As filed with the Securities and Exchange Commission on or about April 27, 2000
Securities Act Registration No. 33-1932
Investment Company Act Registration No. 811-3793
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 21 [ X ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 22 [ X ]
(Check appropriate box or boxes)
STRONG OPPORTUNITY FUND, INC.
(Exact Name of Registrant as Specified in Charter)
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (414) 359-3400
Stephen J. Shenkenberg
Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box).
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ X ] on May 1, 2000 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
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[Strong logo and picture of man and two children fishing]
prospectus
THE STRONG GROWTH FUNDS
investor class
May 1, 2000
The Strong Common Stock Fund
The Strong Discovery Fund
The Strong Growth Fund
The Strong Mid Cap Disciplined Fund
The Strong Mid Cap Growth Fund
The Strong Opportunity Fund
The Strong Strategic Growth Fund
THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED OF
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Your Investment.................................................................
KEY INFORMATION.................................................................
What are the funds' goals?.....................................................1
What are the funds' principal investment strategies?...........................1
What are the main risks of investing in the funds?.............................5
What are the funds' fees and expenses?........................................10
Who are the funds' investment advisor and portfolio managers?.................11
OTHER IMPORTANT INFORMATION YOU SHOULD KNOW...................................14
Financial Highlights..........................................................14
Your Account....................................................................
Share Price...................................................................22
Buying Shares.................................................................23
Selling Shares................................................................26
Additional Policies...........................................................28
Distributions.................................................................30
Taxes.........................................................................30
Services For Investors........................................................31
Reserved Rights...............................................................34
For More Information..................................................Back Cover
IN THIS PROSPECTUS, "WE" REFERS TO STRONG CAPITAL MANAGEMENT, INC., THE
INVESTMENT ADVISOR, ADMINISTRATOR, AND TRANSFER AGENT FOR THE STRONG FUNDS.
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YOUR INVESTMENT
KEY INFORMATION
WHAT ARE THE FUNDS' GOALS?
Each fund seeks capital growth.
WHAT ARE THE FUNDS' PRINCIPAL INVESTMENT STRATEGIES?
The COMMON STOCK FUND invests at least 65% of its assets in stocks of small-
and medium-capitalization companies that the fund's manager believes are
underpriced, yet have attractive growth prospects. He bases his analysis on a
company's "private market value"-the price an investor would be willing to pay
for the entire company given its management, financial health, and growth
potential. The manager determines a company's private market value based on a
fundamental analysis of a company's cash flows, asset valuations, competitive
situation, and franchise value. To a limited extent, the fund may also invest
in foreign securities. The manager may sell a stock when its price no longer
compares favorably with the company's private market value.
The DISCOVERY FUND invests in securities that its managers believe offer
attractive opportunities for growth. The fund usually invests in a diversified
portfolio of common stocks from small-, medium-, and large-capitalization
companies. These are chosen through a combination of in-depth fundamental
analysis of a company's financial reports and direct, on-site research during
company visits. When the managers believe market conditions favor fixed-income
investments, they have the flexibility to invest a significant portion of the
fund's assets in bonds. The fund would primarily invest in intermediate- and
long-term investment grade bonds. To a limited extent, the fund may also invest
in foreign securities. The managers may sell a holding if its growth potential
or fundamental qualities change. The fund's active trading approach may
increase the fund's costs which may reduce the fund's performance. The fund's
active trading approach may also increase the amount of capital gains tax that
you pay on the fund's returns.
The GROWTH FUND focuses on stocks of companies that its manager believes have
favorable prospects for accelerating growth of earnings but are selling at
reasonable valuations based on earnings, cash flow, or asset value. The
portfolio can include stocks of any size. The fund writes put and call options.
This means that the fund sells an option to another party to either sell a
stock to (put) or buy a stock from (call) the fund at a predetermined price in
the future. When the fund writes put or call options, it will receive fees or
premiums but is exposed to losses due to changes in the value of the stock that
the put or call is written against. Writing options can serve as a limited or
partial hedge against adverse market movements. This is because declines in
the value of the hedged stock will be offset by the premium received for
writing the option. Whether or not this hedging strategy is successful depends
on a variety of factors, particularly the ability of the fund's manager to
predict movements of the price of the hedged stock. The manager's decision to
engage in this hedging strategy will reflect the manager's judgment that
writing an option on a stock will provide value to the fund and its
shareholders. To a limited extent, the fund may also invest in foreign
securities. The manager may sell a stock when the company's growth prospects
become less attractive. The fund's active trading approach may increase the
fund's costs which may reduce the fund's performance. The fund's active
trading approach may also increase the amount of capital gains tax that you pay
on the fund's returns.
The MID CAP DISCIPLINED FUND invests at least 65% of its assets in stocks of
medium-capitalization companies that the fund's manager believes present
attractive opportunities, but have not been widely recognized by investment
analysts or the financial press. The fund defines "medium-capitalization
companies" as companies with a market capitalization substantially similar to
that of companies in the S&P MidCap 400 Index at the time of investment. To
identify these companies, the manager engages in in-depth, first-hand research.
On-site visits with members of a company's management team are often an
integral part of this process. The goal of the manager's research is to
identify companies that are undervalued or have growth potential that are not
currently reflected in the companies' stock price. To a limited extent, the
fund may also invest in foreign securities. The manager may sell a stock when
changes in its price or growth potential no longer make it an attractive
investment.
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The MID CAP GROWTH FUND invests at least 65% of its assets in stocks of
medium-capitalization companies that the fund's managers believe have favorable
prospects for accelerating growth of earnings but are selling at reasonable
valuations based on earnings, cash flow, or asset value. The fund defines
"medium-capitalization companies" as companies with a market capitalization
substantially similar to that of companies in the S&P MidCap 400 Index at the
time of investment. The fund writes put and call options. This means that the
fund sells an option to another party to either sell a stock to (put) or buy a
stock from (call) the fund at a predetermined price in the future. When the
fund writes put or call options, it will receive fees or premiums but is
exposed to losses due to changes in the value of the stock that the put or call
is written against. Writing options can serve as a limited or partial hedge
against adverse market movements. This is because declines in the value of the
hedged stock will be offset by the premium received for writing the option.
Whether or not this hedging strategy is successful depends on a variety of
factors, particularly the ability of the fund's managers to predict movements
of the price of the hedged stock. The managers' decision to engage in this
hedging strategy will reflect the managers' judgment that writing an option on
a stock will provide value to the fund and its shareholders. To a limited
extent, the fund may also invest in foreign securities. The managers may sell a
holding when there is a fundamental change in the outlook for the company or to
take advantage of a better investment opportunity. The fund's active trading
approach may increase the fund's costs which may reduce the fund's performance.
The fund's active trading approach may also increase the amount of capital
gains tax that you pay on the fund's returns.
The OPPORTUNITY FUND invests primarily in stocks of medium-capitalization
companies that the fund's manager believes are underpriced, yet have attractive
growth prospects. He bases his analysis on a company's "private market
value"-the price an investor would be willing to pay for the entire company
given its management, financial health, and growth potential. The manager
determines a company's private market value based on a fundamental analysis of
a company's cash flows, asset valuations, competitive situation, and franchise
value. To a limited extent, the fund may also invest in foreign securities. The
manager may sell a stock when its price no longer compares favorably with the
company's private market value.
The STRATEGIC GROWTH FUND invests primarily in the stocks of medium- and
large-capitalization companies, looking for those that may have long-term
growth potential. Based on fundamental analysis, the fund's manager seeks
stocks of well-managed companies that produce needed or proven products
(products for which there is a significant or growing demand in the
marketplace) and that are market leaders in growing industries. In looking for
well-managed companies, the manager examines many factors such as consistency
of a business plan, foresight of the competitive market conditions, business
knowledge, and management's attention to detail. The portfolio generally holds
50 or fewer stocks. To a limited extent, the fund may also invest in foreign
securities. The manager may sell a holding if its growth prospects diminish or
if better investment opportunities become available.
The managers of each of the funds may invest in cash or cash-type securities
(high-quality, short-term debt securities issued by corporations, financial
institutions, or the U.S. government) as a temporary defensive position to
avoid losses during adverse market conditions. The DISCOVERY FUND, the GROWTH
FUND, and the STRATEGIC GROWTH FUND may do so without limit. The MID CAP GROWTH
FUND may do so with up to 35% of its assets. The OPPORTUNITY FUND and the MID
CAP DISCIPLINED FUND may do so with up to 30% of their assets. The COMMON
STOCK FUND may do so with up to 20% of its assets. Taking a temporary
defensive position could reduce the benefit to these funds if the market goes
up. In this case, the funds may not achieve their investment goals.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?
GENERAL STOCK RISKS: The major risks of each fund are those of investing in the
stock market. That means the funds may experience sudden, unpredictable
declines in value, as well as periods of poor performance. Because stock values
go up and down, the value of your fund's shares may go up and down. Therefore,
when you sell your investment, you may receive more or less money than you
originally invested.
VALUE- AND GROWTH-STYLE INVESTING: Different types of stocks tend to shift into
and out of favor with stock market investors depending on market and economic
conditions. Because each of the funds focuses on either value- or growth-style
stocks, each fund's performance may at times be better or worse than the
performance of stock funds that focus on other types of stocks or that have a
broader investment style.
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WRITING OPTIONS: The GROWTH FUND and the MID CAP GROWTH FUND write put and call
options. The funds will receive fees for writing options but are exposed to
losses due to an adverse change in the value of the underlying asset that the
option was written against. Transactions involving written options may include
elements of leverage and could magnify a fund's losses. Using options in this
manner may reduce a fund's opportunity for investment gain. Each fund will
segregate liquid assets, such as cash, short-term debt, and other liquid
securities, in a segregated account to the extent required to cover the
financial exposure created by the use of these instruments.
FOREIGN SECURITIES: Each of the funds may invest up to 25% of their assets in
foreign securities. Foreign investments involve additional risks, including
currency-rate fluctuations, political and economic instability, differences in
financial reporting standards, and less-strict regulation of securities
markets.
SMALLER AND MEDIUM COMPANIES: Each of the funds invests a substantial portion
of its assets in the stocks of smaller-capitalization companies. Small- and
medium-capitalization companies often have narrower markets and more limited
managerial and financial resources than larger, more established companies. As
a result, their performance can be more volatile and they face greater risk of
business failure, which could increase the volatility of the funds' portfolios.
Generally, the smaller the company size, the greater these risks.
BOND RISKS: The DISCOVERY FUND maintains the flexibility to invest in bonds.
To the extent it does, the fund is exposed to the risks of bond investing. A
bond's market value is affected significantly by changes in interest
rates-generally, when interest rates rise, the bond's market value declines and
when interest rates decline, its market value rises (interest-rate risk).
Generally, the longer a bond's maturity, the greater the risk and the higher
its yield. Conversely, the shorter a bond's maturity, the lower the risk and
the lower its yield (maturity risk). A bond's value can also be affected by
changes in the bond's credit quality rating or its issuer's financial condition
(credit-quality risk). Because bond values fluctuate, the fund's share price
fluctuates. So, when you sell your investment, you may receive more or less
money than you originally invested.
Each of the funds is appropriate for investors who are comfortable with the
risks described here and whose financial goals are five or more years in the
future. The funds are not appropriate for investors concerned primarily with
principal stability.
FUND STRUCTURE
Each of the funds has adopted a multiple class plan. The GROWTH FUND offers
Investor Class shares, Advisor Class shares, and Institutional Class shares.
The OPPORTUNITY FUND offers Investor Class shares and Advisor Class shares.
The COMMON STOCK FUND, the DISCOVERY FUND, the MID CAP DISCIPLINED FUND, the
MID CAP GROWTH FUND, and the STRATEGIC GROWTH FUND offer Investor Class shares.
Only the Investor Class shares of each fund are offered in this prospectus.
The principal differences between each of the classes of shares are that the
Advisor Class shares are subject to a front-end sales load and distribution
fees and expenses under a 12b-1 plan, and each class of shares is subject to
different administrative and transfer agency fees and expenses. Because 12b-1
fees are paid out of the fund's assets on an on-going basis, over time these
fees will increase the cost of an investment in Advisor Class shares and may
cost more than paying other types of sales charges.
FUND PERFORMANCE
The return information on the following pages illustrates how the performance
of the funds' Investor Class shares can vary, which is one indication of the
risks of investing in the funds. Please keep in mind that the past performance
of each fund's Investor Class shares does not represent how it will perform in
the future. The information assumes that you reinvested all dividends and
distributions.
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CALENDAR YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Common Mid Cap Mid Cap Strategic
Year Opportunity Discovery Stock Growth Growth Disciplined Growth
- ---- ------------ ---------- ------ ------- -------- ----------- ---------
1990 -11.3% -2.7% 1.0% - - - -
- ---- ------------ ---------- ------ ------- -------- ----------- ---------
1991 31.7% 67.6% 57.1% - - - -
- ---- ------------ ---------- ------ ------- -------- ----------- ---------
1992 17.4% 1.9% 20.8% - - - -
- ---- ------------ ---------- ------ ------- -------- ----------- ---------
1993 21.2% 22.2% 25.2% - - - -
- ---- ------------ ---------- ------ ------- -------- ----------- ---------
1994 3.2% -5.7% -0.5% 17.3% - - -
- ---- ------------ ---------- ------ ------- -------- ----------- ---------
1995 27.3% 34.8% 32.4% 41.0% - - -
- ---- ------------ ---------- ------ ------- -------- ----------- ---------
1996 18.1% 1.5% 20.5% 19.5% - - -
- ---- ------------ ---------- ------ ------- -------- ----------- ---------
1997 23.4% 10.8% 24.0% 19.1% 13.8% - -
- ---- ------------ ---------- ------ ------- -------- ----------- ---------
1998 15.5% 7.0% 6.6% 27.0% 14.5% - -
- ---- ------------ ---------- ------ ------- -------- ----------- ---------
1999 33.4% 5.3% 40.4% 75.1% 92.0% 35.2% 29.4%
- ---- ------------ ---------- ------ ------- -------- ----------- ---------
</TABLE>
BEST AND WORST QUARTERLY PERFORMANCE
(DURING THE PERIODS SHOWN ABOVE)
<TABLE>
<CAPTION>
<S> <C> <C>
FUND NAME BEST QUARTER RETURN WORST QUARTER RETURN
- -------------------- -------------------- ---------------------
Common Stock 25.3% (4th Q 1999) -16.5% (3rd Q 1998)
Discovery 27.9% (1st Q 1991) -17.4% (3rd Q 1998)
Growth 54.9% (4th Q 1999) -12.7% (3rd Q 1998)
Mid Cap Disciplined 18.4% (4th Q 1999) -11.3% (3rd Q 1999)
Mid Cap Growth 47.3% (4th Q 1999) -18.2% (3rd Q 1998)
Opportunity 17.5% (4th Q 1998) -14.1% (3rd Q 1998)
Strategic Growth 24.7% (4th Q 1998) -9.8% (3rd Q 1998)
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
AS OF 12-31-99
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FUND/INDEX 1-YEAR 5-YEAR 10-YEAR SINCE INCEPTION
COMMON STOCK 40.35% 24.24% 21.59% 21.59% (12-29-89)
Russell 2000 Index 21.26% 16.69% 13.40% 13.40%
Lipper Mid-Cap Value Funds Index 11.94% 14.88% 11.79% 11.79%
DISCOVERY 5.28% 11.32% 12.59% 14.45% (12-31-87)
Russell 2000 Index 21.26% 16.69% 13.40% 14.56%
Lipper Mid-Cap Value Funds Index 11.94% 14.88% 11.79% 13.50%
GROWTH 75.06% 34.86% - 31.75% (12-31-93)
S&P 500 Stock Index 21.04% 28.56% - 23.55%
Lipper Multi-Cap Growth
Funds Index 46.35% 28.76% - 22.86%
MID CAP DISCIPLINED 35.20% - - 35.20% (12-31-98)
S&P MidCap 400 Stock Index 14.72% - - 14.72%
Lipper Mid-Cap Value Funds Index 11.94% - - 11.94%
MID CAP GROWTH 92.02% - - 35.78% (12-31-96)
S&P MidCap 400 Stock Index 14.72% - - 21.81%
Lipper Mid-Cap Growth Funds Index 73.72% - - 29.69%
OPPORTUNITY 33.39% 23.38% 17.23% 19.49% (12-31-85)
S&P MidCap 400 Stock Index 14.72% 23.05% 17.32% 17.19%
Lipper Multi-Cap Value Funds Index 5.94% 17.82% 13.03% 13.62%
STRATEGIC GROWTH 29.36% - - 28.42% (6-30-98)
S&P 500 Stock Index 21.04% - - 20.46%
Lipper Mid-Cap Core Funds Index 28.19% - - 17.48%
</TABLE>
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THE RUSSELL 2000 INDEX IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF THE
U.S. MARKET FOR SMALL CAPITALIZATION STOCKS. THE LIPPER MID-CAP VALUE FUNDS
INDEX IS AN EQUALLY-WEIGHTED PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS
IN THIS LIPPER CATEGORY. THE S&P 500 STOCK INDEX IS AN UNMANAGED INDEX
GENERALLY REPRESENTATIVE OF THE U.S. STOCK MARKET. THE LIPPER MULTI-CAP GROWTH
FUNDS INDEX IS AN EQUALLY-WEIGHTED PERFORMANCE INDEX OF THE LARGEST QUALIFYING
FUNDS IN THIS LIPPER CATEGORY. THE S&P MIDCAP 400 STOCK INDEX IS AN UNMANAGED
INDEX GENERALLY REPRESENTATIVE OF THE U.S. MARKET FOR MEDIUM CAPITALIZATION
STOCKS. THE LIPPER MID-CAP GROWTH FUNDS INDEX IS AN EQUALLY-WEIGHTED
PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS IN THIS LIPPER CATEGORY. THE
LIPPER MULTI-CAP VALUE FUNDS INDEX IS AN EQUALLY-WEIGHTED PERFORMANCE INDEX OF
THE LARGEST QUALIFYING FUNDS IN THIS LIPPER CATEGORY. THE LIPPER MID-CAP CORE
FUNDS INDEX IS AN EQUALLY-WEIGHTED PERFORMANCE INDEX OF THE LARGEST QUALIFYING
FUNDS IN THIS LIPPER CATEGORY.
Recent returns for the GROWTH FUND and the MID CAP GROWTH FUND were primarily
achieved during favorable conditions in the market, particularly for technology
companies. The MID CAP DISCIPLINED FUND and the STRATEGIC GROWTH FUND achieved
short-term performance through investments in initial public offerings. You
should not expect that such favorable returns can be consistently achieved.
WHAT ARE THE FUNDS' FEES AND EXPENSES?
This section describes the fees and expenses that you may pay if you buy and
hold shares of the funds.
SHAREHOLDER FEES
(fees paid directly from your investment)
The Investor Class shares of each fund are 100% no-load, so you pay no sales
charges (loads) to buy or sell shares.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets)
The costs of operating the funds are deducted from fund assets, which means you
pay them indirectly. These costs are deducted before computing the daily share
price or making distributions. As a result, they don't appear on your account
statement, but instead reduce the total return you receive from your fund
investment.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENT OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MANAGEMENT OTHER TOTAL ANNUAL FUND
FUND FEES EXPENSES OPERATING EXPENSES
- ------------------- --------------- --------------- ------------------
Common Stock 0.75% 0.42% 1.17%
Discovery 0.75% 0.66% 1.41%
Growth 0.75% 0.49% 1.24%
Mid Cap Disciplined 0.75% 1.25% 2.00%
Mid Cap Growth 0.75% 0.81% 1.56%
Opportunity 0.75% 0.44% 1.19%
Strategic Growth 0.75% 1.25% 2.00%
</TABLE>
EXAMPLE: This example is intended to help you compare the cost of investing in
the funds with the cost of investing in other mutual funds. The example assumes
that you invest $10,000 in the funds and reinvest all dividends and
distributions for the time periods indicated, and then redeem all of your
shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the funds' operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------- ------------- ------------- ------- -------------
Common Stock $119 $372 $644 $1,420
Discovery $144 $446 $771 $1,691
Growth $126 $393 $681 $1,500
Mid Cap Disciplined $203 $627 $1,078 $2,327
Mid Cap Growth $159 $493 $850 $1,856
Opportunity $121 $378 $654 $1,443
Strategic Growth $203 $627 $1,078 $2,327
</TABLE>
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WHO ARE THE FUNDS' INVESTMENT ADVISOR AND PORTFOLIO MANAGERS?
Strong Capital Management, Inc. (Strong) is the investment advisor for the
funds. Strong provides investment management services for mutual funds and
other investment portfolios representing assets, as of March 31, 2000, of over
$45 billion. Strong began conducting business in 1974. Since then, its
principal business has been providing investment advice for individuals and
institutional accounts, such as pension and profit-sharing plans, as well as
mutual funds, several of which are available through variable insurance
products. Strong's address is P.O. Box 2936, Milwaukee, WI 53201.
The following individuals are the funds' portfolio managers.
DEAN G. DUMONTHIER is the portfolio manager of the MID CAP DISCIPLINED FUND
since March 1999. He has over four years of investment experience. Mr.
DuMonthier joined Strong as an equity research analyst in April 1996. In
January 1999, he began managing equity accounts for Strong. For eight years
prior to joining Strong, Mr. DuMonthier worked at Hewitt Associates as an
investment consultant and as a management consultant. A Chartered Financial
Analyst, Mr. DuMonthier received his bachelors degree in Economics from
Lawrence University in 1988 and a Masters of Management degree from the Kellogg
Graduate School of Management at Northwestern University in 1995.
DEREK V.W. FELSKE co-manages the MID CAP GROWTH FUND. He has over 15 years of
investment experience and is a Chartered Financial Analyst. Mr. Felske joined
Strong as a portfolio manager in January 1999 and has co-managed the MID CAP
GROWTH FUND since February 1999. From July 1996 to January 1999, Mr. Felske
was the chief executive officer of Leawood Capital Management LLC. From
September 1993 to July 1996, Mr. Felske was a vice president and a portfolio
manager at Twentieth Century Companies, Inc. From 1991 to 1993, Mr. Felske was
a member of the portfolio management team at RCM Capital Management. Mr.
Felske received his bachelors degree in Economics from Dartmouth College in
1980 and his Masters of Business Administration in Finance and Accounting from
Wharton Business School in 1991.
RONALD C. OGNAR manages the GROWTH FUND and co-manages the MID CAP GROWTH FUND.
He has over 30 years of investment experience and is a Chartered Financial
Analyst. He joined Strong as a portfolio manager in April 1993 and has managed
the GROWTH FUND since its inception in December 1993 and co-managed the MID CAP
GROWTH FUND since February 1999. For two years prior to joining Strong, he was
a principal and portfolio manager with RCM Capital Management. For
approximately three years prior to that, he was a portfolio manager at Kemper
Financial Services. Mr. Ognar began his investment career in 1968 at LaSalle
National Bank after serving two years in the U.S. Army. He received his
bachelors degree in Accounting from the University of Illinois in 1968.
CHARLES A. PAQUELET co-manages the DISCOVERY FUND. He has over ten years of
investment experience and is a Chartered Financial Analyst. He joined Strong
as a securities analyst in 1989. Since 1990, he has been a portfolio manager of
separate accounts and accounts of institutional investors. Mr. Paquelet has
co-managed the DISCOVERY FUND since August 1996. Prior to joining Strong, he
was a financial analyst for B.F. Goodrich Company in 1987. Mr. Paquelet
received his bachelors degree in Finance from Case Western Reserve University
in 1987 and his Masters of Business Administration in Finance from Indiana
University in 1989.
SCOTT SINDELAR manages the STRATEGIC GROWTH FUND. He has over ten years of
investment experience. Mr. Sindelar joined Strong as a portfolio manager in
April 1998. He has managed the STRATEGIC GROWTH FUND since its inception in
June 1998. From 1986 to March 1998, Mr. Sindelar was employed at Mid-Continent
Capital, LLC as a Vice President and portfolio manager. From 1984 to 1986, he
worked as a Corporate Finance Officer at Northern Trust Company, and from 1980
to 1984, he worked as a Corporate Project Manager at DeKalb AgResearch, Inc.
Mr. Sindelar received his bachelors degree in Management from Indiana
University in 1979 and his Masters of Management degree in Finance from the
Kellogg Graduate School of Management at Northwestern University in 1980.
RICHARD S. STRONG co-manages the DISCOVERY FUND. Mr. Strong founded Strong in
1974 and has over 30 years of investment experience. Mr. Strong has managed or
co-managed the DISCOVERY FUND since its inception in December 1987. He began
his investment career at Employers Insurance of Wausau in 1966. Mr. Strong
received his bachelors degree in History from Baldwin-Wallace College in 1963
and his Masters of Business Administration in Finance from the University of
Wisconsin
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Madison in 1966. In addition to his role as a portfolio manager, he is the
Chairman of the Board, Director, Chief Investment Officer, and a member of
Strong's Executive Committee.
RICHARD T. WEISS manages the COMMON STOCK FUND and the OPPORTUNITY FUND. He has
over 25 years of investment experience and has managed the COMMON STOCK FUND
and the OPPORTUNITY FUND since March 1991. Mr. Weiss joined Strong as a
portfolio manager in March 1991 from Stein Roe & Farnham, where he began his
career as a research analyst in 1975. He was named a portfolio manager in 1981.
Mr. Weiss received his bachelors degree in Business Administration from the
University of Southern California in 1973 and his Masters of Business
Administration in Business from Harvard Graduate School of Business
Administration in 1975. In addition, Mr. Weiss is a member of Strong's
Executive Committee.
OTHER IMPORTANT INFORMATION YOU SHOULD KNOW
To a limited extent, a fund may participate in the initial public offering
(IPO) market. IPOs may significantly increase a fund's total returns during
any period that the fund has a small asset base. As a fund's assets grow, any
impact of IPO investments on the fund's total return may decline.
FINANCIAL HIGHLIGHTS
This information describes investment performance of the Investor Class shares
of the funds for the periods shown. Certain information reflects financial
results for a single Investor Class share. "Total Return" shows how much your
investment in the Investor Class shares of the fund would have increased (or
decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been audited by PricewaterhouseCoopers LLP,
whose report, along with the fund's financial statements, is included in the
fund's annual report.
<TABLE>
<CAPTION>
STRONG COMMON STOCK FUND - INVESTOR CLASS
<S> <C> <C> <C> <C> <C>
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
SELECTED PER-SHARE DATA(a) 1999 1998 1997 1996 1995
Net Asset Value, Beginning of Period $21.06 $21.02 $20.24 $19.77 $16.74
Income From Investment Operations:
Net Investment Income (Loss) (0.01) 0.00(b) 0.01 0.06 0.11
Net Realized and Unrealized Gains
on Investments 8.19 1.36 4.67 3.87 5.25
Total from Investment Operations 8.18 1.36 4.68 3.93 5.36
Less Distributions:
From Net Investment Income - - (0.01) (0.06) (0.10)
In Excess of Net Investment Income - - (0.03) (0.05) (0.02)
From Net Realized Gains (4.03) (1.32) (3.86) (3.35) (2.21)
Total Distributions (4.03) (1.32) (3.90) (3.46) (2.33)
Net Asset Value, End of Period $25.21 $21.06 $21.02 $20.24 $19.77
RATIOS AND SUPPLEMENTAL DATA
Total Return +40.4% +6.6% +24.0% +20.5% +32.4%
Net Assets, End of Period (In Millions) $1,733 $1,440 $1,565 $1,244 $1,061
Ratio of Expenses to Average Net Assets 1.2% 1.2% 1.2% 1.2% 1.2%
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.1%) 0.0%(b) 0.0%(b) 0.3% 0.5%
Portfolio Turnover Rate 80.1% 102.6% 117.3% 90.9% 91.5%
</TABLE>
(a) Information presented relates to a share of capital stock of the
fund outstanding for the entire period.
(b) Amount calculated is less than $0.01 or 0.1%.
<TABLE>
<CAPTION>
STRONG DISCOVERY FUND- INVESTOR CLASS
<S> <C> <C> <C> <C> <C>
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
SELECTED PER-SHARE DATA(a) 1999 1998 1997 1996 1995
Net Asset Value, Beginning of Period $17.95 $17.00 $17.45 $18.96 $15.67
Income From Investment Operations:
Net Investment Loss (0.17) (0.07) (0.16) (0.15) (0.05)
Net Realized and Unrealized Gains
on Investments 1.08 1.26 2.00 0.35 5.48
Total from Investment Operations 0.91 1.19 1.84 0.20 5.43
Less Distributions:
In Excess of Net Investment Income - - - (1.12) (0.10)
From Net Realized Gains (0.22) (0.24) (1.90) (0.59) (2.04)
In Excess of Net Realized Gains - - (0.39) - -
Total Distributions (0.22) (0.24) (2.29) (1.71) (2.14)
Net Asset Value, End of Period $18.64 $17.95 $17.00 $17.45 $18.96
RATIOS AND SUPPLEMENTAL DATA
Total Return +5.3% +7.0% +10.9% +1.5% +34.8%
Net Assets, End of Period (In Millions) $187 $322 $383 $514 $599
Ratio of Expenses to Average Net Assets 1.4% 1.3% 1.4% 1.4% 1.4%
Ratio of Net Investment Loss to
Average Net Assets (0.7%) (0.4%) (0.9%) (0.3%) (0.4%)
Portfolio Turnover Rate 214.0% 185.9% 169.9% 792.8% 516.0%
</TABLE>
(a) Information presented relates to a share of capital stock of the
fund outstanding for the entire period.
<TABLE>
<CAPTION>
STRONG GROWTH FUND - INVESTOR CLASS
<S> <C> <C> <C> <C> <C>
Dec.31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
SELECTED PER-SHARE DATA(a) 1999 1998 1997 1996 1995
Net Asset Value, Beginning of Period $23.25 $18.31 $18.50 $15.88 $11.61
Income From Investment Operations:
Net Investment Loss (0.18) (0.13) (0.08) (0.03) (0.04)
Net Realized and Unrealized Gains
on Investments 17.08 5.07 3.41 3.13 4.79
Total from Investment Operations 16.90 4.94 3.33 3.10 4.75
Less Distributions:
In Excess of Net Investment Income - - - (0.02) (0.03)
From Net Realized Gains (4.49) (0.00)(b) (2.70) (0.46) (0.16)
In Excess of Net Realized Gains - - (0.82) - (0.29)
Total Distributions (4.49) (0.00)(b) (3.52) (0.48) (0.48)
Net Asset Value, End of Period $35.66 $23.25 $18.31 $18.50 $15.88
RATIOS AND SUPPLEMENTAL DATA
Total Return +75.1% +27.0% +19.1% +19.5% +41.0%
Net Assets, End of Period (In Millions)$3,354 $1,835 $1,597 $1,308 $643
Ratio of Expenses to Average Net Assets 1.2% 1.3% 1.3% 1.3% 1.4%
Ratio of Net Investment Loss to
Average Net Assets (0.8%) (0.7%) (0.5%) (0.2%) (0.5%)
Portfolio Turnover Rate 324.0% 248.6% 295.7% 294.9% 321.2%
</TABLE>
(a) Information presented relates to a share of capital stock of the
fund outstanding for the entire period.
(b) Amount calculated is less than $0.01.
STRONG MID CAP DISCIPLINED FUND - INVESTOR CLASS
Dec. 31,
SELECTED PER-SHARE DATA(a) 1999
Net Asset Value, Beginning of Period $10.00
Income From Investment Operations:
Net Investment Loss (0.10)
Net Realized and Unrealized Gains on Investments 3.62
Total from Investment Operations 3.52
Less Distributions:
From Net Investment Income -
Total Distributions -
Net Asset Value, End of Period $13.52
RATIOS AND SUPPLEMENTAL DATA
Total Return +35.2%
Net Assets, End of Period (In Millions) $6
Ratio of Expenses to Average Net Assets 2.0%
Ratio of Net Investment Loss to Average Net Assets (0.9%)
Portfolio Turnover Rate 245.7%
(a) Information presented relates to a share of capital stock of the
fund outstanding for the entire period.
STRONG MID CAP GROWTH FUND - INVESTOR CLASS
Dec. 31, Dec. 31, Dec. 31,
SELECTED PER-SHARE DATA(a) 1999 1998 1997
Net Asset Value, Beginning of Period $13.03 $11.38 $10.00
Income From Investment Operations:
Net Investment Loss (0.12) (0.12) (0.09)
Net Realized and Unrealized Gains
on Investments 12.08 1.77 1.47
Total from Investment Operations 11.96 1.65 1.38
Less Distributions:
From Net Realized Gains (1.74) - -
Total Distributions (1.74) - -
Net Asset Value, End of Period $23.25 $13.03 $11.38
RATIOS AND SUPPLEMENTAL DATA
Total Return +92.0% +14.5% +13.9%
Net Assets, End of Period (In Millions) $65 $19 $16
Ratio of Expenses to Average Net Assets 1.6% 1.7% 1.6%
Ratio of Net Investment Loss to Average
Net Assets (1.1%) (0.9%) (0.9%)
Portfolio Turnover Rate 681.0% 206.9% 305.2%
(a) Information presented relates to a share of capital stock of the
fund outstanding for the entire period.
<TABLE>
<CAPTION>
STRONG OPPORTUNITY FUND - INVESTOR CLASS
<S> <C> <C> <C> <C> <C>
Dec. 31, Dec. 31, Dec.31, Dec. 31, Dec. 31,
SELECTED PER-SHARE DATA(a) 1999 1998 1997 1996 1995
Net Asset Value, Beginning of Period $38.62 $37.41 $35.26 $33.35 $27.71
Income From Investment Operations:
Net Investment Income 0.08 0.05 0.10 0.20 0.20
Net Realized and Unrealized Gains
on Investments 12.42 5.68 7.90 5.78 7.28
Total from Investment Operations 12.50 5.73 8.00 5.98 7.48
Less Distributions:
From Net Investment Income (0.08) (0.05) (0.10) (0.20) (0.20)
In Excess of Net Investment Income - - - (0.05) (0.01)
From Net Realized Gains (6.35) (4.47) (5.75) (3.82) (1.63)
Total Distributions (6.43) (4.52) (5.85) (4.07) (1.84)
Net Asset Value, End of Period $44.69 $38.62 $37.41 $35.26 $33.35
RATIOS AND SUPPLEMENTAL DATA
Total Return +33.4% +15.5% +23.5% +18.1% +27.3%
Net Assets, End of Period (In Millions)$2,537 $2,038 $1,925 $1,770 $1,328
Ratio of Expenses to Average Net Assets 1.2% 1.2% 1.2% 1.3% 1.3%
Ratio of Net Investment Income to
Average Net Assets 0.2% 0.2% 0.3% 0.6% 0.7%
Portfolio Turnover Rate 80.8% 86.0% 93.7% 103.3% 92.5%
</TABLE>
(a) Information presented relates to a share of capital stock of the
fund outstanding for the entire period.
STRONG STRATEGIC GROWTH FUND- INVESTOR CLASS
Dec. 31, Dec. 31,
SELECTED PER-SHARE DATA(a) 1999 1998(b)
Net Asset Value, Beginning of Period $11.25 $10.00
Income From Investment Operations:
Net Investment Loss (0.11) (0.03)
Net Realized and Unrealized Gains on Investments 3.41 1.28
Total from Investment Operations 3.30 1.25
Less Distributions:
From Net Realized Gains (0.70) -
Total Distributions (0.70) -
Net Asset Value, End of Period $13.85 $11.25
RATIOS AND SUPPLEMENTAL DATA
Total Return +29.4% +12.5%
Net Assets, End of Period (In Millions) $5 $3
Ratio of Expenses to Average Net Assets 2.0% 2.0%*
Ratio of Net Investment Loss to Average Net Assets (1.1%) (0.5%)*
Portfolio Turnover Rate 178.4% 59.7%
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the
fund outstanding for the entire period.
(b) For the period from June 30, 1998 (inception) to December 31, 1998.
9
<PAGE>
YOUR ACCOUNT
SHARE PRICE
Your transaction price for buying, selling, or exchanging shares of the funds
or specific classes of the funds is the net asset value per share (NAV) for
that fund or class of shares. NAV is generally calculated as of the close of
trading on the New York Stock Exchange (usually 3:00 p.m. Central Time) every
day the NYSE is open. If the NYSE closes at any other time, or if an emergency
exists, NAV may be calculated at a different time. Your share price will be
the next NAV calculated after we accept your order.
NAV is based on the market value of the securities in a fund's portfolio. If
market prices are not available, NAV is based on a security's fair value as
determined in good faith by us under the supervision of the Board of Directors
of the Strong Funds.
((Side Box))
<TABLE>
<S> <C>
We determine the share price or NAV of a fund or class by
dividing net assets attributable to the fund or class (the value of
the investments, cash, and other assets attributable to the fund or
class minus the liabilities attributable to the fund or class) by the
number of fund or class shares outstanding.
- ---------------------------------------------------------------------
</TABLE>
FOREIGN SECURITIES
Some of the fund's portfolio securities may be listed on foreign exchanges that
trade on days when we do not calculate an NAV. As a result, the fund's NAV may
change on days when you will not be able to purchase or redeem shares. In
addition, a foreign exchange may not value its listed securities at the same
time that we calculate a fund's NAV. Events affecting the values of portfolio
securities that occur between the time a foreign exchange assigns a price to
the portfolio securities and the time when we calculate a fund's NAV generally
will not be reflected in the fund's NAV. These events will be reflected in the
fund's NAV when we, under the supervision of the Board of Directors of the
Strong Funds, determine that they would have a material effect on the fund's
NAV.
BUYING SHARES
INVESTMENT MINIMUMS: When buying shares, you must meet the following investment
minimum requirements.
<TABLE>
<CAPTION>
<S> <C> <C>
INITIAL INVESTMENT MINIMUM ADDITIONAL INVESTMENT MINIMUM
- -------------------------------------- ----------------------------------- -----------------------------------
Regular accounts $2,500 $50
- -------------------------------------- ----------------------------------- -----------------------------------
Education IRA accounts $500 $50
- -------------------------------------- ----------------------------------- -----------------------------------
Other IRAs and UGMA/UTMA accounts $250 $50
- -------------------------------------- ----------------------------------- -----------------------------------
SIMPLE IRA, SEP-IRA, 403(b)(7), Keogh, the lesser of $250 or $25 per month $50
Pension Plan, and Profit Sharing Plan
accounts
- -------------------------------------- ----------------------------------- -----------------------------------
</TABLE>
PLEASE REMEMBER ...
- - If you use an Automatic Investment Plan, we waive the initial investment
minimum to open an account and the additional investment minimum is $50.
- - You cannot use an Automatic Investment Plan with an Education IRA.
- - If you open a qualified retirement plan account where we or one of our
alliance partners provides administrative services, there is no initial
investment minimum.
10
<PAGE>
MULTIPLE CLASS PLAN
Each fund has adopted a multiple class plan which currently permits the GROWTH
FUND to offer Investor Class shares, Advisor Class shares, and Institutional
Class shares; the OPPORTUNITY FUND to offer Investor Class shares and Advisor
Class shares; and the COMMON STOCK FUND, the DISCOVERY FUND, the MID CAP
DISCIPLINED FUND, the MID CAP GROWTH FUND, and the STRATEGIC GROWTH FUND to
offer Investor Class shares. Each class is offered at its net asset value and
is subject to fees and expenses which may differ between classes. The
principal differences between each of the classes of shares are that the
Advisor Class shares are subject to a front-end sales load and distribution
fees and expenses under a 12b-1 plan, and each class of shares is subject to
different administrative and transfer agency fees and expenses.
COMMON STOCK FUND CLOSED TO NEW INVESTORS
The COMMON STOCK FUND is closed to new investors, however, the fund may
continue to offer its shares through company-sponsored retirement plans (such
as 401(k) plans) and in other limited circumstances. Current shareholders may
continue to add to their accounts and open new accounts in the fund. Although
the fund may resume sales to new investors in the future, currently, there are
no plans to do so.
BUYING INSTRUCTIONS
You can buy shares in several ways.
MAIL
You can open or add to an account by mail with a check made payable to Strong.
Send it to the address listed on the back of this prospectus, along with your
account application (for a new account) or an Additional Investment Form (for
an existing account).
EXCHANGE OPTION
Sign up for the exchange option when you open your account. To add this
option to an existing account, visit the Investor Services area at
WWW.ESTRONG.COM or call 800-368-3863 for a Shareholder Account Options Form.
((Side Box))
QUESTIONS?
Call 800-368-3863
24 hours a day
7 days a week
EXPRESS PURCHASESM
You can make additional investments to your existing account directly from
your bank account. If you didn't establish this option when you opened your
account, visit the Investor Services area at WWW.ESTRONG.COM or call us at
800-368-3863 for a Shareholder Account Options Form.
STRONG DIRECT(R)
You can use Strong Direct(R) to add to your investment from your bank account
or to exchange shares between Strong Funds by calling 800-368-7550. See
"Services for Investors" for more information.
STRONG NETDIRECT(R)
You can use Strong netDirect(R) at WWW.ESTRONG.COM, to add to your investment
from your bank account or to exchange shares between Strong Funds. See
"Services for Investors" for more information.
INVESTOR CENTERS
You can visit our Investor Center in Menomonee Falls, Wisconsin, near
Milwaukee. Call 800-368-3863 for hours and directions, or for the location of
our other Investor Centers.
11
<PAGE>
WIRE
Call 800-368-3863 for instructions before wiring funds either to open or add
to an account. This helps to ensure that your account will be credited
promptly and correctly.
AUTOMATIC INVESTMENT SERVICES
See "Services for Investors" for detailed information on all of our automatic
investment services. You can sign up for these plans when you open your
account or you can add them later by visiting the Investor Services area at
WWW.ESTRONG.COM or by calling 800-368-3863 for the appropriate form.
BROKER-DEALER
You may purchase shares through a broker-dealer or other intermediary who may
charge you a fee. Broker-dealers, including each fund's distributor, and other
intermediaries may also from time to time sponsor or participate in promotional
programs pursuant to which investors receive incentives for establishing with
the broker-dealer or intermediary an account and/or for purchasing shares of
the Strong Funds through the account(s). Investors should contact the
broker-dealer or intermediary and consult the Statement of Additional
Information for more information about promotional programs.
PLEASE REMEMBER . . .
We only accept checks payable to Strong.
- - We do not accept cash, third-party checks, credit card convenience checks, or
checks drawn on banks outside the U.S.
- - You will be charged $20 for every check, wire, or Electronic Funds Transfer
returned unpaid.
SELLING SHARES
You can access the money in your account by selling (also called redeeming)
some or all of your shares by one of the methods below. After your redemption
request is accepted, we normally send you the proceeds on the next business
day.
SELLING INSTRUCTIONS
You can sell shares in several ways.
MAIL
Write a letter of instruction. It should specify your account number, the
dollar amount or number of shares you wish to redeem, the names and signatures
of the owners (or other authorized persons), and your mailing address. Then,
mail it to the address listed on the back of this prospectus.
REDEMPTION OPTION
Sign up for the redemption option when you open your account or add it later
by visiting the Investor Services area at WWW.ESTRONG.COM or by calling
800-368-3863 to request a Shareholder Account Options Form. With this option,
you may sell shares by phone or via the Internet and receive the proceeds in
one of three ways:
(1) We can mail a check to your account's address. Checks will not be
forwarded by the Postal Service, so please notify us if your address has
changed.
(2) We can transmit the proceeds by Electronic Funds Transfer to a
properly pre-authorized bank account. The proceeds usually will arrive at
your bank two banking days after we process your redemption.
(3) For a $10 fee, we can transmit the proceeds by wire to a properly
pre-authorized bank account. The proceeds usually will arrive at your bank the
first banking day after we process your redemption.
11
<PAGE>
STRONG DIRECT(R)
You can redeem shares through Strong Direct(R) at 800-368-7550. See "Services
for Investors" for more information.
STRONG NETDIRECT(R)
You can use Strong netDirect(R) at WWW.ESTRONG.COM, to redeem shares. See
"Services for Investors" for more information.
