THE STRONG
----------
INCOME
FUNDS
================================
ANNUAL REPORT o OCTOBER 31, 1998
================================
[PHOTO OF STRONG FUNDS BUILDING]
The Strong Corporate Bond Fund
The Strong Government Securities Fund
The Strong High-Yield Bond Fund
The Strong Short-Term Bond Fund
The Strong Short-Term High Yield Bond Fund
[STRONG LOGO]
STRONG FUNDS
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Strong Investor,
The financial markets were moving along smoothly last summer when they
suddenly struck an air pocket. After three straight years of 20%-plus returns,
people had grown accustomed to their investments moving steadily upward. The
collapse of the Asian and Russian economies brought us back to earth in a hurry
Fortunately, our financial markets have been resilient. The turbulence we
encountered last summer, while upsetting, turned out to be short-lived. As of
Thanksgiving week, both the Dow and the S&P indexes had hit all-time highs.
The rebound in financial markets came because the American economy is
fundamentally strong. The U.S. accounts for roughly 25% of the world's GDP.
Inflation is negligible, interest rates are falling, and unemployment is low. If
you still harbor any doubt about how well the American economy stacks up against
the rest of the world, take a trip to Asia (as I did in August) or, better yet,
Russia. America, you'll soon conclude, is sitting in the economic catbird seat.
Meanwhile, it also helps to remember that Asia was occupying the economic
high ground not too many months ago. When bust follows boom, it arrives swiftly,
without warning, and absolutely without mercy.
It is at times like these--good times--when it makes sense to step back and
assess your financial affairs. It's important to do so when things are good
because, when things are bad, fear has a way of overpowering common sense. So,
as you review your holdings, consider:
* Since 1926, the stock market has averaged an 11% return annually. The last
three years -- maybe four if 1998 finishes strong--have been a historical
aberration.
* Lately, most of us have loaded up on common stocks, giving inadequate
attention to bonds and cash. We can help you bring "balance" to your
portfolio with our new Guide to Building a Strong Portfolio.
* In recent years, big Blue Chip stocks have dominated. It might be smart to
take a long look at small- and mid-cap company stocks. Relative to large
caps, they are cheap. Strong has a depth of expertise in small- and mid-
cap stocks.
* Inflation is low and interest rates may be headed lower yet. That creates
an attractive climate for bonds. I suggest you take a good look at
intermediate- and long-term, high quality bonds, both corporate and
government.
So, let last summer's "air pocket" serve as a reminder that nothing goes
up--uninterrupted --forever. The market's recent run defies history. There have
been turbulent times before and there will be disruption again. But now, while
things are good, review your investments. If you need help, call the Strong
Portfolio Specialists.
At your convenience, of course.
/s/ Dick
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THE STRONG
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INCOME
FUNDS
================================
ANNUAL REPORT o OCTOBER 31, 1998
================================
TABLE OF CONTENTS
INVESTMENT REVIEWS
The Strong Corporate Bond Fund...........................................2
The Strong Government Securities Fund....................................4
The Strong High-Yield Bond Fund..........................................6
The Strong Short-Term Bond Fund..........................................8
The Strong Short-Term High Yield Bond Fund..............................10
BOND GLOSSARY................................................................12
FINANCIAL INFORMATION
Schedules of Investments in Securities
The Strong Corporate Bond Fund......................................13
The Strong Government Securities Fund...............................15
The Strong High-Yield Bond Fund.....................................17
The Strong Short-Term Bond Fund.....................................20
The Strong Short-Term High Yield Bond Fund..........................23
Statements of Assets and Liabilities................................25
Statements of Operations............................................26
Statements of Changes in Net Assets.................................27
Notes to Financial Statements.......................................29
FINANCIAL HIGHLIGHTS.........................................................32
REPORT OF INDEPENDENT ACCOUNTANTS............................................34
<PAGE>
==============================
THE STRONG CORPORATE BOND FUND
- ------------------------==============================-------------------------
FUND
HIGHLIGHTS
o The Fund returned 6.84% for the year ended October 31, 1998. Our portfolio
held up well during a difficult period, slightly outperforming its
benchmark index for the year.
o The Fund increased its duration to 6.5 years, thus increasing interest rate
sensitivity, to benefit from declining rates on government bonds. We also
increased our holdings of high-quality, more liquid bonds.
o Throughout much of the recent quarter, the Fund invested in U.S. Treasury
and high-quality mort-gage bonds, which performed much better than
corporate bonds during the months of August and October.
------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS
As of 10-31-98
1-year 6.84%
5-year 8.87%
10-year 7.83%
Since Inception 9.76%
(on 12-12-85)
------------------------------------
PORTFOLIO STATISTICS
As of 10-30-98
30-day annualized
yield(1) 6.53%
Average maturity(2) 11.9 years
Average
quality rating(3) BBB
------------------------------------
PERSPECTIVES
FROM THE MANAGERS
/s/ Jeffrey A. Koch /s/ John T. Bender /s/Ivor Schucking
Jeffrey A. Koch John T. Bender Ivor Schucking
Portfolio Co-manager Portfolio Co-manager Portfolio Co-manager
................................................................................
Different classes of bonds performed very differently during this past fiscal
year due to economic and political crisis abroad. As the emerging market debt
crisis turned into a Russian debt default, fixed income investors became very
wary of the corporate and mortgage bond markets. U.S. and foreign financial
institutions suffered large trading and loan losses as a direct result of the
Russian debt default. This chain of events caused Treasury bonds to rally as
investors looked for safe investments. As a result, the spread between corporate
bond yields and Treasury yields approached levels not seen since 1990.
Our portfolio held up well during this difficult period. We increased our
duration, and consequently, the portfolio's sensitivity to interest rate
changes, to 6.5 years in order to benefit from declining rates in the government
bond market. We also have been increasing the quality and liquidity of the
holdings in the portfolio.
Throughout much of the recent quarter, we invested a portion of the fund in U.S
Treasury and high-quality mortgage securities. These investments performed much
better than corporate bonds during the months of August and October. We also
lowered our exposure to the lower-wuality corporate market by shortening our
.......................
BOND PERFORMANCE
WAS DRIVEN
LARGELY BY
ECONOMIC AND
POLITICAL CRISIS
ABROAD.
.......................
- -------------------------------------------------------------------------------
*The Lehman Brothers Corporate BAA Bond Index is an unmanaged index comprised of
all issues within the Lehman Brothers Corporate Bond Index that are rated BAA
by Moody' s Investors Services, Inc. The Lipper Corporate Debt Funds BBB Rated
Index is an equally-weighted performance index of the largest qualifying funds
in this Lipper category. Source of the Lehman index data is Standard & Poor's
Micropal. Source of the Lipper index data is Lipper Analytical Services, Inc.
2
<PAGE>
maturities in that sector. Our performance was hurt somewhat in September and
October by our exposure to the underperforming finance and airline sectors. We
have maintained our overweight positions in these sectors, believing that
investors are overestimating the risks facing these companies.
Priced for recession, new corporate bond market valuation levels look extremely
attractive for long-term investors. Spreads between corporate bond yields and
Treasury yields are at or near levels not seen since 1990. However, by cutting
interest rates, the Federal Reserve has begun to act to avert a severe
contraction in credit. High short-term interest rates, combined with low rates
of inflation, give the Fed room to maneuver, making a recession in 1999 appear
less likely. Corporate bond investors are likely to be slowly rewarded as fears
of widespread credit troubles in the U.S. economy abate.
Thank you for your continued investment in the Strong Corporate Bond Fund. We
look forward to serving your investment needs in the future.
===============================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
===============================================================================
From 12-12-85 to 10-31-98
[GRAPH]
Lehman Brothers Lipper Corporate
THE STRONG Corporate Debts Funds
CORPORATE BOND Baa Bond Bbb Rated
FUND Index* Index*
11-85 10,000 10,000 10,000
12-85 10,300 10,162 10,184
12-87 13,997 12,323 11,882
12-89 15,800 15,521 14,342
12-91 17,013 19,497 17,909
12-93 21,732 24,087 21,839
12-95 26,892 28,617 25,052
12-97 31,752 33,072 28,800
10-98 33,188 34,529 29,898
================================================================================
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with the performance of 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.
- -------------------------------------------------------------------------------
1 From time to time, the Fund' s Advisor has waived its management fee and
absorbed expenses, which has resulted in higher returns and without these
waivers the rankings may have been lower. Yields are historical and do not
represent future yields, which will fluctuate.
2 The Fund's average maturity includes the effect of futures and options.
3 For purposes of this average rating, the Fund's short-term debt obligations
have been assigned a long-term rating by the Advisor.
YOUR FUND'S
APPROACH
THE STRONG CORPORATE BOND FUND INVESTS FOR HIGH CURRENT INCOME WITH MODERATE
SHARE-PRICE FLUCTUATION. THE FUND IS DESIGNED FOR LONGER-TERM INVESTORS SEEKING
HIGHER INCOME THAN SHORTER-TERM BONDS OFFER AND WHO ARE WILLING TO ACCEPT
MODERATELY HIGHER SHARE PRICE CHANGES. THE FUND INVESTS PRIMARILY IN
INVESTMENT-GRADE CORPORATE BONDS, BUT MAY INVEST UP TO 35% OF ITS ASSETS IN ANY
OTHER BOND CATEGORIES, INCLUDING GOVERNMENT AND MORTGAGE-BACKED BONDS.
NORMALLY, THE FUND'S AVERAGE MATURITY WILL BE BETWEEN SEVEN AND 12 YEARS, WHICH
MEANS ITS SHARE PRICE HAS HEIGHTENED SENSITIVITY TO CHANGES IN INTEREST RATES.
- --------------------------------------------------------------------------------
MARKET
HIGHLIGHTS
o The Lehman Brothers Corporate BAA Bond Index, the Fund's benchmark index,
returned 6.23% for the year ended October 31, 1998.*
o During the last several months, market volatility increased, which benefited
investors in the safe haven U.S. Treasury market. Corporate bonds appreciated
less than the Treasuries, recording their worst relative performance this
decade.
o Bond performance was driven largely by economic and political crisis abroad.
The emerging market debt crisis, the Russian default, and large losses for
both U.S. and foreign financial institutions were the primary determinants of
price movements in the market.
3
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=====================================
THE STRONG GOVERNMENT SECURITIES FUND
- ----------------------=====================================---------------------
FUND
HIGHLIGHTS
o The Strong Government Securities Fund returned 9.05% for the 12 months ended
October 31, 1998. The Lehman Brothers Aggregate Bond Index, the Fund's
benchmark, returned 9.34% for the same period.*
o The Fund increased its investment in Treasury bonds and reduced its holdings
in mortgage-backed and corporate bonds, raising its overall credit quality.
Nonetheless, mortgage and corporate issues still hurt the Fund's performance.
o We slightly increased the Fund's duration (interest-rate sensitivity) near the
end of the year, anticipating cuts in interest rates. The Federal Reserve
appears likely to make such cuts if emerging-market turmoil threatens to harm
U.S. financial markets.
- --------------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS
As of 10-31-98
1-year 9.05%
5-year 6.81%
10-year 9.30%
Since Inception 8.95%
(on 10-29-86)
- --------------------------------------------
PORTFOLIO STATISTICS
As of 10-30-98
30-day annualized
yield(1) 5.03%
Average maturity(2) 8.1 years
Average
quality rating(3) AAA
- -------------------------------------------
PERSPECTIVES
FROM THE MANAGERS
/s/Bradley C. Tank /s/John T. Bender
Bradley C. Tank John T. Bender
Portfolio Co-manager Portfolio Co-manager
- --------------------------------------------------------------------------------
After a long period of tranquility, economic and political developments abroad
have produced significant volatility across all fixed-income (bond) markets.
Over the past year, interest rates on Treasury securities have declined by
approximately 1.25 percentage points, a substantial drop.
Rates declined rapidly in August and September after Russia defaulted on its
government bonds. That event only fed the fears of investors already made
skittish by problems in Asia and other international markets. Many investors
responded by moving their assets to the safe haven U.S. Treasuries offer. This
spike in demand drove the price of Treasuries upward, which has the effect of
reducing yields. By the end of October, 10-year Treasury yields declined to
4.12%.
In contrast, demand for most corporate and mortgage securities declined, as did
their prices. The resulting difference in total return between Treasuries and
other types of bonds reached almost record proportions late in the fiscal year.
Corporate bond prices have now dropped to levels not seen since 1990--despite a
long period of domestic economic prosperity and rising corporate profits.
Three factors aided the Fund's performance in this volatile environment. First,
we reduced our exposure to investment-grade corporate bonds early in the year.
This was helpful in August and October, when corporate bonds dramatically
underperformed both Treasury and mortgage securities. Second, we positioned the
................................
NOW THAT THE
FEDERAL RESERVE HAS
BEGUN TO LOWER
INTEREST RATES,
FINANCIAL MARKETS
APPEAR LIKELY
TO BEHAVE
MORE NORMALLY.
................................
- -------------------------------------------------------------------------------
*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. Fund shares are
neither insured nor guaranteed by the U.S. Government. Source of the Lehman
index data is Standard & Poor's Micropal. Source of the Lipper index data is
Lipper Analytical Services, Inc.
4
<PAGE>
portfolio to benefit from interest-rate declines. Third, we had chosen
mortgage-backed bonds tied to mortgages that were less likely to be refinanced
than the overall market. These positives were somewhat offset by poor bond
selection within our small corporate bond allocation.
Looking forward, economic growth is likely to ease. We believe that the economic
decline overseas will lead to a marked slowdown for U.S. companies that get a
significant portion of their sales from international trade. Also, we expect a
decrease in companies' capital spending. However, we do not expect the U.S.
economy to enter a recession in 1999. Rather, we believe it will continue to
benefit from strong labor and housing markets. Now that the Federal Reserve has
begun to lower interest rates, financial markets appear likely to behave more
normally. For these reasons we believe the corporate and mortgage sectors of the
fixed-income market are likely to do better than Treasuries in the near future.
We anticipate that there will be opportunities to purchase high-quality bonds in
these sectors at very attractive prices.
We thank you for investing in the Strong Government Securities Fund, and look
forward to helping you pursue your financial goals.
===============================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
===============================================================================
From 10-29-86 to 10-31-98
[GRAPH]
THE STRONG Lehman Brothers Lipper General
GOVERNMENT SECURITIES Aggregate U.S. Government
FUND Bond Index* Funds Index*
9-86 10,000 10,000 10,000
12-86 10,218 10,187 10,171
12-88 11,683 11,294 10,903
12-90 13,953 14,092 13,329
12-92 17,781 17,557 16,102
12-94 19,364 18,706 16,615
12-96 23,873 22,963 19,849
10-98 27,997 27,132 23,242
================================================================================
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with the performance of 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.
- --------------------------------------------------------------------------------
1 From time to time, the Fund's Advisor has waived its management fee and
absorbed expenses, which has resulted in higher returns and without these
waivers the rankings may have been lower. Yields are historical and do not
represent future yields, which will fluctuate.
2 The Fund's average maturity includes the effect of futures and options.
3 For purposes of this average rating, the Fund's short-term debt obligations
have been assigned a long-term rating by the Advisor.
YOUR FUND'S
APPROACH
THE STRONG GOVERNMENT SECURITIES FUND USUALLY INVESTS 90% OR MORE (AND ALWAYS AT
LEAST 80%) OF ITS ASSETS IN BONDS ISSUED BY THE U.S. GOVERNMENT OR ITS AGENCIES.
THESE ARE AMONG THE HIGHEST-QUALITY BONDS AVAILABLE. THE FUND GENERALLY KEEPS AN
AVERAGE MATURITY OF FIVE TO 10 YEARS, SO ITS SHARE PRICE WILL SHOW SENSITIVITY
TO CHANGES IN INTEREST RATES. THE FUND MAY ALSO MAKE SMALL INVESTMENTS IN
HIGH-QUALITY BONDS FROM OTHER SECTORS IN AN EFFORT TO IMPROVE YIELD AND TOTAL
RETURN. ANALYSIS OF THE ECONOMY, INTEREST-RATE TRENDS, AND BOND MARKETS DRIVE
OUR INVESTMENT PROCESS.
- --------------------------------------------------------------------------------
MARKET
HIGHLIGHTS
o Interest rates on 10-year Treasury notes declined by approximately 1.25
percentage points over the past 12 months.
o Investors responded to turmoil in international markets by seeking the safety
of U.S. Treasury securities, driving those issues' prices upward. As a result,
the difference in performance between Treasuries and bonds from other sectors
(such as corporate bonds and mortgage-backed issues) was dramatic.
o The bond markets generally were driven by global economic events, rather than
fundamental changes in the U.S. economy.
5
<PAGE>
===============================
THE STRONG HIGH-YIELD BOND FUND
- ------------------------===============================------------------------
FUND
HIGHLIGHTS
o The Strong High-Yield Bond Fund returned 0.89% for the fiscal year ended
October 31, 1998. The Fund's benchmark, the Lehman Brothers High-Yield Bond
Index, returned -0.50% in the same time period.*
o The Fund increased its interest rate sensitivity in early August. We began to
shift some of the fund's investments to lower credit quality bonds as their
prices became more attractive at the end of the fiscal year.
o Holdings in non-cyclical
U.S. bonds aided the Fund's investment performance. Exposure to zero-coupon
bonds with longer duration hurt the Fund's performance.
- ---------------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS
As of 10-31-98
1-year 0.89%
Since Inception 13.69%
(on 12-28-95)
- ---------------------------------------------
PORTFOLIO STATISTICS
As of 10-30-98
30-day annualized
yield(1) 10.95%
Average maturity(2) 9.1 years
Average
quality rating(3) B
PERSPECTIVES
FROM THE MANAGERS
/s/ Jeffrey A. Koch /s/ Thomas M. Price
Jeffrey A. Koch Thomas M. Price
Portfolio Co-manager Portfolio Co-manager
- --------------------------------------------------------------------------------
Global financial and economic turmoil dominated the investment climate in fiscal
1998. The crisis began in Asia, spread quickly through the developing markets
and culminated in a debt default in Russia. U.S. financial markets eventually
succumbed to the growing global financial pressure in August. The fixed income
markets reacted first.
Investors sought the safety and liquidity of U.S. government securities, which
led to a rapid decline in U.S. interest rates. At the same time, investors began
to sell other types of bonds, including high-yield and investment-grade
corporates, and mortgage- and asset-backed securities. As a result, yields on
these investments actually rose while those on U.S. government securities fell.
Once this process got started, its magnitude was exacerbated by the unwinding of
positions held by hedge funds and other leveraged investors. Stocks also
suffered as the S&P 500 finished the month of August down 14.46%.
High-yield bonds were hit particularly hard, suffering their second worst
monthly price decline on record during August. The corresponding increase in
high-yield bonds' yields left them at their highest levels, relative to U.S.
government bonds, since the 1990 recession. Lower-quality bonds fared worse than
their higher-quality counterparts during the year. For example, B-rated bonds
finished the fiscal year with a total return of -1.75%. Higher-quality BB-rated
bonds posted a total return of 5.15% over that same time period
..................................
BEGINNING
IN AUGUST,
FINANCIAL MARKET
TURMOIL DOMINATED
THE INVESTMENT
MARKETS.
..................................
- --------------------------------------------------------------------------------
*The Lehman Brothers High-Yield Bond Index is an unmanaged index generally
representative of corporate bonds rated below investment-grade. The Lipper High
Current Yield Funds Index is an equally-weighted performance index of the
largest qualifying funds in this Lipper category. Source of the Lehman index
data is Standard & Poor's Micropal. Source of the Lipper index data is Lipper
Analytical Services, Inc.
6
<PAGE>
In yield terms, BB-rated bonds offered 3.87% more than Treasuries at the end of
October while B-rated bonds offered 7.39% more than Treasuries at the same date
This means that the average BB-rated bond had a yield of 8.48% while, one step
in quality lower, the average B-rated bond had a yield of 12.00%.
