<PAGE>
THE STRONG
----------
INSTITUTIONAL
BOND FUND
====================================
SEMI-ANNUAL REPORT o AUGUST 31, 1998
====================================
[PHOTO OF STRONG FUNDS BUILDING]
[STRONG LOGO]
STRONG FUNDS
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THE STRONG
----------
INSTITUTIONAL
BOND FUND
====================================
SEMI-ANNUAL REPORT o AUGUST 31, 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
Statement of Operations..................................................7
Statements of Changes in Net Assets......................................8
Notes to Financial Statements............................................9
FINANCIAL HIGHLIGHTS.........................................................11
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==================================
THE STRONG INSTITUTIONAL BOND FUND
==================================
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
between three and six years, under normal market conditions.
======================================================
ASSET ALLOCATION
======================================================
Based on Net Assets as of 8-31-98
[PIE CHART]
Corporate Bonds 35.6%
U.S. Government and Agency Issues 24.3%
Foreign Government Issues 13.9%
Non-Agency Mortgage and Asset-Backed Securities 12.4%
Short-Term Investments 8.7%
Stocks 3.9%
Municipal Bonds 1.2%
======================================================
====================================
PORTFOLIO STATISTICS
====================================
As of 8-31-98
30-DAY ANNUALIZED YIELD 6.02%
AVERAGE QUALITY RATING(2) AA
====================================
The primary portion of the Fund's assets will be invested in U.S.
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-U.S. dollar denominated) debt obligations.
MARKET OVERVIEW FOR FISCAL PERIOD (2-28-98 - 8-31-98)
After a long period of tranquillity marked by range-bound Treasury yields and
stable credit spreads which prevailed through July, fixed income markets in
August featured price action more characteristic of the first half of the 1990's
than of recent periods. U.S. Treasury yields declined about one half of one
percent on average across the maturity spectrum, leaving the thirty year U.S.
Treasury bond at 5.27%, the lowest yield in over two decades.
In contrast, yields on most corporate bonds remained unchanged or actually rose
during the month, producing the greatest total return divergence between
Treasuries and corporate bonds since October of 1990. Consequently, the yield
spread to Treasuries for most corporate bonds is now at levels not seen since
late 1991 and early 1992, a period when the U.S. economy was emerging from
recession.
Recent financial market turbulence has largely been driven by economic and
political events outside of the United States. Economic turmoil in Asia and
Russia has prompted investors around the globe to move from financial assets
believed to be more risky to the less risky. This process has been slowly
unfolding for the past year, and initially the stocks and bonds of high quality
U.S. companies were beneficiaries of these trends. However, as the desire for
safety has risen markedly, this is no longer the case.
Over the past six months, mortgage securities have lagged Treasuries somewhat,
but benefited from their high credit rating, while the bonds of high quality
sovereigns such as Germany and the U.K., where we have been focused, have done
very well.
SOLID FUND PERFORMANCE
For the past six months, the total return of the fund was 3.92%(1) versus 3.67%
for the Blended Bond Index. For the past year, the fund has returned 11.05%
versus 9.85% for the Blended Bond Index.*
Asset allocation across the high-grade, high-yield, and international bond
markets is near benchmark. We entered the recent period of turbulence with
portfolios that were generally well positioned for what we have experienced. We
have maintained portfolio duration somewhat longer than relevant benchmarks. We
have been upgrading credit quality since the fourth quarter of 1997 and continue
to generally avoid Yankees, cyclical industrial and commodity producing credits.
These are among the poorer performing groups within the corporate sector. While
we have the latitude to purchase modest quantities of emerging market debt in
the Fund, we hold none currently and do not anticipate entering the asset class
in the foreseeable future.
A LOOK AHEAD
The large decline in the Dow Jones Industrial Average from its recent peak has
dominated financial headlines in recent days, yet the changes in fixed income
markets are equally dramatic when looked at in a historical context. Like the
stock market, the bond market sometimes anticipates correctly future economic
events. The current pricing of the Treasury market implies that the Federal
Reserve will reduce interest rates meaningfully in the near future while credit
spreads imply a dramatic slowdown in the U.S. Economy.
