THE STRONG
----------
VALUE
FUND
=================================
ANNUAL REPORT o DECEMBER 31, 1998
=================================
[PHOTO OF STRONG FUNDS BUILDING]
[STRONG LOGO]
STRONG FUNDS
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Strong Investor,
It was a rainy Friday night in Owings Mills, Md., in October 1996. I was
sitting on the set of "Wall Street Week," being interviewed by Louis Rukeyser.
We had been talking about the incredible bull market that was heading for
another year of double-digit returns. Lou asked--with tongue in cheek--if I
thought it could last forever.
My response was that I didn't know how long the bull would run, but that I
was pretty sure of one thing: We ought to enjoy it. We live in remarkable times,
the kind of times we only dreamt about when I was in school. I told Lou that
inflation was almost nonexistent, interest rates appeared to be heading lower,
and American technology had made a lot of companies unbelievably efficient and
productive.
"It's the best I've seen things in the 30 years since I got out of school,"
I said.
"Then you'd say the future probably lies ahead of us," observed Lou.
"Yes," I replied, "I'd say the future is ahead of us."
Here we are more than two years later, fast approaching the end of the
millennium, and the story line is pretty much unchanged. Inflation is low,
interest rates are still moving down--(and we believe they will move lower in
the months and years ahead)--and one technological miracle after another arrives
regularly.
Beyond that, we've just come off the fourth successive year in which the
S&P 500 returned more than 20%. Mind you, not every common stock finished 1998
so strong. Once again the investment gods smiled mainly on the bigger blue
chips. But generally speaking, after encountering some "air pockets" over Asia
last summer, the US and European markets rebounded when the Federal Reserve
reduced interest rates three times.
If there was one lesson that the markets taught us last year, it was the
importance of creating a balanced portfolio. That means splitting your
investments between stocks, bonds and cash. Common stocks today are the darling
of American investors, particularly the technology stocks. Bonds are not nearly
as romantic, and are also a little tougher to get your arms around. But there is
no disputing their importance in a sound, balanced investment portfolio. They
generate a consistent stream of income and provide protection when inflation is
low.
You ought to remember that in 1999. As long as interest rates fall, bonds
will continue to provide very attractive returns. If you find the world of bonds
a little tough to figure at times--as a number of our shareholders have reminded
us--call for a better explanation. We'll be happy to walk you through the math.
You should also make sure to spread out your stock investments among
small-, medium-, and large-cap stocks. While the blue chips, Internet and other
tech stocks received the spotlight in 1998, they are not the only game in town.
There are an awful lot of smart, solid, mid-sized and smaller companies out in
the common stock universe that have not shared in the run-up. You can find some
great bargains and, sooner or later, these companies are going to get their due.
/s/ Dick
<PAGE>
THE STRONG
----------
VALUE
FUND
=================================
ANNUAL REPORT o DECEMBER 31, 1998
=================================
TABLE OF CONTENTS
INVESTMENT REVIEW
The Strong Value Fund ...................................................2
FINANCIAL INFORMATION
Schedule of Investments in Securities ...................................4
Statement of Assets and Liabilities .....................................6
Statement of Operations .................................................7
Statements of Changes in Net Assets .....................................8
Notes to Financial Statements ...........................................9
FINANCIAL HIGHLIGHTS .....................................................11
REPORT OF INDEPENDENT ACCOUNTANTS ........................................12
<PAGE>
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THE STRONG VALUE FUND
-----------=====-----
FUND
HIGHLIGHTS
o The Strong Value Fund was up 15.17% for the year ended December 31, 1998.
o The Fund benefited from hold-ings in cable and telecomm-unications as
investors bid up prices of these "new age" communications delivery systems.
o A number of the Fund's consumer holdings increased substantially.
Better-than-expected earnings and improved operations from corporate
restructuring generated gains for these stocks.
o Above-average cash balances due to high market volatility and our exposure
to the energy sector hurt the Fund's performance.
