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[LOGO]
THE STRONG
SCHAFER VALUE FUND
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ANNUAL REPORT - SEPTEMBER 30, 1999
[Photo of Building]
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LETTER FROM THE CHAIRMAN
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
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THE STRONG
SCHAFER VALUE
FUND
----
ANNUAL REPORT - SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT REVIEW
The Strong Schafer Value Fund ..........................2
FINANCIAL INFORMATION
Schedule of Investments ................................5
Statement of Assets and Liabilities ....................7
Statement of Operations ................................8
Statements of Changes in Net Assets ....................9
Notes to Financial Statements .........................10
FINANCIAL HIGHLIGHTS .........................................12
REPORT OF INDEPENDENT ACCOUNTANTS ............................12
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THE STRONG SCHAFER VALUE 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 the past
history of the market, as has been the case with the Strong Schafer Value 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. As we
referred to in the "Market Highlights" section of this report, 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).
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
account for a weighting of nearly 15% of the Index, accounted for more than 80%
of the gain during the first nine months of the year.
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OUR STRONG BELIEF IS THAT IT IS A MATTER OF "WHEN," NOT "IF," VALUE INVESTING
WILL COME BACK INTO FAVOR.
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FUND
HIGHLIGHTS
- - For the year ended September 30, 1999, the Strong Schafer Value Fund
registered a loss of -6.94% compared to a gain of 27.81% posted by the S&P
500 Stock Index (S&P 500).*
- - Reflecting portfolio changes that were made during the year, the average
and median market capitalization of the Fund's holdings increased, and at
this juncture the Fund is divided approximately 50/50 between large- and
medium-cap stocks.
- - Healthcare stocks and companies which had earnings shortfalls adversely
affected the portfolio in fiscal year 1999.
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AVERAGE ANNUAL
TOTAL RETURN
AS OF 9-30-99
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<S> <C>
1-year -6.94%
3-year 1.63%
5-year 8.37%
10-year 10.44%
Since Inception 11.95%
(on 10-22-85)
</TABLE>
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FIVE LARGEST
STOCK HOLDINGS
AS OF 9-30-99
<TABLE>
<CAPTION>
SECURITY % OF NET ASSETS
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<S> <C>
Mellon Bank Corp. 3.4%
Wells Fargo Co. 3.3%
Burlington North. Santa Fe Corp. 3.3%
PartnerRE, Ltd. 3.3%
General Motors Corp. 3.2%
</TABLE>
Please see the Schedule of Investments in Securities for a complete listing
of the Fund's portfolio.
2
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It is hard to imagine the stock market getting much narrower than it is at the
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. For example, if you look at
"value" as the bottom 20% of stocks by P/E ratio in the S&P 500 and compare
their three-year returns with the Index for 1975-77 (+205% vs. +58% for the S&P
500), 1981-83 (+88% vs. +42%) and 1991-93 (+96% vs. +55%), it was worth the
wait.
Our strong belief is that it is a matter of "when," not "if," value investing
will come back into favor. History has shown that the combination of low
valuations and strong earnings growth eventually leads to dramatic recoveries in
stock prices and investment results as referenced in the years after 1974, 1980,
and 1990. As such, we remain confident in the long-term potential of the Strong
Schafer Value Fund. Thank you for your patience and your continued investment.
GROWTH OF AN ASSUMED $10,000 INVESTMENT
FROM 9-30-89 TO 9-30-99
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<CAPTION>
The Strong Schafer S & P Lipper Growth &
Value Fund 500 Index* Income Funds Index*
<S> <C> <C> <C>
Sep-89 $10,000.00 $10,000.00 $10,000.00
Sep-90 $8,258.67 $9,075.93 $8,719.64
Sep-91 $11,337.20 $11,904.30 $11,297.00
Sep-92 $13,468.10 $13,219.60 $12,440.60
Sep-93 $17,293.90 $14,938.40 $14,703.20
Sep-94 $18,059.10 $15,489.10 $15,234.00
Sep-95 $22,757.10 $20,096.30 $18,781.80
Sep-96 $25,713.60 $24,182.30 $21,991.80
Sep-97 $37,918.40 $33,963.60 $29,784.30
Sep-98 $29,001.60 $37,035.80 $29,382.20
Sep-99 $26,989.50 $47,333.90 $35,068.60
</TABLE>
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund with the performance of the Standard & Poor's 500 Stock
Index ("S&P 500") and the Lipper Growth & Income Funds Index during the last 10
fiscal years. 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 S&P 500 is an unmanaged index generally representative of the U.S. stock
market. 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 Inc.
