STRONG SHORT TERM MUNICIPAL BOND FUND INC
485BPOS, 2000-12-27
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As filed with the Securities and Exchange Commission on or about December 27,
                                                                       2000

                                        Securities Act Registration No. 33-42773
                                Investment Company Act Registration No. 811-6409


                       SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549

                                    FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933              [  ]
         Pre-Effective Amendment No.                                 [  ]
                                     ------
         Post-Effective Amendment No.   16                           [X]
                                      ------
                                     and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940      [  ]
         Amendment No.   17                                          [X]
                       -------
                        (Check appropriate box or boxes)

                   STRONG SHORT-TERM MUNICIPAL BOND FUND, INC.
               (Exact Name of Registrant as Specified in Charter)

          100 Heritage Reserve
    Menomonee Falls, Wisconsin                                            53051
(Address of Principal Executive Offices)                              (Zip Code)

       Registrant's Telephone Number, including Area Code: (414) 359-3400
                             Elizabeth N. Cohernour
                         Strong Capital Management, Inc.
                              100 Heritage Reserve
                        Menomonee Falls, Wisconsin 53051
                     (Name and Address of Agent for Service)


         It  is  proposed  that  this  filing  will  become   effective   (check
appropriate box).

                  [ ] immediately  upon filing pursuant to paragraph (b) of Rule
                  485
                  [X] on January 1, 2001  pursuant to paragraph  (b) of Rule
                  485
                  [ ] 60 days after filing  pursuant to paragraph  (a)(1) of
                  Rule 485
                  [ ] on (date)  pursuant to  paragraph  (a)(1) of Rule
                  485
                  [ ] 75 days after filing  pursuant to paragraph  (a)(2) of
                  Rule 485
                  [ ] on (date)  pursuant to  paragraph  (a)(2) of Rule
                  485

         If appropriate, check the following box:

                  [ ]  this  post-effective  amendment  designates  a new
                       effective date for a previously filed  post-effective
                       amendment.



<PAGE>


                   STRONG SHORT-TERM MUNICIPAL BOND FUND, INC.

                                     PART C
                                OTHER INFORMATION

Item 23. EXHIBITS

                  (a)      Articles of Incorporation dated July 31, 1996(2)
                  (a.1)    Amendment to Articles of Incorporation dated February
                           22, 2000(4)
                  (a.2)    Amendment to Articles of Incorporation dated July 24,
                            2000(5)
                  (b)      Bylaws dated October 20, 1995(1)
                  (b.1)    Amendment to Bylaws dated May 1, 1998(3)
                  (c)      Specimen Stock Certificate(4)
                  (d)      Amended and Restated Investment Advisory Agreement(4)
                  (e)      Distribution Agreement(4)
                  (e.1)    Distribution Agreement - Advisor Class(4)
                  (e.2)    Dealer Agreement (Advisor Shares Only)(4)
                  (e.3)    Mutual Fund Distribution and Shareholder Services
                           Agreement (Advisor Shares Only)
                  (e.4)    Services Agreement(4)
                  (f)      Inapplicable
                  (g)      Custody Agreement(1)
                  (h)      Amended and Restated Transfer and Dividend Disbursing
                           Agent Agreement(4)
                  (h.1)    Administration Agreement - Investor Class(4)
                  (h.2)    Administration Agreement - Advisor Class(4)
                  (h.3)    Administration Agreement - Institutional Class(5)
                  (i)      Inapplicable
                  (j)      Consent of Independent Accountants
                  (k)      Inapplicable
                  (l)      Inapplicable
                  (m)      Amended and Restated Rule 12b-1 Plan
                  (n)      Amended and Restated Rule 18f-3 Plan
                  (o)      Inapplicable
                  (p)      Code of Ethics for Access Persons dated November 9,
                           2000
                  (p.1)    Code of Ethics for Non-Access Persons dated November
                           9, 2000
                  (q)      Power of Attorney dated December 27, 2000
                  (r)      Letter of Representation



(1)  Incorporated  herein by reference to Post-Effective  Amendment No. 7 to the
     Registration  Statement on Form N-1A of Registrant  filed on or about April
     26, 1996.

