<PAGE>
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THE STRONG
INCOME FUNDS
ANNUAL REPORT o OCTOBER 31, 1997
[PHOTO OF WOMAN PAINTING]
THE STRONG CORPORATE BOND FUND
------------------------------------------
THE STRONG GOVERNMENT SECURITIES FUND
------------------------------------------
THE STRONG HIGH-YIELD BOND FUND
------------------------------------------
THE STRONG SHORT-TERM BOND FUND
------------------------------------------
THE STRONG SHORT-TERM HIGH YIELD BOND FUND
[STRONG LOGO]
STRONG FUNDS
<PAGE>
8
EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING
These common-sense rules are followed by many successful investors. They make
sense for beginners, too. If you have a question on these principles, or would
like to discuss them with us, please contact us at 1-800-368-3863. We're here 24
hours a day, seven days a week to take your call.
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[PICTURE OF FOLDER LABELED INVESTMENTS]
1. HAVE A PLAN. Even a simple plan can help you take control of your financial
future. Review your plan once a year, or if your circumstances change.
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[PICTURE OF CLOCK]
2. START INVESTING AS SOON AS POSSIBLE. Make time a valuable ally. Let it put
the power of compounding to work for you, while helping to reduce your potential
investment risk.
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[PICTURE OF PIE CHART OF ASSET DIVERSIFICATION]
3. DIVERSIFY YOUR PORTFOLIO. By investing in different asset classes - stocks,
bonds, and cash - you help protect against poor performance in one type of
investment while including investments most likely to help you achieve your
important goals.
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[PICTURE OF MEMO REMINDER TO INVEST]
4. INVEST REGULARLY. Investing is a process, not a one-time event. By investing
regularly over the long term, you reduce the impact of short-term market
gyrations, and you attend to your long-term plan before you're tempted to spend
those assets on short-term needs.
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[PICTURE OF GRAPH SLOPING UPWARD]
5. MAINTAIN A LONG-TERM PERSPECTIVE. For most individuals, the best discipline
is staying invested as market conditions change. Reactive, emotional investment
decisions are all too often a source of regret - and of principal loss.
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[PICTURE OF PIE CHART OF ASSET DIVERSIFICATION EMPHASIZING STOCKS]
6. CONSIDER STOCKS TO HELP ACHIEVE MAJOR LONG-TERM GOALS. Over time, stocks have
provided the more powerful returns needed to help the value of your investments
stay well ahead of inflation.
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[PICTURE OF DOLLAR SIGN]
7. KEEP A COMFORTABLE AMOUNT OF CASH IN YOUR PORTFOLIO. To meet current needs,
including emergencies, use a money market fund or a bank account - not your
long-term investment assets.
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[PICTURE OF MAGNIFYING GLASS]
8. KNOW WHAT YOU'RE BUYING. Make sure you understand the potential risks and
rewards associated with each of your investments. Ask questions...request
information...make up your own mind. And choose a fund company that helps you
make informed investment decisions.
<PAGE>
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THE STRONG
INCOME FUNDS
ANNUAL REPORT o OCTOBER 31, 1997
TABLE OF CONTENTS
INVESTMENT REVIEWS
The Strong Corporate Bond Fund ...................................... 2
The Strong Government Securities Fund ............................... 4
The Strong High-Yield Bond Fund ..................................... 6
The Strong Short-Term Bond Fund ..................................... 8
The Strong Short-Term High Yield Bond Fund ......................... 10
FINANCIAL INFORMATION
Schedules of Investments in Securities
The Strong Corporate Bond Fund ................................. 12
The Strong Government Securities Fund .......................... 14
The Strong High-Yield Bond Fund ................................ 16
The Strong Short-Term Bond Fund ................................ 19
The Strong Short-Term High Yield Bond Fund ..................... 23
Statements of Assets and Liabilities ............................... 25
Statements of Operations ........................................... 26
Statements of Changes in Net Assets ................................ 27
Notes to Financial Statements ...................................... 28
FINANCIAL HIGHLIGHTS .................................................... 30
REPORT OF INDEPENDENT ACCOUNTANTS ....................................... 32
<PAGE>
THE STRONG CORPORATE BOND FUND
THE REAL STORY THIS YEAR FOR CORPORATE BOND FUND SHAREHOLDERS IS THE VALUE WE
HAVE ADDED BY BEING POSITIONED IN THE RIGHT INDUSTRIES AND SECTORS OF THE
MARKET.
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 fiscal year ended October 31, 1997 was a good year for the Strong Corporate
Bond Fund. The Fund produced a total return of 11.50% on the back of a decline
in 10-year Treasury rates and good issue selection in the corporate market.
=============================================
ASSET ALLOCATION BASED ON NET ASSETS
=============================================
As of 10-31-97
[PIE CHART]
Corporate Bonds 78.8%
U.S. Government and Agency Issues 6.0%
Non-Agency Mortgage and Asset-Backed
Securities 5.8%
Preferred Stocks 5.3%
Short-Term Investments 2.5%
Convertible Securities 1.6%
The Fund's asset allocation does not reflect
any futures positions held by the fund.
=============================================
=======================================
PORTFOLIO STATISTICS
=======================================
As of 10-31-97
30-day annualized yield(1) 6.67%
Average maturity(2) 15.7 years
Average quality rating(3) BBB
=======================================
MACROECONOMIC OVERVIEW
The growth rate of the U.S. economy has accelerated somewhat over the past year.
The average rate of real GDP growth in the last four quarters was 3.8%.
Furthermore, two of the past three quarters have seen real GDP growth of 4%.
This is clearly an increase from the 2% to 2.5% real growth rates we had
experienced in the recent past. Further strength in the economy can be
illustrated by the decline in the unemployment rate to 4.7%.
Generally, accelerating economic growth and tight labor markets cause the
Federal Reserve to tighten monetary policy. In fact, the Federal funds rate was
increased in late March. At the time, the market believed that the Fed would
need to raise rates further to slow growth and prevent an increase in inflation.
However, although economic growth has remained strong, the Fed has not raised
the Federal funds rate since March. The main reason for their patience has been
the lack of any meaningful increase in inflation throughout this expansion. In
fact, the year over year change in the Consumer Price Index is only 2.1%. This
good inflation news combined with progress on lowering the Federal deficit has
allowed market rates to fall despite stronger economic growth.
MARKET-BEATING PERFORMANCE
The investment-grade corporate bond market has performed reasonably well
relative to Treasuries while the high-yield market has been very strong. Over
the past 12 months the Fund returned 11.50% versus 10.16% for the Lehman
Brothers Corporate BAA Bond Index and 9.49% for the Lipper Corporate Debt Funds
BBB Rated Index. We were able to achieve this success primarily through
investing in industries and companies which performed better than the market.
The Fund has kept a consistent interest-rate profile over the past 12 months.
Our duration has been set close to the benchmark index duration over the past 12
months; the Fund's duration currently stands at 6.2, while the index duration is
6.14.
================================
LIPPER TOTAL
RETURN RANKINGS
================================
As of 10-31-97
1-year #10 of 104
3-year #4 of 69
5-year #3 of 38
10-year #19 of 21
Category: Corporate Debt BBB
Rated Funds. Rankings are
historical and do not
represent future results.
Source of Lipper rankings is
Lipper Analytical Services, Inc.
================================
The real story this year for Corporate Bond Fund shareholders is the value we
have added by being positioned in the right industries and sectors of the
market. We have kept the Fund 20% invested in BB rated bonds. The strong
performance of the high-yield market has caused this allocation to improve
performance. Secondly, we were heavily invested in regional banks, airlines, and
cable companies in the investment-grade portion of the Fund. The Fund was the
beneficiary of good performance in the bank sector as consolidation continues to
improve credit quality. The cable sector performed well in the past year as
investors began to realize how well positioned the industry is to deliver data
and video services going forward. Investments in Time Warner, TCI
Communications, Inc., and Comcast all outperformed the market. Finally, airline
credits such as AMR (American Airlines) and Delta Air Lines were upgraded as the
operating environment remains strong and companies have generated large amounts
of cash and paid down debt.
2
<PAGE>
OUTLOOK
We believe that the U.S. bond market is fairly valued. The late October turmoil
triggered by the instability in Asian economies had a rippling effect on
worldwide markets. Although there may be opportunities in this region at some
point, we're generally avoiding investments there until we see greater economic
stability. We have recently increased the quality of the overall portfolio
slightly. We believe that the underlying credit fundamentals for most U.S.
corporate bond issuers are quite positive, and anticipate that the market will
provide us with good buying opportunities as we move toward year-end.
We thank you for your continued 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
/s/ John T. Bender
John T. Bender
Portfolio Co-managers
[PHOTO OF JEFFREY A. KOCH & JOHN T. BENDER]
==========================
AVERAGE ANNUAL
TOTAL RETURNS
==========================
As of 10-31-97
1-year 11.50%
5-year 11.28%
10-year 8.58%
Since Inception 10.01%
(on 12-12-85)
==========================
================================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
================================================================================
From 12-12-85 to 10-31-97
[GRAPH]
Lehman Brothers Lipper Corporate
THE STRONG CORPORATE Corporate BAA Debt Funds BBB
BOND FUND Bond Index* Rated Index*
11-85 $10,000 $10,000 $10,000
12-85 10,300 10,162 10,184
12-87 13,997 12,323 11,882
12-89 15,800 15,521 14,342
12-91 17,013 19,497 17,909
12-93 21,732 24,087 21,839
12-95 26,892 28,617 25,052
10-97 31,063 32,504 28,226
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. 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. To equalize the time periods, the indexes' performance was
prorated for the month of December 1985.
================================================================================
- --------------------------------------------------------------------------------
* 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. The Lipper Corporate
Debt Funds BBB Rated Index is an equally-weighted performance index of the
largest qualifying funds in this Lipper category. Source of the Lehman
index data is Standard & Poor's Micropal. Source of the Lipper index data
is Lipper Analytical Services, Inc.
1 Yields are historical and do not represent future yields, which will
fluctuate.
2 The Fund's average maturity includes the effect of futures and options.
3 For purposes of this average rating, the Fund's short-term debt obligations
have been assigned a long-term rating by the Advisor.
3
<PAGE>
THE STRONG GOVERNMENT SECURITIES FUND
WE REMAIN COMMITTED TO OUR CAREFUL, DISCIPLINED APPROACH TO BOND INVESTING.
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)
For the fiscal year ended October 31, the Government Securities Fund
outperformed both its benchmark and peer group, returning 9.05% versus the 8.89%
return for the Lehman Brothers Aggregate Bond Index, and 8.04% for the Lipper
General U.S. Government Funds Index, respectively.*(2)
=============================================
ASSET ALLOCATION BASED ON NET ASSETS
=============================================
As of 10-31-97
[PIE CHART]
U.S. Government and Agency Issues 81.5%
Corporate Bonds 9.7%
Preferred Stocks 3.7%
Short-Term Investments 2.6%
Municipal Bonds 2.4%
Non-Agency Mortgage-Backed Securities 0.1%
The Fund's asset allocation does not reflect
any futures positions held by the Fund.
=============================================
======================================
PORTFOLIO STATISTICS
======================================
As of 10-31-97
30-day annualized yield(2) 6.02%
Average maturity(3) 6.8 years
Average quality rating(4) AAA
=======================================
A LOOK AT THE PAST YEAR
In contrast to a volatile interest rate environment throughout the first half of
this decade, rates have been relatively tranquil over the past 12 months. The
combination of a strong economy and low inflation has kept the Federal Reserve
fairly inactive. Within the past 12 months, the Federal Reserve has only moved
rates once--when it increased rates in March. There's been a gradual flattening
of the yield curve, resulting in a smaller difference between short-term and
long-term rates.
This generally low-volatility environment has been to our advantage. Compared to
the recently more volatile and highly valued stock market, we are optimistic
about the income levels and stability that bonds may offer.
OUR PHILOSOPHY REMAINS UNCHANGED
We remain committed to our careful, disciplined approach to bond investing. Our
fixed-income management process includes a top-down analysis of the economy,
interest rates, and the supply of and demand for credit. We then conduct a
rigorous security analysis of any issue we're considering.
Right now, our interest-rate risk is about average. We believe the Fund's
current duration of 4.5 positions us well given the relatively stable interest
rate environment.
We've benefited from a portfolio constructed of both long- and short-term
securities. Mortgages played a key role early in the fiscal year--we
overweighted in this area, but have since cut back as a good part of this market
became fully valued. Careful issue selection in the high-quality corporate
market also contributed to the Fund's success.
One change in our allocation is a 2.4% position in taxable municipals. Although
we don't typically include these issues, their reasonable price, AAA rating and
high liquidity made them an attractive asset to the Fund.
========================================
LIPPER TOTAL
RETURN RANKINGS(2)
========================================
As of 10-31-97
1-year #24 of 179
3-year #18 of 134
5-year #5 of 78
10-year #2 of 48
Category: General U.S. Government Funds.
Rankings are historical and do not
represent future results. Source of
Lipper rankings is Lipper Analytical
Services, Inc.
========================================
A NEW CO-MANAGER
We're pleased to note that John Bender joined the Government Securities Fund as
portfolio co-manager in March. His eight years of investment
experience--including roles as both an analyst and co-manager of the Strong
Corporate Bond Fund--will be of benefit to the Fund and its shareholders.
4
<PAGE>
OUTLOOK
We expect to see the convergence of short- and long-term interest rates
continue, but at a diminished rate. We're not positioning the Fund for any
substantial interest rate changes, choosing instead to maintain a neutral
stance. If the economy remains strong, we expect to find opportunities in the
corporate bond market--particularly in the banking, finance and industrial
sectors.
The late October turmoil triggered by the instability in Asian economies had a
rippling effect on worldwide markets. Many of the countries which have been
affected are large issuers of investment-grade bonds in the U.S. market.
Although there may be opportunities in this region at some point, we're avoiding
investments there until we see greater economic stability.
Thank you for your investment in the Strong Government Securities Fund. We look
forward to earning your continued confidence.
Sincerely,
/s/Bradley C. Tank
Bradley C. Tank
/s/John T. Bender
John T. Bender
Portfolio Co-managers
[PHOTO OF BRADLEY C. TANK & JOHN T. BENDER]
=======================
AVERAGE ANNUAL
TOTAL RETURNS
=======================
As of 10-31-97
1-year 9.05%
3-year 10.05%
5-year 8.17%
Since Inception 8.94%
(on 10-29-86)
=======================
================================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
================================================================================
From 10-29-86 to 10-31-97
[GRAPH]
THE STRONG Lehman Brothers Lipper General U.S.
GOVERNMENT Aggregate Government Funds
SECURITIES FUND Bond Index* Index*
9-86 $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 19,637 18,706 16,615
12-95 23,218 22,162 19,430
12-96 23,873 22,963 19,820
10-97 25,674 24,815 21,279
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. 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. To equalize the time periods, the indexes'
performance was prorated for the month of October 1986.
================================================================================
- --------------------------------------------------------------------------------
* 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. 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 index data is Standard & Poor's
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 From time to time, the Fund's 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, options, and
when-issued securities.
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 HIGH-YIELD BOND FUND
AGAINST A BACKDROP OF VERY POSITIVE ECONOMIC FUNDAMENTALS, THE HIGH-YIELD BOND
MARKET AGAIN POSTED EXCELLENT RETURNS.
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 10-31-97
QUALITY BREAKDOWN
[PIE CHART]
B-Rated Bonds 45.4%
BB-Rated Bonds 19.8%
Unrated 15.3%
Short-Term Investments 8.7%
Stocks 7.5%
CCC-Rated Bonds 2.5%
Investment Grade Bonds 0.8%
SECTOR BREAKDOWN
[PIE CHART]
Corporate Bonds 79.5%
Short-Term Investments 8.7%
Stocks 7.5%
Non-Agency Mortgage- and
Asset Backed Securities 3.2%
Convertible Securities 1.1%
The Fund's asset allocation does
not reflect any futures positions
held by the Fund.
===================================
A YEAR OF OUTSTANDING PERFORMANCE
Total return for the year ended October 31, 1997 was 17.33%, well ahead of our
benchmark, the Lehman Brothers High-Yield Bond Index,--which returned 13.72%.
This also placed us well ahead of our peer group in the Lipper High Current
Yield Funds category which averaged a total return of 14.01% over the same
period.*
=====================================
PORTFOLIO STATISTICS
=====================================
As of 10-31-97
30-day annualized yield 8.74%
Average maturity(1) 6.3 years
Average quality rating(2) B
=====================================
Against a backdrop of very positive economic fundamentals, the high-yield bond
market again posted excellent returns. Inflation remained well-behaved
throughout the year despite economic growth that was consistently above
expectations. This strong growth combined with low inflation produced a very
favorable environment for financial assets. Both stocks and bonds benefited with
stocks hitting record highs and interest rates moving lower in a fairly stable
fashion. Corporate earnings were also very strong, giving many of the companies
in which we have invested an opportunity to improve their balance sheets. As a
result, investors were willing to accept a lower yield premium on high-yield
bonds as the year progressed, and prices generally rose across the board.
=====================================
LIPPER TOTAL
RETURN RANKING
=====================================
As of 10-31-97
1-year #16 of 173
Category: High Current Yield Funds.
Rankings are historical and do not
represent future results. Source of
Lipper rankings is Lipper Analytical
Services, Inc.
=====================================
MANAGING THE MARKET'S VOLATILITY
Of course, financial assets do not go up in a straight-line fashion, and
high-yield bonds are no exception. Just as the stock market experiences periodic
swings in sentiment and volatility, so too does the high-yield market. This past
year witnessed two such episodes of volatility. The first occurred around the
increase in the federal funds rate in March, while the second followed the
financial turmoil that spread from Southeast Asia at the end of October.
Unnerving as this volatility can be, investors need to keep in mind their long
term goals during these times.
OUR OUTLOOK REMAINS POSITIVE
As we near the end of 1997 and look forward to 1998, our outlook is one of
cautious optimism for the high-yield market. We expect economic growth to
continue at a relatively healthy pace, although somewhat subdued from the levels
of 1997. While the recent financial turmoil in the emerging economies of
Southeast Asia and Latin America will surely cut economic growth in those
regions, we do not expect the impact to be severe on the U.S. economy. In fact,
somewhat slower growth in the U.S. may preclude the need for the Federal Reserve
to raise interest rates again in the near future. This should also bode well for
inflationary pressures as we expect inflation to remain subdued for the
foreseeable future. We believe such an environment should lead to stable and
perhaps somewhat lower interest rates over the next year.
A DISCIPLINED INVESTMENT APPROACH
As can be gleaned from the above discussion, our approach to investing in the
high-yield market begins with a top-down review of macroeconomic factors likely
to influence both the real economy and financial asset prices. Among others,
these factors include worldwide economic growth, inflation, interest rates,
monetary policy, fiscal policy and governmental regulation. Once we formulate an
opinion on these factors, we position the portfolio to benefit from the
realization of our forecast. The portfolio's duration, rating quality, industry
allocation and even issue selection are all consistent with this top-down
macroeconomic review. Because the success of an investment in a high-yield bond
is ultimately a result of the issuer's creditworthiness, our research analysts
rigorously examine the fundamentals of all of the securities in which we invest.
6
<PAGE>
A good example of this process at work is our successful investment in the radio
broadcasting industry. A change in governmental regulation, namely the
Telecommunications Act of 1996, raised the ownership limits for radio stations
nationwide and within individual local markets. In our view, this event made it
extremely likely that a period of consolidation within the radio broadcasting
industry would ensue, resulting in larger, more geographically diverse entities
with higher revenue growth and higher profit margins. Further analysis of the
companies in the industry led us into companies that we thought would benefit
from this fundamental improvement as well as industry consolidation. As a
result, we made investments in Chancellor Media and SFX Broadcasting, both of
which were subsequently involved in merger transactions and thus benefited the
Fund's performance. Other industries that we believe could benefit from
consolidation activity include the competitive local telephone industry as well
as the bank and thrift industry.
