<PAGE>
THE STRONG [PIE CHART OF ASSET DIVERSIFICATION
INCOME FUNDS EMPHASIZING BONDS]
SEMI-ANNUAL REPORT o APRIL 30, 1997
THE STRONG SHORT-TERM BOND FUND
-------------------------------------
THE STRONG GOVERNMENT SECURITIES FUND
-------------------------------------
THE STRONG CORPORATE BOND FUND
-------------------------------------
THE STRONG HIGH-YIELD BOND FUND
[STRONG LOGO]
STRONG FUNDS
<PAGE>
EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING
These common-sense rules are followed by many successful investors. They make
sense for beginners, too. If you have a question on these principles, or would
like to discuss them with us, please contact us at 1-800-368-3863. We're here 24
hours a day, seven days a week to take your call.
- ---------------------------------------1----------------------------------------
HAVE A PLAN.
[PICTURE OF FOLDER LABELED INVESTMENTS]
Even a simple plan can help you take control of your financial future. Review
your plan once a year, or if your circumstances change.
- ---------------------------------------2----------------------------------------
START INVESTING AS SOON AS POSSIBLE.
[PICTURE OF CLOCK]
Make time a valuable ally. Let it put the power of compounding to work for you,
while helping to reduce your potential investment risk.
- ---------------------------------------3----------------------------------------
DIVERSIFY YOUR PORTFOLIO.
[PICTURE OF PIE CHART OF ASSET DIVERSIFICATION]
By investing in different asset classes - stocks, bonds, and cash - you help
protect against poor performance in one type of investment while including
investments most likely to help you achieve your important goals.
- ---------------------------------------4----------------------------------------
INVEST REGULARLY.
[PICTURE OF MEMO REMINDER TO INVEST]
Investing is a process, not a one-time event. By investing regularly over the
long term, you reduce the impact of short-term market gyrations, and you attend
to your long-term plan before you're tempted to spend those assets on short-term
needs.
- ---------------------------------------5----------------------------------------
MAINTAIN A LONG-TERM PERSPECTIVE.
[PICTURE OF GRAPH SLOPING UPWARD]
For most individuals, the best discipline is staying invested as market
conditions change. Reactive, emotional investment decisions are all too often a
source of regret - and of principal loss.
- ---------------------------------------6----------------------------------------
CONSIDER STOCKS TO HELP ACHIEVE MAJOR LONG-TERM GOALS.
[PICTURE OF PIE CHART OF ASSET DIVERSIFICATION EMPHASIZING STOCKS]
Over time, stocks have provided the more powerful returns needed to help the
value of your investments stay well ahead of inflation.
- ---------------------------------------7----------------------------------------
KEEP A COMFORTABLE AMOUNT OF CASH IN YOUR PORTFOLIO.
[PICTURE OF DOLLAR SIGN]
To meet current needs, including emergencies, use a money market fund or a bank
account - not your long-term investment assets.
- ---------------------------------------8----------------------------------------
KNOW WHAT YOU'RE BUYING.
[PICTURE OF MAGNIFYING GLASS]
Make sure you understand the potential risks and rewards associated with each of
your investments. Ask questions...request information...make up your own mind.
And choose a fund company that helps you make informed investment decisions.
<PAGE>
THE STRONG
INCOME FUNDS
SEMI-ANNUAL REPORT o APRIL 30, 1997
TABLE OF CONTENTS
INVESTMENT REVIEWS
The Strong Short-Term Bond Fund ......................................2
The Strong Government Securities Fund ................................4
The Strong Corporate Bond Fund .......................................6
The Strong High-Yield Bond Fund ......................................8
FINANCIAL INFORMATION
Schedules of Investments in Securities
The Strong Short-Term Bond Fund .................................10
The Strong Government Securities Fund ...........................14
The Strong Corporate Bond Fund ..................................15
The Strong High-Yield Bond Fund .................................18
Statements of Assets and Liabilities ................................21
Statements of Operations ............................................22
Statements of Changes in Net Assets .................................23
Notes to Financial Statements .......................................24
FINANCIAL HIGHLIGHTS .....................................................27
<PAGE>
THE STRONG SHORT-TERM BOND FUND
OVER THE PAST SIX MONTHS, WE HAVE MAINTAINED OUR CAREFUL APPROACH TO
FIXED-INCOME INVESTING.
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.
For the six months ended April 30, the Fund's total return stood at 3.68%, well
ahead of our benchmarks and our peer group average: The Lehman Brothers 1-3 Year
Government/Corporate Bond Index returned 2.26% for the same period, and the
Lipper Short Investment Grade Debt Funds Index returned 2.27%.*(1)
===============================================
ASSET ALLOCATION
Based on net assets as of 4-30-97
===============================================
[PIE CHART]
Corporate Bonds 54.5%
Non-Agency Mortgage- and
Asset-Backed Securities 17.4%
U.S. Government and
Agency Issues 15.7%
Preferred Stocks 7.0%
Short-Term Investments 3.6%
Convertible Securities 1.8%
The Fund's asset allocation does not reflect
any futures positions held by the Fund.
===============================================
===============================================
PORTFOLIO STATISTICS
As of 4-30-97
===============================================
30-DAY ANNUALIZED YIELD(2) 7.21%
AVERAGE MATURITY(3) 2.4 YEARS
AVERAGE QUALITY RATING(4) A
===============================================
THE PAST SIX MONTHS
The first six months of the Fund's fiscal year can really be divided into two
periods. First, in November and December 1996, the bond market rallied as
investors expected the economy to slow in the first quarter of 1997. However, by
early 1997, the market recognized that the economy was stronger than previously
forecast. Furthermore, it became apparent that the Federal Reserve would need to
raise short-term interest rates to slow economic growth and head off potential
increases in inflation.
Rates rose significantly after Federal Reserve Chairman Alan Greenspan gave his
Humphrey-Hawkins testimony to Congress in February. In his remarks, Greenspan
gave a strong signal that the Fed would raise the fed funds rate in March--as it
in fact did. Yields on two-year notes increased by more than 50 basis points to
6.27% over the six months through April, while 30-year bond yields rose by more
than 30 basis points to 6.96%.
Although interest rates at the end of April were higher than in November, the
market had stabilized within a month of the Fed's hike. Most investors appeared
to believe that the increase in short-term interest rates needed to slow
economic growth would be relatively small and short-lived.
===============================================
LIPPER TOTAL
RETURN RANKINGS(1)
As of 4-30-97
===============================================
1-YEAR #3 OF 96
5-YEAR #2 OF 33
Category: Short Investment Grade Debt
Funds. Rankings are historical and do not
represent future results. Source of Lipper
rankings is Lipper Analytical Services, Inc.
===============================================
OUR STRATEGY REMAINS INTACT
In this environment over the past six months, we have maintained our careful
approach to fixed-income investing. We believe that successful fixed-income
management begins with a top-down analysis of the economy, interest rates, and
the supply of and demand for credit--and ends with extensive security analysis.
We also believe that defining benchmarks and then making only moderate
deviations is an efficient way to help manage risk.
We have kept the Fund's interest-rate exposure slightly shorter than normal as a
mild defensive measure against rising interest rates. The Fund's duration
currently stands at 1.7 years.
We also have kept a good portion of the portfolio in floating-rate securities.
As interest rates move up, the level of income these bonds pay out resets at
higher levels. We intend to maintain this position for the foreseeable future.
ADDING INTERNATIONAL OPPORTUNITIES
In March, Shirish Malekar joined the management of the Strong Short-Term Bond
Fund. We believe that, over time, international diversification can help reduce
total portfolio risk and increase return potential. With his nine years of
investment experience--including his management of the Strong International Bond
Fund and the Strong Short-Term Global Bond Fund (both since March 1994)--Shirish
will apply top-down analysis and individual security research to identify
attractive international issues for the Fund. To help contain the risk that
currency fluctuation can pose, he will actively hedge non-dollar-denominated
investments. We anticipate that such investments will take up about 10% of the
portfolio, even though the Fund's prospectus allows it to put up to 25% of
assets in such securities.
2
<PAGE>
OUTLOOK
As of the end of April, bond market sentiment appeared to hold that the Federal
Reserve will only need to make modest adjustments to interest rates in order to
achieve a slowdown in economic growth. We believe there is still some risk of
higher interest rates, though; the economy has continued its strong momentum and
the market for labor is still tight, driving increases in wages. The small
increase in interest rates in March is unlikely to be enough to slow this
economy in a meaningful way. Therefore, we intend to keep our interest-rate
positioning somewhat shorter than usual.
That we have adopted a moderately defensive approach toward interest rates does
not mean that we are pessimistic about bonds' prospects. To the contrary, we
believe bonds represent a very good value to investors. They are particularly
valuable as a way to moderate risk in more aggressive portfolios.
We appreciate your investment in the Strong Short-Term Bond Fund, and will do
our best to earn 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 Comanagers
[PHOTO OF SHIRISH T. MALEKAR, BRADLEY C. TANK AND LYLE J. FITTERER]
================================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 8-31-87 to 4-30-97
================================================================================
[GRAPH]
THE STRONG 1-3 Year Lipper Short 1-3 Year Treasury/
SHORT-TERM Government/Corporate Investment Grade Government-Sponsored/
BOND FUND Bond Index * Debt Average * Corporate Bond Index*
8-87 10,000 10,000 10,000 10,000
12-87 10,318 10,303 10,247 10,298
12-88 11,362 10,955 10,963 10,957
12-89 12,295 12,156 12,100 12,154
12-90 12,944 13,333 12,995 13,332
12-91 14,836 14,912 14,490 14,914
12-92 15,827 15,860 15,286 15,876
12-93 17,302 16,742 16,204 16,772
12-94 17,022 16,834 16,248 16,871
12-95 19,064 18,676 17,866 18,706
12-96 20,352 19,638 18,688 19,671
4-97 20,771 19,928+ 18,950 19,964
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.
================================================================================
===================================
AVERAGE ANNUAL
TOTAL RETURNS(1)
As of 4-30-97
===================================
1-YEAR 7.96%
3-YEAR 6.99%
5-YEAR 6.59%
SINCE INCEPTION 7.85%
(on 8-31-87)
===================================
- --------------------------------------------------------------------------------
* The Lehman Brothers 1-3 Year Government/Corporate Bond Index is an
unmanaged index generally representative of all U.S. Government agency and
Treasury securities and all investment-grade corporate debt securities with
maturities of one to three years. The Lipper Short Investment Grade Debt
Funds Index is an equally-weighted performance index of the largest
qualifying funds in this Lipper category. Source of the Lehman and Salomon
index data is Bloomberg. Source of the Lipper index data is Lipper
Analytical Services, Inc.
1 Average annual total return and total return measure change in the value of
an investment in the Fund, assuming reinvestment of all dividends and
capital gains. Average annual total return reflects annualized change,
while total return reflects aggregate change.
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 and options.
4 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
BECAUSE WE STRIVE WITH THIS FUND TO PROVIDE CONSISTENTLY ABOVE-AVERAGE RETURNS
WITHOUT EXCESS VOLATILITY, ATTENTION TO VALUATIONS IS ESSENTIAL.
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 six months ended April 30, the Fund's total return stood at 2.29%, well
ahead of our benchmark and the average for our peer group of funds. The Lipper
General U.S. Government Funds Index returned 1.25% for the same period.*(2)
================================================
ASSET ALLOCATION
As of 4-30-97
================================================
[PIE CHART]
U.S. Government and
Agency Issues 81.6%
Corporate Bonds 12.8%
Preferred Stocks 5.1%
Municipal Bonds 0.5%
When-issued securities are reflected in the
Fund's allocation. The asset allocation
depicts market exposure and is not given as
a percentage of net assets. The Fund's
allocation does not reflect any futures held
by the fund. U.S. Government and Agency Issues
include short-term government issues.
================================================
=======================================
PORTFOLIO STATISTICS
As of 4-30-97
=======================================
30-DAY ANNUALIZED YIELD(3) 6.87%
AVERAGE MATURITY(4) 7.6 YEARS
AVERAGE QUALITY RATING(5) AAA
=======================================
THE PAST SIX MONTHS
The first six months of the Fund's fiscal year can really be divided into two
periods. First, in November and December 1996, the bond market rallied as
investors expected the economy to slow in the first quarter of 1997. However, by
early 1997, the market recognized that the economy was stronger than previously
forecasted. Furthermore, it became apparent that the Federal Reserve would need
to raise short-term interest rates to slow economic growth and head off
potential increases in inflation.
Rates rose significantly after Federal Reserve Chairman Alan Greenspan gave his
Humphrey-Hawkins testimony to Congress in February. In his remarks, Greenspan
gave a strong signal that the Fed would raise the fed funds rate in March--as it
in fact did. Yields on two-year notes increased by more than 50 basis points to
6.27% over the six months through April, while 30-year bond yields rose by more
than 30 basis points to 6.96%.
Although interest rates at the end of April were higher than in November, the
market had stabilized within a month of the Fed's hike. Most investors appeared
to believe that the increase in short-term interest rates needed to slow
economic growth would be relatively small and short-lived.
OUR STRATEGY REMAINS INTACT
In this environment over the past six months, we have maintained our careful
approach to fixed-income investing. We believe that successful fixed-income
management begins with a top-down analysis of the economy, interest rates, and
the supply of and demand for credit--and ends with extensive security analysis.
We also believe that defining benchmarks and then making only moderate
deviations is an efficient way to help manage risk.
We seek to add value to the portfolio in many different ways. To this end, we
shortened the Fund's duration in February to help limit its sensitivity to
interest-rate increases. The Fund's duration currently stands at 4.3, toward the
short end of our typical range. We also positioned the Fund for a flattening of
the yield curve--that is, a situation that can cause longer-maturity bonds to
outperform shorter-maturity issues. This strategy paid off, as 30-year bonds
proceeded to outperform two-year notes. Finally, we have moderately reduced our
exposure to mortgage securities. We made this last move because we believe a
good part of that market is now fully valued, making it harder to find
opportunities at reasonable prices. Because we strive with this Fund to provide
consistently above-average returns without excess volatility, this attention to
valuations is essential.
=====================================
LIPPER TOTAL
RETURN RANKINGS(2)
As of 4-30-97
=====================================
1-YEAR #23 OF 175
3-YEAR #4 OF 124
5-YEAR #3 OF 75
10-YEAR #1 OF 48
Category: U.S. Government Funds.
Rankings are historical and do not
represent future results. Source of
Lipper rankings is Lipper Analytical
Services, Inc.
=====================================
4
<PAGE>
A NEW COMANAGER
In March, John Bender became comanager of the Strong Government Securities Fund.
We're confident that John's eight years of investment experience--including time
as an analyst and as comanager of the Strong Corporate Bond Fund--will add value
to the management of this Fund.
