<PAGE>
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THE STRONG INSTITUTIONAL
BOND FUND
ANNUAL REPORT o FEBRUARY 28, 1998
[PIE CHART OF ASSET DIVERSIFICATION EMPHASIZING BONDS]
[STRONG LOGO]
STRONG FUNDS
<PAGE>
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THE STRONG INSTITUTIONAL
BOND FUND
ANNUAL REPORT o FEBRUARY 28, 1998
TABLE OF CONTENTS
INVESTMENT REVIEW
The Strong Institutional Bond Fund.......................................2
FINANCIAL INFORMATION
Schedule of Investments in Securities....................................4
Statement of Assets and Liabilities......................................6
Statements of Operations.................................................7
Statements of Changes in Net Assets......................................8
Notes to Financial Statements............................................9
FINANCIAL HIGHLIGHTS.........................................................11
REPORT OF INDEPENDENT ACCOUNTANTS............................................12
<PAGE>
THE STRONG INSTITUTIONAL BOND FUND
...THERE CONTINUE TO BE MEANINGFUL UNDERVALUATIONS WITHIN THE CORPORATE BOND
MARKET ACROSS SECTORS, RATINGS, AND ISSUES TO PROVIDE AMPLE INVESTMENT
OPPORTUNITY.
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 invests in fixed income securities with an average portfolio duration of
between three and six years, under normal market conditions.
The primary portion of the Fund's assets will be invested in US dollar-
denominated, investment-grade securities. In addition, the Fund may invest up
to 20% of its assets in non-investment-grade corporate bonds and other high-
yield securities. The Fund may also hold up to 20% of its assets in foreign
(non-US dollar denominated) debt obligations.
MARKET OVERVIEW FOR THE FISCAL PERIOD (1-1-98 - 2-28-98)
The performance of bond markets throughout the period was influenced by the
continuing story of Asian economic turbulence. The currencies and markets
caught up in this trauma generally bottomed in the second and third weeks of
=========================================================
ASSET ALLOCATION
=========================================================
As of 2-28-98
[PIE CHART]
Corporate Bonds 34.8%
U.S. Government and Agency Issues 32.7%
Foreign Government Issues 10.6%
Preferred Stocks 10.2%
Non-Agency Mortgage and Asset-Backed Securities 10.1%
Municipal Bonds 1.6%
The asset allocation depicts market exposure and is not
given as a percentage of net assets.
=========================================================
January. Consequently, the following weeks witnessed a meaningful swing in the
consensus viewpoint of investors on what the impact of events in Asia would be
on the world economy at large.
The pessimism that pervaded early in the year was tempered considerably
==================================
PORTFOLIO STATISTICS
==================================
As of 2-27-98
30-DAY ANNUALIZED YIELD(1) 6.23%
AVERAGE QUALITY RATING(2) AA
==================================
as the period went on and there continued to be evidence of strong economic
performance in non-Asian economies. While U.S. market interest rates continued
to fall early in the period, those declines evaporated by the end of February.
Likewise, corporates and mortgages underperformed the U.S. Treasury market in
January, then bounced back in February.
SOLID FUND PERFORMANCE
For the first two months of 1998, the total return of the Fund was 2.10%,
outperforming both the Blended Bond Index and the Lehman Brothers Aggregate
Bond Index (the Fund's benchmarks), which returned 1.52% and 1.21%,
respectively, during this fiscal period.* (3)
Asset allocation across the high grade, high yield, and international bond
markets remained fairly static throughout the period. And with very little
change in interest rates across the U.S. yield curve, achieving
2
<PAGE>
returns in excess of those rates was a function of sector, industry, and issue
selection. We have been a cautious scale-in buyer of selected Yankee issues,
including Korea, a sector where we had very limited exposure throughout the
latter part of 1997.
