============================================================================
THE STRONG
SCHAFER BALANCED FUND
SEMI-ANNUAL REPORT o MARCH 31, 1998
[PHOTO OF FAMILY WALKING DOWN STEPS]
[STRONG LOGO]
STRONG FUNDS
<PAGE>
8
EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING
These common-sense rules are followed by many successful investors. They make
sense for beginners, too. If you have a question on these principles, or would
like to discuss them with us, please contact us at 1-800-368-3863. We're here
24 hours a day, seven days a week to take your call.
- -------------------------------------------------------------------------------
[PICTURE OF FOLDER LABELED INVESTMENTS]
1. HAVE A PLAN. Even a simple plan can help you take control of your financial
future. Review your plan once a year, or if your circumstances change.
- -------------------------------------------------------------------------------
[PICTURE OF CLOCK]
2. START INVESTING AS SOON AS POSSIBLE. Make time a valuable ally. Let it put
the power of compounding to work for you, while helping to reduce your
potential investment risk.
- -------------------------------------------------------------------------------
[PICTURE OF PIE CHART OF ASSET DIVERSIFICATION]
3. DIVERSIFY YOUR PORTFOLIO. By investing in different asset classes - stocks,
bonds, and cash - you help protect against poor performance in one type of
investment while including investments most likely to help you achieve your
important goals.
- -------------------------------------------------------------------------------
[PICTURE OF MEMO REMINDER TO INVEST]
4. INVEST REGULARLY. Investing is a process, not a one-time event. By
investing regularly over the long term, you reduce the impact of short-term
market gyrations, and you attend to your long-term plan before you're tempted
to spend those assets on short-term needs.
- -------------------------------------------------------------------------------
[PICTURE OF GRAPH SLOPING UPWARD]
5. MAINTAIN A LONG-TERM PERSPECTIVE. For most individuals, the best discipline
is staying invested as market conditions change. Reactive, emotional investment
decisions are all too often a source of regret - and of principal loss.
- -------------------------------------------------------------------------------
[PICTURE OF PIE CHART OF ASSET DIVERSIFICATION EMPHASIZING STOCKS]
6. CONSIDER STOCKS TO HELP ACHIEVE MAJOR LONG-TERM GOALS. Over time, stocks
have provided the more powerful returns needed to help the value of your
investments stay well ahead of inflation.
- -------------------------------------------------------------------------------
[PICTURE OF DOLLAR SIGN]
7. KEEP A COMFORTABLE AMOUNT OF CASH IN YOUR PORTFOLIO. To meet current needs,
including emergencies, use a money market fund or a bank account - not your
long-term investment assets.
- -------------------------------------------------------------------------------
[PICTURE OF MAGNIFYING GLASS]
8. KNOW WHAT YOU'RE BUYING. Make sure you understand the potential risks and
rewards associated with each of your investments. Ask questions...request
information...make up your own mind. And choose a fund company that helps you
make informed investment decisions.
<PAGE>
===============================================================================
THE STRONG
SCHAFER BALANCED FUND
SEMI-ANNUAL REPORT o MARCH 31, 1998
TABLE OF CONTENTS
INVESTMENT REVIEW
The Strong Schafer Balanced Fund.........................................2
FINANCIAL INFORMATION
Schedule of Investments..................................................5
Statement of Assets and Liabilities......................................6
Statement of Operations..................................................7
Statement of Changes in Net Assets.......................................8
Notes to Financial Statements............................................9
FINANCIAL HIGHLIGHTS.........................................................11
<PAGE>
THE STRONG SCHAFER BALANCED FUND
WE INVEST IN INVESTMENT-GRADE BONDS AND PICK STOCKS, ONE AT A TIME, BASED ON
OUR "BOTTOM-UP" INVESTMENT APPROACH.
The Strong Schafer Balanced Fund seeks total return by investing for both
income and capital growth. The Fund invests primarily in large-capitalization
stocks and investment-grade bonds.