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YOUR FUND'S
APPROACH
THE STRONG SCHAFER VALUE FUND USES 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. THE MANAGER'S FOCUS IS TO
SCRUTINIZE THESE PROSPECTS CAREFULLY. THE FUND USES THIS APPROACH TO PURSUE
LONG-TERM CAPITAL APPRECIATION THROUGH INVESTMENTS IN STOCKS.
-------------------------------------
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.
- - The narrowness of the U.S. stock market is probably the most extreme since
the early 1970s. Approximately the entire gain in the S&P 500 during the
first nine months of 1999, for example, was accounted for by seven
large-cap growth stocks.
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3
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<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
Canadian Natl Ry Co 30.31 2.45 2.83 12.4 10.7
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
ECI Telecom 24.69 2.30 2.70 10.7 9.1
FDX Corp 38.88 2.15 2.39 18.1 16.3
Federal Natl Mtg Assn 62.69 3.70 4.19 17.0 15.0
General Motors 62.94 8.46 8.39 7.4 7.5
ICN Pharmaceuticals 17.19 1.42 1.93 12.1 8.9
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
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
Mylan Laboratories 18.38 1.19 1.42 15.4 13.0
Omnicare Inc 9.63 1.00 1.25 9.6 7.7
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 VALUE FUND PORTFOLIO AVERAGES 14.1 11.8
S&P 500 STOCK INDEX 1,282.71 49.40 54.34 26.0 23.6
</TABLE>
E=ESTIMATE
4
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<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS IN SECURITIES September 30, 1999
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STRONG SCHAFER VALUE FUND
Shares or Unit
Principal Average Market Market
Security Amount Unit Cost Value % Change Value
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<S> <C> <C> <C> <C> <C>
COMMON STOCKS 98.6%
AEROSPACE & DEFENSE 5.8%
Lockheed Martin Corporation 640,000 $40.09 $32.69 -18.46% $20,920,000
Raytheon Company Class B 344,000 56.04 49.63 -11.45% 17,071,000
------------
37,991,000
AIR FREIGHT 2.9%
FDX Corporation (b) 500,000 18.84 38.75 105.67% 19,375,000
AUTO PARTS 6.3%
Borg-Warner Automotive, Inc. 490,600 35.72 43.00 20.39% 21,095,800
Dana Corporation 542,000 41.22 37.13 -9.95% 20,121,750
------------
41,217,550
AUTOMOBILE 3.2%
General Motors Corporation 340,000 61.23 62.94 2.78% 21,398,750
BANKS 14.4%
Bank of America Corporation 345,000 61.06 55.69 -8.80% 19,212,186
The Chase Manhattan Corporation 230,000 35.26 75.38 113.74% 17,336,250
Mellon Bank Corporation 663,000 11.08 33.75 204.50% 22,376,250
Summit Bancorp 455,000 39.31 32.44 -17.48% 14,759,063
Wells Fargo Company 555,000 36.80 39.63 7.67% 21,991,875
------------
95,675,624
BROKERAGE 3.1%
Merrill Lynch & Company, Inc. 300,000 51.26 67.19 31.08% 20,156,250
CEMENT 6.4%
Lafarge Corporation 662,000 20.14 32.13 59.53% 21,266,750
Southdown, Inc. 398,000 35.33 53.50 51.43% 21,293,000
------------
42,559,750
COMMERCIAL SERVICE 2.4%
Diebold, Inc. 670,000 27.54 23.13 -16.03% 15,493,750
