<PAGE>
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THE STRONG
MUNICIPAL INCOME FUNDS
ANNUAL REPORT o AUGUST 31, 1997
[PHOTO OF OLDER COUPLE]
THE STRONG SHORT-TERM MUNICIPAL BOND FUND
-----------------------------------------
THE STRONG MUNICIPAL BOND FUND
-----------------------------------------
THE STRONG HIGH-YIELD MUNICIPAL BOND FUND
[STRONG LOGO]
STRONG FUNDS
<PAGE>
8
EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING
These common-sense rules are followed by many successful investors. They make
sense for beginners, too. If you have a question on these principles, or would
like to discuss them with us, please contact us at 1-800-368-3863. We're here 24
hours a day, seven days a week to take your call.
- --------------------------------------------------------------------------------
[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.
- --------------------------------------------------------------------------------
[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>
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THE STRONG
MUNICIPAL INCOME FUNDS
ANNUAL REPORT o AUGUST 31, 1997
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 ............................6
FINANCIAL INFORMATION
Schedules of Investments in Securities
The Strong Short-Term Municipal Bond Fund ........................8
The Strong Municipal Bond Fund ..................................10
The Strong High-Yield Municipal Bond Fund .......................12
Statements of Assets and Liabilities ................................16
Statements of Operations ............................................17
Statements of Changes in Net Assets .................................18
Notes to Financial Statements .......................................20
FINANCIAL HIGHLIGHTS .....................................................22
REPORT OF INDEPENDENT ACCOUNTANTS ........................................23
<PAGE>
THE STRONG SHORT-TERM MUNICIPAL BOND FUND
WE SEEK TO DELIVER A STRONG, SUSTAINABLE YIELD CONSISTENT WITH OUR STANDARDS FOR
QUALITY AND MATURITY.
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 29, 1997, the Fund's annualized 30-day yield was 4.54%. For
investors in the 36% tax bracket, this translates into a taxable equivalent
yield of 7.09%.(1)
======================================
PORTFOLIO STATISTICS
As of 8-29-97
======================================
30-DAY ANNUALIZED YIELD(1) 4.54%
AVERAGE MATURITY(2) 2.7 years
AVERAGE QUALITY RATING(3) A
======================================
A LOOK AT THE MARKETS AND OUR APPROACH
Interest rates fluctuated a fair amount at points in the past year. At the
beginning of the fiscal year (autumn 1996), rates on one-year T-bills first
moved down. After reaching a low point in November, they quickly moved back up,
and continued on a general upward trend through most of April.
Through the remainder of the spring and well into the summer, rates moved
steadily downward, then ended the fiscal year in a consolidation phase, sticking
in a range just below 5.60%.
One way we have sought to enhance yield and return is by working with smaller,
regional brokerages, as well as larger, leading Wall Street firms. The
specialized brokerages don't have the instant name recognition enjoyed by some
of their larger industry peers, so the issues they sponsor often offer slightly
higher yields to attract attention.
We also include some securities whose income may be subject to the Alternative
Minimum Tax. While we are conscious of the tax implications of these issues for
some shareholders, we believe that to reject AMT paper completely would be to
cut the Fund off from many of the market's more attractive issues.
Overall, our relationships with smaller brokerages and our willingness to
consider AMT issues exposes the Fund to a larger field of investments than would
otherwise be available.
POSITIONING THE FUND FOR A POSITIVE MARKET
This Fund is positioned within its category to outperform in a bull market,
though it is likely also to underperform in a bearish environment. Through
careful security selection, however, we strive to make that underperformance
less pronounced than the Fund's success in more positive conditions.
================================================================================
EQUIVALENT TAXABLE YIELDS(1)
As of 8-29-97
================================================================================
YOUR TAX-EXEMPT EFFECTIVE
MARGINAL YIELD OF 4.54% IS EQUIVALENT
JOINT RETURN SINGLE RETURN TAX RATE TO A TAXABLE YIELD OF:
- --------------------------------------------------------------------------------
$41,201-99,600 $24,651-59,750 28.0% 6.31%
...............................................................................
$99,601-151,750 $59,751-124,650 31.0% 6.58%
................................................................................
$151,751-271,050 $124,651-271,050 36.0% 7.09%
................................................................................
Over $271,050 Over $271,050 39.6% 7.52%
................................................................................
The chart reflects 1997 marginal federal tax rates before limitations and
phase-outs. Individuals with adjusted gross income in excess of $121,200
should consult their tax advisor to determine their actual 1997 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.
================================================================================
2
<PAGE>
We seek to deliver a strong, sustainable yield consistent with our standards for
quality and maturity. At this time, the Fund's portfolio consists entirely of
investment-grade issues.
LOOKING AHEAD
We don't anticipate any significant changes in the markets for the foreseeable
future. Our strategy has succeeded in delivering strong, sustainable tax-exempt
yield to shareholders, without experiencing undue risk. That's a good
combination we intend to stick with. Of course, should unpredictable changes hit
the market, we'll respond accordingly.
We believe the environment for short-term municipals is very good, and we will
continue to follow many avenues to find those issues that we believe can best
provide tax-exempt yield with acceptable risk.
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 8-31-97
================================================================================
[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 11,156
12-95 11,861 12,396 11,946
12-96 12,439 12,946 12,395
8-97 12,962 13,369 12,743
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 8-31-97
===========================
1-YEAR 6.72%
3-YEAR 4.23%
5-YEAR 4.30%
SINCE INCEPTION 4.68%
(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 Micropal. Source of the Lipper index
data is Lipper Analytical Services, Inc.
1 Yield is annualized for the 30 days ended 8-29-97, is historical, and will
vary.
2 The Fund's average maturity includes the effect of futures and 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.
3
<PAGE>
THE STRONG MUNICIPAL BOND FUND
EVEN THOUGH WE HAVEN'T CHOSEN THEM BY INDUSTRY, HOSPITALS REPRESENT THE FUND'S
SINGLE LARGEST INDUSTRY BY FAR.
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, 1997, the Fund posted a return of 11.79%. That
compares favorably with the 9.25% return of the Lehman Brothers Municipal Bond
Index and the 8.77% return of the Lipper General Municipal Debt Funds Index.*
Our outstanding return over this period reflects the continuing turnaround of
the Fund over the past year.
=======================================
PORTFOLIO STATISTICS
As of 8-29-97
=======================================
30-DAY ANNUALIZED YIELD(1) 5.00%
AVERAGE MATURITY(2) 12.4 years
AVERAGE QUALITY RATING(3) A
=======================================
SUCCESS IN A CHANGING MARKET
Through the remainder of the spring and well into
the summer, rates moved steadily downward, then ended the fiscal year in a
consolidation phase, sticking in a range just below 5.60%.
Throughout this period, we have sought to reduce the Fund's sensitivity to
interest-rate changes by shortening its duration, which is now 6.3. That's down
from 6.5 six months earlier, and 7.2 a year ago.
We believe that when investors choose to put money into a municipal bond fund,
one of their primary goals is tax-exempt income--so it is important that we
provide it, within a reasonable level of risk. While seeking this income, we
have also focused much of our attention on the quality of the issues we select.
About one-third of assets are held in issues rated AAA (or their equivalents),
the highest rating available. Another 17% of assets are held in issues rated AA,
bringing half the portfolio into the top two credit tiers.
A FOCUS ON ISSUES FIRST, THEN SECTORS
As has been the case since we began managing the Fund about a year ago, we look
for individual issues that fit into our preferences with regard to income and
quality. Even though we haven't chosen them by industry, hospitals represent the
Fund's single largest industry by far.
Utilities issues--those related to electric, water, and sewer
authorities--constitute our second-largest industry. They are followed closely
by single-family mortgage revenue bonds and by transportation issues, which have
taken on a somewhat larger role in the portfolio over the past six months.
================================================================================
EQUIVALENT TAXABLE YIELDS(1)
As of 8-29-97
================================================================================
YOUR TAX-EXEMPT EFFECTIVE
MARGINAL OF 5.00% IS EQUIVALENT
JOINT RETURN SINGLE RETURN TAX RATE TO A TAXABLE YIELD OF:
- --------------------------------------------------------------------------------
$41,201-99,600 $24,651-59,750 28.0% 6.94%
................................................................................
$99,601-151,750 $59,751-124,650 31.0% 7.25%
................................................................................
$151,751-271,050 $124,651-271,050 36.0% 7.81%
................................................................................
Over $271,050 Over $271,050 39.6% 8.28%
................................................................................
The chart reflects 1997 marginal federal tax rates before limitations and
phase-outs. Individuals with adjusted gross income in excess of $121,200 should
consult their tax advisor to determine their actual 1997 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.
================================================================================
4
<PAGE>
Our exposure to the different states and regions in which municipal bonds are
issued is similarly determined by the opportunities available to the Fund in
those areas. We do not make a deliberate effort to emphasize (or overlook)
specific parts of the country.
LOOKING AHEAD
We believe our investment approach continues to be well suited to the
environment the Fund currently faces. The Fund has performed well despite
interest-rate fluctuations over the past months, and is positioned to hold up
well should more rate movements affect the market.
Our continuing goal is to deliver consistent performance, with tax-exempt yield
as the cornerstone of total return.
Thank you for the opportunity to serve your investment needs. We look forward to
helping you pursue your 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 8-31-97
================================================================================
[GRAPH]
THE STRONG Lehman Brothers Lipper General
MUNICIPAL Municipal Municipal Debt
BOND FUND Bond Index* Funds Index*
9-86 $10,000 $10,000 $10,000
12-86 10,129 10,216 10,253
12-87 9,949 10,370 10,183
12-88 10,705 11,423 11,370
12-89 11,463 12,656 12,502
12-90 11,995 13,578 13,253
12-91 13,598 15,227 14,849
12-92 15,257 16,568 16,170
12-93 17,052 18,602 18,180
12-94 16,275 17,640 17,083
12-95 18,128 20,721 20,040
12-96 18,570 21,641 20,701
8-97 19,837 22,737 21,690
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 8-31-97
=============================
1-YEAR 11.79%
5-YEAR 5.92%
10-YEAR 7.29%
SINCE INCEPTION 6.51%
(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 Micropal. Source of the Lipper index data is Lipper
Analytical Services, Inc.
1 Yield is annualized for the 30 days ended 8-29-97, is historical, and will
vary.
2 The Fund's average maturity includes the effect of 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 HIGH-YIELD MUNICIPAL BOND FUND
BOTH ECONOMIC AND MARKET CONDITIONS HAVE BEEN POSITIVE FOR MUNICIPAL BONDS,
INCLUDING HIGH-YIELD ISSUES.
