<PAGE>
THE STRONG INCOME Funds
ANNUAL REPORT o OCTOBER 31, 1996
[PHOTO OF GRRANDFATHER AND CHILD]
[BAR GRAPH]
THE STRONG SHORT-TERM BOND FUND
THE STRONG GOVERNMENT SECURITIES FUND
THE STRONG CORPORATE BOND FUND
THE STRONG HIGH-YIELD BOND FUND
[STRONG FUNDS LOGO]
STRONG FUNDS
<PAGE>
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.
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Have a plan.
[PICTURE OF FOLDER LABELED INVESTMENTS]
Even a simple plan can help you take control of your financial future. Review
your plan once a year, or if your circumstances change.
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Start investing as soon as possible.
[PICTURE OF CLOCK]
Make time a valuable ally. Let it put the power of compounding to work for you,
while helping to reduce your potential investment risk.
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Diversify your portfolio.
[PICTURE OF PIE CHART OF ASSET DIVERSIFICATION]
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.
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Invest regularly.
[PICTURE OF MEMO REMINDER TO INVEST]
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.
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Maintain a long-term perspective.
[PICTURE OF GRAPH SLOPING UPWARD]
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.
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Consider stocks to help achieve major long-term goals.
[PICTURE OF PIE CHART OF ASSET DIVERSIFICATION EMPHASIZING STOCKS]
Over time, stocks have provided the more powerful returns needed to help the
value of your investments stay well ahead of inflation.
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Keep a comfortable amount of cash in your portfolio.
[PICTURE OF DOLLAR SIGN]
To meet current needs, including emergencies, use a money market fund or a bank
account - not your long-term investment assets.
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Know what you're buying.
[PICTURE OF MAGNIFYING GLASS]
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
INCOME
Funds
ANNUAL REPORT o OCTOBER 31, 1996
Table of Contents
INVESTMENT REVIEWS
The Strong Short-Term Bond Fund.......................................2
The Strong Government Securities Fund.................................4
The Strong Corporate Bond Fund........................................6
The Strong High-Yield Bond Fund.......................................8
FINANCIAL INFORMATION
Schedules of Investments in Securities
The Strong Short-Term Bond Fund.................................10
The Strong Government Securities Fund...........................13
The Strong Corporate Bond Fund..................................15
The Strong High-Yield Bond Fund.................................17
Statements of Operations.............................................20
Statements of Assets and Liabilities.................................21
Statements of Changes in Net Assets..................................22
Notes to Financial Statements........................................23
FINANCIAL HIGHLIGHTS........................................................26
REPORT OF INDEPENDENT ACCOUNTANTS...........................................28
<PAGE>
The Strong SHORT-TERM BOND Fund
================================================================================
The Strong Short-Term Bond Fund seeks total return by investing for a high level
of current income with a low degree of share-price fluctuation. The Fund invests
primarily in short- and intermediate-term, investment-grade debt obligations,
and its average portfolio maturity will normally be between one and three years.
THE FUND CONTINUED TO PERFORM WELL
The Strong Short-Term Bond Fund achieved a total return of 7.07% for the 1-year
period ended October 31, 1996. This return compared very favorably with the
Lipper Short Investment Grade Debt Average, which gained 5.40% for the same
period.1 As the chart to the left shows, the Fund also continued to perform well
versus its competition for longer time periods.*
LIPPER RANKINGS(1)
as of 10-31-96
(based on total return)
RANK AMONG SHORT
INVESTMENT GRADE
TIME PERIOD DEBT FUNDS PERCENTAGE
1-year #6 of 98 Top 7%
5-year #2 of 21 Top 10%
Since inception #3 of 12 Top 25%
(8-31-87)
Rankings are historical and do not represent future results.
Source of Lipper rankings is Lipper Analytical Services, Inc.
ASSET ALLOCATION
based on net assets as of 10-31-96
Corporate Bonds(including convertibles) 55.7%
Non-Agency Mortgage-Backed Securities 20.8%
U.S. Government & Agency Issues 15.8%
Preferred Stocks 5.9%
Short-Term Investments 1.8%
The Fund's asset allocation does not reflect any options or futures positions
held by the Fund.
THE MARKET COULDN'T MAKE UP ITS MIND...
The Fund achieved its attractive return amid a skittish year when the market
couldn't seem to make up its mind about interest rates or the economy. Coming
into the year, many investors and analysts expected weak economic growth to
continue in the U.S. In fact, the Federal Reserve cut the federal funds rate to
5.25% in January, a continuing of the easing it began the previous July, and a
sign that the Fed believed the economy needed at least modest stimulus.
However, in February, an unexpectedly large number of new jobs--and subsequent
indications of a strengthening economy--led many to believe that economic growth
was accelerating rather than weakening. In response, interest rates across all
maturities reversed direction and headed higher, with short-term rates rising
less than longer term rates.
Through the summer and into the fall, however, the market seemed to become more
comfortable with the underlying fundamentals of the economy. Despite slightly
stronger growth, inflation remained subdued and it appeared that GDP was
unlikely to grow faster than 3%. Against this backdrop, the chances of
substantially higher rates diminished, the Federal Reserve left the fed funds
rate unchanged, and yields began to move lower as the fiscal year drew to a
close.
- --------------------------------------------------------------------------------
SHORT-TERM RATES STAYED WITHIN A FAIRLY NARROW RANGE
1 year T-Bill yields through October, 1996
10-95 5.55% 30-DAY ANNUALIZED YIELD(1)
11-95 5.36% 7.23%
12-95 5.14% AVERAGE MATURITY(2)
1-96 4.90% 2.6 years
2-96 5.22% AVERAGE QUALITY RATING(3)
3-96 5.38% A
4-96 5.63% As of 10-31-96
5-96 5.75%
6-96 5.68%
7-96 5.83%
8-96 5.90%
9-96 5.69%
10-96 5.41%
- --------------------------------------------------------------------------------
...BUT OUR VIEW CHANGED LITTLE
While the market's psychology shifted several times during the fiscal year, our
outlook remained fundamentally unchanged. We saw little justification for major
alterations in the portfolio, a view vindicated by the fact that short-term
interest rates generally remained in a range between 5-6%, as measured by 1-year
Treasury Bills.
Throughout the fiscal year, the portfolio remained approximately equally split
between mortgage-backed bonds and corporate bonds, with a slight bias to
lower-rated corporates that could provide a yield advantage over their more
highly-rated counterparts. The portfolio's average maturity tended to remain
near 2.5 years, or slightly longer than neutral.
In the early fall, we began to increase the overall quality of the portfolio,
given our view that the lower-rated areas of the market had become close to
fully valued. Average portfolio quality at the end of the fiscal year was A.
2
<PAGE>
WE ANTICIPATE CURRENT CONDITIONS TO REMAIN IN PLACE
After 12 months of ricocheting between fears of recession and fears of an
overheating economy, the market now appears to have settled down in anticipation
of slow, steady economic growth. There are several reasons why we anticipate
these conditions will remain in place for the near term. First, it's unlikely
that inflation will pick up if the economy's growth rate remains between 2-3%.
Second, the market appears fairly valued, given a slow growth outlook, which
should help stabilize prices. And finally, the November election has kept in
place a political status quo in Washington that, so far, has been beneficial for
the financial markets.
Overall, the environment appears quite favorable for bond investors.
We appreciate your investment in the Strong Short-Term Bond Fund, and we will do
our best to earn your continued confidence.
Sincerely,
/s/Bradley C. Tank
Bradley C. Tank
Portfolio Manager
/s/Lyle J. Fitterer
Lyle J. Fitterer
Portfolio Manager
November 12, 1996
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GROWTH OF AN ASSUMED $10,000 INVESTMENT
from 8-31-87 to 10-31-96
The Strong Lehman Brothers Lipper Short
Short-Term 1-3 Year Government/ Investment-Grade
Bond Fund Corporate Bond Index Debt Average
8-87 10,000 10,000 10,000
12-87 10,318 10,303 10,248
12-88 11,362 10,955 10,964
12-89 12,295 12,156 12,100
12-90 12,945 13,334 13,042
12-91 14,837 14,913 14,566
12-92 15,827 15,861 15,366
12-93 17,302 16,743 16,278
12-94 17,023 16,835 16,309
12-95 19,064 18,677 17,914
10-96 20,034 19,488 18,588
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with a similar investment in the
Lehman Brothers 1-3 Year Government/Corporate Bond Index and the Lipper Short
Investment Grade Debt Average. 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.
AVERAGE ANNUAL TOTAL RETURNS(1)
as of 10-31-96
1-YEAR
7.07%
3-YEAR
5.27%
5-YEAR
6.91%
SINCE INCEPTION
on 8-31-87
7.87%
- --------------------------------------------------------------------------------
* The Lehman Brothers 1-3 Year Government/Corporate Bond Index is an
unmanaged index generally representative of all U.S. government agency and
Treasury securities and all investment-grade corporate debt securities with
maturities of one to three years. Previous performance comparisons have
shown the Fund compared to an equivalent investment in the Salomon Brothers
1-3 Year Treasury/Government-Sponsored/Corporate Bond Index. We have
replaced this index with the Lehman Brothers 1-3 Year Government/Corporate
Bond Index, a similar index, because it allows for more in-depth modeling
and closer comparison with the Fund's portfolio. For the 1-year period
ended 10-31-96, the Salomon Brothers Index's total return was 6.06% and the
Lehman Brothers Index's total return was 6.04%. The Lipper Short Investment
Grade Debt Average represents funds that invest at least 65% of assets in
investment-grade debt issues (rated in the top four grades) with
dollar-weighted average maturities of less than three years. Source of the
Lehman and Salomon index data is Bloomberg. Source of the Lipper index data
is Lipper Analytical Services, Inc.
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. From time to time, the Funds'
Advisor has waived its management fee and absorbed expenses, which has
resulted in higher returns. Yields are historical and do not represent
future yields, which will fluctuate.
2 The Fund's average maturity includes the effect of futures contracts,
options contracts, and when-issued securities.
3 For purposes of this average rating, the Fund's short-term debt obligations
have been assigned a long-term rating by the Advisor.
4
<PAGE>
The Strong GOVERNMENT SECURITIES Fund
================================================================================
The Strong Government Securities Fund seeks total return by investing for a high
level of current income with a moderate degree of share-price fluctuation. The
Fund normally invests at least 80% of its total assets in U.S. government
securities.(1)
THE FUND PERFORMED WELL IN A DIFFICULT MARKET
During a year when the bond market offered a variety of challenges for
investors, the Fund performed well versus its peers. For the 12-month period
ended October 31, 1996, the Fund achieved a total return of 4.60%, compared to
4.24% for the Lipper General U.S. Government Funds Index.(2) As the chart on
this page shows, the Fund also continued to perform well versus its competition
for longer time periods.*
LIPPER RANKINGS(2)
as of 10-31-96
(based on total return)
RANK AMONG GENERAL
TIME PERIOD U.S. GOVERNMENT FUNDS PERCENTAGE
1-year #47 of 169 Top 28%
3-year #10 of 112 Top 9%
5-year #3 of 71 Top 5%
10-year #1 of 40 Top Fund
Rankings are historical and do not represent future results.
Source of Lipper rankings is Lipper Analytical Services, Inc.
ASSET ALLOCATION
as of 10-31-96
U.S. Government & Agency Issues 81.0%
Corporate Bonds 15.6%
Preferred Stocks
(including convertibles) 3.4%
This allocation is based on market exposure, not on net assets. The Fund's asset
allocation does not reflect any options or futures positions held by the Fund.
A TURBULENT MARKET AT THE LONG END
The Fund achieved its relatively attractive return amid a skittish year when the
market couldn't seem to make up its mind about interest rates or the economy.
Coming into the year, many investors and analysts expected weak economic growth
to continue in the U.S. In fact, the Federal Reserve cut the Federal Funds rate
to 5.25% in January, a continuing of the easing it began the previous July, and
a sign that the Fed believed the economy needed at least modest stimulus.
However, in February, an unexpectedly large number of new jobs -- and subsequent
indications of a strengthening economy led many to believe that economic growth
was accelerating rather than weakening. In response, yields across all
maturities reversed direction and headed higher, particularly on longer term
bonds, where prices fell through mid-June.
Through the summer and into the fall, however, the market seemed to become more
comfortable with the underlying fundamentals of the economy. Despite slightly
stronger growth, inflation remained subdued and it appeared that GDP was
unlikely to grow faster than 3%. Against this backdrop, the chances of
substantially higher rates diminished, the Federal Reserve left the federal
funds rate unchanged, and interest rates began to moderate as the fiscal year
drew to a close.
OUR VIEW CHANGED LITTLE
While the market's psychology shifted several times during the fiscal year, our
outlook remained fundamentally unchanged. We saw little justification for major
alterations in the portfolio, a view vindicated by the fact that inflation
remained subdued throughout the fiscal year, and the fact that the Federal
Reserve made no move to raise the federal funds rate.
Most of our strategy, then, revolved around making tactical moves to help add
value through the turbulent market. Primarily, we overweighted mortgages through
most of the year, because they tend to offer more income than similar maturity
Treasuries, helping make the portfolio less sensitive to price moves. Toward the
end of the fiscal year, we began to increase our exposure to Treasuries, as the
mortgage market appeared fully valued.
- --------------------------------------------------------------------------------
LONGER-TERM RATES ROSE STEEPLY THROUGH THE SPRING
10-year Treasury Note Yields through October, 1996
30-DAY
10-95 6.02% ANNUALIZED YIELD(2)
11-95 5.74% 6.62%
12-95 5.57%
1-96 5.58% AVERAGE MATURITY(3)
2-96 6.10% 7.9 years
3-96 6.33%
4-96 6.67% AVERAGE QUALITY RATING(4)
5-96 6.85% AA
6-96 6.71%
7-96 6.79% As of 10-31-96
8-96 6.94%
9-96 6.70%
10-96 6.34%
- --------------------------------------------------------------------------------
4
<PAGE>
In addition, we maintained an average maturity near the short end of the Fund's
range through most of 1996 - generally, below seven years before we once again
began extending as the market settled down. At the end of the fiscal year, the
Fund's average maturity was approximately eight years.
WE ANTICIPATE CURRENT CONDITIONS TO REMAIN IN PLACE
While the first three quarters of 1996 were difficult ones for investors in
longer-term bonds, the market now appears to have settled down in anticipation
of slow, steady economic growth. There are several reasons why we anticipate
these conditions will remain in place for the near term. First, it's unlikely
that inflation will pick up if the economy's growth rate remains between 2-3%.
Second, the market appears fairly valued, given a slow growth outlook, which
should help stabilize prices. And finally, the November election has kept in
place a political status quo in Washington that, so far, has been beneficial for
the financial markets.
Overall, the environment appears quite favorable for bond investors.
We appreciate your investment in the Strong Government Securities Fund, and we
look forward to earning your continued confidence.
Sincerely,
/s/Bradley C. Tank
Bradley C. Tank
Portfolio Manager
November 12, 1996
- --------------------------------------------------------------------------------
GROWTH OF AN ASSUMED $10,000 INVESTMENT
from 10-29-86 to 10-31-96
The Strong Lipper General
Government Lehman Brothers U.S. Government
Securities Fund Aggregate Bond Index* Funds Index*
10-86 10,000 10,000 10,000
12-86 10,218 10,187 10,171
12-87 10,572 10,468 10,222
12-88 11,683 11,294 10,903
12-89 12,836 12,935 12,256
12-90 13,953 14,092 13,239
12-91 16,278 16,346 15,176
12-92 17,781 17,557 16,102
12-93 20,044 19,269 17,442
12-94 19,364 18,706 16,615
12-95 23,218 22,162 19,430
10-96 23,544 22,789 19,696
AVERAGE ANNUAL
TOTAL RETURNS(2)
as of 10-31-96
1-YEAR
4.60%
3-YEAR
5.35%
5-YEAR
8.74%
SINCE INCEPTION
on 10-29-86
8.93%
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with a similar investment in the
Lehman Brothers Aggregate Bond Index and the Lipper General U.S. Government
Funds Index. To equalize the time periods, the Indexes' performance was prorated
for the month of October 1986. 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.
- --------------------------------------------------------------------------------
* The Lehman Brothers Aggregate Bond Index is an unmanaged index composed of
investment-grade securities from the Lehman Brothers Government/Corporate
Bond Index, Mortgage-Backed Securities Index, and Asset-Backed Securities
Index. Previous comparisons have shown the Fund compared to an equivalent
investment in the Salomon Brothers Broad Investment-Grade Bond Index. We
have replaced this index with the Lehman Brothers Aggregate Bond Index, a
similar index, because it allows for more in-depth modeling and closer
comparison with the Fund's portfolio. For the 1-year period ended 10-31-96,
the Salomon Brothers Index's total return was 5.88%, and the Lehman
Brothers Index's total return was 5.83%. The Lipper General U.S. Government
Funds Index is an equally weighted performance index of the largest
qualifying funds in this Lipper category. Source of the Lehman and Salomon
index data is Micropal. Source of the Lipper index data is Lipper
Analytical Services, Inc.
