<PAGE> 1
As filed with the Securities and Exchange Commission on or about April 20, 1995
Securities Act Registration No. 33-7603
Investment Company Act Registration No. 811-4770
SECURITIES AND EXCHANGE COMMISSION
Washington D.C.
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. ______ [ ]
Post-Effective Amendment No. 10 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 11 [X]
(Check appropriate box or boxes)
STRONG MUNICIPAL MONEY MARKET FUND, INC.
(Exact Name of Registrant as Specified in Charter)
100 HERITAGE RESERVE
MENOMONEE FALLS, WISCONSIN 53051
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (414) 359-3400
THOMAS P. LEMKE
STRONG CAPITAL MANAGEMENT, INC.
100 HERITAGE RESERVE
MENOMONEE FALLS, WISCONSIN 53051
(Name and Address of Agent for Service)
Copies to
SCOTT A. MOEHRKE
GODFREY & KAHN, S.C.
780 NORTH WATER STREET
MILWAUKEE, WISCONSIN 53202
Registrant has registered an indefinite amount of securities pursuant
to Rule 24f-2 under the Securities Act of 1933; the Registrant's Rule 24f-2
Notice for the fiscal year ended December 31, 1994 was filed on or about
January 27, 1995.
It is proposed that this filing will become effective (check
appropriate box).
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1995 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE> 2
STRONG MUNICIPAL MONEY MARKET FUND, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in the Prospectus and the
Statement of Additional Information of the responses to the Items of Parts A
and B of Form N-1A.)
<TABLE>
<CAPTION>
CAPTION OR SUBHEADING IN PROSPECTUS OR
ITEM NO. ON FORM N-1A STATEMENT OF ADDITIONAL INFORMATION
--------------------- -----------------------------------
<S> <C>
PART A - INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Expenses; Highlights
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Strong Municipal Income Funds; Investment
Objectives and Policies; Fundamentals of Fixed
Income Investing; Implementation of Policies and
Risks; About the Funds - Organization
5. Management of the Fund About the Funds - Management; Financial Highlights
5A. Management's Discussion of Fund Performance *
6. Capital Stock and Other Securities About the Funds - Organization, - Distributions and
Taxes; Shareholders Manual - Shareholder Services
7. Purchase of Securities Being Offered Shareholder Manual - How to Buy Shares, -
Determining Your Share Price, - Shareholder
Services
8. Redemption or Repurchase Shareholder Manual - How to Sell Shares, -
Determining Your Share Price, - Shareholder
Services
9. Pending Legal Proceedings Inapplicable
PART B - INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL
INFORMATION
10. Cover Page Cover page
11. Table of Contents Table of Contents
12. General Information and History **
13. Investment Objectives and Policies Investment Restrictions; Investment Policies and
Techniques
14. Management of the Fund Directors and Officers of the Funds
15. Control Persons and Principal Holders of Securities Principal Shareholders; Directors and Officers of
the Funds; Investment Advisor and Distributor
16. Investment Advisory and Other Services Investment Advisor and Distributor; About the Funds
- Management (in Prospectus); Custodian; Transfer
Agent and Dividend-Disbursing Agent; Independent
Accountants; Legal Counsel
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
CAPTION OR SUBHEADING IN PROSPECTUS OR
ITEM NO. ON FORM N-1A STATEMENT OF ADDITIONAL INFORMATION
--------------------- -----------------------------------
<S> <C>
17. Brokerage Allocation and Other Practices Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities Included in Prospectus under the heading About the
Funds - Organization and in the Statement of
Additional Information under the headings Fund
Organization and Shareholder Meetings
19. Purchase, Redemption and Pricing of Securities Being Included in Prospectus under the headings:
Offered Shareholder Manual - How to Buy Shares, -
Determining Your Share Price, - How to Sell Shares,
- Shareholder Services; and in the Statement of
Additional Information under the headings:
Additional Shareholder Information; Investment
Advisor and Distributor; and Determination of Net
Asset Value
20. Tax Status Included in Prospectus under the heading About the
Funds - Distributions and Taxes; and in the
Statement of Additional Information under the
heading Taxes
21. Underwriters Investment Advisor and Distributor
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
* Complete answer to Item is contained in Registrant's Annual Report.
** Complete answer to Item is contained in Registrant's Prospectus.
<PAGE> 4
<PAGE> 1
Dated May 1, 1995
STRONG MUNICIPAL INCOME FUNDS
STRONG MUNICIPAL MONEY MARKET FUND, INC. STRONG FUNDS
STRONG SHORT-TERM MUNICIPAL BOND FUND, INC. P.O. Box 2936
STRONG INSURED MUNICIPAL BOND FUND, INC. Milwaukee, Wisconsin 53201
STRONG MUNICIPAL BOND FUND, INC. Telephone: (414) 359-1400
STRONG HIGH-YIELD MUNICIPAL BOND FUND, INC. Toll-Free: (800) 368-3863
Device for the
Hearing-Impaired:
(800) 999-2780
The Strong Family of Funds ("Strong Funds") is a family of twenty-four
diversified and non-diversified, open-end management investment companies,
commonly called mutual funds. All of the Strong Funds are no-load funds. There
are no sales charges, redemption fees, or 12b-1 fees. The Strong Funds include
growth funds, growth and income funds, income funds, municipal income funds, and
money market funds. The "Strong Municipal Income Funds" are described in this
Prospectus.
----------------------------------------------------------------------------
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.
- ----------------------------------------------------------------------------
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 May 1, 1995, 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.
AN INVESTMENT IN THE STRONG MUNICIPAL MONEY MARKET FUND IS NEITHER INSURED
NOR GUARANTEED BY THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE IT WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. THE STRONG INSURED
MUNICIPAL BOND FUND'S SHARES ARE NOT INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR PRIVATE INSURER. THE FUND WILL, HOWEVER, INVEST AT LEAST 65% OF ITS
TOTAL ASSETS IN MUNICIPAL BONDS THAT ARE INSURED AS TO THE TIMELY PAYMENT OF
PRINCIPAL AND INTEREST. THE ADEQUACY OF THIS INSURANCE WILL BE DEPENDENT UPON
THE FINANCIAL
---------------------
PROSPECTUS PAGE I-1
<PAGE> 2
CONDITION OF THE INSURANCE COMPANY ISSUING SUCH INSURANCE. THE STRONG
HIGH-YIELD MUNICIPAL 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 A GREATER RISK WITH REGARD TO PAYMENT OF INTEREST AND RETURN OF
PRINCIPAL THAN ARE HIGHER-RATED BONDS. INVESTORS SHOULD CAREFULLY CONSIDER THE
RISKS ASSOCIATED WITH AN INVESTMENT IN THE FUND. (SEE THE PROSPECTUS SECTION
ENTITLED "FUNDAMENTALS OF FIXED INCOME INVESTING - HIGH-YIELD (HIGH-RISK)
SECURITIES.")
STRONG MUNICIPAL INCOME FUNDS
Strong Municipal Money Market Fund, Inc., Strong Short-Term Municipal Bond
Fund, Inc., Strong Insured Municipal Bond Fund, Inc., Strong Municipal Bond
Fund, Inc., and Strong High-Yield Municipal Bond Fund, Inc. (collectively, the
"Funds" or the "Municipal Income Funds" and individually sometimes referred to
as a "Fund") are separately incorporated, diversified, open-end management
investment companies.
STRONG MUNICIPAL MONEY MARKET FUND (the "Money Fund") seeks federally
tax-exempt current income, a stable share price, and daily liquidity. The Fund
invests in high-quality, short-term municipal obligations that present minimal
credit risk.
STRONG SHORT-TERM MUNICIPAL BOND FUND (the "Short-Term Fund") seeks total
return by investing for a high level of federally tax-exempt current income with
a low degree of share-price fluctuation. The Fund invests primarily in short-
and intermediate-term, investment-grade municipal obligations and maintains an
average portfolio maturity of three years or less.
STRONG INSURED MUNICIPAL BOND FUND (the "Insured Fund") seeks total return by
investing for a high level of federally tax-exempt current income with a
moderate degree of share-price fluctuation. The Fund invests primarily in
long-term, high-quality municipal obligations that are insured for the timely
payment of principal and interest.
STRONG MUNICIPAL BOND FUND (the "Bond Fund") seeks total return by investing
for a high level of federally tax-exempt current income with a moderate degree
of share-price fluctuation. The Fund invests primarily in long-term,
investment-grade municipal obligations.
STRONG HIGH-YIELD MUNICIPAL BOND FUND (the "High-Yield Fund") seeks total
return by investing for a high level of federally tax-exempt current income. The
Fund invests primarily in long-term, medium- and lower-quality municipal
obligations.
---------------------
PROSPECTUS PAGE I-2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
EXPENSES..................................... I-4
FINANCIAL HIGHLIGHTS......................... I-5
HIGHLIGHTS................................... I-10
INVESTMENT OBJECTIVES AND POLICIES........... I-11
Comparing the Funds................. I-11
Strong Municipal Money Market
Fund.............................. I-12
Strong Short-Term Municipal Bond Fund... I-13
Strong Insured Municipal Bond
Fund.............................. I-13
Strong Municipal Bond Fund.......... I-14
Strong High-Yield Municipal Bond
Fund.............................. I-14
FUNDAMENTALS OF FIXED INCOME INVESTING....... I-15
IMPLEMENTATION OF POLICIES AND RISKS......... I-18
ABOUT THE FUNDS.............................. I-24
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 Strong
Municipal Income 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 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>
Total
Management Other 12b-1 Operating
Fund Fees Expenses Fees Expenses
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money .50% .14% NONE .64%
Short-Term .50 .24 NONE .74
Insured .50 .45 NONE .95
Bond .60 .23 NONE .83
High-Yield .60 .25 NONE .85*
- ----------------------------------------------------------------------------
</TABLE>
* The Advisor has agreed to voluntarily waive its management fee and absorb the
High-Yield Fund's operating expenses through June 30, 1995. With these waivers
and absorptions, the Fund's Total Operating Expenses for that period will be
.00%.
From time to time the Funds' investment advisor, Strong Capital Management,
Inc. (formerly known as Strong/Corneliuson Capital Management, Inc.) (the
"Advisor"), may voluntarily waive its management fee and/or absorb certain
expenses for any of the Funds. During 1994, the Advisor voluntarily waived all
or a portion of its management fee and absorbed certain expenses for the Money
and High-Yield Funds. (See "Financial Highlights.") The expenses specified in
the table above have been restated for the fiscal year ended December 31, 1994,
to include such management fees and/or expenses. The actual total operating
expenses incurred for the year ended December 31,
---------------------
PROSPECTUS PAGE I-4
<PAGE> 5
1994, for the Money and High-Yield Funds after voluntary waivers and absorptions
were .63% and .00%, respectively. For additional information concerning fees and
expenses, see "About the Funds - Management."
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>
Money $ 7 $20 $36 $ 80
Short-Term 8 24 41 92
Insured 10 30 53 117
Bond 8 26 46 103
High-Yield 9 27 47 105
- -------------------------------------------------
</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.
FINANCIAL HIGHLIGHTS
The following annual Financial Highlights for each of the Strong Municipal
Income Funds has been audited by Coopers & Lybrand L.L.P., independent certified
public accountants. Their report for the fiscal year ended December 31, 1994, is
included in the Annual Report of the Municipal Income Funds that is contained in
the Funds' Statement of Additional Information. The Financial Highlights for the
Funds should be read in conjunction with each Fund's annual 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 capital stock of each of the Funds,
outstanding for the entire period.
---------------------
PROSPECTUS PAGE I-5
<PAGE> 6
<TABLE>
<CAPTION>
STRONG MUNICIPAL MONEY MARKET FUND
-------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986**
---------- ---------- ---------- -------- -------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income 0.03 0.02 0.03 0.05 0.06 0.06 0.05 0.05 0.01
Dividends from Net Investment
Income*** (0.03) (0.02) (0.03) (0.05) (0.06) (0.06) (0.05) (0.05) (0.01)
---------- ---------- ---------- -------- -------- ------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ====== ====== ====== ====== ====== =====
Total Return +2.9% +2.5% +3.4% +5.2% +6.1% +6.1% +5.2% +4.7% +0.7%
Net Assets, End of Period (In
Thousands) $1,260,617 $1,172,560 $1,105,491 $782,482 $218,205 $73,802 $77,465 $59,085 $2,401
Ratio of Expenses to Average
Net Assets 0.6% 0.7% 0.7% 0.7% 0.8% 0.9% 0.8% 0.6% 0.5%*
Ratio of Expenses to Average
Net Assets
Without Waivers 0.6% 0.7% 0.7% 0.7% 0.8% 0.9% 0.8% 1.0% 0.5%*
Ratio of Net Investment Income
to
Average Net Assets 2.9% 2.5% 3.3% 5.0% 6.0% 5.9% 5.0% 4.7% 3.7%*
</TABLE>
*
Calculated on an annualized basis.
**
Inception date is October 23, 1986. Total return is not annualized.
***
Tax-exempt for regular Federal income tax purposes.
---------------------
PROSPECTUS PAGE I-6
<PAGE> 7
<TABLE>
<CAPTION>
STRONG SHORT-TERM MUNICIPAL BOND STRONG HIGH-YIELD
FUND MUNICIPAL BOND FUND
------------------------------------ -------------------------------
1994 1993 1992 1994 1993**
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.36 $ 10.20 $ 10.00 $ 10.10 $ 10.00
INCOME FROM INVESTMENT OPTIONS
Net Investment Income 0.45 0.44 0.48 0.71 0.16
Net Realized and Unrealized Gains (Losses)
on Investments (0.62) 0.23 0.22 (0.81) 0.10
---------- ---------- ---------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS (0.17) 0.67 0.70 (0.10) 0.26
LESS DISTRIBUTIONS
Dividends From Net Investment Income*** (0.45) (0.44) (0.48) (0.71) (0.16)
Distributions From Net Realized Gains (0.01) (0.07) (0.02)
---------- ---------- ---------- -------- --------
TOTAL DISTRIBUTIONS (0.46) (0.51) (0.50) (0.71) (0.16)
---------- ---------- ---------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.73 $ 10.36 $ 10.20 $ 9.29 $ 10.10
========= ========= ========= ======== ========
Total Return -1.6% +6.8% +7.2% -1.0% +2.7%
Net Assets, End of Period (In Thousands) $ 161,243 $ 216,180 $ 110,816 $107,555 $ 20,840
Ratio of Expenses to Average Net Assets 0.7% 0.6% 0.2% 0.0% 0.0%
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 0.7% 0.7% 0.8% 0.8% 1.1%*
Ratio of Net Investment Income to Average
Net Assets 4.5% 4.2% 4.9% 7.5% 6.8%*
Portfolio Turnover Rate 273.2% 141.5% 139.9% 198.1% 111.1%*
</TABLE>
* Calculated on an annualized basis.
** Inception date is October 1, 1993. Total return is not annualized.
*** Tax-exempt for regular Federal income tax purposes.
---------------------
PROSPECTUS PAGE I-7
<PAGE> 8
<TABLE>
<CAPTION>
STRONG INSURED MUNICIPAL
BOND FUND
-----------------------------------------------
1994 1993 1992 1991**
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.46 $ 10.82 $ 10.28 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.54 0.56 0.62 0.06
Net Realized and Unrealized Gains (Losses)
on Investments (1.27) 0.80 0.68 0.28
---------- ---------- ---------- --------
TOTAL FROM INVESTMENT OPERATIONS (0.73) 1.36 1.30 0.34
LESS DISTRIBUTIONS
Dividends From Net Investment Income*** (0.54) (0.56) (0.62) (0.06)
Distributions From Net Realized Gains -- (0.16) (0.14) --
---------- ---------- ---------- --------
TOTAL DISTRIBUTIONS (0.54) (0.72) (0.76) (0.06)
---------- ---------- ---------- --------
NET ASSET VALUE, END OF PERIOD $ 10.19 $ 11.46 $ 10.82 $ 10.28
======== ======== ======== ======
Total Return -6.5% +12.8% +13.1% +3.4%
Net Assets, End of Period (In Thousands) $ 51,024 $ 61,213 $ 21,367 $ 1,308
Ratio of Expenses to Average Net Assets 1.0% 0.6% 0.2% 0.5%*
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 1.0% 0.9% 1.1% 1.0%*
Ratio of Net Investment Income to Average
Net Assets 5.0% 4.9% 5.8% 5.6%*
Portfolio Turnover Rate 411.1% 110.7% 289.6% 238.9%*
</TABLE>
*
Calculated on an annualized basis.
**
Inception date is November 25, 1991. Total return is not annualized.
***
Tax-exempt for regular Federal income tax purposes.
---------------------
PROSPECTUS PAGE I-8
<PAGE> 9
<TABLE>
<CAPTION>
STRONG MUNICIPAL BOND FUND
------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
---------- ---------- ---------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.25 $ 10.00 $ 9.76 $ 9.22 $ 9.47 $ 9.35 $ 9.16
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.56 0.58 0.65 0.65 0.66 0.52 0.49
Net Realized and Unrealized Gains (Losses)
on Investments (1.02) 0.57 0.50 0.54 (0.25) 0.12 0.19
---------- ---------- ---------- -------- -------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS (0.46) 1.15 1.15 1.19 0.41 0.64 0.68
LESS DISTRIBUTIONS
Dividends From Net Investment Income*** (0.56) (0.58) (0.65) (0.65) (0.66) (0.52) (0.49)
Distributions From Net Realized Gains -- (0.32) (0.26) -- -- -- --
---------- ---------- ---------- -------- -------- ------- -------
TOTAL DISTRIBUTIONS (0.56) (0.90) (0.91) (0.65) (0.66) (0.52) (0.49)
---------- ---------- ---------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.23 $ 10.25 $ 10.00 $ 9.76 $ 9.22 $ 9.47 $ 9.35
========= ========= ========= ======== ======== ======= =======
Total Return -4.6% +11.8% +12.2% +13.4% +4.6% +7.1% +7.6%
Net Assets, End of Period (In Thousands) $ 279,808 $ 398,911 $ 289,751 $115,230 $ 31,560 $18,735 $18,275
Ratio of Expenses to Average Net Assets 0.8% 0.7% 0.1% 0.1% 0.3% 1.7% 1.3%
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 0.8% 0.8% 0.9% 1.1% 1.5% 1.8% 1.4%
Ratio of Net Investment Income to Average
Net Assets 5.8% 5.6% 6.4% 6.9% 7.2% 5.6% 5.3%
Portfolio Turnover Rate 311.0% 156.7% 324.0% 465.2% 586.0% 243.3% 343.6%
<CAPTION>
1987 1986**
------- --------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.01 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.67 0.12
Net Realized and Unrealized Gains (Losses)
on Investments (0.85) 0.01
------- --------
TOTAL FROM INVESTMENT OPERATIONS (0.18) 0.13
LESS DISTRIBUTIONS
Dividends From Net Investment Income*** (0.67) (0.12)
Distributions From Net Realized Gains -- --
------- --------
TOTAL DISTRIBUTIONS (0.67) (0.12)
------- --------
NET ASSET VALUE, END OF PERIOD $ 9.16 $ 10.01
======= =======
Total Return -1.8% +1.3%
Net Assets, End of Period (In Thousands) $19,070 $ 2,212
Ratio of Expenses to Average Net Assets 1.0% 0.4%*
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 1.3% 1.0%*
Ratio of Net Investment Income to Average
Net Assets 7.0% 6.4%*
Portfolio Turnover Rate 284.0% 116.1%*
</TABLE>
* Calculated on an annualized basis.
** Inception date is October 23, 1986. Total return is not annualized.
*** Tax-exempt for regular Federal income tax purposes.
---------------------
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 exempt from federal income tax consistent with maturity, quality,
and other standards as set forth under "Investment Objectives and Policies."
IMPLEMENTATION OF POLICIES AND RISKS
With the exception of the Money Fund, the Funds may engage in derivative
transactions including options, futures, and options on futures transactions
within specified limits. Each Fund may also invest in repurchase agreements,
when-issued securities, and illiquid securities. The High-Yield Fund may invest
up to 100% of its net assets 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 "Fundamentals of Fixed Income Investing -
High-Yield (High-Risk) Securities" and "Implementation of Policies and Risks.")
MANAGEMENT
The Advisor, Strong Capital Management, Inc., serves as investment advisor to
the Funds. The Advisor provides investment management services for mutual funds
and other investment portfolios representing assets of over $12 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 Money Fund seeks to maintain a stable net asset
value of $1.00 per share. The net asset values of the Short-Term, Insured, Bond,
and High-Yield 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. (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;
automatic investment, automatic dividend reinvestment, payroll direct deposit,
----------------------
PROSPECTUS PAGE I-10
<PAGE> 11
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 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
Municipal 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 return and risk 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.)
COMPARING THE FUNDS
The following chart is intended to help distinguish the Funds and help you
determine their suitability for your investments:
<TABLE>
<CAPTION>
ANTICIPATED DEGREE OF
MATURITY CREDIT INCOME SHARE-PRICE
FUND RANGE QUALITY POTENTIAL FLUCTUATION
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money 90 days or less Two Low Stable, but
highest not guaranteed
- ----------------------------------------------------------------------------
Short-Term 3 years or less High and Low to Low
Medium Moderate
- ----------------------------------------------------------------------------
Insured 15 to 25 years* Highest Moderate Moderate
to High
- ----------------------------------------------------------------------------
Bond 15 to 25 years* High and Moderate Moderate
Medium to High
- ----------------------------------------------------------------------------
High-Yield 15 to 25 years* Medium High Moderate
and Low
- ----------------------------------------------------------------------------
</TABLE>
* Expected Range
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PROSPECTUS PAGE I-11
<PAGE> 12
The Strong Municipal Income Funds are designed for investors whose income-tax
levels enable them to benefit from tax-exempt income. In general, the Funds are
not appropriate investments for tax-deferred retirement plans, such as
Individual Retirement Accounts. THE INSURED, BOND, AND HIGH-YIELD FUNDS ALL
EMPLOY A LONG-TERM INVESTMENT APPROACH; THEREFORE, INVESTORS SHOULD NOT RELY ON
THOSE FUNDS FOR THEIR SHORT-TERM FINANCIAL NEEDS.
Each Fund has adopted certain fundamental investment restrictions that are
set forth in the Funds' Statement of Additional Information ("SAI"). Those
restrictions, a Fund's investment objective, and any other investment policies
identified as "fundamental" cannot be changed without shareholder approval. To
further guide investment activities, each Fund has also instituted a number of
non-fundamental operating policies, which are described in 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.
As a fundamental policy, each Fund will invest at least 80% of its net assets
in municipal securities under normal market conditions. (See "Implementation of
Policies and Risks - Municipal Obligations.") Generally, municipal obligations
are those whose interest is exempt from federal income tax. Each Fund may
invest, without limitation, in municipal obligations whose interest is a tax-
preference item for purposes of the federal alternative minimum tax ("AMT"). For
taxpayers who are subject to the AMT, a substantial portion of each Fund's
distributions may not be exempt from federal income tax. Accordingly, a Fund's
net return may be lower for those taxpayers. (Consult with your tax advisor to
determine whether you are subject to the AMT, and see "About the Funds -
Distributions and Taxes" for more information.) A Fund may also invest up to 20%
of its net assets in taxable securities of comparable quality to its investments
in municipal securities, including U.S. government securities, bank and
corporate obligations and short-term fixed income securities. A Fund will
generally invest in taxable bonds to take advantage of capital gain
opportunities. When the Advisor determines that market conditions warrant a
temporary defensive position, the Funds may invest without limitation in cash
and short-term fixed income securities.
STRONG MUNICIPAL MONEY MARKET FUND
The Money Fund seeks federally tax-exempt current income, a stable share
price, and daily liquidity.
The Fund is designed for investors who seek income exempt from federal income
taxes with no anticipated fluctuations in principal. Because the Fund strives to
maintain a constant net asset value of $1.00 per share, capital appreciation is
not expected to play a role in the Fund's returns, and dividend income alone
will provide its entire investment return. All money market instruments,
including high-quality municipal obligations, can change in value when interest
----------------------
PROSPECTUS PAGE I-12
<PAGE> 13
rates or an issuer's creditworthiness changes significantly. Therefore, although
its share price has remained constant in the past, THE FUND CANNOT GUARANTEE
THAT IT WILL ALWAYS BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE. An investment in the Fund is neither insured nor guaranteed by the U.S.
government.
The Money Fund invests in a diversified portfolio of high-quality, short-term
municipal obligations. (See "Implementation of Policies and Risks - Municipal
Obligations.") The Fund restricts its investments to instruments that meet
certain maturity and quality standards required or permitted by Rule 2a-7 under
the Investment Company Act of 1940 (the "1940 Act") for tax-exempt money market
funds. Accordingly, the Fund:
- - limits its average portfolio maturity to ninety days or less;
- - buys only obligations with remaining maturities of thirteen months or less;
and
- - buys only U.S. dollar-denominated obligations that present minimal credit
risks and are "high quality," meaning they are rated in one of the top two
rating categories by at least one nationally recognized statistical rating
organization or "NRSRO" or are unrated and determined by the Advisor to be of
comparable quality. (See "Fundamentals of Fixed Income Investing - Credit
Quality.")
STRONG SHORT-TERM MUNICIPAL BOND FUND
The Short-Term Fund seeks total return by investing for a high level of
federally tax-exempt 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 tax-exempt money market securities.
The Fund invests primarily in investment-grade municipal obligations and
maintains an average portfolio maturity of three years or less. Although there
are no maturity restrictions for the individual obligations in the portfolio, it
is anticipated that the Fund will emphasize investments in short- and
intermediate-term obligations.
The Fund will only invest in investment-grade debt obligations, which range
from those in the highest rating category to those rated medium-quality (e.g.,
bonds rated BBB or higher by Standard & Poor's Ratings Group ("S&P")).
STRONG INSURED MUNICIPAL BOND FUND
The Insured Fund seeks total return by investing for a high level of
federally tax-exempt current income with a moderate degree of share-price
fluctuation.
----------------------
PROSPECTUS PAGE I-13
<PAGE> 14
The Fund is designed for long-term investors who want to pursue higher income
than shorter-term municipal obligations generally provide, who are willing to
accept the fluctuation in principal associated with longer-term debt
obligations, and who seek to minimize credit risk. Given the insurance and
credit-quality restrictions described below, the Fund may not yield as high a
level of income as funds that invest in uninsured or lower-quality debt
obligations.
The Insured Fund invests primarily in long-term, high-quality debt
obligations that are insured for the timely payment of principal and interest.
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
15 and 25 years.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in debt obligations that are insured for the timely payment of
principal and interest by an insurer determined by the Advisor to have high
claims-paying ability (generally, only those carrying the highest credit
rating). INSURANCE, HOWEVER, DOES NOT GUARANTEE EITHER THE PRICE OF AN
INDIVIDUAL DEBT OBLIGATION OR THE SHARE PRICE OF THE FUND ITSELF. (See
"Implementation of Policies and Risks - Insurance.")
The Fund may also invest up to 35% of its total assets in uninsured municipal
obligations, provided they are, at the time of purchase, rated in the highest
rating category by any NRSRO (e.g., bonds rated AAA by S&P) or, if unrated, are
determined by the Advisor to be of comparable quality.
STRONG MUNICIPAL BOND FUND
The Bond Fund seeks total return by investing for a high level of federally
tax-exempt 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 municipal obligations generally provide and who are willing to
accept the fluctuation in principal associated with longer-term 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 15 and 25 years.
The Fund invests at least 95% of its total assets in investment-grade debt
obligations, which range from those in the highest rating category to those
rated medium-quality (e.g., bonds rated BBB or higher by S&P). The Fund may also
invest up to 5% of its total assets in non-investment-grade debt obligations and
other high-yield (high-risk) bonds (e.g., bonds rated as low as C by S&P). (See
"Fundamentals of Fixed Income Investing.")
STRONG HIGH-YIELD MUNICIPAL BOND FUND
The High-Yield Fund seeks total return by investing for a high level of
federally tax-exempt current income.
----------------------
PROSPECTUS PAGE I-14
<PAGE> 15
The Fund is designed for long-term investors who want to pursue higher income
than higher-quality municipal obligations generally provide and who are willing
to accept the risk of principal fluctuation associated with longer-term, medium-
and lower-quality debt obligations. Although the Advisor attempts to manage risk
through portfolio diversification, extensive credit analysis, and attention to
trends in the economy, geographic areas, industries, and financial markets, such
efforts cannot eliminate all risk.
The Fund invests primarily in long-term, medium- and lower-quality municipal
obligations. While there are no maturity restrictions for the Fund's
obligations, it is anticipated that the Fund will maintain an average portfolio
maturity of between 15 and 25 years.
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, may 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 total assets. The Fund may also invest
without limitation in higher-quality debt obligations. 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 - High-Yield (High-Risk) Securities" for further information on the
risks associated with investing in medium- and lower-quality debt obligations.)