INVESTOR CENTERS
You can visit our Investor Center in Menomonee Falls, Wisconsin, near
Milwaukee. Call 800-368-3863 for hours and directions, or for the location of
our other Investor Centers.
AUTOMATIC INVESTMENT SERVICES
You can set up automatic withdrawals from your account at regular intervals.
See "Services for Investors" for detailed information on all of our automatic
investment services. You can sign up for these plans when you open your
account, or you can add them later by visiting the Investor Services area at
WWW.ESTRONG.COM or by calling 800-368-3863 for the appropriate form.
BROKER-DEALER
You may sell shares through a broker-dealer or other intermediary who may
charge you a fee.
PLEASE REMEMBER ...
- - If you recently purchased shares, a redemption request on those shares
generally will not be honored until 10 days after we receive the purchase
check or electronic transaction.
- - Some transactions and requests require a signature guarantee.
- - If you are selling shares you hold in certificate form, you must submit the
certificates with your redemption request. Each registered owner must sign
the certificates and all signatures must be guaranteed.
- - With an IRA (or other retirement account), you will be charged (1) a $10
annual account maintenance fee for each account up to a maximum of $30 and
(2) a $50 fee for transferring assets to another custodian or for closing an
account.
- - If you sell shares out of a non-IRA retirement account and you are eligible
to roll the sale proceeds into another retirement plan, we will withhold for
federal income tax purposes a portion of the sale proceeds unless you
transfer all of the proceeds to an eligible retirement plan.
((Side Box))
<TABLE>
<CAPTION>
<S> <C>
There may be special distribution requirements that
apply to retirement accounts. For instructions on:
- -Roth and Traditional IRA accounts, call
800-368-3863, and
- -SIMPLE IRA, SEP-IRA, 403(b)(7), Keogh,
Pension Plan, Profit Sharing Plan, or 401(k) Plan
accounts, call 800-368-2882.
- ---------------------------------------------------
</TABLE>
((Side Box))
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE GUARANTEES help ensure that major
transactions or changes to your account are in fact
authorized by you. For example, we require a signature
guarantee on written redemption requests for more than
$50,000. You can obtain a signature guarantee for a
nominal fee from most banks, brokerage firms, and
other financial institutions. A notary public stamp or
seal cannot be substituted for a signature guarantee.
- --------------------------------------------------------
</TABLE>
12
<PAGE>
ADDITIONAL POLICIES
TELEPHONE AND INTERNET TRANSACTIONS
We use reasonable procedures to confirm that telephone and Internet transaction
requests are genuine. We may be responsible if we do not follow these
procedures. You are responsible for losses resulting from fraudulent or
unauthorized instructions received over the telephone or by computer, provided
we reasonably believe the instructions were genuine. To safeguard your account,
please keep your Strong Direct(R) and Strong netDirect(R) passwords
confidential. Contact us immediately if you believe there is a discrepancy
between a transaction you performed and the confirmation statement you
received, or if you believe someone has obtained unauthorized access to your
account or password.
During times of unusual market activity, our phones may be busy and you may
experience a delay placing a telephone request. During these times, consider
trying Strong Direct(R), our 24-hour automated telephone system, by calling
800-368-7550, or Strong netDirect(R), our on-line transaction center, by
visiting WWW.ESTRONG.COM. Please remember that you must have telephone
redemption as an option on your account to redeem shares through Strong
Direct(R) or Strong netDirect(R).
INVESTING THROUGH A THIRD PARTY
If you invest through a third party (rather than directly with Strong), the
policies and fees may be different than described in this prospectus. Banks,
brokers, 401(k) plans, financial advisors, and financial supermarkets may
charge transaction fees and may set different minimum investments or
limitations on buying or selling shares. Consult a representative of your
plan or financial institution if you are not sure.
PURCHASES IN KIND
You may, if we approve, purchase shares of the fund with securities that are
eligible for purchase by the fund (consistent with the fund's investment
restrictions, policies, and goal) and that have a value that is readily
ascertainable in accordance with the fund's valuation policies.
LOW BALANCE ACCOUNT FEE
Because of the high cost of maintaining small accounts, an annual low balance
account fee of $10 (or the value of the account if the account value is less
than $10) will be charged to all accounts that fail to meet the initial
investment minimum. The fee, which is payable to the transfer agent, will not
apply to (1) any retirement accounts, (2) accounts with an automatic investment
plan (unless regular investments have been discontinued), or (3) shareholders
whose combined Strong Funds assets total $100,000 or more. We may waive the
fee, in our discretion, in the event that a significant market correction
lowers an account balance below the account's initial investment minimum. The
effective date of this policy is September 1, 2000.
VERIFICATION OF ACCOUNT STATEMENTS
You should contact Strong in writing regarding any errors or discrepancies
within 45 days after the date of the statement confirming a transaction. The
statement will be deemed correct if we do not hear from you within those 45
days.
DISTRIBUTIONS
DISTRIBUTION POLICY
The fund generally pays you dividends from net investment income and
distributes any net capital gains that it realizes annually.
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Your dividends and capital gain distributions will be automatically reinvested
in additional shares, unless you choose otherwise. Your other options are to
receive checks for these payments, have them automatically invested in another
Strong Fund, or have them deposited into your bank account. To change the
current option for payment of dividends and capital gain distributions, please
call 800-368-3863.
TAXES
14
<PAGE>
TAXABLE DISTRIBUTIONS
Any net investment income and net short-term capital gain distributions you
receive are taxable as ordinary dividend income at your income tax rate.
Distributions of net capital gains are generally taxable as long-term capital
gains. This is generally true no matter how long you have owned your shares
and whether you reinvest your distributions or take them in cash. You may
also have to pay taxes when you exchange or sell shares if your shares have
increased in value since you bought them.
((Side Box))
<TABLE>
<CAPTION>
<S> <C>
Generally, if your investment is in a Traditional IRA or
other TAX-DEFERRED ACCOUNT, your dividends and
distributions will not be taxed at the time they are paid,
but instead at the time you withdraw them from your
account.
- ----------------------------------------------------------
</TABLE>
RETURN OF CAPITAL
If your fund's (1) income distributions exceed its net investment income and
net short-term capital gains or (2) capital gain distributions exceed its net
capital gains in any year, all or a portion of those distributions may be
treated as a return of capital to you. Although a return of capital is not
taxed, it will reduce the cost basis of your shares.
YEAR-END STATEMENT
To assist you in tax preparation, after the end of each calendar year, we send
you a statement of your fund's ordinary dividends and net capital gain
distributions (Form 1099).
BACKUP WITHHOLDING
By law, we must withhold 31% of your distributions and proceeds if (1) you are
subject to backup withholding or (2) you have not provided us with complete
and correct taxpayer information such as your Social Security Number (SSN) or
Tax Identification Number (TIN).
((Side Box))
<TABLE>
<CAPTION>
<S> <C>
Unless your investment is in a tax-deferred retirement
account such as an IRA, YOU MAY WANT TO AVOID:
- -Investing a large amount in a fund close to the end of
the calendar year. If the fund makes a capital gain
distribution, you may receive some of your
investment back as a taxable distribution.
- -Selling shares of a mutual fund at a loss and then
investing in the same fund within 30 days before or
after the sale. This is called a wash sale and you will
not be allowed to claim a tax loss on the transaction.
- ---------------------------------------------------------
</TABLE>
((Side Box))
<TABLE>
<CAPTION>
<S> <C>
COST BASIS is the amount that you paid for the shares.
When you sell shares, you subtract the cost basis from the
sale proceeds to determine whether you realized an
investment gain or loss. For example, if you bought a
share of a fund at $10 and you sold it two years later at
$11, your cost basis on the share is $10 and your gain is
$1.
- ----------------------------------------------------------
</TABLE>
15
<PAGE>
Because everyone's tax situation is unique, you should consult your tax
professional for assistance.
SERVICES FOR INVESTORS
Strong provides you with a variety of services to help you manage your
investment. For more details, call 800-368-3863, 24 hours a day, 7 days a
week. These services include:
STRONG DIRECT(R) AUTOMATED TELEPHONE SYSTEM
Our 24-hour automated response system enables you to use a touch-tone phone to
access current share prices (800-368-3550), to access fund and account
information (800-368-5550), and to make purchases, exchanges, or redemptions
among your existing accounts if you have elected these services
(800-368-7550). Passwords help to protect your account information.
ESTRONG.COM
Visit us on-line at WWW.ESTRONG.COM to access your fund's performance and
portfolio holding information. In addition to general information about
investing, our web site offers daily performance information, portfolio
manager commentaries, and information on available account options.
STRONG NETDIRECT(R)
If you are a shareholder, you may use Strong netDirect(R) to access your
account information 24 hours a day from your personal computer. Strong
netDirect(R) allows you to view account history, account balances, and recent
dividend activity, as well as to make purchases, exchanges, or redemptions
among your existing accounts if you have elected these services. Encryption
technology and passwords help to protect your account information. You may
register to use Strong netDirect(R) at WWW.ESTRONG.COM.
STRONGMAIL
If you register for StrongMail at WWW.STRONGMAIL.COM, you will receive your
fund's closing price by e-mail each business day. In addition, StrongMail
offers market news and updates throughout the day.
STRONG EXCHANGE OPTION
You may exchange shares of a fund for shares of another Strong Fund, either in
writing, by telephone, or through your personal computer, if the accounts are
identically registered (with the same name, address, and taxpayer
identification number). Please ask us for the appropriate prospectus and read
it before investing in any of the Strong Funds. Remember, an exchange of
shares of one Strong Fund for those of another Strong Fund is considered a
sale and a purchase of shares for tax purposes and may result in a capital
gain or loss. Some Strong Funds that you may want to exchange into may charge
a redemption fee of 0.50% to 1.00% on the sale of shares held for less than
six months. Purchases by exchange are subject to the investment requirements
and other criteria of the fund purchased.
STRONG AUTOMATIC INVESTMENT SERVICES
You may invest or redeem automatically in the following ways, some of which
may be subject to additional restrictions or conditions.
AUTOMATIC INVESTMENT PLAN (AIP)
This plan allows you to make regular, automatic investments from your bank
checking or savings account.
AUTOMATIC EXCHANGE PLAN
This plan allows you to make regular, automatic exchanges from one eligible
Strong Fund to another.
AUTOMATIC DIVIDEND REINVESTMENT
15
<PAGE>
Your dividends and capital gains will be automatically reinvested in
additional shares, unless you choose otherwise. Your other options are to
receive checks for these payments, have them automatically invested in another
Strong Fund, or have them deposited into your bank account.
NO-MINIMUM INVESTMENT PLAN
This plan allows you to invest without meeting the minimum initial investment
requirements if you invest monthly and you participate in the AIP, Automatic
Exchange Plan, or Payroll Direct Deposit Plan.
PAYROLL DIRECT DEPOSIT PLAN
This plan allows you to send all or a portion of your paycheck, social
security check, military allotment, or annuity payment to the Strong Funds of
your choice.
SYSTEMATIC WITHDRAWAL PLAN
This plan allows you to redeem a fixed sum from your account on a regular
basis. Payments may be sent electronically to a bank account or as a check to
you or anyone you properly designate.
STRONG RETIREMENT PLAN SERVICES
We offer a wide variety of retirement plans for individuals and institutions,
including large and small businesses. For information on:
- - INDIVIDUAL RETIREMENT PLANS, including Traditional IRAs and Roth IRAs, call
800-368-3863.
- - QUALIFIED RETIREMENT PLANS, including SIMPLE IRAs, SEP-IRAs, 403(b)(7)s,
Keoghs, Pension Plans, Profit Sharing Plans, and 401(k) Plans, call
800-368-2882.
SOME OF THESE SERVICES MAY BE SUBJECT TO ADDITIONAL RESTRICTIONS OR
CONDITIONS. CALL 800-368-3863 FOR MORE INFORMATION.
RESERVED RIGHTS
We reserve the right to:
- - Refuse, change, discontinue, or temporarily suspend account services,
including purchase, exchange, or telephone and Strong netDirect(R) redemption
privileges, for any reason.
- - Reject any purchase request for any reason including exchanges from other
Strong Funds. Generally, we do this if the purchase or exchange is
disruptive to the efficient management of a fund (due to the timing of the
investment or an investor's history of excessive trading).
- - Change the minimum or maximum investment amounts.
- - Delay sending out redemption proceeds for up to seven days (this generally
only applies to very large redemptions without notice, excessive trading, or
during unusual market conditions).
- - Suspend redemptions or postpone payments when the NYSE is closed for any
reason other than its usual weekend or holiday closings, when trading is
restricted by the SEC, or under any emergency circumstances.
- - Make a redemption-in-kind (a payment in portfolio securities rather than
cash) if the amount you are redeeming is in excess of the lesser of (1)
$250,000 or (2) 1% of the fund's assets. Generally, redemption-in-kind is
used when large redemption requests may cause harm to the fund and its
shareholders.
- - Close any account that does not meet minimum investment requirements. We
will give you notice and 60 days to begin an automatic investment program or
to increase your balance to the required minimum. We may waive the minimum
initial investment at our discretion.
16
<PAGE>
- - Reject any purchase or redemption request that does not contain all required
documentation.
FOR MORE INFORMATION
More information is available upon request at no charge, including:
SHAREHOLDER REPORTS: Additional information is available in the annual and
semi-annual report to shareholders. These reports contain a letter from
management, discuss recent market conditions, economic trends and investment
strategies that significantly affected your investment's performance during the
last fiscal year, and list portfolio holdings.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI contains more details about
investment policies and techniques. A current SAI is on file with the SEC and
is incorporated into this prospectus by reference. This means that the SAI is
legally considered a part of this prospectus even though it is not physically
contained within this prospectus.
To request information or to ask questions:
BY TELEPHONE FOR HEARING-IMPAIRED (TDD)
414-359-1400 or 800-368-3863 800-999-2780
BY MAIL BY OVERNIGHT DELIVERY
Strong Funds Strong Funds
P.O. Box 2936 900 Heritage Reserve
Milwaukee, WI 53201-2936 Menomonee Falls, WI 53051
ON THE INTERNET BY E-MAIL
View on-line or download documents: [email protected]
Strong Funds: WWW.ESTRONG.COM
SEC*: www.sec.gov
To reduce the volume of mail you receive, only one copy of financial reports,
prospectuses, and other regulatory materials is mailed to your household. You
can call us at 800-368-3863, or write to us at the address listed above, to
request (1) additional copies free of charge, or (2) that we discontinue our
practice of householding regulatory materials.
This prospectus is not an offer to sell securities in places other than the
United States and its territories.
*INFORMATION ABOUT A FUND (INCLUDING THE SAI) CAN ALSO BE REVIEWED AND COPIED
AT THE SECURITIES AND EXCHANGE COMMISSION'S PUBLIC REFERENCE ROOM IN
WASHINGTON, D.C. YOU MAY CALL THE COMMISSION AT 202-942-8090 FOR INFORMATION
ABOUT THE OPERATION OF THE PUBLIC REFERENCE ROOM. REPORTS AND OTHER
INFORMATION ABOUT A FUND ARE ALSO AVAILABLE FROM THE EDGAR DATABASE ON THE
COMMISSION'S INTERNET SITE AT WWW.SEC.GOV. YOU MAY OBTAIN A COPY OF THIS
INFORMATION, AFTER PAYING A DUPLICATING FEE, BY SENDING A WRITTEN REQUEST TO
THE COMMISSION'S PUBLIC REFERENCE SECTION, WASHINGTON, D.C. 20549-0102, OR BY
SENDING AN ELECTRONIC REQUEST TO THE FOLLOWING E-MAIL ADDRESS:
[email protected].
Strong Common Stock Fund, Inc., SEC file number: 811-5687
Strong Discovery Fund, Inc., SEC file number: 811-5341
Strong Growth Fund, a series of Strong Equity Funds, Inc., SEC file number:
811-8100
Strong Mid Cap Disciplined Fund, a series of Strong Equity Funds, Inc., SEC
file number: 811-8100
Strong Mid Cap Growth Fund, a series of Strong Equity Funds, Inc., SEC file
number: 811-8100
Strong Opportunity Fund, a series of Strong Opportunity Fund, Inc., SEC file
number: 811-3793
Strong Strategic Growth Fund, a series of Strong Equity Funds, Inc., SEC file
number: 811-8100
18
<PAGE>
[Strong logo and picture of man and two children fishing]
prospectus
THE STRONG EQUITY FUNDS
advisor class
May 1, 2000
The Strong Enterprise Fund
The Strong Growth Fund
The Strong Growth 20 Fund
The Strong Opportunity Fund
THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED OF
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
TABLE OF CONTENTS
Your Investment.................................................................
KEY INFORMATION.................................................................
What are the funds' goals?.....................................................1
What are the funds' principal investment strategies?...........................1
What are the main risks of investing in the funds?.............................3
What are the funds' fees and expenses?.........................................8
Who are the funds' investment advisor and portfolio managers?..................9
OTHER IMPORTANT INFORMATION YOU SHOULD KNOW...................................11
Financial Highlights..........................................................11
Your Account....................................................................
Distribution Fees.............................................................16
Share Price...................................................................16
Buying Shares.................................................................17
Selling Shares................................................................21
Additional Policies...........................................................22
Distributions.................................................................23
Taxes.........................................................................24
Reserved Rights...............................................................25
For More Information..................................................Back Cover
IN THIS PROSPECTUS, "WE" REFERS TO STRONG CAPITAL MANAGEMENT, INC., THE
INVESTMENT ADVISOR, ADMINISTRATOR, AND TRANSFER AGENT FOR THE STRONG FUNDS.
2
<PAGE>
YOUR INVESTMENT
KEY INFORMATION
WHAT ARE THE FUNDS' GOALS?
Each fund seeks capital growth.
WHAT ARE THE FUNDS' PRINCIPAL INVESTMENT STRATEGIES?
The ENTERPRISE FUND generally invests in stocks of small- and
medium-capitalization companies, though it may invest in companies of any size.
It focuses on companies that the manager believes are positioned for rapid
growth of revenue and earnings. The fund's manager strives to find leading
companies in rapidly growing industries such as business services, computer and
digital products, financial services, healthcare services, Internet-related
companies, medical technology, retail, and telecommunications. Companies that
have the potential for accelerated earnings growth because of management
changes, new products, or changes in the economy also may be attractive
candidates for the portfolio. To a limited extent, the fund may also invest in
foreign securities. If there is a change in the company's growth prospects or a
deterioration in the company's fundamental qualities, the manager may sell that
company's stock. The fund's active trading approach may increase the fund's
costs which may reduce the fund's performance. The fund's active trading
approach may also increase the amount of capital gains tax that you pay on the
fund's returns.
The GROWTH FUND focuses on stocks of companies that its manager believes have
favorable prospects for accelerating growth of earnings but are selling at
reasonable valuations based on earnings, cash flow, or asset value. The
portfolio can include stocks of any size. The fund writes put and call options.
This means that the fund sells an option to another party to either sell a
stock to (put) or buy a stock from (call) the fund at a predetermined price in
the future. When the fund writes put or call options, it will receive fees or
premiums but is exposed to losses due to changes in the value of the stock that
the put or call is written against. Writing options can serve as a limited or
partial hedge against adverse market movements. This is because declines in
the value of the hedged stock will be offset by the premium received for
writing the option. Whether or not this hedging strategy is successful depends
on a variety of factors, particularly the ability of the fund's manager to
predict movements of the price of the hedged stock. The manager's decision to
engage in this hedging strategy will reflect the manager's judgment that
writing an option on a stock will provide value to the fund and its
shareholders. To a limited extent, the fund may also invest in foreign
securities. The manager may sell a stock when the company's growth prospects
become less attractive. The fund's active trading approach may increase the
fund's costs which may reduce the fund's performance. The fund's active trading
approach may also increase the amount of capital gains tax that you pay on the
fund's returns.
The GROWTH 20 FUND focuses on stocks of 20 to 30 companies that its manager
believes have favorable prospects for accelerating growth of earnings but are
selling at reasonable valuations based on earnings, cash flow, or asset value.
The portfolio can include stocks of any size. The fund writes puts and call
options. This means that the fund sells an option to another party to either
sell a stock to (put) or buy a stock from (call) the fund at a predetermined
price in the future. When the fund writes put or call options, it will receive
fees or premiums but is exposed to losses due to changes in the value of the
stock that the put or call is written against. Writing options can serve as a
limited or partial hedge against adverse market movements. This is because
declines in the value of the hedged stock will be offset by the premium
received for writing the option. Whether or not this hedging strategy is
successful depends on a variety of factors, particularly the ability of the
fund's manager to predict movements of the price of the hedged stock. The
manager's decision to engage in this hedging strategy will reflect the
manager's judgment that writing an option on a stock will provide value to the
fund and its shareholders. To a limited extent, the fund may also invest in
foreign securities. The manager may sell a stock when the company's growth
prospects become less attractive. The fund's active trading approach may
increase the fund's costs which may reduce the fund's performance. The fund's
active trading approach may also increase the amount of capital gains tax that
you pay on the fund's returns.
The OPPORTUNITY FUND invests primarily in stocks of medium-capitalization
companies that the fund's manager believes are underpriced, yet have attractive
growth prospects. He bases his analysis on a company's "private market
value"-the price an investor would be willing to pay for the entire company
given its management, financial health, and growth potential. The
3
<PAGE>
manager determines a company's private market value based on a fundamental
analysis of a company's cash flows, asset valuations, competitive situation,
and franchise value. To a limited extent, the fund may also invest in foreign
securities. The manager may sell a stock when its price no longer compares
favorably with the company's private market value.
The managers of each of the funds may invest in cash or cash-type securities
(high-quality, short-term debt securities issued by corporations, financial
institutions, or the U.S. government) as a temporary defensive position to
avoid losses during adverse market conditions. The ENTERPRISE FUND, the GROWTH
FUND, and the GROWTH 20 FUND may do so without limit. The OPPORTUNITY FUND may
do so with up to 30% of its assets. Taking a temporary defensive position could
reduce the benefit to these funds if the market goes up. In this case, the
funds may not achieve their investment goals.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?
GENERAL STOCK RISKS: The major risks of each fund are those of investing in the
stock market. That means the funds may experience sudden, unpredictable
declines in value, as well as periods of poor performance. Because stock values
go up and down, the value of your fund's shares may go up and down. Therefore,
when you sell your investment, you may receive more or less money than you
originally invested.
VALUE- AND GROWTH-STYLE INVESTING: Different types of stocks tend to shift into
and out of favor with stock market investors depending on market and economic
conditions. Because each of the funds focuses on either value- or growth-style
stocks, each fund's performance may at times be better or worse than the
performance of stock funds that focus on other types of stocks or that have a
broader investment style.
WRITING OPTIONS: The GROWTH FUND and the GROWTH 20 FUND write put and call
options. The funds will receive fees for writing options but are exposed to
losses due to an adverse change in the value of the underlying asset that the
option was written against. Transactions involving written options may include
elements of leverage and could magnify a fund's losses. Using options in this
manner may reduce a fund's opportunity for investment gain. Each fund will
segregate liquid assets, such as cash, short-term debt, and other liquid
securities, in a segregated account to the extent required to cover the
financial exposure created by the use of these instruments.
FOREIGN SECURITIES: Each of the funds may invest up to 25% of their assets in
foreign securities. Foreign investments involve additional risks, including
currency-rate fluctuations, political and economic instability, differences in
financial reporting standards, and less-strict regulation of securities
markets.
SMALLER AND MEDIUM COMPANIES: Each of the funds invests a substantial portion
of its assets in the stocks of smaller-capitalization companies. Small- and
medium-capitalization companies often have narrower markets and more limited
managerial and financial resources than larger, more established companies. As
a result, their performance can be more volatile and they face greater risk of
business failure, which could increase the volatility of the funds' portfolios.
Generally, the smaller the company size, the greater these risks.
NONDIVERSIFIED PORTFOLIOS: As a nondiversified fund, the GROWTH 20 FUND takes
large positions in individual stocks. As a result, the shares of this fund are
likely to fluctuate in value more than those of a fund investing in a broader
range of securities.
Each of the funds is appropriate for investors who are comfortable with the
risks described here and whose financial goals are five or more years in the
future. The funds are not appropriate for investors concerned primarily with
principal stability.
FUND STRUCTURE
The funds offer multiple classes of shares. The GROWTH FUND offers Investor
Class shares, Advisor Class shares, and Institutional Class shares. The
ENTERPRISE FUND, the GROWTH 20 FUND, and the OPPORTUNITY FUND offer Investor
Class shares and Advisor Class shares. Only the Advisor Class shares are
offered in this prospectus. The principal differences between each of the
classes of shares are that the Advisor Class shares are subject to a front-end
sales load and distribution fees and expenses under a 12b-1 plan, and each
class of shares is subject to different administrative and transfer agency fees
and expenses. Because 12b-1 fees are paid out of the fund's assets on an
on-going basis, over time these fees will increase the cost of an investment in
Advisor Class shares and may cost more than paying other types of sales
charges.
4
<PAGE>
FUND PERFORMANCE
The return information on the following pages illustrates how the performance
of the funds' Advisor Class shares can vary, which is one indication of the
risks of investing in the funds. Performance results for Advisor Class shares,
which were first offered on February 24, 2000, are based on the historical
performance of each fund's Investor Class shares from the inception of each
fund up to February 23, 2000, recalculated to reflect the higher annual expense
ratio applicable to the Advisor Class shares. The Investor Class shares of
these funds are not offered by this prospectus. The returns for the Advisor
Class shares are substantially similar to those of the Investor Class shares
depicted on the following pages since each are invested in the same portfolio
of securities and the only differences relate to the differences in the fees
and expenses of each class of shares. Please keep in mind that the past
performance of the funds' Advisor Class shares does not represent how they will
perform in the future. The information assumes that you reinvested all
dividends and distributions.
CALENDAR YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Year Opportunity Growth Growth 20 Enterprise
- ------- ------------ --------- --------- ----------
1990 -11.6% - - -
- ------- ------------ --------- --------- ----------
1991 31.4% - - -
- ------- ------------ --------- --------- ----------
1992 17.0% - - -
- ------- ------------ --------- --------- ----------
1993 20.9% - - -
- ------- ------------ --------- --------- ----------
1994 2.9% 17.0% - -
- ------- ------------ --------- --------- ----------
1995 27.0% 40.7% - -
- ------- ------------ --------- --------- ----------
1996 17.8% 19.2% - -
- ------- ------------ --------- --------- ----------
1997 23.1% 18.7% - -
- ------- ------------ --------- --------- ----------
1998 15.2% 26.7% 36.3% -
- ------- ------------ --------- --------- ----------
1999 33.1% 74.8% 109.2% 187.5%
- ------- ------------ --------- --------- ----------
</TABLE>
BEST AND WORST QUARTERLY PERFORMANCE
(DURING THE PERIODS SHOWN ABOVE)
<TABLE>
<CAPTION>
<S> <C> <C>
FUND NAME BEST QUARTER RETURN WORST QUARTER RETURN
- ------------------ ------------------- ---------------------
Enterprise 71.3% (4th Q 1999) 17.0% (1st Q 1999)
Growth 55.0% (4th Q 1999) -12.8% (3rd Q 1998)
Growth 20 64.9% (4th Q 1999) -8.0% (3rd Q 1998)
Opportunity 17.5% (4th Q 1998) -14.2% (3rd Q 1998)
</TABLE>
The bar chart does not reflect the initial sales charge which was first charged
on February 24, 2000. If it did, returns would be lower than those shown.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
AS OF 12-31-99
<S> <C> <C> <C> <C>
FUND/INDEX 1-YEAR 5-YEAR 10-YEAR SINCE INCEPTION
ENTERPRISE 170.97% - - 202.71% (9-30-98)
S&P MidCap 400 Stock Index 14.72% - - 36.15%
Lipper Mid-Cap Growth
Funds Index 73.72% - - 87.08%
GROWTH 64.71% 32.96% - 30.15% (12-31-93)
S&P 500 Stock Index 21.04% 28.56% - 23.55%
Lipper Multi-Cap Growth
Funds Index 46.35% 28.76% - 22.86%
GROWTH 20 97.18% - - 56.33% (6-30-97)
S&P 500 Stock Index 21.04% - - 24.25%
Lipper Large-Cap Growth
Funds Index 34.82% - - 32.25%
OPPORTUNITY 25.43% 21.62% 16.22% 18.68% (12-31-85)
S&P MidCap 400 Stock Index 14.72% 23.05% 17.32% 17.19%
Lipper Multi-Cap Value Funds Index 5.94% 17.82% 13.03% 13.62%
</TABLE>
THE S&P MIDCAP 400 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE
OF THE U.S. MARKET FOR MEDIUM CAPITALIZATION STOCKS. THE LIPPER MID-CAP GROWTH
FUNDS INDEX IS AN EQUALLY-WEIGHTED PERFORMANCE INDEX OF THE LARGEST QUALIFYING
FUNDS IN THIS LIPPER CATEGORY. THE S&P 500 STOCK INDEX IS AN UNMANAGED INDEX
GENERALLY REPRESENTATIVE OF THE U.S. STOCK MARKET. THE LIPPER MULTI-CAP GROWTH
FUNDS INDEX IS AN EQUALLY-WEIGHTED PERFORMANCE INDEX OF THE LARGEST QUALIFYING
FUNDS IN THIS LIPPER CATEGORY. THE LIPPER LARGE-CAP GROWTH FUNDS INDEX IS AN
EQUALLY-WEIGHTED PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS IN THIS
LIPPER CATEGORY. THE LIPPER MULTI-CAP VALUE FUNDS INDEX IS AN EQUALLY-WEIGHTED
PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS IN THIS LIPPER CATEGORY.
Unlike the bar chart, the performance table reflects the impact of the maximum
initial sales charge which was first charged on February 24, 2000. No sales
charge is imposed on reinvested dividends and distributions.
Recent returns of the ENTERPRISE FUND, the GROWTH FUND, and the GROWTH 20 FUND
were primarily achieved during favorable conditions in the market, particularly
for technology companies. You should not expect that such favorable returns can
be consistently achieved.
WHAT ARE THE FUNDS' FEES AND EXPENSES?
This section describes the fees and expenses that you may pay if you buy and
hold shares of the funds.
SHAREHOLDER FEES
(fees paid directly from your investment)
<TABLE>
<CAPTION>
<S> <C>
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON
FUND PURCHASES (AS A PERCENTAGE OF OFFERING PRICE)
Enterprise 5.75%
Growth 5.75%
Growth 20 5.75%
Opportunity 5.75%
</TABLE>
You may not have to pay the maximum sales charge because waivers and reduced
sales charges are available. Call 800-368-1683 for more information.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets)
The costs of operating the funds are deducted from fund assets, which means you
pay them indirectly. These costs are deducted before computing the daily share
price or making distributions. As a result, they don't appear on your account
statement, but instead reduce the total return you receive from your fund
investment.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENT OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
MANAGEMENT OTHER TOTAL ANNUAL FUND
FUND FEES 12B-1 FEES EXPENSES* OPERATING EXPENSES
- ------------ ------------ ------------ ------------ ------------------
Enterprise 0.75% 0.25% 0.49% 1.49%
Growth 0.75% 0.25% 0.49% 1.49%
Growth 20 0.75% 0.25% 0.51% 1.51%
Opportunity 0.75% 0.25% 0.49% 1.49%
</TABLE>
6
<PAGE>
*THE EXPENSE INFORMATION HAS BEEN RESTATED TO REFLECT CURRENT FEES.
EXAMPLE: This example is intended to help you compare the cost of investing in
the funds with the cost of investing in other mutual funds. The maximum initial
sales charge imposed on purchases of Advisor Class shares is reflected in this
example. The example assumes that you invest $10,000 in the funds and reinvest
all dividends and distributions for the time periods indicated, and then redeem
all of your shares at the end of those periods. The example also assumes that
your investment has a 5% return each year and that the funds' operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Enterprise $718 $1,019 $1,341 $2,252
Growth $718 $1,019 $1,341 $2,252
Growth 20 $720 $1,025 $1,351 $2,273
Opportunity $718 $1,019 $1,341 $2,252
</TABLE>
WHO ARE THE FUNDS' INVESTMENT ADVISOR AND PORTFOLIO MANAGERS?
Strong Capital Management, Inc. (Strong) is the investment advisor for the
funds. Strong provides investment management services for mutual funds and
other investment portfolios representing assets, as of March 31, 2000, of over
$45 billion. Strong began conducting business in 1974. Since then, its
principal business has been providing investment advice for individuals and
institutional accounts, such as pension and profit-sharing plans, as well as
mutual funds, several of which are available through variable insurance
products. Strong's address is P.O. Box 2936, Milwaukee, WI 53201.
The following individuals are the funds' portfolio managers.
ANDREW S. CUPPS manages the ENTERPRISE FUND. He has over eight years of
investment experience. He joined Strong as an equity portfolio manager in March
1994. Since 1994, he has been a portfolio manager of separate accounts and
accounts of institutional investors. He has managed the ENTERPRISE FUND since
its inception in September 1998. Prior to joining Strong, Mr. Cupps was
employed at Driehaus Capital Management as a research analyst from July 1992 to
March 1994. Mr. Cupps received his bachelors degree in Economics from Harvard
University in 1992.
RONALD C. OGNAR manages the GROWTH FUND and the GROWTH 20 FUND. He has over 30
years of investment experience and is a Chartered Financial Analyst. He joined
Strong as a portfolio manager in April 1993. He has managed the GROWTH FUND
since its inception in December 1993 and the GROWTH 20 FUND since its inception
in June 1997. For two years prior to joining Strong, he was a principal and
portfolio manager with RCM Capital Management. For approximately three years
prior to that, he was a portfolio manager at Kemper Financial Services. Mr.
Ognar began his investment career in 1968 at LaSalle National Bank after
serving two years in the U.S. Army. He received his bachelors degree in
Accounting from the University of Illinois in 1968.
RICHARD T. WEISS manages the OPPORTUNITY FUND. He has 25 years of investment
experience and has managed the OPPORTUNITY FUND since March 1991. Mr. Weiss
joined Strong as a portfolio manager in March 1991 from Stein Roe & Farnham,
where he began his career as a research analyst in 1975. He was named a
portfolio manager in 1981. Mr. Weiss received his bachelors degree in Business
Administration from the University of Southern California in 1973 and his
Masters of Business Administration in Business from Harvard Graduate School of
Business Administration in 1975. In addition, Mr. Weiss is a member of Strong's
Executive Committee.
OTHER IMPORTANT INFORMATION YOU SHOULD KNOW
To a limited extent, a fund may participate in the initial public offering
(IPO) market. IPOs may significantly increase a fund's total returns during any
period that the fund has a small asset base. As a fund's assets grow, any
impact of IPO investments on the fund's total return may decline.
FINANCIAL HIGHLIGHTS
This information describes investment performance of the Investor Class shares
of the fund for the periods shown. Certain information reflects financial
results for a single Investor Class share. "Total Return" shows how much an
investment in the
6
<PAGE>
Investor Class shares of the fund would have increased (or decreased) during
each period, assuming you had reinvested all dividends and distributions. The
Advisor Class shares of the fund were first offered on February 24, 2000. These
figures for the fund have been audited by PricewaterhouseCoopers LLP, whose
report, along with the fund's financial statements, is included in the fund's
annual report.
STRONG ENTERPRISE FUND - INVESTOR CLASS
Dec. 31, Dec. 31,
SELECTED PER-SHARE DATA(a) 1999 1998(b)
Net Asset Value, Beginning of Period $14.74 $10.00
Income From Investment Operations:
Net Investment Loss (0.09) (0.01)
Net Realized and Unrealized Gains on Investments 27.43 4.75
Total from Investment Operations 27.34 4.74
Less Distributions:
From Net Investment Income - -
From Net Realized Gains (0.84) (0.00)(c)
Total Distributions (0.84) (0.00)(c)
Net Asset Value, End of Period $41.24 $14.74
RATIOS AND SUPPLEMENTAL DATA
Total Return +187.8% +47.4%
Net Assets, End of Period (In Millions) $571 $11
Ratio of Expenses to Average Net Assets 1.4% 2.0%*
Ratio of Net Investment Loss to Average Net Assets (1.0%) (0.9%)*
Portfolio Turnover Rate 178.1% 95.7%
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the
fund outstanding for the entire period.
(b) For the period from September 30, 1998 (inception) to December 31,
1998.
(c) Amount calculated is less than $0.01.
<TABLE>
<CAPTION>
STRONG GROWTH FUND - INVESTOR CLASS
<S> <C> <C> <C> <C> <C>
Dec.31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
SELECTED PER-SHARE DATA(a) 1999 1998 1997 1996 1995
Net Asset Value, Beginning of Period $23.25 $18.31 $18.50 $15.88 $11.61
Income From Investment Operations:
Net Investment Loss (0.18) (0.13) (0.08) (0.03) (0.04)
Net Realized and Unrealized Gains
on Investments 17.08 5.07 3.41 3.13 4.79
Total from Investment Operations 16.90 4.94 3.33 3.10 4.75
Less Distributions:
In Excess of Net Investment Income - - - (0.02) (0.03)
From Net Realized Gains (4.49) (0.00)(b) (2.70) (0.46) (0.16)
In Excess of Net Realized Gains - - (0.82) - (0.29)
Total Distributions (4.49) (0.00)(b) (3.52) (0.48) (0.48)
Net Asset Value, End of Period $35.66 $23.25 $18.31 $18.50 $15.88
RATIOS AND SUPPLEMENTAL DATA
Total Return +75.1% +27.0% +19.1% +19.5% +41.0%
Net Assets, End of Period (In Millions)$3,354 $1,835 $1,597 $1,308 $643
Ratio of Expenses to Average Net Assets 1.2% 1.3% 1.3% 1.3% 1.4%
Ratio of Net Investment Loss to
Average Net Assets (0.8%) (0.7%) (0.5%) (0.2%) (0.5%)
Portfolio Turnover Rate 324.0% 248.6% 295.7% 294.9% 321.2%
</TABLE>
(a) Information presented relates to a share of capital stock of the
fund outstanding for the entire period.
(b) Amount calculated is less than $0.01.
STRONG GROWTH 20 FUND - INVESTOR CLASS
Dec. 31, Dec. 31, Dec. 31,
SELECTED PER-SHARE DATA(a) 1999 1998 1997(b)
Net Asset Value, Beginning of Period $15.44 $11.31 $10.00
Income From Investment Operations:
Net Investment Loss (0.08) (0.08) (0.01)
Net Realized and Unrealized Gains
on Investments 16.60 4.21 1.40
Total from Investment Operations 16.52 4.13 1.39
Less Distributions:
In Excess of Net Investment Income - (0.00)(c) (0.08)
From Net Realized Gains (1.33) - -
Total Distributions (1.33) (0.00)(c) (0.08)
Net Asset Value, End of Period $30.63 $15.44 $11.31
RATIOS AND SUPPLEMENTAL DATA
Total Return +109.5% +36.5% +13.9%
Net Assets, End of Period (In Millions) $466 $71 $60
Ratio of Expenses to Average Net Assets 1.4% 1.5% 1.4%*
Ratio of Net Investment Loss to Average
Net Assets (0.6%) (0.6%) (0.3%)*
Portfolio Turnover Rate 432.3% 541.2% 250.1%
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the
fund outstanding for the entire period.
(b) For the period from June 30, 1997 (inception) to December 31, 1997.
(c) Amount calculated is less than $0.01.
<TABLE>
<CAPTION>
STRONG OPPORTUNITY FUND - INVESTOR CLASS
<S> <C> <C> <C> <C> <C>
Dec. 31, Dec. 31, Dec.31, Dec. 31, Dec. 31,
SELECTED PER-SHARE DATA(a) 1999 1998 1997 1996 1995
Net Asset Value, Beginning of Period $38.62 $37.41 $35.26 $33.35 $27.71
Income From Investment Operations:
Net Investment Income 0.08 0.05 0.10 0.20 0.20
Net Realized and Unrealized Gains
on Investments 12.42 5.68 7.90 5.78 7.28
Total from Investment Operations 12.50 5.73 8.00 5.98 7.48
Less Distributions:
From Net Investment Income (0.08) (0.05) (0.10) (0.20) (0.20)
In Excess of Net Investment Income - - - (0.05) (0.01)
From Net Realized Gains (6.35) (4.47) (5.75) (3.82) (1.63)
Total Distributions (6.43) (4.52) (5.85) (4.07) (1.84)
Net Asset Value, End of Period $44.69 $38.62 $37.41 $35.26 $33.35
RATIOS AND SUPPLEMENTAL DATA
Total Return +33.4% +15.5% +23.5% +18.1% +27.3%
Net Assets, End of Period (In Millions)$2,537 $2,038 $1,925 $1,770 $1,328
Ratio of Expenses to Average Net Assets 1.2% 1.2% 1.2% 1.3% 1.3%
Ratio of Net Investment Income to
Average Net Assets 0.2% 0.2% 0.3% 0.6% 0.7%
Portfolio Turnover Rate 80.8% 86.0% 93.7% 103.3% 92.5%
</TABLE>
(a) Information presented relates to a share of capital stock of the
fund outstanding for the entire period.
8
<PAGE>
YOUR ACCOUNT
DISTRIBUTION FEES
The Strong Funds have adopted a Rule 12b-1 distribution plan for the Advisor
Class shares of the funds. Under the distribution plan, each fund may make
monthly payments to the funds' distributor at the annual rate of 1.00% of the
average daily net assets of the fund attributable to its Advisor Class shares.
However, under the Distribution Agreement for the Advisor Class shares,
payments to the fund's distributor under the distribution plan are currently
limited to payment at an annual rate equal to 0.25% of average daily net assets
attributable to Advisor Class shares. Such payments may be made for
distribution related services and other services which are primarily intended
to result in the sale of Advisor Class shares of the fund. Because Rule 12b-1
fees are ongoing, over time they will increase the cost of an investment in the
Advisor Class shares of the fund and may cost more than other types of sales
charges.
SHARE PRICE
Your transaction price for buying, selling, or exchanging Advisor Class shares
is the net asset value per share (NAV) of that class of shares. Any applicable
sales charge will be added to the purchase price for Advisor Class Shares. The
"offering price" is the initial sales charge plus the NAV. NAV is generally
calculated as of the close of trading on the New York Stock Exchange (usually
3:00 p.m. Central Time) every day the NYSE is open. If the NYSE closes at any
other time, or if an emergency exists, NAV may be calculated at a different
time. Your share price will be the next NAV calculated after we accept your
order.
NAV is based on the market value of the securities in a fund's portfolio. If
market prices are not available, NAV is based on a security's fair value as
determined in good faith by us under the supervision of the Board of Directors
of the Strong Funds.
((Side Box))
<TABLE>
<CAPTION>
<S> <C>
We determine the share price or NAV of a class of shares by
dividing net assets attributable to the class of shares (the value of
the fund's investments, cash, and other assets attributable to the
class of shares minus the fund's liabilities attributable to the class
of shares) by the number of shares in the class outstanding.
- ----------------------------------------------------------------------
</TABLE>
FOREIGN SECURITIES
Some of the fund's portfolio securities may be listed on foreign exchanges that
trade on days when we do not calculate an NAV. As a result, the fund's NAV may
change on days when you will not be able to purchase or redeem shares. In
addition, a foreign exchange may not value its listed securities at the same
time that we calculate a fund's NAV. Events affecting the values of portfolio
securities that occur between the time a foreign exchange assigns a price to
the portfolio securities and the time when we calculate a fund's NAV generally
will not be reflected in the fund's NAV. These events will be reflected in the
fund's NAV when we, under the supervision of the Board of Directors of the
Strong Funds, determine that they would have a material effect on the fund's
NAV.
8
<PAGE>
BUYING SHARES
INVESTMENT MINIMUMS: When buying shares, you must meet the following investment
minimum requirements.
