THE STRONG
MUNICIPAL INCOME
Funds
SEMI-ANNUAL REPORT o JUNE 30, 1996
[PHOTO OF SENIOR COUPLE]
[PIE CHART OF ASSET DIVERSIFICATION EMPASIZING BONDS]
THE STRONG SHORT-TERM MUNICIPAL BOND FUND
THE STRONG MUNICIPAL BOND FUND
THE STRONG HIGH-YIELD MUNICIPAL BOND FUND
[STRONG FUNDS LOGO]
STRONG FUNDS
<PAGE>
EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING
These common-sense rules are followed by many successful investors. They make
sense for beginners, too. If you have a question on these principles, or would
like to discuss them with us, please contact us at 1-800-368-3863. We're here 24
hours a day, seven days a week to take your call.
- ---------------------------------------1----------------------------------------
Have a plan.
[PICTURE OF FOLDER LABELED INVESTMENTS]
Even a simple plan can help you take control of your financial future. Review
your plan once a year, or if your circumstances change.
- ---------------------------------------2----------------------------------------
Start investing as soon as possible.
[PICTURE OF CLOCK]
Make time a valuable ally. Let it put the power of compounding to work for you,
while helping to reduce your potential investment risk.
- ---------------------------------------3----------------------------------------
Diversify your portfolio.
[PICTURE OF PIE CHART OF ASSET DIVERSIFICATION]
By investing in different asset classes - stocks, bonds, and cash - you help
protect against poor performance in one type of investment while including
investments most likely to help you achieve your important goals.
- ---------------------------------------4----------------------------------------
Invest regularly.
[PICTURE OF MEMO REMINDER TO INVEST]
Investing is a process, not a one-time event. By investing regularly over the
long term, you reduce the impact of short-term market gyrations, and you attend
to your long-term plan before you're tempted to spend those assets on short-term
needs.
- ---------------------------------------5----------------------------------------
Maintain a long-term perspective.
[PICTURE OF GRAPH SLOPING UPWARD]
For most individuals, the best discipline is staying invested as market
conditions change. Reactive, emotional investment decisions are all too often a
source of regret - and of principal loss.
- ---------------------------------------6----------------------------------------
Consider stocks to help achieve major long-term goals.
[PICTURE OF PIE CHART OF ASSET DIVERSIFICATION EMPASIZING STOCKS]
Over time, stocks have provided the more powerful returns needed to help the
value of your investments stay well ahead of inflation.
- ---------------------------------------7----------------------------------------
Keep a comfortable amount of cash in your portfolio.
[PICTURE OF DOLLAR SIGN]
To meet current needs, including emergencies, use a money market fund or a bank
account - not your long-term investment assets.
- ---------------------------------------8----------------------------------------
Know what you're buying.
[PICTURE OF MAGNIFYING GLASS]
Make sure you understand the potential risks and rewards associated with each of
your investments. Ask questions...request information...make up your own mind.
And choose a fund company that helps you make informed investment decisions.
<PAGE>
THE STRONG
MUNICIPAL INCOME
Funds
SEMI-ANNUAL REPORT o JUNE 30, 1996
TABLE OF CONTENTS
INVESTMENT REVIEWS
The Strong Short-Term Municipal Bond Fund.........................2
The Strong Municipal Bond Fund....................................4
The Strong High-Yield Municipal Bond Fund.........................4
FINANCIAL INFORMATION
Schedules of Investments in Securities
The Strong Short-Term Municipal Bond Fund....................8
The Strong Municipal Bond Fund...............................9
The Strong High-Yield Municipal Bond Fund...................11
Statements of Operations.........................................14
Statements of Assets and Liabilities.............................15
Statements of Changes in Net Assets..............................16
Notes to Financial Statements....................................17
FINANCIAL HIGHLIGHTS....................................................19
<PAGE>
The Strong SHORT-TERM MUNICIPAL BOND Fund
================================================================================
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 and maintains an
average portfolio maturity of three years or less.
EQUIVALENT TAXABLE YIELDS 1
as of 6-28-96
................................................................................
YOUR TAX-EXEMPT YIELD
OF 5.11% IS EQUIVALENT
JOINT RETURN SINGLE RETURN MARGINAL TAX RATE TO A TAXABLE YIELD OF:
................................................................................
$40,101-96,900 $24,001-58,150 28% 7.10%
- --------------------------------------------------------------------------------
$96,901-147,700 $58,151-121,300 31% 7.41%
- --------------------------------------------------------------------------------
$147,701-263,750 $121,301-263,750 36% 7.98%
- --------------------------------------------------------------------------------
OVER $263,750 OVER $263,750 39.6% 8.46%
================================================================================
The Fund's income may be subject to state and local taxes and, depending on your
tax status, the Alternative Minimum Tax. The chart reflects 1996 marginal
federal tax rates before limitations and phase-outs. Individuals with adjusted
gross income in excess of $117,950 should consult their tax advisor to determine
their actual 1996 marginal tax rate.
As of June 28, 1996, the Strong Short-Term Municipal Bond Fund's annualized
30-day yield was 5.11%.1 The table above shows the Fund's equivalent taxable
yields based on 1996's federal income tax brackets.
CHANGE IN THE ECONOMIC OUTLOOK
Most market watchers were caught off guard by the increase in interest rates
during the first quarter. The economic consensus coming into the year had been
for continued weak economic growth and low inflation. But, when the economic
data was released, it indicated stronger-than-expected growth. The announcement
of a surprisingly large number of new jobs created in February added fuel to the
forecasts for renewed economic strength.
Inflation remained under control, but the market pushed interest rates higher
through the second quarter on fear that the Federal Reserve Board would take
action to increase rates. Early in the year, the Fund was invested at the long
end of its maximum three-year average maturity and, consequently, the increase
in interest rates was hard felt.
CHANGES IN THE FUND
We made progress toward shortening the Fund's average maturity during the second
quarter, but the negative bond markets made it more difficult to execute
swaps--that is, to sell longer-maturity bonds and replace them with shorter
maturities. We continued to pursue this avenue, however, in order to replace
short positions that were taken in the Fund when interest rates were declining.
Our experience has been that short positions in the Fund only mitigate, but do
not fully hedge, the effect of longer holdings when interest rates rise.
We also continued to effect our change in strategy, which includes reducing the
average maturity of the Fund's holdings. The key to this strategy is to shorten
the Fund's average maturity without lowering its yield--which is accomplished by
taking advantage of occasional glitches in the municipal market yield curve that
allow us to buy shorter-maturity securities with higher yields.
During the first half of the year all of the Fund's holdings were rated
investment-grade, or judged to be of equivalent quality, and total assets under
management remained stable, at approximately $133 million.
2
<PAGE>
OUR OUTLOOK IS CAUTIOUS
While the taxable markets remain in a bearish mode that began in February, the
tax-exempt markets--which suffered even greater declines in early March--are now
at the same level they were at mid-March. This is not to say that municipal
markets were flat during the first half; they have, in fact, been quite
volatile. However, we saw better relative performance in municipal bonds during
the second quarter, a condition we expect will continue through the summer.
AS OF 6-28-96
30-DAY ANNUALIZED YIELD 1
5.11%
AVERAGE MATURITY 2
3.0 YEARS
AVERAGE QUALITY 3
A
We continue to rely on our time-tested approach of utilizing intense credit
research to select attractive investments for the Fund, and we remain committed
to investing the Fund consistent with what you hired us to do--build a portfolio
that focuses on a high level of federally tax-exempt current income with a low
degree of share-price volatility. We are confident this strategy will reward
investors who are willing to take a two to four year approach to municipal
investing.
[PHOTO OF STEVEN D. HARROP]
We appreciate the opportunity to serve you, and we thank you for your investment
with us.
Sincerely,
/s/ Steven D. Harrop
Steven D. Harrop
Portfolio Manager
- --------------------------------------------------------------------------------
GROWTH OF AN ASSUMED $10,000 INVESTMENT
from 12-31-91 to 6-30-96
The Strong Lehman Brothers Lipper Short
Short-Term Municipal 3-Year Municipal Municipal Debt
Bond Fund Bond Index "Average"
12-91 10,000 10,000 10,000
12-92 10,716 10,643 10,575
12-93 11,440 11,305 11,108
12-94 11,255 11,383 11,163
12-95 11,860 12,395 11,938
6-96 12,026 12,566 12,083
This graph, prepared in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with similar investments in the
Lehman Brothers 3-Year Municipal 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 vary, and you may have a gain or loss
when you sell Fund shares.
AVERAGE ANNUAL
TOTAL RETURNS 4
AS OF 6-30-96
1-YEAR
5.23%
3-YEAR
2.65%
SINCE INCEPTION
(ON 12-31-91)
4.19%
- --------------------------------------------------------------------------------
* The Lehman Brothers 3-Year Municipal Bond Index is an unmanaged, total-return
performance benchmark for the 3-year, tax-exempt bond market. The Lipper Short
Municipal Debt "Average" represents funds that invest in municipal debt issues
with dollar-weighted average maturities of less than 5 years. Source of the
Lehman index data is Micropal. Source of the Lipper data is Lipper Analytical
Services, Inc.
1 Yields are annualized for the 30 days ended 6-28-96, are historical, and
will vary.
2 The Fund's average maturity includes the effect of futures contracts.
3 For the purposes of this average rating, the Fund's short-term debt
obligations have been assigned long-term ratings by the Advisor.
4 Average annual total return measures change in the value of an investment
in the Fund as an annualized average, assuming reinvestment of all
dividends and capital gains.
