THE STRONG
U.S. TREASURY MONEY
Fund
SEMI-ANNUAL REPORT o JUNE 30, 1996
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THE STRONG
U.S. TREASURY MONEY
Fund
SEMI-ANNUAL REPORT o JUNE 30, 1996
TABLE OF CONTENTS
INVESTMENT REVIEWS
The U.S. Treasury Money Fund..................................2
FINANCIAL INFORMATION
Schedule of Investments in Securities.........................4
Statement of Operations.......................................5
Statement of Assets and Liabilities...........................6
Statement of Changes in Net Assets............................6
Notes to Financial Statements.................................7
FINANCIAL HIGHLIGHTS.................................................8
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The Strong US TREASURY MONEY FUND
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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.
[PHOTO OF U.S. TREASURY BUILDING]
A PROPOSAL TO MERGE THE FUND
Effective April 1, 1996, the Strong U.S. Treasury Money Fund was closed to new
investors. In addition, the Fund's Board of Directors approved a proposal on
April 24 to merge this Fund into the Strong Money Market Fund, subject to a
shareholder vote.
A proxy statement was mailed to current shareholders on July 3. A shareholder
meeting will be held at Strong's Corporate Headquarters in Menomonee Falls,
Wisconsin on August 27 and, subject to approval by shareholders, the merger will
take place on August 30.
THE BOND MARKET STAGES A REVERSAL
1996 began with a consensus view of weak economic growth in the U.S., with some
analysts even projecting a recession beginning in the first half of the year.
Driven by signs of lingering weakness, the yield on the 3-month Treasury Bill
fell by nearly one-half percentage point from November of last year through
February, presaging the Federal Reserve Board's cut in its Fed Funds target rate
to 5.25% at its January 31 meeting. In fact, the market had already begun to
price additional rate cuts into the market for Treasuries, which resulted in
one-year securities yielding less than one-month securities.
This pessimistic view of the economy was shattered upon announcement of a
surprisingly high number of new jobs created in February. Subsequent economic
data tended to support this view of a stronger-than-expected economy, and
eliminated the chance that the Fed would lower rates further in March. As a
result, interest rates staged an abrupt reversal. Longer-term rates experienced
the largest increases; the yield on the two-year T-Bill rose by nearly one
percentage point over the first six months of the year, to end June at 6.11%.
Short-term rates also rose, though less dramatically. The 3-month T-Bill started
the year at 5.08% and ended June at 5.16%
2
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A SHORTENED MATURITY IN LIGHT OF THE PROPOSED MERGER
During the second quarter we shortened the average maturity in the Fund, and
limited the maturity of all purchases to dates prior to the possible merger of
the Fund. The shortened maturity is designed to minimize shareholder risk as the
size of the Fund contracts due to its closing on April 1. At the end of June,
the Fund's average maturity was 27 days.
YIELD SUMMARY*
as of 6-28-96
7-DAY CURRENT YIELD
4.18%
7-DAY EFFECTIVE YIELD
4.27%
AVERAGE MATURITY
27 DAYS
OUR OUTLOOK FOR INTEREST RATES
We expect interest rates to trade within a fairly narrow range in the near-term,
based upon the stability in the underlying economy, and the lack of a compelling
reason for the Fed to move aggressively in either direction. The economy appears
to be in decent shape, producing moderate growth and little inflation, and we
expect to see economic growth within the 2% to 3% range for the year.
As always, we thank you for your confidence.
Cordially,
/s/Jay N. Mueller
Jay N. Mueller
Portfolio Manager
[PHOTO OF JAY N. MUELLER]
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3-MONTH T-BILL YIELDS THROUGH JUNE
6-95 5.57%
7-95 5.58%
8-95 5.45%
9-95 5.41%
10-95 5.51%
11-95 5.49%
12-95 5.08%
1-96 5.05%
2-96 5.03%
3-96 5.14%
4-96 5.15%
5-96 5.18%
6-96 5.16%
Source: Bloomberg
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*Yields are annualized for the 7-day period ended 6-28-96. Effective yield
reflects the compounding of income. As of June 28, 1996, the advisor was
temporarily waiving management fees of .40% and absorbing other expenses of
.38%. Otherwise, the Fund's current and effective yields would have been 3.40%
and 3.46%, 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
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<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS IN SECURITIES June 30, 1996 (Unaudited)
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PRINCIPAL YIELD TO MATURITY AMORTIZED
AMOUNT MATURITY DATE COST (a)
SECURITY (In Thousands) (In Thousands)
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<S> <C> <C> <C> <C>
UNITED STATES TREASURY BILLS 100.6% $ 3,872 4.85% 7/11/96 $ 3,867
14,355 5.00 7/25/96 14,308
3,055 4.74 8/08/96 3,040
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TOTAL INVESTMENTS IN SECURITIES 100.6% 21,215
Other Assets and Liabilities, Net (0.6%) (133)
----
NET ASSETS 100.0% $21,082
=======
LEGEND
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(a) Cost for Federal income tax and financial reporting purposes is the same as amortized cost.
All principal amounts and costs are stated in thousands.
Percentages are stated as a percent of net assets.
See notes to financial statements.
</TABLE>
4
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STATEMENT OF OPERATIONS
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For the Six Months Ended June 30, 1996 (Unaudited)
(In Thousands)
INTEREST INCOME $779
EXPENSES:
Investment Advisory Fees 62
Custodian Fees 2
Shareholder Servicing Costs 39
Legal Fees 17
Reports to Shareholders 23
Federal and State Registration Fees 21
Other 3
--
Total Expenses before Waivers and Absorptions 167
Voluntary Expense Waivers and Absorptions by Advisor (38)
---
Expenses, Net 129
---
NET INVESTMENT INCOME $650
====
See notes to financial statements.
