<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
STRONG SHORT - TERM BOND FUND, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
STRONG SHORT - TERM BOND FUND, INC.
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
- - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - --------------------------------------------------------------------------------
(5) Total fee paid:
- - --------------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
- - --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- - --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- - --------------------------------------------------------------------------------
(3) Filing party:
- - --------------------------------------------------------------------------------
(4) Date filed:
- - --------------------------------------------------------------------------------
<PAGE> 2
<PAGE> 1
STRONG INCOME FUNDS
You are cordially invited to the
STRONG FUNDS ANNUAL MEETING
Thursday, April 13, 1995
Italian Community Center Grand Ballroom
631 East Chicago Street
Milwaukee, Wisconsin
<TABLE>
<S> <C>
9:00 a.m. Investment Strategy Discussion
Questions & Answers
10:00 a.m. Annual Meeting
Questions & Answers
</TABLE>
To make a reservation, call 1-800-368-0930.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
This document describes a number of important proposals affecting the Strong
Funds in which you are invested. The package also includes a proxy card that you
can use to tell us how to vote on your behalf.
Please review and consider each of the issues carefully, and then complete the
enclosed proxy card and return it in the postage-paid envelope provided.
YOUR VOTE IS IMPORTANT.
NO MATTER HOW MANY SHARES YOU OWN, PLEASE VOTE. BECAUSE WE RESOLICIT
SHAREHOLDERS WHO DO NOT RETURN THEIR PROXIES, YOUR PROMPTNESS SAVES YOUR FUND
THE EXPENSE OF CONDUCTING FOLLOW-UP MAILINGS AND TELEPHONE CALLS.
PLEASE REVIEW THE MATERIALS AND VOTE TODAY.
G-3
<PAGE> 2
STRONG U.S. TREASURY MONEY FUND, INC.
STRONG MONEY MARKET FUND, INC.
STRONG ADVANTAGE FUND, INC.
STRONG SHORT-TERM BOND FUND, INC.
STRONG GOVERNMENT SECURITIES FUND, INC.
STRONG INCOME FUND, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that an Annual Meeting of Shareholders of each Fund as
noted above will be held jointly at the Italian Community Center, 631 E. Chicago
Street, Milwaukee, Wisconsin, on Thursday, April 13, 1995, at 10:00 a.m., local
time, to consider and act upon the proposals noted below and to transact such
other business as may properly come before the Meeting or any adjournments
thereof. PLEASE REFER TO THE TABLE ON PAGE 5 THAT INDICATES WHICH FUND'S
SHAREHOLDERS ARE SOLICITED WITH RESPECT TO EACH PROPOSAL.
1. To elect directors;
2. To ratify Coopers & Lybrand L.L.P. as independent public accountants;
3. To adopt and ratify a revised Advisory Agreement;
4. To adopt revised Articles of Incorporation;
5. A. To change the Fund's name; and
B. To amend the investment objective.
ADOPTION OF STANDARD INVESTMENT LIMITATIONS:
6. To amend or adopt a fundamental investment limitation concerning:
A. Diversification;
B. Concentration;
C. Lending;
D. Purchasing or selling real estate;
E. Borrowing;
F. Underwriting securities;
G. Purchasing or selling financial commodities;
H. Issuing senior securities; and
I. Investing in another open-end investment company with substantially the
same investment objective and policies (pooling funds).
7. To eliminate fundamental investment limitations concerning:
A. Short sales;
B. Use of margin;
C. Illiquid and restricted securities;
D. Purchase of investment company securities;
E. Purchasing securities of newly-formed issuers;
F. Warrants;
2
<PAGE> 3
G. Investing in oil and gas interests;
H. Futures and options;
I. Pledging assets;
J. Securities investments of directors and officers;
K. Fund portfolio transactions with directors and officers;
L. Investing in securities for the purpose of management or control;
M. Participating on a joint basis in any trading account; and
N. Purchasing restricted securities of a single issuer.
Only shareholders of record at the close of business on February 16, 1995, the
record date for this Meeting, shall be entitled to notice of, and to vote at,
the Meeting or any adjournments thereof.
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY CARD PROMPTLY.
- - --------------------------------------------------------------------------------
AS A SHAREHOLDER OF A FUND, YOU ARE ASKED TO ATTEND THE MEETING EITHER IN PERSON
OR BY PROXY. IF YOU ARE UNABLE TO ATTEND THE 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 MEETING AND AVOID ADDITIONAL EXPENSES TO THE FUNDS ASSOCIATED WITH FURTHER
SOLICITATION. SENDING IN YOUR PROXY WILL NOT PREVENT YOU FROM VOTING YOUR SHARES
IN PERSON AT THE MEETING AND YOU MAY REVOKE YOUR PROXY BY ADVISING THE SECRETARY
OF THE FUNDS 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
February 16, 1995
3
<PAGE> 4
STRONG U.S. TREASURY MONEY FUND, INC.
STRONG MONEY MARKET FUND, INC.
STRONG ADVANTAGE FUND, INC.
STRONG SHORT-TERM BOND FUND, INC.
STRONG GOVERNMENT SECURITIES FUND, INC.
STRONG INCOME FUND, INC.
100 HERITAGE RESERVE
MENOMONEE FALLS, WISCONSIN 53051
PROXY STATEMENT
The enclosed proxy is being solicited by and on behalf of the Board of
Directors (the Directors) of the Funds, as set forth above (each a Fund and
collectively the Funds), for use at an Annual Meeting (Meeting) of Shareholders
of the Funds to be held jointly at the Italian Community Center, 631 E. Chicago
Street, Milwaukee, Wisconsin, on Thursday, April 13, 1995, at 10:00 a.m., local
time, and any adjournments thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareholders (the Notice). The Notice,
this Proxy Statement, and the accompanying proxy card(s) were first mailed to
shareholders on or about February 16, 1995. Subject to shareholder approval,
each item will become effective on or about May 1, 1995. If a proposal is not
approved, the item will remain unchanged.
The following table indicates which Fund's shareholders are solicited with
respect to each proposal.
4
<PAGE> 5
SUMMARY OF PROPOSALS
<TABLE>
<CAPTION>
U.S. Short-Term Government
Proposals Treasury Money Advantage Bond Securities Income
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. Elect Directors X X X X X X
2. Ratify Selection of Auditors X X X X X X
3. Adopt Advisory Agreement X X X X X X
4. Adopt Revised Articles X X X X X X
5A. Change the Fund's Name X
5B. Amend the Investment Objective X X X X X X
6. Amend or Adopt a Fundamental
Investment Limitation Concerning:
6A. Diversification X X X X X X
6B. Concentration X X X X X X
6C. Lending X X X X X X
6D. Selling Real Estate X X X X X X
6E. Borrowing X X X X X X
6F. Underwriting Securities X X X X X X
6G. Financial Commodities X X X X X X
6H. Senior Securities X X X X X X
6I. Pooled Fund Structures X X X X X X
7. Eliminate a Fundamental Investment
Limitation Concerning:
7A. Short Sales of Securities X X X X X X
7B. Use of Margin X X X X X X
7C. Illiquid and Restricted
Securities X X X X
7D. Investment Company Securities X X X X X X
7E. Securities of Newly-Formed
Issuers X X X X X X
7F. Warrants X X
7G. Investing in Oil and Gas
Interests X X X X X X
7H. Futures and Options X X X X X X
7I. Pledging Assets X X X X X X
7J. Investments of Directors and
Officers X X X X X X
7K. Fund Portfolio Transactions X X X X X X
7L. Investing for Management or
Control X X X X X X
7M. Joint Basis Trading Accounts X X X X X X
7N. Restricted Securities X
</TABLE>
Shareholders may vote only on matters which concern the Fund or Funds in which
they hold shares. The record holders of outstanding shares of each Fund are
entitled to one vote per share (and a fractional vote per fractional share) on
all matters presented at the Meeting. Whether you expect to be personally
present at the Meeting or not, please complete, sign, date, and return the
accompanying proxy card (or cards if you have multiple accounts). Properly
executed proxies will be voted as you instruct. If no choice is indicated,
proxies will be voted FOR the specific proposals set forth in the Notice, and in
accordance with the best judgment of the persons named as proxies in the
enclosed proxy card(s) on such other business or matters that properly may come
before the Meeting. Any shareholder giving a proxy has the power to revoke it at
any time before the meeting by advising the Secretary of the Funds in writing
(by subsequent proxy or otherwise) of
5
<PAGE> 6
such revocation at any time before it is voted. If not so revoked, the shares
represented by the proxy will be voted at the Meeting and any adjournments
thereof. Attendance by a shareholder at the Meeting does not in itself revoke a
proxy.
Under each Fund's Bylaws, a quorum is constituted by the presence in person or
by proxy of a majority of the outstanding shares of common stock of a Fund
entitled to vote at the Meeting. Abstentions and broker non-votes (i.e., proxies
from brokers or nominees indicating that they have not received instructions
from the beneficial owners on an item for which the brokers or nominees do not
have discretionary power to vote) will be treated as present for determining the
quorum. Broker non-votes will not be counted as voting on any matter at the
Meeting, except that for any proposal requiring the affirmative vote of a Fund's
outstanding shares for approval, a broker non-vote will have the effect of a
vote against the proposal. In the event that a quorum is present at the Meeting
but sufficient votes to approve any of the proposals are not received, the
persons named as proxies may propose one or more adjournments of the Meeting to
permit further solicitation of proxies. Any such adjournment will be approved if
the votes cast in favor of such adjournment exceed the votes cast opposing such
adjournment. It is anticipated that the persons named as proxies will vote in
favor of any such adjournment.
Proxies will be solicited primarily by mail. The solicitation may also include
telephone, facsimile, telegraph, or oral communications by certain officers and
employees of each Fund's investment advisor, Strong Capital Management, Inc.
(SCM), who will not be paid for these services, and/or by D. F. King & Co.,
Inc., a professional proxy solicitor retained by the Funds for an estimated fee
of $80,000, plus out-of-pocket expenses. Except for the services provided by
SCM, the Funds will pay the costs of the Meeting, the solicitation of proxies,
and the fees of D. F. King & Co., Inc., as incurred by each Fund. The Funds will
also reimburse brokers and other nominees for their reasonable expenses in
communicating with the person(s) for whom they hold shares of the Funds.
Only the shareholders of record of each Fund at the close of business on
February 16, 1995 (the Record Date), will be entitled to notice of, and to vote
at, the Meeting or any adjournments thereof. As of January 31, 1995, there were
issued and outstanding shares of common stock for each Fund in the following
amounts: U.S. Treasury, 55,438,651; Money, 844,205,356; Advantage, 86,832,992;
Short-Term Bond, 106,024,309; Government Securities, 28,132,919; Income,
13,518,585. As of January 31, 1995, Charles Schwab & Co., Inc., 101 Montgomery
Street, San Francisco, California 94104, owned of record more than 5% of the
Funds' outstanding shares:
<TABLE>
<CAPTION>
Fund Shares Percentage
- - -----------------------------------------------------------------------
<S> <C> <C>
Advantage 20,234,783 23.30%
Short-Term Bond 14,695,027 13.86
Government Securities 9,322,359 33.14
Income 1,042,404 7.71
</TABLE>
A copy of a Fund's Annual Report is available without charge upon request by
writing to P.O. Box 2936, Milwaukee, Wisconsin 53201 or by calling
1-800-368-3863.
6
<PAGE> 7
VOTE REQUIRED: PROPOSAL 1 SHALL BE APPROVED BY A PLURALITY OF ALL VOTES CAST AT
THE MEETING. PROPOSAL 2 SHALL BE APPROVED IF THE VOTES CAST AT THE MEETING IN
FAVOR OF THE PROPOSAL EXCEED THE VOTES CAST OPPOSING SUCH PROPOSAL. PROPOSAL 4
REQUIRES THE AFFIRMATIVE VOTE OF A MAJORITY OF A FUND'S OUTSTANDING SHARES.
APPROVAL OF THE REMAINING PROPOSALS REQUIRE THE AFFIRMATIVE VOTE OF A "MAJORITY
OF THE OUTSTANDING VOTING SECURITIES" OF A FUND. UNDER THE INVESTMENT COMPANY
ACT OF 1940 (THE 1940 ACT), A "MAJORITY OF THE OUTSTANDING VOTING SECURITIES"
MEANS THE AFFIRMATIVE VOTE OF THE LESSER OF (A) 67% OR MORE OF THE SHARES OF A
FUND PRESENT AT THE MEETING OR REPRESENTED BY PROXY IF THE HOLDERS OF MORE THAN
50% OF THE OUTSTANDING SHARES ARE PRESENT AT THE MEETING OR REPRESENTED BY PROXY
OR (B) MORE THAN 50% OF THE OUTSTANDING SHARES.
1. TO ELECT DIRECTORS.
The Directors have fixed the number of Directors for election at the Meeting
at six for each Fund. Each Director shall hold office until a successor is
elected and qualified or until the Director's death, resignation, or removal.
Messrs. Strong, Nevins, and Davis, named below as nominees, are currently
Directors and have served in that capacity since originally elected or appointed
to the Board. Messrs. Strong and Nevins have served as Directors since each
Fund's inception. Mr. Davis has served as a Director since July 22, 1994. Mr.
Dragisic, also named below as a nominee, served the Funds as a Director as noted
in the table below. The current Directors also act as Directors for all of the
Strong Funds, which consist of twenty-four separately incorporated, diversified
and non-diversified funds. A shareholder using the enclosed proxy card(s) can
vote for or against any or all of the nominees. In the election of Directors,
those six nominees receiving the highest number of votes cast at the Meeting
shall be elected, provided that a quorum is present. Each of the nominees has
consented to be named in this Proxy Statement and to serve as a Director if
elected. The Directors have no reason to believe that any of the nominees will
become unavailable for election as a Director, but if that should occur before
the Meeting, proxies will be voted for such persons as the Directors may
recommend. More detailed information concerning nominees for Director follows:
7
<PAGE> 8
<TABLE>
<CAPTION>
Name (Age), Funds, Shares Principal Occupation For
Position(s) Owned,(1)(6) Last Five Years,
with Funds, Address Director Since Directorships(2)
- - ------------------------------------------------------------------------------
<S> <C> <C>
Richard S. U.S. Treasury: 50,000 Director and Chairman of the
Strong(3)(4) 1989 Board of SCM. Chief Investment
(52) Officer of SCM (1991).
Director and Chairman Money: 1,357,114
P.O. Box 2936 1986 Director and Chairman of
Milwaukee, WI 53201 Strong Holdings, Inc. and
Advantage: 5,000 Strong Funds Distributors,
1988 Inc. (1993). Director and
Chairman of Heritage Reserve
Short-Term Bond: 5,000 Development Corporation
1987 (1994). Member of the Managing
Boards of Fussville Real
Government: 5,000 Estate Holdings L.L.C. and
1986 Fussville Development L.L.C.
(1994). Director and Chairman
Income: 5,000 of the Strong Funds.
1985
- - ------------------------------------------------------------------------------
John Dragisic(4)(5) U.S. Treasury: 1,000 Vice Chairman of SCM (1994).
(54) Nominee
Vice Chairman Money: 1,000 President and Chief Executive
P.O. Box 2936 Nominee Officer of Grunau Company,
Milwaukee, WI 53201 Inc. (1987-1994). Director of
Advantage: 101 the Strong Funds (1991-1994).
Nominee Director of Strong Holdings,
Inc. and Strong Funds
Short-Term Bond: 4,915 Distributors, Inc. (1994).
Nominee Vice Chairman of Strong Funds
Government: 103 (1994).
Nominee
Income: 109
Nominee
- - ------------------------------------------------------------------------------
Marvin E. Nevins U.S. Treasury: 5,005 Private Investor.
(76) 1989
Director Chairman of Wisconsin
6075 Pelican Bay Money: 33,360 Centrifugal Inc. (1945-1980).
Blvd. 1986 Chairman of General Casting
Naples, FL 33962 Corp. (1983-1986). Formerly
Advantage: 45,452 Chairman of the Wisconsin
1988 Association of Manufacturers &
Commerce, Regent of the
Short-Term Bond: 18,830 Milwaukee School of
1987 Engineering, and member of the
Board of Trustees of the
Government: 10,505 Medical College of Wisconsin.
1986
Income: 14,612
1985
- - ------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Name (Age), Funds, Shares Principal Occupation For
Position(s) Owned,(1)(6) Last Five Years,
with Funds, Address Director Since Directorships(2)
- - ------------------------------------------------------------------------------
<S> <C> <C>
Willie D. Davis U.S. Treasury: 1,137 President and Chief Executive
(60) July, 1994 Officer of All Pro
Director Broadcasting, Inc.
