As filed with the Securities and Exchange Commission on or about February 27,
1998
Securities Act Registration No. 2-99439
Investment Company Act Registration No. 811-4374
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. 16 [ X ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 17 [ X ]
(Check appropriate box or boxes)
STRONG MONEY MARKET 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
Thomas P. Lemke
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 March 1, 1998 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.
1
<PAGE>
STRONG MONEY MARKET FUND, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in the Prospectus and the
Statement of Additional Information of the responses to the Items of Parts A
and B of Form N-1A.)
<TABLE>
<CAPTION>
<S> <C>
Caption or Subheading in Prospectus or
ITEM NO. ON FORM N-1A STATEMENT OF ADDITIONAL INFORMATION
- ---------------------------------
PART A - Information Required in Prospectus
1. Cover Page Cover Page
2. Synopsis Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Objective and
Policies; Implementation
of Policies and Risks;
About the Fund - Organization
5. Management of the Fund About the Fund - Management
5A. Management's Discussion of Fund Performance *
6. Capital Stock and Other Securities About the Fund - Organization,
- Distributions and
Taxes; Shareholders Manual -
Shareholder Services
7. Purchase of Securities Being Offered Shareholder Manual - How to
Buy Shares, - Determining Your
Share Price, - Shareholder
Services
8. Redemption or Repurchase Shareholder Manual - How to
Sell Shares, - Determining
Your Share Price, -
Shareholder Services
9. Pending Legal Proceedings Inapplicable
PART B - Information Required in
Statement of Additional Information
10. Cover Page Cover page
11. Table of Contents Table of Contents
12. General Information and History **
13. Investment Objectives and Policies Investment Restrictions;
Investment Policies and
Techniques
14. Management of the Fund Directors and Officers
15. Control Persons and Principal
Holders of Securities Principal Shareholders;
Directors and Officers;
Investment Advisor;
Distributor
16. Investment Advisory and Other Services Investment Advisor;
Distributor; About the Fund -
Management (in Prospectus);
Custodian; Transfer Agent and
Dividend Disbursing Agent;
Independent Accountants;
Legal Counsel
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Caption or Subheading in Prospectus or
ITEM NO. ON FORM N-1A STATEMENT OF ADDITIONAL INFORMATION
- -----------------------------------
17. Brokerage Allocation and Other Practices Portfolio Transactions and
Brokerage
18. Capital Stock and Other Securities Included in Prospectus under
the heading About the Fund -
Organization and in the
Statement of Additional
Information under the heading
Shareholder Meetings
19. Purchase, Redemption and Pricing of
Securities Being Offered Included in Prospectus under
the headings: Shareholder
Manual - How to Buy Shares, -
Determining Your Share Price, -
How to Sell Shares, -
Shareholder Services; and in
the Statement of Additional
Information under the headings:
Additional Shareholder
Information; and Determination
of Net Asset Value
20. Tax Status Included in Prospectus under
the heading About the Fund -
Distributions and Taxes; and in
the Statement of Additional
Information under the heading
Taxes
21. Underwriters Investment Advisor; Distributor
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
* Complete answer to Item is contained in Registrant's Annual Report.
** Complete answer to Item is contained in Registrant's Prospectus.
3
<PAGE>
STRONG MONEY MARKET FUND
STRONG FUNDS
P.O. Box 2936
Milwaukee, Wisconsin 53201
TELEPHONE: (414) 359-1400
TOLL-FREE: (800) 368-3863
DEVICE FOR THE
HEARING-IMPAIRED:
(800) 999-2780
www.strong-funds.com
The Strong Family of Funds ("Strong Funds") is a family of more than
thirty-five diversified and non-diversified mutual funds. All of the Strong
Funds are no-load funds, meaning that you may purchase, redeem, or exchange
shares without paying a sales charge. Strong Funds include growth funds,
conservative equity funds, income funds, municipal income funds, international
funds, and cash management funds. The Strong Money Market Fund ("Fund") seeks
current income, a stable share price, and daily liquidity. The Fund invests in
corporate, bank, and government instruments that present minimal credit risk.
This Prospectus contains information you should consider before you invest.
Please read it carefully and keep it for future reference. A Statement of
Additional Information for the Fund, dated March 1, 1998, ("SAI"), which
contains further information, is incorporated by reference into this
Prospectus, and has been filed with the Securities and Exchange Commission
("SEC"). The SAI, which may be revised from time to time, is available without
charge upon request to the above-noted address or telephone number. If you
would like to electronically access additional information about the Funds
after reading this Prospectus, you may do so by accessing the SEC's World Wide
Web site (http://www.sec.gov) that contains the SAI regarding the Fund and
other related materials.
AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
March 1, 1998
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
EXPENSES......................................................I-3
FINANCIAL HIGHLIGHTS......................................... I-4 <C>
INVESTMENT OBJECTIVE AND POLICIES............................ I-6
IMPLEMENTATION OF POLICIES AND RISKS..........................I-7 <C>
ABOUT THE FUND................................................I-9
SHAREHOLDER MANUAL.......................................... II-1
</TABLE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the SAI, and
if given or made, such information or representations may not be relied upon as
having been authorized by the Fund. This Prospectus does not constitute an
offer to sell securities in any state or jurisdiction in which such offering
may not lawfully be made.
2
<PAGE>
EXPENSES
The following information is provided in order to help you understand the
various costs and expenses that you, as an investor in the Fund, will bear
directly or indirectly.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C>
Sales Load Imposed on Purchases..................... NONE
Sales Load Imposed on Reinvested Dividends...........NONE
Deferred Sales Load..................................NONE
Redemption Fees......................................NONE
Exchange Fees........................................NONE
</TABLE>
There are certain charges associated with retirement accounts (such as a $10
charge for closing an IRA account) and with certain other special shareholder
services offered by the Fund. Additionally, purchases and redemptions may also
be made through broker-dealers or other financial intermediaries who may charge
fees for their services. (See "Shareholder Manual - How to Buy Shares" and "-
How to Sell Shares.")
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
MANAGEMENT OTHER 12B-1 TOTAL OPERATING
FEE EXPENSES FEE EXPENSES
- ------------ ---------- -------- ------ ---------------
Money Market 0.50% 0.37% NONE 0.87%
- ------------ ---------- -------- ------ ---------------
</TABLE>
From time to time, the Fund's investment advisor, Strong Capital Management,
Inc. ("Advisor"), may voluntarily waive its management fee and/or absorb
certain expenses for the Fund. The expenses specified in the table above are
based on actual expenses incurred during the fiscal year ended October 31,
1997. During the fiscal year ended October 31, 1997, the Advisor waived a
portion of its management fee and absorbed certain expenses for the Fund. The
actual total operating expenses incurred for the fiscal year ended October 31,
1997 for the Fund, after waivers and absorptions, was 0.48%. (See "Financial
Highlights.") Therefore, the expenses specified in the table above for the Fund
have been restated for the fiscal year ended October 31, 1997 to include such
management fees and expenses. For additional information concerning fees and
expenses, see "About the Fund - Management."
3
<PAGE>
EXAMPLE. You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
<S> <C>
FUND PERIOD (IN YEARS)
1 3 5 10
Money Market $9 $28 $48 $107
</TABLE>
The Example is based on the Fund's "Total Operating Expenses" before any
waivers and absorptions, as described above. PLEASE REMEMBER THAT THE EXAMPLE
SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND THAT
ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN. The assumption in the
Example of a 5% annual return is required by regulations of the SEC applicable
to all mutual funds. The assumed 5% annual return is not a prediction of, and
does not represent, the projected or actual performance of the Fund's shares.
FINANCIAL HIGHLIGHTS
The following annual Financial Highlights for the Fund have been audited
by Coopers & Lybrand L.L.P., independent certified public accountants. The
Fund's report for the fiscal year ended October 31, 1997 is included in its
Annual Report that is contained in the SAI. The Financial Highlights for the
Fund should be read in conjunction with the Financial Statements and related
notes included in the Fund's Annual Report. Additional information about the
Fund's performance is contained in the Fund's Annual Report, which may be
obtained without charge by calling or writing Strong Funds. The following
presents information relating to a share of common stock of the Fund
outstanding for the entire period ended as indicated.
<TABLE>
<PAGE>
SELECTED PER-SHARE DATA (a)
Income From Investment Operations Less Distributions
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Net Net Realized Total from From Net Total Capital Net Asset
Value Investment Losses on Investment Investment Distributions Contribution Value, End
Beginning of Income Investments Operations Income (Note 4) of Period
Period
Oct. 31, 1997 $1.00 $0.05 ($0.01) $0.04 ($0.05) ($0.05) $0.01 $1.00
Oct. 31, 1996 1.00 0.05 -- 0.05 (0.05) (0.05) -- 1.00
Oct. 31, 1995 (b) 1.00 0.05 -- 0.05 (0.05) (0.05) -- 1.00
Dec. 31, 1994 1.00 0.04 -- 0.04 (0.04) (0.04) -- 1.00
Dec. 31, 1993 1.00 0.03 -- 0.03 (0.03) (0.03) -- 1.00
Dec. 31, 1992 1.00 0.04 -- 0.04 (0.04) (0.04) -- 1.00
Dec. 31, 1991 1.00 0.06 -- 0.06 (0.06) (0.06) -- 1.00
Dec. 31, 1990 1.00 0.08 -- 0.08 (0.08) (0.08) -- 1.00
Dec. 31, 1989 1.00 0.09 -- 0.09 (0.09) (0.09) -- 1.00
Dec. 31, 1988 1.00 0.07 -- 0.07 (0.07) (0.07) -- 1.00
Dec. 31, 1987 1.00 0.06 -- 0.06 (0.06) (0.06) -- 1.00
</TABLE>
Ratios and Supplemental Data
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Total Return Net Assets, Ratio of Expenses Ratio of Expenses to Average Ration of Net
End of Period to Average Net Assets Without Investment Income to
(In Millions) Net Assets Waivers and Absorptions Average Net Assets
+5.3%(c) $1,838 0.5% 0.9% 5.2%
+5.4% 1,949 0.4% 0.8% 5.3%
+5.2% 1,934 0.0%* 0.7%* 6.1%*
+4.0% 541 0.6% 0.9% 4.0%
+2.9% 330 0.7% 1.0% 2.9%
+3.7% 390 0.8% 1.1% 3.7%
+6.1% 534 0.7% 1.0% 6.0%
+8.1% 769 0.7% 0.9% 7.8%
+9.2% 829 0.7% 1.0% 8.8%
+7.5% 464 1.1% 1.1% 7.4%
+6.4% 195 0.8% 1.1% 6.6%
</TABLE>
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the
Fund outstanding for the entire period.
(b) Total return is not annualized. In 1995, the Fund changed its
fiscal year end from December to October.
(c) Had the Advisor not made the capital contribution as described in
Note 4, the adjusted total return would have been 4.5% for the year
ended October 31, 1997.
1
<PAGE>
5
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund has adopted certain fundamental investment restrictions that are set
forth in the SAI. Those restrictions, the Fund's investment objective, and any
other investment policies identified as "fundamental" cannot be changed without
shareholder approval. To further guide investment activities, the Fund has also
instituted a number of non-fundamental operating policies, which are described
throughout this Prospectus and in the SAI. Although operating policies may be
changed by the Fund's Board of Directors without shareholder approval, the Fund
will promptly notify shareholders of any material change in operating policies.
The Fund seeks current income, a stable share price, and daily liquidity. The
Fund's investments include corporate, bank, and government instruments that
present minimal credit risk.
The Fund is designed for investors who seek money-market yields with no
anticipated fluctuations in principal. Because the Fund seeks to maintain a
constant net asset value of $1.00 per share, capital appreciation is not
expected to play a role in the Fund's returns, and dividend income alone will
provide its entire investment return. All money market instruments can change
in value when interest rates or an issuer's creditworthiness changes
dramatically. Although the Fund's share price has remained constant in the
past, THE FUND CANNOT GUARANTEE THAT IT WILL ALWAYS BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE. An investment in the Fund is neither
insured nor guaranteed by the U.S. government.
The Fund invests in a combination of bank, corporate, and government
obligations that present minimal credit risk. The Fund may also participate in
pooled transactions involving these types of securities with other Strong
Funds. The Fund restricts its investments to instruments that meet certain
maturity and quality standards required or permitted by Rule 2a-7 under the
Investment Company Act of 1940 ("1940 Act") for money market funds.
Accordingly, the Fund:
(i) limits its average portfolio maturity to ninety days or less;
(ii) buys only securities with remaining maturities of thirteen months or
less; and
(iii) buys only U.S. dollar-denominated securities that represent minimal
credit risk and are "high quality," as described below.
The Fund invests only in high-quality securities. Accordingly, the Fund will
invest at least 95% of its total assets in "first-tier" securities, generally
defined as those securities that, at the time of acquisition, are rated in the
highest rating category by at least two nationally recognized statistical rating
organizations ("NRSROs") or, if unrated, are determined by the Advisor to be of
comparable quality. The balance of the Fund, up to 5% of its total assets, may
be invested in securities that are considered "second-tier" securities,
generally defined as those securities that, at the time of acquisition, are
rated in the second-highest rating category or are determined by the Advisor to
be of comparable quality.
IMPLEMENTATION OF POLICIES AND RISKS
In addition to the investment policies described above (and subject to certain
restrictions described below), the Fund may invest in some or all of the
following securities and may employ some or all of the following investment
techniques, some of which may present special risks as described below. A more
complete discussion of certain of these securities and investment techniques
and the associated risks is contained in the Fund's SAI.
DEBT OBLIGATIONS
TYPES OF OBLIGATIONS. The Fund may not invest in any debt obligation that does
not meet the maturity and quality standards of Rule 2a-7 under the 1940 Act for
money market funds. Debt obligations in which the Fund may invest include (i)
corporate debt securities, including bonds, debentures, and notes; (ii) bank
obligations, such as certificates of deposit, banker's acceptances, and time
deposits of domestic and foreign banks and their subsidiaries and branches, and
domestic savings and loan associations; (iii) commercial paper (including
variable-amount master demand notes); (iv) repurchase agreements; (v) floating-
or variable-rate debt obligations; (vi) asset-backed debt obligations; (vii)
U.S. dollar-denominated foreign
6
<PAGE>
debt obligations; (viii) U.S. government securities issued or guaranteed by the
U.S. Treasury (such as bills, notes, or bonds) or by an agency or
instrumentality of the U.S. government; and (ix) municipal obligations.
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 or guaranteed 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, 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.