5
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STATEMENT OF ASSETS AND LIABILITIES
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June 30, 1996 (Unaudited)
(In Thousands, Except
Per Share Amounts)
ASSETS:
Investments in Securities, at Amortized Cost $ 21,215
LIABILITIES:
Dividends Payable 70
Accrued Operating Expenses and Other Liabilities 63
--
Total Liabilities 133
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NET ASSETS $ 21,082
==========
Capital Shares
Authorized 3,000,000
Outstanding 21,082
NET ASSET VALUE PER SHARE $ 1.00
===========
NET ASSETS CONSIST OF:
Capital (Par Value and Paid-In Capital) $ 21,082
==========
STATEMENT OF CHANGES IN NET ASSETS
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For the Six Months Ended June 30, 1996 (Unaudited) and the Year Ended
December 31, 1995
(In Thousands)
JUNE 30,1996 DEC. 31, 1995
------------ -------------
OPERATIONS:
Net Investment Income $ 650 $ 2,101
CAPITAL SHARE TRANSACTIONS (21,578) (24,867)
DISTRIBUTIONS FROM NET INVESTMENT INCOME (650) (2,101)
---- ------
TOTAL DECREASE IN NET ASSETS (21,578) (24,867)
NET ASSETS:
Beginning of Period 42,660 67,527
------ ------
End of Period $21,082 $42,660
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See notes to financial statements.
6
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NOTES TO FINANCIAL STATEMENTS
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June 30, 1996 (Unaudited)
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.
Effective April 1, 1996 the Fund was closed to new investors. In addition,
the Fund's Board of Directors approved a proposal on April 24, 1996 to
merge this Fund into Strong Money Market Fund. The merger will take place
August 30, 1996, subject to shareholder approval.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.
(A) Security Valuation -- Investments are valued using the amortized cost
method, which approximates current value. Amortized cost for Federal
income tax and financial reporting purposes is the same.
The Fund 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 Fund generally bears the
costs, if any, associated with the disposition of restricted
securities.
(B) Federal Income and Excise Taxes and Distributions to Shareholders --
It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its taxable income to its
shareholders in a manner which results in no tax cost to the Fund.
Therefore, no Federal income or excise tax provision is required.
(C) 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. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the six months ended June 30, 1996
and the year ended December 31, 1995 were as follows (in thousands):
1996 1995
---- ----
SHARES DOLLARS SHARES DOLLARS
------ ------- ------ -------
Shares Sold 23,093 $23,093 75,716 $ 75,716
Dividends Reinvested 670 670 2,009 2,009
Shares Redeemed (45,341) (45,341) (102,592) (102,592)
------- ------- -------- --------
(21,578) ($21,578) (24,867) ($ 24,867)
======= ======== ======= =========
4. RELATED PARTY TRANSACTIONS
Strong Capital Management, Inc. (the "Advisor"), with whom certain officers
and directors of the Fund are affiliated, provides investment advisory
services and shareholder recordkeeping and related services to the Fund.
Investment advisory fees, which are established by terms of the Advisory
Agreements, are based on an annualized rate of 0.40% of the average daily
net assets of the Fund. Advisory fees are subject to reimbursement by the
Advisor if the Fund's 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 six months ended June 30,
1996 is as follows (in thousands):
Payable to Advisor at June 30, 1996 $6
Other Shareholder Servicing Expenses Paid to Advisor 1
Unaffiliated Directors' Fees 1
7
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FINANCIAL HIGHLIGHTS
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The following presents information relating to a share of capital stock of the
Fund, outstanding for the entire period.
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996(a) 1995 1994 1993 1992 1991
------- ---- ---- ---- ---- ----
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income 0.02 0.05 0.04 0.03 0.04 0.06
Dividends from Net Investment Income (0.02) (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 $ 1.00
======= ======= ======= ======= ======= =======
Total Return +2.2% +4.9% +3.8% +2.9% +3.7% +5.8%
Net Assets, End of Period (In Thousands) $21,082 $42,660 $67,527 $41,851 $29,390 $20,431
Ratio of Expenses to Average Net Assets 0.9%* 0.8% 0.2% 0.2% 0.3% 0.3%
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 1.1%* 0.9% 0.8% 1.0% 0.9% 1.0%
Ratio of Net Investment Income to Average
Net Assets 4.3%* 4.8% 3.8% 2.9% 3.6% 5.4%
* Calculated on an annualized basis.
(a) For the six months ended June 30, 1996 (Unaudited)
</TABLE>
8
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Bulk Rate
U.S. Postage
PAID
Mailed from
Zip Code 94545
Permit No. 23
FOR LITERTURE AND INFORMATION REQUESTS,
CALL 1-800-368-1030.
TO DISCUSS AN EXISTING ACCOUNT OR
CONDUCT A TRANSACTION,
CALL 1-800-368-3863.
For a prospectus containing more complete information, including management fees
and expenses, please call 1-800-368-1030. Please read it carefully before
investing or sending money. This annual report does not constitute an offer for
the sale of securities. Strong Funds are offered for sale by prospecuts only.
[STRONG LOGO]
STRONG FUNDS DISTRIBUTORS, INC.
P.O. Box 2936
Milwaukee, Wisconsin 53201
http://www.strong-funds.com
3279G96O
