As filed with the Securities and Exchange Commission on or about December 23,
1998
Securities Act Registration No. 333-66647
Investment Company Act Registration No. 811-9091
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. _1_ [ X ]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 1 [X]
(Check appropriate box or boxes)
STRONG LIFE STAGE SERIES, INC.
(Exact Name of Registrant as Specified in Charter)
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (414) 359-3400
Thomas P. Lemke
Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable
after the Registration Statement becomes effective.
<PAGE>
STRONG LIFE STAGE SERIES
STRONG CONSERVATIVE PORTFOLIO STRONG FUNDS
STRONG MODERATE PORTFOLIO P.O. Box 2936
STRONG AGGRESSIVE PORTFOLIO Milwaukee, Wisconsin 53201
TELEPHONE: (414) 359-1400
TOLL-FREE: (800) 368-3863
DEVICE FOR THE HEARING-IMPAIRED:
(800) 999-2780
www.strongfunds.com
The Strong Family of Funds ("Strong Funds") is a family of more than forty
diversified and non-diversified mutual funds. All of the Strong Funds are
no-load funds, meaning that you may purchase, redeem, or exchange shares
without paying a sales charge. Strong Funds include growth funds, conservative
equity funds, income funds, municipal income funds, international funds, and
cash management funds. Strong Life Stage Series, Inc. is an open-end series
management company that offers three diversified investment portfolios, with
the following investment objectives:
STRONG CONSERVATIVE PORTFOLIO ("Conservative Portfolio") seeks total return by
investing primarily for income and secondarily for capital growth.
STRONG MODERATE PORTFOLIO ("Moderate Portfolio") seeks total return by
investing primarily for capital growth and secondarily for income.
STRONG AGGRESSIVE PORTFOLIO ("Aggressive Portfolio") seeks capital growth.
These Portfolios are described in this Prospectus. Each Portfolio seeks to
achieve its investment objective by investing substantially all of its assets
in a select group of Strong Funds (the "Underlying Funds"), representing
different combinations of stocks, bonds, and cash investments, and reflecting
varying degrees of potential investment risk and reward.
This Prospectus contains information you should consider before you invest.
Please read it carefully and keep it for future reference. A Statement of
Additional Information for the Portfolios, dated December 31, 1998 ("SAI"),
which contains further information, is incorporated by reference into this
Prospectus, and has been filed with the Securities and Exchange Commission
("SEC"). The Prospectus and SAI for the Portfolios, which may be revised from
time to time, are available without charge upon request to the above-noted
address or telephone number. If you would like to electronically access
additional information about the Portfolios after reading this Prospectus, you
may do so by accessing the SEC's World Wide Web site (http://www.sec.gov) that
contains the SAI regarding the Portfolios and other related materials.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
December 31, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
EXPENSES I-3
INVESTMENT OBJECTIVES AND POLICIES I-5
THE LIFE STAGE PORTFOLIOS I-5
THE UNDERLYING STRONG FUNDS I-7
IMPLEMENTATION OF POLICIES AND RISKS I-10
ABOUT THE PORTFOLIOS I-22
SHAREHOLDER MANUAL II-1
</TABLE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the SAI, and
if given or made, such information or representations may not be relied upon as
having been authorized by the Portfolios. This Prospectus does not constitute
an offer to sell securities to any person in any state or jurisdiction in which
such offering may not lawfully be made.
<PAGE>
EXPENSES
The following information is provided in order to help you understand the
various costs and expenses that you, as an investor in the Portfolios, will
bear directly or indirectly.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C>
Sales Load Imposed on Purchases NONE
Sales Load Imposed on Reinvested Dividends NONE
Deferred Sales Load NONE
Redemption Fees NONE
Exchange Fees NONE
</TABLE>
There are certain charges associated with retirement accounts (such as a $10
charge for closing an IRA account) and with certain other special shareholder
services offered by the Portfolios. Additionally, purchases and redemptions may
also be made through broker-dealers or other financial intermediaries who may
charge fees for their services. (See "Shareholder Manual - How to Buy Shares"
and "- How to Sell Shares.")
The following table summarizes the expenses of each Portfolio. You should keep
in mind that shareholders of each Portfolio bear INDIRECTLY the expenses of the
Underlying Funds in which the Portfolio invests. The Portfolios will indirectly
bear their pro rata share of the fees and expenses (including management fees)
incurred by the Underlying Funds that are borne by all Underlying Fund
shareholders. The investment returns of each Portfolio, therefore, will be
net of that Portfolio's share of the expenses of the Underlying Funds in which
the Portfolio is invested. See "About the Portfolios - Management - Underlying
Fund Expenses" for more information on the expense ratios of each Underlying
Fund after fee waiver or reimbursement, where applicable, as of November 30,
1998.
ANNUAL FUND OPERATING EXPENSES*
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
UNDERLYING TOTAL
MANAGEMENT ADMINISTRATIVE 12B-1 OTHER FUND OPERATING
PORTFOLIO FEE FEES FEES EXPENSES EXPENSES** EXPENSES***
Conservative NONE 0.25% NONE 0.57% 0.90% 0.90%
Moderate NONE 0.25% NONE 0.57% 0.97% 0.97%
Aggressive NONE 0.25% NONE 0.57% 1.04% 1.04%
</TABLE>
* The expenses associated with investing in a "fund of funds," such as the
Portfolios, are generally higher than those of mutual funds that do not invest
primarily in other mutual funds. This is because shareholders in a fund of
funds indirectly pay a portion of the fees and expenses charged at the
underlying fund level.
** Currently, Strong Capital Management, Inc., the investment advisor of
the Underlying Funds, is waiving advisory fees and/or absorbing expenses for
the Heritage Money Fund (see "About the Portfolios - Management - Underlying
Fund Expenses"). Without such waivers and absorptions, the Underlying Fund
Expenses for the Conservative, Moderate, and Aggressive Portfolios would have
been 0.91%, 0.98%, and 1.06%, respectively.
*** Total Operating Expenses reflect Strong's waiver of administrative fees
and absorptions as described below. Without such waivers and absorptions, the
total operating expenses of the Conservative, Moderate, and Aggressive
Portfolios would have been 1.72%, 1.79%, and 1.86%.
From time to time, Strong Capital Management, Inc., the Portfolios' shareholder
servicing agent and transfer and dividend-disbursing agent ("Strong") may
voluntarily waive its Administrative Fees and/or absorb certain expenses for a
Portfolio. Since the Portfolios are new and did not begin operations until
December 30, 1998, the Other Expenses have been estimated. The Underlying Fund
Expenses have been estimated using the Underlying Funds' Total Operating
Expenses after any waivers and absorptions by Strong as of November 30, 1998.
For additional information concerning fees and expenses, see "About the
Portfolios - Management."
STRONG HAS VOLUNTARILY AGREED TO WAIVE ITS ADMINISTRATIVE FEE AND ABSORB
OPERATING COSTS UNTIL JANUARY 1, 2000.
EXAMPLE. You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
PERIOD (IN YEARS)
PORTFOLIO 13
<S> <C> <C>
Conservative $18 $54
Moderate $18 $56
Aggressive $19 $58
</TABLE>
The Example is based on each Portfolio's "Total Operating Expenses" before any
waivers and absorptions, as described above. PLEASE REMEMBER THAT THE EXAMPLE
SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND THAT
ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN. The assumption in the
Example of a 5% annual return is required by regulations of the SEC applicable
to all mutual funds. The assumed 5% annual return is not a prediction of, and
does not represent, the projected or actual performance of a Portfolio's
shares.
INVESTMENT OBJECTIVES AND POLICIES
THE LIFE STAGE PORTFOLIOS
The Portfolios are designed for investors who are saving for long-term goals,
such as for retirement. Because of the risks associated with common stock and
bond investments, the Portfolios are intended to be long-term investment
vehicles and are not designed to provide investors with a means of speculating
on market movements. By using the Life Stage Portfolios, you may pursue one of
the following three distinct objectives.
<TABLE>
<CAPTION>
<S> <C>
PORTFOLIO INVESTMENT OBJECTIVE
- ------------ ---------------------------------------------------------------------------
Conservative Seeks to provide total return by investing primarily for income and
secondarily for capital growth.
- ------------ ---------------------------------------------------------------------------
Moderate Seeks to provide total return by investing primarily for capital growth and
secondarily for income.
- ------------ ---------------------------------------------------------------------------
Aggressive Seeks to provide capital growth.
</TABLE>
There can be no assurance that the investment objective of any Portfolio will
be achieved. Because the market value of each Portfolio's investments in the
Underlying Funds will change, the net asset value per share of each Portfolio
will also vary.
In order to achieve their investment objectives, the Portfolios maintain
different allocations of stocks, bonds, and cash (which is included in a
Portfolio's bond portion), reflecting varying degrees of potential investment
risk and reward. These asset allocations provide investors with three
diversified, distinct options that meet a wide variety of investment needs.
The pie charts below illustrate the expected asset allocation between stocks
and bonds of each of the Life Stage Portfolios.
<PAGE>
CONSERVATIVE PORTFOLIO
[PIE CHART SHOWING BONDS 60% AND STOCKS 40%]
MODERATE PORTFOLIO
[PIE CHART SHOWING BONDS 40% AND STOCKS 60%]
AGGRESSIVE PORTFOLIO
[PIE CHART SHOWING BONDS 20% AND STOCKS 80%]
Investors may choose to invest in any of the three Life Stage Portfolios based
on investing goals, investment time horizons, personal risk tolerances, and
financial circumstances. The following table is intended to assist investors
in choosing a Portfolio.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
INVESTING PERSONAL
PORTFOLIO INVESTMENT GOAL TIME HORIZON RISK TOLERANCE EXAMPLE
- ------------ ------------------ ---------------- --------------- -------------------------
Conservative Current income 3 years or more. Low to medium. Investors who are
with low to approaching or who are
moderate growth of already retired.
capital.
- ------------ ------------------ ---------------- --------------- -------------------------
Moderate Low to moderate 5 years or more. Medium to high. Middle-aged investors
growth of capital who are saving for
with some current retirement and who plan
income. to retire in their 60s.
- ------------ ------------------ ---------------- --------------- -------------------------
Aggressive Medium to high 5 years or more. High. Younger investors who
growth of capital are saving for retirement
with very low and who plan to retire in
current income their 60s.
</TABLE>
Investors can choose any of these three Portfolios, depending on personal
investment objectives, time horizons, and risk tolerances. For example,
investors in their 40s who are sensitive to market risk may choose the Moderate
Portfolio while investors in their 40s who are not as sensitive to market risk
may choose the Aggressive Portfolio.
The Portfolios may be especially suitable for tax-advantaged retirement
accounts, including:
- - INDIVIDUAL RETIREMENT PLANS, including Traditional IRAs, Roth IRAs, and
SEP-IRAs (for one-person businesses). Call 1-800-368-3863 for more
information.
- - QUALIFIED RETIREMENT PLANS, including 401(k) plans, SIMPLEs, SEP-IRAs,
Keoghs, 403(b)(7), profit sharing plans, and pension plans. Call
1-800-368-2882 for more information.
While these Portfolios are specifically designed for tax-advantaged retirement
accounts, shares may also be purchased by investors for other long-term general
savings purposes.
The Portfolios' exchange privileges are not intended to afford shareholders a
way to speculate on short-term movements in the market. Accordingly, in order
to prevent excessive use of the exchange privilege that may potentially disrupt
the management of the Portfolios and increase transaction costs, the Portfolios
have established a policy of limiting excessive exchange activity.
Exchange activity generally will not be deemed excessive if limited to two
substantive exchange redemptions from the Portfolios during any twelve-month
period. "Substantive" means neither a dollar amount or a series of movements
between Strong Funds that Strong determines, in its sole discretion, could have
an adverse impact on the management of the Fund. Notwithstanding these
limitations, the Portfolios reserve the right to reject any purchase request
(including exchange purchases from other Strong portfolios) that is reasonably
deemed to be disruptive to the efficient implementation of the Portfolio's
investment programs.
<PAGE>
THE UNDERLYING STRONG FUNDS
Each Portfolio invests substantially all its assets in the Underlying Funds as
described below.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
UNDERLYING FUNDS CONSERVATIVE MODERATE AGGRESSIVE
- --------------------------------- ------------ -------- ----------
Strong Growth Fund 10% 15% 20%
Strong Growth and Income Fund 10% 15% 20%
Strong Blue Chip 100 Fund 10% 15% 20%
Strong Common Stock Fund 10% 15% 20%
- --------------------------------- ------------ -------- ----------
Strong Advantage Fund 30% 15% None
Strong Short-Term Bond Fund 20% 10% 5%
Strong Government Securities Fund 5% 10% 10%
Strong Heritage Money Fund* 5% 5% 5%
- --------------------------------- ------------ -------- ----------
</TABLE>
* The Portfolios may invest in either the Strong Heritage Money Fund or in
cash-type equivalents such as bank demand notes or repurchase agreements
The Board of Directors of the Portfolios may (i) reallocate a Portfolio's
assets among its Underlying Funds, or (ii) replace an Underlying Fund with
another Strong Fund for any reason. The Board of Directors may take this
action without shareholder vote. Although the Board of Directors may in the
future reallocate assets and make substitutions of Strong Funds they believe
that these occasions will happen infrequently and only for good cause.
As a result of market gains or losses, the percentage of a Portfolio's assets
invested in stocks or bonds may exceed or be less than the asset allocation
models shown above. Strong will rebalance a Portfolio's assets among the
Underlying Funds in accordance with its asset allocation model once a calendar
quarter, or more often as necessary.
The following provides a concise description of the investment objective and
principal investment strategy of each Underlying Fund. For a complete
description of these Funds, please see the Underlying Fund prospectuses, which
are available free of charge by calling 1-800-368-3863.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
UNDERLYING INVESTMENT OBJECTIVE PRINCIPAL INVESTMENT STRATEGY
FUND
- --------------- ----------------------------- --------------------------------------------------------
Growth Fund Capital growth. Focuses on common stocks of companies that its
manager believes are reasonably priced and have
above-average growth potential. The portfolio can
include stocks of any size.
- --------------- ----------------------------- --------------------------------------------------------
Common Stock Capital growth. Primarily invests in common stocks of companies that
Fund the Fund's managers believe to be under-priced, yet
have attractive growth prospects. The managers base
their analysis on a company's "private market value" -
the price an investor would pay for the entire company
given its management, financial health, and growth
potential. The managers apply this approach primarily
to small-company stocks.
- --------------- ----------------------------- --------------------------------------------------------
Growth & High total return by Primarily focuses on the common stocks of large,
Income Fund investing for both capital dividend-paying companies. These companies
growth and income. typically offer well-known products and services and
may enjoy strong earnings growth. In addition, the
Fund invests a limited amount of its assets in mid-size
companies that have the potential for rapid growth.
- --------------- ----------------------------- --------------------------------------------------------
Blue Chip 100 High total return by Invests in the common stocks of the 100 largest
Fund investing for both capital companies traded in the U.S. Half of the Fund's assets
growth and income. are invested in these stocks in proportion to size. The
other half of the Fund's assets are used to overweight
positions in those stocks the Fund's manager believes
offer greater return potential.
- --------------- ----------------------------- --------------------------------------------------------
Heritage Money Current income, a stable Managed to provide attractive yields and a stable share
Fund* share price, and daily price of $1.00. The Fund invests in a portfolio of
liquidity. high-quality, short-term debt securities issued by
corporations, banks, and other financial institutions.
- --------------- ----------------------------- --------------------------------------------------------
Advantage Current income with a very Invests primarily in very short-term, high-quality
Fund low degree of share-price bonds and money market securities. To enhance its
fluctuation. return potential, the Fund also invests a portion of its
assets in bonds that have longer maturities or are of
lower quality. To help limit changes in share price,
the Fund's average maturity is usually one year or less.
- --------------- ----------------------------- --------------------------------------------------------
Short-Term Total return by investing for Invests primarily in short- and intermediate-term,
Bond Fund a high level of current medium- and high-quality bonds. The Fund's average
income with a low degree of maturity will normally be between one and three years.
share-price fluctuation. The Fund may also invest a limited portion of its assets
in lower-quality bonds.
- --------------- ----------------------------- --------------------------------------------------------
Government Total return by investing for Invests primarily in high-quality bonds issued by the
Securities Fund a high level of current U.S. government or its agencies. The Fund's average
income with a moderate maturity will normally be between five to ten years.
degree of share-price
fluctuation.
- --------------- ----------------------------- --------------------------------------------------------
</TABLE>
* Investments in the Heritage Money Fund are not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency. This
Fund's goal is to preserve its share price at $1.00 per share. However, it is
possible to lose money by investing in this Fund.
<PAGE>
Each Portfolio has adopted certain fundamental investment restrictions that are
set forth in the Portfolio's SAI. Those restrictions, each Portfolio's
investment objective, and any other investment policies identified as
"fundamental" cannot be changed without shareholder approval. To further guide
investment activities, each Portfolio has also instituted a number of
non-fundamental operating polices, which are described in this Prospectus and
in the SAI. Although operating policies may be changed by a Portfolio's Board
of Directors without shareholder approval, a Portfolio will promptly notify
shareholders of any material change in operating policies.
IMPLEMENTATION OF POLICIES AND RISKS
In addition to the investment policies described above (and subject to certain
restrictions described below), the Underlying Funds may invest in some or all
of the following securities and may employ some or all of the following
investment techniques, as more fully indicated in the matrix below, some of
which may present special risks as described below. For a more complete
discussion of certain of these securities and investment techniques and the
associated risks, please see the Portfolios' SAI and the Underlying Funds SAI,
which are available free of charge by calling 1-800-368-3863. The matrix below
provides details on which Underlying Funds invest in certain securities and/or
utilize certain investment techniques. Percentages indicated how much of an
Underlying Fund's assets may be committed to a specific type of security.
Please note that a "no" entry indicates that the Underlying Fund does not
invest in that type of security or engage in the investing technique or, it
does so in an immaterial amount (I.E., <5%).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short
Securities or Growth & Blue Chip Common Term Government Heritage
Techniques Growth Income 100 Stock Advantage Bond Securities Money
- ----------------------- ------ -------- --------- ------ --------- ------- ---------- --------
Foreign Securities <25% <25% Yes(1) <25% <25% <25% 20%(1) 25%(1)
- ----------------------- ------ -------- --------- ------ --------- ------- ---------- --------
Foreign Investment Yes Yes No Yes Yes Yes No No
Companies
- ----------------------- ------ -------- --------- ------ --------- ------- ---------- --------
Derivatives Yes Yes Yes Yes Yes Yes Yes Yes(2)
- ----------------------- ------ -------- --------- ------ --------- ------- ---------- --------
Illiquid <15% <15% <15% <15% <15% <15% <15% <10%
- ----------------------- ------ -------- --------- ------ --------- ------- ---------- --------
Small and Medium Yes Yes No Yes No No No No
Companies Stocks
- ----------------------- ------ -------- --------- ------ --------- ------- ---------- --------
Debt Obligations <35% <35% No <20% Yes Yes Yes Yes(2)
- ----------------------- ------ -------- --------- ------ --------- ------- ---------- --------
High-Yield Securities <5% <5% No <5% <25%(3) <25%(3) No No
- ----------------------- ------ -------- --------- ------ --------- ------- ---------- --------
Mortgage and Asset No Yes No No Yes Yes Yes Yes
Backed Securities
- ----------------------- ------ -------- --------- ------ --------- ------- ---------- --------
Loan Interests No No No No Yes Yes Yes Yes
- ----------------------- ------ -------- --------- ------ --------- ------- ---------- --------
Municipal Obligations No No No No Yes Yes Yes Yes
- ----------------------- ------ -------- --------- ------ --------- ------- ---------- --------
Repurchase Agreements No No No No Yes Yes Yes Yes
- ----------------------- ------ -------- --------- ------ --------- ------- ---------- --------
Zero Coupon, Step No Yes No No Yes Yes Yes Yes
Coupon and Pay-in
Kind Securities
- ----------------------- ------ -------- --------- ------ --------- ------- ---------- --------
Reverse Repurchase No No No No Yes Yes Yes Yes
Agreements and
Mortgage Dollar Rolls
- ----------------------- ------ -------- --------- ------ --------- ------- ---------- --------
When-Issued and Yes Yes No Yes Yes Yes Yes Yes
Delayed Delivered
Securities
- ----------------------- ------ -------- --------- ------ --------- ------- ---------- --------
Participation Interests No No No No Yes Yes Yes Yes
- ----------------------- ------ -------- --------- ------ --------- ------- ---------- --------
</TABLE>
(1) FOREIGN SECURITIES - The Blue Chip 100 Fund may invest in
dollar-denominated foreign securities to the extent that they are issued by the
100 largest companies traded in the U.S.; and the Government Securities and
Money Market Funds may only invest in dollar denominated foreign securities.
(2) RULE 2A-7 - The Money Market Fund may only invest in derivatives to the
extent allowed by Rule 2a-7 under the Investment Company Act of 1940, which
regulates money funds.
(3) HIGH-YIELD SECURITIES - The Advantage and Short-Term Bond Funds may invest
up to 25% in bonds rated BB or comparably rated securities.
<PAGE>
FOREIGN SECURITIES AND CURRENCIES
Certain Underlying Funds may invest in foreign securities either directly or
indirectly through the use of depositary receipts. Depositary receipts are
generally issued by banks or trust companies and evidence ownership of
underlying foreign securities. Foreign investments involve special risks,
including:
- - expropriation, confiscatory taxation, and withholding taxes on dividends and
interest;
- - less extensive regulation of foreign brokers, securities markets, and
issuers;
- - less publicly available information and different accounting standards;
- - costs incurred in conversions between currencies, possible delays in
settlement in foreign securities markets, limitations on the use or transfer
of assets (including suspension of the ability to transfer currency from a
given country), and difficulty of enforcing obligations in other countries;
and
- - diplomatic developments and political or social instability.
Foreign economies may differ favorably or unfavorably from the U.S. economy in
various respects, including growth of gross domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource
self-sufficiency, and balance-of-payments positions. Many foreign securities
may be less liquid and their prices more volatile than comparable U.S.
securities. Although the Funds generally invest only in securities that are
regularly traded on recognized exchanges or in over-the-counter ("OTC")
markets, from time to time foreign securities may be difficult to liquidate
rapidly without adverse price effects. Certain costs attributable to foreign
investing, such as custody charges and brokerage costs, may be higher than
those attributable to domestic investing.
The Funds may invest in securities of issuers in developing or emerging markets
and economies. Risks of investing in developing or emerging markets include:
- - less social, political, and economic stability;
- - smaller securities markets and lower trading volume, which may result in a
lack of liquidity and greater price volatility;
- - certain national policies that may restrict a Fund's investment
opportunities, including restrictions on investments in issuers or industries
deemed sensitive to national interests, or expropriation or confiscation of
assets or property, which could result in a Fund's loss of its entire
investment in that market; and
- - less developed legal structures governing private or foreign investment or
allowing for judicial redress for injury to private property.
In addition, brokerage commissions, custodial services, withholding taxes, and
other costs relating to investment in emerging markets generally are more
expensive than in the U.S. and certain more established foreign markets.
Economies in emerging markets generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be affected
adversely by trade barriers, exchange controls, managed adjustments in relative
currency values, and other protectionist measures negotiated or imposed by the
countries with which they trade.
Because most foreign securities are denominated in non-U.S. currencies, the
investment performance of the Underlying Portfolios could be affected by
changes in foreign currency exchange rates to some extent. The value of a
Fund's assets denominated in foreign currencies will increase or decrease in
response to fluctuations in the value of those foreign currencies relative to
the U.S. dollar. Currency exchange rates can be volatile at times in response
to supply and demand in the currency exchange markets, international
balances-of-payments, governmental intervention, speculation, and other
political and economic conditions.
The Funds may purchase and sell foreign currency on a spot basis and may engage
in forward currency contracts, currency options, and futures transactions for
hedging or any other lawful purpose. (See "Derivative Instruments.")
<PAGE>
FOREIGN INVESTMENT COMPANIES
Certain Underlying Funds may invest, to a limited extent, in foreign investment
companies. Some of the countries in which the Funds may invest may not permit
direct investment by outside investors. Investments in such countries may only
be permitted through foreign government-approved or -authorized investment
vehicles, which may include other investment companies. In addition, it may be
less expensive and more expedient for a Fund to invest in a foreign investment
company in a country which permits direct foreign investment. Investing through
such vehicles may involve frequent or layered fees or expenses and may also be
subject to limitation under the Investment Company Act of 1940 ("1940 Act").
The Funds do not intend to invest in such investment companies unless, in the
judgment of Strong, the potential benefits of such investments justify the
payment of any associated fees or expenses.
DERIVATIVE INSTRUMENTS
Underlying Funds may use derivative instruments for any lawful purpose
consistent with the Fund's investment objective such as hedging or managing
risk. Derivative instruments are commonly defined to include securities or
contracts the values of which depend on (or "derive" from) the value of one or
more other assets, such as securities, currencies, or commodities. These "other
assets" are commonly referred to as "underlying assets."
A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to OPTIONS or FORWARD CONTRACTS. Options and forward
contracts are considered to be the basic "building blocks" of derivatives. For
example, forward-based derivatives include forward contracts, swap contracts,
as well as exchange-traded futures. Option-based derivatives include privately
negotiated, OTC options (including caps, floors, collars, and options on
forward and swap contracts) and exchange-traded options on futures. Diverse
types of derivatives may be created by combining options or forward contracts
in different ways, and by applying these structures to a wide range of
underlying assets.
An option is a contract in which the "holder" ("buyer") pays a certain amount
("premium") to the "writer" ("seller") to obtain the right, but not the
obligation, to buy from the writer (in a "call") or sell to the writer (in a
"put") a specific asset at an agreed upon price at or before a certain time.
The holder pays the premium at inception and has no further financial
obligation. The holder of an option-based derivative generally will benefit
from favorable movements in the price of the underlying asset but is not
exposed to corresponding losses due to adverse movements in the value of the
underlying asset. The writer of an option-based derivative generally will
receive fees or premiums but generally is exposed to losses due to changes in
the value of the underlying asset.
A forward is a sales contract between a buyer (holding the "long" position) and
a seller (holding the "short" position) for an asset with delivery deferred
until a future date. The buyer agrees to pay a fixed price at the agreed future
date and the seller agrees to deliver the asset. The seller hopes that the
market price on the delivery date is less than the agreed upon price, while the
buyer hopes for the contrary. The change in value of a forward-based derivative
generally is roughly proportional to the change in value of the underlying
asset.
Derivative instruments may include (i) options; (ii) futures; (iii) options on
futures; (iv) short sales in which a Fund sells a security for delivery at a
future date; (v) swaps, in which two parties agree to exchange a series of cash
flows in the future, such as interest-rate payments; (vi) interest-rate caps,
under which, in return for a premium, one party agrees to make payments to the
other to the extent that interest rates exceed a specified rate, or "cap";
(vii) interest-rate floors, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates fall
below a specified level, or "floor"; (viii) forward currency contracts and
foreign currency exchange-related securities; and (ix) structured instruments
which combine the foregoing in different ways.
Derivatives may be exchange traded or traded in OTC transactions between
private parties. OTC transactions are subject to additional risks, such as the
credit risk of the counterparty to the instrument and are less liquid than
exchange-traded derivatives since they often can only be closed out with the
other party to the transaction. Derivative instruments may include elements of
leverage and, accordingly, the fluctuation of the value of the derivative
instrument in relation to the underlying asset may be magnified.
<PAGE>
When required by SEC guidelines, a Fund will set aside permissible liquid
assets in a segregated account to secure its obligations under the derivative.
The successful use of derivatives by a Fund is dependent upon a variety of
factors, particularly Strong's ability to correctly anticipate trends in the
underlying asset. In a hedging transaction, if Strong incorrectly anticipates
trends in the underlying asset, a Fund may be in a worse position than if no
hedging had occurred. In addition, there may be imperfect correlation between a
Fund's derivative transactions and the instruments being hedged. To the extent
that the Fund is engaging in derivative transactions for risk management, the
Fund's successful use of such transactions is more dependent upon Strong's
ability to correctly anticipate such trends, since losses in these transactions
may not be offset by gains in the Fund's portfolio or in lower purchase prices
for assets it intends to acquire. Strong's prediction of trends in underlying
assets may prove to be inaccurate, which could result in substantial losses to
a Fund.
A Fund may also use derivative instruments to make investments that are
consistent with a Fund's investment objective but that are impracticable or not
feasible in the cash market (E.G., using derivative instruments to create a
synthetic security or to derive exposure to a region or asset class when cash
markets are inefficient and/or illiquid). A Fund will only engage in this
strategy when Strong reasonably believes it to be more advantageous to the
Fund.
In addition to the derivative instruments and strategies described above,
Strong expects to discover additional derivative instruments and other trading
techniques. Strong may utilize these new derivative instruments and techniques
to the extent that they are consistent with a Fund's investment objective and
permitted by a Fund's investment limitations, operating policies, and
applicable regulatory authorities.
ILLIQUID SECURITIES
Each Underlying Fund may invest up to 15% of its net assets in illiquid
securities, except for the Money Market Fund which may only invest up to 10% of
its net assets in illiquid securities. Illiquid securities are those securities
that are not readily marketable, including restricted securities and repurchase
obligations maturing in more than seven days. Certain restricted securities
that may be resold to institutional investors pursuant to Rule 144A under the
Securities Act of 1933 and Section 4(2) commercial paper may be determined
liquid under guidelines adopted by each Fund's Board of Directors.
SMALL AND MEDIUM COMPANIES
Certain Underlying Funds may invest in the securities of small and medium
companies. While small and medium companies generally have potential for rapid
growth, investments in small and medium companies often involve greater risks
than investments in larger, more established companies because small and medium
companies may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In addition, in
many instances the securities of small and medium companies are traded only OTC
or on a regional securities exchange, and the frequency and volume of their
trading is substantially less than is typical of larger companies. Therefore,
the securities of small and medium companies may be subject to greater and more
abrupt price fluctuations. When making large sales, a Fund may have to sell
portfolio holdings at discounts from quoted prices or may have to make a series
of small sales over an extended period of time due to the trading volume of
small and medium company securities. Investors should be aware that, based on
the foregoing factors, an investment in the Funds may be subject to greater
price fluctuations than an investment in a fund that invests primarily in
larger, more established companies. Strong's research efforts may also play a
greater role in selecting securities for the Funds than in a fund that invests
in larger, more established companies.
DEBT OBLIGATIONS
Certain Underlying Funds may invest in any debt obligations. A Fund's authority
to invest in certain types of debt obligations may be restricted or subject to
objective investment criteria.
<PAGE>
TYPES OF OBLIGATIONS. Debt obligations include (i) corporate debt securities,
including bonds, debentures, and notes; (ii) bank obligations, such as
certificates of deposit, banker's acceptances, and time deposits of domestic
and foreign banks and their subsidiaries and branches, and domestic savings and
loan associations; (iii) commercial paper (including variable-amount master
demand notes); (iv) repurchase agreements; (v) loan interests; (vi) foreign
debt obligations issued by foreign issuers traded either in foreign markets or
in domestic markets through depositary receipts; (vii) convertible securities
3/4 debt obligations of corporations convertible into or exchangeable for
equity securities or debt obligations that carry with them the right to
acquire equity securities, as evidenced by warrants attached to such
securities, or acquired as part of units of the securities; (viii) preferred
stocks - securities that represent an ownership interest in a corporation
and that give the owner a prior claim over common stock on the company's
earnings or assets; (ix) trust preferred securities 3/4 certain obligations
which have characteristics of both debt and preferred stock; (x) U.S.
government securities; (xi) mortgage-backed securities, collateralized
mortgage obligations, and similar securities; and (xii) municipal
obligations.
HIGH-YIELD (HIGH-RISK) SECURITIES
Certain Underlying Funds may invest in high-yield (high-risk securities).
High-yield (high-risk) securities, also referred to as "junk bonds," are those
securities that are rated lower than investment grade and unrated securities of
comparable quality. Although these securities generally offer higher yields
than investment-grade securities with similar maturities, lower-quality
securities involve greater risks, including the possibility of default or
bankruptcy. In general, they are regarded to be predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal. Other
potential risks associated with investing in high-yield securities include:
- - substantial market-price volatility resulting from changes in interest rates,
changes in or uncertainty about economic conditions, and changes in the
actual or perceived ability of the issuer to meet its obligations;
- - greater sensitivity of highly leveraged issuers to adverse economic changes
and individual-issuer developments;
- - subordination to the prior claims of other creditors;
- - additional Congressional attempts to restrict the use or limit the tax and
other advantages of these securities; and
- - adverse publicity and changing investor perceptions about these securities.
As with any other asset in a Fund's portfolio, any reduction in the value of
such securities as a result of the factors listed above would be reflected in
the net asset value of the Fund. In addition, a Fund that invests in
lower-quality securities may incur additional expenses to the extent it is
required to seek recovery upon a default in the payment of principal and/or
interest on its holdings. As a result of the associated risks, successful
investments in high-yield, high-risk securities will be more dependent on
Strong's credit analysis than generally would be the case with investments in
investment-grade securities.
It is uncertain how the high-yield market will perform during a prolonged
period of rising interest rates. A prolonged economic downturn or a prolonged
period of rising interest rates could adversely affect the market for these
securities, increase their volatility, and reduce their value and liquidity. In
addition, lower-quality securities tend to be less liquid than higher-quality
debt securities because the market for them is not as broad or active. If
market quotations are not available, these securities will be valued in
accordance with procedures established by the Fund's Board of Directors.
Judgment may, therefore, play a greater role in valuing these securities. The
lack of a liquid secondary market may have an adverse effect on market price
and a Fund's ability to sell particular securities.
MORTGAGE- AND ASSET-BACKED SECURITIES
Certain Underlying Funds may invest in mortgage- and asset-backed securities.
Mortgage-backed securities represent direct or indirect participation in, or
are secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and collateralized
mortgage obligations. Such securities may be issued or guaranteed by U.S.
government agencies or instrumentalities or by private issuers, generally
originators in mortgage loans, including savings
<PAGE>
associations, mortgage bankers, commercial banks, investment bankers, and
special purpose entities (collectively, "private lenders"). Mortgage-backed
securities issued by private lenders may be supported by pools of mortgage
loans or other mortgage-backed securities that are guaranteed, directly or
indirectly, by the U.S. government or one of its agencies or instrumentalities,
or they may be issued without any governmental guarantee of the underlying
mortgage assets but with some form of non-governmental credit enhancement.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. However, the underlying assets are not first-lien
mortgage loans or interests therein; rather they include assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property and receivables from credit
card or other revolving credit arrangements. Payments or distributions of
principal and interest on asset-backed securities may be supported by
non-governmental credit enhancements similar to those utilized in connection
with mortgage-backed securities.
The yield characteristics of mortgage- and asset-backed securities differ from
those of traditional debt obligations. Among the principal differences are that
interest and principal payments are made more frequently on mortgage-and
asset-backed securities, usually monthly, and that principal may be prepaid at
any time because the underlying mortgage loans or other assets generally may be
prepaid at any time. As a result, if a Fund purchases these securities at a
premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing the yield to maturity. Conversely, if a Fund
purchases these securities at a discount, a prepayment rate that is faster than
expected will increase yield to maturity, while a prepayment rate that is
slower than expected will reduce yield to maturity. Accelerated prepayments on
securities purchased by a Fund at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is prepaid in full. The market for privately issued mortgage- and
asset-backed securities is smaller and less liquid than the market for
government sponsored mortgage-backed securities.
Certain Underlying Funds may invest in stripped mortgage- or asset-backed
securities, which receive differing proportions of the interest and principal
payments from the underlying assets. The market value of such securities
generally is more sensitive to changes in prepayment and interest rates than is
the case with traditional mortgage- and asset-backed securities, and in some
cases the market value may be extremely volatile. With respect to certain
stripped securities, such as interest-only ("IO") and principal-only ("PO")
classes, a rate of prepayment that is faster or slower than anticipated may
result in a Fund failing to recover all or a portion of its investment, even
though the securities are rated investment-grade.
LOAN INTERESTS
Certain Underlying Funds may invest a portion of their assets in loan
interests, which are interests in amounts owed by a corporate, governmental or
other borrower to lenders or lending syndicates. Loan interests purchased by a
Fund may have a maturity of any number of days or years, and may be secured or
unsecured. Loan interests, which may take the form of participation interests
in, assignments of, or novations of a loan, may be acquired from U.S. and
foreign banks, insurance companies, finance companies or other financial
institutions that have made loans or are members of a lending syndicate or from
the holders of loan interests. Loan interests involve the risk of loss in case
of default or bankruptcy of the borrower and, in the case of participation
interests, involve a risk of insolvency of the agent lending bank or other
financial intermediary. Loan interests are not rated by any NRSROs and are, at
present, not readily marketable and may be subject to contractual restrictions
on resale.
MUNICIPAL OBLIGATIONS
Certain Underlying Funds may invest in municipal obligations.
IN GENERAL. Municipal obligations are debt obligations issued by or on behalf
of states, territories, and possessions of the United States and the District
of Columbia and their political subdivisions, agencies, and instrumentalities.
Municipal obligations generally include debt obligations issued to obtain
<PAGE>
funds for various public purposes. Certain types of municipal obligations are
issued in whole or in part to obtain funding for privately operated facilities
or projects. Municipal obligations include general obligation bonds, revenue
bonds, industrial development bonds, notes, municipal lease obligations, and
mortgage-backed bonds.
BONDS AND NOTES. General obligation bonds are secured by the issuer's pledge of
its full faith, credit, and taxing power for the payment of interest and
principal. Revenue bonds are payable only from the revenues derived from a
project or facility or from the proceeds of a specified revenue source.
Industrial development bonds are generally revenue bonds secured by payments
from and the credit of private users. Municipal notes are issued to meet the
short-term funding requirements of state, regional, and local governments.
Municipal notes include tax anticipation notes, bond anticipation notes,
revenue anticipation notes, tax and revenue anticipation notes, construction
loan notes, short-term discount notes, tax-exempt commercial paper, demand
notes, and similar instruments. Municipal obligations include obligations, the
interest on which is exempt from federal income tax, that may become available
in the future as long as the Board of Directors of a Fund determines that an
investment in any such type of obligation is consistent with that Fund's
investment objective.
LEASE OBLIGATIONS. Municipal lease obligations may take the form of a lease, an
installment purchase, or a conditional sales contract. They are issued by state
and local governments and authorities to acquire land, equipment, and
facilities, such as state and municipal vehicles, telecommunications and
computer equipment, and other capital assets. A Fund may purchase these
obligations directly, or it may purchase participation interests in such
obligations. (See "Participation Interests" below.) Municipal leases are
generally subject to greater risks than general obligation or revenue bonds.
State constitutions and statutes set forth requirements that states or
municipalities must meet in order to issue municipal obligations. Municipal
leases may contain a covenant by the state or municipality to budget for,
appropriate, and make payments due under the obligation. Certain municipal
leases may, however, contain "non-appropriation" clauses which provide that the
issuer is not obligated to make payments on the obligation in future years
unless funds have been appropriated for this purpose each year. Accordingly,
such obligations are subject to "non-appropriation" risk. While municipal
leases are secured by the underlying capital asset, it may be difficult to
dispose of any such asset in the event of non-appropriation or other default.
MORTGAGE-BACKED BONDS. A Fund's investments in municipal obligations may
include mortgage-backed municipal obligations, which are a type of municipal
security issued by a state, authority, or municipality to provide financing for
residential housing mortgages to target groups, generally low-income
individuals who are first-time home buyers. A Fund's interest, evidenced by
such obligations, is an undivided interest in a pool of mortgages. Payments
made on the underlying mortgages and passed through to the Fund will represent
both regularly scheduled principal and interest payments. A Fund may also
receive additional principal payments representing prepayments of the
underlying mortgages. While a certain level of prepayments can be expected,
regardless of the interest rate environment, it is anticipated that prepayment
of the underlying mortgages will accelerate in periods of declining interest
rates. In the event that a Fund receives principal prepayments in a declining
interest-rate environment, its reinvestment of such funds may be in bonds with
a lower yield.
REPURCHASE AGREEMENTS
Certain Underlying Funds invest in repurchase agreements. A Fund may enter
into repurchase agreements with certain banks and non-bank dealers. In a
repurchase agreement, a Fund buys a security at one price, and at the time of
sale, the seller agrees to repurchase the obligation at a mutually agreed upon
time and price (usually within seven days). The repurchase agreement determines
the yield during the purchaser's holding period, while the seller's obligation
to repurchase is secured by the value of the underlying security. A Fund may
enter into repurchase agreements with respect to any security in which it may
invest. Strong will monitor, on an ongoing basis, the value of the underlying
securities to ensure that the value always equals or exceeds the repurchase
price plus accrued interest. Repurchase agreements could involve certain risks
in the event of a default or insolvency of the other party to the agreement,
including possible delays or restrictions upon a Fund's ability to dispose of
the underlying securities.
<PAGE>
Although no definitive creditworthiness criteria are used, Strong reviews the
creditworthiness of the banks and non-bank dealers with which the Portfolios
enter into repurchase agreements to evaluate those risks. A Fund may, under
certain circumstances, deem repurchase agreements collateralized by U.S.
government securities to be investments in U.S. government securities.
ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES
Certain Underlying Funds may invest in zero-coupon, step-coupon, and
pay-in-kind securities. These securities are debt securities that do not make
regular cash interest payments. Zero-coupon and step-coupon securities are sold
at a deep discount to their face value. Pay-in-kind securities pay interest
through the issuance of additional securities. Because such securities do not
pay current cash income, the price of these securities can be volatile when
interest rates fluctuate. While these securities do not pay current cash
income, federal income tax law requires the holders of zero-coupon,
step-coupon, and pay-in-kind securities to include in income each year the
portion of the original issue discount (or deemed discount) and other non-cash
income on such securities accrued during that year. In order to continue to
qualify for treatment as a "regulated investment company" under the Internal
Revenue Code of 1986 ("IRC") and avoid a certain excise tax, each Fund may be
required to distribute a portion of such discount and income and may be
required to dispose of other portfolio securities, which may occur in periods
of adverse market prices, in order to generate cash to meet these distribution
requirements.
REVERSE REPURCHASE AGREEMENTS AND MORTGAGE DOLLAR ROLLS
Certain Underlying Funds may engage in reverse repurchase agreements to
facilitate portfolio liquidity, a practice common in the mutual fund industry,
or for arbitrage transactions discussed below. In a reverse repurchase
agreement, a Fund would sell a security and enter into an agreement to
repurchase the security at a specified future date and price. The Fund
generally retains the right to interest and principal payments on the security.
Since the Fund receives cash upon entering into a reverse repurchase agreement,
it may be considered a borrowing. When required by SEC guidelines, a Fund will
set aside permissible liquid assets in a segregated account to secure its
obligation to repurchase the security.
A Fund may also enter into mortgage dollar rolls, in which the Fund would sell
mortgage-backed securities for delivery in the current month and simultaneously
contract to purchase substantially similar securities on a specified future
date. While a Fund would forego principal and interest paid on the
mortgage-backed securities during the roll period, the Fund would be
compensated by the difference between the current sale price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The Fund also could be compensated through the receipt of
fee income equivalent to a lower forward price. When required by SEC
guidelines, a Fund would set aside permissible liquid assets in a segregated
account to secure its obligation for the forward commitment to buy
mortgage-backed securities. Mortgage dollar roll transactions may be considered
a borrowing by the Portfolios.
The mortgage dollar rolls and reverse repurchase agreements entered into by a
Fund may be used as arbitrage transactions in which the Fund will maintain an
offsetting position in investment-grade debt obligations or repurchase
agreements that mature on or before the settlement date of the related mortgage
dollar roll or reverse repurchase agreement. Since a Fund will receive interest
on the securities or repurchase agreements in which it invests the transaction
proceeds, such transactions may involve leverage. However, since such
securities or repurchase agreements will be high quality and will mature on or
before the settlement date of the mortgage dollar roll or reverse repurchase
agreement, Strong believes that such arbitrage transactions do not present the
risks to the Funds that are associated with other types of leverage.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
Certain Underlying Funds may invest in securities purchased on a when-issued or
delayed-delivery basis. Although the payment and interest terms of these
securities are established at the time the purchaser enters into the
commitment, these securities may be delivered and paid for at a future date.
Purchasing when-issued or delayed-delivery securities allows a Fund to lock in
a fixed price or yield on a security it intends to purchase. However, when a
Fund purchases these types of securities, it immediately assumes the risk of
ownership, including the risk of price fluctuation.
<PAGE>
The greater a Fund's outstanding commitments for these securities, the greater
the exposure to potential fluctuations in the net asset value of a Fund.
Purchasing when-issued or delayed-delivery securities may involve the
additional risk that the yield available in the market when the delivery occurs
may be higher or the market price lower than that obtained at the time of
commitment. Although a Fund may be able to sell these securities prior to the
delivery date, it will purchase them for the purpose of actually acquiring the
securities, unless, after entering into the commitment, a sale appears
desirable for investment reasons. When required by SEC guidelines, a Fund will
set aside permissible liquid assets in a segregated account to secure its
outstanding commitments for these types of securities.
PARTICIPATION INTERESTS
If a Fund may invest in municipal obligations, it may also invest in
participation interests in municipal obligations without limitation. A
participation interest gives a Fund an undivided interest in a municipal
obligation in the proportion that the Fund's participation interest bears to
the principal amount of the obligation. These instruments may have fixed,
floating, or variable rates of interest. A Fund will only purchase
participation interests if accompanied by an opinion of counsel that the
interest earned on the underlying municipal obligations will be tax-exempt. If
a Fund purchases unrated participation interests, the Board of Directors or its
delegate must have determined that the credit risk is equivalent to the rated
obligations in which the Fund may invest. Participation interests may be
backed by a letter of credit or guaranty of the selling institution. When
determining whether such a participation interest meets a Fund's credit quality
requirements, the Fund may look to the credit quality of any financial
guarantor providing a letter of credit or guaranty.
PORTFOLIO TURNOVER
The annual portfolio turnover rate of a Portfolio is not expected to exceed 50%
annually. A portfolio turnover rate of 50% for a Portfolio would occur if one
half of a Portfolio's investments were sold within a year. A Portfolio will
purchase or sell shares of the Underlying Funds to (i) accommodate purchases
and sales of Portfolio shares, (ii) to maintain, or modify the allocation of
the Portfolio's assets between the Underlying Funds, or (iii) to substitute
another Strong Fund for an Underlying Fund. A Portfolio's annual portfolio
turnover rate may exceed 50% annually if the Portfolio's Board of Directors (i)
reallocates a Portfolio's assets among its Underlying Funds, or (ii) replaces
an Underlying Fund with another Strong Fund. If one or both of these
situations were to occur, a Portfolio's annual portfolio turnover rate
generally would not exceed 100%. Although the Board of Directors may in the
future reallocate assets and make substitutions of Strong Funds they believe
that these occasions will happen infrequently and only for good cause.
Although the Portfolio's annual portfolio turnover rate is expected to be low,
the Portfolios indirectly bear the expenses associated with the portfolio
turnover of the Underlying Funds. High portfolio turnover among the Underlying
Funds involves correspondingly greater expenses to an Underlying Fund,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and reinvestments in other securities. Shareholders
in the Portfolios may also bear expenses directly or indirectly through sales
of securities held by the Portfolios and the Underlying Funds which result in
the realization of taxable capital gains.
ABOUT THE PORTFOLIOS
MANAGEMENT
The Board of Directors of each Portfolio is responsible for managing its
business and affairs.
INVESTMENT ADVISOR OF THE UNDERLYING FUNDS. Strong serves as the investment
advisor of the Underlying Funds. Strong began conducting business in 1974.
Since then, its principal business has been providing continuous investment
supervision for individuals and institutional accounts, such as pension funds
and profit-sharing plans, as well as mutual funds, several of which are funding
vehicles for variable insurance products. As of November 30, 1998, Strong had
over $32 billion under management. Strong's principal mailing address is P.O.
Box 2936, Milwaukee, Wisconsin 53201. Mr. Richard S. Strong, the Chairman of
the Board of each Fund, is the controlling shareholder of Strong.
<PAGE>
YEAR 2000 RISKS. Like other mutual funds and financial and business operations
around the world, the Portfolios could be adversely affected if the computer
software, and to a lesser extent, hardware used by Strong and other service
providers are not able to process and calculate date-related information and
data before, during, and after January 1, 2000. This is commonly known as the
"Year 2000 Issue." Strong is taking steps that it believes are reasonably
designed to address the Year 2000 Issue with respect to the computer software
and hardware that it uses and to obtain satisfactory assurances that comparable
steps are being taken by the Portfolios' other major service providers.
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Portfolios.
UNDERLYING FUND EXPENSES. The expenses associated with investing in a "fund of
funds," such as the Portfolios, are generally higher than those for mutual
funds that do not invest primarily in other mutual funds. This is because
shareholders in a fund of funds indirectly pay a portion of the fees and
expenses charged at the underlying fund level. The following table sets forth
expense information for the Underlying Funds as of November 30, 1998.
Shareholders of each Portfolio indirectly bear a proportionate share of these
expenses based on a Portfolio's allocation of its assets among the Underlying
Funds.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
TOTAL
TOTAL OPERATING EXPENSES
OTHER OPERATING (AFTER WAIVERS/
UNDERLYING FUND MANAGEMENT FEE EXPENSES EXPENSES ABSORPTIONS)
Growth 1.00% 0.27% 1.27% 1.27%
Common Stock 1.00 0.16 1.16 1.16
Growth & Income 1.00 0.09 1.09 1.09
Blue Chip 100 0.75 0.28 1.03 1.03
Heritage Money 0.50 0.08 0.58 0.31
Advantage 0.60 0.14 0.74 0.74
Short-Term Bond 0.625 0.205 0.83 0.83
Government Securities 0.60 0.17 0.77 0.77
</TABLE>
SHAREHOLDER SERVICING AGENT
Strong also acts as the Portfolios' shareholder servicing agent. As shareholder
servicing agent, Strong provides personal services to the Portfolios'
shareholders and maintains the Portfolios' shareholder accounts. Such services
include, without limitation, answering shareholder inquiries, assisting
shareholders with fund transactions, and assisting shareholders with changes to
their accounts.
As compensation for its services, the Portfolios' pays Strong a monthly fee
based on a percentage of each Portfolio's average daily net asset value. The
annual rate is 0.25%. From time to time, Strong may voluntarily waive all or a
portion of its shareholder servicing and/or absorb certain Portfolio expenses
without further notification of the commencement or termination of such waiver
or absorption. Any such waiver or absorption will temporarily lower a
Portfolio's overall expense ratio and increase a Portfolio's overall return to
investors.
Except for expenses assumed by Strong, each Portfolio is responsible for all
its other expenses, including, without limitation, interest charges, taxes,
brokerage commissions, and similar expenses; expenses of issue, sale,
repurchase, or redemption of shares; expenses of registering or qualifying
shares for sale with the states and the SEC; expenses of printing and
distribution of prospectuses to existing shareholders; charges of custodians
(including fees as custodian for keeping books and similar services for a
Fund), transfer agents (including the printing and mailing of reports and
notices to shareholders), registrars, auditing and legal services, and clerical
services related to recordkeeping and shareholder relations; printing of stock
certificates; fees for directors who are not "interested persons" of Strong;
expenses of indemnification; extraordinary expenses; and costs of shareholder
and director meetings.
TRANSFER AND DIVIDEND-DISBURSING AGENT
Strong, P.O. Box 2936, Milwaukee, Wisconsin 53201, also acts as
dividend-disbursing agent and transfer agent for the Portfolios. Strong is
compensated by the Portfolios for its services based on an
<PAGE>
annual fee per account plus certain out-of-pocket expenses. However, the
Underlying Funds have agreed to reimburse the Portfolios for these expenses on
a pro-rata basis.
DISTRIBUTOR
Strong Investments, Inc., P.O. Box 2936, Milwaukee, Wisconsin 53201, an
indirect subsidiary of Strong, acts as distributor of the shares of the
Portfolios.
ORGANIZATION
SHAREHOLDER RIGHTS. The Portfolios are series of Strong Life Stage Series,
Inc., a Wisconsin corporation that is authorized to issue an indefinite number
of shares of common stock and series and classes of series of shares of common
stock. Each share of the Portfolios has one vote, and all shares participate
equally in dividends and other capital gains distributions by the respective
Portfolio and in the residual assets of the respective Portfolio in the event
of liquidation. Certificates will be issued for shares held in your account
only upon your written request. You will, however, have full shareholder rights
whether or not you request certificates. Generally, the Portfolios will not
hold an annual meeting of shareholders unless required by the 1940 Act.
Shareholders have certain rights, including the right to call an annual meeting
upon a vote of 10% of a Portfolio's outstanding shares for the purpose of
voting to remove one or more directors or to transact any other business. The
1940 Act requires a Portfolio to assist the shareholders in calling such a
meeting.
SHAREHOLDER PRIVILEGES. The shareholders of each Portfolio may benefit from the
privileges described in the "Shareholder Manual" (see Page II-_). However, each
Portfolio reserves the right, at any time and without prior notice, to suspend,
limit, modify, or terminate any of these privileges or their use in any manner
by any person or class.
DISTRIBUTIONS AND TAXES
PAYMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS. Unless you choose otherwise, all
your dividends and capital gains distributions will be automatically reinvested
in additional Portfolio shares. Or, you may elect to have all your dividends
and capital gain distributions from a Portfolio automatically invested in
additional shares of another Strong Fund. Shares are purchased at the net asset
value determined on the payment date. If you request in writing that your
dividends and other distributions be paid in cash, a Portfolio will credit your
bank account by Electronic Portfolios Transfer ("EFT") or issue a check to you
within five business days of the payment date. You may change your election at
any time by calling or writing the Fund. The Fund must receive any such change
7 days (15 days for EFT) prior to a dividend or capital gain distribution
payment date in order for the change to be effective for that payment. The
policy of the Moderate and Aggressive Portfolios is to pay dividends from net
investment income annually and to distribute substantially all net realized
capital gains annually. The policy of the Conservative Portfolio is to pay
dividends from net investment income quarterly and to distribute substantially
all net realized capital gains annually. Each Portfolio may make additional
distributions if necessary to avoid imposition of a 4% excise tax on
undistributed income and gains.
TAX STATUS OF DIVIDENDS AND OTHER DISTRIBUTIONS. You will be subject to federal
income tax at ordinary income tax rates on any dividends you receive that are
derived from investment company taxable income (consisting generally of net
investment income, net short-term capital gain, and net gains from certain
foreign currency transactions, if any). Distributions of net capital gain (the
excess of net long-term capital gain over net short-term capital loss), when
designated as such by a Portfolio, are taxable to you as long-term capital
gains, regardless of how long you have held your Portfolio shares. The
Portfolios' distributions are taxable in the year they are paid, whether they
are taken in cash or reinvested in additional shares, except that certain
distributions declared in the last three months of the year and paid in January
are taxable as if paid on December 31.
If a Portfolio's distributions exceed its investment company taxable income and
net capital gain in any year, as a result of currency-related losses or
otherwise, all or a portion of those distributions may be treated as a return
of capital to shareholders for tax purposes.
<PAGE>
YEAR-END TAX REPORTING. After the end of each calendar year, you will receive a
statement (Form 1099) of the federal income tax status of all dividends and
other distributions paid (or deemed paid) during the year.
SHARES SOLD OR EXCHANGED. Your redemption of shares of the Portfolio may result
in a taxable gain or loss to you, depending upon whether the redemption
proceeds payable to you are more or less than your adjusted cost basis for the
redeemed shares. Similar tax consequences generally will result from an
exchange of shares of the Portfolio for shares of another Strong Fund. If you
purchase shares of a Portfolio within 30 days before or after redeeming shares
of the same Portfolio at a loss, a portion or all of that loss will not be
deductible and will increase the cost basis of the newly purchased shares. If
you redeem shares out of a non-IRA retirement account, you will be subject to
withholding for federal income tax purposes unless you transfer the
distribution directly to an "eligible retirement plan."
BUYING A DISTRIBUTION. A distribution paid shortly after you have purchased
shares in a Portfolio will reduce the net asset value of the shares by the
amount of the distribution, which nevertheless will be taxable to you even
though it represents a return of a portion of your investment.
BACKUP WITHHOLDING. If you are an individual or certain other noncorporate
shareholder and do not furnish a Portfolio with a correct taxpayer
identification number, the Portfolio is required to withhold federal income tax
at a rate of 31% (backup withholding) from all dividends, capital gain
distributions, and redemption proceeds payable to you. Withholding at that rate
from dividends and capital gain distributions payable to you also is required
if you otherwise are subject to backup withholding. To avoid backup
withholding, you must provide a taxpayer identification number and state that
you are not subject to backup withholding due to the under-reporting of your
income. This certification is included as part of your application. Please
complete it when you open your account.
TAX STATUS OF THE PORTFOLIOS. Each Portfolio intends to continue to qualify for
treatment as a regulated investment company under Subchapter M of the IRC and,
if so qualified, will not be liable for federal income tax on earnings and
gains distributed to its shareholders in a timely manner. This section is not
intended to be a full discussion of present or proposed federal income tax law
and its effects on the Portfolios and investors therein. See the SAI for a
further discussion. There may be other federal, state, or local tax
considerations applicable to a particular investor. You are therefore urged to
consult your own tax adviser.
