<PAGE>
THE STRONG
MUNICIPAL INCOME
FUNDS
SEMI-ANNUAL REPORT o FEBRUARY 28, 1997
[PHOTO OF MAN & WOMAN]
[BAR GRAPH]
[PIE CHART]
THE STRONG SHORT-TERM MUNICIPAL BOND FUND
THE STRONG MUNICIPAL BOND FUND
THE STRONG HIGH-YIELD MUNICIPAL BOND FUND
[STRONG LOGO]
STRONG FUNDS
<PAGE>
EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING
These common-sense rules are followed by many successful investors. They make
sense for beginners, too. If you have a question on these principles, or would
like to discuss them with us, please contact us at 1-800-368-3863. We're here 24
hours a day, seven days a week to take your call.
- ---------------------------------------1----------------------------------------
Have a plan.
[PICTURE OF FOLDER LABELED INVESTMENTS]
Even a simple plan can help you take control of your financial future. Review
your plan once a year, or if your circumstances change.
- ---------------------------------------2----------------------------------------
Start investing as soon as possible.
[PICTURE OF CLOCK]
Make time a valuable ally. Let it put the power of compounding to work for you,
while helping to reduce your potential investment risk.
- ---------------------------------------3----------------------------------------
Diversify your portfolio.
[PICTURE OF PIE CHART OF ASSET DIVERSIFICATION]
By investing in different asset classes - stocks, bonds, and cash - you help
protect against poor performance in one type of investment while including
investments most likely to help you achieve your important goals.
- ---------------------------------------4----------------------------------------
Invest regularly.
[PICTURE OF MEMO REMINDER TO INVEST]
Investing is a process, not a one-time event. By investing regularly over the
long term, you reduce the impact of short-term market gyrations, and you attend
to your long-term plan before you're tempted to spend those assets on short-term
needs.
- ---------------------------------------5----------------------------------------
Maintain a long-term perspective.
[PICTURE OF GRAPH SLOPING UPWARD]
For most individuals, the best discipline is staying invested as market
conditions change. Reactive, emotional investment decisions are all too often a
source of regret - and of principal loss.
- ---------------------------------------6----------------------------------------
Consider stocks to help achieve major long-term goals.
[PICTURE OF PIE CHART OF ASSET DIVERSIFICATION EMPHASIZING STOCKS]
Over time, stocks have provided the more powerful returns needed to help the
value of your investments stay well ahead of inflation.
- ---------------------------------------7----------------------------------------
Keep a comfortable amount of cash in your portfolio.
[PICTURE OF DOLLAR SIGN]
To meet current needs, including emergencies, use a money market fund or a bank
account - not your long-term investment assets.
- ---------------------------------------8----------------------------------------
Know what you're buying.
[PICTURE OF MAGNIFYING GLASS]
Make sure you understand the potential risks and rewards associated with each of
your investments. Ask questions...request information...make up your own mind.
And choose a fund company that helps you make informed investment decisions.
<PAGE>
THE STRONG
MUNICIPAL INCOME
FUNDS
SEMI-ANNUAL REPORT o FEBRUARY 28, 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 Operations .......................................... 15
Statements of Assets and Liabilities .............................. 15
Statements of Changes in Net Assets ............................... 16
Notes to Financial Statements ..................................... 18
FINANCIAL HIGHLIGHTS ................................................... 21
<PAGE>
THE STRONG SHORT-TERM MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
WE SEEK TO DELIVER A STRONG, SUSTAINABLE YIELD CONSISTENT WITH THIS FUND'S
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.
======================================
PORTFOLIO STATISTICS
As of 2-28-97
======================================
30-DAY ANNUALIZED YIELD(1) 4.78%
AVERAGE MATURITY(2) 2.6 YEARS
AVERAGE QUALITY RATING(3) A
As of February 28, 1997, the Strong Short-Term Municipal Bond Fund's annualized
30-day yield was 4.78%.(1) The accompanying table will help you determine your
equivalent taxable yield, given your 1996 federal income tax bracket.
A LESS VOLATILE PERIOD
The six-month period ended February 28, 1997 has been tamer than the half-year
that preceded it. One- and five-year interest rates came down from the peaks
they had reached in August, as fears that the Federal Reserve Board would raise
interest rates subsided at least for a time.
With inflation remaining under control, yields are reasonably stable, though
they have been sloping upward again since 1996's end. Overall, a tone of caution
remains in the market, spurred occasionally by warnings from Federal Reserve
Chairman Alan Greenspan.
A CURRENT FOCUS ON YIELD
We believe that investors who choose to invest in a municipal bond fund have
tax-advantaged income as one of their priorities. When they also choose a
short-term fund like this one, they further indicate that they're interested in
facing only a small level of share-price fluctuation. In response, we seek to
deliver a strong, sustainable yield consistent with this Fund's standards for
quality and maturity. By prospectus, the Fund invests entirely in
investment-grade issues.
Since we assumed management of the Fund in December 1995, we have sought the
pockets of opportunity the municipal market can present, scouring the markets to
identify shorter-maturity issues with the most attractive yields. In addition to
working with large, prominent brokerages, we also work with smaller, regional
firms. Because they have special expertise in certain areas, these companies can
present us with opportunities we might otherwise miss.
By replacing certain longer-term holdings with shorter securities offering equal
or greater yields, we are striving to position the Fund to deliver steady
tax-advantaged income with a low degree of share-price volatility under a
variety of market conditions.
================================================================================
EQUIVALENT TAXABLE YIELDS(1)
As of 2-28-97
================================================================================
YOUR TAX-EXEMPT EFFECTIVE
MARGINAL YIELD OF 4.78% IS EQUIVALENT
JOINT RETURN SINGLE RETURN TAX RATE TO A TAXABLE YIELD OF:
- --------------------------------------------------------------------------------
$41,201-99,600 $24,651-59,750 28.0% 6.64%
................................................................................
$99,601-151,750 $59,751-124,650 31.0% 6.93%
................................................................................
$151,751-271,050 $124,651-271,050 36.0% 7.47%
................................................................................
Over $271,050 Over $271,050 39.6% 7.91%
................................................................................
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>
THE SIX MONTHS AHEAD
The midpoint of the fiscal year finds interest rates turning up again. This
stems in part from a general skittishness in the market; recent statements from
Alan Greenspan certainly did nothing to ease matters. (In fact, the Fed did
raise interest rates in late March, after the close of the first half of the
Fund's fiscal year.)
In the coming six months, we will continue to make tactical decisions based on
our view of trends in interest rates and the general economy. The market appears
to have priced in at least one Fed tightening, though bond prices could move
lower if a strong economy portends rising inflation.
We believe the environment for short-term municipals is very good, and that our
strategies will continue to improve the Fund's overall performance.
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
March 26, 1997
[PHOTO OF STEVEN D. HARROP]
========================
AVERAGE ANNUAL
TOTAL RETURNS
As of 2-28-97
========================
1-YEAR 5.53%
3-YEAR 3.19%
SINCE INCEPTION 4.54%
(on 12-31-91)
[GRAPH]
- --------------------------------------------------------------------------------
GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 12-31-91 to 2-28-97
The Strong Short-Term Lehman Brothers 3-Year Lipper Short Municipal
Municipal Bond Fund Municipal Bond Index* Debt Average*
12-91 10,000 10,000 10,000
12-92 10,716 10,643 10,575
12-93 11,440 11,305 11,116
12-94 11,255 11,383 11,166
12-95 11,860 12,395 11,956
12-96 12,438 12,945 12,408
2-97 12,580 13,067 12,506
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.
- --------------------------------------------------------------------------------
* 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 five 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 2-28-97, is historical, and will
vary.
2 The Fund's average maturity includes the effect of futures contracts.
3 For the purposes of this average rating, the Fund's short-term debt
obligations have been assigned long-term ratings by the Advisor.
3
<PAGE>
THE STRONG MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
HAVING CLOSE TO HALF OF ASSETS IN THE TOP TWO CREDIT TIERS (OR THEIR
EQUIVALENTS) GIVES THIS FUND A VERY HIGH-QUALITY CREDIT PROFILE.
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.
ADAPTING TO A TRICKY MARKET
For the six-month period ended February 28, 1997, the Fund posted a return of
5.83%.(1) As that figure suggests, we were able to enjoy some degree of success
in the last quarter of 1996 and the first months of 1997. Over the six months,
longer-term interest rates first declined, reaching their low point for the
period in November. Rates quickly moved back up by a significant amount, and the
trend at this point appears to be one of further increases.
======================================
PORTFOLIO STATISTICS
As of 2-28-97
======================================
30-day annualized yield(2) 5.51%
Average maturity(3) 18.8 years
Average quality rating(4) A
We continued a shortening of the Fund's duration that began in mid-1996, keeping
it close to that of its benchmark index, the Lehman Brothers Municipal Bond
Index.* Because duration is a measure of a portfolio's exposure to the risk of
interest-rate movements, this change marks a deliberate effort to reduce the
Fund's vulnerability to rising interest rates. At the end of the reporting
period, duration stood at 6.5, down from 7.2 six months earlier. We plan to
maintain this neutral approach to the market for the foreseeable future.
A CURRENT FOCUS ON INCOME
Rather than attempting to deliver higher returns by constantly adjusting the
Fund's interest-rate sensitivity, we have focused on producing a healthy,
sustainable yield. 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 seek to provide it at a reasonable level. The benefit to this
yield approach is that it allows the Fund to pursue solid performance whether
interest rates move up, go down, or stay flat.
While seeking attractive yields, we have also focused on building a very
high-quality portfolio. In fact, more than 95% of the bonds we hold are
investment grade. About a third of the portfolio consists of AAA (or equivalent)
rated securities, the very highest quality available; another 14% is in AA
issues. Having close to half of assets in the top two credit tiers (or their
equivalents) gives this Fund a very high-quality credit profile - and we intend
to keep it that way in the coming months.
SEEKING OPPORTUNITY WHEREVER IT MAY BE
Our sector choices are primarily opportunistic. We look first for individual
issues that fit into our preferences with regard to income and quality.