We encourage our investors to consider high-yield bonds as part of their
long-term investment strategy. High-yield bonds can be an attractive asset class
by themselves and are especially attractive as part of a well-diversified
portfolio. Please remember that because this Fund invests primarily in
non-investment grade bonds (sometimes called junk bonds), it is subject to
greater share-price volatility than a fund that invests primarily in
investment-grade bonds.
We thank you for your investment in the Strong High-Yield Bond Fund and look
forward to continuing to serve your investment needs.
Sincerely,
/s/ Jeffrey A. Koch
Jeffrey A. Koch
Portfolio Manager
[PHOTO OF JEFFREY A. KOCH]
=========================
AVERAGE ANNUAL
TOTAL RETURNS
=========================
As of 10-31-97
1-year 17.33%
Since Inception 21.29%
(on 12-28-95)
=========================
================================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
================================================================================
From 12-28-95 to 10-31-97
[GRAPH]
THE STRONG Lehman Brothers Lipper High Current
HIGH-YIELD High-Yield Bond Yield Funds
BOND FUND Index* Index*
11-95 $10,000 $10,000 $10,000
12-95 10,031 10,015 10,015
3-96 10,850 10,192 10,270
6-96 11,425 10,361 10,436
9-96 12,076 10,775 10,920
12-96 12,724 11,152 11,283
3-97 12,918 11,276 11,328
6-97 13,607 11,800 11,922
9-97 14,360 12,337 12,554
10-97 14,275 12,348 12,503
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. 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. To equalize the time periods, the indexes' performance was
prorated for the month of December 1995.
================================================================================
- --------------------------------------------------------------------------------
* The Lehman Brothers High-Yield Bond Index is an unmanaged index generally
representative of corporate bonds rated below investment-grade. The Lipper
High Current Yield Funds Index is an equally-weighted performance index of
the largest qualifying funds in this Lipper category. Source of the Lehman
index data is Standard &Poor's Micropal. Source of the Lipper index data is
Lipper Analytical Services, Inc.
1 The Fund's average maturity includes the effect of futures.
2 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 SHORT-TERM BOND FUND
THE PAST YEAR'S GENERALLY LOW-VOLATILITY ENVIRONMENT HAS BENEFITED BOND
INVESTORS.
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.
====================================
ASSET ALLOCATION BASED ON NET ASSETS
====================================
As of 10-31-97
[PIE CHART]
Corporate Bonds 54.6%
U.S. Government and Agency
Issues 17.4%
Non-Agency Mortgage- and
Asset Backed Securities 15.7%
Preferred Stocks 6.2%
Convertible Securities 3.1%
Short-Term Investments 3.0%
The Fund's asset allocation does
not reflect any futures positions
held by the Fund.
===================================
The Short-Term Bond Fund demonstrated a total return of 7.59% for the fiscal
year ended October 31, 1997. This return compares quite favorably with the 6.51%
return of the Lehman Brothers 1-3 Year Government/Corporate Bond Index--the
Fund's benchmark, and the 6.09% return of our peer group average, as measured by
the Lipper Short Investment Grade Debt Average.*(1)
======================================
PORTFOLIO STATISTICS
======================================
As of 10-31-97
30-day annualized yield(1) 6.74%
Average maturity(2) 2.5 years
Average quality rating(3) A
======================================
============================================
LIPPER TOTAL
RETURN RANKINGS(1)
============================================
As of 10-31-97
1-year #5 of 100
5-year #3 of 40
10-year #3 of 13
Since Inception #3 of 12
(on 8-31-87)
Category: Short Investment Grade Debt
Funds. Rankings are historical and do not
represent future results. Source of Lipper
rankings is Lipper Analytical Services, Inc.
============================================
A FAVORABLE INTEREST RATE CLIMATE
In contrast to a volatile interest rate environment throughout the first half of
this decade, rates have been relatively tranquil over the past 24 months. The
combination of a strong economy and low inflation has kept the Federal Reserve
fairly inactive. Within the past 12 months, the Federal Reserve has only moved
rates once, when it increased rates in March. There's been a gradual flattening
of the yield curve, resulting in a smaller difference between short-term and
long-term rates. This trend is starting to make short-term bonds look more
attractive from a pure yield perspective.
This generally low-volatility environment has benefited bond investors. Compared
to the recently more volatile and highly valued stock market, we are optimistic
about the income levels and stability that bonds may offer.
OUR PHILOSOPHY REMAINS UNCHANGED
We remain committed to our careful, disciplined approach to bond investing. Our
fixed-income management process starts with a top-down analysis of the economy.
We then look at the relative level of interest rates and the general supply of
and demand for credit. Finally, we conduct a rigorous security analysis of any
issue we're considering.
Our current duration of 1.7 years is about average for the Strong Short-Term
Bond Fund. We believe this level positions the Fund well, given the relatively
stable interest rate environment.
Although the Fund is widely diversified, we hold a sizable portion of the
portfolio in floating-rate securities. The coupons on these corporate and
mortgage bonds rise and fall in response to interest rates, providing some
protection against rate fluctuations.
Our fixed rate corporate holdings are currently focused on banking and media
sectors. Over the past year, several of our corporate issues have benefited from
ratings upgrades. Others have benefited from mergers and acquisitions, in which
smaller companies were acquired by larger, higher-rated firms.
A NEW CO-MANAGER
As we noted in our semi-annual letter, Shirish Malekar joined the Strong
Short-Term Bond Fund as portfolio co-manager in March to help us take advantage
of important opportunities available in the international markets. Shirish's
nine years of investment experience include his management of the Strong
International Bond Fund and the Strong Short-Term Global Bond Fund since March
1994. He'll apply his disciplined philosophy of top-down analysis and individual
security research to identify attractive international issues.
8
<PAGE>
LOOKING AHEAD
The recent instability of Asian economies has had a rippling effect on worldwide
markets. The effects of this could be a slight slowdown in the U.S. economy. We
continue to believe that the U.S. economy will remain fairly strong, but this
modest slowdown might help to relieve inflationary pressures that may have been
building. We're not positioning the Fund for any substantial interest rate
changes, choosing instead to maintain a neutral stance. If the economy remains
strong, we expect to find opportunities in the corporate bond
market--particularly in the banking, finance and industrial sectors.
Thank you for your investment in the Strong Short-Term Bond Fund. We look
forward to earning your continued confidence.
Sincerely,
/s/ Bradley C. Tank
Bradley C. Tank
/s/Lyle J. Fitterer
Lyle J. Fitterer
/s/ Shirish T. Malekar
Shirish T. Malekar
Portfolio Co-managers
[PHOTO OF SHIRISH T. MALEKAR, BRADLEY C. TANK & LYLE J. FITTERER]
=======================
AVERAGE ANNUAL
TOTAL RETURNS
=======================
As of 10-31-97
1-year 7.59%
3-year 7.91%
5-year 6.65%
Since Inception 7.85%
(on 8-31-87)
=======================
================================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
================================================================================
From 8-31-87 to 10-31-97
[GRAPH]
Lehman Brothers Salomon Brothers
1-3 Year Lipper Short 1-3 Year Treasury/
THE STRONG Government/ Investment Government-Sponsored/
SHORT-TERM Corporate Bond Grade Debt Corporate
BOND FUND Index* Average* Bond Index*
8-87 10,000 10,000 10,000 10,000
12-87 10,318 10,303 10,248 10,299
12-88 11,362 10,955 10,965 10,957
12-89 12,295 12,156 12,097 12,154
12-90 12,945 13,334 12,996 13,332
12-91 14,837 14,913 14,495 14,914
12-92 15,827 15,861 15,295 15,877
12-93 17,302 16,743 16,218 16,773
12-94 17,023 16,835 16,258 16,872
12-95 19,064 18,677 17,877 18,707
12-96 20,353 19,638 18,708 19,672
10-97 21,555 20,756+ 19,689 20,792
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, the Lipper Short
Investment Grade Debt Average, and the Salomon Brothers 1-3 Year
Treasury/Government-Sponsored/Corporate Bond Index. Results include the
reinvestment of all dividends and capital gains distributions. Performance is
historical and does not represent future results. Investment returns and
principal value will vary, and you may have a gain or loss when you sell shares.
+ The Lehman Brothers figure tracks the Salomon Brothers figure so closely
that at points its results are not discernible on the graph.
================================================================================
- --------------------------------------------------------------------------------
* The Lehman Brothers 1-3 Year Government/Corporate Bond Index is an
unmanaged index generally representative of government and investment-grade
corporate 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. 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 From time to time, the Fund's 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 and options.
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>
THE STRONG SHORT-TERM HIGH YIELD BOND FUND
CORPORATE EARNINGS WERE ALSO VERY STRONG, GIVING MANY OF THE COMPANIES IN WHICH
WE HAVE INVESTED AN OPPORTUNITY TO IMPROVE THEIR BALANCE SHEETS.
The Strong Short-Term High-Yield Bond Fund invests for a high level of current
income with a moderate degree of share price fluctuation. The Fund invests
primarily in medium and lower quality corporate debt obligations and has an
average maturity between one and three years.
====================================
ASSET ALLOCATION BASED ON NET ASSETS
====================================
As of 10-31-97
[PIE CHART]
Corporate Bonds 92.6%
Non-Agency Mortgage- and
Asset Backed Securities 5.6%
Short-Term Investments 1.1%
Convertible Securities 0.7%
====================================
For the five months between the Fund's inception on June 30, 1997 and the end of
its fiscal year on October 31, 1997, the Fund posted a total return of 4.87%.
That's well ahead of its benchmark figure, the Short-Term High-Yield Bond Index,
which returned 2.21%.*(1)
=====================================
PORTFOLIO STATISTICS
=====================================
As of 10-31-97
30-day annualized yield 7.90%
Average maturity 2.75 years
Average quality rating(2) BB
======================================
HIGH-YIELD BONDS PERFORM WELL
Against a backdrop of very positive economic fundamentals, the high-yield bond
market again posted excellent returns. Inflation remained well-behaved
throughout the year despite economic growth that was consistently above
expectations. This strong growth combined with low inflation produced a very
favorable environment for financial assets. Both stocks and bonds benefited with
stocks hitting record highs and interest rates moving lower in a fairly stable
fashion. Corporate earnings were also very strong giving many of the companies
in which we have invested an opportunity to improve their balance sheets. As a
result, investors were willing to accept a lower yield premium on high-yield
bonds as the year progressed, and prices generally rose across the board.
Of course, financial assets do not go up in a straight-line fashion and
high-yield bonds are no exception. Just as the stock market experiences periodic
swings in sentiment and volatility, so too does the high-yield market. This past
year witnessed two such episodes of volatility. The first occurred around the
time of the increase in the federal funds rate in March, while the second
followed the financial turmoil that spread from Southeast Asia at the end of
October. Unnerving as this volatility can be, investors need to keep in mind
their long-term goals during these times.
OUR OUTLOOK REMAINS POSITIVE
As we near the end of 1997 and look forward to 1998, our outlook is one of
cautious optimism for the high-yield market. We expect economic growth to
continue at a relatively healthy pace, although somewhat subdued from the levels
of 1997. While the recent financial turmoil in the emerging economies of
Southeast Asia and Latin America will surely cut economic growth in those
regions, we do not expect the impact to be severe on the U.S. economy. In fact,
somewhat slower growth in the U.S. may preclude the need for the Federal Reserve
to raise interest rates again in the near future. This should also bode well for
inflationary pressures as we expect inflation to remain subdued for the
foreseeable future. We believe such an environment should lead to stable and
perhaps somewhat lower interest rates over the next year.
A DISCIPLINED INVESTMENT APPROACH
As can be gleaned from the above discussion, our approach to investing in the
high-yield market begins with a top-down review of macroeconomic factors likely
to influence both the real economy and financial asset prices. Among others,
these factors include worldwide economic growth, inflation, interest rates,
monetary policy, fiscal policy and governmental regulation. Once we formulate an
opinion on these factors, we position the portfolio to benefit from the
realization of our forecast. The portfolio's duration, rating quality, industry
allocation and even issue selection are all consistent with this top-down
macroeconomic review. Because the success of an investment in a high-yield bond
is ultimately a result of the issuer's creditworthiness, our research analysts
rigorously examine the fundamentals of all of the securities in which we invest.
10
<PAGE>
Further, since our goal is to manage the volatility of the Strong Short Term
High-Yield Bond Fund to be significantly less than that of the Strong High-Yield
Bond Fund, we pay careful attention to the selection of bonds that we believe
will exhibit lower volatility over most market conditions. Examples include
floating rate bonds, short maturity bonds, and bonds with very high coupons that
are likely to be called over the near term. It is our belief that income is the
largest component of total return for short-term bonds. Therefore, a strategy
that combines low volatility with an attractive income stream should produce
attractive returns over the course of a market cycle for income-oriented
shareholders who are comfortable with investments in lower-quality bonds. Please
remember that because this Fund invests primarily in non-investment grade bonds
(sometimes called junk bonds), it is subject to greater share-price volatility
than a fund that invests primarily in investment-grade bonds.
We encourage our investors to consider high-yield bonds as part of their
long-term investment strategy. High-Yield bonds can be an attractive asset class
by themselves and are especially attractive as part of a well-diversified
portfolio.
We thank you for your investment in the Strong Short-Term High-Yield Bond Fund
and look forward to continuing to serve your investment needs.
Sincerely,
/s/Jeffrey A. Koch
Jeffrey A. Koch
Portfolio Manager
[PHOTO OF JEFFREY A. KOCH]
=======================
TOTAL RETURN(1)
=======================
As of 10-31-97
Since Inception 4.87%
(on 6-30-97)
=======================
================================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
================================================================================
From 6-30-97 to 10-31-97
[GRAPH]
THE STRONG
SHORT-TERM Short-Term Lipper High
HIGH YIELD High Yield Current Yield
BOND FUND Bond Index* Funds Index*
6-97 $10,000 $10,000 $10,000
7-97 10,266 10,085 10,264
8-97 10,368 10,126 10,284
9-97 10,530 10,192 10,530
10-97 10,487 10,221 10,488
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
Short-Term High Yield Bond Index and the Lipper High Current Yield Funds Index.
Results include the reinvestment of all dividends and capital gains
distributions. Performance is historical and does not represent future results.
Investment returns and principal value will vary, and you may have a gain or
loss when you sell shares.
================================================================================
- --------------------------------------------------------------------------------
* The Short-Term High Yield Bond Index is a market value weighted blend of
the Merrill Lynch High Yield, BB Rated, 1-2.99 Years Index and the Merrill
Lynch High Yield, B Rated, 1-2.99 Years Index. It is an unmanaged index
generally representative of corporate debt rated below investment-grade
with maturities of one to three years. The Lipper High Current Yield Funds
Index is an equally-weighted performance index of the largest qualifying
funds in this Lipper category. Source of the Short-Term High Yield Bond
Fund Index is Bloomberg. Source of the Lipper High Current Yield Funds
Index is Lipper Analytical Services, Inc.
1 Total return is not annualized and measures aggregate change in the value
of an investment in the Fund, assuming reinvestment of dividends.
2 For purposes of this average rating, the Fund's short-term debt obligations
have been assigned a long-term rating by the Advisor.
11
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES October 31, 1997
- --------------------------------------------------------------------------------
================================================================================
STRONG CORPORATE BOND FUND
================================================================================
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
CORPORATE BONDS 78.7%
ARA Services, Inc. Guaranteed Notes, 10.625%,
Due 8/01/00 $ 8,654,000 $ 9,439,117
Allied Holdings, Inc. Senior Notes, 8.625%,
Due 10/01/07 (Acquired 9/24/97; Cost
$1,011,250)(b) 1,000,000 1,022,500
Banco Sud Americano Subordinated Notes, 7.60%,
Due 3/15/07 (Acquired 7/15/97 - 7/23/97;
Cost $10,317,698) (b) 10,060,000 9,858,800
Beaver Valley Funding Corporation Debentures,
8.625%, Due 6/01/07 3,000,000 3,135,000
Cablevision Systems Corporation Debentures,
8.125%, Due 8/15/09 (Acquired 8/21/97;
Cost $9,962,700) (b) 10,000,000 10,075,000
California Energy, Inc. Senior Notes, 9.875%,
Due 6/30/03 5,000,000 5,412,500
Coca-Cola Femsa SA de CV Senior Notes, 9.40%,
Due 8/15/04 (Acquired 10/01/97;
Cost $8,640,000) (b) 8,000,000 8,523,960
Colonial Capital I Capital Securities, Series A,
8.92%, Due 1/15/27 3,600,000 3,777,530
Contifinancial Corporation Senior Notes:
7.50%, Due 3/15/02 5,000,000 5,037,960
8.375%, Due 8/15/03 6,695,000 6,862,375
Continental Airlines, Inc. Pass-Thru
Certificates, Series 1997-4, Class 4A, 6.90%,
Due 1/02/18 5,000,000 5,120,500
Crescent Real Estate Equities, Limited
Partnership Notes, 7.125%, Due 9/15/07
(Acquired 9/19/97; Cost $8,284,977) (b) 8,300,000 8,381,050
Delta Air Lines, Inc. Equipment Trust
Certificates:
Series 1991-A, 10.14%, Due 8/14/12
(Acquired 9/10/96; Cost $2,257,280) (b) 2,000,000 2,483,470
Series 1991-B, 10.14%, Due 8/14/12
(Acquired 9/10/96; Cost $2,257,280) (b) 2,000,000 2,483,470
Series 1991-E, 10.14%, Due 8/26/12
(Acquired 9/10/96; Cost $2,257,680) (b) 2,000,000 2,484,220
Delta Air Lines, Inc. Pass-Thru Certificates,
Series 1992-B1, 9.375%, Due 9/11/07 3,351,644 3,788,062
Walt Disney Company Euro-Dollar Senior
Participating Notes, 2.00%, Due 3/01/00
(Acquired 9/19/96; Cost $6,159,520) (b) 5,000,000 5,400,000
Echostar Communications Corporation Senior
Secured Discount Notes, Zero %, Due 6/01/04
(Rate Reset Effective 6/01/99) 1,000,000 890,000
Felcor Suites Limited Partnership Guaranteed
Senior Notes, 7.375%, Due 10/01/04
(Acquired 10/07/97; Cost $3,028,620) (b) 3,000,000 2,998,893
First Nationwide Bank Subordinated Debentures,
10.00%, Due 10/01/06 3,460,000 4,093,419
First Republic Bank Subordinated Notes, 7.75%,
Due 9/15/12 5,000,000 5,034,380
Fox/Liberty Networks LLC/FLN Finance, Inc.
