<PAGE> 1
As filed with the Securities and Exchange Commission
on December 3, 1998
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1933 Act File No. 2-99752
1940 Act File No. 811-4384
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x
-----
Pre-Effective Amendment No.
-----
Post-Effective Amendment No. 16 x
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and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 x
Amendment No. 16
------------------------ -----
STRONG SCHAFER VALUE FUND, INC.
(Exact Name of Registrant as Specified in Charter)
101 Carnegie Center
Princeton, New Jersey 08540
(Address of Principal Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (609) 514-1300
David K. Schafer
Strong Schafer Value Fund, Inc.
101 Carnegie Center
Princeton, New Jersey 08540
(Name and Address of Agent for Service)
Copy to:
Andrew H. Shaw, Esq.
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b)
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on (date) pursuant to paragraph (b)
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X 60 days after filing pursuant to paragraph (a)
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on ________________ pursuant to paragraph (a) of rule 485
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-------------------------
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<PAGE> 2
[Outside Front Cover]
PRELIMINARY, SUBJECT TO COMPLETION
DATED DECEMBER 3, 1998
The information in this prospectus is not complete and may be changed. This
prospectus is not an offer to sell these securities and the fund is not
soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
PROSPECTUS
STRONG SCHAFER VALUE FUND, INC.
[cover design]
The Strong Schafer Value Fund is a no-load, open-end, diversified mutual fund,
the primary objective of which is long-term capital appreciation principally
through investment in common stocks and other equity securities. Current income
is a secondary objective.
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION (SEC) DOES NOT
GUARANTEE THAT THE INFORMATION IN THIS PROSPECTUS IS ACCURATE OR COMPLETE AND
IT HAS NOT APPROVED OR DISAPPROVED OF THESE SECURITIES. ANYONE WHO INFORMS YOU
OTHERWISE IS COMMITTING A CRIMINAL OFFENSE.
February 1, 1999
<PAGE> 3
[Inside Front Cover]
<TABLE>
<CAPTION>
CONTENTS
YOUR INVESTMENT
KEY INFORMATION
<S> <C>
What are the fund's goals? 3
What are the fund's principal investment strategies? 3
What are the main risks of investing in the fund? 3
What are the fund's fees and expenses? 5
Who are the fund's investment advisor and portfolio manager? 5
What is the fund's relationship with Strong? 6
OTHER IMPORTANT INFORMATION YOU SHOULD KNOW 6
Financial Highlights 6
Additional Information on Investment Policies and Risks 7
YOUR ACCOUNT
Share Price 8
Buying Shares 9
Selling Shares 11
Additional Policies 12
Distributions 13
Taxes 13
Services For Investors 14
Reserved Rights Inside Back Cover
For More Information Outside Back Cover
</TABLE>
In this prospectus, "we" refers to Strong Schafer Capital Management, L.L.C.,
the investment advisor for the Strong Schafer Value Fund, Inc.
- 2 -
<PAGE> 4
YOUR INVESTMENT
KEY INFORMATION
WHAT ARE THE FUND'S GOALS?
The Strong Schafer Value Fund seeks long-term capital growth. Current income
is a secondary objective.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
The Strong Schafer Value Fund invests primarily in common stocks of medium and
large-size companies. The portfolio manager selects stocks of companies that
have above-average growth potential, but also are inexpensive relative to market
averages. The fund generally invests substantially all of its assets in stocks.
When adding a security to the portfolio, the fund generally invests an amount
roughly equal to the average value of its other equity positions, thereby
avoiding the overweighting of any individual security being purchased. The
portfolio manager may sell portfolio stocks when they no longer are attractive
based on their growth potential or price.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
General stock risks: The fund's major risks are those of investing in the
stock market. That means the fund may experience sudden, unpredictable
declines in value, as well as periods of poor performance. Because stock
values go up and down, the value of the fund's shares may go up and down.
When you sell your investment, you may receive more or less money than you
originally invested.
Medium-size companies: The fund may invest in the stocks of medium-size
companies. Medium-size companies often have narrower markets and more
limited managerial and financial resources than larger, more established
companies. As a result, their performance can be more volatile and they face
greater risk of business reversals which could increase the volatility of the
fund's portfolio.
Foreign securities: The fund may invest to a limited degree in foreign
securities. Foreign investments involve additional risks, which include
currency fluctuations, political and economic instability, differences in
financial reporting standards, and less stringent regulation of securities
markets.
The fund is appropriate for investors who are comfortable with the risks
described here and whose financial goals are five years or more in the
future. The fund is not appropriate for investors concerned primarily with
principal stability.
The return information below illustrates how the fund's performance can vary
and gives some indication of the risks of investing in the fund. Please keep
in mind that the fund's past performance does not represent how it will
perform in the future. The information assumes that you reinvested all
dividends and distributions.
- 3 -
<PAGE> 5
CALENDAR YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
- ---------------------------------------
CALENDAR YEAR TOTAL RETURNS
- ---------------------------------------
(as of 12/31 of each year)
<S> <C>
1989 30.1%
1990 -10.1%
1991 40.9%
1992 18.7%
1993 24.0%
1994 -4.3%
1995 34.2%
1996 23.2%
1997 29.3%
1998(1) -9.9%
</TABLE>
BEST AND WORST QUARTERLY PERFORMANCE
During the periods shown in the above chart, the highest return for a quarter
was 22.51% (quarter ended March 31, 1991) and the lowest return for a quarter
was -24.54% (quarter ended September 30, 1998).
AVERAGE ANNUAL TOTAL RETURNS
As of 12-31-98(1)
<TABLE>
<CAPTION>
Fund/Index 1-year 5-year 10-year Since Inception (10-22-85)
<S> <C> <C> <C> <C>
STRONG SCHAFER VALUE FUND -9.05% 14.07% 16.46% 14.63%
S&P 500 Index* 23.65% 22.97% 18.75% 18.31%
Russell 2000 Index** -6.62% 11.28% 12.68% 11.81%
</TABLE>
* The S&P 500 Index is the Standard and Poor's 500 Composite Stock Price
Index, a widely recognized, unmanaged index generally representative of
the market for the stocks of large-size U.S. companies.
** The Russell 2000 Index is an unmanaged index generally representative of
the broader U.S. stock market.
- --------
(1) Through 11/30/98. This performance information will be updated to
12/31/98 in the final prospectus.
- 4 -
<PAGE> 6
WHAT ARE THE FUND'S FEES AND EXPENSES?
This section describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (fees paid directly from your investment)
The fund is 100% no-load, so you pay no sales charges (loads) to buy or sell
shares.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) The
costs of operating the fund are deducted from the fund's assets, which means you
pay them indirectly. These costs are deducted before computing the daily share
price or making distributions. As a result, they don't appear on your account
statement, but instead reduce the total return you receive from your fund
investment. The expense information shown below is based on amounts incurred
during the fund's fiscal year ended September 30, 1998.
Annual Fund Operating Expenses (as a percent of average net assets)
Management fee 1.00%
Other expenses .24 %
------
TOTAL FUND EXPENSES 1.24%
Example: This example is intended to help you compare the cost of investing
in the fund with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the fund for the time periods indicated,
and then redeem all of your shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<C> <C> <C> <C>
$126 $393 $681 $1500
</TABLE>
WHO ARE THE FUND'S INVESTMENT ADVISOR AND PORTFOLIO MANAGER?
The investment advisor for the fund is Strong Schafer Capital Management, L.L.C.
(SSCM), 101 Carnegie Center, Princeton, New Jersey 08540, an investment advisor
registered under the Investment Advisers Act of 1940. SSCM is jointly owned by
Schafer Capital Management, Inc. (Schafer) and Strong Capital Management, Inc.
(Strong). On October 16, 1998, SSCM succeeded Schafer as investment advisor for
the fund, a position previously held by Schafer since the fund's inception in
1985. Schafer is the managing owner of SSCM, and thus Schafer indirectly
continues in its role as the fund's investment advisor.
Although SSCM has not previously served as investment advisor to any
registered investment company or other accounts, Schafer, together with its
predecessor, has served as investment advisor to other equity accounts since
1981 and currently has approximately $1.7 billion under management. An
affiliate of Schafer, Schafer Cullen Capital Management, Inc., serves as
investment advisor to various equity accounts and provides certain services
to Schafer, and Strong provides services to Schafer in connection with
effecting the fund's securities transactions.
SSCM is responsible for selecting the securities to be purchased and sold
for, and administering the affairs of, the Fund. SSCM also furnishes office
space, office facilities, equipment, personnel (other than the services of
certain directors of the fund who are not considered "interested" persons),
and clerical, bookkeeping and administrative services for the fund to the
extent not provided by Strong as the fund's accounting services agent. For
its services, SSCM receives a fee, payable monthly, at an annual rate equal
to 1% of the average daily net assets of the fund (which fee rate is
identical to that previously payable to Schafer). For the fiscal year ended
September 30, 1998, the advisory fee paid by the Fund to Schafer amounted to
$17,407,737.
- 5 -
<PAGE> 7
David K. Schafer has been the portfolio manager of the fund since its
inception in October 1985. Mr. Schafer has been in the investment management
business for more than thirty years. For more than the past five years, Mr.
Schafer has been the President and the sole shareholder of Schafer.
WHAT IS THE FUND'S RELATIONSHIP WITH STRONG?
Since 1996, Strong has served as the fund's registrar, dividend-paying agent
and transfer agent and has provided fund accounting services to the fund, and
Strong Funds Distributors, Inc., an indirect subsidiary of Strong, has acted
as the fund's distributor. Strong also markets the fund as part of the
Strong Funds.
Strong is also a co-owner, together with Schafer, of SSCM. Commencing on
January 10, 2001, and for eighteen months thereafter, Strong has an option to
purchase Schafer's ownership interest in SSCM at a negotiated formula price.
This option is subject to certain conditions, including procurement of
regulatory approvals and other conditions that may be imposed under
applicable law (including any necessary approval of the shareholders of the
fund).
(Side Box)
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YEAR 2000 ISSUES
Your investment could be adversely affected if the computer systems used by
the fund and its service providers, including Strong, do not properly process
and calculate date-related information before, on, and after January 1, 2000.
Year 2000-related computer problems could have a negative impact on your
investment, but we and Strong are working to avoid these problems and to
obtain assurances from our service providers that they are taking similar
steps.
- -------------------------------------------------------------------------------
OTHER IMPORTANT INFORMATION YOU SHOULD KNOW
FINANCIAL HIGHLIGHTS
The following table describes the fund's financial performance for the past
five years. Certain information reflects financial results for a single fund
share. "Total return" shows how much your investment in the fund would have
increased (or decreased) during each period, assuming you had reinvested all
dividends and distributions. This information has been audited by
PricewaterhouseCoopers LLP, independent accountants. The unqualified report
of PricewaterhouseCoopers LLP, together with the fund's financial statements,
is included in the fund's annual report to shareholders, which is available
without charge.
- 6 -
<PAGE> 8
<TABLE>
<CAPTION>
For the year ended September 30,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............ $ 67.29 $ 47.28 $ 43.46 $ 36.54 $ 36.21
Investment Operations:
Net investment income........................ .40 .39 .47 .36 .26
Net gain (loss) on securities (both
realized and unrealized) (15.81) 21.48 5.00 8.53 1.34
Total from Investment Operations: (15.41) 21.87 5.47 8.89 1.60
Less:
Dividends from net investment income......... (.59) (.43) (.38) (.33) (.19)
Distributions from net realized gains........ (1.44) (1.43) (1.27) (1.64) (1.08)
Total dividends and distributions.......... (2.03) (1.86) (1.65) (1.97) (1.27)
----- ----- ----- ----- -----
Net Asset Value, End of Period.................. $49.85 $ 67.29 $ 47.28 $ 43.46 $ 36.54
===== ===== ===== ===== =====
Total Return.................................... -23.52% 47.46% 12.99% 26.01% 4.42%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands)..... $1,427,732 $1,317,519 $ 389,382 $163,269 $68,399
Ratio of expenses to average net assets...... 1.24% 1.22% 1.27% 1.28% 1.48%
Ratio of net investment income to average
net assets................................ 0.66% 0.85% 1.21% 1.18% .99%
Portfolio turnover rate...................... 39.05% 22.54% 17.84% 33.19% 28.45%
</TABLE>
ADDITIONAL INFORMATION ON INVESTMENT POLICIES AND RISKS
The fund invests in securities which we believe offer the possibility of
increase in value, for the most part common stocks of established companies
having a strong financial position and a low stock market valuation at the time
of purchase (as measured by price/earnings ratios as compared with average
price/earnings ratios of major market indices such as the S&P 500 Index) in
relation to investment value (as measured by prospective earnings and dividend
growth rates as compared with market averages of such rates). We then monitor
investments for price movement and earnings developments. Once a security is
purchased, we will generally hold it in the fund's portfolio until it no longer
meets the fund's financial or valuation criteria.
Although there may be some short-term portfolio turnover, we generally
purchase securities which we believe will appreciate in value over the long
term. However, securities may be sold without regard to the time they have
been held when, in our opinion, investment considerations warrant such action.
The fund does not concentrate its investments in any particular industry or
group of industries, but diversifies its holdings among as many different
companies and industries as seems appropriate in the light of conditions
prevailing at any given time.
Other than as considered appropriate for cash reserves, the fund will
generally maintain a fully invested position in common stocks of
publicly-held companies, primarily in stocks of companies listed on a
national securities exchange and other publicly traded equity securities
(common stocks or securities convertible into common stocks). Investments
may also be made in debt securities which are convertible into equity
securities and preferred stocks which are convertible into common stock and
in warrants or other rights to purchase common stock, which in each cash are
considered equity securities by the Advisor. The Advisor generally does not
engage in market timing by shifting the portfolio or a significant portion
thereof in or out of the market in anticipation of market fluctuations.