FUNDAMENTALS OF
FIXED INCOME INVESTING
The securities in which each Fund may invest include fixed- and variable-rate
obligations, debentures, notes, leases, certificates of deposit, commercial
paper, repurchase agreements, banker's acceptances, other short-term fixed
income securities, structured investments such as mortgage- and asset-backed
securities, loan participations, and convertible debt. Each Fund may also borrow
funds and engage in mortgage dollar roll transactions and reverse repurchase
agreements.
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 municipal
obligations (usually intermediate- and long-term obligations) have provisions
that allow the issuer to redeem or "call" an obligation before its maturity.
Issuers are most likely to call such obligations during periods of falling
interest rates. As a result, a Fund may be required to invest the unanticipated
proceeds of the
----------------------
PROSPECTUS PAGE I-15
<PAGE> 16
called obligation at lower interest rates, which may cause the Fund's income to
decline.
Although the net asset value of each Fund (other than the Money Fund) is
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
change in a Fund's net asset value. The Money Fund seeks to maintain a stable
net asset value of $1.00 per share.
PRICE VOLATILITY
The market value of debt obligations, including municipal 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. The Funds may invest in debt
obligations which are subject to demand or other features, which may be used by
a Fund to shorten the maturity of the obligation. The Money Fund will calculate
average portfolio maturity in accordance with Rule 2a-7 under the 1940 Act.
CREDIT QUALITY
The values of debt obligations may also be affected by changes in the credit
rating or financial condition of their issuers. Generally, the lower the quality
rating of a security, the higher the degree of risk as to the payment of
interest and return of principal. To compensate investors for taking on such
increased risk, those issuers deemed to be less creditworthy generally must
offer their investors higher interest rates than do issuers with better credit
ratings.
In conducting its credit research and analysis, the Advisor considers both
qualitative and quantitative factors to evaluate the creditworthiness of
----------------------
PROSPECTUS PAGE I-16
<PAGE> 17
individual issuers. The Advisor also relies, in part, on credit ratings compiled
by a number of nationally recognized statistical rating organizations
("NRSROs"). "Appendix A - Ratings of Debt Obligations" presents the ratings of
three well-known rating organizations: S&P, Moody's Investors Services, Inc.,
and Fitch Investors Service, Inc.
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;
- - 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 in one of the three highest categories by any
NRSRO (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, and
with respect to the Money Fund, Rule 2a-7 of the 1940 Act.
HIGH-YIELD (HIGH-RISK) SECURITIES. High-yield (high-risk) securities, also
referred to as "junk bonds," are those securities rated lower than investment-
grade and unrated securities of comparable quality. Although they generally
offer higher yields than investment-grade securities with similar maturities,
lower-quality securities involve greater risks, including the possibility of
default or bankruptcy. In general, they are regarded to be predominantly
speculative with respect to the issuer's capacity to pay interest 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;
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PROSPECTUS PAGE I-17
<PAGE> 18
- - 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
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.
See Appendix B for information concerning the credit quality of the High-
Yield Fund's investments in 1994.
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.
Presently, the Funds do not intend to engage in cross-trading. A more complete
discussion of certain of these securities and investment techniques and the
associated risks is presented in the Funds' SAI.
MUNICIPAL OBLIGATIONS
IN GENERAL. Municipal obligations are debt obligations issued by or on behalf
of states, territories, and possessions of the United States and the District of
Columbia and their political subdivisions, agencies, and instrumentalities.
Municipal obligations generally include debt obligations issued to obtain funds
for various public purposes. Certain types of municipal obligations
----------------------
PROSPECTUS PAGE I-18
<PAGE> 19
are issued in whole or in part to obtain funding for privately operated
facilities or projects. Municipal obligations include general obligation bonds,
revenue bonds, industrial development bonds, notes, and municipal lease
obligations.
BONDS AND NOTES. General obligation bonds are secured by the issuer's pledge
of its full faith, credit, and taxing power for the payment of interest and
principal. Revenue bonds are payable only from the revenues derived from a
project or facility or from the proceeds of a specified revenue source.
Industrial development bonds are generally revenue bonds secured by payments
from and the credit of private users. Municipal notes are issued to meet the
short-term funding requirements of state, regional, and local governments.
Municipal notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes, tax and revenue anticipation notes, construction loan notes,
short-term discount notes, tax-exempt commercial paper, demand notes, and
similar instruments. Municipal obligations include obligations, the interest on
which is exempt from federal income tax, that may become available in the future
as long as the Board of Directors of a Fund determines that an investment in any
such type of obligation is consistent with that Fund's investment objective.
LEASE OBLIGATIONS. Municipal lease obligations may take the form of a lease,
an installment purchase, or a conditional sales contract. They are issued by
state and local governments and authorities to acquire land, equipment, and
facilities, such as state and municipal vehicles, telecommunications and
computer equipment, and other capital assets. Each Fund may purchase these
obligations directly, or it may purchase participation interests in such
obligations. (See "Participation Interests" below.) Municipal leases are
generally subject to greater risks than general obligation or revenue bonds.
State constitutions and statutes set forth requirements that states or
municipalities must meet in order to issue municipal obligations. Municipal
leases may contain a covenant by the state or municipality to budget for,
appropriate, and make payments due under the obligation. Certain municipal
leases may, however, contain "non-appropriation" clauses which provide that the
issuer is not obligated to make payments on the obligation in future years
unless funds have been appropriated for this purpose each year. Accordingly,
such obligations are subject to "non-appropriation" risk. While municipal leases
are secured by the underlying capital asset, it may be difficult to dispose of
any such asset in the event of non-appropriation or other default.
MORTGAGE-BACKED BONDS. Each Fund's investments in municipal obligations may
include mortgage-backed municipal obligations, which are a type of municipal
security issued by a state, authority, or municipality to provide financing for
residential housing mortgages to target groups, generally low-income individuals
who are first-time home buyers. A Fund's interest, evidenced by such
obligations, is an undivided interest in a pool of mortgages. Payments made on
the underlying mortgages and passed through to the Fund will represent both
regularly scheduled principal and interest payments. A Fund may also receive
additional principal payments representing prepayments of the underlying
mortgages. While a certain level of prepayments can be expected, regardless of
the interest rate environment, it is anticipated that
----------------------
PROSPECTUS PAGE I-19
<PAGE> 20
prepayment of the underlying mortgages will accelerate in periods of declining
interest rates. In the event that a Fund receives principal prepayments in a
declining interest-rate environment, its reinvestment of such funds may be in
bonds with a lower yield.
PARTICIPATION INTERESTS
A participation interest gives a Fund an undivided interest in a municipal
obligation in the proportion that the Fund's participation interest bears to the
principal amount of the obligation. These instruments may have fixed, floating,
or variable rates of interest. A Fund will only purchase participation interests
if accompanied by an opinion of counsel that the interest earned on the
underlying municipal obligations will be tax-exempt. If a Fund purchases unrated
participation interests, the Board of Directors or its delegate must have
determined that the credit risk is equivalent to the rated obligations in which
the Fund may invest. The High-Yield Fund will limit its investments to 10% of
its net assets in non-investment-grade participation interests, including
participation interests that are not readily marketable. Participation interests
may be backed by a letter of credit or guaranty of the selling institution. When
determining whether such a participation interest meets a Fund's credit quality
requirements, the Fund may look to the credit quality of any financial guarantor
providing a letter of credit or guaranty.
ILLIQUID SECURITIES
The Short-Term, Insured, Bond, and High-Yield Funds may each invest up to 15%
of its net assets in illiquid securities. Illiquid securities are those
securities that are not readily marketable, including restricted securities and
repurchase obligations maturing in more than seven days. The Money Fund may
invest up to 10% of its net assets in illiquid securities. 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.
STANDBY COMMITMENTS
In order to facilitate portfolio liquidity, each Fund may acquire standby
commitments from brokers, dealers, or banks with respect to securities in its
portfolio. The High-Yield Fund will limit its acquisition of standby commitments
to 10% of the securities in its portfolio. Standby commitments entitle the
holder to achieve same-day settlement and receive an exercise price equal to the
amortized cost of the underlying security plus accrued interest. Standby
commitments generally increase the cost of the acquisition of the underlying
security, thereby reducing the yield. Standby commitments are subject to the
issuer's ability to fulfill its obligation upon demand. Although no definitive
creditworthiness criteria are used, the Advisor reviews the creditworthiness of
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PROSPECTUS PAGE I-20
<PAGE> 21
the brokers, dealers, and banks from which a Fund obtains standby commitments to
evaluate those risks.
INSURANCE (INSURED FUND)
While insurance is intended to reduce financial risk, the cost of such
insurance (from higher purchase prices of portfolio securities or the payment of
insurance premiums) will result in lower yields on the municipal obligations so
insured. Such insurance will be either Issue Insurance or Mutual Fund Insurance.
Issue Insurance is generally purchased by the issuer or underwriter of the
municipal obligation, is non-cancelable, and is effective as long as the
securities are unpaid and the insurer remains in business. Mutual Fund Insurance
may be purchased from insurance companies that guarantee the timely payment of
interest and principal when due on certain of a fund's municipal obligations
that are designated as eligible. Mutual Fund Insurance may terminate upon a
fund's sale of the insured obligations or it may be extended to enhance the
marketability of the insured obligations. Mutual Fund Insurance insurers
generally may not withdraw coverage of insured obligations unless a fund fails
to pay the premiums when due, but they may refuse to insure additional
obligations purchased by a fund after the effective date of a notice to that
effect. The Insured Fund may acquire obligations insured by the seller or other
third party and the insurance would continue for the Fund's benefit. The Insured
Fund anticipates that under normal conditions all or substantially all of its
insured municipal obligations will be subject to Issue Insurance. The Fund,
however, reserves the right to purchase Mutual Fund Insurance if the Advisor
determines it advisable to do so.
The Fund's insured municipal obligations will be insured by insurers
determined to have a high claims-paying ability by or under the authority of the
Fund's Board of Directors. Currently, the following insurers are considered to
have a high claims-paying ability: Municipal Bond Investors Assurance
Corporation, Capital Guaranty Insurance Company, Financial Guaranty Insurance
Company, AMBAC Indemnity Corporation, Financial Security Assurance Inc., Connie
Lee Insurance Company, and Capital Markets Assurance Corporation, all of which
have a claims-paying ability rating of "AAA" by S&P. Additional insurers may be
added without further notification if such insurers' claims-paying ability is
determined to be high by or under the authority of the Fund's Board of
Directors. Municipal obligations subject to Issue Insurance, if rated, will
generally carry the same credit rating as the insurer, and municipal obligations
subject to Mutual Fund Insurance are generally considered to have a credit
quality equivalent to the claims-paying ability rating of the insurer. The Fund
may invest more than 25% of its assets in municipal obligations insured by the
same insurance company.
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<PAGE> 22
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 until the settlement date.
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,
with respect to the Short-Term, Insured, Bond, and High-Yield Funds, or the
greater the possibility of deviation from the targeted $1.00 share price with
respect to the Money 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.
SECTOR CONCENTRATION
From time to time, each Fund may invest 25% or more of its total assets in
municipal obligations that are related in such a way that an economic, business,
or political development or change affecting one such security could also affect
the other securities. Such related sectors may include hospitals, retirement
centers, pollution control, single-family housing, multiple-family housing,
industrial development, utilities, education, and general obligation bonds. Each
Fund also may invest 25% or more of its total assets in municipal obligations
whose issuers are located in the same state.
DERIVATIVE INSTRUMENTS
Derivative instruments may be used by the Short-Term, Insured, Bond, and
High-Yield Funds for any lawful purpose, including hedging, risk management, or
enhancing returns, but not for speculation. Derivative instruments are
securities or agreements whose value is derived from the value of some
underlying asset, for example, securities, reference indexes, or commodities.
Options, futures, and options on futures transactions are considered derivative
transactions. Derivatives generally have investment characteristics that are
based upon either forward contracts (under which one party is obligated to buy
and
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PROSPECTUS PAGE I-22
<PAGE> 23
the other party is obligated to sell an underlying asset at a specific price on
a specified date) or option contracts (under which the holder of the option has
the right but not the obligation to buy or sell an underlying asset at a
specified price on or before a specified date). Consequently, the change in
value of a forward-based derivative generally is roughly proportional to the
change in value of the underlying asset. In contrast, the buyer 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 seller 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.
Derivative transactions may include elements of leverage and, accordingly, the
fluctuation of the value of the derivative transaction in relation to the
underlying asset may be magnified. In addition to options, futures, and options
on futures transactions, derivative transactions may include short sales against
the box, in which the Fund sells a security it owns for delivery at a future
date; swaps, in which the two parties agree to exchange a series of cash flows
in the future, such as interest-rate payments; 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"; and 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."
Derivative instruments may be exchange-traded or traded in over-the-counter
transactions between private parties. Over-the-counter transactions are subject
to 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. 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 derivatives transaction in a segregated
account to secure its obligations under derivative transactions. In order to
maintain its required cover for a derivative transaction, 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 derivative transactions by a Fund is dependent upon the
Advisor's ability to correctly anticipate trends in the underlying asset. To the
extent that a Fund is engaging in derivative transactions other than for hedging
purposes, the Fund's successful use of such transactions is more dependent upon
the Advisor's ability to correctly anticipate such trends, since losses in these
transactions may not be offset in gains in the Fund's portfolio or in lower
purchase prices for assets it intends to acquire. The Advisor's prediction of
trends in underlying assets may prove to be inaccurate, which could result in
substantial losses to a Fund. Hedging transactions are also subject to risks. 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.
----------------------
PROSPECTUS PAGE I-23
<PAGE> 24
ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES
The Insured and Bond Funds may invest without limitation, and the Short-Term
and High-Yield Funds may invest up to 5% and 10%, respectively, of their total
assets 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 taxable zero-coupon, step-coupon, and pay-in-kind securities to
include in income each year the portion of the original issue discount (or
deemed discount) and other non-cash income on such securities accruing that
year. In order to continue to qualify for treatment as a "regulated investment
company" under the Internal Revenue Code and avoid a certain excise tax, a Fund
may be required to distribute a portion of such discount and income and may be
required to dispose of other portfolio securities, which may occur in periods of
adverse market prices, in order to generate cash to meet these distribution
requirements.
PORTFOLIO TURNOVER
With the exception of the Money Fund, each Fund's historical portfolio
turnover rate is 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 redemption
of shares. High 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 rate for the Short-Term Fund is expected to exceed
100%, but generally not exceed 200%. The annual portfolio turnover rates for the
Insured and Bond Funds are expected to be between 200% and 300%. The annual
portfolio turnover rate for the High-Yield Fund generally is not expected to
exceed 300%.
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
----------------------
PROSPECTUS PAGE I-24
<PAGE> 25
Management, Inc. (the "Advisor"). Except for the advisory fee arrangements,
the Advisory Agreements are 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. The Advisor also acts as investment advisor for each of the mutual funds
within the Strong Family of Funds. As of March 31, 1995, the Advisor had over
$12 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
advisory fee based on a percentage of each Fund's average daily net asset value.
The annual rates are as follows: Money, Short-Term, and Insured Funds, .50%; and
Bond and High-Yield Funds, .60%. From time to time, the Advisor may voluntarily
waive all or a portion of its management fee and/or absorb certain Fund expenses
without further notification of the commencement or termination of such waiver
or absorption. Any such waiver or absorption will temporarily lower a Fund's
overall expense ratio and increase a Fund's overall return to investors.
PORTFOLIO MANAGERS. The following individuals serve as portfolio managers for
the Strong Municipal Income Funds.
STRONG MUNICIPAL MONEY MARKET FUND
STEVEN D. HARROP. A Chartered Financial Analyst, Mr. Harrop has managed the
Strong Municipal Money Market Fund since he joined the Advisor in 1991.
Previously, he was employed by USAA Investment Management Company, where he
co-managed a balanced fund and managed five tax-exempt funds. Mr. Harrop
received his bachelor's degree from Brigham Young University in 1972 and his
master's degree from Northwestern University in 1973.
STRONG SHORT-TERM MUNICIPAL BOND FUND
THOMAS J. CONLIN. Mr. Conlin has co-managed the Fund since January 1995.
Since he joined the Advisor in October 1991, Mr. Conlin, a Chartered Financial
Analyst and Certified Investment Counselor, has co-managed the Strong Municipal
Bond and Insured Municipal Bond Funds. He has also co-managed the Strong
High-Yield Municipal Bond Fund since its inception in 1993. Previously, Mr.
Conlin was employed by Chicago-based Stein Roe & Farnham, where he co-managed,
with Mary-Kay H. Bourbulas, two tax-exempt funds. He attended Indiana
University, where he earned his M.B.A. in 1978, and Illinois State University,
where he received his bachelor's degree in 1976.
----------------------
PROSPECTUS PAGE I-25
<PAGE> 26
GREG D. WINSTON. Mr. Winston has co-managed the Fund since January 1995.
Since he joined the Advisor in January 1988, he has served in a variety of
positions, including Municipal Income Research Analyst and Trader. Mr. Winston
received his B.B.A. in Finance and Marketing in 1987 from the University of
Wisconsin-Madison.
STRONG MUNICIPAL BOND FUND
STRONG INSURED MUNICIPAL BOND FUND
STRONG HIGH-YIELD MUNICIPAL BOND FUND
THOMAS J. CONLIN. Mr. Conlin co-manages the Funds. Information regarding Mr.
Conlin is set forth above under "Strong Short-Term Municipal Bond Fund."
MARY-KAY H. BOURBULAS. Prior to joining the Advisor as a portfolio manager in
October 1991, Ms. Bourbulas was employed by Stein Roe & Farnham, where she
co-managed, with Thomas J. Conlin, two tax-exempt funds. Ms. Bourbulas received
her bachelor's degree from Northwestern University in 1989. She has co-managed
the Strong Municipal Bond and Insured Municipal Bond Funds since she joined the
Advisor, and has co-managed the Strong High-Yield Municipal Bond Fund since its
inception in 1993.
TRANSFER AND DIVIDEND-DISBURSING AGENT
The Advisor, P.O. Box 2936, Milwaukee, Wisconsin 53201, also acts as
dividend-disbursing agent and transfer agent for the Funds. The Advisor is
compensated for its services based on an annual fee per account plus certain
out-of-pocket expenses. The fees received and the services provided as transfer
agent and dividend-disbursing agent are in addition to those received and
provided under the Advisory Agreements between the Advisor and the Funds.
DISTRIBUTOR
Strong Funds Distributors, Inc., P.O. Box 2936, Milwaukee, Wisconsin 53201,
an indirect subsidiary of the Advisor, acts as distributor of the shares of the
Funds.
ORGANIZATION
SHAREHOLDER RIGHTS. Each 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. 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. Shareholders
----------------------
PROSPECTUS PAGE I-26
<PAGE> 27
have certain rights, including the right to call a meeting upon a vote of 10% of
a Fund's outstanding shares for the purpose of voting to remove one or more
directors or to transact any other business.
SHAREHOLDER PRIVILEGES. The shareholders of each Fund may benefit from the
privileges described in the "Shareholder Manual" (see page II-1). However, each
Fund reserves the right, at any time and without prior notice, to suspend,
limit, modify, or terminate any of these privileges or their use in any manner
by any person or class.
DISTRIBUTIONS AND TAXES
PAYMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS. 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 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 annually.
Each Fund may make additional distributions if necessary to avoid imposition of
a 4% excise tax on undistributed income and gains. Each Fund declares dividends
on each day its net asset value is calculated. Income earned on weekends,
holidays, and other 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. If a Fund satisfies certain
requirements described under "Taxes" in the SAI - which each Fund intends to
continue to do - dividends paid by that Fund from the interest earned on
municipal bonds will constitute "exempt-interest dividends" and will not be
subject to federal income tax. However, the Funds may invest in municipal bonds
the interest on which is a tax preference item for purposes of the AMT.
Exempt-interest dividends distributed to corporate shareholders also may be
subject to the AMT regardless of the types of municipal bonds in which a Fund
invests, depending on the corporation's tax status. Distributions by the Funds
may be subject to state and local taxes, depending on the laws of your home
state and locality.
You will be subject to federal income tax at ordinary income rates on any
income dividends you receive that are derived from interest on taxable
securities or from net realized short-term capital gains. Distributions by a
Fund
----------------------
PROSPECTUS PAGE I-27
<PAGE> 28
(other than the Money Fund) from net capital gain (the excess of net long-term
capital gain over net short-term capital loss), when designated as such, are
taxable as long-term capital gains, whether you receive the distribution in cash
or in additional shares. The Funds' distributions, other than exempt-interest
dividends ("taxable distributions"), are taxable in the year they are paid,
whether they are taken in cash or are reinvested in additional shares, except
that certain taxable distributions declared in the last three months of the year
and paid in January are taxable as if paid on December 31.
If a Fund's taxable distributions exceed its investment company taxable
income (consisting generally of net investment income and net short-term capital
gain) and net capital gain (the excess of net long-term capital gain over net
short-term capital loss) in any year, 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 a Fund (other than the
Money Fund) 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
all the shares in your account at any time during a month, dividends credited to
the account since the beginning of the dividend period through the day of
redemption will be paid with the redemption proceeds.
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 taxable dividends (in the case of the Money Fund),
and from all taxable dividends, capital gain distributions, and redemption
proceeds (in the case of all the other Funds), payable to you. Withholding at
that rate from taxable 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
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PROSPECTUS PAGE I-28
<PAGE> 29
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 advisor.
PERFORMANCE INFORMATION
Each Fund may advertise "yield," "equivalent taxable yield," "average annual
total return," "total return," and "cumulative total return." The Money Fund may
also advertise "effective yield." 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
Money Fund's yield and effective yield are measures of the net investment income
per share earned by the Fund over a specific seven-day period and are shown as a
percentage of the investment. However, the Money Fund's effective yield will be
slightly higher than its yield because effective yield assumes that the net
investment income earned by the Fund will be reinvested. The Short-Term,
Insured, Bond, and High-Yield Funds' yield is a measure of the net investment
income per share earned by a Fund over a specific 30-day period and is shown as
a percentage of the net asset value of the Fund's shares at the end of the
period. Equivalent taxable yield represents the amount a taxable investment
would need to generate to equal a Fund's yield for an investor at stated tax
rates.
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-29
<PAGE> 30
This page has been left blank intentionally.
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PROSPECTUS PAGE I-30
<PAGE> 31
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-8
REGULAR INVESTMENT PLANS............... II-10
SPECIAL SITUATIONS..................... II-12
</TABLE>
HOW TO BUY SHARES
All the Strong Funds are 100% no-load, meaning you may purchase, redeem or
exchange shares directly at net asset value without paying a sales charge.
Because the Short-Term, Insured, Bond, and High-Yield Funds' net asset value
changes daily, your purchase price will be the next net asset value determined
after Strong receives and accepts your purchase order. 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> 32
<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 below).
- Complete both the Automatic Investment Plan
application at the back of this Prospectus and the
new 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> 33
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
- - Complete the Request for Telephone Purchase Form at the back of this
Prospectus to make additional investments from $50 to $25,000 into your Strong
Funds account by telephone.
Or use Strong Direct SM, 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 opening 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. We've
included an application at the back of this Prospectus.
- - 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 shares into a broker-dealer
street name account from the broker-dealer.
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PROSPECTUS PAGE II-3
<PAGE> 34
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 privileges are 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 UGMA/UTMA account..........................................$250
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-10). Unless you participate in
the Strong No-Minimum Investment Program, please ensure that your purchases meet
the minimum investment requirements.
Under certain circumstances (for example, if you discontinue a No-Minimum
Investment Program before you reach 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.
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
----------------------
PROSPECTUS PAGE II-4
<PAGE> 35
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 net
asset value.
With respect to the Short-Term, Insured, Bond, and High-Yield Funds,
municipal securities are valued at fair value as determined by a pricing service
that is designated by the Funds' Board of Directors. The pricing service
generally values securities at the average of the most recent bid and asked
prices and also may look to such factors as market transactions among
institutional investors and dealer quotations for similar securities. The other
debt securities are valued at the last sales price on the national securities
exchange or NASDAQ on which such securities are primarily traded; however,
securities traded on NASDAQ for which there were no transactions on a given day
or securities not listed on an exchange or NASDAQ are valued at the average of
the most recent bid and asked prices. Any taxable 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. Any debt securities of a
Fund having remaining maturities of 60 days or less when purchased are valued by
the amortized cost method when the Board of Directors determines that the fair
value of such securities is their amortized cost, unless circumstances dictate
otherwise.
The securities in the portfolio of the Money Fund are valued on an amortized
cost basis. Under this method of valuation, a security is initially valued at
its acquisition cost, and thereafter, amortization of any discount or premium is
assumed each day, regardless of the impact of fluctuating interest rates on the
----------------------
PROSPECTUS PAGE II-5
<PAGE> 36
market value of the instrument. Under most conditions, management believes it
will be possible to maintain the net asset value of this Fund at $1.00 per
share. Calculations are periodically made to compare the value of a Fund's
portfolio valued at amortized cost with market values. If a deviation of 1/2 of
1% or more were to occur between the net asset value calculated by reference to
market values and a Fund's $1.00 per share net asset value, or if there were any
other deviation that the Board of Directors believed would result in a material
dilution to shareholders or purchasers, the Board of Directors would promptly
consider what action, if any, should be initiated.
HOW TO SELL SHARES
You can access the money in your account at any time by selling (redeeming)
some or all of your shares back to the Fund. Once your redemption request is
received in proper form, Strong will normally mail you the proceeds the next
business day and, in any event, no later than seven days thereafter.
To redeem shares, you may use any of the methods described in the chart
below. For your protection, certain requests may require a signature guarantee.
----------------------
PROSPECTUS PAGE II-6
<PAGE> 37
<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 DirectSM, Strong Funds'
automated telephone response system. Call
1-800-368-3863 for details.
- ----------------------------------------------------------------------------
CHECK WRITING Sign up for the free check-writing privileges 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> 38
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.
- - 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.
WHAT YOU SHOULD KNOW ABOUT TELEPHONE REDEMPTIONS
- - The Funds reserve the right to refuse a telephone redemption if they believe
it advisable to do so.
- - Once you place your telephone redemption request, it cannot be canceled or
modified.
- - Investors will bear the risk of loss from fraudulent or unauthorized
instructions received over the telephone provided that the Fund reasonably
believes that such instructions are genuine. The Funds and their transfer
agent employ reasonable procedures to confirm that instructions communicated
by telephone are genuine. The Funds may incur liability if they do not follow
these procedures.
- - Because of increased telephone volume, you may experience difficulty in
implementing a telephone redemption during periods of dramatic economic or
market changes.
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.
STRONG DIRECTSM AUTOMATED TELEPHONE SYSTEM. Also available 24 hours a day,
the Strong DirectSM automated response system enables you to use a touch-tone
phone to hear fund quotes and returns on any Strong Fund. You
----------------------
PROSPECTUS PAGE II-8
<PAGE> 39
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 semi-annual report and an annual report
containing audited financial statements.
To reduce the volume of mail you receive, only one copy of certain materials,
such as prospectuses and shareholder reports, is mailed to your household. Call
1-800-368-3863 if you wish to receive additional copies, free of charge.
More complete information regarding each Fund's investment policies and
services is contained in the SAI, which you may request by calling or writing
Strong Funds at the phone number and address on the cover of this Prospectus.
CHANGING YOUR ACCOUNT INFORMATION. So that you continue receiving your Strong
correspondence, including any dividend checks and statements, please notify us
in writing as soon as possible if your address changes. You may use the
Additional Investment Form at the bottom of your confirmation statement, or
simply write us a letter of instruction that contains the following information:
1. a written request to change the address,
2. the account number(s) for which the address is to be changed,
3. the new address, and
4. the signatures of all owners of the accounts.
Please send your request to the address on the cover of this Prospectus.
Changes to your accounts' registrations - 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.
----------------------
PROSPECTUS PAGE II-9
<PAGE> 40
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 redeem or exchange shares
from any account you specify. 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 this privilege. Redemption by check
cannot be honored if share certificates are outstanding and would need to be
liquidated to honor the check. Checks are supplied free of charge, and
additional checks will be sent to you upon your 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
instruction (six months following written instructions) by Strong Funds.
If there are insufficient cleared shares in your account to cover the amount
of your redemption by check, the check will be returned, marked "insufficient
funds," and a fee of $10 will be charged to the account.
REGULAR INVESTMENT PLANS
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
-----------------------
PROSPECTUS PAGE II-10
<PAGE> 41
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
application at the back of this Prospectus, or call 1-800-368-3863.
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 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.
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.
-----------------------
PROSPECTUS PAGE II-11
<PAGE> 42
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 payment, the remaining amount will be redeemed and the Plan will be
terminated.