Nonetheless, our holdings do fall into a few specific areas of the market. Our
bottom-up criteria have made hospitals our single largest sector by far. For the
sake of diversification and to take advantage of other opportunities, we may
trim this position back a bit over time.
================================================================================
EQUIVALENT TAXABLE YIELDS(2)
As of 2-28-97
================================================================================
YOUR TAX-EXEMPT EFFECTIVE
MARGINAL YIELD OF 5.51% IS EQUIVALENT
JOINT RETURN SINGLE RETURN TAX RATE TO A TAXABLE YIELD OF:
- --------------------------------------------------------------------------------
$41,201-99,600 $24,651-59,750 28.0% 7.65%
................................................................................
$99,601-151,750 $59,751-124,650 31.0% 7.99%
................................................................................
$151,751-271,050 $124,651-271,050 36.0% 8.61%
................................................................................
Over $271,050 Over $271,050 39.6% 9.12%
................................................................................
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>
Utilities issues - those related to electric, water, and sewer authorities -
constitute our second-largest sector. They are followed closely by single-family
mortgage revenue bonds and education-related issues.
On a similar note, the states that populate our portfolio are there because of
the opportunities we found in some of their issues, not because of any
deliberate effort to focus on specific regions.
THE SIX MONTHS AHEAD
We believe our investment approach is well suited to the conditions we now face.
An anticipated increase in interest rates did in fact come in late March,
sparking some bumpiness in the market. While market prices appear to anticipate
some increase in interest rates, bond prices could still move substantially
lower if a strong economy portends rising inflation.
Our goal for the remainder of the fiscal year is consistent performance. Given
the market's recent fluctuations, our cautious, though not reticent, strategy
makes especially good sense now.
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
March 26, 1997
[PHOTO OF STEVEN D. HARROP]
========================
AVERAGE ANNUAL
TOTAL RETURNS
As of 2-28-97
========================
1-YEAR 4.72%
5-YEAR 6.53%
SINCE INCEPTION 6.27%
(on 10-23-86)
[GRAPH]
- --------------------------------------------------------------------------------
GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 10-23-86 to 2-28-97
The Strong Municipal Lehman Brothers Lipper General Municipal
Bond Fund Municipal Bond Index* Debt Funds Index*
9-86 10,000 10,000 10,000
12-86 10,129 10,215 10,252
12-87 9,949 10,369 10,182
12-88 10,705 11,423 11,370
12-89 11,463 12,655 12,502
12-90 11,995 13,578 13,252
12-91 13,598 15,226 14,848
12-92 15,256 16,568 16,170
12-93 17,051 18,602 18,180
12-94 16,275 17,640 17,082
12-95 18,128 20,720 20,040
12-96 18,569 21,640 20,701
2-97 18,780 21,881 20,869
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.
- --------------------------------------------------------------------------------
* 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 Average annual total return and total return measure change in the value of
an investment in the Fund, assuming reinvestment of all dividends and
capital gains. Average annual total return reflects annualized change,
while total return reflects aggregate change.
2 Yield is annualized for the 30 days ended 2-28-97, is historical, and will
vary.
3 The Fund's average maturity includes the effect of when-issued securities.
4 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
- --------------------------------------------------------------------------------
WE SOUGHT TO CAPITALIZE ON OCCASIONAL MARKET INEFFICIENCIES.
The Strong High-Yield Municipal Bond Fund seeks total return by investing for a
high level of federally tax-exempt current income.
THE FUND PERFORMED WELL
For the six months ended 2-28-97, the Fund performed well versus both its
benchmark index and its peers. The Fund's total return for the period was 6.97%,
which compared favorably with 5.51% for the High-Yield Municipal Bond Fund Index
and 4.64% for the Lipper High Yield Municipal Debt Funds Index.(1)*
A POSITIVE YEAR FOR MUNICIPAL BONDS
The Fund's solid performance came in a relatively good year for municipal bonds.
Investor fears of an overhaul of the tax code dissipated as the year wore on.
Although the supply of newly-issued municipal bonds rebounded during the year,
surpassing 1995 levels, the market was able to handle the supply with support
from individual investors, insurance company reinvestment, and purchases by
mutual funds.
OUR POSITIONING HELPED THE FUND'S PERFORMANCE
Although the Fund generally pursues income more than capital appreciation, over
the first six months of the fiscal year our strategy focused on identifying
bonds with the potential to increase in value in addition to providing a
comparatively high yield. We sought to capitalize on occasional market
inefficiencies. It often took months of research before we could make a purchase
based on these considerations. Our patience was rewarded, however, as we were
able to find bonds offering solid value and sound credit strength.
Where possible, we emphasized our investment themes, primarily the aging of
America. Purchases along those lines included retirement facilities,
assisted-living centers, and hospitals.
Throughout the first six months of the fiscal year, we concentrated on bonds
that we believed offered an attractive blend of acceptable risk and strong
return potential- bonds that appeared to be attractive on their own merits,
regardless of changes in interest rates or the economy. With that core in place,
we then broadened the credit base of the Fund so that downturns in isolated
areas of the market would be less likely to hurt the portfolio significantly.
======================================
PORTFOLIO STATISTICS
As of 2-28-97
======================================
30-day annualized yield(2) 6.10%
Average maturity(3) 18.8 years
Average quality rating(4) BBB
Finally, we kept the Fund's duration slightly longer than that of our benchmark
index. This made the Fund more sensitive to interest-rate movements, which
helped the Fund react more favorably as interest rates declined.
================================================================================
EQUIVALENT TAXABLE YIELDS(2)
As of 2-28-97
================================================================================
YOUR TAX-EXEMPT EFFECTIVE
MARGINAL YIELD OF 6.10% IS EQUIVALENT
JOINT RETURN SINGLE RETURN TAX RATE TO A TAXABLE YIELD OF:
- --------------------------------------------------------------------------------
$41,201-99,600 $24,651-59,750 28.0% 8.47%
................................................................................
$99,601-151,750 $59,751-124,650 31.0% 8.84%
................................................................................
$151,751-271,050 $124,651-271,050 36.0% 9.53%
................................................................................
Over $271,050 Over $271,050 39.6% 10.10%
................................................................................
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.
6
<PAGE>
OVERALL, WE EXPECT A GOOD ENVIRONMENT FOR BONDS
Although the Federal Reserve held off on raising rates during the first half of
the Fund's fiscal year, signs of increasing economic strength raised the
possibility that the Fed would take action - as in fact it did in late March.
Prices in the market already appeared to assume that such an increase would take
place.
The environment for bonds in general, and municipal bonds in particular, looks
fairly attractive. The economy has strengthened, but growth still remains
moderate. Inflation, meanwhile, seems settled in near a 3% annual rate. If these
conditions hold, investors will have many good reasons to look more closely at
opportunities in the bond market. And although supply looks as if it will match
1996's levels, demand for municipal bonds remains strong.
We intend to closely monitor the prevailing environment, and focus our research
energies on finding bonds that we believe offer the best combination of high
return and reasonable risk.
Thank you for your investment. We appreciate the confidence you've shown in us
to manage a portion of your investment portfolio.
Sincerely,
/s/ Mary-Kay H. Bourbulas
Mary-Kay H. Bourbulas
Portfolio Manager
March 26, 1997
[PHOTO OF MARY-KAY H. BOURBULAS]
========================
AVERAGE ANNUAL
TOTAL RETURNS(1)
As of 2-28-97
========================
1-YEAR 7.08%
2-YEAR 9.00%
SINCE INCEPTION 6.62%
(on 10-1-93)
[GRAPH]
- --------------------------------------------------------------------------------
GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 10-1-93 to 2-28-97
The Strong High-Yield High-Yield Municipal Lipper High Yield Municipal
Municipal Bond Fund Bond Fund Index* Debt Funds Index*
9-93 10,000 10,000 10,000
12-93 10,266 10,164 10,141
12-94 10,165 9,608 9,636
12-95 11,650 11,361 11,245
12-96 12,247 11,867 11,646
2-97 12,448 12,018 11,759
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 Fund 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.
- --------------------------------------------------------------------------------
* The High-Yield Municipal Bond Fund Index is comprised of the Lehman
Brothers Baa Municipal Bond Index from inception through December 31, 1995,
and the Lehman Brothers High-Yield Municipal Bond Index (which was
instituted on 1-1-96) from January 1, 1996 to present. 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 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 Average annual total return and total return measure change in the value of
an investment in the Fund, assuming reinvestment of all dividends and
capital gains. Average annual total return reflects annualized change,
while total return reflects aggregate change.
2 Yield is annualized for the 30 days ended 2-28-97, is historical, and will
vary.
3 The Fund's average maturity includes the effect of when-issued securities.
4 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 February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
STRONG SHORT-TERM MUNICIPAL BOND FUND
PRINCIPAL VALUE
AMOUNT (NOTE 2)
(In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
MUNICIPAL BONDS 92.9%
ALABAMA 0.3%
Bessemer, Alabama IDB IDR - Berman Brothers
Project, 7.65%, Due 9/01/00 $ 505 $ 517
ARIZONA 1.7%
Phoenix, Arizona IDA Hospital Revenue - John C.