PERFORMANCE INFORMATION
PERFORMANCE OF THE PORTFOLIOS. Each Portfolio may advertise a variety of types
of performance information, including "yield," "average annual total return,"
"total return," and "cumulative total return." Each of these figures is based
upon historical results and does not represent the future performance of a
Portfolio. Yield is an annualized figure, which means that it is assumed that
a Portfolio generates the same level of net investment income over a one-year
period. The Portfolios' yield is a measure of the net investment income per
share earned by a Portfolio over a specific one-month period and is shown as a
percentage of the net asset value of the Portfolio's shares at the end of the
period. Average annual total return and total return figures measure both the
net investment income generated by, and the effect of any realized and
unrealized appreciation or depreciation of, the underlying investments in a
Portfolio assuming the reinvestment of all dividends and distributions. Total
return figures are not annualized and simply represent the aggregate change of
a Portfolio's investments over a specified period of time.
PERFORMANCE OF THE UNDERLYING FUNDS. The past performance of the Underlying
Funds is shown in the table below. Please remember that the Underlying Funds'
performance is historical and does not represent the future results of the
Underlying Funds or the Portfolios. Investors should consider that, because
each Portfolio will invest in the Underlying Funds, the performance of a
Portfolio will reflect the combined performance of the Underlying Funds in
which it invests. Moreover, in addition to the expenses borne by each
Underlying Fund, the Portfolios will incur their own direct expenses.
Accordingly, the investment performance of the Portfolios will be less than the
weighted average of the returns of the Underlying Funds in which they invest.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF 9-30-98
---------------------------------------------------------
YEAR-TO-DATE
TOTAL RETURNS
UNDERLYING FUND AS OF 9/30/98 1-YEAR 3-YEAR 5-YEAR 10-YEAR LIFE OF FUND
- --------------------- ------------- ------- ------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth 1.58% -3.36% 14.36% -- -- 20.13% (12-31-93)
Common Stock -9.65% -13.92% 12.02% 13.13% -- 18.04% (12-29-89)
Growth and Income 7.78% 8.47% -- -- -- 25.16% (12-29-95)
Blue Chip 100 12.74% 14.02% -- -- -- 17.68% (6-30-97)
Heritage Money 4.09% 5.54% 5.66% -- -- 5.70% (6-29-95)
Advantage 4.07% 5.46% 6.32% 6.03% -- 7.33% (11-25-88)
Short-Term Bond 3.94% 5.20% 6.95% 5.89% 7.34% 7.66% (8-31-87)
Government Securities 8.23% 10.93% 8.24% 7.11% 9.46% 9.08% (10-29-86)
</TABLE>
Average annual total return and total return measure change in the value of an
investment in a Underlying Fund, assuming reinvestment of dividends and capital
gains. Average annual total return reflects annualized change, while total
return reflects aggregate change and is not annualized. Investment returns and
principal value vary, and Underlying Fund may have a gain or loss. Investments
in the Underlying Funds are neither insured nor guaranteed by the U.S.
government.
<PAGE>
SHAREHOLDER MANUAL
<TABLE>
<CAPTION>
<S> <C>
HOW TO BUY SHARES II-1
DETERMINING YOUR SHARE PRICE II-5
HOW TO SELL SHARES II-5
SHAREHOLDER SERVICES II-7
REGULAR INVESTMENT PLANS II-9
RETIREMENT PLAN SERVICES II-11
SPECIAL SITUATIONS II-11
</TABLE>
HOW TO BUY SHARES
All the Portfolios are 100% NO-LOAD, meaning you may purchase, redeem, or
exchange shares directly at net asset value without paying a sales charge.
Because each Portfolio' net asset value changes daily, your purchase price will
be the next net asset value determined after the Portfolio receives and accepts
your purchase order.
Whether you are opening a new account or adding to an existing one, Strong
provides you with several methods to buy its shares.
<PAGE>
TO OPEN A NEW ACCOUNT
<TABLE>
<CAPTION>
<S> <C>
MAIL BY CHECK
Complete and sign the application. Make your check or money order
payable to "Strong Funds."
Mail to Strong Funds, P.O. Box 2936, Milwaukee, Wisconsin 53201. If
you're using an express delivery service, send to Strong Funds, 900
Heritage Reserve, Menomonee Falls, Wisconsin 53051.
BY EXCHANGE
Call 1-800-368-3863 for instructions on establishing an account with an
exchange by mail.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
TELEPHONE BY EXCHANGE
Call 1-800-368-3863 to establish a new account by exchanging funds from
1-800-368-3863 an existing Strong Funds account.
24 HOURS A DAY, Sign up for telephone exchange services when you open your account. To
7 DAYS A WEEK add the telephone exchange option to your account, call 1-800-368-3863 for
a Shareholder Account Options Form.
Please note that your accounts must be identically registered and that you
must exchange enough into the new account to meet the minimum initial
investment.
Or use STRONG DIRECT(R), Strong Funds' automated telephone response system.
Call 1-800-368-7550.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
IN PERSON Stop by our Investor Center in Menomonee Falls, Wisconsin. Call 1-800
368-3863 for hours and directions.
The Investor Center will only accept checks or money orders payable to
"Strong Funds."
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
WIRE Call 1-800-368-3863 for instructions on opening an account by wire.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
AUTOMATICALLY USE STRONG'S "NO-MINIMUM INVESTMENT PROGRAM."
If you sign up for Strong's Automatic Investment Plan when you open your
account and contribute monthly, Strong Funds will waive the Fund's
minimum initial investment (see chart on page II-4).
Complete the Automatic Investment Plan section on the account
application.
Mail to the address indicated on the application.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
BROKER-DEALER You may purchase shares in the Portfolio through a broker-dealer or other
institution that may charge a transaction fee.
Strong Funds may only accept requests to purchase shares into a broker
dealer street name account from the broker-dealer.
</TABLE>
<PAGE>
TO ADD TO AN EXISTING ACCOUNT
BY CHECK
- - Complete an Additional Investment Form provided at the bottom of your account
statement, or write a note indicating your fund account number and
registration. Make your check or money order payable to "Strong Funds."
- - Mail to Strong Funds, P.O. Box 2936, Milwaukee, Wisconsin 53201. If you're
using an express delivery service, send to Strong Funds, 900 Heritage
Reserve, Menomonee Falls, Wisconsin 53051.
BY EXCHANGE
- - Call 1-800-368-3863 for instructions on exchanging by mail.
BY EXCHANGE
- - Add to an account by exchanging funds from another Strong Funds account.
- - Sign up for telephone exchange services when you open your account. To add
the telephone exchange option to your account, call 1-800-368-3863 for a
Shareholder Account Options Form.
- - Please note that the accounts must be identically registered and that the
minimum exchange is $50 or the balance of your account, whichever is less.
BY TELEPHONE PURCHASE
- - Sign up for telephone purchase when you open your account to make additional
investments from $50 to $25,000 into your Strong Portfolios account by
telephone. To add this option to your account, call 1-800-368-3863 for a
Shareholder Account Options Form.
Or use STRONG DIRECT(R), Strong Funds' automated telephone response system.
Call 1-800-368-7550.
- - Stop by our Investor Center in Menomonee Falls, Wisconsin. Call
1-800-368-3863 for hours and directions.
- - The Investor Center can only accept checks or money orders.
Call 1-800-368-3863 for instructions on adding to an account by wire.
USE ONE OF STRONG'S AUTOMATIC INVESTMENT PROGRAMS. Sign up for these services
when you open your account, or call 1-800-368-3863 for instructions on how to
add them to your existing account.
- - AUTOMATIC INVESTMENT PLAN. Make regular, systematic investments (minimum $50)
into your Strong Funds account from your bank checking or NOW account.
Complete the Automatic Investment Plan section on the account application.
- - AUTOMATIC EXCHANGE PLAN. Make regular, systematic exchanges (minimum $50)
from one eligible Strong Funds account to another. Call 1-800-368-3863 for an
application.
- - PAYROLL DIRECT DEPOSIT. Have a specified amount (minimum $50) regularly
deducted from your paycheck, social security check, military allotment, or
annuity payment invested directly into your Strong Funds account. Call
1-800-368-3863 for an application.
- - AUTOMATIC DIVIDEND REINVESTMENT. Unless you choose otherwise, all your
dividends and capital gain distributions will be automatically reinvested in
additional Portfolio shares. Or, you may elect to have your dividends and
capital gain distributions automatically invested in shares of another Strong
Fund.
- - You may purchase additional shares in a Portfolio through a broker-dealer or
other institution that may charge a transaction fee.
- - Strong Funds may only accept requests to purchase shares into a broker-dealer
street name account from the broker-dealer.
<PAGE>
WHAT YOU SHOULD KNOW ABOUT BUYING SHARES
- - Please make all checks or money orders payable to "Strong Funds."
- - We cannot accept third-party checks or checks drawn on banks outside the U.S.
- - You will be charged a $20 service fee for each check, wire, or Electronic
Funds Transfer ("EFT") purchase that is returned unpaid, and you will be
responsible for any resulting losses suffered by a Fund.
- - Further documentation may be requested from corporations, executors,
administrators, trustees, guardians, agents, or attorneys-in-fact.
- - A Fund reserves the right to decline to accept your purchase order upon
receipt for any reason.
- - Exchange Feature - Please note that certain Strong Funds that you may
exchange into may impose a redemption fee of 0.50% to 1.00% on shares held
for less than six months.
- - Minimum Investment Requirements:
<TABLE>
<CAPTION>
<S> <C> <C>
To open a regular account $2,500
To open a regular IRA, Roth IRA, or one-person SEP account $250
To open an Education IRA account $500*
To open an UGMA/UTMA account $250
To open a SIMPLE, SEP-IRA, Keogh, Profit Sharing the lesser of $250
or Money Purchase Pension Plan, or 403(b) account or $25 per month
To open a qualified retirement plan account where Strong
or a financial intermediary provides administrative services No Minimum
To add to an existing account $50
</TABLE>
* Not eligible for the Automatic Investment Plan and No-Minimum Investment
Program.
The Portfolios offer a No-Minimum Investment Plan that waives the minimum
initial investment requirements for investors who participate in the Strong
Automatic Investment Plan and invest monthly (described on page II-9). Unless
you participate in the Strong No-Minimum Investment Program, please ensure your
purchases meet the minimum investment requirements.
Under certain circumstances (for example, if you discontinue a No-Minimum
Investment Program before you reach a Fund's minimum initial investment), each
Portfolio reserves the right to close your account. Before taking such action,
a Portfolio will provide you with written notice and at least 60 days in which
to reinstate an investment program or otherwise reach the minimum initial
investment required.
DETERMINING YOUR SHARE PRICE
Generally, when you make any purchases, sales, or exchanges, the price of your
shares will be the net asset value ("NAV") next determined after Strong Funds
receives your request in proper form. If Strong Funds receives such request
prior to the close of the New York Stock Exchange ("Exchange") on a day on
which the Exchange is open, your share price will be the NAV determined that
day. The NAV for each Porfolio is normally determined as of 3:00 p.m. Central
Time ("CT") each day the Exchange is open. The Portfolios reserve the right to
change the time at which purchases, redemptions, and exchanges are priced if
the Exchange closes at a time other than 3:00 p.m. CT or if an emergency
exists. Each Portfolio's NAV is calculated by taking the fair value of its
total assets, subtracting all its liabilities, and dividing by the total number
of shares outstanding. Expenses are accrued daily and applied when determining
the NAV. This pricing calculation is made by appraising each Portfolio's
underlying investments (I.E., the underlying Strong Funds) at the price of each
such Fund determined at the close of the Exchange.
<PAGE>
HOW TO SELL SHARES
You can access the money in your account at any time by selling (redeeming)
some or all of your shares back to the Portfolio. Once your redemption request
is received in proper form, Strong will normally mail you the proceeds the next
business day and, in any event, no later than seven days thereafter.
To redeem shares, you may use any of the methods described in the following
chart. However, if you are selling shares in a retirement account, please call
1-800-368-3863 for instructions. Please note that there is a $10.00 fee for
closing an IRA or other retirement account or for transferring assets to
another custodian. For your protection, certain requests may require a
signature guarantee. (See "Special Situations 3/4 Signature Guarantees.")
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
TO SELL SHARES
- -----------------------
MAIL FOR INDIVIDUAL, JOINT TENANT, AND UGMA/UTMA ACCOUNTS
Write a "letter of instruction" that includes the following information:
FOR YOUR PROTECTION your account number, the dollar amount or number of shares you wish
CERTAIN REDEMPTION to redeem, each owner's name, your street address, and the signature of
REQUESTS MAY REQUIRE A each owner as it appears on the account.
SIGNATURE
GUARANTEE. SEE "SPECIAL Mail to Strong Funds, P.O. Box 2936, Milwaukee, Wisconsin 53201. If
SITUATIONS 3/4 SIGNATURE you're using an express delivery service, send to 900 Heritage Reserve,
GUARANTEES." Menomonee Falls, Wisconsin 53051.
FOR TRUST ACCOUNTS
Same as above. Please ensure that all trustees sign the letter of
instruction.
FOR OTHER REGISTRATIONS
Call 1-800-368-3863 for instructions.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
TELEPHONE Sign up for telephone redemption services when you open your account by
checking the "Yes" box in the appropriate section of the account
1-800-368-3863 application. To add the telephone redemption option to your account, call 1
24 HOURS A DAY, 800-368-3863 for a Shareholder Account Options Form.
7 DAYS A WEEK Once the telephone redemption option is in place, you may sell shares by
phone and arrange to receive the proceeds in one of three ways:
TO RECEIVE A CHECK BY MAIL
At no charge, we will mail a check to the address to which your
account is registered.
TO DEPOSIT BY EFT
At no charge, we will transmit the proceeds by Electronic Funds
Transfer (EFT) to a pre-authorized bank account. Usually, the funds
will arrive at your bank two banking days after we process your
redemption.
TO DEPOSIT BY WIRE
For a $10 fee, we will transmit the proceeds by wire to a pre-authorized
bank account. Usually, the funds will arrive at your bank the next
banking day after we process your redemption.
You may also use STRONG DIRECT(R), Strong Funds' automated telephone
response system. Call 1-800-368-7550.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
AUTOMATICALLY You can set up automatic withdrawals from your account at regular
intervals. To establish the Systematic Withdrawal Plan, request a form by
calling 1-800-368-3863.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
BROKER-DEALER You may also redeem shares through broker-dealers or other financial
intermediaries who may charge a transaction fee.
</TABLE>
<PAGE>
WHAT YOU SHOULD KNOW ABOUT SELLING SHARES
- - If you have recently purchased shares, please be aware that your redemption
request may not be honored until the purchase check or electronic transaction
has cleared your bank, which generally occurs within ten calendar days.
- - You will be charged a $10 service fee for a stop-payment and replacement of a
redemption or dividend check.
- - The right of redemption may be suspended during any period in which (i)
trading on the Exchange is restricted, as determined by the SEC, or the
Exchange is closed for other than weekends and holidays; (ii) the SEC has
permitted such suspension by order; or (iii) an emergency as determined by
the SEC exists, making disposal of portfolio securities or valuation of net
assets of a Portfolio not reasonably practicable.
- - If you are selling shares you hold in certificate form, you must submit the
certificates with your redemption request. Each registered owner must endorse
the certificates and all signatures must be guaranteed.
- - Further documentation may be requested from corporations, executors,
administrators, trustees, guardians, agents, or attorneys-in-fact.
WHAT YOU SHOULD KNOW ABOUT TELEPHONE REDEMPTIONS
- - The Portfolios reserve the right to refuse a telephone redemption if they
believe it advisable to do so.
- - Once you place your telephone redemption request, it cannot be canceled or
modified.
- - Investors will bear the risk of loss from fraudulent or unauthorized
instructions received over the telephone provided that the Fund reasonably
believes that such instructions are genuine. The Portfolios and their
transfer agent employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. The Portfolios may incur liability if
they do not follow these procedures.
- - Because of increased telephone volume, you may experience difficulty in
implementing a telephone redemption during periods of dramatic economic or
market changes. In these situations, investors may want to consider using
STRONG DIRECT(R), our automated telephone system, to effect such a
transaction by calling 1-800-368-7550.
SHAREHOLDER SERVICES
INFORMATION SERVICES
24-HOUR ASSISTANCE. Strong Funds has registered representatives available to
help you 24 hours a day, 7 days a week. Call 1-414-359-1400 or toll-free
1-800-368-3863. You may also write to Strong Funds at the address on the cover
of this Prospectus, or e-mail us at [email protected].
STRONG DIRECT(R) AUTOMATED TELEPHONE SYSTEM. Also available 24 hours a day, the
STRONG DIRECT(R) automated response system enables you to use a touch-tone
phone to hear fund quotes and returns on any Strong Fund. You may also confirm
account balances, hear records of recent transactions and dividend activity
(1-800-368-5550), and perform purchases, exchanges or redemptions among your
existing Strong accounts (1-800-368-7550). You may also perform an exchange to
open a new Strong account provided that your account has the telephone exchange
option. Please note that your accounts must be identically registered and you
must exchange enough into the new account to meet the minimum initial
investment. Your account information is protected by a personal code.
STRONG NETDIRECT(R). Available 24 hours a day from your personal computer,
STRONG NETDIRECT(R) allows you to use the Internet to access your Strong Funds
account information. You may access specific account history, view current
account balances, obtain recent dividend activity, and perform purchases,
exchanges, or redemptions among your existing Strong accounts.
To register for netDirect, please visit our web site at
http://www.strongfunds.com. Your account information is protected by a personal
password and Internet encryption technology. For more information on this
service, please call 1-800-359-3379 or e-mail us at [email protected].
<PAGE>
STATEMENTS AND REPORTS. At a minimum, each Portfolio will confirm all
transactions for your account on a quarterly basis. We recommend that you file
each quarterly statement - and, especially, each calendar year-end statement -
with your other important financial papers, since you may need to refer to them
at a later date for tax purposes. Should you need additional copies of previous
statements, you may order confirmation statements for the current and preceding
year at no charge. Statements for earlier years are available for $10 each.
Call 1-800-368-3863 to order past statements.
Each year, you will also receive a statement confirming the tax status of any
distributions paid to you, as well as an annual report containing audited
financial statements and a semi-annual report.
To reduce the volume of mail you receive, only one copy of certain materials,
such as prospectuses and shareholder reports, is mailed to your household. Call
1-800-368-3863 if you wish to receive additional copies, free of charge.
More complete information regarding each Portfolio's investment policies and
services is contained in its SAI, which you may request by calling or writing
Strong Funds at the phone number and address on the cover of this
Prospectus.
CHANGING YOUR ACCOUNT INFORMATION. So that you continue receiving your Strong
correspondence, including any dividend checks and statements, please notify us
in writing as soon as possible or call us at 1-800-368-3863 if your address
changes. You may use the Additional Investment Form at the bottom of your
confirmation statement, or simply write us a letter of instruction that
contains the following information:
1. a written request to change the address,
2. the account number(s) for which the address is to be changed,
3. the new address, and
4. the signatures of all owners of the accounts.
Please send your request to the address on the cover of this Prospectus.
Changes to an account's registration - such as adding or removing a joint
owner, changing an owner's name, or changing the type of your account - must
also be submitted in writing. Please call 1-800-368-3863 for instructions. For
your protection, some requests may require a signature guarantee.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may exchange shares between identically registered
Strong Funds accounts, either in writing, by telephone, or through your
personal computer. By establishing exchange services, you authorize the
Portfolio and its agents to act upon your instruction through the telephone or
personal computer to exchange shares from any account you specify. For tax
purposes, an exchange is considered a sale and a purchase of Portfolio shares.
Please obtain and read the appropriate prospectus before investing in any of
the Strong Funds.
REGULAR INVESTMENT PLANS
Strong Funds' Automatic Investment Plan, Payroll Direct Deposit Plan, and
Automatic Exchange Plan, all discussed below, are methods of implementing
DOLLAR COST AVERAGING. Dollar cost averaging is an investment strategy that
involves investing a fixed amount of money at regular time intervals. By always
investing the same set amount, you will be purchasing more shares when the
price is low and fewer shares when the price is high. Ultimately, by using this
principle in conjunction with fluctuations in share price, your average cost
per share may be less than your average transaction price. A program of regular
investment cannot ensure a profit or protect against a loss during declining
markets. Since such a program involves continuous investment regardless of
fluctuating share values, you should consider your ability to continue the
program through periods of both low and high share-price levels.
AUTOMATIC INVESTMENT PLAN. The Automatic Investment Plan allows you to make
regular, systematic investments in a Portfolio from your bank checking,
savings, or NOW account. You may choose to make investments on any day of the
month in amounts of $50 or more. You can set up the Automatic
<PAGE>
Investment Plan with any financial institution that is a member of the
Automated Clearing House. Because each Portfolio has the right to close an
investor's account for failure to reach the minimum initial investment, please
consider your ability to continue this Plan until you reach the minimum initial
investment. To establish the Plan, complete the Automatic Investment Plan
section on the account application, or call 1-800-368-3863 for an application.
PAYROLL DIRECT DEPOSIT PLAN. Once you meet a Portfolio's minimum initial
investment
requirement, you may purchase additional Fund shares through the Payroll Direct
Deposit Plan. Through this Plan, periodic investments (minimum $50) are made
automatically from your payroll check into your existing Fund account. By
enrolling in the Plan, you authorize your employer or its agents to deposit a
specified amount from your payroll check into the Fund's bank account. In most
cases, your Fund account will be credited the day after the amount is received
by the Fund's bank. In order to participate in the Plan, your employer must
have direct deposit capabilities through the Automated Clearing House available
to its employees. The Plan may be used for other direct deposits, such as
social security checks, military allotments, and annuity payments.
To establish Direct Deposit for your account, call 1-800-368-3863 to request a
form. Once the Plan is established, you may alter the amount of the deposit,
alter the frequency of the deposit, or terminate your participation in the
program by notifying your employer.
AUTOMATIC EXCHANGE PLAN. The Automatic Exchange Plan allows you to make
regular, systematic exchanges (minimum $50) from one Strong Funds account into
another Strong Funds account. By setting up the Plan, you authorize the
Portfolio and its agents to redeem a set dollar amount or number of shares from
the first account and purchase shares of a second Strong Fund. In addition, you
authorize a Portfolio and its agents to accept telephone instructions to change
the dollar amount and frequency of the exchange. An exchange transaction is a
sale and purchase of shares for federal income tax purposes and may result in a
capital gain or loss. To establish the Plan, request a form by calling
1-800-368-3863.
To participate in the Automatic Exchange Plan, you must have an initial account
balance of $2,500 in the first account and at least the minimum initial
investment in the second account. However, the minimum initial investment in
the second account is waived if you select a monthly investment schedule.
Exchanges may be made on any day or days of your choice. If the amount
remaining in the first account is less than the exchange amount you requested,
then the remaining amount will be exchanged. At such time as the first account
has a zero balance, your participation in the Plan will be terminated. You may
also terminate the Plan at any time by calling or writing to Strong Funds.
Once participation in the Plan has been terminated for any reason, to reinstate
the Plan you must do so in writing; simply investing additional funds will not
reinstate the Plan.
SYSTEMATIC WITHDRAWAL PLAN. You can set up automatic withdrawals from your
account at regular intervals. To begin distributions, you must have an initial
balance of $5,000 in your account and withdraw at least $50 per payment. To
establish the Systematic Withdrawal Plan, request a form by calling
1-800-368-3863. Depending upon the size of the account and the withdrawals
requested (and fluctuations in net asset value of the shares redeemed),
redemptions for the purpose of satisfying such withdrawals may reduce or even
exhaust the account. If the amount remaining in the account is not sufficient
to meet a Plan payment, the remaining amount will be redeemed and the Plan will
be terminated.
RETIREMENT PLAN SERVICES
We offer a wide variety of retirement plans for individuals and institutions,
including large and small businesses. For information on IRAs, including Roth
IRAs, or SEP-IRAs for a one-person business, call 1-800-368-3863. If you are
interested in opening a 401(k) or other company-sponsored retirement plan
(SIMPLE, SEP, Keogh, 403(b)(7), pension or profit sharing), call 1-800-368-2882
and a Strong Retirement Plan Specialist will help you determine which
retirement plan would be best for your company. Complete instructions about
how to establish and maintain your plan and how to open accounts for you and
your employees will be included in the retirement plan kit you receive in the
mail.
<PAGE>
SPECIAL SITUATIONS
POWER OF ATTORNEY. If you are investing as attorney-in-fact for another person,
please complete the account application in the name of such person and sign the
back of the application in the following form: "[applicant's name] by [your
name], attorney-in-fact." To avoid having to file an affidavit prior to each
transaction, please complete the Power of Attorney form available from Strong
Funds at 1-800-368-3863. However, if you would like to use your own power of
attorney form, please call the same number for instructions.
CORPORATIONS AND TRUSTS. If you are investing for a corporation, please include
with your account application a certified copy of your corporate resolution
indicating which officers are authorized to act on behalf of the corporation.
As an alternative, you may complete a Certification of Authorized Individuals,
which can be obtained from the Portfolios. Until a valid corporate resolution
or Certification of Authorized Individuals form is received by the Portfolio,
services such as telephone and wire redemption will not be established.
If you are investing as a trustee (including trustees of a retirement plan),
please include the date of the trust. All trustees must sign the application.
If they do not, services such as telephone and wire redemption will not be
established. All trustees must sign redemption requests unless proper
documentation to the contrary is provided to the Portfolio. Failure to provide
these documents or signatures as required when you invest may result in delays
in processing redemption requests.
FINANCIAL INTERMEDIARIES. If you purchase or redeem shares of a Portfolio
through a financial intermediary, certain features of the Portfolio relating to
such transactions may not be available or may be modified. In addition, certain
operational policies of a Portfolio, including those related to settlement and
dividend accrual, may vary from those applicable to direct shareholders of the
Portfolio and may vary among intermediaries. We urge you to consult your
financial intermediary for more information regarding these matters. In
addition, a Portfolio may pay, directly or indirectly through arrangements with
Strong, amounts to financial intermediaries that provide transfer agent type
and/or other administrative services to their customers provided, however, that
the Portfolio will not pay more for these services through intermediary
relationships than it would if the intermediaries' customers were direct
shareholders in the Portfolio. Certain financial intermediaries may charge an
advisory, transaction, or other fee for their services. You will not be charged
for such fees if you purchase or redeem your Portfolio shares directly from a
Portfolio without the intervention of a financial intermediary.
SIGNATURE GUARANTEES. A signature guarantee is designed to protect you and the
Portfolios against fraudulent transactions by unauthorized persons. In the
following instances, the Portfolios will require a signature guarantee for all
authorized owners of an account:
- - when you add the telephone redemption option to your existing account;
- - if you transfer the ownership of your account to another individual or
organization;
- - when you submit a written redemption request for more than $50,000;
- - when you request to redeem or redeposit shares that have been issued in
certificate form;
- - if you open an account and later decide that you want certificates;
- - when you request that redemption proceeds be sent to a different name or
address than is registered on your account;
- - if you add/change your name or add/remove an owner on your account; and
- - if you add/change the beneficiary on your transfer-on-death account.
A signature guarantee may be obtained from any eligible guarantor institution,
as defined by the SEC. These institutions include banks, savings associations,
credit unions, brokerage firms, and others. PLEASE NOTE THAT A NOTARY PUBLIC
STAMP OR SEAL IS NOT ACCEPTABLE.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
STRONG CONSERVATIVE PORTFOLIO, A SERIES OF STRONG LIFE STAGE SERIES, INC.
STRONG MODERATE PORTFOLIO, A SERIES OF STRONG LIFE STAGE SERIES, INC.
STRONG AGGRESSIVE PORTFOLIO, A SERIES OF STRONG LIFE STAGE SERIES, INC.
P.O. Box 2936
Milwaukee, Wisconsin 53201
Telephone: (414) 359-1400
Toll-Free: (800) 368-3863
e-mail: [email protected]
Web Site: http://www.strongfunds.com
Throughout this SAI, "the Fund" is intended to refer to each of the Portfolios
listed above, unless otherwise indicated. This SAI is not a Prospectus and
should be read together with the Prospectus for the Fund dated December 31,
1998. Requests for copies of the Prospectus should be made by calling any
number listed above.
Strong Life Stage Series, Inc. is an open-end series management company that
offers three diversified investment portfolios, with the following investment
objectives:
STRONG CONSERVATIVE PORTFOLIO ("Conservative Portfolio") seeks total return by
investing primarily for income and secondarily for capital growth.
STRONG MODERATE PORTFOLIO ("Moderate Portfolio") seeks total return by
investing primarily for capital growth and secondarily for income.
STRONG AGGRESSIVE PORTFOLIO ("Aggressive Portfolio") seeks capital growth.
These Funds are described in the Prospectus and in this SAI. Each Fund seeks
to achieve its investment objective by investing substantially all of its
assets in up to eight Strong Funds (the "Underlying Funds"), representing
different combinations of stocks, bonds, and cash investments, and reflecting
varying degrees of potential investment risk and reward.
December 31, 1998
<PAGE>
TABLE OF CONTENTS PAGE
INVESTMENT RESTRICTIONS........................................................4
INVESTMENT POLICIES AND TECHNIQUES.............................................6
The Underlying Strong Funds....................................................6
Asset-Backed Debt Obligations..................................................6
Borrowing......................................................................7
Cash Management................................................................7
Convertible Securities.........................................................7
Debt Obligations...............................................................8
Depositary Receipts............................................................8
Derivative Instruments.........................................................9
Duration......................................................................18
Foreign Investment Companies..................................................19
Foreign Securities............................................................19
U.S. Government Securities....................................................19
High-Yield (High-Risk) Securities.............................................20
Illiquid Securities...........................................................21
Lending of Portfolio Securities...............................................22
Loan Interests................................................................22
Maturity......................................................................24
Mortgage- and Asset-Backed Debt Securities....................................24
Municipal Obligations.........................................................25
Participation Interests.......................................................26
Repurchase Agreements.........................................................26
Reverse Repurchase Agreements and Mortgage Dollar Rolls.......................26
Rule 2a-7: Maturity, Quality, and Diversification Restrictions...............27
Short Sales...................................................................28
Small and Medium Companies....................................................28
Standby Commitments...........................................................28
Variable- or Floating-Rate Securities.........................................29
Warrants......................................................................30
When-Issued and Delayed-Delivery Securities...................................30
Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities..........................30
DIRECTORS AND OFFICERS........................................................30
PRINCIPAL SHAREHOLDERS........................................................32
INVESTMENT ADVISOR OF THE UNDERLYING FUNDS....................................33
DISTRIBUTOR...................................................................34
PORTFOLIO TRANSACTIONS........................................................35
CUSTODIAN.....................................................................35
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT..................................35
SHAREHOLDER SERVICING AGENT...................................................35
TAXES.........................................................................36
DETERMINATION OF NET ASSET VALUE..............................................36
ADDITIONAL SHAREHOLDER INFORMATION............................................37
ORGANIZATION..................................................................40
SHAREHOLDER MEETINGS..........................................................40
PERFORMANCE INFORMATION.......................................................40
GENERAL INFORMATION...........................................................43
INDEPENDENT ACCOUNTANTS.......................................................45
LEGAL COUNSEL.................................................................45
REPORT ON AUDITS OF STATEMENTS OF ASSETS AND LIABILITIES......................46
STATEMENTS OF ASSETS AND LIABILITIES..........................................47
NOTES TO STATEMENTS OF ASSETS AND LIABILITIES.................................48
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this SAI and its corresponding
Prospectus, and if given or made, such information or representations may not
be relied upon as having been authorized. This SAI does not constitute an
offer to sell securities.
<PAGE>
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT LIMITATIONS
The following are the Fund's fundamental investment limitations which, along
with the Fund's investment objective (which is described in the Prospectus),
cannot be changed without shareholder approval. To obtain approval, a majority
of the Fund's outstanding voting shares must vote for the change. A majority
of the Fund's outstanding voting securities means the vote of the lesser of:
(1) 67% or more of the voting securities present, if more than 50% of the
outstanding voting securities are present or represented, or (2) more than 50%
of the outstanding voting shares.
Unless indicated otherwise below, the Fund:
1. May not with respect to 75% of its total assets, purchase the securities
of any issuer (except securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities) if, as a result, (1) more than 5% of the
Fund's total assets would be invested in the securities of that issuer, or (2)
the Fund would hold more than 10% of the outstanding voting securities of that
issuer.
2. May (1) borrow money from banks and (2) make other investments or engage
in other transactions permissible under the Investment Company Act of 1940
("1940 Act") which may involve a borrowing, provided that the combination of
(1) and (2) shall not exceed 33 1/3% of the value of the Fund's total assets
(including the amount borrowed), less the Fund's liabilities (other than
borrowings), except that the Fund may borrow up to an additional 5% of its
total assets (not including the amount borrowed) from a bank for temporary or
emergency purposes (but not for leverage or the purchase of investments). The
Fund may also borrow money from the other Strong Funds or other persons to the
extent permitted by applicable law.
3. May not issue senior securities, except as permitted under the 1940 Act.
4. May not act as an underwriter of another issuer's securities, except to
the extent that the Fund may be deemed to be an underwriter within the meaning
of the Securities Act of 1933 in connection with the purchase and sale of
portfolio securities.
5. May not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall not
prevent the Fund from purchasing or selling options, futures contracts, or
other derivative instruments, or from investing in securities or other
instruments backed by physical commodities).
6. May not make loans if, as a result, more than 33 1/3% of the Fund's
total assets would be lent to other persons, except through (1) purchases of
debt securities or other debt instruments, or (2) engaging in repurchase
agreements.
7. May not purchase the securities of any issuer if, as a result, more than
25% of the Fund's total assets would be invested in the securities of issuers,
the principal business activities of which are in the same industry.
8. May not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prohibit the
Fund from purchasing or selling securities or other instruments backed by real
estate or of issuers engaged in real estate activities).
9. May, notwithstanding any other fundamental investment policy or
restriction, invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental
investment objective, policies, and restrictions as the Fund.
10. May, notwithstanding any other fundamental investment policy or
restriction, invest all of its assets in the securities of multiple open end
management investment companies from the same group of open end investment
companies to become a "fund of funds" in accordance with Section 12(d)(1)(G) of
the 1940 Act.
<PAGE>
NON-FUNDAMENTAL OPERATING POLICIES
The following are the Fund's non-fundamental operating policies which may be
changed by the Fund's Board of Directors without shareholder approval.
Unless indicated otherwise below, the Fund may not:
1. Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short, or
unless it covers such short sale as required by the current rules and positions
of the Securities and Exchange Commission ("SEC") or its staff, and provided
that transactions in options, futures contracts, options on futures contracts,
or other derivative instruments are not deemed to constitute selling securities
short.
2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions; and
provided that margin deposits in connection with futures contracts, options on
futures contracts, or other derivative instruments shall not constitute
purchasing securities on margin.
3. Invest in illiquid securities if, as a result of such investment, more
than 15% (10% with respect to a money fund) of its net assets would be invested
in illiquid securities, or such other amounts as may be permitted under the
1940 Act.
4. Purchase securities of other investment companies except in compliance
with the 1940 Act and applicable state law.
5. Invest all of its assets in the securities of a single open-end
investment management company with substantially the same fundamental
investment objective, restrictions and policies as the Fund.
6. Engage in futures or options on futures transactions which are
impermissible pursuant to Rule 4.5 under the Commodity Exchange Act and, in
accordance with Rule 4.5, will use futures or options on futures transactions
solely for bona fide hedging transactions (within the meaning of the Commodity
Exchange Act), provided, however, that the Fund may, in addition to bona fide
hedging transactions, use futures and options on futures transactions if the
aggregate initial margin and premiums required to establish such positions,
less the amount by which any such options positions are in the money (within
the meaning of the Commodity Exchange Act), do not exceed 5% of the Fund's net
assets.
7. Borrow money except (1) from banks or (2) through reverse repurchase
agreements or mortgage dollar rolls, and will not purchase securities when bank
borrowings exceed 5% of its total assets.
8. Make any loans other than loans of portfolio securities, except through
(1) purchases of debt securities or other debt instruments, or (2) engaging in
repurchase agreements.
Unless noted otherwise, if a percentage restriction is adhered to at the time
of investment, a later increase or decrease in percentage resulting from a
change in the Fund's assets (I.E. due to cash inflows or redemptions) or in
market value of the investment or the Fund's assets will not constitute a
violation of that restriction.
<PAGE>
INVESTMENT POLICIES AND TECHNIQUES
THE UNDERLYING STRONG FUNDS
Each Fund invests substantially all its assets in the Underlying Funds as
described below.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
UNDERLYING FUNDS CONSERVATIVE MODERATE AGGRESSIVE
- --------------------------------- ------------ -------- ----------
Strong Growth Fund 10% 15% 20%
Strong Growth and Income Fund 10% 15% 20%
Strong Blue Chip 100 Fund 10% 15% 20%
Strong Common Stock Fund 10% 15% 20%
- --------------------------------- ------------ -------- ----------
Strong Advantage Fund 30% 15% None
Strong Short-Term Bond Fund 20% 10% 5%
Strong Government Securities Fund 5% 10% 10%
Strong Heritage Money Fund* 5% 5% 5%
- --------------------------------- ------------ -------- ----------
</TABLE>
* The Portfolios may invest in either the Strong Heritage Money Fund or in
cash-type equivelants such as bank demand notes and repurchase agreements.
The following information supplements discussion of the Underlying Fund's
investment objective, policies, and techniques described in the Prospectus.
References to the "Fund" in the following discussions refer to the Underlying
Portfolios. References to the "Advisor" in this SAI refers to Strong Capital
Management, Inc., the investment adviser of the Underlying Funds, and the
transfer agent, dividend-disbursing agent, and shareholder servicing agent of
the Conservative, Moderate, and Aggressive Portfolios and the Underlying Funds.
THE FOLLOWING SECTION APPLIES ONLY TO THE HERITAGE MONEY FUND.
ASSET-BACKED DEBT OBLIGATIONS
Asset-backed debt obligations represent direct or indirect participation in, or
secured by and payable from, assets such as motor vehicle installment sales
contracts, other installment loan contracts, home equity loans, leases of
various types of property, and receivables from credit card or other revolving
credit arrangements. Asset-backed debt obligations may include collateralized
mortgage obligations ("CMOs") issued by private companies. The credit quality
of most asset-backed securities depends primarily on the credit quality of the
assets underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement of the
securities. Payments or distributions of principal and interest on
asset-backed debt obligations may be supported by non-governmental credit
enhancements including letters of credit, reserve funds, overcollateralization,
and guarantees by third parties. The market for privately issued asset-backed
debt obligations is smaller and less liquid than the market for government
sponsored mortgage-backed securities.
The rate of principal payment on asset-backed securities generally depends on
the rate of principal payments received on the underlying assets which in turn
may be affected by a variety of economic and other factors. As a result, the
yield on any asset-backed security is difficult to predict with precision and
actual yield to maturity may be more or less than the anticipated yield to
maturity. The yield characteristics of asset-backed debt obligations differ
from those of traditional debt obligations. Among the principal differences
are that interest and principal payments are made more frequently on
asset-backed debt obligations, usually monthly, and that principal may be
prepaid at any time because the underlying assets generally may be prepaid at
any time. As a result, if these debt obligations are purchased at a premium, a
prepayment rate that is faster than expected will reduce yield to maturity,
while a prepayment rate that is slower than expected will have the opposite
effect of increasing the yield to maturity. Conversely, if these debt
obligations are purchased at a discount, a prepayment rate that is faster than
expected will increase yield to maturity, while a prepayment rate that is
slower than expected will reduce yield to maturity. Accelerated prepayments on
debt obligations purchased at a premium also imposes a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is prepaid in full.
<PAGE>
While many asset-backed securities are issued with only one class of security,
many asset-backed securities are issued in more than one class, each with
different payment terms. Multiple class asset-backed securities are issued for
two main reasons. First, multiple classes may be used as a method of providing
credit support. This is accomplished typically through creation of one or more
classes whose right to payments on the asset-backed security is made
subordinate to the right to such payments of the remaining class or classes.
Second, multiple classes may permit the issuance of securities with payment
terms, interest rates, or other characteristics differing both from those of
each other and from those of the underlying assets. Examples include so-called
"strips" (asset-backed securities entitling the holder to disproportionate
interests with respect to the allocation of interest and principal of the
assets backing the security), and securities with class or classes having
characteristics which mimic the characteristics of non-asset-backed securities,
such as floating interest rates (I.E., inter est rates which adjust as a
specified benchmark changes) or scheduled amortization of principal.
Asset-backed securities backed by assets, other than as described above, or in
which the payment streams on the underlying assets are allocated in a manner
different than those described above may be issued in the future. The Fund may
invest in such asset-backed securities if such investment is otherwise
consistent with its investment objectives and policies and with the investment
restrictions of the Fund.
THE FOLLOWING SECTION APPLIES TO ALL UNDERLYING FUNDS, EXCEPT THAT THE HERITAGE
MONEY FUND HAS NOT ESTABLISHED A LINE-OF-CREDIT.
BORROWING
The Fund may borrow money from banks and make other investments or engage in
other transactions permissible under the 1940 Act which may be considered a
borrowing (such as mortgage dollar rolls and reverse repurchase agreements).
However, the Fund may not purchase securities when bank borrowings exceed 5% of
the Fund's total assets. Presently, the Fund only intends to borrow from banks
for temporary or emergency purposes.
The Fund has established a line-of-credit ("LOC") with certain banks by which
it may borrow funds for temporary or emergency purposes. A borrowing is
presumed to be for temporary or emergency purposes if it is repaid by the Fund
within 60 days and is not extended or renewed. The Fund intends to use the LOC
to meet large or unexpected redemptions that would otherwise force the Fund to
liquidate securities under circumstances which are unfavorable to the Fund's
remaining shareholders. The Fund pays a commitment fee to the banks for the
LOC.
THE FOLLOWING SECTION APPLIES TO ALL UNDERLYING FUNDS, EXCEPT THE HERITAGE
MONEY FUND.
CASH MANAGEMENT
The Fund may invest directly in cash and short-term fixed-income securities,
including, for this purpose, shares of one or more money market funds managed
by Strong Capital Management, Inc., the Fund's investment advisor ("Advisor")
(collectively, the "Strong Money Funds"). The Strong Money Funds seek current
income, a stable share price of $1.00, and daily liquidity. All money market
instruments can change in value when interest rates or an issuer's
creditworthiness change dramatically. The Strong Money Funds cannot guarantee
that they will always be able to maintain a stable net asset value of $1.00 per
share.
THE FOLLOWING SECTION APPLIES TO ALL UNDERLYING FUNDS, EXCEPT THE HERITAGE
MONEY FUND.
CONVERTIBLE SECURITIES
Convertible securities are bonds, debentures, notes, preferred stocks, or other
securities that may be converted into or exchanged for a specified amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the
holder to receive interest normally paid or accrued on debt or the dividend
paid on preferred stock until the convertible security matures or is redeemed,
converted, or exchanged. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stock since they have
fixed income characteristics, and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
Most convertible securities currently are issued by U.S. companies, although a
substantial Eurodollar convertible securities market has developed, and the
markets for convertible securities denominated in local currencies are
increasing.
<PAGE>
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and
its "conversion value" (the security's worth, at market value, if converted
into the underlying common stock). The investment value of a convertible
security is influenced by changes in interest rates, with investment value
declining as interest rates increase and increasing as interest rates decline.
The credit standing of the issuer and other factors also may have an effect on
the convertible security's investment value. The conversion value of a
convertible security is determined by the market price of the underlying common
stock. If the conversion value is low relative to the investment value, the
price of the convertible security is governed principally by its investment
value. Generally, the conversion value decreases as the convertible security
approaches maturity. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. A
convertible security generally will sell at a premium over its conversion value
by the extent to which investors place value on the right to acquire the
underlying common stock while holding a fixed income security.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If
a convertible security is called for redemption, the Fund will be required to
permit the issuer to redeem the security, convert it into the underlying common
stock, or sell it to a third party.
DEBT OBLIGATIONS
The Fund may invest a portion of its assets in debt obligations. Issuers of
debt obligations have a contractual obligation to pay interest at a specified
rate on specified dates and to repay principal on a specified maturity date.
Certain debt obligations (usually intermediate- and long-term bonds) have
provisions that allow the issuer to redeem or "call" a bond before its
maturity. Issuers are most likely to call such securities during periods of
falling interest rates and the Fund may have to replace such securities with
lower yielding securities, which could result in a lower return for the Fund.
PRICE VOLATILITY. The market value of debt obligations is affected primarily
by changes in prevailing interest rates. The market value of a debt obligation
generally reacts inversely to interest-rate changes, meaning, when prevailing
interest rates decline, an obligation's price usually rises, and when
prevailing interest rates rise, an obligation's price usually declines.
MATURITY. In general, the longer the maturity of a debt obligation, the higher
its yield and the greater its sensitivity to changes in interest rates.
Conversely, the shorter the maturity, the lower the yield but the greater the
price stability. Commercial paper is generally considered the shortest form of
debt obligation.
CREDIT QUALITY. The values of debt obligations may also be affected by changes
in the credit rating or financial condition of their issuers. Generally, the
lower the quality rating of a security, the higher the degree of risk as to the
payment of interest and return of principal. To compensate investors for
taking on such increased risk, those issuers deemed to be less creditworthy
generally must offer their investors higher interest rates than do issuers with
better credit ratings.
In conducting its credit research and analysis, the Advisor considers both
qualitative and quantitative factors to evaluate the creditworthiness of
individual issuers. The Advisor also relies, in part, on credit ratings
compiled by a number of Nationally Recognized Statistical Rating Organizations
("NRSROs").
THE FOLLOWING SECTION APPLIES TO ALL UNDERLYING FUNDS, EXCEPT THE HERITAGE
MONEY FUND.
DEPOSITARY RECEIPTS
The Fund may invest in foreign securities by purchasing depositary receipts,
including American Depositary Receipts ("ADRs") and European Depositary
Receipts ("EDRs"), or other securities convertible into securities of foreign
issuers. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. Generally, ADRs,
in registered form, are denominated in U.S. dollars and are designed for use in
the U.S. securities markets, while EDRs, in bearer form, may be denominated in
other currencies and are designed for use in the European securities markets.
ADRs are receipts typically issued by a U.S. bank or trust company evidencing
ownership of the underlying securities. EDRs are European receipts
<PAGE>
evidencing a similar arrangement. For purposes of the Fund's investment
policies, ADRs and EDRs are deemed to have the same classification as the
underlying securities they represent, except that ADRs and EDRs shall be
treated as indirect foreign investments. For example, an ADR or EDR
representing ownership of common stock will be treated as common stock.
Depositary receipts do not eliminate all of the risks associated with directly
investing in the securities of foreign issuers.
ADR facilities may be established as either "unsponsored" or "sponsored." While
ADRs issued under these two types of facilities are in some respects similar,
there are distinctions between them relating to the rights and obligations of
ADR holders and the practices of market participants.
A depositary may establish an unsponsored facility without participation by (or
even necessarily the permission of) the issuer of the deposited securities,
although typically the depositary requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facility. The depositary usually charges
fees upon the deposit and withdrawal of the deposited securities, the
conversion of dividends into U.S. dollars, the disposition of non-cash
distributions, and the performance of other services. The depositary of an
unsponsored facility frequently is under no obligation to pass through voting
rights to ADR holders in respect of the deposited securities. In addition, an
unsponsored facility is generally not obligated to distribute communications
received from the issuer of the deposited securities or to disclose material
information about such issuer in the U.S. and there may not be a correlation
between such information and the market value of the depositary receipts.
Sponsored ADR facilities are created in generally the same manner as
unsponsored facilities, except that the issuer of the deposited securities
enters into a deposit agreement with the depositary. The deposit agreement
sets out the rights and responsibilities of the issuer, the depositary, and the
ADR holders. With sponsored facilities, the issuer of the deposited securities
generally will bear some of the costs relating to the facility (such as
dividend payment fees of the depositary), although ADR holders continue to bear
certain other costs (such as deposit and withdrawal fees). Under the terms of
most sponsored arrangements, depositories agree to distribute notices of
shareholder meetings and voting instructions, and to provide shareholder
communications and other information to the ADR holders at the request of the
issuer of the deposited securities.
THE FOLLOWING SECTION APPLIES TO ALL UNDERLYING FUNDS, EXCEPT THE HERITAGE
MONEY FUND.
DERIVATIVE INSTRUMENTS
IN GENERAL. The Fund may use derivative instruments for any lawful purpose
consistent with its investment objective such as hedging or managing risk.
Derivative instruments are commonly defined to include securities or contracts
whose values depend on (or "derive" from) the value of one or more other
assets, such as securities, currencies, or commodities. These "other assets"
are commonly referred to as "underlying assets."
A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to OPTIONS or FORWARD CONTRACTS. Options and forward
contracts are considered to be the basic "building blocks" of derivatives. For
example, forward-based derivatives include forward contracts, swap contracts,
as well as exchange-traded futures. Option-based derivatives include privately
negotiated, over-the-counter ("OTC") options (including caps, floors, collars,
and options on forward and swap contracts) and exchange-traded options on
futures. Diverse types of derivatives may be created by combining options or
forward contracts in different ways, and by applying these structures to a wide
range of underlying assets.
An option is a contract in which the "holder" (the buyer) pays a certain amount
("premium") to the "writer" (the seller) to obtain the right, but not the
obligation, to buy from the writer (in a "call") or sell to the writer (in a
"put") a specific asset at an agreed upon price at or before a certain time.
The holder pays the premium at inception and has no further financial
obligation. The holder of an option-based derivative generally will benefit
from favorable movements in the price of the underlying asset but is not
exposed to corresponding losses due to adverse movements in the value of the
underlying asset. The writer of an option-based derivative generally will
receive fees or premiums but generally is exposed to losses due to changes in
the value of the underlying asset.
A forward is a sales contract between a buyer (holding the "long" position) and
a seller (holding the "short" position) for an asset with delivery deferred
until a future date. The buyer agrees to pay a fixed price at the agreed
future date and the seller agrees to
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deliver the asset. The seller hopes that the market price on the delivery date
is less than the agreed upon price, while the buyer hopes for the contrary. The
change in value of a forward-based derivative generally is roughly proportional
to the change in value of the underlying asset.
HEDGING. The Fund may use derivative instruments to protect against possible
adverse changes in the market value of securities held in, or are anticipated
to be held in, its portfolio. Derivatives may also be used to "lock-in"
realized but unrecognized gains in the value of its portfolio securities.
Hedging strategies, if successful, can reduce the risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce the
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. To the extent that a hedge matures prior
to or after the disposition of the investment subject to the hedge, any gain or
loss on the hedge will be realized earlier or later than any offsetting gain or
loss on the hedged investment.
MANAGING RISK. The Fund may also use derivative instruments to manage the
risks of its portfolio. Risk management strategies include, but are not
limited to, facilitating the sale of portfolio securities, managing the
effective maturity or duration of debt obligations in its portfolio,
establishing a position in the derivatives markets as a substitute for buying
or selling certain securities, or creating or altering exposure to certain
asset classes, such as equity, debt, or foreign securities. The use of
derivative instruments may provide a less expensive, more expedient or more
specifically focused way to invest than "traditional" securities (I.E., stocks
or bonds) would.
EXCHANGE AND OTC DERIVATIVES. Derivative instruments may be exchange-traded or
traded in OTC transactions between private parties. Exchange-traded
derivatives are standardized options and futures contracts traded in an auction
on the floor of a regulated exchange. Exchange contracts are generally very
liquid. The exchange clearinghouse is the counterparty of every contract.
Thus, each holder of an exchange contract bears the credit risk of the
clearinghouse (and has the benefit of its financial strength) rather than that
of a particular counterparty. OTC transactions are subject to additional
risks, such as the credit risk of the counterparty to the instrument, and are
less liquid than exchange-traded derivatives since they often can only be
closed out with the other party to the transaction.
RISKS AND SPECIAL CONSIDERATIONS. The use of derivative instruments involves
risks and special considerations as described below. Risks pertaining to
particular derivative instruments are described in the sections that follow.
(1) MARKET RISK. The primary risk of derivatives is the same as the risk
of the underlying assets, namely that the value of the underlying asset may go
up or down. Adverse movements in the value of an underlying asset can expose
the Fund to losses. Derivative instruments may include elements of leverage
and, accordingly, the fluctuation of the value of the derivative instrument in
relation to the underlying asset may be magnified. The successful use of
derivative instruments depends upon a variety of factors, particularly the
ability of the Advisor to predict movements of the securities, currencies, and
commodity markets, which requires different skills than predicting changes in
the prices of individual securities. There can be no assurance that any
particular strategy adopted will succeed. The Advisor's decision to engage in
a derivative instrument will reflect its judgment that the derivative
transaction will provide value to the Fund and its shareholders and is
consistent with the Fund's objectives, investment limitations, and operating
policies. In making such a judgment, the Advisor will analyze the benefits and
risks of the derivative transaction and weigh them in the context of the Fund's
entire portfolio and investment objective.
(2) CREDIT RISK. The Fund will be subject to the risk that a loss may be
sustained as a result of the failure of a counterparty to comply with the terms
of a derivative instrument. The counterparty risk for exchange-traded
derivative instruments is generally less than for privately negotiated or OTC
derivative instruments, since generally a clearing agency, which is the issuer
or counterparty to each exchange-traded instrument, provides a guarantee of
performance. For privately negotiated instruments, there is no similar
clearing agency guarantee. In all transactions, the Fund will bear the risk
that the counterparty will default, and this could result in a loss of the
expected benefit of the derivative transaction and possibly other losses. The
Fund will enter into transactions in derivative instruments only with
counterparties that the Advisor reasonably believes are capable of performing
under the contract.
(3) CORRELATION RISK. When a derivative transaction is used to completely
hedge another position, changes in the market value of the combined position
(the derivative instrument plus the position being hedged) result from an
imperfect correlation between the price movements of the two instruments. With
a perfect hedge, the value of the combined position remains
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unchanged for any change in the price of the underlying asset. With an
imperfect hedge, the values of the derivative instrument and its hedge are not
perfectly correlated. Correlation risk is the risk that there might be
imperfect correlation, or even no correlation, between price movements of an
instrument and price movements of investments being hedged. For example, if
the value of a derivative instruments used in a short hedge (such as writing a
call option, buying a put option, or selling a futures contract) increased by
less than the decline in value of the hedged investments, the hedge would not
be perfectly correlated. Such a lack of correlation might occur due to factors
unrelated to the value of the investments being hedged, such as speculative or
other pressures on the markets in which these instruments are traded. The
effectiveness of hedges using instruments on indices will depend, in part, on
the degree of correlation between price movements in the index and price
movements in the investments being hedged.
(4) LIQUIDITY RISK. Derivatives are also subject to liquidity risk.
Liquidity risk is the risk that a derivative instrument cannot be sold, closed
out, or replaced quickly at or very close to its fundamental value. Generally,
exchange contracts are very liquid because the exchange clearinghouse is the
counterparty of every contract. OTC transactions are less liquid than
exchange-traded derivatives since they often can only be closed out with the
other party to the transaction. The Fund might be required by applicable
regulatory requirement to maintain assets as "cover," maintain segregated
accounts, and/or make margin payments when it takes positions in derivative
instruments involving obligations to third parties (I.E., instruments other
than purchased options). If the Fund was unable to close out its positions in
such instruments, it might be required to continue to maintain such assets or
accounts or make such payments until the position expired, matured, or was
closed out. The requirements might impair the Fund's ability to sell a
portfolio security or make an investment at a time when it would otherwise be
favorable to do so, or require that the Fund sell a portfolio security at a
disadvantageous time. The Fund's ability to sell or close out a position in an
instrument prior to expiration or maturity depends on the existence of a liquid
secondary market or, in the absence of such a market, the ability and
willingness of the counterparty to enter into a transaction closing out the
position. Therefore, there is no assurance that any derivatives position can
be sold or closed out at a time and price that is favorable to the Fund.
(5) LEGAL RISK. Legal risk is the risk of loss caused by the legal
unenforcibility of a party's obligations under the derivative. While a party
seeking price certainty agrees to surrender the potential upside in exchange
for downside protection, the party taking the risk is looking for a positive
payoff. Despite this voluntary assumption of risk, a counterparty that has
lost money in a derivative transaction may try to avoid payment by exploiting
various legal uncertainties about certain derivative products.
(6) SYSTEMIC OR "INTERCONNECTION" RISK. Interconnection risk is the risk
that a disruption in the financial markets will cause difficulties for all
market participants. In other words, a disruption in one market will spill
over into other markets, perhaps creating a chain reaction. Much of the OTC
derivatives market takes place among the OTC dealers themselves, thus creating
a large interconnected web of financial obligations. This interconnectedness
raises the possibility that a default by one large dealer could create losses
at other dealers and destabilize the entire market for OTC derivative
instruments.
GENERAL LIMITATIONS. The use of derivative instruments is subject to
applicable regulations of the SEC, the several options and futures exchanges
upon which they may be traded, the Commodity Futures Trading Commission
("CFTC"), and various state regulatory authorities. In addition, the Fund's
ability to use derivative instruments may be limited by certain tax
considerations.
The Fund has filed a notice of eligibility for exclusion from the definition of
the term "commodity pool operator" with the CFTC and the National Futures
Association, which regulate trading in the futures markets. In accordance with
Rule 4.5 of the regulations under the Commodity Exchange Act ("CEA"), the
notice of eligibility for the Fund includes representations that the Fund will
use futures contracts and related options solely for bona fide hedging purposes
within the meaning of CFTC regulations, provided that the Fund may hold other
positions in futures contracts and related options that do not qualify as a
bona fide hedging position if the aggregate initial margin deposits and
premiums required to establish these positions, less the amount by which any
such futures contracts and related options positions are "in the money," do not
exceed 5% of the Fund's net assets. Adherence to these guidelines does not
limit the Fund's risk to 5% of the Fund's assets.