OUTLOOK
As of the end of April, bond market sentiment appeared to hold that the Federal
Reserve will only need to make modest adjustments to interest rates in order to
achieve a slowdown in economic growth. We believe there is still some risk of
higher interest rates, though; the economy has continued its strong momentum and
the market for labor remains tight, driving increases in wages. The small
increase in interest rates in March is unlikely to be enough to slow this
economy in a meaningful way. Therefore, we intend to keep our interest-rate
positioning somewhat shorter than usual.
We appreciate 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 Comanagers
[PHOTO OF BRADLEY C. TANK AND JOHN T. BENDER]
================================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 10-29-86 to 4-30-97
================================================================================
[GRAPH]
THE STRONG Lehman Brothers Lipper General
GOVERNMENT Aggregate U.S. Government
SECURITIES FUND Bond Index * Fund Index *
9-86 10,000 10,000 10,000
12-86 10,218 10,187 10,171
12-87 10,571 10,467 10,222
12-88 11,682 11,293 10,903
12-89 12,835 12,934 12,256
12-90 13,953 14,091 13,238
12-91 16,277 16,346 15,176
12-92 17,780 17,556 16,101
12-93 20,043 19,268 17,441
12-94 19,636 18,706 16,614
12-95 23,218 22,162 19,429
12-96 23,872 22,963 19,819
4-97 24,083 23,178 19,943
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.
================================================================================
====================================
AVERAGE ANNUAL
TOTAL RETURNS(2)
As of 4-30-97
====================================
1-YEAR 7.96%
3-YEAR 6.99%
5-YEAR 6.59%
SINCE INCEPTION 7.85%
(on 8-31-87)
====================================
- --------------------------------------------------------------------------------
* 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 Micropal. Source of the
Lipper index data is Lipper Analytical Services, Inc.
1 Fund shares are neither insured nor guaranteed by the U.S. Government.
2 Average annual total return and total return measure change in the value of
an investment in the Fund, assuming reinvestment of all dividends and
capital gains. Average annual total return reflects annualized change,
while total return reflects aggregate change.
3 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.
4 The Fund's average maturity includes the effect of futures, options, and
when-issued securities.
5 For purposes of this average rating, the Fund's short-term debt obligations
have been assigned a long-term rating by the Advisor.
5
<PAGE>
THE STRONG CORPORATE BOND FUND
OUR MOST SIGNIFICANT CHANGE IN SECTOR ALLOCATION OVER THE PAST SIX MONTHS WAS AN
INCREASE IN OUR EXPOSURE TO THE BANKING INDUSTRY.
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.
For the six months ended April 30, the Fund's total return stood at 3.22%, well
ahead of our benchmarks and our peer group: The Lehman Brothers Corporate BAA
Bond Index returned 1.63% for the same period, and the Lipper Corporate Debt
Funds BBB Rated Index returned 1.87%.*(1)
============================================
ASSET ALLOCATION
As of 4-30-97
============================================
[PIE CHART]
Corporate Bonds 80.0%
Preferred Securities 9.1%
Non-Agency Mortgage- and
Asset-Backed Securities 6.6%
Convertible Securities 2.4%
U.S. Government and
Agency Issues 1.9%
When-issued securities are reflected in
the Fund's allocation. The asset allocation
depicts market exposure and is not given as
a percentage of net assets. The Fund's
allocation does not reflect any futures held
by the fund.
============================================
THE PAST SIX MONTHS
The first six months of the Fund's fiscal year can really be divided into two
periods. First, in November and December 1996, the bond market rallied as
investors expected the economy to slow in the first quarter of 1997. However, by
early 1997, the market recognized that the economy was stronger than previously
forecasted. Furthermore, it became apparent that the Federal Reserve would need
to raise short-term interest rates to slow economic growth and head off
potential increases in inflation.
Rates rose significantly after Federal Reserve Chairman Alan Greenspan gave his
Humphrey-Hawkins testimony to Congress in February. In his remarks, Greenspan
gave a strong signal that the Fed would raise the fed funds rate in March--as it
in fact did late that month. Yields on two-year notes increased by more than 50
basis points to 6.27%, while 30-year bond yields rose by more than 30 basis
points to 6.96% at the end of April.
Although interest rates at the end of April were higher than in November, the
market had stabilized within a month of the Fed's hike. Most investors appeared
to believe that the increase in short-term interest rates needed to slow
economic growth would be relatively small and short-lived.
=======================================
PORTFOLIO STATISTICS
As of 4-30-97
=======================================
30-DAY ANNUALIZED YIELD(2) 7.33%
AVERAGE MATURITY(3) 10.5 YEARS
AVERAGE QUALITY RATING(4) BBB
=======================================
OUR STRATEGY REMAINS INTACT
In this environment over the past six months, we have maintained our careful
approach to fixed-income investing. As we manage the portfolio, we consider the
average maturity, sector weightings, and other characteristics of our benchmark,
the Lehman Brothers Corporate BAA Bond Index. We deviate from this index to the
extent that our research indicates is appropriate.
We seek to add value to the portfolio in many different ways. To this end, we
shortened the Fund's duration in February to help limit its sensitivity to
interest-rate increases. We also positioned the Fund for a flattening of the
yield curve--that is, a situation that can cause longer-maturity bonds to
outperform shorter-maturity issues. This strategy paid off, as 30-year bonds
proceeded to outperform two-year notes. Finally, we have continued to boost
returns through careful issue selection and sector rotation within the
corporate-bond market.
Our most significant change in sector allocation over the past six months was an
increase in our exposure to the banking industry. We believe that continued
consolidation in this sector--particularly in regional banking--is likely to
allow for many improvements in these issues' ratings, with subsequent price
appreciation.
============================================
LIPPER TOTAL
RETURN RANKINGS(1)
As of 4-30-97
============================================
1-YEAR #9 OF 108
3-YEAR #3 OF 67
5-YEAR #3 OF 34
10-YEAR #17 OF 19
Category: Corporate Debt BBB Rated Funds.
Rankings are historical and do not represent
future results. Source of Lipper rankings
is Lipper Analytical Services, Inc.
============================================
6
<PAGE>
OUTLOOK
As of the end of April, bond market sentiment appeared to hold that the Federal
Reserve will only need to make modest adjustments to interest rates in order to
achieve a slowdown in economic growth. We believe there is still some risk of
higher interest rates, though; the economy has continued its strong momentum and
the market for labor is still tight, driving increases in wages. The small
increase in interest rates in March is unlikely to be enough to slow this
economy in a meaningful way. Therefore, we intend to keep our interest-rate
positioning somewhat shorter than usual. However, with continued strong economic
fundamentals and corporate earnings, we expect to find good opportunities for
outperformance in both the investment-grade and high-yield markets going
forward.
Thank you for your investment in the Strong Corporate Bond Fund. We look forward
to serving your investment needs in the future.
/s/Jeffrey A. Koch
Jeffrey A. Koch
/s/John T. Bender
John T. Bender
Portfolio Comanagers
[PHOTO OF JEFFREY A. KOCH & JOHN T. BENDER]
================================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 12-12-85 to 4-30-97
================================================================================
[GRAPH]
THE STRONG Lehman Brothers Lipper Corporate
CORPORATE Corporate BAA Debt Funds BBB
BOND FUND Bond Index * Rated Index *
11-85 10,000 10,000 10,000
12-85 10,300 10,161 10,184
12-86 13,399 11,800 11,595
12-87 13,997 12,322 11,881
12-88 15,744 13,653 12,977
12-89 15,799 15,521 14,342
12-90 14,816 16,341 15,275
12-91 17,013 19,497 17,908
12-92 18,611 21,329 19,361
12-93 21,731 24,086 21,838
12-94 21,447 23,317 20,846
12-95 26,892 28,617 25,052
12-96 28,380 29,768 26,083
4-97 28,755 29,988 26,261
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.
================================================================================
=====================================
AVERAGE ANNUAL
TOTAL RETURNS(1)
As of 4-30-97
=====================================
1-YEAR 10.20%
5-YEAR 10.70%
10-YEAR 7.38%
SINCE INCEPTION 9.72%
(on 12-12-85)
=====================================
- --------------------------------------------------------------------------------
* 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 Micropal. Source of the Lipper index data is Lipper
Analytical Services, Inc.
1 Average annual total return and total return measure change in the value of
an investment in the Fund, assuming reinvestment of all dividends and
capital gains. Average annual total return reflects annualized change,
while total return reflects aggregate change.
2 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.
7
<PAGE>
THE STRONG HIGH-YIELD BOND FUND
WE ANTICIPATE THAT FUNDAMENTAL CONDITIONS WILL REMAIN VERY POSITIVE FOR THE
BALANCE OF THE YEAR.
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 4-30-97
================================================
QUALITY BREAKDOWN
[PIE CHART]
B-Rated Bonds 43.2%
BB-Rated Bonds 29.8%
Short-Term Investments 10.8%
Unrated 6.7%
Preferred Stocks and Warrants 6.7%
Investment Grade Bonds 1.8%
CCC-Rated Bonds 1.0%
SECTOR BREAKDOWN
[PIE CHART]
Corporate Bonds 81.4%
Short-Term Investments 10.8%
Stocks and Warrants 6.2%
Non-Agency Mortgage- and
Asset-Backed Securities 1.1%
Convertible Securities 0.5%
The Fund's asset allocation does not reflect any
futures positions held by the Fund.
================================================
STRONG PERFORMANCE CONTINUED
For the six months ended April 30, 1997, the Fund posted a total return of
7.26%. That places it well ahead of our benchmark, the Lehman Brothers
High-Yield Bond Index, which returned 4.94%. We also out-paced our peer group,
represented by the Lipper High Current Yield Funds Index. It averaged a return
of 4.17% for the same six-month period.*(1)
=============================================
PORTFOLIO STATISTICS
As of 4-30-97
=============================================
30-DAY ANNUALIZED YIELD(2) 9.37%
AVERAGE MATURITY(3) 5.6 YEARS
AVERAGE QUALITY RATING(4) BB
=============================================
NAVIGATING A TRICKY MARKET
Although we enjoyed success, the market presented us with challenges. From
November through most of March, the market overall had a fairly complacent tone.
It may have been too complacent, particularly with regard to securities from
less-established companies--ones where significant improvements lie four to five
years away.
These lower-quality issues became overpriced, and subsequently were among the
hardest hit in late March and in April, when a correction hit the market. The
catalyst for the downturn was the Federal Reserve's raising of interest rates,
even though high-yield bonds tend to be less sensitive to changes in interest
rates than investment-quality issues.
Some changes we had made to the portfolio helped us to weather the correction.
We had worked to raise the Fund's credit profile, building BB issues to about a
third of the portfolio. That raised the Fund's average credit quality to BB from
B six months earlier--still in line with our benchmark, but a boost given that
lower-quality issues suffered the most when the market turned down. We had also
pulled the Fund's duration in to about 90% of our benchmark's, which translates
into a figure of 4.0. That decreased sensitivity to interest-rate hikes was
beneficial as rates moved up.
============================================
LIPPER TOTAL
RETURN RANKING(1)
As of 4-30-97
============================================
1-YEAR #5 OF 158
Category: High Current Yield Funds. Rankings
are historical and do not represent future
results. Source of Lipper rankings is Lipper
Analytical Services, Inc.
============================================
WHERE WE ARE NOW
That difficult three weeks served as a wakeup call for the market, restoring
some rationality. It left in its wake some unpleasantness, but some opportunity
as well.
The difference--or spread--between the yields of high-yield bonds and those of
high-quality issues such as Treasuries has since returned to a fairly narrow
band. Investors are confident in companies' ability to pay off their debt,
stimulating demand for high-yield issues and thus driving their prices higher.
We anticipate that those spreads will remain tight over the next several months
or longer, as investors remain optimistic.
We believe that optimism is justified, given strong reports on the first-quarter
GDP growth rate and the number of companies posting earnings in excess of
analysts' estimates. Reports of that growth slowing somewhat are also positive,
as they mark a retreat to levels that are sustainable over the longer term.
Sectors we're favoring at the moment include airlines, led by top holding US
Airways. We like this company for its healthy level of cash and unencumbered
assets, and its dedication to controlling labor costs and cutting unprofitable
routes. We also like larger, broad line financial institutions, which seem to be
insulated from the troubles hurting some more narrowly focused financial firms.
We're underweighting oil and gas issues. These were overpriced before the
correction, and now appear to be just fairly priced. Because we generally look
for issues that are selling cheaply relative to their potential return, they
still don't appeal to us at their current prices.
8
<PAGE>
OUTLOOK
We anticipate that fundamental conditions will remain very positive for the
balance of the year. That said, we will still be grappling with the tight
spreads between Treasury-bond yields and those on lower-quality issues, and it
seems entirely plausible that the Fed will raise interest rates at least once
more in the coming months. That's one reason we expect more volatility in this
area than we saw for most of the past year.
Even under smooth conditions, though, the high-yield bond market is one that
demands a certain patience from its investors. 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. That's why we strongly recommend that investors in this
Fund maintain a long-term time horizon. Even when short-term volatility does hit
the market, the income stream this Fund provides can serve as a healthy cushion.
The Fund's increased quality and shortened duration should help it contend with
shorter-term ups and downs. We may even raise the portfolio's credit quality
further, favoring BB issues over Bs. Were the economy's growth rate to slow
somewhat, triggering a sustained rally in Treasury bonds, it's possible we could
make such a move while maintaining the level of income that this Fund is
designed to provide.
We thank you for your investment in the Strong High-Yield Bond Fund. We look
forward to continuing to serve your investment needs.
Sincerely,
/s/Jeffrey A. Koch
Jeffrey A. Koch
Portfolio Manager
[PHOTO OF JEFFREY A. KOCH]
================================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 12-28-95 to 4-30-97
================================================================================
[GRAPH]
THE STRONG Lehman Brothers Lipper High
HIGH-YIELD High-Yield Current Yield
BOND FUND Bond Index * Funds Index *
11-95 10,000 10,000 10,000
12-95 10,031 10,015 10,014
3-96 10,849 10,192 10,270
6-96 11,424 10,361 10,435
9-96 12,076 10,774 10,919
12-96 12,724 11,151 11,282
3-97 12,917 11,276 11,328
4-97 13,050 11,394 11,423
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.
================================================================================
========================================
AVERAGE ANNUAL
TOTAL RETURNS(1)
As of 4-30-97
========================================
1-YEAR 18.62%
SINCE INCEPTION 21.90%
(on 12-28-95)
========================================
- --------------------------------------------------------------------------------
* The Lehman Brothers High-Yield Bond Index is an unmanaged index generally
representative of the performance of corporate bonds rated below investment
grade. The Lipper High Current Yield Funds Index is an equally-weighted
performance index of the largest qualifying funds in this Lipper category.
Source of the Lehman index data is Micropal. Source of the Lipper index
data is Lipper Analytical Services, Inc.
1 Average annual total return and total return measure change in the value of
an investment in the Fund, assuming reinvestment of all dividends and
capital gains. Average annual total return reflects annualized change,
while total return reflects aggregate change.