Throughout the fiscal year, we upgraded the quality of our investments,
believing the domestic economy would slow in response to global economic
weakness. As the market declined at the end of the fiscal year, we reversed this
process and moved some of our BB-rated investments into B-rated investments. We
also increased the Fund's interest rate sensitivity, anticipating that the
Federal Reserve would lower interest rates. It did just that in September and
October, lowering the Federal Funds rate from 5.50% to 5.00%.
We expect the Federal Reserve to continue to lower interest rates in an effort
to extend the economic expansion. Worldwide, other central bankers have also
begun this process. While the economy is likely to slow from its strong pace of
earlier this year, we don't expect it to slip into recession. As a result, we
believe that high-yield bonds are attractively priced at current levels.
Thank you for your continued confidence in the Fund. We appreciate the
opportunity to help you pursue your investment objectives.
===============================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
===============================================================================
From 12-28-95 to 10-31-98
[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 10,015
6-96 11,425 10,361 10,440
12-96 12,724 11,151 11,314
6-97 13,607 11,800 11,968
12-97 14,758 12,575 12,805
6-98 15,652 13,141 13,418
10-98 15,652 12,286 12,124
================================================================================
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with the performance of 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.
- --------------------------------------------------------------------------------
1 From time to time, the Fund' s Advisor has waived its management fee and
absorbed expenses, which has resulted in higher returns and without these
waivers the rankings may have been lower. Yields are historical and do not
represent future yields, which will fluctuate.
2 The Fund's average maturity includes the effect of futures.
3 For purposes of this average rating, the Fund's short-term debt obligations
have been assigned a long-term rating by the Advisor.
YOUR FUND'S
APPROACH
THE STRONG HIGH-YIELD BOND FUND USES A DISCIPLINED APPROACH TO THE HIGH-YIELD
BOND MARKET TO MAXIMIZE TOTAL RETURNS. WE DO A CAREFUL TOP-DOWN ECONOMIC
ANALYSIS BEFORE SETTING THE FUND'S AVERAGE CREDIT QUALITY AND ITS SENSITIVITY TO
CHANGES IN INTEREST RATES. WE THEN CHOOSE INDIVIDUAL BONDS THROUGH A PROCESS OF
RIGOROUS ANALYSIS, ADHERING TO STRICT VALUATION CRITERIA TO PROVIDE THE
FOUNDATION FOR BUILDING THE PORTFOLIO FROM THE BOTTOM-UP. OUR GOAL IS TO PROVIDE
CONSISTENT, COMPETITIVE RETURNS FOR INVESTORS WANTING EXPOSURE TO THE HIGH-YIELD
BOND MARKET.
- --------------------------------------------------------------------------------
MARKET
HIGHLIGHTS
o Beginning in August, financial market turmoil dominated the investment
markets. In the month of August, the high-yield bond market suffered its
second worst price performance on record. Relative to Treasuries, the yield on
high-yield bonds reached its highest level since the 1990 recession.
o Higher-quality bonds outperformed lower-quality bonds during the year. Bonds
rated BB returned 5.15% for the fiscal year ended October 31, 1998. Bonds
rated B returned -1.75% and bonds rated C returned -12.41% for the same time
period.
o The Federal Reserve lowered interest rates in September and October, bringing
the Federal Funds rate down from 5.50% to 5.00%.
7
<PAGE>
===============================
THE STRONG SHORT-TERM BOND FUND
- ------------------------===============================------------------------
FUND
HIGHLIGHTS
o The Fund returned 4.69% over the 12 months ended October 31, 1998.
o Our focus on corporate bonds hurt performance in the second half of the year,
as Treasury issues outperformed. Poor bond selections from the banking and
finance sector also hurt the Fund.
o Mortgage-backed bonds, selected to help improve the Fund's yield, hurt the
Fund's total return versus the benchmark late in the year as the mortgage
market didn't keep pace with the rally in Treasuries.
o We offset these negative forces somewhat by increasing the Fund's sensitivity
to declining interest rates, a benefit when rates dropped rapidly in August
and September.
- -------------------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS
As of 10-31-98
1-year 4.69%
5-year 5.61%
10-year 7.20%
Since Inception 7.56%
(on 8-31-87)
- -------------------------------------------------
PORTFOLIO STATISTICS
As of 10-30-98
30-day annualized
yield(1) 7.00%
Average maturity(2) 2.6 years
Average
quality rating(3) A
- ------------------------------------------------
PERSPECTIVES
FROM THE MANAGERS
/s/ Bradley C. Tank /s/Lyle J. Fitterer /s/Shirish Malekar
Bradley C. Tank Lyle J. Fitterer Shirish Malekar
Portfolio Co-manager Portfolio Co-manager Portfolio Co-manager
In the past year, and particularly in recent months, volatility in fixed-income
markets has increased. As demand for Treasury securities has risen, the yields
they pay have declined by approximately 1.5 percentage points, a significant
drop. These are the lowest yields on two-year Treasury notes since October 1993
There are indications that rates will go lower still: The yield on the two-year
note is now well below the benchmark Federal funds rate, a sign that investors
expect the Federal Reserve to cut interest rates further in the near term. The
Fed has already lowered rates by 50 basis points, and market sentiment is that
it will continue to lower short-term interest rates to avert a recession in
1999.
As Treasury issues captured investors' interest in the late summer and early
fall, corporate bonds fell behind. Corporate bonds are now priced as if a
recession were a certainty, but we don't believe that's the case at all. Not
only is the economy stronger today than it was eight years ago, but the banking
industry has greatly improved its capital ratios in the 1990s. This leaves that
sector in a much better position to weather volatility.
Although we don't anticipate a recession, we do believe the real growth rate of
the U.S. economy is likely to slow in 1999. This would be the result of a
continued deterioration in the trade sector as well as a lower level of
corporate spending.
............................
CORPORATE BONDS
ARE NOW PRICED
AS IF A RECESSION
WERE A CERTAINTY,
BUT WE DON'T
BELIEVE THAT'S THE
CASE AT ALL.
............................
- -------------------------------------------------------------------------------
*The Lehman Brothers 1-3 Year Government/Corporate Bond Index is an unmanaged
index generally representative of government and investment-grade corporate
securities with maturities of one to three years. The Lipper Short Investment
Grade Debt Average represents funds that invest at least 65% of assets in
investment-grade debt issues (rated in the top four grades) with
dollar-weighted average maturities of less than three years. Source of the
Lehman index data is Bloomberg. Source of the Lipper index data is Lipper
Analytical Services, Inc.
8
<PAGE>
Nonetheless, the fundamentals on the demand side of the economy are still very
positive. The tight employment market should allow personal income growth to
stay relatively strong, and low interest rates should contribute to continued
strength in the housing market. Finally, the easing of monetary policy by the
Federal Reserve and the subsequent stock-market rally should limit the impact of
the international credit crisis.
We expect interest rates to decline modestly in 1999, as the Fed slowly eases
interest rates in the first half of the year. Any rally in the Treasury market
will be somewhat limited, however, because market interest rates already
anticipate these cuts. We would also expect the corporate and mortgage markets
to provide strong relative performance in 1999. These sectors have been hit
particularly hard--and indiscriminately--in 1998. Current economic fundamentals
support much better performance from these asset classes.
Thank you for your investment in the Strong Short-Term Bond Fund. Our aim is to
help you pursue your important financial goals.
===============================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
===============================================================================
From 8-31-87 to 10-31-98
Lehman Brothers
THE STRONG 1-3 Year Lipper Short
SHORT-TERM Government/Corporate Investment Grade
BOND FUND Bond Index* Debt Average*
8-87 10,000 10,000 10,000
12-87 10,318 10,303 10,246
12-89 12,295 12,156 12,100
12-91 14,837 14,913 14,493
12-93 17,302 16,743 16,285
12-95 19,064 18,677 17,956
12-97 21,809 20,945 19,961
10-98 22,566 22,326 20,997
================================================================================
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with the performance of the
Lehman Brothers 1-3 Year Government/Corporate Bond Index and the Lipper Short
Investment Grade Debt Average. Results include he 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.
- -------------------------------------------------------------------------------
1 From time to time, the Fund' s Advisor has waived its management fee and
absorbed expenses, which has resulted in higher returns and without these
waivers the rankings may have been lower. Yields are historical and do not
represent future yields, which will fluctuate.
2 The Fund's average maturity includes the effect of futures and options.
3 For purposes of this average rating, the Fund's short-term debt obligations
have been assigned a long-term rating by the Advisor.
YOUR FUND'S
APPROACH
THE STRONG SHORT-TERM BOND FUND PURSUES TOTAL RETURN WITH A HIGH LEVEL OF
CURRENT INCOME BY INVESTING PRIMARILY IN SHORT-TERM, MEDIUM- AND HIGH-QUALITY
BONDS ISSUED BY U.S. COMPANIES. THE FUND'S AVERAGE MATURITY IS NORMALLY BETWEEN
ONE AND THREE YEARS, WHICH HELPS TO KEEP SHARE-PRICE FLUCTUATIONS LOW. THE
PORTFOLIO MANAGEMENT TEAM WORKS TO ADD VALUE WITH AN INVESTMENT PROCESS THAT
FOCUSES ON FUNDAMENTAL MACRO-ECONOMIC RESEARCH, AS WELL AS RIGOROUS ANALYSIS OF
INDIVIDUAL BONDS.
MARKET
HIGHLIGHTS
o The Lehman Brothers 1-3 Year Government/Corporate Bond Index, the Fund's
benchmark, returned 7.56% over the 12-month period ended October 31, 1998.*
o During the late summer and early fall, the Russian debt default and other
global turmoil sparked a flight to quality, with risk-averse investors
flocking to U.S. Treasury securities.
o As a result, corporate bonds were sold off indiscriminately, with higher-
quality issues suffering as well as more marginal issues.
o Even bonds from agencies of the U.S. government, including mortgage-backed
issues, under-performed in this environment.
9
<PAGE>
==========================================
THE STRONG SHORT-TERM HIGH YIELD BOND FUND
- ------------------==========================================-------------------
FUND
HIGHLIGHTS
o The Strong Short-Term High Yield Bond Fund returned 7.69% for the fiscal year
ended October 31, 1998. The Fund's benchmark, the Short-Term High Yield Bond
Index, returned 3.88% in the same time period.*
o The Fund increased its interest rate sensitivity in early August by raising
its average maturity to three years.
o We maintained our investments in short-duration, high-coupon bonds which
helped to limit our share price volatility.
- ---------------------------------------
AVERAGE ANNUAL
TOTAL RETURN
As of 10-31-98
1-year 7.69%
Since Inception 9.55%
(on 6-30-97)
- ---------------------------------------
PORTFOLIO STATISTICS
As of 10-30-98
30-day annualized
yield(1) 9.37%
Average maturity(2) 3.0 years
Average
quality rating(3) B
- --------------------------------------
PERSPECTIVES
FROM THE MANAGERS
/s/Jeffrey A. Koch /s/Thomas M. Price
Jeffrey A. Koch Thomas M. Price
Portfolio Co-manager Portfolio Co-manager
- --------------------------------------------------------------------------------
Global financial and economic turmoil dominated the investment climate in
fiscal 1998. The crisis began in Asia, spread quickly through the developing
markets and culminated in a debt default in Russia. U.S. financial markets
eventually succumbed to the growing global financial pressure in August. The
fixed income markets reacted first.
Investors sought the safety and liquidity of U.S. government securities, which
led to a rapid decline in U.S. interest rates. At the same time, investors began
to sell other types of bonds, including high-yield and investment-grade
corporates, and mortgage- and asset-backed securities. As a result, yields on
these investments actually rose while those on U.S. government securities fell.
Once this process got started, its magnitude was exacerbated by the unwinding of
positions held by hedge funds and other leveraged investors. Stocks also
suffered as the S&P 500 finished the month of August down 14.46%.
High-yield bonds were hit particularly hard, suf-fering their second worst
monthly price decline on record during August. The corresponding increase in
high-yield bonds' yields left them at their highest levels, relative to U.S.
government bonds, since the 1990 recession. Lower-quality bonds fared worse than
their higher-quality counterparts during the year. For example, short-term
B-rated bonds finished the fiscal year with a total return of 1.98%. Higher-
..........................
RELATIVE TO
TREASURIES, THE
YIELD ON HIGH-YIELD
BONDS REACHED
ITS HIGHEST LEVEL
SINCE THE
1990 RECESSION.
..........................
- --------------------------------------------------------------------------------
*The Short-Term High Yield Bond Index is a market value weighted blend of the
Merrill Lynch High Yield, BB Rated, 1-2.99 Years Index and the Merrill Lynch
High Yield, B Rated, 1-2.99 Years Index. It is an unmanaged index generally
representative of corporate debt rated below investment-grade with maturities
of one to three years. The Lipper High Current Yield Funds Index is an
equally-weighted performance index of the largest qualifying funds in this
Lipper category. Source of the Short-Term High Yield Bond Fund Index is
Bloomberg. Source of the Lipper High Current Yield Funds Index is Lipper
Analytical Services, Inc.
10
<PAGE>
quality short-term BB-rated bonds posted a total return of 4.85% over that same
time period. In yield terms, the average short-term BB-rated bond had a yield of
8.46% while, one step in quality lower, the average short-term B-rated bond had
a yield of 12.84%.
Throughout the fiscal year, we upgraded the quality of our investments,
believing the domestic economy would slow in response to global economic
weakness. We increased the Fund's interest rate sensitivity, anticipating that
the Federal Reserve would lower interest rates. It did just that in September
and October, lowering the Federal Funds rate from 5.50% to 5.00%.
We expect the Federal Reserve to continue to lower interest rates in an effort
to extend the economic expansion. Worldwide, other central bankers have also
begun this process. While the economy is likely to slow from its strong pace of
earlier this year, we don't expect it to slip into recession. As a result, we
believe that high-yield bonds are attractively priced at current levels.
Thank you for your continued investment in the Strong Short-Term High Yield Bond
Fund.
===============================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
===============================================================================
From 6-30-97 to 10-31-98
THE STRONG SHORT-TERM LIPPER
SHORT-TERM HIGH YIELD HIGH CURRENT
HIGH YIELD BOND BOND YIELD FUNDS
FUND INDEX INDEX
6-97 10,000 10,000 10,000
8-97 10,368 10,125 10,290
10-97 10,487 10,221 10,498
12-97 10,777 10,334 10,699
2-98 11,024 10,470 11,009
4-98 11,169 10,608 11,204
6-98 11,324 10,736 11,211
8-98 11,255 10,634 10,428
10-98 11,293 10,617 10,130
================================================================================
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with the performance of the
Short-Term High Yield Bond Index and the Lipper High Current Yield Funds Index.
Results include the reinvestment of all dividends and capital gains
distributions. Performance is historical and does not represent future results.
Investment returns and principal value will vary, and you may have a gain or
loss when you sell shares.
- --------------------------------------------------------------------------------
1 From time to time, the Fund' s Advisor has waived its management fee and
absorbed expenses, which has resulted in higher returns and without these
waivers the rankings may have been lower. Yields are historical and do not
represent future yields, which will fluctuate.
2 The Fund's average maturity includes the effect of futures.
3 For purposes of this average rating, the Fund's short-term debt obligations
have been assigned a long-term rating by the Advisor.
YOUR FUND'S
APPROACH
THE STRONG SHORT-TERM HIGH YIELD BOND FUND INVESTS IN CAREFULLY SELECTED SHORT-
TO INTERMEDIATE-TERM BONDS OF LOWER CREDIT QUALITY IN AN EFFORT TO COMBINE HIGH
CURRENT INCOME WITH MODERATE SHARE PRICE VOLATILITY. WE FIRST ANALYZE THE TRENDS
AND STATUS OF THE ECONOMY, THEN USE OUR FINDINGS TO SET THE FUND'S AVERAGE
CREDIT QUALITY AND IT'S SENSITIVITY TO CHANGES IN INTEREST RATES. INDIVIDUAL
BONDS ARE THEN CHOSEN THROUGH A PROCESS OF RIGOROUS ANALYSIS, ADHERING TO STRICT
VALUATION CRITERIA TO PROVIDE THE FOUNDATION FOR BUILDING THE PORTFOLIO FROM THE
BOTTOM-UP.
- --------------------------------------------------------------------------------
MARKET HIGHLIGHTS
o Beginning in August, financial market turmoil dominated the investment
markets. In the month of August, the high- yield bond market suffered its
second worst price performance on record. Relative to Treasuries, the yield on
high-yield bonds reached its highest level since the 1990 recession.
o Higher-quality bonds outper-formed lower-quality bonds during the year.
Short-term bonds rated BB returned 4.85% for the fiscal year ended October 31,
1998. Short-term bonds rated B returned 1.98% for the same time period.
o The Federal Reserve lowered interest rates in September and October, bringing
the Federal Funds rate down from 5.50% to 5.00%.
11
<PAGE>
BOND
GLOSSARY
BOND QUALITY RATINGS--There are services that analyze the financial condition of
a bond's issuer and then assign it a rating. The best-known rating agencies are
Standard and Poors and Moody's. The highest-quality bonds are rated AAA (S&P) or
Aaa (Moody's.) The scale descends to AA, A, then BBB and so on, down to D. Bonds
with a rating of BBB or higher are considered investment-grade. Bonds rated CC
and below are considered "junk bonds." Typically, the lower a bond's rating, the
higher yield it must pay in order to compensate the bond-holder for the added
risk.
MATURITY--Like a loan, a bond must be paid off on a certain date. A bond's
maturity is the time remaining until it is paid off. Bonds typically mature in a
range from overnight to 30 years from now. Typically, bonds with longer
maturities will have higher yields and larger price changes in reaction to
interest rate changes. In rare situations, shorter-term bonds will have higher
yields; this is known as an inverted yield curve (see definition that follows.)
DURATION--Duration is similar to maturity, but also accounts for the semi-annual
interest payments made by most bonds. Duration is a useful tool for determining
a bond or a bond fund's sensitivity to interest rate changes. The higher the
duration, the more a bond's price will fluctuate when interest rates change.
TREASURY SPREAD--The Treasury spread is the difference in yield between a
Treasury bond (issued by the federal government) and a bond with an equal
maturity, but from another category, such as a corporate bond. This calculation
is used to measure the prices of corporate bonds, mortgage-backed securities and
other non-government issues relative to Treasuries. Higher spreads occur in
uncertain times when investors buy Treasuries for their safety and sell other
types of bonds.
YIELD--Yield is the income your investment is generating. It is calculated by
taking the income paid by a bond in a given period of time, often 30 days,
annualizing it and stating it as a percentage of the money invested.
YIELD CURVE--The yield curve is a graph that plots the yields of Treasury bonds
against their maturities. Under normal circumstances, this line will slope
upward, reflecting longer-maturity bonds having higher yields. In rare
circumstances, such as in a time of deflation, the yield curve may slope
downward, or "invert." The steepness of the yield curve shifts depending on
economic trends and outlooks. Properly positioned, a bond investor can profit
from these shifts.