PERFORMANCE SUMMARY
The period from December 31, 1997 to March 31, 1998 marked the first quarter of
operations for the Strong Schafer Balanced Fund. For the quarter, the Fund
gained 4.31% versus an increase of 8.97% for its benchmark index, the 60/40
Balanced Index.* The return differential came predominantly from the
performance of the equity portfolio versus the S&P 500, as the market got off
to a quicker start this year than the Fund. While the Fund's equity
performance lagged during this interim period, we continue to pick stocks
utilizing our time-tested, low-P/E style of investing which we believe will
generate a positive return for our investors.
We keep the equity and fixed income portions of the Strong Schafer Balanced
Fund essentially fully invested at all times and do not try to "time" or
predict the short-term fluctuations of the stock or bond market. We invest in
investment-grade bonds and pick stocks, one at a time, based on our "bottom-up"
investment approach.
STOCK MARKET STRONG FOR SELECTED SEGMENTS
Strong, but opposing, influences impacted the financial markets over the past
quarter. The economy of the U.S. continued to experience very low unemployment
and inflation, exerting upward pressure on many stocks. At the same time, many
Asian economies saw their track record of rapid growth come to a halt, hurting
the segment of the U.S. market that had exposure to that region.
In the confusion created by the mixed conditions, many investors gravitated
towards companies with predominantly U.S. operations that have historically
done well in strong economies. On the other hand, companies with an exposure to
Asia, whether real or perceived, tended to underperform the S&P 500, sometimes
even declining in price. Many quality small- and mid-cap stocks, not enjoying a
familiarity with investors that can be so helpful to a stock's performance in
uncertain times, failed to match the return of the S&P 500.
THE FUND'S POSITIONING
As Asian economies weakened, many U.S. manufacturers of heavy equipment saw
their orders from that region dry up. This negatively affected the prices of
the Fund's holdings, such as Harnischfeger and Cummins Engine, in the heavy
equipment industry. The decline in oil prices, to a 10-year low in March, hurt
the performance of all of the energy-related companies in the portfolio. On the
positive side, the low interest rates and mild winter weather experienced in
the U.S. gave construction and automotive-related companies unseasonably strong
results. The Fund holds Lafarge Corporation, Ford, Goodyear Tire & Rubber and
Borg-Warner Automotive in these industries.
OUTLOOK
We believe that the historically high valuation of the stock market makes this
an ideal time for the application of our disciplined equity investment process
combined with a position in investment-grade fixed income securities. Our
investment style, coupled with this hot market, has created a portfolio that is
more inexpensive than usual, on a P/E basis, relative to the S&P 500. We
continue to seek out stocks with P/E multiples less than that of the S&P 500
with projected two-to-three-year earnings growth greater than the S&P 500.
2
<PAGE>
We also give the stocks in our portfolio equal initial weightings. Our
disciplined process of buying and selling has allowed us to keep our turnover
of securities within the fund relatively low.
The table on the following page shows the positive valuation comparison that
our equity portfolio enjoys versus the S&P 500. The average stock held in the
Strong Schafer Balanced Fund has a price/earnings ratio of 12.9 times 1999
estimated earnings, well below that of the S&P 500 at 21.8 times consensus
earnings projections. Furthermore, we estimate that the average stock in our
portfolio will grow earnings per share at a rate of 10.8% in 1998 and 15.4% in
1999 versus consensus estimates of less than 7%, in both years, for the S&P 500.
[PHOTO OF DAVID K. SCHAFER]
Thank you for investing in the Strong Schafer Balanced Fund. We appreciate your
confidence in our investment approach.
