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[LOGO]
THE STRONG SCHAFER
BALANCED FUND
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ANNUAL REPORT - SEPTEMBER 30, 1999
[PHOTO OF STRONG BUILDING]
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LETTER FROM THE CHAIRMAN
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Dear Strong Investor,
A few months back, I sent a letter to some of our shareholders describing a
recent business trip to Indianapolis. I said that everywhere I went--every
highway traveled, every side street ventured down, bulldozers, cranes and
backhoes were hard at work.
Indianapolis, like most American cities we visit these days, is in the midst of
a spectacular building boom. A sea of yellow construction equipment is washing
over the nation's landscape.
It is the latest chapter in the unbelievable economic expansion that has blessed
this country--almost without pause--since 1982. The signs of prosperity are
everywhere:
- Highways jammed with people on their way to do business.
- "Help Wanted" signs in more store windows than most of us have ever seen at
one time.
- Consumer confidence is at an all-time high. Shopping carts are stuffed with
personal computers, printers, software and all sorts of related high-tech
equipment transforming the lives of Americans.
- Restaurants are packed almost every night of the week with people who have
money to spend.
As we make our way through the last quarter of the last year of the 20th
Century, we are fortunate to be living in one of the greatest booms in recorded
history. We should be grateful for the opportunity to live in these incredibly
prosperous times. We also ought to remember that nothing lasts forever.
The nation's economic engine is running near full capacity. After eight years of
continuous growth, the American economy is beginning to overheat. It's that
strain on the system that has Mr. Greenspan's Federal Reserve, which is
responsible for managing the economy and keeping inflation at reasonable levels,
obviously concerned.
Though the current batch of inflation indicators don't seem too threatening, the
Fed is wise to keep a sharp eye on the system. The economy can only grow so fast
and still remain healthy. If it gains too much speed--like a car heading down a
steep slope--it runs the risk of careening out of control. It's the Fed's job to
provide just the right mix of acceleration and braking.
The Federal Reserve has an awesome responsibility. While they want the economy
to move ahead, they can't let their hopes override common sense. The Fed has
become increasingly worried about excessive valuations in the stock market and
the possibility that, left unchecked, a financial bubble could occur.
Here at Strong, we are bullish on America's prospects for the 21st Century. Long
term, we believe interest rates are headed down. But, in the short term,
expectations of what the stock market and the U.S. economy can continue to
deliver seem inflated. For that reason, this could be a good time to complement
your portfolio's stock holdings with more conservative money market and
short-term bond funds.
/s/ Dick
<PAGE>
THE STRONG
SCHAFER BALANCED
FUND
----
ANNUAL REPORT - SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT REVIEW
The Strong Schafer Balanced Fund ............................2
FINANCIAL INFORMATION
Schedule of Investments .....................................5
Statement of Assets and Liabilities .........................6
Statement of Operations .....................................7
Statements of Changes in Net Assets .........................8
Notes to Financial Statements ...............................9
FINANCIAL HIGHLIGHTS ............................................11
REPORT OF INDEPENDENT ACCOUNTANTS ...............................12
</TABLE>
<PAGE>
THE STRONG SCHAFER BALANCED FUND
--------------------------------
PERSPECTIVES
FROM THE MANAGER
/s/ David K. Schafer
David K. Schafer
Portfolio Manager
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For the second straight year, value investing has been a very trying experience,
particularly if it has been done in a disciplined way consistent with past
history of the market, as has been the case with the Strong Schafer Balanced
Fund.
As we have mentioned in the past, it has been our experience that our approach
to investing is out of favor for a period of time every five years or so. What
has made this such an agonizing period for shareholders is that it has been the
longest-lasting and deepest out-of-favor period we have experienced. In fiscal
1999, the narrowness of the U.S. stock market is unmatched for the period I have
been involved as an investment research analyst and portfolio manager (since
1966). At the same time, the initial public offering market has been robust. In
my opinion, neither condition is sustainable for a prolonged period of time.
In this environment, Microsoft, Cisco Systems, IBM, Sun Microsystems, Intel,
Texas Instruments, and General Electric are the seven stocks that accounted for
approximately 100% of the gain in the S&P 500 for the first nine months of 1999.
