<PAGE> 1
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ANNUAL REPORT
THE STRONG
INCOME FUNDS
[PHOTO OF ANONYMOUS WOMEN]
THE STRONG U.S. TREASURY MONEY FUND
THE STRONG MONEY MARKET FUND
THE STRONG ADVANTAGE FUND
THE STRONG SHORT-TERM BOND FUND
THE STRONG GOVERNMENT SECURITIES FUND
THE STRONG INCOME FUND
[STRONG LOGO]
DECEMBER 31,1994
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SHAREHOLDER PRIVILEGES*
TELEPHONE PURCHASE
Make additional investments from $50 to $25,000 into any Strong Fund by calling
us toll-free at 1-800-368-3863.
TELEPHONE EXCHANGE
If your financial goals change, you can exchange between any of the Strong Funds
free of charge.
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.
AUTOMATIC INVESTMENT PLAN
This plan allows you to set up regular transfers from your bank checking or
NOW account to your Strong Funds account. The minimum amount per transfer is
$50.
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. The minimum amount per exchange is $50.
NO MINIMUM INVESTMENT PROGRAM
The Funds will waive the minimum initial investment for investors using the
Automatic Investment Plan.
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> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
MESSAGE FROM THE CHAIRMAN................................................................... 2
INVESTMENT REVIEWS
The Strong U.S. Treasury Money Fund.................................................. 4
The Strong Money Market Fund......................................................... 4
The Strong Advantage Fund............................................................ 6
The Strong Short-Term Bond Fund...................................................... 8
The Strong Government Securities Fund................................................ 10
The Strong Income Fund............................................................... 12
FINANCIAL INFORMATION
Historical Investment Returns........................................................ 14
Historical Record.................................................................... 15
Summary of Investments............................................................... 16
Schedules of Investments in Securities
The Strong U.S. Treasury Money Fund............................................. 17
The Strong Money Market Fund.................................................... 17
The Strong Advantage Fund....................................................... 19
The Strong Short-Term Bond Fund................................................. 21
The Strong Government Securities Fund........................................... 24
The Strong Income Fund.......................................................... 26
Statements of Operations............................................................. 28
Statements of Assets and Liabilities................................................. 29
Statements of Changes in Net Assets.................................................. 31
Notes to Financial Statements........................................................ 33
FINANCIAL HIGHLIGHTS........................................................................ 37
REPORT OF INDEPENDENT ACCOUNTANTS........................................................... 40
</TABLE>
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MESSAGE FROM THE CHAIRMAN
Dear Strong Funds Investor:
We are pleased to report that 1994, our twentieth year, was extremely
successful. In a challenging investment environment, our results were, once
again, very satisfying, with many of our funds being among the top performers
in their categories.
Mutual fund assets under management grew past $8 billion, and active accounts
passed the 500,000 mark.
Morningstar, Inc., a nationally recognized authority on mutual funds, assigns
"star" ratings to funds, with 1 star as the lowest rating and 5 stars the
highest. Of the twelve Strong Funds that Morningstar currently rates, all have
at least a 3-star rating, and many carry 4 or 5 stars. We believe this
objective, unbiased recognition of Strong Funds speaks extremely well for the
talent and strength of our firm's investment department.
[PHOTO OF RICHARD S. STRONG]
We are very encouraged by the shift that has occurred in the Congress as a
result of the 1994 elections. Looking ahead, we believe this sweeping change
will have a number of important implications. Among them:
- - - - Federal Reserve Board policies should be supported, not hampered, by Congress.
- - - - The U.S. dollar may once again become a bastion of stability and confidence.
2
<PAGE> 5
- - - - Inflation should trend downward over time.
- - - - Entrepreneurial initiatives, investments and business should receive positive,
rather than negative, legislative treatment.
With another year of solid investment results behind us and a favorable
investment climate ahead, we are very confident in our future growth potential.
To fully realize this potential, we forged ahead this past year and implemented
strategic actions aimed at providing you with superior investment results, a
wide and expanding range of investment products, and exceptional service.
First and foremost, our strategy relies on having very talented and dedicated
people who are deeply committed to you and the stewardship of your investments.
Our team enjoys a dynamic balance of successful and experienced portfolio
managers, combined with our own rising young talent. Simply put, we believe that
we have developed an excellent investment management team to serve you.
To further enhance the effectiveness of our entire organization, we made several
significant additions to our management and administrative capabilities in 1994.
We were very pleased to have John Dragisic join us as Vice Chairman. John brings
with him many successful years of general management experience and a unique
perspective on the company as a former member of the Strong Funds Board. Among
several other new positions, we were particularly pleased with the appointment
of Rochelle Lamm Wallach as President of Strong Advisory Services, a new unit
that will lead our efforts in today's critically important retirement and
financial intermediary markets. These appointments, and the others we have made
during the past year, will contribute greatly to the continued growth and
success we expect in our third decade.
These are important changes for you, because they not only strengthen the
management of your Fund's advisor, but they also make it possible for us to
continue building on our strengths with better service and a wider array of
investment alternatives.
With these vital resources now in place, we look forward to the coming year with
great confidence. We thank you for your continued support.
Sincerely,
/s/ RICHARD S. STRONG
Richard S. Strong
Chairman
3
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THE STRONG U.S. TREASURY MONEY FUND & THE STRONG MONEY MARKET FUND
By investing exclusively in direct obligations of the U.S. government, the
Strong U.S. Treasury Money Fund seeks as high a level of current income as is
consistent with capital preservation and the maintenance of daily liquidity.
The Strong Money Market Fund seeks maximum current income consistent with
capital preservation and the maintenance of daily liquidity. It invests
exclusively in high quality corporate, bank, and government securities that
carry minimal credit risk.
<TABLE>
<CAPTION>
YIELD SUMMARY(1)
as of 12/30/94
The Strong The Strong
U.S. Treasury Money Market
Money Fund Fund
<S> <C> <C>
- - - ---------------------------------------------------------------
7-Day Current Yield 4.70% 6.11%
- - - ---------------------------------------------------------------
7-Day Effective Yield 4.81% 6.29%
- - - ---------------------------------------------------------------
Average Maturity 46 days 32 days
- - - ---------------------------------------------------------------
</TABLE>
HIGHER
SHORT-TERM RATES...
In 1994, investors witnessed the first significant increases in short-term
interest rates since 1989. The Federal Reserve, responding to
faster-than-expected economic growth in the United States, rising commodity
price levels, and other inflation-inducing factors, raised the federal funds
rate throughout the year. These increases culminated in a 0.75% increase on
November 15, the biggest increase in more than 10 years. At year-end, the fed
funds rate stood at 5.5%.
...LED TO HIGHER
MONEY FUND YIELDS
While the Federal Reserve's actions had a generally negative effect on
longer-term securities such as stocks and bonds, money market investors began to
benefit immediately. The seven-day effective yield of the Strong U.S. Treasury
Money Fund rose to 4.81% on December 30 from 2.97% at the beginning of the year.
Similarly, the Strong Money Market
[PHOTO OF ANONYMOUS BOY]
4
<PAGE> 7
Fund's effective yield increased to 6.29% from 3.02% over the same period.
A portion of the Strong Money Market Fund's yield increase reflects our waiver
of all management fees and absorption of all Fund expenses, beginning on
December 7, 1994. This waiver-which will last at least until June 1, 1995-is
intended to make the Fund's competitive yield even more attractive.
Both Funds continued to perform well relative to their competition. Based on
total return for the year ended December 31, 1994, the Strong U.S. Treasury
Money Fund ranked #5 (top 6%) of all 86 U.S. Treasury money market funds tracked
by Lipper Analytical Services. The Strong Money Market Fund ranked #20 (top 8%)
of 247 general money market funds in 1994.(2)
FURTHER RATE
INCREASES EXPECTED
Looking forward to 1995, we anticipate a continuation of solid economic growth
and consequent pressure on inflation. We therefore believe that further
tightening by the Federal Reserve is highly probable during the first two
quarters of 1995. In light of our outlook for higher short-term rates, we
continue to maintain relatively short average maturities in both Funds.
We appreciate your investment in the Strong money market funds. We are pleased
with the Funds' investment results this year, and we hope that your investment
has helped you achieve your financial goals. We look forward to earning your
continued confidence.
[PHOTO OF JAY N. MUELLER]
Cordially,
/s/ JAY N. MUELLER
Jay N. Mueller
Portfolio Manager
(1) Yields are annualized for the 7-day period ended December 30, 1994.
Effective yields reflect the compounding of income. Investments in the
Funds are neither insured nor guaranteed by the U.S. government. There can
be no assurance that either Fund will be able to maintain its stable net
asset value of $1.00 per share. Yields are historical and do not represent
future yields, which will fluctuate. The Funds' advisor temporarily waived
fees of 0.15% for the U.S. Treasury Money Fund, and waived all fees and
absorbed all expenses for the Money Market Fund. Otherwise, the Funds'
current yields would have been 4.55% and 5.30%, respectively, and their
effective yields would have been 4.66% and 5.48%, respectively.
(2) Lipper Analytical Services, Inc. rankings are based on total return with
dividends reinvested. All performance rankings are historical and do not
represent future results. Additional rankings for periods ended December
31, 1994 are as follows. For the Strong U.S. Treasury Money Fund since
inception on 12/31/90, #1 of 39 (top 3%). For the Strong Money Market Fund
since inception on 10/22/85, #6 of 110 (top 5%), and 5-year #12 of 170
(top 7%). From time to time, the Funds' advisor has waived their management
fees and absorbed Fund expenses, resulting in higher returns.
5
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THE STRONG ADVANTAGE FUND
As of 12/30/94
- - - --------------
30-DAY
ANNUALIZED
YIELD
6.82%
AVERAGE
MATURITY(1)
180 DAYS
AVERAGE
QUALITY
RATING
A
The Strong Advantage Fund seeks a high level of current income consistent with
minimum principal fluctuation.
1994: RISING RATES
AND FALLING PRICES
In 1994, investors witnessed the abrupt end of a bond market rally that started
in 1991. Interest rates rose substantially as the Federal Reserve, concerned by
accelerating economic growth and the prospect of higher inflation, repeatedly
boosted the federal funds rate. Though short-term rates tended to rise more
steeply than long-term rates, prices fell on bonds of all maturities. Almost all
of this decline occurred from February through May, after which bond prices
started to stabilize.
Despite the difficult environment for short-term bonds, we are pleased to report
that the Fund posted a positive total return of 3.56% for the year.
POSITIVE PERFORMANCE
IN A DIFFICULT YEAR
We anticipated an upward move in short-term rates as we entered 1994, based on
the economy's accelerating growth rate. We therefore positioned the Fund
defensively, with a relatively large percentage of assets in corporate bonds and
mortgage-backed securities. These instruments have typically outperformed
Treasuries in a rising interest rate environment. We also reduced the Fund's
average maturity from 329 days at the beginning of the year to 110 days at
mid-year to make the portfolio less sensitive to changes in interest rates.
[PHOTO OF ANONYMOUS GIRL]
While the magnitude of the market's decline generated a drop in share price
during the first six months of 1994, we produced enough income to achieve a
positive total return--a feat accomplished by relatively few bond funds during
that period. By year-end, the majority of the decline appeared to be over, and
we increased the Fund's maturity to help it capture yields that had risen to
levels that we believed were very attractive.
Overall, the Fund performed reasonably well versus its competition. Based on its
total return for calendar 1994, the Strong Advantage Fund was ranked #4 among
the 14 ultra-short obligation bond funds tracked by Lipper Analytical Services,
a respected mutual fund ranking service. For the 5-year and since inception
periods ended 12/31/94, Lipper ranked the Fund #1 of 8 funds and #1 of 6 funds,
respectively.(2)
6
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<TABLE>
<CAPTION>
[Pie Chart]
ASSET ALLOCATION
(based on net assets as of 12/31/94)
<S> <C>
Corporate Bonds 54.1%
Non-Agency Mortgage-Backed Securities 33.4%
U.S. Gov't Agency Issues 1.2%
Cash Equivalents 11.3%
</TABLE>
The Fund's asset allocation includes the effect of when-issued securities. It
does not reflect a short position of U.S. Treasury futures representing 8% of
net assets, which is intended to reduce the Fund's exposure to interest rate
fluctuations. Please see the Schedule of Investments in Securities for a
complete listing of the Fund's portfolio.
LOOKING FORWARD TO 1995
We enter 1995 with renewed optimism for the potential of ultra short-term bonds.
After the rate increases of 1994, short-term bond yields are now very
attractive. For example, 1-year T-bills at the start of 1994 yielded 3.59%. By
year-end they yielded 7.17%.(3)
We expect that the Federal Reserve's rate hikes will eventually help slow the
economy. In fact, we believe signs of economic deceleration could emerge as soon
as mid-1995, which should relieve the upward pressure on rates. If so, we may
increase our maturity to help lock in yields near the current level. Moreover,
with higher rates less likely, we may enjoy increased potential for relative
price stability.
[PHOTO OF JEFFREY A. KOCH]
Thank you for your investment in the Strong Advantage Fund. We appreciate your
continued confidence in our investment approach.
Sincerely,
/s/ JEFFREY A. KOCH
Jeffrey A. Koch
Portfolio Manager
<TABLE>
[Bar Graph]
GROWTH OF AN
ASSUMED $10,000 INVESTMENT
from 11/25/88 TO 12/31/94
The Strong 1-yr Treasury Bill
Advantage Fund
<S> <C> <C>
11/88 10000 10000
12/88 10103 10039
6/89 10715 10585
12/89 11052 11050
6/90 11418 11476
12/90 11784 12036
6/91 12319 12489
12/91 13036 13088
6/92 13632 13396
12/92 14135 13720
6/93 14743 13997
12/93 15250 14245
6/94 15417 14355
12/94 15793 14621
</TABLE>
<TABLE>
Caption>
AVERAGE ANNUAL
TOTAL RETURNS
through 12/31/94
<S> <C>
Since inception on 11/25/88 7.78%
5-year 7.40%
3-year 6.60%
1-year 3.56%
</TABLE>
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
Salomon Brothers 1-Year Treasury Benchmark-on-the-Run Index ("1-Year Treasury
Bill"). To equalize the time periods, the Index's performance was prorated for
the month of November 1988. Results include the reinvestment of all dividends
and capital gains. Source for the index data is Micropal. Performance is
historical and does not represent future results. The Salomon Brothers 1-Year
Treasury Benchmark-on-the-Run Index is an unmanaged index generally
representative of the performance of a Treasury security with approximately one
year to maturity. Investment returns and principal value vary, and you may have
a gain or loss when you sell Fund shares. Please see the Historical Investment
Returns section for more information on the Fund's performance record.
(1) The Fund's average maturity includes the effect of when-issued securities
and futures contracts.
(2) The since inception ranking is based on performance from 11/30/88 to
12/31/94 for ultra-short obligation funds tracked by Lipper. Rankings are
historical and do not represent future results. From time to time, the
Fund's advisor has waived its management fee, which has resulted in higher
returns.
(3) Source: Bloomberg Financial Services.
7
<PAGE> 10
THE STRONG SHORT-TERM BOND FUND
As of 12/30/94
- - - --------------
30-DAY
ANNUALIZED
YIELD
8.25%
AVERAGE
MATURITY(1)
2.6 YEARS
AVERAGE
QUALITY
RATING
A
The Strong Short-Term Bond Fund is managed to provide the highest level of
current income consistent with minimum fluctuation in principal value and
current liquidity. The Fund maintains a quality portfolio of at least 95%
investment-grade securities.
BONDS STRUGGLED IN 1994
The Federal Reserve raised short-term rates repeatedly in 1994, responding to
stronger-than-expected economic activity and the potential for higher inflation.
These increases tended to make yields on existing bonds less attractive, and
bond prices plunged, particularly at short maturities. By year-end, intermediate
(5-year) Treasuries had experienced their largest annual decline on record,
based on total return.
It is reasonable to ask why 1994 was especially difficult. After all, the bond
market has weathered rate increases before. However, in 1994, the price declines
brought on by rising rates were exacerbated by the low level of income being
generated by bonds going into the year. The income produced by a bond helps
offset declines in its price. As 1994 began, bond yields were low by historical
standards: around 4% for short-term bonds. As rates rose throughout the year,
the income being generated by most bonds was insufficient to make up for falling
prices, and the result was a negative total return for nearly all types of
bonds.
A STRATEGY
EMPHASIZING INCOME
Our aim in 1994 was to sustain the Fund's income, consistent with keeping price
sensitivity to a minimum. The strategy we chose was to adjust the Fund's asset
mix and duration, based on our expectation of a narrowing of the spread between
long- and short-term rates. While spreads did close, the blistering pace that
short rates rose took many investors-including us-by surprise. On January 31,
3-month T-bills yielded 2.97%. Three months
<TABLE>
<CAPTION>
GROWTH OF AN
ASSUMED $10,000 INVESTMENT
from 8/31/87 to 12/31/94
The Strong Short-Term Short-Term
Bond Fund Bond Index
<S> <C> <C>
8/87 10000 10000
12/87 10318 10299
12/88 11362 10957
12/89 12295 12154
12/90 12945 13332
12/91 14837 14914
12/92 15827 15877
12/93 17302 16773
12/94 17023 16872
</TABLE>
<TABLE>
AVERAGE ANNUAL
TOTAL RETURNS
through 12/31/94
<S> <C>
Since inception on 8/31/87 7.52%
5-year 6.72%
3-year 4.69%
1-year -1.62%
</TABLE>
(1) The Fund's average maturity includes the effect of futures contracts.
(2) Source: Bloomberg Financial Services.
8
<PAGE> 11
later, they yielded 3.87%...a boost in yield of nearly one-third. By the end of
the year, T-bills' yields had nearly doubled.(2)
To make the portfolio less sensitive to interest rate changes, we maintained a
modest duration through most of the year. We also emphasized mortgage-backed
instruments and corporate bonds, which generally offered a yield advantage over
Treasuries and, we believed, a better value.
At mid-year, we concluded that the majority of the market's turbulence had
passed, and that the Fed's actions would, at some point, begin to slow the
economy and ease upward pressure on rates. We therefore began to extend the
Fund's maturity, adopting a more neutral posture in order to capture yields that
we believed were quite attractive.
<TABLE>
<CAPTION>
[Pie Chart]
ASSET ALLOCATION
(based on net assets as of 12/31/94)
<S> <C>
Corporate Bonds including Convertibles 44.8%
Non-Agency Mortgage-Backed Securities 25.0%
U.S. Gov't Agency Issues 18.8%
Cash Equivalents 9.1%
Preferred Stocks & Common Stock Warrants 2.3%
</TABLE>
The Fund's asset allocation does not reflect a short position of U.S. Treasury
futures representing 13% of net assets, which is intended to reduce the Fund's
exposure to interest rate fluctuations. Please see the Schedule of Investments
in Securities for a complete listing of the Fund's portfolio.
