<PAGE> 1
Dear Shareholder:
The accompanying Combined Proxy Statement and Prospectus contains an important
proposal for your consideration as a shareholder of the Strong Insured Municipal
Bond Fund, Inc. (the "Insured Fund"). Your Board of Directors has proposed that
the Insured Fund be merged into the Strong Municipal Bond Fund, Inc. (the "Bond
Fund"). If approved by the shareholders of the Insured Fund, substantially all
of the Insured Fund's assets (less a reserve for liabilities) will be exchanged
for shares of the Bond Fund on August 30, 1996 (the "Closing Date"). On that
date, your Insured Fund shares will be exchanged for an equal dollar amount of
Bond Fund shares with no tax effect to you.
The Insured Fund was designed to seek a high level of federally tax-exempt
current income with a moderate amount of share-price fluctuation. In seeking to
achieve that objective, the Insured Fund has invested primarily in municipal
obligations that are insured as to timely payment of principal and interest.
However, because most municipal securities are now insurable, a fund
specializing in insured municipal obligations is no longer viewed by investors
as unique. As a result, investor interest in the Insured Fund has lagged its
competitive universe.
In light of the Insured Fund's comparatively small asset size, lack of expected
asset growth, and lack of economies of scale, the Board of Directors determined
that it would be appropriate to reorganize the Insured Fund into a larger
municipal bond fund. The Bond Fund was considered to be the most appropriate
fund because it has the same investment objectives, substantially similar
investment policies and restrictions, and the same portfolio manager. The Bond
Fund also offers attractive risk-adjusted returns and lower expense ratios than
the Insured Fund. ACCORDINGLY, THE BOARD OF DIRECTORS STRONGLY URGES YOU TO VOTE
FOR THE PROPOSED REORGANIZATION AND FOR THE RELATED PROPOSAL TO AMEND THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF THE INSURED FUND.
The enclosed materials provide more information about the proposals. Please read
this information carefully and call us if you have any questions. Our toll free
number is 1-800-368-0930.
Please know that your vote is important no matter how many shares you own. By
voting your shares early you will help us avoid costly follow-up mailings and
telephone solicitations.
After reviewing the enclosed materials, we ask that you vote FOR this proposed
reorganization and the related Articles of Amendment by completing, dating, and
signing your proxy card, and mailing it to us today.
Sincerely,
Richard S. Strong
Chairman
034
<PAGE> 2
STRONG INSURED MUNICIPAL BOND FUND, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of the Strong
Insured Municipal Bond Fund, Inc. (the "Insured Fund") will be held at 100
Heritage Reserve, Menomonee Falls, Wisconsin 53051, on Tuesday, August 27, 1996,
at 8:00 a.m., Central Time, to consider and act upon the proposals noted below
and to transact such other business as may properly come before the Special
Meeting or any adjournments thereof.
ITEM 1. To approve or disapprove an Agreement and Plan of Reorganization by
and among the Insured Fund, the Strong Municipal Bond Fund, Inc. (the "Bond
Fund") and, with respect to certain matters, Strong Capital Management,
Inc., and the transactions contemplated thereby.
ITEM 2. To approve or disapprove an amendment to the Amended and Restated
Articles of Incorporation of the Insured Fund to cancel all of the
outstanding shares of the Insured Fund and convert them into rights to
receive shares of the Bond Fund in accordance with the Reorganization
Agreement. Such amendment shall be subject to the approval of Proposal 1
above by the Insured Fund's shareholders.
Only shareholders of record at the close of business on June 18, 1996, the
record date for this Special Meeting, shall be entitled to vote at the Special
Meeting or any adjournments thereof.
<PAGE> 3
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY CARD PROMPTLY.
- --------------------------------------------------------------------------------
AS A SHAREHOLDER OF THE INSURED FUND, YOU ARE ASKED TO ATTEND THE SPECIAL
MEETING EITHER IN PERSON OR BY PROXY. IF YOU ARE UNABLE TO ATTEND THE SPECIAL
MEETING IN PERSON, WE URGE YOU TO COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED
PROXY IN THE ENCLOSED POSTAGE PREPAID ENVELOPE. YOUR PROMPT RETURN OF THE PROXY
WILL HELP ASSURE A QUORUM AT THE SPECIAL MEETING AND AVOID ADDITIONAL EXPENSES
TO THE INSURED FUND ASSOCIATED WITH FURTHER SOLICITATION. SENDING IN YOUR PROXY
WILL NOT PREVENT YOU FROM VOTING YOUR SHARES IN PERSON AT THE SPECIAL MEETING
AND YOU MAY REVOKE YOUR PROXY BY ADVISING THE SECRETARY OF THE INSURED FUND IN
WRITING (BY SUBSEQUENT PROXY OR OTHERWISE) OF SUCH REVOCATION AT ANY TIME BEFORE
IT IS VOTED.
- --------------------------------------------------------------------------------
By Order of the Board of Directors,
ANN E. OGLANIAN
Secretary
Menomonee Falls, Wisconsin
July 3, 1996
<PAGE> 4
STRONG MUNICIPAL BOND FUND, INC.
STRONG INSURED MUNICIPAL BOND FUND, INC.
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
Toll Free: (800) 368-0930
Device for the Hearing Impaired: (800) 999-2780
COMBINED PROXY STATEMENT AND PROSPECTUS
Dated July 3, 1996
This Combined Proxy Statement and Prospectus is furnished in connection
with the solicitation of proxies by the Board of Directors of the Strong Insured
Municipal Bond Fund, Inc. (the "Insured Fund") in connection with the Special
Meeting of Shareholders of the Insured Fund (the "Special Meeting") to be held
at 100 Heritage Reserve, Menomonee Falls, Wisconsin 53051, on Tuesday August 27,
1996, at 8:00 a.m. Central Time. At the Special Meeting, the shareholders of the
Insured Fund will be asked to approve or disapprove the following two proposals:
1. an Agreement and Plan of Reorganization, dated May 24, 1996 (the
"Reorganization Agreement"), by and among the Insured Fund, the Strong
Municipal Bond Fund, Inc. (the "Bond Fund") and, with respect to certain
matters, Strong Capital Management, Inc. (the "Advisor"), and the
transactions contemplated thereby (the "Reorganization"); and
2. an amendment to the Amended and Restated Articles of Incorporation of
the Insured Fund (the "Proposed Amendment") required in connection with
the Reorganization. Such amendment shall be subject to the approval of
Proposal 1 above by the Insured Fund's shareholders.
The Insured Fund and the Bond Fund are open-end management investment
companies. The Board of Directors of the Insured Fund, including the non-
interested Directors, has determined that it is in the best interests of the
Insured Fund and its shareholders to be reorganized into the Bond Fund. In
reaching that determination, the Board of Directors considered the small asset
size, the lack of expected asset growth of the Insured Fund, and the problems
related to the lack of economies of scale. The Board of Directors concluded that
each of these disadvantages would be addressed, to different degrees, by the
Reorganization as a result of combining the assets of the Insured Fund with the
assets of the Bond Fund. Further, the Board of Directors concluded that, among
other advantages, the Reorganization will provide Insured Fund shareholders with
an investment vehicle that has the same investment objectives, substantially
similar policies and restrictions, and the same portfolio manager, as the
Insured Fund and is likely both to reduce the expense ratios affecting Insured
Fund shareholders and provide attractive risk-adjusted returns.
1
<PAGE> 5
The Reorganization Agreement provides that, on the closing date for the
Reorganization (the "Closing Date"), which is currently scheduled to take place
August 30, 1996, substantially all of the property and assets of the Insured
Fund (except a reserve for certain expenses and liabilities) will be transferred
to the Bond Fund. In exchange, the Bond Fund will simultaneously issue its
shares ("Bond Fund Shares") to the Insured Fund. The Insured Fund will then make
a liquidating distribution of the Bond Fund Shares so received to the
shareholders of the Insured Fund, so that a holder of shares of the Insured Fund
("Insured Fund Shares") on the Closing Date will receive that number of full and
fractional Bond Fund Shares having a value equal to the value of the
shareholder's Insured Fund Shares immediately before the Closing Date. Following
the Reorganization, the Insured Fund will be deregistered as an investment
company under the Investment Company Act of 1940, as amended (the "1940 Act").
In addition, with respect to the Proposed Amendment, the Reorganization
Agreement provides that upon the closing of the Reorganization, all of the
outstanding shares of the Insured Fund will be canceled and converted into
rights to receive the liquidating distribution of Bond Fund Shares contemplated
under the Reorganization Agreement. If the shareholders approve the Proposed
Amendment but do not approve the Reorganization Agreement, or if for any other
reason the Reorganization is not completed, the Proposed Amendment will not go
into effect.
This Combined Proxy Statement and Prospectus sets forth concisely the
information that a shareholder of the Insured Fund should know before voting on
the Reorganization Agreement (and the transactions contemplated thereby) and the
Proposed Amendment, and should be retained for future reference. The
Reorganization Agreement is attached to this Combined Proxy Statement and
Prospectus as Exhibit A and is incorporated herein by reference.
A prospectus for the Bond Fund dated May 1, 1996, which describes the
investment program and operation of the Bond Fund, accompanies this Combined
Proxy Statement and Prospectus. (A prospectus for the Insured Fund, dated May 1,
1996, was previously provided to each Insured Fund shareholder.) Additional
information concerning the Bond Fund and the Insured Fund is set forth in the
Statement of Additional Information for each Fund, dated May 1, 1996. Moreover,
further information concerning the matters considered herein is set forth in the
Statement of Additional Information, dated July 3, 1996. Each of these documents
is on file with the Securities and Exchange Commission ("SEC"), and is available
without charge upon oral or written request by writing or calling the Insured
Fund or Bond Fund at the address and telephone numbers shown on the cover page
of this Combined Proxy Statement and Prospectus. The information contained in
each of these prospectuses and Statements of Additional Information is
incorporated herein by reference.
2
<PAGE> 6
The Combined Proxy Statement and Prospectus constitutes the proxy statement
of the Insured Fund for the Special Meeting of Shareholders and the prospectus
for the Bond Fund Shares, which have been registered with the SEC and are to be
issued in connection with the Reorganization.
The Notice, this Combined Proxy Statement and Prospectus, and the
accompanying proxy are expected to first be sent to shareholders of the Insured
Fund on or about July 3, 1996.
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 COMBINED PROXY STATEMENT AND PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROXY STATEMENT AND
PROSPECTUS AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND,
IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE INSURED FUND, THE BOND FUND, THE ADVISOR,
OR THE FUNDS' DISTRIBUTOR, STRONG FUNDS DISTRIBUTORS, INC.
VOTES REQUIRED: PROPOSALS 1 AND 2 SHALL BE APPROVED BY THE AFFIRMATIVE VOTE OF A
MAJORITY OF THE OUTSTANDING INSURED FUND SHARES.
3
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY
Proposed Reorganization and Reorganization Agreement.......... 6
Proposed Amendment............................................ 6
Reasons for Reorganization.................................... 7
Federal Income Tax Consequences............................... 8
Overview of the Insured Fund and the Bond Fund................ 8
Risk Considerations........................................... 11
1. TO APPROVE OR DISAPPROVE THE REORGANIZATION AGREEMENT........ 11
Description of the Reorganization Agreement................... 12
Board Consideration........................................... 14
Capitalization................................................ 16
Federal Income Tax Consequences............................... 16
Comparison of the Insured Fund and the Bond Fund.............. 17
Investment Objectives and Policies......................... 18
Investment Limitations..................................... 19
Purchase and Redemption Information, Exchange Privileges,
Distributions, Pricing and Organization.................. 19
Other Information.......................................... 20
2. TO APPROVE OR DISAPPROVE THE PROPOSED AMENDMENT.............. 20
Description of the Proposed Amendment......................... 21
Board Consideration........................................... 21
INFORMATION RELATING TO VOTING MATTERS.......................... 21
General Information........................................... 21
Shareholder and Board Approvals............................... 22
Appraisal Rights.............................................. 23
Quorum........................................................ 23
Annual Meetings............................................... 24
ADDITIONAL INFORMATION ABOUT EACH FUND.......................... 24
Directors and Officers........................................ 24
Financial Information for the Insured Fund.................... 25
Financial Information for the Bond Fund....................... 27
FINANCIAL STATEMENTS............................................ 29
OTHER BUSINESS.................................................. 29
SHAREHOLDER INQUIRIES........................................... 29
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reorganization.....A-1Exhibit B: Advisor's Investment Review for
the Funds..................................................... B-1
Exhibit C: Proposed Amendment to Amended and Restated Articles
of Incorporation of the Strong Insured Municipal Bond
Fund, Inc. .......................................... C-1
</TABLE>
5
<PAGE> 9
SUMMARY
The following is a summary of certain information relating to the proposed
Reorganization, the parties thereto, the transactions contemplated thereby and
the Proposed Amendment, and is qualified by reference to the more complete
information contained elsewhere in this Combined Proxy Statement and Prospectus
and the Statement of Additional Information hereto, the Prospectus and Statement
of Additional Information of each Fund, and the Reorganization Agreement dated
May 24, 1996, attached to this Combined Proxy Statement and Prospectus as
Exhibit A.
PROPOSED REORGANIZATION AND REORGANIZATION AGREEMENT.
Based upon their evaluations of the relevant information presented to them,
and in light of their fiduciary duties under federal and state law, the Funds'
Board of Directors, including all of the non-interested Directors, have
determined that the proposed Reorganization is in the best interests of the
shareholders of each Fund. The Board of Directors of the Insured Fund recommends
the approval of the Reorganization Agreement by the shareholders of the Insured
Fund at the Special Meeting.
Subject to shareholder approval, the Reorganization Agreement provides for:
(a) the transfer to the Bond Fund of substantially all of the property and
assets of the Insured Fund (except a reserve for certain expenses and
liabilities) (the "Insured Fund Net Assets") in exchange for Bond Fund Shares
equal in value to the Insured Fund Net Assets; (b) the distribution of the Bond
Fund Shares to the shareholders of the Insured Fund in liquidation of the
Insured Fund; (c) the cancellation of all outstanding Insured Fund Shares; and
(d) the deregistration of the Insured Fund as an investment company under the
1940 Act.
As a result of the proposed Reorganization, each shareholder of the Insured
Fund will become a shareholder of the Bond Fund and will hold, immediately after
the Closing Date, Bond Fund Shares having a net asset value equal to the net
asset value of the Insured Fund Shares held by the shareholder immediately
before the Closing Date with no tax effect.
For further information, see "1. To Approve or Disapprove the
Reorganization Agreement."
PROPOSED AMENDMENT.
Based upon their evaluation of the information presented to them, and in
light of their fiduciary duties, the Board of Directors of the Insured Fund,
including all of the non-interested Directors, have determined that the Insured
Fund's Amended and Restated Articles of Incorporation should be amended in
conjunction with shareholder approval of the Reorganization Agreement. The
6
<PAGE> 10
purpose of the Proposed Amendment is to cancel all of the outstanding shares of
the Insured Fund and to automatically convert them into rights to receive the
liquidating distribution of Bond Fund Shares contemplated under the
Reorganization Agreement. In considering this matter, the Board of Directors was
advised that the Proposed Amendment is necessary in order to effect the purpose
stated above.
If the shareholders approve the Proposed Amendment but do not approve the
Reorganization Agreement, or if for any other reason the Reorganization is not
completed, the Proposed Amendment will not go into effect. Moreover, if
shareholders approve the Reorganization but do not approve the Proposed
Amendment, the outstanding shares of the Insured Fund will not be canceled and
automatically converted into rights to receive the liquidating distribution of
the Bond Fund Shares contemplated by the Reorganization Agreement.
For further information, see "2. To Approve or Disapprove the Proposed
Amendment."
REASONS FOR REORGANIZATION.
In light of certain potential benefits and other factors, the Board of
Directors of the Insured Fund, including the non-interested Directors, has
determined that it is in the best interests of the Insured Fund and its
shareholders to reorganize into the Bond Fund. In making such determination, the
Board of Directors considered, among other things, the small asset size and lack
of expected asset growth of the Insured Fund, and the resulting problems
associated with the inability to achieve adequate economies of scale, including
relatively high expense ratios, as described more fully below under "1. To
Approve or Disapprove the Reorganization Agreement -- Board Consideration." The
Board of Directors felt that each of these problems would be addressed to
different degrees by the Reorganization.
In addition, among other advantages, the Board of Directors of the Insured
Fund felt that the Reorganization would: (a) provide an investment option that
has the same investment objectives, substantially similar investment policies
and restrictions, and the same portfolio manager, as the Insured Fund; (b)
likely reduce the overall expense ratios for the Insured Fund's shareholders;
and (c) be a tax-free event. The Board of Directors also considered the possible
risks and disadvantages of the Reorganization and determined that the
Reorganization is likely to provide benefits to the Insured Fund and its
shareholders that outweigh any possible risks and disadvantages of the
Reorganization. Finally, the Board of Directors concluded that there are no
significant risks or disadvantages to the Insured Fund or its shareholders from
the Reorganization and that the interests of the Insured Fund's shareholders
would not be diluted.
7
<PAGE> 11
Similarly, the Board of Directors of the Bond Fund, in approving the
Reorganization, determined that it would be advantageous for the Bond Fund and
its current shareholders to acquire substantially all of the assets of the
Insured Fund in exchange for Bond Fund Shares and that the interests of the Bond
Fund's existing shareholders would not be diluted.
FEDERAL INCOME TAX CONSEQUENCES.
Counsel for this transaction will issue an opinion as of the Closing Date
to the effect that the Reorganization will not give rise to the recognition of
income, gain, or loss for federal income tax purposes to the Insured Fund, the
Bond Fund, or their respective shareholders. See "1. To Approve or Disapprove
the Reorganization Agreement -- Federal Income Tax Consequences."
OVERVIEW OF THE INSURED FUND AND THE BOND FUND.
Investment Objectives and Policies. The investment objectives of the Funds
are the same and the investment policies and restrictions are substantially
similar. Both Funds seek total return by investing for a high level of federally
tax-exempt current income with a moderate degree of share-price fluctuation.
Both Funds are 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 Funds' debt
obligations, it is anticipated that each Fund will maintain an average portfolio
maturity of between 15 and 25 years.
The primary distinctions between the Funds are that: (a) the Insured Fund
primarily invests in municipal obligations that are insured for the timely
payment of principal and interest, whereas the Bond Fund is not required to
primarily invest in municipal obligations that are so insured; and (b) the Bond
Fund may invest in lower-rated securities than are permissible investments for
the Insured Fund. Under normal market conditions, at least 65% of the Insured
Fund's total assets will be invested in insured obligations. Up to 35% of the
Insured Fund's total assets may be invested in uninsured municipal obligations,
provided that at the time of purchase they are rated in the highest rating
category by any nationally recognized statistical rating organization ("NRSRO")
(e.g., bonds rated AAA by Standard & Poor's Rating Group ("S&P")) or, if
unrated, are determined by the Advisor to be of comparable quality. The Bond
Fund, on the other hand, invests at least 95% of its net assets in
investment-grade debt obligations, which range from those in the highest rating
category (e.g., bonds rated AAA by S&P) to those that are rated medium-quality
(e.g., bonds rated BBB or higher by S&P). In addition, unlike the Insured Fund,
the Bond Fund may invest up to 5% of its net 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).
8
<PAGE> 12
See "Summary -- Risk Considerations" and "1. To Approve or Disapprove the
Reorganization Agreement -- Comparison of the Insured Fund and the Bond Fund --
Investment Objectives and Policies" below for a further description of the
similarities and differences between the investment objectives, policies and
risks of the Insured Fund and the Bond Fund.