161 North La Brea Money: 1,137
Inglewood, CA 90301 July, 1994 Director of Alliance Bank,
Sara Lee Corporation, KMart
Advantage: 114 Corporation, YMCA Metropolitan
July, 1994 -Los Angeles, Dow Chemical
Company, MGM Grand, Inc.,
Short-Term Bond: 121 WICOR, Inc., Johnson Controls,
July, 1994 Inc., L.A. Gear, and Rally's
Hamburger, Inc. Trustee of the
Government: 117 University of Chicago,
July, 1994 Marquette University, and
Occidental College. Director
Income: 122 of the Fireman's Fund (1975-
July, 1994 1990).
- - ------------------------------------------------------------------------------
Mr. Stanley Kritzik U.S. Treasury: 1,191 Partner, Metropolitan
(65) Nominee Associates.
Nominee
1123 North Astor Money: 1,191 Director, Aurora Health Care
Street Nominee and Health Network Ventures,
Milwaukee, WI 53202 Inc.
Advantage: 120
Nominee
Short-Term Bond: 127
Nominee
Government: 123
Nominee
Income: 127
Nominee
- - ------------------------------------------------------------------------------
Mr. William F. Vogt U.S. Treasury: 2,085 President, Vogt Management
(47) Nominee Consulting, Inc. (1990).
Nominee
3003 East Third Ave. Money: 2,033 Executive Director of
Denver, CO 80206 Nominee University Physicians
(University of Colorado)
Advantage: 209 (1982-1990). President,
Nominee Medical Group Management
Association (1990). Fellow,
Short-Term Bond: 6,683 American College of Medical
Nominee Practice Executives (1990).
Government: 215
Nominee
Income: 223
Nominee
</TABLE>
- - ---------------
1 Shares owned beneficially as of January 31, 1995.
2 Unless indicated otherwise, each individual has held the office or offices
shown for the last five years.
3 On July 12, 1994, the Securities and Exchange Commission (the SEC) filed an
administrative action (Order) against SCM and Mr. Strong in connection with
conduct that occurred between 1987 and early 1990 (see the section entitled
"Investment Advisor" on page 14 for more information). The proceeding was
settled by consent without admitting or denying the allegations in the Order.
4 "Interested person" of each Fund.
5 On August 1, 1994, SCM granted 7% of its non-voting stock to Mr. Dragisic in
connection with his employment with SCM.
6 Less than 1% of the Fund's outstanding shares of common stock.
9
<PAGE> 10
The Directors held four meetings during the last full fiscal year. It is
expected that the Directors will continue to meet at least four times a year at
regularly scheduled meetings. Each incumbent director attended 100% of the
meetings of the Directors. There are currently no standing audit, nominating, or
compensation committees of the Board of Directors, or other committees
performing similar functions. The officers of the Funds, other than those who
also serve as Directors or are nominees for Director, are:
<TABLE>
<CAPTION>
Principal Occupation For Last Five
Name Office Years
(Age) (Held Since) (Start Date)
- - ---------------------------------------------------------------------------
<S> <C> <C>
Lawrence A. Totsky Vice President Senior Vice President of SCM (1994).
(35) (5/93) Director of Mutual Fund
Administration (1991). Manager of
Shareholder Accounting and Compliance
for SCM (1987).
Thomas P. Lemke Vice President Senior Vice President, Secretary, and
(40) (10/94) General Counsel of SCM (1994).
Resident Counsel for Funds Management
at J.P. Morgan & Co., Inc. (1992).
Associate General Counsel to Sanford
C. Bernstein Co., Inc. (1989). Of
Counsel at the Washington D.C. law
firm of Tew Jorden & Schulte (1987).
Ann E. Oglanian Secretary Associate Counsel of SCM (1992).
(33) (5/94) Associate Counsel of Kemper Financial
Services, Inc. (1989).
Thomas M. Zoeller Treasurer Treasurer of SCM (1991). Controller
(31) (11/91) for SCM (1991). Assistant Controller
for SCM (1989).
</TABLE>
As of January 31, 1995, the officers and directors of the Funds in the
aggregate beneficially owned less than 1% of each Fund's then outstanding
shares.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 1.
2. TO RATIFY COOPERS & LYBRAND L.L.P. AS INDEPENDENT PUBLIC ACCOUNTANTS.
A majority of the Directors, including a majority of Directors who are not
"interested persons" (as defined in the 1940 Act), have selected Coopers &
Lybrand L.L.P. (C&L) as independent public accountants for the Funds for the
fiscal year ending December 31, 1995. C&L has served each Fund as independent
public accountants since each Fund's inception. Each Fund has been advised by
C&L that it has no material direct or indirect financial interest in the Funds.
The ratification of the selection of independent public accountants is to be
voted upon at the Meeting and it is intended that the persons named
10
<PAGE> 11
in the accompanying proxy will vote for C&L unless shareholders express a
contrary choice. A representative of C&L will be present at the Meeting and will
have the opportunity to make a statement and is expected to be available to
answer appropriate questions concerning each Fund's financial statements.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 2.
3. TO ADOPT AND RATIFY A REVISED ADVISORY AGREEMENT.
SCM serves as investment advisor to each Fund pursuant to each Fund's Advisory
Agreement (the Agreement). The Directors have approved the adoption of, and
recommend that the shareholders of each Fund adopt and ratify a revised Advisory
Agreement (the Revised Agreement) in a form substantially similar to Exhibit A.
The terms and conditions of the Revised Agreement are substantially identical
to the terms and conditions of the existing Agreements, except that (i) the form
of the agreement has been changed to allow for the future conversion of each
Fund to a series Fund as discussed under Proposal 4 and (ii) a provision has
been added that expressly allows SCM to delegate some or all of its services
subject to necessary approval, which includes the delegation of its investment
adviser duties, to a subadvisor. Any delegation of duties to a subadvisor would
be approved by shareholders as necessary under the law before being implemented.
Under any such subadvisory agreement, SCM would continue to have responsibility
for all investment advisory services furnished. This delegation provision has
been included in each Fund's Revised Agreement for standardization purposes.
Currently, SCM has no intention of hiring any subadvisor. THE REVISED AGREEMENT
DOES NOT INCLUDE A MANAGEMENT FEE INCREASE.
At its meeting on January 20, 1995, the Directors, including each of the
Directors who are not "interested persons" (as defined in the 1940 Act) of the
Funds or SCM (the Independent Directors), considered (i) information regarding
the nature and quality of the services provided by SCM, (ii) SCM's cost in
providing such services, (iii) the extent to which SCM realized economies of
scale if the asset-size of a Fund grew larger and the extent to which these
economies are shared with a Fund's shareholders, (iv) the investment
performance, expense ratios, and management fees for comparable investment
companies, (v) the profitability of SCM, (vi) the role played by the Independent
Directors, and (vii) the impact, if any, that other activities of SCM or its
affiliates may have on the management of the Funds. The Directors received all
information they deemed necessary to their evaluation of the terms and
conditions of the Agreement and Revised Agreement.
Based upon the Directors' review and evaluations of these materials and their
considerations of all factors deemed relevant, the Directors determined that the
Revised Agreement is reasonable, fair, and in the best interests of each Fund
and its shareholders. Accordingly, the Directors, including all of the
Independent Directors, approved the adoption of the Revised Agreement and its
submittal to each Fund's shareholders for
11
<PAGE> 12
adoption and ratification. If the Revised Agreement is adopted by shareholders
of a Fund, it will remain in effect through March 31, 1997, and will be
thereafter subject to continuation by such Fund's Directors. If the Revised
Agreement is not adopted, the existing Agreement will continue in effect through
March 31, 1996, and thereafter will be subject to continuation by such Fund's
Directors. Additional information concerning the investment advisory agreements
and SCM is set forth below.
ADVISORY AGREEMENT. The advisory agreements are required to be approved annually
by each Fund's Directors or by vote of a majority of such Fund's outstanding
voting securities (as defined in the 1940 Act). In either case, such annual
renewal must be approved by the vote of a majority of the Independent Directors,
cast in person at a meeting called for the purpose of voting on such approval.
On January 21, 1994, the Directors of each Fund, including all Independent
Directors, voted unanimously to extend the existing Agreement for each Fund for
an additional period of one year, commencing May 1, 1994. On January 20, 1995,
the Directors of each Fund, including all Independent Directors, voted
unanimously to extend the existing Agreement for each Fund for an additional
period of one year, commencing May 1, 1995. The U.S. Treasury Fund's Agreement,
dated December 31, 1990 was last approved for continuance by the Fund's
shareholders on April 30, 1991. The Money, Advantage, Short-Term Bond,
Government Securities, and Income Funds' Agreements, dated October 16, 1985,
November 1, 1988, July 31, 1987, October 20, 1986, and December 11, 1985,
respectively, were last approved for continuance by each Fund's shareholders on
April 27, 1990. The Agreement is terminable, without penalty, on 60 days written
notice by the Directors of a Fund, by vote of a majority of such Fund's
outstanding voting securities, or by SCM. In addition, the Agreement will
terminate automatically in the event of assignment.
Each Fund pays SCM an advisory fee. The advisory fee is an annual percentage
of each Fund's average net assets, calculated and paid monthly. The table below
specifies the advisory fee rate, the advisory fees incurred in 1994, and the
asset size of each Fund.
<TABLE>
<CAPTION>
Advisory 1994 Asset Size
Fund Fee Rate Advisory Fee (as of 1/31/95)
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury* .40 % $ 276,272 $ 55,438,651
Money* .50 2,159,922 844,205,356
Advantage .60 3,981,369 864,856,604
Short-Term Bond .625 8,715,270 997,688,750
Government Securities* .60 1,537,259 274,858,620
Income .625 773,759 127,480,259
</TABLE>
- - ---------------
* SCM waived a portion of the Fund's advisory fee during the last fiscal year.
The advisory fee rate of each Fund (except for the U.S. Treasury and Money
Funds) may be compared against each of the Funds noted above and below. The U.S.
Treasury and Money Market Funds advisory fee rate may be compared against each
other and against the Municipal Money Market Fund which (i) has a .50% advisory
fee rate and (ii) had an
12
<PAGE> 13
asset size of $1,245,124,422 as of January 31, 1995. SCM waived a portion of the
Municipal Money Market Fund's advisory fee during the last fiscal year.
<TABLE>
<CAPTION>
Advisory Asset Size
Fund Fee Rate (as of 1/31/95)
- - --------------------------------------------------------------------------
<S> <C> <C>
Strong Short-Term Global Bond Fund* .625% $ 13,957,936
Strong International Bond Fund* .70 10,067,270
Strong Short-Term Municipal Bond Fund .50 156,377,264
Strong Insured Municipal Bond Fund .50 43,518,074
Strong Municipal Bond Fund .60 297,804,667
Strong High-Yield Municipal Bond Fund* .60 126,987,476
</TABLE>
- - ---------------
* SCM waived all of the Fund's advisory fee during the last fiscal year.
Under the terms of each Agreement, SCM manages a Fund's investments subject to
the supervision of the Fund's Directors. SCM is responsible for investment
decisions and supplies investment research and portfolio management. At its
expense, SCM provides office space and all necessary office facilities,
equipment, and personnel for servicing the investments of a Fund. SCM places all
orders for the purchase and sale of a Fund's portfolio securities at its
expense. Except for expenses assumed by SCM as set forth above or as described
below under "Distribution Agreement" with respect to the distribution of a
Fund's shares, each Fund is responsible for all its other expenses, including,
without limitation, interest charges, taxes, brokerage commissions, and similar
expenses; expenses of issue, sale, repurchase, or redemption of shares; expenses
of registering or qualifying shares for sale; expenses for printing and
distribution costs of prospectuses and semi-annual financial statements mailed
to existing shareholders; and charges of custodians, transfer agent fees
(including the printing and mailing of reports and notices to shareholders),
fees of registrars, fees for auditing and legal services, fees for clerical
services related to recordkeeping and shareholder relations, the cost of stock
certificates, and fees for directors who are not "interested persons" of SCM.
From time to time, SCM may voluntarily waive all or a portion of its management
fee for a Fund.
Each Agreement requires SCM to reimburse a Fund in the event that the expenses
and charges payable by the Fund in any fiscal year, including the advisory fee
but excluding taxes, interest, brokerage commissions, and similar fees (and with
respect to the Revised Agreement, extraordinary expenses), exceed that
percentage of the average net asset value of the Fund for such year, which is
the most restrictive percentage provided by the state laws of the various states
in which the Fund's common stock is qualified for sale; or if the states in
which the Fund's common stock is qualified for sale impose no restrictions, then
2%. The most restrictive percentage limitation currently applicable to the Funds
is 2 1/2% of its average daily net assets up to $30,000,000, 2% on the next
$70,000,000 of its average daily net assets, and 1 1/2% of its average daily net
assets in excess of $100,000,000. Reimbursement of expenses in excess of the
applicable limitation will be made on a monthly basis and will be paid to a Fund
by reduction of SCM's fee, subject to later adjustment, month by month, for the
remainder of the Fund's fiscal year. From time to
13
<PAGE> 14
time, SCM may voluntarily absorb expenses for a Fund in addition to the
reimbursement of expenses in excess of applicable limitations.
INVESTMENT ADVISOR. SCM, a Wisconsin corporation, is the Funds' investment
advisor. Mr. Richard S. Strong is the Chairman of SCM, who along with Messrs.
John Dragisic and Richard T. Weiss constitute the Board of Directors of SCM. The
address of the Advisor and each of these individuals is 100 Heritage Reserve,
Menomonee Falls, Wisconsin, 53051. The officers of the Funds and their positions
with SCM are as follows:
<TABLE>
<CAPTION>
Name Position with Funds Position with SCM
- - ------------------------------------------------------------------------------
<S> <C> <C>
Richard S. Strong Chairman Chairman
John Dragisic Vice Chairman Vice Chairman
Lawrence A. Totsky Vice President Senior Vice President
Thomas P. Lemke Vice President Senior Vice President, General
Counsel, and Secretary
Ann E. Oglanian Secretary Associate Counsel
Thomas M. Zoeller Treasurer Treasurer
</TABLE>
SCM began conducting business in 1974. Since then, its principal business has
been providing continuous investment advice to mutual funds, individuals, and
institutional accounts such as pension funds and profit-sharing plans. SCM acts
as investment advisor to each of the 24 Strong Funds and acts as a subadvisor to
various other investment products. As of December 31, 1994, SCM had over $10
billion under management. Mr. Strong is the controlling shareholder of SCM.
On July 12, 1994, the Securities and Exchange Commission (the SEC) filed an
administrative action (Order) against SCM, Mr. Strong, and another employee of
SCM in connection with conduct that occurred between 1987 and early 1990. In re
Strong/Corneliuson Capital Management, Inc., et al. Admin. Proc. File No.
3-8411. The proceeding was settled by consent without admitting or denying the
allegations in the Order. The Order alleged that SCM and Mr. Strong aided and
abetted violations of Section 17(a) of the 1940 Act by effecting trades between
mutual funds, and between mutual funds and Harbour Investments Ltd. (Harbour),
without complying with the exemptive provisions of SEC Rule 17a-7 or otherwise
obtaining an exemption. It further alleged that SCM violated, and Mr. Strong
aided and abetted violations of, the disclosure provisions of the 1940 Act and
the Investment Advisers Act of 1940 by misrepresenting SCM's policy on personal
trading and by failing to disclose trading by Harbour, an entity in which
principals of SCM owned between 18 and 25 percent of the voting stock. As part
of the settlement, the respondents agreed to a censure and a cease and desist
order and SCM agreed to various undertakings, including adoption of certain
procedures and a limitation for six months on accepting certain types of new
advisory clients.
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT. SCM acts as dividend-disbursing
agent and transfer agent to the Funds. The fees received and the services
provided as transfer agent and dividend-disbursing agent are in addition to the
fees received and services provided under the advisory agreement. For transfer
agent and dividend-disbursing agent
14
<PAGE> 15
services in 1994, the U.S. Treasury, Money, Advantage, Short-Term Bond,
Government Securities, and Income Funds1 paid SCM $34,924, $1,073,113, $898,713,
$2,550,992, $525,837, and $389,833, respectively, in per account charges and
$9,144, $355,686, $178,059, $528,202, $81,183, and $79,434, respectively, for
out-of-pocket expenses. In addition to the foregoing services, SCM provides
certain printing and mailing services for the Funds such as printing and mailing
of shareholder account statements, checks, and tax forms. For such services in
1994, the U.S. Treasury, Money, Advantage, Short-Term Bond, Government
Securities, and Income Funds paid SCM $980, $31,377, $22,392, $58,057, $9,695,
and $8,512, respectively.
DISTRIBUTION AGREEMENT. Under a Distribution Agreement dated December 1, 1993
for each Fund (the Distribution Agreements), Strong Funds Distributors, Inc.