12
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES October 31, 1998
- -------------------------------------------------------------------------------
===============================================================================
STRONG CORPORATE BOND FUND
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- --------------------------------------------------------------------------------
CORPORATE BONDS 84.5%
ARA Services, Inc. Guaranteed Notes, 10.625%,
Due 8/01/00 $ 8,654,000 $ 9,333,287
Apache Finance Property, Ltd. Guaranteed Notes,
6.50%, Due 12/15/07 5,000,000 5,003,015
Atlas Air, Inc. Pass-Thru Certificates,
Series 1998-1 Class C, 8.01%, Due 1/02/10 12,180,000 12,488,251
Banco Sud Americano Subordinated Notes, 7.60%,
Due 3/15/07 (Acquired 7/15/97 - 7/23/97; Cost
$10,317,698) (b) 10,060,000 8,020,637
Bank United Corporation Subordinated Notes,
8.875%, Due 5/01/07 3,500,000 3,651,333
Beaver Valley Funding Corporation Debentures,
8.625%, Due 6/01/07 8,254,000 8,955,590
CSC Holdings, Inc. Debentures, 7.625%,
Due 7/15/18 5,000,000 4,712,500
CSC Holdings, Inc. Senior Notes, 7.25%,
Due 7/15/08 10,000,000 9,812,500
CSX Corporation Debentures, 7.90%,
Due 5/01/17 13,000,000 14,352,208
Canadian National Railway Company Notes,
6.80%, Due 7/15/18 5,000,000 4,916,905
Coastal Corporation Senior Debentures, 7.75%,
Due 10/15/35 7,100,000 7,438,492
Coca-Cola Femsa SA de CV Senior Notes, 9.40%,
Due 8/15/04 (Acquired 10/01/97;
Cost $8,640,000) (b) 8,000,000 7,221,232
Colonial Capital I Securities, Series A, 8.92%,
Due 1/15/27 3,600,000 3,685,810
Colonial Realty LP Senior Notes, 7.00%,
Due 7/14/07 6,430,000 6,097,936
ContiFinancial Corporation Senior Notes, 8.375%,
Due 8/15/03 13,000,000 8,516,521
Continental Airlines, Inc. Pass-Thru Certificates:
Series 1998-2B, 6.465%, Due 10/15/04 3,000,000 3,178,455
Series 1998-2C, 6.331%, Due 4/15/03 5,000,000 5,175,425
Crescent Real Estate Equities LP Notes, 7.125%,
Due 9/15/07 8,300,000 7,392,959
Delta Air Lines, Inc. Equipment Trust Certificates:
Series 1991-A, 10.14%, Due 8/14/12
(Acquired 9/10/96; Cost $2,257,280) (b) 2,000,000 2,581,456
Series 1991-B, 10.14%, Due 8/14/12
(Acquired 9/10/96; Cost $2,257,280) (b) 2,000,000 2,581,456
Series 1991-E, 10.14%, Due 8/26/12
(Acquired 9/10/96; Cost $2,257,680) (b) 2,000,000 2,582,508
Delta Air Lines, Inc. Pass-Thru Certificates:
Series 1992-B1, 9.375%, Due 9/11/07 3,146,727 3,613,465
Series 1993-A2, 10.50%, Due 4/30/16 5,000,000 6,613,925
Developers Diversified Corporation Medium-
Term Senior Notes, 6.625%, Due 1/15/08 10,000,000 9,032,330
Walt Disney Company Euro-Dollar Senior
Participating Notes, 2.00%, Due 3/01/00
(Acquired 9/19/96; Cost $6,250,000) (b) 5,000,000 5,050,000
Duke Realty LP Notes, 6.75%, Due 5/30/08 6,500,000 6,195,943
El Paso Electric Company First Mortgage Notes,
Series E, 9.40%, Due 5/01/11 10,498,000 11,967,720
First Nationwide Bank Subordinated Debentures,
10.00%, Due 10/01/06 3,460,000 4,029,225
First Republic Bank Subordinated Notes, 7.75%,
Due 9/15/12 5,000,000 5,067,165
Fresenius Medical Care Capital Trust II Guaranteed
Preferred Securities, 7.875%, Due 2/01/08 7,000,000 6,545,000
GB Capital Trust Capital Securities, 10.25%,
Due 1/15/27 (Acquired 1/24/97;
Cost $3,000,000) (b) 3,000,000 3,562,500
GS Escrow Corporation Floating Rate Senior
Notes, 6.75%, Due 8/01/03 (Acquired 7/30/98;
Cost $7,976,000) (b) 8,000,000 7,710,312
GS Escrow Corporation Senior Notes, 7.00%,
Due 8/01/03 (Acquired 7/30/98 - 8/04/98;
Cost $21,394,571) (b) 21,440,000 21,011,200
Global Crossing Holding, Ltd. Senior Notes,
9.625%, Due 5/15/08 (Acquired 5/14/98;
Cost $4,981,250) (b) 5,000,000 4,862,500
Gulf Canada Resources, Ltd. Senior Yankee
Notes, 8.35%, Due 8/01/06 5,000,000 5,121,665
HRPT Properties Trust Senior Notes:
6.70%, Due 2/23/05 8,350,000 7,903,342
6.75%, Due 12/18/02 5,000,000 4,873,740
HUBCO Capital Trust I Capital Securities, 8.98%,
Due 2/01/27 5,000,000 5,338,665
Hilton Hotels Corporation Senior Notes:
7.20%, Due 12/15/09 2,850,000 2,649,126
7.95%, Due 4/15/07 5,000,000 4,974,525
Homeside, Inc. Senior Secured Second Priority
Notes, 11.25%, Due 5/15/03 1,796,000 2,110,300
Houston Light & Power Capital Trust II Capital
Securities, Series B, 8.257%, Due 2/01/37 12,000,000 12,204,648
Imperial Capital Trust I Guaranteed Capital
Securities, 9.98%, Due 12/31/26 7,200,000 8,029,224
LCI International, Inc. Senior Notes, 7.25%,
Due 6/15/07 6,800,000 6,929,520
Lehman Brothers Holdings, Inc. Notes, 7.375%,
Due 5/15/07 5,000,000 5,031,610
Lehman Brothers Holdings, Inc. Senior Notes,
7.25%, Due 10/15/03 5,000,000 5,066,600
Leucadia Capital Trust I Pass-Thru Securities,
8.65%, Due 1/15/27 7,000,000 5,722,752
Lumbermens Mutual Casualty Company Surplus
Notes, 8.30%, Due 12/01/37 (Acquired 5/27/98;
Cost $10,914,400) (b) 10,000,000 10,594,950
Mohegan Tribal Gaming Authority Connecticut
Senior Secured Notes, Series B, 13.50%,
Due 11/15/02 8,000,000 9,960,000
NWA Trust Number 2 Mezzanine Aircraft Notes,
Class C, 11.30%, Due 6/21/14 8,727,231 10,850,043
News America, Inc. Debentures, 7.25%,
Due 5/18/18 11,300,000 10,985,125
Niagara Mohawk Power Corporation Senior Notes:
Series B, 7.00%, Due 10/01/00 11,000,000 11,104,148
Series C, 7.125%, Due 7/01/01 5,000,000 5,091,605
Series G, 7.75%, Due 10/01/08 10,000,000 10,506,690
North Fork Capital Trust I Capital Trust Pass-
Thru Securities, 8.70%, Due 12/15/26 3,500,000 3,631,446
North Fork Capital Trust II Capital Trust Pass-
Thru Securities, 8.00%, Due 12/15/27 9,000,000 8,918,514
Owens-Illinois, Inc. Senior Notes, 8.10%,
Due 5/15/07 4,850,000 5,108,815
P&L Coal Holdings Corporation Senior Notes,
8.875%, Due 5/15/08 (Acquired 5/13/98 -
5/14/98; Cost $6,519,675) (b) 6,500,000 6,581,250
PXRE Capital Trust I Pass-Thru Securities,
8.85%, Due 2/01/27 5,750,000 5,383,714
Panamerican Beverages, Inc. Senior Notes, 8.125%,
Due 4/01/03 3,000,000 3,109,776
Philip Morris Companies, Inc. Notes, 6.15%,
Due 3/15/10 (Putable at 100 and Rate Reset
Effective 3/15/00) 4,530,000 4,590,974
Protection One Alarm Monitoring, Inc. Senior
Notes, 7.375%, Due 8/15/05 (Acquired
8/12/98 - 10/21/98; Cost $9,867,240) (b) 10,000,000 10,000,000
13
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) October 31, 1998
- -------------------------------------------------------------------------------
===============================================================================
STRONG CORPORATE BOND FUND (continued)
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- --------------------------------------------------------------------------------
Public Service Company New Mexico Senior Notes,
Series A, 7.10%, Due 8/01/05 $10,000,000 $10,324,870
Qwest Communications International, Inc. Senior
Notes, 7.50%, Due 11/01/08 (Acquired 10/27/98;
Cost $4,966,200) (b) (e) 5,000,000 5,052,500
Riggs Capital Trust Preferred Securities:
Series A, 8.625%, Due 12/31/26 200,000 203,484
Series A, 8.625%, Due 12/31/26 (Acquired
12/10/96 - 9/04/98; Cost $7,278,808) (b) 7,220,000 7,345,772
Riggs Capital II Trust Preferred Securities:
Series B, 8.875%, Due 3/15/27 500,000 522,098
Series C, 8.875%, Due 3/15/27 (Acquired 5/06/98;
Cost $751,027) (b) 685,000 715,274
Rose Hills Company Senior Subordinated Notes,
9.50%, Due 11/15/04 3,000,000 2,752,500
SIG Capital Trust I Securities, 9.50%,
Due 8/15/27 4,500,000 3,611,250
Southdown, Inc. Senior Subordinated Notes,
Series B, 10.00%, Due 3/01/06 12,000,000 13,620,000
Stop & Shop Companies, Inc. Senior Subordinated
Notes, 9.75%, Due 2/01/02 12,100,000 13,676,545
Sunamerica, Inc. Debentures, 5.60%,
Due 7/31/2097 7,910,000 6,356,081
Suntrust Capital II Trust Bonds, 7.90%,
Due 6/15/27 100,000 107,150
TCI Communications, Inc. Senior Debentures,
8.75%, Due 8/01/15 5,000,000 6,099,335
TKR Cable I, Inc. Senior Debentures, 10.50%,
Due 10/30/07 9,425,000 10,344,569
Teekay Shipping Corporation Guaranteed First
Preferred Mortgage Notes, 8.32%, Due 2/01/08 1,115,000 1,070,400
Tele-Communications, Inc. Senior Notes, 8.25%,
Due 1/15/03 5,600,000 6,158,404
Tenet Healthcare Corporation Senior Notes,
8.00%, Due 1/15/05 10,500,000 10,755,183
Texas Utilities Company Senior Notes, Series E,
6.50%, Due 8/16/04 16,250,000 16,751,833
360 Communications Company Senior Notes,
7.60%, Due 4/01/09 9,105,000 10,146,002
Time Warner, Inc. Debentures, 8.18%,
Due 8/15/07 5,630,000 6,450,353
Tosco Corporation First Mortgage Bonds,
Series B, 9.625%, Due 3/15/02 6,000,000 6,645,234
TransCanada PipeLines, Ltd. Yankee Bonds,
6.49%, Due 1/21/09 5,000,000 5,085,215
Tricon Global Restaurants, Inc. Senior Notes:
7.45%, Due 5/15/05 17,005,000 17,345,525
7.65%, Due 5/15/08 5,000,000 5,212,520
Turner Broadcasting System, Inc. Senior Notes,
8.375%, Due 7/01/13 6,200,000 7,399,285
Tyco International Group SA Yankee Notes,
7.00%, Due 6/15/28 10,000,000 9,986,520
USX-Marathon Group Notes, 7.20%,
Due 2/15/04 16,450,000 17,116,916
Ultramar Diamond Shamrock Corporation
Senior Notes, 7.20%, Due 10/15/17 16,000,000 15,913,712
United Air Lines, Inc. Debentures:
9.75%, Due 8/15/21 10,000,000 12,503,130
Series A, 10.67%, Due 5/01/04 3,055,000 3,709,729
United Rentals, Inc. Senior Subordinated Notes,
8.80%, Due 8/15/08 (Acquired 8/07/98;
Cost $1,950,000) (b) 2,000,000 1,910,000
United States Filter Corporation Remarketable or
Redeemable Securities, 6.50%, Due 5/15/13
(Remarketing Date 5/15/03) (Acquired 5/14/98;
Cost $6,968,360) (b) 7,000,000 6,991,670
United States Filter Corporation Variable Rate
Remarketable or Redeemable Securities, 6.375%,
Due 5/15/11 (Remarketing Date 5/15/01)
(Acquired 8/18/98; Cost $2,993,220) (b) 3,000,000 2,998,877
Valero Pass-Thru Asset Trust 1997-1 Securities,
6.75%, Due 12/15/02 (Acquired 12/05/97;
Cost $4,992,800) (b) 5,000,000 5,208,280
WorldCom, Inc. Senior Notes, 6.40%,
Due 8/15/05 15,885,000 16,534,061
- ------------------------------------------------------------------------------
Total Corporate Bonds (Cost $699,231,918) 691,956,805
- ------------------------------------------------------------------------------
NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES 6.0%
BCF LLC Mortgage Pass-Thru Certificates, Series
1997-R2, Class 3-A1, 7.00%, Due 12/25/35
(Acquired 6/17/97; Cost $3,721,452) (b) 3,718,950 3,756,139
Bear Stearns Mortgage Securities, Inc. Mortgage
Pass-Thru Certificates, Series 1995-1, Class 2-P,
Principal Only, Due 7/25/10 748,262 649,031
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 32,159,625 376,589
DLJ Mortgage Acceptance Corporation Variable
Rate Trust Certificates, Series 1997-E, Class A,
7.55%, Due 12/26/26 (Acquired 12/18/97;
Cost $5,560,346) (b) 5,537,848 5,392,480
FMAC Loan Receivables Trust, Series 1997-C,
Class B, 7.15%, Due 12/15/19 7,239,000 7,005,977
Merrill Lynch Mortgage Investors, Inc. Asset-
Backed Certificates, Series 1998-GN1,
Class M-2, 8.02%, Due 2/25/27 6,000,000 6,131,280
Mid State Trust Virgin Islands Asset-Backed Notes:
Series 6, Class A-1, 7.34%, Due 7/01/35 2,772,474 2,957,938
Series 6, Class A-2, 7.40%, Due 7/01/35 3,248,993 3,378,952
NPF IX, Inc. 97-1 Healthcare Receivables Notes,
Class A, 6.339%, Due 7/01/00 (Acquired 7/24/97;
Cost $2,999,964) (b) 3,000,000 3,017,820
RTC Mortgage Pass-Thru Securities, Inc.
Commercial Mortgage Certificates,
Series 1995-C1, Class D, 6.90%, Due 2/25/27 12,000,000 12,105,000
Ryland Mortgage Securities Corporation III
Variable Rate Collateralized Mortgage Bonds,
Series 1992-C, Class 3-A, 11.7047%,
Due 11/25/30 169,346 177,442
Salomon Brothers Mortgage Securities VII, Inc.
Mortgage Pass-Thru Certificates, Series 1997-A,
Class B-3, 7.3887%, Due 10/01/25 (Acquired
7/09/97; Cost $4,496,240) (b) 5,035,717 4,714,690
- ------------------------------------------------------------------------------
Total Non-Agency Mortgage & Asset-Backed Securities
(Cost $49,394,512) 49,663,338
- ------------------------------------------------------------------------------
FOREIGN BONDS 1.0%
Shaw Communications, Inc. Debentures, 8.54%,
Due 9/30/27 14,000,000 CAD 8,137,109
- -------------------------------------------------------------------------------
Total Foreign Bonds (Cost $9,134,281) 8,137,109
- -------------------------------------------------------------------------------
UNITED STATES GOVERNMENT & AGENCY ISSUES 3.4%
FHLMC Participation Certificates:
14.00%, Due 9/01/12 $ 26,409 29,882
14.75%, Due 3/01/10 13,571 15,527
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates,
13.50%, Due 4/01/11 (c) 103,579 116,069
GNMA Guaranteed Pass-Thru Certificates, 15.00%,
Due 8/15/11 thru 10/15/12 86,927 103,923
Small Business Administration Guaranteed Loan
Pool #40013, Interest Only Strips,
2.419%, Due 9/30/17 8,003,909 450,220
United States Treasury Bonds, 8.125%,
Due 8/15/21 10,620,000 14,386,787
14
<PAGE>
===============================================================================
STRONG CORPORATE BOND FUND (continued)
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
United States Treasury Notes:
5.625%, Due 5/15/08 $ 3,005,000 $ 3,237,890
7.00%, Due 7/15/06 2,500,000 2,877,345
7.25%, Due 5/15/04 5,550,000 6,300,987
- --------------------------------------------------------------------------------
Total United States Government & Agency Issues
(Cost $28,568,888) 27,518,630
- --------------------------------------------------------------------------------
OPTIONS 0.1%
Merrill Lynch Swaption (The option to receive
a fixed interest rate of 7.75%; exercisable
at a strike price of $100 beginning 4/09/04
and expiring 4/09/25.) 6,083,333 782,925
- -------------------------------------------------------------------------------
Total Options (Cost $281,678) 782,925
- -------------------------------------------------------------------------------
PREFERRED STOCKS 2.6%
California Federal Preferred Capital Corporation
9.125% Series A Exchangeable 100,000 2,562,500
Indosuez Holdings SCA Sponsored ADR 10.375%
Representing 1/10 Series A (Acquired 2/05/98;
Cost $5,660,000) (b) 200,000 5,500,000
Norwest Corporation Series A Cumulative Tracking
Preferred Stock/Residential Home Mortgage LLC
(Acquired 12/16/94; Cost $2,000,000) (b) 10,000 2,070,140
Parmalat Capital Finance 8.1523% Series B 253,000 5,945,500
Webster Capital Corporation 7.375% Series A 5,000 5,056,250
- -------------------------------------------------------------------------------
Total Preferred Stocks (Cost $21,789,490) 21,134,390
- -------------------------------------------------------------------------------
WARRANTS 0.0%
EOP Operating LP Warrants, Expire 1/18/00 (Acquired
6/10/98; Cost $60,000) (b) 7,500 18,750
- -------------------------------------------------------------------------------
Total Warrants (Cost $60,000) 18,750
- -------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 1.6%
Commercial Paper 0.1%
Interest Bearing, Due Upon Demand
American Family Financial Services, Inc.,
4.75% $ 100 100
General Mills, Inc., 4.83% 126,700 126,700
Pitney Bowes Credit Corporation, 4.83% 522,900 522,900
-------
649,700
Repurchase Agreements 1.4%
ABN-AMRO Chicago Corporation (Dated 10/30/98),
5.40%, Due 11/02/98 (Repurchase proceeds
$11,104,995); Collateralized by: $32,325,000
FNMA Bonds, Zero % Due 7/09/12 (Market
Value $11,322,155) (d) 11,100,000 11,100,000
United States Government Issues 0.1%
United States Treasury Bills, Due 11/05/98
thru 1/28/99 (c) 1,170,000 1,162,108
- -------------------------------------------------------------------------------
Total Short-Term Investments (Cost $12,912,131) 12,911,808