<TABLE>
<CAPTION>
<S> <C> <C>
INITIAL INVESTMENT MINIMUM ADDITIONAL INVESTMENT MINIMUM
- -------------------------------------- ----------------------------------- ----------------------------------
Regular accounts $2,500 $50
- -------------------------------------- ----------------------------------- ----------------------------------
Education IRA accounts $500 $50
- -------------------------------------- ----------------------------------- ----------------------------------
Other IRAs and UGMA/UTMA accounts $250 $50
- -------------------------------------- ----------------------------------- ----------------------------------
SIMPLE IRA, SEP-IRA, 403(b)(7), Keogh, the lesser of $250 or $25 per month $50
Pension Plan, and Profit Sharing Plan
accounts*
- -------------------------------------- ----------------------------------- ----------------------------------
</TABLE>
*IF YOU OPEN A QUALIFIED RETIREMENT PLAN ACCOUNT WHERE WE OR ONE OF OUR
ALLIANCE PARTNERS PROVIDE ADMINISTRATIVE SERVICES, THERE IS NO INITIAL
INVESTMENT MINIMUM.
OFFERING PRICE: The offering price is the next NAV calculated after we accept
your order, plus any initial sales charge. No sales charge is imposed on
reinvested dividends and distributions. Advisor Class shares are also subject
to Rule 12b-1 fees at an annual rate of 0.25% of average daily net assets. The
amount of the initial sales charge you pay when you buy Advisor Class shares
differs depending on the amount you invest, as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNT OF AS A PERCENTAGE AS A PERCENTAGE
YOUR INVESTMENT OF OFFERING PRICE OF YOUR INVESTMENT
Less than $50,000 5.75% 6.10%
$50,000 but less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.50% 3.63%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $1,000,000 2.00% 2.04%
$1,000,000 or more 0.00% 0.00%
</TABLE>
INITIAL SALES CHARGE WAIVERS: The initial sales charge on the Advisor Class
shares may be waived in certain circumstances. These circumstances are
described in the Statement of Additional Information. Call 800-368-1683 for a
copy.
REINSTATEMENT PRIVILEGE: After you have redeemed Advisor Class shares, you
have a one time right to reinvest the proceeds back into the same fund within
90 days of the redemption at the current net asset value (without an initial
sales charge).
LETTER OF INTENT (LOI): If you intend to invest $50,000 or more, you may buy
Advisor Class shares at the reduced sales charge as though the total amount
were invested in Advisor Class shares in one lump sum. Shares equal to the
difference between the lower sales charge and the higher sales charge you would
have paid had you not purchased your shares through this program will be held
in escrow until the intended amount is invested. These escrowed shares may be
redeemed by a fund if the investor is required to pay additional sales charges.
RIGHTS OF ACCUMULATION: You will qualify for a lower sales charge on your
purchases of Advisor Class shares when your new investment in Advisor Class
shares, together with the current (offering price) value of all your holdings
in the Advisor Class shares, reaches a reduced sales charge level.
MULTIPLE CLASS PLAN: The fund has adopted a multiple class plan which
currently permits the GROWTH FUND to offer Investor Class shares, Advisor Class
shares, and Institutional Class shares, and the ENTERPRISE FUND, the GROWTH 20
FUND, and the OPPORTUNITY FUND to offer Investor Class shares and Advisor Class
shares. Each class is offered at its net asset value and is subject to fees and
expenses which may differ between classes. The principal differences between
each of the classes of shares are that the Advisor Class shares are subject to
a front-end sales load and distribution fees and expenses under a 12b-1 plan,
and each class of shares is subject to different administrative and transfer
agency fees and expenses.
BUYING INSTRUCTIONS
You can buy shares in several ways.
9
<PAGE>
MAIL
You can open or add to an account by mail with a check made payable to Strong.
Send it to the address listed on the back of this prospectus, along with your
account application (for a new account) or an Additional Investment Form (for
an existing account).
EXCHANGE OPTION
Sign up for the exchange option when you open your account. You may exchange
your shares of the fund for shares of another Strong Fund. You will not pay an
initial sales charge when you exchange, unless you exchange Advisor Class
shares of the Strong Advantage Fund into another fund's Advisor Class shares.
You may make an exchange by calling Strong Institutional Client Services at
800-368-1683 or by sending a facsimile to 414-359-3535. Please obtain and read
the appropriate prospectus before investing in any of the Strong Funds.
Remember, an exchange of shares of one Strong Fund for those of another Strong
Fund, is considered a sale and a purchase of fund shares for tax purposes and
may result in a capital gain or loss. Some Strong Funds that you may want to
exchange into may charge a redemption fee of 0.50% to 1.00% on the sale of
shares held for less than six months. Purchases by exchange are subject to the
investment requirements and other criteria of the fund or class purchased.
WIRE
Call 800-368-1683 for instructions before wiring funds either to open or add
to an account. This helps to ensure that your account will be credited
promptly and correctly.
BROKER-DEALER
You may purchase shares through a broker-dealer or other intermediary who may
charge you a fee. Broker-dealers, including each fund's distributor, and other
intermediaries may also from time to time sponsor or participate in
promotional programs pursuant to which investors receive incentives for
establishing with the broker-dealer or intermediary an account and/or for
purchasing shares of the Strong Funds through the account(s). Investors
should contact the broker-dealer or intermediary and consult the Statement of
Additional Information for more information about promotional programs.
PLEASE REMEMBER . . .
We only accept checks payable to Strong.
- - We do not accept cash, third-party checks, credit card convenience checks, or
checks drawn on banks outside the U.S.
- - You will be charged $20 for every check, wire, or Electronic Funds Transfer
returned unpaid.
SELLING SHARES
You can access the money in your account by selling (also called redeeming)
some or all of your shares by one of the methods below. After your redemption
request is accepted, we normally send you the proceeds on the next business
day.
SELLING INSTRUCTIONS
You can sell shares in several ways.
MAIL
Write a letter of instruction. It should specify your account number, the
dollar amount or number of shares you wish to redeem, the names and signatures
of the owners (or other authorized persons), and your mailing address. Then,
mail it to the address listed on the back of this prospectus.
REDEMPTION OPTION
Sign up for the redemption option when you open your account. With this
option, you may sell shares by phone and receive the proceeds in one of three
ways:
11
<PAGE>
(1) We can mail a check to your account's address. Checks will not be
forwarded by the Postal Service, so please notify us if your address has
changed.
(2) We can transmit the proceeds by Electronic Funds Transfer to a
properly pre-authorized bank account. The proceeds usually will arrive at
your bank two banking days after we process your redemption.
(3) For a $10 fee, we can transmit the proceeds by wire to a properly
pre-authorized bank account. The proceeds usually will arrive at your bank the
first banking day after we process your redemption.
BROKER-DEALER
You may sell shares through a broker-dealer or other intermediary who may
charge you a fee.
PLEASE REMEMBER ...
- - If you recently purchased shares, a redemption request on those shares
generally will not be honored until 10 days after we receive the purchase
check or electronic transaction.
- - Some transactions and requests require a signature guarantee.
- - With an IRA (or other retirement account), you will be charged (1) a $10
annual account maintenance fee for each account up to a maximum of $30 and
(2) a $50 fee for transferring assets to another custodian or for closing an
account.
- - If you sell shares out of a non-IRA retirement account and you are eligible
to roll the sale proceeds into another retirement plan, we will withhold for
federal income tax purposes a portion of the sale proceeds unless you
transfer all of the proceeds to an eligible retirement plan.
((Side Box))
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE GUARANTEES help ensure that major
transactions or changes to your account are in fact
authorized by you. For example, we require a signature
guarantee on written redemption requests for more than
$50,000. You can obtain a signature guarantee for a
nominal fee from most banks, brokerage firms, and
other financial institutions. A notary public stamp or
seal cannot be substituted for a signature guarantee.
- --------------------------------------------------------
</TABLE>
ADDITIONAL POLICIES
TELEPHONE TRANSACTIONS
We use reasonable procedures to confirm that telephone transaction requests are
genuine. We may be responsible if we do not follow these procedures. You are
responsible for losses resulting from fraudulent or unauthorized instructions
received over the telephone, provided we reasonably believe the instructions
were genuine. During times of unusual market activity, our phones may be busy
and you may experience a delay placing a telephone request.
INVESTING THROUGH A THIRD PARTY
If you invest through a third party (rather than directly with Strong), the
policies and fees may be different than described in this prospectus. Banks,
brokers, 401(k) plans, financial advisors, and financial supermarkets may
charge transaction fees and may set different minimum investments or
limitations on buying or selling shares. Consult a representative of your
plan or financial institution if you are not sure.
PURCHASES IN KIND
You may, if we approve, purchase shares of the fund with securities that are
eligible for purchase by the fund (consistent with the fund's investment
restrictions, policies, and goal) and that have a value that is readily
ascertainable in accordance with the fund's valuation policies.
12
<PAGE>
VERIFICATION OF ACCOUNT STATEMENTS
You should contact Strong in writing regarding any errors or discrepancies
within 45 days after the date of the statement confirming a transaction. The
statement will be deemed correct if we do not hear from you within those
45 days.
DISTRIBUTIONS
DISTRIBUTION POLICY
Each fund generally pays you dividends from net investment income and
distributes any net capital gains that it realizes annually.
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Your dividends and capital gain distributions will be automatically reinvested
in additional shares, unless you choose otherwise. Your other options are to
receive checks for these payments, have them automatically invested in another
Strong Fund, or have them deposited into your bank account. To change the
current option for payment of dividends and capital gain distributions, please
call 800-368-1683.
TAXES
TAXABLE DISTRIBUTIONS
Any net investment income and net short-term capital gain distributions you
receive are taxable as ordinary dividend income at your income tax rate.
Distributions of net capital gains are generally taxable as long-term capital
gains. This is generally true no matter how long you have owned your shares
and whether you reinvest your distributions or take them in cash. You may
also have to pay taxes when you exchange or sell shares if your shares have
increased in value since you bought them.
RETURN OF CAPITAL
If your fund's (1) income distributions exceed its net investment income and
net short-term capital gains or (2) capital gain distributions exceed its net
capital gains in any year, all or a portion of those distributions may be
treated as a return of capital to you. Although a return of capital is not
taxed, it will reduce the cost basis of your shares.
YEAR-END STATEMENT
To assist you in tax preparation, after the end of each calendar year, we send
you a statement of your fund's ordinary dividends and net capital gain
distributions (Form 1099).
BACKUP WITHHOLDING
By law, we must withhold 31% of your distributions and proceeds if (1) you are
subject to backup withholding or (2) you have not provided us with complete
and correct taxpayer information such as your Social Security Number (SSN) or
Tax Identification Number (TIN).
Because everyone's tax situation is unique, you should consult your tax
professional for assistance.
13
<PAGE>
RESERVED RIGHTS
We reserve the right to:
- - Refuse, change, discontinue, or temporarily suspend account services,
including purchase, exchange, or telephone and redemption privileges, for any
reason.
- - Reject any purchase request for any reason including exchanges from other
Strong Funds. Generally, we do this if the purchase or exchange is
disruptive to the efficient management of a fund (due to the timing of the
investment or an investor's history of excessive trading).
- - Change the minimum or maximum investment amounts.
- - Delay sending out redemption proceeds for up to seven days (this generally
only applies to very large redemptions without notice, excessive trading, or
during unusual market conditions).
- - Suspend redemptions or postpone payments when the NYSE is closed for any
reason other than its usual weekend or holiday closings, when trading is
restricted by the SEC, or under any emergency circumstances.
- - Make a redemption-in-kind (a payment in portfolio securities rather than
cash) if the amount you are redeeming is in excess of the lesser of (1)
$250,000 or (2) 1% of the fund's assets. Generally, redemption-in-kind is
used when large redemption requests may cause harm to the fund and its
shareholders.
- - Close any account that does not meet minimum investment requirements. We
will give you notice and 60 days to begin an automatic investment program or
to increase your balance to the required minimum. We may waive the minimum
initial investment at our discretion.
- - Reject any purchase or redemption request that does not contain all required
documentation.
14
<PAGE>
FOR MORE INFORMATION
More information is available upon request at no charge, including:
SHAREHOLDER REPORTS: Additional information is available in the annual and
semi-annual report to shareholders. These reports contain a letter from
management, discuss recent market conditions, economic trends and investment
strategies that significantly affected your investment's performance during the
last fiscal year, and list portfolio holdings.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI contains more details about
investment policies and techniques. A current SAI is on file with the SEC and
is incorporated into this prospectus by reference. This means that the SAI is
legally considered a part of this prospectus even though it is not physically
contained within this prospectus.
To request information or to ask questions:
BY TELEPHONE BY OVERNIGHT DELIVERY
800-368-1683 Strong Institutional Client Services
100 Heritage Reserve
Menomonee Falls, WI 53051
BY MAIL
Strong Institutional Client Services ON THE INTERNET
P.O. Box 2936 View on-line or download documents:
Milwaukee, WI 53201-2936 SEC*: www.sec.gov
This prospectus is not an offer to sell securities in places other than the
United States and its territories.
*INFORMATION ABOUT A FUND (INCLUDING THE SAI) CAN ALSO BE REVIEWED AND COPIED
AT THE SECURITIES AND EXCHANGE COMMISSION'S PUBLIC REFERENCE ROOM IN
WASHINGTON, D.C. YOU MAY CALL THE COMMISSION AT 202-942-8090 FOR INFORMATION
ABOUT THE OPERATION OF THE PUBLIC REFERENCE ROOM. REPORTS AND OTHER INFORMATION
ABOUT A FUND ARE ALSO AVAILABLE FROM THE EDGAR DATABASE ON THE COMMISSION'S
INTERNET SITE AT WWW.SEC.GOV. YOU MAY OBTAIN A COPY OF THIS INFORMATION, AFTER
PAYING A DUPLICATING FEE, BY SENDING A WRITTEN REQUEST TO THE COMMISSION'S
PUBLIC REFERENCE SECTION, WASHINGTON, D.C. 20549-0102, OR BY SENDING AN
ELECTRONIC REQUEST TO THE FOLLOWING E-MAIL ADDRESS: [email protected].
Strong Enterprise Fund, a series of Strong Equity Funds, Inc., SEC file number:
811-8100
Strong Growth Fund, a series of Strong Equity Funds, Inc., SEC file number:
811-8100
Strong Growth 20 Fund, a series of Strong Equity Funds, Inc., SEC file number:
811-8100
Strong Opportunity Fund, a series of Strong Opportunity Fund, Inc., SEC file
number: 811-3793
15
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
STRONG COMMON STOCK FUND, INC.
STRONG DISCOVERY FUND, INC.
STRONG ENTERPRISE FUND, A SERIES FUND OF STRONG EQUITY FUNDS, INC.
STRONG GROWTH FUND, A SERIES FUND OF STRONG EQUITY FUNDS, INC.
STRONG GROWTH 20 FUND, A SERIES FUND OF STRONG EQUITY FUNDS, INC.
STRONG MID CAP DISCIPLINED FUND, A SERIES FUND OF STRONG EQUITY FUNDS, INC.
STRONG MID CAP GROWTH FUND, A SERIES FUND OF STRONG EQUITY FUNDS, INC.
STRONG OPPORTUNITY FUND, A SERIES FUND OF STRONG OPPORTUNITY FUND, INC.
STRONG SMALL CAP VALUE FUND, A SERIES FUND OF STRONG EQUITY FUNDS, INC.
STRONG STRATEGIC GROWTH FUND, A SERIES FUND OF STRONG EQUITY FUNDS, INC.
STRONG U.S. EMERGING GROWTH FUND, A SERIES FUND OF STRONG EQUITY FUNDS, INC.
STRONG VALUE FUND, A SERIES FUND OF STRONG EQUITY FUNDS, INC.
P.O. Box 2936
Milwaukee, WI 53201
Telephone: (414) 359-1400
Toll-Free: (800) 368-3863
e-mail: [email protected]
Web Site: www.eStrong.com
Throughout this SAI, "the Fund" is intended to refer to each Fund listed above,
unless otherwise indicated. This SAI is not a Prospectus and should be read
together with the Prospectus for the Fund dated May 1, 2000. Requests for
copies of the Prospectus should be made by calling either number listed above.
The financial statements appearing in the Annual Report, which accompanies this
SAI, are incorporated into this SAI by reference.
May 1, 2000
1
<PAGE>
TABLE OF CONTENTS PAGE
INVESTMENT RESTRICTIONS........................................................4
COMPARING THE FUNDS............................................................6
INVESTMENT POLICIES AND TECHNIQUES.............................................6
Strong Common Stock Fund.......................................................6
Strong Discovery Fund..........................................................6
Strong Enterprise Fund.........................................................6
Strong Growth Fund.............................................................7
Strong Growth 20 Fund..........................................................7
Strong Mid Cap Disciplined Fund................................................7
Strong Mid Cap Growth Fund.....................................................7
Strong Opportunity Fund........................................................8
Strong Small Cap Value Fund....................................................8
Strong Strategic Growth Fund...................................................8
Strong U.S. Emerging Growth Fund...............................................8
Strong Value Fund..............................................................9
Borrowing......................................................................9
Cash Management................................................................9
Convertible Securities.........................................................9
Debt Obligations..............................................................10
Depositary Receipts...........................................................10
Derivative Instruments........................................................11
Foreign Investment Companies..................................................20
Foreign Securities............................................................20
High-Yield (High-Risk) Securities.............................................20
Illiquid Securities...........................................................22
Lending of Portfolio Securities...............................................23
Mortgage- and Asset-Backed Debt Securities....................................23
Municipal Obligations.........................................................24
Participation Interests.......................................................25
Repurchase Agreements.........................................................25
Reverse Repurchase Agreements and Mortgage Dollar Rolls.......................25
Short Sales...................................................................26
Small and Medium Companies....................................................26
Standby Commitments...........................................................26
U.S. Government Securities....................................................26
Warrants......................................................................27
When-Issued and Delayed-Delivery Securities...................................27
Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities..........................27
DIRECTORS AND OFFICERS........................................................28
PRINCIPAL SHAREHOLDERS........................................................30
INVESTMENT ADVISOR............................................................31
INVESTMENT SUBADVISOR.........................................................36
U.S. Emerging Growth Fund.....................................................36
Value Fund....................................................................37
ADMINISTRATOR.................................................................37
DISTRIBUTOR...................................................................39
DISTRIBUTION PLAN.............................................................40
PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................40
CUSTODIAN.....................................................................45
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT..................................45
TAXES.........................................................................48
DETERMINATION OF NET ASSET VALUE..............................................50
ADDITIONAL SHAREHOLDER INFORMATION............................................50
ORGANIZATION..................................................................54
SHAREHOLDER MEETINGS..........................................................55
PERFORMANCE INFORMATION.......................................................55
GENERAL INFORMATION...........................................................64
INDEPENDENT ACCOUNTANTS.......................................................66
LEGAL COUNSEL.................................................................67
FINANCIAL STATEMENTS..........................................................67
APPENDIX A - DEFINITION OF BOND RATINGS.......................................68
APPENDIX B - ADVISOR CLASS SHARES.............................................77
2
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No person has been authorized to give any information or to make any
representations other than those contained in this SAI and its corresponding
Prospectus, and if given or made, such information or representations may not
be relied upon as having been authorized. This SAI does not constitute an
offer to sell securities.
3
<PAGE>
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT LIMITATIONS
The following are the Fund's fundamental investment limitations which, along
with the Fund's investment objective (which is described in the Prospectus),
cannot be changed without shareholder approval. To obtain approval, a majority
of the Fund's outstanding voting shares must vote for the change. A majority
of the Fund's outstanding voting securities means the vote of the lesser of:
(1) 67% or more of the voting securities present, if more than 50% of the
outstanding voting securities are present or represented, or (2) more than 50%
of the outstanding voting shares.
Unless indicated otherwise below, the Fund:
1. May not with respect to 75% of its total assets, purchase the securities
of any issuer (except securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities) if, as a result, (1) more than 5% of the
Fund's total assets would be invested in the securities of that issuer, or (2)
the Fund would hold more than 10% of the outstanding voting securities of that
issuer.
2. May (1) borrow money from banks and (2) make other investments or engage
in other transactions permissible under the Investment Company Act of 1940
("1940 Act") which may involve a borrowing, provided that the combination of
(1) and (2) shall not exceed 33 1/3% of the value of the Fund's total assets
(including the amount borrowed), less the Fund's liabilities (other than
borrowings), except that the Fund may borrow up to an additional 5% of its
total assets (not including the amount borrowed) from a bank for temporary or
emergency purposes (but not for leverage or the purchase of investments). The
Fund may also borrow money from the other Strong Funds or other persons to the
extent permitted by applicable law.
3. May not issue senior securities, except as permitted under the 1940 Act.
4. May not act as an underwriter of another issuer's securities, except to
the extent that the Fund may be deemed to be an underwriter within the meaning
of the Securities Act of 1933 in connection with the purchase and sale of
portfolio securities.
5. May not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall not
prevent the Fund from purchasing or selling options, futures contracts, or
other derivative instruments, or from investing in securities or other
instruments backed by physical commodities).
6. May not make loans if, as a result, more than 33 1/3% of the Fund's
total assets would be lent to other persons, except through (1) purchases of
debt securities or other debt instruments, or (2) engaging in repurchase
agreements.
7. May not purchase the securities of any issuer if, as a result, more than
25% of the Fund's total assets would be invested in the securities of issuers,
the principal business activities of which are in the same industry.
8. May not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prohibit the
Fund from purchasing or selling securities or other instruments backed by real
estate or of issuers engaged in real estate activities).
9. May, notwithstanding any other fundamental investment policy or
restriction, invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental
investment objective, policies, and restrictions as the Fund.
With respect to Growth 20 Fund, Fundamental Policy No. 1 does not apply because
the Fund is nondiversified.
4
<PAGE>
NON-FUNDAMENTAL OPERATING POLICIES
The following are the Fund's non-fundamental operating policies which may be
changed by the Fund's Board of Directors without shareholder approval.
Unless indicated otherwise below, the Fund may not:
1. Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short, or
unless it covers such short sale as required by the current rules and positions
of the Securities and Exchange Commission ("SEC") or its staff, and provided
that transactions in options, futures contracts, options on futures contracts,
or other derivative instruments are not deemed to constitute selling securities
short.
2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions; and
provided that margin deposits in connection with futures contracts, options on
futures contracts, or other derivative instruments shall not constitute
purchasing securities on margin.
3. Invest in illiquid securities if, as a result of such investment, more
than 15% (10% with respect to a money fund) of its net assets would be invested
in illiquid securities, or such other amounts as may be permitted under the
1940 Act.
4. Purchase securities of other investment companies except in compliance
with the 1940 Act and applicable state law.
5. Invest all of its assets in the securities of a single open-end
investment management company with substantially the same fundamental
investment objective, restrictions and policies as the Fund.
6. Engage in futures or options on futures transactions which are
impermissible pursuant to Rule 4.5 under the Commodity Exchange Act and, in
accordance with Rule 4.5, will use futures or options on futures transactions
solely for bona fide hedging transactions (within the meaning of the Commodity
Exchange Act), provided, however, that the Fund may, in addition to bona fide
hedging transactions, use futures and options on futures transactions if the
aggregate initial margin and premiums required to establish such positions,
less the amount by which any such options positions are in the money (within
the meaning of the Commodity Exchange Act), do not exceed 5% of the Fund's net
assets.
7. Borrow money except (1) from banks or (2) through reverse repurchase
agreements or mortgage dollar rolls, and will not purchase securities when bank
borrowings exceed 5% of its total assets.
8. Make any loans other than loans of portfolio securities, except through
(1) purchases of debt securities or other debt instruments, or (2) engaging in
repurchase agreements.
Unless noted otherwise, if a percentage restriction is adhered to at the time
of investment, a later increase or decrease in percentage resulting from a
change in the Fund's assets (I.E. due to cash inflows or redemptions) or in
market value of the investment or the Fund's assets will not constitute a
violation of that restriction.
5
<PAGE>
COMPARING THE FUNDS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FUND ANTICIPATED EQUITY EXPOSURE MAXIMUM DEBT EXPOSURE FOREIGN SECURITIES
Common Stock 80-100% 20% Up to 25%
Discovery 0-100% 100% Up to 25%
Enterprise 80-100% 20% Up to 25%
Growth 65-100% 35% Up to 25%
Growth 20 65-100% 35% Up to 25%
Mid Cap Disciplined 70-100% 30% Up to 25%
Mid Cap Growth 80-100% 20% Up to 25%
Opportunity 70-100% 30% Up to 25%
Small Cap Value 80-100% 20% Up to 25%
Strategic Growth 80-100% 20% Up to 25%
U. S. Emerging Growth 65-100% 35% Up to 25%
Value 70-100% 30% Up to 10%
- ---------------------- --------------------------- ----------------------- ----------------------
</TABLE>
INVESTMENT POLICIES AND TECHNIQUES
STRONG COMMON STOCK FUND
- - The Fund will invest at least 80% of its net assets in equity securities,
including common stocks (which must constitute at least 65% of its total
assets), preferred stocks, and securities that are convertible into common or
preferred stocks, such as warrants and convertible bonds. Under normal market
conditions, the Fund expects to be fully invested in equity securities.
- - The Fund may, however, invest up to 20% of its net assets in debt
obligations, including intermediate- to long-term corporate or U.S.
government debt securities and, when the Advisor determines that market
conditions warrant a temporary defensive position, it may use that allowance
to invest in cash and short-term fixed-income securities.
- - The Fund may invest up to 5% of its net assets in non-investment-grade 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.
STRONG DISCOVERY FUND
- - The Fund normally emphasizes equity securities, although it has the
flexibility to invest in any type of security that the Advisor believes has
the potential for capital appreciation. The Fund may invest up to 100% of its
total assets in equity securities, including common stocks, preferred stocks,
and securities that are convertible into common or preferred stocks, such as
warrants and convertible bonds.
- - The Fund may also invest up to 100% of its total assets in debt obligations,
including intermediate- to long-term corporate or U.S. government debt
securities. When the Advisor determines that market conditions warrant a
temporary defensive position, the Fund may invest without limitation in cash
and short-term fixed-income securities.
- - The Fund may invest up to 5% of its net assets in non-investment-grade 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.
STRONG ENTERPRISE FUND
- - Under normal market conditions, the Fund will invest at least 80% of its net
assets in equity securities, including common stocks, preferred stocks, and
securities that are convertible into common or preferred stocks, such as
warrants and convertible bonds. Although the Fund will primarily invest in
the equity securities of small and mid-size companies, it may invest in
companies of any capitalization range.
- - The Fund may invest up to 20% of its total assets in debt obligations,
including intermediate- to long-term corporate or U.S. government debt
securities. When the Advisor determines that market conditions warrant a
temporary defensive position, the Fund may invest without limitation in cash
and short-term fixed-income securities.
- - The Fund may invest up to 5% of its net assets in non-investment-grade debt
obligations.
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<PAGE>
- - The Fund may invest up to 25% of its net assets in foreign securities,
including both direct investments and investments made through depositary
receipts.
STRONG GROWTH FUND
- - Under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities, including common stocks, preferred stocks,
and securities that are convertible into common or preferred stocks, such as
warrants and convertible bonds. While the emphasis of the Fund is clearly on
equity securities, the Fund may invest a limited portion of its assets in
debt obligations when the Advisor perceives that they are more attractive
than stocks on a long-term basis.
- - The Fund may invest up to 35% of its total assets in debt obligations,
including intermediate- to long-term corporate or U.S. government debt
securities. When the Advisor determines that market conditions warrant a
temporary defensive position, the Fund may invest without limitation in cash
and short-term fixed-income securities.
- - The Fund may invest up to 5% of its net assets in non-investment-grade 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.
STRONG GROWTH 20 FUND
- - Under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities, including common stocks, preferred stocks,
and securities that are convertible into common or preferred stocks, such as
warrants and convertible bonds. While the emphasis of the Fund is clearly on
equity securities, the Fund may invest a limited portion of its assets in
debt obligations when the Advisor perceives that they are more attractive
than stocks on a long-term basis.
- - The Fund may invest up to 35% of its total assets in debt obligations,
including intermediate- to long-term corporate or U.S. government debt
securities. When the Advisor determines that market conditions warrant a
temporary defensive position, the Fund may invest without limitation in cash
and short-term fixed-income securities.
- - The Fund may invest up to 5% of its net assets in non-investment-grade 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.
STRONG MID CAP DISCIPLINED FUND
- - The Fund will invest at least 70% of its net assets in equity securities,
including common stocks, preferred stocks, and securities that are
convertible into common or preferred stocks, such as warrants and convertible
bonds. Under normal market conditions, the Fund expects to be fully invested
in equities. At least 65% of the Fund's total assets will normally be
invested in equity securities of medium market capitalization companies,
which for the purposes of this Fund, are those companies with a market
capitalization substantially similar to that of companies in the S&P MidCap
400 Index at the time of the Fund's investment. In general,
medium-capitalization companies often involve greater risks than investments
in established companies.
- - The Fund may, however, invest up to 30% of its net assets in debt
obligations, including intermediate- to long-term corporate or U.S.
government debt securities and, when the Advisor determines that market
conditions warrant a temporary defensive position, it may use that allowance
to invest in cash and short-term fixed-income securities.
- - Although these debt obligations primarily will be investment grade, the Fund
may invest up to 5% of its net assets in non-investment-grade 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.
STRONG MID CAP GROWTH FUND
- - The Fund will invest at least 80% of its net assets in equity securities,
including common stocks, preferred stocks, and securities that are
convertible into common or preferred stocks, such as warrants and convertible
bonds. At least 65% of the Fund's total assets will normally be invested in
equity securities of medium market capitalization companies, which for the
purposes of this Fund, are those companies with a market capitalization
substantially similar to that of companies in the S&P MidCap 400 Index at the
time of the Fund's investment.
- - The Fund may invest up to 20% of its net assets in debt obligations,
including intermediate- to long-term corporate or U.S. government debt
securities. When the Advisor determines that market conditions warrant a
temporary defensive position, the Fund may invest up to 35% of its net assets
in cash and short-term fixed-income securities.
7
<PAGE>
- - The Fund may invest up to 5% of its net assets in non-investment-grade 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.
STRONG OPPORTUNITY FUND
- - The Fund will invest at least 70% of its net assets in equity securities,
including common stocks, preferred stocks, and securities that are
convertible into common or preferred stocks, such as warrants and convertible
bonds. Under normal market conditions, the Fund expects to be fully invested
in equities.
- - The Fund may, however, invest up to 30% of its net assets in debt
obligations, including intermediate- to long-term corporate or U.S.
government debt securities and, when the Advisor determines that market
conditions warrant a temporary defensive position, it may use that allowance
to invest in cash and short-term fixed-income securities.
- - The Fund may invest up to 5% of its net assets in non-investment-grade 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.
STRONG SMALL CAP VALUE FUND
- - The Fund will invest at least 80% of its net assets in equity securities,
including common stocks, preferred stocks, and securities that are
convertible into common or preferred stocks, such as warrants and convertible
bonds. At least 65% of the Fund's total assets will normally be invested in
equity securities of small market capitalization companies, which for the
purposes of this Fund, are those companies with a market capitalization
substantially similar to that of companies in the Russell 2500 Index at the
time of the Fund's investment. In general, smaller-capitalization companies
often involve greater risks than investments in established companies.
- - The Fund may invest up to 20% of its net assets in debt obligations,
including intermediate- to long-term corporate or U.S. government debt
securities. When the Advisor determines that market conditions warrant a
temporary defensive position, the Fund may invest without limitation in cash
and short-term fixed-income securities.
- - The Fund may invest up to 5% of its net assets in non-investment-grade 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.
STRONG STRATEGIC GROWTH FUND
- - Under normal market conditions, the Fund will invest at least 80% of its net
assets in equity securities, including common stocks, preferred stocks, and
securities that are convertible into common or preferred stocks, such as
warrants and convertible bonds.
- - The Fund may invest up to 20% of its net assets in debt obligations,
including intermediate- to long-term corporate or U.S. government debt
securities. When the Advisor determines that market conditions warrant a
temporary defensive position, the Fund may invest without limitation in cash
and short-term fixed-income securities.
- - 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
non-investment-grade 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.
- - The Fund may invest up to 10% of its net assets in equity real estate
investment trusts ("REITs").
STRONG U.S. EMERGING GROWTH FUND
- - Under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities of U.S. issuers that the Advisor believes
have substantial potential for high long-term growth, including common
stocks, preferred stocks, and securities that are convertible into common or
preferred stocks, such as warrants and convertible bonds. While the emphasis
of the Fund is clearly on equity securities, the Fund may invest a limited
portion of its assets in debt obligations when the Advisor perceives that
they are more attractive than stocks on a long-term basis.
- - The Fund may invest up to 35% of its total assets in debt obligations,
including intermediate- to long-term corporate or U.S. government debt
securities. When the Advisor determines that market conditions warrant a
temporary defensive position, the Fund may invest without limitation in cash
and short-term fixed-income securities.
8
<PAGE>
- - Although these debt obligations primarily will be investment grade, the Fund
may invest up to 5% of its net assets in non-investment-grade 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.
STRONG VALUE FUND
- - The Fund will invest at least 70% of its net assets in equity securities,
including common stocks, preferred stocks, and securities that are
convertible into common or preferred stocks, such as warrants and convertible
bonds. Under normal market conditions, the Fund expects to be fully invested
in equities.
- - The Fund may, however, invest up to 30% of its net assets in debt
obligations, including intermediate- to long-term corporate or U.S.
government debt securities and, when the Subadvisor determines that market
conditions warrant a temporary defensive position, it may use that allowance
to invest in cash and short-term fixed-income securities.
- - The Fund may invest up to 5% of its net assets in non-investment-grade debt
obligations.
- - The Fund does not intend to invest directly in foreign securities; however,
it may invest up to 10% of its net assets in foreign securities in domestic
markets through depositary receipts.
The following information supplements the discussion of the Fund's investment
objective, policies, and techniques described in the Prospectus.
BORROWING
The Fund may borrow money from banks and make other investments or engage in
other transactions permissible under the 1940 Act which may be considered a
borrowing (such as mortgage dollar rolls and reverse repurchase agreements).
However, the Fund may not purchase securities when bank borrowings exceed 5% of
the Fund's total assets. Presently, the Fund only intends to borrow from banks
for temporary or emergency purposes.
The Fund has established a line-of-credit ("LOC") with certain banks by which
it may borrow funds for temporary or emergency purposes. A borrowing is
presumed to be for temporary or emergency purposes if it is repaid by the Fund
within 60 days and is not extended or renewed. The Fund intends to use the LOC
to meet large or unexpected redemptions that would otherwise force the Fund to
liquidate securities under circumstances which are unfavorable to the Fund's
remaining shareholders. The Fund pays a commitment fee to the banks for the
LOC.
CASH MANAGEMENT
The Fund may invest directly in cash and short-term fixed-income securities,
including, for this purpose, shares of one or more money market funds managed
by Strong Capital Management, Inc., the Fund's investment advisor ("Advisor")
(collectively, the "Strong Money Funds"). The Strong Money Funds seek current
income, a stable share price of $1.00, and daily liquidity. All money market
instruments can change in value when interest rates or an issuer's
creditworthiness change dramatically. The Strong Money Funds cannot guarantee
that they will always be able to maintain a stable net asset value of $1.00 per
share.
CONVERTIBLE SECURITIES
Convertible securities are bonds, debentures, notes, preferred stocks, or other
securities that may be converted into or exchanged for a specified amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the
holder to receive interest normally paid or accrued on debt or the dividend
paid on preferred stock until the convertible security matures or is redeemed,
converted, or exchanged. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stock since they have
fixed income characteristics, and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
Most convertible securities currently are issued by U.S. companies, although a
substantial Eurodollar convertible securities market has developed, and the
markets for convertible securities denominated in local currencies are
increasing.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and
its "conversion value" (the
9
<PAGE>
security's worth, at market value, if converted into the underlying common
stock). The investment value of a convertible security is influenced by
changes in interest rates, with investment value declining as interest rates
increase and increasing as interest rates decline. The credit standing of the
issuer and other factors also may have an effect on the convertible security's
investment value. The conversion value of a convertible security is determined
by the market price of the underlying common stock. If the conversion value is
low relative to the investment value, the price of the convertible security is
governed principally by its investment value. Generally, the conversion value
decreases as the convertible security approaches maturity. To the extent the
market price of the underlying common stock approaches or exceeds the
conversion price, the price of the convertible security will be increasingly
influenced by its conversion value. A convertible security generally will sell
at a premium over its conversion value by the extent to which investors place
value on the right to acquire the underlying common stock while holding a fixed
income security.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If
a convertible security is called for redemption, the Fund will be required to
permit the issuer to redeem the security, convert it into the underlying common
stock, or sell it to a third party.
DEBT OBLIGATIONS
The Fund may invest a portion of its assets in debt obligations. Issuers of
debt obligations have a contractual obligation to pay interest at a specified
rate on specified dates and to repay principal on a specified maturity date.
Certain debt obligations (usually intermediate- and long-term bonds) have
provisions that allow the issuer to redeem or "call" a bond before its
maturity. Issuers are most likely to call such securities during periods of
falling interest rates and the Fund may have to replace such securities with
lower yielding securities, which could result in a lower return for the Fund.
PRICE VOLATILITY. The market value of debt obligations is affected primarily
by changes in prevailing interest rates. The market value of a debt obligation
generally reacts inversely to interest-rate changes, meaning, when prevailing
interest rates decline, an obligation's price usually rises, and when
prevailing interest rates rise, an obligation's price usually declines.
MATURITY. In general, the longer the maturity of a debt obligation, the higher
its yield and the greater its sensitivity to changes in interest rates.
Conversely, the shorter the maturity, the lower the yield but the greater the
price stability. Commercial paper is generally considered the shortest
maturity form of debt obligation.
CREDIT QUALITY. The values of debt obligations may also be affected by changes
in the credit rating or financial condition of their issuers. Generally, the
lower the quality rating of a security, the higher the degree of risk as to the
payment of interest and return of principal. To compensate investors for
taking on such increased risk, those issuers deemed to be less creditworthy
generally must offer their investors higher interest rates than do issuers with
better credit ratings.
In conducting its credit research and analysis, the Advisor considers both
qualitative and quantitative factors to evaluate the creditworthiness of
individual issuers. The Advisor also relies, in part, on credit ratings
compiled by a number of Nationally Recognized Statistical Rating Organizations
("NRSROs").
DEPOSITARY RECEIPTS
The Fund may invest in foreign securities by purchasing depositary receipts,
including American Depositary Receipts ("ADRs") and European Depositary
Receipts ("EDRs"), or other securities convertible into securities of foreign
issuers. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. Generally, ADRs,
in registered form, are denominated in U.S. dollars and are designed for use in
the U.S. securities markets, while EDRs, in bearer form, may be denominated in
other currencies and are designed for use in the European securities markets.
ADRs are receipts typically issued by a U.S. bank or trust company evidencing
ownership of the underlying securities. EDRs are European receipts evidencing
a similar arrangement. For purposes of the Fund's investment policies, ADRs
and EDRs are deemed to have the same classification as the underlying
securities they represent, except that ADRs and EDRs shall be treated as
indirect foreign investments. For example, an ADR or EDR representing
ownership of common stock will be treated as common stock. Depositary receipts
do not eliminate all of the risks associated with directly investing in the
securities of foreign issuers.
ADR facilities may be established as either "unsponsored" or "sponsored." While
ADRs issued under these two types of facilities are in some respects similar,
there are distinctions between them relating to the rights and obligations of
ADR holders and the practices of market participants.
10
<PAGE>
A depositary may establish an unsponsored facility without participation by (or
even necessarily the permission of) the issuer of the deposited securities,
although typically the depositary requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facility. The depositary usually charges
fees upon the deposit and withdrawal of the deposited securities, the
conversion of dividends into U.S. dollars, the disposition of non-cash
distributions, and the performance of other services. The depositary of an
unsponsored facility frequently is under no obligation to pass through voting
rights to ADR holders in respect of the deposited securities. In addition, an
unsponsored facility is generally not obligated to distribute communications
received from the issuer of the deposited securities or to disclose material
information about such issuer in the U.S. and there may not be a correlation
between such information and the market value of the depositary receipts.
Sponsored ADR facilities are created in generally the same manner as
unsponsored facilities, except that the issuer of the deposited securities
enters into a deposit agreement with the depositary. The deposit agreement
sets out the rights and responsibilities of the issuer, the depositary, and the
ADR holders. With sponsored facilities, the issuer of the deposited securities
generally will bear some of the costs relating to the facility (such as
dividend payment fees of the depositary), although ADR holders continue to bear
certain other costs (such as deposit and withdrawal fees). Under the terms of
most sponsored arrangements, depositories agree to distribute notices of
shareholder meetings and voting instructions, and to provide shareholder
communications and other information to the ADR holders at the request of the
issuer of the deposited securities.
DERIVATIVE INSTRUMENTS
IN GENERAL. The Fund may use derivative instruments for any lawful purpose
consistent with its investment objective such as hedging or managing risk.
Derivative instruments are commonly defined to include securities or contracts
whose values depend on (or "derive" from) the value of one or more other
assets, such as securities, currencies, or commodities. These "other assets"
are commonly referred to as "underlying assets."
A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to OPTIONS or FORWARD CONTRACTS. Options and forward
contracts are considered to be the basic "building blocks" of derivatives. For
example, forward-based derivatives include forward contracts, swap contracts,
as well as exchange-traded futures. Option-based derivatives include privately
negotiated, over-the-counter ("OTC") options (including caps, floors, collars,
and options on forward and swap contracts) and exchange-traded options on
futures. Diverse types of derivatives may be created by combining options or
forward contracts in different ways, and by applying these structures to a wide
range of underlying assets.
An option is a contract in which the "holder" (the buyer) pays a certain amount
("premium") to the "writer" (the seller) to obtain the right, but not the
obligation, to buy from the writer (in a "call") or sell to the writer (in a
"put") a specific asset at an agreed upon price at or before a certain time.
The holder pays the premium at inception and has no further financial
obligation. The holder of an option-based derivative generally will benefit
from favorable movements in the price of the underlying asset but is not
exposed to corresponding losses due to adverse movements in the value of the
underlying asset. The writer of an option-based derivative generally will
receive fees or premiums but generally is exposed to losses due to changes in
the value of the underlying asset.
A forward is a sales contract between a buyer (holding the "long" position) and
a seller (holding the "short" position) for an asset with delivery deferred
until a future date. The buyer agrees to pay a fixed price at the agreed
future date and the seller agrees to deliver the asset. The seller hopes that
the market price on the delivery date is less than the agreed upon price, while
the buyer hopes for the contrary. The change in value of a forward-based
derivative generally is roughly proportional to the change in value of the
underlying asset.
HEDGING. The Fund may use derivative instruments to protect against possible
adverse changes in the market value of securities held in, or are anticipated
to be held in, its portfolio. Derivatives may also be used to "lock-in"
realized but unrecognized gains in the value of its portfolio securities.
Hedging strategies, if successful, can reduce the risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce the
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. To the extent that a hedge matures prior
to or after the disposition of the investment subject to the hedge, any gain or
loss on the hedge will be realized earlier or later than any offsetting gain or
loss on the hedged investment.
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MANAGING RISK. The Fund may also use derivative instruments to manage the
risks of its portfolio. Risk management strategies include, but are not
limited to, facilitating the sale of portfolio securities, managing the
effective maturity or duration of debt obligations in its portfolio,
establishing a position in the derivatives markets as a substitute for buying
or selling certain securities, or creating or altering exposure to certain
asset classes, such as equity, debt, or foreign securities. The use of
derivative instruments may provide a less expensive, more expedient or more
specifically focused way to invest than "traditional" securities (I.E., stocks
or bonds) would.
EXCHANGE AND OTC DERIVATIVES. Derivative instruments may be exchange-traded or
traded in OTC transactions between private parties. Exchange-traded
derivatives are standardized options and futures contracts traded in an auction
on the floor of a regulated exchange. Exchange contracts are generally very
liquid. The exchange clearinghouse is the counterparty of every contract.
Thus, each holder of an exchange contract bears the credit risk of the
clearinghouse (and has the benefit of its financial strength) rather than that
of a particular counterparty. OTC transactions are subject to additional
risks, such as the credit risk of the counterparty to the instrument, and are
less liquid than exchange-traded derivatives since they often can only be
closed out with the other party to the transaction.