The SEC has identified certain trading practices involving derivative
instruments that involve the potential for leveraging the Fund's assets in a
manner that raises issues under the 1940 Act. In order to limit the potential
for the leveraging of the Fund's assets, as defined under the 1940 Act, the SEC
has stated that the Fund may use coverage or the segregation of the Fund's
assets. To the extent required by SEC guidelines, the Fund will not enter into
any such transactions unless it owns either: (1) an offsetting ("covered")
position in securities, options, futures, or derivative instruments; or (2)
cash or liquid securities positions with a value
<PAGE>
sufficient at all times to cover its potential obligations to the extent that
the position is not "covered". The Fund will also set aside cash and/or
appropriate liquid assets in a segregated custodial account if required to do
so by SEC and CFTC regulations. Assets used as cover or held in a segregated
account cannot be sold while the derivative position is open, unless they are
replaced with similar assets. As a result, the commitment of a large portion
of the Fund's assets to segregated accounts could impede portfolio management
or the Fund's ability to meet redemption requests or other current obligations.
In some cases, the Fund may be required to maintain or limit exposure to a
specified percentage of its assets to a particular asset class. In such cases,
when the Fund uses a derivative instrument to increase or decrease exposure to
an asset class and is required by applicable SEC guidelines to set aside liquid
assets in a segregated account to secure its obligations under the derivative
instruments, the Advisor may, where reasonable in light of the circumstances,
measure compliance with the applicable percentage by reference to the nature of
the economic exposure created through the use of the derivative instrument and
not by reference to the nature of the exposure arising from the liquid assets
set aside in the segregated account (unless another interpretation is specified
by applicable regulatory requirements).
OPTIONS. The Fund may use options for any lawful purpose consistent with its
investment objective such as hedging or managing risk. An option is a contract
in which the "holder" (the buyer) pays a certain amount ("premium") to the
"writer" (the seller) to obtain the right, but not the obligation, to buy from
the writer (in a "call") or sell to the writer (in a "put") a specific asset at
an agreed upon price ("strike price" or "exercise price") at or before a
certain time ("expiration date"). The holder pays the premium at inception and
has no further financial obligation. The holder of an option will benefit from
favorable movements in the price of the underlying asset but is not exposed to
corresponding losses due to adverse movements in the value of the underlying
asset. The writer of an option will receive fees or premiums but is exposed to
losses due to changes in the value of the underlying asset. The Fund may buy
or write (sell) put and call options on assets, such as securities, currencies,
financial commodities, and indices of debt and equity securities ("underlying
assets") and enter into closing transactions with respect to such options to
terminate an existing position. Options used by the Fund may include European,
American, and Bermuda style options. If an option is exercisable only at
maturity, it is a "European" option; if it is also exercisable prior to
maturity, it is an "American" option. If it is exercisable only at certain
times, it is a "Bermuda" option.
The Fund may purchase (buy) and write (sell) put and call options underlying
assets and enter into closing transactions with respect to such options to
terminate an existing position. The purchase of a call option serves as a long
hedge, and the purchase of a put option serves as a short hedge. Writing put
or call options can enable the Fund to enhance income by reason of the premiums
paid by the purchaser of such options. Writing call options serves as a
limited short hedge because declines in the value of the hedged investment
would be offset to the extent of the premium received for writing the option.
However, if the security appreciates to a price higher than the exercise price
of the call option, it can be expected that the option will be exercised and
the Fund will be obligated to sell the security at less than its market value
or will be obligated to purchase the security at a price greater than that at
which the security must be sold under the option. All or a portion of any
assets used as cover for OTC options written by the Fund would be considered
illiquid to the extent described under "Investment Policies and Techniques -
Illiquid Securities." Writing put options serves as a limited long hedge
because decreases in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the
security depreciates to a price lower than the exercise price of the put
option, it can be expected that the put option will be exercised and the Fund
will be obligated to purchase the security at more than its market value.
The value of an option position will reflect, among other things, the
historical price volatility of the underlying investment, the current market
value of the underlying investment, the time remaining until expiration, the
relationship of the exercise price to the market price of the underlying
investment, and general market conditions.
The Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a
closing sale transaction. Closing transactions permit the Fund to realize the
profit or limit the loss on an option position prior to its exercise or
expiration.
The Fund may purchase or write both exchange-traded and OTC options.
Exchange-traded options are issued by a clearing organization affiliated with
the exchange on which the option is listed that, in effect, guarantees
completion of every exchange
<PAGE>
traded option transaction. In contrast, OTC options are contracts between the
Fund and the other party to the transaction ("counterparty") (usually a
securities dealer or a bank) with no clearing organization guarantee. Thus,
when the Fund purchases or writes an OTC option, it relies on the counterparty
to make or take delivery of the underlying investment upon exercise of the
option. Failure by the counterparty to do so would result in the loss of any
premium paid by the Fund as well as the loss of any expected benefit of the
transaction.
The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The Fund intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the counterparty, or by a
transaction in the secondary market if any such market exists. Although the
Fund will enter into OTC options only with counter parties that are expected to
be capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option at a
favorable price prior to expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration. If the Fund were unable to effect a closing
transaction for an option it had purchased, it would have to exercise the
option to realize any profit.
The Fund may engage in options transactions on indices in much the same manner
as the options on securities discussed above, except the index options may
serve as a hedge against overall fluctuations in the securities market
represented by the relevant market index.
The writing and purchasing of options is a highly specialized activity that
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. Imperfect correlation between the
options and securities markets may detract from the effectiveness of the
attempted hedging.
SPREAD TRANSACTIONS. The Fund may use spread transactions for any lawful
purpose consistent with its investment objective such as hedging or managing
risk. The Fund may purchase covered spread options from securities dealers.
Such covered spread options are not presently exchange-listed or
exchange-traded. The purchase of a spread option gives the Fund the right to
put, or sell, a security that it owns at a fixed dollar spread or fixed yield
spread in relation to another security that the Fund does not own, but which is
used as a benchmark. The risk to the Fund in purchasing covered spread options
is the cost of the premium paid for the spread option and any transaction
costs. In addition, there is no assurance that closing transactions will be
available. The purchase of spread options will be used to protect the Fund
against adverse changes in prevailing credit quality spreads, I.E., the yield
spread between high quality and lower quality securities. Such protection is
only provided during the life of the spread option.
FUTURES CONTRACTS. The Fund may use futures contracts for any lawful purpose
consistent with its investment objective such as hedging or managing risk. The
Fund may enter into futures contracts, including, but not limited to, interest
rate and index futures. The Fund may also purchase put and call options, and
write covered put and call options, on futures in which it is allowed to
invest. The purchase of futures or call options thereon can serve as a long
hedge, and the sale of futures or the purchase of put options thereon can serve
as a short hedge. Writing covered call options on futures contracts can serve
as a limited short hedge, and writing covered put options on futures contracts
can serve as a limited long hedge, using a strategy similar to that used for
writing covered options in securities. The Fund may also write put options on
futures contracts while at the same time purchasing call options on the same
futures contracts in order to create synthetically a long futures contract
position. Such options would have the same strike prices and expiration dates.
The Fund will engage in this strategy only when the Advisor believes it is more
advantageous to the Fund than purchasing the futures contract.
To the extent required by regulatory authorities, the Fund only enters into
futures contracts that are traded on national futures exchanges and are
standardized as to maturity date and underlying financial instrument. Futures
exchanges and trading are regulated under the CEA by the CFTC. Although
techniques other than sales and purchases of futures contracts could be used to
reduce the Fund's exposure to market or interest rate fluctuations, the Fund
may be able to hedge its exposure more effectively and perhaps at a lower cost
through the use of futures contracts.
An interest rate futures contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial
instrument (E.G., debt security) for a specified price at a designated date,
time, and place. An index futures
<PAGE>
contract is an agreement pursuant to which the parties agree to take or make
delivery of an amount of cash equal to the difference between the value of the
index at the close of the last trading day of the contract and the price at
which the index futures contract was originally written. Transaction costs are
incurred when a futures contract is bought or sold and margin deposits must be
maintained. A futures contract may be satisfied by delivery or purchase, as
the case may be, of the instrument or by payment of the change in the cash
value of the index. More commonly, futures contracts are closed out prior to
delivery by entering into an offsetting transaction in a matching futures
contract. Although the value of an index might be a function of the value of
certain specified securities, no physical delivery of those securities is made.
If the offsetting purchase price is less than the original sale price, the Fund
realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The transaction
costs must also be included in these calculations. There can be no assurance,
however, that the Fund will be able to enter into an offsetting transaction
with respect to a particular futures contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will
continue to be required to maintain the margin deposits on the futures
contract.
No price is paid by the Fund upon entering into a futures contract. Instead,
at the inception of a futures contract, the Fund is required to deposit in a
segregated account with its custodian, in the name of the futures broker
through whom the transaction was effected, "initial margin" consisting of cash
and/or other appropriate liquid assets in an amount generally equal to 10% or
less of the contract value. Margin must also be deposited when writing a call
or put option on a futures contract, in accordance with applicable exchange
rules. Unlike margin in securities transactions, initial margin on futures
contracts does not represent a borrowing, but rather is in the nature of a
performance bond or good-faith deposit that is returned to the Fund at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility,
the Fund may be required by an exchange to increase the level of its initial
margin payment, and initial margin requirements might be increased generally in
the future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures broker
daily as the value of the futures position varies, a process known as "marking
to market." Variation margin does not involve borrowing, but rather represents
a daily settlement of the Fund's obligations to or from a futures broker. When
the Fund purchases an option on a future, the premium paid plus transaction
costs is all that is at risk. In contrast, when the Fund purchases or sells a
futures contract or writes a call or put option thereon, it is subject to daily
variation margin calls that could be substantial in the event of adverse price
movements. If the Fund has insufficient cash to meet daily variation margin
requirements, it might need to sell securities at a time when such sales are
disadvantageous. Purchasers and sellers of futures positions and options on
futures can enter into offsetting closing transactions by selling or
purchasing, respectively, an instrument identical to the instrument held or
written. Positions in futures and options on futures may be closed only on an
exchange or board of trade that provides a secondary market. The Fund intends
to enter into futures transactions only on exchanges or boards of trade where
there appears to be a liquid secondary market. However, there can be no
assurance that such a market will exist for a particular contract at a
particular time.
Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a future or option on a futures contract can vary
from the previous day's settlement price; once that limit is reached, no trades
may be made that day at a price beyond the limit. Daily price limits do not
limit potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.
If the Fund were unable to liquidate a futures or option on a futures contract
position due to the absence of a liquid secondary market or the imposition of
price limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in
the case of purchased options, the Fund would continue to be required to make
daily variation margin payments and might be required to maintain the position
being hedged by the future or option or to maintain cash or securities in a
segregated account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or options on futures contracts
might not correlate perfectly with movements in the prices of the investments
being hedged. For example, all participants in the futures and options on
futures contracts markets are subject to daily variation margin calls and might
be compelled to liquidate futures or options on futures contracts positions
whose prices are moving unfavorably to avoid being subject to further calls.
These liquidations could increase price volatility of the instruments and
distort the normal price relationship between the futures or options and the
investments being hedged. Also, because initial margin deposit requirements in
the futures markets are less onerous than margin requirements in the securities
markets, there might be increased participation by speculators in the future
markets. This participation also might cause temporary price distortions. In
addition, activities of large traders in
<PAGE>
both the futures and securities markets involving arbitrage, "program trading"
and other investment strategies might result in temporary price distortions.
FOREIGN CURRENCIES. The Fund may purchase and sell foreign currency on a spot
basis, and may use currency-related derivatives instruments such as options on
foreign currencies, futures on foreign currencies, options on futures on
foreign currencies and forward currency contracts (I.E., an obligation to
purchase or sell a specific currency at a specified future date, which may be
any fixed number of days from the contract date agreed upon by the parties, at
a price set at the time the contract is entered into). The Fund may use these
instruments for hedging or any other lawful purpose consistent with the Fund's
investment objective, including transaction hedging, anticipatory hedging,
cross hedging, proxy hedging, and position hedging. The Fund's use of
currency-related derivative instruments will be directly related to the Fund's
current or anticipated portfolio securities, and the Fund may engage in
transactions in currency-related derivative instruments as a means to protect
against some or all of the effects of adverse changes in foreign currency
exchange rates on its investment portfolio. In general, if the currency in
which a portfolio investment is denominated appreciates against the U.S.
dollar, the dollar value of the security will increase. Conversely, a decline
in the exchange rate of the currency would adversely affect the value of the
portfolio investment expressed in U.S. dollars.
For example, the Fund might use currency-related derivative instruments to
"lock in" a U.S. dollar price for a portfolio investment, thereby enabling the
Fund to protect itself against a possible loss resulting from an adverse change
in the relationship between the U.S. dollar and the subject foreign currency
during the period between the date the security is purchased or sold and the
date on which payment is made or received. The Fund also might use
currency-related derivative instruments when the Advisor believes that one
currency may experience a substantial movement against another currency,
including the U.S. dollar, and it may use currency-related derivative
instruments to sell or buy the amount of the former foreign currency,
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency. Alternatively, where appropriate, the
Fund may use currency-related derivative instruments to hedge all or part of
its foreign currency exposure through the use of a basket of currencies or a
proxy currency where such currency or currencies act as an effective proxy for
other currencies. The use of this basket hedging technique may be more
efficient and economical than using separate currency-related derivative
instruments for each currency exposure held by the Fund. Furthermore,
currency-related derivative instruments may be used for short hedges - for
example, the Fund may sell a forward currency contract to lock in the U.S.
dollar equivalent of the proceeds from the anticipated sale of a security
denominated in a foreign currency.
In addition, the Fund may use a currency-related derivative instrument to shift
exposure to foreign currency fluctuations from one foreign country to another
foreign country where the Advisor believes that the foreign currency exposure
purchased will appreciate relative to the U.S. dollar and thus better protect
the Fund against the expected decline in the foreign currency exposure sold.
For example, if the Fund owns securities denominated in a foreign currency and
the Advisor believes that currency will decline, it might enter into a forward
contract to sell an appropriate amount of the first foreign currency, with
payment to be made in a second foreign currency that the Advisor believes would
better protect the Fund against the decline in the first security than would a
U.S. dollar exposure. Hedging transactions that use two foreign currencies are
sometimes referred to as "cross hedges." The effective use of currency-related
derivative instruments by the Fund in a cross hedge is dependent upon a
correlation between price movements of the two currency instruments and the
underlying security involved, and the use of two currencies magnifies the risk
that movements in the price of one instrument may not correlate or may
correlate unfavorably with the foreign currency being hedged. Such a lack of
correlation might occur due to factors unrelated to the value of the currency
instruments used or investments being hedged, such as speculative or other
pressures on the markets in which these instruments are traded.
The Fund also might seek to hedge against changes in the value of a particular
currency when no hedging instruments on that currency are available or such
hedging instruments are more expensive than certain other hedging instruments.
In such cases, the Fund may hedge against price movements in that currency by
entering into transactions using currency-related derivative instruments on
another foreign currency or a basket of currencies, the values of which the
Advisor believes will have a high degree of positive correlation to the value
of the currency being hedged. The risk that movements in the price of the
hedging instrument will not correlate perfectly with movements in the price of
the currency being hedged is magnified when this strategy is used.
The use of currency-related derivative instruments by the Fund involves a
number of risks. The value of currency-related derivative instruments depends
on the value of the underlying currency relative to the U.S. dollar. Because
foreign currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such derivative
instruments, the Fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of
<PAGE>
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots (generally consisting of
transactions of greater than $1 million).
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information generally is representative of very large transactions in
the interbank market and thus might not reflect odd-lot transactions where
rates might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying markets
that cannot be reflected in the markets for the derivative instruments until
they re-open.
Settlement of transactions in currency-related derivative instruments might be
required to take place within the country issuing the underlying currency.
Thus, the Fund might be required to accept or make delivery of the underlying
foreign currency in accordance with any U.S. or foreign regulations regarding
the maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
When the Fund engages in a transaction in a currency-related derivative
instrument, it relies on the counterparty to make or take delivery of the
underlying currency at the maturity of the contract or otherwise complete the
contract. In other words, the Fund will be subject to the risk that a loss may
be sustained by the Fund as a result of the failure of the counterparty to
comply with the terms of the transaction. The counterparty risk for
exchange-traded instruments is generally less than for privately negotiated or
OTC currency instruments, since generally a clearing agency, which is the
issuer or counterparty to each instrument, provides a guarantee of performance.
For privately negotiated instruments, there is no similar clearing agency
guarantee. In all transactions, the Fund will bear the risk that the
counterparty will default, and this could result in a loss of the expected
benefit of the transaction and possibly other losses to the Fund. The Fund
will enter into transactions in currency-related derivative instruments only
with counterparties that the Advisor reasonably believes are capable of
performing under the contract.
Purchasers and sellers of currency-related derivative instruments may enter
into offsetting closing transactions by selling or purchasing, respectively, an
instrument identical to the instrument purchased or sold. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the counterparty. Thus, there can be no assurance
that the Fund will in fact be able to close out a forward currency contract (or
any other currency-related derivative instrument) at a time and price favorable
to the Fund. In addition, in the event of insolvency of the counterparty, the
Fund might be unable to close out a forward currency contract at any time prior
to maturity. In the case of an exchange-traded instrument, the Fund will be
able to close the position out only on an exchange which provides a market for
the instruments. The ability to establish and close out positions on an
exchange is subject to the maintenance of a liquid market, and there can be no
assurance that a liquid market will exist for any instrument at any specific
time. In the case of a privately negotiated instrument, the Fund will be able
to realize the value of the instrument only by entering into a closing
transaction with the issuer or finding a third party buyer for the instrument.
While the Fund will enter into privately negotiated transactions only with
entities who are expected to be capable of entering into a closing transaction,
there can be no assurance that the Fund will in fact be able to enter into such
closing transactions.
The precise matching of currency-related derivative instrument amounts and the
value of the portfolio securities involved generally will not be possible
because the value of such securities, measured in the foreign currency, will
change after the currency-related derivative instrument position has been
established. Thus, the Fund might need to purchase or sell foreign currencies
in the spot (cash) market. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain.
Permissible foreign currency options will include options traded primarily in
the OTC market. Although options on foreign currencies are traded primarily in
the OTC market, the Fund will normally purchase or sell OTC options on foreign
currency only when the Advisor reasonably believes a liquid secondary market
will exist for a particular option at any specific time.
There will be a cost to the Fund of engaging in transactions in
currency-related derivative instruments that will vary with factors such as the
contract or currency involved, the length of the contract period and the market
conditions then prevailing. The Fund using these instruments may have to pay a
fee or commission or, in cases where the instruments are entered into on a
principal basis, foreign exchange dealers or other counterparties will realize
a profit based on the difference ("spread") between the prices at
<PAGE>
which they are buying and selling various currencies. Thus, for example, a
dealer may offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
When required by the SEC guidelines, the Fund will set aside permissible liquid
assets in segregated accounts or otherwise cover the Fund's potential
obligations under currency-related derivatives instruments. To the extent the
Fund's assets are so set aside, they cannot be sold while the corresponding
currency position is open, unless they are replaced with similar assets. As a
result, if a large portion of the Fund's assets are so set aside, this could
impede portfolio management or the Fund's ability to meet redemption requests
or other current obligations.
The Advisor's decision to engage in a transaction in a particular
currency-related derivative instrument will reflect the Advisor's judgment that
the transaction will provide value to the Fund and its shareholders and is
consistent with the Fund's objectives and policies. In making such a judgment,
the Advisor will analyze the benefits and risks of the transaction and weigh
them in the context of the Fund's entire portfolio and objectives. The
effectiveness of any transaction in a currency-related derivative instrument is
dependent on a variety of factors, including the Advisor's skill in analyzing
and predicting currency values and upon a correlation between price movements
of the currency instrument and the underlying security. There might be
imperfect correlation, or even no correlation, between price movements of an
instrument and price movements of investments being hedged. Such a lack of
correlation might occur due to factors unrelated to the value of the
investments being hedged, such as speculative or other pressures on the markets
in which these instruments are traded. In addition, the Fund's use of
currency-related derivative instruments is always subject to the risk that the
currency in question could be devalued by the foreign government. In such a
case, any long currency positions would decline in value and could adversely
affect any hedging position maintained by the Fund.
The Fund's dealing in currency-related derivative instruments will generally be
limited to the transactions described above. However, the Fund reserves the
right to use currency-related derivatives instruments for different purposes
and under different circumstances. Of course, the Fund is not required to use
currency-related derivatives instruments and will not do so unless deemed
appropriate by the Advisor. It also should be realized that use of these
instruments does not eliminate, or protect against, price movements in the
Fund's securities that are attributable to other (I.E., non-currency related)
causes. Moreover, while the use of currency-related derivatives instruments
may reduce the risk of loss due to a decline in the value of a hedged currency,
at the same time the use of these instruments tends to limit any potential gain
which may result from an increase in the value of that currency.
SWAP AGREEMENTS. The Fund may enter into interest rate, securities index,
commodity, or security and currency exchange rate swap agreements for any
lawful purpose consistent with the Fund's investment objective, such as for the
purpose of attempting to obtain or preserve a particular desired return or
spread at a lower cost to the Fund than if the Fund had invested directly in an
instrument that yielded that desired return or spread. The Fund also may enter
into swaps in order to protect against an increase in the price of, or the
currency exchange rate applicable to, securities that the Fund anticipates
purchasing at a later date. Swap agreements are two-party contracts entered
into primarily by institutional investors for periods ranging from a few weeks
to several years. In a standard "swap" transaction, two parties agree to
exchange the returns (or differentials in rates of return) earned or realized
on particular predetermined investments or instruments. The gross returns to
be exchanged or "swapped" between the parties are calculated with respect to a
"notional amount" (I.E., the return on or increase in value of a particular
dollar amount invested at a particular interest rate) in a particular foreign
currency, or in a "basket" of securities representing a particular index. Swap
agreements may include interest rate caps, under which, in return for a
premium, one party agrees to make payments to the other to the extent that
interest rates exceed a specified rate, or "cap;" interest rate floors, under
which, in return for a premium, one party agrees to make payments to the other
to the extent that interest rates fall below a specified level, or "floor;" and
interest rate collars, under which a party sells a cap and purchases a floor,
or vice versa, in an attempt to protect itself against interest rate movements
exceeding given minimum or maximum levels.
The "notional amount" of the swap agreement is the agreed upon basis for
calculating the obligations that the parties to a swap agreement have agreed to
exchange. Under most swap agreements entered into by the Fund, the obligations
of the parties would be exchanged on a "net basis." Consequently, the Fund's
obligation (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement ("net amount").
The Fund's obligation under a swap agreement will be accrued daily (offset
against amounts owed to the Fund) and any accrued but unpaid net amounts owed
to a swap counterparty will be covered by the maintenance of a segregated
account consisting of cash and/or other appropriate liquid assets.
<PAGE>
Whether the Fund's use of swap agreements will be successful in furthering its
investment objective will depend, in part, on the Advisor's ability to predict
correctly whether certain types of investments are likely to produce greater
returns than other investments. Swap agreements may be considered to be
illiquid. Moreover, the Fund bears the risk of loss of the amount expected to
be received under a swap agreement in the event of the default or bankruptcy of
a swap agreement counterparty. Certain restrictions imposed on the Fund by the
Internal Revenue Code of 1986 ("IRC") may limit the Fund's ability to use swap
agreements. The swaps market is largely unregulated.
The Fund will enter swap agreements only with counterparties that the Advisor
reasonably believes are capable of performing under the swap agreements. If
there is a default by the other party to such a transaction, the Fund will have
to rely on its contractual remedies (which may be limited by bankruptcy,
insolvency or similar laws) pursuant to the agreements related to the
transaction.
ADDITIONAL DERIVATIVE INSTRUMENTS AND STRATEGIES. In addition to the
derivative instruments and strategies described above and in the Prospectus,
the Advisor expects to discover additional derivative instruments and other
hedging or risk management techniques. The Advisor may utilize these new
derivative instruments and techniques to the extent that they are consistent
with the Fund's investment objective and permitted by the Fund's investment
limitations, operating policies, and applicable regulatory authorities.
THE FOLLOWING SECTION APPLIES TO THE ADVANTAGE, SHORT-TERM BOND, AND GOVERNMENT
SECURITIES FUNDS.
DURATION
Duration was developed as a more precise alternative to the concept of
"maturity." Traditionally, a debt obligations' maturity has been used as a
proxy for the sensitivity of the security's price to changes in interest rates
(which is the "interest rate risk" or "volatility" of the security). However,
maturity measures only the time until a debt obligation provides its final
payment, taking no account of the pattern of the security's payments prior to
maturity. In contrast, duration incorporates a bond's yield, coupon interest
payments, final maturity and call features into one measure. Duration
management is one of the fundamental tools used by the Advisor.
Duration is a measure of the expected life of a debt obligation on a present
value basis. Duration takes the length of the time intervals between the
present time and the time that the interest and principal payments are
scheduled or, in the case of a callable bond, the time the principal payments
are expected to be received, and weights them by the present values of the cash
to be received at each future point in time. For any debt obligation with
interest payments occurring prior to the payment of principal, duration is
always less than maturity. In general, all other things being equal, the lower
the stated or coupon rate of interest of a fixed income security, the longer
the duration of the security; conversely, the higher the stated or coupon rate
of interest of a fixed income security, the shorter the duration of the
security.
Futures, options and options on futures have durations which, in general, are
closely related to the duration of the securities which underlie them. Holding
long futures or call option positions will lengthen the duration of the Fund's
portfolio by approximately the same amount of time that holding an equivalent
amount of the underlying securities would.
Short futures or put option positions have durations roughly equal to the
negative duration of the securities that underlie these positions, and have the
effect of reducing portfolio duration by approximately the same amount of time
that selling an equivalent amount of the underlying securities would.
There are some situations where even the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or
more years; however, their interest rate exposure corresponds to the frequency
of the coupon reset. Another example where the interest rate exposure is not
properly captured by duration is mortgage pass-through securities. The stated
final maturity of such securities is generally 30 years, but current prepayment
rates are more critical in determining the securities' interest rate exposure.
Finally, the duration of a debt obligation may vary over time in response to
changes in interest rates and other market factors.
<PAGE>
THE FOLLOWING SECTION APPLIES TO ALL UNDERLYING FUNDS, EXCEPT THE BLUE CHIP
100, GOVERNMENT SECURITIES, AND HERITAGE MONEY FUNDS.
FOREIGN INVESTMENT COMPANIES
The Fund may invest, to a limited extent, in foreign investment companies.
Some of the countries in which the Fund invests may not permit direct
investment by outside investors. Investments in such countries may only be
permitted through foreign government-approved or -authorized investment
vehicles, which may include other investment companies. In addition, it may be
less expensive and more expedient for the Fund to invest in a foreign
investment company in a country which permits direct foreign investment.
Investing through such vehicles may involve frequent or layered fees or
expenses and may also be subject to limitation under the 1940 Act. Under the
1940 Act, the Fund may invest up to 10% of its assets in shares of other
investment companies and up to 5% of its assets in any one investment company
as long as the investment does not represent more than 3% of the voting stock
of the acquired investment company. The Fund does not intend to invest in such
investment companies unless, in the judgment of the Advisor, the potential
benefits of such investments justify the payment of any associated fees and
expenses.
THE FOLLOWING SECTIONS APPLIES TO ALL UNDERLYING FUNDS, EXCEPT THE BLUE CHIP
100 AND HERITAGE MONEY FUNDS.
FOREIGN SECURITIES
Investing in foreign securities involves a series of risks not present in
investing in U.S. securities. Many of the foreign securities held by the Fund
will not be registered with the SEC, nor will the foreign issuers be subject to
SEC reporting requirements. Accordingly, there may be less publicly available
information concerning foreign issuers of securities held by the Fund than is
available concerning U.S. companies. Disclosure and regulatory standards in
many respects are less stringent in emerging market countries than in the U.S.
and other major markets. There also may be a lower level of monitoring and
regulation of emerging markets and the activities of investors in such markets,
and enforcement of existing regulations may be extremely limited. Foreign
companies, and in particular, companies in smaller and emerging capital markets
are not generally subject to uniform accounting, auditing and financial
reporting standards, or to other regulatory requirements comparable to those
applicable to U.S. companies. The Fund's net investment income and capital
gains from its foreign investment activities may be subject to non-U.S.
withholding taxes.
The costs attributable to foreign investing that the Fund must bear frequently
are higher than those attributable to domestic investing; this is particularly
true with respect to emerging capital markets. For example, the cost of
maintaining custody of foreign securities exceeds custodian costs for domestic
securities, and transaction and settlement costs of foreign investing also
frequently are higher than those attributable to domestic investing. Costs
associated with the exchange of currencies also make foreign investing more
expensive than domestic investing. Investment income on certain foreign
securities in which the Fund may invest may be subject to foreign withholding
or other government taxes that could reduce the return of these securities.
Tax treaties between the U.S. and foreign countries, however, may reduce or
eliminate the amount of foreign tax to which the Fund would be subject.
Foreign markets also have different clearance and settlement procedures, and in
certain markets there have been times when settlements have failed to keep pace
with the volume of securities transactions, making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when
assets of the Fund are uninvested and are earning no investment return. The
inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss investment opportunities. Inability to
dispose of a portfolio security due to settlement problems could result either
in losses to the Fund due to subsequent declines in the value of such portfolio
security or, if the Fund has entered into a contract to sell the security,
could result in possible liability to the purchaser.
U.S. GOVERNMENT SECURITIES
<PAGE>
U.S. government securities are issued or guaranteed by the U.S. government or
its agencies or instrumentalities. Securities issued by the government include
U.S. Treasury obligations, such as Treasury bills, notes, and bonds. Securities
issued by government agencies or instrumentalities include obligations of the
following:
- - the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, and
the Government National Mortgage Association ("GNMA"), including GNMA
pass-through certificates, whose securities are supported by the full faith
and credit of the United States;
- - the Federal Home Loan Banks, Federal Intermediate Credit Banks, and the
Tennessee Valley Authority, whose securities are supported by the right of
the agency to borrow from the U.S. Treasury;
- - the Federal National Mortgage Association, whose securities are supported by
the discretionary authority of the U.S. government to purchase certain
obligations of the agency or instrumentality; and
- - the Student Loan Marketing Association, the Interamerican Development Bank,
and International Bank for Reconstruction and Development, whose securities
are supported only by the credit of such agencies.
Although the U.S. government provides financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so. The U.S. government and its agencies and
instrumentalities do not guarantee the market value of their securities;
consequently, the value of such securities will fluctuate.
THIS SECTION APPLIES TO ALL UNDERLYING FUNDS, EXCEPT THE BLUE CHIP 100,
GOVERNMENT SECURITIES, AND HERITAGE MONEY FUNDS.
HIGH-YIELD (HIGH-RISK) SECURITIES
IN GENERAL. Non-investment grade debt obligations ("lower-quality securities")
include (1) bonds rated as low as C by Moody's Investors Service ("Moody's"),
Standard & Poor's Ratings Group ("S&P"), and comparable ratings of other
nationally recognized statistical rating organizations ("NRSROs"); (2)
commercial paper rated as low as C by S&P, Not Prime by Moody's, and comparable
ratings of other NRSROs; and (3) unrated debt obligations of comparable
quality. Lower-quality securities, while generally offering higher yields than
investment grade securities with similar maturities, involve greater risks,
including the possibility of default or bankruptcy. They are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. The special risk considerations in connection with
investments in these securities are discussed below. Refer to the Appendix for
a description of the securities ratings.
EFFECT OF INTEREST RATES AND ECONOMIC CHANGES. The lower-quality and
comparable unrated security market is relatively new and its growth has
paralleled a long economic expansion. As a result, it is not clear how this
market may withstand a prolonged recession or economic downturn. Such
conditions could severely disrupt the market for and adversely affect the value
of such securities.
All interest-bearing securities typically experience appreciation when interest
rates decline and depreciation when interest rates rise. The market values of
lower-quality and comparable unrated securities tend to reflect individual
corporate developments to a greater extent than do higher rated securities,
which react primarily to fluctuations in the general level of interest rates.
Lower-quality and comparable unrated securities also tend to be more sensitive
to economic conditions than are higher-rated securities. As a result, they
generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising
interest rates, highly leveraged issuers of lower-quality and comparable
unrated securities may experience financial stress and may not have sufficient
revenues to meet their payment obligations. The issuer's ability to service
its debt obligations may also be adversely affected by specific corporate
developments, the issuer's inability to meet specific projected business
forecasts or the unavailability of additional financing. The risk of loss due
to default by an issuer of these securities is significantly greater than
issuers of higher-rated securities because such securities are generally
unsecured and are often subordinated to other creditors. Further, if the
issuer of a lower-quality or comparable unrated security defaulted, the Fund
might incur additional expenses to seek recovery. Periods of economic
uncertainty and changes would also generally result in increased volatility in
the market prices of these securities and thus in the Fund's net asset value.
As previously stated, the value of a lower-quality or comparable unrated
security will decrease in a rising interest rate market and accordingly, so
will the Fund's net asset value. If the Fund experiences unexpected net
redemptions in such a market, it may be
<PAGE>
forced to liquidate a portion of its portfolio securities without regard to
their investment merits. Due to the limited liquidity of lower-quality and
comparable unrated securities (discussed below), the Fund may be forced to
liquidate these securities at a substantial discount. Any such liquidation
would force the Fund to sell the more liquid portion of its portfolio.
PAYMENT EXPECTATIONS. Lower-quality and comparable unrated securities
typically contain redemption, call or prepayment provisions which permit the
issuer of such securities containing such provisions to, at its discretion,
redeem the securities. During periods of falling interest rates, issuers of
these securities are likely to redeem or prepay the securities and refinance
them with debt securities with a lower interest rate. To the extent an issuer
is able to refinance the securities, or otherwise redeem them, the Fund may
have to replace the securities with a lower yielding security, which would
result in a lower return for the Fund.
CREDIT RATINGS. Credit ratings issued by credit rating agencies are designed
to evaluate the safety of principal and interest payments of rated securities.
They do not, however, evaluate the market value risk of lower-quality
securities and, therefore, may not fully reflect the true risks of an
investment. In addition, credit rating agencies may or may not make timely
changes in a rating to reflect changes in the economy or in the condition of
the issuer that affect the market value of the security. Consequently, credit
ratings are used only as a preliminary indicator of investment quality.
Investments in lower-quality and comparable unrated obligations will be more
dependent on the Advisor's credit analysis than would be the case with
investments in investment-grade debt obligations. The Advisor employs its own
credit research and analysis, which includes a study of existing debt, capital
structure, ability to service debt and to pay dividends, the issuer's
sensitivity to economic conditions, its operating history and the current trend
of earnings. The Advisor continually monitors the investments in the Fund's
portfolio and carefully evaluates whether to dispose of or to retain
lower-quality and comparable unrated securities whose credit ratings or credit
quality may have changed.
LIQUIDITY AND VALUATION. The Fund may have difficulty disposing of certain
lower-quality and comparable unrated securities because there may be a thin
trading market for such securities. Because not all dealers maintain markets
in all lower-quality and comparable unrated securities, there is no established
retail secondary market for many of these securities. The Fund anticipates
that such securities could be sold only to a limited number of dealers or
institutional investors. To the extent a secondary trading market does exist,
it is generally not as liquid as the secondary market for higher-rated
securities. The lack of a liquid secondary market may have an adverse impact
on the market price of the security. As a result, the Fund's asset value and
ability to dispose of particular securities, when necessary to meet the Fund's
liquidity needs or in response to a specific economic event, may be impacted.
The lack of a liquid secondary market for certain securities may also make it
more difficult for the Fund to obtain accurate market quotations for purposes
of valuing the Fund's portfolio. Market quotations are generally available on
many lower-quality and comparable unrated issues only from a limited number of
dealers and may not necessarily represent firm bids of such dealers or prices
for actual sales. During periods of thin trading, the spread between bid and
asked prices is likely to increase significantly. In addition, adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of lower-quality and comparable
unrated securities, especially in a thinly traded market.
LEGISLATION. Legislation may be adopted, from time to time, designed to limit
the use of certain lower-quality and comparable unrated securities by certain
issuers. It is anticipated that if additional legislation is enacted or
proposed, it could have a material affect on the value of these securities and
the existence of a secondary trading market for the securities.
ILLIQUID SECURITIES
The Fund may invest in illiquid securities (I.E., securities that are not
readily marketable). However, the Fund will not acquire illiquid securities
if, as a result, the illiquid securities would comprise more than 15% (10% for
money market funds) of the value of the Fund's net assets (or such other
amounts as may be permitted under the 1940 Act). However, as a matter of
internal policy, the Advisor intends to limit the Fund's investments in
illiquid securities to 10% of its net assets.
The Board of Directors of the Fund, or its delegate, has the ultimate authority
to determine, to the extent permissible under the federal securities laws,
which securities are illiquid for purposes of this limitation. Certain
securities exempt from registration or issued in transactions exempt from
registration under the Securities Act of 1933, as amended ("Securities Act"),
such as securities that may be resold to institutional investors under Rule
144A under the Securities Act and Section 4(2) commercial paper, may be
considered liquid under guidelines adopted by the Fund's Board of Directors.
<PAGE>
The Board of Directors of the Fund has delegated to the Advisor the day-to-day
determination of the liquidity of a security, although it has retained
oversight and ultimate responsibility for such determinations. The Board of
Directors has directed the Advisor to look to such factors as (1) the frequency
of trades or quotes for a security, (2) the number of dealers willing to
purchase or sell the security and number of potential buyers, (3) the
willingness of dealers to undertake to make a market in the security, (4) the
nature of the security and nature of the marketplace trades, such as the time
needed to dispose of the security, the method of soliciting offers, and the
mechanics of transfer, (5) the likelihood that the security's marketability
will be maintained throughout the anticipated holding period, and (6) any other
relevant factors. The Advisor may determine 4(2) commercial paper to be liquid
if (1) the 4(2) commercial paper is not traded flat or in default as to
principal and interest, (2) the 4(2) commercial paper is rated in one of the
two highest rating categories by at least two NRSROs, or if only one NRSRO
rates the security, by that NRSRO, or is determined by the Advisor to be of
equivalent quality, and (3) the Advisor considers the trading market for the
specific security taking into account all relevant factors. With respect to
any foreign holdings, a foreign security may be considered liquid by the
Advisor (despite its restricted nature under the Securities Act) if the
security can be freely traded in a foreign securities market and all the facts
and circumstances support a finding of liquidity.
Restricted securities may be sold only in privately negotiated transactions or
in a public offering with respect to which a registration statement is in
effect under the Securities Act. Where registration is required, the Fund may
be obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time the
Fund may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to
develop, the Fund might obtain a less favorable price than prevailed when it
decided to sell. Restricted securities will be priced in accordance with
pricing procedures adopted by the Board of Directors of the Fund. If through
the appreciation of restricted securities or the depreciation of unrestricted
securities the Fund should be in a position where more than 15% of the value of
its net assets are invested in illiquid securities, including restricted
securities which are not readily marketable (except for 144A Securities and
4(2) commercial paper deemed to be liquid by the Advisor), the Fund will take
such steps as is deemed advisable, if any, to protect the liquidity of the
Fund's portfolio.
The Fund may sell OTC options and, in connection therewith, segregate assets or
cover its obligations with respect to OTC options written by the Fund. The
assets used as cover for OTC options written by the Fund will be considered
illiquid unless the OTC options are sold to qualified dealers who agree that
the Fund may repurchase any OTC option it writes at a maximum price to be
calculated by a formula set forth in the option agreement. The cover for an
OTC option written subject to this procedure would be considered illiquid only
to the extent that the maximum repurchase price under the formula exceeds the
intrinsic value of the option.
LENDING OF PORTFOLIO SECURITIES
The Fund is authorized to lend up to 33 1/3% of the total value of its
portfolio securities to broker-dealers or institutional investors that the
Advisor deems qualified, but only when the borrower maintains with the Fund's
custodian bank collateral either in cash or money market instruments in an
amount at least equal to the market value of the securities loaned, plus
accrued interest and dividends, determined on a daily basis and adjusted
accordingly. Although the Fund is authorized to lend, the Fund does not
presently intend to engage in lending. In determining whether to lend
securities to a particular broker-dealer or institutional investor, the Advisor
will consider, and during the period of the loan will monitor, all relevant
facts and circumstances, including the creditworthiness of the borrower. The
Fund will retain authority to terminate any loans at any time. The Fund may
pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The Fund
will receive reasonable interest on the loan or a flat fee from the borrower
and amounts equivalent to any dividends, interest or other distributions on the
securities loaned. The Fund will retain record ownership of loaned securities
to exercise beneficial rights, such as voting and subscription rights and
rights to dividends, interest or other distributions, when retaining such
rights is considered to be in the Fund's interest.
THE FOLLOWING SECTION APPLIES TO THE ADVANTAGE, SHORT-TERM BOND, AND GOVERNMENT
SECURITIES FUNDS.
LOAN INTERESTS
<PAGE>
The Fund may acquire a loan interest (a "Loan Interest"). A Loan Interest is
typically originated, negotiated, and structured by a U.S. or foreign
commercial bank, insurance company, finance company, or other financial
institution ("Agent") for a lending syndicate of financial institutions. The
Agent typically administers and enforces the loan on behalf of the other
lenders in the syndicate. In addition, an institution, typically but not
always the Agent ("Collateral Bank"), holds collateral (if any) on behalf of
the lenders. These Loan Interests may take the form of participation interests
in, assignments of or novations of a loan during its secondary distribution, or
direct interests during a primary distribution. Such Loan Interests may be
acquired from U.S. or foreign banks, insurance companies, finance companies, or
other financial institutions who have made loans or are members of a lending
syndicate or from other holders of Loan Interests. The Fund may also acquire
Loan Interests under which the Fund derives its rights directly from the
borrower. Such Loan Interests are separately enforceable by the Fund against
the borrower and all payments of interest and principal are typically made
directly to the Fund from the borrower. In the event that the Fund and other
lenders become entitled to take possession of shared collateral, it is
anticipated that such collateral would be held in the custody of a Collateral
Bank for their mutual benefit. The Fund may not act as an Agent, a Collateral
Bank, a guarantor or sole negotiator or structurer with respect to a loan.
The Advisor will analyze and evaluate the financial condition of the borrower
in connection with the acquisition of any Loan Interest. The Advisor also
analyzes and evaluates the financial condition of the Agent and, in the case of
Loan Interests in which the Fund does not have privity with the borrower, those
institutions from or through whom the Fund derives its rights in a loan
("Intermediate Participants").
In a typical loan, the Agent administers the terms of the loan agreement. In
such cases, the Agent is normally responsible for the collection of principal
and interest payments from the borrower and the apportionment of these payments
to the credit of all institutions which are parties to the loan agreement. The
Fund will generally rely upon the Agent or an Intermediate Participant to
receive and forward to the Fund its portion of the principal and interest
payments on the loan. Furthermore, unless under the terms of a participation
agreement the Fund has direct recourse against the borrower, the Fund will rely
on the Agent and the other members of the lending syndicate to use appropriate
credit remedies against the borrower. The Agent is typically responsible for
monitoring compliance with covenants contained in the loan agreement based upon
reports prepared by the borrower. The seller of the Loan Interest usually
does, but is often not obligated to, notify holders of Loan Interests of any
failures of compliance. The Agent may monitor the value of the collateral and,
if the value of the collateral declines, may accelerate the loan, may give the
borrower an opportunity to provide additional collateral or may seek other
protection for the benefit of the participants in the loan. The Agent is
compensated by the borrower for providing these services under a loan
agreement, and such compensation may include special fees paid upon structuring
and funding the loan and other fees paid on a continuing basis. With respect
to Loan Interests for which the Agent does not perform such administrative and
enforcement functions, the Fund will perform such tasks on its own behalf,
although a Collateral Bank will typically hold any collateral on behalf of the
Fund and the other lenders pursuant to the applicable loan agreement.
A financial institution's appointment as Agent may usually be terminated in the
event that it fails to observe the requisite standard of care or becomes
insolvent, enters Federal Deposit Insurance Corporation ("FDIC") receivership,
or, if not FDIC insured, enters into bankruptcy proceedings. A successor Agent
would generally be appointed to replace the terminated Agent, and assets held
by the Agent under the loan agreement should remain available to holders of
Loan Interests. However, if assets held by the Agent for the benefit of the
Fund were determined to be subject to the claims of the Agent's general
creditors, the Fund might incur certain costs and delays in realizing payment
on a loan interest, or suffer a loss of principal and/or interest. In
situations involving Intermediate Participants, similar risks may arise.
Purchasers of Loan Interests depend primarily upon the creditworthiness of the
borrower for payment of principal and interest. If the Fund does not receive
scheduled interest or principal payments on such indebtedness, the Fund's share
price and yield could be adversely affected. Loans that are fully secured
offer the Fund more protections than an unsecured loan in the event of
non-payment of scheduled interest or principal. However, there is no assurance
that the liquidation of collateral from a secured loan would satisfy the
borrower's obligation, or that the collateral can be liquidated. Indebtedness
of borrowers whose creditworthiness is poor involves substantially greater
risks, and may be highly speculative. Borrowers that are in bankruptcy or
restructuring may never pay off their indebtedness, or may pay only a small
fraction of the amount owed. Direct indebtedness of developing countries will
also involve a risk that the governmental entities responsible for the
repayment of the debt may be unable, or unwilling, to pay interest and repay
principal when due.
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THE FOLLOWING SECTION APPLIES TO THE ADVANTAGE, SHORT-TERM BOND, AND GOVERNMENT
SECURITIES FUNDS.
MATURITY
The Fund's average portfolio maturity represents an average based on the actual
stated maturity dates of the debt securities in the Fund's portfolio, except
that (1) variable-rate securities are deemed to mature at the next
interest-rate adjustment date, (2) debt securities with put features are deemed
to mature at the next put-exercise date, (3) the maturity of mortgage-backed
and certain other asset-backed securities is determined on an "expected life"
basis by the Advisor and (4) securities being hedged with futures contracts may
be deemed to have a longer maturity, in the case of purchases of futures
contracts, and a shorter maturity, in the case of sales of futures contracts,
than they would otherwise be deemed to have. In addition, a security that is
subject to redemption at the option of the issuer on a particular date ("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 average portfolio maturity when the
Advisor reasonably anticipates, based upon information available to it, that
the issuer will exercise its right to redeem the security. The average
portfolio maturity of the Fund is dollar-weighted based upon the market value
of the Fund's securities at the time of the calculation.
THE FOLLOWING SECTION APPLIES TO ALL UNDERLYING FUNDS, EXCEPT THE BLUE CHIP 100
AND HERITAGE MONEY FUNDS.
MORTGAGE- AND ASSET-BACKED DEBT SECURITIES
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and collateralized
mortgage obligations. Such securities may be issued or guaranteed by U.S.
government agencies or instrumentalities, such as the Government National
Mortgage Association and the Federal National Mortgage Association, or by
private issuers, generally originators and investors in mortgage loans,
including savings associations, mortgage bankers, commercial banks, investment
bankers, and special purpose entities (collectively, "private lenders").
Mortgage-backed securities issued by private lenders may be supported by pools
of mortgage loans or other mortgage-backed securities that are guaranteed,
directly or indirectly, by the U.S. government or one of its agencies or
instrumentalities, or they may be issued without any governmental guarantee of
the underlying mortgage assets but with some form of non-governmental credit
enhancement.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. Asset-backed debt obligations represent direct or
indirect participation in, or are secured by and payable from, assets such as
motor vehicle installment sales contracts, other installment loan contracts,
home equity loans, leases of various types of property, and receivables from
credit card or other revolving credit arrangements. The credit quality of most
asset-backed securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement of the
securities. Payments or distributions of principal and interest on
asset-backed debt obligations may be supported by non-governmental credit
enhancements including letters of credit, reserve funds, overcollateralization,
and guarantees by third parties. The market for privately issued asset-backed
debt obligations is smaller and less liquid than the market for government
sponsored mortgage-backed securities.
The rate of principal payment on mortgage- and asset-backed securities
generally depends on the rate of principal payments received on the underlying
assets which in turn may be affected by a variety of economic and other
factors. As a result, the yield on any mortgage- and asset-backed security is
difficult to predict with precision and actual yield to maturity may be more or
less than the anticipated yield to maturity. The yield characteristics of
mortgage- and asset-backed securities differ from those of traditional debt
securities. Among the principal differences are that interest and principal
payments are made more frequently on mortgage-and asset-backed securities,
usually monthly, and that principal may be prepaid at any time because the
underlying mortgage loans or other assets generally may be prepaid at any time.
As a result, if the Fund purchases these securities at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing the yield to maturity. Conversely, if the Fund purchases these
securities at a discount, a prepayment rate that is faster than expected will
increase yield to maturity, while a prepayment rate that is slower than
expected will reduce yield to maturity. Amounts available for reinvestment by
the Fund are likely to be greater during a period of declining interest rates
and, as a result, are likely to be reinvested at lower interest rates than
during a period of rising interest rates. Accelerated prepayments on
securities purchased by the Fund at a premium also impose a risk of loss of
principal because the
<PAGE>
premium may not have been fully amortized at the time the principal is prepaid
in full. The market for privately issued mortgage- and asset-backed securities
is smaller and less liquid than the market for government-sponsored
mortgage-backed securities.
While many mortgage- and asset-backed securities are issued with only one class
of security, many are issued in more than one class, each with different
payment terms. Multiple class mortgage- and asset-backed securities are issued
for two main reasons. First, multiple classes may be used as a method of
providing credit support. This is accomplished typically through creation of
one or more classes whose right to payments on the security is made subordinate
to the right to such payments of the remaining class or classes. Second,
multiple classes may permit the issuance of securities with payment terms,
interest rates, or other characteristics differing both from those of each
other and from those of the underlying assets. Examples include so-called
"strips" (mortgage- and asset-backed securities entitling the holder to
disproportionate interests with respect to the allocation of interest and
principal of the assets backing the security), and securities with class or
classes having characteristics which mimic the characteristics of non-mortgage-
or asset-backed securities, such as floating interest rates (I.E., interest
rates which adjust as a specified benchmark changes) or scheduled amortization
of principal.
The Fund may invest in stripped mortgage- or asset-backed securities, which
receive differing proportions of the interest and principal payments from the
underlying assets. The market value of such securities generally is more
sensitive to changes in prepayment and interest rates than is the case with
traditional mortgage- and asset-backed securities, and in some cases such
market value may be extremely volatile. With respect to certain stripped
securities, such as interest only and principal only classes, a rate of
prepayment that is faster or slower than anticipated may result in the Fund
failing to recover all or a portion of its investment, even though the
securities are rated investment grade.
Mortgage- and asset-backed securities backed by assets, other than as described
above, or in which the payment streams on the underlying assets are allocated
in a manner different than those described above may be issued in the future.
The Fund may invest in such securities if such investment is otherwise
consistent with its investment objectives and policies and with the investment
restrictions of the Fund.
MUNICIPAL OBLIGATIONS
IN GENERAL. Municipal obligations are debt obligations issued by or on behalf
of states, territories, and possessions of the United States and the District
of Columbia and their political subdivisions, agencies, and instrumentalities.
Municipal obligations generally include debt obligations issued to obtain funds
for various public purposes. Certain types of municipal obligations are issued
in whole or in part to obtain funding for privately operated facilities or
projects. Municipal obligations include general obligation bonds, revenue
bonds, industrial development bonds, notes, and municipal lease obligations.
Municipal obligations also include obligations, the interest on which is exempt
from federal income tax, that may become available in the future as long as the
Board of Directors of the Fund determines that an investment in any such type
of obligation is consistent with the Fund's investment objective.
BONDS AND NOTES. General obligation bonds are secured by the issuer's pledge of
its full faith, credit, and taxing power for the payment of interest and
principal. Revenue bonds are payable only from the revenues derived from a
project or facility or from the proceeds of a specified revenue source.
Industrial development bonds are generally revenue bonds secured by payments
from and the credit of private users. Municipal notes are issued to meet the
short-term funding requirements of state, regional, and local governments.
Municipal notes include tax anticipation notes, bond anticipation notes,
revenue anticipation notes, tax and revenue anticipation notes, construction
loan notes, short-term discount notes, tax-exempt commercial paper, demand
notes, and similar instruments.
LEASE OBLIGATIONS. Municipal lease obligations may take the form of a lease, an
installment purchase, or a conditional sales contract. They are issued by state
and local governments and authorities to acquire land, equipment, and
facilities, such as state and municipal vehicles, telecommunications and
computer equipment, and other capital assets. The Fund may purchase these
obligations directly, or it may purchase participation interests in such
obligations. (See "Participation Interests" below.) Municipal leases are
generally subject to greater risks than general obligation or revenue bonds.
State constitutions and statutes set forth requirements that states or
municipalities must meet in order to issue municipal obligations. Municipal
leases may contain a covenant by the state or municipality to budget for,
appropriate, and make payments due under the obligation. Certain municipal
leases may, however, contain "non-appropriation" clauses which provide that the
issuer is not obligated to make payments on the
<PAGE>
obligation in future years unless funds have been appropriated for this purpose
each year. Accordingly, such obligations are subject to "non-appropriation"
risk. While municipal leases are secured by the underlying capital asset, it
may be difficult to dispose of any such asset in the event of non-appropriation
or other default.
MORTGAGE-BACKED BONDS. The Fund's investments in municipal obligations may
include mortgage-backed municipal obligations, which are a type of municipal
security issued by a state, authority, or municipality to provide financing for
residential housing mortgages to target groups, generally low-income
individuals who are first-time home buyers. The Fund's interest, evidenced by
such obligations, is an undivided interest in a pool of mortgages. Payments
made on the underlying mortgages and passed through to the Fund will represent
both regularly scheduled principal and interest payments. The Fund may also
receive additional principal payments representing prepayments of the
underlying mortgages. While a certain level of prepayments can be expected,
regardless of the interest rate environment, it is anticipated that prepayment
of the underlying mortgages will accelerate in periods of declining interest
rates. In the event that the Fund receives principal prepayments in a declining
interest-rate environment, its reinvestment of such funds may be in bonds with
a lower yield.
PARTICIPATION INTERESTS
A participation interest gives the Fund an undivided interest in a municipal
obligation in the proportion that the Fund's participation interest bears to
the principal amount of the obligation. These instruments may have fixed,
floating, or variable rates of interest. The Fund will only purchase
participation interests if accompanied by an opinion of counsel that the
interest earned on the underlying municipal obligations will be tax-exempt. If
the Fund purchases unrated participation interests, the Board of Directors or
its delegate must have determined that the credit risk is equivalent to the
rated obligations in which the Fund may invest. Participation interests may be
backed by a letter of credit or guaranty of the selling institution. When
determining whether such a participation interest meets the Fund's credit
quality requirements, the Fund may look to the credit quality of any financial
guarantor providing a letter of credit or guaranty.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks or non-bank
dealers. In a repurchase agreement, the Fund buys a security at one price, and
at the time of sale, the seller agrees to repurchase the obligation at a
mutually agreed upon time and price (usually within seven days). The
repurchase agreement, thereby, determines the yield during the purchaser's
holding period, while the seller's obligation to repurchase is secured by the
value of the underlying security. The Advisor will monitor, on an ongoing
basis, the value of the underlying securities to ensure that the value always
equals or exceeds the repurchase price plus accrued interest. Repurchase
agreements could involve certain risks in the event of a default or insolvency
of the other party to the agreement, including possible delays or restrictions
upon the Fund's ability to dispose of the underlying securities. Although no
definitive creditworthiness criteria are used, the Advisor reviews the
creditworthiness of the banks and non-bank dealers with which the Fund enters
into repurchase agreements to evaluate those risks. The Fund may, under
certain circumstances, deem repurchase agreements collateralized by U.S.
government securities to be investments in U.S. government securities.
THE FOLLOWING SECTION APPLIES TO ALL UNDERLYING FUNDS, EXCEPT THE BLUE CHIP 100
FUND.
REVERSE REPURCHASE AGREEMENTS AND MORTGAGE DOLLAR ROLLS
The Fund may engage in reverse repurchase agreements to facilitate portfolio
liquidity, a practice common in the mutual fund industry, or for arbitrage
transactions as discussed below. In a reverse repurchase agreement, the Fund
would sell a security and enter into an agreement to repurchase the security at
a specified future date and price. The Fund generally retains the right to
interest and principal payments on the security. Since the Fund receives cash
upon entering into a reverse repurchase agreement, it may be considered a
borrowing. When required by guidelines of the SEC, the Fund will set aside
permissible liquid assets in a segregated account to secure its obligations to
repurchase the security.
The Fund may also enter into mortgage dollar rolls, in which the Fund would
sell mortgage-backed securities for delivery in the current month and
simultaneously contract to purchase substantially similar securities on a
specified future date. While the Fund would forego principal and interest paid
on the mortgage-backed securities during the roll period, the Fund would be
compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the
<PAGE>
proceeds of the initial sale. The Fund also could be compensated through the
receipt of fee income equivalent to a lower forward price. At the time the
Fund would enter into a mortgage dollar roll, it would set aside permissible
liquid assets in a segregated account to secure its obligation for the forward
commitment to buy mortgage-backed securities. Mortgage dollar roll
transactions may be considered a borrowing by the Fund.
The mortgage dollar rolls and reverse repurchase agreements entered into by the
Fund may be used as arbitrage transactions in which the Fund will maintain an
offsetting position in investment grade debt obligations or repurchase
agreements that mature on or before the settlement date on the related mortgage
dollar roll or reverse repurchase agreements. Since the Fund will receive
interest on the securities or repurchase agreements in which it invests the
transaction proceeds, such transactions may involve leverage. However, since
such securities or repurchase agreements will be high quality and will mature
on or before the settlement date of the mortgage dollar roll or reverse
repurchase agreement, the Advisor believes that such arbitrage transactions do
not present the risks to the Fund that are associated with other types of
leverage.
