[STRONG LOGO]
THE STRONG SCHAFER
BALANCED FUND
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SEMI-ANNUAL REPORT o MARCH 31, 1999
[PICTURE OF STRONG FUNDS BUILDING]
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Strong Investor,
As I review this past year, I can't help but conclude that we are living in
one of the most remarkable eras in modern history. In many ways, it is a Golden
Age of prosperity, with constantly improving living standards, virtually full
employment, and enormous cultural vitality.
Our golden era is primarily driven by the spirit of capitalism, which has
resulted in real economic growth of better than 3%, negligible inflation, and
the lowest unemployment rates in a quarter of a century. Things have rarely
looked so good. My advice: Enjoy it, but remember that good times have a way of
disappearing. Almost overnight.
Not everything in the world is coming up roses. As the fighting in Kosovo
demonstrates, conflict still looms large in the world. Kosovo illustrates just
how delicate the balance is between individual nations and their economies. And
it serves as a constant reminder that everything in life--economies included--is
cyclical.
While the U.S. market has been strong, not every security has shared in the
good times. What we are experiencing today--to borrow a Wall Street phrase--is a
two-tiered market. That is, a market with big differences between the "have" and
"have not" stocks. Close to 70% of stocks out there are still down 20% or more
from their tops, while a precious small percentage are near their historical
highs.
In plain English, today's market has one piece that may be over-valued, and
another piece that appears to be undervalued.
A family's investment portfolio has to distinguish between a careful
strategy and just "playing the market." A serious investor needs to realize that
some stock valuations are at extreme highs and that diversification is more
important than ever. In addition to blue chip and other large-cap stocks, fixed
income products (like long-term bonds) are very attractive and provide an
excellent vehicle for diversifying a portfolio.
(And, although currently out of favor with investors, small- and mid-cap
stocks will rise again. If you buy the idea that markets are cyclical, these
stocks could be an excellent place to invest over the next few years).
Likewise, value investing--the art of buying undervalued companies--is also
out of favor. Value stocks have already been through a pretty severe correction,
and by investing in them now, you can help protect yourself when large-cap and
technology stocks retreat.
At Strong, we're in business to help you achieve your financial goals. Our
Strong Advisor program works with shareholders to build a long term investment
program through balance.
The markets are made up of millions of pieces of input--facts, opinions,
trends, tips, dreams, emotions, speculation, and an abundance of good
old-fashioned hunches. There is also a good deal of wisdom built into the
markets. Some of this wisdom gets distorted over the short-term. Long-term,
however, the essential truth of the investment process emerges. Our job is to
help you maneuver through the clutter and emotion in the marketplace and find
that truth.
Give us a call. We're here to help.
/s/Dick
<PAGE>
THE STRONG
SCHAFER BALANCED
FUND
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SEMI-ANNUAL REPORT o MARCH 31, 1999
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
Statements of Changes in Net Assets .............................8
Notes to Financial Statements ...................................9
FINANCIAL HIGHLIGHTS ................................................11
<PAGE>
==================
THE STRONG SCHAFER BALANCED FUND
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FUND
HIGHLIGHTS
o For the six months ended March 31, 1999, the Strong Schafer Balanced Fund
returned 19.27%, compared to the 16.13% gain registered by the Fund's
composite benchmark, a blend of the S&P 500 Stock Index (60%) and the
Lehman Brothers Intermediate Government Bond Index (40%).*
o In February and March 1999, the equity portfolio of the Fund replaced some
mid-cap stocks with larger-cap stocks where earnings growth prospects
seemed particularly good.
o The Fund's holdings in the energy sector were adversely affected by the
decline in the price of oil.
- ---------------------------------------
AVERAGE ANNUAL
TOTAL RETURN(1)
As of 3-31-99
1-year 5.58%
Since Inception 8.02%
(on 12-31-97)
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FIVE LARGEST
HOLDINGS
As of 3-31-99
Security % of Net Assets
- ---------------------------------------
United States Treasury Notes 36.8%
BankAmerica Corporation 1.9%
Paine Webber Group, Inc. 1.9%
Summit Bancorp. 1.9%
Koninklijke Philips Electronics NV 1.9%
Please see the Schedule of Investments
in Securities for a complete listing
of the Fund's portfolio.
