<PAGE>
THE STRONG
----------
SCHAFER VALUE
FUND
==================================
ANNUAL REPORT o SEPTEMBER 30, 1998
==================================
[PHOTO OF STRONG FUNDS BUILDING]
[STRONG LOGO]
STRONG FUNDS
<PAGE>
8
EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING
These common-sense rules are followed by many successful investors. They make
sense for beginners, too. If you have a question on these principles, or would
like to discuss them with us, please contact us at 1-800-368-3863. We're here
24 hours a day, seven days a week to take your call.
- -------------------------------------------------------------------------------
[PICTURE OF FOLDER LABELED INVESTMENTS]
1. HAVE A PLAN. Even a simple plan can help you take control of your financial
future. Review your plan once a year, or if your circumstances change.
- -------------------------------------------------------------------------------
[PICTURE OF CLOCK]
2. START INVESTING AS SOON AS POSSIBLE. Make time a valuable ally. Let it put
the power of compounding to work for you, while helping to reduce your
potential investment risk.
- -------------------------------------------------------------------------------
[PICTURE OF PIE CHART OF ASSET DIVERSIFICATION]
3. DIVERSIFY YOUR PORTFOLIO. By investing in different asset classes - stocks,
bonds, and cash - you help protect against poor performance in one type of
investment while including investments most likely to help you achieve your
important goals.
- -------------------------------------------------------------------------------
[PICTURE OF MEMO REMINDER TO INVEST]
4. INVEST REGULARLY. Investing is a process, not a one-time event. By
investing regularly over the long term, you reduce the impact of short-term
market gyrations, and you attend to your long-term plan before you're tempted
to spend those assets on short-term needs.
- -------------------------------------------------------------------------------
[PICTURE OF GRAPH SLOPING UPWARD]
5. MAINTAIN A LONG-TERM PERSPECTIVE. For most individuals, the best discipline
is staying invested as market conditions change. Reactive, emotional investment
decisions are all too often a source of regret - and of principal loss.
- -------------------------------------------------------------------------------
[PICTURE OF PIE CHART OF ASSET DIVERSIFICATION EMPHASIZING STOCKS]
6. CONSIDER STOCKS TO HELP ACHIEVE MAJOR LONG-TERM GOALS. Over time, stocks
have provided the more powerful returns needed to help the value of your
investments stay well ahead of inflation.
- -------------------------------------------------------------------------------
[PICTURE OF DOLLAR SIGN]
7. KEEP A COMFORTABLE AMOUNT OF CASH IN YOUR PORTFOLIO. To meet current needs,
including emergencies, use a money market fund or a bank account - not your
long-term investment assets.
- -------------------------------------------------------------------------------
[PICTURE OF MAGNIFYING GLASS]
8. KNOW WHAT YOU'RE BUYING. Make sure you understand the potential risks and
rewards associated with each of your investments. Ask questions...request
information...make up your own mind. And choose a fund company that helps you
make informed investment decisions.
<PAGE>
THE STRONG
SCHAFER VALUE
FUND
==================================
ANNUAL REPORT o SEPTEMBER 30, 1998
==================================
TABLE OF CONTENTS
INVESTMENT REVIEW
The Strong Schafer Value Fund............................................2
FINANCIAL INFORMATION
Schedule of Investments..................................................5
Statement of Assets and Liabilities......................................7
Statement of Operations..................................................7
Statements of Changes in Net Assets......................................8
Notes to Financial Statements............................................9
FINANCIAL HIGHLIGHTS.........................................................11
REPORT OF INDEPENDENT ACCOUNTANTS............................................12
<PAGE>
=============================
THE STRONG SCHAFER VALUE FUND
=============================
ONE OF THE REASONS FOR OUR UNDERPERFORMANCE IN FISCAL 1998 IS THAT WE DID NOT
OWN THE VERY LARGE STOCKS IN THE S&P 500.
The Strong Schafer Value Fund seeks long-term capital appreciation principally
through investments in common stocks and other equity securities. Current income
is a secondary--but important--objective.
A LOOK BACK ON A VERY DIFFICULT YEAR
The year ended September 30, 1998 was, by far, the most challenging and
difficult year 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 Value Fund was down 23.52% for the fiscal
year ended September 30, 1998. During the same period the S&P 500 Stock Index
(S&P 500), the Fund's benchmark, returned 9.05%. The S&P 500 is generally
considered to be representative of the domestic stock market. Of this return,
8.55% was contributed by the top 25 companies in the Index while the remaining
companies contributed 0.5%.