The Strong High-Yield Municipal Bond Fund seeks total return by investing for a
high level of federally tax-exempt current income.
OUTPERFORMANCE IN A POSITIVE ENVIRONMENT
For the fiscal year ended August 31, 1997, the Fund continued to outperform both
its benchmark index and its peer group of funds. The Fund's total return for the
year was 13.55%, well ahead of the 10.52% return posted by the High-Yield
Municipal Bond Index and the 8.94% return of the Lipper High Yield Municipal
Debt Funds Index.*
=======================================
PORTFOLIO STATISTICS
As of 8-29-97
=======================================
30-DAY ANNUALIZED YIELD(1) 5.98%
AVERAGE MATURITY(2) 20.0 years
AVERAGE QUALITY RATING(3) BBB
=======================================
Both economic and market conditions have been positive for municipal bonds,
including high-yield issues. The overall decline in long-term interest rates is
partially responsible. Further, demand for municipal issues kept pace with
supply--even though that supply increased as falling interest rates reduced the
cost of municipal borrowing. Falling rates also cut the yields available among
rated securities, making investment-grade municipals more attractive to
income-seeking investors.
Going forward, there is the potential that changes in the tax code could affect
demand for municipal issues. This Fund would be somewhat protected from these
concerns; although tax considerations aren't irrelevant to the demand for
high-yield municipals, they do tend to have less impact on high-yield municipals
than they do on investment-grade securities.
================================================================================
EQUIVALENT TAXABLE YIELDS(1)
As of 8-29-97
================================================================================
YOUR TAX-EXEMPT EFFECTIVE
MARGINAL OF 5.98% IS EQUIVALENT
JOINT RETURN SINGLE RETURN TAX RATE TO A TAXABLE YIELD OF:
- --------------------------------------------------------------------------------
$41,201-99,600 $24,651-59,750 28.0% 8.31%
................................................................................
$99,601-151,750 $59,751-124,650 31.0% 8.67%
................................................................................
$151,751-271,050 $124,651-271,050 36.0% 9.34%
................................................................................
Over $271,050 Over $271,050 39.6% 9.90%
................................................................................
The chart reflects 1997 marginal federal tax rates before limitations and
phase-outs. Individuals with adjusted gross income in excess of $121,200 should
consult their tax advisor to determine their actual 1997 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.
================================================================================
STICKING WITH A SUCCESSFUL STRATEGY
Over the year, we didn't make any significant changes to the strategy we
implemented in January 1996. At that time, we sought to make the Fund less
susceptible to market swings, primarily by diversifying the portfolio. Our goal
is to deliver steady performance by diversifying our investments with respect to
position size, sectors, and state concentration. We believe there are enough
good opportunities to choose from for this approach to work well.
Another element of our strategy is keeping a comfortable portion of the
portfolio in liquid, rated municipal issues. This allows us to more easily
accommodate the flows of investors' dollars in and out of the Fund, which is
important in the high-yield market.
We're continuing to invest along themes that we believe offer solid potential.
One of these remains the aging of America, which sparks our interest in bonds
from hospitals, retirement facilities, and assisted-living centers. We're also
taking a special interest in industrial development revenue bonds, which
currently take up about 13% of the portfolio. Because these bonds are backed by
the credits of established, recognized corporations, they are extremely liquid
even when they're unrated.
CAREFUL RESEARCH DRIVES OUR PROCESS
Before we purchase any unrated bond, we conduct thorough research. This
credit-by-credit analysis often takes months to complete, but it, along with our
position in liquid securities, helps to support the strength and stability of
the Fund's returns. The research process is essential to identifying issues that
are attractive on their own merits, regardless of changes in interest rates or
in the economy's growth.
6
<PAGE>
Interest-rate positioning is not paramount with this Fund--as it wouldn't be
with any high-yield municipal fund. We do, however, use the liquid,
investment-grade portion of the portfolio to adjust the Fund's duration.
Currently, we are keeping the Fund's duration somewhat longer than that of the
High-Yield Municipal Bond Fund Index, making it somewhat more sensitive to
interest-rate changes. We wouldn't hold liquid issues just to manipulate
duration. Nonetheless, given that we do hold such bonds and that we like the
general direction of the economy, it only makes sense to position this stake in
this way. This liquid portion of the portfolio is not so large that an upturn in
rates would significantly harm the Fund's overall performance--but if rates hold
steady or decline over time, these issues could make a small but positive
contribution to performance.
OUTLOOK
Given the recently released economic data, it appears likely that the Federal
Reserve will take action to raise rates before the end of 1997, as a precaution
against an overheating economy. Prices in the market appear to already reflect
this assumption. Nonetheless, growth seems to be continuing at a moderate pace
that suggests overall stability. With respect to the municipal bond market,
supply and demand appear set to remain in balance.
We intend to continue our focus on intensive, security-by-security research to
identify the bonds that we believe offer the best balance between potential
return and risk. We also intend to maintain our diversification by security, to
help ensure that no single issue can unduly affect returns.
We thank you for your investment in the Strong High-Yield Municipal Bond Fund.
We hope to continue to earn your confidence.
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 8-31-97
================================================================================
[GRAPH]
THE STRONG High-Yield Lipper High
HIGH-YIELD MUNICIPAL Municipal Yield Municipal
BOND FUND Bond Index* Debt 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 11,647
8-97 13,214 12,589 12,242
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 8-31-97
==============================
1-YEAR 13.55%
3-YEAR 8.45%
SINCE INCEPTION 7.37%
(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 8-29-97, is historical, and will
vary.
2 The Fund's average maturity includes the effect of 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.
7
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES August 31, 1997
- --------------------------------------------------------------------------------
STRONG SHORT-TERM MUNICIPAL BOND FUND
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
MUNICIPAL BONDS 86.0%
ALABAMA 0.3%
Bessemer, Alabama IDB IDR - Berman Brothers
Project, 7.65%, Due 9/01/00 $ 505,000 $ 517,287
ARIZONA 1.9%
Maricopa County, Arizona IDA MFHR - Mercy
Bond Properties Arizona I-A, 5.20%,
Due 1/01/04 1,000,000 1,016,250
Phoenix, Arizona IDA Hospital Revenue - John C.
Lincoln Hospital and Health Center Project,
4.65%, Due 12/01/99 675,000 675,844
Scottsdale, Arizona IDA First Mortgage Revenue
Refunding - Westminster Village, Inc., 5.50%,
Due 6/01/17 (Rate Reset Effective 12/01/99) 1,500,000 1,516,875
-----------
3,208,969
CALIFORNIA 2.6%
California Health Facilities Financing Authority
Hospital Revenue - Downey Community Hospital,
4.90%, Due 5/15/00 2,325,000 2,339,531
Sacramento County, California MFHR Refunding -
Fairways II Apartments, 5.35%, Due 8/01/25 1,960,000 2,009,000
-----------
4,348,531
COLORADO 1.7%
Arapahoe County, Colorado E-470 Public Highway
Authority Capital Improvement Trust Fund
Highway Revenue, Zero %, Due 8/31/03 500,000 376,250