1 Fund shares are neither insured nor guaranteed by the U.S. Government.
2 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. From time to time, the Funds'
Advisor has waived its management fee and absorbed expenses, which has
resulted in higher returns. Yields are historical and do not represent
future yields, which will fluctuate.
3 The Fund's average maturity includes the effect of futures and options
contracts.
4 For purposes of this average rating, the Fund's short-term debt obligations
have been assigned a long-term rating by the Advisor.
5
<PAGE>
The Strong CORPORATE BOND Fund
================================================================================
The Strong Corporate Bond Fund seeks total return by investing for a high level
of current income with a moderate degree of share price fluctuation. The Fund
invests primarily in investment-grade corporate debt obligations.
THE FUND PERFORMED WELL FOR THE YEAR
Although the 12-month period ended October 31, 1996 was a difficult period for
long-term bond investors, the Fund achieved an attractive total return of
7.98%.(1) This performance compared very favorably, versus both our benchmark
index--the Lehman Brothers Corporate BAA Bond Index--which returned 6.84%, and
our competition as measured by the Lipper Corporate Debt Funds BBB Rated Index,
which returned 6.32%.*
LIPPER RANKINGS(1)
as of 10-31-96
(based on total return)
RANK AMONG CORPORATE
TIME PERIOD DEBT BBB RATED FUNDS PERCENTAGE
1-year #11 of 96 Top 12%
3-year #2 of 56 Top 4%
5-year #3 of 31 Top 13%
10-year #18 of 20 Top 90%
since inception(2) #4 of 18 Top 23%
Rankings are historical and do not represent future results.
Source of Lipper rankings is Lipper Analytical Services, Inc.
30-DAY ANNUALIZED YIELD(1)
7.10%
AVERAGE MATURITY(3)
11.1 years
AVERAGE QUALITY RATING(4)
BBB
As of 10-31-96
CORPORATE BONDS PERFORMED RELATIVELY WELL IN A FICKLE MARKET
The year ended October 31, 1996, was a challenging period marked by several
shifts in psychology on the part of bond investors. Coming into the year, many
investors and analysts had expected the slowing economic growth that
characterized 1995 to continue into 1996. Some analysts even predicted a
recession beginning in the first half of the year, and the Federal Reserve Board
cut its federal funds rate to 5.25% in January, a continuation of the easing
trend it began the prior year.
The expectation for slow growth reversed course abruptly in February, however,
as news of stronger growth in the economy--in particular, an unexpectedly large
number of new jobs--led many to believe that the economy was entering a
sustained period of accelerating growth.
Consequently, interest rates rose and bond prices fell throughout the summer,
particularly on longer maturity bonds. However, the income advantage offered by
corporate bonds helped cushion them compared to similar maturity Treasuries.
In August, rates tended to stabilize when the stronger-than-expected economic
growth failed to change the annual inflation rate meaningfully. In fact, the
Federal Reserve was not compelled to raise the federal funds rate at either its
spring or summer meetings, and as the fiscal year ended, rates had started to
move back down somewhat.
WE MAINTAINED A NEUTRAL POSITIONING
As you may know, part of our strategy for running the Strong Corporate Bond Fund
is to compare it to a relevant index--the Lehman Brothers Corporate BAA Bond
Index--and adjust the portfolio's maturity and sector weightings versus the
index, based on our market research. Our goal is to add value for shareholders
over time, while maintaining a strong commitment to intermediate-term bonds.
The value of this consistent approach is apparent in volatile conditions such as
those we experienced during this fiscal year. Rather than get caught up in the
market's euphoria from October 1995 through February 1996, we only modestly
increased the Fund's duration to make it more sensitive to interest rates. This
helped the Fund perform well as the market rallied.
Conversely, when the market began to trade down in February, the Fund's duration
was not too far from neutral territory, which helped limit the impact of the
price decline. For the remainder of the fiscal year, we maintained a fairly
neutral duration (in the range of 5.5-6.0), and made moves to improve return
potential through our asset allocation and sector selections. We stayed fully
invested, primarily in corporate bonds with an increased bias towards bonds
rated below investment grade, as we believed they were poised to outperform the
investment-grade market. In addition, we overweighted certain sectors that
typically do well in a stronger economic environment, such as airlines,
insurance, leisure services, and financial companies.
By making selective, strategic adjustments, we were able to post attractive
results despite difficult market conditions.
ASSET ALLOCATION
based on net assets as of 10-31-96
Corporate Bonds 75.8%
Non-Agency Mortgage and Asset Backed Securities 9.7%
Preferred Stocks 8.5%
U.S. Government & Agency Issues 5.6%
Short-Term Investments 0.4%
The Fund's asset allocation does not reflect any futures positions held by the
Fund.
6
<PAGE>
OUR OUTLOOK IS FUNDAMENTALLY POSITIVE
As the fiscal year ended, the market still appeared undecided about the
near-term direction of the economy and interest rates. Given strong personal
income growth and still-modest levels of unemployment, the fundamental economic
backdrop looks positive, particularly for corporate bonds. The November
elections offer another reason for optimism, since they have kept in place a
balance that has been, overall, good for the financial markets.
Near-term, economic trends will likely be more important to investors than
inflation numbers, as investors seem reasonably confident that inflation is
under control.
Given the lack of a clear direction for the economy, we expect rates to remain
choppy within a fairly narrow range. For us, such an environment would likely
prompt us to maintain our neutral duration, and to look for value on an
individual bond basis. We intend to continue focusing on those bonds that offer
an incremental yield advantage, or good prospects for a credit upgrade that
would lead to a price gain.
Thank you for your investment in the Strong Corporate Bond Fund. We look forward
to serving your investment needs in the future.
Sincerely,
/s/Jeffrey A. Koch
Jeffrey A. Koch
Portfolio Manager
/s/John T. Bender
John T. Bender
Portfolio Manager
November 12, 1996
- --------------------------------------------------------------------------------
GROWTH OF AN ASSUMED $10,000 INVESTMENT
from 12-12-85 to 10-31-96
Lehman Brothers Lipper Corporate
The Strong Corporate BAA Debt Funds BBB
Corporate Bond Fund Bond Index Rated Index
12-85 10,000 10,000 10,000
12-86 13,399 11,801 11,595
12-87 13,997 12,323 11,882
12-88 15,745 13,654 12,978
12-89 15,800 15,521 14,342
12-90 14,817 16,341 15,276
12-91 17,013 19,497 17,909
12-92 18,612 21,330 19,362
12-93 21,732 24,087 21,839
12-94 21,447 23,318 20,847
12-95 26,892 28,617 25,052
10-96 27,858 29,506 25,779
AVERAGE ANNUAL
TOTAL RETURNS(1)
as of 10-31-96
1-YEAR
7.98%
5-YEAR
11.11%
10-YEAR
7.70%
SINCE INCEPTION
on 12-12-85
9.87%
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with a similar investment in the
Lehman Brothers Corporate BAA Bond Index, and the Lipper Corporate Debt Funds
BBB Rated Index. To equalize the time periods, the indexes' performance was
prorated for the month of December 1985. 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.
- --------------------------------------------------------------------------------
* The Lehman Brothers Corporate BAA Bond Index is an unmanaged index
comprised of all issues within the Lehman Brothers Corporate Bond Index
that are rated Baa by Moody's Investors Services Inc. Previous performance
comparisons have shown the Fund compared to an equivalent investment in the
Salomon Brothers BBB-rated Corporate Bond Index. We have replaced this
index with the Lehman Brothers Corporate BAA Bond Index, a similar index,
because it allows for more in-depth modeling and closer comparison with the
Fund's portfolio. For the 1-year period ended 10-31-96, the Salomon Index's
total return was 6.58%. The Lipper Corporate Debt Funds BBB Rated Index is
an equally-weighted performance index, adjusted for capital gains
distributions and income dividends, of the largest qualifying funds in this
Lipper category. Source of the Lehman index data is Micropal. Source of the
Salomon index data is Bloomberg. Source of the Lipper index data is Lipper
Analytical Services, Inc.
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. Yields are historical and do
not represent future yields, which will fluctuate.
2 The since-inception ranking is based on performance from 12-31-85 to
10-31-96.
3 The Fund's average maturity includes the effect of futures and options
contracts.
4 For purposes of this average rating, the Fund's short-term debt obligations
have been assigned a long-term rating by the Advisor.
7
<PAGE>
The Strong HIGH-YIELD BOND Fund
================================================================================
The Strong High-Yield Bond Fund seeks total return by investing for a high level
of current income and capital growth. The Fund invests primarily in medium- and
lower-quality corporate debt obligations.
- ----------------------------------------------
ASSET ALLOCATION
based on net assets as of 10-31-96
QUALITY BREAKDOWN
B-Rated Bonds 61.1%
BB-Rated bonds 23.7%
Short-Term Bonds 6.9%
Preferred Stocks & Warrants 4.2%
CCC-Rated Bonds 3.6%
Investment Grade Bonds 0.5%
SECTOR BREAKDOWN
Corporate Bonds
(including convertibles) 86.6%
Short-Term Investments 6.9%
Preferred Stocks & Warrants 4.2%
Non-Agency Mortgage
and Asset-Backed Securities 2.3%
The Fund's asset allocation does not reflect any options or futures
positions held by the Fund.
- --------------------------------------------------
THE FUND PERFORMED WELL
We are pleased to present the Fund's first annual report, covering the period of
12-28-95 (the Fund's inception) through October 1996. Despite difficult
conditions for long bonds in general, the Fund has performed extremely well,
besting both its benchmark index and its competition.
For the year-to-date period ended October 31, 1996, the Fund posted a total
return of 21.28%.(1) This compares to the 8.18% return generated by our
benchmark index, the Lehman Brothers High-Yield Bond Index, and the 9.51% return
achieved by the Fund's peers, as measured by the Lipper High Current Yield Funds
Index.*
30-DAY ANNUALIZED YIELD(2)
10.33%
AVERAGE MATURITY
6.6 years
AVERAGE QUALITY RATING(3)
B
As of 10-31-96
HIGH-YIELD BONDS OUTPERFORMED THE MARKET
The year-to-date period through October 1996, has been a challenging period
marked by several shifts in psychology on the part of bond investors. Coming
into the year, many investors and analysts had expected the slowing economic
growth that characterized 1995 to continue into 1996. Some analysts even
predicted a recession beginning in the first half of the year, and the Federal
Reserve Board cut the federal funds rate to 5.25% in January, a continuation of
the easing trend it began the prior year.
The expectation for slow growth reversed course abruptly in February, however,
as news of stronger growth in the economy-- in particular, an unexpectedly large
number of new jobs--led many to believe that the economy was entering a
sustained period of accelerating growth.
Consequently, interest rates rose and bond prices fell throughout the summer,
particularly on longer maturity bonds. High-yield bond prices, however, were far
less affected. Typically, when a strong economy prompts a rise in interest
rates, high-yield bonds are less affected than higher-quality instruments,
because investors are more confident that corporations will meet their debt
payments.
In August, rates tended to stabilize when the stronger-than-expected economic
growth failed to budge the annual inflation rate from its 2.5-3.0% level. In
fact, the Federal Reserve was not compelled to raise the federal funds rate at
either its spring or summer meetings, and as the fiscal year ended, yields had
started to move back down somewhat.
MINING VALUE IN HIGH-YIELD BONDS
At Strong Funds, we manage and evaluate our bond portfolios according to a
"top-down" approach based on four major factors:
o Duration--how sensitive the portfolio should be to interest rate changes,
based on our expectations for the economy
o Yield Curve--which maturities offer the best value at a given time
o Sector--which industries and asset classes are poised to perform the best in
the current economic climate
o Issues--which individual bonds are most attractive in light of the above
factors.
As mentioned earlier, high-yield bonds tend to be less affected by interest
rates than higher-grade bonds. In addition, they tend to be issued in
intermediate maturities. Therefore, our success at managing the Strong
High-Yield Bond Fund hinges to a great extent on our adeptness at overweighting
the most attractive sectors--both in terms of industry and credit category--and
then choosing the individual bonds that offer the best value.
The conditions that prevailed in 1996 provide an excellent illustration of our
management process in action. Due to the uncertainty regarding the direction of
interest rates, we opted to maintain a neutral duration, and focus our energies
on looking for bonds offering value from underlying credit strength, first by
sector, then by individual issue.
With economic news suggesting a level of growth that would enable high-yield
bond issuers to more easily make payments on their debt, we felt comfortable
increasing the Fund's weighting in lower-rated, higher-yielding paper, which
turned out to be the best performing area of the corporate bond market. Through
most of the year, about 70% of the portfolio was invested in B-rated paper, and
approximately a quarter was invested in BB-rated paper.
8
<PAGE>
We also emphasized sectors whose performance tends to be closely tied to that of
the economy, such as airlines and finance companies. Both sectors performed well
overall during the fiscal year. In each case, we carefully analyzed individual
bonds from both a credit standpoint and a value standpoint. In particular, we
sought to buy bonds from companies whose prospects were bright enough that we
wouldn't have minded owning their stock as well.
As a result of these strategic moves, we were able to handily outperform the
high-yield bond indexes to which we compare ourselves. Also providing an
advantage was the Fund's relatively small size, which enabled us to quickly
commit a meaningful portion of assets when we spotted attractive opportunities.
REASONS FOR OPTIMISM GOING FORWARD
As the fiscal year ended, the market still appeared undecided about the
near-term direction of the economy and interest rates. But given strong personal
income growth and still modest levels of unemployment, the fundamental economic
backdrop looks positive, particularly for corporate bonds. The November
elections offer another reason for optimism, since they have kept in place a
balance of political power that has been, overall, good for the financial
markets.
With the substantial run-up in B-rated bond prices this year, we may reduce our
B-rated bond exposure and increase the portfolio's overall credit quality over
the next several months. Of course, investors in this Fund should remember that
it invests primarily in non-investment grade "junk" bonds, and is therefore
subject to greater share-price volatility than a fund that invests primarily in
investment-grade bonds. While the Fund's performance this year has been
outstanding, it's always important to maintain a long-term perspective when
investing in lower-rated securities.
Thank you for your investment in the Strong High-Yield Bond Fund. We look
forward to serving your investment needs in the future.
Sincerely,
/s/Jeffrey A. Koch
Jeffrey A. Koch
Portfolio Manager
November 14, 1996
- --------------------------------------------------------------------------------
GROWTH OF AN ASSUMED $10,000 INVESTMENT TOTAL RETURN(1)
from 12-28-95 to 10-31-96 since inception
on 12-28-95
to 10-31-96
21.66%
The Strong Lehman Brothers Lipper High
High-Yield High-Yield Current Yield
Bond Fund Bond Index Funds Index
12-95 10,000 10,000 10,000
3-96 10,850 10,192 10,270
6-96 11,425 10,361 10,436
9-96 12,076 10,752 10,920
10-96 12,166 10,835 10,966
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with a similar investment in the
Lehman Brothers High-Yield Bond Index and the Lipper High Current Yield Funds
Index. To equalize the time periods, the indexes' performance was prorated for
the month of December 1995. 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.
- --------------------------------------------------------------------------------
* The Lehman Brothers High-Yield Bond Index is an unmanaged index generally
representative of the performance of corporate bonds rated below investment
grade. The Lipper High Current Yield Funds Index is an equally-weighted
performance index, adjusted for capital gains distributions and income
dividends, of the largest qualifying funds in this Lipper category. Source
of the Lehman index data is Micropal. Source of the Lipper index data is
Lipper Analytical Services, Inc.
1 Total return measures aggregate change in the value of an investment in the
Fund, assuming reinvestment of dividends. Total return is not annualized.
2 The Advisor temporarily waived fees of 0.625% and absorbed expenses of
0.185%. Otherwise, current yield would have been 9.52% and returns would
have been lower. Yields are historical and do not represent future yields,
which will fluctuate.
3 For purposes of this average rating, the Fund's short-term debt obligations
have been assigned a long-term rating by the Advisor.