One of the reasons for our underperformance in fiscal 1998 is that we did not
own the very large stocks in the S&P 500. Because of their rising prices and
expanded price/earnings multiples (P/Es), we have been, on balance, sellers of
the largest-capitalization stocks in the S&P 500 over the past several years.
During the year just ended, for example, we sold Atlantic Richfield, Progressive
Corp., Northern Trust, and SBC Communications, Inc.
A COMMITMENT TO OUR TIME-TESTED APPROACH
Instead of owning the very largest stocks in the Index, we have continued with
the investment approach we have used since the inception of the Fund, which has
led us to a greater weighting in the mid-cap area. Our long-standing 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 met our price
targets and were sold because the P/E rose to the level of the S&P 500, they
were largely replaced by mid-cap stocks which, while having superior
fundamentals and more attractive valuations, nonetheless performed much less
well than their large-cap counterparts. We shifted into a heavier weighting in
the mid-cap area solely because we were unable to find large-cap alternatives
that met our valuation criteria. The mid-cap stocks we have added to the
portfolio not only have lower P/Es and better earnings per share growth
prospects than the S&P 500, they generally also have less exposure to foreign
markets than those stocks in the larger-cap universe.
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.
2
<PAGE>
LOOKING AHEAD
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
Value 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 13% 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.
[PHOTO OF DAVID K. SCHAFER]
Sincerely,
/s/ David K. Schafer
David K. Schafer
Portfolio Manager
================================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
================================================================================
From 9-30-88 to 9-30-98
[GRAPH]
The Strong Lipper Growth
Schafer Value S&P 500 and Income
Fund Index* Funds Index*
9-88 10,000 10,000 10,000
12-88 10,260 10,309 10,219
12-90 12,000 13,154 11,887
12-92 20,067 18,468 16,648
12-94 23,815 20,598 19,003
12-96 39,348 34,845 30,073
9-98 39,692 49,260 37,277
This graph, prepared in accordance with SEC regulations, compares a $10,000
investment in the Fund, made on 9-30-88, with similar investments in the
Standard & Poor's 500 Stock Index ("S&P 500") and the Lipper Growth & Income
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 vary, and you may have a gain
or loss when you sell shares in the Fund.
================================================================================
==================================
AVERAGE ANNUAL
TOTAL RETURNS
==================================
As of 9-30-98
1-YEAR -23.52%
5-YEAR 10.89%
10-YEAR 14.78%
SINCE INCEPTION 13.56%
(on 10-22-85)
==================================
* The S&P 500 is an unmanaged index generally representative of the U.S. stock
market, without regard to company size. The Lipper Growth & Income 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 Analytical Services, Inc.
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>
INCO 10.25 (0.49) (0.16) N.M. N.M.
.....................................................................................
Asia Pulp & Paper 5.31 0.78 1.27 6.8 4.2
.....................................................................................
New Holland 11.25 2.00 1.80 5.6 6.3
.....................................................................................
LaSalle Re Holdings 26.62 3.15 4.00 8.5 6.7
.....................................................................................
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
.....................................................................................
Burlington Industries 9.50 1.34 1.18 7.1 8.1
.....................................................................................
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
.....................................................................................
Northrop Grumman 73.00 6.55 7.64 11.1 9.6
.....................................................................................
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
.....................................................................................
SLM Holdings 32.44 2.83 3.31 11.5 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
.....................................................................................
PaineWebber 30.00 2.70 2.95 11.1 10.2
.....................................................................................
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
.....................................................................................
Champion Enterprises 23.25 1.89 2.20 12.3 10.6
.....................................................................................
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
.....................................................................................
Keycorp 28.87 2.25 2.46 12.8 11.7
.....................................................................................
Repsol 42.19 3.07 3.48 13.7 12.1
.....................................................................................
JoAnn Stores 22.25 1.60 1.75 13.9 12.7
.....................................................................................
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
.....................................................................................