Although our performance improved during the last six months of 1994, we were
unable to overcome the declines generated by rising short-term rates during the
first half of the year. Thus, the Fund's total return for 1994 was -1.62%. We
are disappointed that we could not achieve a positive total return for the year.
However, to do so in 1994's difficult market would have meant substantially
reducing the Fund's maturity and slashing its income level, which we felt was
not in the best interests of our shareholders, particularly since income tends
to account for most of the Fund's total return.
OPPORTUNITY IN 1995
We look forward to 1995 with increased optimism. While the Federal Reserve is
likely to raise short-term rates at least once more, we believe that such an
event is already priced into the market. Therefore, we intend to maintain a
neutral stance through the first quarter of 1995. After that, we may see some
signs that the economy is slowing in response to the Fed's rate hikes. If so,
short-term bonds would offer not only higher yields than they did just one year
ago, but also increased opportunity for capital gains if rates begin to fall.
Within this scenario, we believe that short-term bonds currently offer
conservative investors an attractive opportunity.
[PHOTO OF BRADLEY C. TANK]
We appreciate your investment in the Strong Short-Term Bond Fund, and we will do
our best to earn your continued confidence.
Sincerely,
/s/ BRADLEY C. TANK
Bradley C. Tank
Portfolio Manager
9
<PAGE> 12
THE STRONG GOVERNMENT SECURITIES FUND
As of 12/30/94
- - - --------------
30-DAY
ANNUALIZED
YIELD
7.41%
AVERAGE
MATURITY(1)
7.5 YEARS
AVERAGE
QUALITY
RATING
AAA
The Strong Government Securities Fund seeks a high level of current income from
a diversified portfolio composed primarily of U.S. government securities. The
majority of the investments in the Fund are issued or guaranteed as to the
timely payment of principal and interest by the United States government, its
agencies or its instrumentalities. While the government guarantees individual
securities in the Fund, it does not guarantee the Fund's share price.
1994: A YEAR BOND
INVESTORS WOULD
RATHER FORGET
In 1994, bond investors witnessed an unusually rapid and extensive increase in
short-term rates. The Federal Reserve, concerned about the economy's strong
growth and the prospect of higher inflation, hiked the federal funds rate from
3.0% at the beginning of the year to 5.5% at year-end. Rates rose across the
entire spectrum of maturities, with short-term rates generally rising more than
long-term rates.
With these higher rates, of course, came lower bond prices. Specific to the U.S.
government securities market, mortgage-backed securities tended to decline less
than similar-maturity Treasuries, although both posted negative total returns
for the year. Bond prices leveled off at mid-year, then traded in a narrow range
through year-end as investors gained confidence that the majority of the
declines had passed.
A CAUTIOUS INVESTMENT
APPROACH
Going into 1994, we believed the economy's relatively strong growth would prompt
a rise in short-term rates. We therefore structured the Fund defensively,
lowering its duration to decrease its sensitivity to interest rate changes. We
also progressively raised the
<TABLE>
<CAPTION>
GROWTH OF AN
ASSUMED $10,000 INVESTMENT
from 10/29/86 to 12/31/94
The Strong Government Salomon Brothers Broad
Securities Fund Investment-Grade Bond
Index
<S> <C> <C>
10/86 10000 10000
12/86 10218 10195
12/87 10572 10459
12/88 11683 11295
12/89 12836 12926
12/90 13953 14101
12/91 16278 16352
12/92 17781 17593
12/93 20044 19337
12/94 19364 18787
</TABLE>
<TABLE>
AVERAGE ANNUAL
TOTAL RETURNS
through 12/31/94
<S> <C>
Since inception on 10/29/86 8.42%
5-year 8.57%
3-year 5.96%
1-year -3.39%
</TABLE>
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
Salomon Brothers Broad Investment-Grade Bond Index. To equalize the time
periods, the Index's performance was prorated for the month of October 1986.
Results include the reinvestment of all dividends and capital gains. Source for
the index data is Micropal. Performance is historical and does not represent
future results. The Salomon Brothers Broad Investment-Grade Bond Index is an
unmanaged, market-capitalization weighted index generally representative of
government, mortgage, and investment-grade corporate securities. Investment
returns and principal value vary, and you may have a gain or loss when you sell
Fund shares. Please see the Historical Investment Returns section for more
information on the Fund's performance record.
(1) The Fund's average maturity includes the effect of when-issued securities.
(2) Rankings are historical and do not represent future results. From time to
time, the Fund's advisor has waived its management fee and absorbed Fund
expenses, which has resulted in higher returns.
10
<PAGE> 13
Fund's cash position through the first quarter, to help limit its exposure to
declining bond prices.
We maintained this defensive stance until mid-year, when we believed the
majority of the market turbulence was behind us. We subsequently extended the
portfolio's duration, primarily by increasing the Fund's weighting in mortgages.
These securities appeared attractively priced following the correction, and we
believed they offered a compelling income advantage over Treasuries. We further
extended the portfolio's duration in the fourth quarter as market conditions
improved.
These strategies helped the Fund perform reasonably well in 1994. It ranked in
the top third of general U.S. government funds tracked by Lipper Analytical
Services, based on total return for calendar year 1994, even though its total
return was -3.39%. For the 1-year and 5-year periods ended 12/31/94, the Fund
was ranked #45 of 145 funds, and #1 of 77 funds, respectively. From its
inception through 12/31/94, the Fund was ranked #1 of 48 funds.(2)
<TABLE>
<CAPTION>
[Pie Chart]
ASSET ALLOCATION
(based on net assets as of 12/31/94)
<S> <C>
U.S. Gov't & Agency Issues 71%
Cash Equivalents 11%
Corporate Bonds 9%
Municipal Bonds 5%
Preferred Stocks & Warrants 4%
</TABLE>
This allocation includes the effect of when-issued securities. The U.S. Gov't &
Agency Issues category does not reflect short-term government issues. Please see
the Schedule of Investments in Securities for a complete listing of the Fund's
portfolio.
BETTER POTENTIAL IN 1995
Last year at this time, we were cautious regarding the coming year because of
our expectation of higher rates. This year, our outlook is far more positive for
several reasons.
- - - - Yields on intermediate bonds currently represent an attractive opportunity. At
some point, the Federal Reserve's rate hikes will make their presence felt in
the economy. We expect that economic indicators may begin to suggest a
deceleration in mid-1995. If so, upward pressure on rates may subside,
allowing investors to reap the attractive yields that long-term bonds
currently offer, plus benefit from capital appreciation if interest rates
begin to move lower.
[PHOTO OF BRADLEY C. TANK]
- - - - Opportunity in the mortgage-backed market. Following the rate increases in
1994, we believe mortgage-backed instruments--which this Fund currently
emphasizes--offer a compelling yield advantage over similar maturity
Treasuries and high-grade corporate bonds.
- - - - If short rates fall, long rates may follow. Because the market tends to look
past near-term concerns, long-term rates typically move before short-term
rates. For example, long rates began to rise in late 1993, while short rates
didn't begin to rise until February of 1994. If short rates reach a peak in
mid-1995 as we expect, that would suggest that long-rates may currently be
near their high. If so, now may be an optimal time to invest in longer
maturity instruments.
We appreciate your investment in the Strong Government Securities Fund, and look
forward to earning your continued confidence.
Sincerely,
/s/ BRADLEY C. TANK
Bradley C. Tank
Portfolio Manager
11
<PAGE> 14
THE STRONG INCOME FUND
As of 12/30/94
- - - --------------
30-DAY
ANNUALIZED
YIELD
8.85%
AVERAGE
MATURITY*
11.5 YEARS
AVERAGE
QUALITY
RATING
BBB
The most aggressive of our fixed income funds, the Strong Income Fund pursues a
high level of current income from a diversified portfolio of fixed income
securities and dividend-paying common stocks.
RISING RATES PUT
PRESSURE ON BOND PRICES
Like all major classes of domestic bonds, corporate bonds-the current focus of
this Fund-experienced a difficult year in 1994. Interest rates rose and bond
prices fell across all maturities as the Federal Reserve, in an effort to slow
economic growth and reduce the potential for higher inflation, repeatedly
boosted the federal funds rate. The majority of the price decline occurred
between February and May. Thereafter, yields on longer-maturity bonds leveled
off and prices stayed within a fairly narrow range until year end.
A STRATEGY SUITED
TO THE CLIMATE
Going into 1994, the economy's continued steady growth led us to expect higher
rates. Accordingly, we had increased the portfolio's cash position as a
defensive measure. To help mitigate the impact of rising rates through the
February-May correction, we also incrementally decreased the portfolio's
duration.
In late April and early May, we concluded that the turbulence had largely run
its course, and we began to slowly re-extend the portfolio's duration to a more
neutral position, and to put more assets to work in the corporate bond market at
higher yields.
Our purchases reflected our distinctive investment approach. As an aspect of our
current strategy, we use credit research to identify BB-rated corporate bonds
that we believe may be upgraded to BBB (investment grade) status, resulting in
increased capital appreciation potential in addition to attractive income. Such
issues purchased in 1994 included Revco, Chrysler, GNS Finance and Joy
Technology.
SOLID PERFORMANCE
Our strategy during the year helped the Fund perform well relative to its
benchmarks. The Fund's total return for 1994 was -1.31%, versus -3.29% for the
Salomon Brothers BBB-rated Corporate Bond Index, and -4.46% for Lipper's
BBB-rated corporate debt category average.
[PHOTO OF ANONYMOUS CHILDREN]
12
<PAGE> 15
<TABLE>
<CAPTION>
[Bar Graph]
ASSET ALLOCATION
(based on net assets as of 12/31/94)
<S> <C>
Corporate Bonds 80.7%
Cash Equivalents 5.0%
U.S. Gov't Agency Issues 4.3%
Municipal Bonds 4.2%
Non-Agency Mortgage-Backed Securities 4.0%
Preferred Stocks 1.6%
Stock Warrants 0.2%
</TABLE>
The Fund's asset allocation does not reflect a net long position of U.S.
Treasury futures representing 1.3% of net assets, which is intended to increase
the Fund's participation in the bond market. Please see the Schedule of
Investments in Securities for a complete listing of the Fund's portfolio.
OUTLOOK
We expect 1995 will be much more favorable for income investors. Yields are now
significantly higher than they were a year ago, while the correction in 1994 has
returned prices to a more sustainable level. Corporate bonds in particular may
offer a compelling opportunity. Because corporate bonds have performed well
since 1991, we don't expect a big rally. However, the correction in the first
half of 1994 may help limit downside from current prices. If economic growth
remains strong enough to permit companies to maintain their cash flows,
investors could reap coupons that are significantly higher than those of a year
ago, while corporate bond prices remain relatively stable--a scenario far
superior to that of 1994.
[PHOTO OF JEFFREY A. KOCH]
Thank you for your investment in the Strong Income Fund.
Sincerely,
/s/ JEFFREY A. KOCH
Jeffrey A. Koch
Portfolio Manager
<TABLE>
<CAPTION>
GROWTH OF AN ASSUMED $10,000 INVESTMENT
from 12/12/85 to 12/31/94
Salomon Brothers
BBB-rated
The Strong Corporate Bond
Income Fund Index
<S> <C> <C>
12/85 10000 10000
12/86 13399 11827
12/87 13997 12278
12/88 15745 13593
12/89 15800 15361
12/90 14816 16220
12/91 17013 19412
12/92 18612 21310
12/93 21732 24149
12/94 21447 23353
</TABLE>
<TABLE>
AVERAGE ANNUAL
TOTAL RETURNS
through 12/31/94
<S> <C>
Since inception on 12/12/85 8.79%
5-year 6.30%
3-year 8.03%
1-year -1.31%
</TABLE>
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
Salomon Brothers BBB-rated Corporate Bond Index. To equalize the time periods,
the Index's performance was prorated for the month of December 1985. Results
include the reinvestment of all dividends and capital gains. Performance is
historical and does not represent future results. The Salomon Brothers BBB-rated
Corporate Bond Index is an unmanaged, market capitalization-weighted index
generally representative of the performance of BBB-rated corporate bonds.
Investment returns and principal value vary, and you may have a gain or loss
when you sell Fund shares. Please see the Historical Investment Returns section
for more information on the Fund's performance record.
*The Fund's average maturity includes the effect of futures contracts.
13
<PAGE> 16
HISTORICAL INVESTMENT RETURNS(1)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Strong Strong
Strong Short-Term Bond Government Strong
Advantage Fund Fund Securities Fund Income Fund
-------------- --------------- --------------- -----------
<S> <C> <C> <C> <C>
1985 -- -- -- + 3.0%(2)
1986 -- -- + 2.2%(2) + 30.0%
1987 -- + 3.2%(2) + 3.4% + 4.5%
1988 + 1.0%(2) + 10.1% + 10.5% + 12.5%
1989 + 9.4% + 8.2% + 9.9% + 0.4%
1990 + 6.6% + 5.3% + 8.7% - 6.2%
1991 + 10.6% + 14.6% + 16.7% + 14.8%
1992 + 8.4% + 6.7% + 9.2% + 9.4%
1993 + 7.9% + 9.3% + 12.7% + 16.8%
1994 + 3.6% - 1.6% - 3.4% - 1.3%
Since Inception + 57.9% + 70.2% + 93.6% +114.5%
Average Annual Total Return
-- One-Year Period Ended
December 31, 1994 + 3.6% - 1.6% - 3.4% - 1.3%
-- Five-Year Period Ended
December 31, 1994 + 7.4% + 6.7% + 8.6% + 6.3%
-- Inception Date to
December 31, 1994(2) + 7.8% + 7.5% + 8.4% + 8.8%
</TABLE>
YIELD INFORMATION(1)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Strong U.S.
Treasury Money Strong Money
Fund(3) Market Fund(3)
-------------- --------------
<S> <C> <C>
Annualized for the 7-Day Period Ended December 30, 1994
Current Yield 4.70% 6.11%
Effective Yield 4.81% 6.29%
</TABLE>
<TABLE>
<CAPTION>
Strong Strong
Strong Short-Term Bond Government Strong
Advantage Fund Fund Securities Fund Income Fund
-------------- --------------- --------------- -----------
<S> <C> <C> <C> <C>
Annualized for the 30-Day Period Ended
December 30, 1994 6.82% 8.25% 7.41% 8.85%
<FN>
(1) All performance is historical and does not represent future results. Investment returns and principal
value of Strong Advantage Fund, Strong Short-Term Bond Fund, Strong Government Securities Fund, and Strong
Income Fund will vary, and there may be a gain or loss when you sell shares. Returns assume reinvestment of
all dividend and capital gains distributions.
(2) Respective inception dates are November 25, 1988 for Strong Advantage Fund; August 31, 1987 for Strong
Short-Term Bond Fund; October 29, 1986 for Strong Government Securities Fund; and December 12, 1985 for
Strong Income Fund.
(3) An investment in the Strong U.S. Treasury Money Fund or the Strong Money Market Fund is neither insured
nor guaranteed by the U.S. government and there can be no assurance that the Fund will be able to maintain
a stable net asset value of $1.00 per share. Yields vary. Effective yield assumes reinvestment of income.
At December 31, 1994, the Advisor was temporarily waiving fees of .15% for the Strong U.S. Treasury Money
Fund. Otherwise, the current and effective yields would have been 4.55% and 4.66%, respectively. At December
31, 1994, the Advisor was temporarily waiving fees of .50% and absorbing expenses of .31% for the Strong
Money Market Fund. Otherwise, the current and effective yields would have been 5.30% and 5.48%, respectively.
</TABLE>
14
<PAGE> 17
HISTORICAL RECORD
- - - --------------------------------------------------------------------------------
The following table illustrates an assumed $10,000 investment in each Strong
Income Fund on the date of the initial public offering, with income dividends
and capital gains distributions reinvested in additional shares.
<TABLE>
<CAPTION> Growth of
Net Asset Capital Gains Income An Initial
Value Per Distributions Dividends $10,000
Share Per Share Per Share Investment
- - - ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Strong U.S. Treasury Money Fund:
*December 30, 1990 $ 1.00 $ -- $10,000
December 31, 1991 1.00 .06 10,576
December 31, 1992 1.00 .04 10,969
December 31, 1993 1.00 .03 11,287
December 31, 1994 1.00 .04 11,721
Strong Money Market Fund:
*October 22, 1985 $ 1.00 $ -- $10,000
December 31, 1985 1.00 .02 10,153
December 31, 1986 1.00 .06 10,809
December 31, 1987 1.00 .06 11,497
December 31, 1988 1.00 .07 12,359
December 31, 1989 1.00 .09 13,500
December 31, 1990 1.00 .08 14,597
December 31, 1991 1.00 .06 15,481
December 31, 1992 1.00 .03 16,061
December 31, 1993 1.00 .03 16,529
December 31, 1994 1.00 .04 17,192
Strong Advantage Fund:
*November 25, 1988 $ 9.99 $ -- $ -- $10,000
December 31, 1988 10.00 -- .09 10,103
December 31, 1989 9.87 -- 1.03 11,052
December 31, 1990 9.67 -- .83 11,784
December 31, 1991 9.90 -- .76 13,036
December 31, 1992 10.01 -- .70 14,135
December 31, 1993 10.19 -- .59 15,250
December 31, 1994 9.98 .02 .55 15,793
Strong Short-Term Bond Fund:
*August 31, 1987 $10.00 $ -- $ -- $10,000
December 31, 1987 10.03 .01 .27 10,318
December 31, 1988 10.09 .07 .86 11,362
December 31, 1989 9.86 .05 .99 12,295
December 31, 1990 9.53 -- .81 12,944
December 31, 1991 10.12 -- .75 14,836
December 31, 1992 9.99 .02 .76 15,826
December 31, 1993 10.23 -- .67 17,302
December 31, 1994 9.42 -- .65 17,023
</TABLE>
*Date of Initial Public Offering
15
<PAGE> 18
HISTORICAL RECORD (continued)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION> Growth of
Net Asset Capital Gains Income An Initial
Value Per Distributions Dividends $10,000
Share Per Share Per Share Investment
- - - ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Strong Government Securities Fund:
*October 29, 1986 $10.00 $ -- $ -- $10,000
December 31, 1986 10.09 -- .13 10,218
December 31, 1987 9.75 -- .65 10,569
December 31, 1988 9.98 .09 .68 11,682
December 31, 1989 10.08 .07 .78 12,835
December 31, 1990 10.10 .10 .72 13,953
December 31, 1991 10.77 .17 .77 16,277
December 31, 1992 10.39 .49 .80 17,780
December 31, 1993 10.61 .41 .66 20,043
December 31, 1994 9.63 -- .62 19,364
Strong Income Fund:
*December 12, 1985 $10.00 $ -- $ -- $10,000
December 31, 1985 10.30 -- -- 10,300
December 31, 1986 12.65 -- .71 13,394
December 31, 1987 11.64 .04 1.53 13,997
December 31, 1988 11.88 -- 1.17 15,745
December 31, 1989 10.57 -- 1.40 15,801
December 31, 1990 8.87 -- 1.06 14,816
December 31, 1991 9.37 -- .76 17,013
December 31, 1992 9.40 -- .82 18,612
December 31, 1993 10.24 -- .70 21,732
December 31, 1994 9.36 -- .74 21,447
</TABLE>
*Date of Initial Public Offering
SUMMARY OF INVESTMENTS
- - - --------------------------------------------------------------------------------
December 31, 1994
<TABLE>
<CAPTION>
($ In Thousands)
Strong Strong Short-Term
Advantage Fund* Bond Fund*
-------------------- -------------------
<S> <C> <C> <C> <C>
Corporate Bonds including Convertibles $492,522 54% $ 466,551 45%
Non-Agency Mortgage-Backed Securities 304,027 34 260,001 25
United States Government and Agency Issues 10,526 1 195,836 19
Preferred Stocks and Warrants -- -- 24,158 2
Cash Equivalents and Other Assets and Liabilities, Net 103,433 11 94,535 9
-------- ---- ---------- ----
Net Assets $910,508 100% $1,041,081 100%
======== ==== ========== ====
</TABLE>
<TABLE>
<CAPTION>
Strong Government Strong
Securities Fund Income Fund*
-------------------- -------------------
<S> <C> <C> <C> <C>
Corporate Bonds $ 26,201 9% $ 99,446 81%
Non-Agency Mortgage-Backed Securities -- -- 4,905 4
Municipal Bonds 13,068 5 5,211 4
United States Government and Agency Issues** 196,437 71 5,359 4
Preferred Stocks and Warrants 10,000 4 2,304 2
Cash Equivalents and Other Assets and Liabilities, Net 31,126 11 6,080 5
-------- ---- ---------- ----
Net Assets $276,832 100% $ 123,305 100%
======== ==== ========== ====
<FN>
*The Advantage Fund and Short-Term Bond Fund asset allocations do not reflect a net short position of U.S. Treasury
futures representing 8% and 13%, respectively, of the net assets of the Funds, which is intended to reduce the Fund'
exposure to interest rate fluctuations. The Income Fund' asset allocation does not reflect a net long position of U.S.