THE FOLLOWING SECTION APPLIES TO THE HERITAGE MONEY FUND ONLY.
RULE 2A-7: MATURITY, QUALITY, AND DIVERSIFICATION RESTRICTIONS
All capitalized but undefined terms in this discussion shall have the meaning
such terms have in Rule 2a-7 under the 1940 Act. The Fund is subject to
certain maturity restrictions in accordance with Rule 2a-7 for money market
funds that use the amortized cost method of valuation to maintain a stable net
asset value of $1.00 per share. Accordingly, the Fund will (1) maintain a
dollar weighted average portfolio maturity of 90 days or less, and (2) will
purchase securities with a remaining maturity of no more than 13 months (397
calendar days). Further, the Fund will limit its investments to U.S.
dollar-denominated securities which represent minimal credit risks and meet
certain credit quality and diversification requirements. For purposes of
calculating the maturity of portfolio instruments, the Fund will follow the
requirements of Rule 2a-7. Under Rule 2a-7, the maturity of portfolio
instruments is calculated as indicated below.
Generally, the maturity of a portfolio instrument shall be deemed to be the
period remaining (calculated from the trade date or such other date on which
the Fund's interest in the instrument is subject to market action) until the
date noted on the face of the instrument as the date on which the principal
amount must be paid, or in the case of an instrument called for redemption, the
date on which the redemption payment must be made, except that:
(1) An instrument that is issued or guaranteed by the U.S. government or
any agency thereof which has a variable rate of interest readjusted no less
frequently than every 762 days shall be deemed to have a maturity equal to the
period remaining until the next readjustment of the interest rate.
(2) A Variable Rate Instrument, the principal amount of which is scheduled
on the face of the instrument to be paid on 397 calendar days or less shall be
deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
(3) A Variable Rate Instrument that is subject to a Demand Feature shall be
deemed to have a maturity equal to the longer of the period remaining until the
next readjustment of the interest rate or the period remaining until the
principal amount can be recovered through demand.
(4) A Floating Rate Instrument that is subject to a Demand Feature shall be
deemed to have a maturity equal to the period remaining until the principal
amount can be recovered through demand.
(5) A repurchase agreement shall be deemed to have a maturity equal to the
period remaining until the date on which the repurchase of the underlying
securities is scheduled to occur, or, where no date is specified, but the
agreement is subject to a demand, the notice period applicable to a demand for
the repurchase of the securities.
The Fund is subject to certain credit quality restrictions pursuant to Rule
2a-7 under the 1940 Act. The Fund will invest at least 95% of its assets in
instruments determined to present minimal credit risks and, at the time of
acquisition, are (1) obligations issued or guaranteed by the U.S. government,
its agencies, or instrumentalities; (2) rated by at least two nationally
recognized rating agencies (or by one agency if only one agency has issued a
rating) (the "required rating agencies") in the highest rating
<PAGE>
category for short-term debt obligations; (3) unrated but whose issuer is rated
in the highest category by the required rating agencies with respect to a class
of short-term debt obligations or any security within that class that is
comparable in priority and security with the instrument; or (4) unrated (other
than the type described in (3)) but determined by the Board of Directors of the
Fund to be of comparable quality to the foregoing (provided the unrated
security has not received a short-term rating, and with respect to a long-term
security with a remaining maturity within the Fund's maturity restrictions, has
not received a long-term rating from any agency that is other than in its
highest rating category). The foregoing are referred to as "first-tier
securities."
The balance of the securities in which the Fund may invest are instruments
determined to present minimal credit risks, which do not qualify as first-tier
securities, and, at the time of acquisition, are (1) rated by the required
rating agencies in one of the two highest rating categories for short-term debt
obligations; (2) unrated but whose issuer is rated in one of the two highest
categories by the required rating agencies with respect to a class of
short-term debt obligations or any security within that class that is
comparable in priority and security with the obligation; or (3) unrated (other
than described in (2)) but determined by the Board of Directors of the Fund to
be of comparable quality to the foregoing (provided the unrated security has
not received a short-term rating and, with respect to a long-term security with
a remaining maturity within the Fund's maturity restrictions, has not received
a long-term rating from any agency that is other than in one of its highest two
rating categories). The foregoing are referred to as "second-tier securities."
In addition to the foregoing guidelines, the Fund is subject to certain
diversification restrictions pursuant to Rule 2a-7 under the 1940 Act, which
include (1) the Fund will not acquire a second-tier security of an issuer if,
after giving effect to the acquisition, the Fund would have invested more than
the greater of 1% of its total assets or one million dollars in second-tier
securities issued by that issuer, or (2) the Fund will not invest more than 5%
of the Fund's assets in the securities (other than securities issued by the
U.S. government or any agency or instrumentality thereof) issued by a single
issuer, except for certain investments held for not more than 3 business days.
THE FOLLOWING SECTION APPLIES TO ALL UNDERLYING FUNDS, EXCEPT THE BLUE CHIP 100
AND THE MONEY FUNDS.
SHORT SALES
The Fund may sell securities short (1) to hedge unrealized gains on portfolio
securities or (2) if it covers such short sale with liquid assets as required
by the current rules and positions of the SEC or its staff. Selling securities
short against the box involves selling a security that the Fund owns or has the
right to acquire, for delivery at a specified date in the future. If the Fund
sells securities short against the box, it may protect unrealized gains, but
will lose the opportunity to profit on such securities if the price rises.
THE FOLLOWING SECTION APPLIES TO THE GROWTH, COMMON STOCK, AND GROWTH AND
INCOME FUNDS.
SMALL AND MEDIUM COMPANIES
The Fund may invest a substantial portion of its assets in small and medium
companies. While small and medium companies generally have the potential for
rapid growth, investments in small and medium companies often involve greater
risks than investments in larger, more established companies because small and
medium companies may lack the management experience, financial resources,
product diversification, and competitive strengths of larger companies. In
addition, in many instances the securities of small and medium companies are
traded only OTC or on a regional securities exchange, and the frequency and
volume of their trading is substantially less than is typical of larger
companies. Therefore, the securities of small and medium companies may be
subject to greater and more abrupt price fluctuations. When making large
sales, the Fund may have to sell portfolio holdings at discounts from quoted
prices or may have to make a series of small sales over an extended period of
time due to the trading volume of small and medium company securities.
Investors should be aware that, based on the foregoing factors, an investment
in the Fund may be subject to greater price fluctuations than an investment in
the Fund that invests primarily in larger, more established companies. The
Advisor's research efforts may also play a greater role in selecting securities
for the Fund than in the Fund that invests in larger, more established
companies.
THE FOLLOWING SECTION APPLIES TO ALL UNDERLYING FUNDS, EXCEPT THE BLUE CHIP 100
FUND.
STANDBY COMMITMENTS
<PAGE>
In order to facilitate portfolio liquidity, the Fund may acquire standby
commitments from brokers, dealers, or banks with respect to securities in its
portfolio. Standby commitments entitle the holder to achieve same-day
settlement and receive an exercise price equal to the amortized cost of the
underlying security plus accrued interest. Standby commitments generally
increase the cost of the acquisition of the underlying security, thereby
reducing the yield. Standby commitments are subject to the issuer's ability to
fulfill its obligation upon demand. Although no definitive creditworthiness
criteria are used, the Advisor reviews the creditworthiness of the brokers,
dealers, and banks from which the Fund obtains standby commitments to evaluate
those risks.
THE FOLLOWING SECTION APPLIES TO ALL UNDERLYING FUNDS, EXCEPT THE BLUE CHIP 100
FUND.
VARIABLE- OR FLOATING-RATE SECURITIES
The Fund may invest in securities which offer a variable- or floating-rate of
interest. Variable-rate securities provide for automatic establishment of a
new interest rate at fixed intervals (E.G., daily, monthly, semi-annually,
etc.). Floating-rate securities generally provide for automatic adjustment of
the interest rate whenever some specified interest rate index changes. The
interest rate on variable- or floating-rate securities is ordinarily determined
by reference to or is a percentage of a bank's prime rate, the 90-day U.S.
Treasury bill rate, the rate of return on commercial paper or bank certificates
of deposit, an index of short-term interest rates, or some other objective
measure.
Variable- or floating-rate securities frequently include a demand feature
entitling the holder to sell the securities to the issuer at par. In many
cases, the demand feature can be exercised at any time on seven days notice; in
other cases, the demand feature is exercisable at any time on 30 days notice or
on similar notice at intervals of not more than one year. Some securities
which do not have variable or floating interest rates may be accompanied by
puts producing similar results and price characteristics. When considering the
maturity of any instrument which may be sold or put to the issuer or a third
party, the Fund may consider that instrument's maturity to be shorter than its
stated maturity.
Variable-rate demand notes include master demand notes which are obligations
that permit the Fund to invest fluctuating amounts, which may change daily
without penalty, pursuant to direct arrangements between the Fund, as lender,
and the borrower. The interest rates on these notes fluctuate from time to
time. The issuer of such obligations normally has a corresponding right, after
a given period, to prepay in its discretion the outstanding principal amount of
the obligations plus accrued interest upon a specified number of days notice to
the holders of such obligations. The interest rate on a floating-rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and
is adjusted automatically each time such rate is adjusted. The interest rate
on a variable-rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments will generally be traded. There generally
is not an established secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations are not secured
by letters of credit or other credit support arrangements, the Fund's right to
redeem is dependent on the ability of the borrower to pay principal and
interest on demand. Such obligations frequently are not rated by credit rating
agencies and, if not so rated, the Fund may invest in them only if the Advisor
determines that at the time of investment the obligations are of comparable
quality to the other obligations in which the Fund may invest. The Advisor, on
behalf of the Fund, will consider on an ongoing basis the creditworthiness of
the issuers of the floating- and variable-rate demand obligations in the Fund's
portfolio.
The Fund will not invest more than 15% of its net assets (10% for money market
funds) in variable- and floating-rate demand obligations that are not readily
marketable (a variable- or floating-rate demand obligation that may be disposed
of on not more than seven days notice will be deemed readily marketable and
will not be subject to this limitation). In addition, each variable- or
floating-rate obligation must meet the credit quality requirements applicable
to all the Fund's investments at the time of purchase. When determining
whether such an obligation meets the Fund's credit quality requirements, the
Fund may look to the credit quality of the financial guarantor providing a
letter of credit or other credit support arrangement.
In determining the Fund's weighted average portfolio maturity, the Fund will
consider a floating- or variable-rate security to have a maturity equal to its
stated maturity (or redemption date if it has been called for redemption),
except that it may consider (1) variable-rate securities to have a maturity
equal to the period remaining until the next readjustment in the interest rate,
unless subject to a demand feature, (2) variable-rate securities subject to a
demand feature to have a remaining maturity equal to the longer of (a) the next
readjustment in the interest rate or (b) the period remaining until the
principal can be recovered through
<PAGE>
demand, and (3) floating-rate securities subject to a demand feature to have a
maturity equal to the period remaining until the principal can be recovered
through demand. Variable- and floating-rate securities generally are subject
to less principal fluctuation than securities without these attributes since
the securities usually trade at amortized cost following the readjustment in
the interest rate.
THE FOLLOWING SECTION APPLIES TO ALL UNDERLYING FUNDS, EXCEPT THE GOVERNMENT
SECURITIES AND HERITAGE MONEY FUNDS.
WARRANTS
The Fund may acquire warrants. Warrants are securities giving the holder the
right, but not the obligation, to buy the stock of an issuer at a given price
(generally higher than the value of the stock at the time of issuance) during a
specified period or perpetually. Warrants may be acquired separately or in
connection with the acquisition of securities. Warrants do not carry with them
the right to dividends or voting rights with respect to the securities that
they entitle their holder to purchase, and they do not represent any rights in
the assets of the issuer. As a result, warrants may be considered to have more
speculative characteristics than certain other types of investments. In
addition, the value of a warrant does not necessarily change with the value of
the underlying securities, and a warrant ceases to have value if it is not
exercised prior to its expiration date.
THE FOLLOWING SECTION APPLIES TO ALL UNDERLYING FUNDS, EXCEPT THE BLUE CHIP 100
FUND.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
The Fund may purchase securities on a when-issued or delayed-delivery basis.
The price of debt obligations so purchased, which may be expressed in yield
terms, generally is fixed at the time the commitment to purchase is made, but
delivery and payment for the securities take place at a later date. During the
period between the purchase and settlement, no payment is made by the Fund to
the issuer and no interest on the debt obligations accrues to the Fund.
Forward commitments involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the Fund's other assets. While when-issued and
delayed-delivery securities may be sold prior to the settlement date, the Fund
intends to purchase such securities with the purpose of actually acquiring them
unless a sale appears desirable for investment reasons. At the time the Fund
makes the commitment to purchase these types of securities, it will record the
transaction and reflect the value of the security in determining its net asset
value. The Fund does not believe that its net asset value will be adversely
affected by these types of securities purchases.
To the extent required by the SEC, the Fund will maintain cash and marketable
securities equal in value to commitments for when-issued or delayed-delivery
securities. Such segregated securities either will mature or, if necessary, be
sold on or before the settlement date. When the time comes to pay for
when-issued or delayed-delivery securities, the Fund will meet its obligations
from then-available cash flow, sale of the securities held in the separate
account, described above, sale of other securities or, although it would not
normally expect to do so, from the sale of the when-issued or delayed-delivery
securities themselves (which may have a market value greater or less than the
Fund's payment obligation).
THE FOLLOWING SECTION APPLIES TO ALL THE UNDERLYING FUNDS, EXCEPT THE BLUE CHIP
100 FUND.
ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES
The Fund may invest in zero-coupon, step-coupon, and pay-in-kind securities.
These securities are debt securities that do not make regular cash interest
payments. Zero-coupon and step-coupon securities are sold at a deep discount
to their face value. Pay-in-kind securities pay interest through the issuance
of additional securities. Because such securities do not pay current cash
income, the price of these securities can be volatile when interest rates
fluctuate. While these securities do not pay current cash income, federal
income tax law requires the holders of zero-coupon, step-coupon, and
pay-in-kind securities to include in income each year the portion of the
original issue discount (or deemed discount) and other non-cash income on such
securities accruing that year. In order to continue to qualify as a "regulated
investment company" or "RIC" under the IRC and avoid a certain excise tax, the
Fund may be required to distribute a portion of such discount and income and
may be required to dispose of other portfolio securities, which may occur in
periods of adverse market prices, in order to generate cash to meet these
distribution requirements.
DIRECTORS AND OFFICERS
<PAGE>
The Board of Directors of the Fund is responsible for managing the Fund's
business and affairs. Directors and officers of the Fund, together with
information as to their principal business occupations during the last five
years, and other information are shown below. Each director who is deemed an
"interested person," as defined in the 1940 Act, is indicated by an asterisk
(*). Each officer and director holds the same position with the 27 registered
open-end management investment companies consisting of 53 mutual funds ("Strong
Funds"). The Strong Funds, in the aggregate, pay each Director who is not a
director, officer, or employee of the Advisor, or any affiliated company (a
"disinterested director") an annual fee of $50,000, plus $100 per Board meeting
for each Strong Fund. In addition, each disinterested director is reimbursed
by the Strong Funds for travel and other expenses incurred in connection with
attendance at such meetings. Other officers and directors of the Strong Funds
receive no compensation or expense reimbursement from the Strong Funds.
*RICHARD S. STRONG (DOB 5/12/42), Director and Chairman of the Board of the
Strong Funds.
Prior to August 1985, Mr. Strong was Chief Executive Officer of the Advisor,
which he founded in 1974. Since August 1985, Mr. Strong has been a Security
Analyst and Portfolio Manager of the Advisor. In October 1991, Mr. Strong also
became the Chairman of the Advisor. Mr. Strong is a Director of the Advisor.
Mr. Strong has been in the investment management business since 1967.
MARVIN E. NEVINS (DOB 7/19/18), Director of the Strong Funds.
Private Investor. From 1945 to 1980, Mr. Nevins was Chairman of Wisconsin
Centrifugal Inc., a foundry. Mr. Nevins is a former Chairman of the Wisconsin
Association of Manufacturers & Commerce. He has been a Director of A-Life
Medical, Inc., San Diego, CA since 1996 and Surface Systems, Inc. (a weather
information company), St. Louis, MO since 1992. He was also a regent of the
Milwaukee School of Engineering and a member of the Board of Trustees of the
Medical College of Wisconsin and Carroll College.
WILLIE D. DAVIS (DOB 7/24/34), Director of the Strong Funds.
Mr. Davis has been Director of Alliance Bank since 1980, Sara Lee Corporation
(a food/consumer products company) since 1983, KMart Corporation (a discount
consumer products company) since 1985, Dow Chemical Company since 1988, MGM
Grand, Inc. (an entertainment/hotel company) since 1990, WICOR, Inc. (a utility
company) since 1990, Johnson Controls, Inc. (an industrial company) since 1992,
and Rally's Hamburger, Inc. since 1994. Mr. Davis has been a trustee of the
University of Chicago since 1980 and Marquette University since 1988. Since
1977, Mr. Davis has been President and Chief Executive Officer of All Pro
Broadcasting, Inc. Mr. Davis was a Director of the Fireman's Fund (an
insurance company) from 1975 until 1990.
STANLEY KRITZIK (DOB 1/9/30), Director of the Strong Funds.
Mr. Kritzik has been a Partner of Metropolitan Associates since 1962, a
Director of Aurora Health Care since 1987, and Health Network Ventures, Inc.
since 1992.
WILLIAM F. VOGT (DOB 7/19/47), Director of the Strong Funds.
Mr. Vogt has been the President of Vogt Management Consulting, Inc. since 1990.
From 1982 until 1990, he served as Executive Director of University Physicians
of the University of Colorado. Mr. Vogt is the Past President of the Medical
Group Management Association and a Fellow of the American College of Medical
Practice Executives.
THOMAS P. LEMKE (DOB 7/30/54), Vice President of the Strong Funds.
<PAGE>
Mr. Lemke has been Senior Vice President, Secretary, and General Counsel of the
Advisor since September 1994. For two years prior to joining the Advisor, Mr.
Lemke acted as Resident Counsel for Funds Management at J.P. Morgan & Co., Inc.
From February 1989 until April 1992, Mr. Lemke acted as Associate General
Counsel to Sanford C. Bernstein & Co., Inc. For two years prior to that, Mr.
Lemke was Of Counsel at the Washington D.C. law firm of Tew Jorden & Schulte, a
successor of Finley, Kumble & Wagner. From August 1979 until December 1986,
Mr. Lemke worked at the SEC, most notably as the Chief Counsel to the Division
of Investment Management (November 1984 - December 1986), and as Special
Counsel to the Office of Insurance Products, Division of Investment Management
(April 1982 - October 1984).
STEPHEN J. SHENKENBERG (DOB 6/14/58), Vice President and Secretary of the
Strong Funds.
Mr. Shenkenberg has been Deputy General Counsel of the Advisor since November
1996. From December 1992 until November 1996, Mr. Shenkenberg acted as
Associate Counsel to the Advisor. From June 1987 until December 1992, Mr.
Shenkenberg was an attorney for Godfrey & Kahn, S.C., a Milwaukee law firm.
JOHN S. WEITZER (DOB 10/31/67), Vice President of the Strong Funds.
Mr. Weitzer has been Senior Counsel of the Advisor since December 1997. From
July 1993 until December 1997, Mr. Weitzer acted as Associate Counsel to the
Advisor.
MARY F. HOPPA (DOB 5/31/64), Vice President of the Strong Funds.
Ms. Hoppa has been Vice President and Director of Mutual Fund Administration of
the Advisor since January 1998. From October 1996 to January 1998, Ms. Hoppa
acted as Director of Transfer Agency Services of the Advisor and, from January
1988 to October 1996, as Transfer Agency Systems Liaison Manager of the
Advisor. From January 1987 to January 1988, Ms. Hoppa acted as a Shareholder
Services Associate of the Advisor.
DANA J. RUSSART (DOB 12/1/58), Treasurer of the Strong Funds.
Ms. Russart has been Director of Retail Marketing Operations and Administration
of the Advisor since May 1997. From April 1996 to May 1997, Ms. Russart was
the Principal and Director of Operations of the Institutional Investment
Adviser at Baird Capital Management LLC. From July 1993 to April 1996, Ms.
Russart served Firstar Corporation as President of the Broker/Dealer Subsidiary
Elan Investment Services, Inc. (January 1995 to April 1996), as a Vice
President of the Trust and Investment Division (April 1994 to April 1996) and
as a Vice President of the Investment Advisory Subsidiary, Firstar Investment
Research & Management Company (July 1993 to April 1994). For three years prior
to that, Ms. Russart was an Executive Vice President at Sunstone Financial
Group, Inc. (Mutual Fund Service Company). From July 1981 to March 1990 Ms.
Russart served Price Waterhouse as a Manager (1986 to 1990) and as a Senior
Accountant (1981 to 1986).
Except for Messrs. Nevins, Davis, Kritzik, and Vogt, the address of all of the
above persons is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr. Nevins'
address is 6075 Pelican Bay Boulevard, Naples, Florida 34108. Mr. Davis'
address is 161 North La Brea, Inglewood, California 90301. Mr. Kritzik's
address is 1123 North Astor Street, P.O. Box 92547, Milwaukee, Wisconsin
53202-0547. Mr. Vogt's address is 2830 East Third Avenue, Denver, Colorado
80206.
As of December 31, 1998, officers and directors of the Funds beneficially owned
3,400 shares of common stock of Strong Conservative Portfolio, 3,300 shares
common stock of Strong Moderate Portfolio, and 3,300 shares of common stock of
Strong Aggressive Portfolio, which represents 100% of each Fund's then
outstanding shares.
PRINCIPAL SHAREHOLDERS
<PAGE>
As of December 31, 1998, the Advisor owned both of record and beneficially, and
Mr. Strong, who controls the Advisor, owned beneficially, 3,400 shares of
common stock of Strong Conservative Portfolio, 3,300 shares common stock of
Strong Moderate Portfolio, and 3,300 shares of common stock of Strong
Aggressive Portfolio, which represents 100% of each Fund's then outstanding
shares.
INVESTMENT ADVISOR OF THE UNDERLYING FUNDS
The Underlying Funds have entered into Advisory Agreements with Strong Capital
Management, Inc. ("Advisor"). Mr. Strong controls the Advisor due to his stock
ownership of the Advisor. Mr. Strong is the Chairman and a Director of the
Advisor, Mr. Lemke is the a Senior Vice President, Secretary, and General
Counsel of the Advisor, Mr. Shenkenberg is Vice President, Assistant Secretary,
and Acting General Counsel of the Advisor, Ms. Hoppa is a Senior Vice President
of the Advisor, Mr. Weitzer is Senior Counsel of the Advisor, and Ms. Russart
is Director of Retail Marketing Operations and Administration. As of December
31, 1998, the Adviser had over $32 billion under management.
As compensation for its services, the Underlying Funds pay to the Advisor a
monthly management fee at the annual rate specified below of the average daily
net asset value of the Underlying Fund. From time to time, the Advisor may
voluntarily waive all or a portion of its management fee for the Underlying
Fund.
<TABLE>
<CAPTION>
<S> <C>
FUND ANNUAL RATE
- --------------------- -----------
Growth 1.00%
Common Stock 1.00
Growth and Income 1.00
Blue Chip 100 0.75
Heritage Money 0.50
Advantage 0.60
Short-Term Bond 0.625
Government Securities 0.60
</TABLE>
On July 12, 1994, the SEC filed an administrative action ("Order") against the
Advisor, Mr. Strong, and another employee of the Advisor in connection with
conduct that occurred between 1987 and early 1990. In re Strong/Corneliuson
Capital Management, Inc., et al. Admin. Proc. File No. 3-8411. The proceeding
was settled by consent without admitting or denying the allegations in the
Order. The Order found that the Advisor and Mr. Strong aided and abetted
violations of Section 17(a) of the 1940 Act by effecting trades between mutual
funds, and between mutual funds and Harbour Investments Ltd. ("Harbour"),
without complying with the exemptive provisions of SEC Rule 17a-7 or otherwise
obtaining an exemption. It further found that the Advisor violated, and Mr.
Strong aided and abetted violations of, the disclosure provisions of the 1940
Act and the Investment Advisers Act of 1940 by misrepresenting the Advisor's
policy on personal trading and by failing to disclose trading by Harbour, an
entity in which principals of the Advisor owned between 18 and 25 percent of
the voting stock. As part of the settlement, the respondents agreed to a
censure and a cease and desist order and the Advisor agreed to various
undertakings, including adoption of certain procedures and a limitation for six
months on accepting certain types of new advisory clients.
On June 6, 1996, the Department of Labor ("DOL") filed an action against the
Advisor for equitable relief alleging violations of the Employee Retirement
Income Security Act of 1974 ("ERISA") in connection with cross trades that
occurred between 1987 and late 1989 involving certain pension accounts managed
by the Advisor. Contemporaneous with this filing, the Advisor, without
admitting or denying the DOL's allegations, agreed to the entry of a consent
judgment resolving all matters relating to the allegations. Reich v. Strong
Capital Management, Inc., (U.S.D.C. E.D. WI) ("Consent Judgment"). Under the
terms of the
<PAGE>
Consent Judgment, the Advisor agreed to reimburse the affected accounts a total
of $5.9 million. The settlement did not have any material impact on the
Advisor's financial position or operations.
The Advisor also provides a program of custom portfolio management called the
Strong Advisor. This program is designed to determine which investment
approach fits an investor's financial needs and then provides the investor with
a custom built portfolio of Strong Funds based on that allocation. The
Advisor, on behalf of participants in the Strong Advisor program, may determine
to invest a portion of the program's assets in any one Strong Fund, which
investment, particularly in the case of a smaller Strong Fund, could represent
a material portion of the Fund's assets. In such cases, a decision to redeem
the Strong Advisor program's investment in a Fund on short notice could raise a
potential conflict of interest for the Advisor, between the interests of
participants in the Strong Advisor program and of the Fund's other
shareholders. In general, the Advisor does not expect to direct the Strong
Advisor program to make redemption requests on short notice. However, should
the Advisor determine this to be necessary, the Advisor will use its best
efforts and act in good faith to balance the potentially competing interests of
participants in the Strong Advisor program and the Fund's other shareholders in
a manner the Advisor deems most appropriate for both parties in light of the
circumstances.
The Advisor provides investment advisory services for multiple clients through
different types of investment accounts (e.g., mutual funds, hedge funds,
separately managed accounts, etc.) who may have similar or different investment
objectives and investment policies (e.g., some accounts may have an active
trading strategy while others follow a "buy and hold" strategy). In managing
these accounts, the Advisor seeks to maximize each account's return, consistent
with the account's investment objectives and investment strategies. While the
Advisor's policies are designed to ensure that over time similarly-situated
clients receive similar treatment, to the maximum extent possible, because of
the range of the Advisor's clients, the Advisor may give advice and take action
with respect to one account that may differ from the advice given, or the
timing or nature of action taken, with respect to another account (the Advisor,
its principals and associates also may take such actions in their personal
securities transactions, to the extent permitted by and consistent with the
Code). For example, the Advisor may use the same investment style in managing
two accounts, but one may have a shorter-term horizon and accept high-turnover
while the other may have a longer-term investment horizon and desire to
minimize turnover. If the Advisor reasonably believes that a particular
security may provide an attractive opportunity due to short-term volatility but
may no longer be attractive on a long-term basis, the Advisor may cause
accounts with a shorter-term investment horizon to buy the security at the same
time it is causing accounts with a longer-term investment horizon to sell the
security. The Advisor takes all reasonable steps to ensure that investment
opportunities are, over time, allocated to accounts on a fair and equitable
basis relative to the other similarly-situated accounts and that the investment
activities of different accounts do not unfairly disadvantage other accounts.
From time to time, the Advisor may make available to third parties current and
historical information about the portfolio holdings of the Advisor's mutual
funds or other clients. Release may be made to entities such as fund ratings
entities, industry trade groups, and financial publications. Generally, the
Advisor will release this type of information only where it is otherwise
publicly available. This information may also be released where the Advisor
reasonably believes that the release will not be to the detriment of the best
interests of its clients.
For more complete information about the Advisor, including its services,
investment strategies, policies, and procedures, please call 1-800-368-3863 and
ask for a copy of the Advisor's Form ADV.
From time to time, the Advisor votes the shares owned by the Conservative,
Moderate, and Aggressive Portfolios, as well as the Underlying Funds according
to its Statement of General Proxy Voting Policy ("Proxy Voting Policy"). The
general principal of the Proxy Voting Policy is to vote any beneficial interest
in an equity security prudently and solely in the best long-term economic
interest of the Portfolio and/or Underlying Fund and its beneficiaries
considering all relevant factors and without undue influence from individuals
or groups who may have an economic interest in the outcome of a proxy vote.
Shareholders may obtain a copy of the Proxy Voting Policy upon request from the
Advisor.
DISTRIBUTOR
Under a Distribution Agreement with the Fund ("Distribution Agreement"), Strong
Investments, Inc. ("Distributor"), P.O. Box 2936, Milwaukee, Wisconsin, 53201,
acts as underwriter of the Fund's shares. Mr. Strong is the Chairman and
Director of the Distributor, Mr. Lemke is a Vice President of the Distributor,
and Mr. Shenkenberg is a Vice President and Secretary of the Distributor. The
Distribution Agreement provides that the Distributor will use its best efforts
to distribute the Fund's shares. Since
<PAGE>
the Fund is a "no-load" fund, no sales commissions are charged on the purchase
of Fund shares. The Distribution Agreement further provides that the
Distributor will bear the additional costs of printing prospectuses and
shareholder reports which are used for selling purposes, as well as advertising
and any other costs attributable to the distribution of the Fund's shares. The
Distributor is an indirect subsidiary of the Advisor and controlled by the
Advisor and Richard S. Strong. The Distribution Agreement is subject to the
same termination and renewal provisions as are described above with respect to
the Advisory Agreement.
From time to time, the Distributor may hold in-house sales incentive programs
for its associated persons under which these persons may receive non-cash
compensation awards in connection with the sale and distribution of the Fund's
shares. These awards may include items such as, but not limited to, gifts,
merchandise, gift certificates, and payment of travel expenses, meals, and
lodging. As required by the proposed rule amendments of the National
Association of Securities Dealers, Inc. ("NASD"), any in-house sales incentive
program will be multi-product oriented, I.E., any incentive will be based on an
associated person's gross production of all securities within a product type
and will not be based on the sales of shares of any specifically designated
mutual fund.
PORTFOLIO TRANSACTIONS
The Conservative, Moderate, and Aggressive Portfolios purchase and sell shares
of the Underlying Funds. The Underlying Funds are no-load funds and do not
charge any sales load or other transaction charges.
CUSTODIAN
As custodian of the Fund's assets, Firstar Trust Company, P.O. Box 761,
Milwaukee, Wisconsin 53201, has custody of all securities and cash of the Fund,
delivers and receives payment for securities sold, receives and pays for
securities purchased, collects income from investments, and performs other
duties, all as directed by officers of the Fund. The custodian is in no way
responsible for any of the investment policies or decisions of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
The Advisor, P.O. Box 2936, Milwaukee, Wisconsin, 53201, acts as transfer agent
and dividend-disbursing agent for the Fund. The Advisor is compensated based
on an annual fee per open account of $21.75 for equity funds, $31.50 for income
and municipal income funds, and $32.50 for money market funds, plus
out-of-pocket expenses, such as postage and printing expenses in connection
with shareholder communications. The Advisor also receives an annual fee per
closed account of $4.20 from the Fund. The fees received and the services
provided as transfer agent and dividend disbursing agent are in addition to
those received and provided by the Advisor under the Advisory Agreements. In
addition, the Advisor provides certain printing and mailing services for the
Fund, such as printing and mailing of shareholder account statements, checks,
and tax forms.
From time to time, the Fund, directly or indirectly through arrangements with
the Advisor, and/or the Advisor may pay amounts to third parties that provide
transfer agent type services and other administrative services relating to the
Fund to persons who beneficially own interests in the Fund, such as
participants in 401(k) plans. These services may include, among other things,
sub-accounting services, transfer agent type activities, answering inquiries
relating to the Fund, transmitting proxy statements, annual reports, updated
prospectuses, other communications regarding the Fund, and related services as
the Fund or beneficial owners may reasonably request. In such cases, the Fund
will not pay fees based on the number of beneficial owners at a rate that is
greater than the rate the Fund is currently paying the Advisor for providing
these services to Fund shareholders.
Pursuant to the Shareholder Servicing Agent Agreement Relating to Transfer
Agent and Dividend-Disbursing Agent Services, the Underlying Funds, which are
parties to the Agreement, have agreed to reimburse the Conservative, Moderate,
and Aggressive Portfolios on a pro rata basis for expenses related to the
Portfolios' receipt of transfer agency and dividend-disbursing agency services
from the Advisor, including amounts paid to third parties that provide transfer
agent type services and other administrative services relating to the
Portfolios as described in the preceding paragraph. The Underlying Funds have
agreed to reimburse the Portfolios because the Portfolios provide a means by
which the Underlying Funds can consolidate shareholder accounts thus saving the
Underlying Funds their own transfer agency expenses.
<PAGE>
SHAREHOLDER SERVICING AGENT
Under a Shareholder Servicing Agreement with the Fund, the Advisor acts as
shareholder servicing agent for the Fund. As shareholder servicing agent, the
Advisor provides personal services to the Fund's shareholders and maintains the
Fund's shareholder accounts. Such services include, (i) answering shareholder
inquiries regarding account status and history, the manner in which purchases
and redemptions of the Fund's shares may be effected, and certain other matters
pertaining to the Fund; (ii) assisting shareholders in designating and changing
dividend options, account designations and addresses; (iii) providing necessary
personnel and facilities to coordinate the establishment and maintenance of
shareholder accounts and records with the Fund's transfer agent; (iv)
transmitting shareholders' purchase and redemption orders to the Fund's
transfer agent; (v) arranging for the wiring or other transfer of funds to and
from shareholder accounts in connection with shareholder orders to purchase or
redeem shares of the Fund; (vi) verifying purchase and redemption orders,
transfers among and changes in shareholder-designated accounts; (vii) informing
the distributor of the Fund of the gross amount of purchase and redemption
orders for the Fund's shares; (viii) monitoring the activities of the Fund's
transfer agent related to shareholders' accounts, and to statements,
confirmations or other reports furnished to shareholders by the Fund's transfer
agent; and (ix) providing such other related services as the Fund or a
shareholder may reasonably request, to the extent permitted by applicable law.
TAXES
GENERAL
The Fund intends to qualify annually for treatment as a regulated investment
company ("RIC") under Subchapter M of the IRC. If so qualified, the Fund will
not be liable for federal income tax earnings and gains distributed to its
shareholders in a timely manner. This qualification does not involve
government supervision of the Fund's management practices or policies. The
following federal tax discussion is intended to provide you with an overview of
the impact of federal income tax provisions on the Fund or its shareholders.
These tax provisions are subject to change by legislative or administrative
action at the federal, state, or local level, and any changes may be applied
retroactively. Any such action that limits or restricts the Fund's current
ability to pass-through earnings without taxation at the Fund level, or
otherwise materially changes the Fund's tax treatment, could adversely affect
the value of a shareholder's investment in the Fund. Because the Fund's taxes
are a complex matter, you should consult your tax adviser for more detailed
information concerning the taxation of the Fund and the federal, state, and
local tax consequences to shareholders of an investment in the Fund.
In order to qualify for treatment as a RIC under the IRC, the Fund must
distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of taxable net
investment income, net short-term capital gain, and net gains from certain
foreign currency transactions, if applicable) ("Distribution Requirement") and
must meet several additional requirements. These requirements include the
following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of securities (or foreign
currencies if applicable) or other income (including gains from options,
futures, or forward contracts) derived with respect to its business of
investing in securities ("Income Requirement"); (2) at the close of each
quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. government securities,
securities of other RICs, and other securities, with these other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities; and (3) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. government securities or
the securities of other RICs) of any one issuer.
If Fund shares are sold at a loss after being held for six months or less, the
loss will be treated as long-term, instead of short-term, capital loss to the
extent of any capital gain distributions received on those shares.
The Fund's distributions are taxable in the year they are paid, whether they
are taken in cash or reinvested in additional shares, except that certain
distributions declared in the last three months of the year and paid in January
are taxable as if paid on December 31.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to the
extent it fails to distribute by the end of any calendar year substantially all
of its ordinary income for that year and capital gain net income for the
one-year period ending on
<PAGE>
October 31 of that year, plus certain other amounts. The Fund may make
additional distributions if necessary to avoid imposition of a 4% excise tax on
undistributed income and gains.
DETERMINATION OF NET ASSET VALUE
The Fund is 100% no load. This means that an investor may purchase, redeem or
exchange shares at the Fund's net asset value ("NAV") without paying a sales
charge. Generally, when an investor makes any purchases, sales, or exchanges,
the price of the investor's shares will be the NAV next determined after Strong
Funds receives a request in proper form (which includes receipt of all
necessary and appropriate documentation and subject to available funds). If
Strong Funds receives such a request prior to the close of the New York Stock
Exchange ("NYSE") on a day on which the NYSE is open, the share price will be
the NAV determined that day. The NAV for each Fund is normally determined as
of 3:00 p.m. Central Time ("CT") each day the NYSE is open. The NYSE is open
for trading Monday through Friday except, New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. Additionally, if any of the aforementioned holidays falls on a
Saturday, the NYSE will not be open for trading on the preceding Friday, and
when any such holiday falls on a Sunday, the NYSE will not be open for trading
on the succeeding Monday, unless unusual business conditions exist, such as the
ending of a monthly or yearly accounting period. The Fund reserves the right
to change the time at which purchases, redemptions, and exchanges are priced if
the NYSE closes at a time other than 3:00 p.m. CT or if an emergency exists.
The Fund's NAV is calculated by taking the fair value of the Fund's total
assets, subtracting all its liabilities, and dividing by the total number of
shares outstanding. Expenses are accrued daily and applied when determining
the NAV. The Fund's portfolio securities are valued based on market quotations
or at fair value as determined by the method selected by the Fund's Board of
Directors.
Shareholders can gain access to the money in their accounts by selling (also
called redeeming) some or all of their shares by mail, telephone, computer,
automatic withdrawals, through a broker-dealer, or by writing a check (assuming
all the appropriate documents and requirements have been met for these account
options). After a redemption request is processed, the proceeds from the sale
will normally be sent on the next business day but, in any event, no more than
seven days later.
ADDITIONAL SHAREHOLDER INFORMATION
TELEPHONE AND INTERNET EXCHANGE/REDEMPTION PRIVILEGES
The Fund employs reasonable procedures to confirm that instructions
communicated by telephone or the Internet are genuine. The Fund may not be
liable for losses due to unauthorized or fraudulent instructions. Such
procedures include but are not limited to requiring a form of personal
identification prior to acting on instructions received by telephone or the
Internet, providing written confirmations of such transactions to the address
of record, tape recording telephone instructions and backing up Internet
transactions.
RIGHT OF SET-OFF
To the extent not prohibited by law, the Fund, any other Strong Fund, and the
Advisor, each has the right to set-off against a shareholder's account balance
with a Strong Fund, and redeem from such account, any debt the shareholder may
owe any of these entities. This right applies even if the account is not
identically registered.
BROKERS RECEIPT OF PURCHASE AND REDEMPTION ORDERS
The Fund has authorized certain brokers to accept purchase and redemption
orders on the Fund's behalf. These brokers are, in turn, authorized to
designate other intermediaries to accept purchase and redemption orders on the
Fund's behalf. The Fund will be deemed to have received a purchase or
redemption order when an authorized broker or, if applicable, a broker's
authorized designee, accepts the order. Purchase and redemption orders
received in this manner will be priced at the Fund's net asset value next
computed after they are accepted by an authorized broker or the broker's
authorized designee.
SIGNATURE GUARANTEES
<PAGE>
A signature guarantee is designed to protect shareholders and the Fund against
fraudulent transactions by unauthorized persons. In the following instances,
the Fund will require a signature guarantee for all authorized owners of an
account:
- - when adding the telephone redemption option to an existing account;
- - when transferring the ownership of an account to another individual or
organization;
- - when submitting a written redemption request for more than $50,000;
- - when requesting to redeem or redeposit shares that have been issued in
certificate form;
- - if requesting a certificate after opening an account;
- - when requesting that redemption proceeds be sent to a different name or
address than is registered on an account;
- - if adding/changing a name or adding/removing an owner on an account; and
- - if adding/changing the beneficiary on a transfer-on-death account.
A signature guarantee may be obtained from any eligible guarantor institution,
as defined by the SEC. These institutions include banks, savings associations,
credit unions, brokerage firms, and others. Please note that a notary public
stamp or seal is not acceptable.
FINANCIAL INTERMEDIARIES
If an investor purchases or redeems shares of the Fund through a financial
intermediary, certain features of the Fund relating to such transactions may
not be available or may be modified. In addition, certain operational policies
of the Fund, including those related to settlement and dividend accrual, may
vary from those applicable to direct shareholders of the Fund and may vary
among intermediaries. Please consult your financial intermediary for more
information regarding these matters. In addition, the Fund may pay, directly
or indirectly through arrangements with the Advisor, amounts to financial
intermediaries that provide transfer agent type and/or other administrative
services to their customers provided, however, that the Fund will not pay more
for these services through intermediary relationships than it would if the
intermediaries' customers were direct shareholders in the Fund. Certain
financial intermediaries may charge an advisory, transaction, or other fee for
their services. Investors will not be charged for such fees if investors
purchase or redeem Fund shares directly from the Fund without the intervention
of a financial intermediary.
DOLLAR COST AVERAGING
Strong Funds' Automatic Investment Plan, Payroll Direct Deposit Plan, and
Automatic Exchange Plan are methods of implementing dollar cost averaging.
Dollar cost averaging is an investment strategy that involves investing a fixed
amount of money at regular time intervals. By always investing the same set
amount, an investor will be purchasing more shares when the price is low and
fewer shares when the price is high. Ultimately, by using this principle in
conjunction with fluctuations in share price, an investor's average cost per
share may be less than the average transaction price. A program of regular
investment cannot ensure a profit or protect against a loss during declining
markets. Since such a program involves continuous investment regardless of
fluctuating share values, investors should consider their ability to continue
the program through periods of both low and high share-price levels.
RETIREMENT PLANS
TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNT (IRA): Everyone under age 70 1/2 with
earned income may contribute to a tax-deferred Traditional IRA. The Strong
Funds offer a prototype plan for you to establish your own Traditional IRA. You
are allowed to contribute up to the lesser of $2,000 or 100% of your earned
income each year to your Traditional IRA (or up to $4,000 between your
Traditional IRA and your non-working spouses' Traditional IRA). Under certain
circumstances, your contribution will be deductible.
ROTH IRA: Taxpayers, of any age, who have earned income, and whose adjusted
gross income ("AGI") does not exceed $110,000 (single) or $160,000 (joint) can
contribute to a Roth IRA. Allowed contributions begin to phase-out at $95,000
(single) or $150,000 (joint). You are allowed to contribute up to the lesser
of $2,000 or 100% of earned income each year into a Roth IRA. If you also
maintain a Traditional IRA, the maximum contribution to your Roth IRA is
reduced by any contributions that you
<PAGE>
make to your Traditional IRA. Distributions from a Roth IRA, if they meet
certain requirements, may be federally tax free. If your AGI is $100,000 or
less, you can convert your Traditional IRAs into a Roth IRA. Conversions of
earnings and deductible contributions are taxable in the year of the
distribution. The early distribution penalty does not apply to amounts
converted to a Roth IRA even if you are under age 59 1/2.
EDUCATION IRA: Taxpayers may contribute up to $500 per year into an Education
IRA for the benefit of a child under age 18. Total contributions to any one
child cannot exceed $500 per year. The contributor must have adjusted income
under $110,000 (single) or $160,000 (joint) to contribute to an Education IRA.
Allowed contributions begin to phase-out at $95,000 (single) or $150,000
(joint). Withdrawals from the Education IRA to pay qualified higher education
expenses are federally tax free. Any withdrawal in excess of higher education
expenses for the year are potentially subject to tax and an additional 10%
penalty.
DIRECT ROLLOVER IRA: To avoid the mandatory 20% federal withholding tax on
distributions, you must transfer the qualified retirement or IRC section
403(b) plan distribution directly into an IRA. The distribution must be
eligible for rollover. The amount of your Direct Rollover IRA contribution
will not be included in your taxable income for the year.
SIMPLIFIED EMPLOYEE PENSION PLAN (SEP-IRA): A SEP-IRA plan allows an employer
to make deductible contributions to separate IRA accounts established for each
eligible employee.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN (SAR SEP-IRA): A SAR SEP-IRA
plan is a type of SEP-IRA plan in which an employer may allow employees to
defer part of their salaries and contribute to an IRA account. These deferrals
help lower the employees' taxable income. Please note that you may no longer
open new SAR SEP-IRA plans (since December 31, 1996). However, employers with
SAR SEP-IRA plans that were established prior to January 1, 1997 may still open
accounts for new employees.
SIMPLIFIED INCENTIVE MATCH PLAN FOR EMPLOYEES (SIMPLE-IRA): A SIMPLE-IRA plan
is a retirement savings plan that allows employees to contribute a percentage
of their compensation, up to $6,000, on a pre-tax basis, to a SIMPLE-IRA
account. The employer is required to make annual contributions to eligible
employees' accounts. All contributions grow tax-deferred.
DEFINED CONTRIBUTION PLAN: A defined contribution plan allows self-employed
individuals, partners, or a corporation to provide retirement benefits for
themselves and their employees. Plan types include: profit-sharing plans,
money purchase pension plans, and paired plans (a combination of a
profit-sharing plan and a money purchase plan).
401(K) PLAN: A 401(k) plan is a type of profit-sharing plan that allows
employees to have part of their salary contributed on a pre-tax basis to a
retirement plan which will earn tax-deferred income. A 401(k) plan is funded by
employee contributions, employer contributions, or a combination of both.
403(B)(7) PLAN: A 403(b)(7) plan is a tax-sheltered custodial account designed
to qualify under section 403(b)(7) of the IRC and is available for use by
employees of certain educational, non-profit, hospital, and charitable
organizations.
SHARES IN CERTIFICATE FORM
Certificates will be issued for shares held in a Fund account only upon written
request. A shareholder will, however, have full shareholder rights whether or
not a certificate is requested.
MOVING ACCOUNT OPTIONS AND INFORMATION
When establishing a new account by exchanging funds from an existing Strong
Funds account, some account options (such as checkwriting, telephone exchange,
telephone purchase and telephone redemption), if existing on the account from
which money is exchanged, will automatically be made available on the new
account unless the shareholder indicates otherwise, or the option is not
available on the new account. Subject to applicable Strong Funds policies,
other account options, including automatic investment, automatic exchange and
systematic withdrawal, may be moved to the new account at the request of the
shareholder. If allowed by Strong Funds policies (i) once the account options
are established on the new account, the shareholder may modify or amend the
options, and (ii) account options may be moved or added from one existing
account to another new or existing
<PAGE>
account. Account information, such as the shareholder's address of record and
social security number, will be copied from the existing account to the new
account.
PROMOTIONAL ITEMS OF NOMINAL VALUE
From time to time, the Advisor and/or Distributor may give de minimis gifts or
other immaterial consideration to investors who open new accounts or add to
existing accounts with the Strong Funds.
ORGANIZATION
The Fund is either a "Corporation" or a "Series" of common stock of a
Corporation, as described in the chart below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Incorporation Date Series Authorized Par
Corporation Date Created Shares Value ($)
- ------------------------------ ------------- ----------- ---------- ---------
Strong Life 10/22/98 Indefinite 0.00001
Stage Series, Inc.
- -Strong Conservative Portfolio 10/22/98 Indefinite 0.00001
- -Strong Moderate Portfolio 10/22/98 Indefinite 0.00001
- -Strong Aggressive Portfolio 10/22/98 Indefinite 0.00001
</TABLE>
The Corporation is a Wisconsin corporation that is authorized to offer separate
series of shares representing interests in separate portfolios of securities,
each with differing investment objectives. The shares in any one portfolio
may, in turn, be offered in separate classes, each with differing preferences,
limitations or relative rights. However, the Articles of Incorporation for the
Corporation provide that if additional series of shares are issued by the
Corporation, such new series of shares may not affect the preferences,
limitations or relative rights of the Corporation's outstanding shares. In
addition, the Board of Directors of the Corporation is authorized to allocate
assets, liabilities, income and expenses to each series and class. Classes
within a series may have different expense arrangements than other classes of
the same series and, accordingly, the net asset value of shares within a series
may differ. Finally, all holders of shares of the Corporation may vote on each
matter presented to shareholders for action except with respect to any matter
which affects only one or more series or class, in which case only the shares
of the affected series or class are entitled to vote. Each share of the Fund
has one vote, and all shares participate equally in dividends and other capital
gains distributions by the Fund and in the residual assets of the Fund in the
event of liquidation. Fractional shares have the same rights proportionately
as do full shares. Shares of the Corporation have no preemptive, conversion, or
subscription rights. If the Corporation issues additional series, the assets
belonging to each series of shares will be held separately by the custodian,
and in effect each series will be a separate fund.
SHAREHOLDER MEETINGS
The Wisconsin Business Corporation Law permits registered investment companies,
such as the Fund, to operate without an annual meeting of shareholders under
specified circumstances if an annual meeting is not required by the 1940 Act.
The Fund has adopted the appropriate provisions in its Bylaws and may, at its
discretion, not hold an annual meeting in any year in which the election of
directors is not required to be acted on by shareholders under the 1940 Act.
The Fund's Bylaws allow for a director to be removed by its shareholders with
or without cause, only at a meeting called for the purpose of removing the
director. Upon the written request of the holders of shares entitled to not
less than ten percent (10%) of all the votes entitled to be cast at such
meeting, the Secretary of the Fund shall promptly call a special meeting of
shareholders for the purpose of voting upon the question of removal of any
director. The Secretary shall inform such shareholders of the reasonable
estimated costs of preparing and mailing the notice of the meeting, and upon
payment to the Fund of such costs, the Fund shall give not less than ten nor
more than sixty days notice of the special meeting.
<PAGE>
PERFORMANCE INFORMATION
The Strong Funds may advertise a variety of types of performance information as
more fully described below. The Fund's performance is historical and past
performance does not guarantee the future performance of the Fund. From time
to time, the Advisor may agree to waive or reduce its management fee and/or to
absorb certain operating expenses for the Fund. Waivers of management fees and
absorption of expenses will have the effect of increasing the Fund's
performance.
AVERAGE ANNUAL TOTAL RETURN
The Fund's average annual total return quotation is computed in accordance with
a standardized method prescribed by rules of the SEC. The average annual total
return for the Fund for a specific period is calculated by first taking a
hypothetical $10,000 investment ("initial investment") in the Fund's shares on
the first day of the period and computing the "redeemable value" of that
investment at the end of the period. The redeemable value is then divided by
the initial investment, and this quotient is taken to the Nth root (N
representing the number of years in the period) and 1 is subtracted from the
result, which is then expressed as a percentage. The calculation assumes that
all income and capital gains dividends paid by the Fund have been reinvested at
net asset value on the reinvestment dates during the period.
TOTAL RETURN
Calculation of the Fund's total return is not subject to a standardized
formula. Total return performance for a specific period is calculated by first
taking an investment (assumed below to be $10,000) ("initial investment") in
the Fund's shares on the first day of the period and computing the "ending
value" of that investment at the end of the period. The total return
percentage is then determined by subtracting the initial investment from the
ending value and dividing the remainder by the initial investment and
expressing the result as a percentage. The calculation assumes that all income
and capital gains dividends paid by the Fund have been reinvested at net asset
value of the Fund on the reinvestment dates during the period. Total return
may also be shown as the increased dollar value of the hypothetical investment
over the period.
CUMULATIVE TOTAL RETURN
Cumulative total return represents the simple change in value of an investment
over a stated period and may be quoted as a percentage or as a dollar amount.
Total returns and cumulative total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship between these factors and their
contributions to total return.
COMPARISONS
U.S. TREASURY BILLS, NOTES, OR BONDS. Investors may want to compare the
performance of the Fund to that of U.S. Treasury bills, notes, or bonds, which
are issued by the U.S. Government. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Generally, the values of obligations with shorter maturities will
fluctuate less than those with longer maturities.
CERTIFICATES OF DEPOSIT. Investors may want to compare the Fund's performance
to that of certificates of deposit offered by banks and other depositary
institutions. Certificates of deposit may offer fixed or variable interest
rates and principal is guaranteed and may be insured. Withdrawal of the
deposits prior to maturity normally will be subject to a penalty. Rates
offered by banks and other depositary institutions are subject to change at any
time specified by the issuing institution.
MONEY MARKET FUNDS. Investors may also want to compare performance of the Fund
to that of money market funds. Money market fund yields will fluctuate and
shares are not insured, but share values usually remain stable.
LIPPER ANALYTICAL SERVICES, INC. ("LIPPER") AND OTHER INDEPENDENT RANKING
ORGANIZATIONS. From time to time, in marketing and other fund literature, the
Fund's performance may be compared to the performance of other mutual funds in
<PAGE>
general or to the performance of particular types of mutual funds with similar
investment goals, as tracked by independent organizations. Among these
organizations, Lipper, a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets, may be
cited. Lipper performance figures are based on changes in net asset value,
with all income and capital gains dividends reinvested. Such calculations do
not include the effect of any sales charges imposed by other funds. The Fund
will be compared to Lipper's appropriate fund category, that is, by fund
objective and portfolio holdings. The Fund's performance may also be compared
to the average performance of its Lipper category.
MORNINGSTAR, INC. The Fund's performance may also be compared to the
performance of other mutual funds by Morningstar, Inc., which rates funds on
the basis of historical risk and total return. Morningstar's ratings range
from five stars (highest) to one star (lowest) and represent Morningstar's
assessment of the historical risk level and total return of a fund as a
weighted average for 3, 5, and 10 year periods. Ratings are not absolute and
do not represent future results.
INDEPENDENT SOURCES. Evaluations of fund performance made by independent
sources may also be used in advertisements concerning the Fund, including
reprints of, or selections from, editorials or articles about the Fund,
especially those with similar objectives. Sources for fund performance and
articles about the Fund may include publications such as Money, Forbes,
Kiplinger's, Smart Money, Financial World, Business Week, U.S. News and World
Report, The Wall Street Journal, Barron's, and a variety of investment
newsletters.
VARIOUS BANK PRODUCTS. The Fund's performance also may be compared on a before
or after-tax basis to various bank products, including the average rate of bank
and thrift institution money market deposit accounts, Super N.O.W. accounts and
certificates of deposit of various maturities as reported in the Bank Rate
Monitor, National Index of 100 leading banks, and thrift institutions as
published by the Bank Rate Monitor, Miami Beach, Florida. The rates published
by the Bank Rate Monitor National Index are averages of the personal account
rates offered on the Wednesday prior to the date of publication by 100 large
banks and thrifts in the top ten Consolidated Standard Metropolitan Statistical
Areas. The rates provided for the bank accounts assume no compounding and are
for the lowest minimum deposit required to open an account. Higher rates may
be available for larger deposits.
With respect to money market deposit accounts and Super N.O.W. accounts,
account minimums range upward from $2,000 in each institution and compounding
methods vary. Super N.O.W. accounts generally offer unlimited check writing
while money market deposit accounts generally restrict the number of checks
that may be written. If more than one rate is offered, the lowest rate is
used. Rates are determined by the financial institution and are subject to
change at any time specified by the institution. Generally, the rates offered
for these products take market conditions and competitive product yields into
consideration when set. Bank products represent a taxable alternative income
producing product. Bank and thrift institution deposit accounts may be
insured. Shareholder accounts in the Fund are not insured. Bank passbook
savings accounts compete with money market mutual fund products with respect to
certain liquidity features but may not offer all of the features available from
a money market mutual fund, such as check writing. Bank passbook savings
accounts normally offer a fixed rate of interest while the yield of the Fund
fluctuates. Bank checking accounts normally do not pay interest but compete
with money market mutual fund products with respect to certain liquidity
features (E.G.., the ability to write checks against the account). Bank
certificates of deposit may offer fixed or variable rates for a set term.
(Normally, a variety of terms are available.) Withdrawal of these deposits
prior to maturity will normally be subject to a penalty. In contrast, shares
of the Fund are redeemable at the net asset value (normally, $1.00 per share)
next determined after a request is received, without charge.
INDICES. The Fund may compare its performance to a wide variety of indices.
There are differences and similarities between the investments that a Fund may
purchase and the investments measured by the indices.
HISTORICAL ASSET CLASS RETURNS. From time to time, marketing materials may
portray the historical returns of various asset classes. Such presentations
will typically compare the average annual rates of return of inflation, U.S.
Treasury bills, bonds, common stocks, and small stocks. There are important
differences between each of these investments that should be considered in
viewing any such comparison. The market value of stocks will fluctuate with
market conditions, and small-stock prices generally will fluctuate more than
large-stock prices. Stocks are generally more volatile than bonds. In return
for this volatility, stocks have generally performed better than bonds or cash
over time. Bond prices generally will fluctuate inversely with interest rates
and other market conditions, and the prices of bonds with longer maturities
generally will fluctuate more than those of shorter-maturity
<PAGE>
bonds. Interest rates for bonds may be fixed at the time of issuance, and
payment of principal and interest may be guaranteed by the issuer and, in the
case of U.S. Treasury obligations, backed by the full faith and credit of the
U.S. Treasury.
