<PAGE>
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THE STRONG
INSTITUTIONAL
BOND FUND
SEMI-ANNUAL REPORT o JUNE 30, 1997
[PIE CHART OF ASSET DIVERSIFICATION EMPHASIZING BONDS]
[STRONG FUNDS LOGO]
STRONG FUNDS
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THE STRONG
INSTITUTIONAL
BOND FUND
SEMI-ANNUAL REPORT o JUNE 30, 1997
TABLE OF CONTENTS
INVESTMENT REVIEW
The Strong Institutional Bond Fund ...................................2
FINANCIAL INFORMATION
Schedule of Investments in Securities ................................4
Statement of Assets and Liabilities ..................................5
Statement of Operations ..............................................6
Statement of Changes in Net Assets ...................................6
Notes to Financial Statements ........................................7
FINANCIAL HIGHLIGHTS ......................................................8
<PAGE>
THE STRONG INSTITUTIONAL BOND FUND
WHILE MAINTAINING A DEFENSIVE POSITION, WE WERE ABLE TO EXCEED THE BENCHMARKS
THROUGH ISSUE SELECTION AND SECTOR ALLOCATIONS.
=======================================
ASSET ALLOCATION
Based on net assets as of 6-30-97
[PIE CHART]
Short-Term Investments 37.6%
U.S. Government and
Agency Issues 30.2%
Corporate Bonds 27.0%
Municipal Bonds 4.1%
Non-Agency Mortgage and
Asset-Backed Securities 1.1%
=======================================
The Strong Institutional Bond Fund seeks total return by investing for a high
level of current income with a moderate degree of share-price fluctuation. The
fund will be primarily invested in U.S. dollar denominated, investment-grade
fixed-income securities and its average portfolio duration will normally vary
between 3 and 6 years. In addition, the Fund may also invest up to 20% of its
assets in non-investment-grade debt obligations and other high-yield (high-risk)
securities.
======================================
PORTFOLIO STATISTICS
As of 6-30-97
30-day annualized yield(2) 6.40%
Average maturity(3) 4.0 years
Average quality rating(4) AA
======================================
FIRST HALF OF 1997
For the six months ended June 30, the Fund's total return was 10.32%, well ahead
of our benchmark and the Lehman Brothers Aggregate Bond Index. Our blended
benchmark and the Lehman Brothers Aggregate returned 3.75% and 3.11% for the
same period. While maintaining a defensive position, we were able to exceed the
benchmarks through a combination of issue selection, sector allocations and the
competitive advantage that the Fund enjoyed during its first several months of
operation due to its small asset size.*(1)
In early 1997, the market recognized that the economy was stronger than
previously forecasted. Furthermore, it became apparent that the Federal Reserve
would need to raise short-term interest rates to slow economic growth and head
off potential increases in inflation. Rates rose significantly after Fed
Chairman Alan Greenspan gave his Humphrey-Hawkins testimony to Congress in
February. In his remarks, Greenspan gave a strong signal that the Fed would
raise rates in March--as it in fact did late that month. In advance of the
interest rate increase by the Federal Reserve, the Institutional Bond Fund was
brought to a defensive position.
Early in the second quarter, rates across the yield curve peaked; the yield on
the 30-year Treasury and the 2-year note reached 7.17% and 6.53%. In addition to
the Fed rate hike, bond prices were also depressed by strong durable goods
orders and reports of wage pressure from an historically tight labor market.
However, as the second quarter continued, fears of Fed tightening faded and bond
prices rose as it became clear that the central bank was not going to move rates
higher in a rapid succession of policy moves. In addition, the demand for bonds
gradually increased once the fixed-income market recovered from the real and
psychological effects of higher overnight rates.
CURRENT STRATEGY
With fears of rate tightening by the Fed having faded, portfolio duration
currently reflects our neutral interest rate view. We have been able to add
value through the media, financial and railroad industries. Of particular note,
California Federal Bank F.S.B. was a key holding in your Fund. As a candidate
for takeover, and a beneficiary of a strengthening state economy, this issue
outperformed the market significantly.