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Total Investments in Securities (Cost $821,372,898) 99.2% 812,123,755
Other Assets and Liabilities, Net 0.8% 6,522,784
- -------------------------------------------------------------------------------
NET ASSETS 100.0% $818,646,539
===============================================================================
- -------------------------------------------------------------------------------
FUTURES
- -------------------------------------------------------------------------------
Underlying Unrealized
Expiration Face Amount Appreciation
Date at Value (Depreciation)
- --------------------------------------------------------------------------------
Purchased:
150 Ninety-Day Euro-Dollar 12/99 $35,816,250 $334,500
305 Five-Year U.S. Treasury Notes 12/98 34,965,391 522,083
119 Ten-Year U.S. Treasury Notes 12/98 14,324,625 16,576
247 U.S. Treasury Bonds 12/98 31,839,844 (684,603)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
- -----------------------------------------------------------------------
Settlement Value Unrealized
Date in USD Appreciation
- -----------------------------------------------------------------------
Sold:
13,230,000 CAD 12/17/98 $8,577,319 $212,503
SWAPS
- ------------------------------------------------------------------------------
Open index rate swap contracts at October 31, 1998 consisted of the following:
- ------------------------------------------------------------------------------
Notional Termination Interest Index Unrealized
Amount Date Sold Bought Depreciation
- --------------------------------------------------------------------------------
$25,000,000 1/01/99 1 mo. LIBOR Lehman Brothers Baa ($535,454)
15,000,000 8/01/99 1 mo. LIBOR Lehman Brothers Baa (328,442)
===============================================================================
STRONG GOVERNMENT SECURITIES FUND
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
UNITED STATES GOVERNMENT & AGENCY ISSUES 92.7%
FHA Insured Project Loan #956-55054, 2.93%,
Due 11/01/12 $ 3,709,702 $ 2,990,947
FHA Project Loan, 7.40%, Due 3/01/09 21,394,217 22,517,413
FHA Project Loan Section 223(f) - Hampshire
Tower Apartments, 7.50%, Due 11/15/30 8,986,502 9,272,991
FHLMC Guaranteed Multiclass Variable Rate
Mortgage Participation Certificates:
Pool #865496, 7.618%, Due 5/01/26 4,540,394 4,710,659
Series 1539, Class FB, 5.611%, Due 6/15/05 3,977,003 3,992,717
Series 1572-B, Class SA, 3.905%, Due 10/15/00 3,000,000 2,982,003
FHLMC Multiclass Mortgage Guaranteed
Participation Certificates, Series 144,
Class 144-A, 8.75%, Due 6/15/00 92,000 93,668
FHLMC Participation Certificates:
6.00%, Due 1/01/13 13,403,653 13,441,985
6.25%, Due 9/15/22 5,705,000 5,734,466
7.00%, Due 1/25/21 3,448,172 3,525,756
7.25%, Due 7/01/08 1,224,199 1,240,231
7.26%, Due 6/01/06 6,781,651 7,146,164
7.625%, Due 8/25/22 14,049,817 14,131,025
8.00%, Due 7/01/08 thru 12/01/10 5,479,911 5,660,394
8.50%, Due 10/01/05 thru 5/01/16 (e) 26,531,837 27,524,735
9.00%, Due 8/01/09 thru 6/01/16 4,540,670 4,782,273
9.30%, Due 7/15/21 5,998,620 6,247,968
9.50%, Due 4/01/07 thru 12/01/19 3,153,215 3,272,212
9.75%, Due 8/01/02 829,828 847,419
10.00%, Due 10/01/05 thru 6/01/20 3,763,814 3,965,794
10.50%, Due 6/01/04 thru 8/01/20 3,348,988 3,637,159
11.00%, Due 1/01/01 10,316 10,569
11.25%, Due 1/01/01 45,921 47,051
11.75%, Due 10/01/15 117,651 126,781
12.00%, Due 11/01/15 25,570 27,870
15
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) October 31, 1998
- -------------------------------------------------------------------------------
===============================================================================
STRONG GOVERNMENT SECURITIES FUND (continued)
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- --------------------------------------------------------------------------------
12.25%, Due 7/01/15 thru 12/01/15 $ 385,018 $ 419,400
12.50%, Due 10/01/09 thru 1/01/15 177,712 194,994
13.00%, Due 7/01/14 55,195 61,209
13.75%, Due 5/01/02 43,729 46,535
14.00%, Due 9/01/10 thru 4/01/16 542,087 611,508
14.50%, Due 3/01/11 thru 12/01/11 6,963 7,946
14.75%, Due 8/01/11 thru 4/01/13 7,631 8,710
15.00%, Due 8/01/11 26,298 30,311
16.00%, Due 6/01/12 6,855 8,066
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates:
6.00%, Due 9/01/12 14,083,843 14,154,221
6.225%, Due 11/01/14 20,316,058 20,366,849
6.292%, Due 5/01/05 9,360,808 9,667,937
6.32%, Due 8/25/08 10,000,000 10,225,000
6.50%, Due 2/18/27 thru 8/01/28 33,442,207 33,907,794
6.695%, Due 8/01/05 10,000,000 10,600,000
6.74%, Due 8/25/07 20,890,000 21,811,353
7.00%, Due 9/01/15 857,159 881,248
7.50%, Due 7/01/03 thru 7/01/15 44,380,845 45,413,328
7.778%, Due 7/01/01 39,840,000 42,198,014
8.00%, Due 4/01/17 thru 11/01/26 38,951,576 40,323,604
8.305%, Due 4/01/01 5,392,551 5,699,945
8.40%, Due 2/25/09 29,710,000 31,532,857
8.43%, Due 4/01/01 10,409,047 11,027,797
8.50%, Due 11/25/02 thru 5/01/17 (e) 32,210,407 33,700,855
8.75%, Due 1/01/10 1,125,150 1,198,716
9.00%, Due 9/01/21 thru 10/25/21 7,753,942 8,231,188
9.25%, Due 4/25/18 1,713,352 1,803,246
9.40%, Due 10/25/19 6,541,444 6,961,407
9.50%, Due 3/25/19 10,648,796 11,660,328
10.00%, Due 4/01/20 2,952,685 3,149,590
11.75%, Due 12/01/10 103,204 113,013
12.00%, Due 1/01/16 thru 2/01/19 2,415,539 2,651,023
12.25%, Due 7/01/14 20,445 22,155
12.50%, Due 2/01/11 164,079 180,418
13.25%, Due 4/01/12 3,369 3,846
13.50%, Due 1/01/11 thru 1/01/12 26,551 28,494
13.75%, Due 10/01/10 6,362 7,193
14.00%, Due 1/01/12 thru 11/01/14 82,506 93,473
14.25%, Due 12/01/14 33,131 38,074
14.50%, Due 1/01/12 7,041 8,083
14.75%, Due 11/01/10 thru 3/01/12 145,401 170,700
15.00%, Due 10/01/12 10,122 11,771
15.50%, Due 10/01/12 10,511 12,294
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Variable Rate Certificates:
Pool #54844, 6.131%, Due 9/01/27 18,254,304 18,418,071
Pool #110238, 6.677%, Due 1/01/16 4,593,712 4,653,469
Pool #70843, 6.681%, Due 4/01/20 2,301,203 2,331,844
Pool #66414, 7.123%, Due 9/01/28 11,319,824 11,751,450
Pool #176367, 7.287%, Due 4/01/15 2,321,225 2,405,985
Pool #181826, 7.492%, Due 10/01/22 939,719 971,333
Pool #124013, 7.496%, Due 10/01/21 1,996,178 2,066,167
Pool #70018, 7.50%, Due 10/01/18 4,799,393 4,932,169
Pool #92068, 7.516%, Due 1/01/18 1,222,322 1,262,925
Pool #201427, 7.89%, Due 1/01/23 1,897,108 1,963,837
Series 1991-57, Class S, 7.7219%, Due 5/25/20 319,526 320,905
Series 1996-M6, Class A, 7.3783%, Due 8/17/03 1,297,299 1,319,658
Series 1997-M4, Class C, 7.2993%, Due 2/17/35 5,683,000 5,926,545
FNMA Stripped Mortgage-Backed Securities:
Series B, Class B-1, 6.00%, Due 5/01/09 3,075,226 3,127,779
Series C, Class C-1, 6.00%, Due 5/01/09 2,482,387 2,524,363
Series K, Class K-1, 6.00%, Due 11/01/08 15,956,571 16,243,616
Series 161, Class 2, 8.50%, Due 7/25/22 4,741,263 731,213
Federal Home Loan Bank Notes, 4.875%,
Due 3/17/00 8,000,000 7,985,664
GNMA Guaranteed Pass-Thru Certificates:
7.00%, Due 8/20/20 9,707,110 9,815,534
8.35%, Due 9/01/19 21,876,578 23,165,327
9.00%, Due 12/15/06 thru 12/15/09 13,536,482 14,023,742
12.50%, Due 4/15/19 3,422,090 3,896,905
13.00%, Due 11/15/10 thru 11/15/14 538,864 618,239
13.50%, Due 7/15/10 thru 10/15/12 122,645 141,458
14.00%, Due 6/15/11 thru 12/20/14 179,798 209,486
14.50%, Due 6/15/11 thru 11/15/12 307,567 363,250
15.00%, Due 1/15/12 thru 9/15/12 130,972 156,101
16.00%, Due 4/15/12 9,596 11,607
GNMA Guaranteed Variable Rate Pass-Thru
Certificates:
Pool #8333, 6.875%, Due 3/20/18 1,207,545 1,226,514
Pool #8489, 6.875%, Due 4/20/19 265,727 270,702
Pool #8714, 7.00%, Due 11/20/20 6,915,002 7,015,691
HHS Project Loan, 7.83%, Due 11/01/01 (e) 1,700,543 1,736,679
Small Business Administration Guaranteed
Loan, Interest Only Custodial Receipts:
Series 1992-6A, 2.473%, Due 10/15/17 36,113,121 1,715,373
Series 1993-1A, 2.5312%, Due 2/15/18 28,348,457 1,346,552
USGI FHA Insured Project Pool #2040, 3.025%,
Due 11/01/06 6,197,485 5,817,889
United States Treasury Bonds:
6.125%, Due 11/15/27 23,235,000 26,139,398
6.625%, Due 2/15/27 71,200,000 84,305,286
7.25%, Due 5/15/16 23,500,000 28,647,980
8.125%, Due 8/15/21 22,750,000 30,819,152
United States Treasury Notes:
5.625%, Due 12/31/99 thru 5/15/08 21,180,000 22,215,846
5.75%, Due 8/15/03 21,845,000 23,155,722
6.00%, Due 7/31/02 185,200,000 195,443,967
6.125%, Due 8/15/07 2,000,000 2,206,252
6.25%, Due 10/31/01 46,085,000 48,518,887
7.00%, Due 7/15/06 36,950,000 42,527,159
7.875%, Due 11/15/04 27,810,000 32,668,073
- --------------------------------------------------------------------------------
Total United States Government & Agency Issues
(Cost $1,191,861,216) 1,214,290,507
- --------------------------------------------------------------------------------
CORPORATE BONDS 5.5%
Atlas Air, Inc. Pass-Thru Certificates,
Series 1998-1, Class B, 7.68%, Due 1/02/14 10,000,000 10,317,240
Bank United Corporation Subordinated
Notes, 8.875%, Due 5/01/07 10,000,000 10,432,380
Cullen/Frost Capital Trust I Bonds, 8.42%,
Due 2/01/27 1,000,000 1,064,156
GS Escrow Corporation Senior Notes, 7.00%,
Due 8/01/03 (Acquired 7/30/98 - 8/04/98;
Cost $19,359,858)(b) 19,400,000 19,012,000
HUBCO Capital Trust I Capital Securities,
8.98%, Due 2/01/27 6,500,000 6,940,264
Riggs Capital Trust Preferred Securities,
Series A, 8.625%, Due 12/31/26
(Acquired 12/10/96; Cost $9,490,000) (b) 9,490,000 9,655,316
United Air Lines, Inc. Debentures, 10.25%,
Due 7/15/21 10,735,000 13,937,068
- -------------------------------------------------------------------------------
Total Corporate Bonds (Cost $71,392,319) 71,358,424
===============================================================================
MUNICIPAL BONDS 0.3%
Arkansas Development Finance Authority
GNMA Guaranteed Bonds, 9.75%, Due 11/15/14 3,100,000 4,042,589
- -------------------------------------------------------------------------------
Total Municipal Bonds (Cost $3,789,941) 4,042,589
- -------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
===============================================================================
STRONG GOVERNMENT SECURITIES FUND (continued)
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
NON-AGENCY MORTGAGE & ASSET-BACKED SECURITIES 0.1%
Community Program Loan Trust Bonds,
Series 1987-A, Class A5, 4.50%, Due 4/01/29 $980,000 $ 780,325
- -------------------------------------------------------------------------------
Total Non-Agency Mortgage & Asset-Backed Securities
(Cost $738,513) 780,325
- -------------------------------------------------------------------------------
OPTIONS 0.1%
Merrill Lynch Swaption (The option to receive
a fixed interest rate of 7.75%; exercisable
at a strike price of $100 beginning 4/09/04
and expiring 4/09/25.) 12,166,667 1,565,850
- -------------------------------------------------------------------------------
Total Options (Cost $563,356) 1,565,850
- -------------------------------------------------------------------------------
PREFERRED STOCKS 0.8%
Norwest Corporation Series A Cumulative
Tracking Preferred Stock/Residential Home
Mortgage LLC (Acquired 12/16/94; Cost
$10,000,000) (b) 50,000 10,350,700
- -------------------------------------------------------------------------------
Total Preferred Stocks (Cost $10,000,000) 10,350,700
- -------------------------------------------------------------------------------
WARRANTS 0.0%
EOP Operating LP Warrants, Expire 1/18/00
(Acquired 6/10/98; Cost $60,000) (b) 7,500 18,750
- -------------------------------------------------------------------------------
Total Warrants (Cost $60,000) 18,750
- -------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 2.9%
Commercial Paper 0.3%
Interest Bearing, Due Upon Demand
American Family Financial Services, Inc., 4.75% $ 1,030,000 1,030,000
Pitney Bowes Credit Corporation, 4.83% 1,151,100 1,151,100
Sara Lee Corporation, 4.82% 95,600 95,600
Warner Lambert Company, 4.75% 260,400 260,400
Wisconsin Electric Power Company, 4.75% 610,000 610,000
---------
3,147,100
Repurchase Agreements 2.5%
ABN-AMRO Chicago Corporation (Dated 10/30/98),
5.40%, Due 11/02/98 (Repurchase proceeds
$33,014,850); Collateralized by: $15,000,000
FHLMC Notes, 6.77%, Due 3/05/08 (Market Value
$15,007,275) and $17,620,000 Federal Home Loan
Bank Notes, 5.52% thru 5.805%, Due 9/25/01 thru
8/17/05 (Market Value $18,315,949) (d) 33,000,000 33,000,000
United States Government Issues 0.1%
United States Treasury Bills, Due 11/27/98
thru 1/28/99 (c) 1,665,000 1,656,660
- -------------------------------------------------------------------------------
Total Short-Term Investments (Cost $37,802,829) 37,803,760
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Total Investments in Securities (Cost $1,316,208,174) 102.4% 1,340,210,905
Other Assets and Liabilities, Net (2.4%) (31,308,937)
- -------------------------------------------------------------------------------
NET ASSETS 100.0% $1,308,901,968
===============================================================================
- -------------------------------------------------------------------------------
FUTURES
- -------------------------------------------------------------------------------
Underlying Unrealized
Expiration Face Amount Appreciation
Date at Value (Depreciation)
- --------------------------------------------------------------------------------
Purchased:
960 Ninety-Day Euro-Dollar 12/99 $229,224,000 $1,169,050
46 Five-Year U.S. Treasury Notes 12/98 5,273,469 (39,939)
195 Ten-Year U.S. Treasury Notes 12/98 23,473,125 29,475
471 U.S. Treasury Bonds 12/98 60,714,844 (476,907)
==============================================================================
STRONG HIGH-YIELD BOND FUND
==============================================================================
Shares or
Principal Value
Amount (Note 2)
- ------------------------------------------------------------------------------
CORPORATE BONDS 84.4%
AP Holdings, Inc. Senior Discount Notes,
Zero %, Due 3/15/08 (Rate Reset Effective
3/15/03) $ 7,950,000 $ 3,756,375
APCOA/Standard Parking, Inc. Senior
Subordinated Notes, 9.25%, Due 3/15/08 7,300,000 6,424,000
Allied Waste Industries, Inc. Senior Discount
Notes, Zero %, Due 6/01/07 (Rate Reset
Effective 6/01/02) 4,000,000 3,000,000
Anchor Glass Container Corporation
First Mortgage Notes, 11.25%, Due 4/01/05 6,000,000 6,165,000
Anthony Crane Rental Holdings LP/Anthony
Crane Holdings Capital Corporation Senior
Discount Debentures, Zero %, Due 8/01/09
(Rate Reset Effective 8/01/03) (Acquired
7/16/98; Cost $3,652,250) (b) 7,000,000 3,062,500
Anthony Crane Rental LP Senior Notes,
10.375%, Due 8/01/08 (Acquired 7/31/98;
Cost $2,800,000) (b) 2,800,000 2,534,000
Atlas Air, Inc. Senior Notes:
9.25%, Due 4/15/08 (Acquired 4/07/98;
Cost $7,989,360) (b) 8,000,000 7,540,000
10.75%, Due 8/01/05 7,725,000 7,782,937
Autopistas del Sol SA Senior Notes,
9.35%, Due 8/01/04 (Acquired 8/11/97;
Cost $3,960,000) (b) 4,000,000 2,980,000
BankUnited Capital Trust Preferred Securities,
Series A, 10.25%, Due 12/31/26 4,300,000 4,396,750
Bay View Capital Corporation Subordinated
Notes, 9.125%, Due 8/15/07 18,875,000 16,704,375
Big City Radio, Inc. Senior Discount Notes,
Zero %, Due 3/15/05 (Rate Reset Effective
3/15/01) 6,000,000 3,690,000
CSBI Capital Trust I Subordinated Income
Capital Securities, Series A, 11.75%,
Due 6/06/27 (Acquired 7/10/97;
Cost $2,000,000) (b) 2,000,000 2,105,000
Calair LLC/Calair Capital Corporation
Guaranteed Senior Notes, 8.125%, Due 4/01/08 3,000,000 2,801,250
Capstar Radio Broadcasting Partners, Inc.