2 The Advisor temporarily waived fees of 0.110% and absorbed expenses of
0.135%. Otherwise, current yield would have been 9.12% and returns would
have been lower. Yields are historical and do not represent future yields,
which will fluctuate.
3 The Fund's average maturity includes the effect of futures.
4 For purposes of this average rating, the Fund's short-term debt obligations
have been assigned a long-term rating by the Advisor.
9
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
STRONG SHORT-TERM BOND FUND
VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
CORPORATE BONDS 54.3%
ARA Services, Inc. Guaranteed Notes, 10.625%,
Due 8/01/00 $10,600 $11,503
Bay View Capital Corporation Senior Debentures,
8.42%, Due 6/01/99 (Acquired 5/13/96 - 5/28/96;
Cost $7,000) (b) 7,000 7,019
Building Materials Corporation Senior Deferred
Coupon Notes, Series B, Zero%, Due 7/01/04
(Rate Reset Effective 7/01/99) 6,200 5,503
Chase Capital III Capital Securities, 6.1047%,
Due 3/01/27 (Rate Reset Effective 6/01/97) 10,000 9,786
Chesapeake Energy Corporation Senior Notes,
7.875%, Due 3/15/04 (Acquired 3/12/97 - 3/18/97;
Cost $8,973) (b) 9,000 8,730
Citicorp Floating Rate Notes, 5.875%, Due 11/27/35 22,000 20,488
Contifinancial Corporation Senior Notes, 7.50%,
Due 3/15/02 (Acquired 3/07/97; Cost $9,276) (b) 9,310 9,135
Contifinancial Corporation Senior Notes, 8.375%,
Due 8/15/03 13,055 13,153
CoreStates Capital III Floating Rate Capital Trust
Pass-Thru Securities, 6.1325%, Due 2/15/27
(Rate Reset Effective 5/15/97) (Acquired 2/11/97;
Cost $17,134) (b) 17,500 16,821
Credit Lyonnais Floating Rate Notes, 6.625%,
Due 9/19/49 5,000 4,944
Crestar Capital Trust I Capital Securities, 8.16%,
Due 12/15/26 (Acquired 12/20/96; Cost $6,755)(b) 6,755 6,556
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 $4,559) (b) 4,562 4,482
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 $4,843) (b) 4,858 4,817
Delta Air Lines, Inc. Pass-Thru Certificates:
Series 1992-B1, 9.375%, Due 9/11/07 20,684 22,353
Series 1993-A1, 9.875%, Due 4/30/08 8,211 9,120
Walt Disney Company Euro-Dollar Senior Notes,
2.00%, Due 3/01/00 (Acquired 9/19/96;
Cost $12,500) (b) 10,000 12,700
Falcon Drilling, Inc. Senior Notes, Series B, 9.75%,
Due 1/15/01 2,780 2,863
Ferrellgas LP/Ferrellgas Financial Corporation
Senior Notes, 10.00%, Due 8/01/01 6,100 6,329
First Bank System, Inc. Floating Rate Subordinated
Notes, 5.6875%, Due 11/30/10 (Putable at $100
on 11/30/00) 4,000 4,035
First Nationwide Holdings, Inc. Senior Exchange
Notes, 12.25%, Due 5/15/01 5,000 5,513
First Nationwide Holdings, Inc. Senior Subordinated
Notes, 10.625%, Due 10/01/03 2,000 2,120
Foreningsbanken AB Floating Rate Notes, 6.293%,
Due 12/29/49 (Acquired 12/10/96; Cost $4,989)(b) 5,000 5,003
Harrahs Operating, Inc. Guaranteed Senior
Subordinated Notes, 8.75%, Due 3/15/00 9,116 9,276
Health & Retirement Properties Trust Senior
Floating Rate Notes, Series B, 6.5364%,
Due 7/13/99 (Rate Reset Effective 7/14/97) 10,000 9,923
Homeside, Inc. Senior Secured Second Priority
Notes, 11.25%, Due 5/15/03 16,800 19,152
Hook-SupeRx, Inc. Senior Notes, 10.125%,
Due 6/01/02 8,180 8,589
Huntington Capital I Variable Rate Capital Income
Securities, 6.5516%, Due 2/01/27 (Rate Reset
Effective 7/31/97) (Acquired 1/30/97;
Cost $16,036) (b) 16,500 16,059
ISP Holdings, Inc. Senior Notes, 9.00%, Due
10/15/03 5,000 5,075
Imperial Capital Trust I Guaranteed Capital
Securities, 9.98%, Due 12/31/26 (Acquired 4/21/97;
Cost $4,888) (b) 5,000 4,961
Long Island Lighting Company Debentures, 8.90%,
Due 7/15/19 21,034 22,215
MIC Financing Trust I Units, 8.375%, Due 2/01/27
(Acquired 1/23/97; Cost $14,953) (b) 15,000 14,656
Marine Midland Bank Floating Rate Notes, 5.875%,
Due 12/31/09 4,400 4,281
Mark IV Industry, Inc. Senior Subordinated Notes,
8.75%, Due 4/01/03 14,027 14,097
Mohegan Tribal Gaming Authority Connecticut
Senior Secured Notes, Series B, 13.50%,
Due 11/15/02 12,000 15,780
NBD Bancorp, Inc. Subordinated Floating Rate
Notes, 5.8125%, Due 12/18/05 5,000 4,993
NWA Trust Number 2 Subordinated Aircraft Notes,
13.875%, Due 6/21/08 7,209 8,471
NWCG Holdings Corporation Senior Secured
Discount Notes, Series B, Zero %, Due 6/15/99 33,295 28,592
News America Holdings, Inc. Debentures, 8.15%,
Due 10/17/36 14,700 14,099
News America Holdings, Inc. Senior Debentures,
7.70%, Due 10/30/25 5,000 4,712
Niagara Mohawk Power Corporation Bonds, 6.875%,
Due 4/01/03 10,000 9,465
North Fork Bancorp Capital Trust Pass-Thru
Securities, 8.70%, Due 12/15/26
(Acquired 12/23/96; Cost $8,469) (b) 8,500 8,288
Northwest Airlines, Inc. Guaranteed Senior Notes,
12.091%, Due 12/31/00 7,159 7,338
Onbank Capital Trust I Capital Securities, 9.25%,
Due 2/01/27 (Acquired 1/30/97; Cost $5,000) (b) 5,000 4,967
Panamerican Beverages, Inc. Senior Notes, 8.125%,
Due 4/01/03 8,300 8,409
Panamsat LP/ Panamsat Capital Corporation
Senior Secured Notes, 9.75%, Due 8/01/00 32,255 33,868
Provident Capital Trust I Capital Securities, 8.60%,
Due 12/01/26 5,000 4,784
Repap New Brunswick, Inc. First Priority Senior
Secured Floating Rate Notes, 9.125%, Due 7/15/00
(Rate Reset Effective 7/15/97) 6,000 5,940
Revco D.S., Inc. Senior Notes, 9.125%, Due 1/15/00 11,306 11,659
Riggs Capital Trust Bonds, 8.625%, Due 12/31/26
(Acquired 12/20/96 - 1/15/97; Cost $11,565) (b) 11,500 11,123
Rogers Cantel Mobile, Inc. Guaranteed Senior
Subordinated Notes, 11.125%, Due 7/15/02 7,500 7,856
Safeway, Inc. Senior Subordinated Notes, 10.00%,
Due 12/01/01 5,000 5,517
Salomon, Inc. Senior Consumer Price Index-Linked
Bonds, 3.65%, Due 2/14/02 15,000 14,644
Swedbank Floating Rate Debt Unit (Medium Term
Structured Enhanced Return Trusts 1996, Series
R-35), 6.396%, Due 11/10/02 (Acquired 10/16/96;
Cost $10,000) (b) 10,000 10,000
Tenet Healthcare Corporation Senior Notes,
7.875%, Due 1/15/03 25,000 24,750
Terra Nova Insurance UK Holdings PLC Senior
Guaranteed Notes, 10.75%, Due 7/01/05 7,500 8,320
Time Warner Pass-Thru Asset Trust Securities,
Series 1997-1, 6.10%, Due 12/30/01
(Acquired 1/08/97; Cost $15,264) (b) 16,000 15,138
TKR Cable I, Inc. Senior Debentures, 10.50%,
Due 10/30/07 20,270 21,965
Trident NGL, Inc. Subordinated Notes, 10.25%,
Due 4/15/03 2,800 3,024
See notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
STRONG SHORT-TERM BOND FUND (continued)
VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
Triton Energy Corporation Senior Subordinated
Notes, 9.75%, Due 12/15/00 $ 17,960 $ 19,280
Triton Energy, Ltd./Triton Energy Corporation
Senior Notes, 8.75%, Due 4/15/02 7,990 8,136
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) (b) 12,500 12,232
Union Planters Trust Capital Securities, 8.20%,
Due 12/15/26 (Acquired 12/20/96; Cost $2,971)(b) 3,000 2,871
Viacom International, Inc. Senior Subordinated Notes,
8.75%, Due 5/15/01 (Rate Reset Effective 5/15/98) 20,000 20,446
----------
TOTAL CORPORATE BONDS (COST $681,028) 677,924
CONVERTIBLE BONDS 1.8%
Time Warner, Inc. Convertible Liquid Yield Option
Notes, Zero %, Due 12/17/12 (COST $21,134) 58,000 22,693
NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES 17.4%
CS First Boston Mortgage Securities Corporation
Mortgage Pass-Thru Certificates, Series
1994-MHC1, Class A-1X, Interest Only, 5.5227%,
Due 4/25/11 18,743 135
CS First Boston Mortgage Securities Corporation
Variable Rate Mortgage Pass-Thru Certificates,
Series 1994-MHC1, Class D, 7.325%, Due 4/25/11 5,000 5,050
Chase Mortgage Finance Corporation Mortgage
Pass-Thru Certificates, Series 1990-G, Class A-Z1,
9.50%, Due 12/25/21 2,988 3,035
Chase Mortgage Finance Corporation Variable Rate
Multiclass Mortgage Pass-Thru Certificates, 8.0126%
Due 8/28/23 (Acquired 9/27/96; Cost $5,608) (b) 6,276 6,315
Citicorp Mortgage Securities, Inc. Mortgage
Pass-Thru Certificates, Series 1987-2, 8.50%,
Due 4/01/02 7,219 7,286
Citicorp Mortgage Securities, Inc. Real Estate
Mortgage Investment Conduit Pass-Thru
Certificates:
Series 1988-3, Class A-2, 9.00%, Due 4/01/18 1,734 1,753
Series 1993-3, Class B-1, 7.00%, Due 3/25/08
(Acquired 10/23/96; Cost $2,490) (b) 2,528 2,468
Collateralized Mortgage Obligation Trust 47,
Class E, Principal Only, Due 9/01/18 1,506 634
Collateralized Mortgage Obligation Trust 61,
Class Z, 9.10%, Due 1/01/20 3,652 3,768
Collateralized Mortgage Obligation Trust Inverse
Floating Rate Collateralized Mortgage Obligation,
Series 13, Class Q, 15.2759%, Due 1/20/03 1,400 1,521
Contimortgage Home Equity Loan Trust Interest
Only Senior Strip Certificates, Series 1996-2,
Class A, 1.4247%, Due 7/15/27 (Acquired 6/14/96;
Cost $5,397) (b) 187,090 5,276
Contimortgage Yield Maintenance Trust Certificates,
Series 1996-2, Zero %, Due 7/01/27
(Acquired 6/14/96; Cost $807) (b) 807 807
DLJ Mortgage Acceptance Corporation Variable
Rate Mortgage Pass-Thru Certificates, Series
92-Q4, Class A-2, 7.1039%, Due 7/25/22 3,088 3,119
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 23,726 593
Fund America Structured Transactions, LP
Collateralized Notes:
Series 1996-1, Principal Only, Due 10/28/33
(Acquired 3/07/96; Cost $5,962) (b) 8,327 6,131
Series 1996-2, Class A, Principal Only, Due 3/25/26
(Acquired 10/15/96; Cost $3,304) (b) 4,771 3,370
GMBS, Inc. Countrywide Funding Certificates,
Series 1990-1, Class Z, 9.25%, Due 1/28/20 6,338 6,489
Greenwich Capital Acceptance, Inc. Mortgage
Securities, Series 1993-P01, Class E, Principal
Only, Due 11/26/17 9,560 5,694
Greenwich Capital Acceptance, Inc. Variable Rate
Mortgage Pass-Thru Certificates, Series 1991-1,
Class A, 7.2548%, Due 2/25/21 (Acquired 4/18/96;
Cost $15,038) (b) 14,743 15,038
Home Equity Loan Real Estate Mortgage Investment
Conduit Trust Closed-End Asset-Backed
Certificates, Series 1992-1, Class B, 5.85%,
Due 11/17/14 1,107 1,068
Kmart CMBS Financing, Inc. Floating Rate
Commercial Mortgage Pass-Thru Certificates,
Series 1997-1, Class D, 6.7875%, Due 3/01/07
(Acquired 3/10/97; Cost $4,517) (b) 4,500 4,513
ML TR X Collateralized Mortgage Obligation,
Class C, Principal Only, Due 7/25/17 10,874 10,711
Merrill Lynch Credit Corporation Senior
Subordinated Variable Rate Mortgage Pass-Thru
Certificates, Series 1994-A, Class M1, 6.30%,
Due 8/15/19 13,423 12,847
Merrill Lynch Home Equity Acceptance, Inc.
Subordinated Variable Rate Mortgage-Backed
Certificates, Series 1994-A, Class A-1, 6.50%,
Due 8/17/23 11,244 11,143
Merrill Lynch Mortgage Investors, Inc. Mortgage
Pass-Thru Certificates, Series 1994-C1, Interest
Only, 0.622%, Due 11/25/20 82,429 1,326
Prudential Home Thirty-Year Mortgage Trust
Subordinated Mortgage Securities, Series 1992-A,
Class B2-2, 7.90%, Due 4/28/22 (Acquired 10/03/96;
Cost $7,500) (b) 7,500 7,500
Residential Funding Mortgage Securities I, Inc.
Mortgage Pass-Thru Certificates, Series 1993-M23,
Class A-1, 6.97%, Due 8/28/23 2,177 2,157
RTC Variable Rate Mortgage Pass-Thru
Securities, Inc.:
Series 1991-11, Class 1-L, 8.625%, Due 10/25/21 11,850 12,131
Series 1992-1, Class A-2, 7.8986%, Due 8/25/20 3,545 3,612
Series 1992-6, Class A-4, 7.6022%, Due 11/25/25 1,781 1,815
RTC Variable Rate Mortgage Pass-Thru Securities,
Inc. Commercial Pass-Thru Certificates,
Series 1994-C2, Class E, 8.00%, Due 4/25/25 12,287 12,498
Ryland Mortgage Securities Corporation Variable
Rate Mortgage Participation Securities:
Series 1991-B1, 7.3307%, Due 3/25/20 4,185 4,241
Series 1992-3, Class A-2, 7.4258%, Due 6/25/20 9,769 9,842
Ryland Mortgage Securities Corporation III Variable
Rate Collateralized Mortgage Bonds, Series 1992-C,
Class 3-A, 11.7531%, Due 11/25/30 3,112 3,285
Ryland Mortgage Securities Corporation IV Variable
Rate Collateralized Mortgage Bonds, Series 2,
Class 3-A, 11.9526%, Due 6/25/23 2,866 3,004
Salomon Brothers Mortgage Securities VI, Inc.