On the international front, we continue to be cautious. Despite a stronger yen,
China's regaining control of Hong Kong after 156 years of colonial rule has all
the Asian markets on edge. In Europe, the push for a European Monetary Union
(EMU) continues to create opportunity and uncertainty. As countries struggle to
meet the Maastricht Criteria for entering the EMU, we are exploring fixed-income
opportunities on the continent. For example, the primary hurdle to admittance
for the German Bundesbank is their high Deficit/GDP Ratio. With inflation
forecasts at less than 2%, the potential for an easing of interest rates is
high. Conversely, apparent creative accounting by other EMU applicants has
prompted us to take a very selective approach to the European markets.
2
<PAGE>
OUTLOOK
Looking forward, we are cautiously optimistic in the near term with duration
positioned neutral to the benchmark. We continue to rigorously look for
opportunities in the corporate sector. With ten-year rates approaching the
critical 6.25% mark, and renewing pre-payment fears, mortgages are currently
underweighted. In the present political environment, the international exposure
of the Fund is also being restricted.
Current economic indicators point to the United States economy remaining strong,
but not out of control. Though the 5.9% GDP growth rate in the first quarter is
well above average, the future outlook for future growth is not nearly as
robust. More importantly, prices are remaining stable. We will continue to keep
a very close eye on the labor market, as well as high valuation levels in the
equities market and political instabilities abroad.
We appreciate your investment in the Strong Institutional Bond Fund and look
forward to earning your continued confidence.
Sincerely,
/s/Bradley C. Tank
Bradley C. Tank
/s/Jeffrey A. Koch
Jeffrey A. Koch
/s/Shirish T. Malekar
Shirish T. Malekar
Portfolio Managers
[PHOTO OF SHIRISH T. MALEKAR, BRADLEY C. TANK AND JEFFREY A. KOCH]
The Strong Institutional Bond Fund is designed to capitalize on the experience
of three veteran fixed-income portfolio management professionals:
BRADLEY C. TANK (center) manages the core portfolio segment of the Fund. He also
manages the Strong Government Securities Fund and the Strong Short-Term Bond
Fund. Brad has 15 years of experience having joined Strong in 1990 from Salomon
Brothers, Inc. where he commenced his career. He received his MBA from the
University of Wisconsin-Madison and a BA from the University of Wisconsin-Eau
Claire.
JEFFREY A. KOCH (right) manages the high-yield segment of the Fund. He is also
the manager of the Strong High-Yield Bond Fund and the Strong Corporate Bond
Fund. He began his investment career at Strong in 1989 after completing a
master's degree at the John M. Olin School of Business at Washington University
and a BA in Economics at the University of Minnesota-Morris. He is a Chartered
Financial Analyst.
SHIRISH T. MALEKAR (left) manages the international fixed-income segment of the
Fund. He also manages the Strong International Bond Fund and the Strong
Short-Term Global Bond Fund. Shirish began his investment career at Paine Webber
as a fixed-income trader in New York and Tokyo. Later he was a global arbitrage
trader with Harris Trust. Prior to joining Strong in 1993, Shirish was an
international fixed-income portfolio manager with Pacific Investment Management
Company (PIMCO). He earned a bachelor's degree from the University of Bombay, a
master's degree in Management from the Sloan School at Massachusetts Institute
of Technology and a master's degree in Petroleum/Chemical Engineering from the
University of Pittsburgh.
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GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 12-31-96 to 6-30-97
[GRAPH]
The Strong
Institutional Blended
Bond Fund Bond Index
--------- ----------
12-96 10,000 10,000
1-97 10,391 10,055
2-97 10,746 10,107
3-97 10.655 10.000
4-97 10,781 10,135
5-97 10,885 10,242
6-97 11,032 10,375
This graph, prepared in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with a similar investment in the
Blended Bond Index. Results include the reinvestment of all dividends and
capital gains distributions. Performance is historical and does not represent
future results. Investment returns and principal value vary, and you may have a
gain or loss when you sell shares.