The average P/E ratio for this group of seven stocks is 47.6, while their median
P/E ratio is 50. The five largest stocks alone in the S&P 500 (by market
capitalization), which constitute nearly 15% of the Index, accounted for more
than 80% of the gain
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HISTORY HAS SHOWN THAT THE COMBINATION OF LOW VALUATIONS AND STRONG EARNINGS
GROWTH EVENTUALLY LEADS TO DRAMATIC RECOVERIES IN STOCK PRICES AND INVESTMENT
RESULTS...
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FUND
HIGHLIGHTS
- - For the year ended September 30, 1999, the Strong Schafer Balanced Fund gained
15.06% while the 60/40 Balanced Index gained 16.91%.*
- - The average and median market capitalization of the Fund's common stock
holdings increased slightly from the beginning of the fiscal year.
- - Healthcare stocks and companies which reported earnings-per-share shortfalls
adversely affected the equity portfolio of the Fund in fiscal 1999.
------------------------------------------------------
AVERAGE ANNUAL
TOTAL RETURN
AS OF 9-30-99
<TABLE>
<S> <C>
1-year 15.06%
Since Inception 3.52%
(on 12-31-97)
</TABLE>
------------------------------------------------------
FIVE LARGEST
HOLDINGS
AS OF 9-30-99
<TABLE>
<CAPTION>
SECURITY % OF NET ASSETS
------------------------------------------------------
<S> <C>
United States Treasury Notes 41.1%
Wells Fargo Co. 2.2%
Canadian National Railway Co. 2.1%
Mellon Bank Corp. 2.0%
BCE, Inc. 2.0%
</TABLE>
Please see the Schedule of Investments in Securities for a complete listing
of the Fund's portfolio.
2
<PAGE>
during the first nine months of the year. Additionally, the robustness of the
initial public offering market had a significant, positive impact on portfolio
performance in fiscal 1999, due to the relatively small size of the Fund.
It is hard to imagine the stock market getting much narrower than it is at
present, and if history does repeat itself, we could be coming close to the end
of this very selective market. In past periods of extreme stock market behavior
such as we have had over the past two years (ending in 1974, 1980, and 1990),
the "broadening out" period has been especially rewarding for value investors.
On the fixed-income side, the Fund's 40% bond allocation was invested almost
entirely in intermediate U.S. Treasury notes. During the third quarter of 1999,
intermediate-term interest rates rose by approximately 10 basis points, as
investors became increasingly concerned about potential increases in short-term
rates by the Federal Reserve. On August 24, the Federal Reserve did raise its
key short-term rate by 25 basis points and signaled that further tightening of
monetary policy is possible. This slightly reduced the Fund's overall
performance.
Our strong belief is that it is a matter of "when," not "if," value investing
will come back into favor. As such, we remain confident in the long-term
potential of the Strong Schafer Balanced Fund. Thank you for your patience and
your continued investment.
GROWTH OF AN ASSUMED $10,000 INVESTMENT
FROM 12-31-97 TO 9-30-99
<TABLE>
<CAPTION>
The Strong Schafer S & P Lipper Balanced 60/40
Balanced Fund 500 Index* Funds Index* Balanced Index*
<S> <C> <C> <C> <C>
Dec-97 $10,000.00 $10,000.00 $10,000.00 $10,000.00
Mar-98 $10,430.80 $11,394.90 $10,791.10 $10,897.40
Jun-98 $10,430.50 $11,771.10 $10,955.20 $11,193.90
Sep-98 $9,233.46 $10,600.20 $10,321.10 $10,734.90
Dec-98 $10,321.30 $12,857.70 $11,508.60 $12,117.20
Mar-99 $11,013.00 $13,498.30 $11,693.30 $12,466.20
Jun-99 $11,828.50 $14,449.90 $12,218.80 $12,983.50
Sep-99 $10,623.80 $13,547.60 $11,712.50 $12,549.70
</TABLE>
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with the performance of the
Standard & Poor's 500 Stock Index ("S&P 500"), the 60/40 Balanced Index, and the
Lipper Balanced Funds Index. 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 will vary, and
you may have a gain or loss when you sell shares.
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*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. 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 S&P
index data is Standard & Poor's Micropal. Source of the Lipper index data is
Lipper Inc.