3
<PAGE>
The Strong
MUNICIPAL BOND
Fund
================================================================================
The Strong
HIGH-YIELD
MUNICIPAL BOND
Fund
================================================================================
THE STRONG MUNICIPAL BOND FUND
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.
THE STRONG HIGH-YIELD MUNICIPAL
BOND FUND
The Strong High-Yield Municipal Bond Fund seeks total return by investing for a
high level of federally tax-exempt current income.
MARKET OVERVIEW
The bond market was marked by uncertainty during the first quarter of 1996, as a
temporary government shut-down and severe East-coast snow storm delayed the
release of economic data early in the year. Once available, the numbers
indicated stronger-than-expected economic growth, and the market responded by
pushing interest rates higher, on fear that the Federal Reserve Board would
reverse the easing policy it had followed over most of the prior year.
Interest rates continued to rise in the second quarter, resulting in increased
yields on new bond issues. The yield on long-term municipal bonds rose by 43
basis points (just under one-half percentage point) during this six-month
period, hitting current long-bond holders hard; consequently both Funds were
adversely affected. 1
STRONG MUNICIPAL BOND FUND
On average, general municipal bond funds posted losses of 1.12% for the six
months ending June 30, as measured by the Lipper General Municipal Debt Fund
Index,* while the Fund sustained a loss of 2.51% over the same period.2 The
Fund's duration--a measurement of its sensitivity to interest rate changes--was
longer than the benchmark's average during the first quarter, adversely
affecting the Fund's performance as interest rates rose.
By the end of the second quarter we had shortened the Fund's duration to 7.5--in
line with the benchmark's duration--which represents a significant decrease
since the end of the first quarter, when the Fund's duration was 9.5. Going
forward, we believe that the Fund will benefit from this overweighting in
shorter-duration bonds in the current interest-rate environment.
We also made significant sector changes in the portfolio during the first half
of the year in order to more broadly diversify our holdings. Hospital bonds were
reduced to 22.5% of assets at the end of June, compared to 24.9% in January, and
we added Industrial Development Revenue (IDR) bonds to represent 10.5% of the
Fund's portfolio.
The addition of IDRs--which are municipal bonds backed by corporate
credits--helped to boost the Fund's holdings in BBB bonds from 24.6% to 31.9% at
the end of June. Given the rising interest rates during this period, the
lower-rated securities added a higher-yielding component to the Fund.
Consequently, the Fund's average credit rating during the second quarter
decreased from AA to A. While we believe these changes will play out well for
the Fund in light of the current uncertainty surrounding interest rates, it does
not indicate a trend toward lower average quality in the Fund.
STRONG HIGH-YIELD MUNICIPAL BOND FUND
The rise in interest rates also affected high-yield municipal bond funds, which
posted average losses of 0.88% for the six months ending June 30, as measured by
the Lipper High Yield Municipal Debt Fund Index. + The Fund sustained a loss of
1.90% over the same period. 2
In addition to interest rate changes, the Fund's underperformance can be
attributed to economic and political events that impacted specific holdings in
the Fund. Two Illinois securities were adversely affected by the repeal of the
Retail Rate Law, and experienced sharp price declines. The prospect of lengthy
litigation, with a low probability of victory in the courts, induced us to sell
the securities at a price which we believe compensated the Fund for the
uncertainty ahead.
Several sector changes were made in the first half of the year in order to more
broadly diversify the Fund's holdings. We added to our holdings in Industrial
Development Revenue Bonds, which serve to diversify the Fund from a credit
standpoint because they are municipal bonds backed by corporations. We also
increased the Fund's holdings in housing bonds, which tend to cushion the blow
of a bond market decline. Housing bonds can provide a defensive component to the
portfolio because they are generally rated AA or AAA and are backed by
quasi-government agencies.
4
<PAGE>
We were able to eliminate some of the securities from the Fund which had
deteriorated in credit quality--including the two Illinois securities referred
to above. The sale of these securities boosted the Fund's overall average rating
to BBB at the end of June from BB at the beginning of the year.
Investors should keep in mind that the unusually high current yield offered by
the Fund reflects the substantial risks associated with investments in high
yield bonds, sometimes referred to as junk bonds.
OUR OUTLOOK ON THE ECONOMY
Surprisingly--given the uncertainty in the economy--inflation remained subdued
during the first half of the year. However, the market now seems willing to take
a negative outlook, and assume that signs of strong economic growth and higher
interest rates will continue. As such, market participants may be willing to
interpret economic reports as more inflationary than they really are.
- --------------------------------------------------------------------------------
PORTFOLIO STATISTICS AS OF 6-28-96
30-DAY AVERAGE AVERAGE
ANNUALIZED YIELD MATURITY QUALITY RATING
................................................................................
MUNICIPAL BOND FUND 5.68% 15.4 YEARS A
HIGH-YIELD MUNICIPAL BOND FUND 7.29% 16.4 YEARS BBB
The Funds' average maturity includes the effects of futures contracts and
when-issued securities. For purposes of this average rating, the Funds'
short-term debt obligations have been assigned long-term ratings by the
Advisor.
- --------------------------------------------------------------------------------
The sustainability of this year's economic strength is questionable, given the
rise in long-term interest rates. If the economy continues to show strength, it
appears that the Federal Reserve Board will respond by raising short-term
interest rates in order to avoid higher inflation. Although the Fed held off on
raising interest rates during the first half of the year, it is quite possible
it may be forced to tighten in the third quarter.
<TABLE>
<CAPTION>
=====================================================================================================
EQUIVALENT TAXABLE YIELDS
as of 6-28-96
- -----------------------------------------------------------------------------------------------------
MUNICIPAL HIGH-YIELD MUNICIPAL
TAXABLE INCOME BOND FUND BOND FUND
.....................................................................................................
YOUR TAX-EXEMPT YIELD YOUR TAX-EXEMPT YIELD
JOINT SINGLE MARGINAL OF 5.68% IS EQUIVALENT OF 7.29% IS EQUIVALENT
RETURN RETURN TAX RATE TO A TAXABLE YIELD OF: TO A TAXABLE YIELD OF:
<C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
$40,101-96,900 $24,001-58,150 28% 7.89% 10.13%
- -----------------------------------------------------------------------------------------------------
$96,901-147,700 $58,151-121,300 31% 8.23% 10.57%
- -----------------------------------------------------------------------------------------------------
$147,701-263,750 $121,301-263,750 36% 8.88% 11.39%
- -----------------------------------------------------------------------------------------------------
OVER $263,750 OVER $263,750 39.6% 9.40% 12.07%
=====================================================================================================
</TABLE>
Yields are annualized for the 30 days ended 6-28-96, are historical, and will
vary. Each Fund's income may be subject to state and local taxes and, depending
on your tax status, the Alternative Minimum Tax. The chart reflects 1996
marginal federal tax rates before limitations and phase-outs. Individuals with
adjusted gross income in excess of $117,950 should consult their tax advisor to
determine their actual 1996 marginal tax rate.
5
<PAGE>
GROWTH OF AN ASSUMED
$10,000 INVESTMENT
The charts at right, provided
in accordance with SEC
regulations, compare a
$10,000 investment in each
Fund, made at its
inception, with similar
investments in relevant,
unmanaged, total-return
performance benchmarks.
Results include
the reinvestment of all
dividends and capital gains.
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 Fund shares.
THE STRONG MUNICIPAL BOND FUND
from 10-23-86 to 6-30-96
The Strong Municipal Lehman Brothers Lipper General Municipal
Bond Fund Municipal Bond Index* Debt Fund Index*
9-86 10,000 10,000 10,000
12-86 10,129 10,215 10,252
12-87 9,948 10,369 10,182
12-88 10,705 11,423 11,370
12-89 11,463 12,655 12,502
12-90 11,995 13,578 13,252
12-91 13,598 15,226 14,848
12-92 15,256 16,568 16,170
12-93 17,051 18,602 18,180
12-94 16,275 17,640 17,082
12-95 18,128 20,720 20,040
6-96 17,673 20,628 19,815
THE STRONG HIGH-YIELD MUNICIPAL BOND FUND
from 10-1-95 to 6-30-96
The Strong High-Yield High-Yield Municipal Lipper High Yield Municipal
Municipal Bond Fund Bond Fund Index+ Debt Fund Index+
9-93 10,000 10,000 10,000
12-93 12,266 10,164 10,141
12-94 10,165 9,608 9,636
12-95 11,650 11,361 11,245
6-96 11,430 11,293 11,146
6
<PAGE>
AVERAGE ANNUAL
TOTAL RETURNS 2
as of 6-30-96
1-YEAR
3.15%
3-YEAR
2.70%
5-YEAR
7.25%
SINCE INCEPTION
(on 10-23-86)
6.05%
AVERAGE ANNUAL
TOTAL RETURNS 2
as of 6-30-96
1-YEAR
4.10%
2-YEAR
6.02%
SINCE INCEPTION
(on 10-1-93)
4.98%
Given the uncertainty in the market, we have positioned the Funds' durations
near their benchmarks. We continue to believe that the market is in a trading
range, and until the economy shows a clear direction on the state of growth, we
believe the best approach is to maintain the Funds' durations close to neutral
in order to avoid large swings in price volatility, while maintaining an
attractive tax-free yield during this transition period in the market.
[PHOTO OF MARY-KAY H. BOURBULAS]
Thank you for your investment. We appreciate the confidence you've shown in us
to manage a portion of your investment portfolio.