Mesa County, Colorado IDR Refunding - Joy
Technologies, Inc. Project, 8.50%, Due 9/15/06 1,020,000 1,157,700
Miners Mesa, Colorado Commercial Metropolitan
District GO, 6.75%, Due 12/01/02 1,200,000 1,200,324
-----------
2,734,274
CONNECTICUT 0.9%
Connecticut IDA - The Olympic Hotel Corporation
Project, 6.95%, Due 8/01/03 1,429,729 1,479,770
DISTRICT OF COLUMBIA 1.9%
District of Columbia Hospital Revenue
Refunding - Medlantic Healthcare Group, Inc.,
6.50%, Due 8/15/02 2,925,000 3,096,844
FLORIDA 1.3%
Florida Housing Finance Agency MFMR -
Hammocks Place Project, 6.25%, Due 12/01/06 2,000,000 2,112,500
GUAM 8.9%
Guam Airport Authority General Revenue:
5.80%, Due 10/01/99 1,450,000 1,475,375
6.00%, Due 10/01/00 2,300,000 2,363,250
6.40%, Due 10/01/05 6,700,000 7,093,625
Guam Government GO, 5.70%, Due 9/01/03 3,630,000 3,675,375
-----------
14,607,625
ILLINOIS 3.3%
Collinsville, Illinois Madison County IDR
Refunding - Drury Inn-Collinsville Project,
5.25%, Due 11/01/98 500,000 503,125
Illinois EFA Revenue - Lewis University Project:
4.50%, Due 10/01/99 690,000 685,687
5.30%, Due 10/01/04 1,390,000 1,391,737
Naperville, DuPage County and Will County,
Illinois EDR Refunding - Illinois Hospital &
Health Systems Association Project, 5.70%,
Due 5/01/04 (b) 2,790,000 2,866,725
-----------
5,447,274
IOWA 5.1%
Cedar Rapids, Iowa First Mortgage Revenue -
Cottage Grove Place Project, 7.25%,
Due 7/01/02 6,000,000 6,194,640
Iowa Finance Authority Mortgage Revenue
Refunding - Friendship Village Project, 4.95%,
Due 11/01/00 2,110,000 2,136,375
-----------
8,331,015
KENTUCKY 2.0%
Mount Sterling, Kentucky League of Cities
Funding Trust Lease Program Revenue,
5.625%, Due 3/01/03 3,250,000 3,359,688
LOUISIANA 0.3%
Louisiana Public Facilities Authority Student Loan
Revenue, 6.75%, Due 9/01/06 525,000 559,781
MASSACHUSETTS 7.0%
Massachusetts Education Loan Authority
Education Loan Revenue, 7.45%, Due 1/01/02 1,400,000 1,463,000
Massachusetts Industrial Finance Agency
Refunding Revenue - Emerson College Issue,
8.50%, Due 1/01/03 4,500,000 4,921,875
Massachusetts Industrial Finance Agency Water
Treatment Revenue - Massachusetts-American
Hingham Project, 6.25%, Due 12/01/10 4,925,000 5,208,188
-----------
11,593,063
MICHIGAN 1.6%
Flint, Michigan Hospital Building Authority
Revenue Refunding - Hurley Medical Center:
5.75%, Due 7/01/03 1,000,000 1,015,000
6.00%, Due 7/01/04 1,005,000 1,030,125
6.00%, Due 7/01/05 510,000 520,837
-----------
2,565,962
MINNESOTA 1.2%
St. Paul, Minnesota Housing & Redevelopment
Authority Hospital Facility Revenue -
HealthEast Project, Series D, 9.75%,
Due 11/01/17 2,000,000 2,056,920
MISSISSIPPI 2.9%
Mississippi Higher Education Assistance
Corporation Student Loan Revenue:
5.60%, Due 9/01/04 (c) 2,505,000 2,589,544
5.80%, Due 9/01/06 2,050,000 2,119,187
-----------
4,708,731
MISSOURI 1.9%
St. Louis County, Missouri IDA MFHR Refunding -
Heatherbrook Gardens Project, 5.10%,
Due 3/01/05 1,355,000 1,369,566
Springfield, Missouri Land Clearance
Redevelopment Authority Industrial Revenue
Refunding - University Plaza Project, 6.30%,
Due 10/01/06 1,790,000 1,816,850
-----------
3,186,416
NEW JERSEY 0.9%
New Jersey Health Care Facilities Financing
Authority Revenue - Southern Ocean County
Hospital Project, 5.75%, Due 7/01/01 1,400,000 1,419,250
NEW YORK 1.0%
New York, New York GO, 5.875%, Due 8/01/03 1,500,000 1,584,375
OHIO 6.6%
Akron, Ohio COP - Akron Municipal Baseball
Stadium Project:
Zero %, Due 12/01/01 1,000,000 803,750
Zero %, Due 12/01/02 1,240,000 998,200
See notes to financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
STRONG SHORT-TERM MUNICIPAL BOND FUND (continued)
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
Cleveland, Ohio City School District Energy
Conservation Improvement GO:
6.53%, Due 3/15/00 $ 650,000 $ 677,625
6.53%, Due 9/15/00 670,000 703,500
6.53%, Due 3/15/01 690,000 726,225
6.53%, Due 9/15/01 715,000 757,006
6.53%, Due 3/15/02 740,000 785,325
6.53%, Due 9/15/02 760,000 811,300
6.53%, Due 3/15/03 785,000 838,969
6.53%, Due 9/15/03 815,000 875,106
6.53%, Due 3/15/04 840,000 899,850
6.53%, Due 9/15/04 865,000 927,713
Cuyahoga County, Ohio IDR Refunding - Joy
Technologies, Inc. Project, 8.75%,
Due 9/15/07 1,000,000 1,145,000
------------
10,949,569
OREGON 4.6%
Hillsboro, Oregon Hospital Facility Authority
Revenue and Advance Refunding - Tuality
Healthcare Project, 4.80%, Due 10/01/00 7,525,000 7,581,438
PENNSYLVANIA 5.6%
Delaware County, Pennsylvania Authority Health
Facilities Revenue - Mercy Health Corporation
of Southeastern Pennsylvania Obligated Group,
6.00%, Due 11/15/07 (c) 5,000,000 5,231,250
Horizon Hospital System Authority Hospital
Revenue, 5.40%, Due 5/15/01 2,180,000 2,204,525
Sharon, Pennsylvania Regional Health Systems
Authority Hospital Refunding Revenue - Sharon
Regional Health Systems Project:
6.40%, Due 12/01/00 705,000 739,369
6.50%, Due 12/01/01 255,000 270,938
6.60%, Due 12/01/02 800,000 860,000
------------
9,306,082
SOUTH CAROLINA 1.2%
Charleston County, South Carolina First Mortgage
Health Facilities Revenue - The Episcopal
Church Home Project, 5.40%, Due 4/01/04 (b) 2,020,000 2,022,525
SOUTH DAKOTA 1.0%
South Dakota EDFA EDR Refunding - Pooled Loan
Program - Technical Ordinance Project, 5.75%,
Due 4/01/07 1,625,000 1,724,531
TEXAS 10.3%
Brazos, Texas Higher Education Authority, Inc.
Student Loan Revenue Refunding:
5.95%, Due 6/01/02 3,095,000 3,245,881
6.50%, Due 3/01/99 1,345,000 1,373,581
Hidalgo County, Texas Health Services
Corporation Hospital Revenue - Mission
Hospital, Inc. Project, 5.75%, Due 8/15/01 1,760,000 1,790,800
Odessa, Texas Housing Authority MFMR -
Section 8 Assisted Project:
5.875%, Due 10/01/03 1,575,000 1,573,031
6.375%, Due 10/01/11 2,735,000 2,735,000
Trinity River Authority Variable Rate Refunding -
Texas Industries, Inc. Project, 6.375%,
Due 9/01/07 1,585,000 1,606,794
Trinity River Authority Variable Rate Refunding -
Texas Industries, Inc. Project, Series A, 6.375%,
Due 9/01/07 4,520,000 4,582,150
------------
16,907,237
VIRGINIA 6.2%
James City County, Virginia IDA Residential Care
Facility First Mortgage Revenue - Williamsburg
Landing, Inc. Project, 5.75%, Due 3/01/26 3,000,000 3,056,250
Prince William County, Virginia IDA Residential
Care Facility First Mortgage Revenue -
Westminster Presbyterian Retirement Project,
6.00%, Due 1/01/25 6,000,000 6,030,000
Smyth County, Virginia IDA IDR - Utility Trailer
Manufacturing Company Project, 8.00%,
Due 10/01/98 1,105,000 1,107,895
------------
10,194,145
WASHINGTON 3.8%
Walla Walla, Washington Housing Authority
Revenue - Wilbur Manor Project, 6.25%,
Due 12/01/11 1,575,000 1,592,719
Washington Health Care Facilities Authority
Revenue - Sisters of Providence, 5.375%,
Due 10/01/00 (c) 4,600,000 4,732,250
------------
6,324,969
------------
TOTAL MUNICIPAL BONDS (COST $138,278,400) 141,928,771
SHORT-TERM INVESTMENTS (a) 15.3%
MUNICIPAL BONDS 3.8%
ILLINOIS 0.8%
Illinois DFA IDR - Engis Corporation Project,
7.55%, Due 10/01/97 275,000 275,734
Illinois Health Facilities Authority Revenue -
Trinity Medical Center Project, 6.15%,
Due 7/01/98 1,000,000 1,012,410
------------
1,288,144
MISSISSIPPI 0.2%
Prentiss County, Mississippi Hospital Revenue,
5.40%, Due 12/01/97 350,000 350,641
SOUTH DAKOTA 2.8%
South Dakota Student Loan Corporation Student
Loan Revenue, 7.35%, Due 8/01/98 4,565,000 4,672,277
------------
Total Municipal Bonds 6,311,062
MUNICIPAL COMMERCIAL PAPER 1.5%
UTAH
Tooele County, Utah Hazardous Waste Treatment
Revenue - Union Pacific Corporation/
USPCI, Inc. Project 2,400,000 2,400,000
WEEKLY VARIABLE RATE PUT BONDS 1.8%
LOUISIANA
Louisiana Municipal Securities Trust
Certificates, Class A 3,000,000 3,000,000
DAILY VARIABLE RATE PUT BONDS 8.2%
ILLINOIS 1.0%
Will County, Illinois Solid Waste Disposal
Revenue - BASF Corporation Project 1,600,000 1,600,000
MICHIGAN 0.7%
Midland, Michigan EDC Limited Obligation
Revenue - The Dow Chemical Company Project 1,100,000 1,100,000
NEW YORK 0.9%
New York Job Development Authority Revenue 1,500,000 1,500,000
SOUTH CAROLINA 1.4%
Florence County, South Carolina Solid Waste
Disposal and Wastewater Treatment Facilities
Revenue - Roche Carolina, Inc. Project 2,300,000 2,300,000
See notes to financial statements.