Certain Service Provider Arrangements. The Advisor serves as investment
adviser for both Funds and is entitled to receive a monthly management fee from
each Fund, computed on the basis of each Fund's average daily net asset value at
the following annual rates:
<TABLE>
<CAPTION>
Management Fee
(% of Average
Fund Daily Net Asset Value)
<S> <C>
- ---------------------------------------------------------------------
Insured Fund .50%
Bond Fund .60%
</TABLE>
Attached as Exhibit B to this Combined Proxy Statement and Prospectus are
copies of the Advisor's Investment Review for the Funds, which appeared in the
Annual Report for the Funds for the fiscal year ended December 31, 1995.
The Advisor also serves as transfer agent and dividend disbursing agent for
the Funds. In the case of both Funds, the Advisor is compensated based on an
annual fee of $31.50 per open account, plus out-of-pocket expenses. 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 in its capacity as
investment adviser to the Funds. In addition, the Advisor provides certain
printing and mailing services for the Funds.
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. In such cases, the Funds will not pay
fees based on the number of beneficial owners at a rate that is greater than the
rate the Funds are currently paying the Advisor for providing these services to
Fund shareholders.
Custodial services are provided to the Funds by Firstar Trust Company.
Strong Funds Distributors, Inc. (the "Distributor"), an indirect subsidiary
of the Advisor, serves as the distributor of each Fund's shares. Since the Funds
are "no-load" funds, no sales commissions are charged on the purchase of Fund
shares. The Distributor bears certain printing costs, advertising, and other
costs attributable to the distribution of each Fund's shares.
9
<PAGE> 13
Comparative Fee Table. The following table sets forth the current fees and
expenses of the Insured Fund and the Bond Fund as of December 31, 1995.
Excluding extraordinary expenses, the current fees and expenses of the Bond Fund
are expected to remain unchanged as a result of the Reorganization.
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
<TABLE>
<CAPTION>
Insured Fund Bond Fund
<S> <C> <C>
- ---------------------------------------------------------------------
Management Fees 0.50% 0.60%
12b-1 Fees NONE NONE
Other Operating Expenses 0.48% 0.23%
Total Fund Operating Expenses* 0.98% 0.83%
</TABLE>
- ---------------
* From time to time, the Advisor may voluntarily waive its management fee and/or
absorb certain expenses for the Funds. During each Fund's prior fiscal year,
however, the Advisor did not engage in any such voluntary fee waivers or
expense absorptions with respect to either Fund. Excluding extraordinary
expenses, each Fund's "Total Operating Expenses" as indicated above is
substantially consistent with its current operating expenses.
EXAMPLE: An investor in the Insured Fund or the Bond Fund would pay the
following expenses on a $1,000 investment, assuming (1) 5% annual return, and
(2) redemption at the end of the following periods.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------
Insured Fund $ 10 $31 $54 $120
Bond Fund $ 8 $26 $46 $103
</TABLE>
The Example is based on each Fund's "Total Fund Operating Expenses." 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 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.
Organization and Purchase and Redemption Policies. Both Funds are organized
as Wisconsin corporations. The purchase, redemption, dividend, and other
practices and procedures, including exchange rights, of the Funds are identical,
as described further below under "1. To Approve or Disapprove the Reorganization
Agreement -- Comparison of the Insured Fund and the Bond Fund."
10
<PAGE> 14
RISK CONSIDERATIONS.
The risks involved in investing in each Fund are in many respects similar,
given the similarities in the investment objectives and the types of securities
in which they may invest. There are differences, however, between certain of the
risk factors associated with the Insured Fund and the risk factors associated
with the Bond Fund.
Medium-Quality Investment Grade Debt Obligations. The Insured Fund may only
invest in municipal debt obligations that are either (a) insured as to timely
payment of principal and interest as described below or (b) uninsured, but rated
in the highest rating category by an NRSRO or, if unrated, determined by the
Advisor to be of comparable quality.
The Bond Fund, however, is permitted to invest in investment grade
securities of lesser credit quality, including medium-quality debt obligations.
Investment-grade debt obligations are generally believed to have relatively low
degrees of credit risk. However, medium-quality investment grade debt
obligations (e.g., bonds rated BBB or higher by S&P) 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.
Insurance. Under normal circumstances the Insured Fund is required to
invest at least 65% of its total assets in municipal obligations that are
insured for the timely payment of principal and interest. The Insured 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 Insured Fund's Board
of Directors. The Bond Fund, however, is not subject to any such requirement.
Accordingly, in the absence of such insurance, securities in which the Bond Fund
invests may involve more financial risk than the insured securities in which the
Insured Fund invests. On the other hand, 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.
1. TO APPROVE OR DISAPPROVE THE REORGANIZATION AGREEMENT
The terms and conditions under which the Reorganization may be consummated
are set forth in the Reorganization Agreement. Significant provisions of the
Reorganization Agreement are summarized below; however, this summary is
qualified in its entirety by reference to the Reorganization Agreement, a copy
of which is attached as Exhibit A to this Combined Proxy Statement and
Prospectus and incorporated herein by reference.
11
<PAGE> 15
DESCRIPTION OF THE REORGANIZATION AGREEMENT.
The Reorganization Agreement provides that at the Closing Date
substantially all of the property and assets of the Insured Fund will be
transferred to the Bond Fund free and clear of all liens, encumbrances, and
claims, except for cash or bank deposits (the "Reserve Account") in an amount
necessary: (a) to pay its costs and expenses of carrying out this Agreement
(including but not limited to fees of counsel and accountants, its income
dividend payable prior to the Closing Date, and expenses of its liquidation and
deregistration contemplated under the Reorganization Agreement); (b) to
discharge all of its unpaid liabilities (other than unamortized organizational
expenses) on its books and records at the Closing Date; and (c) to pay any
contingent liabilities, if any, that the Board of Directors of the Insured Fund
may reasonably deem to exist against the Insured Fund at the Closing Date. (The
property and assets to be transferred to the Bond Fund are referred to herein as
the "Insured Fund Net Assets.") Upon the satisfaction or other resolution of all
such liabilities and obligations, any amount remaining from the Reserve Account
will be transferred to the Bond Fund. The Advisor will waive, prior to the
Closing Date, all of the remaining unamortized organizational expense of the
Insured Fund reflected on the Insured Fund's books and records as of the Closing
Date.
In exchange for the transfer to the Bond Fund of the Insured Fund Net
Assets as described, the Bond Fund will simultaneously issue at the Closing Date
full and fractional Bond Fund Shares to the Insured Fund for distribution pro
rata by the Insured Fund to its shareholders. The number of Bond Fund Shares so
issued by the Bond Fund will have an aggregate net asset value equal to the
value of the Insured Fund Net Assets on the Closing Date.
Following the close of business on the Closing Date, the Insured Fund will
distribute pro rata to its shareholders the Bond Fund Shares received by the
Insured Fund in liquidation thereof. Each shareholder owning Insured Fund Shares
at the Closing Date will receive an amount of Bond Fund Shares equal to the
value of their Insured Fund Shares, plus the right to receive any dividends or
distributions which were declared before the Closing Date but that remained
unpaid at that time on the Insured Fund Shares. In connection with the
Reorganization, the Insured Fund will be deregistered as an investment company
under the 1940 Act.
The stock transfer books of the Insured Fund will be permanently closed as
of the close of business on the day immediately preceding the Closing Date.
Redemption requests, including sharedrafts, received thereafter by the Insured
Fund will be deemed to be redemption requests for Bond Fund Shares. If any
Insured Fund Shares held by a former Insured Fund shareholder are represented by
a share certificate, the certificate must be surrendered to the Bond Fund's
transfer agent for cancellation, or verification of such certificate's loss and
indemnification with respect to such loss must be established, before the Bond
12
<PAGE> 16
Fund Shares issued to the shareholder in the Reorganization can be redeemed or
transferred.
The Reorganization with respect to the Insured Fund is subject to a number
of conditions, including, among other things: (a) approval of the Reorganization
Agreement and the transactions contemplated thereby described in this Combined
Proxy Statement and Prospectus by the Insured Fund's shareholders; (b) the
receipt of certain legal opinions described in Sections 7 and 8 of the
Reorganization Agreement (which include a legal opinion that the Bond Fund
Shares issued to Insured Fund shareholders in accordance with the terms of the
Reorganization Agreement will be validly issued, fully paid, and non-assessable
and a legal opinion that the Reorganization will not give rise to the
recognition of income, gain, or loss for federal income tax purposes to the
Insured Fund, the Bond Fund, or their respective shareholders); (c) the receipt
of certain certificates from the parties concerning the continuing accuracy of
the representations and warranties in the Reorganization Agreement and other
matters; and (d) the parties' performance of their respective agreements and
undertakings in the Reorganization Agreement. Assuming satisfaction of the
conditions in the Reorganization Agreement, the Closing Date will be on August
30, 1996, or such other date as is agreed to by the parties.
The Reorganization Agreement provides that the parties shall each be
responsible for the payment of their own expenses incurred in connection with
the Reorganization (which expenses include the fees and disbursements of
attorneys and auditors, proxy printing, and solicitation expenses) and any
related transfer fees and brokerage fees.
The Reorganization Agreement and the Reorganization described herein may be
abandoned at any time prior to the Closing Date by the mutual consent of the
parties to the Reorganization Agreement. In such event, there shall be no
liability for damages on the part of either Fund, or their respective Boards of
Directors or officers, but each shall bear its own expenses incidental to the
preparation and carrying out of the Reorganization Agreement. The Reorganization
Agreement provides further that at any time prior to or after approval of the
Reorganization Agreement by the Insured Fund's shareholders, the Funds, by
written agreement, may amend, modify, or supplement the Reorganization
Agreement. The Reorganization Agreement further provides that no such amendment,
modification, or supplement may have the effect of changing the provisions for
determining the number of Bond Fund Shares to be distributed to Insured Fund
shareholders under the Reorganization Agreement to the detriment of the Insured
Fund shareholders, unless the Insured Fund shareholders approve such change or
unless the amendment merely changes the Closing Date.
13
<PAGE> 17
BOARD CONSIDERATION.
Based upon their evaluation of the relevant information presented to them,
and in light of their fiduciary duties under federal and state law, the Board of
Directors of the Insured Fund has unanimously determined that the proposed
Reorganization is in the best interest of the shareholders of the Insured Fund,
and recommends the approval of the Reorganization Agreement by such shareholders
at the Special Meeting. The following is a summary of the information that was
presented to, and considered by, the Board of Directors in making their
determination.
Initially, the Board of Directors, including the non-interested Directors,
reviewed several areas of concern regarding the Insured Fund. The Board of
Directors considered that the relatively small asset size of the Insured Fund
(a) had prevented it from realizing significant economies of scale in reducing
its expense ratio (absent waivers of fees and reimbursement of expenses by the
Advisor); and (b) had been a factor in causing its performance to lag its
competitors for certain more recent periods. The Board of Directors also
considered that, because of heightened competition in the insurance industry,
most municipal securities are now insurable. As a result, a fund such as the
Insured Fund that seeks to keep most of its assets in insured municipal
instruments is no longer unique and is therefore less attractive to investors.
Accordingly, the Board of Directors considered that there was little expectation
that the Insured Fund's assets would increase significantly, thereby reducing
its expense ratio.
The Board of Directors also considered as alternatives: (a) the complete
liquidation and dissolution of the Insured Fund; and (b) the reorganization of
the Insured Fund into another one of the Strong Mutual Funds. The Board of
Directors carefully considered the advantages and disadvantages of each
alternative and, in particular, the likelihood that either alternative would
address the asset size and growth problems of the Insured Fund and the tax
consequences and other effects that each alternative would have on the Insured
Fund shareholders.
The alternative that the Board of Directors felt offered the greatest
likelihood of addressing the asset size and growth problem and would be most
beneficial to the Insured Fund shareholders was the reorganization of the
Insured Fund into an investment company with an identical investment objective
and similar investment policies and restrictions. At a combined meeting of the
Board of Directors of the Funds held on April 24, 1996, the Board of Directors
of the Insured Fund considered the proposed Reorganization. During the course of
their review and deliberation, the Directors evaluated the potential benefits
and detriments to the Insured Fund and its shareholders. The Directors requested
and received from the Advisor written materials containing relevant information
about the Bond Fund and the proposed Reorganization, including fee structure
14
<PAGE> 18
and expense information, and yield and comparative performance data. The Advisor
also provided the Directors with historical asset growth information,
comparative expense ratio information, analyses of the benefits to the
shareholders of the Insured Fund resulting from the proposed Reorganization, and
a variety of other information relevant to the consideration of the proposed
Reorganization. In this regard, the Board of Directors evaluated the current
actual and contractual expense levels of the Bond Fund and compared such expense
levels with the current actual and contractual expense levels of the Insured
Fund and considered the anticipated expenses and charges of the Bond Fund after
the Reorganization that would be borne directly and indirectly by the
shareholders of the Insured Fund. (The Board of Directors noted that the Advisor
will waive all of the unamortized organizational expenses of $3,600 of the
Insured Fund.)
The Board of Directors also considered the additional efficiencies and
benefits for shareholders of the Insured Fund that are expected to result from
the Reorganization. These benefits include potential asset growth with resulting
economies of scale, such as lower per share expenses.
The Board of Directors considered the compatibility of the Funds'
investment objectives and policies and restrictions. In this regard, the Board
of Directors specifically considered the potential and actual additional risks
that shareholders of the Insured Fund would be subject to as shareholders of the
Bond Fund. The Board of Directors also considered those provisions of the
Reorganization Agreement relating to the price of shares to be exchanged.
The Board of Directors further noted that the Reorganization would result
in continuity of investment advisory, transfer agent, and distributor services,
since both Funds currently employ the Advisor as investment adviser and transfer
agent and the Distributor as distributor. The Board of Directors further noted
that the terms of the agreements governing the provision of those services to
the Funds are the same. The Board of Directors also noted that the purchase,
redemption, and shareholder services offered by the Funds are essentially
identical, and that, therefore, the Reorganization would result in continuity in
the level of such services to the Insured Fund's shareholders. The Board of
Directors noted further that no sales or other charges would be imposed on any
shares of the Bond Fund acquired by shareholders of the Insured Fund in
connection with the Reorganization and that it was the Bond Fund's intention to
remain a "no-load" fund.
Finally, the Board of Directors of the Insured Fund reviewed the terms of
the Reorganization Agreement. The Board of Directors noted that the Insured Fund
would be provided with an opinion of counsel for the transaction with respect to
the tax-free treatment of the Reorganization.
15
<PAGE> 19
Based upon their evaluation of the relevant information presented to them,
and in light of their fiduciary duties under federal and state law, the Insured
Fund's Board of Directors unanimously determined that the proposed
Reorganization was in the best interests of the Insured Fund and its
shareholders and that the interests of the Insured Fund shareholders will not be
diluted as a result of the proposed Reorganization, and recommended the approval
of the Reorganization Agreement by shareholders at the Special Meeting.
Similarly, at this same combined meeting of the Boards of Directors of the
Funds held on April 24, 1996, the Board of Directors of the Bond Fund considered
the proposed Reorganization with respect to the Bond Fund. Based upon their
evaluation of the relevant information provided to them, and in light of their
fiduciary duties under federal and state law, the Board of Directors unanimously
determined that (a) the proposed Reorganization was in the best interests of the
Bond Fund and its shareholders and (b) the interests of the existing Bond Fund
shareholders will not be diluted as a result of the proposed Reorganization.
CAPITALIZATION.
Because the Insured Fund will be combined in the reorganization with the
Bond Fund, the total capitalization of the Bond Fund after the Reorganization is
expected to be greater than the current capitalization of the Insured Fund. The
following table sets forth as of February 29, 1996: (i) the capitalization of
the Insured Fund; (ii) the capitalization of the Bond Fund; and (iii) the pro
forma capitalization of the Bond Fund as adjusted to give effect to the
Reorganization. If the Reorganization is consummated, the capitalization of the
Bond Fund is likely to be different at the Closing Date as a result of daily
share purchase and redemption activity in the Insured Fund and the Bond Fund.
<TABLE>
<CAPTION>
Pro Forma
Insured Fund Bond Fund Combined
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Total Net Assets $37,290,527 $239,294,111 $276,584,638
Shares Outstanding 3,544,370 25,624,596 29,617,158
Net Asset Value Per Share $10.52 $9.34 $9.34
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES.
Consummation of the Reorganization is subject to the condition that the
Funds receive an opinion from counsel to the Funds that for federal income tax
purposes: (i) the transfer of substantially all of the assets of the Insured
Fund (other than the Reserve Account) to the Bond Fund in exchange for Bond Fund
Shares, and the distribution to shareholders of the Insured Fund of the Bond
Fund Shares so received, as described in the Reorganization Agreement, will
constitute a reorganization within the meaning of Section 368(a)(1)(C) of the
16
<PAGE> 20
Internal Revenue Code of 1986, as amended ("Code"); (ii) in accordance with
Section 361(a), Section 361(c)(1) and Section 357(a) of the Code, no gain or
loss will be recognized by the Insured Fund or its shareholders as a result of
such transactions; (iii) in accordance with Section 1032(a) of the Code, no gain
or loss will be recognized by the Bond Fund or its shareholders as a result of
such transactions; (iv) in accordance with Section 354(a)(1) of the Code, no
gain or loss will be recognized by the shareholders of the Insured Fund on the
distribution to them by the Insured Fund of the Bond Fund Shares in exchange for
their Insured Fund Shares; (v) in accordance with Section 358(a)(1) of the Code,
the basis of the Bond Fund Shares received by a shareholder of the Insured Fund
will be the same as the basis of the shareholder's Insured Fund Shares
immediately before the Reorganization; (vi) in accordance with Section 362(b) of
the Code, the basis to the Bond Fund of the assets of the Insured Fund received
pursuant to such transactions will be the same as the basis of the assets in the
hands of the Insured Fund immediately before such transactions; (vii) in
accordance with Section 1223(l) of the Code, a shareholder's holding period for
Bond Fund Shares will be determined by including the period for which the
shareholder held the Insured Fund Shares exchanged therefor, provided that the
shareholder held such Insured Fund Shares as a capital asset; (viii) in
accordance with Section 1223(2) of the Code, the Bond Fund's holding period with
respect to the assets received in the Reorganization will include the period for
which such assets were held by the Insured Fund; (ix) subject to the conditions
and limitations specified in Sections 381, 382, 383 and 384 of the Code, the
Bond Fund will succeed to and take into account the items of the Insured Fund
described in Section 381(c) of the Code, including the earnings and profits, or
deficit in earnings and profits, of the Insured Fund as of the Closing Date, in
accordance with Section 381(a) of the Code and Treasury Regulation Section
1.381-1(a); and (x) any deficit in earnings and profits of the Insured Fund will
be used only to offset earnings and profits accumulated after the Closing Date.
The Funds have not sought a tax ruling from the Internal Revenue Service
("IRS"). The opinion of counsel is not binding on the IRS and does not preclude
the IRS from adopting a contrary position. Shareholders should consult their own
tax advisers concerning the potential tax consequences to them, including state
and local income tax consequences.
COMPARISON OF THE INSURED FUND AND THE BOND FUND.
The investment objectives and investment restrictions of both Funds are
identical and the investment policies of the Funds are, in many respects,
substantially similar. There are, however, some noteworthy differences. The
following discussion summarizes some of the more significant similarities and
differences in the investment policies of the Funds and is qualified in its
entirety
17
<PAGE> 21
by the discussion elsewhere herein, and in the prospectus and Statement of
Additional Information of each Fund which is incorporated herein by reference.
Investment Objectives and Policies. The investment objectives of the Funds
are fundamental, meaning that they may not be changed without a vote of the
holders of a majority of the particular Fund's outstanding shares. This section
describes certain policies that are common to the Insured Fund and the Bond Fund
and certain noteworthy differences.