Sincerely,
/s/Mary-Kay H. Bourbulas
Mary-Kay H. Bourbulas
Portfolio Manager
Strong Municipal Bond Fund
Strong High-Yield Municipal Bond Fund
*The Lehman Brothers Municipal Bond Index is an unmanaged, total-return
benchmark for the investment grade, tax-exempt bond market. The Lipper General
Municipal Debt Fund Index is an equally-weighted performance index, adjusted
for capital gains distributions and income dividends, of the largest qualifying
funds in this Lipper category. To equalize the time periods, the indexes'
performance was prorated for the month of October, 1986. Source of the Lehman
index data is Micropal. Source of the Lipper index data is Lipper Analytical
Services, Inc.
+The High Yield Municipal Bond Fund 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 (which was instituted on
1-1-96) from January 1, 1996 to present. Going forward, we will use this index
with the Lehman Brothers High-Yield Municipal Bond Index because it allows for
more in-depth modeling and closer comparison with the Fund's portfolio. The
Lipper High Yield Municipal Debt Fund Index is an equally-weighted performance
index, adjusted for capital gains distributions and income dividends, of the
largest qualifying funds in this Lipper category. Source of the High-Yield
index data is Lehman. Source of the Lipper index data is Lipper Analytical
Services, Inc.
1 Source of the municipal bond yields is Lehman Brothers.
2 Average annual total return and total return measure change in the value of
an investment in the Fund, assuming reinvestment of all dividends and
capital gains. Average annual total return reflects annualized change,
while total return reflects aggregate change.
7
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
STRONG SHORT-TERM MUNICIPAL BOND FUND
PRINCIPAL VALUE
AMOUNT (NOTE 2)
(In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
MUNICIPAL BONDS 95.3%
ARIZONA 1.9%
Phoenix, Arizona IDA Hospital Revenue - John C.
Lincoln Hospital and Health Center Project,
4.65%, Due 12/01/99 $ 675 $ 665
Phoenix, Arizona Municipal Housing Revenue
Refunding - Fillmore Gardens and Sunnyslope
Manor - Section 8 Assisted Senior Housing
Project, 5.95%, 6/01/05 1,865 1,888
-----
2,553
CALIFORNIA 3.2%
California Health Facilities Financing Authority
Hospital Revenue - Downey Community Hospital,
4.90%, Due 5/15/00 2,325 2,296
Sacramento County, California MFHR Refunding -
Fairways II Apartments, 5.35%, Due 8/01/25 1,995 2,002
-----
4,298
COLORADO 1.0%
Arapahoe County, Colorado E-470 Public Highway
Authority Capital Improvement Trust Fund
Highway Revenue, Zero %, Due 8/31/03 500 316
Denver, Colorado City and County Airport System
Revenue, 7.50%, Due 11/15/25 1,000 1,049
-----
1,365
CONNECTICUT 1.1%
Connecticut IDA - The Olympic Hotel Corporation
Project, 6.95%, Due 8/01/03 1,502 1,522
DISTRICT OF COLUMBIA 2.3%
District of Columbia Hospital Revenue Refunding -
Medlantic Healthcare Group, Inc., 6.50%,
Due 8/15/02 2,925 3,046
FLORIDA 1.6%
Florida Housing Finance Agency MFMR -
Hammocks Place Project, 6.25%, Due 12/01/06 2,000 2,105
GUAM 11.2%
Guam Airport Authority General Revenue:
5.80%, Due 10/01/99 1,450 1,468
6.00%, Due 10/01/00 (c) 1,100 1,119
6.40%, Due 10/01/05 6,700 6,868
Guam Government GO, 5.70%, Due 9/01/03 5,430 5,423
-----
14,878
ILLINOIS 3.0%
Collinsville, Illinois Madison County IDR Refunding,
Drury Inn - Collinsville Project, 5.25%,
Due 11/01/98 725 725
Illinois Educational Facilities Authority Revenue -
Lewis University Project:
4.50%, Due 10/01/09 900 884
5.30%, Due 10/01/04 1,390 1,347
Illinois Health Facilities Authority Revenue -
Trinity Medical Center Project, 6.15%, Due 7/01/98 1,000 1,005
-----
3,961
IOWA 6.4%
Cedar Rapids, Iowa First Mortgage Revenue -
Cottage Grove Place Project, 7.25%, Due 7/01/02 6,000 6,000
Iowa Finance Authority Mortgage Revenue
Refunding - Friendship Village Project, 4.95%,
Due 11/01/00 2,500 2,475
-----
8,475
KANSAS 4.8%
Kansas DFA MFHR Refunding - Woodridge
Apartments Project, 5.90%, Due 12/01/20 6,285 6,379
KENTUCKY 2.5%
Mount Sterling, Kentucky League of Cities
Funding Trust Lease Program Revenue, 5.625%,
Due 3/01/03 3,250 3,299
LOUISIANA 0.4%
Louisiana Public Facilities Authority Student Loan
Revenue, 6.75%, Due 9/01/06 525 552
MARYLAND 0.7%
Prince Georges County, Maryland Solid Waste
Management System Revenue, 4.60%,
Due 6/15/00 1,000 999
MASSACHUSETTS 11.9%
Boston, Massachusetts IDFA First Mortgage
Revenue - Springhouse Project, 7.50%,
Due 1/01/98 3,750 3,754
Massachusetts Education Loan Authority
Education Loan Revenue, 7.45%, Due 1/01/02 1,595 1,667
Massachusetts Industrial Finance Agency
Refunding Revenue - Emerson College Issue,
8.50%, Due 1/01/03 5,000 5,419
Massachusetts Industrial Finance Agency Water
Treatment Revenue - Massachusetts-American
Hingham Project, 6.25%, Due 12/01/10 4,925 4,993
-----
15,833
MICHIGAN 1.9%
Flint, Michigan Hospital Building Authority
Revenue Refunding - Hurley Medical Center:
5.75%, Due 7/01/03 1,000 978
6.00%, Due 7/01/04 1,005 984
6.00%, Due 7/01/05 510 493
---
2,455
MISSISSIPPI 4.0%
Mississippi Higher Education Assistance
Corporation Student Loan Revenue:
5.60%, Due 9/01/04 2,505 2,539
5.80%, Due 9/01/06 2,050 2,078
Prentiss County, Mississippi Hospital Revenue,
5.40%, Due 12/01/97 680 683
---
5,300
NEW JERSEY 1.5%
New Jersey Health Care Facilities Financing
Authority Revenue - Southern Ocean County
Hospital Project, 5.75%, Due 7/01/01 2,000 1,990
NEW YORK 5.6%
New York Dormitory Authority Court Facilities
Lease Revenue - City of New York Issue,
5.20%, Due 5/15/05 4,445 4,278
New York Dormitory Authority Revenue - City
University Project, 7.625%, Due 7/01/14 1,125 1,148
New York Metropolitan Transportation Authority
Transit Facilities Revenue, 5.00%, Due 7/01/03 1,960 1,972
-----
7,398
OREGON 6.8%
Hillsboro, Oregon Hospital Facility Authority
Revenue and Advance Refunding - Tuality
Heathcare Project, 4.80%, Due 10/01/00 9,190 9,087
PENNSYLVANIA 6.7%
Clarion County, Pennsylvania Hospital Authority
Revenue - Clarion Hospital Project, 8.10%,
Due 7/01/12 2,500 2,644
Delaware County, Pennsylvania Authority Health
Facilities Revenue - Mercy Health Corporation of
Southeastern Pennsylvania Obligated Group,
6.00%, Due 11/15/07 5,000 4,881
Philadelphia, Pennsylvania Hospitals and Higher
Education Facilities Authority Hospital Revenue,
5.35%, Due 7/01/99 1,335 1,342
-----
8,867
SOUTH DAKOTA 4.3%
South Dakota Student Loan Corporation Student
Loan Revenue, 7.35%, Due 8/01/98 5,615 5,776
8
See notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STRONG SHORT-TERM MUNICIPAL BOND FUND
PRINCIPAL VALUE
AMOUNT (NOTE 2)
(In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
TEXAS 8.2%
Brazos, Texas Higher Education Authority, Inc.
