<PAGE>
THE STRONG
----------
SCHAFER
BALANCED FUND
==================================
ANNUAL REPORT o SEPTEMBER 30, 1998
==================================
[PHOTO OF STRONG FUNDS BUILDING]
[STRONG LOGO]
STRONG FUNDS
<PAGE>
===============================================================================
PLEASE FILE THIS PROSPECTUS SUPPLEMENT WITH YOUR RECORDS.
STRONG SCHAFER BALANCED FUND
SUPPLEMENT TO THE PROSPECTUS DATED DECEMBER 31, 1997
The following shall be added to page I-11 of the Prospectus.
SMALL AND MEDIUM COMPANIES
The Fund may invest a portion of its assets in the securities of small and
medium companies. While small and medium companies generally have potential for
rapid growth, investments in small and medium companies often involve greater
risks than investments in larger, more established companies because small and
medium companies may lack the management experience, financial resources,
product diversification, and competitive strengths of larger companies. In
addition, in many instances the securities of small and medium companies are
traded only OTC or on a regional securities exchange, and the frequency and
volume of their trading is substantially less than is typical of larger
companies. Therefore, the securities of small and medium companies may be
subject to greater and more abrupt price fluctuations. When making large sales,
the Fund may have to sell portfolio holdings at discounts from quoted prices or
may have to make a series of small sales over an extended period of time due to
the trading volume of small and medium company securities. Investors should be
aware that, based on the foregoing factors, an investment in the Fund may be
subject to greater price fluctuations than an investment in a fund that invests
solely in larger, more established companies.
The date of this Prospectus Supplement is November 17, 1998.
<PAGE>
THE STRONG
SCHAFER
BALANCED FUND
==================================
ANNUAL REPORT o SEPTEMBER 30, 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
REPORT OF INDEPENDENT ACCOUNTANTS............................................12
<PAGE>
================================
THE STRONG SCHAFER BALANCED FUND
================================
THE FUND'S 40% POSITION IN FIXED-INCOME SECURITIES HELPED CUSHION IT FROM THE
FLUCTUATIONS OF THE STOCK MARKET.
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.
A LOOK BACK ON A DIFFICULT YEAR
The Strong Schafer Balanced Fund began operations on January 2, 1998. This
period was, by far, the most challenging and difficult we have experienced in
24 years of portfolio management. Similarly, the quarter just ended was the most
bruising three month period we have been through. The Strong Schafer Balanced
Fund was down 7.67% for the nine-month period ended September 30, 1998. During
the same period the 60/40 Balanced Index, the Fund's benchmark, returned 7.35%*.
During this same period, the S&P 500 Stock Index (S&P 500), which is generally
considered to be representative of the domestic stock market, returned 6.00%. Of
this return, 6.31% was contributed by the 25 largest companies in the Index,
while the remaining companies contributed -0.31%--demonstrating that this gain
was not reflective of the overall market, but was overwhelmingly influenced by
the returns of the largest companies in the Index.
One of the reasons for our underperformance in fiscal 1998 is that we did not
own the largest stocks in the S&P 500. Because of their rising prices and
expanded price/earnings multiples (P/Es), we have not added these stocks to our
portfolio.
OUR FOCUS REMAINS ON VALUE
Instead of owning the very largest stocks in the Index, we have continued with
the value investment approach we have used since the inception of the Fund,
which has led us to focus on stocks of other than the largest companies. Our
investment approach involves owning stocks (1) whose P/E multiples are less than
the P/E of the S&P 500, and (2) whose future earnings are expected to grow
faster than those of the S&P 500. As the larger companies mentioned above
surpassed our price targets we focused on other stocks which, while having
superior fundamentals and more attractive valuations, nonetheless performed much
less well than their larger counterparts. This shift occurred because we were
unable to find stocks in the largest category that met our valuation criteria.
The stocks that we have added to the portfolio not only have lower P/Es and
better earnings per share growth prospects than the S&P 500, but they generally
also have less exposure to foreign markets.