FOREIGN SECURITIES
The Fund may invest up to 25% of its net assets directly or indirectly in
foreign securities. The Fund will limit its investments in foreign securities
to those denominated in U.S. dollars. The Fund may invest in U.S. securities
enhanced as to credit quality or liquidity by foreign issuers without regard to
this limitation. Foreign investments involve special risks, including:
expropriation, confiscatory taxation, and withholding taxes on dividends and
interest;
- - less extensive regulation of foreign brokers, securities markets, and
issuers;
- - less publicly available information and different accounting standards;
- - possible delays in settlement in foreign securities markets, limitations on
the use or transfer of assets, and difficulty of enforcing obligations in
other countries; and
- - diplomatic developments and political or social instability.
Foreign economies may differ favorably or unfavorably from the U.S. economy in
various respects, including growth of gross domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource
self-sufficiency, and balance-of-payments positions. Many foreign securities
may be less liquid and their prices more volatile than comparable U.S.
securities.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and 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 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 Fund may enter into repurchase agreements with respect to any
security in which it may invest. 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
7
<PAGE>
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.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
The Fund may invest in securities purchased on a when-issued or
delayed-delivery basis. Although the payment and interest terms of these
securities are established at the time the purchaser enters into the
commitment, these securities may be delivered and paid for at a future date.
Purchasing when-issued or delayed-delivery securities allows the Fund to lock
in a fixed price or yield on a security it intends to purchase. However, when
the Fund purchases these types of securities, it immediately assumes the risk
of ownership, including the risk of price fluctuation.
The greater the Fund's outstanding commitments for these securities, the
greater the exposure to potential fluctuations in the net asset value of the
Fund. Purchasing when-issued or delayed-delivery securities may involve the
additional risk that the yield available in the market when the delivery occurs
may be higher or the market price lower than that obtained at the time of
commitment. Although the Fund may be able to sell these securities prior to the
delivery date, it will purchase them for the purpose of actually acquiring the
securities, unless, after entering into the commitment, a sale appears
desirable for investment reasons. When required by SEC guidelines, the Fund
will set aside permissible liquid assets in a segregated account to secure its
outstanding commitments for these types of securities.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its net assets in illiquid securities.
Illiquid securities are those securities that are not readily marketable,
including restricted securities and repurchase obligations maturing in more
than seven days. Certain restricted securities which may be resold to
institutional investors under Rule 144A under the Securities Act of 1933 and
Section 4(2) commercial paper may be determined to be liquid under guidelines
adopted by each Fund's Board of Directors.
ABOUT THE FUND
MANAGEMENT
The Board of Directors of the Fund is responsible for managing its business and
affairs. The Fund has entered into an investment advisory agreement with Strong
Capital Management, Inc. ("Advisor"). Under the terms of this agreement, the
Advisor manages the Fund's investments and business affairs subject to the
supervision of the Fund's Board of Directors.
ADVISOR. The Advisor began conducting business in 1974. Since then, its
principal business has been providing continuous investment supervision for
individuals and institutional accounts, such as pension funds and
profit-sharing plans, as well as mutual funds, several of which are funding
vehicles for variable insurance products. As of January 31, 1998, the Advisor
had over $28.6 billion under management. The Advisor's principal mailing
address is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr. Richard S. Strong,
the Chairman of the Board of the Fund, is the controlling shareholder of the
Advisor.
As compensation for its services, the Fund pays the Advisor a monthly
management fee based on a percentage of the Fund's average daily net asset
value. The Fund's annual rate is .50%. From time to time, the Advisor may
voluntarily waive all or a portion of its management fee and/or absorb certain
Fund expenses without further notification of the commencement or termination
of such waiver or absorption. Any such waiver or absorption will temporarily
lower the Fund's overall expense ratio and increase the Fund's overall return
to investors.
The Advisor permits portfolio managers and other persons who may have access to
information about the purchase or sale of securities in the Fund's portfolio
("access persons") to purchase and sell securities for their own accounts,
subject to the Advisor's policy governing personal investing. The policy
requires access persons to conduct their personal investment activities in a
manner that the Advisor believes is not detrimental to the Fund or to the
Advisor's other advisory clients. Among other things, the policy requires
access persons to obtain preclearance before executing personal trades and
prohibits access persons from
8
<PAGE>
keeping profits derived from the purchase or sale of the same security within
60 calendar days. See the SAI for more information.
PORTFOLIO MANAGER. Mr. Jay N. Mueller serves as the portfolio manager for the
Fund. Mr. Mueller joined the Advisor in September 1991 as a securities analyst
and portfolio manager. For four years prior to that, he was a securities
analyst and portfolio manager with R. Meeder & Associates of Dublin, Ohio. Mr.
Mueller received his B.A. in Economics in 1982 from the University of Chicago.
Mr. Mueller is also a Chartered Financial Analyst. He has managed the Fund
since September 1991.
TRANSFER AND DIVIDEND-DISBURSING AGENT
The Advisor, P.O. Box 2936, Milwaukee, Wisconsin 53201, also acts as
dividend-disbursing agent and transfer agent for the Fund. The Advisor is
compensated for its services based on an annual fee per account plus certain
out-of-pocket expenses. The fees received and the services provided as transfer
agent and dividend-disbursing agent are in addition to those received and
provided under the Advisory Agreements between the Advisor and the Fund.
DISTRIBUTOR
Strong Funds Distributors, Inc., P.O. Box 2936, Milwaukee, Wisconsin 53201, an
indirect subsidiary of the Advisor, acts as distributor of the shares of the
Fund.
ORGANIZATION
SHAREHOLDER RIGHTS. The Fund is a Wisconsin corporation that is authorized to
issue an indefinite number of shares of common stock and series and classes of
series of shares of common stock. Each share of the Fund has one vote, and all
shares participate equally in dividends and other capital gains distributions
by the respective Fund and in the residual assets of the respective Fund in the
event of liquidation. Certificates will be issued for shares held in your
account only upon your written request. You will, however, have full
shareholder rights whether or not you request certificates. Generally, the Fund
will not hold an annual meeting of shareholders unless required by the 1940
Act. Shareholders have certain rights, including the right to call an annual
meeting upon a vote of 10% of the Fund's outstanding shares for the purpose of
voting to remove one or more directors or to transact any other business. The
1940 Act requires the Fund to assist the shareholders in calling such a
meeting.
SHAREHOLDER PRIVILEGES. The shareholders of the Fund may benefit from the
privileges described in the "Shareholder Manual" (see page II-1). However, the
Fund reserves the right, at any time and without prior notice, to suspend,
limit, modify, or terminate any of these privileges or their use in any manner
by any person or class.
DISTRIBUTIONS AND TAXES
PAYMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS. Unless you choose otherwise, all
your dividends and capital gains distributions will be automatically reinvested
in additional Fund shares. Or, you may elect to have all your dividends and
capital gain distributions from the Fund automatically invested in additional
shares of another Strong Fund. Shares are purchased at the net asset value
determined on the payment date. If you request in writing that your dividends
and other distributions be paid in cash, the Fund will credit your bank account
by Electronic Funds Transfer ("EFT") or issue a check to you within five
business days of the payment date. You may change your election at any time by
calling or writing the Fund. The Fund must receive any such change 7 days (15
days for EFT) prior to a dividend or capital gain distribution payment date in
order for the change to be effective for that payment.
The policy of the Fund is to pay dividends from net investment income monthly.
The Fund may make additional distributions if necessary to avoid imposition of
a 4% excise tax on undistributed income. The Fund declares dividends on each
day its net asset value is calculated, except for bank holidays. Income earned
on weekends, holidays (including bank holidays), and days on which net asset
value is not calculated is declared as a dividend on the day on which the
Fund's net asset value was most recently calculated.
9
<PAGE>
If you have chosen to receive dividends and/or capital gain distributions in
cash and the postal or other delivery service is unable to deliver checks to
your address of record, your distribution option will automatically be
converted to having all dividend and other distributions reinvested in
additional Fund shares. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
TAX STATUS OF DIVIDENDS AND OTHER DISTRIBUTIONS. You will be subject to federal
income tax at ordinary income tax rates on any dividends you receive that are
derived from investment company taxable income.
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. All state laws provide a pass-through to
mutual fund shareholders of the state and local income tax exemption afforded
owners of direct U.S. government obligations, although there are conditions to
this treatment in some states. You will be notified annually of the percentage
of a Fund's income that is derived from U.S. government securities.
YEAR-END TAX REPORTING. After the end of each calendar year, you will receive a
statement (Form 1099) of the federal income tax status of your dividends paid
(or deemed paid) during the year.
BACKUP WITHHOLDING. If you are an individual or certain other noncorporate
shareholder and do not furnish the Fund with a correct taxpayer identification
number, the Fund is required to withhold federal income tax at a rate of 31%
(backup withholding) from all dividends payable to you.
Withholding at that rate from dividends payable to you also is required if you
otherwise are subject to backup withholding. To avoid backup withholding, you
must provide a taxpayer identification number and state that you are not
subject to backup withholding due to the underreporting of your income. This
certification is included as part of your application. Please complete it when
you open your account.
TAX STATUS OF THE FUND. The Fund intends to continue to qualify for treatment
as a regulated investment company under Subchapter M of the Internal Revenue
Code of 1986 ("IRC") and, if so qualified, will not be liable for federal
income tax on earnings distributed to its shareholders in a timely manner.
This section is not intended to be a full discussion of present or proposed
federal income tax law and its effects on the Fund and investors therein. See
the SAI for a further discussion. There may be other federal, state, or local
tax considerations applicable to a particular investor. You are therefore urged
to consult your own tax adviser.
PERFORMANCE INFORMATION
The Fund may advertise a variety of types of performance information, including
"yield," "average annual total return," "total return," "cumulative total
return," and "effective yield." Each of these figures is based upon historical
results and does not represent the future performance of the Fund.
Yield is an annualized figure, which means that it is assumed that the Fund
generates the same level of net investment income over a one-year period. The
Fund's yield and effective yield are measures of the net investment income per
share earned by the Fund over a specific seven-day period and are shown as a
percentage of the investment. However, effective yield will be slightly higher
than the yield because effective yield assumes that the net investment income
earned by the Fund will be reinvested.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in the Fund
assuming the reinvestment of all dividends and distributions. Total return
figures are not annualized and simply represent the aggregate change of the
Fund's investments over a specified period of time.
10
<PAGE>
This page has been left blank intentionally.
11
<PAGE>
SHAREHOLDER MANUAL
<TABLE>
<CAPTION>
<S> <C>
HOW TO BUY SHARES..................II-1
DETERMINING YOUR SHARE PRICE.......II-4
HOW TO SELL SHARES.................II-5
SHAREHOLDER SERVICES...............II-8
REGULAR INVESTMENT PLANS...........II-10
RETIREMENT PLAN SERVICES...........II-11
SPECIAL SITUATIONS.................II-11
</TABLE>
HOW TO BUY SHARES
All the Strong Funds are 100% NO-LOAD, meaning you may purchase, redeem, or
exchange shares directly at net asset value without paying a sales charge. Your
money will begin earning dividends the first business day after your purchase
order is accepted in proper form.
Whether you are opening a new account or adding to an existing one, the Fund
provides you with several methods to buy Fund shares.
12
<PAGE>
TO OPEN A NEW ACCOUNT
<TABLE>
<CAPTION>
<S> <C>
MAIL BY CHECK
Complete and sign the application. Make your check or money order payable
to "Strong Funds."
Mail to Strong Funds, P.O. Box 2936, Milwaukee, Wisconsin 53201. If
you're using an express delivery service, send to Strong Funds, 900 Heritage
Reserve, Menomonee Falls, Wisconsin 53051.
BY EXCHANGE
Call 1-800-368-3863 for instructions on establishing an account with an
exchange by mail.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
TELEPHONE BY EXCHANGE
Call 1-800-368-3863 to establish a new account by exchanging funds from
1-800-368-3863 an existing Strong Funds account.
24 HOURS A DAY, Sign up for telephone exchange services when you open your account. To add
7 DAYS A WEEK the telephone exchange option to your account, call 1-800-368-3863 for a
Shareholder Account Options Form.
Please note that your accounts must be identically registered and that you
must exchange enough into the new account to meet the minimum initial
investment.
Or use STRONG DIRECTSM, Strong Funds' automated telephone response system.
Call 1-800-368-7550.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
IN PERSON Stop by our Investor Center in Menomonee Falls, Wisconsin. Call 1-800
368-3863 for hours and directions.
The Investor Center can only accept checks or money orders.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
WIRE Call 1-800-368-3863 for instructions on opening an account by wire.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
AUTOMATICALLY USE STRONG'S "NO-MINIMUM INVESTMENT PROGRAM."
If you sign up for Strong's Automatic Investment Plan when you open your
account and contribute monthly, Strong Funds will waive the Fund's
minimum initial investment (see chart on page II-4).
Complete the Automatic Investment Plan section on the account application.
Mail to the address indicated on the application.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
BROKER-DEALER You may purchase shares in the Fund through a broker-dealer or other
institution that may charge a transaction fee.
Strong Funds may only accept requests to purchase shares into a broker
dealer street name account from the broker-dealer.
</TABLE>
13
<PAGE>
TO ADD TO AN EXISTING ACCOUNT
BY CHECK
- - Complete an Additional Investment Form provided at the bottom of your
account statement, or write a note indicating your fund account number and
registration. Make your check or money order payable to "Strong Funds."
- - Mail to Strong Funds, P.O. Box 2936, Milwaukee, Wisconsin 53201. If you're
using an express delivery service, send to Strong Funds, 900 Heritage
Reserve, Menomonee Falls, Wisconsin 53051.
BY EXCHANGE
- - Call 1-800-368-3863 for instructions on exchanging by mail.
BY EXCHANGE
- - Add to an account by exchanging funds from another Strong Funds account.
- - Sign up for telephone exchange services when you open your account. To add
the telephone exchange option to your account, call 1-800-368-3863 for a
Shareholder Account Options Form.
- - Please note that the accounts must be identically registered and that the
minimum exchange is $50 or the balance of your account, whichever is less.
BY TELEPHONE PURCHASE
- - Sign up for telephone purchase when you open your account to make additional
investments from $50 to $25,000 into your Strong Funds account by telephone.
To add this option to your account, call 1-800-368-3863 for a Shareholder
Account Options Form.
Or use STRONG DIRECTSM, Strong Funds' automated telephone response system. Call
1-800-368-7550.
- - Stop by our Investor Center in Menomonee Falls, Wisconsin. Call
1-800-368-3863 for hours and directions.
- - The Investor Center can only accept checks or money orders.
Call 1-800-368-3863 for instructions on adding to an account by wire.
USE ONE OF STRONG'S AUTOMATIC INVESTMENT PROGRAMS. Sign up for these services
when you open your account, or call 1-800-368-3863 for instructions on how to
add them to your existing account.
