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Strong Advantage Fund Inc – ‘N-CSRS’ for 4/30/04

On:  Wednesday, 7/7/04, at 12:53pm ET   ·   Effective:  7/7/04   ·   For:  4/30/04   ·   Accession #:  1193125-4-114819   ·   File #:  811-05667

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 7/07/04  Strong Advantage Fund Inc         N-CSRS      4/30/04    4:3.2M                                   RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: N-CSRS      Strong Advantage Fund, Inc.                         HTML   2.40M 
 2: EX-99.11.A.2.I  Certification of Principal Executive Officer    HTML     13K 
 3: EX-99.11.A.2.II  Certification of Principal Financial Officer   HTML     13K 
 4: EX-99.11.B  Certification of Chief Executive Officer and Chief  HTML      9K 
                          Financial Officer                                      

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

Investment Company Act file number: 811-5667

Strong Advantage Fund, Inc., on behalf of the Strong Ultra Short-Term Income Fund

(Exact name of registrant as specified in charter)

Richard Smirl, Strong Capital Management, Inc.

P.O. Box 2936 Milwaukee, WI 53201

(Name and address of agent for service)

Registrant’s telephone number, including area code: (414) 359-3400

Date of fiscal year end: October 31

Date of reporting period: April 30, 2004

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. (S) 3507.

Table of Contents

Item 1.    Reports to Shareholders

SEMIANNUAL REPORT  |  April 30, 2004

Strong

Money Market and Ultra Short-Term Income

Funds

Strong Heritage Money Fund
Strong Ultra Short-Term Income Fund
Strong Ultra Short-Term Municipal Income Fund
Strong Florida Municipal Money Market Fund
Strong Money Market Fund
Strong Municipal Money Market Fund
Strong Tax-Free Money Fund

Table of Contents

SEMIANNUAL REPORT    |    April 30, 2004

Strong

Money Market and Ultra Short-Term Income

Funds

Table of Contents

Table of Contents

Market Update from Jay N. Mueller

November 1, 2003, to April 30, 2004

On the Road to Normalization

Inflation, disinflation, or deflation?

It was about a year ago that interest rates in the United States fell to a generational low. Ten-year Treasury bonds offered yields of less than 3.5%. Thirty-year, fixed-rate mortgages could be obtained in the neighborhood of 5.5%. Short-term rates hovered around 1%.

From a sufficient perspective in the future, the summer of 2003 will likely be viewed as the culmination of the tremendous bull market for bonds that began in the early ’80s. For bond investors, the story of the last two decades has been disinflation — a persistent downward creep in the rate of price inflation. In 1980, inflation crested at nearly 15%. It bottomed last year at about 1% on a core basis (Consumer Price Index (CPI) excluding food and energy).

But it was more than disinflation that drove yields down to levels last seen at the roll out of the Ford Edsel. Prompted by the musings of various monetary officials and private sector analysts, investors were assessing the possibility of outright deflation — a sustained fall in the general price level. Just as inflation makes bonds less valuable because the purchasing power of a fixed-rate interest payment declines, deflation tends to make bonds more valuable, as each nominal dollar of interest received can buy more goods and services. If the disinflation of the ’80s and ’90s had turned into the deflation of the new century, the bond market rally might have run a bit further.

What’s good for bond prices, however, is not necessarily good for the economy as a whole. And while modest, gradual deflation driven by rising productivity might be tolerable, severe deflation would probably be catastrophic. For exactly the same reason that deflation helps bondholders, it hurts borrowers: the real cost of servicing debt goes up and up. Eventually the burden becomes unsustainable, and massive bankruptcies can result. This was the dynamic that made the Great Depression of the ’30s so severe.

In the last six months, the risk of deflation has abated significantly. As of April, core CPI inflation had risen to 1.8% on a year over year basis. Another price measure, the Personal Consumption Expenditure Deflator, ticked steadily higher in the first four months of 2004. Raw commodity prices pushed sharply higher, most visibly in the energy sector. Consequently, deflation worries have largely disappeared from the comments of Alan Greenspan and his fellow Federal Reserve Board members.

Table of Contents

With deflation off the table, both the bond market and the monetary authorities have shifted their focus to the “normalization” of short-term interest rates. A 1% overnight lending rate is hardly compatible with robust real growth. In the second half of 2003, strong Growth Domestic Product (GDP) numbers were offset by soft employment conditions. And there was no doubting the strength of the economy. Retail sales, industrial production, and supply management data all suggested boom-like conditions. Indeed, in the four quarters ended March 31, 2004, the U.S. economy grew at 5% in real terms — faster than in any one-year period since 1984. Still, the Fed was able to justify remaining “on hold” because labor market conditions were judged to be tepid.

Jobs bounce back

Historically, employment has lagged behind most economic indicators throughout the business cycle. Job creation is generally the last thing to deteriorate after a cyclical peak — and the last thing to improve in a recovery. The present cycle has conformed to that pattern. Though the recovery began at the end of 2001, labor market conditions were still worsening as recently as a year ago. It has only been in the past few months that payroll gains have shown the sort of acceleration that signals a self-sustaining expansion.