Senior Subordinated Notes, 9.25%, Due 7/01/07 2,150,000 2,139,250
William Carter Senior Subordinated Notes,
Series A, 10.375%, Due 12/01/06 7,000,000 7,122,500
Cencall Communications Corporation Senior
Discount Notes, Zero %, Due 1/15/04 (Rate
Reset Effective 1/15/99) 4,500,000 4,230,000
Cumulus Media, Inc. Senior Subordinated
Notes, 10.375%, Due 7/01/08 7,000,000 7,175,000
17
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) October 31, 1998
- -------------------------------------------------------------------------------
===============================================================================
STRONG HIGH-YIELD BOND FUND (continued)
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
e.spire Communications, Inc. Senior Discount
Notes, Zero %, Due 7/01/08 (Rate Reset
Effective 7/01/03) (Acquired 7/21/98; Cost
$1,499,725) (b) $ 2,500,000 $ 1,237,500
e.spire Communications, Inc. Senior Notes,
13.75%, Due 7/15/07 2,000,000 2,030,000
Echostar Communications Corporation Senior
Secured Discount Notes, Zero %, Due 6/01/04
(Rate Reset Effective 6/01/99) 5,000,000 4,906,250
Everest Healthcare Services Corporation Senior
Subordinated Notes, 9.75%, Due 5/01/08 3,000,000 2,835,000
Fresenius Medical Care Capital Trust II
Guaranteed Preferred Securities, 7.875%,
Due 2/01/08 11,590,000 10,836,650
GST Telecommunications Senior Subordinated
Notes, 12.75%, Due 11/15/07 5,000,000 4,525,000
General Binding Corporation Senior Subordinated
Notes, 9.375%, Due 6/01/08 5,000,000 4,975,000
Global Crossing Holding, Ltd. Senior Notes,
9.625%, Due 5/15/08 (Acquired 5/13/98 -
8/31/98; Cost $11,092,625) (b) 11,350,000 11,037,875
Goss Graphic System, Inc. Senior Subordinated
Notes, 12.00%, Due 10/15/06 9,750,000 8,677,500
Graham Packaging Holdings Company/GPC
Capital Corporation II Senior Discount Notes,
Zero %, Due 1/15/09 (Rate Reset
Effective 1/15/03) 8,150,000 5,012,250
Grove Holdings LLC Debentures, Zero %,
Due 5/01/09 (Rate Reset Effective 5/01/03)
(Acquired 4/22/98 - 4/30/98; Cost
$5,511,160) (b) 9,500,000 3,562,500
Hudson Respiratory Care, Inc. Senior
Subordinated Notes, 9.125%, Due 4/15/08 6,000,000 4,230,000
ICG Holdings, Inc. Senior Discount Notes, Zero %,
Due 9/15/05 (Rate Reset Effective 9/15/00) 4,000,000 3,020,000
IXC Communications, Inc. Senior Subordinated
Notes, 9.00%, Due 4/15/08 5,300,000 5,247,000
Imperial Capital Trust I Guaranteed Capital
Securities, 9.98%, Due 12/31/26 6,000,000 6,691,020
Insight Health Services Corporation Senior
Subordinated Notes, 9.625%, Due 6/15/08
(Acquired 6/09/98; Cost $2,000,000) (b) 2,000,000 1,830,000
Interep National Radio Sales, Inc. Senior
Subordinated Notes, 10.00%, Due 7/01/08
(Acquired 6/29/98; Cost $4,000,000) (b) 4,000,000 3,880,000
Interlake Corporation Senior Subordinated
Debentures, 12.125%, Due 3/01/02 1,750,000 1,645,000
Intermedia Communications, Inc. Senior Notes,
8.60%, Due 6/01/08 3,500,000 3,333,750
Intermedia Communications, Inc. Senior Notes,
Series B, 8.50%, Due 1/15/08 2,000,000 1,900,000
Jackson Products, Inc. Senior Subordinated
Notes, Series B, 9.50%, Due 4/15/05 8,300,000 7,926,500
Jordan Telecommunication Products, Inc. Senior
Notes, Series B, 9.875%, Due 8/01/07 3,300,000 3,052,500
Jordan Telecommunication Products, Inc. Senior
Subordinated Discount Notes, Zero %, Due
8/01/07 (Rate Reset Effective 8/01/00) 10,115,000 7,333,375
La Petite Academy, Inc./LPA Holding Corporation
Senior Notes, Series B, 10.00%, Due 5/15/08 6,300,000 6,063,750
MJD Communications, Inc. Senior Subordinated
Notes, 9.50%, Due 5/01/08 (Acquired 4/30/98;
Cost $3,000,000) (b) 3,000,000 2,925,000
Market Hub Partners Storage LP/Market Hub
Partners Finance, Inc. Senior Notes, 8.25%,
Due 3/01/08 4,300,000 4,224,750
Metronet Communications Corporation Senior
Discount Notes, Zero %, Due 6/15/08 (Rate
Reset Effective 6/15/03) 13,375,000 7,389,688
Motors and Gears, Inc. Senior Notes, Series C,
10.75%, Due 11/15/06 6,500,000 6,337,500
NTL, Inc. Senior Notes, 11.50%, Due 10/01/08
(Acquired 10/26/98; Cost $3,500,000) (b) 3,500,000 3,622,500
NTL, Inc. Senior Notes, Series B, 10.00%, Due
2/15/07 9,000,000 8,685,000
Nextlink Communications, Inc. Senior Discount
Notes, Zero %, Due 4/15/08 (Rate Reset
Effective 4/15/03) 5,000,000 2,650,000
Nextlink Communications, Inc. Senior Notes,
9.00%, Due 3/15/08 350,000 320,250
Optel, Inc. Senior Notes, Series B, 13.00%, Due
2/15/05 9,675,000 9,433,125
Orbital Imaging Corporation Senior Notes,
11.625%, Due 3/01/05 6,500,000 5,752,500
Pacific Aerospace & Electronics, Inc. Senior
Subordinated Notes, 11.25%, Due 8/01/05
(Acquired 7/23/98; Cost $3,000,000) (b) 3,000,000 2,385,000
Packaged Ice, Inc. Senior Notes, Series B, 9.75%,
Due 2/01/05 5,040,000 4,611,600
Pagemart Nationwide, Inc. Senior Discount Notes,
Zero %, Due 2/01/05 (Rate Reset
Effective 2/01/00) 6,500,000 5,622,500
Prime Succession Acquisition Corporation Senior
Subordinated Notes, 10.75%, Due 8/15/04 4,500,000 4,072,500
Qwest Communications International, Inc. Senior
Notes, 7.50%, Due 11/01/08 (Acquired 10/27/98;
Cost $4,966,200) (b) (e) 5,000,000 5,062,500
R.H. Donnelley, Inc. Senior Subordinated Notes,
9.125%, Due 6/01/08 (Acquired 6/02/98 -
6/05/98; Cost $7,051,875) (b) 7,000,000 6,912,500
Rogers Cablesystems, Ltd. Senior Secured Second
Priority Notes, Series B, 10.00%, Due 3/15/05 8,000,000 8,680,000
SF Holdings Group, Inc. Senior Secured Discount
Notes, Zero %, Due 3/15/08 (Rate Reset
Effective 3/15/03) 5,000,000 1,825,000
Sabreliner Corporation Senior Notes, 11.00%,
Due 6/15/08 (Acquired 6/19/98; Cost
$10,000,000) (b) 10,000,000 8,375,000
BF Saul Real Estate Investment Trust Senior
Secured Notes, 9.75%, Due 4/01/08 7,000,000 5,635,000
Station Casinos, Inc. Senior Subordinated Notes,
9.75%, Due 4/15/07 3,750,000 3,618,750
Steel Heddle Manufacturing Company Senior
Subordinated Notes, 10.625%, Due 6/01/08
(Acquired 5/21/98; Cost $5,000,000) (b) 5,000,000 4,025,000
Superior National Capital Trust I Notes, 10.75%,
Due 12/01/17 5,405,000 5,053,675
Telecommunications Techniques Company LLC
Senior Subordinated Notes, 9.75%, Due 5/15/08
(Acquired 5/14/98; Cost $6,000,000) (b) 6,000,000 5,190,000
Telemundo Holdings, Inc. Senior Discount Notes,
Zero %, Due 8/15/08 (Rate Reset Effective
8/15/03)(Acquired 8/07/98; Cost $5,712,000)(b)10,000,000 4,950,000
Time Warner Telecom LLC Senior Notes, 9.75%,
Due 7/15/08 5,000,000 5,062,500
Town Sports International, Inc. Senior Notes,
Series B, 9.75%, Due 10/15/04 7,100,000 6,567,500
Transwestern Publishing Company LP/TWP
Capital Corporation Senior Subordinated Notes,
9.625%, Due 11/15/07 8,650,000 8,455,375
Tri-State Outdoor Media Group, Inc. Senior Notes,
11.00%, Due 5/15/08 (Acquired 5/14/98; Cost
$6,351,750) (b) 6,300,000 6,016,500
18
<PAGE>
- --------------------------------------------------------------------------------
===============================================================================
STRONG HIGH-YIELD BOND FUND (continued)
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
United Rentals, Inc. Senior Subordinated Notes:
8.80%, Due 8/15/08 (Acquired 8/07/98; Cost
$3,900,000) (b) $ 4,000,000 $ 3,820,000
9.50%, Due 6/01/08 (Acquired 5/19/98; Cost
$4,910,400) (b) 4,950,000 4,826,250
Universal Compression, Inc. Senior Discount
Notes, Zero %, Due 2/15/08 (Rate Reset Effective
2/15/03) 6,000,000 3,420,000
Verio, Inc. Senior Notes, 13.50%, Due 6/15/04 6,500,000 7,085,000
Versatel Telecom BV Senior Yankee Notes, 13.25%,
Due 5/15/08 (Acquired 5/20/98; Cost
3,960,000) (b) 4,000,000 3,740,000
Winstar Communications, Inc. Senior Discount
Notes, Zero %, Due 10/15/05 (Rate Reset Effective
10/15/00) 6,880,000 4,850,400
- -------------------------------------------------------------------------------
Total Corporate Bonds (Cost $421,751,544) 390,600,220
- -------------------------------------------------------------------------------
CONVERTIBLE BONDS 0.6%
Key Energy Group, Inc. Subordinated Notes, 5.00%,
Due 9/15/04 4,500,000 2,745,000
- -------------------------------------------------------------------------------
Total Convertible Bonds (Cost $3,673,320) 2,745,000
- -------------------------------------------------------------------------------
NON-AGENCY MORTGAGE & ASSET-BACKED SECURITIES 2.3%
Aircraft Lease Portfolio Securitization Pass-Thru
Trust Certificates, Series 1996-1, Class D,
12.75%, Due 6/15/06 4,750,441 4,512,919
Blaylock Mortgage Capital Corporation
Subordinated Bonds, Series 1997-A, Class B3,
6.425%, Due 10/15/03 (Acquired 3/11/98; Cost
$3,158,335) (b) 3,351,574 2,995,469
CS First Boston Mortgage Securities Corporation
Mortgage Pass-Thru Certificates, Series 1992-4,
Class A-5, Interest Only, 0.625%,
Due 10/25/22 15,855,225 163,468
Salomon Brothers Mortgage Securities VII, Inc.
Mortgage Pass-Thru Certificates, Series 1997-A,
Class B-3, 7.3887%, Due 10/01/25 (Acquired
7/09/97; Cost $2,926,823) (b) 3,277,994 3,069,022
- -------------------------------------------------------------------------------
Total Non-Agency Mortgage & Asset-Backed
Securities (Cost $11,026,247) 10,740,878
- -------------------------------------------------------------------------------
FOREIGN BONDS 1.0%
Shaw Communications, Inc. Debentures, 8.54%,
Due 9/30/27 8,000,000 4,649,776
- -------------------------------------------------------------------------------
Total Foreign Bonds (Cost $5,226,580) 4,649,776
- -------------------------------------------------------------------------------
PREFERRED STOCKS 7.2%
Capstar Radio Broadcasting Partners, Inc. 12.00%
Senior Exchangeable 63,600 7,329,900
e.spire Communications, Inc. 14.75% 3,225 3,063,389
IXC Communications, Inc. 12.50% Junior 3,288 3,263,340
Intermedia Communications, Inc. 13.50% Series B
Exchangeable 3,817 4,256,253
Jordan Telecommunication Products, Inc. 13.25%
Series B Senior Exchangeable 2,000 2,400,000
NTL, Inc. 13.00% Series B 6,373 5,942,715
Nextlink Communications, Inc. 14.00% Senior
Exchangeable 838 39,393
SFX Broadcasting, Inc. 12.625% Series E 51,566 6,123,463
21st Century Telecom Group, Inc. 13.75% Senior
Exchangeable 1,072 761,337
- -------------------------------------------------------------------------------
Total Preferred Stocks (Cost $36,846,580) 33,179,790
- -------------------------------------------------------------------------------
COMMON STOCKS 0.2%
Optel, Inc. Non-Voting (Acquired 2/07/97 - 5/07/98;
Cost $596,280) (b) 17,175 687,000
SF Holdings Group, Inc. Class C (Acquired
3/05/98; Cost $20,000) (b) 10,000 20,000
- -------------------------------------------------------------------------------
Total Common Stocks (Cost $616,280) 707,000
- -------------------------------------------------------------------------------
WARRANTS 0.4%
American Telecasting, Inc. Warrants, Expire 8/10/00 150 0
e.spire Communications, Inc. Warrants, Expire
11/01/05 (Acquired 2/14/96 -
3/22/96; Cost $91,875) (b) 1,500 45,000
MetroNet Communications Corporation Warrants,
Expire 8/15/07 3,000 90,000
NTL, Inc. Warrants, Expire 10/14/08 (Acquired
10/28/98; Cost $50,000) (b) 3,800 50,000
Orbital Imaging Corporation Warrants, Expire 3/01/05
(Acquired 2/20/98 - 5/04/98; Cost $1) (b) 6,500 260,000
Powertel, Inc. Warrants, Expire 2/01/06 3,264 15,096
21st Century Telecom Group, Inc. Warrants,
Expire 2/15/10 (Acquired 2/02/98; Cost
$55,000) (b) 1,000 30,000
Verio, Inc. Warrants, Expire 6/15/04 52,000 1,404,000
Versatel Telecom BV Warrants, Expire 5/15/08
(Acquired 5/20/98; Cost $40,000) (b) 4,000 60,000
- -------------------------------------------------------------------------------
Total Warrants (Cost $2,320,656) 1,954,096
- -------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 4.9%
Commercial Paper 0.0%
Interest Bearing, Due Upon Demand
American Family Financial Services, Inc., 4.75% $ 100 100
General Mills, Inc., 4.83% 94,900 94,900
Pitney Bowes Credit Corporation, 4.83% 17,800 17,800
-------
112,800
Repurchase Agreements 4.8%
ABN-AMRO Chicago Corporation (Dated 10/30/98),
5.40%, Due 11/02/98 (Repurchase proceeds
$21,909,855); Collateralized by: $15,000,000
FHLMC Notes, 5.125%, Due 10/15/08; $7,335,000
Federal Home Loan Bank Bonds, 5.16%, Due
4/22/02 (Market Value $22,340,460) (d) 21,900,000 21,900,000
United States Government Issues 0.1%
United States Treasury Bills, Due 11/12/98 thru
1/28/99 (c) 645,000 642,243
- -------------------------------------------------------------------------------
Total Short-Term Investments (Cost $22,654,685) 22,655,043
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Total Investments in Securities (Cost $504,115,892) 101.0% 467,231,803
Other Assets and Liabilities, Net (1.0%) (4,732,143)
- --------------------------------------------------------------------------------
NET ASSETS 100.0% $462,499,660
===============================================================================
FUTURES
- -------------------------------------------------------------------------------
Underlying
Expiration Face Amount Unrealized
Date at Value Appreciation
- --------------------------------------------------------------------------------
Purchased:
200 Ten-Year U.S. Treasury Notes 12/98 $24,075,000 $703,969
170 U.S. Treasury Bonds 12/98 21,914,063 563,803
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
- -------------------------------------------------------------------------------
Settlement Value Unrealized
Date in USD Appreciation
- --------------------------------------------------------------------------------
Sold:
7,560,000 CAD 12/17/98 $4,901,325 $121,430
19
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) October 31, 1998
- --------------------------------------------------------------------------------
===============================================================================
STRONG HIGH-YIELD BOND FUND (continued)
===============================================================================
- --------------------------------------------------------------------------------
SWAPS
- -------------------------------------------------------------------------------
Open index rate swap contracts at October 31, 1998 consisted of the following:
- -------------------------------------------------------------------------------
Notional Termination Interest Index Unrealized
Amount Date Sold Bought Depreciation
- --------------------------------------------------------------------------------
$15,000,000 1/01/99 1 mo. LIBOR Lehman Brothers Baa ($321,262)
===============================================================================
STRONG SHORT-TERM BOND FUND
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
CORPORATE BONDS 55.5%
ARA Services, Inc. Guaranteed Notes, 10.625%,
Due 8/01/00 $10,600,000 $11,432,036
Amerco Asset Backed Bonds, 6.89%, Due 10/15/00
(Acquired 10/17/97; Cost $10,000,000) (b) 10,000,000 9,759,200
Atlas Air, Inc. Pass-Thru Certificates, Series
1998-1, Class C, 8.01%, Due 1/02/10 20,000,000 20,506,160
Beaver Valley Funding Corporation Debentures,
8.625%, Due 6/01/07 9,860,000 10,698,100
Blackstone Hotel Acquisitions Company Debt
Unit (Medium Term Structured Enhanced Return
Trusts 1998), Series R-38, 6.2225%, Due 6/30/03
(Acquired 7/30/98; Cost $14,000,000) (b) 14,000,000 13,930,000
CMS Energy Corporation Notes, 8.125%, Due
5/15/02 7,500,000 7,740,795
CSC Holdings, Inc. Senior Notes, 7.875%, Due
12/15/07 7,500,000 7,640,625
Call-Net Enterprises, Inc. Senior Discount Notes,
Zero %, Due 12/01/04 (Rate Reset Effective
12/01/99) 9,000,000 8,415,000
Coca-Cola Femsa SA de CV Senior Notes, 9.40%,
Due 8/15/04 (Acquired 12/03/97; Cost
$5,217,100) (b) 5,000,000 4,513,270
ContiFinancial Corporation Senior Notes:
7.50%, Due 3/15/02 1,000,000 664,123
8.375%, Due 8/15/03 9,810,000 6,426,698
Continental Airlines, Inc. Senior Notes, 9.50%,
Due 12/15/01 14,750,000 15,413,750
Continental Airlines Pass-Thru Trusts Pass-
Thru Certificates:
Series 1997-2D, 7.522%, Due 6/30/01 10,306,974 10,569,544
Series 1998-2, Class 2A, 6.41%, Due 4/15/07 2,500,000 2,675,088
Custom Repackaged Asset Vehicle Trusts -
CRAVE Trust Certificates, Series 1997-800,
6.86%, Due 8/12/00 (Acquired 8/14/97;
Cost $4,999,200) (b) 5,000,000 5,024,850
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 $4,078,886) (b) 4,081,580 4,318,854
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 $4,280,673) (b) 4,293,898 4,560,828
Delta Air Lines, Inc. Pass-Thru Certificates:
9.375%, Due 9/11/07 18,428,018 21,161,354
9.875%, Due 4/30/08 16,830,317 19,753,490
Walt Disney Company Euro-Dollar Senior
Participating Notes, 2.00%, Due 3/01/00
(Acquired 9/19/96; Cost $12,500,000) (b) 10,000,000 10,100,000
Duke Realty LP Notes, 7.05%, Due 3/01/16
(Putable at 100 and Rate Reset Effective
3/01/06) 3,000,000 2,994,507
EOP Operating LP Mandatory Par Put
Remarketed Securities, 6.376%,
Due 2/15/02 10,000,000 $ 9,855,760
EOP Operating LP Senior Notes, 6.375%,
Due 2/15/03 1,000,000 979,236
El Paso Electric Company First Mortgage Notes,
Series E, 9.40%, Due 5/01/11 10,718,000 12,218,520
Empress Entertainment Inc. Senior Subordinated
Notes, 8.125%, Due 7/01/06 (Acquired 9/02/98;
Cost $9,912,500) (b) 10,000,000 9,925,000
GS Escrow Corporation Floating Rate Senior
Notes, 6.75%, Due 8/01/03 (Acquired 8/04/98;
Cost $4,967,500) (b) 5,000,000 4,818,945
GS Escrow Corporation Senior Notes:
6.75%, Due 8/01/01 (Acquired 7/30/98;
Cost $34,417,890) (b) 34,500,000 33,789,921
7.00%, Due 8/01/03 (Acquired 7/30/98;
Cost $9,975,300) (b) 10,000,000 9,800,000
Grupo Industrial Durango SA de CV Yankee
Notes, 12.625%, Due 8/01/03 5,000,000 3,775,000
Grupo Industrial Durango Yankee Notes,
12.00%, Due 7/15/01 4,000,000 3,130,000
Gulf Canada Resources, Ltd. Senior Yankee
Notes, 8.35%, Due 8/01/06 12,530,000 12,834,892
HRPT Properties Trust Senior Notes, 6.75%,
Due 12/18/02 5,000,000 4,873,740
Homeside, Inc. Senior Secured Second Priority
Notes, 11.25%, Due 5/15/03 27,468,000 32,274,900
Homeside Lending, Inc. Senior Notes, 6.20%,
Due 5/15/03 8,740,000 8,904,635
Huntington Capital I Variable Rate Capital
Income Securities, 5.9197%, Due 2/01/27 16,500,000 15,711,894
Imperial Capital Trust I Guaranteed Capital
Securities, 9.98%, Due 12/31/26 5,000,000 5,575,850
Fred Meyer, Inc. Senior Notes, 7.15%,
Due 3/01/03 10,000,000 10,006,690
Mohegan Tribal Gaming Authority Connecticut
Senior Secured Notes, Series B, 13.50%,
Due 11/15/02 17,910,000 22,297,950
NWA Trust Structured Enhanced Return