Stripped Coupon Mortgage Pass-Thru Certificates,
Series 1987-3, Class A, Principal Only, Due
10/23/17 2,155 1,673
Santa Barbara Savings & Loan Association
Real Estate Mortgage Investment Conduit
Participation Certificates, Series 1988-A,
Class 2, Principal Only, Due 9/01/18 1,692 1,237
Shearson Lehman Pass-Thru Securities, Inc. Asset
Trust Variable Rate Pass-Thru Certificates,
Series 88-3A, 7.5811%, Due 9/15/18 6,757 6,858
See notes to financial statements.
11
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
STRONG SHORT-TERM BOND FUND (continued)
SHARES OR VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
Structured Asset Notes Transactions, Ltd. Variable
Rate Notes, Series 1996-A, Class A-1, 7.156%,
Due 10/28/03 (Acquired 1/21/97; Cost
$12,039) $12,106 $ 12,030
Structured Asset Securities Corporation
Collateralized Mortgage Obligation, Series 1991-2,
Class SC, 13.11%, Due 1/20/20 10,628 11,132
Structured Mortgage Asset Residential Trust
Multiclass Pass-Thru Certificates, Series 1992-5,
Class BO, Principal Only, Due 6/25/23 1,647 1,284
U-Haul Self-Storage Corporation Commercial
Mortgage Asset Trust Variable Rate Pass-Thru
Certificates, Series 1993-1, Class A1, 7.15%,
Due 12/01/20 (Acquired 12/02/93; Cost $1,630)(b) 1,630 1,630
----------
TOTAL NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES (COST $212,940) 216,019
UNITED STATES GOVERNMENT & AGENCY
ISSUES 15.7%
FHLMC Participation Certificates:
6.50%, Due 5/01/04 1,681 1,652
8.50%, Due 4/01/01 thru 10/01/05 1,284 1,317
8.75%, Due 10/01/01 1,134 1,161
9.00%, Due 12/01/04 thru 5/01/06 11,209 11,596
9.50%, Due 3/01/11 713 765
9.75%, Due 8/01/02 3,464 3,610
10.25%, Due 7/01/09 thru 10/01/14 687 745
10.50%, Due 1/01/10 thru 7/01/19 1,517 1,664
10.75%, Due 9/01/09 thru 10/01/17 763 838
11.25%, Due 11/01/09 489 543
FHLMC Variable Rate Participation Certificates,
7.195%, Due 5/01/26 19,173 19,724
FNMA Guaranteed Real Estate Mortgage Investment
Conduit Pass-Thru Certificates:
9.00%, Due 11/01/24 3,648 3,872
10.00%, Due 7/01/04 1,933 2,032
11.00%, Due 9/01/20 11,137 12,434
12.00%, Due 3/01/17 8,441 9,594
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 14 95
FNMA Guaranteed Real Estate Mortgage Investment
Conduit Variable Rate Pass-Thru Certificates:
8.313%, Due 4/01/02 8,228 8,243
Series 1992-G64, Class SE, 8.729%, Due 3/25/22 3,297 2,771
FNMA Stripped Mortgage-Backed Securities:
Series 1993-12, Class C, Principal Only, Due
2/25/23 23,200 19,504
Series 1993-M1, Class N, Interest Only, 0.84%,
Due 4/25/20 92,180 850
Series 1995-G2, Class IO, Interest Only, 0.6648%
Due 5/25/20 15,729 2,814
GNMA Guaranteed Pass-Thru Certificates:
7.50%, Due 12/15/07 8,486 8,590
9.75%, Due 9/15/05 thru 11/15/05 2,310 2,446
10.00%, Due 2/20/18 955 1,042
11.50%, Due 4/15/13 348 393
GNMA Guaranteed Platinum Pool Pass-Thru
Certificates, 12.50%, Due 4/15/19 38,348 44,053
Small Business Administration Guaranteed Loan
Group #0190, Variable Rate Interest Only
Certificates, 3.103%, Due 7/30/18 23,583 2,712
Small Business Administration Guaranteed Loan
Pool #440019, Interest Only Custodial Receipts,
Series 1993-1A, 2.446%, Due 2/15/18 13,540 1,320
USGI FHA Insured Project Pool #2047, 6.90%,
Due 8/01/14 470 439
USGI FHA Insured Project Pool #2047, 6.90%, Due
8/01/14 (Assigned to Housing and Urban
Development Committee due to issuer default) 235 211
USGI FHA Insured Project Pool Banco 85, 7.376%,
Due 11/24/19 4,443 4,452
United States Treasury Notes:
6.25%, Due 3/31/99 23,000 22,993
6.625%, Due 7/31/01 2,200 2,206
----------
TOTAL UNITED STATES GOVERNMENT & AGENCY
ISSUES (COST $197,626) 196,681
PREFERRED STOCKS 7.0%
Banco Central Hispanoamericano, SA Eurocap
Preferred 400,000 10,260
California Federal Preferred Capital Corporation
Exchangeable Series A 9.125% 320,000 8,040
First Nationwide Bank, Dallas, Texas 11.50% 89,100 10,135
Indosuez Holdings SCA Sponsored ADR 10.375%
Representing 1/10 Series A (Acquired 11/15/96;
Cost $3,684) (b) 127,850 3,554
Norwest Corporation Series A Cumulative
Tracking/Residential Home Mortgage LLC
(Acquired 12/16/94; Cost $23,000) (b) 115,000 24,003
Riggs National Corporation Series B 10.75% 504,651 14,319
Time Warner, Inc. Exchangeable Series K 10.25% 15,784 17,087
----------
TOTAL PREFERRED STOCKS (COST $85,868) 87,398
OPTIONS 0.2%
Merrill Lynch Deutsche-Mark Currency Options
(Strike price is equal to the daily exchange rate,
currently 1.7307. Expiration date is 7/14/97.) 140 182
Merrill Lynch Swaption (The option to receive a
fixed interest rate of 7.75%; exercisable at a
strike price of $100 beginning 4/09/04 and
expiring 4/09/25.) 39,583 2,070
----------
TOTAL OPTIONS (COST $2,386) 2,252
SHORT-TERM INVESTMENTS (a) 2.6%
COMMERCIAL PAPER 0.8%
DISCOUNTED 0.7%
Asia Pulp and Paper Asian Currency Note, Zero%,
Due 12/12/97 $2,000 1,896
Asia Pulp and Paper International Asian
Currency Note, Zero%, Due 9/26/97
(Acquired 4/03/97; Cost $4,833) (b) 12,000,000 IDR 4,669
Polysindo EKA Perkasa PT, Zero%,
Due 10/09/97 $ 3,000 2,867
----------
9,432
INTEREST BEARING, DUE UPON DEMAND 0.1%
American Family Financial Services, Inc., 5.26% 56 56
Johnson Controls, Inc., 5.28% 561 561
Sara Lee Corporation, 5.23% 90 90
Wisconsin Electric Power Company, 5.30% 37 37
----------
744
----------
Total Commercial Paper 10,176
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) (b) 10,000 10,850
Russia Sovereign Risk Notes, Zero %, Due 6/18/97 2,000 1,960
----------
12,810
See notes to financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
STRONG SHORT-TERM BOND FUND (continued)
VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT 0.5%
Cantor Fitzgerald & Company, Inc. (Collateralized by
$6,185 United States Treasury Notes, 5.875%,
Due 3/31/99), 5.34%, Due 5/01/97 (d) $6,100 $ 6,100
UNITED STATES GOVERNMENT ISSUES 0.3%
United States Treasury Bills:
Due 5/01/97 (c) 265 265
Due 5/08/97 (c) 95 95
Due 5/15/97 (c) 300 299
Due 5/22/97 (c) 630 628
Due 5/29/97 (c) 415 413
Due 6/05/97 (c) 1,085 1,080
Due 6/12/97 (c) 125 124
Due 6/19/97 (c) 110 109
Due 6/26/97 (c) 225 223
Due 7/01/97 (c) 323 320
Due 7/24/97 (c) 80 79
----------
3,635
----------
TOTAL SHORT-TERM INVESTMENTS (COST $32,082) 32,721
----------
TOTAL INVESTMENTS IN SECURITIES
(COST $1,233,064) 99.0% 1,235,688
Other Assets and Liabilities, Net 1.0% 12,622
----------
TOTAL NET ASSETS 100.0% $1,248,310
==========
FUTURES
- -------
UNDERLYING UNREALIZED
FACE AMOUNT APPRECIATION
EXPIRATION AT VALUE (DEPRECIATION)
DATE (In Thousands)(In Thousands)
- --------------------------------------------------------------------------------
Purchased:
24 Five-Year U.S. Treasury Notes 6/97 $ 2,527 ($ 9)
Sold:
364 Five-Year U.S. Treasury Notes 6/97 (38,322) 27
629 Ten-Year U.S. Treasury Notes 6/97 (67,283) 320
825 U.S. Treasury Bonds 6/97 (90,157) 290
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
- -------------------------------------------
VALUE UNREALIZED
SETTLEMENT IN USD APPRECIATION
DATE (In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
Sold:
22,719,200 DEM 7/14/97 ($13,200) $800
12,000,000,000 IDR 9/29/97 (4,814) 38
WRITTEN OPTIONS ACTIVITY
- ------------------------
NOTIONAL
PAR VALUE PREMIUMS
(In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
Options outstanding at October 31, 1996 77,000 $387
Options closed (55,000) (387)
Options exercised (22,000) __
-------- -------
Options outstanding at April 30, 1997 __ __
======== =======
Closed and exercised options resulted in a capital gain (in thousands) of $407.
PERCENTAGE OF
INDUSTRY DIVERSIFICATION NET ASSETS
- --------------------------------------------------------------
United States Government ............................16.5%
Non-Agency Single Family ............................10.9
Bank - Regional ......................................9.3
Media - Publishing ...................................8.2
Bank - Money Center ..................................6.5
Airline ..............................................3.8
Non-Agency Asset-Backed ..............................3.6
Media - Radio/TV .....................................3.4
Mortgage & Related Service ...........................3.3
Telecommunication Service ............................3.3
Oil - North American Exploration & Production ........3.1
Leisure Service ......................................2.9
Electric Power .......................................2.6
Non-Agency Commercial ................................2.4
Bank - Super Regional ................................2.3
Health - Patient Care ................................2.0
Retail - Drug Store ..................................1.6
Leisure Product ......................................1.4
Brokerage & Investment Management ....................1.2
Insurance - Life .....................................1.2
Auto & Truck Parts ...................................1.1
Paper & Forest Products ..............................1.0
Savings & Loan .......................................1.0
Automobile ...........................................0.9
Real Estate ..........................................0.8
Beverage - Soft Drink ................................0.7
Insurance - Diversified ..............................0.7
Energy - Alternate Source ............................0.5
Chemical - Specialty .................................0.4
Engineering & Construction ...........................0.4
Non-Agency Manufactured Housing ......................0.4
Retail - Food Chain ..................................0.4
Retail - Major Chain .................................0.4
Finance - Miscellaneous ..............................0.2
Foreign Corporate ....................................0.2
Foreign Government ...................................0.2
Natural Gas Distribution .............................0.2
Other Assets and Liabilities, Net ....................1.0
-----
Total 100.0%
=====
PERCENTAGE OF
COUNTRY DIVERSIFICATION NET ASSETS
- -------------------------------------------------------------
United States .......................................91.5%
Sweden ...............................................1.2
Canada ...............................................1.1
Norway ...............................................1.0
United Kingdom .......................................1.0
Indonesia ............................................0.8
Spain ................................................0.8
Mexico ...............................................0.7
France ...............................................0.4
Luxembourg ...........................................0.3
Russia ...............................................0.2
Other Assets and Liabilities, Net ....................1.0
-----
Total 100.0%
=====
See notes to financial statements.