Finally, selected securities held within the portfolio during the year were very
harshly treated in the market place. Earnings per share shortfalls often
resulted in disproportionate moves in stocks and any exposure to trouble spots
in the world, real or imagined, generally penalized stocks severely. Our two
most heavily weighted industries, financial and energy stocks, were especially
hard hit for these reasons.
The Fund's 40% position in fixed-income securities helped cushion it from the
fluctuations of the stock market. We held the bond position of the portfolio
nearly entirely in Treasury bonds, an area which benefited from a flight to
quality.
2
<PAGE>
LOOKING FORWARD
While it is clear that recent market conditions have not favored our
value-driven investment style, it seems unlikely that market valuations for the
small group of large U.S. companies can climb indefinitely. We believe that
ultimately market preferences will return to those stocks which have above
average earnings growth prospects and are reasonably priced.
The table on the following page illustrates the valuation of the Strong Schafer
Balanced Fund portfolio compared to the S&P 500. The P/E ratio of the Fund is
less than 11 times our estimate of 1999 earnings, substantially below the P/E of
21 for the S&P 500. Furthermore, we believe that our holdings will show an
average earnings per share growth of more than 15% in 1999 compared to the
consensus estimate for the S&P 500 of less than 5%.
Thank you for your continued faith and perseverance during this very trying
period. We remain committed to helping you achieve your long-term investment
goals.
Sincerely,
/s/ David K. Schafer
David K. Schafer
Portfolio Manager
[PHOTO OF DAVID K. SCHAFER]
===============================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
===============================================================================
From 12-31-97 to 9-30-98
[GRAPH]
The Strong
Schafer S&P 500 Lipper Balanced
Balanced Fund Index* Funds Index*
12-97 10,000 10,000 10,000
1-98 9,760 10,111 10,071
2-98 10,160 10,840 10,471
3-98 10,431 11,395 10,791
4-98 10,722 11,510 10,867
5-98 10,571 11,312 10,757
6-98 10,431 11,771 10,955
7-98 10,169 11,646 10,827
8-98 9,012 9,962 9,894
9-98 9,233 10,600 10,321
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 9-30-98
SINCE INCEPTION -7.67%
(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. The Lipper Balanced Funds Index is an equally-
weighted performance index of the largest qualifying funds in this Lipper
category. Source of the index data is Standard & Poor's Micropal. Source of
the Lipper index data is Lipper Analytical Services, Inc.
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 9-30-98 (UNAUDITED)
=====================================================================================
<CAPTION>
CLOSING PRICE EARNINGS PER SHARE PRICE/EARNINGS RATIO
SECURITY (9-30-98) 1998E 1999E 1998E 1999E
<S> <C> <C> <C> <C> <C>
New Holland 11.25 2.00 1.80 5.6 6.3
.....................................................................................
R&B Falcon Drilling 12.00 1.42 1.78 8.5 6.7
.....................................................................................
Arrow Electronics 13.13 1.56 1.94 8.4 6.8
.....................................................................................
UCAR International 18.00 2.39 2.65 7.5 6.8
.....................................................................................
Owens Corning 32.56 3.50 4.35 9.3 7.5
.....................................................................................
Borg Warner Auto 37.06 3.96 4.84 9.4 7.7
.....................................................................................
Cleveland-Cliffs 39.00 4.98 5.04 7.8 7.7
.....................................................................................
Chase Manhattan 43.25 4.35 5.25 9.9 8.2
.....................................................................................
Southdown 45.00 4.68 5.35 9.6 8.4
.....................................................................................
Partner Re Ltd 40.06 4.45 4.65 9.0 8.6
.....................................................................................
Lafarge Corp 28.56 3.04 3.28 9.4 8.7
.....................................................................................
Ultramar Diamond 22.75 1.66 2.59 13.7 8.8
.....................................................................................
May Department Stores 51.50 3.11 5.78 16.6 8.9
.....................................................................................
Ford Motor 47.00 5.19 5.09 9.1 9.2
.....................................................................................