Although the fund's portfolio will normally be fully invested in equity
securities as described above, a portion of its assets may be held from time
to time in cash or cash equivalents when we are unable to identify attractive
equity investments.
- 7 -
<PAGE> 9
The fund invests primarily in the securities of U.S. issuers, although it may
also invest up to 20% of its assets in securities of foreign issuers, or
depository receipts for such securities, which are traded in a U.S. market or
are available through a U.S. broker or dealer (regardless of whether traded in
U.S. dollars) and which meet the criteria for investment selection set forth
above. As a result, the fund may be subject to additional investment risks that
are different in some respects from those experienced by a fund which invests
only in securities of U.S. domestic issuers. Such risks include future political
and economic developments, the imposition of foreign withholding taxes on
dividend and interest income payable on the securities, the possible
establishment of exchange controls, the possible seizure or nationalization of
foreign investments, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
securities. With respect to the securities of foreign issuers which are
denominated in foreign currencies, such risks also include currency risk.
Generally, the fund will not purchase securities which it believes, at the time
of purchase, will be subject to exchange controls; however, there can be no
assurance that such laws may not become applicable to certain of the fund's
investments. In addition, there may be less publicly available information about
a foreign issuer than about a domestic issuer, and foreign issuers may not be
subject to the same accounting, auditing, financial record keeping and
shareholder reporting standards and requirements as domestic issuers.
There are market risks inherent in any investment, and there is no assurance
that the primary investment objective of the fund will be realized or that any
income will be earned. Different types of equity securities tend to shift in and
out of favor depending on market and economic conditions, and the fund's
performance may sometimes be lower or higher than that of other types of equity
funds (such as those focusing more exclusively on growth in earnings). Moreover,
the application of the fund's investment policies is basically dependent upon
our judgment. You should realize that there are risks in any policy dependent
upon such judgment and that we do not make any representation that the
objectives of the fund will be achieved or that there may not be substantial
losses in any particular investment. At any time, the value of the fund's shares
may be more or less than your cost of shares.
The fund's secondary objective of current income is not a fundamental policy of
the fund and may be changed by a vote of a majority of the Board of Directors
without a vote of the shareholders.
YOUR ACCOUNT
All of the Strong Funds are 100% no load. This means that you may purchase,
redeem, or exchange shares directly at their net asset value without paying a
sales charge.
SHARE PRICE
Your transaction price for buying, selling, or exchanging shares is the net
asset value per share (NAV). NAV is generally calculated as of the close of
trading on the New York Stock Exchange (usually 4:00 p.m. Eastern Time) every
day the Exchange is open. If the Exchange closes at any other time, or if an
emergency exists, NAV may be is calculated at a different time. Your share price
will be the next NAV calculated after we accept your order.
NAV is based on the market value of the securities in the fund's portfolio. If
market prices are not available, NAV is based on a security's fair value as
determined in good faith by the Board of Directors of the fund.
FOREIGN SECURITIES
Some of the fund's portfolio securities may be listed on foreign exchanges that
trade on days when the fund does not calculate NAV. As a result, the fund's NAV
may change on days when you will not be able to purchase or redeem shares. In
addition, a foreign exchange may not value its listed securities at the same
time that the fund calculates NAV. Events affecting the values of portfolio
securities that occur between the time a foreign exchange assigns a price to the
portfolio securities and the time when the fund calculates NAV generally will
not be reflected in the fund's NAV. However, these events may be reflected in
the fund's NAV when the fund, under the supervision of the Board of Directors of
the fund, determines that they would have a material effect on the fund's NAV.
- 8 -
<PAGE> 10
(Side Box)
- -------------------------------------------------------------------------------
Share price or NAV is determined by dividing net assets (the value of the
fund's investments, cash, and other assets minus its liabilities) by the
number of shares outstanding.
- -------------------------------------------------------------------------------
BUYING SHARES
INVESTMENT MINIMUMS
When buying shares, you must meet the following minimum investment requirements.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Initial Investment Additional Investment
Minimum Minimum
- -----------------------------------------------------------------------------------
<S> <C> <C>
Regular accounts $ 2,500 $50
- -----------------------------------------------------------------------------------
Education IRAs $ 500 $50
- -----------------------------------------------------------------------------------
Other IRAs and $ 250 $50
UGMA/UTMA Accounts
- -----------------------------------------------------------------------------------
SIMPLE Plan, SEP-IRA, $ 250 $50
Keogh, Profit Sharing, Money
Purchase Pension, or 403(b)(7)
Account
- -----------------------------------------------------------------------------------
</TABLE>
- - If you use an Automatic Investment Plan, the initial investment minimum
to open an account is waived and the additional investment minimum is
$50.
- - You cannot use an Automatic Investment Plan with an Education IRA.
- - If you open a qualified retirement plan account where Strong or one of
its alliance partners provides administrative services, there is no
initial investment minimum.
BUYING INSTRUCTIONS
You can buy shares in several ways.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BY MAIL You can open or add to an account by mail with a
[icon] check or money order made payable to Strong Funds.
Send it to the address listed on the back of this
prospectus, along with your account application (for
a new account) or an Additional Investment Form
provided at the bottom of your account statement (for
an existing account).
- -------------------------------------------------------------------------------
-9-
<PAGE> 11
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------
BY TELEPHONE Telephone Exchange. Sign up for telephone exchange
[icon] privileges when you open your account. To add this
option to an existing account, call 1-800-368-3863
for a Shareholder Account Options Form. Once you
establish telephone exchange privileges, you can call
to open a new account or add to an existing account
by exchanging assets from another identically
registered Strong Funds account.
Strong Direct(R). You can also use Strong Direct(R)
automated telephone response system to exchange
assets between accounts. Just call 1-800-368-7550.
Telephone Purchase. You can make additional
investments to your existing account directly from
your bank account. If you didn't establish this
option when you opened your account, call us at
1-800-368-3863 for a Shareholder Account Options Form.
- ---------------------------------------------------------------------------------
BY COMPUTER You can use Strong netDirect(R) at Strong's Web site,
[icon] www.strongfunds.com, to add to your investment from
your bank account or to exchange shares between
Strong Funds. See "Services for Investors" for more
information.
- ---------------------------------------------------------------------------------
IN PERSON You can visit Strong's Investor Center in Menomonee
[icon] Falls, Wisconsin, near Milwaukee. Call
1-800-368-3863 for hours and directions. The
Investor Center only accepts checks or money orders
payable to Strong Funds. It does not accept cash or
third-party checks.
- ---------------------------------------------------------------------------------
BY WIRE Call 1-800-368-3863 for instructions before wiring
[icon] funds either to open or add to an account. This
helps to ensure that your account will credited
promptly and correctly.
- ---------------------------------------------------------------------------------
AUTOMATICALLY See "Services for Investors" for detailed information
[icon] on all of Strong's automatic investment services.
You can sign up for these plans when you open your
account or call 1-800-368-3863 for instructions on
how to add them.
- ---------------------------------------------------------------------------------
THROUGH A You may purchase shares through a broker-dealer or
BROKER-DEALER other intermediary who may charge you a fee.
[icon]
- ---------------------------------------------------------------------------------
</TABLE>
PLEASE REMEMBER...
- - Make checks or money orders payable to Strong Funds.
- - Strong cannot accept cash, third-party checks (checks payable to you
written by another party), or checks drawn on banks outside the U.S.
- - You will be charged $20 for every check, money order, wire, or
Electronic Funds Transfer returned unpaid.
(Side Box)
- ------------------
1-800-368-3863
24 HOURS A DAY,
SEVEN DAYS A WEEK
- ------------------
-10-
<PAGE> 12
SELLING SHARES
You can access the money in your account at any time by selling (also called
redeeming) some or all of your shares by one of the methods below. After
your redemption request is accepted, Strong will normally send you the
proceeds on the next business day.
SELLING INSTRUCTIONS
You can sell shares in several ways.
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------
BY MAIL With a letter of instruction. It should specify your
[icon] account number, the dollar amount or number of shares
you wish to redeem, the names and signatures of the
owners (or other authorized persons), and your
mailing address. Then, mail to the address listed on
the back of this prospectus.
- ---------------------------------------------------------------------------------
BY TELEPHONE Sign up for telephone redemption privileges when you
[icon] open your account or add it later by calling
1-800-368-3863 to request a Shareholder Account
Options Form. With this option, you may sell shares
by phone and receive the proceeds in one of three
ways:
(1) Strong can mail a check to your account's
address. Checks will not be forwarded by the
Postal Service, so please notify us if your
address has changed.
(2) Strong can transmit the proceeds by Electronic
Funds Transfer to a properly pre-authorized bank
account. The proceeds will usually arrive at
your bank two banking days after Strong
processes your redemption.
(3) For a $10 fee, Strong can transmit the proceeds
by wire to a pre-authorized bank account. The
proceeds will usually arrive at your bank the
first banking day after Strong processes your
redemption.
You can also redeem shares through Strong Direct(R) at
1-800-368-7550.
- --------------------------------------------------------------------------------
BY COMPUTER You can use Strong netDirect(R) at Strong's Web site,
[icon] www.strongfunds.com, to redeem shares. See "Services
for Investors" for more information.
- --------------------------------------------------------------------------------
IN PERSON You can visit Strong's Investor Center in Menomonee
(icon) Falls, Wisconsin, near Milwaukee. Call 1-800-368-3863
for hours and directions.
- --------------------------------------------------------------------------------
AUTOMATICALLY You can set up automatic withdrawals from your
[icon] account at regular intervals. See "Services for
Investors" for detailed information on all of
Strong's automatic investment services.
- --------------------------------------------------------------------------------
THROUGH A You may sell shares through a broker-dealer or other
BROKER-DEALER intermediary who may charge you a fee.
[icon]
- --------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE> 13
PLEASE REMEMBER...
- - If you recently purchased shares, a redemption request relating to
those shares will not be honored until 10 days after Strong receives
the purchase check or electronic transaction.
- - Some transactions and requests require a signature guarantee.
- - If you are selling shares you hold in certificate form, you must submit
the certificates with your redemption request. Each registered owner
must sign the certificates and all signatures must be guaranteed.
- - With an IRA (or other retirement account), you will be charged (i) a
$10 annual maintenance fee for each account of up to a maximum of $30
and (ii) a $10 fee for transferring assets to another custodian or for
closing an account.
- - If you sell shares out of a non-IRA retirement account and you are
eligible to roll the proceeds into another retirement plan, Strong will
withhold for federal income tax purposes a portion of the sale proceeds
unless you transfer all of it to an eligible retirement plan.
- - Further documentation may be required from shareholders which are
corporations, executors, administrators, trustees, guardians, agents or
attorneys-in-fact.
(Side Box)
- --------------------------------------------------------
There may be special distribution requirements
that apply to retirement accounts. For instructions on
- - Roth and traditional IRA accounts, call
1-800-368-3863, and
- - SIMPLE Plan, 403(b)(7), Keogh, SEP-IRA,
Pension or Profit Sharing Accounts, call
1-800-368-2882.
- --------------------------------------------------------
(Side Box)
- --------------------------------------------------------
SIGNATURE GUARANTEES help ensure that major
transactions or changes to your account are in fact
authorized by you. For example, Strong requires a
signature guarantee on written redemption requests for
more than $50,000. You can obtain a signature
guarantee for a nominal fee from most banks,
brokerage firms, and other financial institutions. A
notary public stamp or seal cannot be substituted for a
signature guarantee.
- --------------------------------------------------------
ADDITIONAL POLICIES
TELEPHONE TRANSACTIONS
Once you place a telephone transaction request, it cannot be canceled or
modified. Strong uses reasonable procedures to confirm that telephone
transaction requests are genuine. Strong may be responsible if it does not
follow these procedures. You are responsible for losses resulting from
fraudulent or unauthorized instructions received over the telephone, provided
Strong reasonably believes the instructions were genuine. During times of
unusual market activity, Strong's phones may be busy and you may experience a
delay in placing a telephone request. During these times, consider trying
Strong Direct(R),
-12-
<PAGE> 14
Strong's 24-hour automated telephone system, by calling 1-800-368-7550, or
Strong netDirect(R), Strong's on-line transaction center, by visiting
www.strongfunds.com. Please remember that you must have telephone redemption as
an option on your account to redeem shares through Strong Direct(R) or Strong
netDirect(R).
INVESTING THROUGH A THIRD PARTY
If you invest through a third party (rather than directly with Strong Funds),
the policies and fees may be different than described in this prospectus.
Banks, brokers, 401(k) plans, financial advisors, and financial supermarkets
may charge transaction fees and may set different minimum investments or
limitations on buying or selling shares. Consult a representative of your
plan or financial institution if you are not sure.
DISTRIBUTIONS
DISTRIBUTION POLICY
The fund generally pays you dividends from net investment income and
distributes any net capital gains that it realizes annually.
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Your dividends and capital gain distributions will be automatically
reinvested in additional shares of the fund, unless you choose otherwise.
Your other options are to receive checks for these payments, have them
automatically invested in another Strong Fund, or have them deposited into
your bank account.