13
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
STRONG GOVERNMENT SECURITIES FUND
VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
CORPORATE BONDS 12.7%
AMR Corporation Delaware Debentures, 10.00%,
Due 4/15/21 $ 5,000 $ 5,960
Aerial Communications, Inc. Guaranteed Notes,
Series A, Zero %, Due 11/01/06 (Acquired 10/30/96;
Cost $4,199) (b) 9,500 4,341
Bank United Corporation Subordinated Notes,
8.875%, Due 5/01/07 (e) 5,000 4,969
Colonial Capital I Capital Securities, Series A, 8.92%,
Due 1/15/27 (Acquired 1/24/97; Cost $5,400)(b) 5,400 5,326
Contifinancial Corporation Senior Notes, 8.375%,
Due 8/15/03 12,785 12,881
Cullen/Frost Capital Trust I Bonds, 8.42%,
Due 2/01/27 1,000 986
HUBCO Capital Trust I Capital Securities, 8.98%,
Due 2/01/27 (Acquired 1/28/97, 2/18/97;
Cost $6,569) (b) 6,500 6,461
North Fork Bancorp Capital Trust Pass-Thru
Securities, 8.70%, Due 12/15/26
(Acquired 12/23/96; Cost $7,971) (b) 8,000 7,800
PXRE Capital Trust I Pass-Thru Securities, 8.85%,
Due 2/01/27 (Acquired 1/24/97; Cost $8,209) (b) 8,250 8,214
Riggs Capital Trust Bonds, 8.625%, Due 12/31/26
(Acquired 12/10/96; Cost $9,490) (b) 9,490 9,179
Svenska Handelsbanken AB Subordinated Perpetual
Step-Up Notes, 7.125%, Due 3/29/49 (Rate Reset
Effective 3/07/07) (Acquired 4/24/97;
Cost $3,797) (b) 4,000 3,840
Union Planters Trust Capital Securities, 8.20%,
Due 12/15/26 (Acquired 12/05/96; Cost $7,460)(b) 7,500 7,178
United Air Lines, Inc. Debentures, 10.25%,
Due 7/15/21 4,950 6,009
WorldCom, Inc. Notes, 7.75%, Due 4/01/07 4,000 3,972
----------
TOTAL CORPORATE BONDS (COST $88,284) 87,116
MUNICIPAL BONDS 0.5%
Arkansas Development Finance Authority GNMA
Guaranteed Bonds, 9.75%, Due 11/15/14
(COST $3,822) 3,100 3,646
UNITED STATES GOVERNMENT & AGENCY
ISSUES 76.2%
FHA Insured Project Loan #956-55054, 2.93%,
Due 11/01/12 3,999 3,008
FHA Project Loan Section 223(f) - Hampshire Tower
Apartments, 7.50%, Due 11/15/30 9,064 8,894
FHLMC Participation Certificates:
6.77%, Due 11/15/03 7,675 7,613
7.00%, Due 1/25/21 4,346 4,221
7.25%, Due 7/01/08 2,113 2,116
7.26%, Due 5/01/26 10,608 10,913
8.00%, Due 7/01/08 thru 12/01/10 7,797 7,991
8.50%, Due 5/01/16 2,515 2,612
9.00%, Due 12/01/01 thru 06/01/16 22,035 23,084
9.50%, Due 4/01/07 thru 12/01/19 5,490 5,767
9.75%, Due 8/01/02 1,945 2,027
10.00%, Due 10/01/05 thru 6/01/20 16,439 17,807
10.50%, Due 6/01/04 thru 8/01/20 3,313 3,596
11.00%, Due 1/01/01 54 57
11.25%, Due 1/01/01 102 108
11.75% Due 10/01/15 167 188
12.00% Due 11/01/15 96 109
12.25% Due 7/01/15 thru 12/01/15 548 621
12.50% Due 10/1/09 thru 1/01/15 291 333
13.00% Due 7/01/14 106 122
13.75% Due 5/01/02 62 69
14.00% Due 9/01/10 thru 4/01/16 942 1,111
14.50% Due 3/01/11 thru 12/01/11 15 17
14.75% Due 8/01/11 thru 4/01/13 10 11
15.00% Due 8/01/11 55 66
16.00% Due 6/01/12 7 9
FHLMC Multiclass Mortgage Guaranteed
Participation Certificates, Series 144, Class 144-A,
8.75%, Due 6/15/00 928 956
---------
91,524
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates:
7.00% Due 9/01/15 thru 3/01/27 6,121 5,733
7.37% Due 8/17/03 1,884 1,908
7.50% Due 7/01/15 1,267 1,280
7.50% Due 4/01/27 (e) 10,350 10,263
8.00% Due 11/01/26 31,758 32,313
8.50% Due 7/01/10 thru 2/01/12 9,998 10,468
10.00% Due 4/01/20 4,078 4,457
11.75% Due 12/01/10 171 192
12.00% Due 1/01/16 thru 2/01/16 3,264 3,717
12.25% Due 7/01/14 30 34
12.50% Due 2/01/11 thru 5/01/15 6,274 7,227
13.00% Due 10/01/15 9,067 10,560
13.25% Due 4/01/12 4 4
13.50% Due 1/01/11 thru 1/01/12 32 35
13.75% Due 10/01/10 7 8
14.00% Due 1/01/12 thru 11/01/14 139 165
14.25% Due 12/01/14 34 41
14.50% Due 1/01/12 8 9
14.75% Due 11/01/10 thru 3/01/12 196 238
15.00% Due 10/01/12 10 13
15.50% Due 10/01/12 14 18
FNMA Guaranteed Real Estate Mortgage Investment
Conduit Variable Rate Pass-Thru Certificates:
Pool #54844, 6.092%, Due 9/01/27 23,396 23,180
Pool #70843, 6.869%, Due 4/01/20 3,383 3,445
Pool #110238, 6.945%, Due 1/01/16 6,066 6,181
Pool #176367, 7.539%, Due 4/01/15 3,545 3,675
Pool #92068, 7.812%, Due 1/01/18 1,744 1,820
Pool #181826, 7.851%, Due 10/01/22 2,409 2,516
Pool #124013, 7.971%, Due 10/01/21 4,672 4,883
Pool #201427, 8.075%, Due 1/01/23 4,027 4,233
Pool #70342, 8.313%, Due 4/01/02 15,280 15,308
Series 1991-57, Class S, 7.6672%, Due 5/25/20 4,016 3,997
FNMA Stripped Mortgage-Backed Securities:
6.00% Due 11/01/08 thru 5/01/09 13,109 12,729
Series 1997-277, Class 1, Principal Only,
Due 3/25/27 11,655 7,412
---------
178,062
GNMA Guaranteed Pass-Thru Certificates:
6.875%, Due 11/20/20 1,064 1,087
7.00%, Due 3/20/18 1,587 1,613
7.125%, Due 4/20/19 350 359
9.00%, Due 1/15/08 thru 12/15/11 24,050 25,278
12.50%, Due 4/15/19 5,489 6,305
13.00%, Due 11/15/10 thru 11/15/14 716 840
13.50%, Due 7/15/10 thru 10/15/12 246 291
14.00%, Due 6/15/11 thru 12/20/14 268 323
14.50%, Due 6/15/11 thru 11/15/12 407 495
15.00%, Due 1/15/12 thru 9/15/12 165 203
16.00%, Due 4/15/12 20 25
---------
36,819
Small Business Administration Guaranteed Loan,
Interest Only Custodial Receipts:
Series 1992-6A, 2.473%, Due 10/15/17 55,250 5,266
Series 1993-1A, 2.531%, Due 2/15/18 18,095 1,764
---------
7,030
See notes to financial statements.
14
<PAGE>
- --------------------------------------------------------------------------------
STRONG GOVERNMENT SECURITIES FUND (continued)
VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
USGI FHA Insured Project Pool #2040, 3.025%,
Due 11/01/06 $ 7,725 $ 6,733
United States Treasury Bonds:
6.50%, Due 11/15/26 19,265 18,079
6.625%, Due 2/15/27 10,375 9,944
7.625%, Due 2/15/25 20,000 21,419
United States Treasury Notes:
5.75%, Due 12/31/98 3,205 3,184
6.25%, Due 7/31/98 thru 2/15/03 90,569 89,478
6.25%, Due 3/31/99 (e) 48,825 48,810
---------
190,914
---------
TOTAL UNITED STATES GOVERNMENT & AGENCY
ISSUES (COST $520,582) 522,984
PREFERRED STOCKS 5.2%
Marquette Real Estate Funding Corporation
Step-Down Preferred 13.701% (Rate Reset Effective
12/30/06) (Acquired 2/26/97; Cost $25,477) (b) 26 25,075
Norwest Corporation Series A, Cumulative Tracking
Preferred Stock/Residential Home Mortgage LLC
(Acquired 12/16/94; Cost $10,000) (b) 50 10,436
---------
TOTAL PREFERRED STOCKS (COST $35,477) 35,511
OPTIONS 0.2%
Merrill Lynch Swaption (The option to receive a fixed
interest rate of 7.75%; exercisable at a strike
price of $100 beginning 4/09/04 and expiring
4/09/25.) 12,167 636
Merrill Lynch Trading Upside Call Option (The
option to trade long bond futures contracts at
the institutional price and expiring 7/28/97.) 25,000 662
---------
TOTAL OPTIONS (COST $1,626) 1,298
SHORT-TERM INVESTMENTS (a) 6.4%
COMMERCIAL PAPER 0.2%
INTEREST BEARING, DUE UPON DEMAND
American Family Financial Services, Inc., 5.26% $ 165 165
Johnson Controls, Inc., 5.28% 156 156
Pitney Bowes Credit Corporation, 5.26% 8 8
Sara Lee Corporation, 5.23% 632 632
---------
961
REPURCHASE AGREEMENT 6.2%
Cantor Fitzgerald & Company, Inc. (Collateralized by:
$6,800 United States Treasury Notes, 6.375%, Due
4/30/99; $21,975 United States Treasury Notes,
6.625%, Due 4/30/02; $13,925 United States
Treasury Bonds, 10.625%, Due 8/15/15), 5.34%,
Due 5/01/97 (d) 42,700 42,700
UNITED STATES GOVERNMENT ISSUES 0.0%
United States Treasury Bills:
Due 6/12/97 (c) 20 20
Due 6/26/97 (c) 75 74
Due 7/03/97 (c) 160 159
---------
253
---------
TOTAL SHORT-TERM INVESTMENTS (COST $43,914) 43,914
---------
TOTAL INVESTMENTS IN SECURITIES
(COST $693,705) 101.2% 694,469
Other Assets and Liabilities, Net (1.2%) (7,925)
---------
NET ASSETS 100.0% $686,544
=========
FUTURES
- -------
UNDERLYING UNREALIZED
FACE AMOUNT APPRECIATION
EXPIRATION AT VALUE (DEPRECIATION)
DATE (In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
Purchased:
73 Five-Year U.S. Treasury Notes 6/97 $ 7,686 ($ 33)
Sold:
35 Two-Year U.S. Treasury Notes 6/97 (7,193) 12
108 U.S. Treasury Bonds 6/97 (11,802) 131
PERCENTAGE OF
INDUSTRY DIVERSIFICATION NET ASSETS
- --------------------------------------------------------------
United States Government and Agency Issues ..........82.4%
Bank - Regional ......................................6.1
Bank - Super Regional ................................5.2
Mortgage & Related Service ...........................1.9
Airline ..............................................1.7
Insurance - Property and Casualty ....................1.2
Telecommunication Service ............................0.6
Telephone ............................................0.6
Bank - Money Center ..................................0.6
Industrial Development Revenue .......................0.5
Finance - Miscellaneous ..............................0.2
Food .................................................0.1
Diversified Operations ...............................0.1
Other Assets and Liabilities, Net ...................(1.2)
-----
Total 100.0%
=====
- --------------------------------------------------------------------------------
STRONG CORPORATE BOND FUND
VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
CORPORATE BONDS 80.4%
AMR Corporation Debentures, 9.88%, Due 6/15/20 $3,950 $4,693
ARA Services, Inc. Guaranteed Notes, 10.625%,
Due 8/01/00 8,654 9,391
Aerial Communications, Inc. Guaranteed Notes,
Series A, Zero %, Due 11/01/06 (Acquired 10/30/96;
Cost $4,199) (b) 9,500 4,341
Aramark Services, Inc. Guaranteed Notes, 7.10%,
Due 12/01/06 5,000 4,807
Bank United Corporation Subordinated Notes,
8.875%, Due 5/01/07 (e) 5,000 4,969
Chesapeake Energy Corporation Senior Notes,
7.875%, Due 3/15/04 (Acquired 3/12/97;
Cost $4,996) (b) 5,000 4,850
Colonial Capital I Capital Securities, Series A, 8.92%,
Due 1/15/27 (Acquired 1/24/97; Cost $3,600) (b) 3,600 3,550
Comcast Cable Communications, Inc. Notes, 8.375%,
Due 5/01/07 (Acquired 4/24/97; Cost $6,706) (b) 6,750 6,814
Contifinancial Corporation Senior Notes, 8.375%,
Due 8/15/03 9,470 9,541
Delphi Funding LLC Notes, 9.31%, Due 3/25/27 3,000 3,030
Delta Air Lines, Inc. Equipment Trust Certificates:
Series 1991-A, 10.14%, Due 8/14/12
(Acquired 9/10/96; Cost $2,257) (b) 2,000 2,323
Series 1991-B, 10.14%, Due 8/14/12
(Acquired 9/10/96; Cost $2,257) (b) 2,000 2,323
Series 1991-E, 10.14%, Due 8/26/12
(Acquired 9/10/96; Cost $2,257) (b) 2,000 2,323
Delta Air Lines, Inc. Pass-Thru Certificates,
Series 1992-B1, 9.375%, Due 9/11/07 3,532 3,817
Dimon, Inc. Senior Notes, 8.875%, Due 6/01/06 5,000 5,162
See notes to financial statements.
15
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
STRONG CORPORATE BOND FUND (continued)
VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
Walt Disney Company Euro-Dollar Senior
Participating Notes, 2.00%, Due 3/01/00
(Acquired 9/19/96; Cost $6,250) (b) $ 5,000 $ 6,350
Echostar Communications Corporation Senior
Secured Discount Notes, Zero %, Due 6/01/04
(Rate Reset Effective 6/01/99) 5,000 4,175
First Nationwide Bank Subordinated Debentures,
10.00%, Due 10/01/06 3,460 3,935
Fresenius Medical Care Capital Trust Preferred
Securities, 9.00%, Due 12/01/06 3,000 2,970
GB Capital Trust Capital Securities, 10.25%,
Due 1/15/27 (Acquired 1/24/97; Cost $3,000) (b) 3,000 2,948
GNS Finance Corporation Senior Subordinated
Notes, Series B, 9.25%, Due 3/15/03 4,250 4,505
HUBCO Capital Trust I Capital Securities, 8.98%,
Due 2/01/27 (Acquired 1/28/97 - 2/21/97;
Cost $5,085) (b) 5,000 4,970
Harrahs Operating, Inc. Guaranteed Senior
Subordinated Notes, 8.75%, Due 3/15/00 4,500 4,579
Homeside, Inc. Senior Secured Second Priority Notes,
11.25%, Due 5/15/03 1,849 2,108
Imperial Capital Trust I Guaranteed Capital
Securities, 9.98%, Due 12/31/26 (Acquired 4/21/97;
Cost $5,572) (b) 5,700 5,656
JPM Capital Trust I Preferred Trust Capital
Securities, 7.54%, Due 1/15/27 100 94
Leucadia Capital Trust I Capital Securities, 8.65%,
Due 1/15/27 (Acquired 2/03/97; Cost $5,063) (b) 5,000 4,884
Long Island Lighting Company Debentures:
8.20%, Due 3/15/23 1,650 1,695
8.90%, Due 7/15/19 2,700 2,852
Mohegan Tribal Gaming Authority Connecticut
Senior Secured Notes, Series B, 13.50%,
Due 11/15/02 4,000 5,260
NWA Trust Number 2 Mezzanine Aircraft Notes,
Class C, 11.30%, Due 6/21/14 1,902 2,309
NWA Trust Number 2 Subordinated Aircraft Notes,
13.875%, Due 6/21/08 1,191 1,399
North Fork Bancorp Capital Trust Pass-Thru
Securities, 8.70%, Due 12/15/26
(Acquired 12/23/96; Cost $3,487) (b) 3,500 3,413
Owens-Illinois, Inc. Senior Debentures, 11.00%,
Due 12/01/03 2,000 2,230
PXRE Capital Trust I Pass-Thru Securities, 8.85%,
Due 2/01/27 (Acquired 1/24/97; Cost $5,722) (b) 5,750 5,725
Panamerican Beverages, Inc. Yankee Senior Notes,
8.125%, Due 4/01/03 3,000 3,040
Panamsat LP/ Panamsat Capital Corporation Senior
Subordinated Discount Notes, Zero %, Due 8/01/03
(Rate Reset Effective 8/01/98) 6,000 5,730
Principal Mutual Life Insurance Company Surplus
Notes, 8.00%, Due 3/01/44 (Acquired 10/17/95 -
3/13/96; Cost $9,139) (b) 9,125 8,759
Ras Laffan Liquefied Natural Gas Company, Ltd.