Armstrong World 53.50 5.29 5.78 10.1 9.3
.....................................................................................
National Bank of Canada 14.66 1.38 1.55 10.6 9.5
.....................................................................................
Avnet 36.81 4.12 3.83 8.9 9.6
.....................................................................................
Sun Company 32.00 2.73 3.31 11.7 9.7
.....................................................................................
Harman International 36.69 2.86 3.73 12.8 9.8
.....................................................................................
Storage Technology 25.44 2.12 2.60 12.0 9.8
.....................................................................................
Old Republic International 22.50 2.12 2.28 10.6 9.9
.....................................................................................
KLM Royal Dutch Air 24.75 3.89 2.40 6.4 10.3
.....................................................................................
Philips NV 53.37 4.35 5.20 12.3 10.3
.....................................................................................
Goodyear Tire & Rubber 51.38 4.51 4.86 11.4 10.6
.....................................................................................
Diamond Offshore 26.00 2.63 2.40 9.9 10.8
.....................................................................................
BankAmerica Corp 53.50 3.75 4.80 14.3 11.1
.....................................................................................
FDX Corporation 45.13 3.91 4.05 11.5 11.1
.....................................................................................
W.R. Berkley 29.87 2.54 2.60 11.8 11.5
.....................................................................................
Burlington Northern 32.00 2.40 2.75 13.3 11.6
.....................................................................................
Repsol 42.19 3.07 3.48 13.7 12.1
.....................................................................................
IBP Corporation 20.25 1.57 1.54 12.9 13.1
.....................................................................................
Summit Bank 37.50 2.65 2.85 14.2 13.2
.....................................................................................
Kansas City Power & Light 30.44 2.17 2.27 14.0 13.4
.....................................................................................
Western Resources 41.37 2.67 2.81 15.5 14.7
.....................................................................................
Mellon Bank 55.06 3.25 3.60 16.9 15.3
.....................................................................................
GTE Corporation 55.00 3.06 3.48 18.0 15.8
.....................................................................................
Norwest Corp 35.81 2.00 2.25 17.9 15.9
.....................................................................................
Bell Atlantic 48.44 2.71 2.99 17.9 16.2
.....................................................................................
Phillips Petroleum 45.12 2.07 2.71 21.8 16.6
.....................................................................................
Kansas City Southern Industries 35.00 1.90 2.05 18.4 17.1
.....................................................................................
Boeing Company 34.31 1.00 1.95 34.3 17.6
-----------------
S&P 500 INDEX 1,017.01 46.36 48.52 21.9 21.0
STRONG SCHAFER BALANCED FUND PORTFOLIO AVERAGES 12.6 10.9
E=ESTIMATE
</TABLE>
4
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES SEPTEMBER 30, 1998
- -------------------------------------------------------------------------------
===============================================================================
STRONG SCHAFER BALANCED FUND
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
COMMON STOCKS 59.6%
AEROSPACE & DEFENSE 1.3%
The Boeing Company 2,900 $ 99,506