================================================================================
TOTAL RETURN(1)
As of 6-30-97
Since Inception 10.32%
(on 12-31-96)
================================
* The Lehman Brothers Aggregate Bond Index is an unmanaged index composed of
investment-grade securities from the Lehman Brothers Government/Corporate
Bond Index, Mortgage-Backed Securities Index, and Asset-Backed Securities
Index. The Blended Bond Index is an unmanaged index comprised of 70% Lehman
Brothers Aggregate Bond Index, 15% Lehman Brothers High-Yield Bond Index
and 15% Salomon Brothers Non-U.S. World Government Bond Index (Currency
Hedged). Source of the Lehman and Blended Bond index data is Micropal.
1 Total return is not annualized and measures aggregate change in the value
of an investment in the Fund, assuming reinvestment of dividends.
2 The Advisor temporarily absorbed expenses of 0.45%. Otherwise, current
yield would have been 5.95% and returns would have been lower. Yields are
historical and do not represent future yields, which will fluctuate.
3 The Fund's average maturity includes the effect of when-issued securities.
4 For purposes of this average rating, the Fund's short-term debt obligations
have been assigned a long-term rating by the Advisor.
3
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
CORPORATE BONDS 27.0%
ADT Operations, Inc. Guaranteed Senior
Subordinated Notes, 9.25%, Due 8/01/03 $ 300,000 $ 319,500
ARA Services, Inc. Guaranteed Notes, 10.625%,
Due 8/01/00 270,000 293,585
California Federal Bank Linked Restructured
Asset Certificates with Enhanced Returns,
Series 1997-C-5-5, 8.5625%, Due 4/01/99
(Acquired 5/05/97; Cost $775,000) (b) 775,000 773,450
Contifinancial Corporation Senior Notes, 8.375%,
Due 8/15/03 205,000 211,406
LCI International, Inc. Senior Notes, 7.25%,
Due 6/15/07 700,000 695,009
NTC Capital I Floating Rate Notes, 6.3364%,
Due 1/15/27 280,000 277,558
NWCG Holdings Corporation Senior Secured
Discount Notes, Series B, Zero %, Due 6/15/99 330,000 290,400
Panamsat LP/ Panamsat Capital Corporation
Senior Secured Notes, 9.75%, Due 8/01/00 310,000 326,275
Safeway, Inc. Senior Subordinated Debentures,
9.875%, Due 3/15/07 110,000 130,402
Salomon, Inc. Senior Consumer Price Index-
Linked Bonds, 3.65%, Due 2/14/02 165,000 160,331
Teekay Shipping Corporation Guaranteed First
Preferred Mortgage Notes, 8.32%, Due 2/01/08 310,000 310,775
Tenet Healthcare Corporation Senior Notes,
8.625%, Due 12/01/03 315,000 326,025
Terra Nova Insurance UK Holdings PLC Senior
Guaranteed Notes, 10.75%, Due 7/01/05 280,000 311,855
Time Warner, Inc. Debentures, 9.15%, Due 2/01/23 430,000 475,820
USG Corporation Senior Notes, Series B, 9.25%,
Due 9/15/01 300,000 317,748
Vicap SA de CV Guaranteed Senior Notes, 10.25%,
Due 5/15/02 (Acquired 5/07/97; Cost $747,375)(b) 750,000 775,313
-----------
TOTAL CORPORATE BONDS (COST $5,951,003) 5,995,452
MUNICIPAL BONDS 4.1%
New Jersey Economic Development Authority
Pension Funding Revenue, Series B, Zero %:
Due 2/15/19 3,130,000 626,000
Due 2/15/20 1,580,000 293,564
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TOTAL MUNICIPAL BONDS (COST $913,705) 919,564
NON-AGENCY MORTGAGE &
ASSET-BACKED SECURITIES 1.1%
Bear Stearns Mortgage Securities, Inc. Mortgage
Pass-Thru Certificates, Series 1995-1, Class 2-P,
Principal Only, Due 7/25/10 (COST $255,793) 342,049 252,495
UNITED STATES GOVERNMENT &
AGENCY ISSUES 30.2%
FHLMC Participation Certificates, 9.00%,
Due 5/15/25 725,000 765,781
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates:
6.50%, Due 7/01/04 (d) 1,705,000 1,684,762
6.50%, Due 5/01/27 830,000 794,725
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Variable Rate Mortgage
