<PAGE> 1
THE STRONG
U.S. TREASURY MONEY AND
ADVANTAGE FUNDS
ANNUAL REPORT - DECEMBER 31, 1995
[PHOTO OF 3 CHILDREN]
THE STRONG U.S. TREASURY MONEY FUND
THE STRONG ADVANTAGE FUND
[STRONG FUNDS LOGO]
<PAGE> 2
EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING
These common-sense rules are followed by many successful investors. They make
sense for beginners, too. If you have a question on these principles, or would
like to discuss them with us, please contact us at 1-800-368-3863. We're here
24 hours a day, seven days a week to take your call.
1
Have a plan.
Even a simple plan can help you take control of your financial future. Review
your plan once a year, or if your circumstances change.
2
Start investing as soon as possible.
Make time a valuable ally. Let it put the power of compounding to work for
you, while helping to reduce your potential investment risk.
3
Diversify your portfolio.
By investing in different asset classes -- stocks, bonds, and cash -- you help
protect against poor performance in one type of investment while including
investments most likely to help you achieve your important goals.
4
Invest regularly.
Investing is a process, not a one-time event. By investing regularly over the
long term, you reduce the impact of short-term market gyrations, and you attend
to your long-term plan before you're tempted to spend those assets on short-term
needs.
5
Maintain a long-term perspective.
For most individuals, the best discipline is staying invested as market
conditions change. Reactive, emotional investment decisions are all too often
a source of regret -- and of principal loss.
6
Consider stocks to help achieve major long-term goals.
Over time, stocks have provided the more powerful returns needed to help the
value of your investments stay well ahead of inflation.
7
Keep a comfortable amount of cash in your portfolio.
To meet current needs, including emergencies, use a money market fund or a bank
account -- not your long-term investment assets.
8
Know what you're buying.
Make sure you understand the potential risks and rewards associated with each
of your investments. Ask questions... request information... make up your own
mind. And choose a fund company that helps you make informed investment
decisions.
<PAGE> 3
THE STRONG U.S. TREASURY MONEY and ADVANTAGE FUNDS
ANNUAL REPORT - DECEMBER 31, 1995
Table of Contents
<TABLE>
<S> <C>
INVESTMENT REVIEWS
The Strong U.S. Treasury Money Fund ...................................... 2
The Strong Advantage Fund................................................. 4
FINANCIAL INFORMATION
Schedules of Investments in Securities
The Strong U.S. Treasury Money Fund..................................... 6
The Strong Advantage Fund .............................................. 6
Statements of Operations .................................................10
Statements of Assets and Liabilities......................................11
Statements of Changes in Net Assets.......................................11
Notes to Financial Statements.............................................12
FINANCIAL HIGHLIGHTS........................................................15
REPORT OF INDEPENDENT ACCOUNTANTS...........................................16
</TABLE>
<PAGE> 4
FEDERAL RESERVE
INTEREST RATES
[PHOTO]
THE STRONG U.S TREASURY MONEY FUND
The Strong U.S. Treasury Money Fund seeks current income, a stable share price,
and daily liquidity. The Fund invests only in securities issued directly by the
U.S. government.
SHORT RATES TREND DOWN IN 1995
1995 was a year of changing expectations for the bond market. As the year
began, investors were cautious, anticipating continued economic strength and
higher inflation. In fact, the Federal Reserve actually raised the federal
funds rate (the rate it charges banks for overnight loans) from 5.50% to 6.00%
in February in an effort to cool what it perceived as too-rapid economic growth
and the threat of inflation. But soon after this tightening, evidence of a
significant slowdown in economic activity began to emerge. While the U.S.
economy grew at a fairly strong pace in the first quarter of 1995, data from
April and May suggested that the second quarter's growth rate would be low or
possibly negative, and that inflationary pressures were not being generated.
The abrupt slowdown surprised financial markets and compelled the Fed
to cut the federal funds rate back to 5.75% in early July. Additional signs of
economic lethargy appeared in the fourth quarter, and the Fed again reduced the
rate in December to 5.50%. Short-term rates (as measured by 3-month Treasury
Bills) also fell from a high of 6% in January to a low of about 5% in December.
However, as the chart on the next page shows, the path was not a smooth one,
reflecting a fair amount of uncertainty as investors attempted to divine the
economy's future growth track.
FUND STRATEGY: GO LONG
Following the Federal Reserve's February rate hike, we believed that short-term
rates had reached their peak, at least for the near term. Accordingly, we
gradually lengthened the Fund's average maturity target to a fairly bullish
60-70 days in anticipation of a possible interest-rate cut by the Fed (a 40- to
45-day maturity is considered neutral). Extending the Fund's maturity helped us
lock in higher yields for a longer period of time-and gave the Fund the
potential to maintain an attractive level of income in case short-term interest
rates began to fall.
At the end of December, the Fund's average maturity was 84 days.
WE EXPECT RATES TO DRIFT LOWER
Our current economic view remains positive. With the economy on a modest growth
track and inflation apparently stifled, we look for short-term interest rates
to gradually drift lower, impelled by additional rate cuts by the Federal
Reserve.
YIELD SUMMARY*
THROUGH 12/29/95
7-DAY CURRENT YIELD
4.92%
7-DAY EFFECTIVE YIELD
5.04%
AVERAGE MATURITY
84 DAYS
2
<PAGE> 5
Variables that may alter this outlook include a disappointment on the budget
front. Right now, the market appears to expect a meaningful budget agreement,
an expectation partially reflected in current prices. Should progress not be
achieved on the budget, or should the market get an agreement that it feels is
lackluster, we could see a temporary bump up in yields.
Factors that may help improve the U.S. economy in 1996 might come from abroad.
Germany reduced its interest rates late in 1995, allowing other European
nations to follow suit. If less restrictive monetary policies enable the
economies of Europe to break out of their current stagnation, the result could
be more investment and trade with the U.S. and better prospects for the
American economy.
Investors should note that continued slow economic growth in the U.S. won't be
smooth and steady, but is more likely to be a bit bumpy, with indications of a
strong turnaround one quarter and signs of recession the next (1995 was a good
example of such a "choppy" environment). Taken as a whole, however, we expect
modest growth coupled with modest inflation-a favorable combination for income
investors.
As always, we thank you for your confidence and remain committed to meeting
your investment needs in the future.
