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[LOGO]
THE STRONG
BOND FUND
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SEMI-ANNUAL REPORT - AUGUST 31, 1999
[PHOTO OF STRONG FUNDS HEADQUARTERS IN BACKGROUND]
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THE STRONG
BOND FUND
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SEMI-ANNUAL REPORT - AUGUST 31, 1999
TABLE OF CONTENTS
INVESTMENT REVIEW
The Strong Bond Fund ................................................. 2
FINANCIAL INFORMATION
Schedule of Investments in Securities ................................ 4
Statement of Assets and Liabilities .................................. 7
Statement of Operations .............................................. 8
Statements of Changes in Net Assets .................................. 9
Notes to Financial Statements ........................................ 10
FINANCIAL HIGHLIGHTS ...................................................... 12
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THE STRONG BOND FUND
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PERSPECTIVES
FROM THE MANAGERS
/s/ Bradley C. Tank /s/ Jeffrey A. Koch
Bradley C. Tank Jeffrey A. Koch
Portfolio Co-manager Portfolio Co-manager
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Lower-quality corporate bonds have been the best performing asset class in which
the Strong Bond Fund, formerly the Strong Institutional Bond Fund, invests. Here
we have maintained a modest overweight versus our normal allocation of 15% of
the Fund. We currently have approximately 20% of the Fund invested in U.S.
high-yield bonds and continue to find many opportunities to add value through
rigorous research and careful issue selection. Investments in telecommunications
companies such as Global Crossing, Nextlink, and Winstar have generally done
quite well. Rising oil and gas prices have proven to be beneficial for the
Fund's energy holdings in companies such as Pogo Producing, Snyder Oil, and
Vintage Petroleum.
Bond markets around the world generally performed somewhat better than the U.S.
market early in the recent six-month period, while underperforming more
recently. We are maintaining a modest underweight in non-U.S. bonds, which are
currently approximately 9.1% of the total portfolio. Current holdings include
modest positions in the sovereign debt of Australia, New Zealand, and the U.K.
Presently, all positions are hedged back to U.S. dollars. As with our U.S.
holdings, we are maintaining a shorter-than-benchmark duration in the non-U.S.
portion of the Fund.
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U.S. AGENCY SECURITIES...TO US REPRESENT GREAT RELATIVE VALUE AND WE HAVE
SIGNIFICANTLY ENLARGED OUR COMMITMENT TO THIS SECTOR.
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The high-grade U.S. portion of the Fund is
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[SIDE NOTE]
FUND
HIGHLIGHTS
- - The Strong Bond Fund produced a total return of -0.27% for the six months
ended August 31, 1999.
- - The six months ended August 31, 1999 were characterized by rising interest
rates, with U.S. Treasury two-year notes up in yield by 65 basis points and
U.S. Treasury 30-year bonds up in yield by 45 basis points. Our response to
this environment has been to maintain a defensive posture with respect to
interest rate risk.
------------------------------
[SIDE NOTE]
AVERAGE ANNUAL
TOTAL RETURN(1)
as of 8-31-99
1-year 3.55%
Since Inception 10.53%
(on 12-31-96)
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[SIDE NOTE]
PORTFOLIO
STATISTICS
as of 8-31-99
30-day annualized yield(2) 7.13%
Average quality rating(3) A
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(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, and is not annualized.
(2) Yields vary and are annualized. 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. Note that the amount
distributed by a Fund during any given 30-day period may be more or less
than the stated yield.
(3) For purposes of this average rating, the Fund's short-term debt obligations
have been assigned a long-term rating by the Advisor.
2
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more or less equally invested in corporates, mortgages, and U.S. Treasuries.
During the recent period, A-rated or better corporate bonds have underperformed
treasuries, while BBBs have outperformed. We have taken advantage of market
circumstances to do a number of up-in-quality trades in recent weeks. U.S.
agency securities, for example, represent to us great relative value and we have
significantly enlarged our commitment to this sector.
Looking forward, our view is that the movement toward lower bond prices
is substantially over in terms of price, but not necessarily in terms of time.
Which is to say that the Federal Reserve will continue to raise short-term
interest rates modestly from current levels, but such policy moves are already
substantially reflected in current market prices. We anticipate the Federal
Reserve will remain successful in containing any meaningful rise in price
inflation. We also believe that the recent increases in market interest rates
and the price of energy will begin to dampen consumer demand for housing and
autos in the period ahead, ultimately bringing this episode of rising rates to
an end. Current yields of 6.00% for U.S. Treasuries, 7.00% for AA corporates,
and 11.00% for U.S. high-yield represent terrific value against a backdrop of
2.00% price inflation, and we would encourage investors toward a full
fixed-income allocation in the months ahead.