Senior Notes, 8.875%, Due 8/15/07
(Acquired 8/15/97; Cost $5,500,000) (b) 5,500,000 5,500,000
Fresenius Medical Care Capital Trust Preferred
Securities, 9.00%, Due 12/01/06 3,000,000 3,067,500
GB Capital Trust Capital Securities, 10.25%,
Due 1/15/27 (Acquired 1/24/97;
Cost $3,000,000) (b) 3,000,000 3,592,500
GNS Finance Corporation Senior Subordinated
Notes, Series B, 9.25%, Due 3/15/03 4,250,000 4,462,407
Greenpoint Capital Trust I Subordinated Capital
Securities, 9.10%, Due 6/01/27 5,000,000 5,385,310
Gruma SA de CV Bonds, 7.625%, Due 10/15/07
(Acquired 10/02/97 - 10/28/97; Cost
$10,404,172) (b) 10,400,000 10,417,191
HUBCO Capital Trust I Capital Securities,
8.98%, Due 2/01/27 5,000,000 5,399,675
Harrahs Operating, Inc. Guaranteed Senior
Subordinated Notes, 8.75%, Due 3/15/00 4,500,000 4,619,111
Homeside, Inc. Senior Secured Second Priority
Notes, 11.25%, Due 5/15/03 1,796,000 2,137,240
Hutchison Whampoa Finance C I, Ltd. Notes,
Series B, 7.45%, Due 8/01/17 (Acquired
9/24/97; Cost $4,995,150) (b) 5,000,000 4,359,520
Imperial Capital Trust I Guaranteed Capital
Securities, 9.98%, Due 12/31/26 7,200,000 8,035,805
LCI International, Inc. Senior Notes, 7.25%,
Due 6/15/07 640,000 659,685
Lehman Brothers Holdings, Inc. Senior Notes,
7.20%, Due 8/15/09 905,000 926,968
Lehman Brothers, Inc. Notes, 7.36%,
Due 12/15/03 4,060,000 4,229,245
Leucadia Capital Trust I Pass-Thru Securities,
8.65%, Due 1/15/27 7,000,000 7,427,077
Liberty Mutual Insurance Company Surplus Notes,
7.697%, Due 10/15/2097 (Acquired 10/09/97;
Cost $5,640,000) (b) 5,640,000 5,674,229
Long Island Lighting Company Debentures, 8.90%,
Due 7/15/19 6,335,000 6,748,207
Mohegan Tribal Gaming Authority Connecticut
Senior Secured Notes, Series B, 13.50%,
Due 11/15/02 8,000,000 10,280,000
NWA Trust Number 2 Mezzanine Aircraft Notes,
Class C, 11.30%, Due 6/21/14 1,876,923 2,431,193
NWA Trust Number 2 Subordinated Aircraft
Notes, 13.875%, Due 6/21/08 1,191,000 1,430,679
News America Holdings, Inc. Debentures, 8.15%,
Due 10/17/36 5,000,000 5,265,505
News America Holdings, Inc. Notes, 8.25%,
Due 8/10/18 5,780,000 6,136,996
North Fork Bancorp Capital Trust Pass-Thru
Securities, 8.70%, Due 12/15/26 3,500,000 3,708,516
Oil Purchase Company Senior Secured Notes,
7.10%, Due 10/31/02 (Acquired 10/21/97;
Cost $4,496,985) (b) 4,500,000 4,484,925
PXRE Capital Trust I Pass-Thru Securities, 8.85%,
Due 2/01/27 5,750,000 6,194,820
Panamerican Beverages, Inc. Senior Notes, 8.125%,
Due 4/01/03 3,000,000 3,195,102
Panamsat L.P./Panamsat Capital Corporation
Senior Subordinated Discount Notes, Zero %,
Due 8/01/03 (Rate Reset Effective 8/01/98) 7,000,000 6,982,885
Paramount Communications, Inc. Notes, 7.50%,
Due 1/15/02 4,015,000 4,094,537
Petrozuata Finance, Inc. Bonds:
Series A, 7.63%, Due 4/01/09 (Acquired 6/17/97 -
6/18/97; Cost $7,055,150) (b) 7,000,000 7,340,767
Series B, 8.22%, Due 4/01/17 (Acquired 6/17/97 -
8/14/97; Cost $7,264,750) (b) 7,000,000 7,122,500
Philip Morris Company, Inc. Notes, 6.80%,
Due 12/01/03 5,000,000 5,038,525
Poland Non-US Global Floating Rate Bonds,
6.6875%, Due 10/27/24 6,770,000 6,296,100
Ras Laffan Liquefied Natural Gas Company, Ltd.
Bonds, 7.628%, Due 9/15/06 (Acquired 12/12/96;
Cost $2,509,175) (b) 2,500,000 2,544,335
Repap Wisconsin, Inc. Senior Notes, 9.25%,
Due 2/01/02 3,000,000 3,165,000
Riggs Capital Trust Preferred Securities,
Series A, 8.625%, Due 12/31/26 (Acquired
12/10/96; Cost $5,000,000) (b) 5,000,000 5,221,895
SIG Capital Trust I Securities, 9.50%, Due
8/15/27 (Acquired 8/07/97; Cost $4,500,000)(b) 4,500,000 4,556,250
Socgen Real Estate LLC Bonds, 7.64%,
Due 12/29/49 (Rate Reset Effective 10/01/07)
(Acquired 8/21/97; Cost $9,250,000) (b 9,250,000 9,331,946
12
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
STRONG CORPORATE BOND FUND (continued)
================================================================================
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
Stena AB Senior Yankee Notes, 8.75%,
Due 6/15/07 $ 4,000,000 $ 4,030,000
Stop & Shop Companies, Inc. Senior Subordinated
Notes, 9.75%, Due 2/01/02 7,100,000 7,953,235
Sunamerica, Inc. Debentures, 5.60%, Due
7/31/2097 5,510,000 4,221,376
Suntrust Capital II Trust Floating Rate Pass-Thru
Securities, 7.90%, Due 6/15/27 100,000 105,833
System Energy Resources, Inc. First Mortgage
Bonds, 11.375%, Due 9/01/16 383,000 415,410
TCI Communications, Inc. Notes, 6.875%,
Due 2/15/06 400,000 398,719
TKR Cable I, Inc. Senior Debentures, 10.50%,
Due 10/30/07 6,425,000 7,111,518
Tanger Properties LP Notes, 7.875%,
Due 10/24/04 3,000,000 3,021,375
Tatneft Finance PLC Notes, 9.00%, Due 10/29/02
(Acquired 10/02/97; Cost $4,005,420) (b) 4,000,000 3,820,000
Teekay Shipping Corporation Guaranteed First
Preferred Mortgage Notes, 8.32%, Due 2/01/08 6,560,000 6,592,800
Tenet Healthcare Corporation Senior Notes,
8.00%, Due 1/15/05 5,000,000 5,056,250
Terra Nova Insurance UK Holdings PLC Senior
Guaranteed Notes, 10.75%, Due 7/01/05 7,020,000 7,885,994
Time Warner Entertainment Senior Notes, 8.375%,
Due 7/15/33 9,600,000 10,619,203
UCAR Global Enterprises, Inc. Senior
Subordinated Notes, 12.00%, Due 1/15/05 2,895,000 3,264,113
US West Capital Funding, Inc. Notes, 7.90%,
Due 2/01/27 5,000,000 5,311,870
Ultramar Diamond Shamrock Corporation Senior
Notes:
7.20%, Due 10/15/17 1,000,000 1,007,943
7.45%, Due 10/15/2097 7,500,000 7,557,630
Videotron Holdings PLC Senior Discount Yankee
Notes, Zero %, Due 7/01/04 (Rate Reset
Effective 7/01/99) 5,000,000 4,725,000
Worldcom, Inc. Georgia Senior Notes, 8.875%,
Due 1/15/06 10,000,000 10,712,500
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (COST $381,199,293) 387,577,121
- --------------------------------------------------------------------------------
CONVERTIBLE BONDS 1.6%
Hewlett-Packard Company Subordinated Liquid
Yield Option Notes, Zero %, Due 10/14/17
(Acquired 10/08/97; Amortized Cost
$8,067,750)(b) 15,000,000 7,818,750
- --------------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS (COST $8,080,820) 7,818,750
- --------------------------------------------------------------------------------
NON-AGENCY MORTGAGE & ASSET-BACKED SECURITIES 5.8%
BCF, LLC Mortgage Pass-Thru Certificates, Series
1997-R2, Class 3-A1, 7.00%, Due 12/25/35
(Acquired 6/17/97; Cost $5,512,530) (b) 5,508,824 5,557,026
Bear Stearns Mortgage Securities, Inc. Mortgage
Pass-Thru Certificates, Series 1995-1,
Class 2-P, Principal Only, Due 7/25/10 972,501 776,483
CS First Boston Mortgage Securities Corporation
Mortgage Pass-Thru Certificates,
Series 1994-MHC1, Class A-1X, Interest Only,
3.3088%, Due 4/25/11 497,633 314
DLJ Mortgage Acceptance Corporation Trust
Certificates, Series 1997-E, Class B, 7.55%,
Due 10/28/26 (Acquired 9/09/97; Cost
$3,782,271)(b) 4,281,857 3,880,433
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 33,359,695 633,834
Mid State Trust Virgin Islands Asset Backed
Notes, Series 6, Class A-2, 7.40%, Due
7/01/35 3,624,953 3,803,373
NPF IX, Inc. 97-1 Healthcare Receivables Notes,
Class A, 6.339%, Due 7/01/00 (Acquired
7/24/97; Cost $2,999,964) (b) 3,000,000 2,992,500
Ryland Mortgage Securities Corporation III
Variable Rate Collateralized Mortgage Bonds,
Series 1992-C, Class 3-A, 11.7496%,
Due 11/25/30 339,107 357,548
Salomon Brothers Mortgage Securities, Series
1997-A, Class B-3, 7.353%, Due 10/01/25
(Acquired 7/09/97; Cost $4,586,640) (b) 5,136,964 4,578,319
Structured Asset Securities Corporation 1997-N1
LLC, Class A-2, Floating Rate Notes, 5.8363%,
Due 9/25/28 2,007,754 2,007,754
Westam Mortgage Financial Corporation
Collateralized Mortgage Bonds, Series 10,
Class 10-D, Principal Only, Due 7/26/18 5,560,201 3,773,986
- --------------------------------------------------------------------------------
TOTAL NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES (COST $26,872,627) 28,361,570
- --------------------------------------------------------------------------------
UNITED STATES GOVERNMENT & AGENCY ISSUES 6.0%
FHLMC Participation Certificates:
14.00%, Due 9/01/12 29,213 35,139
14.75%, Due 3/01/10 17,213 20,950
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates,
13.50%, Due 4/01/11 175,235 209,565
GNMA Guaranteed Pass-Thru Certificates, 15.00%,
Due 8/15/11 thru 10/15/12 122,714 154,556
Small Business Administration Guaranteed Loan
Pool #40013, Interest Only Strips, 2.419%,
Due 9/30/17 10,216,510 970,568
United States Treasury Bonds, 6.625%,
Due 2/15/27 7,495,000 7,947,046
United States Treasury Notes:
6.50%, Due 8/15/05 10,750,000 11,149,771
6.625%, Due 3/31/02 thru 5/15/07 8,700,000 9,123,661
- --------------------------------------------------------------------------------
TOTAL UNITED STATES GOVERNMENT & AGENCY
ISSUES (COST $29,630,577) 29,611,256
- --------------------------------------------------------------------------------
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.) 6,083,333 511,000
- --------------------------------------------------------------------------------
TOTAL OPTIONS (COST $281,678) 511,000
- --------------------------------------------------------------------------------
PREFERRED STOCKS 5.3%
NB Capital Corporation 8.35% Exchangeable
(Acquired 8/22/97; Cost $10,000,000) (b) 10,000 10,428,100
Norwest Corporation Series A, Cumulative
Tracking Stock/Residential Home Mortgage LLC
(Acquired 12/16/94; Cost $2,000,000) (b) 10,000 2,094,780
Time Warner, Inc. 10.25% Exchangeable Series M 11,646 13,422,015
- --------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (COST $24,992,522) 25,944,895
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 2.8%
COMMERCIAL PAPER 0.2%
INTEREST BEARING, DUE UPON DEMAND
American Family Financial Services, Inc., 5.16% $ 219,700 219,700
General Mills, Inc., 5.15% 259,500 259,500
Johnson Controls, Inc., 5.18% 238,200 238,200
Pitney Bowes Credit Corporation, 5.16% 313,300 313,300
Wisconsin Electric Power Company, 5.21% 8,300 8,300
----------
1,039,000
13
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) October 31, 1997
================================================================================
STRONG CORPORATE BOND FUND (continued)
================================================================================
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT 2.5%
Goldman, Sachs & Company, Inc. (Dated 10/31/97),
5.60%, Due 11/03/97 (Repurchase proceeds
$12,105,647); Collateralized by: $9,085,000
United States Treasury Bonds, 11.75%,
Due 2/15/10 (Market Value $12,355,600) (d) $12,100,000 $12,100,000
UNITED STATES GOVERNMENT ISSUES 0.1%
United States Treasury Bills, Due 11/20/97 thru
1/15/98 (c) 580,000 577,273
- --------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $13,716,226) 13,716,273
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(COST $484,773,743) 100.3% 493,540,865
Other Assets and Liabilities, Net (0.3%) (1,247,658)
- --------------------------------------------------------------------------------
NET ASSETS 100.0% $492,293,207
- --------------------------------------------------------------------------------
FUTURES
- --------------------------------------------------------------------------------
Underlying Unrealized
Expiration Face Amount Appreciation
Date at Value (Depreciation)
- --------------------------------------------------------------------------------
Purchased:
109 Ten-Year U.S. Treasury Notes 12/97 $12,180,750 $175,932
69 U.S. Treasury Bonds 12/97 8,174,344 167,344
Sold:
15 Two-Year U.S. Treasury Notes 12/97 (3,118,125) (24,253)
8 Five-Year U.S. Treasury Notes 12/97 (867,250) (15,984)
5 Ten-Year U.S. Treasury Notes 12/97 (558,750) --
121 U.S. Treasury Bonds 12/97 (14,334,719) (635,064)
SWAPS
- --------------------------------------------------------------------------------
Open index rate swap contract at October 31, 1997 consisted of the following:
- --------------------------------------------------------------------------------
Notional Closing Interest Index Unrealized
Amount Date Sold Bought Appreciation
- --------------------------------------------------------------------------------
$25,000,000 7/17/97 1 mo. LIBOR Lehman Brothers Baa $388,884
INDUSTRY DIVERSIFICATION
- --------------------------------------------------------------------------------
Percentage of Net Assets
- --------------------------------------------------------------------------------
Bank - Regional ........................................11.7%
U.S. Government ........................................ 8.3
Media - Publishing ..................................... 7.2
Media - Radio/TV ....................................... 6.7
Leisure Service ........................................ 5.9
Non-Agency Single Family ............................... 4.7
Oil - International Integrated ......................... 4.6
Airline ................................................ 4.1
Bank - Money Center .................................... 4.0
Real Estate ............................................ 3.8
Insurance - Diversified ................................ 3.6
Electric Power ......................................... 3.1
Mortgage & Related Service ............................. 2.9
Beverage - Soft Drink .................................. 2.4
Telephone .............................................. 2.3
Food ................................................... 2.2
Insurance - Property & Casualty ........................ 2.2
Shipping ............................................... 2.2
Savings & Loan ......................................... 1.9
Oil - North American Integrated ........................ 1.7
Computer Software ...................................... 1.6
Retail - Food Chain .................................... 1.6
Telecommunication Service .............................. 1.4
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION (continued)
- --------------------------------------------------------------------------------
Percentage of Net Assets
- --------------------------------------------------------------------------------
Foreign Government ......................................1.3%
Brokerage & Investment Management .......................1.1
Leisure Product .........................................1.1
Healthcare - Patient Care ...............................1.0
Tobacco .................................................1.0
Steel ...................................................0.7
Healthcare - Medical Supply .............................0.6
Non-Agency Asset-Backed .................................0.6
Paper & Forest Products .................................0.6
Bank - Super Regional ...................................0.5
Natural Gas Distribution ................................0.5
Non-Agency Commercial ...................................0.4
SBA .....................................................0.2
Trucking ................................................0.2
Diversified Operations ..................................0.1
Electric Utility ........................................0.1
Finance - Miscellaneous .................................0.1
Office Automation .......................................0.1
Other Assets and Liabilities, Net ......................(0.3)
- --------------------------------------------------------------------------------
Total 100.0%
- --------------------------------------------------------------------------------
COUNTRY DIVERSIFICATION
- --------------------------------------------------------------------------------
Percentage of Net Assets
- --------------------------------------------------------------------------------
United States ......................................... 85.4%
Mexico ................................................ 4.5
Venezuela ............................................. 2.9
United Kingdom ........................................ 2.6
Chile ................................................. 2.0
Poland ................................................ 1.3
Ireland ............................................... 0.8
Sweden ................................................ 0.8
Other Assets and Liabilities, Net ..................... (0.3)
- --------------------------------------------------------------------------------
Total 100.0%
- --------------------------------------------------------------------------------
================================================================================
STRONG GOVERNMENT SECURITIES FUND
================================================================================
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
UNITED STATES GOVERNMENT & AGENCY ISSUES 81.5%
FHA Insured Project Loan #956-55054, 2.93%,
Due 11/01/12 $ 3,881,464 $ 3,026,377
FHA Project Loan, 7.40%, Due 2/01/09(e) 22,390,000 23,341,575
FHA Project Loan Section 223(f) - Hampshire
Tower Apartments, 7.50%, Due 11/15/30 9,039,089 9,242,468
FHLMC Guaranteed Multiclass Variable Rate
Mortgage Participation Certificates:
Pool #865496, 7.407%, Due 5/01/26 8,910,163 9,230,395
Series 1572-B, Class SA,
3.905%, Due 10/15/00 3,000,000 2,788,047
Series 1539, Class FB, 5.604%, Due
6/15/05 5,500,000 5,451,853
FHLMC Participation Certificates:
7.00%, Due 1/25/21 4,072,183 4,090,019
7.25%, Due 7/01/08 1,797,674 1,824,730
7.26%, Due 6/01/06 6,879,920 7,295,949
8.00%, Due 7/01/08 thru 12/01/10 7,071,623 7,352,486
8.50%, Due 5/01/16 2,254,371 2,345,605
8.75%, Due 6/15/00 487,890 498,409
9.00%, Due 12/01/01 thru 5/15/25 7,464,756 7,939,663
9.50%, Due 4/01/07 thru 12/01/19 4,748,267 4,987,511
14
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