Trusts 1998, 8.3977%, Due 4/15/11 15,000,000 14,550,000
Niagara Mohawk Power Corporation
Senior Notes, Series C, 7.125%, Due 7/01/01 51,000,000 51,934,371
13,000,000 13,488,22
North Fork Bancorp Capital Trust Pass-Thru
Securities, 8.70%, Due 12/15/26 13,000,000 13,488,288
PDVSA Finance, Ltd. Yankee Bonds, Series 1998,
Class 1A, 6.45%, Due 2/15/04 (Acquired 5/05/98;
Cost $2,996,814) (b) 3,000,000 2,740,131
Panamerican Beverages, Inc. Senior Notes, 8.125%,
Due 4/01/03 8,300,000 8,603,714
Qwest Communications International, Inc. Senior
Notes, 7.50%, Due 11/01/08 (Acquired 10/27/98;
Cost $9,932,400) (b) (e) 10,000,000 10,125,000
Riggs Capital Trust Preferred Securities,
Series A, 8.625%, Due 12/31/26 (Acquired
12/20/96 - 1/15/97; Cost $11,565,210) (b) 11,500,000 11,700,330
Rogers Cablesystems, Ltd. Senior Secured Second
Priority Notes, 9.625%, Due 8/01/02 3,230,000 3,464,175
Simon Debartolo Group LP Notes, 6.625%,
Due 6/15/03 (Acquired 7/23/98;Cost
$10,001,400)(b) 10,000,000 9,790,620
Skandinaviska Enskilda Banken Variable Rate
Subordinated Yankee Notes, 6.50%, Due 12/29/49
(Rate Reset Effective 6/04/03) (Acquired
6/29/98 - 8/19/98; Cost $12,434,625) (b) 12,500,000 12,190,913
20
<PAGE>
- ------------------------------------------------------------------------------
==============================================================================
STRONG SHORT-TERM BOND FUND (continued)
==============================================================================
Shares or
Principal Value
Amount (Note 2)
- ------------------------------------------------------------------------------
Spintab AB Floating Rate Subordinated Notes,
6.225%, Due 12/29/49 (Acquired 11/21/97; Cost
$30,000,000) (b) $30,000,000 $ 29,858,550
Sprint Spectrum LP/Sprint Spectrum Finance
Corporation Senior Notes, 11.00%, Due 8/15/06 14,648,000 16,625,480
Star Capital Trust I Floating Rate Securities,
6.265%, Due 6/15/27 10,000,000 9,525,000
Suntrust Capital Trust I Floating Rate Preferred
Securities, 6.3575%, Due 5/15/27 10,000,000 9,629,130
Superior Financial Corporation Senior Notes,
8.65%, Due 4/01/03 (Acquired 3/27/98;
Cost $1,250,000) (b) 1,250,000 1,275,000
Swedbank Floating Rate Debt Unit (Medium
Term Structured Enhanced Return Trusts 1996,
Series R-35), 6.5375%, Due 11/10/02 (Acquired
10/16/96; Cost $10,000,000) (b) 10,000,000 9,675,000
TCI Communications, Inc. Senior Notes, 6.375%,
Due 5/01/03 7,800,000 8,076,065
TKR Cable I, Inc. Senior Debentures, 10.50%,
Due 10/30/07 31,515,000 34,589,824
Tele-Communications, Inc. Senior Notes, 8.25%,
Due 1/15/03 6,837,000 7,518,751
Texas Utilities Company Senior Notes, Series D,
6.37%, Due 8/16/03 14,000,000 14,345,170
Time Warner Pass-Thru Asset Trust
Securities, Series 1997-1, 6.10%, Due 12/30/01
(Acquired 1/08/97; Cost $15,264,000) (b) 16,000,000 16,194,720
Tricon Global Restaurants, Inc. Senior Notes,
7.45%, Due 5/15/05 7,500,000 7,650,188
Union Planters Capital Trust Securities, 8.20%,
Due 12/15/26 3,000,000 3,046,029
United Air Lines, Inc. Debentures, 10.25%, Due
7/15/21 4,850,000 6,296,673
United States Filter Corporation Remarketable or
Redeemable Securities, 6.50%, Due 5/15/13
(Remarketing Date 5/15/03) (Acquired 5/14/98;
Cost $10,950,280) (b) 11,000,000 10,986,910
United States Filter Corporation Variable Rate
Remarketable or Redeemable Securities, 6.375%,
Due 5/15/11 (Remarketing Date 5/15/01)
(Acquired 8/18/98; Cost $4,694,367) (b) 4,705,000 4,703,240
Valero Pass-Thru Asset Trust 1997-1
Securities, 6.75%, Due 12/15/02 (Acquired
12/05/97; Cost $9,985,600) (b) 10,000,000 10,416,560
- -------------------------------------------------------------------------------
Total Corporate Bonds (Cost $739,281,871 ) 738,070,977
- -------------------------------------------------------------------------------
NON-AGENCY MORTGAGE & ASSET-BACKED SECURITIES 17.9%
BCF LLC Mortgage Pass-Thru Certificates, Series
1997-R2, Class 3-A1, 7.00%, Due 12/25/35
(Acquired 6/17/97; Cost $5,582,178) (b) 5,578,425 5,634,209
CS First Boston Mortgage Securities Corporation
Mortgage-Backed Certificates, Series 1997-
WFC1, Class A-1, 7.25%, Due 8/25/27 2,971,073 2,896,796
Chase Mortgage Finance Corporation Mortgage
Pass-Thru Certificates, Series 1990-G, Class
A-Z1, 9.50%, Due 12/25/21 1,545,145 1,593,910
Chase Mortgage Finance Corporation Variable Rate
Multiclass Mortgage Pass-Thru Certificates,
Series 1992-2, Class B2, 7.95%, Due 8/28/23
(Acquired 9/27/96 - 9/03/97; Cost
$3,781,919) (b) 3,765,190 3,755,174
Citicorp Mortgage Securities, Inc. Real Estate
Mortgage Investment Conduit Pass-Thru
Certificates, Series 1993-3, Class B1, 7.00%,
Due 3/25/08 (Acquired 10/23/96; Cost
$2,024,706) (b) 2,055,051 2,012,675
Citicorp Mortgage Securities, Inc. Real Estate
Mortgage Investment Conduit Variable Rate
Pass-Thru Certificates, Series 1988-8, Class
A-1, 8.4781%, Due 6/25/18 4,240,804 4,399,263
Cityscape Home Loan Owners' Trust Asset
Backed Notes, Series 1997-1, Class A-3, 6.63%,
Due 3/25/18 5,350,000 5,383,839
Collateralized Mortgage Obligation Trust 47,
Class E, Principal Only, Due 9/01/18 995,553 694,995
Collateralized Mortgage Obligation Trust 61,
Class Z, 9.10%, Due 1/01/20 2,199,544 2,251,216
Collateralized Mortgage Obligation Trust Inverse
Floating Rate Collateralized Mortgage Obligation,
Series 13, Class Q, 15.2759%, Due 1/20/03 811,670 859,506
ContiMortgage Home Equity Loan Trust Interest
Only Senior Strip Certificates, Series 1996-2,
Class A, 1.0742%, Due 7/15/27 (Acquired
6/14/96; Cost $2,808,655) (b) 97,370,755 1,898,730
ContiSecurities Residual Corporation
ContiMortgage Net Interest Margin Notes,
Series 1997-A, 7.23%, Due 7/16/28
(Acquired 9/18/97; Cost $2,244,125) (b) 2,244,125 2,242,374
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 22,492,013 263,381
Drexel Burnham Lambert Collateralized Mortgage
Obligation Trust, Series T, Class T-4, 8.45%,
Due 9/20/19 6,600,000 6,828,763
GMBS, Inc. Countrywide Funding Certificates,
Series 1990-1, Class Z, 9.25%, Due 1/28/20 3,158,186 3,257,858
GS Mortgage Securities Corporation Variable Rate
Mortgage Participation Securities, Series
1998-1, Class A, 8.00%, Due 6/18/28 (Acquired
5/19/98; Cost $9,909,483) (b) 9,457,306 9,882,885
Green Tree Recreational Equipment and Consumer
Trust Asset-Backed Notes, Series 1998-C,
Class A-5, 6.28%, Due 2/15/14 15,000,000 15,213,300
Greenwich Capital Acceptance, Inc. Mortgage
Securities, Series 1993-P01, Class E, Principal
Only, Due 11/26/17 6,769,937 5,146,236
Greenwich Capital Acceptance, Inc. Variable Rate
Mortgage Pass-Thru Certificates, Series 1991-1,
Class A, 7.1082%, Due 2/25/21 (Acquired 4/18/96;
Cost $8,970,642) (b) 8,794,747 8,882,695
Greenwich Capital Markets, Inc. Commercial
Mortgage Loan Facility Variable Rate Funding
Certificates, Series 1998 SFT-1, Class B,
9.625%, Due 3/31/01 (Acquired 9/29/98; Cost
$12,223,650) (b) 12,223,650 12,223,650
Kmart CMBS Financing, Inc. Floating Rate
Commercial Mortgage Pass-Thru Certificates,
Series 1997-1, Class D, 6.3195%, Due 3/01/07
(Acquired 3/10/97; Cost $4,516,875) (b) 4,500,000 4,359,375
Merrill Lynch Home Equity Acceptance, Inc.
Subordinated Variable Rate Mortgage-Backed
Certificates, Series 1994-A, Class A-1,
6.6875%, Due 8/17/23 8,421,571 8,350,493
Merrill Lynch Mortgage Investors, Inc. Mortgage
Pass-Thru Certificates, Series 1994-C1,
Interest Only, 0.5826%, Due 11/25/20 37,281,990 547,672
Merrill Lynch Mortgage Investors, Inc. Senior
Subordinated Pass-Thru Certificates, Series
1994-A, Class A-5, 7.0317%, Due 2/15/24 14,525,078 14,749,819
The Money Store, Inc. Securitized Net Interest
Margin Trust 1997-1 Notes, 7.36%, Due 6/20/25
Acquired 12/23/97; Cost $2,605,122) (b) 2,605,122 2,605,122
21
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) October 31, 1998
- -------------------------------------------------------------------------------
===============================================================================
STRONG SHORT-TERM BOND FUND (continued)
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc. Variable Rate
Commercial Mortgage Pass-Thru Certificates,
Series 1997-RR, Class A, 6.8466%, Due 4/28/04
(Acquired 11/21/97; Cost $4,675,580) (b) $ 4,676,932 $ 4,657,943
NPF XI, Inc. Health Care Receivables Program
97-1 Notes, Class A, 6.815%, Due 7/01/01
(Acquired 6/19/97; Cost $4,999,944) (b) 5,000,000 5,092,200
Oregon Commercial Mortgage, Inc. Variable Rate
Commercial Mortgage Pass-Thru Certificates,
Series 1995-1, Class E, 9.9487%, Due 6/25/26
(Acquired 5/13/98; Cost $7,997,923) (b) 7,688,000 7,707,220
Prudential Home Mortgage Securities
Company Mortgage Pass-Thru Certificates,
Series 1992-26, Class A-18, 7.50%, Due 8/25/07 1,998,754 1,993,758
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 - 3/18/98; Cost $9,621,956) (b) 9,606,000 9,612,004
RTC Mortgage Pass-Thru Securities, Inc.
Commercial Pass-Thru Certificates:
Series 1994-C2, Class E, 8.00%, Due 4/25/25 11,525,627 12,067,620
Series 1995-C2, Class D, 7.00%, Due 5/25/27 2,548,685 2,622,406
RTC Variable Rate Mortgage Pass-Thru
Securities, Inc.:
Series 1991-11, Class 1-L, 8.625%, Due
10/25/21 10,082,942 10,055,769
Series 1992-1, Class A-2, 7.88%, Due 8/25/20 2,210,541 2,203,943
Residential Funding Mortgage Securities I, Inc.
Mortgage Pass-Thru Certificates, Series
1993-M23, Class A-1, 6.97%, Due 8/28/23 1,810,655 1,821,365
Rural Housing Trust 1987-1 Senior Mortgage
Pass-Thru Certificates, Series 1, Class D,
6.33%, Due 4/01/26 397,043 405,687
Rural Housing Trust 1987-1 Senior Mortgage
Pass-Thru Subordinated Certificates, Class 3B,
7.33%, Due 4/01/26 10,322,937 10,563,680
Ryland Mortgage Securities Corporation Variable
Rate Mortgage Participation Securites:
Series 1991-1, 7.1835%, Due 3/25/20 2,087,967 2,164,971
Series 1992-3, Class A-2, 7.2812%, Due 6/25/20 5,749,720 5,742,533
Ryland Mortgage Securities Corporation III
Variable Rate Collateralized Mortgage Bonds,
Series 1992-C, Class 3-A, 11.7047%, Due
11/25/30 1,180,198 1,236,624
Ryland Mortgage Securities Corporation IV Variable
Rate Collateralized Mortgage Bonds, Series 2,
Class 3-A, 11.9079%, Due 6/25/23 1,738,733 1,821,861
SWP Mortgage Securities Trust Mortgage
Pass-Thru Certificates, Series 1993-1, Class A,
6.54%, Due 12/15/02 (Acquired 1/23/98;
Cost $3,471,317) (b) 3,449,756 3,548,936
Salomon Brothers Mortgage Securities VI, Inc.
Stripped Coupon Mortgage Pass-Thru
Certificates, Series 1987-3, Class A, Principal
Only, Due 10/23/17 1,398,230 1,204,558
Sequoia Mortgage Trust Adjustable Rate
Asset-Backed Certificates, Series 3, Class M-1,
6.85%, Due 6/25/28 11,127,300 11,349,846
Shearson Lehman Pass-Thru Securities, Inc. Asset
Trust Variable Rate Pass-Thru Certificates,
Series 88-3, 7.3839%, Due 9/15/18 5,182,728 5,195,685
Structured Mortgage Trust Commercial Mortgage-
Backed Securities, 7.5484%, Due 1/30/06
(Acquired 5/12/98; Cost $10,592,586) (b) 10,712,139 10,199,992
Structured Mortgage Asset Residential Trust
Multiclass Pass-Thru Certificates, Series
1992-5, Class BO, Principal Only, Due 6/25/23 774,720 648,517
- --------------------------------------------------------------------------------
Total Non-Agency Mortgage & Asset-Backed
Securities (Cost $237,150,313) 237,851,054
- --------------------------------------------------------------------------------
FOREIGN BONDS 0.8%
Shaw Communications, Inc. Debentures, 8.54%,
Due 9/30/27 18,091,000 10,514,888
- --------------------------------------------------------------------------------
Total Foreign Bonds (Cost $11,803,448) 10,514,888
- --------------------------------------------------------------------------------
UNITED STATES GOVERNMENT & AGENCY ISSUES 17.8%
FHLMC Participation Certificates:
6.50%, Due 5/01/04 1,043,534 1,051,360
8.50%, Due 4/01/01 thru 1/01/05 690,178 712,037
8.75%, Due 10/01/01 487,679 492,328
9.00%, Due 5/01/06 thru 08/01/18 11,344,223 12,045,658
9.50%, Due 3/01/11 356,483 379,565
9.75%, Due 8/01/02 1,478,131 1,509,465
10.25%, Due 7/01/09 thru 1/01/10 508,818 533,036
10.50%, Due 1/01/16 thru 7/01/19 11,983,473 13,081,270
10.75%, Due 9/01/09 thru 10/01/17 553,456 585,362
11.25%, Due 11/01/09 413,825 441,761
FHLMC Variable Rate Participation Certificates,
7.597%, Due 5/01/26 8,206,624 8,514,372
FNMA Guaranteed Real Estate Mortgage Investment
Conduit Pass-Thru Certificates:
8.00%, Due 12/01/13 thru 9/01/23 13,435,527 13,931,713
8.50%, Due 4/01/08 thru 2/01/23 24,085,491 25,210,293
9.00%, Due 11/01/24 2,612,547 2,771,946
9.40%, Due 10/25/19 14,017,380 14,917,300
9.50%, Due 2/01/11 thru 3/01/15 9,410,883 10,068,717
10.00%, Due 7/01/04 thru 6/25/19 16,512,484 18,026,754
11.00%, Due 10/15/20 25,956,766 28,641,735
12.00%, Due 3/01/17 5,389,377 5,907,215
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates,
Series 1992-41, Class J, Accretion Directed
Interest Only, 1005.0493%, Due 12/25/02 1,417 16,717
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Variable Rate Pass-Thru
Certificates, Series 1995-G2, Class IO, Interest
Only, 3.1726%, Due 5/25/20 10,148,509 1,317,940
FNMA Stripped Mortgage-Backed Securities:
Series 107, Class 1, Principal Only, Due
10/25/06 2,141,205 1,967,232
Series 1993-M1, Class N, Interest Only, 0.84%,
Due 4/25/20 8,875,672 52,721
GNMA Guaranteed Pass-Thru Certificates:
7.50%, Due 12/15/07 6,022,575 6,250,117
9.00%, Due 11/15/24 2,180,530 2,331,944
9.75%, Due 9/15/05 thru 11/15/05 1,438,802 1,539,766
10.00%, Due 2/20/18 521,045 567,985
11.50%, Due 4/15/13 40,757 45,767
12.50%, Due 4/15/19 23,909,559 27,227,010
Small Business Administration Guaranteed Loan,
Group #0190, Variable Rate Interest Only
Certificates, 3.114%, Due 7/30/18 17,888,799 1,923,046
USGI FHA Insured Project Pool #2047, 6.90%,
Due 8/01/14 444,553 435,662
USGI FHA Insured Project Pool Banco 85, 7.4403%,
Due 11/24/19 3,215,805 3,231,369
Unites States Treasury Notes:
5.25%, Due 8/15/03 24,105,000 25,159,618
6.50%, Due 5/15/05 5,700,000 6,343,034
- --------------------------------------------------------------------------------
Total United States Government & Agency Issues
(Cost $236,118,794) 237,231,815
- --------------------------------------------------------------------------------
22
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
STRONG SHORT-TERM BOND FUND (continued)
================================================================================
Shares or
Principal Value
Amount (Note 2)
- --------------------------------------------------------------------------------
PREFERRED STOCKS 5.5%
California Federal Preferred Capital Corporation
9.125% Series A Exchangeable 320,000 8,200,000
Indosuez Holdings SCA Sponsored ADR 10.375%
Representing 1/10 Series A (Acquired 11/15/96 -
5/21/98; Cost $16,309,146) (b) 574,479 15,798,173
Norwest Corporation Series A Cumulative Tracking
Preferred Stock/Residential Home Mortgage LLC
(Acquired 12/16/94; Cost $23,000,000) (b) 115,000 23,806,610
Parmalat Capital Finance 8.1523% Series B 300,000 7,050,000
TCI Communciations Financing IV Trust 9.72% 300,000 8,175,000
Webster Capital Corporation 7.375% Series A 10,000 10,112,500
- --------------------------------------------------------------------------------
Total Preferred Stocks (Cost $73,061,379) 73,142,283
- --------------------------------------------------------------------------------
OPTIONS 0.4%
Merrill Lynch Swaption (The option to receive a
fixed interest rate of 7.75%; exercisable at a
strike price of 100 beginning 4/09/04 and
expiring 4/09/25.) 39,583,333 5,094,375
- --------------------------------------------------------------------------------
Total Options (Cost $1,832,838) 5,094,375
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 1.6%
Commercial Paper 0.0%
Interest Bearing, Due Upon Demand
American Family Financial Services, Inc., 4.75% $ 100 100
General Mills, Inc., 4.83% 96,100 96,100
Pitney Bowes Credit Corporation, 4.83% 431,900 431,900
-------
528,100
Corporate Bonds 1.3%
Amerco Asset-Backed Bonds, 6.65%, Due 10/15/99
(Acquired 10/17/97; Cost $9,996,500) (b) 10,000,000 9,874,500
Bay View Capital Corporation Senior Debentures,
8.42%, Due 6/01/99 (Acquired 5/13/96 - 5/28/96;
Cost $7,000,000) (b) 7,000 7,084,315
----------
16,958,815
Repurchase Agreements 0.1%
ABN AMRO Chicago Corporation (Dated 10/30/98),
5.40%, Due 11/02/98 (Repurchase proceeds
$1,000,450); Collateralized by: $1,000,000
Federal Home Loan Bank Bonds, 5.33%, Due
9/22/05 (Market Value $1,018,066) (d) 1,000,000 1,000,000
United States Government Issues 0.2%
United States Treasury Bills, Due 11/19/98 thru
1/14/99 (c) 2,375,000 2,365,039
- --------------------------------------------------------------------------------
Total Short-Term Investments (Cost $20,887,738) 20,851,954
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Investments in Securities (Cost $1,320,136,381) 99.5% 1,322,757,346
Other Assets and Liabilities, Net 0.5% 6,377,266
- --------------------------------------------------------------------------------
NET ASSETS 100.0% $1,329,134,612
================================================================================
FUTURES
- --------------------------------------------------------------------------------
Underlying Unrealized
Expiration Face Amount Appreciation
Date at Value (Depreciation)
- --------------------------------------------------------------------------------
Purchased:
1,450 Ninety-Day Euro-Dollar 12/99 $346,223,750 $1,654,000
Sold:
40 Five-Year U.S. Treasury Notes 12/98 4,585,625 (107,925)
721 Ten-Year U.S. Treasury Notes 12/98 86,790,375 (2,672,195)
180 U.S. Treasury Bonds 12/98 23,203,125 124,281
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
- --------------------------------------------------------------------------------
Settlement Value Unrealized
Date in USD Appreciation
- --------------------------------------------------------------------------------
Sold:
17,095,000 CAD 12/17/98 $11,083,089 $274,583
WRITTEN OPTIONS ACTIVITY
- --------------------------------------------------------------------------------
Contracts Premiums
- --------------------------------------------------------------------------------
Options outstanding at beginning of period -- $ --
Options written during the period 55 (24,348)
Options closed (55) 24,348
Options expired -- --
Options exercised -- --
--- --------
Options outstanding at end of period -- --
--- --------
--- --------
Closed options resulted in a capital loss of $2,945.