Lincoln Hospital and Health Center Project,
4.65%, Due 12/01/99 675 672
Phoenix, Arizona Municipal Housing Revenue
Refunding - Fillmore Gardens and Sunnyslope
Manor - Section 8 Assisted Senior Housing
Project, 5.95%, Due 6/01/05 1,865 1,912
--------
2,584
CALIFORNIA 2.9%
California Health Facilities Financing Authority
Hospital Revenue - Downey Community Hospital,
4.90%, Due 5/15/00 2,325 2,328
Sacramento County, California MFHR Refunding -
Fairways II Apartments, 5.35%, Due 8/01/25 1,970 1,992
--------
4,320
COLORADO 0.2%
Arapahoe County, Colorado E-470 Public Highway
Authority Capital Improvement Trust Fund
Highway Revenue, Zero %, Due 8/31/03 500 354
CONNECTICUT 1.0%
Connecticut IDA - The Olympic Hotel Corporation
Project, 6.95%, Due 8/01/03 1,461 1,501
DISTRICT OF COLUMBIA 2.1%
District of Columbia Hospital Revenue Refunding -
Medlantic Healthcare Group, Inc., 6.50%,
Due 8/15/02 2,925 3,086
FLORIDA 1.4%
Florida Housing Finance Agency MFMR -
Hammocks Place Project, 6.25%, Due 12/01/06 2,000 2,107
GUAM 9.8%
Guam Airport Authority General Revenue:
5.80%, Due 10/01/99 1,450 1,477
6.00%, Due 10/01/00 (c) 2,300 2,366
6.40%, Due 10/01/05 6,700 7,068
Guam Government GO, 5.70%, Due 9/01/03 3,630 3,662
--------
14,573
ILLINOIS 2.4%
Collinsville, Illinois Madison County IDR
Refunding - Drury Inn-Collinsville Project,
5.25%, Due 11/01/98 500 503
Illinois Educational Facilities Authority Revenue -
Lewis University Project:
4.50%, Due 10/01/99 690 684
5.30%, Due 10/01/04 1,390 1,381
Illinois Health Facilities Authority Revenue -
Trinity Medical Center Project, 6.15%,
Due 7/01/98 1,000 1,012
--------
3,580
IOWA 5.5%
Cedar Rapids, Iowa First Mortgage Revenue -
Cottage Grove Place Project, 7.25%, Due 7/01/02 6,000 6,112
Iowa Finance Authority Mortgage Revenue
Refunding - Friendship Village Project, 4.95%,
Due 11/01/00 2,110 2,118
--------
8,230
KANSAS 4.3%
Kansas DFA MFHR Refunding - Woodridge
Apartments Project, 5.90%, Due 12/01/20 6,285 6,458
KENTUCKY 2.2%
Mount Sterling, Kentucky League of Cities
Funding Trust Lease Program Revenue,
5.625%, Due 3/01/03 3,250 3,343
LOUISIANA 0.4%
Louisiana Public Facilities Authority Student
Loan Revenue, 6.75%, Due 9/01/06 525 557
MASSACHUSETTS 7.8%
Massachusetts Education Loan Authority
Education Loan Revenue, 7.45%, Due 1/01/02 1,460 1,522
Massachusetts Industrial Finance Agency
Refunding Revenue - Emerson College Issue,
8.50%, Due 1/01/03 4,500 4,911
Massachusetts Industrial Finance Agency Water
Treatment Revenue - Massachusetts-American
Hingham Project, 6.25%, Due 12/01/10 4,925 5,147
--------
11,580
MICHIGAN 1.7%
Flint, Michigan Hospital Building Authority
Revenue Refunding - Hurley Medical Center:
5.75%, Due 7/01/03 1,000 1,006
6.00%, Due 7/01/04 1,005 1,020
6.00%, Due 7/01/05 510 515
--------
2,541
MISSISSIPPI 3.1%
Mississippi Higher Education Assistance
Corporation Student Loan Revenue:
5.60%, Due 9/01/04 2,505 2,568
5.80%, Due 9/01/06 2,050 2,101
--------
4,669
MISSOURI 2.1%
St. Louis County, Missouri IDA MFHR Refunding -
Heatherbrook Gardens Project, 5.10%,
Due 3/01/05 1,355 1,355
Springfield, Missouri Land Clearance
Redevelopment Authority Industrial Revenue
Refunding - University Plaza Project, 6.30%,
Due 10/01/06 1,790 1,799
--------
3,154
NEW JERSEY 1.2%
New Jersey Health Care Facilities Financing
Authority Revenue - Southern Ocean County
Hospital Project, 5.75%, Due 7/01/01 1,700 1,715
NEW YORK 1.0%
New York, New York GO, 5.875%, Due 8/01/03 1,500 1,553
OHIO 6.6%
Akron, Ohio COP - Akron Municipal Baseball
Stadium Project:
Zero%, Due 12/01/01 1,000 777
Zero%, Due 12/01/02 1,240 963
Cleveland, Ohio Energy Conservation
Improvement GO:
6.53%, Due 3/15/00 650 681
6.53%, Due 9/15/00 670 707
6.53%, Due 3/15/01 690 731
6.53%, Due 9/15/01 715 761
6.53%, Due 3/15/02 740 789
6.53%, Due 9/15/02 760 815
6.53%, Due 3/15/03 785 842
6.53%, Due 9/15/03 815 878
6.53%, Due 3/15/04 840 903
6.53%, Due 9/15/04 865 931
--------
9,778
See notes to financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
STRONG SHORT-TERM MUNICIPAL BOND FUND (continued)
PRINCIPAL VALUE
AMOUNT (NOTE 2)
(In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
OREGON 5.1%
Hillsboro, Oregon Hospital Facility Authority
Revenue and Advance Refunding - Tuality
Heathcare Project, 4.80%, Due 10/01/00 $ 7,525 $ 7,544
PENNSYLVANIA 6.2%
Delaware County, Pennsylvania Authority Health
Facilities Revenue - Mercy Health Corporation of
Southeastern Pennsylvania Obligated Group,
6.00%, Due 11/15/07 5,000 5,144
Horizon Hospital System Authority Hospital
Revenue, 5.40%, Due 5/15/01 2,180 2,194
Sharon, Pennsylvania Regional Health Systems
Authority Hospital Refunding Revenue - Sharon
Regional Health Systems Project:
6.40%, Due 12/01/00 705 739
6.50%, Due 12/01/01 255 271
6.60%, Due 12/01/02 800 857
--------
9,205
SOUTH DAKOTA 4.3%
South Dakota EDFA EDR Refunding - Pooled Loan
Program - Technical Ordinance Project, 5.75%,
Due 4/01/07 1,690 1,787
South Dakota Student Loan Corporation Student
Loan Revenue, 7.35%, Due 8/01/98 4,565 4,702
--------
6,489
TEXAS 9.0%
Brazos, Texas Higher Education Authority, Inc.
Student Loan Revenue Refunding:
5.95%, Due 6/01/02 (c) 2,595 2,712
6.20%, Due 11/01/00 1,000 1,029
6.50%, Due 3/01/99 1,345 1,379
Hidalgo County, Texas Health Services Corporation
Hospital Revenue - Mission Hospital, Inc. Project,
5.75%, Due 8/15/01 1,760 1,771
Trinity River Authority Refunding - Texas
Industries, Inc. Project, 6.1875%, Due 9/01/07 1,725 1,738
Trinity River Authority Refunding - Texas
Industries, Inc. Project, Series A, 6.1875%,
Due 9/01/07 4,710 4,745
--------
13,374
VIRGINIA 6.4%
James City County, Virginia IDA Residential Care
Facility First Mortgage Revenue - Williamsburg
Landing, Inc. Project, 5.75%, Due 3/01/26 3,000 3,064
Prince William County, Virginia IDA Residential
Care Facility First Mortgage Revenue -
Westminster Presbyterian Retirement Project,
6.00%, Due 1/01/25 6,000 6,008
Smyth County, Virginia IDA IDR - Utility Trailer
Manufacturing Company Project, 8.00%,
Due 10/01/98 500 501
--------
9,573
WASHINGTON 4.2%
Walla Walla, Washington Housing Authority
Revenue - Wilbur Manor Project, 6.25%,
Due 12/01/11 1,575 1,585
Washington Health Care Facilities Authority
Revenue - Sisters of Providence, 5.375%,
Due 10/01/00 4,600 4,721
--------
6,306
--------
TOTAL MUNICIPAL BONDS (COST $135,683) 138,691
SHORT-TERM INVESTMENTS (a) 6.8%
ANNUAL PUT BONDS 0.4%
NEW YORK
New York, New York GO, 5.875%, Due 8/01/03 $ 535 $ 543
DAILY VARIABLE RATE PUT BONDS 6.0%
NEVADA 1.3%
Clark County, Nevada IDR - Cogeneration
Association I Project 2,000 2,000
NEW YORK 1.3%
New York Job Development Authority Revenue 2,000 2,000
TEXAS 3.4%
Brazos River Texas Harbor Navigation District
Harbor Revenue - BASF Corporation Project 4,000 4,000
Harris County, Texas IDC Solid Waste Disposal
Revenue - Deer Park Refining Limited
Partnership Project 1,000 1,000
--------
5,000
--------
Total Daily Variable Rate Put Bonds 9,000
MUNICIPAL BONDS 0.4%
ILLINOIS 0.2%
Illinois DFA IDR - Engis Corporation Project,
7.55%, Due 10/01/97 275 278
MISSISSIPPI 0.2%
Prentiss County, Mississippi Hospital Revenue,
5.40%, Due 12/01/97 350 352
--------
Total Municipal Bonds 630
--------
TOTAL SHORT-TERM INVESTMENTS (COST $10,163) 10,173
--------
TOTAL INVESTMENTS IN SECURITIES
(COST $145,846) 99.7% 148,864
Other Assets and Liabilities, Net 0.3% 459
--------
NET ASSETS 100.0% $149,323
========
FUTURES
- -------
UNDERLYING
FACE AMOUNT UNREALIZED
EXPIRATION AT VALUE DEPRECIATION
DATE (In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
Sold:
75 U.S. Treasury Bond Futures 6/97 ($8,283) ($9)
See notes to financial statements.