AIRLINE 2.7%
FDX Corporation (b) 2,450 110,556
KLM Royal Dutch Airlines 4,200 103,950
----------
214,506
AUTO & TRUCK PARTS 3.1%
Borg-Warner Automotive, Inc. 3,100 114,894
The Goodyear Tire & Rubber Company 2,600 133,575
----------
248,469
AUTOMOBILE 1.8%
Ford Motor Company 3,000 140,813
BANK - MONEY CENTER 3.8%
The Chase Manhattan Corporation 2,000 86,500
National Bank of Canada (c) 8,300 121,668
NationsBank Corporation 1,800 96,300
----------
304,468
BANK - SUPER REGIONAL 4.0%
Mellon Bank Corporation 1,700 93,606
Norwest Corporation 3,300 118,181
Summit Bancorp 2,700 101,250
----------
313,037
BROKERAGE & INVESTMENT MANAGEMENT 1.9%
Kansas City Southern Industries, Inc. 4,200 147,000
COMPUTER PERIPHERAL EQUIPMENT 1.4%
Storage Technology Corporation (b) 4,400 111,925
ELECTRIC POWER 3.8%
Kansas City Power & Light Company 5,000 152,188
Western Resources, Inc. 3,600 148,950
----------
301,138
ELECTRONIC PARTS DISTRIBUTION 1.9%
Arrow Electronics, Inc. 5,750 75,469
Avnet, Inc. 2,100 77,306
----------
152,775
ELECTRONIC PRODUCTS - MISCELLANEOUS 0.9%
Philips Electronics NV ADR 1,400 74,725
FOOD 2.1%
IBP, Inc. 8,100 164,025
HOUSEHOLD APPLIANCES & FURNISHINGS 1.6%
Harman International Industries, Inc. 3,400 124,738
HOUSING RELATED 2.5%
Armstrong World Industries, Inc. 1,600 85,600
Owens Corning 3,400 110,712
----------
196,312
INSURANCE - PROPERTY & CASUALTY 4.0%
W.R. Berkley Corporation 3,800 113,525
Old Republic International Corporation 4,500 101,250
Partners RE, Ltd. ADR 2,600 104,163
----------
318,938
MACHINERY - AGRICULTURE 0.9%
New Holland NV 6,250 70,313
METALS & MINING 4.4%
Cleveland-Cliffs, Inc. 2,550 99,450
Lafarge Corporation 4,500 128,531
Southdown, Inc. 2,750 123,750
----------
351,731
OIL - INTERNATIONAL INTEGRATED 1.3%
Repsol SA Sponsored ADR 2,500 105,469
OIL - NORTH AMERICAN INTEGRATED 4.7%
Phillips Petroleum Company 3,200 144,400
Sun Company, Inc. 3,800 121,600
Ultramar Diamond Shamrock Corporation 4,500 102,375
----------
368,375
OIL WELL EQUIPMENT & SERVICE 3.7%
Diamond Offshore Drilling, Inc. 5,500 143,000
R&B Falcon Corporation (b) 12,400 148,800
----------
291,800
RAILROAD 1.9%
Burlington Northern Santa Fe Corporation 4,650 148,800
RETAIL - DEPARTMENT STORE 1.4%
May Department Stores Company 2,200 113,300
STEEL 1.9%
UCAR International, Inc. (b) 8,600 154,800
TELECOMMUNICATION SERVICE 0.7%
Bell Atlantic Corporation 1,100 53,281
TELEPHONE 1.9%
GTE Corporation 2,800 154,000
- ------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $5,893,680) 4,724,244
- ------------------------------------------------------------------------------
UNITED STATES GOVERNMENT ISSUES 38.6%
United States Treasury Notes:
5.625%, Due 11/30/99 $ 370,000 374,394
6.25%, Due 1/31/02 850,000 898,610
6.50%, Due 8/31/01 1,200,000 1,268,625
6.625%, Due 5/15/07 445,000 512,863
- ------------------------------------------------------------------------------
TOTAL UNITED STATES GOVERNMENT ISSUES (COST $2,941,883) 3,054,492
- ------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 2.7%
COMMERCIAL PAPER
INTEREST BEARING, DUE UPON DEMAND
American Family Financial Services, Inc., 4.96% 100 100
Pitney Bowes Credit Corporation, 4.95% 129,900 129,900
Warner Lambert Company, 4.96% 10,700 10,700
Wisconsin Electric Power Company, 4.96% 70,700 70,700
- ------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $211,400) 211,400
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES 100.9% (COST $9,046,963) 7,990,136
Other Assets & Liabilities, Net (0.9%) (70,995)
- ------------------------------------------------------------------------------
NET ASSETS 100.0% $7,919,141
==============================================================================
LEGEND
- -------------------------------------------------------------------------------
(a) Short-term investments include any security which has a maturity of less
than one year.
(b) Non-income producing security.
(c) Foreign-denominated security.