================================================================================
STRONG SHORT-TERM HIGH YIELD BOND FUND
================================================================================
Shares or
Principal Value
Amount (Note 2)
- --------------------------------------------------------------------------------
CORPORATE BONDS 86.1%
Adelphia Communications Corporation Senior
Debentures, 11.875%, Due 9/15/04 $1,000,000 $1,070,000
Adelphia Communications Corporation Senior
Notes, 8.125%, Due 7/15/03 (Acquired
6/29/98; Cost $1,989,760) (b) 2,000,000 1,990,000
Affinity Group, Inc. Senior Subordinated Notes,
11.50%, Due 10/15/03 2,000,000 2,035,000
Alliance Imaging, Inc. Senior Subordinated
Floating Rate Notes, 9.94%, Due 12/15/05 1,500,000 1,282,500
Allied Waste North America, Inc. Senior
Subordinated Notes, 10.25%, Due 12/01/06 3,000,000 3,292,500
Atlas Air, Inc. Pass-Thru Trust Certificates,
12.25%, Due 12/01/02 2,450,000 2,656,841
Aztar Corporation Senior Subordinated Notes,
13.75%, Due 10/01/04 1,850,000 1,965,625
Benedek Broadcasting Corporation Senior Notes,
11.875%, Due 3/01/05 2,000,000 2,050,000
Call-Net Enterprises, Inc. Senior Discount Notes,
Zero %, Due 12/01/04 (Rate Reset Effective
12/01/99) 2,600,000 2,431,000
Cencall Communications Corporation Senior
Discount Notes, Zero %, Due 1/15/04 (Rate
Reset Effective 1/15/99) 1,000,000 940,000
Centennial Cellular Corporation Senior Notes,
8.875%, Due 11/01/01 2,635,000 2,648,175
Coinmach Corporation Senior Notes, Series D,
11.75%, Due 11/15/05 2,000,000 2,060,000
Dawson Production Services Senior Notes,
9.375%, Due 2/01/07 2,500,000 2,512,500
Dial Call Communications, Inc. Senior Discount
Notes, Series B, Zero %, Due 12/15/05 (Rate
Reset Effective 12/15/98) 1,000,000 962,500
Echostar Communications Corporation
Senior Secured Discount Notes, Zero %,
Due 6/01/04 (Rate Reset Effective 6/01/99) 2,000,000 1,962,500
Graham Packaging Company/GPC Capital
Corporation I Floating Rate Notes, 9.375%,
Due 1/15/08 1,000,000 935,000
Horseshoe Gaming LLC Senior Notes, Series B,
12.75%, Due 9/30/00 4,314,000 4,594,410
23
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) October 31, 1998
- --------------------------------------------------------------------------------
================================================================================
STRONG SHORT-TERM HIGH YIELD BOND FUND
================================================================================
Shares or
Principal Value
Amount (Note 2)
- --------------------------------------------------------------------------------
Huntsman Specialty Chemicals Corporation
Floating Rate Term Loans, 8.00%, Due 3/17/07
(Acquired 5/28/98; Cost $3,048,000) (b) $3,000,000 $ 2,925,000
INDSPEC Chemical Corporation Senior
Subordinated Discount Notes, Series B, Zero %,
Due 12/01/03 (Rate Reset Effective 12/01/98) 2,000,000 2,072,500
Interlake Corporation Senior Subordinated
Debentures, 12.125%, Due 3/01/02 2,000,000 1,880,000
Key Plastics, Inc. Senior Notes, 14.00%,
Due 11/15/99 1,900,000 2,004,500
MJD Communications, Inc. Floating Rate Notes,
10.00%, Due 5/01/08 (Acquired 4/30/98;
Cost $3,000,000) (b) 3,000,000 2,865,000
Metronet Communications Corporation Senior
Notes, 12.00%, Due 8/15/07 3,000,000 3,165,000
Mobile Telecommunication Technologies
Corporation Senior Notes, 13.50%, Due
12/15/02 5,000,000 5,462,500
NL Industries Senior Secured Notes, 11.75%,
Due 10/15/03 3,819,000 3,990,855
NS Group, Inc. Senior Notes, 13.50%,
Due 7/15/03 2,000,000 2,140,000
Nextlink Communications LLC Senior Notes,
12.50%, Due 4/15/06 2,000,000 2,110,000
Pegasus Media & Communications, Inc. Senior
Subordinated Notes, Series B, 12.50%, Due
7/01/05 3,000,000 3,225,000
Premier Parks, Inc. Senior Notes, Series A,
12.00%, Due 8/15/03 2,000,000 2,150,000
Qwest Communications International, Inc. Senior
Notes, Series B, 10.875%, Due 4/01/07 5,000,000 5,762,500
SD Warren Company Senior Subordinated Notes,
Series B, 12.00%, Due 12/15/04 2,000,000 2,170,000
Showboat Marina Casino Partnership/Showboat
Marina Finance Corporation First Mortgage
Notes, Series B, 13.50%, Due 3/15/03 2,000,000 2,270,000
Star Markets Company Senior Subordinated Notes,
13.00%, Due 11/01/04 1,530,000 1,629,450
Superior Financial Corporation Senior Notes,
8.65%, Due 4/01/03 (Acquired 3/27/98; Cost
$2,000,000) (b) 2,000,000 2,040,000
US Air, Inc. Senior Notes, 9.625%, Due 2/01/01 3,660,000 3,684,873
United Stationer Supply Senior Subordinated
Notes, 12.75%, Due 5/01/05 2,000,000 2,230,000
Young Broadcasting, Inc. Senior Subordinated
Notes, 11.75%, Due 11/15/04 2,200,000 2,310,000
- --------------------------------------------------------------------------------
Total Corporate Bonds (Cost $93,709,850) 91,475,729
- --------------------------------------------------------------------------------
CONVERTIBLE BONDS 2.5%
Corporate Express, Inc. Subordinated Notes,
4.50%, Due 7/01/00 3,000,000 2,662,500
- --------------------------------------------------------------------------------
Total Convertible Bonds (Cost $2,808,009) 2,662,500
- --------------------------------------------------------------------------------
NON-AGENCY MORTGAGE & ASSET-BACKED SECURITIES 5.5%
Blaylock Mortgage Capital Corporation
Subordinated Bonds, Series 1997-A, Class B3,
6.425%, Due 10/15/03 (Acquired 3/11/98;
Cost $1,884,687) (b) 2,000,000 1,787,500
Lehman Relocation Mortgage Trust Subordinated
Variable Rate Mortgage-Backed Certificates,
Series 1997-2, Class B1, 7.1263%, Due 6/28/26
(Acquired 10/26/98; Cost $2,058,810) (b) 2,465,640 2,058,810
Oregon Commercial Mortgage, Inc. Variable Rate
Commercial Mortgage Pass-Thru Certificates,
Series 1995-1, Class E, 9.9487%, Due 6/25/26
(Acquired 5/13/98; Cost $2,080,625) (b) 2,000,000 2,005,000
- --------------------------------------------------------------------------------
Total Non-Agency Mortgage & Asset-Backed
Securities (Cost $6,027,101) 5,851,310
- --------------------------------------------------------------------------------
PREFERRED STOCKS 1.4%
El Paso Electric Company 11.40% Series A (e) 13,593 1,447,618
- --------------------------------------------------------------------------------
Total Preferred Stocks (Cost $1,481,223) 1,447,618
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 1.8%
Commercial Paper 0.4%
Interest Bearing, Due Upon Demand
American Family Financial Services, Inc., 4.75% $ 100 100
General Mills, Inc., 4.83% 98,600 98,600
Pitney Bowes Credit Corporation, 4.83% 106,000 106,000
Warner Lambert Company, 4.75% 14,300 14,300
Wisconsin Electric Power Company, 4.75% 184,900 184,900
-------
403,900
Repurchase Agreements 1.3%
ABN-AMRO Chicago Corporation (Dated 10/30/98),
5.40%, Due 11/02/98 (Repurchase proceeds
$1,400,630); Collateralized by: $1,430,000
Federal Home Loan Bank Bonds, 5.16%, Due
4/22/02 (Market Value $1,428,696) (d) 1,400,000 1,400,000
United States Government Issues 0.1%
United States Treasury Bills, Due 11/27/98
thru 1/28/99 (c) 95,000 94,507
- --------------------------------------------------------------------------------
Total Short-Term Investments (Cost $1,898,342) 1,898,407
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Investments in Securities (Cost $105,924,525) 97.3% 103,335,564
Other Assets & Liabilities, Net 2.7% 2,898,862
- --------------------------------------------------------------------------------
NET ASSETS 100.0% $106,234,426
================================================================================
FUTURES
- --------------------------------------------------------------------------------
Underlying
Expiration Face Amount Unrealized
Date at Value Appreciation
- --------------------------------------------------------------------------------
Purchased:
125 Ninety-Day Euro-Dollar 6/99 $29,882,813 $274,063
60 Ninety-Day Euro-Dollar 12/99 14,326,500 87,675
CURRENCY ABBREVIATIONS
- --------------------------------------------------------------------------------
CAD Canadian Dollar
USD United States Dollar
LEGEND
- --------------------------------------------------------------------------------
(a) Short-term investments include any security which has a remaining 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) See Note 2(I) of Notes to Financial Statements.
(e) All or a portion of security is when-issued.
Percentages are stated as a percent of net assets.
See Notes to Financial Statements.
24
<PAGE>
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------------------------------------------------------------------------
October 31, 1998
(In Thousands, Except Per Share Amounts)
<CAPTION>
STRONG CORPORATE STRONG GOVERNMENT STRONG HIGH-YIELD
BOND FUND SECURITIES FUND BOND FUND
---------------- ----------------- -----------------
ASSETS:
Investments in Securities, at Value (Cost of $821,373, $1,316,208
<S> <C> <C> <C>
and $504,116, respectively) $812,124 $1,340,211 $467,232
Receivable for Securities and Forward Foreign Currency Contracts Sold 26,423 13,302 1,878
Receivable for Fund Shares Sold 224 1,344 230
Dividends and Interest Receivable 16,150 16,382 9,274
-------- ---------- --------
Total Assets 854,921 1,371,239 478,614
LIABILITIES:
Payable for Securities Purchased 30,039 54,797 11,126
Payable for Fund Shares Redeemed 175 777 34
Dividends Payable 4,488 5,678 3,980
Accrued Operating Expenses and Other Liabilities 1,572 1,085 974
-------- ---------- --------
Total Liabilities 36,274 62,337 16,114
-------- ---------- --------
NET ASSETS $818,647 $1,308,902 $462,500
======== ========== ========
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) $836,081 $1,259,212 $495,767
Accumulated Net Investment Loss -- (672) (7)
Accumulated Net Realized Gain (Loss) (7,722) 25,678 2,852
Net Unrealized Appreciation/Depreciation (9,712) 24,684 (36,112)
-------- ---------- --------
Net Assets $818,647 $1,308,902 $462,500
======== ========== ========
Capital Shares Outstanding (Unlimited Number Authorized) 73,835 118,603 43,112
NET ASSET VALUE PER SHARE $11.09 $11.04 $10.73
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
STRONG SHORT-TERM STRONG SHORT-TERM HIGH
BOND FUND YIELD BOND FUND
----------------- ----------------------
ASSETS:
Investments in Securities, at Value (Cost of $1,320,136
<S> <C> <C>
and $105,925, respectively) $1,322,757 $103,336
Receivable for Securities and Forward Foreign Currency Contracts Sold 15,991 3,536
Receivable for Fund Shares Sold 90 92
Dividends and Interest Receivable 20,913 2,538
Other Assets 427 --
---------- --------
Total Assets 1,360,178 109,502
LIABILITIES:
Payable for Securities Purchased 22,672 2,455
Payable for Fund Shares Redeemed 409 --
Dividends Payable 7,855 647
Accrued Operating Expenses and Other Liabilities 107 166
---------- --------
Total Liabilities 31,043 3,268
---------- --------
NET ASSETS $1,329,135 $106,234
========== ========
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) $1,427,655 $108,131
Accumulated Net Investment Loss (621) --
Accumulated Net Realized Gain (Loss) (99,793) 330
Net Unrealized Appreciation/Depreciation 1,894 (2,227)
---------- --------
Net Assets $1,329,135 $106,234
========== ========
Capital Shares Outstanding (Unlimited Number Authorized) 138,901 10,417
NET ASSET VALUE PER SHARE $9.57 $10.20
===== ======
See Notes to Financial Statements.
25
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended October 31, 1998
(In Thousands)
<CAPTION>
STRONG CORPORATE STRONG GOVERNMENT STRONG HIGH-YIELD
BOND FUND SECURITIES FUND BOND FUND
---------------- ----------------- -----------------
INCOME:
<S> <C> <C> <C>
Interest $48,738 $66,228 $54,425
Dividends 2,231 1,174 4,778
------- ------- -------
Total Income 50,969 67,402 59,203
EXPENSES:
Investment Advisory Fees 4,337 6,371 3,841
Custodian Fees 32 48 32
Shareholder Servicing Costs 1,379 1,737 854
Other 278 313 170
------- ------- -------
Total Expenses 6,026 8,469 4,897
------- ------- -------
NET INVESTMENT INCOME 44,943 58,933 54,306
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 11,955 27,186 2,504
Futures Contracts, Options and Forward Foreign Currency Contracts 1,359 (1,937) 558
Foreign Currencies (13) -- 20
------- ------- -------
Net Realized Gain 13,301 25,249 3,082
Change in Unrealized Appreciation/Depreciation on:
Investments (18,288) 4,892 (49,563)
Futures Contracts, Options and Forward Foreign Currency Contracts (248) 3,465 1,233
------- ------- -------
Net Change in Unrealized Appreciation/Depreciation (18,536) 8,357 (48,330)
------- ------- -------
NET GAIN (LOSS) ON INVESTMENTS (5,235) 33,606 (45,248)
------- ------- -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $39,708 $92,539 $ 9,058
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
STRONG SHORT-TERM STRONG SHORT-TERM HIGH
BOND FUND YIELD BOND FUND
----------------- ----------------------
INCOME:
<S> <C> <C>
Interest $ 95,400 $7,195
Dividends 5,805 41
-------- ------
Total Income 101,205 7,236
EXPENSES:
Investment Advisory Fees 8,397 540
Custodian Fees 49 5
Shareholder Servicing Costs 2,177 116
Federal and State Registration Fess 77 91
Other 115 40
-------- ------
Total Expenses 10,815 792
-------- ------
NET INVESTMENT INCOME 90,390 6,444
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 475 362
Futures Contracts, Options and Forward Foreign Currency Contracts (20,398) (30)
Foreign Currencies 25 --
-------- ------
Net Realized Gain (Loss) (19,898) 332
Change in Unrealized Appreciation/Depreciation on:
Investments (15,976) (2,353)
Futures Contracts, Options and Forward Foreign Currency Contracts 6,700 362
-------- ------
Net Change in Unrealized Appreciation/Depreciation (9,276) (1,991)
-------- ------
NET LOSS ON INVESTMENTS (29,174) (1,659)
-------- ------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $61,216 $4,785
======= ======
See Notes to Financial Statements.
26
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<CAPTION>
STRONG CORPORATE STRONG GOVERNMENT
BOND FUND SECURITIES FUND
---------------------------- ----------------------------
Year Ended Year Ended Year Ended Year Ended
Oct. 31, 1998 Oct. 31, 1997 Oct. 31, 1998 Oct. 31, 1997
------------- ------------- ------------- -------------
OPERATIONS:
<S> <C> <C> <C> <C>
Net Investment Income $ 44,943 $ 24,340 $1,058,933 $ 44,125
Net Realized Gain 13,301 12,133 25,249 11,201
Net Change in Unrealized Appreciation/Depreciation (18,536) 3,082 8,357 7,916
-------- -------- ---------- --------
Net Increase in Net Assets Resulting from Operations 39,708 39,555 92,539 63,242
DISTRIBUTIONS:
From Net Investment Income (44,943) (24,340) (58,933) (44,125)
In Excess of Net Investment Income (605) -- -- --
-------- -------- ---------- --------
Total Distributions (45,548) (24,340) (58,933) (44,125)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 594,283 290,340 834,332 426,918
Proceeds from Reinvestment of Distributions 38,336 19,815 51,706 37,418
Payment for Shares Redeemed (300,425) (130,685) (454,209) (277,671)
-------- -------- ---------- --------
Increase in Net Assets from Capital Share Transactions 332,194 179,470 431,829 186,665
-------- -------- ---------- --------
TOTAL INCREASE IN NET ASSETS 326,354 194,685 465,435 205,782
NET ASSETS:
Beginning of Year 492,293 297,608 843,467 637,685
-------- -------- ---------- --------
End of Year $818,647 $492,293 $1,308,902 $843,467
======== ======== ========== ========
TRANSACTIONS IN SHARES OF THE FUND:
Sold 52,726 26,715 76,823 40,687
Issued in Reinvestment of Distributions 3,400 1,833 4,773 3,570
Redeemed (26,709) (12,097) (41,806) (26,516)
------ ------ ------ ------
Net Increase in Shares of the Fund 29,417 16,451 39,790 17,741
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
STRONG HIGH-YIELD STRONG SHORT-TERM
BOND FUND BOND FUND
---------------------------- ----------------------------
Year Ended Year Ended Year Ended Year Ended
Oct. 31, 1998 Oct. 31, 1997 Oct. 31, 1998 Oct. 31, 1997
------------- ------------- ------------- -------------
OPERATIONS:
<S> <C> <C> <C> <C>
Net Investment Income $ 54,306 $ 35,544 $ 90,390 $1,387,171
Net Realized Gain (Loss) 3,082 15,012 (19,898) 3,621
Net Change in Unrealized Appreciation/Depreciation (48,330) 8,476 (9,276) (186)
-------- -------- ---------- ----------
Net Increase in Net Assets Resulting from Operations 9,058 59,032 61,216 90,606
DISTRIBUTIONS:
From Net Investment Income (54,306) (35,544) (90,390) (87,171)
In Excess of Net Investment Income (353) (9) (224) (244)
From Net Realized Gains (14,785) (3,167) -- --
-------- -------- ---------- ----------
Total Distributions (69,444) (38,720) (90,614) (87,415)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 675,258 820,857 576,621 620,442
Proceeds from Reinvestment of Distributions 56,535 30,446 75,870 72,872
Payment for Shares Redeemed (718,871) (578,653) (603,753) (534,521)
-------- -------- ---------- ----------
Increase in Net Assets from Capital Share Transactions 12,922 272,650 48,738 158,793
-------- -------- ---------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (47,464) 292,962 19,340 161,984
NET ASSETS:
Beginning of Year 509,964 217,002 1,309,795 1,147,811
-------- -------- ---------- ----------
End of Year $462,500 $509,964 $1,329,135 $1,309,795
======== ======== ========== ==========
TRANSACTIONS IN SHARES OF THE FUND:
Sold 56,756 70,489 59,071 63,352
Issued in Reinvestment of Distributions 4,758 2,617 7,768 7,441
Redeemed (61,112) (49,664) (61,901) (54,580)
------- ------- ------- -------
Net Increase in Shares of the Fund 402 23,442 4,938 16,213
======= ======= ======= =======
See Notes to Financial Statements.