9
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
STRONG MUNICIPAL BOND FUND
PRINCIPAL VALUE
AMOUNT (NOTE 2)
(In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
MUNICIPAL BONDS 101.6%
ALABAMA 1.8%
Courtland, Alabama IDB Solid Waste Disposal
Revenue - Champion International Corporation
Project, 6.375%, Due 3/01/29 $ 3,145 $ 3,165
Eufaula, Alabama IDB Solid Waste Disposal
Revenue - Harbison-Walker Project, 5.85%,
Due 11/01/06 1,000 1,021
--------
4,186
ALASKA 2.2%
Alaska HFC Capital Appreciation Mortgage
Revenue, Zero %, Due 12/01/27 8,500 1,254
Valdez, Alaska Marine Terminal Revenue
Refunding - BP Pipelines (Alaska), Inc. Project,
5.65%, Due 12/01/28 4,000 3,835
--------
5,089
ARIZONA 1.6%
Phoenix, Arizona IDA Mortgage Revenue
Refunding - Christian Care Retirement
Apartments, Inc. Project, 6.25%, Due 1/01/16 3,740 3,721
CALIFORNIA 4.9%
California Tri-City Housing Finance Agency
SFMR - FNMA and GNMA Collateralized,
6.45%, Due 12/01/28 1,975 2,019
Foothill/Eastern Transportation Corridor Agency
Toll Road Revenue:
Zero %, Due 1/01/28 10,560 1,531
Zero %, Due 1/01/30 4,110 524
Los Angeles, California MFHR - Earthquake
Rehabilitation Projects, 5.85%, Due 12/01/27 1,535 1,573
Los Angeles County, California Public Works
Financing Authority Lease Revenue - Multiple
Capital Facilities Project IV, 4.75%,
Due 12/01/10 4,000 3,750
San Jose, California Redevelopment Agency Tax
Allocation - Merged Area Redevelopment Project,
4.75%, Due 8/01/24 2,000 1,723
--------
11,120
COLORADO 7.1%
Arapahoe County, Colorado E-470 Public Highway
Authority Capital Improvement Trust Fund
Highway Revenue:
Zero %, Due 8/31/08 4,500 2,301
Zero %, Due 8/31/10 15,000 6,544
Castle Rock Ranch, Colorado Public Improvements
Authority Public Facilities Revenue,
6.25%, Due 12/01/17 5,000 5,188
Colorado Health Facilities Authority Retirement
Housing Revenue - Liberty Heights Project,
Zero %, Due 7/15/20 2,900 605
Denver, Colorado City and County Airport System
Revenue, 6.75%, Due 11/15/22 1,500 1,599
--------
16,237
FLORIDA 2.7%
Lake County, Florida Resource Recovery IDR
Refunding - NRG/Recovery Group Project, 5.85%,
Due 10/01/09 4,000 3,980
Manatee County, Florida HFA SFMR, 7.45%,
Due 5/01/27 950 1,051
St. John's County, Florida Water and Sewer
Revenue Refunding, 5.50%, Due 6/01/26 1,000 984
--------
6,015
GEORGIA 2.8%
Savannah, Georgia Hospital Authority Revenue
Refunding and Improvement - Candler Hospital,
7.00%, Due 1/01/23 1,470 1,527
Washington Wilkes Payroll Development
Authority Subordinated Revenue - Southern
Care Corporation Facility Project, Zero %,
Due 12/01/21 25,595 4,863
--------
6,390
IDAHO 0.9%
Idaho Housing Agency SFMR, 6.45%, Due 7/01/27 2,000 2,057
ILLINOIS 14.6%
Chicago, Illinois O'Hare International Airport
International Terminal Special Revenue, 6.50%,
Due 1/01/18 1,440 1,472
Granite City, Illinois Hospital Revenue Refunding -
Saint Elizabeth Medical Center, 8.125%,
Due 6/01/08 6,000 6,233
Illinois Educational Facilities Authority Revenue
Refunding - DePaul University Project, 5.50%,
Due 10/01/19 5,415 5,293
Illinois Health Facilities Authority Refunding
Revenue - Lutheran Social Services of Illinois,
6.125%, Due 8/15/20 9,060 8,788
Illinois Health Facilities Authority Revenue -
Trinity Medical Center Project, 7.00%,
Due 7/01/12 2,000 2,175
Illinois Metropolitan Pier and Exposition Authority
Capital Appreciation - McCormick Place
Expansion Project:
Zero %, Due 6/15/16 1,250 411
7.00%, Due 7/01/26 1,500 1,686
Kane, Cook and DuPage Counties, Illinois School
District Number U-46 Capital Appreciation
School Building:
Zero %, Due 1/01/11 1,800 835
Zero %, Due 1/01/13 2,500 1,028
Will County, Illinois Exempt Facilities Revenue -
Mobil Oil Refining Corporation Project, 6.40%,
Due 4/01/26 5,000 5,200
--------
33,121
INDIANA 8.9%
Fishers, Indiana EDR First Mortgage Revenue -
United Student Aid Funds, Inc. Project, 8.25%,
Due 9/01/09 10,000 10,462
Indiana Health Facility Financing Authority
Hospital Revenue - Jackson County Schneck
Memorial Hospital Project, 7.50%, Due 2/15/22 6,790 7,257
Marion County, Indiana Beech Grove Schools
Building Corporation First Mortgage Refunding,
6.25%, Due 7/05/16 2,265 2,438
--------
20,157
IOWA 2.3%
Iowa Finance Authority Hospital Facility
Refunding and Revenue - Jennie Edmundson
Memorial Hospital Project, 7.65%, Due 11/01/16 4,850 5,165
MASSACHUSETTS 1.8%
Massachusetts Municipal Wholesale Electric
Company Power Supply System Revenue:
4.75%, Due 7/01/10 2,245 2,102
4.75%, Due 7/01/11 2,000 1,865
--------
3,967
MICHIGAN 1.1%
Michigan Hospital Finance Authority Hospital
Revenue Refunding - Pontiac Osteopathic
Hospital, 6.00%, Due 2/01/14 2,500 2,447
See notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
STRONG MUNICIPAL BOND FUND (continued)
PRINCIPAL VALUE
AMOUNT (NOTE 2)
(In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
MINNESOTA 3.3%
Southern Minnesota Municipal Power Agency
Power Supply Systems Revenue, 4.75%,
Due 1/01/16 $ 8,400 $ 7,539
MISSOURI 3.1%
St. Louis, Missouri Municipal Finance Corporation
Leasehold Revenue Refunding, 5.85%,
Due 7/15/09 4,500 4,545
Springfield, Missouri Land Clearance
Redevelopment Authority Industrial Revenue
Refunding - University Plaza Project, 6.60%,
Due 10/01/11 2,465 2,468
--------
7,013
NEW HAMPSHIRE 0.4%
New Hampshire Higher Educational & Health
Facilities Authority Revenue - Kendal at Hanover
Issue, 5.80%, Due 10/01/12 (b) 1,000 980
NEW JERSEY 1.1%
New Jersey Housing and Mortgage Finance Agency
Home Buyer Revenue, 6.95%, Due 10/01/22 1,250 1,308
New Jersey Turnpike Authority Turnpike Revenue,
6.50%, Due 1/01/16 1,000 1,135
--------
2,443
NEW YORK 4.6%
Housing Corporation of New York Revenue
Refunding, 5.00%, Due 11/01/13 1,000 945
New York, New York GO:
5.75%, Due 2/01/14 2,000 1,933
5.875%, Due 3/15/14 1,720 1,686
New York Urban Development Corporation
Revenue, 5.50%, Due 4/01/19 1,500 1,481
New York Urban Development Corporation
Revenue - University Facilities Grants Project,
5.875%, Due 1/01/21 1,045 1,054
Niagara Falls, New York Bridge Commission Toll
Bridge System Revenue, 5.25%, Due 10/01/15 3,400 3,332
--------
10,431
NORTH CAROLINA 1.0%
Fayetteville, North Carolina Public Works
Commission Revenue Refunding, 4.75%,
Due 3/01/14 2,600 2,363
NORTH DAKOTA 0.6%
North Dakota Housing Finance Agency Housing
Finance Program - Home Mortgage Finance
Program, 6.40%, Due 1/01/28 1,405 1,426
OHIO 2.5%
Medina County, Ohio EDR MFHR - Camelot Place,
Ltd. Project, 8.375%, Due 10/01/23 3,800 3,743
Ohio Housing Finance Agency Residential
Mortgage Revenue, 5.95%, Due 9/01/27 2,000 2,010
--------
5,753
OKLAHOMA 2.5%
Oklahoma Ordnance Works Authority PCR
Refunding - Ralston Purina Company Project,
6.30%, Due 9/01/15 1,500 1,538
Shawnee, Oklahoma Hospital Authority Revenue -
MidAmerica HealthCare, Inc., 8.00%, Due 4/01/04 2,890 3,085
Washington County, Oklahoma Medical Authority
Revenue - Bartlesville Jane Phillips Episcopal
Hospital Project, 6.125%, Due 11/01/14 1,000 1,026
--------
5,649
OREGON 0.4%
Washington County, Oregon MFHR - Bethany
Meadows Project, 6.25%, Due 8/01/10 1,000 1,011
PENNSYLVANIA 3.5%
Blair County, Pennsylvania Hospital Authority
First Mortgage Revenue - Mercy Hospital
Sublessee, 8.125%, Due 2/01/14 6,000 6,540
Scranton-Lackawanna, Pennsylvania Health &
Welfare Authority Hospital Revenue - Marian
Community Hospital Project, 6.50%, Due 1/15/07 1,500 1,517
--------
8,057
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 1,632
SOUTH CAROLINA 2.2%
York County, South Carolina Exempt Facility
Industrial Revenue - Hoechst Celanese
Corporation Project, 5.70%, Due 1/01/24 4,890 4,890
SOUTH DAKOTA 3.0%
South Dakota HDA Homeownership Mortgage,
6.40%, Due 5/01/16 1,000 1,023
South Dakota Student Loan Corporation Student
Loan Revenue, 7.625%, Due 8/01/06 5,385 5,688
--------
6,711
TENNESSEE 0.4%
Cookeville, Tennessee IDB Hospital Improvement
Revenue - Cookeville General Hospital Project,
5.625%, Due 10/01/16 1,000 976
TEXAS 16.3%
Austin, Texas Combined Utility Systems Revenue
Refunding, 6.50%, Due 11/15/05 (b) 1,000 1,092
El Paso, Texas Property Finance Authority, Inc.