Cordially,
/s/ Jay Mueller
--------------
Jay N. Mueller
Portfolio Manager
[PHOTO OF JAY N. MUELLER]
Short-term rates took a bumpy path down in 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3-month T-Bill yields through December
<S> <C>
12/94 5.69
1/95 6.00
2/95 5.94
3/95 5.87
4/95 5.87
5/95 5.80
6/95 5.57
7/95 5.58
8/95 5.45
9/95 5.41
10/95 5.50
11/95 5.49
12/95 5.08
</TABLE>
Source: Bloomberg
- --------------------------------------------------------------------------------
*Yields are annualized for the 7-day period ended December 29, 1995. Effective
yield reflects the compounding of income. As of December 29, 1995, the advisor
temporarily waived fees of .40% and absorbed expenses of .21%. Otherwise, the
Fund's current and effective yields would have been 4.31% and 4.43%,
respectively. An investment in the Fund is neither insured nor guaranteed by
the U.S. government. There can be no assurance that the 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.
3
<PAGE> 6
The Strong ADVANTAGE Fund
AS OF 12/29/95
ANNUALIZED 30-DAY YIELD
6.54%
AVERAGE EFFECTIVE MATURITY(1)
0.95 YEARS
AVERAGE QUALITY RATING
A
The Strong Advantage Fund seeks current income with a very low degree of
share-price fluctuation. The Fund invests primarily in ultra short-term,
investment-grade debt obligations, and its average effective portfolio maturity
will normally be one year or less.
STRONG PERFORMANCE IN 1995
The Strong Advantage Fund turned in a solid performance in 1995, providing
attractive returns versus both money market funds and the majority of its
ultra-short competition. For the year ended December 31, 1995, the Fund's total
return was 7.51%, which compares favorably with the 5.36% total return achieved
by the average money market fund, as tracked by the Lipper Money Market Fund
Index. (Unlike a money fund, the Advantage Fund's share price will vary).(2)
Compared to its ultra-short Lipper category, the Fund placed in the top 35% for
the year based on total return, and it remains top rated for longer periods.
Strong Advantage Fund
Lipper Rankings
Based on total return through the period ending 12/31/95(3)
<TABLE>
<CAPTION>
RANK AMONG ULTRA-
TIME PERIOD SHORT OBLIGATION FUNDS PERCENTAGE
<S> <C> <C>
1-year #9 of 26 Top 35%
3-year #1 of 11 Top fund
5-year #1 of 9 Top fund
Since inception #1 of 6 Top fund
(on 11/25/88)
</TABLE>
BONDS ROAR BACK IN 1995
Fueled by falling long-term rates and spurred by strong corporate profits,
corporate bond prices rallied strongly in 1995. Few investors anticipated such
a rally as the year began, amid continued strength in the economy and fears of
re-emerging inflation. In fact, the Federal Reserve actually raised the
federal funds rate in February. However, unexpectedly weak economic numbers,
particularly in April and May, indicated that the economy was slowing rather
than accelerating. With the threat of inflation essentially removed, bond
prices staged a powerful rally. This rally continued nearly unabated through
the end of the year, augmented by the Federal Reserve's rate cuts in July and
December.
While longer-maturity bonds made the biggest price gains in 1995, bonds with
ultra-short maturities also appreciated, and helped the Fund post its 7.51%
total return.
FUND STRATEGY: STAY THE COURSE
Income generation remained a priority in 1995. As part of this strategy, we
increased our holdings in callable bonds with high coupons. This was due to our
expectation for lower long-term rates. When rates fall, bond issuers typically
call their higher-yielding bonds so they can reissue the bonds with a lower
coupon and thereby reduce their debt burden. (Basically, this is the same
strategy homeowners use when they refinance their mortgages.) The reduction in
rates in 1995 prompted callable bonds to trade according to their upcoming call
date rather than their maturity date-giving us the opportunity to purchase
higher-yielding long bonds and still maintain an ultra-short effective
maturity.
In addition, we continued to use careful issue selection to pursue attractive
returns and reduce potential risk. Through our intensive research efforts, we
sought to uncover bonds that we believed were about to experience a credit
upgrade, which usually results in a meaningful increase in price. We also
reduced our holdings in "asset-backed" securities-those issues backed with
consumer loans such as home equity loans-in light of slowing job and wage
growth.
The Fund remains primarily invested in investment-grade corporate and mortgage
bonds.
Asset Allocation
as of 12/31/95
[PIE CHART]
U.S. GOVERNMENT CORPORATE BONDS
AGENCY ISSUES 5.9% 62.9%
SHORT-TERM NON-AGENCY MORTGAGE-
INVESTMENTS 3.6% BACKED SECURITIES 27.6%
The Fund's asset allocation is presented as a percentage of net assets and does
not reflect any futures positions held by the Fund. Please see the Schedule of
Investments in Securities for a complete listing of the Fund's portfolio.
4
<PAGE> 7
WE HOPE FOR MORE OF THE SAME
Our outlook for the bond market is positive. With the economy continuing in a
slow growth mode and inflation still subdued, there seems little chance at this
point that the Fed will raise the federal funds rate or that interest rates in
general will move higher.
In fact, we think it's likely the Federal Reserve will continue to lower
interest rates in an effort to stimulate somewhat stronger economic growth. If
so, money fund yields would likely move down before ultra-short rates, and to a
greater degree, allowing our shareholders to reap a more sizable yield
advantage over money market funds.
While we're comfortable with the Fund's current average credit quality, we
might increase the portfolio's average quality if the economy were to weaken
significantly. However, our research suggests that a downturn in the economy
would likely be short and shallow, and readily correctable by Federal Reserve
action.
Regardless, the short-term nature of this Fund makes it less susceptible to
rate moves and economic trends than longer-term investments. At the short end
of the market, it's active management and careful research that produce
superior results. We believe our investment performance illustrates that we've
been adept at both.
Thank you for your investment in the Strong Advantage Fund. We appreciate your
continued confidence in our investment approach.