RISKS AND SPECIAL CONSIDERATIONS. The use of derivative instruments involves
risks and special considerations as described below. Risks pertaining to
particular derivative instruments are described in the sections that follow.
(1) MARKET RISK. The primary risk of derivatives is the same as the risk
of the underlying assets, namely that the value of the underlying asset may go
up or down. Adverse movements in the value of an underlying asset can expose
the Fund to losses. Derivative instruments may include elements of leverage
and, accordingly, the fluctuation of the value of the derivative instrument in
relation to the underlying asset may be magnified. The successful use of
derivative instruments depends upon a variety of factors, particularly the
ability of the Advisor to predict movements of the securities, currencies, and
commodity markets, which requires different skills than predicting changes in
the prices of individual securities. There can be no assurance that any
particular strategy adopted will succeed. The Advisor's decision to engage in
a derivative instrument will reflect its judgment that the derivative
transaction will provide value to the Fund and its shareholders and is
consistent with the Fund's objectives, investment limitations, and operating
policies. In making such a judgment, the Advisor will analyze the benefits and
risks of the derivative transaction and weigh them in the context of the Fund's
entire portfolio and investment objective.
(2) CREDIT RISK. The Fund will be subject to the risk that a loss may be
sustained as a result of the failure of a counterparty to comply with the terms
of a derivative instrument. The counterparty risk for exchange-traded
derivative instruments is generally less than for privately negotiated or OTC
derivative instruments, since generally a clearing agency, which is the issuer
or counterparty to each exchange-traded instrument, provides a guarantee of
performance. For privately negotiated instruments, there is no similar
clearing agency guarantee. In all transactions, the Fund will bear the risk
that the counterparty will default, and this could result in a loss of the
expected benefit of the derivative transaction and possibly other losses. The
Fund will enter into transactions in derivative instruments only with
counterparties that the Advisor reasonably believes are capable of performing
under the contract.
(3) CORRELATION RISK. When a derivative transaction is used to completely
hedge another position, changes in the market value of the combined position
(the derivative instrument plus the position being hedged) result from an
imperfect correlation between the price movements of the two instruments. With
a perfect hedge, the value of the combined position remains unchanged for any
change in the price of the underlying asset. With an imperfect hedge, the
values of the derivative instrument and its hedge are not perfectly correlated.
Correlation risk is the risk that there might be imperfect correlation, or even
no correlation, between price movements of an instrument and price movements of
investments being hedged. For example, if the value of a derivative
instruments used in a short hedge (such as writing a call option, buying a put
option, or selling a futures contract) increased by less than the decline in
value of the hedged investments, the hedge would not be perfectly correlated.
Such a lack of correlation might occur due to factors unrelated to the value of
the investments being hedged, such as speculative or other pressures on the
markets in which these instruments are traded. The effectiveness of hedges
using instruments on indices will depend, in part, on the degree of correlation
between price movements in the index and price movements in the investments
being hedged.
(4) LIQUIDITY RISK. Derivatives are also subject to liquidity risk.
Liquidity risk is the risk that a derivative instrument cannot be sold, closed
out, or replaced quickly at or very close to its fundamental value. Generally,
exchange contracts are very liquid because the exchange clearinghouse is the
counterparty of every contract. OTC transactions are less liquid than
exchange-traded derivatives since they often can only be closed out with the
other party to the transaction. The Fund might be required by applicable
regulatory requirement to maintain assets as "cover," maintain segregated
accounts, and/or make margin payments
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when it takes positions in derivative instruments involving obligations to
third parties (I.E., instruments other than purchased options). If the Fund
was unable to close out its positions in such instruments, it might be required
to continue to maintain such assets or accounts or make such payments until the
position expired, matured, or was closed out. The requirements might impair
the Fund's ability to sell a portfolio security or make an investment at a time
when it would otherwise be favorable to do so, or require that the Fund sell a
portfolio security at a disadvantageous time. The Fund's ability to sell or
close out a position in an instrument prior to expiration or maturity depends
on the existence of a liquid secondary market or, in the absence of such a
market, the ability and willingness of the counterparty to enter into a
transaction closing out the position. Therefore, there is no assurance that
any derivatives position can be sold or closed out at a time and price that is
favorable to the Fund.
(5) LEGAL RISK. Legal risk is the risk of loss caused by the legal
unenforcibility of a party's obligations under the derivative. While a party
seeking price certainty agrees to surrender the potential upside in exchange
for downside protection, the party taking the risk is looking for a positive
payoff. Despite this voluntary assumption of risk, a counterparty that has
lost money in a derivative transaction may try to avoid payment by exploiting
various legal uncertainties about certain derivative products.
(6) SYSTEMIC OR "INTERCONNECTION" RISK. Interconnection risk is the risk
that a disruption in the financial markets will cause difficulties for all
market participants. In other words, a disruption in one market will spill
over into other markets, perhaps creating a chain reaction. Much of the OTC
derivatives market takes place among the OTC dealers themselves, thus creating
a large interconnected web of financial obligations. This interconnectedness
raises the possibility that a default by one large dealer could create losses
at other dealers and destabilize the entire market for OTC derivative
instruments.
GENERAL LIMITATIONS. The use of derivative instruments is subject to
applicable regulations of the SEC, the several options and futures exchanges
upon which they may be traded, the Commodity Futures Trading Commission
("CFTC"), and various state regulatory authorities. In addition, the Fund's
ability to use derivative instruments may be limited by certain tax
considerations.
The Fund has filed a notice of eligibility for exclusion from the definition of
the term "commodity pool operator" with the CFTC and the National Futures
Association, which regulate trading in the futures markets. In accordance with
Rule 4.5 of the regulations under the Commodity Exchange Act ("CEA"), the
notice of eligibility for the Fund includes representations that the Fund will
use futures contracts and related options solely for bona fide hedging purposes
within the meaning of CFTC regulations, provided that the Fund may hold other
positions in futures contracts and related options that do not qualify as a
bona fide hedging position if the aggregate initial margin deposits and
premiums required to establish these positions, less the amount by which any
such futures contracts and related options positions are "in the money," do not
exceed 5% of the Fund's net assets. Adherence to these guidelines does not
limit the Fund's risk to 5% of the Fund's assets.
The SEC has identified certain trading practices involving derivative
instruments that involve the potential for leveraging the Fund's assets in a
manner that raises issues under the 1940 Act. In order to limit the potential
for the leveraging of the Fund's assets, as defined under the 1940 Act, the SEC
has stated that the Fund may use coverage or the segregation of the Fund's
assets. To the extent required by SEC guidelines, the Fund will not enter into
any such transactions unless it owns either: (1) an offsetting ("covered")
position in securities, options, futures, or derivative instruments; or (2)
cash or liquid securities positions with a value sufficient at all times to
cover its potential obligations to the extent that the position is not
"covered". The Fund will also set aside cash and/or appropriate liquid assets
in a segregated custodial account if required to do so by SEC and CFTC
regulations. Assets used as cover or held in a segregated account cannot be
sold while the derivative position is open, unless they are replaced with
similar assets. As a result, the commitment of a large portion of the Fund's
assets to segregated accounts could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
In some cases, the Fund may be required to maintain or limit exposure to a
specified percentage of its assets to a particular asset class. In such cases,
when the Fund uses a derivative instrument to increase or decrease exposure to
an asset class and is required by applicable SEC guidelines to set aside liquid
assets in a segregated account to secure its obligations under the derivative
instruments, the Advisor may, where reasonable in light of the circumstances,
measure compliance with the applicable percentage by reference to the nature of
the economic exposure created through the use of the derivative instrument and
not by reference to the nature of the exposure arising from the liquid assets
set aside in the segregated account (unless another interpretation is specified
by applicable regulatory requirements).
OPTIONS. The Fund may use options for any lawful purpose consistent with its
investment objective such as hedging or managing risk. An option is a contract
in which the "holder" (the buyer) pays a certain amount ("premium") to the
"writer" (the seller) to obtain the right, but not the obligation, to buy from
the writer (in a "call") or sell to the writer (in a "put") a specific asset at
an agreed upon price ("strike price" or "exercise price") at or before a
certain time ("expiration date"). The holder pays the
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premium at inception and has no further financial obligation. The holder of an
option will benefit from favorable movements in the price of the underlying
asset but is not exposed to corresponding losses due to adverse movements in
the value of the underlying asset. The writer of an option will receive fees
or premiums but is exposed to losses due to changes in the value of the
underlying asset. The Fund may buy or write (sell) put and call options on
assets, such as securities, currencies, financial commodities, and indices of
debt and equity securities ("underlying assets") and enter into closing
transactions with respect to such options to terminate an existing position.
Options used by the Fund may include European, American, and Bermuda style
options. If an option is exercisable only at maturity, it is a "European"
option; if it is also exercisable prior to maturity, it is an "American"
option. If it is exercisable only at certain times, it is a "Bermuda" option.
The Fund may purchase (buy) and write (sell) put and call options underlying
assets and enter into closing transactions with respect to such options to
terminate an existing position. The purchase of a call option serves as a long
hedge, and the purchase of a put option serves as a short hedge. Writing put
or call options can enable the Fund to enhance income by reason of the premiums
paid by the purchaser of such options. Writing call options serves as a
limited short hedge because declines in the value of the hedged investment
would be offset to the extent of the premium received for writing the option.
However, if the security appreciates to a price higher than the exercise price
of the call option, it can be expected that the option will be exercised and
the Fund will be obligated to sell the security at less than its market value
or will be obligated to purchase the security at a price greater than that at
which the security must be sold under the option. All or a portion of any
assets used as cover for OTC options written by the Fund would be considered
illiquid to the extent described under "Investment Policies and Techniques -
Illiquid Securities." Writing put options serves as a limited long hedge
because decreases in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the
security depreciates to a price lower than the exercise price of the put
option, it can be expected that the put option will be exercised and the Fund
will be obligated to purchase the security at more than its market value.
The value of an option position will reflect, among other things, the
historical price volatility of the underlying investment, the current market
value of the underlying investment, the time remaining until expiration, the
relationship of the exercise price to the market price of the underlying
investment, and general market conditions.
The Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a
closing sale transaction. Closing transactions permit the Fund to realize the
profit or limit the loss on an option position prior to its exercise or
expiration.
The Fund may purchase or write both exchange-traded and OTC options.
Exchange-traded options are issued by a clearing organization affiliated with
the exchange on which the option is listed that, in effect, guarantees
completion of every exchange-traded option transaction. In contrast, OTC
options are contracts between the Fund and the other party to the transaction
("counterparty") (usually a securities dealer or a bank) with no clearing
organization guarantee. Thus, when the Fund purchases or writes an OTC option,
it relies on the counterparty to make or take delivery of the underlying
investment upon exercise of the option. Failure by the counterparty to do so
would result in the loss of any premium paid by the Fund as well as the loss of
any expected benefit of the transaction.
The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The Fund intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the counterparty, or by a
transaction in the secondary market if any such market exists. Although the
Fund will enter into OTC options only with counter parties that are expected to
be capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option at a
favorable price prior to expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration. If the Fund were unable to effect a closing
transaction for an option it had purchased, it would have to exercise the
option to realize any profit.
The Fund may engage in options transactions on indices in much the same manner
as the options on securities discussed above, except the index options may
serve as a hedge against overall fluctuations in the securities market
represented by the relevant market index.
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The writing and purchasing of options is a highly specialized activity that
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. Imperfect correlation between the
options and securities markets may detract from the effectiveness of the
attempted hedging.
SPREAD TRANSACTIONS. The Fund may use spread transactions for any lawful
purpose consistent with its investment objective such as hedging or managing
risk. The Fund may purchase covered spread options from securities dealers.
Such covered spread options are not presently exchange-listed or
exchange-traded. The purchase of a spread option gives the Fund the right to
put, or sell, a security that it owns at a fixed dollar spread or fixed yield
spread in relation to another security that the Fund does not own, but which is
used as a benchmark. The risk to the Fund in purchasing covered spread options
is the cost of the premium paid for the spread option and any transaction
costs. In addition, there is no assurance that closing transactions will be
available. The purchase of spread options will be used to protect the Fund
against adverse changes in prevailing credit quality spreads, I.E., the yield
spread between high quality and lower quality securities. Such protection is
only provided during the life of the spread option.
FUTURES CONTRACTS. The Fund may use futures contracts for any lawful purpose
consistent with its investment objective such as hedging or managing risk. The
Fund may enter into futures contracts, including, but not limited to, interest
rate and index futures. The Fund may also purchase put and call options, and
write covered put and call options, on futures in which it is allowed to
invest. The purchase of futures or call options thereon can serve as a long
hedge, and the sale of futures or the purchase of put options thereon can serve
as a short hedge. Writing covered call options on futures contracts can serve
as a limited short hedge, and writing covered put options on futures contracts
can serve as a limited long hedge, using a strategy similar to that used for
writing covered options in securities. The Fund may also write put options on
futures contracts while at the same time purchasing call options on the same
futures contracts in order to create synthetically a long futures contract
position. Such options would have the same strike prices and expiration dates.
The Fund will engage in this strategy only when the Advisor believes it is more
advantageous to the Fund than purchasing the futures contract.
To the extent required by regulatory authorities, the Fund only enters into
futures contracts that are traded on national futures exchanges and are
standardized as to maturity date and underlying financial instrument. Futures
exchanges and trading are regulated under the CEA by the CFTC. Although
techniques other than sales and purchases of futures contracts could be used to
reduce the Fund's exposure to market or interest rate fluctuations, the Fund
may be able to hedge its exposure more effectively and perhaps at a lower cost
through the use of futures contracts.
An interest rate futures contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial
instrument (E.G., debt security) for a specified price at a designated date,
time, and place. An index futures contract is an agreement pursuant to which
the parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading day
of the contract and the price at which the index futures contract was
originally written. Transaction costs are incurred when a futures contract is
bought or sold and margin deposits must be maintained. A futures contract may
be satisfied by delivery or purchase, as the case may be, of the instrument or
by payment of the change in the cash value of the index. More commonly,
futures contracts are closed out prior to delivery by entering into an
offsetting transaction in a matching futures contract. Although the value of
an index might be a function of the value of certain specified securities, no
physical delivery of those securities is made. If the offsetting purchase
price is less than the original sale price, the Fund realizes a gain; if it is
more, the Fund realizes a loss. Conversely, if the offsetting sale price is
more than the original purchase price, the Fund realizes a gain; if it is less,
the Fund realizes a loss. The transaction costs must also be included in these
calculations. There can be no assurance, however, that the Fund will be able
to enter into an offsetting transaction with respect to a particular futures
contract at a particular time. If the Fund is not able to enter into an
offsetting transaction, the Fund will continue to be required to maintain the
margin deposits on the futures contract.
No price is paid by the Fund upon entering into a futures contract. Instead,
at the inception of a futures contract, the Fund is required to deposit in a
segregated account with its custodian, in the name of the futures broker
through whom the transaction was effected, "initial margin" consisting of cash
and/or other appropriate liquid assets in an amount generally equal to 10% or
less of the contract value. Margin must also be deposited when writing a call
or put option on a futures contract, in accordance with applicable exchange
rules. Unlike margin in securities transactions, initial margin on futures
contracts does not represent a borrowing, but rather is in the nature of a
performance bond or good-faith deposit that is returned to the Fund at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility,
the Fund may be required by an exchange to increase the level of its initial
margin payment, and initial margin requirements might be increased generally in
the future by regulatory action.
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Subsequent "variation margin" payments are made to and from the futures broker
daily as the value of the futures position varies, a process known as "marking
to market." Variation margin does not involve borrowing, but rather represents
a daily settlement of the Fund's obligations to or from a futures broker. When
the Fund purchases an option on a future, the premium paid plus transaction
costs is all that is at risk. In contrast, when the Fund purchases or sells a
futures contract or writes a call or put option thereon, it is subject to daily
variation margin calls that could be substantial in the event of adverse price
movements. If the Fund has insufficient cash to meet daily variation margin
requirements, it might need to sell securities at a time when such sales are
disadvantageous. Purchasers and sellers of futures positions and options on
futures can enter into offsetting closing transactions by selling or
purchasing, respectively, an instrument identical to the instrument held or
written. Positions in futures and options on futures may be closed only on an
exchange or board of trade that provides a secondary market. The Fund intends
to enter into futures transactions only on exchanges or boards of trade where
there appears to be a liquid secondary market. However, there can be no
assurance that such a market will exist for a particular contract at a
particular time.
Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a future or option on a futures contract can vary
from the previous day's settlement price; once that limit is reached, no trades
may be made that day at a price beyond the limit. Daily price limits do not
limit potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.
If the Fund were unable to liquidate a futures or option on a futures contract
position due to the absence of a liquid secondary market or the imposition of
price limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in
the case of purchased options, the Fund would continue to be required to make
daily variation margin payments and might be required to maintain the position
being hedged by the future or option or to maintain cash or securities in a
segregated account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or options on futures contracts
might not correlate perfectly with movements in the prices of the investments
being hedged. For example, all participants in the futures and options on
futures contracts markets are subject to daily variation margin calls and might
be compelled to liquidate futures or options on futures contracts positions
whose prices are moving unfavorably to avoid being subject to further calls.
These liquidations could increase price volatility of the instruments and
distort the normal price relationship between the futures or options and the
investments being hedged. Also, because initial margin deposit requirements in
the futures markets are less onerous than margin requirements in the securities
markets, there might be increased participation by speculators in the future
markets. This participation also might cause temporary price distortions. In
addition, activities of large traders in both the futures and securities
markets involving arbitrage, "program trading" and other investment strategies
might result in temporary price distortions.
FOREIGN CURRENCIES. The Fund may purchase and sell foreign currency on a spot
basis, and may use currency-related derivatives instruments such as options on
foreign currencies, futures on foreign currencies, options on futures on
foreign currencies and forward currency contracts (I.E., an obligation to
purchase or sell a specific currency at a specified future date, which may be
any fixed number of days from the contract date agreed upon by the parties, at
a price set at the time the contract is entered into). The Fund may use these
instruments for hedging or any other lawful purpose consistent with the Fund's
investment objective, including transaction hedging, anticipatory hedging,
cross hedging, proxy hedging, and position hedging. The Fund's use of
currency-related derivative instruments will be directly related to the Fund's
current or anticipated portfolio securities, and the Fund may engage in
transactions in currency-related derivative instruments as a means to protect
against some or all of the effects of adverse changes in foreign currency
exchange rates on its investment portfolio. In general, if the currency in
which a portfolio investment is denominated appreciates against the U.S.
dollar, the dollar value of the security will increase. Conversely, a decline
in the exchange rate of the currency would adversely affect the value of the
portfolio investment expressed in U.S. dollars.
For example, the Fund might use currency-related derivative instruments to
"lock in" a U.S. dollar price for a portfolio investment, thereby enabling the
Fund to protect itself against a possible loss resulting from an adverse change
in the relationship between the U.S. dollar and the subject foreign currency
during the period between the date the security is purchased or sold and the
date on which payment is made or received. The Fund also might use
currency-related derivative instruments when the Advisor believes that one
currency may experience a substantial movement against another currency,
including the U.S. dollar, and it may use currency-related derivative
instruments to sell or buy the amount of the former foreign currency,
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency. Alternatively, where appropriate, the
Fund may use currency-related derivative instruments to hedge all or part of
its foreign currency exposure through the use of a basket of currencies or a
proxy currency where such currency or currencies act as an effective proxy for
other currencies. The
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use of this basket hedging technique may be more efficient and economical than
using separate currency-related derivative instruments for each currency
exposure held by the Fund. Furthermore, currency-related derivative
instruments may be used for short hedges - for example, the Fund may sell a
forward currency contract to lock in the U.S. dollar equivalent of the proceeds
from the anticipated sale of a security denominated in a foreign currency.
In addition, the Fund may use a currency-related derivative instrument to shift
exposure to foreign currency fluctuations from one foreign country to another
foreign country where the Advisor believes that the foreign currency exposure
purchased will appreciate relative to the U.S. dollar and thus better protect
the Fund against the expected decline in the foreign currency exposure sold.
For example, if the Fund owns securities denominated in a foreign currency and
the Advisor believes that currency will decline, it might enter into a forward
contract to sell an appropriate amount of the first foreign currency, with
payment to be made in a second foreign currency that the Advisor believes would
better protect the Fund against the decline in the first security than would a
U.S. dollar exposure. Hedging transactions that use two foreign currencies are
sometimes referred to as "cross hedges." The effective use of currency-related
derivative instruments by the Fund in a cross hedge is dependent upon a
correlation between price movements of the two currency instruments and the
underlying security involved, and the use of two currencies magnifies the risk
that movements in the price of one instrument may not correlate or may
correlate unfavorably with the foreign currency being hedged. Such a lack of
correlation might occur due to factors unrelated to the value of the currency
instruments used or investments being hedged, such as speculative or other
pressures on the markets in which these instruments are traded.
The Fund also might seek to hedge against changes in the value of a particular
currency when no hedging instruments on that currency are available or such
hedging instruments are more expensive than certain other hedging instruments.
In such cases, the Fund may hedge against price movements in that currency by
entering into transactions using currency-related derivative instruments on
another foreign currency or a basket of currencies, the values of which the
Advisor believes will have a high degree of positive correlation to the value
of the currency being hedged. The risk that movements in the price of the
hedging instrument will not correlate perfectly with movements in the price of
the currency being hedged is magnified when this strategy is used.
The use of currency-related derivative instruments by the Fund involves a
number of risks. The value of currency-related derivative instruments depends
on the value of the underlying currency relative to the U.S. dollar. Because
foreign currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such derivative
instruments, the Fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots (generally consisting of transactions of greater than $1 million).
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information generally is representative of very large transactions in
the interbank market and thus might not reflect odd-lot transactions where
rates might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying markets
that cannot be reflected in the markets for the derivative instruments until
they re-open.
Settlement of transactions in currency-related derivative instruments might be
required to take place within the country issuing the underlying currency.
Thus, the Fund might be required to accept or make delivery of the underlying
foreign currency in accordance with any U.S. or foreign regulations regarding
the maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
When the Fund engages in a transaction in a currency-related derivative
instrument, it relies on the counterparty to make or take delivery of the
underlying currency at the maturity of the contract or otherwise complete the
contract. In other words, the Fund will be subject to the risk that a loss may
be sustained by the Fund as a result of the failure of the counterparty to
comply with the terms of the transaction. The counterparty risk for
exchange-traded instruments is generally less than for privately negotiated or
OTC currency instruments, since generally a clearing agency, which is the
issuer or counterparty to each instrument, provides a guarantee of performance.
For privately negotiated instruments, there is no similar clearing agency
guarantee. In all transactions, the Fund will bear the risk that the
counterparty will default, and this could result in a loss of the expected
benefit of the transaction and possibly other losses to the Fund. The Fund
will enter into transactions in currency-related derivative instruments only
with counterparties that the Advisor reasonably believes are capable of
performing under the contract.
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Purchasers and sellers of currency-related derivative instruments may enter
into offsetting closing transactions by selling or purchasing, respectively, an
instrument identical to the instrument purchased or sold. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the counterparty. Thus, there can be no assurance
that the Fund will in fact be able to close out a forward currency contract (or
any other currency-related derivative instrument) at a time and price favorable
to the Fund. In addition, in the event of insolvency of the counterparty, the
Fund might be unable to close out a forward currency contract at any time prior
to maturity. In the case of an exchange-traded instrument, the Fund will be
able to close the position out only on an exchange which provides a market for
the instruments. The ability to establish and close out positions on an
exchange is subject to the maintenance of a liquid market, and there can be no
assurance that a liquid market will exist for any instrument at any specific
time. In the case of a privately negotiated instrument, the Fund will be able
to realize the value of the instrument only by entering into a closing
transaction with the issuer or finding a third party buyer for the instrument.
While the Fund will enter into privately negotiated transactions only with
entities who are expected to be capable of entering into a closing transaction,
there can be no assurance that the Fund will in fact be able to enter into such
closing transactions.
The precise matching of currency-related derivative instrument amounts and the
value of the portfolio securities involved generally will not be possible
because the value of such securities, measured in the foreign currency, will
change after the currency-related derivative instrument position has been
established. Thus, the Fund might need to purchase or sell foreign currencies
in the spot (cash) market. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain.
Permissible foreign currency options will include options traded primarily in
the OTC market. Although options on foreign currencies are traded primarily in
the OTC market, the Fund will normally purchase or sell OTC options on foreign
currency only when the Advisor reasonably believes a liquid secondary market
will exist for a particular option at any specific time.
There will be a cost to the Fund of engaging in transactions in
currency-related derivative instruments that will vary with factors such as the
contract or currency involved, the length of the contract period and the market
conditions then prevailing. The Fund using these instruments may have to pay a
fee or commission or, in cases where the instruments are entered into on a
principal basis, foreign exchange dealers or other counterparties will realize
a profit based on the difference ("spread") between the prices at which they
are buying and selling various currencies. Thus, for example, a dealer may
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange should the Fund desire to resell that currency to the
dealer.
When required by the SEC guidelines, the Fund will set aside permissible liquid
assets in segregated accounts or otherwise cover the Fund's potential
obligations under currency-related derivatives instruments. To the extent the
Fund's assets are so set aside, they cannot be sold while the corresponding
currency position is open, unless they are replaced with similar assets. As a
result, if a large portion of the Fund's assets are so set aside, this could
impede portfolio management or the Fund's ability to meet redemption requests
or other current obligations.
The Advisor's decision to engage in a transaction in a particular
currency-related derivative instrument will reflect the Advisor's judgment that
the transaction will provide value to the Fund and its shareholders and is
consistent with the Fund's objectives and policies. In making such a judgment,
the Advisor will analyze the benefits and risks of the transaction and weigh
them in the context of the Fund's entire portfolio and objectives. The
effectiveness of any transaction in a currency-related derivative instrument is
dependent on a variety of factors, including the Advisor's skill in analyzing
and predicting currency values and upon a correlation between price movements
of the currency instrument and the underlying security. There might be
imperfect correlation, or even no correlation, between price movements of an
instrument and price movements of investments being hedged. Such a lack of
correlation might occur due to factors unrelated to the value of the
investments being hedged, such as speculative or other pressures on the markets
in which these instruments are traded. In addition, the Fund's use of
currency-related derivative instruments is always subject to the risk that the
currency in question could be devalued by the foreign government. In such a
case, any long currency positions would decline in value and could adversely
affect any hedging position maintained by the Fund.
The Fund's dealing in currency-related derivative instruments will generally be
limited to the transactions described above. However, the Fund reserves the
right to use currency-related derivatives instruments for different purposes
and under different circumstances. Of course, the Fund is not required to use
currency-related derivatives instruments and will not do so unless deemed
appropriate by the Advisor. It also should be realized that use of these
instruments does not eliminate, or protect against, price movements in the
Fund's securities that are attributable to other (I.E., non-currency related)
causes. Moreover, while the use
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of currency-related derivatives instruments may reduce the risk of loss due to
a decline in the value of a hedged currency, at the same time the use of these
instruments tends to limit any potential gain which may result from an increase
in the value of that currency.
SWAP AGREEMENTS. The Fund may enter into interest rate, securities index,
commodity, or security and currency exchange rate swap agreements for any
lawful purpose consistent with the Fund's investment objective, such as for the
purpose of attempting to obtain or preserve a particular desired return or
spread at a lower cost to the Fund than if the Fund had invested directly in an
instrument that yielded that desired return or spread. The Fund also may enter
into swaps in order to protect against an increase in the price of, or the
currency exchange rate applicable to, securities that the Fund anticipates
purchasing at a later date. Swap agreements are two-party contracts entered
into primarily by institutional investors for periods ranging from a few weeks
to several years. In a standard "swap" transaction, two parties agree to
exchange the returns (or differentials in rates of return) earned or realized
on particular predetermined investments or instruments. The gross returns to
be exchanged or "swapped" between the parties are calculated with respect to a
"notional amount" (I.E., the return on or increase in value of a particular
dollar amount invested at a particular interest rate) in a particular foreign
currency, or in a "basket" of securities representing a particular index. Swap
agreements may include interest rate caps, under which, in return for a
premium, one party agrees to make payments to the other to the extent that
interest rates exceed a specified rate, or "cap;" interest rate floors, under
which, in return for a premium, one party agrees to make payments to the other
to the extent that interest rates fall below a specified level, or "floor;" and
interest rate collars, under which a party sells a cap and purchases a floor,
or vice versa, in an attempt to protect itself against interest rate movements
exceeding given minimum or maximum levels.
The "notional amount" of the swap agreement is the agreed upon basis for
calculating the obligations that the parties to a swap agreement have agreed to
exchange. Under most swap agreements entered into by the Fund, the obligations
of the parties would be exchanged on a "net basis." Consequently, the Fund's
obligation (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement ("net amount").
The Fund's obligation under a swap agreement will be accrued daily (offset
against amounts owed to the Fund) and any accrued but unpaid net amounts owed
to a swap counterparty will be covered by the maintenance of a segregated
account consisting of cash and/or other appropriate liquid assets.
Whether the Fund's use of swap agreements will be successful in furthering its
investment objective will depend, in part, on the Advisor's ability to predict
correctly whether certain types of investments are likely to produce greater
returns than other investments. Swap agreements may be considered to be
illiquid. Moreover, the Fund bears the risk of loss of the amount expected to
be received under a swap agreement in the event of the default or bankruptcy of
a swap agreement counterparty. Certain restrictions imposed on the Fund by the
Internal Revenue Code of 1986 ("IRC") may limit the Fund's ability to use swap
agreements. The swaps market is largely unregulated.
The Fund will enter swap agreements only with counterparties that the Advisor
reasonably believes are capable of performing under the swap agreements. If
there is a default by the other party to such a transaction, the Fund will have
to rely on its contractual remedies (which may be limited by bankruptcy,
insolvency or similar laws) pursuant to the agreements related to the
transaction.
ADDITIONAL DERIVATIVE INSTRUMENTS AND STRATEGIES. In addition to the
derivative instruments and strategies described above and in the Prospectus,
the Advisor expects to discover additional derivative instruments and other
hedging or risk management techniques. The Advisor may utilize these new
derivative instruments and techniques to the extent that they are consistent
with the Fund's investment objective and permitted by the Fund's investment
limitations, operating policies, and applicable regulatory authorities.
FOREIGN INVESTMENT COMPANIES
The Fund may invest, to a limited extent, in foreign investment companies.
Some of the countries in which the Fund invests may not permit direct
investment by outside investors. Investments in such countries may only be
permitted through foreign government-approved or -authorized investment
vehicles, which may include other investment companies. In addition, it may be
less expensive and more expedient for the Fund to invest in a foreign
investment company in a country which permits direct foreign investment.
Investing through such vehicles may involve frequent or layered fees or
expenses and may also be subject to limitation under the 1940 Act. Under the
1940 Act, the Fund may invest up to 10% of its assets in shares of other
investment companies and up to 5% of its assets in any one investment company
as long as the investment does not represent more than 3% of the voting stock
of the acquired investment company. The Fund does not intend to invest in such
investment companies
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unless, in the judgment of the Advisor, the potential benefits of such
investments justify the payment of any associated fees and expenses.
FOREIGN SECURITIES
Investing in foreign securities involves a series of risks not present in
investing in U.S. securities. Many of the foreign securities held by the Fund
will not be registered with the SEC, nor will the foreign issuers be subject to
SEC reporting requirements. Accordingly, there may be less publicly available
information concerning foreign issuers of securities held by the Fund than is
available concerning U.S. companies. Disclosure and regulatory standards in
many respects are less stringent in emerging market countries than in the U.S.
and other major markets. There also may be a lower level of monitoring and
regulation of emerging markets and the activities of investors in such markets,
and enforcement of existing regulations may be extremely limited. Foreign
companies, and in particular, companies in smaller and emerging capital markets
are not generally subject to uniform accounting, auditing and financial
reporting standards, or to other regulatory requirements comparable to those
applicable to U.S. companies. The Fund's net investment income and capital
gains from its foreign investment activities may be subject to non-U.S.
withholding taxes.
The costs attributable to foreign investing that the Fund must bear frequently
are higher than those attributable to domestic investing; this is particularly
true with respect to emerging capital markets. For example, the cost of
maintaining custody of foreign securities exceeds custodian costs for domestic
securities, and transaction and settlement costs of foreign investing also
frequently are higher than those attributable to domestic investing. Costs
associated with the exchange of currencies also make foreign investing more
expensive than domestic investing. Investment income on certain foreign
securities in which the Fund may invest may be subject to foreign withholding
or other government taxes that could reduce the return of these securities.
Tax treaties between the U.S. and foreign countries, however, may reduce or
eliminate the amount of foreign tax to which the Fund would be subject.
Foreign markets also have different clearance and settlement procedures, and in
certain markets there have been times when settlements have failed to keep pace
with the volume of securities transactions, making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when
assets of the Fund are uninvested and are earning no investment return. The
inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss investment opportunities. Inability to
dispose of a portfolio security due to settlement problems could result either
in losses to the Fund due to subsequent declines in the value of such portfolio
security or, if the Fund has entered into a contract to sell the security,
could result in possible liability to the purchaser.
HIGH-YIELD (HIGH-RISK) SECURITIES
IN GENERAL. Non-investment grade debt obligations ("lower-quality securities")
include (1) bonds rated as low as C by Moody's Investors ("Moody's"), Standard
& Poor's Ratings Group ("S&P"), and comparable ratings of other nationally
recognized statistical rating organizations ("NRSROs"); (2) commercial paper
rated as low as C by S&P, Not Prime by Moody's, and comparable ratings of other
NRSROs; and (3) unrated debt obligations of comparable quality. Lower-quality
securities, while generally offering higher yields than investment grade
securities with similar maturities, involve greater risks, including the
possibility of default or bankruptcy. They are regarded as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal. The special risk considerations in connection with investments in
these securities are discussed below. Refer to the Appendix for a description
of the securities ratings.
EFFECT OF INTEREST RATES AND ECONOMIC CHANGES. The lower-quality and
comparable unrated security market is relatively new and its growth has
paralleled a long economic expansion. As a result, it is not clear how this
market may withstand a prolonged recession or economic downturn. Such
conditions could severely disrupt the market for and adversely affect the value
of such securities.
All interest-bearing securities typically experience appreciation when interest
rates decline and depreciation when interest rates rise. The market values of
lower-quality and comparable unrated securities tend to reflect individual
corporate developments to a greater extent than do higher rated securities,
which react primarily to fluctuations in the general level of interest rates.
Lower-quality and comparable unrated securities also tend to be more sensitive
to economic conditions than are higher-rated securities. As a result, they
generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising
interest rates, highly leveraged issuers of lower-quality and comparable
unrated securities may experience financial stress and may not have sufficient
revenues to meet their payment obligations. The issuer's ability to service
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its debt obligations may also be adversely affected by specific corporate
developments, the issuer's inability to meet specific projected business
forecasts or the unavailability of additional financing. The risk of loss due
to default by an issuer of these securities is significantly greater than
issuers of higher-rated securities because such securities are generally
unsecured and are often subordinated to other creditors. Further, if the
issuer of a lower-quality or comparable unrated security defaulted, the Fund
might incur additional expenses to seek recovery. Periods of economic
uncertainty and changes would also generally result in increased volatility in
the market prices of these securities and thus in the Fund's net asset value.
As previously stated, the value of a lower-quality or comparable unrated
security will decrease in a rising interest rate market and accordingly, so
will the Fund's net asset value. If the Fund experiences unexpected net
redemptions in such a market, it may be forced to liquidate a portion of its
portfolio securities without regard to their investment merits. Due to the
limited liquidity of lower-quality and comparable unrated securities (discussed
below), the Fund may be forced to liquidate these securities at a substantial
discount. Any such liquidation would force the Fund to sell the more liquid
portion of its portfolio.
PAYMENT EXPECTATIONS. Lower-quality and comparable unrated securities
typically contain redemption, call or prepayment provisions which permit the
issuer of such securities containing such provisions to, at its discretion,
redeem the securities. During periods of falling interest rates, issuers of
these securities are likely to redeem or prepay the securities and refinance
them with debt securities with a lower interest rate. To the extent an issuer
is able to refinance the securities, or otherwise redeem them, the Fund may
have to replace the securities with a lower yielding security, which would
result in a lower return for the Fund.
CREDIT RATINGS. Credit ratings issued by credit rating agencies are designed
to evaluate the safety of principal and interest payments of rated securities.
They do not, however, evaluate the market value risk of lower-quality
securities and, therefore, may not fully reflect the true risks of an
investment. In addition, credit rating agencies may or may not make timely
changes in a rating to reflect changes in the economy or in the condition of
the issuer that affect the market value of the security. Consequently, credit
ratings are used only as a preliminary indicator of investment quality.
Investments in lower-quality and comparable unrated obligations will be more
dependent on the Advisor's credit analysis than would be the case with
investments in investment-grade debt obligations. The Advisor employs its own
credit research and analysis, which includes a study of existing debt, capital
structure, ability to service debt and to pay dividends, the issuer's
sensitivity to economic conditions, its operating history and the current trend
of earnings. The Advisor continually monitors the investments in the Fund's
portfolio and carefully evaluates whether to dispose of or to retain
lower-quality and comparable unrated securities whose credit ratings or credit
quality may have changed.
LIQUIDITY AND VALUATION. The Fund may have difficulty disposing of certain
lower-quality and comparable unrated securities because there may be a thin
trading market for such securities. Because not all dealers maintain markets
in all lower-quality and comparable unrated securities, there is no established
retail secondary market for many of these securities. The Fund anticipates
that such securities could be sold only to a limited number of dealers or
institutional investors. To the extent a secondary trading market does exist,
it is generally not as liquid as the secondary market for higher-rated
securities. The lack of a liquid secondary market may have an adverse impact
on the market price of the security. As a result, the Fund's asset value and
ability to dispose of particular securities, when necessary to meet the Fund's
liquidity needs or in response to a specific economic event, may be impacted.
The lack of a liquid secondary market for certain securities may also make it
more difficult for the Fund to obtain accurate market quotations for purposes
of valuing the Fund's portfolio. Market quotations are generally available on
many lower-quality and comparable unrated issues only from a limited number of
dealers and may not necessarily represent firm bids of such dealers or prices
for actual sales. During periods of thin trading, the spread between bid and
asked prices is likely to increase significantly. In addition, adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of lower-quality and comparable
unrated securities, especially in a thinly traded market.
LEGISLATION. Legislation may be adopted, from time to time, designed to limit
the use of certain lower-quality and comparable unrated securities by certain
issuers. It is anticipated that if additional legislation is enacted or
proposed, it could have a material affect on the value of these securities and
the existence of a secondary trading market for the securities.
ILLIQUID SECURITIES
The Fund may invest in illiquid securities (I.E., securities that are not
readily marketable). However, the Fund will not acquire illiquid securities
if, as a result, the illiquid securities would comprise more than 15% (10% for
money market funds) of the value of the Fund's net assets (or such other
amounts as may be permitted under the 1940 Act). However, as a matter of
internal policy, the Advisor intends to limit the Fund's investments in
illiquid securities to 10% of its net assets.
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The Board of Directors of the Fund, or its delegate, has the ultimate authority
to determine, to the extent permissible under the federal securities laws,
which securities are illiquid for purposes of this limitation. Certain
securities exempt from registration or issued in transactions exempt from
registration under the Securities Act of 1933, as amended ("Securities Act"),
such as securities that may be resold to institutional investors under Rule
144A under the Securities Act and Section 4(2) commercial paper, may be
considered liquid under guidelines adopted by the Fund's Board of Directors.
The Board of Directors of the Fund has delegated to the Advisor the day-to-day
determination of the liquidity of a security, although it has retained
oversight and ultimate responsibility for such determinations. The Board of
Directors has directed the Advisor to look to such factors as (1) the frequency
of trades or quotes for a security, (2) the number of dealers willing to
purchase or sell the security and number of potential buyers, (3) the
willingness of dealers to undertake to make a market in the security, (4) the
nature of the security and nature of the marketplace trades, such as the time
needed to dispose of the security, the method of soliciting offers, and the
mechanics of transfer, (5) the likelihood that the security's marketability
will be maintained throughout the anticipated holding period, and (6) any other
relevant factors. The Advisor may determine 4(2) commercial paper to be liquid
if (1) the 4(2) commercial paper is not traded flat or in default as to
principal and interest, (2) the 4(2) commercial paper is rated in one of the
two highest rating categories by at least two NRSROs, or if only one NRSRO
rates the security, by that NRSRO, or is determined by the Advisor to be of
equivalent quality, and (3) the Advisor considers the trading market for the
specific security taking into account all relevant factors. With respect to
any foreign holdings, a foreign security may be considered liquid by the
Advisor (despite its restricted nature under the Securities Act) if the
security can be freely traded in a foreign securities market and all the facts
and circumstances support a finding of liquidity.
Restricted securities may be sold only in privately negotiated transactions or
in a public offering with respect to which a registration statement is in
effect under the Securities Act. Where registration is required, the Fund may
be obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time the
Fund may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to
develop, the Fund might obtain a less favorable price than prevailed when it
decided to sell. Restricted securities will be priced in accordance with
pricing procedures adopted by the Board of Directors of the Fund. If through
the appreciation of restricted securities or the depreciation of unrestricted
securities the Fund should be in a position where more than 15% of the value of
its net assets are invested in illiquid securities, including restricted
securities which are not readily marketable (except for 144A Securities and
4(2) commercial paper deemed to be liquid by the Advisor), the Fund will take
such steps as is deemed advisable, if any, to protect the liquidity of the
Fund's portfolio.
The Fund may sell OTC options and, in connection therewith, segregate assets or
cover its obligations with respect to OTC options written by the Fund. The
assets used as cover for OTC options written by the Fund will be considered
illiquid unless the OTC options are sold to qualified dealers who agree that
the Fund may repurchase any OTC option it writes at a maximum price to be
calculated by a formula set forth in the option agreement. The cover for an
OTC option written subject to this procedure would be considered illiquid only
to the extent that the maximum repurchase price under the formula exceeds the
intrinsic value of the option.
LENDING OF PORTFOLIO SECURITIES
The Fund is authorized to lend up to 33 1/3% of the total value of its
portfolio securities to broker-dealers or institutional investors that the
Advisor deems qualified, but only when the borrower maintains with the Fund's
custodian bank collateral either in cash or money market instruments in an
amount at least equal to the market value of the securities loaned, plus
accrued interest and dividends, determined on a daily basis and adjusted
accordingly. Although the Fund is authorized to lend, the Fund does not
presently intend to engage in lending. In determining whether to lend
securities to a particular broker-dealer or institutional investor, the Advisor
will consider, and during the period of the loan will monitor, all relevant
facts and circumstances, including the creditworthiness of the borrower. The
Fund will retain authority to terminate any loans at any time. The Fund may
pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The Fund
will receive reasonable interest on the loan or a flat fee from the borrower
and amounts equivalent to any dividends, interest or other distributions on the
securities loaned. The Fund will retain record ownership of loaned securities
to exercise beneficial rights, such as voting and subscription rights and
rights to dividends, interest or other distributions, when retaining such
rights is considered to be in the Fund's interest.
MORTGAGE- AND ASSET-BACKED DEBT SECURITIES
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Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and collateralized
mortgage obligations. Such securities may be issued or guaranteed by U.S.
government agencies or instrumentalities, such as the Government National
Mortgage Association and the Federal National Mortgage Association, or by
private issuers, generally originators and investors in mortgage loans,
including savings associations, mortgage bankers, commercial banks, investment
bankers, and special purpose entities (collectively, "private lenders").
Mortgage-backed securities issued by private lenders may be supported by pools
of mortgage loans or other mortgage-backed securities that are guaranteed,
directly or indirectly, by the U.S. government or one of its agencies or
instrumentalities, or they may be issued without any governmental guarantee of
the underlying mortgage assets but with some form of non-governmental credit
enhancement.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. Asset-backed debt obligations represent direct or
indirect participation in, or are secured by and payable from, assets such as
motor vehicle installment sales contracts, other installment loan contracts,
home equity loans, leases of various types of property, and receivables from
credit card or other revolving credit arrangements. The credit quality of most
asset-backed securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement of the
securities. Payments or distributions of principal and interest on
asset-backed debt obligations may be supported by non-governmental credit
enhancements including letters of credit, reserve funds, overcollateralization,
and guarantees by third parties. The market for privately issued asset-backed
debt obligations is smaller and less liquid than the market for government
sponsored mortgage-backed securities.