SFMR - GNMA Mortgage-Backed, 8.70%,
Due 12/01/18 670 722
Grape Creek, Texas Pulliam Independent School
District Public Facility Corporation School
Facility Lease Revenue:
7.00%, Due 5/15/10 1,000 1,045
7.25%, Due 5/15/21 1,300 1,365
Guadalupe-Blanco River Authority, Texas Sewage
and Solid Waste Disposal Facility - E.I. du Pont
de Nemours and Company Project, 6.40%,
Due 4/01/26 4,000 4,155
Harris County, Texas Revenue Refunding, 5.55%,
Due 8/15/07 (b) 3,300 3,304
Lufkin, Texas Health Facilities Development
Corporation Health System Revenue and
Refunding - Memorial Health System of East
Texas, 6.875%, Due 2/15/26 10,250 10,634
North Central Texas Health Facilities Development
Corporation - Tri-City Health Centre, Inc.
Project, 9.50%, Due 5/01/21 10,000 7,500
Port Arthur, Texas HFC Mortgage Revenue
Refunding - FHA Insured Mortgage Loans -
Port Arthur UDAG Projects, 6.40%, Due 1/01/28 3,565 3,667
Ranger, Texas Housing Corporation MFMR
Refunding - FHA Insured Mortgage Loan -
Ranger Apartments Project, 8.80%, Due 3/01/24 1,160 1,289
Tarrant County, Texas Keller Independent School
District Unlimited Tax School Building and
Refunding, Zero %, Due 8/15/16 2,575 840
See notes to financial statements.
11
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
STRONG MUNICIPAL BOND FUND (continued)
PRINCIPAL VALUE
AMOUNT (NOTE 2)
(In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
Texas Department of Housing & Community
Affairs SFMR, 6.00%, Due 9/01/17 $1,400 $ 1,419
--------
37,032
UTAH 0.7%
Intermountain Power Agency Power Supply
Revenue Refunding, 6.50%, Due 7/01/11 (b) 1,500 1,674
WEST VIRGINIA 0.5%
Braxton County, West Virginia Solid Waste
Disposal Revenue - Weyerhaeuser Company
Project, 6.125%, Due 4/01/26 1,000 1,024
WISCONSIN 2.1%
Wisconsin Health and Educational Facilities
Authority Revenue - Howard Young Medical
Center, Inc. Project, 5.75%, Due 8/15/13 1,250 1,238
Wisconsin Health and Educational Facilities
Authority Revenue - Meriter Hospital, Inc.,
6.00%, Due 12/01/17 2,000 1,990
Wisconsin Housing and EDA Home Ownership
Revenue, 6.20%, Due 3/01/27 1,480 1,497
--------
4,725
--------
TOTAL INVESTMENTS IN MUNICIPAL BONDS
(COST $228,297) 101.6% 231,001
Other Assets and Liabilities, Net (1.6%) (3,633)
--------
NET ASSETS 100.0% $227,368
========
- --------------------------------------------------------------------------------
STRONG HIGH-YIELD MUNICIPAL BOND FUND
PRINCIPAL VALUE
AMOUNT (NOTE 2)
(In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
MUNICIPAL BONDS 97.5%
ALASKA 1.3%
Seward, Alaska Revenue - Alaska Sealife Center
Project, 7.65%, Due 10/01/16 $ 3,500 $ 3,574
CALIFORNIA 6.9%
Foothill/Eastern Transportation Corridor Agency
Toll Road Revenue:
Zero %, Due 1/01/17 5,000 1,469
Zero %, Due 1/01/28 24,000 3,480
Zero %, Due 1/01/29 3,085 420
M-S-R Public Power Agency California - San Juan
Project Revenue, 5.90%, Due 7/01/20 (b) 2,500 2,466
Riverside County, California Asset Leasing
Corporation Leasehold Revenue - County of
Riverside Hospital Project:
Zero %, Due 6/01/13 2,000 808
Zero %, Due 6/01/17 1,500 467
Zero %, Due 6/01/25 2,000 380
Sacramento County, California Sanitation District
Financing Authority Revenue, 4.75%,
Due 12/01/23 3,000 2,572
San Francisco, California Redevelopment Agency
Residential Facilities Revenue - Coventry Park
Project, 8.50%, Due 12/01/26 5,000 5,006
San Joaquin Hills Transportation Corridor Agency
Junior Lien Toll Road Revenue, Zero %,
Due 1/01/16 4,435 1,414
San Joaquin Hills Transportation Corridor Agency
Senior Lien Toll Road Revenue, Zero %,
Due 1/01/14 1,180 431
--------
18,913
COLORADO 3.7%
Arapahoe County, Colorado E-470 Public Highway
Authority Capital Improvement Trust Fund
Highway Revenue, Zero %, Due 8/31/15 20,000 5,875
Bachelor Gulch, Colorado Metropolitan District GO,
7.00%, Due 12/01/15 1,100 1,125
Englewood, Colorado MFHR Refunding - Marks
Apartments Project, 6.65%, Due 12/01/26 3,000 3,026
--------
10,026
CONNECTICUT 1.3%
Mashantucket (Western) Pequot Tribe Special
Revenue, 6.40%, Due 9/01/11 3,400 3,519
FLORIDA 5.1%
Arbor Greene, Florida Community Development
District Special Assessment Revenue, 7.00%,
Due 5/01/03 2,450 2,459
Cory Lakes, Florida Community Development
District Special Assessment Revenue, 8.375%,
Due 5/01/17 3,500 3,522
Indian River County, Florida Hospital District
Hospital Revenue Refunding, 6.10%,
Due 10/01/18 (b) 3,000 3,128
Orange County, Florida Health Facilities Authority
First Mortgage Revenue - RHA/Princeton
Hospital, Inc. Project, 9.00%, Due 7/01/21 5,000 4,000
Polk County, Florida HFA Subordinated Revenue -
Lake Wales Gardens Project, Zero %, Due 4/01/20 5,125 679
--------
13,788
GEORGIA 5.9%
Atlanta, Georgia Urban Residential Finance
Authority MFHR - Franciscan Club Apartments
Projects, 7.75%, Due 4/01/22 (Defaulted effective
10/01/96) 4,840 3,388
Atlanta, Georgia Water and Sewer Revenue, 4.75%,
Due 1/01/23 2,000 1,758
Dekalb County, Georgia Residential Care Facilities
for the Elderly Authority First Lien Revenue -
King's Bridge Retirement Center, Inc. Project:
8.00%, Due 7/01/06 650 683
8.15%, Due 7/01/16 2,380 2,508
8.25%, Due 7/01/26 5,250 5,532
Savannah, Georgia Hospital Authority Revenue
Refunding and Improvement - Candler Hospital,
7.00%, Due 1/01/23 2,000 2,077
--------
15,946
ILLINOIS 7.6%
Granite City, Illinois Hospital Revenue Refunding -
Saint Elizabeth Medical Center, 8.125%,
Due 6/01/08 1,030 1,070
Illinois DFA Community Rehabilitation Providers
Facilities Acquisition Program Revenue:
7.25%, Due 3/01/04 1,015 1,035
7.50%, Due 3/01/14 3,070 3,062
Illinois HDA MFHR, 5.00%, Due 7/01/25 2,650 2,080
Illinois Metropolitan Pier and Exposition Authority
Refunding - McCormick Place Expansion Project,
7.00%, Due 7/01/26 6,000 6,743
Illinois State University Board of Trustees
Auxiliary Facilities System Revenue - Capital
Appreciation:
Zero %, Due 4/01/14 1,085 410
Zero %, Due 4/01/15 2,230 783
Zero %, Due 4/01/16 1,000 331
Riverdale, Illinois Environmental Improvement
Revenue - Acme Metals, Inc. Project, 7.95%,
Due 4/01/25 5,000 5,281
--------
20,795
See notes to financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
STRONG HIGH-YIELD MUNICIPAL BOND FUND (continued)
PRINCIPAL VALUE
AMOUNT (NOTE 2)
(In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
INDIANA 4.1%
Indiana IDFA PCR Refunding - Inland Steel
Company Project, 7.25%, Due 11/01/11 $3,000 $ 3,105
Indianapolis, Indiana EDR MFHR - Post Pointe
Apartments Project:
8.20%, Due 3/01/01 270 272
8.30%, Due 3/01/06 480 488
8.40%, Due 3/01/11 710 724
8.75%, Due 3/01/27 6,540 6,671
--------
11,260
IOWA 7.0%
Cedar Rapids, Iowa First Mortgage Revenue -
Cottage Grove Place Project:
7.25%, Due 7/01/02 6,000 6,113
9.00%, Due 7/01/25 6,000 6,563
Iowa Finance Authority First Mortgage Elder Care
Facility Revenue - Amity Fellowserve-Iowa, Inc.
Project, 8.75%, Due 10/01/25 6,165 6,327
--------
19,003
KENTUCKY 2.1%
Morgantown, Kentucky Solid Waste Disposal
Facilities Revenue - IMCO Recycling, Inc.
Project, 7.65%, Due 5/01/16 5,740 5,848
LOUISIANA 2.8%
Iberia Parish, Louisiana Hospital Service District
Number 1 Revenue, 8.00%, Due 5/26/16 2,100 2,121
Louisiana Public Facilities Authority Senior Lien
Revenue - Progressive Healthcare Providers, Inc.
Developmental Centers, 8.00%, Due 1/01/13 5,560 5,442
--------
7,563
MASSACHUSETTS 1.9%
Massachusetts Health and Educational Facilities
Authority Revenue - Saints Memorial Medical
Center:
5.50%, Due 10/01/02 3,500 3,426
5.75%, Due 10/01/06 1,885 1,781
--------
5,207
MINNESOTA 0.7%
Southern Minnesota Municipal Power Agency
Power Supply Systems Revenue, 4.75%,
Due 1/01/16 2,000 1,795
MISSOURI 2.9%
St. Charles County, Missouri Public Water Supply
District Number 2 COP, 6.35%, Due 12/01/23 1,000 1,002
Saline County, Missouri IDA Hospital Revenue -
John Fitzgibbon Memorial Hospital, Inc.