Sincerely,
JEFFREY A. KOCH
Jeffrey A. Koch
Portfolio Manager
[Photo] of Jeffrey A. Koch
Growth of an Assumed $10,000 Investment
from 11/25/88 to 12/31/95
<TABLE>
<CAPTION>
The Strong Advantage Fund
<S> <C>
11/88 10000
12/88 10103
6/89 10715
12/89 11052
6/90 11418
12/90 11784
6/91 12319
12/91 13036
6/92 13632
12/92 14135
6/93 14743
12/93 15250
6/94 15417
12/94 15793
6/95 16391
12/95 16978
</TABLE>
<TABLE>
<CAPTION>
1-yr Treasury Bill
<S> <C>
11/88 10000
12/88 10039
6/89 10585
12/89 11050
6/90 11476
12/90 12036
6/91 12489
12/91 13088
6/92 13396
12/92 13720
6/93 13997
12/93 14245
6/94 14355
12/94 14621
6/95 15312
12/95 15804
</TABLE>
Average Annual
Total Returns
through 12/31/95
1-year
7.51%
3-year
6.30%
5-year
7.58%
Since inception
(on 11/25/88)
7.74%
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. 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. Source for the index
data is Micropal. Performance is historical and does not represent future
results. Investment returns and principal value vary, and you may have a gain
or loss when you sell shares.
(1) The Fund's average effective maturity includes the effect of futures
and options contracts, and anticipated calls.
(2) The Lipper Money Market Fund Index is an equally-weighted performance
index, adjusted for capital gains distributions and income
dividends of the largest qualifying funds in this investment
objective.
(3) The since inception ranking is based on performance from
11/25/88 to 12/31/95 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.
5
<PAGE> 8
SCHEDULES OF INVESTMENTS IN SECURITIES December 31, 1995
STRONG U.S. TREASURY MONEY FUND
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO MATURITY AMORTIZED
AMOUNT MATURITY DATE (e) COST (d)
Security (In Thousands) (In Thousands)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States Treasury Bills 100.4% $ 25 5.25% 01/04/96 $ 25
6,878 5.30 01/11/96 6,869
885 5.29 02/08/96 880
215 5.30 02/29/96 213
11,680 5.32 03/07/96 11,568
11,325 5.34 03/14/96 11,204
855 4.95 03/28/96 845
6,130 5.19 05/02/96 6,023
1,240 5.18 05/09/96 1,217
525 5.11 05/23/96 515
3,585 4.99 07/25/96 3,483
-------
TOTAL INVESTMENTS IN SECURITIES 100.4% 42,842
Other Assets and Liabilities, Net (0.4%) (182)
-------
NET ASSETS 100.0% $42,660
=======
</TABLE>
Strong Advantage Fund
<TABLE>
<CAPTION>
SHARES OR VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS 62.6%
AB Spintab Subordinated Floating Rate Notes,
6.9375%, Due 10/29/49 (Acquired 10/10/95;
Cost $5,000)(b) $ 5,000 $ 4,960
American Reinsurance Corporation Senior
Subordinated Debentures, 10.875%, Due 9/15/04 415 465
American Standard, Inc. Senior Debentures,
11.375%, Due 5/15/04 15,980 17,818
Arkla, Inc. Notes, 9.875%, Due 4/15/97 3,000 3,147
Bank of Boston Corporation Subordinated
Floating Rate Notes, 6.00%, Due 2/28/01 22,700 22,500
Bankers Life Holding Corporation Senior
Subordinated Notes, Series B, 13.00%,
Due 11/01/02 8,789 10,019
Cablevision Industries Corporation Senior Notes,
10.75%, Due 1/30/02 18,205 19,934
Caesars World, Inc. Senior Subordinated
Debentures, 8.875%, Due 8/15/02 1,700 1,815
Chase Manhattan Corporation Floating Rate Notes,
5.9375%, Due 12/30/09 30,270 28,870
Citicorp Floating Rate Notes, 6.50%, Due 5/01/04 20,896 21,118
Coltec Industries, Inc. Debentures, 11.25%,
Due 12/01/15 1,315 1,396
Continental Cablevision, Inc. Floating Rate Notes,
8.9375%, Due 11/01/04 8,000 8,000
Continental Homes Holding Corporation Senior
Notes, 12.00%, Due 8/01/99 630 684
Exide Corporation Floating Rate Revolving
Bank Loan:
8.375%, Due 9/30/99 (Acquired 6/27/95;
Cost $340) (b) 340 338
8.375%, Due 9/30/99 (Acquired 6/27/95;
Cost $113) (b) 113 113
8.75%, Due 9/30/99 (Acquired 12/1/95-12/26/95;
Cost $386)(b) 386 384
First Bank System, Inc. Floating Rate Subordinated
Notes, 6.0625%, Due 11/30/10 (Putable at 100 on
11/30/00) 2,000 1,998
Fleming Companies, Inc. Senior Floating Rate Notes,
8.125%, Due 12/15/01 8,500 7,315
Ford Motor Credit Debt Unit with Premium Call
(Structured Enhanced Return Trusts 1995, Series
R-20), 9.75%, Due 2/03/98 (Acquired 2/08/95;
Cost $4,998)(b) $ 5,000 $ 5,300
Harrahs Operating, Inc. Guaranteed Senior
Subordinated Notes, 10.875%, Due 4/15/02 30,835 33,302
Health & Retirement Properties Trust Senior
Floating Rate Notes, Series B, 6.6575%,
Due 7/13/99 30,000 29,997
Hook-SupeRx, Inc. Senior Notes, 10.125%,
Due 6/01/02 10,920 11,961
Lenfest Communications, Inc. Senior Notes, 8.375%,
Due 11/01/05 10,000 10,050
MGM Grand Hotel Finance Corporation First
Mortgage Notes:
11.75%, Due 5/01/99 20,750 22,047
12.00%, Due 5/01/02 10,830 11,872
Magma Copper Company Senior Subordinated Notes:
11.50%, Due 1/15/02 14,841 15,843
12.00%, Due 12/15/01 16,505 18,382
Marine Midland Banks, Inc. Floating Rate
Subordinated Notes:
5.875%, Due 12/31/09 21,460 20,575
5.9375%, Due 12/20/00 12,500 12,372
McDermott International, Inc. Senior Notes, 12.875%,
Due 7/15/02 10,300 11,716
NBD Bancorp, Inc. Subordinated Floating Rate
Notes, 5.8125%, Due 12/18/05 23,505 23,222
National Westminster Bank Floating Rate Notes:
6.00%, Due 11/29/49 10,000 8,350
6.7375%, Due 9/29/49 5,000 4,913
New American Capital, Inc. Floating Rate Notes,
Series C, 7.3125%, Due 4/12/00 (Acquired 3/16/95;
Cost $10,000)(b) 10,000 10,000
Newscorp Overseas Limited Floating Rate Debt Unit
with Swap Agreement (Structured Enhanced
Return Trusts 1995 Series R-27), 6.534%,
Due 6/30/99 (Acquired 6/12/95; Cost $27,120)(b) 28,250 26,767
Okobank Subordinated Step-Up Perpetual Floating
Rate Notes, 7.3875%, Due 10/29/49 10,000 10,160
</TABLE>
See notes to financial statements.
