<PAGE> 1
STRONG CONSERVATIVE EQUITY FUNDS
<TABLE>
<S> <C>
STRONG ASSET ALLOCATION FUND STRONG FUNDS
STRONG EQUITY INCOME FUND P.O. Box 2936
STRONG AMERICAN UTILITIES FUND Milwaukee, Wisconsin 53201
STRONG TOTAL RETURN FUND Telephone: (414) 359-1400
STRONG GROWTH AND INCOME FUND Toll-Free: (800) 368-3863
Device for the
Hearing-Impaired:
(800) 999-2780
</TABLE>
The Strong Family of Funds ("Strong Funds") is a family of more than
twenty-five 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. The Strong Conservative Equity Funds are
described in this Prospectus.
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 Funds, dated March 1, 1997, contains further
information, is incorporated by reference into this Prospectus, and has been
filed with the Securities and Exchange Commission ("SEC"). This Statement, which
may be revised from time to time, is available without charge upon request to
the above-noted address or telephone number. If you would like to electronically
access additional information about the Funds after reading the prospectus, you
may do so by accessing the SEC's World Wide Web site (at http://www.sec.gov)
that contains the Statement of Additional Information regarding the Funds 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.
- ----------------------------------------------------------------------------
March 1, 1997, as supplemented November 26, 1997
---------------------
PROSPECTUS PAGE I-1
<PAGE> 2
STRONG CONSERVATIVE EQUITY FUNDS
The Strong Asset Allocation Fund, Inc. and Strong Total Return Fund, Inc. are
separately incorporated, diversified, open-end management investment companies.
Strong American Utilities Fund is a non-diversified series, and Strong Equity
Income Fund and Strong Growth and Income Fund are diversified series, of Strong
Conservative Equity Funds, Inc., which is an open-end management investment
company.
STRONG ASSET ALLOCATION FUND (the "Asset Allocation Fund") seeks high total
return consistent with reasonable risk over the long term. The Fund allocates
its assets globally among a diversified portfolio of equity securities, bonds,
and cash.
STRONG EQUITY INCOME FUND (the "Equity Income Fund") seeks total return by
investing for both income and capital growth. The Fund invests primarily in
dividend-paying equity securities.
STRONG AMERICAN UTILITIES FUND (the "American Utilities Fund") seeks total
return by investing for both income and capital growth. The Fund invests
primarily in the equity securities of public utility companies headquartered in
the United States.
STRONG TOTAL RETURN FUND (the "Total Return Fund") seeks high total return by
investing for capital growth and income. Using a conservative approach to equity
management, the Fund emphasizes investments in large- to medium-sized growth
companies with steady or growing dividends.
STRONG GROWTH AND INCOME FUND (the "Growth and Income Fund") seeks high total
return by investing for capital growth and income. The Fund invests primarily in
companies that pay current dividends and offer potential growth of earnings.
---------------------
PROSPECTUS PAGE I-2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
EXPENSES................................ I-4
FINANCIAL HIGHLIGHTS.................... I-5
HIGHLIGHTS.............................. I-9
INVESTMENT OBJECTIVES AND POLICIES...... I-10
Comparing the Funds............ I-11
Strong Asset Allocation Fund... I-12
Strong Equity Income Fund...... I-13
Strong American Utilities
Fund......................... I-13
Strong Total Return Fund....... I-14
Strong Growth and Income
Fund......................... I-14
IMPLEMENTATION OF POLICIES AND RISKS.... I-15
ABOUT THE FUNDS......................... I-27
SHAREHOLDER MANUAL...................... II-1
APPENDIX................................ A-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 Statement
of Additional Information, and if given or made, such information or
representations may not be relied upon as having been authorized by the Funds.
This Prospectus does not constitute an offer to sell securities in any state or
jurisdiction in which such offering may not lawfully be made.
---------------------
PROSPECTUS PAGE I-3
<PAGE> 4
EXPENSES
The following information is provided in order to help you understand the
various costs and expenses that you, as an investor in the Funds, will bear
directly or indirectly.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<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 and with
certain other special shareholder services offered by the Funds. Additionally,
purchases and redemptions may also be made through broker-dealers or other
financial intermediaries who may charge a commission or other transaction fee
for their services. (See "Shareholder Manual - How to Buy Shares" and "- How to
Sell Shares.")
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Management Other 12b-1 Operating
Fund Fees Expenses Fees Expenses
<S> <C> <C> <C> <C> <C>
Asset Allocation .80% .33% NONE 1.13%
Equity Income .80 .52 NONE 1.32
American Utilities .75 .40 NONE 1.15
Total Return .80 .29 NONE 1.09
Growth and Income .80 1.12 NONE 1.92
</TABLE>
From time to time, the Funds' investment advisor, Strong Capital Management,
Inc. (the "Advisor"), may voluntarily waive its management fee and/or absorb
certain expenses for a Fund. The expenses specified in the table above for the
Funds are based on actual expenses incurred for the fiscal year ended October
31, 1996. For additional information concerning fees and expenses, see "About
the Funds - Management."
---------------------
PROSPECTUS PAGE I-4
<PAGE> 5
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)
Fund 1 3 5 10
<S> <C> <C> <C> <C>
Asset Allocation $12 $36 $ 62 $137
Equity Income 13 42 72 159
American Utilities 12 37 63 140
Total Return 11 35 60 133
Growth and Income 19 60 104 224
</TABLE>
- ----------------------------------------------------------------------------
The Example is based on each Fund's "Total Operating Expenses," 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 Fund's shares.
FINANCIAL HIGHLIGHTS
The following annual Financial Highlights for each of the Funds has been
audited by Coopers & Lybrand L.L.P., independent certified public accountants.
Their report for the fiscal year ended October 31, 1996 is included in the
Funds' Annual Report that is contained in the Funds' Statement of Additional
Information. The Financial Highlights for the Funds should be read in
conjunction with the Financial Statements and related notes included in the
Funds' Annual Report. Additional information about each Fund's performance is
contained in the Funds' Annual Report, which may be obtained without charge by
calling or writing Strong Funds. The following presents information relating to
a share of common stock of each of the Funds, outstanding for the entire period
ended as indicated.
---------------------
PROSPECTUS PAGE I-5
<PAGE> 6
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
STRONG ASSET ALLOCATION FUND
10-31-96 10-31-95(1) 12-31-94 12-31-93 12-31-92 12-31-91 12-31-90
-------- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 20.31 $ 17.91 $ 19.06 $ 18.49 $ 19.68 $ 17.50 $ 18.41
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.78 0.66 0.70 0.82 0.87 0.94 1.12
Net Realized and Unrealized Gains
(Losses) on Investments 1.05 2.32 (0.99) 1.81 (0.25) 2.41 (0.65)
-------- -------- -------- -------- -------- -------- --------
Total from Investment Operations 1.83 2.98 (0.29) 2.63 0.62 3.35 0.47
LESS DISTRIBUTIONS
From Net Investment Income (0.84) (0.58) (0.70) (0.82) (0.87) (0.97) (1.38)
From Net Realized Gains (1.18) -- -- (1.24) (0.94) (0.20) --
In Excess of Net Realized Gains -- -- (0.16) -- -- -- --
Return of Capital -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Distributions (2.02) (0.58) (0.86) (2.06) (1.81) (1.17) (1.38)
-------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 20.12 $ 20.31 $ 17.91 $ 19.06 $ 18.49 $ 19.68 $ 17.50
======== ======== ======== ======== ======== ======== ========
TOTAL RETURN +9.5% +16.8% -1.5% +14.5% +3.2% +19.6% +2.8%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(In Thousands) $263,170 $260,722 $248,647 $254,439 $208,368 $214,951 $203,562
Ratio of Expenses to Average
Net Assets 1.1% 1.2%* 1.2% 1.2% 1.2% 1.3% 1.3%
Ratio of Net Investment Income
to Average Net Assets 3.9% 4.1%* 3.8% 4.2% 4.4% 5.1% 6.1%
Portfolio Turnover Rate 446.7% 326.8% 359.7% 348.3% 320.4% 418.4% 319.6%
Average Commission Rate Paid(2) $ 0.0469
<CAPTION>
------------------------------
STRONG ASSET ALLOCATION FUND
12-31-89 12-31-88 12-31-87
-------- -------- --------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.57 $ 17.60 $ 22.18
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 1.22 1.39 0.85
Net Realized and Unrealized Gains
(Losses) on Investments 0.73 0.19 (0.70)
-------- -------- --------
Total from Investment Operations 1.95 1.58 0.15
LESS DISTRIBUTIONS
From Net Investment Income (0.97) (1.38) (1.78)
From Net Realized Gains (0.14) -- (2.95)
In Excess of Net Realized Gains -- -- --
Return of Capital -- (0.23) --
-------- -------- --------
Total Distributions (1.11) (1.61) (4.73)
-------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 18.41 $ 17.57 $ 17.60
======== ======== ========
TOTAL RETURN +11.2% +9.2% -0.3%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(In Thousands) $240,549 $256,089 $272,899
Ratio of Expenses to Average
Net Assets 1.3% 1.2% 1.1%
Ratio of Net Investment Income
to Average Net Assets 6.6% 7.5% 4.2%
Portfolio Turnover Rate 206.5% 426.2% 336.5%
Average Commission Rate Paid(2)
</TABLE>
* Calculated on an annualized basis.