Sincerely,
/s/ David K. Schafer
David K. Schafer
Portfolio Manager
===============================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
===============================================================================
From 12-31-97 to 3-31-98
[GRAPH]
THE STRONG SCHAFER S&P 500
BALANCED FUND Index*
12-97 10,000 10,000
1-98 9,760 10,111
2-98 10,160 10,840
3-98 10,431 11,395
This graph, prepared in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with a similar investment in
the Standard & Poor's 500 Stock Index ("S&P 500"). Results include the
reinvestment of all dividends and capital gains distributions. Performance is
historical and does not represent future results. Investment returns and
principal value vary, and you may have a gain or loss when you sell shares in
the Fund.
===============================================================================
===============================
TOTAL RETURNS(1)
As of 3-31-98
===============================
SINCE INCEPTION 4.31%
(on 12-31-97)
===============================
- -------------------------------------------------------------------------------
* The 60/40 Balanced Index is comprised of 60% S&P 500 Stock Index and 40%
Lehman Brothers Intermediate Government Bond Index. The S&P 500 Stock Index
is an unmanaged index generally representative of the U.S. stock market,
without regard to company size. The Lehman Brothers Intermediate Government
Bond Index is an unmanaged index generally representative of government
securities with maturities of 1-10 years. Source of the index data is
Standard & Poor's Micropal.
1 Total return is not annualized and measures aggregate change in the value
of an investment in the Fund, assuming reinvestment of dividends.
3
<PAGE>
<TABLE>
=========================================================================================================
PORTFOLIO HOLDINGS, EARNINGS PER SHARE ESTIMATES, AND PRICE/EARNINGS RATIOS AS OF 4-20-98 (UNAUDITED)
=========================================================================================================
<CAPTION>
SECURITY CLOSING PRICE EARNINGS PER SHARE PRICE/EARNINGS RATIO
... (4-20-98) 1997A 1998E 1999E 1998E 1999E
<S> <C> <C> <C> <C> <C> <C>
Philip Services 9 7/16 0.90 1.15 1.40 8.2 6.7
........................................................................................................
KLM Royal Dutch Air 42 5/8 -NA- 4.27 5.20 10.0 8.2
........................................................................................................
New Holland 26 3/4 2.60 2.85 3.10 9.4 8.6
........................................................................................................
Ford Motor 48 9/16 5.35 5.45 5.50 8.9 8.8
........................................................................................................
Cummins Engine 52 7/16 5.50 5.25 5.60 10.0 9.4
........................................................................................................
Harman International 39 1/2 2.90 3.35 4.15 11.8 9.5
........................................................................................................
R&B Falcon Drilling 30 3/4 1.52 2.05 3.25 15.0 9.5
........................................................................................................
UCAR International 33 1/4 3.07 3.25 3.50 10.2 9.5
........................................................................................................
Cleveland.Cliffs 56 3/8 4.05 4.90 5.75 11.5 9.8
........................................................................................................
Partner Re Ltd 51 5/16 4.37 4.50 4.80 11.4 10.7
........................................................................................................
Arrow Electronics 27 1/8 2.05 2.05 2.40 13.2 11.3
........................................................................................................
Ultramar Diamond 35 1/16 1.80 2.55 3.10 13.8 11.3
........................................................................................................
Borg Warner Auto 65 1/2 4.35 4.95 5.75 13.2 11.4
........................................................................................................
Diamond Offshore 46 7/16 1.96 3.00 4.05 15.5 11.5
........................................................................................................
Lafarge Corp 40 2.50 2.90 3.30 13.8 12.1
........................................................................................................
Owens Corning 43 7/8 3.00 2.85 3.60 15.4 12.2
........................................................................................................
Callaway Golf 28 7/8 1.85 1.95 2.35 14.8 12.3
........................................................................................................
Harnischfeger 30 5/8 2.90 1.40 2.50 21.9 12.3
........................................................................................................
Sun Company 42 11/16 2.90 3.10 3.45 13.8 12.4
........................................................................................................
Avnet 60 1/2 4.23 4.20 4.80 14.4 12.6
........................................................................................................
Burlington Northern 101 3/8 5.95 7.15 8.05 14.2 12.6
........................................................................................................