Treasury futures representing 1% of net assets, which is intended to increase the Fund' participation in the bond market.
(See Note 2(D) in the Notes to Financial Statements.)
**The Strong Government Securities Fund asset allocation for United States Government and Agency Issues does not reflect
short-term government issues.
</TABLE>
16
<PAGE> 19
SCHEDULE OF INVESTMENTS IN SECURITIES December 31, 1994
- - - --------------------------------------------------------------------------------
STRONG U.S. TREASURY MONEY FUND
<TABLE>
<CAPTION>
Principal Yield to Maturity Amortized
Security Amount Maturity Date*** Cost(a)
- - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES TREASURY BILLS 100.4%*
$ 35,000 5.25% 01/26/95 $ 34,883
14,580,000 5.32 02/02/95 14,515,426
26,530,000 4.89 02/09/95 26,396,571
10,000,000 5.15 02/16/95 9,937,056
35,000 5.49 02/23/95 34,728
15,000,000 5.20 03/02/95 14,874,212
1,800,000 5.32 03/09/95 1,782,710
245,000 5.30 07/27/95 237,606
-----------
TOTAL INVESTMENTS IN SECURITIES 100.4%* 67,813,192
Other Assets and Liabilities, Net(0.4%*) (286,151)
-----------
NET ASSETS 100.0%* $67,527,041
===========
- - - --------------------------------------------------------------------------------------------------
</TABLE>
STRONG MONEY MARKET FUND
<TABLE>
<CAPTION>
Principal Yield to Maturity Amortized
Security Amount Maturity Date*** Cost(a)
- - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE OBLIGATIONS 9.0%*
Discover Credit Corporation
Medium Term Notes,
Tranche #67, 6.89% $ 2,000,000 6.92% 04/27/95 $ 1,999,790
General Motors Corporation
Medium Term Notes:
Tranche #622, 6.35% 3,000,000 5.61 01/13/95 3,000,840
Tranche #293, 8.90% 3,000,000 6.12 01/17/95 3,004,053
Tranche #306, 9.00% 2,640,000 6.04 01/23/95 2,645,069
Tranche #147, 6.65% 3,000,000 5.62 02/10/95 3,003,490
Greyhound Financial Corporation
Medium Term Notes,
Tranche #28, 4.625% 1,000,000 5.70 04/19/95 996,835
Interco, Inc. Secured Notes,
Series A, 10.00% 6,229,000 7.50 06/01/95 6,292,203
Martin Marietta Notes, 9.50% 3,000,000 7.03 05/15/95 3,027,012
Merrill Lynch & Company, Inc.
Notes, 6.75% 1,000,000 6.63 03/15/95 1,000,248
Salomon, Inc. Medium Term Notes, 5.472% 5,000,000 5.47 02/22/95 4,962,000
Sears Roebuck & Company Medium Notes,
Tranche #290, 6.32% 3,000,000 7.23 06/12/95 2,988,120
Times Mirror Company Notes, 8.875% 15,500,000 6.70 02/01/95 15,529,699
-----------
Total Corporate Obligations 48,449,359
CORPORATE COMMERCIAL PAPER 50.9%*
A.H. Food Products, Inc. 4,600,000 6.10 02/07/95 4,572,719
American Brands, Inc. 5,900,000 5.55 01/19/95 5,885,447
American Home Products Corporation 3,500,000 5.90 01/04/95 3,499,426
3,500,000 6.00 01/10/95 3,495,917
4,200,000 6.02 01/11/95 4,194,381
American Honda Finance, Inc. 6,500,000 5.60 01/18/95 6,484,833
9,000,000 5.84 01/24/95 8,969,340
CBS, Inc. 2,900,000 5.80 01/25/95 2,889,721
CSC Enterprises 10,000,000 6.10 01/13/95 9,983,056
Coca Cola Enterprises, Inc. 3,600,000 6.02 01/04/95 3,599,398
5,000,000 6.12 02/03/95 4,973,650
1,215,000 6.10 02/14/95 1,206,353
Countrywide Funding Corporation 6,900,000 6.10 01/04/95 6,898,831
Duracell, Inc. 5,000,000 6.25 02/23/95 4,955,729
Electronic Data Systems Corporation 11,700,000 5.47 01/09/95 11,689,343
3,000,000 5.50 01/11/95 2,996,333
4,000,000 5.53 01/17/95 3,991,398
2,500,000 6.00 02/16/95 2,481,667
Fleetwood Credit Corporation 3,575,000 5.60 01/05/95 3,573,888
12,000,000 5.55 01/06/95 11,994,450
1,000,000 5.60 01/12/95 998,600
6,000,000 5.65 01/24/95 5,980,225
Greyhound Financial Corporation 2,500,000 5.55 01/12/95 2,496,531
7,500,000 5.50 01/20/95 7,480,521
7,500,000 5.50 01/25/95 7,474,792
5,000,000 5.50 01/26/95 4,982,431
2,000,000 6.00 01/30/95 1,991,000
Harley-Davidson Dealer Funding Corporation 3,200,000 6.02 01/05/95 3,198,930
ITT Corporation 4,000,000 6.05 01/03/95 4,000,000
5,200,000 5.70 01/19/95 5,186,827
6,500,000 6.00 01/23/95 6,478,333
7,000,000 6.13 02/06/95 6,959,507
3,000,000 6.15 02/06/95 2,982,575
</TABLE>
See notes to financial statements.
17
<PAGE> 20
SCHEDULE OF INVESTMENTS IN SECURITIES (continued) December 31, 1994
- - - --------------------------------------------------------------------------------
STRONG MONEY MARKET FUND (continued)
<TABLE>
<CAPTION>
Principal Yield to Maturity Amortized
Security Amount Maturity Date*** Cost(a)
- - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LOCAP, Inc. $ 6,000,000 6.05% 01/17/95 $ 5,985,883
4,021,000 6.15 01/26/95 4,005,201
Mercury Finance Corporation 1,775,000 6.15 01/09/95 1,773,181
6,000,000 5.55 01/11/95 5,992,600
6,200,000 6.35 01/27/95 6,173,753
3,309,000 6.10 01/30/95 3,293,862
Michigan Underground Storage Tank
Financial Assurance Authority
Discounted Notes 8,000,000 6.40 01/11/95 7,988,622
Modesto, California District Irrigation
Authority 18,300,000 6.45 02/14/95 18,162,292
Northern Indiana Public Service Company 11,000,000 5.85 01/17/95 10,974,975
Plaquemines Parish Louisiana
Environmental Revenue 9,100,000 6.25 01/12/95 9,100,000
Sotheby's, Inc. 9,000,000 6.10 01/18/95 8,977,125
2,500,000 6.20 01/20/95 2,492,681
4,000,000 6.15 01/27/95 3,983,600
Southwestern Bell Telephone Company 700 5.71 Upon Demand 700
U. S. Bancorp 5,700,000 5.50 01/05/95 5,698,258
Whirlpool Financial Corporation 5,000,000 5.45 01/09/95 4,995,458
1,500,000 5.48 01/12/95 1,497,945
5,300,000 5.45 01/18/95 5,287,965
Wisconsin Electric Power Company 168,200 5.77 Upon Demand 168,200
------------
Total Corporate Commercial Paper 275,098,453
CORPORATE FLOATING RATE NOTES 9.3%*
Bear Stearns Companies, Inc.
Medium Term Notes,
Tranche #00264 10,000,000 6.10 08/25/95 10,000,000
Beta Finance, Inc. Medium Term Notes 10,000,000 6.17 03/30/95 10,002,085
Goldman Sachs & Company
(Acquired 4/06/94; Cost $10,000,000)(r) 10,000,000 6.37 04/13/95 10,000,000
Salomon, Inc. Medium Term Notes:
Tranche #300 2,000,000 7.13 02/20/95 2,000,000
Tranche #403 3,500,000 7.19 06/09/95 3,469,542
Shawmut Bank Connecticut, N.A. Bank Notes 15,000,000 6.58 10/30/95 15,000,000
------------
Total Corporate Floating Rate Notes 50,471,627
TAXABLE MUNICIPAL SECURITIES 13.1%*
Chattanooga Tennesee Industrial
Development Board Revenue --
Radison Read Variable Rate Notes 3,660,000 6.66 01/06/95 3,660,000
City of Irvine, California
Assessment District No.89-10
Variable Rate Improvement Bond 7,500,000 6.63 01/03/95 7,500,000
Community Health Systems, Inc.
Variable Rate Weekly Put Bond 4,900,000 6.40 01/06/95 4,900,000
Illinois Housing Development Authority
Affordable Housing Program Trust Fund
Variable Rate Bond 10,000,000 6.21 01/29/95 10,000,00
Irvine Ranch, California Water District
Certificates of Participation
--Capital Improvements Project,
Variable Rate Bond 15,300,000 6.63 01/03/95 15,300,00
Irvine Ranch, California Water Improvement
District Consolidated Series 1989
Variable Rate Bond 4,000,000 6.88 01/03/95 4,000,000
Kinder-Care Learning Centers, Inc.
Industrial Refunding Variable Rate
Weekly Put Bond --Kinder-Care
Learning Centers, Inc. Projects 3,500,000 6.27 01/04/95 3,500,000
Missouri Economic Development,
Export & Infrastructure Board
Variable Rate Weekly Put Bond 4,100,000 6.25 01/06/95 4,100,000
Presbyterian Homes, Inc.
Variable Rate Weekly Put Bond 5,000,000 6.50 01/06/95 5,000,000
Regional Waste Systems, Inc. of Maine
--Solid Waste Resource Recovery Revenue
Variable Rate Weekly Put Bond 2,480,000 6.75 01/05/95 2,480,000
South Carolina Jobs -- Economic Development
Authority Variable Rate Industrial
Development Revenue Bond-Roller
Bearing Company of America, Inc.
Project 3,000,000 6.36 01/06/95 3,000,000
Southeast Atlantic Properties,
L.L.C. Variable Rate Bond 7,600,000 6.30 01/06/95 7,600,000
------------
Total Taxable Municipal Securities 71,040,000
UNITED STATES GOVERNMENT AND AGENCY
SECURITIES 18.6%*
Federal National Mortgage Association
Medium Term Notes 15,000,000 6.02 01/26/96 14,976,848
Student Loan Marketing Association
Floating Rate Notes: 5,000,000 5.94 01/04/95 5,000,000
10,000,000 5.96 01/04/95 10,000,000
15,000,000 6.10 01/06/95 15,000,000
10,000,000 6.12 01/06/95 10,005,000
15,000,000 5.48 06/30/95 15,000,000
United States Treasury Bills 31,500,000 5.21 07/27/95 30,566,424
------------
Total United States Government and Agency Securities 100,548,272
------------
TOTAL INVESTMENTS IN SECURITIES 100.9%* 545,607,711
Other Assets and Liabilities, Net (0.9%*) (4,625,153)
------------
NET ASSETS 100.0%* $540,982,558
============
</TABLE>
See notes to financial statements.
18
<PAGE> 21
SCHEDULE OF INVESTMENTS IN SECURITIES (CONTINUED) December 31, 1994
- - - -------------------------------------------------------------------------------
STRONG ADVANTAGE FUND
<TABLE>
<CAPTION>
Shares or Value
Principal Amount (Note 2)
- - - -------------------------------------------------------------------------------
<S> <C>
CORPORATE BONDS 54.1%*
$ 5,250,000 ARA Group, Inc. Subordinated Debentures,
12.00%, Due 4/15/00 $ 5,604,375
30,700,000 Bank of Boston Corporation Subordinated
Floating Rate Notes, 6.125%, Due 2/10/01 30,086,000
30,270,000 Chase Manhattan Corporation Floating
Rate Notes, 6.50%, Due 12/30/09 29,059,200
Citicorp Floating Rate Notes:
8,400,000 6.20%, Due 1/30/98 8,326,500
13,906,000 6.50%, Due 5/01/04 13,933,785
8,000,000 Continental Cablevision, Inc. Floating Rate
Notes, 11.5625%, Due 11/01/04 8,000,000
5,000,000 Distribuidora De Gas Pampeana S.A. Floating
Rate Medium Term Notes, Series B, 9.375%,
Due 12/12/96 (Acquired 12/01/94;
Cost $4,977,500)(r) 4,850,000
1,900,000 Embassy Suites, Inc. Guaranteed Subordinated
Debentures, 11.00%, Due 4/01/99 1,966,500
10,000,000 Essar Gujarat Limited Floating Rate Notes,
8.025%, Due 7/15/99 10,072,100
First Bank System, Inc. Floating Rate
Subordinated Notes:
2,550,000 6.125%, Due 11/29/96 2,547,450
2,000,000 6.125%, Due 11/26/10 (Putable at 100
on 11/30/00) 1,998,000
44,750,000 Fleming Companies, Inc. Senior Floating Rate
Notes, 8.6875%, Due 12/15/01 44,732,995
3,000,000 Fort Howard Corporation Senior Secured
Floating Rate Notes, 9.13%, Due 9/11/97
(Acquired 12/20/94; Cost $3,003,750)(r) 3,000,000
30,000,000 Health & Retirement Properties Trust Senior
Floating Rate Notes, Series B, 6.345%,
Due 7/13/99 29,739,450
21,990,000 Kansallis-Osake-Pankki Floating Rate Notes,
7.50%, Due 9/30/43 22,231,890
9,850,000 Lehman Brothers Holdings, Inc. Medium
Term Floating Rate Notes, 6.2625%,
Due 3/01/96 9,788,438
5,000,000 Lehman Brothers, Inc. Floating Rate
Notes, 6.4531%, Due 5/17/96 4,987,500
2,500,000 Long Island Lighting Company First Mortgage
Bonds, 5.25%, Due 3/01/96 2,420,108
6,000,000 Lyondell Petrochemical Company Notes,
9.95%, Due 6/01/96 6,100,074
13,041,000 Magma Copper Company Senior Subordinated
Notes, 11.50%, Due 1/15/02 13,790,858
Marine Midland Banks, Inc. Floating Rate
Subordinated Notes:
12,500,000 6.50%, Due 12/20/00 12,234,375
21,460,000 6.5625%, Due 12/31/09 20,494,300
3,025,350 Nacional Financiera, S.N.C. Trust Division
Guaranteed Floating Rate Notes, 8.9375%,
Due 12/15/97 2,874,083
5,800,000 National City Corporation Subordinated
Floating Rate Notes, 5.8125%, Due 1/31/97 5,803,683
5,000,000 National Cooperative Services Corporation
Guaranteed Bonds, 11.50%, Due 12/31/09 5,327,420
$15,000,000 News America Holdings, Inc. Floating Rate
Debt Unit with Premium Call (Medium
Term Structured Enhanced Return Trusts
1994, Series R-12), 7.375%, Due 3/11/98
(Acquired 7/26/94; Cost $15,000,000)(r) 15,034,500
1,245,000 News America Holdings, Inc. Senior Notes,
12.00%, Due 12/15/01 1,386,695
32,000,000 Okobank Subordinated Step-Up Perpetual
Floating Rate Notes, 7.075%
Due 10/14/49 31,760,000
18,250,000 Public Service Company of New Hampshire
Debentures, 15.23%, Due 7/01/00 21,573,818
1,082,000 Reebok International Limited Debentures,
9.75%, Due 9/15/98 1,097,880
13,293,490 Republic of Argentina Bonos del Tesoro
Eurobonds, 5.9375%, Due 5/31/96 12,733,967
6,260,000 Shawmut Corporation Floating Rate Notes,
6.3125%, Due 12/24/97 6,250,610
3,530,000 System Energy Resources, Inc. First Mortgage
Bonds, 11.375%, Due 9/01/16 3,760,675
2,000,000 Texas Gas Transmission Corporation Notes,
8.625%, Due 4/01/04 1,957,500
27,350,000 Texas Utilities Electric Company Floating
Rate Notes, 6.0625%, Due 5/01/99 27,199,575
9,245,000 Time Warner, Inc. Discount Notes, Zero %,
Due 8/15/02 (Putable at 100 on 8/15/95;
Rate Reset Effective 8/01/95) 8,736,525
23,002,000 Time Warner, Inc. Floating Rate Debt Unit
with Premium Call (Medium Term
Structured Enhanced Return Trusts 1994,
Series R-10), 7.4625%, Due 6/22/98
(Acquired 6/20/94, 12/08/94;
Cost $22,989,499)(r) 23,002,000
9,515,000 Transcontinental Gas Pipe Line Corporation
Floating Rate Notes, 6.21%, Due 5/15/00 9,368,887
USG Corporation Senior Notes:
5,264,000 Series A, 10.25%, Due 12/15/02 5,382,440
8,285,000 Series B, 10.25%, Due 12/15/02 8,471,412
14,763,000 Viacom International, Inc. Reset Notes,
8.75%, Due 5/15/01 (Rate Reset
effective 5/15/95) 14,836,815
-----------
Total Corporate Bonds
(Cost $493,861,968 ) 492,522,383
NON-AGENCY MORTGAGE-BACKED SECURITIES 33.4%*
9,280,858 AFC Mortgage Loan Asset Trust Variable
Rate Certificates, Series 1994-1, Class 2, 5.9936%,
A-1, Due 5/25/25 9,354,733
4,068,475 Bear Stearns Mortgage Securities, Inc.