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YOUR FUND'S
APPROACH
THE STRONG SCHAFER BALANCED FUND INVESTS 60% OF ITS ASSETS IN STOCKS, USING A
STRICT VALUE APPROACH. THIS DISCIPLINE IS APPLIED TO BOTH BUYING AND SELLING. TO
AVOID PERSONAL BIAS, EACH STOCK IS PROPORTIONED EQUALLY IN THE FUND WHEN
PURCHASED. THE PRICE PAID FOR A COMPANY, RELATIVE TO ITS PROFITS, MUST BE BELOW
THE AVERAGE OF THE S&P 500. STOCKS ARE GENERALLY SOLD WHEN THEY BECOME
"EXPENSIVE" RELATIVE TO THE S&P 500. THE COMPANY ALSO MUST HAVE GOOD PROSPECTS
FOR INCREASING PROFITS. TO HELP CUSHION THE FUND AGAINST VOLATILITY, THE
REMAINING 40% OF THE FUND'S ASSETS ARE INVESTED IN HIGH-QUALITY, INVESTMENT
GRADE BONDS.
----------------------------------------
MARKET
HIGHLIGHTS
- - Continued steady economic growth in the U.S. contributed to the strong
stock market performance of the large-cap growth stocks which dominated the
performance of the S&P 500 and the Dow Jones Industrial Averages.
- - For the second straight year, the positive returns of the
large-cap-dominated S&P 500 continued to overshadow the lackluster
performance of the overall market.
- - Economic recovery in many of the Asian economies has proceeded at a faster
pace than most economists had expected and should help drive earnings in a
positive direction over the coming quarters.
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3
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<TABLE>
<CAPTION>
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PORTFOLIO HOLDINGS, EARNINGS PER SHARE ESTIMATES, AND PRICE/EARNINGS RATIOS AS OF 9-30-99 (UNAUDITED)
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CLOSING PRICE EARNINGS PER SHARE PRICE/EARNINGS RATIO
SECURITY (9/30/99) 1999E 2000E 1999E 2000E
<S> <C> <C> <C> <C> <C>
Allstate Corp $ 24.94 2.72 2.83 9.2 8.8
American Home Products 41.50 1.77 1.97 23.5 21.1
Arrow Electrs Inc 17.63 1.44 1.92 12.2 9.2
Avnet Inc 42.00 3.34 3.83 12.6 11.0
Bank Amer Corp 55.69 4.70 5.44 11.8 10.2
BCE 49.81 2.03 2.40 24.5 20.8
Borg-Warner Automotive Inc 43.00 5.05 5.77 8.5 7.5
Burlington Northn Santa Fe 27.50 2.39 2.69 11.5 10.2
Cadence Design System Inc 13.38 0.36 0.84 37.2 15.9
Chase Manhattan Corp New 75.38 5.54 6.04 13.6 12.5
Chubb Corp 49.63 3.39 4.31 14.6 11.5
Dana Corp 37.13 4.14 4.49 9.0 8.3
Diebold 23.13 1.83 2.04 12.6 11.3
FDX Corp 38.88 2.15 2.39 18.1 16.3
General Motors 62.94 8.46 8.39 7.4 7.5
Lafarge Corp 32.00 3.72 4.12 8.6 7.8
Lockheed Martin Corp 32.69 1.50 2.15 21.8 15.2
Federal Home Loan 52.00 2.94 3.34 17.7 15.6
May Dept Stores Co 36.44 2.57 2.83 14.2 12.9
Maytag Corp 33.31 3.59 3.91 9.3 8.5
Mellon Bk Corp 33.63 1.82 2.03 18.5 16.6
Merrill Lynch & Co Inc 67.38 5.63 5.42 12.0 12.4
PartnerRe Limited 34.75 3.28 4.58 10.6 7.6
Philip Morris Cos 34.19 3.30 3.69 10.3 9.3
Raytheon Co Cl B 49.63 2.75 2.21 18.1 22.5
Southdown Inc 53.50 5.58 6.26 9.6 8.5
Summit Bancorp 32.44 2.66 3.05 12.2 10.6
Ucar Intl Inc 22.81 1.85 2.52 12.3 9.1
Wells Fargo & Co New 39.63 2.24 2.59 17.7 15.3
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STRONG SCHAFER BALANCED FUND PORTFOLIO AVERAGES 14.5 12.2
S&P 500 STOCK INDEX 1,282.71 49.40 54.34 26.0 23.6
</TABLE>
E=ESTIMATE
4
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES September 30, 1999
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STRONG SCHAFER BALANCED FUND
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<TABLE>