Chase Manhattan 137 8.35 9.60 10.70 14.3 12.8
........................................................................................................
National Bank of Canada 30 7/10 1.80 2.20 2.40 14.0 12.8
........................................................................................................
Goodyear Tire & Rubber 72 4.75 5.10 5.60 14.1 12.9
........................................................................................................
W.R. Berkely 46 5/8 2.74 3.10 3.45 15.0 13.5
........................................................................................................
Old Republic International 46 5/8 3.15 3.10 3.40 15.0 13.7
........................................................................................................
Phillips NV 74 13/16 4.60 4.60 5.45 16.3 13.7
........................................................................................................
Southdown 71 7/16 3.90 4.60 5.20 15.5 13.7
........................................................................................................
Armstrong World 89 3/8 5.22 5.75 6.35 15.5 14.1
........................................................................................................
NationsBank 78 4.28 4.60 5.55 17.0 14.1
........................................................................................................
IBP Corporation 22 1/4 1.24 1.30 1.55 17.1 14.4
........................................................................................................
Western Resources 40 5/16 2.45 2.65 2.80 15.2 14.4
........................................................................................................
Citicorp 159 1/8 8.30 9.35 10.60 17.0 15.0
........................................................................................................
Boeing Company 53 1/4 1.05 2.00 3.50 26.6 15.2
........................................................................................................
Storage Technology 79 15/16 3.75 4.30 5.10 18.6 15.7
........................................................................................................
Phillips Petroleum 50 1/2 3.45 2.90 3.20 17.4 15.8
........................................................................................................
Bell Atlantic 95 1/8 3.17 5.45 6.00 17.5 15.9
........................................................................................................
Federal Express 73 15/16 3.50 3.88 4.50 19.1 16.4
........................................................................................................
Repsol 55 3/8 2.75 3.00 3.30 18.5 16.8
........................................................................................................
GTE Corporation 60 15/16 2.93 3.10 3.50 19.7 17.4
........................................................................................................
Electronic Data Systems 43 1.85 2.15 2.45 20.0 17.6
.........................................................................................................
May Department Stores 65 1/4 2.94 3.16 3.45 20.6 18.9
.........................................................................................................
Mellon Bank 69 3/4 2.90 3.20 3.60 21.8 19.4
-------------------
STRONG SCHAFER BALANCED FUND
PORTFOLIO AVERAGES 15.3 12.9
S&P 500 INDEX 1,116.53 45.36 48.26 51.12 23.1 21.8
A=ACTUAL E=ESTIMATE
</TABLE>
4
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES MARCH 31, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------
Shares or
Principal Value
Amount (Note 2)
- ------------------------------------------------------------------------------
COMMON STOCKS 57.8%
AEROSPACE & DEFENSE 1.4%
The Boeing Company 2,100 $ 109,462
AIRLINE 2.6%
FDX Corporation (b) 1,550 110,244
KLM Royal Dutch Airlines 2,500 101,563
----------
211,807
AUTO & TRUCK PARTS 2.7%
Borg-Warner Automotive, Inc. 1,700 109,013
The Goodyear Tire & Rubber Company 1,400 106,050