9
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES October 31, 1996
- --------------------------------------------------------------------------------
STRONG SHORT-TERM BOND FUND
VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
CORPORATE BONDS 53.7%
ADT Operations, Inc. Guaranteed Senior
Subordinated Notes, 9.25%, Due 8/01/03 $ 7,000 $ 7,402
ARA Services, Inc. Guaranteed Notes, 10.625%,
Due 8/01/00 7,200 8,117
Banesto Finance, Ltd. Floating Rate Notes,
6.4375%, Due 10/29/49 10,000 9,900
Bank of Boston Corporation Subordinated Floating
Rate Notes, 5.6875%, Due 2/28/01 8,850 8,803
Banque Audi S.A.L. Euro Medium Term Note
Program, 9.375%, Due 11/07/01
(Acquired 10/16/96; Cost $5,989) (b) (e) 6,000 6,052
Bay View Capital Corporation Senior Debentures,
8.42%, Due 6/01/99 (Acquired 5/13/96 - 5/28/96;
Cost $7,000) (b) 7,000 7,149
Brazil MYDFA Trust Certificates, 6.6875%,
Due 9/15/07 (Acquired 10/02/96; Cost $4,232) (b) 5,000 4,181
Cablevision Industries Corporation Senior Notes,
10.75%, Due 1/30/02 2,000 2,126
Chelsea GCA Realty Partnership LP Notes, 7.75%,
Due 1/26/01 10,000 9,931
Citicorp Floating Rate Notes, 5.5625%,
Due 11/27/35 22,000 20,515
Coca-Cola FEMSA SA de CV Notes, 8.95%,
Due 11/01/06 10,000 10,100
Colonial Realty LP Senior Notes, 7.50%,
Due 7/15/01 5,000 5,091
Contifinancial Corporation Senior Notes, 8.375%,
Due 8/15/03 10,000 10,262
Custom Repackaged Asset Vehicle Trusts 1996-401
Wal-Mart Credit Linked Certificates, 7.35%,
Due 7/17/06 (Acquired 10/16/96; Cost $4,985) (b) 5,000 5,024
Delta Air Lines, Inc. Pass-Thru Certificates:
Series 1992-B1, 9.375%, Due 9/11/07 20,787 22,896
Series 1993-A1, 9.875%, Due 4/30/08 8,333 9,587
Walt Disney Company Euro-Dollar Senior
Participating Notes, 2.00%, Due 3/01/00
(Acquired 9/19/96; Cost $12,500) (b) 10,000 12,650
El Paso Electric Company First Mortgage Bond:
Series A, 7.25%, Due 2/01/99 16,858 16,900
Series C, 8.25%, Due 2/01/03 5,000 5,075
Empresa Electrica Guacolda SA Yankee Senior
Secured Loan Participation Certificates, 7.60%,
Due 4/30/01 (Acquired 4/22/96 - 10/04/96;
Cost $11,499) (b) 11,480 11,688
Ferrellgas LP/Ferrellgas Financial Corporation
Senior Notes, 10.00%, Due 8/01/01 6,100 6,344
First Bank System, Inc. Floating Rate Subordinated
Notes, 5.6875%, Due 11/30/10
(Putable at 100 on 11/30/00) 4,000 4,028
First Nationwide Escrow Corporation Senior
Subordinated Notes, 10.625%, Due 10/01/03
(Acquired 9/13/96; Cost $2,000) (b) 2,000 2,110
First Nationwide Holdings, Inc. Senior Exchange
Notes, 12.25%, Due 5/15/01 5,000 5,550
Ford Motor Credit Debt Unit with Premium Call
(Structured Enhanced Return Trusts 1995,
Series R-20), 9.75%, Due 2/03/98
(Acquired 2/08/95; Cost $9,995) (b) 10,000 10,700
Grupo Industrial Durango SA de CV Notes,
12.625%, Due 8/01/03 (Acquired 7/22/96 - 9/16/96;
Cost $10,511) (b) 10,000 10,425
Harrahs Operating, Inc. Guaranteed Senior
Subordinated Notes:
8.75%, Due 3/15/00 9,116 9,287
10.875%, Due 4/15/02 13,375 14,244
Health & Retirement Properties Trust Senior
Floating Rate Notes, Series B, 6.2825%,
Due 7/13/99 10,000 9,887
Hook-SupeRx, Inc. Senior Notes, 10.125%,
Due 6/01/02 8,180 8,826
ISP Holdings, Inc. Senior Notes, 9.00%,
Due 10/15/03 (Acquired 10/15/96; Cost
$4,986) (b) 5,000 5,013
Marine Midland Bank, Inc. Floating Rate
Subordinated Notes:
5.6875%, Due 12/20/00 5,000 4,971
5.8125%, Due 12/31/09 4,400 4,285
Mark IV Industry, Inc., Senior Subordinated Notes,
8.75%, Due 4/01/03 14,027 14,343
NBD Bancorp, Inc. Subordinated Floating Rate
Notes, 5.8125%, Due 12/18/05 5,000 4,983
NWA Trust Number 2 Subordinated Aircraft Notes,
13.875%, Due 6/21/08 15,209 17,871
New American Capital, Inc. Notes, 9.60%,
Due 1/12/99 (Acquired 3/22/96; Cost $2,121) (b) 2,000 2,100
Northwest Airlines, Inc. Guaranteed Senior Notes,
12.0916%, Due 12/31/00 7,895 8,122
Panamerican Beverages, Inc. Senior Yankee Notes,
8.125%, Due 4/01/03 8,100 8,324
Panamsat LP/Panamsat Capital Corporation Senior
Secured Notes, 9.75%, Due 8/01/00 12,965 13,775
Philip Morris Companies, Inc. Notes, 7.25%,
Due 9/15/01 7,345 7,507
Republic of Poland Yankee Bearer PDI Step-Up
Bonds, 4.00%, Due 10/27/14 31,505 25,913
RJR Nabisco, Inc. Notes, 8.00%, Due 7/15/01 5,000 5,036
Revco D.S., Inc. Senior Notes, 9.125%,
Due 1/15/00 11,306 11,787
The Royal Bank of Scotland Group PLC Subordinated
Floating Rate Notes, 6.00%, Due 12/29/49 5,000 4,356
SCI Television, Inc. Senior Secured Notes, 11.00%,
Due 6/30/05 12,903 13,871
Safeway, Inc. Senior Subordinated Notes, 10.00%,
Due 12/01/01 5,000 5,594
Santa Fe Pacific Gold Corporation Senior Debentures,
8.375%, Due 7/01/05 9,500 9,666
Summit Communications Group, Inc. Debentures,
10.50%, Due 4/15/05 10,000 10,863
Swedbank Floating Rate Debt Unit (Medium Term
Structured Enhanced Return Trusts 1996,
Series R-35), 6.3813%, Due 11/10/02 (Acquired
10/16/96; Cost $10,000) (b) 10,000 10,000
TKR Cable I, Inc. Senior Debentures, 10.50%,
Due 10/30/07 20,270 22,735
Tanger Properties LP Guaranteed Notes, 8.75%,
Due 3/11/01 17,500 17,621
Tenet Healthcare Corporation Senior Notes:
8.625%, Due 12/01/03 8,300 8,819
9.625%, Due 9/01/02 9,060 10,011
Time Warner, Inc. Debentures, 8.18%, Due 8/15/07 10,000 10,408
Time Warner, Inc. Floating Rate Debt Unit with
Premium Call (Medium Term Structured Enhanced
Return Trusts 1994, Series R-21), 8.58%,
Due 6/22/98 (Acquired 2/24/95; Cost $9,966) (b) 10,000 10,300
Trident NGL, Inc. Subordinated Notes, 10.25%,
Due 4/15/03 2,800 3,094
Triton Energy Corporation Senior Subordinated
Discount Notes, Zero %, Due 12/15/00 (Rate Reset
Effective 12/15/96) 17,960 18,611
Union Bank of Norway Debt Unit with Premium
Call (Medium Term Structured Enhanced Return
Trusts 1996, Series R-33), 7.05%, Due 12/20/00
(Acquired 4/03/96 - 6/10/96; Cost $11,146) (b) 11,400 11,411
Union Bank of Norway Dual Basis Notes (Medium
Term Structured Enhanced Return Trusts 1995,
Series R-31) 6.875%, Due 10/25/00
(Acquired 11/06/95; Cost $10,000) (b) 10,000 10,140
See notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
STRONG SHORT-TERM BOND FUND (continued)
VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
United Airlines Pass-Thru Trust Certificates,
Series 1996-A1, 7.27%, Due 1/30/13 $ 5,512 $ 5,386
Viacom, Inc. Notes, 6.75%, Due 1/15/03 20,120 19,152
Webster Financial Corporation Senior Notes,
8.75%, Due 6/30/00 5,000 5,175
---------
TOTAL CORPORATE BONDS (COST $609,015) 616,093
CONVERTIBLE BONDS 1.9%
Time Warner, Inc. Convertible Liquid Yield Option
Notes, Zero %, Due 12/17/12 (Putable at 39.727
on 12/17/97) (COST $20,467) 58,000 21,388
NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES 20.8%
American Housing Trust XI Mortgage Pass-Thru
Certificates, Class 3-1, Interest Only, 0.5437%,
Due 1/25/22 247,544 4,448
CBM Funding Corporation Mortgage Pass-Thru
Certificates, Series 1996-1B, Class C, 7.86%,
Due 2/01/08 (Acquired 1/16/96; Cost $7,498) (b) 7,275 7,298
Chase Mortgage Finance Corporation Mortgage
Pass-Thru Certificates, Series 1990-G,
Class A-Z1, 9.50%, Due 12/25/21 3,524 3,594
Chase Mortgage Finance Corporation Variable Rate
Mortgage Pass-Thru Certificates, Series 1992-2,
Class B2, 8.0047%, Due 8/28/23
(Acquired 9/27/96; Cost $6,570) (b) 6,531 6,590
Citicorp Mortgage Securities, Inc. Mortgage
Pass-Thru Certificates, Series 1987-2, 8.50%,
Due 4/01/02 8,377 8,541
Citicorp Mortgage Securities, Inc. Real Estate
Mortgage Investment Conduit Pass-Thru
Certificates:
Series 1988-3, Class A-2, 9.00%, Due 4/01/18 2,068 2,137
Series 1990-3, Class A-3, 9.75%, Due 2/25/05 3,202 3,305
Series 1993-3, Class B1, 7.00%, Due 3/25/08
(Acquired 10/23/96; Cost $2,537) (b) (e) 2,575 2,558
Collateralized Mortgage Obligation Trust 47,
Class E, Principal Only, Due 9/01/18 1,506 733
Collateralized Mortgage Obligation Trust Inverse
Floating Rate Collateralized Mortgage Obligation,
Series 13, Class Q, 15.8167%, Due 1/20/03 1,655 1,765
Contimortgage Home Equity Loan Trust Senior
Strip Certificates, Series 1996-2, Class A,
Interest Only, 1.5043%, Due 7/15/27 (Acquired
6/14/96; Cost $6,194) (b) 214,740 6,056
Contimortgage Yield Maintenance Trust Certificates,
Series 1996-2, Zero %, Due 7/01/27
(Acquired 6/14/96; Cost $901) (b) 901 904
DLJ Mortgage Acceptance Corporation Variable Rate
Multifamily Mortgage Pass-Thru Certificates,
Series 1993-MF10, Class A-1, Interest Only,
0.80%, Due 7/15/03 24,105 670
First Boston Mortgage Securities Corporation
Mortgage Pass-Thru Certificates, Series 1993-2,
Class A-3, 7.50%, Due 3/25/33 5,500 5,593
First Boston Mortgage Securities Corporation
Variable Rate Mortgage Pass-Thru Certificates,
Series 1994-MHC1:
Class A-1X, Interest Only, 3.2976%, Due 4/25/11 43,874 768
Class D, 7.20%, Due 4/25/11 5,000 5,062
Fund America Structured Transactions LP
Collateralized Notes:
Series 1996-1, Principal Only, Due 10/28/33
(Acquired 3/07/96; Cost $6,467) (b) 9,033 6,730
Series 1996-2, Class A, Principal Only, Due 3/25/26
(Acquired 10/15/96; Cost $3,502) (b) (e) 5,000 3,544
GMBS, Inc. Countrywide Funding Certificates,
Series 1990-1, Class Z, 9.25%, Due 1/28/20 7,401 7,613
Greenwich Capital Acceptance, Inc. Mortgage
Securities, Series 1993-P01, Class E, Principal
Only, Due 11/26/17 10,060 6,199
Greenwich Capital Acceptance, Inc. Variable Rate
Mortgage Pass-Thru Certificates, Series 1991-1,
Class A, 7.1856%, Due 2/25/21 (Acquired 4/18/96;
Cost $16,707) (b) 16,380 16,707
Home Equity Loan Real Estate Mortgage Investment
Conduit Trust, Closed-End Asset-Backed
Certificates, Series 1992-1, Class B, 5.85%,
Due 11/17/14 1,271 1,233
Merrill Lynch Credit Corporation Senior Subordinated
Variable Rate Mortgage Pass-Thru Certificates,
Series 1994-A, Class M1, 6.30%, Due 8/15/19 13,423 12,846
Merrill Lynch Home Equity Acceptance, Inc.
Subordinated Variable Rate Mortgage-Backed
Certificates, Series 1994-A, Class A-1, 6.4375%,
Due 8/17/23 12,786 12,672
Merrill Lynch Mortgage Investors, Inc. Mortgage
Pass-Thru Certificates, Series 1994-C1, Interest
Only, 0.6332%, Due 11/25/20 119,234 1,918
Merrill Lynch Mortgage Investors, Inc. Senior
Subordinated Variable Rate Pass-Thru Certificates,
Series 1994-H, Class M, 6.50%, Due 6/15/19 11,543 11,242
Merrill Lynch Trust X Collateralized Mortgage
Obligation, Class C, Principal Only, Due 7/25/17 12,231 12,048
Prudential Home Thirty-Year Mortgage Trust
Subordinated Mortgage Securities, Series 1992-A,
Class B2-2, 7.90%, Due 4/28/22
(Acquired 10/03/96; Cost $7,500) (b) 7,500 7,519
RTC Variable Rate Mortgage Pass-Thru Securities,
Inc. Manufactured Housing Certificates, Series
1992-MH1, Class B2, 5.8375%, Due 8/15/19
(Acquired 4/21/95; Cost $6,325) (b) 6,424 6,312
RTC Variable Rate Mortgage Pass-Thru
Securities, Inc.:
Series 1991-11, Class 1-L, 8.625%, Due 10/25/21 11,850 12,205
Series 1992-6, Class A-4, 7.5551%, Due 11/25/25 1,982 2,024
Ryland Acceptance Corporation IV Collateralized
Mortgage Bonds, Series 53, Class 53-E, 10.00%,
Due 10/25/18 1,550 1,635
Ryland Mortgage Securities Corporation Variable
Rate Mortgage Participation Securities:
Series 1991-1, 7.2924%, Due 3/25/20 3,026 3,100
Series 1992-3, Class A-2, 7.3689%, Due 6/25/20 10,779 10,914
Ryland Mortgage Securities Corporation III Variable
Rate Collateralized Mortgage Bonds, Series 1992-C,
Class 3-A, 11.7766%, Due 11/25/30 3,650 3,877
Ryland Mortgage Securities Corporation IV Variable
Rate Collateralized Mortgage Bonds, Series 2,
Class 3-A, 12.0167%, Due 6/25/23 3,261 3,446
Salomon Brothers Mortgage Securities VI, Inc.
Stripped Coupon Mortgage Pass-Thru Certificates,
Series 1987-3, Class A, Principal Only,
Due 10/23/17 2,227 1,707
Santa Barbara Savings & Loan Association California
Real Estate Mortgage Investment Conduit
Participation Certificates, Series 1988-A, Class 2,
Principal Only, Due 9/01/18 1,905 1,398
Shearson Lehman Variable Rate Pass-Thru
Securities, Inc. Asset Trust Pass-Thru Certificates,
Series 88-3, 7.5845%, Due 9/15/18 7,275 7,478
Structured Asset Securities Corporation
Collateralized Mortgage Obligation, Series 1991-2,
Class SC, 14.40%, Due 1/20/20 13,608 14,407
See notes to financial statements.