(SFD) acts as underwriter of each Fund's shares. SFD is an indirect subsidiary
of SCM and controlled by SCM and Mr. Strong. The address of SFD is 100 Heritage
Reserve, Menomonee Falls, Wisconsin 53051. The Distribution Agreements provide
that SFD will use its best efforts to distribute each Fund's shares. Since the
Funds are "no-load" funds, no sales commissions are charged on the purchase of a
Fund's shares. The Distribution Agreements further provide that SFD will bear
the costs of printing prospectuses and shareholder reports which are used for
selling purposes, as well as advertising and other costs attributable to the
distribution of the Funds' shares. Each Distribution Agreement is subject to the
same termination and renewal provisions as are described above with respect to
the advisory agreements.
PORTFOLIO TRANSACTIONS AND BROKERAGE. SCM is responsible for decisions to buy
and sell securities for the Funds and for the placement of their portfolio
business and the negotiation of the commissions to be paid on such transactions.
It is the policy of SCM to seek the best execution at the best security price
available with respect to each transaction, in light of the overall quality of
brokerage and research services provided to SCM or the Funds. The best price to
the Funds means the best net price without regard to the mix between purchase or
sale price and commission, if any. Normally, the Funds will pay no brokerage
commissions on purchases and sales of portfolio securities since most of their
purchases and sales will be principal transactions. In selecting broker-dealers
and in negotiating commissions, SCM considers the firm's reliability, the
quality of its execution services on a continuing basis, and its financial
condition. Brokerage will not be allocated based on the sale of a Fund's shares.
Section 28(e) of the Securities Exchange Act of 1934 (Section 28(e)) permits
an investment advisor, under certain circumstances, to cause an account to pay a
broker-dealer who supplies brokerage and research services a commission for
effecting a transaction in excess of the amount of commission another
broker-dealer would have charged for effecting the transaction. Brokerage and
research services include (a) furnishing advice as to the value of securities,
the advisability of investing, purchasing
- - ---------------
1 In 1994, SCM waived $56,577 in per account charges, $17,170 in out-of-pocket
expenses, and $2,190 in printing and mailing fees for the U.S. Treasury Fund;
and $187 in out-of-pocket expenses for the Money Fund.
15
<PAGE> 16
or selling securities, and the availability of securities or purchasers or
sellers of securities; (b) furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy, and the
performance of accounts; and (c) effecting securities transactions and
performing functions incidental thereto (such as clearance, settlement, and
custody).
In carrying out the provisions of the Agreements, SCM may cause the Funds to
pay a broker-dealer which provides brokerage and research services to SCM a
commission for effecting a securities transaction in excess of the amount
another broker-dealer would have charged for effecting the transaction. SCM is
of the opinion that the continued receipt of supplemental investment research
services from broker-dealers is essential to its provision of high-quality
portfolio management services to the Funds. The Agreement provides that such
higher commissions will not be paid by the Funds unless (a) SCM determines in
good faith that the amount is reasonable in relation to the services in terms of
the particular transaction or in terms of SCM's overall responsibilities with
respect to the accounts as to which it exercises investment discretion; (b) such
payment is made in compliance with the provisions of Section 28(e), other
applicable state and federal laws, and the Agreement; and (c) in the opinion of
SCM, the total commissions paid by a Fund will be reasonable in relation to the
benefits to a Fund over the long term. The investment advisory fees paid by the
Funds under the Agreements are not reduced as a result of SCM's receipt of
research services.
Generally, research services provided consist of portfolio pricing and capital
changes services and reports, research reports dealing with macroeconomic trends
and monetary and fiscal policy, research reports on individual companies and
industries, and information dealing with market trends and technical analysis.
Such brokers may pay for all or a portion of computer hardware and software
costs relating to the pricing of securities. Where SCM itself receives both
administrative benefits and research and brokerage services from the services
provided by brokers, it makes a good faith allocation between the administrative
benefits and the research and brokerage services. SCM's receipt of these
administrative benefits arises from its ability, in certain cases, to direct
brokerage to certain firms in connection with its management of client
portfolios. In making good faith allocations between administrative benefits and
research and brokerage services, a conflict of interest may exist by reason of
SCM's allocation of the costs of such benefits and services between those that
primarily benefit SCM and those that primarily benefit its clients.
SCM places portfolio transactions for other advisory accounts, including other
mutual funds managed by SCM. Research services furnished by firms through which
the Funds effect their securities transactions may be used by SCM in servicing
all of its accounts; not all of such services may be used by SCM in connection
with the Funds. In the opinion of SCM, it is not possible to separately measure
the benefits from research services to each of the accounts (including a Fund)
managed by SCM. Because the volume and nature of the trading activities of the
accounts are not uniform, the amount of commissions in excess of those charged
by another broker paid by each account for brokerage and research
16
<PAGE> 17
services will vary. However, in the opinion of SCM, such costs to the Funds will
not be disproportionate to the benefits received by the Funds on a continuing
basis.
SCM seeks to allocate portfolio transactions equitably whenever concurrent
decisions are made to purchase or sell securities by each Fund and another
advisory account. In some cases, this procedure could have an adverse effect on
the price or the amount of securities available to a Fund. In making such
allocations between a Fund and other advisory accounts, the main factors
considered by SCM are the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held, and the
opinions of the persons responsible for recommending the investment.
TRANSACTIONS WITH AFFILIATED BROKERS AND DEALERS. As provided in the Agreements
between the Funds and SCM, SCM is responsible not only for making decisions with
respect to the purchase and sale of the Funds' portfolio securities, but also
for implementing these decisions, including the negotiation of commissions and
the allocation of portfolio brokerage and principal business. The Directors for
the Funds have authorized W.H. Reaves & Co., Inc. (Reaves), the subadvisor for
Strong American Utilities Fund, and a member of the New York Stock Exchange, to
act as an affiliated broker to the Funds subject to procedures set forth in Rule
17e-1 under the 1940 Act. As such, in order for Reaves to effect any portfolio
transactions for a Fund on an exchange, the commissions, fees or other
remuneration received by Reaves must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
an exchange during a comparable period of time. This standard would allow Reaves
to receive no more than the remuneration which would be expected to be received
by an unaffiliated broker in a commensurate arm's-length transaction.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 3.
4. TO ADOPT REVISED ARTICLES OF INCORPORATION.
The Directors have unanimously approved the adoption of Amended and Restated
Articles of Incorporation (the Revised Articles) for each of the Funds, which
are Wisconsin corporations. According to the Wisconsin Business Corporation Law
(the WBCL), changes to a Fund's Articles of Incorporation must be approved by
the vote of a majority of outstanding shares of such Fund. If shareholders do
not approve this Proposal, the existing Articles will remain in full force and
effect.
In addition, certain of the changes included within the Revised Articles are
designed to standardize the language of the existing Articles; however, other
changes are substantive. The Revised Articles would: (i) eliminate the
enumerated list of authorized corporate powers contained in the existing
Articles and to add a provision allowing a Fund to engage in any activity
permissible under the WBCL, (ii) eliminate the provision that limits a Fund's
ability to redeem small shareholder accounts ($500 or less) and, instead,
provide
17
<PAGE> 18
that a Fund may redeem small shareholders accounts under procedures adopted by
the Directors and in accordance with the 1940 Act, (iii) eliminate the 1% cap on
redemption fees and include a provision permitting the Directors to set forth in
the By-Laws the terms and conditions under which redemption fees are to be
imposed, (iv) eliminate the indemnification provisions from the Money and Income
Funds' existing Articles because such provisions are already contained in each
Fund's By-Laws, (v) specify that an affirmative majority vote of all votes cast
at a shareholder meeting is sufficient to amend the Revised Articles, provided
that a quorum is present, (vi) eliminate the express denial of preemptive rights
because preemptive rights, under the WBCL, are not effective unless
affirmatively expressed in articles of incorporation; and thus, because it is
not affirmatively expressed, its presence in the existing Articles is
unnecessary and meaningless, (vii) grant the Directors authority to convert each
Fund into a series fund and allow the Directors to add additional series, and
(ix) allow the Directors to designate additional classes of shares. In addition,
by approving the Revised Articles, shareholders also authorize SCM to make
changes to the Articles as may be necessary in order to facilitate filing them
in the State of Wisconsin.
The Revised Articles would allow the Directors to convert each Fund into a
series fund and to designate additional classes of shares, each without
additional shareholder approval.2 The Directors have no current intention to
implement either a series structure or additional classes of shares. However,
these amendments would allow the Directors the future flexibility to adopt such
structures. By adding series to a Fund, such Fund may achieve certain
operational efficiencies.3 In addition, adding additional classes would permit
each Fund to take advantage of additional distribution channels (with
alternative pricing structures) for selling Fund shares. The ability to utilize
alternative distribution channels may increase the size of a Fund, which may
result in certain economies of scale and reduced operating expenses -- thus
benefiting both existing and future shareholders.
THE ADDITION OF CLASSES TO ALREADY OUTSTANDING SHARES WOULD NOT AFFECT AN
EXISTING SHAREHOLDER'S INVESTMENT IN THE FUND. Each series would represent
interests in a different portfolio of assets and a shareholder interest is
limited to the portfolio in which shares are held. The Revised Articles also
provide that a Fund may issue additional classes of shares, including new
classes of the outstanding Common Stock, provided these classes do not affect
the preferences, limitations, or relative rights of the outstanding shares.
Under the Revised Articles, the Directors are authorized to allocate assets,
liabilities,
- - ---------------
2 The term "series" in the mutual fund industry is used to refer to shares that
represent interests in a separate portfolio of investments with differing
investment objectives. "Classes" of shares represent sub-divisions of series
with differing preferences, limitations, or relative rights as the Directors may
determine and, in most circumstances, differing marketing attributes. These
terms do not correspond to the terms that are used under the WBCL, but will be
used for ease of reference in this discussion.
3 If the Directors determine to add new series to a Fund, the first series of
the Fund will retain the name of the Fund in which shareholders are invested and
the Directors will designate the umbrella entity with a generic name that is
consistent with the name of the first series (i.e., the Fund) and any subsequent
series. Thus, shareholders in a Fund will continue to own shares in an entity
with the same name as the entity in which they originally invested, except that
this entity will be one of a number of series in the umbrella entity.
18
<PAGE> 19
income, and expenses to each series and class. Classes within a series may have
different expense arrangements than other classes of the same series and,
accordingly, the net asset value of shares within a series may differ. Under the
Revised Articles, all holders of shares of a Fund would vote on each matter
presented to shareholders for action except with respect to any matter which
affects only one or more series or classes, in which case only the shares of the
affected series or class shall be entitled to vote.
At such time as the Directors determine that it is in the best interests of a
Fund to add additional series or a multiple class structure, such Fund will
obtain all necessary regulatory approvals before such a structure is
implemented.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 4.
5A. TO CHANGE STRONG INCOME FUND'S NAME.
The Directors have proposed that shareholders approve an amendment to Strong
Income Fund's Articles of Incorporation (the Articles), changing the Fund's name
to "Strong Corporate Bond Fund, Inc." The Directors believe that the proposed
name more adequately describes the Fund's investment program and is not intended
to change the manner in which the Fund is managed. Pursuant to the WBCL and the
Fund's Articles, an amendment to the Articles must be approved by the
affirmative vote of a majority of the Fund's outstanding shares.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 5A.
5B. TO AMEND THE INVESTMENT OBJECTIVE.
The Directors unanimously recommend that the shareholders of each Fund vote to
replace each Fund's current investment objective as noted below. The purpose of
the proposed objectives is to clarify and more concisely describe each Fund's
goal. The proposed objectives are not intended to alter the way in which the
Funds are managed. If shareholders do not vote to change a Fund's objective, the
Fund's current objective will remain in place.
The U.S. Treasury Fund's current investment objective states:
"The U.S. Treasury Fund's objective is to seek as high a level of current
income as is consistent with capital preservation and the maintenance of
daily liquidity."
The proposed investment objective of the U.S. Treasury Fund states:
"The U.S. Treasury Fund seeks current income, a stable share price, and
daily liquidity."
19
<PAGE> 20
The Money Fund's current investment objective states:
"The Money Fund's objective is to seek maximum current income from
investments in short-term money market instruments consistent with
capital preservation and the maintenance of daily liquidity."
The proposed investment objective of the Money Fund states:
"The Money Fund seeks current income, a stable share price, and daily
liquidity."
The Advantage Fund's current investment objective states:
"The Advantage Fund's investment objective is to provide investors with a
high level of current income consistent with minimum fluctuation of
principal."
The proposed investment objective of the Advantage Fund states:
"The Advantage Fund seeks current income with a very low degree of
share-price fluctuation."
The Short-Term Bond Fund's current investment objective states:
"The Short-Term Bond Fund's investment objective is to provide investors
with the highest level of income consistent with minimum fluctuation in
principal value and current liquidity."
The proposed investment objective of the Short-Term Bond Fund states:
"The Short-Term Bond Fund seeks total return by investing for a high
level of current income with a low degree of share-price fluctuation."
The Government Securities Fund's current investment objective states:
"The Government Securities Fund's investment objective is to obtain a
high level of current income from investments principally in a
diversified portfolio of U.S. government securities."
The proposed investment objective of the Government Securities Fund states:
"The Government Securities Fund seeks total return by investing for a
high level of current income with a moderate degree of share-price
fluctuation."
The Income Fund's current investment objective states:
"The Income Fund's investment objective is to obtain a high level of
current income from investments in a diversified portfolio of Fixed
Income Securities and dividend-paying common stocks."
The proposed investment objective of the Income Fund states:
"The Income Fund seeks total return by investing for a high level of
current income with a moderate degree of share-price fluctuation."
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 5B.
20
<PAGE> 21
ADOPTION OF STANDARD INVESTMENT LIMITATIONS
The primary purpose of Proposals 6A through 6I is to revise or adopt
investment limitations to conform to limitations that are expected to become
standard for all funds managed by SCM. The Directors have asked SCM to analyze
the various fundamental and non-fundamental investment limitations of the Strong
Funds, and, where appropriate to a Fund's investment objective, (i) to adopt
standard non-fundamental limitations, and (ii) to propose to shareholders the
adoption of standard fundamental limitations and to eliminate certain
fundamental limitations. SCM believes that increased standardization will help
to promote operational efficiencies, facilitate monitoring of compliance with
fundamental and non-fundamental investment limitations, and enhance the
management of the Funds' investments in light of future regulatory, business, or
investment conditions. In addition, standardization will reduce the future costs
associated with holding a shareholders' meeting to change fundamental investment
limitations that are not required.
Proposals 7A through 7J relate to investment limitations that restate
requirements imposed by state law as a condition of registering shares of the
Funds for sale in certain states or are imposed as non-fundamental investment
limitations by the 1940 Act. Currently, these limitations are fundamental and
can only be changed by shareholder vote. As a result, if the state laws were
changed, or if they no longer applied to the Funds, the Funds would be required
to call a shareholder meeting to adapt to changed state or federal regulatory
requirements. The Directors recommend that these limitations be made non-
fundamental so that they can be changed by the Directors as state laws permit.
Proposals 7K through 7N relate to investment limitations that are not required
by state or federal law to be fundamental or non-fundamental policies. The
Directors recommend that these limitations be eliminated outright.
Where adoption of a new or revised limitation or the elimination of a
limitation is likely to have an impact on the investment techniques employed by
the Funds, the potential impact is noted. In all cases, the proposed changes are
expected to contribute to the overall objective of standardization.
Special Considerations -- U.S. Treasury and Money Market Funds
The U.S. Treasury and Money Funds (collectively, the "Money Market Funds")
seek to attain their respective investment objectives by limiting their
investments to instruments that meet certain quality, diversification, and
maturity standards required or permitted by Rule 2a-7 under the 1940 Act for
money market funds using the amortized cost method of valuation to maintain a
stable net asset value of $1.00 per share, including (i) limiting the Fund's
dollar-weighted average portfolio maturity to 90 days or less, (ii) buying only
securities with remaining maturities of 13 months or less, and (iii) buying only
dollar-denominated securities which represent minimal credit risks and meet
certain quality guidelines. In addition, the Money Fund follows certain
diversification standards and will
21
<PAGE> 22
not (i) acquire a second-tier security of an issuer if, after giving effect to
the acquisition, the Fund would have invested more than the greater of 1% of its
total assets or one million dollars in second-tier securities issued by that
issuer, or (ii) invest more than 5% of the Fund's total assets in the securities
(other than securities issued or guaranteed by the U.S. government or any agency
or instrumentality thereof) issued by a single issuer, except that the Fund may
invest more than 5% of its total assets in the first-tier securities of a single
issuer for up to three business days. Since the U.S. Treasury Fund limits its
investments to securities directly issued by the U.S. government, such
diversification requirements are, in effect, inapplicable to the Fund. The
Directors of the Money Market Funds are seeking shareholder approval of changes
to the Funds' fundamental investment limitations that are expected to become
standard for all funds managed by SCM. Since certain of these proposed
amendments may imply that the Money Market Funds have the authority to invest in
instruments or use investment techniques which are impermissible under Rule
2a-7, the Directors of each of the Money Market Funds intend to adopt an
operating policy, which provides that:
"The Fund may not engage in any transaction or practice which is not
permissible under Rule 2a-7 of the Investment Company Act of 1940,
notwithstanding any other fundamental investment limitation or
non-fundamental operating policy."