In recent quarters we have seen the strongest market for housing and autos since
the 1980's with real wage gains likewise accelerating to levels not seen in a
decade. Signs of slowing have been very recent and at this point limited to
manufacturing. The central bank will lower interest rates when signs of a
slowdown become more broadly based, which could take a few months; or
2
<PAGE>
alternatively, if the U.S. stock market trades down hard from current levels.
We view U.S. corporate bonds as attractive and have added modestly to current
holdings in recent days. But we will defer a broad increase in sector exposure
until the Fed eases aggressively, a precondition we believe is necessary to
produce a meaningful peak in spreads to Treasuries. When that time comes, we
will continue to focus on names with limited cyclical and international
exposure. We believe the Asian economic problems, which precipitated recent
market turbulence, may still get worse before they get better.
Throughout much of the 90's to date, capital gains have dominated income in
generating total investment returns. This stands in contrast to very long term
return patterns whereby dividend and coupon income have been the majority of
total investment return. Our sense is that the future looks a lot more like the
distant past than the recent past, as income returns to play a larger role.
While U.S. Treasury yields have declined recently, high quality corporate and
mortgages can be bought at yields ranging from six percent to well above seven
percent and good durable high yield credits offer yields in excess of ten
percent.
For investors that have "underweighted" income in recent years, the present
offers a unique opportunity to become well positioned for the future.
[PHOTO OF JEFFREY KOCH, SHIRISH MALEKAR AND BRADLEY TANK]
/s/ Bradley C. Tank
Bradley C. Tank
/s/ Jeffrey A. Koch
Jeffrey A. Koch
/s/ Shirish Malekar
Shirish T. Malekar
Portfolio Co-managers
================================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
================================================================================
From 12-31-96 to 8-31-98
[GRAPH]
THE STRONG Lipper Intermediate
INSTITUTIONAL Blended Bond Investment Grade
BOND FUND Index* Debt Funds Index*
12-96 10,000 10,000 10,000
6-97 11,032 10,374 10,294
12-97 11,886 11,033 10,879
6-98 12,451 11,501 11,289
8-98 12,612 11,613 11,465
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(1)
=================================
As of 8-31-98
1-YEAR 11.05%
SINCE INCEPTION 14.94%
(on 12-31-96)
=================================
* 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 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.
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
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES AUGUST 31, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
CORPORATE BONDS 33.0%
ARA Services, Inc. Guaranteed Notes, 10.625%,
Due 8/01/00 $ 270,000 $ 290,357
Atlas Air, Inc. Senior Notes, 10.75%, Due 8/01/05 275,000 265,375
Bay View Capital Corporation Subordinated Notes,
9.125%, Due 8/15/07 500,000 492,500
Canadian National Railway Company Notes, 6.90%,
Due 7/15/28 315,000 313,819
Capstar Radio Broadcasting Partners, Inc.
Senior Subordinated Notes, 9.25%, Due 7/01/07 500,000 502,500
Colonial Realty LP Senior Notes, 7.00%, Due 7/14/07 435,000 436,851
DTE Capital Corporation Notes, 6.17%, Due 6/15/03
(Acquired 6/16/98; Cost $845,000) (b) 845,000 866,568
Flag, Ltd. Senior Yankee Notes, 8.25%, Due 1/30/08 500,000 462,500
Fox/Liberty Networks LLC Senior Notes, 8.875%,
Due 8/15/07 500,000 462,500
Fresenius Medical Care Capital Trust
Preferred Securities, 9.00%, Due 12/01/06 500,000 485,000
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) 1,000,000 600,000
Jordan Telecommunication Products, Inc.