Mortgage Pass-Thru Certificates, Series
1993-12, Class 1-A, 6.50%, Due 1/25/34 3,890,478
6,250,000 CMC Securities Corporation III Variable
Rate Collateralized Mortgage Obligation,
Series 1994-C, Class A-12, 6.775%,
Due 3/25/24 5,767,562
2,943,117 California Federal Bank, A Federal Savings
Bank of Los Angeles, Variable Rate
Mortgage Pass-Thru Certificates, Series
1988 PAL-1, Class A, 6.96%, Due 2/25/18 2,927,489
4,307,029 Chase Mortgage Finance Corporation
Mortgage Pass-Thru Certificates, Series
1990-G, Class A-Z1, 9.50%, Due 12/25/21 4,297,597
</TABLE>
See notes to financial statements.
19
<PAGE> 22
SCHEDULE OF INVESTMENTS IN SECURITIES (continued) December 31, 1994
- - - --------------------------------------------------------------------------------
STRONG ADVANTAGE FUND (continued)
<TABLE>
<CAPTION>
Shares or Value
Principal Amount (Note 2)
- - - --------------------------------------------------------------------------------
<S> <C>
$10,000,000 DLJ Mortgage Acceptance Corporation
Variable Rate Mortgage Pass-Thru
Certificates, Series 1992 MF-3, Class A-3,
7.70%, Due 6/18/07 $10,187,500
First Boston Mortgage Securities Corporation
Variable Rate Mortgage Pass-Thru
Certificates, Series 1994-MHC1:
9,600,000 Class C, 6.725%, Due 4/25/11 9,552,000
5,200,000 Class D, 7.325%, Due 4/25/11 5,174,000
6,800,000 Green Tree Financial Corporation
Manufactured Senior Subordinated
Pass-Thru Certificates, Series 1994-6,
Class M-1, 8.90%, Due 1/15/20 6,653,392
Green Tree Securitized Net Interest
Margin Trust Certificates:
8,235,977 Series 1994-A, 6.90%, Due 2/15/04 7,847,321
8,912,274 Series 1994-B, 7.85%, Due 7/15/04 8,678,327
4,907,035 Greenwich Capital Acceptance, Inc.
Subordinated Mortgage Securities Trust
Pass-Thru Certificates, Series 1994-1,
Class A, 5.4211%, Due 2/28/19
(Acquired 4/12/94; Cost $4,796,626)(r) 4,465,401
8,593,168 Greenwich Capital Acceptance, Inc. Variable
Rate Mortgage Pass-Thru Certificates,
Class A, 5.9721%, Due 5/25/20 8,077,578
10,000,000 Homart Pooled Asset Financial Trust Floating
Rate Collateral Trust Certificates, Class A-3,
8.125%, Due 12/29/01 (Acquired 12/21/93;
Cost $10,000,000)(r) 10,000,000
14,509,340 Merrill Lynch Home Equity Acceptance, Inc.
Subordinated Variable Rate Mortgage-
Backed Certificates, Series 1994-A,
Class A-1, 6.4375%, Due 8/17/23 13,711,327
Merrill Lynch Mortgage Investors, Inc.
Manufactured Housing Contract Senior
Subordinated Pass-Thru Certificates:
726,802 Series 1992-D, Class A1, 5.90%, Due 7/15/17 722,027
5,939,741 Series 1992-E, Class B, 5.85%, Due 8/15/12 5,806,691
Merrill Lynch Mortgage Investors, Inc. Senior
Subordinated Pass-Thru Certificates:
1,018,277 Series 1988-H, Class A, 9.70%, Due 6/15/08 1,032,910
9,375,000 Series 1994-B, Class A, 6.8625%,
Due 12/01/24 9,008,719
Merrill Lynch Mortgage Investors, Inc.
Senior Subordinated Variable Rate
Pass-Thru Certificates:
14,022,000 Series 1994-F, Class M, 6.375%,
Due 4/15/19 12,703,932
5,000,000 Series 1994-H, Class M, 6.375%,
Due 6/15/19 4,533,500
1,318,226 Merrill Lynch Mortgage Investors, Inc.
Variable Rate Mortgage Pass-Thru
Certificates, Series 1993-G, Class B, 5.40%,
Due 12/15/13 1,261,279
RTC Mortgage Pass-Thru Securities, Inc.
Commercial Certificates, Series 1993-C1:
10,000,000 Class B, 8.75%, Due 5/25/24 9,837,500
10,960,000 Class C, 9.40%, Due 5/25/24 10,864,100
5,008,523 RTC Multifamily Variable Rate Mortgage
Certificates, Series 1992-M2, Class B-1,
7.15%, Due 3/25/20 5,084,152
RTC Variable Rate Mortgage Pass-Thru
Securities, Inc.:
$3,187,911 Series 1991-2, Class A, 6.55%, Due 4/25/21 3,180,451
1,944,101 Series 1991-4, Class A-1, 6.49%,
Due 11/25/20 1,939,551
1,852,633 Series 1992-6, Class B9, 6.86%,
Due 11/25/26 1,822,528
27,766,000 Series 1994-1, Class B5, 7.125%,
Due 9/25/29 27,488,340
16,600,000 Series 1994-1, Class M5, 7.125%,
Due 9/25/29 16,594,854
RTC Variable Rate Mortgage Pass-Thru
Securities, Inc. Manufactured Housing
Certificates:
1,358,760 Series 1992-MH1, Class A-1, 7.00%,
Due 2/15/19 1,337,959
2,201,160 Series 1992-MH2, Class A-1, 7.00%,
Due 2/15/04 2,175,460
3,423,989 Ryland Acceptance Corporation IV
Collateralized Mortgage Bonds, Series 53,
Class 53-E, 10.00%, Due 10/25/18 3,416,490
24,985,000 Ryland Mortgage Securities Corporation III
Variable Rate Collateralized Mortgage
Bonds, Series 1992-C, Class 3-A, 7.65%,
Due 11/25/30 24,102,780
1,725,983 Ryland Mortgage Securities Corporation IV
Variable Rate Collateralized Mortgage
Bonds, Series 2, Class 3-A, 11.9712%,
Due 6/25/23 1,773,983
SML Commercial Mortgage Trust Variable
Rate Pass-Thru Certificates, Series 1994-C1:
4,799,500 Class A-1, 7.00%, Due 9/18/99 4,793,501
9,000,000 Class A-2, 7.20%, Due 9/18/99 8,988,750
1,988,689 Santa Barbara Savings & Loan Association
California Real Estate Mortgage Investment
Conduit Participation Certificates,
Series 1988-A, Class 2, Principal Only,
Due 9/01/18 1,334,907
20,470,000 TMS Trust Variable Rate Asset-Backed
Certificates, Series 1994-D, Class A-11,
6.425%, Due 3/15/25 20,444,413
6,364,385 U-Haul Self-Storage Corporation Commercial
Mortgage Asset Trust Pass-Thru
Certificates, Series 1993-1, Class A1,
7.025%, Due 12/01/20 (Acquired 12/02/93;
Cost $6,364,385)(r) 6,332,563
6,812,002 Western Federal Savings & Loan Association
Marina Del Rey California Variable Rate
Mortgage Pass-Thru Certificates, Series
1991-4, Class A, 6.375%, Due 7/01/21 6,860,980
------------
Total Non-Agency Mortgage-Backed
Securities (Cost $308,469,937) 304,027,025
</TABLE>
See notes to financial statements.
20
<PAGE> 23
SCHEDULE OF INVESTMENTS IN SECURITIES (continued) December 31, 1994
- - - -------------------------------------------------------------------------------
STRONG ADVANTAGE FUND (continued)
<TABLE>
<CAPTION>
Shares or Value
Principal Amount (Note 2)
- - - -------------------------------------------------------------------------------
<S> <C>
UNITED STATES GOVERNMENT AGENCY ISSUES 1.2%*
FHLMC Participation Certificates:
$ 780,332 9.00%, Due 1/01/05 $ 785,453
200,056 10.75%, Due 10/01/00 206,258
2,616,656 11.00%, Due 10/01/00 thru 9/01/20 2,791,674
2,753,473 11.75%, Due 5/01/11 thru 4/01/13 2,986,659
994,674 12.00%, Due 9/01/11 thru 2/01/15 1,082,952
1,778,504 12.25%, Due 7/01/15 1,943,850
275,920 12.50%, Due 2/01/15 302,737
109,122 FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates,
13.50%, Due 9/01/14 121,536
GNMA Guaranteed Pass-Thru Certificates:
211,301 13.50%, Due 6/15/10 thru 11/15/14 238,045
59,160 15.00%, Due 8/15/11 thru 9/15/12 66,999
------------
Total United States Government Agency Issues
(Cost $9,968,238 ) 10,526,163
CASH EQUIVALENTS 12.4%*
COMMERCIAL PAPER 3.4%*
DISCOUNTED 3.2%*
23,800,000 Enserch, Inc., Due 1/03/95 23,800,000
5,000,000 Premark International, Inc., Due 1/03/95 5,000,000
------------
28,800,000
INTEREST BEARING, DUE UPON DEMAND 0.2%*
929,700 General Mills, Inc., 5.73% 929,700
184,300 Pitney Bowes Credit Corporation, 5.73% 184,300
771,200 Wisconsin Electric Power Company, 5.77% 771,200
------------
1,885,200
------------
Total Commercial Paper 30,685,200
CORPORATE OBLIGATIONS 8.9%*
1,000,000 American Medical International, Inc. Notes,
11.375%, Due 2/01/95 1,008,750
12,000,000 CEMEX I Security Repurchase Unit Trust
Eurobonds Representing CEMEX, S.A.
de C.V. Series B ADR, 6.25%, Due 10/25/95 11,760,000
1,000,000 CEMEX I Security Repurchase Unit Trust
Eurobonds Representing CEMEX, S.A.
de C.V. Series B ADR, 6.25%, Due 10/25/95
(Acquired 12/06/94; Cost $1,005,000)(r) 980,000
1,400,000 Green Tree Financial Corporation Senior
Subordinated Debentures, 8.25%,
Due 6/01/9 5 1,407,000
18,329,000 Interco, Incorporated Secured Notes, Series A,
10.00%, Due 6/01/01
(Called at 100 on 6/01/95) 18,466,468
6,000,000 Lehman Brothers Holdings, Inc. Medium
Term Notes, Series E (linked to Brazilian
National Treasury Note performance), 8.00%,
Due 7/14/95 6,004,560
10,800,000 Masco Industry, Inc. Senior Subordinated
Notes, 10.00%, Due 3/15/95 10,854,000
1,000,000 National Medical Enterprises, Inc. Notes,
12.125%, Due 4/01/95 1,009,690
11,500,000 Navistar Financial Corporation Medium
Term Notes, Tranche 23, 9.75%,
Due 8/15/95 11,565,435
7,000,000 Oryx Energy Company Medium Term Notes,
6.23%, Due 12/27/95 6,831,958
3,800,000 PLUS Capital Company, Limited Peso Linked
U.S. Dollar Secured Notes, 7.875%,
Due 1/15/95 3,800,000
8,000,000 South African Transet LINCs Series 1994-1
(A trust established by CS First Boston
Structured Products Corporation), 8.207%,
Due 10/02/95 (Acquired 10/18/94;
Cost $8,000,000)(r) 7,890,000
------------
81,577,861
UNITED STATES GOVERNMENT ISSUES 0.1%*
United States Treasury Bills:
360,000 Due 1/12/95 359,626
25,000 Due 2/02/95 24,891
110,000 Due 2/09/95 109,445
220,000 Due 2/23/95 218,295
------------
712,257
------------
Total Cash Equivalents (Cost $113,542,089) 112,975,318
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $925,842,232) 101.1%* 920,050,889
Other Assets and Liabilities, Net (1.1%*) (9,543,284)
------------
NET ASSETS 100.0%* $910,507,605
============
</TABLE>
- - - -------------------------------------------------------------------------------
STRONG SHORT-TERM BOND FUND
<TABLE>
<CAPTION>
Shares or Value
Principal Amount (Note 2)
- - - -------------------------------------------------------------------------------
<S> <C>
CORPORATE BONDS 43.1%*
$ 2,000,000 ARA Services, Inc. Guaranteed Notes,
10.625%, Due 8/01/00 $ 2,115,000
16,920,000 American Reinsurance Corporation Senior
Subordinated Debentures, 10.875%,
Due 9/15/04 17,998,650
8,000,000 Banco Nacional S.A. Notes, 10.75%,
Due 8/16/96 7,680,000
8,850,000 Bank of Boston Corporation Subordinated
Floating Rate Notes, 6.125%, Due 2/10/01 8,673,000
10,965,000 CCP Insurance, Inc. Senior Notes, 10.50%,
Due 12/15/04 10,915,438
6,500,000 Central Termica Guemes S.A. Obligations,
12.00%, Due 11/29/96 (Acquired 11/16/94;
Cost $6,500,000) (r ) 6,386,250
28,913,000 Citicorp Floating Rate Notes, 6.50%,
Due 5/01/04 28,970,768
17,000,000 Deere & Company Medium Term Notes,
8.38%, Due 5/12/97 16,727,150
17,150,000 Empresas ICA Floating Rate Notes, 10.25%,
Due 11/12/97 15,435,000
4,000,000 First Bank System, Inc. Floating Rate Notes,
6.125%, Due 11/29/96 3,996,000
4,000,000 First Bank System, Inc. Floating Rate
Subordinated Notes, 6.125%, Due 11/30/10
(Putable at 100 on 11/30/00) 3,996,000
17,000,000 General Motors Acceptance Corporation
Senior Notes, 8.75%, Due 7/15/05 17,397,800
1,000,000 Grupo Televisa S.A. de C.V. Notes, 10.00%,
Due 11/09/97 920,000
10,000,000 Health & Retirement Properties Trust Senior
Floating Rate Notes, Series B, 6.345%,
Due 7/13/99 9,913,150
3,000,000 Hertz Corporation Senior Notes, 9.00%,
Due 11/01/09 3,086,085
</TABLE>
See notes to financial statements.
21
<PAGE> 24
SCHEDULE OF INVESTMENTS IN SECURITIES (continued) December 31, 1994
- - - -------------------------------------------------------------------------------
STRONG SHORT-TERM BOND FUND (continued)
<TABLE>
<CAPTION>
Shares or Value
Principal Amount (Note 2)
- - - --------------------------------------------------------------------------------------------
<S> <C> <C>
$ 10,000,000 Hook-SupeRx, Inc. Senior Notes, 10.125%,
Due 6/01/02 $ 10,175,000
7,750,000 Indah Kiat International Finance Company
B. V. Guaranteed Secured Notes, 11.375%,
Due 6/15/99 7,633,750
1,500,000 Indah Kiat International Finance Company
B. V. Senior Secured Notes, 8.875%,
Due 11/01/00 1,290,000
12,490,000 Kansallis-Osake-Pankki Floating Rate Notes,
7.50%, Due 9/30/43 12,627,390
16,836,000 Kaufman & Broad Home Corporation Senior
Notes, 10.375%, Due 9/01/99 16,920,180
5,000,000 Marine Midland Banks, Inc. Floating Rate
Subordinated Notes, 6.50%, Due 12/20/00 4,893,750
4,400,000 Marine Midland Banks, Inc. Floating Rate
Subordinated Notes, 6.5625%,
Due 12/31/09 4,202,000
5,000,000 NBD Bancorp, Inc. Subordinated Floating
Rate Notes, 6.50%, Due 12/18/05 4,862,500
9,100,000 NWA Trust No. 2 Senior Aircraft Notes,
9.25%, Due 6/21/14 (Acquired 12/15/94;
Cost $9,100,000)(r) 9,111,375
30,000,000 News America Holdings Floating Rate Debt
Unit with Premium Call (Medium Term
Structured Enhanced Return Trusts 1994,
Series R-12), 7.375%, Due 3/11/98
(Acquired 7/26/94; Cost $30,000,000)(r) 30,069,000
13,050,000 News America Holdings, Inc. Senior Notes,
12.00%, Due 12/15/01 14,535,234
12,195,000 Owens-Illinois, Inc. Senior Debentures, 11.00%,
Due 12/01/03 12,682,800
23,600,000 Petroleos Mexicanos Guaranteed Floating
Rate Notes, 7.4375%, Due 3/08/99 21,712,000
10,750,000 Petroleos Mexicanos Medium Term Notes,
Tranche #1, 6.125%, Due 6/15/96 10,051,250
2,200,000 Public Service Company of New Hampshire
Debentures, 15.23%, Due 7/01/00 2,600,679
12,175,000 RJR Nabisco, Inc. Notes, 8.00%, Due 1/15/00 11,496,621
11,000,000 Revco D.S., Inc. Senior Notes, 9.125%,
Due 1/15/00 11,027,500
6,000,000 Riocell S.A. Bonds, 12.50%, Due 11/04/02
(Acquired 11/09/94; Cost $5,931,000)(r) 5,760,000
35,470,000 Time Warner, Inc. Discount Notes, Zero%,
Due 8/15/02 (Putable at 100 on 8/15/95;
Rate Reset Effective 8/01/95) 33,519,150
27,600,000 Tosco Corporation First Mortgage Bonds,
Series A, 9.00%, Due 3/15/97 27,910,500
10,000,000 Tosco Corporation Guaranteed First Mortgage
Bonds, 8.25%, Due 5/15/03 9,491,500
37,270,000 Viacom International, Inc. Exchangeable
Subordinated Debentures, 8.00%,
Due 7/07/06 32,005,612
------------
Total Corporate Bonds (Cost $459,941,461) 448,788,082
CONVERTIBLE BOND 1.7%*
58,000,000 Time Warner, Inc. Convertible Liquid Yield
Option Notes, Zero%, Due 12/17/12
(Cost $18,180,546) 17,762,500
NON-AGENCY MORTGAGE-BACKED SECURITIES 25.0%*
13,191,966 CWMBS, Inc. Mortgage Pass-Thru
Certificates, Series 1993-7, Class AS-4,
10.05%, Due 11/25/23 9,118,947
5,742,706 Chase Mortgage Finance Corporation
Mortgage Pass-Thru Certificates, Series
1990-G, Class A-Z1, 9.50%, Due 12/25/21 5,730,129
3,333,381 Citicorp Mortgage Securities, Inc. Real Estate
Mortgage Investment Conduit Pass-Thru
Certificates, Series 1988-3, Class A-2, 9.00%,
Due 4/01/18 3,296,448
1,558,252 Collateralized Mortgage Obligation Trust 47,
Class E, Principal Only, Due 9/01/18 400,767
2,824,956 Collateralized Mortgage Obligation Trust
Inverse Floating Rate Collateralized
Mortgage Obligation, Series 13, Class Q,
16.6278%, Due 1/20/03 2,884,986
87,249,464 First Boston Mortgage Securities Corporation
Mortgage Pass-Thru Certificates,
Series 1994-MHC1, Class A-1X, Interest
Only, 1.862%, Due 4/25/11 7,743,390
5,000,000 First Boston Mortgage Securities Corporation
Variable Rate Mortgage Pass-Thru
Certificates, Series 1994-MHC1, Class D,
7.325%, Due 4/25/11 4,975,000
41,600,000 First Boston Mortgage Security Corporation
Mortgage Pass-Thru Certificates, Series
1993-2, Class A-2, 7.50%, Due 3/25/33 39,624,000
5,500,000 First Boston Mortgage Security Corporation
Mortgage Pass-Thru Certificates, Series
1993-2, Class A-3, 7.50%, Due 3/25/33 4,998,125
7,900,516 GMBS, Inc. Countrywide Funding Certificates,
Series 1990-1, Class Z, 9.25%, Due 1/28/20 7,954,872
10,675,746 Goldman Sachs Trust 3 Collateralized
Mortgage Obligation, Series C, Class C-7,
8.00%, Due 12/07/17 9,845,813
12,826,934 Green Tree Financial Corporation Certificates,
Series 1994-BII, Class A-1, 7.85%,
Due 7/15/09 12,406,083
6,500,000 Green Tree Financial Corporation
Manufactured Senior Subordinated Pass-Thru
Certificates, Series 1994-6, Class M-1, 8.90%,
Due 1/15/20 6,359,860
8,347,163 Green Tree Securitized Net Interest Margin
Trust Certificates, Series 1994-A, 6.90%,
Due 2/15/04 7,953,260
4,495,689 Green Tree Securitized Net Interest Margin
Trust Certificates, Series 1994-B, 7.85%,
Due 7/15/04 4,377,677
15,656,871 Greenwich Capital Acceptance, Inc. Mortgage
Securities, Series 1993-P01, Class E, Principal
Only, Due 11/26/17 9,041,843
4,443,811 Greenwich Capital Acceptance, Inc.