GROWTH OF AN ASSUMED $10,000 INVESTMENT
from 12-31-96 to 8-31-99
[GRAPH]
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<CAPTION>
12/96 6/97 12/97 6/98 12/98 6/99 8/99
<S> <C> <C> <C> <C> <C> <C> <C>
THE STRONG BOND FUND $10,000 $11,032.22 $11,886.20 $12,451.05 $13,174.27 $13,102.51 $13,060.13
Blended Bond Index* $10,000 $10,373.57 $11,033.34 $11,501.37 $11,928.63 $11,874.67 $11,823.18
Lipper Intermediate Investment Grade
Debt Funds Index * $10,000 $10,294.04 $10,878.96 $11,288.80 $11,736.16 $11,668.94 $11,516.99
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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.
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[SIDE NOTE]
YOUR FUND'S
APPROACH
STRONG 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
PRIMARILY IN INVESTMENT-GRADE DEBT OBLIGATIONS AND ITS AVERAGE PORTFOLIO
DURATION WILL NORMALLY VARY BETWEEN THREE AND SIX YEARS. THE FUND MAY INVEST UP
TO 20% OF ITS NET ASSETS IN NON-INVESTMENT-GRADE DEBT OBLIGATIONS AND OTHER
HIGH-YIELD SECURITIES. THE FUND MAY ALSO INVEST UP TO 20% OF ITS NET ASSETS IN
SECURITIES DENOMINATED IN FOREIGN CURRENCIES.
- -----------------------------
[SIDE NOTE]
MARKET
HIGHLIGHTS
- - While consumer prices throughout much of the world's developed economies
continue to be very well-behaved, the recent movement toward near-perfect
price stability appears to be over.
- - April witnessed the first meaningful negative surprise in the U.S. on price
inflation in quite some time. This news, in conjunction with continued
tightness in labor markets, prompted the Federal Reserve to begin unwinding
its series of Federal Funds rate reductions.
- - In late June, and again in late July, the Federal Funds rate was raised by
25 basis points. U.S. Treasury yields rose higher than the yields of
lower-quality corporate bonds and mortgage securities.
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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 Smith Barney
Non-U.S. World Government Bond Index (Currency Hedged). 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
Lehman Brothers High-Yield Bond Index is an unmanaged index generally
representative of corporate bonds rated below investment-grade. The Salomon
Smith Barney 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 Inc.
3
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SCHEDULE OF INVESTMENTS IN SECURITIES August 31, 1999 (Unaudited)
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STRONG BOND FUND
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Shares or
Principal Value
Amount (Note 2)
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<S> <C> <C>
CORPORATE BONDS 38.5%
@Entertainment, Inc. Senior Discount Notes,
Series B, Zero %, Due 7/15/08 (Rate Reset
Effective 7/15/03) $1,000,000 $ 641,250
AT&T Canada, Inc. Senior Discount Yankee Notes,
Zero %, Due 11/01/07 (Rate Reset Effective
11/01/02) 500,000 405,000
AT&T Canada, Inc. Senior Yankee Notes, 10.625%,
Due 11/01/08 1,350,000 1,532,250
Allied Waste North America, Inc. Senior
Subordinated Notes, 10.00%, Due 8/01/09
(Acquired 8/16/99; Cost $983,750) (b) 1,000,000 970,000
APCOA/Standard Parking, Inc. Senior
Subordinated Notes, 9.25%, Due 3/15/08 1,500,000 1,316,250
Atlas Air, Inc. Senior Notes, 10.75%, Due 8/01/05 275,000 281,875
Bay View Capital Corporation Subordinated Notes,
9.125%, Due 8/15/07 500,000 465,000
Capital One Floating Rate Subordinated Capital
Income Securities, 6.8625%, Due 2/01/27
(Acquired 5/05/99; Cost $1,316,250) (b) 1,500,000 1,319,364
Cendant Corporation Notes:
7.50%, Due 12/01/00 980,000 985,459
7.75%, Due 12/01/03 3,000,000 3,001,221
Continental Airlines Pass-Thru Trusts Certificates,
Series 1999-2, Class A-2, 7.056%, Due 9/15/09 865,000 825,258
DTE Capital Corporation Notes, 6.17%, Due 6/15/03
(Acquired 6/16/98; Cost $845,000) (b) 845,000 815,101
El Paso Energy Corporation Senior Notes, 6.625%,
Due 7/15/01 (Acquired 7/07/99; Cost $2,032,863) (b) 2,035,000 2,020,619
Ford Motor Company Global Landmark Securities,
7.45%, Due 7/16/31 1,030,000 1,013,829
Ford Motor Credit Company Notes, 6.70%,