SPECIAL SITUATIONS
POWER OF ATTORNEY. If you are investing as attorney-in-fact for another
person, please complete the account application in the name of such person and
sign the back of the application in the following form: "[applicant's name] by
[your name], attorney-in-fact." To avoid having to file an affidavit prior to
each transaction, please complete the Power of Attorney form available from
Strong Funds at 1-800-368-3863. However, if you would like to use your own power
of attorney form, please call the same number for instructions.
CORPORATIONS AND TRUSTS. If you are investing for a corporation, please
include with your account application a certified copy of your corporate
resolution indicating which officers are authorized to act on behalf of the
corporation. As an alternative, you may complete a Certification of Authorized
Individuals form, which can be obtained from the Funds. Until a valid corporate
resolution or Certification of Authorized Individuals form 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:
-----------------------
PROSPECTUS PAGE II-12
<PAGE> 43
- - 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> 44
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> 45
APPENDIX B
WEIGHTED AVERAGE RATINGS OF DEBT OBLIGATIONS1
<TABLE>
<CAPTION>
Average Percentage of Assets Held During Percentage of Assets Held on
1994(2) December 31, 1994
- ---------------------------------------- ----------------------------------------
High-Yield Municipal High-Yield Municipal
Bond Bond
-------------------- --------------------
Equivalent Equivalent
S&P Moody's Rated Unrated3 S&P Moody's Rated Unrated3
<S> <C> <C> <C> <C> <C> <C> <C>
AAA Aaa4 6.9 % - AAA Aaa4 7.7 % -
AA Aa 3.8 - AA Aa - -
A A 0.8 - A A - -
BBB Baa 10.8 23.7 BBB Baa 5.2 40.9
BB Ba 11.1 27.7 BB Ba 7.6 31.0
B B 7.1 0.3 B B 5.8 0.8
CCC Caa - - CCC Caa - -
CC Ca - - CC Ca - -
C C - - C C - -
D D - 0.4 D D - 0.8
Totals 40.5 % 52.1% Totals 26.3 % 73.5%
</TABLE>
(1) A security rated differently by the rating services is included in the
category representing the higher of the ratings assigned to the security.
(2) Based on a weighted average of the securities held at the end of each month.
Investment-grade debt obligations are those rated in one of the four highest
categories by an NRSRO. 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.
This Appendix does not contain information on the Money, Short-Term, Insured,
and Bond Funds because these Funds did not invest more than 5% in
non-investment-grade debt obligations during 1994.
(3) This category represents the comparable quality of unrated securities, as
determined by the Advisor.
(4) Includes all U.S. government obligations.
----------------------
PROSPECTUS PAGE B-1
<PAGE> 46
NOTES
<PAGE> 47
NOTES
<PAGE> 48
NOTES
<PAGE> 49
STATEMENT OF ADDITIONAL INFORMATION
STRONG MUNICIPAL MONEY MARKET FUND, INC.
STRONG SHORT-TERM MUNICIPAL BOND FUND, INC.
STRONG INSURED MUNICIPAL BOND FUND, INC.
STRONG MUNICIPAL BOND FUND, INC.
STRONG HIGH-YIELD MUNICIPAL BOND FUND, INC.
P.O. Box 2936
Milwaukee, Wisconsin 53201
Telephone: 1-414-359-1400
Toll-Free: 1-800-368-3863
This Statement of Additional Information is not a Prospectus and
should be read in conjunction with the Prospectus of Strong Municipal Money
Market Fund, Inc., Strong Short-Term Municipal Bond Fund, Inc., Strong Insured
Municipal Bond Fund, Inc., Strong Municipal Bond Fund, Inc., and Strong
High-Yield Municipal Bond Fund, Inc. (the "Funds") dated May 1, 1995. Requests
for copies of the Prospectus should be made by writing to the Funds, P.O. Box
2936, Milwaukee, Wisconsin 53201, Attention: Corporate Secretary; or by
calling one of the numbers listed above. The financial statements appearing in
the Funds' Annual Report, which accompanies this Statement of Additional
Information, are incorporated herein by reference.
This Statement of Additional Information is dated May 1, 1995
<PAGE> 50
STRONG MUNICIPAL INCOME FUNDS
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
COMMON INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Illiquid Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Taxable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Variable- or Floating-Rate Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Short Sales Against the Box . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Lending of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Mortgage Dollar Rolls and Reverse Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Sector Concentration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
INVESTMENT POLICIES AND TECHNIQUES--MONEY FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Maturity Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Proposed Diversification Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
INVESTMENT POLICIES AND TECHNIQUES --
SHORT-TERM, INSURED, BOND, AND HIGH-YIELD FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
High-Yield (High-Risk) Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Insurance (Insured Fund) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Temporary Defensive Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Average Portfolio Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
DIRECTORS AND OFFICERS OF THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
INVESTMENT ADVISOR AND UNDERWRITER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ADDITIONAL SHAREHOLDER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
FUND ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SHAREHOLDER MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
PORTFOLIO MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
LEGAL COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-
</TABLE>
___________________________________
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus dated May 1, 1995, and if given or made, such
information or representations may not be relied upon as having been authorized
by the Funds.
This Statement of Additional Information does not constitute an
offer to sell securities.
<PAGE> 51
INVESTMENT RESTRICTIONS
The investment objective of the Strong Municipal Money Market Fund,
Inc. (the "Money Fund") is to seek federally tax-exempt current income, a
stable share price and daily liquidity. The investment objective of the Strong
Short-Term Municipal Bond Fund, Inc. (the "Short-Term Fund") is to seek total
return by investing for a high level of federally tax-exempt current income
with a low degree of share-price fluctuation. The investment objective of the
Strong Insured Municipal Bond Fund, Inc. (the "Insured Fund") and the Strong
Municipal Bond Fund, Inc. (the "Bond Fund") is to seek total return by
investing for a high level of federally tax-exempt current income with a
moderate degree of share-price fluctuation. The investment objective of the
Strong High-Yield Municipal Bond Fund, Inc. (the "High-Yield Fund") is to seek
total return by investing for a high level of federally tax-exempt current
income. The Funds' investment objectives and policies are described in detail
in the Prospectus under the caption "Investment Objectives and Policies." The
following are the Funds' fundamental investment limitations which cannot be
changed without shareholder approval.
Each Fund:
1. May not with respect to 75% of its total assets, purchase the
securities of any issuer (except securities issued or guaranteed by
the U.S. government or its agencies or instrumentalities) if, as a
result, (i) more than 5% of the Fund's total assets would be invested
in the securities of that issuer, or (ii) the Fund would hold more
than 10% of the outstanding voting securities of that issuer.
2. May (i) borrow money from banks and (ii) make other investments or
engage in other transactions permissible under the Investment Company
Act of 1940 (the 1940 Act) which may involve a borrowing, provided
that the combination of (i) and (ii) shall not exceed 33 1/3% of the
value of the Fund's total assets (including the amount borrowed), less
the Fund's liabilities (other than borrowings), except that the Fund
may borrow up to an additional 5% of its total assets (not including
the amount borrowed) from a bank for temporary or emergency purposes
(but not for leverage or the purchase of investments). The Fund may
also borrow money from the other Strong Funds or other persons to the
extent permitted by applicable law.
3. May not issue senior securities, except as permitted under the 1940
Act.
4. May not act as an underwriter of another issuer's securities, except
to the extent that the Fund may be deemed to be an underwriter within
the meaning of the Securities Act of 1933 in connection with the
purchase and sale of portfolio securities.
5. May not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall
not prevent the Fund from purchasing or selling options, futures
contracts, or other derivative instruments, or from investing in
securities or other instruments backed by physical commodities).
6. May not make loans if, as a result, more than 33 1/3% of the Fund's
total assets would be lent to other persons, except through (i)
purchases of debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.
7. May not purchase the securities of any issuer if, as a result, more
than 25% of the Fund's total assets would be invested in the
securities of issuers, the principal business activities of which are
in the same industry.
8. May not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prohibit the Fund from purchasing or selling securities or other
instruments backed by real estate or of issuers engaged in real estate
activities).
9. May, notwithstanding any other fundamental investment policy or
restriction, invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objective, policies, and restrictions as the
Fund.
10. May not, under normal market conditions, invest less than 80% of its
net assets in municipal securities.
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The following are the Funds' non-fundamental operating policies which
may be changed by the Board of Directors of each Fund without shareholder
approval.
Each Fund may not:
1. Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short,
or unless it covers such short sale as required by the current rules
and positions of the Securities and Exchange Commission or its staff,
and provided that transactions in options, futures contracts, options
on futures contracts, or other derivative instruments are not deemed
to constitute selling securities short.
2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions;
and provided that margin deposits in connection with futures
contracts, options on futures contracts, or other derivative
instruments shall not constitute purchasing securities on margin.
3. Invest in illiquid securities if, as a result of such investment, more
than 15% (10% with respect to the Money Fund) of its net assets would
be invested in illiquid securities, or such other amounts as may be
permitted under the 1940 Act.
4. Purchase securities of other investment companies except in compliance
with the 1940 Act and applicable state law.
5. Invest all of its assets in the securities of a single open-end
investment management company with substantially the same fundamental
investment objective, restrictions and policies as the Fund.
6. Purchase the securities of any issuer (other than securities issued or
guaranteed by domestic or foreign governments or political
subdivisions thereof) if, as a result, more than 5% of its total
assets would be invested in the securities of issuers that, including
predecessor or unconditional guarantors, have a record of less than
three years of continuous operation. This policy does not apply to
securities of pooled investment vehicles or mortgage or asset-backed
securities.
7. Invest in direct interests in oil, gas, or other mineral exploration
programs or leases; however, the Fund may invest in the securities of
issuers that engage in these activities.
8. Engage in futures or options on futures transactions which are
impermissible pursuant to Rule 4.5 under the Commodity Exchange Act
and, in accordance with Rule 4.5, will use futures or options on
futures transactions solely for bona fide hedging transactions (within
the meaning of the Commodity Exchange Act), provided, however, that
the Fund may, in addition to bona fide hedging transactions, use
futures and options on futures transactions if the aggregate initial
margin and premiums required to establish such positions, less the
amount by which any such options positions are in the money (within
the meaning of the Commodity Exchange Act), do not exceed 5% of the
Fund's net assets.
In addition, (i) the aggregate value of securities underlying call
options on securities written by the Fund or obligations underlying
put options on securities written by the Fund determined as of the
date the options are written will not exceed 50% of the Fund's net
assets; (ii) the aggregate premiums paid on all options purchased by
the Fund and which are being held will not exceed 20% of the Fund's
net assets; (iii) the Fund will not purchase put or call options,
other than hedging positions, if, as a result thereof, more than 5% of
its total assets would be so invested; and (iv) the aggregate margin
deposits required on all futures and options on futures transactions
being held will not exceed 5% of the Fund's total assets.
9. Pledge, mortgage or hypothecate any assets owned by the Fund except as
may be necessary in connection with permissible borrowings or
investments and then such pledging, mortgaging, or hypothecating may
not exceed 33 1/3% of the Fund's total assets at the time of the
borrowing or investment.
10. Purchase or retain the securities of any issuer if any officer or
director of the Fund or its investment advisor beneficially owns more
than 1/2 of 1% of the securities of such issuer and such officers and
directors together own beneficially more than 5% of the securities of
such issuer.
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11. Purchase warrants, valued at the lower of cost or market value, in
excess of 5% of the Fund's net assets. Included in that amount, but
not to exceed 2% of the Fund's net assets, may be warrants that are
not listed on any stock exchange. Warrants acquired by the Fund in
units or attached to securities are not subject to these restrictions.
12. Borrow money except (i) from banks or (ii) through reverse repurchase
agreements or mortgage dollar rolls, and will not purchase securities
when bank borrowings exceed 5% of its total assets.
13. Make any loans other than loans of portfolio securities, except
through (i) purchases of debt securities or other debt instruments, or
(ii) engaging in repurchase agreements.
Money Fund. In addition to the common non-fundamental restrictions described
above, the Money Fund may not engage in any transaction or practice which is
not permissible under Rule 2a-7 of the 1940 Act, notwithstanding any other
fundamental investment limitation or non-fundamental operating policy.
Short-Term, Insured, Bond, and High-Yield Funds. Under normal market
conditions, the Short-Term, Insured, Bond, and High-Yield Funds will invest at
least 65% of each Fund's total assets in bonds.
Except for the fundamental investment limitations listed above and
each Fund's investment objective, the other investment policies described in
the Prospectus and this Statement of Additional Information are not fundamental
and may be changed with approval of a Fund's Board of Directors.
COMMON INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Funds'
investment objectives, policies, and techniques that are described in detail in
the Prospectus under the captions "Investment Objectives and Policies" and
"Implementation of Policies and Risks." Investment policies and techniques
that are unique to the Money Fund, Short-Term Fund, Insured Fund, Bond Fund,
and High-Yield Fund are discussed under "Investment Policies and Techniques -
Money Fund, Short-Term Fund, Insured Fund, Bond Fund, and High-Yield Fund,"
respectively.
ILLIQUID SECURITIES
The Funds may invest in illiquid securities (i.e., securities that are
not readily marketable). However, a Fund will not acquire illiquid securities
if, as a result, they would comprise more than 15%, or with respect to the
Money Fund, 10%, of the value of the Fund's net assets (or such other amounts
as may be permitted under the 1940 Act). The Board of Directors of each Fund,
or its delegate, has the ultimate authority to determine, to the extent
permissible under the federal securities laws, which securities are illiquid
for purposes of this limitation. Certain securities exempt from registration
or issued in transactions exempt from registration under the Securities Act of
1933, as amended (the "Securities Act"), including securities that may be
resold pursuant to Rule 144A under the Securities Act, may be considered
liquid. The Board of Directors of each Fund has delegated to Strong Capital
Management, Inc. (the "Advisor") the day-to-day determination of the liquidity
of a security, although it has retained oversight and ultimate responsibility
for such determinations. Although no definitive liquidity criteria are used,
the Board of Directors has directed the Advisor to look to such factors as (i)
the nature of the market for a security (including the institutional private
resale market), (ii) the terms of certain securities or other instruments
allowing for the disposition to a third party or the issuer thereof (e.g.,
certain repurchase obligations and demand instruments), (iii) the availability
of market quotations (e.g., for securities quoted in PORTAL system), and (iv)
other permissible relevant factors.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act. Where registration is
required, a Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, a Fund might obtain a less favorable price than
prevailed when it decided to sell. Restricted securities will be priced at
fair value as determined in good faith by the Board of Directors of each Fund.
If through the appreciation of restricted securities or the depreciation of
unrestricted securities, a Fund should be in a position where more than 15%, or
with
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respect to the Money Fund, 10%, of the value of its net assets are invested in
illiquid securities, including restricted securities which are not readily
marketable, the Fund will take such steps as is deemed advisable, if any, to
protect liquidity.
Each Fund may sell over-the-counter ("OTC") options and, in connection
therewith, segregate assets or cover its obligations with respect to OTC
options written by the Fund. The assets used as cover for OTC options written
by the Fund will be considered illiquid unless the OTC options are sold to
qualified dealers who agree that the Fund may repurchase any OTC option it
writes at a maximum price to be calculated by a formula set forth in the option
agreement. The cover for an OTC option written subject to this procedure would
be considered illiquid only to the extent that the maximum repurchase price
under the formula exceeds the intrinsic value of the option.
In addition, the Funds may acquire standby commitments to facilitate
portfolio liquidity. Standby commitments are puts or rights that entitle the
holders thereof to achieve same-day settlement and to receive an exercise price
equal to the amortized cost of the underlying security plus accrued interest,
if any, at the time of exercise. A standby commitment is generally not
transferable by a Fund, although the underlying security is separately
transferable. A Fund may pay for standby commitments either separately, in
cash, or as part of the higher acquisition cost of securities subject to such
commitments (thus reducing the yield on such securities). Standby commitments
are subject to certain risks, including (i) the creditworthiness of the issuers
of standby commitments to pay for the securities at the time the commitments
are exercised, (ii) the possible restrictions on transfer of the standby
commitments, and (iii) the term of the standby commitment, which may be shorter
than the maturity of the underlying security. The Short-Term Fund will not
consider the maturity of any security to be shortened by reason of any standby
commitment to which it is subject.
TAXABLE SECURITIES
From time to time each Fund may invest up to 20% of its total assets
on a temporary basis in taxable investments (of comparable quality to their
respective tax-free investments), which would produce interest not exempt from
federal income tax, including: (i) obligations issued or guaranteed, as to
principal and interest, by the United States government, its agencies, or
instrumentalities; (ii) obligations of financial institutions, including banks,
savings and loan institutions, insurance companies and mortgage banks, such as
certificates of deposit, bankers' acceptances, and time deposits; (iii)
corporate obligations, including commercial paper, with equivalent credit
quality to the municipal securities in which the Fund may invest; and (iv)
repurchase agreements with respect to any of the foregoing instruments. For
example, a Fund may invest in such taxable investments pending the investment
or reinvestment of such assets in municipal securities, in order to avoid the
necessity of liquidating portfolio securities to satisfy redemptions or pay
expenses, or when such action is deemed to be in the interest of a Fund's
shareholders. In addition, each Fund may invest up to 100% of its total assets
in private activity bonds, the interest on which is a tax-preference item for
taxpayers subject to the federal alternative minimum tax.
VARIABLE- OR FLOATING-RATE SECURITIES
Each Fund may invest in securities which offer a variable- or
floating-rate of interest. Variable-rate securities provide for automatic
establishment of a new interest rate at fixed intervals (e.g., daily, monthly,
semi-annually, etc.). Floating-rate securities provide for automatic
adjustment of the interest rate whenever some specified interest rate index
changes. The interest rate on variable- or floating-rate securities is
ordinarily determined by reference to or is a percentage of a bank's prime
rate, the 90-day U.S. Treasury bill rate, the rate of return on commercial
paper or bank certificates of deposit, an index of short-term interest rates,
or some other objective measure.
Variable- or floating-rate securities frequently include a demand
feature entitling the holder to sell the securities to the issuer at par. In
many cases, the demand feature can be exercised at any time on 7 days notice;
in other cases, the demand feature is exercisable at any time on 30 days notice
or on similar notice at intervals of not more than one year. Some securities
which do not have variable or floating interest rates may be accompanied by
puts producing similar results and price characteristics. When considering the
maturity of any instrument which may be sold or put to the issuer or a third
party, each Fund may consider that instrument's maturity to be shorter than its
stated maturity. Any such determination by the Money Fund will be made in
accordance with Rule 2a-7.
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Variable-rate demand notes include master demand notes which are
obligations that permit a Fund to invest fluctuating amounts, which may change
daily without penalty, pursuant to direct arrangements between a Fund, as
lender, and the borrower. The interest rates on these notes fluctuate from
time to time. The issuer of such obligations normally has a corresponding
right, after a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of days' notice to the holders of such obligations. The interest rate
on a floating-rate demand obligation is based on a known lending rate, such as
a bank's prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable-rate demand obligation is adjusted
automatically at specified intervals. Frequently, such obligations are secured
by letters of credit or other credit support arrangements provided by banks.
Because these obligations are direct lending arrangements between the lender
and borrower, it is not contemplated that such instruments will generally be
traded. There generally is not an established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, a Fund's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. Such obligations frequently
are not rated by credit rating agencies and, if not so rated, the Funds may
invest in them only if the Funds' Advisor determines that at the time of
investment the obligations are of comparable quality to the other obligations
in which the Funds may invest. The Advisor, on behalf of the Funds, will
consider on an ongoing basis the creditworthiness of the issuers of the
floating- and variable-rate demand obligations in the Funds' portfolio.
Each Fund will not invest more than 15%, or with respect to the Money
Fund, 10%, of its net assets in variable- and floating-rate demand obligations
that are not readily marketable (a variable- or floating-rate demand obligation
that may be disposed of on not more than seven days notice will be deemed
readily marketable and will not be subject to this limitation). (See "Illiquid
Securities" and "Investment Restrictions.") In addition, each variable- or
floating-rate obligation must meet the credit quality requirements applicable
to all the Fund's investments at the time of purchase. The High-Yield Fund will
only invest in investment-grade variable- and floating-rate securities. When
determining whether such an obligation meets a Fund's credit quality
requirements, the Fund may look to the credit quality of the financial
guarantor providing a letter of credit or other credit support arrangement.
In determining a Fund's dollar-weighted average portfolio maturity, a
Fund will consider a floating or variable rate security to have a maturity
equal to its stated maturity (or redemption date if it has been called for
redemption), except that it may consider (i) variable rate securities to have a
maturity equal to the period remaining until the next readjustment in the
interest rate, unless subject to a demand feature, (ii) variable rate
securities subject to a demand feature to have a remaining maturity equal to
the longer of (a) the next readjustment in the interest rate or (b) the period
remaining until the principal can be recovered through demand, and (iii)
floating rate securities subject to a demand feature to have a maturity equal
to the period remaining until the principal can be recovered through demand.
Variable and floating rate securities generally are subject to less principal
fluctuation than securities without these attributes since the securities
usually trade at par following the readjustment in the interest rate.
SHORT SALES AGAINST THE BOX
Each Fund may sell securities short against the box to hedge
unrealized gains on portfolio securities. Selling securities short against the
box involves selling a security that a Fund owns or has the right to acquire,
for delivery at a specified date in the future. If a Fund sells securities
short against the box, it may protect unrealized gains, but will lose the
opportunity to profit on such securities if the price rises.
LENDING OF PORTFOLIO SECURITIES
Each Fund is authorized to lend up to 33 1/3% of the total value of
its portfolio securities to broker-dealers or institutional investors that the
Advisor deems qualified, but only when the borrower maintains with the Fund's
custodian bank collateral either in cash or money market instruments in an
amount at least equal to the market value of the securities loaned, plus
accrued interest and dividends, determined on a daily basis and adjusted
accordingly. In determining whether to lend securities to a particular
broker-dealer or institutional investor, the Advisor will consider, and during
the period of the loan will monitor, all relevant facts and circumstances,
including the creditworthiness of the borrower. The Funds will retain
authority to terminate any loans at any time. The Funds may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The Funds
will receive reasonable interest on the loan or a flat fee from the borrower
and amounts equivalent to any
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dividends, interest or other distributions on the securities loaned. The Funds
will retain record ownership of loaned securities to exercise beneficial
rights, such as voting and subscription rights and rights to dividends,
interest or other distributions, when retaining such rights is considered to be
in a Fund's interest. However, the Funds do not presently intend to engage in
such lending.
REPURCHASE AGREEMENTS
In a repurchase agreement, the Fund buys a security at one price, and
at the time of sale, the seller agrees to repurchase the obligation at a
mutually agreed upon time and price (usually within seven days). The
repurchase agreement, thereby, determines the yield during the purchaser's
holding period, while the seller's obligation to repurchase is secured by the
value of the underlying security. If the value of such securities is less than
the repurchase price, plus any agreed-upon additional amount, the other party
to the agreement will be required to provide additional collateral so that at
all times the collateral is at least equal to the repurchase price, plus any
agreed-upon additional amount. The Advisor will monitor, on an ongoing basis,
the value of the underlying securities to ensure that the value always equal or
exceeds the repurchase price plus accrued interest.
Each Fund may enter into repurchase agreements with member banks of
the Federal Reserve System or certain non-bank dealers. In a repurchase
agreement, a Fund acquires a security at one price and, at the time of the
sale, the seller agrees to repurchase the obligation at a mutually agreed upon
time and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the seller's
obligation to repurchase is secured by the value of the underlying security. A
Fund may enter into repurchase agreements with respect to any security in which
it may invest. The Advisor will monitor, on an ongoing basis, the value of the
underlying securities to ensure that the value always equals or exceeds the
repurchase price plus accrued interest. Repurchase agreements could involve
certain risks in the event of a default or insolvency of the other party to the
agreement, including possible delays or restrictions upon 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 a Fund enters into repurchase agreements to
evaluate those risks. The High-Yield Fund will not enter into repurchase
agreements equaling more than 10% of the Fund's assets with banks or non-bank
dealers that have lower than investment grade ratings. Repurchase agreements
generate taxable income to a Fund. Accordingly, a Fund may not invest more than
20% of its assets in repurchase agreements and other securities which generate
income that is not exempt from federal income taxation. In addition, the Money
Fund will not invest more than 10% of its net assets in repurchase agreements
maturing in more than seven days and other securities that are not readily
marketable. The Short-Term, Insured, Bond, and High-Yield Funds may invest up
to 15% of their respective net assets in repurchase agreements maturing in more
than seven days and other securities that are not readily marketable. (See
"Illiquid Securities" above.) A Fund may, under certain circumstances, deem
repurchase agreements collateralized by U.S. government securities to be
investments in U.S. government securities.
MORTGAGE DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS
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 sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The Fund also could be compensated through the receipt of
fee income equivalent to a lower forward price. At the time that the Fund
would enter into a mortgage dollar roll, it would set aside permissible liquid
assets in a segregated account to secure its obligation for the forward
commitment to buy mortgage-backed securities. Mortgage dollar roll
transactions may be considered a borrowing by the Funds. (See "Borrowing"
below.)
Each Fund 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. (See "Borrowing" below.) When required by guidelines
of the Securities and Exchange Commission (the "SEC"), a Fund will set aside
permissible liquid assets in a segregated account to secure its obligation to
repurchase the security.
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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 securities or repurchase
agreements that mature on or before the settlement date on 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 do
not present the risks to the Funds that are associated with other types of
leverage.
BORROWING
Each Fund may borrow money from banks, limited by each Fund's
fundamental investment restriction to 33 1/3% of its total assets, and may
engage in mortgage dollar roll transactions and reverse repurchase agreements
which may be considered a form of borrowing. (See "Mortgage Dollar Rolls and
Reverse Repurchase Agreements" above.) In addition, each Fund may borrow up to
an additional 5% of its total assets from banks for temporary or emergency
purposes. A Fund will not purchase securities when bank borrowings exceed 5% of
the Fund's total assets.
SECTOR CONCENTRATION
From time to time, each Fund may invest 25% or more of its assets in
municipal bonds that are related in such a way that an economic, business, or
political development or change affecting one such security could also affect
the other securities (for example, securities whose issuers are located in the
same state). Such related sectors may include hospitals, retirement centers,
pollution control, single family housing, multiple family housing, industrial
development, utilities, education, and general obligation bonds. Each Fund also
may invest 25% or more of its assets in municipal bonds whose issuers are
located in the same state. Such states may include California, Pennsylvania,
Texas, New York, Florida, and Illinois.
INVESTMENT POLICIES AND TECHNIQUES--MONEY FUND
MATURITY RESTRICTIONS
The Money Fund is subject to certain maturity restrictions pursuant to
Rule 2a-7 under the 1940 Act for money market funds that use the amortized cost
method of valuation to maintain a stable net asset value of $1.00 per share.
Accordingly, the Money Fund will (i) maintain a dollar weighted average
portfolio maturity of 90 days or less, and (ii) will purchase securities with a
remaining maturity of no more than 13 months (397 calendar days). For purposes
of calculating the maturity of portfolio instruments, the Money Fund will
follow the requirements of Rule 2a-7. Under Rule 2a-7, the maturity of
portfolio instruments is calculated as indicated below.
Generally, the maturity of a portfolio instrument shall be deemed to
be the period remaining (calculated from the trade date or such other date on
which the Money Fund's interest in the instrument is subject to market action)
until the date noted on the face of the instrument as the date on which the
principal amount must be paid, or in the case of an instrument called for
redemption, the date on which the redemption payment must be made, except that:
(1) A Variable Rate Instrument, the principal amount of which is
scheduled on the face of the instrument to be paid on 397 calendar days or less
shall be deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
(2) A Variable Rate Instrument that is subject to a Demand Feature
shall be deemed to have a maturity equal to the longer of the period remaining
until the next readjustment of the interest rate or the period remaining until
the principal amount can be recovered through demand.
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(3) A Floating Rate Instrument that is subject to a Demand Feature
shall be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
(4) A repurchase agreement shall be deemed to have a maturity equal
to the period remaining until the date on which the repurchase of the
underlying securities is scheduled to occur, or, where no date is specified,
but the agreement is subject to a demand, the notice period applicable to a
demand for the repurchase of the securities.
As used herein all capitalized but undefined terms shall have the meaning such
terms have in Rule 2a-7.
PROPOSED DIVERSIFICATION RESTRICTIONS
The SEC has proposed amendments to Rule 2a-7 which would impose
certain diversification requirements on tax-exempt money market funds,
including that a fund:
(i) may not acquire second-tier securities (generally securities
rated in the second highest rating category by at least one NRSRO or unrated
securities determined by the Advisor to be of comparable quality) of an issuer
if, immediately after the acquisition, the Fund would have invested more than
the greater of 1% of its total assets or one million dollars in second-tier
securities issued by that issuer; and
(ii) may not invest more than 5% of its total assets in the
securities (other than securities issued by the U.S. government or any agency
or instrumentality thereof) issued by a single issuer;
To the extent these amendments, if adopted, limit the universe of permitted
investments, they may lower the Fund's yield potential.