STRONG GOVERNMENT SECURITIES FUND (continued)
================================================================================
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
9.75%, Due 8/01/02 $ 1,433,861 $ 1,509,096
10.00%, Due 10/01/05 thru 6/01/20 14,771,216 15,986,741
10.50%, Due 6/01/04 thru 8/01/20 4,518,202 4,978,339
11.00%, Due 1/01/01 30,376 32,110
11.25%, Due 1/01/01 79,017 83,802
11.75%, Due 10/01/15 127,498 144,755
12.00%, Due 11/01/15 95,318 109,574
12.25%, Due 7/01/15 thru 12/01/15 485,177 557,082
12.50%, Due 10/01/09 thru 1/01/15 229,008 265,144
13.00%, Due 7/01/14 63,655 74,675
13.75%, Due 5/01/02 56,828 62,890
14.00%, Due 9/01/10 thru 4/01/16 786,917 941,838
14.50%, Due 3/01/11 thru 12/01/11 7,326 8,884
14.75%, Due 8/01/11 thru 4/01/13 9,066 10,992
15.00%, Due 8/01/11 30,888 37,902
16.00%, Due 6/01/12 7,129 9,061
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates:
6.00%, Due 9/01/12 15,833,886 15,546,976
6.50%, Due 2/18/27 8,248,000 7,943,525
6.74%, Due 8/25/07 7,250,000 7,529,125
7.00%, Due 9/01/15 1,026,944 1,045,748
7.50%, Due 7/01/15 1,066,553 1,099,809
7.778%, Due 7/01/01 27,840,000 29,092,800
8.50%, Due 11/25/02 thru 2/01/12 10,116,029 10,681,518
9.00%, Due 9/01/21 1,747,168 1,883,640
9.25%, Due 4/25/18 2,424,390 2,596,377
9.40%, Due 10/25/19 9,332,657 10,108,406
9.50%, Due 3/25/19 9,687,350 11,073,901
10.00%, Due 4/01/20 3,741,122 4,082,836
11.75%, Due 12/01/10 157,629 180,057
12.00%, Due 1/01/16 thru 2/01/19 2,992,671 3,470,950
12.25%, Due 7/01/14 28,050 31,737
12.50%, Due 2/01/11 206,217 238,796
13.25%, Due 4/01/12 3,505 4,156
13.50%, Due 1/01/11 thru 1/01/12 30,160 33,786
13.75%, Due 10/01/10 6,578 7,832
14.00%, Due 1/01/12 thru 11/01/14 135,884 162,664
14.25%, Due 12/01/14 33,596 41,204
14.50%, Due 1/01/12 7,537 9,134
14.75%, Due 11/01/10 thru 3/01/12 177,940 220,188
15.00%, Due 10/01/12 10,324 12,840
15.50%, Due 10/01/12 14,117 17,677
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Variable Rate Certificates:
Pool #54844, 6.103%, Due 9/01/27 21,857,281 21,870,614
Pool #110238, 6.96%, Due 1/01/16 5,514,567 5,603,832
Pool #70843, 7.00%, Due 4/01/20 2,995,701 3,046,784
Pool #66414, 7.158%, Due 9/01/28 12,951,171 13,495,509
Pool #176367, 7.576%, Due 4/01/15 3,207,749 3,332,743
Pool #92068, 7.636%, Due 1/01/18 1,593,396 1,670,536
Pool #124013, 7.659%, Due 10/01/21 4,032,573 4,225,073
Pool #181826, 7.728%, Due 10/01/22 1,888,316 1,977,618
Pool #201427, 8.03%, Due 1/01/23 2,981,336 3,152,700
Series 1991-57, Class S, 7.777%, Due 5/25/20 3,093,231 3,128,819
Series 1996-M6, Class A, 7.377%, Due 8/17/03 1,511,363 1,551,037
Series 1997-M4, Class C, 7.298%, Due 2/17/35 5,683,000 6,009,772
FNMA Stripped Mortgage-Backed Securities:
6.00%, Due 11/01/08 thru 5/01/09 12,033,344 11,926,472
Series 1997-277, Class 1, Principal Only,
Due 3/25/27 11,245,082 8,328,445
GNMA Guaranteed Pass-Thru Certificates:
5.50%, Due 12/01/27 (e) 12,150,000 12,138,579
6.00%, Due 12/01/27 (e) 31,780,000 32,018,350
6.875%, Due 11/20/20 979,884 1,013,455
7.00%, Due 3/20/18 1,485,170 1,535,574
7.125%, Due 4/20/19 340,294 353,078
8.50%, Due 6/01/27 4,808,250 5,041,163
9.00%, Due 12/15/06 thru 12/15/09 20,332,496 21,245,567
12.50%, Due 4/15/19 4,726,750 5,465,305
13.00%, Due 11/15/10 thru 11/15/14 630,334 747,327
13.50%, Due 7/15/10 thru 10/15/12 201,227 241,700
14.00%, Due 6/15/11 thru 12/20/14 210,094 255,432
14.50%, Due 6/15/11 thru 11/15/12 382,929 474,812
15.00%, Due 1/15/12 thru 9/15/12 147,709 185,618
16.00%, Due 4/15/12 9,785 12,401
Small Business Administration Guaranteed Loan,
Interest Only Custodial Receipts:
Series 1992-6A, 2.473%, Due 10/15/17 48,564,508 4,689,389
Series 1993-1A, 2.531%, Due 2/15/18 15,256,779 1,506,607
Student Loan Marketing Association Floating
Rate Notes:
Series 1997-1, Class A1, 5.626%, Due 10/25/05 6,268,307 6,224,366
Series 1997-3, Class A2, 5.78%, Due 10/25/10 5,000,000 4,950,000
USGI FHA Insured Project Pool #2040, 3.025%,
Due 11/01/06 7,171,364 6,377,494
United States Treasury Bonds:
6.50%, Due 11/15/26 2,865,000 2,985,869
6.625%, Due 2/15/27 75,135,000 79,666,617
9.25%, Due 2/15/16 10,330,000 13,764,735
United States Treasury Notes:
6.25%, Due 3/31/99 thru 2/15/03 122,200,000 124,098,282
6.50%, Due 8/15/05 26,650,000 27,641,060
7.25%, Due 8/15/04 22,750,000 24,520,246
- --------------------------------------------------------------------------------
TOTAL UNITED STATES GOVERNMENT & AGENCY ISSUES
(COST $674,922,585) 687,816,634
- --------------------------------------------------------------------------------
CORPORATE BONDS 9.6%
Bank United Corporation Subordinated Notes,
8.875%, Due 5/01/07 10,000,000 10,836,090
Colonial Capital I Capital Securities,
Series A, 8.92%, Due 1/15/27 5,400,000 5,666,296
Contifinancial Corporation Senior Notes,
8.375%, Due 8/15/03 6,785,000 6,954,625
Cullen/Frost Capital Trust I Bonds, 8.42%,
Due 2/01/27 1,000,000 1,035,422
Gruma SA de CV Bonds, 7.625%, Due 10/15/07
(Acquired 10/02/97 - 10/06/97;
Cost $10,047,434) (b) 10,025,000 10,041,571
HUBCO Capital Trust I Capital Securities,
8.98%, Due 2/01/27 6,500,000 7,019,577
North Fork Bancorp Capital Trust Pass-Thru
Securities, 8.70%, Due 12/15/26 8,000,000 8,476,608
Riggs Capital Trust Preferred Securities,
Series A, 8.625%, Due 12/31/26 (Acquired
12/10/96; Cost $9,490,000) (b) 9,490,000 9,911,157
Socgen Real Estate LLC Bonds, 7.64%, Due
12/29/49 (Rate Reset Effective 10/01/07)
(Acquired 8/21/97 - 10/29/97; Cost
$19,986,600) (b) 20,000,000 20,177,180
Ultramar Diamond Shamrock Corporation Senior
Notes, 7.20%, Due 10/15/17 1,000,000 1,007,943
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (COST $79,166,551) 81,126,469
- --------------------------------------------------------------------------------
MUNICIPAL BONDS 2.4%
Arkansas Development Finance Authority GNMA
Guaranteed Bonds, 9.75%, Due 11/15/14 3,100,000 3,865,223
New Jersey EDA State Pension Funding Revenue:
Zero %, Due 2/15/23 11,595,000 2,080,525
Zero %, Due 2/15/24 19,300,000 3,235,606
Zero %, Due 2/15/25 17,000,000 2,662,846
7.425%, Due 2/15/29 7,900,000 8,412,252
- --------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (COST $18,348,910) 20,256,452
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) October 31, 1997
================================================================================
STRONG GOVERNMENT SECURITIES FUND (continued)
================================================================================
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
NON-AGENCY MORTGAGE-BACKED SECURITIES 0.1%
Community Program Loan Trust Bonds,
Series 1987-A, Class A5, 4.50%, Due 4/01/29 $ 980,000 $ 749,396
- --------------------------------------------------------------------------------
TOTAL NON-AGENCY MORTGAGE-BACKED SECURITIES (COST $732,634) 749,396
- --------------------------------------------------------------------------------
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.) 12,166,667 1,022,000
- --------------------------------------------------------------------------------
TOTAL OPTIONS (COST $563,356) 1,022,000
- --------------------------------------------------------------------------------
PREFERRED STOCKS 3.7%
NB Capital Corporation 8.35% Exchangeable
(Acquired 8/22/97; Cost $20,000,000) (b) 20,000 20,856,200
Norwest Corporation Series A, Cumulative
Tracking Preferred Stock/Residential Home
Mortgage LLC (Acquired 12/16/94;
Cost $10,000,000) (b) 50,000 10,473,900
- --------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (COST $30,000,000) 31,330,100
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 8.1%
COMMERCIAL PAPER 0.2%
INTEREST BEARING, DUE UPON DEMAND
American Family Financial Services, Inc., 5.16% $ 270,700 270,700
General Mills, Inc., 5.15% 1,208,200 1,208,200
Johnson Controls, Inc., 5.18% 133,100 133,100
Pitney Bowes Credit Corporation, 5.16% 111,600 111,600
----------
1,723,600
REPURCHASE AGREEMENT 7.7%
ABN-AMRO Chicago Corporation (Dated 10/31/97),
5.60%, Due 11/03/97 (Repurchase proceeds
$65,130,380); Collateralized by: $12,400,000
United States Treasury Notes, 5.875%,
Due 1/31/99; $47,000,000 United States
Treasury Notes, 7.875%, Due 11/15/04
(Market Value $66,667,000) (d) 65,100,000 65,100,000
UNITED STATES GOVERNMENT ISSUES 0.2%
United States Treasury Bills, Due 11/20/97
thru 1/29/98 (c) 1,385,000 1,379,676
- --------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $68,203,207) 68,203,276
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST $871,937,243) 105.5% 890,504,327
Other Assets and Liabilities, Net (5.5%) (47,036,902)
- --------------------------------------------------------------------------------
NET ASSETS 100.0% $843,467,425
- --------------------------------------------------------------------------------
FUTURES
- --------------------------------------------------------------------------------
Underlying Unrealized
Expiration Face Amount Appreciation
Date at Value (Depreciation)
- --------------------------------------------------------------------------------
Purchased:
286 Ten-Year U.S. Treasury Notes 12/97 $31,960,500 $ 857,500
Sold:
35 Two-Year U.S. Treasury Notes 12/97 (7,275,625) (56,591)
37 Five-Year U.S. Treasury Notes 12/97 (4,011,031) (73,762)
30 Ten-Year U.S. Treasury Notes 12/97 (3,352,500) (39,131)
562 U.S. Treasury Bonds 12/97 (66,579,438) (2,927,371)
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION
- --------------------------------------------------------------------------------
Percentage of Net Assets
- --------------------------------------------------------------------------------
U.S. Government & Agency ...............................89.9%
Bank - Regional ........................................ 5.1
Bank - Money Center .................................... 4.9
General Obligation ..................................... 2.0
Bank - Super Regional .................................. 1.2
Consumer - Miscellaneous ............................... 1.2
Mortgage & Related Service ............................. 0.8
Finance - Miscellaneous ................................ 0.1
Food ................................................... 0.1
Non-Agency Asset-Backed ................................ 0.1
Oil - North American Exploration & Production .......... 0.1
Other Assets and Liabilities, Net ......................(5.5)
- --------------------------------------------------------------------------------
Total 100.0%
- --------------------------------------------------------------------------------
COUNTRY DIVERSIFICATION
- --------------------------------------------------------------------------------
Percentage of Net Assets
- --------------------------------------------------------------------------------
United States .........................................104.3%
Mexico ................................................ 1.2
Other Assets and Liabilities, Net ..................... (5.5)
- --------------------------------------------------------------------------------
Total 100.0%
- --------------------------------------------------------------------------------
================================================================================
STRONG HIGH-YIELD BOND FUND
================================================================================
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
CORPORATE BONDS 79.5%
AES Corporation Senior Subordinated Notes,
8.50%, Due 11/01/07 (Acquired 10/24/97;
Cost $1,996,000) (b) $ 2,000,000 $ 1,975,000
Acme Metals, Inc. Senior Secured Discount Notes,
13.50%, Due 8/01/04 3,165,000 3,608,100
Adelphia Communications Corporation Senior
Notes:
9.25%, Due 10/01/02 (Acquired 9/22/97;
Cost $2,000,000) (b) 2,000,000 1,990,000
9.875%, Due 3/01/07 2,500,000 2,575,000
Allied Waste Industries, Inc. Senior Discount
Notes, Zero %, Due 6/01/07 (Rate Reset
Effective 6/01/02) (Acquired 5/01/97; Cost
$2,297,440) (b) 4,000,000 2,720,000
Allied Waste North America, Inc. Senior
Subordinated Notes, 10.25%, Due 12/01/06 (c) 6,000,000 6,540,000
American Communications Services, Inc. Senior
Notes, 13.75%, Due 7/15/07 (Acquired 9/18/97;
Cost $2,212,500) (b) 2,000,000 2,250,000
Anchor Glass Container Corporation First
Mortgage Notes, 11.25%, Due 4/01/05
(Acquired 4/10/97 - 5/29/97; Cost
$5,192,500)(b) 5,000,000 5,475,000
Anker Coal Group, Inc. Senior Notes, 9.75%,
Due 10/01/07 (Acquired 9/22/97; Cost
$5,550,625)(b) 5,500,000 5,555,000
Republic of Argentina BOCON Previsional 4
Floating Rate Notes, 7.406%, Due 9/01/02 6,000,000 6,705,000
Atlas Air, Inc. Senior Notes, 10.75%, Due
8/01/05
(Acquired 8/08/97; Cost $7,725,000) (b) 7,725,000 8,188,500
Autopistas Del Sol SA Senior Notes, 9.35%,
Due 8/01/04 (Acquired 8/11/97; Cost
$4,950,000) (b) 5,000,000 4,862,500
BankUnited Capital Trust Preferred Securities,
Series A, 10.25%, Due 12/31/26 2,500,000 2,575,000
Bay View Capital Corporation Subordinated
Notes, 9.125%, Due 8/15/07 16,800,000 17,178,000
16
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
STRONG HIGH-YIELD BOND FUND (continued)
================================================================================
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
CSBI Capital Trust I Subordinated Income
Capital Securities, Series A, 11.75%, Due
6/06/27 (Acquired 7/10/97; Cost
$2,000,000) (b) $ 2,000,000 $ 2,000,000
Capstar Radio Broadcasting Partners, Inc.
Senior Subordinated Notes, 9.25%, Due
7/01/07 5,000,000 5,050,000
William Carter Senior Subordinated Notes,
Series A, 10.375%, Due 12/01/06 7,000,000 7,385,000
Centennial Cellular Corporation Senior Notes,
8.875%, Due 11/01/01 4,945,000 4,957,363
Century Communications Corporation Senior
Notes, 8.75%, Due 10/01/07 5,000,000 5,025,000
Chancellor Radio Broadcasting Company Senior
Subordinated Notes, 8.75%, Due 6/15/07
(Acquired 6/18/97; Cost $4,954,110) (b) 5,000,000 5,050,000
Clark-Schwebel Holdings, Inc. Senior Debentures,
12.50%, Due 7/15/07 (Acquired 7/07/97;
Cost $5,212,663) (b) 4,921,358 5,265,853
Coach USA, Inc. Senior Subordinated Notes,
Series B, 9.375%, Due 7/01/07 (c) 6,000,000 6,090,000
Dade International, Inc. Senior Subordinated
Notes, 11.125%, Due 5/01/06 3,000,000 3,352,500
Decisionone Holdings Corporation Units, Zero %,
Due 8/01/08 (Rate Reset Effective 8/01/02) 8,500,000 5,227,500
Echostar Communications Corporation Senior
Secured Discount Notes, Zero %, Due 6/01/04
(Rate Reset Effective 6/01/99) 6,000,000 5,340,000
Echostar Satellite Broadcasting Corporation
Senior Secured Discount Notes, Zero %,
Due 3/15/04 (Rate Reset Effective 3/15/00) 5,000,000 3,975,000
Equimar Shipholdings, Ltd. Guaranteed First
Preferred Ship Mortgage Notes, 9.875%, Due
7/01/07 (Acquired 6/20/97; Cost $5,000,000)(b) 5,000,000 4,825,000
Fedders North America, Inc. Senior Subordinated
Notes, 9.375%, Due 8/15/07 (Acquired 8/11/97;
Cost $4,976,000) (b) 5,000,000 5,075,000
First Nationwide Holdings, Inc. Senior
Subordinated Notes, 10.625%, Due 10/01/03 6,500,000 7,182,500
First Palm Beach Bancorp, Inc. Senior
Debentures, 10.35%, Due 6/30/02 (Acquired
6/26/97; Cost $1,500,000) (b) 1,500,000 1,558,050
Food 4 Less Holdings, Inc. Pay-In-Kind Senior
Subordinated Debentures, 13.625%, Due
6/15/07 13,613,170 16,403,870
Fox Kids Worldwide, Inc. Senior Notes, 9.25%,
Due 11/01/07 (Acquired 10/30/97; Cost
$4,775,000) (b) 5,000,000 4,831,250
Fresenius Medical Care Capital Trust Preferred
Securities, 9.00%, Due 12/01/06 7,000,000 7,157,500
GCI, Inc. Senior Notes, 9.75%, Due 8/01/07 4,000,000 4,080,000
GST Equipment Funding, Inc. Senior Secured
Notes, 13.25%, Due 5/01/07 (Acquired
5/08/97 - 9/30/97; Cost $3,150,000) (b) 3,000,000 3,420,000
GST USA, Inc. Notes, Zero %, Due 12/15/05
(Rate Reset Effective 12/15/00) 5,300,000 3,789,500
Garden State Newspapers, Inc. Senior
Subordinated Notes, 8.75%, Due 10/01/09
(Acquired 9/26/97 - 10/07/97; Cost
$5,530,375) (b) 5,500,000 5,513,750
Goss Graphic System, Inc. Senior Subordinated
Notes, 12.00%, Due 10/15/06 (c) 7,000,000 7,840,000
Hedstrom Holdings, Inc. Units, Zero %, Due
6/01/09 (Rate Reset Effective 6/01/02)
(Acquired 6/09/97; Cost $560,387) (b) 1,000,000 630,000
Hermes Europe Railtel BV Senior Notes, 11.50%,
Due 8/15/07 (Acquired 8/14/97; Cost
$2,000,000) (b) 2,000,000 2,150,000
Highwaymaster Communications, Inc. Units,
13.75%, Due 9/15/05 (Acquired 9/18/97; Cost
$4,056,250) (b) 4,000,000 3,940,000
Horseshoe Gaming LLC Senior Notes, Series B,
12.75%, Due 9/30/00 4,049,000 4,509,574
Huntsman Corporation Senior Subordinated
Floating Rate Notes, 9.0938%, Due 7/01/07
(Acquired 7/02/97; Cost $2,925,000) (b) 2,925,000 3,012,750
Huntsman Specialty Chemicals Corporation
Floating Rate Term Loans, 9.25%, Due 3/17/07
(Acquired 3/17/97; Cost $5,000,000) (b) 5,000,000 5,075,000
ITC Deltacom, Inc. Senior Notes, 11.00%, Due
6/01/07 (Acquired 6/19/97; Cost $2,062,500)(b) 2,000,000 2,170,000
Imperial Capital Trust I Guaranteed Capital
Securities, 9.98%, Due 12/31/26 6,000,000 6,696,504
Intelcom Group (USA), Inc. Senior Secured
Discount Notes, Zero %, Due 5/01/06 (Rate
Reset Effective 5/01/01) (Acquired 10/01/97;
Cost $1,528,400) (b) 2,000,000 1,477,500
Intermedia Communications, Inc. Senior Discount
Notes, Series B, Zero %, Due 7/15/07 (Rate
Reset Effective 7/15/02) 2,500,000 1,662,500
International Wireless Communications Holdings,
Inc. Senior Discount Notes, Zero %, Due
8/15/01 3,000,000 1,560,000
Ionica PLC Senior Yankee Notes, 13.50%,
Due 8/15/06 4,000,000 4,300,000
Jordan Telecommunication Products, Inc. Senior
Subordinated Discount Notes, Zero %,
Due 8/01/07 (Rate Reset Effective 8/01/00)
(Acquired 7/21/97 - 8/08/97; Cost