Each Fund seeks total return by investing for a high level of federally
tax-exempt current income with a moderate degree of share-price fluctuation.
Both Funds are designed for long-term investors who wish 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 Funds' debt
obligations, it is anticipated that each Fund will maintain an average portfolio
maturity of between 15 and 25 years.
The Insured Fund invests primarily in long-term high-quality debt
obligations that are insured for the timely payment of principal and interest.
Under normal market conditions, the Insured 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 Insured Fund itself. The
Insured 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.
The Bond Fund invests at least 95% of its net assets in investment-grade
debt obligations, which range from those in the highest rating category to those
rated medium-quality. Medium-quality debt obligations are those rated in the
fourth highest category or obligations determined by the Advisor to be of
comparable quality. Medium-quality debt obligations, although considered
investment-grade, may have some speculative characteristics. The Bond Fund may
also invest up to 5% of its net assets in non-investment-grade debt obligations
and other "junk" bonds (e.g., bonds rated as low as C by S&P). Although such
bonds generally offer higher yields than investment-grade securities with
similar maturities, lower-quality securities involve greater risks, including
the possibility of default or bankruptcy.
Each Fund may also invest in 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
18
<PAGE> 22
investments such as mortgage- and asset-backed securities, loan participation,
convertible debt and zero coupon, step-coupon, and pay-in-kind securities. Each
Fund may also borrow funds and engage in mortgage dollar roll transactions and
reverse repurchase agreements. In order to facilitate portfolio liquidity, each
Fund may acquire standby commitments from brokers, dealers, or banks with
respect to securities in its portfolio. Each Fund may also invest without
limitation in securities purchased on a when-issued or delayed delivery basis.
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 may be used by the Funds for any lawful purpose,
including hedging or managing risk, 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.
Please see the prospectus for each Fund for further information concerning
each Fund's investment policies and risks.
Investment Limitations. Neither the Bond Fund nor the Insured Fund may
change its fundamental investment limitations without the affirmative vote of
the holders of a majority of its outstanding shares (as defined in the 1940
Act). However, investment limitations which are non-fundamental policies ("non-
fundamental" or "operating" policies) of the Funds may be changed by their
respective Boards of Directors without shareholder approval. The investment
limitations of the Bond Fund and the Insured Fund are identical and are set
forth in the Statements of Additional Information for the Funds. Please see the
Statement of Additional Information for further information concerning each
Fund's investment limitations.
Purchase and Redemption Information, Exchange Privileges, Distributions,
Pricing, and Organization. As of April 1, 1996, the Insured Fund was closed to
new investors and additional investment by existing investors, except in certain
limited circumstances. Accordingly, existing Insured Fund shareholders may only
acquire additional Insured Fund Shares through the reinvestment of dividends and
other distributions. The purchase price for shares acquired through such
reinvestment shall be the net asset price determined as of the close of business
on the record date of the dividend or distribution.
19
<PAGE> 23
Bond Fund Shares are sold on a continuous basis by the Distributor and may
be purchased directly by individuals and institutions or by broker-dealers,
financial institutions, or other service providers. Bond Fund Shares are sold on
a 100% no-load basis, meaning that shares may be purchased, redeemed, and
exchanged directly at net asset value without paying a sales charge. Broker-
dealers, financial institutions, and other service providers, however, may
charge an administrative fee on the purchase or redemption of Bond Fund Shares.
The purchase price will be net asset value next determined after the Bond Fund
receives the shareholder's request in proper form.
No sales charge will be imposed on the issuance of Bond Fund Shares in
connection with the Reorganization.
The minimum initial investment for the Bond Fund is $2,500 per account and
$250 for UGMA/UTMA Accounts. The minimum initial investment amount is waived for
shareholders who enroll in the Bond Fund's Automatic Investment Plan. The
minimum subsequent investment for the Bond Fund is $50 per account. Purchase
orders for shares of the Bond Fund are effected on any "business day", that is,
any day on which the New York Stock Exchange is open for trading. The Bond Fund
offers an automatic investment plan, payroll direct deposit plan, automatic
exchange plan, and systematic withdrawal plan in connection with the purchase
and redemption of its shares.
The Funds' policies, procedures, and restrictions concerning share
redemption and exchange, dividend payment, and the determination of net asset
value are identical, as set forth in the prospectus for each Fund. Please refer
to each prospectus for further information on these subjects.
Other Information. The Funds are registered as open-end management
investment companies under the 1940 Act. Currently, each Fund offers one
investment portfolio.
Each Fund is organized as a Wisconsin corporation and, as such, is subject
to the provisions of its respective Articles of Incorporation and Bylaws and to
the Wisconsin Business Corporation Law. The attributes of a share of common
stock of each Fund are identical, except that shares of the Insured Fund have a
per share par value of $.00001, whereas shares of the Bond Fund have a per share
par value of $.001.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 1.
2. TO APPROVE OR DISAPPROVE THE PROPOSED AMENDMENT.
Summarized below are the reasons for the Proposed Amendment and the
substance of the Proposed Amendment. However, this summary is qualified in its
entirety by reference to the Proposed Amendment, a copy of which is attached as
Exhibit C to this Combined Proxy Statement and Prospectus and incorporated
herein by reference.
20
<PAGE> 24
DESCRIPTION OF PROPOSED AMENDMENT.
The purpose of the Proposed Amendment is to, on the Closing Date of the
Reorganization, cancel all of the outstanding shares of the Insured Fund and to
automatically convert them into the right to receive full or fractional Bond
Fund Shares with a net asset value equal to the value of the Insured Fund
Shares, as described in the Reorganization Agreement. If the shareholders
approve the Proposed Amendment but do not approve the Reorganization Agreement,
or if for any other reason the Reorganization is not completed, the Proposed
Amendment will not go into effect. Moreover, if the shareholders approve the
Reorganization but do not approve the Proposed Amendment, the above-stated
purpose of the Proposed Amendment in connection with the Reorganization will not
be realized.
BOARD CONSIDERATION.
Based on their evaluation of the information presented to them, and in
light of their fiduciary duties, the Board of Directors of the Insured Fund have
unanimously determined that the Proposed Amendment is in the best interest of
the shareholders of the Insured Fund and recommend the approval of the Proposed
Amendment at the Special Meeting.
The Board was advised by counsel that the Proposed Amendment would be
necessary on the Closing Date to cancel the Insured Fund's outstanding shares in
connection with the Reorganization of the Insured Fund and the distribution of
Bond Fund Shares to the Insured Fund's shareholders, as contemplated under the
Reorganization Agreement.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 2
INFORMATION RELATING TO VOTING MATTERS
GENERAL INFORMATION.
This Combined Proxy Statement and Prospectus is being furnished in
connection with the solicitation of proxies by the Insured Fund's Board of
Directors in connection with the Special Meeting. It is expected that the
solicitation of proxies will be primarily by mail. Officers and service
contractors of the Funds may also solicit proxies by telephone, telegraph, or
personal interview. Any shareholder giving a proxy may revoke it at any time
before it is exercised by submitting to the Insured Fund a written notice of
revocation or a subsequently executed proxy or by attending the Special Meeting
and voting in person.
Only shareholders of record at the close of business on June 18, 1996, will
be entitled to vote at the Special Meeting. On that date there were outstanding
and
21
<PAGE> 25
entitled to be voted 3,080,515 shares of the Insured Fund. Each share or
fraction thereof is entitled to one vote or fraction thereof.
If the accompanying proxy is executed and returned in time for the Special
Meeting, the shares covered thereby will be voted in accordance with the proxy
on all matters that may properly come before the Special Meeting or any
adjournment thereof. For information on adjournment of the Special Meeting, see
"Quorum" below.
SHAREHOLDER AND BOARD APPROVALS.
The Reorganization Agreement (and the transactions contemplated thereby)
and the Proposed Amendment are being submitted at the Special Meeting for
approval by the shareholders of the Insured Fund. The approval of the holders of
a majority of the outstanding Insured Fund Shares is required for the approval
of each proposal, in accordance with the provisions of the Amended and Restated
Articles of Incorporation of the Insured Fund, and the requirements of the
Wisconsin Business Corporation Law. Abstentions will have the same effect as
casting a vote against the proposal.
The vote of the shareholders of the Bond Fund is not being solicited,
because their approval or consent is not required for the Reorganization to be
consummated or the Proposed Amendment to be approved.
The approval of the Reorganization Agreement by the respective Boards of
Directors of the Funds is discussed above under "1. To Approve or Disapprove the
Reorganization Agreement -- Board Consideration." The approval of the Proposed
Amendment by the Board of Directors of the Insured Fund is discussed above under
"2. To Approve or Disapprove the Proposed Amendment -- Board Consideration."
On June 18, 1996, the name, address, and share ownership of the persons who
beneficially owned 5% or more of the Insured Fund's outstanding shares, and the
percentage of shares that would be owned by such persons upon consummation of
the Reorganization based upon their holdings and outstanding shares on May 31,
1996, are as follows:
<TABLE>
<CAPTION>
Share Ownership
Share Ownership of Bond Fund after
Name/Address of Insured Fund Reorganization
- -------------------------------------------------------------------------
<S> <C> <C>
Mr. Ernest C. Styberg 171,348 190,344
6725 Brook Road (5.56%) (0.67%)
Franksville, WI 53126
</TABLE>
On June 18, 1996, the name, address, and share ownership of the persons who
beneficially owned 5% or more of the outstanding shares of the Bond Fund
22
<PAGE> 26
and the percentage of shares that would be owned by such persons upon
consummation of the Reorganization based upon their holdings and outstanding
shares on May 31, 1996, are as follows:
<TABLE>
<CAPTION>
Share Share Ownership
Ownership of Bond Fund after
Name/Address of Bond Fund Reorganization
- ------------------------------------------------------------------------
<S> <C> <C>
Charles Schwab & Co., Inc. 1,528,098 1,528,098
101 Montgomery Street (6.19%) (5.04%)
San Francisco, CA 94104
</TABLE>
On June 18, 1996, the directors and officers of the Bond Fund, as a group,
owned less than 1% of the outstanding shares of the Bond Fund. On June 18, 1996,
the directors and officers of the Insured Fund, as a group, owned less than 1%
of the outstanding shares of the Insured Fund.
APPRAISAL RIGHTS.
If the Reorganization is approved by the shareholders of the Insured Fund
at the Special Meeting, in accordance with Sections 180.1301-1331 of the
Wisconsin Business Corporation Law, shareholders will have the right to dissent
and obtain payment of fair value for the Insured Fund Shares. "Fair value",
under the Wisconsin Business Corporation Law, as applied to the Reorganization,
means the value of the Insured Fund Shares immediately before the Closing of the
Reorganization. However, the exercise of such appraisal rights by shareholders
is subject to the forward pricing requirements of Rule 22c-1 under the 1940 Act,
and that Rule supersedes contrary provisions of state law.
Consequently, shareholders have the right to redeem their Insured Fund
Shares at net asset value until the Closing Date and thereafter former Insured
Fund shareholders may redeem their Bond Fund Shares acquired in the
Reorganization at net asset value, subject to the forward pricing requirements
of Rule 22c-1 under the 1940 Act.
QUORUM.
In the event that a quorum is not present at the Special Meeting, or in the
event that a quorum is present at the Special Meeting but sufficient votes to
approve the Reorganization Agreement and the transactions contemplated thereby
are not received, the persons named as proxies may propose one or more
adjournments of the Special Meeting to permit further solicitation of proxies.
Any such adjournment will require the affirmative vote of a majority of those
shares affected by the adjournment that are represented at the Special Meeting
in person or by proxy. If a quorum is present, the persons named as proxies will
vote those proxies which they are entitled to vote FOR the Reorganization
23
<PAGE> 27
Agreement in favor of such adjournments, and will vote those proxies required to
be voted AGAINST such proposal against any adjournment. A quorum is constituted
by the presence in person or by proxy of the holders of more than 50% of the
outstanding Insured Fund Shares. Proxies properly executed and marked with a
negative vote or an abstention, or broker non-votes, will be considered to be
present at the Special Meeting for the purposes of determining the existence of
a quorum for the transaction of business. Broker non-votes exist where a broker
proxy indicates that the broker is not authorized to vote on a particular
proposal.
ANNUAL MEETINGS.
The Bond Fund does not presently intend to hold annual meetings of
shareholders for the election of directors and other business unless and until
such time as less than a majority of the directors holding office have been
elected by the shareholders, at which time the directors then in office will
call a shareholders' special meeting for the election of directors. Shareholders
have the right to call a special meeting of the shareholders to consider any
matter on which the shareholders properly may act, provided that such a matter
has been requested in writing by the holders of record of 10% or more of the
Bond Fund's outstanding shares of common stock entitled to vote on any issue
proposed to be considered at the special meeting and upon the payment to the
Fund by such shareholders of the reasonable estimated costs of preparing and
mailing the notice of the special meeting. To the extent required by law, the
Bond Fund will assist in shareholder communications on such matters.
ADDITIONAL INFORMATION ABOUT EACH FUND
The Insured Fund and the Bond Fund are each subject to the informational
requirements of the Securities Exchange Act of 1934 and the 1940 Act, as
applicable, and, in accordance with such requirements, file proxy materials,
reports, and other information with the SEC. These materials can be inspected
and copied at the Public Reference Facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, at the offices of the Bond Fund listed on
the first page hereof, and at the SEC's Regional Offices at 7 World Trade
Center, Room 1300, New York, New York 10007, and at the Everett McKinley Dirksen
Building, 219 S. Dearborn Street, Room 1204, Chicago, Illinois 60604. Copies of
such materials can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549, at prescribed rates.
DIRECTORS AND OFFICERS
The current directors and officers of the Bond Fund will continue as
directors and officers of the Bond Fund following the Reorganization. The Bond
24
<PAGE> 28
Fund's officers and directors also are officers and directors of the Insured
Fund. The current directors and officers of the Insured Fund will not continue
in such positions following the Reorganization, except to the extent that any
action may be required of them in connection with the winding up and
deregistration of the Insured Fund. Information concerning such persons is
contained in the Statement of Additional Information for each Fund.
FINANCIAL INFORMATION FOR THE INSURED FUND
Below are financial highlights for the Insured Fund as of the fiscal year
ended December 31, 1995. It is based on a single share outstanding through such
period. This information is derived from financial statements audited by Coopers
& Lybrand L.L.P., independent accountants to the Funds. The data should be read
in conjunction with the financial statements, related notes, and Coopers &
Lybrand L.L.P.'s report thereon which are included in the Annual Report
incorporated by reference in the Statement of Additional Information, dated July
3, 1996, for this Combined Proxy Statement and Prospectus.
25
<PAGE> 29
INSURED FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PER SHARE DATA AND RATIOS FOR
A SHARE OUTSTANDING THROUGHOUT
THE PERIOD INDICATED: 1995 1994 1993 1992 1991(a)
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $10.19 $11.46 $10.82 $10.28 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income 0.50 0.54 0.56 0.62 0.06
Net Realized and Unrealized
Gains (Losses) on
Investments 0.77 (1.27) 0.80 0.68 0.28
------- ------- ------- ------- ------
TOTAL FROM INVESTMENT
OPERATIONS 1.27 (0.73) 1.36 1.30 0.34
LESS DISTRIBUTIONS
From Net Investment
Income(b) (0.51) (0.54) (0.56) (0.62) (0.06)
In Excess of Net Investment
Income (0.28) -- -- -- --
From Net Realized Gains -- -- (0.16) (0.14) --
------- ------- ------- ------- ------
TOTAL DISTRIBUTIONS (0.79) (0.54) (0.72) (0.76) (0.06)
------- ------- ------- ------- ------
NET ASSET VALUE, END OF
PERIOD $10.67 $10.19 $11.46 $10.82 $10.28
======== ======== ======== ======== ======
Total Return +12.7% -6.5% +12.8% +13.1% +3.4%
Net Assets, End of Period (In
Thousands) $39,473 $51,024 $61,213 $21,367 $1,308
Ratio of Expenses to Average
Net Assets 1.0% 1.0% 0.6% 0.2% 0.5%*
Ratio of Expenses to Average
Net Assets Without Waivers
and Absorptions 1.0% 1.0% 0.9% 1.1% 1.0%*
Ratio of Net Investment
Income to Average Net
Assets 4.6% 5.0% 4.9% 5.8% 5.6%*
Portfolio Turnover Rate 724.9% 411.1% 110.7% 289.6% 24.2%
</TABLE>
- ---------------
* Calculated on an annualized basis.
(a) Inception date is November 25, 1991. Total return and portfolio turnover
rate are not annualized.
(b) Tax-exempt for regular Federal income tax purposes.
26
<PAGE> 30
FINANCIAL INFORMATION FOR THE BOND FUND
Below are financial highlights for the Bond Fund as of the fiscal year
ended December 31, 1995. It is based on a single share outstanding through such
period. This information is derived from financial statements for such period
audited by Coopers & Lybrand L.L.P., independent accountants to the Funds. The
data should be read in conjunction with the financial statements, related notes,
and Coopers & Lybrand L.L.P.'s report thereon which are included in the Annual
Report incorporated by reference in the Statement of Additional Information,
dated July 3, 1996, for this Combined Proxy Statement and Prospectus.
27
<PAGE> 31
BOND FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PER SHARE DATA
AND RATIOS FOR A
SHARE OUTSTANDING
THROUGHOUT THE
PERIOD INDICATED: 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986(a)
-------- -------- -------- -------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period $9.23 $10.25 $10.00 $9.76 $9.22 $9.47 $9.35 $9.16 $10.01 $10.00
INCOME FROM
INVESTMENT
OPERATIONS:
Net Investment
Income 0.52 0.56 0.58 0.65 0.65 0.66 0.52 0.49 0.67 0.12
Net Gains or
(Losses) on
Securities
(Both
Realized and
Unrealized) 0.51 (1.02) 0.57 0.50 0.54 (0.25) 0.12 0.19 (0.85) 0.01
-------- -------- -------- -------- -------- ------- ------- ------- ------- -------
TOTAL FROM
INVESTMENT
OPERATIONS 1.03 (0.46) 1.15 1.15 1.19 0.41 0.64 0.68 (0.18) 0.13
LESS
DISTRIBUTIONS
From Net
Investment
Income(b) (0.54) (0.56) (0.58) (0.65) (0.65) (0.66) (0.52) (0.49) (0.67) (0.12)
In Excess of
Net
Investment
Income (0.20) -- -- -- -- -- -- -- -- --
From Net
Realized
Gains -- -- (0.32) (0.26) -- -- -- -- -- --
-------- -------- -------- -------- -------- ------- ------- ------- ------- -------
TOTAL
DISTRIBUTIONS (0.74) (0.56) (0.90) (0.91) (0.65) (0.66) (0.52) (0.49) (0.67) (0.12)
-------- -------- -------- -------- -------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF PERIOD $9.52 $9.23 $10.25 $10.00 $9.76 $9.22 $9.47 $9.35 $9.16 $10.01
======== ======== ======== ======== ======== ======= ======= ======= ======= =======
Total Return +11.4% -4.6% +11.8% +12.2% +13.4% +4.6% +7.1% +7.6% -1.8% +1.3%
Net Assets, End
of Period (In
Thousands) $246,724 $279,808 $398,911 $289,751 $115,230 $31,560 $18,735 $18,275 $19,070 $2,212
Ratio of Expenses
to Average Net
Assets 0.8% 0.8% 0.7% 0.1% 0.1% 0.3% 1.7% 1.3% 1.0% 0.4%
Ratio of Expenses
to Average Net
Assets Without
Waivers and
Absorptions 0.8% 0.8% 0.8% 0.9% 1.1% 1.5% 1.8% 1.4% 1.3% 1.0%
Ratio of Net
Investment
Income to
Average Net
Assets 5.4% 5.8% 5.6% 6.4% 6.9% 7.2% 5.6% 5.3% 7.0% 6.4%
Portfolio
Turnover Rate 513.8% 311.0% 156.7% 324.0% 465.2% 586.0% 243.3% 343.6% 284.0% 21.9%
</TABLE>
- ---------------
* Calculated on an annualized basis.