Project, 7.375%, Due 5/01/11 3,550 3,572
Springfield, Missouri Land Clearance
Redevelopment Authority Industrial Revenue
Refunding - University Plaza Redevelopment
Corporation Project, 6.90%, Due 10/01/16 3,440 3,423
--------
7,997
NEW JERSEY 0.2%
South Jersey Transportation Authority Lease
Revenue - Raytheon Aircraft Service, Inc.
Project, 6.15%, Due 1/01/22 500 502
NEW YORK 3.0%
New York, New York GO:
6.00%, Due 2/01/22 3,500 3,434
6.00%, Due 10/15/26 2,000 1,967
Triborough Bridge & Tunnel Authority New York
General Purpose Revenue, 4.75%, Due 1/01/19 3,155 2,741
--------
8,142
NORTH DAKOTA 1.3%
Ward County, North Dakota Health Care Facility
Revenue - St. Joseph's Hospital Corporation
Project, 8.875%, Due 11/15/24 3,000 3,416
OHIO 1.2%
Akron, Ohio COP - Akron Municipal Baseball
Stadium Project, Zero %, Due 12/01/01 1,500 1,134
East Liverpool, Ohio Hospital Improvement
Revenue - East Liverpool City Hospital Project,
8.00%, Due 10/01/21 1,595 1,693
Medina County, Ohio EDR MFHR - Camelot
Place, Ltd. Project, 8.375%, Due 10/01/23 400 394
--------
3,221
PENNSYLVANIA 13.9%
Bucks County, Pennsylvania IDA CDR - Attleboro
Associates, Ltd. Nursing Facility Project:
8.00%, Due 12/01/05 2,005 2,105
8.25%, Due 6/01/11 3,545 3,758
Delaware County, Pennsylvania Authority Health
Care Facility First Mortgage Revenue -
GF/Longwood Care, Inc. Project:
8.50%, Due 4/15/10 530 547
9.00%, Due 4/15/25 5,860 6,050
Horsham, Pennsylvania IDA CDA Health Care
Facilities Revenue - GF/Pennsylvania
Properties, Inc. Project:
7.375%, Due 9/01/08 440 430
8.375%, Due 9/01/24 6,000 6,203
Montgomery County, Pennsylvania IDA Retirement
Community Revenue Refunding - G. D. L. Farms
Corporation Project, 6.50%, Due 1/01/20 4,660 4,328
Montgomery County, Pennsylvania IDA Revenue -
Wordsworth Academy Project, 8.00%,
Due 9/01/24 6,840 6,977
Philadelphia, Pennsylvania IDA CDR Refunding -
Doubletree Guest Suites Project, 6.50%,
Due 10/01/27 3,500 3,439
Scranton-Lackawanna, Pennsylvania Health &
Welfare Authority Hospital Revenue - Marian
Community Hospital Project, 7.125%, Due 1/15/13 1,000 1,007
Wilkinsburg, Pennsylvania Municipal Authority
Health Facilities Revenue - Monroeville Christian
Project, 8.25%, Due 3/01/27 3,000 3,000
--------
37,844
SOUTH CAROLINA 0.7%
Florence County, South Carolina IDR - Stone
Container Corporation Project, 7.375%,
Due 2/01/07 1,890 1,994
TEXAS 7.1%
DeSoto, Texas IDA IDR - Wintergreen Commercial
Partnership Project, 7.00%, Due 1/01/17 4,653 4,472
Hidalgo County, Texas Health Services Corporation
Hospital Revenue - Mission Hospital, Inc. Project,
6.75%, Due 8/15/16 3,000 3,038
Jefferson County, Texas Health Facilities
Development Corporation Hospital
Revenue - Baptist Health Care System Project:
8.30%, Due 10/01/14 4,600 4,790
8.875%, Due 6/01/21 2,410 2,527
Tarrant County, Texas Water Control and
Improvement District Number 1 Water
Revenue Refunding, 4.50%, Due 3/01/11 5,000 4,569
--------
19,396
See notes to financial statements.
13
<PAGE>
SCHEDULES OF INVESTMENTS IN SECURITIES (continued) February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
STRONG HIGH-YIELD MUNICIPAL BOND FUND (continued)
PRINCIPAL VALUE
AMOUNT (NOTE 2)
(In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
UTAH 0.7%
Intermountain Power Agency Power Supply
Revenue Refunding, 5.75%, Due 7/01/19 (b) $2,000 $ 1,968
VIRGINIA 1.8%
Loudoun County, Virginia IDA IDR Refunding -
Dulles Airport Marriot Hotel Project, 7.125%,
Due 9/01/15 5,000 5,038
WASHINGTON 4.9%
Chelan County, Washington Public Utility District
Number 1 Consolidated Revenue - Chelan Hydro
Project:
Series A, 6.40%, Due 7/01/17 (b) 2,000 2,098
Series B, 6.35%, Due 7/01/26 (b) 5,000 5,200
Series C, 6.40%, Due 7/01/17 (b) 3,000 3,146
Washington Public Power Supply System Nuclear
Project Number 2 Refunding Revenue, 5.26%,
Due 7/01/12 3,000 2,820
--------
13,264
WEST VIRGINIA 0.6%
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 1,700
WISCONSIN 8.8%
Brookfield, Wisconsin IDR Refunding - Midway
Motor Lodge Project, 8.40%, Due 4/01/12 5,430 5,871
Wisconsin Center District Wisconsin Tax Revenue
Capital Appreciation, Zero %, Due 12/15/26 1,800 315
Wisconsin Health and Educational Facilities
Authority Revenue - Aurora Medical Group, Inc.
Project, 9.00%, Due 11/15/25 2,500 2,556
Wisconsin Health and Educational Facilities
Authority Revenue - Fort Atkinson Memorial
Health Services, Inc., 5.30%, Due 10/01/99 500 504
Wisconsin Health and Educational Facilities
Authority Revenue - National Regency of
New Berlin, Inc. Project:
7.75%, Due 8/15/15 5,000 5,137
8.00%, Due 8/15/25 6,500 6,679
Wisconsin Housing and EDA Home Ownership
Revenue, 6.20%, Due 3/01/27 3,000 3,034
--------
24,096
--------
TOTAL MUNICIPAL BONDS (COST $258,788) 265,815
SHORT-TERM INVESTMENTS (a) 7.7%
DAILY VARIABLE RATE PUT BONDS
ALABAMA 0.7%
Stevenson, Alabama IDB Environmental
Improvement Revenue - Mead Corporation Project 2,000 2,000
DELAWARE 0.4%
Delaware EDA Revenue - Delmarva Power &
Light Company Project 1,000 1,000
LOUISIANA 1.6%
St. Charles Parish, Louisiana PCR - Shell Oil
Company-Norco Project 4,300 4,300
TEXAS 2.6%
Brazos River Authority Texas PCR Refunding -
Texas Utilities Electric Company Project 3,400 3,400
Brazos River Texas Harbor Navigation District
Harbor Revenue - Dow Chemical Company Project 2,700 2,700
West Side Calhoun County, Texas Navigation
District Sewer & Solid Waste Disposal - BP
Chemicals, Inc. Project 1,000 1,000
--------
7,100
UTAH 0.7%
Salt Lake County, Utah PCR Refunding - Service
Station Holdings, Inc. Project 1,900 1,900
VIRGINIA 1.7%
King George County, Virginia IDA Facilities
Revenue - Birchwood Power Partners Project 4,700 4,700
--------
TOTAL SHORT-TERM INVESTMENTS
(COST $21,000) 21,000
--------
TOTAL INVESTMENTS IN SECURITIES
(COST $279,788) 105.2% 286,815
Other Assets and Liabilites, Net (5.2%) (14,142)
--------
NET ASSETS 100.0% $272,673
========
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.
All costs are stated in thousands.
Percentages are stated as a percent of net assets.
ABBREVIATIONS
- -------------
The following is a list of abbreviations that may be used in the Schedules of
Investments in Securities:
BAN -- Bond Anticipation Notes
CDA -- Commercial Development Authority
CDR -- Commercial Development Revenue
COP -- Certificates of Participation
DFA -- Development Finance Authority
EDA -- Economic Development Authority
EDC -- Economic Development Corporation
EDFA -- Economic Development Finance Authority
EDR -- Economic Development Revenue
GO -- General Obligation
HDA -- Housing Development Authority
HDC -- Housing Development Corporation
HFA -- Housing Finance Authority
HFC -- Housing Finance Corporation
IBA -- Industrial Building Authority
IBR -- Industrial Building Revenue
IDA -- Industrial Development Authority
IDB -- Industrial Development Board
IDC -- Industrial Development Corporation
IDFA -- Industrial Development Finance Authority
IDR -- Industrial Development Revenue
IFA -- Investment Finance Authority
MFHR -- Multi-Family Housing Revenue
MFMR -- Multi-Family Mortgage Revenue
PCR -- Pollution Control Revenue
RAN -- Revenue Anticipation Notes
SFHR -- Single Family Housing Revenue
SFMR -- Single Family Mortgage Revenue
TAN -- Tax Anticipation Notes
TRAN -- Tax and Revenue Anticipation Notes
See notes to financial statements.