PERSPECTIVES
FROM THE MANAGER
/s/ David K. Schafer
David K. Schafer
Portfolio Manager
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While we continue to rigidly adhere to our longstanding policy of holding only
stocks that have both P/E multiples below those of the S&P 500 and
earnings-per-share growth prospects that appear greater than those of the S&P
500, we have made more than the normal number of changes to the equity portfolio
over the last month and a half of the period. These changes were made primarily
because the mid-cap stocks we have invested in have dramatically lagged the S&P
500 and show no signs of reversing the trend.
We slightly shifted our emphasis in two ways: we reduced the weighting in
mid-cap stocks, and placed a greater emphasis on companies with a strong
potential for making their earnings estimates, given the market's
disproportionate emphasis on these numbers. Some of the stocks that we have sold
and their industries (in parentheses) include W.R. Berkeley (Insurance), Diamond
Offshore (Oil Well Equipment & Service), IBP Corp. (Food), Old Republic
International (Insurance), Phillips Petroleum (Oil--North American Integrated),
R&B Falcon (Oil Drilling) and Western Resources (Electric Power). Stocks that we
added to the portfolio include Allstate Corp. (Insurance), Cadence Design
(Computer Software), Canadian National Railway (Railroad), Chubb Corp.
(Insurance), Diebold Inc. (Commercial Services), Lockheed Martin (Aerospace &
Defense), Maytag (Household Appliances), Raytheon (Aerospace & Defense) and
Sears (Retail).
As shareholders of the Strong Schafer Balanced Fund are painfully aware, value
investing has been tough sledding for the past year and a half.
-------------------------------------
WE REMAIN CONVINCED
THAT IT IS A QUESTION
OF "WHEN" AND NOT
"IF" OUR APPROACH
WILL RETURN TO FAVOR,
AND WE ENCOURAGE
ALL INVESTORS NOT
TO ABANDON VALUE
INVESTING.
-------------------------------------
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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 index data is Standard & Poor's Micropal. Source of the
Lipper index data is Lipper Inc.
2
<PAGE>
In this extremely narrowly focused stock market, where an increasingly smaller
group of very large companies continues to command most of the attention of the
investing public, we believe value investing will continue to be an uphill
struggle. However, these out-of-favor periods are not new to value investors (or
those of any other investment style), and hardly a period of five years goes by
without value being out of sync with the overall market. What is different this
time is the disparity of returns relative to the S&P 500, and investors'
fascination with Internet stocks. Despite these two current overwhelming
influences on the stock market, which work to the detriment of value investors,
we remain convinced that it is a question of "when" and not "if" our approach
will return to favor, and we encourage all investors not to abandon value
investing.
Over the coming months, the changes we have made in the portfolio will,
hopefully, coincide with a broadening in the stock market. When this fundamental
change occurs, we believe that the portfolio will be well-positioned to benefit
from a more inclusive stock market.
The Fund's 40% bond allocation was invested almost entirely in U.S. Treasury
Notes. Investors looked to reverse their flight-to-quality trade during the
period, causing Treasury Yields to increase and prices to decline. This slightly
reduced the Fund's overall performance.
Thank you for your investment in the Strong Schafer Balanced Fund. We appreciate
your confidence in our investment approach.
GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 12-31-97 to 3-31-99
[GRAPH]
THE STRONG Lipper 60/40
SCHAFER S&P 500 Balanced Balanced
BALANCED FUND Index* Funds Index* Index*
12-97 10,000 10,000 10,000 10,000
2-98 10,160 10,840 10,471 10,552
4-98 10,722 11,510 10,867 11,984
6-98 10,431 11,771 10,955 11,194
8-98 9,012 9,962 9,894 10,264
10-98 9,840 11,462 10,707 11,266
12-98 10,321 12,858 11,509 12,117
2-99 10,557 12,979 11,412 12,141
3-99 11,013 13,498 11,693 12,466
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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1 Average annual total return and total return measure change in the value of
an investment in the Fund, assuming reinvestment of all dividends and
capital gains. Average annual total return reflects annualized change while
total return reflects aggregate change, and is not annualized.
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.
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MARKET
HIGHLIGHTS
o The healthy U.S. economy, coupled with foreign capital inflows from many
trouble spots, contributed to the strong performance of the large-cap
dominated S&P 500 during the past six months.
o The S&P 500's returns continued to mask an important divergence in the
market. Small- and mid-cap stocks, particularly those in the value camp,
continued to lag while market narrowing continued. Last year, 15 large-cap
stocks (or 7.5% of the stocks in the Index) accounted for over 51% of the
gain in the S&P 500. In the first quarter of 1999, 18 stocks (or 9% of the
total) accounted for 100% of the gain in the S&P 500.
o Short-term equity trading opportunities benefited the Fund.
3
<PAGE>
<TABLE>
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PORTFOLIO HOLDINGS, EARNINGS PER SHARE ESTIMATES, AND PRICE/EARNINGS RATIOS AS OF 3-31-99 (UNAUDITED)
=====================================================================================================
<CAPTION>
CLOSING PRICE EARNINGS PER SHARE PRICE/EARNINGS RATIO
SECURITY (3-31-99) 1999E 2000E 1999E 2000E
<S> <C> <C> <C> <C> <C>
Allstate Corp $ 37.06 3.28 3.52 11.3 10.5
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Avnet Inc 36.33 3.50 4.07 10.5 9.0
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BankAmerica Corp New 70.63 4.68 5.48 15.1 12.9
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Borg-Warner Automotive 47.81 4.88 5.56 9.8 8.6
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Burlington Northern Santa Fe 32.88 2.60 2.92 12.6 11.2
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Cadence Design System Inc 25.75 1.41 1.70 18.3 15.2
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Canadian Natl Ry Co 55.63 4.67 5.50 11.9 10.1
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Chase Manahattan Corp 81.31 5.18 5.77 15.7 14.1
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Chubb Corp 58.56 4.31 4.71 13.6 12.4
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Cleveland Cliffs Inc 34.06 3.80 4.40 9.0 7.7
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Diebold Inc 24.00 1.83 2.07 13.1 11.6
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ECI Telecom Ltd Ord 35.00 2.45 3.03 14.2 11.6
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FDX Corp 92.81 5.29 6.01 17.6 15.5
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Federal Natl Mtg Assn 69.25 3.67 4.12 18.8 15.8
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Ford Mtr Co 56.75 5.31 5.42 10.7 10.5
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Kansas City Pwr & Lt Co 24.63 2.20 2.30 11.2 10.7
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KLM Royal Dutch Airls Com NY Reg 27.75 1.73 1.63 16.0 17.0
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Lafarge Corp 28.00 3.49 3.90 8.0 7.2
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Lockheed Martin Corp 37.69 3.39 3.65 11.1 10.3
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May Dept Stores Co 39.13 2.79 3.11 14.0 12.6