9
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) August 31, 1997
- --------------------------------------------------------------------------------
STRONG SHORT-TERM MUNICIPAL BOND FUND (continued)
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
TEXAS 2.3%
Brazos River Authority Texas PCR Refunding -
Texas Utilities Electric Company Project $2,000,000 $ 2,000,000
Brazos River Authority Texas PCR Refunding -
Texas Utilities Electric Company Project 1,800,000 1,800,000
------------
3,800,000
WYOMING 1.9%
Sweetwater County, Wyoming Environmental
Improvement Revenue - Pacificorp Project 3,200,000 3,200,000
------------
Total Daily Variable Rate Put Bonds 13,500,000
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $25,159,021) 25,211,062
------------
TOTAL INVESTMENTS IN SECURITIES
(COST $163,437,421) 101.3% 167,139,833
Other Assets and Liabilities, Net (1.3%) (2,187,942)
------------
NET ASSETS 100.0% $164,951,891
============
FUTURES
- -------
UNDERLYING
EXPIRATION FACE AMOUNT UNREALIZED
DATE AT VALUE DEPRECIATION
- --------------------------------------------------------------------------------
Sold:
30 U.S. Treasury Bond Futures 9/97 $3,393,750 $116,250
- --------------------------------------------------------------------------------
STRONG MUNICIPAL BOND FUND
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
MUNICIPAL BONDS 99.9%
ALABAMA 1.4%
Courtland, Alabama IDB Solid Waste Disposal
Revenue - Champion International Corporation
Project, 6.375%, Due 3/01/29 $ 3,145,000 $ 3,235,419
ALASKA 2.2%
Alaska HFC Capital Appreciation Mortgage
Revenue, Zero %, Due 12/01/27 8,500,000 1,243,125
Valdez, Alaska Marine Terminal Revenue
Refunding - BP Pipelines (Alaska), Inc. Project,
5.65%, Due 12/01/28 4,000,000 3,910,000
-----------
5,153,125
ARIZONA 2.1%
Arizona Health Facilities Authority Revenue -
Bethesda Foundation - Bethesda Gardens
Project, 6.40%, Due 8/15/27 1,000,000 988,750
Phoenix, Arizona IDA Mortgage Revenue
Refunding - Christian Care Retirement
Apartments, Inc. Project, 6.25%, Due 1/01/16 3,740,000 3,833,500
-----------
4,822,250
ARKANSAS 1.9%
Northwest Arkansas Regional Airport Authority
Revenue, 7.625%, Due 2/01/27 3,000,000 3,037,500
Pulaski County, Arkansas Public Facilities Board
MFHR - Plantation House and Indian Hills
Apartments Project, 6.05%, Due 8/01/27 1,500,000 1,496,250
-----------
4,533,750
CALIFORNIA 2.7%
California Tri-City Housing Finance Agency
SFMR - FNMA and GNMA Collateralized,
6.45%, Due 12/01/28 1,975,000 2,066,344
Foothill/Eastern Transportation Corridor Agency
Toll Road Revenue:
Zero %, Due 1/01/28 12,060,000 1,989,900
Zero %, Due 1/01/30 4,110,000 601,088
Los Angeles, California MFHR - Earthquake
Rehabilitation Projects, 5.85%, Due 12/01/27 1,535,000 1,605,994
-----------
6,263,326
COLORADO 7.6%
Arapahoe County, Colorado E-470 Public Highway
Authority Capital Improvement Trust Fund
Highway Revenue:
Zero %, Due 8/31/08 4,500,000 2,525,625
Zero %, Due 8/31/10 15,000,000 7,256,250
Castle Rock Ranch, Colorado Public Improvements
Authority Public Facilities Revenue, 6.25%,
Due 12/01/17 5,000,000 5,343,750
Colorado Health Facilities Authority Retirement
Housing Revenue - Liberty Heights Project,
Zero %, Due 7/15/20 2,900,000 801,125
Denver, Colorado City and County Airport System
Revenue, 6.75%, Due 11/15/22 1,500,000 1,621,875
-----------
17,548,625
CONNECTICUT 0.7%
Connecticut Health and Educational Facilities
Authority Revenue - Edgehill Issue, 6.875%,
Due 7/01/17 1,500,000 1,531,875
DELAWARE 1.0%
Delaware EDA Revenue, 6.30%, Due 5/01/22 2,250,000 2,314,687
DISTRICT OF COLUMBIA 0.6%
District of Columbia Revenue - American
Association for the Advancement of Science
Issue, 5.25%, Due 1/01/16 (b) 1,500,000 1,456,875
FLORIDA 0.9%
Manatee County, Florida HFA SFMR, 7.45%,
Due 5/01/27 950,000 1,069,938
Pinellas County, Florida EFA Revenue - College
Harbor Project, 6.50%, Due 12/01/20 1,020,000 1,028,925
-----------
2,098,863
GEORGIA 5.3%
Atlanta, Georgia Urban Residential Finance
Authority MFHR - Evergreen Village Estates
Project:
5.875%, Due 5/01/07 855,000 876,375
6.375%, Due 5/01/17 1,675,000 1,721,063
6.50%, Due 5/01/27 2,965,000 3,046,537
Washington, Georgia Wilkes Payroll Development
Authority Subordinated Revenue - Southern
Care Corporation Facility Project, Zero %,
Due 12/01/21 25,595,000 6,558,719
-----------
12,202,694
IDAHO 0.9%
Idaho Housing Agency SFMR, 6.45%, Due 7/01/27 2,000,000 2,100,000
ILLINOIS 15.1%
Chicago, Illinois O'Hare International Airport
International Terminal Special Revenue, 6.50%,
Due 1/01/18 1,440,000 1,490,400
Granite City, Illinois Hospital Revenue Refunding -
Saint Elizabeth Medical Center, 8.125%,
Due 6/01/08 5,685,000 5,983,463
Illinois Educational Facilities Authority Revenue
Refunding - DePaul University Project, 5.50%,
Due 10/01/19 4,365,000 4,310,437
Illinois Health Facilities Authority Refunding
Revenue - Lutheran Social Services of Illinois,
6.125%, Due 8/15/20 9,060,000 9,003,375
Illinois Health Facilities Authority Revenue -
Trinity Medical Center Project, 7.00%,
Due 7/01/12 2,000,000 2,205,000
See notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
STRONG MUNICIPAL BOND FUND (continued)
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
Illinois Metropolitan Pier and Exposition
Authority Capital Appreciation - McCormick
Place Expansion Project:
Zero %, Due 6/15/16 $ 1,250,000 $ 437,500
7.00%, Due 7/01/26 1,500,000 1,728,750
Kane, Cook and DuPage Counties, Illinois School
District Number U-46 Capital Appreciation
School Building:
Zero %, Due 1/01/11 1,800,000 895,500
Zero %, Due 1/01/13 2,500,000 1,106,250
Will County, Illinois Exempt Facilities
Revenue - Mobil Oil Refining Corporation
Project, 6.40%, Due 4/01/26 5,000,000 5,293,750
Zion, Illinois Park District GO, 6.50%,
Due 12/30/17 2,485,000 2,503,638
-----------
34,958,063
INDIANA 9.5%
Fishers, Indiana EDR First Mortgage Revenue -
United Student Aid Funds, Inc. Project,
8.25%, Due 9/01/09 10,000,000 10,404,900
Indiana Health Facility Financing Authority
Hospital Revenue - Jackson County Schneck
Memorial Hospital Project, 7.50%,
Due 2/15/22 6,790,000 7,341,687
Petersburg, Indiana PCR Refunding -
Indianapolis Power & Light Company Project,
5.50%, Due 10/01/23 4,425,000 4,308,844
-----------
22,055,431
IOWA 2.3%
Iowa Finance Authority Hospital Facility
Refunding and Revenue - Jennie Edmundson
Memorial Hospital Project, 7.65%,
Due 11/01/16 4,850,000 5,256,188
MASSACHUSETTS 1.6%
Massachusetts IFA Health Care Facilities
Revenue - Jewish Geriatric Services, Inc.
Obligated Group, 5.375%, Due 5/15/17 1,965,000 1,898,642
Massachusetts Municipal Wholesale Electric
Company Power Supply System Revenue,
4.75%, Due 7/01/11 2,000,000 1,905,000
-----------
3,803,642
MICHIGAN 3.6%
Dearborn, Michigan EDC Hospital Revenue
Refunding - Oakwood Obligated Group, 5.25%,
Due 8/15/21 2,765,000 2,661,312
Michigan Hospital Finance Authority Hospital
Revenue Refunding - Pontiac Osteopathic
Hospital, 6.00%, Due 2/01/14 2,500,000 2,531,250
Michigan Strategic Fund Limited Obligation
Revenue - WMX Technologies, Inc. Project,
6.00%, Due 12/01/13 1,500,000 1,556,250
Western Michigan University Board of Trustees
General Revenue, 6.125%, Due 11/15/22 1,500,000 1,578,750
-----------
8,327,562
MINNESOTA 3.4%
Southern Minnesota Municipal Power Agency
Power Supply Systems Revenue, 4.75%,
Due 1/01/16 8,400,000 7,801,500
MISSOURI 2.7%
St. Louis, Missouri Municipal Finance Corporation
Leasehold Revenue Refunding, 5.85%,
Due 7/15/09 3,600,000 3,699,000
Springfield, Missouri Land Clearance
Redevelopment Authority Industrial Revenue
Refunding - University Plaza Project, 6.60%,
Due 10/01/11 2,465,000 2,505,056
-----------
6,204,056
NEW MEXICO 1.9%
Albuquerque, New Mexico Industrial Revenue -
MCT Industries, Inc. Project, 6.50%,
Due 4/01/17 4,330,000 4,389,537
NEW YORK 2.3%
New York Housing Corporation Revenue
Refunding, 5.00%, Due 11/01/13 1,000,000 966,250
New York, New York GO, 5.875%, Due 3/15/14 1,720,000 1,758,700
New York Urban Development Corporation
Revenue, 5.50%, Due 4/01/19 1,500,000 1,501,875
New York Urban Development Corporation
Revenue - University Facilities Grants Project,
5.875%, Due 1/01/21 1,045,000 1,076,350
-----------
5,303,175
NORTH DAKOTA 0.6%
North Dakota Housing Finance Agency Housing
Finance Program - Home Mortgage Finance
Program, 6.40%, Due 1/01/28 1,405,000 1,485,787
OHIO 2.5%
Medina County, Ohio EDR MFHR - Camelot
Place, Ltd. Project, 8.375%, Due 10/01/23 3,800,000 3,776,250
Ohio Housing Finance Agency Residential
Mortgage Revenue, 5.95%, Due 9/01/27 1,975,000 2,004,625
-----------
5,780,875
OKLAHOMA 2.4%
Oklahoma Ordinance Works Authority PCR
Refunding - Ralston Purina Company Project,
6.30%, Due 9/01/15 1,500,000 1,561,875
Shawnee, Oklahoma Hospital Authority Revenue -
MidAmerica HealthCare, Inc., 8.00%,
Due 4/01/04 2,740,000 2,918,100
Washington County, Oklahoma Medical Authority
Revenue - Bartlesville Jane Phillips Episcopal
Hospital Project, 6.125%, Due 11/01/14 1,000,000 1,032,500
-----------
5,512,475
OREGON 0.4%
Washington County, Oregon MFHR - Bethany
Meadows Project, 6.25%, Due 8/01/10 1,000,000 1,017,500
PENNSYLVANIA 3.4%
Blair County, Pennsylvania Hospital Authority
First Mortgage Revenue - Mercy Hospital
Sublessee, 8.125%, Due 2/01/14 6,000,000 6,442,500
Scranton-Lackawanna, Pennsylvania Health &
Welfare Authority Hospital Revenue - Marian
Community Hospital Project, 6.50%,
Due 1/15/07 1,500,000 1,535,625
-----------
7,978,125
RHODE ISLAND 0.7%
Rhode Island Health & Education Building
Corporation Hospital Financing Revenue -
South County Hospital Project, 6.00%,
Due 11/15/17 1,630,000 1,668,712
SOUTH CAROLINA 2.1%
York County, South Carolina Exempt Facility
Industrial Revenue - Hoechst Celanese
Corporation Project, 5.70%, Due 1/01/24 4,890,000 4,951,125
SOUTH DAKOTA 2.8%
South Dakota HDA Homeownership Mortgage,
6.40%, Due 5/01/16 1,000,000 1,043,750
South Dakota Student Loan Corporation Student
Loan Revenue, 7.625%, Due 8/01/06 5,285,000 5,555,856
-----------
6,599,606
TEXAS 11.7%
Austin, Texas Combined Utility Systems Revenue
Refunding, 6.50%, Due 11/15/05 (b) 1,000,000 1,103,750
El Paso, Texas Property Finance Authority, Inc.
SFMR - GNMA Mortgage-Backed, 8.70%,
Due 12/01/18 625,000 678,125
See notes to financial statements.