INVESTMENT POLICIES AND TECHNIQUES --
SHORT-TERM, INSURED, BOND, AND HIGH-YIELD FUNDS
HIGH-YIELD (HIGH-RISK) SECURITIES
IN GENERAL. The Bond Fund has the authority to invest up to 5% of its
assets, the Short-Term Fund up to 20% of its assets, and the High-Yield Fund
may invest without limitation in non-investment grade debt obligations (i.e.,
medium and lower-quality securities). Non-investment grade debt obligations
(hereinafter referred to as "medium and lower-quality securities") include (i)
bonds rated as low as C by Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P"), or Fitch Investors Service, Inc.
("Fitch"), or CCC by Duff & Phelps, Inc. ("D&P"); (ii) commercial paper rated
as low as C by S&P, Not Prime by Moody's or Fitch 4 by Fitch; and (iii) unrated
debt securities of comparable quality. Medium and lower-quality securities,
while generally offering higher yields than investment grade securities with
similar maturities, involve greater risks, including the possibility of default
or bankruptcy. They are regarded as predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal. The High-Yield Fund
also may invest in debt obligations that are in default, but such obligations
are not expected to exceed 10% of the Fund's total assets. The special risk
considerations in connection with investments in these securities are discussed
below. Refer to the Appendix of this Statement of Additional Information for a
discussion of securities ratings.
EFFECT OF INTEREST RATES AND ECONOMIC CHANGES. The lower-quality and
comparable unrated security market is relatively new and its growth has
paralleled a long economic expansion. As a result, it is not clear how this
market may withstand a prolonged recession or economic downturn. Such an
economic downturn could severely disrupt the market for and adversely affect
the value of such securities.
All interest-bearing securities typically experience appreciation when
interest rates decline and depreciation when interest rates rise. The market
values of lower-quality and comparable unrated securities tend to reflect
individual corporate
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developments to a greater extent than do higher rated securities, which react
primarily to fluctuations in the general level of interest rates.
Lower-quality and comparable unrated securities also tend to be more sensitive
to economic conditions than are higher-rated securities. As a result, they
generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising
interest rates, highly leveraged issuers of lower-quality and comparable
unrated securities may experience financial stress and may not have sufficient
revenues to meet their payment obligations. The issuer's ability to service
its debt obligations may also be adversely affected by specific corporate
developments, the issuer's inability to meet specific projected business
forecasts or the unavailability of additional financing. The risk of loss due
to default by an issuer of these securities is significantly greater than
issuers of higher-rated securities because such securities are generally
unsecured and are often subordinated to other creditors. Further, if the
issuer of a lower-quality or comparable unrated security defaulted, a Fund
might incur additional expenses to seek recovery. Periods of economic
uncertainty and changes would also generally result in increased volatility in
the market prices of these securities and thus in the Fund's net asset value.
As previously stated, the value of a lower-quality or comparable
unrated security will decrease in a rising interest rate market, and
accordingly so will a Fund's net asset value. If a Fund experiences unexpected
net redemptions in such a market, it may be forced to liquidate a portion of
its portfolio securities without regard to their investment merits. Due to the
limited liquidity of lower-quality and comparable unrated securities (discussed
below), a Fund may be forced to liquidate these securities at a substantial
discount. Any such liquidation would reduce the Fund's asset base over which
expenses could be allocated and could result in a reduced rate of return for
the Fund.
PAYMENT EXPECTATIONS. Lower-quality and comparable unrated securities
typically contain redemption, call or prepayment provisions which permit the
issuer of such securities containing such provisions to, at its discretion,
redeem the securities. During periods of falling interest rates, issuers of
these securities are likely to redeem or prepay the securities and refinance
them with debt securities with a lower interest rate. To the extent an issuer
is able to refinance the securities, or otherwise redeem them, a Fund may have
to replace the securities with a lower yielding security, which would result in
a lower return for the Funds.
CREDIT RATINGS. Credit ratings issued by credit-rating agencies
evaluate the safety of principal and interest payments of rated securities.
They do not, however, evaluate the market value risk of lower-quality and
comparable unrated securities and, therefore, may not fully reflect the true
risks of an investment. In addition, credit rating agencies may or may not
make timely changes in a rating to reflect changes in the economy or in the
condition of the issuer that affect the market value of the security.
Consequently, credit ratings are used only as a preliminary indicator of
investment quality. Investments in lower-quality and comparable unrated
securities will be more dependent on the Advisor's credit analysis than would
be the case with investments in investment-grade debt securities. The Advisor
employs its own credit research and analysis, which includes a study of
existing debt, capital structure, ability to service debt and to pay dividends,
the issuer's sensitivity to economic conditions, its operating history and the
current trend of earnings. The Advisor continually monitors the investments in
each Fund's portfolio and carefully evaluates whether to dispose of or to
retain lower-quality and comparable unrated securities whose credit ratings or
credit quality may have changed.
LIQUIDITY AND VALUATION. A Fund may have difficulty disposing of
certain lower-quality and comparable unrated securities because there may be a
thin trading market for such securities. Because not all dealers maintain
markets in all lower-quality and comparable unrated securities, there is no
established retail secondary market for many of these securities. The Funds
anticipate that such securities could be sold only to a limited number of
dealers or institutional investors. To the extent a secondary trading market
does exist, it is generally not as liquid as the secondary market for
higher-rated securities. The lack of a liquid secondary market may have an
adverse impact on the market price of the security. As a result, a Fund's
asset value and ability to dispose of particular securities, when necessary to
meet the Fund's liquidity needs or in response to a specific economic event,
may be impacted. The lack of a liquid secondary market for certain securities
may also make it more difficult for a Fund to obtain accurate market quotations
for purposes of valuing the Fund's portfolio. Market quotations are generally
available on many lower-quality and comparable unrated issues only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales. During periods of thin trading, the spread
between bid and asked prices is likely to increase significantly. In addition,
adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of lower-quality and comparable
unrated securities, especially in a thinly traded market.
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RECENT AND PROPOSED LEGISLATION. Recent legislation has been adopted,
and from time to time proposals have been discussed, regarding new legislation
designed to limit the use of certain lower-quality and comparable unrated
securities by certain issuers. An example of legislation is a recent law which
requires federally insured savings and loan associations to divest their
investments in these securities over time. It is not currently possible to
determine the impact of the recent legislation or the proposed legislation on
the lower-quality and comparable unrated securities market. However, it is
anticipated that if additional legislation is enacted or proposed, it could
have a material affect on the value of these securities and the existence of a
secondary trading market for the securities.
INSURANCE (INSURED FUND)
IN GENERAL. Under normal market conditions, 65% of the Insured Fund's
municipal securities must be insured as to the timely payment of principal and
interest. Such insurance will either be (i) purchased by the Insured Fund or
by a previous owner of a municipal security ("Mutual Fund Insurance"); or (ii)
obtained from the issuer or underwriter of the municipal securities ("Issue
Insurance"). If a municipal security is already covered by Issue Insurance
when acquired by the Insured Fund, the coverage will not be duplicated by
Mutual Fund Insurance. If a municipal security is not covered by Issue
Insurance, then it may be covered by Mutual Fund Insurance purchased by the
Insured Fund. The Insured Fund anticipates that all or substantially all of
its insured municipal securities will be subject to Issue Insurance. Although
the insurance feature reduces certain financial risks, the premiums for Mutual
Fund Insurance (if purchased by the Insured Fund, which are paid from the
Fund's assets) and the higher market price paid for municipal securities
covered by Issue Insurance reduce the Fund's current yield.
Insurance will cover the timely payment of interest and principal on
municipal securities and will be obtained from insurers with a high
claims-paying ability designated by or under the authority of the Insured
Fund's Board of Directors. In order to be considered as an eligible insurer,
such insurers must guarantee the timely payment of all principal and interest
on the municipal securities as they become due. However, such insurance may
provide that in the event of non-payment of interest or principal, when due,
with respect to an insured municipal bond, the insurer is not obligated to make
such payment until a specified time period (which may be 30 days or more after
it has been notified by the Insured Fund that such non-payment has occurred).
For these purposes, a payment of principal is due only at final maturity of the
municipal bond and not at the time any earlier sinking fund payment is due. In
addition to the requirement that the insurer insure the timely payment of
principal and interest on municipal securities as they become due, the
insurer's claims-paying ability must also be determined to be high by or under
the authority of the Insured Fund's Board of Directors. While the insurance
will guarantee the timely payment of principal and interest, it does not
guarantee the market value of the municipal securities or the net asset value
of the Insured Fund's shares.
Municipal securities are generally eligible to be insured under Mutual
Fund Insurance if, at the time of purchase by the Insured Fund, they are
identified separately or by category in qualitative guidelines furnished by the
mutual fund insurer and are in compliance with the aggregate limitations on
amounts set forth in such guidelines. Premium variations are based, in part,
on the rating of the municipal securities being insured at the time the Insured
Fund purchases the securities. The insurer may prospectively withdraw
particular municipal securities from the classifications of securities eligible
for insurance or change the aggregate amount limitation of each issue or
category of eligible municipal securities. But, the insurer must continue to
insure the full amount of the municipal securities previously acquired, which
the insurer has indicated are eligible so long as they remain in the Insured
Fund's portfolio. The qualitative guidelines and aggregate amount limitations
established by the insurer from time to time will not necessarily be the same
as those the Insured Fund would use to govern selection of municipal securities
for the Fund's investments. Therefore, from time to time such guidelines and
limitations may affect investment decisions in the event the Fund's portfolio
securities are insured by Mutual Fund Insurance.
For Mutual Fund Insurance that terminates upon the sale of the insured
security, the insurance does not have any effect on the resale value of such
security. Therefore, the Insured Fund will generally retain any insured
municipal securities which are in default or, in the judgment of the Advisor,
are in significant risk of default and place a value on the insurance. This
value will be equal to the difference between the market value of the defaulted
municipal securities and the market value of similar municipal securities which
are not in default. As a result, the Advisor may be unable to manage the
Insured Fund's portfolio to the extent the Fund holds defaulted municipal
securities, which will limit its ability in certain circumstances to purchase
other municipal securities. While a defaulted municipal security is held by
the Insured Fund, the Fund continues to pay the insurance premium thereon but
also collects interest payments from the insurer and retains the right to
collect the full amount of principal from the insurer when the municipal
security comes due. The Insured Fund expects that the market value of a
defaulted municipal security
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covered by Issue Insurance will generally be greater than the market value of
an otherwise comparable defaulted municipal security covered by Mutual Fund
Insurance.
PRINCIPAL INSURERS. Currently, Municipal Bond Investors Assurance
Corporation ("MBIA"), Capital Guaranty Insurance Company ("Capital Guaranty"),
Financial Guaranty Insurance Company ("FGIC"), AMBAC Indemnity Corporation
("AMBAC"), Financial Security Assurance Corp., together with its affiliated
insurance companies -- Financial Security Assurance International Inc. and
Financial Security Assurance of Oklahoma, Inc. (collectively, "FSA"), Connie
Lee Insurance Co. ("Connie Lee"), and Capital Markets Assurance Corporation
("CapMAC") are considered to have a high claims-paying ability and, therefore,
are eligible insurers for the Insured Fund's insured municipal securities.
Additional insurers may be added without further notification if such insurers'
claims-paying ability is determined to be high by or under the authority of the
Insured Fund's Board of Directors. The following information concerning these
eligible insurers is based upon information provided by such insurers or
information filed with certain state insurance regulators. The Insured Fund
has not independently verified such information and makes no representations as
to the accuracy and adequacy of such information or as to the absence of
material adverse changes subsequent to the date thereof.
MBIA is a monoline financial guaranty insurance company created from
an unincorporated association (the Municipal Bond Insurance Association),
through which its members wrote municipal bond insurance on a several and
joint-basis through 1986. On January 5, 1990, MBIA acquired all of the
outstanding stock of Bond Investors Group, Inc., the parent of Bond Investors
Guaranty Insurance Company ("BIG"), which has subsequently changed its name to
MBIA Insurance Corp. of Illinois. Through a reinsurance agreement, BIG ceded
all of its net insured risks, as well as its related unearned premium and
contingency reserves, to MBIA. MBIA issues municipal bond insurance policies
guarantying the timely payment of principal and interest on new municipal bond
issues and leasing obligations of municipal entities, secondary market
insurance of such instruments and insurance on such instruments held in unit
investment trusts and mutual funds. As of December 31, 1994, MBIA
(consolidated) had statutory capital (i.e., surplus plus contingency reserves)
of approximately $1.723 billion (unaudited) -- prepared in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities. MBIA has a claims-paying ability rating of "AAA" by S&P and "Aaa"
by Moody's. Municipal securities insured by any insurer with such a
claims-paying ability rating will generally carry the same rating or credit
risk as the insurers. Accordingly, S&P and Moody's rate all bond issues
insured by MBIA and BIG "AAA" and "Aaa," respectively.
Capital Guaranty is a monoline insurance company whose policies
guaranty the timely payment of principal and interest on new issue and
secondary market issue municipal bond transactions. As of December 31, 1994,
Capital Guaranty had statutory capital of approximately $196 million (audited)
- -- prepared in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities. Capital Guaranty has a
claims-paying ability rating of "AAA" by S&P and "Aaa" by Moody's.
Financial Guaranty Insurance Corporation, a wholly owned subsidiary of
General Electric Capital Corporation, is an insurer of municipal securities,
including new issues, securities held in unit investment trusts and mutual
funds, and those traded on secondary markets. As of December 31, 1994, FGIC
had statutory capital of approximately $1.221 billion (unaudited) -- prepared
in accordance with statutory accounting practices prescribed or permitted by
insurance regulatory authorities. FGIC has a claims-paying ability rating of
"AAA" by S&P and "Aaa" by Moody's.
AMBAC, a wholly owned subsidiary of AMBAC Inc., is a monoline
insurance company whose policies guaranty the payment of principal and interest
on municipal securities issues. As of December 31, 1994, AMBAC had statutory
capital of approximately $1.218 billion (unaudited) -- prepared in accordance
with statutory accounting practices prescribed or permitted by insurance
regulatory authorities. AMBAC has a claims-paying ability rating of "AAA" by
S&P and "Aaa" by Moody's.
FSA, which is wholly owned by U.S. West Capital Corporation, is a
monoline insurer whose policies guaranty the timely payment of principal and
interest on new issue and secondary market issue municipal securities
transactions, among other financial obligations. As of December 31, 1994, FSA
had statutory capital of approximately $426 million (unaudited) -- prepared in
accordance with statutory accounting practices prescribed or permitted by
insurance regulatory authorities. FSA has a claims-paying ability rating of
"AAA" by S&P and "Aaa" by Moody's.
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Connie Lee, a wholly-owned subsidiary of College Construction Loan
Insurance Association, is an insurer of municipal securities issued by
colleges, universities, and teaching hospitals. As of December 31, 1994,
Connie Lee had statutory capital of approximately $115 million (unaudited) --
prepared in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities. Connie Lee has a claims-paying
ability of "AAA" by S&P. Moody's has not issued a claims-paying ability rating
for Connie Lee.
CapMAC, a wholly-owned subsidiary of CapMAC Holdings, Inc., is a
monoline insurance company whose policies guarantee the timely payment of
principal and interest on new issue and secondary market issue municipal
securities transactions, among other financial obligations. As of December 31,
1994, CapMAC had statutory capital of approximately $ 170 million (unaudited)
- -- prepared in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities. CapMAC has a claims-paying
ability rating of "AAA" by S&P and "Aaa" by Moody's.
TEMPORARY DEFENSIVE POSITION
When the Advisor determines that market conditions warrant a temporary
defensive position, the Funds may invest without limitation in cash and
short-term fixed income securities, including U.S. government securities,
commercial paper, banker's acceptances, certificates of deposit, and time
deposits, including taxable obligations.
DERIVATIVE INSTRUMENTS
GENERAL DESCRIPTION. As discussed in the Prospectus, the Advisor may
use a variety of derivative instruments, including options, futures contracts
(sometimes referred to as "futures") and options on futures contracts for any
lawful purpose, such as to hedge the Fund's portfolio, manage risk, or attempt
to enhance returns.
The use of these instruments is subject to applicable regulations of
the SEC, the several options and futures exchanges upon which they may be
traded, the Commodity Futures Trading Commission ("CFTC") and various state
regulatory authorities. In addition, the Funds' ability to use these
instruments will be limited by tax considerations.
In addition to the products, strategies and risks described below and
in the Prospectus, the Advisor may discover additional derivative instruments
and other hedging techniques. These new opportunities may become available as
the Advisor develops new techniques or as regulatory authorities broaden the
range of permitted transactions. The Advisor may utilize these opportunities
to the extent that they are consistent with the Funds' investment objectives
and permitted by the Funds' investment limitations and applicable regulatory
authorities.
SPECIAL RISKS OF THESE INSTRUMENTS. The use of derivative instruments
involves special considerations and risks as described below. Risks pertaining
to particular instruments are described in the sections that follow.
(1) Successful use of most of these instruments depends upon the
Advisor's ability to predict movements of the overall securities and currency
markets, which requires different skills than predicting changes in the prices
of individual securities. While the Advisor is experienced in the use of these
instruments, there can be no assurance that any particular strategy adopted
will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of an instrument and price movements of investments
being hedged. For example, if the value of an instrument used in a short hedge
(such as writing a call option, buying a put option, or selling a futures
contract) increased by less than the decline in value of the hedged investment,
the hedge would not be fully successful. Such a lack of correlation might
occur due to factors unrelated to the value of the investments being hedged,
such as speculative or other pressures on the markets in which these
instruments are traded. The effectiveness of hedges using instruments on
indices will depend on the degree of correlation between price movements in the
index and price movements in the investments being hedged.
(3) Hedging strategies, if successful, can reduce the risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can
also reduce opportunity for gain
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by offsetting the positive effect of favorable price movements in the hedged
investments. For example, if a Fund entered into a short hedge because the
Advisor projected a decline in the price of a security in the Fund's portfolio,
and the price of that security increased instead, the gain from that increase
might be wholly or partially offset by a decline in the price of the
instrument. Moreover, if the price of the instrument declined by more than the
increase in the price of the security, the Fund could suffer a loss.
(4) As described below, a Fund might be required to maintain assets
as "cover," maintain segregated accounts, or make margin payments when it takes
positions in these instruments involving obligations to third parties (i.e.,
instruments other than purchased options). If the Fund were unable to close
out its positions in such instruments, it might be required to continue to
maintain such assets or accounts or make such payments until the position
expired or matured. The requirements might impair the Fund's ability to sell a
portfolio security or make an investment at a time when it would otherwise be
favorable to do so, or require that the Fund sell a portfolio security at a
disadvantageous time. A Fund's ability to close out a position in an
instrument prior to expiration or maturity depends on the existence of a liquid
secondary market or, in the absence of such a market, the ability and
willingness of the other party to the transaction ("counter party") to enter
into a transaction closing out the position. Therefore, there is no assurance
that any hedging position can be closed out at a time and price that is
favorable to the Fund.
For a discussion of the federal income tax treatment of the Funds'
derivative instruments, see "Taxes -- Derivative Instruments" below.
GENERAL LIMITATIONS ON CERTAIN DERIVATIVE TRANSACTIONS. The
Short-Term, Insured, Bond, and High-Yield Funds have each filed a notice of
eligibility for exclusion from the definition of the term "commodity pool
operator" with the CFTC and the National Futures Association, which regulate
trading in the futures markets. Pursuant to Rule 4.5 of the regulations under
the Commodity Exchange Act (the "CEA"), the notice of eligibility for each Fund
includes representations that the Fund will use futures contracts and related
options solely for bona fide hedging purposes within the meaning of CFTC
regulations, provided that a Fund may hold other positions in futures contracts
and related options that do not qualify as a bona fide hedging position if the
aggregate initial margin deposits and premiums required to establish these
positions, less the amount by which any such options positions are "in the
money," do not exceed 5% of the Fund's net assets. Adoption of these
guidelines does not limit the percentage of the Fund's assets at risk to 5%.
In addition, (i) the aggregate value of securities underlying call
options on securities written by a Fund or obligations underlying put options
on securities written by a Fund determined as of the date the options are
written will not exceed 50% of the Fund's net assets; (ii) the aggregate
premiums paid on all options purchased by a Fund and which are being held will
not exceed 20% of the Fund's net assets; and (iii) a Fund will not purchase put
or call options, other than hedging positions, if, as a result thereof, more
than 5% of its total assets would be so invested; and (iv) the aggregate margin
deposits required on all futures and options on futures transactions being held
will not exceed 5% of a Fund's total assets.
The foregoing limitations are not fundamental policies of the Funds
and may be changed by each Fund's Board of Directors without shareholder
approval as regulatory agencies permit.
Transactions using options (other than purchased options) expose the
Funds to counter-party risk. To the extent required by SEC guidelines, a Fund
will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities, other options, or futures or (2)
cash and liquid high grade debt securities with a value sufficient at all times
to cover its potential obligations to the extent not covered as provided in (1)
above. Each Fund will also set aside cash and/or appropriate liquid assets in
a segregated custodial account if required to do so by the SEC and CFTC
regulations. Assets used as cover or held in a segregated account cannot be
sold while the position in the corresponding option or futures contract is
open, unless they are replaced with similar assets. As a result, the
commitment of a large portion of a Fund's assets to cover or segregated
accounts could impede portfolio management or a Fund's ability to meet
redemption requests or other current obligations.
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FUTURES CONTRACTS. Each Fund may enter into futures contracts,
including interest rate and index futures. Each Fund may also purchase put and
call options, and write covered put and call options, on futures in which it is
allowed to invest. The purchase of futures or call options thereon can serve
as a long hedge, and the sale of futures or the purchase of put options thereon
can serve as a short hedge. Writing covered call options on futures contracts
can serve as a limited short hedge, and writing covered put options on futures
contracts can serve as a limited long hedge, using a strategy similar to that
used for writing covered options in securities. The Funds' hedging may include
purchases of futures as an offset against the effect of expected increases in
securities prices and sales of futures as an offset against the effect of
expected declines in securities prices. The Funds' futures transactions may be
entered into for any lawful purpose such as hedging purposes, risk management,
or to enhance returns. The Funds may also write put options on interest rate
futures contracts while at the same time purchasing call options on the same
futures contracts in order to create synthetically a long futures contract
position. Such options would have the same strike prices and expiration dates.
The Funds will engage in this strategy only when the Advisor believes it is
more advantageous to the Funds than is purchasing the futures contract.
To the extent required by regulatory authorities, the Funds only enter
into futures contracts that are traded on national futures exchanges and are
standardized as to maturity date and underlying financial instrument. Futures
exchanges and trading are regulated under the CEA by the CFTC. Although
techniques other than sales and purchases of futures contracts could be used to
reduce a Fund's exposure to interest rate fluctuations, a Fund may be able to
hedge its exposure more effectively and perhaps at a lower cost through using
futures contracts.
An interest rate futures contract provides for the future sale by one
party and purchase by another party of a specified amount of a specific
financial instrument (e.g., debt security) for a specified price at a
designated date, time, and place. An index futures contract is an agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the close of the
last trading day of the contract and the price at which the index futures
contract was originally written. Transactions costs are incurred when a
futures contract is bought or sold and margin deposits must be maintained. A
futures contract may be satisfied by delivery or purchase, as the case may be,
of the instrument or by payment of the change in the cash value of the index.
More commonly, futures contracts are closed out prior to delivery by entering
into an offsetting transaction in a matching futures contract. Although the
value of an index might be a function of the value of certain specified
securities, no physical delivery of those securities is made. If the
offsetting purchase price is less than the original sale price, a Fund realizes
a gain; if it is more, a Fund realizes a loss. Conversely, if the offsetting
sale price is more than the original purchase price, a Fund realizes a gain; if
it is less, a Fund realizes a loss. The transaction costs must also be
included in these calculations. There can be no assurance, however, that a
Fund will be able to enter into an offsetting transaction with respect to a
particular futures contract at a particular time. If a Fund is not able to
enter into an offsetting transaction, the Fund will continue to be required to
maintain the margin deposits on the futures contract.
No price is paid by a Fund upon entering into a futures contract.
Instead, at the inception of a futures contract, a Fund is required to deposit
in a segregated account with its custodian, in the name of the futures broker
through whom the transaction was effected, "initial margin" consisting of cash,
U.S. government securities or other liquid, high grade debt securities, in an
amount generally equal to 10% or less of the contract value. Margin must also
be deposited when writing a call or put option on a futures contract, in
accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Fund at the termination of the transaction if
all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, a Fund may be required by an exchange to
increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the
futures broker daily as the value of the futures position varies, a process
known as "marking to market." Variation margin does not involve borrowing, but
rather represents a daily settlement of a Fund's obligations to or from a
futures broker. When a Fund purchases an option on a future, the premium paid
plus transaction costs is all that is at risk. In contrast, when a Fund
purchases or sells a futures contract or writes a call or put option thereon,
it is subject to daily variation margin calls that could be substantial in the
event of adverse price movements. If a Fund has insufficient cash to meet
daily variation margin requirements, it might need to sell securities at a time
when such sales are disadvantageous. Purchasers and sellers of futures
positions and options on futures can enter into offsetting closing transactions
by selling or purchasing, respectively, an instrument identical to the
instrument held or written. Positions in futures
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and options on futures may be closed only on an exchange or board of trade that
provides a secondary market. The Funds intend to enter into futures
transactions only on exchanges or boards of trade where there appears to be a
liquid secondary market. However, there can be no assurance that such a market
will exist for a particular contract at a particular time.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a future or option on a futures contract
can vary from the previous day's settlement price; once that limit is reached,
no trades may be made that day at a price beyond the limit. Daily price limits
do not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If a Fund were unable to liquidate a futures or option on a futures
contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In
addition, except in the case of purchased options, the Fund would continue to
be required to make daily variation margin payments and might be required to
maintain the position being hedged by the future or option or to maintain cash
or securities in a segregated account.
Certain characteristics of the futures market might increase the risk
that movements in the prices of futures contracts or options on futures
contracts might not correlate perfectly with movements in the prices of the
investments being hedged. For example, all participants in the futures and
options on futures contracts markets are subject to daily variation margin
calls and might be compelled to liquidate futures or options on futures
contracts positions whose prices are moving unfavorably to avoid being subject
to further calls. These liquidations could increase price volatility of the
instruments and distort the normal price relationship between the futures or
options and the investments being hedged. Also, because initial margin deposit
requirements in the futures markets are less onerous than margin requirements
in the securities markets, there might be increased participation by
speculators in the future markets. This participation also might cause
temporary price distortions. In addition, activities of large traders in both
the futures and securities markets involving arbitrage, "program trading" and
other investment strategies might result in temporary price distortions.
OPTIONS. Each Fund may also purchase or write put and call options on
securities and enter into closing transactions with respect to such options to
terminate an existing position. The purchase of call options serves as a long
hedge, and the purchase of put options serves as a short hedge. Writing put or
call options can enable a Fund to enhance income by reason of the premiums paid
by the purchaser of such options. Writing call options serves as a limited
short hedge because declines in the value of the hedged investment would be
offset to the extent of the premium received for writing the option. However,
if the security appreciates to a price higher than the exercise price of the
call option, it can be expected that the option will be exercised and the Fund
will be obligated to sell the security at less than its market value or will be
obligated to purchase the security at a price greater than that at which the
security must be sold under the option. All or a portion of any assets used as
cover for OTC options written by a fund would be considered illiquid to the
extent described under "Common Investment Policies and Techniques--Illiquid
Securities." writing put options serves as a limited long hedge because
increases in the value of the hedged investment would be offset to the extent
of the premium received for writing the option. However, if the security
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and the Fund will be
obligated to purchase the security at more than its market value.
The value of an option position will reflect, among other things, the
historical price volatility of the underlying investment, the current market
value of the underlying investment, the time remaining until expiration, the
relationship of the exercise price to the market price of the underlying
investment, and general market conditions. Options that expire unexercised
have no value.
A Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, a Fund may
terminate its obligation under a call or put option that it had written by
purchasing an identical call or put option; this is known as a closing purchase
transaction. Conversely, a Fund may terminate a position in a put or call
option it had purchased by writing an identical put or call option; this is
known as a closing sale transaction. Closing transactions permit the Funds to
realize the profit or limit the loss on an option position prior to its
exercise or expiration.
The Funds may purchase or write both exchange-traded and OTC options.
Exchange-traded options are issued by a clearing organization affiliated with
the exchange on which the option is listed that, in effect, guarantees
completion of every
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exchange-traded option transaction. OTC options are contracts between a Fund
and the other party to the transaction ("counter party") (usually a securities
dealer or a bank) with no clearing organization guarantee. Thus, when a Fund
purchases or writes an OTC option, it relies on the counter party to make or
take delivery of the underlying investment upon exercise of the option.