Senior Subordinated Discount Notes, Zero %,
Due 8/01/07 (Rate Reset Effective 8/01/00) 385,000 298,375
KN Energy, Inc. Senior Notes, 6.45%, Due 3/01/03 1,785,000 1,815,881
LCI International, Inc. Senior Notes, 7.25%,
Due 6/15/07 820,000 815,821
Metronet Communications Corporation Senior
Notes, 12.00%, Due 8/15/07 350,000 372,750
NTC Capital I Floating Rate Notes, 6.2075%,
Due 1/15/27 545,000 517,669
Nextlink Communications LLC Senior Notes,
12.50%, Due 4/15/06 275,000 294,250
Niagara Mohawk Power Corporation Senior Notes,
Series C, 7.125%, Due 7/01/01 2,000,000 2,002,500
Optel, Inc. Senior Notes, Series B, 13.00%,
Due 2/15/05 500,000 502,500
Philip Morris Companies, Inc. Notes, 6.15%,
Due 3/15/10 (Putable at $100 and Rate Reset
Effective 3/15/00) 1,180,000 1,188,602
Providian National Bank Senior Notes, 6.25%,
Due 5/07/01 915,000 923,742
Public Service Electric & Gas Company First and
Refunding Mortgage Bonds, 6.375%, Due 5/01/23
(Remarketing Date 5/01/08) 505,000 522,047
Qwest Communications International, Inc. Senior
Discount Notes, Zero %, Due 10/15/07 (Rate Reset
Effective 10/15/02) 500,000 366,250
Riggs Capital Trust Preferred Securities, Series A,
8.625%, Due 12/31/26 (Acquired 8/29/97;
Cost $181,211) (b) 180,000 198,376
Riggs Capital Trust II Preferred Securities,
Series C, 8.875%, Due 3/15/27 (Acquired 5/06/98;
Cost $751,027) (b) 685,000 765,316
SunAmerica, Inc. Debentures, 5.60%, Due 7/31/2097 1,000,000 816,489
Suntrust Capital III Floating Rate Notes, 6.3375%,
Due 3/15/28 2,000,000 1,925,000
TCI Communications, Inc. Senior Notes, 6.375%,
Due 9/15/99 1,220,000 1,226,897
Transwestern Publishing Company LP/TWP Capital
Corporation Senior Subordinated Notes,
9.625%, Due 11/15/07 350,000 344,750
Tyco International Group SA Variable Rate
Yankee Notes, 6.25%, Due 6/15/13 (Remarketing
Date 6/15/03) 660,000 670,256
United Air Lines Pass-Thru Trust Certificates,
Series 1992-A2, 9.35%, Due 4/07/16 575,000 701,952
US Air, Inc. Senior Notes, 9.625%, Due 2/01/01 500,000 526,598
US Filter Corporation Variable Rate Bonds, 6.375%,
Due 5/15/11 (Remarketing Date 5/15/01)
(Acquired 8/18/98; Cost $997,740) (b) 1,000,000 1,009,355
USA Waste Services, Inc. Mandatorily Tendered
Senior Notes, 6.125%, Due 7/15/11 (Remarketing
Date 7/15/01) 730,000 736,313
WorldCom, Inc. Senior Notes:
6.125%, Due 8/15/01 1,505,000 1,520,345
6.40%, Due 8/15/05 525,000 531,178
- ------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (COST $25,824,674) 25,771,182
- ------------------------------------------------------------------------------
CONVERTIBLE BONDS 2.6%
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 2,005,000
- ------------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS (COST $2,026,199) 2,005,000
- ------------------------------------------------------------------------------
NON-AGENCY MORTGAGE & ASSET-BACKED SECURITIES 12.4%
Bear Stearns Mortgage Securities, Inc. Mortgage
Pass-Thru Certificates, Series 1995-1, Class 2-P,
Principal Only, Due 7/25/10 263,251 225,038
DLJ Commercial Mortgage Corporation Commercial
Mortgage Pass-Thru Certificates, Series 1998-CF1,
Class A1B, 6.41%, Due 2/15/08 1,725,000 1,763,338
Deutsche Mortgage and Asset Receiving Corporation
Commercial Mortgage Pass-Thru Certificates,
Series 1998-C1, Class A2, 6.538%, Due 2/15/08 1,025,000 1,072,089
Headlands Mortgage Securities, Inc. Mortgage
Pass-Thru Certificates, Series 19975, Class AII1,
6.75%, Due 11/25/27 1,032,003 1,047,972
Nomura Asset Securities Corporation,
Series 1994-4B, Class 4PO, Principal Only,
Due 9/25/24 110,549 78,398
RTC Variable Rate Mortgage Pass-Thru Securities,
Inc., Series 1991-M4, Class A-1, 6.38%,
Due 2/25/20 1,487,358 1,490,154
Rural Housing Trust 1987-1 Senior Mortgage
Pass-Thru Certificates, Series 1, Class D, 6.33%,
Due 4/01/26 1,364,834 1,374,175
Trust Investment Enhanced Return Securities -