(1) Total return and portfolio turnover rate are not annualized.
(2) Disclosure required, effective for reporting periods beginning after
September 1, 1995.
---------------------
PROSPECTUS PAGE I-6
<PAGE> 7
[CAPTION]
<TABLE>
<CAPTION>
STRONG
STRONG GROWTH
EQUITY AND
INCOME INCOME
STRONG AMERICAN UTILITIES FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C>
10-31-96 10-31-95(1) 12-31-94 12-31-93(2) 10-31-96(2) 10-31-96(2)
-------- ------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.73 $ 9.46 $ 10.19 $ 10.00 $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.40 0.27 0.46 0.18 0.12 0.04
Net Realized and Unrealized Gains (Losses)
on
Investments 0.90 2.25 (0.73) 0.27 2.02 2.38
-------- ------- -------- ------- -------- --------
Total from Investment Operations 1.30 2.52 (0.27) 0.45 2.14 2.42
LESS DISTRIBUTIONS
From Net Investment Income (0.39) (0.25) (0.46) (0.18) (0.11) (0.04)
From Net Realized Gains -- -- -- (0.05) -- --
In Excess of Net Realized Gains -- -- -- (0.03) -- --
-------- ------- -------- ------- -------- --------
Total Distributions (0.39) (0.25) (0.46) (0.26) (0.11) (0.04)
-------- ------- -------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 12.64 $ 11.73 $ 9.46 $ 10.19 $ 12.03 $ 12.38
======== ======= ======== ======= ======== ========
TOTAL RETURN +11.2% +26.9% -2.6% +4.5% +21.5% +24.2%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(In Thousands) $122,486 $91,696 $ 37,944 $32,457 $ 28,723 $ 17,990
Ratio of Expenses to Average Net Assets 1.2% 1.2%* 0.5% 0.0%* 1.3%* 1.9%*
Ratio of Expenses to Average
Net Assets, Without Waivers and Absorptions 1.2% 1.2%* 1.6% 1.4%* 1.3%* 1.9%*
Ratio of Net Investment Income
to Average Net Assets 3.2% 3.4%* 4.8% 5.6%* 1.6%* 0.6%*
Portfolio Turnover Rate 84.0% 56.4% 105.4% 89.3% 158.3% 174.1%
Average Commission Rate Paid(3) $ 0.0599 $ 0.0633 $ 0.0667
</TABLE>
*
Calculated on an annualized basis.
(1)
Total return and portfolio turnover rate are not annualized.
(2)
Inception dates for the American Utilities, Equity Income, and Growth and Income
Funds are July 1, 1993, December 29, 1995, and December 29, 1995, respectively.
Total return and portfolio turnover rate are not annualized.
(3)
Disclosure required, effective for reporting periods beginning after September
1, 1995.
---------------------
PROSPECTUS PAGE I-7
<PAGE> 8
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRONG TOTAL RETURN FUND
10-31-96 10-31-95(1) 12-31-94 12-31-93 12-31-92 12-31-91 12-31-90
-------- ----------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 28.02 $ 23.62 $ 24.30 $ 20.17 $ 20.24 $ 15.34 $ 17.72
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.24 0.26 0.25 0.33 0.18 0.22 0.95
Net Realized and Unrealized Gains
(Losses) on Investments 4.65 4.41 (0.59) 4.18 (0.08) 4.90 (2.19)
-------- -------- -------- -------- -------- -------- ----------
Total from Investment Operations 4.89 4.67 (0.34) 4.51 0.10 5.12 (1.24)
LESS DISTRIBUTIONS
From Net Investment Income (0.24) (0.26) (0.26) (0.33) (0.17) (0.22) (1.14)
In Excess of Net Investment Income (0.06) (0.01) (0.08) -- -- -- --
From Net Realized Gains (1.25) -- -- -- -- -- --
In Excess of Net Realized Gains -- -- -- (0.05) -- -- --
Return of Capital -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ----------
Total Distributions (1.55) (0.27) (0.34) (0.38) (0.17) (0.22) (1.14)
-------- -------- -------- -------- -------- -------- ----------
NET ASSET VALUE, END OF PERIOD $ 31.36 $ 28.02 $ 23.62 $ 24.30 $ 20.17 $ 20.24 $ 15.34
======== ======== ======== ======== ======== ======== ==========
TOTAL RETURN +18.0% +19.8% -1.4% +22.5% +0.6% +33.6% -7.1%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(In Thousands) $760,220 $670,958 $606,814 $630,349 $587,873 $691,327 $ 646,579
Ratio of Expenses to Average
Net Assets 1.1% 1.1%* 1.2% 1.2% 1.3% 1.4% 1.4%
Ratio of Net Investment Income
to Average Net Assets 0.8% 1.2%* 1.1% 1.4% 0.9% 1.3% 5.4%
Portfolio Turnover Rate 502.4% 298.8% 290.4% 271.3% 371.8% 426.4% 312.3%
Average Commission Rate Paid(2) $ 0.0584
<CAPTION>
STRONG TOTAL RETURN FUND
12-31-89 12-31-88 12-31-87
---------- ---------- --------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.96 $ 18.37 $ 21.61
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 1.55 1.95 0.97
Net Realized and Unrealized Gains
(Losses) on Investments (0.97) 0.85 0.61
---------- ---------- --------
Total from Investment Operations 0.58 2.80 1.58
LESS DISTRIBUTIONS
From Net Investment Income (1.31) (1.96) (1.65)
In Excess of Net Investment Income -- -- --
From Net Realized Gains (0.51) -- (3.17)
In Excess of Net Realized Gains -- -- --
Return of Capital -- (0.25) --
---------- ---------- --------
Total Distributions (1.82) (2.21) (4.82)
---------- ---------- --------
NET ASSET VALUE, END OF PERIOD $ 17.72 $ 18.96 $ 18.37
========== ========== ========
TOTAL RETURN +2.6% +15.6% +6.0%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(In Thousands) $1,065,278 $1,006,192 $802,442
Ratio of Expenses to Average
Net Assets 1.2% 1.2% 1.1%
Ratio of Net Investment Income
to Average Net Assets 7.7% 10.1% 5.2%
Portfolio Turnover Rate 305.3% 281.1% 224.4%
Average Commission Rate Paid(2)
</TABLE>
* Calculated on an annualized basis.
(1) Total return and portfolio turnover rate are not annualized.
(2) Disclosure required, effective for reporting periods beginning after
September 1, 1995.
---------------------
PROSPECTUS PAGE I-8
<PAGE> 9
HIGHLIGHTS
INVESTMENT OBJECTIVES AND POLICIES
Each Fund has distinct investment objectives and policies. Each Fund seeks
total return consistent with its investment objective and policies. The
investment objective of each Fund is set forth under "Investment Objectives and
Policies."
IMPLEMENTATION OF POLICIES AND RISKS
Subject to certain limitations, each Fund may invest in foreign securities
and engage in foreign currency and derivative transactions, including options,
futures, and options on futures transactions. Each Fund may invest in repurchase
agreements, when-issued securities, and illiquid securities. The Asset
Allocation Fund may engage in substantial short-term trading, which may result
in high portfolio turnover rates. These investment practices and techniques
involve risks that are different in some respects from those associated with
similar funds that do not use them. The American Utilities Fund is a "non-
diversified" investment company, which means that it may invest a larger
proportion of its assets in the securities of a single issuer than diversified
funds. The Funds may invest in non-investment-grade debt obligations (commonly
called "junk bonds") within specified limits. (See "Implementation of Policies
and Risks.")
MANAGEMENT
The Advisor, Strong Capital Management, Inc., serves as investment advisor to
the Funds. The Advisor provides investment management services for mutual funds
and other investment portfolios representing assets of over $24 billion. W.H.
Reaves & Co., Inc. (the "Subadvisor") is the subadvisor for the American
Utilities Fund. (See "About the Funds - Management.")