Failure by the counter party to do so would result in the loss of any premium
paid by the Fund as well as the loss of any expected benefit of the
transaction.
The Funds' ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. The Funds
intend to purchase or write only those exchange-traded options for which there
appears to be a liquid secondary market. However, there can be no assurance
that such a market will exist at any particular time. Closing transactions can
be made for OTC options only by negotiating directly with the counter party, or
by a transaction in the secondary market if any such market exists. Although
the Funds will enter into OTC options only with counter parties that are
expected to be capable of entering into closing transactions with the Funds,
there is no assurance that the Funds will in fact be able to close out an OTC
option at a favorable price prior to expiration. In the event of insolvency of
the counter party, a Fund might be unable to close out an OTC option position
at any time prior to its expiration.
If a Fund were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call
option written by a Fund could cause material losses because the Fund would be
unable to sell the investment used as a cover for the written option until the
option expires or is exercised.
The writing and purchasing of options is a highly specialized activity
that involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. Imperfect correlation between
the options and securities markets may detract the effectiveness of attempted
hedging.
SPREAD TRANSACTIONS. Each Fund may purchase from securities dealers
covered spread options. Such covered spread options are not presently
exchange-listed or exchange-traded. The purchase of a spread option gives the
Fund the right to put, or sell, a security that it owns at a fixed dollar
spread or fixed yield spread in relationship to another security that the Fund
does not own, but which is used as a benchmark. The risk to the Fund in
purchasing covered spread options is the cost of the premium paid for the
spread option and any transaction costs. In addition, there is no assurance
that closing transactions will be available. The purchase of spread options
will be used to protect the Fund against adverse changes in prevailing credit
quality spreads, i.e., the yield spread between high quality and lower quality
securities. Such protection is only provided during the life of the spread
option.
AVERAGE PORTFOLIO MATURITY
A Fund's average portfolio maturity represents an average based on the
actual stated maturity dates of the debt securities in the Fund's portfolio,
except that (i) variable-rate securities are deemed to mature at the next
interest rate adjustment date, (ii) debt securities with put features are
deemed to mature at the next put exercise date, (iii) the maturity of
mortgage-backed securities is determined on an "expected live" basis, and (iv)
securities being hedged with futures contracts may be deemed to have a longer
maturity, in the case of purchases of futures contracts, and a shorter
maturity, in the case of sales of futures contracts, than they would otherwise
be deemed to have. The Municipal Money Market Fund will calculate average
portfolio maturity in accordance with Rule 2a-7. See "Investment Policies and
Techniques -- Money Fund."
DIRECTORS AND OFFICERS OF THE FUNDS
Directors and officers of the Funds, together with information as to
their principal business occupations during the last five years, and other
information are shown below. Each director who is deemed an "interested
person," as defined in the 1940 Act, is indicated by an asterisk. Each officer
and director holds the same position with the following registered investment
companies: Strong Advantage Fund, Inc.; Strong American Utilities Fund, Inc.;
Strong Asia Pacific Fund, Inc.; Strong Asset Allocation Fund, Inc.; Strong
Common Stock Fund, Inc.; Strong Corporate Bond Fund, Inc.; Strong Discovery
Fund, Inc.; Strong Discovery Fund II, Inc.; Strong Government Securities Fund,
Inc.; Strong Growth Fund, Inc.; Strong International Bond Fund, Inc.; Strong
International Stock Fund, Inc.; Strong Money Market Fund, Inc.; Strong
Opportunity Fund, Inc.; Strong Short-
18
<PAGE> 67
Term Bond Fund, Inc.; Strong Short-Term Global Bond Fund, Inc.; Strong Special
Fund II, Inc.; Strong Total Return Fund, Inc.; and Strong U.S. Treasury Money
Fund, Inc. (collectively, the "Strong Funds").
*Richard S. Strong (DOB 5/12/42), Chairman of the Board and Director
of the Funds.
Prior to August 1985, Mr. Strong was Chief Executive Officer of the
Advisor, which he founded in 1974. Since August 1985, Mr. Strong has been a
Security Analyst and Portfolio Manager of the Advisor. In October 1991, Mr.
Strong also became the Chairman of the Advisor. Mr. Strong is a director of
the Advisor. Since October 1993, Mr. Strong has been Chairman and a director
of Strong Holdings, Inc., a Wisconsin corporation and subsidiary of the Advisor
("Holdings"), and the Fund's underwriter, Strong Funds Distributors, Inc., a
Wisconsin corporation and subsidiary of Holdings ("Distributor"). Since
January 1994, Mr. Strong has been Chairman and a director of Heritage Reserve
Development Corporation, a Wisconsin Corporation and subsidiary of Holdings;
and since February 1994, Mr. Strong has been a member of the Managing Boards of
Fussville Real Estate Holdings L.L.C., a Wisconsin Limited Liability Company
and subsidiary of the Advisor, and Fussville Development L.L.C., a Wisconsin
Limited Liability Company and subsidiary of the Advisor, and certain of its
subsidiaries. Mr. Strong has served as a director and Chairman of the Board of
the Money Fund and Bond Fund since commencement of operations in October 1986
and as director of the Short-Term Fund and Insured Fund since their
incorporation in December 1990 and Chairman of the Board of those Funds since
August 1991. Mr. Strong has served as a director and Chairman of the Board of
the High-Yield Fund since its incorporation in March 1987.
Marvin E. Nevins (DOB 7/9/18), Director of the Funds.
Private Investor. From 1945 to 1980 Mr. Nevins was Chairman of
Wisconsin Centrifugal Inc., a foundry. From July 1983 to December 1986, he was
Chairman of General Casting Corp., Waukesha, Wisconsin, a foundry. Mr. Nevins
is a former Chairman of the Wisconsin Association of Manufacturers & Commerce.
He was also a regent of the Milwaukee School of Engineering and a member of the
Board of Trustees of the Medical College of Wisconsin. Mr. Nevins has served
as a director of the Money Fund and Bond Fund since commencement of operations
in October 1986, as a director of the Short-Term Fund and Insured Fund since
incorporation in December 1990 and as a director of the High-Yield Fund since
its incorporation in March 1987.
Willie D. Davis (DOB 7/24/34), Director of the Funds.
Mr. Davis has been director of Alliance Bank since 1980, Sara Lee
Corporation (a food/consumer products company) since 1983, Kmart Corporation (a
discount consumer products company) since 1985, YMCA Metropolitan - Los Angeles
since 1985, Dow Chemical Company since 1988, MGM Grand, Inc. (an
entertainment/hotel company) since 1990, WICOR, Inc. (a utility company) since
1990, Johnson Controls, Inc. (an industrial company) since 1992, L.A. Gear (a
footwear/sportswear company) since 1992, and Rally's Hamburger, Inc. since
1994. Mr. Davis has been a trustee of the University of Chicago since 1980,
Marquette University since 1988, and Occidental College since 1990. Since
1977, Mr. Davis has been President and Chief Executive Officer of All Pro
Broadcasting, Inc. Mr. Davis was a director of the Fireman's Fund (an
insurance company) from 1975 until 1990. Mr. Davis has served as a director of
the Funds since July 1994.
*John Dragisic (DOB 11/26/40), Vice Chairman and Director of the Funds.
Mr. Dragisic has been Vice Chairman and a director of the Advisor and
director of Holdings and Distributor since July 1994. Mr. Dragisic previously
served as a director of the Money Fund and Bond Fund from July 1991 until July
1994; the Short-Term Fund and Insured Fund from August 1991 until July 1994;
and the High-Yield Fund from July 1993 until July 1994. Mr. Dragisic was the
President and Chief Executive Officer of Grunau Company, Inc. (a mechanical
contracting and engineering firm), Milwaukee, Wisconsin from 1987 until July
1994. From 1981 to 1987, he was an Executive Vice President with Grunau
Company, Inc. From 1969 until 1973, Mr. Dragisic worked for the InterAmerican
Development Bank. Mr. Dragisic received his Ph.D. in Economics in 1971 from
the University of Wisconsin-Madison and his B.A. degree in Economics in 1962
from Lake Forest College. Mr. Dragisic has served as Vice Chairman of the
Funds since July 1994 and director of the Funds since April 1995.
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<PAGE> 68
Stanley Kritzik (DOB 1/9/30), Director of the Funds.
Mr. Kritzik has been a Partner of Metropolitan Associates since _____
and a Director of Aurora Health Care and Health Network Ventures, Inc. since
____. He has served as a director of the Funds since April 1995.
William F. Vogt (DOB 7/19/47), Director of the Funds.
Mr. Vogt has been the President of Vogt Management Consulting, Inc.
since 1990. From 1982 until 1990, he served as an executive director of
University Physicians. Mr. Vogt was also a fellow of the Medical Group
Management Association, American College of Medical Practice Executives. He
has served as a director of the Funds since April 1995.
Lawrence A. Totsky (DOB 5/6/59), C.P.A., Vice President of the Funds.
Mr. Totsky has been Senior Vice President of the Advisor since
September 1994. Mr. Totsky served as Vice President of the Advisor from
December 1992 to September 1994. Mr. Totsky acted as the Advisor's Manager of
Shareholder Accounting and Compliance from June 1987 to June 1991 when he was
named Director of Mutual Fund Administration. Mr. Totsky has been the Vice
President of the Money, Short-Term, Insured, and Bond Funds since May 1993, and
Vice President of the High-Yield Fund since July 1993.
Thomas P. Lemke (DOB 7/30/54), Vice President of the Funds.
Mr. Lemke has been Senior Vice President, Secretary, and General
Counsel of the Advisor since September 1994. For two years prior to joining
the Advisor, Mr. Lemke acted as Resident Counsel for Funds Management at J.P.
Morgan & Co., Inc. From February 1989 until April 1992, Mr. Lemke acted as
Associate General Counsel to Sanford C. Bernstein Co., Inc. For two years
prior to that, Mr. Lemke was Of Counsel at the Washington, D.C. law firm of Tew
Jorden & Schulte, a successor of Finley, Kumble Wagner. From August 1979 until
December 1986, Mr. Lemke worked at the Securities and Exchange Commission, most
notably as the Chief Counsel to the Division of Investment Management (November
1984 - December 1986), and as Special Counsel to the Office of Insurance
Products, Division of Investment Management (April 1982 - October 1984). Mr.
Lemke has been a Vice President of the Funds since October 1994.
Ann E. Oglanian (DOB 12/7/61), Secretary of the Funds.
Ms. Oglanian has been an Associate Counsel of the Advisor since
January 1992. Ms. Oglanian acted as Associate Counsel for the Chicago-based
investment management firm, Kemper Financial Services, Inc. from June 1988
until December 1991. Ms. Oglanian has been the Secretary of the Funds since
May 1994.
Ronald A. Neville (DOB 5/21/47), C.P.A., Treasurer of the Funds.
Mr. Neville has been the Senior Vice President and Chief Financial
Officer of the Advisor since January 1995. For fourteen years prior to that,
Mr. Neville worked at Twentieth Century Companies, Inc., most notably as Senior
Vice President and Chief Financial Officer (1988 until December 1994). Mr.
Neville received his M.B.A. in 1972 from the University of Missouri - Kansas
City and his B.A. degree in Business Administration and Economics in 1969 from
Drury College. Mr. Neville has been the Treasurer of the Funds since April
1995.
Except for Messrs. Nevins, Davis, Kritzik, and Vogt, the address of
all of the above persons is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr.
Nevins' address is 6075 Pelican Bay Boulevard, Naples, Florida 33962-8172. Mr.
Davis' address is 161 North La Brea, Inglewood, California 90301. Mr.
Kritzik's address is 1123 North Astor Street, P.O. Box 92547, Milwaukee,
Wisconsin 53202-0547. Mr. Vogt's address is 3003 Third Street Avenue, Denver,
Colorado 80206.
As of March 31, 1995, the officers and directors of the Money,
Short-Term, Bond, and High-Yield Funds in the aggregate beneficially owned less
than 1% of each Fund's then outstanding shares. As of March 31, 1995, the
officers and directors of the Insured Fund in the aggregate beneficially owned
48,516 shares of the Fund's common stock, which was approximately 1.18% of the
Fund's then outstanding shares. Directors and officers of the Funds who are
officers, directors, employees, or shareholders of the Advisor do not receive
any remuneration from the Funds for serving as directors or officers.
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<PAGE> 69
PRINCIPAL SHAREHOLDERS
As of March 31, 1995, the following entities owned of record or were
known to own of record more than 5% of the following fund's outstanding shares:
<TABLE>
<CAPTION>
Short-Term Bond Shares Percentage
- --------------- ------ ----------
<S> <C> <C>
Charles Schwab & Co., Inc. 2,147,132 13.47%
101 Montgomery Street
San Francisco, California 94104
Bond
- ----
Charles Schwab & Co., Inc. 2,780,840 8.62
High-Yield
- ----------
Charles Schwab & Co., Inc. 1,898,897 11.75
National Financial Services Corporation 898,177 5.56
One World Financial Center, 4th Floor
200 Liberty Street
New York, New York 0281-1003
</TABLE>
INVESTMENT ADVISOR AND UNDERWRITER
The Advisor to the Funds is Strong Capital Management, Inc. Mr.
Richard S. Strong controls the Advisor. Mr. Strong is the Chairman and a
director of the Advisor, Mr. Dragisic is the Vice Chairman and a director of
the Advisor, Mr. Totsky is a Senior Vice President of the Advisor, Mr. Lemke is
a Senior Vice President, Secretary and General Counsel of the Advisor, Mr.
Neville is a Senior Vice President and Chief Financial Officer of the Advisor,
Ms. Oglanian is an Associate Counsel of the Advisor and Mr. Zoeller is the
Treasurer of the Advisor. A brief description of each Fund's investment
advisory agreement ("Advisory Agreement") is set forth in the Prospectus under
"About the Funds - Management."
Each Fund's Advisory Agreement, dated April 13, 1995, was last
approved by shareholders at the annual meeting of shareholders held on April
13, 1995. An Advisory Agreement is required to be approved annually by the
Board of Directors of the Fund or by vote of a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). In either case,
each annual renewal must be approved by the vote of a majority of the Fund's
directors who are not parties to the Advisory Agreement or interested persons
of any such party, cast in person at a meeting called for the purpose of voting
on such approval. Each Advisory Agreement is terminable, without penalty, on
60 days' written notice by the Board of Directors of the Fund; by vote of a
majority of the Fund's outstanding voting securities; or by the Advisor. In
addition, the Advisory Agreement will terminate automatically in the event of
its assignment.
Under the terms of each Advisory Agreement, the Advisor manages the
Fund's investments subject to the supervision of the Fund's Board of Directors.
The Advisor is responsible for investment decisions and supplies investment
research and portfolio management. At its expense, the Advisor provides office
space and all necessary office facilities, equipment, and personnel for
servicing the investments of the Fund. The Advisor places all orders for the
purchase and sale of the Fund's portfolio securities at its expense.
Except for expenses assumed by the Advisor as set forth above or as
described below with respect to the distribution of a Fund's shares, a 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; expenses for printing and distribution costs of
Prospectuses and semi-annual financial statements mailed to existing
shareholders; and charges of custodians, transfer agent fees (including the
printing and mailing of reports and notices to shareholders), fees of
registrars, fees for auditing and legal services, fees for clerical services
related to record keeping
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<PAGE> 70
and shareholder relations, the cost of stock certificates, and fees for
directors who are not "interested persons" of the Advisor; expenses of
indemnification; extraordinary expenses; and costs of shareholder and director
meetings.
As compensation for its services, the Money Fund, Short-Term Fund, and
Insured Fund each pay to the Advisor a monthly advisory fee at the annual rate
of .50% of the average daily net assets of the respective Fund and the Bond
Fund and High-Yield Fund pay the Advisor a monthly advisory fee at the annual
rate of .60% of the average daily net assets of the Bond Fund and High-Yield
Fund. (See "Shareholder Manual - Determining Your Share Price" in the
Prospectus.) From time to time, the Advisor may voluntarily waive all or a
portion of its management fee for a Fund. The following table sets forth
certain information concerning advisory fees for each Fund:
<TABLE>
<CAPTION>
Advisory Fee
Incurred Advisory Fee Advisory Fee
by Fund Waiver Paid by Fund
------- ------ ------------
<S> <C> <C> <C>
Money Fund
1992 $ 5,167,616 $ 31,046 $ 5,136,570
1993 $ 5,863,644 $ 0 $ 5,863,644
1994 $ 6,638,362 $ 186,998 $ 6,451,364
Short-Term Fund
1992 $ 269,307 $ 217,500 $ 51,807
1993 $ 870,125 $ 72,920 $ 797,205
1994 $ 1,004,968 $ 0 $ 1,004,968
Insured Fund
1992 $ 55,489 $ 55,489 $ 0
1993 $ 246,484 $ 45,481 $ 201,003
1994 $ 251,654 $ 0 $ 251,654
Bond Fund
1992 $ 1,133,859 $ 947,364 $ 186,495
1993 $ 2,375,112 $ 51,246 $ 2,323,866
1994 $ 2,068,103 $ 0 $ 2,068,103
High-Yield Fund
1993(1) $ 11,150 $ 11,150 $ 0
1994 $ 476,579 $ 476,579 $ 0
- ---------------------------------------------------------
</TABLE>
(1) The High-Yield Fund commenced operations on October 1, 1993.
The organizational expenses of the Short-Term Fund, Insured Fund, and
High-Yield Fund which were $85,897, $85,585, and $31,433, respectively, were
advanced by the Advisor and will be reimbursed by each Fund over a period of
not more than 60 months from each Fund's date of inception.
Each Advisory Agreement requires the Advisor to reimburse a Fund in
the event that the expenses and charges payable by the Fund in any fiscal year,
including the advisory fee but excluding taxes, interest, brokerage
commissions, and similar fees and to the extent permitted extraordinary
expenses, exceed that percentage of the average net asset value of the Fund for
such year. Such excess is determined by valuations made as of the close of each
business day of the year, which is the most restrictive percentage provided by
the state laws of the various states in which the Fund's common stock is
qualified for sale; or if the states in which the Fund's common stock is
qualified for sale impose no restrictions, then 2%. The most restrictive
percentage limitation currently applicable to a Fund is 2 1/2% of its average
daily net assets to $30,000,000, 2% on the next $70,000,000 of its average
daily net assets, and 1 1/2% of the average daily net assets in excess of
$100,000,000. Reimbursement of expenses in excess of the applicable limitation
will be made on a monthly basis and will be paid to the Fund by reduction of
the Advisor's fee, subject to later adjustment, month by month, for the
remainder of the Fund's fiscal year. The Advisor may from time to time
voluntarily absorb expenses for a Fund in addition to the reimbursement of
expenses in excess of applicable limitations.
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<PAGE> 71
On July 12, 1994, the Securities and Exchange Commission (the SEC)
filed an administrative action (Order) against the Advisor, Mr. Strong, and
another employee of the Advisor in connection with conduct that occurred
between 1987 and early 1990. In re Strong/Corneliuson Capital Management, Inc.,
et al. Admin. Proc. File No. 3-8411. The proceeding was settled by consent
without admitting or denying the allegations in the Order. The Order alleged
that the Advisor and Mr. Strong aided and abetted violations of Section 17(a)
of the 1940 Act by effecting trades between mutual funds, and between mutual
funds and Harbour Investments Ltd. ("Harbour"), without complying with the
exemptive provisions of SEC Rule 17a-7 or otherwise obtaining an exemption. It
further alleged that the Advisor violated, and Mr. Strong aided and abetted
violations of, the disclosure provisions of the 1940 Act and the Investment
Advisers Act of 1940 by misrepresenting the Advisor's policy on personal
trading and by failing to disclose trading by Harbour, an entity in which
principals of the Advisor owned between 18 and 25 percent of the voting stock.
As part of the settlement, the respondents agreed to a censure and a cease and
desist order and the Advisor agreed to various undertakings, including adoption
of certain procedures and a limitation for six months on accepting certain
types of new advisory clients.
The staff of the U.S. Department of Labor (the "Staff") has contacted
the Advisor regarding alleged cross-trading of securities between 1987 and
early 1990 involving various customer accounts subject to the Employee
Retirement Security Act of 1974 ("ERISA") and managed by the Advisor. The
Advisor has informed the Staff of the basis for its position that the trades
complied with ERISA and that, in any event, any alleged noncompliance was not
the cause of any losses to the accounts. The Staff has stated that it
disagrees with the Advisor's positions, although to date it has not filed any
action against the Advisor. At this time, the Advisor is negotiating with the
Staff regarding a possible resolution of the matter, but it cannot presently
determine whether the matter will be settled or litigated or, if it is settled
or litigated, how it ultimately will be resolved. However, management
presently believes, based on current knowledge and the Advisor's insurance
coverage, that the ultimate resolution of this matter should not have a
material adverse effect on the Advisor's financial position.
Under a Distribution Agreement dated December 1, 1993 with each Fund
(a "Distribution Agreement"), Strong Funds Distributors, Inc. acts as
underwriter of each Fund's shares ("Distributor"). Each Distribution Agreement
provides that the Distributor will use its best efforts to distribute the
Fund's shares. Since the Funds are "no-load" funds, no sales commissions are
charged on the purchase of Fund shares. Each Distribution Agreement further
provides that the Distributor will bear the costs of printing Prospectuses and
shareholder reports which are used for selling purposes, as well as advertising
and other costs attributable to the distribution of a Fund's shares. The
Distributor is an indirect subsidiary of the Advisor and controlled by the
Advisor and Richard S. Strong. Prior to December 1, 1993, the Advisor acted as
underwriter for each Fund. On December 1, 1993, the Distributor succeeded to
the broker-dealer registration of the Advisor and, in connection therewith, a
Distribution Agreement was executed on substantially identical terms as the
former distribution agreement with the Advisor as distributor. Each
Distribution Agreement is subject to the same termination and renewal
provisions as are described above with respect to the Advisory Agreements.
From time to time, the Distributor may hold in-house sales incentive
programs for its associated persons under which these persons may receive
non-cash compensation awards in connection with the sale and distribution of a
Fund's shares. These awards may include items such as, but not limited to,
gifts, merchandise, gift certificates, and payment of travel expenses, meals
and lodging. As required by the National Association of Securities Dealers,
Inc. or NASD's proposed rule amendments in this area, any in-house sales
incentive program will be multi-product oriented, i.e., any incentive will be
based on an associated person's gross production of all securities within a
product type and will not be based on the sales of shares of any specifically
designated mutual fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisor is responsible for decisions to buy and sell securities
for the Funds and for the placement of the Funds' portfolio business and the
negotiation of the commissions to be paid on such transactions. It is the
policy of the Advisor to seek the best execution at the best security price
available with respect to each transaction, in light of the overall quality of
brokerage and research services provided to the Advisor or the Funds. In
over-the-counter transactions, orders are placed directly with a principal
market maker unless it is believed that a better price and execution can be
obtained by using a broker. The best price to the Funds means the best net
price without regard to the mix between purchase or sale price and commissions.
In selecting broker-dealers
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<PAGE> 72
and in negotiating commissions, the Advisor considers the firm's reliability,
the quality of its execution services on a continuing basis and its financial
condition. Brokerage will not be allocated based on the sale of the Funds'
shares.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment advisor, under certain circumstances, to cause an account
to pay a broker or dealer who supplies brokerage and research services a
commission for effecting a transaction in excess of the amount of commission
another broker or dealer would have charged for effecting the transaction.
Brokerage and research services include (a) furnishing advice as to the value
of securities, the advisability of investing, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody).
In carrying out the provisions of the Advisory Agreements, the Advisor
may cause the Funds to pay a broker which provides brokerage and research
services to the Advisor a commission for effecting a securities transaction in
excess of the amount another broker would have charged for effecting the
transaction. The Advisor is of the opinion that the continued receipt of
supplemental investment research services from broker-dealers is essential to
its provision of high-quality portfolio management services to the Funds. The
Advisory Agreements provide that such higher commissions will not be paid by
the Funds unless (a) the Advisor determines in good faith that the amount is
reasonable in relation to the services in terms of the particular transaction
or in terms of the Advisor's overall responsibilities with respect to the
accounts as to which it exercises investment discretion; (b) such payment is
made in compliance with the provisions of Section 28(e), other applicable state
and federal laws, and the Advisory Agreement; and (c) in the opinion of the
Advisor, the total commissions paid by the Fund will be reasonable in relation
to the benefits to the Fund over the long term. The investment advisory fees
paid by the Funds under the Advisory Agreements are not reduced as a result of
the Advisor's receipt of research services.
The Money, Bond, Short-Term, and Insured Funds did not pay any
brokerage commissions in 1992, 1993, or 1994. The High-Yield Fund did not pay
any brokerage commissions in 1993 or 1994.
Generally, research services provided consist of portfolio pricing and
research reports dealing with macroeconomic trends and monetary and fiscal
policy, research reports on individual companies and industries, and
information dealing with market trends and technical analysis. Such brokers
may pay for all or a portion of computer hardware and software costs relating
to the pricing of securities. Where the Advisor itself receives both
administrative benefits and research and brokerage services from the services
provided by brokers, it makes a good faith allocation between the
administrative benefits and the research and brokerage services. The Advisor's
receipt of these administrative benefits arises from its ability, in certain
cases, to direct brokerage to certain firms in connection with its management
of client portfolios. In making good faith allocations between administrative
benefits and research and brokerage services, a conflict of interest may exist
by reason of the Advisor's allocation of the costs of such benefits and
services between those that primarily benefit the Advisor and those that
primarily benefit its clients, such as the Funds.
The Advisor places portfolio transactions for other advisory accounts,
including other mutual funds managed by the Advisor. Research services
furnished by firms through which the Funds effect their securities transactions
may be used by the Advisor in servicing all of its accounts; not all of such
services may be used by the Advisor in connection with the Funds. In the
opinion of the Advisor, it is not possible to separately measure the benefits
from research services to each of the accounts (including the Funds) managed by
the Advisor. Because the volume and nature of the trading activities of the
accounts are not uniform, the amount of commissions in excess of those charged
by another broker paid by each account for brokerage and research services will
vary. However, in the opinion of the Advisor, such costs to the Funds will not
be disproportionate to the benefits received by the Funds on a continuing
basis.
The Advisor seeks to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell securities by the
Funds and another advisory account. In some cases, this procedure could have an
adverse effect on the price or the amount of securities available to the Funds.
In making such allocations between the Funds and other advisory accounts, the
main factors considered by the Advisor are the respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held, and the opinions of the persons responsible for
recommending the investment.
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<PAGE> 73
In view of the Short-Term Fund's investment objective and portfolio
management policies, its annual portfolio turnover rate is expected to exceed
100%. However, it is estimated that the rate of portfolio turnover will
generally not exceed 200%. In view of the Insured and Bond Funds' investment
objectives and portfolio management policies, it is estimated that their annual
portfolio turnover rate will generally be between 200 and 300% when the Advisor
deems changes appropriate. In view of the High-Yield Fund's investment
objective and portfolio management policies, it is estimated that the Fund's
annual portfolio turnover rate will not generally exceed 300%, although this
rate should not be construed as a limiting factor when the Advisor deems
changes appropriate. The annual portfolio turnover rate indicates changes in a
Fund's portfolio; for instance, a rate of 100% would result if all the
securities in the portfolio (excluding securities whose maturities at
acquisition were one year or less) at the beginning of an annual period had
been replaced by the end of the period. The turnover rate may vary from year
to year, as well as within a year, and may be affected by portfolio sales
necessary to meet cash requirements for redemptions of each Fund shares.
CUSTODIAN
As custodian of the Funds' assets, Firstar Trust Company, P.O. Box
701, Milwaukee, Wisconsin 53201, has custody of all securities and cash of the
Funds, delivers and receives payment for securities sold, receives and pays for
securities purchased, collects income from investments, and performs other
duties, all as directed by the officers of the Funds. The custodian is in no
way responsible for any of the investment policies or decisions of the Funds.
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
The Advisor acts as transfer agent and dividend-disbursing agent for
the Funds. The Advisor is compensated based on an annual fee per open account
of $32.50 for the Money Fund and $31.50 for the Short-Term Fund, Insured Fund,
Bond Fund, and High-Yield Fund, plus out-of-pocket expenses, such as postage
and printing expenses in connection with shareholder communications. The
Advisor also receives an annual fee per closed account of $4.20. The fees
received and the services provided as transfer agent and dividend disbursing
agent are in addition to those received and provided by the Advisor under the
Advisory Agreements. In addition, the Advisor provides certain printing and
mailing services for the Funds, such as printing and mailing of shareholder
account statements, checks, and tax forms.