Due 7/16/04 2,000,000 1,972,632
Fresenius Medical Care Capital Trust II Guaranteed
Preferred Securities, 7.875%, Due 2/01/08 500,000 460,000
Global Crossing Holding, Ltd. Senior Yankee
Notes, 9.625%, Due 5/15/08 500,000 508,750
Graham Packaging Holdings Company/GPC
Capital Corporation II Senior Discount Notes,
Zero %, Due 1/15/09 (Rate Reset Effective 1/15/03) 1,000,000 645,000
Intermedia Communications, Inc. Senior Notes,
8.60%, Due 6/01/08 500,000 447,500
Jordan Telecommunication Products, Inc. Senior
Subordinated Discount Notes, Zero %,
Due 8/01/07 (Rate Reset Effective 8/01/00) 385,000 329,175
KN Energy, Inc. Senior Notes, 6.80%, Due 3/01/08 365,000 341,302
LCI International, Inc. Senior Notes, 7.25%,
Due 6/15/07 820,000 795,554
Lilly Del Mar, Inc. Floating Rate Capital Securities,
7.717%, Due 8/01/29 (Rate Reset Effective 8/01/04)
(Acquired 7/29/99; Cost $650,000) (b) 650,000 644,533
Lyondell Chemical Company Senior Secured Notes,
Series B, 9.875%, Due 5/01/07 2,000,000 2,010,000
MCI Worldcom, Inc. Notes, 6.125%, Due 4/15/12
(Remarketing Date 4/15/02) 1,235,000 1,214,169
Motors and Gears, Inc. Senior Notes, Series C,
10.75%, Due 11/15/06 750,000 750,000
NTL Communications Corporation Senior Notes,
Series B, 11.50%, Due 10/01/08 500,000 533,750
National Wine & Spirits, Inc. Senior Notes,
10.125%, Due 1/15/09 750,000 753,750
Nextlink Communications, Inc. Senior Discount
Notes, Zero %, Due 6/01/09 (Rate Reset Effective
6/01/04) 1,000,000 590,000
Nextlink Communications, Inc. Senior Notes,
10.75%, Due 6/01/09 1,000,000 1,021,250
PSINet, Inc. Senior Notes, 11.00%, Due 8/01/09
(Acquired 7/16/99; Cost $1,000,000) (b) 1,000,000 995,000
Pogo Producing Company Senior Subordinated
Notes, 10.375%, Due 2/15/09 500,000 526,250
Premier International Foods PLC Senior Yankee
Notes, 12.00%, Due 9/01/09 (Acquired 8/16/99;
Cost $1,005,000) (b) 1,000,000 1,020,000
Qwest Communications International, Inc. Senior
Notes, Series B, 7.25%, Due 11/01/08 1,000,000 975,000
Repap New Brunswick Senior Yankee Notes,
10.625%, Due 4/15/05 1,000,000 865,000
Riggs Capital Trust Preferred Securities,
Series A, 8.625%, Due 12/31/26 180,000 167,835
Riggs Capital Trust II Preferred Securities,
Series B, 8.875%, Due 3/15/27 685,000 652,386
Rohm & Haas Company Notes, 6.95%, Due 7/15/04
(Acquired 6/30/99; Cost $1,102,934) (b) 1,105,000 1,102,970
Saks, Inc. Guaranteed Notes, 7.00%, Due 7/15/04 795,000 758,207
Simon Property Group LP Notes, 6.75%,
Due 2/09/04 1,545,000 1,479,748
Snyder Oil Corporation Senior Subordinated
Notes, 8.75%, Due 6/15/07 1,500,000 1,488,750
Sonat, Inc. Notes, 7.625%, Due 7/15/11 1,000,000 983,898
Sprint Capital Corporation Guaranteed Notes,
5.875%, Due 5/01/04 1,545,000 1,468,264
Stater Brothers Holdings, Inc. Senior Notes, 10.75%,
Due 8/15/06 (Acquired 8/03/99; Cost $1,002,500) (b) 1,000,000 1,025,000
Station Casinos, Inc. Senior Subordinated Notes,
9.75%, Due 4/15/07 750,000 765,000
Stop & Shop Companies, Inc. Senior Subordinated
Notes, 9.75%, Due 2/01/02 375,000 397,123
SunAmerica, Inc. Debentures, 5.60%, Due 7/31/97 1,100,000 799,162
SunTrust Capital III Floating Rate Notes, 5.7938%,
Due 3/15/28 2,125,000 1,987,087
Telewest PLC Senior Discount Debentures, Zero %,
Due 10/01/07 (Rate Reset Effective 10/01/00) 1,000,000 886,250
Transwestern Publishing Company LP/TWP
Capital Corporation Senior Subordinated Notes,
Series D, 9.625%, Due 11/15/07 850,000 824,500
United Airlines Pass-Thru Trust Certificates,
Series 1992-A2, 9.35%, Due 4/07/16 575,000 616,265
United Industries Corporation Senior Subordinated
Notes, 9.875%, Due 4/01/09 (Acquired 8/16/99;
Cost $910,000) (b) 1,000,000 885,000
United International Holdings, Inc. Senior Secured
Discount Notes, Series B, Zero %, Due 2/15/08
(Rate Reset Effective 2/15/03) 2,000,000 1,170,000
US Airways Trusts Pass-Thru Certificates, Series
1998-1, Class A, 6.85%, Due 1/30/18 617,881 553,928
Universal Compression, Inc. Senior Discount Notes,
Zero %, Due 2/15/08 (Rate Reset Effective 2/15/03) 2,500,000 1,550,000
Viatel, Inc. Senior Notes, 11.25%, Due 4/15/08 1,000,000 1,005,000