11
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) October 31, 1996
- --------------------------------------------------------------------------------
STRONG SHORT-TERM BOND FUND (continued)
VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
Structured Asset Securities Corporation Variable
Rate Multiclass Pass-Thru Certificates,
Series 1996-C1, Class C, 5.975%, Due 10/25/10
(Acquired 9/27/96; Cost $6,460) (b) $ 6,500 $ 6,461
Structured Mortgage Asset Residential Trust
Multiclass Pass-Thru Certificates, Series 1992-5,
Class BO, Principal Only, Due 6/25/23 1,826 1,331
U-Haul Self-Storage Corporation Variable Rate
Commercial Mortgage Asset Trust Pass-Thru
Certificates, Series 1993-1, Class A1, 6.8375%,
Due 12/01/20 (Acquired 12/02/93; Cost $2,192)(b) 2,192 2,198
---------
TOTAL NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES (COST $233,235) 238,786
UNITED STATES GOVERNMENT & AGENCY
ISSUES 15.7%
FHLMC Participation Certificates:
6.50%, Due 5/01/04 2,455 2,441
7.31%, Due 7/01/24 7,681 7,887
8.50%, Due 4/01/01 thru 1/01/05 1,235 1,278
8.75%, Due 10/01/01 1,371 1,416
9.00%, Due 12/01/04 thru 5/01/06 13,199 13,812
9.50%, Due 3/01/11 835 898
9.75%, Due 8/01/02 4,739 4,994
10.25%, Due 7/01/09 thru 10/01/14 902 984
10.50%, Due 1/01/10 thru 7/01/19 1,691 1,863
10.75%, Due 9/01/09 thru 10/01/17 916 1,013
11.25%, Due 11/01/09 546 611
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates:
8.686%, Due 4/01/02 9,660 9,683
10.00%, Due 7/01/04 2,242 2,377
12.00%, Due 3/01/17 9,493 10,886
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates,
Series 1992-41, Class J, Accretion Directed
Interest Only, 1005.049%, Due 12/25/02 17 158
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Variable Rate Pass-Thru
Certificates:
Series 1992-187, Class SA, 8.40%, Due 10/25/07 3,211 3,024
Series 1992-G64, Class SE, 8.5423%, Due 3/25/22 3,502 2,856
Series 1993-93, Class S, 8.50%, Due 5/25/08 1,959 1,655
FNMA Stripped Mortgage-Backed Securities:
Series 1993-12, Class C, Principal Only,
Due 2/25/23 23,200 18,290
Series 1993-M1, Class N, Interest Only, 0.84%,
Due 4/25/20 107,731 993
Series 1995-G2, Class IO, Interest Only, 0.1966%,
Due 5/25/20 17,786 2,511
GNMA Guaranteed Pass-Thru Certificates:
7.50%, Due 12/15/07 9,286 9,649
9.75%, Due 09/15/05 thru 11/15/05 2,538 2,703
10.00%, Due 2/20/18 1,095 1,194
11.50%, Due 4/15/13 404 455
GNMA Guaranteed Platinum Pool Pass-Thru
Certificates:
11.00%, Due 6/15/20 11,450 12,852
12.50%, Due 4/15/19 43,637 51,492
Small Business Administration Guaranteed Loan
Group #0190, Variable Rate Interest Only
Certificates, 3.119%, Due 7/30/18 24,396 2,769
Small Business Administration Guaranteed Loan
Pool #440019, Interest Only Custodial Receipts,
Series 1993-1A, 2.531%, Due 2/15/18 15,172 1,446
USGI FHA Insured Project Pool Banco 85, 7.591%,
Due 11/24/19 4,634 4,733
USGI FHA Insured Project Pool #2047, 6.90%,
Due 8/01/14 2,825 2,691
---------
TOTAL UNITED STATES GOVERNMENT & AGENCY
ISSUES (COST $179,477) 179,614
OPTIONS 0.2%
Merrill Lynch Swaption (The option to receive a
fixed interest rate of 7.75%; exercisable at a
strike price of $100 beginning 4/09/04 and
expiring 4/09/25.) 39,583 2,363
United States Treasury Note Options (Strike Price
is $102.125 on United States Treasury Notes,
7.00%, Due 7/15/06. Expiration date is 11/06/96.) 33,650 815
---------
TOTAL OPTIONS (COST $2,196) 3,178
PREFERRED STOCKS 5.9%
Banco Central Hispanoamericano, SA Eurocap 400,000 10,176
First Nationwide Bank Dallas, Texas 11.50% 89,100 10,224
Norwest Corporation Series A, Cumulative
Tracking/Residential Home Mortgage LLC
(Acquired 12/16/94; Cost $23,000) (b) 115,000 24,281
Riggs National Corporation Series B 504,651 14,256
Time Warner, Inc. Exchangeable Series K
(Acquired 4/03/96 - 10/10/96; Cost $8,906) (b) 8,668 9,221
---------
TOTAL PREFERRED STOCKS (COST $66,343) 68,158
SHORT-TERM INVESTMENTS (a) 3.2%
COMMERCIAL PAPER 2.9%
DISCOUNTED 2.9%
Painewebber Group, Inc., Due 11/01/96 $31,400 31,400
Polysindo EKA Perkasa PT, Due 11/20/96 5,000,000 IDR 2,132
---------
33,532
INTEREST BEARING, DUE UPON DEMAND 0.0%
Johnson Controls, Inc., 5.04% $ 138 138
Wisconsin Electric Power Company, 5.06% 89 89
---------
227
---------
TOTAL COMMERCIAL PAPER 33,759
UNITED STATES GOVERNMENT ISSUES 0.3%
United States Treasury Bills:
Due 11/07/96 (c) 80 80
Due 11/14/96 (c) 90 90
Due 11/21/96 (c) 1,430 1,426
Due 11/29/96 (c) 290 289
Due 12/05/96 (c) 175 174
Due 12/12/96 (c) 140 139
Due 12/19/96 (c) 600 596
Due 12/26/96 (c) 160 159
Due 1/09/97 (c) 205 203
---------
3,156
---------
TOTAL SHORT-TERM INVESTMENTS (COST $36,904) 36,915
---------
TOTAL INVESTMENTS IN SECURITIES
(COST $1,147,637) 101.4% 1,164,132
Other Assets and Liabilities, Net (1.4%) (16,321)
---------
NET ASSETS 100.0% $1,147,811
=========
WRITTEN OPTIONS DETAIL
FNMA Bond Options (Strike Price is $98.7813 on
FNMA Pass-Thru Certificates, 7.50%. Expiration
date is 11/06/96.) 55,000 ($ 825)
New American Capital, Inc. 17.25% Cumulative
Redeemable Preferred Stock Put Options (Strike
Price is $95.92. Expiration date is 8/01/97.) 22,000 241
---------
Total Written Options (PREMIUMS RECEIVED $387) ($ 584)
=========
See notes to financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
STRONG SHORT-TERM BOND FUND (continued)
- --------------------------------------------------------------------------------
FUTURES
- -------
UNDERLYING UNREALIZED
FACE AMOUNT APPRECIATION
EXPIRATION AT VALUE (DEPRECIATION)
DATE (In Thousands)(In Thousands)
- --------------------------------------------------------------------------------
Purchased:
216 Two-Year U.S. Treasury Notes 12/96 $ 44,800 $ 478
Sold:
525 Five-Year U.S. Treasury Notes 12/96 (56,298) (1,170)
1,528 Ten-Year U.S. Treasury Notes 12/96 (167,507) (4,173)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
- -------------------------------------------
VALUE UNREALIZED
SETTLEMENT IN USD DEPRECIATION
DATE (In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
Sold:
5,000,000,000 IDR 11/21/96 ($2,138) ($78)
WRITTEN OPTIONS ACTIVITY
- ------------------------
NOTIONAL
PAR VALUE PREMIUMS
(In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
Options outstanding at October 31, 1995 27,800 $156
Options written during the period 104,800 541
Options expired (27,800) (154)
Options exercised (27,800) (156)
------- ----
Options outstanding at October 31, 1996 77,000 $387
======= ====
Exercised and expired options resulted in a capital loss (in thousands) of $198.
PERCENTAGE OF
INDUSTRY DIVERSIFICATION NET ASSETS
- --------------------------------------------------------------------------------
U.S. Government & Agency ........................... 15.9%
Non-Agency Single Family ........................... 14.6
Bank - Super Regional .............................. 7.4
Airline ............................................ 5.6
Media - Publishing ................................. 5.4
Media - Radio/TV ................................... 5.1
Non-Agency Asset-Backed ............................ 4.2
Bank - Money Center ................................ 4.1
Real Estate ........................................ 3.7
Brokerage & Investment Management .................. 3.6
Bank - Regional .................................... 3.0
Electric Power ..................................... 2.9
Leisure Service .................................... 2.8
Foreign Government ................................. 2.6
Retail - Drug Store ................................ 1.8
Healthcare - Patient Care .......................... 1.7
Beverage - Soft Drink .............................. 1.6
Oil - North American Exploration & Production ...... 1.6
Non-Agency Commercial .............................. 1.4
Auto & Truck Parts ................................. 1.2
Telecommunication Service .......................... 1.2
Leisure Product .................................... 1.1
Tobacco ............................................ 1.1
Automobile ......................................... 0.9
Paper & Forest Products ............................ 0.9
Precious Metal/Gem/Stone ........................... 0.8
Commercial Service ................................. 0.6
Energy - Alternate Source .......................... 0.6
Personal & Commerical Lending ...................... 0.6
Non-Agency Multi-Family ............................ 0.6
Retail - Food Chain ................................ 0.5
Savings & Loan ..................................... 0.5
Chemical - Specialty ............................... 0.4
Finance - Miscellaneous ............................ 0.4
Retail - Major Chain ............................... 0.4
Natural Gas Distribution ........................... 0.3
Foreign Corporate .................................. 0.2
Non-Agency Manufactured Housing. ................... 0.1
Other Assets and Liabilities, Net .................. (1.4)
-----
Total 100.0%
=====
PERCENTAGE OF
COUNTRY DIVERSIFICATION NET ASSETS
- --------------------------------------------------------------------------------
United States ...................................... 88.9%
Mexico ............................................. 2.4
Poland ............................................. 2.3
Norway ............................................. 1.9
Spain .............................................. 1.7
United Kingdom ..................................... 1.2
Chile .............................................. 1.0
Sweden ............................................. 0.9
Lebanon ............................................ 0.5
Brazil ............................................. 0.4
Indonesia .......................................... 0.2
Other Assets and Liabilities, Net .................. (1.4)
-----
Total 100.0%
=====
- --------------------------------------------------------------------------------
STRONG GOVERNMENT SECURITIES FUND
VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
CORPORATE BONDS 16.2%
AMR Corporation Debentures, 9.88%, Due 6/15/20 $ 4,000 $ 4,925
American Portable Telecom, Inc. Guaranteed Notes,
Series A, Zero %, Due 11/01/06
(Acquired 10/30/96; Cost $7,514) (b) 17,000 7,567
HUBCO, Inc. Subordinated Debentures, 8.20%,
Due 9/15/06 (Acquired 9/10/96; Cost $2,395) (b) 2,400 2,499
Lehman Brothers Holdings, Inc. Senior Notes,
7.25%, Due 10/15/03 3,275 3,295
Leucadia National Corporation Senior Subordinated
Notes, 7.875%, Due 10/15/06 9,000 9,046
New England Telephone & Telegraph Company
Debentures, 7.875%, Due 11/15/29 2,330 2,513
Reliance Industries, Ltd. Notes, 10.50%, Due 8/06/46
(Acquired 7/30/96; Cost $4,965) (b) 5,000 5,318
Republic of Poland Yankee Bearer PDI Step Up
Bonds, 4.00%, Due 10/27/14 21,200 17,437
Terra Nova Insurance UK Holdings PLC Senior
Guaranteed Notes, 10.75%, Due 7/01/05 7,500 8,494
Time Warner, Inc. Debentures, 9.125%, Due 1/15/13 9,305 10,106
Time Warner, Inc. Notes:
7.75%, Due 6/15/05 4,500 4,539
7.975%, Due 8/15/04 5,000 5,146
Total Access Communications Yankee Bonds,
8.375%, Due 11/04/06
(Acquired 10/30/96; Cost $11,374) (b) 11,400 11,400
United Air Lines Pass-Thru Trusts Pass-Thru
Certificates, Series 1991-A2, 10.02%,
Due 3/22/14 5,000 5,871
Viacom, Inc. Notes, 6.75%, Due 1/15/03 5,200 4,950
---------
TOTAL CORPORATE BONDS (COST $100,815) 103,106
MUNICIPAL BONDS 0.6%
Arkansas Development Finance Authority GNMA
Guaranteed Bonds, 9.75%, Due 11/15/14
(Cost $3,832) 3,100 3,879
See notes to financial statements.
13
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) October 31, 1996
- --------------------------------------------------------------------------------
STRONG GOVERNMENT SECURITIES FUND (continued)
VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
UNITED STATES GOVERNMENT &
AGENCY ISSUES 72.5%
FHA Insured Project Loan #956-55054, 2.93%,
Due 11/01/12 $ 4,098 $ 3,119
FHA Project Loan Section 223(f) - Hampshire Tower
Apartments, 7.50%, Due 11/15/30 9,091 8,977
FHLMC Participation Certificates:
7.00%, Due 1/25/21 4,571 4,508
7.25%, Due 7/01/08 2,359 2,377
8.00%, Due 7/01/08 thru 12/01/10 8,484 8,749
8.50%, Due 5/01/16 2,759 2,875
9.00%, Due 12/01/01 thru 6/01/16 24,904 26,353
9.50%, Due 1/01/11 thru 12/01/19 6,301 6,729
9.75%, Due 8/01/02 2,660 2,804
10.00%, Due 10/01/05 thru 6/01/20 15,967 17,341
10.50%, Due 6/01/04 thru 8/01/20 3,586 3,919
11.00%, Due 1/01/01 63 67
11.25%, Due 1/01/01 139 148
11.75%, Due 10/01/15 171 195
12.00%, Due 11/01/15 97 111
12.25%, Due 7/01/15 thru 12/01/15 618 706
12.50%, Due 10/01/09 thru 1/01/15 349 400
13.00%, Due 7/01/14 107 124
13.75%, Due 5/01/02 68 75
14.00%, Due 9/01/10 thru 4/01/16 1,066 1,235
14.50%, Due 3/01/11 thru 12/01/11 15 17
14.75%, Due 8/01/11 thru 4/01/13 10 12
15.00%, Due 8/01/11 57 66
16.00%, Due 6/01/12 7 9
FHLMC Guaranteed Multiclass Variable Rate
Mortgage Participation Certificates:
Series 144, Class A, 8.75%, Due 6/15/00 999 1,034
Series 1324, Class 1324-B, 7.00%, Due 4/15/18 701 702
---------
80,556
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates:
7.00%, Due 9/01/15 (e) 1,197 1,202
7.37%, Due 8/17/03 2,000 2,053
7.50%, Due 7/01/15 (e) 1,379 1,407
8.50%, Due 7/01/10 thru 2/01/12 11,081 11,607
9.00%, Due 1/01/25 thru 9/01/26 51,255 54,122
10.00%, Due 4/01/20 4,417 4,863
11.75%, Due 12/01/10 187 212
12.00%, Due 1/01/16 thru 2/01/19 3,597 4,129
12.25%, Due 7/01/14 32 36
12.50%, Due 2/01/11 thru 5/01/15 6,877 7,930
13.00%, Due 10/01/15 10,207 11,914
13.25%, Due 4/01/12 4 4
13.50%, Due 1/01/11 thru 1/01/12 41 46
13.75%, Due 10/01/10 7 8
14.00%, Due 1/01/12 thru 11/01/14 142 168
14.25%, Due 12/01/14 34 40
14.50%, Due 1/01/12 8 9
14.75%, Due 11/01/10 thru 3/01/12 214 249
15.00%, Due 10/01/12 10 13
15.50%, Due 10/01/12 16 19
FNMA Guaranteed Real Estate Mortgage Investment
Conduit Variable Rate Pass-Thru Certificates:
Pool # 70843, 6.838%, Due 4/01/20 (e) 3,676 3,786
Pool # 110238, 6.922%, Due 1/01/16 (e) 6,487 6,673
Pool # 92068, 7.846%, Due 1/01/18 1,917 1,992
Pool # 70342, 8.686%, Due 4/01/02 17,939 17,983
Series 1991-57, Class S, 8.2141%, Due 5/25/20 5,200 5,117
---------
135,582
GNMA Guaranteed Pass-Thru Certificates:
9.00%, Due 1/15/08 thru 12/15/11 27,751 29,393
11.00%, Due 9/15/17 11,049 12,408
12.50%, Due 4/15/19 6,246 7,370
13.00%, Due 11/15/10 thru 11/15/14 803 928
13.50%, Due 7/15/10 thru 10/15/12 274 317
14.00%, Due 6/15/11 thru 12/20/14 271 315
14.50%, Due 6/15/11 thru 11/15/12 428 502
15.00%, Due 1/15/12 thru 9/15/12 166 196
16.00%, Due 4/15/12 20 24
---------
51,453
Small Business Administration Guaranteed Loan,
Interest Only Custodial Receipts:
Series 1992-6A, 2.473%, Due 10/15/17 56,735 5,319
Series 1993-1A, 2.531%, Due 2/15/18 20,276 1,932
Series 1993-9A, 3.190%, Due 9/15/18 48,910 5,762
---------
13,013
Tennessee Valley Authority Power Bond,
Series 1995A, 6.375%, Due 6/15/05 6,200 6,105
USGI FHA Insured Project Pool #2040, 3.025%,
Due 11/01/06 8,192 7,122
United States Treasury Bonds:
6.00%, Due 2/15/26 30,760 28,088
7.625%, Due 2/15/25 36,200 40,250
11.625%, Due 11/15/04 3,900 5,177
United States Treasury Notes:
5.75%, Due 8/15/03 13,100 12,761
6.25%, Due 7/31/98 thru 2/15/03 23,350 23,521
6.50%, Due 8/31/01 thru 10/15/06 4,895 4,972
6.875%, Due 5/15/06 18,535 19,207
7.00%, Due 7/15/06 7,910 8,266
8.00%, Due 8/15/99 (c) 13,120 13,817
---------
156,059
---------
TOTAL UNITED STATES GOVERNMENT & AGENCY
ISSUES (COST $457,514) 461,986
OPTIONS 0.2%
Merrill Lynch Swaption (The option to receive
a fixed interest rate of 7.75%; exercisable
at a strike price of $100 beginning 4/09/04
and expiring 4/09/25.) 12,167 726
United States Treasury Note Options (Strike
Price is $102.125 on United States Treasury
Notes, 7.00%, Due 7/15/06. Expiration date
is 11/06/96.) 18,350 444
---------
TOTAL OPTIONS (COST $761) 1,170
PREFERRED STOCKS 4.8%
Federal Home Loan Mortgage 6.125% 165,000 8,250
Lehman Brothers Holdings, Inc. Convertible
Series A 5.00% 300,000 7,267
Norwest Corporation Series A, Cumulative
Tracking/Residential Home Mortgage LLC
(Acquired 12/16/94; Cost $10,000) (b) 50,000 10,557
Swire Pacific Offshore Financing, Ltd. Guaranteed,
9.33% (Acquired 10/23/96; Cost $4,500) (b) 180,000 4,622
---------
TOTAL PREFERRED STOCKS (COST $29,890) 30,696
SHORT-TERM INVESTMENTS (a) 10.1%
COMMERICAL PAPER 0.0%
INTEREST BEARING, DUE UPON DEMAND
Johnson Controls, Inc, 5.04% $ 233 $ 233
Wisconsin Electric Power Company, 5.06% 50 50
---------
283
REPURCHASE AGREEMENT 10.1%
Cantor Fitzgerald & Co., Inc. (Collateralized by:
$51,291 United States Treasury Notes, 6.875%,
Due 3/31/97 and $12,711 United States Treasury
Notes, 7.50%, Due 12/31/96.), 5.65%,
Due 11/01/96 (d) 64,300 64,300
See notes to financial statements.