Certificates, 7.788%, Due 6/01/18 265,801 277,600
United States Treasury Bonds:
5.625%, Due 11/30/00 270,000 264,600
6.125%, Due 12/31/01 900,000 891,563
6.375%, Due 3/31/01 200,000 200,438
6.875%, Due 8/15/25 160,000 160,550
United States Treasury Notes:
5.50%, Due 11/15/98 500,000 497,032
6.50%, Due 5/31/01 195,000 196,158
6.625%, Due 5/15/07 300,000 302,531
6.875%, Due 8/31/99 100,000 101,531
7.25%, Due 8/15/04 540,000 563,119
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TOTAL UNITED STATES GOVERNMENT &
AGENCY ISSUES (COST $6,676,007) 6,700,390
SHORT-TERM INVESTMENTS (a) 44.6%
COMMERCIAL PAPER 0.9%
INTEREST BEARING, DUE UPON DEMAND
Johnson Controls, Inc., 5.31% 42,500 42,500
Wisconsin Electric Power Company, 5.33% 163,200 163,200
-----------
205,700
REPURCHASE AGREEMENT 43.7%
Goldman, Sachs & Company (Dated 6/30/97),
5.75%, Due 7/01/97 (Repurchase proceeds
$9,701,549); Collateralized by: $9,700,000
United States Treasury Bonds, 7.625%,
Due 2/15/07 (Market Value $9,904,285) (c) 9,700,000 9,700,000
UNITED STATES GOVERNMENT ISSUES 0.0%
United States Treasury Bills, Due 7/24/97 10,000 9,969
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TOTAL SHORT-TERM INVESTMENTS
(COST $9,915,667) 9,915,669
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TOTAL INVESTMENTS IN SECURITIES
(COST $23,712,175) 107.0% 23,783,570
Other Assets and Liabilities, Net (7.0%) (1,565,599)
-----------
NET ASSETS 100.0% $22,217,971
===========
See notes to financial statements.
4
<PAGE>
PERCENTAGE OF
INDUSTRY DIVERSIFICATION NET ASSETS
- --------------------------------------------------------------------
U.S. Government ..................................... 73.9%
General Obligation .................................. 4.1
Container ........................................... 3.5
Media - Publishing .................................. 3.5
Savings & Loan ...................................... 3.5
Telephone ........................................... 3.1
Telecommunication Service ........................... 1.5
Commercial Service .................................. 1.4
Engineering & Construction .......................... 1.4
Healthcare - Patient Care ........................... 1.4
Insurance - Diversified ............................. 1.4
Shipping ............................................ 1.4
Bank - Regional ..................................... 1.3
Leisure Service ..................................... 1.3
Non-Agency Single Family ............................ 1.1
Mortgage & Related Service .......................... 1.0
Brokerage & Investment Management ................... 0.7
Electric Power ...................................... 0.7
Retail - Food Chain ................................. 0.6
Diversified Operations .............................. 0.2
Other Assets and Liabilities, Net ................... (7.0)
------
Total 100.0%
======
PERCENTAGE OF
COUNTRY DIVERSIFICATION NET ASSETS
- -----------------------------------------------------------------
United States ...................................... 102.1%
Mexico ............................................. 3.5
United Kingdom ..................................... 1.4
Other Assets and Liabilities, Net .................. (7.0)
------
Total 100.0%
======
LEGEND
- ------
(a) Short-term investments include any security which has a maturity of less
than one year.
(b) Restricted security.
(c) The Fund may engage in repurchase agreements where the underlying
collateral consists of U.S. Government securities which are maintained in a
segregated account with a custodian. The market value of the collateral
must exceed the principal amount by at at least two percent on a daily
basis.