PURCHASE AND REDEMPTION OF SHARES
You may purchase or redeem shares of a Fund at net asset value. There are no
redemption or 12b-1 charges. The net asset values change daily with the value of
each Fund's portfolio. You can locate the net asset value for a Fund in
newspaper listings of mutual fund prices under the "Strong Funds" heading or at
our site on the World Wide Web at http://www.strong-funds.com. (See "Shareholder
Manual - How to Buy Shares" and "- How to Sell Shares.")
---------------------
PROSPECTUS PAGE I-9
<PAGE> 10
SHAREHOLDER SERVICES
Strong shareholder benefits include: telephone purchase, exchange, and
redemption privileges; professional representatives available 24 hours a day;
automatic investment, automatic dividend reinvestment, payroll direct deposit,
automatic exchange, and systematic withdrawal plans; and a no-minimum investment
program. (See "Shareholder Manual - Shareholder Services.")
DIVIDENDS AND OTHER DISTRIBUTIONS
The policy of each Fund is to pay dividends from net investment income
quarterly and to distribute substantially all net realized capital gains
annually. (See "About the Funds - Distributions and Taxes.")
INVESTMENT OBJECTIVES AND POLICIES
The descriptions that follow are designed to help you choose the Fund that
best fits your investment objective. You may want to pursue more than one
objective by investing in more than one of the Funds or by investing in one of
the other Strong Funds, which are described in separate prospectuses. Each
Fund's investment objective is discussed below in connection with the Fund's
investment policies. Because of the risks inherent in all investments, there can
be no assurance that the Funds will meet their objectives.
The Funds are each required or permitted to invest a substantial portion of
their assets in equity securities. Each Fund's net asset value will fluctuate
based upon changes in the value of the securities in its portfolio. Although
they are considered conservative equity funds - meaning, each Fund's net asset
value is likely to be less volatile than that of a Fund invested solely for
growth of capital - each Fund's net asset value is likely to fluctuate more than
that of a fund invested solely for income. The Funds, therefore, are not
appropriate for investors' short-term financial needs.
----------------------
PROSPECTUS PAGE I-10
<PAGE> 11
COMPARING THE FUNDS
The following summary is intended to distinguish the Funds and help you
determine their suitability for your investments.
<TABLE>
<CAPTION>
Equity Bond
Fund Range Range Diversified Focus
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Allocation 30-70% 20-70% Yes Allocated Across
Asset Classes
- ----------------------------------------------------------------------
Equity Income 65-100% 0-35% Yes Dividend-Paying
Stocks
- ----------------------------------------------------------------------
American Utilities 65-100% 0-35% No Utility and
Energy Stocks
- ----------------------------------------------------------------------
Total Return 60-100% 0-40% Yes Large- and Mid-
Cap, Dividend-
Paying Growth
Stocks
- ----------------------------------------------------------------------
Growth and Income 65-100% 0-35% Yes Dividend-Paying
and Growth Stocks
- ----------------------------------------------------------------------
</TABLE>
Each Fund has adopted certain fundamental investment restrictions that are
set forth in the Funds' Statement of Additional Information ("SAI"). Those
restrictions, a Fund's investment objective, and any other investment policies
identified as "fundamental" cannot be changed without shareholder approval. To
further guide investment activities, each Fund has also instituted a number of
non-fundamental operating policies, which are described throughout this
Prospectus and in the SAI. Although operating policies may be changed by a
Fund's Board of Directors without shareholder approval, a Fund will promptly
notify shareholders of any material change in operating policies.
Except as limited below, each Fund may invest in a diversified portfolio of
securities without regard to objective investment criteria, such as company
size, exchange listing, earnings history, or other factors. When selecting
securities, the Advisor will, except as otherwise limited below, be limited only
by its best judgment as to what will help achieve each Fund's investment
objective.
When the Advisor determines market conditions warrant a temporary defensive
position, the Total Return Fund may invest up to 40% of its net assets, and the
Asset Allocation, American Utilities, Equity Income, and Growth and Income Funds
may invest without limitation in cash and short-term fixed income securities.
----------------------
PROSPECTUS PAGE I-11
<PAGE> 12
STRONG ASSET ALLOCATION FUND
The Asset Allocation Fund seeks high total return consistent with reasonable
risk over the long term. The Fund allocates its assets globally among a
diversified portfolio of equity securities, bonds, and cash.
Under normal market conditions, the Fund's net assets will be allocated
according to a benchmark of 60% equities, 35% bonds, and 5% cash. The Advisor
intends to actively manage the Fund's assets, maintaining a balance over time
between investment opportunities and their associated potential risks. In
response to changing market and economic conditions, the Advisor may reallocate
the Fund's net assets among these asset categories. Those allocations normally
will be within the ranges indicated below. However, in pursuit of total return,
the Advisor may under-allocate or over-allocate the Fund's net assets in a
particular category.
ASSET-ALLOCATION CATEGORIES
<TABLE>
<CAPTION>
Percentage of Fund Net Assets
------------------------------
Category of Investment Benchmark Range
<S> <C> <C>
- ---------------------------------------------------------------------
Equities 60% 30-70%
Bonds 35% 20-70%
Cash 5% 0-50%
- ---------------------------------------------------------------------
</TABLE>
Equity securities in which the Fund may invest include common stocks,
preferred stocks, and securities that are convertible into common stocks, such
as warrants and convertible bonds. Bonds purchased by the Fund will be primarily
investment-grade debt obligations, although the Fund may invest up to 35% of its
net assets in non-investment-grade debt obligations. (See "Implementation of
Policies and Risks - Debt Obligations.") The cash portion of the Fund may
include, but is not limited to, debt securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities, commercial paper, banker's
acceptances, certificates of deposit, and time deposits. The Fund may invest in
obligations of domestic and foreign banks and their subsidiaries and branches.
The Fund also has the flexibility to take advantage of investment
opportunities around the world by investing in foreign securities. The Fund may
invest up to 25% of its net assets in foreign securities, including both direct
investments and investments made through depositary receipts. Foreign
investments involve risks not normally found when investing in securities of
U.S. issuers. (See "Implementation of Policies and Risks - Foreign Securities
and Currencies.")
Within the asset-allocation categories described above, the Advisor will
allocate the Fund's investments among countries (including developing
countries), geographic regions, and currencies in response to changing market
and
----------------------
PROSPECTUS PAGE I-12
<PAGE> 13
economic trends. In making geographical allocations of investments, the Advisor
will consider such factors as the historical and prospective relationships among
currencies and governmental policies that influence currency-exchange rates,
current and anticipated interest rates, inflation levels, and business
conditions within various countries, as well as other macroeconomic, social, and
political factors.
STRONG EQUITY INCOME FUND
The Equity Income Fund seeks total return by investing for both income and
capital growth.
The Fund invests primarily in dividend-paying equity securities. Under normal
market conditions, the Fund will invest at least 65% of its total assets in
dividend-paying equity securities, including common stocks, preferred stocks,
and securities that are convertible into common stocks, such as warrants and
convertible bonds. The Fund may invest up to 35% of its total assets in
non-dividend paying equity securities and intermediate- to long-term corporate
or U.S. government bonds. Although the bonds in which it invests will be
primarily investment grade, the Fund may invest up to 10% of its net assets in
non-investment-grade bonds. The Fund may invest up to 5% of its net assets in
foreign securities, including both direct investment and investments made
through depositary receipts. (See "Implementation of Policies and Risks -
Foreign Securities and Currencies" for the special risks associated with foreign
investments.)
STRONG AMERICAN UTILITIES FUND
The American Utilities Fund seeks total return by investing for both income
and capital growth.
The Fund normally will invest at least 65% of its total assets in the equity
securities of public utility companies headquartered in the United States.
Equity securities in which the Fund may invest include common stocks, preferred
stocks, and securities that are convertible into common stocks, such as warrants
and convertible bonds. Public utility companies include those engaged in the
manufacture, production, generation, transmission, sale and/or distribution of
water, gas, and electric energy, as well as those engaged in the communications
industry, including providers of telephone, telegraph, satellite, cable
television, microwave, and other communication facilities for the public,
excluding public broadcasting companies. (See "Implementation of Policies and
Risks - Public Utility Companies.")
The balance of the Fund, up to 35% of its total assets, may be invested in
any type of security, including debt obligations and equity securities of
companies in other industries. The Fund intends to use this allowance primarily
to invest in the equity securities of energy companies, which may compose up to
25% of the Fund's total assets. (See "Implementation of Policies and Risks -
Energy Companies.") Although the debt obligations in which it invests will be
primarily investment grade, the Fund may invest up to 5% of its net assets in
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PROSPECTUS PAGE I-13
<PAGE> 14
non-investment-grade debt securities. (See "Implementation of Policies and Risks
- - Debt Obligations.")