25
<PAGE> 74
The following table sets forth certain information concerning amounts
paid by the Funds for transfer agency and dividend disbursing and printing and
mailing services:
<TABLE>
<CAPTION>
Transfer Agency and Dividend Disbursement
Services Charges Incurred
----------------------------------------------------------------------------
Per Printing and Amounts Net Amount
Account Out-of-Pocket Mailing Waived By Paid By
Fund Charges Expenses Services Advisor Fund
-------- ------- -------- -------- ------- -----
<S> <C> <C> <C> <C> <C>
Money Fund
1992 $690,433 $584,742 $46,600 $ 0 $1,321,775
1993 812,633 497,291 46,480 0 1,356,404
1994 867,886 530,206 33,624 0 1,431,716
Short-Term Fund
1992 $ 47,568 $ 21,123 $ 351 $ 68,615 $ 427
1993 159,911 115,122 6,513 115,022 166,524
1994 211,232 16,413 5,549 0 233,194
Insured Fund
1992 $ 5,719 $ 10,444 $ 113 $ 16,007 $ 269
1993 83,721 29,789 2,853 103,131 13,232
1994 91,460 21,134 2,335 0 114,929
Bond Fund
1992 $221,718 $ 95,442 $ 771 $ 317,931 $ 0
1993 454,518 154,679 18,295 323,196 304,296
1994 455,071 101,105 11,760 0 567,936
High-Yield Fund
1993(1) $ 1,671 $ 545 $ 18 $ 2,234 $ 0
1994 79,120 9,552 2,435 91,107 0
- ----------------
</TABLE>
(3) The High-Yield Fund commenced operations on October 1, 1993.
From time to time, the Funds, directly or indirectly through
arrangements with the Advisor, may pay amounts to third parties that provide
transfer agent and other administrative services relating to the Funds to
persons who beneficially own interests in the Funds, such as participants in
401(k) plans. These services may include, among other things, sub-accounting
services, answering inquiries relating to the Funds, transmitting, on behalf of
the Funds, proxy statements, annual reports, updated Prospectuses, other
communications regarding the Funds, and related services as the Funds or
beneficial owners may reasonably request. In such cases, the Funds will not
pay fees at a rate that is greater than the rate the Funds are currently paying
the Advisor for providing these services to Fund shareholders.
TAXES
GENERAL
As indicated under "About the Funds - Distributions and Taxes" in the
Prospectus, each Fund intends to continue to qualify annually for treatment as
a regulated investment company ("RIC") under the Internal Revenue Code of 1986,
as amended (the "Code"). This qualification does not involve governmental
supervision of the Funds' management practices or policies.
In order to qualify for treatment as a RIC under the Code, each Fund
must distribute to its shareholders for each taxable year at least 90% of the
sum of its investment company taxable income (consisting generally of taxable
net investment income and net short-term capital gain) plus its net interest
income excludable from gross income under section 103(a) of the Code and must
meet several additional requirements. For each Fund these requirements include
the following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities
loans, and gains from
26
<PAGE> 75
the sale or other disposition of securities, or other income (including gains
from options or futures) derived with respect to its business of investing in
securities ("Income Requirement"); (2) the Fund must derive less than 30% of
its gross income each taxable year from the sale or other disposition of
securities, or options or futures, that were held for less than three months
("30% Limitation"); (3) at the close of each quarter of the Fund's taxable
year, at least 50% of the value of its total assets must be represented by cash
and cash items, U.S. government securities, securities of other RICs, and other
securities, with these other securities limited, in respect of any one issuer,
to an amount that does not exceed 5% of the value of the Fund's total assets
and that does not represent more than 10% of the issuer's outstanding voting
securities; and (4) at the close of each quarter of a Fund's taxable year, not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. government securities or the securities of other RICs) of any
one issuer.
Dividends paid by a Fund will qualify as exempt-interest dividends as
defined in the Prospectus, and thus will be excludable from gross income by its
shareholders, if the Fund satisfies the requirement that, at the close of each
quarter of its taxable year, at least 50% of the value of its total assets
consists of securities the interest on which is excludable from gross income
under section 103(a); each Fund intends to continue to satisfy this
requirement. The aggregate dividends excludable from a Fund's shareholders'
gross income may not exceed the Fund's net tax-exempt income. The
shareholders' treatment of dividends from a Fund under local and state income
tax laws may differ from the treatment thereof under the Code.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be disallowed to the extent of any exempt-interest
dividends received on those shares. Any portion of such a loss that is not
disallowed will be treated as long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received on those shares.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary taxable income for that year and capital gain
net income for the one-year period ending on October 31 of that year, plus
certain other amounts.
INVESTMENTS IN CERTAIN MUNICIPAL SECURITIES
Tax-exempt interest attributable to certain private activity bonds
("PABs") (including, in the case of a RIC receiving interest on such bonds, a
proportionate part of the exempt-interest dividends paid by that RIC) is
subject to the alternative minimum tax. Exempt-interest dividends received by
a corporate shareholder also may be indirectly subject to that tax without
regard to whether a Fund's tax-exempt interest was attributable to such bonds.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by PABs or industrial development
bonds ("IDBs") should consult their tax advisers before purchasing shares of a
Fund because, for users of certain of these facilities, the interest on such
bonds is not exempt from federal income tax. For these purposes, the term
"substantial user" is defined generally to include a "non-exempt person" who
regularly uses in trade or business a part of a facility financed from the
proceeds of PABs or IDBs.
Each Fund may invest in municipal bonds that are purchased, generally
not on their original issue, with market discount (that is, at a price less
than the principal amount of the bond or, in the case of a bond that was issued
with original issue discount, a price less than the amount of the issue price
plus accrued original issue discount) ("municipal market discount bonds").
Market discount generally arises when the value of the bond declines after
issuance (typically, because of an increase in prevailing interest rates or a
decline in the issuer's creditworthiness). Gain on the disposition of a
municipal market discount bond purchased by a Fund after April 30, 1993 (other
than a bond with a fixed maturity date within one year from its issuance),
generally is treated as ordinary (taxable) income, rather than capital gain, to
the extent of the bond's accrued market discount at the time of disposition.
Market discount on such a bond generally is accrued ratably, on a daily basis,
over the period from the acquisition date to the date of maturity. In lieu of
treating the disposition gain as above, a Fund may elect to include market
discount in its gross income currently, for each taxable year to which it is
attributable.
DERIVATIVE INSTRUMENTS
The use of derivatives strategies, such as purchasing and selling
(writing) options and futures, involves complex rules that will determine for
income tax purposes the character and timing of recognition of the gains and
losses the Funds realize in connection therewith. Income from transactions in
options and futures derived by each Fund with respect to its business of
investing in securities will qualify as permissible income under the Income
Requirement. However, income from the disposition of options and futures will
be subject to the 30% Limitation if they are held for less than three months.
27
<PAGE> 76
If a Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
30% Limitation. Thus, only the net gain (if any) from the designated hedge
will be included in gross income for purposes of that limitation. The Funds
intend that, when they engage in hedging strategies, the hedging transactions
will qualify for this treatment, but at the present time it is not clear
whether this treatment will be available for all of the Funds' hedging
transactions. To the extent this treatment is not available or is not elected
by a Fund, it may be forced to defer the closing out of certain options or
futures contracts beyond the time when it otherwise would be advantageous to do
so, in order for the Fund to qualify as a RIC.
For federal income tax purposes, each Fund is required to recognize as
income for each taxable year its net unrealized gains and losses on options and
futures contracts that are subject to section 1256 of the Code ("Section 1256
Contracts") and are held by the Fund as of the end of the year, as well as
gains and losses on Section 1256 Contracts actually realized during the year.
Except for Section 1256 Contracts that are part of a "mixed straddle" and with
respect to which a Fund makes a certain election, any gain or loss recognized
with respect to Section 1256 Contracts is considered to be 60% long-term
capital gain or loss and 40% short-term capital gain or loss, without regard to
the holding period of the Section 1256 Contract. Unrealized gains on Section
1256 Contracts that have been held by a Fund for less than three months as of
the end of its taxable year, and that are recognized for federal income tax
purposes as described above, will not be considered gains on investments held
for less than three months for purposes of the 30% Limitation.
ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES
Certain Funds may acquire zero-coupon, step-coupon, or other
securities issued with original issue discount. As the holder of those
securities, a Fund must take into account or include in its income (with
respect to taxable securities) the original issue discount that accrues on the
securities during the taxable year, even if the Fund receives no corresponding
payment on the securities during the year. Similarly, a Fund must take into
account or include in its gross income (with respect to taxable securities)
securities it receives as "interest" on pay-in-kind securities. Because a Fund
annually must distribute substantially all of its income, including any
tax-exempt original issue discount, to satisfy the Distribution Requirement, it
may be required in a particular year to distribute as a dividend an amount that
is greater than the total amount of cash it actually receives. Those
distributions may be made from the proceeds on sales of portfolio securities,
if necessary. A Fund may realize capital gains or losses from those sales,
which would increase or decrease its investment company taxable income or net
capital gain, or both. In addition, any such gains may be realized on the
disposition of securities held for less than three months. Because of the 30%
Limitation, any such gains would reduce the Fund's ability to sell other
securities, options, or futures contracts held for less that three months that
it might wish to sell in the ordinary course of its portfolio management.
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus under the caption "Shareholder Manual -
Determining Your Share Price," the net asset value of each Fund will be
determined as of the close of trading on each day the New York Stock Exchange
(the "NYSE") is open for trading. The NYSE is open Monday through Friday except
New Year's Day, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Additionally, if any of the
aforementioned holidays falls on a Saturday, the NYSE will not be open for
trading on the preceding Friday, and when such holiday falls on a Sunday, the
NYSE will not be open for trading on the succeeding Monday, unless unusual
business conditions exist, such as the ending of a monthly or the yearly
accounting period.
The Money Fund values its securities on the amortized cost basis and
seeks to maintain its net asset value at a constant $1.00 per share. In the
event a difference of 1/2 of 1% or more were to occur between the net asset
value calculated by reference to market values and the Money Fund's $1.00 per
share net asset value or if there were any other deviation which the Board of
Directors believed would result in a material dilution to shareholders or
purchasers, the Board of Directors would consider taking any one or more of the
following actions or any other action considered appropriate: selling
portfolio securities to shorten average portfolio maturity or to realize
capital gains or losses, reducing or suspending shareholder income accruals,
redeeming shares in kind, or utilizing a value per unit based upon available
indications of market value. Available indications of market value may
28
<PAGE> 77
include, among other things, quotations or market value estimates of securities
and/or values based on yield data relating to money market securities that are
published by reputable sources.
ADDITIONAL SHAREHOLDER INFORMATION
TELEPHONE EXCHANGE AND REDEMPTION PRIVILEGES AND AUTOMATIC EXCHANGE PLAN
Shares of the Funds and any other funds sponsored by the Advisor may
be exchanged for each other at relative net asset values. Exchanges will be
effected by redemption of shares of the Fund held and purchase of shares of the
fund for which Fund shares are being exchanged (the "New Fund"). For federal
income tax purposes, any such exchange constitutes a sale upon which a capital
gain or loss will be realized, depending upon whether the value of the shares
being exchanged is more or less than the shareholder's adjusted cost basis. If
you are interested in exercising any of these exchange privileges, you should
obtain Prospectuses of other funds sponsored by the Advisor from the Advisor.
Upon a telephone exchange, the transfer agent establishes a new account in the
New Fund with the same registration and dividend and capital gains options as
the redeemed account, unless otherwise specified, and confirms the purchase to
you.
The Funds employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. The Funds may not be liable for losses
due to unauthorized or fraudulent instructions. Such procedures include but are
not limited to requiring a form of personal identification prior to acting on
instructions received by telephone, providing written confirmations of such
transactions to the address of record, and tape recording telephone
instructions.
The Telephone Exchange and Redemption Privileges and Automatic
Exchange Plan are available only in states where shares of the New Fund may be
sold, and may be modified or discontinued at any time. Additional information
regarding the Telephone Exchange and Redemption Privileges and Automatic
Exchange Plan is contained in the Fund's Prospectus.
FUND ORGANIZATION
Each Fund is a Wisconsin corporation that is authorized to offer
separate series of shares representing interests in separate portfolios of
securities, each with differing investment objectives. The shares in any one
portfolio may, in turn, be offered in separate classes, each with differing
preferences, limitations or relative rights. However, the Articles of
Incorporation for each of the Funds provides that if additional classes of
shares are issued by a Fund, such new classes of shares may not affect the
preferences, limitations or relative rights of the Fund's outstanding shares.
In addition, the Board of Directors of each Fund is authorized to allocate
assets, liabilities, income and expenses to each series and class. Classes
within a series may have different expense arrangements than other classes of
the same series and, accordingly, the net asset value of shares with a series
may differ. Finally, all holders of shares of a Fund may vote on each matter
presented to shareholders for action except with respect to any matter which
affects only one or more series or class, in which case only the shares of the
affected series or class is entitled to vote. Fractional shares have the same
rights proportionately as do full shares. Shares of the Funds have no
preemptive, conversion, or subscription rights. Each Fund currently has only
one series of common stock outstanding. If a Fund issues additional series,
the assets belonging to each series of shares will be held separately by the
custodian, and in effect each series will be a separate fund.
29
<PAGE> 78
SHAREHOLDER MEETINGS
Each Fund is a Wisconsin corporation organized on the following dates
and currently has the following authorized shares of capital stock:
<TABLE>
<CAPTION>
Incorporation Authorized
Fund Date Shares Par Value ($)
---- ------------- ---------- -------------
<S> <C> <C> <C>
Money Fund 07/28/86 10,000,000,000 .00001
Short-Term Fund 07/28/86 10,000,000,000 .00001
Insured Fund 12/28/90 10,000,000,000 .00001
Bond Fund 12/28/90 100,000,000 .001
High-Yield Fund 03/20/87 1,000,000,000 .001
</TABLE>
The Wisconsin Business Corporation Law permits registered investment
companies, such as the Funds, to operate without an annual meeting of
shareholders under specified circumstances if an annual meeting is not required
by the 1940 Act. The Funds have adopted the appropriate provisions in their
Bylaws and may, at their discretion, not hold an annual meeting in any year in
which the election of directors is not required to be acted on by shareholders
under the 1940 Act.
The Funds' Bylaws also contain procedures for the removal of directors
by its shareholders. At any meeting of shareholders, duly called and at which
a quorum is present, the shareholders may, by the affirmative vote of the
holders of a majority of the votes entitled to be cast thereon, remove any
director or directors from office and may elect a successor or successors to
fill any resulting vacancies for the unexpired terms of removed directors.
Upon the written request of the holders of shares entitled to not less
than ten percent (10%) of all the votes entitled to be cast at such meeting,
the Secretary of a Fund shall promptly call a special meeting of shareholders
for the purpose of voting upon the question of removal of any director.
Whenever ten or more shareholders of record who have been such for at least six
months preceding the date of application, and who hold in the aggregate either
shares having a net asset value of at least $25,000 or at least one percent
(1%) of the total outstanding shares, whichever is less, shall apply to the
corporation's Secretary in writing, stating that they wish to communicate with
other shareholders with a view to obtaining signatures to a request for a
meeting as described above and accompanied by a form of communication and
request which they wish to transmit, the Secretary shall within five business
days after such application either: (1) afford to such applicants access to a
list of the names and addresses of all shareholders as recorded on the books of
the Fund; or (2) inform such applicants as to the approximate number of
shareholders of record and the approximate cost of mailing to them the proposed
communication and form of request.
If the Secretary elects to follow the course specified in clause (2) of
the last sentence of the preceding paragraph, the Secretary, upon the written
request of such applicants, accompanied by a tender of the material to be
mailed and of the reasonable expenses of mailing, shall, with reasonable
promptness, mail such material to all shareholders of record at their addresses
as recorded on the books unless within five business days after such tender the
Secretary shall mail to such applicants and file with the SEC, together with a
copy of the material to be mailed, a written statement signed by at least a
majority of the Board of Directors to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion.
After opportunity for hearing upon the objections specified in the
written statement so filed, the SEC may, and if demanded by the Board of
Directors or by such applicants shall, enter an order either sustaining one or
more of such objections or refusing to sustain any of them. If the SEC shall
enter an order refusing to sustain any of such objections, or if, after the
entry of an order sustaining one or more of such objections, the SEC shall
find, after notice and opportunity for hearing, that all objections so
sustained have been met, and shall enter an order so declaring, the Secretary
shall mail copies of such material to all shareholders with reasonable
promptness after the entry of such order and the renewal of such tender.
30
<PAGE> 79
PERFORMANCE INFORMATION
IN GENERAL
As described in the "About the Funds - Performance Information" section
of the Funds' Prospectus, each Fund's historical performance or return may be
shown in the form of "yield" and "tax equivalent yield." In addition, the
Short-Term Fund's, Insured Fund's, Bond Fund's, and High-Yield Fund's
performance may be shown in the form of "average annual total return," "total
return," and "cumulative total return" and the Money Fund's performance may be
shown in the form of "effective yield." From time to time, the Advisor may
agree to waive or reduce its management fee and to absorb certain operating
expenses for each Fund. All performance and returns noted herein are
historical and do not represent the future performance of a Fund.
YIELD
The Short-Term, Insured, Bond, and High-Yield Funds' yield is computed
in accordance with a standardized method prescribed by rules of the SEC. Under
that method, the current yield quotation for a Fund is based on a one month or
30-day period. The yield is computed by dividing the net investment income per
share earned during the 30-day or one month period by the maximum offering
price per share on the last day of the period, according to the following
formula:
6
YIELD = 2[( a-b + 1) - 1]
----
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = the maximum offering price per share on the last day
of the period.
For the 30-day period ended December 30, 1994, the Short-Term Fund's
current yield was 5.08%, the Insured Fund's current yield was 5.33%, the Bond
Fund's current yield was 6.22%, and the High-Yield Fund's current yield was
8.02%. For this period, the Advisor absorbed expenses of .25% and waived
management fees of .60% for the High-Yield Fund. Without these waivers and
absorptions, the High-Yield Fund's yield would have been 7.17%. In computing
yield, the Funds follow certain standardized accounting practices specified by
Commission rules. These practices are not necessarily consistent with those
that the Funds use to prepare annual and interim financial statements in
conformity with generally accepted accounting principles.
CURRENT YIELD
The Money Fund's current yield quotation is based on a seven-day period
and is computed as follows. The first calculation is net investment income per
share, which is accrued interest on portfolio securities, plus or minus
amortized premium, less accrued expenses. This number is then divided by the
price per share (expected to remain constant at $1.00) at the beginning of the
period ("base period return"). The result is then divided by 7 and multiplied
by 365 and the resulting yield figure is carried to the nearest one-hundredth
of one percent. Realized capital gains or losses and unrealized appreciation
or depreciation of investments are not included in the calculation. For the
seven-day period ended December 30, 1994, the Money Fund's current yield was
4.54%.
EFFECTIVE YIELD
The Money Fund's effective yield is determined by taking the base period
return (computed as described above) and calculating the effect of assumed
compounding. The formula for the effective yield is: (base period return +
1)(365/7) - 1. For the seven-day period ended December 30, 1994, the Money
Fund's effective yield was 4.64%.
31
<PAGE> 80
TAX-EQUIVALENT YIELD
Each Fund's tax-equivalent yield is computed by dividing that portion of
the Fund's yield (computed as described above) that is tax-exempt by one minus
the stated federal income tax rate and adding the result to that portion, if
any, of the yield of each Fund that is not tax-exempt. Tax-equivalent yield
does not reflect possible variations due to the federal alternative minimum
tax. Based upon a marginal federal income tax rate of 31.0% and each Fund's
yield computed as described above, the Short-Term Fund's, Insured Fund's, Bond
Fund's and High-Yield Fund's 30-day tax equivalent yield (period ended December
30, 1994) were 7.36%, 7.72%, 9.01%, and 11.62%, respectively, and the Money
Fund's 7-day tax equivalent yield (period ended December 30, 1994) was 6.58%.
For additional information concerning tax-exempt yields, see "Tax-Exempt versus
Taxable Yield" below.
DISTRIBUTION RATE
The distribution rate is computed, according to a non-standardized
formula, by dividing the total amount of actual distributions per share paid by
the Fund over a twelve month period by the Fund's net asset value on the last
day of the period. The distribution rate differs from the Fund's yield because
the distribution rate includes distributions to shareholders from sources other
than dividends and interest, such as premium income from option writing and
short-term capital gains. Therefore, the Fund's distribution rate may be
substantially different than the Fund's yield. Both the Fund's yield and
distribution rate will fluctuate.
AVERAGE ANNUAL TOTAL RETURN
The Short-Term Fund's, Insured Fund's, Bond Fund's, and High-Yield
Fund's average annual total return quotation is computed in accordance with a
standardized method prescribed by rules of the Commission. The average annual
total return for the Fund for a specific period is found by first taking a
hypothetical $10,000 investment ("initial investment") in the Fund's shares on
the first day of the period and computing the "redeemable value" of that
investment at the end of the period. The redeemable value is then divided by
the initial investment, and this quotient is taken to the Nth root (N
representing the number of years in the period) and 1 is subtracted from the
result, which is then expressed as a percentage. The calculation assumes that
all income and capital gains dividends paid by the Fund have been reinvested at
net asset value on the reinvestment dates during the period. Average annual
total return figures for various periods are set forth in the table below.
TOTAL RETURN
Calculation of each Fund's total return is not subject to a standardized
formula. Total return performance for a specific period is calculated by first
taking an investment (assumed below to be $10,000) ("initial investment") in
the Fund's shares on the first day of the period and computing the "ending
value" of that investment at the end of the period. The total return
percentage is then determined by subtracting the initial investment from the
ending value and dividing the remainder by the initial investment and
expressing the result as a percentage. The calculation assumes that all income
and capital gains dividends paid by the Fund have been reinvested at net asset
value on the reinvestment dates during the period. Total return may also be
shown as the increased dollar value of the hypothetical investment over the
period. Total return figures for various periods are set forth in the table
below.
CUMULATIVE TOTAL RETURN
Calculation of each Fund's cumulative total return is not subject to a
standardized formula and represents the simple change in value of our
investment over a stated period and may be quoted as a percentage or as a
dollar amount. Total returns and cumulative total returns may be broken down
into their components of income and capital (including capital gains and
changes in share price) in order to illustrate the relationship between these
factors and their contributions to total return.
A Fund's performance figures are based upon historical results and do
not represent future performance. Each Fund's shares are sold at net asset
value per share. The Short-Term Fund's, Insured Fund's, Bond Fund's, and
High-Yield Fund's returns and net asset value will fluctuate and shares are
redeemable at the then current net asset value of the Fund, which may be more
or less than original cost. The Money Fund's yield will fluctuate. While the
Money Fund seeks to maintain a stable net asset value of $1.00, there is no
assurance that it will be able to do so. An investment in the Money Fund is
neither insured nor
32
<PAGE> 81
guaranteed by the U.S. government. Factors affecting a Fund's performance
include general market conditions, operating expenses and investment
management. Any additional fees charged by a dealer or other financial
services firm would reduce the returns described in this section.
The figures below show performance information for various periods ended
December 31, 1994. No adjustment has been made for taxes, if any, payable on
dividends. The periods indicated were ones of fluctuating securities prices.
<TABLE>
<CAPTION>
SHORT-TERM FUND
- ---------------
Total Average Annual
Return Total Return
------ ------------
Initial Ending Value
$10,000 December 31, Percentage Percentage
Investment 1994 Increase Increase
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Life of Fund(1) $10,000 $11,256 12.56% 4.02%
One Year 10,000 9,839 -1.61 -1.61
</TABLE>
-----------------------
(1) December 31, 1991
<TABLE>
<CAPTION>
INSURED FUND
- ------------
Total Average Annual
Return Total Return
------ ------------
Initial Ending Value
$10,000 December 31, Percentage Percentage
Investment 1994 Increase Increase
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Life of Fund(1) $10,000 $12,333 23.33% 7.00%
One Year 10,000 9,353 -6.47 -6.47
</TABLE>
-----------------------
(1) November 25, 1991
<TABLE>
<CAPTION>
BOND FUND
- ---------
Total Average Annual
Return Total Return
------ ------------
Initial Ending Value
$10,000 December 31, Percentage Percentage
Investment 1994 Increase Increase
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Life of Fund(1) $10,000 $16,275 62.75% 6.13%
Five Years 10,000 14,198 41.98 7.26
One Year 10,000 9,545 -4.55 -4.55
</TABLE>
------------------------
(1) October 23, 1986
33
<PAGE> 82
<TABLE>
<CAPTION>
HIGH-YIELD FUND
- ---------------
Total Average Annual
Return Total Return
------ ------------
Initial Ending Value
$10,000 December 31, Percentage Percentage
Investment 1994 Increase Increase
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Life of Fund(1) $10,000 $10,165 1.65% 1.32%
One Year 10,000 9,901 -0.99 -0.99
</TABLE>
------------------------
(1) October 1, 1993.
The Short-Term Fund's, Bond Fund's, Insured Fund's, and High-Yield Fund's
total return for the three months ending March 31, 1995, were 2.22%, 5.64%,
6.11% and 4.66%, respectively.
TAX-EXEMPT VERSUS TAXABLE YIELD. An investor may want to determine which
investment, tax-exempt or taxable, will provide you with a higher after-tax
return. To determine the tax-equivalent yield, simply divide the yield from
the tax-exempt investment by the sum of (1 minus the investor's marginal tax
rate). The tables below are provided for making this calculation for selected
tax-exempt yield and taxable income levels. These yields are presented for
purposes of illustration only and are not representative of any yield that a
Fund may generate. The tables are based upon the 1995 federal tax rates (in
effect as of December 31, 1994).
TAXABLE EQUIVALENT YIELD
<TABLE>
<CAPTION>
A TAX-FREE YIELD OF:
--------------------
4% 5% 6% 7% 8%
---------------------------------------------------
1995 Taxable Income Levels
--------------------------
Married Filing Marginal
Single Jointly Tax Rate IS EQUIVALENT TO A TAXABLE YIELD OF:
------ -------------- -------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
under 23,351 under 39,001 15% 4.71% 5.88% 7.06% 8.24% 9.41%
23,351-56,550 39,001 - 94,250 28% 5.56% 6.94% 8.33% 9.72% 11.11%
56,551-117,950 94,251-143,600 31% 5.80% 7.25% 8.70% 10.14% 11.59%
117,951-256,500 143,601-256,500 36% 6.25% 7.81% 9.38% 10.94% 12.50%
over 256,500 over 256,500 39.6% 6.62% 8.28% 9.93% 11.59% 13.25%
</TABLE>
- ---------------
* A taxpayer with an adjusted gross income in excess of $114,700 may, to
the extent such taxpayer itemizes deductions, be subject to a higher
effective marginal rate.
COMPARISONS - IN GENERAL
(1) LIPPER ANALYTICAL SERVICES, INC. ("LIPPER") AND OTHER INDEPENDENT RANKING
ORGANIZATIONS
From time to time, in marketing and other fund literature, each Fund's
performance may be compared to the performance of other mutual funds in general
or to the performance of particular types of mutual funds, with similar
investment goals, as tracked by independent organizations. Among these
organizations, Lipper, a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets, may be
cited. Lipper performance figures are based on changes in net asset value,
with all income and capital gain dividends reinvested. Such calculations do
not include the effect of any sales charges imposed by other funds. Each Fund
will be compared to Lipper's appropriate fund category, that is by fund
objective and portfolio holdings. Lipper also issues a monthly yield analysis
for fixed income funds.
(2) MORNINGSTAR, INC.
34
<PAGE> 83
Each Fund's performance also may be compared to the performance of other
mutual funds by Morningstar, Inc. which rates funds on the basis of historical
risk and total return. Morningstar's ratings range from five stars (highest)
to one star (lowest) and represent Morningstar's assessment of the historical
risk level and total return of a fund as a weighted average for 3, 5, and 10
year periods. Ratings are not absolute and do not represent future results.
(3) INDEPENDENT SOURCES
Evaluations of a Fund's performance made by independent sources may also
be used in advertisements concerning the Fund, including reprints of, or
selections from, editorials or articles about the Fund, especially those with
similar objectives. Sources for Fund performance information and articles
about a Fund may include publications such as Money, Forbes, Kiplinger's, Smart
Money, Financial World, Business Week, U.S. News and World Report, The Wall
Street Journal, Barron's and a variety of investment newsletters.
(4) INDICES
The Funds may compare their performance to a wide variety of indices
including the following:
<TABLE>
<S> <C>
(a) The Consumer Price Index
(b) Salomon Brothers High Grade Corporate Bond Index
(c) Lehman Brothers Municipal Bond Index
(d) Lehman Brothers 3-Year Municipal Bond Index
(e) Lehman Brothers Insured Municipal Bond Index
(f) Lehman Brothers Municipal Bond Index
(g) Lehman Brothers Baa Municipal Bond Index
(h) IBC/Donoghue's All-Taxable Money Market Fund AverageTM
(i) IBC/Donoghue's Tax-Free Money Fund AverageTM
(j) Bond Buyer Index
</TABLE>
There are differences and similarities between the investments which a
Fund may purchase and the investments measured by the indices which are
described herein. The market prices and yields of taxable and tax-exempt bonds
will fluctuate. There are important differences among the various investments
included in the indices that should be considered in reviewing this
information.
