<PAGE>
THE STRONG
----------
MUNICIPAL INCOME
FUNDS
===================================
ANNUAL REPORT o AUGUST 31, 1998
===================================
THE STRONG HIGH-YIELD MUNICIPAL BOND FUND
THE STRONG MUNICIPAL BOND FUND
THE STRONG SHORT-TERM HIGH YIELD MUNICIPAL FUND
THE STRONG SHORT-TERM MUNICIPAL BOND FUND
[PHOTO OF STRONG FUNDS BUILDING]
[STRONG LOGO]
STRONG FUNDS
<PAGE>
8
EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING
These common-sense rules are followed by many successful investors. They make
sense for beginners, too. If you have a question on these principles, or would
like to discuss them with us, please contact us at 1-800-368-3863. We're here
24 hours a day, seven days a week to take your call.
- -------------------------------------------------------------------------------
[PICTURE OF FOLDER LABELED INVESTMENTS]
1. HAVE A PLAN. Even a simple plan can help you take control of your financial
future. Review your plan once a year, or if your circumstances change.
- -------------------------------------------------------------------------------
[PICTURE OF CLOCK]
2. START INVESTING AS SOON AS POSSIBLE. Make time a valuable ally. Let it put
the power of compounding to work for you, while helping to reduce your
potential investment risk.
- -------------------------------------------------------------------------------
[PICTURE OF PIE CHART OF ASSET DIVERSIFICATION]
3. DIVERSIFY YOUR PORTFOLIO. By investing in different asset classes - stocks,
bonds, and cash - you help protect against poor performance in one type of
investment while including investments most likely to help you achieve your
important goals.
- -------------------------------------------------------------------------------
[PICTURE OF MEMO REMINDER TO INVEST]
4. INVEST REGULARLY. Investing is a process, not a one-time event. By
investing regularly over the long term, you reduce the impact of short-term
market gyrations, and you attend to your long-term plan before you're tempted
to spend those assets on short-term needs.
- -------------------------------------------------------------------------------
[PICTURE OF GRAPH SLOPING UPWARD]
5. MAINTAIN A LONG-TERM PERSPECTIVE. For most individuals, the best discipline
is staying invested as market conditions change. Reactive, emotional investment
decisions are all too often a source of regret - and of principal loss.
- -------------------------------------------------------------------------------
[PICTURE OF PIE CHART OF ASSET DIVERSIFICATION EMPHASIZING STOCKS]
6. CONSIDER STOCKS TO HELP ACHIEVE MAJOR LONG-TERM GOALS. Over time, stocks
have provided the more powerful returns needed to help the value of your
investments stay well ahead of inflation.
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[PICTURE OF DOLLAR SIGN]
7. KEEP A COMFORTABLE AMOUNT OF CASH IN YOUR PORTFOLIO. To meet current needs,
including emergencies, use a money market fund or a bank account - not your
long-term investment assets.
- -------------------------------------------------------------------------------
[PICTURE OF MAGNIFYING GLASS]
8. KNOW WHAT YOU'RE BUYING. Make sure you understand the potential risks and
rewards associated with each of your investments. Ask questions...request
information...make up your own mind. And choose a fund company that helps you
make informed investment decisions.
<PAGE>
THE STRONG
----------
MUNICIPAL INCOME
FUNDS
===================================
ANNUAL REPORT o AUGUST 31, 1998
===================================
TABLE OF CONTENTS
INVESTMENT REVIEWS
The Strong High-Yield Municipal Bond ................................... 2
The Strong Municipal Bond Fund.......................................... 4
The Strong Short-Term High Yield Municipal Fund......................... 6
The Strong Short-Term Municipal Bond Fund............................... 8
FINANCIAL INFORMATION
Schedules of Investments in Securities
The Strong High-Yield Municipal Bond Fund...........................10
The Strong Municipal Bond Fund......................................14
The Strong Short-Term High Yield Municipal Fund.....................17
The Strong Short-Term Municipal Bond Fund...........................20
Statements of Assets and Liabilities....................................24
Statements of Operations................................................25
Statements of Changes in Net Assets.....................................26
Notes to Financial Statements...........................................27
FINANCIAL HIGHLIGHTS.........................................................30
REPORT OF INDEPENDENT ACCOUNTANTS............................................32
<PAGE>
=========================================
THE STRONG HIGH-YIELD MUNICIPAL BOND FUND
=========================================
LOWER-RATED SECURITIES CONTINUED TO BE AMONG THE BEST PERFORMERS DURING THE PAST
SIX MONTHS...
The Strong High-Yield Municipal Bond Fund seeks total return by investing in
medium and lower quality securities to produce a high level of federally
tax-exempt income.
The Strong High-Yield Municipal Bond Fund returned 10.50% for the year ending
8/31/98. This performance compares quite favorably with both our benchmark, the
High-Yield Municipal Bond Index, which returned 10.09%; and our peer group of
funds as measured by the Lipper High Yield Municipal Debt Funds Index, which
returned 8.87%.*
=======================================
PORTFOLIO STATISTICS
=======================================
As of 8-31-98
30-DAY ANNUALIZED YIELD(1) 5.54%
AVERAGE MATURITY(2) 12.3 YEARS
AVERAGE QUALITY RATING(3) BB
=======================================
BOND MARKETS CLOSE FISCAL YEAR ON VOLATILE NOTE
The past six months have been marked by volatility in the bond markets. Earlier
this year, interest rates rose on the belief that the U.S. economy was
strengthening. On February 28, 1998, the 30-year U.S Treasury bond stood at a
yield of 5.92%. By August 31, 1998, the yield had dropped to 5.27%.
Foreign markets dominated market action, and Treasury bond prices soared as the
flow of funds from Asia, Russia, and other crumbling foreign markets sought
the safety of the U.S. The U.S. economy, because of its stability, had little
impact on the bond market. However, signs are emerging that the Asian crisis
is affecting the U.S. economy.
================================================================================
EQUIVALENT TAXABLE YIELDS
================================================================================
As of 8-31-98
Your tax-exempt effective
Marginal yield of 5.54% is equivalent
Joint Return Single Return Tax Rate to a taxable yield of:
- -------------------------------------------------------------------------------
$42,351-102,300 $25,351-61,400 28.0% 7.69%
...............................................................................
$102,301-155,950 $61,401-128,100 31.0% 8.03%
...............................................................................
$155,951-278,450 $128,101-278,450 36.0% 8.66%
...............................................................................
Over $278,450 Over $278,450 39.6% 9.17%
...............................................................................
The chart reflects 1998 marginal federal tax rates before limitations and
phase-outs. Individuals with adjusted gross income in excess of $124,500
should consult their tax advisor to determine their actual 1998 marginal tax
rate. The Fund's income may be subject to state and local taxes and, depending
on your tax status, the Alternative Minimum Tax.
================================================================================
The trade deficit is widening, possibly signaling a slowdown in the U.S.
economy. Over the past six months, commodity prices have fallen substantially,
and price inflation continues to be moderate. These combined factors resulted in
an unchanged Federal Funds rate over the last six months.
TAX-EXEMPT VS. TREASURY MARKETS: HOW THEY PERFORMED
The impact of the emerging markets crisis on the U.S. bond markets was most
evident in the divergent paths taken by the tax-exempt and Treasury markets.
Safe-haven buying drove the yield on the long Treasury bond to the lowest levels
seen since the U.S. started selling 30-year bonds in 1977. In addition, Treasury
yields were further propelled by a decline in issuance, resulting in fewer bonds
to meet strong demand.
The municipal market was affected by other factors. Increased supply continued
to cause municipals to underperform Treasury securities. Both refunding activity
and new issuance in the municipal markets remained robust, as low rates and the
booming economy helped issuers sell bonds. With their state and local coffers
bulging, a sign of the good economic times, municipalities rushed to issue new
debt at the current low rates.
A CONSISTENT INVESTMENT STRATEGY
An important part of our strategy involves evaluating credits on an individual
basis as well as a sector basis. We can spend months researching and evaluating
a credit before actually purchasing it. Thus, we are less likely to trade
securities we purchase for a short-term gain.
In an attempt to lock in higher yields, new money inflows into the Fund over the
past six months were invested in non-rated or below-investment grade rated
securities. This strategy resulted in a decline of the average quality rating to
BB from BBB. On a yield basis, the lower-rated securities had not moved much at
the close of the fiscal year, and remained attractive both from a credit
perspective and yield perspective. Lower-rated securities continued to be among
the best performers during the past six months, as credit spread narrowed and
demand for higher yielding securities drove prices higher.
2
<PAGE>
We continue to favor investment themes as a basis for sector selection. Our
largest sector holding, at 18%, continues to be retirement housing, playing off
our aging of America theme. We have favored this sector for several years and
it has proved to be an attractive investment vehicle. Our second largest
holding is tax-exempt corporate-backed credits, which allow the Fund to
diversify out of traditional municipal risk. Our current holdings in this sector
tend to favor the domestic airline industry which is having a financially strong
year. Our third largest investment theme is transportation (typically highways
and toll roads in major metropolitan areas) at 9.7%.
POSITIVE OUTLOOK FOR YEAR AHEAD
We continue to believe that the bond market environment is a positive one.
Moderate growth should give way to a slowing economy. This, combined with the
current foreign economic turmoil, should cause long-term interest rates to trade
around current levels.
Municipal securities are extremely attractive on a historical basis vs. taxable
alternatives, and deserve a second look. Supply volume is expected to slow
into the new year, and we believe municipals should outperform taxable
securities as they return to a more normal trading spread vs. taxable
securities.
We will continue to focus our efforts on higher-yielding securities in an
attempt to lock in yields. Since the Fund's main focus is tax-free income, these
types of securities should be good performers in the flat-to-falling interest
rate environment we foresee.
Sincerely,
/s/ Mary-Kay H. Bourbulas
Mary-Kay H. Bourbulas
Portfolio Manager
[PHOTO OF MARY-KAY H. BOURBULAS]
===============================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
===============================================================================
From 10-1-93 to 8-31-98
[GRAPH]
THE STRONG High-Yield Lipper High Yield
HIGH-YIELD MUNICIPAL Municipal Bond Municipal Debt
BOND FUND Index* Funds Index*
9-93 10,000 10,000 10,000
12-93 10,266 10,164 10,141
12-94 10,165 9,609 9,637
12-95 11,651 11,362 11,245
12-96 12,248 11,867 11,674
12-97 13,949 13,165 12,816
8-98 14,602 13,859 13,385
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with similar investments in the
High-Yield Municipal Bond Index and the Lipper High Yield Municipal Debt 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.
===============================================================================
==================================
AVERAGE ANNUAL
TOTAL RETURNS
==================================
As of 8-31-98
1-YEAR 10.50%
3-YEAR 9.43%
SINCE INCEPTION 8.00%
(on 10-1-93)
==================================
* The High-Yield Municipal Bond Index is comprised of the Lehman Brothers Baa
Municipal Bond Index from inception through December 31, 1995, and the Lehman
Brothers High-Yield Municipal Bond Index from January 1, 1996 to present. The
Lehman Brothers Baa Municipal Bond Index is an unmanaged index generally
representative of municipal bonds rated Baa. The Lehman Brothers High-Yield
Municipal Bond Index, which was instituted on January 1, 1996, is an unmanaged
index generally representative of municipal bonds rated below Baa. The Lipper
High Yield Municipal Debt Funds Index is an equally-weighted performance index
of the largest qualifying funds in this Lipper category. Source of the
High-Yield Index data is Lehman Brothers. Source of the Lipper index data is
Lipper Analytical Services, Inc.
(1) Yield is annualized for the 30 days ended 8-31-98, is historical, and will
vary.
(2) The Fund's average maturity includes the effect of futures and when-issued
securities.
(3) For purposes of this average rating, the Fund's short-term debt obligations
have been assigned long-term ratings by the Advisor.
3
<PAGE>
==============================
THE STRONG MUNICIPAL BOND FUND
==============================
MAINTAINING A HEALTHY YIELD IN A TIME OF DECLINING INTEREST RATES--WITHOUT
COMPROMISING THE INTEGRITY OF THE FUND'S SHARE PRICE--HAS BEEN OUR FOCUS.
The Strong Municipal Bond Fund seeks total return by investing for a high level
of federally tax-exempt current income with a moderate degree of share- price
fluctuation.
For the year ended August 31, 1998, the Fund posted a return of 10.14%, well
ahead of the 8.65% return of the Lehman Brothers Municipal Bond Index and the
8.60% return of the Lipper General Municipal Debt Funds Index.*
=========================================
PORTFOLIO STATISTICS
=========================================
As of 8-31-98
30-DAY ANNUALIZED YIELD(1) 4.82%
AVERAGE MATURITY(2) 11.6 YEARS
AVERAGE QUALITY RATING(3) A
=========================================
DECLINING INTEREST RATES
Over the course of the past year, longer-term bond rates generally declined.
From the beginning of the fiscal year in September through early January, they
dropped at a fairly steady pace, with yields on 30-year Treasuries falling from
a high of approximately 6.7% to 5.7%. Rates then entered a period of
consolidation, with 30-year Treasury yields fluctuating mostly within a band
between 5.8% and 6.0%. In May, rates again began to decline at a steady pace.
That pace accelerated in August, when stocks' volatility drove investors to
bonds as a refuge.
To position the Fund appropriately for this environment, we have slightly
increased the Fund's sensitivity to interest-rate changes (as measured by
duration). The Fund's duration now stands at 6.5, up from 6.3 last September.
================================================================================
EQUIVALENT TAXABLE YIELDS
================================================================================
As of 8-31-98
Your tax-exempt effective
Marginal yield of 5.54% is equivalent
Joint Return Single Return Tax Rate to a taxable yield of:
- -------------------------------------------------------------------------------
$42,351-102,300 $25,351-61,400 28.0% 6.69%
...............................................................................
$102,301-155,950 $61,401-128,100 31.0% 6.99%
...............................................................................
$155,951-278,450 $128,101-278,450 36.0% 7.53%
...............................................................................
Over $278,450 Over $278,450 39.6% 7.98%
...............................................................................
The chart reflects 1998 marginal federal tax rates before limitations and
phase-outs. Individuals with adjusted gross income in excess of $124,500
should consult their tax advisor to determine their actual 1998 marginal tax
rate. The Fund's income may be subject to state and local taxes and, depending
on your tax status, the Alternative Minimum Tax.
================================================================================
YIELD, WITH A FOCUS ON QUALITY
Maintaining a healthy yield in a time of declining interest rates--without
compromising the integrity of the Fund's share price--has been our focus. We
employ several means to deliver strong yield without undue risk. For example, we
continue to work with smaller, regional brokerages as well as large Wall Street
firms. These specialized brokers often offer better yields.
To capitalize on falling interest rates, we have been investing in "when-issued"
securities, which represent purchases of bonds that will be issued at a future
date. The transaction is booked and a price attached to the bond, but the Fund
does not actually pay for the bond until it is issued. Our small position in
when-issued securities allows us to benefit from potential price appreciation on
these bonds as interest rates decline, yet is liquid enough to trade out of
should there be an unexpected reversal in rates' direction.
We also continue to invest in bonds whose income is subject to the Alternative
Minimum Tax (AMT). AMT paper makes up an ever-increasing proportion of the
municipal market, including some of the most attractive issues. Even after
considering the effects of the AMT, we believe that overall these bonds'
benefits can outweigh their costs.
Nearly half of the Fund's assets are invested in bonds that are rated AAA, AA,
or A. Quality remains a priority in the portfolio. However, to give the Fund
greater flexibility, the Fund's prospectus was changed effective January 1, 1998
to increase the percentage of assets that may be allocated to non-investment-
grade issues to 15% from 5%. We use the Fund's non-investment-grade allowance
selectively, and don't anticipate adding to our position for the foreseeable
future. As of August 31, 1998 the Fund had a 9.4% position in non-investment-
grade issues.
ISSUE SELECTION IS OUR FOCUS
Issue selection driven by bond-by-bond research remains at the center of our
management strategy. In our opinion, this focus on issue selection is
responsible for the Fund's wide margin of outperformance over its benchmark and
peer group over the past year.
Municipal bonds aren't traded on any central exchange, which gives my team and
me many opportunities to add value--but doesn't give us the benefit of a central
market to help set prices. We meet this challenge with a team approach to
municipal investing, which allows us to combine issue-by-issue research,
vigorous negotiation of prices, and big-picture perspective.
4
<PAGE>
LONGER-TERM MUNIS ARE ATTRACTIVE NOW
Recent economic and market conditions have municipal investments, especially
longer-term bonds, remarkably attractive relative to taxable bonds. The spread,
or difference, between yields on 30-year AAA municipal bonds and those on
30-year Treasury bonds is now very small--meaning that long-term muni investors
are giving up much less in yield than they are likely to gain in tax
advantages.
Typically, a 30-year AAA municipal bond might have a yield that's about 82% of
the yield paid by a similar-maturity Treasury. As of August 31, however, the
30-year AAA municipal bond's yield was running at more than 92% of the Treasury
yield. Of course, we believe in the merits of carefully selected municipal
investments even when the difference in yield is greater. When it's this small,
however, the benefits of selective municipal investing are clear for all to see.
LOOKING AHEAD
Over the course of the past year, it's become more likely that the Federal
Reserve may ease interest rates to help overcome the economic slowing that has
resulted from continued woes in Asia and new troubles in Russia and Latin
America. It's our belief that these problems are not yet fully reflected in the
American economy and markets. More economic slowing and further declines in
interest rates may very well be on the way.
We believe the Fund is positioned appropriately for this challenging
environment, and don't intend to significantly change our investment approach
unless conditions take an unforeseen turn.
Thank you for your investment in the Strong Municipal Bond Fund. We look forward
to helping you pursue your important investment goals in the years to come.