Chase Credit Card Master Trust, Series 1997-7,
Class A, 6.688%, Due 11/15/03 2,620,000 2,628,201
- ------------------------------------------------------------------------------
TOTAL NON-AGENCY MORTGAGE & ASSET-BACKED SECURITIES
(COST $9,557,955) 9,679,365
- ------------------------------------------------------------------------------
MUNICIPAL BONDS 1.2%
New Jersey EDA State Pension Funding Revenue,
7.425%, Due 2/15/29 820,000 949,910
- ------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (COST $899,088) 949,910
- ------------------------------------------------------------------------------
UNITED STATES GOVERNMENT & AGENCY ISSUES 24.3%
FHLMC Participation Certificates, Series 2078,
Class PL, 6.25%, Due 6/15/12 1,300,000 1,316,250
FHLMC Variable Rate Participation Certificates,
8.232%, Due 8/01/25 1,403,775 1,465,190
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates:
6.25%, Due 1/25/08 1,815,000 1,869,450
8.00%, Due 9/01/23 736,699 767,964
FNMA Guaranteed Real Estate Mortgage Investment
Conduit Variable Rate Pass-Thru Certificates
7.604%, Due 6/01/18 176,665 183,299
4
<PAGE>
- -------------------------------------------------------------------------------
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
United States Treasury Bonds, 6.125%,
Due 11/15/27 $3,755,000 $ 4,164,532
United States Treasury Notes:
5.375%, Due 6/30/03 800,000 814,750
5.625%, Due 11/30/99 2,500,000 2,516,408
5.625%, Due 5/15/08 255,000 266,395
5.75%, Due 11/30/02 600,000 616,313
5.75%, Due 8/15/03 1,170,000 1,206,564
6.00%, Due 7/31/02 1,500,000 1,551,094
6.125%, Due 7/31/00 280,000 285,950
6.50%, Due 5/15/05 780,000 843,132
6.875%, Due 5/15/06 450,000 500,203
7.875%, Due 11/15/04 560,000 642,251
- ------------------------------------------------------------------------------
TOTAL UNITED STATES GOVERNMENT & AGENCY ISSUES (COST $18,610,621) 19,009,745
- ------------------------------------------------------------------------------
FOREIGN GOVERNMENT ISSUES 13.9%
Australian Government Bonds, 10.00%,
Due 10/15/07 2,285,000 1,671,708
Republic of Germany Debentures, Series 94, 7.50%,
Due 11/11/04 6,500,000 4,398,301
Government of United Kingdom Treasury Notes,
7.25%, Due 12/07/07 2,500,000 4,789,085
- ------------------------------------------------------------------------------
TOTAL FOREIGN GOVERNMENT ISSUES (COST $10,437,785) 10,859,094
- ------------------------------------------------------------------------------
PREFERRED STOCKS 3.9%
Indosuez Holdings SCA Sponsored ADR 10.375%
Representing 1/10 Series A (Acquired
2/05/98; Cost $1,981,000) (b) 70,000 1,946,000
Superior Healthcare Management 7.75% Series A
(Acquired 12/30/97; Cost $1,006,460) (b) 1,000 1,091,310
- ------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (COST $2,987,460) 3,037,310
- ------------------------------------------------------------------------------
COMMON STOCKS 0.0%
Optel, Inc. Non-Voting (Acquired 4/14/98;
Cost $20,000) (b) (d) 500 20,000
- ------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $20,000) 20,000
- ------------------------------------------------------------------------------
WARRANTS 0.0%
Metronet Communications Corporation Warrants,
Expire 8/15/07 (Acquired 11/07/97; Cost $4) (b) 350 8,750
- ------------------------------------------------------------------------------
TOTAL WARRANTS (COST $4) 8,750
- ------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 6.7%
COMMERCIAL PAPER 0.2%
INTEREST BEARING, DUE UPON DEMAND
Johnson Controls, Inc., 5.25% $ 95,800 95,800
Pitney Bowes Credit Corporation, 5.25% 71,900 71,900
-----------
167,700
REPURCHASE AGREEMENTS 6.4%
ABN-AMRO Chicago Corporation (Dated 8/31/98),
5.75%, Due 9/01/98 (Proceeds $5,000,799);
Collateralized by: $13,653,000 United States
Treasury Strips, Zero %, Due 5/15/16