The rate of principal payment on mortgage- and asset-backed securities
generally depends on the rate of principal payments received on the underlying
assets which in turn may be affected by a variety of economic and other
factors. As a result, the yield on any mortgage- and asset-backed security is
difficult to predict with precision and actual yield to maturity may be more or
less than the anticipated yield to maturity. The yield characteristics of
mortgage- and asset-backed securities differ from those of traditional debt
securities. Among the principal differences are that interest and principal
payments are made more frequently on mortgage-and asset-backed securities,
usually monthly, and that principal may be prepaid at any time because the
underlying mortgage loans or other assets generally may be prepaid at any time.
As a result, if the Fund purchases these securities at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing the yield to maturity. Conversely, if the Fund purchases these
securities at a discount, a prepayment rate that is faster than expected will
increase yield to maturity, while a prepayment rate that is slower than
expected will reduce yield to maturity. Amounts available for reinvestment by
the Fund are likely to be greater during a period of declining interest rates
and, as a result, are likely to be reinvested at lower interest rates than
during a period of rising interest rates. Accelerated prepayments on
securities purchased by the Fund at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is prepaid in full. The market for privately issued mortgage- and
asset-backed securities is smaller and less liquid than the market for
government-sponsored mortgage-backed securities.
While many mortgage- and asset-backed securities are issued with only one class
of security, many are issued in more than one class, each with different
payment terms. Multiple class mortgage- and asset-backed securities are issued
for two main reasons. First, multiple classes may be used as a method of
providing credit support. This is accomplished typically through creation of
one or more classes whose right to payments on the security is made subordinate
to the right to such payments of the remaining class or classes. Second,
multiple classes may permit the issuance of securities with payment terms,
interest rates, or other characteristics differing both from those of each
other and from those of the underlying assets. Examples include so-called
"strips" (mortgage- and asset-backed securities entitling the holder to
disproportionate interests with respect to the allocation of interest and
principal of the assets backing the security), and securities with class or
classes having characteristics which mimic the characteristics of non-mortgage-
or asset-backed securities, such as floating interest rates (I.E., interest
rates which adjust as a specified benchmark changes) or scheduled amortization
of principal.
The Fund may invest in stripped mortgage- or asset-backed securities, which
receive differing proportions of the interest and principal payments from the
underlying assets. The market value of such securities generally is more
sensitive to changes in prepayment and interest rates than is the case with
traditional mortgage- and asset-backed securities, and in some cases such
market value may be extremely volatile. With respect to certain stripped
securities, such as interest only and principal only classes, a rate of
prepayment that is faster or slower than anticipated may result in the Fund
failing to recover all or a portion of its investment, even though the
securities are rated investment grade.
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Mortgage- and asset-backed securities backed by assets, other than as described
above, or in which the payment streams on the underlying assets are allocated
in a manner different than those described above may be issued in the future.
The Fund may invest in such securities if such investment is otherwise
consistent with its investment objectives and policies and with the investment
restrictions of the Fund.
MUNICIPAL OBLIGATIONS
IN GENERAL. Municipal obligations are debt obligations issued by or on behalf
of states, territories, and possessions of the United States and the District
of Columbia and their political subdivisions, agencies, and instrumentalities.
Municipal obligations generally include debt obligations issued to obtain funds
for various public purposes. Certain types of municipal obligations are issued
in whole or in part to obtain funding for privately operated facilities or
projects. Municipal obligations include general obligation bonds, revenue
bonds, industrial development bonds, notes, and municipal lease obligations.
Municipal obligations also include obligations, the interest on which is exempt
from federal income tax, that may become available in the future as long as the
Board of Directors of the Fund determines that an investment in any such type
of obligation is consistent with the Fund's investment objective.
BONDS AND NOTES. General obligation bonds are secured by the issuer's pledge of
its full faith, credit, and taxing power for the payment of interest and
principal. Revenue bonds are payable only from the revenues derived from a
project or facility or from the proceeds of a specified revenue source.
Industrial development bonds are generally revenue bonds secured by payments
from and the credit of private users. Municipal notes are issued to meet the
short-term funding requirements of state, regional, and local governments.
Municipal notes include tax anticipation notes, bond anticipation notes,
revenue anticipation notes, tax and revenue anticipation notes, construction
loan notes, short-term discount notes, tax-exempt commercial paper, demand
notes, and similar instruments.
LEASE OBLIGATIONS. Municipal lease obligations may take the form of a lease, an
installment purchase, or a conditional sales contract. They are issued by state
and local governments and authorities to acquire land, equipment, and
facilities, such as state and municipal vehicles, telecommunications and
computer equipment, and other capital assets. The Fund may purchase these
obligations directly, or it may purchase participation interests in such
obligations. (See "Participation Interests" below.) Municipal leases are
generally subject to greater risks than general obligation or revenue bonds.
State constitutions and statutes set forth requirements that states or
municipalities must meet in order to issue municipal obligations. Municipal
leases may contain a covenant by the state or municipality to budget for,
appropriate, and make payments due under the obligation. Certain municipal
leases may, however, contain "non-appropriation" clauses which provide that the
issuer is not obligated to make payments on the obligation in future years
unless funds have been appropriated for this purpose each year. Accordingly,
such obligations are subject to "non-appropriation" risk. While municipal
leases are secured by the underlying capital asset, it may be difficult to
dispose of any such asset in the event of non-appropriation or other default.
MORTGAGE-BACKED BONDS. The Fund's investments in municipal obligations may
include mortgage-backed municipal obligations, which are a type of municipal
security issued by a state, authority, or municipality to provide financing for
residential housing mortgages to target groups, generally low-income
individuals who are first-time home buyers. The Fund's interest, evidenced by
such obligations, is an undivided interest in a pool of mortgages. Payments
made on the underlying mortgages and passed through to the Fund will represent
both regularly scheduled principal and interest payments. The Fund may also
receive additional principal payments representing prepayments of the
underlying mortgages. While a certain level of prepayments can be expected,
regardless of the interest rate environment, it is anticipated that prepayment
of the underlying mortgages will accelerate in periods of declining interest
rates. In the event that the Fund receives principal prepayments in a declining
interest-rate environment, its reinvestment of such funds may be in bonds with
a lower yield.
PARTICIPATION INTERESTS
A participation interest gives the Fund an undivided interest in a municipal
obligation in the proportion that the Fund's participation interest bears to
the principal amount of the obligation. These instruments may have fixed,
floating, or variable rates of interest. The Fund will only purchase
participation interests if accompanied by an opinion of counsel that the
interest earned on the underlying municipal obligations will be tax-exempt. If
the Fund purchases unrated participation interests, the Board of Directors or
its delegate must have determined that the credit risk is equivalent to the
rated obligations in which the Fund may invest. Participation interests may be
backed by a letter of credit or guaranty of the selling institution. When
determining whether such a participation interest meets the Fund's credit
quality requirements, the Fund may look to the credit quality of any financial
guarantor providing a letter of credit or guaranty.
24
<PAGE>
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks or non-bank
dealers. In a repurchase agreement, the Fund buys a security at one price, and
at the time of sale, the seller agrees to repurchase the obligation at a
mutually agreed upon time and price (usually within seven days). The
repurchase agreement, thereby, determines the yield during the purchaser's
holding period, while the seller's obligation to repurchase is secured by the
value of the underlying security. The Advisor will monitor, on an ongoing
basis, the value of the underlying securities to ensure that the value always
equals or exceeds the repurchase price plus accrued interest. Repurchase
agreements could involve certain risks in the event of a default or insolvency
of the other party to the agreement, including possible delays or restrictions
upon the Fund's ability to dispose of the underlying securities. Although no
definitive creditworthiness criteria are used, the Advisor reviews the
creditworthiness of the banks and non-bank dealers with which the Fund enters
into repurchase agreements to evaluate those risks. The Fund may, under
certain circumstances, deem repurchase agreements collateralized by U.S.
government securities to be investments in U.S. government securities.
REVERSE REPURCHASE AGREEMENTS AND MORTGAGE DOLLAR ROLLS
The Fund may engage in reverse repurchase agreements to facilitate portfolio
liquidity, a practice common in the mutual fund industry, or for arbitrage
transactions as discussed below. In a reverse repurchase agreement, the Fund
would sell a security and enter into an agreement to repurchase the security at
a specified future date and price. The Fund generally retains the right to
interest and principal payments on the security. Since the Fund receives cash
upon entering into a reverse repurchase agreement, it may be considered a
borrowing. When required by guidelines of the SEC, the Fund will set aside
permissible liquid assets in a segregated account to secure its obligations to
repurchase the security.
The Fund may also enter into mortgage dollar rolls, in which the Fund would
sell mortgage-backed securities for delivery in the current month and
simultaneously contract to purchase substantially similar securities on a
specified future date. While the Fund would forego principal and interest paid
on the mortgage-backed securities during the roll period, the Fund would be
compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The Fund also could be compensated through the receipt of
fee income equivalent to a lower forward price. At the time the Fund would
enter into a mortgage dollar roll, it would set aside permissible liquid assets
in a segregated account to secure its obligation for the forward commitment to
buy mortgage-backed securities. Mortgage dollar roll transactions may be
considered a borrowing by the Fund.
The mortgage dollar rolls and reverse repurchase agreements entered into by the
Fund may be used as arbitrage transactions in which the Fund will maintain an
offsetting position in investment grade debt obligations or repurchase
agreements that mature on or before the settlement date on the related mortgage
dollar roll or reverse repurchase agreements. Since the Fund will receive
interest on the securities or repurchase agreements in which it invests the
transaction proceeds, such transactions may involve leverage. However, since
such securities or repurchase agreements will be high quality and will mature
on or before the settlement date of the mortgage dollar roll or reverse
repurchase agreement, the Advisor believes that such arbitrage transactions do
not present the risks to the Fund that are associated with other types of
leverage.
SHORT SALES
The Fund may sell securities short (1) to hedge unrealized gains on portfolio
securities or (2) if it covers such short sale with liquid assets as required
by the current rules and positions of the SEC or its staff. Selling securities
short against the box involves selling a security that the Fund owns or has the
right to acquire, for delivery at a specified date in the future. If the Fund
sells securities short against the box, it may protect unrealized gains, but
will lose the opportunity to profit on such securities if the price rises.
SMALL AND MEDIUM COMPANIES
The Fund may invest its assets in small- and medium-capitalization companies.
While small- and medium-capitalization companies generally have the potential
for rapid growth, investments in small- and medium-capitalization companies
often involve greater risks than investments in larger, more established
companies because small- and medium-capitalization 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-capitalization companies are traded only
25
<PAGE>
OTC or on a regional securities exchange, and the frequency and volume of their
trading is substantially less than is typical of larger companies. Therefore,
the securities of small- and medium-capitalization companies may be subject to
greater and more abrupt price fluctuations. When making large sales, the Fund
may have to sell portfolio holdings at discounts from quoted prices or may have
to make a series of small sales over an extended period of time due to the
trading volume of small and medium company securities. Investors should be
aware that, based on the foregoing factors, an investment in the Fund may be
subject to greater price fluctuations than an investment in the Fund that
invests primarily in larger, more established companies. The Advisor's
research efforts may also play a greater role in selecting securities for the
Fund than in the Fund that invests in larger, more established companies.
STANDBY COMMITMENTS
In order to facilitate portfolio liquidity, the Fund may acquire standby
commitments from brokers, dealers, or banks with respect to securities in its
portfolio. Standby commitments entitle the holder to achieve same-day
settlement and receive an exercise price equal to the amortized cost of the
underlying security plus accrued interest. Standby commitments generally
increase the cost of the acquisition of the underlying security, thereby
reducing the yield. Standby commitments are subject to the issuer's ability to
fulfill its obligation upon demand. Although no definitive creditworthiness
criteria are used, the Advisor reviews the creditworthiness of the brokers,
dealers, and banks from which the Fund obtains standby commitments to evaluate
those risks.
U.S. 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. Securities
issued by government agencies or instrumentalities include obligations of the
following:
- - the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, and
the Government National Mortgage Association ("GNMA"), including GNMA
pass-through certificates, whose securities are supported by the full faith
and credit of the United States;
- - the Federal Home Loan Banks, Federal Intermediate Credit Banks, and the
Tennessee Valley Authority, whose securities are supported by the right of
the agency to borrow from the U.S. Treasury;
- - the Federal National Mortgage Association, whose securities are supported by
the discretionary authority of the U.S. government to purchase certain
obligations of the agency or instrumentality; and
- - the Student Loan Marketing Association, the Interamerican Development Bank,
and International Bank for Reconstruction and Development, whose securities
are supported only by the credit of such agencies.
Although the U.S. government provides financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so. The U.S. government and its agencies and
instrumentalities do not guarantee the market value of their securities;
consequently, the value of such securities will fluctuate.
WARRANTS
The Fund may acquire warrants. Warrants are securities giving the holder the
right, but not the obligation, to buy the stock of an issuer at a given price
(generally higher than the value of the stock at the time of issuance) during
a specified period or perpetually. Warrants may be acquired separately or in
connection with the acquisition of securities. Warrants do not carry with
them the right to dividends or voting rights with respect to the securities
that they entitle their holder to purchase, and they do not represent any
rights in the assets of the issuer. As a result, warrants may be considered
to have more speculative characteristics than certain other types of
investments. In addition, the value of a warrant does not necessarily change
with the value of the underlying securities, and a warrant ceases to have
value if it is not exercised prior to its expiration date.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
The Fund may purchase securities on a when-issued or delayed-delivery basis.
The price of debt obligations so purchased, which may be expressed in yield
terms, generally is fixed at the time the commitment to purchase is made, but
delivery and payment for the securities take place at a later date. During
the period between the purchase and settlement, no payment is made by the Fund
to the issuer and no interest on the debt obligations accrues to the Fund.
Forward commitments involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the Fund's other assets. While when-issued
and delayed-delivery securities may be sold prior to the settlement date, the
Fund intends
26
<PAGE>
to purchase such securities with the purpose of actually acquiring them unless
a sale appears desirable for investment reasons. At the time the Fund makes
the commitment to purchase these types of securities, it will record the
transaction and reflect the value of the security in determining its net asset
value. The Fund does not believe that its net asset value will be adversely
affected by these types of securities purchases.
To the extent required by the SEC, the Fund will maintain cash and marketable
securities equal in value to commitments for when-issued or delayed-delivery
securities. Such segregated securities either will mature or, if necessary,
be sold on or before the settlement date. When the time comes to pay for
when-issued or delayed-delivery securities, the Fund will meet its obligations
from then-available cash flow, sale of the securities held in the separate
account, described above, sale of other securities or, although it would not
normally expect to do so, from the sale of the when-issued or delayed-delivery
securities themselves (which may have a market value greater or less than the
Fund's payment obligation).
ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES
The Fund may invest in zero-coupon, step-coupon, and pay-in-kind securities.
These securities are debt securities that do not make regular cash interest
payments. Zero-coupon and step-coupon securities are sold at a deep discount
to their face value. Pay-in-kind securities pay interest through the issuance
of additional securities. Because such securities do not pay current cash
income, the price of these securities can be volatile when interest rates
fluctuate. While these securities do not pay current cash income, federal
income tax law requires the holders of zero-coupon, step-coupon, and
pay-in-kind securities to include in income each year the portion of the
original issue discount (or deemed discount) and other non-cash income on such
securities accruing that year. In order to continue to qualify as a
"regulated investment company" or "RIC" under the IRC and avoid a certain
excise tax, the Fund may be required to distribute a portion of such discount
and income and may be required to dispose of other portfolio securities, which
may occur in periods of adverse market prices, in order to generate cash to
meet these distribution requirements.
27
<PAGE>
DIRECTORS AND OFFICERS
The Board of Directors of the Fund is responsible for managing the Fund's
business and affairs. Directors and officers of the Fund, together with
information as to their principal business occupations during the last five
years, and other information are shown below. Each director who is deemed an
"interested person," as defined in the 1940 Act, is indicated by an asterisk
(*). Each officer and director holds the same position with the 27 registered
open-end management investment companies consisting of 56 mutual funds
("Strong Funds"). The Strong Funds, in the aggregate, pay each Director who
is not a director, officer, or employee of the Advisor, or any affiliated
company (a "disinterested director") an annual fee of $86,000 plus $6,000 per
Board meeting, except for the Chairman of the Independent Directors Committee.
The Chairman of the Independent Directors Committee receives an annual fee of
$94,600 plus $6,600 per Board meeting. In addition, each disinterested
director is reimbursed by the Strong Funds for travel and other expenses
incurred in connection with attendance at such meetings. Other officers and
directors of the Strong Funds receive no compensation or expense reimbursement
from the Strong Funds.
*RICHARD S. STRONG (DOB 5/12/42), Director and Chairman of the Board of the
Strong Funds.
Prior to August 1985, Mr. Strong was Chief Executive Officer of the Advisor,
which he founded in 1974. Since August 1985, Mr. Strong has been a Security
Analyst and Portfolio Manager of the Advisor. In October 1991, Mr. Strong
also became the Chairman of the Advisor. Mr. Strong is a Director of the
Advisor. Mr. Strong has been in the investment management business since
1967.
MARVIN E. NEVINS (DOB 7/9/18), Director of the Strong Funds.
Private Investor. From 1945 to 1980, Mr. Nevins was Chairman of Wisconsin
Centrifugal Inc., a foundry. From 1980 until 1981, Mr. Nevins was the Chairman
of the Wisconsin Association of Manufacturers & Commerce. He has been a
Director of A-Life Medical, Inc., San Diego, CA since 1996 and Surface Systems,
Inc. (a weather information company), St. Louis, MO since 1992. He was also a
regent of the Milwaukee School of Engineering and a member of the Board of
Trustees of the Medical College of Wisconsin and Carroll College.
WILLIE D. DAVIS (DOB 7/24/34), Director of the Strong Funds.
Mr. Davis has been Director of Alliance Bank since 1980, Sara Lee Corporation
(a food/consumer products company) since 1983, KMart Corporation (a discount
consumer products company) since 1985, Dow Chemical Company since 1988, MGM
Grand, Inc. (an entertainment/hotel company) since 1990, WICOR, Inc. (a utility
company) since 1990, Johnson Controls, Inc. (an industrial company) since 1992,
Checker's Hamburger, Inc. since 1994, and MGM, Inc. (an entertainment company)
since 1998. Mr. Davis has been a trustee of the University of Chicago since
1980 and Marquette University since 1988. Since 1977, Mr. Davis has been
President and Chief Executive Officer of All Pro Broadcasting, Inc. Mr. Davis
was a Director of the Fireman's Fund (an insurance company) from 1975 until
1990.
STANLEY KRITZIK (DOB 1/9/30), Director of the Strong Funds.
Mr. Kritzik has been a Partner of Metropolitan Associates since 1962, a
Director of Aurora Health Care since 1987, and Health Network Ventures, Inc.
since 1992.
WILLIAM F. VOGT (DOB 7/19/47), Director and Chairman of the Independent
Directors Committee of the Strong Funds.
Mr. Vogt has been the President of Vogt Management Consulting, Inc. since 1990.
From 1982 until 1990, he served as Executive Director of University Physicians
of the University of Colorado. Mr. Vogt is the Past President of the Medical
Group Management Association and a Fellow of the American College of Medical
Practice Executives.
NEAL MALICKY (DOB 9/14/34), Director of the Strong Funds.
Mr. Malicky has been Chancellor at Baldwin-Wallace College since July 1999.
From 1981 to July 1999, he served as President of Baldwin-Wallace College. He
is a Trustee of Southwest Community Health Systems, Cleveland Scholarship
Program, and The National Conference for Community Justice (NCCJ). He is also
the Past President of the National Association of Schools
28
<PAGE>
and Colleges of the United Methodist Church, the Past Chairperson of the
Association of Independent Colleges and Universities of Ohio, and the Past
Secretary of the National Association of Independent Colleges and Universities.
STEPHEN J. SHENKENBERG (DOB 6/14/58), Vice President and Secretary of the
Strong Funds.
Mr. Shenkenberg has been Deputy General Counsel of the Advisor since November
1996. From December 1992 until November 1996, Mr. Shenkenberg acted as
Associate Counsel to the Advisor. From June 1987 until December 1992, Mr.
Shenkenberg was an attorney for Godfrey & Kahn, S.C., a Milwaukee law firm.
JOHN S. WEITZER (DOB 10/31/67), Vice President of the Strong Funds.
Mr. Weitzer has been Senior Counsel of the Advisor since December 1997. From
July 1993 until December 1997, Mr. Weitzer acted as Associate Counsel to the
Advisor.
THOMAS M. ZOELLER (DOB 2/21/64), Vice President of the Strong Funds.
Mr. Zoeller has been Senior Vice President and Chief Financial Officer of the
Advisor since February 1998 and a member of the Office of the Chief Executive
since November 1998. From October 1991 to February 1998, Mr. Zoeller was the
Treasurer and Controller of the Advisor, and from August 1991 to October 1991
he was the Controller. From August 1989 to August 1991, Mr. Zoeller was the
Assistant Controller of the Advisor. From September 1986 to August 1989, Mr.
Zoeller was a Senior Accountant at Arthur Andersen & Co.
DENNIS A. WALLESTAD (DOB 11/3/62), Vice President of the Strong Funds.
Mr. Wallestad has been Director of Finance and Operations of the Advisor since
February 1999. From April 1997 to February 1999, Mr. Wallestad was the Chief
Financial Officer of The Ziegler Companies, Inc. From November 1996 to April
1997, Mr. Wallestad was the Chief Administrative Officer of Calamos Asset
Management, Inc. From July 1994 to November 1996, Mr. Wallestad was Chief
Financial Officer for Firstar Trust and Investments Group. From September 1991
to June 1994 and from September 1985 to August 1989, Mr. Wallestad was an Audit
Manager for Arthur Andersen & Co., LLP in Milwaukee. Mr. Wallestad completed a
Masters of Accountancy from the University of Oklahoma from September 1989 to
August 1991.
JOHN W. WIDMER (DOB 1/19/65), Treasurer of the Strong Funds.
Mr. Widmer has been Treasurer of the Advisor since April 1999. From May 1997
to January 2000, Mr. Widmer was the Manager of Financial Management and Sales
Reporting Systems. From May 1992 to May 1997, Mr. Widmer was an Accounting
and Business Advisory Manager in the Milwaukee office of Arthur Andersen LLP.
From June 1987 to May 1992, Mr. Widmer was an accountant at Arthur Andersen
LLP.
RHONDA K. HAIGHT (DOB 11/13/64), Assistant Treasurer of the Strong Funds.
Ms. Haight has been Manager of the Mutual Fund Accounting Department of the
Advisor since January 1994. From May 1990 to January 1994, Ms. Haight was a
supervisor in the Mutual Fund Accounting Department of the Advisor. From June
1987 to May 1990, Ms. Haight was a Mutual Fund Accountant of the Advisor.
Except for Messrs. Nevins, Davis, Kritzik, Vogt, and Malicky, the address of
all of the above persons is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr.
Nevins' address is 6075 Pelican Bay Boulevard #1006, Naples, Florida 34108.
Mr. Davis' address is 161 North La Brea, Inglewood, California 90301. Mr.
Kritzik's address is 1123 North Astor Street, P.O. Box 92547, Milwaukee,
Wisconsin 53202-0547. Mr. Vogt's address is P.O. Box 7657, Avon, CO 81620.
Mr. Malicky's address is 518 Bishop Place, Berea, OH 44017.
29
<PAGE>
Unless otherwise noted below, as of March 31, 2000, the officers and directors
of the Fund in the aggregate beneficially owned less than 1% of any class of
the Fund's then outstanding shares.
<TABLE>
<CAPTION>
<S> <C> <C>
FUND CLASS/SHARES PERCENT
- ------------------- ------------------------------ -------------------
Common Stock 2,337,374 3.43%
Enterprise Advisor Class - 292 99.70%
Growth Advisor Class - 343 99.84%
Institutional Class - 343 16.41%
Growth 20 Investor Class - 536,879 2.66%
Advisor Class - 410 99.43%
Mid Cap Disciplined 57,123 12.66%
Opportunity Advisor Class - 348 100%
Strategic Growth 53,418 13.74%
</TABLE>
PRINCIPAL SHAREHOLDERS
Unless otherwise noted below, as of March 31, 2000 no persons owned of record
or are known to own of record or beneficially more than 5% of any class of the
Fund's then outstanding shares.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AND ADDRESS FUND/CLASS/SHARES PERCENT
- ------------------------------------------------------------------------------------
Emre & Co. Common Stock - 6,013,196 8.81%
P.O. Box 1408
Milwaukee, WI 53201-1408
Mitra & Co. Common Stock - 4,237,253 6.21%
1000 N. Water St.
Milwaukee, WI 53202-6648
Strong Capital Management, Inc. Enterprise - Advisor Class - 292 99.70%*
100 Heritage Reserve
Menomonee Falls, WI 53051-4400
Emre & Co. Growth - Investor Class - 4,847,986 5.08%
P.O. Box 1408
Milwaukee, WI 53201-1408
Strong Capital Management, Inc. Growth - Advisor Class - 343 99.84%*
100 Heritage Reserve
Menomonee Falls, WI 53051-4400
City Securities Corporation (FBO) Growth - Institutional Class - 1,747 83.59%*
Susanna Kwitny
135 N. Pennsylvania, Suite 2200
Indianapolis, IN 46204
Strong Capital Management, Inc. Growth - Institutional Class - 343 16.41%
100 Heritage Reserve
Menomonee Falls, WI 53051-4400
Strong Capital Management, Inc. Growth 20 - Advisor Class - 410 99.43%*
100 Heritage Reserve
Menomonee Falls, WI 53051-4400
Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, WI 53051-4400 Mid Cap Disciplined - 50,000 11.08%
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Emre & Co. Mid Cap Disciplined - 31,569 7.00%
P.O. Box 1408
Milwaukee, WI 53201-1408
Strong Capital Management, Inc. Opportunity - Advisor Class - 348 100%*
100 Heritage Reserve
Menomonee Falls, WI 53051-4400
Emre & Co. Small Cap Value - 1,133,032 17.12%
P.O. Box 1408
Milwaukee, WI 53201-1408
Strong Investments, Inc. Strategic Growth - 52,539 13.51%
100 Heritage Reserve
Menomonee Falls, WI 53051-4400
Charles F. Streich Strategic Growth - 24,702 6.35%
1423 W. Westport Circle
Mequon, WI 53092-5753
</TABLE>
* This represents the initial capital of the class of shares of the Fund.
INVESTMENT ADVISOR
The Fund has entered into an Advisory Agreement with Strong Capital
Management, Inc. ("Advisor"). Mr. Strong controls the Advisor due to his
stock ownership of the Advisor. Mr. Strong is the Chairman and a Director of
the Advisor, Mr. Zoeller is Senior Vice President and Chief Financial Officer
of the Advisor, Mr. Wallestad is Senior Vice President of the Advisor, Mr.
Shenkenberg is Vice President, Secretary, Chief Compliance Officer, and Deputy
General Counsel of the Advisor, Mr. Weitzer is Senior Counsel of the Advisor,
Mr. Widmer is Treasurer of the Advisor, and Ms. Haight is Manager of the
Mutual Fund Accounting Department of the Advisor. As of March 31, 2000, the
Advisor had over $45 billion under management.
The Advisory Agreement is required to be approved annually by either the Board
of Directors of the Fund or by vote of a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act). In either case, each annual
renewal must be approved by the vote of a majority of the Fund's directors who
are not parties to the Advisory Agreement or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement is terminable, without penalty, on 60 days
written notice by the Board of Directors of the Fund, by vote of a majority of
the Fund's outstanding voting securities, or by the Advisor, and will
terminate automatically in the event of its assignment.
Under the terms of the Advisory Agreement, the Advisor manages the Fund's
investments subject to the supervision of the Fund's Board of Directors. The
Advisor is responsible for investment decisions and supplies investment
research and portfolio management. The Advisory Agreement authorizes the
Advisor to delegate its investment advisory duties to a subadvisor in
accordance with a written agreement under which the subadvisor would furnish
such investment advisory services to the Advisor. In that situation, the
Advisor continues to have responsibility for all investment advisory services
furnished by the subadvisor under the subadvisory agreement. At its expense,
the Advisor provides office space and all necessary office facilities,
equipment and personnel for servicing the investments of the Fund. The
Advisor places all orders for the purchase and sale of the Fund's portfolio
securities at the Fund's expense.
Except for expenses assumed by the Advisor, as set forth above, or by Strong
Investments, Inc. with respect to the distribution of the Fund's shares, the
Fund is responsible for all its other expenses, including, without limitation,
interest charges, taxes, brokerage commissions, and similar expenses; expenses
of issue, sale, repurchase or redemption of shares; expenses of registering or
qualifying shares for sale with the states and the SEC; expenses for printing
and distribution of prospectuses to existing shareholders; charges of
custodians (including fees as custodian for keeping books and similar services
for the Fund),
31
<PAGE>
transfer agents (including the printing and mailing of reports and notices to
shareholders), registrars, auditing and legal services, and clerical services
related to recordkeeping and shareholder relations; printing of stock
certificates; fees for directors who are not "interested persons" of the
Advisor; expenses of indemnification; extraordinary expenses; and costs of
shareholder and director meetings.
On January 28, 2000, the Board of Directors of the Fund determined that
certain administrative services provided by the Advisor under the then current
Advisory Agreement should be provided pursuant to a separate administration
agreement, which would more clearly delineate the nature of the administrative
services to be provided and the cost to the Fund associated with those
administrative services. The Board of Directors also approved an amendment to
the Advisory Agreement ("Amended Advisory Agreement") that would remove all
references in the Advisory Agreement regarding the provision of administrative
services and approved the adoption of a separate Administration Agreement with
the Advisor. The specific terms of the new Administration Agreement are
described below. The advisory and administrative services that will be
provided under the Amended Advisory Agreement and the new Administration
Agreement for the then existing class of shares will be, at a minimum, the
same services as those provided under the then current Advisory Agreement for
the then existing class of shares, the quality of those services will remain
the same, and the personnel performing such services will remain the same.
As a result of these arrangements, the annual advisory fee paid by each Fund,
has been reduced by 0.25% of the average daily net asset value of the Fund,
effective February 24, 2000. In no event will the fees under the
Administrative Agreement for the Investor Class and Advisor Class shares of
these Funds exceed 0.25% of the average daily net asset value of the Fund. In
no event will the fees under the Administrative Agreement for the
Institutional Class shares of the Fund exceed 0.02% of the average daily net
asset value of the Fund.
The Institutional and Advisor Class shares of the Growth Fund and the Advisor
Class shares of the Enterprise, Growth 20, and Opportunity Funds were not
affected by the new advisory and administrative agreements because these
classes of funds were first offered for sale on February 24, 2000.
As compensation for its advisory services, the Fund pays to the Advisor a
monthly management fee at the annual rate specified below of the average daily
net asset value of the Fund. From time to time, the Advisor may voluntarily
waive all or a portion of its management fee for the Fund.
<TABLE>
<CAPTION>
<S> <C> <C>
FUND CURRENT ANNUAL RATE ANNUAL RATE PRIOR TO 2/24/00
- ------------------------- ------------------------- ----------------------------
Common Stock Fund 0.75% 1.00%
Discovery Fund 0.75% 1.00%
Enterprise Fund 0.75% 1.00%
Growth Fund 0.75% 1.00%
Growth 20 Fund 0.75% 1.00%
Mid Cap Disciplined Fund 0.75% 1.00%
Mid Cap Growth Fund 0.75% 1.00%
Opportunity Fund 0.75% 1.00%
Small Cap Value Fund 0.75% 1.00%
Strategic Growth Fund 0.75% 1.00%
U.S. Emerging Growth Fund 0.75% 1.00%
Value Fund 1.00% 1.00%
</TABLE>
32
<PAGE>
The Fund paid the following management fees for the time periods indicated:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MANAGEMENT FEE
FISCAL YEAR ENDED MANAGEMENT FEE ($) WAIVER ($) AFTER WAIVER ($)
- ----------------- ------------------ ---------------- ----------------
</TABLE>
Common Stock Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
12/31/97 14,265,537 0 14,265,537
12/31/98 15,452,856 0 15,452,856
12/31/99 14,472,235 0 14,472,235
</TABLE>
Discovery Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
12/31/97 3,953,837 0 3,953,837
12/31/98 3,425,884 0 3,425,884
12/31/99 2,300,355 0 2,300,355
</TABLE>
Enterprise Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
12/31/98(1) 12,485 0 12,485
12/31/99 1,292,024 0 1,292,024
</TABLE>
Growth Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
12/31/97 15,115,440 0 15,115,440
12/31/98 16,039,806 0 16,039,806
12/31/99 21,857,266 0 21,857,266
</TABLE>
Growth 20 Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
12/31/97(2) 217,559 0 217,559
12/31/98 571,511 0 571,511
12/31/99 1,998,780 0 1,998,780
</TABLE>
Mid Cap Disciplined Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
12/31/99 48,065 0 48,065
</TABLE>
Mid Cap Growth Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
12/31/97 145,489 0 145,489
12/31/98 196,702 0 196,702
12/31/99 322,609 0 322,609
</TABLE>
Opportunity Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
12/31/97 18,114,956 0 18,114,956
12/31/98 20,312,655 0 20,312,655
12/31/99 21,885,763 0 21,885,763
</TABLE>
Small Cap Value Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
12/31/98 177,751 0 177,751
12/31/99 281,859 0 281,859
</TABLE>
33
<PAGE>
Strategic Growth Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
12/31/98(3) 15,546 0 15,546
12/31/99 36,938 0 36,938
</TABLE>
U.S. Emerging Growth Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
12/31/99 138,413 0 138,413
</TABLE>
Value Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
12/31/97 750,219 0 750,219
12/31/98 948,313 0 948,313
12/31/99 772,670 0 772,670
</TABLE>
(1) Commenced operations on September 29, 1998
(2) Commenced operations on June 30, 1997.
(3) Commenced operations on May 20, 1998.
The organizational expenses for the Fund which were advanced by the Advisor
and which will be reimbursed by the Fund over a period of not more than 60
months from the Fund's date of inception are listed below.
<TABLE>
<CAPTION>
<S> <C>
FUND ORGANIZATIONAL EXPENSES
- ---------------------- -----------------------
Growth 20 Fund $1,355
Mid Cap Growth Fund $5,044
Small Cap Value Fund $12,120
Value Fund $1,638
</TABLE>
The Advisory Agreement requires the Advisor to reimburse the Fund in the event
that the expenses and charges payable by the Fund in any fiscal year,
including the management fee but excluding taxes, interest, brokerage
commissions, and similar fees and to the extent permitted extraordinary
expenses, exceed two percent (2%) of the average net asset value of the Fund
for such year, as determined by valuations made as of the close of each
business day of the year. Reimbursement of expenses in excess of the
applicable limitation will be made on a monthly basis and will be paid to the
Fund by reduction of the Advisor's fee, subject to later adjustment, month by
month, for the remainder of the Fund's fiscal year. The Advisor may from time
to time voluntarily absorb expenses for the Fund in addition to the
reimbursement of expenses in excess of applicable limitations.
On July 12, 1994, the SEC filed an administrative action ("Order") against the
Advisor, Mr. Strong, and another employee of the Advisor in connection with
conduct that occurred between 1987 and early 1990. In re Strong/Corneliuson
Capital Management, Inc., et al. Admin. Proc. File No. 3-8411. The proceeding
was settled by consent without admitting or denying the allegations in the
Order. The Order found that the Advisor and Mr. Strong aided and abetted
violations of Section 17(a) of the 1940 Act by effecting trades between mutual
funds, and between mutual funds and Harbour Investments Ltd. ("Harbour"),
without complying with the exemptive provisions of SEC Rule 17a-7 or otherwise
obtaining an exemption. It further found that the Advisor violated, and Mr.
Strong aided and abetted violations of, the disclosure provisions of the 1940
Act and the Investment Advisers Act of 1940 by misrepresenting the Advisor's
policy on personal trading and by failing to disclose trading by Harbour, an
entity in which principals of the Advisor owned between 18 and 25 percent of
the voting stock. As part of the settlement, the respondents agreed to a
censure and a cease and desist order and the Advisor agreed to various
undertakings, including adoption of certain procedures and a limitation for
six months on accepting certain types of new advisory clients.
On June 6, 1996, the Department of Labor ("DOL") filed an action against the
Advisor for equitable relief alleging violations of the Employee Retirement
Income Security Act of 1974 ("ERISA") in connection with cross trades that
occurred between 1987 and late 1989 involving certain pension accounts managed
by the Advisor. Contemporaneous with this filing, the Advisor, without
admitting or denying the DOL's allegations, agreed to the entry of a consent
judgment resolving all matters relating to the allegations. Reich v. Strong
Capital Management, Inc., (U.S.D.C. E.D. WI) ("Consent Judgment"). Under the
terms of the Consent Judgment, the Advisor agreed to reimburse the affected
accounts a total of $5.9 million. The settlement did not have any material
impact on the Advisor's financial position or operations.
34
<PAGE>
The Fund and the Advisor have adopted a Code of Ethics ("Code") which governs
the personal trading activities of all "Access Persons" of the Advisor.
Access Persons include every director and officer of the Advisor and the
investment companies managed by the Advisor, including the Fund, as well as
certain employees of the Advisor who have access to information relating to
the purchase or sale of securities by the Advisor on behalf of accounts
managed by it. The Code is based upon the principal that such Access Persons
have a fiduciary duty to place the interests of the Fund and the Advisor 's
other clients ahead of their own.
The Code requires Access Persons (other than Access Persons who are
independent directors of the investment companies managed by the Advisor,
including the Fund) to, among other things, preclear their securities
transactions (with limited exceptions, such as transactions in shares of
mutual funds, direct obligations of the U.S. government, and certain options
on broad-based securities market indexes) and to execute such transactions
through the Advisor's trading department. The Code, which applies to all
Access Persons (other than Access Persons who are independent directors of the
investment companies managed by the Advisor, including the Fund), includes a
ban on acquiring any securities in an initial public offering, other than a
new offering of a registered open-end investment company, and a prohibition
from profiting on short-term trading in securities. In addition, no Access
Person may purchase or sell any security which is contemporaneously being
purchased or sold, or to the knowledge of the Access Person, is being
considered for purchase or sale, by the Advisor on behalf of any mutual fund
or other account managed by it. Finally, the Code provides for trading "black
out" periods of seven calendar days during which time Access Persons who are
portfolio managers may not trade in securities which have been purchased or
sold by any mutual fund or other account managed by the portfolio manager.
The Advisor provides investment advisory services for multiple clients through
different types of investment accounts (E.G., mutual funds, hedge funds,
separately managed accounts, etc.) who may have similar or different
investment objectives and investment policies (E.G., some accounts may have an
active trading strategy while others follow a "buy and hold" strategy). In
managing these accounts, the Advisor seeks to maximize each account's return,
consistent with the account's investment objectives and investment strategies.
While the Advisor's policies are designed to ensure that over time
similarly-situated clients receive similar treatment, to the maximum extent
possible, because of the range of the Advisor's clients, the Advisor may give
advice and take action with respect to one account that may differ from the
advice given, or the timing or nature of action taken, with respect to another
account (the Advisor, its principals and associates also may take such actions
in their personal securities transactions, to the extent permitted by and
consistent with the Code). For example, the Advisor may use the same
investment style in managing two accounts, but one may have a shorter-term
horizon and accept high-turnover while the other may have a longer-term
investment horizon and desire to minimize turnover. If the Advisor reasonably
believes that a particular security may provide an attractive opportunity due
to short-term volatility but may no longer be attractive on a long-term basis,
the Advisor may cause accounts with a shorter-term investment horizon to buy
the security at the same time it is causing accounts with a longer-term
investment horizon to sell the security. The Advisor takes all reasonable
steps to ensure that investment opportunities are, over time, allocated to
accounts on a fair and equitable basis relative to the other
similarly-situated accounts and that the investment activities of different
accounts do not unfairly disadvantage other accounts.
From time to time, the Advisor votes the shares owned by the Fund according to
its Statement of General Proxy Voting Policy ("Proxy Voting Policy"). The
general principal of the Proxy Voting Policy is to vote any beneficial
interest in an equity security prudently and solely in the best long-term
economic interest of the Fund and its beneficiaries considering all relevant
factors and without undue influence from individuals or groups who may have an
economic interest in the outcome of a proxy vote. Shareholders may obtain a
copy of the Proxy Voting Policy upon request from the Advisor.
The Advisor also provides a program of custom portfolio management called the
Strong Advisor. This program is designed to determine which investment
approach fits an investor's financial needs and then provides the investor
with a custom built portfolio of Strong Funds based on that allocation. The
Advisor, on behalf of participants in the Strong Advisor program, may
determine to invest a portion of the program's assets in any one Strong Fund,
which investment, particularly in the case of a smaller Strong Fund, could
represent a material portion of the Fund's assets. In such cases, a decision
to redeem the Strong Advisor program's investment in a Fund on short notice
could raise a potential conflict of interest for the Advisor, between the
interests of participants in the Strong Advisor program and of the Fund's
other shareholders. In general, the Advisor does not expect to direct the
Strong Advisor program to make redemption requests on short notice. However,
should the Advisor determine this to be necessary, the Advisor will use its
best efforts and act in good faith to balance the potentially competing
interests of participants in the Strong Advisor program and the Fund's other
shareholders in a manner the Advisor deems most appropriate for both parties
in light of the circumstances.
35
<PAGE>
From time to time, the Advisor may make available to third parties current and
historical information about the portfolio holdings of the Advisor's mutual
funds or other clients. Release may be made to entities such as fund ratings
entities, industry trade groups, and financial publications. Generally, the
Advisor will release this type of information only where it is otherwise
publicly available. This information may also be released where the Advisor
reasonably believes that the release will not be to the detriment of the best
interests of its clients.
For more complete information about the Advisor, including its services,
investment strategies, policies, and procedures, please call 800-368-3863 and
ask for a copy of Part II of the Advisor's Form ADV.
INVESTMENT SUBADVISOR
U.S. EMERGING GROWTH FUND
The Advisor has entered into a Subadvisory Agreement with Next Century Growth
Investors, LLC ("Subadvisor") with respect to the Fund. Under the terms of
the Subadvisory Agreement, the Subadvisor furnishes investment advisory and
portfolio management services to the Fund with respect to its investments.
The Subadvisor is responsible for decisions to buy and sell the Fund's
investments and all other transactions related to investment and the
negotiation of brokerage commissions, if any, except that the Advisor is
responsible for managing the cash equivalent investments maintained by the
Fund in the ordinary course of its business and which, on average, are
expected to equal approximately 5% of the Fund's total assets. During the
term of the Subadvisory Agreement, the Subadvisor will bear all expenses
incurred by it in connection with its services under such agreement.
The Subadvisory Agreement may be terminated at any time, without payment of any
penalty, by vote of the Board of Directors of the fund or buy a vote of a
majority of the outstanding voting securities of the Fund on 60 days written
notice to the Subadvisor. The Subadvisory Agreement may also be terminated by
the Advisor for breach upon 20 days notice, immediately in the event that the
Subadvisor becomes unable to discharge its duties and obligations, and upon 60
days notice for any reason. The Subadvisory Agreement may be terminated by the
Subadvisor upon 180 days notice for any reason. The Subadvisory Agreement will
terminate automatically in the event of its unauthorized assignment.
The Subadvisory Agreement requires the Advisor, not the Fund, to pay the
Subadvisor a monthly fee based on the following annual rate. The Advisor will
pay the Subadvisor a fee equal to an annual rate of 0.50% of the Fund's
average daily net asset value minus 50% of any payments the Advisor is
obligated to make to third party financial intermediaries for various
administrative services such third party intermediaries provide for the Fund's
shareholders who invest through them.
The Subadvisor received the following subadvisory fees from the Advisor for
the time periods indicated.