<CAPTION>
Shares or
Principal Value
Amount (Note 2)
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<S> <C> <C>
COMMON STOCKS 54.8%
AEROSPACE & DEFENSE 4.0%
Lockheed Martin Corporation 3,800 $124,212
Raytheon Company Class B 2,500 124,063
-------
248,275
AIRLINE 2.0%
FDX Corporation (b) 3,200 124,000
AUTO & TRUCK PARTS 1.9%
Borg-Warner Automotive, Inc. 2,800 120,400
AUTOMOBILE 1.8%
General Motors Corporation 1,800 113,287
BANK - MONEY CENTER 3.8%
Bank of America Corporation 2,100 116,944
The Chase Manhattan Corporation 1,600 120,600
-------
237,544
BANK - SUPER REGIONAL 6.2%
Mellon Bank Corporation 3,700 124,875
Summit Bancorp 3,800 123,263
Wells Fargo Company 3,400 134,725
-------
382,863
BROKERAGE & INVESTMENT MANAGEMENT 1.9%
Merrill Lynch & Company, Inc. 1,800 120,938
COMMERCIAL SERVICE 1.4%
Diebold, Inc. 3,800 87,875
ELECTRONIC PARTS DISTRIBUTION 3.5%
Arrow Electronics, Inc. (b) 5,700 100,462
Avnet, Inc. 2,800 117,600
-------
218,062
HEALTHCARE - DRUG/DIVERSIFIED 1.9%
American Home Products Corporation 2,800 116,200
HOUSEHOLD APPLIANCES & FURNISHINGS 1.9%
Maytag Corporation 3,500 116,594
INSURANCE - PROPERTY & CASUALTY 5.6%
The Allstate Corporation 4,500 112,219
Chubb Corporation 2,400 119,550
PartnerRE, Ltd. 3,400 118,150
-------
349,919
MACHINERY - TRANSPORTATION EQUIPMENT & PARTS 1.9%
Dana Corporation 3,200 118,800
METALS & MINING 3.5%
Lafarge Corporation 3,500 112,437
Southdown, Inc. 2,000 107,000
-------
219,437
MORTGAGE & RELATED SERVICE 1.9%
Federal Home Loan Mortgage Corporation 2,300 119,600
RAILROAD 4.1%
Burlington Northern Santa Fe Corporation 4,500 123,750
Canadian National Railway Company 4,300 130,344
-------
254,094
RETAIL - DEPARTMENT STORE 1.9%
May Department Stores Company 3,250 118,422
STEEL 1.7%
UCAR International, Inc. (b) 4,700 107,219
TELEPHONE 2.0%
BCE, Inc. 2,500 124,531
TOBACCO 1.9%
Philip Morris Companies, Inc. 3,500 119,656
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Total Common Stocks (Cost $3,671,031) 3,417,716
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UNITED STATES GOVERNMENT ISSUES 41.1%
United States Treasury Notes:
5.25%, Due 8/15/03 $529,000 518,751
6.25%, Due 1/31/02 950,000 961,281
6.50%, Due 8/31/01 450,000 456,891
6.625%, Due 5/15/07 605,000 624,284
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Total United States Government Issues (Cost $2,594,716) 2,561,207
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SHORT-TERM INVESTMENTS (a) 8.9%
COMMERCIAL PAPER
INTEREST BEARING, DUE UPON DEMAND
Pitney Bowes Credit Corporation, 4.99% 174,200 174,200
Warner Lambert Company, 5.02% 170,400 170,400
Wisconsin Electric Power Company, 5.02% 210,600 210,600
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Total Short-Term Investments (Cost $555,200) 555,200
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Total Investments in Securities 104.8% (Cost $6,820,947) 6,534,123
Other Assets and Liabilities, Net (4.8%) (299,746)
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Net Assets 100.0% $6,234,377
=====================================================================================
LEGEND
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(a) Short-term investments include any security which has a remaining maturity
of less than one year.
(b) Non-income producing security.
Percentages are stated as a percent of net assets.