27
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS (continued)
- ------------------------------------------------------------------------------------------------
(In Thousands)
<CAPTION>
STRONG SHORT-TERM HIGH
YIELD BOND FUND
----------------------------
Year Ended Year Ended
Oct. 31, 1998 Oct. 31, 1997
------------- -------------
(Note 1)
OPERATIONS:
<S> <C> <C>
Net Investment Income $ 6,444 $ 624
Net Realized Gain 332 255
Net Change in Unrealized Appreciation/Depreciation (1,991) (236)
-------- -------
Net Increase in Net Assets Resulting from Operations 4,785 643
DISTRIBUTIONS:
From Net Investment Income (6,444) (624)
From Net Realized Gains (256) --
-------- -------
Total Distributions (6,700) (624)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 153,366 55,814
Proceeds from Reinvestment of Distributions 5,490 292
Payment for Shares Redeemed (95,526) (11,306)
-------- -------
Increase in Net Assets from Capital Share Transactions 63,330 44,800
-------- -------
TOTAL INCREASE IN NET ASSETS 61,415 44,819
NET ASSETS:
Beginning of Year 44,819 --
-------- -------
End of Year $106,234 $44,819
======== =======
TRANSACTIONS IN SHARES OF THE FUND:
Sold 14,716 5,449
Issued in Reinvestment of Distributions 527 28
Redeemed (9,203) (1,100)
----- -----
Net Increase in Shares of the Fund 6,040 4,377
===== =====
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
October 31, 1998
1. ORGANIZATION
The Strong Income Funds consist of Strong Corporate Bond Fund, Inc., Strong
Government Securities Fund, Inc., Strong High-Yield Bond Fund (a series of
Strong Income Funds, Inc.), Strong Short-Term Bond Fund, Inc., and Strong
Short-Term High Yield Bond Fund (a series of Strong Income Funds, Inc.). The
Funds are diversified, open-end management investment companies registered
under the Investment Company Act of 1940. Strong Short-Term High Yield Bond
Fund commenced operations on July 1, 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements.
(A) Security Valuation -- Securities of the Funds are valued through
valuations obtained by a commercial pricing service or the mean of the
bid and asked prices, when no last sales price is available.
Securities for which market quotations are not readily available are
valued at fair value as determined in good faith under consistently
applied procedures established by and under the general supervision of
the Board of Directors. Securities which are purchased within 60 days
of their stated maturity are valued at amortized cost, which
approximates fair value.
The Funds may own certain investment securities which are restricted
as to resale. These securities are valued after giving due
consideration to pertinent factors including recent private sales,
market conditions and the issuer's financial performance. The Funds
generally bear the costs, if any, associated with the disposition of
restricted securities. Aggregate acquisition cost and fair value of
these restricted securities held at October 31, 1998 were as follows:
<TABLE>
<CAPTION>
Aggregate Aggregate Percent of
Cost Fair Value Net Assets Liquid*
------------ ------------ ---------- -------
<S> <C> <C> <C> <C>
STRONG CORPORATE BOND FUND $151,031,490 $147,052,394 18.0% 90.0%
STRONG GOVERNMENT SECURITIES FUND 38,909,858 39,036,766 3.0% 73.4%
STRONG HIGH-YIELD BOND FUND 118,795,659 108,836,116 23.5% 95.3%
STRONG SHORT-TERM BOND FUND 395,756,052 391,076,624 29.4% 81.8%
STRONG SHORT-TERM HIGH YIELD BOND FUND 16,061,882 15,671,310 14.8% 88.6%
</TABLE>
*Percentage of aggregate fair value of restricted securities is either
Section 4(2) commercial paper or is eligible for resale pursuant to
Rule 144A under the Securities Act of 1933 and also has been
determined to be liquid by the Advisor based upon guidelines
established by the Fund's Board of Directors.
(B) Federal Income and Excise Taxes and Distributions to Shareholders --
The Funds intend 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) Certain Investment Risks -- The Funds may utilize derivative
instruments including options, futures and other instruments with
similar characteristics to the extent that they are consistent with
the Fund's investment objectives and limitations. The Funds intend to
use such derivative instruments primarily to hedge or protect from
adverse movements in securities prices or interest rates. The use of
these instruments may involve risks such as the possibility of
illiquid markets or imperfect correlation between the value of the
instruments and the underlying securities, or that the counterparty
will fail to perform its obligations.
Foreign denominated assets and forward currency contracts may involve
greater risks than domestic transactions, including currency,
political and economic, regulatory and market risks.
29
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
October 31, 1998
(E) 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. Additional securities held by
the Funds may be designated as collateral on open futures contracts.
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.
(F) Options -- The Funds may write put or call 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.
(G) 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.
(H) 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.
(I) Repurchase Agreements -- The Funds may enter into repurchase
agreements with institutions that the Funds' investment advisor,
Strong Capital Management, Inc. ("the Advisor"), has determined are
creditworthy pursuant to criteria adopted by the Board of Directors.
Each repurchase agreement is recorded at cost. The Funds require that
the collateral, represented by securities (primarily U.S. Government
securities), purchased in a repurchase transaction be maintained in a
segregated account with a custodian bank in a manner sufficient to
enable the Funds to obtain those securities in the event of a default
of the repurchase agreement. On a daily basis, the Advisor monitors
the value of the collateral transferred under each repurchase
agreement to ensure the value of the collateral, including accrued
interest, exceeds the amounts owed to the Funds under each repurchase
agreement by at least 2%.
(J) Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts in these financial statements. Actual results could differ
from those estimates.
(K) Other -- Investment security transactions are recorded as of the trade
date. Dividend income and distributions to shareholders are recorded
on the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of premiums and discounts.
3. RELATED PARTY TRANSACTIONS
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 of the
respective Fund: Strong Government Securities Fund 0.60%, Strong Corporate
Bond Fund, Strong High-Yield Bond Fund, Strong Short-Term Bond Fund, and
Strong Short-Term High Yield Bond Fund 0.625%. Based on the terms of the
Advisory Agreements, advisory fees and other expenses will be waived by the
Advisor if the Fund's operating expenses exceed 2% of the average daily net
assets of the Fund. In addition, the Fund's Advisor may voluntarily waive
certain expenses at their discretion. Shareholder recordkeeping and related
service fees are based on contractually established rates for each open and
closed shareholder account. The Advisor is compensated for certain other
services related to costs incurred for reports to shareholders.
The Funds may invest cash reserves in money market funds sponsored and
managed by the Advisor, subject to certain limitations. The terms of such
transactions are identical to those of non-related entities except that, to
avoid duplicate investment advisory fees, advisory fees of each Fund
invested in such money market funds are reduced by an amount equal to
advisory fees paid to the Advisor under its investment advisory agreements
with the money market funds.
30
<PAGE>
- --------------------------------------------------------------------------------
Certain information regarding related party transactions, excluding the
effects of waivers and reimbursements, for the year ended October 31, 1998 is
as follows:
<TABLE>
<CAPTION>
Payable to Other Shareholder Unaffiliated
Advisor at Servicing Expenses Directors'
October 31, 1998 Paid to Advisor Fees
---------------- ------------------ ------------
<S> <C> <C> <C>
STRONG CORPORATE BOND FUND $ 64,060 $22,957 $ 6,441
STRONG GOVERNMENT SECURITIES FUND 114,368 5,368 9,969
STRONG HIGH-YIELD BOND FUND 54,810 6,055 6,441
STRONG SHORT-TERM BOND FUND 55,272 22,056 14,450
STRONG SHORT-TERM HIGH YIELD BOND FUND 96,867 998 1,525
</TABLE>
4. LINE OF CREDIT
The Funds have established a line of credit agreement ("LOC") with certain
financial institutions to be used for temporary or emergency purposes,
primarily for financing redemption payments. Combined borrowings among all
participating Strong Funds are subject to a $350 million cap on the total
line of credit. For individual Funds, borrowings under the LOC are limited
to either the lesser of 15% of the market value of total assets or any
explicit borrowing limits in the Fund's prospectus. Borrowings under the
LOC bear interest based on prevailing market rates as defined in the LOC. A
commitment fee of .07% per annum is incurred on the unused portion of the
line of credit and is allocated to all participating Strong Funds. At
October 31, 1998, there were no borrowings by the Funds outstanding under
the LOC.
5. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities for the year
ended October 31, 1998 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
---------------------------------- ----------------------------------
U.S. Government U.S. Government
and Agency Other and Agency Other
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
STRONG CORPORATE BOND FUND $1,018,135,549 $1,786,800,066 $1,024,632,764 $1,453,743,227
STRONG GOVERNMENT SECURITIES FUND 2,769,886,985 558,514,998 2,309,357,668 589,665,569
STRONG HIGH-YIELD BOND FUND -- 1,304,634,403 -- 1,294,670,349
STRONG SHORT-TERM BOND FUND 375,331,681 1,480,243,008 357,970,767 1,448,931,052
STRONG SHORT-TERM HIGH YIELD BOND FUND -- 214,465,930 -- 154,850,460
</TABLE>
6. INCOME TAX INFORMATION
At October 31, 1998, the investment cost, gross unrealized appreciation and
depreciation on investments and capital loss carryovers (expiring in
varying amounts through 2006) for federal income tax purposes were as
follows:
<TABLE>
<CAPTION>
Net
Federal Tax Unrealized Unrealized Appreciation/ Net Capital Loss
Cost Appreciation Depreciation (Depreciation) Carryovers
-------------- ------------ ------------ -------------- ----------------
<S> <C> <C> <C> <C> <C>
STRONG CORPORATE BOND FUND $ 821,680,036 $13,117,624 $22,673,905 ($9,556,281) $ 7,180,022
STRONG GOVERNMENT SECURITIES FUND 1,318,206,193 30,770,219 8,765,507 22,004,712 --
STRONG HIGH-YIELD BOND FUND 504,220,399 4,930,588 41,919,184 (36,988,596) --
STRONG SHORT-TERM BOND FUND 1,324,453,795 23,944,947 25,641,396 (1,696,449) 96,417,466
STRONG SHORT-TERM HIGH YIELD BOND FUND 106,081,209 67,923 2,813,568 (2,745,645) --
</TABLE>
During the year ended October 31, 1998, the Funds paid no capital gain
distributions (taxable as long-term capital gains at 20%) to shareholders.
For corporate shareholders in the Funds, the percentage of dividend income
distributed for the period ended October 31, 1998 which is designated as
qualifying for the dividends-received deduction is as follows (unaudited):
Strong Corporate Bond Fund 3.5%, Strong Government Securities Fund 2.0%,
Strong High-Yield Bond Fund 6.9%, Strong Short-Term Bond Fund 4.1%, and
Strong Short-Term High Yield Bond Fund 0.0%.
31
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------------------------------
STRONG CORPORATE BOND FUND
- --------------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA (a)
--------------------------------------------------------------------------------------------------
Income From Investment Operations Less Distributions
------------------------------------ -------------------------------------
<CAPTION>
Net Realized
Net Asset and Unrealized Total In Excess Net Asset
Value, Net Gains from From Net of Net Value,
Beginning Investment (Losses) on Investment Investment Investment Total End of
Year Ended of Period Income Investments Operations Income Income Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oct. 31, 1998 $11.08 $0.73 $0.02 $0.75 ($0.73) ($0.01) ($0.74) $11.09
Oct. 31, 1997 10.64 0.74 0.44 1.18 (0.74) -- (0.74) 11.08
Oct. 31, 1996 10.56 0.73 0.08 0.81 (0.73) -- (0.73) 10.64
Oct. 31, 1995 (b) 9.36 0.63 1.22 1.85 (0.63) (0.02) (0.65) 10.56
Dec. 31, 1994 10.24 0.73 (0.87) (0.14) (0.73) (0.01) (0.74) 9.36
</TABLE>
Ratios and Supplemental Data
---------------------------------------------------------
Net Ratio of Net
Assets, Ratio of Investment
End of Expenses Income Portfolio
Total Period (In to Average to Average Turnover
Year Ended Return Millions) Net Assets Net Assets Rate
Oct. 31, 1998 +6.8% $819 0.9% 6.5% 366.9%
Oct. 31, 1997 +11.5% 492 1.0% 6.8% 542.4%
Oct. 31, 1996 +8.0% 298 1.0% 7.0% 672.8%
Oct. 31, 1995 (b) +20.3% 218 1.0%* 7.5%* 621.4%
Dec. 31, 1994 -1.3% 123 1.1%* 7.6%* 603.0%
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the Fund
outstanding for the entire period.
(b) In 1995, the Fund changed its fiscal year end from December to October.
Total return and portfolio turnover rate are not annualized.
<TABLE>
STRONG GOVERNMENT SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA (a)
---------------------------------------------------------------------------------------------------
Income From Investment Operations Less Distributions
------------------------------------- -------------------------------------
<CAPTION>
Net Realized
Net Asset and Unrealized Total In Excess Net Asset
Value, Net Gains from From Net of Net Value,
Beginning Investment (Losses) on Investment Investment Investment Total End of
Year Ended of Period Income Investments Operations Income Income Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C>
Oct. 31, 1998 $10.70 $0.60 $0.34 $0.94 ($0.60) -- ($0.60) $11.04
Oct. 31, 1997 10.44 0.65 0.26 0.91 (0.65) -- (0.65) 10.70
Oct. 31, 1996 10.60 0.63 (0.16) 0.47 (0.63) -- (0.63) 10.44
Oct. 31, 1995 (b) 9.63 0.54 0.99 1.53 (0.54) ($0.02) (0.56) 10.60
Dec. 31, 1994 10.61 0.62 (0.98) (0.36) (0.62) -- (0.62) 9.63
</TABLE>
Ratios and Supplemental Data
---------------------------------------------------------
Net Ratio of Net
Assets, Ratio of Investment
End of Expenses Income Portfolio
Total Period (In to Average to Average Turnover
Year Ended Return Millions) Net Assets Net Assets Rate
Oct. 31, 1998 +9.1% $1,309 0.8% 5.5% 284.1%
Oct. 31, 1997 +9.1% 843 0.8% 6.2% 474.9%
Oct. 31, 1996 +4.6% 638 0.9% 6.0% 457.6%
Oct. 31, 1995 (b) +16.2% 456 0.9%* 6.2%* 409.2%
Dec. 31, 1994 -3.4% 277 0.9% 6.2% 479.0%
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the Fund
outstanding for the entire period.
(b) In 1995, the Fund changed its fiscal year end from December to October.
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 Asset Net Realized Total In Excess Net Asset
Value, Net and Unrealized from From Net of Net From Net Value,
Beginning Investment Gains (Losses) on Investment Investment Investment Realized Total End of
Year Ended of Period Income Investments Operations Income Income Gains Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Oct. 31, 1998 $11.94 $1.05 ($0.89) $0.16 ($1.04) ($0.01) ($0.32) ($1.37) $10.73
Oct. 31, 1997 11.26 1.05 0.81 1.86 (1.05) -- (0.13) (1.18) 11.94
Oct. 31, 1996 (b) 10.00 0.84 1.26 2.10 (0.84) -- -- (0.84) 11.26
</TABLE>
<TABLE>
Ratios and Supplemental Data
---------------------------------------------------------------------------
<CAPTION>
Net Ratio of Net
Assets, Ratio of Ratio of Expenses Investment
End of Expenses to Average Net Income Portfolio
Total Period (In to Average Assets Without to Average Turnover
Year Ended Return Millions) Net Assets Waivers Net Assets Rate
<S> <C> <C> <C> <C> <C> <C>
Oct. 31, 1998 +0.9% $462 0.8% 0.8% 8.8% 224.4%
Oct. 31, 1997 +17.3% 510 0.6% 0.8% 8.9% 409.3%
Oct. 31, 1996 (b) +21.7% 217 0.0%* 1.0%* 9.6%* 390.8%
* 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 period from January 1, 1996 (commencement of operations) to October
31, 1996.
</TABLE>
See Notes to Financial Statements.
32
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- --------------------------------------------------------------------------------------------------------------------
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 Value,
Beginning Investment (Losses) on Investment Investment Investment Total End of
Year Ended of Period Income Investments Operations Income Income Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oct. 31, 1998 $ 9.78 $0.66 ($0.21) $0.45 ($0.66) ($0.00)(c) ($0.66) $9.57
Oct. 31, 1997 9.75 0.69 0.03 0.72 (0.69) -- (0.69) 9.78
Oct. 31, 1996 9.77 0.69 (0.02) 0.67 (0.69) -- (0.69) 9.75
Oct. 31, 1995 (b) 9.42 0.56 0.35 0.91 (0.56) -- (0.56) 9.77
Dec. 31, 1994 10.23 0.64 (0.80) (0.16) (0.65) -- (0.65) 9.42
</TABLE>
Ratios and Supplemental Data
---------------------------------------------------------
Net Ratio of Net
Assets, Ratio of Investment
End of Expenses Income Portfolio
Total Period (In to Average to Average Turnover
Year Ended Return Millions) Net Assets Net Assets Rate
Oct. 31, 1998 +4.7% $1,329 0.8% 6.7% 138.3%
Oct. 31, 1997 +7.6% 1,310 0.9% 7.0% 193.8%
Oct. 31, 1996 +7.1% 1,148 0.9% 7.1% 191.5%
Oct. 31, 1995 (b) +9.9% 1,083 0.9%* 7.0%* 317.1%
Dec. 31, 1994 -1.6% 1,041 0.9% 6.5% 249.7%
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the Fund
outstanding for the entire period.
(b) Total return and portfolio turnover rate are not annualized. In 1995, the
Fund changed its fiscal year end from December to October.
(c) Amount calculated is less than $0.01.
<TABLE>
STRONG SHORT-TERM HIGH YIELD BOND FUND
- ------------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA (a)
---------------------------------------------------------------------------------------------------
Income From Investment Operations Less Distributions
------------------------------------- -------------------------------------
<CAPTION>
Net Realized
Net Asset and Unrealized Total Net Asset
Value, Net Gains from From Net From Net Value,
Beginning Investment on Investment Investment Realized Total End of
Year Ended of Period Income Investments Operations Income Gains Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oct. 31, 1998 $10.24 $0.77 $0.01 $0.78 ($0.77) ($0.05) ($0.82) $10.20
Oct. 31, 1997 (b) 10.00 0.25 0.24 0.49 (0.25) -- (0.25) 10.24
</TABLE>
Ratios and Supplemental Data
---------------------------------------------------------
Net Ratio of Net
Assets, Ratio of Investment
End of Expenses Income Portfolio
Total Period (In to Average to Average Turnover
Year Ended Return Millions) Net Assets Net Assets Rate
Oct. 31, 1998 +7.7% $106 0.9% 7.4% 190.1%
Oct. 31, 1997 (b) +4.9% 45 1.0% 7.7% 96.2%
* 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 period from July 1, 1997 (commencement of operations) to October
31, 1997. Total return and portfolio turnover rate are not annualized.
See Notes to Financial Statements.
33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of the
Strong Income Funds
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Strong High-Yield Bond Fund, Strong
Short-Term High Yield Bond Fund (two of the portfolios constituting Strong
Income Funds, Inc.), Strong Corporate Bond Fund, Inc., Strong Government
Securities Fund, Inc., and Strong Short-Term Bond Fund, Inc. at October 31,
1998, the results of each of their operations, the changes in each of their net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
December 8, 1998
34
<PAGE>
NOTES
- --------------------------------------------------------------------------------
35
<PAGE>
NOTES
- --------------------------------------------------------------------------------
36
<PAGE>
DIRECTORS
Richard S. Strong
Willie D. Davis
Stanley Kritzik
Marvin E. Nevins
William F. Vogt
OFFICERS
Richard S. Strong, Chairman of the Board
Mary F. Hoppa, Vice President
Thomas P. Lemke, Vice President
John S. Weitzer, Vice President
Stephen J. Shenkenberg, Vice President and Secretary
Dana J. Russart, 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
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
100 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.strongfunds.com
[STRONG LOGO]
STRONG FUNDS
P.O. Box 2936 o Milwaukee, Wisconsin 53201
Strong Funds Distributors, Inc. 9781K98 AINC