Student Loan Revenue Refunding:
5.95%, Due 6/01/02 (c) $ 2,595 $ 2,696
6.50%, Due 3/01/99 1,345 1,382
Trinity River Authority Refunding - Texas
Industries, Inc. Project, 6.1875%, Due 9/01/07 1,790 1,779
Trinity River Authority Refunding - Texas
Industries, Inc. Project, Series A, 6.1875%,
Due 9/01/07 5,100 5,068
-----
10,925
WASHINGTON 4.3%
Washington Health Care Facilities Authority
Revenue - Sisters of Providence, 5.375%,
Due 10/01/00 5,600 5,684
-----
TOTAL MUNICIPAL BONDS (COST $126,035) 126,747
SHORT-TERM INVESTMENTS (a) 3.4%
SHORT-TERM MUNICIPAL BONDS 0.8%
DISTRICT OF COLUMBIA
District of Columbia Hospital Revenue Refunding -
Washington Hospital Center, 6.50%, Due 8/15/96 1,100 1,102
DAILY VARIABLE RATE PUT BONDS 2.6%
DISTRICT OF COLUMBIA 0.8%
District of Columbia GO Refunding 1,000 1,000
NORTH CAROLINA 1.8%
Wake County, North Carolina Industrial
Facilities and Pollution Control Financing
Authority Revenue - Carolina Power and
Light Company Project 2,400 2,400
-----
3,400
-----
TOTAL SHORT-TERM INVESTMENTS (COST $4,501) 4,502
TOTAL INVESTMENTS IN SECURITIES -----
(COST $130,536) 98.7% 131,249
Other Assets and Liabilities, Net 1.3% 1,684
-----
NET ASSETS 100.0% $132,933
========
FUTURES
- -------
UNDERLYING
FACE AMOUNT UNREALIZED
EXPIRATION AT VALUE DEPRECIATION
DATE (In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
Sold:
86 Municipal Bond Index Futures 9/96 ($9,662) ($202)
================================================================================
STRONG MUNICIPAL BOND FUND
PRINCIPAL VALUE
AMOUNT (NOTE 2)
(In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
MUNICIPAL BONDS 95.2%
ALABAMA 2.7%
Courtland, Alabama IDB Solid Waste Disposal
Revenue - Champion International Corporation
Project, 6.375%, Due 3/01/29 $ 5,000 $ 4,881
Tuscaloosa, Alabama GO, 6.75%, Due 7/01/20 1,000 1,064
-----
5,945
ALASKA 2.3%
Alaska Student Loan Corporation Revenue, 6.25%,
Due 7/01/10 1,330 1,343
Valdez, Alaska Marine Terminal Revenue
Refunding - BP Pipelines (Alaska), Inc. Project,
5.65%, Due 12/01/28 4,000 3,730
-----
5,073
ARIZONA 2.6%
Maricopa County, Arizona IDA MFHR - Advantage
Point, Arrowood Village, Oxford Place, Riviera
Pointe and Timber Lake Projects,
6.50%, Due 7/01/16 1,500 1,487
Phoenix, Arizona IDA Mortgage Revenue
Refunding - Christian Care Retirement
Apartments, Inc. Project, 6.25%, Due 1/01/16 4,740 4,426
-----
5,913
ARKANSAS 0.4%
Jonesboro, Arkansas Residential Housing and
Health Care Facilities Board Hospital Revenue
Refunding and Construction - St. Bernards
Regional Medical Center, 5.90%, Due 7/01/16 (b) 1,000 1,010
CALIFORNIA 7.1%
California Financing Authority Solid Waste PCR -
West County Resource Recovery, Inc. Project,
5.55%, Due 1/01/09 2,000 1,892
California Tri-City Housing Finance Agency
SFMR - FNMA and GNMA Collateralized,
6.45%, Due 12/01/28 2,000 2,010
Foothill/Eastern Transportation Corridor Agency
Toll Road Revenue, Zero %, Due 1/01/28 10,560 1,241
Los Angeles, California MFHR - Earthquake
Rehabilitation Projects, 5.85%, Due 12/01/27 1,535 1,548
Los Angeles County, California Metropolitan
Transportation Authority, 5.30%, Due 7/01/12 1,230 1,172
Orange County, California 1996 Recovery COP,
5.80%, Due 7/01/16 2,000 1,953
Rancho, California Water District Financing
Authority Revenue Refunding, 4.875%,
Due 8/01/15 1,500 1,296
Student Education Loan Marketing Corporation
Student Loan Program Revenue - California
Senior Subordinate, 7.00%, Due 7/01/10 3,000 3,056
University of California Refunding Revenue -
Multiple Purpose Projects, 5.00%, Due 9/01/13 1,805 1,638
-----
15,806
COLORADO 9.1%
Arapahoe County, Colorado E-470 Public Highway
Authority Capital Improvement Trust Fund
Highway Revenue, Zero %, Due 8/31/10 15,000 5,700
Castle Rock Ranch, Colorado Public Improvements
Authority Public Facilities Revenue, 6.25%,
Due 12/01/17 5,000 4,981
Denver, Colorado City and County Airport
System Revenue:
6.75%, Due 11/15/22 500 527
7.00%, Due 11/15/25 6,035 6,171
7.50%, Due 11/15/25 2,655 2,784
-----
20,163
DELAWARE 2.2%
Delaware EDA Hospital Revenue - Osteopathic
Hospital Association of
Delaware/Riverside Hospital:
6.00%, Due 1/01/03 1,915 2,008
6.50%, Due 1/01/08 2,695 2,843
-----
4,851
FLORIDA 1.1%
Dade County, Florida School District GO
Refunding School, 4.75%, Due 7/15/09 1,000 920
Lake County, Florida Village Center Community
Development District Utility Revenue, 5.00%,
Due 11/01/13 1,615 1,478
-----
2,398
9
See notes to financial statements.
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES(continued) June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
STRONG MUNICIPAL BOND FUND (continued)
PRINCIPAL VALUE
AMOUNT (NOTE 2)
(In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
GEORGIA 0.7%
Savannah, Georgia Hospital Authority Revenue
Refunding and Improvement - Candler Hospital,
7.00%, Due 1/01/23 $ 1,470 $ 1,498
IDAHO 0.9%
Idaho Housing Agency SFMR, 6.45%, Due 7/01/27 2,000 2,027
ILLINOIS 13.1%
Chicago, Illinois Wastewater Transmission
Revenue, 5.125%, Due 1/01/25 5,270 4,631
Cook and DuPage Counties, Illinois Lemont-
Bromberek Combined School District No. 113A,
Capital Appreciation School Building:
Zero %, Due 12/01/09 3,320 1,523
Zero %, Due 12/01/10 3,485 1,485
Cook and DuPage Counties, Illinois Township High
School District No. 210, Capital Appreciation
School, Zero %, Due 12/01/15 3,825 1,181
Granite City, Illinois Hospital Revenue Refunding -
Saint Elizabeth Medical Center, 8.125%,
Due 6/01/08 6,000 6,180
Illinois Health Facilities Authority Revenue -
Trinity Medical Center Project, 7.00%,
Due 7/01/12 4,000 4,305
Illinois Metropolitan Pier and Exposition Authority
Capital Appreciation - McCormick Place
Expansion Project, Zero %, Due 6/15/16 10,000 3,013
Kane, Cook and DuPage Counties, Illinois School
District No. U-46 Capital Appreciation
School Building:
Zero %, Due 1/01/11 (c) 1,800 749
Zero %, Due 1/01/13 2,500 922
Will County, Illinois Exempt Facilities Revenue -
Mobil Oil Refining Corporation Project, 6.40%,
Due 4/01/26 5,000 5,056
-----
29,045
INDIANA 3.7%
Indiana Health Facility Financing Authority
Hospital Revenue - Jackson County Schneck
Memorial Hospital Project, 7.50%, Due 2/15/22 7,790 8,170
IOWA 2.3%
Iowa Finance Authority Hospital Facility Refunding
and Revenue - Jennie Edmundson Memorial
Hospital Project, 7.65%, Due 11/01/16 4,850 5,038
MASSACHUSETTS 2.6%
Massachusetts Industrial Finance Agency First
Mortgage Revenue - Reeds Landing Project,
7.75%, Due 10/01/00 500 514
Massachusetts Municipal Wholesale Electric
Company Power Supply System Revenue:
4.75%, Due 7/01/10 4,000 3,555
4.75%, Due 7/01/11 2,000 1,758
-----
5,827
MISSISSIPPI 0.5%
Mississippi Business Finance Corporation Port of
Gulfport Revenue - E.I. du Pont de Nemours and
Company Project, 7.15%, Due 5/01/16 1,000 1,088
NEW JERSEY 2.0%
New Jersey Turnpike Authority Revenue, 6.50%,
Due 1/01/16 4,000 4,390
NEW YORK 7.4%
Housing Corporation of New York Revenue
Refunding, 5.00%, Due 11/01/13 2,000 1,800
New York Dormitory Authority City University
System Consolidated Revenue, 5.00%,
Due 7/01/20 2,500 2,222
New York, New York GO, 6.25%, Due 8/01/13 (b) 2,000 1,965
New York, New York Municipal Water Finance
Authority Water and Sewer System Revenue,
5.625%, Due 6/15/16 5,000 4,831
New York Urban Development Corporation
Revenue - Sports Facility Assistance Program,
5.50%, Due 4/01/16 2,500 2,406
New York Urban Development Corporation
Revenue - University Facilities Grants Project,
5.875%, Due 1/01/21 1,045 1,006
Niagara Falls, New York Bridge Commission Toll
Bridge System Revenue, 5.25%, Due 10/01/15 2,400 2,292
-----
16,522
OHIO 6.0%
Cuyahoga County, Ohio MFMR - National Terminal
Apartments Project, 6.40%, Due 7/01/16 (b) 3,000 3,000
Eaton, Ohio IDR Refunding - Baxter International,
Inc. Projects, 6.50%, Due 12/01/12 1,600 1,656
Medina County, Ohio EDR MFHR - Camelot Place,
Ltd. Project, 8.375%, Due 10/01/23 3,800 3,672
Ohio Housing Finance Agency Residential
Mortgage Revenue, 5.95%, Due 9/01/27 5,000 4,950
-----
13,278
OKLAHOMA 3.6%
Shawnee, Oklahoma Hospital Authority Revenue -
MidAmerica HealthCare, Inc., 8.00%,
Due 4/01/04 3,030 3,223
Tulsa, Oklahoma Trustees Municipal Airport
Trust - American Airlines, Inc., 7.375%,
Due 12/01/20 4,490 4,731
-----
7,954
OREGON 0.7%
Marion County, Oregon Solid Waste and Electric
Revenue Refunding - Odgen Martin Systems of
Marion, Inc. Project, 5.375%, Due 10/01/08 1,500 1,496
PENNSYLVANIA 2.8%
Blair County, Pennsylvania Hospital Authority
First Mortgage Revenue, Mercy Hospital
Sublessee, 8.125%, Due 2/01/14 6,000 6,292
SOUTH CAROLINA 1.3%
Charleston County, South Carolina Resource
Recovery Revenue - Foster Wheeler Charleston
Resource Recovery, Inc. Project, 9.25%, 1/01/10 1,250 1,353
Kershaw County, South Carolina Hospital Facilities
Revenue Refunding - Kershaw County Memorial
Hospital Project, 8.00%, Due 9/15/17 1,435 1,500
-----
2,853
SOUTH DAKOTA 3.0%
South Dakota Student Loan Corporation Student
Loan Revenue, 7.625%, Due 8/01/06 6,455 6,762
TEXAS 15.9%
El Paso, Texas Property Finance Authority, Inc.