---------
215,063
AUTOMOBILE 1.3%
Ford Motor Company 1,650 106,940
BANK - MONEY CENTER 5.3%
The Chase Manhattan Corporation 750 101,156
Citicorp 750 106,500
National Bank of Canada 6,700 126,803
NationsBank Corporation 1,300 94,818
---------
429,277
BANK - SUPER REGIONAL 1.3%
Mellon Bank Corporation 1,700 107,950
BROKERAGE & INVESTMENT MANAGEMENT 1.6%
Kansas City Southern Industries, Inc. 2,900 127,600
COMPUTER PERIPHERAL EQUIPMENT 1.2%
Storage Technology Corporation (b) 1,300 98,881
COMPUTER SERVICE 1.2%
Electronic Data Systems Corporation 2,100
96,337
ELECTRIC POWER 2.7%
Kansas City Power & Light Company 3,700 116,550
Western Resources, Inc. 2,400 102,600
---------
219,150
ELECTRONIC PARTS DISTRIBUTION 2.6%
Arrow Electronics, Inc. (b) 3,750 101,484
Avnet, Inc. 1,800 103,612
---------
205,096
FOOD 1.2%
IBP, Inc. 4,400 98,725
HOUSING APPLIANCES & FURNISHINGS 2.6%
Harman International Industries, Inc. 2,500 110,000
Philips Electronics NV ADR 1,400 102,813
---------
212,813
HOUSING RELATED 2.8%
Armstrong World Industries, Inc. 1,200 103,875
Owens Corning 3,400 122,188
---------
226,063
INSURANCE - PROPERTY & CASUALTY 3.9%
W.R. Berkley Corporation 2,300 108,963
Old Republic International Corporation 2,200 97,488
PartnerRe, Ltd. 2,100 103,163
---------
309,614
LEISURE PRODUCT 1.3%
Callaway Golf Company 3,500 101,500
MACHINERY - AGRICULTURE 1.3%
New Holland NV 3,650 99,462
MACHINERY - MISCELLANEOUS 1.4%
Harnischfeger Industries, Inc. 3,400 116,237
MACHINERY - TRANSPORTATION EQUIPMENT & PARTS 1.1%
Cummins Engine Company, Inc. 1,600 88,200
METALS & MINING 2.7%
Cleveland-Cliffs, Inc. 1,950 104,813
Lafarge Corporation 2,900 111,288
---------
216,101
OIL - INTERNATIONAL INTEGRATED 1.4%
Repsol Sponsored ADR 2,200 111,925
OIL - NORTH AMERICAN INTEGRATED 4.0%
Phillips Petroleum Company 2,300 114,856
Sun Company, Inc. 2,300 94,013
Ultramar Diamond Shamrock Corporation 3,100 109,275
---------
318,144
OIL WELL EQUIPMENT & SERVICE 3.0%
Diamond Offshore Drilling, Inc. 2,600 117,975
R & B Falcon Corporation (b) 4,300 127,387
---------
245,362
POLLUTION CONTROL 1.3%
Philip Services Corporation (b) 9,700 101,243
RAILROAD 1.2%
Burlington Northern Santa Fe Corporation 950 98,800
RETAIL - DEPARTMENT STORE 1.2%
May Department Stores Company 1,500 95,250
STEEL 0.9%
UCAR International, Inc. (b) 2,400 75,300
TELECOMMUNICATION SERVICE 1.3%
Bell Atlantic Corporation 1,050 107,625
TELEPHONE 1.3%
GTE Corporation 1,700 101,788
- ------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $4,303,006) 4,651,715
- ------------------------------------------------------------------------------
UNITED STATES GOVERNMENT & AGENCY ISSUES 39.0%
United States Treasury Notes, 5.625%,
Due 11/30/99 $ 420,000 420,263
United States Treasury Notes, 6.50%, Due 8/31/01 2,325,000 2,383,853
United States Treasury Notes, 6.625%, Due 5/15/07 320,000 339,600
- ------------------------------------------------------------------------------
TOTAL UNITED STATES GOVERNMENT & AGENCY ISSUES (COST $3,160,743) 3,143,716
- ------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 2.8%
COMMERCIAL PAPER
INTEREST BEARING, DUE UPON DEMAND
American Family Financial Services, Inc., 5.27% 12,700 12,700
General Mills, Inc., 5.29% 30,400 30,400
Johnson Controls, Inc., 5.29% 78,200 78,200
Sara Lee Corporation, 5.29% 4,800 4,800
Wisconsin Electric Power Company, 5.27% 95,400 95,400
- ------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $221,500) 221,500
- -----------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES 99.6% (COST $7,685,249) 8,016,931
Other Assets & Liabilities, Net 0.4% 35,284
- ------------------------------------------------------------------------------
NET ASSETS 100.0% $8,052,215
==============================================================================
LEGEND
- -------------------------------------------------------------------------------
(a) Short-term investments include any security which has a maturity of less
than one year.
