<PAGE> 1
STRONG INCOME FUNDS
STRONG SHORT-TERM BOND FUND STRONG FUNDS
STRONG GOVERNMENT SECURITIES FUND P.O. Box 2936
STRONG CORPORATE BOND FUND Milwaukee, Wisconsin 53201
STRONG HIGH-YIELD BOND FUND Telephone: (414) 359-1400
Toll-Free: (800) 368-3863
Device for the
Hearing-Impaired:
(800) 999-2780
The Strong Family of Funds ("Strong Funds") is a family of more than
twenty-five diversified and non-diversified mutual funds. All of the Strong
Funds are no-load funds, meaning that you may purchase, redeem, or exchange
shares without paying a sales charge. Strong Funds include growth funds,
conservative equity funds, income funds, municipal income funds, international
funds, and cash management funds. Four Strong Income Funds are described in this
Prospectus.
This Prospectus contains information you should consider before you invest.
Please read it carefully and keep it for future reference. A Statement of
Additional Information for the Funds, dated March 1, 1996, contains further
information, is incorporated by reference into this Prospectus, and has been
filed with the Securities and Exchange Commission ("SEC"). This Statement, which
may be revised from time to time, is available without charge upon request to
the above-noted address or telephone number.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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THE STRONG HIGH-YIELD BOND FUND MAY INVEST UP TO 100% OF ITS NET ASSETS IN
LOWER-RATED BONDS, COMMONLY KNOWN AS "JUNK BONDS." BONDS OF THIS TYPE ARE
SUBJECT TO GREATER RISKS WITH REGARD TO PAYMENT OF INTEREST AND RETURN OF
PRINCIPAL, INCLUDING DEFAULT RISKS, THAN ARE HIGHER-RATED
Dated March 1, 1996
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PROSPECTUS PAGE I-1
<PAGE> 2
BONDS. INVESTORS SHOULD CAREFULLY CONSIDER THE RISKS ASSOCIATED WITH AN
INVESTMENT IN THE FUND. (SEE THE PROSPECTUS SECTION ENTITLED "FUNDAMENTALS OF
FIXED INCOME INVESTING - CREDIT QUALITY - HIGH-YIELD (HIGH-RISK) SECURITIES.")
STRONG INCOME FUNDS
The Strong Short-Term Bond Fund, Inc., Strong Government Securities Fund,
Inc., and Strong Corporate Bond Fund, Inc. are separately incorporated,
diversified, open-end management investment companies. The Strong High-Yield
Bond Fund is a diversified series of Strong Income Funds, Inc., which is an
open-end management investment company.
STRONG SHORT-TERM BOND FUND (the "Short-Term Bond Fund") seeks total return
by investing for a high level of current income with a low degree of share-price
fluctuation. The Fund invests primarily in short- and intermediate-term,
investment-grade debt obligations, and its average portfolio maturity will
normally be between one and three years.
STRONG GOVERNMENT SECURITIES FUND (the "Government Securities Fund") seeks
total return by investing for a high level of current income with a moderate
degree of share-price fluctuation. The Fund normally invests at least 80% of its
net assets in U.S. government securities.
STRONG CORPORATE BOND FUND (the "Corporate Bond Fund") seeks total return by
investing for a high level of current income with a moderate degree of
share-price fluctuation. The Fund invests primarily in investment-grade
corporate debt obligations.
STRONG HIGH-YIELD BOND FUND (the "High-Yield Fund") seeks total return by
investing for a high level of current income and capital growth. The Fund
invests primarily in medium- and lower-quality corporate debt obligations.
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PROSPECTUS PAGE I-2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
EXPENSES..................................... I-4
FINANCIAL HIGHLIGHTS......................... I-6
HIGHLIGHTS................................... I-10
INVESTMENT OBJECTIVES AND POLICIES........... I-11
Comparing the Funds................. I-12
Strong Short-Term Bond Fund......... I-12
Strong Government Securities Fund... I-13
Strong Corporate Bond Fund.......... I-13
Strong High-Yield Bond Fund......... I-14
FUNDAMENTALS OF FIXED INCOME INVESTING....... I-15
IMPLEMENTATION OF POLICIES AND RISKS......... I-17
ABOUT THE FUNDS.............................. I-26
SHAREHOLDER MANUAL........................... II-1
APPENDIX A................................... A-1
APPENDIX B................................... B-1
</TABLE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the Statement
of Additional Information, and if given or made, such information or
representations may not be relied upon as having been authorized by the Funds.
This Prospectus does not constitute an offer to sell securities in any state or
jurisdiction in which such offering may not lawfully be made.
---------------------
PROSPECTUS PAGE I-3
<PAGE> 4
EXPENSES
The following information is provided in order to help you understand the
various costs and expenses that you, as an investor in the Funds, will bear
directly or indirectly.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases............. NONE
Sales Load Imposed on Reinvested
Dividends................................. NONE
Deferred Sales Load......................... NONE
Redemption Fees............................. NONE
Exchange Fees............................... NONE
</TABLE>
There are certain charges associated with retirement accounts and with
certain other special shareholder services offered by the Funds. Additionally,
purchases and redemptions may also be made through broker-dealers or others who
may charge a commission or other transaction fee for their services. (See
"Shareholder Manual - How to Buy Shares" and "- How to Sell Shares.")
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Management Other 12b-1 Total Operating
Fund Fees Expenses Fees Expenses
<S> <C> <C> <C> <C>
Short-Term Bond .625% .305% NONE .93%
Government Securities .60 .28 NONE .88
Corporate Bond .625 .405 NONE 1.03
High-Yield .625 .475 NONE 1.10
</TABLE>
- ----------------------------------------------------------------------------
From time to time, the Funds' investment advisor, Strong Capital Management,
Inc. (the "Advisor"), may voluntarily waive its management fee and/or absorb
certain expenses for a Fund. The expenses specified in the table above for the
Short-Term Bond, Government Securities, and Corporate Bond Funds are based on
actual expenses incurred during the ten-month fiscal year ended October 31,
1995. Since the High-Yield Fund is new and did not begin operations until
December 28, 1995, the Other Expenses have been estimated. For additional
information concerning fees and expenses, see "About the Funds - Management."
---------------------
PROSPECTUS PAGE I-4
<PAGE> 5
EXAMPLE. You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period (in years)
-----------------------------------
Fund 1 3 5 10
<S> <C> <C> <C> <C>
Short-Term Bond $ 9 $30 $51 $114
Government Securities 9 28 49 108
Corporate Bond 11 33 57 126
High-Yield 11 35 -- --
</TABLE>
- ----------------------------------------------------------------------------
The Example is based on each Fund's "Total Operating Expenses" before any
waivers and absorptions, as described above. PLEASE REMEMBER THAT THE EXAMPLE
SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND THAT
ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN. The assumption in the
Example of a 5% annual return is required by regulations of the SEC applicable
to all mutual funds. The assumed 5% annual return is not a prediction of, and
does not represent, the projected or actual performance of a Fund's shares.
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PROSPECTUS PAGE I-5
<PAGE> 6
FINANCIAL HIGHLIGHTS
The following annual Financial Highlights for each of the Funds that has
completed a fiscal year has been audited by Coopers & Lybrand L.L.P.,
independent certified public accountants. Their report for the ten-month fiscal
year ended October 31, 1995 is included in the Annual Report of the Income Funds
that is contained in the Funds' Statement of Additional Information. The
Financial Highlights for the High-Yield Fund are not provided because it did not
commence operations until December 28, 1995. The Financial Highlights for the
Funds should be read in conjunction with the Financial Statements and related
notes included in the Funds' Annual Report. Additional information about each
Fund's performance is contained in the Funds' Annual Report, which may be
obtained without charge by calling or writing Strong Funds. The following
presents information relating to a share of common stock of each of the Funds,
outstanding for the entire period.
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PROSPECTUS PAGE I-6
<PAGE> 7
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
STRONG SHORT-TERM BOND FUND
1995*** 1994 1993 1992 1991 1990 1989 1988 1987**
---------- ---------- ---------- -------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 9.42 $ 10.23 $ 9.99 $ 10.12 $ 9.53 $ 9.86 $ 10.09 $ 10.03 $ 10.00
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.56 0.64 0.66 0.76 0.75 0.81 0.99 0.86 0.27
Net Realized and
Unrealized Gains
(Losses)
on Investments 0.35 (0.80) 0.25 (0.11) 0.59 (0.33) (0.18) 0.13 0.04
---------- ---------- ---------- -------- -------- ------- -------- -------- --------
TOTAL FROM INVESTMENT
OPERATIONS 0.91 (0.16) 0.91 0.65 1.34 0.48 0.81 0.99 0.31
LESS DISTRIBUTIONS
From Net Investment
Income (0.56) (0.65) (0.66) (0.76) (0.75) (0.81) (0.99) (0.86) (0.27)
In Excess of Net
Investment Income -- -- (0.01) -- -- -- -- -- --
From Net Realized Gains -- -- -- (0.02)(1) -- -- (0.05) (0.07) (0.01)
---------- ---------- ---------- -------- -------- ------- -------- -------- --------
TOTAL DISTRIBUTIONS (0.56) (0.65) (0.67) (0.78) (0.75) (0.81) (1.04) (0.93) (0.28)
---------- ---------- ---------- -------- -------- ------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 9.77 $ 9.42 $ 10.23 $ 9.99 $ 10.12 $ 9.53 $ 9.86 $ 10.09 $ 10.03
========= ========= ========= ======== ======== ======= ======== ======== =======
Total Return +9.9% -1.6% +9.3% +6.7% +14.6% +5.3% +8.2% +10.1% +3.2%
Net Assets, End of Period
(In Thousands) $1,083,073 $1,041,081 $1,531,627 $756,867 $164,954 $80,070 $130,001 $102,175 $ 17,128
Ratio of Expenses to
Average
Net Assets 0.9%* 0.9% 0.8% 0.6% 1.0% 1.3% 1.1% 1.0% 0.1%*
Ratio of Expenses to
Average Net Assets
Without Waivers and
Absorptions 0.9%* 0.9% 0.9% 0.9% 1.2% 1.3% 1.2% 1.2% 0.8%*
Ratio of Net Investment
Income to Average
Net Assets 7.0%* 6.5% 6.3% 7.3% 7.8% 8.6% 9.7% 8.5% 8.8%*
Portfolio Turnover Rate 317.1% 249.7% 444.9% 353.3% 398.1% 313.8% 177.0% 461.3% 45.2%
</TABLE>
*Calculated on an annualized basis.
**Inception date is August 31, 1987. Total return and portfolio turnover rate
are not annualized.
***For the ten-month fiscal year ended October 31, 1995. Total return and
portfolio turnover rate are not annualized.
(1)Ordinary income distribution for tax purposes.