Percentages are stated as a percent of net assets.
See notes to financial statements.
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
September 30, 1998
STRONG SCHAFER
BALANCED FUND
--------------
ASSETS:
Investments in Securities, at Value (Cost of $9,046,963) $7,990,136
Receivable for Securities Sold 116,933
Dividends and Interest Receivable 41,297
Other Assets 23,563
----------
Total Assets 8,171,929
LIABILITIES:
Payable for Securities Purchased 228,938
Accrued Operating Expenses and Other Liabilities 23,850
----------
Total Liabilities 252,788
----------
NET ASSETS $7,919,141
==========
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) $8,854,274
Accumulated Net Investment Income 851
Accumulated Net Realized Gain 120,845
Net Unrealized Depreciation (1,056,829)
----------
Net Assets $7,919,141
==========
Capital Shares Outstanding (Unlimited Number Authorized) 866,666
NET ASSET VALUE PER SHARE $9.14
=====
6
See notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
For the Year Ended September 30, 1998 (Note 1)
STRONG SCHAFER
BALANCED FUND
--------------
INCOME:
Dividends (net of withholding taxes of $2,314) $ 69,955
Interest 136,694
----------
Total Income 206,649
EXPENSES:
Investment Advisory Fees 59,756
Custodian Fees 5,294
Shareholder Servicing Costs 21,600
Reports to Shareholders 7,498
Federal and State Registration Fees 37,618
Other 9,785
----------
Total Expenses before Waivers and Absorptions 141,551
Involuntary Waivers and Absorptions by Advisor (21,907)
----------
Expenses, Net 119,644
----------
NET INVESTMENT INCOME 87,005
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 120,846
Foreign Currencies (31)
----------
Net Realized Gain 120,815
Net Change in Unrealized Appreciation/Depreciation on:
Investments (1,056,827)
Foreign Currencies (2)
----------
Net Change in Unrealized Appreciation/Depreciation (1,056,829)
----------
NET LOSS ON INVESTMENTS (936,014)
----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ($ 849,009)
==========
7
See notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
For the Year Ended September 30, 1998 (Note 1)
STRONG SCHAFER
BALANCED FUND
--------------
OPERATIONS:
Net Investment Income $ 87,005
Net Realized Gain 120,815
Net Change in Unrealized Appreciation/Depreciation (1,056,829)
-----------
Net Decrease in Net Assets Resulting from Operations (849,009)
DISTRIBUTIONS:
From Net Investment Income (86,124)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 13,489,461
Proceeds from Reinvestment of Dividends 80,886
Payment for Shares Redeemed (4,816,073)
-----------
Increase in Net Assets from Capital Share Transactions 8,754,274
-----------
TOTAL INCREASE IN NET ASSETS 7,819,141
NET ASSETS:
Beginning of Period 100,000
-----------
End of Period $ 7,919,141
===========
TRANSACTIONS IN SHARES OF THE FUND:
Sold 1,328,630
Issued in Reinvestment of Dividends 8,205
Redeemed (480,169)
---------
Net Increase in Shares of the Fund 856,666
=========
8
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
September 30, 1998
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 fair 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 September 30, 1998.
(B) Federal Income and Excise Taxes and Distributions to Shareholders -- The
Fund intends 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.
(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 bank 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%.
(F) Additional Investment Risks -- The Fund may utilize derivative
instruments including options, futures and other instruments with similar
characteristics to the extent that they are consistent with the Fund's
investment objectives and limitations. The Fund intends to use such
derivative instruments primarily to hedge or protect against adverse
movements in securities prices or interest rates. The use of these
instruments may involve risks such as the possibility of illiquid markets
or imperfect correlation between the value of the instruments and the
underlying securities, or that the counterparty will fail to perform its
obligations.
Foreign denominated assets and forward currency contracts may involve
greater risks than domestic transactions, including currency, political
and economic, regulatory and market risks.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
September 30, 1998
(G) 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.