6
<PAGE> 9
Strong Advantage Fund (continued)
<TABLE>
<CAPTION>
Shares or Value
Principal (Note 2)
Amount (In Thousands)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Oryx Energy Company Notes:
9.50%, Due 11/01/99 $5,000 $5,456
10.00%, Due 6/15/99 5,750 6,306
Purity Supreme, Inc. Senior Secured Notes, Series B,
11.75%, Due 8/01/99 8,625 9,552
Riverwood International Corporation Senior Notes,
10.75%, Due 6/15/00 3,150 3,367
Rogers Communications, Inc. Floating Rate Debt
Unit with Premium Call (Medium Term Structured
Enhanced Return Trusts 1995, Series R-25),
9.0297%, Due 6/21/98 (Acquired 5/15/95;
Cost $12,000)(b) 12,000 12,000
Royal Caribbean Cruises, Ltd. Senior Subordinated
Notes, 11.375%, Due 5/15/02 7,000 7,700
SCI Television, Inc. First Secured Loan Facility
Variable Rate Notes, 7.50%, Due 6/30/98 12,000 12,060
Santa Fe Pacific Gold Corporation Senior Debentures,
8.375%, Due 7/01/05 12,000 12,420
System Energy Resources, Inc. First Mortgage
Bonds, 11.375%, Due 9/01/16 3,530 3,872
Texas New Mexico Power Company First Mortgage,
Series T, 11.25%, Due 1/15/97 13,134 13,791
Time Warner, Inc. Debt Unit with Premium Call
(Medium Term Structured Enhanced Return
Trusts 1995, Series R-29), 6.8125%, Due 12/17/97
(Acquired 9/12/95; Cost $5,000)(b) 5,000 5,005
Time Warner, Inc. Floating Rate Notes, 6.835%,
Due 8/15/00 16,007 16,078
UCAR Global Enterprises, Inc. Floating Rate Term
Loan, Tranche B, 8.50%, Due 11/17/02
(Acquired 11/17/95; Cost $4,513)(b) 4,491 4,502
Union Bank of Norway Dual Basis Notes (Medium
Term Structured Enhanced Return Trusts 1995,
Series R-31) 6.95%, Due 10/25/00 (Acquired
11/06/95; Cost $15,000)(b) 15,000 15,000
Varity Corporation Senior Notes, 11.375%,
Due 11/15/98 5,290 5,530
Viacom, Inc. Senior Notes, 7.75%, Due 6/01/05 27,800 29,526
Viacom International, Inc. Notes, 9.125%,
Due 8/15/99 18,500 19,536
-------
TOTAL CORPORATE BONDS (COST $615,916) 619,404
NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES 27.6%
AFC Mortgage Loan Asset Trust Variable Rate
Certificates, Series 1994-1, Class 2, A-1, 7.9619%,
Due 5/25/25 5,339 5,442
Bear Stearns Mortgage Securities, Inc. Mortgage
Pass-Thru Certificates, Series 1993-12, Class 1-A,
6.50%, Due 1/25/34 1,430 1,430
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 2,421 2,415
Chase Mortgage Finance Corporation Mortgage
Pass-Thru Certificates, Series 1990-G, Class A-Z1,
9.50%, Due 12/25/21 3,210 3,306
Collateralized Mortgage Obligation Trust Two-2,
Class E, 9.00%, Due 6/20/17 3,394 3,418
First Boston Mortgage Securities Corporation
Variable Rate Mortgage Pass-Thru Certificates,
Series 1994-MHC1:
Class C, 6.9125%, Due 4/25/11 9,600 9,588
Class D, 7.5125%, Due 4/25/11 5,200 5,187
Green Tree Securitized Net Interest Margin Trust
Certificates:
Series 1994-A, 6.90%, Due 2/15/04 $6,700 $6,728
Series 1994-B, 7.85%, Due 7/15/04 6,582 6,741
Series 1995-A, 7.25%, Due 7/15/05 8,889 9,014
Greenwich Capital Acceptance, Inc. Subordinated
Mortgage Securities Trust Pass-Thru Certificates,
Series 1994-1, Class A, 6.7725%, Due 02/28/19
(Acquired 4/12/94; Cost $4,614) (b) 4,720 4,582
Greenwich Capital Acceptance, Inc. Variable Rate
Mortgage Pass-Thru Certificates, Class A,
7.3584%, Due 5/25/20 8,563 8,445
Homart Pooled Asset Financial Trust Floating Rate
Collateral Trust Certificates:
Class A-3, 7.4375%, Due 12/29/01 (Acquired
12/21/93; Cost $10,000) (b) 10,000 9,988
Class A-4, 8.1875%, Due 12/29/01 (Acquired
2/09/95; Cost $9,988) (b) 10,000 9,988
Merrill Lynch Home Equity Acceptance, Inc.
Subordinated Variable Rate Mortgage-Backed
Certificates, Series 1994-A, Class A-1, 6.8125%,
Due 8/17/23 13,892 13,065
Merrill Lynch Mortgage Investors, Inc.