$7,195,058) (b) 10,115,000 7,940,275
Linvent, Inc. Senior Notes, 9.375%, Due
10/15/04 (Acquired 10/10/97; Cost
$6,000,000) (b) 6,000,000 6,090,000
Majestic Star Casino LLC Senior Secured Notes,
12.75%, Due 5/15/03 7,000,000 7,630,000
Maxim Group, Inc. Senior Subordinated Notes,
9.25%, Due 10/15/07 (Acquired 10/09/97;
Cost $2,234,137) (b) 2,250,000 2,193,750
Metronet Communiations Corporation Units,
12.00%, Due 8/15/07 3,000,000 3,375,000
Metronet Communications Senior Discount Notes,
Zero %, Due 11/01/07 (Rate Reset Effective
11/01/02) (Acquired 10/23/97; Cost
$1,184,480) (b) 2,000,000 1,200,000
Mohegan Tribal Gaming Authority Connecticut
Senior Secured Notes, Series B, 13.50%,
Due 11/15/02 5,510,000 7,080,350
Multicanal SA Notes, 9.25%, Due 2/01/02 6,500,000 6,402,500
Netia Holdings BV Senior Discount Notes, Zero %,
Due 11/01/07 (Rate Reset Effective 11/01/01)
(Acquired 10/24/97; Cost $1,894,050) (b) (e) 3,000,000 1,702,500
Nextel Communications, Inc. Senior Discount
Notes, Zero %, Due 8/15/04 (Rate Reset
Effective 2/15/99) 13,000,000 11,017,500
Nextlink Communications, Inc. Senior Notes,
9.625%, Due 10/01/07 6,000,000 6,030,000
Nextlink Communications LLC Senior Notes,
12.50%, Due 4/15/06 7,875,000 8,977,500
Ocwen Financial Corporation Notes, 11.875%,
Due 10/01/03 4,000,000 4,490,000
Optel, Inc. Senior Notes, Series B, 13.00%,
Due 2/15/05 3,000,000 3,105,000
PM Holdings Corporation Subordinated Discount
Debentures, Series B, Zero %, Due 9/01/05
(Rate Reset Effective 9/01/00) 4,624,000 3,676,080
Pagemart, Inc. Senior Discount Notes, Zero %,
Due 11/01/03 (Rate Reset Effective 11/01/98) 4,000,000 3,660,000
Pagemart Nationwide, Inc. Senior Discount Notes,
Zero %, Due 2/01/05 (Rate Reset Effective
2/01/00) 7,000,000 5,880,000
Premier Parks, Inc. Senior Notes, Series A,
12.00%, Due 8/15/03 (c) 5,000,000 5,575,000
Prime Succession Acquisition Corporation Senior
Subordinated Notes, 10.75%, Due 8/15/04 4,500,000 4,972,500
Printpack, Inc. Senior Notes, Series B, 9.875%,
Due 8/15/04 (c) 4,000,000 4,180,000
17
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) October 31, 1997
================================================================================
STRONG HIGH-YIELD BOND FUND (continued)
================================================================================
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
Qwest Communications International, Inc. Senior
Discount Notes, Zero %, Due 10/15/07 (Rate
Reset Effective 10/15/02) (Acquired 10/09/97;
Cost $2,518,480) (b) $ 4,000,000 $ 2,580,000
Qwest Communications International, Inc. Senior
Notes, Series B, 10.875%, Due 4/01/07 4,000,000 4,510,000
RCN Corporation Senior Notes, 10.00%, Due
10/15/07 (Acquired 10/10/97; Cost
$3,500,000) (b) 3,500,000 3,456,250
Repap New Brunswick Senior Yankee Notes,
10.625%, Due 4/15/05 4,000,000 3,980,000
Rogers Cablesystems, Ltd. Senior Secured Second
Priority Notes, Series B, 10.00%, Due 3/15/05 5,000,000 5,400,000
Rose Hills Company Senior Subordinated Notes,
9.50%, Due 11/15/04 3,000,000 3,135,000
Teletrac, Inc. Units, 14.00%, Due 8/01/07
(Acquired 7/31/97 - 8/01/97; Cost
$2,040,000) (b) 2,000,000 2,030,000
Town Sports International, Inc. Senior Notes,
9.75%, Due 10/15/04 (Acquired 10/09/97;
Cost $4,000,000) (b) 4,000,000 4,020,000
U.S. Air, Inc. Guaranteed Senior Notes, 10.00%,
Due 7/01/03 2,000,000 2,075,000
U.S. Air, Inc. Senior Notes, 9.625%, Due
2/01/01 7,930,000 8,257,113
Verio, Inc. Units, 13.50%, Due 6/15/04
(Acquired 6/17/97 - 10/08/97; Cost
$8,735,000) (b) 7,500,000 9,037,500
Vicap SA de CV Guaranteed Senior Yankee Notes:
10.25%, Due 5/15/02 (Acquired 5/07/97;
Cost $4,733,375) (b) 4,750,000 4,773,750
11.375%, Due 5/15/07 (Acquired 5/07/97;
Cost $4,973,500) (b) 5,000,000 5,150,000
Wilshire Financial Services Group Notes, 13.00%,
Due 8/15/04 (Acquired 8/12/97; Cost
$2,000,000) (b) 2,000,000 2,085,000
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (COST $395,359,929) 405,443,132
- --------------------------------------------------------------------------------
CONVERTIBLE BONDS 1.1%
Tecnomatix Technologies, Ltd. Subordinated Notes,
5.25%, Due 8/15/04 (Acquired 8/12/97;
Cost $500,000) (b) 500,000 520,625
Winstar Communications, Inc. Senior Discount
Notes, Zero %, Due 10/15/05 (Rate Reset
Effective 10/15/00) (Acquired 9/23/97 -
10/09/97; Cost $4,696,800) (b) 5,860,000 5,274,000
- --------------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS (COST $5,225,500 ) 5,794,625
- --------------------------------------------------------------------------------
NON-AGENCY MORTGAGE & ASSET-BACKED SECURITIES 3.2%
Aircraft Lease Portfolio Securitization Pass-
Thru Trust Certificates, Series 1996-1,
Class D, 12.75%, Due 6/15/06 4,986,262 5,709,270
CS First Boston Mortgage Securities Corporation
Mortgage Pass-Thru Certificates, Series
1992-4, Class A-5, Interest Only, 0.625%,
Due 10/25/22 23,369,768 240,942
Merrill Lynch Credit Corporation Floating Rate
Pass-Thru Asset-Backed Mortgage Loans, Series
1996-C, Class B, 6.9375%, Due 9/15/21
(Acquired 5/09/97; Cost $3,004,531) (b) 3,500,000 2,993,585
SML Commercial Mortgage Trust Variable Rate
Pass-Thru Certificates:
Series 1994-C1, Class S, Interest Only,
0.81%, Due 9/20/99 38,673,000 38,673
Series 1994-C1, Class B3, 11.69%, Due 9/20/99 3,940,000 3,920,300
Salomon Brothers Mortgage Securities, Series
1997-A, Class B-3, 7.353%, Due 10/01/25
(Acquired 7/09/97; Cost $2,985,669) (b) 3,343,901 2,980,252
- --------------------------------------------------------------------------------
TOTAL NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES (COST $15,534,028) 15,883,022
- --------------------------------------------------------------------------------
PREFERRED STOCKS 7.3%
American Communications Services, Inc. 12.75%
Junior Redeemable (Acquired 10/06/97;
Cost $4,000,000) (b) 4,000 3,760,000
Chancellor Media Corporation Exchangeable
12.00% (Acquired 5/08/97 - 8/19/97;
Cost $9,206,833) (b) 83,431 9,531,992
Chancellor Radio Broadcasting Company 12.25%
Senior Series A 17,000 2,350,250
Chevy Chase Capital Corporation 10.375%
Series A 85,000 4,335,000
Jordan Telecommunication Products, Inc. 13.25%
Units 2,000 2,230,000
Nextlink Communications, Inc. 14.00% Senior
Exchangeable 732 43,554
SFX Broadcasting, Inc. 12.625% Series E 51,000 5,826,750
Time Warner, Inc. 10.25% Exchangeable Series K 7,776 8,961,840
- --------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (COST $35,905,280) 37,039,386
- --------------------------------------------------------------------------------
COMMON STOCKS 0.2%
Imperial Credit Commercial Mortgage Investment
Corporation 65,000 1,072,500
Optel, Inc. Non-Voting (Acquired 2/07/97;
Cost $0)(b) 3,000 30
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $975,000) 1,072,530
- --------------------------------------------------------------------------------
WARRANTS 0.0%
American Communications Services, Inc. Warrants,
Expire 11/01/05 (Acquired 2/14/96 - 3/22/96;
Cost $91,875) (b) 1,500 127,500
American Telecasting, Inc. Warrants,
Expire 8/10/00 150 __
International Wireless Holding Company Warrants,
Expire 8/15/01 (Acquired 8/09/96; Cost $0) (b) 3,000 90,000
Powertel, Inc. Warrants, Expire 2/01/06 3,264 28,152
- --------------------------------------------------------------------------------
TOTAL WARRANTS (COST $95,625) 245,652
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 6.2%
COMMERCIAL PAPER 0.2%
INTEREST BEARING, DUE UPON DEMAND
American Family Financial Services, Inc., 5.16% $ 48,700 48,700
Johnson Controls, Inc., 5.18% 318,667 318,667
Pitney Bowes Credit Corporation, 5.16% 297,400 297,400
Wisconsin Electric Power Company, 5.21% 155,333 155,333
----------
820,100
MONEY MARKETS 1.0%
Strong Institutional Money Fund 5,000,000 5,000,000
REPURCHASE AGREEMENT 5.0%
Goldman, Sachs & Company, Inc. (Dated 10/31/97),
5.60%, Due 11/03/97 (Repurchase proceeds
$25,711,993); Collateralized by: $21,720,000
United States Treasury Bonds, 9.125%,
Due 5/15/09 (Market Value $26,237,760) (d) 25,700,000 25,700,000
UNITED STATES GOVERNMENT ISSUES 0.0%
United States Treasury Bills:
Due 12/04/97 (c) 30,000 29,876
Due 1/22/98 (c) 70,000 69,200
----------
99,076
- --------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $31,619,196) 31,619,176
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST $484,714,558) 97.5% 497,097,523
Other Assets and Liabilities, Net 2.5% 12,866,519
- --------------------------------------------------------------------------------
NET ASSETS 100.0% $509,964,042
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
STRONG HIGH-YIELD BOND FUND (continued)
================================================================================
- --------------------------------------------------------------------------------
FUTURES
- --------------------------------------------------------------------------------
Underlying Unrealized
Expiration Face Amount Appreciation
Date at Value (Depreciation)
- --------------------------------------------------------------------------------
Purchased:
28 U.S. Treasury Bonds 12/97 $3,317,125 $ 35,665
Sold:
80 Ten-Year U.S. Treasury Notes 12/97 (8,940,000) (252,500)
28 U.S. Treasury Bonds 12/97 (3,317,125) (181,125)
SWAPS
- --------------------------------------------------------------------------------
Open index rate swap contract at October 31, 1997 consisted of the following:
- --------------------------------------------------------------------------------
Notional Closing Interest Index Unrealized
Amount Date Sold Bought Appreciation
- --------------------------------------------------------------------------------
$15,000,000 7/17/97 1 mo. LIBOR Lehman Brothers Baa $233,331
INDUSTRY DIVERSIFICATION
- --------------------------------------------------------------------------------
Percentage of Net Assets
- --------------------------------------------------------------------------------
Telecommunication Service ..............................22.9%
Media - Radio/TV .......................................12.3
Leisure Service ........................................ 6.8
U.S. Government ........................................ 5.1
Bank - Regional ........................................ 4.2
Container .............................................. 3.8
Airline ................................................ 3.6
Savings & Loan ......................................... 3.4
Transportation Service ................................. 3.3
Retail - Food Chain .................................... 3.2
Media Publishing ....................................... 2.8
Bank - Money Center .................................... 2.1
Healthcare - Medical Supply ............................ 2.1
Pollution Control ...................................... 1.8
Consumer - Miscellaneous ............................... 1.6
Commercial Service ..................................... 1.5
Retail - Specialty ..................................... 1.5
Household Appliances & Furnishings ..................... 1.4
Foreign Government ..................................... 1.3
Non-Agency Asset-Backed ................................ 1.2
Non-Agency Single Family ............................... 1.2
Coal ................................................... 1.1
Brokerage & Investment Management ...................... 1.0
Chemical - Specialty ................................... 1.0
Computer Service ....................................... 1.0
Electric Products - Miscellaneous ...................... 1.0
Shipping ............................................... 0.9
Non-Agency Manufactured Housing ........................ 0.8
Paper & Forest Products ................................ 0.8
Food ................................................... 0.7
Steel .................................................. 0.7
Chemical ............................................... 0.6
Electric Power ......................................... 0.4
Computer Software ...................................... 0.1
Diversified Operations ................................. 0.1
Insurance - Property & Casualty ........................ 0.1
Office Automation ...................................... 0.1
Other Assets & Liabilities, Net ........................ 2.5
- --------------------------------------------------------------------------------
Total 100.0%
- --------------------------------------------------------------------------------
COUNTRY DIVERSIFICATION
- --------------------------------------------------------------------------------
Percentage of Net Assets
- --------------------------------------------------------------------------------
United States ..........................................87.3%
Argentina .............................................. 3.5
Canada ................................................. 3.3
Mexico ................................................. 1.9
United Kingdom ......................................... 0.8
Belgium ................................................ 0.4
Poland ................................................. 0.3
Other Assets and Liabilities, Net ...................... 2.5
- --------------------------------------------------------------------------------
Total 100.0%
- --------------------------------------------------------------------------------
================================================================================
STRONG SHORT-TERM BOND FUND
================================================================================
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
CORPORATE BONDS 54.3%
ARA Services, Inc. Guaranteed Notes, 10.625%,
Due 8/01/00 $10,600,000 $11,561,664
Amerco Asset Backed Bonds, 6.65%, Due 10/15/99
(Acquired 10/17/97; Cost $9,996,500) (b) 10,000,000 10,044,800
Amerco Asset Backed Bonds, 6.89%, Due 10/15/00
(Acquired 10/17/97; Cost $10,000,000) (b) 10,000,000 10,084,200
Argyle Television, Inc. Senior Subordinated
Notes, 9.75%, Due 11/01/05 8,800,000 9,548,000
Bay View Capital Corporation Senior Debentures,
8.42%, Due 6/01/99 (Acquired 5/13/96 -
5/28/96; Cost $7,000,000) (b) 7,000,000 7,068,516
Beaver Valley Funding Corporation Debentures,
8.625%, Due 6/01/07 10,000,000 10,450,000
CMS Energy Corporation Notes, 8.125%,
Due 5/15/02 7,500,000 7,702,830
California Energy, Inc. Senior Notes, 9.875%,
Due 6/30/03 14,442,000 15,633,465
Century Communications Corporation Senior
Notes, 8.75%, Due 10/01/07 5,000,000 5,025,000
Contifinancial Corporation Senior Notes:
7.50%, Due 3/15/02 9,310,000 9,380,682
8.375%, Due 8/15/03 13,055,000 13,381,375
Continental Airlines, Inc. Senior Notes,
9.50%, Due 12/15/01 10,000,000 10,450,000
Continental Airlines Pass-Thru Certificates,
Series 1997-2D, 7.522%, Due 6/30/01
(Acquired 6/17/97; Cost $13,369,000) (b) 13,369,000 13,682,236
Custom Repackaged Asset Vehicle Trusts -
CRAVE Trust Certificates, Series 1997-800,
6.86%, Due 8/12/00 (Acquired 8/14/97; Cost
$4,999,200) (b) 5,000,000 5,039,500
Custom Repackaged Asset Vehicle Trusts -
Wal-Mart Credit-Linked Trust Certificates,
Series 1996-401, 7.35%, Due 7/17/06
(Acquired 10/16/96; Cost $4,662,118) (b) 4,676,522 4,787,819
Custom Repackaged Asset Vehicle Trusts - Walt
Disney Credit-Linked Trust Certificates,
Series 1996-403, 7.20%, Due 1/10/07 (Acquired
12/18/96; Cost $4,405,455) (b) 4,408,364 4,538,838
Delta Air Lines, Inc. Pass-Thru Certificates:
Series 1992-B1, 9.375%, Due 9/11/07 (c) 19,628,066 22,183,836
Series 1993-A1, 9.875%, Due 4/30/08 8,126,887 9,332,486
Dine SA de CV Bonds, 8.75%, Due 10/15/07
(Acquired 10/09/97; Cost $2,977,440) (b) 3,000,000 2,812,500
19
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) October 31, 1997
- --------------------------------------------------------------------------------
================================================================================
STRONG SHORT-TERM BOND FUND (continued)
================================================================================
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
Walt Disney Company Euro-Dollar Senior
Participating Notes, 2.00%, Due 3/01/00
(Acquired 9/19/96; Cost $12,319,039) (b) $10,000,000 $ 10,800,000
Falcon Drilling, Inc. Senior Notes, Series B,
9.75%, Due 1/15/01 4,205,000 4,394,225
Felcor Suites Limited Partnership Guaranteed
Senior Notes, 7.375%, Due 10/01/04
(Acquired 9/26/97 - 10/07/97; Cost
$14,312,695) (b) 14,250,000 14,244,742
Ferrellgas LP/Ferrellgas Financial Corporation
Senior Notes, 10.00%, Due 8/01/01 6,100,000 6,466,000
First Nationwide Holdings, Inc. Senior Exchange
Notes, 12.25%, Due 5/15/01 9,525,000 10,572,750
First Nationwide Holdings, Inc. Senior
Subordinated Notes, 10.625%, Due 10/01/03 2,000,000 2,210,000
Harrahs Operating, Inc. Guaranteed Senior
Subordinated Notes, 8.75%, Due 3/15/00 9,116,000 9,357,291
Homeside, Inc. Senior Secured Second Priority
Notes, 11.25%, Due 5/15/03 16,677,000 19,845,630
Huntington Capital I Variable Rate Capital
Income Securities, 6.4813%, Due 2/01/27 16,500,000 16,154,936
Imperial Capital Trust I Guaranteed Capital
Securities, 9.98%, Due 12/31/26 (e) 5,000,000 5,580,420
Long Island Lighting Company Debentures, 8.90%,
Due 7/15/19 (c) 29,534,000 31,460,385
Marine Midland Bank Floating Rate Notes,
5.9375%, Due 12/31/09 4,400,000 4,292,200
Mesa Operating Company Senior Subordinated
Discount Notes, Zero %, Due 7/01/06
(Rate Reset Effective 7/01/01) 15,000,000 12,075,000
Mexico-United Mexican States Global Bonds,
9.875%, Due 1/15/07 10,000,000 10,025,000
Mohegan Tribal Gaming Authority Connecticut