Vintage Petroleum, Inc. Senior Subordinated
Notes, 9.75%, Due 6/30/09 750,000 770,625
Wal-Mart Stores, Inc. Senior Notes, 6.875%,
Due 8/10/09 1,050,000 1,039,476
Waste Management, Inc. Senior Notes:
6.125%, Due 7/15/01 805,000 766,531
7.00%, Due 10/15/06 1,000,000 892,990
Williams Companies, Inc. Notes, 7.625%,
Due 7/15/19 640,000 614,363
Winstar Communications, Inc. Senior Subordinated
Deferred Interest Notes, Zero %, Due 3/01/07
(Rate Reset Effective 9/01/02) 1,000,000 1,185,000
</TABLE>
4
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<TABLE>
<CAPTION>
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STRONG BOND FUND (continued)
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Shares or
Principal Value
Amount (Note 2)
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<S> <C> <C>
WorldCom, Inc. Senior Notes, 6.40%, Due 8/15/05 $ 55,000 $ 53,132
ZSC Specialty Chemicals PLC Senior Yankee Notes,
11.00%, Due 7/01/09 (Acquired 7/12/99;
Cost $1,025,000) (b) 1,000,000 1,010,000
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Total Corporate Bonds (Cost $60,948,972) 59,889,581
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CONVERTIBLE BONDS 1.3%
Bell Atlantic Financial Services, Inc. Senior
Notes, 5.75%, Due 4/01/03
(Acquired 2/12/98; Cost $2,028,750) (b) 2,000,000 2,027,500
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Total Convertible Bonds (Amortized Cost $2,020,989) 2,027,500
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NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES 18.8%
Asset Securitization Corporation Commercial
Mortgage Pass-Thru Certificates:
Series 1995-MD4, Class A1, 7.10%, Due 8/13/29 995,000 986,030
Series 1996-MD6, Class A1B, 6.88%, Due 11/13/26 1,965,843 1,949,831
Bear Stearns Commercial Mortgage Securities, Inc.
Variable Rate Mortgage Pass-Thru Certificates,
Series 1999-C1, Class A-2, 6.02%, Due 2/14/09 2,215,000 2,053,039
Bear Stearns Mortgage Securities, Inc. Mortgage
Pass-Thru Certificates, Series 1995-1, Class 2-P,
Principal Only, Due 7/25/10 178,844 144,700
DLJ Commercial Mortgage Corporation Commercial
Mortgage Pass-Thru Certificates, Series
1999-CG2, Class A-1B, 7.30%, Due 6/10/09 600,000 595,026
The Equitable Life Assurance Society of the United
States Floating Rate Notes, Series 174, Class A2,
5.6288%, Due 5/15/03 (Acquired 1/29/99; Cost
$1,491,914) (b) 1,500,000 1,499,595
Headlands Mortgage Securities, Inc. Mortgage
Pass-Thru Certificates, Series 1975, Class AII1,
6.75%, Due 11/25/27 574,857 568,117
Morgan Stanley Capital I, Inc. Variable Rate
Commercial Mortgage Pass-Thru Certificates,
Series 1999-FNV1, Class A2, 6.53%, Due 3/15/31 1,570,000 1,479,238
Mortgage Capital Funding, Inc. Mortgage
Pass-Thru Certificates, Series 1998-MC3,
Class A2, 6.337%, Due 11/18/31 4,150,000 3,869,688
Mountain Capital CLO I, Ltd./Mountain Capital
CLO I Corporation Floating Rate Bonds, Series 1A,
Class A-1, 5.91%, Due 4/15/11 5,000,000 5,000,000
Nomura Asset Securities Corporation, Series
1994-4B, Class 4PO, Principal Only, Due 9/25/24 94,420 73,648
Norwest Asset Securities Corporation Mortgage
Pass-Thru Certificates, Series 1999-21 , Class B3,
7.00%, Due 9/25/29 1,489,000 1,278,366
PNC Mortgage Securities Corporation Mortgage
Pass-Thru Certificates:
Series 1998-1, Class 4B4, 6.75%, Due 3/25/13
(Acquired 10/23/98; Cost $281,148) (b) 353,160 280,155
Series 1998-11, Class 2B4, 6.25%, Due 11/25/13
(Acquired 10/23/98; Cost $274,469) (b) 363,836 274,369
Resolution Trust Corporation Mortgage Pass-Thru
Securities, Inc. Commercial Mortgage Pass-Thru
Certificates:
Series 1995-C1, Class C, 6.90%, Due 2/25/27 1,000,000 998,715
Series 1995-C2, Class D, 7.00%, Due 5/25/27 988,927 978,776
Resolution Trust Corporation Variable Rate
Mortgage Pass-Thru Securities, Inc. Commercial
Certificates:
Series 1991-M4, Class A-1, 6.004%, Due 2/25/20 1,435,093 1,436,262
Series 1992-C8, Class A-2, 6.5375%, Due 12/25/23 781,892 783,678
Rural Housing Trust 1987-1 Senior Mortgage
Pass-Thru Certificates, Series 1, Class D, 6.33%,
Due 4/01/26 1,197,800 1,184,283
Salomon Brothers Mortgage Securities VII, Inc.