TAXES
TAXABLE DISTRIBUTIONS
Any distributions you receive from the fund's net income and gains,
exclusive of net capital gains (also called "net investment income"), are
taxable to you as ordinary dividend income at your income tax rate and will be
eligible for the corporate dividends received deduction only to the extent paid
out of the fund's qualifying dividend income. Distributions you receive from the
fund's net long-term capital gains in excess of its net short-term capital
losses (also called "net capital gains") are generally taxable to you at the
long-term capital gains rate. This is generally true no matter how long you have
owned your shares and whether you reinvest your distributions or take them in
cash. You may also have to pay taxes when you exchange or sell shares if the
value of your shares has increased above their cost basis since you bought them.
(Side Box)
- ---------------------------
Generally, if your
investment is in a
traditional IRA or other
tax-deferred account,
your dividends and
distributions will not be
taxed at the time they
are paid, but instead at
the time you withdraw
them from your account.
- ---------------------------
RETURN OF CAPITAL
If the fund's distributions exceed its net investment income and net capital
gain in any year, as a result of currency-related losses or otherwise, all or a
portion of those distributions may be treated as a return of capital to
shareholders for tax purposes.
- 13 -
<PAGE> 15
YEAR-END STATEMENT
To assist you in tax preparation, after the end of each calendar year, you
will receive a statement of the fund's ordinary dividends and net capital
gain distributions (Form 1099).
BACKUP WITHHOLDING
By law, we must withhold your distributions and proceeds at the 31% "backup
withholding" rate if you have not provided us with complete and correct taxpayer
information such as your Social Security Number (SSN) or Tax Identification
Number (TIN) and you are not exempt from backup withholding.
(Side Box)
- ----------------------------------
Unless your investment is in a
tax-deferred retirement account
such as an IRA, you may want to
avoid:
- - Investing a large amount
in the fund close to the
end of the year. If the
fund makes a capital gains
distribution, you may
receive some of your
investment back as a
taxable distribution.
- - Selling shares of a
mutual fund at a loss and
then investing in the
same fund within 30 days
before or after the sale.
This is called a wash
sale and you will not be
allowed to claim a tax
loss on the transaction.
- ----------------------------------
(Side Box)
- ----------------------------------
Cost Basis is the amount that
you paid for the shares. When
you sell shares, you subtract
the cost basis from the sale
proceeds to determine whether
you realized an investment gain
or loss. For example, if you
bought a share of a fund at $10
and you sold it two years later
at $11, your cost basis on the
share is $10 and your gain is
$1. Remember also that your
cost basis on shares acquired
through reinvestment of
dividends or distributions is
the amount reinvested.
- ----------------------------------
Because everyone's tax situation is unique, you should consult your tax
professional for assistance.
SERVICE FOR INVESTORS
Strong provides you with a variety of services to help you manage your
investment. For more details, call 1-800-368-3863, 24 hours a day, seven days a
week. These services include:
- 14 -
<PAGE> 16
STRONG DIRECT(R) AUTOMATED TELEPHONE SYSTEM
Strong's 24-hour automated response system enables you to use a touch-tone phone
to access current share prices (1-800-368-3550), to access fund and account
information (1-800-368-5550), and to perform transactions (1-800-368-7550).
Passwords protect your account information.
STRONG ON-LINE
Visit Strong on-line to access the latest performance information, daily prices,
and portfolio manager commentaries. Our address is www.strongfunds.com.
STRONG NETDIRECT(R)
If you are a shareholder, you may use netDirect(R) to access your account
information 24 hours a day from your personal computer. Strong netDirect(R)
allows you to view account history, account balances, and recent dividend
activity, as well as to make purchases, exchanges or redemptions among your
existing accounts if you have elected these services. Encryption technology and
passwords help to protect your account information. You may register to use
netDirect(R) at www.strongfunds.com.
STRONG EXCHANGE PRIVILEGE
You may exchange shares of a Strong Fund for shares of another Strong Fund,
either in writing, by telephone or through your personal computer, if the
accounts are identically registered (with the same name, address and taxpayer
identification number). Please ask Strong for the appropriate prospectus and
read it before investing in any of the Strong Funds. Remember, an exchange
is considered a sale and a purchase of fund shares for tax purposes and may
result in a capital gain or loss. Some Strong Funds that you may want to
exchange into may charge a redemption fee of 0.50% to 1.00% on the sale of
shares held for less than six months.
STRONG AUTOMATIC INVESTMENT SERVICES
You may invest automatically in several ways, some of which may be subject to
additional restrictions or conditions.
AUTOMATIC INVESTMENT PLAN (AIP)
This plan allows you to make regular, automatic investments from your
bank checking or savings account.
AUTOMATIC EXCHANGE PLAN
This plan allows you to make regular, automatic exchanges from one
eligible Strong Fund to another.
AUTOMATIC DIVIDEND REINVESTMENT
Your dividends and capital gains will be automatically reinvested in
additional shares of the Strong Fund that paid them, unless you choose
otherwise. Your other options are to receive checks for these
payments, have them automatically invested in another Strong Fund, or
have them deposited into your bank account.
NO-MINIMUM INVESTMENT PLAN
This plan allows you to invest without meeting the minimum initial
investment requirements if you invest monthly and you participate in
the AIP, Automatic Exchange Plan, or Payroll Direct Deposit Plan.
- 15 -
<PAGE> 17
PAYROLL DIRECT DEPOSIT PLAN
This plan allows you to send all or a portion of your paycheck, social
security check, military allotment, or annuity payment to the Strong
Funds of your choice.
SYSTEMATIC WITHDRAWAL PLAN
This plan allows you to redeem a fixed sum from your account on a
regular basis. Payments may be sent electronically to a bank account
or as a check to you or anyone you properly designate.
STRONG RETIREMENT PLAN SERVICES
Strong offers a wide variety of retirement plans for individuals and
institutions, including large and small businesses. For information on:
- - INDIVIDUAL RETIREMENT PLANS, including Traditional IRAs, Roth IRAs, and
SEP-IRAs (for one-person businesses), call 1-800-368-3863.
- - QUALIFIED RETIREMENT PLANS, including 401(k) plans, SIMPLEs, SEP-IRAs,
Keoghs, 403(b)(7), and pension and profit sharing plans, call
1-800-368-2882.
Some of these services may be subject to additional restrictions or
conditions. Call 1-800-368-3863 for more information.
- 16 -
<PAGE> 18
[Back Inside Cover]
RESERVED RIGHTS
We and Strong reserve the right to:
- - Refuse, change, discontinue, or temporarily suspend account services
for any reason, including purchase, exchange, or telephone and
netDirect(R) redemption privileges.
- - Reject any purchase request for any reason, including exchanges from
other Strong Funds. Generally, we do this if the purchase or exchange
is disruptive to the efficient management of a fund (due to the timing
of the investment or an investor's history of excessive trading).
- - Change the minimum or maximum investment amounts.
- - Delay sending out redemption proceeds for up to seven days (this
generally only applies to very large redemptions without notice,
excessive trading, or during unusual market conditions).
- - Suspend redemptions or postpone payments when the NYSE is closed for
any reason other than its usual weekend or holiday closings, when
trading is restricted by the SEC, or under any emergency circumstances.
- - Make a redemption-in-kind (a payment in portfolio securities rather
than cash) if the amount you are redeeming is in excess of the lesser
of (i) $250,000 or (ii) 1% of the fund's assets. Generally,
redemption-in-kind is used when large redemption requests may cause
harm to the Fund and its shareholders.
- - Close any account that does not meet minimum investment requirements.
We will give you notice and 60 days to begin an automatic investment
program or to increase your balance to the required minimum.
- - Reject any purchase or redemption request that does not contain all
required documentation.
- 17 -
<PAGE> 19
[Back Outside Cover]
FOR MORE INFORMATION
More information about the fund is available upon request at no charge,
including the following:
ANNUAL AND SEMI-ANNUAL SHAREHOLDER REPORTS
Shareholder reports contain additional information about the fund's
investments, including a listing of portfolio holdings and, in the annual
shareholder report, a letter from management discussing recent market
conditions, economic trends and investment strategies that significantly
affected your investment's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains details about investment policies and techniques of the fund
and certain other additional information. A current SAI is on file with the
SEC and is incorporated into this prospectus by reference. This means that
the SAI is legally considered a part of this prospectus even though it is not
physically contained within this prospectus.
TO REQUEST INFORMATION* OR TO ASK QUESTIONS:
BY TELEPHONE BY DEVICE FOR HEARING-IMPAIRED (TDD)
(414) 359-1400 or (800) 368-3863 (800) 999-2780
BY MAIL BY EXPRESS OR OVERNIGHT DELIVERY
Strong Funds Strong Funds
P.O. Box 2936 900 Heritage Reserve
Milwaukee, Wisconsin 53201-2936 Menomonee Falls, Wisconsin 53051
ON THE INTERNET
View online or download documents:
Strong Funds
www.strongfunds.com
BY E-MAIL
Send your request to [email protected]
To reduce the volume of mail you receive, only one copy of most financial
reports and prospectuses is mailed to your household. Call 1-800-368-3863 if
you wish to receive additional copies, free of charge.
This prospectus is not an offer to sell securities in any place where it
would be illegal to do so.
- --------------------------------------------------------------------------------
* You may also obtain information about the fund (including the SAI) by
visiting the SEC's Public Reference Room in Washington, D.C. or by
sending your request and a duplicating fee to the SEC's Public
Reference Section, Washington, D.C. 20549-6009. You may call 1-800
SEC-0330 for information on the operation of the Public Reference
Room. Reports and other information about the fund are also available
on the SEC's Internet site at http://www.sec.gov.
Strong Schafer Value Fund, Inc., SEC file number: 811-4384
- 18 -
<PAGE> 20
PRELIMINARY, SUBJECT TO COMPLETION
DATED DECEMBER 3, 1998
The information in this statement of additional information is not
complete and may be changed. This statement of additional information is not an
offer to sell these securities and the fund is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
STRONG SCHAFER VALUE FUND, INC.
-----------------------
STATEMENT OF ADDITIONAL INFORMATION
-----------------------
STRONG FUNDS
P. O. Box 2936
Milwaukee, Wisconsin 53201
Telephone: (414) 359-1400
Toll-Free: (800) 368-3863
e-mail: [email protected]
WebSite: http://www.strongfunds.com
February 1, 1999
This Statement of Additional Information ("SAI") is not a prospectus. You
may obtain a copy of the Prospectus dated February 1, 1999 (the "Prospectus") of
Strong Schafer Value Fund, Inc. (the "Fund") without charge by writing or
telephoning the Fund at the address and telephone number set forth above. This
SAI contains information in addition to and more detailed than that set forth in
the Prospectus. You should read this SAI together with the Prospectus and retain
it for future reference.
The Fund's financial statements for its fiscal year ended September 30,
1998 included in its 1998 annual report to shareholders are incorporated by
reference into this SAI. You may obtain a copy of this report without charge by
writing or telephoning the Fund at the address and telephone number set forth
above.
-1-
<PAGE> 21
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Fund History ....................................................... 3
Description of the Fund and its Investment Objective,
Policies and Risks ............................................... 3
Investment Restrictions ............................................ 3
Management of the Fund ............................................. 6
Control Persons and Principal Holders of Shares .................... 8
Investment Advisory and Other Services ............................. 8
Description of LLC Agreement .......................................10
Distributor ........................................................10
Brokerage ..........................................................11
Capital Stock ......................................................12
Determination of Net Asset Value ...................................12
Purchase and Redemption of Shares ..................................12
Additional Shareholder Information .................................12
Tax Status .........................................................14
Performance Data ...................................................17
General Information ................................................17
Portfolio Management................................................21
Shareholder Reports ................................................22
Custodian ..........................................................22
Transfer Agent .....................................................22
Independent Accountants ............................................22
Additional Information .............................................22
Financial Statements
</TABLE>
-2-
<PAGE> 22
FUND HISTORY
The Fund was incorporated under the laws of the State of Maryland on August
12, 1985 and commenced operations on October 22, 1985. On January 10, 1996, the
Board of Directors approved a change in the name of the Fund from Schafer Value
Fund, Inc. to Strong Schafer Value Fund, Inc. The Fund's address is 101 Carnegie
Center, Princeton, New Jersey 19540.
DESCRIPTION OF THE FUND AND ITS INVESTMENT OBJECTIVE, POLICIES AND RISKS
(SEE ALSO "WHAT ARE THE FUND'S GOALS?", "WHAT ARE THE FUND'S PRINCIPAL
INVESTMENT STRATEGIES?" AND "ADDITIONAL INFORMATION ON INVESTMENT POLICIES
AND RISKS" IN THE FUND'S PROSPECTUS AND "INVESTMENT RESTRICTIONS" BELOW)
GENERAL DESCRIPTION OF THE FUND
The Fund is an open-end, diversified management investment company as
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act"). An investment company combines the investments of its
shareholders and purchases various securities. Through ownership of shares in
the investment company, shareholders participate in the investment performance
of such securities. As an open-end investment company, the Fund has an
obligation to redeem the shares of any shareholder by paying such shareholder
the net asset value next computed after receipt of a request in proper form for
a redemption of such shares.
INVESTMENT OBJECTIVE
The primary investment objective of the Fund is long-term capital
appreciation, and portfolio securities are selected primarily with a view to
achievement of this objective. The Fund's primary objective is a fundamental
policy of the Fund and may not be changed without shareholder approval as
described below in "Investment Restrictions." Current income is a secondary
objective in the selection of investments. Such secondary objective is not a
fundamental policy of the Fund and may be changed by a vote of a majority of the
Board of Directors without a vote of the shareholders.
DIVERSIFICATION
It is anticipated that the Fund will diversify its investments among
various issuers in different industries. The Fund may, however, from time to
time, invest up to 25% of the value of its total assets in securities of issuers
all of which conduct their principal business activities in the same industry.