(a) Inception date is October 23, 1986. Total return and portfolio turnover rate
are not annualized.
(b) Tax-exempt for regular Federal income tax purposes.
28
<PAGE> 32
INFORMATION INCLUDED IN THIS COMBINED PROXY STATEMENT AND PROSPECTUS
CONCERNING THE INSURED FUND WAS PROVIDED BY THE INSURED FUND AND THE ADVISOR.
INFORMATION INCLUDED IN THIS COMBINED PROXY STATEMENT AND PROSPECTUS CONCERNING
THE BOND FUND WAS PROVIDED BY THE BOND FUND AND THE ADVISOR.
FINANCIAL STATEMENTS
The financial statements and financial highlights of the Funds for the
fiscal year ended December 31, 1995, that are included in their respective
prospectuses and Statements of Additional Information and in the Statement of
Additional Information related to this Combined Proxy Statement and Prospectus
(and with respect to the financial highlights, that are included in this
Combined Proxy Statement and Prospectus) have been audited by Coopers & Lybrand
L.L.P., independent accountants, to the extent indicated in their reports
thereon, incorporated by reference or included in such prospectuses and
Statements of Additional Information. The financial statements and financial
highlights audited by Coopers & Lybrand L.L.P. and included in such prospectuses
and Statements of Additional Information have been included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
OTHER BUSINESS
The Board of Directors of the Insured Fund knows of no other business to be
brought before the Special Meeting. However, if any other matters come before
the Special Meeting, it is the intention that proxies which do not contain
specific restrictions to the contrary will be voted on such matters in
accordance with the judgment of the persons named in the enclosed form of proxy.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Insured Fund in writing at
the address on the cover page of this Combined Proxy Statement and Prospectus or
by telephoning 1-800-368-0930.
* * *
29
<PAGE> 33
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE SPECIAL MEETING ARE URGED TO
DATE AND SIGN THE ENCLOSED PROXY AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE
WHICH IS ADDRESSED FOR YOUR CONVENIENCE AND NEEDS NO POSTAGE IF MAILED IN THE
UNITED STATES. IN ORDER TO AVOID THE EXPENSE OF FURTHER SOLICITATION, WE ASK
YOUR COOPERATION IN COMPLETING AND RETURNING YOUR PROXY PROMPTLY.
By Order of the Board of Directors
ANN E. OGLANIAN
Secretary
Menomonee Falls, Wisconsin
July 3, 1996
30
<PAGE> 34
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 24th day of May, 1996, by and between Strong Insured Municipal Bond Fund,
Inc., a Wisconsin corporation (the "Acquired Fund"), and Strong Municipal Bond
Fund, Inc., a Wisconsin corporation (the "Acquiring Fund"). (The Acquiring Fund
and the Acquired Fund are sometimes referred to collectively as the "Funds" and
individually as a "Fund".)
This Agreement is intended to be and is adopted as a plan of reorganization
within the meaning of Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization ("Reorganization") will consist of the
transfer of substantially all of the property, assets, and goodwill of the
Acquired Fund to the Acquiring Fund in exchange solely for shares of the voting
common stock of the Acquiring Fund ("Acquiring Fund Shares"), followed by the
distribution by the Acquired Fund, on or promptly after the Closing Date, as
defined herein, of the Acquiring Fund Shares to the shareholders of the Acquired
Fund, the cancellation of all of the outstanding shares of the Acquired Fund
("Acquired Fund Shares") pursuant to an amendment of the Acquired Fund's Amended
and Restated Articles of Incorporation, and the liquidation and deregistration
of the Acquired Fund as provided herein, all upon the terms and conditions
hereinafter set forth in this Agreement.
In consideration of the premises of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE
FOR ACQUIRING FUND SHARES AND LIQUIDATION OF THE
ACQUIRED FUND
1.1 On the Closing Date for the Reorganization (the "Closing Date"), the
Acquired Fund shall transfer substantially all of its property and assets
(consisting, without limitation, of portfolio securities and instruments,
dividends and interest receivables, claims, cash, cash equivalents, deferred or
prepaid expenses shown as assets on the Acquired Fund's books, goodwill and
intangible property, books and records, and other assets), as set forth in the
statement of assets and liabilities referred to in Section 8.2 hereof (the
"Statement of Assets and Liabilities"), to the Acquiring Fund free and clear of
all liens, encumbrances, and claims, except for cash or bank deposits in an
amount necessary: (a) to pay its costs and expenses of carrying out this
Agreement (including but not limited to fees of counsel and independent
accountants, any income dividends payable prior to the Closing Date, and
expenses of its liquidation and deregistration contemplated hereunder); (b) to
discharge all of the unpaid liabilities (other than unamortized organizational
expenses) reflected on its books and records at
A-1
<PAGE> 35
the Closing Date; and (c) to pay such contingent liabilities, if any, as the
board of directors of the Acquired Fund shall reasonably deem to exist against
the Acquired Fund at the Closing Date, for which contingent and other
appropriate liability reserves shall be established on the Acquired Fund's
books. Any unspent portion of such cash or bank deposits retained shall be
delivered to the Acquiring Fund upon the deregistration of the Acquired Fund.
(The property and assets to be transferred to the Acquiring Fund under this
Agreement are referred to herein as the "Acquired Fund Net Assets".) In exchange
for the transfer of the Acquired Fund Net Assets, the Acquiring Fund shall
deliver to the Acquired Fund, for distribution pro rata by the Acquired Fund to
its shareholders as of the close of business on the Closing Date, a number of
the Acquiring Fund Shares having an aggregate net asset value equal to the value
of the Acquired Fund Net Assets, all determined as provided in Section 2 of this
Agreement and as of the date and time specified therein. Such transactions shall
take place on the Closing Date at the time of the closing provided for in
Section 3.1 of this Agreement (the "Closing Time").
1.2 The Acquired Fund reserves the right to purchase or sell any of its
portfolio securities, except to the extent such purchases or sales may be
limited by the representations made in connection with issuance of the tax
opinion described in Section 8.9 hereof.
1.3 On or promptly after the Closing Date, the Acquired Fund shall
liquidate and distribute pro rata to its shareholders of record at the Closing
Time on the Closing Date (the "Acquired Fund Shareholders") the Acquiring Fund
Shares received by the Acquired Fund pursuant to Section 1.1 hereof. (The date
of such liquidation and distribution is referred to as the "Liquidation Date.")
In addition, each Acquired Fund Shareholder shall have the right to receive any
dividends or other distributions that were declared prior to the Closing Date,
but unpaid at that time, with respect to the Acquired Fund Shares that are held
by such Acquired Fund Shareholders on the Closing Date. Such liquidation and
distribution shall be accomplished by Strong Capital Management, Inc. ("SCM"),
in its capacity as transfer agent for the Acquiring Fund, opening accounts on
the share records of the Acquiring Fund in the names of the Acquired Fund
Shareholders and transferring to each such Acquired Fund Shareholder account the
pro rata number of the Acquiring Fund Shares due each such Acquired Fund
Shareholder from the Acquiring Fund Shares then credited to the account of the
Acquired Fund on the Acquiring Fund's books and records. The Acquiring Fund
shall not issue certificates representing Acquiring Fund Shares in connection
with such exchange, except in accordance with the procedures set forth in the
Acquiring Fund's then-current Prospectus and Statement of Additional Information
or as provided in Section 1.4 hereof.
1.4 The Acquired Fund Shareholders holding certificates representing their
ownership of Acquired Fund Shares may be requested to surrender such
A-2
<PAGE> 36
certificates or deliver an affidavit with respect to lost certificates, in such
form and accompanied by such surety bonds as the Acquired Fund may require
(collectively, an "Affidavit"), to the Acquired Fund prior to the Closing Date.
On the Closing Date, any Acquired Fund Share certificates that remain
outstanding shall be deemed to be canceled. The Acquired Fund's transfer books
shall be closed permanently as of the close of business on the day immediately
prior to the Closing Date. All unsurrendered Acquired Fund Share certificates
shall no longer evidence ownership of common stock of the Acquired Fund and
shall be deemed for all corporate purposes to evidence ownership of the number
of Acquiring Fund Shares into which the Acquired Fund Shares were effectively
converted. Unless and until any such certificate shall be so surrendered or an
Affidavit relating thereto shall be delivered to the Acquiring Fund, dividends
and other distributions payable by the Acquiring Fund subsequent to the
Liquidation Date with respect to such Acquiring Fund Shares shall be paid to the
holder of such certificate(s), but such Shareholders may not redeem or transfer
Acquiring Fund Shares received in the Reorganization with respect to
unsurrendered Acquired Fund Share certificates.
1.5 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a
name other than the registered holder of the Acquiring Fund Shares on the books
of the Acquired Fund as of that time shall, as a condition of such issuance and
transfer, be paid by the person to whom such Acquiring Fund Shares are to be
issued and transferred.
1.6 As soon as practicable following the Liquidation Date, the Acquired
Fund shall take all steps necessary to prepare and file with the Securities and
Exchange Commission ("SEC") an application pursuant to Section 8(f) of the
Investment Company Act of 1940, as amended, ("1940 Act") for an order that it
has ceased to be an investment company.
2. VALUATION
2.1 The net asset value of the Acquiring Fund Shares and the value of the
Acquired Fund Net Assets shall in each case be determined as of the close of
regular trading on the New York Stock Exchange ("NYSE") on the Closing Date,
provided that on such date (a) the NYSE is open for unrestricted trading and (b)
no significant changes in interest rates are announced or otherwise occur. The
net asset value per share of Acquiring Fund Shares shall be computed in
accordance with the policies and procedures set forth in the then-current
Prospectus and Statement of Additional Information of the Acquiring Fund and
shall be computed to not fewer than two (2) decimal places. The value of the
Acquired Fund Net Assets shall be computed in accordance with the policies and
procedures set forth in the then-current Prospectus and Statement of Additional
Information of the Acquired Fund.
A-3
<PAGE> 37
2.2 In the event that on the proposed Closing Date trading or the reporting
of trading on the NYSE or elsewhere shall be disrupted (including as noted in
Section 2.1 concerning interest rates) so that accurate appraisal of the net
asset value of the Acquiring Fund or the value of the Acquired Fund Net Assets
is impracticable, the Closing Date shall be postponed until the first business
day when regular trading on the NYSE shall have been fully resumed and reporting
shall have been restored and other trading markets are otherwise stabilized.
2.3 The number of Acquiring Fund Shares to be issued (including fractional
shares, if any) in exchange for the Acquired Fund Net Assets shall be determined
by dividing the value of the Acquired Fund Net Assets by the Acquiring Fund's
net asset value per share, both as determined in accordance with Section 2.1
hereof.
2.4 All computations of value regarding the Funds shall be provided by SCM
and shall be certified by the Treasurer for each Fund.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be August 30, 1996 or such earlier or later date
as the parties may agree. The Closing Time shall be at 3:30 p.m., Central Time.
The Closing shall be held at the offices of SCM, 100 Heritage Reserve, Menomonee
Falls, Wisconsin 53051, or at such other time and/or place as the parties may
agree.
3.2 Portfolio securities that are not held in book-entry form shall be
transferred by Firstar Trust Company (the "Custodian") or its agents or nominees
from the Acquired Fund's account with the Custodian to the account of the
Acquiring Fund on the Closing Date, duly endorsed in proper form for transfer,
in such condition as to constitute good delivery thereof in accordance with the
custom of brokers, and shall be accompanied by all necessary federal and state
stock transfer stamps or a check for the appropriate purchase price thereof.
Portfolio securities held of record by the Custodian or its agents or nominees
in book-entry form on behalf of the Acquired Fund shall be transferred to the
Acquiring Fund by the Custodian by recording the transfer of beneficial
ownership thereof on its records and those of its agents and nominees. Any cash
of the Acquired Fund delivered on the Closing Date shall be in the form of
currency or shall be delivered on the Closing Date by the Custodian crediting
the Acquiring Fund's account maintained with the Custodian with immediately
available funds.
3.3 If any of the Acquired Fund Net Assets, for any reason, are not
transferred on the Closing Date, the Acquired Fund shall cause such assets to be
transferred to the Acquiring Fund in accordance with this Agreement at the
earliest practicable date thereafter.
A-4
<PAGE> 38
3.4 SCM, in its capacity as transfer agent for the Acquired Fund, shall
deliver to the Acquiring Fund at the Closing Time a list of the names,
addresses, federal taxpayer identification numbers, and backup withholding and
nonresident alien withholding status of Acquired Fund Shareholders and the
number of outstanding shares of common stock of the Acquired Fund owned by each
such Acquired Fund Shareholder, all as of the close of regular trading on the
NYSE on the Closing Date, certified by an appropriate officer of SCM (the
"Shareholder List"). SCM, in its capacity as transfer agent for the Acquiring
Fund, shall issue and deliver to the Acquired Fund a confirmation evidencing the
Acquiring Fund Shares to be credited to each Acquired Fund Shareholder on the
Liquidation Date, or provide evidence satisfactory to the Acquired Fund that
such Acquiring Fund Shares have been credited to each Acquired Fund
Shareholder's account on the books of the Acquiring Fund. At the Closing, each
Fund shall deliver to the other Fund such bills of sale, checks, assignments,
certificates, receipts, or other documents as the other Fund or its counsel may
reasonably request.
4. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRED
FUND
The Acquired Fund represents and warrants to the Acquiring Fund as follows:
4.1 The Acquired Fund is a corporation duly organized, validly existing,
and in "good standing" under the laws of the State of Wisconsin (meaning it has
filed its most recent annual report and has not filed articles of dissolution)
and has the power to own all of its properties and assets and, subject to
approval of the Acquired Fund Shareholders, to perform its obligations under
this Agreement and to consummate the transactions contemplated herein. The
Acquired Fund is not required to qualify to do business in any jurisdiction in
which it is not so qualified or where failure to qualify would not subject it to
any material liability or disability. The Acquired Fund has all necessary
federal, state, and local authorizations, consents, and approvals required, to
own all of its properties and assets and to carry on its business as now being
conducted and to consummate the transactions contemplated herein.
4.2 The Acquired Fund is a registered investment company classified as a
management company of the open-end diversified type and its registration with
the SEC as an investment company under the 1940 Act is in full force and effect.
4.3 The execution, delivery, and performance of this Agreement have been
duly authorized by all necessary action on the part of the Acquired Fund's Board
of Directors, and this Agreement constitutes a valid and binding obligation of
the Acquired Fund, subject to the approval of the Acquired Fund Shareholders,
enforceable in accordance with its terms, subject as to enforcement to
bankruptcy, insolvency, reorganization, arrangement, moratorium, and other
similar
A-5
<PAGE> 39
laws of general applicability relating to or affecting creditors' rights and to
general equity principles.
4.4 The Acquired Fund is not, and the execution, delivery, and performance
of this Agreement by the Acquired Fund will not result, in violation of any
provision of the Amended and Restated Articles of Incorporation or Bylaws of the
Acquired Fund or of any agreement, indenture, instrument, contract, lease, or
other arrangement or undertaking to which the Acquired Fund is a party or by
which it is bound.
4.5 The Acquired Fund has elected to be treated as a regulated investment
company ("RIC") for federal income tax purposes under Part I of Subchapter M of
the Code, has qualified as a RIC for each taxable year of its operations, and
will continue to qualify as a RIC as of the Closing Date and with respect to its
final taxable year ending upon its liquidation.
4.6 The financial statements of the Acquired Fund for the fiscal year ended
December 31, 1995, and each of its previous two fiscal years (which were audited
by its independent accountants) (copies of which have been furnished to the
Acquiring Fund), present fairly the financial position of the Acquired Fund as
of the date indicated and the results of its operations and changes in net
assets for the respective stated periods (in accordance with generally accepted
accounting principles consistently applied).
4.7 The Prospectus of the Acquired Fund, dated May 1, 1996, and the
corresponding Statement of Additional Information, dated May 1, 1996, do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and any
amended, revised, or new Prospectus or Statement of Additional Information of
the Acquired Fund or any supplement thereto, that is hereafter filed with the
SEC (copies of which documents shall be provided to the Acquiring Fund promptly
after such filing), shall not contain any untrue statement of a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
4.8 No material legal or administrative proceeding or investigation of or
before any court or governmental body is currently pending or, to its knowledge,
threatened as to the Acquired Fund or any of its properties or assets. The
Acquired Fund knows of no facts which might form the basis for the institution
of such proceedings. The Acquired Fund is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body
which materially and adversely affects its business or its ability to consummate
the transactions herein contemplated.
4.9 The Acquired Fund has furnished the Acquiring Fund with copies or
descriptions of all agreements or other arrangements to which the Acquired Fund
A-6
<PAGE> 40
is a party. The Acquired Fund has no material contracts or other commitments
(other than this Agreement or agreements for the purchase of securities entered
into in the ordinary course of business and consistent with its obligations
under this Agreement) which will not be terminated by the Acquired Fund in
accordance with its terms at or prior to the Closing Date.
4.10 The Acquired Fund does not have any known liabilities of a material
amount, contingent or otherwise, other than those reflected in the financial
statements referred to in Section 4.6 hereof and those incurred in the ordinary
course of business as an investment company since the dates of those financial
statements. On the Closing Date, the Acquired Fund shall advise the Acquiring
Fund in writing of all of the Acquired Fund's known liabilities, contingent or
otherwise, whether or not incurred in the ordinary course of business, existing
or accrued at such time.
4.11 Since December 31, 1995, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of its business.
4.12 At the date hereof and by the Closing Date, all federal, state, and
other tax returns and reports, including information returns and payee
statements, of the Acquired Fund required by law to have been filed or furnished
by such dates shall have been filed or furnished, or extensions concerning such
tax returns and reports shall have been obtained, and all federal, state, and
other taxes, interest, and penalties shall have been paid so far as due, or
adequate provision shall have been made on the Acquired Fund's books for the
payment thereof, and to the best of the Acquired Fund's knowledge no such tax
return is currently under audit and no tax deficiency or liability has been
asserted with respect to such tax returns or reports by the Internal Revenue
Service or any state or local tax authority.
4.13 At the Closing Date, the Acquired Fund will have good and marketable
title to the Acquired Fund Net Assets, and subject to approval by the Acquired
Fund Shareholders, full right, power and authority to sell, assign, transfer,
and deliver such assets hereunder, and upon delivery and in payment for such
assets, the Acquiring Fund will acquire good and marketable title thereto
subject to no liens or encumbrances of any nature whatsoever or restrictions on
the ownership or transfer thereof, except (a) such imperfections of title or
encumbrances as do not materially detract from the value or use of the assets
subject thereto, or materially affect title thereto, or (b) such restrictions as
might arise under federal or state securities laws or the rules and regulations
thereunder.
4.14 No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired Fund of
the transactions contemplated by this Agreement, except such as may be required
under the federal or state securities laws or the rules and regulations
thereunder.
A-7
<PAGE> 41
4.15 The Combined Proxy Statement/Prospectus of the Funds referred to in
Section 6.8 hereof (the "Proxy Statement/Prospectus") to be included in the Form
N-14 Registration Statement referred to in Section 6.7 hereof and any Prospectus
or Statement of Additional Information of the Acquired Fund contained or
incorporated by reference in the Form N-14 Registration Statement, and any
supplement or amendment to such documents (other than written information
furnished by the Acquiring Fund for inclusion therein, as covered by the
Acquiring Fund's warranty in Section 5.18 hereof), on the effective and
clearance dates of the Form N-14 Registration Statement, on the date of the
Special Meeting of Acquired Fund Shareholders, and on the Closing Date: (a)
shall comply in all material respects with the provisions of the Securities
Exchange Act of 1934 (the "1934 Act"), the 1940 Act, the rules and regulations
thereunder, and all applicable state securities laws and rules and regulations
thereunder; and (b) shall not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein in light of the circumstances under which such
statements were made, not misleading.