SFMR - GNMA Mortgage-Backed, 8.70%,
Due 12/01/18 505 542
Grape Creek, Texas Pulliam Independent School
District Public Facility Corporation School
Facility Lease Revenue, 7.25%, Due 5/15/21 1,300 1,300
10
See notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STRONG MUNICIPAL BOND FUND (continued)
PRINCIPAL VALUE
AMOUNT (NOTE 2)
(In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
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 $ 4,040
Harris County, Texas IDC Marine Terminal
Revenue Refunding - GATX Terminals
Corporation Project, 6.95%, Due 2/01/22 1,750 1,837
Harris County, Texas Toll Road Senior Lien
Revenue, 5.00%, Due 8/15/16 3,900 3,529
Lufkin, Texas Health Facilities Development
Corporation Health System Revenue and
Refunding - Memorial Health System of
East Texas, 6.875%, Due 2/15/26 3,000 2,918
North Central Texas Health Facilities Development
Corporation - Tri-City Health Centre, Inc. Project,
9.50%, Due 5/01/21 10,000 8,700
Nueces County, Texas Port of Corpus Christi
Authority PCR - Hoechst Celanese Corporation
Project, 6.875%, Due 4/01/17 5,000 5,256
Port Arthur, Texas HFC Mortgage Revenue
Refunding - FHA Insured Mortgage Loans - Port
Arthur UDAG Projects, 6.40%, Due 1/01/28 3,565 3,610
Ranger, Texas Housing Corporation MFMR
Refunding - FHA Insured Mortgage Loan -
Ranger Apartments Project, 8.80%, Due 3/01/24 1,160 1,279
San Antonio, Texas Hotel Occupancy Tax
Revenue - Henry B. Gonzalez Convention Center
Expansion Project, 5.70%, Due 8/15/26 1,500 1,453
Tarrant County, Texas Keller Independent School
District Unlimited Tax School Building and
Refunding, Zero %, Due 8/15/16 2,575 782
---
35,246
UTAH 0.7%
Intermountain Power Agency Power Supply
Revenue Refunding, 6.50%, Due 7/01/11(b) 1,500 1,562
WISCONSIN 0.5%
Wisconsin Health and Educational Facilities
Authority Revenue - Howard Young Medical
Center, Inc. Project, 5.75%, Due 8/15/13 1,250 1,191
-----
TOTAL MUNICIPAL BONDS (COST $212,722) 211,398
SHORT-TERM INVESTMENTS (a) 1.1%
DAILY VARIABLE RATE PUT BONDS
DISTRICT OF COLUMBIA
District of Columbia GO Refunding (COST $2,500) 2,500 2,500
TOTAL INVESTMENTS IN SECURITIES -----
(COST $215,222) 96.3% 213,898
Other Assets and Liabilities, Net 3.7% 8,151
-----
NET ASSETS 100.0% $222,049
========
FUTURES
- -------
UNDERLYING
FACE AMOUNT UNREALIZED
EXPIRATION AT VALUE DEPRECIATION
DATE (In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
Sold:
183 Municipal Bond Index Futures 9/96 ($20,559) ($551)
================================================================================
STRONG HIGH-YIELD MUNICIPAL BOND FUND
PRINCIPAL VALUE
AMOUNT (NOTE 2)
(In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
MUNICIPAL BONDS 95.1%
ALASKA 1.5%
Seward, Alaska Revenue - Alaska Sealife Center
Project, 7.65%, Due 10/01/16 $ 3,500 $ 3,491
CALIFORNIA 2.2%
Foothill/Eastern Transportation Corridor Agency
Toll Road Revenue, Zero %, Due 1/01/28 24,000 2,820
Orange County, California San Joaquin Hills
Transportation Corridor Agency Junior Lien
Toll Road Revenue, Zero %, Due 1/01/16 4,435 1,197
Southern California Public Power Authority
San Juan Power Project Revenue, 5.00%,
Due 1/01/20 1,090 959
---
4,976
COLORADO 2.3%
Arapahoe County, Colorado E-470 Public Highway
Authority Capital Improvement Trust Fund
Highway Revenue, Zero %, Due 8/31/15 20,000 5,125
DELAWARE 1.2%
Delaware EDA First Mortgage Revenue -
Gilpin Hall Project:
7.375%, Due 7/01/15 1,000 986
7.625%, Due 7/01/25 1,800 1,773
-----
2,759
FLORIDA 4.3%
Florida Board of Education Public Education
Capital Outlay Refunding, 5.60%, Due 6/01/25 2,000 1,930
Florida Housing Finance Agency MFHR
Refunding - Players Club at Tampa, Suntree at
East Bay, Suntree at Orlando, Players Club at
Magnolia Bay and Players Club at East Bay
Projects, 6.00%, Due 8/01/11 (b) 2,000 2,012
Orange and Osceola Counties, Florida Reedy Creek
Improvement District Utilities Revenue
Improvement and Refunding, 5.00%,
Due 10/01/19 (c) 1,000 894
Orange County, Florida Health Facilities Authority
First Mortgage Revenue - RHA/Princeton
Hospital, Inc. Project, 9.00%, Due 7/01/21 5,000 4,000
Polk County, Florida HFA Subordinated Revenue -
Lake Wales Gardens Project, Zero %,
Due 4/01/20 7,125 891
---
9,727
GEORGIA 6.0%
Atlanta, Georgia Urban Residential Finance
Authority MFHR - Franciscan Club Apartments
Projects, 7.75%, Due 4/01/22 4,840 3,388
Dekalb County, Georgia Residential Care Facilities
for the Elderly Authority First Lien Revenue -
King's Bridge Retirement Center, Inc. Project:
8.00%, Due 7/01/06 650 646
8.15%, Due 7/01/16 2,380 2,359
8.25%, Due 7/01/26 5,250 5,197
Savannah, Georgia Hospital Authority Revenue
Refunding and Improvement - Candler Hospital,
7.00%, Due 1/01/23 2,000 2,038
-----
13,628
ILLINOIS 4.9%
Granite City, Illinois Hospital Revenue Refunding -
Saint Elizabeth Medical Center, 8.125%,
Due 6/01/08 1,030 1,061
Illinois DFA Community Rehabilitation Providers
Facilities Acquisition Program Revenue:
7.25%, Due 3/01/04 1,015 1,012
7.50%, Due 3/01/14 3,070 2,974
11
See notes to financial statements.
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES(continued) June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
STRONG HIGH-YIELD MUNICIPAL BOND FUND (continued)
PRINCIPAL VALUE
AMOUNT (NOTE 2)
(In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
Illinois Metropolitan Pier and Exposition Authority
Capital Appreciation - McCormick Place
Expansion Project, Zero %, Due 6/15/16 $ 4,000 $ 1,205
Riverdale, Illinois Environmental Improvement
Revenue - Acme Metals, Inc. Project, 7.95%,
Due 4/01/25 5,000 4,944
-----
11,196
INDIANA 3.5%
Indianapolis, Indiana EDR MFHR - Post Pointe
Apartments Project:
8.20%, Due 3/01/01 270 271
8.30%, Due 3/01/06 480 482
8.40%, Due 3/01/11 710 714
8.75%, Due 3/01/27 6,540 6,565
-----
8,032
IOWA 8.0%
Cedar Rapids, Iowa First Mortgage Revenue -
Cottage Grove Place Project:
7.25%, Due 7/01/02 6,000 6,000
9.00%, Due 7/01/25 6,000 6,030
Iowa Finance Authority First Mortgage Elder Care
Facility Revenue - Amity Fellowserve-Iowa, Inc.
Project, 8.75%, Due 10/01/25 6,165 6,080
-----
18,110
KENTUCKY 2.5%
Morgantown, Kentucky Solid Waste Disposal
Facilities Revenue - IMCO Recycling, Inc. Project,
7.65%, Due 5/01/16 5,740 5,711
LOUISIANA 2.4%
Louisiana Public Facilities Authority Senior Lien
Revenue - Progressive Healthcare Providers, Inc.