PORTFOLIO TURNOVER
The Fund expects to purchase and sell securities at such times as it deems
to be in the best interest of its shareholders. The Fund anticipates that its
annual portfolio turnover rate should not significantly exceed 50%. The Fund,
however, has not placed any limit on its rate of portfolio turnover, and
securities may be sold without regard to the time they have been held when, in
the opinion of the Fund's investment advisor, investment considerations warrant
such action.
CONVERTIBLE SECURITIES
Convertible securities are bonds, debentures, notes, preferred stocks, or
other securities that may be converted into or exchanged for a specified amount
of common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the holder
to receive interest normally paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures or is redeemed, converted
or exchanged. Convertible securities have unique investment characteristics in
that they generally (1) have higher yields than common stocks, but lower yields
that comparable non-convertible securities, (2) are less subject to fluctuation
in value than the underlying stock since they have fixed income characteristics,
and (3) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value. Generally,
the conversion value decreases as the convertible security approaches maturity.
To the extent the market price of the underlying common stock approaches or
exceeds the conversion price, the price of the convertible security will be
increasingly influenced by its conversion value.
FOREIGN SECURITIES
Investing in foreign securities involves a series of risks not present in
investing in U.S. securities. Many foreign securities are not registered with
the SEC, nor are the foreign issuers subject to SEC reporting requirements.
Accordingly, there may be less publicly available information concerning foreign
issuers of securities than is available concerning U.S. companies. Disclosure
and regulatory standards often are less stringent in many respects than in the
United States. There also may be a lower level of monitoring and regulation of
emerging markets and the activities of investors in such markets, and
enforcement of existing regulations may be limited. Foreign companies, and in
particular, companies in smaller and emerging capital markets are not generally
subject to uniform accounting, auditing and financial reporting standards, or to
other regulatory requirements comparable to those applicable to U.S. companies.
The Fund's net investment income and capital gains from its foreign investment
activities may be subject to non-U.S. withholding taxes.
The costs attributable to foreign investing that the Fund must bear
frequently are higher than those attributable to domestic investing; this is
particularly true with respect to emerging capital markets. For example, the
cost of maintaining custody of foreign securities exceeds custodian costs for
domestic securities, and transaction and settlement costs of foreign investing
are also frequently higher than those attributable to domestic investing. Costs
associated with the exchange of currencies also make foreign investing more
expensive than domestic investing. Investment income on certain foreign
securities in which the Fund may invest may be subject to foreign withholding or
other government taxes that could reduce the return of these securities. Tax
treaties between the U.S. and foreign countries, however, may reduce or
eliminate the amount of foreign tax to which the Fund would be subject.
Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have failed to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and are earning no investment
return. The inability of the Fund to make intended security purchases due to
settlement problems could cause the Fund to miss investment opportunities.
Inability to dispose of a portfolio security due to settlement problems could
result either in losses to the Fund due to subsequent declines in the value of
such portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.
MEDIUM-SIZE COMPANIES
The Fund may invest in medium-size companies. While medium-size companies
often have the potential for growth, investments in medium-size companies often
involve greater risks than investments in large, more established companies
because medium-size companies may lack the management experience, financial
resources, product diversification, and competitive strengths of large
companies. In addition, in certain instances the securities of medium-size
companies are traded only OTC or on a regional securities exchange, and the
frequency and volume of their trading may be substantially less than is typical
of larger companies. Therefore, the securities of medium-size companies may be
subject to greater and more abrupt price fluctuations. When making large sales,
the Fund may have to sell portfolio holdings at discounts from quoted prices or
may have to make a series of small sales over an extended period of time due to
the trading volume of medium-size company securities. Investors should be aware
that, based on the foregoing factors, an investment in the Fund may be subject
to greater price fluctuations than an investment in a mutual fund that invests
primarily in the largest, most established companies. The investment advisor's
research efforts may also play a greater role in selecting securities for the
Fund than in a mutual fund that invests in larger, more established companies.
WARRANTS
The Fund may acquire warrants. Warrants are securities giving the holder
the right, but not the obligation, to buy the stock of an issuer at a given
price (generally higher than the value of the stock at the time of issuance)
during a specified period or perpetually. Warrants may be acquired separately or
in connection with the acquisition of securities. Warrants do not carry with
them the right to dividends or voting rights with respect to the securities that
they entitle their holder to purchase, and they do not represent any rights in
the assets of the issuer. As a result, warrants may be considered to have more
speculative characteristics than certain other types of investments. In
addition, the value of a warrant does not necessarily change with the value of
the underlying securities, and a warrant ceases to have value if it is not
exercised prior to its expiration date.
CASH INVESTMENTS
Cash or cash equivalents in which the Fund may invest when its investment
advisor is unable to identify attractive equity investments include short-term
money market securities such as U.S. Treasury bills, prime-rated commercial
paper, certificates of deposit, variable rate demand notes, or repurchase
agreements. Variable rate demand notes are non-negotiable instruments. The
instruments the Fund invests in are generally rated at least A1 by Standard &
Poor's Corporation. However, the Fund may be susceptible to credit risk with
respect to these notes to the extent the issuer defaults on its payment
obligation.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with 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 (within seven days). The repurchase
agreement, thereby, determines the yield during the purchaser's holding period,
while the seller's obligations to repurchase is secured by the value of the
underlying security. In the event of a bankruptcy or other default of the
seller, the Fund could experience both delays in liquidating the underlying
securities and losses, including: (a) possible decline in the value of the
underlying security during the period while the Fund seeks to enforce its
rights; (b) possible subnormal levels of income or proceeds and lack of access
to income and proceeds during this period; and (c) expenses of enforcing its
rights.
INVESTMENT RESTRICTIONS
The policies set forth below are fundamental policies of the Fund and may
not be changed without approval of the holders of the lesser of: (i) 67% of the
Fund's shares present or represented at a shareholders meeting at which the
holders of more than 50% of such shares are present or represented, or (ii)
more than 50% of the outstanding shares of the Fund. The Fund may not:
1. Purchase securities on margin, participate in a joint-trading
account (the bunching of securities transaction orders with orders of
other accounts managed by the advisor not being considered participation
in a joint-trading account for this purpose), sell securities short, act
as an underwriter or distributor of securities other than shares of the
Fund, lend money (except by purchasing publicly distributed debt
securities or entering into repurchase agreements) or purchase or sell
commodities, commodities futures or real estate (marketable securities of
companies whose business involves the purchase or sale of real estate not
being considered real estate for this purpose).
2. Borrow money or issue senior securities except for temporary bank
borrowings (not in excess of 5% of the value of its total assets) for
emergency or
-3-
<PAGE> 23
extraordinary purposes, or pledge, mortgage or hypothecate any of its
assets to secure such borrowings to an extent greater than 10% of the
value of the Fund's net assets.
3. Make investments for the purposes of exercising control or
management of any company.
4. Purchase securities of any issuer (other than the United States or
an instrumentality of the United States), if as a result of such purchase,
the Fund would hold more than 10% of the voting securities of any class of
such issuer or more than 5% of the Fund's total assets would be invested
in securities of such issuer.
5. Concentrate more than 25% of the value of its total assets,
exclusive of U.S. government securities, in securities issued by companies
primarily engaged in the same industry.
6. Enter into repurchase agreements with maturities of more than
seven days or invest in securities for which there is no readily available
market if, as a result thereof, such repurchase agreements and securities
would constitute more than 10% of the value of the net assets of the Fund.
7. Invest in put or call options.
Additional investment restrictions adopted by the Fund, which may be
changed by the Board of Directors without a vote of the shareholders, provide
that the Fund may not:
1. Invest in the securities of a foreign issuer or depository
receipts for such securities, if at the time of acquisition more than 20%
of the value of the Fund's assets would be invested in such securities.
(The Fund is permitted to invest up to 20% of its assets in securities of
foreign issuers or depository receipts therefor which are traded in a U.S.
market or available through a U.S. broker or dealer, regardless of whether
such securities or depository receipts are traded in U.S. dollars.)
2. Purchase securities of other investment companies, except on the
open market where no commission or profit results other than the broker's
commission, or as part of a plan of merger, consolidation or
reorganization approved by the shareholders of the Fund.
-4-
<PAGE> 24
3. Acquire or retain any security issued by a company, an officer or
director of which is an officer or director of the Fund or an officer,
director or other affiliated person of its investment advisor.
4. Acquire or retain any security issued by a company if any of the
directors or officers of the Fund or directors, officers or other
affiliated persons of its investment advisor beneficially own more than
1/2% of such company's securities and all of the above persons owning more
than 1/2% own together more than 5% of its securities.
5. Purchase any securities which are restricted from sale to the
public without registration under the Securities Act of 1933.
6. Loan portfolio securities except where collateral values are
continuously maintained at no less than 100% by "marking to market" daily
and the practice is fair, just and equitable.
-5-
<PAGE> 25
MANAGEMENT OF THE FUND
The Board of Directors of the Fund consists of four
individuals, three of whom are not "interested persons" of the Fund as defined
in the Investment Company Act. The Board of Directors is responsible for
managing the Fund's business and affairs. The Board of Directors has appointed
the Fund's officers, who conduct the daily business of the Fund.
Set forth below is information about the directors and
officers of the Fund. Directors deemed to be "interested persons" of the Fund
for purposes of the Investment Company Act are indicated by an asterisk (*).
<TABLE>
<CAPTION>
Name, Business Position(s) Held Principal Occupation(s)
Address and Age with Fund and Other Affiliations
- --------------- ------------- ----------------------
<S> <C> <C>
David K. Schafer* (58) Director and Director and
101 Carnegie Center President President, Schafer
Princeton, NJ 08540 Capital Management, Inc.,
a registered investment advisor, since
June 1985; Chairman of the Board of
Schafer Cullen Capital Management, Inc.,
a registered investment advisor,
since January 1983; President, Chubb
Equity Managers Inc., a wholly-
owned subsidiary of The Chubb
Corporation, an insurance and
financial services company, from
October 1992 to October 1996;
President, INCO Capital
Management Inc., a registered
investment advisor, from June 1978
to December 1981.
Timothy C. Collins (42) Director Chief Executive Officer and Senior Managing
c/o Ripplewood Holdings, L.L.C. Director, Ripplewood Holdings, L.L.C.
One Rockefeller Plaza (a private equity firm); prior to
New York, NY 10020 1995, Senior Managing Director,
Onex Investment Corp.; Director,
Dayton Superior Corporation and
Danielson Holdings Corporation.
Mary P. English, Ph.D. (38) Director Associate Professor of Economics and
McDermond Center for Management Management, and Director, McDermond
DePauw University Center for Management, DePauw
L32 College University.
Greencastle, IN 46135
Philip P. Young (55) Director Principal, Gladwyne Partners LLC (a private
Gladwyne Partners LLC equity firm); prior to 1998, private investor;
One Radnor Corporate Center prior to April 1, 1996,
Suite 250 Managing Director, Lazard
100 Matsonford Road Freres & Co. L.L.C.
Radnor, PA 19087 (investment banking
firm)
</TABLE>
-6-
<PAGE> 26
<TABLE>
<CAPTION>
Name, Business Position(s) Held Principal Occupation(s)
Address and Age with Fund and Other Affiliations
- ------------- ------------- ----------------------
<S> <C> <C>
James P. Cullen*(59) Executive Vice President Vice President (since June 1985) and Director,
645 Fifth Avenue Schafer Capital Management, Inc. President,
New York, NY 10022 Schafer Cullen Capital Management, Inc.,
since January 1983; Director of the Fund from
1985 to July 1998; Vice President, Donaldson,
Lufkin & Jenrette, registered broker/dealers,
from January 1979 to December 1982.
Brendan J. Spillane(35) Secretary and Secretary, Treasurer (since May 1989)
Schafer Capital Management, Inc Treasurer and Director, Schafer Capital Management,
101 Carnegie Center Inc.; Treasurer and Equity Research Analyst,
Princeton, NJ 08540 Schafer Cullen Capital Management, Inc. since
May 1989; Senior Accountant, Price Waterhouse,
independent accountants, from August 1985 to
April 1989; Certified Public Accountant since
November 1988.
Thomas P. Lemke(44) Assistant Vice Senior Vice President, Secretary, and
Strong Capital Management, Inc. President General Counsel of Strong Capital Management, Inc.
P.O. Box 2936 since September 1994. For two years prior thereto Resident
Milwaukee, WI 53201 Counsel for Fund management at J.P. Morgan & Co., Inc. From
February 1989 until April 1992, Associate General Counsel to
Sanford C. Bernstein Co., Inc. For two years prior to that,
Of Counsel at Tew Jorden & Schulte, a successor of Finley,
Kumble Wagner. From August 1979 until December 1986, at the
Securities and Exchange Commission, including Chief Counsel
to the Division of Investment Management (November 1984 -
December 1986), and Special Counsel to the Office of
Insurance Products, Division of Investment Management
(April 1982 - October 1984).
John S. Weitzer(31) Assistant Secretary Senior Counsel of Strong Capital Management, Inc. since
Strong Capital Management, Inc. December 1997. From July 1993 until December 1997, Associate
P.O. Box 2936 Counsel to Strong Capital Management, Inc.
Milwaukee, WI 53201
</TABLE>
Each director of the Fund, other than Mr. Schafer, is paid a director's fee
of $10,000 per year plus $1,250 for each meeting attended and is reimbursed for
the expenses of attendance at such meetings. The Fund does not pay any fees to
its directors who are considered "interested persons" of the Fund or its
investment advisor, as defined in the Investment Company Act. The aggregate
compensation paid by the Fund to its directors who are not such interested
persons ("Non-Interested Directors") during its fiscal year ended September 30,
1998 is set forth below. (Mr. Collins and Dr. English did not serve as directors
until after the end of such fiscal year.) The Fund does not maintain any
deferred compensation, pension or retirement plans, and no pension or retirement
benefits are accrued as part of Fund expenses. None of the Non-Interested
Directors serves as a director of, or receives any compensation from, any fund
in the Strong Funds complex except for the Fund.