Sincerely,
/s/ Steven D. Harrop
Steven D. Harrop
Portfolio Manager
[PHOTO OF STEVEN D. HARROP]
================================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
================================================================================
From 10-23-86 to 8-31-98
[GRAPH]
THE STRONG Lehman Brothers Lipper General
MUNICIPAL BOND Municipal Bond Municipal Debt
FUND Index* Funds Index*
9-86 10,000 10,000 10,000
12-86 10,129 10,216 10,253
12-88 10,705 11,423 11,370
12-90 11,995 13,578 13,253
12-92 15,257 16,568 16,170
12-94 16,275 17,640 17,083
12-96 18,570 21,641 20,757
8-98 21,848 24,703 23,671
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with similar investments in the
Lehman Brothers Municipal Bond Index and the Lipper General Municipal Debt 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 October 1986.
================================================================================
==================================
AVERAGE ANNUAL
TOTAL RETURNS
==================================
As of 8-31-98
1-YEAR 10.14%
5-YEAR 5.62%
10-YEAR 7.64%
SINCE INCEPTION 6.81%
(on 10-23-86)
==================================
* The Lehman Brothers Municipal Bond Index is an unmanaged index generally
representative of investment-grade, tax-exempt bonds. The Lipper General
Municipal Debt Funds Index is an equally-weighted performance index of the
largest qualifying funds in this Lipper category. Source of the Lehman index
data is Standard & Poor's Micropal. Source of the Lipper index data is Lipper
Analytical Services, Inc.
1 Yield is annualized for the 30 days ended 8-31-98, is historical, and will
vary.
2 The Fund's average maturity includes the effect of futures and when-issued
securities.
3 For purposes of this average rating, the Fund's short-term debt obligations
have been assigned long-term ratings by the Advisor.
5
<PAGE>
===============================================
THE STRONG SHORT-TERM HIGH YIELD MUNICIPAL FUND
===============================================
LOWER-RATED SECURITIES ARE ATTRACTIVE BOTH FROM A CREDIT PERSPECTIVE AND YIELD
PERSPECTIVE.
The Strong Short-Term High Yield Municipal Fund seeks total return by investing
in medium- and lower-quality securities to produce a high level of federally
tax-exempt income with a moderate degree of share-price fluctuation. In the
nine-month period since its inception on November 30, 1997 through August 31,
1998, the Strong Short-Term High Yield Municipal Fund returned 5.48%.(1) This
performance compares quite favorably with our benchmark, the Lehman Brothers 1-3
Year Non-Investment Grade Municipal Bond Index, which returned 4.13% for the
period.*
========================================
PORTFOLIO STATISTICS
========================================
As of 8-31-98
30-DAY ANNUALIZED YIELD(2) 4.92%
AVERAGE MATURITY(3) 2.3 YEARS
AVERAGE QUALITY RATING(4) BBB
========================================
THE FUND'S SHORT MATURITY SHELTERED IT FROM MARKET VOLATILITY
Over the past six months, the bond market has been dominated by foreign-market
action. Treasury bond prices soared as the flow of funds from Asia, Russia, and
other crumbling foreign markets sought the safety of the U.S. The U.S. economy,
because of its stability, had little impact on the bond market. However, the
trade deficit did widen, which may be an early indicator of a slowdown in the
U.S. economy. Over the past six months, commodity prices have fallen, and price
inflation continued to be moderate. As a result, the Federal Funds rate has been
unchanged over the last six months.
================================================================================
EQUIVALENT TAXABLE YIELDS
================================================================================
As of 8-31-98
Your tax-exempt effective
Marginal yield of 5.54% is equivalent
Joint Return Single Return Tax Rate to a taxable yield of:
- -------------------------------------------------------------------------------
$42,351-102,300 $25,351-61,400 28.0% 6.83%
...............................................................................
$102,301-155,950 $61,401-128,100 31.0% 7.13%
...............................................................................
$155,951-278,450 $128,101-278,450 36.0% 7.69%
...............................................................................
Over $278,450 Over $278,450 39.6% 8.15%
...............................................................................
The chart reflects 1998 marginal federal tax rates before limitations and
phase-outs. Individuals with adjusted gross income in excess of $124,500
should consult their tax advisor to determine their actual 1998 marginal tax
rate. The Fund's income may be subject to state and local taxes and, depending
on your tax status, the Alternative Minimum Tax.
================================================================================
The portfolio's outperformance versus its index was due primarily to its average
maturity of 2.3 years and the high average coupon profile of 6.05%. The Fund's
return since inception is heavily weighted in the income component, and to a
lesser extent, share price appreciation. The Fund's strategy is to maximize
current income. As such, approximately 66% of the securities held are non-rated.
Non-rated securities offer higher yields than comparable securities with a
higher rating by one of the major rating agencies.
The impact of the emerging markets crisis on the U.S. bond markets was very
evident in the divergent paths of the tax-exempt and Treasury markets.
Safe-haven buying drove treasury yields lower, with municipals following at a
much slower pace. As a result, municipal yields increased as a percent of
Treasury security yields, making municipal securities more attractive when
compared to taxable alternatives. Lower municipal rates have prompted issuers to
refinance existing debt, and borrow new funds to finance new projects. This
increased supply also contributed to municipals underperformance versus Treasury
securities. Going forward, borrowing needs should slow into the new year.
Historically, municipals look attractive versus taxable alternatives for finite
periods. We would expect the municipal/treasury ratio to move back into a more
normal range as investors realize their attractiveness.
A STRATEGY BASED ON CAREFUL RESEARCH
An important part of our strategy involves evaluating credits on an individual
basis as well as a sector basis. We can spend months researching and evaluating
a credit before actually purchasing it. Thus, we are less likely to trade
securities we purchase for a short-term gain.
New money inflows into the Fund were strong over the past six months. Since part
of our investment process involves a significant amount of credit research,
often including on-site visits, new money inflows are not typically committed
quickly. The new money influx raised the overall credit quality of the fund from
BB to BBB. We anticipate the overall rating falling back to BB as we close on
new purchases in the next fiscal year.
In terms of sector plays, we continue to favor retirement housing as a play on
the aging of America theme. Retirement housing accounts for 23% of the Fund and
is our largest sector play. As America's Baby Boomers age, their needs in terms
6
<PAGE>
of housing will be different than in the past. Retirement housing, housing
geared toward those 55 and older, is an increasing trend in this country. We
tend to favor projects that target affluent seniors in high-net-worth areas
around the country. These facilities offer security and peace of mind, typically
encompassing the needs of seniors who are independent as well as those who
require assistance with daily tasks. Our second largest sector play is
tax-exempt corporate-backed credits at 21%. These credits are backed by
corporations. Typically, bond proceeds were used to finance pollution control
devices. They allow us a way to diversify out of traditional municipal risk-
on a tax-free basis.
Lower-rated municipal securities have not participated in a meaningful way in
the downward movement of interest rates. Thus, non-rated or lower-rated
securities are attractive both from a credit perspective and yield perspective.
WE'RE OPTIMISTIC ABOUT THE MARKET AHEAD
We continue to believe that the environment for the bond market is a positive
one. Moderate growth should give way to a slowing economy. This combined with
current foreign economic turmoil should cause long-term interest rates to trade
around current levels. Given current worldwide conditions, it is possible that
the Federal Reserve will cut short-term interest rates before the end of 1998.
Although municipals are at their cheapest level in almost a decade, little
suggests that municipals will outperform Treasuries anytime soon. As such, we
will continue to focus on higher-yielding securities in sectors we believe will
be able to weather through a potential economic downturn.
Sincerely,
/s/ Mary-Kay H. Bourbulas
Mary-Kay H. Bourbulas
Portfolio Manager
[PHOTO OF MARY-KAY H. BOURBULAS]
===============================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
===============================================================================
From 11-30-97 to 8-31-98
[GRAPH]
THE STRONG Lehman Brothers 1-3 Lipper High-Yield
SHORT-TERM HIGH Year Non-Investment Grade Municipal Debt
YIELD MUNICIPAL FUND Municipal Bond Index* Funds Index*
11-97 10,000 10,000 10,000
12-97 10,083 10,053 10,160
2-98 10,225 10,155 10,283
4-98 10,320 10,229 10,277
6-98 10,458 10,326 10,463
8-98 10,548 10,413 10,611
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with a similar investment in the
Lehman Brothers 1-3 Year Non-Investment Grade Municipal Bond Index and the
Lipper High Yield Municipal Debt 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.
================================================================================
===============================
TOTAL RETURN(1)
===============================
As of 8-31-98
SINCE INCEPTION 5.48%
(on 11-30-97)
===============================
* The Lehman Brothers 1-3 Year Non-Investment Grade Municipal Bond Index is
an unmanaged index generally representative of municipal bonds rated below Baa
with maturities of one to three years. The Lipper High Yield Municipal Debt
Funds Index is an equally-weighted performance index of the largest qualifying
funds in this Lipper category. Source of the Lehman index data is Lehman
Brothers. Source of the Lipper index data is Lipper Analytical Services, Inc.
1 Total return is not annualized and measures aggregate change in the value of
an investment in the Fund, assuming reinvestment of dividends.
2 Yield is annualized for the 30 days ended 8-31-98, is historical, and will
vary.
3 The Fund's average maturity includes the effect of when-issued securities.
4 For the purposes of this average rating, the Fund's short-term debt
obligations have been assigned long-term ratings by the Advisor.
7
<PAGE>
=========================================
THE STRONG SHORT-TERM MUNICIPAL BOND FUND
=========================================
WE MET THE CHALLENGES OF MANAGING THE FUND WITH A DELIBERATE TEAM APPROACH.
The Strong Short-Term Municipal Bond Fund seeks total return by investing for a
high level of federally tax-exempt current income with a low degree of
share-price fluctuation. The Fund invests primarily in short- and
intermediate-term investment-grade municipal obligations. It maintains an
average portfolio maturity of three years or less.
As of August 31, 1998, the Fund's annualized 30-day yield was 4.23%.(1) For
investors in the 36% tax bracket, this translates into a taxable equivalent
yield of 6.61%. For the 12 months ended August 31, 1998, the Fund posted a total
return of 6.33%, well ahead of the 5.76% return posted by the Lehman Brothers
Municipal 3-Year Bond Index and the 4.81% return of the Lipper Short Municipal
Debt Average.*
STOCK VOLATILITY HAS AN IMPACT
For most of the past year, short-term municipal rates stayed in a state of calm,
gradual decline. They then hit a sharp downturn in August, as investors moved
into bonds as a refuge from that month's extreme stock volatility. With growing
demand for fixed-income investments, their prices moved up, driving yields down.
========================================
PORTFOLIO STATISTICS
========================================
As of 8-31-98
30-DAY ANNUALIZED YIELD(1) 4.23%
AVERAGE MATURITY(2) 2.8 YEARS
AVERAGE QUALITY RATING(3) A
========================================
In keeping with this declining interest-rate environment, we have continued to
position the Fund near its maximum three-year maturity. At the same time, we
have maintained the Fund's credit-quality at an A average. Given the markets'
general favor for higher-quality issues in these volatile times, we don't
anticipate increasing our position in higher-yielding, lower-grade bonds, even
though the Fund's prospectus was changed to increase to 15% from 5% the portion
of Fund assets that may be allocated to non-investment-grade issues.
================================================================================
EQUIVALENT TAXABLE YIELDS
================================================================================
As of 8-31-98
Your tax-exempt effective
Marginal yield of 5.54% is equivalent
Joint Return Single Return Tax Rate to a taxable yield of:
- -------------------------------------------------------------------------------
$42,351-102,300 $25,351-61,400 28.0% 5.88%
...............................................................................
$102,301-155,950 $61,401-128,100 31.0% 6.13%
...............................................................................
$155,951-278,450 $128,101-278,450 36.0% 6.61%
...............................................................................
Over $278,450 Over $278,450 39.6% 7.00%
...............................................................................
The chart reflects 1998 marginal federal tax rates before limitations and
phase-outs. Individuals with adjusted gross income in excess of $124,500
should consult their tax advisor to determine their actual 1998 marginal tax
rate. The Fund's income may be subject to state and local taxes and, depending
on your tax status, the Alternative Minimum Tax.
================================================================================
To put this change (which became effective January 1, 1998) in context, some of
our peer short-term muni funds may invest as much as 35% of assets in
non-investment-grade issues. As of August 31, 1998 we had 7.1% of assets in BB
quality issues, well below our maximum allowance. More than 23% of assets are in
AAA rated bonds, the highest level of credit quality available.
OTHER SOURCES OF YIELD
An enduring element of our efforts to identify attractive short-term municipal
issues for the portfolio is working with smaller, regional brokerages as well
as large, established Wall Street firms. Because these specialized brokers
don't have the same high profile as some of their larger competitors, the
issues they sponsor often offer higher yields in order to attract investor
attention.
The Fund also continues to incorporate issues whose income may be subject to the
Alternative Minimum Tax. With each passing year, AMT paper makes up an
increasing percentage of the municipal market. To reject all of these issues out
of hand would cut shareholders off from many of the market's more attractive
securities--even after taking taxes into account.
FOCUS ON ISSUE-BY-ISSUE SELECTION IS RIGHT FOR THE TIMES
Throughout the past year, evaluating the merits of individual bonds has been
essential to our management strategy, playing a far larger role than either
interest-rate positioning or credit quality targets in shaping the portfolio.
Municipal bonds aren't traded on any central exchange, which gives my team and
me many opportunities to add value in our transactions. However, it also
presents us with the challenge of sorting through the thousands of bonds
available without the benefit of a central market to help set prices.
We meet this challenge with a team approach. Our traders spend their days
sifting through the available issues, and negotiating prices that are
appropriate and that make sense for investors in the fund. Our analysts are
devoted to evaluating the merits of each individual bond that is a candidate for
our portfolio. As manager, I have responsibility for devising and implementing
the Fund's strategy. When I'm presented with a bond to consider, I look beyond
8
<PAGE>
its individual merits and valuation to determine whether it fits into the
overall profile for the Fund that I want to maintain (or create). If a portfolio
is a puzzle to be put together, it's my job to make sure I'm selecting the right
pieces.
This deliberate team approach serves the Fund well in good times as well as
bad. In a market that rewards issue selection more than maturity or
credit-quality positioning, it's particularly useful.
LOOKING AHEAD
Over the course of the past year, the possibility that the Federal Reserve may
ease interest rates has grown. Speculation on this subject became particularly
acute at the end of the period when, in the face of stock market volatility,
continued woes in Asia, and new troubles in Russia and Latin America, an
economic slowdown appeared more likely.
Although the problems in emerging markets have already taken a toll on the U.S.,
it's our belief that these problems are not yet fully reflected in the American
economy and markets. We believe that more economic slowing and further declines
in interest rates may very well be on the way.
That said, unless interest rates become unusually volatile, we don't anticipate
making any significant changes to our approach. Our strategy has continued to
offer shareholders strong, sustainable tax-exempt yield (some of which may be
subject to AMT), without incurring undue risk. We intend to continue to consider
issues from regional brokerages as well as AMT paper. Our aim is to identify and
purchase the municipal securities that can best serve our shareholders.
Thank you for giving us the opportunity to serve your investment needs. We look
forward to helping you pursue your important investment goals in the years to
come.
Sincerely,
/s/ Steven D. Harrop
Steven D. Harrop
Portfolio Manager
[PHOTO OF STEVEN D. HARROP]
================================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
================================================================================
From 12-31-91 to 8-31-98
[GRAPH]
THE STRONG Lehman Brothers Lipper Short
SHORT-TERM MUNICIPAL Municipal 3-Year Municipal Debt
BOND FUND Bond Index* Average*
12-91 10,000 10,000 10,000
12-92 10,716 10,643 10,576
12-93 11,441 11,305 11,117
12-94 11,256 11,383 11,154
12-95 11,861 12,396 11,952
12-96 12,439 12,946 12,402
12-97 13,301 13,655 12,976
8-98 13,782 14,139 13,364
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with a similar investment in the
Lehman Brothers Municipal 3 Year Bond Index and the Lipper Short Municipal Debt
Average. Results include the reinvestment of all dividends and capital gains
distributions. Performance is historical and does not represent future results.
Investment returns and principal value will vary, and you may have a gain or
loss when you sell shares.
================================================================================
==================================
AVERAGE ANNUAL
TOTAL RETURNS
==================================
As of 8-31-98
1-YEAR 6.33%
3-YEAR 5.69%
5-YEAR 4.12%
SINCE INCEPTION 4.93%
(on 12-31-91)
==================================
* The Lehman Brothers Municipal 3 Year Bond Index is an unmanaged index
generally representative of three-year, tax-exempt bonds. The Lipper Short
Municipal Debt Average represents funds that invest in municipal debt issues
with dollar-weighted average maturities of less than three years. Source of
the Lehman index data is Standard & Poor's Micropal. Source of the Lipper
index data is Lipper Analytical Services, Inc.
1 Yield is annualized for the 30 days ended 8-31-98, is historical, and will
vary.
2 The Fund's average maturity includes the effect of when-issued securities
3 For the purposes of this average rating, the Fund's short-term debt
obligations have been assigned long-term ratings by the Advisor.