(d) When-issued security.
Percentages are stated as a percent of net assets.
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1997 (Unaudited)
ASSETS:
Investments in Securities, at Value
(Including Repurchase Agreement of $9,700,000)
(Cost of $23,712,175) $23,783,570
Receivable from Brokers for Securities Sold 90
Interest Receivable 208,959
Other Assets 47,030
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Total Assets 24,039,649
LIABILITIES:
Payable to Brokers for Securities Purchased 1,695,596
Dividends Payable 85,701
Accrued Operating Expenses and Other Liabilities 40,381
-----------
Total Liabilities 1,821,678
-----------
NET ASSETS $22,217,971
===========
NET ASSETS CONSIST OF:
Capital (par value and paid-in capital) 21,971,772
Undistributed Net Realized Gain 174,804
Net Unrealized Appreciation 71,395
-----------
Net Assets $22,217,971
===========
Capital Shares Outstanding (Unlimited Number Authorized) 2,073,694
NET ASSET VALUE PER SHARE $10.71
======
See notes to financial statements.
5
<PAGE>
STATEMENT OF OPERATIONS
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For the Period Ended June 30, 1997 (Unaudited)
INTEREST INCOME $333,486
EXPENSES:
Investment Advisory Fees 12,167
Custodian Fees 3,007
Shareholder Servicing Costs 11,794
Professional Fees 4,550
Federal and State Registration Fees 8,931
Other 3,134
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Total Expenses before Waivers and Absorptions 43,583
Involuntary Expense Waivers and Absorptions by Advisor (24,145)
--------
Expenses, Net 19,438
--------
NET INVESTMENT INCOME 314,048
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 175,052
Futures Contracts (248)
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Net Realized Gain 174,804
Change in Unrealized Appreciation/Depreciation on Investments 71,395
--------
NET GAIN 246,199
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $560,247
========
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
PERIOD ENDED
JUNE 30, 1997
-------------
(UNAUDITED)
OPERATIONS:
Net Investment Income $ 314,048
Net Realized Gain 174,804
Change in Unrealized Appreciation/Depreciation 71,395
-----------
Increase in Net Assets Resulting from Operations 560,247
DISTRIBUTIONS:
From Net Investment Income (314,048)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 23,539,028
Proceeds from Reinvestment of Dividends 226,908
Payment for Shares Redeemed (1,794,164)
-----------
Increase in Net Assets from Capital Share Transactions 21,971,772
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TOTAL INCREASE IN NET ASSETS 22,217,971
NET ASSETS:
Beginning of Period --
-----------
End of Period $22,217,971
===========
TRANSACTIONS IN SHARES OF THE FUND:
Sold 2,221,340
Issued in Reinvestment of Dividends 21,451
Redeemed (169,097)
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Net Increase in Shares of the Fund 2,073,694
=========
See notes to financial statements.
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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June 30, 1997 (Unaudited)
1. ORGANIZATION
The Strong Institutional Bond Fund commenced operations on December 31,
1996, and is a diversified series of Strong Institutional 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 -- Securities of the Fund are valued through
valuations obtained by a commercial pricing service or the mean of the
bid and asked prices, when no last sales price is available.
Securities for which market quotations are not readily available are
valued at fair value as determined in good faith under consistently
applied procedures established by and under the general supervision of
the Board of Directors. Securities which are purchased within 60 days
of their stated maturity are valued at amortized cost, which
approximates current value.
The Fund owns certain investment securities which are restricted as to
resale. These securities are valued by the Fund 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. Aggregate cost and fair value of these restricted
securities at June 30, 1997 were $1,522,375 and $1,548,763,
respectively, representing 7.0% of the net assets of the Fund. Of these
securities, which are restricted as to resale, 50.1% are eligible for
resale pursuant to Rule 144A under the Securities Act of 1933 and also
have been determined to be liquid by the Advisor based upon guidelines
established by the Fund's Board of Directors.
(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.
Accordingly, 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 Fund pledges to
the broker cash or other investments equal to the minimum "initial
margin" requirements of the exchange. 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.