11
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) August 31, 1997
- --------------------------------------------------------------------------------
STRONG MUNICIPAL BOND FUND (continued)
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
Grape Creek, Texas Pulliam Independent School
District Public Facility Corporation School
Facility Lease Revenue:
7.00%, Due 5/15/10 $1,000,000 $ 1,066,250
7.25%, Due 5/15/21 1,300,000 1,389,375
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 4,260,000
Harris County, Texas Revenue Refunding, 5.55%,
Due 8/15/07 (b) 3,300,000 3,394,875
Lufkin, Texas Health Facilities Development
Corporation Health System Revenue and
Refunding - Memorial Health System of East
Texas, 6.875%, Due 2/15/26 8,250,000 8,817,187
Port Arthur, Texas HFC Mortgage Revenue
Refunding - FHA Insured Mortgage Loans -
Port Arthur UDAG Projects, 6.40%,
Due 1/01/28 3,565,000 3,738,794
Ranger, Texas Housing Corporation MFMR
Refunding - FHA Insured Mortgage Loan -
Ranger Apartments Project, 8.80%,
Due 3/01/24 1,160,000 1,303,550
Texas Department of Housing & Community
Affairs SFMR, 6.00%, Due 9/01/17 1,375,000 1,424,844
------------
27,176,750
UTAH 1.3%
Intermountain Power Agency Power Supply
Revenue Refunding, 6.50%, Due 7/01/11 1,500,000 1,702,500
Salt Lake County, Utah Housing Authority
MFHR - Millcreek Pines Apartments Project,
6.80%, Due 9/01/17 1,390,000 1,393,475
------------
3,095,975
WEST VIRGINIA 0.4%
Braxton County, West Virginia Solid Waste
Disposal Revenue - Weyerhaeuser Company
Project, 6.125%, Due 4/01/26 1,000,000 1,031,250
WISCONSIN 1.9%
Wisconsin Health and Educational Facilities
Authority Revenue - Community Memorial
Hospital Project, 6.00%, Due 4/01/18 1,500,000 1,533,750
Wisconsin Health and Educational Facilities
Authority Revenue - Howard Young Medical
Center, Inc. Project, 5.75%, Due 8/15/13 1,250,000 1,265,625
Wisconsin Housing and EDA Home Ownership
Revenue, 6.20%, Due 3/01/27 1,480,000 1,528,100
------------
4,327,475
------------
TOTAL MUNICIPAL BONDS (COST $220,955,104) 231,986,298
SHORT-TERM INVESTMENTS (a) 1.3%
WEEKLY VARIABLE RATE PUT BONDS 0.4%
INDIANA
Indiana HFA MFHR - Pedcor Investments 1,000,000 1,000,000
DAILY VARIABLE RATE PUT BONDS 0.9%
TEXAS
Brazos River Authority Texas Collateralized PCR
Refunding - Texas Utilities Electric Company
Project 1,000,000 1,000,000
Brazos River Texas Harbor Navigation District
Harbor Revenue - BASF Corporation Project 1,000,000 1,000,000
------------
Total Daily Variable Rate Put Bonds 2,000,000
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $3,000,000) 3,000,000
------------
TOTAL INVESTMENTS IN SECURITIES
(COST $223,955,104) 101.2% 234,986,298
Other Assets and Liabilities, Net (1.2%) (2,865,363)
------------
NET ASSETS 100.0% $232,120,935
============
- --------------------------------------------------------------------------------
STRONG HIGH-YIELD MUNICIPAL BOND FUND
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
MUNICIPAL BONDS 97.0%
ALABAMA 1.9%
West Jefferson, Alabama Amusement and Public
Park Authority First Mortgage Revenue -
Visionland, Alabama Project, 8.00%,
Due 12/01/26 $ 6,500,000 $ 6,735,625
ALASKA 1.0%
Seward, Alaska Revenue - Alaska Sealife Center
Project, 7.65%, Due 10/01/16 3,500,000 3,631,250
ARIZONA 1.2%
Maricopa County, Arizona IDA Senior Living
Facilities Revenue - Christian Care Mesa,
Inc. Project, 7.875%, Due 4/01/27 1,745,000 1,777,719
Navajo County, Arizona IDA IDR - Stone
Container Corporation Project, 7.20%,
Due 6/01/27 2,500,000 2,609,375
-----------
4,387,094
ARKANSAS 2.0%
Northwest Arkansas Regional Airport Authority
Airport Revenue, 7.625%, Due 2/01/27 7,000,000 7,087,500
CALIFORNIA 4.8%
California Statewide Communities Development
Authority Insured Revenue COP, 4.75%,
Due 6/01/21 2,265,000 2,021,513
Foothill/Eastern Transportation Corridor
Agency Toll Road Revenue:
Zero %, Due 1/01/17 5,000,000 1,600,000
Zero %, Due 1/01/26 7,000,000 1,295,000
Zero %, Due 1/01/28 24,000,000 3,960,000
Zero %, Due 1/01/29 8,335,000 1,291,925
Piner-Olivet, California Unified Elementary
School District Capital Appreciation:
Zero%, Due 8/01/19 995,000 296,012
Zero%, Due 8/01/20 1,000,000 281,250
Zero%, Due 8/01/21 1,500,000 399,375
Zero%, Due 7/01/22 1,750,000 441,875
San Francisco, California Redevelopment
Agency Residential Facilities Revenue -
Coventry Park Project, 8.50%, Due 12/01/26 5,000,000 5,143,750
South Bay, San Diego County, California
Unified School District Capital Appreciation:
Zero %, Due 11/01/19 750,000 219,375
Zero %, Due 11/01/20 750,000 208,125
Zero %, Due 11/01/21 750,000 196,875
Zero %, Due 7/01/22 750,000 189,375
-----------
17,544,450
COLORADO 3.7%
Arapahoe County, Colorado E-470 Public Highway
Authority Capital Appreciation:
Zero %, Due 9/01/18 5,000,000 1,550,000
Zero %, Due 9/01/19 3,000,000 873,750
Zero %, Due 9/01/22 2,000,000 490,000
Zero %, Due 9/01/24 3,000,000 656,250
Arapahoe County, Colorado E-470 Public Highway
Authority Senior Revenue:
4.75%, Due 9/01/23 2,000,000 1,795,000
5.25%, Due 9/01/18 2,000,000 1,942,500
Bachelor Gulch, Colorado Metropolitan District
GO, 7.00%, Due 12/01/15 1,100,000 1,138,500
Denver, Colorado Urban Renewal Authority Tax
Increment Revenue - Pavilions Project, 7.75%,
Due 9/01/16 1,760,000 1,786,400
Englewood, Colorado MFHR Refunding - Marks
Apartments Project, 6.65%, Due 12/01/26 3,000,000 3,168,750
-----------
13,401,150
See notes to financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
STRONG HIGH-YIELD MUNICIPAL BOND FUND (continued)
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
CONNECTICUT 1.0%
Mashantucket (Western) Pequot Tribe Special
Revenue, 6.40%, Due 9/01/11 $3,400,000 $ 3,633,750
FLORIDA 8.5%
Arbor Greene, Florida Community Development
District Special Assessment Revenue, 7.00%,
Due 5/01/03 2,450,000 2,502,063
Cory Lakes, Florida Community Development
District Special Assessment Revenue, 8.375%,
Due 5/01/17 3,500,000 3,683,750
Grand Haven, Florida Community Development
District Special Assessment:
6.30%, Due 5/01/02 3,500,000 3,521,875
6.90%, Due 5/01/19 1,000,000 1,001,250
Largo, Florida Sun Coast Health System
Revenue - Sun Coast Hospital Issue, 6.30%,
Due 3/01/20 8,045,000 7,863,987
Orange County, Florida Health Facilities
Authority First Mortgage Revenue -
RHA/Princeton Hospital, Inc. Project, 9.00%,
Due 7/01/21 5,000,000 3,250,000
Pensacola, Florida Airport Revenue:
6.00%, Due 10/01/12 (b) 1,500,000 1,533,750
6.125%, Due 10/01/18 (b) 1,250,000 1,270,313
Pinellas County, Florida Educational Facilities
Authority Revenue - College Harbor Project,
8.50%, Due 12/01/28 5,185,000 5,295,181
Polk County, Florida HFA Subordinated Revenue -
Lake Wales Gardens Project, Zero %,
Due 4/01/20 4,840,000 671,550
-----------
30,593,719
GEORGIA 5.2%
Atlanta, Georgia Urban Residential Finance
Authority MFHR - Evergreen Village Estates
Project, 6.625%, Due 5/01/28 605,000 600,462
Atlanta, Georgia Urban Residential Finance
Authority MFHR - Franciscan Club Apartments
Projects, 7.75%, Due 4/01/22 (Defaulted
effective 10/01/96) 4,840,000 3,388,000
Atlanta, Georgia Water and Sewer Revenue,
4.75%, Due 1/01/23 2,000,000 1,787,500
Dekalb County, Georgia Residential Care Facilities
for the Elderly Authority First Lien Revenue -
King's Bridge Retirement Center, Inc. Project:
8.00%, Due 7/01/06 650,000 695,500
8.15%, Due 7/01/16 2,380,000 2,561,475
8.25%, Due 7/01/26 5,250,000 5,643,750
Savannah, Georgia Hospital Authority Revenue
Refunding and Improvement - Candler Hospital,
7.00%, Due 1/01/23 2,000,000 2,097,500
Washington, Georgia Wilkes Payroll Development
Authority Subordinated Revenue - Southern
Care Corporation Facility Project, Zero %,
Due 12/01/21 8,625,000 2,210,156
-----------
18,984,343
ILLINOIS 4.4%
Granite City, Illinois Hospital Revenue
Refunding - Saint Elizabeth Medical Center,
8.125%, Due 6/01/08 975,000 1,026,188
Illinois HDA MFHR, 5.00%, Due 7/01/25 3,285,000 2,681,381
Illinois Metropolitan Pier and Exposition
Authority Refunding - McCormick Place
Expansion Project, 7.00%, Due 7/01/26 6,000,000 6,915,000
Riverdale, Illinois Environmental Improvement
Revenue - Acme Metals, Inc. Project, 7.95%,
Due 4/01/25 5,000,000 5,475,000
-----------
16,097,569
INDIANA 4.4%
Indiana HFA SFMR, 5.90%, Due 1/01/27(b) 2,000,000 2,002,500
Indiana IDFA PCR Refunding - Inland Steel
Company Project, 7.25%, Due 11/01/11 5,225,000 5,688,719
Indianapolis, Indiana EDR MFHR - Post Pointe
Apartments Project:
8.20%, Due 3/01/01 270,000 272,700
8.30%, Due 3/01/06 480,000 490,200
8.40%, Due 3/01/11 710,000 728,637
8.75%, Due 3/01/27 6,540,000 6,703,500
-----------
15,886,256
IOWA 4.0%
Cedar Rapids, Iowa First Mortgage Revenue -
Cottage Grove Place Project, 9.00%,
Due 7/01/25 6,000,000 6,795,000
Iowa Finance Authority First Mortgage Elder
Care Facility Revenue - Amity Fellowserve-
Iowa, Inc. Project, 8.75%, Due 10/01/25 7,485,000 7,831,181
-----------
14,626,181
KANSAS 0.6%
Lenexa, Kansas Health Care Facility Revenue -
Lakeview Village Project, 6.25%, Due 5/15/26 2,000,000 2,020,000
KENTUCKY 1.7%
Morgantown, Kentucky Solid Waste Disposal
Facilities Revenue - IMCO Recycling, Inc.