- - AUTOMATIC INVESTMENT PLAN. Make regular, systematic investments (minimum $50)
into your Strong Funds account from your bank checking or NOW account.
Complete the Automatic Investment Plan section on the account application.
- - AUTOMATIC EXCHANGE PLAN. Make regular, systematic exchanges (minimum $50)
from one eligible Strong Funds account to another. Call 1-800-368-3863 for an
application.
- - PAYROLL DIRECT DEPOSIT. Have a specified amount (minimum $50) regularly
deducted from your paycheck, social security check, military allotment, or
annuity payment invested directly into your Strong Funds account. Call
1-800-368-3863 for an application.
- - AUTOMATIC DIVIDEND REINVESTMENT. Unless you choose otherwise, all your
dividends and capital gain distributions will be automatically reinvested in
additional Fund shares. Or, you may elect to have your dividends and capital
gain distributions automatically invested in shares of another Strong Fund.
- - You may purchase additional shares in the Fund through a broker-dealer or
other institution that may charge a transaction fee.
- - Strong Funds may only accept requests to purchase additional shares into a
broker-dealer street name account from the broker-dealer.
14
<PAGE>
WHAT YOU SHOULD KNOW ABOUT BUYING SHARES
Please make all checks or money orders payable to "Strong Funds."
- - We cannot accept third-party checks or checks drawn on banks outside the U.S.
- - You will be charged a $20 service fee for each check, wire, or Electronic
Funds Transfer ("EFT") purchase that is returned unpaid, and you will be
responsible for any resulting losses suffered by the Fund.
- - Further documentation may be requested from corporations, executors,
administrators, trustees, guardians, agents, or attorneys-in-fact.
- - The Fund reserves the right to decline to accept your purchase order upon
receipt for any reason.
- - Minimum Investment Requirements:
<TABLE>
<CAPTION>
<S> <C>
To open a regular account $1,000
To open a regular IRA, Roth IRA, or one-person SEP account $250
To open an Education IRA account $500*
To open an UGMA/UTMA account $250
To open a SIMPLE, SEP-IRA, Keogh, Profit Sharing the lesser of $250
or Money Purchase Pension Plan, or 403(b) account or $25 per month
To open a qualified retirement plan account where the Advisor
or a financial intermediary provides administrative services No Minimum
To add to an existing account $50
</TABLE>
* Not eligible for the Automatic Investment Plan and No-Minimum Investment
Program.
The Fund offers a No-Minimum Investment Program that waives the minimum initial
investment requirements for investors who participate in the Strong Automatic
Investment Plan and invest monthly (described on page II-10). Unless you
participate in the Strong No-Minimum Investment Program, please ensure that
your purchases meet the minimum investment requirements.
Under certain circumstances (for example, if you discontinue a No-Minimum
Investment Program before you reach the Fund's minimum initial investment), the
Fund reserves the right to close your account. Before taking such action, the
Fund will provide you with written notice and at least 60 days in which to
reinstate an investment program or otherwise reach the minimum initial
investment required.
DETERMINING YOUR SHARE PRICE
Generally, when you make any purchases, sales, or exchanges, the price of your
shares will be the net asset value ("NAV") next determined after Strong Funds
receives your request in proper form. If Strong Funds receives such request
prior to the close of the New York Stock Exchange ("Exchange") on a day on
which the Exchange is open, your share price will be the NAV determined that
day. The NAV for the Fund is normally determined as of 3:00 p.m. Central Time
("CT") each day the Exchange is open. The Fund reserves the right to change the
time at which purchases, redemptions, and exchanges are priced if the Exchange
closes at a time other than 3:00 p.m. CT or if an emergency exists. The Fund's
NAV is calculated by taking the fair value of the Fund's total assets,
subtracting all its liabilities, and dividing by the total number of shares
outstanding. Expenses are accrued and applied daily when determining the NAV.
The securities in the portfolios of the Fund are valued on an amortized-cost
basis. Under this method of valuation, a security is initially valued at its
acquisition cost, and thereafter, amortization of any discount or premium is
assumed each day, regardless of the impact of fluctuating interest rates on the
market value of the instrument. Under most conditions, the Advisor believes it
will be possible to maintain the NAV of
15
<PAGE>
the Fund at $1.00 per share. Calculations are periodically made to compare the
value of the Fund's portfolio valued at amortized cost with market values. If a
deviation of 1/2 of 1% or more were to occur between the net asset value
calculated by reference to market values and the Fund's $1.00 per share NAV, or
if there were any other deviation that the Board of Directors believed would
result in a material dilution to shareholders or purchasers, the Board of
Directors would promptly consider what action, if any, should be initiated.
HOW TO SELL SHARES
You can access the money in your account at any time by selling (redeeming)
some or all of your shares back to the Fund. Once your redemption request is
received in proper form, Strong will normally mail you the proceeds the next
business day and, in any event, no later than seven days thereafter.
To redeem shares, you may use any of the methods described in the following
chart. However, if you are selling shares in a retirement account, please call
1-800-368-3863 for instructions. Please note that there is a $10.00 fee for
closing an IRA or other retirement account or for transferring assets to
another custodian. For your protection, certain requests may require a
signature guarantee. (See "Special Situations - Signature Guarantees.")
16
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
TO SELL SHARES
- ---------------------------
MAIL FOR INDIVIDUAL, JOINT TENANT, AND UGMA/UTMA ACCOUNTS
Write a "letter of instruction" that includes the following information:
FOR YOUR PROTECTION CERTAIN your account number, the dollar amount or number of shares you wish
REDEMPTION REQUESTS MAY to redeem, each owner's name, your street address, and the signature of
REQUIRE A SIGNATURE each owner as it appears on the account.
GUARANTEE. SEE "SPECIAL Mail to Strong Funds, P.O. Box 2936, Milwaukee, Wisconsin 53201. If
SITUATIONS - SIGNATURE you're using an express delivery service, send to 900 Heritage Reserve,
GUARANTEES." Menomonee Falls, Wisconsin 53051.
FOR TRUST ACCOUNTS
Same as above. Please ensure that all trustees sign the letter of
instruction.
FOR OTHER REGISTRATIONS
Call 1-800-368-3863 for instructions.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
TELEPHONE Sign up for telephone redemption services when you open your account by
checking the "Yes" box in the appropriate section of the account application.
1-800-368-3863 To add the telephone redemption option to your account, call 1-800-368
24 HOURS A DAY, 3863 for a Shareholder Account Options Form.
7 DAYS A WEEK Once the telephone redemption option is in place, you may sell shares by
phone and arrange to receive the proceeds in one of three ways:
TO RECEIVE A CHECK BY MAIL
At no charge, we will mail a check to the address to which your account
is registered.
TO DEPOSIT BY EFT
At no charge, we will transmit the proceeds by Electronic Funds
Transfer (EFT) to a pre-authorized bank account. Usually, the funds will
arrive at your bank two banking days after we process your redemption.
TO DEPOSIT BY WIRE
For a $10 fee, we will transmit the proceeds by wire to a pre-authorized
bank account. Usually, the funds will arrive at your bank the next
banking day after we process your redemption.
You may also use STRONG DIRECTSM, Strong Funds' automated telephone
response system. Call 1-800-368-7550.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
CHECK WRITING Sign up for the free check-writing privilege when you open your account. To
add check writing to an existing account or to order additional checks, call
1-800-368-3863.
Please keep in mind that all check redemptions must be for a minimum
of $500 and that you cannot write a check to close an account.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
AUTOMATICALLY You can set up automatic withdrawals from your account at regular
intervals. To establish the Systematic Withdrawal Plan, request a form by
calling 1-800-368-3863.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
BROKER-DEALER You may also redeem shares through broker-dealers or financial
intermediaries who may charge a transaction fee.
</TABLE>
17
<PAGE>
WHAT YOU SHOULD KNOW ABOUT SELLING SHARES
If you have recently purchased shares, please be aware that your redemption
request may not be honored until the purchase check or electronic transaction
has cleared your bank, which generally occurs within ten calendar days.
- - You will be charged a $10 service fee for a stop-payment and replacement of a
redemption or dividend check.
- - The right of redemption may be suspended during any period in which (i)
trading on the Exchange is restricted, as determined by the SEC, or the
Exchange is closed for other than weekends and holidays; (ii) the SEC has
permitted such suspension by order; or (iii) an emergency as determined by
the SEC exists, making disposal of portfolio securities or valuation of net
assets of the Fund not reasonably practicable.
- - If you are selling shares you hold in certificate form, you must submit the
certificates with your redemption request. Each registered owner must endorse
the certificates and all signatures must be guaranteed.
- - Further documentation may be requested from corporations, executors,
administrators, trustees, guardians, agents, or attorneys-in-fact.
REDEMPTIONS IN KIND
If the Advisor determines that existing conditions make cash payments
undesirable, redemption payments (including the satisfaction of redemption
checks) 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. Shareholders receiving securities or other financial assets on
redemption may realize a gain or loss for tax purposes, and will incur any
costs of sale, as well as the associated inconveniences.
WHAT YOU SHOULD KNOW ABOUT TELEPHONE REDEMPTIONS
The Fund reserves the right to refuse a telephone redemption if it believes it
advisable to do so.
- - Once you place your telephone redemption request, it cannot be canceled or
modified.
- - Investors will bear the risk of loss from fraudulent or unauthorized
instructions received over the telephone provided that the Fund reasonably
believes that such instructions are genuine. The Fund and its transfer agent
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. The Fund may incur liability if it does not follow
these procedures.
Because of increased telephone volume, you may experience difficulty in
implementing a telephone redemption during periods of dramatic economic or
market changes. In these situations, investors may want to consider using
STRONGDIRECTSM, our automated telephone system, to effect such a transaction by
calling 1-800-368-7550.
SHAREHOLDER SERVICES
INFORMATION SERVICES
24-HOUR ASSISTANCE. Strong Funds has registered representatives available to
help you 24 hours a day, 7 days a week. Call 1-414-359-1400 or toll-free
1-800-368-3863. You may also write to Strong Funds at the address on the cover
of this Prospectus, or e-mail us at [email protected].
STRONG DIRECTSM AUTOMATED TELEPHONE SYSTEM. Also available 24 hours a day, the
STRONG DIRECTSM automated response system enables you to use a touch-tone phone
to hear fund quotes and returns on any Strong Fund. You may also confirm
account balances, hear records of recent transactions and dividend activity
(1-800-368-5550), and perform purchases, exchanges or redemptions among your
existing Strong accounts (1-800-368-7550). You may also perform an exchange to
open a new Strong account provided that your account has the telephone exchange
option. Please note that your accounts must be identically registered and you
must exchange enough into the new account to meet the minimum initial
investment. Your account information is protected by a personal code.
STRONG NETDIRECTSM. Available 24 hours a day from your personal computer,
STRONG NETDIRECTSM allows you to use the Internet to access your Strong Funds
account information. You may access specific
18
<PAGE>
account history, view current account balances, obtain recent dividend
activity, and perform purchases, exchanges, or redemptions among your existing
Strong accounts.
To register for netDirect, please visit our web site at
http://www.strong-funds.com. Your account information is protected by a
personal password and Internet encryption technology. For more information on
this service, please call 1-800-359-3379 or e-mail us at
[email protected].
STATEMENTS AND REPORTS. At a minimum, the Fund will confirm all transactions
for your account on a quarterly basis. We recommend that you file each
quarterly statement - and, especially, each calendar year-end statement - with
your other important financial papers, since you may need to refer to them at a
later date for tax purposes. Should you need additional copies of previous
statements, you may order confirmation statements for the current and preceding
year at no charge. Statements for earlier years are available for $10 each.
Call 1-800-368-3863 to order past statements.
Each year, you will also receive a statement confirming the tax status of any
distributions paid to you, as well as an annual report containing audited
financial statements and a semi-annual report.
To reduce the volume of mail you receive, only one copy of certain materials,
such as prospectuses and shareholder reports, is mailed to your household. Call
1-800-368-3863 if you wish to receive additional copies, free of charge.
More complete information regarding the Fund's investment policies and services
is contained in its SAI, which you may request by calling or writing Strong
Funds at the phone number and address on the cover of this Prospectus.
CHANGING YOUR ACCOUNT INFORMATION. So that you continue receiving your Strong
correspondence, including any dividend checks and statements, please notify us
in writing as soon as possible or call us at 1-800-368-3863 if your address
changes. You may use the Additional Investment Form at the bottom of your
confirmation statement, or simply write us a letter of instruction that
contains the following information:
1. a written request to change the address,
2. the account number(s) for which the address is to be changed,
3. the new address, and
4. the signatures of all owners of the accounts.
Please send your request to the address on the cover of this Prospectus.
Changes to an account's registration - such as adding or removing a joint
owner, changing an owner's name, or changing the type of your account - must
also be submitted in writing. Please call 1-800-368-3863 for instructions. For
your protection, some requests may require a signature guarantee.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may exchange shares between identically registered
Strong Funds accounts, either in writing, by telephone, or through your
personal computer. By establishing exchange services, you authorize the Fund
and its agents to act upon your instruction through the telephone or personal
computer to exchange shares from any account you specify. For tax purposes, an
exchange is considered a sale and a purchase of Fund shares. Please obtain and
read the appropriate prospectus before investing in any of the Strong Funds.
Since an excessive number of exchanges may be detrimental to the Funds, the
Fund reserves the right to discontinue the exchange privilege of any
shareholder at any time.
CHECK-WRITING PRIVILEGES. You may also redeem shares by check in amounts of
$500 or more. There is no charge for check-writing privileges. Redemption by
check cannot be honored if share certificates are outstanding and would need to
be liquidated to honor the check. In addition, a check may not be honored if
the check results in you redeeming more than the lesser of $250,000 or 1% of
the Fund's assets during any 90-day period and the Advisor determines that
existing conditions make cash payments undesirable. Checks are supplied free of
charge, and additional checks will be sent to you upon request. The Fund does
not return the checks you write, although copies are available upon request.
19
<PAGE>
You may place stop-payment requests on checks by calling Strong Funds at
1-800-368-3863. A $10 fee will be charged for each stop-payment request. A stop
payment will remain in effect for two weeks following receipt of oral
instructions (six months following written instructions) by Strong Funds.
If there are insufficient cleared shares in your account to cover the amount of
your redemption by check, the check will be returned, marked "insufficient
funds," and a fee of $10 will be charged to the account.
REGULAR INVESTMENT PLANS
AUTOMATIC INVESTMENT PLAN. The Automatic Investment Plan allows you to make
regular, systematic investments in the Fund from your bank checking, savings,
or NOW account. You may choose to make investments on any day of the month in
amounts of $50 or more. You can set up the Automatic Investment Plan with any
financial institution that is a member of the Automated Clearing House. Because
the Fund has the right to close an investor's account for failure to reach the
minimum initial investment, please consider your ability to continue this Plan
until you reach the minimum initial investment. To establish the Plan, complete
the Automatic Investment Plan section on the account application, or call
1-800-368-3863 for an application.