4.16 All of the issued and outstanding shares of common stock of the
Acquired Fund are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable, except to the extent provided in
Section 180.0622(2)(b) of the Wisconsin Statutes, or any successor provision,
which provides that shareholders of a corporation organized under Chapter 180 of
the Wisconsin Statutes may be assessed up to the par value of their shares to
satisfy the obligations of such corporation to its employees for services
rendered, but not exceeding six months in the case of any individual employee.
All of the issued and outstanding shares of common stock of the Acquired Fund
will, at the time of Closing, be held by the persons and in the amounts set
forth in the Shareholder List.
4.17 All of the issued and outstanding shares of common stock of the
Acquired Fund have been offered for sale and sold in conformity, in all material
respects, with all applicable federal and state securities laws, including the
registration or exemption from registration of such shares, except as may have
been previously disclosed in writing to the Acquiring Fund.
4.18 The Acquired Fund is not under the jurisdiction of a Court in Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
4.19 The information to be furnished by the Acquired Fund for use in
preparing applications for orders, the Form N-14 Registration Statement, proxy
materials, and other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete and shall comply
in all material respects with federal securities and other laws and regulations
thereunder applicable thereto.
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<PAGE> 42
4.20 There is no intercorporate indebtedness existing between the Acquired
Fund and the Acquiring Fund that was issued, acquired, or will be settled at a
discount.
5. REPRESENTATIVES AND WARRANTIES OF THE ACQUIRING
FUND
The Acquiring Fund represents and warrants to the Acquired Fund as follows:
5.1 The Acquiring Fund is a corporation duly organized, validly existing,
and in "good standing" under the laws of the State of Wisconsin (meaning it has
filed its most recent annual report and has not filed articles of dissolution)
and has the power to own all of its properties and assets and to perform its
obligations under this Agreement and to consummate the transactions contemplated
herein. The Acquiring Fund is not required to qualify to do business in any
jurisdiction in which it is not so qualified or where failure to qualify would
not subject it to any material liability or disability. The Acquiring Fund has
all necessary federal, state, and local authorizations, consents, and approvals
required to own all of its properties and assets and to carry on its business as
now being conducted and to consummate the transactions contemplated herein.
5.2 The Acquiring Fund is a registered investment company classified as a
management company of the open-end diversified type and its registration with
the SEC as an investment company under the 1940 Act is in full force and effect.
5.3 The execution, delivery, and performance of this Agreement have been
duly authorized by all necessary action on the part of the Acquiring Fund's
Board of Directors, and this Agreement constitutes a valid and binding
obligation of the Acquiring Fund enforceable in accordance with its terms,
subject as to enforcement to bankruptcy, insolvency, reorganization,
arrangement, moratorium, and other similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
5.4 The Acquiring Fund is not, and the execution, delivery, and performance
of this Agreement by the Acquiring Fund will not result, in violation of any
provisions of the Amended and Restated Articles of Incorporation or Bylaws of
the Acquiring Fund or of any agreement, indenture, instrument, contract, lease,
or other arrangement or undertaking to which the Acquiring Fund is a party or by
which it is bound.
5.5 The Acquiring Fund has elected to be treated as a RIC for federal
income tax purposes under Part I of Subchapter M of the Code, has qualified as a
RIC for each taxable year since its inception, and will qualify as a RIC as of
the Closing Date.
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5.6 The financial statements of the Acquiring Fund, for the fiscal year
ended December 31, 1995, and each of its previous two fiscal years (which were
audited by its independent accountants) (copies of which have been furnished to
the Acquired Fund), present fairly the financial position of the Acquiring Fund
as of the dates indicated and the results of its operations and changes in net
assets for the respective stated periods (in accordance with generally accepted
accounting principles consistently applied).
5.7 The Prospectus of the Acquiring Fund, dated May 1, 1996, and its
Statement of Additional Information, dated May 1, 1996, do not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and any amended,
revised, or new Prospectus or Statement of Additional Information of the
Acquiring Fund or any supplement thereto, that is hereafter filed with the SEC
(copies of which documents shall be provided to the Acquired Fund promptly after
such filing), shall not contain any untrue statement of a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
5.8 No material legal or administrative proceeding, or investigation of or
before any court or governmental body is currently pending or, to its knowledge,
threatened as to the Acquiring Fund or any of its properties or assets. The
Acquiring Fund knows of no facts which might form the basis for the institution
of such proceedings. The Acquiring Fund is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body
which materially and adversely affects the Acquiring Fund's business or its
ability to consummate the transactions herein contemplated.
5.9 The Acquiring Fund does not have any known liabilities of a material
amount, contingent or otherwise, other than those reflected in the financial
statements referred to in Section 5.6 hereof and those incurred in the ordinary
course of business as an investment company since the dates of those financial
statements. On the Closing Date, the Acquiring Fund shall advise the Acquired
Fund in writing of all of the Acquiring Fund's known liabilities, contingent or
otherwise, whether or not incurred in the ordinary course of business, existing
or accrued at such time.
5.10 Since December 31, 1995, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of its business.
5.11 At the date hereof and by the Closing Date, all federal, state, and
other tax returns and reports, including information returns and payee
statements, of the Acquiring Fund required by law to have been filed or
furnished by such dates shall have been filed or furnished or extensions
concerning such tax returns and
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<PAGE> 44
reports shall have been obtained, and all federal, state, and other taxes,
interest, and penalties shall have been paid so far as due, or adequate
provision shall have been made on the Acquiring Fund's books for the payment
thereof, and to the best of the Acquiring Fund's knowledge no such tax return is
currently under audit and no tax deficiency or liability has been asserted with
respect to such tax returns or reports by the Internal Revenue Service or any
state or local tax authority.
5.12 No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring Fund of
the transactions contemplated by the Agreement, except for the registration of
the Acquiring Fund Shares under the Securities Act of 1933 (the "1933 Act"), the
1940 Act, and under state securities laws, or as may otherwise be required under
the federal and state securities laws or the rules and regulations thereunder.
5.13 The Form N-14 Registration Statement referred to in Section 6.7 hereof
(other than written information furnished by the Acquired Fund for inclusion
therein as covered by the Acquired Fund's warranty in Section 4.19 hereof) and
any Prospectus or Statement of Additional Information of the Acquiring Fund
contained or incorporated therein by reference, and any supplement or amendment
to the Form N-14 Registration Statement or any such Prospectus or Statement of
Additional Information, on the effective and clearance dates of the Form N-14
Registration Statement, on the date of the Special Meeting of the Acquired Fund
Shareholders, and on the Closing Date: (a) shall comply in all material respects
with the provisions of the 1934 Act, the 1940 Act, the rules and regulations
thereunder, and all applicable state securities laws and the rules and
regulations thereunder; and (b) shall not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which the statements were made, not misleading.
5.14 All of the issued and outstanding shares of common stock of the
Acquiring Fund are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable, except to the extent provided in
Section 180.0622(2)(b) of the Wisconsin Statutes (which is summarized in Section
4.16 of this Agreement), or any successor provision.
5.15 All of the issued and outstanding shares of common stock of the
Acquiring Fund have been offered for sale and sold in conformity, in all
material respects, with all applicable federal and state securities laws,
including the registration or exemption from registration of such shares, except
as may previously have been disclosed in writing to the Acquired Fund.
5.16 The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund pursuant to the terms of this Agreement, when so issued and delivered, will
be duly and validly issued shares of common stock of the Acquiring Fund, will be
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<PAGE> 45
fully paid and non-assessable by the Acquiring Fund, except to the extent
provided in Section 180.0622(2)(b) of the Wisconsin Statutes (which is
summarized in Section 4.16 of this Agreement), or any successor provision, and
will be duly registered in conformity with all applicable federal and state
securities laws, and no shareholder of the Acquiring Fund shall have any option,
warrant, or preemptive right of subscription or purchase with respect thereto.
5.17 The Acquiring Fund is not under the jurisdiction of a Court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
5.18 The information to be furnished by the Acquiring Fund for use in
preparing the Proxy Statement/Prospectus, proxy materials, and other documents
which may be necessary in connection with the transactions contemplated hereby
shall be accurate and complete and shall comply in all material respects with
federal securities and other laws and regulations applicable thereto.
5.19 There is no intercorporate indebtedness existing between the Acquired
Fund and the Acquiring Fund that was issued, acquired, or will be settled at a
discount.
5.20 The Acquiring Fund does not own, directly or indirectly, nor has it
owned during the past five years, directly or indirectly, any stock of the
Acquired Fund.
6. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
6.1 Except as expressly contemplated herein to the contrary, each Fund
shall operate its business in the ordinary course between the date hereof and
the Closing Date, it being understood that such ordinary course of business will
include customary dividends and distributions and any other distribution
necessary or desirable to avoid federal income or excise taxes.
6.2 After the effective date of the Form N-14 Registration Statement
referred to in Section 6.7 hereof, and before the Closing Date and as a
condition thereto, the Board of Directors of the Acquired Fund shall call, and
the Acquired Fund shall hold, a Special Meeting of the Acquired Fund
Shareholders to consider and vote upon this Agreement and the transactions
contemplated hereby (including the amendment of the Acquired Fund's Amended and
Restated Articles of Incorporation to cancel all of the outstanding shares of
the Acquired Fund, effective as of the Closing) and the Acquired Fund shall take
all other actions reasonably necessary to obtain approval of the transactions
contemplated herein.
6.3 The Acquired Fund covenants that it shall not sell or otherwise dispose
of any of the Acquiring Fund Shares to be received in the transactions
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<PAGE> 46
contemplated herein, except in distribution to the Acquired Fund Shareholders as
contemplated herein.
6.4 The Acquired Fund shall provide such information within its possession
or reasonably obtainable as the Acquiring Fund may reasonably request concerning
the beneficial ownership of the Acquired Fund Shares.
6.5 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund each shall take, or cause to be taken, all action, and do or cause
to be done, all things reasonably necessary, proper, or advisable to consummate
the transactions contemplated by this Agreement.
6.6 The Acquired Fund shall furnish to the Acquiring Fund on the Closing
Date the Statement of the Assets and Liabilities of the Acquired Fund as of the
Closing Date, which statement shall be prepared in accordance with generally
accepted accounting principles consistently applied and shall be certified by
the Acquired Fund's Treasurer or Assistant Treasurer. As promptly as
practicable, but in any case within sixty (60) days after the Closing Date, the
Acquired Fund shall furnish to the Acquiring Fund, in such form as is reasonably
satisfactory to the Acquiring Fund, a statement of the earnings and profits of
the Acquired Fund for federal income tax purposes, and of any capital loss
carryovers and other items that will be carried over to the Acquiring Funds as a
result of Section 381 of the Code, which statement shall be certified by the
Treasurer or Assistant Treasurer of the Acquired Fund. The Acquired Fund
covenants that it has no earnings and profits that were accumulated by it or any
acquired entity during a taxable year when it or such entity did not qualify as
a RIC under the Code or, if it has such earnings and profits, shall distribute
them to its shareholders prior to the Closing Date.
6.7 The Acquiring Fund shall prepare and file with the SEC a Registration
Statement on Form N-14 (the "Form N-14 Registration Statement"), as promptly as
practicable in connection with the issuance of the Acquiring Fund Shares as
contemplated herein. The Acquiring Fund shall prepare any pro forma financial
statement that may be required under applicable law to be included in the Form
N-14 Registration Statement. The Acquired Fund shall provide the Acquiring Fund
with all information about the Acquired Fund that is necessary to prepare the
pro forma financial statements. The Funds shall cooperate with each other and
shall furnish each other with any information relating to itself that is
required by the 1933 Act, the 1934 Act, and the 1940 Act, the rules and
regulations thereunder, and applicable state securities laws, to be included in
the Form N-14 Registration Statement and the Proxy Statement/Prospectus referred
to in Section 6.8 hereof.
6.8 As promptly as practicable, the Acquired Fund shall prepare the Proxy
Statement/Prospectus and provide it to the Acquiring Fund, for inclusion in the
Form N-14 Registration Statement, in connection with the Special Meeting of
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<PAGE> 47
Acquired Fund Shareholders to consider approval of this Agreement. The
Acquiring Fund agrees to provide the Acquired Fund with all information
applicable to the Acquiring Fund required for inclusion in the Proxy Statement,
as described in Section 6.7 hereof.
6.9 The Acquired Fund shall deliver to the Acquiring Fund at the Closing
Date confirmation or other adequate evidence as to the tax costs and holding
periods of the assets of the Acquired Fund delivered to the Acquiring Fund in
accordance with the terms of this Agreement.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund hereunder shall be subject to the
following conditions precedent:
7.1 This agreement and the transactions contemplated by this Agreement
shall have been approved by the Board of Directors of the Acquiring Fund in the
manner required by the Acquiring Fund's Amended and Restated Articles of
Incorporation and applicable laws, and this Agreement, the transactions
contemplated by this Agreement, and the proposed amendment to the Acquired
Fund's Amended and Restated Articles of Incorporation described in Section 6.2
hereof shall have been approved by the Acquired Fund Shareholders in the manner
required by the Acquired Fund's Amended and Restated Articles of Incorporation
and Bylaws and applicable laws.
7.2 As of the Closing Date, there shall have been no material adverse
change in the financial position, assets, or liabilities of the Acquiring Fund
since the dates of the financial statements referred to in Section 5.6 hereof.
For purposes of this Section 7.2, a decline in the net asset value per share of
the Acquiring Fund due to the effect of normal market conditions on liquid
securities shall not constitute a material adverse change.
7.3 All representations and warranties of the Acquiring Fund made in this
Agreement, except as they may be affected by the transactions contemplated by
this Agreement, shall be true and correct in all material respects as if made at
and as of the Closing Date.
7.4 The Acquiring Fund shall have performed and complied in all material
respects with its obligations, agreements, and covenants required by this
Agreement to be performed or complied with by it prior to or at the Closing
Date.
7.5 The Acquiring Fund shall have furnished the Acquired Fund at the
Closing Date with a certificate or certificates of its President and/or
Treasurer as of the Closing Date to the effect that the conditions precedent set
forth in the Sections 7.2, 7.3, 7.4, and 7.10 hereof have been fulfilled.
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<PAGE> 48
7.6 The Acquired Fund shall have received an opinion or opinions of counsel
regarding the transaction, in form reasonably satisfactory to the Acquired Fund,
and dated as of the Closing Date, to the effect that: (a) the Acquiring Fund is
a corporation duly organized and validly existing under the laws of the State of
Wisconsin; (b) the shares of the Acquiring Fund issued and outstanding at the
Closing Date are duly authorized, validly issued, fully paid, and non-assessable
by the Acquiring Fund, except to the extent provided in Section 180.0622(2)(b)
of the Wisconsin Statutes (which is summarized in Section 4.16 of this
Agreement), or any successor provision, and the Acquiring Fund Shares to be
delivered to the Acquired Fund, as provided for by this Agreement, are duly
authorized and upon delivery pursuant to the terms of this Agreement will be
validly issued, fully paid and non-assessable by the Acquiring Fund, except to
the extent provided in Section 180.0622(2)(b) of the Wisconsin Statutes (which
is summarized in Section 4.16 of this Agreement), or any successor provision,
and to such counsel's knowledge, no shareholder of the Acquiring Fund has any
option, warrant, or preemptive right to subscription or purchase in respect
thereof; (c) this Agreement has been duly authorized, executed, and delivered by
the Acquiring Fund and represents a valid and binding contract of Acquiring
Fund, enforceable in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto and to the exercise of judicial discretion in
accordance with general principles of equity, whether in a proceeding at law or
in equity; provided, however, that no opinion need be expressed with respect to
provisions of this Agreement relating to indemnification; (d) the execution and
delivery of this Agreement did not, and the consummation of the transactions
contemplated by this Agreement will not, violate the Amended and Restated
Articles of Incorporation or Bylaws of the Acquiring Fund or any material
agreement known to such counsel to which the Acquiring Fund is a party or by
which it is bound; (e) to the knowledge of such counsel, no consent, approval,
authorization, or order of any court or governmental authority is required for
the consummation, by Acquiring Fund of the transactions contemplated by this
Agreement, except such as have been obtained under the 1933 Act, the 1934 Act,
the 1940 Act, the rules and regulations under those statutes, and such as may be
required by state securities laws, rules and regulations; and (f) the Acquiring
Fund is registered as an investment company under the 1940 Act and such
registration with the SEC as an investment company under the 1940 Act is in full
force and effect. Such opinion: (a) shall state that while such counsel have not
verified, and are not passing upon and do not assume responsibility for, the
accuracy, completeness, or fairness of any portion of the Form N-14 Registration
Statement or any amendment thereof or supplement thereto, they have generally
reviewed and discussed certain information included therein with respect to the
Acquiring Fund with certain of its officers and that in the course of such
review and discussion no facts came to the attention of such
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<PAGE> 49
counsel which caused them to believe that, on the respective effective or
clearance dates of the Form N-14 Registration Statement and any amendment
thereof or supplement thereto and only insofar as they relate to information
with respect to the Acquiring Fund, the Form N-14 Registration Statement or any
amendment thereof or supplement thereto contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; (b) shall state that
such counsel does not express any opinion or belief as to the financial
statements, other financial data, statistical data, or information relating to
the Acquiring Fund contained or incorporated by reference in the Form N-14
Registration Statement; (c) may rely on the opinion of other counsel to the
extent set forth in such opinion, provided such other counsel is reasonably
acceptable to the Acquired Fund; and (d) shall state that such opinion is solely
for the benefit of the Acquired Fund and its Board of Directors and officers.
7.7 The Trust shall have received an opinion of counsel regarding the
transaction addressed to the Funds in form reasonably satisfactory to them and
dated as of the Closing Date, with respect to the matters specified in Section
8.9 hereof.
7.8 The Form N-14 Registration Statement shall have become effective under
the 1933 Act and no stop order suspending the effectiveness shall have been
instituted, or to the knowledge of the Acquiring Fund, contemplated by the SEC.
7.9 The parties shall have received: (a) a memorandum, in a form reasonably
satisfactory to each of them, prepared by counsel regarding the transaction or
another person approved by the parties, concerning the registration of shares to
be issued by the Acquiring Fund pursuant to this Agreement under applicable
state securities laws or the exemption from registration under such laws; and
(b) assurance reasonably satisfactory to them that all permits and other
authorizations necessary under state securities laws to consummate the
transactions contemplated herein have been obtained.
7.10 No action, suit, or other proceeding shall be threatened or pending
before any court or governmental agency in which is sought to restrain or
prohibit, or obtain damages or other relief in connection with, this Agreement
or the transactions contemplated herein.
7.11 The SEC shall not have issued any unfavorable advisory report under
Section 25(b) of the 1940 Act nor instituted any proceedings seeking to enjoin
consummation of the transactions contemplated by this Agreement under Section
25(c) of the 1940 Act.
7.12 The Acquired Fund shall have received from the Acquiring Fund all such
documents, including but not limited to, checks, share certificates, if any, and
receipts, which the Acquired Fund or its counsel may reasonably request.