Indeed, while the Labor Department’s non-farm payroll survey began to show net job creation in September of 2003, the first big jump in hiring was reported in January of this year with the announcement of 159,000 new jobs. The pace of job creation accelerated to 337,000 in the month of March — the best showing in 4 years. Strength in hiring was accompanied by a drop in the unemployment rate to 5.6%.

The impressive March employment data caused a significant shift in capital market expectations. Investors quickly concluded that the Fed had run out of reasons to delay the inevitable: a tightening cycle that would take short-term rates to something approaching “normal”. Bond prices fell across the board with short- to intermediate-term debt taking the brunt of the damage. Of course, there’s no way to know in advance how high “normal” will be, nor how quickly the Fed will get there. By the end of April, the bond market had “priced in” the likelihood of a cumulative 0.75% jump in target overnight rates by the end of 2004. Such a move is well within the experience of prior tightening cycles.

And there was no doubting the strength of the economy. Retail sales, industrial production, and supply management data all suggested boom-like conditions.

Table of Contents

Strong growth: corporates outperform Treasuries

The relative slack in the labor market has been accompanied by spectacular gains in labor productivity. Businesses have hired at a slower pace in this cycle in part because efficiency improvements have allowed them to meet rising demand without a commensurate increase in headcount. Consequently, unit labor costs have remained basically flat while revenues have risen. The resulting expansion of profit margins has driven corporate earnings up about 37% over the last twelve months, strengthening the ability of corporate borrowers to service their debt.

In part because of the improvement in profitability, the yield spread that corporate bonds paid over comparable maturity Treasury debt narrowed over the last six months. The average spread for high-grade borrowers shrank by about 0.1%.Among high-yield issuers, spreads narrowed by about 0.8% on average.

Even in a rising rate environment, bonds can play an important role in a well-diversified portfolio.

Looking ahead

If, as we expect, the U.S. economy continues to roll forward at a solid pace, interest rates may have some more “normalization” to do. But even in a rising rate environment, bonds can play an important role in a well-diversified portfolio. Bonds — particularly short to intermediate term–tend to be less volatile than stocks. Bonds and stocks are often negatively correlated, which is to say that bonds frequently rally when stocks are selling off, and vice-versa. High-quality bonds can provide a comparatively safe refuge from geopolitical risk and other external shocks. And bonds provide fairly predictable income, which generally becomes increasingly important as investors move toward retirement age.

Thank you for investing with Strong. We look forward to serving your needs in the days and months ahead.

Director of Fixed Income,

Portfolio Manager, and Economist

Table of Contents

Strong Heritage Money Fund

Over the six months ended April 30, 2004, the Fund’s yield was stable, as short-term interest rates were relatively unchanged. The Fund continued to perform well relative to peers, as measured by the Lipper Money Market Funds Index. For the period, the Fund returned 0.36% while the Index returned 0.24%.

Rates stayed low

Slow job growth and concern about possible disinflation kept the Federal Reserve on the sidelines over the past six months, leaving the benchmark Federal Funds rate unchanged at 1.00%. Anchored by this stable Federal Funds rate, market-driven, short-term rates were also little changed. As a result, principal and interest payments received by the Fund were reinvested in similar-yielding, short-term money market investments, such as commercial paper, Treasury bills, and certificates of deposit. Despite the low interest-rate environment, our active management allowed us to identify pockets of relative value that helped the Fund’s performance.

Effective duration management

Our strategies for managing the Fund fall primarily into two broad categories: Effective duration management and research and diversification. During the past six months, the majority of economic data released documented growing strength in the U.S. economy. The normal tendency of interest rates to rise in such an environment was largely suppressed by the Fed’s expressed willingness to keep overnight rates very low “for a considerable period.” As it became clear to us that a 1.00% Federal Funds rate was not in keeping with the general improvement in economic statistics, we began to shorten our weighted average maturity (a figure similar to duration, an important measure of sensitivity to interest rate hikes) in anticipation of rising interest rates.

In April, continued strong economic data — including a significant acceleration in employment figures — presented a meaningful challenge to the wisdom of holding the Fed Funds rate at just 1.00%. Expectations of tighter monetary policy (higher short-term rates) in the coming months led to a steeper yield curve for money market instruments, meaning that investors were offered progressively higher yields for extending to longer maturities. We were opportunistic during these times, employing effective duration management in purchasing securities maturing in six to twelve months in order to capture the incremental increase in yield they offered. In implementing these tactical moves we continued to favor debentures issued by government-sponsored enterprises, as they allow us to reduce credit risk while pursuing their higher yield potential.

Research and diversification played key roles

For most of the past two years, many companies focused on reducing their levels of debt and making other improvements to their balance sheets. These activities bolstered the creditworthiness of a broad group of corporate borrowers, benefiting investors in their bonds. During the past six months, however, companies have demonstrated a renewed willingness to focus on returning value to owners of their stock — paying less attention to the consequences for investors in their bonds and commercial paper. Mergers and acquisitions, increased dividends, and stock buybacks are just a few of the strategies that can enhance return to stockholders to the possible detriment of bondholders. Such so-called “event risk” can be mitigated in part through diligent research and thorough diversification — both of which are longtime areas of focus in the management of this Fund.

We continued to invest in a variety of asset classes, such as corporate- and asset-backed commercial paper, taxable municipalities, and government-sponsored enterprises. Our objective was to maintain a diversified base of credit exposure across high-quality banks, industrial companies, and government-supported entities.