Manufactured Housing Contract Senior
Subordinated Pass-Thru Certificates, Series
1992-E, Class B, 5.85%, Due 8/15/12 3,267 3,257
Merrill Lynch Mortgage Investors, Inc. Senior
Subordinated Pass-Thru Certificates, Series
1988-H, Class A, 9.70%, Due 6/15/08 558 576
Merrill Lynch Mortgage Investors, Inc. Senior
Subordinated Variable Rate Pass-Thru Certificates:
Series 1993-B, Class B, 7.00%, Due 11/15/17 4,000 3,760
Series 1993-G, Class B, 5.40%, Due 12/15/13 732 726
Series 1994-F, Class M, 7.00%, Due 3/15/24 14,022 12,905
Series 1994-H, Class M, 7.00%, Due 6/15/19 5,000 4,602
Morgan Stanley Capital I, Inc. Collateralized
Mortgage Obligation, Series 86-C, Class C-4,
9.00%, Due 5/01/16 1,029 1,063
Morgan Stanley Mortgage Trust Variable Rate
Collateralized Mortgage Obligation, Series 35:
Class 35-1, 6.625%, Due 4/20/21 7,498 7,594
Class 35-2, Interest Only, 6,573.50%, Due 4/20/21 5 725
Mortgage Capital Funding, Inc. Variable Rate
Mortgage Pass-Thru Certificates, Series 1993-C1,
Class A-1, 5.25%, Due 5/25/15 3,194 3,182
RTC Multifamily Variable Rate Mortgage
Certificates, Series 1992-M2, Class B-1, 7.025%,
Due 3/25/20 5,012 4,991
RTC Variable Rate Mortgage Pass-Thru
Securities, Inc.:
Series 1991-2, Class A, 6.425%, Due 4/25/21 1,136 1,141
Series 1992-3, Class B-4, 6.745%, Due 9/25/30 18,013 18,035
Series 1992-6, Class B-9, 6.7975%, Due 11/25/26 1,853 1,843
Series 1995-1, Class B-5, 7.166%, Due 10/25/28 25,592 25,176
Series 1995-1, Class M-5, 7.166%, Due 10/25/28 17,271 17,412
RTC Variable Rate Mortgage Pass-Thru Securities,
Inc. Manufactured Housing Certificates:
Series 1992-MH1, Class A-1, 7.00%, Due 2/15/19 837 840
Series 1992-MH1, Class B-2, 6.40%, Due 8/15/19
(Acquired 4/21/95; Cost $7,217)(b) 7,330 7,238
Series 1992-MH2, Class A-1, 7.00%, Due 2/15/04 1,054 1,061
Ryan Mortgage Acceptance Corporation IX
Collateralized Mortgage Bonds, Series 4, Class 4-Z,
9.45%, Due 4/01/16 6,137 6,148
</TABLE>
See notes to financial statements.
7
<PAGE> 10
SCHEDULES OF INVESTMENTS IN SECURITIES (CONTINUED) DECEMBER 31, 1995
STRONG ADVANTAGE FUND (CONTINUED)
<TABLE>
<CAPTION>
SHARES OR VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Ryland Acceptance Corporation IV Collateralized
Mortgage Bonds, Series 53, Class 53-E, 10.00%,
Due 10/25/18 $3,417 $3,620
Ryland Mortgage Securities Corporation III
Variable Rate Collateralized Mortgage Bonds,
Series 1992-C, Class 3-A, 7.65%, Due 11/25/30 24,985 24,930
Ryland Mortgage Securities Corporation IV
Variable Rate Collateralized Mortgage Bonds,
Series 2, Class 3-A, 11.9566%, Due 6/25/23 1,361 1,413
SML Commercial Mortgage Trust Variable Rate
Pass-Thru Certificates, Series 1994-C1, Class A-1,
6.9688%, Due 9/18/99 4,800 4,797
Santa Barbara Savings & Loan Association
California Real Estate Mortgage Investment
Conduit Participation Certificates, Series 1988-A,
Class 2, Principal Only, Due 9/01/18 1,634 1,331
Suncoast Collateralized Mortgage Obligation
Trust III, Class C, 8.75%, Due 2/27/18 2,086 2,109
U-Haul Self-Storage Corporation Commercial
Mortgage Asset Trust Pass-Thru Certificates,
Series 1993-1, Class A1, 7.4625%, Due 12/01/20
(Acquired 12/02/93; Cost $4,834) (b) 4,834 4,858
Western Federal Savings & Loan Association
Marina Del Rey California Variable Rate Mortgage
Pass-Thru Certificates, Series 1991-4, Class A,
7.25%, Due 7/01/21 7,786 7,834
-------
TOTAL NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES (COST $272,020) 272,504
UNITED STATES GOVERNMENT AND
AGENCY ISSUES 5.9%
FHLMC Participation Certificates:
9.00%, Due 1/01/05 629 657
9.50%, Due 8/01/19 2,517 2,694
10.75%, Due 10/01/00 114 120
11.00%, Due 10/01/00 thru 9/01/20 2,219 2,459
11.75%, Due 5/01/11 thru 6/01/11 2,215 2,495
12.00%, Due 9/01/11 thru 2/01/15 823 930
12.25%, Due 7/01/15 1,433 1,623
12.50%, Due 2/01/15 233 265
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates,
13.50%, Due 9/01/14 58 68
FNMA Guaranteed Real Estate Mortgage Investment
Conduit Variable Rate Pass-Thru Certificates:
7.942%, Due 6/01/24 24,722 25,694
7.947%, Due 12/01/17 6,204 6,401
GNMA Guaranteed Pass-Thru Certificates:
9.50%, Due 11/15/10 14,140 14,975
13.50%, Due 6/15/10 thru 11/15/14 175 206
15.00%, Due 8/15/11 thru 9/15/12 56 67
--------
TOTAL UNITED STATES GOVERNMENT AND AGENCY
ISSUES (COST $57,787) 58,654
OPTION 0.3%
Merrill Lynch Swaption (The option to receive a
fixed interest rate of 7.75%; exercisable at a
strike price of 100 beginning 4/09/04 and
expiring 4/09/25.) (Cost $1,513) 32,667 2,862
CASH EQUIVALENTS (a) 2.6%
COMMERCIAL PAPER 0.7%
DISCOUNTED 0.5%
Bakrie and Brothers PT, Due 1/12/96 3,000,000 IDR 1,308
Salomon, Inc., Due 1/02/96 $4,400 4,400
--------
5,708
INTEREST BEARING, DUE UPON DEMAND 0.2%
General Mills, Inc., 5.58% 432 432
Eli Lilly & Company, 5.32% 400 400
Sara Lee Corporation, 5.47% 519 519
Southwestern Bell Telephone Company, 5.72% 288 288
Wisconsin Electric Power Company, 5.53% 20 20
--------
1,659
--------
Total Commercial Paper 7,367
CORPORATE BONDS 1.7%
Lyondell Petrochemical Company Notes, 9.95%,
Due 6/01/96 6,000 6,097
Riggs National Corportation, Washington D.C.
Floating Rate Subordinated Capital Notes,
5.875%, Due 9/24/96 7,630 7,612
USG Corporation Senior Notes, 8.00%,
Due 12/15/96 2,980 3,036
--------
Total Corporate Bonds 16,745
UNITED STATES GOVERNMENT ISSUES 0.2%
United States Treasury Bills:
Due 1/11/96 (c) 300 300
Due 1/18/96 (c) 1,000 998
Due 2/08/96 (c) 170 169
Due 2/15/96 (c) 265 264
Due 2/29/96 (c) 140 139
Due 3/14/96 (c) 105 104
--------
1,974
--------
Total Cash Equivalents (Cost $25,998) 26,086
--------
TOTAL INVESTMENTS IN SECURITIES
(COST $973,234) 99.0% 979,510
Other Assets and Liabilities, Net 1.0% 10,191
--------
NET ASSETS 100.0% $989,701
========
<CAPTION>
FUTURES
UNDERLYING
FACE AMOUNT UNREALIZED
EXPIRATION AT VALUE DEPRECIATION
DATE (IN THOUSANDS) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchased:
400 90-Day Eurodollar 3/96 $94,680 $ 40
Sold:
83 Five-Year U.S. Treasury Note 3/96 (9,164) 109
528 Ten-Year U.S. Treasury Note 3/96 (60,506) 1,096
</TABLE>
See notes to financial statements.