This policy clarifies that the Money Market Funds will not engage in
transactions that are impermissible under Rule 2a-7 (e.g., futures and options
transactions).
6A. TO AMEND A FUNDAMENTAL INVESTMENT LIMITATION CONCERNING DIVERSIFICATION.
(ALL FUNDS)
The Money Market Funds' current fundamental investment limitation concerning
diversification states:
"The Fund may not purchase the securities of any issuer if such purchase
would cause more than 5% of the value of the Fund's total assets to be
invested in securities of any one issuer (except securities of the U.S.
government or any agency or instrumentality thereof), or purchase more than
10% of the outstanding voting securities of any one issuer or, with respect
to the Money Fund purchase more than 10% of the outstanding securities of
any class of an issuer."
The Advantage, Short-Term Bond, and Income Funds' current fundamental
investment limitation concerning diversification states:
"The Fund may not purchase the securities of any issuer if such purchase
would cause more than 5% of the value of the Fund's total assets to be
invested in securities of any one issuer (except securities of the U.S.
government or any agency or instrumentality thereof), or purchase more than
10% of the outstanding securities of any class or more than 10% of the
outstanding voting securities of any one issuer."
22
<PAGE> 23
The Government Securities Fund's current fundamental investment limitation
concerning diversification states:
"The Fund may not purchase the securities of any issuer if such purchase
would cause more than 5% of the value of the Fund's total assets to be
invested in securities of any one issuer (except obligations issued or
guaranteed as to principal and interest by the U.S. government or its
agencies or instrumentalities, or commitments to acquire such securities on
a "when-issued" basis or repurchase agreements), or purchase more than 10%
of the outstanding securities of any class or more than 10% of the
outstanding voting securities of any one issuer."
The Directors recommend that shareholders vote to replace these limitations
with the following fundamental investment limitation governing diversification:
"The Fund may not, with respect to 75% of its total assets, purchase the
securities of any issuer (except securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities) if, as a result, (i) more
than 5% of the Fund's total assets would be invested in the securities of
that issuer, or (ii) the Fund would hold more than 10% of the outstanding
voting securities of that issuer."
The primary purpose of the proposal is to revise each Fund's fundamental
diversification limitation to conform to a limitation that is expected to become
standard for all diversified funds managed by SCM. Although adoption of the new
limitation is not likely to have a significant impact on the investment
techniques employed by the Funds, it will contribute to the overall objectives
of standardization. (See "Adoption of Standard Investment Limitations" on page
21.) If the proposal is approved, the new fundamental diversification limitation
cannot be changed, under the 1940 Act, without a future vote of a Fund's
shareholders.
The proposed limitation (i) imposes the diversification requirements on 75% of
a Fund's total assets rather than 100% of a Fund's total assets, and (ii)
eliminates the requirement that a Fund not purchase more than 10% of any class
of an issuer's securities. Accordingly, the proposed limitation allows the Funds
greater flexibility for making investments in a single issuer, which may result
in additional risk to the Fund. Rule 2a-7 effectively limits the Money Fund to
investing not more than 5% of its total assets in the securities (other than
securities issued or guaranteed by the U.S. government or any agency or
instrumentality thereof) of a single issuer, except that the Fund is permitted
to invest more than 5% of its total assets in the first-tier securities of any
one issuer for up to three business days.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 6A.
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6B. TO AMEND A FUNDAMENTAL INVESTMENT LIMITATION CONCERNING CONCENTRATION. (ALL
FUNDS)
The Money Market Funds' current fundamental investment limitation concerning
concentration states:
"The Fund may not concentrate more than 25% of the value of its total assets
in a single industry, except U.S. government or agency securities, or money
market instruments of domestic banks (excluding Euro and Yankee Dollar
obligations)."
The Advantage, Short-Term Bond, and Income Funds' current fundamental
investment limitation concerning concentration states:
"The Fund may not concentrate more than 25% of the value of its total assets
in a single industry."
The Government Securities Fund's current fundamental investment limitation
concerning concentration states:
"The Fund may not invest more than 25% of the value of the Fund's total
assets in the securities of issuers in any particular industry (other than
obligations issued or guaranteed as to principal and interest by the
government of the United States or its agencies or instrumentalities, or
commitments to acquire such securities on a "when-issued" basis or
repurchase agreements)."
The Directors recommend that the shareholders of the Advantage, Short-Term
Bond, Government Securities, and Income Funds vote to replace their Funds'
limitations with the following new fundamental investment limitation governing
concentration:
"The Fund may not purchase the securities of any issuer if, as a result,
more than 25% of the Fund's total assets would be invested in the securities
of issuers, the principal business activities of which are in the same
industry."
The Directors recommend that the shareholders of the Money Market Funds vote
to replace their limitations with the following new fundamental investment
limitation governing concentration:
"The Fund may not purchase the securities of any issuer if, as a result,
more than 25% of the Fund's total assets would be invested in the securities
of issuers whose principal business activities are in the same industry,
except that this limitation shall not limit the Fund's purchases of
obligations issued by domestic banks.
The primary purpose of the proposal is to revise each Fund's fundamental
limitation concerning concentration to conform to a limitation that is expected
to become standard for the majority of the funds managed by SCM. Although
adoption of the new limitation is not likely to have a significant impact on the
investment techniques employed by the Funds, it will contribute to the overall
objectives of standardization. (See "Adoption of Standard Investment
Limitations" on page 21.) If the proposal is approved, the new fundamental
limitation concerning concentration cannot be changed, under the 1940 Act,
without a future vote of a Fund's shareholders. This proposed limitation (i)
eliminates the
24
<PAGE> 25
Government Securities Fund's reference to obligations issued or guaranteed by
the U.S. government because the SEC does not consider the U.S. government, its
agencies or instrumentalities to be in any "industry" and therefore this express
reference is unnecessary, and (2) allows Money Market Funds to continue to
reserve the right to concentrate in bank instruments issued by domestic banks.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 6B.
6C. TO AMEND A FUNDAMENTAL INVESTMENT LIMITATION CONCERNING LENDING. (ALL FUNDS)
The Money Market Funds' current fundamental investment limitation concerning
lending states:
"The Fund may not lend any funds or other assets, except that they may
(i) purchase a portion of an issue of bonds, debentures, or other debt
securities, (ii) acquire repurchase agreements and commercial paper of
corporations, and (iii) the Money Fund (only) may lend portfolio
securities provided no such loan may be made if as a result the aggregate
of such loans of portfolio securities exceed 30% of the value of the
Money Fund's total assets."
The Advantage Fund's current fundamental investment limitation concerning
lending states:
"The Fund may not lend any funds or other assets, except that it may (i)
purchase a portion of an issue of publicly distributed bonds, debentures,
or other debt securities, (ii) acquire repurchase agreements and
commercial paper of corporations, and (iii) acquire private issues of
debt securities subject to the limitations in (9) below."4
The Short-Term Bond and Income Funds' current fundamental investment
limitation concerning lending states:
"The Fund may not lend any funds or other assets, except that it may (i)
purchase a portion of an issue of publicly distributed bonds, debentures,
or other debt securities, (ii) acquire repurchase agreements and
commercial paper of corporations, (iii) lend portfolio securities
provided no such loan may be made if as a result the aggregate of such
loans of portfolio securities exceed 30% of the value of the Fund's total
assets, and (iv) acquire private issues of debt securities subject to the
limitations in Section 9 below."5
- - ---------------
4 Section 9 of the Fund's fundamental investment limitation, which currently
restricts the Fund's illiquid and restricted securities purchases, is discussed
below under 7C.
5 Section 9 of the Funds' fundamental investment limitation, which currently
restricts the Funds' illiquid and restricted securities purchases, is discussed
below under 7C.
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<PAGE> 26
The Government Securities Fund's current fundamental investment limitation
concerning lending states:
"The Fund may not lend any funds or other assets, except that it may (i)
purchase a portion of an issue of publicly distributed bonds, debentures,
or other debt securities, (ii) acquire repurchase agreements and
commercial paper of corporations, and (iii) lend portfolio securities
provided no such loan may be made if as a result the aggregate of such
loans of portfolio securities exceed 30% of the value of the Fund's total
assets."
The Directors recommend that shareholders vote to replace these limitations
with the following new fundamental investment limitation governing lending:
"The Fund may not make loans if, as a result, more than 33 1/3% of the
Fund's total assets would be lent to other persons, except through (i)
purchases of debt securities or other debt instruments, or (ii) engaging
in repurchase agreements."
The primary purpose of the proposal is to revise each Fund's fundamental
limitation concerning lending to conform to a limitation that is expected to
become standard for all funds managed by SCM. Although adoption of the new
limitation is not likely to have a significant impact on the investment
techniques employed by the Funds, it will contribute to the overall objectives
of standardization. (See "Adoption of Standard Investment Limitations" on page
21.) If the proposal is approved, the new fundamental limitation concerning
lending cannot be changed, under the 1940 Act, without a future vote of a Fund's
shareholders.
The proposed limitation (i) permits lending for the Money Market Funds, (ii)
adopts "debt securities or other debt instruments" as a standard exception from
the lending limitation for purchases of portfolio instruments, (iii) authorizes
the purchase of restricted or illiquid debt securities to the extent permitted
under each Fund's other investment limitations (see 7C for the risks associated
with investments in illiquid and restricted securities), (iv) increases the
securities lending authority for the Money, Short-Term Bond, Government
Securities, and Income Funds from 30% of total assets to 33 1/3% of total
assets, which is the maximum percentage permissible under the 1940 Act, and (v)
authorizes other lending transactions permissible under the 1940 Act, including
an interfund lending program briefly discussed under Proposal 6E. The proposed
limitation would allow a Fund to acquire an entire issue of debt securities,
whether privately or publicly offered subject to a Fund's other investment
limitations. If a Fund purchases an entire issue of debt securities it may have
difficulty establishing a price for the securities or liquidating the securities
in a timely fashion.
Subject to shareholder approval of the revised investment limitation
concerning lending, the Directors will adopt a non-fundamental operating policy,
which may be changed by the Directors without shareholder approval, that states:
"The Fund may not make any loans other than loans of portfolio securities,
except through (i) purchases of debt securities or other debt instruments,
or (ii) engaging in repurchase agreements."
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<PAGE> 27
This operating policy clarifies that the Funds do not intend to make any loans
other than securities loans, purchases of debt securities or other debt
instruments, or repurchase agreements. This policy would be amended by the
Directors should the Funds seek and obtain an exemptive order permitting an
interfund lending program.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 6C.
6D. TO AMEND A FUNDAMENTAL INVESTMENT LIMITATION CONCERNING PURCHASING OR
SELLING REAL ESTATE. (ALL FUNDS)
Each Fund's current fundamental investment limitation concerning purchasing or
selling real estate states:
"The Fund may not purchase, hold, or deal...in real estate, but this shall
not prohibit the Fund from investing in marketable securities of companies
engaged in real estate activities or investments."6
The Directors recommend that shareholders vote to replace this limitation with
the following fundamental investment limitation governing purchasing or selling
real estate:
"The Fund may not purchase or sell real estate unless acquired as a result
of ownership of securities or other instruments (but this shall not prohibit
the Fund from purchasing or selling securities or other instruments backed
by real estate or of issuers engaged in real estate activities)."
The primary purpose of the proposal is to revise each Fund's fundamental
limitation concerning purchasing or selling real estate to conform to a
limitation that is expected to become standard for all funds managed by SCM.
Although adoption of the new limitation is not likely to have a significant
impact on the investment techniques employed by the Funds, it will contribute to
the overall objectives of standardization. (See "Adoption of Standard Investment
Limitations" on page 21.) If the proposal is approved, the new fundamental
limitation concerning purchasing or selling real estate cannot be changed, under
the 1940 Act, without a future vote of a Fund's shareholders. The proposed
limitation (i) clarifies that the Funds may purchase real estate related
securities of corporate or non-corporate issuers (e.g., partnerships or trusts),
(ii) clarifies that the Funds may invest in securities or other instruments
backed by real estate, (iii) permits the Funds to dispose of real estate
acquired as a result of permissible investments, and
- - ---------------
6 The deleted language relates to the Funds' commodities limitation discussed
under 6G and, with respect to the Advantage, Short-Term Bond, Government
Securities, and Income Funds, futures and options limitations discussed under
7H.
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<PAGE> 28
(iv) allows the Funds to invest in illiquid real estate securities, subject to a
Fund's investment limitation on illiquid securities, as discussed under 7C.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 6D.
6E. TO AMEND A FUNDAMENTAL INVESTMENT LIMITATION CONCERNING BORROWING. (ALL
FUNDS)
The Money Market Funds' current fundamental investment limitation concerning
borrowing states:
"The Fund may not borrow money, except from banks for temporary or emergency
purposes (but not for the purpose of purchase of investments), and then,
only in an amount not to exceed 5% of the value of the Fund's net assets at
the time the borrowing is incurred."
The Advantage Fund's current fundamental investment limitation concerning
borrowing states:
"The Fund may not borrow money, except from banks for temporary or emergency
purposes (but not for the purpose of purchase of investments), and then,
only in an amount not to exceed 5% of the value of the Fund's net assets at
the time the borrowing is incurred; provided, however, the Fund may enter
into transactions in options, futures, and options on futures subject to the
limitations described in (13), (18), and (19) below."7
The Short-Term Bond, Government Securities, and Income Funds' current
fundamental investment limitation concerning borrowing states:
"The Fund may not borrow money, except from banks for temporary or emergency
purposes (but not for the purpose of purchase of investments), and then,
only in an amount not to exceed 5% of the value of the Fund's net assets at
the time the borrowing is incurred; provided, however, the Fund may enter
into transactions in options, futures and options on futures."
The Directors recommend that shareholders vote to replace these limitations
with the following fundamental investment limitation governing borrowing:
"The Fund may (i) borrow money from banks and (ii) make other investments or
engage in other transactions permissible under the Investment Company Act of
1940 which may involve a borrowing, provided that the combination of (i) and
(ii) shall not exceed 33 1/3% of the value of the Fund's total assets
(including the amount borrowed), less the Fund's liabilities (other than
borrowings), except that the Fund may borrow up to an additional 5% of its
total assets (not including the amount
- - ---------------
7 Items 13, 18, and 19 of the Advantage Fund's fundamental investment
limitations, which currently restrict the nature and extent of the Fund's
options and futures transactions, are discussed below under 7H.
28
<PAGE> 29
borrowed) from a bank for temporary or emergency purposes (but not for
leverage or the purchase of investments). The Fund may also borrow money
from the other Strong Funds or other persons to the extent permitted by
applicable law."
The primary purpose of the proposal is to revise each Fund's fundamental
borrowing limitation to conform to a limitation that is expected to become
standard for all funds managed by SCM which will contribute to the overall
objectives of standardization. (See "Adoption of Standard Investment
Limitations" on page 21.) If the proposal is approved, the new fundamental
borrowing limitation cannot be changed, under the 1940 Act, without a future
vote of a Fund's shareholders.
The proposed limitation accomplishes five specific goals. First, it increases
the permitted borrowings from 5% to 33 1/3% of total assets (including the
amount borrowed), allowing the Funds greater flexibility to meet shareholder
redemption requests without liquidating securities at unfavorable prices or
times should the need arise. The ability to borrow additional funds for such
purposes could adversely affect a Fund if it were unable to repay the borrowed
funds without liquidating securities at unfavorable prices or times. Second, it
eliminates the Funds' prohibition against other (i.e., non-bank) permissible
borrowings, such as reverse repurchase agreements and mortgage dollar roll
transactions. In a reverse repurchase agreement, a Fund would sell a security
and enter into an agreement to repurchase the security at a specified future
date and price. Since a Fund receives cash upon entering into a reverse
repurchase agreement, it may be considered a borrowing. In mortgage dollar
rolls, a Fund would sell mortgage-backed securities for delivery in the current
month and simultaneously contract to purchase substantially similar securities
on a specified future date. While a Fund would forego principal and interest
paid on the mortgage-backed securities during the roll period, the Fund would be
compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. Third, the proposed limitation eliminates the Advantage,
Short-Term Bond, Government Securities, and Income Funds' existing exception
from the borrowing money limitation for transactions in options, futures, and
options on futures because such transactions do not involve borrowing money.
Fourth, the proposed limitation permits each Fund to borrow up to an additional
5% of its total assets (not including the amount borrowed) for temporary or
emergency purposes. Fifth, it permits the Funds to borrow money from the other
Strong Funds ("interfund lending") if an order were obtained from the SEC
permitting such borrowings. The purpose of an interfund lending program for the
Strong Funds would be to reduce borrowing costs (and increase interest received
by the lending Strong Fund) from that available through other sources, such as
bank borrowings or reverse repurchase agreements. An interfund lending program
would involve certain risks. For example, there is the risk that a lending fund
could experience delays in obtaining prompt repayment of a loan or a borrowing
fund could be required to repay funds on short notice. The Directors have no
current intention of pursuing such an SEC order.