- ---------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS
As of 12-31-98
1-year 15.17%
Since Inception 19.21%
(on 12-29-95)
- ---------------------------------------
FIVE LARGEST
STOCK HOLDINGS
As of 12-31-98
SECURITY % OF NET ASSETS
Rite Aid Corporation 4.8%
McDonald's Corporation 4.6%
Waste Management, Inc. 4.4%
MCI WorldCom, Inc. 4.2%
Eastman Kodak Company 4.2%
Please see the Schedule of Investments in
Securities for a complete listing of
the Fund's portfolio.
PERSPECTIVES
FROM THE MANAGERS
/s/ Laura J. Sloate /s/ Jeff B. Cohen
Laura J. Sloate Jeff B. Cohen
Portfolio Co-manager Portfolio Co-manager
- --------------------------------------------------------------------------------
1998 was an intense and memorable year, capped by a fourth quarter that was one
of the best on record. The volatility of stock prices throughout the year
enabled us to purchase equities at undervalued prices even as the market was
soaring to new heights. As always, the presence of a catalyst and the valuation
are the key inputs in any transaction in which we are involved.
The Fund increased its exposure in the health care sector by purchasing American
Home Products, Bristol-Myers Squibb, Beckman Coulter, and HBO & Company. Three
trends--demographics, research and development spending, and the need to lower
health care costs--will drive this sector's future growth. We maintained our
sizable holding in Rite Aid as the company continued to benefit from rising
prescription drug usage and higher drug prices.
Other purchases of note included doubling our position in McDonald's, which
benefited from management changes and a restructuring to lower costs and improve
quality of food service. We also boosted the Fund's position in CIGNA, a managed
care/insurance company that is successfully restructuring operations and
increasing profitability while focusing on health care and employee benefit
insurance. In addition, the outlook for Waste Management improved dramatically
as it was acquired by USA Waste, one of the best-managed waste industry
companies.
---------------------------------
THE VOLATILITY OF STOCK
PRICES THROUGHOUT
THE YEAR ENABLED US
TO PURCHASE EQUITIES
AT UNDERVALUED
PRICES EVEN AS THE
MARKET WAS SOARING
TO NEW HEIGHTS.
----------------------------------
- --------------------------------------------------------------------------------
2
<PAGE>
The Fund sold several stocks that reached our price objectives and, in order to
improve the quality of the portfolio, some positions that had disappointing
results. We sold several cyclical manufacturers and health care service
providers, and reduced the Fund's exposure in the energy sector. In a year when
the market largely favored technology and growth stocks, two areas not included
in the Fund's "value-oriented" portfolio, we're pleased with the overall
performance achieved.
While the U.S. economy is strong, growth could slow in 1999 given declining
commodity prices, limited ability of manufacturers to raise prices due to
worldwide over-capacity, a very mature economy, and lessened demand from our
nation's international trading partners. A slow recovery overseas could dampen
U.S. economic growth in general and impede earnings growth for the Fund's
multinational holdings, including Eastman Kodak, Texaco, and Ford.
Given our slow earnings growth expectations for the market, we will look for
companies that demonstrate better-than-market growth and are selling at
reasonable valuations. We appreciate your trust and look forward to another
successful year.
GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 12-29-95 to 12-31-98
[GRAPH] Lipper Growth
THE STRONG S & P 500 and Income
VALUE FUND Index* Funds Index*
12-95 10,000 10,000 10,000
6-96 11,072 11,009 10,846
12-96 11,681 12,295 12,067
6-97 13,140 14,829 13,991
12-97 14,710 16,398 15,310
6-98 16,452 19,302 17,089
12-98 16,941 21,085 17,390
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with the performance of the
Standard & Poor's 500 Stock Index ("S&P 500") and the Lipper Growth and Income
Funds Index. Results include the reinvestment of dividends and capital gains
distributions. Performance is historical and does not represent future results.
Investment returns and principal value vary, and you may have a gain or loss
when you sell shares.
- --------------------------------------------------------------------------------
* The S&P 500 is an unmanaged index generally representative of the U.S.
stock market. The Lipper Growth and Income Funds Index is an
equally-weighted performance index of the largest qualifying funds in this
Lipper category. The Russell 3000(R) Index is an unmanaged index generally
representative of the U.S. stock market. Source of the S&P and Russell
index data is Standard & Poor's Micropal. Source of the Lipper index data
is Lipper, Inc.