9
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES AUGUST 31, 1998
- -------------------------------------------------------------------------------
===============================================================================
STRONG HIGH-YIELD MUNICIPAL BOND FUND
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
MUNICIPAL BONDS 98.3%
ALABAMA 1.7%
West Jefferson, Alabama Amusement and Public
Park Authority First Mortgage Revenue -
Visionland, Alabama Project, 8.00%,
Due 12/01/26 $10,305,000 $11,064,994
ALASKA 0.6%
Seward, Alaska Revenue - Alaska Sealife Center
Project, 7.65%, Due 10/01/16 (c) 3,500,000 3,775,625
ARIZONA 2.3%
Maricopa County, Arizona IDA Senior Living
Facilities Revenue - Christian Care
Mesa, Inc. Project, 7.875%, Due 4/01/27 1,745,000 1,908,594
Navajo County, Arizona IDA IDR - Stone Container
Corporation Project:
7.20%, Due 6/01/27 5,675,000 6,384,375
7.40%, Due 4/01/26 6,000,000 6,757,500
-----------
15,050,469
ARKANSAS 1.2%
Northwest Arkansas Regional Airport Authority
Airport Revenue, 7.625%, Due 2/01/27 7,000,000 8,041,250
CALIFORNIA 6.3%
ABAG Financial Authority for Nonprofit
Corporations COP - Eskaton Gold River
Lodge Project:
6.375%, Due 11/15/15 1,000,000 998,750
6.375%, Due 11/15/28 3,000,000 2,970,000
California Department of Water Resources -
Central Valley Project, 4.75%, Due 12/01/25 (c) 5,000,000 4,793,750
Foothill/Eastern Transportation Corridor Agency
Toll Road Revenue:
Zero %, Due 1/01/17 5,000,000 1,918,750
Zero %, Due 1/01/26 7,000,000 1,662,500
Zero %, Due 1/01/28 24,000,000 5,130,000
Zero %, Due 1/01/29 8,335,000 1,687,838
Los Angeles County, California Metropolitan
Transportation Authority Proposition A Sales
Tax Revenue, 5.00%, Due 7/01/19 (b) 5,465,000 5,355,700
Millbrae, California Residential Facilities
Revenue - Magnolia of Millbrae Project,
7.375%, Due 9/01/27 5,000,000 5,225,000
San Francisco, California Redevelopment Agency
Residential Facilities Revenue - Coventry Park
Project, 8.50%, Due 12/01/26 5,000,000 5,662,500
San Joaquin Hills, California Transportation
Corridor Agency Toll Road Revenue Refunding,
Zero %, Due 1/15/21 (Rate Reset Effective
1/15/07) (c) 10,000,000 6,600,000
-----------
42,004,788
COLORADO 3.1%
Arapahoe County, Colorado E-470 Public Highway
Authority Capital Appreciation:
Zero %, Due 9/01/18 5,000,000 1,868,750
Zero %, Due 9/01/19 3,000,000 1,068,750
Zero %, Due 9/01/22 2,000,000 610,000
Zero %, Due 9/01/24 3,000,000 828,750
Arapahoe County, Colorado E-470 Public Highway
Authority Senior Revenue, 4.75%, Due 9/01/23 2,000,000 1,935,000
Bachelor Gulch, Colorado Metropolitan District GO,
7.00%, Due 12/01/15 1,100,000 1,160,500
Black Hawk, Colorado Device Tax Revenue,
5.625%, Due 12/01/21 1,500,000 1,485,000
Colorado Health Facilities Authority Hospital
Revenue - Steamboat Springs Health Care
Association Project, 5.75%, Due 9/15/22 5,000,000 5,112,500
Denver, Colorado City and County SFMR - Home
Metro Mayors Project, Zero %, Due 10/01/30 (c) 3,530,000 582,450
Denver, Colorado Urban Renewal Authority Tax
Increment Revenue - Pavilions Project, 7.75%,
Due 9/01/16 1,760,000 1,958,000
Eaglebend, Colorado Affordable Housing
Corporation MFHR Refunding - Housing
Project, 6.45%, Due 7/01/21 1,000,000 1,068,750
Englewood, Colorado MFHR Refunding - Marks
Apartments Project, 6.65%, Due 12/01/26 3,000,000 3,273,750
-----------
20,952,200
CONNECTICUT 1.4%
Connecticut Health and Educational Facilities
Authority Revenue - New Opportunities For
Waterbury, Inc., 6.75%, Due 7/01/28 3,570,000 3,610,162
Mashantucket Western Pequot Tribe Subordinated
Special Revenue:
5.75%, Due 9/01/18 3,500,000 3,661,875
6.40%, Due 9/01/11 1,710,000 1,904,513
-----------
9,176,550
FLORIDA 6.1%
Arbor Greene, Florida Community Development
District Special Assessment Revenue, 7.00%,
Due 5/01/03 1,435,000 1,487,019
Cory Lakes, Florida Community Development
District Special Assessment Revenue,
8.375%, Due 5/01/17 3,495,000 3,840,131
Florida Housing Finance Agency MFHR
Refunding - Lake Side Villas and Golf
Villas at Sabal Palm Project:
6.75%, Due 12/01/10 1,000,000 1,005,000
7.00%, Due 12/01/16 2,600,000 2,613,000
7.25%, Due 12/01/25 4,400,000 4,422,000
Grand Haven, Florida Community Development
District Special Assessment Revenue:
6.30%, Due 5/01/02 2,900,000 2,983,375
6.90%, Due 5/01/19 1,000,000 1,060,000
Hillsborough County, Florida Arbor Greene
Community Development District Special
Assessment Revenue, 5.75%, Due 5/01/06 1,000,000 1,007,500
Largo, Florida Sun Coast Health System Revenue -
Sun Coast Hospital Issue, 6.30%, Due 3/01/20 8,045,000 8,246,125
Miami, Dade County, Florida Subordinated Special
Obligation Bonds, Zero %, Due 10/01/28 8,000,000 1,610,000
Orange County, Florida Health Facilities Authority
First Mortgage Revenue - RHA/Princeton
Hospital, Inc. Project, 9.00%, Due 7/01/21
(Defaulted Effective 1/01/98) 4,775,000 1,671,250
Palm Beach County, Florida Solid Waste IDR -
Okeelanta Power LP Project:
6.375%, Due 2/15/07 (Purchased in Default on
1/28/98) 1,300,000 1,014,000
6.70%, Due 2/15/15 (Purchased in Default on
2/04/98) 500,000 390,000
Palm Beach County, Florida Solid Waste IDR -
Osceola Power LP Project, 6.85%, Due 1/01/14
(Purchased in Default 1/13/98 - 2/04/98) 450,000 351,000
Pensacola, Florida Airport Revenue:
6.00%, Due 10/01/12 1,500,000 1,640,625
6.125%, Due 10/01/18 1,250,000 1,378,125
Pinellas County, Florida Educational Facilities
Authority Revenue - College Harbor Project,
8.50%, Due 12/01/28 5,185,000 5,573,875
10
<PAGE>
- -------------------------------------------------------------------------------
===============================================================================
STRONG HIGH-YIELD MUNICIPAL BOND FUND (continued)
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
Polk County, Florida HFA Subordinated Revenue -
Lake Wales Gardens Project, Zero %,
Due 4/01/20 $ 4,839,240 $ 731,935
-----------
41,024,960
GEORGIA 4.6%
Atlanta, Georgia Urban Residential Finance
Authority MFHR - Evergreen Village Estates
Project, 6.625%, Due 5/01/28 605,000 625,419
Atlanta, Georgia Urban Residential Finance
Authority MFHR - Franciscan Club
Apartments Project, 7.75%, Due 4/01/22
(Defaulted Effective 10/01/96) 4,840,000 3,388,000
Dekalb County, Georgia Residential Care Facilities
for the Elderly Authority First Lien Revenue -
King's Bridge Retirement Center, Inc. Project:
8.00%, Due 7/01/06 650,000 708,500
8.15%, Due 7/01/16 2,380,000 2,615,025
8.25%, Due 7/01/26 5,250,000 5,761,875
Fulton County, Georgia Development Authority
Special Facilities Revenue - Delta Airlines, Inc.
Project:
5.45%, Due 5/01/23 1,000,000 1,006,250
5.50%, Due 5/01/33 2,500,000 2,512,500
Fulton County, Georgia Housing Authority
MFHR - Washington Court Project:
6.40%, Due 2/01/19 775,000 783,719
6.50%, Due 2/01/28 1,750,000 1,769,687
Georgia HFA SFMR, Zero %, Due 12/01/28 18,915,000 3,404,700
Savannah, Georgia EDA IDR - Stone Container
Corporation Project, 7.40%, Due 4/01/26 3,500,000 3,915,625
Savannah, Georgia Hospital Authority Revenue
Refunding and Improvement - Candler Hospital,
7.00%, Due 1/01/23 2,000,000 2,137,500
Washington, Georgia Wilkes Payroll Development
Authority Subordinated Revenue - Southern
Care Corporation Facility Project, Zero %,
Due 12/01/21 8,125,000 2,346,094
-----------
30,974,894
HAWAII 1.2%
Hawaii Department of Transportation Special
Facility Revenue - Continental Airlines, Inc.
Project, 5.625%, Due 11/15/27 8,205,000 8,184,488
ILLINOIS 6.0%
Illinois DFA EDR - The Latin School of Chicago
Project, 5.65%, Due 8/01/28 1,725,000 1,744,406
Illinois HDA MFHR, 5.00%, Due 7/01/25 3,750,000 3,276,562
Illinois Health Facilities Authority Revenue -
Delnor Community Residential Project, 6.15%,
Due 11/15/27 1,000,000 1,010,000
Illinois Health Facilities Authority Revenue -
Victory Health Services:
5.375%, Due 8/15/16 2,105,000 2,126,050
5.75%, Due 8/15/27 1,000,000 1,032,500
Illinois Metropolitan Pier and Exposition Authority
Refunding - McCormick Place Expansion
Project, 7.00%, Due 7/01/26 6,000,000 7,597,500
Riverdale, Illinois Environmental Improvement
Revenue - Acme Metals, Inc. Project:
7.90%, Due 4/01/24 (Defaulted Effective 9/29/98) 2,500,000 2,696,875
7.95%, Due 4/01/25 (Defaulted Effective 9/29/98) 5,000,000 5,406,250
Robbins, Illinois Resource Recovery Revenue:
8.375%, Due 10/15/10 4,000,000 3,960,000
8.375%, Due 10/15/16 11,250,000 11,137,500
-----------
39,987,643
INDIANA 3.1%
Indiana HFA SFMR, 5.90%, Due 1/01/27 2,000,000 2,080,000
Indiana IDFA PCR Refunding - Inland Steel
Company Project, 7.25%, Due 11/01/11 5,540,000 6,163,250
Indianapolis, Indiana Economic Development MFHR -
Post Pointe Apartments Project:
8.30%, Due 3/01/06 480,000 503,400
8.40%, Due 3/01/11 710,000 754,375
8.75%, Due 3/01/27 6,540,000 6,965,100
St. Joseph County, Indiana Hospital Authority
Health System Revenue - Memorial Health
System, 4.625%, Due 8/15/28 5,000,000 4,581,250
-----------
21,047,375
IOWA 3.5%
Cedar Rapids, Iowa First Mortgage Revenue -
Cottage Grove Place Project:
5.875%, Due 7/01/28 7,635,000 7,510,931
9.00%, Due 7/01/25 6,000,000 7,807,500
Iowa Finance Authority First Mortgage Elder Care
Facility Revenue - Amity Fellowserve-Iowa, Inc.
Project, 8.75%, Due 10/01/25 7,785,000 8,329,950
-----------
23,648,381
KENTUCKY 1.6%
Morgantown, Kentucky Solid Waste Disposal
Facilities Revenue - IMCO Recycling, Inc. Project:
6.00%, Due 5/01/23 4,100,000 4,115,375
7.65%, Due 5/01/16 5,740,000 6,443,150
-----------
10,558,525
LOUISIANA 1.5%
Iberia Parish, Louisiana Hospital Service District
Number 1 Revenue, 8.00%, Due 5/26/16 2,100,000 2,215,500
Louisiana Public Facilities Authority Junior Lein
Revenue - Progressive Healthcare Providers, Inc.
Developmental Centers Project, 7.50%, Due 1/01/13 2,160,000 2,141,100
Louisiana Public Facilities Authority Senior Lien
Revenue - Progressive Healthcare Providers, Inc.
Developmental Centers Project, 8.00%, Due 1/01/13 5,375,000 5,556,406
-----------
9,913,006
MASSACHUSETTS 1.9%
Massachusetts Health and Educational Facilities
Authority Revenue - Saints Memorial Medical
Center, 5.75%, Due 10/01/06 1,885,000 1,896,781
Massachusetts Industrial Finance Agency Assisted
Living Facility Revenue - TNG Marina Bay LLC
Project, 7.50%, Due 12/01/27 4,220,000 4,399,350
Massachusetts Industrial Finance Agency Health
Care Facility Revenue - Metro Health Foundation
of Massachusetts, Inc. Project, 6.75%,
Due 12/01/27 3,000,000 3,146,250
Massachusetts Industrial Finance Agency Revenue -
Institute for Developmental Disabilities Project,
9.25%, Due 6/01/09 2,980,000 3,070,681
-----------
12,513,062
MICHIGAN 1.4%
Michigan Strategic Fund Resource Recovery
Limited Obligation Revenue - Central
Wayne Energy Recovery LP Project:
6.90%, Due 7/01/19 2,200,000 2,241,250
7.00%, Due 7/01/27 6,800,000 6,927,500
-----------
9,168,750
11
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (CONTINUED) AUGUST 31, 1998
- -------------------------------------------------------------------------------
===============================================================================
STRONG HIGH-YIELD MUNICIPAL BOND FUND (continued)
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
MINNESOTA 1.2%
Northern Municipal Power Agency Electric
System Revenue, 5.40%, Due 1/01/16 (b) $ 3,035,000 $ 3,145,019
Roseville, Minnesota Housing Facilities Revenue
Refunding - College Properties, Inc. Project,
5.875%, Due 10/01/28 3,000,000 3,003,750
Southern Minnesota Municipal Power Agency
Power Supply Systems Revenue, 4.75%,
Due 1/01/16 2,000,000 1,965,000
-----------
8,113,769
MISSISSIPPI 0.4%
Mississippi Development Bank Special Obligation
Refunding - Diamond Lakes Utilities and
Improvements District Project, 6.25%,
Due 12/01/17 2,500,000 2,562,500
MISSOURI 1.7%
Bridgeton, Missouri IDA Senior Housing Revenue -
The Sarah Community Project, 5.90%,
Due 5/01/28 3,750,000 3,754,688
Saline County, Missouri IDA Hospital Revenue -
John Fitzgibbon Memorial Hospital, Inc. Project,
7.375%, Due 5/01/11 3,550,000 3,723,062
Springfield, Missouri Land Clearance
Redevelopment Authority Industrial Revenue
Refunding - University Plaza Redevelopment
Corporation Project, 6.90%, Due 10/01/16 3,440,000 3,577,600
-----------
11,055,350
MONTANA 0.2%
Crow Finance Authority Tribal Purpose Revenue,
5.70%, Due 10/01/27 1,000,000 1,048,750
NEBRASKA 0.2%
Nebraska IFA SFHR, 5.85%, Due 9/01/28 1,000,000 1,043,750
NEVADA 0.7%
Clark County, Nevada IDR - Nevada Power
Company Project, 5.60%, Due 10/01/30 4,500,000 4,528,125
NEW JERSEY 5.5%
Camden County, New Jersey Improvement
Authority Lease Revenue - Kaighn Port Marine
Terminal A Project, 8.00%, Due 6/01/27 4,890,000 5,556,262
New Jersey EDA - Leisure Park Project, 5.875%,
Due 12/01/27 2,800,000 2,849,000
New Jersey EDA EDR - Kapkowski Road Landfill
Reclamation Improvement District Project:
Zero %, Due 4/01/04 160,000 114,400
Zero %, Due 4/01/05 310,000 208,088
Zero %, Due 4/01/06 1,020,000 641,325
Zero %, Due 4/01/07 1,025,000 603,469
Zero %, Due 4/01/09 1,020,000 526,575
6.375%, Due 4/01/31 15,000,000 15,018,750
6.50%, Due 4/01/31 10,000,000 9,962,500
New Jersey EFA Revenue - Fairleigh Dickinson
University Project, 5.70%, Due 7/01/28 (b) 1,000,000 997,500
-----------
36,477,869
NEW YORK 4.2%
New York Energy Research and Development
Authority PCR - Rochester Gas and Electric
Corporation Project, 5.95%, Due 9/01/33 (b) 2,000,000 2,172,500
New York, New York GO:
5.00%, Due 8/01/22 5,000,000 4,881,250
5.00%, Due 8/01/23 7,000,000 6,816,250
5.00%, Due 8/15/28 2,500,000 2,425,000
New York, New York Industrial Development
Agency IDR Refunding - LaGuardia Association
LP Project, 6.00%, Due 11/01/28 (b) 6,000,000 6,022,500
Rockland County, New York IDA Civic Facility
Revenue - Dominican College Project, 6.25%,
Due 5/01/28 2,775,000 2,788,875
United Nations Development Corporation
Refunding, 5.60%, Due 7/01/26 2,700,000 2,709,936
-----------
27,816,311
NORTH CAROLINA 4.8%
Fletcher, North Carolina First Mortgage Housing
Revenue - Avery's View Retirement Facilities, Inc.