-7-
<PAGE> 27
<TABLE>
<CAPTION>
Aggregate
Name of Non-Interested Compensation
Director of the Fund from the Fund
---------------------- -------------
<S> <C>
Philip P. Young $15,000
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SHARES
At October 31, 1998, the following persons were known to the
Fund to be the owners of record of 5% or more of the outstanding shares of the
Fund:
<TABLE>
<CAPTION>
Amount of % of
Name Record Ownership Outstanding Shares
- ---- ---------------- ------------------
<S> <C> <C>
Charles Schwab & Co., Inc. 6,939,714 25.01 (1)
101 Montgomery Street
San Francisco, CA 94104
</TABLE>
(1) Charles Schwab & Co., Inc. is the nominee account for many individual
shareholder accounts; the Fund is not aware of the size or identity of
these individual accounts. To the extent that any person or organization
beneficially owns 25% or more of the outstanding shares of the Fund, such
person or organization may be presumed to "control" the Fund within the
meaning of the Investment Company Act and could vote a significant block
of the shares of the Fund on any matter requiring the approval of
shareholders of the Fund.
As of October 31, 1998, officers and directors of the Fund as a group owned less
than one percent of the outstanding shares of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
General
On August 12, 1998 and October 15, 1998, respectively, the
Board of Directors (including the Non-Interested Director) and the shareholders
of the Fund approved a new investment advisory agreement (the "Advisory
Agreement") pursuant to which Strong Schafer Capital Management, L.L.C., 101
Carnegie Center, Suite 107, Princeton, New Jersey 19540 (the "Advisor"),
furnishes continuous investment advisory services and management to the Fund.
The Advisor is an investment advisory firm formed in 1997 by Schafer Capital
Management, Inc. ("Schafer") and Strong Capital Management, Inc. ("Strong")
pursuant to a Limited Liability Company Agreement dated as of September 7, 1997
(the "LLC Agreement"). See "Who are the fund's investment advisor and portfolio
manager?" and "What is the fund's relationship with Strong?" in the
Prospectus.
The Advisor replaced Schafer as investment advisor to the
Fund, a position Schafer held from the Fund's inception in 1985 until it was
succeeded in such position by the Advisor on October 16, 1998. Under the terms
of the LLC Agreement, Schafer and Strong are the two members of the Advisor,
with Schafer as the managing member. Schafer thus currently has management
control, and is the controlling person, of the Advisor, and Schafer, through its
sole portfolio manager and controlling person, David K. Schafer, will
effectively continue in its role as the Fund's investment manager.
Mr. Schafer, President and a Director of the Fund, is also
President and a Director of Schafer. Mr. Cullen, Executive Vice President of
the Fund, is also Vice President and a Director of Schafer. Mr. Spillane,
Secretary and Treasurer of the Fund, is also Secretary and Treasurer and a
Director of Schafer. All of the outstanding stock of Schafer is owned by
Mr. Schafer.
-8-
<PAGE> 28
A discussion of the advisory fee payable to the Advisor is
included under the caption "Who are the fund's investment advisor and portfolio
manager?" in the Prospectus. For the years ended September 30, 1998, 1997 and
1996, the Fund paid Schafer $17,407,737, $7,583,633 and $2,649,217, respectively
(the advisory fee rate previously payable to Schafer being identical to that
payable under the Advisory Agreement).
Under the Advisory Agreement and subject to the general
supervision of the Fund's Board of Directors, the Advisor is responsible for
making and implementing investment decisions for the Fund. In addition, the
Advisor furnishes office space, office facilities, equipment, personnel (other
than the services of directors of the Fund who are not interested persons of the
Advisor), and clerical and bookkeeping services for the Fund to the extent not
provided by the Fund's custodian, transfer agent and dividend paying agent, and
accounting services agent. The Fund pays all other expenses of its operation,
including, without limitation, interest, taxes and any governmental filing fees;
brokerage commissions and other costs incurred in connection with the purchase
or sale of securities; compensation and expenses of its Non-Interested
Directors; legal and audit expenses; the fees and expenses of the Fund's
custodian, transfer agent and dividend paying agent, and accounting services
agent; expenses relating to the redemption of shares; expenses of servicing
shareholder accounts; fees and expenses related to the registration and
qualification of the Fund and its shares under Federal and state securities
laws; expenses of printing and mailing reports, notices and proxy material to
shareholders; insurance premiums for fidelity and other insurance coverage;
expenses of preparing prospectuses and statements of additional information and
of printing and distributing them to existing shareholders; and any nonrecurring
expenses, including actions, suits or proceedings to which the Fund is a party
and any obligation which the Fund may incur to indemnify others. The Advisor has
agreed to reimburse the Fund on a monthly basis for all expenses incurred in any
fiscal year (exclusive of taxes, interest, brokerage fees and extraordinary
expenses) which in the aggregate exceed the lowest applicable percentage
limitation prescribed by any state in which the Fund's securities are qualified
for sale. The Fund believes that it is not subject to any such percentage
limitation.
The Advisory Agreement provides that the Advisor shall have
no liability to the Fund or its shareholders in the absence of willful
misfeasance, bad faith, gross negligence, or reckless disregard of its
obligations under the Agreement.
The Advisory Agreement is not assignable and may be terminated
by either party, without penalty, on 60 days' notice. The Advisory Agreement
will continue in effect until October 16, 2000 (unless sooner terminated) and
thereafter for successive one-year periods so long as it is approved annually
(a) by a majority of the Non-Interested Directors, cast in person at a meeting
called for the purpose of voting on such approval, and (b) either by the Board
of Directors of the Fund or by the vote of shareholders described under
"Investment Restrictions."
The Advisory Agreement is identical to the predecessor
investment advisory agreement dated August 13, 1985 between the Fund and Schafer
(the "Old Advisory Agreement") except for (i) their effective dates, (ii) the
replacement of Schafer by the Advisor as investment advisor to the Fund, (iii) a
change to confirm that the Advisor may utilize Strong or others to arrange for
the placement of orders for the purchase and sale of securities for the account
of the Fund with brokers or dealers selected by or under the supervision of the
Advisor, (iv) changes to confirm that the Advisor's responsibility to provide
bookkeeping and administrative services for the Fund does not extend to such
services as are provided by a fund accounting services agent, and (v) insertion
of wording to address the circumstances under which the Fund may continue to use
the name "Strong".
Certain of the Advisor's or Schafer's clients may have
investment objectives similar to the Fund and certain investments may be
appropriate for the Fund and for other clients advised by the Advisor or
Schafer. From time to time, a particular security may be bought or sold for
only one client or in different amounts and at different times for more than one
but less than all such clients. In
-9-
<PAGE> 29
addition, a particular security may be bought for one or more clients when one
or more clients are selling such security, or purchases or sales of the same
security may be made for two or more clients on the same day. In any such event,
such transactions will be averaged as to price and allocated as to amount in
accordance with the daily purchase or sale orders actually placed for each
client. In some cases, this procedure could have a detrimental effect on the
price or amount of the securities purchased by or sold by the Fund. In other
cases, however, it is believed that the ability of the Fund to participate, to
the extent permitted by law, in volume transactions will produce better results
for the Fund. The sale of the Fund's shares is not a determining factor in these
transactions.
The Fund has no proprietary or exclusive rights in the names
"Strong" or "Schafer" or any logo or service mark furnished by Strong or the
Advisor, and may use such names and any such logos or service marks only so long
as the Advisory Agreement with the Advisor remains in effect and the Advisor has
the right to use such names under the LLC Agreement.
Strong, the Fund's non-managing member, provides investment
management services for mutual funds and other investment portfolios
representing assets of approximately $30 billion. Strong began conducting
business in 1974. Since then, its principal business has been providing
investment advice for individuals and institutional accounts, such as pension
and profit-sharing plans, as well as mutual funds, several of which are
available through variable insurance products. Strong's address is 100 Heritage
Reserve, Menomonee Falls, Wisconsin 53051.
Since February 1, 1996, Strong has served as the Fund's
accounting services agent. For this service, Strong has received fees
aggregating $115,078, $66,064 and $28,947, respectively, during the Fund's
fiscal years ended September 30, 1998 and 1997 and the eight months ended
September 30, 1996 pursuant to a fund accounting services agreement providing
for a fee to Strong equal to $20,000 on the first $40 million of the Fund's
average daily net assets, .01% of the next $200 million of the Fund's average
daily net assets, and .005% of the Fund's average daily net assets in excess of
$240 million.
Strong also serves as the Fund's dividend-paying agent,
transfer agent and shareholder servicing agent. As such, Strong handles all
amounts delivered to it by or for the account of the Fund, issues confirmations
for shares of the Fund upon receipt of payment, redeems on behalf of the Fund
shares of the Fund upon receipt of written requests in proper order and acts as
dividend disbursing agent for the Fund. For this service, Strong receives
compensation from the Fund at an annual rate of $21.75 per open account and
$4.20 per closed account, plus reimbursement of its expenses. Strong Funds
Distributors, Inc., an indirect subsidiary of Strong, has acted as the Fund's
distributor. Strong also markets shares of the Fund as part of the Strong Family
of Funds. See "What is the fund's relationship with Strong?" in the Prospectus.
See also "Brokerage" for a discussion of certain arrangements between the
Advisor and Strong.
From time to time, the Fund may pay, directly or indirectly
through arrangements with Strong, amounts to financial intermediaries that
provide transfer-agent type and/or other administrative services relating to the
Fund to their customers or other 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 services, answering
inquiries relating to the Fund, transmitting, on behalf of the Fund, proxy
statements, annual reports, updated prospectuses, other communications regarding
the Fund, and related services as the Fund or the intermediaries' customers or
such other persons may reasonably request. In such cases, to the extent paid by
the Fund, 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.
DESCRIPTION OF LLC AGREEMENT
The Advisor is a Delaware limited liability company registered
as an investment adviser under the Investment Advisers Act of 1940. Its business
address is 101 Carnegie Center, Princeton, New Jersey 08540. The LLC Agreement
provides that the Advisor is currently to be managed by its managing member,
Schafer, which has sole control and management of the Advisor's business and
affairs (provided that certain actions may not be taken without the consent of
Strong). The only other member of the Advisor is Strong. Strong's current
membership interest in the Advisor is non-managing.
The LLC Agreement provides that, commencing January 10, 2001
and for eighteen months thereafter, Strong will have the option to purchase the
membership interest of Schafer in the Advisor at a negotiated formula price.
This option is subject to certain conditions, including procurement of
regulatory approvals and other conditions that may be imposed by applicable law
(including any necessary approval of the Fund's shareholders). In the event of
Strong's purchase of Schafer's membership interest in the Advisor pursuant to
the exercise of this option, David K. Schafer's ongoing role with respect to the
Advisor and the Fund will be subject to discussion among the parties. If
Strong's option is not exercised by Strong or Strong otherwise fails to purchase
Schafer's membership interest in the Advisor for any reason other than failure
to obtain necessary regulatory approvals or a breach by Schafer of certain
obligations relating to the effectuation of such purchase, Schafer shall have
certain rights, including the right to purchase Strong's membership interest in
the Advisor for an amount equal to its fair market value at that time. If
Strong's option is exercised but Strong does not purchase Schafer's membership
interest in the Advisor subject thereto because of failure to obtain necessary
regulatory approvals, Schafer is under an obligation to negotiate in good faith
with respect to an appropriate modification of the relationship and arrangements
between Strong and Schafer.
The LLC Agreement provides that, in the event of the
bankruptcy of Schafer, or the death or disability of David K. Schafer, Strong
shall have the option, subject to conditions comparable to those relating to
Strong's option described in the preceding paragraph, to purchase the
membership interest of Schafer in the Advisor at a price equal to the fair
market value thereof, and upon the bankruptcy of Strong, Schafer shall have the
option to purchase the membership interest of Strong in the Advisor at a price
equal to the fair market value thereof.
The LLC Agreement provides that if Strong ceases to be a
member of the Advisor, Schafer will use its best efforts to cause the Fund to
cease to use Strong's name within sixty (60) days and that if Strong exercises
its rights under the option described above, the Advisor shall have the
irrevocable right to use the name "Schafer" for the Advisor and the Fund.
DISTRIBUTOR
Pursuant to a distribution agreement dated as of January 10,
1996, Strong Funds Distributors, Inc., 900 Heritage Reserve, Menomonee Falls,
Wisconsin 53051, an affiliate of Strong, has agreed to act at the request of the
Fund and the Advisor as the Fund's agent to effect the distribution of the
Fund's shares in certain jurisdictions in which the Fund is not authorized to
distribute its shares directly. Strong Funds Distributors, Inc. is not entitled
to receive any compensation from the Fund for its services under this agreement.
The agreement may be terminated at any time (a) by the Board of Directors of the
Fund or by a vote of a majority of the outstanding voting securities of the Fund
on 60 days' written notice to Strong Funds Distributors, Inc. and the Advisor or
(b) by Strong Funds Distributors, Inc. on 60 days' written notice to the Fund
and the Advisor. The agreement shall terminate in the event of its assignment by
Strong Funds Distributors, Inc. If not so terminated, the agreement shall
continue in effect from year to year only so long as such continuance is
approved annually by the Board of Directors or stockholders of the Fund, and, in
either event, by a majority of those directors who are not interested persons of
any party to the agreement.