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PROSPECTUS PAGE I-7
<PAGE> 8
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
STRONG GOVERNMENT SECURITIES FUND
1995*** 1994 1993 1992 1991 1990 1989 1988 1987 1986**
-------- -------- -------- -------- -------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.63 $ 10.61 $ 10.39 $ 10.77 $ 10.10 $ 10.08 $ 9.98 $ 9.75 $ 10.09 $ 10.00
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.54 0.62 0.66 0.80 0.77 0.72 0.78 0.68 0.65 0.13
Net Realized and
Unrealized Gains
(Losses)
on Investments 0.99 (0.98) 0.63 0.11 0.84 0.12 0.17 0.32 (0.34) 0.09
-------- -------- -------- -------- -------- -------- -------- ------- ------- --------
TOTAL FROM INVESTMENT
OPERATIONS 1.53 (0.36) 1.29 0.91 1.61 0.84 0.95 1.00 0.31 0.22
LESS DISTRIBUTIONS
From Net Investment
Income (0.54) (0.62) (0.66) (0.80) (0.77) (0.72) (0.78) (0.68) (0.65) (0.13)
In Excess of Net
Investment Income (0.02) -- -- -- -- -- -- -- -- --
From Net Realized
Gains -- -- (0.32) (0.49) (0.17) (0.10) (0.07) (0.09) -- --
In Excess of Net
Realized Gains -- -- (0.09) -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- ------- ------- --------
TOTAL DISTRIBUTIONS (0.56) (0.62) (1.07) (1.29) (0.94) (0.82) (0.85) (0.77) (0.65) (0.13)
-------- -------- -------- -------- -------- -------- -------- ------- ------- --------
NET ASSET VALUE, END OF
PERIOD $ 10.60 $ 9.63 $ 10.61 $ 10.39 $ 10.77 $ 10.10 $ 10.08 $ 9.98 $ 9.75 $ 10.09
======== ======== ======== ======= ======= ======= ======= ======= ======= =======
Total Return +16.2% -3.4% +12.7% +9.2% +16.7% +8.7% +9.9% +10.5% +3.4% +2.2%
Net Assets, End of
Period
(In Thousands) $456,232 $276,832 $221,961 $ 82,169 $ 51,934 $ 41,099 $ 35,119 $25,408 $11,380 $ 880
Ratio of Expenses to
Average
Net Assets 0.9%* 0.9% 0.8% 0.7% 0.8% 1.3% 1.3% 0.4% 1.0% 0.6%*
Ratio of Expenses to
Average Net Assets
Without Waivers and
Absorptions 0.9%* 0.9% 1.0% 1.2% 1.4% 1.5% 1.6% 1.6% 1.6% 1.2%*
Ratio of Net Investment
Income to Average Net
Assets 6.2%* 6.2% 6.0% 7.7% 7.5% 7.2% 7.6% 6.9% 6.6% 7.2%*
Portfolio Turnover Rate 409.2% 479.0% 520.9% 628.8% 292.9% 254.2% 421.6% 1,727.8% 715.0% 0.0%
</TABLE>
*Calculated on an annualized basis.
**Inception date is October 29, 1986. Total return and portfolio turnover rate
are not annualized.
***For the ten-month period ended October 31, 1995. Total return and portfolio
turnover rate are not annualized.
---------------------
PROSPECTUS PAGE I-8
<PAGE> 9
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
STRONG CORPORATE BOND FUND
1995** 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.36 $ 10.24 $ 9.40 $ 9.37 $ 8.87 $ 10.57 $ 11.88 $ 11.64 $ 12.65 $ 10.30
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.63 0.73 0.70 0.82 0.76 1.06 1.40 1.17 1.23 0.98
Net Realized and
Unrealized Gains
(Losses) on
Investments 1.22 (0.87) 0.84 0.03 0.50 (1.70) (1.31) 0.24 (0.67) 2.08
-------- -------- -------- -------- ------- ------- -------- -------- -------- --------
TOTAL FROM INVESTMENT
OPERATIONS 1.85 (0.14) 1.54 0.85 1.26 (0.64) 0.09 1.41 0.56 3.06
LESS DISTRIBUTIONS
From Net Investment
Income (0.63) (0.73) (0.70) (0.82) (0.76) (1.06) (1.40) (1.17) (1.53) (0.71)
In Excess of Net
Investment Income (0.02) (0.01) -- -- -- -- -- -- -- --
From Net Realized
Gains -- -- -- -- -- -- -- -- (0.04) --
-------- -------- -------- -------- ------- ------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS (0.65) (0.74) (0.70) (0.82) (0.76) (1.06) (1.40) (1.17) (1.57) (0.71)
-------- -------- -------- -------- ------- ------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 10.56 $ 9.36 $ 10.24 $ 9.40 $ 9.37 $ 8.87 $ 10.57 $ 11.88 $ 11.64 $ 12.65
======== ======== ======== ======== ======= ======= ======== ======== ======== ========
Total Return +20.3% -1.3% +16.8% +9.4% +14.8% -6.2% +0.4% +12.5% +4.5% +30.0%
Net Assets, End of
Period (In Thousands) $218,061 $123,305 $123,400 $102,783 $92,364 $92,201 $195,350 $202,623 $137,898 $118,727
Ratio of Expenses to
Average
Net Assets 1.0%* 1.1% 1.1% 1.3% 1.5% 1.4% 1.2% 1.2% 1.1% 1.0%
Ratio of Net Investment
Income
to Average Net Assets 7.5%* 7.6% 7.0% 8.7% 8.4% 11.2% 12.1% 9.8% 10.6% 11.3%
Portfolio Turnover Rate 621.4% 603.0% 665.8% 557.0% 392.4% 293.5% 207.2% 400.2% 245.4% 204.9%
</TABLE>
*Calculated on an annualized basis.
**For the ten-month period ended October 31, 1995. Total return and portfolio
turnover rate are not annualized.
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PROSPECTUS PAGE I-9
<PAGE> 10
HIGHLIGHTS
INVESTMENT OBJECTIVES AND POLICIES
Each Fund has distinct investment objectives and policies. Each Fund seeks to
provide income consistent with its maturity, quality, and other standards as set
forth under "Investment Objectives and Policies."
IMPLEMENTATION OF POLICIES AND RISKS
The Funds may engage in derivative transactions, including options, futures,
and options on futures transactions within specified limits. Each Fund may
invest in when-issued securities, illiquid securities, repurchase agreements,
and foreign securities, except the Government Securities Fund may only invest in
U.S. dollar-denominated foreign securities. Each Fund may engage in reverse
repurchase agreements and mortgage dollar roll transactions. The Short-Term Bond
and Corporate Bond Funds may invest a portion of their assets, and the
High-Yield Fund may invest without limitation, in junk bonds. These investment
practices involve risks that are different in some respects from those
associated with similar funds that do not use them. (See "Implementation of
Policies and Risks" and "Fundamentals of Fixed Income Investing - Credit
Quality.")
MANAGEMENT
The Advisor, Strong Capital Management, Inc., serves as investment advisor to
the Funds. The Advisor provides investment management services for mutual funds
and other investment portfolios representing assets of over $18 billion. (See
"About the Funds - Management.")
PURCHASE AND REDEMPTION OF SHARES
You may purchase or redeem shares of a Fund at net asset value. There are no
redemption or 12b-1 charges. The net asset values of the Funds change daily with
the value of each Fund's portfolio. You can locate the net asset value for a
Fund in newspaper listings of mutual fund prices under the "Strong Funds"
heading or at our site on the World Wide Web at http://www.strong-funds.com.
(See "Shareholder Manual - How to Buy Shares" and "- How to Sell Shares.")
SHAREHOLDER SERVICES
Strong shareholder benefits include: telephone purchase, exchange, and
redemption privileges; professional representatives available 24 hours a day;
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PROSPECTUS PAGE I-10
<PAGE> 11
automatic investment, automatic dividend reinvestment, payroll direct deposit,
automatic exchange and systematic withdrawal plans; free check writing; and a
no-minimum investment program. (See "Shareholder Manual - Shareholder
Services.")
DIVIDENDS AND OTHER DISTRIBUTIONS
The policy of each Fund is to pay dividends from net investment income
monthly and to distribute substantially all net realized capital gains annually.
(See "About the Funds - Distributions and Taxes.")
INVESTMENT OBJECTIVES AND POLICIES
The descriptions that follow are designed to help you choose the Fund that
best fits your investment objective. You may want to pursue more than one
objective by investing in more than one of the Funds or by investing in one of
the other Strong Funds, which are described in separate prospectuses. Each
Income Fund's investment objective is discussed below in connection with the
Fund's investment policies. Because of the risks inherent in all investments,
there can be no assurance that the Funds will meet their objectives.
Each Fund's risk and return potential depends in part on the maturity and
credit-quality characteristics of the underlying investments in its portfolio.
In general, longer-maturity fixed income securities carry higher yields and
greater price volatility than shorter-term fixed income securities. Similarly,
fixed income securities issued by less creditworthy entities tend to carry
higher yields than those with higher credit ratings. (See "Fundamentals of Fixed
Income Investing" for a more detailed discussion of the principles and risks
associated with fixed income securities.)
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PROSPECTUS PAGE I-11
<PAGE> 12
COMPARING THE FUNDS
The following summary is intended to help distinguish the Funds and help you
determine their suitability for your investments.
<TABLE>
<CAPTION>
AVERAGE CREDIT INCOME DEGREE OF SHARE-
FUND MATURITY QUALITY POTENTIAL PRICE FLUCTUATION
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
SHORT-TERM 1 to 3 years Primarily Moderate Low
BOND investment
grade
- ----------------------------------------------------------------------------
GOVERNMENT 5 to 10 years* 100% investment Moderate Moderate
SECURITIES grade to high
- ----------------------------------------------------------------------------
CORPORATE 7 to 12 years* Primarily Moderate Moderate
BOND investment to high
grade
- ----------------------------------------------------------------------------
HIGH-YIELD 5 to 10 years* Primarily High Moderate to high
non-investment
grade
- ----------------------------------------------------------------------------
</TABLE>
*Expected range
Each Fund has adopted certain fundamental investment restrictions that are
set forth in the Funds' Statement of Additional Information ("SAI"). Those
restrictions, each Fund's investment objective, and any other investment
policies identified as "fundamental" cannot be changed without shareholder
approval. To further guide investment activities, each Fund has also instituted
a number of non-fundamental operating policies, which are described throughout
this Prospectus and in the SAI. Although operating policies may be changed by a
Fund's Board of Directors without shareholder approval, a Fund will promptly
notify shareholders of any material change in operating policies.
When the Advisor determines market conditions warrant a temporary defensive
position, the Funds may each invest without limitation in cash and short-term
fixed income securities.
STRONG SHORT-TERM BOND FUND
The Short-Term Bond Fund seeks total return by investing for a high level of
current income with a low degree of share-price fluctuation.
The Fund is designed for investors who are willing to accept some fluctuation
in principal in order to pursue a higher level of income than is generally
available from money market securities. BECAUSE ITS SHARE PRICE WILL VARY, THE
FUND IS NOT AN APPROPRIATE INVESTMENT FOR THOSE WHOSE PRIMARY OBJECTIVE IS
ABSOLUTE PRINCIPAL STABILITY.
----------------------
PROSPECTUS PAGE I-12
<PAGE> 13
The Fund invests primarily in short- and intermediate-term, investment-grade
debt obligations. Under normal market conditions at least 65% of the Fund's
total assets will be invested in debt obligations, such as corporate and U.S.
government debt obligations. The Fund's average portfolio maturity will be
between one and three years under normal market conditions.
Under normal market conditions, at least 75% of the Fund's net assets will be
invested in investment-grade debt obligations, which generally include a range
of obligations from those in the highest rating category to those in the
fourth-highest rating category (e.g., BBB or higher by Standard & Poor's Ratings
Group or "S&P"). The Fund may also invest up to 25% of its net assets in
non-investment-grade debt obligations that are rated in the fifth-highest rating
category (e.g., BB by S&P) or unrated securities of comparable quality. (See
"Fundamentals of Fixed Income Investing - Credit Quality.")
STRONG GOVERNMENT SECURITIES FUND
The Government Securities Fund seeks total return by investing for a high
level of current income with a moderate degree of share-price fluctuation.
The Fund is designed for long-term investors who want to pursue higher income
than shorter-term securities generally provide, who are willing to accept the
fluctuation in principal associated with longer-term securities, and who seek
the low credit risk that U.S. government securities generally carry.
Under normal market conditions, at least 80% of the Fund's net assets will be
invested in U.S. government securities. The balance of the Fund's assets may be
invested in other investment-grade debt obligations. While there are no maturity
restrictions on the portfolio, it is anticipated that the Fund's average
portfolio maturity will normally be between 5 and 10 years.
Under federal law, the interest income earned from U.S. Treasury securities
is exempt from state and local taxes. All states allow mutual funds to "pass
through" that exemption to their shareholders, although there are conditions to
this treatment in some states. Because the requirements vary by state, you
should consult the instructions to your state's income tax return or a qualified
tax adviser to determine whether you may be able to exclude the Fund's
distributions from your state and local taxable income. (See "About the Funds -
Distributions and Taxes.")
STRONG CORPORATE BOND FUND
The Corporate Bond Fund seeks total return by investing for a high level of
current income with a moderate degree of share-price fluctuation.
The Fund is designed for long-term investors who want to pursue higher income
than shorter-term securities generally provide and who are willing to accept the
fluctuation in principal associated with longer-term debt obligations. While
there are no maturity restrictions on the portfolio, it is anticipated that the
Fund's average portfolio maturity will normally be between 7 and 12 years.