Bonds, 7.628%, Due 9/15/06 (Acquired 12/12/96;
Cost $2,509) (b) 2,500 2,489
Revco D.S., Inc. Senior Notes, 9.125%, Due 1/15/00 3,950 4,073
Riggs Capital Trust Bonds, 8.625%, Due 12/31/26
(Acquired 12/10/96; Cost $5,000) (b) 5,000 4,836
Salomon, Inc. Senior Consumer Price Index-Linked
Bonds, 3.65%, Due 2/14/02 4,000 3,905
Security Capital Industrial Trust Medium Term
Notes, 7.81%, Due 2/01/15 3,000 2,984
Stop & Shop Companies, Inc. Senior Subordinated
Notes, 9.75%, Due 2/01/02 7,100 7,778
Svenska Handelsbanken AB Subordinated Perpetual
Step-Up Notes, 7.125%, Due 3/29/49 (Rate Reset
Effective 3/07/07) (Acquired 4/24/97; Cost
$3,322) (b) 3,500 3,360
System Energy Resources, Inc. First Mortgage
Bonds, 11.375%, Due 9/01/16 766 821
TCI Communications, Inc. Notes, 6.875%,
Due 2/15/06 5,000 4,606
TKR Cable I, Inc. Senior Debentures, 10.50%,
Due 10/30/07 6,250 6,773
Teekay Shipping Corporation Guaranteed First
Preferred Mortgage Notes, 8.32%, Due 2/01/08 6,560 6,445
Tenet Healthcare Corporation Senior Notes, 8.00%,
Due 1/15/05 5,000 4,906
Terra Nova Insurance UK Holdings PLC Senior
Guaranteed Notes, 10.75%, Due 7/01/05 6,920 7,676
Tracor, Inc. Senior Subordinated Notes, 8.50%,
Due 3/01/07 (Acquired 2/28/97; Cost $2,988) (b) 3,000 2,963
Transocean Offshore, Inc. Debentures 8.00%,
Due 4/15/27 3,835 3,887
Triton Energy Ltd./Triton Energy Corporation
Senior Notes, 8.75%, Due 4/15/02 6,000 6,110
UCAR Global Enterprises, Inc. Senior Subordinated
Notes, 12.00%, Due 1/15/05 2,895 3,257
United Airlines Pass-Thru Trust Certificates, Series
1996-A1, 7.27%, Due 1/30/13 4,451 4,326
Viacom, Inc. Notes, 6.75%, Due 1/15/03 3,170 3,016
WorldCom, Inc. Notes, 7.75%, Due 4/01/07 10,300 10,228
--------
TOTAL CORPORATE BONDS (COST $251,703) 255,959
CONVERTIBLE BONDS 0.9%
Roche Holdings, Inc. Convertible Liquid Yield
Option Notes, Zero %, Due 5/06/12
(Acquired 4/29/97; COST $2,926) (b) 7,500 2,926
NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES 6.6%
Bear Stearns Mortgage Securities, Inc. Mortgage
Pass-Thru Certificates, Series 1995-1, Class 2-P,
Principal Only, Due 7/25/10 1,058 760
CS First Boston Mortgage Securities Corporation
Mortgage Pass-Thru Certificates, Series
1994-MHC1, Class A-1X, Interest Only, 7.325%,
Due 4/25/11 1,928 14
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 33,924 848
Fund America Structured Transactions LP
Collateralized Notes, Series 1996-1, Principal Only,
Due 10/28/33 (Acquired 3/07/96; Cost $2,981)(b) 4,164 3,066
Morgan Stanley Capital, Inc. Relocation Mortgage
Trust, Series 1997-P1, Class 3-B, 6.97%,
Due 3/29/26 (Acquired 12/20/96; Cost $1,736)(b) 2,100 1,811
Morgan Stanley Capital I, Inc. Mortgage Pass-Thru
Certificates, Series 97-FF1, Class A, 6.95%,
Due 12/10/07 (Acquired 2/12/97; Cost $4,992)(b) 4,991 4,826
Ryland Mortgage Securities Corporation III Variable
Rate Collateralized Mortgage Bonds, Series 1992-C,
Class 3-A, 11.7531%, Due 11/25/30 432 456
277 Park Avenue Finance Corporation Commercial
Mortgage Pass-Thru Certificates, Series 1997-C1,
Class A-1, 7.58%, Due 5/07/07 (Acquired 4/23/97;
Cost $5,026) (b) 5,000 5,069
Westam Mortgage Financial Corporation
Collateralized Mortgage Bonds, Series 10,
Class 10-D, Principal Only, Due 7/26/18 6,569 4,040
--------
TOTAL NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES (COST $24,348) 20,890
See notes to financial statements.
16
<PAGE>
- --------------------------------------------------------------------------------
STRONG CORPORATE BOND FUND (continued)
SHARES OR VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
UNITED STATES GOVERNMENT & AGENCY
ISSUES 1.9%
FHLMC Participation Certificates:
14.00%, Due 9/01/12 $ 32 $ 38
14.75%, Due 3/01/10 19 23
FNMA Guaranteed Real Estate Mortgage Investment
Conduit Pass-Thru Certificates, 13.50%,
Due 4/01/11 (c) 187 221
GNMA Guaranteed Pass-Thru Certificates, 15.00%,
Due 8/15/11 thru 10/15/12 136 168
Small Business Administration Guaranteed Loan
Pool #40013, Interest Only Strips, 2.419%,
Due 9/30/17 11,793 1,098
United States Treasury Bonds, 6.50%, Due 11/15/26 1,870 1,755
United States Treasury Notes:
5.875%, Due 2/15/04 2,400 2,297
7.75%, Due 12/31/99 750 774
--------
TOTAL UNITED STATES GOVERNMENT & AGENCY
ISSUES (COST $6,761) 6,374
CONVERTIBLE PREFERRED STOCKS 1.5%
National Australia Bank 7.875%
(COST $4,513) 180,500 4,783
PREFERRED STOCKS 9.2%
Marquette Real Estate Funding Corporation Step-
Down Preferred 13.701% (Rate Reset Effective
12/30/06) (Acquired 2/26/97; Cost $14,986) (b) 15,000 14,750
Norwest Corporation Series A Cumulative
Tracking/Residential Home Mortgage LLC
(Acquired 12/16/94; Cost $2,000) (b) 10,000 2,087
Time Warner, Inc. Exchangeable Series K 10.25% 11,325 12,259
--------
TOTAL PREFERRED STOCKS (COST $28,544) 29,096
OPTIONS 0.1%
Merrill Lynch Swaption (The option to receive a fixed
interest rate of 7.75%; exercisable at a strike price
of $100 beginning 4/09/04 and expiring 4/09/25.)
(COST $282) 6,083 318
SHORT-TERM INVESTMENTS (a) 1.4%
COMMERCIAL PAPER 0.3%
INTEREST BEARING, DUE UPON DEMAND
American Family Financial Services, Inc., 5.26% $ 243 243
Johnson Controls, Inc., 5.28% 432 432
Warner Lambert Company, 5.23% 166 166
Wisconsin Electric Power Company, 5.30% 33 33
--------
874
REPURCHASE AGREEMENT 1.0%
Goldman, Sachs & Company, Inc. (Collateralized by:
$2,880 United States Treasury Bonds, 8.75%,
Due 11/15/08 ), 5.27%, Due 5/01/97 (d) 3,200 3,200
UNITED STATES GOVERNMENT ISSUES 0.1%
United States Treasury Bills:
Due 5/29/97 (c) 40 40
Due 6/05/97 30 30
Due 7/17/97 (c) 135 133
--------
203
--------
TOTAL SHORT-TERM INVESTMENTS (COST $4,277) 4,277
--------
TOTAL INVESTMENTS IN SECURITIES
(COST $323,354) 102.0% 324,623
Other Assets and Liabilities, Net (2.0%) (6,311)
--------
NET ASSETS 100.0% $318,312
========
FUTURES
- -------
UNDERLYING UNREALIZED
FACE AMOUNT APPRECIATION
EXPIRATION AT VALUE (DEPRECIATION)
DATE (In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
Purchased:
120 Ten-Year U.S. Treasury Notes 6/97 $12,836 ($67)
24 U.S. Treasury Bonds 6/97 2,623 (17)
Sold:
60 Five-Year U.S. Treasury Notes 6/97 (6,317) (47)
167 U.S. Treasury Bonds 6/97 (18,250) 85
PERCENTAGE OF
INDUSTRY DIVERSIFICATION NET ASSETS
- --------------------------------------------------------------
Bank - Regional ......................................8.4%
Media - Radio/TV .....................................8.0
Leisure Service ......................................7.5
Airline ..............................................7.4
Bank - Money Center ..................................5.8
Real Estate ..........................................4.6
Media - Publishing ...................................3.8
Insurance - Life .....................................3.7
Mortgage and Related Service .........................3.7
Telecommunication Service ............................3.2
Telephone ............................................3.2
Non-Agency Commercial ................................3.1
Oil - North American Exploration and Production ......3.1
U.S. Government and Agency ...........................3.1
Electric Power .......................................3.0
Non-Agency Single Family .............................2.9
Insurance - Diversified ..............................2.4
Retail - Food Chain ..................................2.4
Leisure Product ......................................2.0
Shipping .............................................2.0
Insurance - Property and Casualty ....................1.9
Personal and Commercial Lending ......................1.6
Tobacco ..............................................1.6
Food .................................................1.5
Healthcare - Patient Care ............................1.5
Brokerage and Investment Management ..................1.3
Retail - Drug Store ..................................1.3
Healthcare - Drug/Diversified ........................1.0
Steel ................................................1.0
Aerospace and Defense ................................0.9
Beverage - Soft Drink ................................0.9
Healthcare - Medical Supply ..........................0.9
Natural Gas Distribution .............................0.8
Bank - Super Regional ................................0.7
Container ............................................0.7
Non-Agency Mortgage ..................................0.6
Electric Utility .....................................0.3
Diversified Operations ...............................0.1
Finance - Miscellaneous ..............................0.1
Other Assets and Liabilities, Net ...................(2.0)
-----
Total 100.0%
=====
PERCENTAGE OF
COUNTRY DIVERSIFICATION NET ASSETS
- ------------------------------------------------------------
United States .......................................94.4%
United Kingdom .......................................2.4
Australia ............................................1.5
Sweden ...............................................1.1
Mexico ...............................................0.9
Switzerland ..........................................0.9
Qatar ................................................0.8
Other Assets and Liabilities, Net ...................(2.0)
-----
Total 100.0%
=====
See notes to financial statements.
17
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
STRONG HIGH-YIELD BOND FUND
VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
CORPORATE BONDS 81.4%
AES Corporation Senior Subordinated Notes,
10.25%, Due 7/15/06 $ 4,730 $5,085
AMC Entertainment, Inc Senior Subordinated Notes,
9.50%, Due 03/15/09 (Acquired 3/14/97;
Cost $4,973) (b) 5,000 4,925
Acme Metals, Inc. Senior Secured Discount Notes,
Zero%, Due 8/01/04 (Rate Reset Effective 8/02/97) 3,165 3,379
Advanced Radio Telecom Corporation Senior Notes
& Warrants, 14.00%, Due 2/15/07 3,000 3,180
Allied Waste North America, Inc. Senior
Subordinated Notes, 10.25%, Due 12/01/06
(Acquired 11/25/96; Cost $6,000) (b) 6,000 6,323
Anchor Glass Container Corporation First Mortgage
Notes, 11.25%, Due 4/01/05 (Acquired 4/10/97;
Cost $2,000) (b) 2,000 2,095
Republic of Argentina BOCON Previsional 4 Floating
Rate Notes, 5.625%, Due 9/01/02 (e) 7,427 6,877
Atlas Air, Inc. Pass-Thru Trusts, Pass-Thru
Certificates, 12.25%, Due 12/01/02 1,000 1,106
Bank United Capital Trust Preferred Securities,
Series A, 10.25%, Due 12/31/26 (Acquired 3/19/97;
Cost $2,463) (b) 2,500 2,425
Bank United Corporation Subordinated Notes,
8.875%, Due 5/01/07 (e) 5,000 4,969
Capstar Broadcasting Partners, Inc. Senior
Discount Step-Up Notes, Zero %, Due 2/01/09
(Rate Reset Effective 2/01/02) (Acquired 4/21/97;
Cost $1,155) (b) 2,100 1,176
Centennial Cellular Corporation Senior Notes,
8.875%, Due 11/01/01 6,930 6,757
Century Communications Corporation Senior Notes,
8.875%, Due 01/15/07 7,000 6,580
Comcast Cellular Corporation Senior Participation
Notes, Series B, Zero %, Due 3/05/00 5,500 4,056
Consumers International, Inc. Senior Secured Notes,
10.25%, Due 4/01/05 (Acquired 4/10/97;
Cost $3,000) (b) 3,000 3,127
Dade International, Inc. Senior Subordinated Notes,
11.125%, Due 5/01/06 3,000 3,300
EZ Communications, Inc. Senior Subordinated Notes,
9.75%, Due 12/01/05 5,000 5,175
Echostar Communications Corporation Senior
Secured Discount Notes, Zero%, Due 6/01/04
(Rate Reset Effective 6/01/99) 10,000 8,350
Empress River Casino Financial Corporation
Guaranteed Senior Notes, 10.75%, Due 4/01/02 5,000 5,275
First Nationwide Holdings, Inc. Senior Subordinated
Notes, 10.625%, Due 10/01/03 5,500 5,830
Florida Coast Paper Company LLC First Mortgage
Notes, 12.75%, Due 6/01/03 2,000 1,900
Fresenius Medical Care Capital Trust Preferred
Securities, 9.00%, Due 12/01/06 7,000 6,930
Goss Graphic System, Inc. Senior Subordinated
Notes, 12.00%, Due 10/15/06 7,000 7,507
Grupo Industrial Durango SA de CV Notes,
12.625%, Due 8/01/03 2,000 2,160
Hollinger International Publishing, Inc. Senior
Notes, 8.625%, Due 3/15/05 5,000 4,987
Huntsman Specialty Chemicals Corporation
Floating Rate Term Loans, 5.625%, Due 3/17/07
(Acquired 3/17/97; Cost $5,000) (b) 5,000 5,125
ISP Holdings, Inc. Senior Notes, 9.00%,
Due 10/15/03 5,000 5,075
Imperial Capital Trust I Guaranteed Capital
Securities, 9.98%, Due 12/31/26 (Acquired 4/21/97;
Cost $5,865) (b) 6,000 5,953
International Wireless Communications Holdings,
Inc. Senior Discount Notes, Zero %, Due 8/15/01 5,000 2,725
KinderCare Learning Centers, Inc. Senior
Subordinated Notes, 9.50%, Due 2/15/09
(Acquired 2/10/97 - 2/18/97; Cost $7,049) (b) 7,000 6,659
L-3 Communications Corporation Senior
Subordinated Notes, 10.375%, Due 5/01/07
(Acquired 4/25/97; Cost $2,500) (b) 2,500 2,581
Lenfest Communications, Inc. Senior Notes, 8.375%,
Due 11/01/05 5,000 4,781
Lodgenet Entertainment Corporation Senior Notes,
10.25%, Due 12/15/06 (Acquired 12/16/96;
Cost $2,000) (b) 2,000 1,950
Majestic Star Casino LLC Senior Secured Notes,
12.75%, Due 5/15/03 5,000 5,400
Malette, Inc. Senior Secured Notes, 12.25%,
Due 7/15/04 5,000 5,525
Mohegan Tribal Gaming Authority Connecticut
Senior Secured Notes, Series B, 13.50%,
Due 11/15/02 2,500 3,288
Multicanal SA Notes, 9.25%, Due 2/01/02
(Acquired 1/27/97 - 2/10/97; Cost $6,507)(b) 6,500 6,492
NWA Trust Number 2 Subordinated Aircraft Notes,
13.875%, Due 06/21/08 3,875 4,553
Nextlink Communications LLC Senior Notes,
12.50%, Due 4/15/06 7,650 7,956
Ocwen Financial Corporation Notes, 11.875%,
Due 10/01/03 4,000 4,280
Olympus Communications LP/Olympus Capital
Corporation Senior Notes, 10.625%, Due 11/15/06
(Acquired 11/06/96; Cost $3,000) (b) 3,000 3,060
Optel, Inc. Units, 13.00%, Due 2/15/05
(Acquired 2/07/97 - 2/13/97; Cost $6,022) (b) 6,000 5,730
PM Holdings Corporation Subordinated Discount
Debentures, Series B, Zero %, Due 9/01/05 4,624 3,422
Pagemart, Inc. Senior Discount Notes, Zero %,
Due 11/01/03 (Rate Reset Effective 11/01/98) 3,000 2,385
Pagemart Nationwide, Inc. Senior Discount Notes,
Zero %, Due 2/01/05 (Rate Reset Effective
2/01/00) 5,000 3,375
Panamsat LP/Panamsat Capital Corporation Senior
Subordinated Discount Notes, Zero %,
Due 8/01/03 (Rate Reset Effective 8/01/98) 3,155 3,013
Panda Global Energy Company Senior Secured
Notes, 12.50%, Due 4/15/04 (Acquired 4/11/97;
Cost $1,962) (b) 2,100 1,995
Premier Parks, Inc. Senior Notes, Series A, 12.00%,
Due 12/15/03 5,000 5,512
Prime Succession Acquisition Corporation Senior
Subordinated Notes, 10.75%, Due 8/15/04 4,500 4,815
Printpack, Inc. Senior Notes, Series A, 9.875%,
Due 8/15/04 4,000 4,100
Repap New Brunswick, Inc. First Priority Senior
Secured Floating Rate Notes, 9.125%, Due 7/15/00
(Rate Reset Effective 7/15/97) 2,000 1,980
Rogers Cablesystems, Ltd. Senior Secured Second
Priority Notes, Series B, 10.00%, Due 3/15/05 5,000 5,300
Rogers Cantel Mobile, Inc., Guaranteed Senior
Subordinated Notes, 11.125%, Due 7/15/02 5,000 5,238
Rose Hills Acquisition Corporation Senior
Subordinated Notes, 9.50%, Due 11/15/04
(Acquired 11/14/96; Cost $3,000) (b) 3,000 3,030
Telex Communications Corporation Senior
Subordinated Notes, 10.50%, Due 5/01/07
(Acquired 4/29/97; Cost $2,500) (b) 2,500 2,513
Titan Wheel International, Inc. Senior Subordinated
Notes, 8.75%, Due 4/01/07 4,000 3,986
See notes to financial statements.