<PAGE>
ADDITIONAL FUND INFORMATION
PORTFOLIO CHARACTERISTICS. In order to present a more complete picture of the
Fund's portfolio, marketing materials may include various actual or estimated
portfolio characteristics, including but not limited to median market
capitalizations, earnings per share, alphas, betas, price/earnings ratios,
returns on equity, dividend yields, capitalization ranges, growth rates,
price/book ratios, top holdings, sector breakdowns, asset allocations, quality
breakdowns, and breakdowns by geographic region.
MEASURES OF VOLATILITY AND RELATIVE PERFORMANCE. Occasionally statistics may
be used to specify fund volatility or risk. The general premise is that greater
volatility connotes greater risk undertaken in achieving performance. Measures
of volatility or risk are generally used to compare the Fund's net asset value
or performance relative to a market index. One measure of volatility is beta.
Beta is the volatility of a fund relative to the total market as represented by
the Standard & Poor's 500 Stock Index. A beta of more than 1.00 indicates
volatility greater than the market, and a beta of less than 1.00 indicates
volatility less than the market. Another measure of volatility or risk is
standard deviation. Standard deviation is a statistical tool that measures the
degree to which a fund's performance has varied from its average performance
during a particular time period.
Standard deviation is calculated using the following formula:
Standard deviation = the square root of S(xi - xm)2
n-1
Where: S = "the sum of",
xi = each individual return during the time period,
xm = the average return over the time period, and
n = the number of individual returns during the time period.
Statistics may also be used to discuss the Fund's relative performance. One
such measure is alpha. Alpha measures the actual return of a fund compared to
the expected return of a fund given its risk (as measured by beta). The
expected return is based on how the market as a whole performed, and how the
particular fund has historically performed against the market. Specifically,
alpha is the actual return less the expected return. The expected return is
computed by multiplying the advance or decline in a market representation by
the Fund's beta. A positive alpha quantifies the value that the fund manager
has added, and a negative alpha quantifies the value that the fund manager has
lost.
Other measures of volatility and relative performance may be used as
appropriate. However, all such measures will fluctuate and do not represent
future results.
GENERAL INFORMATION
BUSINESS PHILOSOPHY
The Advisor is an independent, Midwestern-based investment advisor, owned by
professionals active in its management. Recognizing that investors are the
focus of its business, the Advisor strives for excellence both in investment
management and in the service provided to investors. This commitment affects
many aspects of the business, including professional staffing, product
development, investment management, and service delivery.
The increasing complexity of the capital markets requires specialized skills
and processes for each asset class and style. Therefore, the Advisor believes
that active management should produce greater returns than a passively managed
index. The Advisor has brought together a group of top-flight investment
professionals with diverse product expertise, and each concentrates on their
investment specialty. The Advisor believes that people are the firm's most
important asset. For this reason, continuity of professionals is critical to
the firm's long-term success.
<PAGE>
INVESTMENT ENVIRONMENT
Discussions of economic, social, and political conditions and their impact on
the Fund may be used in advertisements and sales materials. Such factors that
may impact the Fund include, but are not limited to, changes in interest rates,
political developments, the competitive environment, consumer behavior,
industry trends, technological advances, macroeconomic trends, and the supply
and demand of various financial instruments. In addition, marketing materials
may cite the portfolio management's views or interpretations of such factors.
EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING
These common sense rules are followed by many successful investors. They make
sense for beginners, too. If you have a question on these principles, or would
like to discuss them with us, please contact us at 1-800-368-3863.
1. HAVE A PLAN - even a simple plan can help you take control of your
financial future. Review your plan once a year, or if your circumstances
change.
2. START INVESTING AS SOON AS POSSIBLE. Make time a valuable ally. Let it
put the power of compounding to work for you, while helping to reduce your
potential investment risk.
3. DIVERSIFY YOUR PORTFOLIO. By investing in different asset classes -
stocks, bonds, and cash - you help protect against poor performance in one type
of investment while including investments most likely to help you achieve your
important goals.
4. INVEST REGULARLY. Investing is a process, not a one-time event. By
investing regularly over the long term, you reduce the impact of short-term
market gyrations, and you attend to your long-term plan before you're tempted
to spend those assets on short-term needs.
5. MAINTAIN A LONG-TERM PERSPECTIVE. For most individuals, the best
discipline is staying invested as market conditions change. Reactive, emotional
investment decisions are all too often a source of regret - and principal loss.
6. CONSIDER STOCKS TO HELP ACHIEVE MAJOR LONG-TERM GOALS. Over time, stocks
have provided the more powerful returns needed to help the value of your
investments stay well ahead of inflation.
7. KEEP A COMFORTABLE AMOUNT OF CASH IN YOUR PORTFOLIO. To meet current
needs, including emergencies, use a money market fund or a bank account - not
your long-term investment assets.
8. KNOW WHAT YOU'RE BUYING. Make sure you understand the potential risks
and rewards associated with each of your investments. Ask questions... request
information...make up your own mind. And choose a fund company that helps you
make informed investment decisions.
STRONG RETIREMENT PLAN SERVICES
Strong Retirement Plan Services offers a full menu of high quality, affordable
retirement plan options, including traditional money purchase pension and
profit sharing plans, 401(k) plans, simplified employee pension plans, salary
reduction plans, Keoghs, and 403(b) plans. Retirement plan specialists are
available to help companies determine which type of retirement plan may be
appropriate for their particular situation.
MARKETS. The retirement plan services provided by the Advisor focus on four
distinct markets, based on the belief that a retirement plan should fit the
customer's needs, not the other way around.
1. SMALL COMPANY PLANS. Small company plans are designed for companies
with 1-50 plan participants. The objective is to incorporate the features and
benefits typically reserved for large companies, such as sophisticated
recordkeeping systems,
<PAGE>
outstanding service, and investment expertise, into a small company plan
without administrative hassles or undue expense. Small company plan sponsors
receive a comprehensive plan administration manual as well as toll-free
telephone support.
2. LARGE COMPANY PLANS. Large company plans are designed for companies
with between 51 and 1,000 plan participants. Each large company plan is
assigned a team of professionals consisting of an account manager, who is
typically an attorney, CPA, or holds a graduate degree in business, a
conversion specialist (if applicable), an accounting manager, a legal/technical
manager, and an education/communications educator.
3. WOMEN-OWNED BUSINESSES.
4. NON-PROFIT AND EDUCATIONAL ORGANIZATIONS (THE 403(B) MARKET).
TURNKEY APPROACH. The retirement plans offered by the Advisor are designed to
be streamlined and simple to administer. To this end, the Advisor has invested
heavily in the equipment, systems, and people necessary to adopt or convert a
plan, and to keep it running smoothly. The Advisor provides all aspects of the
plan, including plan design, administration, recordkeeping, and investment
management. To streamline plan design, the Advisor provides customizable
IRS-approved prototype documents. The Advisor's services also include annual
government reporting and testing as well as daily valuation of each
participant's account. This structure is intended to eliminate the confusion
and complication often associated with dealing with multiple vendors. It is
also designed to save plan sponsors time and expense.
The Advisor strives to provide one-stop retirement savings programs that
combine the advantages of proven investment management, flexible plan design,
and a wide range of investment options. The open architecture design of the
plans allow for the use of the family of mutual funds managed by the Advisor as
well as a stable asset value option. Large company plans may supplement these
options with their company stock (if publicly traded) or funds from other
well-known mutual fund families.
EDUCATION. Participant education and communication is key to the success of
any retirement program, and therefore is one of the most important services
that the Advisor provides. The Advisor's goal is twofold: to make sure that
plan participants fully understand their options and to educate them about the
lifelong investment process. To this end, the Advisor provides attractive,
readable print materials that are supplemented with audio and video tapes, and
retirement education programs.
SERVICE. The Advisor's goal is to provide a world class level of service. One
aspect of that service is an experienced, knowledgeable team that provides
ongoing support for plan sponsors, both at adoption or conversion and
throughout the life of a plan. The Advisor is committed to delivering accurate
and timely information, evidenced by straightforward, complete, and
understandable reports, participant account statements, and plan summaries.
The Advisor has designed both "high-tech" and "high-touch" systems, providing
an automated telephone system as well as personal contact. Participants can
access daily account information, conduct transactions, or have questions
answered in the way that is most comfortable for them.
STRONG FINANCIAL ADVISORS GROUP
The Strong Financial Advisors Group is dedicated to helping financial advisors
better serve their clients. Financial advisors receive regular updates on the
mutual funds managed by the Advisor, access to portfolio managers through
special conference calls, consolidated mailings of duplicate confirmation
statements, access to the Advisor's network of regional representatives, and
other specialized services. For more information on the Strong Financial
Advisors Group, call 1-800-368-1683.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 100 East Wisconsin Avenue, Milwaukee, Wisconsin
53202, are the independent accountants for the Fund, providing audit services
and assistance and consultation with respect to the preparation of filings with
the SEC.
LEGAL COUNSEL
Godfrey & Kahn, S.C., 780 North Water Street, Milwaukee, Wisconsin 53202, acts
as legal counsel for the Fund.
STRONG LIFE STAGE SERIES, INC. -
STRONG CONSERVATIVE PORTFOLIO
STRONG MODERATE PORTFOLIO
STRONG AGGRESSIVE PORTFOLIO
REPORT ON AUDITS OF STATEMENTS OF ASSETS AND LIABILITIES
AS OF DECEMBER 15, 1998
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Strong Life Stage Series, Inc.
In our opinion, the accompanying statements of assets and liabilities present
fairly, in all material respects, the financial position of Strong Life Stage
Series, Inc. (comprised of Strong Conservative Portfolio, Strong Moderate
Portfolio and Strong Aggressive Portfolio) (hereafter referred to as the
"Portfolios") as of December 15, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Portfolios' management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion expressed above.
PricewaterhouseCoopers LLP
December 15, 1998
STRONG LIFE STAGE SERIES, INC. -
STATEMENTS OF ASSETS AND LIABILITIES
December 15, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Strong Strong Strong
Conservative Moderate Aggressive
Portfolio Portfolio Portfolio
------------ --------- ----------
Assets:
Cash $34,000 $33,000 $33,000
Prepaid initial registration and blue sky expenses $32,010 $32,010 $32,010
------------ --------- ----------
Total asssets $66,010 $65,010 $65,010
Liabilities:
Due to advisor $32,010 $32,010 $32,010
------------ --------- ----------
Net assets $34,000 $33,000 $33,000
============ ========= ==========
Common shares outstanding ($0.00001 par value; indefinite number of 3,400 3,300 3,300
shares authorized)
Net asset value:
Net asset value, redemption price and offering price per share $10.00 $10.00 $10.00
============ ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
STRONG LIFE STAGE SERIES, INC. -
NOTES TO STATEMENTS OF ASSETS AND LIABILITIES
December 15, 1998
1. ORGANIZATION:
The Strong Life Stage Series, Inc. (the "Corporation") was incorporated on
October 22, 1998 in the State of Wisconsin and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified
open-end investment company issuing its shares in various portfolios, each with
its own investment objectives and policies. The portfolios currently
established by the Corporation include the Strong Conservative Portfolio,
Strong Moderate Portfolio and Strong Aggressive Portfolio (the "Portfolios").
The Portfolios have had no operations to date other than those relating to
organizational matters, including the sale of 3,400 shares of Common Stock for
$34,000 of Strong Conservative Portfolio, 3,300 shares of Common Stock for
$33,000 of Strong Moderate Portfolio, and 3,300 shares of Common Stock for
$33,000 of Strong Aggressive Portfolio, to Strong Capital Management, Inc. (the
"Advisor") on December 15, 1998.
2. SIGNIFICANT ACCOUNTING POLICIES:
(a) Organization and Prepaid Initial Registration Expenses
Expenses incurred by the Portfolios in connection with the organization and the
initial public offering of shares are expenses as incurred. During the period
from October 22, 1998 (incorporation) to December 15, 1998, organization
expenses were $2,517 for each of the Portfolios. These expenses were paid
directly by the Advisor and the Advisor has voluntarily agreed to absorb all
organizational expenses of the Portfolios. Prepaid initial registration fees
and blue sky expenses were paid by and will be reimbursed to the Advisor and
are deferred and amortized over the period of benefit.
(b) Federal Income Taxes
Each Portfolio intends to comply with the requirements of the Internal Revenue
Code necessary to qualify as a regulated investment company and to make the
requisite distributions of income and capital gains to its shareholders
sufficient to relieve it from all or substantially all Federal income taxes.
<PAGE>
STRONG LIFE STAGE SERIES, INC.
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements for Strong Conservative Portfolio, Strong
Moderate Portfolio, and Strong Aggressive Portfolio (all included in Part B)
Report of Independent Accountants
Statement of Assets and Liabilities
(b) Exhibits
(1) Articles of Incorporation dated October 22, 1998
(2) Bylaws dated October 23, 1998
(3) Inapplicable
(4) Specimen Stock Certificate
(5) Inapplicable
(6) Distribution Agreement
(7) Inapplicable
(8) Custody Agreement
(9) Shareholder Servicing Agent Agreement (relating to transfer and
dividend-disbursing agent activities)
(9.1) Shareholder Servicing Agent Agreement (relating to personal
services provided to shareholders)
(10) Opinion of Counsel
(11) Consent of Independent Accountants
(12) Inapplicable
(13) Stock Subscription Agreement
(14) Inapplicable
(15) Inapplicable
(16) Inapplicable
(17) Inapplicable
(18) Inapplicable
(19) Power of Attorney dated October 23, 1998(1)
(19.1) Power of Attorney dated December 22, 1998
(20) Inapplicable
(21.1) Code of Ethics for Access Persons dated October 22, 1998
(21.2) Code of Ethics for Non-Access Persons dated October 22, 1998
___________________
(1) Incorporated herein by reference to the Initial Registration Statement
on Form N-1A of Registrant filed on or about November 2, 1998.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant neither controls any person nor is under common control with
any other person.
<PAGE>
Item 26. NUMBER OF HOLDERS OF SECURITIES
Number of Record Holders
TITLE OF CLASS AS OF DECEMBER 30, 1998
Common Stock, $.00001 par value
Strong Conservative Portfolio 1
Strong Moderate Portfolio 1
Strong Aggressive Portfolio 1
Item 27. INDEMNIFICATION
Officers and directors are insured under a joint errors and omissions
insurance policy underwritten by American International Group and Great
American Insurance Company in the aggregate amount of $100,000,000, subject to
certain deductions. Pursuant to the authority of the Wisconsin Business
Corporation Law ("WBCL"), Article VII of Registrant's Bylaws provides as
follows:
ARTICLE VII. INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 7.01. MANDATORY INDEMNIFICATION. The Corporation shall
indemnify, to the full extent permitted by the WBCL, as in effect from time to
time, the persons described in Sections 180.0850 through 180.0859 (or any
successor provisions) of the WBCL or other provisions of the law of the State
of Wisconsin relating to indemnification of directors and officers, as in
effect from time to time. The indemnification afforded such persons by this
section shall not be exclusive of other rights to which they may be entitled as
a matter of law.
SECTION 7.02. PERMISSIVE SUPPLEMENTARY BENEFITS. The Corporation
may, but shall not be required to, supplement the right of indemnification
under Section 7.01 by (a) the purchase of insurance on behalf of any one or
more of such persons, whether or not the Corporation would be obligated to
indemnify such person under Section 7.01; (b) individual or group
indemnification agreements with any one or more of such persons; and (c)
advances for related expenses of such a person.
SECTION 7.03. AMENDMENT. This Article VII may be amended or
repealed only by a vote of the shareholders and not by a vote of the Board of
Directors.
SECTION 7.04. INVESTMENT COMPANY ACT. In no event shall the
Corporation indemnify any person hereunder in contravention of any provision of
the Investment Company Act.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
The information contained under "About the Portfolios - Management" in the
Prospectus and under "Directors and Officers" and "Investment Advisor of the
Underlying Funds" and "Distributor" in the Statement of Additional Information
is hereby incorporated by reference pursuant to Rule 411 under the Securities
Act of 1933.
Item 29. PRINCIPAL UNDERWRITERS
(a) Strong Investments, Inc., principal underwriter for Registrant, also
serves as principal underwriter for Strong Advantage Fund, Inc.; Strong Asia
Pacific Fund, Inc.; Strong Asset Allocation Fund, Inc.; Strong Common Stock
Fund, Inc.; Strong Conservative Equity Funds, Inc.; Strong Corporate Bond Fund,
Inc.; Strong Discovery Fund, Inc.; Strong Equity Funds, Inc.; Strong Government
Securities Fund, Inc.; Strong Heritage Reserve Series, Inc.; Strong High-Yield
Municipal Bond Fund, Inc.; Strong Income Funds, Inc.; Strong Institutional
Funds, Inc.; Strong International Equity Funds, Inc.; Strong International
Income Funds, Inc.; Strong Money Market Fund, Inc.; Strong Municipal Bond Fund,
Inc.; Strong Municipal Funds, Inc.; Strong Opportunity Fund, Inc.; Strong
<PAGE>
Opportunity Fund II, Inc.; Strong Schafer Funds, Inc.; Strong Schafer Value
Fund , Inc.: Strong Short-Term Bond Fund, Inc.; Strong Short-Term Global Bond
Fund, Inc.; Strong Short-Term Municipal Bond Fund, Inc.; Strong Total Return
Fund, Inc.; and Strong Variable Insurance Funds, Inc.
(b)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH UNDERWRITER WITH FUND
Richard S. Strong Director and Chairman Director and Chairman of
900 Heritage Reserve of the Board the Board
Menomonee Falls, WI 53051
Thomas P. Lemke Vice President and Chief Vice President
900 Heritage Reserve Compliance Officer
Menomonee Falls, WI 53051
Stephen J. Shenkenberg Vice President, Deputy Vice President
900 Heritage Reserve Chief Compliance Officer and Secretary
Menomonee Falls, WI 53051 and Secretary
Peter D. Schwab Vice President none
900 Heritage Reserve
Menomonee Falls, WI 53051
Joseph R. DeMartine Vice President none
900 Heritage Reserve
Menomonee Falls, WI 53051
Anthony J. D'Amato Vice President none
900 Heritage Reserve
Menomonee Falls, WI 53051
Thomas M. Zoeller Treasurer and Chief none
900 Heritage Reserve Financial Officer
Menomonee Falls, WI 53051
Richard T. Weiss Director none
900 Heritage Reserve
Menomonee Falls, WI 53051
(c) Inapplicable
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are in the physical possession of Registrant's Vice President,
Thomas P. Lemke, at Registrant's corporate offices, 100 Heritage Reserve,
Menomonee Falls, Wisconsin 53051.
<PAGE>
Item 31. MANAGEMENT SERVICES
All management-related service contracts entered into by Registrant are
discussed in Parts A and B of this Registration Statement.
Item 32. UNDERTAKINGS
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
Village of Menomonee Falls, and State of Wisconsin on the 22nd day of December,
1998.
STRONG LIFE STAGE SERIES, INC.
(Registrant)
BY: /S/ THOMAS P. LEMKE
Thomas P. Lemke, Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A has
been signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME TITLE DATE
- ----------------------------- ---------------------------------- -----------------
Chairman of the Board (Principal
/s/ Richard S. Strong Executive Officer) and a Director December 22, 1998
- -----------------------------
Richard S. Strong
Treasurer (Principal Financial and
/s/ Dana J. Russart Accounting Officer) December 22, 1998
- -----------------------------
Dana J. Russart
Director December 22, 1998
- -----------------------------
Marvin E. Nevins*
Director December 22, 1998
- -----------------------------
Willie D. Davis*
Director December 22, 1998
- -----------------------------
William F. Vogt*
Director December 22, 1998
- -----------------------------
Stanley Kritzik*
</TABLE>
* John S. Weitzer signs this document pursuant to powers of attorney filed
with the Initial Registration Statement on Form N-1A.
By: /S/ JOHN S. WEITZER
John S. Weitzer
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
EDGAR
EXHIBIT NO. EXHIBIT EXHIBIT NO.
(1) Articles of Incorporation EX-99.b1
(2) Bylaws EX-99.b2
(4) Specimen Stock Certificate EX-99.b4
(6) Distribution Agreement EX-99.b6
(8) Custody Agreement EX-99.b8
(9) Shareholder Servicing Agent Agreement (relating to transfer and EX-99.b9
dividend-disbursing agent activities)
(9.1) Shareholder Servicing Agent Agreement (relating to personal EX-99.b9.1
services provided to shareholders)
(10) Opinion of Counsel EX-99.b10
(11) Consent of Independent Accountants EX-99.b11
(13) Stock Subscription Agreement EX-99.b13
(19.1) Power of Attorney EX-99.b19.1
(21.1) Code of Ethics for Access Persons EX-99.b21.1
(21.2) Code of Ethics for Non-Access Persons EX-99-b21.2
</TABLE>
<PAGE>
ARTICLES OF INCORPORATION
OF STRONG LIFE STAGE SERIES, INC.
The undersigned, for the purpose of forming a Wisconsin corporation under
Chapter 180 of the Wisconsin Statutes, adopts the following Articles of
Incorporation:
ARTICLE I
The name of the corporation (hereinafter, the "Corporation") is:
Strong Life Stage Series, Inc.
ARTICLE II
The period of existence of the Corporation shall be perpetual.
ARTICLE III
The purpose for which the Corporation is organized is, without limitation,
to act as a registered management investment company under 15 USC 80a-1 to
80a-64, as amended from time to time (the "Investment Company Act"), and for
any other purposes for which corporations may be organized under Chapter 180 of
the Wisconsin Statutes, as amended from time to time (the "WBCL").
ARTICLE IV
A. The Corporation shall have the authority to issue an indefinite
number of shares of Common Stock with a par value of $.00001 per share. Subject
to the following paragraph the authorized shares are classified as follows:
CLASS AUTHORIZED NUMBER OF SHARES
Strong Conservative Portfolio Indefinite
Strong Moderate Portfolio Indefinite
Strong Aggressive Portfolio Indefinite
B. The Board of Directors is authorized to classify or to reclassify
(i.e. into classes and series of classes), from time to time, any unissued
shares of the Corporation by setting, changing, or eliminating the
distinguishing designation and the preferences, limitations, and relative
rights, in whole or in part, to the fullest extent permissible under the WBCL.
Unless otherwise provided by the Board of Directors prior to the issuance
of shares, the shares of any and all classes and series shall be subject to the
following:
1. The Board of Directors may redesignate a class or series whether
or not shares of such class or series are issued and outstanding, provided that
such redesignation does not affect the preferences, limitations, and relative
rights, in whole or in part, of such class or series.
1
<PAGE>
2. The assets and liabilities and the income and expenses for each
class shall be attributable to that class. The assets and liabilities and the
income and expenses of each series within a class shall be determined
separately and, accordingly, the net asset value of shares may vary from series
to series within a class. The income or gain and the expense or liabilities of
the Corporation shall be allocated to each class or series as determined by or
under the direction of the Board of Directors.
3. Shares of each class or series shall be entitled to such
dividends or distributions, in shares or in cash or both, as may be declared
from time to time by the Board of Directors with respect to such class or
series. Dividends or distributions shall be paid on shares of a class or series
only out of the assets belonging to that class or series.
4. Any shares redeemed by the Corporation shall be deemed to be
canceled and restored to the status of authorized but unissued shares of the
particular class or series.
5. In the event of the liquidation or dissolution of the
Corporation, the holders of a class or series shall be entitled to receive, as
a class or series, out of the assets of the Corporation available for
distribution to shareholders, the assets belonging to that class or series less
the liabilities allocated to that class or series. The assets so distributable
to the holders of a class or series shall be distributed among such holders in
proportion to the number of shares of that class or series held by them and
recorded on the books of the Corporation. In the event that there are any
assets available for distribution that are not attributable to any particular
class or series, such assets shall be allocated to all classes or series in
proportion to the net asset value of the respective class or series.
6. All holders of shares shall vote as a single class and series
except with respect to any matter which affects only one or more series or
class of shares, in which case only the holders of shares of the class or
series affected shall be entitled to vote.
7. For purposes of the Corporation's Registration Statement filed
with the Securities and Exchange Commission under the Securities Act of 1933
and the Investment Company Act of 1940, including all prospectuses and
Statements of Additional Information, and other reports filed under the
Investment Company Act of 1940, references therein to "classes" of the
Corporation's common stock shall mean "series", as used in these Articles of
Incorporation and the WBCL, and references therein to "series" shall mean
"classes", as used in these Articles of Incorporation and the WBCL.
C. The Corporation may issue fractional shares. Any fractional shares
shall carry proportionately all the rights of whole shares, including, without
limitation, the right to vote and the right to receive dividends and
distributions.
D. The Board of Directors of the Corporation may authorize the
issuance and sale of any class or series of shares from time to time in such
amount and on such terms and conditions, for such purposes and for such amounts
or kind of consideration as the Board of Directors shall determine, subject to
any limits required by then applicable law. Nothing in this paragraph shall be
construed in any way as limiting the Board of Directors authority to issue the
Corporation's shares in connection with a share dividend under the WBCL.
E. Subject to the suspension of the right of redemption or
postponement of the date of payment or satisfaction upon redemption in
accordance with the Investment Company Act, each holder of any class or series
of the Common Stock of the Corporation, upon request and after complying with
the redemption procedures established by or under the supervision of the Board
of Directors, shall be entitled to require the Corporation to redeem out of
legally available funds all or any part of the Common Stock standing in the
name of such holder on the books of the Corporation at the net asset value (as
determined in accordance with the Investment Company Act) of such shares (less
any applicable redemption fee). Any such redeemed shares shall be canceled and
restored to the status of authorized but unissued shares.
2
<PAGE>
F. The Board of Directors may authorize the Corporation, at its option
and to the extent permitted by and in accordance with the Investment Company
Act, to redeem any shares of Common Stock of any class or series of the
Corporation owned by any shareholder under circumstances deemed appropriate by
the Board of Directors in its sole discretion from time to time, including
without limitation the failure to maintain ownership of a specified minimum
number or value of shares of Common Stock of any class or series of the
Corporation, at the net asset value (as determined in accordance with the
Investment Company Act) of such shares (less any applicable redemption fee).
G. The Board of Directors of the Corporation may, upon reasonable
notice to the holders of Common Stock of any class or series of the
Corporation, impose a fee for the redemption of shares, such fee to be not in
excess of the amount set forth in the Corporation's then existing Bylaws and to
apply in the case of such redemptions and under such terms and conditions as
the Board of Directors shall determine. The Board of Directors shall have the
authority to rescind imposition of any such fee in its discretion and to
reimpose the redemption fee from time to time upon reasonable notice.
H. No holder of the Common Stock of any class or series of the
Corporation shall, as such holder, have any right to purchase or subscribe for
any shares of the Common Stock of any class or series of the Corporation which
it may issue or sell other than such right, if any, as the Board of Directors,
in its sole discretion, may determine.
I. With respect to any class or series, the Board of Directors may
adopt provisions to seek to maintain a stable net asset value per share.
Without limiting the foregoing, the Board of Directors may determine that the
net asset value per share of any class or series should be maintained at a
designated constant value and may establish procedures, not inconsistent with
applicable law, to accomplish that result. Such procedures may include a
requirement, in the event of a net loss with respect to the particular class or
series from time to time, for automatic pro rata capital contributions from
each shareholder of that class or series in amounts sufficient to maintain the
designated constant share value.
ARTICLE V
The number of directors shall be fixed by the Bylaws of the Corporation.
ARTICLE VI
The Corporation reserves the right to enter into, from time to time,
investment advisory agreements providing for the management and supervision of
the investments of the Corporation, the furnishing of advice to the Corporation
with respect to the desirability of investing in, purchasing or selling
securities or other assets and the furnishing of clerical and administrative
services to the Corporation. Such agreements shall contain such other terms,
provisions and conditions as the Board of Directors of the Corporation may deem
advisable and as are permitted by the Investment Company Act.
The Corporation may, without limitation, designate distributors,
custodians, transfer agents, registrars and/or disbursing agents for the stock
and assets of the Corporation and employ and fix the powers, rights, duties,
responsibilities and compensation of each such distributor, custodian, transfer
agent, registrar and/or disbursing agent.
3
<PAGE>
ARTICLE VII
The registered office of the Corporation is located at 100 Heritage
Reserve, in the Village of Menomonee Falls, Waukesha County, Wisconsin 53051,
and the name of the registered agent at such address is Stephen J. Shenkenberg.
Executed in duplicate this 20th day of October, 1998.
STRONG LIFE STAGE SERIES, INC.
/s/ Stephen J. Shenkenberg
----------------------------
Stephen J. Shenkenberg
Sole Incorporator
This instrument was drafted by:
John S. Weitzer
Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
BYLAWS
OF
STRONG LIFE STAGE SERIES, INC.
(A WISCONSIN CORPORATION)
(Effective as of October 23, 1998)
1
<PAGE>
ARTICLE I. OFFICES
SECTION 1.01. PRINCIPAL AND OTHER OFFICES. The principal office of
the Corporation shall be located at any place either within or outside the
State of Wisconsin as designated in the Corporation's most current Annual
Report filed with the Wisconsin Secretary of State. The Corporation may have
such other offices, either within or outside the State of Wisconsin, as the
Board of Directors may designate or as the business of the Corporation may
require from time to time.
SECTION 1.02. REGISTERED OFFICE. The registered office of the
Corporation required by the Wisconsin Business Corporation Law (the "WBCL") to
be maintained in the State of Wisconsin may, but need not, be the same as any
of its places of business. The registered office may be changed from time to
time.
SECTION 1.03. REGISTERED AGENT. The registered agent of the
Corporation required by the WBCL to maintain a business office in the State of
Wisconsin may, but need not, be an officer or employee of the Corporation as
long as such agent's business office is identical with the registered office.
The registered agent may be changed from time to time.
ARTICLE II. SHAREHOLDERS
SECTION 2.01. ANNUAL MEETING. The annual meeting of the
shareholders, if the annual meeting shall be held, shall be held in April of
each year, or at such other time and date as may be fixed by or under the
authority of the Board of Directors, for the purpose of electing directors and
for the transaction of such other business as may properly come before the
meeting. The Corporation shall not be required to hold an annual meeting in
any year in which none of the following is required to be acted on by
shareholders under the Investment Company Act of 1940, as amended, and the
rules and regulations promulgated thereunder (the "Investment Company Act"):
(i) Election of directors;
(ii) Approval of the Corporation's investment advisory contract;
(iii) Ratification of the selection of the Corporation's independent
public accountants; or
(iv) Approval of the Corporation's distribution agreement.
2
<PAGE>
SECTION 2.02. SPECIAL MEETINGS. Special meetings of the
shareholders for any purpose or purposes, unless otherwise prescribed by the
WBCL, may be called by the Board of Directors, the Chairman of the Board, Vice
Chairman or President. Notwithstanding any other provision of these By-Laws,
the Corporation shall call a special meeting of shareholders in the event that
the holders of at least 10% of all of the votes entitled to be cast on any
issue proposed to be considered at the proposed special meeting sign, date and
deliver to the Corporation one or more written demands for the meeting
describing one or more purposes for which it is to be held. The Secretary
shall inform such shareholders of the reasonable estimated costs of preparing
and mailing the notice of the meeting, and upon payment to the Corporation of
such costs, the Corporation shall give not less than ten nor more than sixty
days notice of the special meeting.
SECTION 2.03. PLACE OF MEETING. The Board of Directors may
designate any place, either within or without the State of Wisconsin, as the
place of meeting for any annual or special meeting of shareholders. If no
designation is made, the place of meeting shall be the principal office of the
Corporation. Any meeting may be adjourned to reconvene at any place designated
by vote of a majority of the shares represented thereat.
SECTION 2.04. NOTICE OF MEETING. Written notice stating the date,
time and place of any meeting of shareholders and, in case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
delivered not less than ten days nor more than sixty days before the date of
the meeting (unless a different time is provided by applicable law or
regulation or the Articles of Incorporation), either personally or by mail, by
or at the direction of the Chairman of the Board, Vice Chairman, President or
Secretary, to each shareholder of record entitled to vote at such meeting and
to such other persons as required by the WBCL. If mailed, such notice shall be
deemed to be effective when deposited in the United States mail, addressed to
the shareholder at his or her address as it appears on the stock record books
of the Corporation, with postage thereon prepaid. If an annual or special
meeting of shareholders is adjourned to a different date, time or place, the
Corporation shall not be required to give notice of the new date, time or place
if the new date, time or place is announced at the meeting before adjournment;
PROVIDED, HOWEVER, that if a new record date for an adjourned meeting is or
must be fixed, the Corporation shall give notice of the adjourned meeting to
persons who are shareholders as of the new record date.
SECTION 2.05. WAIVER OF NOTICE. A shareholder may waive any notice
required by the WBCL, the Articles of Incorporation or these By-Laws before or
after the date and time stated in the notice. The waiver shall be in writing
and signed by the shareholder entitled to the notice, contain the same
information that would have been required in the notice under applicable
provisions of the WBCL (except that the time and place of meeting need not be
stated) and be delivered to the Corporation for inclusion in the corporate
records. A shareholder's attendance at a meeting, in person or by proxy,
waives objection to all of the following: (a) lack of notice or defective
notice of the meeting, unless the shareholder at the beginning of the meeting
or promptly upon arrival objects to holding the meeting or transacting business
at the meeting;
3
<PAGE>
and (b) consideration of a particular matter at the meeting that is not within
the purpose described in the meeting notice, unless the shareholder objects to
considering the matter when it is presented.
SECTION 2.06. FIXING OF RECORD DATE. For the purpose of determining
shareholders of any voting group entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any distribution or dividend, or in order to make a
determination of shareholders for any other proper purpose, the Board of
Directors may fix in advance a date as the record date for any such
determination of shareholders. Such record date shall not be more than 70 days
prior to the date on which the particular action, requiring such determination
of shareholders, is to be taken. If no record date is so fixed for the
determination of shareholders entitled to notice of, or to vote at a meeting of
shareholders, or shareholders entitled to receive a share dividend or
distribution, the record date for determination of such shareholders shall be
at the close of business on:
(a) With respect to an annual shareholders meeting or any special
shareholders meeting called by the Board of Directors or any person
specifically authorized by the Board of Directors or these By-Laws to call a
meeting, the day before the first notice is mailed to shareholders;
(b) With respect to a special shareholders meeting demanded by the
shareholders, the date the first shareholder signs the demand;
(c) With respect to the payment of a share dividend, the date the
Board of Directors authorizes the share dividend; and
(d) With respect to a distribution to shareholders (other than one
involving a repurchase or reacquisition of shares), the date the Board of
Directors authorizes the distribution.
SECTION 2.07. VOTING LISTS. After fixing a record date for a
meeting, the Corporation shall prepare a list of the name of all its
shareholders who are entitled to notice of a shareholders meeting. The list
shall be arranged by class or series of shares and show the address of and the
number of shares held by each shareholder. The shareholders list must be
available for inspection by any shareholder, beginning two business days after
notice of the meeting is given for which the list was prepared and continuing
to the date of the meeting. The list shall be available at the Corporation's
principal office or at a place identified in the meeting notice in the city
where the meeting is to be held. Subject to the provisions of the WBCL, a
shareholder or his or her agent or attorney may, on written demand, inspect and
copy the list during regular business hours and at his expense, during the
period it is available for inspection. The Corporation shall make the
shareholders list available at the meeting, and any shareholder or his or her
agent or attorney may inspect the list at any time during the meeting or any
adjournment thereof. Refusal or failure to prepare or make available the
shareholders list shall not affect the validity of any action taken at such
meeting.
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SECTION 2.08. SHAREHOLDER QUORUM AND VOTING REQUIREMENTS. Shares
entitled to vote as a separate voting group may take action on a matter at a
meeting only if a quorum of those shares exists with respect to that matter.
Unless the Articles of Incorporation or the WBCL provide otherwise, a majority
of the votes entitled to be cast on the matter by the voting group constitutes
a quorum of that voting group for action on that matter.
If the Articles of Incorporation or the WBCL provide for voting by
two or more voting groups on a matter, action on that matter is taken only when
voted upon by each of those voting groups counted separately as provided in the
WBCL. Action may be taken by one voting group on a matter even though no
action is taken by another voting group entitled to vote on the matter. A
voting group described in the WBCL constitutes a single voting group for
purpose of voting on the matter on which the shares are entitled to vote,
unless otherwise required under applicable laws and regulations, including the
Investment Company Act.
Once a share is represented for any purpose at a meeting, other than
for the purpose of objecting to holding the meeting or transacting business at
the meeting, it is deemed present for purposes of determining whether a quorum
exists, for the remainder of the meeting and for any adjournment of that
meeting to the extent provided in Section 2.13.
If a quorum exists, action on a matter, other than the election of
directors, by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless the
Articles of Incorporation, the By-Laws, the WBCL or other applicable laws and
regulations, including the Investment Company Act, require a greater number of
affirmative votes. With respect to the election of directors, unless otherwise
provided in the Articles of Incorporation, directors are elected by a plurality
of the votes cast by the shares entitled to vote. For purposes of this Section
2.08, "plurality" means that the individuals with the largest number of votes
are elected as directors up to the maximum number of directors to be chosen at
the election.
SECTION 2.09. PROXIES. For all meetings of shareholders, a
shareholder may appoint a proxy to vote or otherwise act for the shareholder by
signing an appointment form, either personally or by a duly authorized
attorney-in-fact. Such proxy shall be effective when filed with the Secretary
of the Corporation or other officer or agent authorized to tabulate votes
before or at the time of the meeting. No proxy shall be valid after eleven
months from the date of its execution, unless otherwise provided in the proxy.
SECTION 2.10. VOTING OF SHARES. Unless otherwise provided in the
Articles of Incorporation, each outstanding share, regardless of class, is
entitled to one vote upon each matter submitted to a vote at a meeting of
shareholders.
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No shares in the Corporation held by another corporation may be voted
if the Corporation owns, directly or indirectly, a sufficient number of shares
entitled to elect a majority of the directors of such other corporation;
PROVIDED, HOWEVER, that the Corporation shall not be limited in its power to
vote any shares, including its own shares, held by it in a fiduciary capacity.
Redeemable shares are not entitled to vote after written notice of
redemption that complies with the WBCL is mailed to the holders thereof and a
sum sufficient to redeem the shares has been deposited with a bank, trust
company or other financial institution under an irrevocable obligation to pay
the holders the redemption price on surrender of the shares.
SECTION 2.11. VOTING SHARES OWNED BY THE CORPORATION. Shares of the
Corporation belonging to it shall not be voted directly or indirectly at any
meeting and shall not be counted in determining the total number of outstanding
shares at any given time, but shares held by the Corporation in a fiduciary
capacity may be voted and shall be counted in determining the total number of
outstanding shares at any given time.
SECTION 2.12. ACCEPTANCE OF INSTRUMENTS SHOWING SHAREHOLDER ACTION.
(a) If the name signed on a vote, consent, waiver or proxy
appointment corresponds to the name of a shareholder, the Corporation, if
acting in good faith, may accept the vote, consent, waiver or proxy appointment
and give it effect as the act of the shareholder.
(b) If the name signed on a vote, consent, waiver or proxy
appointment does not correspond to the name of a shareholder, the Corporation,
if acting in good faith, may accept the vote, consent, waiver or proxy
appointment and give it effect as the act of the shareholder if any of the
following apply:
(1) the shareholder is an entity, within the meaning of the
WBCL, and the name signed purports to be that of an officer or agent of the
entity;
(2) the name signed purports to be that of a personal
representative, administrator, executor, guardian or conservator representing
the shareholder and, if the Corporation or its agent request, evidence of
fiduciary status acceptable to the Corporation is presented with respect to the
vote, consent, waiver or proxy appointment;
(3) the name signed purports to be that of a receiver or
trustee in bankruptcy of the shareholder and, if the Corporation or its agent
request, evidence of this status acceptable to the Corporation is presented
with respect to the vote, consent, waiver or proxy appointment;
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(4) the name signed purports to be that of a pledgee,
beneficial owner, or attorney-in-fact of the shareholder and, if the
Corporation or its agent request, evidence acceptable to the Corporation of the
signatory's authority to sign for the shareholder is presented with respect to
the vote, consent, waiver or proxy appointment; or
(5) two or more persons are the shareholders as cotenants or
fiduciaries and the name signed purports to be the name of at least one of the
coowners and the persons signing appears to be acting on behalf of all
coowners.
(c) The Corporation may reject a vote, consent, waiver or proxy
appointment if the Secretary or other officer or agent of the Corporation who
is authorized to tabulate votes, acting in good faith, has reasonable basis for
doubt about the validity of the signature on it or about the signatory's
authority to sign for the shareholder.
SECTION 2.13. ADJOURNMENTS. An annual or special meeting of
shareholders may be adjourned at any time, including after action on one or
more matters, by a majority of shares represented, even if less than a quorum.
The meeting may be adjourned for any purpose, including, but not limited to,
allowing additional time to solicit votes on one or more matters, to
disseminate additional information to shareholders or to count votes. Upon
being reconvened, the adjourned meeting shall be deemed to be a continuation of
the initial meeting.
(a) QUORUM. Once a share is represented for any purpose at the
original meeting, other than for the purpose of objecting to holding the
meeting or transacting business at a meeting, it is considered present for
purposes of determining if a quorum exists, for the remainder of the meeting
and for any adjournment of that meeting unless a new record date is or must be
set for that adjourned meeting.
(b) RECORD DATE. When a determination of shareholders entitled to
notice of or to vote at any meeting of shareholders has been made as provided
in Section 2.06, such determination shall be applied to any adjournment thereof
unless the Board of Directors fixes a new record date, which it shall do if the
meeting is adjourned to a date more than 120 days after the date fixed for the
original meeting.
(c) NOTICE. Unless a new record date for an adjourned meeting is or
must be fixed pursuant to Section 2.13(b), the Corporation is not required to
give notice of the new date, time or place if the new date, time or place is
announced at the meeting before adjournment.
SECTION 2.14. WAIVER OF NOTICE BY SHAREHOLDERS. A shareholder may
waive any notice required by the WBCL, the Articles of Incorporation or the
By-Laws before or after the date and time stated in the notice. The waiver
shall be in writing and signed by the shareholder entitled to the notice,
contain the
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same information that would have been required in the notice under any
applicable provisions of the WBCL, except that the time and place of the
meeting need not be stated, and be delivered to the Corporation for inclusion
in the Corporation's records. A shareholder's attendance at a meeting, in
person or by proxy, waives objection to (i) lack of notice or defective notice
of the meeting, unless the shareholder at the beginning of the meeting or
promptly upon arrival objects to the holding of the meeting or transacting
business at the meeting, and (ii) consideration of a particular matter at the
meeting that is not within the purpose described in the meeting notice, unless
the shareholder objects to considering the matter when it is presented.
SECTION 2.15. CONDUCT OF MEETING. The Chairman of the Board, Vice
Chairman, President or any person chosen by the Chairman of the Board, shall
call the meeting of the shareholders to order and shall act as chairman of the
meeting, and the Secretary of the Corporation or any other person appointed by
the chairman of the meeting, shall act as secretary of all meetings of the
shareholders.
SECTION 2.16. UNANIMOUS CONSENT WITHOUT MEETING. Any action
required or permitted to be taken at a meeting of shareholders may be taken
without a meeting only by unanimous written consent or consents signed by all
of the shareholders of the Corporation and delivered to the Corporation for
inclusion in the Corporation's records.
ARTICLE III. BOARD OF DIRECTORS
SECTION 3.01. GENERAL POWERS AND NUMBER. All corporate powers shall
be exercised by or under the authority of, and the business and affairs of the
Corporation managed under the direction of, the Board of Directors. The number
of directors of the Corporation shall be at least two but no more than six, and
as established from time to time by resolution of the directors.
SECTION 3.02. TENURE AND QUALIFICATIONS. Each director shall hold
office until the next annual meeting of shareholders and until his or her
successor shall have been elected and, if necessary, qualified, or until there
is a decrease in the number of directors which takes effect after the
expiration of his or her term, or until his or her prior death, resignation or
removal. A director may be removed by the shareholders, with or without cause,
only at a meeting called for the purpose of removing the director, and the
meeting notice shall state that the purpose, or one of the purposes, of the
meeting is removal of the director. A director may resign at any time by
delivering written notice which complies with the WBCL to the Board of
Directors, to the Chairman of the Board or to the Corporation. A director's
resignation is effective when the notice is delivered unless the notice
specifies a later effective date. Directors need not be residents of the State
of Wisconsin or shareholders of the Corporation.
SECTION 3.03. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held without other notice than this Section 3.03 immediately
before or after the annual meeting of
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shareholders and each adjourned session thereof. The place of such regular
meeting shall be the same as the place of the meeting of shareholders which
precedes or follows it, as the case may be, or such other suitable place as may
be announced at such meeting of shareholders. The Board of Directors shall
provide, by resolution, the date, time and place, either within or without the
State of Wisconsin, for the holding of additional regular meetings of the Board
of Directors without other notice than such resolution. Regular meetings of
the Board of Directors may also be called by the Chairman of the Board, Vice
Chairman, President or Secretary.
SECTION 3.04. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the Board, Vice
Chairman, President, Secretary or any two directors. The Chairman of the
Board, Vice Chairman, President or Secretary may fix any place, either within
or without the State of Wisconsin, as the place for holding any special meeting
of the Board of Directors, and if no other place is fixed the place of the
meeting shall be the principal business office of the Corporation in the State
of Wisconsin.
SECTION 3.05. NOTICE; WAIVER. Notice of special meetings shall be
given at least twenty-four hours previously thereto and shall state the date,
time and place of the meeting of the Board of Directors or committee. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors or committee need be specified in the notice
of such meeting. Notice may be communicated in person, by telephone,
telegraph, teletype, facsimile or other form of wire or wireless communication,
or by mail or private carrier. Written notice is effective at the earliest of
the following: (1) when received; (2) when mailed postpaid and correctly
addressed; (3) when given to a telegram carrier; or (4) the date it is
deposited with a private carrier. Oral notice is deemed effective when
communicated. Facsimile or teletype notice is deemed effective when sent.
A director may waive any notice required by the WBCL, the Articles of
Incorporation or the By-Laws before or after the date and time stated in the
notice. The waiver shall be in writing, signed by the director entitled to the
notice and retained by the Corporation. Notwithstanding the foregoing, a
director's attendance at or participation in a meeting waives any required
notice to such director of the meeting unless the director at the beginning of
the meeting or promptly upon such director's arrival objects to holding the
meeting or transacting business at the meeting and does not thereafter vote for
or assent to action taken at the meeting.
SECTION 3.06. QUORUM. Except as otherwise provided by the WBCL, the
Articles of Incorporation or the By-Laws, a majority of the number of directors
specified in Section 3.01 shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors. A majority of the directors
present (though less than such quorum) may adjourn any meeting of the Board of
Directors or any committee thereof, as the case may be, from time to time
without further notice.
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SECTION 3.07. MANNER OF ACTING. The affirmative vote of a majority
of the directors present at a meeting of the Board of Directors at which a
quorum is present shall be the act of the Board of Directors, unless the WBCL,
the Articles of Incorporation, the By-Laws or other applicable law or
regulation, including the Investment Company Act, require the vote of a greater
number of directors.
SECTION 3.08. CONDUCT OF MEETINGS. The Chairman of the Board, and
in his absence, the Vice Chairman or any director chosen by the directors
present, shall call meetings of the Board of Directors to order and shall act
as chairman of the meeting. The Secretary of the Corporation shall act as
secretary of all meetings of the Board of Directors unless the presiding
officer appoints another person present to act as secretary of the meeting.
Minutes of any regular or special meeting of the Board of Directors shall be
prepared and distributed to each director.
SECTION 3.09. VACANCIES. Except as provided below, any vacancy
occurring in the Board of Directors, including a vacancy resulting from an
increase in the number of directors, may be filled, subject to the requirements
of the Investment Company Act, by any of the following: (a) the shareholders;
(b) the Board of Directors; or (c) if the directors remaining in office
constitute fewer than a quorum of the Board of Directors, the directors, by the
affirmative vote of a majority of all directors remaining in office. If the
vacant office was held by a director elected by a voting group of shareholders,
only the holders of shares of that voting group may vote to fill the vacancy if
it is filled by the shareholders, and only the remaining directors elected by
that voting group may vote to fill the vacancy if it is filled by the
directors. A vacancy that will occur at a specific later date, because of a
resignation effective at a later date or otherwise, may be filled before the
vacancy occurs, but the new director may not take office until the vacancy
occurs.
SECTION 3.10. COMPENSATION. No director shall receive any stated
salary or fees from the Corporation for his services as such director if such
director is, otherwise than by reason of being such director, an interested
person (as such term is defined by the Investment Company Act) of the
Corporation or its investment adviser. Except as provided in the preceding
sentence, directors shall be entitled to receive such compensation from the
Corporation for their services as may from time to time be voted by the Board
of Directors.
SECTION 3.11. PRESUMPTION OF ASSENT. A director who is present and
is announced as present at a meeting of the Board of Directors, when corporate
action is taken, assents to the action taken unless any of the following
occurs: (a) the director objects at the beginning of the meeting or promptly
upon his or her arrival to holding the meeting or transacting business at the
meeting; (b) the director dissents or abstains from an action taken and minutes
of the meeting are prepared that show the director's dissent or abstention; (c)
the director delivers written notice that complies with the WBCL of his or her
dissent or abstention to the presiding officer of the meeting before its
adjournment or to the Corporation immediately after adjournment of the meeting;
or (d) the director dissents or abstains from an action taken, minutes of the
meeting are prepared that fail to show the director's dissent or abstention
from the action taken and the director delivers to the Corporation a written
notice of that failure that complies with the WBCL promptly
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after receiving the minutes. Such right of dissent or abstention shall not
apply to a director who votes in favor of the action taken.
SECTION 3.12. TELEPHONIC MEETINGS. Except as herein provided and
notwithstanding any place set forth in the notice of the meeting or these
By-Laws, members of the Board of Directors may participate in regular or
special meetings by, or through the use of, any means of communication by which
all participants may simultaneously hear each other, such as by conference
telephone. If a meeting is conducted by such means, then at the commencement
of such meeting the presiding officer shall inform the participating directors
that a meeting is taking place at which official business may be transacted.
Any participant in a meeting by such means shall be deemed present in person at
such meeting. Notwithstanding the foregoing, no action may be taken at any
meeting held by such means (i) on any particular matter which the presiding
officer determines, in his or her sole discretion, to be inappropriate under
the circumstances for action at a meeting held by such means (such
determination shall be made and announced in advance of such meeting), or (ii)
if the action must be approved in person pursuant to the requirements of the
Investment Company Act.
SECTION 3.13. ACTION WITHOUT MEETING. Any action required or
permitted by the WBCL to be taken at a meeting of the Board of Directors may be
taken without a meeting if the action is taken by all members of the Board.
The action shall be evidenced by one or more written consents describing the
action taken, signed by each director and retained by the Corporation. Such
action shall be effective when the last director signs the consent, unless the
consent specifies a different effective date. Notwithstanding this Section
3.13, no action may be taken by the Board of Directors pursuant to a written
consent with respect to which the action must be approved in person pursuant to
the requirements of the Investment Company Act.
ARTICLE IV. OFFICERS
SECTION 4.01. NUMBER. The principal officers of the Corporation
shall be a Chairman of the Board, a Vice Chairman of the Board, a President,
the number of Vice Presidents as authorized from time to time by the Board of
Directors, a Secretary, and a Treasurer, each of whom shall be elected by the
Board of Directors. Such other officers and assistant officers as may be
deemed necessary may be elected or appointed by the Board of Directors. The
Board of Directors may also authorize any duly authorized officer to appoint
one or more officers or assistant officers. Any two or more offices may be
held by the same person.
SECTION 4.02. ELECTION AND TERM OF OFFICE. The officers of the
Corporation to be elected by the Board of Directors shall be elected annually
by the Board of Directors at the first meeting of the Board of Directors held
after each annual meeting of the shareholders, if any, or on or after the
anniversary of the last annual meeting if no annual meeting is held. If the
election of officers shall not be held
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at such first meeting of the Board of Directors, such election shall be held as
soon thereafter as is practicable. Each officer shall hold office until his or
her successor shall have been duly elected or until his or her prior death,
resignation or removal.
SECTION 4.03. REMOVAL. The Board of Directors may remove any
officer and, unless restricted by the Board of Directors or these By-Laws, an
officer may remove any officer or assistant officer appointed by that officer.
An officer may be removed at any time, with or without cause and
notwithstanding the contract rights, if any, of the officer removed. The
appointment of an officer does not of itself create contract rights.
SECTION 4.04. RESIGNATION. An officer may resign at any time by
delivering notice to the Corporation that complies with the WBCL. The
resignation shall be effective when the notice is delivered, unless the notice
specifies a later effective date and the Corporation accepts the later
effective date.
SECTION 4.05. VACANCIES. A vacancy in any principal office because
of death, resignation, removal, disqualification or otherwise, shall be filled
by the Board of Directors for the unexpired portion of the term. If a
resignation of an officer is effective at a later date as contemplated by
Section 4.04 hereof, the Board of Directors may fill the pending vacancy before
the effective date if the Board provides that the successor may not take office
until the effective date of the registration.
SECTION 4.06. CHAIRMAN OF THE BOARD. The Chairman of the Board
shall be the chief executive officer of the Corporation. The Chairman of the
Board shall preside at all meetings of the shareholders and directors, shall
have general and active management of the business of the Corporation, and
shall see that all orders and resolutions of the Board of Directors are carried
into effect.
SECTION 4.07. THE VICE CHAIRMAN. During the absence or disability
of the Chairman of the Board, the Vice Chairman shall exercise all the
functions of the Chairman of the Board. The Vice Chairman shall perform all
duties incident to the office of the Vice Chairman and such other duties as
shall from time to time be assigned by the Board of Directors, the Chairman of
the Board or as prescribed by these By-Laws.
SECTION 4.08. PRESIDENT. The President shall be the chief operating
officer of the Corporation and, subject to the direction of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the Corporation. The President shall, when present, preside at all
meetings of the shareholders in the absence of the Chairman of the Board and
the Vice Chairman. The President shall have authority, subject to such rules
as may be prescribed by the Board of Directors, to appoint such agents and
employees of the Corporation as he or she shall deem necessary, to prescribe
their powers, duties and compensation, and to delegate authority to them. Such
agents and employees shall hold office at the discretion of the President. The
President shall have authority to sign, execute and acknowledge, on behalf of
the Corporation, all deeds, mortgages, bonds, stock certificates, contracts,
leases, reports and all other
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documents or instruments necessary or proper to be executed in the course of
the Corporation's regular business, or which shall be authorized by resolution
of the Board of Directors; and, except as otherwise provided by law or the
Board of Directors, he or she may authorize any Vice President or other officer
or agent of the Corporation to sign, execute and acknowledge such documents or
instruments in his or her place and stead. In general he or she shall perform
all duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
SECTION 4.09. THE VICE PRESIDENTS. In the absence of the President
or in the event of the President's death, inability or refusal to act, or in
the event for any reason it shall be impracticable for the President to act
personally, the Vice President (or in the event there be more than one Vice
President, the Vice Presidents in the order designated by the Board of
Directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. Any Vice President may sign, with the Secretary or Assistant
Secretary, certificates for shares of the Corporation; and shall perform such
other duties and have such authority as from time to time may be delegated or
assigned to him or her by the Chairman of the Board, Vice Chairman or President
or by the Board of Directors. The execution of any instrument of the
Corporation by any Vice President shall be conclusive evidence, as to third
parties, of his or her authority to act for the Corporation.
SECTION 4.10. THE SECRETARY. The Secretary shall: (a) keep minutes
of the meetings of the shareholders and of the Board of Directors (and of
committees thereof) in one or more books provided for that purpose (including
records of actions taken by the shareholders or the Board of Directors (or
committees thereof) without a meeting); (b) see that all notices are duly given
in accordance with the provisions of these By-Laws or as required by the WBCL;
(c) be custodian of the corporate records and of the seal of the Corporation
and see that the seal of the Corporation is affixed to all documents the
execution of which on behalf of the Corporation under its seal is duly
authorized; (d) maintain a record of the shareholders of the Corporation, in a
form that permits preparation of a list of the names and addresses of all
shareholders, by class or series of shares and showing the number and class or
series of shares held by each shareholder; (e) sign with the President, a Vice
President, or any other officer authorized by the Board of Directors,
certificates for shares of the Corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors; (f) have general
charge of the stock transfer books of the Corporation; and (g) in general
perform all duties incident to the office of Secretary and have such other
duties and exercise such authority as from time to time may be delegated or
assigned by the Chairman of the Board, Vice Chairman, President or the Board of
Directors.
SECTION 4.11. THE TREASURER. The Treasurer shall be the principal
financial and accounting officer of the Corporation and shall have general
charge of the finances and books of account of the Corporation. Except as
otherwise provided by the Board of Directors, he or she shall have general
supervision of the funds and property of the Corporation and of the performance
by the Custodian of its duties with respect thereto. The Treasurer shall
render to the Board of Directors, whenever directed by the
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Board, an account of the financial condition of the Corporation and of all his
or her transactions as Treasurer. The Treasurer shall perform all acts
incidental to the office of Treasurer, subject to the control of the Board of
Directors.