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Maytag Corp 60.38 3.63 4.08 16.6 14.8
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Mellon Bk Corp 70.38 3.61 4.04 19.5 17.4
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Merrill Lynch & Co Inc 88.44 4.58 5.00 19.3 17.7
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Omnicare Inc 19.06 1.38 1.74 13.8 10.9
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Paine Webber Group Inc 39.88 2.94 3.17 13.6 12.6
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PartnerRE Ltd 40.50 4.47 4.73 9.1 8.6
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Petroleum Geo-Svcs ADR 15.25 1.23 1.58 12.4 9.6
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Philip Morris Cos 35.19 3.33 3.79 10.6 9.3
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Koninklijke Philips Electrs Sponsored 82.44 4.51 5.97 18.3 13.8
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Raytheon Co Cl B 58.63 3.70 4.13 15.9 14.2
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Sears Roebuck & Co 45.19 3.69 4.09 12.3 11.0
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Southdown Inc 53.69 5.51 6.06 9.7 8.9
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Storage Technology Corp 27.88 2.48 2.94 11.2 9.5
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Summit Bancorp 39.00 2.84 3.08 13.7 12.6
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UCAR Intl Inc 14.13 1.92 2.61 7.4 5.4
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Wells Fargo Co 35.06 2.22 2.58 15.8 13.6
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STRONG SCHAFER BALANCED FUND PORTFOLIO AVERAGES 13.4 11.8
S&P 500 INDEX 1,286.37 42.74 46.32 30.1 27.8
E=ESTIMATE
</TABLE>
4
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES MARCH 31, 1999 (Unaudited)
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================================================================================
STRONG SCHAFER BALANCED FUND
================================================================================
Shares or
Principal Value
Amount (Note 2)
- --------------------------------------------------------------------------------
COMMON STOCKS 58.0%
AEROSPACE & DEFENSE 3.4%
Lockheed Martin Corporation 2,700 $101,756
Raytheon Company Class B 1,800 105,525
--------
207,281
AIRLINE 3.4%
FDX Corporation (b) 1,200 111,375
KLM Royal Dutch Airlines - New York Registry Shares 3,500 97,125
--------
208,500
AUTO & TRUCK PARTS 1.8%
Borg-Warner Automotive, Inc. 2,300 109,969
AUTOMOBILE 1.8%
Ford Motor Company 2,000 113,500
BANK - MONEY CENTER 3.6%
BankAmerica Corporation 1,700 120,063
The Chase Manhattan Corporation 1,300 105,706
--------
225,769
BANK - SUPER REGIONAL 5.4%
Mellon Bank Corporation 1,600 112,600
Summit Bancorp 3,000 117,000
Wells Fargo Company 3,000 105,188
--------
334,788
BROKERAGE & INVESTMENT MANAGEMENT 3.8%
Merrill Lynch & Company, Inc. 1,300 114,969
Paine Webber Group, Inc. 3,000 119,625
--------
234,594
COMMERCIAL SERVICE 1.4%
Diebold, Inc. 3,700 88,800
COMPUTER - PERIPHERAL EQUIPMENT 1.5%
Storage Technology Corporation (b) 3,400 94,775
COMPUTER - PERSONAL & WORKSTATION 1.5%
Ziff-Davis, Inc. - ZDNet (b) 2,500 90,000
COMPUTER SOFTWARE 1.7%
Cadence Design Systems, Inc. (b) 4,100 105,575
ELECTRIC POWER 1.6%
Kansas City Power & Light Company 4,000 98,500
ELECTRONIC PARTS DISTRIBUTION 1.2%
Avnet, Inc. 2,100 76,912
HEALTHCARE - PATIENT CARE 1.5%
Omnicare, Inc. 4,700 89,594
HOUSEHOLD APPLIANCES & FURNISHINGS 3.5%
Koninklijke Philips Electronics NV Sponsored
ADR - New York Registry Shares 1,400 115,413
Maytag Corporation 1,700 102,637
--------
218,050
INSURANCE - PROPERTY & CASUALTY 4.6%
The Allstate Corporation 2,400 88,950
Chubb Corporation 1,500 87,844
PartnerRE, Ltd. 2,700 109,350
--------
286,144
METALS & MINING 4.0%
Cleveland-Cliffs, Inc. 1,800 61,312
Lafarge Corporation 2,700 75,600
Southdown, Inc. 2,100 112,744
--------
249,656
MORTGAGE & RELATED SERVICE 1.6%
Federal National Mortgage Association 1,400 96,950
OIL WELL EQUIPMENT & SERVICE 0.1%