Project, 7.00%, Due 3/01/28 19,365,000 19,582,856
Macon County, North Carolina HFC Revenue -
Chestnut Hill Highlands Project, 8.50%,
Due 7/01/27 8,145,000 8,562,431
North Carolina Eastern Municipal Power Agency
Power System Revenue Refunding, 5.00%,
Due 1/01/21 4,250,000 4,149,062
-----------
32,294,349
NORTH DAKOTA 1.9%
Grand Forks, North Dakota Senior Housing
Revenue - 4000 Valley Square Project,
6.25%, Due 12/01/34 1,000,000 1,021,250
North Dakota Housing Finance Agency Revenue
Housing Finance Program - Home Mortgage
Finance Program, 5.90%, Due 1/01/29 1,000,000 1,046,250
Ward County, North Dakota Health Care Facility
Revenue - St. Joseph's Hospital Corporation
Project, 8.875%, Due 11/15/24 8,210,000 10,375,388
-----------
12,442,888
OHIO 3.9%
Akron, Ohio COP - Akron Municipal Baseball
Stadium Project, Zero %, Due 12/01/16
(Rate Reset Effective 12/01/01) 1,500,000 1,381,875
Cleveland, Ohio Airport Special Revenue
Refunding - Continental Airlines, Inc. Project:
5.375%, Due 9/15/27 (b) 4,500,000 4,410,000
5.50%, Due 12/01/08 (b) 6,045,000 6,022,331
5.70%, Due 12/01/19 (b) 7,000,000 6,965,000
Cuyahoga County, Ohio MFHR - The Park Lane
Apartments Project:
7.80%, Due 7/01/07 470,000 490,563
7.90%, Due 7/01/12 680,000 715,700
8.25%, Due 7/01/28 1,930,000 2,028,912
Medina County, Ohio EDR MFHR - Camelot
Place, Ltd. Project, 8.375%, Due 10/01/23 400,000 414,000
Pike County, Ohio Hospital Facilities Revenue -
Pike Health Services, Inc. Project, 6.75%,
Due 7/01/17 3,660,000 3,902,475
-----------
26,330,856
PENNSYLVANIA 7.2%
Allegheny County, Pennsylvania IDA Landfill Gas
Recycling Facility Revenue, 7.00%, Due 1/01/08 1,000,000 1,006,250
Bucks County, Pennsylvania IDA CDR - Attleboro
Associates, Ltd. Nursing Facility Project:
8.00%, Due 12/01/05 715,000 802,588
8.25%, Due 6/01/11 3,340,000 3,744,975
Delaware County, Pennsylvania Authority Health
Care Facility First Mortgage Revenue -
GF/Longwood Care, Inc. Project:
8.50%, Due 4/15/10 530,000 585,650
9.00%, Due 4/15/25 5,860,000 6,467,975
12
<PAGE>
- -------------------------------------------------------------------------------
===============================================================================
STRONG HIGH-YIELD MUNICIPAL BOND FUND (continued)
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
Horsham, Pennsylvania IDA CDA Health Care
Facilities Revenue - GF/Pennsylvania
Properties, Inc. Project:
7.375%, Due 9/01/08 $ 440,000 $ 449,350
8.375%, Due 9/01/24 6,000,000 6,427,500
Lehigh County, Pennsylvania General Purpose
Authority Revenue - Kidspeace Obligation
Group, 6.20%, Due 11/01/14 (b) 3,585,000 3,598,444
Montgomery County, Pennsylvania IDA Revenue -
Wordsworth Academy Project, 8.00%,
Due 9/01/24 6,840,000 7,233,300
Mount Pleasant, Westmoreland County,
Pennsylvania Business District Authority
Hospital Revenue - Frick Hospital Project:
5.70%, Due 12/01/13 500,000 516,875
5.75%, Due 12/01/17 500,000 515,000
5.75%, Due 12/01/27 1,000,000 1,026,250
Pennsylvania EDFA Qualified Residential Rent
Project Revenue - RSI Properties/Butler LLC
Project, 8.00%, Due 9/01/27 3,000,000 3,093,750
Pennsylvania EDFA Qualified Residential Rent
Project Revenue - RSI Properties/Greensburg
LLC Project, 8.00%, Due 9/01/27 3,000,000 3,093,750
Philadelphia, Pennsylvania Hospitals and Higher
EFA Hospital Revenue - Graduate Health
System Obligated Group Project:
6.625%, Due 7/01/21 (Defaulted Effective 7/15/98) 325,000 208,000
7.00%, Due 7/01/05 (Defaulted Effective 7/15/98) 2,000,000 1,280,000
Philadelphia, Pennsylvania IDA CDR Refunding -
Doubletree Guest Suites Project, 6.50%,
Due 10/01/27 3,500,000 3,745,000
Scranton-Lackawanna, Pennsylvania Health and
Welfare Authority Hospital Revenue - Marian
Community Hospital Project, 7.125%,
Due 1/15/13 1,000,000 1,113,750
Wilkinsburg, Pennsylvania Municipal Authority
Health Facilities Revenue - Monroeville Christian
Project, 8.25%, Due 3/01/27 3,000,000 3,285,000
-----------
48,193,407
SOUTH CAROLINA 6.2%
Connector 2000 Association, Inc. Senior Current
Interest Toll Road Revenue - Greenville, South
Carolina Southern Connector Project, 5.375%,
Due 1/01/38 2,000,000 1,867,500
Connector 2000 Association, Inc. Subordinate
Capital Appreciation Toll Road Revenue -
Greenville, South Carolina Southern Connector
Project:
Zero %, Due 1/01/23 7,400,000 1,683,500
Zero %, Due 1/01/24 7,500,000 1,603,125
Zero %, Due 1/01/25 8,700,000 1,750,875
Zero %, Due 1/01/26 9,000,000 1,687,500
Zero %, Due 1/01/27 9,100,000 1,603,875
Zero %, Due 1/01/28 9,300,000 1,534,500
Zero %, Due 1/01/29 10,500,000 1,640,625
Zero %, Due 1/01/30 10,800,000 1,566,000
Zero %, Due 1/01/31 11,000,000 1,498,750
Zero %, Due 1/01/32 11,200,000 1,442,000
Zero %, Due 1/01/33 11,500,000 1,394,375
Zero %, Due 1/01/34 11,700,000 1,330,875
Zero %, Due 1/01/35 12,000,000 1,275,000
Zero %, Due 1/01/36 12,200,000 1,220,000
Zero %, Due 1/01/37 12,400,000 1,162,500
Zero %, Due 1/01/38 17,200,000 1,526,500
Florence County, South Carolina IDR - Stone
Container Corporation Project, 7.375%,
Due 2/01/07 2,650,000 2,878,563
South Carolina Jobs - EDA First Mortgage Health
Facilities Revenue Refunding - The Lutheran
Homes of South Carolina, Inc., 5.70%,
Due 5/01/23 3,000,000 2,966,250
South Carolina Jobs - EDA Solid Waste Recycling
Facilities Revenue - Santee River Rubber Project,
8.00%, Due 12/01/14 10,000,000 10,062,500
-----------
41,694,813
SOUTH DAKOTA 0.3%
Mobridge, South Dakota Health Care Facilities
Revenue - Mobridge Regional Hospital Project,
6.50%, Due 12/01/22 1,860,000 1,915,800
TENNESSEE 0.3%
Shelby County, Tennessee Health, Educational and
Housing Facility Board Health Care Facilities
Revenue - Kirby Pines Retirement Community
Project, 6.375%, Due 11/15/25 2,100,000 2,181,375
TEXAS 2.0%
DeSoto, Texas IDA IDR - Wintergreen Commercial
Partnership Project, 7.00%, Due 1/01/17 3,815,961 3,892,281
Hidalgo County, Texas Health Services Corporation
Hospital Revenue - Mission Hospital, Inc. Project,
6.75%, Due 8/15/16 3,000,000 3,352,500
Houston, Texas Airport System Special Facilities
Revenue - Continental Airlines, Inc. Airport
Improvement Projects, 6.125%, Due 7/15/27 1,450,000 1,511,625
Jefferson County, Texas Health Facilities
Development Corporation Hospital Revenue -
Baptist Health Care System Project, 8.30%,
Due 10/01/14 4,630,000 4,815,709
-----------
13,572,115
UTAH 0.4%
Utah Housing Finance Agency SFMR, 5.75%,
Due 7/01/27 2,625,000 2,713,594
VIRGINIA 4.3%
Alexandria, Virginia Redevelopment and Housing
Authority Residential Renting MFHR, 6.375%,
Due 4/01/34 14,400,000 14,436,000
Chesapeake, Virginia Redevelopment and Housing
Authority Residential Renting MFHR -
Chesapeake Crossing Seniors Community
Three LP Project, 6.20%, Due 4/01/28 1,750,000 1,760,937
Dulles Town Center Community Development
Authority Special Assessment - Dulles Town
Center Project, 6.25%, Due 3/01/26 3,000,000 3,041,250
Loudoun County, Virginia IDA IDR Refunding -
Dulles Airport Marriott Hotel Project, 7.125%,
Due 9/01/15 5,000,000 5,487,500
Virginia HDA MFHR, 5.60%, Due 11/01/18 (b) 2,500,000 2,562,500
Virginia Small Business Financing Authority IDR -
Albion Enterprises LLC Project, 6.40%,
Due 1/01/14 1,750,000 1,756,563
-----------
29,044,750
WEST VIRGINIA 0.4%
Marion County, West Virginia County Commission
Solid Waste Disposal Facility Revenue -
Adirondack Recycling Project:
8.00%, Due 12/01/25 1,389,734 1,389,734
10.00%, Due 12/01/25 193,916 193,916
13
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (CONTINUED) AUGUST 31, 1998
- -------------------------------------------------------------------------------
===============================================================================
STRONG HIGH-YIELD MUNICIPAL BOND FUND (continued)
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
Randolph County, West Virginia Building
Commission Crossover Revenue Refunding -
Elkins Regional Convalescent Center, Inc.
Project, 6.125%, Due 7/01/23 $ 1,000,000 $ 1,002,500
------------
2,586,150
WISCONSIN 4.4%
Brookfield, Wisconsin IDR Refunding - Midway
Motor Lodge Project, 8.40%, Due 4/01/12 5,130,000 5,681,475
Wisconsin Health and EFA Revenue - Aurora
Medical Group, Inc. Project, 9.00%, Due 11/15/25 2,480,000 2,675,300
Wisconsin Health and EFA Revenue - National
Regency of New Berlin, Inc. Project:
7.75%, Due 8/15/15 5,000,000 5,656,250
8.00%, Due 8/15/25 6,500,000 7,361,250
Wisconsin Health and EFA Revenue - Richland
Hospital, Inc. Project, 5.375%, Due 6/01/28 2,500,000 2,506,250
Wisconsin Housing and EDA Home Ownership
Revenue:
6.20%, Due 3/01/27 3,000,000 3,206,250
7.10%, Due 9/01/15 1,800,000 1,982,250
------------
29,069,025
WYOMING 0.6%
Teton County, Wyoming Hospital District Hospital
Revenue Refunding and Improvement, 5.80%,
Due 12/01/17 1,950,000 2,003,625
Wyoming Community Development Authority
Housing Revenue, 5.85%, Due 6/01/28 1,995,000 2,084,775
------------
4,088,400
- ------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (COST $626,877,922) 655,860,906
- ------------------------------------------------------------------------------
TAXABLE MUNICIPAL BONDS 0.2%
SOUTH CAROLINA
South Carolina Jobs - EDA Solid Waste Recycling
Facilities Revenue - Santee River Rubber Project,
13.00%, Due 12/01/11 1,000,000 1,000,000
- ------------------------------------------------------------------------------
TOTAL TAXABLE MUNICIPAL BONDS (COST $980,000) 1,000,000
- ------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 8.4%
DAILY VARIABLE RATE PUT BONDS 0.5%
DELAWARE
Delaware EDA Solid Waste Disposal and Sewer
Facilities - CIBA Specialty
Project, 3.40%, Due 9/01/98 3,500,000 3,500,000
MUNICIPAL MONEY MARKET FUNDS 7.9%
MULTIPLE STATES
Strong Municipal Money Market Fund (d) 52,800,000 52,800,000
- ------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $56,300,000) 56,300,000
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST $684,157,922) 106.9% 713,160,906
Other Assets and Liabilities, Net (6.9%) (45,895,070)
- ------------------------------------------------------------------------------
NET ASSETS 100.0% $667,265,836
==============================================================================
FUTURES
- -------------------------------------------------------------------------------
Underlying
Expiration Face Amount Unrealized
Date at Value Depreciation
- -------------------------------------------------------------------------------
Sold:
230 Municipal Bond Futures 12/98 $29,073,438 ($446,875)
===============================================================================
STRONG MUNICIPAL BOND FUND
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
MUNICIPAL BONDS 100.2%
ALABAMA 1.9%
Courtland, Alabama IDB Solid Waste Disposal
Revenue - Champion International Corporation
Project, 6.375%, Due 3/01/29 $ 3,145,000 $3,376,944
Troy, Alabama IDB Solid Waste Revenue -
Alabama Protein Recycling LLC Project,
7.75%, Due 5/01/19 2,000,000 2,022,500
----------
5,399,444
ALASKA 1.9%
Alaska HFC Capital Appreciation Mortgage
Revenue, Zero %, Due 12/01/27 8,500,000 1,413,125
Valdez, Alaska Marine Terminal Revenue
Refunding - BP Pipelines (Alaska), Inc.
Project, 5.65%, Due 12/01/28 4,000,000 4,120,000
----------
5,533,125
ARIZONA 1.8%
Arizona Health Facilities Authority Revenue -
Bethesda Foundation - Bethesda Gardens
Project, 6.40%, Due 8/15/27 1,000,000 1,060,000
Phoenix, Arizona IDA Mortgage Revenue
Refunding - Christian Care Retirement
Apartments, Inc. Project, 6.25%, Due 1/01/16 3,740,000 3,964,400
----------
5,024,400
ARKANSAS 1.7%
Northwest Arkansas Regional Airport Authority
Airport Revenue, 7.625%, Due 2/01/27 3,000,000 3,446,250
Pulaski County, Arkansas Public Facilities Board
MFHR - Plantation House and Indian Hills
Apartments Project, 6.05%, Due 8/01/27 1,500,000 1,567,500
----------
5,013,750
CALIFORNIA 2.5%
California Tri-City Housing Finance Agency
SFMR - FNMA and GNMA Collateralized,
6.45%, Due 12/01/28 1,950,000 2,113,313
Foothill/Eastern Transportation Corridor Agency
Toll Road Revenue:
Zero %, Due 1/01/28 12,060,000 2,577,825
Zero %, Due 1/01/30 4,110,000 786,037
Los Angeles, California MFHR - Earthquake
Rehabilitation Projects, 5.85%, Due 12/01/27 1,535,000 1,673,150
----------
7,150,325
COLORADO 3.3%
Arapahoe County, Colorado E-470 Public Highway
Authority Capital Improvement Trust Fund
Highway Revenue, Zero %, Due 8/31/08 4,500,000 2,761,875
Castle Rock Ranch, Colorado Public Improvements
Authority Public Facilities Revenue, 6.25%,
Due 12/01/17 5,000,000 5,768,750
Colorado Health Facilities Authority Retirement
Housing Revenue - Liberty Heights Project,
Zero %, Due 7/15/20 2,900,000 931,625
----------
9,462,250
CONNECTICUT 0.6%
Connecticut Health and Educational Facilities
Authority Revenue - Edgehill Issue, 6.875%,
Due 7/01/17 1,500,000 1,605,000
DELAWARE 0.8%
Delaware EDA Revenue, 6.30%, Due 5/01/22 2,250,000 2,385,000
14
<PAGE>
- -------------------------------------------------------------------------------
===============================================================================
STRONG MUNICIPAL BOND FUND (CONTINUED)
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
FLORIDA 1.8%
Broward County, Florida HFA MFHR - Cross Keys
Apartments Project, 5.75%, Due 10/01/28 $ 500,000 $ 510,000
Broward County, Florida HFA MFHR - Pembroke
Park Apartments Project, 5.65%, Due 10/01/28 1,300,000 1,324,375
Leon County, Florida Educational Facilities
Authority Revenue Refunding - Southgate
Residence Hall Project, 6.75%, Due 9/01/28 1,000,000 1,008,750
Manatee County, Florida HFA SFMR, 7.45%,
Due 5/01/27 950,000 1,084,188
Pinellas County, Florida Educational Facilities
Authority Revenue - College Harbor Project,
6.50%, Due 12/01/20 1,020,000 1,104,150
-----------
5,031,463
GEORGIA 9.2%
Atlanta, Georgia Urban Residential Finance Authority
MFHR - Evergreen Village Estates Project:
5.875%, Due 5/01/07 855,000 903,094
6.375%, Due 5/01/17 1,675,000 1,785,969
6.50%, Due 5/01/27 2,965,000 3,161,431
Bibb County, Georgia MFHR - Emerald Coast
Housing II, Inc. Project, 7.00%, Due 6/01/28 2,000,000 2,020,000
George L. Smith II Georgia World Congress Center
Authority Revenue Refunding - Domed Stadium
Project, 5.75%, Due 7/01/15 (b) 4,000,000 4,130,000
Houston County, Georgia MFHR - Emerald Coast
Housing II, Inc. Corder Crossing Apartments
Project, 7.00%, Due 8/01/28 7,000,000 7,017,500
Washington, Georgia Wilkes Payroll Development
Authority Subordinated Revenue - Southern
Care Corporation Facility Project, Zero %,
Due 12/01/21 25,595,000 7,358,562
-----------
26,376,556
IDAHO 0.8%
Idaho Housing Agency SFMR, 6.45%, Due 7/01/27 2,000,000 2,152,500
ILLINOIS 11.7%
Granite City, Illinois Hospital Revenue Refunding -
Saint Elizabeth Medical Center, 8.125%,
Due 6/01/08 5,345,000 5,582,051
Illinois Educational Facilities Authority Revenue
Refunding - DePaul University Project, 5.50%,
Due 10/01/19 4,365,000 4,555,969
Illinois Health Facilities Authority Refunding
Revenue - Lutheran Social Services of Illinois,
6.125%, Due 8/15/20 9,160,000 9,423,350
Illinois Metropolitan Pier and Exposition Authority
Capital Appreciation - McCormick Place
Expansion Project, Zero %, Due 6/15/16 1,250,000 521,875
Illinois Metropolitan Pier and Exposition Authority
Refunding - McCormick Place Expansion
Project, 7.00%, Due 7/01/26 1,500,000 1,899,375
Kane, Cook and DuPage Counties, Illinois School
District Number U-46 Capital
Appreciation School Building:
Zero %, Due 1/01/11 1,800,000 1,005,750
Zero %, Due 1/01/13 2,500,000 1,246,875
Silvis, Rock Island County, Illinois Special
Service Area, 5.65%, Due 1/01/18 (b) 1,105,000 1,163,012
Will County, Illinois Exempt Facilities Revenue -
Mobil Oil Refining Corporation Project, 6.40%,
Due 4/01/26 5,000,000 5,481,250
Zion, Illinois Park District GO Revenue, 6.50%,
Due 12/30/17 2,485,000 2,596,825
-----------
33,476,332
INDIANA 4.3%
Indiana Health Facility Financing Authority
Hospital Revenue - Jackson County Schneck
Memorial Hospital Project, 7.50%, Due 2/15/22 6,790,000 7,689,675
Petersburg, Indiana PCR Refunding - Indianapolis
Power & Light Company Project, 5.50%,