The Fund may invest up to 25% of its net assets in foreign securities,
including both direct investments and investments made through depositary
receipts. (See "Implementation of Policies and Risks - Foreign Securities and
Currencies" for the special risks associated with foreign investments.)
Under normal market conditions, the Fund expects to be fully invested in the
equity securities of companies in the public utility and energy industries.
STRONG TOTAL RETURN FUND
The Total Return Fund seeks high total return by investing for capital growth
and income. Using a conservative approach to equity management, the Fund
emphasizes investments in large- to medium-sized growth companies with steady or
growing dividends. (See "Implementation of Policies and Risks - Debt
Obligations.")
Under normal market conditions, the Fund will invest at least 60% of its net
assets in equity securities, including common stocks, preferred stocks, and
securities that are convertible into common stocks, such as warrants and
convertible bonds. The Fund expects to invest at least 80% of its net assets in
equity securities. At times, however, it may invest up to 40% of its net assets
in intermediate- to long-term corporate or U.S. government bonds. Although the
bonds in which it invests will be primarily investment grade, the Fund may
invest up to 5% of its net assets in non-investment-grade bonds. The Fund may
invest up to 25% of its net assets in foreign securities, including both direct
investments and investments made through depositary receipts. (See
"Implementation of Policies and Risks - Foreign Securities and Currencies" for
the special risks associated with foreign investments.)
STRONG GROWTH AND INCOME FUND
The Growth and Income Fund seeks high total return by investing for capital
growth and income.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities, with a focus on those that pay current
dividends and offer potential growth of earnings. At times, however, the Fund
may invest in equity securities that are not currently paying dividends, but
offer prospects for either capital growth or future income. Equity securities
include common stocks, preferred stocks, and securities that are convertible
into common stocks, such as warrants and convertible bonds. The Fund may invest
up to 35% of its total assets in intermediate- to long-term corporate or U.S.
government bonds. Although the bonds in which it invests will be primarily
investment grade, the Fund may invest up to 5% of its net assets in
non-investment-grade bonds. The Fund may invest up to 25% of net assets in
foreign securities, including both direct investments and investments made
through depositary receipts. (See "Implementation of Policies and Risks -
Foreign Securities and Currencies" for the special risks associated with foreign
investments.)
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<PAGE> 15
IMPLEMENTATION OF POLICIES AND RISKS
In addition to the investment policies described above (and subject to
certain restrictions described below), the Funds may invest in some or all of
the following securities and may employ some or all of the following investment
techniques, some of which may present special risks as described below. Each
Fund may also engage in reverse repurchase agreements and mortgage dollar roll
transactions. A more complete discussion of certain of these securities and
investment techniques and the associated risks is contained in the Funds' SAI.
DEBT OBLIGATIONS
IN GENERAL. The market value of all debt obligations is affected by changes
in the prevailing interest rates. The market value of such instruments generally
reacts inversely to interest rate changes. If the prevailing interest rates
decline, the market value of debt obligations generally increases. If the
prevailing interest rates increase, the market value of debt obligations
generally decreases. In general, the longer the maturity of a debt obligation,
the greater its sensitivity to changes in interest rates.
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 (in amounts in excess of the insurance coverage (currently $100,000
per account) provided by the Federal Deposit Insurance Corporation); (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 - 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) U.S. government
securities; (x) mortgage-backed securities, collateralized mortgage obligations,
and similar securities; and (xi) municipal obligations.
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 an obligation, 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
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PROSPECTUS PAGE I-15
<PAGE> 16
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 quantitive 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,
which include Standard & Poor's Ratings Group ("S&P"), Moody's Investors
Service, Inc. ("Moody's"), Fitch Investors Service, Inc. ("Fitch"), Duff &
Phelps, Inc., Thomson Bankwatch, and IBCA (the "NRSROs"). "Appendix A - Ratings
of Debt Obligations" presents a summary of the ratings of three such
organizations: S&P, Moody's and Fitch. Please refer to the Appendix in the
Funds' SAI for a more detailed description of the ratings of the NRSROs.
INVESTMENT-GRADE DEBT OBLIGATIONS. Debt obligations rated in the highest-
through the medium-quality categories are commonly referred to as
"investment-grade" debt obligations and include the following:
- - U.S. government securities (as defined below);
- - bonds or bank obligations rated in one of the four highest rating categories
(e.g., BBB or higher by Standard & Poor's Ratings Group or "S&P");
- - short-term notes rated in one of the two highest rating categories (e.g., SP-2
or higher by S&P);
- - short-term bank obligations rated in one of the three highest rating
categories (e.g., A-3 or higher by S&P), with respect to obligations maturing
in one year or less;
- - commercial paper rated in one of the three highest rating categories (e.g.,
A-3 or higher by S&P);
- - unrated debt obligations determined by the Advisor to be of comparable
quality; and
- - repurchase agreements involving investment-grade debt obligations.
Investment-grade debt obligations are generally believed to have relatively
low degrees of credit risk. All ratings are determined at the time of
investment. Any subsequent rating downgrade of a debt obligation will be
monitored by the Advisor to consider what action, if any, a Fund should take
consistent with its investment objective. For purposes of determining whether a
security is investment grade, the Adviser may use the highest rating assigned to
that security by any NRSRO.
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
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<PAGE> 17
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
interest on its holdings. As a result of the associated risks, successful
investments in high-yield (high-risk) securities will be more dependent on the
Advisor'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 a 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.
See the Appendix for information concerning the credit quality of the Asset
Allocation Fund's investments in debt obligations for the fiscal period ended
October 31, 1996.
GOVERNMENT SECURITIES
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.
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<PAGE> 18
Securities issued by government agencies or instrumentalities include, for
example, 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, 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.
ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES
Each 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 accrued during
that year. In order to qualify as a "regulated investment company" under the
Internal Revenue Code and avoid a certain excise tax, a 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.
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<PAGE> 19
PUBLIC UTILITY COMPANIES (AMERICAN UTILITIES FUND)
Under normal market conditions, at least 65% of the American Utilities Fund's
total assets will be invested in the equity securities of public utility
companies headquartered in the United States. Accordingly, the Fund's
performance will depend in part on conditions in the public utility industry.
Stocks of public utility companies have traditionally been attractive to
conservative stock market investors because they have generally paid consistent
and above-average dividends. The Fund's investments in public utility securities
may or may not pay consistent and above-average dividends. Moreover, the
securities of public utility companies can still be affected by the risks of the
stock market, as well as factors specific to public utility companies.
Government regulation of public utility companies can limit their ability to
expand their businesses or to pass cost increases onto customers. Additionally,
companies providing power or energy-related services may also be affected by the
following factors: increases in fuel and other operating costs; high costs of
borrowing to finance capital construction during inflationary periods;
operational restrictions, increased costs, and delays associated with compliance
with environmental and nuclear safety regulations; the difficulties involved in
obtaining natural gas for resale or fuel for generating electricity at
reasonable prices; the risks associated with constructing and operating nuclear
power plants; the effects of energy conservation; and the effects of regulatory
changes. Some public utility companies are facing increased competition, which
may reduce their profits. All of these factors are subject to rapid change,
which may affect utility companies independently from the stock market as a
whole. Equity securities issued by public utility companies tend to be more
affected by changes in interest rates than are the equity securities of other
issuers and, therefore, may react to such changes somewhat like debt
instruments. (See "Debt Obligations" above.)
In accordance with its investment objective and fundamental investment
restrictions, the Fund will normally concentrate its investments in the public
utility industry. This means that more than 25% of the value of the Fund's total
assets will normally be invested in the public utility industry. The Fund does
not have set policies to concentrate within any particular segment of the public
utilities industry; however, the Subadvisor generally emphasizes investments in
established electric utility, telephone, natural gas, and energy stocks with
sound financial structures.
Due to the Fund's concentration of investments in the public utility
industry, an investment in the Fund may be subject to greater fluctuations in
value than a Fund that does not concentrate its investments in a similar manner.
For example, as discussed above, certain economic factors or specific events may
exert a disproportionate impact upon the prices of equity securities of
companies within the public utilities industry relative to their impact on the
prices of securities of companies engaged in other industries. Additionally,
changes in the market price of the equity securities of a particular company
that occupies
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<PAGE> 20
a dominant position in an industry may tend to influence the market prices of
other companies within the same industry. As a result of the foregoing factors,
the net asset value of the Fund may be more susceptible to change than those of
investment companies that diversify their investments over many different
industries.