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 VALUE FUND PORTFOLIO AVERAGES 12.2 10.6
E=ESTIMATE
4
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS IN SECURITIES SEPTEMBER 30, 1998
- ---------------------------------------------------------------------------------------------
=============================================================================================
STRONG SCHAFER VALUE FUND
=============================================================================================
<CAPTION>
Shares or Unit
Principal Average Market Market
Security Amount Unit Cost Value % Change Value
- ---------------------------------------------------------------------------------------------
COMMON STOCKS 99.1%
AEROSPACE & DEFENSE 4.0%
<S> <C> <C> <C> <C> <C>
The Boeing Company 835,000 $ 49.90 $34.31 -31.24% $ 28,650,937
Northrop Grumman Corporation 390,000 107.02 73.00 -31.79 28,470,000
------------
57,120,937
AGRICULTURAL EQUIPMENT 1.3%
New Holland NV 1,594,700 23.88 11.25 -52.89 17,940,375
AIR TRANSPORT 2.0%
FDX Corporation (b) 645,000 51.07 45.13 -11.63 29,105,625
AIRLINE 1.8%
KLM Royal Dutch Airlines 1,060,000 41.10 24.75 -39.78 26,235,000
AUTO PARTS 3.9%
Borg-Warner Automotive, Inc. 680,000 41.06 37.06 -9.74 25,202,500
The Goodyear Tire & Rubber Company 600,000 56.43 51.38 -8.95 30,825,000
------------
56,027,500
AUTOMOBILE 2.6%
Ford Motor Company 800,000 27.93 46.94 68.06 37,550,000
BANKS 13.4%
The Chase Manhattan Corporation 593,200 45.07 43.25 -4.04 25,655,900
KeyCorp 1,100,000 26.38 28.88 9.47 31,762,500
Mellon Bank Corporation 527,100 31.46 55.06 75.02 29,023,444
National Bank of Canada (d) 2,090,000 12.27 14.66 19.47 30,636,957
NationsBank Corporation 420,000 61.84 53.50 -13.48 22,470,000
Norwest Corporation 810,000 36.89 35.81 -2.92 29,008,125
Summit Bancorp 620,300 39.72 37.50 -5.58 23,261,250
------------
191,818,176
BROKERAGE 1.8%
Paine Webber Group, Inc. 875,000 18.49 30.00 62.25 26,250,000
CEMENT 4.1%
Lafarge Corporation 1,050,000 23.61 28.56 20.96 29,990,625
Southdown, Inc. 640,000 40.75 45.00 10.43 28,800,000
------------
58,790,625
COMPUTER EQUIPMENT & SERVICE 1.8%
Storage Technology Corporation(b) 1,006,400 20.35 25.44 25.01 25,600,300
ELECTRIC UTILITIES 5.8%
Kansas City Power & Light Company(b) 1,269,400 30.98 30.44 -1.74 38,637,362
Western Resources, Inc. 1,070,000 36.35 41.38 13.84 44,271,250
------------
82,908,612
ELECTRONIC EQUIPMENT & DISTRIBUTION 8.1%
Arrow Electronics, Inc. 1,900,000 27.53 13.13 -52.31 24,937,500
Avnet, Inc. 692,600 56.33 36.81 -34.65 25,496,338
Harman International
Industries, Inc.(c) 1,030,000 39.50 36.69 -7.12 37,788,125
Philips Electronics NV ADR 510,000 45.90 53.38 16.29 27,221,250
------------
115,443,213
FINANCIAL SERVICES 4.0%
Kansas City Southern Industries, Inc. 900,000 35.46 35.00 -1.30 31,500,000
SLM Holding Corporation 800,000 45.59 32.44 -28.84 25,950,000
------------
57,450,000
FOOD 2.9%
IBP, Inc. 2,044,200 23.35 20.25 -13.28 41,395,050
HOUSING RELATED 6.7%
Armstrong World Industries, Inc. 570,800 68.29 53.50 -21.66 30,537,800
Champion Enterprises, Inc. (b) 1,082,300 16.51 23.25 40.82 25,163,475
Owens Corning 1,205,000 35.35 32.56 -7.89 39,237,813
------------
94,939,088
5
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES (CONTINUED) SEPTEMBER 30, 1998
- ---------------------------------------------------------------------------------------------