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PROSPECTUS PAGE I-13
<PAGE> 14
Under normal market conditions at least 65% of the Fund's total assets will
be invested in the bonds of corporate issuers, which includes any corporate debt
obligation. The Fund may invest up to 35% of its total assets in any other
type of fixed income security, such as U.S. government securities and
mortgage-backed issues. Under normal market conditions, at least 75% of the
Fund's net assets will be invested in investment-grade debt obligations, which
include a range of securities from those in the highest rating category to those
rated medium-quality (e.g., BBB or higher by S&P). The Fund may also invest up
to 25% of its net assets in non-investment-grade debt obligations and other
high-yield (high-risk) securities (e.g., those rated C or better by S&P). (See
"Fundamentals of Fixed Income Investing - Credit Quality.")
STRONG HIGH-YIELD BOND FUND
The High-Yield Bond Fund seeks total return by investing for a high level of
current income and capital growth.
The Fund is designed for investors who want to pursue higher income than
higher-quality debt obligations generally provide and who are willing to accept
the risk of principal fluctuation associated with medium- and lower-quality debt
obligations. While there are no maturity restrictions for the Fund's debt
obligations, it is anticipated that the Fund will maintain an average portfolio
maturity of between 5 and 10 years.
The Fund invests primarily in medium- and lower-quality debt obligations.
Under normal market conditions the Fund invests at least 65% of its total assets
in medium- and lower-quality debt obligations of corporate issuers. Medium-
quality debt obligations are those rated in the fourth-highest category (e.g.,
bonds rated BBB by S&P) or obligations determined by the Advisor to be of
comparable quality. Medium-quality debt obligations, although considered
investment grade, have some speculative characteristics. Lower-quality bonds,
also commonly referred to as "non-investment-grade" bonds or "junk" bonds, are
those rated below the fourth-highest category (e.g., bonds rated as low as C by
S&P) or bonds of comparable quality. The Fund also may invest in debt
obligations that are in default, but such obligations are not expected to exceed
10% of the Fund's net assets. Under normal market conditions, however, the Fund
is unlikely to emphasize higher-quality debt obligations, since generally they
offer lower yields than medium- and lower-quality bonds with similar maturities.
(See "Fundamentals of Fixed Income Investing - Credit Quality - High-Yield
(High-Risk) Securities" for further information on the risks associated with
investing in medium- and lower-quality debt obligations.) The Fund may also
invest up to 20% of its net assets in common stocks and securities that are
convertible into common stocks, such as warrants.
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<PAGE> 15
FUNDAMENTALS OF
FIXED INCOME INVESTING
The Funds may invest in a wide variety of debt obligations and other
securities. See "Implementation of Policies and Risks - Debt Obligations."
Issuers of debt obligations have a contractual obligation to pay interest at
a specified rate ("coupon rate") on specified dates and to repay principal
("face value" or "par value") on a specified maturity date. Certain debt
obligations (usually intermediate- and long-term obligations) have provisions
that allow the issuer to redeem or "call" the obligation before its maturity.
Issuers are most likely to call such debt obligations during periods of falling
interest rates. As a result, a Fund may be required to invest the unanticipated
proceeds of the called obligations at lower interest rates, which may cause the
Fund's income to decline.
Although the net asset values of the Funds are expected to fluctuate, the
Advisor actively manages each Fund's portfolio and adjusts its average portfolio
maturity according to the Advisor's interest rate outlook while seeking to avoid
or reduce, to the extent possible, any negative changes in net asset value.
PRICE VOLATILITY
The market value of debt obligations is affected by changes in prevailing
interest rates. The market value of a debt obligation generally reacts inversely
to interest-rate changes, meaning, when prevailing interest rates decline, an
obligation's price usually rises, and when prevailing interest rates rise, an
obligation's price usually declines. A fund portfolio consisting primarily of
debt obligations will react similarly to changes in interest rates.
MATURITY
In general, the longer the maturity of a debt obligation, the higher its
yield and the greater its sensitivity to changes in interest rates. Conversely,
the shorter the maturity, the lower the yield but the greater the price
stability. Commercial paper is generally considered the shortest form of debt
obligation. Notes, whose original maturities are two years or less, are
considered short-term obligations. The term "bond" generally refers to
securities with maturities longer than two years. Bonds with maturities of three
years or less are considered short-term, bonds with maturities between three and
seven years are considered intermediate-term, and bonds with maturities greater
than seven years are considered long-term.
CREDIT QUALITY
The values of debt obligations may also be affected by changes in the credit
rating or financial condition of their issuers. Generally, the lower the quality
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<PAGE> 16
rating of an obligation, the higher the degree of risk as to the payment of
interest and return of principal. To compensate investors for taking on such
increased risk, those issuers deemed to be less creditworthy generally must
offer their investors higher interest rates than do issuers with better credit
ratings.
In conducting its credit research and analysis, the Advisor considers both
qualitative and quantitative factors to evaluate the creditworthiness of
individual issuers. The Advisor also relies, in part, on credit ratings compiled
by a number of NRSROs. "Appendix A - Ratings of Debt Obligations" presents a
summary of the ratings of three well-known such organizations: S&P, Moody's
Investors Service, Inc., and Fitch Investors Service, Inc. Please refer to the
Appendix in the Funds' SAI for a more detailed description of these ratings.
INVESTMENT-GRADE DEBT OBLIGATIONS. Debt obligations rated in the highest-
through the medium-quality categories are commonly referred to as
"investment-grade" debt obligations and include the following:
- - U.S. government securities (See "Implementation of Policies and Risks - Debt
Obligations" below);
- - bonds or bank obligations rated in one of the four highest rating categories
(e.g., BBB or higher by S&P);
- - short-term notes rated in one of the two highest rating categories (e.g., SP-2
or higher by S&P);
- - short-term bank obligations rated in one of the three highest rating
categories (e.g., A-3 or higher by S&P), with respect to obligations maturing
in one year or less;
- - commercial paper rated in one of the three highest rating categories (e.g.,
A-3 or higher by S&P);
- - unrated debt obligations determined by the Advisor to be of comparable
quality; and
- - repurchase agreements involving investment-grade debt obligations.
Investment-grade debt obligations are generally believed to have relatively
low degrees of credit risk. However, medium-quality debt obligations, while
considered investment grade, may have some speculative characteristics, since
their issuers' capacity for repayment may be more vulnerable to adverse economic
conditions or changing circumstances than that of higher-rated issuers.
All ratings are determined at the time of investment. Any subsequent rating
downgrade of a debt obligation will be monitored by the Advisor to consider what
action, if any, a Fund should take consistent with its investment objective.
HIGH-YIELD (HIGH-RISK) SECURITIES. High-yield (high-risk) securities, also
referred to as "junk bonds," are those securities that are rated lower than
investment grade and unrated securities of comparable quality. Although these
securities generally offer higher yields than investment-grade securities with
similar maturities, lower-quality securities involve greater risks, including
the
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<PAGE> 17
possibility of default or bankruptcy. In general, they are regarded to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. Other potential risks associated with investing in high-
yield securities include:
- - substantial market-price volatility resulting from changes in interest rates,
changes in or uncertainty about economic conditions, and changes in the actual
or perceived ability of the issuer to meet its obligations;
- - greater sensitivity of highly leveraged issuers to adverse economic changes
and individual-issuer developments;
- - subordination to the prior claims of other creditors;
- - additional Congressional attempts to restrict the use or limit the tax and
other advantages of these securities; and
- - adverse publicity and changing investor perceptions about these securities.
As with any other asset in a Fund's portfolio, any reduction in the value of
such securities as a result of the factors listed above would be reflected in
the net asset value of the Fund. In addition, a Fund that invests in
lower-quality securities may incur additional expenses to the extent it is
required to seek recovery upon a default in the payment of principal and
interest on its holdings. As a result of the associated risks, successful
investments in high-yield, high-risk securities will be more dependent on the
Advisor's credit analysis than generally would be the case with investments in
investment-grade securities.
It is uncertain how the high-yield market will perform during a prolonged
period of rising interest rates. A prolonged economic downturn or a prolonged
period of rising interest rates could adversely affect the market for these
securities, increase their volatility, and reduce their value and liquidity. In
addition, lower-quality securities tend to be less liquid than higher-quality
debt securities because the market for them is not as broad or active. If market
quotations are not available, these securities will be valued in accordance with
procedures established by a Fund's Board of Directors. Judgment may, therefore,
play a greater role in valuing these securities. The lack of a liquid secondary
market may have an adverse effect on market price and a Fund's ability to sell
particular securities.
See Appendix B for information concerning the credit quality of the Short-
Term Bond and Corporate Bond Funds' investments for the fiscal year ended
October 31, 1995.
IMPLEMENTATION OF POLICIES AND RISKS
In addition to the investment policies described above (and subject to
certain restrictions described below), the Funds may invest in some or all of
the following securities and may employ some or all of the following investment
techniques, some of which may present special risks as described below. A more
complete discussion of certain of these securities and investment techniques and
the associated risks is contained in the Funds' SAI.
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<PAGE> 18
DEBT OBLIGATIONS
The Funds may invest in any debt obligations. A Fund's authority to invest in
certain types of debt obligations may be restricted or subject to objective
investment criteria. For additional information on these restrictions, see
"Investment Objectives and Policies."
TYPES OF OBLIGATIONS. Debt obligations include (i) corporate debt securities,
including bonds, debentures, and notes; (ii) bank obligations, such as
certificates of deposit, banker's acceptances, and time deposits of domestic and
foreign banks and their subsidiaries and branches, and domestic savings and loan
associations (in amounts in excess of the insurance coverage (currently $100,000
per account) provided by the Federal Deposit Insurance Corporation); (iii)
commercial paper (including variable-amount master demand notes); (iv)
repurchase agreements; (v) loan interests; (vi) foreign debt obligations issued
by foreign issuers traded either in foreign markets or in domestic markets
through depositary receipts; (vii) convertible securities - debt obligations of
corporations convertible into or exchangeable for equity securities or debt
obligations that carry with them the right to acquire equity securities, as
evidenced by warrants attached to such securities, or acquired as part of units
of the securities; (viii) preferred stocks - securities that represent an
ownership interest in a corporation and that give the owner a prior claim over
common stock on the company's earnings or assets; (ix) U.S. government
securities; (x) mortgage-backed securities, collateralized mortgage obligations,
and similar securities; and (xi) municipal obligations.
GOVERNMENT SECURITIES
U.S. government securities are issued or guaranteed by the U.S. government or
its agencies or instrumentalities. Securities issued by the government include
U.S. Treasury obligations, such as Treasury bills, notes, and bonds. Securities
issued or guaranteed by government agencies or instrumentalities include the
following:
- - the Federal Housing Administration, Farmers Home Administration, Export-Import
Bank of the United States, Small Business Administration, and the Government
National Mortgage Association, including GNMA pass-through certificates, whose
securities are supported by the full faith and credit of the United States;
- - the Federal Home Loan Banks, Federal Intermediate Credit Banks, and the
Tennessee Valley Authority, whose securities are supported by the right of the
agency to borrow from the U.S. Treasury;
- - the Federal National Mortgage Association, whose securities are supported by
the discretionary authority of the U.S. government to purchase certain
obligations of the agency or instrumentality; and
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PROSPECTUS PAGE I-18
<PAGE> 19
- - the Student Loan Marketing Association, the Interamerican Development Bank,
and International Bank for Reconstruction and Development, whose securities
are supported only by the credit of such agencies.
Although the U.S. government provides financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so. The U.S. government and its agencies and
instrumentalities do not guarantee the market value of their securities;
consequently, the value of such securities will fluctuate.
MORTGAGE- AND ASSET-BACKED SECURITIES
Mortgage-backed securities represent direct or indirect participation in, or
are secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and collateralized
mortgage obligations. Such securities may be issued or guaranteed by U.S.
government agencies or instrumentalities or by private issuers, generally
originators in mortgage loans, including savings associations, mortgage bankers,
commercial banks, investment bankers, and special purpose entities
(collectively, "private lenders"). Mortgage-backed securities issued by private
lenders may be supported by pools of mortgage loans or other mortgage-backed
securities that are guaranteed, directly or indirectly, by the U.S. government
or one of its agencies or instrumentalities, or they may be issued without any
governmental guarantee of the underlying mortgage assets but with some form of
non-governmental credit enhancement.