A LOOK AHEAD
We anticipate a continuation of the stable interest rates which have recently
prevailed. Until recently, the consensus viewpoint of investors favored a swift
and meaningful slowdown in the U.S. economy, followed by a snapback in the
second half. We have been at odds with that consensus viewpoint, as we believe
there continue to be meaningful undervaluations within the corporate bond
market across sectors, ratings, and issues to provide ample investment
opportunity.
Thank you for your investment in the Strong Institutional Bond Fund. We
appreciate your continued confidence.
[PHOTO OF JEFFREY A. KOCH, SHIRISH T. MALEKAR AND BRADLEY C. TANK]
Sincerely,
/s/ Bradley C. Tank
Bradley C. Tank
/s/ Jeffrey A. Koch
Jeffrey A. Koch
/s/ Shirish T. Malekar
Shirish T. Malekar
Portfolio Co-managers
===============================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
===============================================================================
From 12-31-96 to 2-28-98
[GRAPH]
THE STRONG LIPPER INTERMEDIATE
INSTITUTIONAL BLENDED INVESTMENT GRADE DEBT
BOND FUND BOND INDEX* FUNDS INDEX*
12-96 10,000 10,000 10,000
1-97 10,391 10,054 10,033
3-97 10,655 10,000 9,943
6-97 11,032 10,374 10,283
9-97 11,526 10,739 10,599
12-97 11,886 11,033 10,847
2-98 12,136 11,202 10,970
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.
===============================================================================
================================
AVERAGE ANNUAL
TOTAL RETURN
================================
As of 2-28-98
1-YEAR 12.94%
SINCE INCEPTION 18.05%
(on 12-31-96)
================================
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* The Blended Bond Index is 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). The Lehman Brothers
Aggregate Bond Index is an unmanaged index composed of securities from the
Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities
Index, and Asset-Backed Securities Index. The Lehman Brothers High-Yield Bond
Index is an unmanaged index generally representative of corporate bonds rated
below investment-grade. The Salomon Brothers Non-U.S. World Government Bond
Index (Currency Hedged) is an unmanaged index generally representative of
liquid, non-U.S. fixed income government securities. Rolling one-month
forward exchange contracts are used as the hedging instrument. The Lipper
Intermediate Investment Grade Debt Funds Index is an equally-weighted
performance index of the largest qualifying funds in this Lipper category.
Source of the Blended Bond Index data is Standard & Poor's Micropal. Source
of the Lipper index data is Lipper Analytical Services, Inc.
1 The Advisor temporarily absorbed expenses of 0.05%. Otherwise, current yield
would have been 6.18% and returns would have been lower. Yields are
historical and do not represent future yields, which will fluctuate.
2 For purposes of this average rating, the Fund's short-term debt obligations
have been assigned a long-term rating by the Advisor.
3 Average annual total return and total return measure change in the value of
an investment in the Fund, assuming reinvestment of all dividends and capital
gains. Average annual total return reflects annualized change, while total
return reflects aggregate change.