8
<PAGE> 11
STRONG ADVANTAGE FUND (CONTINUED)
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Value Unrealized
Settlement in USD Depreciation
Date (In Thousands) (In Thousands)
--------------------------------------------
<S> <C> <C> <C>
Sold:
3,000,000,000 IDR 1/12/96 $1,311 $14
<CAPTION>
PERCENTAGE OF
INDUSTRY DIVERSIFICATION NET ASSETS
- -------------------------------------------------------------------------------------------------------
<S> <C>
Non-Agency Single-Family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.3%
Media - Radio/TV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3
Leisure Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8
Bank - Super Regional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
Yankee Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
Non-Agency Asset Backed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8
Media - Publishing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8
Non-Agency Manufactured Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.0
Metals & Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4
FNMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2
Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.0
Bank - Money Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1
Diversified Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8
GNMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6
Electric Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4
Energy - Alternate Source . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
Oil - North American Exploration & Production . . . . . . . . . . . . . . . . . . . . . . 1.2
Precious Metal/Gem/Stone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
Retail - Drug Store . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
FHLMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1
Food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1
Bank - Regional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0
Insurance - Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0
Savings & Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0
Non-Agency Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.9
Non-Agency Multi-Family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8
Retail - Food Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.7
Auto & Truck Parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6
Oil - North American Integrated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6
Automobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5
Brokerage & Investment Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5
Steel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5
Electric Utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4
Finance - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3
Housing Related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3
Natural Gas Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3
Paper & Forest Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3
U.S. Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2
Aerospace & Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1
Foreign Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1
Healthcare - Drug/Diversified . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1
Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1
Other Assets and Liabilities, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0
-----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0%
=====
<CAPTION>
PERCENTAGE OF
COUNTRY DIVERSIFICATION NET ASSETS
- -------------------------------------------------------------------------------------------------------
<S> <C>
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91.2%
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7
Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5
Finland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0
Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5
Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1
Other Assets and Liabilities, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0
-----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0%
=====
</TABLE>
LEGEND
(a) Cash equivalents includes any security which has a maturity of less
than one year.
(b) Restricted security.
(c) Security pledged to cover margin requirements for futures contracts.
(d) Cost for Federal income tax and financial reporting purposes is the
same as amortized cost.
(e) Maturity date represents actual maturity, earliest put date, or for U.S.
Government Agency Securities, the next interest adjustment date.
All principal amounts and costs are stated in thousands.
Percentages are stated as a percent of net assets.
CURRENCY ABBREVIATIONS
IDR Indonesian Rupiah
See notes to financial statements.
9
<PAGE> 12
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
(In Thousands)
STRONG U.S. TREASURY STRONG
MONEY FUND ADVANTAGE FUND
-------------------- --------------
<S> <C> <C>
INTEREST INCOME $2,434 $67,281
EXPENSES:
Investment Advisory Fees 174 5,384
Custodian Fees 7 129
Shareholder Servicing Costs 94 1,419
Reports to Shareholders 48 316
Federal and State Registration Fees 47 235
Professional Fees 21 51
Other 20 50
------ --------
Total Expenses before Waivers and Absorptions 411 7,584
Voluntary Expense Waivers and Absorptions by Advisor (78) --
------ --------
Expenses, Net 333 7,584
------ --------
NET INVESTMENT INCOME 2,101 59,697
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments -- 6,933
Futures Contracts, Options and Forward Currency Contracts -- (12,783)
Foreign Currencies -- 3
Change in Unrealized Appreciation/Depreciation on:
Investments -- 10,719
Futures Contracts, Options and Forward Currency Contracts -- (42)
------ --------
NET GAIN -- 4,830
------ --------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,101 $ 64,527
====== ========
</TABLE>
See notes to financial statements.
10
<PAGE> 13
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1995
(In Thousands, Except Per Share Amounts)
STRONG U.S. TREASURY STRONG
MONEY FUND ADVANTAGE FUND
--------------------- --------------
<S> <C> <C>
ASSETS:
Investments in Securities, at Value (Cost of $42,842 and $973,234,
respectively) $ 42,842 $ 979,510
Receivable from Brokers for Securities and
Forward Foreign Currency Contracts Sold -- 4,095
Interest Receivable -- 12,487
Other Assets 16 --
------------ -----------
Total Assets 42,858 996,092
LIABILITIES:
Payable to Brokers for Securities and
Forward Foreign Currency Contracts Purchased -- 14
Dividends Payable 159 5,572
Accrued Operating Expenses and Other Liabilities 39 805
------------ -----------
Total Liabilities 198 6,391
------------ -----------
NET ASSETS $ 42,660 $ 989,701
============ ===========
Capital Shares
Authorized 3,000,000 1,000,000
Outstanding 42,660 98,571
NET ASSET VALUE PER SHARE $ 1.00 $ 10.04
============ ===========
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1995 and 1994
(In Thousands)
Strong U.S. Treasury Strong
Money Fund Advantage Fund
--------------------- ------------------
1995 1994 1995 1994
-------- --------- ------ ---------
<S> <C> <C> <C> <C>
OPERATIONS:
Net Investment Income $ 2,101 $ 2,651 $ 59,697 $ 37,235
Net Realized Loss -- -- (5,847) (2,744)
Change in Unrealized Appreciation/Depreciation -- -- 10,677 (10,098)
-------- ------- -------- --------
Increase in Net Assets Resulting from Operations 2,101 2,651 64,527 24,393
CAPITAL SHARE TRANSACTIONS (24,867) 25,676 74,507 508,148
DISTRIBUTIONS:
From Net Investment Income (2,101) (2,651) (59,697) (36,644)
In Excess of Net Investment Income -- -- (144) --
In Excess of Net Realized Gains -- -- -- (854)
-------- ------- -------- --------
TOTAL INCREASE (DECREASE) IN NET ASSETS (24,867) 25,676 79,193 495,043
NET ASSETS:
Beginning of Year 67,527 41,851 910,508 415,465
-------- ------- -------- --------
End of Year $ 42,660 $67,527 $989,701 $910,508
======== ======= ======== ========
</TABLE>
See notes to financial statements.