YOUR FUND'S
APPROACH
THE STRONG VALUE FUND SEEKS TO ACHIEVE CONSISTENTLY SUPERIOR LONG-TERM RATES OF
RETURN RELATIVE TO THE MARKET BY INVESTING IN SECURITIES THAT REPRESENT VALUE
RELATIVE TO THE UNDERLYING COMPANY'S ASSETS, EARNINGS POWER AND/OR
CASH-GENERATING ABILITY. USING FUNDAMENTAL ANALYSIS, THE FUND INVESTS PRIMARILY
IN STOCKS IN WHICH A CATALYST FOR POSITIVE CHANGE IS APPARENT. THE CATALYST
COULD BE MANAGEMENT CHANGE, CORPORATE RESTRUCTURING, A CYCLICAL UPTURN IN AN
INDUSTRY OR A NEW INDUSTRY TREND. THE FUND AVOIDS INVESTING IN TECHNOLOGY AND
FOREIGN STOCKS. WHILE THE FUND MAY INVEST IN COMPANIES OF ANY SIZE, IT CURRENTLY
EMPHASIZES MEDIUM- TO LARGE-CAPITALIZATION COMPANIES.
- --------------------------------------------------------------------------------
MARKET
HIGHLIGHTS
o The market was affected by the accelerating Asian contagion, declining
interest rates, and a disinflationary environment. In the third and fourth
quarters, the Fed moved to prevent a liquidity crisis from becoming a
worldwide disaster by lowering interest rates three times within 60 days.
o For the year, the Russell 3000(R) Index was up 24.14% and the S&P 500 Index
was up 28.58%, although the average S&P 500 stock was up only 10.8%.* These
"broad" market indices are dominated by a small number of
mega-capitalization growth stocks that far outperformed most other stocks
in 1998.
3
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES DECEMBER 31, 1998
- --------------------------------------------------------------------------------
================================================================================
STRONG VALUE FUND
================================================================================
Shares or
Principal Value
Amount (Note 2)
- --------------------------------------------------------------------------------
COMMON STOCKS 95.0%
AEROSPACE & DEFENSE 1.9%
Raytheon Company Class A 32,700 $1,690,181
AUTOMOBILE 4.6%
Ford Motor Company 55,800 3,274,763
General Motors Corporation 13,400 958,938
----------
4,233,701
BANK - MONEY CENTER 1.5%
Citigroup, Inc. 28,600 1,415,700
COMPUTER SOFTWARE 2.0%
HBO & Company 64,500 1,850,344
DIVERSIFIED OPERATIONS 1.8%
Tyco International, Ltd. 21,266 1,604,254
ELECTRIC POWER 3.9%
Duke Energy Corporation 18,835 1,206,617
New Century Energies, Inc. 23,000 1,121,250
UtiliCorp United, Inc. 33,600 1,232,700
----------
3,560,567
FINANCE - MISCELLANEOUS 1.8%
American Express Company 9,500 971,375
SunAmerica, Inc. 8,500 689,563
----------
1,660,938
FOOD 4.0%
ConAgra, Inc. 38,000 1,197,000
General Mills, Inc. 31,800 2,472,450
----------
3,669,450
HEALTHCARE - DRUG/DIVERSIFIED 5.8%
American Home Products Corporation 18,000 1,013,625
Bristol-Myers Squibb Company 10,900 1,458,556
Eli Lilly & Company 31,200 2,772,900
----------
5,245,081
HEALTHCARE - INSTRUMENTATION 1.1%
Beckman Coulter, Inc. 18,100 981,925
HEALTHCARE - MEDICAL SUPPLY 2.1%
McKesson Corporation 24,000 1,897,500
HEALTHCARE - PATIENT CARE 2.9%
Pacificare Health Systems, Inc. Class B (b) 33,000 2,623,500
INSURANCE - ACCIDENT & HEALTH 2.8%
Provident Companies, Inc. 62,300 2,585,450
INSURANCE - DIVERSIFIED 3.7%
CIGNA Corporation 43,800 3,386,287
INSURANCE - LIFE 0.5%
The MONY Group, Inc. (b) 15,400 482,212
INSURANCE - PROPERTY & CASUALTY 2.2%
American International Group, Inc. 3,000 289,875
MBIA, Inc. 12,000 786,750