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<PAGE> 30
Subject to shareholder approval of the revised investment limitation
concerning borrowing, the Directors will adopt a non-fundamental operating
policy, which may be changed by the Directors without shareholder approval, that
states:
"The Fund may not borrow money except (i) from banks or (ii) through reverse
repurchase agreements or mortgage dollar rolls, and will not purchase
securities when bank borrowings exceed 5% of its total assets."
This operating policy clarifies that the Funds do not intend, following
adoption of the amended fundamental investment limitation, to borrow money
through bank borrowing transactions other than reverse repurchase agreements and
mortgage dollar roll transactions. This policy would be amended by the Directors
should the Funds seek and obtain an exemptive order permitting an interfund
lending program.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 6E.
6F. TO AMEND A FUNDAMENTAL INVESTMENT LIMITATION CONCERNING UNDERWRITING
SECURITIES. (ALL FUNDS)
Each Fund's current fundamental investment limitation concerning underwriting
securities states:
"The Fund may not act as an underwriter of securities of other issuers."
The Directors recommend that shareholders vote to replace this limitation with
the following fundamental investment limitation governing underwriting
securities:
"The Fund may not act as an underwriter of another issuer's securities,
except to the extent that the Fund may be deemed to be an underwriter within
the meaning of the Securities Act of 1933 in connection with the purchase
and sale of portfolio securities."
The primary purpose of the proposal is to revise each Fund's fundamental
underwriting securities limitation to conform to a limitation that is expected
to become standard for all funds managed by SCM. Although adoption of the new
limitation is not likely to have a significant impact on the investment
techniques employed by the Funds, it will contribute to the overall objectives
of standardization. (See "Adoption of Standard Investment Limitations" on page
21.) If the proposal is approved, the new fundamental underwriting securities
limitation cannot be changed, under the 1940 Act, without a future vote of a
Fund's shareholders. The proposed limitation primarily clarifies that the
disposition of portfolio instruments is not prohibited even if a Fund may be
considered an "underwriter" within the meaning of the federal securities laws.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 6F.
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<PAGE> 31
6G. TO AMEND A FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING PURCHASING OR SELLING FINANCIAL
COMMODITIES. (ALL FUNDS)
The Money Market Funds' current fundamental investment limitation concerning
purchasing or selling commodities states:
"The Fund may not purchase, hold, or deal in commodities or commodity
contracts..."8
The Advantage Fund's current fundamental investment limitation concerning
purchasing or selling commodities states:
"The Fund may not purchase, hold, or deal in commodities or commodity
contracts, except that the Fund may enter into interest rate futures
contracts subject to Item 13 below and options on futures in accordance with
Items 13, 18, and 19 . . . ."9
The Short-Term Bond and Income Funds' current fundamental investment
limitation concerning purchasing or selling commodities states:
"The Fund may not purchase, hold, or deal in commodities or commodity
contracts (except that the Fund may enter into interest rate futures
contracts subject to Item 18 below and options on futures in accordance with
Items 13, 18 and 19 below) . . . ."10
The Government Securities Fund's current fundamental investment limitation
concerning purchasing or selling commodities states:
"The Fund may not purchase, hold, or deal in commodities or commodity
contracts (except that the Fund may enter into interest rate futures
contracts subject to Item 18 below and options on futures contracts in
accordance with Items 13, 18, and 20) . . . ."11
The Directors recommend that shareholders vote to replace these limitations
with the following new fundamental investment limitation governing purchasing or
selling of commodities:
"The Fund may not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall not
prevent the Fund from purchasing or selling options, futures contracts, or
other derivative instruments,
- - ---------------
8 The deleted language relates to the Funds' real estate limitations discussed
under 6D.
9 The deleted language relates to the Fund's real estate limitations discussed
under 6D. Items 13, 18, and 19 relate to the Fund's futures and options
transactions discussed under 7H.
10 The deleted language relates to the Funds' real estate limitations discussed
under 6D. Items 13, 18, and 19 relate to the Funds' futures and options
transactions discussed under 7H.
11 The deleted language relates to the Fund's real estate limitations discussed
under 6D. Items 13, 18, and 20 relate to the Fund's futures and options
transactions discussed under 7H.
31
<PAGE> 32
or from investing in securities or other instruments backed by physical
commodities)."
The primary purpose of the proposal is to revise each Fund's fundamental
limitation concerning purchasing or selling commodities to conform to a
limitation that is expected to become standard for all funds managed by SCM. The
adoption of the new limitation may have a significant impact on the investment
techniques employed by the Funds (as discussed below) and will contribute to the
overall objectives of standardization. (See "Adoption of Standard Investment
Limitations" on page 21.) If the proposal is approved, the new fundamental
limitation concerning purchasing or selling commodities cannot be changed, under
the 1940 Act, without a future vote of a Fund's shareholders. The proposed
limitation (i) permits a Fund to engage in derivative transactions that may be
based upon the value, in whole or in part, of some "commodity," subject to the
Fund's investment objective and policies, and with respect to the Money Market
Funds, Rule 2a-7, and (ii) clarifies that a Fund may acquire an interest in
physical commodities as a result of the ownership of securities or other
instruments. The use of derivative instruments is likely to result in certain
additional risks to a Fund, as more fully described below.
Derivative instruments are securities or agreements whose value is derived
from the value of some underlying asset, including without limitation,
securities, currencies, reference indexes, or commodities. Derivative
transactions may include certain attributes of leverage and, accordingly, the
fluctuation of the value of the derivative transaction in relation to the
underlying asset may be magnified. Derivative transactions may be used by a Fund
for a variety of purposes, such as hedging or risk management, but not for
speculation.
Derivative transactions may be exchange traded or over-the-counter
transactions between private parties. Over-the-counter transactions are subject
to the credit risk of the counterparty to the instrument and are generally
illiquid since they often can only be closed out with the other party to the
transaction. When required by the SEC, a Fund will set aside permissible liquid
assets in a segregated account to secure its obligations under derivative
transactions. In order to maintain its required cover for a derivative
transaction, a Fund may need to sell portfolio securities at disadvantageous
prices or times since it may not be possible to liquidate a derivative position.
The successful use of derivative transactions by a Fund is dependent upon
SCM's ability to correctly anticipate trends in the underlying asset. To the
extent that a Fund engages in derivative transactions other than for hedging
purposes, a Fund's successful use of such transactions is more dependent upon
SCM's ability to correctly anticipate such trends, since losses in these
transactions may not be offset by gains in a Fund's portfolio or in lower
purchase prices for assets it intends to acquire. SCM's prediction of trends by
underlying assets may prove to be inaccurate, which could result in substantial
losses to a Fund. Hedging transactions are also subject to risks. If SCM
incorrectly anticipates trends in the underlying asset, a Fund may be in a worse
position than if no hedging had occurred. In addition, there may be imperfect
correlation between a Fund's derivative transactions
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<PAGE> 33
and the instruments being hedged. While shareholders should understand the
foregoing risks of authorizing a Fund to engage in derivative transactions
(other than futures and options transactions), the Directors believe that the
flexibility added by such authorization warrants the adoption of the amended
fundamental investment restriction.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 6G.
6H. TO ADOPT A FUNDAMENTAL INVESTMENT LIMITATION CONCERNING ISSUING SENIOR
SECURITIES. (ALL FUNDS)
The Funds have no express fundamental investment limitation concerning issuing
senior securities and, accordingly, do not currently issue senior securities or
engage in transactions that may raise senior security issues.
The Directors recommend that shareholders adopt the following fundamental
investment limitation concerning issuing senior securities:
"The Fund may not issue senior securities, except as permitted under the
Investment Company Act of 1940."
The primary purpose of the proposal is to adopt a fundamental limitation
regarding issuing senior securities that is expected to become the standard for
all funds managed by SCM. Although adoption of the new limitation is not likely
to have a significant impact on the investment techniques employed by the Funds,
it will contribute to the overall objectives of standardization. (See "Adoption
of Standard Investment Limitations" on page 21.) Because Rule 2a-7 governs the
types of investments a money market fund may make, the adoption of the proposed
fundamental investment restriction will not change the Money Market Funds'
current investment practices. If the proposal is approved, the new fundamental
limitation concerning issuing senior securities cannot be changed, under the
1940 Act, without a future vote of a Fund's shareholders.
The proposed limitation (i) expressly specifies the senior security policy for
the Funds, and (ii) increases each Fund's authorization to engage in
transactions that may raise senior security issues to the extent permissible
under the 1940 Act and, for the Money Market Funds, Rule 2a-7. The 1940 Act
restricts a fund's ability to issue senior securities. While the definition of
"senior security" involves complex statutory and regulatory concepts, a senior
security is generally thought of as a class of security having preference over
shares of a Fund with respect to the Fund's assets or earnings. It generally
does not include borrowings by a Fund (which might occur to meet shareholder
redemption requests) in accordance with federal law and a Fund's investment
limitations. Various investment techniques that obligate a Fund to pay money at
a future date (e.g., the purchase of securities for settlement on a date that is
longer than normal) occasionally raise questions as to whether a "senior
security" is created. While the proposed fundamental investment limitation
concerning issuing senior securities will generally increase a Fund's ability to
engage in transactions which may raise senior security issues,
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<PAGE> 34
the Funds utilize such techniques only in accordance with applicable regulatory
requirements.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 6H.
6I. TO ADOPT A FUNDAMENTAL INVESTMENT POLICY CONCERNING POOLED FUND STRUCTURES.
(ALL FUNDS)
The Directors have approved, subject to a shareholder vote, the adoption of a
new fundamental investment policy that would permit each Fund to invest all of
its assets in another open-end investment company with substantially the same
investment objectives and policies (a Pooled Fund Structure). To allow the Funds
to invest in a Pooled Fund at a future date, the Directors recommend that the
shareholders approve the following fundamental policy:
"The Fund may, notwithstanding any other fundamental investment policy or
restriction, invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental
investment objective, policies, and restrictions as the Fund."
If the proposal is adopted, the Directors intend to adopt the following
non-fundamental operating policy:
"The Fund may not invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objective, restrictions, and policies as the Fund."
The primary purpose of the proposal is to adopt a fundamental policy regarding
Pooled Fund Structures that is expected to become a standard fundamental policy
for all funds managed by SCM. (See "Adoption of Standard Investment Limitations"
on page 21.) The adoption of the new fundamental policy is not likely to have
any impact on the investment techniques employed by the Funds because the
Directors have no present intention of investing a Fund's assets in a Pooled
Fund. If the proposal is approved, the new fundamental investment policy
concerning Pooled Fund Structures cannot be changed, under the 1940 Act, without
a future vote of a Fund's shareholders.
The purpose of a Pooled Fund Structure is to achieve operational efficiencies
and cost reductions through the consolidation of portfolio management while
maintaining different distribution and servicing structures. In the future, SCM
may manage a number of funds with similar investment objectives, policies, and
limitations, but with different features and services. In such a case, the
pooling of their assets would generally achieve operational efficiencies and
cost reductions. If a Fund invested all of its assets in a Pooled Fund, the Fund
would hold only a single investment security and the Pooled Fund would directly
invest in individual securities pursuant to its investment objective.
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<PAGE> 35
While neither SCM nor the Directors have determined that the Funds should
invest in a Pooled Fund, the Directors believe that it could be in the best
interest of a Fund to adopt such a structure at a future date. However, the
Directors will only authorize such an arrangement (i) if it is permitted under a
Fund's investment policies, (ii) if they determine that it is in the best
interests of a Fund, and (iii) if, upon advice of counsel, they determine that
the investment will not have material adverse tax consequences to a Fund or its
shareholders.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 6I.
7A. TO ELIMINATE A FUNDAMENTAL INVESTMENT LIMITATION CONCERNING SHORT SALES OF
SECURITIES. (ALL FUNDS)
The Money Market, Advantage, Short-Term Bond, and Income Funds' current
fundamental investment limitation concerning short sales of securities states:
"The Fund may not make short sales of securities..."12
The Government Securities Fund's current fundamental investment limitation
concerning short sales of securities states:
"The Fund may not sell securities short except where a long position is held
in the security which equals or exceeds the number of shares sold
short..."13
The Directors recommend that shareholders vote to eliminate the above
fundamental investment limitations. Subject to shareholder approval of this
recommendation, the Directors intend to implement the following non-fundamental
operating policy:
"The Fund may not sell securities short, unless the Fund owns or has the
right to obtain securities equivalent in kind and amount to the securities
sold short, or unless it covers such short sale as required by the current
rules and positions of the Securities and Exchange Commission or its staff,
and provided that transactions in options, futures contracts, options on
futures contracts, or other derivative instruments are not deemed to
constitute selling securities short."
The primary purpose of the proposal is to eliminate each Fund's fundamental
limitation concerning short sales of securities and adopt a non-fundamental
operating policy that would conform to a non-fundamental operating policy that
is expected to become standard for all funds managed by SCM. Adoption of the
non-fundamental policy may have an impact on the investment techniques employed
by the Funds (as discussed below), and it will contribute to the overall
objectives of standardization. (See "Adoption of Standard Investment
Limitations" on page 21.) If the proposal is approved, the new
- - ---------------
12 The deleted language relates to purchases of securities on margin discussed
under 7B.
13 The deleted language relates to purchases of securities on margin discussed
under 7B.
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<PAGE> 36
non-fundamental investment policy concerning short sales of securities could be
changed by the Directors without a future vote of a Fund's shareholders.
The proposed non-fundamental operating policy concerning short sales of
securities (i) permits the Money Market, Advantage, Short-Term Bond, and Income
Funds (the Government Securities Fund's current investment limitation does not
prohibit short sales against the box) to engage in short sales against the box,
and (ii) clarifies that options, futures, options on futures, and certain other
transactions, which may involve a "short" position relative to a security, do
not constitute short sale transactions under the operating policy. In a short
sale transaction, a Fund sells a borrowed security and agrees to return the same
security to the lender. A short sale is "against the box" when a Fund owns or
has the right to obtain securities identical to those sold short. If a Fund
sells securities short against the box, it may protect unrealized gains, but
will lose the opportunity to profit on such securities if the price rises. Short
sale transactions, other than covered short sale transactions such as short
sales against the box, are considered prohibited senior security issuances under
the 1940 Act, and certain state regulations concerning short sales currently
prohibit mutual funds from entering into any short sales, other than short sales
against the box.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 7A.
7B. TO ELIMINATE A FUNDAMENTAL INVESTMENT LIMITATION CONCERNING USE OF MARGIN.
(ALL FUNDS)
The Money Market and Government Securities Funds' current fundamental
investment limitation concerning use of margin states:
"The Fund may not...purchase any securities on margin."14
The Advantage, Short-Term Bond, and Income Funds' current fundamental
investment limitation concerning use of margin states:
"The Fund may not...purchase any securities on margin, except for the use of
short-term credit necessary for clearance of purchases of portfolio
securities and except that it may make margin deposits in connection with
interest rate futures and options thereon subject to (18) below."15
- - ---------------
14 The deleted language relates to short sales of securities discussed under 7A.
15 The deleted language relates to short sales of securities discussed under 7A.
Item 18 in the Advantage, Short- Term Bond, and Income Funds' limitation relates
to limitations on futures and options discussed under 7H.
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<PAGE> 37
The Directors recommend that shareholders vote to eliminate the above
fundamental investment limitations. Subject to shareholder approval of this
recommendation, the Directors intend to implement the following non-fundamental
operating policy:
"The Fund may not purchase securities on margin, except that the Fund may
obtain such short-term credits as are necessary for the clearance of
transactions; and provided that margin deposits in connection with futures
contracts, options on futures contracts, or other derivative instruments
shall not constitute purchasing securities on margin."
The primary purpose of the proposal is to eliminate each Fund's fundamental
limitations concerning the use of margin and adopt a non-fundamental operating
policy that would conform to a non-fundamental operating policy that is expected
to become standard for all funds managed by SCM. Although adoption of the
non-fundamental policy is not likely to have a significant impact on the
investment techniques employed by the Funds, it will contribute to the overall
objectives of standardization. (See "Adoption of Standard Investment
Limitations" on page 21.) If the proposal is approved, the new non-fundamental
investment policy concerning use of margin could be changed by the Directors
without a future vote of a Fund's shareholders.
The proposed non-fundamental operating policy concerning use of margin (i)
clarifies that the Government Securities Fund may engage in futures and options
transactions subject to the limitations discussed under 7H, and (ii) clarifies
that a Fund may use short-term credit for the clearance of portfolio
transactions and margin deposits for options, futures, and derivative
transactions subject to its investment objective, policies, and with respect to
the Money Market Funds, Rule 2a-7. Margin purchases involve the purchase of
securities with money borrowed from a broker. "Margin" is the cash or securities
that the borrower places with its broker as collateral against this loan. Under
the 1940 Act, the SEC views the obligation to repay funds borrowed in a margin
arrangement as a senior security and, therefore, such an arrangement is
prohibited.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 7B.