(Market Value $5,107,724) (e) 5,000,000 5,000,000
UNITED STATES GOVERNMENT ISSUES 0.1%
United States Treasury Bills:
Due 11/05/98 (c) 50,000 49,577
Due 11/12/98 (c) 10,000 9,904
-----------
59,481
- ------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $5,227,164) 5,227,181
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST $75,590,950) 98.0% 76,567,537
Other Assets and Liabilities, Net 2.0% 1,556,291
- ------------------------------------------------------------------------------
NET ASSETS 100.0% $78,123,828
==============================================================================
FUTURES
- -----------------------------------------------------------------------------
Underlying Unrealized
Expiration Face Amount Appreciation
Date at Value (Depreciation)
- -----------------------------------------------------------------------------
Purchased:
12 Ten-Year U.S. Treasury Notes 12/98 $1,405,500 $ 6,656
11 U.S. Treasury Bonds 12/98 1,397,000 11,258
Sold:
2 U.S. Treasury Bonds 12/98 254,000 (3,390)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
- -------------------------------------------------------------------------------
Unrealized
Settlement Value Appreciation
Date in USD (Depreciation)
- -------------------------------------------------------------------------------
Sold:
3,085,000 AUD 12/28/98 $1,753,227 $139,056
7,880,000 DEM 12/28/98 4,540,677 (146,693)
2,780,000 GBP 12/29/98 4,639,820 (106,152)
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) Non-income producing 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
- -------------------------------------------------------------------------------
August 31, 1998 (Unaudited)
ASSETS:
Investments in Securities, at Value (Cost of $75,590,950) $76,567,537
Receivable for Securities Sold 867,892
Interest Receivable 1,055,426
Other Assets 61,026
-----------
Total Assets 78,551,881
LIABILITIES:
Payable for Forward Foreign Currency Exchange Contracts 113,789
Dividends Payable 272,785
Accrued Operating Expenses and Other Liabilities 41,479
-----------
Total Liabilities 428,053
-----------
NET ASSETS $78,123,828
===========
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) $76,793,632
Undistributed Net Investment Income 24,932
Undistributed Net Realized Gain 423,221
Net Unrealized Appreciation 882,043
-----------
Net Assets $78,123,828
===========
Capital Shares Outstanding (Unlimited Number Authorized) 7,026,163
NET ASSET VALUE PER SHARE $11.12
======
6
See notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
For the Six Months Ended August 31, 1998 (Unaudited)
INCOME:
Interest $2,137,038
Dividends 142,294
----------
Total Income 2,279,332
EXPENSES:
Investment Advisory Fees 85,951
Custodian Fees 6,891
Shareholder Servicing Costs 10,468
Professional Fees 6,677
Other 10,984
----------
Total Expenses 120,971
----------
NET INVESTMENT INCOME 2,158,361
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 344,978
Futures Contracts and Forward Foreign Currency Contracts 72,480
Foreign Currencies (305)
----------
Net Realized Gain 417,153
Change in Unrealized Appreciation/Depreciation on:
Investments 193,841
Futures Contracts and Forward Foreign Currency Contracts (86,475)
Foreign Currencies 3,307
----------
Net Change in Unrealized Appreciation/Depreciation 110,673
----------
NET GAIN 527,826
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,686,187
==========
7
See notes to financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED YEAR ENDED
AUGUST 31, 1998 FEB. 28, 1998 DEC. 31, 1997
---------------- ------------- -------------
(UNAUDITED) (NOTE 1)
OPERATIONS:
Net Investment Income $ 2,158,361 $ 547,035 $ 1,321,511
Net Realized Gain 417,153 528,611 771,098
Net Change in Unrealized
Appreciation/Depreciation 110,673 19,560 751,810
----------- ----------- -----------
Net Increase in Net Assets