=============================================================================================
STRONG SCHAFER VALUE FUND (CONTINUED)
=============================================================================================
<CAPTION>
Shares or Unit
Principal Average Market Market
Security Amount Unit Cost Value % Change Value
- ---------------------------------------------------------------------------------------------
INSURANCE 7.4%
W.R. Berkley Corporation 964,200 $ 34.78 $ 29.88 -14.09% $ 28,805,475
LaSalle Re Holdings, Ltd. 560,400 24.32 26.63 9.50 14,920,650
Old Republic International
Corporation 1,224,000 16.37 22.50 37.45 27,540,000
Partners RE, Ltd. ADR 850,000 41.66 40.06 -3.84 34,053,125
--------------
105,319,250
METALS & MINING 5.5%
Cleveland-Cliffs, Inc.(c) 577,600 42.94 39.00 -9.18 22,526,400
Inco, Ltd. 2,428,000 19.72 10.25 -48.02 24,887,000
UCAR International, Inc. (b) 1,746,900 30.88 18.00 -41.71 31,444,200
--------------
78,857,600
OIL 9.5%
Phillips Petroleum Company 890,000 48.20 45.13 -6.37 40,161,250
Repsol SA Sponsored ADR 770,000 42.44 42.19 -0.59 32,484,375
Sun Company, Inc. 1,040,000 41.47 32.00 -22.84 33,280,000
Ultramar Diamond Shamrock
Corporation 1,301,100 30.59 22.75 -25.63 29,600,025
--------------
135,525,650
OIL WELL EQUIPMENT & SERVICE 2.8%
Diamond Offshore Drilling, Inc. 900,000 40.83 26.00 -36.32 23,400,000
R&B Falcon Corporation(b) 1,400,000 22.46 12.00 -46.57 16,800,000
--------------
40,200,000
PAPER & FOREST PRODUCTS 0.5%
Asia Pulp & Paper Company, Ltd.
ADR(b) 1,437,300 9.90 5.31 -46.36 7,635,656
RAILROAD 2.9%
Burlington Northern Santa Fe
Corporation 1,290,000 29.42 32.00 8.77 41,280,000
RETAIL 3.0%
May Department Stores Company 680,000 47.92 51.50 7.47 35,020,000
Jo-Ann Stores, Inc. Class A (b) 12,500 23.86 22.25 -6.75 278,125
Jo-Ann Stores, Inc. Class B (b) 356,500 21.73 19.00 -12.56 6,773,500
--------------
42,071,625
TELECOMMUNICATION 2.5%
GTE Corporation 637,000 46.32 55.00 18.74 35,035,000
TEXTILE & APPAREL MANUFACTURING 0.8%
Burlington Industries, Inc. (b) 1,159,400 12.15 9.50 -21.81 11,014,300
- ---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $1,589,661,819) 1,415,513,582
- ---------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 2.0%
COMMERCIAL PAPER
INTEREST BEARING 2.0%
Associates Corporation of North
America, 5.59%, Due 10/01/98 $28,400,000 100.00 100.00 0.00 28,400,000
INTEREST BEARING, DUE UPON DEMAND 0.0%
Wisconsin Electric Power
Company, 4.96% 564,637 100.00 100.00 0.00 564,637
- ---------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $28,964,637) 28,964,637
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES 101.1% (COST $1,618,626,456) 1,444,478,219
Other Assets & Liabilities, Net (1.1%) (16,746,693)
- ---------------------------------------------------------------------------------------------
NET ASSETS 100.0% $1,427,731,526
=============================================================================================
LEGEND
- ---------------------------------------------------------------------------------------------
(a) Short-term investments include any security which has a maturity of less than one year.
(b) Non-income producing security.
(c) Affiliated issuer (See note 6 of Notes to Financial Statements).
(d) Foreign-denominated security.
Percentages are stated as a percent of net assets.
See Notes to Financial Statements.