14
<PAGE>
- --------------------------------------------------------------------------------
STRONG GOVERNMENT SECURITIES FUND (continued)
VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
UNITED STATES GOVERNMENT ISSUES 0.0%
United States Treasury Bills, Due 1/02/97 (c) $160 $ 159
---------
TOTAL SHORT-TERM INVESTMENTS (COST 64,742) 64,742
---------
TOTAL INVESTMENTS IN SECURITIES
(COST $657,554) 104.4% 665,579
Other Assets and Liabilities, Net (4.4%) (27,894)
---------
NET ASSETS 100.0% $637,685
=========
WRITTEN OPTIONS DETAIL
FNMA Bond Options (Strike Price is $98.7813 on
FNMA Pass-Thru Certificates, 7.50%. Expiration
date is 11/06/96.) (PREMIUMS RECEIVED $211) 30,000 (450)
FUTURES
- -------
UNDERLYING
FACE AMOUNT UNREALIZED
EXPIRATION AT VALUE APPRECIATION
DATE (In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
Purchased:
343 Five-Year U.S. Treasury Notes 12/96 $36,781 $625
WRITTEN OPTIONS ACTIVITY
- ------------------------
NOTIONAL
PAR VALUE PREMIUMS
(In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
Options outstanding at October 31, 1995 __ $ __
Options written during the period 30,000 211
Options expired __ __
Options exercised __ __
------ ----
Options outstanding at October 31, 1996 30,000 $211
====== ====
PERCENTAGE OF
INDUSTRY DIVERSIFICATION NET ASSETS
- --------------------------------------------------------------------------------
United States Government & Agency Issues ........... 84.6%
Media - Publishing ................................. 3.1
Telecommunication Service .......................... 3.0
Foreign Government ................................. 2.7
Airline ............................................ 1.7
Bank- Super Regional ............................... 1.7
Brokerage & Investment Management .................. 1.7
Insurance- Property and Casualty ................... 1.4
Insurance- Diversified ............................. 1.3
Media- Radio/TV .................................... 0.8
Paper & Forest Products ............................ 0.8
Conglomerate ....................................... 0.7
Bank- Regional ..................................... 0.4
Telephone .......................................... 0.4
Finance- Miscellaneous ............................. 0.1
Other Assets and Liabilities, Net .................. (4.4)
-----
Total 100.0%
=====
PERCENTAGE OF
COUNTRY DIVERSIFICATION NET ASSETS
- --------------------------------------------------------------------------------
United States ...................................... 98.9%
Poland ............................................. 2.7
United Kingdom ..................................... 1.3
Indonesia .......................................... 0.8
Hong Kong .......................................... 0.7
Other Assets and Liabilities, Net .................. (4.4)
-----
Total 100.0%
=====
- --------------------------------------------------------------------------------
STRONG CORPORATE BOND FUND
VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
CORPORATE BONDS 75.7%
AB Spintab Subordinated Step Up Notes,
7.50%, Due 8/14/49 (Acquired 8/07/96; Cost
$4,976)(b) $ 5,000 $ 5,064
ADT Operations, Inc. Guaranteed Senior
Subordinated Notes, 9.25%, Due 8/01/03 3,335 3,527
American Portable Telecom, Inc. Guaranteed Notes,
Series A, Zero %, Due 11/01/06
(Acquired 10/30/96; Cost $7,514) (b) 17,000 7,566
AMR Corporation Debentures, 9.88%, Due 6/15/20 5,000 6,156
ARA Services, Inc. Guaranteed Notes, 10.625%,
Due 8/01/00 8,654 9,757
Banesto Finance, Ltd. Floating Rate Notes, 6.4375%,
Due 10/29/49 2,000 1,980
Coastal Corporation Senior Debentures, 10.75%,
Due 10/01/10 6,440 8,380
Coca-Cola FEMSA, SA de CV Notes, 8.95%,
Due 11/01/06 5,000 5,050
Columbia University Medium Term Notes, 7.36%,
Due 10/15/21 1,000 1,005
Contifinancial Corporation Senior Notes, 8.375%,
Due 8/15/03 4,500 4,618
Delta Air Lines, Inc. Equipment Trust Certificates:
Series 1991-A, 10.14%, Due 8/14/12
(Acquired 9/10/96; Cost $2,257) (b) 2,000 2,398
Series 1991-B, 10.14%, Due 8/14/12
(Acquired 9/10/96; Cost $2,257) (b) 2,000 2,398
Series 1991-E, 10.14%, Due 8/26/12
(Acquired 9/10/96; Cost $2,258) (b) 2,000 2,395
Delta Air Lines, Inc. Pass-Thru Certificates,
Series 1992-B1, 9.375%, Due 9/11/07 3,549 3,910
Dimon, Inc. Senior Notes, 8.875%, Due 6/01/06 7,000 7,210
Walt Disney Company Euro-Dollar Senior
Participating Notes, 2.00%, Due 3/01/00
(Acquired 9/19/96; Cost $6,250) (b) 5,000 6,325
First Merchants Acceptance Corporation
Subordinated Reset Notes, 9.50%, Due 12/15/06 5,000 5,006
Freeport-McMoran Resource Partners LP Senior
Notes, 7.00%, Due 2/15/08 7,945 7,710
GNS Finance Corporation Senior Subordinated
Notes, Series B, 9.25%, Due 3/15/03 4,250 4,636
HUBCO, Inc. Subordinated Debentures, 8.20%,
Due 9/15/06 (Acquired 9/10/96: Cost $4,592) (b) 4,600 4,790
Harrahs Operating, Inc. Guaranteed Senior
Subordinated Notes, 8.75%, Due 3/15/00 4,500 4,584
ISP Holdings, Inc. Senior Notes, 9.00%, Due 10/15/03
(Acquired 10/15/96; Cost $4,986) (b) 5,000 5,013
Kansallis-Osake-Pankki Variable Rate Subordinated
Notes, 8.65%, Due 12/29/49 (Rate Reset Effective
8/15/99) (Acquired 9/19/95; Cost $3,158) (b) 3,000 3,152
The Kroger Company Senior Notes, 8.15%,
Due 7/15/06 3,000 3,146
Lehman Brothers Holdings, Inc. Senior Notes, 8.80%,
Due 3/01/15 6,500 7,291
Leucadia National Corporation Senior Subordinated
Notes, 7.875%, Due 10/15/06 3,000 3,015
Mark IV Industries, Inc. Senior Subordinated Notes,
7.75%, Due 4/01/06 3,500 3,422
NWA Trust Number 2 Subordinated Aircraft Notes,
13.875%, Due 6/21/08 3,191 3,750
Owens-Illinois, Inc. Senior Debentures, 11.00%,
Due 12/01/03 6,103 6,729
Panamerican Beverages, Inc. Yankee Senior Notes,
8.125%, Due 4/01/03 3,000 3,083
Panamsat LP/Panamsat Capital Corporation
Senior Subordinated Discount Notes, Zero %,
Due 8/01/03 (Rate Reset Effective 8/01/98) 6,000 5,528
Pohang Iron & Steel Company, Ltd. Notes, 7.125%,
Due 11/01/06 5,000 5,028
See notes to financial statements.
15
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) October 31, 1996
- --------------------------------------------------------------------------------
STRONG CORPORATE BOND FUND (continued)
VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
Principal Mutual Life Insurance Company Surplus
Notes, 8.00%, Due 3/01/44
(Acquired 10/17/95-3/13/96; Cost $9,138)(b) $ 9,125 $ 9,127
Reliance Industries, Ltd. Notes, 10.50%,
Due 8/06/46 (Acquired 7/30/96, Cost $4,965)(b) 5,000 5,319
Republic of Poland Yankee Bearer PDI Step Up
Bonds, 4.00%, Due 10/27/14 12,240 10,067
Revco D.S., Inc. Senior Notes, 9.125%,
Due 1/15/00 3,950 4,118
Rogers Cantel Mobile Communications, Inc. Senior
Secured Debentures, 9.375%, Due 6/01/08 5,000 5,063
Santa Fe Pacific Gold Corporation Senior
Debentures, 8.375%, Due 7/01/05 2,000 2,035
System Energy Resources, Inc. First Mortgage
Bonds, 11.375%, Due 9/01/16 766 835
TCI Communications, Inc. Senior Debentures,
8.75%, Due 8/01/15 5,825 5,511
Teekay Shipping Corporation Guaranteed First
Preferred Mortgage Notes, 8.32%, Due 2/01/08 6,560 6,363
Terra Nova Insurance UK Holdings PLC Senior
Guaranteed Notes, 10.75%, Due 7/01/05 6,920 7,837
Time Warner, Inc. Debentures, 9.125%, Due 1/15/13 3,000 3,258
UCAR Global Enterprises, Inc. Senior Subordinated
Notes, 12.00%, Due 1/15/05 2,895 3,344
U.S. Air, Inc. Enhanced Equipment Notes, Class C,
8.93%, Due 4/15/08
(Acquired 2/14/96; Cost $3,504) (b) 3,500 3,817
Viacom, Inc. Notes, 6.75%, Due 1/15/03 5,170 4,921
---------
TOTAL CORPORATE BONDS (COST $221,099) 225,237
NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES 9.7%
BCF LLC Variable Rate Mortgage Pass-Thru
Certificates:
Series 1996-R1, Class B1, 7.75%, Due 9/25/26
(Acquired 10/10/96; Cost $4,920) (b) 5,000 4,987
Series 1996-R1, Class B2, 7.75%, Due 9/25/26
(Acquired 10/10/96; Cost $1,914) (b) 2,000 1,942
Bear Stearns Mortgage Securities, Inc. Mortgage
Pass-Thru Certificates, Series 1995-1, Class 2-P,
Principal Only, Due 7/25/10 1,123 834
CBM Funding Corporation Mortgage Pass-Thru
Certificates, Series 1996-1B:
Class C, 7.86%, Due 2/01/08
(Acquired 1/16/96; Cost $4,870) (b) 4,725 4,740
Class D, 8.645%, Due 2/01/08 1,960 2,011
DLJ Mortgage Acceptance Corporation Variable Rate
Multifamily Mortgage Pass-Thru Certificates,
Series 1993-MF10, Class A-1, Interest Only,
0.80%, Due 7/15/03 34,466 959
First Boston Mortgage Securities Corporation
Mortgage Pass-Thru Certificates, Series
1994-MHC1, Class A-1X, Interest Only, 3.2976%,
Due 4/25/11 4,513 79
Fund America Structured Transactions LP
Collateralized Notes, Series 1996-1, Principal
Only, Due 10/28/33 (Acquired 3/07/96; Cost
$3,234) (b) 4,517 3,365
Prudential Home Mortgage Securities Company, Inc.
Real Estate Mortgage Investment Conduit
Pass-Thru Certificates, Series 1992-33, Class B3,
7.50%, Due 11/25/22 4,890 4,580
Ryland Mortgage Securities Corporation III Variable
Rate Collateralized Mortgage Bonds, Series 1992-C,
Class 3-A, 11.7766%, Due 11/25/30 567 602
Westam Mortgage Financial Corporation
Collateralized Mortgage Bonds, Series 10,
Class 10-D, Principal Only, Due 7/26/18 7,371 4,828
---------
TOTAL NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES (COST $28,069) 28,927
UNITED STATES GOVERNMENT &
AGENCY ISSUES 5.6%
FHLMC Participation Certificates:
14.00%, Due 9/01/12 35 41
14.75%, Due 3/01/10 21 24
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates,
13.50%, Due 4/01/11 (c) 190 223
GNMA Guaranteed Pass-Thru Certificates, 15.00%,
Due 8/15/11 thru 10/15/12 148 174
Small Business Administration Guaranteed Loan
Pool #40013, Interest Only Strips, 2.419%,
Due 9/30/17 13,570 1,238
United States Treasury Bonds, 6.00%, Due 2/15/26 12,990 11,862
United States Treasury Notes:
5.75%, Due 8/15/03 1,000 974
6.50%, Due 8/31/01 thru 10/15/06 430 435
7.875%, Due 11/15/04 1,500 1,646
---------
TOTAL UNITED STATES GOVERNMENT &
AGENCY ISSUES (COST $16,701) 16,617
OPTIONS 0.1%
Merrill Lynch Swaption (The option to receive a
fixed interest rate of 7.75%; exercisable at a
strike price of $100 beginning 4/09/04 and
expiring 4/09/25.) (COST $282) 6,083 363
PREFERRED STOCKS 8.5%
Norwest Corporation Series A, Cumulative
Tracking/Residential Home Mortgage LLC
(Acquired 12/16/94; Cost $2,000) (b) 10,000 2,111
SI Financing Trust I Units 9.50% 240,000 6,180
Swire Pacific Offshore Financing, Ltd. Guaranteed,
9.33% (Acquired 10/23/96; Cost $5,500) (b) 220,000 5,650
Time Warner, Inc. Exchangeable Series K
(Acquired 4/03/96-10/10/96; Cost $10,975) (b) 10,766 11,453
---------
TOTAL PREFERRED STOCKS (COST $24,475) 25,394
SHORT-TERM INVESTMENTS (a) 6.2%
COMMERCIAL PAPER 6.1%
DISCOUNTED 5.9%
Renaissance Energy, Due 11/01/96 $9,502 9,502
Salomon, Inc., Due 11/01/96 8,100 8,100
---------
17,602
INTEREST BEARING, DUE UPON DEMAND 0.2%
Johnson Controls, Inc., 5.04% 409 409
Wisconsin Electric Power Company, 5.06% 40 40
---------
449
---------
Total Commercial Paper 18,051
UNITED STATES GOVERNMENT ISSUES 0.1%
United States Treasury Bills, Due 12/19/96 (c) 275 273
---------
TOTAL SHORT-TERM INVESTMENTS (COST $18,324) 18,324
---------
TOTAL INVESTMENTS IN SECURITIES
(COST $308,950) 105.8% 314,862
Other Assets and Liabilities, Net (5.8%) (17,254)
---------
NET ASSETS 100.0% $297,608
=========
See notes to financial statements.