Petroleum Geo-Services A/S Sponsored ADR (b) 600 9,150
RAILROAD 2.8%
Burlington Northern Santa Fe Corporation 3,400 111,775
Canadian National Railway Company 1,100 61,187
--------
172,962
RETAIL - DEPARTMENT STORE 3.2%
May Department Stores Company 2,850 111,506
Sears, Roebuck & Company 1,900 85,856
--------
197,362
STEEL 1.6%
UCAR International, Inc. (b) 6,900 97,462
TELECOMMUNICATION EQUIPMENT 1.5%
ECI Telecom, Ltd. 2,700 94,500
TOBACCO 1.5%
Philip Morris Companies, Inc. 2,600 91,488
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Total Common Stocks (Cost $3,635,012) 3,592,281
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UNITED STATES GOVERNMENT ISSUES 32.4%
United States Treasury Notes:
6.25%, Due 1/31/02 $950,000 977,906
6.50%, Due 8/31/01 450,000 464,485
6.625%, Due 5/15/07 525,000 566,016
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Total United States Government Issues (Cost $1,989,832) 2,008,407
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SHORT-TERM INVESTMENTS (a) 9.4%
Commercial Paper 5.0%
Interest Bearing, Due Upon Demand
General Mills, Inc., 4.54% 134,500 134,500
Sara Lee Corporation, 4.54% 38,900 38,900
Warner Lambert Company, 4.57% 138,200 138,200
--------
311,600
United States Government Issues 4.4%
United States Treasury Notes, 5.625%, Due 11/30/99 270,000 271,603
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Total Short-Term Investments (Cost $581,704) 583,203
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Total Investments in Securities 99.8% (Cost $6,206,548) 6,183,891
Other Assets and Liabilities, Net 0.2% 10,340
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NET ASSETS 100.0% $6,194,231
================================================================================
LEGEND
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(a) Short-term investments include any security which has a 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
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
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March 31, 1999 (Unaudited)
Strong Schafer
Balanced Fund
--------------
ASSETS:
Investments in Securities, at Market Value (Cost of $6,206,548) $6,183,891
Receivable for Securities Sold 186,122
Dividends and Interest Receivable 38,124
Other Assets 25,970
----------
Total Assets 6,434,107
LIABILITIES:
Payable for Securities Purchased 228,718
Accrued Operating Expenses and Other Liabilities 11,158
----------
Total Liabilities 239,876
----------
NET ASSETS $6,194,231
==========
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) $5,941,396
Accumulated Net Investment Income 2,006
Accumulated Net Realized Gain 273,486
Net Unrealized Depreciation (22,657)
----------
Net Assets $6,194,231
==========
Capital Shares Outstanding (Unlimited Number Authorized) 577,526
NET ASSET VALUE PER SHARE $10.73
======
See Notes to Financial Statements.
6
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Six Months Ended March 31, 1999 (Unaudited)
Strong Schafer
Balanced Fund
--------------
INCOME:
Dividends (net of withholding taxes of $376) $ 42,171
Interest 76,126
----------
Total Income 118,297
EXPENSES:
Investment Advisory Fees 36,476
Custodian Fees 1,082
Shareholder Servicing Costs 13,354
Professional Fees 4,920
Reports to Shareholders 4,787
Federal and State Registration Fees 23,082
Other 3,737
----------
Total Expenses Before Involuntary Absorptions 87,438
Involuntary Expense Absorptions by Advisor (14,575)
----------
Expenses, Net 72,863
----------
NET INVESTMENT INCOME 45,434
REALIZED AND UNREALIZED GAIN:
Net Realized Gain on:
Investments 223,099
Foreign Currencies 1
----------
Net Realized Gain 223,100
Net Change in Unrealized Appreciation/Depreciation on:
Investments 1,034,170
Foreign Currencies 2
----------
Net Change in Unrealized Appreciation/Depreciation 1,034,172
----------
NET GAIN ON INVESTMENTS 1,257,272
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,302,706
==========
See Notes to Financial Statements.