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7.13 The Acquiring Fund shall have furnished the Acquired Fund at the
Closing Date with a certificate or certificates of its President and/or
Treasurer dated as of said date to the effect that: (a) the Acquiring Fund has
no plan or intention to reacquire any of the Acquiring Fund Shares to be issued
in the Reorganization, except in the ordinary course of business; (b) the
Acquiring Fund has no plan or intention to sell or otherwise dispose of any of
the assets of the Acquired Fund acquired in the Reorganization, except for
dispositions made in the ordinary course of business or transfers described in
Section 368(a)(2)(C) of the Code; and (c) following the Closing, the Acquiring
Fund will continue the historic business of the Acquired Fund or use a
significant portion of the Acquired Fund's assets in a business.
7.14 SCM, in its capacity as transfer agent for the Acquiring Fund, shall
issue and deliver to the President of the Acquired Fund a confirmation statement
evidencing the Acquiring Fund Shares to be credited at the Closing Date or
provide evidence satisfactory to the Acquired Fund that the Acquiring Fund
Shares have been credited to the accounts of each of the Acquired Fund
Shareholders on the books of the Acquiring Fund.
7.15 SCM shall have paid or waived all of the then outstanding unamortized
organizational expenses of the Acquired Fund then reflected on its books and
records.
7.16 At the Closing Date, the registration of the Acquiring Fund with the
Commission as an investment company under the 1940 Act will be in full force and
effect.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund hereunder shall be subject to the
following conditions precedent:
8.1 This Agreement, the transactions contemplated by this Agreement, and
the proposed amendment to the Acquired Fund's Amended and Restated Articles of
Incorporation described in Section 6.2 hereof shall have been approved by the
Board of Directors of the Acquired Fund and the Acquired Fund Shareholders in
the manner required by the Acquired Fund's Amended and Restated Articles of
Incorporation and Bylaws and applicable law.
8.2 The Acquired Fund shall have furnished the Acquiring Fund with the
Statement of Assets and Liabilities of the Acquired Fund, with values determined
as provided in Section 2 hereof, with their respective dates of acquisition and
tax costs, all as of the Closing Date, certified on its behalf by its Treasurer
or Assistant Treasurer.
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8.3 As of the Closing Date, there shall have been no material adverse
change in the financial position, assets, or liabilities of the Acquired Fund
since the dates of the financial statements referred to in Section 4.6 hereof.
For purposes of this Section 8.3, a decline in the value of the Acquired Fund
Net Assets due to the effect of normal market conditions on liquid securities
shall not constitute a material adverse change.
8.4 All representations and warranties of the Acquired Fund made in this
Agreement, except as they may be affected by the transactions contemplated by
this Agreement, shall be true and correct in all material respects as if made at
and as of the Closing Date.
8.5 The Acquired Fund shall have performed and complied in all material
respects with each of its obligations, agreements, and covenants required by
this Agreement to be performed or complied with by it prior to or at the Closing
Date.
8.6 The Acquired Fund shall have furnished the Acquiring Fund at the
Closing Date with a certificate or certificates of its President and/or
Treasurer, dated as of the Closing Date, to the effect that the conditions
precedent set forth in Sections 8.1, 8.3, 8.4, 8.5, 8.13, 8.15 hereof have been
fulfilled.
8.7 The Acquired Fund shall have duly executed and delivered to the
Acquiring Fund (a) bills of sale, assignments, certificates and other
instruments of transfer ("Transfer Documents") as the Acquiring Fund may deem
necessary or desirable to transfer all of the Acquired Fund's right, title, and
interest in and to the Acquired Fund Net Assets, and (b) all such other
documents, including but not limited to, checks, share certificates, if any, and
receipts, which the Acquiring Fund may reasonably request. Such assets of the
Acquired Fund shall be accompanied by all necessary state stock transfer stamps
or cash for the appropriate purchase price therefor.
8.8 The Acquiring Fund shall have received an opinion or opinions of
counsel regarding the transaction, in form reasonably satisfactory to the
Acquiring Fund, and dated as of the Closing Date, to the effect that: (a) the
Acquired Fund is a Wisconsin corporation duly organized and validly existing
under the laws of the State of Wisconsin; (b) the shares of the Acquired Fund
issued and outstanding at the Closing Date are duly authorized, validly issued,
fully paid and non-assessable by the Acquired Fund, except to the extent
provided in Section 180.0622(2)(b) of the Wisconsin Statutes (which is
summarized in Section 4.16 of this Agreement), or any successor provision; (c)
this Agreement and the Transfer Documents have been duly authorized, executed,
and delivered by the Acquired Fund and represent valid and binding contracts of
the Acquired Fund, enforceable in accordance with their terms, subject to the
effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and similar laws relating to or affecting creditors' rights
generally and court decisions
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with respect thereto and to the exercise of judicial discretion in accordance
with general principles of equity, whether in a proceeding at law or in equity;
provided, however, that no opinion need be expressed with respect to provisions
of this Agreement relating to indemnification; (d) the execution and delivery of
this Agreement did not, and the consummation of the transactions contemplated by
this Agreement will not, violate the Amended and Restated Articles of
Incorporation or Bylaws of the Acquired Fund or any material agreement known to
such counsel to which Acquired Fund is a party or by which it is bound; (e) to
the knowledge of such counsel, no consent, approval, authorization, or order of
any court or governmental authority is required for the consummation by the
Acquired Fund of the transactions contemplated by this Agreement, except such as
have been obtained under the 1933 Act, the 1934 Act, the 1940 Act, the rules and
regulations under those statutes, and such as may be required under state
securities laws, rules, and regulations; (f) the Acquired Fund is registered as
an investment company under the 1940 Act and such registration with the SEC as
an investment company under the 1940 Act is in full force and effect; and (g)
the deregistration of the Acquired Fund as an investment company under the 1940
Act and the liquidation of the Acquired Fund under state law do not require the
approval of its shareholders. Such opinion: (a) shall state that while such
counsel have not verified, and are not passing upon and do not assume
responsibility for, the accuracy, completeness, or fairness of any portion of
the Form N-14 Registration Statement or any amendment thereof or supplement
thereto, they have generally reviewed and discussed certain information included
therein with respect to the Acquired Fund with certain officers of the Acquired
Fund and that in the course of such review and discussion no facts came to the
attention of such counsel which caused them to believe that, on the respective
effective or clearance dates of the Form N-14 Registration Statement, and any
amendment thereof or supplement thereto and only insofar as they relate to
information with respect to the Acquired Fund, the Form N-14 Registration
Statement or any amendment thereof or supplement thereto contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading;
(b) shall state that such counsel does not express any opinion or belief as to
the financial statements, other financial data, statistical data, or any
information relating to the Acquired Fund contained or incorporated by reference
in the Form N-14 Registration Statement; (c) may rely upon the opinion of other
counsel to the extent set forth in the opinion, provided such other counsel is
reasonably acceptable to the Acquiring Fund; and (d) shall state that such
opinion is solely for the benefit of the Acquiring Fund and its Board of
Directors and officers.
8.9 The Acquiring Fund shall have received an opinion of counsel regarding
the transaction, addressed to the Funds and in form reasonably satisfactory to
them, and dated as of the Closing Date, to the effect that for federal income
tax purposes: (a) the transfer of all of the assets of the Acquired Fund to the
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Acquiring Fund in exchange for Acquiring Fund Shares, and the distribution of
said Acquiring Fund Shares to the shareholders of the Acquired Fund, as provided
in this Agreement, will constitute a reorganization within the meaning of
Section 368(a)(1)(C) of the Code; (b) in accordance with Section 361(a), Section
361(c)(1), and Section 357(a) of the Code, no gain or loss will be recognized by
the Acquired Fund as a result of such transactions; (c) in accordance with
Section 1032(a) of the Code, no gain or loss will be recognized by the Acquiring
Fund as a result of such transactions; (d) in accordance with Section 354(a)(1)
of the Code, no gain or loss will be recognized by the Acquired Fund
Shareholders on the distribution to them by the Acquired Fund of Acquiring Fund
Shares in exchange for their shares of the Acquired Fund; (e) in accordance with
Section 358(a)(1) of the Code, the basis of the Acquiring Fund Shares received
by each Acquired Fund Shareholder will be the same as the basis of the Acquired
Fund Shareholder's shares immediately prior to the transactions; (f) in
accordance with Section 362(b) of the Code, the basis to the Acquiring Fund of
the assets of the Acquired Fund will be the same as the basis of such assets in
the hands of the Acquired Fund immediately prior to the exchange; (g) in
accordance with Section 1223(1) of the Code, a shareholder's holding period for
Acquiring Fund Shares will be determined by including the period for which the
shareholder held Acquired Fund Shares exchanged therefor, provided that the
Acquired Fund Shareholder held such Acquired Fund Shares as a capital asset; (h)
in accordance with Section 1223(2) of the Code, the holding period of the
Acquiring Fund with respect to the assets transferred by the Acquired Fund will
include the period for which such assets were held by the Acquired Fund; (i)
subject to the conditions and limitations specified in Sections 381, 382, 383,
and 384 of the Code, the Acquiring Fund will succeed to and take into account
the items of the Acquired Fund described in Section 381(c) of the Code,
including the earnings and profits, or deficit in earnings and profits, of the
Acquired Fund as of the Closing Date, in accordance with Section 381(a) and
Treasury Regulation Section 1.381-1(a); and (j) any deficit in earnings and
profits of the Acquired Fund will be used only to offset earnings and profits
accumulated after the Closing Date.
8.10 The property and assets to be transferred to the Acquiring Fund under
this Agreement shall include no assets which the Acquiring Fund may not properly
acquire.
8.11 The Form N-14 Registration Statement shall have become effective under
the 1933 Act and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of the Funds, contemplated by the SEC.
8.12 The parties shall have received: (a) a memorandum, in a form
reasonably satisfactory to each of them, prepared by counsel regarding the
transaction or another person approved by the parties concerning the
registration of shares to be issued by the Acquiring Fund pursuant to this
Agreement under
A-20
<PAGE> 54
applicable state securities laws or the exemption from registration under such
laws; and (b) assurance reasonably satisfactory to them that all permits and
other authorizations necessary under state securities laws to consummate the
transactions contemplated by this Agreement have been obtained.
8.13 No action, suit, or other proceeding shall be threatened or pending
before any court or governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection with, this Agreement
or the transactions contemplated herein.
8.14 The SEC shall not have issued any unfavorable advisory report under
Section 25(b) of the 1940 Act nor instituted any proceeding seeking to enjoin
consummation of the transactions contemplated by this Agreement under Section
25(c) of the 1940 Act.
8.15 Prior to the Closing Date, the Acquired Fund shall have declared a
dividend or dividends, which, together with all previous dividends, shall have
the effect of distributing to its shareholders all of its net investment company
income, if any, for each taxable period or year ending prior to the Closing Date
and for the periods from the end of each such taxable period or year to and
including the Closing Date (computed without regard to any deduction for
dividends paid), and all of its net capital gain, if any, realized in each
taxable period or year ending prior to the Closing Date and in the periods from
the end of each such taxable period or year to and including the Closing Date.
8.16 The Acquired Fund shall have furnished the Acquiring Fund at the
Closing Date with a certificate or certificates of its President and/or
Treasurer dated as of said date to the effect that: (a) the Acquired Fund will
tender for acquisition by the Acquiring Fund its assets consisting of at least
90% of the fair market value of the Acquired Fund's net assets and at least 70%
of the fair market value of its gross assets immediately prior to the Closing
Date. For purposes of this certification, all of the following shall be
considered as assets of the Acquired Fund held immediately prior to the Closing
Date: (i) amounts used by the Acquired Fund to pay its expenses in connection
with the transactions contemplated hereby and, (ii) all amounts used to make
redemptions of or distributions on the Acquired Fund Shares (except for
redemptions in the ordinary course of its business as required by Section 22(e)
of the 1940 Act pursuant to a demand for redemption by an Acquired Fund
Shareholder, and distributions of net investment income and net capital gains).
(b) The Acquired Fund will distribute to Acquired Fund Shareholders in complete
liquidation of the Acquired Fund, the Acquiring Fund Shares that it will receive
in the transactions contemplated hereby on or as promptly as practicable after
the Closing Date and in pursuance of the plan contemplated by this Agreement and
having made such distributions will take all necessary steps to liquidate and
deregister. (c) To the best knowledge of the Acquired Fund, after reasonable
inquiry, there is no current plan or intention any of its shareholders who own
five
A-21
<PAGE> 55
percent (5%) or more of the Acquired Fund Shares, and to the best of the
Acquired Fund's knowledge, there is no current plan or intention on the part of
the remaining shareholders of the Acquired Fund to sell, exchange, or otherwise
dispose of a number of shares of the Acquiring Fund received in the
Reorganization that would reduce the ownership of the Acquired Fund Shareholder
of Acquiring Fund Shares to a number of shares having a value, as of the Closing
Date, of less than fifty percent (50%) of the value of all of the formerly
outstanding Acquired Fund Shares as of the Closing Date. For purposes of this
certification, (i) Acquired Fund Shares surrendered by dissenters will be
treated as outstanding Acquired Fund Shares at the Closing Date; and (ii)
Acquired Fund Shares and the Acquiring Fund Shares held by Acquired Fund
Shareholders and otherwise sold, redeemed, or disposed of in anticipation of the
Reorganization, or subsequent to the Closing Date pursuant to a current plan or
intention that existed as of the Closing Date, also will be taken into account.
8.17 SCM, in its capacity as transfer agent for the Acquired Fund, shall
have furnished to the Acquiring Fund immediately prior to the Closing Date a
list of the names and addresses of the Acquired Fund Shareholders and the number
and percentage ownership of outstanding Acquired Fund Shares owned by each such
shareholder as of the close of regular trading on the NYSE on the Closing Date,
certified on behalf of the Acquired Fund by its President.
8.18 At the Closing Date, the registration of the Acquired Fund with the
SEC as an investment company under the 1940 Act shall be in full force and
effect.
9. FINDER'S FEES AND OTHER EXPENSES
9.1 Each Fund represents and warrants to the other that there is no person
or entity entitled to receive any finder's fees or other similar fees or
commission payments in connection with the transactions provided for herein.
9.2 Each Fund shall be liable solely for its own expenses incurred in
connection with entering into and carrying out the transactions contemplated by
this Agreement, whether or not the transactions contemplated hereby are
consummated.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Funds agree that neither Fund has made any representation,
warranty, or covenant not set forth herein or referred to in Sections 4 and 5
hereof, and that this Agreement constitutes the entire agreement between the
Funds and supersedes any and all prior agreements, arrangements, and
undertakings relating to the matters provided for herein.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
A-22
<PAGE> 56
herewith shall survive the consummation of the transactions contemplated
hereunder for a period of three years following the Closing Date. In the event
of a breach by the Acquired Fund of any such representation, warranty, or
covenant, the Acquired Fund until the time of its liquidation and deregistration
and SCM jointly and severally shall be liable to the Acquiring Fund for any such
breach.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the Funds.
In addition, either Fund may at its option terminate this Agreement at or prior
to the Closing Date because of:
11.1(a) a material breach by the other Fund of any representation,
warranty, or agreement contained herein to be performed at or prior to the
Closing Date; or
11.1(b) a condition precedent to the obligations of either Fund has
not been met and which reasonably appears will not or cannot be met.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of either Fund, or their respective Boards of Directors or
officers, but each shall bear its expenses incidental to the preparation and
carrying out of this Agreement.
12. INDEMNIFICATION
12.1 The Acquiring Fund shall indemnify, defend, and hold harmless the
Acquired Fund, its Board of Directors, officers, trustees, employees, and agents
(collectively "Acquired Fund Indemnified Parties") against all losses, claims,
demands, liabilities, and expenses, including reasonable legal and other
expenses incurred in defending third party claims, actions, suits, or
proceedings, whether or not resulting in any liability to such Acquired Fund
Indemnified Parties and including amounts paid by any one or more of the
Acquired Fund Indemnified Parties in a compromise or settlement of any such
claim, action, suit, or proceeding, or threatened third party claim, suit,
action, or proceeding, made with the consent of the Acquiring Fund, arising from
any untrue statement or alleged untrue statement of a material fact contained in
the Form N-14 Registration Statement, as filed and in effect with the SEC, or
any application prepared by the Acquiring Fund with any state regulatory agency
in order to register or qualify the Acquiring Fund Shares to be issued in
connection with the transactions contemplated by this Agreement under the
securities laws thereof ("Application"); or which arises out of or is based upon
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that the Acquiring Fund shall only be liable in such case to
the extent that any such loss, claim, demand, liability, or expense arises out
of or is based upon an untrue
A-23
<PAGE> 57
statement or alleged untrue statement or omission or alleged omission about the
Acquiring Fund or the transactions contemplated by this Agreement made in the
Form N-14 Registration Statement or any Application.
12.2 The Acquired Fund until the time of its liquidation and deregistration
and SCM on a joint and several basis shall indemnify, defend, and hold harmless
the Acquiring Fund, its Board of Directors, officers, employees and agents
("Acquiring Fund Indemnified Parties") against all losses, claims, demands,
liabilities, and expenses, including reasonable legal and other expenses
incurred in defending third party claims, actions, suits, or proceedings,
whether or not resulting in any liability to such Acquiring Fund Indemnified
Parties and including amounts paid by any one or more of the Acquiring Fund
Indemnified Parties in a compromise or settlement of any such claim, suit,
action, or proceeding, made with the consent of the Acquired Fund (if it still
exists) or SCM, arising from any untrue statement or alleged untrue statement of
a material fact contained in the Form N-14 Registration Statement, as filed and
in effect with the SEC or any Application; or which arises out of or is based
upon any omission or alleged omission to state therein a material fact required
to be stated therein and necessary to make the statements therein not
misleading; provided, however, that the Acquired Fund and SCM shall only be
liable in such case to the extent that any such loss, claim, demand, liability,
or expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission about the Acquired Fund or about the
transactions contemplated by this Agreement made in the Form N-14 Registration
Statement or any Application.
12.3 A party seeking indemnification hereunder is hereinafter called the
"indemnified party" and the party from whom the indemnified party is seeking
indemnification hereunder is hereinafter called the "indemnifying party." Each
indemnified party shall notify the indemnifying party in writing within ten days
of the receipt by one or more of the indemnified parties of any notice of legal
process of any suit brought against or claim made against such indemnified party
as to any matters covered by this Section, but the failure to notify the
indemnifying party shall not relieve the indemnifying party from any liability
which it may have to any indemnified party otherwise than under this Section.
The indemnifying party shall be entitled to participate at its own expense in
the defense of any claim, action, suit, or proceeding covered by this Section,
or, if it so elects, to assume at its own expense the defense thereof with
counsel satisfactory to the indemnified parties; provided, however, if the
defendants in any such action include both the indemnifying party and any
indemnified party and the indemnified party shall have reasonably concluded that
there may be legal defenses available to it which are different from or
additional to those available to the indemnifying party, the indemnified party
shall have the right to select separate counsel to assume such legal defense and
to otherwise participate in the defense of such action on behalf of such
indemnified party.
A-24
<PAGE> 58
Upon receipt of notice from the indemnifying party to the indemnified
parties of the election by the indemnifying party to assume the defense of such
action, the indemnifying party shall not be liable to such indemnified parties
under this Section for any legal or other expenses subsequently incurred by such
indemnified parties in connection with the defense thereof unless (i) the
indemnified parties shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the provision of the immediately
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel), (ii)
the indemnifying party does not employ counsel reasonably satisfactory to the
indemnified parties to represent the indemnified parties within a reasonable
time after notice of commencement of the action, or (iii) the indemnifying party
has authorized the employment of counsel for the indemnified parties at its
expenses.
12.4 This Section shall survive the termination of this Agreement and for a
period of three years following the Closing Date.