COMPUTER SOFTWARE 3.0%
Cadence Design Systems, Inc. (b) 1,499,700 19.88 13.25 -33.35% 19,871,025
ELECTRONIC EQUIPMENT & DISTRIBUTION 5.1%
Arrow Electronics, Inc. (b) 1,111,100 25.97 17.63 -32.14% 19,583,138
Avnet, Inc. 335,000 47.98 42.00 -12.45% 14,070,000
------------
33,653,138
HEALTHCARE 10.3%
American Home Products Corporation 460,000 44.93 41.50 -7.64% 19,090,000
ICN Pharmaceuticals, Inc. 870,000 33.74 17.19 -49.06% 14,953,125
Mylan Laboratories, Inc. 1,025,000 26.71 18.38 -31.21% 18,834,375
Omnicare, Inc. 1,550,000 24.02 9.63 -59.92% 14,918,750
------------
67,796,250
HOUSEHOLD APPLIANCES & FURNISHINGS 1.9%
Maytag Corporation 370,000 56.23 33.31 -40.75% 12,325,625
INSURANCE 8.8%
The Allstate Corporation 680,000 39.17 24.94 -36.34% 16,957,500
Chubb Corporation 395,000 62.26 49.81 -19.99% 19,675,938
PartnerRE, Ltd. 620,000 38.96 34.75 -10.81% 21,545,000
------------
58,178,438
MORTGAGE & RELATED SERVICE 3.2%
Federal National Mortgage Association 335,000 71.83 62.69 -12.73% 21,000,313
RAILROAD 6.4%
Burlington Northern Santa Fe Corporation 785,000 27.95 27.50 -1.60% 21,587,500
Canadian National Railway Company 687,000 28.12 30.31 7.81% 20,824,688
------------
42,412,188
5
</TABLE>
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<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS IN SECURITIES (continued) September 30, 1999
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STRONG SCHAFER VALUE FUND (continued)
Shares or Unit
Principal Average Market Market
Security Amount Unit Cost Value % Change Value
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<S> <C> <C> <C> <C> <C>
RETAIL - DEPARTMENT STORE 3.0%
May Department Stores Company 550,000 27.92 36.44 30.51% $20,040,625
STEEL 3.1%
UCAR International, Inc. (b) 882,000 24.23 22.81 -5.83% 20,120,625
TELECOMMUNICATIONS 6.2%
BCE, INC. 420,000 51.20 49.81 -2.71% 20,921,250
ECI Telecom, Ltd. 790,000 37.48 24.69 -34.13% 19,503,125
------------
40,424,375
TOBACCO 3.1%
Philip Morris Companies, Inc. 598,000 37.86 34.19 -9.69% 20,444,124
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Total Common Stocks (Cost $712,443,454) 650,134,400
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SHORT-TERM INVESTMENTS (a) 0.4%
COMMERCIAL PAPER
INTEREST BEARING, DUE UPON DEMAND
Pitney Bowes Credit Corporation, 4.99% $2,062,778 100.00 100.00 0.00% 2,062,778
Wisconsin Electric Power Company, 5.02% 539,021 100.00 100.00 0.00% 539,021
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Total Short-Term Investments (Cost $2,601,799) 2,601,799
====================================================================================================================================
Total Investments in Securities (Cost $715,045,253) 99.0% 652,736,199
Other Assets and Liabilities, Net 1.0% 6,569,899
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Net Assets 100.0% $659,306,098
====================================================================================================================================
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.