Due 10/01/23 4,425,000 4,524,563
-----------
12,214,238
IOWA 1.9%
Iowa Finance Authority Hospital Facility
Refunding and Revenue - Jennie Edmundson
Memorial Hospital Project, 7.65%, Due 11/01/16 4,850,000 5,486,562
LOUISIANA 6.2%
Iberia Parish, Louisiana IDB IDR - Arcadia Board
Company, Ltd. Project, 7.50%, Due 8/01/22 2,500,000 2,506,250
New Orleans, Louisiana Regional Transit Authority
Tax-Exempt Lease-Purchase Agreements,
6.125%, Due 5/01/10:
Lease M98147 13,736,428 13,908,133
Lease M98159 1,292,101 1,308,252
-----------
17,722,635
MASSACHUSETTS 1.3%
Massachusetts IFA IDR - Welch Foods, Inc.,
5.60%, Due 12/01/17 1,700,000 1,768,000
Massachusetts Municipal Wholesale Electric
Company Power Supply System Revenue,
4.75%, Due 7/01/11 2,000,000 2,007,500
-----------
3,775,500
MICHIGAN 1.9%
Dearborn, Michigan EDC Hospital Revenue
Refunding - Oakwood Obligated Group,
5.25%, Due 8/15/21 2,765,000 2,806,475
Michigan Hospital Finance Authority Hospital
Revenue Refunding - Pontiac Osteopathic
Hospital, 6.00%, Due 2/01/14 2,500,000 2,621,875
-----------
5,428,350
MINNESOTA 0.4%
Golden Valley, Minnesota Governmental Facilities
Revenue - Local Government Information Systems
Association Project, 6.10%, Due 12/01/17 1,125,000 1,146,094
MISSOURI 2.2%
St. Louis, Missouri Municipal Finance Corporation
Leasehold Revenue Refunding, 5.85%,
Due 7/15/09 3,600,000 3,816,000
Springfield, Missouri Land Clearance
Redevelopment Authority Industrial Revenue
Refunding - University Plaza Project, 6.60%,
Due 10/01/11 2,465,000 2,612,900
-----------
6,428,900
MONTANA 0.5%
Crow Finance Authority Tribal Purpose Revenue,
5.70%, Due 10/01/27 1,500,000 1,573,125
NEW HAMPSHIRE 0.9%
New Hampshire Higher Educational and Health
Facilities Authority Revenue - Franklin Pierce
College Issue, 5.30%, Due 10/01/28 2,500,000 2,525,000
NEW MEXICO 1.6%
Albuquerque, New Mexico Industrial Revenue -
MCT Industries, Inc. Project, 6.50%, Due 4/01/17 4,330,000 4,660,162
15
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (CONTINUED) AUGUST 31, 1998
- -------------------------------------------------------------------------------
===============================================================================
STRONG MUNICIPAL BOND FUND (CONTINUED)
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
NEW YORK 2.5%
Dutchess County, New York Resource Recovery
Agency Solid Waste System Revenue, 5.40%,
Due 1/01/13 (b) $ 1,710,000 $ 1,733,513
New York Housing Corporation Revenue
Refunding, 5.00%, Due 11/01/13 1,000,000 1,010,000
New York, New York GO, 5.875%, Due 3/15/14 1,720,000 1,833,950
New York Urban Development Corporation
Revenue, 5.50%, Due 4/01/19 1,500,000 1,567,500
New York Urban Development Corporation
Revenue - University Facilities Grants
Project, 5.875%, Due 1/01/21 1,045,000 1,159,950
-----------
7,304,913
NORTH DAKOTA 0.5%
North Dakota Housing Finance Agency Housing
Finance Program - Home Mortgage Finance
Program, 6.40%, Due 1/01/28 1,385,000 1,509,650
OHIO 6.1%
Medina County, Ohio EDR MFHR - Camelot
Place, Ltd. Project, 8.375%, Due 10/01/23 3,800,000 3,933,000
Montgomery County, Ohio Health Care Facilities
Revenue Refunding - Friendship Village of
Dayton Project, 6.25%, Due 2/01/22 1,250,000 1,306,250
Ohio Housing Finance Agency Residential
Mortgage Revenue, 5.95%, Due 9/01/27 1,950,000 2,045,062
Toledo, Ohio MFMR - Commodore Perry
Apartments Project, 7.00%, Due 12/01/28 7,500,000 7,621,875
Toledo, Ohio Multifamily Housing Mortgage GO -
Commodore Perry Apartments Project, 5.45%,
Due 12/01/28 2,680,000 2,720,200
-----------
17,626,387
OKLAHOMA 5.4%
Oklahoma County, Oklahoma Finance Authority
MFHR First Mortgage - Multiple Apartments
Project, 7.125%, Due 4/01/28 10,170,000 10,258,988
Oklahoma Ordinance Works Authority PCR
Refunding - Ralston Purina Company
Project, 6.30%, Due 9/01/15 1,500,000 1,648,125
Shawnee, Oklahoma Hospital Authority Revenue -
MidAmerica HealthCare, Inc., 8.00%, Due 4/01/04 2,430,000 2,549,920
Washington County, Oklahoma Medical Authority
Revenue - Bartlesville Jane Phillips Episcopal
Hospital Project, 6.125%, Due 11/01/14 1,000,000 1,040,000
-----------
15,497,033
OREGON 0.4%
Washington County, Oregon MFHR - Bethany
Meadows Project, 6.25%, Due 8/01/10 1,000,000 1,030,000
PENNSYLVANIA 4.5%
Montgomery County, Pennsylvania IDA First
Mortgage Revenue Refunding - The Meadowood
Corporation, 6.25%, Due 12/01/17 1,500,000 1,573,125
Pennsylvania EDA Qualified Residential Rent
Project Revenue - RSI Properties/Butler LLC
Project, 8.00%, Due 9/01/27 2,360,000 2,433,750
Pennsylvania EDA Qualified Residential Rent
Project Revenue - RSI Properties/Greensburg
LLC Project, 8.00%, Due 9/01/27 2,655,000 2,737,969
Scranton-Lackawanna, Pennsylvania Health and
Welfare Authority Hospital Revenue - Marian
Community Hospital Project, 6.50%, Due 1/15/07 1,500,000 1,603,125
Scranton-Lackawanna, Pennsylvania Health and
Welfare Authority Hospital Revenue - Moses
Taylor Hospital Project, 6.25%, Due 7/01/20 4,200,000 4,483,500
-----------
12,831,469
RHODE ISLAND 0.6%
Rhode Island Health and Education Building
Corporation Hospital Financing Revenue - South
County Hospital Project, 6.00%, Due 11/15/17 1,630,000 1,742,063
SOUTH CAROLINA 5.0%
Connector 2000 Association, Inc. Senior Capital
Appreciation Toll Road Revenue - Greenville,
South Carolina Southern Connector Project:
Zero %, Due 1/01/12 3,900,000 1,867,125
Zero %, Due 1/01/14 1,200,000 511,500
Zero %, Due 1/01/26 10,000,000 2,075,000
Connector 2000 Association, Inc. Senior Current
Interest Toll Road Revenue - Greenville, South
Carolina Southern Connector Project, 5.25%,
Due 1/01/23 5,000,000 4,706,250
York County, South Carolina Exempt Facility
Industrial Revenue - Hoechst Celanese
Corporation Project, 5.70%, Due 1/01/24 4,890,000 5,061,150
-----------
14,221,025
SOUTH DAKOTA 1.7%
Education Loans, Inc. South Dakota Student Loan
Revenue Tax-Exempt Subordinated Asset-Backed,
5.60%, Due 6/01/20 3,000,000 3,026,250
South Dakota EDFA EDR Pooled Loan Program -
Midstates Printing, Inc. Project, 5.50%,
Due 4/01/18 685,000 684,144
South Dakota HDA Homeownership Mortgage,
6.40%, Due 5/01/16 1,000,000 1,082,500
-----------
4,792,894
TEXAS 8.1%
El Paso, Texas Property Finance Authority, Inc.
SFMR - GNMA Mortgage-Backed, 8.70%,
Due 12/01/18 545,000 592,006
Grape Creek-Pulliam, Texas Independent School
District Public Facility Corporation School
Facility Lease Revenue:
7.00%, Due 5/15/10 1,000,000 1,117,500
7.25%, Due 5/15/21 1,300,000 1,454,375
Guadalupe-Blanco River Authority, Texas Sewage
and Solid Waste Disposal Facility - E.I. du Pont
de Nemours and Company Project, 6.40%,
Due 4/01/26 4,000,000 4,405,000
Lufkin, Texas Health Facilities Development
Corporation Health System Revenue and
Refunding - Memorial Health System of East
Texas Project, 6.875%, Due 2/15/26 8,175,000 9,023,156
Port Arthur, Texas HFC Mortgage Revenue
Refunding - FHA Insured Mortgage Loans -
Port Arthur UDAG Projects, 6.40%, Due 1/01/28 3,565,000 3,850,200
Ranger, Texas Housing Corporation MFMR
Refunding - FHA Insured Mortgage Loans -
Ranger Apartments Project, 8.80%, Due 3/01/24 1,160,000 1,313,700
Texas Department of Housing and Community
Affairs SFMR, 6.00%, Due 9/01/17 1,315,000 1,410,338
-----------
23,166,275
UTAH 1.6%
Eagle Mountain, Utah Special Assessment, 5.90%,
Due 12/15/07 1,455,000 1,458,114
Salt Lake County, Utah College Revenue -
Westminster College of Salt Lake City
Project, 5.75%, Due 10/01/27 1,700,000 1,744,625
Salt Lake County, Utah Housing Authority MFHR -
Millcreek Pines Apartments Project, 6.80%,
Due 9/01/17 1,390,000 1,450,812
-----------
4,653,551
16
<PAGE>
- -------------------------------------------------------------------------------
===============================================================================
STRONG MUNICIPAL BOND FUND (CONTINUED)
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
VIRGINIA 0.6%
Pocahontas Parkway Association Route 895
Connector Toll Road Revenue, Zero %,
Due 8/15/17 $5,000,000 $ 1,762,500
WASHINGTON 1.1%
Chelan County, Washington Public Utility District
Number 1 - Chelan Hydro Consolidated System
Revenue, 5.60%, Due 7/01/32 1,000,000 1,033,750
Washington EDFA Nonrecourse Revenue - Lindal
Cedar Homes, Inc. Project, 5.80%, Due 11/01/17 2,175,000 2,248,406
------------
3,282,156
WISCONSIN 2.9%
Wisconsin Health and EFA Revenue - Howard
Young Medical Center, Inc. Project, 5.75%,
Due 8/15/13 1,250,000 1,306,250
Wisconsin Health and EFA Revenue - St. John's
Home of Milwaukee and Sunrise Care Center, Inc.
Obligated Group Project, 5.625%, Due 12/15/22 5,450,000 5,463,625
Wisconsin Housing and EDA Home Ownership
Revenue, 6.20%, Due 3/01/27 1,480,000 1,581,750
------------
8,351,625
- ------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (COST $268,342,953) 287,342,252
- ------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 1.0%
MUNICIPAL MONEY MARKET FUNDS
MULTIPLE STATES
Strong Municipal Money Market Fund (d) 3,000,000 3,000,000
- ------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $3,000,000) 3,000,000
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST $271,342,953) 101.2% 290,342,252
Other Assets and Liabilities, Net (1.2%) (3,428,235)
- ------------------------------------------------------------------------------
NET ASSETS 100.0% $286,914,017
==============================================================================
===============================================================================
STRONG SHORT-TERM HIGH YIELD MUNICIPAL FUND
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
MUNICIPAL BONDS 86.7%
CALIFORNIA 0.1%
Los Angeles, California Regional Airports
Improvement Corporation Lease Revenue
Facilities - Continental Airlines, Inc. Project,
9.25%, Due 8/01/24 $ 85,000 $ 102,531
COLORADO 1.9%
Black Hawk, Colorado Business Improvement
District Special Assessment Special Improvement
District Number 1997-1, 6.00%, Due 12/01/09 1,470,000 1,482,862
Colorado Health Facilities Authority Hospital
Revenue - Steamboat Springs Health Care
Association Project:
4.80%, Due 9/15/01 245,000 246,838
4.90%, Due 9/15/02 230,000 232,300
----------
1,962,000
CONNECTICUT 1.2%
Connecticut Health and EFA Revenue - New
Opportunities For Waterbury, Inc. Project,
6.75%, Due 7/01/13 1,205,000 1,223,075
FLORIDA 3.2%
Arbor Greene, Florida Community Development
District Special Assessment Revenue, 7.00%,
Due 5/01/03 1,145,000 1,186,506
Broward County, Florida IDR - Beverly Enterprises-
Florida, Inc. Project, 9.80%, Due 11/01/10 1,000,000 1,107,500
Leon County, Florida IDR - Beverly Enterprises-
Florida, Inc. Project, 9.80%, Due 6/01/11 860,000 944,925
Orlando and Orange County, Florida Expressway
Authority Expressway Revenue Refunding,
5.95%, Due 7/01/23 10,000 10,325
----------
3,249,256
HAWAII 0.1%
Hawaii Department of Transportation Special
Facility Revenue - Continental Airlines, Inc.
Project, 9.60%, Due 6/01/08 50,000 54,812
IDAHO 0.0%
Idaho Student Loan Fund Marketing Association, Inc.
Student Loan Revenue, 5.10%, Due 10/01/02 10,000 9,988
ILLINOIS 7.7%
Carol Stream, Illinois First Mortgage Revenue -
Windsor Park Manor Project, 6.25%, Due 12/01/01 250,000 255,625
Chicago, Illinois O'Hare International Airport
Special Facilities Revenue - American
Airlines, Inc. Project, 7.875%, Due 11/01/25 165,000 179,438
Granite City, Illinois Hospital Revenue Refunding -
Saint Elizabeth Medical Center Project, 8.125%,
Due 6/01/08 915,000 955,580
Illinois DFA Industrial Revenue Refunding - Great
Plains Hotel Corporation of Illinois Project,
7.50%, Due 4/01/16 270,000 273,982
Illinois DFA MFHR - Town and Garden Apartments
Project, 7.20%, Due 9/01/08 2,250,000 2,415,938
Illinois Health Facilities Authority Revenue
Refunding - Bohemian-Tabor Hills Project, 5.90%,
Due 11/15/21 1,700,000 1,704,250
Illinois Health Facilities Authority Revenue
Refunding - Lifelink Corporation Obligated
Group, 5.95%, Due 2/15/21 2,000,000 2,002,500
----------
7,787,313
INDIANA 0.2%
Indianapolis, Indiana Economic Development
MFHR - Post Pointe Apartments Project, 8.20%,
Due 3/01/01 210,000 214,200
IOWA 2.7%
Harlan, Iowa Revenue - American Baptist Homes of
the Midwest - Baptist Memorial Home Project,
5.875%, Due 5/15/23 920,000 922,300
Ottumwa, Iowa Hospital Facility Revenue Refunding
and Improvement - Ottumwa Regional Health
Center, Inc. Project, 6.00%, Due 10/01/18 25,000 26,125
Ottumwa, Iowa Revenue Refunding - Regional
Retirement Living Project, 5.90%, Due 2/15/24 1,740,000 1,744,350
----------
2,692,775
17
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (CONTINUED) AUGUST 31, 1998
- -------------------------------------------------------------------------------
===============================================================================
STRONG SHORT-TERM HIGH YIELD MUNICIPAL FUND (CONTINUED)
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
KANSAS 2.7%
Lawrence, Kansas CDR Refunding - Holiday Inn
Project, 7.00%, Due 7/01/00 $ 190,000 $ 195,462
Manhattan, Kansas CDR Refunding - Holiday Inn
Project, 7.00%, Due 7/01/00 190,000 195,462
Topeka, Kansas Industrial Revenue Refunding -
Reser's Fine Foods, Inc. Project 4.75%,
Due 4/01/00 100,000 100,125
5.00%, Due 4/01/01 300,000 300,375
5.20%, Due 4/01/03 300,000 300,750
5.30%, Due 4/01/04 300,000 300,750
Wathena, Kansas Industrial Revenue - Skyjack
Equipment, Inc. Project:
5.00%, Due 5/01/01 85,000 84,894
5.15%, Due 5/01/02 390,000 390,000
5.25%, Due 5/01/03 130,000 130,000
5.40%, Due 5/01/04 345,000 345,431
5.50%, Due 5/01/05 335,000 335,419
----------
2,678,668
LOUISIANA 3.5%
Hodge, Louisiana Utility Revenue - Stone Container
Corporation Project, 9.00%, Due 3/01/10 100,000 107,250
Louisiana Public Facilities Authority Revenue -
Health and Higher Education Project, 7.90%,
Due 12/01/15 10,000 10,296
West Feliciana Parish, Louisiana PCR - Gulf States
Utilities Company III Project, 7.70%, Due 12/01/14 3,000,000 3,360,000
----------
3,477,546
MARYLAND 1.1%
Baltimore County, Maryland IDR - Barre-National,
Inc. Equipment Project, 6.875%, Due 7/01/09 1,200,000 1,086,000
Howard County, Maryland IDR Refunding - Keebler
Company Project, 5.95%, Due 3/01/00 65,000 65,812
----------
1,151,812
MASSACHUSETTS 6.4%
Massachusetts Health and EFA Revenue - New
England Memorial Hospital Project, 5.90%,
Due 7/01/03 85,000 85,000
Massachusetts Health and EFA Revenue - Saints
Memorial Medical Center, 5.50%, Due 10/01/02 3,500,000 3,548,125
Massachusetts Industrial Finance Agency Health
Care Facility Revenue - Metro Health Foundation
of Massachusetts, Inc. Project, 6.25%,
Due 12/01/03 2,000,000 2,027,500
Massachusetts Industrial Finance Agency Revenue -
Institute for Developmental Disabilities Project,
9.25%, Due 6/01/09 765,000 788,279
----------
6,448,904
MINNESOTA 1.5%
Burnsville, Minnesota CDR Refunding - Holiday Inn
Project, 5.875%, Due 4/01/08 1,430,000 1,465,750
MISSOURI 1.3%
Columbia, Missouri IDR - American Air Filter
Company, Inc. Project, 7.45%, Due 7/01/04 1,280,000 1,285,568
MONTANA 0.3%
Crow Finance Authority Tribal Purpose Revenue,
4.75%, 10/01/00 290,000 292,900
NEW MEXICO 3.9%
Chaves County, New Mexico Hospital Revenue -
Eastern New Mexico Medical Center Project,
7.25%, Due 12/01/10 1,860,000 2,113,425
Santa Fe County, New Mexico Project Revenue -
El Castillo Retirement Residences Project, 5.80%,
Due 5/15/18 1,835,000 1,839,588
----------
3,953,013
NEW YORK 7.9%
Monroe County, New York IDR Agency - Empire
Sports Project, 6.50%, Due 3/01/08 1,105,000 1,140,913
Rockland County, New York IDR Agency Civic
Facility - Dominican College Project, 5.50%,
Due 5/01/02 740,000 741,850
Tompkins County, New York IDR Agency Life Care
Community - Kendal at Ithaca, Inc. Project:
7.25%, Due 6/01/03 90,000 92,319
7.625%, Due 6/01/09 445,000 455,204
United Nations Development Corporation Revenue
Refunding, 5.60%, Due 7/01/26
Series B 2,500,000 2,510,200
Series C 3,000,000 3,011,040
----------
7,951,526
NORTH CAROLINA 1.4%
Fletcher, North Carolina First Mortgage Housing
Revenue - Avery's View Retirement Facilities, Inc.