See Notes to Financial Statements. 5
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
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September 30, 1999
<TABLE>
<CAPTION>
Strong Schafer
Balanced Fund
-------------
<S> <C>
Assets:
Investments in Securities, at Market Value (Cost of $6,820,947) $6,534,123
Receivable for Securities Sold 141,199
Dividends and Interest Receivable 37,732
Other Assets 12,994
----------
Total Assets 6,726,048
Liabilities:
Payable for Securities Purchased 473,858
Accrued Operating Expenses and Other Liabilities 17,813
----------
Total Liabilities 491,671
----------
Net Assets $6,234,377
==========
Net Assets Consist of:
Capital Stock (par value and paid-in capital) $6,371,569
Undistributed Net Realized Gain 149,632
Net Unrealized Depreciation (286,824)
----------
Net Assets $6,234,377
==========
Capital Shares Outstanding (Unlimited Number Authorized) 607,091
Net Asset Value Per Share $10.27
==========
</TABLE>
6 See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
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For the Year Ended September 30, 1999
Strong Schafer
Balanced Fund
-------------
<S> <C>
Income:
Dividends (net of withholding taxes of $627) $ 81,064
Interest 158,216
----------
Total Income 239,280
Expenses:
Investment Advisory Fees 71,747
Custodian Fees 4,238
Shareholder Servicing Costs 28,798
Reports to Shareholders 13,230
Federal and State Registration Fees 34,970
Other 12,711
----------
Total Expenses Before Involuntary Absorptions 165,694
Involuntary Expense Absorptions by Advisor (21,808)
----------
Expenses, Net 143,886
----------
Net Investment Income 95,394
Realized and Unrealized Gain:
Net Realized Gain on:
Investments 170,074
Foreign Currencies 1
----------
Net Realized Gain 170,075
Net Change in Unrealized Appreciation/Depreciation on:
Investments 770,003
Foreign Currencies 2
----------
Net Change in Unrealized Appreciation/Depreciation 770,005
----------
Net Gain on Investments 940,080
----------
Net Increase in Net Assets Resulting from Operations $1,035,474
==========
See Notes to Financial Statements. 7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------
Strong Schafer Balanced Fund
----------------------------------
Year Ended Year Ended
Sept. 30, 1999 Sept. 30, 1998
-------------- ---------------
(Note 1)
<S> <C> <C>
Operations:
Net Investment Income $ 95,394 $ 87,005
Net Realized Gain 170,075 120,815
Net Change in Unrealized Appreciation/Depreciation 770,005 (1,056,829)
---------- -----------
Net Increase (Decrease) in Net Assets Resulting from Operations 1,035,474 (849,009)
Distributions:
From Net Investment Income (97,846) (86,124)
From Net Realized Gains (70,461) --
---------- -----------
Total Distributions (168,307) (86,124)
Capital Share Transactions:
Proceeds from Shares Sold 3,727,879 13,489,461
Proceeds from Reinvestment of Distributions 159,008 80,886
Payment for Shares Redeemed (6,438,818) (4,816,073)
---------- -----------
Net Increase (Decrease) in Net Assets from Capital Share Transactions (2,551,931) 8,754,274
---------- -----------
Total Increase (Decrease) in Net Assets (1,684,764) 7,819,141
Net Assets:
Beginning of Year 7,919,141 100,000
---------- -----------
End of Year $6,234,377 $7,919,141
========== ===========
Transactions in Shares of the Fund:
Sold 340,018 1,328,630
Issued in Reinvestment of Distributions 15,504 8,205
Redeemed (615,097) (480,169)
---------- -----------
Net Increase (Decrease) in Shares of the Fund (259,575) 856,666
========== ===========
</TABLE>
8 See Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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September 30, 1999
1. Organization
Strong Schafer Balanced Fund (the "Fund") is a diversified series of Strong
Schafer Funds, Inc., an open-end management investment company registered
under the Investment Company Act of 1940, as amended. 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 at fair value
through valuations obtained by a commercial pricing service or the
mean of the bid and asked prices 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,
1999.
(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.
Net investment income or net realized gains for financial statement
purposes 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.
The Fund generally pays dividends from net investment income quarterly
and distributes any net capital gains that it realizes annually.
(C) Realized Gains and Losses on Investment Transactions -- Investment
security transactions are recorded as of the trade date. 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) Certain 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.
Investments in foreign denominated assets or forward currency
contracts may involve greater risks than domestic investments, due to
currency, political and economic, regulatory and market risks.
(E) 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.
(F) 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), 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 of the
repurchase agreement. On a daily basis, the Advisor monitors each
repurchase agreement to ensure the value of the collateral, including
accrued interest, is at least equal to the amounts owed to the Fund
under each repurchase agreement.