14
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
For the Six Months Ended February 28, 1997 (Unaudited) (In Thousands)
<CAPTION>
STRONG SHORT-TERM STRONG MUNICIPAL STRONG HIGH-YIELD
MUNICIPAL BOND FUND BOND FUND MUNICIPAL BOND FUND
------------------- ---------------- -------------------
<S> <C> <C> <C>
INTEREST INCOME $4,052 $ 7,443 $ 8,793
EXPENSES:
Investment Advisory Fees 355 706 746
Custodian Fees 5 7 6
Shareholder Servicing Costs 70 172 87
Other 40 76 117
------ ------- -------
Total Expenses 470 961 956
------ ------- -------
NET INVESTMENT INCOME 3,582 6,482 7,837
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 32 1,387 1,705
Futures Contracts (894) (1,539) (889)
Change in Unrealized Appreciation/Depreciation on:
Investments 2,092 6,389 7,778
Futures Contracts 295 788 320
------ ------- -------
NET GAIN 1,525 7,025 8,914
------ ------- -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $5,107 $13,507 $16,751
====== ======= =======
</TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
February 28, 1997 (Unaudited)
(In Thousands, Except Per Share Amounts)
<CAPTION>
STRONG SHORT-TERM STRONG MUNICIPAL STRONG HIGH-YIELD
MUNICIPAL BOND FUND BOND FUND MUNICIPAL BOND FUND
------------------- ---------------- -------------------
ASSETS:
Investments in Securities, at Value (Cost of $145,846,
<S> <C> <C> <C>
$228,297 and $279,788, respectively) $148,864 $231,001 $286,815
Receivable from Brokers for Securities Sold -- 5,811 --
Receivable for Fund Shares Sold 25 -- 50
Interest Receivable 2,400 3,415 4,940
Other Assets -- 648 --
-------- -------- --------
Total Assets 151,289 240,875 291,805
LIABILITIES:
Payable to Brokers for Securities Purchased 1,355 12,403 17,417
Payable for Fund Shares Redeemed -- 73 342
Dividends Payable 556 976 1,275
Accrued Operating Expenses and Other Liabilities 55 55 98
-------- -------- --------
Total Liabilities 1,966 13,507 19,132
-------- -------- --------
NET ASSETS $149,323 $227,368 $272,673
======== ======== ========
Capital Shares Outstanding (Unlimited Number Authorized) 15,280 24,555 27,836
NET ASSET VALUE PER SHARE $9.77 $9.26 $9.80
===== ===== =====
See notes to financial statements.
15
</TABLE>
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
(In Thousands)
STRONG SHORT-TERM
MUNICIPAL BOND FUND
--------------------------------------------------
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED YEAR ENDED
FEB. 28, 1997 AUG. 31, 1996 DEC. 31, 1995
---------------- ------------- -------------
(UNAUDITED) (NOTE 1)
OPERATIONS:
<S> <C> <C> <C>
Net Investment Income $ 3,582 $ 4,582 $ 7,035
Net Realized Gain (Loss) (862) 482 (5,512)
Change in Unrealized Appreciation/Depreciation 2,387 (1,972) 6,209
-------- -------- --------
Increase in Net Assets Resulting from Operations 5,107 3,092 7,732
CAPITAL SHARE TRANSACTIONS 11,448 5,101 (29,202)
DISTRIBUTIONS:
From Net Investment Income (3,581) (4,582) (7,035)
-------- -------- --------
TOTAL INCREASE (DECREASE) IN NET ASSETS 12,974 3,611 (28,505)
NET ASSETS:
Beginning of Period 136,349 132,738 161,243
-------- -------- --------
End of Period $149,323 $136,349 $132,738
======== ======== ========
STRONG MUNICIPAL
BOND FUND
--------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED YEAR ENDED
FEB. 28, 1997 AUG. 31, 1996 DEC. 31, 1995
---------------- ------------- -------------
(UNAUDITED) (NOTE 1)
OPERATIONS:
Net Investment Income $ 6,482 $ 8,262 $ 15,259
Net Realized Gain (Loss) (152) (4,192) 8,215
Change in Unrealized Appreciation/Depreciation 7,177 (9,406) 6,852
-------- -------- --------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 13,507 (5,336) 30,326
CAPITAL SHARE TRANSACTIONS (26,994) 14,211 (42,434)
DISTRIBUTIONS:
From Net Investment Income (6,482) (8,262) (15,259)
In Excess of Net Investment Income -- -- (5,717)
-------- -------- --------
TOTAL INCREASE (DECREASE) IN NET ASSETS (19,969) 613 (33,084)
NET ASSETS:
Beginning of Period 247,337 246,724 279,808
-------- -------- --------
End of Period $227,368 $247,337 $246,724
======== ======== ========
See notes to financial statements.
</TABLE>
16
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (continued)
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
(In Thousands)
STRONG HIGH-YIELD
MUNICIPAL BOND FUND
--------------------------------------------------
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED YEAR ENDED
FEB. 28, 1997 AUG. 31, 1996 DEC. 31, 1995
---------------- ------------- -------------
(UNAUDITED) (NOTE 1)
OPERATIONS:
<S> <C> <C> <C>
Net Investment Income $ 7,837 $ 11,285 $ 13,500
Net Realized Gain (Loss) 816 (3,285) (1,057)
Change in Unrealized Appreciation/Depreciation 8,098 (9,015) 12,809
-------- -------- --------
Increase (Decrease) in Net Assets Resulting from Operations 16,751 (1,015) 25,252
CAPITAL SHARE TRANSACTIONS 26,118 (17,014) 147,648
DISTRIBUTIONS:
From Net Investment Income (7,837) (11,285) (13,500)
-------- -------- --------
TOTAL INCREASE (DECREASE) IN NET ASSETS 35,032 (29,314) 159,400
NET ASSETS:
Beginning of Period 237,641 266,955 107,555
-------- -------- --------
End of Period $272,673 $237,641 $266,955
======== ======== ========
See notes to financial statements.
17
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
February 28, 1997 (Unaudited)
1. ORGANIZATION
The Strong Municipal Income Funds consist of Strong Short-Term Municipal
Bond Fund, Inc., Strong Municipal Bond Fund, Inc. and Strong High-Yield
Municipal Bond Fund, Inc. The Funds are separately incorporated,
diversified, open-end management investment companies registered under the
Investment Company Act of 1940. 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. 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 Risk -- The use of futures contracts and
options, for purposes of hedging the Funds' investment portfolios
involves, to varying degrees, elements of market risk in excess of the
amount recognized in the statement of assets and liabilities. The
predominant risk with futures contracts is an imperfect correlation
between the value of the contracts and the underlying securities.
(G) Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements, and the
reported amounts of increases and decreases in net assets from
operations during the reporting period. Actual results could differ
from those estimates.
(H) Other -- Investment security transactions are recorded as of the trade
date. Dividend income and distributions to shareholders are recorded
on the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of premiums and discounts.
18
<PAGE>
- --------------------------------------------------------------------------------
3. NET ASSETS
Net assets as of February 28, 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
STRONG SHORT-TERM STRONG MUNICIPAL STRONG HIGH-YIELD
MUNICIPAL BOND FUND BOND FUND MUNICIPAL BOND FUND
------------------- ---------------- -------------------
<S> <C> <C> <C>
Capital Stock $158,718 $254,148 $271,132
Undistributed Net Realized Loss (12,404) (29,484) (5,486)
Net Unrealized Appreciation 3,009 2,704 7,027
-------- -------- --------
$149,323 $227,368 $272,673
======== ======== ========
</TABLE>
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Funds for the six months ended February 28,
1997, the period ended August 31, 1996, and the year ended December 31,
1995 were as follows (in thousands):
<TABLE>
FEBRUARY 28, AUGUST 31, DECEMBER 31,
1997 1996 1995
----------------- ----------------- -----------------
<CAPTION>
SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS
------ ------- ------ ------- ------ -------
STRONG SHORT-TERM MUNICIPAL BOND FUND
<S> <C> <C> <C> <C> <C> <C>
Shares Sold 4,585 $44,607 5,134 $ 49,857 5,815 $ 56,792
Dividends Reinvested 310 3,010 387 3,759 618 6,037
Shares Redeemed (3,716) (36,169) (5,001) (48,515) (9,429) (92,031)
------ ------- ------ -------- ------ ---------
1,179 $11,448 520 $ 5,101 (2,996) ($ 29,202)
====== ======= ====== ======== ====== =========
STRONG MUNICIPAL BOND FUND
Shares Sold 2,086 $19,140 4,802 $ 44,271 9,798 $ 93,037
Dividends Reinvested 553 5,067 712 6,550 1,777 16,879
Shares Redeemed (5,587) (51,201) (7,153) (65,700) (15,997) (152,350)
Net Proceeds from Acquisition (Note 8) -- -- 3,236 29,090 -- --
------ ------- ------ -------- ------ ---------
(2,948) ($26,994) 1,597 $ 14,211 (4,422) ($ 42,434)
====== ======== ====== ======== ====== =========
STRONG HIGH-YIELD MUNICIPAL BOND FUND
Shares Sold 9,097 $88,086 15,577 $149,876 26,320 $253,347
Dividends Reinvested 604 5,837 872 8,362 975 9,387
Shares Redeemed (7,010) (67,805) (18,245) (175,252) (11,927) (115,086)
------ ------- ------ --------- ------ --------
2,691 $26,118 (1,796) ($ 17,014) 15,368 $147,648
====== ======= ====== ========= ====== ========
</TABLE>
5. RELATED PARTY TRANSACTIONS
Strong Capital Management, Inc. (the "Advisor"), with whom certain officers
and directors of the Funds are affiliated, provides investment advisory
services and shareholder recordkeeping and related services to the Funds.
Investment advisory fees, which are established by terms of the Advisory
Agreements, are based on the following annualized rates of the average
daily net assets: Strong Short-Term Municipal Bond Fund .50%, Strong
Municipal Bond Fund and Strong High-Yield Municipal Bond Fund .60%.
Advisory fees are subject to reimbursement by the Advisor if the Funds'
operating expenses exceed certain levels. Shareholder recordkeeping and
related service fees are based on contractually established rates for each
open and closed shareholder account. In addition, the Advisor is
compensated for certain other services related to costs incurred for
reports to shareholders.
The Funds may invest cash reserves in money market funds sponsored and
managed by Strong Capital Management, Inc., subject to certain limitations.
The terms of such transactions are identical to those of non-related
entities except that, to avoid duplicate investment advisory fees, the
Advisor remits to each Fund an amount equal to all fees otherwise due to
them under their investment advisory agreement for the assets invested in
such money market funds.