Mercury General Corporation 20,300 889,394
----------
1,966,019
LEISURE PRODUCT 4.2%
Eastman Kodak Company 52,700 3,794,400
LEISURE SERVICE 2.2%
International Game Technology 83,800 2,037,387
MEDIA - RADIO/TV 6.9%
CBS Corporation 104,400 3,419,100
Cox Communications, Inc. Class A (b) 14,700 1,016,138
Time Warner, Inc. 30,000 1,861,875
----------
6,297,113
NATURAL GAS DISTRIBUTION 1.1%
Kinder Morgan Energy Partners LP 27,900 1,011,375
OFFICE AUTOMATION 1.7%
Xerox Corporation 12,900 1,522,200
OIL - INTERNATIONAL INTEGRATED 3.0%
Chevron Corporation 11,000 912,312
Conoco, Inc. Class A (b) 3,000 62,625
Texaco, Inc. 34,100 1,803,038
----------
2,777,975
PERSONAL & COMMERCIAL LENDING 4.6%
Associates First Capital Corporation 74,648 3,163,209
SLM Holding Corporation 22,000 1,056,000
----------
4,219,209
POLLUTION CONTROL 4.4%
Waste Management, Inc. 86,067 4,012,874
REAL ESTATE 3.0%
Vornado Operating, Inc. (b) 4,020 32,411
Vornado Realty Trust 80,400 2,713,500
----------
2,745,911
RETAIL - DEPARTMENT STORE 1.1%
Federated Department Stores, Inc. (b) 23,800 1,036,787
RETAIL - DRUG STORE 4.8%
Rite Aid Corporation 88,400 4,381,325
RETAIL - FOOD CHAIN 2.3%
Albertson's, Inc. 33,200 2,114,425
RETAIL - RESTAURANT 4.6%
McDonald's Corporation 54,700 4,191,387
RETAIL - SPECIALTY 0.1%
Tiffany & Company 2,500 129,688
TELECOMMUNICATION SERVICE 8.4%
AT&T Corporation 15,900 1,196,475
AirTouch Communications, Inc. (b) 35,700 2,574,863
MCI WorldCom, Inc. (b) 53,800 3,860,150
----------
7,631,488
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $63,196,858) 86,756,653
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS 0.5%
Vornado Realty Trust 6.50% Series A 8,600 417,100
- --------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $431,438) 417,100
- --------------------------------------------------------------------------------
PREFERRED STOCKS 0.0%
Fresenius National Medical Care, Inc. Class D (b) 8,500 255
- --------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (COST $0) 255
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
STRONG VALUE FUND (continued)
================================================================================
Shares or
Principal Value
Amount (Note 2)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 4.1%
COMMERCIAL PAPER 1.8%
INTEREST BEARING, DUE UPON DEMAND
Pitney Bowes Credit Corporation, 5.23% $ 486,800 $ 486,800
Warner Lambert Company, 5.18% 194,000 194,000
Wisconsin Corporate Central Credit Union, 5.30% 1,005,300 1,005,300
1,686,100
REPURCHASE AGREEMENT 2.3%
Goldman, Sachs & Company, Inc., (Dated 12/31/98),
4.55%, Due 1/04/99 (Repurchase proceeds
$2,101,062); Collateralized by: $1,370,000 United
States Treasury Bonds, 12.00%, Due 8/15/13
(Market Value $2,148,845) (c) 2,100,000 2,100,000
- --------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $3,786,100) 3,786,100
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST $67,414,396) 99.6% 90,960,108
Other Assets and Liabilities, Net 0.4% 390,423
- --------------------------------------------------------------------------------
NET ASSETS 100.0% $91,350,531
================================================================================
LEGEND
- --------------------------------------------------------------------------------
(a) Short-term investments include any security which has a maturity of less
than one year.