(b) Non-income producing security.
See notes to financial statements.
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
March 31, 1998 (Unaudited)
ASSETS:
Investments in Securities, at Market Value
(Cost of $7,685,249) $8,016,931
Dividends and Interest Receivable 35,908
Other Assets 11,459
----------
Total Assets 8,064,298
ACCRUED OPERATING EXPENSES AND OTHER LIABILITIES 12,083
----------
NET ASSETS $8,052,215
==========
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) $7,723,985
Accumulated Net Investment Loss (3,556)
Undistributed Net Realized Gain 104
Net Unrealized Appreciation 331,682
----------
Net Assets $8,052,215
==========
Capital Shares Outstanding (Unlimited Number Authorized) 774,518
NET ASSET VALUE PER SHARE $10.40
======
See notes to financial statements.
6
<PAGE>
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
For the Period Ended March 31, 1998 (Unaudited)
INCOME:
Dividends $ 12,964
Interest 32,376
--------
Total Income 45,340
EXPENSES:
Investment Advisory Fees 12,857
Custodian Fees 3,563
Shareholder Servicing Costs 2,864
Professional Fees 1,343
Federal and State Registration Fees 3,498
Other 1,458
-------
Total Expenses 25,583
-------
NET INVESTMENT INCOME 19,757
REALIZED AND UNREALIZED GAIN:
Net Realized Gain on Investments 104
Change in Unrealized Appreciation/Depreciation on Investments 331,682
-------
NET GAIN 331,786
--------
NET INCREASE IN NET ASSETS FROM OPERATIONS $351,543
========
See notes to financial statements.
7
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
PERIOD ENDED
MARCH 31, 1998
(UNAUDITED)
--------------
(NOTE 1)
OPERATIONS:
Net Investment Income $ 19,757
Net Realized Gain 104
Change in Unrealized Appreciation/Depreciation 331,682
----------
Increase in Net Assets Resulting from Operations 351,543
DISTRIBUTIONS:
From Net Investment Income (23,313)
----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 7,856,407
Proceeds from Reinvestment of Dividends 21,485
Payment for Shares Redeemed (653,907)
---------
Increase in Net Assets from Capital Share Transactions 7,223,985
---------
TOTAL INCREASE IN NET ASSETS 7,552,215
NET ASSETS:
Beginning of Period 500,000
----------
End of Period $8,052,215
==========
TRANSACTIONS IN SHARES OF THE FUND:
Sold 787,112
Issued in Reinvestment of Dividends 2,064
Redeemed (64,658)
--------
Net Increase 724,518
=========
See notes to financial statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
March 31, 1998 (Unaudited)
1. ORGANIZATION
Strong Schafer Balanced Fund is a diversified series of Strong Schafer
Funds, Inc., an open-end management investment company registered under
the Investment Company Act of 1940. The Fund commenced operations on
January 2, 1998.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
by the Fund in the preparation of its financial statements.
(A) Security Valuation -- Securities of the Fund are valued through
valuations obtained from a commercial pricing service or the mean of the
bid and asked price, when no last sales price is available. Securities
for which market quotations are not readily available are valued at
fair value as determined in good faith under consistently applied
procedures established by and under the general supervision of the Board
of Directors. Securities which are purchased within 60 days of their
stated maturity are valued at amortized cost, which approximates current
value.
The Fund may own certain investment securities which are restricted as
to resale. These securities are valued after giving due consideration
to pertinent factors, including recent private sales, market conditions
and the issuer's financial performance. The Fund generally bears the
costs, if any, associated with the disposition of restricted securities.
The Fund held no restricted securities at March 31, 1998.