PAYROLL DIRECT DEPOSIT PLAN. Once you meet the Fund's minimum initial
investment requirement, you may purchase additional Fund shares through the
Payroll Direct Deposit Plan. Through this Plan, periodic investments (minimum
$50) are made automatically from your payroll check into your existing Fund
account. By enrolling in the Plan, you authorize your employer or its agents to
deposit a specified amount from your payroll check into the Fund's bank
account. In most cases, your Fund account will be credited the day after the
amount is received by the Fund's bank. In order to participate in the Plan,
your employer must have direct deposit capabilities through the Automated
Clearing House available to its employees. The Plan may be used for other
direct deposits, such as social security checks, military allotments, and
annuity payments.
To establish Direct Deposit for your account, call 1-800-368-3863 to request a
form. Once the Plan is established, you may alter the amount of the deposit,
alter the frequency of the deposit, or terminate your participation in the
program by notifying your employer.
AUTOMATIC EXCHANGE PLAN. The Automatic Exchange Plan allows you to make
regular, systematic exchanges (minimum $50) from one Strong Funds account into
another Strong Funds account. By setting up the Plan, you authorize the Fund
and its agents to redeem a set dollar amount or number of shares from the first
account and purchase shares of a second Strong Fund. In addition, you authorize
the Fund and its agents to accept telephone instructions to change the dollar
amount and frequency of the exchange. An exchange transaction is a sale and
purchase of shares for federal income tax purposes and may result in a capital
gain or loss. To establish the Plan, request a form by calling 1-800-368-3863.
To participate in the Automatic Exchange Plan, you must have an initial account
balance of $2,500 in the first account and at least the minimum initial
investment in the second account. Exchanges may be made on any day or days of
your choice. If the amount remaining in the first account is less than the
exchange amount you requested, then the remaining amount will be exchanged. At
such time as the first account has a zero balance, your participation in the
Plan will be terminated. You may also terminate the Plan at any time by calling
or writing to the Fund. Once participation in the Plan has been terminated for
any reason, to reinstate the Plan you must do so in writing; simply investing
additional funds will not reinstate the Plan.
SYSTEMATIC WITHDRAWAL PLAN. You can set up automatic withdrawals from your
account at regular intervals. To begin distributions, you must have an initial
balance of $5,000 in your account and withdraw at least $50 per payment. To
establish the Systematic Withdrawal Plan, request a form by calling
1-800-368-3863. Depending upon the size of the account and the withdrawals
requested (and fluctuations in net asset value of the shares redeemed),
redemptions for the purpose of satisfying such withdrawals may reduce or even
exhaust the account. If the amount remaining in the account is not sufficient
to meet a Plan payment, the remaining amount will be redeemed and the Plan will
be terminated.
20
<PAGE>
RETIREMENT PLAN SERVICES
We offer a wide variety of retirement plans for individuals and institutions,
including large and small businesses. For information on IRAs, including Roth
IRAs, or SEP-IRAs for a one-person business, call 1-800-368-3863. If you are
interested in opening a 401(k) or other company-sponsored retirement plan
(SIMPLE, SEP, Keogh, 403(b)(7), pension or profit sharing), call 1-800-368-2882
and a Strong Retirement Plan Specialist will help you determine which
retirement plan would be best for your company. Complete instructions about
how to establish and maintain your plan and how to open accounts for you and
your employees will be included in the retirement plan kit you receive in the
mail.
SPECIAL SITUATIONS
POWER OF ATTORNEY. If you are investing as attorney-in-fact for another person,
please complete the account application in the name of such person and sign the
back of the application in the following form: "[applicant's name] by [your
name], attorney-in-fact." To avoid having to file an affidavit prior to each
transaction, please complete the Power of Attorney form available from Strong
Funds at 1-800-368-3863. However, if you would like to use your own power of
attorney form, please call the same number for instructions.
CORPORATIONS AND TRUSTS. If you are investing for a corporation, please include
with your account application a certified copy of your corporate resolution
indicating which officers are authorized to act on behalf of the corporation.
As an alternative, you may complete a Certification of Authorized Individuals,
which can be obtained from the Fund. Until a valid corporate resolution or
Certification of Authorized Individuals is received by the Fund, services such
as telephone redemption, wire redemption, and check writing will not be
established.
If you are investing as a trustee (including trustees of a retirement plan),
please include the date of the trust. All trustees must sign the application.
If they do not, services such as telephone redemption, wire redemption, and
check writing will not be established. All trustees must sign redemption
requests unless proper documentation to the contrary is provided to the Fund.
Failure to provide these documents or signatures as required when you invest
may result in delays in processing redemption requests.
FINANCIAL INTERMEDIARIES. If you purchase or redeem 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. We urge you to consult your financial
intermediary for more information regarding these matters. In addition, the
Fund may pay, directly or indirectly through arrangements with the Advisor,
amounts to financial intermediaries that provide transfer agent type and/or
other administrative services to their customers provided, however, that the
Fund will not pay more for these services through intermediary relationships
than it would if the intermediaries' customers were direct shareholders in the
Fund. Certain financial intermediaries may charge an advisory, transaction, or
other fee for their services. You will not be charged for such fees if you
purchase or redeem your Fund shares directly from the Fund without the
intervention of a financial intermediary.
SIGNATURE GUARANTEES. A signature guarantee is designed to protect you 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 you add the telephone redemption or check-writing options to your existing
account;
- - if you transfer the ownership of your account to another individual or
organization;
- - when you submit a written redemption request for more than $50,000;
- - when you request to redeem or redeposit shares that have been issued in
certificate form;
- - if you open an account and later decide that you want certificates;
when you request that redemption proceeds be sent to a different name or
address than is registered on your account;
- - if you add/change your name or add/remove an owner on your account; and
- - if you add/change the beneficiary on your transfer-on-death account.
21
<PAGE>
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.
22
<PAGE>
NOTES
23
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
STRONG MONEY MARKET FUND
P.O. Box 2936
Milwaukee, Wisconsin 53201
Telephone: (414) 359-1400
Toll-Free: (800) 368-3863
e-mail: [email protected]
Web Site: http://www.strong-funds.com
This SAI is not a Prospectus and should be read together with the Prospectus
for the Fund dated March 1, 1998. Requests for copies of the Prospectus should
be made by calling any number listed above. The financial statements appearing
in the Annual Report, which accompanies this SAI, are incorporated into this
SAI by reference.
March 1, 1998
2
<PAGE>
TABLE OF CONTENTS PAGE
INVESTMENT RESTRICTIONS........................................................3
INVESTMENT POLICIES AND TECHNIQUES.............................................5
Asset-Backed Debt Obligations..................................................5
Borrowing......................................................................5
Illiquid Securities............................................................6
Lending of Portfolio Securities................................................6
Repurchase Agreements..........................................................7
Reverse Repurchase Agreements and Mortgage Dollar Rolls........................7
Rule 2a-7: Maturity, Quality, and Diversification Restrictions................7
Stripped Debt Obligations......................................................9
Variable- or Floating-Rate Securities..........................................9
When-Issued and Delayed-Delivery Securities...................................10
DIRECTORS AND OFFICERS........................................................10
PRINCIPAL SHAREHOLDERS........................................................12
INVESTMENT ADVISOR............................................................12
DISTRIBUTOR...................................................................14
PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................15
CUSTODIAN.....................................................................17
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT..................................18
TAXES.........................................................................18
DETERMINATION OF NET ASSET VALUE..............................................19
ADDITIONAL SHAREHOLDER INFORMATION............................................19
ORGANIZATION..................................................................21
SHAREHOLDER MEETINGS..........................................................21
GENERAL INFORMATION...........................................................28
PORTFOLIO MANAGEMENT..........................................................31
INDEPENDENT ACCOUNTANTS.......................................................31
LEGAL COUNSEL.................................................................31
FINANCIAL STATEMENTS..........................................................31
APPENDIX......................................................................32
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.
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.
NON-FUNDAMENTAL OPERATING POLICIES
4
<PAGE>
The following are the Fund's non-fundamental operating policies which may be
changed by the Fund's Board of Directors without shareholder approval.
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.
9. Engage in any transaction or practice which is not permissible under
Rule 2a-7 of the 1940 Act, notwithstanding any other fundamental investment
limitation or non-fundamental operating policy.
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>
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Fund's investment
objective, policies, and techniques described in the Prospectus.
ASSET-BACKED DEBT OBLIGATIONS
Asset-backed debt obligations represent direct or indirect participation in, or
secured by and payable from, assets such as motor vehicle installment sales
contracts, other installment loan contracts, home equity loans, leases of
various types of property, and receivables from credit card or other revolving
credit arrangements. Asset-backed debt obligations may include collateralized
mortgage obligations ("CMOs") issued by private companies. The credit quality
of most asset-backed securities depends primarily on the credit quality of the
assets underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement of the
securities. Payments or distributions of principal and interest on
asset-backed debt obligations may be supported by non-governmental credit
enhancements including letters of credit, reserve funds, overcollateralization,
and guarantees by third parties. The market for privately issued asset-backed
debt obligations is smaller and less liquid than the market for government
sponsored mortgage-backed securities.
The rate of principal payment on asset-backed securities generally depends on
the rate of principal payments received on the underlying assets which in turn
may be affected by a variety of economic and other factors. As a result, the
yield on any asset-backed security is difficult to predict with precision and
actual yield to maturity may be more or less than the anticipated yield to
maturity. The yield characteristics of asset-backed debt obligations differ
from those of traditional debt obligations. Among the principal differences
are that interest and principal payments are made more frequently on
asset-backed debt obligations, usually monthly, and that principal may be
prepaid at any time because the underlying assets generally may be prepaid at
any time. As a result, if these debt obligations are purchased at a premium, a
prepayment rate that is faster than expected will reduce yield to maturity,
while a prepayment rate that is slower than expected will have the opposite
effect of increasing the yield to maturity. Conversely, if these debt
obligations are purchased at a discount, a prepayment rate that is faster than
expected will increase yield to maturity, while a prepayment rate that is
slower than expected will reduce yield to maturity. Accelerated prepayments on
debt obligations purchased at a premium also imposes a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is prepaid in full.
While many asset-backed securities are issued with only one class of security,
many asset-backed securities are issued in more than one class, each with
different payment terms. Multiple class asset-backed securities are issued for
two main reasons. First, multiple classes may be used as a method of
providing credit support. This is accomplished typically through creation of
one or more classes whose right to payments on the asset-backed security is
made subordinate to the right to such payments of the remaining class or
classes. Second, multiple classes may permit the issuance of securities with
payment terms, interest rates, or other characteristics differing both from
those of each other and from those of the underlying assets. Examples include
so-called "strips" (asset-backed securities entitling the holder to
disproportionate interests with respect to the allocation of interest and
principal of the assets backing the security), and securities with class or
classes having characteristics which mimic the characteristics of
non-asset-backed securities, such as floating interest rates (I.E., interest
rates which adjust as a specified benchmark changes) or scheduled amortization
of principal.
Asset-backed securities backed by assets, other than as described above, or in
which the payment streams on the underlying assets are allocated in a manner
different than those described above may be issued in the future. The Fund may
invest in such asset-backed securities if such investment is otherwise
consistent with its investment objectives and policies and with the investment
restrictions of the Fund.
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
6
<PAGE>
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.
ILLIQUID SECURITIES
The Fund may invest in illiquid securities (I.E., securities that are not
readily marketable). However, the Fund will not acquire illiquid securities
if, as a result, the illiquid securities would comprise more than 15% (10% for
money market funds) of the value of the Fund's net assets (or such other
amounts as may be permitted under the 1940 Act). However, as a matter of
internal policy, the Advisor intends to limit the Fund's investments in
illiquid securities to 10% of its net assets.
The Board of Directors of the Fund, or its delegate, has the ultimate
authority to determine, to the extent permissible under the federal securities
laws, which securities are illiquid for purposes of this limitation. Certain
securities exempt from registration or issued in transactions exempt from
registration under the Securities Act of 1933, as amended ("Securities Act"),
such as securities that may be resold to institutional investors under Rule
144A under the Securities Act and Section 4(2) commercial paper, may be
considered liquid under guidelines adopted by the Fund's Board of Directors.
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.
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
7
<PAGE>
subscription rights and rights to dividends, interest or other distributions,
when retaining such rights is considered to be in the Fund's interest.
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 enter
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.
RULE 2A-7: MATURITY, QUALITY, AND DIVERSIFICATION RESTRICTIONS
All capitalized but undefined terms in this discussion shall have the meaning
such terms have in Rule 2a-7 under the 1940 Act. The Fund is subject to
certain maturity restrictions in accordance with Rule 2a-7 for money market
funds that use the amortized cost method of valuation to maintain a stable net
asset value of $1.00 per share. Accordingly, the Fund will (1) maintain a
dollar weighted average portfolio maturity of 90 days or less, and (2) will
purchase securities with a remaining maturity of no more than 13 months (397
calendar days). Further, the Fund will limit its investments to U.S.
dollar-denominated securities which represent minimal credit risks and meet
certain credit quality and diversification requirements. For purposes of
calculating the maturity of portfolio instruments, the Fund will follow the
requirements of Rule 2a-7. Under Rule 2a-7, the maturity of portfolio
instruments is calculated as indicated below.
8
<PAGE>
Generally, the maturity of a portfolio instrument shall be deemed to be the
period remaining (calculated from the trade date or such other date on which
the Fund's interest in the instrument is subject to market action) until the
date noted on the face of the instrument as the date on which the principal
amount must be paid, or in the case of an instrument called for redemption, the
date on which the redemption payment must be made, except that:
(1) An instrument that is issued or guaranteed by the U.S. government or
any agency thereof which has a variable rate of interest readjusted no less
frequently than every 762 days shall be deemed to have a maturity equal to the
period remaining until the next readjustment of the interest rate.
(2) A Variable Rate Instrument, the principal amount of which is scheduled
on the face of the instrument to be paid on 397 calendar days or less shall be
deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
(3) A Variable Rate Instrument that is subject to a Demand Feature shall be
deemed to have a maturity equal to the longer of the period remaining until the
next readjustment of the interest rate or the period remaining until the
principal amount can be recovered through demand.
(4) A Floating Rate Instrument that is subject to a Demand Feature shall be
deemed to have a maturity equal to the period remaining until the principal
amount can be recovered through demand.