Asset-backed securities have structural characteristics similar to mortgage-
backed securities. However, the underlying assets are not first-lien mortgage
loans or interests therein; rather they include assets such as motor vehicle
installment sales contracts, other installment loan contracts, home equity
loans, leases of various types of property and receivables from credit card or
other revolving credit arrangements. Payments or distributions of principal and
interest on asset-backed securities may be supported by non-governmental credit
enhancements similar to those utilized in connection with mortgage-backed
securities.
The yield characteristics of mortgage- and asset-backed securities differ
from those of traditional debt obligations. Among the principal differences are
that interest and principal payments are made more frequently on mortgage-and
asset-backed securities, usually monthly, and that principal may be prepaid at
any time because the underlying mortgage loans or other assets generally may be
prepaid at any time. As a result, if a Fund purchases these securities at a
premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing the yield to maturity. Conversely, if a Fund
purchases these securities at a discount, a prepayment rate that is faster than
expected will increase yield to maturity, while a prepayment rate that is slower
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PROSPECTUS PAGE I-19
<PAGE> 20
than expected will reduce yield to maturity. Accelerated prepayments on
securities purchased by a Fund at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is prepaid in full. The market for privately issued mortgage- and
asset-backed securities is smaller and less liquid than the market for
government sponsored mortgage-backed securities.
The Funds may invest in stripped mortgage- or asset-backed securities, which
receive differing proportions of the interest and principal payments from the
underlying assets. The market value of such securities generally is more
sensitive to changes in prepayment and interest rates than is the case with
traditional mortgage- and asset-backed securities, and in some cases the market
value may be extremely volatile. With respect to certain stripped securities,
such as interest-only ("IO") and principal-only ("PO") classes, a rate of
prepayment that is faster or slower than anticipated may result in a Fund
failing to recover all or a portion of its investment, even though the
securities are rated investment grade.
LOAN INTERESTS
The Short-Term Bond, Corporate Bond, and High-Yield Funds may each invest a
portion of their assets in loan interests, which are interests in amounts owed
by a corporate, governmental or other borrower to lenders or lending syndicates.
Loan interests purchased by a Fund may have a maturity of any number of days or
years, and may be secured or unsecured. Loan interests, which may take the form
of participation interests in, assignments of, or novations of a loan, may be
acquired from U.S. and foreign banks, insurance companies, finance companies or
other financial institutions that have made loans or are members of a lending
syndicate or from the holders of loan interests. Loan interests involve the risk
of loss in case of default or bankruptcy of the borrower and, in the case of
participation interests, involve a risk of insolvency of the agent lending bank
or other financial intermediary. Loan interests are not rated by any NRSROs and
are, at present, not readily marketable and may be subject to contractual
restrictions on resale.
FOREIGN SECURITIES AND CURRENCIES
The Short-Term Bond, Corporate Bond, and High-Yield Funds each may invest up
to 25% of their net assets, and the Government Securities Fund may invest up to
20% of its net assets, directly or indirectly in foreign securities. The
Government Securities Fund will limit its investments in foreign securities to
those denominated in U.S. dollars. The Funds may invest in U.S. securities
enhanced as to credit quality or liquidity by foreign issuers without regard to
this limitation.
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<PAGE> 21
Foreign investments involve special risks, including:
- - expropriation, confiscatory taxation, and withholding taxes on dividends and
interest;
- - less extensive regulation of foreign brokers, securities markets, and issuers;
- - less publicly available information and different accounting standards;
- - costs incurred in conversions between currencies, possible delays in
settlement in foreign securities markets, limitations on the use or transfer
of assets (including suspension of the ability to transfer currency from a
given country), and difficulty of enforcing obligations in other countries;
and
- - diplomatic developments and political or social instability.
Foreign economies may differ favorably or unfavorably from the U.S. economy
in various respects, including growth of gross domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource
self-sufficiency, and balance of payments positions. Many foreign securities may
be less liquid and their prices more volatile than comparable U.S. securities.
Although the Funds generally invest only in securities that are regularly traded
on recognized exchanges or in over-the-counter markets, from time to time
foreign securities may be difficult to liquidate rapidly without adverse price
effects. Certain costs attributable to foreign investing, such as custody
charges and brokerage costs, may be higher than those attributable to domestic
investing.
Because most foreign securities are denominated in non-U.S. currencies, the
investment performance of the Short-Term Bond, Corporate Bond, and High-Yield
Funds could be affected by changes in foreign currency exchange rates to some
extent. The value of a Fund's assets denominated in foreign currencies will
increase or decrease in response to fluctuations in the value of those foreign
currencies relative to the U.S. dollar. Currency exchange rates can be volatile
at times in response to supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation, and
other political and economic conditions.
The Short-Term Bond, Corporate Bond, and High-Yield Funds may purchase and
sell foreign currency on a spot basis and may engage in forward currency
contracts, currency options, and futures transactions for hedging or any other
lawful purpose. (See "Derivative Instruments.")
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with certain banks and
non-bank dealers. In a repurchase agreement, a Fund buys a security at one
price, and at the time of sale, the seller agrees to repurchase the obligation
at a mutually agreed upon time and price (usually within seven days). The
repurchase agreement determines the yield during the purchaser's holding period,
while the seller's obligation to repurchase is secured by the value of the
underlying security. A Fund may enter into repurchase agreements with re-
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PROSPECTUS PAGE I-21
<PAGE> 22
spect to any security in which it may invest. The Advisor will monitor, on an
ongoing basis, the value of the underlying securities to ensure that the value
always equals or exceeds the repurchase price plus accrued interest. Repurchase
agreements could involve certain risks in the event of a default or insolvency
of the other party to the agreement, including possible delays or restrictions
upon a Fund's ability to dispose of the underlying securities. Although no
definitive creditworthiness criteria are used, the Advisor reviews the
creditworthiness of the banks and non-bank dealers with which the Funds enter
into repurchase agreements to evaluate those risks. A Fund may, under certain
circumstances, deem repurchase agreements collateralized by U.S. government
securities to be investments in U.S. government securities.
DERIVATIVE INSTRUMENTS
A Fund may use derivative instruments for any lawful purpose consistent with
the Fund's investment objective such as hedging or managing risk, but not for
speculation. Derivative instruments are commonly defined to include securities
or contracts whose values depend on (or "derive" from) the value of one or more
other assets, such as securities, currencies, or commodities. These "other
assets" are commonly referred to as "underlying assets."
A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to options or forward contracts. Options and forward
contracts are considered to be the basic "building blocks" of derivatives. For
example, forward-based derivatives include forward contracts, swap contracts, as
well as exchange-traded futures. Option-based derivatives include privately
negotiated, over-the-counter (OTC) options (including caps, floors, collars, and
options on forward and swap contracts) and exchange-traded options on futures.
Diverse types of derivatives may be created by combining options or forward
contracts in different ways, and by applying these structures to a wide range of
underlying assets.
An option is a contract in which the "holder" (the buyer) pays a certain
amount (the "premium") to the "writer" (the seller) to obtain the right, but not
the obligation, to buy from the writer (in a "call") or sell to the writer (in a
"put") a specific asset at an agreed upon price at or before a certain time. The
holder pays the premium at inception and has no further financial obligation.
The holder of an option-based derivative generally will benefit from favorable
movements in the price of the underlying asset but is not exposed to
corresponding losses due to adverse movements in the value of the underlying
asset. The writer of an option-based derivative generally will receive fees or
premiums but generally is exposed to losses due to changes in the value of the
underlying asset.
A forward is a sales contract between a buyer (holding the "long" position)
and a seller (holding the "short" position) for an asset with delivery deferred
until a future date. The buyer agrees to pay a fixed price at the agreed future
date and the seller agrees to deliver the asset. The seller hopes that the
market
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PROSPECTUS PAGE I-22
<PAGE> 23
price on the delivery date is less than the agreed upon price, while the buyer
hopes for the contrary. The change in value of a forward-based derivative
generally is roughly proportional to the change in value of the underlying
asset.
Derivative instruments may include (i) options; (ii) futures; (iii) options
on futures; (iv) short sales against the box, in which a Fund sells a security
it owns for delivery at a future date; (v) swaps, in which two parties agree to
exchange a series of cash flows in the future, such as interest-rate payments;
(vi) interest-rate caps, under which, in return for a premium, one party agrees
to make payments to the other to the extent that interest rates exceed a
specified rate, or "cap"; (vii) interest-rate floors, under which, in return for
a premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified level, or "floor"; (viii) forward currency
contracts and foreign currency exchange-related securities; and (ix) structured
instruments which combine the foregoing in different ways.
Derivatives may be exchange-traded or traded in OTC transactions between
private parties. OTC transactions are subject to additional risks, such as the
credit risk of the counterparty to the instrument and are less liquid than
exchange-traded derivatives since they often can only be closed out with the
other party to the transaction. Derivative instruments may include elements of
leverage and, accordingly, the fluctuation of the value of the derivative
instrument in relation to the underlying asset may be magnified. When required
by SEC guidelines, a Fund will set aside permissible liquid assets or securities
positions that substantially correlate to the market movements of the derivative
in a segregated account to secure its obligations under the derivative. In order
to maintain its required cover for a derivative, a Fund may need to sell
portfolio securities at disadvantageous prices or times since it may not be
possible to liquidate a derivative position.
The successful use of derivatives by a Fund is dependent upon a variety of
factors, particularly the Advisor's ability to correctly anticipate trends in
the underlying asset. In a hedging transaction, if the Advisor incorrectly
anticipates trends in the underlying asset, a Fund may be in a worse position
than if no hedging had occurred. In addition, there may be imperfect correlation
between a Fund's derivative transactions and the instruments being hedged. To
the extent that the Fund is engaging in derivative transactions for risk
management, the Fund's successful use of such transactions is more dependent
upon the Advisor's ability to correctly anticipate such trends, since losses in
these transactions may not be offset by gains in the Fund's portfolio or by
lower purchase prices for assets it intends to acquire. The Advisor's prediction
of trends in underlying assets may prove to be inaccurate, which could result in
substantial losses to a Fund.
In addition to the derivative instruments and strategies described above, the
Advisor expects to discover additional derivative instruments and other hedging
or risk-management techniques. The Advisor may utilize these new derivative
instruments and techniques to the extent that they are consistent
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PROSPECTUS PAGE I-23
<PAGE> 24
with a Fund's investment objective and permitted by the Fund's investment
limitations, operating policies, and applicable regulatory authorities.
WHEN-ISSUED SECURITIES
Each Fund may invest without limitation in securities purchased on a when-
issued or delayed delivery basis. Although the payment and interest terms of
these securities are established at the time the purchaser enters into the
commitment, these securities may be delivered and paid for at a future date,
generally within 45 days. Purchasing when-issued securities allows a Fund to
lock in a fixed price or yield on a security it intends to purchase. However,
when a Fund purchases a when-issued security, it immediately assumes the risk of
ownership, including the risk of price fluctuation.
The greater a Fund's outstanding commitments for these securities, the
greater the exposure to potential fluctuations in the net asset value of a Fund.
Purchasing when-issued securities may involve the additional risk that the yield
available in the market when the delivery occurs may be higher or the market
price lower than that obtained at the time of commitment. Although a Fund may be
able to sell these securities prior to the delivery date, it will purchase
when-issued securities for the purpose of actually acquiring the securities,
unless, after entering into the commitment, a sale appears desirable for
investment reasons. When required by SEC guidelines, a Fund will set aside
permissible liquid assets in a segregated account to secure its outstanding
commitments for when-issued securities.
ILLIQUID SECURITIES
The Funds may each invest up to 15% of their net assets in illiquid
securities. Illiquid securities are those securities that are not readily
marketable, including restricted securities and repurchase obligations maturing
in more than seven days. Certain restricted securities which may be resold to
institutional investors under Rule 144A under the Securities Act of 1933 and
Section 4(2) commercial paper may be determined to be liquid under guidelines
adopted by each Fund's Board of Directors.
ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES
The Funds may invest without limitation in zero-coupon, step-coupon, and
pay-in-kind securities. These securities are debt securities that do not make
regular cash interest payments. Zero-coupon and step-coupon securities are sold
at a deep discount to their face value. Pay-in-kind securities pay interest
through the issuance of additional securities. Because such securities do not
pay current cash income, the price of these securities can be volatile when
interest rates fluctuate. While these securities do not pay current cash income,
federal income tax law requires the holders of zero-coupon, step-coupon, and
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PROSPECTUS PAGE I-24
<PAGE> 25
pay-in-kind securities to include in income each year the portion of the
original issue discount (or deemed discount) and other non-cash income on such
securities accrued during that year. In order to continue to qualify for
treatment as a "regulated investment company" under the Internal Revenue Code
and avoid a certain excise tax, each Fund may be required to distribute a
portion of such discount and income and may be required to dispose of other
portfolio securities, which may occur in periods of adverse market prices, in
order to generate cash to meet these distribution requirements.
MORTGAGE DOLLAR ROLLS AND
REVERSE REPURCHASE AGREEMENTS
The Funds may engage in reverse repurchase agreements to facilitate portfolio
liquidity, a practice common in the mutual fund industry, or for arbitrage
transactions discussed below. In a reverse repurchase agreement, the Fund would
sell a security and enter into an agreement to repurchase the security at a
specified future date and price. The Fund generally retains the right to
interest and principal payments on the security. Since the Fund receives cash
upon entering into a reverse repurchase agreement, it may be considered a
borrowing. When required by SEC guidelines, a Fund will set aside permissible
liquid assets in a segregated account to secure its obligation to repurchase the
security.
Each Fund may also enter into mortgage dollar rolls, in which the Fund would
sell mortgage-backed securities for delivery in the current month and
simultaneously contract to purchase substantially similar securities on a
specified future date. While a Fund would forego principal and interest paid on
the mortgage-backed securities during the roll period, the Fund would be
compensated by the difference between the current sale price and the lower price
for the future purchase as well as by any interest earned on the proceeds of the
initial sale. The Fund also could be compensated through the receipt of fee
income equivalent to a lower forward price. When required by SEC guidelines, a
Fund would set aside permissible liquid assets in a segregated account to secure
its obligation for the forward commitment to buy mortgage-backed securities.
Mortgage dollar roll transactions may be considered a borrowing by the Funds.
The mortgage dollar rolls and reverse repurchase agreements entered into by
the Funds may be used as arbitrage transactions in which a Fund will maintain an
offsetting position in investment-grade debt obligations or repurchase
agreements that mature on or before the settlement date of the related mortgage
dollar roll or reverse repurchase agreement. Since a Fund will receive interest
on the securities or repurchase agreements in which it invests the transaction
proceeds, such transactions may involve leverage. However, since such securities
or repurchase agreements will be high quality and will mature on or before the
settlement date of the mortgage dollar roll or reverse repurchase agreement, the
Advisor believes that such arbitrage transactions
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<PAGE> 26
do not present the risks to the Funds that are associated with other types of
leverage.
PORTFOLIO TURNOVER
Historical portfolio turnover rates for the Short-Term Bond, Government
Securities, and Corporate Bond Funds are listed under "Financial Highlights."
The annual portfolio turnover rate indicates changes in a Fund's portfolio. The
turnover rate may vary from year to year, as well as within a year. It may also
be affected by sales of portfolio securities necessary to meet cash requirements
for redemptions of shares. High portfolio turnover in any year will result in
the payment by a Fund of above-average amounts of transaction costs and could
result in the payment by shareholders of above-average amounts of taxes on
realized investment gains. The annual portfolio turnover rates for the High-
Yield Fund is expected to be between 200% and 300%. However, the High-Yield
Fund's portfolio turnover rate may exceed 300% when the advisor believes the
anticipated benefits of short-term investments outweigh any increase in
transaction costs or increase in capital gains.
ABOUT THE FUNDS
MANAGEMENT
The Board of Directors of each Fund is responsible for managing its business
and affairs. Each of the Funds has entered into an investment advisory agreement
(collectively the "Advisory Agreements") with Strong Capital Management, Inc.
(the "Advisor"). Except for the management fee arrangements, the Advisory
Agreements are substantially identical. Under the terms of these agreements, the
Advisor manages each Fund's investments and business affairs subject to the
supervision of each Fund's Board of Directors.
ADVISOR. The Advisor began conducting business in 1974. Since then, its
principal business has been providing continuous investment supervision for
individuals and institutional accounts, such as pension funds and profit-sharing
plans, as well as mutual funds, several of which are funding vehicles for
variable insurance products. As of February 28, 1996, the Advisor had over $18
billion under management. The Advisor's principal mailing address is P.O. Box
2936, Milwaukee, Wisconsin 53201. Mr. Richard S. Strong, the Chairman of the
Board of each Fund, is the controlling shareholder of the Advisor.
As compensation for its services, each Fund pays the Advisor a monthly
management fee based on a percentage of each Fund's average daily net asset
value. The annual rates are as follows: Government Securities Fund, .60%; and
Short-Term Bond, Corporate Bond, and High-Yield Funds, .625%. From time to time,
the Advisor may voluntarily waive all or a portion of its management fee
----------------------
PROSPECTUS PAGE I-26
<PAGE> 27
and/or absorb certain Fund expenses without further notification of the
commencement or termination of such waiver or absorption. Any such waiver or
absorption will temporarily lower a Fund's overall expense ratio and increase a
Fund's overall return to investors.
Except for expenses assumed by the Advisor or Strong Funds Distributors,
Inc., each Fund is responsible for all its other expenses, including, without
limitation, interest charges, taxes, brokerage commissions, and similar
expenses; expenses of issue, sale, repurchase, or redemption of shares; expenses
of registering or qualifying shares for sale with the states and the SEC;
expenses of printing and distribution of prospectuses to existing shareholders;
charges of custodians (including fees as custodian for keeping books and similar
services for a Fund), transfer agents (including the printing and mailing of
reports and notices to shareholders), registrars, auditing and legal services,
and clerical services related to recordkeeping and shareholder relations;
printing of stock certificates; fees for directors who are not "interested
persons" of the Advisor; expenses of indemnification; extraordinary expenses;
and costs of shareholder and director meetings.
PORTFOLIO MANAGERS. The following individuals serve as portfolio managers for
the four Strong Income Funds.
STRONG SHORT-TERM BOND FUND
BRADLEY C. TANK. Before joining the Advisor in June 1990, Mr. Tank spent
eight years at Salomon Brothers, Inc., where he was a vice president and fixed
income specialist. He has managed or co-managed the Strong Short-Term Bond and
Government Securities Funds since he joined the Advisor. In addition, Mr. Tank
leads the Strong Asset Allocation Fund investment team and chairs the Fixed
Income Investment Committee.
LYLE J. FITTERER. Mr. Fitterer joined the Advisor in 1989 after receiving his
bachelor's degree in accounting from the University of North Dakota. Previously,
he served the Advisor as a fixed income research analyst and trader. Mr.
Fitterer has also served as a trader for the Advisor's equity products and as
manager of the Strong Funds' fixed income accounting department. He is a
Certified Public Accountant. Mr. Fitterer has co-managed the Fund since January
1996.
STRONG GOVERNMENT SECURITIES FUND
BRADLEY C. TANK. Information concerning Mr. Tank is set forth above under
"Strong Short-Term Bond Fund."
----------------------
PROSPECTUS PAGE I-27
<PAGE> 28
STRONG CORPORATE BOND FUND
JEFFREY A. KOCH. Mr. Koch joined the Advisor as a portfolio manager and
securities analyst in June 1989. For a brief period prior to that, he was a
market-maker clerk at Fossett Corporation, a clearing firm. Mr. Koch earned his
M.B.A. in Finance at Washington University in St. Louis, Missouri in 1989. His
undergraduate degree, awarded in 1987, is from the University of
Minnesota-Morris. Mr. Koch is also a Chartered Financial Analyst. He has co-
managed or managed the Fund since 1991. He has managed the Strong High-Yield
Bond Fund since its inception in December 1995. Mr. Koch also manages the Strong
Advantage Fund.
JOHN T. BENDER. Mr. Bender began his career with the Advisor in 1987 as an
intern in the mutual fund accounting department. After receiving his bachelor's
degree from Marquette University in 1988, he became an accountant in Strong's
shareholder and accounting compliance department. He subsequently joined the
investment team as an equity trader, and later became a fixed income research
analyst and trader. He is both a Chartered Financial Analyst and a Certified
Public Accountant. Mr. Bender has co-managed the Fund since January 1996.
STRONG HIGH-YIELD BOND FUND
JEFFREY A. KOCH. Information concerning Mr. Koch is set forth above under
"Strong Corporate Bond Fund."
TRANSFER AND DIVIDEND-DISBURSING AGENT
The Advisor, P.O. Box 2936, Milwaukee, Wisconsin 53201, also acts as
dividend-disbursing agent and transfer agent for the Funds. The Advisor is
compensated for its services based on an annual fee per account plus certain
out-of-pocket expenses. The fees received and the services provided as transfer
agent and dividend-disbursing agent are in addition to those received and
provided under the Advisory Agreements between the Advisor and the Funds.
DISTRIBUTOR
Strong Funds Distributors, Inc., P.O. Box 2936, Milwaukee, Wisconsin 53201,
an indirect subsidiary of the Advisor, acts as distributor of the shares of the
Funds.
----------------------
PROSPECTUS PAGE I-28
<PAGE> 29
ORGANIZATION
SHAREHOLDER RIGHTS. Each Fund (except for the High-Yield Fund) is a Wisconsin
corporation that is authorized to issue shares of common stock and series and
classes of series of shares of common stock. The High-Yield Fund is a series of
common stock of Strong Income Funds, Inc., a Wisconsin corporation that is
authorized to issue shares of common stock and series and classes of series of
shares of common stock. Each share of the Funds has one vote, and all shares
participate equally in dividends and other capital gains distributions by the
respective Fund and in the residual assets of the respective Fund in the event
of liquidation. Certificates will be issued for shares held in your account only
upon your written request. You will, however, have full shareholder rights
whether or not you request certificates. Generally, the Funds will not hold an
annual meeting of shareholders unless required by the 1940 Act.
SHAREHOLDER PRIVILEGES. The shareholders of each Fund may benefit from the
privileges described in the "Shareholder Manual" (see page II-1). However, each
Fund reserves the right, at any time and without prior notice, to suspend,
limit, modify, or terminate any of these privileges or their use in any manner
by any person or class.
PRINCIPAL SHAREHOLDER. As of January 31, 1996, Charles Schwab & Co., Inc.
("Schwab") owned of record approximately 34.66% of the Government Securities
Fund. Schwab's record ownership of greater than 25% of the Fund's shares may
result in it being deemed a controlling entity of the Fund.
DISTRIBUTIONS AND TAXES
PAYMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS. Unless you choose otherwise,
all your dividends and capital gains distributions will be automatically
reinvested in additional Fund shares. Or, you may elect to have all your
dividends and capital gain distributions from a Fund automatically reinvested in
additional shares of that Fund or in shares of another Strong Fund. Shares are
purchased at the net asset value determined on the payment date. If you request
in writing that your dividends and other distributions be paid in cash, a Fund
will credit your bank account by Electronic Funds Transfer ("EFT") or issue a
check to you within five business days of the payment date. You may change your
election at any time by calling or writing Strong Funds. Strong Funds must
receive any such change 7 days (15 days for EFT) prior to a dividend or capital
gain distribution payment date in order for the change to be effective for that
payment.
The policy of each Fund is to pay dividends from net investment income
monthly and to distribute substantially all net realized capital gains, and
gains from foreign currency transactions, if any, annually. Each Fund may make
additional distributions if necessary to avoid imposition of a 4% excise tax on
----------------------
PROSPECTUS PAGE I-29
<PAGE> 30
undistributed income and gains. Each Fund declares dividends on each day its net
asset value is calculated, except for bank holidays. Income earned on weekends,
holidays (including bank holidays), and days on which net asset value is not
calculated is declared as a dividend on the day on which a Fund's net asset
value was most recently calculated.
TAX STATUS OF DIVIDENDS AND OTHER DISTRIBUTIONS. You will be subject to
federal income tax at ordinary income tax rates on any dividends you receive
that are derived from investment company taxable income (consisting generally of
net investment income, net short-term capital gain, and net gains from certain
foreign currency transactions, if any). Distributions by the Funds of net
capital gain (the excess of net long-term capital gain over net short-term
capital loss), when designated as such, are taxable to you as long-term capital
gains, regardless of how long you have held your Fund shares.