Developmental Centers, 8.00%, Due 1/01/13 5,730 5,458
MASSACHUSETTS 4.9%
Massachusetts Health and Educational Facilities
Authority Revenue - Saints Memorial
Medical Center:
5.50%, Due 10/01/02 3,500 3,154
5.75%, Due 10/01/06 1,885 1,633
Massachusetts Industrial Finance Agency First
Mortgage Revenue - Evanswood Bethzatha
Corporation Project, 7.875%, Due 1/15/20 2,285 2,274
Massachusetts Industrial Finance Agency
Revenue - GlenMeadow Retirement Community,
8.375%, Due 2/15/18 2,300 2,234
Massachusetts Municipal Wholesale Electric
Company Power Supply System Revenue, 4.75%,
Due 7/01/10 2,000 1,777
-----
11,072
MICHIGAN 1.7%
Michigan State Hospital Finance Authority
Hospital Revenue and Refunding -
Detroit-Macomb Hospital Corporation,
7.30%, Due 6/01/01 3,800 3,809
MISSOURI 1.5%
Saline County, Missouri IDA Hospital Revenue -
John Fitzgibbon Memorial Hospital, Inc. Project,
7.375%, Due 5/01/11 3,550 3,483
NEW YORK 3.7%
New York Dormitory Authority City University
System Consolidated Revenue, 5.00%,
Due 7/01/20 2,500 2,222
New York, New York GO, 6.25%, Due 8/01/13 (b) 6,260 6,150
-----
8,372
OHIO 1.8%
Cuyahoga County, Ohio Multifamily Housing
Mortgage Revenue - National Terminal
Apartments Project, 6.40%, Due 7/01/16 (b) 2,000 2,000
East Liverpool, Ohio Hospital Improvement
Revenue - East Liverpool City Hospital Project,
8.00%, Due 10/01/21 1,595 1,665
Medina County, Ohio EDR MFHR - Camelot Place,
Ltd. Project, 8.375%, Due 10/01/23 400 386
---
4,051
OKLAHOMA 0.6%
Jackson County, Oklahoma Memorial Hospital
Authority Hospital Revenue Refunding - Jackson
County Memorial Hospital Project, 5.875%,
Due 8/01/97 1,405 1,390
PENNSYLVANIA 21.3%
Bucks County, Pennsylvania IDA CDR - Attleboro
Associates, Ltd. Nursing Facility Project:
8.00%, Due 12/01/05 2,000 2,052
8.25%, Due 6/01/11 3,610 3,732
Delaware County, Pennsylvania Authority Health
Care Facility First Mortgage Revenue -
GF/Longwood Care, Inc. Project:
8.50%, Due 4/15/10 530 525
9.00%, Due 4/15/25 5,860 5,787
Delaware County, Pennsylvania IDA Revenue -
Martins Run Project:
5.40%, Due 12/15/01 1,000 974
6.00%, Due 12/15/06 1,500 1,447
Horsham, Pennsylvania IDA CDA Health Care
Facilities Revenue - GF/Pennsylvania Properties,
Inc. Project:
7.375%, Due 9/01/08 440 420
8.375%, Due 9/01/24 6,000 6,060
Montgomery County, Pennsylvania Higher
Education and Health Authority Hospital
Revenue - United Hospitals, Inc. Project, 8.375%,
Due 11/01/11 3,525 3,992
Montgomery County, Pennsylvania Higher
Education and Health Authority Hospital
Revenue - United Hospitals, Inc. - St.
Christopher's Hospital for Children Project:
7.50%, Due 11/01/13 350 382
8.25%, Due 11/01/03 1,000 1,069
8.50%, Due 11/01/17 230 248
Montgomery County, Pennsylvania IDA
Retirement Community Revenue Refunding -
G. D. L. Farms Corporation Project:
6.30%, Due 1/01/13 2,000 1,755
6.50%, Due 1/01/20 4,660 4,054
Montgomery County, Pennsylvania IDA Revenue -
Wordsworth Academy Project, 8.00%,
Due 9/01/24 6,840 6,754
Philadelphia, Pennsylvania Hospitals and Higher
Education Facilities Authority Hospital
Revenue - Methodist Hospital Project, 9.00%,
Due 7/01/10 3,360 3,453
Shenango Valley, Mercer County, Pennsylvania
Osteopathic Hospital Authority Hospital Gross
Revenue Refunding - Shenango Valley Medical
Center Project, 7.875%, Due 4/01/10 5,655 5,726
-----
48,430
SOUTH CAROLINA 0.9%
Florence County, South Carolina IDR - Stone
Container Corporation Project, 7.375%,
Due 2/01/07 2,000 2,045
12
See notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STRONG HIGH-YIELD MUNICIPAL BOND FUND (continued)
PRINCIPAL VALUE
AMOUNT (NOTE 2)
(In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
TEXAS 5.1%
DeSoto, Texas IDA IDR - Wintergreen Commercial
Partnership Project, 7.00%, Due 1/01/17 $ 4,719 $ 4,395
Jefferson County, Texas Health Facilities
Development Corporation Hospital
Revenue -Baptist Health Care System Project:
8.30%, Due 10/01/14 4,600 4,657
8.875%, Due 6/01/21 2,410 2,470
-----
11,522
VIRGINIA 2.2%
Loudoun County, Virginia IDA IDR Refunding -
Dulles Airport Marriot Hotel Project, 7.125%,
Due 9/01/15 5,000 4,875
WEST VIRGINIA 0.9%
Marion County, West Virginia Solid Waste Disposal
Facility Revenue - American Fiber Resources
Project, 9.25%, Due 12/01/11 3,400 2,040
WISCONSIN 11.7%
Brookfield, Wisconsin IDR Refunding - Midway
Motor Lodge Project, 8.40%, Due 4/01/12 5,430 5,763
Wisconsin Health and Educational Facilities
Authority Revenue - Aurora Medical Group, Inc.
Project, 9.00%, Due 11/15/25 2,500 2,375
Wisconsin Health and Educational Facilities
Authority Revenue - Fort Atkinson Memorial
Health Services, Inc.:
5.30%, Due 10/01/99 (b) 500 501
5.50%, Due 10/01/00 (b) 750 751
5.70%, Due 10/01/01 (b) 420 421
Wisconsin Health and Educational Facilities
Authority Revenue - National Regency of New
Berlin, Inc. Project:
7.75%, Due 8/15/15 5,000 4,788
8.00%, Due 8/15/25 12,500 11,906
------
26,505
------
TOTAL MUNICIPAL BONDS (COST $216,765) 215,807
SHORT-TERM INVESTMENTS (a) 4.6%
DAILY VARIABLE RATE PUT BONDS
CALIFORNIA 0.4%
Los Angeles, California Regional Airports
Improvement Corporation Terminal Facilities
Completion Revenue - LAX Two Corporation -
Los Angeles International Airport 1,000 1,000
DISTRICT OF COLUMBIA 0.7%
District of Columbia GO Refunding 1,500 1,500
MISSOURI 1.3%
Jackson County, Missouri Industrial Sewer
Facilities Revenue - Chevron USA Project 3,000 3,000
PENNSYLVANIA 2.2%
Delaware County, Pennsylvania IDA PCR -
BP Oil, Inc. Project 5,000 5,000
-----
TOTAL SHORT-TERM INVESTMENTS (COST $10,500) 10,500
TOTAL INVESTMENTS IN SECURITIES ------
(COST $227,265) 99.7% 226,307
Other Assets and Liabilities, Net 0.3% 606
---
NET ASSETS 100.0% $226,913
========
- --------------------------------------------------------------------------------
FUTURES
- -------
UNDERLYING
FACE AMOUNT UNREALIZED
EXPIRATION AT VALUE DEPRECIATION
DATE (In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
Sold:
74 Municipal Bond Index Futures 9/96 ($8,313) ($224)
LEGEND
- ------
(a) Short-term investments include any security which has a maturity of less
than one year.
(b) When-Issued security.
(c) All or a portion of security pledged to cover margin requirements for
futures contracts.
All costs are stated in thousands.
Percentages are stated as a percent of net assets.
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
EDR -- Economic Development Revenue
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
See notes to financial statements.
13
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------
For the Six Months Ended June 30, 1996 (Unaudited) (In Thousands)
<CAPTION>
STRONG SHORT-TERM STRONG MUNICIPAL STRONG HIGH-YIELD
MUNICIPAL BOND FUND BOND FUND MUNICIPAL BOND FUND
------------------- --------- -------------------
<S> <C> <C> <C>
INTEREST INCOME $3,902 $ 7,128 $ 9,410
EXPENSES:
Investment Advisory Fees 336 693 733
Custodian Fees 9 12 9
Shareholder Servicing Costs 78 176 83
Reports to Shareholders 33 59 24
Other 48 54 20
-- -- --
Total Expenses 504 994 869
--- --- ---
NET INVESTMENT INCOME 3,398 6,134 8,541
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 196 (5,373) (4,586)
Futures Contracts and Options 358 3 1
Change in Unrealized Depreciation on:
Investments (2,066) (6,408) (8,902)
Futures Contracts and Options (17) (551) (224)
--- ---- ----
NET LOSS (1,529) (12,329) (13,711)
------ ------- -------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $1,869 ($ 6,195) ($ 5,170)
====== ======== ========
See notes to financial statements.
</TABLE>
14
<PAGE>
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------------------------------------------------------------------
June 30, 1996 (Unaudited)
(In Thousands, Except Per Share Amounts)
<CAPTION>
STRONG SHORT-TERM STRONG MUNICIPAL STRONG HIGH-YIELD
MUNICIPAL BOND FUND BOND FUND MUNICIPAL BOND FUND
------------------- --------- -------------------
<S> <C> <C> <C>
ASSETS:
Investments in Securities, at Value (Cost of $130,536,
$215,222, and $227,265, respectively) $131,249 $213,898 $226,307
Receivable from Brokers for Securities Sold -- 17,255 10,727
Interest Receivable 2,277 4,016 5,046
Other Assets 39 188 707
------- ------- -------
Total Assets 133,565 235,357 242,787
LIABILITIES:
Payable to Brokers for Securities Purchased -- 12,178 14,513
Dividends Payable 508 939 1,199
Accrued Operating Expenses and Other Liabilities 124 191 162
--- ------ ------
Total Liabilities 632 13,308 15,874
------- ------ ------
NET ASSETS $132,933 $222,049 $226,913
======== ======== ========
Capital Shares
Authorized 10,000,000 100,000 1,000,000
Outstanding 13,755 24,550 24,158
NET ASSET VALUE PER SHARE $9.66 $9.04 $9.39
===== ===== =====
</TABLE>
See notes to financial statements.