<TABLE>
<CAPTION>
<S> <C>
FISCAL YEAR ENDED SUBADVISORY FEE ($)
- ------------------- -------------------
12/31/99 54,763
</TABLE>
The Subadvisor has adopted a Code of Ethics which is substantially identical
to the Code discussed above under "Investment Advisor."
The Fund's portfolio managers and one other person ("Investment Managers"),
and the Advisor entered into a Limited Liability Company Agreement (the "LLC
Agreement") forming the Subadvisor. Mr. Thomas L. Press, one of the
Investment Managers of the Subadvisor, controls the Subadvisor pursuant to the
terms of the LLC Agreement. The Advisor's ownership interest in the
Subadvisor may raise conflicts of interest in some situations.
The LLC Agreement provides that the Subadvisor shall be managed and controlled
by the Subadvisor's Board of Directors. Currently, there are three directors.
One of the directors is designated by the Advisor. The LLC Agreement grants
to the Advisor, subject to applicable regulatory requirements, a right of
first refusal pursuant to which the Advisor may purchase, under certain
circumstances, and subject to certain restrictions any selling Investment
Manager's interest in the Subadvisor. The Advisor has sole responsibility for
all distribution and marketing activities relating to the Fund's shares for as
long as the Advisor is a member of the Subadvisor. In addition to the Fund,
the Subadvisor is an investment subadvisor to other accounts for which the
Advisor acts as investment advisor.
36
<PAGE>
VALUE FUND
The Advisor has entered into a Subadvisory Agreement with Sloate, Weisman,
Murray & Company, Inc. ("Subadvisor") with respect to the Value Fund. Under
the terms of the Subadvisory Agreement, the Subadvisor furnishes investment
advisory and portfolio management services to the Fund with respect to its
investments. The Subadvisor is responsible for decisions to buy and sell the
Fund's investments and all other transactions related to investments and the
negotiation of brokerage commissions, if any, except that the Advisor is
responsible for managing the cash equivalent investments maintained by the
Fund in the ordinary course of its business and which, on average, are
expected to equal approximately five to seven percent of the Fund's total
assets. Purchases and sales of securities on a securities exchange are
effected through brokers who charge a negotiated commission for their
services. During the term of the Subadvisory Agreement, the Subadvisor will
bear all expenses incurred by it in connection with its services under such
agreement.
The Subadvisory Agreement requires the Advisor, not the Fund, to pay the
Subadvisor a monthly fee based on the following annual rates. The Advisor
will pay the Subadvisor 60% of management fees collected by the Advisor from
the Fund on $74 million, 50% of management fees collected by the Advisor from
the Fund on net assets from $74 million to $300 million in the Fund, and 40%
of management fees collected by the Advisor from the Fund on assets in excess
of $300 million in the Fund.
The Advisor has one relationship with the Subadvisor that is not related to
the subadvisory arrangement for the fund. For more than 10 years, the Advisor
has obtained third party investment research from the Subadvisor through soft
dollar brokerage arrangements with various broker-dealers.
The Subadvisor received the following subadvisory fees from the Advisor for
the time periods indicated.
<TABLE>
<CAPTION>
<S> <C>
FISCAL YEAR ENDED SUBADVISORY FEE ($)
- ------------------- -------------------
12/31/97 439,090
12/31/98 546,267
12/31/99 472,762
</TABLE>
ADMINISTRATOR
The Fund has entered into a separate administration agreement with the Advisor
in order to provide administration services to the Fund that previously were
provided under the Advisory Agreement ("Administration Agreement").
The Fund has adopted a Rule 18f-3 Plan under the 1940 Act ("Multi-Class Plan").
The Multi-Class Plan permits the Fund to have multiple classes of shares. The
Fund has entered into a separate administration agreement with the Advisor for
each of its separate class of shares ("Administration Agreement - Investor
Class," "Administration Agreement - Institutional Class," and "Administration
Agreement - Advisor Class"). The Growth Fund currently offers three classes of
shares: Investor Class shares, Advisor Class shares, and Institutional Class
shares. The Enterprise, Growth 20, and Opportunity Funds currently offer two
classes of shares: Investor Class shares and Advisor Class shares. The Common
Stock, Mid Cap Disciplined, Mid Cap Growth, Small Cap Value, Strategic Growth,
U.S. Emerging Growth, and Value Funds currently offer only one class of shares:
Investor Class shares.
The fees received and the services provided by the Advisor, as administrator,
are in addition to fees received and services provided by the Advisor under the
Amended Advisory Agreement.
ADMINISTRATION AGREEMENT - INVESTOR CLASS
Under the Administration Agreement - Investor Class, the Advisor provides
certain administrative functions for the Investor Class shares of the Fund,
including: (i) authorizing expenditures and approving bills for payment on
behalf of the Fund and the Investor Class shares; (ii) supervising preparation
of the periodic updating of the Fund's registration statements with respect to
the Investor Class shares, including Investor Class prospectuses and
statements of additional information, for the purpose of filings with the SEC
and state securities administrators and monitoring and maintaining the
effectiveness of such filings, as appropriate; (iii) supervising preparation
of shareholder reports, notices of dividends, capital gains distributions and
tax credits for the Fund's Investor Class shareholders, and attending to
routine correspondence and other communications with individual Investor Class
shareholders; (iv) supervising the daily pricing of the Fund's investment
portfolios and the publication of the respective net asset values of the
Investor Class shares of the Fund, earnings reports and other financial data
to the extent required by the Fund's
37
<PAGE>
Advisory Agreement prior to the adoption of this Administration Agreement; (v)
monitoring relationships with organizations providing services to the Fund,
with respect to the Investor Class shares, including the Custodian, DST and
printers; (vi) supervising compliance by the Fund, with respect to the Investor
Class Shares, with recordkeeping requirements under the 1940 Act and
regulations thereunder, maintaining books and records for the Fund (other than
those maintained by the Custodian and the Fund's transfer agent) and preparing
and filing of tax reports other than the Fund's income tax returns;
(vii) answering shareholder inquiries regarding account status and history, the
manner in which purchases and redemptions of the Investor Class shares may be
effected, and certain other matters pertaining to the Investor Class shares;
(viii) assisting shareholders in designating and changing dividend options,
account designations and addresses; (ix) providing necessary personnel and
facilities to coordinate the establishment and maintenance of shareholder
accounts and records with the Fund's transfer agent; (x) transmitting
shareholders' purchase and redemption orders to the Fund's transfer agent; (xi)
arranging for the wiring or other transfer of funds to and from shareholder
accounts in connection with shareholder orders to purchase or redeem Investor
Class shares; (xii) verifying purchase and redemption orders, transfers among
and changes in shareholder-designated accounts; (xiii) informing the
distributor of the gross amount of purchase and redemption orders for Investor
Class shares; and (xiv) providing such other related services as the Fund or a
shareholder may reasonably request, to the extent permitted by applicable law.
For its services for the Investor Class shares of the Fund under the
Administration Agreement - Investor Class, the Advisor receives a monthly fee
from the Fund at the annual rate of 0.25% of the Fund's average daily net
assets attributable to the Investor Class shares.
ADMINISTRATION AGREEMENT - INSTITUTIONAL CLASS
Under the Administration Agreement - Institutional Class, the Advisor provides
certain administrative functions for the Institutional Class shares of the
Fund, including: (i) authorizing expenditures and approving bills for payment
on behalf of the Fund and the Institutional Class shares; (ii) supervising
preparation of the periodic updating of the Fund's registration statements
with respect to the Institutional Class shares, including Institutional Class
prospectuses and statements of additional information, for the purpose of
filings with the SEC and state securities administrators and monitoring and
maintaining the effectiveness of such filings, as appropriate; (iii)
supervising preparation of shareholder reports, notices of dividends, capital
gains distributions and tax credits for the Fund's Institutional Class
shareholders, and attending to routine correspondence and other communications
with individual shareholders; (iv) supervising the daily pricing of the Fund's
investment portfolios and the publication of the respective net asset values
of the Institutional Class shares of the Fund, earnings reports and other
financial data to the extent required by the Fund's Advisory Agreement prior
to the adoption of this Administration Agreement; (v) monitoring relationships
with organizations providing services to the Fund, with respect to the
Institutional Class shares, including the Custodian, DST and printers; (vi)
supervising compliance by the Fund, with respect to the Institutional Class
shares, with recordkeeping requirements under the 1940 Act and regulations
thereunder, maintaining books and records for the Fund (other than those
maintained by the Custodian and the Fund's transfer agent) and preparing and
filing of tax reports other than the Fund's income tax returns; (vii)
transmitting shareholders' purchase and redemption orders to the Fund's
transfer agent; (viii) arranging for the wiring or other transfer of funds to
and from shareholder accounts in connection with shareholder orders to
purchase or redeem Institutional Class shares; (ix) verifying purchase and
redemption orders, transfers among and changes in shareholder-designated
accounts; (x) informing the distributor of the gross amount of purchase and
redemption orders for Institutional Class shares; and (xi) providing such
other related services as the Fund or a shareholder may reasonably request, to
the extent permitted by applicable law. For its services for the
Institutional Class shares of the Fund under the Administration Agreement -
Institutional Class, the Advisor receives a monthly fee from the Fund at the
annual rate of 0.02% of the Fund's average daily net assets attributable to
the Institutional Class shares.
ADMINISTRATION AGREEMENT - ADVISOR CLASS
Under the Administration Agreement - Advisor Class, the Advisor provides
certain administrative functions for the Advisor Class shares of the Fund,
including: (i) authorizing expenditures and approving bills for payment on
behalf of the Fund and the Advisor Class shares; (ii) supervising preparation
of the periodic updating of the Fund's registration statements with respect to
the Advisor Class shares, including Advisor Class prospectuses and statements
of additional information, for the purpose of filings with the SEC and state
securities administrators and monitoring and maintaining the effectiveness of
such filings, as appropriate; (iii) supervising preparation of shareholder
reports, notices of dividends, capital gains distributions and tax credits for
the Fund's Advisor Class shareholders, and attending to routine correspondence
and other communications with individual shareholders; (iv) supervising the
daily pricing of the Fund's investment portfolios and the publication of the
respective net asset values of the Advisor Class shares of the Fund, earnings
reports and other financial data to the extent required by the Fund's Advisory
Agreement prior to the adoption of this Administration Agreement; (v)
monitoring relationships with organizations providing services to the Fund,
with respect to the Advisor Class shares, including the Custodian, DST and
printers; (vi) supervising
38
<PAGE>
compliance by the Fund, with respect to the Advisor Class shares, with
recordkeeping requirements under the 1940 Act and regulations thereunder,
maintaining books and records for the Fund (other than those maintained by the
Custodian and the Fund's transfer agent) and preparing and filing of tax
reports other than the Fund's income tax returns; (vii) providing necessary
personnel and facilities to coordinate the establishment and maintenance of
shareholder accounts and records with the Fund's transfer agent;
(viii) transmitting shareholders' purchase and redemption orders to the Fund's
transfer agent; (ix) arranging for the wiring or other transfer of funds to and
from shareholder accounts in connection with shareholder orders to purchase or
redeem Advisor Class shares; (x) verifying purchase and redemption orders,
transfers among and changes in shareholder-designated accounts; (xi) informing
the distributor of the gross amount of purchase and redemption orders for
Advisor Class shares; and (xii) providing such other related services as the
Fund or a shareholder may reasonably request, to the extent permitted by
applicable law. For its services for the Advisor Class shares of the Fund
under the Administration Agreement - Advisor Class, the Advisor receives a
monthly fee from the Fund at the annual rate of 0.25% of the Fund's average
daily net assets attributable to the Advisor Class shares.
DISTRIBUTOR
Under a Distribution Agreement with the Fund ("Distribution Agreement"),
Strong Investments, Inc. ("Distributor"), P.O. Box 2936, Milwaukee, Wisconsin,
53201, acts as underwriter of the Fund's shares. Mr. Strong is the Chairman
and Director of the Distributor, and Mr. Shenkenberg is Vice President, Chief
Compliance Officer and Secretary of the Distributor. The Distribution
Agreement provides that the Distributor will use its best efforts to
distribute the Fund's shares. The Distribution Agreement further provides
that the Distributor will bear the additional costs of printing prospectuses
and shareholder reports which are used for selling purposes, as well as
advertising and any other costs attributable to the distribution of the Fund's
shares. The Distributor is a direct subsidiary of the Advisor and controlled
by the Advisor and Richard S. Strong. The Distribution Agreement is subject
to the same termination and renewal provisions as are described above with
respect to the Advisory Agreement.
The Investor Class shares of the Fund and the Institutional Class shares of
the Growth Fund are offered on a "no-load" basis, which means that no sales
commissions are charged on the purchases of those shares.
The Advisor Class shares of each Fund are offered at net asset value plus an
initial sales charge. The "offering price" is the initial sales charge plus
the net asset value. The Distributor may pay up to 100% of the applicable
initial sales charges due upon the purchase of the Advisor Class shares to the
brokers, if any, involved in the transaction. As compensation for its
services under the Distribution Agreement, the Distributor may retain all or a
portion of the initial sales charge from purchases of Advisor Class shares of
the Enterprise, Growth, Growth 20, and Opportunity Funds. See Appendix B for
more information on Advisor Class shares, including sales charge break points
and waivers.
Pursuant to a distribution plan adopted on behalf of the Advisor Class shares
of the Enterprise, Growth, Growth 20, and Opportunity Funds in accordance to
Rule 12b-1 ("Rule 12b-1 Plan") under the 1940 Act, the Distribution Agreement
for the Advisor Class shares of the Fund authorizes the Fund to bear the costs
of preparing and mailing prospectuses and shareholder reports that are used
for selling purposes as well as advertising and other costs attributable to
the distribution of those shares. Under the Distribution Agreement for the
Advisor Class shares of the Fund, payments to the Distributor under the Rule
12b-1 Plan are limited to payment at an annual rate equal of 0.25% of average
daily net assets attributable to Advisor Class shares.
From time to time, the Distributor may hold in-house sales incentive programs
for its associated persons under which these persons may receive compensation
awards in connection with the sale and distribution of the Fund's shares.
These awards may include items such as, but not limited to, cash, gifts,
merchandise, gift certificates, and payment of travel expenses, meals, and
lodging. Any in-house sales incentive program will be conducted in accordance
with the rules of the National Association of Securities Dealers, Inc.
("NASD").
39
<PAGE>
THE FOLLOWING SECTION APPLIES TO THE ADVISOR CLASS SHARES OF THE ENTERPRISE,
GROWTH, GROWTH 20, AND OPPORTUNITY FUNDS ONLY.
DISTRIBUTION PLAN
The Fund has adopted a Rule 12b-1 Plan pursuant to Rule 12b-1 under the 1940
Act, on behalf of the Advisor Class shares of the Fund. The Rule 12b-1 Plan
authorizes the Fund, with respect to its Advisor Class shares, to make
payments to the Distributor in connection with the distribution of its Advisor
Class shares at an annual rate of up to 1.00% of the Fund's average daily net
assets attributable to its Advisor Class shares. However, under the
Distribution Agreement for the Advisor Class shares of the Fund, payments to
the Distributor under the Rule 12b-1 Plan are limited to payment at an annual
rate equal of 0.25% of average daily net assets attributable to Advisor Class
shares. Amounts received by the Distributor under the Distribution Agreement
for the Advisor Class shares of the Fund may be spent by the Distributor for
any activities or expenses primarily intended to result in the sale of Advisor
Class shares or the servicing of shareholders, including, but not limited to:
compensation to and expenses, including overhead and telephone expenses, of
employees of the Distributor who engage in or support the distribution of
Advisor Class shares; printing and distribution of prospectuses, statements of
additional information and any supplements thereto, and shareholder reports to
persons other than existing shareholders; preparation, printing and
distribution of sales literature and advertising materials; holding seminars
and sales meetings with wholesale and retail sales personnel, which are
designed to promote the distribution of Advisor Class shares; and compensation
of broker-dealers. The Distributor may determine the services to be provided
by the broker-dealer to shareholders in connection with the sale of Advisor
Class shares. All or any portion of the compensation paid to the Distributor
may be reallocated by the Distributor to broker-dealers who sell Advisor Class
shares.
The Rule 12b-1 Plan is known as a "compensation" plan because payments under
the Rule 12b-1 Plan are made for services rendered to the Fund with respect to
its Advisor Class shares regardless of the level of expenditures by the
Distributor. The Board of Directors of the Fund, however, will take into
account any expenditures made by the Distributor for purposes of both their
quarterly review of the operation of the Rule 12b-1 Plan and in connection
with their annual consideration of the Rule 12b-1 Plan's renewal.
The Rule 12b-1 Plan will continue in effect from year to year, provided that
such continuance is approved annually by a vote of the Board of Directors of
the Fund, and a majority of the Directors of the Fund who are not interested
persons (as defined in the 1940 Act) of the Fund and have no direct or
indirect financial interest in the operation of the Rule 12b-1 Plan or any
agreements related to the Rule 12b-1 Plan ("Rule 12b-1 Independent
Directors"), cast in person at a meeting called for the purpose of voting on
the Rule 12 b-1 Plan. The Rule 12b-1 Plan may not be amended to increase
materially the amount to be spent for the services described in the Rule 12b-1
Plan without the approval of the Advisor Class shareholders of the Fund, and
all material amendments to the Rule 12b-1 Plan must also be approved by the
Directors in the manner described above. The Rule 12b-1 Plan may be
terminated at any time, without payment of a penalty, by a vote of a majority
of the Rule 12b-1 Independent Directors, or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act) on not
more than 60 days' written notice to any other party to the Rule 12b-1 Plan.
The Board of Directors of the Fund and the Rule 12b-1 Independent Directors
have determined that, in their judgment, there is a reasonable likelihood that
the Rule 12b-1 Plan will benefit the Fund and its Advisor Class shareholders.
Under the Rule 12b-1 Plan, the Distributor will provide the Board of Directors
of the Fund and the Directors will review, at least quarterly, a written
report of the amounts expended under the Rule 12b-1 Plan and the purposes for
which such expenditures were made. As part of their quarterly review of the
Rule 12b-1 Plan, the Directors will consider the continued appropriateness of
the Rule 12b-1 Plan and the level of compensation provided thereunder.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisor is responsible for decisions to buy and sell securities for the
Fund and for the placement of the Fund's investment business and the
negotiation of the commissions to be paid on such transactions. Reference in
this section to the Advisor also refer to the Subadvisor unless indicated
otherwise. It is the policy of the Advisor, to seek the best execution at the
best security price available with respect to each transaction, in light of
the overall quality of brokerage and research services provided to the
Advisor, or the Fund. In OTC transactions, orders are placed directly with a
principal market maker unless it is believed that a better price and execution
can be obtained using a broker. The best price to the Fund means the best net
price without regard to the mix between purchase or sale price and
commissions, if any. In selecting broker-dealers and in negotiating
commissions, the Advisor considers a variety of factors, including best price
and execution, the full range of brokerage services provided by the broker, as
well as its capital strength and stability, and the quality of the research
and research services provided by the broker. Brokerage will not be allocated
based on the sale of any shares of the Strong Funds.
40
<PAGE>
The Advisor is responsible for decisions to buy and sell securities for the
Fund and for the placement of the Fund's investment business and the
negotiation of the commissions to be paid on such transactions. It is the
policy of the Advisor, to seek the best execution at the best security price
available with respect to each transaction, in light of the overall quality of
brokerage and research services provided to the Advisor, or the Fund. In OTC
transactions, orders are placed directly with a principal market maker unless
it is believed that a better price and execution can be obtained using a
broker. The best price to the Fund means the best net price without regard to
the mix between purchase or sale price and commissions, if any. In selecting
broker-dealers and in negotiating commissions, the Advisor considers a variety
of factors, including best price and execution, the full range of brokerage
services provided by the broker, as well as its capital strength and
stability, and the quality of the research and research services provided by
the broker. Brokerage will not be allocated based on the sale of any shares
of the Strong Funds.
The Advisor has adopted procedures that provide generally for the Advisor to
seek to bunch orders for the purchase or sale of the same security for the
Fund, other mutual funds managed by the Advisor, and other advisory clients
(collectively, "client accounts"). The Advisor will bunch orders when it
deems it to be appropriate and in the best interest of the client accounts.
When a bunched order is filled in its entirety, each participating client
account will participate at the average share price for the bunched order on
the same business day, and transaction costs shall be shared pro rata based on
each client's participation in the bunched order. When a bunched order is
only partially filled, the securities purchased will be allocated on a pro
rata basis to each client account participating in the bunched order based
upon the initial amount requested for the account, subject to certain
exceptions, and each participating account will participate at the average
share price for the bunched order on the same business day.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)") permits
an investment advisor, under certain circumstances, to cause an account to pay
a broker or dealer a commission for effecting a transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
the transaction in recognition of the value of the brokerage and research
services provided by the broker or dealer. Brokerage and research services
include (1) furnishing advice as to the value of securities, the advisability
of investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; (2) furnishing analyses and
reports concerning issuers, industries, securities, economic factors and
trends, portfolio strategy, and the performance of accounts; and (3) effecting
securities transactions and performing functions incidental thereto (such as
clearance, settlement, and custody).
In carrying out the provisions of the Advisory Agreement, the Advisor may
cause the Fund to pay a broker, which provides brokerage and research services
to the Advisor, a commission for effecting a securities transaction in excess
of the amount another broker would have charged for effecting the transaction.
The Advisor believes it is important to its investment decision-making process
to have access to independent research. The Advisory Agreement provides that
such higher commissions will not be paid by the Fund unless (1) the Advisor
determines in good faith that the amount is reasonable in relation to the
services in terms of the particular transaction or in terms of the Advisor's
overall responsibilities with respect to the accounts as to which it exercises
investment discretion; (2) such payment is made in compliance with the
provisions of Section 28(e), other applicable state and federal laws, and the
Advisory Agreement; and (3) in the opinion of the Advisor, the total
commissions paid by the Fund will be reasonable in relation to the benefits to
the Fund over the long term. The investment management fee paid by the Fund
under the Advisory Agreement is not reduced as a result of the Advisor's
receipt of research services. To request a copy of the Advisor's Soft Dollar
Practices, please call 800-368-3863.
Generally, research services provided by brokers may include information on
the economy, industries, groups of securities, individual companies,
statistical information, accounting and tax law interpretations, political
developments, legal developments affecting portfolio securities, technical
market action, pricing and appraisal services, credit analysis, risk
measurement analysis, performance analysis, and analysis of corporate
responsibility issues. Such research services are received primarily in the
form of written reports, telephone contacts, and personal meetings with
security analysts. In addition, such research services may be provided in the
form of access to various computer-generated data, computer hardware and
software, and meetings arranged with corporate and industry spokespersons,
economists, academicians, and government representatives. In some cases,
research services are generated by third parties but are provided to the
Advisor by or through brokers. Such brokers may pay for all or a portion of
computer hardware and software costs relating to the pricing of securities.
Where the Advisor itself receives both administrative benefits and research
and brokerage services from the services provided by brokers, it makes a good
faith allocation between the administrative benefits and the research and
brokerage services, and will pay for any administrative benefits with cash.
In making good faith allocations between administrative benefits and research
and
41
<PAGE>
brokerage services, a conflict of interest may exist by reason of the Advisor's
allocation of the costs of such benefits and services between those that
primarily benefit the Advisor and those that primarily benefit the Fund and
other advisory clients.
From time to time, the Advisor may purchase new issues of securities for the
Fund in a fixed income price offering. In these situations, the seller may be
a member of the selling group that will, in addition to selling the securities
to the Fund and other advisory clients, provide the Advisor with research. The
NASD has adopted rules expressly permitting these types of arrangements under
certain circumstances. Generally, the seller will provide research "credits"
in these situations at a rate that is higher than that which is available for
typical secondary market transactions. These arrangements may not fall within
the safe harbor of Section 28(e).
The Advisor may engage in "step-out" and "give-up" brokerage transactions
subject to best price and execution. In a step-out or give-up trade, an
investment advisor directs trades to a broker-dealer who executes the
transactions while a second broker-dealer clears and settles part or all of the
transaction. The first broker-dealer then shares part of its commission with
the second broker-dealer. The Advisor engages in step-out and give-up
transactions primarily (1) to satisfy directed brokerage arrangements of
certain of its client accounts and/or (2) to pay commissions to broker-dealers
that supply research or analytical services.
At least annually, the Advisor considers the amount and nature of research and
research services provided by brokers, as well as the extent to which such
services are relied upon, and attempts to allocate a portion of the brokerage
business of the Fund and other advisory clients on the basis of that
consideration. In addition, brokers may suggest a level of business they would
like to receive in order to continue to provide such services. The actual
brokerage business received by a broker may be more or less than the suggested
allocations, depending upon the Advisor's evaluation of all applicable
considerations.
The Advisor has informal arrangements with various brokers whereby, in
consideration for providing research services and subject to Section 28(e),
the Advisor allocates brokerage to those firms, provided that the value of any
research and brokerage services was reasonable in relationship to the amount
of commission paid and was subject to best execution. In no case will the
Advisor make binding commitments as to the level of brokerage commissions it
will allocate to a broker, nor will it commit to pay cash if any informal
targets are not met. The Advisor anticipates it will continue to enter into
such brokerage arrangements.
The Advisor may direct the purchase of securities on behalf of the Fund and
other advisory clients in secondary market transactions, in public offerings
directly from an underwriter, or in privately negotiated transactions with an
issuer. When the Advisor believes the circumstances so warrant, securities
purchased in public offerings may be resold shortly after acquisition in the
immediate aftermarket for the security in order to take advantage of price
appreciation from the public offering price or for other reasons. Short-term
trading of securities acquired in public offerings, or otherwise, may result
in higher portfolio turnover and associated brokerage expenses.
With respect to the Fund's foreign equity investing, the Advisor is
responsible for selecting brokers in connection with foreign securities
transactions. The fixed commissions paid in connection with most foreign
stock transactions are usually higher than negotiated commissions on U.S.
stock transactions. Foreign stock exchanges and brokers are subject to less
government supervision and regulation as compared with the U.S. exchanges and
brokers. In addition, foreign security settlements may in some instances be
subject to delays and related administrative uncertainties.
The Advisor places portfolio transactions for other advisory accounts,
including other mutual funds managed by the Advisor. Research services
furnished by firms through which the Fund effects its securities transactions
may be used by the Advisor in servicing all of its accounts; not all of such
services may be used by the Advisor in connection with the Fund. In the
opinion of the Advisor, it is not possible to measure separately the benefits
from research services to each of the accounts managed by the Advisor. Because
the volume and nature of the trading activities of the accounts are not
uniform, the amount of commissions in excess of those charged by another
broker paid by each account for brokerage and research services will vary.
However, in the opinion of the Advisor, such costs to the Fund will not be
disproportionate to the benefits received by the Fund on a continuing basis.
The Advisor seeks to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities by the Fund and
another advisory account. In some cases, this procedure could have an adverse
effect on the price or the amount of securities available to the Fund. In
making such allocations between the Fund and other advisory accounts, the main
factors considered by the Advisor are the respective investment objectives,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held, and the opinions of the persons responsible for recommending
the investment.
42
<PAGE>
Where consistent with a client's investment objectives, investment
restrictions, and risk tolerance, the Advisor may purchase securities sold in
underwritten public offerings for client accounts, commonly referred to as
"deal" securities. To the extent the Fund participates in deals in the initial
public offering market ("IPOs") and during the period that the Fund has a small
asset base, a significant portion of the Fund's returns may be attributable to
its IPO investments. As the Fund's assets grow, any impact of IPO investments
on the Fund's total return may decline and the Fund may not continue to
experience substantially similar performance.
The Advisor has adopted deal allocation procedures ("Procedures"), summarized
below, that reflect the Advisor's overriding policy that deal securities must
be allocated among participating client accounts in a fair and equitable
manner and that deal securities may not be allocated in a manner that unfairly
discriminates in favor of certain clients or types of clients.
The Procedures provide that, in determining which client accounts a portfolio
manager team will seek to have purchase deal securities, the team will
consider all relevant factors including, but not limited to, the nature, size,
and expected allocation to the Advisor of deal securities; the size of the
account(s); the accounts' investment objectives and restrictions; the risk
tolerance of the client; the client's tolerance for possibly higher portfolio
turnover; the amount of commissions generated by the account during the past
year; and the number and nature of other deals the client has participated in
during the past year.
Where more than one of the Advisor's portfolio manager team seeks to have
client accounts participate in a deal and the amount of deal securities
allocated to the Advisor by the underwriting syndicate is less than the
aggregate amount ordered by the Advisor (a "reduced allocation"), the deal
securities will be allocated among the portfolio manager teams based on all
relevant factors. The primary factor shall be assets under management,
although other factors that may be considered in the allocation decision
include, but are not limited to, the nature, size, and expected allocation of
the deal; the amount of brokerage commissions or other amounts generated by
the respective participating portfolio manager teams; and which portfolio
manager team is primarily responsible for the Advisor receiving securities in
the deal. Based on relevant factors, the Advisor has established general
allocation percentages for its portfolio manager teams, and these percentages
are reviewed on a regular basis to determine whether asset growth or other
factors make it appropriate to use different general allocation percentages
for reduced allocations.
When a portfolio manager team receives a reduced allocation of deal
securities, the portfolio manager team will allocate the reduced allocation
among client accounts in accordance with the allocation percentages set forth
in the team's initial allocation instructions for the deal securities, except
where this would result in a DE MINIMIS allocation to any client account. On
a regular basis, the Advisor reviews the allocation of deal securities to
ensure that they have been allocated in a fair and equitable manner that does
not unfairly discriminate in favor of certain clients or types of clients.
Transactions in futures contracts are executed through futures commission
merchants ("FCMs"). The Fund's procedures in selecting FCMs to execute the
Fund's transactions in futures contracts are similar to those in effect with
respect to brokerage transactions in securities.
The Fund paid the following brokerage commissions for the time periods
indicated:
<TABLE>
<CAPTION>
<S> <C>
FISCAL YEAR ENDED BROKERAGE COMMISSIONS ($)
- ---------------------- -------------------------
</TABLE>
Common Stock Fund
<TABLE>
<CAPTION>
<S> <C>
12/31/97 5,306,111
12/31/98 5,582,078
12/31/99 3,636,714
</TABLE>
43
<PAGE>
Discovery Fund
<TABLE>
<CAPTION>
<S> <C>
12/31/97 2,403,613
12/31/98 2,151,029
12/31/99 1,916,282
</TABLE>
Enterprise Fund
<TABLE>
<CAPTION>
<S> <C>
12/31/98(1) 32,357
12/31/99 695,954
</TABLE>
Growth Fund
<TABLE>
<CAPTION>
<S> <C>
12/31/97 7,256,232
12/31/98 6,906,735
12/31/99 10,493,904
</TABLE>
Growth 20 Fund
<TABLE>
<CAPTION>
<S> <C>
12/31/97(2) 187,112
12/31/98 474,377
12/31/99 1,343,232
</TABLE>
Mid Cap Disciplined Fund
<TABLE>
<CAPTION>
<S> <C>
12/31/99 52,313
</TABLE>
Mid Cap Growth Fund
<TABLE>
<CAPTION>
<S> <C>
12/31/97 121,558
12/31/98 81,754
12/31/99 435,567
</TABLE>
Opportunity Fund
<TABLE>
<CAPTION>
<S> <C>
12/31/97 5,660,826
12/31/98 5,538,205
12/31/99 5,305,390
</TABLE>
Small Cap Value Fund
<TABLE>
<CAPTION>
<S> <C>
12/31/98 199,397
12/31/99 185,150
</TABLE>
Strategic Growth Fund
<TABLE>
<CAPTION>
<S> <C>
12/31/98(3) 6,043
12/31/99 12,748
</TABLE>
U.S. Emerging Growth
<TABLE>
<CAPTION>
<S> <C>
12/31/99 52,253
</TABLE>
44
<PAGE>
Value Fund
<TABLE>
<CAPTION>
<S> <C>
12/31/97 196,104
12/31/98 223,166
12/31/99 227,621
</TABLE>
(1) Commenced operations on September 29, 1998
(2) Commenced operations on June 30, 1997.
(3) Commenced operations on May 20, 1998.
Unless otherwise noted below, the Fund has not acquired securities of its
regular brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or
their parents.
<TABLE>
<CAPTION>
<S> <C>
REGULAR BROKER OR DEALER (OR PARENT) ISSUER VALUE OF SECURITIES OWNED AS OF DECEMBER 31, 1999
- ----------------------------------------------- -------------------------------------------------
Citigroup, Inc. $3,039,000 (Enterprise)
Citigroup, Inc. $11,113,000 (Growth)
Lehman Brothers Inc. $974,000 (Mid Cap Growth)
Bear, Stearns & Company, Inc. $1,022,000 (Value)
Citigroup, Inc. $1,517,000 (Value)
</TABLE>
For the fiscal year ended December 31, 1999 and December 31, 1998, the Growth
20 Fund's portfolio turnover rate was 432.3% and 541.2%, respectively. This
portfolio turnover was high due to (1) the use of an active trading approach
to achieve the fund's investment objective of capital growth by investing in
the stocks of 20-30 growth companies, and, to a lesser degree, (2) the use tax
lot accounting to identify and sell the tax lots of a securities that have the
highest cost basis and/or longest holding period to minimize adverse tax
consequences to the Growth 20 Fund's shareholders. For the fiscal year ended
December 31, 1999, the Mid Cap Growth Fund's portfolio turnover rate was
681.0% and the Growth Fund's portfolio turnover rate was 324.0%. These
portfolio turnover rates were higher than anticipated primarily because the
Funds repositioned their portfolios in light of their investment objective,
policies, and the then prevailing market environment.
CUSTODIAN
As custodian of the Fund's assets, Firstar Bank Milwaukee, N.A., P.O. Box 761,
Milwaukee, Wisconsin 53201, has custody of all securities and cash of the
Fund, delivers and receives payment for securities sold, receives and pays for
securities purchased, collects income from investments, and performs other
duties, all as directed by officers of the Fund. The custodian is in no way
responsible for any of the investment policies or decisions of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
The Advisor, P.O. Box 2936, Milwaukee, Wisconsin, 53201, acts as transfer
agent and dividend-disbursing agent for the Fund. The Advisor is compensated
as follows:
<TABLE>
<CAPTION>
<S> <C>
FUND TYPE/SHARE CLASS FEE*
- ------------------------------------ -------------------------------------------------------------------------------
Money Funds and Investor Class $32.50 annual open account fee, $4.20 annual closed account fee.
shares of Money Funds
- ------------------------------------ -------------------------------------------------------------------------------
Advisor Class shares of Money 0.20% of the average daily net asset value of all Advisor Class shares.
Funds(1)
- ------------------------------------ -------------------------------------------------------------------------------
Institutional class shares of Money 0.015% of the average daily net asset value of all Institutional Class shares.
Funds
- ------------------------------------ -------------------------------------------------------------------------------
Income Funds and Investor Class $31.50 annual open account fee, $4.20 annual closed account fee.
shares of Income Funds
- ------------------------------------ -------------------------------------------------------------------------------
Advisor Class shares of Income 0.20% of the average daily net asset value of all Advisor Class shares.
Funds
- ------------------------------------ -------------------------------------------------------------------------------
Institutional Class shares of Income 0.015% of the average daily net asset value of all Institutional Class shares.
Funds
- ------------------------------------ -------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Equity Funds and Investor Class shares of Equity Funds $21.75 annual open account fee, $4.20 annual closed account fee
- ------------------------------------------------------ -----------------------------------------------------------------
Advisor Class shares of Equity Funds 0.20% of the average daily net asset value of all Advisor Class shares.
- ------------------------------------------------------ ---------------------------------------------------------------------
Institutional Class shares of Equity Funds 0.015% of the average daily net asset value of all Institutional Class
shares.
- ------------------------------------------------------ -----------------------------------------------------------------------
</TABLE>
* Plus out-of-pocket expenses, such as postage and printing expenses in
connection with shareholder communications.
(1) Excluding the Strong Heritage Money Fund. The fee for the Heritage Money
Fund is 0.015% of the average daily net asset value of all Advisor Class
shares.
The fees received and the services provided as transfer agent and dividend
disbursing agent are in addition to those received and provided by the Advisor
under the Administration Agreements. The fees and services provided as
transfer agent and dividend disbursing agent are in addition to those received
and provided by the Advisor under the Advisory Agreements.
From time to time, the Fund, directly or indirectly through arrangements with
the Advisor, and/or the Advisor may pay fees to third parties that provide
transfer agent type services and other administrative services to persons who
beneficially own interests in the Fund, such as participants in 401(k) plans
and shareholders who invest through other financial intermediaries. These
services may include, among other things, sub-accounting services, transfer
agent type activities, answering inquiries relating to the Fund, transmitting
proxy statements, annual reports, updated prospectuses, other communications
regarding the Fund, and related services as the Fund or beneficial owners may
reasonably request. In such cases, the Fund will not pay fees based on the
number of beneficial owners at a rate that is greater than the rate the Fund
is currently paying the Advisor for providing these services to Fund
shareholders; however, the Advisor may pay to the third party amounts in
excess of such limitation out of its own profits.
The Fund paid the following amounts for the time periods indicated for transfer
agency and dividend disbursing and printing and mailing services:
NOTE - THE FOLLOWING TABLE DOES NOT CONTAIN INFORMATION ON THE INSTITUTIONAL
OR ADVISOR CLASS SHARES OF THE GROWTH FUND OR THE ADVISOR CLASS SHARES OF THE
ENTERPRISE, GROWTH 20, OR OPPORTUNITY FUNDS SINCE THEY WERE NOT OFFERED UNTIL
FEBRUARY 24, 2000.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
OUT-OF-POCKET PRINTING/MAILING TOTAL COST AFTER
FUND FEE ($) EXPENSES ($) SERVICES ($) WAIVER ($) WAIVER ($)
- ------------ ------------ ------------- ---------------- ------------ ----------------
</TABLE>
Common Stock Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
12/31/97 1,784,460 138,514 18,792 0 1,941,766
12/31/98 2,066,643 138,555 15,981 0 2,221,179
12/31/99 2,011,104 158,760 9,384 0 2,179,248
</TABLE>
Discovery Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
12/31/97 1,127,401 92,494 13,482 0 1,233,377
12/31/98 905,454 71,877 11,587 0 988,918
12/31/99 663,246 71,277 4,269 0 738,792
</TABLE>
Enterprise Fund - Investor Class
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
12/31/98(1) 2,144 1,758 0 0 3,902
12/31/99 282,512 29,647 1,011 0 313,170
</TABLE>
46
<PAGE>
Growth Fund - Investor Class
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
12/31/97 3,572,665 285,939 40,770 0 3,899,374
12/31/98 3,583,549 278,220 32,416 0 3,894,185
12/31/99 4,131,273 393,038 22,423 0 4,546,734
</TABLE>
Growth 20 Fund - Investor Class
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
12/31/97(2) 47,115 5,205 663 0 52,983
12/31/98 159,334 17,811 1,838 0 178,983
12/31/99 495,696 51,376 2,413 0 549,485
</TABLE>
Mid Cap Disciplined Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
12/31/99 12,318 2,119 44 487 13,994
</TABLE>
Mid Cap Growth Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
12/31/97 37,188 5,197 534 0 42,919
12/31/98 63,217 8,260 1,161 0 72,638
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
12/31/99 84,635 9,980 525 0 95,140
</TABLE>
Opportunity Fund - Investor Class
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
12/31/97 3,388,964 204,179 30,271 0 3,623,414
12/31/98 3,447,689 217,329 28,222 0 3,693,240
12/31/99 3,304,024 284,804 16,742 0 3,605,570
</TABLE>
Small Cap Value Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
12/31/98 63,484 8,405 853 0 72,742
12/31/99 112,327 10,319 510 0 123,156
</TABLE>
Strategic Growth Fund(3)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
12/31/98 5,125 1,383 0 0 6,508
12/31/99 15,089 2,076 46 2380 14,832
</TABLE>
U.S. Emerging Growth Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
12/31/99 34,690 4,257 137 0 39,084
</TABLE>
Value Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
12/31/97 153,918 24,707 2,319 0 180,944
12/31/98 202,999 19,346 9,117 0 231,462
12/31/99 169,773 18,818 1,063 0 189,654
</TABLE>
(1) Commenced operations on September 29, 1998.
(2) Commenced operations on June 30, 1997.
(3) Commenced operations on July 1, 1998.
47
<PAGE>
TAXES
GENERAL
The Fund intends to qualify annually for treatment as a regulated investment
company ("RIC") under Subchapter M of the IRC. If so qualified, the Fund will
not be liable for federal income tax on earnings and gains distributed to its
shareholders in a timely manner. This qualification does not involve
government supervision of the Fund's management practices or policies. The
following federal tax discussion is intended to provide you with an overview
of the impact of federal income tax provisions on the Fund or its
shareholders. These tax provisions are subject to change by legislative or
administrative action at the federal, state, or local level, and any changes
may be applied retroactively. Any such action that limits or restricts the
Fund's current ability to pass-through earnings without taxation at the Fund
level, or otherwise materially changes the Fund's tax treatment, could
adversely affect the value of a shareholder's investment in the Fund. Because
the Fund's taxes are a complex matter, you should consult your tax adviser for
more detailed information concerning the taxation of the Fund and the federal,
state, and local tax consequences to shareholders of an investment in the
Fund.
In order to qualify for treatment as a RIC under the IRC, the Fund must
distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of taxable net
investment income, net short-term capital gain, and net gains from certain
foreign currency transactions, if applicable) ("Distribution Requirement") and
must meet several additional requirements. These requirements include the
following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of securities (or foreign
currencies if applicable) or other income (including gains from options,
futures, or forward contracts) derived with respect to its business of
investing in securities ("Income Requirement"); (2) at the close of each
quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. government securities,
securities of other RICs, and other securities, with these other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities; and (3) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its
total assets may be invested in securities (other than U.S. government
securities or the securities of other RICs) of any one issuer. There is a
30-day period after the end of each calendar year quarter in which to cure any
non-compliance with these requirements. From time to time the Advisor may
find it necessary to make certain types of investments for the purpose of
ensuring that the Fund continues to qualify for treatment as a RIC under the
IRC.
If Fund shares are sold at a loss after being held for 12 months or less, the
loss will be treated as long-term, instead of short-term, capital loss to the
extent of any capital gain distributions received on those shares.
The Fund's distributions are taxable in the year they are paid, whether they
are taken in cash or reinvested in additional shares, except that certain
distributions declared in the last three months of the year and paid in
January are taxable as if paid on December 31.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts. The Fund may make additional distributions if necessary to
avoid imposition of a 4% excise tax on undistributed income and gains.
FOREIGN TRANSACTIONS
Dividends and interest received by the Fund may be subject to income,
withholding, or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between
certain countries and the U.S may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. If more than 50% of the value of
the Fund's total assets at the close of its taxable year consists of
securities of foreign corporations, it will be eligible to, and may, file an
election with the Internal Revenue Service that would enable its shareholders,
in effect, to receive the benefit of the foreign tax credit with respect to
any foreign and U.S. possessions income taxes paid by it. The Fund would
treat those taxes as dividends paid to its shareholders and each shareholder
would be required to (1) include in gross income, and treat as paid by the
shareholder, the shareholder's proportionate share of those taxes, (2) treat
the shareholder's share of those taxes and of any dividend paid by the Fund
that represents income from foreign or U.S. possessions sources as the
shareholder's own income from those sources, and (3) either deduct the taxes
deemed paid by the
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shareholder in computing the shareholder's taxable income or, alternatively,
use the foregoing information in calculating the foreign tax credit against the
shareholder's federal income tax. The Fund will report to its shareholders
shortly after each taxable year their respective shares of its income from
sources within, and taxes paid to, foreign countries and U.S. possessions if it
makes this election.