18
<PAGE>
- --------------------------------------------------------------------------------
STRONG HIGH-YIELD BOND FUND (continued)
SHARES OR VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
Tracor, Inc. Senior Subordinated Notes, 8.50%,
Due 3/01/07 (Acquired 2/28/97; Cost $3,984)(b) $ 4,000 $ 3,950
U.S. Air, Inc. Guaranteed Senior Notes, 10.00%,
Due 7/01/03 5,000 5,137
U.S. Air, Inc. Senior Notes, 9.625%, Due 2/01/01 7,500 7,688
Willcox & Gibbs, Inc. Senior Notes, Series A, 12.25%,
Due 12/15/03 (Acquired 12/20/96; Cost $2,948)(b) 3,000 3,045
Wireless One, Inc. Senior Discount Notes, Zero%,
Due 8/01/06 (Rate Reset Effective 8/01/01) 6,000 1,680
--------
TOTAL CORPORATE BONDS (COST $266,702) 266,771
NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES 1.1%
Aircraft Lease Portfolio Securitization Pass-Thru
Trust Certificates, Series 1996-1, Class D, 12.75%,
Due 6/15/06 (Acquired 6/18/96; Cost $2,498)(b) 2,498 2,673
CS First Boston Mortgage Securities Corporation
Mortgage Pass-Thru Certificates, Series 1992-4,
Class A-5, Interest Only, 0.625%, Due 10/25/22 26,797 276
SML Commercial Mortgage Trust Variable Rate
Pass-Thru Certificates, Series 1994-CL, Class S,
0.81%, Due 9/18/99 38,673 561
--------
TOTAL NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES (COST $3,146) 3,510
CONVERTIBLE PREFERRED STOCKS 0.5%
National Australia Bank 7.875% (COST $1,408) 56,300 1,492
PREFERRED STOCKS 5.5%
Chevy Chase Capital Corporation Series A 10.375% 185,000 9,134
Nextlink Communications 14.00% (Acquired 4/10/97;
Cost $845) (b) 20,000 950
Time Warner, Inc. Exchangeable Series K 7,393 8,003
--------
TOTAL PREFERRED STOCKS (COST $18,440) 18,087
COMMON STOCKS 0.7%
USAir Group, Inc. (f) (COST $2,072) 75,000 2,428
WARRANTS 0.0%
American Communications Services, Inc. Warrants,
Expire 11/01/05 (Acquired 2/14/96 - 3/22/96;
Cost $92) (b) 1,500 52
American Telecasting, Inc. Warrants, Expire 8/10/00 150 --
Intercel, Inc. Warrants, Expire 2/01/06 3,264 7
International Wireless Holding Company Warrants,
Expire 8/15/01 (Acquired 8/09/96; Cost $0) (b) 8,000 --
Wireless One, Inc. Warrants, Expire 10/19/00
(Acquired 12/18/96 - 1/07/97; Cost $8) (b) 6,000 3
--------
TOTAL WARRANTS (COST $104) 62
SHORT-TERM INVESTMENTS (a) 13.4%
COMMERCIAL PAPER 0.4%
INTEREST BEARING, DUE UPON DEMAND
Johnson Controls, Inc., 5.28% $ 311 311
Sara Lee Corporation, 5.23% 155 155
Warner Lambert Company, 5.23% 875 875
Wisconsin Electric Power Company, 5.30% 7 7
--------
1,348
REPURCHASE AGREEMENT 12.9%
Cantor Fitzgerald & Company, Inc. (Collateralized by:
$9,725 United States Treasury Notes, 5.875%, Due
11/15/05 and $32,475 United States Treasury Notes,
6.625%, Due 04/30/02), 5.34%, Due 5/01/97 (d) 42,200 42,200
UNITED STATES GOVERNMENT ISSUES 0.1%
United States Treasury Bills:
Due 6/05/97 170 169
Due 7/10/97 (c) 30 30
Due 7/17/97 (c) 75 74
Due 7/25/96 (c) 60 59
--------
332
--------
TOTAL SHORT-TERM INVESTMENTS (COST $43,880) 43,880
--------
TOTAL INVESTMENTS IN SECURITIES
(COST $335,752) 102.6% 336,230
Other Assets and Liabilities, Net (2.6%) (8,465)
--------
NET ASSETS 100.0% $327,765
========
FUTURES
- -------
UNDERLYING UNREALIZED
FACE AMOUNT APPRECIATION
EXPIRATION AT VALUE (DEPRECIATION)
DATE (In Thousands)(In Thousands)
- --------------------------------------------------------------------------------
Purchased:
50 Ten-Year U.S. Treasury Notes 6/97 $ 5,348 $42
Sold:
100 Ten-Year U.S. Treasury Notes 6/97 (10,697) (81)
88 U.S. Treasury Bonds 6/97 (9,617) (89)
PERCENTAGE OF
INDUSTRY DIVERSIFICATION NET ASSETS
- --------------------------------------------------------------
Media - Radio/TV ....................................14.6%
Telecommunication Service ...........................13.7
U.S. Government .....................................13.0
Airline ..............................................7.2
Leisure Service ......................................6.5
Bank - Money Center ..................................5.5
Commercial Service ...................................5.3
Bank - Regional ......................................4.9
Media - Publishing ...................................4.0
Consumer - Miscellaneous .............................3.9
Paper and Forest Products ............................3.5
Healthcare - Medical Supply ..........................3.1
Chemical - Specialty .................................3.1
Container ............................................2.8
Energy - Alternate Source ............................2.2
Foreign Government ...................................2.1
Pollution Control ....................................1.9
Auto and Truck Parts .................................1.2
Aerospace and Defense ................................1.2
Food .................................................1.1
Steel ................................................1.0
Healthcare - Drug/Diversified ........................0.3
Non-Agency Manufactured Housing ......................0.2
Diversified Operations ...............................0.1
Non-Agency Asset-Backed ..............................0.1
Electric Power .......................................0.1
Other Assets and Liabilities, Net ...................(2.6)
-----
Total 100.0%
=====
PERCENTAGE OF
COUNTRY DIVERSIFICATION NET ASSETS
- ------------------------------------------------------------
United States .......................................91.8%
Canada ...............................................5.5
Argentina ............................................4.1
Mexico ...............................................0.7
Australia ............................................0.5
Other Assets and Liabilities, Net ...................(2.6)
-----
Total 100.0%
=====
See notes to financial statements.
19
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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) All or a portion of this security is when-issued.
(f) Non-income producing security.
All principal amounts and costs are stated in thousands.
Percentages are stated as a percent of net assets.
CURRENCY ABBREVIATIONS
- ----------------------
DEM German Mark
IDR Indonesian Rupiah
See notes to financial statements.
20
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
- ------------------------------------------------------------------------------------------------
April 30, 1997 (Unaudited)
(In Thousands, Except Per Share Amounts)
<CAPTION>
STRONG SHORT-TERM STRONG GOVERNMENT
BOND FUND SECURITIES FUND
----------------- -----------------
ASSETS:
Investments in Securities, at Value
(Cost of $1,233,064 and $693,705,
<S> <C> <C>
respectively) $1,235,688 $694,469
Receivable from Brokers for Securities
and Forward Foreign Currency Contracts Sold 3,114 25,362
Receivable for Fund Shares Sold 160 274
Interest Receivable 18,636 8,541
Other Assets -- 26
---------- --------
Total Assets 1,257,598 728,672
LIABILITIES:
Payable to Brokers for Securities and Forward
Foreign Currency Contracts Purchased 1,000 38,121
Payable for Fund Shares Redeemed 89 101
Dividends Payable 7,126 3,764
Accrued Operating Expenses and Other Liabilities 1,073 142
---------- --------
Total Liabilities 9,288 42,128
---------- --------
NET ASSETS $1,248,310 $686,544
========== ========
Capital Shares Outstanding (Unlimited Number
Authorized) 127,928 66,302
NET ASSET VALUE PER SHARE $9.76 $10.35
===== ======
STRONG CORPORATE STRONG HIGH-YIELD
BOND FUND BOND FUND
---------------- -----------------
ASSETS:
Investments in Securities, at Value
(Cost of $323,354 and $335,752, respectively) $324,623 $336,230
Receivable from Brokers for Securities and
Forward Foreign Currency Contracts Sold 11,867 5,829
Receivable for Fund Shares Sold 94 2,091
Dividends and Interest Receivable 4,735 5,121
-------- --------
Total Assets 341,319 349,271
LIABILITIES:
Payable to Brokers for Securities and Forward
Foreign Currency Contracts Purchased 20,864 19,129
Payable for Fund Shares Redeemed 104 237
Dividends Payable 1,834 1,973
Accrued Operating Expenses and Other Liabilities 205 167
-------- --------
Total Liabilities 23,007 21,506
-------- --------
NET ASSETS $318,312 $327,765
======== ========
Capital Shares Outstanding (Unlimited Number
Authorized) 29,970 28,745
NET ASSET VALUE PER SHARE $10.62 $11.40
====== ======
See notes to financial statements.
21
</TABLE>
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
- --------------------------------------------------------------------------------------------------
For the Six Months Ended April 30, 1997 (Unaudited)
(In Thousands)
<CAPTION>
STRONG SHORT-TERM STRONG GOVERNMENT
BOND FUND SECURITIES FUND
----------------- -----------------
INCOME:
<S> <C> <C>
Interest $45,087 $22,904
Dividends 2,913 716
------- -------
Total Income 48,000 23,620
EXPENSES:
Investment Advisory Fees 3,727 1,977
Custodian Fees 36 21
Shareholder Servicing Costs 1,111 599
Federal and State Registration Fees 37 36
Other 233 82
------- -------
Total Expenses 5,144 2,715
------- -------
NET INVESTMENT INCOME 42,856 20,905
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 8,432 1,610
Futures Contracts, Options and Forward Foreign
Currency Contracts (623) 167
Change in Unrealized Appreciation/Depreciation on:
Investments (12,755) (6,524)
Futures Contracts, Options and Forward Foreign
Currency Contracts 5,490 (1,013)
------- -------
NET GAIN (LOSS) 544 (5,760)
------- -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $43,400 $15,145
======= =======
STRONG CORPORATE STRONG HIGH-YIELD
BOND FUND BOND FUND
---------------- -----------------
INCOME:
Interest $10,838 $14,512
Dividends 971 912
------- -------
Total Income 11,809 15,424
EXPENSES:
Investment Advisory Fees 951 1,012
Custodian Fees 8 12
Shareholder Servicing Costs 397 199
Federal and State Registration Fees 26 69
Other 76 52
------- -------
Total Expenses before Waivers and Absorptions 1,458 1,344
Voluntary Expense Waivers and Absorptions by Advisor -- (1,062)
------- -------
Expenses, Net 1,458 282
------- -------
NET INVESTMENT INCOME 10,351 15,142
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 4,106 7,783
Futures Contracts, Options and Forward Foreign
Currency Contracts (290) 163
Change in Unrealized Appreciation/Depreciation on:
Investments (4,598) (3,264)
Futures Contracts, Options and Forward Foreign
Currency Contracts 80 (128)
------- -------
NET GAIN (LOSS) (702) 4,554
------- -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 9,649 $19,696
======= =======
</TABLE>
See notes to financial statements.