Subordinated Mortgage Securities Trust
Pass-Thru Certificates, Series 1994-1,
Class A, 5.4211%, Due 2/28/19
(Acquired 4/12/94; Cost $4,343,825)(r) 4,043,868
10,000,000 Homart Pooled Asset Financial Trust Floating
Rate Collateral Trust Certificates, Class A-4,
8.125%, Due 12/29/01 (Acquired 12/21/93;
Cost $10,000,000)(r) 10,000,000
2,171,857 Home Equity Loan Real Estate Mortgage
Investment Conduit Trust, Closed-End
Asset-Backed Certificates, Series 1992-1,
Class B, 5.85%, Due 11/17/14 2,037,810
</TABLE>
See notes to financial statements.
22
<PAGE> 25
SCHEDULE OF INVESTMENTS IN SECURITIES (continued) December 31, 1994
- - - -------------------------------------------------------------------------------
STRONG SHORT-TERM BOND FUND (continued)
<TABLE>
<CAPTION>
Shares or Value
Principal Amount (Note 2)
- - - --------------------------------------------------------------------------------------------
<S> <C>
$ 19,489,383 ML TR X Collateralized Mortgage Obligation,
Class C, Principal Only, Due 7/25/17 $ 14,836,293
13,992,808 Merrill Lynch Home Equity Acceptance, Inc.
Subordinated Variable Rate Mortgage-Backed
Certificates, Series 1994-A, Class A-1, 6.4375%,
Due 8/17/23 13,223,203
189,051,331 Merrill Lynch Mortgage Investors, Inc.
Mortgage Pass-Thru Certificates, Series
1994-C1, Interest Only, 0.6440%, Due 11/25/20 4,253,655
11,059,000 Merrill Lynch Mortgage Investors, Inc. Senior
Subordinated Variable Rate Pass-Thru
Certificates, Series 1994-A, Class M, 6.375%,
Due 2/15/19 10,110,138
11,543,000 Merrill Lynch Mortgage Investors, Inc.
Senior Subordinated Variable Rate
Pass-Thru Certificates, Series 1994-H,
Class M, 6.375%, Due 6/15/19 10,466,038
5,247,393 Mortgage Obligation Structured Trust
Pass-Thru Certificates, Series 1993-1,
Class A-1, 6.35%, Due 10/25/18 5,094,904
30,800 Prudential Home Mortgage Securities
Company, Inc. Mortgage Pass-Thru
Certificates, Series 1992-43, Class A-2,
7.50%, Due 1/25/23 30,784
196,130,802 Prudential Home Mortgage Securities
Company, Inc. Variable Rate Mortgage
Pass-Thru Certificates, Series 1993-54,
Class A-38, Interest Only, 0.4042%,
Due 1/25/24 3,426,405
15,000,881 RTC Mortgage Pass-Thru Certificates, Series
1992-9, Class A-2B, 8.00%, Due 7/25/29 14,625,859
519,062 RTC Variable Rate Mortgage Pass-Thru
Certificates, Series 1992-6, Class A-2, 8.40%,
Due 7/25/24 509,978
1,947,800 Ryland Acceptance Corporation IV
Collateralized Mortgage Bonds, Series 53,
Class 53-E, 10.00%, Due 10/25/18 1,943,534
7,120,797 Ryland Mortgage Securities Corporation III
Variable Rate Collateralized Mortgage Bonds,
Series 1992-C, Class 3-A, 11.8046%,
Due 11/25/30 7,171,995
4,899,642 Ryland Mortgage Securities Corporation IV
Variable Rate Collateralized Mortgage Bonds,
Series 2, Class 3-A , 11.9712%, Due 6/25/23 5,035,901
2,872,550 Santa Barbara Savings & Loan Association
California Real Estate Mortgage Investment
Conduit Participation Certificates, Series
1988-A, Class 2, Principal Only, Due 9/01/18 1,928,199
7,525,157 Structured Asset Securities Corporation
Collateralized Mortgage Obligation, Series
1991-2, Class SC, 10.47%, Due 1/20/20 7,153,640
2,284,384 Structured Mortgage Asset Residential Trust
Multiclass Pass-Thru Certificates, Series
1992-5, Class BO, Principal Only,
Due 6/25/23 1,437,746
5,989,694 U-Haul Self-Storage Corporation Commercial
Mortgage Asset Trust Pass-Thru Certificates,
Series 1993-1, Class A1, 7.025%, Due 12/01/20
(Acquired 12/02/93; Cost $5,989,694)(r) 5,959,746
------------
Total Non-Agency Mortgage-Backed Securities
(Cost $280,763,715) 260,000,896
UNITED STATES GOVERNMENT AGENCY ISSUES 18.8%*
FHLMC Participation Certificates:
8,578,892 8.50%, Due 4/01/01 thru 5/01/16 8,420,424
2,082,243 8.75%, Due 10/01/01 2,076,581
1,159,445 9.50%, Due 3/01/11 1,185,895
6,980,096 9.75%, Due 8/01/02 7,115,991
726,630 11.25%, Due 11/01/09 777,451
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates:
4,915,498 6.50%, Due 9/01/08 4,663,578
2,519,160 9.00%, Due 6/01/24 2,541,203
42,016 FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates,
Series 1992-41, Class J, Accretion Directed
Interest Only, 1005.049%, Due 12/25/02 651,245
39,784,953 FNMA Guaranteed Real Estate Mortgage
Investment Conduit Variable Rate Pass-Thru
Certificates, 8.723%, Due 04/01/02 39,934,146
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Variable Rate
Pass-Thru Certificates:
3,211,018 Series 1992-187, Class SA, 8.40%, Due 10/25/07 2,340,030
7,106,558 Series 1992-G64, Class SE, 10.0637%, Due 3/25/22 3,686,527
4,703,600 Series 1993-081, Class S, 1.2216%, Due 6/25/00 3,398,351
1,958,834 Series 1993-93, Class S, 8.50%, Due 5/25/08 1,439,743
7,130,747 Series 1994-17, Class SA, 10.7673%, Due 1/25/09 5,187,618
FNMA Stripped Mortgage- Backed Securities:
9,064,831 Series 1988-27, Class 27-B, Principal Only, Due
11/25/18 5,869,478
199,294,241 Series 1993-M1, Class N, Interest Only, 0.84%,
Due 4/25/20 4,609,676
23,200,000 Series 1993-12, Class C, Principal Only, Due 2/25/23 11,841,512
9,889,995 Series 264, Class 1, Principal Only, Due 7/25/24 5,556,991
GNMA Guaranteed Pass-Thru Certificates:
3,466,116 9.75%, Due 9/15/05 thru 11/15/05 3,571,185
1,602,908 10.00%, Due 2/20/18 1,665,522
501,893 11.50%, Due 4/15/13 516,950
19,113,777 Riely FHA Insured Project Loan #123, 7.43%,
Due 8/15/18 18,086,412
2,983,970 Riely FHA Insured Project Loan #125, 7.125%,
Due 1/01/14 (Assigned to Housing and
Urban Development Committee due to
issuer default) 2,954,130
35,788,574 Riely FHA Insured Project Loan #125, 7.43%,
Due 1/01/14 33,954,410
30,316,319 Small Business Administration Guaranteed
Loan Group #0190, Variable Rate Interest
Only Certificates, 3.111%, Due 7/30/18 3,789,540
18,671,501 Small Business Administration Guaranteed
Loan Pool #440019, Interest Only Custodial
Receipts, Series 1993-1A, 2.531%, Due 2/15/18 2,176,350
</TABLE>
See notes to financial statements.
23
<PAGE> 26
SCHEDULE OF INVESTMENTS IN SECURITIES (continued) December 31, 1994
- - - -------------------------------------------------------------------------------
STRONG SHORT-TERM BOND FUND (continued)
<TABLE>
<CAPTION>
Shares or Value
Principal Amount (Note 2)
- - - --------------------------------------------------------------------------------------------
<S> <C>
$ 3,251,847 USGI FHA Insured Project Pool #846, 6.93%,
Due 10/01/13 3,158,357
14,984,839 USGI FHA Insured Project Pool #2047, 6.90%,
Due 8/01/14 14,666,411
--------------
Total United States Government Agency
Issues (Cost $216,556,454) 195,835,707
PREFERRED STOCK 2.2%*
115,000 Norwest Corporation Series A, Cumulative
Tracking Preferred Stock/ Residential
Home Mortgage L.L.C. (Acquired
12/16/94; Cost $23,000,000)(r) 23,000,000
WARRANTS 0.1%*
463,203 Host Marriott Corporation Warrants,
Expire 10/08/98 (Cost $1,215,908) 1,158,008
CASH EQUIVALENTS 7.8%*
CERTIFICATES OF DEPOSIT 0.5%*
$ 4,380,593 J.P. Morgan Philippine Peso Indexed
Certificate of Deposit, Due 1/06/95 4,818,871
COMMERCIAL PAPER 0.6%*
DISCOUNTED 0.1%*
1,400,000 Enserch, Inc., Due 1/03/95 1,400,000
INTEREST BEARING, DUE UPON DEMAND 0.5%*
624,300 Eli Lilly & Company, 5.55% 624,300
165,000 General Mills, Inc., 5.73% 165,000
322,200 Pitney Bowes Credit Corporation, 5.73% 322,200
1,625,900 Sara Lee Corporation, 5.71% 1,625,900
1,998,100 Southwestern Bell Telephone Company, 5.71% 1,998,100
--------------
4,735,500
--------------
Total Commercial Paper 6,135,500
CORPORATE OBLIGATIONS 3.6%*
14,500,000 CEMEX I Security Repurchase Unit Trust
Euro Bonds Representing CEMEX, S. A.
de C.V. Series B ADR, 6.25%, Due 10/25/95 14,210,000
9,000,000 Lehman Brothers Holdings, Inc. Medium-Term Notes,
Series E, 8.00%, Due 7/14/95 9,006,840
14,900,000 South African Transnet LINCs Series 1994-1
(A trust established by CS First Boston
Structured Products Corporation), 8.207%,
Due 10/02/95 (Acquired 10/18/94;
Cost $14,900,000)(r) 14,695,125
--------------
37,911,965
TIME DEPOSITS 0.9%*
Citibank Chilean Peso Indexed Time Deposits:
3,856,172 15.00%, Due 1/09/95 4,059,970
2,926,529 15.00%, Due 1/23/95 3,089,916
1,350,000 16.00%, Due 5/31/95 1,413,977
891,443 Citibank Time Deposit (with Philippine
Peso indexation and interest
based on the Philippine denominated
deposit), 11.90%, Due 1/18/95 963,418
--------------
9,527,281
FOREIGN GOVERNMENT ISSUES 2.1%*
89,772,320 Mexican Certificados de la Tesoreria de la
Federacion, Due 1/26/95** 17,944,021
4,000,000 Turkish Public Participation Administration
Certificates, 7.0625%, Due 4/19/95 3,940,000
--------------
21,884,021
UNITED STATES GOVERNMENT ISSUES 0.1%*
United States Treasury Bills:
340,000 Due 1/12/95 339,579
330,000 Due 2/09/95 328,267
60,000 Due 2/23/95 59,572
--------------
727,418
--------------
Total Cash Equivalents (Cost $80,615,264) 81,005,056
--------------
TOTAL INVESTMENTS IN SECURITIES
(COST $1,080,273,348) 98.7%* 1,027,550,249
Other Assets and Liabilites, Net 1.3%* 13,530,534
--------------
NET ASSETS 100.0%* $1,041,080,783
==============
</TABLE>
- - - -------------------------------------------------------------------------------
STRONG GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
Shares or Value
Principal Amount (Note 2)
- - - --------------------------------------------------------------------------------------------
<S> <C>
CORPORATE BONDS 9.5%*
$ 6,400,000 CCP Insurance, Inc. Senior Notes, 10.50%,
Due 12/15/04 $ 6,371,072
5,350,000 Citicorp Subordinated Notes, 6.75%,
Due 8/15/05 4,641,869
10,000,000 NWA Trust No. 2 Mezzanine Aircraft Notes,
Class B, 10.23%, Due 6/21/14 (Acquired 12/15/94;
Cost $10,000,000)(r) 10,037,500
5,000,000 Tosco Corporation First Mortgage Bonds,
Series B, 9.625%, Due 3/15/02 5,150,500
--------------
Total Corporate Bonds (Cost $26,207,832) 26,200,941
MUNICIPAL BONDS 4.7%*
1,500,000 Lucas County Ohio Hospital Revenue,
5.45%, Due 8/15/14 1,278,750
5,000,000 Phoenix, Arizona Civic Improvement
Corporation Wastewater System Lease
Revenue, 4.75%, Due 7/01/23 3,606,250
875,000 Piedmont Municipal Power Agency S.C.
Electric Revenue, 5.00%, Due 1/01/22 681,406
1,900,000 Pittsburg, California Redevelopment Agency
Tax Allocation Refunding --
Los Medanos Community Development
Project, 4.625%, Due 8/01/21 1,358,500
4,435,000 South Carolina Public Service Authority
Revenue Refunding, 5.00%, Due 1/01/25 3,359,513
3,490,000 Wisconsin Public Power, Inc. System Power
Supply Revenue, 5.25%, Due 7/01/21 12,783,275
--------------
Total Municipal Bonds (Cost $12,472,075) 13,067,694
UNITED STATES GOVERNMENT AND AGENCY ISSUES 71.0%*
FHLMC Guaranteed Multiclass Mortgage
Participation Certificates:
10,215,931 Series 1647, Class 1647-B, 6.50%,
Due 11/15/08 8,681,907
4,750,000 Series 1641, Class 1641-I, 6.50%,
Due 12/15/13 3,826,743
FHLMC Guaranteed Multiclass Variable
Rate Mortgage Participation Certificates:
3,076,669 Series 1324, Class 1324-B, 7.00%,
Due 4/15/18 3,028,827
5,333,353 Series 1502, Class 1502-SA, 6.213%,
Due 4/15/23 2,488,330
</TABLE>
See notes to financial statements.