3
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES FEBRUARY 28, 1998
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Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
CORPORATE BONDS 30.8%
ARA Services, Inc. Guaranteed Notes, 10.625%,
Due 8/01/00 $ 270,000 $ 292,577
Atlas Air, Inc. Senior Notes, 10.75%, Due 8/01/05 275,000 292,875
Bay View Capital Corporation Subordinated Notes,
9.125%, Due 8/15/07 500,000 527,500
Cablevision Systems Corporation Senior Notes,
7.875%, Due 12/15/07 500,000 512,500
California Federal Bank Linked Restructured Asset
Certificates with Enhanced Returns, Series 1997-
C-5-5, 8.375%, Due 4/01/99 (Acquired 5/05/97;
Cost $775,000) (b) 775,000 776,937
Capstar Radio Broadcasting Partners, Inc. Senior
Subordinated Notes, 9.25%, Due 7/01/07 500,000 525,000
Chase Capital II Floating Rate Notes, 6.1523%,
Due 2/01/27 2,000,000 1,923,958
Contifinancial Corporation Senior Notes, 8.375%,
Due 8/15/03 375,000 388,125
Flag, Ltd. Senior Notes, 8.25%, Due 1/30/08
(Acquired 1/23/98; Cost $500,000) (b) 500,000 512,500
Fresenius Medical Care Capital Trust I Trust
Preferred Securities, 9.00%, Due 12/01/06 500,000 527,500
Graham Packaging Holdings Company/GPC Capital
Corporation II Senior Discount Notes, Zero %,
Due 1/15/09 (Rate Reset Effective 1/15/03)
(Acquired 1/23/98; Cost $595,340) (b) 1,000,000 630,000
Hilton Hotels Corporation Senior Notes, 7.20%,
Due 12/15/09 780,000 784,924
Jordan Telecommunication Products, Inc. Senior
Subordinated Discount Notes, Zero %,
Due 8/01/07 (Rate Reset Effective 8/01/00) 385,000 329,175
LCI International, Inc. Senior Notes, 7.25%,
Due 6/15/07 820,000 849,648
Metronet Communications Corporation Senior
Notes, 12.00%, Due 8/15/07 350,000 406,000
NTC Capital I Floating Rate Notes, 6.1138%,
Due 1/15/27 545,000 523,557
Newpark Resources, Inc. Senior Subordinated Notes,
8.625%, Due 12/15/07 (Acquired 12/12/97;
Cost $510,000) (b) 500,000 515,000
Nextlink Communications LLC Senior Notes, 12.50%,
Due 4/15/06 275,000 317,625
Offshore Logistics, Inc. Senior Notes, 7.875%, Due
1/15/08 (Acquired 1/22/98; Cost $498,615) (b) 500,000 507,500
Pharmaceutical Fine Chemicals SA Senior
Subordinated Notes, 9.75%, Due 11/15/07
(Acquired 1/05/98; Cost $512,500) (b) 500,000 520,000
Qwest Communications International, Inc. Senior
Discount Notes, Zero %, Due 10/15/07 (Rate Reset
Effective 10/15/02) (Acquired 11/04/97;
Cost $323,750) (b) 500,000 348,750
Riggs Capital Trust Preferred Securities, Series A,
8.625%, Due 12/31/26 180,000 190,658
SB Treasury Company LLC Bonds, 9.40%, Due 12/29/49
(Rate Reset Effective 6/30/08) (Acquired
2/06/98; Cost $1,334,125) (b) 1,300,000 1,328,616
Sunamerica, Inc. Debentures, 5.60%, Due 7/31/97 1,000,000 751,772
Superior National Capital Trust I Notes, 10.75%,
Due 12/01/17 (Acquired 12/02/97;
Cost $510,000) (b) 500,000 537,500
TCI Communications, Inc. Senior Notes, 6.375%,
Due 9/15/99 1,220,000 1,224,708
Terra Nova Insurance Holdings PLC Senior Yankee
Notes, 10.75%, Due 7/01/05 280,000 313,801
Transwestern Publishing Company LP/TWP Capital
Corporation Senior Subordinated Notes, 9.625%,
Due 11/15/07 (Acquired 11/06/97;
Cost $350,000) (b) 350,000 370,125
United Air Lines Pass-Thru Trust Certificates,
Series 1992-A2, 9.35%, Due 4/07/16 575,000 690,794
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TOTAL CORPORATE BONDS (COST $17,098,331) 17,419,625