(B) Federal Income and Excise Taxes and Distributions to Shareholders -- It
is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders
in a manner which results in no tax cost to the Fund. Therefore, no
federal income or excise tax provision is required.
The character of distributions made during the year from net investment
income or net realized gains may differ from the characterization for
federal income tax purposes due to differences in the recognition of
income and expense items for financial statement and tax purposes.
Where appropriate, reclassifications between net asset accounts are made
for such differences that are permanent in nature.
(C) Realized Gains and Losses on Investment Transactions -- Gains or losses
realized on investment transactions are determined by comparing the
identified cost of the security lot sold with the net sales proceeds.
(D) Foreign Currency Translation -- Investment securities and other assets
and liabilities initially expressed in foreign currencies are converted
to U.S. dollars based upon current exchange rates. Purchases and sales
of foreign investment securities and income are converted to U.S.
dollars based upon currency exchange rates prevailing on the respective
dates of such transactions. The effect of changes in foreign exchange
rates on realized and unrealized security gains or losses is reflected
as a component of such gains or losses.
Foreign denominated assets and forward currency contracts may involve
greater risks than domestic transactions, including currency, political
and economic, regulatory and market risks.
(E) Repurchase Agreements -- The Fund may enter into repurchase agreements
with institutions that the Fund's investment advisor, Strong Capital
Management, Inc. ("the Advisor") has determined are creditworthy pursuant
to criteria adopted by the Board of Directors. Each repurchase agreement
is recorded at cost. The Fund requires that the collateral, represented
by securities (primarily U.S. Government securities), purchased in a
repurchase transaction be maintained in a segregated account with a
custodian in a manner sufficient to enable the Fund to obtain those
securities in the event of a default under the repurchase agreement. On
a daily basis, the Advisor monitors the value of the collateral
transferred under each repurchase agreement to ensure the value of the
collateral exceeds the amounts owed to the Fund under each repurchase
agreement by at least 2%.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
March 31, 1998 (Unaudited)
(F) Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. Actual results could differ from those estimates.
(G) Other -- Investment security transactions are recorded as of the trade
date. Dividend income and distributions to shareholders are recorded on
the ex-dividend date. Interest income is recorded on the accrual basis
and includes amortization of premium and discounts.
3. RELATED PARTY TRANSACTIONS
Strong Capital Management, Inc. (the "Advisor"), with whom certain officers
and directors of the Fund are affiliated, provides investment advisory and
shareholder recordkeeping and related services to the Fund. Investment
advisory fees, which are established by terms of the Advisory Agreement, are
based on an annualized rate of 1.00% of the average daily net assets of the
Fund. Advisory fees and expenses are subject to reimbursement by the
Advisor if the Fund's operating expenses exceed certain levels. Shareholder
recordkeeping and related service fees are based on contractually
established rates for each open and closed shareholder account. In
addition, the Advisor is compensated for certain other services related to
costs incurred for reports to shareholders.
Schafer Capital Management, Inc. ("Schafer") manages the investments of the
Fund under an agreement with the Advisor. Schafer is compensated by the
Advisor (not the Fund) and bears all of its own expenses in providing
subadvisory services.
The Fund may invest cash reserves in money market funds sponsored and
managed by the Advisor, subject to certain limitations. The terms of such
transactions are identical to those of non-related entities except that, to
avoid duplicate investment advisory fees, advisory fees of the Fund are
reduced by an amount equal to advisory fees paid to the Advisor under its
investment advisory agreement with the money market funds.
The amount payable to the Advisor at March 31, 1998 and unaffiliated
directors' fees for the period then ended were $35 and $375, respectively.
The Advisor owns 5.2% of the outstanding shares of the Fund at March 31,
1998.
4. INVESTMENT TRANSACTIONS
The aggregate purchases of U.S. government and Agency securities for the
period ended March 31, 1998 were $3,164,387. The aggregate purchases and
sales of other long term securities for the period ended March 31, 1998 were
$4,412,632 and $109,729, respectively.