Anticipating Fed action

Continued economic expansion and job growth have made it more likely that the Federal Reserve will soon embark upon a course of gradually raising short-term interest rates. The first step on this path could occur at either of the Federal Reserve Open Market Committee meetings scheduled for this summer. We will continue to monitor the economic recovery and attempt to position the Fund to take advantage of what is likely to be a rising interest-rate environment.

Thank you for your investment in the Strong Heritage Money Fund. We look forward to helping you pursue your financial goals in the months and years to come.

Jay N. Mueller

Portfolio Manager

Mention of specific securities in this report is not indicative of whether the Fund may make additional purchases of, sell all or a portion of, or continue to hold those securities.

2

Table of Contents

Fund Highlights

Portfolio Statistics

Average Annual Total Returns¹

As of 4-30-04

Performance and yields are historical and do not guarantee future results. Investment returns, principal value, and yields will fluctuate, and you may have a gain or loss when you sell shares. Current performance may be lower or higher than the quoted performance. Call us or visit www.Strong.com for the most recent month-end performance.

Risks:

An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

3 - Month Treasury Bill Yields ^*

As of 4-30-04

Fee Waivers:

Performance:

Please consult a prospectus for information about all share classes.

Percentage Restrictions:

General:

3

Table of Contents

Strong Ultra Short-Term Income Fund

The Fund outperformed its index, the Citigroup 1-Year Treasury Benchmark on-the-Run Index, for the six months ended April 30, 2004. For the period, the Fund’s Investor Class shares returned 0.90%, while the Index returned 0.47%.

Low short-term rates persisted

The Federal Reserve held the Federal Funds rate at 1.0% throughout the period, which kept short-term interest rates low. Market interest rates declined for the first five months of the period, but reversed course in April, when strong employment data confirmed renewed confidence in the economy. The yields on six-month Treasuries ended the period 0.12 percentage points higher, while two-year Treasury rates were 0.50 percentage points higher; both reflected anticipation of increases in the Federal Funds rate later this year.

How we manage the portfolio

Our investment process begins with a macroeconomic outlook that drives our decisions related to duration, sector allocation among corporate bonds and mortgage- and asset-backed securities, and individual security selection. The Fund’s duration was managed to minimize the sensitivity to interest rate changes. Consider this example: If short-term interest rates increase by one percentage point, and the duration is 0.5 years, the Fund’s net asset value would decline by 0.5%.

We entered the period with the Fund’s duration in the middle of our typical target range, reflecting our expectation that the Federal Reserve would increase the Federal Funds rate in 2004. As the period progressed, employment numbers lagged the improving economy and inflation figures remained muted. Our view shifted as we came to believe the Fed would not act until 2005. As a result, we increased the Fund’s duration slightly, allowing it to capture additional yield for shareholders. We lowered the Fund’s duration after the strong payroll data in early April renewed our belief that the Federal Reserve would likely take action, perhaps as early as this summer.

Our allocation to corporate bonds remained near 30% of assets throughout the period. Prior to the April employment number, we had some concerns that the strong fiscal and monetary stimuli might not be sufficient to sustain the economic recovery, and thus didn’t consider raising this allocation for much of the period. When the stronger economic data emerged, we considered increasing this weighting, but decided against it in light of our goal of reducing net asset value volatility.

The remainder of the portfolio is invested in mortgage- and asset-backed securities. We continued to focus on higher-rated holdings in this segment of the Fund.

As we select individual securities, there are several factors we consider. These include reducing potential net asset value volatility, providing an attractive level of income, and maintaining a high level of diversification. We limited our maximum exposure to single industries and kept our positions in lower-rated securities relatively small. Over the period, we also invested in a variety of fixed-income derivative securities, including exchange-traded Treasury futures contracts to manage duration.

Higher rates on the horizon

We currently believe the Federal Reserve is likely to increase the Federal Funds rate later this year, based on the strength of recent economic news. In this environment, we are carefully monitoring the Fund’s duration and may bring it down closer to the lower end of our historical range. Focusing on shorter-maturity securities and increasing our holdings among floating-rate securities are two of the ways we plan to accomplish this.

We believe the Fund remains an attractive fixed-income option. If rates rise as expected, the Fund’s shorter duration makes it a helpful alternative to longer-term, fixed-income investments, which may suffer more from those higher rates. And while there are scenarios over the near term in which money market funds could outperform this Fund — particularly if rates rise sharply — we believe the Fund’s yield potential makes it attractive relative to money funds for those investors with time horizons of one year or longer. This Fund is not a money market fund. The Fund’s share price will fluctuate and the income can be offset if the share price declines.

We appreciate your continued investment in the Strong Ultra Short-Term Income Fund.

Jay N. Mueller

Portfolio Co-Manager

Thomas M. Price

Portfolio Co-Manager

Mention of specific securities in this report is not indicative of whether the Fund may make additional purchases of, sell all or a portion of, or continue to hold those securities.

4

Table of Contents

Fund Highlights

Portfolio Statistics

Average Annual Total Returns¹

As of 4-30-04

Performance and yields are historical and do not guarantee future results. Investment returns, principal value, and yields will fluctuate, and you may have a gain or loss when you sell shares. Current performance may be lower or higher than the quoted performance. Call us or visit www.Strong.com for the most recent month-end performance.