13. AMENDMENTS
This Agreement may be amended, modified, or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the Funds;
provided, however, that following the Special Meeting of Acquired Fund
Shareholders called by the Board of Directors of the Acquired Fund pursuant to
Section 6.2 hereof, no such amendment may have the effect of changing the
provisions for determining the number of Acquiring Fund Shares to be issued to
Acquired Fund Shareholders under this Agreement to the detriment of such
shareholders without their further approval, provided that nothing contained in
this Section 13 shall be construed to prohibit the parties from amending this
Agreement to change the Closing Date.
14. NOTICES
Any notice, report, statement, or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed to be
properly given when delivered personally or by telecopier to the party entitled
to receive the notice or when sent by certified or registered mail, postage
prepaid, or delivered to a recognized overnight courier service, in each case
properly addressed to the party entitled to receive such notice or communication
at 100 Heritage Reserve, Menomonee Falls, Wisconsin 53051, or such other address
as may hereafter be furnished in writing by notice similarly given by one party
to the other.
15. FAILURE TO ENFORCE
The failure of any party hereto to enforce at any time any of the
provisions of this Agreement shall in no way be construed to be a waiver of any
such provision,
A-25
<PAGE> 59
nor in any way to affect the validity of this Agreement or any part hereof as
the right of any party thereafter to enforce each and every such provision. No
waiver of any breach of this Agreement shall be held to be a waiver of any other
or subsequent breach.
16. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
16.1 The article and Section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
16.3 This Agreement shall be governed by and construed in accordance with
the laws of the State of Wisconsin.
16.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm, or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
16.5 It is expressly understood and agreed that the obligations of the
Acquired Fund and the Acquiring Fund under this Agreement, including but not
limited to any liability as a result of the breach of any of their respective
representations and warranties, are not binding on their respective Board of
Directors, shareholders, nominees, officers, agents, or employees individually,
but bind only the respective assets of the Acquiring Fund and the Acquired Fund.
A-26
<PAGE> 60
IN WITNESS WHEREOF each of the parties hereto has caused this Agreement to
be executed by its President and its seal to be affixed thereto and attested by
its Secretary.
<TABLE>
<S> <C>
Attest: Strong Municipal Bond Fund, Inc.
By:
- --------------------------------- ---------------------------------
Strong Insured Municipal
Attest: Bond Fund, Inc.
By:
- --------------------------------- ---------------------------------
</TABLE>
Strong Capital Management, Inc. hereby joins in this Agreement with respect
to and agrees to the matters described in Sections 10.2 and 12.
<TABLE>
<S> <C>
Attest: Strong Capital Management, Inc.
By:
- --------------------------------- ---------------------------------
</TABLE>
A-27
<PAGE> 61
EXHIBIT B
THE STRONG
INSURED MUNICIPAL BOND FUND
THE STRONG
MUNICIPAL BOND FUND
THE STRONG
HIGH-YIELD MUNICIPAL BOND FUND
MARKET OVERVIEW
The bond market reacted favorably through the year as interest rates fell
and inflation remained under control. Despite indications that higher inflation
might return -- including the robust rate of growth late in 1994, sharp rises in
the producer price index, and increased prices on raw materials and intermediate
goods early in 1995 -- inflation did not ignite. The good inflation news
stimulated a decline in long-term interest rates that continued through year
end. Accordingly, we positioned the Funds early in the year to take advantage of
the rally.
Municipal bond prices rebounded so sharply early in the year -- as short-
term traders sent bond prices into dramatic up-and-down swings -- that by early
spring, we felt the market had greater downside potential than upside.
Consequently, we locked in gains and positioned the Funds more defensively. The
Funds continued to post significant total returns throughout the year; however,
our caution meant that we did not participate fully in what turned out to be an
extended market rally.
We have since repositioned each of the portfolios -- without sacrificing
overall credit quality. We have shifted the Funds to a more aggressive strategy
by substantially lengthening our average maturities. This move was implemented
by reducing cash, increasing longer-duration positions, and eliminating the
Treasury hedge in each of the Funds.
TALK OF TAX REFORM PROMPTS CHANGE IN PORTFOLIOS
The relative attractiveness of longer-term municipal securities versus
taxable alternatives caused many non-traditional buyers to step into the market
as the yield spread between municipals and treasuries tightened. This tightening
was due, in large part, to talk in Congress of tax reform. Municipal yields --
which, on a longer-term historical basis have tended to range between 84% and
86% of treasury yields -- traded at the rarely seen level of 95% of taxable bond
yields this year.
Tax reforms currently under discussion could negatively impact the
municipal markets by eliminating the tax-exempt status of municipal bonds. We
don't believe, however, that tax reform will occur in 1996 -- if at all. Rather,
we see
B-1
<PAGE> 62
this anomaly in the yield spread as an excellent buying opportunity. We believe
that, at these levels, municipal prices have very limited downside versus the
taxable market.
FOCUS ON TRENDS
Going into 1996, we continue to focus our purchases in sectors within our
primary investment themes, which include:
THE AGING OF AMERICA. We view the aging of America as a major catalyst for
long-term trends in the U.S. economy. As the baby boom generation grows older,
there will be an increased need for health care products and services, and
long-term care facilities. Many of our holdings -- including hospitals, nursing
homes and CCRCs (congregate care retirement centers) -- reflect this focus.
RECONSTRUCTION OF AMERICAN INFRASTRUCTURE. As American cities begin to
invest in rebuilding their basic infrastructures, we often find attractive
opportunities to invest in municipal bonds to rebuild toll roads, airports,
bridges, and water systems.
WASTE DISPOSAL. The ongoing dilemma in waste disposal -- as landfills
become increasingly overburdened -- has presented opportunities to invest in
such industries as solid waste disposal, resource recovery, and nuclear and
medical waste disposal.
With the recent stabilization in the long end of the municipal market, and
the relative attractiveness of longer-term securities, we continue to reshape
the portfolio. As always, credit research remains the driving factor behind our
security selection. We strive to keep a long-term perspective, and we don't
attempt to time the market with short-term plays that are dependent, to a large
degree, on market psychology.
STRONG INSURED MUNICIPAL BOND FUND
In the Insured Municipal Bond Fund, we have increased our holdings in
general obligation bonds, which typically command a slight premium in the market
due to their perception as stellar performers. We were able to add these
securities at little or no premium due to the large number of these securities
that came to market at year end. We continue to emphasize single- and
multi-family housing, which we believe offer greater yield potential, and
hospitals, which continue to offer an additional yield premium due to their
association with the health care sector. As of December 31, 1995, the Fund held
the securities of 28 different issuers, with no more than 14.6% of its assets
concentrated in any single state.
B-2
<PAGE> 63
STRONG MUNICIPAL BOND FUND
In the Municipal Bond Fund, we currently favor bonds that are trading at a
slight discount, those that offer the chance for price appreciation; and premium
callable bonds. By using this "barbell" approach, we stand to benefit if rates
remain stable or fall, while picking up incremental yield. We continue to
emphasize the health care sector, with hospitals among the Fund's largest
holdings. As always, we are committed to maintaining a diversified, well-
researched portfolio. At year end, the Fund held the securities of 66 distinct
issuers, and the single largest state, Texas, accounted for 9.3% of assets.
PORTFOLIO STATISTICS AS OF 12-29-95
<TABLE>
<CAPTION>
30-day Average Average
Annualized Yield Maturity Quality Rating
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
Insured Municipal Bond Fund 4.23% 21.7 years AAA
Municipal Bond Fund 5.11% 20.0 years AA
High-Yield Municipal Bond
Fund 6.82% 19.8 years BB
</TABLE>
WHEN-ISSUED SECURITIES ARE REFLECTED IN THE FUND'S AVERAGE MATURITIES.
B-3
<PAGE> 64
STRONG HIGH-YIELD MUNICIPAL BOND FUND
We remain fairly fully invested in the High-Yield Municipal Bond Fund, with
approximately 64.3% of the holdings in unrated securities. We believe these
securities currently offer the best value because they don't move in line with
the market, and we believe they are undervalued. These securities will comprise
the Fund's core holdings, and we plan to hold them over the long term. In
addition, we have eliminated hedged securities from the Fund in order to reduce
volatility. At the end of December, the Fund held securities from 55 different
issuers, the largest holding was Cedar Rapids, Iowa First Mortgage Revenue (6.9%
of net assets), and the largest state representation was Pennsylvania (21.9% of
net assets).
- --------------------------------------------------------------------------------
EQUIVALENT TAXABLE YIELDS
AS OF 12-29-95
<TABLE>
<CAPTION>
Insured High-Yield
Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund
------------ ------------ ------------
Your Your Your
Tax-Exempt Tax-Exempt Tax-Exempt
Yield of Yield of Yield of
4.23% is 5.11% is 6.82% is
Taxable Income Marginal Equivalent Equivalent Equivalent
- ------------------------------------- Tax to a Taxable to a Taxable to a Taxable
Joint Return Single Return Rate Yield of: Yield of: Yield of:
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$39,000 and under $23,350 and under 15.0% 4.98% 6.01% 8.02%
$39,001-94,250 $23,351-56,550 28.0% 5.88% 7.10% 9.47%
$94,251-143,600 $56,551-117,950 31.0% 6.13% 7.41% 9.88%
$143,601-256,500 $117,951-256,500 36.0% 6.61% 7.98% 10.66%
OVER $256,500 OVER $256,500 39.6% 7.00% 8.46% 11.29%
</TABLE>
- ---------------
Yields are annualized for the 30 Days ended 12-29-95, are historical, and will
vary. Each Fund's income may be subject to state and local taxes, and depending
on your tax status, the Alternative Minimum Tax. The chart reflects 1995
marginal federal tax rates before limitations and phase-outs. Individuals with
adjusted gross income in excess of $114,700 should consult their tax advisor to
determine their actual 1995 marginal tax rate.
- --------------------------------------------------------------------------------
B-4
<PAGE> 65
GROWTH OF AN ASSUMED $10,000 INVESTMENT
The charts below, provided in accordance with SEC regulations, compare a
$10,000 investment in each Fund, made at its inception, with a similar
investment in a relevant, unmanaged, total-return performance benchmark. Source
of index data is Micropal. Results include the reinvestment of all dividends and
capital gains. Performance is historical and does not represent future results.
Investment returns and principal value vary, and you may have a gain or loss
when you sell Fund shares.
THE STRONG INSURED MUNICIPAL BOND FUND
FROM 11-25-91 TO 12-31-95
<TABLE>
<CAPTION>
The Lehman Strong Insured
Brothers Insured Municipal Bond
Municipal Bond Index Fund
<S> <C> <C>
11-91 10000 10000
12-91 10335 10230
6-92 11082 10658
12-92 11685 11184
6-93 12621 12038
12-93 13186 12641
6-94 12361 11995
12-94 12333 11885
6-95 13073 13096
12-95 13901 14091
</TABLE>
Average Annual Total Returns as of 12-31-95
1-Year 12.71%
3-Year 5.96%
Since Inception (On 11-25-91) 8.37%
B-5
<PAGE> 66
THE STRONG MUNICIPAL BOND FUND
FROM 10-23-86 TO 12-31-95
<TABLE>
<CAPTION>
The Lehman Strong
Brothers Insured Municipal Bond
Municipal Bond Index Fund
<S> <C> <C>
10-86 10000 10000
12-86 10129 10216
12-87 9949 10370
12-88 10705 11423
12-89 11463 12656
12-90 11995 13578
12-91 13598 15227
12-92 15256 16568
12-93 17052 18602
12-94 16275 17640
12-95 18128 20721
</TABLE>
Average Annual Total Returns as of 12-31-95
<TABLE>
<S> <C>
1-Year 11.38%
3-Year 5.92%
5-Year 8.61%
Since Inception (on 10-23-86) 6.69%
</TABLE>
B-6
<PAGE> 67
THE STRONG HIGH-YIELD MUNICIPAL BOND FUND
FROM 10-1-93 TO 12-31-95
<TABLE>
<CAPTION>
The Lehman Strong High-Yield
Brothers Baa Municipal Bond
Municipal Bond Index Fund
<S> <C> <C>
10-93 10000 10000
12-93 10266 10164
3-94 10007 9627
6-94 10169 9757
9-94 10288 9803
12-94 10165 9609
3-95 10639 10232
6-95 10979 10530
9-95 11239 10869
12-95 11651 11362
</TABLE>
Average Annual Total Returns as of 12-31-95
<TABLE>
<S> <C>
1-Year 14.62%
Since Inception (on 10-1-93) 7.02%
</TABLE>
A CONSTRUCTIVE OUTLOOK
Going forward into 1996, we remain positive on the market but realize that
any one of several variables could have a significant impact on interest rates.
Specifically, a derailment of the budget proposal, a continuation of December's
rise in commodity prices, or continued talk of tax reform could cause interest
rates to rise. However, several positive factors remain -- including low
inflation and slowing growth, positive market psychology, and the attractiveness
of longer-term municipal securities relative to taxable alternatives.
B-7
<PAGE> 68
Thank you for your investment. We appreciate the confidence you've shown in
our management, and we look forward to serving your investment needs in 1996.
Sincerely,
/s/ Mary-Kay H. Bourbulas
Mary-Kay H. Bourbulas
Portfolio Manager
Strong Insured Municipal Bond Fund
Strong Municipal Bond Fund
Strong High-Yield Municipal Bond Fund
B-8
<PAGE> 69
EXHIBIT C
AMENDMENT
TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
STRONG INSURED MUNICIPAL BOND FUND, INC.
The undersigned Secretary of Strong Insured Municipal Bond Fund, Inc. (the
"Corporation"), hereby certifies that, in accordance with Section 180.1003 of
the Wisconsin Statutes, the following Amendment was duly adopted by the Board of
Directors of the Corporation on April 24, 1996 and approved by its shareholders
on August 27, 1996 in order to eliminate the outstanding shares of the
Corporation in connection with a reorganization effected pursuant to the terms
of the Agreement and Plan of Reorganization between the Corporation and the
Strong Municipal Bond Fund, Inc., attached hereto as Exhibit A (the
"Agreement"):
1. Article IV of the Amended and Restated Articles of Incorporation is
hereby amended by adding a new Paragraph, labeled Paragraph J, and inserting the
following language:
"J. On the Closing Date (as defined in the Agreement), each
outstanding share of Common Stock of the Corporation shall be deemed
canceled and restored to the status of authorized but unissued shares, and
shall be automatically converted into the right to receive Acquiring Fund
Shares (as defined in the Agreement) in accordance with the terms of the
Agreement. Certificates representing shares of the Corporation shall be
surrendered at the time and in the manner set forth in the Agreement. Any
such certificates that remain outstanding on the Closing Date shall be
deemed to be automatically canceled, and shares represented by such
certificates shall be restored to the status of authorized but unissued
shares, and shall be automatically converted as noted above."
2. The Amendment herein certified shall become effective on the date it is
received for filing by the Secretary of State of Wisconsin.
C-1
<PAGE> 70
Executed in duplicate this 30th day of August, 1996.
STRONG INSURED MUNICIPAL
BOND FUND, INC.
By:
-------------------------------------------------------------------------------
Ann E. Oglanian, Secretary
C-2
<PAGE> 71
STRONG INSURED MUNICIPAL BOND FUND, INC
STRONG MUNICIPAL BOND FUND, INC.
P.O. Box 2936
Milwaukee, Wisconsin 53201
STATEMENT OF ADDITIONAL INFORMATION
(1996 Special Meeting of Shareholders of
Strong Insured Municipal Bond Fund, Inc.)
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Combined Proxy Statement and Prospectus, dated
July 3, 1996, for the Special Meeting of Shareholders of Strong Insured
Municipal Bond Fund, Inc. (the "Insured Fund") to be held on August 27, 1996.
Copies of the Combined Proxy Statement and Prospectus may be obtained at no
charge by writing the Insured Fund at the address shown above or by calling
1-800-368-0930.
Strong Capital Management, Inc., the Insured Fund's adviser, will waive
all unreimbursed organizational expenses for the Fund outstanding as of the
Closing Date, as defined in the Reorganization Agreement dated May 24, 1996.
Unless otherwise indicated, capitalized terms used herein and not otherwise
defined have the same meanings as are given to them in the Combined Proxy
Statement and Prospectus.
Further information about each Fund is contained in and incorporated by
reference to their respective Statements of Additional Information, dated May
1, 1996, and the Funds' Annual Report to Shareholders, dated December 31, 1995,
all of which are included herewith. Each of the aforementioned documents may
be obtained without charge by writing to the address shown above or by calling
1-800-368-0930.
PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED) OF STRONG MUNICIPAL BOND
FUND, INC. AS OF AND FOR THE PERIOD ENDED DECEMBER 31, 1995 (SEE ATTACHED).
The Pro Forma Combining Financial Statements contain the following
unaudited information:
(1) Pro Forma Statement of Operations
(2) Pro Forma Statement of Assets and Liabilities
(3) Pro Forma Schedule of Investments
The date of this Statement of Additional Information is July 3, 1996.
<PAGE> 72
GENERAL INFORMATION
The shareholders of the Insured Fund are being asked to approve or
disapprove the Reorganization Agreement dated May 24, 1996, by and among the
Insured Fund, the Bond Fund, and, with respect to certain matters, the Advisor,
and the transactions contemplated thereby. The Reorganization Agreement
contemplates the transfer of substantially all of the property and assets of
the Insured Fund in exchange for Bond Fund Shares. Following the exchange, the
Insured Fund will make a liquidating distribution of the Bond Fund Shares to
the Insured Fund's shareholders, such that an Insured Fund shareholder at the
Closing Date will receive full and fractional Bond Fund Shares having an
aggregate net asset value equal to the aggregate net asset value of the
shareholder's Insured Fund Shares. In connection with the Reorganization, the
Insured Fund's Articles of Incorporation will be amended to cancel all of the
Insured Fund's outstanding shares and to convert them into rights to receive
Bond Fund Shares, in accordance with the Reorganization Agreement. Following
the closing of the Reorganization, the Insured Fund will be deregistered as an
investment company under the 1940 Act. A Special Meeting of Shareholders of
the Insured Fund to consider the Reorganization Agreement and the transactions
contemplated thereby will be held at 100 Heritage Reserve, Menomonee Falls,
Wisconsin, on Tuesday, August 27, 1996, at 8:00 a.m. Central Time, or at such
other location, date, or time as may be selected by the Chairman of the Board
or the President of the Insured Fund, or at any adjournment thereof. For
further information about the transaction, see the Combined Proxy Statement and
Prospectus.
2
<PAGE> 73
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES
================================================================================
December 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Amounts)
STRONG INSURED
MUNICIPAL BOND STRONG MUNICIPAL PRO FORMA PRO FORMA
FUND BOND FUND ADJUSTMENTS COMBINED
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in Securities, At Value
(Cost of $38,269 and $250,903, respectively) $ 39,351 $255,987 -- $295,338
Interest Receivable 436 3,664 -- 4,100
Other 845 2,923 -- 3,768
----------- -------- ----- --------
Total Assets 40,632 262,574 -- 303,206
LIABILITIES:
Payable to Brokers for Securities Purchased 14,576 -- 15,510
Dividends Payable 136 1,072 -- 1,208
Accrued Operating Expenses and Other Liabilities 89 202 ($12) 279
----------- -------- ----- --------
Total Liabilities 1,159 15,850 (12) 16,997
----------- -------- ----- --------
NET ASSETS $ 39,473 $246,724 $ 12 $286,209
=========== ======== ===== ========
Capital Shares
Authorized 10,000,000 100,000 100,000
Outstanding 3,699 25,906 447 (C) 30,052
NET ASSET VALUE PER SHARE $ 10.67 $ 9.52 $ 9.52
=========== ======== ========
</TABLE>
See notes to pro forma financial statements.