The Fund holding foreign securities in its investment portfolio maintains its
accounts and calculates its income in U.S. dollars. In general, gain or loss
(1) from the disposition of foreign currencies and forward currency contracts,
(2) from the disposition of foreign-currency-denominated debt securities that
are attributable to fluctuations in exchange rates between the date the
securities are acquired and their disposition date, and (3) attributable to
fluctuations in exchange rates between the time the Fund accrues interest or
other receivables or expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects those receivables or pays
those liabilities, will be treated as ordinary income or loss. A
foreign-currency-denominated debt security acquired by the Fund may bear
interest at a high normal rate that takes into account expected decreases in
the value of the principal amount of the security due to anticipated currency
devaluations; in that case, the Fund would be required to include the interest
in income as it accrues but generally would realize a currency loss with
respect to the principal only when the principal was received (through
disposition or upon maturity).
The Fund may invest in the stock of "passive foreign investment companies"
("PFICs") in accordance with its investment objective, policies and
restrictions. A PFIC is a foreign corporation that, in general, meets either
of the following tests: (1) at least 75% of its gross income is passive or (2)
an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, the Fund will be
subject to federal income tax on a portion of any "excess distribution"
received on the stock or of any gain on disposition of the stock
(collectively, "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent that
income is distributed to its shareholders. If the Fund invests in a PFIC and
elects to treat the PFIC as a "qualified electing fund," then in lieu of the
foregoing tax and interest obligation, the Fund will be required to include in
income each year its pro rata share of the qualified electing fund's annual
ordinary earnings and net capital gain (the excess of net long-term capital
gain over net short-term capital loss) -- which probably would have to be
distributed to its shareholders to satisfy the Distribution Requirement and
avoid imposition of the Excise Tax -- even if those earnings and gain were not
received by the Fund. In most instances it will be very difficult, if not
impossible, to make this election because of certain requirements thereof.
DERIVATIVE INSTRUMENTS
The use of derivatives strategies, such as purchasing and selling (writing)
options and futures and entering into forward currency contracts, if
applicable, involves complex rules that will determine for income tax purposes
the character and timing of recognition of the gains and losses the Fund
realizes in connection therewith. Gains from the disposition of foreign
currencies, if any (except certain gains therefrom that may be excluded by
future regulations), and income from transactions in options, futures, and
forward currency contracts, if applicable, derived by the Fund with respect to
its business of investing in securities or foreign currencies, if applicable,
will qualify as permissible income under the Income Requirement.
For federal income tax purposes, the Fund is required to recognize as income
for each taxable year its net unrealized gains and losses on options, futures,
or forward currency contracts, if any, that are subject to section 1256 of the
IRC ("Section 1256 Contracts") and are held by the Fund as of the end of the
year, as well as gains and losses on Section 1256 Contracts actually realized
during the year. Except for Section 1256 Contracts that are part of a "mixed
straddle" and with respect to which the Fund makes a certain election, any
gain or loss recognized with respect to Section 1256 Contracts is considered
to be 60% long-term capital gain or loss and 40% short-term capital gain or
loss, without regard to the holding period of the Section 1256 Contract.
ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES
The Fund may acquire zero-coupon, step-coupon, or other securities issued with
original issue discount. As a holder of those securities, the Fund must
include in its income the original issue discount that accrues on the
securities during the taxable year, even if the Fund receives no corresponding
payment on the securities during the year. Similarly, the Fund must include
in its income securities it receives as "interest" on pay-in-kind securities.
Because the Fund annually must distribute substantially all of its investment
company taxable income, including any original issue discount and other
non-cash income, to satisfy the Distribution Requirement and avoid imposition
of the Excise Tax, it may be required in a particular year to distribute as a
dividend an amount that is greater than the total amount of cash it actually
receives. Those distributions may be made from the
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proceeds on sales of portfolio securities, if necessary. The Fund may realize
capital gains or losses from those sales, which would increase or decrease its
investment company taxable income or net capital gain, or both.
USE OF TAX-LOT ACCOUNTING
When sell decisions are made by the Fund's portfolio manager, the Advisor
generally sells the tax lots of the Fund's securities that results in the
lowest amount of taxes to be paid by the shareholders on the Fund's capital
gain distributions. The Advisor uses tax-lot accounting to identify and sell
the tax lots of a security that have the highest cost basis and/or longest
holding period to minimize adverse tax consequences to the Fund's
shareholders. However, if the Fund has a capital loss carry forward position,
the Advisor would reverse its strategy and sell the tax lots of a security
that have the lowest cost basis and/or shortest holding period to maximize the
use of the Fund's capital loss carry forward position.
DETERMINATION OF NET ASSET VALUE
Generally, when an investor makes any purchases, sales, or exchanges, the
price of the investor's shares will be the net asset value ("NAV") next
determined after Strong Funds receives a request in proper form (which
includes receipt of all necessary and appropriate documentation and subject to
available funds). Any applicable sales charges will be added to the purchase
price for Advisor Class shares of the Fund, if any. The "offering price" is
the initial sales charge, if any, plus the NAV. If Strong Funds receives such
a request prior to the close of the New York Stock Exchange ("NYSE") on a day
on which the NYSE is open, the share price will be the NAV determined that
day. The NAV for each Fund or each class of shares is normally determined as
of 3:00 p.m. Central Time ("CT") each day the NYSE is open. The NYSE is open
for trading Monday through Friday except New Year's Day, Martin Luther King
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day. Additionally, if any of the
aforementioned holidays falls on a Saturday, the NYSE will not be open for
trading on the preceding Friday, and when any such holiday falls on a Sunday,
the NYSE will not be open for trading on the succeeding Monday, unless unusual
business conditions exist, such as the ending of a monthly or yearly
accounting period. The Fund reserves the right to change the time at which
purchases, redemptions, and exchanges are priced if the NYSE closes at a time
other than 3:00 p.m. CT or if an emergency exists. The NAV of each Fund or of
each class of shares of a Fund is calculated by taking the fair value of the
Fund's total assets attributable to that Fund or class, subtracting all its
liabilities attributable to that Fund or class, and dividing by the total
number of shares outstanding of that Fund or class. Expenses are accrued
daily and applied when determining the NAV. The Fund's portfolio securities
are valued based on market quotations or at fair value as determined by the
method selected by the Fund's Board of Directors.
Equity securities are valued at the last sales price on the NASDAQ or, if not
traded on the NASDAQ, at the last sales price on the national securities
exchange 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-trade securities (generally foreign
securities) will be valued based on market quotations.
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 Fund values its foreign assets in U.S.
dollars on a daily basis, it does not intend to convert its 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
NYSE. 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 NYSE. Such events would not normally be reflected
in a calculation of the Fund's NAV on that day. If events that materially
affect the value of the 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.
ADDITIONAL SHAREHOLDER INFORMATION
FUND REDEMPTIONS
Shareholders (except Institutional Class shareholders) can gain access to the
money in their accounts by selling (also called redeeming) some or all of
their shares by mail, telephone, computer, automatic withdrawals, through a
broker-dealer, or by writing a check (assuming all the appropriate documents
and requirements have been met for these account options). Institutional
Class shareholders may redeem some or all of their shares by telephone or by
faxing a written request. After a redemption request is processed, the
proceeds from the sale will normally be sent on the next business day but, in
any event, no more than seven days later.
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TELEPHONE AND INTERNET EXCHANGE/REDEMPTION PRIVILEGES
The Fund employs reasonable procedures to confirm that instructions
communicated by telephone or the Internet are genuine. The Fund may not be
liable for losses due to unauthorized or fraudulent instructions. Such
procedures include but are not limited to requiring a form of personal
identification prior to acting on instructions received by telephone or the
Internet, providing written confirmations of such transactions to the address
of record, tape recording telephone instructions and backing up Internet
transactions.
MOVING ACCOUNT OPTIONS AND INFORMATION
When establishing a new account (other than an Institutional Class account) by
exchanging funds from an existing Strong Funds account, some account options
(such as checkwriting, telephone exchange, telephone purchase and telephone
redemption), if existing on the account from which money is exchanged, will
automatically be made available on the new account unless the shareholder
indicates otherwise, or the option is not available on the new account.
Subject to applicable Strong Funds policies, other account options, including
automatic investment, automatic exchange and systematic withdrawal, may be
moved to the new account at the request of the shareholder. These options are
not available for Institutional Class accounts. If allowed by Strong Funds
policies (i) once the account options are established on the new account, the
shareholder may modify or amend the options, and (ii) account options may be
moved or added from one existing account to another new or existing account.
Account information, such as the shareholder's address of record and social
security number, will be copied from the existing account to the new account.
REDEMPTION-IN-KIND
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the Fund to redeem shares in cash, with respect to any one
shareholder during any 90-day period, up to the lesser of $250,000 or 1% of
the assets of the Fund. 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 the Fund's shares (a
"redemption-in-kind"). Shareholders receiving securities or other financial
assets in a redemption-in-kind may realize a gain or loss for tax purposes,
and will incur any costs of sale, as well as the associated inconveniences.
If you expect to make a redemption in excess of the lesser of $250,000 or 1%
of the Fund's assets during any 90-day period and would like to avoid any
possibility of being paid with securities in-kind, you may do so by providing
Strong Funds with an unconditional instruction to redeem at least 15 calendar
days prior to the date on which the redemption transaction is to occur,
specifying the dollar amount or number of shares to be redeemed and the date
of the transaction (please call 800-368-3863). This will provide the Fund
with sufficient time to raise the cash in an orderly manner to pay the
redemption and thereby minimize the effect of the redemption on the interests
of the Fund's remaining shareholders.
SHARES IN CERTIFICATE FORM
Certificates will be issued for shares (other than Institutional Class or
Advisor Class shares) held in a Fund account only upon written request.
Certificates will not be issued for Institutional Class or Advisor Class
shares of any Fund. A shareholder will, however, have full shareholder rights
whether or not a certificate is requested.
DOLLAR COST AVERAGING
Strong Funds' Automatic Investment Plan, Payroll Direct Deposit Plan, and
Automatic Exchange Plan are methods of implementing dollar cost averaging.
Dollar cost averaging is an investment strategy that involves investing a
fixed amount of money at regular time intervals. By always investing the same
set amount, an investor will be purchasing more shares when the price is low
and fewer shares when the price is high. Ultimately, by using this principle
in conjunction with fluctuations in share price, an investor's average cost
per share may be less than the average transaction price. A program of
regular investment cannot ensure a profit or protect against a loss during
declining markets. Since such a program involves continuous investment
regardless of fluctuating share values, investors should consider their
ability to continue the program through periods of both low and high
share-price levels. These methods are unavailable for Institutional Class
accounts..
FINANCIAL INTERMEDIARIES
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If an investor purchases or redeems shares of the Fund through a financial
intermediary, certain features of the Fund relating to such transactions may
not be available or may be modified. In addition, certain operational
policies of the Fund, including those related to settlement and dividend
accrual, may vary from those applicable to direct shareholders of the Fund and
may vary among intermediaries. Please consult your financial intermediary for
more information regarding these matters. In addition, the Fund may pay,
directly or indirectly through arrangements with the Advisor, amounts to
financial intermediaries that provide transfer agent type and/or other
administrative services to their customers. 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; however, the
Advisor may pay to the financial intermediary amounts in excess of such
limitation out of its own profits. Certain financial intermediaries may
charge an advisory, transaction, or other fee for their services. Investors
will not be charged for such fees if investors purchase or redeem Fund shares
directly from the Fund without the intervention of a financial intermediary.
SIGNATURE GUARANTEES
A signature guarantee is designed to protect shareholders and the Fund against
fraudulent transactions by unauthorized persons. In the following instances,
the Fund will require a signature guarantee for all authorized owners of an
account:
- - when adding the telephone redemption option to an existing account;
- - when transferring the ownership of an account to another individual or
organization;
- - when submitting a written redemption request for more than $50,000;
- - when requesting to redeem or redeposit shares that have been issued in
certificate form;
- - if requesting a certificate after opening an account;
- - when requesting that redemption proceeds be sent to a different name or
address than is registered on an account;
- - if adding/changing a name or adding/removing an owner on an account; and
- - if adding/changing the beneficiary on a transfer-on-death account.
A signature guarantee may be obtained from any eligible guarantor institution,
as defined by the SEC. These institutions include banks, savings
associations, credit unions, brokerage firms, and others. Please note that a
notary public stamp or seal is not acceptable.
RIGHT OF SET-OFF
To the extent not prohibited by law, the Fund, any other Strong Fund, and the
Advisor, each has the right to set-off against a shareholder's account balance
with a Strong Fund, and redeem from such account, any debt the shareholder may
owe any of these entities. This right applies even if the account is not
identically registered.
BROKERS RECEIPT OF PURCHASE AND REDEMPTION ORDERS
The Fund has authorized certain brokers to accept purchase and redemption
orders on the Fund's behalf. These brokers are, in turn, authorized to
designate other intermediaries to accept purchase and redemption orders on the
Fund's behalf. The Fund will be deemed to have received a purchase or
redemption order when an authorized broker or, if applicable, a broker's
authorized designee, accepts the order. Purchase and redemption orders
received in this manner will be priced at the Fund's net asset value next
computed after they are accepted by an authorized broker or the broker's
authorized designee.
PROMOTIONAL ITEMS
From time to time, the Advisor and/or Distributor may give de minimis gifts or
other immaterial consideration to investors who open new accounts or add to
existing accounts with the Strong Funds. In addition, from time to time, the
Advisor and/or Distributor, alone or with other entities or persons, may
sponsor, participate in conducting, or be involved with sweepstakes,
give-aways, contests, incentive promotions, or other similar programs
("Give-Aways"). This is done in order to, among other reasons, increase the
number of users of and visits to the Fund's Internet web site. As part of the
Give-Aways, persons may receive cash or other awards including without
limitation, gifts, merchandise, gift certificates, travel, meals, and lodging.
Under the Advisor's and Distributor's standard rules for Give-Aways, their
employees, subsidiaries, advertising and promotion agencies, and members of
their immediate families are not eligible to enter the Give-Aways.
RETIREMENT PLANS
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TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNT (IRA): Everyone under age 70 1/2 with
earned income may contribute to a tax-deferred Traditional IRA. The Strong
Funds offer a prototype plan for you to establish your own Traditional IRA. You
are allowed to contribute up to the lesser of $2,000 or 100% of your earned
income each year to your Traditional IRA (or up to $4,000 between your
Traditional IRA and your non-working spouses' Traditional IRA). Under certain
circumstances, your contribution will be deductible.
ROTH IRA: Taxpayers, of any age, who have earned income, and whose adjusted
gross income ("AGI") does not exceed $110,000 (single) or $160,000 (joint) can
contribute to a Roth IRA. Allowed contributions begin to phase-out at $95,000
(single) or $150,000 (joint). You are allowed to contribute up to the lesser
of $2,000 or 100% of earned income each year into a Roth IRA. If you also
maintain a Traditional IRA, the maximum contribution to your Roth IRA is
reduced by any contributions that you make to your Traditional IRA.
Distributions from a Roth IRA, if they meet certain requirements, may be
federally tax free. If your AGI is $100,000 or less, you can convert your
Traditional IRAs into a Roth IRA. Conversions of earnings and deductible
contributions are taxable in the year of the distribution. The early
distribution penalty does not apply to amounts converted to a Roth IRA even if
you are under age 59 1/2.
EDUCATION IRA: Taxpayers may contribute up to $500 per year into an Education
IRA for the benefit of a child under age 18. Total contributions to any one
child cannot exceed $500 per year. The contributor must have adjusted income
under $110,000 (single) or $160,000 (joint) to contribute to an Education IRA.
Allowed contributions begin to phase-out at $95,000 (single) or $150,000
(joint). Withdrawals from the Education IRA to pay qualified higher education
expenses are federally tax free. Any withdrawal in excess of higher education
expenses for the year are potentially subject to tax and an additional 10%
penalty.
DIRECT ROLLOVER IRA: To avoid the mandatory 20% federal withholding tax on
distributions, you must transfer the qualified retirement or IRC section 403(b)
plan distribution directly into an IRA. The distribution must be eligible for
rollover. The amount of your Direct Rollover IRA contribution will not be
included in your taxable income for the year.
SIMPLIFIED EMPLOYEE PENSION PLAN (SEP-IRA): A SEP-IRA plan allows an employer
to make deductible contributions to separate IRA accounts established for each
eligible employee.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN (SAR SEP-IRA): A SAR SEP-IRA
plan is a type of SEP-IRA plan in which an employer may allow employees to
defer part of their salaries and contribute to an IRA account. These deferrals
help lower the employees' taxable income. Please note that you may no longer
open new SAR SEP-IRA plans (since December 31, 1996). However, employers with
SAR SEP-IRA plans that were established prior to January 1, 1997 may still open
accounts for new employees.
SIMPLIFIED INCENTIVE MATCH PLAN FOR EMPLOYEES (SIMPLE-IRA): A SIMPLE-IRA plan
is a retirement savings plan that allows employees to contribute a percentage
of their compensation, up to $6,000, on a pre-tax basis, to a SIMPLE-IRA
account. The employer is required to make annual contributions to eligible
employees' accounts. All contributions grow tax-deferred.
DEFINED CONTRIBUTION PLAN: A defined contribution plan allows self-employed
individuals, partners, or a corporation to provide retirement benefits for
themselves and their employees. Plan types include: profit-sharing plans,
money purchase pension plans, and paired plans (a combination of a
profit-sharing plan and a money purchase plan).
401(K) PLAN: A 401(k) plan is a type of profit-sharing plan that allows
employees to have part of their salary contributed on a pre-tax basis to a
retirement plan which will earn tax-deferred income. A 401(k) plan is funded by
employee contributions, employer contributions, or a combination of both.
403(B)(7) PLAN: A 403(b)(7) plan is a tax-sheltered custodial account designed
to qualify under section 403(b)(7) of the IRC and is available for use by
employees of certain educational, non-profit, hospital, and charitable
organizations.
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ORGANIZATION
The Fund is either a "Corporation" or a "Series" of common stock of a
Corporation, as described in the chart below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Incorporation Date Series Date Class Authorized Par
Corporation Date Created Created Shares Value ($)
- --------------------------------- ------------- ------------ ------------ ------------ ------------
Strong Common Stock Fund, Inc. 11/11/88 Indefinite .001
Strong Discovery Fund, Inc. 9/24/87 Indefinite .001
Strong Equity Funds, Inc.(1) 12/28/90 Indefinite .00001
- - Strong Growth Fund 12/28/90 Indefinite .00001
+Investor Class(2) 12/28/90 Indefinite .00001
+Advisor Class 2/17/00 Indefinite .00001
+Institutional Class 2/17/00 Indefinite .00001
- - Strong Value Fund 11/01/95 Indefinite .00001
- - Strong Mid Cap Growth Fund 10/28/96 Indefinite .00001
- - Strong Index 500 Fund* 4/08/97 Indefinite .00001
- - Strong Growth 20 Fund 6/04/97 Indefinite .00001
+Investor Class(2) 6/04/97 Indefinite .00001
+Advisor Class 2/17/00 Indefinite .00001
- - Strong Small Cap Value Fund 12/10/97 Indefinite .00001
- - Strong Dow 30 Value Fund* 12/10/97 Indefinite .00001
- - Strong Strategic Growth Fund 5/4/98 Indefinite .00001
- - Strong Enterprise Fund 9/15/98 Indefinite .00001
+Investor Class(2) 9/15/98 Indefinite .00001
+Advisor Class 2/17/00 Indefinite .00001
- - Strong Mid Cap Disciplined Fund 12/15/98 Indefinite .00001
- -Strong U.S. Emerging Growth Fund 12/15/98 Indefinite .00001
- -Strong Internet Fund* 12/14/99 Indefinite .00001
- -Strong Technology 100 Fund* 12/14/99 Indefinite .00001
- -Strong Technology Index Plus 12/14/99 Indefinite .00001
Fund*
Strong Opportunity Fund, Inc. 7/05/83 Indefinite .01
- - Strong Opportunity Fund 7/05/83 Indefinite .01
+Investor Class(2) 7/05/83 Indefinite .01
+Advisor Class 2/17/00 Indefinite .01
</TABLE>
* Described in a different prospectus and SAI.
(1) Prior to November 1, 1995, the Corporation's name was Strong Growth
Fund, Inc.
(2) Prior to February 17, 2000, the Investor Class shares were designated as
common stock of the Fund.
The Strong Common Stock Fund, Inc., Strong Discovery Fund, Inc., and Strong
Opportunity Fund, Inc. are separately incorporated, diversified, open-end
management investment companies. The Strong Enterprise Fund, Strong Growth
Fund, Strong Mid Cap Disciplined Fund, Strong Mid Cap Growth Fund, Strong
Small Cap Value Fund, Strong Strategic Growth Fund, Strong U.S. Emerging
Growth Fund, and Strong Value Funds are diversified series of Strong Equity
Funds, Inc., which is an open-end management investment company. The Strong
Growth 20 Fund is a nondiversified series of Strong Equity Funds, Inc.
The Corporation is a Wisconsin corporation that is authorized to offer
separate series of shares representing interests in separate portfolios of
securities, each with differing investment objectives. The shares in any one
portfolio may, in turn, be offered in separate classes, each with differing
preferences, limitations or relative rights. However, the Articles of
Incorporation for the Corporation provide that if additional series of shares
are issued by the Corporation, such new series of shares may not affect the
preferences, limitations or relative rights of the Corporation's outstanding
shares. In addition, the Board of Directors of the Corporation is authorized
to allocate assets, liabilities, income and expenses to each series and class.
Classes within a series may have different expense arrangements than other
classes of the same series and, accordingly, the net asset value of shares
within a series may differ. Finally, all holders of shares of the Corporation
may vote on each matter presented to shareholders for action except with
respect to any matter which affects only one or more series or class, in which
case only the shares of the affected
54
<PAGE>
series or class are entitled to vote. Each share of the Fund has one vote, and
all shares participate equally in dividends and other capital gains
distributions by the Fund and in the residual assets of the Fund in the event
of liquidation. Fractional shares have the same rights proportionately as do
full shares. Shares of the Corporation have no preemptive, conversion, or
subscription rights. If the Corporation issues additional series, the assets
belonging to each series of shares will be held separately by the custodian,
and in effect each series will be a separate fund.
SHAREHOLDER MEETINGS
The Wisconsin Business Corporation Law permits registered investment
companies, such as the Fund, to operate without an annual meeting of
shareholders under specified circumstances if an annual meeting is not
required by the 1940 Act. The Fund has adopted the appropriate provisions in
its Bylaws and may, at its discretion, not hold an annual meeting in any year
in which the election of directors is not required to be acted on by
shareholders under the 1940 Act.
The Fund's Bylaws allow for a director to be removed by its shareholders with
or without cause, only at a meeting called for the purpose of removing the
director. Upon the written request of the holders of shares entitled to not
less than ten percent (10%) of all the votes entitled to be cast at such
meeting, the Secretary of the Fund shall promptly call a special meeting of
shareholders for the purpose of voting upon the question of removal of any
director. The Secretary shall inform such shareholders of the reasonable
estimated costs of preparing and mailing the notice of the meeting, and upon
payment to the Fund of such costs, the Fund shall give not less than ten nor
more than sixty days notice of the special meeting.
PERFORMANCE INFORMATION
The Strong Funds may advertise a variety of types of performance information
as more fully described below. The Fund's performance is historical and past
performance does not guarantee the future performance of the Fund. From time
to time, the Advisor may agree to waive or reduce its management fee and/or to
absorb certain operating expenses for the Fund. Waivers of management fees
and absorption of expenses will have the effect of increasing the Fund's
performance.
A multiple class Fund will separately calculate performance information for
each class of shares. The performance figures for each class of shares will
vary based on differences in their expense ratios.
Performance figures for Institutional Class shares of the Growth Fund, which
were first offered to the public on February 24, 2000, include the historical
performance of the Fund's Investor Class shares for the period from a Fund's
inception through February 23, 2000. For the Advisor Class shares of the
Enterprise, Growth, Growth 20, and Opportunity Funds, which also were first
offered to the public on February 24, 2000, performance is based on the
historical performance of each Fund's Investor Class of shares, which has been
recalculated to reflect the additional expenses imposed on the Advisor Class
shares. The performance figures for each class of shares will vary based on
differences in their expense ratios.
DISTRIBUTION RATE
The distribution rate for the Fund is computed, according to a
non-standardized formula, by dividing the total amount of actual distributions
per share paid by the Fund over a twelve month period by the Fund's net asset
value on the last day of the period. The distribution rate differs from the
Fund's yield because the distribution rate includes distributions to
shareholders from sources other than dividends and interest, such as
short-term capital gains. Therefore, the Fund's distribution rate may be
substantially different than its yield. Both the Fund's yield and
distribution rate will fluctuate.
AVERAGE ANNUAL TOTAL RETURN
The Fund's average annual total return quotation is computed in accordance
with a standardized method prescribed by rules of the SEC. The average annual
total return for the Fund for a specific period is calculated by first taking
a hypothetical $10,000 investment ("initial investment") in the Fund's shares
on the first day of the period and computing the "redeemable value" of that
investment at the end of the period. The redeemable value is then divided by
the initial investment, and this quotient is taken to the Nth root (N
representing the number of years in the period) and 1 is subtracted from the
result, which is then expressed as a percentage. The calculation assumes that
all income and capital gains dividends paid by the Fund have been reinvested
at net asset value on the reinvestment dates during the period. Average
annual total returns reflect the impact of sales charges, if any.
TOTAL RETURN
55
<PAGE>
Calculation of the Fund's total return is not subject to a standardized
formula. Total return performance for a specific period is calculated by
first taking an investment (assumed below to be $10,000) ("initial
investment") in the Fund's shares on the first day of the period and computing
the "ending value" of that investment at the end of the period. The total
return percentage is then determined by subtracting the initial investment
from the ending value and dividing the remainder by the initial investment and
expressing the result as a percentage. The calculation assumes that all
income and capital gains dividends paid by the Fund have been reinvested at
net asset value of the Fund on the reinvestment dates during the period.
Total return may also be shown as the increased dollar value of the
hypothetical investment over the period. Total returns reflect the impact of
sales charges, if any.
CUMULATIVE TOTAL RETURN
Cumulative total return represents the simple change in value of an investment
over a stated period and may be quoted as a percentage or as a dollar amount.
Total returns and cumulative total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship between these factors and their
contributions to total return. Cumulative total returns reflect the impact of
sales charges, if any.
TOTAL RETURN
COMMON STOCK FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment December 31, 1999 Total Return Total Return
- -------------- --------------- ----------------- --------------- ------------------
One Year $10,000 14,035 40.35% 40.35%
- -------------- --------------- ----------------- --------------- ------------------
Five Years $10,000 29,597 195.97% 24.24%
- -------------- --------------- ----------------- --------------- ------------------
Ten Years $10,000 70,653 606.53% 21.59%
- -------------- --------------- ----------------- --------------- ------------------
Life of Fund* $10,000 70,653 606.53% 21.59%
- -------------- --------------- ----------------- --------------- ------------------
</TABLE>
* Commenced operations on December 29, 1989.
DISCOVERY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment December 31, 1999 Total Return Total Return
- -------------- --------------- ----------------- --------------- ------------------
One Year $10,000 10,528 5.28% 5.28%
- -------------- --------------- ----------------- --------------- ------------------
Five Years $10,000 17,094 70.94% 11.32%
- -------------- --------------- ----------------- --------------- ------------------
Ten Years $10,000 32,743 227.43% 12.59%
- -------------- --------------- ----------------- --------------- ------------------
Life of Fund* $10,000 50,516 405.16% 14.45%
- -------------- --------------- ----------------- --------------- ------------------
</TABLE>
* Commenced operations on December 31, 1987.
ENTERPRISE FUND
INVESTOR CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment December 31, 1999 Total Return Total Return
- -------------- --------------- ----------------- --------------- ------------------
One Year $10,000 28,783 187.83% 187.83%
- -------------- --------------- ----------------- --------------- ------------------
Life of Fund* $10,000 42,436 324.36% 217.83%
- -------------- --------------- ----------------- --------------- ------------------
</TABLE>
* Commenced operations on September 29, 1998.
ADVISOR CLASS+
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment December 31, 1999 Total Return Total Return
- -------------- --------------- ----------------- --------------- -----------------
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
One Year $10,000 27,097 170.97% 170.97%
- ------------- -------- -------- --------- ----------
Life of Fund* $10,000 39,928 299.28% 202.71%
- ------------- -------- -------- --------- ----------
</TABLE>
* Commenced operations on September 29, 1998.
+ Commenced operations February 24, 2000.
GROWTH FUND
INVESTOR CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment December 31, 1999 Total Return Total Return
- -------------- --------------- ----------------- --------------- ------------------
One Year $10,000 17,506 75.06% 75.06%
- -------------- --------------- ----------------- --------------- ------------------
Five Years $10,000 44,600 346.00% 34.86%
- -------------- --------------- ----------------- --------------- ------------------
Life of Fund* $10,000 52,302 423.02% 31.75%
- -------------- --------------- ----------------- --------------- ------------------
</TABLE>
* Commenced operations on December 31, 1993.
ADVISOR CLASS+
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment December 31, 1999 Total Return Total Return
- -------------- -------------- ----------------- --------------- ------------------
One Year $10,000 16,471 64.71% 64.71%
- -------------- --------------- ----------------- --------------- ------------------
Five Years $10,000 41,560 315.60% 32.96%
- -------------- --------------- ----------------- --------------- ------------------
Life of Fund* $10,000 48,611 386.11% 30.15%
- -------------- --------------- ----------------- --------------- ------------------
</TABLE>
* Commenced operations on December 31, 1993.
+ Commenced operations on February 24, 2000.
INSTITUTIONAL CLASS+
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment December 31, 1999 Total Return Total Return
- -------------- --------------- ----------------- --------------- ------------------
One Year $10,000 17,506 75.06% 75.06%
- -------------- --------------- ----------------- --------------- ------------------
Five Years $10,000 44,600 346.00% 34.86%
- -------------- --------------- ----------------- --------------- ------------------
Life of Fund* $10,000 52,302 423.02% 31.75%
- -------------- --------------- ----------------- --------------- ------------------
</TABLE>
* Commenced operations on December 31, 1993.
+ Commenced operations on February 24, 2000.
57
<PAGE>
GROWTH 20 FUND
INVESTOR CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment December 31, 1999 Total Return Total Return
- -------------- --------------- ----------------- --------------- ------------------
One Year $10,000 20,948 109.48% 109.48%
- -------------- --------------- ----------------- --------------- ------------------
Life of Fund* $10,000 32,563 225.63% 60.36%
- -------------- --------------- ----------------- --------------- ------------------
</TABLE>
* Commenced operations on June 30, 1997.
ADVISOR CLASS+
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment December 31, 1999 Total Return Total Return
- -------------- --------------- ----------------- --------------- ------------------
One Year $10,000 19,718 97.18% 97.18%
- -------------- --------------- ----------------- --------------- ------------------
Life of Fund* $10,000 30,558 205.58% 56.33%
- -------------- --------------- ----------------- --------------- ------------------
</TABLE>
* Commenced operations on June 30, 1997.
+ Commenced operations on February 24, 2000.
MID CAP DISCIPLINED FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment December 31, 1999 Total Return Total Return
- -------------- --------------- ----------------- --------------- ------------------
Life of Fund* $10,000 13,520 35.20% 35.20%
- -------------- --------------- ----------------- --------------- ------------------
</TABLE>
* Commenced operations on December 31, 1998.
MID CAP GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment December 31, 1999 Total Return Total Return
- -------------- --------------- ----------------- --------------- ------------------
One Year $10,000 19,202 92.02% 92.02%
- -------------- --------------- ----------------- --------------- ------------------
Life of Fund* $10,000 25,031 150.31% 35.78%
- -------------- --------------- ----------------- --------------- ------------------
</TABLE>
* Commenced operations on December 31, 1996.
OPPORTUNITY FUND
INVESTOR CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment December 31, 1999 Total Return Total Return
- -------------- --------------- ----------------- --------------- ------------------
One Year $10,000 13,339 33.39% 33.39%
- -------------- --------------- ----------------- --------------- ------------------
Five Years $10,000 28,592 185.92% 23.38%
- -------------- --------------- ----------------- --------------- ------------------
Ten Years $10,000 49,006 390.06% 17.23%
- -------------- --------------- ----------------- --------------- ------------------
Life of Fund* $10,000 121,017 1,110.17% 19.49%
- -------------- --------------- ----------------- --------------- ------------------
</TABLE>
* Commenced operations on December 31, 1985.
58
<PAGE>
ADVISOR CLASS+
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment December 31, 1999 Total Return Total Return
- -------------- --------------- ----------------- --------------- ------------------
One Year $10,000 12,543 25.43% 25.43%
- -------------- --------------- ----------------- --------------- ------------------
Five Years $10,000 22,610 166.10% 21.62%
- -------------- -------------- ----------------- --------------- ------------------
Ten Years $10,000 44,970 349.70% 16.22%
- -------------- --------------- ----------------- --------------- ------------------
Life of Fund* $10,000 109,942 999.42% 18.68%
- -------------- --------------- ----------------- --------------- ------------------
</TABLE>
* Commenced operations on December 31, 1985.
+ Commenced operations on February 24, 2000.
SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment December 31, 1999 Total Return Total Return
- -------------- --------------- ----------------- --------------- ------------------
One Year $10,000 12,809 28.09% 28.09%
- -------------- --------------- ----------------- --------------- ------------------
Life of Fund* $10,000 13,590 35.90% 16.58%
- -------------- --------------- ----------------- --------------- ------------------
</TABLE>
*Commenced operations on December 31, 1997.
STRATEGIC GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment December 31, 1999 Total Return Total Return
- -------------- --------------- ----------------- --------------- ------------------
One Year $10,000 12,936 29.36% 29.36%
- -------------- --------------- ----------------- --------------- ------------------
Life of Fund* $10,000 14,553 45.53% 28.42%
- -------------- --------------- ----------------- --------------- ------------------
</TABLE>
* Commenced operations on July 1, 1998.
U.S. EMERGING GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment December 31, 1999 Total Return Total Return
- -------------- --------------- ----------------- --------------- ------------------
Life of Fund* $10,000 19,886 98.86% 98.86%
- -------------- --------------- ----------------- --------------- ------------------
</TABLE>
* Commenced operations on December 31, 1998.
VALUE FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment December 31, 1999 Total Return Total Return
- -------------- --------------- ----------------- --------------- ------------------
One Year $10,000 9,804 -1.96% -1.96%
- -------------- --------------- ----------------- --------------- ------------------
Life of Fund* $10,000 16,610 66.10% 13.53%
- -------------- --------------- ----------------- --------------- ------------------
</TABLE>
* Commenced operations on December 29, 1995.
COMPARISONS
U.S. TREASURY BILLS, NOTES, OR BONDS. Investors may want to compare the
performance of the Fund to that of U.S. Treasury bills, notes, or bonds, which
are issued by the U.S. Government. Treasury obligations are issued in
selected denominations. Rates of Treasury obligations are fixed at the time
of issuance and payment of principal and interest is backed by the full faith
and credit of the Treasury. The market value of such instruments will
generally fluctuate inversely with interest rates prior to maturity
59
<PAGE>
and will equal par value at maturity. Generally, the values of obligations
with shorter maturities will fluctuate less than those with longer maturities.
CERTIFICATES OF DEPOSIT. Investors may want to compare the Fund's performance
to that of certificates of deposit offered by banks and other depositary
institutions. Certificates of deposit may offer fixed or variable interest
rates and principal is guaranteed and may be insured. Withdrawal of the
deposits prior to maturity normally will be subject to a penalty. Rates
offered by banks and other depositary institutions are subject to change at
any time specified by the issuing institution.
MONEY MARKET FUNDS. Investors may also want to compare performance of the
Fund to that of money market funds. Money market fund yields will fluctuate
and shares are not insured, but share values usually remain stable.
LIPPER ANALYTICAL SERVICES, INC. ("LIPPER") AND OTHER INDEPENDENT RANKING
ORGANIZATIONS. From time to time, in marketing and other fund literature, the
Fund's performance may be compared to the performance of other mutual funds in
general or to the performance of particular types of mutual funds with similar
investment goals, as tracked by independent organizations. Among these
organizations, Lipper, a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets, may be
cited. Lipper performance figures are based on changes in net asset value,
with all income and capital gains dividends reinvested. Such calculations do
not include the effect of any sales charges imposed by other funds. The Fund
will be compared to Lipper's appropriate fund category, that is, by fund
objective and portfolio holdings. The Fund's performance may also be compared
to the average performance of its Lipper category.
MORNINGSTAR, INC. The Fund's performance may also be compared to the
performance of other mutual funds by Morningstar, Inc., which rates funds on
the basis of historical risk and total return. Morningstar's ratings range
from five stars (highest) to one star (lowest) and represent Morningstar's
assessment of the historical risk level and total return of a fund as a
weighted average for 3, 5, and 10 year periods. Ratings are not absolute and
do not represent future results.
INDEPENDENT SOURCES. Evaluations of fund performance made by independent
sources may also be used in advertisements concerning the Fund, including
reprints of, or selections from, editorials or articles about the Fund,
especially those with similar objectives. Sources for fund performance and
articles about the Fund may include publications such as Money, Forbes,
Kiplinger's, Smart Money, Financial World, Business Week, U.S. News and World
Report, The Wall Street Journal, Barron's, and a variety of investment
newsletters.
INDICES. The Fund may compare its performance to a wide variety of indices.
There are differences and similarities between the investments that a Fund may
purchase and the investments measured by the indices.
HISTORICAL ASSET CLASS RETURNS. From time to time, marketing materials may
portray the historical returns of various asset classes. Such presentations
will typically compare the average annual rates of return of inflation, U.S.
Treasury bills, bonds, common stocks, and small stocks. There are important
differences between each of these investments that should be considered in
viewing any such comparison. The market value of stocks will fluctuate with
market conditions, and small-stock prices generally will fluctuate more than
large-stock prices. Stocks are generally more volatile than bonds. In return
for this volatility, stocks have generally performed better than bonds or cash
over time. Bond prices generally will fluctuate inversely with interest rates
and other market conditions, and the prices of bonds with longer maturities
generally will fluctuate more than those of shorter-maturity bonds. Interest
rates for bonds may be fixed at the time of issuance, and payment of principal
and interest may be guaranteed by the issuer and, in the case of U.S. Treasury
obligations, backed by the full faith and credit of the U.S. Treasury.
60
<PAGE>
STRONG FUNDS. The Strong Funds offer a comprehensive range of conservative to
aggressive investment options. The Strong Funds and their investment
objectives are listed below.
FUND NAME INVESTMENT OBJECTIVE
<TABLE>
<CAPTION>
<S> <C>
- ----------------------------------------- -----------------------------------------------------------------------------------
CASH MANAGEMENT
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Advantage Fund Current income with a very low degree of share-price fluctuation.
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Heritage Money Fund Current income, a stable share price, and daily liquidity.
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Investors Money Fund Current income, a stable share price, and daily liquidity.
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Money Market Fund Current income, a stable share price, and daily liquidity.
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Municipal Advantage Fund Federally tax-exempt current income with a very low degree of share-price
fluctuation.
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Municipal Money Market Fund Federally tax-exempt current income, a stable share-price, and daily liquidity.
- ----------------------------------------- -----------------------------------------------------------------------------------
- ----------------------------------------- -----------------------------------------------------------------------------------
CONSERVATIVE EQUITY
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong American Utilities Fund Total return by investing for both income and capital growth.
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Asset Allocation Fund High total return consistent with reasonable risk over the long term.
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Blue Chip 100 Fund Total return by investing for both income and capital growth.
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Equity Income Fund Total return by investing for both income and capital growth.
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Growth and Income Fund High total return by investing for capital growth and income.
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Limited Resources Fund Total return by investing for both capital growth and income.
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Schafer Balanced Fund Total return by investing for both income and capital growth.
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Schafer Value Fund Long-term capital appreciation principally through investment in common stocks
and other equity securities. Current income is a secondary objective.
- ----------------------------------------- -----------------------------------------------------------------------------------
- ----------------------------------------- -----------------------------------------------------------------------------------
EQUITY
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Common Stock Fund* Capital growth.
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Discovery Fund Capital growth.
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Dow 30 Value Fund Capital growth.
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Enterprise Fund Capital growth.
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Growth Fund Capital growth.
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Growth 20 Fund Capital growth.
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Index 500 Fund To approximate as closely as practicable (before fees and expenses) the
capitalization-weighted total rate of return of that portion of the U.S. market for
publicly traded common stocks composed of the larger capitalized companies.
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Internet Fund Capital growth.
- ----------------------------------------- -----------------------------------------------------------------------------------
Strong Large Cap Growth Fund Capital growth.
- -------------------------------------- ----------------------------------------------------------------------------
Strong Mid Cap Disciplined Fund Capital growth.
- -------------------------------------- ----------------------------------------------------------------------------
Strong Mid Cap Growth Fund Capital growth.
- -------------------------------------- ----------------------------------------------------------------------------
Strong Opportunity Fund Capital growth.
- -------------------------------------- ----------------------------------------------------------------------------
Strong Small Cap Value Fund Capital growth.
- -------------------------------------- ----------------------------------------------------------------------------
Strong Strategic Growth Fund Capital growth.
- -------------------------------------- ----------------------------------------------------------------------------
Strong Technology 100 Fund Capital growth.
- -------------------------------------- ----------------------------------------------------------------------------
Strong Technology Index Plus Fund Capital growth.
- -------------------------------------- ----------------------------------------------------------------------------
Strong U.S. Emerging Growth Fund Capital growth.
- -------------------------------------- ----------------------------------------------------------------------------
Strong Value Fund Capital growth.
- -------------------------------------- ----------------------------------------------------------------------------
- -------------------------------------- ----------------------------------------------------------------------------
INCOME
- -------------------------------------- ----------------------------------------------------------------------------
Strong Bond Fund Total return by investing for a high level of current income with a moderate
degree of share-price fluctuation.
- -------------------------------------- ----------------------------------------------------------------------------
Strong Corporate Bond Fund Total return by investing for a high level of current income with a moderate
degree of share-price fluctuation.
- -------------------------------------- ----------------------------------------------------------------------------
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Strong Government Securities Fund Total return by investing for a high level of current income with a moderate
degree of share-price fluctuation.
- ------------------------------------------ ----------------------------------------------------------------------------------
Strong High-Yield Bond Fund Total return by investing for a high level of current income and capital growth.
- ------------------------------------------ ----------------------------------------------------------------------------------
Strong Short-Term Bond Fund Total return by investing for a high level of current income with a low degree of
share-price fluctuation.
- ------------------------------------------ ----------------------------------------------------------------------------------
Strong Short-Term High Yield Bond Total return by investing for a high level of current income with a moderate
Fund degree of share-price fluctuation.
- ------------------------------------------ ----------------------------------------------------------------------------------
- ------------------------------------------ ----------------------------------------------------------------------------------
INTERNATIONAL
- ------------------------------------------ ----------------------------------------------------------------------------------
Strong Asia Pacific Fund Capital growth.
- ------------------------------------------ ----------------------------------------------------------------------------------
Strong Foreign MajorMarketsSM Fund Capital growth.
- ------------------------------------------ ----------------------------------------------------------------------------------
Strong Global High-Yield Bond Fund Total return by investing for a high level of current income and capital growth.
- ------------------------------------------ ----------------------------------------------------------------------------------
Strong International Bond Fund High total return by investing for both income and capital appreciation.
- ------------------------------------------ ----------------------------------------------------------------------------------
Strong International Stock Fund Capital growth.
- ------------------------------------------ ----------------------------------------------------------------------------------
Strong Overseas Fund Capital growth.
- ------------------------------------------ ----------------------------------------------------------------------------------
Strong Short-Term Global Bond Fund Total return by investing for a high level of income with a low degree of share
price fluctuation.
- ------------------------------------------ ----------------------------------------------------------------------------------
- ------------------------------------------ ----------------------------------------------------------------------------------
LIFE STAGE SERIES
- ------------------------------------------ ----------------------------------------------------------------------------------
Strong Aggressive Portfolio Capital growth.
- ------------------------------------------ ----------------------------------------------------------------------------------
Strong Conservative Portfolio Total return by investing primarily for income and secondarily for capital growth.