(2)  Incorporated  herein by reference to Post-Effective  Amendment No. 8 to the
     Registration  Statement  on  Form  N-1A of  Registrant  filed  on or  about
     December 30, 1996.

(3)  Incorporated herein by reference to Post-Effective  Amendment No. 10 to the
     Registration Statement on Form N-1A of Registrant filed on or about October
     29, 1998.

(4)  Incorporated herein by reference to Post-Effective  Amendment No. 14 to the
     Registration  Statement  on  Form  N-1A of  Registrant  filed  on or  about
     February 25, 2000.

(5)  Incorporated herein by reference to Post-Effective  Amendment No. 15 to the
     Registration  Statement on Form N-1A of  Registrant  filed on or about July
     27, 2000.

Item 24.  PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT


     Registrant neither controls any person nor is under common control with any
other person.

Item 25.  INDEMNIFICATION


     Officers  and  directors  of the Funds,  its  advisor and  underwriter  are
insured under a joint  directors  and  officers/errors  and omissions  insurance
policy underwritten by a group of insurance companies in the aggregate amount of
$115,000,000,  subject to certain  deductions.  Pursuant to the authority of the
Wisconsin Business Corporation Law ("WBCL"),  Article VII of Registrant's Bylaws
provides as follows:

         ARTICLE VII.  INDEMNIFICATION OF OFFICERS AND DIRECTORS

               SECTION 7.01.  MANDATORY  INDEMNIFICATION.  The Corporation shall
          indemnify, to the full extent permitted by the WBCL, as in effect from
          time to time,  the  persons  described  in Sections  180.0850  through
          180.0859 (or any successor provisions) of the WBCL or other provisions
          of the law of the State of Wisconsin  relating to  indemnification  of
          directors  and  officers,   as  in  effect  from  time  to  time.  The
          indemnification  afforded  such persons by this  section  shall not be
          exclusive of other rights to which they may be entitled as a matter of
          law.

               SECTION 7.02. PERMISSIVE  SUPPLEMENTARY BENEFITS. The Corporation
          may,  but  shall  not  be  required  to,   supplement   the  right  of
          indemnification under Section 7.01 by (a) the purchase of insurance on
          behalf  of any  one or  more  of  such  persons,  whether  or not  the
          Corporation  would be obligated to indemnify such person under Section
          7.01; (b) individual or group indemnification  agreements with any one
          or more of such persons; and (c) advances for related expenses of such
          a person.

               SECTION  7.03.  AMENDMENT.  This  Article  VII may be  amended or
          repealed only by a vote of the  shareholders  and not by a vote of the
          Board of Directors.

               SECTION  7.04.  INVESTMENT  COMPANY  ACT.  In no event  shall the
          Corporation  indemnify any person  hereunder in  contravention  of any
          provision of the Investment Company Act.

Item 26.  BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR

     The information  contained under "Who are the funds' investment advisor and
portfolio  managers?" in the  Prospectus  and under  "Directors  and  Officers,"
"Investment   Advisor,"  and   "Distributor"  in  the  Statement  of  Additional
Information is hereby  incorporated by reference  pursuant to Rule 411 under the
Securities Act of 1933.