(H) 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
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. Based on the
terms of the Advisory Agreement, advisory fees and expenses are subject to
reimbursement by the Advisor if the Fund's operating expenses exceed 2% of
the average daily net assets of the fund. Shareholder recordkeeping and
related service fees are based on contractually established rates for each
open and closed shareholder account. Shareholder recordkeeping and related
service fees paid to the Advisor for the year ended September 30, 1998 were
$19,675.
Schafer Capital Management, Inc. ("Schafer") manages the investments of the
Fund under a subadvisory 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 September 30, 1998, other shareholder
servicing expenses paid to the Advisor, and unaffiliated directors' fees for
the year then ended were $23,348, $232, and $1,125, respectively.
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of U.S. Government and Agency securities
for the period ended September 30, 1998 were $4,269,295 and $1,337,967,
respectively. The aggregate purchases and sales of other long term
securities for the period ended September 30, 1998 were $8,143,631 and
$2,366,148, respectively.
5. INCOME TAX INFORMATION
At September 30, 1998, the cost of investments in securities for federal
income tax purposes was $9,065,806. Net unrealized depreciation of
securities was $1,075,670, consisting of gross unrealized appreciation and
depreciation of $195,497 and $1,217,167, respectively.
For corporate shareholders in the Fund, the percentage of dividend income
distributed for the year ended September 30, 1998 which is designated as
qualifying for the dividends-received deduction is 66.4% (unaudited).
10
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------
STRONG SCHAFER BALANCED FUND
- -------------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA(a)
-------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------- -----------------------------------
<CAPTION>
Net Asset Net Realized Total Net Asset
Value, Net and Unrealized from From Net From Net Value,
Beginning Investment Losses on Investment Investment Realized Total End of
Year Ended of Period Income Investments Operations Income Gains Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sept. 30, 1998(b) $10.00 $0.10 ($0.86) ($0.76) ($0.10) -- ($0.10) $9.14
</TABLE>
<TABLE>
RATIOS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------------
<CAPTION>
Net Ratio of Expenses Ratio of Net
Assets, Ratio of to Average Net Investment
End of Expenses Assets Without Income Portfolio
Total Period (In to Average Waivers and to Average Turnover
Year Ended Return Thousands) Net Assets Absorbtions Net Assets Rate
<S> <C> <C> <C> <C> <C> <C>
Sept. 30, 1998(b) -7.7% $7,919 2.0%* 2.4%* 1.5%* 45.5%
* 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 from January 2, 1998 (commencement of operations) to September 30, 1998. Total return and
portfolio turnover rate are not annualized.
See notes to financial statements.
11
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of the
Strong Schafer Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Strong Schafer Balanced Fund, (the
"Fund") (one of the portfolios constituting the Strong Schafer Funds, Inc.) at
September 30, 1998, the results of its operations, the changes in its net
assets and the financial highlights for the period from January 2, 1998
(commencement of operations) to September 30, 1998, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at September 30, 1998 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
November 4, 1998
12
<PAGE>
DIRECTORS
Richard S. Strong
Willie D. Davis
Stanley Kritzik
Marvin E. Nevins
William F. Vogt
OFFICERS
Richard S. Strong, Chairman of the Board
Mary F. Hoppa, Vice President
Thomas P. Lemke, Vice President
John S. Weitzer, Vice President
Stephen J. Shenkenberg, Vice President and Secretary
John A. Flanagan, Treasurer
INVESTMENT ADVISOR
Strong Capital Management, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
DISTRIBUTOR
Strong Funds Distributors, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
CUSTODIAN
Firstar Trust Company
P.O. Box 701, Milwaukee, Wisconsin 53201
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
Strong Capital Management, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
411 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Godfrey & Kahn, S.C.
780 North Water Street, Milwaukee, Wisconsin 53202
<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.strongfunds.com
[STRONG LOGO]
STRONG FUNDS
P.O. Box 2936 o Milwaukee, Wisconsin 53201
Strong Funds Distributors, Inc. 9518J98 ASBAL