6 See Notes to Financial Statements
</TABLE>
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<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
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September 30, 1999
Strong Schafer
Value Fund
--------------
<S> <C>
Assets:
Investments in Securities, at Market Value
(Cost of $715,045,253) $652,736,199
Receivable for Securities Sold 7,379,400
Dividends and Interest Receivable 1,108,706
Other Assets 49,209
--------------
Total Assets 661,273,514
Liabilities:
Payable for Fund Shares Redeemed 1,836,241
Accrued Operating Expenses and Other Liabilities 131,175
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Total Liabilities 1,967,416
--------------
Net Assets $659,306,098
==============
Net Assets Consist of:
Capital Stock (250,000,000 shares authorized, $.10 par value) $ 1,430,312
Paid-in Capital 819,851,315
Undistributed Net Investment Income 4,797,313
Accumulated Net Realized Loss (104,463,788)
Net Unrealized Depreciation (62,309,054)
--------------
Net Assets $659,306,098
==============
Capital Shares Outstanding 14,303,122
Net Asset Value Per Share $46.10
==============
See Notes to Financial Statements 7
</TABLE>
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<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
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For the Year Ended September 30, 1999
Strong Schafer
Value Fund
--------------
<S> <C>
Income:
Dividends
Unaffiliated Issuers (net of foreign withholding taxes of $191,848) $ 20,819,505
Affiliated Issuers 530,700
Interest 1,002,632
--------------
Total Income 22,352,837
Expenses:
Investment Advisory Fees 11,552,400
Custodian Fees 29,878
Shareholder Servicing Costs 2,906,106
Other 1,115,348
--------------
Total Expenses 15,603,732
--------------
Net Investment Income 6,749,105
Realized and Unrealized Gain (Loss):
Net Realized Gain (Loss) on:
Investments -- Unaffiliated Issuers (95,804,897)
Investments -- Affiliated Issuers (6,150,486)
--------------
Net Realized Loss (101,955,383)
Net Change in Unrealized Appreciation/Depreciation on Investments 111,839,764
--------------
Net Gain on Investments 9,884,381
--------------
Net Increase in Net Assets Resulting from Operations $ 16,633,486
==============
</TABLE>
8 See Notes to Financial Statements.
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<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------------
Strong Schafer Value Fund
---------------------------
Year Ended Year Ended
Sept. 30, 1999 Sept. 30, 1998
---------------- ----------------
<S> <C> <C>
Operations:
Net Investment Income $ 6,749,105 $ 11,553,761
Net Realized Gain (Loss) (101,955,383) 5,547,326
Net Change in Unrealized Appreciation/Depreciation 111,839,764 (478,303,192)
---------------- ----------------
Net Increase (Decrease) in Net Assets Resulting from Operations 16,633,486 (461,202,105)
Distributions:
From Net Investment Income (9,533,194) (13,340,621)
From Net Realized Gains -- (32,880,858)
---------------- ----------------
Total Distributions (9,533,194) (46,221,479)
Capital Share Transactions:
Proceeds from Shares Sold 233,245,091 1,316,428,586
Proceeds from Reinvestment of Distributions 9,181,919 44,633,159
Payment for Shares Redeemed (1,017,952,730) (743,425,263)
---------------- ----------------
Net Increase (Decrease) in Net Assets from Capital Share Transactions (775,525,720) 617,636,482
---------------- ----------------
Total Increase (Decrease) in Net Assets (768,425,428) 110,212,898
Net Assets:
Beginning of Year 1,427,731,526 1,317,518,628
---------------- ----------------
End of Year $ 659,306,098 $1,427,731,526
================ ================
Transactions in Shares of the Fund:
Sold 4,260,881 20,130,827
Issued in Reinvestment of Distributions 159,187 712,307
Redeemed (18,755,755) (11,784,062)
---------------- ----------------
Net Increase (Decrease) in Shares of the Fund (14,335,687) 9,059,072
================ ================
See Notes to Financial Statements. 9
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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September 30, 1999
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 -- Securities of the Fund are valued through
valuations obtained by a commercial pricing service or the mean of the
latest 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.
(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 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) 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.
Investments in foreign denominated assets 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) 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.
(G) 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 premiums and discounts.