Mortgage Pass-Thru Certificates:
Series 1996-LB2, Class A-5, 7.25%, Due 10/25/26 1,566,516 1,566,101
Series 1997-LB2, Class A-3, 7.20%, Due 4/25/27 255,343 254,859
Summit CBO I, Ltd./Summit CBO I Funding
Corporation Second Priority Senior Secured
Floating Rate Bonds, Series 1A, Class B, 6.0725%,
Due 5/23/11 (Acquired 4/07/99; Cost $2,000,000) (b) 2,000,000 1,987,180
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Total Non-Agency Mortgage & Asset-Backed Securities
(Cost $29,678,602) 29,241,656
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MUNICIPAL BONDS 0.6%
New Jersey Economic Development Authority State
Pension Funding Revenue, 7.425%, Due 2/15/29 915,000 913,863
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Total Municipal Bonds (Cost $1,005,593) 913,863
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UNITED STATES GOVERNMENT & AGENCY ISSUES 31.2%
FHLMC Participation Certificates:
6.25%, Due 6/15/12 thru 9/15/22 2,640,000 2,509,423
10.50%, Due 8/01/19 900,979 978,673
FHLMC Variable Rate Participation Certificates,
7.997%, Due 8/01/25 802,459 815,286
FNMA Corporate Notes, 6.50%, Due 8/15/04 3,080,000 3,071,487
FNMA Corporate Notes, 6.625%, Due 9/15/09 1,005,000 987,613
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Pass-Thru Certificates:
6.25%, Due 1/25/08 2,435,000 2,315,721
6.52%, Due 7/25/08 975,451 961,449
8.00%, Due 4/01/17 thru 9/01/23 2,785,485 2,851,967
8.33%, Due 7/15/20 2,371,891 2,441,739
8.50%, Due 8/01/12 thru 5/01/26 4,301,334 4,443,826
9.00%, Due 12/01/16 thru 8/01/17 2,321,917 2,438,275
9.50%, Due 6/01/05 773,224 805,301
FNMA Guaranteed Real Estate Mortgage
Investment Conduit Variable Rate Mortgage
Certificates, Pool #92117, 7.095%, Due 6/01/18 88,968 91,509
United States Treasury Bonds:
5.25%, Due 2/15/29 1,600,000 1,398,000
5.50%, Due 8/15/28 1,985,000 1,774,094
6.125%, Due 11/15/27 2,620,000 2,540,582
6.50%, Due 11/15/26 1,700,000 1,722,845
United States Treasury Notes:
5.25%, Due 5/15/04 745,000 725,211
5.50%, Due 5/31/03 thru 5/15/09 3,830,000 3,714,267
5.75%, Due 8/15/03 1,000,000 993,750
6.00%, Due 8/15/04 thru 8/15/09 1,915,000 1,920,552
6.50%, Due 5/15/05 thru 10/15/06 1,240,000 1,263,525
7.00%, Due 7/15/06 880,000 919,325
7.50%, Due 2/15/05 2,980,000 3,172,770
7.875%, Due 11/15/04 3,385,000 3,652,628
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Total United States Government & Agency Issues
(Cost $49,683,829) 48,509,818
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FOREIGN GOVERNMENT ISSUES 5.0%
Australian Government Bonds, 7.50%,
Due 7/15/05 2,900,000 AUD 1,978,856
Government of New Zealand Notes, 10.00%,
Due 3/15/02 2,500,000 NZD 1,402,336
Government of United Kingdom Treasury
Notes, 7.25%, Due 12/07/07 2,500,000 GBP 4,468,476
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Total Foreign Government Issues (Cost $7,978,739) 7,849,668
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5
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<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS IN SECURITIES (continued) August 31, 1999 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------
STRONG BOND FUND (continued)
- ----------------------------------------------------------------------------------------------------------------
Shares or
Principal Value
Amount (Note 2)
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<S> <C> <C>
PREFERRED STOCKS 3.1%
Centaur Funding Corporation 9.08% Series B
(Acquired 12/09/98; Cost $1,471,695) (b) 1,465 $1,503,996
Indosuez Holdings SCA Sponsored ADR 10.375%
Representing 1/10 Series A (Acquired 2/05/98;
Cost $1,981,000) (b) 70,000 1,855,000
R&B Falcon Corporation 13.875% 500 470,000
Superior Healthcare Management 7.75% Series A
(Acquired 12/30/97; Cost $1,006,460) (b) 1,000 1,010,170
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Total Preferred Stocks (Cost $4,949,155) 4,839,166
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COMMON STOCKS 0.0%
Optel, Inc. Non-Voting (Acquired 4/14/98;
Cost $20,000) (b) (e) 500 2,500
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Total Common Stocks (Cost $20,000) 2,500
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WARRANTS 0.0%