(5) A repurchase agreement shall be deemed to have a maturity equal to the
period remaining until the date on which the repurchase of the underlying
securities is scheduled to occur, or, where no date is specified, but the
agreement is subject to a demand, the notice period applicable to a demand for
the repurchase of the securities.
The Fund is subject to certain credit quality restrictions pursuant to Rule
2a-7 under the 1940 Act. The Fund will invest at least 95% of its assets in
instruments determined to present minimal credit risks and, at the time of
acquisition, are (1) obligations issued or guaranteed by the U.S. government,
its agencies, or instrumentalities; (2) rated by at least two nationally
recognized rating agencies (or by one agency if only one agency has issued a
rating) (the "required rating agencies") in the highest rating category for
short-term debt obligations; (3) unrated but whose issuer is rated in the
highest category by the required rating agencies with respect to a class of
short-term debt obligations or any security within that class that is
comparable in priority and security with the instrument; or (4) unrated (other
than the type described in (3)) but determined by the Board of Directors of the
Fund to be of comparable quality to the foregoing (provided the unrated
security has not received a short-term rating, and with respect to a long-term
security with a remaining maturity within the Fund's maturity restrictions, has
not received a long-term rating from any agency that is other than in its
highest rating category). The foregoing are referred to as "first-tier
securities."
The balance of the securities in which the Fund may invest are instruments
determined to present minimal credit risks, which do not qualify as first-tier
securities, and, at the time of acquisition, are (1) rated by the required
rating agencies in one of the two highest rating categories for short-term debt
obligations; (2) unrated but whose issuer is rated in one of the two highest
categories by the required rating agencies with respect to a class of
short-term debt obligations or any security within that class that is
comparable in priority and security with the obligation; or (3) unrated (other
than described in (2)) but determined by the Board of Directors of the Fund to
be of comparable quality to the foregoing (provided the unrated security has
not received a short-term rating and, with respect to a long-term security with
a remaining maturity within the Fund's maturity restrictions, has not received
a long-term rating from any agency that is other than in one of its highest two
rating categories). The foregoing are referred to as "second-tier securities."
In addition to the foregoing guidelines, the Fund is subject to certain
diversification restrictions pursuant to Rule 2a-7 under the 1940 Act, which
include (1) the Fund will not acquire a second-tier security of an issuer if,
after giving effect to the acquisition, the Fund would have invested more than
the greater of 1% of its total assets or one million dollars in second-tier
securities issued by that issuer, or (2) the Fund will not invest more than 5%
of the Fund's assets in the securities (other than securities issued by the
U.S. government or any agency or instrumentality thereof) issued by a single
issuer, except for certain investments held for not more than 3 business days.
STRIPPED DEBT OBLIGATIONS
9
<PAGE>
To the extent consistent with its investment objective and Rule 2a-7 under the
1940 Act, the Fund may purchase Treasury receipts and other "stripped"
securities that evidence ownership in either the future interest payments or
the future principal payments on U.S. Government and other debt obligations.
These participations, which may be issued by the U.S. Government (or a U.S.
Government agency or instrumentality) or by private issuers such as banks and
other institutions, are issued at a discount to their "face value." Stripped
securities may exhibit greater price volatility than ordinary debt securities
because of the manner in which their principal and interest are returned to
investors.
VARIABLE- OR FLOATING-RATE SECURITIES
The Fund may invest in securities which offer a variable- or floating-rate of
interest. Variable-rate securities provide for automatic establishment of a
new interest rate at fixed intervals (E.G., daily, monthly, semi-annually,
etc.). Floating-rate securities generally provide for automatic adjustment of
the interest rate whenever some specified interest rate index changes. The
interest rate on variable- or floating-rate securities is ordinarily determined
by reference to or is a percentage of a bank's prime rate, the 90-day U.S.
Treasury bill rate, the rate of return on commercial paper or bank certificates
of deposit, an index of short-term interest rates, or some other objective
measure.
Variable- or floating-rate securities frequently include a demand feature
entitling the holder to sell the securities to the issuer at par. In many
cases, the demand feature can be exercised at any time on seven days notice; in
other cases, the demand feature is exercisable at any time on 30 days notice or
on similar notice at intervals of not more than one year. Some securities
which do not have variable or floating interest rates may be accompanied by
puts producing similar results and price characteristics. When considering the
maturity of any instrument which may be sold or put to the issuer or a third
party, the Fund may consider that instrument's maturity to be shorter than its
stated maturity.
Variable-rate demand notes include master demand notes which are obligations
that permit the Fund to invest fluctuating amounts, which may change daily
without penalty, pursuant to direct arrangements between the Fund, as lender,
and the borrower. The interest rates on these notes fluctuate from time to
time. The issuer of such obligations normally has a corresponding right, after
a given period, to prepay in its discretion the outstanding principal amount of
the obligations plus accrued interest upon a specified number of days notice to
the holders of such obligations. The interest rate on a floating-rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and
is adjusted automatically each time such rate is adjusted. The interest rate
on a variable-rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments will generally be traded. There generally
is not an established secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations are not secured
by letters of credit or other credit support arrangements, the Fund's right to
redeem is dependent on the ability of the borrower to pay principal and
interest on demand. Such obligations frequently are not rated by credit rating
agencies and, if not so rated, the Fund may invest in them only if the Advisor
determines that at the time of investment the obligations are of comparable
quality to the other obligations in which the Fund may invest. The Advisor, on
behalf of the Fund, will consider on an ongoing basis the creditworthiness of
the issuers of the floating- and variable-rate demand obligations in the Fund's
portfolio.
The Fund will not invest more than 15% of its net assets (10% for money market
funds) in variable- and floating-rate demand obligations that are not readily
marketable (a variable- or floating-rate demand obligation that may be disposed
of on not more than seven days notice will be deemed readily marketable and
will not be subject to this limitation). In addition, each variable- or
floating-rate obligation must meet the credit quality requirements applicable
to all the Fund's investments at the time of purchase. When determining
whether such an obligation meets the Fund's credit quality requirements, the
Fund may look to the credit quality of the financial guarantor providing a
letter of credit or other credit support arrangement.
In determining the Fund's weighted average portfolio maturity, the Fund will
consider a floating- or variable-rate security to have a maturity equal to its
stated maturity (or redemption date if it has been called for redemption),
except that it may consider (1) variable-rate securities to have a maturity
equal to the period remaining until the next readjustment in the interest rate,
unless subject to a demand feature, (2) variable-rate securities subject to a
demand feature to have a remaining maturity equal to the longer of (a) the next
readjustment in the interest rate or (b) the period remaining until the
principal can be recovered through demand, and (3) floating-rate securities
subject to a demand feature to have a maturity equal to the period remaining
until the
10
<PAGE>
principal can be recovered through demand. Variable-and floating-rate
securities generally are subject to less principal fluctuation than securities
without these attributes since the securities usually trade at amortized cost
following the readjustment in the interest rate.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
The Fund may purchase securities on a when-issued or delayed-delivery basis.
The price of debt obligations so purchased, which may be expressed in yield
terms, generally is fixed at the time the commitment to purchase is made, but
delivery and payment for the securities take place at a later date. During the
period between the purchase and settlement, no payment is made by the Fund to
the issuer and no interest on the debt obligations accrues to the Fund.
Forward commitments involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the Fund's other assets. While when-issued and
delayed-delivery securities may be sold prior to the settlement date, the Fund
intends to purchase such securities with the purpose of actually acquiring them
unless a sale appears desirable for investment reasons. At the time the Fund
makes the commitment to purchase these types of securities, it will record the
transaction and reflect the value of the security in determining its net asset
value. The Fund does not believe that its net asset value will be adversely
affected by these types of securities purchases.
To the extent required by the SEC, the Fund will maintain cash and marketable
securities equal in value to commitments for when-issued 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 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 securities themselves (which may have a market value greater or
less than the Fund's payment obligation).
DIRECTORS AND OFFICERS
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 26 registered open-end
management investment companies consisting of 46 mutual funds ("Strong Funds").
The Strong Funds, in the aggregate, pay each Director who is not a director,
officer, or employee of the Advisor, or any affiliated company (a
"disinterested director") an annual fee of $50,000, plus $100 per Board meeting
for each Strong Fund. In addition, each disinterested director is reimbursed
by the Strong Funds for travel and other expenses incurred in connection with
attendance at such meetings. Other officers and directors of the Strong Funds
receive no compensation or expense reimbursement from the Strong Funds.
*RICHARD S. STRONG (DOB 5/12/42), Director and Chairman of the Board of the
Strong Funds.
Prior to August 1985, Mr. Strong was Chief Executive Officer of the Advisor,
which he founded in 1974. Since August 1985, Mr. Strong has been a Security
Analyst and Portfolio Manager of the Advisor. In October 1991, Mr. Strong also
became the Chairman of the Advisor. Mr. Strong is a Director of the Advisor.
Mr. Strong has been in the investment management business since 1967.
MARVIN E. NEVINS (DOB 7/19/18), Director of the Strong Funds.
Private Investor. From 1945 to 1980, Mr. Nevins was Chairman of Wisconsin
Centrifugal Inc., a foundry. From July 1983 to December 1986, he was Chairman
of General Casting Corp., Waukesha, Wisconsin, a foundry. Mr. Nevins is a
former Chairman of the Wisconsin Association of Manufacturers & Commerce. 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.
WILLIE D. DAVIS (DOB 7/24/34), Director of the Strong Funds.
11
<PAGE>
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,
L.A. Gear (a footwear/sportswear company) since 1992, and Rally's Hamburger,
Inc. since 1994. Mr. Davis has been a trustee of the University of Chicago
since 1980 and Marquette University since 1988. Since 1977, Mr. Davis has been
President and Chief Executive Officer of All Pro Broadcasting, Inc. Mr. Davis
was a Director of the Fireman's Fund (an insurance company) from 1975 until
1990.
STANLEY KRITZIK (DOB 1/9/30), Director of the Strong Funds.
Mr. Kritzik has been a Partner of Metropolitan Associates since 1962, a
Director of Aurora Health Care since 1987, and Health Network Ventures, Inc.
since 1992.
WILLIAM F. VOGT (DOB 7/19/47), Director of the Strong Funds.
Mr. Vogt has been the President of Vogt Management Consulting, Inc. since 1990.
From 1982 until 1990, he served as Executive Director of University Physicians
of the University of Colorado. Mr. Vogt is the Past President of the Medical
Group Management Association and a Fellow of the American College of Medical
Practice Executives.
THOMAS P. LEMKE (DOB 7/30/54), Vice President of the Strong Funds.
Mr. Lemke has been Senior Vice President, Secretary, and General Counsel of the
Advisor since September 1994 and Chief Operating Officer of the Advisor since
November 1997. For two years prior to joining the Advisor, Mr. Lemke acted as
Resident Counsel for Funds Management at J.P. Morgan & Co., Inc. From February
1989 until April 1992, Mr. Lemke acted as Associate General Counsel to Sanford
C. Bernstein Co., Inc. For two years prior to that, Mr. Lemke was Of Counsel
at the Washington D.C. law firm of Tew Jorden & Schulte, a successor of Finley,
Kumble & Wagner. From August 1979 until December 1986, Mr. Lemke worked at the
SEC, most notably as the Chief Counsel to the Division of Investment Management
(November 1984 - December 1986), and as Special Counsel to the Office of
Insurance Products, Division of Investment Management (April 1982 - October
1984).
STEPHEN J. SHENKENBERG (DOB 6/14/58), Vice President and Secretary of the
Strong Funds.
Mr. Shenkenberg has been Acting General Counsel of the Advisor since January
1998. From November 1996 until January 1998, Mr. Shenkenberg acted as Deputy
General Counsel to the Advisor. From December 1992 until November 1996, Mr.
Shenkenberg acted as Associate Counsel to the Advisor. From June 1987 until
December 1992, Mr. Shenkenberg was an attorney for Godfrey & Kahn, S.C., a
Milwaukee law firm.
JOHN S. WEITZER (DOB 10/31/67), Vice President of the Strong Funds.
Mr. Weitzer has been Senior Counsel of the Advisor since December 1997. From
July 1993 until December 1997, Mr. Weitzer acted as Associate Counsel to the
Advisor.
MARY F. HOPPA (DOB 5/31/64), Vice President of the Strong Funds.
Ms. Hoppa has been Vice President and Director of Mutual Fund Administration of
the Advisor since January 1998. From October 1996 to January 1998, Ms. Hoppa
acted as Director of Transfer Agency Services of the Advisor and, from January
1988 to October 1996, as Transfer Agency Systems Liaison Manager of the
Advisor. From January 1987 to January 1988, Ms. Hoppa acted as a Shareholder
Services Associate of the Advisor.
12
<PAGE>
JOHN A. FLANAGAN (DOB 6/5/46), Treasurer of the Strong Funds.
Mr. Flanagan has been Senior Vice President of the Advisor since April 1997.
For three years prior to joining the Advisor, Mr. Flanagan was a Partner with
Coopers & Lybrand L.L.P. (an international professional services firm). From
November 1992 to April 1994, Mr. Flanagan was an independent consultant. From
October 1970 to November 1992, Mr. Flanagan was with Ernst & Young (an
international professional services firm), most notably as Partner in charge of
the Investment Company Practice of that firm's Boston office from 1982 to 1992.
Except for Messrs. Nevins, Davis, Kritzik, and Vogt, the address of all of the
above persons is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr. Nevins'
address is 6075 Pelican Bay Boulevard, Naples, Florida 34108. Mr. Davis'
address is 161 North La Brea, Inglewood, California 90301. Mr. Kritzik's
address is 1123 North Astor Street, P.O. Box 92547, Milwaukee, Wisconsin
53202-0547. Mr. Vogt's address is 2830 East Third Avenue, Denver, Colorado
80206.
Unless otherwise noted below, as of January 31, 1998, the officers and
directors of the Fund in the aggregate beneficially owned less than 1% of the
Fund's then outstanding shares.
<TABLE>
<CAPTION>
<S> <C> <C>
FUND SHARES PERCENT
- ---- ------ -------
None
</TABLE>
PRINCIPAL SHAREHOLDERS
Unless otherwise noted below, as of January 31, 1998 no persons owned of record
or are known to own of record or beneficially more than 5% of the Fund's then
outstanding shares.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AND ADDRESS SHARES PERCENT
- ---------------- ------ -------
None
</TABLE>
INVESTMENT ADVISOR
The Fund has entered into an Advisory Agreement with Strong Capital Management,
Inc. ("Advisor"). Mr. Strong controls the Advisor. Mr. Strong is the Chairman
and a Director of the Advisor, Mr. Lemke is the Chief Operating Officer, a
Senior Vice President, Secretary, and General Counsel of the Advisor, Mr.