Item 27.  PRINCIPAL UNDERWRITERS

     (a) Strong Investments,  Inc., principal  underwriter for Registrant,  also
serves as principal  underwriter for Strong  Advantage Fund,  Inc.;  Strong Asia
Pacific Fund, Inc.;  Strong Balanced Fund, Inc.; Strong Common Stock Fund, Inc.;
Strong  Conservative Equity Fund, Inc.; Strong Corporate Bond Fund, Inc.; Strong
Discovery Fund, Inc.; Strong Equity Funds,  Inc.;  Strong Government  Securities
Fund, Inc.; Strong Heritage Reserve Series,  Inc.;  Strong High-Yield  Municipal
Bond Fund, Inc.; Strong Income Funds, Inc.; Strong Income Funds II, Inc.; Strong


<PAGE>


     International  Equity Funds, Inc.; Strong International Income Funds, Inc.;
Strong Large Cap Growth Fund, Inc.; Strong Life Stage Series, Inc.; Strong Money
Market Fund, Inc.;  Strong  Municipal Bond Fund,  Inc.;  Strong Municipal Funds,
Inc.; Strong  Opportunity  Fund, Inc.; Strong  Opportunity Fund II, Inc.; Strong
Schafer Funds,  Inc.;  Strong Schafer Value Fund, Inc.;  Strong  Short-Term Bond
Fund,  Inc.;  Strong  Short-Term  Global Bond Fund,  Inc.;  and Strong  Variable
Insurance Funds, Inc.

         (b)
<TABLE>
<CAPTION>
    <S>                                             <C>                               <C>

Name and Principal                          Positions and Offices               Positions and Offices
BUSINESS ADDRESS                            WITH UNDERWRITER                    WITH FUND
----------------------------------------------------------------------------------------------------------

Peter D. Schwab                             President and Director              none
100 Heritage Reserve
Menomonee Falls, WI  53051

Richard W. Smirl                            Vice President and Chief
100 Heritage Reserve                        Compliance Officer                  none
Menomonee Falls, WI  53051

Dana J. Russart                             Vice President                      none
100 Heritage Reserve
Menomonee Falls, WI  53051

Michael W. Stefano                          Vice President                      none
100 Heritage Reserve
Menomonee Falls, WI  53051

Lawrence B. Zuntz                           Vice President                      none
100 Heritage Reserve
Menomonee Falls, WI  53051

Dennis A. Wallestad                         Vice President                      Vice President
100 Heritage Reserve
Menomonee Falls, WI  53051

Elizabeth N. Cohernour                      Secretary                           Vice President and
100 Heritage Reserve                                                            Secretary
Menomonee Falls, WI  53051

Thomas M. Zoeller                           Treasurer and Chief                 Vice President
100 Heritage Reserve                        Financial Officer
Menomonee Falls, WI  53051

Kevin J. Scott                              Assistant Treasurer                 none
100 Heritage Reserve
Menomonee Falls, WI  53051

Constance R. Wick                           Assistant Secretary                 none
100 Heritage Reserve
Menomonee Falls, WI  53051
</TABLE>

         (c)  None


<PAGE>



Item 28.  LOCATION OF ACCOUNTS AND RECORDS

     All  accounts,  books,  or other  documents  required to be  maintained  by
Section 31(a) of the  Investment  Company Act of 1940 and the rules  promulgated
thereunder  are in the  physical  possession  of  Registrant's  Vice  President,
Elizabeth N. Cohernour, at Registrant's corporate offices, 100 Heritage Reserve,
Menomonee Falls, Wisconsin 53051.

Item 29.  MANAGEMENT SERVICES

     All  management-related  service  contracts  entered into by Registrant are
discussed in Parts A and B of this Registration Statement.

Item 30.  UNDERTAKINGS

         None


<PAGE>


                                   SIGNATURES

         Pursuant  to the  requirements  of the  Securities  Act of 1933 and the
Investment  Company Act of 1940, the Registrant  certifies that it meets all the
requirements  for  effectiveness  of  this   Post-Effective   Amendment  to  the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933,
and has duly caused this Post-Effective  Amendment to the Registration Statement
to be signed on its behalf by the undersigned,  thereto duly authorized,  in the
Village of Menomonee  Falls, and State of Wisconsin on the 27th day of December,
2000.