-10-
<PAGE> 30
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 a 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 National Association of
Securities Dealers, Inc. rules in this area, any in-house sales incentive
program will be multi-product oriented, i.e., any incentive will be based on an
associated person's gross production of all securities within a product type and
will not be based on the sales of shares of any specifically designated mutual
fund.
BROKERAGE
The Advisor is responsible for selecting brokers and dealers
to effect purchases or sales of securities for the account of the Fund. In
selecting such brokers, it is the policy of the Advisor to seek the best
execution of orders at the most favorable price in light of the overall quality
of brokerage and research services provided, as described in this and the
following paragraph. In selecting brokers to effect portfolio transactions, the
determination of what is expected to result in best execution at the most
favorable price involves a number of largely judgmental considerations. Among
these are the Advisor's evaluation of the broker's efficiency in executing and
clearing transactions, block trading capability (including the broker's
willingness to position securities), the broker's familiarity with the security
and the broker's financial strength and stability. The most favorable price to
the Fund means the best net price without regard to the mix between purchase or
sale price and commission, if any. For the fiscal years ended September 30,
1998, 1997 and 1996, the Fund paid total brokerage commissions of $3,591,215,
$1,874,130, and $625,019, respectively. The increase in the amount of brokerage
commissions over these three fiscal years is due principally to the growth in
the Fund's assets. The Fund's annual portfolio turnover rate is set forth in the
Prospectus under "Financial Highlights."
In allocating the Fund's brokerage, the Advisor will also
take into consideration the research, analytical, statistical and other
information and services provided by the broker, such as general economic
reports and information, reports or analyses of particular companies or
industry groups and technical information and the availability of the brokerage
firm's analysts for consultation. While the Advisor believes these services
have substantial value, they are considered supplemental to the Advisor's own
efforts in the performance of its duties under the Advisory Agreement. As
permitted by the Advisory Agreement and in accordance with Section 28(e) of the
Securities Exchange Act of 1934, as amended, the Advisor may pay brokers higher
brokerage commissions than might be available from other brokers if the Advisor
determines in good faith that such amount paid is reasonable in relation to the
value of the overall quality of the brokerage, research and other services
provided. Other clients of the Advisor may indirectly benefit from the
availability of these services to the Advisor, and the Fund may indirectly
benefit from services available to the Advisor as a result of transactions for
other clients.
Arrangements exist with broker-dealers whereby the Advisor
obtains computerized stock quotation and news services, performance and ranking
services, portfolio analysis services and other research services in exchange
for the direction of portfolio transactions which generate dealer concessions or
brokerage (agency) commissions for such broker-dealers. From time to time, the
Advisor may make other similar arrangements with brokers or dealers which agree
to provide research services in consideration of dealer concessions or brokerage
commissions. Consistent with the Advisor's fiduciary duties to the Fund,
brokerage will be directed to such brokers or dealers pursuant to any such
arrangement only when the Advisor believes that the commissions charged are
reasonable in relation to the value and overall quality of the brokerage and
research services provided. For the year ended September 30, 1998, the total
amount of Fund brokerage transactions and related brokerage commissions directed
in consideration of research services provided to Schafer were $86,426,117 and
$172,960, respectively, exclusive of dealer concessions from underwritten
offerings.
-11-
<PAGE> 31
The Advisor has entered into an arrangement with Strong
whereby Strong performs certain administrative responsibilities with respect to
the execution of portfolio trades at the direction of the Advisor, including
trades which the Advisor may effect on behalf of the Fund.
The Fund held 875,000 shares of Paine Webber Group, Inc.
having a value of $26,250,000, as of September 30, 1998. Paine Webber is one of
the Fund's regular broker/dealers as defined in Rule 10b-1 under the Investment
Company Act.
CAPITAL STOCK
The Fund has an authorized capital of 250 million shares
consisting of only one class of stock -- Common Stock, $.10 par value.
Shareholders are entitled to one vote per share, to such distributions as may be
declared by the Fund's Board of Directors out of funds legally available
therefor, and upon liquidation to participate ratably in the assets available
for distribution. There are no conversion or sinking-fund provisions applicable
to the shares, and shareholders have no preemptive rights and may not cumulate
their votes in the election of directors. The shares are redeemable and are
transferable. All shares issued and sold by the Fund will be fully paid and
non-assessable.
The Fund is not required to hold annual meetings of
shareholders. However, special meetings may be called from time to time for such
purposes as electing or removing directors, terminating or reorganizing the
Fund, changing fundamental policies or voting on other matters when required by
the Investment Company Act.
DETERMINATION OF NET ASSET VALUE
The Fund is 100% no load. This means that an investor may
purchase, redeem or exchange shares at the Fund's net asset value ("NAV")
without paying a sales charge. Generally, when an investor makes any purchases,
sales or exchanges, the price of the investor's shares will be the NAV next
determined after Strong receives a request in proper form (which includes
receipt of all necessary and appropriate documentation and subject to available
funds). If Strong receives such a request prior to the close of the New York
Stock Exchange ("NYSE") on a day which the NYSE is open, the share price will be
the NAV determined that day. The NAV for the Fund is normally determined as of
4:00 p.m. Eastern Time ("ET") each day the NYSE is open. The NYSE is open for
trading Monday through Friday except New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Additionally, if any of the aforementioned holidays falls on a
Saturday, the NYSE will not be open for trading on the preceding Friday, and
when any such holiday falls on a Sunday, the NYSE will not be open for trading
on the succeeding Monday, unless unusual business conditions exist, such as the
ending of a monthly or yearly accounting period. The Fund reserves the right to
change the time at which purchases, redemptions and exchanges are priced if the
NYSE closes at a time other than 4:00 p.m. ET or if an emergency exists. The
Fund's NAV is calculated by taking the fair value of the Fund's total
assets,subtracting all its liabilities, and dividing by the total number of
shares outstanding. Expenses are accrued daily and applied when determining the
NAV.
The Fund's portfolio securities are valued based on market
quotations or at a fair value as determined by the method selected by the Fund's
Board of Directors.
Equity securities traded on a national securities exchange or
NASDAQ are valued at the last sale price on the national securities exchange on
which such securities are primarily traded or NASDAQ, as the case may be.
Securities for which there were no transactions on a given day or securities not
listed on an exchange or NASDAQ are valued at the average of the most recent bid
and asked prices. Other exchange-trade securities (generally foreign securities)
will generally be valued based on market quotations.
Debt securities are valued by a pricing service that utilizes
electronic date processing techniques to determine values for normal
institutional-sized trading units of debt securities without regard to sale or
bid prices when such techniques are believed to more accurately reflect the fair
market value for such securities. Otherwise, sale or bid prices are used. Any
securities or other assets for which market quotations are not readily available
are valued at fair value as determined in good faith by the Board of Directors.
Debut securities having remaining maturities of 60 days or less when purchased
are valued by the amortized cost method. Under this method of valuation, a
security is initially valued at its acquisition cost, and thereafter,
amortization of any discount or premium is assumed each day, regardless of the
impact of the fluctuating rates on the market value of the instrument.
Securities quoted in foreign currency, if any, are valued
daily in U.S. dollars at the foreign currency exchange rates that are prevailing
at the time the daily NAV per share is determined. Although the Fund values its
foreign assets in U.S. dollars on a daily basis, it does not intend to convert
its holdings of foreign currencies into U.S. dollars on a daily basis. Foreign
currency exchange rates are generally determine prior to the close of trading on
the NYSE. Occasionally, events affecting the value of foreign investments and
such exchange rates occur between the time at which they are determined and the
close of trading on the NYSE. Such events would not normally be reflected in a
calculation of the Fund's NAV on that day. If events that materially affect the
sale of the Fund's foreign investments or the foreign currency exchange rates
occur during such period, the investments may be valued at their fair value as
determined in good faith by or under the direction of the Board of Directors.
PURCHASE AND REDEMPTION OF SHARES
For a general discussion of how shares of the Fund are
purchased and redeemed and how the Fund values such shares for such purposes,
see "YOUR ACCOUNT" in the Prospectus. Such discussions are incorporated herein
by reference.
The Fund does not consider the U.S. Postal Service or other
independent delivery services to be its agents. Therefore, deposit in the mail
or with such services, or receipt at Strong's post office box, of purchase
applications or redemption requests does not constitute receipt by Strong or the
Fund.
Broker-dealers which effect purchases or sales of shares of
the Fund on behalf of their customers may impose a transaction charge on such
customers for performing such services. No such transaction charge is imposed if
shares are purchased directly from the Fund, without the employment of the
services of a broker-dealer.
The Fund, in its discretion, may permit an investor to
purchase shares of the Fund at net asset value in exchange for securities held
by the investor, provided that the Fund may acquire such securities consistent
with its investment policies. For purposes of determining the number of Fund
shares to be received in exchange for any accepted securities, the Fund will
value such securities in the same manner as is used by the Fund to value its own
assets.
ADDITIONAL SHAREHOLDER INFORMATION
TELEPHONE AND INTERNET EXCHANGE/REDEMPTION PRIVILEGES
Strong 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
Investment Company 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 lessor 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 the fund 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 of 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.
SHARES IN CERTIFICATES
Certificates will be issued for shares held in your Fund
account only upon written request. An investor will, however, have full
shareholder rights whether or not a certificate is requested. If you are selling
shares you hold in certificate form, you must submit the certificate with your
redemption request, duly endorsed.
DOLLAR COST AVERAGING
Strong Fund's Automatic Investment Plan, Payroll Direct
Deposit Plan, and Automatic Exchange Plan are methods of implementing dollar
cost averaging. Dollar cost averaging is an investment strategy that involves
investing a fixed amount of money at regular time intervals. By always investing
the same set amount, an investor will be purchasing more shares when the price
is low and fewer shares when the price is high. Ultimately, by using this
principle in conjunction with fluctuations in share price, an investor's average
cost per share may be less than the average transaction price. A program of
regular investment cannot ensure a profit or protect against a loss during
declining markets. Since such a program involves continuous investment
regardless of fluctuating share values, investors should consider their ability
to continue the program through periods of both low and high share-price levels.
FINANCIAL INTERMEDIARIES
If an investor purchases or redeems shares of the Fund through
a financial intermediary, certain features of the Fund relating to such
transactions may not be available or may be modified. In addition, certain
operational policies of the Fund, including those related to settlement and
dividend accrual, may vary from those applicable to direct shareholders of the
Fund and may vary among intermediaries. Please consult your financial
intermediary for more information regarding these matters. Certain financial
intermediaries may charge an advisory, transaction, or other fee for their
services. Investors will not be charged for such fees if investors purchase or
redeem Fund shares directly from the Fund without the intervention of a
financial intermediary.
SIGNATURE GUARANTEES
A signature guarantee is designed to protect shareholders and
the Fund against fraudulent transactions by unauthorized persons. In the
following instances, the Fund will require a signature guarantee for all
authorized owners of an account.
- -- when adding the telephone redemption option to an existing account;
- -- when transferring the ownership of an account to another individual or
organization;
- -- when submitting a written redemption request for more than $50,000;
- -- when requesting to redeem or redeposit shares that have been issued in
certificate form;
- -- if requesting a certificate after opening an account;
- -- when requesting that redemption proceeds be sent to a different name or
address than is registered on an account;
- -- if adding/changing a name or adding/changing an owner or an account; and
- -- if adding/changing the beneficiary on a transfer-on-death account.
A signature guarantee may be obtained from any eligible
guarantor institution, as defined by the SEC. These institutions include banks,
savings associations, credit unions, brokerage firms, and others. Please note
that a notary public stamp or seal is not acceptable.
RIGHT OF SET-OFF
To the extent not prohibited by law, the Fund, any other
Strong Fund, and the Advisor, each has the right to set-off against a
shareholder's account balance with a Strong Fund, and to 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 PURCHASES 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 NAV next computed after they are
accepted by an authorized broker or the broker's authorized designee.
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<PAGE> 32
Retirement Plans
The Fund makes available through Strong the following
retirement planning vehicles:
TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNT (IRA): Everyone under age 70 1/2 with
earned income may contribute to a tax-deferred Traditional IRA. Strong offers a
prototype plan for you to establish your own Traditional IRA. You are allowed to
contribute up to the lesser of $2,000 or 100% of your earned income each year to
your Traditional IRA (or up to $4,000 between your Traditional IRA and your
non-working spouses' Traditional IRA). Under certain circumstances, your
contribution will be deductible.
ROTH IRA: Taxpayers, of any age, who have earned income, and whose adjusted
gross income ("AGI") does not exceed $110,000 (single) or $160,000 (joint) can
contribute to a Roth IRA. Allowed contributions begin to phase out at $95,000
(single) or $150,000 (joint). You are allowed to contribute up to the lesser of
$2,000 or 100% of earned income each year into a Roth IRA. If you also maintain
a Traditional IRA, the maximum contribution to your Roth IRA is reduced by any
contributions that you make to your Traditional IRA. Distributions from a Roth
IRA, if they meet certain requirements, may be federally tax free. If your AGI
is $100,000 or less, you can convert your Traditional IRAs into a Roth IRA.
Conversions of earnings and deductible contributions are taxable in the year of
the distribution. The early distribution penalty does not apply to amounts
converted to a Roth IRA even if you are under age 59 1/2.
EDUCATION IRA: Taxpayers may contribute up to $500 per year into an Education
IRA for the benefit of a child under age 18. Total contributions to any one
child cannot exceed $500 per year. The contributor must have adjusted income
under $110,000 (single) or $160,000 (joint) to contribute to an Education IRA.