Project, 7.65%, Due 5/01/16 5,740,000 6,098,750
LOUISIANA 2.1%
Iberia Parish, Louisiana Hospital Service
District Number 1 Revenue, 8.00%,
Due 5/26/16 2,100,000 2,149,875
Louisiana Public Facilities Authority Senior
Lien Revenue - Progressive Healthcare
Providers, Inc. Developmental Centers, 8.00%,
Due 1/01/13 5,560,000 5,532,200
-----------
7,682,075
MASSACHUSETTS 2.6%
Massachusetts Health and Educational Facilities
Authority Revenue - Saints Memorial Medical
Center:
5.50%, Due 10/01/02 3,500,000 3,473,750
5.75%, Due 10/01/06 1,885,000 1,833,163
Massachusetts State Industrial Finance Agency
Revenue - Institute for Developmental
Disabilities Project, 9.25%, Due 6/01/09 3,935,000 4,077,644
-----------
9,384,557
MINNESOTA 0.5%
Southern Minnesota Municipal Power Agency
Power Supply Systems Revenue, 4.75%,
Due 1/01/16 2,000,000 1,857,500
MISSOURI 2.0%
Saline County, Missouri IDA Hospital Revenue -
John Fitzgibbon Memorial Hospital, Inc.
Project, 7.375%, Due 5/01/11 3,550,000 3,621,000
Springfield, Missouri Land Clearance
Redevelopment Authority Industrial Revenue
Refunding - University Plaza Redevelopment
Corporation Project, 6.90%, Due 10/01/16 3,440,000 3,470,100
-----------
7,091,100
NEBRASKA 0.3%
Nebraska IFA SFHR, 5.85%, Due 9/01/28(b) 1,000,000 1,001,250
NEW JERSEY 1.4%
Camden County, New Jersey Improvement
Authority Lease Revenue - Kaighn Port Marine
Terminal - A Project, 8.00%, Due 6/01/27 4,890,000 5,122,275
See notes to financial statements.
13
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) August 31, 1997
- --------------------------------------------------------------------------------
STRONG HIGH-YIELD MUNICIPAL BOND FUND (continued)
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
NEW MEXICO 0.6%
Chaves County, New Mexico Hospital Revenue -
Eastern New Mexico Medical Center Project,
7.25%, Due 12/01/10 $1,900,000 $ 2,047,250
NEW YORK 2.2%
United Nations Development Corporation Refunding:
Series B, 5.60%, Due 7/01/26 2,500,000 2,428,125
Series C, 5.60%, Due 7/01/26 5,700,000 5,514,750
-----------
7,942,875
NORTH CAROLINA 2.2%
Macon County, North Carolina HFC Revenue -
Chestnut Hill Highlands Project, 8.50%,
Due 7/01/27 8,145,000 8,124,637
NORTH DAKOTA 3.2%
North Dakota Housing Finance Agency Revenue
Housing Finance Program Home Mortgage,
5.90%, Due 1/01/29 (b) 1,000,000 996,250
Ward County, North Dakota Health Care Facility
Revenue - St. Joseph's Hospital Corporation
Project:
8.875%, Due 11/15/14 690,000 815,063
8.875%, Due 11/15/24 8,210,000 9,677,537
-----------
11,488,850
OHIO 2.3%
Akron, Ohio COP - Akron Municipal Baseball
Stadium Project, Zero %, Due 12/01/01 1,500,000 1,245,000
Cuyahoga County, Ohio MFHR - The Park Lane
Apartments Project:
7.70%, Due 7/01/02 270,000 270,338
7.80%, Due 7/01/07 470,000 471,762
7.90%, Due 7/01/12 680,000 682,550
8.25%, Due 7/01/28 1,930,000 1,937,238
East Liverpool, Ohio Hospital Improvement
Revenue - East Liverpool City Hospital
Project, 8.00%, Due 10/01/21 1,595,000 1,736,556
Medina County, Ohio EDR MFHR - Camelot Place,
Ltd. Project, 8.375%, Due 10/01/23 400,000 397,500
Pike County, Ohio Hospital Facilities
Revenue - Pike Health Services, Inc. Project,
6.75%, Due 7/01/17 1,660,000 1,635,100
-----------
8,376,044
PENNSYLVANIA 10.1%
Bucks County, Pennsylvania IDA CDR - Attleboro
Associates, Ltd. Nursing Facility Project:
8.00%, Due 12/01/05 1,930,000 2,091,637
8.25%, Due 6/01/11 3,480,000 3,801,900
Delaware County, Pennsylvania Authority Health
Care Facility First Mortgage Revenue -
GF/Longwood Care, Inc. Project:
8.50%, Due 4/15/10 530,000 557,825
9.00%, Due 4/15/25 5,860,000 6,160,325
Horsham, Pennsylvania IDA CDA Health Care
Facilities Revenue - GF/Pennsylvania
Properties, Inc. Project:
7.375%, Due 9/01/08 440,000 436,700
8.375%, Due 9/01/24 6,000,000 6,315,000
Luzerne County, Pennsylvania IDA IDR, 6.25%,
Due 3/15/08 900,000 899,955
Montgomery County, Pennsylvania IDA Revenue -
Wordsworth Academy Project, 8.00%,
Due 9/01/24 6,840,000 7,062,300
Philadelphia, Pennsylvania IDA CDR Refunding -
Doubletree Guest Suites Project, 6.50%,
Due 10/01/27 3,500,000 3,596,250
Pittsburgh, Pennsylvania Urban Redevelopment
Authority Mortgage Revenue, 5.95%,
Due 10/01/29 (b) 1,500,000 1,505,625
Scranton-Lackawanna, Pennsylvania Health &
Welfare Authority Hospital Revenue - Marian
Community Hospital Project, 7.125%,
Due 1/15/13 1,000,000 1,022,500
Wilkinsburg, Pennsylvania Municipal Authority
Health Facilities Revenue - Monroeville
Christian Project, 8.25%, Due 3/01/27 3,000,000 3,048,750
-----------
36,498,767
SOUTH CAROLINA 0.8%
Florence County, South Carolina IDR - Stone
Container Corporation Project, 7.375%,
Due 2/01/07 2,890,000 3,063,400
TENNESSEE 0.6%
Nashville and Davidson County, Tennessee
Metropolitan Government Health and
Educational Facilities Board Revenue
Refunding - The Vanderbilt University
Project, 5.60%, Due 5/01/16 (b) 2,000,000 2,002,500
TEXAS 8.9%
DeSoto, Texas IDA IDR - Wintergreen Commercial
Partnership Project, 7.00%, Due 1/01/17 4,603,164 4,597,410
Hidalgo County, Texas Health Services
Corporation Hospital Revenue - Mission
Hospital, Inc. Project, 6.75%, Due 8/15/16 3,000,000 3,161,250
Houston, Texas Airport System Revenue, 6.125%,
Due 7/15/27 5,000,000 5,100,000
Houston, Texas Airport System Special
Facilities Revenue - Continental Airlines,
Inc. Airport Improvement Projects, 6.125%,
Due 7/15/27 1,450,000 1,479,000
Houston, Texas Airport System Subordinated Lien
Revenue Forward Refunding, 5.50%,
Due 7/01/17 (b) 5,940,000 5,761,800
Jefferson County, Texas Health Facilities
Development Corporation Hospital Revenue -
Baptist Health Care System Project:
8.30%, Due 10/01/14 4,630,000 4,907,800
8.875%, Due 6/01/21 2,380,000 2,525,775
Tarrant County, Texas Water Control and
Improvement District Number 1 Water Revenue
Refunding, 4.50%, Due 3/01/11 5,000,000 4,681,250
-----------
32,214,285
VIRGINIA 1.5%
Loudoun County, Virginia IDA IDR Refunding -
Dulles Airport Marriot Hotel Project, 7.125%,
Due 9/01/15 5,000,000 5,350,000
WASHINGTON 2.3%
Chelan County, Washington Public Utility District
Number 1 Consolidated Revenue - Chelan Hydro
Project:
Series A, 6.40%, Due 7/01/17 (b) 2,000,000 2,165,000
Series C, 6.40%, Due 7/01/17 (b) 3,000,000 3,247,500
Washington Public Power Supply System Nuclear
Project Number 1 Revenue, 5.40%, Due 7/01/12 3,000,000 2,913,750
-----------
8,326,250
WEST VIRGINIA 1.2%
Marion County, West Virginia Solid Waste
Disposal Facility Revenue - American Fiber
Resources Project, 9.25%, Due 12/01/11
(Defaulted effective 12/01/96) 3,400,000 1,700,000
Weirton, West Virginia PCR - Weirton Steel
Project, 8.625%, Due 11/01/14 2,630,000 2,787,800
-----------
4,487,800
See notes to financial statements.
14
<PAGE>
- --------------------------------------------------------------------------------
STRONG HIGH-YIELD MUNICIPAL BOND FUND (continued)
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
WISCONSIN 7.2%
Brookfield, Wisconsin IDR Refunding - Midway
Motor Lodge Project, 8.40%, Due 4/01/12 $5,290,000 $ 5,766,100
Southeast Wisconsin Professional Baseball Park
District Lease COP Capital Appreciation
Certificates:
Zero %, Due 12/15/12 1,000,000 440,000
Zero %, Due 12/15/13 1,000,000 413,750
Zero %, Due 12/15/14 500,000 194,375
Zero %, Due 12/15/15 500,000 184,375
Zero %, Due 12/15/17 500,000 164,375
Wisconsin Health and Educational Facilities
Authority Revenue - Aurora Medical Group, Inc.