Risks:

The Fund invests a portion of its assets in lower-quality securities that present a significant risk for loss of principal and interest. Please consider this before investing.

The Fund’s use of derivatives subjects it to correlation, margin, cover, liquidity, and premium risks; and the market for derivatives is largely unregulated. This may not always be a successful strategy, and using derivatives could negatively impact the Fund’s return.

Growth of an Assumed $10,000 Investment^†

From 11-25-88 to 4-30-04

Fee Waivers:

Performance:

Please consult a prospectus for information about all share classes.

Percentage Restrictions:

General:

Definitions:

5

Table of Contents

Strong Ultra Short-Term Municipal Income Fund

Over the six months ended April 30, 2004, the Fund continued to produce a higher level of income relative to our benchmark, the Lehman Brothers Municipal 1-Year Bond Index. This income helped to offset a $0.03 decline in the Fund’s NAV, caused primarily by deterioration in some of our multifamily housing bonds. For the period, the Fund returned 0.41%, while the benchmark returned 0.55% and the Lipper Tax-Exempt Money Market Funds Average returned 0.20%.

Many factors drove municipal markets

Similar to what we wrote about in our last report, interest rates remained quite volatile during the prior 6-month period. With short-term rates significantly lower than long-term rates, the prospect of additional income is very attractive to leveraged investors who borrow at the lower short-term rates and invest at higher longer-term rates.

While this strategy can produce great returns in a stable or declining interest-rate environment, these investors can experience large losses if rates increase or if the yield curve flattens. This creates more volatility than most fixed-income investors would like to see, but it does provide opportunities to the Fund, which has an investment horizon of one year or more. The Fund is not a money market fund. Its shareprice will fluctuate and income can be offset if the shareprice declines.

Another major trend during the period was the continued good performance of lower-quality bonds. The robust economic environment combined with historically low interest rates has allowed corporations and municipalities to improve their balance sheets. Within the municipal marketplace, revenue-backed bonds did very well relative to general obligation bonds.

Balancing risk and income potential

The Fund entered the period with interest rate sensitivity slightly below our targeted level — typically more than the average municipal money market and lower than our benchmark. As market interest rates moved lower for much of the period, our strategy was to gradually reduce the Fund’s sensitivity to rising rates in anticipation of higher rates that we believed were all but inevitable.

We accomplished this by selling some bonds out of our portfolio and also by selling Treasury note futures. This approach originally worked against us as rates continued to move lower, and also as Treasury rates moved lower more quickly than municipal rates. However, when rates moved higher in April, our strategy paid off.

Improve credit quality

The other strategy we discussed coming into the period was to improve the credit quality of the portfolio. Lower-quality bonds performed very well during the period. The combination of limited new issue supply and large demand from high-yield funds and retail investors, caused yield spreads on lower-quality bonds to decline. Corporate-backed municipal bonds did especially well and we cut the Fund’s exposure to this sector by seven percentage points as spreads tightened.

Our exposure to the healthcare sector declined as well. Some of our lower-quality holdings were sold, called, or refunded and we also put back some higher-quality floating rate bonds. On the flip side, our exposure to the general obligation sector increased as we believe it will benefit as tax receipts increase with increased economic activity.

At the end of the period, the Fund’s overall quality was relatively unchanged. By decreasing the Fund’s exposure to the revenue bond sector and increasing general obligation holdings, however, we have now positioned the Fund in a part of the market that historically has had stronger credit characteristics.

The outlook ahead

Looking forward, we believe bond market volatility will remain fairly high. Thus, we expect to continue to take a defensive position toward rising rates. We also intend to maintain our overall credit exposure, incorporating some bonds that offer the potential for attractive incremental yield. If interest rates make another quick move higher, we are likely to adopt a more neutral duration and also to increase the Fund’s overall credit quality.

Thank you for your investment in the Strong Ultra Short-Term Municipal Income Fund.

Lyle J. Fitterer

Portfolio Co-Manager

Mary-Kay H. Bourbulas

Portfolio Co-Manager

Mention of specific securities in this report is not indicative of whether the Fund may make additional purchases of, sell all or a portion of, or continue to hold those securities.

6

Table of Contents

Fund Highlights

Portfolio Statistics

Average Annual Total Returns¹

As of 4-30-04

Performance and yields are historical and do not guarantee future results. Investment returns, principal value, and yields will fluctuate, and you may have a gain or loss when you sell shares. Current performance may be lower or higher than the quoted performance. Call us or visit www.Strong.com for the most recent month-end performance.

Risks:

The Fund invests a portion of its assets in lower-quality securities that present a significant risk for loss of principal and interest. Please consider this before investing.

The Fund’s use of derivatives subjects it to correlation, margin, cover, liquidity, and premium risks; and the market for derivatives is largely unregulated. This may not always be a successful strategy, and using derivatives could negatively impact the Fund’s return.

The Fund’s income distributions may be subject to state and local taxes, and depending on your tax status, to the Alternative Minimum Tax.

Growth of an Assumed $10,000 Investment^†

From 11-30-95 to 4-30-04

Fee Waivers:

Performance:

Please consult a prospectus for information about all share classes.