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CONVERTIBLE BONDS 4.0%
Bell Atlantic Financial Services, Inc. Senior
Convertible Notes, 5.75%, Due 4/01/03
(Acquired 2/12/98; Cost $2,028,750) (b) 2,000,000 2,065,000
Technomatix Technologies, Ltd. Convertible
Subordinated Notes, 5.25%, Due 8/15/04
(Acquired 8/12/97; Cost $200,000) (b) 200,000 207,000
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TOTAL CONVERTIBLE BONDS (COST $2,228,709) 2,272,000
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NON-AGENCY MORTGAGE & ASSET-BACKED SECURITIES 10.1%
Bear Stearns Mortgage Securities, Inc. Mortgage
Pass-Thru Certificates, Series 1995-1, Class 2-P,
Principal Only, Due 7/25/10 301,229 240,863
California Infrastructure & Economic Development
Bank Special Purpose Trust SCE-1 Certificates,
Series 1997-1, Class A6, 6.38%, Due 9/25/08 1,125,000 1,140,638
DLJ Commercial Mortgage Corporation Commercial
Mortgage Pass-Thru Certificates, Series 1998-CF1,
Class A1B, 6.41%, Due 2/15/08 (d) 1,725,000 1,737,938
Headlands Mortgage Securities, Inc. Mortgage Pass-
Thru Certificates, Series 1997-5, Class AII1,
6.75%, Due 11/25/27 1,343,584 1,352,438
Nomura Asset Securities Corporation, Series
1994-4B, Class 4PO, Principal Only, Due 9/25/24 135,264 97,010
Trust Investment Enhanced Return Securities -
Chase Credit Card Master Trust, Series 1997-7,
Class A, 6.688%, Due 11/15/03 1,140,000 1,147,159
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TOTAL NON-AGENCY MORTGAGE & ASSET-BACKED SECURITIES
(COST $5,669,943) 5,716,046
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MUNICIPAL BONDS 1.6%
New Jersey Economic Development Authority
Pension Funding Revenue, Zero %, Due 2/15/19 3,415,000 882,354
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TOTAL MUNICIPAL BONDS (COST $720,957) 882,354
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UNITED STATES GOVERNMENT & AGENCY ISSUES 32.8%
FHLMC Participation Certificates, 9.00%,
Due 5/15/25 797,744 843,997
FHLMC Variable Rate Participation Certificates,
8.164%, Due 8/01/25 1,835,203 1,899,436
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates:
6.82%, Due 10/01/07 1,315,601 1,366,384
8.00%, Due 9/01/23 938,984 982,966
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Variable Rate Pass-Thru
Certificates, 7.619%, Due 6/01/18 212,070 220,073
United States Treasury Bonds, 6.375%, Due 8/15/27 575,000 609,500
United States Treasury Notes:
5.375%, Due 2/15/01 1,035,000 1,030,796
5.625%, Due 11/30/99 4,000,000 4,003,752
5.75%, Due 11/30/02 2,300,000 2,311,502
5.875%, Due 11/30/01 1,000,000 1,009,376
6.25%, Due 2/15/03 2,040,000 2,095,463
7.25%, Due 8/15/04 1,065,000 1,156,524
7.75%, Due 12/31/99 965,000 1,001,188
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TOTAL UNITED STATES GOVERNMENT & AGENCY ISSUES (COST $18,431,403) 18,530,957
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4
<PAGE>
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Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
FOREIGN GOVERNMENT ISSUES 10.6%
Republic of Argentina Notes, 9.50%,
Due 11/30/02 1,000,000 USD $ 1,005,000
Australian Government Bonds, 10.00%,
Due 10/15/07 1,185,000 AUD 1,038,282
Republic of Germany Debentures, Series 94,
7.50%, Due 11/11/04 3,100,000 DEM 1,976,624
Government of United Kingdom Treasury
Notes, 7.25%, Due 12/07/07 1,115,000 GBP 1,983,684