11
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1. ORGANIZATION
The Strong U.S. Treasury Money Fund is a diversified series of the
Strong Income Funds, Inc., an open-end management investment company
registered under the Investment Company Act of 1940. The Strong
Advantage Fund, Inc. is a diversified, open-end management investment
company registered under the Investment Company Act of 1940.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
by the Funds in the preparation of their financial statements.
(A) Security Valuation -- Securities of the Strong Advantage Fund
are valued through valuations obtained by a commercial pricing
service or the mean of the bid and asked prices where no last
sales price is available. Securities for which market
quotations are not readily available are valued at fair value
as determined in good faith under consistently applied
procedures established by and under the general supervision of
the Board of Directors. Securities which are purchased within
60 days of their stated maturity and all investments in the
Strong U.S. Treasury Money Fund are valued at amortized cost,
which approximates current value.
The Funds may own certain investment securities which are
restricted as to resale. These securities are valued after
giving due consideration to pertinent factors including recent
private sales, market conditions and the issuer's financial
performance. The Funds generally bear the costs, if any,
associated with the disposition of restricted securities.
Aggregate cost and fair value of these restricted securities
held at December 31, 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
STRONG
ADVANTAGE FUND
--------------
<S> <C>
Aggregate Cost $121,123
Aggregate Fair Value 121,023
Percent of Net Assets 12.2%
</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. Where appropriate,
reclassifications between net asset accounts are made for such
differences that are permanent in nature.
(C) Realized Gains and Losses on Investment Transactions -- Gains
or losses realized on investment transactions are determined
by comparing the identified cost of the security lot sold with
the net sales proceeds.
(D) Futures -- Upon entering into a futures contract, the Funds
pledge to the broker cash, U.S. government securities or other
liquid, high-grade debt obligations equal to the minimum
"initial margin" requirements of the exchange. The Funds also
receive from or pay to the broker an amount of cash equal to
the daily fluctuation in the value of the contract. Such
receipts or payments are known as "variation margin," and are
recorded as unrealized gains or losses. When the futures
contract is closed, a realized gain or loss is recorded equal
to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
(E) Options -- Premiums received by the Funds upon writing put or
call options are recorded as an asset with a corresponding
liability which is subsequently adjusted to the current market
value of the option. When an option expires, is exercised, or
is closed, the Funds realize a gain or loss, and the liability
is eliminated. The Funds continue to bear the risk of adverse
movements in the price of the underlying asset during the
period of the option, although any potential loss during the
period would be reduced by the amount of the option premium
received.
(F) Foreign Currency Translation -- Investment securities and
other assets and liabilities initially expressed 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) Forward Foreign Currency Exchange Contracts -- Forward foreign
currency exchange contracts are valued at the forward rate and
are marked-to-market daily. The change in market value is
recorded as an unrealized gain or loss. When the contract is
closed, the Funds record an exchange 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.
12
<PAGE> 15
(H) Additional Investment Risk -- The use of futures contracts,
options, foreign denominated assets and forward foreign
currency exchange contracts for purposes of hedging the Funds'
investment portfolios involves, to varying degrees, elements
of market risk in excess of the amount recognized in the
statement of assets and liabilities. The predominant risk
with futures contracts is an imperfect correlation between the
value of the contracts and the underlying securities. Foreign
denominated assets and forward foreign currency exchange
contracts may involve greater risks than domestic
transactions, including currency, political and economic,
regulatory and market risks.
(I) Other -- Investment security transactions are recorded as of
the trade date. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Interest
income is recorded on the accrual basis and includes
amortization of premium and discounts.
3. NET ASSETS
Net assets as of December 31, 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
STRONG U.S. TREASURY STRONG
MONEY FUND ADVANTAGE FUND
-------------------- --------------
<S> <C> <C>
Capital Stock $42,660 $992,960
Undistributed Net Realized Loss -- (8,276)
Net Unrealized Appreciation -- 5,017
------- --------
$42,660 $989,701
======= ========
</TABLE>
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Funds for the years ended December 31,
1995 and December 31, 1994 were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------------------------ -----------------------
SHARES DOLLARS SHARES DOLLARS
------ ------- ------ -------
<S> <C> <C> <C> <C>
STRONG U.S. TREASURY MONEY FUND
Shares Sold 75,716 $ 75,716 165,274 $ 165,274
Dividends Reinvested 2,009 2,009 2,002 2,002
Shares Redeemed (102,592) (102,592) (141,600) (141,600)
-------- -------- -------- ----------
(24,867) ($ 24,867) 25,676 $ 25,676
======== ======== ======== ==========
STRONG ADVANTAGE FUND
Shares Sold 79,688 $797,729 112,510 $1,132,912
Dividends Reinvested 5,253 52,563 3,025 30,452
Shares Redeemed (77,565) (775,785) (65,131) (655,216)
-------- -------- -------- ----------
7,376 $ 74,507 50,404 $ 508,148
======== ======== ======== ==========
</TABLE>
5. RELATED PARTY TRANSACTIONS
Strong Capital Management, Inc. (the "Advisor"), with whom certain
officers and directors of the Funds are affiliated, provides
investment advisory services and shareholder recordkeeping and related
services to the Funds. Investment advisory fees, which are
established by terms of the Advisory Agreements, are based on the
following annualized rates of average daily net assets: Strong U.S.
Treasury Money Fund .40% and Strong Advantage Fund .60%. Advisory
fees are subject to reimbursement by the Advisor if the Funds'
operating expenses exceed certain levels. Shareholder recordkeeping
and related service fees are based on contractually established rates
for each open and closed shareholder account. In addition, the
Advisor is compensated for certain other services related to costs
incurred for reports to shareholders.