Percentage Restrictions:

General:

Definitions:

7

Table of Contents

Strong Florida Municipal Money Market Fund

For the six months ended April 30, 2004, the Fund consistently outperformed its peers, as measured by the Lipper Other States Tax-Exempt Money Market Fund Index. For the period, the Fund’s return was 0.34%, versus a return of 0.21% for the Index.

A look at Florida municipal yields

During period, the Fund experienced the seasonal cash flows we expect in the Florida market, with assets swelling near year-end as state residents seek to avoid the intangibles tax, only to see a portion of the assets move back out into other investment vehicles early in the new year. Fortunately, these seasonal cash flows also tend to coincide with seasonal yield fluctuations that affect all municipal money funds.

As money flows into the Fund, market yields are rising due to year-end outflows in national municipal money funds. In January, the flows typically reverse and market yields decline. The challenge during these periods is not only to find sufficient Florida tax-exempt issues, but also to continue to identify attractive relative value within the market. The Fund’s strong performance relative to its peers illustrates our ability to accomplish both goals.

Interestingly enough, the yield on many municipal money funds, including this Fund, was equivalent to or higher than those available on most taxable money funds during the recent period. This was in part because yield-sensitive individuals are the primary investors in municipal money funds, while institutions dominate among taxable funds. Heavy supply has also played a role in keeping municipal money rates unusually high relative to the taxable market.

Our approach to the market

We continued our consistent methodology of seeking securities that we believe represent good value. Over the six months, we maintained an emphasis on variable-rate municipal securities, primarily with daily and weekly reset dates. On any given day, we compare the lowest-yielding securities within our Fund with what is currently available in the market, seeking to improve quality, enhance yield, or both, throughout the portfolio. Relative to its peers, the Fund’s consistent, above-average performance bears out the historical long-term success of this strategy.

During the period, we did experience the typical year-end spike in yields, which in Florida also typically follows the year-end cash flows. The Bond Market Association’s seven-day tax-exempt index reached a high of 1.23% in late December. As is typically the case, however, yields fell to their lowest levels of the period in mid-March, reaching 0.87% as money flowed away from the Fund and back into national money market funds. Outside of this temporary and predictable change in rates and cash flows, yields held relatively stable throughout the period. With the Federal Reserve on hold, there was very little to significantly change money market rates.

Anticipating higher rates

Now that the pace of economic activity has noticeably increased, it’s widely expected that the Fed will begin to increase rates by mid-summer. In fact, a one-quarter-point increase is already priced into the Fed Funds futures market. If employment continues to improve at its pace of recent months, it appears likely that the Fed will begin its process of monetary tightening through higher short-term interest rates.

How long the process will take, and how high short-term rates will ultimately rise are both still unknown. Over time, we believe the markets will react to economic data and the Fed will ultimately confirm the appropriate rate necessary to keep inflation in check and growth moderate. We welcome the long-awaited opportunity for money market rates to move up from recent historic lows and have positioned the Fund for this environment.

We thank you for your confidence in the Strong Florida Municipal Money Market Fund and hope to continue to meet your short-term investment needs.

Duane McAllister

Portfolio Co-Manager

Wendy Casetta

Portfolio Co-Manager

Mention of specific securities in this report is not indicative of whether the Fund may make additional purchases of, sell all or a portion of, or continue to hold those securities.

8

Table of Contents

Fund Highlights

Portfolio Statistics

Average Annual Total Returns

As of 4-30-04

Performance and yields are historical and do not guarantee future results. Investment returns, principal value, and yields will fluctuate, and you may have a gain or loss when you sell shares. Current performance may be lower or higher than the quoted performance. Call us or visit www.Strong.com for the most recent month-end performance.

Risks:

An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

The Fund’s income distributions may be subject to state and local taxes, and depending on your tax status, to the Alternative Minimum Tax.

The Fund may be affected by unfavorable political, economic, or business-related developments in Florida, because the Fund invests significantly in municipal obligations of Florida issuers.

Equivalent Taxable Yields

As of 4-30-04

The chart reflects 2004 marginal federal tax rates before limitations and phaseouts. Individuals with adjusted gross income in excess of $142,700 should consult their tax advisor to determine their actual 2004 marginal tax rate.

Fee Waivers:

Percentage Restrictions:

The Fund’s prospectus and statement of additional information may describe restrictions on the percentage of a particular type or quality of security in which the Fund may invest (“Percentage Restrictions”). Percentage Restrictions apply at the time the Fund purchases a security. Circumstances subsequent to the purchase of the security, such as a change in: (1) the Fund’s assets (e.g., due to cash inflows and redemptions), (2) the market value of the security, or (3) the pricing, liquidity, or rating of the security, may cause the Fund to exceed or fall short of the Percentage Restriction. If this happens, the Fund’s continued holding of the security will not constitute a violation of the Percentage Restriction.

General:

9

Table of Contents

Strong Money Market Fund

The Strong Money Market Fund’s yield was stable over the six months ended April 30, 2004, as short-term interest rates were relatively unchanged. The Fund’s performance relative to its peers, as measured by the Lipper Money Market Funds Index, continued to be strong. Both the Fund and the Index returned 0.24% for the six-month period.