Flanagan is a Senior Vice President of the Advisor, Mr. Shenkenberg is Vice
President, Assistant Secretary, and Acting General Counsel of the Advisor, and
Mr. Weitzer is Senior Counsel of the Advisor.
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 subadviser 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.
13
<PAGE>
Except for expenses assumed by the Advisor, as set forth above, or by Strong
Funds Distributors, 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), 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.
As compensation for its 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>
FUND ANNUAL RATE
- ----------------- -----------
Money Market Fund 0.50%
</TABLE>
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($) AFTER WAIVER ($)
- ----------------- ------------------ --------- ----------------
12/31/94 2,159,922 1,108,463 1,051,459
10/31/95* 7,241,685 6,653,346 588,339
10/31/96 9,951,778 2,566,311 7,385,467
10/31/97 9,599,484 482,401 9,117,083
</TABLE>
* For the ten-month fiscal year ended October 31, 1995.
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
14
<PAGE>
Consent Judgment, the Advisor agreed to reimburse the affected accounts a total
of $5.9 million. The settlement did not have any material impact on the
Advisor's financial position or operations.
The 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 and may
give advice and take action, with respect to any client, that may differ from
the advice given, or the timing or nature of action taken, with respect to any
one account. However, the Advisor will allocate over a period of time, to the
extent practical, investment opportunities to each account on a fair and
equitable basis relative to other similarly-situated client accounts. The
Advisor, its principals and associates (to the extent not prohibited by the
Code), and other clients of the Advisor may have, acquire, increase, decrease,
or dispose of securities or interests therein at or about the same time that
the Advisor is purchasing or selling securities or interests therein for an
account which purchase or sale is or may be deemed to be inconsistent with the
actions taken by such persons.
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.
DISTRIBUTOR
Under a Distribution Agreement with the Fund ("Distribution Agreement"), Strong
Funds Distributors, Inc. ("Distributor") acts as underwriter of the Fund's
shares. Mr. Strong is the Chairman and Director of the Distributor, Mr. Lemke
is a Vice President of the Distributor, and Mr. Shenkenberg is a Vice President
and Secretary of the Distributor. The Distribution Agreement provides that the
Distributor will use its best efforts to distribute the Fund's shares. Since
the Fund is a "no-load" fund, no sales commissions are charged on the purchase
of Fund shares. The Distribution Agreement further provides that the
Distributor will bear the additional costs of printing prospectuses and
shareholder reports which are used for selling purposes, as well as advertising
and any other costs attributable to the distribution of the Fund's shares. The
Distributor is an indirect subsidiary of the Advisor and controlled by the
Advisor and Richard S. Strong. The Distribution Agreement is subject to the
same termination and renewal provisions as are described above with respect to
the Advisory Agreement.
From time to time, the Distributor may hold in-house sales incentive programs
for its associated persons under which these persons may receive non-cash
compensation awards in connection with the sale and distribution of the Fund's
shares. These awards may include items such as, but not limited to, gifts,
merchandise, gift certificates, and payment of travel expenses, meals, and
lodging. As required by the proposed rule amendments of the National
Association of Securities Dealers, Inc. ("NASD"), any in-house sales incentive
program will be multi-product oriented, I.E., any incentive will be based on an
associated person's gross
15
<PAGE>
production of all securities within a product type and will not be based on the
sales of shares of any specifically designated mutual fund.
PORTFOLIO TRANSACTIONS 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. 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
over-the-counter 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, the "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.
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.
16
<PAGE>
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
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).
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.
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.
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. 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.
17
<PAGE>
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.
The Fund paid the following brokerage commissions for the time periods
indicated:
<TABLE>
<CAPTION>
<S> <C>
FISCAL YEAR ENDED BROKERAGE COMMISSIONS ($)
- ------------------ -------------------------
12/31/94 0
10/31/95* 0
10/31/96 0
10/31/97 0
</TABLE>
* For the ten-month fiscal year ended October 31, 1995.
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 OCTOBER 31, 1997
- ------------------------------------------- ------------------------------------------------
Merrill Lynch, Pierce, Fenner & Smith, Inc. $25,534,000
CS First Boston Corporation $25,000,000
Goldman Sachs & Co. $19,935,000
Salomon Brothers Inc. $19,822.000
</TABLE>
CUSTODIAN
As custodian of the Fund's assets, Firstar Trust Company, P.O. Box 761,
Milwaukee, Wisconsin 53201, has custody of all securities and cash of the Fund,
delivers and receives payment for securities sold, receives and pays for
securities purchased, collects income from investments, and performs other
duties, all as directed by officers of the Fund. The custodian is in no way
responsible for any of the investment policies or decisions of the Fund. With
respect to money market funds, the custodian has entered into a sub-custodial
arrangement with Bankers Trust Company ("BTC") by which BTC may retain custody
of certain money fund foreign securities. The custodian and, if applicable,
the sub-custodian are in no way responsible for any of the investment policies
or decisions of the Fund.
18
<PAGE>
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
The Advisor acts as transfer agent and dividend-disbursing agent for the Fund.
The Advisor is compensated based on an annual fee per open account of $21.75
for equity funds, $31.50 for income and municipal income funds, and $32.50 for
money market funds, plus out-of-pocket expenses, such as postage and printing
expenses in connection with shareholder communications. The Advisor also
receives an annual fee per closed account of $4.20 from the Fund. The fees
received and the services provided as transfer agent and dividend disbursing
agent are in addition to those received and provided by the Advisor under the
Advisory Agreements. In addition, the Advisor provides certain printing and
mailing services for the Fund, such as printing and mailing of shareholder
account statements, checks, and tax forms.
From time to time, the Fund, directly or indirectly through arrangements with
the Advisor, and/or the Advisor may pay amounts to third parties that provide
transfer agent type services and other administrative services relating to the
Fund to persons who beneficially own interests in the Fund, such as
participants in 401(k) plans. These services may include, among other things,
sub-accounting services, transfer agent type activities, answering inquiries
relating to the Fund, transmitting proxy statements, annual reports, updated
prospectuses, other communications regarding the Fund, and related services as
the Fund or beneficial owners may reasonably request. In such cases, the Fund
will not pay fees based on the number of beneficial owners at a rate that is
greater than the rate the Fund is currently paying the Advisor for providing
these services to Fund shareholders.
The Fund paid the following amounts for the time periods indicated for transfer
agency and dividend disbursing and printing and mailing services:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PER ACCOUNT OUT-OF-POCKET PRINTING/MAILING TOTAL COST AFTER
FUND CHARGES ($) EXPENSES ($) SERVICES ($) WAIVER ($) WAIVER ($)
- --------- ----------- ------------- ---------------- ---------- ----------------
12/31/94 1,073,113 355,873 31,377 187 1,460,176
10/31/95* 2,043,185 695,541 54,137 2,763,250 29,613
10/31/96 3,940,389 1,424,481 105,757 5,470,627 0
10/31/97 4,578,923 1,388,238 97,226 6,064,387 0
</TABLE>
* For the ten-month fiscal year ended October 31, 1995.
TAXES
GENERAL
The Fund intends to qualify annually for treatment as a regulated investment
company ("RIC") under the IRC. 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
19
<PAGE>
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. 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 six months or less, the
loss will be treated as long-term, instead of short-term, capital loss to the
extent of any capital gain distributions received on those shares.
The Fund 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.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund will be determined as of the close of trading
on each day the New York Stock Exchange ("NYSE") is open for trading. The NYSE
is open for trading Monday through Friday except, New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day. Additionally, if any of the aforementioned holidays falls
on a Saturday, the NYSE will not be open for trading on the preceding Friday,
and when any such holiday falls on a Sunday, the NYSE will not be open for
trading on the succeeding Monday, unless unusual business conditions exist,
such as the ending of a monthly or yearly accounting period.
The Fund values its securities on the amortized cost basis and seek to maintain
their net asset value at a constant $1.00 per share. In the event a difference
of 1/2 of 1% or more were to occur between the net asset value calculated by
reference to market values and the Fund's $1.00 per share net asset value, or
if there were any other deviation which the Fund's Board of Directors believed
would result in a material dilution to shareholders or purchasers, the Board of
Directors would consider taking any one or more of the following actions or any
other action considered appropriate: selling portfolio securities to shorten
average portfolio maturity or to realize capital gains or losses, reducing or
suspending shareholder income accruals, redeeming shares in kind, or utilizing
a value per unit based upon available indications of market value. Available
indications of market value may include, among other things, quotations or
market value estimates of securities and/or values based on yield data relating
to money market securities that are published by reputable sources.
ADDITIONAL SHAREHOLDER INFORMATION
TELEPHONE AND INTERNET EXCHANGE/REDEMPTION PRIVILEGES
The Fund employs reasonable procedures to confirm that instructions
communicated by telephone or the Internet are genuine. The Fund may not be
liable for losses due to unauthorized or fraudulent instructions. Such
procedures include but are not limited to requiring a form of personal
identification prior to acting on instructions received by telephone or the
Internet, providing written confirmations of such transactions to the address
of record, tape recording telephone instructions and backing up Internet
transactions.
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
20
<PAGE>
shares to be redeemed and the date of the transaction (please call
1-800-368-3863). 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.
Redemption checks in excess of the lesser of $250,000 or 1% of the Fund's
assets during any 90-day period may not be honored by the Fund if the Advisor
determines that existing conditions make cash payments undesirable.
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.
RETIREMENT PLANS
INDIVIDUAL RETIREMENT ACCOUNT (IRA): Everyone under age 70 1/2 with earned
income may contribute to a tax-deferred IRA. The Strong Funds offer a prototype
plan for you to establish your own IRA. You are allowed to contribute up to the
lesser of $2,000 or 100% of your earned income each year to your IRA (or up to
$4,000 between your IRA and your non-working spouses' IRA). Under certain
circumstances, your contribution will be deductible.
ROTH IRA: Taxpayers, of any age, who have earned income, and whose 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 Code 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,
21
<PAGE>
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 $6,000, on a pre-tax basis, to a SIMPLE-IRA
account. The employer is required to make annual contributions to eligible
employees' accounts. All contributions grow tax-deferred.
DEFINED CONTRIBUTION PLAN: A defined contribution plan allows self-employed
individuals, partners, or a corporation to provide retirement benefits for
themselves and their employees. Plan types include: profit-sharing plans,
money purchase pension plans, and paired plans (a combination of a
profit-sharing plan and a money purchase plan).
401(K) PLAN: A 401(k) plan is a type of profit-sharing plan that allows
employees to have part of their salary contributed on a pre-tax basis to a
retirement plan which will earn tax-deferred income. A 401(k) plan is funded by
employee contributions, employer contributions, or a combination of both.
403(B)(7) PLAN: A tax-sheltered custodial account designed to qualify under
section 403(b)(7) of the Code is available for use by employees of certain
educational, non-profit, hospital, and charitable organizations.
ORGANIZATION
The Fund is either a "Corporation" or a "Series" of common stock of a
Corporation, as described in the chart below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Incorporation Date Series Authorized Par
Corporation Date Created Shares Value ($)
- ------------------------------ ------------- ----------- ---------- ---------
Strong Money Market Fund, Inc. 07/19/85 NA Indefinite .0001
</TABLE>
The Corporation is a Wisconsin corporation that is authorized to offer separate
series of shares representing interests in separate portfolios of securities,
each with differing investment objectives. The shares in any one portfolio
may, in turn, be offered in separate classes, each with differing preferences,
limitations or relative rights. However, the Articles of Incorporation for the
Corporation provide that if additional series of shares are issued by the
Corporation, such new series of shares may not affect the preferences,
limitations or relative rights of the Corporation's outstanding shares. In
addition, the Board of Directors of the Corporation is authorized to allocate
assets, liabilities, income and expenses to each series and class. Classes
within a series may have different expense arrangements than other classes of
the same series and, accordingly, the net asset value of shares within a series
may differ. Finally, all holders of shares of the Corporation may vote on each
matter presented to shareholders for action except with respect to any matter
which affects only one or more series or class, in which case only the shares
of the affected series or class are entitled to vote. 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.
22
<PAGE>
PERFORMANCE INFORMATION
The Strong Fund's 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.
7-DAY CURRENT AND EFFECTIVE YIELD
The Fund's 7-day current yield quotation is based on a seven-day period and is
computed as follows. The first calculation is net investment income per share,
which is accrued interest on portfolio securities, plus amortized discount,
minus amortized premium, less accrued expenses. This number is then divided by
the price per share (expected to remain constant at $1.00) at the beginning of
the period ("base period return"). The result is then divided by 7 and
multiplied by 365 and the resulting yield figure is carried to the nearest
one-hundredth of one percent. Realized capital gains or losses and unrealized
appreciation or depreciation of investments are not included in the
calculation. The Fund's effective yield is determined by taking the base
period return (computed as described above) and calculating the effect of
assumed compounding. Effective yield is equal [(base period return +
1)(365/7)]- 1.
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.
TOTAL RETURN
Calculation of the Fund's total return is not subject to a standardized
formula. Total return performance for a specific period is calculated by first
taking an investment (assumed below to be $10,000) ("initial investment") in
the Fund's shares on the first day of the period and computing the "ending
value" of that investment at the end of the period. The total return
percentage is then determined by subtracting the initial investment from the
ending value and dividing the remainder by the initial investment and
expressing the result as a percentage. The calculation assumes that all income
and capital gains dividends paid by the Fund have been reinvested at net asset
value of the Fund on the reinvestment dates during the period. Total return
may also be shown as the increased dollar value of the hypothetical investment
over the period.
CUMULATIVE TOTAL RETURN
Cumulative total return represents the simple change in value of an investment
over a stated period and may be quoted as a percentage or as a dollar amount.
Total returns and cumulative total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship between these factors and their
contributions to total return.
23
<PAGE>
SPECIFIC FUND PERFORMANCE
7-DAY YIELD
(7-day period ended October 31, 1997)
<TABLE>
<CAPTION>
After Waivers/Absorptions
- ------------ ------- --------- --------------- --------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Current Effective Waived Absorbed Current Yield Effective Yield
Fund Yield Yield Management Fees Expenses
- ------------ ------- --------- --------------- --------- ------------------------- ---------------
Money Market 5.25% 5.39% 0.02% 0.39% 4.84% 4.96%
Fund
- ------------ ------- --------- --------------- --------- ------------------------- ---------------
</TABLE>
TOTAL RETURN
MONEY MARKET FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending value Cumulative Average Annual
Time Period Investment October 31, 1997 Total Return Total Return
- ------------- --------------- ---------------- ------------ ---------------
One Year $10,000 $10,532 5.32% 5.32%
- ------------- --------------- ---------------- ------------ ---------------
Five Year $10,000 $12,571 25.71% 4.68%
- ------------- --------------- ---------------- ------------ ---------------
Ten Year $10,000 $17,675 76.75% 5.86%
- ------------- --------------- ---------------- ------------ ---------------
Life of Fund* $10,000 $20,082 100.82% 5.97%
- ------------- --------------- ---------------- ------------ ---------------
</TABLE>
* Commenced operations on October 22, 1985.