MetroNet Communications Corporation,
Expire 8/15/07 350 28,000
R&B Falcon Corporation, Expire 5/01/09
(Acquired 4/29/99; Cost $41,250) (b) 500 80,000
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Total Warrants (Cost $41,254) 108,000
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SHORT-TERM INVESTMENTS (a) 0.8%
Commercial Paper 0.0%
Interest Bearing, Due Upon Demand
Pitney Bowes Credit Corporation, 4.95% $ 500 500
Convertible Bonds 0.3%
Corporate Express, Inc. Subordinated
Notes, 4.50%, Due 7/01/00 500,000 482,500
Corporate Bonds 0.1%
ARA Services, Inc. Guaranteed Notes, 10.625%,
Due 8/01/00 134,000 136,429
United States Government Issues 0.4%
United States Treasury Bills, Due 9/02/99 thru
11/26/99 (c) 650,000 646,932
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Total Short-Term Investments (Cost $1,258,084) 1,266,361
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Total Investments in Securities (Cost $157,585,217) 99.3% 154,648,113
Other Assets and Liabilities, Net 0.7% 1,072,944
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NET ASSETS 100.0% $155,721,057
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<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
FUTURES
- ----------------------------------------------------------------------------------------------------------------
Underlying Unrealized
Expiration Face Amount Appreciation
Date at Value (Depreciation)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchased:
65 Ten-Year Euro Bonds 12/99 $7,324,595 ($114,661)
2 Ten-Year Japanese Government Bonds 3/00 2,352,684 8,756
77 U.S. Treasury Bonds 12/99 8,775,594 (44,843)
Sold:
44 Five-Year U.S. Treasury Notes 12/99 (4,749,250) (35,031)
92 Ten-Year U.S. Treasury Notes 12/99 (10,061,063) (10,454)
<CAPTION>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
- ----------------------------------------------------------------------------------------------------------------
Settlement Value Unrealized
Date in USD Appreciation
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sold:
3,290,000 AUD 9/29/99 $2,111,489 $ --
3,015,000 GBP 9/29/99 4,950,630 109,393
2,750,000 NZD 9/29/99 1,487,063 63,910
<CAPTION>
SWAPS
- -------------------------------------------------------------------------------
Open index rate swap contracts at August 31, 1999 consisted of the following:
- -------------------------------------------------------------------------------
Notional Termination Interest Index Unrealized
Amount Date Sold Bought Depreciation
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$5,000,000 7/31/00 1 mo. LIBOR ERISA Eligible $15,647
Lehman CMBS*
</TABLE>
*Lehman Brothers Investment Grade Index - ERISA Eligible Sub Index
Collateralized Mortgage-Backed Securities Index Total Return Swap
CURRENCY ABBREVIATIONS
- -------------------------------------------------------------------------------
AUD Australian Dollar
GBP British Pound
NZD New Zealand Dollar
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.
Percentages are stated as a percent of net assets.
See Notes to Financial Statements.
6
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------------------------------------
August 31, 1999 (Unaudited)
Strong
Bond Fund
---------
<S> <C>
ASSETS:
Investments in Securities, at Value (Cost of $157,585,217) $154,648,113
Receivable for Securities and Forward Foreign Currency Contracts Sold 4,313,571
Interest Receivable 1,832,016
------------
Total Assets 160,793,700
LIABILITIES:
Payable for Securities Purchased 4,038,643
Dividends Payable 861,644
Accrued Operating Expenses and Other Liabilities 172,356
------------
Total Liabilities 5,072,643
------------
NET ASSETS $155,721,057
------------
------------
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) 161,597,741
Undistributed Net Investment Income 40,324
Accumulated Net Realized Loss (2,933,979)
Net Unrealized Depreciation (2,983,029)
------------
Net Assets $155,721,057
------------
------------
Capital Shares Outstanding (Unlimited Number Authorized) 14,583,060
NET ASSET VALUE PER SHARE $10.68
------------
------------
See Notes to Financial Statements.