SECTION 4.12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. There
shall be such number of Assistant Secretaries and Assistant Treasurers as the
Board of Directors may from time to time authorize. The Assistant Secretaries
may sign with the President, a Vice President or any other officer authorized
by the Board of Directors, certificates for shares of the Corporation the
issuance of which shall have been authorized by a resolution of the Board of
Directors. The Assistant Secretaries and Assistant Treasurers, in general,
shall perform such duties and have such authority as shall from time to time be
delegated or assigned to them by the Secretary or the Treasurer, respectively,
or by the Chairman of the Board, Vice Chairman, President or the Board of
Directors.
SECTION 4.13. OTHER ASSISTANTS AND ACTING OFFICERS. The Board of
Directors shall have the power to appoint, or to authorize any duly appointed
officer of the Corporation to appoint, any person to act as assistant to any
officer, or as agent for the Corporation in his or her stead, or to perform the
duties of such officer whenever for any reason it is impracticable for such
officer to act personally, and such assistant or acting officer or other agent
so appointed by the Board of Directors or an authorized officer shall have the
power to perform all the duties of the office to which he or she is so
appointed to be an assistant, or as to which he or she is so appointed to act,
except as such power may be otherwise defined or restricted by the Board of
Directors or the appointing officer.
SECTION 4.14. SURETY BONDS. The Board of Directors may require any
officer or agent of the Corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940) to the
Corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his or
her duties to the Corporation, including responsibility for negligence and for
the accounting of any of the Corporation's property, funds or securities that
may come into his or her hands.
ARTICLE V. CERTIFICATES FOR SHARES; TRANSFER OF SHARES
SECTION 5.01. CERTIFICATES FOR SHARES. Each shareholder shall be
entitled upon request to have a certificate or certificates which shall
represent and certify the number and kind of shares owned by him or her in the
Corporation. Certificates representing shares of the Corporation shall be in
such form, consistent with the WBCL, as shall be determined by the Board of
Directors. Such certificates shall be signed, either manually or in facsimile,
by the President, a Vice President or any other officer authorized by the Board
of Directors and by the Secretary or an Assistant Secretary. All certificates
for shares shall be consecutively numbered or otherwise identified. The name
and address of the person to whom the shares represented thereby are issued,
with the number of shares and class of shares and series, if any, and date of
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issue, shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be cancelled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except as provided
in Section 5.04.
Shares may also be issued without certificates. Within a reasonable
time after issuance or transfer of shares without certificates, the Corporation
shall send the shareholder a written statement of the information required on
share certificates under the WBCL, including the following:
(a) the name of the Corporation;
(b) the name of the person to whom shares were issued;
(c) the number and class of shares and the designation of the
series, if any, of the shares issued; and
(d) either (i) a summary of the designations, relative rights,
preferences and limitations, applicable to each class, and the variations in
rights, preferences and limitations determined for each series and the
authority of the Board of Directors to determine variations for future series,
or (ii) a conspicuous statement that the Corporation will furnish the
information specified in clause (i), above, on request, in writing and without
charge.
SECTION 5.02. SIGNATURE BY FORMER OFFICERS. The validity of a share
certificate is not affected if a person who signed the certificate (either
manually or in facsimile) no longer holds office when the certificate is
issued.
SECTION 5.03. TRANSFER OF SHARES. Prior to due presentment of a
certificate for shares for redemption or registration of transfer, the
Corporation may treat the registered owner of such shares as the person
exclusively entitled to vote, to receive notifications and otherwise to have
and exercise all the rights and power of an owner. Where a certificate for
shares is presented to the Corporation with a request for redemption or to
register for transfer, the Corporation shall not be liable to the owner or any
other person suffering loss as a result of such registration of transfer or
redemption if (a) there were on or with the certificate the necessary
endorsements, and (b) the Corporation had no duty to inquire into adverse
claims or has discharged any such duty. The Corporation may require reasonable
assurance that such endorsements are genuine and effective and compliance with
such other regulations as may be prescribed by or under the authority of the
Board of Directors. All certificates and uncertificated shares surrendered to
the Corporation for redemption shall be cancelled, returned to the status of
authorized and unissued shares and the transaction recorded in the stock
transfer books. Transfer or redemption of shares of the Corporation shall be
made only on the stock transfer books of the Corporation by the holder of
record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto duly authorized
by
15
<PAGE>
power of attorney duly executed and filed with the transfer agent or the
Secretary of the Corporation, and on surrender for cancellation of the
certificate for such shares, if any.
SECTION 5.04. LOST, DESTROYED OR STOLEN CERTIFICATES. Where the
owner claims that certificates for shares have been lost, destroyed or
wrongfully taken, a new certificate shall be issued in place thereof if the
owner (a) so requests before the Corporation has notice that such shares have
been acquired by a bona fide purchaser, (b) files with the Corporation a
sufficient indemnity bond if required by the Board of Directors or any
principal officer, and (c) satisfies such other reasonable requirements as may
be prescribed by or under the authority of the Board of Directors.
SECTION 5.05. STOCK REGULATIONS. The Board of Directors shall have
the power and authority to make all such further rules and regulations not
inconsistent with law as it may deem expedient concerning the issue, transfer
and registration of shares of the Corporation and to appoint or designate one
or more stock transfer agents and one or more stock registrars.
ARTICLE VI. SEAL
SECTION 6.01. The seal of the Corporation shall be circular in form
and shall bear, at a minimum, the name of the Corporation, Wisconsin as its
state of incorporation and the words "Corporate Seal."
ARTICLE VII. INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 7.01. MANDATORY INDEMNIFICATION. The Corporation shall
indemnify, to the full extent permitted by the WBCL, as in effect from time to
time, the persons described in Sections 180.0850 through 180.0859 (or any
successor provisions) of the WBCL or other provisions of the law of the State
of Wisconsin relating to indemnification of directors and officers, as in
effect from time to time. The indemnification afforded such persons by this
section shall not be exclusive of other rights to which they may be entitled as
a matter of law.
SECTION 7.02. PERMISSIVE SUPPLEMENTARY BENEFITS. The Corporation
may, but shall not be required to, supplement the right of indemnification
under Section 7.01 by (a) the purchase of insurance on behalf of any one or
more of such persons, whether or not the Corporation would be obligated to
indemnify such person under Section 7.01; (b) individual or group
indemnification agreements with any one or more of such persons; and (c)
advances for related expenses of such a person.
SECTION 7.03. AMENDMENT. This Article VII may be amended or
repealed only by a vote of the shareholders and not by a vote of the Board of
Directors.
16
<PAGE>
SECTION 7.04. INVESTMENT COMPANY ACT. In no event shall the
Corporation indemnify any person hereunder in contravention of any provision of
the Investment Company Act.
ARTICLE VIII. AMENDMENTS
SECTION 8.01. BY SHAREHOLDERS. These By-Laws may be amended or
repealed and new By-Laws may be adopted by the shareholders at any annual or
special meeting of the shareholders at which a quorum is in attendance.
SECTION 8.02. BY BOARD OF DIRECTORS. Except as otherwise provided
by the WBCL, the Articles of Incorporation or a particular By-Law herein, these
By-Laws may also be amended or repealed and new By-Laws may be adopted by the
Board of Directors by affirmative vote of a majority of the number of directors
present at any meeting at which a quorum is in attendance; PROVIDED, HOWEVER,
that the shareholders in adopting, amending or repealing a particular By-Law
may provide therein that the Board of Directors may not amend, repeal or
readopt that By-Law.
SECTION 8.03. IMPLIED AMENDMENTS. Any action taken or authorized by
the shareholders or by the Board of Directors which would be inconsistent with
the By-Laws then in effect but which is taken or authorized by affirmative vote
of not less than the number of shares or the number of directors required to
amend the By-Laws so that the By-Laws would be consistent with such action
shall be given the same effect as though the By-Laws had been temporarily
amended or suspended so far, but only so far, as is necessary to permit the
specific action so taken or authorized.
ARTICLE IX. DEPOSITARIES, CUSTODIANS, ENDORSEMENTS
SECTION 9.01. DEPOSITORIES. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of
the Corporation may from time to time determine in accordance with the
requirements of the Investment Company Act.
SECTION 9.02. CUSTODIANS. All securities and other similar
investments of the Corporation shall be deposited in the safekeeping of such
banks or other companies as the Board of Directors may from time to time
determine in accordance with the requirements of the Investment Company Act.
Every arrangement entered into with any bank or other company for the
safekeeping of the securities and other similar investments of the Corporation
shall contain provisions complying with the requirements of the Investment
Company Act.
17
<PAGE>
SECTION 9.03. CHECKS, NOTES, DRAFTS, ETC. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or such person or persons
as designated from time to time by the Board of Directors.
SECTION 9.04. ENDORSEMENTS, ASSIGNMENTS AND TRANSFER OF SECURITIES.
All endorsements, assignments, stock powers or other instruments of transfer of
securities standing in the name of the Corporation or its nominee or directions
for the transfer of securities belonging to the Corporation shall be made by
such officer or officers or other person or persons as may be designated from
time to time by the Board of Directors.
ARTICLE X. INDEPENDENT PUBLIC ACCOUNTANTS
SECTION 10.01. INDEPENDENT PUBLIC ACCOUNTANTS. The Corporation
shall employ an independent public accountant or a firm of independent public
accountants as its accountants to examine the accounts of the Corporation and
to sign and certify financial statements filed by the Corporation.
ARTICLE XI. SALES AND REDEMPTION OF SHARES; DIVIDENDS
SECTION 11.01. SALE OF SHARES. Shares of Common Stock of the
Corporation shall be sold by it for the net asset value per share of such
Common Stock calculated in accordance with the requirements of the Investment
Company Act, and the Corporation's then current prospectus.
SECTION 11.02. PERIODIC INVESTMENT, DIVIDEND REINVESTMENT AND OTHER
PLANS. The Corporation shall offer such periodic investment, dividend
reinvestment, periodic redemption or other plans as are specified in the
Corporation's then current prospectus, provided such plans are offered in
accordance with the requirements of the Investment Company Act. Any such plans
may be discontinued at any time if determined advisable by or under the
authority of the Board of Directors.
SECTION 11.03. REDEMPTION OF SHARES. Subject to the suspension of
the right of redemption or postponement of the date of payment or satisfaction
upon redemption in accordance with the Investment Company Act, each
shareholder, upon request and after complying with the redemption procedures
established by or under the supervision of the Board of Directors, shall be
entitled to require the Corporation to redeem out of legally available funds
all or any part of the Common Stock standing in the name of such holder at the
net asset value per share calculated in accordance with the requirements of the
Investment Company Act, and the Corporation's then current prospectus.
18
<PAGE>
SECTION 11.04. DIVIDENDS AND OTHER DISTRIBUTIONS. The Corporation
shall pay such dividends and make other distributions to shareholders, at such
times and in such amounts as are determined by or under the authority of the
Board of Directors, from time to time and in accordance with the requirements
of the WBCL, the Investment Company Act, and other applicable laws and
regulations.
19
<PAGE>
SPECIMEN STOCK CERTIFICATE
NUMBER STRONG LOGO SHARES
_________
___________
CUSIP
___________
STRONG <<FUNDS>>, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF WISCONSIN
This Certifies that is the owner
of
Shares of the common Stock, Par Value $.__________ per share, of the Strong
<<Fund>>, Inc. transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed.
This certificate is not valid until countersigned by the Transfer Agent.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
CORPORATE SEAL
/s/ Stephen J. Shenkenberg /s/ John S. Weitzer
Secretary Vice President
Countersigned:
Strong Capital Management, Inc.
Transfer Agent
Authorized Signature
<PAGE> 2
The following abbreviations, when used in the inscription on the face of this
certificate shall be construed as though they were written out in full
according to applicable laws or regulations:
UNIF GIFT MIN
ACT______Custodian___________
(Cust) (Minor)
Under Uniform Gift to Minors
Act -
___________________________________
State
TEN COM - as tenants in common
TEN ENT - as tenants by the
entireties UNIF TRANS MIN
ACT______Custodian_________
JT TEN - as joint tenants with the (Cust) (Minor)
right of survivorship Under Uniform Transfers to
Minors
and not as tenants in Act -
___________________________________
common State
Additional abbreviations also may be used though not in the above list.
For Value Received, ______________________ hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
Shares of capital stock represented by the within Certificate, and do hereby
irrevocably constitute and
appoint______________________________________________
________________________________________________________________________________
attorney, to transfer the said shares on the books of the within named
Corporation with full power of substitution in the premises.
Date ______________________________
__________________________________________
Signature
__________________________________________
Signature
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER
___________________________________
Signature(s) Guarantee
Strong <<Funds>>, Inc. is authorized to issue common stock for multiple
1
<PAGE>
series. Upon request, a Shareholder will be given a summary of the
designations, relative rights, preferences and limitations determined by the
Board of Directors for each series in writing and without charge. The Board
of Directors is authorized to determine variations for different series.
2
<PAGE>
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made and entered into on this ____ day of ____________,
199_, between STRONG _________FUNDS, INC., a Wisconsin corporation (the
"Corporation"), and STRONG FUNDS DISTRIBUTORS, INC., a Wisconsin corporation
(the "Distributor"):
WITNESSETH:
WHEREAS, the Corporation is an open-end management investment company
registered under the Investment Company Act of 1940 (the "Investment Company
Act");
WHEREAS, the Corporation is authorized to create separate series, each
with its own separate investment portfolio, and the beneficial interest in each
such series will be represented by a separate series of shares;
WHEREAS, the Corporation is authorized to issue shares of its $_____ par
value common stock (the "Shares") in separate series;
WHEREAS, the Distributor is a registered broker-dealer under state and
federal laws and regulations and is a member of the National Association of
Securities Dealers (the "NASD"); and
WHEREAS, the Corporation desires to retain Distributor as the distributor
of the Shares of each series on whose behalf this Agreement has been executed.
NOW, THEREFORE, the Corporation and Distributor mutually agree and promise
as follows:
1. APPOINTMENT OF DISTRIBUTOR
The Corporation hereby appoints the Distributor as its agent for the
distribution of the Shares of each series of the Corporation listed on Schedule
A attached hereto (each series is hereinafter referred to as a "Fund"), as such
Schedule may be amended from time to time, in jurisdictions wherein the Shares
may legally be offered for sale; provided, however, that the Corporation may
(a) issue or sell Shares directly to holders of such Shares upon such terms and
conditions and for such consideration, if any, as it may determine, whether in
connection with the distribution of subscription or purchase rights, the
payment or reinvestment of dividends or distributions, or otherwise; or (b)
issue or sell Shares at net asset value to the shareholders of any other
investment Corporation, as defined in the Investment Company Act, for which the
Distributor shall act as exclusive distributor, who wish to exchange all or a
portion of their investment in shares of such other investment company for
Shares of the Corporation.
2. ACCEPTANCE; SERVICES OF DISTRIBUTOR
The Distributor hereby accepts appointment as agent for the distribution
of the Shares and agrees that it will use its best efforts with reasonable
promptness to sell such part of the authorized Shares remaining unissued as
from time to time shall be effectively registered under the Securities Act of
1933 (the "Securities Act"), at prices determined as hereinafter provided and
on terms hereinafter set forth, all
1
<PAGE>
subject to applicable federal and state laws and regulations and the Articles
of Incorporation and By-Laws of the Corporation.
3. MANNER OF SALE; COMPLIANCE WITH SECURITIES LAWS AND REGULATIONS
a. The Distributor shall sell Shares to or through qualified dealers
or others in such manner, not inconsistent with the provisions hereof and the
Corporation's then effective Registration Statement under the Securities Act,
as the Distributor may determine from time to time, provided that no dealer or
other person shall be appointed or authorized to act as agent of the
Corporation without the prior consent of the Corporation. The Distributor
shall cause subscriptions for Shares to be transmitted in accordance with any
subscription agreement then in force for the purchase of Shares. Distributor
and Corporation shall cooperate in implementing procedures to ensure that the
sales commission, if any, payable on the purchase of Shares is paid to the
Distributor in a timely manner.
b. The Distributor, as agent of and for the account of the
Corporation, may repurchase Shares at such prices and upon such terms and
conditions as shall be specified in the Corporation's current prospectus
relating to each Fund.
c. The Corporation will furnish to the Distributor from time to time
such information with respect to the Corporation, each Fund, and the Shares as
the Distributor may reasonably request for use in connection with the sale of
the Shares. The Distributor agrees that it will not use or distribute or
authorize the use, distribution or dissemination by its dealers or others, in
connection with the sale of such Shares, of any statements, other than those
contained in the Corporation's current prospectus relating to each Fund, except
such supplemental literature or advertising as shall be lawful under federal
and state securities laws and regulations, and that it will furnish the
Corporation with copies of all such material.
d. In selling or reacquiring Shares for the account of the
Corporation, the Distributor will in all respects conform to the requirements
of all state and federal laws and the Rules of Fair Practice of the NASD,
relating to such sale or reacquisition, as the case may be, and will indemnify
and save harmless the Corporation, each Fund, each person who has been, is or
may hereafter be a director or officer of the Corporation or any Fund from any
damage or expense on account of any wrongful act by the Distributor or any
employee, representative or agent of the Distributor. The Distributor will
observe and be bound by all the provisions of the Articles of Incorporation of
the Corporation (and of any fundamental policies adopted by the Corporation
and/or each Fund pursuant to the Investment Company Act, notice of which shall
have been given to the Distributor) which at the time in any way require,
limit, restrict or prohibit or otherwise regulate any action on the part of the
Distributor.
e. The Distributor will require each dealer to conform to the
provisions hereof and the Registration Statement (and related prospectus or
prospectuses) at the time in effect under the Securities Act with respect to
the public offering price of the Shares.
2
<PAGE>
4. PRICE OF SHARES
a. Shares offered for sale or sold by the Distributor for the account
of the Corporation shall be so offered or sold at a price per Share determined
in accordance with the then current prospectus relating to the sale of such
Shares except as departure from such prices shall be permitted by the rules and
regulations of the Securities and Exchange Commission (the "SEC").
b. The price the Corporation shall receive for all Shares purchased
from the Corporation shall be the net asset value used in determining the
public offering price applicable to the sale of each Fund's Shares. The
excess, if any, of the sales price over the net asset value of the Shares sold
by the Distributor as agent for the account of the Corporation shall be
retained by the Distributor as a commission for its services hereunder.
5. REGISTRATION OF SHARES AND DISTRIBUTOR
a. The Corporation agrees that it will use its best efforts to keep
effectively registered under the Securities Act for sale as herein contemplated
such Shares as the Distributor shall reasonably request and as the SEC shall
permit to be so registered.
b. The Corporation on behalf of each Fund will execute any and all
documents and furnish any and all information which may be reasonably necessary
in connection with the qualification of its Shares for sale (including the
qualification of the Corporation or a Fund as a dealer where necessary or
advisable) in such states as the Distributor may reasonably request (it being
understood that the Corporation shall not be required without its consent to
comply with any requirement which in its opinion is unduly burdensome). The
Distributor, at its own expense, will effect all required qualifications of the
Distributor as a dealer or broker or otherwise under all applicable state or
federal laws in order that the Shares may be sold in as broad a territory as is
reasonably practicable.
c. Notwithstanding any other provision hereof, the Corporation on
behalf of a Fund may terminate, suspend or withdraw the offering of its Shares
whenever, in its sole discretion, the Corporation deems such action to be
desirable.
6. EXPENSES
The Corporation or respective Fund will pay or cause to be paid the
expenses (including the fees and disbursements of its own counsel) of any
registration of the Shares under the Securities Act, expenses of qualifying or
continuing the qualification of the Shares for sale, and in connection
therewith, of qualifying or continuing the qualification of the Corporation or
respective Fund as a dealer or broker under the laws of such states as may be
designated by the Distributor under the conditions herein specified, and
expenses incident to the issuance of Shares, such as the cost of share
certificates, issue taxes and fees of the transfer agent. The Distributor will
pay all other expenses (other than expenses which one or more dealers may bear
pursuant to any agreement with the Distributor) incident to the sale and
distribution of the Shares issued or sold hereunder, including, without
limiting the generality of the foregoing, all (a) expenses of printing and
distributing or disseminating any other literature, advertising and selling
aids in connection with such offering of the Shares for sale (except that such
expenses shall
3
<PAGE>
not include expenses incurred by the Corporation or any Fund in connection with
the preparation, printing and distribution of any report or other communication
to holders of Shares in their capacity as such); and (b) expenses of
advertising in connection with such offering. No transfer taxes, if any, which
may be payable in connection with the issue or delivery of Shares sold as
herein contemplated or of the certificates for such Shares shall be borne by
the Corporation or any Fund, and the Distributor will indemnify and hold
harmless the Corporation and each Fund against liability for all such transfer
taxes.
7. DURATION AND TERMINATION
a. This Agreement shall become effective as of the date hereof and
shall continue in effect until ________ ___, 199__, and from year to year
thereafter, but only so long as such continuance is specifically approved each
year by either (i) the Board of Directors of the Corporation, or (ii) the
affirmative vote of a majority of the relevant Fund's respective outstanding
voting securities. In addition to the foregoing, each renewal of this
Agreement must be approved by the vote of a majority of the Corporation's
directors who are not parties to this Agreement or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on
such approval. Prior to voting on the renewal of this Agreement, the Board of
Directors of the Corporation shall request and evaluate, and the Distributor
shall furnish, such information as may reasonably be necessary to enable the
Corporation's Board of Directors to evaluate the terms of this Agreement.
b. Notwithstanding whatever may be provided herein to the contrary,
this Agreement may be terminated at any time, without payment of any penalty,
by vote of a majority of the Board of Directors of the Corporation, or by vote
of a majority of the outstanding voting securities of the relevant Fund, or by
the Distributor, in each case, on not more than sixty (60) days' written notice
to the other party and shall terminate automatically in the event of its
assignment as set forth in paragraph 9 of this Agreement.
8. NOTICE
Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as
such other party may from time to time designate for the receipt of such
notice.
9. ASSIGNMENT
This Agreement shall neither be assignable nor subject to pledge or
hypothecation and in the event of assignment, pledge or hypothecation shall
automatically terminate. For purposes of determining whether an "assignment"
has occurred, the definition of "assignment" in Section 2(a)(4) of the
Investment Company Act shall control.
10. MISCELLANEOUS
a. This Agreement shall be construed in accordance with the laws of
the State of Wisconsin, provided that nothing herein shall be construed in a
manner inconsistent with the Investment
4
<PAGE>
Company Act, the Securities Act, the Securities Exchange Act of 1934 or any
rule or order of the SEC under such Acts or any rule of the NASD.
b. The captions of this Agreement are included for convenience only
and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect.
c. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed as of the day and year first stated above.
<TABLE>
<CAPTION>
<S> <C> <C>
Attest: Strong Funds Distributors, Inc.
- ------------------------------- -----------------------------------
Thomas M. Zoeller, Treasurer Stephen J. Shenkenberg, Vice President
Attest: Strong _________Funds, Inc.
- --------------------------------- --------------------------------------
John S. Weitzer, Vice President Stephen J. Shenkenberg, Vice President
</TABLE>
5
<PAGE>
SCHEDULE A
The Fund(s) of the Corporation currently subject to this Agreement are as
follows:
Date of Addition
FUND(S) TO THIS AGREEMENT
Strong ________Fund ___________, 199_
Attest: Strong Funds Distributors, Inc.
- ----------------------------------- --------------------------------------
Thomas M. Zoeller, Treasurer Stephen J. Shenkenberg, Vice President
Attest: Strong _________ Funds, Inc.
- ------------------------------ --------------------------------------
John S. Weitzer, Vice President Stephen J. Shenkenberg, Vice President
6
<PAGE>
CUSTODIAN AGREEMENT
THIS AGREEMENT is made and entered into on this ___day of __________,
199_, between STRONG _____________________, INC., a Wisconsin corporation (the
"Corporation"), on behalf of the Funds (as defined below) of the Corporation,
and FIRSTAR TRUST COMPANY, a Wisconsin corporation (the "Custodian").
WITNESSETH:
WHEREAS, the Corporation is registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940 (the "Investment Company Act");
WHEREAS, the Corporation is authorized to create separate series, each
with its own separate investment portfolio, and the beneficial interest in each
such series will be represented by a separate series of shares (each series
indicated on Schedule A is hereinafter individually referred to as a "Fund" and
collectively as the "Funds"); and,
WHEREAS, the Corporation desires to retain the Custodian to hold and
administer the securities and cash of each Fund listed in Schedule A hereto,
and any additional Funds the Corporation and the Custodian may agree upon and
include in Schedule A as such Schedule may be amended from time to time,
pursuant to the terms of this Agreement.
NOW, THEREFORE, the Corporation and the Custodian do mutually agree and
promise as follows:
1. DEFINITIONS
The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive,
purchase or subscribe for the same, or evidencing or representing any other
rights or interests therein, or in any property or assets.
The words "officers' certificate" shall mean a request or direction or
certification in writing signed in the name of the Corporation by any two of
the President, a Vice President, the Secretary and the Treasurer of the
Corporation, or any other persons duly authorized to sign by the Board of
Directors.
The word "Board" shall mean the Board of Directors of the Corporation.
2. NAMES, TITLES AND SIGNATURES OF THE CORPORATION'S OFFICERS
An officer of the Corporation will certify to the Custodian the names and
signatures of those persons authorized to sign the officers' certificates
described in Section 1, hereof, and the names of the members of the Board of
Directors, together with any changes which may occur from time to time.
1
<PAGE>
3. RECEIPT AND DISBURSEMENT OF MONEY
A. The Custodian shall open and maintain a separate account or
accounts in the name of each Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this Agreement. The Custodian shall
hold in such account or accounts, subject to the provisions hereof, all cash
received by it from or for the account of a Fund. The Custodian shall make
payments of cash to, or for the account of, a Fund from such cash only:
(a) for the purchase of securities for the portfolio of a Fund upon the
delivery of such securities to the Custodian, registered in the name of the
Fund or of the nominee of the Custodian referred to in Section 7 or in proper
form for transfer;
(b) for the purchase or redemption of shares of common stock of a Fund upon
delivery thereof to Custodian, or upon proper instructions from the Fund;
(c) for the payment of interest, dividends, taxes, investment adviser's
fees or operating expenses (including, without limitation thereto, fees for
legal, accounting, auditing and custodian services and expenses for printing
and postage);
(d) for payments in connection with the conversion, exchange or surrender
of securities owned or subscribed to by a Fund held by or to be delivered to
Custodian; or
(e) for other proper corporate purposes certified by resolution of the
Board of Directors of the Corporation, on behalf of a Fund.
Before making any such payment, the Custodian shall receive (and may rely upon)
an officers' certificate requesting such payment and stating that it is for a
purpose permitted under the terms of items (a), (b), (c) or (d) of this
Subsection A, and also, in respect of item (e), upon receipt of an officers'
certificate specifying the amount of such payment, setting forth the purpose
for which such payment is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom such payment is to
be made, provided, however, that an officers' certificate need not precede the
disbursement of cash for the purpose of purchasing a money market instrument,
or any other security with same or next-day settlement, if the President, a
Vice President, the Secretary or the Treasurer of the Corporation, on behalf of
a particular Fund, issues appropriate oral or facsimile instructions to the
Custodian and an appropriate officers' certificate is received by the Custodian
within two business days thereafter.
Regardless of the foregoing, if the Corporation's investment advisor (the
"Advisor") is a member of the Institutional Delivery ("ID") system and desires
to affirm trades on behalf of a Fund with the Depository Trust Company ("DTC")
for those transactions affirmed through the ID system; or (ii) has established
an automated interface to transmit trade authorization detail to the Custodian,
then no officers' certificate is required; provided that the appropriate ID/DTC
letter agreement or automated trade authorization agreement has been executed
by both the Advisor and the Custodian.
2
<PAGE>
B. The Custodian is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received by the
Custodian for each Fund's account.
C. The Custodian shall, upon receipt of proper instructions, make
federal funds available to the Funds as of specified times agreed upon from
time to time by the Corporation, on behalf of the Funds, and the Custodian in
the amount of checks received in payment for shares of the Funds which are
deposited into the respective Fund's account.
4. SEGREGATED ACCOUNTS
Upon receipt of proper instructions, the Custodian shall establish and
maintain a segregated account or accounts for and on behalf of each Fund, into
which account or accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to paragraph 14
hereof, (i) in accordance with the provisions of any agreement among the
Corporation, on behalf of a Fund or Funds, the Custodian and a broker-dealer
registered under the Exchange Act and a member of the National Association of
Securities Dealers, Inc. (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of the
Options Clearing Corporation and of any registered national securities exchange
(or the Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding escrow or
other arrangements in connection with transactions for a Fund, (ii) for the
purpose of segregating cash or securities in connection with options purchased,
sold or written for a Fund or commodity futures contracts or options thereon
purchased or sold for a Fund, (iii) for the purpose of compliance by the
Corporation or a Fund with the procedures required by any release or
interpretations of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment companies, and (iv)
as mutually agreed upon from time to time between the Corporation, on behalf of
a Fund or Funds, and the Custodian.
5. TRANSFER, EXCHANGE, REDELIVERY, ETC. OF SECURITIES
The Custodian shall have sole power to release or deliver any securities
of the Funds held by it pursuant to this Agreement. The Custodian agrees to
transfer, exchange or deliver securities held by it hereunder only:
(a) for sales of such securities for the account of a Fund upon receipt by
Custodian of payment therefore;
(b) when such securities are called, redeemed or retired or otherwise
become payable;
(c) for examination by any broker selling any such securities in accordance
with "street delivery" custom;
(d) in exchange for, or upon conversion into, other securities alone or
other securities and cash whether pursuant to any plan of merger,
consolidation, reorganization, recapitalization or readjustment, or otherwise;
3
<PAGE>
(e) upon conversion of such securities pursuant to their terms into other
securities;
(f) upon exercise of subscription, purchase or other similar rights
represented by such securities;
(g) for the purpose of exchanging interim receipts or temporary securities
for definitive securities;
(h) for the purpose of redeeming in kind shares of common stock of a Fund
upon delivery thereof to the Custodian; or
(i) for other proper corporate purposes.
As to any deliveries made by the Custodian pursuant to items (a), (b),
(d), (e), (f), and (g), securities or cash receivable in exchange therefore
shall be deliverable to the Custodian.
Before making any such transfer, exchange or delivery, the Custodian shall
receive (and may rely upon) an officers' certificate requesting such transfer,
exchange or delivery, and stating that it is for a purpose permitted under the
terms of items (a), (b), (c), (d), (e), (f), (g) or (h) of this Section 5 and
also, in respect of item (i), upon receipt of an officers' certificate
specifying the securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made, provided, however, that an officers' certificate need not
precede any such transfer, exchange or delivery of a money market instrument,
or any other security with same or next-day settlement, if the President, a
Vice President, the Secretary or the Treasurer of the Corporation, on behalf of
a particular Fund, issues appropriate oral or facsimile instructions to the
Custodian and an appropriate officers' certificate is received by the Custodian
within two business days thereafter.
Regardless of the foregoing, if the Advisor is a member of the ID system and
desires to affirm trades on behalf of a Fund with the DTC for those
transactions affirmed through the ID system; or (ii) has established an
automated interface to transmit trade authorization detail to the Custodian,
then no officers' certificate is required; provided that the appropriate ID/DTC
letter agreement or automated trade authorization agreement has been executed
by both the Advisor and the Custodian.
6. CUSTODIAN'S ACTS WITHOUT INSTRUCTIONS
Unless and until the Custodian receives an officers' certificate to the
contrary, the Custodian shall: (a) present for payment all coupons and other
income items held by it for the account of each Fund which call for payment
upon presentation, and hold the cash received by it upon such payment for the
account of the respective Fund; (b) collect interest and cash dividends
received, with notice to each Fund, for the account of the respective Fund; (c)
hold for the account of each Fund hereunder all stock dividends, rights and
similar securities issued with respect to any securities held by it hereunder;
and (d) execute, as agent on behalf of each Fund, all necessary ownership
certificates required by the Internal Revenue Code or the Income Tax
Regulations of the United States Treasury Department or under the
4
<PAGE>
laws of any state now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so.
7. REGISTRATION OF SECURITIES
Except as otherwise directed by an officers' certificate, the Custodian
shall register all securities, except such as are in bearer form, in the name
of a registered nominee of the Custodian as defined in the Internal Revenue
Code and any Regulations of the Treasury Department issued hereunder or in any
provision of any subsequent federal tax law exempting such transaction from
liability for stock transfer taxes, and shall execute and deliver all such
certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state. The Custodian shall use its best
efforts to the end that the specific securities held by it hereunder shall be
at all times identifiable in its records.
The Corporation shall from time to time furnish to the Custodian
appropriate instruments to enable the Custodian to hold or deliver in proper
form for transfer, or to register in the name of its registered nominee, any
securities which it may hold for the account of the Funds and which may from
time to time be registered in the name of a particular Fund.
8. VOTING AND OTHER ACTION
Neither the Custodian nor any nominee of the Custodian shall vote any of
the securities held hereunder by or for the account of any Fund, except in
accordance with the instructions contained in an officers' certificate. The
Custodian shall deliver, or cause to be executed and delivered, to the
Corporation all notices, proxies and proxy soliciting materials with relation
to such securities, such proxies to be executed by the registered holder of
such securities (if registered otherwise than in the name of a Fund), but
without indicating the manner in which such proxies are to be voted.
9. TRANSFER TAX AND OTHER DISBURSEMENTS
The Corporation, on behalf of the Funds, shall pay or reimburse the
Custodian from time to time for any transfer taxes payable upon transfers of
securities made hereunder, and for all other necessary and proper disbursements
and expenses made or incurred by the Custodian in the performance of this
Agreement.
The Custodian shall execute and deliver such certificates in connection
with securities delivered to it or by it under this Agreement as may be
required under the provisions of the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, or under the laws of any state,
to exempt from taxation any exemptable transfers and/or deliveries of any such
securities.
10. CONCERNING CUSTODIAN
The Custodian shall be paid as compensation for its services pursuant to
this Agreement such compensation as may from time to time be agreed upon in
writing between the Corporation, on behalf of the Funds, and the Custodian.
Until modified in writing, such compensation shall be as set forth in Schedule
B attached hereto.
5
<PAGE>
The Custodian shall not be liable for any action taken in good faith upon
any certificate herein described or certified copy of any resolution of the
Board, and may rely on the genuineness of any such document which it may in
good faith believe to have been validly executed.
The Corporation, on behalf of the Funds, agrees to indemnify and hold
harmless the Custodian and its nominee from all taxes, charges, expenses,
assessments, claims and liabilities (including counsel fees) incurred or
assessed against it or by its nominee in connection with the performance of
this Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct. The
Custodian is authorized to charge the applicable account of a Fund for such
items. In the event of any advance of cash by the Custodian which results in
any overdraft of a Fund, which is a money market fund subject to Rule 2a-7
under the Investment Company Act, the Custodian is granted a security interest
in such Fund's assets limited to the extent of the overdraft.
11. SUBCUSTODIANS
The Custodian is hereby authorized to engage another bank or trust company
as a Subcustodian for all or any part of the Corporation's assets, so long as
any such bank or trust company meets the requirements of the Investment Company
Act, as amended and the rules and regulations thereunder and provided further
that, if the Custodian utilizes the services of a Subcustodian, the Custodian
shall remain fully liable and responsible for any losses caused to any of the
Funds by the Subcustodian as fully as if the Custodian was directly responsible
for any such losses under the terms of the Custodian Agreement.
Notwithstanding anything contained herein, if the Corporation requires the
Custodian to engage specific Subcustodians for the safekeeping and/or clearing
of assets, the Corporation agrees to indemnify and hold harmless the Custodian
from all claims, expenses and liabilities incurred or assessed against it in
connection with the use of such Subcustodian in regard to the Corporation's
assets, except as may arise from its own negligent action, negligent failure to
act or willful misconduct.
12. REPORTS BY CUSTODIAN
The Custodian shall furnish the Corporation periodically as agreed upon
with a statement summarizing all transactions and entries for the account of
each Fund. The Custodian shall furnish to the Corporation, at the end of every
month, a list of the securities held by each Fund, showing the aggregate cost
of each issue. The books and records of the Custodian pertaining to its
actions under this Agreement shall be open to inspection and audit at
reasonable times by officers of, and of auditors employed by, the Corporation.
13. TERMINATION OR ASSIGNMENT
This Agreement may be terminated by the Corporation, on behalf of the
Funds, or by the Custodian, on ninety (90) days notice, given in writing and
sent by registered mail to the Custodian at P. O. Box 2054, Milwaukee,
Wisconsin 53201, or to the Corporation at 100 Heritage Reserve, Menomonee
Falls, Wisconsin 53051, as the case may be. Upon any termination of this
Agreement, pending appointment of a successor to the Custodian or a vote of the
shareholders of the Corporation to dissolve
6
<PAGE>
or to function without a custodian of its cash, securities and other property,
the Custodian shall not deliver cash, securities or other property of the
Corporation to the Corporation, but may deliver them to a bank or trust company
of its own selection, that meets the requirements of the Investment Company Act
as a Custodian for the Corporation to be held under terms similar to those of
this Agreement, provided, however, that the Custodian shall not be required to
make any such delivery or payment until full payment shall have been made by
the Corporation of all liabilities constituting a charge on or against the
properties then held by the Custodian or on or against the Custodian, and until
full payment shall have been made to the Custodian of all its fees,
compensation, costs and expenses, subject to the provisions of Section 10 of
this Agreement.
This Agreement may not be assigned by the Custodian without the consent of
the Corporation, authorized or approved by a resolution of its Board of
Directors.
14. DEPOSITS OF SECURITIES IN SECURITIES DEPOSITORIES
No provision of this Agreement shall be deemed to prevent the use by the
Custodian of a central securities clearing agency or securities depository,
provided, however, that the Custodian and the central securities clearing
agency or securities depository meet all applicable federal and state laws and
regulations, including the requirements of the Investment Company Act, and the
Board of Directors of the Corporation approves by resolution the use of such
central securities clearing agency or securities depository.
15. RECORDS
To the extent that the Custodian in any capacity prepares or maintains any
records required to be maintained and preserved by the Corporation pursuant to
the provisions of the Investment Company Act, the Custodian agrees to make any
such records available to the Corporation upon request and to preserve such
records for the periods prescribed in Rule 31a-2 under the Investment Company
Act.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
Attest: Firstar Trust Company
- ---------------------------- -------------------------------
By: By:
Its: Its:
Attest: Strong __________________, Inc.
- ------------------------------- -------------------------------
By: John S. Weitzer By: Stephen J. Shenkenberg
Its: Vice President Its: Vice President
1
<PAGE>
SCHEDULE A
The Fund(s) of the Corporation currently subject to this Agreement are as
follows:
Date of Addition
FUND(S) TO THIS AGREEMENT
Strong __________ Fund ____________, 199__
Attest: Firstar Trust Company
- ------------------------------- -------------------------------
By: By:
Its: Its:
Attest: Strong __________________, Inc.
- ------------------------------- -------------------------------
By: John S. Weitzer By: Stephen J. Shenkenberg
Its: Vice President Its: Vice President
1
<PAGE>
ADDENDUM TO SCHEDULE B
FIRSTAR TRUST COMPANY
MUTUAL FUND SERVICES
MUTUAL FUND CUSTODIAL AGENT SERVICE
ANNUAL FEE SCHEDULE FOR THE
STRONG MUTUAL FUNDS
EFFECTIVE APRIL 1, 1998 THROUGH MARCH 31, 1999
*Annual fee on all Strong Mutual Funds
$500,000 Base fee on total fund family
*Investment transactions (purchase, sale, exchange, tender, redemption,
maturity, receipt, delivery)
$ 7.00 per Depository Trust Company or Federal Reserve System trade,
automated and non-automated
$25.00 per definitive security (physical)
$ 8.50 per commercial paper trade
$50.00 per Euroclear
$ 6.00 per principal reduction on pass-through certificates
$35.00 per option/futures contract
$ 10.00 per variation margin transaction
$ 15.00 per Fed wire deposit or withdrawal
<PAGE>
SHAREHOLDER SERVICING AGENT AGREEMENT
THIS AGREEMENT is made and entered into on this _____ day of December,
1998, between STRONG LIFE STAGE SERIES, INC., a Wisconsin corporation (the
"Corporation"), on behalf of the Funds (as defined below) of the Corporation,
EACH FUND LISTED ON SCHEDULE C attached hereto (as such Schedule C may be
amended from time to time) and which schedule evidences that fund's agreement
to be
bound separately and individually by executing a copy of this Agreement (such
funds hereinafter called the "Underlying Funds"), and STRONG CAPITAL
MANAGEMENT, INC., a Wisconsin corporation ("Strong").
WITNESSETH
WHEREAS, the Corporation is in the process of registering as an open-end
management investment company under the Investment Company Act of 1940;
WHEREAS, the Corporation is authorized to create separate series, each
with its own separate investment portfolio, and the beneficial interest in each
such series will be represented by a separate series of shares (each series is
hereinafter individually referred to as a "Fund" and collectively, the
"Funds");
WHEREAS, the Corporation is authorized to issue shares of its $0.00001 par
value common stock (the "Shares") of each Fund;
WHEREAS, the Corporation desires to retain Strong as the shareholder
servicing agent of the Shares of each Fund on whose behalf this Agreement has
been executed;
WHEREAS, the Funds will provide a means by which the Underlying Funds may
consolidate shareholder accounts;
WHEREAS, such shareholder account consolidation provides an omnibus
account structure which reduces the fees which would otherwise be charged to
the Underlying Funds under their Shareholder Servicing Agent Agreements if the
shareholders of the Funds invested directly in the Underlying Funds (such
resulting reduction in fees is hereinafter referred to as "Savings");
WHEREAS, the Funds will invest their assets exclusively in the Underlying
Funds, except for cash or cash equivalents needed for expenses and redemptions;
and
WHEREAS, it is reasonable to expect the shareholder servicing expenses of
the Funds under this Agreement to be less than the Savings to each of the
Underlying Funds from the operation of the Funds.
NOW, THEREFORE, the Corporation, the Underlying Funds, and Strong do
mutually agree and promise as follows:
1. APPOINTMENT. The Corporation hereby appoints Strong to act as
shareholder servicing agent of the Shares of each Fund listed on Schedule A
hereto, as such Schedule may be amended from time
<PAGE>
to time. Strong shall, at its own expense, render the services and assume the
obligations herein set forth subject to being compensated therefor as herein
provided.
2. AUTHORITY OF STRONG. Strong is hereby authorized by the
Corporation to receive all cash which may from time to time be delivered to it
by or for the account of the Funds; to issue confirmations and/or certificates
for Shares of the Funds upon receipt of payment; to redeem or repurchase on
behalf of the Funds Shares upon receipt of certificates properly endorsed or
properly executed written requests as described in the current prospectus of
each Fund and to act as dividend disbursing agent for the Funds.
3. DUTIES OF STRONG. Strong hereby agrees to:
A. Process new accounts.
B. Process purchases, both initial and subsequent, of Fund Shares in
accordance with conditions set forth in the prospectus of each Fund as mutually
agreed by the Corporation and Strong.
C. Transfer Fund Shares to an existing account or to a new account upon
receipt of required documentation in good order.
D. Redeem uncertificated and/or certificated shares upon receipt of
required documentation in good order.
E. Issue and/or cancel certificates as instructed; replace lost, stolen or
destroyed certificates upon receipt of satisfactory indemnification or bond.
F. Distribute dividends and/or capital gain distributions. This includes
disbursement as cash or reinvestment and to change the disbursement option at
the request of shareholders.
G. Process exchanges between Funds (process and direct purchase/redemption
and initiate new account or process to existing account).
H. Make miscellaneous changes to records.
I. Prepare and mail a confirmation to shareholders as each transaction is
recorded in a shareholder account. Duplicate confirmations to be available on
request within current year.
J. Handle phone calls and correspondence in reply to shareholder requests
except those items set forth in Referrals to Corporation, below.
K. Prepare Reports for the Funds:
i. Monthly analysis of transactions and accounts by types.
<PAGE>
ii. Quarterly state sales analysis; sales by size; analysis of systematic
withdrawals; Keogh, IRA and 403(b)(7) plans; print-out of shareholder balances.
L. Perform daily control and reconciliation of Fund Shares with Strong's
records and the Corporation's office records.
M. Prepare address labels or confirmations for four reports to shareholders
per year.
N. Mail and tabulate proxies for one Annual Meeting of Shareholders,
including preparation of certified shareholder list and daily report to
Corporation management, if required.
O. Prepare and mail required Federal income taxation information to
shareholders to whom dividends or distributions are paid, with a copy for the
IRS and a copy for the Corporation if required.
P. Provide readily obtainable data which may from time to time be requested
for audit purposes.
Q. Replace lost or destroyed checks.
R. Continuously maintain all records for active and closed accounts.
S. Furnish shareholder data information for a current calendar year in
connection with IRA and Keogh Plans in a format suitable for mailing to
shareholders.
4. REFERRALS TO CORPORATION. Strong hereby agrees to refer to the
Corporation for reply the following:
A. Requests for investment information, including performance and outlook.
B. Requests for information about specific plans (i.e., IRA, Keogh,
Systematic Withdrawal).
C. Requests for information about exchanges between Funds.
D. Requests for historical Fund prices.
E. Requests for information about the value and timing of dividend
payments.
F. Questions regarding correspondence from the Corporation and newspaper
articles.
G. Any requests for information from non-shareholders.
<PAGE>
H. Any other types of shareholder requests as the Corporation may request
from Strong in writing.
5. COMPENSATION TO STRONG. Strong shall be compensated for its
services hereunder in accordance with the Shareholder Servicing Fee Schedule
(the "Fee Schedule") attached hereto as Schedule B and as such Fee Schedule may
from time to time be amended in writing between the two parties. The
Corporation will reimburse Strong for all out-of-pocket expenses, including,
but not necessarily limited to, postage, confirmation forms, etc. Special
projects, not included in the Fee Schedule and requested by proper instructions
from the Corporation with respect to the relevant Funds, shall be completed by
Strong and invoiced to the Corporation and the relevant Funds as mutually
agreed upon.
6. UNDERLYING FUND'S PAYMENT OF EXPENSES. Each of the Underlying
Funds will reimburse the Funds for amounts paid by the Funds to Strong under
this Agreement pro rata based on the percentage amounts that the Funds invest
in the Underlying Funds as detailed in the Funds' current prospectus, provided
that no Underlying Fund will pay such amounts to a Fund in excess of the
Savings to it from such Fund.
7. RIGHTS AND POWERS OF STRONG. Strong's rights and powers with
respect to acting for and on behalf of the Corporation, including rights and
powers of Strong's officers and directors, shall be as follows:
A. No order, direction, approval, contract or obligation on behalf of the
Corporation with or in any way affecting Strong shall be deemed binding unless
made in writing and signed on behalf of the Corporation by an officer or
officers of the Corporation who have been duly authorized to so act on behalf
of the Corporation by its Board of Directors.
B. Directors, officers, agents and shareholders of the Corporation are or
may at any time or times be interested in Strong as officers, directors,
agents, shareholders, or otherwise. Correspondingly, directors, officers,
agents and shareholders of Strong are or may at any time or times be interested
in the Corporation as directors, officers, agents, shareholders or otherwise.
Strong shall, if it so elects, also have the right to be a shareholder of the
Corporation.
C. The services of Strong to the Corporation are not to be deemed exclusive
and Strong shall be free to render similar services to others as long as its
services for others do not in any manner or way hinder, preclude or prevent
Strong from performing its duties and obligations under this Agreement.
D. The Corporation will indemnify Strong and hold it harmless from and
against all costs, losses, and expenses which may be incurred by it and all
claims or liabilities which may be asserted or assessed against it as a result
of any action taken by it without negligence and in good faith, and for any
act, omission, delay or refusal made by Strong in connection with this agency
in reliance upon or in accordance with any instruction or advice of any duly
authorized officer of the Corporation.
8. EFFECTIVE DATE. This Agreement shall become effective as of the
date hereof.
<PAGE>
9. TERMINATION OF AGREEMENT. This Agreement shall continue in force
and effect until terminated or amended to such an extent that a new Agreement
is deemed advisable by the parties. Notwithstanding anything herein to the
contrary, this Agreement may be terminated at any time, without payment of any
penalty, by the Corporation, the Underlying Funds, or Strong upon ninety (90)
days' written notice to the other parties.
10. AMENDMENT. This Agreement may be amended by the mutual written
consent of the parties. If, at any time during the existence of this
Agreement, the Corporation deems it necessary or advisable in the best
interests of Corporation that any amendment of this Agreement be made in order
to comply with the recommendations or requirements of the Securities and
Exchange Commission or state regulatory agencies or other governmental
authority, or to obtain any advantage under state or federal laws, the
Corporation shall notify the Underlying Funds and Strong of the form of
amendment which it deems necessary or advisable and the reasons therefor. If
Strong or the Underlying Funds decline to assent to such amendment, the
Corporation may terminate this Agreement forthwith.
11. NOTICE. Any notice that is required to be given by the parties to
each other under the terms of this Agreement shall be in writing, addressed and
delivered, or mailed postpaid to the other parties at the principal place of
business of such parties.
12. UNDERLYING FUNDS. Each of the Underlying Funds listed in Schedule
C agree to be bound, separately and individually, to the terms and conditions
of this Agreement. Under no circumstances will any Underlying Fund be liable
for any obligation of any other Underlying Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed as of the day and year first stated above.
<TABLE>
<CAPTION>
<S> <C> <C>
Attest: Strong Capital Management, Inc.
------------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Strong Life Stage Series, Inc.
------------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Underlying Funds (as listed on Schedule C)
------------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
</TABLE>
<PAGE>
SCHEDULE A
The Fund(s) of the Corporation currently subject to this Agreement are as
follows:
Date of Addition
FUND(S) TO THIS AGREEMENT
<TABLE>
<CAPTION>
Strong Conservative Portfolio December ___, 1998
Strong Moderate Portfolio December ___, 1998
Strong Aggressive Portfolio
December ___, 1998
<S> <C> <C>
Strong Capital Management, Inc.
Attest:
------------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Strong Life Stage Series, Inc.
------------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Underlying Funds (as listed on Schedule C)
- ----------------------------- ------------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
</TABLE>
<PAGE>
SCHEDULE B
SHAREHOLDER SERVICING FEE SCHEDULE
Until such time that this schedule is replaced or modified, Strong Life
Stage Series, Inc. (the "Corporation"), on behalf of each Fund set forth on
Schedule A to this Agreement, agrees to compensate Strong Capital Management,
Inc. ("Strong") for performing as shareholder servicing agent as specified
below per open Fund account, plus out-of-pocket expenses attributable to the
Corporation and the Fund(s).
Annual Rate per
FUND(S) OPEN FUND ACCOUNT
<TABLE>
<CAPTION>
<S> <C>
Strong Conservative Portfolio $21.75
Strong Moderate Portfolio $21.75
Strong Aggressive Portfolio $21.75
</TABLE>
Out-of-pocket expenses include, but are not limited to, the following:
1. All materials, paper and other costs associated with necessary and
ordinary shareholder correspondence.
2. Postage and printing of confirmations, statements, tax forms and any
other necessary shareholder correspondence. Printing is to include the cost of
printing account statements and confirmations by third-party vendors as well as
the cost of printing the actual forms.
3. The cost of mailing (sorting, inserting, etc.) by third-party vendors.
4. All banking charges of Corporation, including deposit slips and stamps,
checks and share drafts, wire fees not paid by shareholders, and any other
deposit account or checking account fees.
5. The cost of storage media for Corporation records, including phone
recorder tapes, microfilm and microfiche, forms and paper.
6. Offsite storage costs for older Corporation records.
7. Charges incurred in the delivery of Corporation materials and mail.
8. Any costs for outside contractors used in providing necessary and
ordinary services to the Corporation, a Fund or shareholders, not contemplated
to be performed by Strong.
9. Any costs associated with enhancing, correcting or developing the record
keeping system currently used by the Corporation, including the development of
new statement or tax form formats.
<PAGE>
For purposes of calculating Strong's compensation pursuant to this
Agreement, all subaccounts which hold shares in a Fund through 401(k) plans,
401(k) alliances, and financial institutions, such as insurance companies,
broker/dealers, and investment advisors shall be treated as direct open
accounts of the Fund. Out-of-pocket expenses will be charged to the applicable
Fund, except for those out-of-pocket expenses attributable to the Corporation
in general, which shall be charged pro rata to each Fund.
In addition, a Fund will pay a fee for closed accounts at an annual rate
of $4.20 per account. All fees will be billed to the Corporation monthly based
upon the number of open and closed accounts existing on the last day of the
month plus any out-of-pocket expenses paid by Strong during the month. These
fees are in addition to any fees the Corporation may pay Strong for providing
investment management services or for underwriting the sale of Corporation
shares.
<TABLE>
<CAPTION>
<S> <C><C>
Attest: Strong Capital Management, Inc.
------------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Strong Life Stage Series, Inc.
------------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Underlying Funds (as listed on Schedule C)
- --------------- ------------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
</TABLE>
<PAGE>
SCHEDULE C
UNDERLYING FUNDS
Strong Equity Funds, Inc. on behalf of
- Strong Growth Fund
Strong Conservative Equity Funds, Inc. on behalf of
- Strong Blue Chip 100 Fund
- Strong Growth and Income Fund
Strong Common Stock Fund, Inc.
Strong Advantage Fund, Inc.
Strong Short-Term Bond Fund, Inc.
Strong Government Securities Fund, Inc.
Strong Heritage Reserve Series, Inc., on behalf of
- Strong Heritage Money Fund
<PAGE>
SHAREHOLDER SERVICING AGREEMENT
(PERSONAL SERVICES PROVIDED TO SHAREHOLDERS)
THIS AGREEMENT is entered into on this ____ day of _________, 199__
between Strong Life Stage Series, Inc., a Wisconsin corporation (the
"Corporation"), on behalf of the Strong Conservative Portfolio, Strong Moderate
Portfolio, and Strong Aggressive Portfolio (collectively, the "Funds"), and
Strong Capital Management, Inc., a Wisconsin corporation ("SCM").
WITNESSETH:
WHEREAS, the Corporation is an open-end management investment company
registered under the Investment Company Act of 1940 (the "1940 Act");
WHEREAS, it is in the interest of the Corporation to make shareholder
services available to Customers who are or may become shareholders of the
Funds, and
WHEREAS, SCM wishes to act as the shareholder servicing agent for
investors in the Funds (the "Customers") in performing certain administrative
functions in connection with purchases and redemptions of shares of the Funds
("Shares") from time to time upon the order and for the account of Customers
and to provide related services to Customers in connection with their
investments in the Funds.
NOW, THEREFORE, the Corporation and SCM do mutually agree and promise as
follows:
1. APPOINTMENT. SCM hereby agrees to perform certain shareholder
services as agent for the Corporation with respect to the Funds as hereinafter
set forth.
2. SERVICES TO BE PERFORMED.
2.1 SHAREHOLDER SERVICES. SCM shall be responsible for performing
shareholder account administrative and servicing functions, which shall include
without limitation:
(a) answering Customer inquiries regarding account status and
history, the manner in which purchases and redemptions of the Shares may be
effected, and certain other matters pertaining to the Funds; (b) assisting
Customers in designating and changing dividend options, account designations
and addresses; (c) providing necessary personnel and facilities to coordinate
the establishment and maintenance of shareholder accounts and records with the
Funds' transfer agent; (d) transmitting Customers' purchase and redemption
orders to the Funds' transfer agent; (e) arranging for the wiring or other
transfer of funds to and from Customer accounts in connection with Customer
orders to purchase or redeem Shares; (f) verifying purchase and redemption
orders,
1
<PAGE>
transfers among and changes in Customer-designated accounts; (g) informing the
distributor of the Funds of the gross amount of purchase and redemption orders
for Shares; (h) monitoring the activities of the Funds' transfer agent related
to Customers' accounts, and to statements, confirmations or other reports
furnished to Customers by the Funds' transfer agent; and (i) providing such
other related services as the Funds or a Customer may reasonably request, to
the extent permitted by applicable law. SCM shall provide all personnel and
facilities necessary in order for it to perform the functions contemplated by
this paragraph with respect to Customers.
2.2 STANDARD OF SERVICES. All services to be rendered by SCM
hereunder shall be performed in a professional, competent and timely manner
subject to the supervision of the Board of Directors of the Corporation on
behalf of the Funds. The details of the operating standards and procedures to
be followed by SCM in the performance of the services described above shall be
determined from time to time by agreement between SCM and the Corporation.
3. FEES. As full compensation for the services described in Section 2
hereof and expenses incurred by SCM, the Funds shall pay SCM a fee at an annual
rate of .25% of the average daily net asset value of the Funds. This fee will
be computed daily and will be payable as agreed by the Funds and SCM, but no
more frequently than monthly.
4. INFORMATION PERTAINING TO THE SHARES. SCM and its officers,
employees and agents are not authorized to make any representations concerning
the Funds or the Shares except to communicate to Customers accurately factual
information contained in the Funds' Prospectus and Statement of Additional
Information and objective historical performance information. SCM shall act as
agent for Customers only in furnishing information regarding the Funds and
shall have no other authority to act as agent for the Funds.
During the term of this Agreement, the Funds agree to furnish SCM all
prospectuses, statements of additional information, proxy statements, reports
to shareholders, sales literature, or other material the Funds will distribute
to shareholders of the Funds or the public, which refer in any way to SCM, and
SCM agrees to furnish the Funds all material prepared for Customers, in each
case prior to use thereof. The Funds shall furnish or otherwise make available
to SCM such other information relating to the business affairs of the Funds as
SCM may, from time to time, reasonably request in order to discharge its
obligations hereunder.
Nothing in this Section 4 shall be construed to make the Funds liable for
the use of any information about the Funds which is disseminated by SCM.