Project, 8.00%, Due 3/01/10 1,000,000 1,053,750
North Carolina Medical Care Commission Health
Care Facilities First Mortgage Revenue - DePaul
Community Facilities Project, 5.75%, Due 1/01/03 325,000 325,813
----------
1,379,563
OHIO 9.5%
Cleveland, Ohio Airport Special Revenue
Refunding - Continental Airlines, Inc.
Project, 5.25%, Due 12/01/02 (b) 6,475,000 6,499,281
Cuyahoga County, Ohio MFHR - The Park Lane
Apartments Project, 7.70%, Due 7/01/02 270,000 276,075
Ohio Water Development Authority Solid Waste
Disposal Revenue - Bay Shore Power Project,
5.375%, Due 9/01/02 2,800,000 2,814,000
----------
9,589,356
OKLAHOMA 0.9%
Leflore County, Oklahoma Hospital Authority
Hospital Revenue:
4.90%, 6/01/00 185,000 185,694
5.05%, 6/01/01 205,000 206,025
5.25%, 6/01/02 235,000 236,762
5.45%, 6/01/03 260,000 262,275
----------
890,756
PENNSYLVANIA 7.0%
Bucks County, Pennsylvania IDA CDR - Attleboro
Associates, Ltd. Nursing Facility Project, 8.00%,
Due 12/01/05 1,335,000 1,498,537
Dauphin County, Pennsylvania General Authority
Subordinated Office and Parking Revenue - River
Front Office Center Project, 5.35%, Due 1/01/02 1,120,000 1,121,400
Harrisburg, Pennsylvania Authority Office and
Parking Revenue, 5.25%, Due 5/01/02 1,030,000 1,035,150
Luzerne County, Pennsylvania IDA IDR, 6.25%,
Due 3/15/08 900,000 900,594
Pennsylvania EDFA Qualified Residential Rent
Project Revenue - RSI Properties/Butler LLC
Project, 7.00%, Due 9/01/02 300,000 304,125
Pennsylvania EDFA Qualified Residential Rent
Project Revenue - RSI Properties/Greensburg LLC
Project, 7.00%, Due 9/01/02 300,000 304,125
18
<PAGE>
- -------------------------------------------------------------------------------
===============================================================================
STRONG SHORT-TERM HIGH YIELD MUNICIPAL FUND (CONTINUED)
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
Westmoreland County, Pennsylvania IDA Health
Care Facilities Revenue Refunding - Redstone
Presbyterian Senior Care Obligated Group
Project, 5.90%, Due 11/15/21 $1,915,000 $ 1,917,394
------------
7,081,325
SOUTH DAKOTA 0.9%
Lincoln County, South Dakota Revenue - American
Baptist Homes of the Midwest - Trail Ridge
Project, 5.875%, Due 11/15/21 945,000 948,544
TEXAS 3.7%
DeSoto, Texas IDA IDR - Wintergreen Commercial
Partnership Project, 7.00%, Due 1/01/17 1,252,112 1,277,155
Jefferson County, Texas Health Facilities
Development Corporation Hospital Revenue -
Baptist Health Care System Project, 8.875%,
Due 6/01/21 2,350,000 2,439,394
------------
3,716,549
VIRGINIA 0.5%
Virginia Housing Development Authority
Commonwealth SFMR, 6.625%, Due 1/01/10 200,000 208,500
Virginia Small Business Financing Authority IDR -
Albion Enterprises LLC Project, 6.00%,
Due 1/01/02 250,000 250,938
------------
459,438
WEST VIRGINIA 2.9%
Harrison County, West Virginia CDR Refunding -
Kmart Corporation Project, 7.625%, Due 12/01/04 80,000 87,200
Weirton, West Virginia PCR - Weirton Steel Project,
8.625%, Due 11/01/14 2,730,000 2,873,325
------------
2,960,525
WISCONSIN 12.9%
Glendale, Wisconsin Community Development
Authority Lease Revenue:
5.50%, Due 9/01/17 3,000,000 3,011,250
5.50%, Due 9/01/19 3,000,000 3,011,250
Wisconsin Health and Educational Facilities
Authority Revenue - Beaver Dam Community
Hospital, Inc. Project, 5.70%, Due 8/15/18 (b) 2,000,000 2,005,000
Wisconsin Health and Educational Facilities
Authority Revenue - Linden Grove, Inc. Project,
6.15%, Due 11/01/19 405,000 405,522
Wisconsin Health and Educational Facilities
Authority Revenue - Lutheran Home for the
Aging Project, 7.00%, Due 9/01/25 30,000 31,388
Wisconsin Health and Educational Facilities
Authority Revenue - Oakwood Project, 5.90%,
Due 8/15/28 3,565,000 3,569,456
Wisconsin Health and Educational Facilities
Authority Revenue - Oconomowoc Memorial
Hospital, Inc. Project, 6.20%, Due 7/01/12 950,000 967,812
------------
13,001,678
WYOMING 1.3%
Teton County, Wyoming Hospital District Hospital
Revenue Refunding and Improvement, 4.85%,
Due 12/01/02 1,265,000 1,271,325
- ------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (COST $89,774,159) 87,300,696
- ------------------------------------------------------------------------------
VARIABLE RATE PUT BONDS 5.9%
ARIZONA 2.9%
Maricopa County, Arizona IDA IDR - Borden, Inc.
Project, 4.39%, Due 10/01/12 (Putable at $100
and Rate Reset Effective 10/01/00) 3,000,000 2,955,000
TEXAS 3.0%
Abilene, Texas Health Facilities Development
Corporation - Sears Methodist Retirement System
Obligated Group Project EXTRAS, 5.25%,
Due 11/15/28 (Putable at $100 and Rate Reset
Effective 11/15/03) (b) 3,000,000 3,000,000
- ------------------------------------------------------------------------------
TOTAL VARIABLE RATE PUT BONDS (COST $2,942,000) 5,955,000
- ------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 17.0%
MUNICIPAL BONDS 0.6%
KANSAS 0.5%
Lawrence, Kansas CDR Refunding - Holiday Inn
Project, 7.00%, Due 7/01/99 180,000 183,908
Manhattan, Kansas CDR Refunding - Holiday Inn
Project, 7.00%, Due 7/01/99 180,000 183,908
Topeka, Kansas Industrial Revenue Refunding -
Reser's Fine Foods, Inc. Project, 4.50%,
Due 4/01/99 175,000 175,084
------------
542,900
MARYLAND 0.1%
Howard County, Maryland IDR Refunding - Keebler
Company Project, 5.70%, Due 3/01/99 50,000 50,258
------------
Total Municipal Bonds 593,158
DAILY VARIABLE RATE PUT BONDS 11.7%
ARIZONA 3.5%
Maricopa County, Arizona Pollution Control
Corporation PCR Refunding - Arizona
Public Service Company Palo Verde Project,
3.30%, Due 9/01/98 3,500,000 3,500,000
DELAWARE 3.9%
Delaware EDA Solid Waste Disposal and Sewer
Facilities - CIBA Specialty Project, 3.40%,
Due 9/01/98 4,000,000 4,000,000
MICHIGAN 1.0%
Delta County, Michigan EDC Environmental
Improvement Revenue - Mead-Escanaba Paper
Company Project, 3.375%, Due 9/01/98 1,000,000 1,000,000
TEXAS 3.3%
Brazos River Authority, Texas Revenue Refunding -
Houston Lighting & Power Company Project,
3.35%, Due 9/01/98 1,300,000 1,300,000
Matagorda County, Texas Navigation District
Number 1 Revenue Refunding - Houston Lighting
and Power Company Project, 3.40%, Due 9/01/98 2,000,000 2,000,000
------------
3,300,000
------------
Total Daily Variable Rate Put Bonds 11,800,000
MUNICIPAL MONEY MARKET FUNDS 4.7%
MULTIPLE STATES
Strong Municipal Money Market Fund (d) 4,700,000 4,700,000
- ------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $17,090,076) 17,093,158
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST $109,806,235) 109.6% 110,348,854
Other Assets and Liabilities, Net (9.6%) (9,711,386)
- ------------------------------------------------------------------------------
NET ASSETS 100.0% $100,637,468
==============================================================================
19
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (CONTINUED) AUGUST 31, 1998
- -------------------------------------------------------------------------------
===============================================================================
STRONG SHORT-TERM MUNICIPAL BOND FUND
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
MUNICIPAL BONDS 80.0%
ALABAMA 0.2%
Bessemer, Alabama IDB IDR - Berman Brothers
Project, 7.65%, Due 9/01/00 $ 505,000 $ 516,362
ARIZONA 0.7%
Maricopa County, Arizona IDA MFHR - Mercy
Bond Properties Arizona I-A, 5.20%, Due 1/01/04 930,000 963,713
Phoenix, Arizona IDA Hospital Revenue - John C.
Lincoln Hospital and Health Center Project,
4.65%, Due 12/01/99 450,000 452,812
-----------
1,416,525
CALIFORNIA 1.1%
California Health Facilities Financing Authority
Hospital Revenue - Downey Community Hospital,
4.90%, Due 5/15/00 2,325,000 2,354,063
COLORADO 1.8%
Arapahoe County, Colorado E-470 Public Highway
Authority Capital Improvement Trust Fund
Highway Revenue, Zero %, Due 8/31/03 500,000 408,125
Eaglebend, Colorado Affordable Housing
Corporation MFHR Project Refunding, 5.45%,
Due 7/01/02 1,070,000 1,090,063
Mesa County, Colorado IDR Refunding - Joy
Technologies, Inc. Project, 8.50%, Due 9/15/06 1,020,000 1,150,050
Miners Mesa, Colorado Commercial Metropolitan
District GO, 6.75%, Due 12/01/02 1,200,000 1,201,308
-----------
3,849,546
CONNECTICUT 0.7%
Connecticut IDA - The Olympic Hotel Corporation
Project, 6.95%, Due 8/01/03 1,364,894 1,400,723
DISTRICT OF COLUMBIA 1.5%
District of Columbia Hospital Revenue Refunding -
Medlantic Healthcare Group, Inc. Project, 6.50%,
Due 8/15/02 2,925,000 3,133,406
FLORIDA 1.5%
Duval County, Florida School District GO
Refunding, 6.00%, Due 8/01/03 1,000,000 1,078,750
Florida Housing Finance Agency MFMR -
Hammocks Place Project, 6.25%, Due 12/01/06 2,000,000 2,105,000
-----------
3,183,750
GEORGIA 2.4%
Athens-Clarke County, Georgia Residential Care
Facilities for the Elderly Authority Revenue -
Wesley Woods of Athens, Inc. Project, 5.30%,
Due 10/01/01 1,000,000 1,011,250
George L. Smith II Georgia World Congress Center
Authority Revenue Refunding - Domed Stadium
Project, 7.875%, Due 7/01/20 3,750,000 4,087,500
-----------
5,098,750
GUAM 7.2%
Guam Airport Authority General Revenue:
5.80%, Due 10/01/99 1,450,000 1,478,753
6.00%, Due 10/01/00 2,300,000 2,383,375
6.40%, Due 10/01/05 7,045,000 7,652,631
Guam Government GO, 5.70%, Due 9/01/03 3,630,000 3,659,004
-----------
15,173,763
ILLINOIS 2.6%
Illinois EFA Revenue - Lewis University Project:
4.50%, Due 10/01/99 470,000 472,392
5.30%, Due 10/01/04 1,390,000 1,433,437
Illinois Health Facilities Authority Revenue -
Covenant Retirement Communities Project, 7.60%,
Due 12/01/12 750,000 843,750
Naperville, DuPage County and Will County, Illinois
EDR Refunding - Illinois Hospital & Health
Systems Association Project, 5.70%, Due 5/01/04 2,650,000 2,789,125
-----------
5,538,704
IOWA 2.3%
Cedar Rapids, Iowa First Mortgage Revenue -
Cottage Grove Place Project, 7.25%, Due 7/01/02 3,065,000 3,130,070
Iowa Finance Authority Mortgage Revenue
Refunding - Friendship Village Project,
4.95%, Due 11/01/00 1,700,000 1,729,750
-----------
4,859,820
KENTUCKY 1.6%
Mount Sterling, Kentucky League of Cities Funding
Trust Lease Program Revenue, 5.625%,
Due 3/01/03 3,250,000 3,445,000
LOUISIANA 0.2%
Louisiana Public Facilities Authority Student Loan
Revenue, 6.75%, Due 9/01/06 410,000 438,700
MAINE 3.0%
Maine Educational Loan Marketing Corporation
Student Loan Revenue Refunding, 6.90%,
Due 11/01/03 2,570,000 2,730,625
Maine Finance Authority Electric Rate Stabilization
Revenue Refunding - Penobscot Energy Recovery
Company LP Project, 5.20%, Due 7/01/18 3,625,000 3,679,375
-----------
6,410,000
MARYLAND 2.4%
Baltimore, Maryland Refunding COP Refunding -
Board of Education Administrative
Headquarters/Municipal Capital Project:
4.55%, Due 4/01/01 (b) 1,000,000 1,010,000
4.65%, Due 4/01/02 (b) 1,975,000 2,004,625
4.75%, Due 4/01/03 (b) 2,065,000 2,095,975
-----------
5,110,600
MASSACHUSETTS 5.1%
Massachusetts Education Loan Authority Education
Loan Revenue, 7.45%, Due 1/01/02 1,255,000 1,289,261
Massachusetts Industrial Finance Agency Refunding
Revenue - Emerson College Issue,
8.50%, Due 1/01/03 3,900,000 4,275,375
Massachusetts Industrial Finance Agency Water
Treatment Revenue - Massachusetts-American
Hingham Project, 6.25%, Due 12/01/10 4,695,000 5,141,025
-----------
10,705,661
MICHIGAN 1.3%
Flint, Michigan Hospital Building Authority Revenue
Refunding - Hurley Medical Center Project:
5.75%, Due 7/01/03 1,000,000 1,051,250
6.00%, Due 7/01/04 1,005,000 1,076,606
6.00%, Due 7/01/05 510,000 548,888
-----------
2,676,744
MISSISSIPPI 2.3%
Mississippi Higher Education Assistance Corporation
Student Loan Revenue:
5.60%, Due 9/01/04 2,505,000 2,620,856
5.80%, Due 9/01/06 2,050,000 2,144,813
-----------
4,765,669
20
<PAGE>
- -------------------------------------------------------------------------------
===============================================================================
STRONG SHORT-TERM MUNICIPAL BOND FUND (CONTINUED)
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
MISSOURI 0.9%
Springfield, Missouri Land Clearance Redevelopment
Authority Industrial Revenue Refunding -
University Plaza Project, 6.30%, Due 10/01/06 $1,790,000 $ 1,883,975
NEW JERSEY 0.5%
New Jersey Health Care Facilities Finance Authority
Revenue - Southern Ocean County Hospital
Project, 5.75%, Due 7/01/01 1,100,000 1,131,625
NEW YORK 2.2%
New Rochelle, New York Municipal Housing
Authority Mortgage Revenue, 4.70%,
Due 12/01/03 1,750,000 1,771,875
New York Environmental Facilities Corporation
State Water Revolving Fund PCR - Pilgrim State
Sewage Treatment Project, 5.625%, Due 3/15/04 1,200,000 1,291,500
New York, New York GO, 5.875%, Due 8/01/03 1,500,000 1,616,250
-----------
4,679,625
OHIO 6.9%
Akron, Ohio COP - Akron Municipal Baseball
Stadium Project:
Zero %, Due 12/01/01 1,000,000 870,000
Zero %, Due 12/01/02 1,240,000 1,086,550
Cleveland, Ohio City School District Energy
Conservation Improvement GO:
6.53%, Due 3/15/00 650,000 672,750
6.53%, Due 9/15/00 670,000 700,988
6.53%, Due 3/15/01 690,000 727,950
6.53%, Due 9/15/01 715,000 761,475
6.53%, Due 3/15/02 740,000 791,896
6.53%, Due 9/15/02 760,000 813,299
6.53%, Due 3/15/03 785,000 839,220
6.53%, Due 9/15/03 815,000 871,292
6.53%, Due 3/15/04 840,000 896,944
6.53%, Due 9/15/04 865,000 923,638
Cuyahoga County, Ohio IDR Refunding - Joy
Technologies, Inc. Project, 8.75%, Due 9/15/07 1,000,000 1,136,250
Montgomery County, Ohio Health Care Facilities
Revenue Refunding - Friendship Village of
Dayton Project, 5.15%, Due 2/01/03 2,025,000 2,030,062
Montgomery County, Ohio Health Care Facilities
Revenue Refunding EXTRAS - Friendship
Village of Dayton Project, 5.375%, Due 2/01/22
(Putable at $100 on 2/01/03) 1,050,000 1,057,875
Wood County, Ohio IDR - Abbey Etna Machine
Company Project, 7.625%, Due 7/01/01 285,000 296,044
-----------
14,476,233
OREGON 2.8%
Hillsboro, Oregon Hospital Facility Authority
Revenue and Advance Refunding - Tuality
Healthcare Project, 4.80%, Due 10/01/00 5,775,000 5,861,625
PENNSYLVANIA 7.3%
Delaware County, Pennsylvania Authority Health
Facilities Revenue - Mercy Health Corporation of
Southeastern Pennsylvania Obligated Group,
6.00%, Due 11/15/07 5,575,000 6,160,375
Horizon Hospital System Authority Hospital
Revenue, 5.40%, Due 5/15/01 1,680,000 1,719,900
Montgomery County, Pennsylvania IDA First
Mortgage Revenue - Pennsylvania Nursing and
Rehabilitation Center Project, 7.625%, Due 7/01/18 4,700,000 5,610,625
Sharon, Pennsylvania Regional Health Systems
Authority Hospital Refunding Revenue - Sharon
Regional Health Systems Project:
6.40%, Due 12/01/00 705,000 745,538
6.50%, Due 12/01/01 255,000 275,719
6.60%, Due 12/01/02 800,000 883,000
-----------
15,395,157
SOUTH CAROLINA 1.5%
Charleston County, South Carolina First Mortgage
Health Facilities Revenue - The Episcopal Church
Home Project, 5.40%, Due 4/01/04 3,020,000 3,050,200
SOUTH DAKOTA 0.8%
South Dakota EDFA EDR Refunding - Pooled Loan
Program - Technical Ordinance Project, 5.75%,
Due 4/01/07 1,500,000 1,612,500
TENNESSEE 0.5%
Tennessee Housing Development Agency
Homeownership Program Revenue, Zero %,
Due 7/01/05 1,585,000 1,151,106
TEXAS 12.4%
Brazos, Texas Higher Education Authority, Inc.