Rates stayed low

The Federal Reserve stayed on the sidelines for the entire six months, concerned by slow job growth and possible disinflation. This left the benchmark Federal Funds rate unchanged at 1.00%. This stability caused market-driven, short-term rates to change very little as well. We, therefore, generally invested principal and interest payments received by the Fund in similar-yielding, short-term money market investments, such as commercial paper, Treasury bills, and certificates of deposit. Despite the low interest-rate environment, our active management allowed us to identify pockets of relative value that helped the Fund’s performance.

Effective duration management

Effective duration management, and research and diversification, are our two primary strategies for managing the Fund. The majority of economic data released during the past six months documented growing strength in the U.S. economy. The Fed’s expressed willingness to keep overnight rates very low “for a considerable period” suppressed the normal tendency of interest rates to rise in such an environment. As it became clear to us that a 1.00% Federal Funds rate was not in keeping with the general improvement in economic statistics, we began to shorten our weighted average maturity (a figure similar to duration, an important measure of sensitivity to interest rate hikes) in anticipation of rising interest rates.

Continued strong economic data in April — including a significant acceleration in employment figures — presented a meaningful challenge to the wisdom of holding the Fed Funds rate at just 1.00%. Expectations of tighter monetary policy (higher short-term rates) in the coming months led to a steeper yield curve for money market instruments, meaning that investors were offered progressively higher yields for extending to longer maturities. During this time, we employed effective duration management in opportunistically purchasing securities with maturities of six to twelve months. Our aim was to capture the higher yields these securities offered. In this area, debentures issued by government-sponsored enterprises were our favored instruments, as they presented minimal credit risk.

Research and diversification managed risk

For most of the past two years, many companies focused on reducing their levels of debt and making other improvements to their balance sheets. These activities bolstered the creditworthiness of a broad group of corporate borrowers, benefiting investors in their bonds. In recent months, however, companies have turned their focus back to their stockholders. To enhance return to these shareholders, companies have engaged in a number of activities that are not necessarily positive for investors in their bonds and commercial paper, such as mergers and acquisitions, increasing dividend payouts, and buying back stock. Avoiding the possible negative consequences of such “event risk” is a longtime area of focus in the management of this Fund.

The Fed may act soon

Continued economic expansion and job growth have made it more likely that the Federal Reserve will soon embark upon a course of gradually raising short-term interest rates. The first step on this path could very well take place this summer. We will continue to monitor the economic recovery and attempt to position the Fund to take advantage of what is likely to be a rising interest-rate environment.

Thank you for your investment in the Strong Money Market Fund. We look forward to helping you pursue your financial goals in the months and years to come.

Jay N. Mueller

Portfolio Manager

Mention of specific securities in this report is not indicative of whether the Fund may make additional purchases of, sell all or a portion of, or continue to hold those securities.

10

Table of Contents

Fund Highlights

Portfolio Statistics

Average Annual Total Returns

As of 4-30-04

Performance and yields are historical and do not guarantee future results. Investment returns, principal value, and yields will fluctuate, and you may have a gain or loss when you sell shares. Current performance may be lower or higher than the quoted performance. Call us or visit www.Strong.com for the most recent month-end performance.

Risks:

An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

Fee Waivers:

Percentage Restrictions:

The Fund’s prospectus and statement of additional information may describe restrictions on the percentage of a particular type or quality of security in which the Fund may invest (“Percentage Restrictions”). Percentage Restrictions apply at the time the Fund purchases a security. Circumstances subsequent to the purchase of the security, such as a change in: (1) the Fund’s assets (e.g., due to cash inflows and redemptions), (2) the market value of the security, or (3) the pricing, liquidity, or rating of the security, may cause the Fund to exceed or fall short of the Percentage Restriction. If this happens, the Fund’s continued holding of the security will not constitute a violation of the Percentage Restriction.

General:

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Table of Contents

Strong Municipal Money Market Fund

For the six months ended April 30, 2004, the Fund consistently outperformed its peers, as measured by the Lipper Tax-Exempt Money Market Fund Index. For the period, the Fund’s return was 0.38%, versus a return of 0.20% for the Index.

Considering tax-free money yields

Interestingly enough, the yield on many municipal money funds, including this Fund, was equivalent to or higher than those available on most taxable money funds during the recent period. This was due in part to the difference between the type of investor that predominates in each market; taxable money funds have a heavy institutional component, while municipal money funds are primarily retail driven. Individual investors are less willing to accept low yields without seeking alternatives, while many institutions maintain a certain money fund balance for liquidity needs, regardless of the yield.

Supply has also played a role in keeping municipal money rates unusually high relative to the taxable market. State and local governments have engaged in heavy borrowing to cover budget shortfalls, with California being the largest and most visible example.

A careful, consistent approach

We continued our consistent methodology of seeking securities that we believe represent good value. Over the six months, we maintained an emphasis on variable-rate municipal securities, primarily with daily and weekly reset dates. These bonds offer good flexibility. On any given day, we compared the lowest-yielding securities within our Fund with what is currently available in the market, seeking to improve quality, enhance yield, or both, throughout the portfolio. Relative to its peers, the Fund’s consistent, above-average performance bears out the historical long-term success of this strategy.