Allowed contributions begin to phase out at $95,000 (single) or $150,000
(joint). Withdrawals from the Education IRA to pay qualified higher education
expenses are federally tax free. Any withdrawal in excess of higher education
expenses for the year are potentially subject to tax and an additional 10%
penalty.
DIRECT ROLLOVER IRA: To avoid the mandatory 20% federal withholding tax on
distributions, you must transfer the qualified retirement or IRC section 403(b)
plan distribution directly into an IRA. The distribution must be eligible for
rollover. The amount of your Direct Rollover IRA contribution will not be
included in your taxable income for the year.
SIMPLIFIED EMPLOYEE PENSION PLAN (SEP-IRA): A SEP-IRA plan allows an employer to
make deductible contributions to separate IRA accounts established for each
eligible employee.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN (SAR SEP-IRA): A SAR SEP-IRA
plan is a type of SEP-IRA plan in which an employer may allow employees to defer
part of their salaries and contribute to an IRA account. These deferrals help
lower the employees' taxable income. Please note that you may no longer open new
SAR SEP-IRA plans (since December 31, 1996). However, employers with SAR SEP-IRA
plans that were established prior to January 1, 1997 may still open accounts for
new employees.
SIMPLIFIED INCENTIVE MATCH PLAN FOR EMPLOYEES (SIMPLE-IRA): A SIMPLE-IRA plan is
a retirement savings plan that allows employees to contribute a percentage of
their compensation, up to $6,000, on a pre-tax basis, to a SIMPLE-IRA account.
The employer is required to make annual contributions to eligible employees'
accounts. All contributions grow tax-deferred.
DEFINED CONTRIBUTION PLAN: A defined contribution plan allows self-employed
individuals, partners, or a corporation to provide retirement benefits for
themselves and their employees. Plan types include: profit-sharing plans, money
purchase pension plans, and paired plans (a combination of a profit-sharing plan
and a money purchase plan).
401(k) PLAN: A 401(k) plan is a type of profit-sharing plan that allows
employees to have a part of their salary contributed on a pre-tax basis to a
retirement plan which will earn tax-deferred income. A 401(k) plan is funded by
employee contributions, employer contributions, or a combination of both.
403(b)(7) PLAN: A 403(b)(7) plan is a tax-sheltered custodial account designed
to qualify under section 403(b)(7) of the IRC and is available for use by
employees of certain educational, non-profit, hospital, and charitable
organizations.
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<PAGE> 33
The employer or individual, as the case may be, should consult
his or her tax advisor or attorney as to the applicability of the Defined
Contribution Plan, the 401(k) Plan, the 403(b)(7) Plan, the SIMPLE, the SEP or
the IRA (including Traditional, Roth and Education IRAs) to his or her
particular circumstances. Additionally, since these retirement programs involve
commitments covering future years, the investment objectives of the Fund, as
described in the Prospectus and in this Statement of Additional Information,
should be carefully considered.
TAX STATUS
The Fund has qualified, and intends to remain qualified, as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended. In order to remain qualified, the Fund must, among other
things, (i) derive in each taxable year at least 90% of its gross income from
dividends, interest, gains from the sale or other disposition of stock or
securities or foreign currencies or other income derived with respect to its
business of investing in
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<PAGE> 34
such stock, securities or currencies, and (ii) diversify its holdings so that,
at the end of each quarter of its taxable year, (a) at least 50% of the value of
its assets is represented by cash, cash items, U.S. Government securities, and
other securities limited, in respect of any one issuer, to a value not greater
than 5% of the value of the Fund's total assets and 10% of the outstanding
voting securities of such issuer and (b) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than the U.S.
Government).
As a regulated investment company, the Fund is generally not
subject to U.S. Federal income tax on its income and gains distributed to
shareholders, provided the Fund distributes to its shareholders at least 90% of
its net investment income (i.e., net income and gains, exclusive of net capital
gains) each year.
If the Fund purchases shares in a foreign corporation treated
as a "passive foreign investment company" ("PFIC") for U.S. Federal income tax
purposes, however, the Fund may be subject to U.S. Federal income tax, and an
additional charge in the nature of interest, on a portion of distributions from
such foreign corporation and on gain from the disposition of such shares
(collectively referred to as "excess distributions"), even if such excess
distributions are paid by the Fund as a dividend to its shareholders. In certain
limited circumstances, the Fund may be eligible to make a qualified electing
fund election with respect to certain PFICs in which it owns shares. Such an
election would enable the Fund to avoid the taxes on excess distributions by
including in income each year the Fund's pro rata share of the PFIC's income and
gains for that year (whether or not the Fund's share of such income and gains
are distributed to the Fund). Alternatively the Fund may be eligible to elect
under certain circumstances to treat its stock in certain PFICs as having been
sold on the last business day of each taxable year of the Fund for the stock's
fair market value, in which case the Fund would (subject to certain exceptions)
generally avoid the taxes on excess distributions. These elections, therefore,
may cause the Fund to recognize income in a particular year in excess of the
distributions it receives in that year from the PFIC.
If the Fund engages in certain hedged transactions, the
transaction may be treated as a deemed sale of the appreciated property which
may accelerate the gain on the hedged transaction.
In general, distributions of net capital gain, when
designated as such by the Fund, are taxable to you as long-term capital gains,
regardless of how long you have held your Fund shares.
A non-deductible 4% excise tax will be imposed on the Fund to
the extent the Fund does not distribute during each calendar year (i) 98% of
its ordinary income for such calendar year, (ii) 98% of its capital gain net
income for the one-year period ending on October 31 of such calendar year and
(iii) certain other amounts not distributed in previous years. The Fund intends
to distribute its income and gains in a manner so as to avoid the imposition of
this 4% excise tax.
Distributions declared by the Fund in October, November or
December of a year, payable to shareholders as of a record date in such a
month, and paid during the following January, will be treated for Federal
income tax purposes as paid by the Fund and received by shareholders as of
December 31 of the calendar year declared.
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<PAGE> 35
If the net asset value of shares is reduced below a
shareholder's cost by a distribution, such distribution would be taxable as
described in the Prospectus, even though the distribution might be viewed in
economic terms as a return of capital. For Federal income tax purposes, the
shareholder's original cost continues as his tax basis and on redemption his
gain or loss is the difference between such basis and the redemption price.
Income tax withholding at a rate of 20% is applicable to any
distribution from a qualified retirement plan, such as the Defined Contribution
Plan or 403(b)(7) Plan, where the distribution is eligible for tax-free
rollover treatment but is not transferred directly to a specified retirement
vehicle such as another qualified plan or an IRA. All qualified retirement
plans and plans subject to Section 403(b) of the Internal Revenue Code must
provide participants and certain other distributees with an election to have an
eligible rollover distribution transferred directly to certain specified
retirement vehicles. If a shareholder receives a distribution which is subject
to the 20% withholding requirement and wishes to roll the distribution into
another retirement vehicle such as an IRA within 60 days without subjecting any
part of the distribution to income tax (and a possible additional 10% penalty
tax if the shareholder has not attained age 59 1/2), the shareholder will have
to contribute to the IRA or other retirement vehicle the amount of the
distribution (after withholding) plus an amount equal to the amount withheld.
If the full amount of the distribution (including the amount withheld) is not
contributed to another qualified retirement vehicle within 60 days, the portion
of the distribution which is not contributed will be subject to income tax,
plus a possible additional 10% penalty if the shareholder has not attained age
59 1/2. The amount withheld will be applied to reduce the shareholder's Federal
income tax liability and may be refunded by the Internal Revenue Service to the
shareholder upon filing a Federal income tax return if the total amount
withheld from the shareholder exceeds such tax liability.
The rules broadly define distributions which qualify for
rollover treatment. Shareholders who expect to receive distributions which may
qualify for rollover treatment and therefore may be subject to 20% withholding
should consult their own tax advisers for a complete discussion of the impact
of these rules on such distributions.
The foregoing is only a general summary of certain provisions
of the Internal Revenue Code and current Treasury regulations applicable to the
Fund and its shareholders. The Internal Revenue Code and such regulations are
subject to change by legislative or administrative action.
The tax consequences to a foreign shareholder of the Fund may
be different from those described herein. Foreign shareholders are advised to
consult their own tax advisors with respect to the particular tax consequences
to them of an investment in the Fund.
Distributions to shareholders may also be subject to state
and local taxes. Investors are urged to consult their own tax advisors
regarding the application of Federal, state and local tax laws.
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<PAGE> 36
CALCULATION OF PERFORMANCE DATA
The Fund may advertise "average annual total return," "total
return," and "cumulative total return." Each of these figures is based upon
historical results and does not represent the future performance of the Fund.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in 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.
The annual total return of the Fund varies and during the ten
year period ended December 31, 1998 ranged from -10.1% in 1990 to 34.15% in
1995. The average annual total return of the Fund for the one, five and ten
year periods ended December 31, 1998(1), were -9.05%, 14.07% and 16.46%,
respectively, computed in accordance with the rules for standardized computation
of performance as established by the Securities and Exchange Commission. Such
rules for standardized computation of performance provide for determining
percentage changes, carried out to two decimal places, based on changes in net
asset value as described in the preceding paragraph.
The Fund's performance will vary from time to time and your
shares, when redeemed, may be worth more or less than their original cost. You
should not consider past results as representative of future performance.
Factors affecting the Fund's performance include, among other things, general
market conditions, the composition of the Fund's portfolio, and operating
expenses. In reporting performance, the Fund makes no adjustment for taxes
payable by shareholders on reinvested income dividends and capital gains
distributions.
The Fund may also advertise comparative performance
information obtained from industry or financial publications. The Fund may
compare its performance to that of other mutual funds with similar investment
objectives and to stock or other relevant indices. From time to time, articles
about the Fund regarding its performance or ranking may appear in national
publications. Some of these publications may publish their own rankings or
performance reviews of mutual funds, including the Fund. Reference to or
reprints of such articles may be used in the Fund's promotional literature.
GENERAL INFORMATION
Portfolio Characteristics
In order to present a more complete picture of a 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 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.
- ------------
(1) Through 11/30/98. This performance information will be updated to 12/31/98
in the final Statement of Additional Information.
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<PAGE> 37
Standard deviation is calculated using the following formula:
2
Standard deviation = the square root of [SIGMA] (xi - xa)
-----------------
n-1
where: [SIGMA] = "the sum of",
x = each individual return during the time period,
i
x = the average return over the time period, and
a
n = the number of individual returns during the time period.
Statistics may also be used to discuss the Fund's relative
performance. One such measure is alpha. Alpha measures the actual return of a
fund compared to the expected return of a fund given its risk (as measured by
beta). The expected return is based on how the market as a whole performed, and
how the particular fund has historically performed against the market.
Specifically, alpha is the actual return less the expected return. The expected
return is computed by multiplying the advance or decline in a market
representation by the fund's beta. A positive alpha quantifies the value that
the fund manager has added and a negative alpha quantifies the value that the
fund manager has lost.
Other measures of volatility and relative performance may be
used as appropriate. However, all such measures will fluctuate and do not
represent future results.
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, customer
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 various 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, please contact Strong 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.
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<PAGE> 38
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 building 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 are tempted to spend those assets on short-term needs.
5. Maintain a long-term perspective. For most individuals, the best
discipline is staying invested as market conditions change. Reactive,
emotional investment decisions are all too often a source of regret -
and principal loss.
6. Consider stocks to help achieve major long term goals. Over time,
stocks have provided the more powerful returns needed to help the
value of your investments stay well ahead of inflation.
7. Keep a comfortable amount of cash in your portfolio. To meet current
needs, including emergencies, use a money market fund or a bank
account - not your long-term investment assets.
8. Know what you're buying. Make sure you understand the potential risks
and rewards associated with each of your investments. Ask
questions... request information. . . make up your own mind. And
choose a fund company that helps you make informed investment
decisions.
Strong Retirement Plan Services
Strong Retirement Plan Services offers a full menu of high
quality, affordable retirement plan options, including traditional money
purchase pension and profit sharing plans, 401(k) plans, simplified employee
pension plans, salary reduction plans, Keoghs, and 403(b) plans. Strong's
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 offered by Strong 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
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<PAGE> 39
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, acquisition 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 Strong are designed to be
streamlined and simple to administer. To this end, Strong has invested heavily
in the equipment, systems and people necessary to adopt or convert a plan and
to keep it running smoothly. Strong provides all aspects of the plan, including
plan design, administration, recordkeeping and investment management. To
streamline plan design, Strong provides customizable IRS-approved prototype
documents. Strong 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 Fund 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 Strong family of mutual funds 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 Strong provides. Strong'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, Strong provides attractive, readable
print materials that are supplemented with audio and video tapes, and
retirement education programs.
Service:
Strong'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. Strong is committed to
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<PAGE> 40
delivering accurate and timely information, evidenced by straightforward,
complete and understandable reports, participant account statements and plan
summaries.
Strong 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
leave 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 Fund, access to its portfolio manager through special
conference calls, consolidated mailings of duplicate confirmation statements,
access to Strong's network of regional representatives and other specialized
services. For more information on the Strong Financial Advisors Group, call
1-800-368-1683.
PORTFOLIO MANAGEMENT
The Fund's portfolio manager works with 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's investment philosophy includes the following basic beliefs:
- Stocks with lower P/E ratios and higher growth rates than the
Standard & Poor's 500 Index are attractive investment
candidates for value-oriented investors.
- Market timing is rarely successful. Instead, the Advisor
maintains a long-term perspective, normally remaining fully
invested regardless of market conditions.