Certain information regarding related party transactions for the six months
ended February 28, 1997, is as follows (in thousands):
<TABLE>
<CAPTION>
STRONG SHORT-TERM STRONG MUNICIPAL STRONG HIGH-YIELD
MUNICIPAL BOND FUND BOND FUND MUNICIPAL BOND FUND
------------------- --------- -------------------
<S> <C> <C> <C>
Payable to (Receivable from) Advisor at February 28, 1997 ($5) $11 $5
Other Shareholder Servicing Expenses Paid to Advisor 1 3 2
Unaffiliated Directors' Fees 2 2 3
</TABLE>
6. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities for the six
months ended February 28, 1997 were as follows (in thousands):
STRONG SHORT-TERM STRONG MUNICIPAL STRONG HIGH-YIELD
MUNICIPAL BOND FUND BOND FUND MUNICIPAL BOND FUND
------------------- --------- -------------------
Purchases $22,026 $126,102 $138,361
Sales 16,040 132,976 110,242
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
February 28, 1997 (Unaudited)
7. INCOME TAX INFORMATION
At February 28, 1997, the investment cost and gross unrealized appreciation
and depreciation on investments for Federal income tax
purposes were as follows (in thousands):
<TABLE>
<CAPTION>
STRONG SHORT-TERM STRONG MUNICIPAL STRONG HIGH-YIELD
MUNICIPAL BOND FUND BOND FUND MUNICIPAL BOND FUND
------------------- ---------------- -------------------
<S> <C> <C> <C>
Aggregate Investment Cost $145,847 $228,361 $279,819
======== ======== ========
Aggregate Unrealized:
Appreciation $ 3,036 $ 5,311 $ 10,339
Depreciation (19) (2,671) (3,343)
-------- -------- --------
$ 3,017 $ 2,640 $ 6,996
======== ======== ========
</TABLE>
8. 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 (in thousands)
$29,090, and issued (in thousands) 3,236 shares. The net assets of Strong
Insured Municipal Bond Fund, Inc. included (in thousands) net unrealized
depreciation on investments of $151 and capital loss carryovers of $3,642.
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.
20
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
STRONG SHORT-TERM MUNICIPAL BOND FUND 2-28-97(a) 8-31-96(b) 12-31-95 12-31-94 12-31-93 12-31-92
---------- ---------- -------- -------- -------- --------
(NOTE 1)
SELECTED PER-SHARE DATA(c)
- --------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.67 $ 9.77 $ 9.73 $ 10.36 $ 10.20 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.24 0.33 0.47 0.45 0.44 0.48
Net Realized and Unrealized Gains
(Losses) on Investments 0.10 (0.10) 0.04 (0.62) 0.23 0.22
-------- -------- -------- -------- -------- --------
Total from Investment Operations 0.34 0.23 0.51 (0.17) 0.67 0.70
LESS DISTRIBUTIONS:
From Net Investment Income(d) (0.24) (0.33) (0.47) (0.45) (0.44) (0.48)
From Net Realized Gains -- -- -- (0.01) (0.07) (0.02)
-------- -------- -------- -------- -------- --------
Total Distributions (0.24) (0.33) (0.47) (0.46) (0.51) (0.50)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.77 $ 9.67 $ 9.77 $ 9.73 $ 10.36 $ 10.20
======== ======== ======== ======== ======== ========
TOTAL RETURN +3.6% +2.4% +5.4% -1.6% +6.8% +7.2%
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------
Net Assets, End of Period (In Thousands) $149,323 $136,349 $132,738 $161,243 $216,180 $110,816
Ratio of Expenses to Average Net Assets 0.7%* 0.7%* 0.8% 0.7% 0.6% 0.2%
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 0.7%* 0.7%* 0.8% 0.7% 0.7% 0.8%
Ratio of Net Investment Income to
Average Net Assets 5.0%* 5.1%* 4.8% 4.5% 4.2% 4.9%
Portfolio Turnover Rate 11.7% 38.0% 226.8% 273.2% 141.5% 139.9%
STRONG MUNICIPAL BOND FUND 2-28-97(a) 8-31-96(b) 12-31-95 12-31-94 12-31-93 12-31-92
---------- ---------- -------- -------- -------- --------
(NOTE 1)
SELECTED PER-SHARE DATA(c)
- --------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.99 $ 9.52 $ 9.23 $ 10.25 $ 10.00 $ 9.76
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.25 0.33 0.52 0.56 0.58 0.65
Net Realized and Unrealized Gains
(Losses) on Investments 0.27 (0.53) 0.51 (1.02) 0.57 0.50
-------- -------- -------- -------- -------- --------
Total from Investment Operations 0.52 (0.20) 1.03 (0.46) 1.15 1.15
LESS DISTRIBUTIONS:
From Net Investment Income(d) (0.25) (0.33) (0.54) (0.56) (0.58) (0.65)
In Excess of Net Investment Income -- -- (0.20) -- -- --
From Net Realized Gains -- -- -- -- (0.32) (0.26)
-------- -------- -------- -------- -------- --------
Total Distributions (0.25) (0.33) (0.74) (0.56) (0.90) (0.91)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.26 $ 8.99 $ 9.52 $ 9.23 $ 10.25 $ 10.00
======== ======== ======== ======== ======== ========
TOTAL RETURN +5.8% -2.1% +11.4% -4.6% +11.8% +12.2%
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------
Net Assets, End of Period (In Thousands) $227,368 $247,337 $246,724 $279,808 $398,911 $289,751
Ratio of Expenses to Average Net Assets 0.8%* 0.8%* 0.8% 0.8% 0.7% 0.1%
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 0.8%* 0.8%* 0.8% 0.8% 0.8% 0.9%
Ratio of Net Investment Income to
Average Net Assets 5.5%* 5.4%* 5.4% 5.8% 5.6% 6.4%
Portfolio Turnover Rate 44.0% 172.9% 513.8% 311.0% 156.7% 324.0%
* Calculated on an annualized basis.
(a) For the six months ended February 28, 1997 (Unaudited). Total return and portfolio turnover rate are not annualized.
(b) For the period ended August 31, 1996. Total return and portfolio turnover rate are not annualized.
(c) Information presented relates to a share of capital stock of the Fund outstanding for the entire period.
(d) Tax-exempt for regular Federal income tax purposes.
21
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
STRONG HIGH-YIELD MUNICIPAL BOND FUND 2-28-97(a) 8-31-96(b) 12-31-95 12-31-94 12-31-93(e)
---------- ---------- -------- -------- -----------
(NOTE 1)
SELECTED PER-SHARE DATA(c)
- --------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.45 $ 9.91 $ 9.29 $ 10.10 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.30 0.44 0.69 0.71 0.16
Net Realized and Unrealized Gains
(Losses) on Investments 0.35 (0.46) 0.62 (0.81) 0.10
-------- -------- -------- -------- --------
Total from Investment Operations 0.65 (0.02) 1.31 (0.10) 0.26
LESS DISTRIBUTIONS:
From Net Investment Income(d) (0.30) (0.44) (0.69) (0.71) (0.16)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.80 $ 9.45 $ 9.91 $ 9.29 $ 10.10
======== ======== ======== ======== ========
TOTAL RETURN +7.0% -0.1% +14.6% -1.0% +2.7%
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------
Net Assets, End of Period (In Thousands) $272,673 $237,641 $266,955 $107,555 $ 20,840
Ratio of Expenses to Average Net Assets 0.8%* 0.7%* 0.4% 0.0% 0.0%*
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 0.8%* 0.7%* 0.8% 0.8% 1.1%*
Ratio of Net Investment Income to Average Net Assets 6.3%* 6.9%* 7.1% 7.5% 6.8%*
Portfolio Turnover Rate 42.1% 106.8% 113.8% 198.1% 28.0%
* Calculated on an annualized basis.
(a) For the six months ended February 28, 1997 (Unaudited). Total return and portfolio turnover rate are not annualized.
(b) For the period ended August 31, 1996. Total return and portfolio turnover rate are not annualized.
(c) Information presented relates to a share of capital stock of the Fund outstanding for the entire period.
(d) Tax-exempt for regular Federal income tax purposes.
(e) Inception date is October 1, 1993. Total return and portfolio turnover rate are not annualized.
</TABLE>
22
<PAGE>
NOTES
- --------------------------------------------------------------------------------
23
<PAGE>
NOTES
- --------------------------------------------------------------------------------
24
<PAGE>
SHAREHOLDER PRIVILEGES*
STRONG FUNDS
[PICTURE OF TELEPHONE]
24-HOUR SERVICE
TELEPHONE PURCHASE
Make additional investments into any Strong Fund by calling us toll-free at
1-800-368-3863.
TELEPHONE EXCHANGE
If your financial goals change, you can exchange your investments between any of
the Strong Funds.
TELEPHONE REDEMPTION
You can call toll-free to redeem your mutual fund shares at any time. Your
shares will be redeemed no later than the close of the next business day.
STRONG FUNDS
[PICTURE OF DOLLAR SIGN]
AUTOMATIC EXCHANGE
AUTOMATIC INVESTMENT PLAN
This plan allows you to set up regular transfers from your bank checking or NOW
account to your Strong Funds account.
PAYROLL DIRECT DEPOSIT PLAN
You can automatically transfer all or a portion of your net pay at each pay
period. This eliminates the delay of depositing paychecks to your bank and then
sending a check through the mail to Strong Funds.
AUTOMATIC EXCHANGE PLAN
This plan allows you to exchange money from one Strong Fund to another. For
example, you may want to set up automatic exchanges from a money market fund to
an equity fund.
FOR MORE INFORMATION ABOUT THESE PRIVILEGES, CALL US AT 1-800-368-3863.
To reduce the volume of mail you receive, only one copy of certain materials,
such as prospectuses and shareholder reports, is mailed to your household.
Please call 1-800-368-3863 if you wish to receive additional copies, free of
charge.
* Each Fund reserves the right to terminate or modify any of these privileges.
<PAGE>
Bulk Rate
U.S. Postage
PAID
Milwaukee, WI
Permit No. 2652
[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]
Strong Funds On-Line
http://www.strong-funds.com
For a prospectus containing more complete information, including management fees
and expenses, please call 1-800-368-1030. Please read it carefully before
investing or sending money. This annual report does not constitute an offer for
the sale of securities. Strong Funds are offered for sale by prospectus only.
[STRONG LOGO]
STRONG FUNDS DISTRIBUTORS, INC.
P.O. Box 2936
Milwaukee, Wisconsin 53201
4982C97Q