Resulting from Operations 2,686,187 1,095,206 2,844,419
DISTRIBUTIONS:
From Net Investment Income (2,144,862) (535,167) (1,321,511)
In Excess of Net Investment
Income -- (11,433) --
From Net Realized Gains (735,652) -- (546,992)
----------- ----------- -----------
Total Distributions (2,880,514) (546,600) (1,868,503)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 21,780,265 3,994,776 66,565,110
Proceeds from Reinvestment
of Distributions 2,842,379 536,657 1,576,599
Payment for Shares Redeemed (2,868,892) (523,288) (17,109,973)
----------- ----------- -----------
Net Increase in Net Assets from
Capital Share Transactions 21,753,752 4,008,145 51,031,736
----------- ----------- -----------
TOTAL INCREASE IN NET ASSETS 21,559,425 4,556,751 52,007,652
NET ASSETS:
Beginning of Period 56,564,403 52,007,652 --
----------- ----------- -----------
End of Period $78,123,828 $56,564,403 $52,007,652
=========== =========== ===========
TRANSACTIONS IN SHARES OF THE FUND:
Sold 1,966,932 357,661 6,116,637
Issued in Reinvestment of
Distributions 256,990 48,261 143,923
Redeemed (259,095) (46,916) (1,558,230)
--------- ------- ---------
Net Increase in Shares of
the Fund 1,964,827 359,006 4,702,330
========= ======= =========
8
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
August 31, 1998 (Unaudited)
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 fair 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 August 31, 1998 was $8,406,532 and $8,510,675, respectively,
representing 10.9% of the net assets of the Fund. Of these securities,
which are restricted as to resale, 87.2% 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 -- 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. 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)
- --------------------------------------------------------------------------------
August 31, 1998 (Unaudited)
(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 bank 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 August 31, 1998 and unaffiliated
directors' fees for the period then ended, excluding the effect of waivers
and reimbursements, were $37,145 and $750, respectively.
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of U.S. Government and Agency securities
for the six months ended August 31, 1998 were $38,291,477 and $30,722,752,
respectively. The aggregate purchases and sales of other long-term
securities for the period ended August 31, 1998 were $71,469,938 and
$64,446,504, respectively.
5. INCOME TAX INFORMATION
At August 31, 1998, the cost of investments in securities for federal income
tax purposes was $75,593,328. Net unrealized appreciation of securities was
$974,209, consisting of gross unrealized appreciation and depreciation of
$1,602,559 and $628,350, respectively.
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>
Aug. 31, 1998(b) $11.18 $0.35 $0.08 $0.43 ($0.35) -- ($0.14) ($0.49) $11.12
Feb. 28, 1998(c) 11.06 0.11 0.12 0.23 (0.11) $0.00(d) -- (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>
Aug. 31, 1998(b) +3.9% $78,124 0.3%* 0.3%* 6.2%* 151.0%
Feb. 28, 1998(c) +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 six months ended August 31, 1998 (Unaudited). Total return and portfolio turnover rate are not annualized.
(c) For the period from December 31, 1997 to February 28, 1998 (Note 1). Total return and portfolio turnover rate
are not annualized.
(d) Amount calculated is less than $0.01.
11
</TABLE>
<PAGE>
NOTES
- -------------------------------------------------------------------------------
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
DISTRIBUTOR
Strong Funds Distributors, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
CUSTODIAN
Firstar Trust Company
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
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 9313J98