- Allocating relatively equal weightings to portfolio purchases
ensures a disciplined, rational approach to the investment
process.
- Since the Advisor invests in a limited number of stocks, its
selection of holdings typically requires a judicious buy and
sell discipline.
The Advisor employs a value-oriented management style that focuses on mid-to
large- capitalization stocks. The investment process generally includes
avoidance, when purchasing securities, of overweighting any particular issuer.
The Advisor generally utilizes a "buy and hold" strategy, but remains aware of
the status of each individual holding. As a
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<PAGE> 41
result of this long-term approach, the Fund typically has a low annual turnover
rate (50% or less). As the Advisor identifies attractive new investments,
current Fund holdings are evaluated to determine sell candidates.
SHAREHOLDER REPORTS
An annual report will be issued to shareholders after the
close of each fiscal year, which ends September 30. This report will include
financial statements for the Fund audited by the Fund's independent accountants,
PricewaterhouseCoopers LLP. A semi-annual report will also be issued to the
Fund's shareholders.
CUSTODIAN
Firstar Trust Company, 615 East Michigan Street, Milwaukee,
Wisconsin, acts as custodian of the cash and securities of the Fund. The
custodian holds all cash and, directly or through a book entry system or an
agent, securities of the Fund, delivers and receives payment for securities
sold by the Fund, collects income from investments of the Fund and performs
other duties, all as directed by officers of the Fund. The custodian does not
exercise any supervisory function over the management of, or the purchase and
sale of securities by, the Fund.
TRANSFER AGENT
Strong acts as the Fund's dividend-paying agent, transfer
agent and shareholder servicing agent. Strong's address is 100 Heritage Reserve,
Menomonee Falls, Wisconsin 53051.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP has been selected as the
independent accountants of the Fund. As such, they are responsible for auditing
the financial statements of the Fund. The financial statements of the Fund for
its fiscal year ended September 30, 1998 included in the 1998 Annual Report,
incorporated herein by reference, have been audited by PricewaterhouseCoopers
LLP. The financial statements referred to above are incorporated by reference
herein in reliance on the report of PricewaterhouseCoopers LLP given on the
authority of that firm as experts in accounting and auditing.
FINANCIAL STATEMENTS
The Fund's financial statements appearing in its Annual Report
to Shareholders dated September 30, 1998, together with the report of
PricewaterhouseCoopers LLP thereon, are incorporated by reference in this
Statement of Additional Information.
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<PAGE> 42
ADDITIONAL INFORMATION
The Fund's Prospectus and this Statement of Additional
Information omit certain information contained in the Registration Statement
which the Fund has filed electronically with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, and reference
is hereby made to the Registration Statement for further information with
respect to the Fund and the securities offered hereby. This Registration
Statement is available for inspection by the public at the public reference
facilities maintained by the Commission in Washington, D.C.
<PAGE> 43
PART C
OTHER INFORMATION
Item 23. Exhibits. Financial Statements and Exhibits
(a)(1) Articles of Incorporation****
(a)(2) Certificate of Correction of Articles of Incorporation****
(a)(3) Change of Resident Agent and Address and Principal office****
(a)(4) Articles of Amendment****
(a)(5) Articles Supplementary regarding increase in the number of
authorized shares*****
(b)(1) By-Laws of the Registrant, as amended as of February 1,
1996****
(b)(2) Amendment to By-Laws adopted on December 3, 1997******
(b)(3) Amendment to By-Laws adopted on August 12, 1998*******
(c) Not Applicable
(d) Investment Advisory Agreement between the Registrant and Strong
Schafer Capital Management, L.L.C.*******
(e) Distribution Agreement between the Registrant and Strong Funds
Distributors, Inc.****
(f) Not Applicable
(g) Custodian Agreement between the Registrant and First Wisconsin
Trust Company (now Firstar Trust Company)**;
and the Schedule of Remuneration***
(h)(1) Shareholder Servicing and Transfer Agent Agreement between the
Registrant and Strong Capital Management, Inc. ("Strong") and
Shareholder Servicing Fee Schedule****
C-1
<PAGE> 44
(h)(2) Fund Accounting Servicing Agreement between the Registrant and
Strong and Fund Valuation and Accounting Annual Fee
Schedule****
(h)(3) Trading Agreement between Schafer Capital Management, Inc. and
Strong and Addendum to Trading Agreement*****
(i) Not Applicable
(j) Consent of Independent Accountants
(k) Financial Statements.
Included in Part A of this Registration Statement:
Financial Highlights
Included in Part B of this Registration Statement:
Report of Independent Accountants*
Statement of Assets and Liabilities as of September 30, 1998*
Schedule of Investments as of September 30, 1998*
Statement of Operations for the Year Ended September 30, 1998*
Statement of Changes in Net Assets for the Years Ended
September 30, 1998 and 1997*
Statements, schedules and historical information other than
those listed above have been omitted since they are either not
applicable or are not required.
(l) Not Applicable
(m) Not Applicable
(n) Financial Data Schedule
(o) Not Applicable
- ---------------
* Incorporated by reference from the Annual Report to Shareholders
for the year ended September 30, 1998.
** Previously filed in Post-Effective Amendment No. 5 on
January 31, 1990 and hereby incorporated by reference.
*** Previously filed in Post-Effective Amendment No. 10 on
February 1, 1995 and hereby incorporated by reference.
**** Previously filed in Post-Effective Amendment No. 11 on
February 1, 1996 and hereby incorporated by reference.
***** Previously filed in Post-Effective Amendment No. 13 on
February 1, 1997 and hereby incorporated by reference.
****** Previously filed in Post-Effective Amendment No. 14 on
February 1, 1998 and hereby incorporated by reference.
******* Previously filed in Post-Effective Amendment No. 15 on
August 17, 1998 and hereby incorporated by reference.
Item 24. Persons Controlled by or under Common Control with Registrant.
None.
C-2
<PAGE> 45
Item 25. Indemnification.
Article XII of the Registrant's By-Laws provides for
indemnification of the Registrant's directors and officers under certain
circumstances as authorized by Section 2-478 of the General Corporation Law of
the State of Maryland. Such By-Laws are incorporated by reference herein.
The Registrant has obtained errors and omissions insurance which (subject to
certain limits and deductibles) insures the Registrant and its officers and
directors against loss arising from certain claims if made against them for
actions taken as such.
Item 26. Business and Other Connections of Investment Adviser.
Although Strong Schafer Capital Management, L.L.C. has not served as investment
adviser to any registered investment company or other accounts prior to October
16, 1998, Schafer Capital Management, Inc., currently the sole managing member
of Strong Schafer Capital Management, L.L.C., has acted as investment adviser to
other equity accounts for many years and acts as investment subadviser to Strong
Schafer Balanced Fund. Strong Capital Management, Inc., the non-managing member
of Strong Schafer Capital Management, Inc., also acts as investment adviser to
other equity accounts and to the registered investment companies comprising the
Strong Funds family. Each of Schafer Capital Management, Inc. and Strong Capital
Management Inc. is a registered investment adviser under the Investment Advisers
Act of 1940, as amended.
David K. Schafer, a director and officer of Schafer
Capital Management, Inc., is also Chairman of the Board of Schafer Cullen
Capital Management, Inc., 645 Fifth Avenue, New York, New York 10022.
James P. Cullen, an officer of Schafer Capital Management,
Inc., is also President of Schafer Cullen Capital Management, Inc.
Schafer Cullen Capital Management, Inc. is a registered
investment adviser under the Investment Advisers Act of 1940, as amended.
Richard S. Strong controls Strong Capital Management, Inc.
and Strong Funds Distributors, Inc.
The information relating to Strong Capital Management, Inc. and Strong Funds
Distributors, Inc. contained under "What is the fund's relationship with
Strong?" in the Prospectus and under "Investment Advisory and Other Services",
"Distributor" and "Brokerage" in the Statement of Additional Information is
hereby incorporated by reference.
Item 27. Principal Underwriters.
(a) Strong Funds Distributors, Inc., the distributor for the Registrant's
securities, currently acts as principal underwriter or distributor for
the following other entities: Strong Advantage Fund, Inc.; Strong Asia
Pacific Fund, Inc.; Strong Asset Allocation Fund, Inc.; Strong Common
Stock Fund, Inc.; Strong Conservative Equity Funds, Inc.; Strong
Corporate Bond Fund, Inc.; Strong Discovery Fund, Inc.; Strong Equity
Funds, Inc.; Strong Government Securities Fund, Inc.; Strong Heritage
Reserve Series, Inc.; Strong High-Yield Municipal Bond Fund, Inc.;
Strong Income Funds, Inc.; Strong Institutional Funds, Inc.; Strong
International Equity Funds, Inc.; Strong International Income Funds,
Inc.; Strong Money Market Fund, Inc.; Strong Municipal Bond Fund, Inc;
Strong Municipal Funds, Inc.; Strong Opportunity Fund, Inc.; Strong
Opportunity Fund II, Inc.; Strong Schafer Balanced 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 officers of Strong Funds Distributors, Inc. and their positions are
listed below. The business address of each person is 900 Heritage
Reserve, Menomonee Falls, Wisconsin 53051.
<TABLE>
<CAPTION>
Position and Offices
Name with Underwriter
<S> <C>
Richard S. Strong Director and Chairman
of the Board
Thomas P. Lemke Chief Operating Officer, Vice President
and Chief Compliance Officer
Stephen J. Shenkenberg Vice President, Deputy Chief
Compliance Officer and Secretary
Peter D. Schwab Vice President
Joseph R. DeMartine Vice President
Anthony J. D'Amato Vice President
Thomas M. Zoeller Treasurer and Chief Financial Officer
Richard T. Weiss Director
Thomas P. Lemke is Assistant Vice President of the Registrant.
</TABLE>
Item 28. Location of Accounts and Records
Such records are located at:
1. Strong Schafer Value Fund, Inc.
101 Carnegie Center
Princeton, NJ 08540
2. Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
C-3
<PAGE> 46
3. Firstar Trust Company
Mutual Fund Services
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
4. Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Item 29. Management Services.
There are no management-related service contracts not
discussed in Part A or Part B.
Item 30. Undertakings.
The Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of Registrant's latest annual report
to shareholders, upon request and without charge.
Insofar as indemnification by the Registrant for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
C-4
<PAGE> 47
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of New York on the
3rd day of December, 1998.
STRONG SCHAFER VALUE FUND, INC.
By: /s/ David K. Schafer
---------------------------
David K. Schafer,
President
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below on December 3, 1998 by the
following persons in the capacities indicated.
Name Title
---- -----
/s/ David K. Schafer Director and President
- -------------------------
David K. Schafer
/s/ Brendan J. Spillane Secretary and Treasurer and
- ------------------------- Principal Financial and
Brendan J. Spillane Accounting Officer
* Director
- -------------------------
Timothy C. Collins
* Director
- -------------------------
Mary P. English
* Director
- ------------------------
Philip P. Young
*By: /s/ David K. Schafer
---------------------
David K. Schafer
(Attorney-in-fact)
S-1
<PAGE> 48
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
FILED WITH
FORM N-1A
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
AND
REGISTRATION STATEMENT
UNDER THE
INVESTMENT COMPANY ACT OF 1940
STRONG SCHAFER VALUE FUND, INC.
(Exact name of Registrant as specified in Charter)
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
- -------- ------------------------
<S> <C>
(j) Consent of PricewaterhouseCoopers LLP
(n) Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000774627
<NAME> STRONG SCHAFER VALUE FUND, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 1618626456
<INVESTMENTS-AT-VALUE> 1444478219
<RECEIVABLES> 53730141
<ASSETS-OTHER> 18268
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1498226628
<PAYABLE-FOR-SECURITIES> 68481419
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2013683
<TOTAL-LIABILITIES> 70495102
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1596807347
<SHARES-COMMON-STOCK> 28638810
<SHARES-COMMON-PRIOR> 19579738
<ACCUMULATED-NII-CURRENT> 2714501
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2358496
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (174148818)
<NET-ASSETS> 1427731526
<DIVIDEND-INCOME> 31675313
<INTEREST-INCOME> 1523949
<OTHER-INCOME> 0
<EXPENSES-NET> (21645501)
<NET-INVESTMENT-INCOME> 11553761
<REALIZED-GAINS-CURRENT> 5547326
<APPREC-INCREASE-CURRENT> (478303192)
<NET-CHANGE-FROM-OPS> (461202105)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13340621)
<DISTRIBUTIONS-OF-GAINS> (32880858)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20130827
<NUMBER-OF-SHARES-REDEEMED> (11784062)
<SHARES-REINVESTED> 712307
<NET-CHANGE-IN-ASSETS> 110212898
<ACCUMULATED-NII-PRIOR> 4514255
<ACCUMULATED-GAINS-PRIOR> 29679234
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 17407737
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21645501
<AVERAGE-NET-ASSETS> 1741312692
<PER-SHARE-NAV-BEGIN> 67.29
<PER-SHARE-NII> 0.40
<PER-SHARE-GAIN-APPREC> (15.81)
<PER-SHARE-DIVIDEND> (0.59)
<PER-SHARE-DISTRIBUTIONS> (1.44)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 49.85
<EXPENSE-RATIO> 1.2
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE> 1
EXHIBIT (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Strong Schafer Value Fund, Inc.
We consent to the incorporation by reference in Post-Effective Amendment No. 16
to the Registration Statement of Strong Schafer Value Fund, Inc. on Form N-1A of
our report dated November 4, 1998 on our audit of the financial statements and
financial highlights of Strong Schafer Value Fund, Inc., which report is
included in the Annual Report to Shareholders for the year ended September 30,
1998, which is 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.
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
December 2, 1998