ENERGY COMPANIES (AMERICAN UTILITIES FUND)
Under normal market conditions, the American Utilities Fund anticipates it
may invest a substantial portion, but not more than 25% of its total assets, in
the equity securities of energy companies. Energy companies are generally
defined as companies in the conventional areas of oil, gas, electricity, and
coal, as well as those involved in alternative sources of energy, such as
nuclear, geothermal, shale, and solar power. The business activities of energy
companies may include production, generation, refining, transmission,
transportation, marketing, control, or measurement of energy or energy fuels;
providing component parts or services to companies engaged in these energy
activities; energy research or experimentation; and environmental activities
related to the solution of energy problems, such as energy conservation and
pollution control. For purposes of this 25% investment limitation, energy
companies shall exclude companies that are also public utility companies.
To the extent the Fund makes significant investments in energy companies, the
Fund's performance will depend in part on conditions in the energy industry. The
securities of companies in the energy industry are subject to changes in value
and dividend yield that depend to a large extent on the price and supply of
energy fuels. Swift price and supply fluctuations of energy fuels may be caused
by events relating to international politics, energy conservation, the success
of exploration projects, currency exchange rate fluctuations, and tax and other
regulatory policies of various governments.
WHEN-ISSUED SECURITIES
Each Fund 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, generally within 45
days. Purchasing when-issued securities allows a Fund to lock in a fixed price
or yield on a security it intends to purchase. However, when a Fund purchases a
when-issued security, it immediately assumes the risk of ownership, including
the risk of price fluctuation.
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 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
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<PAGE> 21
Fund may be able to sell these securities prior to the delivery date, it will
purchase when-issued securities 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 when-issued securities.
FOREIGN SECURITIES AND CURRENCIES
Each Fund may invest in foreign securities either directly or through the use
of depositary receipts. (See "Investment Objectives and Policies.") Depositary
receipts are generally issued by banks or trust companies and evidence ownership
of underlying foreign securities. Foreign investments may include other
investment companies which may involve frequent or layered fees and also are
subject to limitations under the Investment Company Act of 1940 (the "1940
Act"). 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 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 Asset Allocation Fund may invest in the foreign securities of issuers in
developing countries. The risks of foreign investments are generally intensified
for investments in developing countries. Risks of investing in such markets
include:
- - less social, political, and economic stability;
- - smaller securities markets and the lower trading volume, which may result in a
lack of liquidity and greater price volatility;
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<PAGE> 22
- - certain national policies that may restrict the 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 the 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 investments 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.
The Asset Allocation Fund may also invest in debt obligations issued or
guaranteed by foreign governments or their agencies, instrumentalities or
political subdivisions, or by supranational issuers (collectively, sovereign
debt). Investment in sovereign debt involves special risks. Certain foreign
countries, particularly developing countries, have experienced, and may continue
to experience, high rates of inflation, high interest rates, exchange-rate
fluctuations, large amounts of external debt, balance of payments and trade
difficulties, and extreme poverty and unemployment. The issuer of the debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due in accordance with
the terms of such debt, and the Fund may have limited legal recourse in the
event of default.
Because most foreign securities are denominated in non-U.S. currencies, the
investment performance of the Funds 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.")
DERIVATIVE INSTRUMENTS
A Fund 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
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PROSPECTUS PAGE I-22
<PAGE> 23
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 (the "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 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 against the box, in which a Fund sells a security
it owns 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
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<PAGE> 24
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. 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 the Advisor's ability to correctly anticipate trends in
the underlying asset. In a hedging transaction, if the Advisor 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 the Advisor's ability to correctly anticipate such trends, since losses in
these transactions may not be offset in gains in the Fund's portfolio or in
lower purchase prices for assets it intends to acquire. The Advisor's prediction
of trends in underlying assets may prove to be inaccurate, which could result in
substantial losses to a Fund.
In addition to the derivative instruments and strategies described above, the
Advisor expects to discover additional derivative instruments and other trading
techniques. The Advisor may utilize these new derivative instruments and
techniques to the extent that they are consistent with a Fund's investment
objective and permitted by the Fund's investment limitations, operating
policies, and applicable regulatory authorities.
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 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. 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
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<PAGE> 25
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 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 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.
The 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 such 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.
SMALL AND MEDIUM COMPANIES
The Asset Allocation, Growth and Income, and Total Return 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 over-the-counter 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
----------------------
PROSPECTUS PAGE I-25
<PAGE> 26
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 a 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 a fund
that invests in larger, more established companies.
DIVERSIFICATION
The American Utilities Fund is non-diversified. Because the Fund may invest a
larger portion of its assets in the securities of a single issuer than
diversified funds, an investment in the Fund may be subject to greater
fluctuations in value than an investment in a diversified fund.
ILLIQUID SECURITIES
Each Fund may invest up to 15% 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 under Rule 144A under the Securities Act of 1933 and Section 4(2)
commercial paper may be determined to be liquid under guidelines adopted by each
Fund's Board of Directors.
CASH MANAGEMENT
Each 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
the 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.
PORTFOLIO TURNOVER
Historical portfolio turnover rates for the Asset Allocation, American
Utilities, and Total Return Funds are listed under "Financial Highlights." The
annual portfolio turnover rate indicates changes in a Fund's portfolio. The
turnover rate may vary from year to year, as well as within a year. It may also
----------------------
PROSPECTUS PAGE I-26
<PAGE> 27
be affected by sales of portfolio securities necessary to meet cash requirements
for redemption of shares. High portfolio turnover in any year will result in the
payment by a Fund of above-average amounts of transaction costs and could result
in the payment by shareholders of above-average amounts of taxes on realized
investment gains. Under normal market circumstances, it is anticipated that the
rate of portfolio turnover of the Equity Income and Growth and Income Funds
generally will not exceed 200%. The Asset Allocation and Total Return Funds each
have a wide investment scope and an active management investment policy, which
may result in higher portfolio turnover. The Asset Allocation Fund may engage in
substantial short-term trading, which involves significant risk and may be
deemed speculative. Such trading will result in a higher portfolio turnover rate
and correspondingly higher brokerage costs.
ABOUT THE FUNDS
MANAGEMENT
The Board of Directors of each Fund is responsible for managing its business
and affairs. Each of the Funds has entered into an investment advisory agreement
(collectively the "Advisory Agreements") with Strong Capital Management, Inc.
(the "Advisor"). Except for the management fee arrangements, the Advisory
Agreements are substantially identical. Under the terms of these agreements, the
Advisor manages each Fund's investments and business affairs subject to the
supervision of each Fund's Board of Directors.
ADVISOR. The Advisor 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 February 1, 1997, the Advisor had over $24
billion under management. The Advisor'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 the Advisor.
As compensation for its services, each Fund pays the Advisor a monthly
management fee based on a percentage of each Fund's average daily net asset
value. The annual rates are as follows: Asset Allocation and Total Return Funds,
.85% of the Fund's average daily net assets up to $35,000,000 and .80% of each
Fund's average daily net assets in excess of $35,000,000; Equity Income and
Growth and Income Funds, .80%; and American Utilities Fund, .75%. Such fees are
in excess of fees paid by many other funds. From time to time, the Advisor may
voluntarily waive all or a portion of its management fee and/or absorb certain
Fund expenses without further notification of the commencement or termination of
such waiver or absorption. Any such waiver
----------------------
PROSPECTUS PAGE I-27
<PAGE> 28
or absorption will temporarily lower a Fund's overall expense ratio and increase
a Fund's overall return to investors.
The Advisor and the Subadvisor permit portfolio managers and other persons
who may have access to information about the purchase or sale of securities in a
Fund's portfolio ("access persons") to purchase and sell securities for their
own accounts, subject to the Advisor's or Subadvisor's policy governing personal
investing. These policies require access persons to conduct their personal
investment activities in a manner that the Advisor or Subadvisor believes is not
detrimental to a Fund or to the Advisor or Subadvisor's other advisory clients.
Among other things, these policies require access persons to obtain preclearance
before executing personal trades and generally prohibits access persons from
keeping profits derived from the purchase or sale of the same security within 60
calendar days. See the SAI for more information.
SUBADVISOR AMERICAN UTILITIES FUND. Under a subadvisory agreement between the
Advisor and W.H. Reaves & Co., Inc. (the "Subadvisory Agreement"), the
Subadvisor, pursuant to the oversight and supervision of the American Utilities
Fund's Board of Directors and the Advisor, provides a continuous investment
program for the American Utilities Fund. Under the Subadvisory Agreement, the
Subadvisor is responsible for determining the securities to be purchased and
sold by the Fund and for executing those transactions. However, the Advisor is
responsible for managing the cash-equivalent investment maintained by the Fund
in the ordinary course of its business, which is expected to equal approximately
5% - 7% of the Fund's total assets. As compensation for its services, the
Advisor (not the Fund) pays the Subadvisor a monthly fee at an annual rate of
.50% on the first $200 million of the Fund's average daily net assets plus 40%
of the Advisor's net management fee (after any waivers thereof) on that portion
of the Fund's average daily net assets in excess of $200 million except that the
foregoing percentage will be 50% on those average daily net assets between $1.0
billion and $1.5 billion. The Subadvisor bears all of its own expenses in
providing subadvisory services to the Fund.