24
<PAGE> 27
SCHEDULE OF INVESTMENTS IN SECURITIES (continued) December 31, 1994
- - - -------------------------------------------------------------------------------
STRONG GOVERNMENT SECURITIES FUND (continued)
<TABLE>
<CAPTION>
Shares or Value
Principal Amount (Note 2)
- - - --------------------------------------------------------------------------------------------
<S> <C> <C>
FHLMC Participation Certificates:
$ 3,477,358 7.25%, Due 7/01/08 $ 3,334,335
3,943,431 8.50%, Due 5/01/16 3,860,867
8,316,411 9.00%, Due 6/01/97 thru 8/01/11 8,352,764
3,922,670 9.75%, Due 8/01/02 3,999,040
782,260 10.00%, Due 6/01/20 800,839
256,005 11.00%, Due 1/01/01 264,581
238,361 11.25%, Due 1/01/01 246,682
243,090 11.75%, Due 10/01/15 263,676
99,212 12.00%, Due 11/01/15 108,018
789,131 12.25%, Due 7/01/15 thru 12/01/15 862,497
566,357 12.50%, Due 10/01/09 thru 01/01/15 622,969
110,118 13.00%, Due 7/01/14 121,302
629 13.25%, Due 1/01/13 694
145,316 13.75%, Due 5/01/02 thru 5/01/12 160,757
1,703,768 14.00%, Due 9/01/10 thru 4/01/16 1,887,456
63,686 14.50%, Due 12/01/02 thru 12/01/11 70,752
12,085 14.75%, Due 8/01/11 thru 4/01/13 13,445
79,693 15.00%, Due 8/01/11 88,784
7,427 16.00%, Due 6/01/12 8,289
2,604,696 FHLMC Guaranteed Multiclass Mortgage
Participation Certificates, Series 1679,
Class 1679-N, Principal Only, Due 2/15/09 976,761
------------
44,070,315
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates:
4,518,487 6.50%, Due 9/01/08 4,286,915
4,193,971 8.50%, Due 7/01/10 4,117,956
9,434,201 9.00%, Due 6/01/24 thru 12/01/24 9,501,126
299,681 11.75%, Due 12/01/10 327,683
5,478,978 12.00%, Due 1/1/16 thru 2/01/19 6,012,580
56,933 12.25%, Due 7/01/14 62,725
475,785 12.50%, Due 2/01/11 526,190
3,794 13.25%, Due 4/01/12 4,218
71,335 13.50%, Due 1/01/11 thru 1/01/12 79,450
11,752 13.75%, Due 10/01/10 13,165
168,180 14.00%, Due 1/01/12 thru 11/01/14 187,705
34,600 14.25%, Due 12/01/14 38,658
8,572 14.50%, Due 1/01/12 9,588
298,854 14.75%, Due 3/01/12 thru 11/01/10 334,600
19,177 15.00%, Due 10/01/12 21,494
25,236 15.50%, Due 10/01/12 28,344
9,876,708 FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates,
Series 1991-125, Class Z, 8.50%,
Due 9/25/21 9,465,343
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Variable Rate Pass-Thru
Certificates:
5,044,597 Series 1991-38, Class F, 8.325%,
Due 4/25/21 4,962,622
9,656,000 Series 1991-57, Class S, 7.230%,
Due 5/25/20 8,361,517
1,696,310 Series 1991-141, Class SC, 9.804%,
Due 10/25/21 1,702,671
1,688,315 Series 1993-G17, Class SC, 10.347%,
Due 4/25/23 1,300,002
FNMA Stripped Mortgage-Backed Securities:
5,591,437 Series 1992-74, Class IO, Interest Only, 8.50%,
Due 5/25/22 2,000,672
5,946,411 Series 1992-154, Class A, Principal Only,
Due 8/25/22 3,517,659
------------
56,862,883
$15,736,614 GMAC #12 FHA Project Loan, 7.43%,
Due 5/01/21 14,979,368
GNMA Guaranteed Pass-Thru Certificates:
1,324,429 13.00%, Due 11/15/10 thru 11/15/14 1,481,420
411,910 13.50%, Due 7/15/10 thru 10/15/12 460,070
407,486 14.00%, Due 6/15/11 thru 12/20/14 454,424
490,242 14.50%, Due 6/15/11 thru 11/15/12 551,511
213,505 15.00%, Due 1/15/12 thru 9/15/12 239,389
111,025 15.50%, Due 7/15/11 thru 9/15/11 122,544
65,854 16.00%, Due 4/15/12 72,769
11,000,000 GNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Securites,
Series 1994-5, Class J, 7.50%,
Due 7/16/24 9,088,750
GNMA Guaranteed Variable Rate Pass-Thru
Certificates:
8,525,000 6.50%, Due 11/01/24(w) 8,213,326
10,355,000 7.00%, Due 12/01/24(w) 10,131,747
------------
30,815,950
2,618,017 Riely FHA Insured Project Loan #5, 7.43%,
Due 10/01/22 2,456,040
25,007,878 Small Business Administration Guaranteed
Loan Pool #440019, Interest Only Custodial
Receipts, Series 1993-1A, 2.531%,
Due 2/15/18 2,914,918
United States Treasury Notes
33,535,000 6.375%, Due 8/15/02 30,726,444
1,200,000 7.875%, Due 11/15/04 1,203,750
5,287,255 USGI FHA Insured Project Pool #1988-6,
7.43%, Due 10/25/16 4,599,913
9,844,268 USGI FHA Insured Project Pool #2040,
3.025%, Due 11/01/06 7,807,784
------------
Total United States Government and Agency
Issues (Cost $204,039,963) 196,437,365
PREFERRED STOCK 3.6%*
50,000 Norwest Corporation Series A, Cumulative
Tracking Preferred Stock/Residential
Home Mortgage L.L.C. (Acquired
12/16/94; Cost $10,000,000)(r) 10,000,000
CASH EQUIVALENTS 15.4%*
COMMERCIAL PAPER 0.2%*
INTEREST BEARING, DUE UPON DEMAND
$ 255,600 Pitney Bowes Credit Corporation, 5.73% 255,600
291,600 Southwestern Bell Telephone Company, 5.71% 291,600
48,200 Wisconsin Electric Power Company, 5.77% 48,200
------------
595,400
REPURCHASE AGREEMENT 15.1%*
41,900,000 Goldman Sachs & Company (Collateralized
by $29,685,000 United States Treasury
Bonds, 13.75%, Due 8/15/04),
5.12%, Due 1/03/95++ 41,900,000
UNITED STATES GOVERNMENT ISSUES 0.1%*
400,000 United States Treasury Bills, Due 2/09/95 397,995
------------
Total Cash Equivalents (Cost $ 42,893,395) 42,893,395
------------
TOTAL INVESTMENTS IN SECURITIES
(COST $295,613,265) 104.2%* 288,599,395
Other Assets and Liabilities, Net (4.2%*) (11,767,425)
------------
NET ASSETS 100.0%* $276,831,970
============
</TABLE>
See notes to financial statements.
25
<PAGE> 28
SCHEDULE OF INVESTMENTS IN SECURITIES (continued) December 31, 1994
- - - -------------------------------------------------------------------------------
STRONG INCOME FUND
<TABLE>
<CAPTION>
Shares or Value
Principal Amount (Note 2)
- - - --------------------------------------------------------------------------------------------
<S> <C>
CORPORATE BONDS 80.7%*
$3,285,000 ARA Services, Inc. Guaranteed Notes,
10.625%, Due 8/01/00 $ 3,473,888
500,000 American Airlines, Inc. Secured Equipment
Certificates, Series B, 14.375%, Due 1/06/05 529,675
4,000,000 Auburn Hills Guaranteed Exchangeable
Adjustable Rate Certificates, 12.375%,
Due 5/01/20 5,297,040
3,000,000 CCP Insurance, Inc. Senior Notes, 10.50%,
Due 12/15/04 2,986,440
2,400,000 Caesars World, Inc. Senior Subordinated
Debentures, 8.875%, Due 8/15/02 2,358,000
2,500,000 Citicorp Subordinated Notes, 6.75%,
Due 8/15/05 2,169,097
1,000,000 Embassy Suites, Inc. Guaranteed Senior
Subordinated Notes, 8.75%, Due 3/15/00 940,000
3,000,000 Federal Express Corporation Pass-Thru
Certificates, Series 1993-C2, 7.96%,
Due 3/28/17 2,644,824
5,285,000 GNS Finance Corporation Senior
Subordinated Notes, Series B, 9.25%,
Due 3/15/03 5,100,025
3,870,000 Hayes Wheels International, Inc. Senior
Notes, 9.25%, Due 11/15/02 3,744,225
3,000,000 HealthTrust, Inc. The Hospital Company
Subordinated Notes, 10.75%, Due 5/01/02 3,187,500
2,100,000 Hook-SupeRx, Inc. Senior Notes, 10.125%,
Due 6/01/02 2,136,750
3,480,000 Joy Technologies, Inc. Senior Notes, 10.25%,
Due 9/01/03 3,654,000
5,250,000 Kaufman & Broad Home Corporation Senior
Notes, 10.375%, Due 9/01/99 5,276,250
3,500,000 NWA Trust No. 2 Subordinated Aircraft
Notes, Class D, 13.875%, Due 6/21/08
(Acquired 12/15/1994; Cost $3,500,000)(r) 3,513,125
6,600,000 News America Holdings, Inc. Senior
Debentures, 7.75%, Due 2/01/24 5,433,496
5,000,000 Owens-Illinois, Inc. Senior Debentures, 11.00%,
Due 12/01/03 5,200,000
5,000,000 RJR Nabisco, Inc. Guaranteed Senior Notes,
8.75%, Due 4/15/04 4,606,350
1,500,000 RJR Nabisco, Inc. Notes, 8.75%, Due 8/15/05 1,363,125
4,000,000 Republic of Poland Collateralized Discount
Bonds, 6.8125%, Due 10/27/24 2,880,000
3,700,000 Revco D.S., Inc. Senior Notes, 9.125%,
Due 1/15/00 3,709,250
1,000,000 Riocell S.A. Bonds, 12.50%, Due 11/04/02
(Acquired 11/09/94; Cost $988,500) (r) 960,000
5,000,000 Rogers Cablesystems, Ltd. Senior Secured
Second Priority Notes, 9.625%, Due 8/01/02 4,787,500
3,500,000 System Energy Resources, Inc. First Mortgage
Bonds, 11.375%, Due 9/01/16 3,728,714
6,000,000 Texas Gas Transmission Corporation Notes,
8.625%, Due 4/01/04 5,872,500
3,545,000 Time Warner Entertainment Company Senior
Debentures, 8.375%, Due 3/15/23 2,966,013
2,435,000 Tosco Corporation First Mortgage Bonds,
Series B, 9.625%, Due 3/15/02 2,508,293
2,650,000 USG Corporation Senior Notes, Series B, 9.25%,
Due 9/15/01 2,451,250
6,950,000 Viacom International, Inc. Exchangeable
Subordinated Debentures, 8.00%,
Due 7/07/06 5,968,313
-----------
Total Corporate Bonds (Cost $101,201,440) 99,445,643
NON-AGENCY MORTGAGE-BACKED SECURITIES 4.0%*
$ 8,974,231 First Boston Mortgage Securities Corporation
Mortgage Pass-Thru Certificates, Series
1994-MHC1, Class A-1X, Interest Only,
1.8621%, Due 4/25/11 796,463
897,140 Ryland Mortgage Securities Corporation III
Variable Rate Collateralized Mortgage
Bonds, Series 1992-C, Class 3-A, 11.805%,
Due 11/25/30 903,590
23,499 Ryland Mortgage Securities Corporation IV
Variable Rate Collateralized Mortgage
Bonds, Series 2, Class 2-X, 3,278.995%,
Due 6/25/23 1,038,509
4,884,866 Westam Mortgage Financial Corporation
Collateralized Mortgage Bonds, Series 10,
Class 10-D, Principal Only, Due 7/26/18 2,166,145
-----------
Total Non-Agency Mortgage-Backed Securities
(Cost $4,687,737) 4,904,707
MUNICIPAL BONDS 4.2%*
4,500,000 Iowa Finance Authority Hospital Facility
Revenue (Allen Memorial Hospital,
Series A, 5.60%, Due 2/15/20 3,813,750
1,800,000 University of Arizona Medical Center
Corporation Hospital Revenue, 5.00%,
Due 7/01/21 1,397,250
-----------
Total Municipal Bonds (Cost $4,980,422) 5,211,000
UNITED STATES GOVERNMENT AGENCY ISSUES 4.3%*
FHLMC Participation Certificates:
54,939 14.00%, Due 9/01/12 60,863
30,120 14.75%, Due 3/01/10 33,510
260,816 FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates,
13.50%, Due 4/01/11 290,484
1,500,000 FNMA Guaranteed Real Estate Mortgage
Investment Conduit Variable Rate Pass-Thru
Certificates, Series 1992-29, Class S, 19.1604%,
Due 4/25/16 1,488,750
138,547 FNMA Stripped Mortgage-Backed Securities,
Series K, Class K2, 256.00%, Due 11/25/08 1,170,722
168,097 GNMA Guaranteed Pass-Thru Certificates,
15.00%, Due 8/15/11 thru 10/15/12 190,370
18,676,997 Small Business Administration Guaranteed
Loan Pool #40013, Interest Only Strips,
2.419%, Due 9/30/17 2,124,508
-----------
Total United States Government Agency Issues
(Cost $5,082,033) 5,359,207
PREFERRED STOCK 1.6%*
10,000 Norwest Corporation Series A, Cumulative
Tracking Preferred Stock/Residential Home
Mortgage L.L.C. (Acquired 12/16/1994;
Cost $2,000,000)(r) 2,000,000
WARRANTS 0.2%*
121,528 Host Marriott Corporation Warrants,
Expire 10/08/98 (Cost $319,011) 303,820
</TABLE>
See notes to financial statements.
26
<PAGE> 29
SCHEDULE OF INVESTMENTS IN SECURITIES (continued) December 31, 1994
- - - -------------------------------------------------------------------------------
STRONG INCOME FUND (continued)
<TABLE>
<CAPTION>
Shares or Value
Principal Amount (Note 2)
- - - --------------------------------------------------------------------------------------------
<S> <C>
CASH EQUIVALENTS 3.3%*
COMMERCIAL PAPER 2.4%*
DISCOUNTED 1.9%*
$2,400,000 Enserch, Inc., Due 1/03/95 $ 2,400,000
INTEREST BEARING, DUE UPON DEMAND 0.5%*
20,200 General Mills, Inc., 5.73% 20,200
88,300 Pitney Bowes Credit Corporation, 5.73% 88,300
371,500 Sara Lee Corporation, 5.71% 371,500
94,600 Southwestern Bell Telephone Company, 5.71% 94,600
4,000 Wisconsin Electric Power Company, 5.77% 4,000
------------
578,600
------------
Total Commercial Paper 2,978,600
FOREIGN GOVERNMENT ISSUES 0.6%*
700,000 Turkish Public Participation Administration
Certificates, 7.0625%, Due 4/19/95 689,500
UNITED STATES GOVERNMENT ISSUES 0.3%*
United States Treasury Bills:
75,000 Due 2/02/95 74,668
150,000 Due 2/09/95 149,186
90,000 Due 2/23/95 89,312
25,000 Due 3/02/95 24,783
------------
337,949
------------
Total Cash Equivalents (Cost $4,008,817) 4,006,049
------------
TOTAL INVESTMENTS IN SECURITIES
(COST $122,279,460) 98.3%* 121,230,426
Other Assets and Liabilities, Net 1.7%* 2,074,740
------------
NET ASSETS 100.0%* $123,305,166
============
</TABLE>
* Percentages are calculated as a percentage of net assets.
** Principal is denominated in foreign currency.
*** Maturity date represents actual maturity, earliest put date, or for U.S.
Government Agency Securities, the next interest adjustment date.
+ The Funds may engage in repurchase agreements where the underlying
collateral consists of U.S. government securities which are maintained in a
segregated account with a custodian. The market value of the collateral must
exceed the principal amount of the repurchase agreement by at least two
percent on a daily basis.
(a) Cost for Federal income tax and financial reporting purposes is the same as
amortized cost.
(r) Restricted security.
(w) When-Issued security.
See notes to financial statements.
27
<PAGE> 30
STATEMENTS OF OPERATIONS
- - - --------------------------------------------------------------------------------
For the Year Ended December 31, 1994
<TABLE>
<CAPTION>
(In Thousands)
Strong U.S. Treasury Strong Money
Money Fund Market Fund
-------------------- ------------
<S> <C> <C>
INTEREST INCOME $ 2,817 $ 20,261
EXPENSES:
Investment Advisory Fees 277 2,160
Custodian Fees 9 45
Shareholder Servicing Costs 91 1,155
Reports to Shareholders 51 508
Federal and State Registration Fees 49 69
Other 53 45
------- ---------
Total Expenses before Waivers and Absorptions 530 3,982
Voluntary Expense Waivers and Absorptions by Advisor (364) (1,202)
------- ---------
Expenses, Net 166 2,780
------- ---------
NET INVESTMENT INCOME $ 2,651 $ 17,481
======= =========
</TABLE>
<TABLE>
<CAPTION>
Strong
Strong Short-Term
Advantage Fund Bond Fund
-------------- ----------
<S> <C> <C>
INCOME:
Interest $42,562 $103,132
Dividends 116 438
------- --------
Total Income 42,678 103,570
EXPENSES:
Investment Advisory Fees 4,010 8,753
Custodian Fees 82 187
Shareholder Servicing Costs 899 2,551
Reports to Shareholders 264 768
Federal and State Registration Fees 115 313
Other 73 147
------- --------
Total Expenses 5,443 12,719
------- --------
NET INVESTMENT INCOME 37,235 90,851
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments (4,696) (72,080)
Futures Contracts and Options 4,601 28,878
Foreign Currencies (2,649) (7,594)
Change in Unrealized Appreciation/Depreciation
on Investments (10,098) (66,022)
------- --------
NET LOSS (12,842) (116,818)
------- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $24,393 ($ 25,967)
======= ========
</TABLE>
See notes to financial statements.
28
<PAGE> 31
STATEMENTS OF OPERATIONS
- - - --------------------------------------------------------------------------------
For the Year Ended December 31, 1994
<TABLE>
<CAPTION>
(In Thousands)
Strong Government Strong
Securities Fund Income Fund
----------------- -----------
<S> <C> <C>
INCOME:
Interest $ 18,257 $ 10,786
Dividends -- 15
-------- --------
Total Income 18,257 10,801
EXPENSES:
Investment Advisory Fees 1,546 778
Custodian Fees 54 34
Shareholder Servicing Costs 526 390
Reports to Shareholders 120 117
Federal and State Registration Fees 106 47
Other 46 34
-------- --------
Total Expenses before Waivers and Absorptions 2,398 1,400
Voluntary Expense Waivers and Absorptions by Advisor (150) --
-------- --------
Expenses, Net 2,248 1,400
-------- --------
NET INVESTMENT INCOME 16,009 9,401
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments (17,351) (6,361)
Futures Contracts and Options 430 (932)
Foreign Currencies -- 85
Change in Unrealized Appreciation/Depreciation on Investments (8,007) (4,027)
-------- --------
NET LOSS (24,928) (11,235)
-------- --------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ($ 8,919) ($ 1,834)
======== ========
</TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
- - - --------------------------------------------------------------------------------
December 31, 1994
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Amounts)
Strong Strong
U.S. Treasury Money Market
Money Fund Fund
------------- ------------
<S> <C> <C>
ASSETS:
Investments in Securities, at Amortized Cost $ 67,813 $ 545,608
Interest Receivable -- 3,066
Other 40 108
----------- -----------
Total Assets 67,853 548,782
LIABILITIES:
Payable to Brokers for Securities Purchased -- 5,074
Dividends Payable 279 2,572
Accrued Operating Expenses and Other Liabilities 47 153
----------- -----------
Total Liabilities 326 7,799
----------- -----------
NET ASSETS $ 67,527 $ 540,983
=========== ===========
Capital Shares
Authorized 10,000,000 10,000,000
Outstanding 67,527 540,983
NET ASSET VALUE PER SHARE $ 1.00 $ 1.00
=========== ===========
</TABLE>
See notes to financial statements.