16
<PAGE>
- --------------------------------------------------------------------------------
STRONG CORPORATE BOND FUND (continued)
- --------------------------------------------------------------------------------
PERCENTAGE OF
INDUSTRY DIVERSIFICATION NET ASSETS
- --------------------------------------------------------------------------------
Airline ............................................ 8.3%
Brokerage & Investment Management .................. 7.3
Leisure Service .................................... 6.4
Telecommunication Service .......................... 6.1
Non-Agency Single Family ........................... 5.1
U.S. Government .................................... 5.1
Media-Publishing ................................... 4.9
Media-Radio/T.V. ................................... 3.5
Bank-Money Center .................................. 3.4
Finance - Miscellaneous ............................ 3.4
Foreign Government ................................. 3.4
Advertising ........................................ 3.2
Insurance-Life ..................................... 3.1
Natural Gas Distribution ........................... 2.8
Steel .............................................. 2.8
Beverage-Soft Drink ................................ 2.7
Chemical ........................................... 2.6
Insurance- Diversified ............................. 2.6
Tobacco ............................................ 2.4
Bank-Regional ...................................... 2.3
Container .......................................... 2.3
Non-Agency Asset Backed ............................ 2.3
Non-Agency Commercial .............................. 2.3
Leisure Product .................................... 2.1
Shipping ........................................... 2.1
Conglomerate ....................................... 1.9
Paper & Forest Products ............................ 1.8
Chemical-Specialty ................................. 1.7
Retail-Drug Store .................................. 1.4
Commercial Service ................................. 1.2
Auto and Truck Parts ............................... 1.1
Retail - Food Chain ................................ 1.1
Insurance-Property Casualty ........................ 1.0
Precious Metal/Gem/Stone ........................... 0.7
SBA ................................................ 0.4
Education Revenue .................................. 0.3
Electric Utility ................................... 0.3
FNMA ............................................... 0.1
GNMA ............................................... 0.1
Diversified Operations ............................. 0.1
Non-Agency Manufactured Housing .................... 0.1
Other Assets and Liabilities, Net .................. (5.8)
-----
Total 100.0%
=====
PERCENTAGE OF
COUNTRY DIVERSIFICATION NET ASSETS
- --------------------------------------------------------------------------------
United States ..................................... 86.5%
Poland ............................................ 3.4
Mexico ............................................ 2.7
United Kingdom .................................... 2.6
Hong Kong ......................................... 1.9
Indonesia ......................................... 1.8
Canada ............................................ 1.7
South Korea ....................................... 1.7
Sweden ............................................ 1.7
Japan ............................................. 1.1
Spain ............................................. 0.7
Other Assets and Liabilities, Net ................. (5.8)
-----
Total 100.0%
=====
FUTURES
-------
UNDERLYING
FACE AMOUNT UNREALIZED
EXPIRATION AT VALUE DEPRECIATION
DATE (In Thousands)(In Thousands)
- --------------------------------------------------------------------------------
Sold:
4 Ten-Year U.S. Treasury Notes 12/96 ($ 439) ($ 5)
56 U.S. Treasury Bonds 12/96 ( 5,876) ( 165)
- --------------------------------------------------------------------------------
STRONG HIGH-YIELD BOND FUND
VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
CORPORATE BONDS 86.2%
AES Corporation Senior Subordinated Notes,
10.25%, Due 7/15/06 $2,830 $3,025
Acetex Corporation Senior Secured Notes, 9.75%,
Due 10/01/03 1,000 955
Acme Metals, Inc. Senior Secured Discount Notes,
Zero %, Due 8/01/04 2,000 1,970
Republic of Argentina BOCON Previsional 2
Floating Rate Notes, 5.45%, Due 4/01/01 3,882 3,537
Aztar Corporation Senior Subordinated Notes,
13.75%, Due 10/01/04 2,000 2,190
Brazil MYDFA Trust Certificates, 6.6875%,
Due 9/15/07 (Acquired 10/02/96; Cost $3,386)(b) 4,000 3,345
Brunos, Inc. Senior Subordinated Notes, 10.50%,
Due 8/01/05 1,500 1,539
Cal Energy, Inc. Senior Notes, 9.50%, Due 9/15/06
(Acquired 9/18/96; Cost $2,490) (b) 2,500 2,525
Casino America, Inc. Senior Secured Notes, 12.50%,
Due 8/01/03 3,000 3,082
Casino Magic Louisiana Corporation Senior Secured
Notes, 13.00%, Due 8/15/03 (Acquired 8/16/96;
Cost $2,500) (b) 2,500 2,538
Cinemark USA, Inc. Senior Subordinated Notes,
9.625%, Due 8/01/08 (Acquired 8/12/96, 8/30/96;
Cost $2,967) (b) 3,000 2,925
Clark Oil & Refining Corporation Senior Notes,
10.50%, Due 12/01/01 4,240 4,452
Dade International, Inc. Senior Subordinated Notes,
11.125%, Due 5/01/06 (Acquired 4/30/96 - 10/16/96;
Cost $3,160) (b) 3,000 3,210
Echostar Communications Corporation Senior
Secured Discount Notes, Zero %, Due 6/01/04 6,000 4,770
Euramax International PLC/Euramax European
Holdings PLC/ Euramax European Holdings BV
Senior Subordinated Notes, 11.25%, Due 10/01/06
(Acquired 9/18/96; Cost $2,000) (b) 2,000 2,035
First Nationwide Escrow Corporation Senior
Subordinated Notes, 10.625%, Due 10/01/03
(Acquired 9/13/96; Cost $7,000) (b) 7,000 7,385
Florida Coast Paper Company LLC First Mortgage
Notes, 12.75%, Due 6/01/03 (Acquired 5/23/96;
Cost $2,022) (b) 2,000 2,100
Frontiervision Operating Partners LP/Frontiervision
Capital Corporation Senior Subordinated Notes,
11.00%, Due 10/15/06 4,000 3,990
Goss Graphic System, Inc. Senior Subordinated
Notes, 12.00%, Due 10/15/06 7,000 7,070
Grupo Industrial Durango SA de CV Notes,
12.625%, Due 8/01/03 3,000 3,127
Gulf States Steel, Inc. First Mortgage Notes,
Series B, 13.50%, Due 4/15/03 1,500 1,414
See notes to financial statements.
17
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) October 31, 1996
- --------------------------------------------------------------------------------
STRONG HIGH-YIELD BOND FUND (continued)
VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
Homeside, Inc. Senior Secured Second Priority
Notes, 11.25%, Due 5/15/03
(Acquired 5/07/96 - 6/06/96; Cost $2,785) (b) $ 2,750 $ 3,018
Host Marriott Travel Plazas, Inc. Senior Secured
Notes, Series B, 9.50%, Due 5/15/05 2,000 2,033
ISP Holdings, Inc. Senior Notes, 9.00%, Due
10/15/03 (Acquired 10/15/96; Cost $4,986) (b) 5,000 5,013
Intermedia Capital Partners IV LP/Intermedia
Partners IV Capital Corporation Senior
Discount Notes, 11.25%, Due 8/01/06
(Acquired 7/19/96 - 9/26/96; Cost $6,085) (b) 6,000 6,000
International CableTel, Inc. Senior Step-Up Notes,
Series B, Zero%, Due 2/01/06 3,000 1,830
International Home Foods Senior Subordinated
Notes, 10.375%, Due 11/01/06
(Acquired 10/29/96; Cost $5,500) (b) 5,500 5,569
International Wireless Communications Holdings,
Inc. Senior Secured Discount Notes, Zero %,
Due 8/15/01 (Acquired 8/09/96; Cost $4,067)(b) 8,000 4,360
Iron Mountain, Inc. Senior Subordinated Notes,
10.125%, Due 10/01/06 2,000 2,065
JPS Automotive Products Corporation Senior Notes,
11.125%, Due 6/15/01 5,000 5,163
Earle M. Jorgensen Company Senior Notes, 10.75%,
Due 3/01/00 1,000 1,020
KCS Energy, Inc. Senior Notes, Series B, 11.00%,
Due 1/15/03 3,000 3,263
Kelley Oil & Gas Corporation Senior Subordinated
Notes, 10.375%, Due 10/15/06
(Acquired 10/25/96; Cost $1,995) (b) 2,000 2,010
Majestic Star Casino LLC Senior Secured Notes,
12.75%, Due 5/15/03 (Acquired 5/17/96 - 8/01/96;
Cost $4,138) (b) 4,000 4,310
NWA Trust Number 2 Subordinated Aircraft Notes,
13.875%, Due 6/21/08 2,875 3,378
Nextlink Communications LLC Senior Notes,
12.50%, Due 4/15/06 2,000 2,055
Northwest Airlines, Inc. Guaranteed Senior Notes,
12.0916%, Due 12/31/00 707 728
Ocwen Financial Corporation Notes, 11.875%,
Due 10/01/03 4,000 4,260
PM Holdings Corporation Subordinated Discounted
Debentures, Zero %, Due 9/01/05 4,624 2,982
Pagemart, Inc. Senior Discount Exchange Notes,
Zero %, Due 11/01/03 3,000 2,310
Pagemart Nationwide, Inc. Senior Discounted Notes,
Zero %, Due 2/01/05 (Rate reset effective
2/01/00) 5,000 3,375
Panamsat LP/Panamsat Capital Corporation Senior
Subordinated Discount Notes, Zero %,
Due 8/01/03 (Rate Reset Effective 8/01/98) 3,155 2,907
Park Newspapers, Inc. Senior Notes, Series B,
11.875%, Due 5/15/04 1,500 1,732
Pricellular Wireless Corporation Senior Notes,
10.75%, Due 11/01/04 (Acquired 10/30/96;
Cost $5,006) (b) 5,000 5,037
Prime Succession Acquisition Corporation Senior
Subordinated Notes, 10.75%, Due 8/15/04
(Acquired 8/13/96; Cost $4,572) (b) 4,500 4,770
Printpack, Inc. Senior Notes, Series A, 9.875%,
Due 8/15/04 (Acquired 8/15/96; Cost $4,000)(b) 4,000 4,100
Printpack, Inc. Senior Subordinated Notes, Series A,
10.625%, Due 8/15/06 (Acquired 8/15/96;
Cost $3,000) (b) 3,000 3,090
Ralph's Grocery Company Senior Notes, 10.45%,
Due 6/15/04 1,000 1,017
Regency Health Services, Inc. Subordinated Notes,
12.25%, Due 7/15/03 (Acquired 10/03/96, 10/08/96;
Cost $4,583) (b) 4,250 4,505
Revlon Worldwide Corporation Senior Secured
Discount Notes, Series B, Zero %, Due 3/15/98 4,514 4,000
Rogers Cantel Mobile Communications, Inc. Senior
Secured Debentures, 9.375%, Due 6/01/08 4,000 4,050
Smith's Food & Drug Centers, Inc. Senior
Subordinated Notes, 11.25%, Due 5/15/07 2,500 2,716
Speedy Muffler King, Inc./Speedy USA, Inc. Senior
Yankee Notes, 10.875%, Due 10/01/06 3,000 3,082
Spinnaker Industries, Inc. Senior Secured Notes,
10.75%, Due 10/15/06 (Acquired 10/18/96;
Cost $3,000) (b) 3,000 3,052
TNT Transport PLC/TNT USA, Inc. Senior Notes,
11.50%, Due 4/15/04 2,650 3,041
UIH Australia/PAC, Inc. Senior Discounted Notes,
Series B, Zero %, Due 5/15/06 2,500 1,319
Unifrax Investment Corporation Senior Notes,
10.50%, Due 11/01/03 2,500 2,553
U.S. Air, Inc. 1993-A Pass-Thru Trust Certificates,
Series 1993-A2, 9.625%, Due 9/01/03 325 322
U.S. Air, Inc. Guaranteed Senior Notes, 10.00%,
Due 7/01/03 2,500 2,400
U.S. Air, Inc. Senior Notes, 9.625%, Due 2/01/01 1,500 1,432
--------
TOTAL CORPORATE BONDS (COST $183,290) 187,051
CONVERTIBLE BONDS 0.4%
International Cabletel, Inc. Convertible Subordinated
Notes, 7.00%, Due 6/15/08 (COST $1,000) 1,000 949
NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES 2.3%
Aircraft Lease Portfolio Securitization, Ltd. 1996-1
Pass-Thru Trust Certificates, Class D, 12.75%,
Due 6/15/06 (Acquired 6/18/96; Cost $2,500)(b) 2,500 2,575
First Boston Mortgage Securities Corporation
Mortgage Pass-Thru Certificates, Series 92-4,
Class A-5, Interest Only, 0.625%, Due 10/25/22 28,926 203
GE Capital Mortgage Services, Inc. Real Estate
Mortgage Investment Conduit Pass-Thru
Certificates, Series 1994-7, Class B3, 6.00%,
Due 2/25/09 (Acquired 5/14/96; Cost $1,194)(b) 1,434 1,239
RTC Mortgage Pass-Thru Securities, Inc., Series
1991-7, Class A, 7.75%, Due 12/25/18 238 234
SML Commercial Mortgage Trust Variable Rate
Pass-Thru Certificates, Series 1994-CL, Class S,
Interest Only, 0.81%, Due 9/20/99 38,673 701
--------
TOTAL NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES (COST $4,783) 4,952
PREFERRED STOCKS 4.1%
Benedek Communications Corporation Units
(Acquired 9/26/96; Cost $2,340) (b) 2,000 2,300
Cablevision Systems Corporation Depositary Shares
Representing 1/100 Preferred M 60,556 5,556
Time Warner, Inc. Exchangeable Series K
(Acquired 4/03/96; Cost $1,026) (b) 1,048 1,115
--------
TOTAL PREFERRED STOCKS (COST $9,176) 8,971
WARRANTS 0.1%
American Communications Services, Inc. Warrants,
Expire 11/01/05 1,500 128
American Telecasting, Inc. Warrants, Expire 8/10/00 150 2
Intercel, Inc. Warrants, Expire 2/01/06 3,264 34
--------
TOTAL WARRANTS (COST $96) 164
See notes to financial statements.
18
<PAGE>
- --------------------------------------------------------------------------------
STRONG HIGH-YIELD BOND FUND (continued)
VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 5.2%
COMMERCIAL PAPER 0.4%
INTEREST BEARING DUE UPON DEMAND
American Family Financial Services, Inc., 5.02% $ 561 $ 561
Johnson Controls, Inc., 5.04% 13 13
Wisconsin Electric Power Company, 5.06% 196 196
--------
770
REPURCHASE AGREEMENT 4.7%
Cantor Fitzgerald & Company, Inc., 5.65%,
Due 11/01/96 10,300 10,300
UNITED STATES GOVERNMENT ISSUES 0.1%
United States Treasury Bills:
Due 12/19/96 135 134
Due 12/26/96 10 10
--------
144
--------
TOTAL SHORT-TERM INVESTMENTS (COST $11,214) 11,214
--------
TOTAL INVESTMENTS IN SECURITIES
(COST $209,559) 98.3% 213,301
Other Assets and Liabilities, Net 1.7% 3,701
--------
NET ASSETS 100.0% $217,002
========
PERCENTAGE OF
INDUSTRY DIVERSIFICATION NET ASSETS
- --------------------------------------------------------------------------------
Media - Radio/TV .................................. 12.7%
Telecommunication Service ......................... 9.4
Food .............................................. 7.3
Leisure Service ................................... 6.5
Airline ........................................... 5.0
U.S. Government ................................... 4.8
Commercial Service ................................ 4.2
Auto & Truck Parts ................................ 3.8
Oil - North American Integrated ................... 3.6
Bank - Money Center ............................... 3.4
Foreign Government ................................ 3.2
Electronic Products - Miscellaneous ............... 2.6
Energy - Alternate Source ......................... 2.6
Paper & Forest Products ........................... 2.4
Retail - Food Chain ............................... 2.4
Chemical-Specialty ................................ 2.3
Consumer-Miscellaneous ............................ 2.2
Healthcare - Patient Care ......................... 2.1
Brokerage & Investment Management ................. 2.0
Steel ............................................. 2.0
Cosmetic & Personal Care .......................... 1.8
Healthcare - Medical Supply ....................... 1.5
Container ......................................... 1.4
Finance - Miscellaneous ........................... 1.4
Transportation Service ............................ 1.4
Media - Publishing ................................ 1.3
Metal Products & Fabrication ...................... 1.2
Metals & Mining ................................... 0.9
Oil - North American Exploration & Production ..... 0.9
Mortgage & Related Service ........................ 0.6
Chemical .......................................... 0.4
Insurance - Property & Casualty ................... 0.3
Non-Agency Manufactured Housing ................... 0.3
Diversified Operations ............................ 0.1
Electric Power .................................... 0.1
Non-Agency Asset Backed ........................... 0.1
Non-Agency Multi-Family ........................... 0.1
Other Assets and Liabilities, Net ................. 1.7
-----
Total 100.0%
=====
PERCENTAGE OF
COUNTRY DIVERSIFICATION NET ASSETS
- -------------------------------------------------------------------------------
United States ..................................... 87.0%
Canada ............................................ 3.7
Australia ......................................... 2.0
Argentina ......................................... 1.6
Brazil ............................................ 1.6
Mexico ............................................ 1.4
United Kingdom .................................... 1.0
Other Assets and Liabilities, Net ................. 1.7
-----
Total 100.0%
=====
LEGEND
- ------
(a) Short-Term Investments include any security which has a maturity of less
than one year.