The Subadvisor began conducting business in 1961. Since then, its principal
business has been providing continuous investment supervision to institutional
investors such as corporations, corporate pension funds, employee savings plans,
foundations, and endowments. The Subadvisor is a Delaware corporation. Mr.
William H. Reaves is the controlling shareholder of the Subadvisor. As of
February 1, 1997, the Subadvisor had over $1 billion under management. Its
address is 10 Exchange Place, Jersey City, New Jersey 07302.
The Subadvisor may also act as a broker for the American Utilities Fund. In
order for the Subadvisor to effect any portfolio transactions for the Fund on an
exchange, the commissions, fees, or other remuneration received by the
Subadvisor must be reasonable and fair compared to the commissions, fees, or
other remuneration paid to other brokers in connection with transactions
involving similar securities being purchased or sold on any exchange during a
----------------------
PROSPECTUS PAGE I-28
<PAGE> 29
comparable period of time. This standard would allow the Subadvisor to receive
no more than the remuneration that would be expected to be received by an
unaffiliated broker in a commensurate arm's-length transaction.
HISTORICAL PERFORMANCE DATA OF THE SUBADVISOR
The following table sets forth the composite performance data of the
Subadvisor relating to the historical performance of actual, fee-paying,
discretionary equity accounts and the designated equity portion (including
designated cash reserves) of balanced accounts with assets over $1 million (the
"Equity Accounts") managed by the Subadvisor, since the dates indicated, that
have investment objectives, policies, strategies, and risks substantially
similar to those of the American Utilities Fund. The data is provided to
illustrate the past performance of the Subadvisor in managing substantially
similar accounts as measured against the Standard & Poor's 500 Stock Index ("S&P
500"), and does not represent the performance of the American Utilities Fund.
PERFORMANCE IS HISTORICAL AND DOES NOT REPRESENT THE FUTURE PERFORMANCE OF THE
AMERICAN UTILITIES FUND OR OF THE SUBADVISOR.
The Subadvisor's composite performance data shown below was calculated in
accordance with the recommended standards of the Association for Investment
Management and Research (commonly referred to as AIMR)* retroactively applied
for all time periods. All returns presented were calculated on a total return
basis and include all dividends and interest, accrued income, and realized and
unrealized gains and losses. All returns reflect the deduction of investment
management fees, brokerage commissions, and execution costs paid by the Equity
Accounts, without provision for federal or state income taxes. Custodial fees,
if any, were not included in the calculation. Securities transactions are
accounted for on the trade date and accrual accounting is utilized. Cash and
equivalents are included in performance returns. The composite's returns are
calculated on a time-weighted basis.
The Equity Accounts that are included in the Subadvisor's composite are not
subject to the same type of expenses to which the American Utilities Fund is
subject nor to the diversification requirements, specific tax restrictions, and
investment limitations imposed on the American Utilities Fund by the Investment
Company Act of 1940 or Subchapter M of the Internal Revenue Code. Consequently,
the performance results for the Subadvisor's composite could have been adversely
affected if the Equity Accounts included in the composite had been regulated
under the federal security and tax laws.
The investment results of the Subadvisor's composite presented below have
been audited for all periods presented up to June 30, 1994. The Subadvisor has
- ---------------
* AIMR is a non-profit membership and education organization with more than
60,000 members worldwide that, among other things, has formulated a set of
performance presentation standards for investment advisers. These AIMR
performance presentation standards are intended to (i) promote full and fair
presentations by investment advisers of their performance results, and (ii)
ensure uniformity in reporting so that performance results of investment
advisers are directly comparable.
----------------------
PROSPECTUS PAGE I-29
<PAGE> 30
its composite performance audited every three years. The investment results
presented are not intended to predict or suggest the future returns of the
Utility Fund. Investors should be aware that the use of a methodology different
than that used below to calculate performance could result in different
performance data.
<TABLE>
<CAPTION>
Subadvisor's
Equity
Time Period Composite S&P 500(1)
<S> <C> <C>
Average Annual Returns
1 Year 10.2% 23.0%
3 Year 12.8% 19.7%
5 Year 13.3% 15.2%
10 Year 12.5% 15.2%
15 Year 17.0% 16.7%
1/1/78 -- 12/31/96(2) 17.1% 15.8%
Cumulative Returns
1/1/78 -- 12/31/96(2) 1922.9% 1515.3%
</TABLE>
(1) The S&P 500 Stock Index is an unmanaged index generally representative of
the U.S. stock market. The index does not reflect investment management
fees, brokerage commissions, and other expenses associated with investing in
equity securities.
(2) The Subadvisor's Equity Composite began on January 1, 1978.
PORTFOLIO MANAGERS. The following individuals serve as portfolio managers for
the Strong Conservative Equity Funds.
STRONG ASSET ALLOCATION FUND
Equity Component
RIMAS M. MILAITIS. Mr. Milaitis serves as the portfolio manager of the equity
portion of the Fund. Mr. Milaitis joined the Advisor in December of 1995. For
the previous four years, he managed several conservative equity portfolios at
Aon Advisors, Inc. ("AAI") in Chicago, Illinois. For two years prior to that, he
served as an equity trader for AAI. Prior to working at AAI, Mr. Milaitis served
as an equity portfolio assistant for three years to the Illinois State Board of
Investment. He attended DePaul University, where he was awarded his M.B.A. in
1991 and Illinois State University where he received his B.S. degree in
Economics in 1984.
Bond and Cash Components
BRADLEY C. TANK. Mr. Tank co-manages the bond and cash portions of the Fund.
Before joining the Advisor in June 1990, he spent eight years at Salomon
Brothers, Inc., where he was a fixed-income specialist and, for the last six
years, a vice president. Mr. Tank received his B.A. in 1980 from the University
of Wisconsin-Eau Claire and his M.B.A. in 1982 from the University of Wisconsin-
Madison, where he also completed the Applied Securities Analysis Program. Mr.
Tank currently chairs the Advisor's Fixed Income Investment Committee.
----------------------
PROSPECTUS PAGE I-30
<PAGE> 31
JEFFREY A. KOCH. Mr. Koch co-manages the bond and cash portions of the Fund.
Mr. Koch joined the Advisor as a portfolio manager and securities analyst in
June 1989. For a brief period prior to that, he was a market-maker clerk at
Fossett Corporation, a clearing firm. Mr. Koch earned his M.B.A. in Finance at
Washington University in St. Louis, Missouri in 1989. His undergraduate degree,
awarded in 1987, is from the University of Minnesota-Morris. Mr. Koch is also a
Chartered Financial Analyst. Mr. Koch has co-managed the Fund since December
1994.
STRONG AMERICAN UTILITIES FUND
WILLIAM H. REAVES. Mr. Reaves, the Fund's senior co-manager, has been the
President and Chief Investment Officer, Portfolio Manager, and Utilities Analyst
of the Subadvisor since 1961. He has worked as a utilities analyst since 1946.
WILLIAM A. FERER. Mr. Ferer, a co-manager of the Fund, has been a Vice
President, Portfolio Manager, and Energy Analyst of the Subadvisor since 1987.
He has worked as a securities analyst since 1971.
RONALD J. SORENSON. Mr. Sorenson, a co-manager of the Fund, has been a Vice
President and Portfolio Manager of the Subadvisor since 1991. For three years
prior to that, he was a partner and portfolio manager of PVF Inc. For a two-year
period prior to that, Mr. Sorenson was the Chairman of the Board and Chairman of
the Investment Committee of The American Life Insurance Company of New York. Mr.
Sorenson has acted as President of RWS Energy Services, Chief Financial Officer
of Emerging Market Services A.G., Controller of Triad Holding Corporation S.A.,
and a C.P.A. for Arthur Young & Co.
MARK D. LUFTIG. Mr. Luftig, a co-manager of the Fund, has been a Vice
President and Utilities Analyst of the Subadvisor since January 1995. Prior to
joining the Subadvisor, he was the Executive Vice President and Director of
Equity Research at Kemper Securities, Inc., where he worked since 1992. For
approximately three years prior to that, Mr. Luftig served as the Vice President
of the National Economic Research Association, Inc. From 1975 until 1989, he
worked at Salomon Brothers, Inc. as the Director of Research.
STRONG TOTAL RETURN FUND
RONALD C. OGNAR. Information concerning Mr. Ognar is set forth above under
"Strong Asset Allocation Fund."