COMPARISONS
U.S. TREASURY BILLS, NOTES, OR BONDS. Investors may want to compare the
performance of the Fund to that of U.S. Treasury bills, notes, or bonds, which
are issued by the U.S. Government. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Generally, the values of obligations with shorter maturities will
fluctuate less than those with longer maturities.
CERTIFICATES OF DEPOSIT. Investors may want to compare the Fund's performance
to that of certificates of deposit offered by banks and other depositary
institutions. Certificates of deposit may offer fixed or variable interest
rates and principal is guaranteed and may be insured. Withdrawal of the
deposits prior to maturity normally will be subject to a penalty. Rates
offered by banks and other depositary institutions are subject to change at any
time specified by the issuing institution.
MONEY MARKET FUNDS. Investors may also want to compare performance of the Fund
to that of money market funds. Money market fund yields will fluctuate and
shares are not insured, but share values usually remain stable.
LIPPER ANALYTICAL SERVICES, INC. ("LIPPER") AND OTHER INDEPENDENT RANKING
ORGANIZATIONS. From time to time, in marketing and other fund literature, the
Fund's performance may be compared to the performance of other mutual funds in
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
24
<PAGE>
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.
IBC/DONOGHUE, INC. IBC/Donoghue, Inc. is an independently operated financial
newsletter publishing firm specializing in the statistical analysis of the
trends in the money market mutual fund industry. From time to time, in
marketing and other fund literature, IBC/Donoghue data may be quoted or
compared to the Fund's performance. IBC/Donoghue, Inc. provides current (7 and
30 day yields) and historical performance (1, 3, and 5 year returns), rankings
and category averages for over 1,100 money market mutual funds.
VARIOUS BANK PRODUCTS. The Fund's performance also may be compared on a before
or after-tax basis to various bank products, including the average rate of bank
and thrift institution money market deposit accounts, Super N.O.W. accounts and
certificates of deposit of various maturities as reported in the Bank Rate
Monitor, National Index of 100 leading banks, and thrift institutions as
published by the Bank Rate Monitor, Miami Beach, Florida. The rates published
by the Bank Rate Monitor National Index are averages of the personal account
rates offered on the Wednesday prior to the date of publication by 100 large
banks and thrifts in the top ten Consolidated Standard Metropolitan Statistical
Areas. The rates provided for the bank accounts assume no compounding and are
for the lowest minimum deposit required to open an account. Higher rates may
be available for larger deposits.
With respect to money market deposit accounts and Super N.O.W. accounts,
account minimums range upward from $2,000 in each institution and compounding
methods vary. Super N.O.W. accounts generally offer unlimited check writing
while money market deposit accounts generally restrict the number of checks
that may be written. If more than one rate is offered, the lowest rate is
used. Rates are determined by the financial institution and are subject to
change at any time specified by the institution. Generally, the rates offered
for these products take market conditions and competitive product yields into
consideration when set. Bank products represent a taxable alternative income
producing product. Bank and thrift institution deposit accounts may be
insured. Shareholder accounts in the Fund are not insured. Bank passbook
savings accounts compete with money market mutual fund products with respect to
certain liquidity features but may not offer all of the features available from
a money market mutual fund, such as check writing. Bank passbook savings
accounts normally offer a fixed rate of interest while the yield of the Fund
fluctuates. Bank checking accounts normally do not pay interest but compete
with money market mutual fund products with respect to certain liquidity
features (E.G.., the ability to write checks against the account). Bank
certificates of deposit may offer fixed or variable rates for a set term.
(Normally, a variety of terms are available.) Withdrawal of these deposits
prior to maturity will normally be subject to a penalty. In contrast, shares
of the Fund are redeemable at the net asset value (normally, $1.00 per share)
next determined after a request is received, without charge.
INDICES. The Fund may compare its performance to a wide variety of indices.
There are differences and similarities between the investments that a Fund may
purchase and the investments measured by the indices.
HISTORICAL ASSET CLASS RETURNS. From time to time, marketing materials may
portray the historical returns of various asset classes. Such presentations
will typically compare the average annual rates of return of inflation, U.S.
Treasury bills, bonds, common stocks, and small stocks. There are important
differences between each of these investments that should be considered in
viewing any such comparison. The market value of stocks will fluctuate with
market conditions, and small-stock prices generally will fluctuate more than
large-stock prices. Stocks are generally more volatile than bonds. In return
for this volatility, stocks have generally performed better than bonds or cash
over time. Bond prices generally will fluctuate inversely with interest rates
and other market conditions, and the prices of bonds with longer maturities
generally will fluctuate more than those of shorter-maturity 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.
25
<PAGE>
STRONG FUNDS. The Strong Fund offers a comprehensive range of conservative to
aggressive investment options. The Strong Funds and their investment objectives
are listed below. The Funds are listed in ascending order of risk and return,
as determined by the Funds' Advisor.
FUND NAME INVESTMENT OBJECTIVE
<TABLE>
<CAPTION>
<S> <C>
Strong Step 1 Money Fund Current income, a stable share price, and daily liquidity.
- ------------------------ ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Strong Money Market Fund Current income, a stable share price, and daily liquidity.
- ---------------------------------- ---------------------------------------------------------------------------------------
Strong Heritage Money Fund Current income, a stable share price, and daily liquidity.
- ---------------------------------- ---------------------------------------------------------------------------------------
Strong Municipal Money Market Federally tax-exempt current income, a stable share-price, and daily liquidity.
Fund
- ---------------------------------- ---------------------------------------------------------------------------------------
Strong Municipal Advantage Fund Federally tax-exempt current income with a very low degree of share-price
fluctuation.
- ---------------------------------- ---------------------------------------------------------------------------------------
Strong Advantage Fund Current income with a very low degree of share-price fluctuation.
- ---------------------------------- ---------------------------------------------------------------------------------------
Strong Short-Term Municipal Bond Total return by investing for a high level of federally tax-exempt current income with
Fund a low degree of share-price fluctuation.
- ---------------------------------- ---------------------------------------------------------------------------------------
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 Global Bond Total return by investing for a high level of income with a low degree of share-price
Fund fluctuation.
- ---------------------------------- ---------------------------------------------------------------------------------------
Strong Short-Term High Yield Total return by investing for a high level of federally tax-exempt current income with
Municipal Fund a moderate 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 degree of
Fund share-price fluctuation.
- ---------------------------------- ---------------------------------------------------------------------------------------
Strong Government Securities Fund Total return by investing for a high level of current income with a moderate degree of
share-price fluctuation.
- ---------------------------------- ---------------------------------------------------------------------------------------
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 Corporate Bond Fund Total return by investing for a high level of current income with a moderate degree of
share-price fluctuation.
- ---------------------------------- ---------------------------------------------------------------------------------------
Strong High-Yield Municipal Bond Total return by investing for a high level of federally tax-exempt current income.
Fund
- ---------------------------------- ---------------------------------------------------------------------------------------
Strong High-Yield Bond Fund Total return by investing for a high level of current income and 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 Asset Allocation Fund High total return consistent with reasonable risk over the long term.
- ---------------------------------- ---------------------------------------------------------------------------------------
Strong Equity Income Fund Total return by investing for both income and capital growth.
- ---------------------------------- ---------------------------------------------------------------------------------------
Strong American Utilities Fund Total return by investing for both income and capital growth.
- ---------------------------------- ---------------------------------------------------------------------------------------
Strong Blue Chip 100 Fund Total return by investing for both income and capital growth.
- ---------------------------------- ---------------------------------------------------------------------------------------
Strong Limited Resources Fund Total return by investing for both capital growth and income.
- ---------------------------------- ---------------------------------------------------------------------------------------
Strong Total Return Fund High total return by investing for capital growth and income.
- ---------------------------------- ---------------------------------------------------------------------------------------
Strong Growth and Income Fund High total return by investing for capital growth and income.
- ---------------------------------- ---------------------------------------------------------------------------------------
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 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.
- ---------------------------------- ---------------------------------------------------------------------------------------
Strong Dow 30 Value Fund Capital growth.
- ---------------------------------- ---------------------------------------------------------------------------------------
Strong Value Fund Capital growth.
- ---------------------------------- ---------------------------------------------------------------------------------------
Strong Opportunity Fund Capital growth.
- ---------------------------------- ---------------------------------------------------------------------------------------
Strong Mid Cap Fund Capital growth.
- ---------------------------------- ---------------------------------------------------------------------------------------
Strong Common Stock Fund* Capital growth.
- ---------------------------------- ---------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Strong Small Cap Value Fund Capital growth.
- ------------------------------- ---------------
Strong Growth Fund Capital growth.
- ------------------------------- ---------------
- ------------------------------- ---------------
- ------------------------------- ---------------
Strong Discovery Fund Capital growth.
- ------------------------------- ---------------
Strong Small Cap Fund Capital growth.
- ------------------------------- ---------------
Strong Growth 20 Fund Capital growth.
- ------------------------------- ---------------
Strong International Stock Fund Capital growth.
- ------------------------------- ---------------
Strong Asia Pacific Fund Capital growth.
- ------------------------------- ---------------
</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 the 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.
STRONG FUNDS SUGGESTED MINIMUM HOLDING PERIODS
<TABLE>
<CAPTION>
<S> <C> <C>
UNDER 1 YEAR 1 TO 2 YEARS 4 TO 7 YEARS
- --------------------------- ------------------------------- ------------------------------
Money Market Fund Advantage Fund Government Securities Fund
Heritage Money Fund Municipal Advantage Fund Municipal Bond Fund
Municipal Money Market Fund Corporate Bond Fund
Step 1 Money Fund 2 TO 4 YEARS International Bond Fund
Short-Term Bond Fund High-Yield Municipal Bond Fund
Short-Term Municipal Bond Fund High-Yield Bond Fund
Short-Term Global Bond Fund Global High-Yield Bond Fund
Short-Term High Yield Bond Fund
Short-Term High Yield Municipal
Fund
<S> <C>
5 OR MORE YEARS
- -------------------------
Asset Allocation Fund
American Utilities Fund
Index 500 Fund
Total Return Fund
Opportunity Fund
Growth Fund
Common Stock Fund*
Discovery Fund
International Stock Fund
Asia Pacific Fund
Value Fund
Small Cap Fund
Growth and Income Fund
Equity Income Fund
Mid Cap Fund
Schafer Value Fund
Growth 20 Fund
Blue Chip 100 Fund
Small Cap Value Fund
Dow 30 Value Fund
Schafer Balanced Fund
Limited Resources Fund
</TABLE>
27
<PAGE>
* 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.
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.
28
<PAGE>
Other measures of volatility and relative performance may be used as
appropriate. However, all such measures will fluctuate and do not represent
future results.
DURATION. Duration is a calculation that seeks to measure the price
sensitivity of a bond or a bond fund to changes in interest rates. It measures
bond price sensitivity to interest rate changes by taking into account the time
value of cash flows generated over the bond's life. Future interest and
principal payments are discounted to reflect their present value and then are
multiplied by the number of years they will be received to produce a value that
is expressed in years. Since duration can also be computed for the Fund, you
can estimate the effect of interest rates on the Fund's share price. Simply
multiply the Fund's duration by an expected change in interest rates. For
example, the price of the Fund with a duration of two years would be expected
to fall approximately two percent if market interest rates rose by one
percentage point.
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, the competitive environment, consumer behavior,
industry trends, technological advances, macroeconomic trends, and the supply
and demand of various financial instruments. In addition, marketing materials
may cite the portfolio management's views or interpretations of such factors.
EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING
These common sense rules are followed by many successful investors. They make
sense for beginners, too. If you have a question on these principles, or would
like to discuss them with us, please contact us at 1-800-368-3863.
1. HAVE A PLAN - even a simple plan can help you take control of your
financial future. Review your plan once a year, or if your circumstances
change.
2. START INVESTING AS SOON AS POSSIBLE. Make time a valuable ally. Let it
put the power of compounding to work for you, while helping to reduce your
potential investment risk.
3. DIVERSIFY YOUR PORTFOLIO. By investing in different asset classes -
stocks, bonds, and cash - you help protect against poor performance in one type
of investment while including investments most likely to help you achieve your
important goals.
4. INVEST REGULARLY. Investing is a process, not a one-time event. By
investing regularly over the long term, you reduce the impact of short-term
market gyrations, and you attend to your long-term plan before you're tempted
to spend those assets on short-term needs.
29
<PAGE>
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.
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.
30
<PAGE>
SERVICE. The Advisor's goal is to provide a world class level of service. One
aspect of that service is an experienced, knowledgeable team that provides
ongoing support for plan sponsors, both at adoption or conversion and
throughout the life of a plan. The Advisor is committed to delivering accurate
and timely information, evidenced by straightforward, complete, and
understandable reports, participant account statements, and plan summaries.
The Advisor has designed both "high-tech" and "high-touch" systems, providing
an automated telephone system as well as personal contact. Participants can
access daily account information, conduct transactions, or have questions
answered in the way that is most comfortable for them.
STRONG FINANCIAL ADVISORS GROUP
The Strong Financial Advisors Group is dedicated to helping financial advisors
better serve their clients. Financial advisors receive regular updates on the
mutual funds managed by the Advisor, access to portfolio managers through
special conference calls, consolidated mailings of duplicate confirmation
statements, access to the Advisor's network of regional representatives, and
other specialized services. For more information on the Strong Financial
Advisors Group, call 1-800-368-1683.
STRONG CASH MANAGEMENT APPROACH
Many investors overlook the importance of managing the "cash" portion of their
portfolios. Often they leave large amounts of cash in low-yielding accounts
for extended periods of time. There is, however, a smarter way to think about
investing these assets. This approach - known as cash management - has long
been used by private banking institutions. Now, this approach is available to
a wider range of investors to provide investors potentially higher yields for
their cash savings. Our Guide to Effective Cash Management (described below)
is designed to help you get more from the "cash" portion of your portfolio.
FOUR STEPS TO MANAGING CASH MORE EFFECTIVELY
1. DIVIDE YOUR CASH INTO TWO GROUPS. The first step toward managing your
cash effectively is to think of it as two separate groups:
CURRENT CASH: The portion you generally put aside for regular transactions -
goals less than one year away - and to cover routine expenditures.
PORTFOLIO CASH: The portion you invest for extended periods - for goals
between one and two years away - to cover unforeseen emergencies, or as a
permanent, conservative position in your portfolio.