(b) Non-income producing security.
(c) See Note 2(I) of Notes to Financial Statements.
Percentages are stated as a percent of net assets.
See Notes to Financial Statements.
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1998
STRONG VALUE
FUND
------------
ASSETS:
Investments in Securities, at Value
(Cost of $67,414,396) $90,960,108
Receivable for Securities Sold 324,702
Receivable for Fund Shares Sold 13,874
Dividends and Interest Receivable 77,886
Other Assets 31,666
-----------
Total Assets 91,408,236
LIABILITIES:
Payable for Fund Shares Redeemed 23,062
Accrued Operating Expenses and Other Liabilities 34,643
-----------
Total Liabilities 57,705
-----------
NET ASSETS $91,350,531
===========
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) $67,316,447
Undistributed Net Investment Income 14,381
Undistributed Net Realized Gain 473,991
Net Unrealized Appreciation 23,545,712
-----------
Net Assets $91,350,531
===========
Capital Shares Outstanding (Unlimited Number Authorized) 6,109,415
NET ASSET VALUE PER SHARE $14.95
======
See Notes to Financial Statements.
6
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended December 31, 1998
STRONG VALUE
FUND
------------
INCOME:
Dividends $ 1,411,307
Interest 351,729
-----------
Total Income 1,763,036
EXPENSES:
Investment Advisory Fees 948,313
Custodian Fees 5,853
Shareholder Servicing Costs 202,832
Other 108,658
-----------
Total Expenses 1,265,656
-----------
NET INVESTMENT INCOME 497,380
REALIZED AND UNREALIZED GAIN:
Net Realized Gain on Investments 3,779,680
Net Change in Unrealized Appreciation/Depreciation on Investments 9,933,445
-----------
NET GAIN ON INVESTMENTS 13,713,125
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $14,210,505
===========
See Notes to Financial Statements.
7
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
STRONG VALUE FUND
-------------------------------
<CAPTION>
Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net Investment Income $ 497,380 $ 615,006
Net Realized Gain 3,779,680 5,877,880
Net Change in Unrealized Appreciation/Depreciation 9,933,445 10,590,377
----------- -----------
Net Increase in Net Assets Resulting from Operations 14,210,505 17,083,263
DISTRIBUTIONS:
From Net Investment Income (446,330) (615,576)
From Net Realized Gains (5,167,200) (4,122,458)
----------- -----------
Total Distributions (5,613,530) (4,738,034)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 45,279,469 56,387,272
Proceeds from Reinvestment of Distributions 5,500,744 4,652,803
Payment for Shares Redeemed (61,562,894) (35,344,567)
----------- -----------
Net Increase (Decrease) in Net Assets from Capital Share Transactions (10,782,681) 25,695,508
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (2,185,706) 38,040,737
NET ASSETS:
Beginning of Year 93,536,237 55,495,500
----------- -----------
End of Year $91,350,531 $93,536,237
=========== ===========
TRANSACTIONS IN SHARES OF THE FUND:
Sold 3,192,624 4,408,449
Issued in Reinvestment of Distributions 380,493 347,857
Redeemed (4,257,839) (2,768,939)
---------- ----------
Net Increase (Decrease) in Shares of the Fund (684,722) 1,987,367
========== ==========
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1998
1. ORGANIZATION
The Strong Value Fund is a diversified series of Strong Equity Funds, Inc.,
an 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 Fund in the preparation of its financial statements.
(A) Security Valuation -- Portfolio securities traded primarily on a
principal securities exchange are valued at the last reported sales
price or the mean of the latest bid and asked prices when no last
sales price is available. Securities traded over-the-counter are
valued at the mean of the latest bid and asked prices or the last
reported sales price. Debt securities not traded on a principal
securities exchange are valued through valuations obtained from a
commericial pricing service, otherwise last sale or bid prices are
used. 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 are valued at amortized cost,
which approximates fair value.
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. The Fund held no restricted securities at December 31,
1998.