IAN J. ROGERS. In October 1994, Mr. Rogers joined Mr. Ognar as co-portfolio
manager of the Fund. Mr. Rogers has worked with Mr. Ognar as an equity analyst
since joining the Advisor in August 1993. Prior to joining the Advisor, Mr.
Rogers worked for seven years as an equity analyst with Kemper Financial
Services in Chicago. For approximately two years prior to that, he was an equity
analyst for Allstate Insurance. Mr. Rogers began his investment career in 1983
as an equity analyst for Comerica Bank in Detroit. He received his M.B.A. from
Central Michigan University in 1983 and his bachelor's degree in Business
Administration from Ferris State College in 1966.
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PROSPECTUS PAGE I-31
<PAGE> 32
STRONG EQUITY INCOME FUND
STRONG GROWTH AND INCOME FUND
MR. RIMAS M. MILAITIS. Mr. Milaitis serves as the portfolio manager for the
Funds. He joined the Advisor in December 1995. For the previous four years, Mr.
Milaitis managed several conservative-equity portfolios at Aon Advisors, Inc.
("AAI") in Chicago, Illinois. For two years prior to that, he served as an
equity trader for AAI. Prior to working at AAI, Mr. Milaitis served as a equity
portfolio assistant for three years to the Illinois State Board of Investment.
He attended DePaul University, where he was awarded his M.B.A. in 1991, and the
Illinois State University, where he received his bachelor's degree in economics
in 1984.
TRANSFER AND DIVIDEND-DISBURSING AGENT
The Advisor, P.O. Box 2936, Milwaukee, Wisconsin 53201, also acts as
dividend-disbursing agent and transfer agent for the Funds. The Advisor is
compensated for its services based on an annual fee per account plus certain
out-of-pocket expenses. The fees received and the services provided as transfer
agent and dividend-disbursing agent are in addition to those received and
provided under the Advisory Agreements between the Advisor and the Funds.
DISTRIBUTOR
Strong Funds Distributors, Inc., P.O. Box 2936, Milwaukee, Wisconsin 53201,
an indirect subsidiary of the Advisor, acts as distributor of the shares of the
Funds.
ORGANIZATION
SHAREHOLDER RIGHTS. The Asset Allocation and Total Return Funds are Wisconsin
corporations that are authorized to issue an indefinite number of shares of
common stock and series and classes of series of shares of common stock. The
American Utilities Fund, Equity Income, and Growth and Income Funds are series
of common stock of Strong Conservative Equity Funds, 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 Funds has one vote, and all shares participate equally in dividends and
other capital gains distributions by the respective Fund and in the residual
assets of the respective Fund 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 Funds will not hold an annual meeting of shareholders unless
required by the 1940 Act.
----------------------
PROSPECTUS PAGE I-32
<PAGE> 33
SHAREHOLDER PRIVILEGES. The shareholders of each Fund may benefit from the
privileges described in the "Shareholder Manual" (see Page II-1). However, each
Fund 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 Fund shares. Or, you may elect to have all your
dividends and capital gain distributions from a Fund 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 Fund will credit your bank
account by Electronic Funds 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 Strong Funds. Strong Funds 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
each Fund is to pay dividends from net investment income quarterly and to
distribute substantially all net realized capital gains and gains from foreign
currency transactions annually. Each Fund 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 Fund, are taxable to you as long-term capital gains,
regardless of how long you have held your Fund shares. The Funds' 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 Fund'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.
----------------------
PROSPECTUS PAGE I-33
<PAGE> 34
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 Fund shares may result in
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 Fund
shares for shares of another Strong Fund. If you purchase shares of a Fund
within thirty days before or after redeeming shares of the same Fund 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 Fund 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 Fund with a correct taxpayer identification
number, the Fund 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 underreporting of your income. This certification is
included as part of your application. Please complete it when you open your
account.
TAX STATUS OF THE FUNDS. Each Fund intends to continue to qualify for
treatment as a regulated investment company under Subchapter M of the Internal
Revenue Code 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 Funds 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.
----------------------
PROSPECTUS PAGE I-34
<PAGE> 35
PERFORMANCE INFORMATION
Each Fund may advertise a variety of types of performance information,
including "average annual total return," "total return," "cumulative total
return," and "yield." Each of these figures is based upon historical results and
does not represent the future performance of a Fund.
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 Fund assuming
the reinvestment of all dividends and distributions. Total return figures are
not annualized and simply represent the aggregate change of a Fund's investments
over a specified period of time.
Yield is an annualized figure, which means that it is assumed that a Fund
generates the same level of net investment income over a one-year period. A
Fund's yield is a measure of the net investment income per share earned by the
Fund over a specific one-month period and is shown as a percentage of the net
asset value of the Fund's shares at the end of the period.
----------------------
PROSPECTUS PAGE I-35
<PAGE> 36
This page has been left blank intentionally.
----------------------
PROSPECTUS PAGE I-36
<PAGE> 37
SHAREHOLDER MANUAL
<TABLE>
<S> <C>
HOW TO BUY SHARES...................... II-1
DETERMINING YOUR SHARE PRICE........... II-4
HOW TO SELL SHARES..................... II-6
SHAREHOLDER SERVICES................... II-9
REGULAR INVESTMENT PLANS............... II-10
SPECIAL SITUATIONS..................... II-12
</TABLE>
HOW TO BUY SHARES
All the Strong Funds are 100% no-load, meaning you may purchase, redeem, or
exchange shares directly at net asset value without paying a sales charge.
Because the Funds' net asset value changes daily, your purchase price will be
the next net asset value determined after Strong 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 Fund shares.
----------------------
PROSPECTUS PAGE II-1
<PAGE> 38
-----------------------------------------------------------------------------
<TABLE>
<S> <C>
TO OPEN A NEW ACCOUNT
- ----------------------------------------------------------------------------
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.
- ----------------------------------------------------------------------------
TELEPHONE BY EXCHANGE
- Call 1-800-368-3863 to establish a new account by
1-800-368-3863 exchanging funds from an existing Strong Funds
24 HOURS A DAY, account.
7 DAYS A WEEK - 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
Telephone Exchange 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 DirectSM, Strong Funds' automated
telephone response system. Call 1-800-368-7550.
- ----------------------------------------------------------------------------
IN PERSON - 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.
- ----------------------------------------------------------------------------
WIRE Call 1-800-368-3863 for instructions on opening an
account by wire.
- ----------------------------------------------------------------------------
AUTOMATICALLY USE STRONG'S "NO-MINIMUM INVESTMENT PROGRAM."
- If you sign up for Strong's Automatic Investment
Plan when you open your account, 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.
- ----------------------------------------------------------------------------
BROKER-DEALER - You may purchase shares in the Fund 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>
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PROSPECTUS PAGE II-2
<PAGE> 39
- ------------------------------------------------------------------------------
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 Telephone
Exchange 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 Funds account by telephone.
To add this option to your account, call 1-800-368-3863 for a Telephone
Purchase Form.
Or use Strong DirectSM, 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 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 Fund 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 Fund through a broker-dealer or other
institution that may charge a transaction fee.
- - Strong Funds may only accept requests to purchase additional shares into a
broker-dealer street name account from the broker-dealer.
----------------------
PROSPECTUS PAGE II-3
<PAGE> 40
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.
- - Minimum Investment Requirements:
- ----------------------------------------------------------------------------
To open a regular account
Total Return and Asset Allocation Funds...........................$250
American Utilities Fund.........................................$1,000
Equity Income and Growth and Income Funds.......................$2,500
To open an IRA or Defined Contribution account........................$250
To open a UGMA/UTMA account...........................................$250
To open a 401(k) or 403(b) retirement account...................No Minimum
To add to an existing account..........................................$50
The Funds offer a No-Minimum Investment Program that waives the minimum
initial investment requirements for investors who participate in the Strong
Automatic Investment Plan (described on page II-11). 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
Fund reserves the right to close your account. Before taking such action, a Fund
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 (the "Exchange") on a
day on which the Exchange is open, your share price will be the NAV determined
that day. The NAV for each Fund is normally determined as of
----------------------
PROSPECTUS PAGE II-4
<PAGE> 41
3:00 p.m. Central Time ("CT") each day the Exchange is open. The Funds 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 Fund's NAV is calculated by taking the fair value of a
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.