5. USE OF SCM'S NAME. The Funds shall not use the name of SCM in any
prospectus, sales literature or other material relating to the Funds in a
manner not approved by SCM prior thereto; PROVIDED, HOWEVER, that the approval
of SCM shall not be required for any use of its name which merely refers in
accurate and factual terms to
2
<PAGE>
its appointment hereunder or which is required by the Securities and Exchange
Commission (the "SEC") or any state securities authority or any other
appropriate regulatory, governmental or judicial authority; PROVIDED, FURTHER,
that in no event shall such approval be unreasonably withheld or delayed.
6. USE OF THE FUNDS' NAME. SCM shall not use the name of the Funds on
any checks, bank drafts, bank statements or forms for other than internal use
in a manner not approved by the Funds prior thereto; PROVIDED, HOWEVER, that
the approval of the Funds shall not be required for the use of the Funds' name
in connection with communications permitted by Sections 2 and 4 hereof or for
any use of the Funds' name which merely refers in accurate and factual terms to
SCM's role hereunder or which is required by the SEC or any state securities
authority or any other appropriate regulatory, governmental or judicial
authority; PROVIDED, FURTHER, that in no event shall such approval be
unreasonably withheld or delayed.
7. SECURITY. SCM represents and warrants that the various procedures
and systems which it has implemented with regard to safeguarding from loss or
damage attributable to fire, theft or any other cause any Funds records and
other data and SCM's records, data, equipment, facilities and other property
used in the performance of its obligations hereunder are adequate and that it
will make such changes therein from time to time as in its judgment are
required for the secure performance of its obligations hereunder. The parties
shall review such systems and procedures on a periodic basis, and the Funds
shall from time to time specify the types of records and other data of the
Funds to be safeguarded in accordance with this Section 7.
8. COMPLIANCE WITH LAWS. SCM assumes no responsibilities under this
Agreement other than to render the services called for hereunder, on the terms
and conditions provided herein. SCM shall comply with all applicable federal
and state laws and regulations. SCM represents and warrants to the Funds that
the performance of all its obligations hereunder will comply with all
applicable laws and regulations, the provisions of its articles of
incorporation and by-laws and all material contractual obligations binding upon
SCM. SCM furthermore undertakes that it will promptly inform the Funds of any
change in applicable laws or regulations (or interpretations thereof) which
would prevent or impair full performance of any of its obligations hereunder.
9. FORCE MAJEURE. SCM shall not be liable or responsible for delays
or errors by reason of circumstances beyond its control, including, but not
limited to, acts of civil or military authority, national emergencies, labor
difficulties, fire, mechanical breakdown, flood or catastrophe, Acts of God,
insurrection, war, riots or failure of communication or power supply.
3
<PAGE>
10. INDEMNIFICATION.
10.1. INDEMNIFICATION OF SCM. The Funds will indemnify and hold SCM
harmless, from all losses, claims, damages, liabilities or expenses (including
reasonable fees and disbursements of counsel) from any claim, demand, action or
suit (collectively, "Claims") (a) arising in connection with misstatements or
omissions in the Funds' prospectus, actions or inactions by the Funds or any of
its agents or contractors or the performance of SCM's obligations hereunder and
(b) not resulting from the willful misfeasance, bad faith, or gross negligence
of SCM, its officers, employees or agents, in the performance of SCM's duties
or from reckless disregard by SCM, its officers, employees or agents of SCM's
obligations and duties under this Agreement.
Notwithstanding anything herein to the contrary, the Funds will indemnify
and hold SCM harmless from any and all losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) resulting from any
Claim as a result of SCM's acting in accordance with any received instructions
from the Funds.
10.2. INDEMNIFICATION OF THE FUNDS. Without limiting the rights of
the Funds under applicable law, SCM will indemnify and hold the Funds harmless
from all losses, claims, damages, liabilities or expenses (including reasonable
fees and disbursements of counsel) from any Claim (a) resulting from the
willful misfeasance, bad faith or gross negligence of SCM, its officers,
employees, or agents, in the performance of SCM's duties or from reckless
disregard by SCM, its officers, employees or agents of SCM's obligations and
duties under this Agreement, and (b) not resulting from SCM's actions in
accordance with instructions reasonably believed by SCM to have been given by
any person duly authorized by the Funds.
10.3. SURVIVAL OF INDEMNITIES. The indemnities granted by the parties
in this Section 10 shall survive the termination of this Agreement.
11. INSURANCE. SCM shall maintain such reasonable insurance coverage
as is appropriate against any and all liabilities which may arise in connection
with the performance of its duties hereunder.
12. FURTHER ASSURANCES. Each party agrees to perform such further
acts and execute further documents as are necessary to effectuate the purposes
hereof.
13. TERMINATION. This Agreement shall continue in force and effect
until terminated or amended to such an extent that a new Agreement is deemed
advisable by either party. Notwithstanding anything herein to the contrary,
this Agreement may be terminated at any time, without payment of any penalty,
by either party upon ninety (90) days written notice to the other party.
4
<PAGE>
14. NON-EXCLUSIVITY. Nothing in this Agreement shall limit or
restrict the right of SCM to engage in any other business or to render services
of any kind to any other corporation, firm, individual or association.
15. AMENDMENTS. This Agreement may be amended only by mutual written
consent.
16. NOTICE. Any notice that is required to be given by the parties to
each other under the terms of this Agreement shall be in writing, addressed and
delivered, or mailed post paid to the other party at the principal place of
business of such party.
17. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Wisconsin.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed as of the day and year first stated above.
Attest: STRONG CAPITAL MANAGEMENT, INC.
______________________________ ______________________________
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: STRONG LIFE STAGE SERIES, INC.
_____________________________ ______________________________
John S. Weitzer Stephen J. Shenkenberg, Vice President
5
<PAGE>
GODFREY & KAHN, S.C.
ATTORNEYS AT LAW
780 North Water Street
Milwaukee, Wisconsin 53202
Phone (414) 273-3500; Fax (414) 273-5198
December 23, 1998
Strong Life Stage Series, Inc.
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
Re: Strong Conservative Portfolio
Strong Moderate Portfolio
Strong Aggressive Portfolio
Gentlemen:
We have acted as your counsel in connection with the preparation of a
Registration Statement on Form N-1A (Registration Nos. 333-66647; 811-9091)
(the "Registration Statement") relating to the sale by you of an indefinite
number of shares (the "Shares") of common stock, $.00001 par value of the
Strong Conservative Portfolio, the Strong Moderate Portfolio and the Strong
Aggressive Portfolio (the "Portfolios"), each a series of Strong Life Stage
Series, Inc. (the "Company"), in the manner set forth in the Registration
Statement (and the Prospectus of the Portfolios included therein).
We have examined: (a) the Registration Statement (and the Prospectus of
the Portfolios included therein), (b) the Company's Articles of Incorporation
and By-Laws, (c) certain resolutions of the Company's Board of Directors, and
(d) such other proceedings, documents and records as we have deemed necessary
to enable us to render this opinion.
Based upon the foregoing, we are of the opinion that the Shares, when sold
as contemplated in the Registration Statement, will be duly authorized and
validly issued, fully paid and nonassessable except to the extent provided in
Section 180.0622(2)(b) of the Wisconsin Statutes, or any successor provision,
which provides that shareholders of a corporation organized under Chapter 180
of the Wisconsin Statutes may be assessed up to the par value of their shares
to satisfy the obligations of such corporation to its employees for services
rendered, but not exceeding six months service in the case of any individual
employee; certain Wisconsin courts
<PAGE>
have interpreted "par value" to mean the full amount paid by the purchaser of
shares upon the issuance thereof.
We consent to the use of this opinion as an exhibit to the Registration
Statement. In giving this consent, however, we do not admit that we are
"experts" within the meaning of Section 11 of the Securities Act of 1933, as
amended, or within the category of persons whose consent is required by Section
7 of said Act.
Very truly yours,
/s/ Godfrey & Kahn, S.C.
GODFREY & KAHN, S.C.
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Strong Life Stage Series, Inc.
We consent to the inclusion in Pre-Effective Amendment No. 1 to the
Registration Statement of Strong Life Stage Series, Inc. on Form N-1A of our
report dated December 16, 1998, on our audits of the statements of assets and
liabilities of Strong Conservative Portfolio, Strong Moderate Portfolio and
Strong Aggressive Portfolio (all of the portfolios constituting the Strong Life
Stage Series, Inc.) as of December 15, 1998. We also consent to the reference
to our Firm under the caption "Independent Accountants" in the Statement of
Additional Information.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
December 16, 1998
1
<PAGE>
STRONG <<FUND>>, INC.
STOCK SUBSCRIPTION AGREEMENT
To the Board of Directors of Strong <<FUND>>, Inc.:
The undersigned purchaser (the "Purchaser") hereby subscribes to______
shares (the "Shares") of common stock, ______ par value (the "Common Stock"),
of Strong <<FUND>>, Inc. in consideration for which the Purchaser agrees to
transfer to you upon demand cash in the amount of _______________________ .
It is understood that a certificate representing the Shares shall be
issued to the undersigned upon request at any time after receipt by you of
payment therefore, and said Shares shall be deemed fully paid and
nonassessable, except to the extent provided in Section 180.0622(2)(b) of the
Wisconsin Statutes, as interpreted by courts of competent jurisdiction, or any
successor provision to said Section 180.0622(2)(b).
The Purchaser agrees that the Shares are being purchased for investment
with no present intention of reselling or redeeming said Shares.
Dated and effective this __day of _______, 199_.
STRONG CAPITAL MANAGEMENT, INC.
By: _________________________
Officer
ACCEPTANCE
The foregoing subscription is hereby accepted. Dated and effective as of
this __day of _____________, 199_.
STRONG <<FUND>>, INC.
By: _________________________
Officer
Attest: ________________________
Officer
1
<PAGE>
STRONG LIFE STAGE SERIES, INC.
(Registrant)
POWER OF ATTORNEY
Each person whose signature appears below, constitutes and appoints Thomas
P. Lemke, Stephen J. Shenkenberg, and John S. Weitzer, and each of them, his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this Registration Statement on Form N-1A, and any and all
amendments thereto, and to file the same, with all exhibits, and any other
documents in connection therewith, with the Securities and Exchange Commission
and any other regulatory body granting unto said attorney-in-fact and agent,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes, as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME
TITLE DATE
- ------------------------------- --------------------------------------------- ------------------
Treasurer (Principal Financial
/s/ Dana J. Russart and Accounting Officer) December 22, 1998
- -------------------------------
Dana J. Russart
</TABLE>
CODE OF ETHICS
FOR ACCESS PERSONS OF
THE STRONG FAMILY OF MUTUAL FUNDS,
STRONG CAPITAL MANAGEMENT, INC.,
AND STRONG FUNDS DISTRIBUTORS, INC.
[STRONG LOGO]
STRONG CAPITAL MANAGEMENT, INC.
October 22, 1998
1
<PAGE>
CODE OF ETHICS
For Access Persons of
The Strong Family of Mutual Funds,
Strong Capital Management, Inc.,
and Strong Funds Distributors, Inc.
Dated October 22, 1998
TABLE OF CONTENTS
I. INTRODUCTION 1
A. Fiduciary Duty 1
1. Place the interests of Advisory Clients first 1
2. Avoid taking inappropriate advantage of their position 1
3. Conduct all Personal Securities Transactions in full compliance with this
Code including both the preclearance and reporting requirements 1
B. Appendices to the Code 1
1. Definitions 2
2. Contact Persons 2
3. Disclosure of Personal Holdings in Securities 2
4. Acknowledgment of Receipt of Code of Ethics and Limited Power of Attorney 2
5. Preclearance Request for Access Persons 2
6. Annual Code of Ethics Questionnaire 2
7. List of Broad-Based Indices 2
8. Form Letter to Broker or Bank 2
9. Gift Policy 2
10. Insider Trading Policy 2
C. Application of the Code to Independent Fund Directors 2
D. Application of the Code to Funds Subadvised by SCM 2
II. PERSONAL SECURITIES TRANSACTIONS 2
A. Annual Disclosure of Personal Holdings by Access Persons 2
B. Preclearance Requirements for Access Persons 3
1. General Requirement 3
2. Transactions Exempt from Preclearance Requirements 3
a. Mutual Funds 3
b. No Knowledge 3
c. Certain Corporate Actions 3
d. Rights 3
e. Application to Commodities, Futures, Options on Futures and Options on
Broad-Based Indices 3
f. Miscellaneous 4
C. Preclearance Requests 4
1. Trade Authorization Request Forms 4
2. Review of Form 4
3. Access Person Designees 4
1
<PAGE>
TABLE OF CONTENTS (CONTINUED)
D. Prohibited Transactions 5
1. Prohibited Securities Transactions 5
a. Initial Public Offerings 5
b. Pending Buy or Sell Orders 5
c. Seven Day Blackout 5
d. Intention to Buy or Sell for Advisory Client 5
e. 60-Day Blackout 6
2. Always Prohibited Securities Transactions 6
a. Inside Information 6
b. Market Manipulation 6
c. Large Positions in Registered Investment Companies 6
d. Others 6
3. Private Placements 6
4. No Explanation Required for Refusals 6
E. Execution of Personal Securities Transactions 7
F. Length of Trade Authorization Approval 7
G. Trade Reporting Requirements 7
1. Reporting Requirement 7
2. Disclaimers 8
3. Quarterly Review 8
4. Availability of Reports 8
III. FIDUCIARY DUTIES 8
A. Confidentiality 8
B. Gifts 9
1. Accepting Gifts 9
2. Solicitation of Gifts 9
3. Giving Gifts 9
C. Payments to Advisory Clients 9
D. Corporate Opportunities 9
E. Undue Influence 9
F. Service as a Director 10
G. Involvement in Criminal Matters or Investment-Related Civil Proceedings 10
2
<PAGE>
TABLE OF CONTENTS (CONTINUED)
IV. COMPLIANCE WITH THIS CODE OF ETHICS 10
A. Code of Ethics Review Committee 10
1. Membership, Voting, and Quorum 10
2. Investigating Violations of the Code 10
3. Annual Reports 10
B. Remedies 11
1. Sanctions 11
2. Sole Authority 11
3. Review 11
C. Exceptions to the Code 11
D. Compliance Certification 12
E. Record Retention 12
1. Code of Ethics 12
2. Violations 12
3. Required Reports 12
4. Access Person List 12
F. Inquiries Regarding the Code 12
CODE OF ETHICS
For Access Persons of
The Strong Family of Mutual Funds,
Strong Capital Management, Inc.,
and Strong Funds Distributors, Inc.
Dated October 22, 1998
TABLE OF APPENDICES
Appendix 1 (Definitions) 13
Appendix 2 (Contact Persons) 16
Appendix 3 (Disclosure of Personal Holdings in Securities) 17
Appendix 4 (Acknowledgment of Receipt of Code of Ethics and
Limited Power of Attorney) 18
Appendix 5 (Preclearance Request for Access Persons) 19
Appendix 6 (Annual Code of Ethics Questionnaire) 20
Appendix 7 (List of Broad-Based Indices) 23
Appendix 8 (Form Letter to Broker or Bank) 24
Appendix 9 (Gift Policy) 25
Appendix 10 (Insider Trading Policy) 27
CODE OF ETHICS
For Access Persons of
The Strong Family of Mutual Funds,
Strong Capital Management, Inc.,
and Strong Funds Distributors, Inc.
Dated October 22, 1998
I. INTRODUCTION(1)
A. FIDUCIARY DUTY. This Code of Ethics is based upon the principle
that directors, officers and associates of Strong Capital Management, Inc.
("SCM"), Strong Funds Distributors, Inc. ("the Distributor") and the Strong
Family of Mutual Funds ("the Strong Funds") have a fiduciary duty to place the
interests of clients ahead of their own. The Code applies to all Access
Persons and focuses principally on preclearance and reporting of personal
transactions in securities. Access Persons must avoid activities, interests
and relationships that might interfere with making decisions in the best
interests of the Advisory Clients of SCM.
As fiduciaries, Access Persons must at all times:
1. PLACE THE INTERESTS OF ADVISORY CLIENTS FIRST. Access Persons must
scrupulously avoid serving their own personal interests ahead of the interests
of the Advisory Clients of SCM. AN ACCESS PERSON MAY NOT INDUCE OR CAUSE AN
ADVISORY CLIENT TO TAKE ACTION, OR NOT TO TAKE ACTION, FOR PERSONAL BENEFIT
RATHER THAN FOR THE BENEFIT OF THE ADVISORY CLIENT. For example, an Access
Person would violate this Code by causing an Advisory Client to purchase a
Security he or she owned for the purpose of increasing the price of that
Security.
2. AVOID TAKING INAPPROPRIATE ADVANTAGE OF THEIR POSITION. The receipt of
investment opportunities, perquisites or gifts from persons seeking business
with the Strong Funds, SCM, the Distributor or their clients could call into
question the exercise of an Access Person's independent judgment. Access
persons may not, for example, use their knowledge of portfolio transactions to
profit by the market effect of such transactions.
3. CONDUCT ALL PERSONAL SECURITIES TRANSACTIONS IN FULL COMPLIANCE
WITH THIS CODE INCLUDING BOTH THE PRECLEARANCE AND REPORTING REQUIREMENTS.
Doubtful situations should be resolved in favor of Advisory Clients. Technical
compliance with the Code's procedures will not automatically insulate from
scrutiny any trades that may indicate an abuse of fiduciary duties.
(1) Capitalized words are defined in Appendix 1.
<PAGE>
B. APPENDICES TO THE CODE. The appendices to this Code are attached
hereto, are a part of the Code and include the following:
1. DEFINITIONS--capitalized words as defined in the Code (Appendix
1),
2. CONTACT PERSONS, including the Preclearance Officer designees and the
Code of Ethics Review Committee (Appendix 2),
3. DISCLOSURE OF PERSONAL HOLDINGS IN SECURITIES (Appendix 3),
4. ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS AND LIMITED POWER OF
ATTORNEY (Appendix 4),
5. PRECLEARANCE REQUEST FOR ACCESS PERSONS (Appendix 5),
6. ANNUAL CODE OF ETHICS QUESTIONNAIRE (Appendix 6),
7. LIST OF BROAD-BASED INDICES (Appendix 7),
8. FORM LETTER TO BROKER OR BANK (Appendix 8),
9. GIFT POLICY (Appendix 9), and
10. INSIDER TRADING POLICY (Appendix 10).
C. APPLICATION OF THE CODE TO INDEPENDENT FUND DIRECTORS. This Code
applies to Independent Fund Directors and requires Independent Fund Directors
and their Immediate Families to report Securities Transactions to the
Compliance Department in accordance with the trade reporting requirements
(Section II.G.). However, provisions of the Code relating to the disclosure of
personal holdings (Section II.A.), preclearance of trades (Section II.B.),
prohibited transactions (II.D.1.), large positions in registered investment
companies (Section II.D.2.c.), private placements (Section II.D.3.),
restrictions on serving as a director of a publicly-traded company (Section
III.F.) and receipt of gifts (Section III.B.) do not apply to Independent Fund
Directors.
D. APPLICATION OF THE CODE TO FUNDS SUBADVISED BY SCM. This Code does
not apply to the directors, officers and general partners of Funds for which
SCM serves as a subadviser.
II. PERSONAL SECURITIES TRANSACTIONS
A. ANNUAL DISCLOSURE OF PERSONAL HOLDINGS BY ACCESS PERSONS. Upon
designation as an Access Person, and thereafter on an annual basis, all Access
Persons must report on the Disclosure of Personal Holdings In Securities Form
(Appendix 3) (or a substantially similar form) all Securities, including
securities held in certificate form, in which they have a Beneficial Interest
and all Securities in non-client accounts for which they make investment
decisions
<PAGE>
(previously reported holdings, as well as those specifically excluded
from the definition of Security, need not be reported). This provision does
not apply to Independent Fund Directors.
B. PRECLEARANCE REQUIREMENTS FOR ACCESS PERSONS.
1. GENERAL REQUIREMENT. Except for the transactions set forth in
Section II.B.2., ALL SECURITIES TRANSACTIONS in which an Access Person or a
member of his or her Immediate Family has a Beneficial Interest MUST BE
PRECLEARED with the Preclearance Officer or his designee. This provision does
not apply to transactions of Independent Fund Directors and their Immediate
Families.
2. TRANSACTIONS EXEMPT FROM PRECLEARANCE REQUIREMENTS. The following
Securities Transactions are exempt from the preclearance requirements set forth
in Section II.B.1. of this Code:
a. MUTUAL FUNDS. Securities issued by any registered open-end
investment companies (including but not limited to the Strong Funds);
b. NO KNOWLEDGE. Securities Transactions where neither SCM, the
Access Person nor an Immediate Family member knows of the transaction before it
is completed (for example, Securities Transactions effected for an Access
Person by a trustee of a blind trust or discretionary trades involving an
investment partnership or investment club in which the Access Person is neither
consulted nor advised of the trade before it is executed);
c. CERTAIN CORPORATE ACTIONS. Any acquisition or disposition of
Securities through stock dividends, dividend reinvestments, stock splits,
reverse stock splits, mergers, consolidations, spin-offs or other similar
corporate reorganizations or distributions generally applicable to all holders
of the same class of Securities. Odd-lot tender offers are also exempt from
the preclearance requirements; however, all other tender offers must be
precleared;
d. RIGHTS. Any acquisition or disposition of Securities through the
exercise of rights, options, convertible bonds or other instruments acquired in
compliance with this Code;
e. APPLICATION TO COMMODITIES, FUTURES, OPTIONS ON FUTURES AND OPTIONS
ON BROAD-BASED INDICES. Commodities, futures (including currency futures and
futures on securities comprising part of a broad-based, publicly traded market
based index of stocks), options on futures, options on currencies and options
on certain indices designated by the Compliance Department as broad-based are
not subject to preclearance or the seven day black out, 60-day profit
disgorgement and other prohibited transaction provisions of Section II.D.1. of
the Code but are subject to transaction reporting requirements (Section II.G.).
The options on indices designated by the Compliance Department as broad-based
may be changed from time to time and are listed in Appendix 7.
<PAGE>
THE OPTIONS ON INDICES THAT ARE NOT DESIGNATED AS BROAD-BASED ARE SUBJECT TO
THE PRECLEARANCE, SEVEN-DAY BLACKOUT, 60-DAY PROFIT DISGORGEMENT, PROHIBITED
TRANSACTION AND REPORTING PROVISIONS OF THE CODE.
f. MISCELLANEOUS. Any transaction in the following: (1) bankers
acceptances; (2) bank certificates of deposit ("CDs"); (3) commercial paper;
(4) repurchase agreements (when backed by exempt securities); (5) U.S.
Government Securities; (6) equity securities held in dividend reinvestment
plans ("DRIPs"); (7) Securities of the employer of a member of the Access
Person's Immediate Family if such securities are beneficially owned through
participation by the Immediate Family member in a Profit Sharing plan, 401(k)
plan, ESOP or other similar plan; and (8) other Securities as may from time to
time be designated in writing by the Code of Ethics Review Committee on the
grounds that the risk of abuse is minimal or non-existent.
C. PRECLEARANCE REQUESTS.
1. TRADE AUTHORIZATION REQUEST FORMS. Prior to entering an order for
a Securities Transaction that requires preclearance, the Access Person must
complete, IN WRITING, a Preclearance Request For Access Persons Form (Appendix
5) and submit the completed form to the Preclearance Officer (or his or her
designee). The Preclearance Request For Access Persons Form requires Access
Persons to provide certain information and to make certain representations.
Proposed Securities Transactions of the Preclearance Officer that require
preclearance must be submitted to his designee.
2. REVIEW OF FORM. After receiving the completed Preclearance Request
For Access Persons Form, the Preclearance Officer (or his or her designee) will
(a) review the information set forth in the form, (b) independently confirm
whether the Securities are held by any Funds or other accounts managed by SCM
and whether there are any unexecuted orders to purchase or sell the Securities
by any Fund or accounts managed by SCM and (c) as soon as reasonably
practicable, determine whether to clear the proposed Securities Transaction.
The authorization, date, and time of the authorization must be reflected on the
Preclearance Request For Access Persons Form. The Preclearance Officer (or his
or her designee) will keep one copy of the completed form for the Compliance
Department, send one copy to the Access Person seeking authorization and send
the third copy to the Trading Department, which will cause the transaction to
be executed. If the brokerage account is an Electronic Trading Account, the
transaction may be placed by the Compliance Department.
No order for a securities transaction for which preclearance authorization is
sought may be placed prior to the receipt of WRITTEN authorization of the
transaction by the preclearance officer (or his or her designee). Verbal
approvals are not permitted.
<PAGE>
3. ACCESS PERSON DESIGNEES. If an Access Person is unable to
personally effect a personal Securities Transaction, such Access Person may
designate an individual at SCM to complete and submit for preclearance on his
or her behalf a Preclearance Request For Access Persons Form provided the
following requirements are satisfied:
a. The Access Person communicates the details of the trade and affirms
the accuracy of the representations and warranties contained on the Form
directly to such designated person; and
b. The designated person completes the Preclearance Request For Access
Persons Form on behalf of the Access Person in accordance with the requirements
of the Code and then executes the Access Person Designee Certification
contained in the Form. The Access Person does not need to sign the Form so
long as the foregoing certification is provided.
D. PROHIBITED TRANSACTIONS.
1. PROHIBITED SECURITIES TRANSACTIONS. The following Securities
Transactions for accounts in which an Access Person or a member of his or her
Immediate Family have a Beneficial Interest, to the extent they require
preclearance under Section II.B. above, are prohibited and will not be
authorized by the Preclearance Officer (or his or her designee) absent
exceptional circumstances:
a. INITIAL PUBLIC OFFERINGS. Any purchase of Securities in an initial
public offering (other than a new offering of a registered open-end investment
company);
b. PENDING BUY OR SELL ORDERS. Any purchase or sale of Securities on
any day during which any Advisory Client has a pending "buy" or "sell" order in
the same Security (or Equivalent Security) until that order is executed or
withdrawn, unless the purchase or sale is a Program Trade;
c. SEVEN DAY BLACKOUT. Purchases or sales of Securities by a
Portfolio Manager within seven calendar days of a purchase or sale of the same
Securities (or Equivalent Securities) by an Advisory Client managed by that
Portfolio Manager, unless the purchase or sale is a Program Trade. For
example, if a Fund trades in a Security on day one, day eight is the first day
the Portfolio Manager may trade that Security for an account in which he or she
has a beneficial interest;
d. INTENTION TO BUY OR SELL FOR ADVISORY CLIENT. Purchases or sales
of Securities at a time when that Access Person intends, or knows of another's
intention, to purchase or sell that Security (or an Equivalent Security) on
behalf of an Advisory Client. This prohibition applies whether the Securities
Transaction is
<PAGE>
in the same (E.G., two purchases) or the opposite (a purchase
and sale) direction of the transaction of the Advisory Client, unless the
purchase or sale is a Program Trade; and
e. 60-DAY BLACKOUT. (1) Sales of a Security within 60 days of the
purchase of the Security (or an Equivalent Security) in which the Access Person
has a Beneficial Interest and (2) purchases of a Security within 60 days of the
sale of the Security (or an Equivalent Security) in which the Access Person had
a Beneficial Interest, unless in each case, the Access Person agrees to give up
all profits on the transaction to a charitable organization as specified by
remedies involving sanctions (Section IV.B.1.).
2. ALWAYS PROHIBITED SECURITIES TRANSACTIONS. The following
Securities Transactions are prohibited and will not be authorized under any
circumstances:
a. INSIDE INFORMATION. Any transaction in a Security while in
possession of material nonpublic information regarding the Security or the
issuer of the Security (see Insider Trading Policy, Appendix 10);
b. MARKET MANIPULATION. Transactions intended to raise, lower, or
maintain the price of any Security or to create a false appearance of active
trading;
c. LARGE POSITIONS IN REGISTERED INVESTMENT COMPANIES. Transactions
in a registered investment company, including Strong Funds, which result in the
Access Person owning five percent or more of any class of securities in such
investment company (this prohibition does not apply to Independent Fund
Directors); and
d. OTHERS. Any other transactions deemed by the Preclearance Officer
(or his designee) to involve a conflict of interest, possible diversion of
corporate opportunity or an appearance of impropriety.
3. PRIVATE PLACEMENTS. Acquisitions of Beneficial Interests in
Securities in a private placement by an Access Person is strongly discouraged.
The Preclearance Officer (or his or her designee) will give permission only
after considering, among other facts, whether the investment opportunity should
be reserved for Advisory Clients and whether the opportunity is being offered
to an Access Person by virtue of his or her position as an Access Person.
Access Persons who have been authorized to acquire and have acquired securities
in a private placement are required to disclose that investment to the
Compliance Department when they play a part in any subsequent consideration of
an investment in the issuer by an Advisory Client. In such circumstances, the
decision to purchase securities of the issuer by an Advisory Client must be
independently authorized by a Portfolio Manager with no personal interest in
the issuer. This provision does not apply to Independent Fund Directors.
<PAGE>
4. NO EXPLANATION REQUIRED FOR REFUSALS. In some cases, the
Preclearance Officer (or his or her designee) may refuse to authorize a
Securities Transaction for a reason that is confidential. The Preclearance
Officer is not required to give an explanation for refusing to authorize any
Securities Transaction.
E. EXECUTION OF PERSONAL SECURITIES TRANSACTIONS. Unless an exception
is provided in writing by the Compliance Department, all transactions in
Securities subject to the preclearance requirements for which an Access Person
or a member of his or her Immediate Family has a Beneficial Interest shall be
executed by the Trading Department. However, if the Access Person's brokerage
account is an Electronic Trading Account, the transaction may be placed by the
Compliance Department instead of the Trading Department. IN ALL INSTANCES, THE
TRADING DEPARTMENT MUST GIVE PRIORITY TO CLIENT TRADES OVER ACCESS PERSON
TRADES.
F. LENGTH OF TRADE AUTHORIZATION APPROVAL. The authorization provided
by the Preclearance Officer (or his or her designee) is effective until the
earlier of (1) its revocation, (2) the close of business on the second trading
day after the authorization is granted (for example, if authorization is
provided on a Monday, it is effective until the close of business on Wednesday)
or (3) the Access Person learns that the information in the Trade Authorization
Request Form is not accurate. If the order for the Securities Transaction is
not placed within that period, a new advance authorization must be obtained
before the Securities Transaction is placed. If the Securities Transaction is
placed but has not been executed within two trading days after the day the
authorization is granted (for example, in the case of a limit order or a not
held order), no new authorization is necessary unless the person placing the
original order for the Securities Transaction amends it in any way.
G. TRADE REPORTING REQUIREMENTS.
1. REPORTING REQUIREMENT. EVERY ACCESS PERSON AND MEMBERS OF HIS OR
HER IMMEDIATE FAMILY (INCLUDING INDEPENDENT FUND DIRECTORS AND THEIR IMMEDIATE
FAMILIES) MUST ARRANGE FOR THE COMPLIANCE DEPARTMENT TO RECEIVE DIRECTLY FROM
ANY BROKER, DEALER OR BANK THAT EFFECTS ANY SECURITIES TRANSACTION, DUPLICATE
COPIES OF EACH CONFIRMATION FOR EACH SUCH TRANSACTION AND PERIODIC STATEMENTS
FOR EACH BROKERAGE ACCOUNT IN WHICH SUCH ACCESS PERSON HAS A BENEFICIAL
INTEREST. Additionally, securities held in certificate form that are not
included in the periodic statements, must also be reported. Attached hereto as
Appendix 8 is a form letter that may be used to request such documents from
such entities. An Access Person must arrange to have duplicate confirmations
and periodic statements sent within 30 days of the sooner of (1) designation as
an Access Person or (2) the establishment of the account at the broker, dealer
or bank. If the Access Person is unable to arrange for the above, the Access
Person must immediately notify the Compliance Department.
<PAGE>
THE FOREGOING DOES NOT APPLY TO TRANSACTIONS AND HOLDINGS IN (1) OPEN-END
INVESTMENT COMPANIES INCLUDING BUT NOT LIMITED TO THE STRONG FUNDS, (2) BANKERS
ACCEPTANCES, (3) BANK CERTIFICATES OF DEPOSIT ("CDS"), (4) COMMERCIAL PAPER,
(5) REPURCHASE AGREEMENTS WHEN BACKED BY EXEMPT SECURITIES, (6) U. S.
GOVERNMENT SECURITIES, (7) EQUITY SECURITIES HELD IN DIVIDEND REINVESTMENT
PLANS ("DRIPS") OR (8) SECURITIES OF THE EMPLOYER OF A MEMBER OF THE ACCESS
PERSON'S IMMEDIATE FAMILY IF SUCH SECURITIES ARE BENEFICIALLY OWNED THROUGH
PARTICIPATION BY THE IMMEDIATE FAMILY MEMBER IN A PROFIT SHARING PLAN, 401(K)
PLAN, ESOP OR OTHER SIMILAR PLAN.
2. DISCLAIMERS. Any report of a Securities Transaction for the
benefit of a person other than the individual in whose account the transaction
is placed may contain a statement that the report should not be construed as an
admission by the person making the report that he or she has any direct or
indirect beneficial ownership in the Security to which the report relates.
3. QUARTERLY REVIEW. At least quarterly, for Securities Transactions
requiring preclearance under this Code, the Preclearance Officer (or his or her
designee) shall compare the confirmations and periodic statements provided
pursuant to the trade reporting requirements (Section II.G.1.) to the approved
Trade Authorization Request Forms. Such review shall include:
a. Whether the Securities Transaction complied with this Code;
b. Whether the Securities Transaction was authorized in advance of its
placement;
c. Whether the Securities Transaction was executed within two full
trading days of when it was authorized;
d. Whether any Fund or accounts managed by SCM owned the Securities at
the time of the Securities Transaction, and;
e. Whether any Fund or separate accounts managed by SCM purchased or
sold the Securities in the Securities Transaction within at least 10 days of
the Securities Transaction.
4. AVAILABILITY OF REPORTS. All information supplied pursuant to this
Code will be available for inspection by the Boards of Directors of SCM and
SFDI; the Board of Directors of each Strong Fund; the Code of Ethics Review
Committee; the Compliance Department; the Access Person's department manager
(or designee); any party to which any investigation is referred by any of the
foregoing, the SEC, any self-regulatory organization of which the Strong Funds,
SCM or the Distributor is a member, and any state securities commission; as
well as any attorney or agent of the foregoing, the Strong Funds, SCM, or the
Distributor.
<PAGE>
III. FIDUCIARY DUTIES
A. CONFIDENTIALITY. Access Persons are prohibited from revealing
information relating to the investment intentions, activities or portfolios of
Advisory Clients except to persons whose responsibilities require knowledge of
the information.
B. GIFTS. The following provisions on gifts apply only to associates
of SCM and the Distributor.
1. ACCEPTING GIFTS. On occasion, because of their position with SCM,
the Distributor or the Strong Funds, associates may be offered, or may receive
without notice, gifts from clients, brokers, vendors or other persons not
affiliated with such entities. Acceptance of extraordinary or extravagant
gifts is not permissible. Any such gifts must be declined or returned in order
to protect the reputation and integrity of SCM, the Distributor and the Strong
Funds. Gifts of a nominal value (i.e., gifts whose reasonable value is no more
than $100 a year), customary business meals, entertainment (E.G., sporting
events) and promotional items (E.G., pens, mugs, T-shirts) may be accepted.
Please see the Gift Policy (Appendix 9) for additional information.
If an associate receives any gift that might be prohibited under this
Code, the associate must inform the Compliance Department.
2. SOLICITATION OF GIFTS. Associates of SCM or the Distributor may
not solicit gifts or gratuities.
3. GIVING GIFTS. Associates of SCM or the Distributor may not give
any gift with a value in excess of $100 per year to persons associated with
securities or financial organizations, including exchanges, other member
organizations, commodity firms, news media or clients of the firm. Please see
the Gift Policy (Appendix 9) for additional information.
C. PAYMENTS TO ADVISORY CLIENTS. Access Persons may not make any
payments to Advisory Clients in order to resolve any type of Advisory Client
complaint. All such matters must be handled by the Legal Department.
D. CORPORATE OPPORTUNITIES. Access Persons may not take personal
advantage of any opportunity properly belonging to any Advisory Client, SCM or
the Distributor. This includes, but is not limited to, acquiring Securities
for one's own account that would otherwise be acquired for an Advisory Client.
E. UNDUE INFLUENCE. Access Persons may not cause or attempt to cause
any Advisory Client to purchase, sell or hold any Security in a manner
calculated to create any personal benefit to the Access Person. If an Access
Person or Immediate Family Member stands
<PAGE>
to materially benefit from an investment decision for an Advisory Client that
the Access Person is recommending or participating in, the Access Person must
disclose to those persons with authority to make investment decisions for the
Advisory Client, any Beneficial Interest that the Access Person (or Immediate
Family) has in that Security or an Equivalent Security, or in the issuer
thereof, where the decision could create a material benefit to the Access
Person (or Immediate Family) or the appearance of impropriety. If the Access
Person in question is a person with authority to make investment decisions for
the Advisory Client, disclosure must also be made to the Compliance Department.
The person to whom the Access Person reports the interest, in consultation with
the Compliance Department, must determine whether the Access Person will be
restricted in making investment decisions.
F. SERVICE AS A DIRECTOR. No Access Person, other than an Independent
Fund Director, may serve on the board of directors of a publicly-held company
not affiliated with SCM, the Distributor or the Strong Funds absent prior
written authorization by the Code of Ethics Review Committee. This
authorization will rarely, if ever, be granted and, if granted, will normally
require that the affected Access Person be isolated through "Chinese Wall" or
other procedures from those making investment decisions related to the issuer
on whose board the Access Person sits.
G. INVOLVEMENT IN CRIMINAL MATTERS OR INVESTMENT-RELATED CIVIL
PROCEEDINGS. Each Access Person must notify the Compliance Department, as soon
as reasonably practical, if arrested, arraigned, indicted or pleads no contest
to any criminal offense (other than minor traffic violations) or if named as a
defendant in any Investment-Related civil proceedings or any administrative or
disciplinary action.
IV. COMPLIANCE WITH THIS CODE OF ETHICS
A. CODE OF ETHICS REVIEW COMMITTEE.
1. MEMBERSHIP, VOTING, AND QUORUM. The Code of Ethics Review
Committee shall consist of Senior Officers of SCM. The Committee shall vote by
majority vote with two members serving as a quorum. Vacancies may be filled;
and in the case of extended absences or periods of unavailability, alternates
may be selected by the majority vote of the remaining members of the Committee.
However, in the event that the General Counsel or Acting General Counsel is
unavailable, at least one member of the Committee shall also be a member of the
Compliance Department.
2. INVESTIGATING VIOLATIONS OF THE CODE. The General Counsel, or his
or her designee, is responsible for investigating any suspected violation of
the Code and shall report the results of each investigation to the Code of
Ethics Review Committee. The Code of Ethics Review Committee is responsible
for reviewing the results of any investigation of any reported or suspected
violation of the Code. Any material violation of the Code by an associate of
SCM or the Distributor for which significant remedial
<PAGE>
action was taken will be reported to the Boards of Directors of the Strong
Funds at the next regularly scheduled quarterly Board meeting.
3. ANNUAL REPORTS. The Code of Ethics Review Committee will review
the Code at least once a year, in light of legal and business developments and
experience in implementing the Code and will prepare an annual report to the
Boards of Directors of SCM, the Distributor and each Strong Fund that:
a. Summarizes existing procedures concerning personal investing and
any changes in the procedures made during the past year;
b. Identifies any violation requiring significant remedial action
during the past year; and
c. Identifies any recommended changes in existing restrictions or
procedures based on its experience under the Code, evolving industry practices
or developments in applicable laws or regulations.
B. REMEDIES.
1. SANCTIONS. If the Code of Ethics Review Committee determines that
an Access Person has committed a violation of the Code, the Committee may
impose sanctions and take other actions as it deems appropriate, including a
letter of caution or warning, suspension of personal trading rights, suspension
of employment (with or without compensation), fine, civil referral to the SEC,
criminal referral and termination of employment for cause. The Code of Ethics
Review Committee may also require the Access Person to reverse the trade(s) in
question and forfeit any profit or absorb any loss derived therefrom. The
amount of profit shall be calculated by the Code of Ethics Review Committee and
shall be forwarded to a charitable organization. No member of the Code of
Ethics Review Committee may review his or her own transaction.
2. SOLE AUTHORITY. The Code of Ethics Review Committee has sole
authority, subject to the review set forth in Section IV.B.3. below, to
determine the remedy for any violation of the Code, including appropriate
disposition of any moneys forfeited pursuant to this provision. Failure to
promptly abide by a directive to reverse a trade or forfeit profits may result
in the imposition of additional sanctions.
3. REVIEW. Whenever the Code of Ethics Review Committee determines
that an Access Person has committed a violation of this Code that merits
significant remedial action, it will report promptly to the Boards of Directors
of SCM and/or the Distributor (as appropriate), and no less frequently than the
quarterly meeting to the Boards of Directors of the applicable Strong Funds,
information relating to the investigation of the violation, including any
sanctions imposed. The Boards of Directors of SCM, the Distributor and the
Strong Funds may modify such sanctions as they deem appropriate.
<PAGE>
Such Boards may have access to all information considered by the Code of Ethics
Review Committee in relation to the case. The Code of Ethics Review Committee
may determine whether to delay the imposition of any sanctions pending review by
the applicable Boards of Directors.
C. EXCEPTIONS TO THE CODE. Although exceptions to the Code will
rarely, if ever, be granted, the General Counsel of SCM may grant exceptions to
the requirements of the Code on a case-by-case basis if he finds that the
proposed conduct involves negligible opportunity for abuse. All Material
exceptions must be in writing and must be reported as soon as practicable to
the Code of Ethics Review Committee and to the Boards of Directors of the SCM
Funds at their next regularly scheduled meeting after the exception is granted.
Refer to Appendix 1 for the definition of "Material."
D. COMPLIANCE CERTIFICATION. At least annually, all Access Persons
will be required to certify on the Annual Code of Ethics Questionnaire set
forth in Appendix 6, or on a document substantially in the form of Appendix 6,
that they have complied with the Code in all respects.
E. RECORD RETENTION. SCM will, at its principal place of business,
maintain the following records in an easily accessible place, for at least six
years and will make records available to the SEC or any representative thereof
at any time:
1. CODE OF ETHICS. A copy of the Code of Ethics which is, or at any
time has been, in effect.
2. VIOLATIONS. A record of any violation of such Code of Ethics and
any action taken as a result of such violation.
3. REQUIRED REPORTS. A copy of each report made by an Access Person
pursuant to the Code of Ethics shall include records of the procedures followed
in connection with the preclearance and reporting requirements of this Code and
information relied on by the Preclearance Officer in authorizing the Securities
Transaction and in making the post-Securities Transaction determination.
4. ACCESS PERSON LIST. A list of all persons who are, or have been,
required to make reports pursuant to the Code of Ethics.
F. INQUIRIES REGARDING THE CODE. The Compliance Department will
answer any questions about this Code or any other compliance-related matters.
<PAGE>
Appendix 1
DEFINITIONS
"ACCESS PERSON" means (1) every director, officer, and general partner of
SCM, the Distributor and the Strong Funds; (2) every associate of SCM and the
Distributor who, in connection with his or her regular functions, makes,
participates in, or obtains information regarding the purchase or sale of a
security by an Advisory Client's account; (3) every associate of SCM and the
Distributor who is involved in making purchase or sale recommendations for an
Advisory Client's account; (4) every associate of SCM and the Distributor who
obtains information concerning such recommendations prior to their
dissemination; and (5) such agents of SCM, the Distributor, or the Funds as the
Compliance Department shall designate who may be deemed an Access Person if
they were an associate of the foregoing. Any uncertainty as to whether an
individual is an Access Person should be brought to the attention of the
Compliance Department. Such questions will be resolved in accordance with, and
this definition shall be subject to, the definition of "Access Person" found in
Rule 17j-1(e)(1) promulgated under the Investment Company Act of 1940.
"ADVISORY CLIENT" means any client (including both investment companies
and managed accounts) for which SCM serves as an investment adviser or
subadviser, renders investment advice or makes investment decisions.
"BENEFICIAL INTEREST" means the opportunity, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, to
profit or share in any profit derived from a transaction in the subject
Securities. An Access Person is deemed to have a Beneficial Interest in
Securities owned by members of his or her Immediate Family. Common examples of
Beneficial Interest include joint accounts, spousal accounts, UTMA accounts,
partnerships, trusts and controlling interests in corporations. Any
uncertainty as to whether an Access Person has a Beneficial Interest in a
Security should be brought to the attention of the Compliance Department. Such
questions will be resolved by reference to the principles set forth in the
definition of "beneficial owner" found in Rules 16a-1(a)(2) and (5) promulgated
under the Securities Exchange Act of 1934.
"CODE" means this Code of Ethics.
"COMPLIANCE DEPARTMENT" means the designated persons listed on Appendix 2,
as such Appendix shall be amended from time to time.
"THE DISTRIBUTOR" means Strong Funds Distributors, Inc.
"ELECTRONIC TRADING ACCOUNT" means a brokerage account held by an Access
Person where Securities Transactions are placed either electronically via the
Internet or the telephone. All such Securities Transactions must be precleared
by the Compliance Department. Upon authorizing the transaction, the trade
will be placed by either the Compliance Department or the Trading Department.
<PAGE>
"EQUIVALENT SECURITY" means any Security issued by the same entity as the
issuer of a subject Security that is convertible into the equity Security of
the issuer. Examples include options but are not limited to rights, stock
appreciation rights, warrants and convertible bonds.
"FUND" means an investment company registered under the Investment Company
Act of 1940 (or a portfolio or series thereof) for which SCM serves as an
adviser or subadviser.
"IMMEDIATE FAMILY" of an Access Person means any of the following persons
who reside in the same household as the Access Person:
child grandparent son-in-law
stepchild spouse daughter-in-law
grandchild sibling brother-in-law
parent mother-in-law sister-in-law
stepparent father-in-law
Immediate Family includes adoptive relationships and any other relationship
(whether or not recognized by law) which the General Counsel determines could
lead to the possible conflicts of interest, diversions of corporate
opportunity, or appearances of impropriety which this Code is intended to
prevent.
"INDEPENDENT FUND DIRECTOR" means an independent director of an investment
company for which SCM serves as the advisor.
"LEGAL DEPARTMENT" means the SCM Legal/Compliance Department.
"MATERIAL" for purposes of this reporting requirement, shall mean the
following:
1. NUMBER OF SHARES - Any transaction for more than 1,000 shares shall be
deemed material and subject to reporting. Whether a transaction of 1,000
shares or less is material shall be determined on a case-by-case basis; in
particular, the less liquid a security is, the lower the threshold that
should be used for the materiality determination.
2. DOLLAR VALUE OF TRANSACTION - Any transaction with a dollar value in excess
of $25,000 shall be deemed material and subject to reporting. Whether a
transaction of $25,000 or less is material shall be determined on a
case-by-case basis.
3. NUMBER OF TRANSACTIONS IN A YEAR - The General Counsel may grant no more
than two exceptions per associate per year that are not subject to
reporting. For example, if the General Counsel has granted two exceptions
to an associate, ANY exception granted thereafter shall be deemed material
and subject to reporting (irrespective of the number of shares or other
circumstances of the transaction).
4. CONSULTATION WITH INDEPENDENT COUNSEL - In any case where the General
Counsel believes there is an issue of whether a proposed exception is
material and
<PAGE>
subject to reporting, he shall consult with counsel to the independent directors
for the Strong Funds.
"PORTFOLIO MANAGER" means a person who has or shares principal day-to-day
responsibility for managing the portfolio of an Advisory Client.
"PRECLEARANCE OFFICER" means the person designated as the Preclearance
Officer in Appendix 2 hereof.
"PROGRAM TRADE" is where a Portfolio Manager directs a trader to do trades
in either an index-type account or portion of account or, at a minimum, 25-30%
of the Securities in a non-index account. Program Trades for non-index type
accounts generally arise in any of three situations: (1) cash or other assets
are being added to an account and the Portfolio Manager instructs the trader
that new securities are to be bought in a manner that maintains the account's
existing allocations; (2) cash is being withdrawn from an account and the
Portfolio Manager instructs the trader that securities are to be sold in a
manner that maintains the account's current securities allocations; and (3) a
new account is established and the Portfolio Manager instructs the trader to
buy specific securities in the same allocation percentages as are held by other
client accounts.
"SEC" means the Securities and Exchange Commission.
"SECURITY" includes stock; notes, bonds, debentures and other evidences of
indebtedness (including loan participations and assignments); limited
partnership interests; investment contracts; all derivative instruments of the
foregoing, such as options and warrants; and other items mentioned in Section
2(a)(36) of the 1940 Act, not specifically exempted by Rule 17j-1. Items
excluded from the definition of "Security" by Rule 17j-1 are U. S. Government
Securities, bankers acceptances, bank certificates of deposit, commercial paper
and shares of open-end investment companies. In addition, security does not
include futures, commodities, currencies or options on the aforementioned, but
the purchase and sale of such instruments are nevertheless subject to the
reporting requirements of the Code.
"SECURITIES TRANSACTION" means a purchase or sale of Securities in which
an Access Person or a members of his or her Immediate Family has or acquires a
Beneficial Interest.
"SCM" means Strong Capital Management, Inc.
"STRONG FUNDS" means the investment companies comprising the Strong Family
of Mutual Funds.
"U. S. GOVERNMENT SECURITY" means any security issued or guaranteed as to
principal or interest by the United States or by a person controlled or
supervised by and acting as an instrumentality of the Government of the United
States pursuant to authority granted by the Congress of the United States or
any certificate of deposit for any of the foregoing.
<PAGE>
Appendix 2
CONTACT PERSONS
PRECLEARANCE OFFICER
1. Thomas P. Lemke, General Counsel of SCM
2. Stephen J. Shenkenberg, Acting General Counsel of SCM
DESIGNEES OF PRECLEARANCE OFFICER
1. Thomas A. Hooker
2. John A. Flanagan
3. Donna J. Lelinski
4. Linda E. Meints
COMPLIANCE DEPARTMENT
1. Thomas P. Lemke
2. Stephen J. Shenkenberg
3. Thomas A. Hooker
4. Daphne C. Evans
5. Donna J. Lelinski
6. Linda E. Meints
CODE OF ETHICS REVIEW COMMITTEE
1. Thomas P. Lemke, General Counsel of SCM
2. Stephen J. Shenkenberg, Acting General Counsel of SCM
3. John A. Flanagan, Senior Vice President of SCM
<PAGE>
Appendix 3
PERSONAL HOLDINGS IN SECURITIES
In accordance with Section II.A. of the Code of Ethics, please provide a list
of all Securities (other than those specifically excluded from the definition
of Security), including physical certificates held, in which each Access Person
has a Beneficial Interest, including those in accounts of the Immediate Family
of the Access Person and all Securities in non-client accounts for which the
Access Person makes investment decisions.
(1) Name of Access Person:_______________________________
(2) If different than (1), name of the person
in whose name the account is held:_______________________________
(3) Relationship of (2) to (1):_______________________________
(4) Broker at which Account is maintained:_______________________________
(5) Account Number:_______________________________
(6) Contact person at Broker and phone number_______________________________
(7) For each account, attach the most recent account statement listing
Securities in that account. If the Access Person owns Beneficial Interests in
Securities that are not listed in an attached account statement, or holds the
physical certificate, list them below:
NAME OF SECURITY QUANTITY VALUE CUSTODIAN
1.__________________________________________________________________
2.__________________________________________________________________
3.__________________________________________________________________
4.__________________________________________________________________
5.__________________________________________________________________
6.__________________________________________________________________
(ATTACH SEPARATE SHEET IF NECESSARY.)
I certify that this form and the attached statements (if any) constitute
all of the Securities in which I have a Beneficial Interest, including those
for which I hold physical certificates, as well as those held in accounts of my
Immediate Family.
____________________________________
Access Person Signature
Dated:__________________ ____________________________________
Print Name
<PAGE>
Appendix 4
ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS
AND LIMITED POWER OF ATTORNEY
I acknowledge that I have received the Code of Ethics dated October 22,
1998, and represent that:
1. In accordance with Section II.A. of the Code of Ethics, I will
fully disclose the Securities holdings in which I have, or a member of my
Immediate Family has, a Beneficial Interest.*
2. In accordance with Section II.B.1. of the Code of Ethics, I will
obtain prior authorization for all Securities Transactions in which I have, or
a member of my Immediate Family has, a Beneficial Interest except for
transactions exempt from preclearance under Section II.B. 2. of the Code of
Ethics.*
3. In accordance with Section II.G.1. of the Code of Ethics, I will
report all Securities Transactions in which I have, or a member of my Immediate
Family has, a Beneficial Interest, except for transactions exempt from
reporting under Section II.G.1. of the Code of Ethics.
4. I will comply with the Code of Ethics in all other respects.
5. I agree to disgorge and forfeit any profits on prohibited
transactions in accordance with the requirements of the Code.*
I hereby appoint Strong Capital Management, Inc. as my attorney-in-fact
for the purpose of placing orders for and on my behalf to buy, sell, tender,
exchange, covert, and otherwise effectuate transactions in any and all stocks,
bonds, options, and other securities. I agree that Strong Capital Management,
Inc. shall not be liable for the consequences of any errors made by the
executing brokers in connection with such transactions.*
____________________________________
Access Person Signature
____________________________________
Print Name
Dated:____________________
* Representations (1), (2) and (5) and the Limited Power of Attorney do
not apply to Independent Fund Directors.
<PAGE>
Appendix 5
Ctrl. No:_________________________ Associate ID #_______________________________
STRONG CAPITAL MANAGEMENT, INC.
PRECLEARANCE REQUEST FOR ACCESS PERSONS
1. Name of Access Person (and trading entity, if different):________________
2. Name and symbol of Security:_____________________________
3. Maximum quantity to be purchased or sold:_______________________________
4. Name, account # & phone # of broker to effect transaction:_______________
5. Check if applicable: Purchase ____ Market Order ____
Sale ____ Limit Order ____ (Limit Order Price: ___________)
Not Held Order ____
6. In connection with the foregoing transaction, I hereby make the
following representations and warranties:
(a) I do not possess any material nonpublic information regarding the
Security or the issuer of the Security.
(b) To my knowledge:
(1) The Securities or "equivalent" securities (I.E., securities issued by
the same issuer) [ ARE / ARE NOT ] (CIRCLE ONE) held by any investment
companies or other accounts managed by SCM;
(2) There are no outstanding purchase or sell orders for this Security (or
any equivalent security) by any investment companies or other accounts managed
by SCM; and
(3) None of the Securities (or equivalent securities) are actively being
considered for purchase or sale by any investment companies or other accounts
managed by SCM.
(c) The Securities are not being acquired in an initial public offering.
(d) The Securities are not being acquired in a private placement or, if
they are, I have reviewed Section II.D.3. of the Code and have attached hereto
a written explanation of such transaction.
(e) If I am a Portfolio Manager, none of the accounts I manage purchased
or sold these Securities (or equivalent securities) within the past seven
calendar days and I do not expect any such client accounts to purchase or sell
these Securities (or equivalent securities) within seven calendar days of my
purchase or sale.
(f) If I am purchasing these Securities, I have not directly or indirectly
(through any member of my Immediate Family, any account in which I have a
Beneficial Interest or otherwise) sold these Securities (or equivalent
securities) in the prior 60 days.
(g) If I am selling these Securities, I have not directly or indirectly
(through any member of my Immediate Family, any account in which I have a
Beneficial Interest or otherwise) purchased these Securities (or equivalent
securities) in the prior 60 days.
(h) I have read the SCM Code of Ethics within the prior 12 months and
believe that the proposed trade fully complies with the requirements of the
Code.
______________________________ ___________________________________
Access Person Print Name
CERTIFICATION OF ACCESS PERSON DESIGNEE
The undersigned hereby certifies that the above Access Person (a) directly
instructed me to complete this form on his or her behalf, (b) to the best of my
knowledge, was out of the office at the time of such instruction and has not
returned, and (c) confirmed to me that the representations and warranties
contained in this form are accurate.
______________________________ ______________________________
Access Person Designee Print Name
AUTHORIZATION
Authorized By:______________________________________
Date:___________________ Time:_____________________________
PLACEMENT
Trader:_________________________ Date:________________
Time:__________________ Qty:_________________
EXECUTION
Trader:_________________________ Date:________________
Time:__________________ Qty:_________________ Price:_______________
(Original copy to Compliance Department, Yellow copy to Trading Department,
Pink copy to Access Person)
revised 7/98
<PAGE>
CONFIDENTIAL Appendix 6
ANNUAL CODE OF ETHICS QUESTIONNAIRE(1)
For ACCESS PERSONS of
The Strong Family of Mutual Funds,
Strong Capital Management, Inc.,
and Strong Funds Distributors, Inc.
September 14, 1998
Associate: ____________________________(please print name)
I. Introduction
Access Persons(2) are required to answer the following questions FOR
THE YEAR SEPTEMBER 1, 1997, THROUGH AUGUST 31, 1998. ANSWERS OF "NO" TO ANY OF
THE QUESTIONS IN SECTIONS II AND III MUST BE EXPLAINED ON THE "ATTACHMENT" ON
PAGE 3. Upon completion, please sign and return the questionnaire by Monday,
September 21st, to Donna Lelinski in the Compliance Department. All
information provided is kept confidential to the maximum extent possible. If
you have any questions, please contact Donna at extension 3362.
II. Annual certification of compliance with the Code of Ethics
A. Have you OBTAINED PRECLEARANCE for all Securities(3) Transactions in which
you have, or a member of your Immediate Family has, a Beneficial Interest,
except for transactions exempt from preclearance under the Code of Ethics?