7C. TO ELIMINATE A FUNDAMENTAL INVESTMENT LIMITATION CONCERNING ILLIQUID AND
RESTRICTED SECURITIES. (ADVANTAGE, SHORT-TERM BOND, GOVERNMENT SECURITIES,
AND INCOME FUNDS)
The Advantage Fund's current fundamental investment limitation concerning
illiquid and restricted securities states:
"The Fund may not invest in the aggregate more than 10% of the value of its
total assets in the following securities: (i) restricted securities acquired
in private placements; (ii) repurchase agreements or time deposits maturing
in more than
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<PAGE> 38
seven days; and (iii) other securities which are illiquid or for which market
quotations are not readily available."
The Short-Term Bond and Government Securities Funds' current fundamental
investment limitation concerning illiquid and restricted securities states:
"The Fund may not invest in restricted securities (restricted as to
disposition under federal securities laws), illiquid securities, or other
securities without readily available market quotations, including repurchase
agreements maturing in more than seven days if, as a result of any such
investment, more than 10% of the value of the Fund's total assets would be
invested in restricted, illiquid, or other securities without readily
available market quotations."
The Income Fund's current fundamental investment limitation concerning
illiquid and restricted securities states:
"The Fund may not enter into repurchase agreements if, as a result thereof,
more than 10% of the Fund's total assets valued at the time of the
transactions would be subject to repurchase agreements maturing in more than
7 days or invested in restricted or illiquid securities or other securities
without readily available market quotations."
The Directors recommend that shareholders vote to eliminate the above
fundamental investment limitations. Subject to shareholder approval of this
recommendation, the Directors intend to implement the following non-fundamental
operating policy:
"The Fund may not invest in illiquid securities if, as a result of such
investment, more than 15% of its net assets would be invested in illiquid
securities, or such other amounts as may be permitted under the Investment
Company Act of 1940."
The primary purpose of the proposal is to eliminate the Advantage, Short-Term,
Government Securities, and Income Funds' fundamental limitation concerning
illiquid and restricted securities and adopt a non-fundamental operating policy
for each Fund that would conform to a non-fundamental operating policy that is
expected to become standard for all funds managed by SCM. This will permit the
Funds to purchase restricted securities. Adoption of the non-fundamental
operating policy will also contribute to the overall objectives of
standardization. (See "Adoption of Standard Investment Limitations" on page 21.)
If the proposal is approved, the new non-fundamental investment policy
concerning illiquid and restricted securities could be changed by the Directors
without a future vote of a Fund's shareholders.
The proposed non-fundamental operating policy concerning illiquid and
restricted securities (i) increases the Advantage, Short-Term Bond, Government
Securities, and Income Funds authority to invest in illiquid securities from 10%
of total assets to 15% of net assets as permitted under the 1940 Act, (ii)
conforms a Fund's illiquid securities limitation to the requirements of the 1940
Act by eliminating specific references to various types of securities which may
be considered illiquid, such as restricted securities. If a Fund holds a
material percentage of its assets in illiquid or restricted securities or other
assets for
38
<PAGE> 39
which there is no established trading market, there may be a question as to the
Fund's ability to meet its redemption obligations (or accurately to calculate
its net asset value).
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 7C.
7D. TO ELIMINATE A FUNDAMENTAL INVESTMENT LIMITATION CONCERNING THE PURCHASE OF
INVESTMENT COMPANY SECURITIES. (ALL FUNDS)
Each Fund's current fundamental investment limitation concerning the purchase
of investment company securities states:
"The Fund may not purchase securities of other investment companies."
The Directors recommend that shareholders vote to eliminate the above
fundamental investment limitation. Subject to shareholder approval of this
recommendation, the Directors intend to implement the following non-fundamental
operating policy:
"The Fund may not purchase securities of other investment companies except
in compliance with the Investment Company Act of 1940 and applicable state
law."
The primary purpose of the proposal is to eliminate each Fund's fundamental
limitation concerning purchasing investment company securities and adopt a
non-fundamental operating policy that would conform to a non-fundamental
operating policy that is expected to become standard for all funds managed by
SCM. Although adoption of the non-fundamental policy is not likely to have a
significant impact on the investment techniques employed by the Funds, it will
contribute to the overall objectives of standardization. (See "Adoption of
Standard Investment Limitations" on page 21.) If the proposal is approved, the
new non-fundamental investment policy concerning purchase of investment company
securities could be changed by the Directors without a future vote of a Fund's
shareholders.
The proposed non-fundamental operating policy concerning purchase of
investment company securities allows the Fund to invest in investment companies
to the extent allowed by the 1940 Act and state law. Under the 1940 Act, the
Fund is subject to certain limitations regarding purchasing the securities of
other investment companies. In general, the 1940 Act prevents a Fund from (i)
investing more than 10% of its total assets in the securities of other
investment companies, (ii) owning more than 3% of the outstanding voting stock
of any other investment company, and (iii) having more than 5% of its total
assets invested in securities of another investment company. There are also
additional limitations regarding investments in closed-end investment companies,
and a few states currently impose additional limitations on purchases of
investment company securities.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 7D.
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<PAGE> 40
7E. TO ELIMINATE A FUNDAMENTAL INVESTMENT LIMITATION CONCERNING PURCHASING
SECURITIES OF NEWLY-FORMED ISSUERS. (ALL FUNDS)
The Money Market, Advantage, Short-Term Bond, and Income Funds' current
fundamental investment limitation concerning purchasing securities of
newly-formed issuers states:
"The Fund may not purchase securities of any company having less than three
years' continuous operation (including operations of any predecessors) if
such purchase would cause the value of the Fund's investments in all such
companies to exceed 5% of the value of its assets."
The Government Securities Fund's current fundamental investment limitation
concerning purchasing securities of newly-formed issuers states:
"The Fund may not purchase securities of any issuer having less than three
years' continuous operation (including operations of any predecessors),
other than issuers of Federal agency obligations, if such purchase would
cause the value of the Fund's investments in all such issuers to exceed 5%
of the value of its assets."
The Directors recommend that shareholders vote to eliminate the above
fundamental investment limitations. Subject to shareholder approval of this
recommendation, the Directors intend to implement the following non-fundamental
operating policy:
"The Fund may not purchase the securities of any issuer (other than
securities issued or guaranteed by domestic or foreign governments or
political subdivisions thereof) if, as a result, more than 5% of its total
assets would be invested in the securities of issuers that, including
predecessor or unconditional guarantors, have a record of less than three
years of continuous operation. This policy does not apply to securities of
pooled investment vehicles or mortgage or asset-backed securities."
The primary purpose is to eliminate each Fund's fundamental limitation
concerning purchasing securities of newly-formed issuers and adopt a
non-fundamental operating policy for each Fund that would conform to a
non-fundamental operating policy that is expected to become standard for all
funds managed by SCM. Although adoption of the non-fundamental policy is not
likely to have a significant impact on the investment techniques employed by the
Funds, it will contribute to the overall objectives of standardization. (See
"Adoption of Standard Investment Limitations" on page 21.) If the proposal is
approved, the new non-fundamental investment policy concerning purchasing
securities of newly-formed issuers could be changed by the Directors without a
future vote of a Fund's shareholders. The proposed non-fundamental operating
policy concerning purchasing securities of newly-formed issuers clarifies that
the limitation is inapplicable to pools of asset-backed securities and U.S.
government and foreign government securities.
40
<PAGE> 41
Newly-formed issuers or "unseasoned issuers" are generally defined as issuers
with less than three years of continuous operation, including predecessors.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 7E.
7F. TO ELIMINATE A FUNDAMENTAL INVESTMENT LIMITATION CONCERNING WARRANTS.
(GOVERNMENT SECURITIES AND INCOME FUNDS)
The Government Securities Fund's current fundamental investment limitation
concerning warrants states:
"The Fund will not purchase the warrants of any issuer."
The Income Fund's current fundamental investment limitation concerning
warrants states:
"The Fund may not...purchase warrants where the grantor of the warrants is
the issuer of the underlying securities provided that not more than 5% of
the Fund's net assets may be invested in such warrants..."16
The Directors recommend that shareholders vote to eliminate the above
fundamental investment limitations. Subject to shareholder approval of this
recommendation, the Directors intend to implement the following non-fundamental
operating policy:
"The Fund may not purchase warrants, valued at the lower of cost or market
value, in excess of 5% of the Fund's net assets. Included in that amount,
but not to exceed 2% of the Fund's net assets, may be warrants that are not
listed on the New York Stock Exchange or the American Stock Exchange.
Warrants acquired by the Fund in units or attached to securities are not
subject to these restrictions."
The primary purpose of the proposal is to eliminate the Government Securities
and Income Funds' fundamental limitation concerning warrants and adopt a
non-fundamental operating policy for each Fund that would conform to a
non-fundamental operating policy that is expected to become standard for all
funds managed by SCM. Although adoption of the non-fundamental policy is not
likely to have a significant impact on the investment techniques employed by the
Funds, it will contribute to the overall objectives of standardization. (See
"Adoption of Standard Investment Limitations" on page 21.) If the proposal is
approved, the new non-fundamental investment policy concerning warrants could be
changed by the Directors without a future vote of a Fund's shareholders.
The proposed limitation (i) complies with current state law limitations, (ii)
permits the Government Securities Fund to invest in warrants subject to the
operating policy, and (iii) clarifies that warrants acquired in units or
attached to other securities are not subject
- - ---------------
16 The deleted language relates to futures and options transactions discussed
under 7H.
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<PAGE> 42
to the warrant limitation. Warrants are securities giving the holder the right,
but not the obligation, to buy the stock of an issuer at a given price
(generally higher than the value of the stock at the time of issuance) during a
specified period or perpetually. Warrants may be acquired separately or in
connection with the acquisition of bonds.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 7F.
7G. TO ELIMINATE A FUNDAMENTAL INVESTMENT LIMITATION CONCERNING INVESTING IN OIL
AND GAS INTERESTS. (ALL FUNDS)
Each Fund's current fundamental investment limitation concerning investing in
oil and gas interests states:
"The Fund may not invest in interests in oil, gas, or other mineral
exploration programs."
The Directors recommend that shareholders vote to eliminate the above
fundamental investment limitation. Subject to shareholder approval of this
recommendation, the Directors intend to implement the following non-fundamental
operating policy:
"The Fund may not invest in direct interests in oil, gas, or other mineral
exploration programs or leases; however, the Fund may invest in the
securities of issuers that engage in these activities."
The primary purpose of the proposal is to eliminate each Fund's fundamental
limitation concerning investing in oil and gas interests and adopt a
non-fundamental operating policy for each Fund that would conform to a
non-fundamental operating policy that is expected to become standard for all
funds managed by SCM. Although adoption of the non-fundamental policy is not
likely to have a significant impact on the investment techniques employed by the
Funds, it will contribute to the overall objectives of standardization. (See
"Adoption of Standard Investment Limitations" on page 21.) If the proposal is
approved, the new non-fundamental investment policy concerning investing in oil
and gas interests could be changed by the Directors without a future vote of a
Fund's shareholders. The proposed non-fundamental operating policy concerning
investing in oil and gas interests clarifies that a Fund may invest in
securities of issuers engaged in oil, gas, or other mineral exploration
activities.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 7G.
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<PAGE> 43
7H. TO ELIMINATE A FUNDAMENTAL INVESTMENT LIMITATION CONCERNING FUTURES AND
OPTIONS. (ALL FUNDS)
The Money Market Funds' current fundamental investment limitation concerning
futures and options states:
"The Fund may not engage in the purchase and sale of put and call options or
in writing such options."
The Advantage and Short-Term Bond Funds' current fundamental investment
limitation concerning futures and options states:
"The Fund may not engage in the purchase and sale of put, spread, or call
options on specific securities or futures contracts; or engage in writing
such options, except that the Fund may, subject to the provisions of Items
18 and 19, (i) purchase covered spread options provided that the value of
such options at any time does not exceed 5% of the Fund's net assets; (ii)
write covered call options, and purchase covered put options with respect to
all of its portfolio securities and enter into closing transactions with
respect to such options; and (iii) write call options and purchase put
options on futures contracts and enter into closing transactions with
respect to such options."
"The Fund may not enter into an interest rate futures contract or an option
thereon unless if, as a result thereof, (i) the then current aggregate
futures market prices of financial instruments required to be delivered
under open futures contract sales plus the then current aggregate purchase
prices of financial instruments required to be purchased under open futures
contract purchases would not exceed 30% of the Fund's net assets (taken at
market value at the time of entering into the contract) and (ii) not more
than 5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to initial margin and
premiums paid on futures contracts or options on futures contracts.
Transactions in futures contracts or options thereon may be entered into
only for hedging purposes."
"The Fund may not purchase or write options on specific securities and
futures contracts if, as a result thereof, (i) the aggregate market value of
all portfolio securities covering such options exceeds 25% of the Fund's net
assets, (ii) the value of all such options exceeds 5% of the Fund's total
assets, or (iii) the aggregate premiums paid for all such options held
exceeds 5% of the Fund's net assets."
The Government Securities Fund's current fundamental investment limitation
concerning futures and options states:
"The Fund may not engage in the purchase and sale of put, spread, or call
options on securities or futures contracts; or engage in writing such
options, except that the Fund may, subject to Items 18 and 20, (i) purchase
covered spread options provided that the value of such options at any time
does not exceed 5% of the Fund's net assets; and (ii) write covered call
options, and purchase covered put options with respect to all of its
portfolio securities and enter into closing transactions with respect to
such
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<PAGE> 44
options; and (iii) write call options and purchase put options on futures
contracts and enter into closing transactions with respect to such options."
"The Fund may not enter into an interest rate futures contract or an option
thereon unless if, as a result thereof, (i) the then current aggregate
futures market prices of financial instruments required to be delivered
under open futures contract sales plus the then current aggregate purchase
prices of financial instruments required to be purchased under open futures
contract purchases would not exceed 30% of the Fund's net assets (taken at
market value at the time of entering into the contract) and (ii) not more
than 5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to initial margin and
premiums paid on such futures contracts. Transactions in interest rate
futures contracts or options thereon may be entered into only for hedging
purposes."
"The Fund may not purchase or write options on specific securities and
futures contracts if, as a result thereof, (i) the aggregate market value of
all portfolio securities covering such options exceeds 25% of the Fund's net
assets, (ii) the value of all such options exceeds 5% of the Fund's total
assets, or (iii) the aggregate premiums paid for all such options held
exceeds 5% of the Fund's net assets."
The Income Fund's current fundamental investment limitation concerning futures
and options states:
"The Fund may not engage in the purchase and sale of put, spread, or call
options on specific securities or futures contracts, or engage in writing
such options, except that the Fund may, subject to the provisions of Items
18 and 19...(ii) purchase covered spread options provided that the value of
such options at any time does not exceed 5% of the Fund's net assets; (iii)
write covered call options, and purchase covered put options with respect to
all of its portfolio securities and enter into closing transactions with
respect to such options; and (iv) write call options and purchase put
options on futures contracts and enter into closing transactions with
respect to such options."17
"The Fund may not enter into an interest rate futures contract or an option
thereon unless if, as a result thereof, (i) the then current aggregate
futures market prices of financial instruments required to be delivered
under open futures contract sales plus the then current aggregate purchase
prices of financial instruments required to be purchased under open futures
contract purchases would not exceed 30% of the Fund's net assets (taken at
market value at the time of entering into the contract) and (ii) not more
than 5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to initial margin and
premiums paid on futures contracts or options on futures contracts.
Transactions in futures contracts or options thereon may be entered into
only for hedging purposes."
"The Fund may not purchase or write options on specific securities and
futures contracts if, as a result thereof, (i) the aggregate market value of
all portfolio
- - ---------------
17 The deleted language relates to the Fund's warrants limitation discussed
under 7F.
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<PAGE> 45
securities covering such options exceeds 25% of the Fund's net assets, (ii)
the value of all such options exceeds 5% of the Fund's total assets, or
(iii) the aggregate premiums paid for all such options held exceeds 5% of
the Fund's net assets."
The Directors recommend that shareholders vote to eliminate the above
fundamental investment limitations. Subject to shareholder approval of this
recommendation, the Directors intend to implement the following non-fundamental
operating policy for the Advantage, Short-Term Bond, Government Securities, and
Income Funds:
"The Fund may not engage in futures or options on futures transactions which
are impermissible pursuant to Rule 4.5 under the Commodity Exchange Act and,
in accordance with Rule 4.5, will use futures or options on futures
transactions solely for bona fide hedging transactions (within the meaning
of the Commodity Exchange Act), provided, however, that the Fund may, in
addition to bona fide hedging transactions, use futures and options on
futures transactions if the aggregate initial margin and premiums required
to establish such positions, less the amount by which any such options
positions are in the money (within the meaning of the Commodity Exchange
Act), do not exceed 5% of the Fund's net assets.