Project, 9.00%, Due 11/15/25 2,500,000 2,634,375
Wisconsin Health and Educational Facilities
Authority Revenue - National Regency of New
Berlin, Inc. Project:
7.75%, Due 8/15/15 5,000,000 5,243,750
8.00%, Due 8/15/25 6,500,000 6,800,625
Wisconsin Health and Educational Facilities
Authority Revenue - Oconomowoc Memorial
Hospital, Inc. Project, 6.20%, Due 7/01/12(b) 1,000,000 1,000,000
Wisconsin Housing and EDA Home Ownership
Revenue, 6.20%, Due 3/01/27 3,000,000 3,097,500
------------
25,939,225
WYOMING 0.6%
Wyoming Community Development Authority
Housing Revenue, 5.85%, Due 6/01/28 2,000,000 2,007,500
------------
TOTAL MUNICIPAL BONDS (COST $338,887,523) 350,735,777
SHORT-TERM INVESTMENTS (a) 7.0%
MUNICIPAL COMMERCIAL PAPER 1.8%
COLORADO
Denver, Colorado City and County Airport
Revenue 6,500,000 6,500,000
WEEKLY VARIABLE RATE PUT BONDS 0.7%
ILLINOIS
Chicago, Illinois IDR - Federal Marine
Terminals, Inc. Project 2,500,000 2,500,000
DAILY VARIABLE RATE PUT BONDS 4.5%
IOWA 0.4%
Iowa Finance Authority Solid Waste Disposal
Revenue - Cedar River Paper Company Project 1,500,000 1,500,000
SOUTH CAROLINA 1.0%
Berkeley County, South Carolina Exempt
Facilities Industrial Revenue - Amoco
Chemical Company Project 1,400,000 1,400,000
Florence County, South Carolina Solid Waste
Disposal and Wastewater Treatment Facilities
Revenue - Roche Carolina, Inc. Project 2,000,000 2,000,000
------------
3,400,000
TEXAS 1.3%
Brazos River Authority Texas PCR Refunding -
Texas Utilities Electric Company Project 1,000,000 1,000,000
Brazos River Texas Harbor Navigation District
Harbor Revenue - Dow Chemical
Company Project 1,500,000 1,500,000
Harris County, Texas Health Facilities
Development Corporation Revenue - St. Luke's
Episcopal Hospital 2,200,000 2,200,000
------------
4,700,000
VIRGINIA 0.8%
Peninsula Ports Authority Revenue - Zelgler
Coal Project 3,000,000 3,000,000
WYOMING 1.0%
Lincoln County, Wyoming PCR - Exxon Capital
Ventures Project 3,600,000 3,600,000
------------
Total Daily Variable Rate Put Bonds 16,200,000
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $25,200,000) 25,200,000
------------
TOTAL INVESTMENTS IN SECURITIES
(COST $364,087,523) 104.0% 375,935,777
Other Assets and Liabilities, Net (4.0%) (14,453,630)
------------
NET ASSETS 100.0% $361,482,147
============
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.
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
EDFA -- Economic Development Finance Authority
EDR -- Economic Development Revenue
EFA -- Educational Facilities Authority
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
MERLOT -- Municipal Exempt Receipt - Liquidity Optional Tender
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.
15
<PAGE>
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------------------------------------------------------------
August 31, 1997
<CAPTION>
(In Thousands, Except Per Share Amounts)
STRONG SHORT-TERM STRONG MUNICIPAL STRONG HIGH-YIELD
MUNICIPAL BOND FUND BOND FUND MUNICIPAL BOND FUND
------------------- ---------------- -------------------
ASSETS:
<S> <C> <C> <C>
Investments in Securities, at Value (Cost of $163,437,
$223,955 and $364,088, respectively) $167,140 $234,986 $375,936
Receivable from Brokers for Securities Sold -- 9,609 1,033
Receivable for Fund Shares Sold 543 463 1,215
Interest Receivable 2,709 3,306 6,614
Other Assets 134 240 502
-------- -------- --------
Total Assets 170,526 248,604 385,300
LIABILITIES:
Payable to Brokers for Securities Purchased 4,821 15,392 21,946
Payable for Fund Shares Redeemed 62 -- --
Dividends Payable 668 1,044 1,809
Accrued Operating Expenses and Other Liabilities 23 47 63
-------- -------- --------
Total Liabilities 5,574 16,483 23,818
-------- -------- --------
NET ASSETS $164,952 $232,121 $361,482
======== ======== ========
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) $173,648 $252,797 $350,325
Accumulated Net Realized Loss (12,282) (31,707) (691)
Net Unrealized Appreciation 3,586 11,031 11,848
-------- -------- --------
Net Assets $164,952 $232,121 $361,482
======== ======== ========
Capital Shares Outstanding (Unlimited Number Authorized) 16,796 24,395 35,809
NET ASSET VALUE PER SHARE $9.82 $9.52 $10.09
===== ===== ======
See notes to financial statements.
16
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended August 31, 1997 (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 $8,301 $14,494 $19,346
EXPENSES:
Investment Advisory Fees 733 1,386 1,668
Custodian Fees 9 10 13
Shareholder Servicing Costs 160 337 193
Other 73 136 214
------ ------- -------
Total Expenses 975 1,869 2,088
------ ------- -------
NET INVESTMENT INCOME 7,326 12,625 17,258
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 166 (843) 6,501
Futures Contracts (906) (1,532) (889)
------ ------- -------
Net Realized Gain (Loss) (740) (2,375) 5,612
Change in Unrealized Appreciation/Depreciation on:
Investments 2,777 14,716 12,599
Futures Contracts 188 788 320
------ ------- -------
Net Change in Unrealized Appreciation/Depreciation 2,965 15,504 12,919
------ ------- -------
NET GAIN 2,225 13,129 18,531
------ ------- -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $9,551 $25,754 $35,789
====== ======= =======
See notes to financial statements.
17
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
(In Thousands)
STRONG SHORT-TERM
MUNICIPAL BOND FUND
------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED
AUG. 31, 1997 AUG. 31, 1996 DEC. 31, 1995
------------- ------------- -------------
(NOTE 1)
OPERATIONS:
<S> <C> <C> <C>
Net Investment Income $ 7,326 $ 4,582 $ 7,035
Net Realized Gain (Loss) (740) 482 (5,512)
Change in Unrealized Appreciation/Depreciation 2,965 (1,972) 6,209
-------- -------- --------
Increase in Net Assets Resulting from Operations 9,551 3,092 7,732
DISTRIBUTIONS FROM NET INVESTMENT INCOME (7,326) (4,582) (7,035)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 96,449 49,857 56,792
Proceeds from Reinvestment of Dividends 5,990 3,759 6,037
Payment for Shares Redeemed (76,061) (48,515) (92,031)
-------- -------- --------
Increase (Decrease) in Net Assets from Capital Share Transactions 26,378 5,101 (29,202)
-------- -------- --------
TOTAL INCREASE (DECREASE) IN NET ASSETS 28,603 3,611 (28,505)
NET ASSETS:
Beginning of Period 136,349 132,738 161,243
-------- -------- --------
End of Period $164,952 $136,349 $132,738
======== ======== ========
TRANSACTIONS IN SHARES OF THE FUND:
Sold 9,881 5,134 5,815
Issued in Reinvestment of Dividends 615 387 618
Redeemed (7,801) (5,001) (9,429)
----- ----- -----
Net Increase (Decrease) in Shares of the Fund 2,695 520 (2,996)
===== ===== =====
STRONG MUNICIPAL
BOND FUND
------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED
AUG. 31, 1997 AUG. 31, 1996 DEC. 31, 1995
------------- ------------- -------------
(NOTE 1)
OPERATIONS:
Net Investment Income $ 12,625 $ 8,262 $ 15,259
Net Realized Gain (Loss) (2,375) (4,192) 8,215
Change in Unrealized Appreciation/Depreciation 15,504 (9,406) 6,852
-------- -------- --------
Increase (Decrease) in Net Assets Resulting from Operations 25,754 (5,336) 30,326
DISTRIBUTIONS:
From Net Investment Income (12,625) (8,262) (15,259)
In Excess of Net Investment Income -- -- (5,717)
-------- -------- --------
Total Distributions (12,625) (8,262) (20,976)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 47,584 44,271 93,037
Proceeds from Reinvestment of Dividends 9,701 6,550 16,879
Payment for Shares Redeemed (85,630) (65,700) (152,350)
Net Proceeds from Acquisition (Note 6) -- 29,090 --
-------- -------- --------
Increase (Decrease) in Net Assets from Capital Share Transactions (28,345) 14,211 (42,434)
-------- -------- --------
TOTAL INCREASE (DECREASE) IN NET ASSETS (15,216) 613 (33,084)
NET ASSETS:
Beginning of Period 247,337 246,724 279,808
-------- -------- --------
End of Period $232,121 $247,337 $246,724
======== ======== ========
TRANSACTIONS IN SHARES OF THE FUND:
Sold 5,134 4,802 9,798
Issued in Reinvestment of Dividends 1,052 712 1,777
Redeemed (9,293) (7,153) (15,997)
Issued for Acquisition (Note 6) -- 3,236 --
----- ----- -----
Net Increase (Decrease) in Shares of the Fund (3,107) 1,597 (4,422)
===== ===== =====
See notes to financial statements.
</TABLE>
18
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS (continued)
- ---------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<CAPTION>
STRONG HIGH-YIELD
MUNICIPAL BOND FUND
------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED
AUG. 31, 1997 AUG. 31, 1996 DEC. 31, 1995
------------- ------------- -------------
(NOTE 1)
OPERATIONS:
<S> <C> <C> <C>
Net Investment Income $ 17,258 $ 11,285 $ 13,500
Net Realized Gain (Loss) 5,612 (3,285) (1,057)
Change in Unrealized Appreciation/Depreciation 12,919 (9,015) 12,809
-------- -------- --------
Increase (Decrease) in Net Assets Resulting from Operations 35,789 (1,015) 25,252
DISTRIBUTIONS FROM NET INVESTMENT INCOME (17,258) (11,285) (13,500)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 262,534 149,876 253,347
Proceeds from Reinvestment of Dividends 12,353 8,362 9,387
Payment for Shares Redeemed (169,577) (175,252) (115,086)
-------- -------- --------
Increase (Decrease) in Net Assets from Capital Share Transactions 105,310 (17,014) 147,648
-------- -------- --------
TOTAL INCREASE (DECREASE) IN NET ASSETS 123,841 (29,314) 159,400
NET ASSETS:
Beginning of Period 237,641 266,955 107,555
-------- -------- --------
End of Period $361,482 $237,641 $266,955
======== ======== ========
TRANSACTIONS IN SHARES OF THE FUND:
Sold 26,701 15,577 26,320
Issued in Reinvestment of Dividends 1,264 872 975
Redeemed (17,300) (18,245) (11,927)
------ ------ ------
Net Increase (Decrease) in Shares of the Fund 10,665 (1,796) 15,368
====== ====== ======
See notes to financial statements.