Senior Secured Notes, Series B, 13.50%,
Due 11/15/02 17,910,000 23,014,350
NWA Trust Number 2 Subordinated Aircraft Notes,
13.875%, Due 6/21/08 7,209,000 8,659,754
NWCG Holdings Corporation Senior Secured
Discount Notes, Series B, Zero %, Due 6/15/99 33,295,000 30,115,328
North Fork Bancorp Capital Trust Pass-Thru
Securities, 8.70%, Due 12/15/26 13,000,000 13,774,488
Oil Purchase Company Senior Secured Notes,
7.10%, Due 10/31/02 (Acquired 10/21/97;
Cost $9,493,635) (b) 9,500,000 9,468,175
Republic of Panama Notes, 7.875%, Due
2/13/02 10,000,000 9,410,000
Panamerican Beverages, Inc. Senior Notes,
8.125%, Due 4/01/03 8,300,000 8,839,782
Panamsat LP/Panamsat Capital Corporation
Senior Secured Notes, 9.75%, Due 8/01/00 (c) 32,255,000 33,820,787
Petroleos Mexicanos Guaranteed Notes, 8.85%,
Due 9/15/07 (Acquired 9/10/97 - 9/11/97;
Cost $12,979,330) (b) 13,000,000 12,317,500
Power Finance, Ltd. Notes, 7.50%, Due 7/31/09
(Acquired 8/15/97; Cost $2,923,860) (b) 3,000,000 2,659,122
PYCSA Panama SA Senior Secured Bonds, 10.28%,
Due 12/15/12 (Acquired 10/01/97;
Cost $5,000,000) (b) 5,000,000 4,677,350
Residential Reinsurance, Ltd. Floating Rate
Notes, 11.652%, Due 12/15/98 (Acquired
6/10/97; Cost $1,000,000) (b) 1,000,000 1,020,000
Riggs Capital Trust Preferred Securities,
Series A, 8.625%, Due 12/31/26
(Acquired 12/20/96 - 1/15/97; Cost
$11,565,210) (b) 11,500,000 12,010,358
SIG Capital Trust I Securities, 9.50%,
Due 8/15/27 (Acquired 8/07/97 - 9/16/97;
Cost $10,250,000) (b) 10,250,000 10,378,125
Salomon, Inc. Senior Consumer Price Index-
Linked Bonds, 3.65%, Due 2/14/02 9,000,000 8,779,950
Socgen Real Estate LLC Bonds, 7.64%, Due
12/29/49 (Rate Reset Effective 10/01/07)
(Acquired 8/21/97 - 10/29/97; Cost
$14,963,000) (b) 15,000,000 15,132,885
Star Capital Trust I Floating Rate Securities,
6.4838%, Due 6/15/27 (Acquired 6/05/97;
Cost $9,903,600) (b) 10,000,000 9,953,960
Suntrust Capital I Trust Floating Rate
Preferred Securities, 6.42%, Due 5/15/27 10,000,000 9,971,730
Swedbank Floating Rate Debt Unit (Medium Term
Structured Enhanced Return Trusts 1996,
Series R-35), 6.568%, Due 11/10/02
(Acquired 10/16/96; Cost $10,000,000) (b) 10,000,000 9,950,000
System Energy Resources Debentures, 7.80%,
Due 8/01/00 7,000,000 7,115,080
TKR Cable I, Inc. Senior Debentures, 10.50%,
Due 10/30/07 (c) 20,270,000 22,435,870
Tatneft Finance PLC Notes, 9.00%, Due 10/29/02
(Acquired 10/02/97; Cost $7,021,810) (b) 7,000,000 6,685,000
Tenet Healthcare Corporation Senior Notes,
7.875%, Due 1/15/03 16,000,000 16,180,000
Terra Nova Insurance UK Holdings PLC Senior
Guaranteed Notes, 10.75%, Due 7/01/05 26,770,000 30,072,374
Time Warner Pass-Thru Asset Trust Securities,
Series 1997-1, 6.10%, Due 12/30/01
(Acquired 1/08/97; Cost $15,264,000) (b) 16,000,000 15,643,840
Trident NGL, Inc. Subordinated Notes, 10.25%,
Due 4/15/03 2,800,000 2,982,000
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 - 11/06/96; Cost
$12,243,008) (b) 12,500,000 12,574,750
Union Planters Trust Capital Securities, 8.20%,
Due 12/15/26 3,000,000 3,108,573
Viacom International, Inc. Senior Subordinated
Notes, 8.75%, Due 5/15/01 (Rate Reset
Effective 5/15/98) 20,000,000 20,403,080
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (COST $704,120,150) 711,340,537
- --------------------------------------------------------------------------------
CONVERTIBLE BONDS 3.1%
Hewlett-Packard Company Subordinated Liquid
Yield Option Notes, Zero %, Due 10/14/17
(Acquired 10/08/97; Cost $17,749,050) (b) 33,000,000 17,201,250
Time Warner, Inc. Liquid Yield Option Notes,
Zero %, Due 12/17/12 58,000,000 22,692,500
- --------------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS (COST $39,617,274) 39,893,750
- --------------------------------------------------------------------------------
NON-AGENCY MORTGAGE & ASSET-BACKED SECURITIES 15.7%
Amresco Commercial Mortgage Funding I
Corporation Mortgage Pass-Thru Certificates,
Series 1997-C1, Class X, 1.4395%, Due 6/17/29
(Acquired 7/10/97; Cost $8,325,691) (b) 99,673,069 8,821,067
BCF, LLC Mortgage Pass-Thru Certificates,
Series 1997-R2, Class 3-A1, 7.00%, Due
6/25/25 (Acquired 6/17/97; Cost
$8,268,796) (b) 8,263,237 8,335,540
CS First Boston Mortgage Securities Corporation
Mortgage Backed Certificates,7.25%, Due
8/25/27 4,859,467 4,889,839
CS First Boston Mortgage Securities Corporation
Mortgage Pass-Thru Certificates, Series
1994-MHC1, Class A-1X, Interest Only, 3.3088%,
Due 4/25/11 4,838,096 3,048
CS First Boston Mortgage Securities Corporation
Variable Rate Mortgage Pass-Thru Certificates,
Series 1994-MHC1, Class D, 7.3563%,
Due 4/25/11 5,000,000 5,050,000
20
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
STRONG SHORT-TERM BOND FUND (continued)
================================================================================
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
Chase Mortgage Finance Corporation Mortgage
Pass-Thru Certificates, Series 1990-G,
Class A-Z1, 9.50%, Due 12/25/21 $ 2,787,315 $ 2,858,754
Chase Mortgage Finance Corporation Variable
Rate Multiclass Mortgage Pass-Thru
Certificates, Series 1992-2,Class B2,
8.0437%, Due 8/28/23 (Acquired 9/27/96 -
9/03/97; Cost $8,105,394) (b) 8,069,539 8,120,296
Citicorp Mortgage Securities, Inc. Mortgage
Pass-Thru Certificates, Series 1987-2, 8.50%,
Due 4/25/02 6,221,582 6,259,907
Citicorp Mortgage Securities, Inc. Real Estate
Mortgage Investment Conduit Pass-Thru
Certificates:
Series 1988-3, Class A-2, 9.00%, Due 4/01/18 1,347,000 1,342,474
Series 1993-3, Class B-1, 7.00%, Due 3/25/08
(Acquired 10/23/96; Cost $2,373,692)(b) 2,409,266 2,420,566
Collateralized Mortgage Obligation Trust 47,
Class E, Principal Only, Due 9/01/18 1,505,804 758,082
Collateralized Mortgage Obligation Trust 61,
Class Z, 9.10%, Due 1/01/20 3,185,787 3,308,472
Collateralized Mortgage Obligation Trust
Inverse Floating Rate Collateralized
Mortgage Obligation, Series 13, Class Q,
15.2759%, Due 1/20/03 1,245,338 1,351,583
Contimortgage Yield Maintenance Trust
Certificates, Series 1996-2, Zero %,
Due 7/01/27 (Acquired 6/14/96; Cost
$457,741) (b) 457,741 457,740
Contimortgage Home Equity Loan Trust Interest
Only Senior Strip Certificates, Series
1996-2, Class A, 1.2939%, Due 7/15/27
(Acquired 6/14/96; Cost $4,357,553) (b) 151,068,098 3,172,430
ContiSecurities Residual Corporation
ContiMortgage Net Interest Margin Notes,
Series 1997-A, 7.23%, Due 7/16/28
(Acquired 9/18/97; Cost $9,559,149)(b) 9,559,149 9,559,149
DLJ Mortgage Acceptance Corporation Variable
Rate Mortgage Pass-Thru Certificates, Series
92-Q4, Class A-2, 7.5242%, Due 7/25/22 2,272,193 2,289,234
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 23,331,326 443,295
GMBS, Inc. Countrywide Funding Certificates,
Series 1990-1, Class Z, 9.25%, Due 1/28/20 5,646,868 5,876,300
Green Tree Financial Corporation Certificates,
Series 1994-E, Class A, 9.15%, Due 1/15/15 2,700,763 2,797,397
Greenwich Capital Acceptance, Inc. Mortgage
Securities, Series 1993-P01, Class E,
Principal Only, Due 11/26/17 (c) 8,901,287 5,963,863
Greenwich Capital Acceptance, Inc. Variable Rate
Mortgage Pass-Thru Certificates, Series 1991-1,
Class A, 7.3596%, Due 2/25/21 (Acquired
4/18/96; Cost $12,949,273) (b) 13,013,975 13,323,057
IMC Excess Cashflow Securities Trust Asset-
Backed Certificates, Series 1997-A, 7.41%,
Due 11/26/28 (Acquired 10/24/97;
Cost $4,999,810) (b) (e) 5,000,000 5,000,000
Kmart CMBS Financing, Inc. Floating Rate
Commercial Mortgage Pass-Thru Certificates,
Series 1997-1, Class D, 6.7563%, Due 3/01/07
(Acquired 3/10/97; Cost $4,516,875) (b) 4,500,000 4,500,000
ML TR X Collateralized Mortgage Obligation,
Class C, Principal Only, Due 7/25/17 (c) 9,441,700 7,301,078
Merrill Lynch Home Equity Acceptance, Inc.
Subordinated Variable Rate Mortgage-Backed
Certificates, Series 1994-A, Class A-1,
6.625%, Due 8/17/23 (c) 10,591,065 10,486,848
Merrill Lynch Mortgage Investors, Inc.
Mortgage Pass-Thru Certificates, Series
1994-C1, Interest Only, 0.6134%,
Due 11/25/20 67,997,626 1,041,044
NPF XI, Inc. Health Care Receivables Program
97-1 Notes, Class A, 6.815%, Due 7/01/01
(Acquired 6/19/97; Cost $4,999,944) (b) 5,000,000 5,059,400
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 $7,500,000) (b) 7,500,000 7,565,625
RTC Variable Rate Mortgage Pass-Thru
Securities, Inc.:
Series 1991-11, Class 1-L, 8.625%,
Due 10/25/21 (c) 11,850,000 12,220,313
Series 1992-1, Class A-2, 8.0073%,
Due 8/25/20 3,210,594 3,234,674
Series 1992-6, Class A-4, 7.6066%,
Due 11/25/25 1,591,057 1,593,046
RTC Variable Rate Mortgage Pass-Thru
Securities, Inc. Commercial Pass-Thru
Certificates, Series 1994-C2, Class E,
8.00%, Due 4/25/25 11,935,055 12,412,815
Residential Funding Mortgage Securities I,
Inc. Mortgage Pass-Thru Certificates,
Series 1993-M23, Class A-1, 6.97%,
Due 8/28/23 2,129,004 2,135,668
Ryland Mortgage Securities Corporation Variable
Rate Mortgage Participation Securities:
Series 1991-1, 7.4911%, Due 3/25/20 3,642,633 3,715,486
Series 1992-3, Class A-2, 7.5457%, Due
6/25/20 8,688,005 8,731,445
Ryland Mortgage Securities Corporation III
Variable Rate Collateralized Mortgage Bonds,
Series 1992-C, Class 3-A, 11.7496%,
Due 11/25/30 (c) 2,363,297 2,491,813
Ryland Mortgage Securities Corporation IV
Variable Rate Collateralized Mortgage Bonds,
Series 2, Class 3-A, 11.9658%, Due 6/25/23 2,503,293 2,612,036
Salomon Brothers Mortgage Securities VI, Inc.
Stripped Coupon Mortgage Pass-Thru
Certificates, Series 1987-3, Class A,
Principal Only, Due 10/23/17 1,894,141 1,488,073
Santa Barbara Savings & Loan Association Real
Estate Mortgage Investment Conduit
Participation Certificates, Series 1988-A,
Class 2, Principal Only, Due 9/01/18 1,502,868 1,148,777
Shearson Lehman Pass-Thru Securities, Inc. Asset
Trust Variable Rate Pass-Thru Certificates,
Series 88-3, 7.7385%, Due 9/15/18 (c) 6,154,693 6,291,266
Structured Asset Securities Corporation
Collateralized Mortgage Obligation, Series
1991-2, Class SC, 15.57%, Due 1/20/20 (c) 7,192,997 7,489,708
Structured Mortgage Asset Residential Trust
Multiclass Pass-Thru Certificates, Series
1992-5, Class BO, Principal Only, Due 6/25/23 1,429,281 1,059,412
U-Haul Self-Storage Corporation Commercial
Mortgage Asset Trust Variable Rate Pass-Thru
Certificates, Series 1993-1, Class A1,
7.0875%, Due 12/01/20 (Acquired 12/02/93;
Cost $807,980) (b) 807,980 807,980
- --------------------------------------------------------------------------------
TOTAL NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES (COST $204,277,342) 205,788,600
- --------------------------------------------------------------------------------
UNITED STATES GOVERNMENT & AGENCY ISSUES 17.4%
FHLMC Participation Certificates:
6.50%, Due 5/01/04 1,665,972 1,669,104
8.50%, Due 4/01/01 thru 1/01/05 1,062,770 1,091,757
8.75%, Due 10/01/01 1,123,723 1,152,311
9.00%, Due 12/01/04 thru 8/01/18 (c) 22,633,929 24,032,133
9.50%, Due 3/01/11 647,999 693,243
9.75%, Due 8/01/02 (c) 2,554,065 2,688,077
10.25%, Due 7/01/09 thru 1/01/10 637,381 699,372
10.50%, Due 1/01/10 thru 7/01/19 1,339,832 1,493,222
21
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) October 31, 1997
- --------------------------------------------------------------------------------
================================================================================
STRONG SHORT-TERM BOND FUND (continued)
================================================================================
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
10.75%, Due 9/01/09 thru 10/01/17 $ 682,051 $ 755,933
11.25%, Due 11/01/09 478,702 536,778
FHLMC Variable Rate Participation Certificates,
7.407%, Due 5/01/26 16,104,848 16,683,656
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates:
8.00%, Due 9/01/23 2,344,586 2,459,072
8.50%, Due 2/01/23 27,598,242 29,398,199
9.00%, Due 11/01/24 3,402,245 3,666,600
9.40%, Due 10/25/19 19,998,551 21,660,871
10.00%, Due 7/01/04 thru 6/25/19 (c) 24,970,532 27,408,151
12.00%, Due 3/01/17 (c) 7,312,150 8,459,134
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 57,114 38,837
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Variable Rate Pass-Thru
Certificates:
Series 1992-G64, Class SE, 8.3043%,
Due 3/25/22 2,092,213 2,013,510
Series 1995-G2, Class IO, Interest Only,
Due 5/25/20 14,001,636 2,484,828
FNMA Stripped Mortgage-Backed Securities:
Series 1993-12, Class C, Principal Only,
Due 2/25/23 (c) 23,200,000 21,168,422
Series 1993-M1, Class N, Interest Only,
0.84%, Due 4/25/20 52,008,978 455,079
GNMA Guaranteed Pass-Thru Certificates:
7.50%, Due 12/15/07 7,692,081 7,970,026
9.75%, Due 9/15/05 thru 11/15/05 1,927,158 2,071,868
10.00%, Due 2/20/18 770,959 830,091
11.50%, Due 4/15/13 253,113 290,883
12.50%, Due 4/15/19 (c) 33,024,996 38,185,151
Small Business Administration Guaranteed Loan
Pool #440019, Interest Only Custodial
Receipts, Series 1993-1A, 2.224%,
Due 2/15/18 11,375,114 1,123,293
Small Business Administration Guaranteed Loan
Group #0190, Variable Rate Interest Only
Certificates, 3.092%, Due 7/30/18 22,299,698 2,564,465
USGI FHA Insured Project Pool #2047, 6.90%,
Due 8/01/14 461,984 451,012
USGI FHA Insured Project Pool Banco 85, 5.949%,
Due 11/24/19 4,221,733 4,267,919
- --------------------------------------------------------------------------------
TOTAL UNITED STATES GOVERNMENT & AGENCY
ISSUES (COST $226,273,118) 228,462,997
- --------------------------------------------------------------------------------
PREFERRED STOCKS 6.2%
Banco Central Hispanoamericano, SA Eurocap 400,000 10,120,000
California Federal Capital Corporation 9.125%
Exchangeable Series A 320,000 8,500,000
First Nationwide Bank, Dallas, Texas 11.50% 89,100 10,249,284
Indosuez Holdings SCA Sponsored ADR 10.375%
Representing 1/10 Series A (Acquired 11/15/96;
Cost $3,683,742) (b) 127,850 3,630,940
NB Capital Corporation 8.35% Exchangeable
(Acquired 8/22/97; Cost $5,000,000) (b) 5,000 5,214,050
Norwest Corporation Series A, Cumulative
Tracking / Residential Home Mortgage LLC
(Acquired 12/16/94; Cost $23,000,000) (b) 115,000 24,089,970
Time Warner, Inc. 10.25% Exchangeable Series K 16,603 19,134,957
- --------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (COST $77,590,416) 80,939,201
- --------------------------------------------------------------------------------
OPTIONS 0.3%
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.) $39,583,333 $3,325,000
- --------------------------------------------------------------------------------
TOTAL OPTIONS (COST $1,832,838) 3,325,000
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 2.5%
COMMERCIAL PAPER 0.5%
DISCOUNTED 0.4%
Asia Pulp and Paper Company Asian Currency
Notes, Zero %, Due 12/12/97 2,000,000 1,979,314
Ukranian T-Bill Linked Hedged Promissory Notes,
11.00%, Due 1/26/98 3,257,000 3,262,382
----------
5,241,696
INTEREST BEARING, DUE UPON DEMAND 0.1%
American Family Financial Services, Inc., 5.16% 150,000 150,000
General Mills, Inc., 5.15% 370,000 370,000
Johnson Controls, Inc., 5.18% 100,100 100,100
Pitney Bowes Credit Corporation, 5.16% 320,000 320,000
Warner Lambert Company, 5.14% 239,400 239,400
----------
1,179,500
----------
Total Commercial Paper 6,421,196
CORPORATE BONDS 1.0%
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 $9,995,000) (b) (c) 10,000,000 10,800,000
Russian Sovereign Risk Notes, Zero %,
Due 1/14/98 2,000,000 1,944,000
----------
12,744,000
REPURCHASE AGREEMENT 0.7%
Goldman, Sachs & Company, Inc. (Dated
10/31/97), 5.60%, Due 11/03/97 (Repurchase
proceeds $9,604,480); Collateralized by:
$8,155,000 United States Treasury Bonds,
11.75%, Due 2/15/01 (Market Value
$9,802,310) (d) 9,600,000 9,600,000
UNITED STATES GOVERNMENT ISSUES 0.3%
United States Treasury Bills, Due 11/20/97 thru
1/22/98 (c) 4,150,000 4,128,135
- --------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $32,104,452) 32,893,331
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(COST $1,285,815,590) 99.5% 1,302,643,416
Other Assets and Liabilities, Net 0.5% 7,152,038
- --------------------------------------------------------------------------------
NET ASSETS 100.0% $1,309,795,454
- --------------------------------------------------------------------------------
FUTURES
- --------------------------------------------------------------------------------
Underlying
Expiration Face Amount Unrealized
Date at Value Depreciation
- --------------------------------------------------------------------------------
Sold:
101 Two-Year U.S. Treasury Notes 12/97 $ 20,995,375 $ 163,304
576 Five-Year U.S. Treasury Notes 12/97 62,442,000 1,116,778
1,032 Ten-Year U.S. Treasury Notes 12/97 115,326,000 2,366,420
395 U.S. Treasury Bonds 12/97 46,795,156 2,011,659
22
<PAGE>
================================================================================
STRONG SHORT-TERM BOND FUND (continued)
================================================================================
- --------------------------------------------------------------------------------
WRITTEN OPTIONS ACTIVITY
- --------------------------------------------------------------------------------
Number Premiums
- --------------------------------------------------------------------------------
Options outstanding at October 31, 1996 77,000 $386,719
Options closed (55,000) (386,719)
Options exercised (22,000) __
- --------------------------------------------------------------------------------
Options outstanding at October 31, 1997 __ __
- --------------------------------------------------------------------------------
Closed and exercised options resulted in a capital gain of $146,097.