9
<PAGE>
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(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 in these financial statements. Actual results could differ
from those estimates.
(H) Other -- 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 other expenses will be
waived by the Advisor if the Fund's operating expenses exceed 2% of the
average daily net assets of the fund. In addition, the Fund's Advisor may
voluntarily waive or absorb certain expenses at their discretion.
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 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 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, 1999, other shareholding
servicing expenses paid to the Advisor, and unaffiliated directors' fees
for the year then ended, excluding the effect of waivers and absorptions,
were $8,822, $26,781, and $1,500, respectively.
4. Line of Credit
The Strong Funds have established a line of credit agreement ("LOC") with
certain financial institutions to be used for temporary or emergency
purposes, primarily for financing redemption payments. Combined borrowings
among all participating Strong Funds are subject to a $350 million cap on
the total line of credit. For individual Funds, borrowings under the LOC
are limited to either the lesser of 15% of the market value of total assets
or any explicit borrowing limits in the Funds' prospectus. Borrowings under
the LOC bear interest based on prevailing market rates as defined in the
LOC. A commitment fee of .07% per annum is incurred on the unused portion
of the line of credit and is allocated to all participating Strong Funds.
There were no borrowings by the Fund under the LOC during the year ended
September 30, 1999.
5. Investment Transactions
The aggregate purchases and sales of U.S. Government and Agency securities
for the year ended September 30, 1999 were $1,045,728 and $1,414,259,
respectively. The aggregate purchases and sales of other long term
securities for the year ended September 30, 1999 were $5,078,996 and
$7,455,471, respectively.
6. Income Tax Information
At September 30, 1999, the cost of investments in securities for federal
income tax purposes was $6,851,100. Net unrealized depreciation of
securities was $316,977, consisting of gross unrealized appreciation and
depreciation of $123,388 and $440,365, respectively.
For corporate shareholders in the Fund, the percentage of dividend income
distributed for the year ended September 30, 1999 which is designated as
qualifying for the dividends-received deduction is 68% (unaudited)
10
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------
STRONG SCHAFER BALANCED FUND
- ----------------------------------------------------------------------------------------------------------------
Year Ended
-----------------------
Sept. 30, Sept. 30,
Selected Per-Share Data (a) 1999 1998(b)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 9.14 $10.00
Income From Investment Operations
Net Investment Income 0.15 0.10
Net Realized and Unrealized Gains (Losses) on Investments 1.22 (0.86)
- ----------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.37 (0.76)
Less Distributions
From Net Investment Income (0.15) (0.10)
From Net Realized Gains (0.09) --
- ----------------------------------------------------------------------------------------------------------------
Total Distributions (0.24) (0.10)
- ----------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.27 $ 9.14
================================================================================================================
Ratios and Supplemental Data
- ----------------------------------------------------------------------------------------------------------------
Total Return +15.1% -7.7%
Net Assets, End of Period (In Thousands) $6,234 $7,919
Ratio of Expenses to Average Net Assets Without Waivers and Absorptions 2.0% 2.0%*
Ratio of Expenses to Average Net Assets 2.0% 2.0%*
Ratio of Net Investment Income to Average Net Assets 1.3% 1.5%*
Portfolio Turnover Rate 87.9% 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 December 31, 1997 (inception) to September 30, 1998.
See Notes to Financial Statements. 11
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Strong Schafer Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments in securities, 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, 1999, the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, 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, 1999 by correspondence with the custodian and broker, provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
November 8, 1999
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
Dennis A. Wallestad, VICE PRESIDENT
Thomas M. Zoeller, VICE PRESIDENT
John S. Weitzer, VICE PRESIDENT
Stephen J. Shenkenberg, VICE PRESIDENT AND SECRETARY
John W. Widmer, TREASURER
INVESTMENT ADVISOR
Strong Capital Management, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
DISTRIBUTOR
Strong Investments, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
CUSTODIAN
Firstar Bank Milwaukee, N.A.
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
100 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.
-------------------------------------------
[ICON]
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
-------------------------------------------
[ICON]
eStrong.com
www.eStrong.com
-------------------------------------------
[LOGO]
STRONG FUNDS
P.O. Box 2936 - Milwaukee, Wisconsin 53201
STRONG INVESTMENTS, INC. 13311K99 ASBAL