(b) Restricted security.
(c) All or a portion of security pledged to cover margin requirements for
futures contracts.
(d) The Funds may engage in repurchase agreements where the underlying
collateral consists of U.S. government securities which are maintained in a
segregated account with a custodian. The market value of the collateral
must exceed the principal amount by at least two percent on a daily basis.
(e) When-Issued security.
All principal amounts and costs are stated in thousands.
Percentages are stated as a percent of net assets.
CURRENCY ABBREVIATIONS
- ----------------------
IDR Indonesian Rupiah
See notes to financial statements.
19
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
For the Period Ended October 31, 1996 (Note 1)
(In Thousands)
<CAPTION>
STRONG SHORT-TERM STRONG GOVERNMENT
BOND FUND SECURITIES FUND
--------- ---------------
INCOME:
<S> <C> <C>
Interest $87,409 $38,487
Dividends 1,504 413
------- -------
Total Income 88,913 38,900
EXPENSES:
Investment Advisory Fees 7,008 3,379
Custodian Fees 103 52
Shareholder Servicing Costs 2,186 1,010
Other 540 387
------- -------
Total Expenses 9,837 4,828
------- -------
NET INVESTMENT INCOME 79,076 34,072
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 3,060 (5,467)
Futures Contracts, Options and Forward Foreign Currency Contracts (2,573) (4,204)
Change in Unrealized Appreciation/Depreciation on:
Investments 527 710
Futures Contracts, Options and Forward Foreign Currency Contracts (3,588) 514
------- -------
NET LOSS (2,574) (8,447)
------- -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $76,502 $25,625
======= =======
STRONG CORPORATE STRONG HIGH-YIELD
BOND FUND BOND FUND
--------- ---------
INCOME:
Interest $21,352 $ 6,442
Dividends 312 116
------- -------
Total Income 21,664 6,558
EXPENSES:
Investment Advisory Fees 1,702 423
Custodian Fees 44 12
Shareholder Servicing Costs 712 83
Reports to Shareholders 156 48
Federal and State Registration Fees 71 77
Other 24 18
------- -------
Total Expenses before Waivers and Absorptions 2,709 661
Voluntary Expense Waivers and Absorptions by Advisor -- (661)
------- -------
Expenses, Net 2,709 --
------- -------
NET INVESTMENT INCOME 18,955 6,558
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 475 3,111
Futures Contracts, Options and Forward Foreign Currency Contracts (553) (49)
Change in Unrealized Appreciation/Depreciation on:
Investments 1,295 3,742
Futures Contracts, Options and Forward Foreign Currency Contracts (217) --
------- -------
NET GAIN 1,000 6,804
------- -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $19,955 $13,362
======= =======
See notes to financial statements.
</TABLE>
20
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
October 31, 1996
(In Thousands, Except Per Share Amounts)
<CAPTION>
STRONG SHORT-TERM STRONG GOVERNMENT
BOND FUND SECURITIES FUND
--------- ---------------
ASSETS:
Investments in Securities, at Value (Cost of
<S> <C> <C>
$1,147,637 and $657,554, respectively) $1,164,132 $665,579
Receivable from Brokers for Securities and Forward Foreign
Currency Contracts Sold 19,085 83,412
Receivable for Fund Shares Sold 67 337
Dividends and Interest Receivable 13,508 7,186
Other Assets -- 41
---------- --------
Total Assets 1,196,792 756,555
LIABILITIES:
Payable to Brokers for Securities and Forward Foreign
Currency Contracts Purchased 39,607 114,618
Written Options, at Value (Premiums Received of $387 and $211, respectively) 584 450
Payable for Fund Shares Redeemed 17 63
Dividends Payable 7,296 3,265
Accrued Operating Expenses and Other Liabilities 1,477 474
---------- --------
Total Liabilities 48,981 118,870
---------- --------
NET ASSETS $1,147,811 $637,685
========== ========
Capital Shares Outstanding (Unlimited Number Authorized) 117,750 61,072
NET ASSET VALUE PER SHARE $9.75 $10.44
===== ======
STRONG CORPORATE STRONG HIGH-YIELD
BOND FUND BOND FUND
--------- ---------
ASSETS:
Investments in Securities, at Value (Cost of
$308,950 and $209,559, respectively) $ 314,862 $213,301
Receivable from Brokers for Securities and Forward Foreign
Currency Contracts Sold 3,298 13,809
Receivable for Fund Shares Sold 102 172
Dividends and Interest Receivable 4,215 3,572
Other Assets -- 13
---------- --------
Total Assets 322,477 230,867
LIABILITIES:
Payable to Brokers for Securities and Forward Foreign
Currency Contracts Purchased 22,506 12,094
Payable for Fund Shares Redeemed 54 28
Dividends Payable 1,771 1,710
Accrued Operating Expenses and Other Liabilities 538 33
---------- --------
Total Liabilities 24,869 13,865
---------- --------
NET ASSETS $ 297,608 $217,002
========== ========
Capital Shares Outstanding (Unlimited Number Authorized) 27,967 19,268
NET ASSET VALUE PER SHARE $10.64 $11.26
====== ======
See notes to financial statements.
21
</TABLE>
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
STRONG SHORT-TERM STRONG GOVERNMENT
BOND FUND SECURITIES FUND
----------------------------- ----------------------------
<CAPTION>
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
OCT. 31, 1996 OCT. 31, 1995 OCT. 31, 1996 OCT. 31, 1995
------------- ------------- ------------- -------------
(NOTE 1) (NOTE 1)
OPERATIONS:
<S> <C> <C> <C> <C>
Net Investment Income $ 79,076 $ 61,118 $ 34,072 $ 17,902
Net Realized Gain (Loss) 487 (29,982) (9,671) 17,964
Change in Unrealized Appreciation/Depreciation (3,061) 67,272 1,224 14,201
----------- ---------- -------- ----------
Increase in Net Assets Resulting from Operations 76,502 98,408 25,625 50,067
CAPITAL SHARE TRANSACTIONS 67,322 4,450 189,900 148,275
DISTRIBUTIONS:
From Net Investment Income (79,076) (60,866) (34,072) (17,902)
In Excess of Net Investment Income (10) -- -- (1,040)
----------- ---------- -------- ----------
TOTAL INCREASE IN NET ASSETS 64,738 41,992 181,453 179,400
NET ASSETS:
Beginning of Period 1,083,073 1,041,081 456,232 276,832
---------- ---------- -------- ----------
End of Period $1,147,811 $1,083,073 $637,685 $ 456,232
========== ========== ======== ==========
<CAPTION>
STRONG CORPORATE STRONG HIGH-YIELD
BOND FUND BOND FUND
----------------------------- -----------------
YEAR ENDED PERIOD ENDED PERIOD ENDED
OCT. 31, 1996 OCT. 31, 1995 OCT. 31, 1996
------------- ------------- -------------
(NOTE 1) (NOTE 1)
OPERATIONS:
<S> <C> <C> <C>
Net Investment Income $ 18,955 $ 10,294 $ 6,558
Net Realized Gain (Loss) (78) 13,871 3,062
Change in Unrealized Appreciation/Depreciation 1,078 5,743 3,742
---------- ---------- --------
Increase in Net Assets Resulting from Operations 19,955 29,908 13,362
CAPITAL SHARE TRANSACTIONS 78,547 75,563 210,198
DISTRIBUTIONS:
From Net Investment Income (18,955) (10,294) (6,558)
In Excess of Net Investment Income -- (421) --
---------- ---------- --------
TOTAL INCREASE IN NET ASSETS 79,547 94,756 217,002
NET ASSETS:
Beginning of Period 218,061 123,305 --
---------- ---------- --------
End of Period $ 297,608 $ 218,061 $217,002
========== ========== ========
See notes to financial statements.
</TABLE>
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
October 31, 1996
1. ORGANIZATION
The Strong Income Funds consist of Strong Short-Term Bond Fund, Inc.,
Strong Government Securities Fund, Inc., Strong Corporate Bond Fund, Inc.,
and Strong High-Yield Bond Fund (a series of Strong Income Funds, Inc.).
The Funds are diversified, open-end management investment companies
registered under the Investment Company Act of 1940. The Board of Directors
of the Funds approved changing the Strong Short-Term Bond Fund, Inc.,
Strong Government Securities Fund, Inc., and Strong Corporate Bond Fund,
Inc. fiscal year-ends from December 31 to October 31 in 1995. The inception
date for the Strong High-Yield Bond Fund was December 28, 1995.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements.
(A) Security Valuation -- Securities of the Funds are valued through
valuations obtained by a commercial pricing service or the mean of the
bid and asked prices, when no last sales price is available.
Securities for which market quotations are not readily available are
valued at fair value as determined in good faith under consistently
applied procedures established by and under the general supervision of
the Board of Directors. Securities which are purchased within 60 days
of their stated maturity are valued at amortized cost, which
approximates current value.
The Funds 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 Funds
generally bear the costs, if any, associated with the disposition of
restricted securities. Aggregate cost and fair value of these
restricted securities held at October 31, 1996 were as follows (in
thousands):
<TABLE>
<CAPTION>
STRONG SHORT-TERM STRONG GOVERNMENT STRONG CORPORATE STRONG HIGH-YIELD
BOND FUND SECURITIES FUND BOND FUND BOND FUND
-------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Aggregate Cost $221,689 $40,748 $89,268 $86,302
Aggregate Fair Value 225,322 41,963 91,612 88,126
Percent of Net Assets 19.6%* 6.6% 30.8%** 40.6%***
* Of these securities, which are restricted from resale, 55% are eligible for resale pursuant to Rule 144A under
the Securities Act of 1933 and also have been determined to be liquid by the Advisor based upon guidelines
established by the Fund's Board of Directors.
** Of these securities, which are restricted from resale, 87% are eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 and also have been determined to be liquid by the Advisor based upon guidelines
established by the Fund's Board of Directors.
*** Of these securities, which are restricted from resale, 92% are eligible for resale pursuant to Rule 144A under
the Securities Act of 1933 and also have been determined to be liquid by the Advisor based upon guidelines
established by the Fund's Board of Directors.
</TABLE>
(B) Federal Income and Excise Taxes and Distributions to Shareholders --
It is the Funds' policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of their taxable income to their
shareholders in a manner which results in no tax cost to the Funds.
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) Futures -- Upon entering into a futures contract, the Funds pledge to
the broker cash or other investments equal to the minimum "initial
margin" requirements of the exchange. The Funds also receive from or
pay to the broker an amount of cash equal to the daily fluctuation in
the value of the contract. Such receipts or payments are known as
"variation margin," and are recorded as unrealized gains or losses.
When the futures contract is closed, a realized gain or loss is
recorded equal to the difference between the value of the contract at
the time it was opened and the value at the time it was closed.
(E) Options -- Premiums received by the Funds upon writing put or call
options are recorded as an asset with a corresponding liability which
is subsequently adjusted to the current market value of the option.
When an option expires, is exercised, or is closed, the Funds realize
a gain or loss, and the liability is eliminated. The Funds continue to
bear the risk of adverse movements in the price of the underlying
asset during the period of the option, although any potential loss
during the period would be reduced by the amount of the option premium
received.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
October 31, 1996
(F) 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.
(G) Forward Foreign Currency Exchange Contracts -- Forward foreign
currency exchange contracts are valued at the forward rate and are
marked-to-market daily. The change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the Funds record
an exchange gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed.
(H) Additional Investment Risk -- The use of futures contracts, options,
foreign denominated assets and forward foreign currency exchange
contracts for purposes of hedging the Funds' investment portfolios
involves, to varying degrees, elements of market risk in excess of the
amount recognized in the statement of assets and liabilities. The
predominant risk with futures contracts is an imperfect correlation
between the value of the contracts and the underlying securities.
Foreign denominated assets and forward foreign currency exchange
contracts may involve greater risks than domestic transactions,
including currency, political and economic, regulatory and market
risks.
(I) 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.
3. NET ASSETS
Net assets as of October 31, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
STRONG SHORT-TERM STRONG GOVERNMENT STRONG CORPORATE STRONG HIGH-YIELD
BOND FUND SECURITIES FUND BOND FUND BOND FUND
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Capital Stock $1,222,447 $640,717 $336,367 $210,198
Undistributed Net Investment Income __ __ __ __
Undistributed Net Realized Gain (Loss) (85,991) (11,443) (44,501) 3,062
Net Unrealized Appreciation 11,355 8,411 5,742 3,742
---------- -------- -------- --------
$1,147,811 $637,685 $297,608 $217,002
========== ======== ======== ========
</TABLE>
4. CAPITAL SHARE TRANSACTIONS
<TABLE>
Transactions in shares of the Funds for the periods ended October 31, 1996 and 1995, respectively, were as follows
(in thousands):
1996 1995
---- ----
<CAPTION>
SHARES DOLLARS SHARES DOLLARS
------ ------- ------ -------
STRONG SHORT-TERM BOND FUND
<S> <C> <C> <C> <C>
Shares Sold 53,424 $521,038 35,782 $344,472
Dividends Reinvested 6,630 64,589 5,258 50,403
Shares Redeemed (53,200) (518,305) (40,704) (390,425)
------- -------- ------- --------
6,854 $ 67,322 336 $ 4,450
======= ======== ======= ========
STRONG GOVERNMENT SECURITIES FUND
Shares Sold 41,596 $434,098 25,489 $262,132
Dividends Reinvested 2,683 27,954 1,493 15,239
Shares Redeemed (26,228) (272,152) (12,720) (129,096)
------- -------- ------- --------
18,051 $189,900 14,262 $148,275
======= ======== ======= ========
STRONG CORPORATE BOND FUND
Shares Sold 22,680 $239,496 13,929 $140,983
Dividends Reinvested 1,470 15,401 808 8,099
Shares Redeemed (16,839) (176,350) (7,261) (73,519)
------- -------- ------ --------
7,311 $ 78,547 7,476 $ 75,563
======= ======== ====== ========
STRONG HIGH-YIELD BOND FUND
Shares Sold 26,782 $292,590
Dividends Reinvested 371 4,077
Shares Redeemed (7,885) (86,469)
------ --------
19,268 $210,198
====== ========
</TABLE>
24
<PAGE>
- --------------------------------------------------------------------------------
5. RELATED PARTY TRANSACTIONS
Strong Capital Management, Inc. (the "Advisor"), with whom certain officers
and directors of the Funds are affiliated, provides investment advisory
services and shareholder recordkeeping and related services to the Funds.
Investment advisory fees, which are established by terms of the Advisory
Agreements, are based on the following annualized rates of the average
daily net assets: Strong Government Securities Fund .60%, Strong Short-Term
Bond Fund, Strong Corporate Bond Fund and Strong High-Yield Bond Fund
.625%. Advisory fees are subject to reimbursement by the Advisor if the
Funds' operating expenses exceed certain levels. Shareholder recordkeeping
and related service fees are based on contractually established rates for
each open and closed shareholder account. In addition, the Advisor is
compensated for certain other services related to costs incurred for
reports to shareholders.