5. INCOME TAX INFORMATION
At March 31, 1998, the cost of investments in securities for federal income
tax purposes was $7,685,249. Net unrealized appreciation of securities was
$331,682, consisting of gross unrealized appreciation and depreciation of
$418,582 and $86,900, respectively.
10
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA(a)
------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------- --------------------------------
<CAPTION>
Net Realized
Net Asset and Unrealized Total Net Asset
Value, Net Gains from From Net From Net Value,
Beginning Investment on Investment Investment Realized Total End of
Period Ended of Period Income Investments Operations Income Gains Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mar. 31, 1998(b) $10.00 $0.03 $0.40 $0.43 ($0.03) ($0.00) ($0.03) $10.40
</TABLE>
<TABLE>
RATIOS AND SUPPLEMENTAL DATA
------------------------------------------------------------------------
<CAPTION>
Net Ratio of Net
Assets, Ratio of Investment Average
End of Expenses Income Portfolio Commission
Total Period (In to Average to Average Turnover Rate
Period Ended Return Thousands) Net Assets Net Assets Rate Paid
<S> <C> <C> <C> <C> <C> <C>
Mar. 31, 1998(b) +4.3% $8,052 2.0%* 1.5%* 1.8% $0.0634
</TABLE>
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the Fund
outstanding for the entire period.
(b) For the period December 31, 1997 (inception) to March 31, 1998 (Unaudited).
Total return and portfolio turnover rate are not annualized.
11
<PAGE>
NOTES
- --------------------------------------------------------------------------------
12
<PAGE>
SHAREHOLDER PRIVILEGES*
- --------------STRONG FUNDS [PICTURE OF TELEPHONE] 24-HOUR SERVICES-------------
TELEPHONE PURCHASE
Make additional investments into any Strong Fund by calling us toll-free at
1-800-368-3863.
TELEPHONE EXCHANGE
If your financial goals change, you can exchange your investments between any
of the Strong Funds.
TELEPHONE REDEMPTION
You can call toll-free to redeem your mutual fund shares at any time. Your
shares will be redeemed no later than the close of the next business day.
AUTOMATIC INVESTMENT PLAN
This plan allows you to set up regular transfers from your bank checking or NOW
account to your Strong Funds account.
PAYROLL DIRECT DEPOSIT PLAN
You can automatically transfer all or a portion of your net pay at each pay
period. This eliminates the delay of depositing paychecks to your bank and then
sending a check through the mail to Strong Funds.
AUTOMATIC EXCHANGE PLAN
This plan allows you to exchange money from one Strong Fund to another. For
example, you may want to set up automatic exchanges from a money market fund to
an equity fund.
=======================================================================
FOR MORE INFORMATION ABOUT THESE PRIVILEGES, CALL US AT 1-800-368-3863.
=======================================================================
To reduce the volume of mail you receive, only one copy of certain materials,
such as prospectuses and shareholder reports, is mailed to your household.
Please call 1-800-368-3863 if you wish to receive additional copies, free of
charge.
*Each Fund reserves the right to terminate or modify any of these privileges.
<PAGE>
For a prospectus containing more complete information, including management
fees and expenses, please call 1-800-368-1030. Please read it carefully before
investing or sending money. This report does not constitute an offer for the
sale of securities. Strong Funds are offered for sale by prospectus only.
[PICTURE OF TELEPHONE]
To order a free prospectus kit,
CALL 1-800-368-1030
To learn more about our funds,
discuss an existing account,
or conduct a transaction,
CALL 1-800-368-3863
-------------------
If you are a
Financial Professional,
CALL 1-800-368-1683
[PICTURE OF STRONG WEB SITE ON COMPUTER]
Strong On-line
www.strong-funds.com
[STRONG LOGO]
STRONG FUNDS
P.O. Box 2936 o Milwaukee, Wisconsin 53201
Strong Funds Distributors, Inc. 76622D98 98SBAL