The Funds' distributions are taxable in the year they are paid, whether they
are taken in cash or reinvested in additional shares, except that certain
distributions declared in the last three months of the year and paid in January
are taxable as if paid on December 31. All state laws provide a pass-through to
mutual fund shareholders of the state and local income tax exemption afforded
owners of direct U.S. government obligations, although there are conditions to
this treatment in some states. You will be notified annually of the percentage
of a Fund's income that is derived from U.S. government securities.
If a Fund's distributions exceed its investment company taxable income and
net capital gain in any year, as a result of currency-related losses or
otherwise, all or a portion of those distributions may be treated as a return of
capital to shareholders for tax purposes.
YEAR-END TAX REPORTING. After the end of each calendar year, you will receive
a statement (Form 1099) of the federal income tax status of all dividends and
other distributions paid (or deemed paid) during the year.
SHARES SOLD OR EXCHANGED. Your redemption of shares of the Funds may result
in taxable gain or loss to you, depending upon whether the redemption proceeds
payable to you are more or less than your adjusted cost basis for the redeemed
shares. Similar tax consequences generally will result from an exchange of
shares of a Fund for shares of another Strong Fund. If you purchase shares of a
Fund within thirty days before or after redeeming shares of the same Fund at a
loss, a portion or all of that loss will not be deductible and will increase the
cost basis of the newly purchased shares. If you redeem shares out of a
retirement account, you will be subject to withholding for federal income tax
purposes unless you transfer the distribution directly to an "eligible
retirement plan." In addition, if you redeem all shares in an account at any
time during a month, dividends credited to the account since the beginning of
the month through the day of redemption will be paid with the redemption
proceeds.
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PROSPECTUS PAGE I-30
<PAGE> 31
BACKUP WITHHOLDING. If you are an individual or certain other noncorporate
shareholder and do not furnish a Fund with a correct taxpayer identification
number, the Fund is required to withhold federal income tax at a rate of 31%
(backup withholding) from all dividends, capital gain distributions, and
redemption proceeds, payable to you. Withholding at that rate from dividends and
capital gain distributions payable to you also is required if you otherwise are
subject to backup withholding. To avoid backup withholding, you must provide a
taxpayer identification number and state that you are not subject to backup
withholding due to the underreporting of your income. This certification is
included as part of your application. Please complete it when you open your
account.
TAX STATUS OF THE FUNDS. Each Fund intends to continue to qualify for
treatment as a regulated investment company under Subchapter M of the Internal
Revenue Code and, if so qualified, will not be liable for federal income tax on
earnings and gains distributed to its shareholders in a timely manner.
This section is not intended to be a full discussion of present or proposed
federal income tax law and its effects on the Funds and investors therein. See
the SAI for a further discussion. There may be other federal, state, or local
tax considerations applicable to a particular investor. You are therefore urged
to consult your own tax adviser.
PERFORMANCE INFORMATION
Each Fund may advertise a variety of types of performance information
including "yield," "average annual total return," "total return," and
"cumulative total return." Each of these figures is based upon historical
results and does not represent the future performance of a Fund.
Yield is an annualized figure, which means that it is assumed that a Fund
generates the same level of net investment income over a one-year period. The
Funds' yield is a measure of the net investment income per share earned by a
Fund over a specific one-month period and is shown as a percentage of the net
asset value of the Fund's shares at the end of the period.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in a Fund assuming
the reinvestment of all dividends and distributions. Total return figures are
not annualized and simply represent the aggregate change of a Fund's investments
over a specified period of time.
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PROSPECTUS PAGE I-31
<PAGE> 32
This page has been left blank intentionally.
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PROSPECTUS PAGE I-32
<PAGE> 33
SHAREHOLDER MANUAL
<TABLE>
<S> <C>
HOW TO BUY SHARES...................... II-1
DETERMINING YOUR SHARE PRICE........... II-5
HOW TO SELL SHARES..................... II-6
SHAREHOLDER SERVICES................... II-9
REGULAR INVESTMENT PLANS............... II-11
SPECIAL SITUATIONS..................... II-12
</TABLE>
HOW TO BUY SHARES
All the Strong Funds are 100% no-load, meaning you may purchase, redeem, or
exchange shares directly at net asset value without paying a sales charge.
Because the Funds' net asset values change daily, your purchase price will be
the next net asset value determined after Strong receives and accepts your
purchase order. Your money will begin earning dividends the day after your
purchase order is accepted in proper form.
Whether you are opening a new account or adding to an existing one, Strong
provides you with several methods to buy Fund shares.
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PROSPECTUS PAGE II-1
<PAGE> 34
-----------------------------------------------------------------------------
<TABLE>
<S> <C>
TO OPEN A NEW ACCOUNT
- ------------------------------------------------------------------------------
MAIL BY CHECK
- Complete and sign the application. Make your check
or money order payable to "Strong Funds."
- Mail to Strong Funds, P.O. Box 2936, Milwaukee,
Wisconsin 53201. If you're using an express
delivery service, send to Strong Funds, 100
Heritage Reserve, Menomonee Falls, Wisconsin 53051.
BY EXCHANGE
- Call 1-800-368-3863 for instructions on
establishing an account with an exchange by mail.
- ------------------------------------------------------------------------------
TELEPHONE BY EXCHANGE
- Call 1-800-368-3863 to establish a new account by
1-800-368-3863 exchanging funds from an existing Strong Funds
24 HOURS A DAY, account.
7 DAYS A WEEK - Sign up for telephone exchange services when you
open your account. To add the telephone exchange
option to your account, call 1-800-368-3863 for a
Telephone Exchange Form.
- Please note that your accounts must be identically
registered and that you must exchange enough into
the new account to meet the minimum initial
investment.
- ------------------------------------------------------------------------------
IN PERSON - Stop by our Investor Center in Menomonee Falls,
Wisconsin.
Call 1-800-368-3863 for hours and directions.
- The Investor Center can only accept checks or money
orders.
- ------------------------------------------------------------------------------
WIRE Call 1-800-368-3863 for instructions on opening an
account by
wire.
- ------------------------------------------------------------------------------
AUTOMATICALLY USE STRONG'S "NO-MINIMUM INVESTMENT PROGRAM."
- If you sign up for Strong's Automatic Investment
Plan when you open your account, Strong Funds will
waive the Fund's minimum initial investment (see
chart on page II-4).
- Complete the Automatic Investment Plan section on
the account application.
- Mail to the address indicated on the application.
- ------------------------------------------------------------------------------
BROKER-DEALER - You may purchase shares in a Fund through a
broker-dealer
or other institution that may charge a transaction
fee.
- Strong Funds may only accept requests to purchase
shares into a broker-dealer street name account
from the broker-dealer.
</TABLE>
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PROSPECTUS PAGE II-2
<PAGE> 35
-----------------------------------------------------------------------------
TO ADD TO AN EXISTING ACCOUNT
- --------------------------------------------------------------------------------
BY CHECK
- - Complete an Additional Investment Form provided at the bottom of your account
statement, or write a note indicating your fund account number and
registration. Make your check or money order payable to "Strong Funds."
- - Mail to Strong Funds, P.O. Box 2936, Milwaukee, Wisconsin 53201. If you're
using an express delivery service, send to Strong Funds, 100 Heritage Reserve,
Menomonee Falls, Wisconsin 53051.
BY EXCHANGE
- - Call 1-800-368-3863 for instructions on exchanging by mail.
- --------------------------------------------------------------------------------
BY EXCHANGE
- - Add to an account by exchanging funds from another Strong Funds account.
- - Sign up for telephone exchange services when you open your account. To add the
telephone exchange option to your account, call 1-800-368-3863 for a Telephone
Exchange Form.
- - Please note that the accounts must be identically registered and that the
minimum exchange is $50 or the balance of your account, whichever is less.
BY TELEPHONE PURCHASE
- - Sign up for telephone purchase when you open your account to make additional
investments from $50 to $25,000 into your Strong Funds account by telephone.
To add this option to your account, call 1-800-368-3863 for a Telephone
Purchase Form.
Or use Strong DirectSM, Strong Funds' automated telephone response system. Call
1-800-368-3863 for details.
- --------------------------------------------------------------------------------
- - Stop by our Investor Center in Menomonee Falls, Wisconsin. Call 1-800-368-3863
for hours and directions.
- - The Investor Center can only accept checks or money orders.
- --------------------------------------------------------------------------------
Call 1-800-368-3863 for instructions on adding to an account by wire.
- --------------------------------------------------------------------------------
USE ONE OF STRONG'S AUTOMATIC INVESTMENT PROGRAMS. Sign up for these services
when you open your account, or call 1-800-368-3863 for instructions on how to
add them to your existing account.
- - AUTOMATIC INVESTMENT PLAN. Make regular, systematic investments (minimum $50)
into your Strong Funds account from your bank checking or NOW account.
Complete the Automatic Investment Plan section on the account application.
- - AUTOMATIC EXCHANGE PLAN. Make regular, systematic exchanges (minimum $50) from
one Strong Funds account to another. Call 1-800-368-3863 for an application.
- - PAYROLL DIRECT DEPOSIT. Have a specified amount (minimum $50) regularly
deducted from your paycheck, social security check, military allotment, or
annuity payment invested directly into your Strong Funds account. Call
1-800-368-3863 for an application.
- - AUTOMATIC DIVIDEND REINVESTMENT. Unless you choose otherwise, all your
dividends and capital gain distributions will be automatically reinvested in
additional Fund shares. Or, you may elect to have your dividends and capital
gain distributions automatically invested in shares of another Strong Fund.
- --------------------------------------------------------------------------------
- - You may purchase additional shares in a Fund through a broker-dealer or other
institution that may charge a transaction fee.
- - Strong Funds may only accept requests to purchase additional shares into a
broker-dealer street name account from the broker-dealer.
----------------------
PROSPECTUS PAGE II-3
<PAGE> 36
WHAT YOU SHOULD KNOW ABOUT BUYING SHARES
- - Please make all checks or money orders payable to "Strong Funds."
- - We cannot accept third-party checks or checks drawn on banks outside the U.S.
- - You will be charged a $20 service fee for each check, wire, or Electronic
Funds Transfer ("EFT") purchase that is returned unpaid, and you will be
responsible for any resulting losses suffered by a Fund.
- - Further documentation may be requested from corporations, executors,
administrators, trustees, guardians, agents, or attorneys-in-fact.
- - A Fund may decline to accept your purchase order upon receipt when, in the
judgment of the Advisor, it would not be in the best interests of the existing
shareholders.
- - The exchange privilege is available in all 50 states because all the Strong
Funds intend to continue to qualify their shares for sale in all 50 states.
- - Minimum Investment Requirements:
- ----------------------------------------------------------------------------
To open a regular account...........................................$2,500
To open an IRA or Defined Contribution account......................$1,000
To open an UGMA/UTMA account..........................................$250
To open a 401(k) or 403(b) retirement account...................No Minimum
To add to an existing account..........................................$50
The Funds offer a No-Minimum Investment Program that waives the minimum
initial investment requirements for investors who participate in the Strong
Automatic Investment Plan (described on page II-11). Unless you participate in
the Strong No-Minimum Investment Program, please ensure that your purchases meet
the minimum investment requirements.
Under certain circumstances (for example, if you discontinue a No-Minimum
Investment Program before you reach a Fund's minimum initial investment), each
Fund reserves the right to close your account. Before taking such action, a Fund
will provide you with written notice and at least 60 days in which to reinstate
an investment program or otherwise reach the minimum initial investment
required.
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PROSPECTUS PAGE II-4
<PAGE> 37
WHAT YOU SHOULD KNOW ABOUT BUYING SHARES
THROUGH A BROKER-DEALER
- - If you purchase shares through a program of services offered or administered
by a broker-dealer, financial institution, or other service provider, you
should read the program's materials, including information relating to fees,
in connection with a Fund's Prospectus. Certain features of a Fund may not be
available or may be modified in connection with the program of services
provided.