Certain information regarding related party transactions, excluding
the effects of waivers and reimbursements, for the year ended December
31, 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
STRONG U.S. TREASURY STRONG
MONEY FUND ADVANTAGE FUND
-------------------- --------------
<S> <C> <C>
Payable to Advisor at December 31, 1995 $5 $619
Other Shareholder Servicing Expenses Paid to Advisor 3 24
Unaffiliated Directors' Fees 3 20
</TABLE>
13
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities during the
year ended December 31, 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
STRONG
ADVANTAGE FUND
--------------
<S> <C>
Purchases:
U.S. Government and Agency $ 98,960
Other 1,579,990
Sales:
U.S. Government and Agency 51,067
Other 1,539,852
</TABLE>
7. INCOME TAX INFORMATION
At December 31, 1995, the investment cost, gross unrealized
appreciation and depreciation on investments and capital loss
carryovers (expiring in varying amounts through 2003) for Federal
income tax purposes were as follows (in thousands):
<TABLE>
<CAPTION>
STRONG
ADVANTAGE FUND
--------------
<S> <C>
Aggregate Investment Cost $973,236
Aggregate Unrealized: ========
Appreciation $10,112
Depreciation (3,838)
--------
$6,274
========
Capital Loss Carryovers $9,519
========
</TABLE>
14
<PAGE> 17
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>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
Net Investment Income 0.05 0.04 0.03 0.04 0.06
Dividends from Net Investment Income (0.05) (0.04) (0.03) (0.04) (0.06)
------ ------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
====== ======= ======= ======== ========
Total Return +4.9% +3.8% +2.9% +3.7% +5.8%
Net Assets, End of Period (In Thousands) $42,660 $67,527 $41,851 $29,390 $20,431
Ratio of Expenses to Average Net Assets 0.8% 0.2% 0.2% 0.3% 0.3%
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 0.9% 0.8% 1.0% 0.9% 1.0%
Ratio of Net Investment Income to
Average Net Assets 4.8% 3.8% 2.9% 3.6% 5.4%
<CAPTION>
STRONG ADVANTAGE FUND
1995 1994 1993 1992 1991 1990 1989 1988(a)
---- ---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.98 $10.19 $10.01 $9.90 $9.67 $9.87 $10.00 $9.99
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.67 0.55 0.59 0.70 0.76 0.83 1.03 0.09
Net Realized and Unrealized Gains
(Losses) on Investments 0.06 (0.19) 0.18 0.11 0.23 (0.20) (0.13) 0.01
-------- -------- -------- -------- -------- -------- ------- ------
TOTAL FROM INVESTMENT OPERATIONS 0.73 0.36 0.77 0.81 0.99 0.63 0.90 0.10
LESS DISTRIBUTIONS
From Net Investment Income (0.67) (0.55) (0.59) (0.70) (0.76) (0.83) (1.03) (0.09)
In Excess of Net Realized Gains -- (0.02) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ------- ------
TOTAL DISTRIBUTIONS (0.67) (0.57) (0.59) (0.70) (0.76) (0.83) (1.03) (0.09)
-------- -------- -------- -------- -------- -------- ------- ------
NET ASSET VALUE, END OF PERIOD $10.04 $9.98 $10.19 $10.01 $9.90 $9.67 $9.87 $10.00
======== ======== ======== ======== ======== ======== ======= ======
Total Return +7.5% +3.6% +7.9% +8.4% +10.6% +6.6% +9.4% 1.0%
Net Assets, End of Period
(In Thousands) $989,701 $910,508 $415,465 $272,348 $143,215 $119,189 $142,807 $7,544
Ratio of Expenses to Average Net Assets 0.8% 0.8% 0.9% 1.0% 1.2% 1.2% 1.1% 1.1%*
Ratio of Expenses to Average Net Assets
Without Waivers 0.8% 0.8% 0.9% 1.0% 1.2% 1.2% 1.2% 1.7%*
Ratio of Net Investment Income
to Average Net Assets 6.6% 5.6% 5.8% 7.0% 7.8% 8.5% 10.0% 11.1%*
Portfolio Turnover Rate 183.7% 221.0% 304.8% 316.1% 503.0% 274.1% 211.3% 22.9%
</TABLE>
* Calculated on an annualized basis.
(a) Inception date is November 25, 1988 for Strong Advantage Fund.
Total return and portfolio turnover rate are not annualized.
15
<PAGE> 18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of the
Strong U.S. Treasury Money Fund and Strong Advantage Fund, Inc.
We have audited the accompanying statements of assets and liabilities of Strong
U.S. Treasury Money Fund (one of the portfolios constituting the Strong Income
Funds, Inc.) and Strong Advantage Fund, Inc., including the schedules of
investments in securities, as of December 31, 1995, 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 responsiblity 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, 1995 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
Strong U.S. Treasury Money Fund and Strong Advantage Fund, Inc. as of December
31, 1995, 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
January 25, 1996
16
<PAGE> 19
SHAREHOLDER PRIVILEGES*
[STRONG FUNDS LOGO]
TELEPHONE PURCHASE
Make additional investments into any Strong Fund by calling us toll-free at
1-800-368-3863.
TELEPHONE EXCHANGE
If your financial goals change, you can exchange your investments between any
of the Strong Funds.
TELEPHONE REDEMPTION
You can call toll-free to redeem your mutual fund shares at any time. Your
shares will be redeemed no later than the close of the next business day.
[STRONG FUNDS LOGO]
AUTOMATIC INVESTMENT PLAN
This plan allows you to set up regular transfers from your bank checking or NOW
account to your Strong Funds account.
PAYROLL DIRECT DEPOSIT PLAN
You can automatically transfer all or a portion of your net pay at each pay
period. This eliminates the delay of depositing paychecks to your bank and then
sending a check through the mail to Strong Funds.
AUTOMATIC EXCHANGE PLAN
This plan allows you to exchange money from one Strong Fund to another. For
example, you may want to set up automatic exchanges from a money market fund to
an equity fund.
FOR MORE INFORMATION ABOUT THESE PRIVILEGES, CALL US AT 1-800-368-3863.
To reduce the volume of mail you receive, only one copy of certain materials,
such as prospectuses and shareholder reports, is mailed to your household.
Please call 1-800-368-3863 if you wish to receive additional copies, free of
charge.
*Each Fund reserves the right to terminate
or modify any of these privileges.
<PAGE> 20
Bulk Rate
U.S. Postage
PAID
Mailed from
Zip Code 94545
Permit No. 23
For Literature and information Requests:
Call 1-800-368-1030.
To Discuss an existing Account or Conduct a transaction.
Call 1-800-368-3863.
For a prospectus containing complete information,
including management fees and expenses, please call
1-800-368-1030. Please read it carefully before
investing or sending money. This annual report does
not constitute an offer for sale of securities.
Strong Funds are offered for sale by prospectus only.
[STRONG FUNDS LOGO]
STRONG FUNDS DISTRIBUTORS, INC.
P.O. Box 2936
Milwaukee, Wisconsin 53201