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TOTAL FOREIGN GOVERNMENT ISSUES (COST $5,937,435) 6,003,590
- ------------------------------------------------------------------------------
PREFERRED STOCKS 10.2%
Chancellor Radio Broadcasting Company
Senior Series A 2,000 284,500
Indosuez Holdings SCA Sponsored ADR 10.375%
Representing 1/10 Series A
(Acquired 2/05/98; Cost $1,981,000) (b) 70,000 1,991,500
Sears Roebuck AC 100,000 2,500,000
Superior Healthcare Management 7.75% Series A
(Acquired 12/30/97; Cost $1,006,460) (b) 1,000 1,024,420
- ------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (COST $5,755,460) 5,800,420
- ------------------------------------------------------------------------------
WARRANTS 0.0%
Metronet Communications Corporation,
Expire 8/15/07 350 4
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TOTAL WARRANTS (COST $4) 4
- ------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (A) 6.3%
COMMERCIAL PAPER 0.3%
INTEREST BEARING, DUE UPON DEMAND
General Mills, Inc., 5.23% $ 200 200
Johnson Controls, Inc., 5.23% 175,600 175,600
Wisconsin Electric Power Company, 5.21% 300 300
-----------
176,100
REPURCHASE AGREEMENT 5.8%
ABN-AMRO Chicago Corporation (Dated
2/27/98), 5.60%, Due 3/02/98 (Proceeds
$3,301,540); Collateralized by: $8,254,000
United States Treasury Strips, Due 2/15/13
(Market Value $3,371,264) (e) 3,300,000 3,300,000
UNITED STATES GOVERNMENT ISSUES 0.2%
United States Treasury Bills:
Due 5/07/98 (c) 80,000 79,259
Due 5/14/98 (c) 10,000 9,898
-----------
89,157
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TOTAL SHORT-TERM INVESTMENTS (COST $3,565,264) 3,565,257
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- ------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST $59,407,506) 106.4% 60,190,253
Other Assets and Liabilities, Net (6.4%) (3,625,850)
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NET ASSETS 100.0% $56,564,403
==============================================================================
- -------------------------------------------------------------------------------
FUTURES
- -------------------------------------------------------------------------------
Underlying Unrealized
Expiration Face Amount Appreciation
Date at Value (Depreciation)
- -------------------------------------------------------------------------------
Purchased:
8 Ten-Year U.S. Treasury Notes 3/98 $ 905,500 ($4,000)
18 U.S. Treasury Bonds 3/98 2,180,062 (6,000)
Sold:
7 U.S. Treasury Bonds 6/98 (851,977) 8,643
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
- -------------------------------------------------------------------------------
Unrealized
Settlement Value Appreciation
Date in USD (Depreciation)
- -------------------------------------------------------------------------------
Sold:
1,550,000 AUD 7/03/98 ($1,052,791) ($37,541)
3,500,000 DEM 7/03/98 (1,942,243) 29,754
1,210,000 GBP 7/03/98 (1,975,736) (3,646)
CURRENCY ABBREVIATIONS
- -------------------------------------------------------------------------------
AUD Australian Dollar
DEM German Mark
GBP British Pound
USD United States Dollar
LEGEND
- -------------------------------------------------------------------------------
(a) Short-term investments include any security which has a maturity of
less than one year.
(b) Restricted security.
(c) All or a portion of security pledged to cover margin requirements for
futures contracts.
(d) When-issued security.