INDUSTRY DIVERSIFICATION
- --------------------------------------------------------------------------------
Percentage of Net Assets
- --------------------------------------------------------------------------------
Non-Agency Single Family ...............................10.1%
FNMA ................................................... 9.1
Bank - Regional ........................................ 7.0
Media - Publishing ..................................... 6.6
Electric Power ......................................... 5.5
Airline ................................................ 4.9
Bank - Money Center .................................... 4.8
Non-Agency Asset-Backed ................................ 4.6
Media - Radio/TV ....................................... 4.3
GNMA ................................................... 4.1
FHLMC .................................................. 3.9
Leisure Service ........................................ 3.3
Mortgage & Related Service ............................. 3.2
Bank - Super Regional .................................. 2.6
Telecommunication Service .............................. 2.5
Insurance - Diversified ................................ 2.3
Oil - International Integrated ......................... 2.2
Foreign Government ..................................... 1.9
Non-Agency Commercial .................................. 1.4
Computer Software ...................................... 1.3
Oil - North American Exploration & Production .......... 1.3
Healthcare - Patient Care .............................. 1.2
Leisure Product ........................................ 1.2
Real Estate ............................................ 1.1
U.S. Government ........................................ 1.1
Insurance - Property & Casualty ........................ 0.9
Automobile ............................................. 0.8
Beverage - Soft Drink .................................. 0.7
Brokerage & Investment Management ...................... 0.7
Non-Agency Multi Family ................................ 0.7
Energy - Alternate Source .............................. 0.5
Savings & Loan ......................................... 0.5
Engineering & Construction ............................. 0.4
Non-Agency Manufactured Housing ........................ 0.4
Retail - Major Chain ................................... 0.4
Tobacco ................................................ 0.4
Finance - Miscellaneous ................................ 0.3
SBA .................................................... 0.3
Auto & Truck Parts ..................................... 0.2
Natural Gas Distribution ............................... 0.2
Paper & Forest Products ................................ 0.2
Diversified Operations ................................. 0.1
Food ................................................... 0.1
Healthcare - Drug/Diversified .......................... 0.1
Office Automation ...................................... 0.1
Other Assets & Liabilities, Net ........................ 0.5
- --------------------------------------------------------------------------------
Total 100.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COUNTRY DIVERSIFICATION
- --------------------------------------------------------------------------------
Percentage of Net Assets
- --------------------------------------------------------------------------------
United States ..........................................88.9%
Mexico ................................................. 2.6
United Kingdom ......................................... 2.6
Panama ................................................. 1.1
Norway ................................................. 1.0
Spain .................................................. 0.8
Sweden ................................................. 0.8
Ireland ................................................ 0.5
Luxemburg .............................................. 0.3
Ukraine ................................................ 0.3
India .................................................. 0.2
Indonesia .............................................. 0.2
Russia ................................................. 0.2
Other Assets and Liabilities, Net ...................... 0.5
- --------------------------------------------------------------------------------
Total 100.0%
- --------------------------------------------------------------------------------
================================================================================
STRONG SHORT-TERM HIGH YIELD BOND FUND
================================================================================
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
CORPORATE BONDS 92.6%
Acme Metals, Inc. Senior Secured Notes, 12.50%,
Due 8/01/02 $1,445,000 $1,560,600
Adelphia Communications Corporation Senior
Notes, 9.25%, Due 10/01/02 (Acquired 9/22/97;
Cost $2,000,000) (b) 2,000,000 1,990,000
Aftermarket Technology Corporation Senior
Subordinated Notes, Series B, 12.00%,
Due 8/01/04 1,000,000 1,098,750
American Media Operations, Inc. Senior
Subordinated Notes, 11.625%, Due 11/15/04 1,225,000 1,341,375
Republic of Argentina BOCON Previsional 4
Floating Rate Notes, 7.406%, Due 9/01/02 1,000,000 1,117,500
Atlas Air, Inc. Pass-Thru Trust Certificates,
12.25%, Due 12/01/02 1,200,000 1,340,796
Banco de Boston SA Floating Rate Eurodollar
Notes, 9.505%, Due 1/16/02 930,000 930,000
Call-net Enterprises, Inc. Senior Discount Notes,
Zero %, Due 12/01/04 (Rate Reset Effective
12/01/99) 1,600,000 1,448,000
Centennial Cellular Corporation Senior Notes,
8.875%, Due 11/01/01 1,635,000 1,639,087
Clark-Schwebel Holdings, Inc. Senior Debentures,
12.50%, Due 7/15/07 (Acquired 7/07/97;
Cost $97,433) (b) 91,988 98,427
Dial Call Communications, Inc. Senior Discount
Notes, Zero %, Due 4/15/04 (Rate Reset
Effective 4/15/99) 1,000,000 937,500
Falcon Drilling, Inc. Senior Notes, Series B,
9.75%, Due 1/15/01 75,000 78,375
Finlay Enterprises Senior Discount Debentures,
Zero%, Due 5/01/05 (Rate Reset Effective
5/01/98) 1,000,000 960,000
First Nationwide Holdings, Inc. Senior Exchange
Notes, 12.25%, Due 5/15/01 1,000,000 1,110,000
First Nationwide Holdings, Inc. Senior
Subordinated Notes, 10.625%, Due 10/01/03 435,000 480,675
Harris Chemical North America Senior Secured
Notes, 10.25%, Due 7/15/01 1,860,000 1,943,700
Huntsman Corporation Senior Subordinated Floating
Rate Notes, 9.0938%, Due 7/01/07 (Acquired
7/02/97 - 8/27/97; Cost $1,737,000) (b) 1,675,000 1,725,250
23
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) October 31, 1997
- --------------------------------------------------------------------------------
================================================================================
STRONG SHORT-TERM HIGH YIELD BOND FUND (continued)
================================================================================
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
Interlake Corporation Senior Subordinated
Debentures, 12.125%, Due 3/01/02 $1,000,000 $ 1,042,500
KCS Energy, Inc. Senior Notes, Series B, 11.00%,
Due 1/15/03 1,225,000 1,344,438
Mobile Telecommunication Technologies
Corporation Senior Notes, 13.50%, Due 12/15/02 1,000,000 1,125,000
Mohegan Tribal Gaming Authority Connecticut
Senior Secured Notes, Series B, 13.50%,
Due 11/15/02 1,000,000 1,285,000
NS Group, Inc. Senior Notes, 13.50%, Due 7/15/03 2,000,000 2,295,000
Nextlink Communications LLC Senior Notes,
12.50%, Due 4/15/06 2,000,000 2,280,000
Pagemart, Inc. Senior Discount Notes, Zero %,
Due 11/01/03 (Rate Reset Effective 11/01/98) 2,000,000 1,830,000
Repap New Brunswick, Inc. First Priority Senior
Secured Floating Rate Notes, 9.0625%,
Due 7/15/00 1,675,000 1,649,875
SD Warren Company Senior Subordinated Notes,
Series B, 12.00%, Due 12/15/04 1,000,000 1,120,000
Showboat Marina Casino Partnership/Showboat
Marina Finance Corporation First Mortgage
Notes, Series B, 13.50%, Due 3/15/03 1,500,000 1,721,250
Star Markets Company Senior Subordinated Notes,
13.00%, Due 11/01/04 1,530,000 1,748,025
US Air, Inc. Senior Notes, 9.625%, Due 2/01/01 360,000 374,850
Universal Outdoor, Inc. Senior Subordinated
Notes, Series B, 9.75%, Due 10/15/06 1,700,000 1,895,500
Vicap SA de CV Guaranteed Senior Yankee Notes,
10.25%, Due 5/15/02 (Acquired 10/14/97;
Cost $2,115,000) (b) 2,000,000 2,010,000
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (COST $41,758,546) 41,521,473
- --------------------------------------------------------------------------------
CONVERTIBLE BONDS 0.7%
Technomatix Technologies, Ltd. Convertible
Subordinated Notes, 5.25%, Due 8/15/04
(Acquired 8/12/97; Cost $300,000) (b) 300,000 312,375
- --------------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS (COST $300,000) 312,375
- --------------------------------------------------------------------------------
NON-AGENCY MORTGAGE-BACKED SECURITIES 5.6%
SML Commercial Mortgage Trust Variable Rate
Pass-Thru Certificates:
Series 1994-C1, Class A-2, 6.8563%, Due 9/18/99 100,000 100,000
Series 1994-C1, Class B-3, 11.69%, Due 9/20/99 2,405,000 2,392,975
- --------------------------------------------------------------------------------
TOTAL NON-AGENCY MORTGAGE-BACKED SECURITIES (COST $2,505,000) 2,492,975
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 6.3%
COMMERCIAL PAPER 0.9%
INTEREST BEARING, DUE UPON DEMAND
Johnson Controls, Inc., 5.18% 134,100 134,100
Wisconsin Electric Power Company, 5.21% 280,200 280,200
----------
414,300
CORPORATE BONDS 1.8%
Unisys Corporation Notes, 9.50%, Due 7/15/98 811,000 813,028
REPURCHASE AGREEMENT 3.6%
Goldman, Sachs & Company, Inc. (Dated 10/31/97),
5.60%, Due 11/03/97 (Repurchase proceeds
$1,600,747); Collateralized by: $1,050,000 United
States Treasury Bonds, 12.50%, Due 8/15/14
(Market Value $1,635,900) (d) 1,600,000 1,600,000
- --------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $2,826,923) 2,827,328
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST $47,390,469) 105.2% 47,154,151
Other Assets and Liabilities, Net (5.2%) (2,334,787)
- --------------------------------------------------------------------------------
NET ASSETS 100.0% $44,819,364
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION
- --------------------------------------------------------------------------------
Percentage of Net Assets
- --------------------------------------------------------------------------------
Telecommunication Service ............................. 20.7%
Leisure Service ....................................... 10.9
Metal Products & Fabrication .......................... 8.6
Chemical .............................................. 8.2
Paper & Forest Products ............................... 6.2
Non-Agency Manufactured Housing ....................... 5.6
Diversified Operations ................................ 4.8
Media - Radio/TV ...................................... 4.4
Retail - Food Chain ................................... 3.9
Airline ............................................... 3.8
Bank - Regional ....................................... 3.6
U.S. Government ....................................... 3.6
Oil - North American Exploration & Production ......... 3.2
Media - Publishing .................................... 3.0
Foreign Government .................................... 2.5
Automobile ............................................ 2.4
Machinery - Miscellaneous ............................. 2.3
Bank - Money Center ................................... 2.1
Retail - Specialty .................................... 2.1
Computer - Mainframe .................................. 1.8
Computer Software ..................................... 0.7
Electric Power ........................................ 0.6
Electronic Products - Miscellaneous ................... 0.2
Other Assets and Liabilities, Net ..................... (5.2)
- --------------------------------------------------------------------------------
Total 100.0%
- --------------------------------------------------------------------------------
COUNTRY DIVERSIFICATION
- --------------------------------------------------------------------------------
Percentage of Net Assets
- --------------------------------------------------------------------------------
United States ......................................... 89.2%
Canada ................................................ 6.9
Mexico ................................................ 4.5
Argentina ............................................. 2.5
Brazil ................................................ 2.1
Other Assets and Liabilities, Net ..................... (5.2)
- --------------------------------------------------------------------------------
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.
Percentages are stated as a percent of net assets.
See notes to financial statements.
24
<PAGE>
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------------------------------------------------------------------
October 31, 1997
(In Thousands, Except Per Share Amounts)
<CAPTION>
STRONG CORPORATE STRONG GOVERNMENT STRONG HIGH-YIELD
BOND FUND SECURITIES FUND BOND FUND
---------------- ----------------- -----------------
ASSETS:
Investments in Securities, at Value (Cost of $484,774, $871,937
<S> <C> <C> <C>
and $484,715, respectively) $493,541 $890,504 $497,098
Receivable for Securities Sold 10,555 88,685 37,889
Receivable for Fund Shares Sold 188 755 130
Interest Receivable 7,808 7,805 7,712
Other Assets 384 -- 245
-------- -------- --------
Total Assets 512,476 987,749 543,074
LIABILITIES:
Payable for Securities Purchased 17,433 139,448 26,445
Payable for Fund Shares Redeemed 36 54 2,797
Dividends Payable 2,608 4,212 3,744
Accrued Operating Expenses and Other Liabilities 106 568 124
-------- -------- --------
Total Liabilities 20,183 144,282 33,110
-------- -------- --------
NET ASSETS $492,293 $843,467 $509,964
======== ======== ========
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) $515,837 $827,382 $482,848
Overdistributed Net Investment Income -- -- (3)
Undistributed Net Realized Gain (Loss) (32,368) (243) 14,901
Net Unrealized Appreciation 8,824 16,328 12,218
-------- -------- --------
Net Assets $492,293 $843,467 $509,964
======== ======== ========
Capital Shares Outstanding (Unlimited Number Authorized) 44,418 78,813 42,710
NET ASSET VALUE PER SHARE $11.08 $10.70 $11.94
====== ====== ======
STRONG SHORT-TERM STRONG SHORT-TERM HIGH
BOND FUND YIELD BOND FUND
----------------- ----------------------
ASSETS:
Investments in Securities, at Value (Cost of $1,285,815
and $47,390, respectively) $1,302,643 $47,154
Receivable for Securities Sold 20,401 3,018
Receivable for Fund Shares Sold 129 --
Interest Receivable 19,751 1,122
Other Assets 44 5
------------ ---------- -------
Total Assets 1,342,968 51,299
LIABILITIES:
Payable for Securities Purchased 25,389 5,346
Payable for Fund Shares Redeemed 165 846
Dividends Payable 7,183 274
Accrued Operating Expenses and Other Liabilities 436 14
---------- -------
Total Liabilities 33,173 6,480
---------- -------
NET ASSETS $1,309,795 $44,819
========== =======
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) $1,381,240 $44,800
Overdistributed Net Investment Income (553) --
Undistributed Net Realized Gain (Loss) (82,062) 255
Net Unrealized Appreciation (Depreciation) 11,170 (236)
---------- -------
Net Assets $1,309,795 $44,819
========== =======
Capital Shares Outstanding (Unlimited Number Authorized) 133,963 4,377
NET ASSET VALUE PER SHARE $9.78 $10.24
===== ======
See notes to financial statements.
25
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------
For the Period Ended October 31, 1997 (Note 1)
<CAPTION>
(In Thousands)
STRONG CORPORATE STRONG GOVERNMENT STRONG HIGH-YIELD
BOND FUND SECURITIES FUND BOND FUND
---------------- ----------------- -----------------
INCOME:
<S> <C> <C> <C>
Interest $25,562 $48,495 $35,104
Dividends 2,193 1,589 2,736
------- ------- -------
Total Income 27,755 50,084 37,840
EXPENSES:
Investment Advisory Fees 2,234 4,280 2,499
Custodian Fees 26 48 28
Shareholder Servicing Costs 950 1,379 601
Reports to Shareholders 66 77 71
Other 139 175 159
------- ------- -------
Total Expenses before Waivers and Absorptions 3,415 5,959 3,358
Voluntary Expense Waivers and Absorptions by Advisor -- -- (1,062)
------- ------- -------
Expenses, Net 3,415 5,959 2,296
------- ------- -------
NET INVESTMENT INCOME 24,340 44,125 35,544
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 12,886 11,682 15,981
Futures Contracts and Options (753) (481) (969)
------- ------- -------
Net Realized Gain 12,133 11,201 15,012
Change in Unrealized Appreciation/Depreciation on:
Investments 2,707 10,493 8,641
Futures Contracts and Options 375 (2,577) (165)
------- ------- -------
Net Change in Unrealized Appreciation/Depreciation 3,082 7,916 8,476
------- ------- -------
NET GAIN 15,215 19,117 23,488
------- ------- -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $39,555 $63,242 $59,032
======= ======= =======
STRONG SHORT-TERM STRONG SHORT-TERM HIGH
BOND FUND YIELD BOND FUND
----------------- ----------------------
INCOME:
Interest $92,136 $674
Dividends 5,628 29
------- ----
Total Income 97,764 703
EXPENSES:
Investment Advisory Fees 7,811 51
Custodian Fees 57 2
Shareholder Servicing Costs 2,312 14
Professional Fees 47 5
Reports to Shareholders 241 7
Other 125 --
------- ----
Total Expenses 10,593 79
------- ----
NET INVESTMENT INCOME 87,171 624
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 13,225 255
Futures Contracts, Options and Forward Foreign Currency Contracts (9,604) --
------- ----
Net Realized Gain 3,621 255
Change in Unrealized Appreciation/Depreciation on:
Investments (177) (236)
Futures Contracts, Options and Forward Foreign Currency Contracts (9) --
------- ----
Net Change in Unrealized Appreciation/Depreciation (186) (236)
------- ----
NET GAIN 3,435 19
------- ----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $90,606 $643
======= ====
See notes to financial statements.
26
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<CAPTION>
STRONG CORPORATE STRONG GOVERNMENT
BOND FUND SECURITIES FUND
----------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCT. 31, 1997 OCT. 31, 1996 OCT. 31, 1997 OCT. 31, 1996
------------- ------------- ------------- -------------
OPERATIONS:
<S> <C> <C> <C> <C>
Net Investment Income $ 24,340 $ 18,955 $ 44,125 $ 34,072
Net Realized Gain (Loss) 12,133 (78) 11,201 (9,671)
Change in Unrealized Appreciation/Depreciation 3,082 1,078 7,916 1,224
-------- -------- -------- --------
Increase in Net Assets Resulting from Operations 39,555 19,955 63,242 25,625
DISTRIBUTIONS FROM NET INVESTMENT INCOME (24,340) (18,955) (44,125) (34,072)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 290,340 239,496 426,918 434,098
Proceeds from Reinvestment of Dividends 19,815 15,401 37,418 27,954
Payment for Shares Redeemed (130,685) (176,350) (277,671) (272,152)
-------- -------- -------- --------
Increase in Net Assets from Capital Share Transactions 179,470 78,547 186,665 189,900
-------- -------- -------- --------
TOTAL INCREASE IN NET ASSETS 194,685 79,547 205,782 181,453
NET ASSETS:
Beginning of Period 297,608 218,061 637,685 456,232
-------- -------- -------- --------
End of Period $492,293 $297,608 $843,467 $637,685
======== ======== ======== ========
TRANSACTIONS IN SHARES OF THE FUND:
Sold 26,715 22,680 40,687 41,596
Issued in Reinvestment of Dividends 1,833 1,470 3,570 2,683
Redeemed (12,097) (16,839) (26,516) (26,228)
------ ------ ------ ------
Net Increase in Shares of the Fund 16,451 7,311 17,741 18,051
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
STRONG
STRONG HIGH-YIELD STRONG SHORT-TERM SHORT-TERM HIGH
BOND FUND BOND FUND YIELD BOND FUND
---------------------------- --------------------------- ---------------
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
OCT. 31, 1997 OCT. 31, 1996 OCT. 31, 1997 OCT. 31, 1996 OCT. 31, 1997
------------- ------------- ------------- ------------- -------------
(NOTE 1) (NOTE 1)
OPERATIONS:
<S> <C> <C> <C> <C> <C>
Net Investment Income $ 35,544 $ 6,558 $ 87,171 $ 79,076 $ 624
Net Realized Gain 15,012 3,062 3,621 487 255
Change in Unrealized Appreciation/Depreciation 8,476 3,742 (186) (3,061) (236)
-------- -------- ---------- ---------- -------
Increase in Net Assets Resulting from Operations 59,032 13,362 90,606 76,502 643
DISTRIBUTIONS:
From Net Investment Income (35,544) (6,558) (87,171) (79,076) (624)
In Excess of Net Investment Income (9) -- (244) (10) --
From Net Realized Gains (3,167) -- -- -- --
-------- -------- ---------- ---------- -------
Total Distributions (38,720) (6,558) (87,415) (79,086) (624)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 820,857 292,590 620,442 521,038 55,814
Proceeds from Reinvestment of Dividends 30,446 4,077 72,872 64,589 292
Payment for Shares Redeemed (578,653) (86,469) (534,521) (518,305) (11,306)
-------- -------- ---------- ---------- -------
Increase in Net Assets from Capital Share
Transactions 272,650 210,198 158,793 67,322 44,800
-------- -------- ---------- ---------- -------
TOTAL INCREASE IN NET ASSETS 292,962 217,002 161,984 64,738 44,819
NET ASSETS:
Beginning of Period 217,002 -- 1,147,811 1,083,073 --
-------- -------- ---------- ---------- -------
End of Period $509,964 $217,002 $1,309,795 $1,147,811 $44,819
======== ======== ========== ========== =======
TRANSACTIONS IN SHARES OF THE FUND:
Sold 70,489 26,782 63,352 53,424 5,449
Issued in Reinvestment of Dividends 2,617 371 7,441 6,630 28
Redeemed (49,664) (7,885) (54,580) (53,200) (1,100)
------ ------ ------ ------ -----
Net Increase in Shares of the Fund 23,442 19,268 16,213 6,854 4,377
====== ====== ====== ====== =====
See notes to financial statements.