7
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Strong Schafer Balanced Fund
----------------------------------
Six Months Ended Year Ended
March 31, 1999 Sept. 30, 1998
---------------- ---------------
(Unaudited) (Note 1)
OPERATIONS:
<S> <C> <C>
Net Investment Income $ 45,434 $ 87,005
Net Realized Gain 223,100 120,815
Net Change in Unrealized Appreciation/Depreciation 1,034,172 (1,056,829)
---------- -----------
Net Increase (Decrease) in Net Assets Resulting from Operations 1,302,706 (849,009)
DISTRIBUTIONS:
From Net Investment Income (44,278) (86,124)
From Net Realized Gain on Investments (70,461) --
---------- -----------
Total Distributions (114,739) (86,124)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 1,129,799 13,489,461
Proceeds from Reinvestment of Distributions 108,474 80,886
Payment for Shares Redeemed (4,151,150) (4,816,073)
---------- -----------
Net Increase (Decrease) in Net Assets from Capital Share Transactions (2,912,877) 8,754,274
---------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (1,724,910) 7,819,141
NET ASSETS:
Beginning of Period 7,919,141 100,000
---------- -----------
End of Period $6,194,231 $ 7,919,141
========== ===========
TRANSACTIONS IN SHARES OF THE FUND:
Sold 112,805 1,328,630
Issued in Reinvestment of Distributions 10,829 8,205
Redeemed (412,774) (480,169)
---------- -----------
Net Increase (Decrease) in Shares of the Fund (289,140) 856,666
========== ===========
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
March 31, 1999 (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 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 March 31, 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.
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) 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.
Foreign denominated assets and forward currency contracts may involve
greater risks than domestic transactions, including 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), 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
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.
(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 -- 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.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
March 31, 1999 (Unaudited)
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. 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 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, 1999, other shareholding
servicing expenses paid to the Advisor, and unaffiliated directors' fees
for the six months then ended, excluding the effect of waivers and
absorptions, were $10,016, $99, and $750, 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.
At March 31, 1999, there were no borrowings by the Fund outstanding under
the LOC.
5. Investment Transactions
The aggregate purchases and sales of U.S. Government and Agency securities
for the six months ended March 31, 1999 were $362,571 and $1,071,649,
respectively. The aggregate purchases and sales of other long term
securities for the six months ended March 31, 1999 were $2,592,803 and
$5,057,046, respectively.
6. Income Tax Information
At March 31, 1999, the cost of investments in securities for federal income
tax purposes was $6,227,037. Net unrealized depreciation of securities was
$43,146, consisting of gross unrealized appreciation and depreciation of
$356,860 and $400,006, respectively.
10
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------
STRONG SCHAFER BALANCED FUND
- -----------------------------------------------------------------------------------------------
<CAPTION>
Period Ended
--------------------
March 31, Sept. 30,
Selected Per-Share Data(a) 1999(b) 1998(c)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 9.14 $10.00
Income From Investment Operations
Net Investment Income 0.07 0.10
Net Realized and Unrealized Gains (Losses) on Investments 1.68 (0.86)
- -----------------------------------------------------------------------------------------------
Total from Investment Operations 1.75 (0.76)
Less Distributions
From Net Investment Income (0.07) (0.10)
From Net Realized Gains (0.09) --
- -----------------------------------------------------------------------------------------------
Total Distributions (0.16) (0.10)
- -----------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.73 $ 9.14
===============================================================================================
Ratios and Supplemental Data
- -----------------------------------------------------------------------------------------------
Total Return +19.3% -7.7%
Net Assets, End of Period (In Thousands) $6,194 $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 1.2%* 1.5%
Porfolio Turnover Rate 41.4% 45.5%
</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 six months ended March 31, 1999 (unaudited).
(c) For the period December 31, 1997 (inception) to September 30, 1998.
See Notes to Financial Statements.
11
<PAGE>
NOTES
- --------------------------------------------------------------------------------
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 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.
[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. 11581E99 SSBAL