3
<PAGE> 74
PRO FORMA STATEMENT OF OPERATIONS
================================================================================
For the Year Ended December 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
(In Thousands)
STRONG INSURED STRONG
MUNICIPAL MUNICIPAL PRO FORMA PRO FORMA
BOND FUND BOND FUND ADJUSTMENTS COMBINED
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 2,351 $17,629 -- $ 19,980
EXPENSES:
Investment Advisory Fees 210 1,704 $ 42 (a) 1,956
Custodian Fees 11 40 -- 51
Shareholder Servicing Costs 77 407 -- 484
Reports to Shareholders 27 113 -- 140
Federal and State Registration Fees 31 47 -- 78
Other 57 59 (54) (b) 62
------- ------- ---- --------
Expenses, Net 413 2,370 (12) 2,771
------- ------- ---- --------
NET INVESTMENT INCOME 1,938 15,259 12 17,209
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 3,388 17,409 -- 20,797
Futures Contracts and Options (1,087) (9,194) -- (10,281)
Change in Unrealized Appreciation/Depreciation on
Investments 945 6,852 -- 7,797
------- ------- ---- --------
NET GAIN 3,246 15,067 -- 18,313
------- ------- ---- --------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 5,184 $30,326 $ 12 $ 35,522
======= ======= ==== ========
</TABLE>
See notes to pro forma financial statements.
4
<PAGE> 75
PRO FORMA SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
PRINCIPAL AMOUNT MARKET VALUE
(HISTORICAL) (HISTORICAL)
-----------------------------------------------------------------------------
STRONG STRONG COMBINED STRONG STRONG COMBINED
MUNICIPAL INSURED MUNICIPAL INSURED
BOND MUNICIPAL BOND MUNICIPAL
SECURITY BOND BOND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MUNICIPAL BONDS
ALABAMA
Northeast Morgan County, Alabama Water
Authority Water Revenue, 5.50%, Due 5/01/15 $1,325 $1,000 $2,325 $1,332 $1,005 $2,337
ARIZONA
Phoenix, Arizona IDA Mortgage Revenue
Refunding - Christian Care Retirement
Apartments, Inc. Project, 6.25%, Due 1/01/16 4,740 4,740 4,622 4,622
CALIFORNIA
California Housing Finance Agency Home
Mortgage Revenue, Zero %, Due 8/01/20 4,000 4,000 585 585
California Housing Finance Agency Home
Mortgage Revenue, 6.05%, Due 8/01/15 500 500 510 510
Fresno, California Housing Authority MFHR -
Shaw Gardens/Village Apartments, 5.60%,
Due 12/01/05 (c) 1,000 1,000 1,016 1,016
Los Angeles, California Wastewater System
Revenue Refunding, 5.20%, Due 11/01/21 4,360 1,000 5,360 4,256 976 5,232
San Bernardino, California Joint Powers Financing
Authority Tax Allocation Refunding, 5.75%,
Due 10/01/25 1,500 1,500 1,523 1,523
Student Education Loan Marketing Corporation
Student Loan Program Revenue - California
Senior Subordinate, 7.00%, Due 7/01/10 3,000 3,000 3,161 3,161
Vista, California Community Development
Commission Tax Allocation - Vista
Redevelopment Project Area, 6.00%,
Due 9/01/25 1,735 1,735 1,807 1,807
---------------------------------
9,018 4,816 13,834
COLORADO
Adams County, Colorado MFHR Refunding - Oasis
Park Apartments Project, 6.15%, Due 1/01/26 6,660 6,660 6,802 6,802
Adams County, Colorado Multi-County
SFMR, Zero %, Due 6/01/16 1,245 1,245 388 388
Boulder County, Colorado MFHR - GNMA
Collateralized - The Legacy Apartments
Project, 6.10%, Due 11/20/25 3,285 3,285 3,306 3,306
Colorado Health Facilities Authority Hospital
Revenue - PSL Healthcare System Project,
8.25%, Due 2/15/06 1,000 1,000 1,025 1,025
Colorado Springs, Colorado Utilities System
Refunding Revenue, 6.125%, Due 11/15/20 3,400 3,400 3,553 3,553
Denver, Colorado City and County Airport System
Revenue, 5.40%, Due 11/15/08 785 785 796 796
</TABLE>
5
<PAGE> 76
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Denver, Colorado City and County Airport
Revenue, 7.50%, Due 11/15/25 2,000 2,000 2,095 2,095
-------------------------------
17,169 796 17,965
DELAWARE
Delaware EDA Hospital Revenue - Osteopathic
Hospital Association of Delaware/Riverside
Hospital:
6.00%, Due 1/01/03 1,915 1,915 1,992 1,992
6.50%, Due 1/01/08 2,695 2,695 2,857 2,857
6.75%, Due 1/01/13 2,760 2,760 2,967 2,967
-------------------------------
7,816 - 7,816
DISTRICT OF COLUMBIA
District of Columbia GO, 6.75%, Due 6/01/08 1,500 1,500 1,620 1,620
District of Columbia Hospital Revenue - National
Rehabilitation Hospital, Inc. - Medlantic
Healthcare Group, 7.00%, Due 8/15/05 10,730 10,730 11,521 11,521
-------------------------------
11,521 1,620 13,141
FLORIDA
Collier County, Florida School Board Master Lease
Program COP, 5.00%, Due 2/15/16 5,750 1,250 7,000 5,534 1,203 6,737
Florida Housing Finance Agency Housing Revenue -
Brittany of Rosemont Phase II Apartments
Project:
6.05%, Due 7/01/15 1,000 1,000 1,027 1,027
6.25%, Due 7/01/35 855 855 882 882
Florida Housing Finance Agency Housing Revenue -
Holly Cove Apartments Project:
6.05%, Due 10/01/15 500 500 520 520
6.15%, Due 10/01/25 500 500 520 520
Florida Housing Finance Agency Housing
Revenue - Landings at Boot Ranch West
Apartments Project:
5.875%, Due 11/01/15 475 475 481 481
6.00%, Due 11/01/25 1,590 1,590 1,614 1,614
6.10%, Due 11/01/35 2,500 2,500 2,547 2,547
-------------------------------
8,562 5,766 14,328
GEORGIA
Savannah, Georgia Hospital Authority Revenue
Refunding and Improvement - Candler Hospital,
7.00%, Due 1/01/23 2,000 2,000 2,060 2,060
GUAM
Guam Government GO:
4.70%, Due 11/15/02 1,500 1,500 1,434 1,434
5.75%, Due 9/01/04 1,000 1,000 1,002 1,002
-------------------------------
2,436 - 2,436
IDAHO
Idaho Housing Agency Housing Revenue - FHA
Insured Mortgage Loan - Park Place Project,
6.50%, Due 12/01/36 5,310 5,310 5,536 5,536
Idaho Housing Agency SFMR, 6.45%, Due
7/01/27 4,000 4,000 4,195 4,195
--------------------------------
</TABLE>
6
<PAGE> 77
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
9,731 - 9,731
ILLINOIS
Chicago, Illinois Water Revenue, 5.00%,
Due 11/01/20 5,000 5,000 4,700 4,700
Cook and DuPage Counties, Illinois Lemont-
Bromberek Combined School District No.
113A, Capital Appreciation School Building:
Zero %, Due 12/01/09 3,320 3,320 1,569 1,569
Zero %, Due 12/01/10 3,485 3,485 1,551 1,551
Zero %, Due 12/01/11 3,660 3,660 1,533 1,533
Zero %, Due 12/01/12 4,100 4,100 1,630 1,630
Zero %, Due 12/01/13 4,305 4,305 1,609 1,609
Granite City, Illinois Hospital Revenue
Refunding - Saint Elizabeth Medical Center,
8.125%, Due 6/01/08 6,000 6,000 6,315 6,315
Illinois Health Facilities Authority Revenue and
Revenue Refunding - Evangelical Hospitals
Corporation, 6.25%, Due 4/15/22 1,800 1,800 1,865 1,865
Metropolitan Pier and Exposition Authority -
50% McCormick Place Expansion Project,
Zero %, Due 6/15/15 5,440 5,440 1,836 1,836
-------------------------------
19,210 3,398 22,608
INDIANA
Indiana Health Facility Financing Authority
Hospital Revenue - Jackson County Schneck
Memorial Hospital Project:
7.50%, Due 2/15/12 1,000 1,000 1,072 1,072
7.50%, Due 2/15/22 7,790 7,790 8,306 8,306
LaPorte and St. Joseph Counties, Indiana New
Prairie United School Building Corporation
First Mortgage Refunding, 5.50%, Due
7/05/20 3,690 3,690 3,644 3,644
-------------------------------
13,022 - 13,022
KENTUCKY
Martin County, Kentucky Mortgage Revenue
Refunding - FHA Insured Mortgage Loan -
Section 8 Assisted Project, 6.25%, Due
7/01/23 2,400 2,400 2,439 2,439
LOUISIANA
Orleans, Louisiana Levee District Levee
Improvement, 5.95%, Due 11/01/14 6,000 1,400 7,400 6,202 1,447 7,649
Orleans Parish, Louisiana Parishwide School
District GO, 7.50%, Due 9/01/20 1,500 1,500 1,779 1,779
-------------------------------
6,202 3,226 9,428
MAINE
Maine Housing Authority Mortgage Purchase,
6.125%, Due 11/15/12 850 850 871 871
6.25%, Due 11/15/24 1,450 1,000 2,450 1,479 1,020 2,499
-------------------------------
1,479 1,891 3,370
MASSACHUSETTS
Massachusetts Industrial Finance Agency First
Mortgage Revenue - Reeds Landing Project,
7.75%, Due 10/01/00 3,415 3,415 3,513 3,513
Massachusetts Water Resources Authority General
Revenue, 5.00%, Due 12/01/16 1,000 1,000 969 969
-------------------------------
</TABLE>
7
<PAGE> 78
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
3,513 969 4,482
MICHIGAN
Greater Detroit, Michigan Resource Recovery
Authority Revenue:
Series C, 9.25%, Due 12/13/08 4,000 4,000 4,130 4,130
Series E, 9.25%, Due 12/13/08 1,000 1,000 1,032 1,032
Michigan State HDA SFMR, 6.25%, Due
12/01/18 3,000 3,000 3,067 3,067
Michigan State Hospital Finance Authority
Hospital Revenue Refunding - Sisters of Mercy
Health Corporation Obligated Group, 5.25%,
Due 8/15/21 1,000 1,000 2,000 974 974 1,948
St. Louis, Michigan Public Schools Refunding
GO, 5.25%, Due 5/01/24 755 755 730 730
--------------------------------
9,203 1,704 10,907
MINNESOTA
Minnesota Housing Finance Agency Rental
Housing, 5.95%, Due 2/01/18 1,500 1,500 1,526 1,526
New Hope, Minnesota MFHR Development
Refunding - GNMA Collateralized - North
Ridge Care Center, Inc. Project:
6.05%, Due 1/01/17 450 450 459 459
6.20%, Due 1/01/31 2,970 2,970 3,029 3,029
St. Paul, Minnesota Housing & Redevelopment
Authority Sales Tax Revenue - Civic Center
Project, 5.45%, Due 11/01/13 1,560 1,560 1,580 1,580
Twin Valley, Minnesota Mortgage Revenue
Refunding - FHA Insured Mortgage Loan -
Lutheran Memorial Home Project, 6.05%,
Due 2/01/18 1,035 1,035 1,049 1,049
--------------------------------
6,117 1,526 7,643
MISSISSIPPI
Delta, Mississippi Correctional Facility Authority
Mortgage Revenue, 5.80%, Due 7/01/15 1,900 1,900 1,917 1,917
NEBRASKA
Nebraska IFA MFHR, 6.20%, Due 6/01/28 4,000 4,000 4,125 4,125
Nebraska IFA MFHR Refunding - Wycliffe West
Apartments Project, 5.50%, Due 12/01/05 5,000 5,000 5,100 5,100
--------------------------------
9,225 - 9,225
NEVADA
Nevada Housing Division Single Family Program,
6.20%, Due 10/01/23 3,000 3,000 3,030 3,030
NEW JERSEY
New Jersey Housing and Mortgage Finance
Agency Home Buyer Revenue, 6.95%,
Due 10/01/22 1,750 1,750 1,859 1,859
NEW MEXICO
New Mexico Educational Assistance Foundation
Student Loan Program:
5.50%, Due 11/01/03 1,345 1,345 1,345 1,345
5.85%, Due 11/01/06 1,825 1,825 1,832 1,832
Santa Fe, New Mexico SFMR, 8.45%,
Due 12/01/11 457 457 495 495
--------------------------------
3,672 - 3,672
</TABLE>
8
<PAGE> 79
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
NEW YORK
New York State Medical Care Facilities Finance
Agency Mental Health Services Facilities
Improvement Revenue, 5.25%, Due 2/15/19 6,000 1,500 7,500 5,872 1,468 7,340
OHIO
Cuyahoga County, Ohio Hospital Revenue -
Fairview General and Lutheran Hospital,
6.25%, 8/15/10 1,250 1,250 1,336 1,336
Medina County, Ohio Economic Development
MFHR - Camelot Place, Ltd. Project, 8.375%,
Due 10/01/23 3,800 3,800 3,781 3,781
Springdale, Ohio Hospital Facilities First Mortgage
Revenue - Southwestern Ohio Seniors'
Services, Inc., 6.00%, Due 11/01/18 1,700 1,700 1,655 1,655
-----------------------------
5,436 1,336 6,772
OKLAHOMA
McAlester, Oklahoma Public Works Authority
Refunding and Improvement Revenue:
5.25%, Due 12/01/18 560 560 545 545
5.25%, Due 12/01/19 1,000 1,000 974 974
Shawnee, Oklahoma Hospital Authority Revenue -
MidAmerica HealthCare, Inc., 8.00%,
Due 4/01/04 3,165 3,165 3,438 3,438
-----------------------------
3,438 1,519 4,957
PENNSYLVANIA
Blair County, Pennsylvania Hospital Authority First
Mortgage Revenue, Mercy Hospital Sublessee,
8.125%, Due 2/01/14 6,000 6,000 6,412 6,412
Lehigh County, Pennsylvania IDA PCR -
Pennsylvania Power & Light Company Project,
6.40%, Due 11/01/21 1,765 1,765 1,900 1,900
Philadelphia, Pennsylvania School District GO
Refunding, 5.50%, Due 9/01/25 3,000 3,000 2,992 2,992
------------------------------
9,404 1,900 11,304
SOUTH CAROLINA
Berkeley County, South Carolina School District,
Berkeley School Facilities Group, Inc. COP,
5.25%, Due 2/01/16 4,500 4,500 4,399 4,399
Kershaw County, South Carolina Hospital Facilities
Revenue Refunding - Kershaw County Memorial
Hospital Project, 8.00%, Due 9/15/17 1,435 1,435 1,521 1,521
Piedmont, South Carolina Municipal Power
Agency Electric Revenue Refunding, 7.25%,
Due 1/01/22 1,850 1,850 1,894 1,894
South Carolina State Housing Finance and
Development Authority Mortgage Revenue
Refunding - FHA Insured Mortgage Loan -
Heritage Court Apartments Section 8 Assisted
Project, 6.15%, Due 7/01/25 2,900 2,900 2,951 2,951
-------------------------------
10,765 - 10,765
SOUTH DAKOTA
South Dakota Student Loan Corporation
Student Loan Revenue:
</TABLE>
9
<PAGE> 80
<TABLE>
<S> <C> <C> <C> <C> <C>
6.15%, Due 8/01/03 5,250 5,250 5,381 5,381
7.625%, Due 8/01/06 6,455 6,455 6,867 6,867
--------------------------------
12,248 - 12,248
TENNESSEE
Knox County, Tennessee IDB MFMR Refunding -
FHA Insured Mortgage Loan - Waterford Village
Apartments Project, 5.95%, Due 3/01/28 1,250 1,250 1,255 1,255
TEXAS
El Paso, Texas Property Finance Authority, Inc.
SFMR - GNMA Mortgage-Backed, 8.70%,
Due 12/01/18 540 210 750 591 230 821
Lufkin, Texas Health Facilities Development
Corporation Health System Revenue and
Refunding - Memorial Health System of East
Texas, 6.875%, Due 2/15/26 3,000 3,000 2,977 2,977
North Central Texas Health Facilities Development
Corporation - Tri-City Health Centre, Inc. Project,
9.50%, Due 5/01/21 10,000 10,000 9,500 9,500
Port Arthur, Texas HFC Mortgage Revenue
Refunding - FHA Insured Mortgage Loans -
Port Arthur UDAG Projects, 6.40%,
Due 1/01/28 3,565 3,565 3,574 3,574
Ranger, Texas Housing Corporation MFMR
Refunding - FHA Insured Mortgage Loan -
Ranger Apartments Project, 8.80%, Due
3/01/24 1,160 1,160 1,309 1,309
Southeast Texas HFC SFMR, Zero %, Due 9/01/11 100 100 20 20
Texas Turnpike Authority Dallas North Tollway
System Revenue - President George Bush
Turnpike Project, 5.25%, Due 1/01/23 5,000 5,000 4,906 4,906
--------------------------------
22,857 250 23,107
WASHINGTON
Washington Health Care Facilities Authority
Revenue - Sisters of Providence, 6.25%,
Due 10/01/13 5,000 5,000 5,144 5,144
Washington Public Power Supply System Nuclear
Project No. 2 Refunding Revenue, 6.00%,
Due 7/01/12 1,000 1,000 1,014 1,014
Washington Public Power Supply System Nuclear
Project No. 3 Refunding Revenue, 5.60%,
Due 7/01/17 1,500 1,500 1,502 1,502
-------------------------------
6,158 1,502 7,660
WYOMING
Wyoming Community Development Authority
Housing Revenue, 6.25%, Due 6/01/27 10,000 10,000 10,188 10,188
--------------------------------
TOTAL MUNICIPAL BONDS 240,917 36,551 277,468
CASH EQUIVALENTS
DAILY VARIABLE RATE PUT BONDS
ARIZONA
Maricopa County, Arizona Pollution Control
Corporation PCR Refunding - Arizona Public
Service Company Palo Verde Project 3,000 3,000 3,000 3,000
CALIFORNIA
Los Angeles, California Regional Airports
</TABLE>
10
<PAGE> 81
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Improvement Corporation Facilities Sublease
Revenue - LAX Two Corporation - Los Angeles
International Airport $9,000 9,000 9,000 9,000
ILLINOIS
Illinois DFA IDR - Webster-Wayne Shopping
Center Project 170 170 170 170
INDIANA
Rockport, Indiana PCR Refunding - AEP Generating
Company Project 1,700 1,700 1,700 1,700
LOUISIANA
Louisiana Recovery District Sales Tax 1,100 1,100 1,100 1,100
TENNESSEE
Bradley County, Tennessee IDB Revenue
Refunding - Olin Corporation Projects 2,900 2,900 2,900 2,900
-------------------------------------
TOTAL DAILY VARIABLE RATE PUT BONDS 15,070 2,800 17,870
-------------------------------------
TOTAL INVESTMENTS IN SECURITIES $255,987 $39,351 $295,338
-------------------------------------
TOTAL COST OF INVESTMENTS $250,903 $38,269 $289,172
-------------------------------------
</TABLE>
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
The accompanying unaudited pro forma schedule of investments and statement
of assets and liabilities as of December 31, 1995 and the unaudited pro forma
combining statement of operations for the fiscal year ended December 31, 1995
are intended to present the results of operations of Strong Municipal Bond
Fund, Inc. as if the combination with Strong Insured Municipal Bond Fund, Inc.
had been consummated on January 1, 1995.
The pro forma adjustments to these pro forma financial statements reflect:
(a) An increase in expenses due to a higher management fee.
(b) A reduction in expenses due to elimination of duplicate service fees.
(c) New shares issued.
The unaudited pro forma combining statements should be read in connection with
the Funds' Annual Report to Shareholders, dated December 31, 1995, all of which
are included herewith.
11