(Circle "Yes" if there have been no Securities Transactions.)
YES NO (CIRCLE ONE)
B. Do you understand that you are PROHIBITED from owning five percent or more
of any class of security of a registered investment company, and have you
so complied?
YES NO (CIRCLE ONE)
C. Have you REPORTED all Securities Transactions in which you have, or a
member of your Immediate Family has, a Beneficial Interest, except for
transactions exempt from reporting under the Code of Ethics? (Reporting
requirements include arranging for the Compliance Department to receive,
directly from your broker, duplicate transaction confirmations and duplicate
periodic statements for each brokerage account in which you have, or a member
of your Immediate Family has, a Beneficial Interest(4), as well as reporting
securities held in certificate form. Circle "Yes" if there are no reportable
transactions.)
YES NO (CIRCLE ONE)
(1) All definitions used in this questionnaire have the same meanings those in
the Code of Ethics.
(2) Non-Access Persons and Independent Fund Directors of the Strong funds must
complete a separate questionnaire.
(3) Security, as defined, does NOT include open-end investment companies,
including the Strong Funds.
(4) Please contact Donna Lelinski (x3362) if you are uncertain as to what
confirmations and statements you have arranged for the Compliance Department
to receive.
<PAGE>
D. Have you notified the Compliance Department if you have been arrested,
arraigned, indicted, or have plead no contest to any criminal offense, or been
named as a defendant in any Investment-Related civil proceedings, or
administrative or disciplinary action? (Circle "Yes" if you have not been
arrested, arraigned, etc.)
YES NO (CIRCLE ONE)
E. Have you complied with the Code of Ethics in all other respects,
including the gift policy?
YES NO (CIRCLE ONE)
LIST ON THE ATTACHMENT ALL REPORTABLE GIFTS(5) GIVEN OR RECEIVED FOR THE YEAR
SEPTEMBER 1, 1997, THROUGH AUGUST 31, 1998, NOTING THE MONTH, "COUNTERPARTY,"
GIFT DESCRIPTION, AND ESTIMATED VALUE.
III. Have you complied in all respects with the Insider Trading Policy
dated September 19, 1995?
YES NO (CIRCLE ONE)
ANSWERS OF "NO" TO ANY OF THE QUESTIONS IN SECTIONS II AND III MUST BE
EXPLAINED ON THE "ATTACHMENT" ON PAGE 3.
IV. Disclosure of directorships statement
A. Are you, or is any member of your Immediate Family, a director of any
for-profit, privately held companies(6)? (If "Yes," please list on the
Attachment each company for which you are, or a member of your Immediate Family
is, a director.)
YES NO (CIRCLE ONE)
B. If the response to IV.A. is "Yes," do you have knowledge that any of the
companies for which you are, or a member of your Immediate Family is, a
director will go public or be acquired within the next 12 months? (If the
answer is "YES," please be prepared to discuss this matter with a member of the
Compliance Department in the near future.)
YES NO (CIRCLE ONE)
I hereby represent that, to the best of my knowledge, the foregoing responses
are true and complete. I understand that any untrue or incomplete response may
be subject to disciplinary action by the firm.
____________________________________
Access Person Signature
Dated:____________________
____________________________________
Print Name
(5) Associates are NOT required to report the following: (i) usual and
customary promotional items given to or received from vendors, (ii) items
donated to charity (through Mary Beitzel in Legal), or (iii) food items consumed
on the premises. Entertainment - i.e., a meal or activity with the vendor
present does not have to be reported.
(6) Per section III.F. of the Code of Ethics, no Access Person, other than an
Independent Fund Director, may serve on the board of directors of a PUBLICLY
HELD company.
<PAGE>
ATTACHMENT TO
ANNUAL CODE OF ETHICS QUESTIONNAIRE
PLEASE EXPLAIN ALL "NO" RESPONSES TO QUESTIONS IN SECTIONS II AND III:
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
PLEASE LIST EACH COMPANY FOR WHICH YOU ARE, OR A MEMBER OR YOUR IMMEDIATE
FAMILY IS, A DIRECTOR (SECTION IV):
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
____________________________________________________________
GIFTS FOR THE YEAR SEPTEMBER 1, 1997, THROUGH AUGUST 31, 1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MONTH GIFT GIVER / RECEIVER GIFT DESCRIPTION ESTIMATED VALUE
--------- --------------------- ----------------- -----------------
</TABLE>
1.
________________________________________________________________________________
2.
________________________________________________________________________________
3.
________________________________________________________________________________
4.
________________________________________________________________________________
5.
________________________________________________________________________________
6.
________________________________________________________________________________
7.
________________________________________________________________________________
8.
________________________________________________________________________________
9.
________________________________________________________________________________
10.
________________________________________________________________________________
(CONTINUE ON AN ADDITIONAL SHEET IF NECESSARY.)
<PAGE>
Appendix 7
LIST OF BROAD-BASED INDICES
Listed below are the broad-based indices as designated by the Compliance
Department. See Section II.B.2.e. for additional information.
<TABLE>
<CAPTION>
<S> <C> <C>
DESCRIPTION OF OPTION SYMBOL EXCHANGE
- ------------------------------ ------------ ----------
Computer Technology XCI AMEX
- ------------------------------ ------------ ----------
Eurotop 100 ERT AMEX
- ------------------------------ ------------ ----------
Biotechnology Index BTK AMEX
- ------------------------------ ------------ ----------
Gold / Silver Index * AUX PHLX
- ------------------------------ ------------ ----------
Hong Kong Option Index HKO AMEX
- ------------------------------ ------------ ----------
Inter@ctive Wk. Internet Index INX CBOE
- ------------------------------ ------------ ----------
Japan Index JPN AMEX
- ------------------------------ ------------ ----------
Major Market Index * XMI AMEX
- ------------------------------ ------------ ----------
Morgan Stanley High Tech Index MSH AMEX
- ------------------------------ ------------ ----------
NASDAQ-100 NDX CBOE
- ------------------------------ ------------ ----------
Oil Service Sector Index OSX PHLX
- ------------------------------ ------------ ----------
Pacific High Tech Index XPI PSE
- ------------------------------ ------------ ----------
Russell 2000 * RUT CBOE
- ------------------------------ ------------ ----------
Semiconductor Sector SOX PHLX
- ------------------------------ ------------ ----------
S & P 100 * OEX CBOE
- ------------------------------ ------------ ----------
S & P 500 * SPX CBOE
- ------------------------------ ------------ ----------
Technology Index TXX CBOE
- ------------------------------ ------------ ----------
Value Line Index * VLE PHLX
- ------------------------------ ------------ ----------
Wilshire Small Cap Index WSX PSE
- ------------------------------ ------------ ----------
* Includes LEAPs
- ------------------------------ ------------ ----------
</TABLE>
<PAGE>
Appendix 8
FORM LETTER TO BROKER OR BANK
[DATE]
<Broker Name>
<Broker Address>
<Broker City, State and Zip>
Subject: Account Number_______________________
Account Registration_______________________
Dear ____________:
Strong Capital Management, Inc. ("SCM"), my employer, is a registered
investment adviser as well as the indirect parent of an NASD member firm. The
Code of Ethics of SCM requires that I have certain personal securities
transactions placed on my behalf by the trading desk of SCM. Accordingly,
please send me the necessary forms or instructions that you will require in
order to enable the securities traders of SCM to place orders on my behalf.
In addition, you are requested to send duplicate confirmations of individual
transactions as well as duplicate periodic statements for the referenced
account to SCM. Please address the confirmations and statements directly to:
CONFIDENTIAL
Chief Compliance Officer
Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
Your cooperation is most appreciated. If you have any questions regarding these
requests, please contact me or Donna J. Lelinski of SCM at (414) 359-3362.
Sincerely,
<Name of Access Person>
Copy:Chief Compliance Officer
Strong Capital Management, Inc.
<PAGE>
Appendix 9
GIFT POLICY
The gift policy of Strong Capital Management, Inc. and Strong Funds
Distributors, Inc. covers both GIVING GIFTS TO and ACCEPTING GIFTS FROM
clients, brokers, persons with whom we do business or others (collectively,
"vendors"). It is based on the applicable requirements of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. ("NASD") and
is included as part of the firm's Codes of Ethics.
Under our policy, associates may not give gifts to or accept gifts from
vendors with a value in excess of $100 PER PERSON PER YEAR and must report to
the firm annually if they accept certain types of gifts. The NASD defines a
"gift" to include any kind of gratuity. Since giving or receiving any gifts in
a business setting may give rise to an appearance of impropriety or may raise a
potential conflict of interest, we are relying on your professional attitude
and good judgment to ensure that our policy is observed to the fullest extent
possible. The discussion below is designed to assist you in this regard.
Questions regarding the appropriateness of any gift should be directed to
the Legal/Compliance Department.
1. GIFTS GIVEN BY ASSOCIATES
Under applicable NASD rules, an associate may not give any gift with a
value in excess of $100 per year to any person associated with a securities or
financial organization, including exchanges, broker-dealers, commodity firms,
the news media, or clients of the firm. Please note, however, that the firm
may not take a tax deduction for any gift with a value exceeding $25.
This memorandum is not intended to authorize any associate to give a gift
to a vendor -- appropriate supervisory approval must be obtained before giving
any gifts.
2. GIFTS ACCEPTED BY ASSOCIATES
On occasion, because of their position within the firm, associates may be
offered, or may receive without notice, gifts from vendors. Associates may not
accept any gift or form of entertainment from vendors (E.G., tickets to the
theater or a sporting event where the vendor does not accompany the associate)
other than gifts of NOMINAL VALUE, which the NASD defines as under $100 in
total from any vendor in any year (managers may, if they deem it appropriate
for their department, adopt a lower dollar ceiling). Any gift accepted by an
associate must be reported to the firm, subject to certain exceptions (see
heading 4 below). In addition, note that our gift policy does not apply to
normal and customary business entertainment or to personal gifts (see heading 3
below).
Associates may not accept a gift of cash or a cash equivalent (E.G., gift
certificates) in ANY amount, and under no circumstances may an associate
solicit a gift from a vendor.
Associates may wish to have gifts from vendors donated to charity,
particularly where it might be awkward or impolite for an associate to decline
a gift not permitted by our policy. In such case, the gift should be forwarded
to Mary Beitzel in Legal, who will arrange for it to be donated to charity.
Similarly, associates may wish to suggest to vendors that, in lieu of an annual
gift, the vendors make a donation to charity. In either situation discussed
in this paragraph, an associate would not need to report the gift to the firm
(see heading 4 below).
3. EXCLUSION FOR BUSINESS ENTERTAINMENT/PERSONAL GIFTS
Our gift policy does not apply to normal and customary business meals and
entertainment with vendors. For example, if an associate has a business meal
and attends a sporting event or show with a vendor, that activity would not be
subject to our gift policy, provided the vendor is present. If, on the other
hand, a vendor gives an associate tickets to a sporting event and the associate
attends the event without the vendor also being present, the tickets would be
subject to the dollar limitation and reporting requirements of our gift policy.
Under no circumstances may associates accept business entertainment that is
extraordinary or extravagant in nature.
In addition, our gift policy does not apply to usual and customary gifts
given to or received from vendors based on a personal relationship (E.G., gifts
between an associate and a vendor where the vendor is a family member or
personal friend).
4. REPORTING
The NASD requires gifts to be reported to the firm. Except as noted
below, associates must report annually all gifts given to or accepted from
vendors (Legal will distribute the appropriate reporting form to associates).
Associates are NOT required to report the following: (i) usual and
customary promotional items given to or received from vendors (E.G., hats,
pens, T-shirts, and similar items marked with a firm's logo), (ii) items
donated to charity through Mary Beitzel in Legal, or (iii) food items consumed
on the firm's premises (E.G., candy, popcorn, etc.).
December 1, 1994
<PAGE>
Appendix 10
INSIDER TRADING POLICY AND PROCEDURES
DESIGNED TO DETECT AND PREVENT INSIDER TRADING
A. POLICY STATEMENT.
1. INTRODUCTION. Strong Capital Management, Inc., Strong Funds
Distributors, Inc., Heritage Reserve Development Corporation and such other
companies which adopt these Policies and Procedures (all of the foregoing
entities are collectively referred to herein as "Strong") seek to foster a
reputation for integrity and professionalism. That reputation is a vital
business asset. The confidence and trust placed in Strong by clients is
something we should value and endeavor to protect. To further that goal, the
Policy Statement implements procedures to deter the misuse of material,
nonpublic information in securities transactions.
2. PROHIBITIONS. Accordingly, associates are prohibited from trading,
either personally or on behalf of others (including advisory clients), on
material, nonpublic information or communicating material, nonpublic
information to others in violation of the law. This conduct is frequently
referred to as "insider trading." This policy applies to every associate and
extends to activities within and outside their duties at Strong. Any questions
regarding this policy should be referred to the Compliance Department.
3. GENERAL SANCTIONS. Trading securities while in possession of
material, nonpublic information or improperly communicating that information to
others may expose you to stringent penalties. Criminal sanctions may include a
fine of up to $1,000,000 and/or ten years imprisonment. The SEC can recover
the profits gained or losses avoided through the violative trading, a penalty
of up to three times the illicit windfall and an order permanently barring you
from the securities industry. Finally, you may be sued by investors seeking to
recover damages for insider trading violations.
4. INSIDER TRADING DEFINED. The term "insider trading" is not defined
in the federal securities laws, but generally is used to refer to the use of
material, nonpublic information to trade in securities (whether or not one is
an "insider") or to communications of material, nonpublic information to
others. While the law concerning insider trading is not static, it is
currently understood that the law generally prohibits:
a. trading by an insider, while in possession of material, nonpublic
information;
b. trading by a non-insider, while in possession of material,
nonpublic information, where the information either was disclosed to the
non-insider in violation of an insider's duty to keep it confidential or was
misappropriated;
c. recommending the purchase or sale of securities on the basis of
material, nonpublic information;
<PAGE>
d. communicating material, nonpublic information to others; or
e. providing substantial assistance to someone who is engaged in any
of the above activities.
The elements of insider trading and the penalties for such unlawful
conduct are described below. Any associate who, after reviewing these Policies
and Procedures has any question regarding insider trading should consult with
the Compliance Department. Often, a single question can forestall disciplinary
action or complex legal problems.
5. TENDER OFFERS. Tender offers represent a particular concern in the
law of insider trading for two reasons. First, tender offer activity often
produces extraordinary gyrations in the price of the target company's
securities. Trading during this time period is more likely to attract
regulatory attention (and produces a disproportionate percentage of insider
trading cases). Second, the SEC has adopted a rule which expressly forbids
trading and "tipping" while in possession of material, nonpublic information
regarding a tender offer received from the tender offeror, the target company
or anyone acting on behalf of either. Associates should exercise particular
caution any time they become aware of nonpublic information relating to a
tender offer.
6. CONTACT THE COMPLIANCE DEPARTMENT. To protect yourself, our
clients, and Strong, you should contact the Compliance Department immediately
if you believe that you may have received material, nonpublic information.
B. PROCEDURES DESIGNED TO DETECT AND PREVENT INSIDER TRADING. The
following procedures have been established to aid Strong and all associates in
avoiding insider trading, and to aid Strong in preventing, detecting, and
imposing sanctions against insider trading. Every associate must follow these
procedures or risk serious sanctions, including dismissal, substantial personal
liability and criminal penalties. Any questions about these procedures should
be directed to the Compliance Department.
1. INITIAL QUESTIONS. Before trading in the Securities of a company
about which an associate may have potential inside information, an associate,
whether trading for himself or herself or others, should ask himself or herself
the following questions:
a. IS THE INFORMATION MATERIAL? Is this information that an investor
would consider important in making his or her investment decisions? Is this
information that would substantially affect the market price of the securities
if generally disclosed?
b. IS THE INFORMATION NONPUBLIC? To whom has this information been
provided? Has the information been effectively communicated to the market
place by being published in Reuters, THE WALL STREET JOURNAL or other
publications of general circulation?
2. MATERIAL AND NONPUBLIC INFORMATION. If, after consideration of the
above, any associate believes that the information is material and nonpublic,
or if an associate has questions as to whether the information is material and
nonpublic, he or she should take the following steps:
<PAGE>
a. Report the matter immediately to the Compliance Department.
b. Do not purchase or sell the Securities either on the associate's
own behalf or on the behalf of others.
c. Do not communicate the information to anyone, other than to the
Compliance Department.
d. After the Compliance Department has reviewed the issue, the
associate will be instructed to continue the prohibitions against trading and
communication, or he or she will be allowed to trade and communicate the
information.
3. CONFIDENTIALITY. Information in an associate's possession that is
identified as material and nonpublic may not be communicated to anyone, include
persons within Strong, except as otherwise provided herein. In addition, care
should be taken so that such information is secure. For example, files
containing material, nonpublic information should be sealed, access to computer
files containing material, nonpublic information should be restricted and
conversations containing such information, if appropriate at all, should be
conducted in private (for example, not by cellular telephone to avoid potential
interception).
4. ASSISTANCE OF THE COMPLIANCE DEPARTMENT. If, after consideration
of the items set forth in Section B.2., doubt remains as to whether information
is material or nonpublic, or if there is any unresolved question as to the
applicability or interpretation of the foregoing procedures, or as to the
propriety of any action, it must be discussed with the Compliance Department
before trading or communicating the information to anyone.
5. REPORTING REQUIREMENT. In accordance with Strong's Code of Ethics,
every associate must arrange for the Compliance Department to receive directly
from the broker, dealer, or bank in question, duplicate copies of each
confirmation for each Securities Transaction and periodic statement for each
brokerage account in which such associate has a beneficial interest.
C. INSIDER TRADING EXPLANATIONS.
1. WHO IS AN INSIDER? The concept of "insider" is broad. It includes
officers, directors and associates of a company. In addition, a person can be
a "temporary insider" if he or she enters into a special confidential
relationship in the conduct of a company's affairs and as a result is given
access to information solely for the company's purposes. A temporary insider
can include, among others, a company's attorneys, accountants, consultants,
bank lending officers and the associates of such organizations. In addition,
Strong may become a temporary insider. According to the United States Supreme
Court, the company must expect the outsider to keep the disclosed nonpublic
information confidential, and the relationship must at least imply such a duty
before the outsider will be considered an insider.
2. WHAT IS MATERIAL INFORMATION? Trading on inside information is not
a basis for liability unless the information is material. "Material
information" generally is defined as information for which there is a
substantial likelihood that a reasonable investor would consider it important
in making his or her investment decisions, or information that is
<PAGE>
reasonably certain to have a substantial effect on the price of a company's
securities. It need not be important that it would have changed the investor's
decision to buy or sell. No simple "bright line" test exists to determine when
information is material; assessments of materiality involve a highly fact-
specific inquiry. For this reason, you should direct any question about whether
information is material to the Compliance Department.
Material information often relates to a company's results and
operations including, for example, dividend changes, earnings results, changes
in previously released earnings estimates, significant merger or acquisition
proposals or agreements, major litigation, liquidation problems and
extraordinary management developments.
Material information also may relate to the market for a company's
securities. Information about a significant order to purchase or sell
securities may, in some contexts, be deemed material.
Material information does not have to relate to a company's business.
For example, in CARPENTER V. U.S., 108 U.S. 316 (1987), the United States
Supreme Court considered as material certain information about the contents of
a forthcoming newspaper column that was expected to affect the market price of
a security. In that case, a Wall Street Journal reporter was found criminally
liable for disclosing to others the dates that reports on various companies
would appear in THE WALL STREET JOURNAL and whether those reports would be
favorable or unfavorable.
3. WHAT IS NONPUBLIC INFORMATION? Information is nonpublic until it
has been effectively disseminated broadly to investors in the market place.
One must be able to point to some fact to show that the information is
generally public. For example, information found in a report filed with the
SEC, or appearing in Dow Jones, Reuters Economic Services, THE WALL STREET
JOURNAL, or other publications of general circulation would be considered
public.
4. WHAT ARE THE PENALTIES FOR INSIDER TRADING? Penalties for trading
on or communicating material, nonpublic information are severe, both for
individuals involved in such unlawful conduct and their employers. A person
can be subject to some or all of the penalties below even if he or she does not
personally benefit from the violation. Penalties include: (a) civil
injunctions; (b) treble damages; (c) disgorgement of profits; (d) jail
sentences; (e) fines for the person who committed the violation of up to three
times the profit gained or loss avoided, whether or not the person actually
benefited; and (f) fines for the employer or other controlling person of up to
the greater of $1,000,000 or three times the amount of the profit gained or
loss avoided.
In addition to the foregoing, any violation of this Policy with
Respect to Insider Trading can be expected to result in serious sanctions,
including dismissal of the person or persons involved.
September 19, 1995
3
<PAGE>
CODE OF ETHICS
FOR NON-ACCESS PERSONS OF
STRONG CAPITAL MANAGEMENT, INC.,
STRONG FUNDS DISTRIBUTORS, INC., AND
HERITAGE RESERVE DEVELOPMENT
CORPORATION, INC.
[STRONG LOGO]
STRONG CAPITAL MANAGEMENT, INC.
October 22, 1998
1
<PAGE>
CODE OF ETHICS
For Non-Access Persons of
Strong Capital Management, Inc.,
Strong Funds Distributors, Inc., and
Heritage Reserve Development Corporation, Inc.
Dated October 22, 1998
TABLE OF CONTENTS
I. INTRODUCTION 1
A. Fiduciary Duty 1
1. Place the interests of clients first 1
2. Avoid taking inappropriate advantage of their position 1
3. Conduct all Personal Securities Transactions in full compliance with
this Code including reporting requirements 1
B. Appendices to the Code 1
1. Definitions 1
2. Acknowledgment of Receipt of Code of Ethics 1
3. Annual Code of Ethics Questionnaire 2
4. Form Letter to Broker or Bank 2
5. Gift Policy 2
6. Insider Trading Policy 2
II. TRADE REPORTING REQUIREMENTS 2
A. Reporting Requirements 2
B. Disclaimers 2
C. Availability of Reports 2
D. Record Retention 2
III. FIDUCIARY DUTIES 3
A. Confidentiality 3
B. Gifts 3
1. Accepting Gifts 3
2. Solicitation of Gifts 3
3. Giving Gifts 3
C. Payments to Advisory Clients or Shareholders 3
D. Corporate Opportunities 3
E. Service as a Director 3
F. Involvement in Criminal Matters or Investment-Related Civil Proceedings 3
1
<PAGE>
TABLE OF CONTENTS (CONTINUED)
IV. COMPLIANCE WITH THIS CODE OF ETHICS 4
A. Code of Ethics Review Committee 4
1. Membership, Voting, and Quorum 4
2. Investigating Violations of the Code 4
B. Remedies 4
1. Sanctions 4
2. Sole Authority 4
3. Review 4
C. Compliance Certification 5
D. Inquiries Regarding the Code 5
2
<PAGE>
CODE OF ETHICS
For Non-Access Persons of
Strong Capital Management, Inc.,
Strong Funds Distributors, Inc., and
Heritage Reserve Development Corporation, Inc.
Dated October 22, 1998
TABLE OF APPENDICES
Appendix 1 (Definitions) 6
Appendix 2 (Acknowledgment of Receipt of Code of Ethics) 8
Appendix 3 (Annual Code of Ethics Questionnaire) 9
Appendix 4 (Form Letter to Broker or Bank) 12
Appendix 5 (Gift Policy) 13
Appendix 6 (Insider Trading Policy) 15
3
<PAGE>
CODE OF ETHICS
For Non-Access Persons of
Strong Capital Management, Inc.,
Strong Funds Distributors, Inc., and
Heritage Reserve Development Corporation, Inc.
Dated October 22, 1998
I. INTRODUCTION(1)
A. FIDUCIARY DUTY. This Code of Ethics is based upon the principle
that directors, officers and associates of Strong Capital Management, Inc.
("SCM"), Strong Funds Distributors, Inc. ("the Distributor") Heritage Reserve
Development Corporation, Inc. ("HRDC") and such other affiliated entities of
the foregoing that may from time to time adopt this Code (each of which is
individually referred to herein as a "Company") have a fiduciary duty to place
the interests of clients ahead of their own. Associates must avoid activities,
interests and relationships that might interfere with making decisions in the
best interests of each Company and its clients.
As fiduciaries, associates must at all times:
1. PLACE THE INTERESTS OF CLIENTS FIRST. Associates must scrupulously
avoid serving their own personal interests ahead of the interests of the
clients of each Company. AN ASSOCIATE MAY NOT INDUCE OR CAUSE AN ADVISORY
CLIENT TO TAKE ACTION, OR NOT TO TAKE ACTION, FOR PERSONAL BENEFIT, RATHER THAN
FOR THE BENEFIT OF THE CLIENT.
2. AVOID TAKING INAPPROPRIATE ADVANTAGE OF THEIR POSITION. The receipt of
investment opportunities, perquisites or gifts from persons seeking business
with the Strong Funds, SCM, the Distributor or their clients could call into
question the exercise of an associate's independent judgment. Associates may
not, for example, use their knowledge of portfolio transactions to profit by
the market effect of such transactions.
3. CONDUCT ALL PERSONAL SECURITIES TRANSACTIONS IN FULL COMPLIANCE
WITH THIS CODE INCLUDING REPORTING REQUIREMENTS. Doubtful situations should be
resolved in favor of clients and each Company. Technical compliance with the
Code's procedures will not automatically insulate from scrutiny any trades that
may indicate an abuse of fiduciary duties.
B. APPENDICES TO THE CODE. The appendices to this Code are attached
hereto, are a part of the Code and include the following:
1. DEFINITIONS (Appendix 1),
2. ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS (Appendix 2),
(1) Capitalized words are defined in Appendix 1.
1
<PAGE>
3. ANNUAL CODE OF ETHICS QUESTIONNAIRE (Appendix 3),
4. FORM LETTER TO BROKER OR BANK (Appendix 4),
5. GIFT POLICY (Appendix 5), and
6. INSIDER TRADING POLICY (Appendix 6).
II. TRADE REPORTING REQUIREMENTS
A. REPORTING REQUIREMENT. EVERY ASSOCIATE AND MEMBERS OF HIS OR HER
IMMEDIATE FAMILY MUST ARRANGE FOR THE COMPLIANCE DEPARTMENT TO RECEIVE DIRECTLY
FROM ANY BROKER, DEALER OR BANK THAT EFFECTS ANY SECURITIES TRANSACTION,
DUPLICATE COPIES OF EACH CONFIRMATION FOR EACH SUCH TRANSACTION AND PERIODIC
STATEMENTS FOR EACH BROKERAGE ACCOUNT IN WHICH SUCH ASSOCIATE HAS A BENEFICIAL
INTEREST. Additionally, securities held in certificate form that are not
included in the periodic statements must also be reported. Attached hereto as
Appendix 4 is a form letter that may be used to request such documents from
such entities. An associate must arrange to have duplicate confirmations and
periodic statements sent within 30 days. If unable to make such arrangements,
the associate must immediately notify the Compliance Department.
THE FOREGOING DOES NOT APPLY TO TRANSACTIONS AND HOLDINGS IN (1) OPEN-END
INVESTMENT COMPANIES INCLUDING BUT NOT LIMITED TO THE STRONG FUNDS, (2) BANKERS
ACCEPTANCES, (3) BANK CERTIFICATES OF DEPOSIT ("CDS"), (4) COMMERCIAL PAPER,
(5) REPURCHASE AGREEMENTS WHEN BACKED BY EXEMPT SECURITIES, (6) U. S.
GOVERNMENT SECURITY, (7) EQUITY SECURITIES HELD IN DIVIDEND REINVESTMENT PLANS
("DRIPS") OR (8) SECURITIES OF THE EMPLOYER OF A MEMBER OF THE ASSOCIATE'S
IMMEDIATE FAMILY IF SUCH SECURITIES ARE BENEFICIALLY OWNED THROUGH
PARTICIPATION BY THE IMMEDIATE FAMILY MEMBER IN A PROFIT SHARING PLAN, 401(K)
PLAN, ESOP OR OTHER SIMILAR PLAN.
B. DISCLAIMERS. Any report of a Securities Transaction for the benefit of
a person other than the individual in whose account the transaction is placed
may contain a statement that the report should not be construed as an admission
by the person making the report that he or she has any direct or indirect
beneficial ownership in the Security to which the report relates.
C. AVAILABILITY OF REPORTS. All information supplied pursuant to this Code
will be available for inspection by the Boards of Directors of SCM and SFDI;
the Board of Directors of each Strong Fund; the Code of Ethics Review
Committee; the Compliance Department; the associate's department manager (or
designee); any party to which any investigation is referred by any of the
foregoing, the SEC, any self-regulatory organization of which the Strong Funds,
SCM or the Distributor is a member, and any state securities commission; as
well as any attorney or agent of the foregoing, the Strong Funds, SCM or the
Distributor.
D. RECORD RETENTION. The Company shall keep and maintain for at least six
years records of the procedures it follows in connection with the reporting
requirements of this Code.
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III. FIDUCIARY DUTIES
A. CONFIDENTIALITY. Associates are prohibited from revealing
information relating to the investment intentions, activities or portfolios of
Advisory Clients except to persons whose responsibilities require knowledge of
the information.
B. GIFTS. The following provisions on gifts apply only to associates
of SCM and the Distributor.
1. ACCEPTING GIFTS. On occasion, because of their position with the
Company and its affiliates, associates thereof may be offered, or may receive
without notice, gifts from clients, brokers, vendors or other persons not
affiliated with the Company. Acceptance of extraordinary or extravagant gifts
is not permissible. Any such gifts must be declined or returned in order to
protect the reputation and integrity the Company. Gifts of a nominal value
(i.e., gifts whose reasonable value is no more than $100 a year), customary
business meals, entertainment (E.G., sporting events) and promotional items
(E.G., pens, mugs, T-shirts) may be accepted. Please see the Gift Policy
(Appendix 5) for additional information.
If an associate receives any gift that might be prohibited under this
Code, the associate must inform the Compliance Department.
2. SOLICITATION OF GIFTS. Associates may not solicit gifts or
gratuities.
3. GIVING GIFTS. Associates may not give any gift with a value in
excess of $100 per year to persons associated with securities or financial
organizations, including exchanges, other member organizations, commodity
firms, news media or clients of the Company. Please see the Gift Policy
(Appendix 5) for additional information.
C. PAYMENTS TO ADVISORY CLIENTS OR SHAREHOLDER. Associates may not
make any payments to Advisory Clients or Shareholders in order to resolve any
type of Advisory Client or Shareholder complaint. All such matters must be
handled by the Legal Department.
D. CORPORATE OPPORTUNITIES. Associates may not take personal advantage
of any opportunity properly belonging to any client or Company.
E. SERVICE AS A DIRECTOR. No associate may serve on the board of directors
of a publicly-held company not affiliated with the Company or the Strong Funds
absent prior written authorization by the Code of Ethics Review Committee.
This authorization will rarely, if ever, be granted and, if granted, will
normally require that the affected associate be isolated through "Chinese Wall"
or other procedures from those making investment decisions related to the
issuer on whose board the associate sits.
F. INVOLVEMENT IN CRIMINAL MATTERS OR INVESTMENT-RELATED CIVIL
PROCEEDINGS. Each Non-Access Person must notify the Compliance Department, as
soon as reasonably practical, if arrested, arraigned, indicted or pleads no
contest to any criminal offense (other than minor traffic
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violations), or if named as a defendant in any Investment-Related civil
proceedings or any administrative or disciplinary action.
IV. COMPLIANCE WITH THIS CODE OF ETHICS
A. CODE OF ETHICS REVIEW COMMITTEE.
1. MEMBERSHIP, VOTING, AND QUORUM. The Code of Ethics Review
Committee shall consist of Senior Officers of SCM. The Committee shall vote by
majority vote with two members serving as a quorum. Vacancies may be filled,
and in the case of extended absences or periods of unavailability, alternates
may be selected by the majority vote of the remaining members of the Committee.
However, in the event that the General Counsel or Acting General Counsel is
unavailable, at least one member of the Committee shall also be a member of the
Compliance Department.
2. INVESTIGATING VIOLATIONS OF THE CODE. The General Counsel, or his
or her designee, is responsible for investigating any suspected violation of
the Code and shall report the results of each investigation to the Code of
Ethics Review Committee. The Code of Ethics Review Committee is responsible
for reviewing the results of any investigation of any reported or suspected
violation of the Code. Any material violation of the Code by an associate of
SCM or the Distributor for which significant remedial action was taken will be
reported to the Boards of Directors of the Strong Funds at the next regularly
scheduled quarterly Board meeting.
B. REMEDIES.
1. SANCTIONS. If the Code of Ethics Review Committee determines that
an associate has committed a violation of the Code, the Committee may impose
sanctions and take other actions as it deems appropriate, including a letter of
caution or warning, suspension of personal trading rights, suspension of
employment (with or without compensation), fine, civil referral to the SEC,
criminal referral and termination of employment for cause. The Code of Ethics
Review Committee may also require the associate to reverse the trade(s) in
question and forfeit any profit or absorb any loss derived therefrom. The
amount of profit shall be calculated by the Code of Ethics Review Committee and
shall be forwarded to a charitable organization.
2. SOLE AUTHORITY. The Code of Ethics Review Committee has sole
authority, subject to the review set forth in Section IV.B.3. below, to
determine the remedy for any violation of the Code, including appropriate
disposition of any moneys forfeited pursuant to this provision. Failure to
promptly abide by a directive to reverse a trade or forfeit profits may result
in the imposition of additional sanctions.
3. REVIEW. Whenever the Code of Ethics Review Committee determines
that an associate has committed a violation of this Code that merits
significant remedial action, it will report promptly to the Boards of Directors
of SCM and/or the Distributor (as appropriate), and no less frequently than the
quarterly meeting to the Boards of Directors of the applicable Strong Funds,
information relating to the investigation of the
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violation, including any sanctions imposed. The Boards of Directors of SCM,
the Distributor and the Strong Funds may modify such sanctions as they deem
appropriate. Such Boards may have access to all information considered by the
Code of Ethics Review Committee in relation to the case. The Code of Ethics
Review Committee may determine whether to delay the imposition of any sanctions
pending review by the applicable Boards of Directors.
C. COMPLIANCE CERTIFICATION. At least annually, all associates will
be required to certify on the Annual Code of Ethics Questionnaire set forth in
Appendix 3, or on a document substantially in the form of Appendix 3, that they
have complied with the Code in all respects.
D. INQUIRIES REGARDING THE CODE. The Compliance Department will
answer any questions about this Code or any other compliance-related matters.
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<PAGE>
Appendix 1
DEFINITIONS
"ADVISORY CLIENT" means any client (including both investment companies
and managed accounts) for which SCM serves as an investment adviser or
subadviser, renders investment advice or makes investment decisions.
"BENEFICIAL INTEREST" means the opportunity, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, to
profit, or share in any profit derived from, a transaction in the subject
Securities. An associate is deemed to have a Beneficial Interest in Securities
owned by members of his or her Immediate Family. Common examples of Beneficial
Interest include joint accounts, spousal accounts, UTMA accounts, partnerships,
trusts and controlling interests in corporations. Any uncertainty as to
whether an associate has a Beneficial Interest in a Security should be brought
to the attention of the Compliance Department. Such questions will be resolved
by reference to the principles set forth in the definition of "beneficial
owner" found in Rules 16a-1(a)(2) and (5) promulgated under the Securities
Exchange Act of 1934.
"COMPANY" means "SCM", "the Distributor", "HRDC" and such other affiliated
entities of the foregoing that may from time to time adopt this Code.
"CODE" means this Code of Ethics.
"COMPLIANCE DEPARTMENT" means the designated persons in the Strong
Legal/Compliance Department.
"DISTRIBUTOR" means Strong Funds Distributors, Inc.
"HRDC" means Heritage Reserve Development Corporation, Inc.
"IMMEDIATE FAMILY" of an associate means any of the following persons who
reside in the same household as the associate:
child grandparent son-in-law
stepchild spouse daughter-in-law
grandchild sibling brother-in-law
parent mother-in-law sister-in-law
stepparent father-in-law
Immediate Family includes adoptive relationships and any other relationship
(whether or not recognized by law) which the General Counsel determines could
lead to the possible conflicts of interest, diversions of corporate
opportunity, or appearances of impropriety which this Code is intended to
prevent.
"LEGAL DEPARTMENT" means the SCM Legal/Compliance Department.
"SEC" means the Securities and Exchange Commission.
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"SECURITY" includes stock; notes, bonds, debentures and other evidences of
indebtedness (including loan participations and assignments); limited
partnership interests; investment contracts; all derivative instruments of the
foregoing, such as options and warrants; and other items mentioned in Section
2(a)(36) of the 1940 Act, not specifically exempted by Rule 17j-1. Items
excluded from the definition of "Security" by Rule 17j-1 are U. S. Government
Securities, bankers acceptances, bank certificates of deposit, commercial paper
and shares of open-end investment companies. In addition, security does not
include futures, commodities, currencies or options on the aforementioned, but
the purchase and sale of such instruments are nevertheless subject to the
reporting requirements of the Code.
"SECURITIES TRANSACTION" means a purchase or sale of Securities in which
an associate or a members of his or her Immediate Family has or acquires a
Beneficial Interest.
"SCM" means Strong Capital Management, Inc.
"STRONG FUNDS" means the investment companies comprising the Strong Family
of Mutual Funds.
"U. S. GOVERNMENT SECURITY" means any security issued or guaranteed as to
principal or interest by the United States or by a person controlled or
supervised by and acting as an instrumentality of the Government of the United
States pursuant to authority granted by the Congress of the United States or
any certificate of deposit for any of the foregoing.
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Appendix 2
ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS
I acknowledge that I have received the Code of Ethics dated October 22,
1998, and represent that:
1. In accordance with Section II.A. of the Code of Ethics, I will
report all Securities Transactions in which I have, or a member of my Immediate
Family has, a Beneficial Interest, EXCEPT FOR transactions and holdings (1)
open-end investment companies including but not limited to the Strong Funds,
(2) bankers acceptances, (3) bank certificates of deposit ("CDs"), (4)
commercial paper, (5) repurchase agreements when backed by exempt securities,
(6) U. S. Government Security, (7) equity securities held in dividend
reinvestment plans ("DRIPs"), or (8) securities of the employer of a member of
the associate's Immediate Family if such securities are beneficially owned
through participation by the Immediate Family member in a Profit Sharing plan,
401(k) plan, ESOP, or other similar plan.
2. I have placed a checkmark next to the statement(s) that apply to
me:
_____ I have a brokerage account.
_____ I hold securities in certificate form.
_____ I have a Beneficial Interest in the brokerage accounts held by members
of my Immediate Family.
_____ I do not currently have a brokerage account, however, I will notify the
Legal Department immediately if I open one.
3. I will comply with the Code of Ethics in all other respects.
___________________________________
Associate Signature
___________________________________
Print Name
______________________
Date
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CONFIDENTIAL Appendix 3
ANNUAL CODE OF ETHICS QUESTIONNAIRE(1)
For NON-ACCESS PERSONS of
The Strong Family of Mutual Funds,
Strong Capital Management, Inc.,
and Strong Funds Distributors, Inc.
September 14, 1998
Associate: ____________________________ (please print name)
I. Introduction
Non-Access Persons(2) are required to answer the following questions
FOR THE YEAR SEPTEMBER 1, 1997, THROUGH AUGUST 31, 1998. ANSWERS OF "NO" TO
ANY OF THE QUESTIONS IN SECTIONS II AND III MUST BE EXPLAINED ON THE
"ATTACHMENT" ON PAGE 3. Upon completion, please sign and return the
questionnaire by Monday, September 21st, Donna Lelinski in the Compliance
Department. All information provided is kept confidential to the maximum
extent possible. If you have any questions, please contact Donna at extension
3362.
II. Annual certification of compliance with the Code of Ethics
A. Have you REPORTED all Securities Transactions in which you have, or a
member of your Immediate Family has, a Beneficial Interest, except for
transactions exempt from reporting under the Code of Ethics? (Reporting
requirements include arranging for the Compliance Department to receive,
directly from your broker, duplicate transaction confirmations and duplicate
periodic statements for each brokerage account in which you have, or a member
of your Immediate Family has, a Beneficial Interest(3), as well as reporting
securities held in certificate form. Circle "Yes", if there are no reportable
transactions.)
YES NO (CIRCLE ONE)
B. Have you notified the Compliance Department if you have been arrested,
arraigned, indicted, or have plead no contest to any criminal offense, or been
named as a defendant in any Investment-Related civil proceedings, or
administrative or disciplinary action? (Circle "Yes" if you have not been
arrested, arraigned, etc.)
YES NO (CIRCLE ONE)
C. Have you complied with the Code of Ethics in all other respects,
including the gift policy?
YES NO (CIRCLE ONE)
LIST ON THE ATTACHMENT ALL REPORTABLE GIFTS GIVEN OR RECEIVED FOR THE YEAR
SEPTEMBER 1, 1997, THROUGH AUGUST 31, 1998, NOTING THE MONTH, "COUNTERPARTY,"
GIFT DESCRIPTION AND VALUE.
(1) All definitions used in this questionnaire have the same meaning as those
in the Code of Ethics.
(2) Access Persons and Independent Fund Directors of the Strong Funds must
complete a separate questionnaire.
(3) Please contact Donna Lelinski (x3362) if you are uncertain as to what
confirmations and Statements you have arranged for the Compliance Department
to receive.
(4) Associates are NOT required to report the following: (i) usual and
customary promotional items given to or received from vendors, (ii) items
donated to charity (through Mary Beitzel in Legal), or (iii) food items
consumed on the premises. Entertainment - i.e., a meal or activity with the
vendor present - does not have to be reported.
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III. Annual certification of compliance with Insider Trading Policy
A. Have you complied in all respects with the Insider Trading Policy dated
September 19, 1995?
YES NO (CIRCLE ONE)
ANSWERS OF "NO" TO ANY OF THE QUESTIONS IN SECTIONS II AND III MUST BE
EXPLAINED ON THE "ATTACHMENT" ON PAGE 3.
IV. Disclosure of directorships statement
A. Are you, or is any member of your Immediate Family, a director of any
for-profit, privately held companies(5)? (If "Yes," please list on the
Attachment each company for which you are, or a member of your Immediate Family
is, a director.)
YES NO (CIRCLE ONE)
B. If the response to IV.A. is "Yes," do you have knowledge that any of the
companies for which you are, or a member of your Immediate Family is, a
director will go public or be acquired within the next 12 months? (If the
answer is "YES," please be prepared to discuss this matter with a member of the
Compliance Department in the near future.)
YES NO (CIRCLE ONE)
I hereby represent that, to the best of my knowledge, the foregoing responses
are true and complete. I understand that any untrue or incomplete response may
be subject to disciplinary action by the firm.
_______________________________
Non-Access Person Signature
Dated:__________________
Print Name_________________________________
(5) Per section III.f of the Code of Ethics, no associate, other than an
Independent Fund Director may serve on the board of directors of a PUBLICLY
HELD company.
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ATTACHMENT TO
ANNUAL CODE OF ETHICS QUESTIONNAIRE
PLEASE EXPLAIN ALL "NO" RESPONSES TO QUESTIONS IN SECTIONS II AND III:
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
PLEASE LIST EACH COMPANY FOR WHICH YOU ARE, OR A MEMBER OF YOUR IMMEDIATE
FAMILY IS, A DIRECTOR (SECTION IV):
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
GIFTS FOR THE YEAR SEPTEMBER 1, 1997, THROUGH AUGUST 31, 1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MONTH GIFT GIVER / RECEIVER GIFT DESCRIPTION ESTIMATED VALUE
--------------------- ----------------- -----------------
</TABLE>
1.
_______________________________________________________________________________
2.
________________________________________________________________________________
3.
________________________________________________________________________________
4.
________________________________________________________________________________
5.
________________________________________________________________________________
6.
________________________________________________________________________________
7.
________________________________________________________________________________
8.
________________________________________________________________________________
9.
________________________________________________________________________________
10.
________________________________________________________________________________
(CONTINUE ON AN ADDITIONAL SHEET IF NECESSARY.)
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<PAGE>
Appendix 4
FORM LETTER TO BROKER OR BANK
[DATE]
<Broker Name>
<Broker Address>
<Broker City, State and Zip>
Subject: Account Number_______________________
Account Registration____________________________
Dear ____________:
Please send duplicate confirmations of individual transactions as well as
duplicate periodic statements for the referenced account to:
CONFIDENTIAL
Chief Compliance Officer
Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
Your cooperation is most appreciated. If you have any questions regarding these
requests, please contact me or Donna J. Lelinski of SCM at (414) 359-3362.
Sincerely,
<Name of Associate>
Copy: Chief Compliance Officer
Strong Capital Management, Inc.
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<PAGE>
Appendix 5
GIFT POLICY
The gift policy of Strong Capital Management, Inc. and Strong Funds
Distributors, Inc., which covers both GIVING GIFTS TO and ACCEPTING GIFTS FROM
clients, brokers, persons with whom we do business, or others (collectively,
"vendors"). It is based on the applicable requirements of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. ("NASD") and
is included as part of the firm's Codes of Ethics.
Under our policy, associates may not give gifts to or accept gifts from
vendors with a value in excess of $100 PER PERSON PER YEAR and must report to
the firm annually if they accept certain types of gifts. The NASD defines a
"gift" to include any kind of gratuity. Since giving or receiving any gifts in
a business setting may give rise to an appearance of impropriety or may raise a
potential conflict of interest, we are relying on your professional attitude
and good judgment to ensure that our policy is observed to the fullest extent
possible. The discussion below is designed to assist you in this regard.
Questions regarding the appropriateness of any gift should be directed to
the Legal/Compliance Department.
1. GIFTS GIVEN BY ASSOCIATES
Under applicable NASD rules, an associate may not give any gift with a
value in excess of $100 per year to any person associated with a securities or
financial organization, including exchanges, broker-dealers, commodity firms,
the news media, or clients of the firm. Please note, however, that the firm
may not take a tax deduction for any gift with a value exceeding $25.
This memorandum is not intended to authorize any associate to give a gift
to a vendor -- appropriate supervisory approval must be obtained before giving
any gifts.
2. GIFTS ACCEPTED BY ASSOCIATES
On occasion, because of their position within the firm, associates may be
offered, or may receive without notice, gifts from vendors. Associates may not
accept any gift or form of entertainment from vendors (E.G., tickets to the
theater or a sporting event where the vendor does not accompany the associate)
other than gifts of NOMINAL VALUE, which the NASD defines as under $100 in
total from any vendor in any year (managers may, if they deem it appropriate
for their department, adopt a lower dollar ceiling). Any gift accepted by an
associate must be reported to the firm, subject to certain exceptions (see
heading 4 below). In addition, note that our gift policy does not apply to
normal and customary business entertainment or to personal gifts (see heading 3
below).
Associates may not accept a gift of cash or a cash equivalent (E.G., gift
certificates) in ANY amount, and under no circumstances may an associate
solicit a gift from a vendor.
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Associates may wish to have gifts from vendors donated to charity,
particularly where it might be awkward or impolite for an associate to decline
a gift not permitted by our policy. In such case, the gift should be forwarded
to Mary Beitzel in Legal, who will arrange for it to be donated to charity.
Similarly, associates may wish to suggest to vendors that, in lieu of an annual
gift, the vendors make a donation to charity. In either situation discussed
in this paragraph, an associate would not need to report the gift to the firm
(see heading 4 below).
3. EXCLUSION FOR BUSINESS ENTERTAINMENT/PERSONAL GIFTS
Our gift policy does not apply to normal and customary business meals and
entertainment with vendors. For example, if an associate has a business meal
and attends a sporting event or show with a vendor, that activity would not be
subject to our gift policy, provided the vendor is present. If, on the other
hand, a vendor gives an associate tickets to a sporting event and the associate
attends the event without the vendor also being present, the tickets would be
subject to the dollar limitation and reporting requirements of our gift policy.
Under no circumstances may associates accept business entertainment that is
extraordinary or extravagant in nature.
In addition, our gift policy does not apply to usual and customary gifts
given to or received from vendors based on a personal relationship (E.G., gifts
between an associate and a vendor where the vendor is a family member or
personal friend).
4. REPORTING
The NASD requires gifts to be reported to the firm. Except as noted
below, associates must report annually all gifts given to or accepted from
vendors (Legal will distribute the appropriate reporting form to associates).
Associates are NOT required to report the following: (i) usual and
customary promotional items given to or received from vendors (E.G., hats,
pens, T-shirts, and similar items marked with a firm's logo), (ii) items
donated to charity through Mary Beitzel in Legal, or (iii) food items consumed
on the firm's premises (E.G., candy, popcorn, etc.).
December 1, 1994
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<PAGE>
Appendix 6
INSIDER TRADING POLICY AND PROCEDURES
DESIGNED TO DETECT AND PREVENT INSIDER TRADING
A. POLICY STATEMENT.
1. INTRODUCTION. Strong Capital Management, Inc., Strong Funds
Distributors, Inc., Heritage Reserve Development Corporation and such other
companies which adopt these Policies and Procedures (all of the foregoing
entities are collectively referred to herein as "Strong") seek to foster a
reputation for integrity and professionalism. That reputation is a vital
business asset. The confidence and trust placed in Strong by clients is
something we should value and endeavor to protect. To further that goal, the
Policy Statement implements procedures to deter the misuse of material,
nonpublic information in securities transactions.
2. PROHIBITIONS. Accordingly, associates are prohibited from trading,
either personally or on behalf of others (including advisory clients), on
material, nonpublic information or communicating material, nonpublic
information to others in violation of the law. This conduct is frequently
referred to as "insider trading." This policy applies to every associate and
extends to activities within and outside their duties at Strong. Any questions
regarding this policy should be referred to the Compliance Department.
3. GENERAL SANCTIONS. Trading securities while in possession of
material, nonpublic information or improperly communicating that information to
others may expose you to stringent penalties. Criminal sanctions may include a
fine of up to $1,000,000 and/or ten years imprisonment. The SEC can recover
the profits gained or losses avoided through the violative trading, a penalty
of up to three times the illicit windfall and an order permanently barring you
from the securities industry. Finally, you may be sued by investors seeking to
recover damages for insider trading violations.
4. INSIDER TRADING DEFINED. The term "insider trading" is not defined
in the federal securities laws, but generally is used to refer to the use of
material, nonpublic information to trade in securities (whether or not one is
an "insider") or to communications of material, nonpublic information to
others. While the law concerning insider trading is not static, it is
currently understood that the law generally prohibits:
a. trading by an insider, while in possession of material, nonpublic
information;
b. trading by a non-insider, while in possession of material,
nonpublic information, where the information either was disclosed to the
non-insider in violation of an insider's duty to keep it confidential or was
misappropriated;
c. recommending the purchase or sale of securities on the basis of
material, nonpublic information;
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<PAGE>
d. communicating material, nonpublic information to others; or
e. providing substantial assistance to someone who is engaged in any
of the above activities.
The elements of insider trading and the penalties for such unlawful
conduct are described below. Any associate who, after reviewing these Policies
and Procedures has any question regarding insider trading should consult with
the Compliance Department. Often, a single question can forestall disciplinary
action or complex legal problems.
5. TENDER OFFERS. Tender offers represent a particular concern in the
law of insider trading for two reasons. First, tender offer activity often
produces extraordinary gyrations in the price of the target company's
securities. Trading during this time period is more likely to attract
regulatory attention (and produces a disproportionate percentage of insider
trading cases). Second, the SEC has adopted a rule which expressly forbids
trading and "tipping" while in possession of material, nonpublic information
regarding a tender offer received from the tender offeror, the target company
or anyone acting on behalf of either. Associates should exercise particular
caution any time they become aware of nonpublic information relating to a
tender offer.
6. CONTACT THE COMPLIANCE DEPARTMENT. To protect yourself, our
clients, and Strong, you should contact the Compliance Department immediately
if you believe that you may have received material, nonpublic information.
B. PROCEDURES DESIGNED TO DETECT AND PREVENT INSIDER TRADING. The
following procedures have been established to aid Strong and all associates in
avoiding insider trading, and to aid Strong in preventing, detecting, and
imposing sanctions against insider trading. Every associate must follow these
procedures or risk serious sanctions, including dismissal, substantial personal
liability and criminal penalties. Any questions about these procedures should
be directed to the Compliance Department.
1. INITIAL QUESTIONS. Before trading in the Securities of a company
about which an associate may have potential inside information, an associate,
whether trading for himself or herself or others, should ask himself or herself
the following questions:
a. IS THE INFORMATION MATERIAL? Is this information that an investor
would consider important in making his or her investment decisions? Is this
information that would substantially affect the market price of the securities
if generally disclosed?
b. IS THE INFORMATION NONPUBLIC? To whom has this information been
provided? Has the information been effectively communicated to the market
place by being published in Reuters, THE WALL STREET JOURNAL or other
publications of general circulation?
2. MATERIAL AND NONPUBLIC INFORMATION. If, after consideration of the
above, any associate believes that the information is material and nonpublic,
or if an associate has questions as to whether the information is material and
nonpublic, he or she should take the following steps:
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<PAGE>
a. Report the matter immediately to the Compliance Department.
b. Do not purchase or sell the Securities either on the associate's
own behalf or on the behalf of others.
c. Do not communicate the information to anyone, other than to the
Compliance Department.
d. After the Compliance Department has reviewed the issue, the
associate will be instructed to continue the prohibitions against trading and
communication, or he or she will be allowed to trade and communicate the
information.
3. CONFIDENTIALITY. Information in an associate's possession that is
identified as material and nonpublic may not be communicated to anyone, include
persons within Strong, except as otherwise provided herein. In addition, care
should be taken so that such information is secure. For example, files
containing material, nonpublic information should be sealed, access to computer
files containing material, nonpublic information should be restricted and
conversations containing such information, if appropriate at all, should be
conducted in private (for example, not by cellular telephone to avoid potential
interception).
4. ASSISTANCE OF THE COMPLIANCE DEPARTMENT. If, after consideration
of the items set forth in Section B.2., doubt remains as to whether information
is material or nonpublic, or if there is any unresolved question as to the
applicability or interpretation of the foregoing procedures, or as to the
propriety of any action, it must be discussed with the Compliance Department
before trading or communicating the information to anyone.
5. REPORTING REQUIREMENT. In accordance with Strong's Code of Ethics,
every associate must arrange for the Compliance Department to receive directly
from the broker, dealer, or bank in question, duplicate copies of each
confirmation for each Securities Transaction and periodic statement for each
brokerage account in which such associate has a beneficial interest.
C. INSIDER TRADING EXPLANATIONS.
1. WHO IS AN INSIDER? The concept of "insider" is broad. It includes
officers, directors and associates of a company. In addition, a person can be
a "temporary insider" if he or she enters into a special confidential
relationship in the conduct of a company's affairs and as a result is given
access to information solely for the company's purposes. A temporary insider
can include, among others, a company's attorneys, accountants, consultants,
bank lending officers and the associates of such organizations. In addition,
Strong may become a temporary insider. According to the United States Supreme
Court, the company must expect the outsider to keep the disclosed nonpublic
information confidential, and the relationship must at least imply such a duty
before the outsider will be considered an insider.
2. WHAT IS MATERIAL INFORMATION? Trading on inside information is not
a basis for liability unless the information is material. "Material
information" generally is defined as information for which there is a
substantial likelihood that a reasonable investor would consider it
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important in making his or her investment decisions, or information that is
reasonably certain to have a substantial effect on the price of a company's
securities. It need not be important that it would have changed the investor's
decision to buy or sell. No simple "bright line" test exists to determine when
information is material; assessments of materiality involve a highly
fact-specific inquiry. For this reason, you should direct any question about
whether information is material to the Compliance Department.
Material information often relates to a company's results and
operations including, for example, dividend changes, earnings results, changes
in previously released earnings estimates, significant merger or acquisition
proposals or agreements, major litigation, liquidation problems and
extraordinary management developments.
Material information also may relate to the market for a company's
securities. Information about a significant order to purchase or sell
securities may, in some contexts, be deemed material.
Material information does not have to relate to a company's business.
For example, in CARPENTER V. U.S., 108 U.S. 316 (1987), the United States
Supreme Court considered as material certain information about the contents of
a forthcoming newspaper column that was expected to affect the market price of
a security. In that case, a Wall Street Journal reporter was found criminally
liable for disclosing to others the dates that reports on various companies
would appear in THE WALL STREET JOURNAL and whether those reports would be
favorable or unfavorable.
3. WHAT IS NONPUBLIC INFORMATION? Information is nonpublic until it
has been effectively disseminated broadly to investors in the market place.
One must be able to point to some fact to show that the information is
generally public. For example, information found in a report filed with the
SEC, or appearing in Dow Jones, Reuters Economic Services, THE WALL STREET
JOURNAL, or other publications of general circulation would be considered
public.
4. WHAT ARE THE PENALTIES FOR INSIDER TRADING? Penalties for trading
on or communicating material, nonpublic information are severe, both for
individuals involved in such unlawful conduct and their employers. A person
can be subject to some or all of the penalties below even if he or she does not
personally benefit from the violation. Penalties include: (a) civil
injunctions; (b) treble damages; (c) disgorgement of profits; (d) jail
sentences; (e) fines for the person who committed the violation of up to three
times the profit gained or loss avoided, whether or not the person actually
benefited; and (f) fines for the employer or other controlling person of up to
the greater of $1,000,000 or three times the amount of the profit gained or
loss avoided.
In addition to the foregoing, any violation of this Policy with
Respect to Insider Trading can be expected to result in serious sanctions,
including dismissal of the person or persons involved.
September 19, 1995
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