6
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
September 30, 1998
STRONG SCHAFER
VALUE FUND
--------------
ASSETS:
Investments in Securities, at Market Value
Unaffiliated Issuers (Cost of $1,553,139,892) $1,384,163,694
Affiliated Issuers (Cost of $65,486,564) 60,314,525
--------------
Total Investments in Securities 1,444,478,219
Receivable for Securities Sold 51,063,130
Receivable from Fund Shares Sold 290,813
Dividends and Interest Receivable 2,376,198
Other Assets 18,268
--------------
Total Assets 1,498,226,628
LIABILITIES:
Payable for Securities Purchased 68,481,419
Payable for Fund Shares Redeemed 444,354
Accrued Operating Expenses and Other Liabilities 1,569,329
--------------
Total Liabilities 70,495,102
--------------
NET ASSETS $1,427,731,526
==============
NET ASSETS CONSIST OF:
Capital Stock (250,000,000 shares authorized,
$.10 par value) $ 2,863,881
Paid-in Capital 1,593,943,466
Accumulated Net Investment Income 2,714,501
Accumulated Net Realized Gain 2,358,496
Net Unrealized Depreciation (174,148,818)
--------------
Net Assets $1,427,731,526
==============
Capital Shares Outstanding 28,638,810
NET ASSET VALUE PER SHARE $49.85
======
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
For the Year Ended September 30, 1998
STRONG SCHAFER
VALUE FUND
--------------
INCOME:
Dividends
Unaffiliated Issuers (net of withholding taxes
of $730,290) $ 30,698,370
Affiliated Issuers 976,943
Interest 1,523,949
------------
Total Income 33,199,262
EXPENSES:
Investment Advisory Fees 17,407,737
Custodian Fees 48,545
Shareholder Servicing Costs 3,181,903
Other 1,007,316
------------
Total Expenses 21,645,501
------------
NET INVESTMENT INCOME 11,553,761
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain on Investments 5,547,326
Net Change in Unrealized Appreciation/Depreciation on
Investments (478,303,192)
------------
NET LOSS ON INVESTMENTS (472,755,866)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ($461,202,105)
============
7
See Notes to Financial Statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
STRONG SCHAFER VALUE FUND
---------------------------------
YEAR ENDED YEAR ENDED
SEPT. 30, 1998 SEPT. 30, 1997
-------------- --------------
OPERATIONS:
Net Investment Income $ 11,553,761 $ 6,467,778
Net Realized Gain 5,547,326 33,191,786
Net Change in Unrealized
Appreciation/Depreciation (478,303,192) 266,090,855
-------------- --------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (461,202,105) 305,750,419
DISTRIBUTIONS:
From Net Investment Income (13,340,621) (4,149,409)
From Net Realized Gains (32,880,858) (13,812,350)
-------------- --------------
Total Distributions (46,221,479) (17,961,759)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 1,316,428,586 856,205,901
Proceeds from Reinvestment of Distributions 44,633,159 17,495,106
Payment for Shares Redeemed (743,425,263) (233,352,907)
-------------- --------------
Increase in Net Assets from Capital
Share Transactions 617,636,482 640,348,100
-------------- --------------
TOTAL INCREASE IN NET ASSETS 110,212,898 928,136,760
NET ASSETS:
Beginning of Year 1,317,518,628 389,381,868
-------------- --------------
End of Year $1,427,731,526 $1,317,518,628
============== ==============
TRANSACTIONS IN SHARES OF THE FUND:
Sold 20,130,827 15,163,183
Issued in Reinvestment of Distributions 712,307 340,173
Redeemed (11,784,062) (4,159,413)
---------- ----------
Net Increase in Shares of the Fund 9,059,072 11,343,943
========== ==========
8
See Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
September 30, 1998
1. ORGANIZATION
Strong Schafer Value Fund, Inc. (the "Fund") was incorporated under the laws
of the State of Maryland on August 12, 1985, and is registered under the
Investment Company Act of 1940, as amended, as an open-end, diversified
management investment company.
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 -- Portfolio securities traded primarily on a
principal securities exchange are valued at the last reported sales price
or the mean between the latest bid and asked prices where no last sales
price is available. Securities traded over-the-counter are valued at the
mean of the latest bid and asked prices or the last reported sales price.
Securities for which market quotations are not readily available, when
held by the Funds, 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.
(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) Additional Investment Risk -- The Fund has short-term investments which
are unsecured nonnegotiable instruments. These instruments are rated at
least A1 by Standard & Poor's. However, the Fund may be susceptible to
credit risk with respect to these securities to the extent the issuer
defaults on its payment obligation. The Fund's policy is to monitor the
creditworthiness of the issuer and the Fund does not anticipate
nonperformance by these counterparties.
Foreign denominated assets 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 is
reflected as a component of gains or losses on investments.
(F) Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of increases
and decreases in net assets from operations during the reporting period.