(E) Options -- 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.
(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 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.
(H) Additional Investment Risk -- The use of futures contracts, options,
foreign denominated assets and forward foreign currency exchange
contracts for purposes of hedging the Fund's investment portfolio
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.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
June 30, 1997 (Unaudited)
(I) Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements, and the
reported amounts of increases and decreases in net assets from
operations during the reporting period. Actual results could differ from
those estimates.
(J) Other -- Investment security transactions are recorded on the trade
date. Dividend distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis and
includes amortization of premiums and discounts.
3. 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. The
investment advisory fee, which is established by terms of the Advisory
Agreement, is based on an annualized rate of .25% 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.
The Funds may invest cash reserves in money market funds sponsored and
managed by Strong Capital Management, Inc., subject to certain limitations.
The terms of such transactions are identical to those of non-related
entities except that, to avoid duplicate investment advisory fees, the
Advisor remits to the Fund an amount equal to all fees otherwise due to them
under their investment advisory agreement for the assets invested in such
money market funds.
The amount payable to the Advisor at June 30, 1997 and unaffiliated
directors' fees, excluding the effect of waivers and reimbursements, for the
period then ended were $39,894 and $750, respectively.
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of U.S. Government and Agency securities
for the six months ended June 30, 1997 were $18,438,533 and $10,920,202,
respectively. The aggregate purchases and sales of other long-term
securities for the six months ended June 30, 1997 were $15,097,525 and
$8,999,263, respectively.
5. INCOME TAX INFORMATION
At June 30, 1997, the cost of investments in securities for federal income
tax purposes was $23,712,175. Net unrealized appreciation of securities was
$71,395, consisting of gross unrealized appreciation and depreciation of
$90,326 and $18,931, respectively.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED PER-SHARE DATA (a)
---------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------- ------------------------------------
Net Realized
Net Asset and Unrealized Total Net Asset
Value, Net Gains from From Net From Net Value,
Beginning Investment (Losses) on Investment Investment Realized Total End of
of Period Income Investments Operations Income Gains Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1997 (b) $10.00 $0.31 $0.71 $1.02 ($0.31) $0.00 ($0.31) $10.71
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Continued)
RATIOS AND SUPPLEMENTAL DATA
-----------------------------------------------------------------------------
Net Ratio of Expenses Ratio of Net
Assets, Ratio of to Average Net Investment
End of Expenses Assets Without Income Portfolio
Total Period (In to Average Waivers and to Average Turnover
Return Thousands) Net Assets Absorptions Net Assets Rate
<S> <C> <C> <C> <C> <C> <C>
June 30, 1997 (b) +10.3% $22,218 0.4%* 0.9%* 6.3%* 219.9%
</TABLE>
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the Fund
outstanding for the entire period.
(b) For the period from December 31, 1996 (inception) to June 30, 1997
(Unaudited). Total return and portfolio turnover rate are not annualized.
8
<PAGE>
DIRECTORS
Richard S. Strong
John Dragisic
Willie D. Davis
Stanley Kritzik
Marvin E. Nevins
William F. Vogt
OFFICERS
Richard S. Strong, Chairman of the Board
John Dragisic, President
Lawrence A. Totsky, Vice President
Thomas P. Lemke, Vice President
John S. Weitzer, Vice President
Stephen J. Shenkenberg, Vice President and Secretary
John A. Flanagan, Treasurer
INVESTMENT ADVISOR
Strong Capital Management, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
CUSTODIAN
Firstar Trust Company
P.O. Box 701, Milwaukee, Wisconsin 53201
AUDITOR
Coopers & Lybrand L.L.P.
411 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Godfrey & Kahn, S.C.
780 North Water Street, Milwaukee, Wisconsin 53202
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For a prospectus containing more complete information, including management fees
and expenses, please call 1-800-733-CASH (2274). 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.
[STRONG FUNDS LOGO]
STRONG CAPITAL MANAGEMENT, INC.
P.O. Box 782 o Milwaukee, Wisconsin 53201
5527G98