7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------------------
For the Six Months Ended August 31, 1999 (Unaudited)
Strong
Bond Fund
-----------
<S> <C>
INCOME:
Interest $ 4,976,365
Dividend 245,169
-----------
Total Income 5,221,534
EXPENSES:
Investment Advisory Fees 191,535
Custodian Fees 15,453
Shareholder Servicing Costs 11,288
Federal and State Registration Fees 37,011
Other 19,208
-----------
Total Expenses 274,495
-----------
NET INVESTMENT INCOME 4,947,039
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments (2,764,170)
Futures Contracts and Forward Foreign Currency Contracts 51,848
Foreign Currencies (605)
-----------
Net Realized Loss (2,712,927)
Change in Unrealized Appreciation/Depreciation on:
Investments (2,735,267)
Futures Contracts, Options and Forward Foreign Currency Contracts (190,077)
Foreign Currencies (4,390)
-----------
Net Change in Unrealized Appreciation/Depreciation (2,929,734)
-----------
NET LOSS ON INVESTMENTS (5,642,661)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ($ 695,622)
-----------
-----------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------
Strong Bond Fund
----------------------------------
Six Months Ended Year Ended
Aug. 31, 1999 Feb. 28, 1999
---------------- --------------
(Unaudited)
<S> <C> <C>
OPERATIONS:
Net Investment Income $ 4,947,039 $ 5,135,814
Net Realized Gain (Loss) (2,712,927) 1,556,123
Net Change in Unrealized Appreciation/Depreciation (2,929,734) (824,664)
------------- ------------
Net Increase (Decrease) in Net Assets Resulting from Operations (695,622) 5,867,273
DISTRIBUTIONS:
From Net Investment Income (4,938,337) (5,166,846)
From Net Realized Gains (732,355) (1,721,649)
------------- ------------
Total Distributions (5,670,692) (6,888,495)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 34,536,608 86,338,180
Proceeds from Reinvestment of Distributions 5,478,764 6,064,592
Payment for Shares Redeemed (12,643,717) (13,230,237)
------------- ------------
Net Increase in Net Assets from Capital Share Transactions 27,371,655 79,172,535
------------- ------------
TOTAL INCREASE IN NET ASSETS 21,005,341 78,151,313
NET ASSETS:
Beginning of Period 134,715,716 56,564,403
------------- ------------
End of Period $155,721,057 $134,715,716
------------- ------------
------------- ------------
TRANSACTIONS IN SHARES OF THE FUND:
Sold 3,118,587 7,695,552
Issued in Reinvestment of Distributions 498,910 542,552
Redeemed (1,153,667) (1,180,209)
------------- ------------
Net Increase in Shares of the Fund 2,463,830 7,057,895
------------- ------------
------------- ------------
See Notes to Financial Statements.
9
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
August 31, 1999 (Unaudited)
1. ORGANIZATION
The Strong Bond Fund (the "Fund"), formerly known as 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.
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 held at August 31, 1999 was $22,469,983 and
$22,328,052, respectively, representing 14.3% of the net assets of the
Fund. Of these securities, which are restricted as to resale, 95.5%
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 income and distributions made during the year from
net investment income or net realized gains for financial statement
purposes 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.
The Fund generally pays dividends from net investment income monthly
and distributes any net capital gains that it realizes annually.
Dividends are declared on each day net asset value is calculated,
except for bank holidays.
(C) REALIZED GAINS AND LOSSES ON INVESTMENT TRANSACTIONS -- Investment
security transactions are recorded as of the trade date. Gains or
losses realized on investment transactions are determined by comparing
the identified cost of the security lot sold with the net sales
proceeds
(D) CERTAIN INVESTMENT RISKS -- The Fund may utilize derivative
instruments, including options, futures and other instruments with
similar characteristics, to the extent that they are consistent with
the Fund's investment objectives and limitations. The Fund intends to
use such derivative instruments primarily to hedge or protect 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.
Investments in foreign denominated assets or forward currency
contracts may involve greater risks than domestic investments, due to
currency, political and economic, regulatory and market risks.
(E) FUTURES -- Upon entering into a futures contract, the Fund pledges to
the broker cash or other investments equal to the minimum "initial
margin" requirements of the exchange. Additional securities held by
the Fund may be designated as collateral on open futures contracts.
The Fund also receives from or pays to the broker an amount of cash
equal to the daily fluctuation in the value of the contract. Such
receipts or payments are known as "variation margin" and are recorded
as unrealized gains or losses. When the futures contract is closed, a
realized gain or loss is recorded equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed.
(F) OPTIONS -- The Fund may write put or call options (none were written
during the period). Premiums received by the Fund upon writing put or
call options are recorded as an asset with a corresponding liability
which is subsequently adjusted to the current market value of the
option. When an option expires, is exercised, or is closed, the Fund
realizes a gain or loss, and the liability is eliminated. The Fund
continues to bear the risk of adverse movements in the price of the
underlying asset during the period of the option, although any
potential loss during the period would be reduced by the amount of the
option premium received.
10
<PAGE>
- --------------------------------------------------------------------------------
(G) FOREIGN CURRENCY TRANSLATION -- Investment securities and other assets
and liabilities initially expressed in foreign currencies are
converted to U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investment securities and income are converted to
U.S. dollars based upon currency exchange rates prevailing on the
respective dates of such transactions. The effect of changes in
foreign exchange rates on realized and unrealized security gains or
losses is reflected as a component of such gains or losses.
(H) FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- Forward foreign
currency exchange contracts are valued at the forward rate and are
marked-to-market daily. The change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the Fund records
an exchange gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed.
(I) REPURCHASE AGREEMENTS-- The Fund may enter into repurchase agreements
with institutions that the Fund's investment advisor, Strong Capital
Management, Inc. ("the Advisor"), has determined are creditworthy
pursuant to criteria adopted by the Board of Directors. Each
repurchase agreement is recorded at cost. The Fund requires that the
collateral, represented by securities (primarily U.S. Government
securities), in a repurchase transaction be maintained in a segregated
account with a custodian bank in a manner sufficient to enable the
Fund to obtain those securities in the event of a default of the
repurchase agreement. On a daily basis, the Advisor monitors each
repurchase agreement to ensure the value of the collateral, including
accrued interest, is at least equal to the amounts owed to the Fund
under each repurchase agreement.