15
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
For the Six Months Ended June 30, 1996 (Unaudited) and the Year Ended December 31, 1995
(In Thousands)
<CAPTION>
STRONG SHORT-TERM STRONG MUNICIPAL
MUNICIPAL BOND FUND BOND FUND
------------------- ---------
JUNE 30, 1996 DEC. 31, 1995 JUNE 30, 1996 DEC. 31, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net Investment Income $ 3,398 $ 7,035 $ 6,134 $ 15,259
Net Realized Gain (Loss) 554 (5,512) (5,370) 8,215
Change in Unrealized Appreciation/Depreciation (2,083) 6,209 (6,959) 6,852
------ ----- ------ -----
Increase (Decrease) in Net Assets Resulting from Operations 1,869 7,732 (6,195) 30,326
CAPITAL SHARE TRANSACTIONS 1,724 (29,202) (12,346) (42,434)
DISTRIBUTIONS:
From Net Investment Income (3,398) (7,035) (6,134) (15,259)
In Excess of Net Investment Income -- -- -- (5,717)
----- ------ ------ ------
TOTAL INCREASE (DECREASE) IN NET ASSETS 195 (28,505) (24,675) (33,084)
NET ASSETS:
Beginning of Period 132,738 161,243 246,724 279,808
------- ------- ------- -------
End of Period $132,933 $132,738 $222,049 $246,724
======== ======== ======== ========
STRONG HIGH-YIELD
MUNICIPAL BOND FUND
-------------------
JUNE 30, 1996 DEC. 31, 1995
------------- -------------
OPERATIONS:
Net Investment Income $ 8,541 $ 13,500
Net Realized Loss (4,585) (1,057)
Change in Unrealized Appreciation/Depreciation (9,126) 12,809
------ ------
Increase (Decrease) in Net Assets Resulting from Operations (5,170) 25,252
CAPITAL SHARE TRANSACTIONS (26,331) 147,648
DISTRIBUTIONS FROM NET INVESTMENT INCOME (8,541) (13,500)
------ -------
TOTAL INCREASE (DECREASE) IN NET ASSETS (40,042) 159,400
NET ASSETS:
Beginning of Period 266,955 107,555
------- -------
End of Period $226,913 $266,955
======== ========
</TABLE>
See notes to financial statements.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1996 (Unaudited)
1. ORGANIZATION
The Strong Municipal Income Funds consist of Strong Short-Term Municipal
Bond Fund, Inc., Strong Municipal Bond Fund, Inc. and Strong High-Yield
Municipal Bond Fund, Inc. The Funds are separately incorporated,
diversified, open-end management investment companies registered under the
Investment Company Act of 1940.
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
current value.
The Funds may own certain investment securities which are restricted
as to resale. These securities are valued after giving due
consideration to pertinent factors, including recent private sales,
market conditions and the issuer's financial performance. The Funds
generally bear the costs, if any, associated with the disposition of
restricted securities.
(B) Federal Income and Excise Taxes and Distributions to Shareholders --
It is the Funds' policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of their taxable income to their
shareholders in a manner which results in no tax cost to the Funds.
Therefore, no Federal income or excise tax provision is required.
The character of distributions made during the year from net
investment income or net realized gains may differ from the
characterization for Federal income tax purposes due to differences in
the recognition of income and expense items for financial statement
and tax purposes. Where appropriate, reclassifications between net
asset accounts are made for such differences that are permanent in
nature.
(C) Realized Gains and Losses on Investment Transactions -- Gains or
losses realized on investment transactions are determined by comparing
the identified cost of the security lot sold with the net sales
proceeds.
(D) Futures -- Upon entering into a futures contract, the Funds pledge to
the broker cash, U.S. government securities or other liquid,
high-grade debt obligations equal to the minimum "initial margin"
requirements of the exchange. The Funds also receive from or pay to
the broker an amount of cash equal to the daily fluctuation in the
value of the contract. Such receipts or payments are known as
"variation margin," and are recorded as unrealized gains or losses.
When the futures contract is closed, a realized gain or loss is
recorded equal to the difference between the value of the contract at
the time it was opened and the value at the time it was closed.
(E) Options -- Premiums received by the Funds upon writing put or call
options are recorded as an asset with a corresponding liability which
is subsequently adjusted to the current market value of the option.
When an option expires, is exercised, or is closed, the Funds realize
a gain or loss, and the liability is eliminated. The Funds continue to
bear the risk of adverse movements in the price of the underlying
asset during the period of the option, although any potential loss
during the period would be reduced by the amount of the option premium
received.
(F) Additional Investment Risk -- The use of futures contracts and
options, for purposes of hedging the Funds' investment portfolios
involves, to varying degrees, elements of market risk in excess of the
amount recognized in the statement of assets and liabilities. The
predominant risk with futures contracts is an imperfect correlation
between the value of the contracts and the underlying securities.
(G) 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 premium and discounts.
3. NET ASSETS
Net assets as of June 30, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
STRONG SHORT-TERM STRONG MUNICIPAL STRONG HIGH-YIELD
MUNICIPAL BOND FUND BOND FUND MUNICIPAL BOND FUND
------------------- --------- -------------------
<S> <C> <C> <C>
Capital Stock $143,893 $250,791 $235,698
Undistributed Net Investment Loss -- (287) --
Undistributed Net Realized Loss (11,471) (26,580) (7,603)
Net Unrealized Appreciation (Depreciation) 511 (1,875) (1,182)
--- ------ ------
$132,933 $222,049 $226,913
======== ======== ========
</TABLE>
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
June 30, 1996 (Unaudited)
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Funds for the six months ended June 30, 1996
and year ended December 31, 1995 were as follows (in thousands):
1996 1995
---- ----
SHARES DOLLARS SHARES DOLLARS
------ ------- ------ -------
STRONG SHORT-TERM
MUNICIPAL BOND FUND
Shares Sold 3,939 $ 38,276 5,815 $ 56,792
Dividends Reinvested 296 2,880 618 6,037
Shares Redeemed (4,062) (39,432) (9,429) (92,031)
------ ------- ------ -------
173 $ 1,724 (2,996) ($ 29,202)
=== ======== ====== =========
STRONG MUNICIPAL BOND FUND
Shares Sold 3,848 $ 35,613 9,798 $ 93,037
Dividends Reinvested 537 4,971 1,777 16,879
Shares Redeemed (5,741) (52,930) (15,997) (152,350)
------ ------- ------- --------
(1,356) ($ 12,346) (4,422) ($ 42,434)
====== ========= ====== =========
STRONG HIGH-YIELD
MUNICIPAL BOND FUND
Shares Sold 11,813 $114,349 26,320 $253,347
Dividends Reinvested 680 6,558 975 9,387
Shares Redeemed (15,276) (147,238) (11,927) (115,086)
------- -------- ------- --------
(2,783) ($ 26,331) 15,368 $147,648
====== ========= ====== ========
5. RELATED PARTY TRANSACTIONS
Strong Capital Management, Inc. (the "Advisor"), with whom certain officers
and directors of the Funds are affiliated, provides investment advisory
services and shareholder recordkeeping and related services to the Funds.
Investment advisory fees, which are established by terms of the Advisory
Agreements, are based on the following annualized rates of the average
daily net assets: Strong Short-Term Municipal Bond Fund .50%, Strong
Municipal Bond Fund and Strong High-Yield Municipal Bond Fund .60%.
Advisory fees are subject to reimbursement by the Advisor if the Funds'
operating expenses exceed certain levels. Shareholder recordkeeping and
related service fees are based on contractually established rates for each
open and closed shareholder account. In addition, the Advisor is
compensated for certain other services related to costs incurred for
reports to shareholders.
Certain information regarding related party transactions for the six months
ended June 30, 1996, is as follows (in thousands):
<TABLE>
<CAPTION>
STRONG SHORT-TERM STRONG MUNICIPAL STRONG HIGH-YIELD
MUNICIPAL BOND FUND BOND FUND MUNICIPAL BOND FUND
------------------- --------- -------------------
<S> <C> <C> <C>
Payable to Advisor at June 30, 1996 $66 $108 $122
Other Shareholder Servicing Expenses Paid
to Advisor 1 4 2
Unaffiliated Directors' Fees 2 5 3
</TABLE>
6. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities for the six
months ended June 30, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
STRONG SHORT-TERM STRONG MUNICIPAL STRONG HIGH-YIELD
MUNICIPAL BOND FUND BOND FUND MUNICIPAL BOND FUND
------------------- --------- -------------------
<S> <C> <C> <C>
Purchases $35,979 $311,483 $168,889
Sales 34,791 329,785 203,361
</TABLE>
7. INCOME TAX INFORMATION
At June 30, 1996, the investment cost and gross unrealized appreciation and
depreciation on investments for Federal income tax purposes were as follows
(in thousands):
<TABLE>
<CAPTION>
STRONG SHORT-TERM STRONG MUNICIPAL STRONG HIGH-YIELD
MUNICIPAL BOND FUND BOND FUND MUNICIPAL BOND FUND
------------------- --------- -------------------
<S> <C> <C> <C>
Aggregate Investment Cost $130,536 $215,283 $227,299
======== ======== ========
Aggregate Unrealized
Appreciation $ 1,109 $ 1,600 $ 3,198
Depreciation (396) (2,985) (4,190)
---- ------ ------
$ 713 ($ 1,385) ($ 992)
======== ========= =========
</TABLE>
18
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following presents information relating to a share of capital stock of the
Fund, outstanding for the entire period.