A Fund's portfolio securities are valued based on market quotations or at
fair value as determined by the method selected by each Fund's Board of
Directors. Equity securities traded on a national securities exchange or NASDAQ
are valued at the last sales price on the national securities exchange or NASDAQ
on which such securities are primarily traded. Securities traded on NASDAQ for
which there were no transactions on a given day or securities not listed on an
exchange or NASDAQ are valued at the average of the most recent bid and asked
prices. Other exchange traded securities (generally foreign securities) will be
valued based on market quotations. Debt securities are valued by a pricing
service that utilizes electronic data processing techniques to determine values
for normal institutional-sized trading units of debt securities without regard
to sale or bid prices when such techniques are believed to more accurately
reflect the fair market value for such securities. Otherwise, sale or bid prices
are used. Any securities or other assets for which market quotations are not
readily available are valued at fair value as determined in good faith by the
Board of Directors. Debt securities having remaining maturities of 60 days or
less are valued by the amortized cost method when the Board of Directors
determines that the fair value of such securities is their amortized cost. Under
this method of valuation, a security is initially valued at its acquisition
cost, and thereafter, amortization of any discount or premium is assumed each
day, regardless of the impact of the fluctuating rates on the market value of
the instrument.
Securities quoted in foreign currency are valued daily in U.S. dollars at the
foreign currency exchange rates that are prevailing at the time the daily NAV
per share is determined. Although the Funds value their foreign assets in U.S.
dollars on a daily basis, they do not intend to convert their holdings of
foreign currencies into U.S. dollars on a daily basis. Foreign currency exchange
rates are generally determined prior to the close of trading on the Exchange.
Occasionally, events affecting the value of foreign investments and such
exchange rates occur between the time at which they are determined and the close
of trading on the Exchange. Such events would not normally be reflected in a
calculation of a Fund's NAV on that day. If events that materially affect the
value of a Fund's foreign investments or the foreign currency exchange rates
occur during such period, the investments will be valued at their fair value as
determined in good faith by or under the direction of the Board of Directors.
----------------------
PROSPECTUS PAGE II-5
<PAGE> 42
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 Fund. 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 -- Signature Guarantees.")
----------------------
PROSPECTUS PAGE II-6
<PAGE> 43
-----------------------------------------------------------------------------
<TABLE>
<S> <C>
TO SELL SHARES
- -----------------------------------------------------------------------------
MAIL FOR INDIVIDUAL, JOINT TENANT, AND UGMA/UTMA ACCOUNTS
- Write a "letter of instruction" that includes the
For your protection following information: your account number, the
certain redemption dollar amount or number of shares you wish to
requests may require a redeem, each owner's name, your street address, and
signature guarantee. the signature of each owner as it appears on the
See "Special account.
Situations - Signature - Mail to Strong Funds, P.O. Box 2936, Milwaukee,
Guarantees." Wisconsin 53201. If you're using an express delivery
service, send to 900 Heritage Reserve, 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.
- -----------------------------------------------------------------------------
TELEPHONE
Sign up for telephone redemption services when you
1-800-368-3863 open your account by checking the "Yes" box in the
24 HOURS A DAY, appropriate section of the account application. To
7 DAYS A WEEK add the telephone redemption option to your account,
call 1-800-368-3863 for a Telephone Redemption Form.
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 DirectSM, Strong Funds'
automated telephone response system. Call
1-800-368-3863 for details.
- -----------------------------------------------------------------------------
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.
- -----------------------------------------------------------------------------
BROKER-DEALER
You may also redeem shares through broker-dealers or
others who may charge a commission or other
transaction fee.
</TABLE>
----------------------
PROSPECTUS PAGE II-7
<PAGE> 44
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 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 Fund 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.
REDEMPTIONS IN KIND
If the Advisor determines that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in securities
or other financial assets, valued for this purpose as they are valued in
computing the NAV for a Fund's shares. Shareholders receiving securities or
other financial assets on redemption may realize a gain or loss for tax
purposes, and will incur any costs of sale, as well as the associated
inconveniences.
WHAT YOU SHOULD KNOW ABOUT TELEPHONE REDEMPTIONS
- - The Funds 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 Funds and their transfer
agent employ reasonable procedures to confirm that instructions communicated
by telephone are genuine. The Funds 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.
----------------------
PROSPECTUS PAGE II-8
<PAGE> 45
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 DIRECTSM AUTOMATED TELEPHONE SYSTEM. Also available 24 hours a day,
the Strong DirectSM 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 that you
establish.
STRONG NETDIRECTSM. Available 24 hours a day from your personal computer,
Strong netDirectSM 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 website at http://www.strong-
funds.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].
STATEMENTS AND REPORTS. At a minimum, each Fund 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 a semi-annual report and an annual report
containing audited financial statements.
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.
----------------------
PROSPECTUS PAGE II-9
<PAGE> 46
More complete information regarding each Fund'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 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 your accounts' 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 or by telephone. By establishing the
telephone exchange services, you authorize the Fund and its agents to act upon
your instruction by telephone to exchange shares from any account you specify.
For tax purposes, an exchange is considered a sale and a purchase of Fund
shares. Please obtain and read the appropriate prospectus before investing in
any of the Strong Funds. Since an excessive number of exchanges may be
detrimental to the Funds, each Fund reserves the right to discontinue the
exchange privilege of any shareholder who makes more than five exchanges in a
year or three exchanges in a calendar quarter.
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
-----------------------
PROSPECTUS PAGE II-10
<PAGE> 47
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 Fund from your bank checking 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 Investment Plan with any financial
institution that is a member of the Automated Clearing House. Because each Fund
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 Fund'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 obtain
an Authorization for Payroll Direct Deposit to a Strong Funds Account 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 Fund 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 Fund 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
-----------------------
PROSPECTUS PAGE II-11
<PAGE> 48
investment in the second account. 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 the Fund. 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.
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 Funds. Until a valid corporate
resolution or Certification of Authorized Individuals is received by the Fund,
services such as telephone and wire redemption will not be established.
If you are investing as a trustee, 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 Fund.
Failure to provide these documents or signatures as required when you invest may
result in delays in processing redemption requests.
-----------------------
PROSPECTUS PAGE II-12
<PAGE> 49
FINANCIAL INTERMEDIARIES. Broker-dealers, financial institutions, and other
financial intermediaries that have entered into agreements with the Distributor
may enter purchase or redemption orders on behalf of their customers. If you
purchase or redeem shares of a Fund through a financial intermediary, certain
features of the Fund relating to such transactions may not be available or may
be modified in accordance with the terms of the intermediaries' agreement with
the Distributor. In addition, certain operational policies of a 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. We urge
you to consult your financial intermediary for more information regarding these
matters. In addition, a Fund may pay, directly or indirectly through
arrangements with the Advisor, amounts to financial intermediaries that provide
transfer agent and/or other administrative services relating to the Fund 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 a commission or other transaction fee for their services. You will
not be charged for such fees if your purchase or redeem your Fund shares
directly from a Fund without the intervention of a financial intermediary.
SIGNATURE GUARANTEES. A signature guarantee is designed to protect you and
the Funds against fraudulent transactions by unauthorized persons. In the
following instances, the Funds 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 $25,000;
- - 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.
-----------------------
PROSPECTUS PAGE II-13
<PAGE> 50
APPENDIX
RATINGS OF DEBT OBLIGATIONS
<TABLE>
<CAPTION>
Moody's Standard & Fitch
Investors Poor's Ratings Investors
Service, Inc. Group Service, Inc. Definition
- -----------------------------------------------------------------
<S> <C> <C> <C>
Aaa AAA AAA Highest quality
Aa AA AA High quality
A A A Upper medium grade
Baa BBB BBB Medium grade
Ba BB BB Low grade
B B B Speculative
Caa, Ca, C CCC, CC, C CCC, CC, C Submarginal
D D DDD, DD, D Probably in
default
- -----------------------------------------------------------------
</TABLE>
ASSET COMPOSITION
For the fiscal year ended October 31, 1996, the Asset Allocation Fund's
assets were invested in the credit categories shown below. Percentages are
computed on a dollar-weighted basis and are an average of twelve monthly
calculations. For purposes of determining whether a security is investment
grade, the Advisor may use the highest rating assigned to that security by any
NRSRO. A security rated differently by two or more rating securities is included
in the category representing the higher of the ratings assigned to the security.
ASSET ALLOCATION FUND
<TABLE>
<CAPTION>
Percentage of Advisor's Assessment
S&P Moody's Investments of Not Rated Securities
- -----------------------------------------------------------
<S> <C> <C> <C>
AAA Aaa 16.8% --
AA Aa 2.7 --
A A 1.9 --
BBB Baa 8.4 --
BB Ba 10.0 .1%
B B -- .2
CCC Caa .1 .1
CC Ca -- --
C C -- --
D D -- --
Not Rated .4 --
Total 40.3% .4%
- -----------------------------------------------------------
</TABLE>
----------------------
PROSPECTUS PAGE A-1
<PAGE> 51
NOTES
<PAGE> 52
NOTES