Certain information regarding related party transactions, excluding the
effects of waivers and reimbursements, for the period ended October 31,
1996 is as follows (in thousands):
<TABLE>
<CAPTION>
STRONG SHORT-TERM STRONG GOVERNMENT STRONG CORPORATE STRONG HIGH-YIELD
BOND FUND SECURITIES FUND BOND FUND BOND FUND
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Payable to Advisor at October 31, 1996 $666 $381 $178 $33
Other Shareholder Servicing Expenses
Paid to Advisor 33 9 9 1
Unaffiliated Directors' Fees 14 7 4 1
</TABLE>
6. INVESTMENT TRANSACTIONS
<TABLE>
The aggregate purchases and sales of long-term securities for the period ended October 31, 1996 were as follows (in
thousands):
<CAPTION>
STRONG SHORT-TERM STRONG GOVERNMENT STRONG CORPORATE STRONG HIGH-YIELD
BOND FUND SECURITIES FUND BOND FUND BOND FUND
----------------- ----------------- ---------------- -----------------
Purchases:
<S> <C> <C> <C> <C>
U.S. Government and Agency $ 600,613 $1,713,551 $ 622,736 $ 408
Other 1,564,167 932,458 1,253,250 503,714
Sales:
U.S. Government and Agency 842,929 1,598,726 638,650 407
Other 1,456,045 870,045 1,156,529 305,008
</TABLE>
7. INCOME TAX INFORMATION
At October 31, 1996, the investment cost, gross unrealized appreciation and
depreciation on investments and capital loss carryovers (expiring in
varying amounts through 2004; approximately $36,659 (in thousands) of the
capital loss carryovers of Strong Corporate Bond Fund expire in 1998) for
Federal income tax purposes were as follows (in thousands):
<TABLE>
<CAPTION>
STRONG SHORT-TERM STRONG GOVERNMENT STRONG CORPORATE STRONG HIGH-YIELD
BOND FUND SECURITIES FUND BOND FUND BOND FUND
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Aggregate Investment Cost $1,160,422 $657,738 $309,573 $209,582
========== ======== ======== ========
Aggregate Unrealized:
Appreciation $ 25,019 $ 12,779 $ 7,231 $ 4,744
Depreciation (21,309) (4,938) (1,942) (1,025)
---------- -------- -------- --------
$ 3,710 $ 7,841 $ 5,289 $ 3,719
========== ======== ======== ========
Capital Loss Carryovers $ 77,981 $ 10,333 $ 43,839 $ __
========== ======== ======== ========
</TABLE>
25
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
STRONG SHORT-TERM BOND FUND 10-31-96 10-31-95(a) 12-31-94 12-31-93 12-31-92 12-31-91
--------- ----------- --------- --------- --------- ---------
(NOTE 1)
SELECTED PER-SHARE DATA(d)
- --------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.77 $ 9.42 $ 10.23 $ 9.99 $ 10.12 $ 9.53
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.69 0.56 0.64 0.66 0.76 0.75
Net Realized and Unrealized Gains
(Losses) on Investments (0.02) 0.35 (0.80) 0.25 (0.11) 0.59
---------- --------- ---------- --------- -------- --------
Total from Investment Operations 0.67 0.91 (0.16) 0.91 0.65 1.34
LESS DISTRIBUTIONS
From Net Investment Income (0.69) (0.56) (0.65) (0.66) (0.76) (0.75)
In Excess of Net Investment Income -- -- -- (0.01) -- --
From Net Realized Gains -- -- -- -- (0.02)(c) --
---------- ---------- ---------- --------- -------- --------
Total Distributions (0.69) (0.56) (0.65) (0.67) (0.78) (0.75)
---------- ---------- ---------- ---------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.75 $ 9.77 $ 9.42 $ 10.23 $ 9.99 $ 10.12
========== ========== ========== ========== ======== ========
TOTAL RETURN +7.1% +9.9% -1.6% +9.3% +6.7% +14.6%
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------
Net Assets, End of Period (In Thousands) $1,147,811 $1,083,073 $1,041,081 $1,531,627 $756,867 $164,954
Ratio of Expenses to Average Net Assets 0.9% 0.9%* 0.9% 0.8% 0.6% 1.0%
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 0.9% 0.9%* 0.9% 0.9% 0.9% 1.2%
Ratio of Net Investment Income to
Average Net Assets 7.1% 7.0%* 6.5% 6.3% 7.3% 7.8%
Portfolio Turnover Rate 191.5% 317.1% 249.7% 444.9% 353.3% 398.1%
<CAPTION>
STRONG SHORT-TERM BOND FUND (continued) 12-31-90 12-31-89 12-31-88 12-31-87(b)
--------- -------- -------- -----------
SELECTED PER-SHARE DATA(d)
- --------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.86 $ 10.09 $ 10.03 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.81 0.99 0.86 0.27
Net Realized and Unrealized Gains
(Losses) on Investments (0.33) (0.18) 0.13 0.04
-------- -------- -------- --------
Total from Investment Operations 0.48 0.81 0.99 0.31
LESS DISTRIBUTIONS
From Net Investment Income (0.81) (0.99) (0.86) (0.27)
In Excess of Net Investment Income -- -- -- --
From Net Realized Gains -- (0.05) (0.07) (0.01)
-------- -------- -------- --------
Total Distributions (0.81) (1.04) (0.93) (0.28)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.53 $ 9.86 $ 10.09 $ 10.03
======== ======== ======== ========
TOTAL RETURN +5.3% +8.2% +10.1% +3.2%
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------
Net Assets, End of Period (In Thousands) $ 80,070 $130,001 $102,175 $ 17,128
Ratio of Expenses to Average Net Assets 1.3% 1.1% 1.0% 0.1%*
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 1.3% 1.2% 1.2% 0.8%*
Ratio of Net Investment Income to
Average Net Assets 8.6% 9.7% 8.5% 8.8%*
Portfolio Turnover Rate 313.8% 177.0% 461.3% 45.2%
</TABLE>
<TABLE>
<CAPTION>
STRONG GOVERNMENT SECURITIES FUND 10-31-96 10-31-95(a) 12-31-94 12-31-93 12-31-92 12-31-91
----------- ----------- --------- ----------- -------- --------
(Note 1)
SELECTED PER-SHARE DATA(d)
- --------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.60 $ 9.63 $ 10.61 $ 10.39 $ 10.77 $ 10.10
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.63 0.54 0.62 0.66 0.80 0.77
Net Realized and Unrealized Gains
(Losses) on Investments (0.16) 0.99 (0.98) 0.63 0.11 0.84
---------- --------- ---------- ---------- -------- --------
Total from Investment Operations 0.47 1.53 (0.36) 1.29 0.91 1.61
LESS DISTRIBUTIONS
From Net Investment Income (0.63) (0.54) (0.62) (0.66) (0.80) (0.77)
In Excess of Net Investment Income -- (0.02) -- -- -- --
From Net Realized Gains -- -- -- (0.32) (0.49) (0.17)
In Excess of Net Realized Gains -- -- -- (0.09) -- --
---------- --------- ---------- ---------- -------- --------
Total Distributions (0.63) (0.56) (0.62) (1.07) (1.29) (0.94)
---------- --------- ---------- ---------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.44 $ 10.60 $ 9.63 $ 10.61 $ 10.39 $ 10.77
========== ========= ========== ========== ======== ========
TOTAL RETURN +4.6% +16.2% -3.4% +12.7% +9.2% +16.7%
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------
Net Assets, End of Period (In Thousands) $ 637,685 $ 456,232 $ 276,832 $ 221,961 $ 82,169 $ 51,934
Ratio of Expenses to Average Net Assets 0.9% 0.9%* 0.9% 0.8% 0.7% 0.8%
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 0.9% 0.9%* 0.9% 1.0% 1.2% 1.4%
Ratio of Net Investment Income to
Average Net Assets 6.0% 6.2%* 6.2% 6.0% 7.7% 7.5%
Portfolio Turnover Rate 457.6% 409.2% 479.0% 520.9% 628.8% 292.9%
<CAPTION>
STRONG GOVERNMENT SECURITIES FUND (continued) 12-31-90 12-31-89 12-31-88 12-31-87
---------- --------- ---------- ----------
SELECTED PER-SHARE DATA(d)
- --------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.08 $ 9.98 $ 9.75 $ 10.09
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.72 0.78 0.68 0.65
Net Realized and Unrealized Gains
(Losses) on Investments 0.12 0.17 0.32 (0.34)
-------- -------- -------- --------
Total from Investment Operations 0.84 0.95 1.00 0.31
LESS DISTRIBUTIONS
From Net Investment Income (0.72) (0.78) (0.68) (0.65)
In Excess of Net Investment Income -- -- -- --
From Net Realized Gains (0.10) (0.07) (0.09) --
In Excess of Net Realized Gains -- -- -- --
-------- -------- -------- --------
Total Distributions (0.82) (0.85) (0.77) (0.65)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.10 $ 10.08 $ 9.98 $ 9.75
======== ======== ======== ========
TOTAL RETURN +8.7% +9.9% +10.5% +3.4%
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------
Net Assets, End of Period (In Thousands) $ 41,099 $ 35,119 $ 25,408 $ 11,380
Ratio of Expenses to Average Net Assets 1.3% 1.3% 0.4% 1.0%
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 1.5% 1.6% 1.6% 1.6%
Ratio of Net Investment Income to
Average Net Assets 7.2% 7.6% 6.9% 6.6%
Portfolio Turnover Rate 254.2% 421.6% 1,727.8% 715.0%
* Calculated on an annualized basis.
(a) Total return and portfolio turnover rate are not annualized.
(b) Inception date is August 31, 1987. Total return and portfolio turnover rate are not annualized.
(c) Ordinary income distribution for tax purposes.
(d) Information presented relates to a share of capital stock of the Fund outstanding for the entire period.
</TABLE>
26
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
STRONG CORPORATE BOND FUND 10-31-96 10-31-95(a) 12-31-94 12-31-93 12-31-92 12-31-91
-------- ----------- -------- -------- -------- --------
(NOTE 1)
SELECTED PER SHARE DATA(c)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.56 $ 9.36 $ 10.24 $ 9.40 $ 9.37 $ 8.87
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.73 0.63 0.73 0.70 0.82 0.76
Net Realized and Unrealized Gains
(Losses) on Investments 0.08 1.22 (0.87) 0.84 0.03 0.50
-------- -------- -------- ------- -------- --------
Total from Investment Operations 0.81 1.85 (0.14) 1.54 0.85 1.26
LESS DISTRIBUTIONS
From Net Investment Income (0.73) (0.63) (0.73) (0.70) (0.82) (0.76)
In Excess of Net Investment Income -- (0.02) (0.01) -- -- --
From Net Realized Gains -- -- -- -- -- --
-------- -------- -------- ------- -------- --------
Total Distributions (0.73) (0.65) (0.74) (0.70) (0.82) (0.76)
-------- -------- -------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.64 $ 10.56 $ 9.36 $ 10.24 $ 9.40 $ 9.37
======== ======== ======== ======== ======== ========
TOTAL RETURN +8.0% +20.3% -1.3% +16.8% +9.4% +14.8%
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------
Net Assets, End of Period (In Thousands) $297,608 $218,061 $123,305 $123,400 $102,783 $ 92,364
Ratio of Expenses to Average Net Assets 1.0% 1.0%* 1.1% 1.1% 1.3% 1.5%
Ratio of Net Investment Income to
Average Net Assets 7.0% 7.5%* 7.6% 7.0% 8.7% 8.4%
Portfolio Turnover Rate 672.8% 621.4% 603.0% 665.8% 557.0% 392.4%
<CAPTION>
STRONG CORPORATE BOND FUND (continued) 12-31-90 12-31-89 12-31-88 12-31-87
-------- -------- -------- --------
SELECTED PER SHARE DATA(c)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.57 $ 11.88 $ 11.64 $ 12.65
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 1.06 1.40 1.17 1.23
Net Realized and Unrealized Gains
(Losses) on Investments (1.70) (1.31) 0.24 (0.67)
-------- -------- -------- --------
Total from Investment Operations (0.64) 0.09 1.41 0.56
LESS DISTRIBUTIONS
From Net Investment Income (1.06) (1.40) (1.17) (1.53)
In Excess of Net Investment Income -- -- -- --
From Net Realized Gains -- -- -- (0.04)
-------- -------- -------- --------
Total Distributions (1.06) (1.40) (1.17) (1.57)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 8.87 $ 10.57 $ 11.88 $ 11.64
======== ======== ======== ========
TOTAL RETURN -6.2% +0.4% +12.5% +4.5%
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------
Net Assets, End of Period (In Thousands) $ 92,201 $195,350 $202,623 $137,898
Ratio of Expenses to Average Net Assets 1.4% 1.2% 1.2% 1.1%
Ratio of Net Investment Income to
Average Net Assets 11.2% 12.1% 9.8% 10.6%
Portfolio Turnover Rate 293.5% 207.2% 400.2% 245.4%
</TABLE>
STRONG HIGH-YIELD BOND FUND 10-31-96(b)
-----------
SELECTED PER SHARE DATA(c)
- --------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.84
Net Realized and Unrealized Gains
(Losses) on Investments 1.26
--------
Total from Investment Operations 2.10
LESS DISTRIBUTIONS
From Net Investment Income (0.84)
--------
Total Distributions (0.84)
--------
NET ASSET VALUE, END OF PERIOD $ 11.26
========
TOTAL RETURN +21.7%
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------
Net Assets, End of Period (In Thousands) $217,002
Ratio of Expenses to Average Net Assets 0.0%*
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 1.0%*
Ratio of Net Investment Income to
Average Net Assets 9.6%*
Portfolio Turnover Rate 390.8%
* Calculated on an annualized basis.
(a) Total return and portfolio turnover rate are not annualized.
(b) Inception date is December 28, 1995. Total return and portfolio turnover
rate are not annualized.
(c) Information presented relates to a share of capital stock of the Fund
outstanding for the entire period.
27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of the
Strong Income Funds
We have audited the accompanying statements of assets and liabilities of Strong
Short-Term Bond Fund, Inc., Strong Government Securities Fund, Inc., and Strong
Corporate Bond Fund, Inc., including the schedules of investments in securities,
as of October 31, 1996, and the related statements of operations for the year
then ended, the statements of changes in net assets for the year ended October
31, 1996 and the period January 1, 1995 to October 31, 1995, and the financial
highlights for each of the periods indicated. We have also audited the
accompanying statement of assets and liabilities of Strong High Yield Bond Fund
(one of the portfolios constituting Strong Income Funds, Inc.), including the
schedule of investments in securities, as of October 31, 1996, and related
statement of operations, statement of changes in net assets and financial
highlights for the period December 28, 1995 (inception) to October 31, 1996.
These Funds are collectively referred to herein as the "Strong Income Funds".
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Strong Income Funds as of October 31, 1996, the results of their
operations, the changes in their net assets, and the financial highlights for
each of the periods indicated, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
December 4, 1996
28
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SHAREHOLDER PRIVILIGES*
STRONG FUNDS
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24-HOUR SERVICE
TELEPHONE PURCHASE
Make additional investments into any Strong Fund by calling us toll-free at
1-800-368-3863.
TELEPHONE EXCHANGE
If your financial goals change, you can exchange your investments between any of
the Strong Funds.
TELEPHONE REDEMPTION
You can call toll-free to redeem your mutual fund shares at any time. Your
shares will be redeemed no later than the close of the next business day.
STRONG FUNDS
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AUTOMATIC EXCHANGE
AUTOMATIC INVESTMENT PLAN
This plan allows you to set up regular transfers from your bank checking or NOW
account to your Strong Funds account.
PAYROLL DIRECT DEPOSIT PLAN
You can automatically transfer all or a portion of your net pay at each pay
period. This eliminates the delay of depositing paychecks to your bank and then
sending a check through the mail to Strong Funds.
AUTOMATIC EXCHANGE PLAN
This plan allows you to exchange money from one Strong Fund to another. For
example, you may want to set up automatic exchanges from a money market fund to
an equity fund.
FOR MORE INFORMATION ABOUT THESE PRIVILEGES, CALL US AT 1-800-368-3863.
To reduce the volume of mail you receive, only one copy of certain materials,
such as prospectuses and shareholder reports, is mailed to your household.
Please call 1-800-368-3863 if you wish to receive additional copies, free of
charge.
* Each Fund reserves the right to terminate or modify any of these privileges.
<PAGE>
Bulk Rate
U.S. Postage
PAID
Milwaukee, WI
Permit No. 2652
FOR LITERATURE AND INFORMATION REQUESTS,
CALL 1-800-368-1030.
TO DISCUSS AN EXISTING ACCOUNT OR
CONDUCT A TRANSACTION,
CALL 1-800-368-3863.
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 annual report does not constitute
an offer for the sale of securities. Strong Funds are offered for sale by
prospectus only.
[STRONG FUNDS LOGO]
STRONG FUNDS DISTRIBUTORS, INC.
P.O. Box 2936
Milwaukee, Wisconsin 53201
http://www.strong-funds.com
4018J96P