22
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
STRONG SHORT-TERM STRONG GOVERNMENT
BOND FUND SECURITIES FUND
------------------------------- ------------------------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1997 OCT. 31, 1996 APRIL 30, 1997 OCT. 31, 1996
---------------- ------------- ---------------- -------------
(UNAUDITED) (UNAUDITED)
OPERATIONS:
<S> <C> <C> <C> <C>
Net Investment Income $ 42,856 $ 79,076 $ 20,905 $ 34,072
Net Realized Gain (Loss) 7,809 487 1,777 (9,671)
Change in Unrealized Appreciation/Depreciation (7,265) (3,061) (7,537) 1,224
---------- ---------- -------- --------
Increase in Net Assets Resulting from Operations 43,400 76,502 15,145 25,625
CAPITAL SHARE TRANSACTIONS 99,465 67,322 54,619 189,900
DISTRIBUTIONS:
From Net Investment Income (42,366) (79,076) (20,905) (34,072)
In Excess of Net Investment Income -- (10) -- --
---------- ---------- -------- --------
TOTAL INCREASE IN NET ASSETS 100,499 64,738 48,859 181,453
NET ASSETS:
Beginning of Period 1,147,811 1,083,073 637,685 456,232
---------- ---------- -------- --------
End of Period $1,248,310 $1,147,811 $686,544 $637,685
========== ========== ======== ========
STRONG CORPORATE STRONG HIGH-YIELD
BOND FUND BOND FUND
------------------------------- ------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED PERIOD ENDED
APRIL 30, 1997 OCT. 31, 1996 APRIL 30, 1997 OCT. 31, 1996
---------------- ------------- ---------------- -------------
(UNAUDITED) (UNAUDITED) (NOTE 1)
OPERATIONS:
Net Investment Income $ 10,351 $ 18,955 $ 15,142 $ 6,558
Net Realized Gain (Loss) 3,816 (78) 7,946 3,062
Change in Unrealized Appreciation/Depreciation (4,518) 1,078 (3,392) 3,742
---------- ---------- -------- --------
Increase in Net Assets Resulting from Operations 9,649 19,955 19,696 13,362
CAPITAL SHARE TRANSACTIONS 21,406 78,547 109,376 210,198
DISTRIBUTIONS:
From Net Investment Income (10,351) (18,955) (15,142) (6,558)
In Excess of Net Investment Income -- -- (3,167) --
---------- ---------- -------- --------
TOTAL INCREASE IN NET ASSETS 20,704 79,547 110,763 217,002
NET ASSETS:
Beginning of Period 297,608 218,061 217,002 --
---------- ---------- -------- --------
End of Period $ 318,312 $ 297,608 $327,765 $217,002
========== ========== ======== ========
See notes to financial statements.
23
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
April 30, 1997 (Unaudited)
1. ORGANIZATION
The Strong Income Funds consist of Strong Short-Term Bond Fund, Inc.,
Strong Government Securities Fund, Inc., Strong Corporate Bond Fund, Inc.,
and Strong High-Yield Bond Fund (a series of Strong Income Funds, Inc.).
The Funds are diversified, open-end management investment companies
registered under the Investment Company Act of 1940. The inception date for
the Strong High-Yield Bond Fund was December 28, 1995.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements.
(A) Security Valuation -- Securities of the Funds are valued through
valuations obtained by a commercial pricing service or the mean of the
bid and asked prices, when no last sales price is available.
Securities for which market quotations are not readily available are
valued at fair value as determined in good faith under consistently
applied procedures established by and under the general supervision of
the Board of Directors. Securities which are purchased within 60 days
of their stated maturity are valued at amortized cost, which
approximates current value.
The Funds may own certain investment securities which are restricted
as to resale. These securities are valued after giving due
consideration to pertinent factors including recent private sales,
market conditions and the issuer's financial performance. The Funds
generally bear the costs, if any, associated with the disposition of
restricted securities. Aggregate cost and fair value of these
restricted securities held at April 30, 1997 were as follows (in
thousands):
<TABLE>
<CAPTION>
STRONG SHORT-TERM STRONG GOVERNMENT STRONG CORPORATE STRONG HIGH-YIELD
BOND FUND SECURITIES FUND BOND FUND BOND FUND
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Aggregate Cost $283,222 $88,572 $118,056 $75,371
Aggregate Fair Value 283,712 87,850 117,412 75,832
Percent of Net Assets 22.7%* 12.8%** 36.9%*** 23.1%****
</TABLE>
* Of these securities, which are restricted from resale, 70.1% are
eligible for resale pursuant to Rule 144A under the Securities Act of
1933 and also have been determined to be liquid by the Advisor based
upon guidelines established by the Fund's Board of Directors.
** Of these securities, which are restricted from resale, 88.1% are
eligible for resale pursuant to Rule 144A under the Securities Act of
1933 and also have been determined to be liquid by the Advisor based
upon guidelines established by the Fund's Board of Directors.
*** Of these securities, which are restricted from resale, 86.0% are
eligible for resale pursuant to Rule 144A under the Securities Act of
1933 and also have been determined to be liquid by the Advisor based
upon guidelines established by the Fund's Board of Directors.
**** Of these securities, which are restricted from resale, 89.7% are
eligible for resale pursuant to Rule 144A under the Securities Act of
1933 and also have been determined to be liquid by the Advisor based
upon guidelines established by the Fund's Board of Directors.
(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.
24
<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 Risk -- The use of futures contracts, options,
foreign denominated assets and forward foreign currency exchange
contracts for purposes of hedging the Funds' investment portfolios
involves, to varying degrees, elements of market risk in excess of the
amount recognized in the statement of assets and liabilities. The
predominant risk with futures contracts is an imperfect correlation
between the value of the contracts and the underlying securities.
Foreign denominated assets and forward foreign currency exchange
contracts may involve greater risks than domestic transactions,
including currency, political and economic, regulatory and market
risks.
(I) 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. NET ASSETS
Net assets as of April 30, 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
STRONG SHORT-TERM STRONG GOVERNMENT STRONG CORPORATE STRONG HIGH-YIELD
BOND FUND SECURITIES FUND BOND FUND BOND FUND
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Capital Stock $1,321,911 $695,336 $357,773 $319,574
Undistributed Net Investment Income 491 -- -- --
Undistributed Net Realized Gain (Loss) (78,182) (9,666) (40,684) 7,841
Net Unrealized Appreciation 4,090 874 1,223 350
---------- -------- -------- --------
$1,248,310 $686,544 $318,312 $327,765
========== ======== ======== ========
</TABLE>
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Funds for the six months ended April 30, 1997
and the period ended October 31, 1996, respectively, were as follows (in
thousands):
<TABLE>
1997 1996
--------------------- ---------------------
<CAPTION>
SHARES DOLLARS SHARES DOLLARS
------ ------- ------ -------
STRONG SHORT-TERM BOND FUND
<S> <C> <C> <C> <C>
Shares Sold 31,794 $310,806 53,424 $521,038
Dividends Reinvested 3,637 35,565 6,630 64,589
Shares Redeemed (25,253) (246,906) (53,200) (518,305)
------- -------- ------- --------
10,178 $ 99,465 6,854 $ 67,322
======= ======== ======= ========
STRONG GOVERNMENT SECURITIES FUND
Shares Sold 17,856 $186,301 41,596 $434,098
Dividends Reinvested 1,690 17,669 2,683 27,954
Shares Redeemed (14,315) (149,351) (26,228) (272,152)
------- -------- ------- --------
5,231 $ 54,619 18,051 $189,900
======= ======== ======= ========
STRONG CORPORATE BOND FUND
Shares Sold 7,985 $ 85,443 22,680 $239,496
Dividends Reinvested 810 8,671 1,470 15,401
Shares Redeemed (6,792) (72,708) (16,839) (176,350)
------- -------- ------- --------
2,003 $ 21,406 7,311 $ 78,547
======= ======== ======= ========
STRONG HIGH-YIELD BOND FUND
Shares Sold 37,008 $426,059 26,782 $292,590
Dividends Reinvested 1,349 15,476 371 4,077
Shares Redeemed (28,880) (332,159) (7,885) (86,469)
------- -------- ------- --------
9,477 $109,376 19,268 $210,198
======= ======== ======= ========
25
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
April 30, 1997 (Unaudited)
5. RELATED PARTY TRANSACTIONS
Strong Capital Management, Inc. (the "Advisor"), with whom certain officers
and directors of the Funds are affiliated, provides investment advisory
services and shareholder recordkeeping and related services to the Funds.
Investment advisory fees, which are established by terms of the Advisory
Agreements, are based on the following annualized rates of the average
daily net assets: Strong Government Securities Fund .60%, Strong Short-Term
Bond Fund, Strong Corporate Bond Fund and Strong High-Yield Bond Fund
.625%. Advisory fees are subject to reimbursement by the Advisor if the
Funds' operating expenses exceed certain levels. Shareholder recordkeeping
and related service fees are based on contractually established rates for
each open and closed shareholder account. In addition, the Advisor is
compensated for certain other services related to costs incurred for
reports to shareholders.
The Funds may invest cash reserves in money market funds sponsored and
managed by Strong Capital Management, Inc., 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, the
Advisor remits to each Fund an amount equal to all fees otherwise due to
them under their investment advisory agreement for the assets invested in
such money market funds.
Certain information regarding related party transactions, excluding the
effects of waivers and reimbursements, for the six months ended April 30,
1997 is as follows (in thousands):
<TABLE>
<CAPTION>
STRONG SHORT-TERM STRONG GOVERNMENT STRONG CORPORATE STRONG HIGH-YIELD
BOND FUND SECURITIES FUND BOND FUND BOND FUND
----------------- ----------------- ---------------- -----------------
Payable to/(Receivable from)
<S> <C> <C> <C> <C>
Advisor at April 30, 1997 $70 $25 ($1) $24
Other Shareholder Servicing Expenses
Paid to Advisor 16 5 5 2
Unaffiliated Directors' Fees 8 5 3 2
</TABLE>
6. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities for the six
months ended April 30, 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
STRONG SHORT-TERM STRONG GOVERNMENT STRONG CORPORATE STRONG HIGH-YIELD
BOND FUND SECURITIES FUND BOND FUND BOND FUND
----------------- ----------------- ---------------- -----------------
Purchases:
<S> <C> <C> <C> <C>
U.S. Government and Agency $208,716 $1,044,388 $374,586 $ 11,682
Other 991,280 651,473 624,237 834,804
Sales:
U.S. Government and Agency 210,460 981,543 385,910 11,663
Other 986,718 663,692 593,282 752,771
</TABLE>
7. INCOME TAX INFORMATION
At April 30, 1997, the investment cost and gross unrealized appreciation
and depreciation on investments for federal income tax purposes were as
follows (in thousands):
<TABLE>
<CAPTION>
STRONG SHORT-TERM STRONG GOVERNMENT STRONG CORPORATE STRONG HIGH-YIELD
BOND FUND SECURITIES FUND BOND FUND BOND FUND
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Aggregate Investment Cost $1,235,922 $694,219 $323,565 $335,938
========== ======== ======== ========
Aggregate Unrealized:
Appreciation $ 18,941 $ 6,766 $ 4,379 $ 5,557
Depreciation (19,175) (6,516) (3,321) (5,265)
----------- --------- --------- ---------
($ 234) $ 250 $ 1,058 $ 292
=========== ========= ======== ========
Capital Loss Carryovers
(at October 31, 1996) $ 77,981 $ 10,333 $ 43,839 $ __
========== ======== ======== =========
</TABLE>
Capital loss carryovers expire in varying amounts through 2004.
Approximately $36,659 (in thousands) of the capital loss carryovers of
Strong Corporate Bond Fund expire in 1998.
26
<PAGE>
FINANCIAL HIGHLIGHTS
<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>
April 30, 1997(b) $ 9.75 $0.35 __ $0.35 ($0.34) __ __ ($0.34) $ 9.76
Oct. 31, 1996 9.77 0.69 ($0.02) 0.67 (0.69) __ __ (0.69) 9.75
Oct. 31, 1995 (c) 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)(d) (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>
April 30, 1997(b) +3.7% $1,248 0.9%* 0.9%* 7.2%* 101.9%
Oct. 31, 1996 +7.1% 1,148 0.9% 0.9% 7.1% 191.5%
Oct. 31, 1995 (c) +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%
</TABLE>
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the Fund
outstanding for the entire period.
(b) For the six months ended April 30, 1997 (Unaudited). Total return and
portfolio turnover rate are not annualized.
(c) Total return and portfolio turnover rate are not annualized.
(d) Ordinary income distribution for tax purposes.
STRONG GOVERNMENT SECURITIES FUND
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
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>
April 30, 1997(b) $10.44 $0.33 ($0.09) $0.24 ($0.33) __ __ __ ($0.33) $10.35
Oct. 31, 1996 10.60 0.63 (0.16) 0.47 (0.63) __ __ __ (0.63) 10.44
Oct. 31, 1995(c) 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>
STRONG GOVERNMENT SECURITIES FUND (continued)
<TABLE>
- -----------------------------------------------------------------------------------------
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>
April 30, 1997(b) +2.3% $687 0.8%* 0.8%* 6.3%* 253.9%
Oct. 31, 1996 +4.6% 638 0.9% 0.9% 6.0% 457.6%
Oct. 31, 1995(c) +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) For the six months ended April 30, 1997 (Unaudited). Total return and
portfolio turnover rate are not annualized.
(c) Total return and portfolio turnover rate are not annualized.
27
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- ---------------------------------------------------------------------------------------------------------------------------
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>
April 30, 1997 (b) $10.64 $0.36 ($0.02) $0.34 ($0.36) -- ($0.36) $10.62
Oct. 31, 1996 10.56 0.73 0.08 0.81 (0.73) -- (0.73) 10.64
Oct. 31, 1995 (c) 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
April 30, 1997 (b) +3.2% $318 1.0%* 6.8%* 322.3%
Oct. 31, 1996 +8.0% 298 1.0% 7.0% 672.8%
Oct. 31, 1995 (c) +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) For the six months ended April 30, 1997 (Unaudited). Total return and
portfolio turnover rate are not annualized.
(c) Total return and portfolio turnover rate are not annualized.
<TABLE>
STRONG HIGH-YIELD 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>
April 30, 1997 (b) $11.26 $0.53 $0.27 $0.80 ($0.53) ($0.13) ($0.66) $11.40
Oct. 31, 1996 (c) 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
-----------------------------------------------------------------------------
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>
April 30, 1997 (b) +7.3% $328 0.2%* 0.8%* 9.4%* 256.3%
Oct. 31, 1996 (c) +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) For the six months ended April 30, 1997 (Unaudited). Total return and
portfolio turnover rate are not annualized.
(c) Inception date is December 28, 1995. Total return and portfolio turnover
rate are not annualized.
28
<PAGE>
DIRECTORS
Richard S. Strong
John Dragisic
Willie D. Davis
Stanley Kritzik
Marvin E. Nevins
William F. Vogt
OFFICERS
Richard S. Strong, Chairman of the Board
John Dragisic, President
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
DISTRIBUTOR
Strong Funds Distributors, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
CUSTODIAN
Firstar Trust Company
P.O. Box 701, Milwaukee, Wisconsin 53201
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
Strong Capital Management, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
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. 5209E97 97SINC