Actual results could differ from those estimates.
(G) Other -- Investment security transactions are recorded as of the trade
date. Dividend income and distributions to shareholders are recorded on
the ex-dividend date. Interest income is recorded on the accrual basis
and includes amortization of premiums and discounts.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
September 30, 1998
3. RELATED PARTY TRANSACTIONS
Management and investment advisory services are provided to the Fund by
Schafer Capital Management, Inc. ("Schafer"). The Investment Advisory
Agreement provides that, subject to the direction of the Fund's Board of
Directors, Schafer is responsible for the management of the Fund's portfolio.
Schafer is obligated to perform certain administrative and management
services for the Fund, except to the extent these services are provided by
any custodian, transfer agent, registrar or administrator hired by the Fund,
and is obligated to provide all of the office space, facilities, equipment
and personnel necessary to perform its duties under the investment advisory
agreement. The agreement provides for a monthly fee computed at an annual
rate of 1.0% of the Fund's average daily net assets.
In January 1996, Schafer formed an alliance with Strong Capital Management,
Inc. ("Strong"). Strong provides fund accounting services and shareholder
recordkeeping and related services to the Fund. Fund accounting service fees
are contractually established based upon the net assets of the Fund. Fund
accounting service fees paid to Strong for the year ended September 30, 1998
were $55,398. Shareholder recordkeeping and related service fees are based
upon contractually established rates for each open and closed shareholder
account. Shareholder recordkeeping and related service fees payable to
Strong at September 30, 1998 were $136,085. In addition, Strong is
compensated for certain other services related to costs incurred for reports
to shareholders. Other shareholder servicing expenses paid to Strong for the
year ended September 30, 1998 were $18,629.
Pursuant to a distribution agreement, an indirect subsidiary of Strong,
Strong Funds Distributors, Inc., has agreed to act at the request of the Fund
and Schafer as the Fund's agent to effect the distribution of the Fund's
shares. No expenses are incurred by the Fund with respect to this agreement
In September, 1997, Schafer and Strong entered into a Limited Liability
Company Agreement (the "LLC Agreement") forming Strong Schafer Capital
Management, LLC (the "LLC"). The LLC Agreement provides that Schafer and
Strong shall be members of the LLC, with Schafer as the managing member, and
grants to Strong an option to purchase Schafer's interest in the LLC which
is first exercisable on January 10, 2001, or earlier in the event of certain
other circumstances, subject to obtaining necessary regulatory approvals,
including approval of the Fund's shareholders.
Effective October 15, 1998 (see Note 7), the Fund's shareholders approved the
adoption of a new investment advisory agreement between the Fund and the LLC,
on terms substantially the same as the prior agreement. As managing member
of the LLC, Schafer will provide ongoing management and investment advisory
services to the Fund. These changes will not affect the current investment
approach or philosophy outlined in the Fund's Prospectus. Schafer, through
its sole portfolio manager and controlling person, David K. Schafer, will
continue in its role as the Fund's investment manager in which it has served
since the Fund's inception. As managing member of the LLC, Schafer will
perform all obligations of the LLC under the new investment advisory
agreement between the Fund and the LLC. Moreover, the investment advisory
fee rate payable by the Fund to the LLC under the new investment advisory
agreement is the same.
Investment advisory fees payable to Schafer at September 30, 1998 were
$1,205,196. Unaffiliated directors' fees paid during the year were $15,000.
4. INVESTMENT TRANSACTIONS
Aggregate purchases and proceeds from sales of investment securities
(excluding short-term investments) during the year ended September 30, 1998
were $1,239,934,827 and $656,082,720, respectively.
5. INCOME TAX INFORMATION
At September 30, 1998, the cost of investments in securities for federal
income tax purposes was $1,621,134,587. Net unrealized depreciation of
securities was $176,656,368, consisting of gross unrealized appreciation and
depreciation of $121,464,229 and $298,120,597, 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 100% (unaudited).