In addition, (i) the aggregate value of securities underlying call options
on securities written by the Fund or obligations underlying put options on
securities written by the Fund determined as of the date the options are
written will not exceed 50% of the Fund's net assets; (ii) the aggregate
premiums paid on all options purchased by the Fund and which are being held
will not exceed 20% of the Fund's net assets; (iii) the Fund will not
purchase put or call options, other than hedging positions, if, as a result
thereof, more than 5% of its total assets would be so invested; and (iv) the
aggregate margin deposits required on all futures and options on futures
transactions being held will not exceed 5% of the Fund's total assets."
The primary purpose of the proposal is to eliminate the Funds' fundamental
limitation concerning purchasing or selling options and adopt a non-fundamental
operating policy for the Funds (other than the Money Market Funds) that is
expected to become standard for most funds managed by SCM, other than money
market funds. While the Directors of the Money Market Funds recommend
elimination of each Fund's fundamental investment limitation regarding options,
neither Fund would be permitted to engage in such transactions due to the
limitations of Rule 2a-7. Although adoption of the non-fundamental policy is not
likely to have a significant impact on the investment techniques employed by the
Funds, it will contribute to the overall objectives of standardization. (See
"Adoption of Standard Investment Limitations" on page 21.) If the proposal is
approved, the new non-fundamental investment policy concerning futures and
options could be changed by the Directors without a future vote of a Fund's
shareholders.
The Advantage, Short-Term Bond, Government Securities, and Income Funds
currently may engage in options, futures, and options on futures transactions.
Each Fund may (i) invest in futures contracts (interest rate futures contracts)
- - -- contracts for future delivery of debt securities -- such as U.S. Treasury
bonds, bills, and notes, and Government National Mortgage Association modified
pass-through mortgage-backed
45
<PAGE> 46
securities (the Government Securities Fund is limited to futures contracts on
government-backed instruments, such as the foregoing), (ii) purchase covered
spread options which give each Fund the right to sell a security that it owns at
a fixed-dollar spread or yield spread in relationship to another security that
the Fund does not own, but which is used as a benchmark (up to 5% of the Fund's
total assets), (iii) write covered call options on its portfolio securities and
purchase covered put options on its portfolio securities, (iv) write call
options and purchase put options on futures contracts, and (v) enter into
closing transactions on such options. The Funds may currently enter into futures
transactions and options on futures contracts and portfolio securities only for
traditional hedging purposes.
The proposed limitation is not expected to materially change the Advantage,
Short-Term Bond, Government Securities, or Income Funds' investment programs,
although such changes generally increase a Fund's authority to engage in futures
and options transactions by increasing the assets of a Fund that may be
committed to such transactions or by broadening the purposes for which a Fund
may engage in such transactions. The risks associated with derivative
transactions, including futures and options transactions, are discussed under
6G.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 7H.
7I. TO ELIMINATE A FUNDAMENTAL INVESTMENT LIMITATION CONCERNING PLEDGING ASSETS.
(ALL FUNDS)
The Money Market Funds' current fundamental investment limitation concerning
pledging assets states:
"The Fund may not pledge, mortgage, hypothecate, or otherwise encumber any
of its assets, except as a temporary measure for extraordinary or emergency
purposes, and then, not in excess of 15% of its assets taken at cost and
except in connection with permissible loans of portfolio securities by the
Money Fund."
The Advantage Fund's current fundamental investment limitation concerning
pledging assets states:
"The Fund may not pledge, mortgage, hypothecate, or otherwise encumber any
of its assets, except (i) as a temporary measure for extraordinary or
emergency purposes, and then, not in excess of 15% of its assets taken at
cost, and (ii) it may enter into options, interest rate futures contracts
and options on such futures contracts subject to the limitations described
in (13), (18) and (19) below."18
- - ---------------
18 Items (13), (18), and (19) relate to specific futures and options limitations
and are discussed under 7H.
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<PAGE> 47
The Short-Term Bond, Government Securities, and Income Funds' current
fundamental investment limitation concerning pledging assets states:
"The Fund may not pledge, mortgage, hypothecate, or otherwise encumber any
of its assets, except (i) as a temporary measure for extraordinary or
emergency purposes, and then, not in excess of 15% of its assets taken at
cost, (ii) it may enter into options, interest rate futures contracts and
options on such futures contracts and (iii) in connection with permissible
loans of portfolio securities."
The Directors recommend that shareholders vote to eliminate the above
fundamental investment limitations. Subject to shareholder approval of this
recommendation, the Directors intend to implement the following non-fundamental
operating policy:
"The Fund may not pledge, mortgage or hypothecate any assets owned by the
Fund except as may be necessary in connection with permissible borrowings or
investments and then such pledging, mortgaging, or hypothecating may not
exceed 33 1/3% of the Fund's total assets at the time of the borrowing or
investment."
The primary purpose of the proposal is to eliminate each Fund's fundamental
limitation concerning pledging assets and adopt a non-fundamental operating
policy that would conform to a non-fundamental operating policy that is expected
to become standard for all funds managed by SCM. Although adoption of the
non-fundamental policy is not likely to have a significant impact on the
investment techniques employed by the Funds, it will contribute to the overall
objectives of standardization. (See "Adoption of Standard Investment
Limitations" on page 21.) If the proposal is approved, the new non-fundamental
investment policy concerning pledging assets could be changed by the Directors
without a future vote of a Fund's shareholders.
The proposed non-fundamental operating policy concerning pledging assets (i)
increases a Fund's pledging limitation from 15% to 33 1/3% for securities
lending and authorization of other pledging transactions in connection with
permitted borrowings, (ii) allows pledging in connection with borrowings, and
(iii) clarifies that a Fund may pledge its assets in connection with permissible
investments, without limiting those investments. Pledging transactions may
arise, for example, when a Fund engages in reverse repurchase agreements or
securities lending transactions. Pledging assets is not without risk and the
proposed policy represents an increase in the amount of assets subject to
pledging. Assets that have been pledged to other parties may not be readily
available to a Fund. Therefore, a Fund may have less flexibility in liquidating
such assets if it became necessary to do so. Allowing a Fund to pledge a greater
portion of its assets could impair the Fund's ability to meet current
obligations or impede portfolio management.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 7I.
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<PAGE> 48
7J. TO ELIMINATE A FUNDAMENTAL INVESTMENT LIMITATION CONCERNING SECURITIES
INVESTMENTS OF DIRECTORS AND OFFICERS. (ALL FUNDS)
Each Funds' current fundamental investment limitation concerning securities
investments of directors and officers states:
"The Fund may not purchase or retain the securities of any issuer if those
officers or directors of the Fund or its investment advisor owning
individually more than 1/2 of 1% of the securities of such issuer together
own more than 5% of the securities of such issuer."
The Directors recommend that shareholders vote to eliminate the above
fundamental investment limitation. Subject to shareholder approval of this
recommendation, the Directors intend to implement the following non-fundamental
operating policy:
"The Fund may not purchase or retain the securities of any issuer if any
officer or director of the Fund or its investment advisor beneficially owns
more than 1/2 of 1% of the securities of such issuer and such officers and
directors together own beneficially more than 5% of the securities of such
issuer."
The purpose of the proposal is to eliminate the fundamental limitation
concerning securities investments of directors and officers and adopt a
non-fundamental operating policy for each Fund that would conform to a
non-fundamental operating policy that is expected to become standard for all
funds managed by SCM. Although adoption of the non-fundamental policy is not
likely to have any impact on the investment techniques employed by the Funds, it
will contribute to the overall objectives of standardization. (See "Adoption of
Standard Investment Limitations" on page 21.) Directors and officers may
purchase securities owned by a Fund only in accordance with the 1940 Act and the
Fund's Code of Ethics. If the proposal is approved, the new non-fundamental
investment policy concerning securities investments of directors and officers
could be changed by the Directors without a future vote of a Fund's
shareholders.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 7J.
7K. TO ELIMINATE A FUNDAMENTAL INVESTMENT LIMITATION CONCERNING FUND PORTFOLIO
TRANSACTIONS WITH DIRECTORS AND OFFICERS. (ALL FUNDS)
Each Fund's current fundamental investment limitation concerning fund
portfolio transactions with directors and officers states:
"The Fund may not purchase from or sell to any of its officers or directors
or firms of which any of them are members any securities (other than capital
stock of the Fund)."
48
<PAGE> 49
The Directors recommend that shareholders vote to eliminate the above
fundamental investment limitation. Although elimination of the fundamental
policy is not likely to have any impact on the investment techniques employed by
the Funds, it will contribute to the overall objectives of standardization. (See
"Adoption of Standard Investment Limitations" on page 21.) The 1940 Act
prohibits many types of affiliated transactions including those covered by the
Funds' current investment limitation. However, because the current investment
limitation covers only a small portion of prohibited activities governed by the
1940 Act, the Directors recommend eliminating the limitation because it does not
fully cover prohibited transactions.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 7K.
7L. TO ELIMINATE A FUNDAMENTAL INVESTMENT LIMITATION CONCERNING INVESTING IN
SECURITIES FOR THE PURPOSE OF MANAGEMENT OR CONTROL. (ALL FUNDS)
Each Fund's current fundamental investment limitation concerning investing in
securities for the purpose of management or control states:
"The Fund may not invest in the securities of a company for the purpose of
management or the exercise of control."
The Directors recommend that shareholders vote to eliminate the above
fundamental investment limitation. Although elimination of the fundamental
policy is not likely to have a significant impact on the investment techniques
employed by the Funds, it will contribute to the overall objectives of
standardization. (See "Adoption of Standard Investment Limitations" on page 21.)
While the Funds have no present intention of investing in issuers for the
purpose of management or control, elimination of this fundamental investment
limitation would allow the Funds do so in the future, subject to applicable
regulatory requirements.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 7L.
7M. TO ELIMINATE A FUNDAMENTAL INVESTMENT LIMITATION CONCERNING PARTICIPATING ON
A JOINT BASIS IN ANY TRADING ACCOUNT. (ALL FUNDS)
Each Fund's current fundamental investment limitation concerning participating
on a joint basis in any trading account states:
"The Fund may not participate on a joint or joint-and-several basis in any
trading account in any securities."
The Directors recommend that shareholders vote to eliminate the above
fundamental investment limitation. Although elimination of the fundamental
policy is not likely to have
49
<PAGE> 50
a significant impact on the investment techniques employed by the Funds, it will
contribute to the overall objectives of standardization. (See "Adoption of
Standard Investment Limitations" on page 21.) The 1940 Act prohibits, among
other things, an affiliated person of a Fund from effecting any transaction in
which the Fund is a joint or joint-and-several participant. The 1940 Act also
prohibits an affiliated person of a Fund from participating in or effecting any
transaction in connection with a joint enterprise or arrangement without prior
approval from the SEC. Because the current fundamental investment limitation
only covers a small portion of the activities which are prohibited by the 1940
Act, the Directors recommend that this fundamental investment limitation be
eliminated so that there is no implication that other joint transactions are
permissible. Elimination of this investment limitation could also permit a Fund
to seek an order from the SEC permitting the Fund to enter into a joint
repurchase agreement with other Strong Funds if the Directors determine that
such an order would be advisable; however, the Directors have no current
intention to do so.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 7M.
7N. TO ELIMINATE A FUNDAMENTAL INVESTMENT LIMITATION CONCERNING PURCHASING
RESTRICTED SECURITIES OF A SINGLE ISSUER. (ADVANTAGE FUND)
The Advantage Fund's current fundamental investment limitation concerning
purchasing the restricted securities of a single issuer states:
"The Fund may not purchase the restricted securities of any issuer if such
purchase would cause more than 2.5% of the value of its total assets to be
invested in the restricted securities of any one issuer."
The Directors recommend that shareholders vote to eliminate the above
fundamental investment limitation. Although elimination of the fundamental
policy is not likely to have a significant impact on the investment techniques
employed by the Fund, it will contribute to the overall objectives of
standardization. (See "Adoption of Standard Investment Limitations" on page 21.)
If this limitation is eliminated the Fund will continue to be subject to a
fundamental limitation on issuer diversification (see 6A) and an operating
policy on illiquid securities (see 7C). While elimination of the fundamental
investment limitation will permit the Advantage Fund greater authority to invest
in the restricted securities of a single issuer, any such investment would only
be made in accordance with the Fund's diversification and illiquid securities
policies.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 7N.
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<PAGE> 51
OTHER MATTERS
The Directors know of no other matters that may come before the Meeting. If
any other matters properly come before the Meeting, it is the intention of the
persons acting pursuant to the enclosed proxy card(s) to vote the shares
represented by such proxies in accordance with their best judgment with respect
to such matters.
SHAREHOLDER PROPOSALS
Any shareholder proposals to be presented at the 1996 Annual Meeting of
Shareholders of the Funds, if such meeting is held, must be received at the
executive offices of a Fund on or before October 31, 1995.
By Order of the Board of Directors,
ANN E. OGLANIAN
Secretary
Menomonee Falls, Wisconsin
February 16, 1995
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<PAGE> 52
EXHIBIT A
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made and entered into on this day of
, 19 , between STRONG , INC., a Wisconsin
corporation (the "Fund"), and STRONG CAPITAL MANAGEMENT, INC., a Wisconsin
corporation (the "Adviser");
WITNESSETH
WHEREAS, the Fund is registered with the Securities and Exchange Commission as
an open-end management investment company under the Investment Company Act of
1940 (the "1940 Act");
WHEREAS, the Fund is authorized to create separate series, each with its own
separate investment portfolio; and,
WHEREAS, the Fund desires to retain the Adviser, which is a registered
investment adviser under the Investment Advisers Act of 1940, to act as
investment adviser for the Fund or each series of the Fund, if any, listed in
Schedule A attached hereto, and to manage each of their assets;
NOW, THEREFORE, the Fund and the Adviser do mutually agree and promise as
follows:
1. Employment. The Fund hereby appoints Adviser as investment adviser for the
Fund or each series of the Fund, if any, listed on Schedule A attached hereto (a
"Portfolio" or collectively, the "Portfolios"), and Adviser accepts such
appointment. Subject to the supervision of the Board of Directors of the Fund
and the terms of this Agreement, the Adviser shall act as investment adviser for
and manage the investment and reinvestment of the assets of any Portfolio. The
Adviser is hereby authorized to delegate some or all of its services subject to
necessary approval, which includes without limitation, the delegation of its
investment adviser duties hereunder to a subadvisor pursuant to a written
agreement (a "Subadvisory Agreement") under which the subadvisor shall furnish
the services specified therein to the Adviser. The Adviser will continue to have
responsibility for all investment advisory services furnished pursuant to a
Subadvisory Agreement. The Adviser shall (i) provide for use by the Fund, at the
Adviser's expense, office space and all necessary office facilities, equipment
and personnel for servicing the investments of each Portfolio and maintaining
the Fund's organization, (ii) pay the salaries and fees of all officers and
directors of the Fund who are "interested persons" of the Adviser as such term
is defined under the 1940 Act, and (iii) pay for all clerical services relating
to research, statistical and investment work.
2. Allocation of Portfolio Brokerage. The Adviser is authorized, subject to
the supervision of the Board of Directors of the Fund, to place orders for the
purchase and sale of securities and to negotiate commissions to be paid on such
transactions. The Adviser
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<PAGE> 53
may, on behalf of each Portfolio, pay brokerage commissions to a broker which
provides brokerage and research services to the Adviser in excess of the amount
another broker would have charged for effecting the transaction, provided (i)
the Adviser determines in good faith that the amount is reasonable in relation
to the value of the brokerage and research services provided by the executing
broker in terms of the particular transaction or in terms of the Adviser's
overall responsibilities with respect to a Portfolio and the accounts as to
which the Adviser exercises investment discretion, (ii) such payment is made in
compliance with Section 28(e) of the Securities Exchange Act of 1934 and other
applicable state and federal laws, and (iii) in the opinion of the Adviser, the
total commissions paid by a Portfolio will be reasonable in relation to the
benefits to such Portfolio over the long term.