<TABLE>
<CAPTION>
STRONG SHORT-TERM MUNICIPAL BOND FUND 1996(a) 1995 1994 1993 1992
------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.77 $ 9.73 $ 10.36 $ 10.20 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income 0.24 0.47 0.45 0.44 0.48
Net Realized and Unrealized Gains
(Losses) on Investments (0.11) 0.04 (0.62) 0.23 0.22
----- ---- ----- ---- ----
TOTAL FROM INVESTMENT OPERATIONS 0.13 0.51 (0.17) 0.67 0.70
LESS DISTRIBUTIONS
- ------------------
From Net Investment Income(b) (0.24) (0.47) (0.45) (0.44) (0.48)
From Net Realized Gains -- -- (0.01) (0.07) (0.02)
---- ---- ----- ----- -----
TOTAL DISTRIBUTIONS (0.24) (0.47) (0.46) (0.51) (0.50)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $ 9.66 $ 9.77 $ 9.73 $ 10.36 $ 10.20
======== ======== ======== ======== ========
Total Return +1.4% +5.4% -1.6% +6.8% +7.2%
Net Assets, End of Period (In Thousands) $132,933 $132,738 $161,243 $216,180 $110,816
Ratio of Expenses to Average Net Assets 0.7%* 0.8% 0.7% 0.6% 0.2%
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 0.7%* 0.8% 0.7% 0.7% 0.8%
Ratio of Net Investment Income to Average
Net Assets 5.1%* 4.8% 4.5% 4.2% 4.9%
Portfolio Turnover Rate 27.3% 226.8% 273.2% 141.5% 139.9%
</TABLE>
<TABLE>
<CAPTION>
STRONG MUNICIPAL BOND FUND 1996(a) 1995 1994 1993 1992 1991 1990
------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.52 $ 9.23 $ 10.25 $ 10.00 $ 9.76 $ 9.22 $ 9.47
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income 0.24 0.52 0.56 0.58 0.65 0.65 0.66
Net Realized and Unrealized Gains
(Losses) on Investments (0.48) 0.51 (1.02) 0.57 0.50 0.54 (0.25)
----- ---- ----- ---- ---- ---- -----
TOTAL FROM INVESTMENT OPERATIONS (0.24) 1.03 (0.46) 1.15 1.15 1.19 0.41
LESS DISTRIBUTIONS
- ------------------
From Net Investment Income(b) (0.24) (0.54) (0.56) (0.58) (0.65) (0.65) (0.66)
In Excess of Net Investment Income -- (0.20) -- -- -- -- --
From Net Realized Gains -- -- -- (0.32) (0.26) -- --
---- ---- ---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS (0.24) (0.74) (0.56) (0.90) (0.91) (0.65) (0.66)
----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $ 9.04 $ 9.52 $ 9.23 $ 10.25 $ 10.00 $ 9.76 $ 9.22
======== ======== ======== ======== ======== ======== ========
Total Return -2.5% +11.4% -4.6% +11.8% +12.2% +13.4% +4.6%
Net Assets, End of Period (In Thousands) $222,049 $246,724 $279,808 $398,911 $289,751 $115,230 $ 31,560
Ratio of Expenses to Average Net Assets 0.9%* 0.8% 0.8% 0.7% 0.1% 0.1% 0.3%
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 0.9%* 0.8% 0.8% 0.8% 0.9% 1.1% 1.5%
Ratio of Net Investment Income to Average
Net Assets 5.3%* 5.4% 5.8% 5.6% 6.4% 6.9% 7.2%
Portfolio Turnover Rate 131.9% 513.8% 311.0% 156.7% 324.0% 465.2% 586.0%
1989 1988 1987
---- ---- ----
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.35 $ 9.16 $ 10.01
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income 0.52 0.49 0.67
Net Realized and Unrealized Gains
(Losses) on Investments 0.12 0.19 (0.85)
---- ---- -----
TOTAL FROM INVESTMENT OPERATIONS 0.64 0.68 (0.18)
LESS DISTRIBUTIONS
- ------------------
From Net Investment Income(b) (0.52) (0.49) (0.67)
In Excess of Net Investment Income -- -- --
From Net Realized Gains -- -- --
---- ---- ----
TOTAL DISTRIBUTIONS (0.52) (0.49) (0.67)
----- ----- -----
NET ASSET VALUE, END OF PERIOD $ 9.47 $ 9.35 $ 9.16
======== ======== ========
Total Return +7.1% +7.6% -1.8%
Net Assets, End of Period (In Thousands) $ 18,735 $ 18,275 $ 19,070
Ratio of Expenses to Average Net Assets 1.7% 1.3% 1.0%
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 1.8% 1.4% 1.3%
Ratio of Net Investment Income to Average
Net Assets 5.6% 5.3% 7.0%
Portfolio Turnover Rate 243.3% 343.6% 284.0%
</TABLE>
* Calculated on an annualized basis.
(a) For the six months ended June 30, 1996 (Unaudited). Total return and
portfolio turnover rate are not annualized.
(b) Tax-exempt for regular Federal income tax purposes.
19
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRONG HIGH-YIELD MUNICIPAL BOND FUND 1996(a) 1995 1994 1993(b)
------- ---- ---- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.91 $ 9.29 $ 10.10 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income 0.33 0.69 0.71 0.16
Net Realized and Unrealized Gains
(Losses) on Investments (0.52) 0.62 (0.81) 0.10
----- ---- ----- ----
TOTAL FROM INVESTMENT OPERATIONS (0.19) 1.31 (0.10) 0.26
LESS DISTRIBUTIONS
- ------------------
From Net Investment Income(c) (0.33) (0.69) (0.71) (0.16)
----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $ 9.39 $ 9.91 $ 9.29 $ 10.10
======== ======== ======== ========
Total Return -1.9% +14.6% -1.0% +2.7%
Net Assets, End of Period (In Thousands) $226,913 $266,955 $107,555 $ 20,840
Ratio of Expenses to Average Net Assets 0.7%* 0.4% 0.0% 0.0%*
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 0.7%* 0.8% 0.8% 1.1%*
Ratio of Net Investment Income to Average
Net Assets 6.9%* 7.1% 7.5% 6.8%*
Portfolio Turnover Rate 68.9% 113.8% 198.1% 28.0%
</TABLE>
* Calculated on an annualized basis.
(a) For the six months ended June 30, 1996 (Unaudited). Total return and
portfolio turnover rate are not annualized.
(b) Inception date is October 1, 1993. Total return and portfolio turnover rate
are not annualized.
(c) Tax-exempt for regular Federal income tax purposes.
20
<PAGE>
................................................................................
SHAREHOLDER PRIVILEGES*
[PICTURE OF TELEPHONE]
STRONG FUNDS
24-HOUR SERVICE
TELEPHONE PURCHASE
Make additional investments into any Strong Fund by calling us toll-free at
1-800-368-3863.
TELEPHONE EXCHANGE
If your financial goals change, you can exchange your investments between any of
the Strong Funds.
TELEPHONE REDEMPTION
You can call toll-free to redeem your mutual fund shares at any time. Your
shares will be redeemed no later than the close of the next business day.
[PICTURE OF DOLLAR SIGN]
STRONG FUNDS
AUTOMATIC EXCHANGE
AUTOMATIC INVESTMENT PLAN
This plan allows you to set up regular transfers from your bank checking or NOW
account to your Strong Funds account.
PAYROLL DIRECT DEPOSIT PLAN
You can automatically transfer all or a portion of your net pay at each pay
period. This eliminates the delay of depositing paychecks to your bank and then
sending a check through the mail to Strong Funds.
AUTOMATIC EXCHANGE PLAN
This plan allows you to exchange money from one Strong Fund to another. For
example, you may want to set up automatic exchanges from a money market fund to
an equity fund.
FOR MORE INFORMATION ABOUT THESE PRIVILEGES, CALL US AT 1-800-368-3863.
To reduce the volume of mail you receive, only one copy of certain materials,
such as prospectuses and shareholder reports, is mailed to your household.
Please call 1-800-368-3863 if you wish to receive additional copies, free of
charge.
*Each Fund reserves the right to terminate or modify any of these privileges.
<PAGE>
Bulk Rate
U.S. Postage
PAID
Mailed from
Zip Code 94545
Permit No. 23
FOR LITERATURE AND INFORMATION REQUESTS,
CALL 1-800-368-1030.
TO DISCUSS AN EXISTING ACCOUNT OR
CONDUCT A TRANSACTION,
CALL 1-800-368-3863.
For a prospectus containing more complete information, including management fees
and expenses, please call 1-800-368-1030. Please read it carefully before
investing or sending money. This annual report does not constitute an offer for
the sale of securities. Strong Funds are offered for sale by prospecuts only.
[STRONG FUNDS LOGO]
STRONG FUNDS DISTRIBUTORS, INC.
P.O. Box 2936
Milwaukee, Wisconsin 53201
http://www.strong-funds.com
3241F960