(B) Federal Income and Excise Taxes and Distributions to Shareholders --
The Fund intends 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.
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) Certain Investment Risks -- The Fund may utilize derivative
instruments including options, futures and other instruments with
similar characteristics to the extent that they are consistent with
the Fund's investment objectives and limitations. The Fund intends to
use such derivative instruments primarily to hedge or protect from
adverse movements in securities prices or interest rates. The use of
these instruments may involve risks such as the possibility of
illiquid markets or imperfect correlation between the value of the
instruments and the underlying securities, or that the counterparty
will fail to perform its obligations.
Foreign denominated assets and forward currency contracts may involve
greater risks than domestic transactions, including currency,
political and economic, regulatory and market risks.
(E) Futures -- Upon entering into a futures contract, the Fund pledges to
the broker cash or other investments equal to the minimum "initial
margin" requirements of the exchange. Additional securities held by
the Fund may be designated as collateral on open futures contracts.
The Fund also receives from or pays 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.
(F) Options -- The Fund may write put or call options (none were written
during the period). Premiums received by the Fund 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 Fund
realizes a gain or loss, and the liability is eliminated. The Fund
continues 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.
(G) 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.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
December 31, 1998
(H) 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 Fund records
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.
(I) Repurchase Agreements -- The Fund may enter into repurchase agreements
with institutions that the Fund's investment advisor, Strong Capital
Management, Inc. ("the Advisor"), has determined are creditworthy
pursuant to criteria adopted by the Board of Directors. Each
repurchase agreement is recorded at cost. The Fund requires that the
collateral, represented by securities (primarily U.S. Government
securities), purchased in a repurchase transaction be maintained in a
segregated account with a custodian bank in a manner sufficient to
enable the Fund to obtain those securities in the event of a default
of the repurchase agreement. On a daily basis, the Advisor monitors
each repurchase agreement to ensure the value of the collateral,
including accrued interest, is at least equal to the amount owed to
the Fund under each repurchase agreement.
(J) Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts in these financial statements. Actual results could differ
from those estimates.
(K) 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. RELATED PARTY TRANSACTIONS
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 Agreement, are based on an
annualized rate of 1.00% of the average daily net assets of the Fund. Based
on the terms of the Advisory Agreement, advisory fees and other expenses
will be waived by the Advisor if the Fund's operating expenses exceed 2% of
the average daily net assets of the Fund. In addition, the Fund's Advisor
may voluntarily waive certain expenses at their discretion. 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.
Sloate, Weisman, Murray & Company, Inc. ("Sloate") manages the investments
of Strong Value Fund under an agreement with the Advisor. Sloate is
compensated by the Advisor (not the Fund) and bears all of its own expenses
in providing subadvisory services.
The Fund may invest cash reserves in money market funds sponsored and
managed by the Advisor, subject to certain limitations. The terms of such
transactions are identical to those of non-related entities except that, to
avoid duplicate investment advisory fees, advisory fees of the Fund are
reduced by an amount equal to advisory fees paid to the Advisor under its
investment advisory agreement with the money market funds.
The amount payable to the Advisor at December 31, 1998, shareholder
servicing and other expenses paid to the Advisor, and unaffiliated
directors' fees for the year then ended, were $20,192, $212,116 and $1,500,
respectively.
4. LINE OF CREDIT
The Strong Funds have established a line of credit agreement ("LOC") with
certain financial institutions to be used for temporary or emergency
purposes, primarily for financing redemption payments. Combined borrowings
among all participating Strong Funds are subject to a $350 million cap on
the total line of credit. For individual Funds, borrowings under the LOC
are limited to either the lesser of 15% of the market value of total assets
or any explicit borrowing limits in the Fund's prospectus. Borrowings under
the LOC bear interest based on prevailing market rates as defined in the
LOC. A commitment fee of .07% per annum is incurred on the unused portion
of the line of credit and is allocated to all participating Strong Funds.
At December 31, 1998, there were no borrowings by the Funds outstanding
under the LOC.
5. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities for the year
ended December 31, 1998 were $81,543,986 and $95,837,345, respectively.