Student Loan Revenue Refunding, 5.95%,
Due 6/01/02 3,040,000 3,176,800
Falcons Lair Utility and Reclamation District COP,
7.10%, Due 10/15/03 5,855,000 5,964,781
Farmers Branch, Texas IDC IDR - Thermalloy, Inc.
Project:
6.29%, Due 4/24/00, Series A 215,000 215,537
6.29%, Due 4/24/00, Series B 215,000 215,537
6.29%, Due 4/24/01, Series A 235,000 235,588
6.29%, Due 4/24/01, Series B 235,000 235,588
Harris County, Texas HFC MFHR - Bryant
Development Project, 6.375%, Due 9/01/05 619,629 625,826
Hidalgo County, Texas Health Services Corporation
Hospital Revenue - Mission Hospital, Inc. Project,
5.75%, Due 8/15/01 1,355,000 1,392,263
Lancaster, Texas HFC MFHR - Intervest-Lancaster
Project:
6.12%, Due 6/15/04 2,925,000 2,932,313
6.757%, Due 6/15/04 377,812 378,757
Mesquite, Texas HFC MFHR - GTR Associates -
Prescott Place Apartments Project, 5.95%,
Due 12/15/03:
Series A 4,403,835 4,414,845
Series B 1,467,945 1,471,615
Odessa, Texas Housing Authority MFMR -
Section 8 Assisted Project:
5.875%, Due 10/01/03 1,385,000 1,405,775
6.375%, Due 10/01/11 2,735,000 2,799,956
Robstown, Texas Combination Tax and Limited
Pledge Revenue COP, 7.75%, Due 10/01/12 530,000 575,050
-----------
26,040,231
UTAH 2.3%
Eagle Mountain, Utah Water and Sewer Revenue
BAN, 5.375%, Due 9/01/01 4,910,000 4,928,412
WASHINGTON 3.9%
Seattle, Washington Solid Waste Revenue
Refunding, 4.75%, Due 8/01/00 (b) 2,930,000 2,992,263
Walla Walla, Washington Housing Authority
Revenue - Wilbur Manor Project, 6.25%,
Due 12/01/11 1,510,000 1,562,850
21
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (CONTINUED) AUGUST 31, 1998
- -------------------------------------------------------------------------------
===============================================================================
STRONG SHORT-TERM MUNICIPAL BOND FUND (CONTINUED)
===============================================================================
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
Washington Health Care Facilities Authority
Revenue - Sisters of Providence, 5.375%,
Due 10/01/00 $3,500,000 $ 3,613,750
------------
8,168,863
WISCONSIN 0.1%
Wisconsin Rapids, Wisconsin GO, 6.10%,
Due 9/01/99 225,000 227,599
- ------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (COST $162,980,945) 168,684,937
- ------------------------------------------------------------------------------
VARIABLE RATE PUT BONDS 13.8%
ARIZONA 1.3%
Scottsdale, Arizona IDA First Mortgage Revenue
Refunding - Westminster Village, Inc. Project,
5.50%, Due 6/01/17 (Putable at $100 and Rate
Reset Effective 12/01/99) 2,600,000 2,635,724
CALIFORNIA 1.0%
Sacramento County, California MFHR Refunding -
Fairways II Apartments Project, 5.35%,
Due 8/01/25 (Mandatory Put at $100 on 8/01/05) 1,935,000 2,017,237
GEORGIA 2.7%
Atlanta, Georgia Urban Residential Finance
Authority MFHR Refunding - Ford Factory
Square Apartments Project, 6.00%, Due 12/01/30
(Mandatory Put at $100 on 12/01/02) 5,655,000 5,711,550
MISSOURI 0.6%
St. Louis County, Missouri IDA MFHR Refunding -
Heatherbrook Gardens Project, 5.10%, Due 3/01/05
(Mandatory Put at $100 on 3/01/02) 1,320,000 1,349,700
SOUTH CAROLINA 1.2%
South Carolina Jobs EDA EDR Refunding, 5.20%,
Due 11/15/28 (Putable at $100 and Rate Reset
Effective 11/15/03) (b) 2,455,000 2,455,000
TEXAS 2.7%
Trinity River Authority Refunding - Texas
Industries, Inc. Project, 6.375%, Due 9/01/07
(Putable at $100 and Rate Reset Effective
11/01/01) 1,450,000 1,498,937
Trinity River Authority Refunding - Texas
Industries, Inc. Project, Series A, 6.375%, Due
9/01/07 (Putable at $100 and Rate Reset Effective
11/01/01) 4,130,000 4,269,388
------------
5,768,325
VIRGINIA 4.3%
James City County, Virginia IDA Residential Care
Facility First Mortgage Revenue - Williamsburg
Landing, Inc. Project, 5.75%, Due 3/01/26
(Putable at $100 and Rate Reset Effective 9/01/01) 3,000,000 3,026,310
Prince William County, Virginia IDA Residential
Care Facility First Mortgage Revenue -
Westminster Presbyterian Retirement Project,
6.00%, Due 1/01/25 (Putable at $100 and Rate
Reset Effective 1/01/03) 6,000,000 6,031,380
------------
9,057,690
- ------------------------------------------------------------------------------
TOTAL VARIABLE RATE PUT BONDS (COST $28,550,527) 28,995,226
- ------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 9.7%
MUNICIPAL BONDS 1.7%
FLORIDA 0.3%
Duval County, Florida School District GO
Refunding, 5.50%, Due 8/01/99 535,000 543,672
ILLINOIS 0.1%
Collinsville, Illinois Madison County IDR Refunding -
Drury Inn-Collinsville Project, 5.25%,
Due 11/01/98 260,000 260,465
NEW MEXICO 0.2%
New Mexico Educational Assistance Foundation
Student Loan Revenue, 4.40%, Due 12/01/98 515,000 515,366
OHIO 0.1%
Wood County, Ohio IDR - Abbey Etna Machine
Company Project, 7.55%, Due 7/01/99 145,000 147,771
TEXAS 0.8%
Brazos, Texas Higher Education Authority, Inc.
Student Loan Revenue Refunding, 6.50%,
Due 3/01/99 1,345,000 1,359,970
Farmers Branch, Texas IDC IDR - Thermalloy, Inc.
Project, 6.29%, Due 4/24/99
Series A 195,000 195,488
Series B 195,000 195,488
------------
1,750,946
WISCONSIN 0.2%
Glendale, Wisconsin IDR - Autorol Corporation Project:
7.00%, Due 9/30/98 100,000 100,253
7.50%, Due 9/30/98 250,000 250,722
------------
350,975
------------
Total Municipal Bonds 3,569,195
ANNUAL VARIABLE RATE PUT BONDS 3.6%
ILLINOIS 1.8%
Peoria County, Illinois Congregate Care Revenue -
St. Francis Woods Project, 5.625%, Due 4/01/99 3,775,000 3,794,026
MISSOURI 1.8%
Jackson County, Missouri IDA MFHR - Pine Valley
Apartments Project, 5.625%, Due 3/01/99 3,825,000 3,841,715
------------
Total Annual Variable Rate Put Bonds 7,635,741
DAILY VARIABLE RATE PUT BONDS 0.6%
CALIFORNIA
Los Angeles County, California IDA IDR - Walter
and Howard Lim Project, 4.20%, Due 9/01/98 1,250,000 1,250,000
CORPORATE NOTES 1.5%
Water Quality Management Corporation, Series 98
Taxable, 5.50%, 8/15/99 3,250,000 3,206,288
MUNICIPAL MONEY MARKET FUNDS 2.3%
MULTIPLE STATES
Strong Municipal Money Market Fund (d) 4,900,000 4,900,000
- ------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $20,505,864) 20,561,224
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST $212,037,336) 103.5% 218,241,387
Other Assets and Liabilities, Net (3.5%) (7,446,787)
- ------------------------------------------------------------------------------
NET ASSETS 100.0% $210,794,600
==============================================================================
22
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LEGEND
- -------------------------------------------------------------------------------
(a) Short-term investments include any security which has a maturity of less
than one year.
(b) All or a portion of security is when-issued.
(c) All or a portion of security pledged to cover margin requirements for
futures contracts.
(d) Affiliated issuer (see note 6 of notes to financial statements).
Percentages are stated as a percent of net assets.
Maturity date represents actual maturity or the longer of the next put date or
interest adjustment date.
See notes to financial statements.
ABBREVIATIONS
- -------------------------------------------------------------------------------
The following is a list of abbreviations that may be used in the Schedules
of Investments in Securities:
BAN -- Bond Anticipation Notes
CDA -- Commercial Development Authority
CDR -- Commercial Development Revenue
COP -- Certificates of Participation
DFA -- Development Finance Authority
EDA -- Economic Development Authority
EDC -- Economic Development Corporation
EDFA -- Economic Development Finance Authority
EDR -- Economic Development Revenue
EFA -- Educational Facilities Authority
EXTRAS -- Extendable Rate Adjustable Securities
GO -- General Obligation
HDA -- Housing Development Authority
HDC -- Housing Development Corporation
HFA -- Housing Finance Authority
HFC -- Housing Finance Corporation
IBA -- Industrial Building Authority
IBR -- Industrial Building Revenue
IDA -- Industrial Development Authority
IDB -- Industrial Development Board
IDC -- Industrial Development Corporation
IDFA -- Industrial Development Finance Authority
IDR -- Industrial Development Revenue
IFA -- Investment Finance Authority
MFHR -- Multi-Family Housing Revenue
MFMR -- Multi-Family Mortgage Revenue
PCR -- Pollution Control Revenue
RAN -- Revenue Anticipation Notes
SFHR -- Single Family Housing Revenue
SFMR -- Single Family Mortgage Revenue
TAN -- Tax Anticipation Notes
TRAN -- Tax and Revenue Anticipation Notes
23
<PAGE>
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
- ----------------------------------------------------------------------------------------------
August 31, 1998
(In Thousands, Except Per Share Amounts)
<CAPTION>
STRONG HIGH-YIELD STRONG MUNICIPAL
MUNICIPAL BOND FUND BOND FUND
------------------- ----------------
ASSETS:
<S> <C> <C>
Investments in Securities, at Value
Unaffiliated Issuers (Cost of $631,358 and
$268,343, respectively) $660,361 $287,342
Affiliated Issuers (Cost of $52,800 and
$3,000, respectively) 52,800 3,000
Receivable for Securities Sold 2,989 3,153
Receivable for Fund Shares Sold 935 --
Interest and Dividends Receivable 10,350 4,225
Other Assets 182 299
-------- --------
Total Assets 727,617 298,019
LIABILITIES:
Payable for Securities Purchased 56,276 9,945
Payable for Fund Shares Redeemed 1,050 --
Dividends Payable 2,891 1,144
Accrued Operating Expenses and Other Liabilities 134 16
-------- --------
Total Liabilities 60,351 11,105
-------- --------
NET ASSETS $667,266 $286,914
======== ========
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) $638,035 $296,530
Undistributed Net Realized Gain (Loss) 675 (28,615)
Net Unrealized Appreciation 28,556 18,999
-------- --------
Net Assets $667,266 $286,914
======== ========
Capital Shares Outstanding (Unlimited Number Authorized) 63,418 28,815
NET ASSET VALUE PER SHARE $10.52 $9.96
====== =====
STRONG SHORT-TERM
HIGH YIELD STRONG SHORT-TERM
MUNICIPAL FUND MUNICIPAL BOND FUND
----------------- -------------------
ASSETS:
Investments in Securities, at Value
Unaffiliated Issuers (Cost of $105,106 and
$207,137, respectively) $105,649 $213,341
Affiliated Issuers (Cost of $4,700 and $4,900,
respectively) 4,700 4,900
Receivable for Securities Sold 302 2,475
Receivable for Fund Shares Sold 7 184
Interest and Dividends Receivable 1,487 3,476
Other Assets 314 124
-------- --------
Total Assets 112,459 224,500
LIABILITIES:
Payable for Securities Purchased 11,471 12,909
Dividends Payable 298 783
Accrued Operating Expenses and Other Liabilities 53 13
-------- --------
Total Liabilities 11,822 13,705
-------- --------
NET ASSETS $100,637 $210,795
======== ========
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) $100,177 $217,141
Accumulated Net Realized Loss (83) (12,550)
Net Unrealized Appreciation 543 6,204
-------- --------
Net Assets $100,637 $210,795
======== ========
Capital Shares Outstanding (Unlimited Number Authorized) 9,895 21,193
NET ASSET VALUE PER SHARE $10.17 $9.95
====== =====
24
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------
For the Year Ended August 31, 1998 (Note 1)
(In Thousands)
<CAPTION>
STRONG HIGH-YIELD STRONG MUNICIPAL
MUNICIPAL BOND FUND BOND FUND
------------------- ----------------
INCOME:
<S> <C> <C>
Interest $31,984 $15,074
Dividends - Affiliated Issuers 444 92
------- -------
Total Income 32,428 15,166
EXPENSES:
Investment Advisory Fees 2,990 1,525
Custodian Fees 22 9
Shareholder Servicing Costs 274 246
Other 265 114
------- -------
Total Expenses 3,551 1,894
------- -------
NET INVESTMENT INCOME 28,877 13,272
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 3,187 3,136
Futures Contracts (1,079) (45)
------- -------
Net Realized Gain 2,108 3,091
Change in Unrealized Appreciation/Depreciation on:
Investments 17,155 7,968
Futures Contracts (447) --
------- -------
Net Change in Unrealized Appreciation/Depreciation 16,708 7,968
------- -------
NET GAIN 18,816 11,059
------- -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $47,693 $24,331
======= =======
STRONG SHORT-TERM
HIGH YIELD STRONG SHORT-TERM
MUNICIPAL FUND MUNICIPAL BOND FUND
----------------- -------------------
INCOME:
Interest $1,719 $10,406
Dividends - Affiliated Issuers 47 105
------ -------
Total Income 1,766 10,511
EXPENSES:
Investment Advisory Fees 188 943
Custodian Fees 11 8
Shareholder Servicing Costs 22 150
Federal and State Registration Fees 71 51
Other 25 49
------ -------
Total Expenses before Waivers and Absorptions 317 1,201
Voluntary Expense Waivers and Absorptions by Advisor (194) --
------ -------
Expenses, Net 123 1,201
------ -------
NET INVESTMENT INCOME 1,643 9,310
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments (83) 51
Futures Contracts -- (319)
------ -------
Net Realized Loss (83) (268)
Change in Unrealized Appreciation/Depreciation on:
Investments 543 2,502
Futures Contracts -- 116
------ -------
Net Change in Unrealized Appreciation/Depreciation 543 2,618
------ -------
NET GAIN 460 2,350
------ -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,103 $11,660
====== =======
25
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------
(In Thousands)
<CAPTION>
STRONG HIGH-YIELD STRONG MUNICIPAL
MUNICIPAL BOND FUND BOND FUND
---------------------------- ----------------------------
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUG. 31, 1998 AUG. 31, 1997 AUG. 31, 1998 AUG. 31, 1997
------------- ------------- ------------- -------------
OPERATIONS:
<S> <C> <C> <C> <C>
Net Investment Income $ 28,877 $ 17,258 $ 13,272 $ 12,625
Net Realized Gain (Loss) 2,108 5,612 3,091 (2,375)
Net Change in Unrealized
Appreciation/Depreciation 16,708 12,919 7,968 15,504
-------- -------- -------- --------
Net Increase in Net Assets
Resulting from Operations 47,693 35,789 24,331 25,754
DISTRIBUTIONS:
From Net Investment Income (28,877) (17,258) (13,272) (12,625)
From Net Realized Gains (743) -- -- --
-------- -------- -------- --------
Total Distributions (29,620) (17,258) (13,272) (12,625)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 513,592 262,534 134,471 47,584
Proceeds from Reinvestment of
Distributions 21,163 12,353 10,102 9,701
Payment for Shares Redeemed (247,044) (169,577) (100,839) (85,630)
-------- -------- -------- --------
Increase (Decrease) in Net Assets
from Capital Share Transactions 287,711 105,310 43,734 (28,345)
-------- -------- -------- --------
TOTAL INCREASE(DECREASE) IN NET ASSETS 305,784 123,841 54,793 (15,216)
NET ASSETS:
Beginning of Period 361,482 237,641 232,121 247,337
-------- -------- -------- --------
End of Period $667,266 $361,482 $286,914 $232,121
======== ======== ======== ========
TRANSACTIONS IN SHARES OF THE FUND:
Sold 49,323 26,701 13,683 5,134
Issued in Reinvestment of
Distributions 2,036 1,264 1,033 1,052
Redeemed (23,751) (17,300) (10,296) (9,293)
------ ------ ------ -----
Net Increase (Decrease) in Shares of
the Fund 27,608 10,665 4,420 (3,107)
====== ====== ====== =====
</TABLE>
<TABLE>
STRONG SHORT-TERM
HIGH YIELD STRONG SHORT-TERM
MUNICIPAL FUND MUNICIPAL BOND FUND
----------------- ----------------------------
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
AUG. 31, 1998 AUG. 31, 1998 AUG. 31, 1997
----------------- ------------- -------------
(NOTE 1)
OPERATIONS:
<S> <C> <C> <C>
Net Investment Income $ 1,643 $ 9,310 $ 7,326
Net Realized Loss (83) (268) (740)
Net Change in Unrealized Appreciation/Depreciation 543 2,618 2,965
-------- -------- --------
Net Increase in Net Assets Resulting from
Operations 2,103 11,660 9,551
-------- -------- --------
DISTRIBUTIONS FROM NET INVESTMENT INCOME (1,643) (9,310) (7,326)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 124,691 167,477 96,449
Proceeds from Reinvestment of Distributions 971 7,757 5,990
Payment for Shares Redeemed (25,485) (131,741) (76,061)
-------- -------- --------
Increase in Net Assets from Capital Share
Transactions 100,177 43,493 26,378
-------- -------- --------
TOTAL INCREASE IN NET ASSETS 100,637 45,843 28,603
NET ASSETS:
Beginning of Period -- 164,952 136,349
-------- -------- --------
End of Period $100,637 $210,795 $164,952
======== ======== ========
TRANSACTIONS IN SHARES OF THE FUND:
Sold 12,315 16,920 9,881
Issued in Reinvestment of Distributions 96 784 615
Redeemed (2,516) (13,308) (7,801)
------ ------ -----
Net Increase in Shares of the Fund 9,895 4,396 2,695
====== ====== =====
26
See notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
August 31, 1998
1. ORGANIZATION
The accompanying financial statements represent the Strong Municipal Income
Funds, which include the following diversified, open-end management
investment companies registered under the Investment Company Act of 1940:
- Strong High-Yield Municipal Bond Fund, Inc.