(5) MONEY MARKET FUNDS
Investors may also want to compare performance of the Funds to that of
money market funds. Money market fund yields will fluctuate and an investment
in money market fund shares is neither insured nor guaranteed by the U.S.
Government, but share values usually remain stable.
(6) HISTORICAL ASSET CLASS RETURNS
From time to time, marketing materials may portray the historical returns
of various asset classes. Such presentations will typically compare the
average annual rates of return of inflation, U.S. Treasury bills, bonds, common
stocks, and small stocks. There are important differences between each of these
investments that should be considered in viewing any such comparison. The
market value of stocks will fluctuate with market conditions, and small-stock
prices generally will fluctuate more than large-stock prices. Bond prices
generally will fluctuate inversely with interest rates and other market
conditions, and the prices of bonds with longer maturities generally will
fluctuate more than those of shorter-maturity bonds. Interest rates for bonds
may be fixed at the time of issuance, and payment of principal and interest may
be guaranteed by the issuer and, in the case of U.S. Treasury obligations,
backed by the full faith and credit of the U.S. Treasury.
35
<PAGE> 84
(7) STRONG FAMILY OF FUNDS
The Strong Family of Funds offers a comprehensive range of conservative
to aggressive investment options. All of the members of the Strong Family and
their investment objectives are listed below. The Funds are listed in ascending
order of risk and return, as determined by the Funds' Advisor.
<TABLE>
<CAPTION>
FUND NAME INVESTMENT OBJECTIVE
<S> <C>
Strong U.S. Treasury Money Fund Current income, a stable share price and daily liquidity.
Strong Money Market Fund Current income, a stable share price and daily liquidity.
Strong Municipal Money Market Federally tax-exempt current income, a stable share-price and daily
Fund liquidity.
Strong Advantage Fund Current income with a very low degree of share-price fluctuation.
Strong Short-Term Bond Fund Total return by investing for a high level of current income with a low
degree of share-price fluctuation.
Strong Short-Term Municipal Bond Total return by investing for a high level of federally tax-exempt
Fund current income with a low degree of share-price fluctuation.
Strong Short-Term Global Bond Total return by investing for a high level of income with a low degree
Fund of share-price fluctuation.
Strong Government Securities Total return by investing for a high level of current income with a
Fund moderate degree of share-price fluctuation.
Strong Insured Municipal Bond Total return by investing for a high level of federally tax-exempt
Fund current income with a moderate degree of share-price fluctuation.
Strong Municipal Bond Fund Total return by investing for a high level of federally tax-exempt
current income with a moderate degree of share-price fluctuation.
Strong Corporate Bond Fund Total return by investing for a high level of current income with a
moderate degree of share-price fluctuation.
Strong International Bond Fund High total return by investing for both income and capital appreciation.
Strong High-Yield Municipal Bond Total return by investing for a high level of federally tax-exempt
Fund current income.
Strong Asset Allocation Fund High total return consistent with reasonable risk over the long term.
Strong American Utilities Fund Total return by investing for both income and capital growth.
Strong Total Return Fund High total return by investing for capital growth and income.
Strong Opportunity Fund Capital growth.
Strong Special Fund II** Capital growth.
Strong Growth Fund Capital growth.
Strong Common Stock Fund* Capital growth.
Strong Discovery Fund Capital growth.
Strong Discovery Fund II** Capital growth.
Strong International Stock Fund Capital growth.
Strong Asia Pacific Fund Capital growth.
</TABLE>
* The Strong Common Stock Fund is currently closed to new investors.
** The Fund is an investment vehicle that funds variable annuity accounts.
Each Fund may from time to time be compared to the other funds in the
Strong Family of Funds based on a risk/reward spectrum. In general, the amount
of risk associated with any investment product is commensurate with that
product's potential level of reward. The Strong Funds risk/reward continuum or
any Fund's position on the continuum may be described or diagrammed in
marketing materials. The Strong Funds risk/reward continuum positions the risk
and reward potential of each Strong Fund relative to the other Strong Funds,
but is not intended to position any Strong Fund relative to other mutual funds
or investment products. Marketing materials may also discuss the relationship
between risk and reward as it relates to an individual investor's portfolio.
36
<PAGE> 85
COMPARISONS - SHORT-TERM FUND, INSURED FUND, BOND FUND, AND HIGH-YIELD FUND
(1) U.S. TREASURY BILLS, NOTES, OR BONDS
Investors may want to compare the performance of a Fund to that of United
States Treasury bills, notes, or bonds, which are issued by the U.S.
Government, because such instruments represent alternative income producing
products. Treasury obligations are issued in selected denominations. Rates of
Treasury obligations are fixed at the time of issuance and payment of principal
and interest is backed by the full faith and credit of the United States
Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity.
(2) CERTIFICATES OF DEPOSIT
Investors may want to compare a Fund's performance to that of certificates
of deposit offered by banks and other depositary institutions. Certificates of
deposit represent an alternative (taxable) income producing product.
Certificates of deposit may offer fixed or variable interest rates and
principal is guaranteed and may be insured. Withdrawal of the deposits prior
to maturity normally will be subject to a penalty. Rates offered by banks and
other depositary institutions are subject to change at any time specified by
the issuing institution. The bonds held by the Bond Fund and High-Yield Fund
are generally of longer term than most certificates of deposit and may reflect
longer term market interest rate fluctuations.
(3) INDIVIDUAL MUNICIPAL BONDS
The Short-Term Fund, Insured Fund, Bond Fund, and High-Yield Fund may
compare and contrast in advertising the relative advantages of investing in a
mutual fund versus an individual municipal bond. Unlike municipal bond mutual
funds, individual municipal bonds offer a stated rate of interest and, if held
to maturity, repayment of principal. Although some individual municipal bonds
might offer a higher return, they may not offer the reduced risk of a mutual
fund which invests in many different securities. The initial investment
requirements and sales charges of many municipal bond mutual funds are lower
than the purchase cost of individual municipal bonds, which are generally
issued in $5,000 denominations and are subject to direct brokerage costs.
COMPARISONS - MONEY FUND
(1) DONOGHUE'S MONEY MARKET FUND REPORT ("DONOGHUE")
The performance of the Money Fund may be compared to other money market
funds rated by Donoghue's, a reporting service on money market funds. As
reported by Donoghue's, all investment results represent total return
(annualized results for the period net of management fees and expenses) and one
year investment results are effective annual yields assuming reinvestment of
dividends.
(2) VARIOUS BANK PRODUCTS
The Money Fund's performance also may be compared on a before or after-tax
basis to various bank products, including the average rate of bank and thrift
institution money market deposit accounts, Super N.O.W. accounts and
certificates of deposit of various maturities as reported in the Bank Rate
Monitor, National Index of 100 leading banks, and thrift institutions as
published by the Bank Rate Monitor, Miami Beach, Florida. The rates published
by the Bank Rate Monitor National Index are averages of the personal account
rates offered on the Wednesday prior to the date of publication by 100 large
banks and thrifts in the top ten Consolidated Standard Metropolitan Statistical
Areas. The rates provided for the bank accounts assume no compounding and are
for the lowest minimum deposit required to open an account. Higher rates may
be available for larger deposits.
With respect to money market deposit accounts and Super N.O.W. accounts,
account minimums range upward from $2,000 in each institution and compounding
methods vary. Super N.O.W. accounts generally offer unlimited check writing
while money market deposit accounts generally restrict the number of checks
that may be written. If more than one rate is offered, the lowest rate is
used. Rates are determined by the financial institution and are subject to
change at any time specified by the institution. Generally, the rates offered
for these products take market conditions and competitive product yields into
consideration when set. Bank products represent a taxable alternative income
producing product. Bank and thrift institution deposit accounts may be
insured. Shareholder accounts in the Fund are not insured. Bank passbook
savings accounts compete with money market mutual fund products with respect to
certain liquidity features but may not offer all of the features available from
a money market mutual fund, such as check writing. Bank passbook savings
accounts normally offer a fixed rate of interest while the yield of the Fund
fluctuates. Bank checking accounts normally do not pay interest but compete
with money market mutual fund products with respect to certain liquidity
features (e.g., the ability to write checks against the account). Bank
certificates of deposit may offer
37
<PAGE> 86
fixed or variable rates for a set term. (Normally, a variety of terms are
available.) Withdrawal of these deposits prior to maturity will normally be
subject to a penalty. In contrast, shares of the Money Fund are redeemable at
the net asset value (normally, $1.00 per share) next determined after a request
is received, without charge.
ADDITIONAL FUND INFORMATION
(1) DURATION
Duration is a calculation that measures the price sensitivity of a Fund to
changes in interest rates. Theoretically, if a Fund had a duration of 2.0, a 1%
increase in interest rates would cause the prices of the bonds in the Fund to
decrease by approximately 2%. Conversely, a 1% decrease in interest rates would
cause the prices of the bonds in the Fund to increase by approximately 2%.
Depending on the direction of market interest rates, a Fund's duration may be
shorter or longer than its average maturity.
(2) PORTFOLIO CHARACTERISTICS
In order to present a more complete picture of a Fund's portfolio,
marketing materials may include various actual or estimated portfolio
characteristics, including but not limited to median market capitalizations,
earnings per share, alphas, betas, price/earnings ratios, returns on equity,
dividend yields, capitalization ranges, growth rates, price/book ratios, top
holdings, sector breakdowns, asset allocations, quality breakdowns, and
breakdowns by geographic region.
(3) MEASURES OF VOLATILITY AND RELATIVE PERFORMANCE
Occasionally statistics may be used to specify Fund volatility or risk.
The general premise is that greater volatility connotes greater risk undertaken
in achieving performance. Measures of volatility or risk are generally used to
compare the Fund's net asset value or performance relative to a market index.
One measure of volatility is beta. Beta is the volatility of a fund relative
to the total market as represented by the Standard & Poor's 500 Stock Index. A
beta of more than 1.00 indicates volatility greater than the market, and a beta
of less than 1.00 indicates volatility less than the market. Another measure
of volatility or risk is standard deviation. Standard deviation is a
statistical tool that measures the degree to which a fund's performance has
varied from its average performance during a particular time period.
Standard deviation is calculated using the following formula:
2
Standard deviation = the square root of (summation symbol) (x - x )
i m
-------
n-1
where (summation symbol) = "the sum of",
x = each individual return during the time period,
i
x = the average return over the time period, and
m
n = the number of individual returns during the
time period.
Statistics may also be used to discuss a Fund's relative performance. One
such measure is alpha. Alpha measures the actual return of a fund compared to
the expected return of a fund given its risk (as measured by beta). The
expected return is based on how the market as a whole performed, and how the
particular fund has historically performed against the market. Specifically,
alpha is the actual return less the expected return. The expected return is
computed by multiplying the advance or decline in a market representation by
the fund's beta. A positive alpha quantifies the value that the fund manager
has added, and a negative alpha quantifies the value that the fund manager has
lost.
Other measures of volatility and relative performance may be used as
appropriate. However, all such measures will fluctuate and do not represent
future results.
38
<PAGE> 87
GENERAL INFORMATION
BUSINESS PHILOSOPHY
The Advisor is an independent, Midwestern-based investment advisor, owned
by professionals active in its management. Recognizing that investors are the
focus of its business, the Advisor strives for excellence both in investment
management and in the service provided to investors. This commitment affects
many aspects of the business, including professional staffing, product
development, investment management, and service delivery. Through its
commitment to excellence, the Advisor intends to benefit investors and to
encourage them to think of Strong Funds as their mutual fund family.
The increasing complexity of the capital markets requires specialized
skills and processes for each asset class and style. Therefore, the Advisor
believes that active management should produce greater returns than a passively
managed index. The Advisor has brought together a group of top-flight
investment professionals with diverse product expertise, and each concentrates
on their investment specialty. The Advisor believes that people are the firm's
most important asset. For this reason, continuity of professionals is critical
to the firm's long-term success.
INVESTMENT ENVIRONMENT
Discussions of economic, social, and political conditions and their impact
on the Funds may be used in advertisements and sales materials. Such factors
that may impact the Fund include, but are not limited to, changes in interest
rates, political developments, the competitive environment, consumer behavior,
industry trends, technological advances, macroeconomic trends, and the supply
and demand of various financial instruments. In addition, marketing materials
may cite the portfolio management's views or interpretations of such factors.
PORTFOLIO MANAGEMENT
Each portfolio manager works with a team of analysts, traders, and
administrative personnel. From time to time, marketing materials may discuss
various members of the team, including their education, investment experience,
and other credentials.
The Advisor believes that actively managing each Fund's portfolio and
adjusting the average portfolio maturity according to the Advisor's interest
rate outlook is the best way to achieve the Fund's objectives. This policy is
based on a fundamental belief that economic and financial conditions create
favorable and unfavorable investment periods (or seasons) and that these
different seasons require different investment approaches. Through its active
management approach, the Advisor seeks to avoid or reduce any negative change
in the Short-Term Fund's, Insured Fund's, Bond Fund's, and High-Yield Fund's
net asset value per share during periods of falling bond prices. In addition,
the Advisor seeks competitive municipal money market yields for the Money Fund
with emphasis on capital preservation and daily liquidity.
BOND, INSURED, AND HIGH-YIELD FUNDS
To help reduce investment risk, the Funds' managers are highly selective,
relying on intensive, ongoing credit research. Their first-hand research
includes frequent contact with issuers' managements, often entails on-site
visits, and applies to bonds already purchased as well as to those under
consideration. They tend to be cautious, and at times may be defensive. They
are often contrarian, hunting for value in areas that others overlook and
taking advantage of pricing inefficiencies. Decisions are made at four levels
that are consistent with the managers' viewpoint of the path of secular trends,
economic activity, and interest rates:
1. Credit Quality: The investment process is research-driven, with the
objective of limiting credit risk. Assets are allocated between credits
based on quality spreads within the marketplace. The managers may prefer
issuers that have not secured a credit rating either because they lack the
requisite operating history or because they are simply too small to
justify the expense of being rated. They also seek to capitalize on
turnaround issues. However, they believe that yield does not compensate
for extreme credit risks.
39
<PAGE> 88
2. Sector Distribution: The managers target sectors of the municipal market
that are expected to remain stable or improve in credit quality. Primary
themes currently include the aging of America, the reconstruction of our
nation's infrastructure, and the environmental challenges of America.
3. Maturity Distribution: The average maturity changes based on an
assessment of the future direction of interest rates. An optimal maturity
structure is based on fundamental and technical analysis.
4. State Distribution: States with the best relative value are targeted. The
managers diversify among states and generally avoid geographic
concentration.
Financial goals vary from person to person. Investors may choose one or
more of the Strong Funds to help them reach their financial goals. To help you
better understand the Strong Municipal Income Funds and determine which Fund or
combination of Funds best meets your personal investment objectives, they are
described in the same Prospectus. Though they appear in the same Prospectus,
each of the Strong Municipal Income Funds are separately incorporated
investment companies. Because the Funds share a Prospectus, there may be the
possibility of cross liability between the Funds.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., 411 East Wisconsin Avenue, Milwaukee, Wisconsin
53202, are the independent certified public accountants for the Funds,
providing audit services and assistance and consultation with respect to the
preparation of filings with the SEC.
LEGAL COUNSEL
Godfrey & Kahn, S.C., Milwaukee, Wisconsin 53202, acts as outside legal
counsel for the Funds.
FINANCIAL STATEMENTS
The Annual Report that is attached hereto contains the following financial
information for each Fund:
<TABLE>
<S> <C>
(a) Schedule of Investments in Securities.
(b) Statement of Operations.
(c) Statement of Assets and Liabilities.
(d) Statement of Changes in Net Assets.
(e) Notes to Financial Statements.
(f) Financial Highlights.
(g) Report of Independent Accountants.
</TABLE>
40
<PAGE> 89
APPENDIX
BOND RATINGS
STANDARD & POOR'S DEBT RATINGS
A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as
a result of changes in, or unavailability of, such information, or for other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default -- capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal
in accordance with the terms of the obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditors'
rights.
INVESTMENT GRADE
AAA Debt rated 'AAA' has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated 'BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. 'BB' indicates the least degree of speculation
and 'C' the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.
A-1
<PAGE> 90
B Debt rated 'B' has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The 'B' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied 'BB' or 'BB-' rating.
CCC Debt rated 'CCC' has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The 'CCC'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'B' or 'B-' rating.
CC Debt rated 'CC' typically is applied to debt subordinated to senior
debt that is assigned an actual or implied 'CCC' rating.
C Debt rated 'C' typically is applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI The rating 'CI' is reserved for income bonds on which no interest is
being paid.
D Debt rated 'D' is in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grade period. The 'D' rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
MOODY'S LONG-TERM DEBT RATINGS
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa - Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such Bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes Bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
A-2
<PAGE> 91
Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
FITCH INVESTORS SERVICE, INC. BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided
by insurance policies or financial guaranties unless otherwise indicated.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated 'AAA'.
Because bonds rated in the 'AAA' and 'AA' categories are not
significantly vulnerable to foreseeable future developments,
short-term debt of the issuers is generally rated 'F-1+'.
A Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with
higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on
these bonds, and therefore impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade is
higher than for bonds with higher ratings.
A-3
<PAGE> 92
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
('BB' to 'C') represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ('DDD' to 'D') is an
assessment of the ultimate recovery value through reorganization or
liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories cannot fully reflect the
differences in the degrees of credit risk. Moreover, the character of the risk
factor varies from industry to industry and between corporate, health care and
municipal obligations.
BB Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by
adverse economic changes. However, business and financial
alternatives can be identified which could assist the obligor
in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the
probability of continued timely payment of principal and
interest reflects the obligor's limited margin of safety and
the need for reasonable business and economic activity
throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C Bonds are in imminent default in payment of interest or
principal.
DDD, DD
and D Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued
on the basis of their ultimate recovery value in
liquidation or reorganization of the obligor. 'DDD'
represents the highest potential for recovery of these
bonds, and 'D' represents the lowest potential for
recovery.
DUFF & PHELPS, INC. LONG-TERM DEBT RATINGS
These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks related to
such factors as competition, government action, regulation, technological
obsolescence, demand shifts, cost structure, and management depth and
expertise. The projected viability of the obligor at the trough of the cycle
is a critical determination.
Each rating also takes into account the legal form of the security, (e.g.,
first mortgage bonds, subordinated debt, preferred stock, etc.). The extent of
rating dispersion among the various classes of securities is determined by
several factors including relative weightings of the different security classes
in the capital structure, the overall credit strength of the issuer, and the
nature of covenant protection. Review of indenture restrictions is important
to the analysis of a company's operating and financial constraints.
The Credit Rating Committee formally reviews all ratings once per quarter
(more frequently, if necessary). Ratings of 'BBB-' and higher fall within the
definition of investment grade securities, as defined by bank and insurance
supervisory authorities.
A-4
<PAGE> 93
RATING SCALE DEFINITION
AAA Highest credit quality. The risk factors are
negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong.
AA Risk is modest, but may vary slightly from time to
AA- time because of economic conditions.
A+ Protection factors are average but adequate.
A However, risk factors are more variable and greater
A- in periods of economic stress.
BBB+ Below average protection factors but still considered
BBB sufficient for prudent investment. Considerable
BBB- variability in risk during economic cycles.
BB+ Below investment grade but deemed likely to meet
BB obligations when due. Present or prospective
BB- financial protection factors fluctuate according to
industry conditions or company fortunes. Overall
quality may move up or down frequently within this
category.
B+ Below investment grade and possessing risk that
B obligations will not be met when due. Financial
B- protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in
the rating within this category or into a higher or
lower rating grade.
CCC Well below investment grade securities. Considerable
uncertainty exists as to timely payment of principal,
interest or preferred dividends. Protection factors
are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with
unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet
scheduled principal and/or interest payments.
DP Preferred stock with dividend arrearages.
SHORT-TERM RATINGS
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A-5
<PAGE> 94
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
Ratings graded into several categories, ranging from 'A-1' for the highest
quality obligations to 'D' for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated 'A-1'.
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
B Issues rated 'B' are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with doubtful
capacity for payment.
D Debt rated 'D' is in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
STANDARD & POOR'S NOTE RATINGS
A S&P note rating reflects the liquidity factors and market-access risks
unique to notes. Notes maturing in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating.
The following criteria will be used in making the assessment:
Amortization schedule - the larger the final maturity relative to
other maturities, the more likely the issue is to be treated as a
note.
Source of payment - the more the issue depends on the market for its
refinancing, the more likely it is to be considered a note.
The note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay interest and principal, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3 Speculative capacity to pay principal and interest.
MOODY'S COMMERCIAL PAPER RATINGS
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
makes no representation as to whether such commercial paper is by any other
definition "commercial paper" or is exempt from registration under the
Securities Act of 1933, as amended.
A-6
<PAGE> 95
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations
are exempt from registration under the Securities Act of 1933, nor does it
represent that any specific note is a valid obligation of a rated issuer or
issued in conformity with any applicable law. Moody's employs the following
three designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: (i)
leading market positions in well established industries, (ii) high rates of
return on funds employed, (iii) conservative capitalization structures with
moderate reliance on debt and ample asset protection, (iv) broad margins in
earnings coverage of fixed financial charges and high internal cash generation,
and (v) well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Issuers rated PRIME-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
MOODY'S NOTE RATINGS
MIG 1/VMIG 1 This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
MIG 3/VMIG 3 This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
MIG 4/VMIG 4 This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
SG This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.
FITCH INVESTORS SERVICE, INC. SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
A-7
<PAGE> 96
F-1+ (Exceptionally Strong Credit Quality) Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 (Very Strong Credit Quality) Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated 'F-1+'.
F-2 (Good Credit Quality) Issues assigned this rating have a satisfactory
degree of assurance for timely payment but the margin of safety is
not as great as for issues assigned 'F-1+' and 'F-1' ratings.
F-3 (Fair Credit Quality) Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely
payment is adequate, however, near-term adverse changes could cause
these securities to be rated below investment grade.
F-S (Weak Credit Quality) Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial
and economic conditions.
D (Default) Issues assigned this rating are in actual or imminent
payment default.
LOC The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.
DUFF & PHELPS, INC. SHORT-TERM DEBT RATINGS
Duff & Phelps' short-term ratings are consistent with the rating criteria
utilized by money market participants. The ratings apply to all obligations
with maturities of under one year, including commercial paper, the uninsured
portion of certificates of deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit, and current maturities of long-term
debt. Asset-backed commercial paper is also rated according to this scale.
Emphasis is placed on liquidity which as defined as not only cash from
operations, but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.
Rating Scale: Definition
Duff 1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors
are excellent and supported by good fundamental protection
factors. Risk factors are minor.
Duff 1- High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection
factors. Risk factors are very small.
Good Grade
Duff 2 Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small.
Satisfactory Grade
A-8
<PAGE> 97
Duff 3 Satisfactory liquidity and other protection factors qualify
issue as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is
expected.
Non-investment Grade
Duff 4 Speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a
high degree of variation.
Default
Duff 5 Issuer failed to meet scheduled principal and/or interest
payments.
THOMSON BANKWATCH (TBW) SHORT-TERM RATINGS
The TBW Short-Term Ratings apply, unless otherwise noted, to
unsubordinated instruments of the rated entities with a maturity of one year or
less, including deposits, bank notes, bankers' acceptances, federal funds,
letters of credit, commercial paper and other obligations comparable in
priority and security to those specifically listed herein. These ratings do
not consider any collateral or security as the basis for the rating, although
some of the securities may in fact have collateral. Further, these ratings do
not incorporate consideration of the possible sovereign risk associated with a
foreign deposit (defined as a deposit taken in a branch outside the country in
which the rated entity is headquartered) of the rated entity. TBW Short-Term
Ratings are intended to assess the likelihood of an untimely or incomplete
payments of principal or interest.
TBW-1 The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1".
TBW-3 The lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
IBCA SHORT-TERM RATINGS
IBCA Short-Term Ratings assess the borrowing characteristics of banks and
corporations, and the capacity for timely repayment of debt obligations. The
Short-Term Ratings relate to debt which has a maturity of less than one year.
A1+ Obligations supported by the highest capacity for timely repayment
and possess a particularly strong credit feature.
A1 Obligations supported by the highest capacity for timely repayment.
A2 Obligations supported by a good capacity for timely repayment.
A3 Obligations supported by a satisfactory capacity for timely repayment.
B Obligations for which there is an uncertainty as to the capacity to
ensure timely repayment.
C Obligations for which there is a high risk of default or which are
currently in default.
D Obligations which are currently in default.
A-9
<PAGE> 5
STRONG MUNICIPAL MONEY MARKET FUND, INC.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements (all included or incorporated by
reference in Parts A & B)
Schedules of Investments in Securities
Statements of Operations
Statements of Assets and Liabilities
Statements of Changes in Net Assets
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
(b) Exhibits
(1) Amended and Restated Articles of Incorporation
(2) Restated By-Laws
(2.1) Amendment to Restated By-Laws
(3) Inapplicable
(4) Specimen Stock Certificate
(5) Investment Advisory Agreement
(6) Distribution Agreement
(7) Inapplicable
(8) Custody Agreement
(8.1) Amendment to Custody Agreement
(9) Shareholder Servicing Agent Agreement
(10) Inapplicable
(11) Consent of Auditor
(12) Inapplicable
(13) Inapplicable
(14) Inapplicable
(15) Inapplicable
(16) Computation of Performance Figures
(17) Power of Attorney
(18) Letter of Representation
(27) Financial Data Schedule
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant neither controls any person nor is under common control
with any other person.
C-1
<PAGE> 6
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record Holders
Title of Class as of January 31, 1995
-------------- ----------------------------
<S> <C>
Common Stock, $.0001 par value 25,792
</TABLE>
Item 27. Indemnification
Officers and directors are insured under a joint errors and omissions
insurance policy underwritten by American International Surplus Lines Insurance
Company and First State Insurance Company in the aggregate amount of
$10,000,000, subject to certain deductions. Pursuant to the authority of the
Wisconsin Business Corporation Law, Article VII of Registrant's By-Laws
provides as follows:
ARTICLE VII. INDEMNIFICATION
7.01. Provision of Indemnification. The corporation shall, to
the fullest extent permitted or required by Sections 180.0850 to
180.0859, inclusive, of the Wisconsin Business Corporation Law,
including any amendments thereto (but in the case of any such
amendment, only to the extent such amendment permits or requires the
corporation to provide broader indemnification rights than prior to
such amendment), indemnify its Directors and Officers against any and
all Liabilities, and advance any and all reasonable Expenses,
incurred thereby in any Proceeding to which any such Director or
Officer is a Party because he or she is or was a Director or Officer
of the corporation. The corporation shall also indemnify an employee
who is not a Director or Officer, to the extent that the employee
has been successful on the merits or otherwise in defense of a
Proceeding, for all Expenses incurred in the Proceeding if the
employee was a Party because he or she is or was an employee of the
corporation. The rights to indemnification granted hereunder shall
not be deemed exclusive of any other rights to indemnification
against Liabilities or the advancement of Expenses which a Director,
Officer or employee may be entitled under any written agreement,
Board resolution, vote of shareholders, the Wisconsin Business
Corporation Law or otherwise. The corporation may, but shall not be
required to, supplement the foregoing rights to indemnification
against Liabilities and advancement of Expenses under this Section
7.01 by the purchase of insurance on behalf of any one or more of
such Directors, Officers or employees, whether or not the corporation
would be obligated to indemnify or advance Expenses to such Director,
Officer or employee under this Section 7.01. All capitalized terms
used in this Article VII and not otherwise defined herein shall have
the meaning set forth in Section 180.0850 of the Wisconsin Business
Corporation law. Notwithstanding anything herein to the contrary, in
no event shall the corporation indemnify any person hereunder in
contravention of any provision of the Investment Company Act of 1940.
7.02. Amendment. This Article VII may only be altered,
amended or repealed by the affirmative vote of not less than
two-thirds of the shareholders of the corporation so entitled to vote;
provided, however, that such shareholder authorization shall not be
required in the event such alteration or amendment:
(i) is made in order to conform to any amendment or
revision of the Wisconsin Business Corporation Law which expands
the Director's and/or Officer's rights to indemnification thereunder
or is otherwise beneficial to the Executive; or
(ii) in the sole judgment and discretion of the board of
directors of the corporation, does not materially adversely
affect the rights and protections of the shareholders of the
corporation.
C-2
<PAGE> 7
Item 28. Business and Other Connections of Investment Advisor
The information contained under "About the Funds - Management" in the
Prospectus and under "Directors and Officers of the Funds" and "Investment
Advisor and Distributor" in the Statement of Additional Information is hereby
incorporated by reference pursuant to Rule 411 under the Securities Act of
1933.