10
<PAGE>
- --------------------------------------------------------------------------------
6. INCOME TAX INFORMATION
At December 31, 1998, the cost of investments in securities for federal
income tax purposes was $67,440,383. Net unrealized appreciation of
securities was $23,519,725 consisting of gross unrealized appreciation and
depreciation of $23,993,587 and $473,862, respectively.
For corporate shareholders in the Fund, the percentage of dividend income
distributed for the year ended December 31, 1998 which is designated as
qualifying for the dividends-received deduction is 100.0% (unaudited).
During the year ended December 31, 1998, the Fund paid capital gains
distributions (taxable as long-term capital gains at 20%) to shareholders
of $4,788,757 (unaudited).
<TABLE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------
STRONG VALUE FUND
- --------------------------------------------------------------------------------------------
<CAPTION>
Year Ended
-----------------------------
<S> <C> <C> <C>
SELECTED PER-SHARE DATA(a) 1998 1997 1996
- --------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $13.77 $11.55 $10.00
Income From Investment Operations
Net Investment Income 0.08 0.10 0.13
Net Realized and Unrealized Gains on Investments 1.97 2.86 1.55
- --------------------------------------------------------------------------------------------
Total from Investment Operations 2.05 2.96 1.68
Less Distributions
From Net Investment Income (0.07) (0.10) (0.13)
From Net Realized Gains (0.80) (0.64) --
- --------------------------------------------------------------------------------------------
Total Distributions (0.87) (0.74) (0.13)
- --------------------------------------------------------------------------------------------
Net Asset Value, End of Period $14.95 $13.77 $11.55
============================================================================================
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Total Return +15.2% +25.9% +16.8%
Net Assets, End of Period (In Millions) $91 $94 $55
Ratio of Expenses to Average Net Assets 1.3% 1.3% 1.5%
Ratio of Net Investment Income to Average Net Assets 0.5% 0.8% 1.5%
Portfolio Turnover Rate 92.6% 103.0% 89.5%
</TABLE>
(a) Information presented relates to a share of capital stock of the Fund
outstanding for the entire period.
See Notes to Financial Statements.
11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors of the Strong Equity Funds, Inc.
and the Shareholders of the Strong Value Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Strong Value Fund (the "Fund") (one
of the portfolios constituting Strong Equity Funds, Inc.) at December 31, 1998,
the results of its operations for the year then ended, the changes in its 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. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at December 31, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 8, 1999
12
<PAGE>
DIRECTORS
Richard S. Strong
Willie D. Davis
Stanley Kritzik
Marvin E. Nevins
William F. Vogt
OFFICERS
Richard S. Strong, Chairman of the Board
Mary F. Hoppa, Vice President
Thomas P. Lemke, Vice President
John S. Weitzer, Vice President
Stephen J. Shenkenberg, Vice President and Secretary
Dana J. Russart, Treasurer
INVESTMENT ADVISOR
Strong Capital Management, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
DISTRIBUTOR
Strong Investments, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
CUSTODIAN
Firstar Bank Milwaukee, N.A.
P.O. Box 701, Milwaukee, Wisconsin 53201
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
Strong Capital Management, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
100 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Godfrey & Kahn, S.C.
780 North Water Street, Milwaukee, Wisconsin 53202
<PAGE>
For a prospectus containing more complete information, including management fees
and expenses, please call 1-800-368-1030. Please read it carefully before
investing or sending money. This report does not constitute an offer for the
sale of securities. Strong Funds are offered for sale by prospectus only.
[PICTURE OF TELEPHONE}
To order a free prospectus kit,
CALL 1-800-368-1030
To learn more about our funds,
discuss an existing account,
or conduct a transaction,
CALL 1-800-368-3863
-------------------
If you are a
Financial Professional,
CALL 1-800-368-1683
[PICTURES OF STRONG WEB SITE ON COMPUTER]
Strong On-line
www.strongfunds.com
[STRONG LOGO]
STRONG FUNDS
P.O. Box 2963 o Milwaukee, Wisconsin 53201
Strong Investments, Inc. 10380A99Y AVAL