(J) USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts in these financial statements. Actual results could differ
from those estimates.
(K) OTHER -- 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.
Based on the terms of the Advisory Agreement, advisory fees and other
expenses will be waived or reimbursed by the Advisor if the Fund's
operating expenses exceed 2% of the average daily net assets of the Fund.
In addition, the Fund's Advisor may voluntarily waive or absorb certain
expenses at its discretion. 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. The Advisor is
compensated for certain other services related to costs incurred for
reports to shareholders.
The Fund may invest cash 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, 1999, shareholder servicing
and other expenses paid to the Advisor and unaffiliated directors' fees for
the period then ended, excluding the effect of waivers and absorptions,
were $29,788, $15,227, and $750, respectively.
4. LINE OF CREDIT
The Strong Funds have established a line of credit agreement ("LOC") with
certain financial institutions to be used for temporary or emergency
purposes, primarily for financing redemption payments. Combined borrowings
among all participating Strong Funds are subject to a $350 million cap on
the total line of credit. For an individual Fund, borrowings under the LOC
are limited to either the lesser of 15% of the market value of total assets
or any explicit borrowing limits in the Fund's prospectus. Borrowings under
the LOC bear interest based on prevailing market rates as defined in the
LOC. A commitment fee of .07% per annum is incurred on the unused portion
of the line of credit and is allocated to all participating Strong Funds.
At August 31, 1999, there were no borrowings by the Fund outstanding under
the LOC.
5. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of U.S. Government and Agency securities
during the six months ended August 31, 1999 were $133,218,841 and
$133,462,057, respectively. The aggregate purchases and sales of other
long-term securities during the six months ended August 31, 1999 were
$163,685,637 and $134,408,640, respectively.
6. INCOME TAX INFORMATION
At August 31, 1999, the cost of investments in securities for federal
income tax purposes was $157,987,960. Net unrealized depreciation of
securities was $3,339,847, consisting of gross unrealized appreciation and
depreciation of $132,098 and $3,471,945, respectively.
11
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------
STRONG BOND FUND
- ----------------------------------------------------------------------------------------------------------------------------
Period Ended
------------------------------------------------
Aug. 31, Feb. 28, Feb. 28, Dec. 31,
SELECTED PER-SHARE DATA(a) 1999(b) 1999 1998(c) 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $11.12 $11.18 $11.06 $10.00
Income From Investment Operations
Net Investment Income 0.35 0.67 0.11 0.66
Net Realized and Unrealized Gains (Losses) on Investments (0.38) 0.19 0.12 1.18
- ----------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.03) 0.86 0.23 1.84
Less Distributions
From Net Investment Income (0.35) (0.68) (0.11) (0.66)
In Excess of Net Investment Income -- -- 0.00(d) --
From Net Realized Gains (0.06) (0.24) -- (0.12)
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.41) (0.92) (0.11) (0.78)
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.68 $11.12 $11.18 $11.06
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Total Return -0.3% +7.9% +2.1% +18.9%
Net Assets, End of Period (In Thousands) $155,721 $134,716 $56,564 $52,008
Ratio of Expenses to Average Net Assets without Waivers and Absorptions 0.4%* 0.4% 0.4%* 0.7%
Ratio of Expenses to Average Net Assets 0.4%* 0.4% 0.4%* 0.4%
Ratio of Net Investment Income to Average Net Assets 6.4%*(b) 6.0% 6.2%* 6.3%
Portfolio Turnover Rate 183.6% 305.4% 68.1% 358.6%
</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 six months ended August 31, 1999 (unaudited).
(c) In 1998, the Fund changed its fiscal year end from December to February.
(d) Amount calculated is less than $0.01.
See Notes to Financial Statements.
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
John S. Weitzer, Vice President
Stephen J. Shenkenberg, Vice President and Secretary
John W. Widmer, Treasurer
INVESTMENT ADVISOR
Strong Capital Management, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
DISTRIBUTOR
Strong Investments, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
CUSTODIAN
Firstar Bank Milwaukee, N.A.
P.O. Box 701, Milwaukee, Wisconsin 53201
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
Strong Capital Management, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
100 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Godfrey & Kahn, S.C.
780 North Water Street, Milwaukee, Wisconsin 53202
<PAGE>
For a prospectus containing more complete information, including management fees
and expenses, please call 1-800-368-1030. Please read it carefully before
investing or sending money. This report does not constitute an offer for the
sale of securities. Strong Funds are offered for sale by prospectus only.
[GRAPHIC]
To order a free prospectus kit,
call 1-800-368-1030
To learn more about our funds,
discuss an existing account,
or conduct a transaction,
call 1-800-368-3863
--------------
If you are a
Financial Professional,
call 1-800-368-1683
[GRAPHIC]
Strong On-line
www.strongfunds.com
[LOGO]
STRONG FUNDS
P.O. Box 2936 - Milwaukee, Wisconsin 53201
Strong Investments, Inc. 12900199