Item 29. Principal Underwriters
(a) Strong Funds Distributors, Inc., principal underwriter for
Registrant, also serves as principal underwriter for Strong Advantage Fund,
Inc.; Strong American Utilities Fund, Inc.; Strong Asia Pacific Fund, Inc.;
Strong Asset Allocation Fund, Inc.; Strong Common Stock Fund, Inc.; Strong
Corporate Bond Fund, Inc.; Strong Discovery Fund II, Inc.; Strong Discovery
Fund, Inc.; Strong Government Securities Fund, Inc.; Strong Growth Fund, Inc.;
Strong High-Yield Municipal Bond Fund, Inc.; Strong Insured Municipal Bond
Fund, Inc.; Strong International Bond Fund, Inc.; Strong International Stock
Fund, Inc.; Strong Money Market Fund, Inc.; Strong Municipal Bond Fund, Inc.;
Strong Opportunity Fund, Inc.; Strong Short-Term Bond Fund, Inc.; Strong
Short-Term Global Bond Fund, Inc.; Strong Short-Term Municipal Bond Fund, Inc.;
Strong Special Fund II, Inc.; Strong Total Return Fund, Inc.; and Strong U.S.
Treasury Money Fund, Inc.
(b) The information contained under "About the Funds - Management" in
the Prospectus and under "Directors and Officers of the Funds" and "Investment
Advisor and Distributor" in the Statement of Additional Information is hereby
incorporated by reference pursuant to Rule 411 under the Securities Act of
1933.
(c) None
Item 30. Location of Accounts and Records
All accounts, books, or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are in the physical possession of Registrant's Treasurer, Ronald A.
Neville, at Registrant's corporate offices, 100 Heritage Reserve, Menomonee
Falls, Wisconsin 53051.
Item 31. Management Services
All management-related service contracts entered into by Registrant
are discussed in Parts A and B of this Registration Statement.
Item 32. Undertakings
The Registrant undertakes to furnish to each person to whom a
prospectus is delivered, upon request and without charge, a copy of the
Registrant's latest annual report to shareholders.
C-3
<PAGE> 8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant hereby certifies that this Post-
Effective Amendment No. 10 meets all the requirements for effectiveness
pursuant to paragraph (b) of Rule 485 under the Securities Act of 1933, as
amended, and that it has duly caused this Post-Effective Amendment No. 10 to
the Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Village of Menomonee Falls, and
State of Wisconsin on the 13th day of April, 1995.
STRONG MUNICIPAL MONEY MARKET FUND, INC.
(Registrant)
BY: /s/ John Dragisic
-------------------------------
John Dragisic, Vice Chairman
Each person whose signature appears below constitutes and appoints John
Dragisic, Thomas P. Lemke, Lawrence A. Totsky, and Ann E. Oglanian, and each of
them, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all post-effective amendments to this
Registration Statement on Form N-1A and to file the same, with all exhibits
thereto, and any other documents in connection therewith, with the Securities
and Exchange Commission and any other regulatory body, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes, as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 10 to the Registration Statement on Form N-1A has
been signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ John Dragisic Vice Chairman of the Board (Principal
- ---------------------------------- Executive Officer) and a Director April 13, 1995
John Dragisic
/s/ Ronald A. Neville Treasurer (Principal Financial and
- ---------------------------------- Accounting Officer) April 13, 1995
Ronald A. Neville
/s/ Richard S. Strong Chairman of the Board and a Director April 13, 1995
- ----------------------------------
Richard S. Strong
/s/ Marvin E. Nevins Director April 13, 1995
- ----------------------------------
Marvin E. Nevins
/s/ Willie D. Davis Director April 13, 1995
- ----------------------------------
Willie D. Davis
/s/ William F. Vogt Director April 13, 1995
- ----------------------------------
William F. Vogt
/s/ Stanley Kritzik Director April 13, 1995
- ----------------------------------
Stanley Kritzik
</TABLE>
<PAGE> 9
EXHIBIT INDEX
<TABLE>
<CAPTION>
EDGAR
Exhibit No. Exhibit Exhibit No.
----------- ------- -----------
<S> <C> <C>
(1) Amended and Restated Articles of Incorporation EX-99.B1
(2) Restated By-Laws(3)
(2.1) Amendment to Restated By-Laws EX-99.B2.1
(3) Inapplicable
(4) Specimen Stock Certificate(1)
(5) Investment Advisory Agreement EX-99.B5
(6) Distribution Agreement(1)
(7) Inapplicable
(8) Custody Agreement(1)
(8.1) Amendment to Custody Agreement(2)
(9) Shareholder Servicing Agent Agreement(2)
(10) Inapplicable
(11) Consent of Auditor EX-99.B11
(12) Inapplicable
(13) Inapplicable
(14) Inapplicable
(15) Inapplicable
(16) Computation of Performance Figures EX-99.B16(4)
(17) Power of Attorney (See Signature Page)
(18) Letter of Representation EX-99.B18
(27) Financial Data Schedule EX-27.CLASSA
</TABLE>
- -----------------------------
(1) Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of Registrant.
(2) Incorporated herein by reference to Amendment No. 3 to the Registration
Statement on Form N-1A of Registrant. The Articles of Incorporation, as
amended, are incorporated by reference to Exhibit 1.1 to Amendment No. 3.
(3) Incorporated herein by reference to Amendment No. 5 to the Registration
Statement on Form N-1A of Registrant. The Restated By-Laws are
incorporated by reference to Exhibit 2.2 to Amendment No. 5.
(4) Incorporated herein by reference to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A of Registrant filed on or about
February 24, 1995.
<PAGE> 1
Ex-99.B1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF STRONG FUND, INC.
These Amended and Restated Articles of Incorporation are executed by the
undersigned to supersede and replace the heretofore existing Articles of
Incorporation of Strong Fund, Inc. [as amended] a corporation
organized under Chapter 180 of the Wisconsin Statutes:
ARTICLE I
The name of the corporation (hereinafter, the "Corporation") is:
Strong Fund, Inc.
ARTICLE II
The period of existence of the Corporation shall be perpetual.
ARTICLE III
The purpose for which the Corporation is organized is, without limitation,
to act as an investment company pursuant to the Investment Company Act of 1940,
as amended from time to time (the "Investment Company Act"), and for any other
purposes for which corporations may be organized under Chapter 180 of the
Wisconsin Statutes, as amended from time to time (the "WBCL").
ARTICLE IV
A. The aggregate number of shares which the Corporation shall have the
authority to issue is [(0,000,000,000)] with a par value of [
($0. )] per share, initially consisting of a single class designated as Common
Stock. Prior to the reclassification of any unissued shares of the
Corporation's Common Stock, such Common Stock shall have unlimited voting
rights as provided by the WBCL, shall be entitled to receive the net assets of
the Corporation upon liquidation and shall be entitled to such dividends or
distributions, in shares or in cash or in both, as may be declared from time to
time by the Board of Directors. The Board of Directors shall have the authority
to redesignate the outstanding Common Stock upon the reclassification of any
unissued shares of Common Stock into different classes and series of classes,
provided the redesignation does not affect the preferences, limitations, and
relative rights of outstanding shares of Common Stock (or such other
designation for such Common Stock as is determined by the Board of Directors
pursuant to this sentence) and upon such redesignation and reclassification,
outstanding shares shall be subject to subparagraphs 1-7 of paragraph B of this
Article IV. Thereafter, the Corporation's Common Stock shall consist of such
classes and series as is designated by the Board of Directors in accordance
with paragraph B of this Article IV.
B. The Board of Directors is authorized to classify or to reclassify
(i.e. into classes and series of classes), from time to time, any unissued
shares of the Corporation, whether now or hereafter authorized, by setting,
changing, or eliminating the distinguishing designation and the preferences,
limitations, and relative rights, in whole or in part, to the fullest extent
permissible under the WBCL.
Unless otherwise provided by the Board of Directors prior to the issuance
of shares, the shares of any and all classes and series shall be subject to the
following:
1. The Board of Directors may redesignate a class or series
whether or not shares of such class or series are issued and outstanding,
provided that such redesignation does not affect the preferences, limitations,
and relative rights, in whole or in part, of such class or series.
2. The assets and liabilities and the income and expenses for
each class shall be attributable to that class. The assets and liabilities and
the income and expenses of each series within a class shall be determined
separately
<PAGE> 2
and, accordingly, the net asset value of shares may vary from series to series
within a class. The income or gain and the expense or liabilities of the
Corporation shall be allocated to each class or series as determined by or
under the direction of the Board of Directors.
3. Shares of each class or series shall be entitled to such
dividends or distributions, in shares or in cash or both, as may be declared
from time to time by the Board of Directors with respect to such class or
series. Dividends or distributions shall be paid on shares of a class or series
only out of the assets belonging to that class or series.
4. Any shares redeemed by the Corporation shall be deemed to be
canceled and restored to the status of authorized but unissued shares of the
particular class or series.
5. In the event of the liquidation or dissolution of the
Corporation, the holders of a class or series shall be entitled to receive, as
a class or series, out of the assets of the Corporation available for
distribution to shareholders, the assets belonging to that class or series less
the liabilities allocated to that class or series. The assets so distributable
to the holders of a class or series shall be distributed among such holders in
proportion to the number of shares of that class or series held by them and
recorded on the books of the Corporation. In the event that there are any
assets available for distribution that are not attributable to any particular
class or series, such assets shall be allocated to all classes or series in
proportion to the net asset value of the respective class or series.
6. All holders of shares shall vote as a single class and series
except with respect to any matter which affects only one or more series or
class of shares, in which case only the holders of shares of the class or
series affected shall be entitled to vote.
7. For purposes of the Corporation's Registration Statement filed
with the Securities and Exchange Commission under the Securities Act of 1933
and the Investment Company Act of 1940, including all prospectuses and
Statements of Additional Information, and other reports filed under the
Investment Company Act of 1940, references therein to "classes" of the
Corporation's common stock shall mean "series", as used in these Articles of
Incorporation and the WBCL, and references therein to "series" shall mean
"class", as used in these Articles of Incorporation and the WBCL.
C. The Corporation may issue fractional shares. Any fractional shares
shall carry proportionately all the rights of whole shares, including, without
limitation, the right to vote and the right to receive dividends and
distributions.
D. The Board of Directors of the Corporation may authorize the issuance
and sale of any class or series of shares from time to time in such amount and
on such terms and conditions, for such purposes and for such amounts or kind of
consideration as the Board of Directors shall determine, subject to any limits
required by then applicable law. Nothing in this paragraph shall be construed
in any way as limiting the Board of Directors authority to issue the
Corporation's shares in connection with a share dividend under the WBCL.
E. Subject to the suspension of the right of redemption or postponement
of the date of payment or satisfaction upon redemption in accordance with the
Investment Company Act, each holder of any class or series of the Common Stock
of the Corporation, upon request and after complying with the redemption
procedures established by or under the supervision of the Board of Directors,
shall be entitled to require the Corporation to redeem out of legally available
funds all or any part of the Common Stock standing in the name of such holder
on the books of the Corporation at the net asset value (as determined in
accordance with the Investment Company Act) of such shares (less any applicable
redemption fee). Any such redeemed shares shall be cancelled and restored to
the status of authorized but unissued shares.
F. The Board of Directors may authorize the Corporation, at its option
and to the extent permitted by and in accordance with the Investment Company
Act, to redeem any shares of Common Stock of any class or series of the
Corporation owned by any shareholder under circumstances deemed appropriate by
the Board of Directors in its sole discretion from time to time, including
without limitation the failure to maintain ownership of a specified minimum
number or value of shares of common stock of any class or series of the
Corporation, at the net asset value (as determined in accordance with the
Investment Company Act) of such shares (less any applicable redemption fee).
<PAGE> 3
G. The Board of Directors of the Corporation may, upon reasonable notice
to the holders of Common Stock of any class or series of the Corporation,
impose a fee for the redemption of shares, such fee to be not in excess of the
amount set forth in the Corporation's then existing By-Laws and to apply in the
case of such redemptions and under such terms and conditions as the Board of
Directors shall determine. The Board of Directors shall have the authority to
rescind imposition of any such fee in its discretion and to reimpose the
redemption fee from time to time upon reasonable notice.
H. No holder of the Common Stock of any class or series of the
Corporation shall, as such holder, have any right to purchase or subscribe for
any shares of the Common Stock of any class or series of the Corporation which
it may issue or sell (whether out of the number of shares authorized by these
Articles of Incorporation, or out of any shares of the Common Stock of any
class or series of the Corporation acquired by it after the issue thereof, or
otherwise) other than such right, if any, as the Board of Directors, in its
sole discretion, may determine.
I. With respect to any class or series, the Board of Directors may adopt
provisions to seek to maintain a stable net asset value per share. Without
limiting the foregoing, the Board of Directors may determine that the net asset
value per share of any class or series should be maintained at a designated
constant value and may establish procedures, not inconsistent with applicable
law, to accomplish that result. Such procedures may include a requirement, in
the event of a net loss with respect to the particular class or series from
time to time, for automatic pro rata capital contributions from each
shareholder of that class or series in amounts sufficient to maintain the
designated constant share value.
ARTICLE V
The number of directors shall be fixed by the By-Laws of the Corporation.
ARTICLE VI
The Corporation reserves the right to enter into, from time to time,
investment advisory agreements providing for the management and supervision of
the investments of the Corporation, the furnishing of advice to the Corporation
with respect to the desirability of investing in, purchasing or selling
securities or other assets and the furnishing of clerical and administrative
services to the Corporation. Such agreements shall contain such other terms,
provisions and conditions as the Board of Directors of the Corporation may deem
advisable and as are permitted by the Investment Company Act.
The Corporation may, without limitation, designate distributors,
custodians, transfer agents, registrars and/or disbursing agents for the stock
and assets of the Corporation and employ and fix the powers, rights, duties,
responsibilities and compensation of each such distributor, custodian, transfer
agent, registrar and/or disbursing agent.
ARTICLE VII
If the Board of Directors redesignate the outstanding Common Stock in
accordance with paragraph A of Article IV, the Board of Directors shall
designate the Corporation with a generic name that is consistent with the name
of the first series and any subsequent series.
ARTICLE VIII
The registered office of the Corporation is located at 100 Heritage
Reserve, in the Village of Menomonee Falls, Waukesha County, Wisconsin 53051
and the name of the registered agent at such address is .
Executed this day of , 1995.
-----------------------------
[Name], Secretary
<PAGE> 1
EXHIBIT 99.B2.1
AMENDMENT TO BYLAWS
On January 20, 1995, the Board of Directors amended the second
sentence of Article III, Section 3.01 of the Bylaws of Strong _______ Fund,
Inc. dated ________ to read as follows:
"The number of directors of the corporation shall be six."
<PAGE> 1
Ex-99.B5
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made and entered into on this day of ,
19 , between STRONG , INC., a Wisconsin corporation (the
"Fund"), and STRONG CAPITAL MANAGEMENT, INC., a Wisconsin corporation (the
"Adviser");
WITNESSETH
WHEREAS, the Fund is registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940 (the "1940 Act");
WHEREAS, the Fund is authorized to create separate series, each with
its own separate investment portfolio; and,
WHEREAS, the Fund desires to retain the Adviser, which is a registered
investment adviser under the Investment Advisers Act of 1940, to act as
investment adviser for the Fund or each series of the Fund, if any, listed in
Schedule A attached hereto, and to manage each of their assets;
NOW, THEREFORE, the Fund and the Adviser do mutually agree and promise
as follows:
1. Employment. The Fund hereby appoints Adviser as investment
adviser for the Fund or each series of the Fund, if any, listed on Schedule A
attached hereto (a "Portfolio" or collectively, the "Portfolios"), and Adviser
accepts such appointment. Subject to the supervision of the Board of Directors
of the Fund and the terms of this Agreement, the Adviser shall act as
investment adviser for and manage the investment and reinvestment of the assets
of any Portfolio. The Adviser is hereby authorized to delegate some or all of
its services subject to necessary approval, which includes without limitation,
the delegation of its investment adviser duties hereunder to a subadvisor
pursuant to a written agreement (a "Subadvisory Agreement") under which the
subadvisor shall furnish the services specified therein to the Adviser. The
Adviser will continue to have responsibility for all investment advisory
services furnished pursuant to a Subadvisory Agreement. The Adviser shall (i)
provide for use by the Fund, at the Adviser's expense, office space and all
necessary office facilities, equipment and personnel for servicing the
investments of each Portfolio and maintaining the Fund's organization, (ii) pay
the salaries and fees of all officers and directors of the Fund who are
"interested persons" of the Adviser as such term is defined under the 1940 Act,
and (iii) pay for all clerical services relating to research, statistical and
investment work.
2. Allocation of Portfolio Brokerage. The Adviser is authorized,
subject to the supervision of the Board of Directors of the Fund, to place
orders for the purchase and sale of securities and to negotiate commissions to
be paid on such transactions. The Adviser may, on behalf of each Portfolio, pay
brokerage commissions to a broker which provides brokerage and research
services to the Adviser in excess of the amount another broker would have
charged for effecting the transaction, provided (i) the Adviser determines in
good faith that the amount is reasonable in relation to the value of the
brokerage and research services provided by the executing broker in terms of
the particular transaction or in terms of the Adviser's overall
responsibilities with respect to a Portfolio and the accounts as to which the
Adviser exercises investment discretion, (ii) such payment is made in
compliance with Section 28(e) of the Securities Exchange Act of
<PAGE> 2
1934 and other applicable state and federal laws, and (iii) in the opinion of
the Adviser, the total commissions paid by a Portfolio will be reasonable in
relation to the benefits to such Portfolio over the long term.
3. Expenses. Each Portfolio will pay all its expenses and the
Portfolio's allocable share of Fund expenses, other than those expressly stated
to be payable by the Adviser hereunder, which expenses payable by a Portfolio
shall include, 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,
expenses of printing and distributing prospectuses to existing shareholders,
charges of custodians (including sums as custodian and for keeping books and
similar services of the Portfolios), transfer agents (including the printing
and mailing of reports and notices to shareholders), registrars, auditing and
legal services, clerical services related to recordkeeping and shareholder
relations, printing of share certificates, fees for directors who are not
"interested persons" of the Adviser, and other expenses not expressly assumed
by the Adviser under Paragraph 1 above. If expenses payable by a Portfolio,
except interest charges, taxes, brokerage commissions and similar fees, and to
the extent permitted, extraordinary expenses, in any given fiscal year exceed
that percentage of the average net asset value of the Portfolio for such year,
as determined by valuations made as of the close of each business day of such
year, which is the most restrictive percentage expense limitation provided by
the laws of the various states in which the Portfolio's shares are qualified
for sale, or if the states in which the shares qualified for sale impose no
restrictions, then 2%, the Adviser shall reimburse the Portfolio for such
excess. Reimbursement of expenses by the Adviser shall be made on a monthly
basis and will be paid to a Portfolio by a reduction in the Adviser's fee,
subject to later adjustment month by month for the remainder of the Fund's
fiscal year.
4. Authority of Adviser. The Adviser shall for all purposes
herein be considered an independent contractor and shall not, unless expressly
authorized and empowered by the Fund or any Portfolio, have authority to act
for or represent the Fund or any Portfolio in any way, form or manner. Any
authority granted by the Fund on behalf of itself or any Portfolio to the
Adviser shall be in the form of a resolution or resolutions adopted by the
Board of Directors of the Fund.
5. Compensation of Adviser. For the services to be furnished
during any month by the Adviser hereunder, each Portfolio listed in Schedule A
shall pay the Adviser, and the Adviser agrees to accept as full compensation
for all services rendered hereunder, an Advisory Fee as soon as practical after
the last day of such month. The Advisory Fee shall be an amount equal to 1/12th
of the annual fee as set forth in Schedule B of the average of the net asset
value of the Portfolio determined as of the close of business on each business
day throughout the month (the "Average Asset Value"). In case of termination of
this Agreement with respect to any Portfolio during any month, the fee for that
month shall be reduced proportionately on the basis of the number of calendar
days during which it is in effect and the fee computed upon the Average Asset
Value of the business days during which it is so in effect.
6. Rights and Powers of Adviser. The Adviser's rights and powers
with respect to acting for and on behalf of the Fund or any Portfolio,
including the rights and powers of the Adviser's officers and directors, shall
be as follows:
2
<PAGE> 3
(a) Directors, officers, agents and shareholders of the Fund are
or may at any time or times be interested in the Adviser as officers,
directors, agents, shareholders or otherwise. Correspondingly, directors,
officers, agents and shareholders of the Adviser are or may at any time or
times be interested in the Fund as directors, officers, agents and as
shareholders or otherwise, but nothing herein shall be deemed to require the
Fund to take any action contrary to its Articles of Incorporation or any
applicable statute or regulation. The Adviser shall, if it so elects, also have
the right to be a shareholder in any Portfolio.
(b) Except for initial investments in a Portfolio, not in excess
of $100,000 in the aggregate for the Fund, the Adviser shall not take any long
or short positions in the shares of the Portfolios and that insofar as it can
control the situation it shall prevent any and all of its officers, directors,
agents or shareholders from taking any long or short position in the shares of
the Portfolios. This prohibition shall not in any way be considered to prevent
the Adviser or an officer, director, agent or shareholder of the Adviser from
purchasing and owning shares of any of the Portfolios for investment purposes.
The Adviser shall notify the Fund of any sales of shares of any Portfolio made
by the Adviser within two months after purchase by the Adviser of shares of any
Portfolio.
(c) The services of the Adviser to each Portfolio and the Fund are
not to be deemed exclusive and Adviser shall be free to render similar services
to others as long as its services for others does not in any way hinder,
preclude or prevent the Adviser from performing its duties and obligations
under this Agreement. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the part
of the Adviser, the Adviser shall not be subject to liability to the Fund or to
any of the Portfolios or to any shareholder for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
7. Duration and Termination. The following shall apply with
respect to the duration and termination of this Agreement:
(a) This Agreement shall begin for each Portfolio as of the date
of this Agreement and shall continue in effect for two years. With respect to
each Portfolio added by execution of an Addendum to Schedule A, the term of
this Agreement shall begin on the date of such execution and, unless sooner
terminated as hereinafter provided, this Agreement shall remain in effect to
the date two years after such execution. Thereafter, in each case, this
Agreement shall remain in effect, for successive periods of one year, subject
to the provisions for termination and all of the other terms and conditions
hereof if: (a) such continuation shall be specifically approved at least
annually by either (i) the affirmative vote of a majority of the Board of
Directors of the Fund, including a majority of the Directors who are not
parties to this Agreement or interested persons of any such party (other than
as Directors of the Fund), cast in person at a meeting called for that purpose
or (ii) by the affirmative vote of a majority of a Portfolio's outstanding
voting securities; and (b) Adviser shall not have notified a Portfolio in
writing at least sixty (60) days prior to the anniversary date of this
Agreement in any year thereafter that it does not desire such continuation with
respect to that Portfolio. Prior to voting on the renewal of this Agreement,
the Board of Directors of the Fund may request and evaluate, and the Adviser
shall furnish, such information as may reasonably be necessary to enable the
Fund's Board of Directors to evaluate the terms of this Agreement.
3
<PAGE> 4
(b) Notwithstanding whatever may be provided herein to the
contrary, this Agreement may be terminated at any time with respect to any
Portfolio, without payment of any penalty, by affirmative vote of a majority of
the Board of Directors of the Fund, or by vote of a majority of the outstanding
voting securities of that Portfolio, as defined in Section 2(a)(42) of the 1940
Act, or by the Adviser, in each case, upon sixty (60) days' written notice to
the other party and shall terminate automatically in the event of its
assignment.
8. Amendment. This Agreement may be amended by mutual consent of
the parties, provided that the terms of each such amendment shall be approved
by the vote of a majority of the Board of Directors of the Fund, including a
majority of the Directors who are not parties to this Agreement or interested
persons of any such party to this Agreement (other than as Directors of the
Fund) cast in person at a meeting called for that purpose, and, where required
by Section 15(a)(2) of the 1940 Act, on behalf of a Portfolio by a majority of
the outstanding voting securities (as defined in Section 2(a)(42) of the 1940
Act) of such Portfolio. If such amendment is proposed in order to comply with
the recommendations or requirements of the Securities and Exchange Commission
or state regulatory bodies or other governmental authority, or to obtain any
advantage under state or federal laws, the Fund shall notify the Adviser of the
form of amendment which it deems necessary or advisable and the reasons
therefor, and if the Adviser declines to assent to such amendment, the Fund may
terminate this Agreement forthwith.
9. Notice. Any notice that is required to be given by the parties
to each other under the terms of this Agreement shall be in writing, addressed
and delivered, or mailed postpaid to the other party at the principal place of
business of such party.
10. Assignment. This Agreement shall neither be assignable nor
subject to pledge or hypothecation and in the event of assignment, pledge or
hypothecation shall automatically terminate. For purposes of determining
whether an "assignment" has occurred, the definition of "assignment" in Section
2(a)(4) of the 1940 Act shall control.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed as of the day and year first stated above.
Attest: Strong Capital Management, Inc.
- ------------------------------------- -------------------------------------
[Name and Title] [Name and Title]
Attest: [Name of Fund]
- ------------------------------------- -------------------------------------
[Name and Title] [Name and Title]
4
<PAGE> 5
SCHEDULE A
The Portfolio(s) of Strong , Inc. currently subject to this
Agreement are as follows:
Date of Addition
Portfolio(s) to this Agreement
------------ -----------------
5
<PAGE> 6
SCHEDULE B
Compensation pursuant to Paragraph 5 of this Agreement shall be calculated in
accordance with the following schedules:
Portfolio(s) Annual Fee
------------ ----------
6
<PAGE> 1
Ex-99.B11
[Coopers & Lybrand L.L.P. Letterhead]
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Strong Municipal Money Market Fund, Inc.
We consent to the inclusion in Post-Effective Amendment No. 10 to the
Registration Statement of Strong Municipal Money Market Fund, Inc. on Form
N-1A of our report dated January 28, 1995 on our audit of the financial
statements and financial highlights of the Fund, which report is included in
the Annual Report to Shareholders for the year ended December 31, 1994, which
is also included in the Registration Statement. We also consent to the
reference to our Firm under the caption "Independent Accountants" in the
Statement of Additional Information and under the caption "Financial
Highlights" in the Prospectus.
/s/ COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
April 14, 1995
<PAGE> 1
EXHIBIT 99.B18
[Godfrey & Kahn, S.C. Letterhead]
April 14, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Strong Insured Municipal Bond Fund, Inc.
Gentlemen:
We represent Strong Insured Municipal Bond Fund, Inc. (the
"Fund") in connection with its filing of Post-Effective Amendment No. 6 (the
"Post-Effective Amendment") to the Fund's Registration Statement (Registration
Nos. 33-42775; 811-6410) on Form N-1A under the Securities Act of 1933 (the
"Securities Act") and the Investment Company Act of 1940. The Post-Effective
Amendment is being filed pursuant to Rule 485(b) under the Securities Act. We
have reviewed the Post-Effective Amendment and, in accordance with Rule 485(e)
under the Securities Act, hereby represent that the Post-Effective Amendment
does not contain disclosures which would render it ineligible to become
effective pursuant to Rule 485(b).
Very truly yours,
GODFREY & KAHN, S.C.
/S/ SCOTT A. MOEHRKE
--------------------
Scott A. Moehrke
SAM/ica
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000798169
<NAME> STRONG MUNICIPAL MONEY MARKET FUND, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 1,267,532
<INVESTMENTS-AT-VALUE> 1,267,532
<RECEIVABLES> 73,009
<ASSETS-OTHER> 291
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,340,832
<PAYABLE-FOR-SECURITIES> 74,887
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,328
<TOTAL-LIABILITIES> 80,215
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,260,617
<SHARES-COMMON-STOCK> 1,260,617
<SHARES-COMMON-PRIOR> 1,172,560
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,260,617
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 46,910
<OTHER-INCOME> 0
<EXPENSES-NET> (8,375)<F3>
<NET-INVESTMENT-INCOME> 38,535
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 38,535
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (38,535)<F3>
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,652,872
<NUMBER-OF-SHARES-REDEEMED> (2,599,328)<F3>
<SHARES-REINVESTED> 34,513
<NET-CHANGE-IN-ASSETS> 88,057
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (6,673)<F3>
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (8,562)<F3>
<AVERAGE-NET-ASSETS> 1,327,672
<PER-SHARE-NAV-BEGIN> 1.00<F1>
<PER-SHARE-NII> 0.03<F1>
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.03)<F1>
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00<F1>
<EXPENSE-RATIO> 0.6<F2>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Per share amounts not stated in 000's. Debit amounts stated as negative ().
<F2>Stated in percent.
<F3>All debits except assets shown as negative ().
</FN>
</TABLE>