27
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
October 31, 1997
1. ORGANIZATION
The Strong Income Funds consist of Strong Corporate Bond Fund, Inc., Strong
Government Securities Fund, Inc., Strong High-Yield Bond Fund (a series of
Strong Income Funds, Inc.), Strong Short-Term Bond Fund, Inc., and Strong
Short-Term 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 inception date for
Strong High-Yield Bond Fund is December 28, 1995, and the inception date
for Strong Short-Term High Yield Bond Fund is June 30, 1997.
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 acquisition cost and fair value of
these restricted securities held at October 31, 1997 were as follows:
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE PERCENT OF
COST FAIR VALUE NET ASSETS LIQUID*
------------ ------------ ---------- -------
<S> <C> <C> <C> <C>
Strong Corporate Bond Fund $160,964,691 $161,146,896 32.7% 98.7%
Strong Government Securities Fund 69,524,034 71,460,008 8.5% 85.3%
Strong High-Yield Bond Fund 162,648,538 166,547,162 32.7% 92.9%
Strong Short-Term Bond Fund 343,298,590 343,653,276 26.2% 81.2%
Strong Short-Term High Yield Bond Fund 6,249,433 6,136,052 13.7% 100.0%
</TABLE>
*Of these securities, which are restricted from resale, the above
percentage is eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 and also has been determined to be liquid by
the Advisor based upon guidelines established by the Fund's Board of
Directors.
(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.
28
<PAGE>
- --------------------------------------------------------------------------------
(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 Risks -- The Funds may utilize derivative
instruments including options, futures and other instruments with
similar characteristics to the extent that they are consistent with
the Fund's investment objectives and limitations. The Funds intend to
use such derivative instruments primarily to hedge or protect from
adverse movements in securities prices or interest rates. The use of
these instruments may involve risks such as the possibility of
illiquid markets or imperfect correlation between the value of the
instruments and the underlying securities, or that the counterparty
will fail to perform its obligations.
Foreign denominated assets and forward currency contracts may involve
greater risks than domestic transactions, including currency,
political and economic, regulatory and market risks.
(I) Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements, and the
reported amounts of increases and decreases in net assets from
operations during the reporting period. Actual results could differ
from those estimates.
(J) 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. 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 Corporate
Bond Fund, Strong High-Yield Bond Fund, Strong Short-Term Bond Fund, and
Strong Short-Term High Yield Bond Fund .625%. Advisory fees are subject to
reimbursement by the Advisor if a Fund's 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.
The Funds may invest cash reserves in money market funds sponsored and
managed by the Advisor, subject to certain limitations. The terms of such
transactions are identical to those of non-related entities except that, to
avoid duplicate investment advisory fees, advisory fees of each Fund
invested in such money market funds are reduced by an amount equal to
advisory fees paid to the Advisor under its investment advisory agreements
with the money market funds.
Certain information regarding related party transactions, excluding the
effects of waivers and reimbursements, for the period ended October 31,
1997 is as follows:
<TABLE>
<CAPTION>
OTHER SHAREHOLDER
PAYABLE TO SERVICING UNAFFILIATED
ADVISOR AT EXPENSES PAID DIRECTORS'
OCTOBER 31, 1997 TO ADVISOR FEES
---------------- ----------------- ------------
<S> <C> <C> <C>
Strong Corporate Bond Fund $37,564 $ 6,801 $ 5,205
Strong Government Securities Fund 74,309 6,647 9,544
Strong High-Yield Bond Fund 47,831 4,951 3,114
Strong Short-Term Bond Fund 91,911 21,478 16,952
Strong Short-Term High Yield Bond Fund 1,774 162 __
</TABLE>
29
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
October 31, 1997
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities for the period
ended October 31, 1997 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
---------------------------------- ----------------------------------
U.S. GOVERNMENT U.S. GOVERNMENT
AND AGENCY OTHER AND AGENCY OTHER
---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Strong Corporate Bond Fund $ 766,331,032 $1,312,807,794 $ 756,295,362 $1,155,105,023
Strong Government Securities Fund 2,275,669,086 1,195,738,994 2,068,777,057 1,205,483,421
Strong High-Yield Bond Fund 13,681,563 1,727,803,049 13,943,074 1,498,414,498
Strong Short-Term Bond Fund 561,943,063 1,807,493,670 571,347,348 1,818,778,293
Strong Short-Term High Yield Bond Fund __ 73,986,411 __ 28,857,475
</TABLE>
5. INCOME TAX INFORMATION
At October 31, 1997, the investment cost, gross unrealized appreciation and
depreciation on investments and capital loss carryovers for federal income
tax purposes were as follows:
<TABLE>
<CAPTION>
NET
FEDERAL TAX UNREALIZED UNREALIZED APPRECIATION/ NET CAPITAL LOSS
COST APPRECIATION DEPRECIATION (DEPRECIATION) CARRYOVERS
-------------- ------------ ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
Strong Corporate Bond Fund $ 484,885,653 $11,823,014 $ 3,167,802 $ 8,655,212 $32,587,509
Strong Government Securities Fund 872,861,985 20,448,142 2,805,800 17,642,342 1,556,973
Strong High-Yield Bond Fund 484,915,642 15,624,009 3,442,128 12,181,881 __
Strong Short-Term Bond Fund 1,292,312,068 27,441,410 17,110,062 10,331,348 81,223,078
Strong Short-Term High Yield Bond Fund 47,391,148 185,956 422,953 (236,997) __
</TABLE>
Capital loss carryovers expire in varying amounts through 2005. Capital
loss carryovers of $25,407,487 for the Strong Corporate Bond Fund expire in
1998.
For corporate shareholders in the Funds, the percentage of dividend income
distributed for the period ended December 31, 1997 which is designated as
qualifying for the dividends-received deduction is as follows: Strong
Corporate Bond Fund 8.3%, Strong Government Securities Fund 3.2%, Strong
High-Yield Bond Fund 6.2%, Strong Short-Term Bond Fund 5.2%, and Strong
Short-Term High Yield Bond Fund 0%.
<TABLE>
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------
STRONG CORPORATE BOND FUND
- ---------------------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA (a)
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
--------------------------------------- ----------------------------------------
<CAPTION>
Net Realized
Net Asset and Unrealized Total In Excess Net Asset
Value, Net Gains from From Net of Net Value,
Beginning Investment (Losses) on Investment Investment Investment Total End of
of Period Income Investments Operations Income Income Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oct. 31, 1997 $10.64 $0.74 $0.44 $1.18 ($0.74) __ ($0.74) $11.08
Oct. 31, 1996 10.56 0.73 0.08 0.81 (0.73) __ (0.73) 10.64
Oct. 31, 1995 (b) 9.36 0.63 1.22 1.85 (0.63) ($0.02) (0.65) 10.56
Dec. 31, 1994 10.24 0.73 (0.87) (0.14) (0.73) (0.01) (0.74) 9.36
Dec. 31, 1993 9.40 0.70 0.84 1.54 (0.70) __ (0.70) 10.24
Dec. 31, 1992 9.37 0.82 0.03 0.85 (0.82) __ (0.82) 9.40
</TABLE>
STRONG CORPORATE BOND FUND (continued)
- -------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
-----------------------------------------------------------
Net Ratio of Net
Assets, Ratio of Investment
End of Expenses Income Portfolio
Total Period (In to Average to Average Turnover
Return Millions) Net Assets Net Assets Rate
Oct. 31, 1997 +11.5% $492 1.0% 6.8% 542.4%
Oct. 31, 1996 +8.0% 298 1.0% 7.0% 672.8%
Oct. 31, 1995 (b) +20.3% 218 1.0%* 7.5%* 621.4%
Dec. 31, 1994 -1.3% 123 1.1% 7.6% 603.0%
Dec. 31, 1993 +16.8% 123 1.1% 7.0% 665.8%
Dec. 31, 1992 +9.4% 103 1.3% 8.7% 557.0%
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the Fund
outstanding for the entire period.
(b) Total return and portfolio turnover rate are not annualized. In 1995, the
Fund changed its fiscal year end from December to October.
30
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- ---------------------------------------------------------------------------------------------------------------------------
STRONG GOVERNMENT SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA (a)
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
--------------------------------------- -------------------------------------------------------
<CAPTION>
Net Realized
Net Asset and Unrealized Total In Excess In Excess Net Asset
Value, Net Gains from From Net of Net From Net of Net Value,
Beginning Investment (Losses) on Investment Investment Investment Realized Realized Total End of
of Period Income Investments Operations Income Income Gains Gains Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Oct. 31, 1997 $10.44 $0.65 $0.26 $0.91 ($0.65) __ __ __ ($0.65) $10.70
Oct. 31, 1996 10.60 0.63 (0.16) 0.47 (0.63) __ __ __ (0.63) 10.44
Oct. 31, 1995 (b) 9.63 0.54 0.99 1.53 (0.54) ($0.02) __ __ (0.56) 10.60
Dec. 31, 1994 10.61 0.62 (0.98) (0.36) (0.62) __ __ __ (0.62) 9.63
Dec. 31, 1993 10.39 0.66 0.63 1.29 (0.66) __ ($0.32) ($0.09) (1.07) 10.61
Dec. 31, 1992 10.77 0.80 0.11 0.91 (0.80) __ (0.49) __ (1.29) 10.39
</TABLE>
<TABLE>
STRONG GOVERNMENT SECURITIES FUND (continued)
- ---------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------------------
<CAPTION>
Net Ratio of Expenses Ratio of Net
Assets, Ratio of to Average Net Investment
End of Expenses Assets Without Income Portfolio
Total Period (In to Average Waivers and to Average Turnover
Return Millions) Net Assets Absorptions Net Assets Rate
<S> <C> <C> <C> <C> <C> <C>
Oct. 31, 1997 +9.1% $843 0.8% 0.8% 6.2% 474.9%
Oct. 31, 1996 +4.6% 638 0.9% 0.9% 6.0% 457.6%
Oct. 31, 1995 (b) +16.2% 456 0.9%* 0.9%* 6.2%* 409.2%
Dec. 31, 1994 -3.4% 277 0.9% 0.9% 6.2% 479.0%
Dec. 31, 1993 +12.7% 222 0.8% 1.0% 6.0% 520.9%
Dec. 31, 1992 +9.2% 82 0.7% 1.2% 7.7% 628.8%
</TABLE>
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the Fund
outstanding for the entire period.
(b) Total return and portfolio turnover rate are not annualized. In 1995, the
Fund changed its fiscal year end from December to October.
<TABLE>
STRONG HIGH-YIELD BOND FUND
- ---------------------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA (a)
----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
--------------------------------------- ----------------------------------------
<CAPTION>
Net Asset Net Realized Total Net Asset
Value, Net and Unrealized from From Net From Net Value,
Beginning Investment Gains on Investment Investment Realized Total End of
of Period Income Investments Operations Income Gains Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oct. 31, 1997 $11.26 $1.05 $0.81 $1.86 ($1.05) ($0.13) ($1.18) $11.94
Oct. 31, 1996 (b) 10.00 0.84 1.26 2.10 (0.84) __ (0.84) 11.26
</TABLE>
<TABLE>
STRONG HIGH-YIELD BOND FUND (continued)
- ---------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------------------
<CAPTION>
Net Ratio of Expenses Ratio of Net
Assets, Ratio of to Average Net Investment
End of Expenses Assets Without Income Portfolio
Total Period (In to Average Waivers and to Average Turnover
Return Millions) Net Assets Absorptions Net Assets Rate
<S> <C> <C> <C> <C> <C> <C>
Oct. 31, 1997 +17.3% $510 0.6% 0.8% 8.9% 409.3%
Oct. 31, 1996 (b) +21.7% 217 0.0%* 1.0%* 9.6%* 390.8%
</TABLE>
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the Fund
outstanding for the entire period.
(b) Inception date is December 28, 1995. Total return and portfolio turnover
rate are not annualized.
<TABLE>
STRONG SHORT-TERM BOND FUND
- ---------------------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA (a)
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
--------------------------------------- -------------------------------------------------------
<CAPTION>
Net Realized
Net Asset and Unrealized Total In Excess Net Asset
Value, Net Gains from From Net of Net From Net Value,
Beginning Investment (Losses) on Investment Investment Investment Realized Total End of
of Period Income Investments Operations Income Income Gains Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Oct. 31, 1997 $ 9.75 $0.69 $0.03 $0.72 ($0.69) __ __ ($0.69) $ 9.78
Oct. 31, 1996 9.77 0.69 (0.02) 0.67 (0.69) __ __ (0.69) 9.75
Oct. 31, 1995 (b) 9.42 0.56 0.35 0.91 (0.56) __ __ (0.56) 9.77
Dec. 31, 1994 10.23 0.64 (0.80) (0.16) (0.65) __ __ (0.65) 9.42
Dec. 31, 1993 9.99 0.66 0.25 0.91 (0.66) ($0.01) __ (0.67) 10.23
Dec. 31, 1992 10.12 0.76 (0.11) 0.65 (0.76) __ ($0.02)(c) (0.78) 9.99
</TABLE>
<TABLE>
STRONG SHORT-TERM BOND FUND (continued)
- ---------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------------------
<CAPTION>
Net Ratio of Expenses Ratio of Net
Assets, Ratio of to Average Net Investment
End of Expenses Assets Without Income Portfolio
Total Period (In to Average Waivers and to Average Turnover
Return Millions) Net Assets Absorptions Net Assets Rate
<S> <C> <C> <C> <C> <C> <C>
Oct. 31, 1997 +7.6% $1,310 0.9% 0.9% 7.0% 193.8%
Oct. 31, 1996 +7.1% 1,148 0.9% 0.9% 7.1% 191.5%
Oct. 31, 1995 (b) +9.9% 1,083 0.9%* 0.9%* 7.0%* 317.1%
Dec. 31, 1994 -1.6% 1,041 0.9% 0.9% 6.5% 249.7%
Dec. 31, 1993 +9.3% 1,532 0.8% 0.9% 6.3% 444.9%
Dec. 31, 1992 +6.7% 757 0.6% 0.9% 7.3% 353.3%
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the Fund
outstanding for the entire period.
(b) Total return and portfolio turnover rate are not annualized. In 1995, the
Fund changed its fiscal year end from December to October.
(c) Ordinary income distribution for tax purposes.
</TABLE>
31
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- ---------------------------------------------------------------------------------------------------------------------------
STRONG SHORT-TERM HIGH YIELD BOND FUND
- ---------------------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA (a)
----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
--------------------------------------- ----------------------------------------
<CAPTION>
Net Asset Net Realized Total Net Asset
Value, Net and Unrealized from From Net From Net Value,
Beginning Investment Gains on Investment Investment Realized Total End of
of Period Income Investments Operations Income Gains Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oct. 31, 1997(b) $10.00 $0.25 $0.24 $0.49 ($0.25) __ ($0.25) $10.24
</TABLE>
<TABLE>
STRONG SHORT-TERM HIGH YIELD BOND FUND (continued)
- ---------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------------------
<CAPTION>
Net Ratio of Expenses Ratio of Net
Assets, Ratio of to Average Net Investment
End of Expenses Assets Without Income Portfolio
Total Period (In to Average Waivers and to Average Turnover
Return Millions) Net Assets Absorptions Net Assets Rate
<S> <C> <C> <C> <C> <C> <C>
Oct. 31, 1997 (b) +4.9% $45 1.0%* 1.0%* 7.7%* 96.2%
</TABLE>
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the Fund
outstanding for the entire period.
(b) Inception date is June 30, 1997. Total return and portfolio turnover rate
are not annualized.
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
High-Yield Bond Fund and Strong Short-Term High Yield Bond Fund, both series of
the Strong Income Funds, Inc., Strong Corporate Bond Fund, Inc., Strong
Government Securities Fund, Inc., and Strong Short-Term Bond Fund, Inc.
(collectively referred to herein as the "Strong Income Funds"), including the
schedules of investments in securities, as of October 31, 1997, and the related
statements of operations, statements of changes in net assets and the financial
highlights for each of the periods indicated. These financial statements and
financial highlights are the responsibility of the Strong Income 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. Those 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, 1997 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, 1997, 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 9, 1997
32
<PAGE>
DIRECTORS
Richard S. Strong
Willie D. Davis
Stanley Kritzik
Marvin E. Nevins
William F. Vogt
OFFICERS
Richard S. Strong, Chairman of the Board
Lawrence A. Totsky, Vice President
Thomas P. Lemke, Vice President
John S. Weitzer, Vice President
Stephen J. Shenkenberg, Vice President and Secretary
John A. Flanagan, Treasurer
INVESTMENT ADVISOR
Strong Capital Management, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
CUSTODIAN
Firstar Trust Company
P.O. Box 701, Milwaukee, Wisconsin 53201
AUDITOR
Coopers & Lybrand L.L.P.
411 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Godfrey & Kahn, S.C.
780 North Water Street, Milwaukee, Wisconsin 53202
<PAGE>
For a prospectus containing more complete information, including management fees
and expenses, please call 1-800-368-1030. Please read it carefully before
investing or sending money. This report does not constitute an offer for the
sale of securities. Strong Funds are offered for sale by prospectus only.
[PICTURE OF TELEPHONE]
To order a free prospectus kit,
CALL 1-800-368-1030.
To learn more about our funds,
discuss an existing account,
or conduct a transaction,
CALL 1-800-368-3863.
--------------------
If you are a
Financial Professional,
CALL 1-800-368-1683
[PICTURE OF STRONG WEB SITE ON COMPUTER]
Strong On-line
www.strong-funds.com
[STRONG LOGO]
STRONG FUNDS
P.O. Box 2936 o Milwaukee, Wisconsin 53201
Strong Funds Distributors, Inc. 6683L97 97AINC