- ------------------------------------------ ----------------------------------------------------------------------------------
Strong Moderate Portfolio Total return by investing primarily for capital growth and secondarily for income.
- ------------------------------------------ ----------------------------------------------------------------------------------
- ------------------------------------------ ----------------------------------------------------------------------------------
MUNICIPAL INCOME
- ------------------------------------------ ----------------------------------------------------------------------------------
Strong High-Yield Municipal Bond Fund Total return by investing for a high level of federally tax-exempt current income.
- ------------------------------------------ ----------------------------------------------------------------------------------
Strong Municipal Bond Fund Total return by investing for a high level of federally tax-exempt current income
with a moderate degree of share-price fluctuation.
- ------------------------------------------ ----------------------------------------------------------------------------------
Strong Short-Term High Yield Total return by investing for a high level of federally tax-exempt current income
Municipal Fund with a moderate degree of share-price fluctuation.
- ------------------------------------------ ----------------------------------------------------------------------------------
Strong Short-Term Municipal Bond Total return by investing for a high level of federally tax-exempt current income
Fund with a low degree of share-price fluctuation.
- ------------------------------------------ ----------------------------------------------------------------------------------
</TABLE>
* The Fund is closed to new investors, except the Fund may continue to
offer its shares through certain 401(k) plans and similar company-sponsored
retirement plans.
The Advisor also serves as Advisor to several management investment companies,
some of which fund variable annuity separate accounts of certain insurance
companies.
The Fund may from time to time be compared to other Strong Funds based on a
risk/reward spectrum. In general, the amount of risk associated with any
investment product is commensurate with that product's potential level of
reward. The Strong Funds risk/reward continuum or any Fund's position on the
continuum may be described or diagrammed in marketing materials. The Strong
Funds risk/reward continuum positions the risk and reward potential of each
Strong Fund relative to the other Strong Funds, but is not intended to
position any Strong Fund relative to other mutual funds or investment
products. Marketing materials may also discuss the relationship between risk
and reward as it relates to an individual investor's portfolio.
TYING TIME FRAMES TO YOUR GOALS. There are many issues to consider as you
make your investment decisions, including analyzing your risk tolerance,
investing experience, and asset allocations. You should start to organize
your investments by learning to link your many financial goals to specific
time frames. Then you can begin to identify the appropriate types of
investments to help meet your goals. As a general rule of thumb, the longer
your time horizon, the more price fluctuation you will be able to tolerate in
pursuit of higher returns. For that reason, many people with longer-term
goals select stocks or long-term bonds, and many people with nearer-term goals
match those up with for instance, short-term bonds. The Advisor developed the
following suggested holding periods to help our investors set realistic
expectations for both the risk and reward potential of our funds. (See table
below.) Of course, time is just one element to consider when making your
investment decision.
62
<PAGE>
STRONG FUNDS SUGGESTED MINIMUM HOLDING PERIODS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
UNDER 1 YEAR 1 TO 2 YEARS 4 TO 7 YEARS 5 OR MORE YEARS
- ------------------------ -------------------------- --------------------------- --------------------------
Heritage Money Fund Advantage Fund Conservative Portfolio Aggressive Portfolio
Investors Money Fund Municipal Advantage Fund Corporate Bond Fund American Utilities Fund
Money Market Fund Global High-Yield Bond Fund Asia Pacific Fund
Municipal Money Market 2 TO 4 YEARS Government Securities Fund Asset Allocation Fund
Fund
Short-Term Bond Fund High-Yield Bond Fund Blue Chip 100 Fund
Short-Term Global Bond High-Yield Municipal Bond Common Stock Fund*
Fund Fund Discovery Fund
Short-Term High Yield Bond International Bond Fund Dow 30 Value Fund
Fund Municipal Bond Fund Enterprise Fund
Short-Term High Yield Equity Income Fund
Municipal Fund Foreign MajorMarketsSM
Short-Term Municipal Bond Fund
Fund Growth Fund
Growth 20 Fund
Growth and Income Fund
Index 500 Fund
International Stock Fund
Internet Fund
Large Cap Growth Fund
Limited Resources Fund
Mid Cap Disciplined Fund
Mid Cap Growth Fund
Moderate Portfolio
Opportunity Fund
Overseas Fund
Schafer Balanced Fund
Schafer Value Fund
Small Cap Value Fund
Strategic Growth Fund
Technology 100 Fund
Technology Index Plus Fund
U.S. Emerging Growth Fund
Value Fund
</TABLE>
* This Fund is closed to new investors, except the Fund may continue to
offer its shares through certain 401(k) plans and similar company-sponsored
retirement plans.
PRODUCT LIFE CYCLES. Discussions of product life cycles and their potential
impact on the Fund's investments may be used in advertisements and sales
materials. The basic idea is that most products go through a life cycle that
generally consists of an early adoption phase, a rapid growth phase, and a
maturity phase. The early adoption phase generally includes the time period
during which the product is first being developed and marketed. The rapid
growth phase usually occurs when the general public becomes aware of the new
product and sales are rising. The maturity phase generally includes the time
period when the public has been aware of the product for a period of time and
sales have leveled off or declined.
By identifying and investing in companies that produce or service products that
are in the early adoption phase of their life cycle, it may be possible for the
Fund to benefit if the product moves into a prolonged period of rapid growth
that enhances the company's stock price. However, you should keep in mind that
investing in a product in its early adoption phase does not provide any
guarantee of profit. A product may experience a prolonged rapid growth and
maturity phase without any corresponding increase in the company's stock price.
In addition, different products have life cycles that may be longer or shorter
than those depicted and these variations may influence whether the product has
a positive effect on the company's stock price. For example, a product may not
positively impact a company's stock price if it experiences an extremely short
rapid growth or maturity phase because the product becomes obsolete soon after
it is introduced to the general public. Other products may never move past the
early adoption phase and have no impact on the company's stock price.
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ADDITIONAL FUND INFORMATION
PORTFOLIO CHARACTERISTICS. In order to present a more complete picture of the
Fund's portfolio, marketing materials may include various actual or estimated
portfolio characteristics, including but not limited to median market
capitalizations, earnings per share, alphas, betas, price/earnings ratios,
returns on equity, dividend yields, capitalization ranges, growth rates,
price/book ratios, top holdings, sector breakdowns, asset allocations, quality
breakdowns, and breakdowns by geographic region.
MEASURES OF VOLATILITY AND RELATIVE PERFORMANCE. Occasionally statistics may
be used to specify fund volatility or risk. The general premise is that
greater volatility connotes greater risk undertaken in achieving performance.
Measures of volatility or risk are generally used to compare the Fund's net
asset value or performance relative to a market index. One measure of
volatility is beta. Beta is the volatility of a fund relative to the total
market as represented by the Standard & Poor's 500 Stock Index. A beta of
more than 1.00 indicates volatility greater than the market, and a beta of
less than 1.00 indicates volatility less than the market. Another measure of
volatility or risk is standard deviation. Standard deviation is a statistical
tool that measures the degree to which a fund's performance has varied from
its average performance during a particular time period.
Standard deviation is calculated using the following formula:
Standard deviation = the square root of S(xi - xm)2
n-1
Where: S = "the sum of",
xi = each individual return during the time period,
xm = the average return over the time period, and
n = the number of individual returns during the time period.
Statistics may also be used to discuss the Fund's relative performance. One
such measure is alpha. Alpha measures the actual return of a fund compared to
the expected return of a fund given its risk (as measured by beta). The
expected return is based on how the market as a whole performed, and how the
particular fund has historically performed against the market. Specifically,
alpha is the actual return less the expected return. The expected return is
computed by multiplying the advance or decline in a market representation by
the Fund's beta. A positive alpha quantifies the value that the fund manager
has added, and a negative alpha quantifies the value that the fund manager has
lost.
Other measures of volatility and relative performance may be used as
appropriate. However, all such measures will fluctuate and do not represent
future results.
GENERAL INFORMATION
BUSINESS PHILOSOPHY
The Advisor is an independent, Midwestern-based investment advisor, owned by
professionals active in its management. Recognizing that investors are the
focus of its business, the Advisor strives for excellence both in investment
management and in the service provided to investors. This commitment affects
many aspects of the business, including professional staffing, product
development, investment management, and service delivery.
The increasing complexity of the capital markets requires specialized skills
and processes for each asset class and style. Therefore, the Advisor believes
that active management should produce greater returns than a passively managed
index. The Advisor has brought together a group of top-flight investment
professionals with diverse product expertise, and each concentrates on their
investment specialty. The Advisor believes that people are the firm's most
important asset. For this reason, continuity of professionals is critical to
the firm's long-term success.
INVESTMENT ENVIRONMENT
Discussions of economic, social, and political conditions and their impact on
the Fund may be used in advertisements and sales materials. Such factors that
may impact the Fund include, but are not limited to, changes in interest
rates, political developments,
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the competitive environment, consumer behavior, industry trends, technological
advances, macroeconomic trends, and the supply and demand of various financial
instruments. In addition, marketing materials may cite the portfolio
management's views or interpretations of such factors.
EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING
These common sense rules are followed by many successful investors. They make
sense for beginners, too. If you have a question on these principles, or would
like to discuss them with us, please contact us at 800-368-3863.
1. HAVE A PLAN - even a simple plan can help you take control of your
financial future. Review your plan once a year, or if your circumstances
change.
2. START INVESTING AS SOON AS POSSIBLE. Make time a valuable ally. Let it
put the power of compounding to work for you, while helping to reduce your
potential investment risk.
3. DIVERSIFY YOUR PORTFOLIO. By investing in different asset classes -
stocks, bonds, and cash - you help protect against poor performance in one
type of investment while including investments most likely to help you achieve
your important goals.
4. INVEST REGULARLY. Investing is a process, not a one-time event. By
investing regularly over the long term, you reduce the impact of short-term
market gyrations, and you attend to your long-term plan before you're tempted
to spend those assets on short-term needs.
5. MAINTAIN A LONG-TERM PERSPECTIVE. For most individuals, the best
discipline is staying invested as market conditions change. Reactive,
emotional investment decisions are all too often a source of regret - and
principal loss.
6. CONSIDER STOCKS TO HELP ACHIEVE MAJOR LONG-TERM GOALS. Over time,
stocks have provided the more powerful returns needed to help the value of
your investments stay well ahead of inflation.
7. KEEP A COMFORTABLE AMOUNT OF CASH IN YOUR PORTFOLIO. To meet current
needs, including emergencies, use a money market fund or a bank account - not
your long-term investment assets.
8. KNOW WHAT YOU'RE BUYING. Make sure you understand the potential risks
and rewards associated with each of your investments. Ask questions... request
information...make up your own mind. And choose a fund company that helps you
make informed investment decisions.
STRONG RETIREMENT PLAN SERVICES
Strong Retirement Plan Services offers a full menu of high quality, affordable
retirement plan options, including traditional money purchase pension and
profit sharing plans, 401(k) plans, simplified employee pension plans, salary
reduction plans, Keoghs, and 403(b) plans. Retirement plan specialists are
available to help companies determine which type of retirement plan may be
appropriate for their particular situation.
MARKETS. The retirement plan services provided by the Advisor focus on four
distinct markets, based on the belief that a retirement plan should fit the
customer's needs, not the other way around.
1. SMALL COMPANY PLANS. Small company plans are designed for companies
with 1-50 plan participants. The objective is to incorporate the features and
benefits typically reserved for large companies, such as sophisticated
recordkeeping systems, outstanding service, and investment expertise, into a
small company plan without administrative hassles or undue expense. Small
company plan sponsors receive a comprehensive plan administration manual as
well as toll-free telephone support.
2. LARGE COMPANY PLANS. Large company plans are designed for companies
with between 51 and 1,000 plan participants. Each large company plan is
assigned a team of professionals consisting of an account manager, who is
typically an attorney, CPA, or holds a graduate degree in business, a
conversion specialist (if applicable), an accounting manager, a
legal/technical manager, and an education/communications educator.
3. WOMEN-OWNED BUSINESSES.
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4. NON-PROFIT AND EDUCATIONAL ORGANIZATIONS (THE 403(B) MARKET).
TURNKEY APPROACH. The retirement plans offered by the Advisor are designed to
be streamlined and simple to administer. To this end, the Advisor has
invested heavily in the equipment, systems, and people necessary to adopt or
convert a plan, and to keep it running smoothly. The Advisor provides all
aspects of the plan, including plan design, administration, recordkeeping, and
investment management. To streamline plan design, the Advisor provides
customizable IRS-approved prototype documents. The Advisor's services also
include annual government reporting and testing as well as daily valuation of
each participant's account. This structure is intended to eliminate the
confusion and complication often associated with dealing with multiple
vendors. It is also designed to save plan sponsors time and expense.
The Advisor strives to provide one-stop retirement savings programs that
combine the advantages of proven investment management, flexible plan design,
and a wide range of investment options. The open architecture design of the
plans allow for the use of the family of mutual funds managed by the Advisor
as well as a stable asset value option. Large company plans may supplement
these options with their company stock (if publicly traded) or funds from
other well-known mutual fund families.
EDUCATION. Participant education and communication is key to the success of
any retirement program, and therefore is one of the most important services
that the Advisor provides. The Advisor's goal is twofold: to make sure that
plan participants fully understand their options and to educate them about the
lifelong investment process. To this end, the Advisor provides attractive,
readable print materials that are supplemented with audio and video tapes, and
retirement education programs.
SERVICE. The Advisor's goal is to provide a world class level of service.
One aspect of that service is an experienced, knowledgeable team that provides
ongoing support for plan sponsors, both at adoption or conversion and
throughout the life of a plan. The Advisor is committed to delivering
accurate and timely information, evidenced by straightforward, complete, and
understandable reports, participant account statements, and plan summaries.
The Advisor has designed both "high-tech" and "high-touch" systems, providing
an automated telephone system as well as personal contact. Participants can
access daily account information, conduct transactions, or have questions
answered in the way that is most comfortable for them.
STRONG FINANCIAL ADVISORS GROUP
The Strong Financial Advisors Group is dedicated to helping financial advisors
better serve their clients. Financial advisors receive regular updates on the
mutual funds managed by the Advisor, access to portfolio managers through
special conference calls, consolidated mailings of duplicate confirmation
statements, access to the Advisor's network of regional representatives, and
other specialized services. For more information on the Strong Financial
Advisors Group, call 800-368-1683.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 100 East Wisconsin Avenue, Milwaukee, Wisconsin
53202, are the independent accountants for the Fund, providing audit services
and assistance and consultation with respect to the preparation of filings
with the SEC.
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LEGAL COUNSEL
Godfrey & Kahn, S.C., 780 North Water Street, Milwaukee, Wisconsin 53202,
acts as legal counsel for the Fund.
FINANCIAL STATEMENTS
The Annual Report for the Fund that is attached to this SAI contains the
following audited financial information:
1. Schedule of Investments in Securities.
2. Statement of Operations.
3. Statement of Assets and Liabilities.
4. Statements of Changes in Net Assets.
5. Notes to Financial Statements.
6. Financial Highlights.
7. Report of Independent Accountants.
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APPENDIX A - DEFINITION OF BOND RATINGS
STANDARD & POOR'S ISSUE CREDIT RATINGS
A Standard & Poor's issue credit rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial
obligation, a specific class of financial obligations, or a specific financial
program (including ratings on medium-term note programs and commercial paper
programs). It takes into consideration the creditworthiness of guarantors,
insurers, or other forms of credit enhancement of the obligation and takes
into account the currency in which the obligation is denominated. The issue
credit rating is not a recommendation to purchase, sell, or hold a financial
obligation, inasmuch as it does not comment as to market price or suitability
for a particular investor.
Issue credit ratings are based on current information furnished by the
obligors or obtained by Standard & Poor's from other sources it considers to
be reliable. Standard & Poor's does not perform an audit in connection with
any credit rating and may, on occasion, rely on unaudited financial
information. Credit ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on
other circumstances.
Issue credit ratings can be either long-term or short-term. Short-term
ratings are generally assigned to those obligations considered short-term in
the relevant market. In the U.S., for example, that means obligations with an
original maturity of no more than 365 days - including commercial paper.
Short-term ratings are also used to indicate the creditworthiness of an
obligor with respect to put features on long-term obligations. The result is
a dual rating, in which the short-term rating addresses the put feature, in
addition to the usual long-term rating. Medium-term notes are assigned
long-term ratings.
Issue credit ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of payment capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms of the
obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
The issue rating definitions are expressed in terms of default risk. As such,
they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority
in bankruptcy, as noted above. (Such differentiation applies when an entity
has both senior and subordinated obligations, secured and unsecured
obligations, or operating company and holding company obligations.)
Accordingly, in the case of junior debt, the rating may not conform exactly
with the category definition.
'AAA'
An obligation rated 'AAA' has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is EXTREMELY STRONG.
'AA'
An obligation rated 'AA' differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is VERY STRONG.
'A'
An obligation rated 'A' is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still STRONG.
'BBB'
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An obligation rated 'BBB' exhibits ADEQUATE protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity of the obligor to meet its financial commitment on the
obligation.
Obligations rated 'BB', 'B', 'CCC', 'CC' and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
'BB'
An obligation rated 'BB' is LESS VULNERABLE to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
'B'
An obligation rated 'B' is MORE VULNERABLE to nonpayment than obligations
rated 'BB', but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet
its financial commitment on the obligation.
'CCC'
An obligation rated 'CCC' is CURRENTLY VULNERABLE to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
'CC'
An obligation rated 'CC' is CURRENTLY HIGHLY VULNERABLE to nonpayment.
'C'
The 'C' rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this
obligation are being continued.
'D'
An obligation rated 'D' is in payment default. The 'D' rating category is
used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless Standard & Poor's believes
that such payments will be made during such grade period. The 'D' rating also
will be used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
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MOODY'S LONG-TERM DEBT RATINGS
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment some time in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade obligations
(I.E., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
FITCH IBCA, INC. ("FITCH") LONG-TERM NATIONAL CREDIT RATINGS
AAA
Obligations which have the highest rating assigned by Fitch on its national
rating scale for that country. This rating is automatically assigned to all
obligations issued or guaranteed by the sovereign state. Capacity for timely
repayment of principal and interest is extremely strong, relative to other
obligors in the same country.
AA
Obligations for which capacity for timely repayment of principal and interest
is very strong relative to other obligors in the same country. The risk
attached to these obligations differs only slightly from the country's highest
rated debt.
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A
Obligations for which capacity for timely repayment of principal and interest
is strong relative to other obligors in the same country. However, adverse
changes in business, economic or financial conditions are more likely to
affect the capacity for timely repayment than for obligations in higher rated
categories.
BBB
Obligations for which capacity for timely repayment of principal and interest
is adequate relative to other obligors in the same country. However, adverse
changes in business, economic or financial conditions are more likely to
affect the capacity for timely repayment than for obligations in higher rated
categories.
BB
Obligations for which capacity for timely repayment of principal and interest
is uncertain relative to other obligors in the same country. Within the
context of the country, these obligations are speculative to some degree and
capacity for timely repayment remains susceptible over time to adverse changes
in business, financial or economic conditions.
B
Obligations for which capacity for timely repayment of principal and interest
is uncertain relative to other obligors in the same country. Timely repayment
of principal and interest is not sufficiently protected against adverse
changes in business, economic or financial conditions and these obligations
are more speculative than those in higher rated categories.
CCC
Obligations for which there is a current perceived possibility of default
relative to other obligors in the same country. Timely repayment of principal
and interest is dependent on favorable business, economic or financial
conditions and these obligations are far more speculative than those in higher
rated categories.
CC
Obligations which are highly speculative relative to other obligors in the
same country or which have a high risk of default.
C
Obligations which are currently in default.
DUFF & PHELPS, INC. LONG-TERM DEBT AND PREFERRED STOCK RATING SCALE
Rating Definition
AAA Highest credit quality. The risk factors are negligible, being only
slightly more
than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest
but may
AA vary slightly from time to time because of economic conditions.
AA-
A+ Protection factors are average but adequate. However, risk factors are
more
A variable in periods of greater economic stress.
A-
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BBB+ Below-average protection factors but still considered sufficient for
prudent
BBB investment. Considerable variability in risk during economic cycles.
BBB-
BB+ Below investment grade but deemed likely to meet obligations when due.
BB Present or prospective financial protection factors fluctuate according
to
BB- industry conditions. Overall quality may move up or down frequently
within this category.
B+ Below investment grade and possessing risk that obligations will not be
met
B when due. Financial protection factors will fluctuate widely according
to
B- economic cycles, industry conditions and/or company fortunes.
Potential
exists for frequent changes in the rating within this category or into a
higher
or lower rating grade.
CCC Well below investment-grade securities. Considerable uncertainty
exists as to
timely payment of principal, interest or preferred dividends. Protection
factors
are narrow and risk can be substantial with unfavorable economic/industry
conditions, and/or with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or
interest payments.
DP Preferred stock with dividend arrearages.
THOMSON BANKWATCH LONG-TERM DEBT RATINGS
Long-Term Debt Ratings assigned by Thomson BankWatch ALSO WEIGH HEAVILY
GOVERNMENT OWNERSHIP AND SUPPORT. The quality of both the company's
management and franchise are of even greater importance in the Long-Term Debt
Rating decisions. Long-Term Debt Ratings look out over a cycle and are not
adjusted frequently for what it believes are short-term performance
aberrations.
Long-Term Debt Ratings can be restricted to local currency debt - ratings will
be identified by the designation LC. In addition, Long-Term Debt Ratings may
include a plus (+) or minus (-) to indicate where within the category the
issue is placed. BankWatch Long-Term Debt Ratings are based on the following
scale:
INVESTMENT GRADE
AAA (LC-AAA) - Indicates that the ability to repay principal and interest on a
timely basis is extremely high.
AA (LC-AA) - Indicates a very strong ability to repay principal and interest
on a timely basis, with limited incremental risk compared to issues rated in
the highest category.
A (LC-A) - Indicates the ability to repay principal and interest is strong.
Issues rated A could be more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
BBB (LC-BBB) - The lowest investment-grade category; indicates an acceptable
capacity to repay principal and interest. BBB issues are more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
NON-INVESTMENT GRADE - may be speculative in the likelihood of timely
repayment of principal and interest
BB (LC-BB) - While not investment grade, the BB rating suggests that the
likelihood of default is considerably less than for lower-rated issues.
However, there are significant uncertainties that could affect the ability to
adequately service debt obligations.
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B (LC-B) - Issues rated B show a higher degree of uncertainty and therefore
greater likelihood of default than higher-rated issues. Adverse developments
could negatively affect the payment of interest and principal on a timely
basis.
CCC (LC-CCC) - Issues rated CCC clearly have a high likelihood of default,
with little capacity to address further adverse changes in financial
circumstances.
CC (LC-CC) - CC is applied to issues that are subordinate to other obligations
rated CCC and are afforded less protection in the event of bankruptcy or
reorganization.
D (LC-D) - Default.
SHORT-TERM RATINGS
STANDARD & POOR'S SHORT-TERM ISSUE CREDIT RATINGS
'A-1'
A short-term obligation rated 'A-1' is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity
to meet its financial commitment on these obligations is extremely strong.
'A-2'
A short-term obligation rated 'A-2' is somewhat more susceptible to the averse
effects of changes in circumstances and economic conditions than obligations
in higher rating categories. However, the obligor's capacity to meet its
financial commitment on the obligation is satisfactory.
'A-3'
A short-term obligation rated 'A-3' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
'B'
A short-term obligation rated 'B' is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet
its financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet
its financial commitment on the obligation.
'C'
A short-term obligation rated 'C' is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
'D'
A short-term obligation rated 'D' is in payment default. The 'D' rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The 'D'
rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
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MOODY'S SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
PRIME - 1 Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term Debt
obligations. Prime-1 repayment ability will often be evidenced by many of the
following characteristics:
- - Leading market positions in well-established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - Well-established access to a range of financial markets and assured sources
of alternate liquidity.
PRIME - 2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while
sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
PRIME - 3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market compositions
may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
NOT PRIME Issuers rated Not Prime do not fall within any of the Prime
rating categories.
FITCH IBCA, INC. ("FITCH") SHORT-TERM NATIONAL CREDIT RATINGS
F1
Obligations assigned this rating have the highest capacity for timely repayment
under Fitch's national rating scale for that country, relative to other
obligations in the same country. This rating is automatically assigned to all
obligations issued or guaranteed by the sovereign state. Where issues possess
a particularly strong credit feature, a "+" is added to the assigned rating.
F2
Obligations supported by a strong capacity for timely repayment relative to
other obligors in the same country. However, the relative degree of risk is
slightly higher than for issues classified as 'A1' and capacity for timely
repayment may be susceptible to adverse changes in business, economic, or
financial conditions.
F3
Obligations supported by an adequate capacity for timely repayment relative to
other obligors in the same country. Such capacity is more susceptible to
adverse changes in business, economic, or financial conditions than for
obligations in higher categories.
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B
Obligations for which the capacity for timely repayment is uncertain relative
to other obligors in the same country. The capacity for timely repayment is
susceptible to adverse changes in business, economic, or financial conditions.
C
Obligations for which there is a high risk of default to other obligors in the
same country or which are in default.
DUFF & PHELPS, INC. SHORT-TERM DEBT RATINGS
RATING: DEFINITION
HIGH GRADE
D-1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.
D-1 Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
GOOD GRADE
D-2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
SATISFACTORY GRADE
D-3 Satisfactory liquidity and other protection factors qualify issues as
to investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
NON-INVESTMENT GRADE
D-4 Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service. Operating factors and market access
may be subject to a high degree of variation.
DEFAULT
D-5 Issuer failed to meet scheduled principal and/or interest
payments.
75
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THOMSON BANKWATCH (TBW) SHORT-TERM RATINGS
TBW assigns Short-Term Debt Ratings to specific debt instruments with original
maturities of one year or less.
TBW-1 (LC-1) The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 (LC-2) The second-highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated TBW-1.
TBW-3 (LC-3) The lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.
TBW-4 (LC-4) The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
76
<PAGE>
APPENDIX B - ADVISOR CLASS SHARES
FRONT-END SALES LOAD
The offering price for Advisor Class shares is the next NAV calculated after a
purchase order is accepted, plus any applicable initial sales charges. No
sales charge is imposed on reinvested dividends and distributions. Advisor
Class shares are also subject to Rule 12b-1 fees at an annual rate of 0.25% of
average daily net assets. The amount of the initial sales charge you pay when
you buy Advisor Class shares differs depending on the amount you invest and the
Fund you invest in, as follows:
FOR THE ENTERPRISE, GROWTH, GROWTH 20, AND OPPORTUNITY FUNDS.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Dealer
Reallowance as a
Amount of As a Percentage As a Percentage Percentage of Offering
Your Investment Of Offering Price of Investment Price
Less than $50,000 5.75% 6.10% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 3.75%
$100,000 but less than $250,000 3.50% 3.63% 2.80%
$250,000 but less than $500,000 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000 2.00% 2.04% 1.60%
$1,000,000 or more None None None
</TABLE>
DEALER REALLOWANCES. As shown above, Distributor pays (or "reallows") a
portion of the initial sales charge. The dealer reallowance is expressed as a
percentage of the Advisor Class shares' offering price.
WAIVER OF FRONT-END SALES LOAD
As used in this Appendix, the term "dealer" includes any broker, dealer, bank
(including bank trust departments), registered investment adviser, financial
planner and any other financial institutions having a selling agreement or
other similar agreement with Distributor. In the following circumstances, the
initial sales charge imposed on purchases of Advisor Class shares are waived:
1. DIVIDEND REINVESTMENT. Shares acquired through reinvestment of dividends
and distributions.
2. CERTAIN ACQUISITIONS/LIQUIDATIONS. Shares acquired on account of the
acquisition or liquidation of assets of other investment companies.
3. WRAP ACCOUNT AND FUND "SUPERMARKET" INVESTMENTS. Shares acquired by
investments through certain dealers (including registered investment
advisors and financial planners) which have established certain operational
arrangements with the Advisor which include a requirement that such shares
be sold for the sole benefit of clients participating in a "wrap" account,
mutual fund "supermarket" account, or a similar program under which such
clients pay a fee to such dealer.
4. INVESTMENTS BY INSURANCE COMPANY SEPARATE ACCOUNTS. Shares acquired by
insurance company separate accounts.
5. CERTAIN RETIREMENT PLANS. Shares acquired by certain retirement plans or
trust accounts whose third party administrators or dealers have entered into
an administrative services agreement with Distributor or the Advisor or one
of their affiliates to perform certain administrative services, subject to
certain operational and minimum size requirements specified from time to
time by Distributor or the Advisor or one of their affiliates.
6. BANK TRUST DEPARTMENTS AND LAW FIRMS. Shares acquired by certain bank trust
departments or law firms acting as trustee or manager for trust accounts
which have entered into an administrative services agreement with
Distributor or the Advisor or one of their affiliates and the shares are
being acquired for the benefit of their trust account clients.
OTHER ADVISOR CLASS SHARES INFORMATION
77
<PAGE>
1. REINSTATEMENT PRIVILEGE. Shareholders of the Fund who have redeemed their
shares have a one-time right to reinvest the redemption proceeds at net
asset value (without a sales charge). Such a reinvestment must be made
within 90 days of the redemption and is limited to the amount of the
redemption proceeds. Although redemptions and repurchases of shares are
taxable events, a reinvestment within a certain period of time in the same
fund may be considered a "wash sale" and may result in the inability to
recognize currently all or a portion of a loss realized on the original
redemption for federal income tax purposes. Please see your tax adviser for
further information.
2. LETTER OF INTENT (LOI). If a shareholder (other than a group purchaser
described below) anticipates purchasing $50,000 or more of Advisor Class
shares of a Fund within a 13-month period, the shareholder may obtain
Advisor Class shares of the Fund at the same reduced sales charge as though
the total quantity were invested in one lump sum by completing the Letter of
Intent and delivering the Letter of Intent to the Advisor within 90 days of
the commencement of purchases. Subject to acceptance by the Advisor and the
conditions mentioned below, each purchase will be made at a public offering
price applicable to a single transaction of the dollar amount specified in
the Letter of Intent. The shareholder or his dealer must inform the Advisor
that the Letter of Intent is in effect each time shares are purchased. The
shareholder makes no commitment to purchase additional shares, but if his
purchases within 13 months plus the value of shares credited toward
completion of the Letter of Intent do not total the sum specified, the
shareholder will pay the increased amount of the sales charge as described
below. Instructions for issuance of shares in the name of a person other
than the person signing the Letter of Intent application must be accompanied
by a written statement from the dealer stating that the shares were paid for
by the person signing such Letter. Neither income dividends nor capital gain
distributions taken in additional shares will apply toward the completion of
the Letter of Intent. Out of the shareholder's initial purchase (or
subsequent purchases if necessary), shares equal to difference between the
lower sales charge and the higher sales charge the investor would have paid
had the investor not purchased shares through this program will be held in
escrow until the intended amount is invested. These escrowed shares may be
redeemed by the Fund if the investor is required to pay additional sales
charges. When the minimum investment so specified is completed the escrowed
shares will be released. If the intended investment is not completed, the
Advisor or Distributor will redeem an appropriate number of the escrowed
shares in order to realize such difference. Shares remaining after any such
redemption will be released by the Advisor or Distributor. By completing
and signing the Account Application or Letter of Intent, the shareholder
irrevocably appoints the Advisor and/or the Distributor as the shareholder's
attorney to surrender for redemption any or all escrowed shares with full
power of substitution in the premises.
3. RIGHT OF ACCUMULATION. A shareholder qualifies for cumulative quantity
discounts on the purchase of Advisor Class shares when the shareholder's new
investment, together with the current offering price value of Advisor Class
shares of that Fund reaches a discount level. A shareholder (or his
investment adviser) must provide the Advisor or Distributor with information
to verify that the quantity sales charge discount is applicable at the time
the investment is made.
4. GROUP PURCHASES. A bona fide group and all its members may be treated as a
single purchaser and, under the Right of Accumulation (but not the Letter of
Intent) obtain quantity sales charge discounts on the purchase of Advisor
Class shares if the group (1) gives its endorsement or authorization to the
investment program so it may be used by the investment dealer to facilitate
solicitation of the membership, thus effecting economies of sales effort;
(2) has been in existence for at least six months and has a legitimate
purpose other than to purchase mutual fund shares at a discount; (3) is not
a group of individuals whose sole organizational nexus is as credit
cardholders of a company, policyholders of an insurance company, customers
of a bank or broker-dealer, clients of an investment adviser or other
similar groups; and (4) agrees to provide certification of membership of
those members investing money in the Advisor Class shares upon the request
of the Advisor or Distributor.
78
<PAGE>
ADDITIONAL DEALER COMMISSIONS/CONCESSIONS
Dealers may receive different compensation with respect to sales of Advisor
Class shares. In addition, from time to time, Distributor may pay dealers 100%
of the applicable sales charge on sales of Advisor Class shares of certain
specified Funds sold by such dealer during a specified sales period. In
addition, from time to time, Distributor, at its expense, may provide
additional commissions, compensation or promotional incentives ("concessions")
to dealers which sell or arrange for the sale of shares of the Fund. Such
concessions provided by Distributor may include financial assistance to dealers
in connection with pre-approved conferences or seminars, sales or training
programs for invited registered representatives and other employees, payment
for travel expenses, including lodging, incurred by registered representatives
and other employees for such seminars or training programs, seminars for the
public, advertising and sales campaigns regarding one or more Funds, and/or
other dealer-sponsored events. From time to time, Distributor may make expense
reimbursements for special training of a dealer's registered representatives
and other employees in group meetings or to help pay the expenses of sales
contests. Other concessions may be offered to the extent not prohibited by
state laws or any self-regulatory agency, such as the NASD.
79
<PAGE>
STRONG OPPORTUNITY FUND, INC.
PART C
OTHER INFORMATION
Item 23. EXHIBITS
(a) Articles of Incorporation dated July 31, 1996(2)
(a.1) Amendment to Articles of Incorporation dated February 17,
2000(6)
(b) Bylaws dated October 20, 1995(1)
(b.1) Amendment to Bylaws dated May 1, 1998(3)
(c) Specimen Stock Certificate(6)
(d) Amended and Restated Investment Advisory Agreement(6)
(e) Distribution Agreement - Investor Class(6)
(e.1) Distribution Agreement - Advisor Class(6)
(e.2) Dealer Agreement(6)
(e.3) Services Agreement(6)
(f) Inapplicable
(g) Custody Agreement(1)
(g.1) Global Custody Agreement(1)
(g.2) Amendment to Global Custody Agreement dated August 26, 1996(3)
(h) Amended and Restated Transfer and Dividend Disbursing Agent
Agreement(6)
(h.1) Administration Agreement - Investor Class(6)
(h.2) Administration Agreement - Advisor Class(6)
(i) Inapplicable
(j) Consent of Independent Accountants
(k) Inapplicable
(l) Inapplicable
(m) Amended and Restated Rule 12b-1 Plan(6)
(n) Amended and Restated Rule 18f-3 Plan(6)
(o) Inapplicable
(p) Code of Ethics for Access Persons dated January 1, 1999(4)
(p.1) Code of Ethics for Non-Access Persons dated January 1, 1999(4)
(q) Power of Attorney dated April 28, 1999(4)
(q.1) Power of Attorney dated December 27, 1999(5)
(r) Letter of Representation
(1) Incorporated herein by reference to Post-Effective Amendment No. 14 to
the Registration Statement on Form N-1A of Registrant filed on or about April
25, 1996.
(2) Incorporated herein by reference to Post-Effective Amendment No. 15 to
the Registration Statement on Form N-1A of Registrant filed on or about April
25, 1997.
(3) Incorporated herein by reference to Post-Effective Amendment No. 17 to
the Registration Statement on Form N-1A of Registrant filed on or about March
2, 1999.
(4) Incorporated herein by reference to Post-Effective Amendment No. 18 to
the Registration Statement on Form N-1A of Registrant filed on or about April
29, 1999.
(5) Incorporated herein by reference to Post-Effective Amendment No. 19 to
the Registration Statement on Form N-1A of Registrant filed on or about
December 28, 1999.
(6) Incorporated herein by reference to Post-Effective Amendment No. 20 to
the Registration Statement on Form N-1A of Registrant filed on or about
February 22, 2000.
1
<PAGE>
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant neither controls any person nor is under common control with
any other person.
Item 25. INDEMNIFICATION
Officers and directors of the Fund, its advisor and underwriter are
insured under a joint directors and officers/errors and omissions insurance
policy underwritten by a group of insurance companies in the aggregate amount
of $115,000,000, subject to certain deductions. Pursuant to the authority of
the Wisconsin Business Corporation Law ("WBCL"), Article VII of Registrant's
Bylaws provides as follows:
ARTICLE VII. INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 7.01. MANDATORY INDEMNIFICATION. The Corporation shall
indemnify, to the full extent permitted by the WBCL, as in effect from time to
time, the persons described in Sections 180.0850 through 180.0859 (or any
successor provisions) of the WBCL or other provisions of the law of the State
of Wisconsin relating to indemnification of directors and officers, as in
effect from time to time. The indemnification afforded such persons by this
section shall not be exclusive of other rights to which they may be entitled as
a matter of law.
SECTION 7.02. PERMISSIVE SUPPLEMENTARY BENEFITS. The Corporation may,
but shall not be required to, supplement the right of indemnification under
Section 7.01 by (a) the purchase of insurance on behalf of any one or more of
such persons, whether or not the Corporation would be obligated to indemnify
such person under Section 7.01; (b) individual or group indemnification
agreements with any one or more of such persons; and (c) advances for related
expenses of such a person.
SECTION 7.03. AMENDMENT. This Article VII may be amended or repealed
only by a vote of the shareholders and not by a vote of the Board of Directors.
SECTION 7.04. INVESTMENT COMPANY ACT. In no event shall the Corporation
indemnify any person hereunder in contravention of any provision of the
Investment Company Act.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
The information contained under "Who are the funds' investment advisor and
portfolio managers?" in the Prospectus and under "Directors and Officers," and
"Investment Advisor," and "Distributor" in the Statement of Additional
Information is hereby incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
Item 27. PRINCIPAL UNDERWRITERS
(a) Strong Investments, Inc., principal underwriter for Registrant, also
serves as principal underwriter for Strong Advantage Fund, Inc.; Strong Asia
Pacific Fund, Inc.; Strong Asset Allocation Fund, Inc.; Strong Common Stock
Fund, Inc.; Strong Conservative Equity Funds, Inc.; Strong Corporate Bond Fund,
Inc.; Strong Discovery Fund, Inc.; Strong Equity Funds, Inc.; Strong Government
Securities Fund, Inc.; Strong Heritage Reserve Series, Inc.; Strong High-Yield
Municipal Bond Fund, Inc.; Strong Income Funds, Inc.; Strong Income Funds II,
Inc.; Strong International Equity Funds, Inc.; Strong International Income
Funds, Inc.; Strong Life Stage Series, Inc.; Strong Money Market Fund, Inc.;
Strong Municipal Bond Fund, Inc.; Strong Municipal Funds, Inc.; Strong
Opportunity Fund II, Inc.; Strong Schafer Funds, Inc.; Strong Schafer Value
Fund, Inc.; Strong Short-Term Bond Fund, Inc.; Strong Short-Term Global Bond
Fund, Inc.; Strong Short-Term Municipal Bond Fund, Inc.; Strong Total Return
Fund, Inc.; and Strong Variable Insurance Funds, Inc.
(b)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH UNDERWRITER WITH FUND
Richard S. Strong Director and Chairman Director and Chairman of
100 Heritage Reserve of the Board the Board
Menomonee Falls, WI 53051
2
<PAGE>
Stephen J. Shenkenberg Vice President, Vice President
100 Heritage Reserve Chief Compliance Officer and Secretary
Menomonee Falls, WI 53051 and Secretary
Anthony J. D'Amato President none
100 Heritage Reserve
Menomonee Falls, WI 53051
Jevad Aslani Vice President none
100 Heritage Reserve
Menomonee Falls, WI 53051
Lyle J. Fitterer Vice President none
100 Heritage Reserve
Menomonee Falls, WI 53051
Dana J. Russart Vice President none
100 Heritage Reserve
Menomonee Falls, WI 53051
Peter D. Schwab Vice President none
100 Heritage Reserve
Menomonee Falls, WI 53051
Michael W. Stefano Vice President none
100 Heritage Reserve
Menomonee Falls, WI 53051
Dennis A. Wallestad Vice President none
100 Heritage Reserve
Menomonee Falls, WI 53051
Thomas M. Zoeller Treasurer and Chief Vice President
100 Heritage Reserve Financial Officer
Menomonee Falls, WI 53051
Richard T. Weiss Director none
100 Heritage Reserve
Menomonee Falls, WI 53051
(c) None
Item 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are in the physical possession of Registrant's Vice President,
Stephen J. Shenkenberg, at Registrant's corporate offices, 100 Heritage
Reserve, Menomonee Falls, Wisconsin 53051.
Item 29. MANAGEMENT SERVICES
All management-related service contracts entered into by Registrant are
discussed in Parts A and B of this Registration Statement.
Item 30. UNDERTAKINGS
None
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933, and has duly caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the Village of Menomonee Falls, and State of Wisconsin on the
26th day of April, 2000.
STRONG OPPORTUNITY FUND, INC.
(Registrant)
By: /S/ STEPHEN J. SHENKENBERG
Stephen J. Shenkenberg, Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement on Form N-1A has been
signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME TITLE DATE
- --------------------------- ---------------------------------- ----------------
Chairman of the Board (Principal
/s/ Richard S. Strong Executive Officer) and a Director April 26, 2000
- ---------------------------
Richard S. Strong
Treasurer (Principal Financial and
/s/ John W. Widmer Accounting Officer) April 26, 2000
- ---------------------------
John W. Widmer
Director April 26, 2000
- ---------------------------
Marvin E. Nevins*
Director April 26, 2000
- ---------------------------
Willie D. Davis*
Director April 26, 2000
- ---------------------------
William F. Vogt*
Director April 26, 2000
- ---------------------------
Stanley Kritzik*
Director April 26, 2000
- ---------------------------
Neal Malicky*
</TABLE>
* John S. Weitzer signs this document pursuant to powers of attorney filed
with Post-Effective Amendment No. 19 and with Post-Effective Amendment No. 18
to the Registration Statement on Form N-1A.
By: /S/ JOHN S. WEITZER
John S. Weitzer
1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
EDGAR
EXHIBIT NO. EXHIBIT EXHIBIT NO.
- ----------- ---------------------------------------
(j) Consent of Independent Accountants EX-99.j
(r) Letter of Representation EX-99.r
</TABLE>
1
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our report dated February 7, 2000, relating to the
financial statements and financial highlights which appear in the December 31,
1999 Annual Report to Shareholders of Strong Opportunity Fund, Inc., which is
also incorporated by reference into the Registration Statement. We also
consent to the references to us under the headings "Financial Highlights" and
"Independent Accountants" in such Registration Statement.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
April 26, 2000
1
<PAGE>
GODFREY & KAHN, S.C.
ATTORNEYS AT LAW
780 North Water Street
Milwaukee, Wisconsin 53202
Phone (414) 273-3500 Fax (414) 273-5198
April 26, 2000
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: STRONG OPPORTUNITY FUND, INC.
Gentlemen:
We represent Strong Opportunity Fund, Inc. (the "Company"), in connection
with its filing of Post-Effective Amendment No. 21 (the "Post-Effective
Amendment") to the Company's Registration Statement (Registration Nos. 33-1932;
811-3793) on Form N-1A under the Securities Act of 1933 (the "Securities Act")
and the Investment Company Act of 1940. The Post-Effective Amendment is being
filed pursuant to Rule 485(b) under the Securities Act.
We have reviewed the Post-Effective Amendment and, in accordance with Rule
485(b)(4) under the Securities Act, hereby represent that the Post-Effective
Amendment does not contain disclosures which would render it ineligible to
become effective pursuant to Rule 485(b).
We consent to the use of this letter in the Post-Effective Amendment.
Very truly yours,
GODFREY & KAHN, S.C.
/s/ Renee M. Hardt
Renee M. Hardt
1
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2
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