- - Certain broker-dealers, financial institutions, or other service providers
that have entered into an agreement with the Distributor may enter purchase
orders on behalf of their customers by phone, with payment to follow within
several days as specified in the agreement. The Funds may effect such purchase
orders at the net asset value next determined after receipt of the telephone
purchase order. It is the responsibility of the broker-dealer, financial
institution, or other service provider to place the order with the Funds on a
timely basis. If payment is not received within the time specified in the
agreement, the broker-dealer, financial institution, or other service provider
could be held liable for any resulting fees or losses.
DETERMINING YOUR SHARE PRICE
Generally, when you make any purchases, sales, or exchanges, the price of
your shares will be the net asset value ("NAV") next determined after Strong
Funds receives your request in proper form. If Strong Funds receives such
request prior to the close of the New York Stock Exchange (the "Exchange") on a
day on which the Exchange is open, your share price will be the NAV determined
that day. The NAV for each Fund is normally determined as of 3:00 p.m. Central
Time ("CT") each day the Exchange is open. The Funds reserve the right to change
the time at which purchases, redemptions, and exchanges are priced if the
Exchange closes at a time other than 3:00 p.m. CT or if an emergency exists.
Each Fund's NAV is calculated by taking the fair value of a Fund's total assets,
subtracting all its liabilities, and dividing by the total number of shares
outstanding. Expenses are accrued and applied daily when determining the NAV.
With respect to the Funds, debt securities are valued by a pricing service
that utilizes electronic data processing techniques to determine values for
normal institutional size trading units of debt securities without regard to the
existence of sale or bid prices when such techniques are believed to more
accurately reflect the fair market value of such securities. Otherwise, sale or
bid prices are used. Any securities or other assets for which market quotations
are not readily available are valued at fair value as determined in good faith
by the Board of Directors. Debt securities having remaining maturities of 60
days or less are valued by the amortized cost method when the Board of Directors
determines that the fair value of such securities is their amortized cost.
----------------------
PROSPECTUS PAGE II-5
<PAGE> 38
HOW TO SELL SHARES
You can access the money in your account at any time by selling (redeeming)
some or all of your shares back to the Fund. Once your redemption request is
received in proper form, Strong will normally mail you the proceeds the next
business day and, in any event, no later than seven days thereafter.
To redeem shares, you may use any of the methods described in the following
chart. However, if you are selling shares in a retirement account, please call
1-800-368-3863 for instructions. Please note that there is a $10.00 fee for
closing an IRA or other retirement account or for transferring assets to another
custodian. For your protection, certain requests may require a signature
guarantee.
----------------------
PROSPECTUS PAGE II-6
<PAGE> 39
-----------------------------------------------------------------------------
<TABLE>
<S> <C>
TO SELL SHARES
- ------------------------------------------------------------------------------
MAIL FOR INDIVIDUAL, JOINT TENANT, AND UGMA/UTMA ACCOUNTS
- Write a "letter of instruction" that includes the
following information: your account number, the
dollar amount or number of shares you wish to
redeem, each owner's name, your street address, and
the signature of each owner as it appears on the
account.
- Mail to Strong Funds, P.O. Box 2936, Milwaukee,
Wisconsin 53201. If you're using an express
delivery service, send to 100 Heritage Reserve,
Menomonee Falls, Wisconsin 53051.
FOR TRUST ACCOUNTS
- Same as above. Please ensure that all trustees sign
the letter of instruction.
FOR OTHER REGISTRATIONS
- Call 1-800-368-3863 for instructions.
- ------------------------------------------------------------------------------
TELEPHONE Sign up for telephone redemption services when you
open
1-800-368-3863 your account by checking the "Yes" box in the
24 HOURS A DAY, appropriate section of the account application. To
7 DAYS A WEEK add the telephone redemption option to your account,
call 1-800-368-3863 for a Telephone Redemption Form.
Once the telephone redemption option is in place, you
may sell shares ($500 minimum) by phone and arrange
to receive the proceeds in one of three ways:
TO RECEIVE A CHECK BY MAIL
- At no charge, we will mail a check to the address
to which your account is registered.
TO DEPOSIT BY EFT
- At no charge, we will transmit the proceeds by
Electronic Funds Transfer (EFT) to a pre-authorized
bank account. Usually, the funds will arrive at
your bank two banking days after we process your
redemption.
TO DEPOSIT BY WIRE
- For a $10 fee, we will transmit the proceeds by
wire to a pre-authorized bank account. Usually, the
funds will arrive at your bank the next banking day
after we process your redemption.
You may also use Strong Direct SM, Strong Funds'
automated telephone response system. Call
1-800-368-3863 for details.
- ------------------------------------------------------------------------------
CHECK WRITING Sign up for the free check-writing privilege when you
open
your account. To add check writing to an existing
account or to order additional checks, call
1-800-368-3863.
- Please keep in mind that all check redemptions must
be for a minimum of $500 and that you cannot write a
check to close an account.
- ------------------------------------------------------------------------------
AUTOMATICALLY You can set up automatic withdrawals from your
account at
regular intervals. To establish the Systematic
Withdrawal Plan, request a form by calling
1-800-368-3863.
- ------------------------------------------------------------------------------
BROKER-DEALER You may also redeem shares through broker-dealers or
others
who may charge a commission or other transaction fee.
</TABLE>
----------------------
PROSPECTUS PAGE II-7
<PAGE> 40
WHAT YOU SHOULD KNOW ABOUT SELLING SHARES
- - If you have recently purchased shares, please be aware that your redemption
request may not be honored until the purchase check has cleared your bank,
which generally occurs within ten calendar days.
- - You will be charged a $10 service fee for a stop-payment and replacement of a
redemption or dividend check.
- - The right of redemption may be suspended during any period in which (i)
trading on the Exchange is restricted, as determined by the SEC, or the
Exchange is closed for other than weekends and holidays; (ii) the SEC has
permitted such suspension by order; or (iii) an emergency as determined by the
SEC exists, making disposal of portfolio securities or valuation of net assets
of a Fund not reasonably practicable.
- - If you are selling shares you hold in certificate form, you must submit the
certificates with your redemption request. Each registered owner must endorse
the certificates and all signatures must be guaranteed.
- - Further documentation may be requested from corporations, executors,
administrators, trustees, guardians, agents, or attorneys-in-fact.
REDEMPTIONS IN KIND
The Funds have elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates each Fund to redeem shares in cash, with respect to any one
shareholder during any 90-day period, up to the lesser of $250,000 or 1% of the
assets of the Fund. If the Advisor determines that existing conditions make cash
payments undesirable, redemption payments may be made in whole or in part in
securities or other financial assets, valued for this purpose as they are valued
in computing the NAV for the Fund's shares (a "redemption-in-kind").
Shareholders receiving securities or other financial assets in a redemption-in-
kind may realize a gain or loss for tax purposes, and will incur any costs of
sale, as well as the associated inconveniences. If you expect to make a
redemption in excess of the lesser of $250,000 or 1% of the Fund's assets during
any 90-day period and would like to avoid any possibility of being paid with
securities in-kind, you may do so by providing Strong Funds with an
unconditional instruction to redeem at least 15 calendar days prior to the date
on which the redemption transaction is to occur, specifying the dollar amount or
number of shares to be redeemed and the date of the transaction (please call
1-800-368-3863). This will provide the Fund with sufficient time to raise the
cash in an orderly manner to pay the redemption and thereby minimize the effect
of the redemption on the interests of the Fund's remaining shareholders.
Redemption checks in excess of the lesser of $250,000 or 1% of a Fund's assets
during any 90-day period may not be honored by the Fund if the Advisor
determines that existing conditions make cash payments undesirable.
WHAT YOU SHOULD KNOW ABOUT TELEPHONE REDEMPTIONS
- - The Funds reserve the right to refuse a telephone redemption if they believe
it advisable to do so.
- - Once you place your telephone redemption request, it cannot be canceled or
modified.
----------------------
PROSPECTUS PAGE II-8
<PAGE> 41
- - Investors will bear the risk of loss from fraudulent or unauthorized
instructions received over the telephone provided that the Fund reasonably
believes that such instructions are genuine. The Funds and their transfer
agent employ reasonable procedures to confirm that instructions communicated
by telephone are genuine. The Funds may incur liability if they do not follow
these procedures.
- - Because of increased telephone volume, you may experience difficulty in
implementing a telephone redemption during periods of dramatic economic or
market changes.
SHAREHOLDER SERVICES
INFORMATION SERVICES
24-HOUR ASSISTANCE. Strong Funds has registered representatives available to
help you 24 hours a day, 7 days a week. Call 1-414-359-1400 or toll-free
1-800-368-3863. You may also write to Strong Funds at the address on the cover
of this Prospectus or e-mail us at [email protected].
STRONG DIRECT(SM) AUTOMATED TELEPHONE SYSTEM. Also available 24 hours a day,
the Strong Direct(SM) automated response system enables you to use a touch-tone
phone to hear fund quotes and returns on any Strong Fund. You may also confirm
account balances, hear records of recent transactions and dividend activity, and
perform purchases, exchanges or redemptions among your existing Strong accounts.
Your account information is protected by a personal code that you establish. For
more information on this service, call 1-800-368-3863.
STATEMENTS AND REPORTS. At a minimum, each Fund will confirm all transactions
for your account on a quarterly basis. We recommend that you file each quarterly
statement - and, especially, each calendar year-end statement - with your other
important financial papers, since you may need to refer to them at a later date
for tax purposes. Should you need additional copies of previous statements, you
may order confirmation statements for the current and preceding year at no
charge. Statements for earlier years are available for $10 each. Call
1-800-368-3863 to order past statements.
Each year, you will also receive a statement confirming the tax status of any
distributions paid to you, as well as a semiannual report and an annual report
containing audited financial statements.
To reduce the volume of mail you receive, only one copy of certain materials,
such as prospectuses and shareholder reports, is mailed to your household. Call
1-800-368-3863 if you wish to receive additional copies, free of charge.
More complete information regarding each Fund's investment policies and
services is contained in its SAI, which you may request by calling or writing
----------------------
PROSPECTUS PAGE II-9
<PAGE> 42
Strong Funds at the phone number and address on the cover of this Prospectus.
CHANGING YOUR ACCOUNT INFORMATION. So that you continue receiving your Strong
correspondence, including any dividend checks and statements, please notify us
in writing as soon as possible if your address changes. You may use the
Additional Investment Form at the bottom of your confirmation
statement, or simply write us a letter of instruction that contains the
following information:
1. a written request to change the address,
2. the account number(s) for which the address is to be changed,
3. the new address, and
4. the signatures of all owners of the accounts.
Please send your request to the address on the cover of this Prospectus.
Changes to an account's registration - such as adding or removing a joint
owner, changing an owner's name, or changing the type of your account - must
also be submitted in writing. Please call 1-800-368-3863 for instructions. For
your protection, some requests may require a signature guarantee.
TRANSACTION SERVICES
FREE EXCHANGE PRIVILEGE. You may exchange shares between identically
registered Strong Funds accounts, either in writing or by telephone. By
establishing the telephone exchange services, you authorize the Fund and its
agents to act upon your instruction by telephone to exchange shares from any
account you specify. For tax purposes, an exchange is considered a sale and a
purchase of Fund shares. Please obtain and read the appropriate prospectus
before investing in any of the Strong Funds. Since an excessive number of
exchanges may be detrimental to the Funds, each Fund reserves the right to
discontinue the exchange privilege of any shareholder who makes more than five
exchanges in a year or three exchanges in a calendar quarter.
FREE CHECK-WRITING PRIVILEGES. You may also redeem shares by check in amounts
of $500 or more. There is no charge for check-writing privileges. Redemption by
check cannot be honored if share certificates are outstanding and would need to
be liquidated to honor the check. In addition, a check may not be honored if the
check results in you redeeming more than the lesser of $250,000 or 1% of the
Fund's assets during any 90-day period and the Advisor determines that existing
conditions make cash payments undesirable. Checks are supplied free of charge,
and additional checks will be sent to you upon request. The Funds do not return
the checks you write, although copies are available upon request.
You may place stop-payment requests on checks by calling Strong Funds at
1-800-368-3863. A $10 fee will be charged for each stop-payment request. A stop
payment will remain in effect for two weeks following receipt of oral
instructions (six months following written instructions) by Strong Funds.