During the period, we did experience the typical year-end spike in yields. The Bond Market Association’s seven-day, tax-exempt index reached a high of 1.23% in late-December.

As is typically the case, however, yields fell to their lowest levels of the period in mid-March, reaching 0.87% as cash flowed back into money market funds. Apart from this temporary and predictable fluctuation in rates and cash flows, yields held relatively stable throughout the period. With the Federal Reserve on hold, there was very little to cause a significant change in money market rates.

The biggest story within the short-term municipal market is the upcoming California Economic Recovery issue. In March 2004, California voters approved up to $15 billion in borrowing to help the state balance its budget and payoff a sizable note deal maturing in June. At least $4 billion of the total borrowing will be short-term in nature, and will provide money funds with an opportunity to add exposure in California.

Higher rates likely ahead

Now that the pace of economic activity has noticeably increased, it’s widely expected that the Fed will begin to raise rates by mid-summer. In fact, a one-quarter-point increase is already priced into the Fed Funds futures market. If employment continues to improve at its pace of recent months, it appears likely that the Fed will begin its process of monetary tightening through higher short-term interest rates.

How long the process will take, and how high short-term rates will ultimately rise are both still unknown. Over time, we believe the markets will react to economic data and the Fed will ultimately confirm the appropriate rate necessary to keep inflation in check and growth moderate. We welcome the long-awaited opportunity for money market rates to move up from recent historic lows, and have positioned the Fund for this environment.

We thank you for your confidence in the Strong Municipal Money Market Fund and hope to continue to meet your short-term investment needs.

Duane McAllister

Portfolio Co-Manager

Wendy Casetta

Portfolio Co-Manager

Mention of specific securities in this report is not indicative of whether the Fund may make additional purchases of, sell all or a portion of, or continue to hold those securities.

12

Table of Contents

Fund Highlights

Portfolio Statistics

Average Annual Total Returns

As of 4-30-04

Performance and yields are historical and do not guarantee future results. Investment returns, principal value, and yields will fluctuate, and you may have a gain or loss when you sell shares. Current performance may be lower or higher than the quoted performance. Call us or visit www.Strong.com for the most recent month-end performance.

Risks:

An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

The Fund’s income distributions may be subject to state and local taxes, and depending on your tax status, to the Alternative Minimum Tax.

Equivalent Taxable Yields

As of 4-30-04

The chart reflects 2004 marginal federal tax rates before limitations and phaseouts. Individuals with adjusted gross income in excess of $142,700 should consult their tax advisor to determine their actual 2004 marginal tax rate.

Fee Waivers:

Percentage Restrictions:

The Fund’s prospectus and statement of additional information may describe restrictions on the percentage of a particular type or quality of security in which the Fund may invest (“Percentage Restrictions”). Percentage Restrictions apply at the time the Fund purchases a security. Circumstances subsequent to the purchase of the security, such as a change in: (1) the Fund’s assets (e.g., due to cash inflows and redemptions), (2) the market value of the security, or (3) the pricing, liquidity, or rating of the security, may cause the Fund to exceed or fall short of the Percentage Restriction. If this happens, the Fund’s continued holding of the security will not constitute a violation of the Percentage Restriction.

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Table of Contents

Strong Tax-free Money Fund

For the six months ended April 30, 2004, the Fund consistently outperformed its peers, as measured by the Lipper Tax-Exempt Money Market Fund Index. For the period, the Fund’s return was 0.45%, versus a return of 0.20% for the Index.

A look at tax-free money yields

Interestingly enough, the yield on many municipal money funds, including this Fund, was equivalent to or higher than those available on most taxable money funds during the recent period. This was in part due to the difference between the type of investor that predominates in each market; taxable money funds have a heavy institutional component, while municipal money funds are primarily retail driven. Individual investors are less willing to accept low yields without seeking alternatives, while many institutions maintain a certain money fund balance for liquidity needs, regardless of the yield.

Supply has also played a role in keeping municipal money rates unusually high relative to the taxable market. State and local governments have engaged in heavy borrowing to cover budget shortfalls, with California being the largest and most visible example.

Our approach to the market

We continued our consistent methodology of seeking securities that we believe represent good value. Over the six months, we maintained an emphasis on variable-rate municipal securities, primarily with daily and weekly reset dates. These bonds offer good flexibility. On any given day, we compared the lowest-yielding securities within our Fund with what is currently available in the market, seeking to improve quality, enhance yield, or both, throughout the portfolio. Relative to its peers, the Fund’s consistent, above-average performance bears out the historical long-term success of this strategy.

During the period, we did experience the typical year-end spike in yields. The Bond Market Association’s seven-day, tax-exempt index reached a high of 1.23% in late-December.

As is typically the case, however, yields fell to their lowest levels of the period in mid-March, reaching 0.87% as cash flowed back into money market funds. Apart from this temporary and predictable fluctuation in rates and cash flows, yields held relatively stable throughout the period. With the Federal Reserve on hold, there was very little to cause a significant change in money market rates.

The biggest story within the short-term municipal market is the upcoming California Economic Recovery issue. In March 2004, California voters approved up to $15 billion in borrowing to help the state balance its budget and payoff a sizable note deal maturing in June. At least $4 billion of the total borrowing will be short-term in nature, and will provide money funds with an opportunity to add exposure in California.