(e) See Note 2(H) 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
- -------------------------------------------------------------------------------
February 28, 1998
ASSETS:
Investments in Securities, at Value (Cost of $59,407,506) $60,190,253
Receivable for Securities Sold 3,510,839
Interest Receivable 555,084
Other Assets 42,691
-----------
Total Assets 64,298,867
LIABILITIES:
Payable for Securities Purchased 7,410,114
Dividends Payable 277,749
Accrued Operating Expenses and Other Liabilities 46,601
-----------
Total Liabilities 7,734,464
-----------
NET ASSETS $56,564,403
===========
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) $55,039,880
Undistributed Net Investment Income 11,433
Undistributed Net Realized Gain 741,720
Net Unrealized Appreciation 771,370
-----------
Net Assets $56,564,403
===========
Capital Shares Outstanding (Unlimited Number Authorized) 5,061,336
NET ASSET VALUE PER SHARE $11.18
6
See notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED
FEB. 28, 1998 DEC. 31, 1997
------------- -------------
(NOTE 1)
INCOME:
Interest $ 573,331 $1,386,098
Dividends 7,316 18,638
---------- ----------
Total Income 580,647 1,404,736
EXPENSES:
Investment Advisory Fees 21,934 51,698
Custodian Fees 1,787 7,177
Shareholder Servicing Costs 3,288 25,000
Reports to Shareholders 1,242 18,545
Federal and State Registration Fees 4,684 36,664
Other 2,210 16,305
---------- ----------
Total Expenses before Waivers and Absorptions 35,145 155,389
Voluntary Expense Waivers and Absorptions
by Advisor (1,533) (72,164)
---------- ----------
Expenses, Net 33,612 83,225
---------- ----------
NET INVESTMENT INCOME 547,035 1,321,511
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 515,544 771,346
Futures Contracts and Forward Foreign
Currency Contracts 13,501 (248)
Foreign Currencies (434) --
---------- ----------
Net Realized Gain 528,611 771,098
Change in Unrealized Appreciation/
Depreciation on:
Investments 59,095 723,651
Futures Contracts and Forward Foreign
Currency Contracts (26,461) 13,671
Foreign Currencies (13,074) 14,488
---------- ----------
Net Change in Unrealized Appreciation/
Depreciation 19,560 751,810
---------- ----------
NET GAIN 548,171 1,522,908
---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $1,095,206 $2,844,419
========== ==========
7
See notes to financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED
FEB. 28, 1998 DEC. 31, 1997
------------- -------------
(NOTE 1)
OPERATIONS:
Net Investment Income $ 547,035 $ 1,321,511
Net Realized Gain 528,611 771,098
Change in Unrealized Appreciation/Depreciation 19,560 751,810
----------- -----------
Increase in Net Assets Resulting from Operations 1,095,206 2,844,419
DISTRIBUTIONS:
From Net Investment Income (535,167) (1,321,511)
In Excess of Net Investment Income (11,433) --
From Net Realized Gains -- (546,992)
----------- -----------
Total Distributions (546,600) (1,868,503)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 3,994,776 66,565,110
Proceeds from Reinvestment of Distributions 536,657 1,576,599
Payment for Shares Redeemed (523,288) (17,109,973)
----------- -----------
Net Increase in Net Assets from Capital Share
Transactions 4,008,145 51,031,736
----------- -----------
TOTAL INCREASE IN NET ASSETS 4,556,751 52,007,652
NET ASSETS:
Beginning of Period 52,007,652 --
----------- -----------
End of Period $56,564,403 $52,007,652
=========== ===========
TRANSACTIONS IN SHARES OF THE FUND:
Sold 357,661 6,116,637
Issued in Reinvestment of Distributions 48,261 143,923
Redeemed (46,916) (1,558,230)
------- ---------
Net Increase 359,006 4,702,330
======= =========
8
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
February 28, 1998
1. ORGANIZATION
The Strong Institutional Bond Fund commenced investment operations on
January 2, 1997, and is a diversified series of Strong Institutional Funds,
Inc., an open-end management investment company registered under the
Investment Company Act of 1940. The Board of Directors of the Fund approved
changing the Fund's fiscal year-end from December 31 to February 28.
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 February 28, 1998 was $11,125,540 and
$11,334,848, respectively, representing 20.0% of the net assets of the
Fund. Of these securities, which are restricted as to resale, 84.1% 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 -- 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.
(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.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
February 28, 1998
(H) 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 in a manner sufficient to enable the Funds to
obtain those securities in the event of a default under the repurchase
agreement. On a daily basis, the Advisor monitors the value of the
collateral transferred under each repurchase agreement to ensure the
value of the collateral exceeds the amounts owed to the Fund under each
repurchase agreement by at least 2%.