3. Related Party Transactions
Strong Schafer Capital Management LLC (the "LLC") provides management and
investment advisory services to the Fund. The Investment Advisory
Agreement (the "Advisory Agreement") provides that, subject to the
direction of the Fund's Board of Directors, the LLC is responsible for the
management of the Fund's portfolio. The LLC 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 Advisory Agreement. The Advisory Agreement
provides for a monthly fee computed at an annual rate of 1.0% of the
Fund's average daily net assets. Investment advisory fees payable to the
LLC at September 30, 1999 were $38. Unaffiliated directors' fees paid
during the year ended September 30, 1999 were $42,500.
10
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In September, 1997, Schafer Capital Management, Inc. ("Schafer") and
Strong Capital Management, Inc. ("Strong") entered into a Limited
Liability Company Agreement (the "LLC Agreement") forming 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. This option 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. As managing member of the
LLC, Schafer will provide ongoing management and investment advisory
services to the Fund and will perform all obligations of the LLC under the
investment advisory agreement between the Fund and the LLC.
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,
1999 were $88,913. 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, 1999 were $62,426. 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, 1999 were $2,985,314.
Pursuant to a distribution agreement, Strong Investments, Inc., an indirect
subsidiary of Strong, has agreed to act at the request of the Fund and the
LLC 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.
4. Investment Transactions
The aggregate purchases and sales of investment securities (excluding
short-term investments) during the year ended September 30, 1999 were
$757,405,169 and $1,532,667,095, respectively.
5. Income Tax Information
At September 30, 1999, the cost of investments in securities for federal
income tax purposes was $716,185,142. Net unrealized depreciation of
securities was $63,448,943, consisting of gross unrealized appreciation
and depreciation of $70,936,389 and $134,385,332, respectively. The Fund
had a capital loss carryover of $103,907,288 which expires in 2007.
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 100% (unaudited).
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, 1999
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, 1998 -
Oct. 1, 1998 and Additions Reductions Sept. 30, 1999 1999 Sept. 30, 1999
------------ ------------- ----------- -------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Cleveland-Cliffs, Inc. 577,600 -- 577,600 -- -- $433,200
Harman International Industries, Inc. 1,030,000 -- 1,030,000 -- -- 97,500
11
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
STRONG SCHAFER VALUE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
Selected Per-Share Data(a) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $49.85 $67.29 $47.28 $43.46 $36.54
Income From Investment Operations
Net Investment Income 0.44 0.40 0.39 0.47 0.36
Net Realized and Unrealized Gains (Losses) on Investments (3.83) (15.81) 21.48 5.00 8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (3.39) (15.41) 21.87 5.47 8.89
Less Distributions
From Net Investment Income (0.36) (0.59) (0.43) (0.38) (0.33)
From Net Realized Gains -- (1.44) (1.43) (1.27) (1.64)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.36) (2.03) (1.86) (1.65) (1.97)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $46.10 $49.85 $67.29 $47.28 $43.46
====================================================================================================================================
Ratios and Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return -6.9% -23.5% +47.5% +13.0% +26.0%
Net Assets, End of Period (In Millions) $659 $1,428 $1,318 $389 $163
Ratio of Expenses to Average Net Assets 1.4% 1.2% 1.2% 1.3% 1.3%
Ratio of Net Investment Income to Average Net Assets 0.6% 0.7% 0.8% 1.2% 1.2%
Portfolio Turnover Rate 67.1% 39.0% 22.5% 17.8% 33.2%
</TABLE>
(a) Information presented relates to a share of capital stock of the Fund
outstanding for the entire period.
See Notes to Financial Statements.
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Strong Schafer Value Fund, 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 Value
Fund, Inc. (the "Fund") 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, provides a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
November 5, 1999
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
John S. Weitzer, ASSISTANT SECRETARY
INVESTMENT ADVISOR
Strong Schafer Capital Management, LLC
P.O. Box 8808, Princeton, NJ 08540
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
Sidley & 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.
-------------
[GRAPHIC]
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
--------------------
--------------------
[GRAPHIC]
eStrong.com
www.eStrong.com
---------------------
[LOGO]
STRONG FUNDS
P.O. Box 2936 - Milwaukee, Wisconsin 53201
STRONG INVESTMENTS, INC. 13312K99 ASVAL