29
<PAGE> 32
STATEMENTS OF ASSETS AND LIABILITIES
- - - --------------------------------------------------------------------------------
December 31, 1994
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Amounts)
Strong Strong Short-Term
Advantage Fund Bond Fund
-------------- -----------------
<S> <C> <C>
ASSETS:
Investments in Securities, at Value (Cost of $925,842 and $1,080,273, respectively) $ 920,051 $1,027,550
Receivable from Brokers for Securities Sold 1,186 7,343
Dividends and Interest Receivable 10,575 13,842
Other 39 68
---------- ----------
Total Assets 931,851 1,048,803
LIABILITIES:
Payable to Brokers for Securities Purchased 15,682 --
Dividends Payable 5,076 6,889
Accrued Operating Expenses and Other Liabilities 585 833
---------- ----------
Total Liabilities 21,343 7,722
---------- ----------
NET ASSETS $ 910,508 $1,041,081
========== ==========
Capital Shares
Authorized 1,000,000 1,000,000
Outstanding 91,195 110,559
NET ASSET VALUE PER SHARE $ 9.98 $ 9.42
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Strong Government Strong
Securities Fund Income Fund
----------------- -----------
<S> <C> <C>
ASSETS:
Investments in Securities, at Value (Cost of $295,613 and $122,279, respectively) $ 288,599 $ 121,230
Receivable from Brokers for Securities Sold 26,966 1
Dividends and Interest Receivable 3,185 3,165
Other 19 2
========= =========
Total Assets 318,769 124,398
LIABILITIES:
Payable to Brokers for Securities Purchased 40,145 --
Dividends Payable 1,599 981
Accrued Operating Expenses and Other Liabilities 193 112
--------- ---------
Total Liabilities 41,937 1,093
--------- ---------
NET ASSETS $ 276,832 $ 123,305
========= =========
Capital Shares
Authorized 100,000 300,000
Outstanding 28,758 13,180
NET ASSET VALUE PER SHARE $ 9.63 $ 9.36
========= =========
</TABLE>
See notes to financial statements.
30
<PAGE> 33
STATEMENTS OF CHANGES IN NET ASSETS
- - - --------------------------------------------------------------------------------
For the Years Ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
(In Thousands)
Strong U.S. Treasury Strong
Money Fund Money Market Fund
-------------------- ---------------------
1994 1993 1994 1993
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
OPERATIONS:
Net Investment Income $ 2,651 $ 807 $ 17,481 $ 10,204
CAPITAL SHARE TRANSACTIONS 25,676 12,461 210,995 (60,015)
DISTRIBUTIONS:
From Net Investment Income (2,651) (807) (17,481) (10,204)
-------- ------- --------- ---------
TOTAL INCREASE (DECREASE) IN NET ASSETS 25,676 12,461 210,995 (60,015)
NET ASSETS:
Beginning of Year 41,851 29,390 329,988 390,003
-------- -------- --------- ---------
End of Year $ 67,527 $ 41,851 $ 540,983 $ 329,988
======== ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Strong Strong Short-Term
Advantage Fund Bond Fund
-------------------- -----------------------
1994 1993 1994 1993
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net Investment Income $ 37,235 $ 18,946 $ 90,851 $ 69,400
Net Realized Gain (Loss) (2,744) 1,561 (50,796) 2,677
Change in Unrealized Appreciation/Depreciation (10,098) 3,767 (66,022) 18,244
-------- -------- ---------- ----------
Increase (Decrease) in Net Assets Resulting from Operations 24,393 24,274 (25,967) 90,321
CAPITAL SHARE TRANSACTIONS 508,148 137,789 (373,029) 755,771
DISTRIBUTIONS:
From Net Investment Income (36,644) (18,946) (90,851) (69,400)
In Excess of Net Investment Income -- -- (699) (1,932)
In Excess of Net Realized Gains (854) -- -- --
-------- -------- ---------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 495,043 143,117 (490,546) 774,760
NET ASSETS:
Beginning of Year 415,465 272,348 1,531,627 756,867
-------- -------- ---------- ----------
End of Year $910,508 $415,465 $1,041,081 $1,531,627
======== ======== ========== ==========
</TABLE>
See notes to financial statements.
31
<PAGE> 34
STATEMENTS OF CHANGES IN NET ASSETS
- - - --------------------------------------------------------------------------------
For the Years Ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
(In Thousands)
Strong Government Strong
Securities Fund Income Fund
---------------------- --------------------
1994 1993 1994 1993
-------- --------- --------- --------
<S> <C> <C> <C> <C>
OPERATIONS:
Net Investment Income $ 16,009 $ 9,158 $ 9,401 $ 8,077
Net Realized Gain (Loss) (16,921) 5,975 (7,208) 7,797
Change in Unrealized Appreciation/Depreciation (8,007) (4) (4,027) 1,810
-------- -------- -------- --------
Increase (Decrease) in Net Assets Resulting from Operations (8,919) 15,129 (1,834) 17,684
CAPITAL SHARE TRANSACTIONS 79,799 141,708 11,225 11,010
DISTRIBUTIONS:
From Net Investment Income (16,009) (9,158) (9,401) (8,077)
In Excess of Net Investment Income -- -- (85) --
From Net Realized Gains -- (6,111) -- --
In Excess of Net Realized Gains -- (1,776) -- --
-------- ------- ------- -------
TOTAL INCREASE (DECREASE) IN NET ASSETS 54,871 139,792 (95) 20,617
NET ASSETS:
Beginning of Year 221,961 82,169 123,400 102,783
-------- -------- -------- --------
End of Year $276,832 $221,961 $123,305 $123,400
======== ======== ======== ========
</TABLE>
See notes to financial statements.
32
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
December 31, 1994
1. ORGANIZATION
The Strong Income Funds consist of Strong U.S. Treasury Money Fund, Inc.,
Strong Money Market Fund, Inc., Strong Advantage Fund, Inc., Strong
Short-Term Bond Fund, Inc., Strong Government Securities Fund, Inc. and
Strong Income Fund, Inc. The Funds are separately incorporated, diversified,
open-end management investment companies registered with the Securities and
Exchange Commission under the Investment Company Act of 1940.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements.
(A) Security Valuation--Debt securities are valued on the basis of
valuations furnished by a pricing service that utilizes electronic data
processing techniques to determine valuations for normal
institutional-size trading units of debt securities without regard to
sale or bid prices when such valuations are believed to more accurately
reflect the fair value of such securities. Otherwise, sale or bid
prices are used. Securities for which quotations are not readily
available are valued at fair value as determined in good faith under
consistently applied procedures established by and under the general
supervision of the Directors of the Funds. Debt securities which are
purchased within 60 days of their stated maturity are valued at
amortized cost, which approximates current value.
Investments in Strong U.S. Treasury Money Fund and Strong Money Market
Fund are valued using the amortized cost method (which approximates
current value), whereby investments purchased at a discount or premium
are valued by amortizing the difference between the original purchase
price and maturity value of the issue over the period to maturity.
The Funds own certain investment securities which are restricted as to
resale. These securities are valued by the Funds after giving due
consideration to pertinent factors including recent private sales,
market conditions, and the issuer's financial performance. Where future
disposition of these securities requires registration under the
Securities Act of 1933, the Funds have the right to include their
securities in such registration, generally without cost to the Funds.
Aggregate cost and fair value of these restricted securities held at
December 31, 1994 were as follows:
<TABLE>
<CAPTION>
Strong Money Strong Strong Short-Term Strong Government Strong
Market Fund Advantage Fund Bond Fund Securities Fund Income Fund
------------ -------------- ----------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
Aggregate Cost $10,000,000 $76,136,760 $109,764,519 $20,000,000 $6,488,500
Aggregate Fair Value 10,000,000 75,554,464 109,025,364 20,037,500 6,473,125
Percent of Net Assets 1.8% 8.3% 10.5% 7.2% 5.2%
</TABLE>
(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.
(C) Realized Gains and Losses On Investment Transactions--The Funds
determine the gain or loss realized on investment transactions by
comparing the identified cost of the security lot sold with the net
sales proceeds.
(D) Futures--The Funds, except for Strong U.S. Treasury Money Fund and
Strong Money Market Fund, may enter into futures contracts for
traditional hedging purposes. Upon entering into a futures contract,
the Funds pledge to the broker cash or U.S. Government securities
equal to the minimum "initial margin" requirements of the exchange.
Additionally, the Funds receive from or pay to the broker an amount of
cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as "variation margin," and are recorded
by the Funds as unrealized gains or losses. When the futures contract
is closed, the Funds record a realized gain or loss equal to the
difference between the value of the contract at the time it was opened
and the value at the time it was closed.
The use of futures contracts involves, to varying degrees, elements of
market risk in excess of the amount recognized in the statement of
assets and liabilities. The predominant risk is that the movement in
the price of the futures contract may not correlate perfectly with the
movement in the prices of the assets being hedged. A lack of
correlation could render the portfolio's hedging strategy unsuccessful
and could result in a loss to the portfolio.
Futures contracts open at December 31, 1994 were as follows:
<TABLE>
<CAPTION>
Contract Value
Fund Collateral (Par Value) Contracts (In Thousands)
---- ---------------------- --------- --------------
<S> <C> <C> <C>
Advantage U.S. Treasury Bills: 226 Two-Year U.S. Treasury Notes (Short) ($45,190)
$ 260,000 Due 1/12/95 194 Five-Year U.S. Treasury Notes (Short) ($19,418)
25,000 Due 2/02/95 112 Ten-Year U.S. Treasury Notes (Short) ($11,193)
110,000 Due 2/09/95
220,000 Due 2/23/95
Short-Term Bond 726,630 FHLMC
Due 11/01/09 350 Two-Year U.S. Treasury Notes (Short) (69,984)
357,211 GNMA Due 9/15/05 640 Ten-Year U.S. Treasury Notes (Short) (63,960)
U.S. Treasury Bills:
340,000 Due 1/12/95
330,000 Due 2/09/95
60,000 Due 2/23/95
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Appreciation
(Depreciation)
Fund Expiration (In Thousands)
---- ---------- --------------
<S> <C> <C>
Advantage March 1995 $ 206
March 1995 50
March 1995 (125)
Short-Term Bond
March 1995 307
March 1995 (439)
</TABLE>
33
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS (continued)
- - - --------------------------------------------------------------------------------
December 31, 1994
(D) Futures (continued)
<TABLE>
<CAPTION>
Contract Value
Fund Collateral (Par Value) Contracts (In Thousands)
---- ---------------------- --------- --------------
<S> <C> <C> <C>
Income $260,816 FNMA Due 4/01/11 49 Ten-Year U.S. Treasury Notes (Short) ($4,897)
U.S. Treasury Bills: 65 U.S. Treasury Bonds (Long) 6,445
75,000 Due 2/02/95
150,000 Due 2/09/95
90,000 Due 2/23/95
25,000 Due 3/02/95
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Appreciation
(Depreciation)
Fund Expiration (In Thousands)
---- ---------- --------------
<S> <C> <C>
Income March 1995 ($12)
March 1995 (19)
</TABLE>
(E) Options--The Funds, except for Strong U.S. Treasury Money Fund and
Strong Money Market Fund, may engage in options transactions to hedge
against expected declines of their portfolio securities. Premiums
received by the Funds upon writing covered call options are recorded in
each Fund's statement of assets and liabilities 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, each Fund realizes a gain or loss, and the liability is
eliminated. Each Fund continues to bear the risk of a decline in the
price of the underlying security during the period in which a written
covered call option is outstanding, although any potential loss during
the period would be reduced by the amount of the option premium
received.
The Funds, except for Strong U.S. Treasury Money Fund and Strong Money
Market Fund, may also purchase put options on futures contracts, write
call options on futures contracts, and enter into related closing
transactions for hedging purposes. These options generally are similar
to an option covering a specific security, except that delivery of cash
rather than the underlying security is made.
The use of written option contracts involves elements of market risk in
excess of the amount recognized in the statement of assets and
liabilities. The contract value represents a Fund's involvement in
these financial instruments. When required, a Fund will set aside
permissible liquid assets in a segregated account to secure its
potential obligations under its options positions.
(F) Foreign Currency Translation--Investment securities and other assets
and liabilities denominated in foreign currencies are converted to U.S.
dollars based upon current exchange rates. Purchases and sales of
foreign investment securities and income are converted to U.S. dollars
based upon currency exchange rates prevailing on the respective dates
of such transactions. The effect of changes in foreign exchange rates
on realized and unrealized security gains or losses is reflected as a
component of such gains or losses.
(G) When-Issued Securities--The Funds, except for Strong U.S. Treasury
Money Fund, may purchase securities on a when-issued or delayed
delivery basis. Although the payment and interest terms of these
securities are established at the time the purchaser enters into the
agreement, these securities may be delivered and paid for at a future
date, generally within 45 days. The Funds record purchases of
when-issued securities and reflect the values of such securities in
determining net asset value in the same manner as other portfolio
securities. The Funds segregate and maintain at all times cash, cash
equivalents, or other high-quality liquid debt securities in an amount
at least equal to the amount of outstanding commitments for when-issued
securities.
(H) Average Years to Maturity--A Fund's average portfolio maturity is
generally based on the actual stated maturity of a security. However,
the maturity date of a variable rate security is the next interest
rate adjustment date and for a debt security with a put or demand
feature, the next put or demand exercise date is considered its
maturity. The maturity of a mortgage-backed security is determined on
an "expected life" basis. Notwithstanding the foregoing, the use of
futures contracts and options for hedging purposes may impact the
effective maturity of a portfolio security and accordingly, the
calculated average years to maturity of the Fund portfolio. An average
effective maturity is also calculated for the Strong Advantage Fund.
For purposes of this calculation, the call date of a security subject
to redemption and reasonably expected to be called is used in
determining the effective maturity of the Fund portfolio.
(I) Other--Portfolio transactions are recorded on the trade date. Dividend
income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
3. NET ASSETS
Net assets as of December 31, 1994 were as follows (in thousands):
<TABLE>
<CAPTION>
Strong U.S. Treasury Strong Money
Money Fund Market Fund
-------------------- ------------
<S> <C> <C>
Capital Stock and Total Net Assets $ 67,527 $ 540,983
======== ==========
<CAPTION>
Strong Strong Short-Term Strong Government Strong
Advantage Fund Bond Fund Securities Fund Income Fund
-------------- ----------------- ----------------- -----------
<S> <C> <C> <C> <C>
Capital Stock $918,469 $1,150,739 $302,543 $182,257
Undistributed Net Realized Loss (2,301) (56,803) (18,697) (57,872)
Net Unrealized Depreciation (5,660) (52,855) (7,014) (1,080)
-------- ---------- -------- --------
Net Assets $910,508 $1,041,081 $276,832 $123,305
======== ========== ======== ========
</TABLE>
34
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS (continued)
- - - --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Funds during 1994 and 1993 were as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993
-------------------------- -------------------------
Shares Dollars Shares Dollars
--------- ----------- -------- ----------
<S> <C> <C> <C> <C>
STRONG U.S. TREASURY MONEY FUND
Shares Sold 165,274 $ 165,274 61,265 $ 61,265
Shares Issued in Reinvestment of Dividends 2,002 2,002 682 682
Shares Redeemed (141,600) (141,600) (49,486) (49,486)
--------- ----------- -------- ----------
Net Increase 25,676 $ 25,676 12,461 $ 12,461
========= =========== ======== ==========
STRONG MONEY MARKET FUND
Shares Sold 1,084,908 $ 1,084,908 774,248 $ 774,248
Shares Issued in Reinvestment of Dividends 14,688 14,688 9,118 9,118
Shares Redeemed (888,601) (888,601) (843,381) (843,381)
--------- ----------- -------- ----------
Net Increase (Decrease) 210,995 $ 210,995 (60,015) ($ 60,015)
========= =========== ======== ==========
STRONG ADVANTAGE FUND
Shares Sold 112,510 $ 1,132,912 35,383 $ 358,430
Shares Issued in Reinvestment of Dividends 3,025 30,452 1,630 16,484
Shares Redeemed (65,131) (655,216) (23,422) (237,125)
--------- ----------- -------- ----------
Net Increase 50,404 $ 508,148 13,591 $ 137,789
========= =========== ======== ==========
STRONG SHORT-TERM BOND FUND
Shares Sold 85,039 $ 852,010 128,697 $1,313,661
Shares Issued in Reinvestment of Dividends 7,807 77,038 5,368 54,698
Shares Redeemed (132,054) (1,302,077) (60,062) (612,588)
--------- ----------- -------- ----------
Net Increase (Decrease) (39,208) ($ 373,029) 74,003 $ 755,771
========= =========== ======== ==========
STRONG GOVERNMENT SECURITIES FUND
Shares Sold 22,577 $ 227,816 18,072 $ 197,199
Shares Issued in Reinvestment of Dividends 1,285 12,889 1,263 13,573
Shares Redeemed (16,028) (160,906) (6,319) (69,064)
--------- ----------- -------- ----------
Net Increase 7,834 $ 79,799 13,016 $ 141,708
========= =========== ======== ==========
STRONG INCOME FUND
Shares Sold 6,978 $ 67,971 5,081 $ 50,611
Shares Issued in Reinvestment of Dividends 727 7,032 604 5,984
Shares Redeemed (6,570) (63,778) (4,569) (45,585)
--------- ----------- -------- ----------
Net Increase 1,135 $ 11,225 1,116 $ 11,010
========= =========== ======== ==========
</TABLE>
5. RELATED PARTY TRANSACTIONS
Strong Capital Management, Inc. (the "Advisor"), with whom certain officers
and a director 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 annualized rates of .40% of the average daily net
assets of Strong U.S. Treasury Money Fund, .50% of the average daily net
assets of Strong Money Market Fund, .60% of the average daily net assets of
Strong Advantage Fund and Strong Government Securities Fund, and .625% of
the average daily net assets of Strong Short-Term Bond Fund and Strong
Income Fund. 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 these transactions, excluding the effects of
waivers and reimbursements, for the year ended December 31, 1994 is as
follows (in thousands):
<TABLE>
<CAPTION>
Strong U.S. Treasury Strong Strong
Money Fund Money Market Fund Advantage Fund
-------------------- ----------------- --------------
<S> <C> <C> <C>
Payable to Advisor at December 31, 1994 $ 25 $ 46 $502
Other Shareholder Servicing Expenses Paid to Advisor 3 31 22
Unaffiliated Directors' Fees 1 5 6
<CAPTION>
Strong Short-Term Strong Government Strong
Bond Fund Securities Fund Income Fund
----------------- ----------------- -----------
<S> <C> <C> <C>
Payable to Advisor at December 31, 1994 $634 $144 $ 73
Other Shareholder Servicing Expenses Paid to Advisor 58 10 9
Unaffiliated Directors' Fees 19 4 3
</TABLE>
35
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS (continued)
- - - --------------------------------------------------------------------------------
December 31, 1994
5. RELATED PARTY TRANSACTIONS (continued)
During 1994, the Advisor settled an SEC administrative action involving
security transactions between mutual funds managed by the Advisor. The SEC'
order alleged that certain transactions involved did not fully comply with
Rule 17a-7 under the Investment Company Act of 1940 that sets forth a number
of detailed requirements for cross trades. As part of the settlement, the
Advisor reimbursed Strong Advantage Fund $46,230 for pricing errors in
effecting certain of these trades between 1987 and early 1990.
6. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities during 1994 were
as follows (in thousands):
<TABLE>
<CAPTION>
Strong Strong Short-Term
Advantage Fund Bond Fund
-------------- -----------------
<S> <C> <C>
Purchases:
U.S. Government and Agency $ 113,158 $ 930,698
Other 1,645,461 2,324,563
Sales:
U.S. Government and Agency 140,055 1,001,898
Other 1,150,899 2,683,212
<CAPTION>
Strong Government Strong
Securities Fund Income Fund
----------------- -----------
<S> <C> <C>
Purchases:
U.S. Government and Agency $811,162 $191,136
Other 371,704 538,493
Sales:
U.S. Government and Agency 747,255 194,096
Other 378,743 525,070
</TABLE>
7. INCOME TAX INFORMATION
At December 31, 1994, the investment cost, gross unrealized appreciation and
depreciation on investments and capital loss carryovers (expiring in varying
amounts through 2002) for Federal income tax purposes were as follows (in
thousands):
<TABLE>
<CAPTION>
Strong Strong Short-Term
Advantage Fund Bond Fund
-------------- -----------------
<S> <C> <C>
Aggregate Investment Cost $925,913 $1,085,998
Aggregate Unrealized:
Appreciation $ 2,228 $ 2,312
Depreciation (8,090) (60,760)
-------- ----------
($ 5,862) ($ 58,448)
======== ==========
Capital Loss Carryovers $ 2,099 $ 51,213
======== ==========
<CAPTION>
Strong Government Strong
Securities Fund Income Fund
----------------- -----------
<S> <C> <C>
Aggregate Investment Cost $297,983 $122,395
Aggregate Unrealized:
Appreciation $ 1,309 $ 1,832
Depreciation (10,693) (2,997)
-------- --------
($ 9,384) ($ 1,165)
======== ========
Capital Loss Carryovers $ 16,327 $ 57,791
======== ========
</TABLE>
8. FOREIGN INVESTMENTS
Investments in foreign markets can pose more risks than U.S. investments,
and, to the extent that each Fund invests in foreign securities, each Fund's
share price is expected to be more volatile than that of a U.S.-only fund.
The value of each Fund's foreign securities will fluctuate with changes in
market conditions, currency values, interest rates, foreign government
regulations, and economic and political conditions in countries in which
each Fund invests. These risks are generally intensified for investments in
emerging markets.
36
<PAGE> 39
FINANCIAL HIGHLIGHTS
- - - --------------------------------------------------------------------------------
The following presents information relating to a share of capital stock of each
of the Funds, outstanding for the entire period.
STRONG U.S. TREASURY MONEY FUND
<TABLE>
<CAPTION>
1994 1993 1992 1991
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income 0.04 0.03 0.04 0.06
Dividends From Net Investment Income (0.04) (0.03) (0.04) (0.06)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Return +3.8% +2.9% +3.7% +5.8%
Net Assets, End of Period (In Thousands) $ 67,527 $ 41,851 $ 29,390 $ 20,431
Ratio of Expenses to Average Net Assets 0.2% 0.2% 0.3% 0.3%
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 0.8% 1.0% 0.9% 1.0%
Ratio of Net Investment Income to Average Net Assets 3.8% 2.9% 3.6% 5.4%
</TABLE>
STRONG MONEY MARKET FUND
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Net Investment Income 0.04 0.03 0.03 0.06 0.08 0.09
Dividends From Net Investment Income (0.04) (0.03) (0.03) (0.06) (0.08) (0.09)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total Return +4.0% +2.9% +3.7% +6.1% +8.1% +9.2%
Net Assets, End of Period (In Thousands) $540,983 $329,988 $390,003 $533,869 $768,870 $829,332
Ratio of Expenses to Average Net Assets 0.6% 0.7% 0.8% 0.7% 0.7% 0.7%
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 0.9% 1.0% 1.1% 1.0% 0.9% 1.0%
Ratio of Net Investment Income to Average Net Assets 4.0% 2.9% 3.7% 6.0% 7.8% 8.8%
</TABLE>
<TABLE>
<CAPTION>
1988 1987 1986 1985**
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income 0.07 0.06 0.06 0.02
Dividends From Net Investment Income (0.07) (0.06) (0.06) (0.02)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Return +7.5% +6.4% +6.5% +1.5%
Net Assets, End of Period (In Thousands) $464,459 $194,963 $ 26,363 $ 944
Ratio of Expenses to Average Net Assets 1.1% 0.8% 0.8% 0.4%*
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 1.1% 1.1% 1.3% 0.9%*
Ratio of Net Investment Income to Average Net Assets 7.4% 6.6% 5.8% 7.8%*
</TABLE>
* Calculated on an annualized basis.
** Inception date is October 22, 1985 for Strong Money Market Fund. Total return
is not annualized.
37
<PAGE> 40
FINANCIAL HIGHLIGHTS (continued)
- - - --------------------------------------------------------------------------------
STRONG ADVANTAGE FUND
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.19 $ 10.01 $ 9.90 $ 9.67 $ 9.87
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.55 0.59 0.70 0.76 0.83
Net Realized and Unrealized Gains (Losses) on Investments (0.19) 0.18 0.11 0.23 (0.20)
--------- --------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 0.36 0.77 0.81 0.99 0.63
LESS DISTRIBUTIONS
From Net Investment Income (0.55) (0.59) (0.70) (0.76) (0.83)
In Excess of Net Realized Gains (0.02) -- -- -- --
--------- --------- -------- -------- --------
TOTAL DISTRIBUTIONS (0.57) (0.59) (0.70) (0.76) (0.83)
--------- --------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.98 $ 10.19 $ 10.01 $ 9.90 $ 9.67
========= ========= ======== ======== ========
Total Return +3.6% +7.9% +8.4% +10.6% +6.6%
Net Assets, End of Period (In Thousands) $910,508 $415,465 $272,348 $143,215 $119,189
Ratio of Expenses to Average Net Assets 0.8% 0.9% 1.0% 1.2% 1.2%
Ratio of Expenses to Average Net Assets Without Waivers 0.8% 0.9% 1.0% 1.2% 1.2%
Ratio of Net Investment Income to Average Net Assets 5.6% 5.8% 7.0% 7.8% 8.5%
Portfolio Turnover Rate 221.0% 304.8% 316.1% 503.0% 274.1%
</TABLE>
<TABLE>
<CAPTION>
1989 1988**
-------- --------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 9.99
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 1.03 0.09
Net Realized and Unrealized Gains (Losses) on Investments (0.13) 0.01
-------- --------
TOTAL FROM INVESTMENT OPERATIONS 0.90 0.10
LESS DISTRIBUTIONS
From Net Investment Income (1.03) (0.09)
In Excess of Net Realized Gains -- --
-------- --------
TOTAL DISTRIBUTIONS (1.03) (0.09)
-------- --------
NET ASSET VALUE, END OF PERIOD $ 9.87 $ 10.00
======== ========
Total Return +9.4% +1.0%
Net Assets, End of Period (In Thousands) $142,807 $ 7,544
Ratio of Expenses to Average Net Assets 1.1% 1.1%*
Ratio of Expenses to Average Net Assets Without Waivers 1.2% 1.7%*
Ratio of Net Investment Income to Average Net Assets 10.0% 11.1%*
Portfolio Turnover Rate 211.3% 231.8%*
</TABLE>
STRONG SHORT-TERM BOND FUND
<TABLE>
<CAPTION>
1994 1993 1992 1991
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.23 $ 9.99 $ 10.12 $ 9.53
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.64 0.66 0.76 0.75
Net Realized and Unrealized Gains (Losses) on Investments (0.80) 0.25 (0.11) 0.59
---------- ---------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS (0.16) 0.91 0.65 1.34
LESS DISTRIBUTIONS
From Net Investment Income (0.65) (0.66) (0.76) (0.75)
In Excess of Net Investment Income -- (0.01) -- --
From Net Realized Gains -- -- (0.02)(1) --
---------- ---------- -------- --------
TOTAL DISTRIBUTIONS (0.65) (0.67) (0.78) (0.75)
---------- ---------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.42 $ 10.23 $ 9.99 $ 10.12
========== ========== ======== ========
Total Return -1.6% +9.3% +6.7% +14.6%
Net Assets, End of Period (In Thousands) $1,041,081 $1,531,627 $756,867 $164,954
Ratio of Expenses to Average Net Assets 0.9% 0.8% 0.6% 1.0%
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 0.9% 0.9% 0.9% 1.2%
Ratio of Net Investment Income to Average Net Assets 6.5% 6.3% 7.3% 7.8%
Portfolio Turnover Rate 249.7% 444.9% 353.3% 398.1%
</TABLE>
<TABLE>
<CAPTION>
1990 1989 1988 1987**
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.86 $ 10.09 $ 10.03 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.81 0.99 0.86 0.27
Net Realized and Unrealized Gains (Losses) on Investments (0.33) (0.18) 0.13 0.04
-------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 0.48 0.81 0.99 0.31
LESS DISTRIBUTIONS
From Net Investment Income (0.81) (0.99) (0.86) (0.27)
In Excess of Net Investment Income -- -- -- --
From Net Realized Gains -- (0.05) (0.07) (0.01)
-------- -------- -------- --------
TOTAL DISTRIBUTIONS (0.81) (1.04) (0.93) (0.28)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.53 $ 9.86 $ 10.09 $ 10.03
======== ======== ======== ========
Total Return +5.3% +8.2% +10.1% +3.2%
Net Assets, End of Period (In Thousands) $ 80,070 $130,001 $102,175 $ 17,128
Ratio of Expenses to Average Net Assets 1.3% 1.1% 1.0% 0.1%*
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 1.3% 1.2% 1.2% 0.8%*
Ratio of Net Investment Income to Average Net Assets 8.6% 9.7% 8.5% 8.8%*
Portfolio Turnover Rate 313.8% 177.0% 461.3% 135.5%*
</TABLE>
* Calculated on an annualized basis.
** Respective inception dates are November 25, 1988 and August 31, 1987, for
Strong Advantage Fund and Strong Short-Term Bond Fund, respectively. Total
return is not annualized.
(1) Ordinary income distribution is for tax purposes.
38
<PAGE> 41
FINANCIAL HIGHLIGHTS (continued)
- - - --------------------------------------------------------------------------------
STRONG GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.61 $ 10.39 $ 10.77 $ 10.10 $ 10.08
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.62 0.66 0.80 0.77 0.72
Net Realized and Unrealized Gains (Losses) on Investments (0.98) 0.63 0.11 0.84 0.12
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS (0.36) 1.29 0.91 1.61 0.84
LESS DISTRIBUTIONS
From Net Investment Income (0.62) (0.66) (0.80) (0.77) (0.72)
From Net Realized Gains -- (0.32) (0.49) (0.17) (0.10)
In Excess of Net Realized Gains -- (0.09) -- -- --
-------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS (0.62) (1.07) (1.29) (0.94) (0.82)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.63 $ 10.61 $ 10.39 $ 10.77 $ 10.10
======== ======== ======== ======== ========
Total Return -3.4% +12.7% +9.2% +16.7% +8.7%
Net Assets, End of Period (In Thousands) $276,832 $221,961 $ 82,169 $ 51,934 $ 41,099
Ratio of Expenses to Average Net Assets 0.9% 0.8% 0.7% 0.8% 1.3%
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 0.9% 1.0% 1.2% 1.4% 1.5%
Ratio of Net Investment Income to Average Net Assets 6.2% 6.0% 7.7% 7.5% 7.2%
Portfolio Turnover Rate 479.0% 520.9% 628.8% 292.9% 254.2%
</TABLE>
<TABLE>
<CAPTION>
1989 1988 1987 1986**
-------- --------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.98 $ 9.75 $ 10.09 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.78 0.68 0.65 0.13
Net Realized and Unrealized Gains (Losses) on Investments 0.17 0.32 (0.34) 0.09
-------- --------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 0.95 1.00 0.31 0.22
LESS DISTRIBUTIONS
From Net Investment Income (0.78) (0.68) (0.65) (0.13)
From Net Realized Gains (0.07) (0.09) -- --
In Excess of Net Realized Gains -- -- -- --
-------- --------- -------- --------
TOTAL DISTRIBUTIONS (0.85) (0.77) (0.65) (0.13)
-------- --------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.08 $ 9.98 $ 9.75 $ 10.09
======== ========= ======== ========
Total Return +9.9% +10.5% +3.4% +2.2%
Net Assets, End of Period (In Thousands) $ 35,119 $ 25,408 $ 11,380 $ 880
Ratio of Expenses to Average Net Assets 1.3% 0.4% 1.0% 0.6%*
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 1.6% 1.6% 1.6% 1.2%*
Ratio of Net Investment Income to Average Net Assets 7.6% 6.9% 6.6% 7.2%*
Portfolio Turnover Rate 421.6% 1,727.8% 715.0% 0.0%*
</TABLE>
STRONG INCOME FUND
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.24 $ 9.40 $ 9.37 $ 8.87 $ 10.57
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.73 0.70 0.82 0.76 1.06
Net Realized and Unrealized Gains (Losses) on Investments (0.87) 0.84 0.03 0.50 (1.70)
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS (0.14) 1.54 0.85 1.26 (0.64)
LESS DISTRIBUTIONS
From Net Investment Income (0.73) (0.70) (0.82) (0.76) (1.06)
In Excess of Net Investment Income (0.01) -- -- -- --
From Net Realized Gains -- -- -- -- --
-------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS (0.74) (0.70) (0.82) (0.76) (1.06)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.36 $ 10.24 $ 9.40 $ 9.37 $ 8.87
======== ======== ======== ======== ========
Total Return -1.3% +16.8% +9.4% +14.8% -6.2%
Net Assets, End of Period (In Thousands) $123,305 $123,400 $102,783 $ 92,364 $ 92,201
Ratio of Expenses to Average Net Assets 1.1% 1.1% 1.3% 1.5% 1.4%
Ratio of Net Investment Income to Average Net Assets 7.6% 7.0% 8.7% 8.4% 11.2%
Portfolio Turnover Rate 603.0% 665.8% 557.0% 392.4% 293.5%
</TABLE>
<TABLE>
<CAPTION>
1989 1988 1987 1986 1985**
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.88 $ 11.64 $ 12.65 $ 10.30 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 1.40 1.17 1.23 0.98 0.03
Net Realized and Unrealized Gains (Losses) on Investments (1.31) 0.24 (0.67) 2.08 0.27
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 0.09 1.41 0.56 3.06 0.30
LESS DISTRIBUTIONS
From Net Investment Income (1.40) (1.17) (1.53) (0.71) --
In Excess of Net Investment Income -- -- -- -- --
From Net Realized Gains -- -- (0.04) -- --
-------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS (1.40) (1.17) (1.57) (0.71) --
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.57 $ 11.88 $ 11.64 $ 12.65 $ 10.30
======== ======== ======== ======== ========
Total Return +0.4% +12.5% +4.5% +30.0% +3.0%
Net Assets, End of Period (In Thousands) $195,350 $202,623 $137,898 $118,727 $ 2,452
Ratio of Expenses to Average Net Assets 1.2% 1.2% 1.1% 1.0% 1.1%*
Ratio of Net Investment Income to Average Net Assets 12.1% 9.8% 10.6% 11.3% 23.5%*
Portfolio Turnover Rate 207.2% 400.2% 245.4% 204.9% 7.3%*
</TABLE>
* Calculated on an annualized basis.
** Inception dates are October 29, 1986 and December 12, 1985, for Strong
Government Securities Fund and Strong Income Fund, respectively. Total return
is not annualized.
39
<PAGE> 42
REPORT OF INDEPENDENT ACCOUNTANTS
- - - --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of the Strong Income Funds
We have audited the accompanying statements of assets and liabilities of Strong
U.S. Treasury Money Fund, Inc., Strong Money Market Fund, Inc., Strong Advantage
Fund, Inc., Strong Short-Term Bond Fund, Inc., Strong Government Securities
Fund, Inc., and Strong Income Fund, Inc. (collectively referred to herein as the
"Strong Income Funds"), including the schedules of investments in securities, as
of December 31, 1994, and the related statements of operations for the year
then ended, the statements of changes in net assets for each of the two years in
the period then ended, 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
December 31, 1994 by correspondence with the custodian 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 Income Funds as of December 31, 1994, the results of their
operations for the year then ended, the changes in their net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods indicated, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
February 1, 1995
40
<PAGE> 43
DIRECTORS OF THE FUND
Richard S. Strong
Marvin E. Nevins
Willie D. Davis
OFFICERS OF THE FUND
Richard S. Strong
Chairman of the Board
John Dragisic
Vice Chairman
Lawrence A. Totsky
Vice President
Thomas P. Lemke
Vice President
Ann E. Oglanian
Secretary
Thomas M. Zoeller
Treasurer
Investment Advisor
Strong Capital Management, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
Distributor
Strong Funds Distributors, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
Custodian
Firstar Trust Company
P.O. Box 701, Milwaukee, Wisconsin 53201
Transfer Agent and Dividend-Disbursing Agent
Strong Capital Management, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
Auditors
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
Ticker Symbols
SUSXX - The Strong U.S. Treasury Money Fund
SMNXX - The Strong Money Market Fund
STADX - The Strong Advantage Fund
SSTBX - The Strong Short-Term Bond Fund
STVSX - The Strong Government Securities Fund
SRNCX - The Strong Income Fund
<PAGE> 44
FOR LITERATURE AND INFORMATION REQUESTS,
CALL 1-800-368-1030.
TO DISCUSS AN EXISTING ACCOUNT OR
CONDUCT A TRANSACTION,
CALL 1-800-368-3863.
This report must be preceded or accompanied by the prospectus for
the Strong Income Funds.
[STRONG LOGO]
STRONG FUNDS DISTRIBUTORS, INC.
P.O. Box 2936
Milwaukee, Wisconsin 53201