(I) Additional Investment Risks -- The Fund may invest in and 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 against
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.
(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 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.
(K) Other -- Investment security transactions are recorded on the trade
date. Dividend income and distributions to shareholders are recorded on
the ex-dividend date. Interest income is recorded on the accrual basis
and includes amortization of premiums 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. The investment advisory
fee, which is established by terms of the Advisory Agreement, is based on an
annualized rate of 0.25% 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 an annualized rate of 0.02% of the Fund's
average daily net asset value with a minimum annual fee of $25,000. In
addition, the Advisor is compensated for certain other services related to
costs incurred for reports to shareholders.
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 February 28, 1998 and unaffiliated
directors' fees for the period then ended, excluding the effect of waivers
and reimbursements, were $41,180 and $375, respectively.
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of U.S. Government and Agency securities
for the period ended February 28, 1998 were $6,251,079 and $11,988,742,
respectively. The aggregate purchases and sales of other long-term
securities for the period ended February 28, 1998 were $33,428,973 and
$24,534,237, respectively.
5. INCOME TAX INFORMATION
At February 28, 1998, the cost of investments in securities for federal
income tax purposes was $59,416,467. Net unrealized appreciation of
securities was $773,786, consisting of gross unrealized appreciation and
depreciation of $818,952 and $45,166, respectively. For corporate
shareholders in the Fund, the percentage of dividend income distributed for
the period ended February 28, 1998 which is designated as qualifying for the
dividends-received deduction is 1.3% (unaudited).
10
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
SELECTED PER-SHARE DATA (a)
-------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------- -----------------------------------------------
<CAPTION>
Net Asset Net Realized Total In Excess Net Asset
Value, Net and Unrealized from From Net of Net From Net Value,
Beginning Investment Gains on Investment Investment Investment Realized Total End of
Period Ended of Period Income Investments Operations Income Income Gains Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Feb. 28, 1998 (b) $11.06 $0.11 $0.12 $0.23 ($0.11) $0.00(c) -- ($0.11) $11.18
Dec. 31, 1997 10.00 0.66 1.18 1.84 (0.66) -- ($0.12) (0.78) 11.06
</TABLE>
<TABLE>
RATIOS AND SUPPLEMENTAL DATA
--------------------------------------------------------------------------
<CAPTION>
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 Voluntary Waivers to Average Turnover
Period Ended Return Thousands) Net Assets and Absorptions Net Assets Rate
<S> <C> <C> <C> <C> <C> <C>
Feb. 28, 1998 (b) +2.1% $56,564 0.4%* 0.4%* 6.2%* 68.1%
Dec. 31, 1997 +18.9% 52,008 0.4% 0.7% 6.3% 358.6%
* 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 two month period ended February 28, 1998. Total return and
portfolio turnover rate are not annualized. (Note 1)
(c) Amount calculated is less than $0.01.
11
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Shareholders and Board of Directors of the
Strong Institutional Bond Fund
We have audited the accompanying statement of assets and liabilities of Strong
Institutional Bond Fund (one of the portfolios constituting the Strong
Institutional Funds, Inc.), including the schedule of investments in
securities, as of February 28, 1998, and the related statements of operations,
the statements of changes in net assets, and the financial highlights for the
period from January 1, 1998 through February 28, 1998, and for the year ended
December 31, 1997. These financial statements and financial highlights are the
responsibility of the Fund's 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 February 28, 1998 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 Institutional Bond Fund as of February 28, 1998, and the results of its
operations, the changes in its net assets, and the financial highlights for the
period from January 1, 1998 through February 28, 1998, and for the year ended
December 31, 1997, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
April 8, 1998
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
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
<PAGE>
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 LOGO]
STRONG CAPITAL MANAGEMENT, INC.
P.O. Box 782 o Milwaukee, Wisconsin 53021 7620D98