If there are insufficient cleared shares in your account to cover the amount
of your redemption by check, the check will be returned, marked "insufficient
funds," and a fee of $10 will be charged to the account.
-----------------------
PROSPECTUS PAGE II-10
<PAGE> 43
REGULAR INVESTMENT PLANS
Strong Funds' Automatic Investment Plan, Payroll Direct Deposit Plan, and
Automatic Exchange Plan, all discussed below, are methods of implementing DOLLAR
COST AVERAGING. Dollar cost averaging is an investment strategy that involves
investing a fixed amount of money at regular time intervals. By always investing
the same set amount, you will be purchasing more shares when the price is low
and fewer shares when the price is high. Ultimately, by using this principle in
conjunction with fluctuations in share price, your average cost per share may be
less than your average transaction price. A program of regular investment cannot
ensure a profit or protect against a loss during declining markets. Since such a
program involves continuous investment regardless of fluctuating share values,
you should consider your ability to continue the program through periods of both
low and high share-price levels.
AUTOMATIC INVESTMENT PLAN. The Automatic Investment Plan allows you to make
regular, systematic investments in a Fund from your bank checking or NOW
account. You may choose to make investments on any day of the month in amounts
of $50 or more. You can set up the Automatic Investment Plan with any financial
institution that is a member of the Automated Clearing House. Because each Fund
has the right to close an investor's account for failure to reach the minimum
initial investment, please consider your ability to continue this Plan until you
reach the minimum initial investment. Such closing may occur in periods of
declining share prices. To establish the Plan, complete the Automatic Investment
Plan section on the account application, or call 1-800-368-3863 for an
application.
PAYROLL DIRECT DEPOSIT PLAN. Once you meet a Fund's minimum initial
investment requirement, you may purchase additional Fund shares through the
Payroll Direct Deposit Plan. Through this Plan, periodic investments (minimum
$50) are made automatically from your payroll check into your existing Fund
account. By enrolling in the Plan, you authorize your employer or its agents to
deposit a specified amount from your payroll check into the Fund's bank account.
In most cases, your Fund account will be credited the day after the amount is
received by the Fund's bank. In order to participate in the Plan, your employer
must have direct deposit capabilities through the Automated Clearing House
available to its employees. The Plan may be used for other direct deposits, such
as social security checks, military allotments, and annuity payments.
To establish a Direct Deposit for your account, call 1-800-368-3863 to obtain
an Authorization for Payroll Direct Deposit to a Strong Funds Account form. Once
the Plan is established, you may alter the amount of the deposit, alter the
frequency of the deposit, or terminate your participation in the program by
notifying your employer.
-----------------------
PROSPECTUS PAGE II-11
<PAGE> 44
AUTOMATIC EXCHANGE PLAN. The Automatic Exchange Plan allows you to make
regular, systematic exchanges (minimum $50) from one Strong Funds account into
another Strong Funds account. By setting up the Plan, you authorize the Fund and
its agents to redeem a set dollar amount or number of shares from the first
account and purchase shares of a second Strong Fund. In addition, you authorize
a Fund and its agents to accept telephone instructions to change the dollar
amount and frequency of the exchange. An exchange transaction is a sale and
purchase of shares for federal income tax purposes and may result in a capital
gain or loss. To establish the Plan, request a form by calling 1-800-368-3863.
To participate in the Automatic Exchange Plan, you must have an initial
account balance of $2,500 in the first account and at least the minimum initial
investment in the second account. Exchanges may be made on any day or days of
your choice. If the amount remaining in the first account is less than the
exchange amount you requested, then the remaining amount will be exchanged. At
such time as the first account has a zero balance, your participation in the
Plan will be terminated. You may also terminate the Plan at any time by calling
or writing to the Fund. Once participation in the Plan has been terminated for
any reason, to reinstate the Plan you must do so in writing; simply investing
additional funds will not reinstate the Plan.
SYSTEMATIC WITHDRAWAL PLAN. You can set up automatic withdrawals from your
account at regular intervals. To begin distributions, you must have an initial
balance of $5,000 in your account and withdraw at least $50 per payment. To
establish the Systematic Withdrawal Plan, request a form by calling
1-800-368-3863. Depending upon the size of the account and the withdrawals
requested (and fluctuations in net asset value of the shares redeemed),
redemptions for the purpose of satisfying such withdrawals may reduce or even
exhaust the account. If the amount remaining in the account is not sufficient to
meet a Plan payment, the remaining amount will be redeemed and the Plan will be
terminated.
SPECIAL SITUATIONS
POWER OF ATTORNEY. If you are investing as attorney-in-fact for another
person, please complete the account application in the name of such person and
sign the back of the application in the following form: "[applicant's name] by
[your name], attorney-in-fact." To avoid having to file an affidavit prior to
each transaction, please complete the Power of Attorney form available from
Strong Funds at 1-800-368-3863. However, if you would like to use your own power
of attorney form, please call the same number for instructions.
CORPORATIONS AND TRUSTS. If you are investing for a corporation, please
include with your account application a certified copy of your corporate
resolution indicating which officers are authorized to act on behalf of the
corporation.
-----------------------
PROSPECTUS PAGE II-12
<PAGE> 45
As an alternative, you may complete a Certification of Authorized Individuals
form, which can be obtained from the Funds. Until a valid corporate resolution
or Certification of Authorized Individuals is received by the Fund, services
such as telephone redemption, wire redemption, and check writing will not be
established.
If you are investing as a trustee, please include the date of the trust. All
trustees must sign the application. If they do not, services such as telephone
redemption, wire redemption, and check writing will not be established. All
trustees must sign redemption requests unless proper documentation to the
contrary is provided to the Fund. Failure to provide these documents or
signatures as required when you invest may result in delays in processing
redemption requests.
SIGNATURE GUARANTEES. A signature guarantee is designed to protect you and
the Funds against fraudulent transactions by unauthorized persons. In the
following instances, the Funds will require a signature guarantee for all
authorized owners of an account:
- - when you add the telephone redemption or check-writing options to your
existing account;
- - if you transfer the ownership of your account to another individual or
organization;
- - when you submit a written redemption request for more than $25,000;
- - when you request to redeem or redeposit shares that have been issued in
certificate form;
- - if you open an account and later decide that you want certificates;
- - when you request that redemption proceeds be sent to a different name or
address than is registered on your account;
- - if you add/change your name or add/remove an owner on your account; and
- - if you add/change the beneficiary on your transfer-on-death account.
A signature guarantee may be obtained from any eligible guarantor
institution, as defined by the SEC. These institutions include banks, savings
associations, credit unions, brokerage firms, and others. PLEASE NOTE THAT A
NOTARY PUBLIC STAMP OR SEAL IS NOT ACCEPTABLE.
-----------------------
PROSPECTUS PAGE II-13
<PAGE> 46
APPENDIX A
RATINGS OF DEBT OBLIGATIONS:
<TABLE>
<CAPTION>
Moody's Standard & Fitch
Investors Poor's Ratings Investors
Service, Inc. Group Service, Inc. Definition
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG-TERM Aaa AAA AAA Highest quality
Aa AA AA High quality
A A A Upper medium grade
Baa BBB BBB Medium grade
Ba BB BB Low grade
B B B Speculative
Caa, Ca, C CCC, CC, C CCC, CC, C Submarginal
D D DDD, DD, D Probably in default
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Moody's S&P Fitch
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM MIG1/VMIG1 Best quality SP-1+ Very strong quality F-1+ Exceptionally strong
quality
---------------------------------------------------------------
MIG2/VMIG2 High quality SP-1 Strong quality F-1 Very strong quality
---------------------------------------------------------------
MIG3/VMIG3 Favorable SP-2 Satisfactory grade F-2 Good credit quality
quality
---------------------------------------------------------------
MIG4/VMIG4 Adequate F-3 Fair credit quality
quality
---------------------------------------------------------------
SG Speculative SP-3 Speculative grade F-S Weak credit quality
grade
- ----------------------------------------------------------------------------
COMMERCIAL P-1 Superior A-1+ Extremely strong F-1+ Exceptionally strong
PAPER quality quality quality
---------------------------------------------------------------
A-1 Strong quality F-1 Very strong quality
---------------------------------------------------------------
P-2 Strong A-2 Satisfactory quality F-2 Good credit quality
quality
---------------------------------------------------------------
P-3 Acceptable A-3 Adequate quality F-3 Fair credit quality
quality
---------------------------------------------------------------
B Speculative quality F-S Weak credit quality
---------------------------------------------------------------
Not Prime C Doubtful quality D Default
- --------------
</TABLE>
----------------------
PROSPECTUS PAGE A-1
<PAGE> 47
APPENDIX B
WEIGHTED AVERAGE RATINGS OF DEBT OBLIGATIONS(1)
<TABLE>
<CAPTION>
Average Percentage of Assets Held During the Fiscal Year Ended
October 31, 1995(2)
- -------------------------------------------------------------------
Short-Term Bond Corporate Bond
--------------------- ---------------------
Equivalent Equivalent
S&P Moody's Rated Unrated(3) Rated Unrated(3)
<S> <C> <C> <C> <C> <C>
AAA Aaa(4) 45.1% 0.28% 11.3% 0.06%
AA Aa 8.1 - 4.5 -
A A 10.9 - 7.6 -
BBB Baa 28.2 1.42 45.1 0.05
BB Ba 6.1 0.73 16.1 0.31
B B 0.1 0.05 6.0 -
CCC Caa - - - -
CC Ca - - - -
C C - - - -
Totals 98.5% 2.48% 90.6% .42%
</TABLE>
<TABLE>
<CAPTION>
Percentage of Assets Held on October 31, 1995
- -------------------------------------------------------------------
Short-Term Bond Corporate Bond
--------------------- ---------------------
Equivalent Equivalent
S&P Moody's Rated Unrated(3) Rated Unrated(3)
<S> <C> <C> <C> <C> <C>
AAA Aaa4 47.3 % - 16.2% -
AA Aa 8.2 - 7.5 -
A A 10.9 - 9.7 -
BBB Baa 29.4 - 37.6 -
BB Ba 4.1 1.9% 15.0 -
B B 0.4 - 8.1 -
CCC Caa - - - -
CC Ca - - - -
C C - - - -
Totals 100.3 % 1.9% 94.1% 0%
</TABLE>
WEIGHTED AVERAGE RATINGS OF CORPORATE COMMERCIAL PAPER(1)
<TABLE>
<CAPTION>
Average Percentage of Assets Held During the Fiscal
Year Ended October 31, 1995(2)
- -------------------------------------------------------
Rated(3)
- ----------------
S&P Moody's Short-Term Bond Corporate Bond
<S> <C> <C> <C>
A1 P1(5) 1.04% 1.51%
A2 P2(5) 1.22 1.31
A3 P3 - -
Totals 2.26% 2.82%
</TABLE>
<TABLE>
<CAPTION>
Percentage of Assets Held on October 31, 1995
- -------------------------------------------------------
Rated3
- ----------------
S&P Moody's Short-Term Bond Corporate Bond
<S> <C> <C> <C>
A1 P15 0.80% 0.50%
A2 P25 1.00 6.70
A3 P3 - -
Totals 1.80% 7.20%
</TABLE>
(1) A security rated differently by two or more rating services is included in
the category representing the higher of the ratings assigned to the security.
Investment-grade debt obligations are those rated in one of the four highest
categories by an NRSRO, and investment-grade commercial paper is commercial
paper rated in one of the top three categories by such organizations. See
"Fundamentals of Fixed Income Investing" in this Prospectus for a discussion of
the risks associated with non-investment-grade debt obligations and Appendix A
and the SAI for a description of credit ratings. The Appendix does not contain
information on the Government Securities Fund because this Fund may not invest
in non-investment-grade debt obligations. This Appendix does not contain
information on the High-Yield Bond Fund because it has not yet completed a
fiscal period.
(2) Based on a weighted average of the securities held at the end of each
month from January 1, 1995 through October 31, 1995, which is the Funds' new
fiscal year end.
(3) This category represents the comparable quality of unrated securities, as
determined by the Advisor.
(4) Includes all U.S. government obligations.
(5) Includes commercial paper rated in an equivalent category by either S&P or
Fitch.
----------------------
PROSPECTUS PAGE B-1
<PAGE> 48
NOTES