10
<PAGE>
- --------------------------------------------------------------------------------
6. INVESTMENTS IN AFFILIATES
Affiliated issuers, as defined under the Investment Company Act of 1940,
include those in which the Fund's holdings represent 5% or more of the
outstanding voting securities of the issuer. A summary of transactions in
the securities of these issuers during the year ended September 30, 1998 is
as follows:
<TABLE>
<CAPTION>
BALANCE OF GROSS GROSS SALES BALANCE OF VALUE DIVIDEND INCOME
SHARES HELD PURCHASES AND SHARES HELD SEPT. 30, OCT. 1, 1997 -
OCT. 1, 1997 AND ADDITIONS REDUCTIONS SEPT. 30, 1998 1998 SEPT. 30, 1998
<S> <C> <C> <C> <C> <C> <C>
Cleveland-Cliffs, Inc. 500,300 77,300 -- 577,600 $22,526,400 $807,958
Harman International Industries, Inc. 577,000 453,000 -- 1,030,000 37,788,125 168,985
</TABLE>
7. SPECIAL MEETING OF SHAREHOLDERS
At a shareholder meeting held on October 15, 1998, in Princeton, NJ,
shareholders (1) elected a new Board of Directors, (2) approved the adoption
of a new investment advisory agreement between the LLC and the Fund (prior to
such meeting Schafer was the advisor to the Fund, now Schafer is the LLC's
Managing Member - see Note 3), and (3) ratified the appointment of
PricewaterhouseCoopers LLP as independent auditors of the Fund.
STRONG SCHAFER VALUE FUND
(UNAUDITED) SHARES VOTED 17,093,447.995
-----------------------------------
PROPOSALS AFFIRMATIVE WITHHOLD
--------- ----------- --------
1. Election of Directors
David K. Schafer 98.590% 1.410%
Timothy C. Collins 98.375 1.625
Mary P. English 98.373 1.627
Phillip P. Young 98.624 1.376
AFFIRMATIVE AGAINST ABSTAIN
----------- ------- -------
2. Adopt Advisory Agreement 96.322% 1.850% 1.828%
3. Ratify Selection of Auditors 97.814 1.048 1.138
<TABLE>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------
STRONG SCHAFER VALUE FUND
- -----------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA(a)
-------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------- -----------------------------------
Net Realized
Net Asset and Unrealized Total Net Asset
Value, Net Gains 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 $67.29 $0.40 ($15.81) ($15.41) ($0.59) ($1.44) ($2.03) $49.85
Sept. 30, 1997 47.28 0.39 21.48 21.87 (0.43) (1.43) (1.86) 67.29
Sept. 30, 1996 43.46 0.47 5.00 5.47 (0.38) (1.27) (1.65) 47.28
Sept. 30, 1995 36.54 0.36 8.53 8.89 (0.33) (1.64) (1.97) 43.46
Sept. 30, 1994 36.21 0.26 1.34 1.60 (0.19) (1.08) (1.27) 36.54
</TABLE>
RATIOS AND SUPPLEMENTAL DATA
-------------------------------------------------------
Net Ratio of Net
Assets, Ratio of Investment
End of Expenses Income Portfolio
Total Period (In to Average to Average Turnover
Year Ended Return Millions) Net Assets Net Assets Rate
Sept. 30, 1998 -23.5% $1,428 1.2% 0.7% 39.0%
Sept. 30, 1997 +47.5% 1,318 1.2% 0.8% 22.5%
Sept. 30, 1996 +13.0% 389 1.3% 1.2% 17.8%
Sept. 30, 1995 +26.0% 163 1.3% 1.2% 33.2%
Sept. 30, 1994 +4.4% 68 1.5% 1.0% 28.5%
(a) Information presented relates to a share of capital stock of the Fund
outstanding for the entire period.
11
See Notes to Financial Statements.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of the
Strong Schafer Value Fund, 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 Value Fund, Inc.
(the "Fund") at September 30, 1998, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended 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 audits. We
conducted our audits 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
audits, which included confirmation of securities at September 30, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
November 4, 1998
12
<PAGE>
DIRECTORS
David K. Schafer
Timothy C. Collins
Mary P. English
Phillip P. Young
OFFICERS
David K. Schafer, President
James P. Cullen, Vice President
Brendan J. Spillane, Secretary and Treasurer
Thomas P. Lemke, Assistant Vice President
John S. Weitzer, Assistant Secretary
INVESTMENT ADVISOR
Strong Schafer Capital Management, LLC
101 Carnegie Center, Suite 107, Princeton, NJ 08540
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
Sidney & Austin
1 First National Plaza, Chicago, IL 60603
<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. 9516J98 ASVAL