19
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
August 31, 1997
1. ORGANIZATION
The Strong Municipal Income Funds consist of Strong Short-Term Municipal
Bond Fund, Inc. (Inception date: December 31, 1991), Strong Municipal Bond
Fund, Inc. (Inception date: October 23, 1986), and Strong High-Yield
Municipal Bond Fund, Inc. (Inception date: October 1, 1993). The Funds are
separately incorporated, diversified, open-end management investment
companies registered under the Investment Company Act of 1940. The Board of
Directors of the Funds approved changing the Funds' fiscal year-ends from
December 31 to August 31 in 1996.
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, when held by
the Funds, 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 (none were owned at August 31, 1997). 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 or other investments equal to the minimum "initial
margin" requirements of the exchange. The Funds also receive from or
pay to the broker an amount of cash equal to the daily fluctuation in
the value of the contract. Such receipts or payments are known as
"variation margin," and are recorded as unrealized gains or losses.
When the futures contract is closed, a realized gain or loss is
recorded equal to the difference between the value of the contract at
the time it was opened and the value at the time it was closed.
(E) Options -- Premiums received by the Funds upon writing put or call
options are recorded as an asset with a corresponding liability which
is subsequently adjusted to the current market value of the option.
When an option expires, is exercised, or is closed, the Funds realize
a gain or loss, and the liability is eliminated. The Funds continue to
bear the risk of adverse movements in the price of the underlying
asset during the period of the option, although any potential loss
during the period would be reduced by the amount of the option premium
received.
(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 Fund's investment objectives and limitations. The Funds intend to
use such derivative instruments primarily to hedge or protect from
adverse movements in securities prices or interest rates. The use of
these instruments may involve risks such as the possibility of
illiquid markets or imperfect correlation between the value of the
instruments and the underlying securities, or that the counterparty
will fail to perform its obligations.
(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. 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.
20
<PAGE>
- --------------------------------------------------------------------------------
3. RELATED PARTY TRANSACTIONS
Strong Capital Management, Inc. (the "Advisor"), with whom certain officers
and directors of the Funds are affiliated, provides investment advisory
services and shareholder recordkeeping and related services to the Funds.
Investment advisory fees, which are established by terms of the Advisory
Agreements, are based on the following annualized rates of the average
daily net assets: Strong 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 year ended
August 31, 1997, is as follows:
<TABLE>
<CAPTION>
PAYABLE TO OTHER SHAREHOLDER UNAFFILIATED
ADVISOR AT SERVICING EXPENSES DIRECTORS'
AUGUST 31, 1997 PAID TO ADVISOR FEES
--------------- ------------------ ------------
<S> <C> <C> <C>
Strong Short-Term Municipal Bond Fund $ 2,209 $1,897 $3,017
Strong Municipal Bond Fund 10,331 5,018 4,253
Strong High-Yield Municipal Bond Fund 17,590 2,892 4,751
</TABLE>
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities for the year
ended August 31, 1997, were as follows:
PURCHASES SALES
------------ ------------
Strong Short-Term Municipal Bond Fund $ 51,180,555 $ 36,986,758
Strong Municipal Bond Fund 197,754,352 210,221,535
Strong High-Yield Municipal Bond Fund 370,721,997 267,753,498
5. INCOME TAX INFORMATION
At August 31, 1997, the investment cost, gross unrealized appreciation and
depreciation on investments and capital loss carryovers (expiring in
varying amounts through 2005) for federal income tax purposes were as
follows:
<TABLE>
<CAPTION>
FEDERAL TAX UNREALIZED UNREALIZED NET NET CAPITAL LOSS
COST APPRECIATION DEPRECIATION APPRECIATION CARRYOVERS
------------- -------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Strong Short-Term Municipal
Bond Fund $163,438,021 $ 3,711,574 ($ 9,762) $ 3,701,812 $12,397,948
Strong Municipal Bond Fund 224,064,785 11,103,212 (181,699) 10,921,513 31,581,529
Strong High-Yield Municipal
Bond Fund 364,120,903 16,294,842 (4,479,968) 11,814,874 657,110
</TABLE>
6. ACQUISITION INFORMATION
Effective August 30, 1996, Strong Municipal Bond Fund, Inc. acquired,
through a non-taxable exchange, substantially all of the net assets of
Strong Insured Municipal Bond Fund, Inc., which amounted to $29,090,061,
and issued 3,235,825 shares. The net assets of Strong Insured Municipal
Bond Fund, Inc. included net unrealized depreciation on investments of
$150,881 and capital loss carryovers of $3,641,504. The Statement of
Operations for the period ended August 31, 1996 does not include the
pre-acquisition activity of Strong Insured Municipal Bond Fund, Inc.
21
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------
STRONG SHORT-TERM MUNICIPAL BOND FUND
- ----------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA(a)
--------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
--------------------------------- ----------------------------------
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
of Period Income Investments Operations Income(b) Gains Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aug. 31, 1997 $19.67 $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
Dec. 31, 1992 10.00 0.48 0.22 0.70 (0.48) (0.02) (0.50) 10.20
</TABLE>
<TABLE>
<CAPTION>
STRONG SHORT-TERM MUNICIPAL BOND FUND (cont'd)
- -----------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
------------------------------------------------------------------------------
Net Ratio of Expenses Ratio of Net
Assets, Ratio of to Average Net Investment
End of Expenses Assets Without Income Portfolio
Total Period (In to Average Waivers and to Average Turnover
Return Millions) Net Assets Absorptions Net Assets Rate
<S> <C> <C> <C> <C> <C> <C>
Aug. 31, 1997 +6.7% $165 0.7% 0.7% 5.0% 26.2%
Aug. 31, 1996 +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%
Dec. 31, 1992 +7.2% 111 0.2% 0.8% 4.9% 139.9%
* 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>
<CAPTION>
STRONG MUNICIPAL BOND FUND
- ------------------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA(a)
-------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
----------------------------------- ---------------------------------------------
Net Realized
Net Asset and Unrealized Total In Excess Net Asset
Value, Net Gains from From Net of Net From Net Value,
Beginning Investment (Losses) on Investment Investment Investment Realized Total End of
of Period Income Investments Operations Income(b) Income Gains Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aug. 31, 1997 $18.99 $0.50 $0.53 $1.03 ($0.50) __ __ ($0.50) $19.52
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
Dec. 31, 1992 9.76 0.65 0.50 1.15 (0.65) __ (0.26) (0.91) 10.00
</TABLE>
<TABLE>
<CAPTION>
STRONG MUNICIPAL BOND FUND (cont'd)
- -----------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
------------------------------------------------------------------------------
Net Ratio of Expenses Ratio of Net
Assets, Ratio of to Average Net Investment
End of Expenses Assets Without Income Portfolio
Total Period (In to Average Waivers and to Average Turnover
Return Millions) Net Assets Absorptions Net Assets Rate
<S> <C> <C> <C> <C> <C> <C>
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%
Dec. 31, 1992 +12.2% 290 0.1% 0.9% 6.4% 324.0%
* 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.
</TABLE>
<TABLE>
<CAPTION>
STRONG HIGH-YIELD MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA(a)
-----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
----------------------------------- -------------------------
Net Realized
Net Asset and Unrealized Total Net Asset
Value, Net Gains from From Net Value,
Beginning Investment (Losses) on Investment Investment Total End of
of Period Income Investments Operations Income(b) Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C>
Aug. 31, 1997 $19.45 $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 10.00 0.16 0.10 0.26 (0.16) (0.16) 10.10
</TABLE>
<TABLE>
<CAPTION>
STRONG HIGH-YIELD MUNICIPAL BOND FUND (cont'd)
- -----------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
------------------------------------------------------------------------------
Net Ratio of Expenses Ratio of Net
Assets, Ratio of to Average Net Investment
End of Expenses Assets Without Income Portfolio
Total Period (In to Average Waivers and to Average Turnover
Return Millions) Net Assets Absorptions Net Assets Rate
<S> <C> <C> <C> <C> <C> <C>
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 +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>
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of the
Strong Municipal Income Funds
We have audited the accompanying statements of assets and liabilities of Strong
Short-Term Municipal Bond Fund, Inc., Strong Municipal Bond Fund, Inc. and
Strong High-Yield Municipal Bond Fund, Inc. (collectively referred to herein as
the "Strong Municipal Income Funds"), including the schedules of investments in
securities, as of August 31, 1997, and the related statements of operations for
the year then ended, the statements of changes in net assets for the year ended
August 31, 1997, the period from January 1, 1996 to August 31, 1996 and the year
ended December 31, 1995, and the financial highlights for each of the periods
indicated. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1997 by correspondence with the custodians and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Strong Municipal Income Funds as of August 31, 1997, the results of their
operations for the year then ended, the changes in their net assets for the year
ended August 31, 1997, the period from January 1, 1996 to August 31, 1996 and
the year ended December 31, 1995, and the financial highlights for each of the
periods indicated, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
October 6, 1997
23
<PAGE>
NOTES
- --------------------------------------------------------------------------------
24
<PAGE>
DIRECTORS
Richard S. Strong
Willie D. Davis
Stanley Kritzik
Marvin E. Nevins
William F. Vogt
OFFICERS
Richard S. Strong, Chairman of the Board
Lawrence A. Totsky, Vice President
Thomas P. Lemke, Vice President
John S. Weitzer, Vice President
Stephen J. Shenkenberg, Vice President and Secretary
John A. Flanagan, Treasurer
INVESTMENT ADVISOR
Strong Capital Management, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
CUSTODIAN
Firstar Trust Company
P.O. Box 701, Milwaukee, Wisconsin 53201
AUDITOR
Coopers & Lybrand L.L.P.
411 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Godfrey & Kahn, S.C.
780 North Water Street, Milwaukee, Wisconsin 53202
<PAGE>
For a prospectus containing more complete information, including management fees
and expenses, please call 1-800-368-1030. Please read it carefully before
investing or sending money. This report does not constitute an offer for the
sale of securities. Strong Funds are offered for sale by prospectus only.
[PICTURE OF TELEPHONE]
To order a free prospectus kit,
CALL 1-800-368-1030
To learn more about our funds,
discuss an existing account,
or conduct a transaction,
CALL 1-800-368-3863
--------------------
If you are a
Financial Professional,
CALL 1-800-368-1683
[PICTURE OF STRONG WEB SITE ON COMPUTER]
Strong On-line
www.strong-funds.com
[STRONG LOGO]
STRONG FUNDS
P.O. Box 2936 o Milwaukee, Wisconsin 53201
Strong Funds Distributors, Inc. 6027H97 97AMUN