2. CONSIDER YOUR CASH INVESTMENT OPTIONS.
"CONVENIENCE" MONEY FUNDS. Many investors keep current cash and portfolio cash
in "convenience" money funds, which typically require low minimum initial
investments, offer an array of services (such as free check-writing), but are
relatively low-yielding. However, there are other options:
"HIGHER-YIELDING SPECIALIZED MONEY FUNDS" DESIGNED TO OFFER MORE INCOME
POTENTIAL THAN "CONVENIENCE" MONEY FUNDS. To pursue higher yields, they often
require larger initial investments and impose transaction charges. In
addition, investors in the top tax brackets can pursue higher after-tax yields
by investing in a municipal money fund.
"ULTRA-SHORT BOND FUNDS" - INVESTMENTS WITH AVERAGE EFFECTIVE MATURITIES OF
TYPICALLY ONE YEAR OR LESS - ARE DESIGNED TO PROVIDE HIGHER YIELDS THAN MONEY
FUNDS. To pursue higher yields, these funds may invest in lower quality bonds
and maintain slightly longer average effective maturities. Unlike money funds,
the share price of an ultra-short bond fund will vary.
3. ALLOCATE YOUR CASH BASED ON HOW YOU INTEND TO USE IT.
31
<PAGE>
The key to managing your cash effectively is to allocate it according to how
you intend to use it. Certainly, it's wise to keep your current cash in a fund
that allows you to draw on it without penalty. But you can supplement that
current cash position with potentially higher-yielding short-term investments
that enable you to earn more income on your portfolio cash.
4. CONSIDER MUNICIPAL INVESTING.
You may be able to further enhance the return potential of your cash by
investing in a municipal fund. Because these funds invest in municipal
securities, the income they earn is exempt from federal income tax. Even if
you're taxed at a lower rate, the difference in income may be dramatic when
taxes don't take a bite out of your earnings.
PORTFOLIO MANAGEMENT
The Fund's portfolio manager(s) works with a team of analysts, traders, and
administrative personnel. From time to time, marketing materials may discuss
various members of the team, including their education, investment experience,
and other credentials.
The Advisor believes that actively managing the Fund's portfolio and adjusting
the average portfolio maturity according to the Advisor's interest rate outlook
is the best way to achieve the Fund's objectives. This policy is based on a
fundamental belief that economic and financial conditions create favorable and
unfavorable investment periods (or seasons) and that these different seasons
require different investment approaches.
The Advisor's investment philosophy includes the following basic beliefs:
* Successful fixed-income management begins with a top-down, fundamental
analysis of the economy, interest rates, and the supply of and demand for
credit.
* Value can be added through active management of average maturity, yield
curve positioning, sector emphasis, and issue selection.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., 411 East Wisconsin Avenue, Milwaukee, Wisconsin
53202, are the independent accountants for the Fund, providing audit services
and assistance and consultation with respect to the preparation of filings with
the SEC.
LEGAL COUNSEL
Godfrey & Kahn, S.C., 780 North Water Street, Milwaukee, Wisconsin 53202, acts
as legal counsel for the Fund.
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. Statement of Changes in Net Assets.
5. Notes to Financial Statements.
6. Financial Highlights.
7. Report of Independent Accountants.
32
<PAGE>
APPENDIX
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.
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 ratings and may, on occasion, rely on unaudited financial information.
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.
AAA Obligation rated 'AAA' has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet is financial commitment on the
obligation is extremely strong.
AA 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 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 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.
33
<PAGE>
BB 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 the financial commitment on the
obligation.
B 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 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 Obligation rated 'CC' is currently highly vulnerable to nonpayment.
C Obligation rated 'C' 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 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 S&P 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.
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 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.
34
<PAGE>
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.
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 these 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
35
<PAGE>
Obligations which are currently in default.
DUFF & PHELPS, INC. LONG-TERM DEBT AND PREFERRED STOCK RATINGS
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 and greater in periods of economic stress.
A-
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 or company fortunes. 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:
36
<PAGE>
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.
B (LC-B) - Issues rated B show 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 obligations 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'
37
<PAGE>
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 obligations; 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' 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 of the taking of a similar action if payments on an obligation are
jeopardized.
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:
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: (i) leading
market positions in well-established industries, (ii) high rates of return on
funds employed, (iii) conservative capitalization structure with moderate
reliance on debt and ample asset protection, (iv) broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and (v)
well established access to a range of financial markets and assured sources of
alternate liquidity.
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.
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.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
FITCH IBCA, INC. ("FITCH") SHORT-TERM NATIONAL CREDIT RATINGS
A1
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.
A2
38
<PAGE>
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 change in business, economic, or
financial conditions.
A3
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.
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
. 40
<PAGE>
D-5 Issuer failed to meet scheduled principal and/or interest
payments.
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.
41
<PAGE>
STRONG MONEY MARKET FUND, INC.
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements (all included or incorporated by reference in
Parts A & B) (Audited)
Schedule of Investments in Securities
Statement of Operations
Statement of Assets and Liabilities
Statement of Changes in Net Assets
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
Incorporated by reference to the Annual Report to Shareholders of the Strong
Money Market Fund, Inc. dated October 31, 1997 pursuant to Rule 411 under the
Securities Act of 1933. (File Nos. 2-99439 and 811-4374)
(b) Exhibits
(1) Articles of Incorporation dated July 31, 1996(3)
(2) Bylaws dated October 20, 1995(2)
(3) Inapplicable
(4) Specimen Stock Certificate(2)
(5) Investment Advisory Agreement(1)
(6) Distribution Agreement(2)
(7) Inapplicable
(8) Custody Agreement(2)
(8.1) Amendment to Custody Agreement dated August 26, 1996(3)
(9) Shareholder Servicing Agent Agreement(2)
(10) Inapplicable
(11) Consent of Independent Accountants
(12) Inapplicable
(13) Inapplicable
(14.1) Prototype Defined Contribution Retirement Plan - No. 1(2)
(14.1.1) Prototype Defined Contribution Retirement Plan - No. 2(2)
(14.2) Individual Retirement Custodial Account(2)
(14.3) Section 403(b)(7) Retirement Plan(2)
(14.4) Simplified Employee Pension Plan(3)
(15) Inapplicable
(16) Computation of Performance Figures
(17) Financial Data Schedule
(18) Inapplicable
(19) Power of Attorney dated February 25, 1997(3)
(20) Letter of Representation
(21.1) Code of Ethics for Access Persons dated October 18,
1996(3)
(21.2) Code of Ethics for Non-Access Persons dated October 18,
1996(3)
__________________________
(1) Incorporated herein by reference to Post-Effective Amendment No. 13 to
the Registration Statement on Form N-1A of Registrant filed on or about April
24, 1995.
1
<PAGE>
(2) Incorporated herein by reference to Post-Effective Amendment No. 14 to
the Registration Statement on Form N-1A of Registrant filed on or about
February 27, 1996.
(3) Incorporated herein by reference to Post-Effective Amendment No. 15 to
the Registration Statement on Form N-1A of Registrant filed on or about
February 26, 1997.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant neither controls any person nor is under common control with
any other person.
Item 26. NUMBER OF HOLDERS OF SECURITIES
Number of Record Holders
TITLE OF CLASS AS OF JANUARY 31, 1998
Common Stock, $.0001 par value 124,706
Item 27. INDEMNIFICATION
Officers and directors are insured under a joint errors and omissions
insurance policy underwritten by American International Group and Great
American Insurance Company in the aggregate amount of $100,000,000, subject to
certain deductions. Pursuant to the authority of the Wisconsin Business
Corporation Law ("WBCL"), Article VII of Registrant's Bylaws provides as
follows:
ARTICLE VII. INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 7.01. MANDATORY INDEMNIFICATION. The Corporation shall
indemnify, to the full extent permitted by the WBCL, as in effect from time to
time, the persons described in Sections 180.0850 through 180.0859 (or any
successor provisions) of the WBCL or other provisions of the law of the State
of Wisconsin relating to indemnification of directors and officers, as in
effect from time to time. The indemnification afforded such persons by this
section shall not be exclusive of other rights to which they may be entitled as
a matter of law.
SECTION 7.02. PERMISSIVE SUPPLEMENTARY BENEFITS. The Corporation may,
but shall not be required to, supplement the right of indemnification under
Section 7.01 by (a) the purchase of insurance on behalf of any one or more of
such persons, whether or not the Corporation would be obligated to indemnify
such person under Section 7.01; (b) individual or group indemnification
agreements with any one or more of such persons; and (c) advances for related
expenses of such a person.
SECTION 7.03. AMENDMENT. This Article VII may be amended or repealed
only by a vote of the shareholders and not by a vote of the Board of Directors.
SECTION 7.04. INVESTMENT COMPANY ACT. In no event shall the Corporation
indemnify any person hereunder in contravention of any provision of the
Investment Company Act.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
The information contained under "About the Fund - Management" in the
Prospectus and under "Directors and Officers," "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 29. PRINCIPAL UNDERWRITERS
(a) Strong Funds Distributors, 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
2
<PAGE>
High-Yield Municipal Bond Fund, Inc.; Strong Income Funds, Inc.; Strong
Institutional Funds, Inc.; Strong International Income Funds, Inc.; Strong
International Stock Fund, Inc.; Strong Municipal Bond Fund, Inc.; Strong
Municipal Funds, Inc.; Strong Opportunity Fund, 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) The information contained under "About the Fund - Management" in the
Prospectus and under "Directors and Officers," "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.
(c) None
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are in the physical possession of Registrant's Vice President,
Thomas P. Lemke, at Registrant's corporate offices, 100 Heritage Reserve,
Menomonee Falls, Wisconsin 53051.
Item 31. MANAGEMENT SERVICES
All management-related service contracts entered into by Registrant are
discussed in Parts A and B of this Registration Statement.
Item 32. UNDERTAKINGS
The Registrant undertakes to furnish to each person to whom a prospectus
is delivered, upon request and without charge, a copy of the Registrant's
latest annual report to shareholders.
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 No. 16 to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment No. 16 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 February, 1998.
STRONG MONEY MARKET FUND, INC.
(Registrant)
By: /S/ THOMAS P. LEMKE
Thomas P. Lemke, Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 16 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
- --------------------- ------------------------------------ -----------------
Vice President (Principal Executive
/s/ Thomas P. Lemke Officer) February 26, 1998
- ---------------------
Thomas P. Lemke
/s/ Richard S. Strong Chairman of the Board and a Director February 26, 1998
- ---------------------
Richard S. Strong
Treasurer (Principal Financial and
/s/ John A. Flanagan Accounting Officer) February 26, 1998
- ---------------------
John A. Flanagan
Director February 26, 1998
- ---------------------
Willie D. Davis*
Director February 26, 1998
- ---------------------
William F. Vogt*
Director February 26, 1998
- ---------------------
Stanley Kritzik*
</TABLE>
* John S. Weitzer signs this document pursuant to powers of attorney filed
with Post-Effective Amendment No. 15 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.
(11) Consent of Independent Accountants EX-99.B11
(16) Computation of Performance Figures EX-99.B16
(17) Financial Data Schedule EX-27.CLASSA
(20) Letter of Representation EX-99.B20
</TABLE>
1
<PAGE>
Consent of Independent Accountants
To the Board of Directors of
Strong Money Market Fund, Inc.
We consent to the incorporation by reference in Post-Effective
Amendment No. 16 to the Registration Statement of Strong Money
Market Fund, Inc. on Form N-1A of our report dated December 9,
1997 on our audit of the financial statements and financial
highlights of Strong Money Market Fund, Inc., which report is
included in the Annual Report to Shareholders for the year ended
October 31, 1997, which is also incorporated by reference in the
Registration Statement. We also consent to the reference to our
Firm under the caption "Independent Accountants" in the
Statement of Additional Information and in the "Financial
Highlights" section of the Prospectus.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
February 27, 1998
1
<PAGE>
2
<PAGE>
Strong Money Market Fund, Inc.
EXHIBIT 16
SCHEDULE OF COMPUTATION OF
PERFORMANCE QUOTATIONS
I. CURRENT YIELD: 7 days ended October 31, 1997
A. FORMULA
Current Yield = Base Period Return x (365/7)
B. CALCULATION
5.25% = .0010068 x (365/7)
II. EFFECTIVE YIELD: 7 days ended October 31, 1997
A. FORMULA
Effective Yield = [(Base Period Return + 1)(365/7)] - 1
B. CALCULATION
5.39% = [(.0010068 + 1)(365/7)] - 1
1
<PAGE>
[ARTICLE] 6
[CIK] 0000773918
[NAME] Strong Money Market Fund
[MULTIPLIER]
<TABLE>
<S> <C>
[PERIOD-TYPE] year
[FISCAL-YEAR-END] Oct-31-1997
[PERIOD-START] Nov-1-1996
[PERIOD-END] Oct-31-1997
[INVESTMENTS-AT-COST] 1845355903
[INVESTMENTS-AT-VALUE] 1845355903
[RECEIVABLES] 6790971
[ASSETS-OTHER] 70143
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 1852217017
[PAYABLE-FOR-SECURITIES] 4975674
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 8863345
[TOTAL-LIABILITIES] 13839019
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 1838377998
[SHARES-COMMON-STOCK] 1838377998
[SHARES-COMMON-PRIOR] 1949261680
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 1838377998
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 108374830
[OTHER-INCOME] 0
[EXPENSES-NET] -9117083
[NET-INVESTMENT-INCOME] 99257747
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 84813994
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] "(99,257,747)"
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 3261358218
[NUMBER-OF-SHARES-REDEEMED] "(3,466,442,965)"
[SHARES-REINVESTED] 94201065
[NET-CHANGE-IN-ASSETS] -110883682
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 9599484
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 16557704
[AVERAGE-NET-ASSETS] 1910740877
1
<PAGE>
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] 0.05
[PER-SHARE-GAIN-APPREC] (0.01)
[PER-SHARE-DIVIDEND] (0.05)
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] .5/.9
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
2
<PAGE>
GODFREY & KAHN, S.C.
ATTORNEYS AT LAW
780 NORTH WATER STREET
MILWAUKEE, WISCONSIN 53202
PHONE: (414) 273-3500 FAX: (414) 273-5198
February 24, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: STRONG MONEY MARKET FUND, INC.
Gentlemen:
We represent Strong Money Market Fund, Inc. (the "Company"), in
connection with its filing of Post-Effective Amendment No. 16 (the
"Post-Effective Amendment") to the Company's Registration Statement
(Registration Nos. 2-99439; 811-4374) 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).
Very truly yours,
GODFREY & KAHN, S.C
/s/ Pamela M. Krill
Pamela M. Krill
MW1-111231-1
1
<PAGE>