- Strong Municipal Bond Fund, Inc.
- Strong Short-Term High Yield Municipal Fund (a series of Strong Municipal
Funds, Inc.)
- Strong Short-Term Municipal Bond Fund, Inc.
The inception date for Strong Short-Term High Yield Municipal Fund is
November 30, 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements.
(A) Security Valuation -- Securities of the Funds for which market quotations
are readily available are valued at fair value 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. The
Funds held no restricted securities at August 31, 1998.
(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) Futures -- Upon entering into a futures contract, the Funds pledge to the
broker cash or other investments equal to the minimum "initial margin"
requirements of the exchange. The Funds also receive from or pay to the
broker an amount of cash equal to the daily fluctuation in the value of
the contract. Such receipts or payments are known as "variation margin,"
and are recorded as unrealized gains or losses. When the futures contract
is closed, a realized gain or loss is recorded equal to the difference
between the value of the contract at the time it was opened and the value
at the time it was closed.
(E) Options -- The Funds may write put or call options (none were written
during the period). 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.
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
August 31, 1998
(F) Additional Investment Risks -- The Funds may utilize derivative
instruments including options, futures and other instruments with similar
characteristics to the extent that they are consistent with the Funds'
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.
(G) Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of increases
and decreases in net assets from operations during the reporting period.
Actual results could differ from those estimates.
(H) Other -- Investment security transactions are recorded as of the trade
date. Dividend income and distributions to shareholders are recorded on
the ex-dividend date. Interest income is recorded on the accrual basis
and includes amortization of premiums and discounts.
3. RELATED PARTY TRANSACTIONS
Strong Capital Management, Inc. (the "Advisor"), with whom certain officers
and directors of the Funds are affiliated, provides investment advisory
services and shareholder recordkeeping and related services to the Funds.
Investment advisory fees, which are established by terms of the Advisory
Agreements, are based on the following annualized rates of average daily net
assets: Strong Short-Term Municipal Bond Fund 0.50%, Strong Municipal Bond
Fund, Strong High-Yield Municipal Bond Fund and Strong Short-Term High Yield
Municipal Fund 0.60%. Advisory fees are subject to reimbursement by the
Advisor if a Fund's operating expenses exceed certain levels. Shareholder
recordkeeping and related service fees are based on contractually
established rates for each open and closed shareholder account. In addition,
the Advisor is compensated for certain other services related to costs
incurred for reports to shareholders.
The Funds may invest cash reserves in money market funds sponsored and
managed by the Advisor, subject to certain limitations. The terms of such
transactions are identical to those of non-related entities except that, to
avoid duplicate investment advisory fees, advisory fees of each Fund are
reduced by an amount equal to advisory fees paid to the Advisor under its
investment advisory agreement with the money market funds.
Certain information regarding related party transactions for the year ended
August 31, 1998, is as follows:
<TABLE>
<CAPTION>
PAYABLE TO OTHER SHAREHOLDER UNAFFILIATED
ADVISOR AT SERVICING EXPENSES DIRECTORS'
AUGUST 31, 1998 PAID TO ADVISOR FEES
--------------- ------------------ ------------
<S> <C> <C> <C>
Strong High-Yield Municipal Bond Fund $11,330 $9,999 $5,422
Strong Municipal Bond Fund 2,777 4,059 3,916
Strong Short-Term High Yield Municipal Fund 7,193 174 1,125
Strong Short-Term Municipal Bond Fund 2,710 2,029 3,227
</TABLE>
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities for the year ended
August 31, 1998, were as follows:
PURCHASES SALES
------------ ------------
Strong High-Yield Municipal Bond Fund $625,706,996 $341,999,876
Strong Municipal Bond Fund 193,553,857 150,388,786
Strong Short-Term High Yield Municipal Fund 97,445,296 3,851,075
Strong Short-Term Municipal Bond Fund 77,132,053 27,440,095
28
<PAGE>
- --------------------------------------------------------------------------------
5. INCOME TAX INFORMATION
At August 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>
FEDERAL TAX UNREALIZED UNREALIZED NET CAPITAL LOSS
COST APPRECIATION DEPRECIATION APPRECIATION CARRYOVERS
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Strong High-Yield Municipal Bond Fund $684,182,212 $34,535,015 $5,556,321 $28,978,694 $ --
Strong Municipal Bond Fund 271,445,664 18,900,963 4,375 18,896,588 28,512,902
Strong Short-Term High Yield Municipal Fund 109,806,235 562,300 19,681 542,619 82,846
Strong Short-Term Municipal Bond Fund 212,037,935 6,211,765 8,313 6,203,452 12,549,981
</TABLE>
6. INVESTMENTS IN AFFILIATES
Affiliated issuers, as defined under the Investment Company Act of 1940,
include those in which the Fund's holdings represent 5% or more of the
outstanding voting securities of the issuer and any other Strong Fund. A
summary of transactions in the securities of these issuers during the year
ended August 31, 1998 is as follows:
<TABLE>
<CAPTION>
BALANCE OF BALANCE OF DIVIDEND
SHARES GROSS GROSS SALES SHARES VALUE INCOME
HELD PURCHASES AND HELD AUG. 31, SEPT. 1, 1997 -
SEPT. 1, 1997 AND ADDITIONS REDUCTIONS AUG. 31, 1998 1998 AUG. 31, 1998
------------- ------------- ---------- ------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Strong High-Yield Municipal Bond Fund
-------------------------------------
Strong Municipal Money Market Fund -- 181,500,000 (128,700,000) 52,800,000 $52,800,000 $443,605
Strong Municipal Bond Fund
--------------------------
Strong Municipal Money Market Fund -- 77,300,000 (74,300,000) 3,000,000 3,000,000 91,601
Strong Short-Term High Yield Municipal Fund
-------------------------------------------
Strong Municipal Money Market Fund -- 11,150,000 (6,450,000) 4,700,000 4,700,000 47,300
Strong Short-Term Municipal Bond Fund
-------------------------------------
Strong Municipal Money Market Fund -- 57,300,000 (52,400,000) 4,900,000 4,900,000 105,482
</TABLE>
29
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------
STRONG HIGH-YIELD MUNICIPAL 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 (Losses) on Investment Investment Realized Total End of
Period Ended of Period Income Investments Operations Income(b) Gains Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aug. 31, 1998 $10.09 $0.59 $0.45 $1.04 ($0.59) ($0.02) ($0.61) $10.52
Aug. 31, 1997 9.45 0.61 0.64 1.25 (0.61) -- (0.61) 10.09
Aug. 31, 1996(c) 9.91 0.44 (0.46) (0.02) (0.44) -- (0.44) 9.45
Dec. 31, 1995 9.29 0.69 0.62 1.31 (0.69) -- (0.69) 9.91
Dec. 31, 1994 10.10 0.71 (0.81) (0.10) (0.71) -- (0.71) 9.29
Dec. 31, 1993(d) 10.00 0.16 0.10 0.26 (0.16) -- (0.16) 10.10
</TABLE>
<TABLE>
RATIOS AND SUPPLEMENTAL DATA
----------------------------------------------------------------------------
<CAPTION>
Net Ratio of Expenses Ratio of Net
Assets, Ratio of to Average Net Investment
End of Expenses Assets Without Income Portfolio
Total Period (In to Average Waivers and to Average Turnover
Period Ended Return Millions) Net Assets Absorptions Net Assets Rate
<S> <C> <C> <C> <C> <C> <C>
Aug. 31, 1998 +10.5% $667 0.7% 0.7% 5.7% 66.5%
Aug. 31, 1997 +13.6% 361 0.7% 0.7% 6.2% 92.1%
Aug. 31, 1996(c) -0.1% 238 0.7%* 0.7%* 6.9%* 106.8%
Dec. 31, 1995 +14.6% 267 0.4% 0.8% 7.1% 113.8%
Dec. 31, 1994 -1.0% 108 0.0% 0.8% 7.5% 198.1%
Dec. 31, 1993(d) +2.7% 21 0.0%* 1.1%* 6.8%* 28.0%
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the Fund outstanding for the entire period.
(b) Tax-exempt for regular federal income tax purposes.
(c) For the period ended August 31, 1996. Total return and portfolio turnover rate are not annualized.
(d) Inception date is October 1, 1993. Total return and portfolio turnover rate are not annualized.
</TABLE>
<TABLE>
STRONG MUNICIPAL BOND FUND
- ------------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA(a)
---------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
----------------------------------- --------------------------------------------
<CAPTION>
Net Realized
Net Asset and Unrealized Total In Excess Net Asset
Value, Net Gains from From Net of Net From Net Value,
Beginning Investment (Losses) on Investment Investment Investment Realized Total End of
Period Ended of Period Income Investments Operations Income(b) Income Gains Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aug. 31, 1998 $ 9.52 $0.51 $0.44 $0.95 ($0.51) -- -- ($0.51) $ 9.96
Aug. 31, 1997 8.99 0.50 0.53 1.03 (0.50) -- -- (0.50) 9.52
Aug. 31, 1996(c) 9.52 0.33 (0.53) (0.20) (0.33) -- -- (0.33) 8.99
Dec. 31, 1995 9.23 0.52 0.51 1.03 (0.54) ($0.20) -- (0.74) 9.52
Dec. 31, 1994 10.25 0.56 (1.02) (0.46) (0.56) -- -- (0.56) 9.23
Dec. 31, 1993 10.00 0.58 0.57 1.15 (0.58) -- ($0.32) (0.90) 10.25
</TABLE>
<TABLE>
RATIOS AND SUPPLEMENTAL DATA
----------------------------------------------------------------------------
<CAPTION>
Net Ratio of Expenses Ratio of Net
Assets, Ratio of to Average Net Investment
End of Expenses Assets Without Income Portfolio
Total Period (In to Average Waivers and to Average Turnover
Period Ended Return Millions) Net Assets Absorptions Net Assets Rate
<S> <C> <C> <C> <C> <C> <C>
Aug. 31, 1998 +10.1% $287 0.7% 0.7% 5.2% 58.5%
Aug. 31, 1997 +11.8% 232 0.8% 0.8% 5.4% 85.0%
Aug. 31, 1996(c) - 2.1% 247 0.8%* 0.8%* 5.4%* 172.9%
Dec. 31, 1995 +11.4% 247 0.8% 0.8% 5.4% 513.8%
Dec. 31, 1994 - 4.6% 280 0.8% 0.8% 5.8% 311.0%
Dec. 31, 1993 +11.8% 399 0.7% 0.8% 5.6% 156.7%
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the Fund outstanding for the entire period.
(b) Tax-exempt for regular federal income tax purposes.
(c) For the period ended August 31, 1996. Total return and portfolio turnover rate are not annualized.
</TABLE>
<TABLE>
STRONG SHORT-TERM HIGH YIELD MUNICIPAL FUND
- -----------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA(a)
-----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------- ---------------------------
<CAPTION>
Net Asset Net Realized Total Net Asset
Value, Net and Unrealized from From Net Value,
Beginning Investment Gains on Investment Investment Total End of
Period Ended of Period Income Investments Operations Income (b) Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C>
Aug. 31, 1998(c) $10.00 $0.37 $0.17 $0.54 ($0.37) ($0.37) $10.17
</TABLE>
<TABLE>
RATIOS AND SUPPLEMENTAL DATA
----------------------------------------------------------------------------
<CAPTION>
Net Ratio of Expenses Ratio of Net
Assets, Ratio of to Average Net Investment
End of Expenses Assets Without Income Portfolio
Total Period (In to Average Waivers and to Average Turnover
Period Ended Return Millions) Net Assets Absorptions Net Assets Rate
<S> <C> <C> <C> <C> <C> <C>
Aug. 31, 1998(c) +5.5% $101 0.4%* 1.0%* 5.0%* 8.1%
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the Fund outstanding for the entire period.
(b) Tax-exempt for regular federal income tax purposes.
(c) For the period from November 30, 1997 (inception) to August 31, 1998. Total return and portfolio turnover
rate are not annualized.
</TABLE>
30
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
STRONG SHORT-TERM MUNICIPAL 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 (Losses) on Investment Investment Realized Total End of
Period Ended of Period Income Investments Operations Income(b) Gains Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aug. 31, 1998 $ 9.82 $0.48 $0.13 $0.61 ($0.48) -- ($0.48) $ 9.95
Aug. 31, 1997 9.67 0.49 0.15 0.64 (0.49) -- (0.49) 9.82
Aug. 31, 1996(c) 9.77 0.33 (0.10) 0.23 (0.33) -- (0.33) 9.67
Dec. 31, 1995 9.73 0.47 0.04 0.51 (0.47) -- (0.47) 9.77
Dec. 31, 1994 10.36 0.45 (0.62) (0.17) (0.45) ($0.01) (0.46) 9.73
Dec. 31, 1993 10.20 0.44 0.23 0.67 (0.44) (0.07) (0.51) 10.36
</TABLE>
<TABLE>
RATIOS AND SUPPLEMENTAL DATA
----------------------------------------------------------------------------
<CAPTION>
Net Ratio of Expenses Ratio of Net
Assets, Ratio of to Average Net Investment
End of Expenses Assets Without Income Portfolio
Total Period (In to Average Waivers and to Average Turnover
Period Ended Return Millions) Net Assets Absorptions Net Assets Rate
<S> <C> <C> <C> <C> <C> <C>
Aug. 31, 1998 +6.3% $211 0.6% 0.6% 4.8% 15.7%
Aug. 31, 1997 +6.7% 165 0.7% 0.7% 5.0% 26.2%
Aug. 31, 1996(c) +2.4% 136 0.7%* 0.7%* 5.1%* 38.0%
Dec. 31, 1995 +5.4% 133 0.8% 0.8% 4.8% 226.8%
Dec. 31, 1994 -1.6% 161 0.7% 0.7% 4.5% 273.2%
Dec. 31, 1993 +6.8% 216 0.6% 0.7% 4.2% 141.5%
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the Fund outstanding for the entire period.
(b) Tax-exempt for regular federal income tax purposes.
(c) For the period ended August 31, 1996. Total return and portfolio turnover rate are not annualized.
31
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of the
Strong Municipal 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 Municipal Bond
Fund, Inc., Strong Municipal Bond Fund, Inc., Strong Short-Term High Yield
Municipal Fund (one of the portfolios constituting the Strong Municipal Funds,
Inc.) and Strong Short-Term Municipal Bond Fund, Inc. (all four of the
portfolios collectively referred to herein as the "Strong Municipal Income
Funds") at August 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 August
31, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
October 7, 1998
32
<PAGE>
DIRECTORS
Richard S. Strong
Willie D. Davis
Stanley Kritzik
Marvin E. Nevins
William F. Vogt
OFFICERS
Richard S. Strong, Chairman of the Board
Mary F. Hoppa, Vice President
Thomas P. Lemke, Vice President
John S. Weitzer, Vice President
Stephen J. Shenkenberg, Vice President and Secretary
John A. Flanagan, Treasurer
INVESTMENT ADVISOR
Strong Capital Management, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
DISTRIBUTOR
Strong Funds Distributors, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
CUSTODIAN
Firstar Trust Company
P.O. Box 701, Milwaukee, Wisconsin 53201
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
Strong Capital Management, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
411 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Godfrey & Kahn, S.C.
780 North Water Street, Milwaukee, Wisconsin 53202
<PAGE>
For a prospectus containing more complete information, including management
fees and expenses, please call 1-800-368-1030. Please read it carefully before
investing or sending money. This report does not constitute an offer for the
sale of securities. Strong Funds are offered for sale by prospectus only.
[PICTURE OF TELEPHONE]
To order a free prospectus kit,
CALL 1-800-368-1030
To learn more about our funds,
discuss an existing account,
or conduct a transaction,
CALL 1-800-368-3863
-------------------
If you are a
Financial Professional,
CALL 1-800-368-1683
[PICTURE OF STRONG WEB SITE ON COMPUTER]
Strong On-line
www.strong-funds.com
[STRONG LOGO]
STRONG FUNDS
P.O. Box 2936 o Milwaukee, Wisconsin 53201
Strong Funds Distributors, Inc. 9293J98 98AMUN