3. Expenses. Each Portfolio will pay all its expenses and the Portfolio's
allocable share of Fund expenses, other than those expressly stated to be
payable by the Adviser hereunder, which expenses payable by a Portfolio shall
include, without limitation, interest charges, taxes, brokerage commissions and
similar expenses, expenses of issue, sale, repurchase or redemption of shares,
expenses of registering or qualifying shares for sale, expenses of printing and
distributing prospectuses to existing shareholders, charges of custodians
(including sums as custodian and for keeping books and similar services of the
Portfolios), transfer agents (including the printing and mailing of reports and
notices to shareholders), registrars, auditing and legal services, clerical
services related to recordkeeping and shareholder relations, printing of share
certificates, fees for directors who are not "interested persons" of the
Adviser, and other expenses not expressly assumed by the Adviser under Paragraph
1 above. If expenses payable by a Portfolio, except interest charges, taxes,
brokerage commissions and similar fees and to the extent permitted extraordinary
expenses, in any given fiscal year exceed that percentage of the average net
asset value of the Portfolio for such year, as determined by valuations made as
of the close of each business day of such year, which is the most restrictive
percentage expense limitation provided by the laws of the various states in
which the Portfolio's shares are qualified for sale, or if the states in which
the shares qualified for sale impose no restrictions, then 2%, the Adviser shall
reimburse the Portfolio for such excess. Reimbursement of expenses by the
Adviser shall be made on a monthly basis and will be paid to a Portfolio by a
reduction in the Adviser's fee, subject to later adjustment month by month for
the remainder of the Fund's fiscal year.
4. Authority of Adviser. The Adviser shall for all purposes herein be
considered an independent contractor and shall not, unless expressly authorized
and empowered by the Fund or any Portfolio, have authority to act for or
represent the Fund or any Portfolio in any way, form or manner. Any authority
granted by the Fund on behalf of itself or any Portfolio to the Adviser shall be
in the form of a resolution or resolutions adopted by the Board of Directors of
the Fund.
5. Compensation of Adviser. For the services to be furnished during any month
by the Adviser hereunder, each Portfolio listed in Schedule A shall pay the
Adviser, and the Adviser agrees to accept as full compensation for all services
rendered hereunder, an Advisory Fee as soon as practical after the last day of
such month. The Advisory Fee shall
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<PAGE> 54
be an amount equal to 1/12th of the annual fee as set forth in Schedule B of the
average of the net asset value of the Portfolio determined as of the close of
business on each business day throughout the month (the "Average Asset Value").
In case of termination of this Agreement with respect to any Portfolio during
any month, the fee for that month shall be reduced proportionately on the basis
of the number of calendar days during which it is in effect and the fee computed
upon the Average Asset Value of the business days during which it is so in
effect.
6. Rights and Powers of Adviser. The Adviser's rights and powers with respect
to acting for and on behalf of the Fund or any Portfolio, including the rights
and powers of the Adviser's officers and directors, shall be as follows:
(a) Directors, officers, agents and shareholders of the Fund are or may at
any time or times be interested in the Adviser as officers, directors, agents,
shareholders or otherwise. Correspondingly, directors, officers, agents and
shareholders of the Adviser are or may at any time or times be interested in
the Fund as directors, officers, agents and as shareholders or otherwise, but
nothing herein shall be deemed to require the Fund to take any action contrary
to its Articles of Incorporation or any applicable statute or regulation. The
Adviser shall, if it so elects, also have the right to be a shareholder in any
Portfolio.
(b) Except for initial investments in a Portfolio, not in excess of $100,000
in the aggregate for the Fund, the Adviser shall not take any long or short
positions in the shares of the Portfolios and that insofar as it can control
the situation it shall prevent any and all of its officers, directors, agents
or shareholders from taking any long or short position in the shares of the
Portfolios. This prohibition shall not in any way be considered to prevent the
Adviser or an officer, director, agent or shareholder of the Adviser from
purchasing and owning shares of any of the Portfolios for investment purposes.
The Adviser shall notify the Fund of any sales of shares of any Portfolio made
by the Adviser within two months after purchase by the Adviser of shares of
any Portfolio.
(c) The services of the Adviser to each Portfolio and the Fund are not to be
deemed exclusive and Adviser shall be free to render similar services to
others as long as its services for others does not in any way hinder, preclude
or prevent the Adviser from performing its duties and obligations under this
Agreement. In the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of obligations or duties hereunder on the part of the
Adviser, the Adviser shall not be subject to liability to the Fund or to any
of the Portfolios or to any shareholder for any act or omission in the course
of, or connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security.
7. Duration and Termination. The following shall apply with respect to the
duration and termination of this Agreement:
(a) This Agreement shall begin for each Portfolio as of the date of this
Agreement and shall continue in effect for two years. With respect to each
Portfolio added by
54
<PAGE> 55
execution of an Addendum to Schedule A, the term of this Agreement shall begin
on the date of such execution and, unless sooner terminated as hereinafter
provided, this Agreement shall remain in effect to the date two years after
such execution. Thereafter, in each case, this Agreement shall remain in
effect, for successive periods of one year, subject to the provisions for
termination and all of the other terms and conditions hereof if: (a) such
continuation shall be specifically approved at least annually by either (i)
the affirmative vote of a majority of the Board of Directors of the Fund,
including a majority of the Directors who are not parties to this Agreement or
interested persons of any such party (other than as Directors of the Fund),
cast in person at a meeting called for that purpose or (ii) by the affirmative
vote of a majority of a Portfolio's outstanding voting securities; and (b)
Adviser shall not have notified a Portfolio in writing at least sixty (60)
days prior to the anniversary date of this Agreement in any year thereafter
that it does not desire such continuation with respect to that Portfolio.
Prior to voting on the renewal of this Agreement, the Board of Directors of
the Fund may request and evaluate, and the Adviser shall furnish, such
information as may reasonably be necessary to enable the Fund's Board of
Directors to evaluate the terms of this Agreement.
(b) Notwithstanding whatever may be provided herein to the contrary, this
Agreement may be terminated at any time with respect to any Portfolio, without
payment of any penalty, by affirmative vote of a majority of the Board of
Directors of the Fund, or by vote of a majority of the outstanding voting
securities of that Portfolio, as defined in Section 2(a)(42) of the 1940 Act,
or by the Adviser, in each case, upon sixty (60) days' written notice to the
other party and shall terminate automatically in the event of its assignment.
8. Amendment. This Agreement may be amended by mutual consent of the parties,
provided that the terms of each such amendment shall be approved by the vote of
a majority of the Board of Directors of the Fund, including a majority of the
Directors who are not parties to this Agreement or interested persons of any
such party to this Agreement (other than as Directors of the Fund) cast in
person at a meeting called for that purpose, and, where required by Section
15(a)(2) of the 1940 Act, on behalf of a Portfolio by a majority of the
outstanding voting securities (as defined in Section 2(a)(42) of the 1940 Act)
of such Portfolio. If such amendment is proposed in order to comply with the
recommendations or requirements of the Securities and Exchange Commission or
state regulatory bodies or other governmental authority, or to obtain any
advantage under state or federal laws, the Fund shall notify the Adviser of the
form of amendment which it deems necessary or advisable and the reasons
therefor, and if the Adviser declines to assent to such amendment, the Fund may
terminate this Agreement forthwith.
9. Notice. Any notice that is required to be given by the parties to each
other under the terms of this Agreement shall be in writing, addressed and
delivered, or mailed postpaid to the other party at the principal place of
business of such party.
10. Assignment. This Agreement shall neither be assignable nor subject to
pledge or hypothecation and in the event of assignment, pledge or hypothecation
shall automatically
55
<PAGE> 56
terminate. For purposes of determining whether an "assignment" has occurred, the
definition of "assignment" in Section 2(a)(4) of the 1940 Act shall control.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
as of the day and year first stated above.
<TABLE>
<S> <C>
Attest: Strong Capital Management, Inc.
- - -------------------------------- --------------------------------
[Name and Title] [Name and Title]
Attest: [Name of Fund]
- - -------------------------------- --------------------------------
[Name and Title] [Name and Title]
</TABLE>
SCHEDULE A
The Portfolio(s) of Strong , Inc. currently subject to this
Agreement are as follows:
<TABLE>
<CAPTION>
Date of Addition
Portfolio(s) to this Agreement
- - --------------------------------------------------------------------
<S> <C>
</TABLE>
SCHEDULE B
Compensation pursuant to Paragraph 5 of this Agreement shall be calculated in
accordance with the following schedules:
<TABLE>
<CAPTION>
Portfolio(s) Annual Fee
- - --------------------------------------------------------------------
<S> <C>
</TABLE>
56
<PAGE> 3
<TABLE>
<S><C>
WE NEED YOUR VOTE BEFORE APRIL 13, 1995
___________________________________________________________________________________________________________________________________
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED IN FAVOR OF ALL PROPOSALS AND IN THE
DISCRETION OF THE PROXIES UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING. Please indicate by filling in the
appropriate box below, as shown, using blue or black ink or dark pencil. Do not use red ink. [ ]
1. Election of Directors. FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote [ ] 1.
(except as marked to the contrary) for all nominees listed below
TO WITHHOLD AUTHORITY FOR AN INDIVIDUAL NOMINEE STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW
Richard S. Strong John Dragisic Marvin E. Nevins Willie D. Davis William F. Vogt Stanley Kritzik
2. To ratify the selection of independent public accountants. FOR [ ] AGAINST [ ] ABSTAIN [ ] 2.
3. To adopt and ratify the revised Advisory Agreement. FOR [ ] AGAINST [ ] ABSTAIN [ ] 3.
4. To adopt revised Articles of Incorporation. FOR [ ] AGAINST [ ] ABSTAIN [ ] 4.
5B. To amend the investment objective. FOR [ ] AGAINST [ ] ABSTAIN [ ] 5B.
6. To amend or adopt fundamental investment limitations. FOR [ ] (Except as marked below) ABSTAIN [ ] 6.
If you do NOT wish to approve an investment limitation change, please check the appropriate box below:
(A) [ ] Diversification (D) [ ] Purchasing or selling real estate (G) [ ] Purchasing or selling financial commodities
(B) [ ] Concentration (E) [ ] Borrowing (H) [ ] Issuing senior securities
(C) [ ] Lending (F) [ ] Underwriting securities (I) [ ] Pooled fund structures
7. To eliminate fundamental investment limitations. FOR [ ] (Except as marked below) ABSTAIN [ ] 7.
If you do NOT wish to approve elimination of an investment limitation, please check the appropriate box below:
(A) [ ] Short sales of securities (I) [ ] Pledging assets
(B) [ ] Use of margin (J) [ ] Securities investments of directors and officers
(C) [ ] Illiquid and restricted securities (K) [ ] Fund portfolio transactions with directors and officers
(D) [ ] Purchase of investment company securities (L) [ ] Investing in securities for the purpose of management or control
(E) [ ] Purchasing securities of newly-formed issuers (M) [ ] Participating on a joint basis in any trading account
(G) [ ] Investing in oil and gas interests
(H) [ ] Futures and options
___________________________________________________________________________________________________________________________________
TO BE COMPLETED AND SIGNED ON REVERSE SIDE OF CARD.
WE NEED YOUR VOTE BEFORE APRIL 13, 1995
__________________________________________________________________________________________________________________________
[LOGO]
PLEASE, your vote is important and, as a shareholder, you are asked to be at the Annual Meeting either in person or by
proxy. If you are unable to attend the Meeting in person, we urge you to complete, sign, date, and return this proxy card
using the enclosed postage prepaid envelope. Your prompt return of the proxy will help assure quorum at the Meeting and
avoid additional expenses to your Fund associated with further solicitation. Sending in your proxy will not prevent you from
personally voting your shares at the Meeting and you may revoke your proxy by advising the Secretary of the Fund in
writing (by subsequent proxy or otherwise) of such revocation at any time before it is voted.
__________________________________________________________________________________________________________________________
THANK YOU FOR YOUR TIME
STRONG SHORT-TERM BOND FUND, INC. PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
The undersigned hereby constitutes and appoints John Dragisic, Thomas P. Lemke, and Ann E. Oglanian as proxies, each with power to
appoint his or her substitute, and hereby authorizes them to represent and to vote by majority, as designated on the reverse side,
all shares of stock of the Fund, which the undersigned is entitled to vote at the Annual Meeting of Shareholders to be held at the
Italian Community Center, 631 E. Chicago Street, Milwaukee, Wisconsin, on April 13, 1995, at 10:00 a.m., local time, and any
adjournments thereof, with respect to the matters set forth on the reverse side and described in the Notice of Annual Meeting
and Proxy Statement dated February 16, 1995, receipt of which is hereby acknowledged.
DATE: __________________________
NOTE: Please sign exactly as your name appears on this
Proxy. If joint owners, EITHER may sign this Proxy.
When signing as attorney, executor, administrator,
trustee, guardian or corporate officer, please give
your full title.
_______________________________________________________
Signature(s) (Title(s), if applicable)
</TABLE>
<PAGE> 4
STRONG FUNDS
P.O. Box 2936 . Milwaukee, Wisconsin 53201 . Telephone 1-800-368-3863
February 1995
Dear Fellow Shareholder:
You are cordially invited to attend the joint Annual Meeting of Shareholders of
the Strong Funds, to be held at 10:00 a.m., Thursday, April 13, 1995, at the
Italian Community Center, 631 East Chicago Street, Milwaukee, Wisconsin.
Preceding the Meeting, there will be an Investment Strategy Discussion Session
starting at 9:00 a.m.
PLEASE READ THE ENCLOSED MATERIALS AND VOTE.
The accompanying "Notice of Annual Meeting and Proxy Statement" describes a
number of important proposals affecting the Strong Funds in which you are
invested. To save printing and administrative expenses, we have created a
single "omnibus" Proxy Statement that encompasses the changes to all the Strong
Income Funds. Some of the proposals in the Statement, therefore, may not apply
to your Fund. To help identify the specific issues that affect your Fund,
please refer to the summary table on page 5 of the booklet. PLEASE REVIEW AND
CONSIDER EACH OF THESE ISSUES CAREFULLY.
The Funds' Board of Directors has reviewed these proposed changes and believes
them to be in the best interests of the Funds' shareholders. Accordingly, the
Board unanimously recommends that you vote in favor of each proposed change.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN
THE ENCLOSED PROXY CARD(S) IN THE POSTAGE-PAID ENVELOPE PROVIDED.
Please vote. And do so as soon as possible. No matter how many shares you own,
your vote - and its promptness - are important. You may be contacted by D.F.
King & Co., Inc., who has been engaged to solicit proxies on behalf of each
Fund's Board. If you have questions about these proposals, please call us at
1-800-359-3369.
SUMMARY OF PROPOSED CHANGES
As discussed fully in the Proxy Statement, you are being asked to elect an
expanded Board of Directors and ratify the re-appointment of Coopers & Lybrand
as the Funds' auditors. You are also being asked to adopt and ratify revised
Advisory Agreements that govern each Fund's arrangement with Strong Capital
Management, Inc. to provide certain investment management and administrative
services. PLEASE NOTE THAT THESE AGREEMENTS DO NOT PROPOSE AN INCREASE IN ANY
FEES PAID BY A FUND OR SUCH FUND'S SHAREHOLDERS.
(over) G-3
<PAGE> 5
In addition, we have proposed various changes - outlined below - to the Funds'
Articles of Incorporation, investment objectives, and fundamental investment
limitations. In general, these changes are part of our overall effort to
standardize and clarify both the language that describes and the policies that
guide the entire family of Strong Funds.
AMENDED ARTICLES OF INCORPORATION will allow the Board more
flexibility in managing future operations. In part, the changes
address the Board's authority to set redemption policies, approve
stock splits, and add alternative fund structures designed to
reduce costs.
REVISED INVESTMENT OBJECTIVES represent the next step in our
long-term initiative to simplify our shareholder communications
and make our publications easier to use and understand. These
revisions are designed to describe each Fund's goal more clearly
and are not intended to change the manner in which the Funds are
managed. For similar reasons, we have proposed that the Strong
Income Fund be renamed the Strong Corporate Bond Fund. We believe
the new name more accurately reflects the type of investments the
Fund normally emphasizes.
STANDARDIZED INVESTMENT LIMITATIONS are intended to conform and
clarify the policies that guide the day-to-day management of the
Funds, including the amounts and types of securities in which
each Fund may invest, as well as the investment techniques the
Funds may employ. By using uniform limitations wherever possible,
we expect to facilitate portfolio compliance and gain certain
operational efficiencies. In general, the changes are not
intended to significantly alter the way the Strong Income Funds
are managed. However, in some cases, they do expand a Fund's
ability to take advantage of certain investment opportunities. We
have noted these exceptions within the Proxy Statement.
Again, I encourage you to review these proposals carefully and cast your vote
using the enclosed proxy card(s) and postage-paid envelope. EVEN IF YOU DO PLAN
TO ATTEND THE MEETING, PLEASE VOTE AS SOON AS POSSIBLE. BY VOTING PROMPTLY, YOU
HELP US AVOID THE EXPENSE OF HAVING TO RE-SOLICIT YOUR PROXY - AND HELP US KEEP
FUND EXPENSES DOWN.
Thank you for your participation in this important initiative. I look forward
to seeing many of you on April 13th.
Sincerely,
/s/ Richard S. Strong
Richard S. Strong
Chairman of the Board
Enclosures
P.S. If you plan to join us at the meeting, please call 1-800-368-0930 to make
a reservation. Your reply will help us make the appropriate accommodations for
the meeting room.