Anticipating higher rates

Now that the pace of economic activity has noticeably increased, it’s widely expected that the Fed will begin to raise rates by mid-summer. In fact, a one-quarter-point increase is already priced into the Fed Funds futures market. If employment continues to improve at its pace of recent months, it appears likely that the Fed will begin its process of monetary tightening through higher short-term interest rates.

How long the process will take and how high short-term rates will ultimately rise are both still unknown. Over time, we believe the markets will react to economic data, and the Fed will ultimately confirm the appropriate rate necessary to keep inflation in check and growth moderate. We welcome the long-awaited opportunity for money market rates to move up from recent historic lows and have positioned the Fund for this environment.

We thank you for your confidence in the Strong Tax-Free Money Fund and hope to continue to meet your short-term investment needs.

Duane McAllister

Portfolio Co-Manager

Wendy Casetta

Portfolio Co-Manager

Mention of specific securities in this report is not indicative of whether the Fund may make additional purchases of, sell all or a portion of, or continue to hold those securities.

14

Table of Contents

Fund Highlights

Portfolio Statistics

Average Annual Total Returns

As of 4-30-04

Performance and yields are historical and do not guarantee future results. Investment returns, principal value, and yields will fluctuate, and you may have a gain or loss when you sell shares. Current performance may be lower or higher than the quoted performance. Call us or visit www.Strong.com for the most recent month-end performance.

Risks:

An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

The Fund’s income distributions may be subject to state and local taxes, and depending on your tax status, to the Alternative Minimum Tax.

Equivalent Taxable Yields

As of 4-30-04

The chart reflects 2004 marginal federal tax rates before limitations and phaseouts. Individuals with adjusted gross income in excess of $142,700 should consult their tax advisor to determine their actual 2004 marginal tax rate.

Fee Waivers:

Percentage Restrictions:

The Fund’s prospectus and statement of additional information may describe restrictions on the percentage of a particular type or quality of security in which the Fund may invest (“Percentage Restrictions”). Percentage Restrictions apply at the time the Fund purchases a security. Circumstances subsequent to the purchase of the security, such as a change in: (1) the Fund’s assets (e.g., due to cash inflows and redemptions), (2) the market value of the security, or (3) the pricing, liquidity, or rating of the security, may cause the Fund to exceed or fall short of the Percentage Restriction. If this happens, the Fund’s continued holding of the security will not constitute a violation of the Percentage Restriction.

15

Table of Contents

Bond Glossary

Bond Quality Ratings — There are services that analyze the financial condition of a bond’s issuer and then assign it a rating. The best-known rating agencies are Standard and Poor’s (S&P) and Moody’s. The highest-quality bonds are rated AAA (S&P) or Aaa (Moody’s). The scale descends to AA, A, then BBB, and so on, down to D. Bonds with a rating of BBB or higher are considered “investment grade.” Bonds rated BB and below are considered high-yield or “junk bonds.” Typically, the lower a bond’s rating, the higher the yield it must pay in order to compensate the bondholder for the added risk.

Average Effective Maturity — This is calculated in nearly the same manner as average maturity. However, for the purpose of calculating average “effective maturity,” a security that is subject to redemption at the option of the issuer on a particular date (the “call date”), which is prior to the security’s stated maturity, may be deemed to mature on the call date rather than on its stated maturity date. The call date of a security will be used to calculate the average effective maturity when the Advisor reasonably anticipates, based upon information available to it, that the issuer will exercise its right to redeem the security.

Maturity — Like a loan, a bond must be paid off on a certain date. A bond’s maturity is the time remaining until it is paid off. Bonds typically mature in a range from overnight to 30 years. Typically, bonds with longer maturities will have higher yields and larger price changes in reaction to interest rate changes. In rare situations, shorter-term bonds will have higher yields; this is known as an inverted yield curve (see “Yield Curve” definition on this page).

Duration — Duration is similar to maturity but also accounts for the periodic interest payments made by most bonds and early redemption rights. Duration is a useful tool for determining a bond’s or a bond fund’s sensitivity to interest rate changes. The higher the duration, the more a bond’s price will fluctuate when interest rates change.

Treasury Spread — The Treasury spread is the difference in yield between a Treasury bond (issued by the federal government) and a bond with an equal maturity but from another category, such as a corporate bond. This calculation is used to measure the prices of corporate bonds, mortgage-backed securities, and other non-government issues relative to Treasury bonds. Higher Treasury spreads occur in uncertain times, when investors buy Treasury bonds for their safety and sell other types of bonds.

Yield — Yield is the income your investment is generating. It is calculated by taking the income paid by a bond in a given period of time (often 30 days), annualizing it, and stating it as a percentage of the money invested.

Yield Curve — The yield curve is a graph that plots the yields of Treasury bonds against their maturities. Under normal circumstances, this line will slope upward, reflecting longer-maturity bonds having higher yields. In rare circumstances, such as in a time of deflation, the yield curve may slope downward, or “invert.” The steepness of the yield curve shifts depending on economic trends and outlooks. Properly positioned, a bond investor can profit from these shifts.

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Table of Contents

STRONG HERITAGE MONEY FUND

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Table of Contents

STRONG HERITAGE MONEY FUND (continued)