                                     STRONG SHORT-TERM MUNICIPAL BOND FUND, INC.
                                                                    (Registrant)


                                            By:/s/ Elizabeth N. Cohernour
                                               -------------------------------
                                          Elizabeth N. Cohernour, Vice President

         Pursuant  to the  requirements  of the  Securities  Act of  1933,  this
Post-Effective  Amendment  to the  Registration  Statement on Form N-1A has been
signed  below  by the  following  persons  in  the  capacities  and on the  date
indicated.
<TABLE>
<CAPTION>
       <S>                                                <C>                                            <C>

       NAME                                              TITLE                                          DATE



                                                Chairman of the Board (Principal Executive
/s/ Richard S. Strong                           Officer) and a Director                         December 27, 2000
-----------------------------------------------
Richard S. Strong

                                                Treasurer (Principal Financial and
/s/ John W. Widmer                              Accounting Officer)                             December 27, 2000
-----------------------------------------------
John W. Widmer


                                                Director                                        December 27, 2000
-----------------------------------------------
Marvin E. Nevins*


                                                Director                                        December 27, 2000
-----------------------------------------------
Willie D. Davis*


                                                Director                                        December 27, 2000
-----------------------------------------------
William F. Vogt*


                                                Director                                        December 27, 2000
-----------------------------------------------
Stanley Kritzik*


                                                Director                                        December 27, 2000
-----------------------------------------------
Neal Malicky*
</TABLE>


*    Susan A. Hollister signs this document pursuant to powers of attorney filed
     with this  Post-Effective  Amendment to the Registration  Statement on Form
     N-1A.

                                            By: /s/ Susan A. Hollister
                                               -------------------------------
                                                    Susan A. Hollister


<PAGE>


                                  EXHIBIT INDEX
<TABLE>
<CAPTION>
    <S>                        <C>                                                                   <C>

                                                                                                    EDGAR
 EXHIBIT NO.                 EXHIBIT                                                              EXHIBIT NO.
 -----------                 -------                                                              ----------

(e.3)             Mutual Fund Distribution and Shareholder Services Agreement                      EX-99.e3

(j)               Consent of Independent Accountants                                               EX-99.j

(m)               Amended and Restated 12b-1 Plan                                                  EX-99.m

(n)               Amended and Restated 18f-3 Plan                                                  EX-99.n

(p)               Code of Ethics for Access Persons                                                EX-99.p

(p.1)             Code of Ethics for Non-Access Persons                                            EX-99.p1

(q)               Power of Attorney                                                                EX-99.q

(r)               Letter of Representation                                                         EX-99.r


</TABLE>






                                                      PROSPECTUS JANUARY 1, 2001

[INVESTOR CLASS (written vertically)]





                                                                      The Strong
                                                                Municipal Income
                                                                           Funds


[PICTURE OF MAN HOLDING TELEPHONE]













                         Strong High-Yield Municipal Bond Fund
                                    Strong Municipal Bond Fund
                   Strong Short-Term High Yield Municipal Fund
                         Strong Short-Term Municipal Bond Fund

                                                            [STRONG LOGO] STRONG


THE SECURITIES AND EXCHANGE  COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED OF
THESE  SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.  ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.






<PAGE>



TABLE OF CONTENTS

YOUR INVESTMENT

KEY INFORMATION

WHAT ARE THE FUNDS' GOALS?                                                    1

WHAT ARE THE FUNDS' PRINCIPAL INVESTMENT STRATEGIES?                          1

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?                            3

WHAT ARE THE FUNDS' FEES AND EXPENSES?                                        7

WHO ARE THE FUNDS' INVESTMENT ADVISOR AND PORTFOLIO MANAGERS?                 8

OTHER IMPORTANT INFORMATION YOU SHOULD KNOW

COMPARING THE FUNDS                                                           10

A WORD ABOUT CREDIT QUALITY                                                   11

TAXABLE INVESTMENTS                                                           12

IF YOU ARE SUBJECT TO ALTERNATIVE MINIMUM TAX                                 13

FINANCIAL HIGHLIGHTS                                                          13

YOUR ACCOUNT

SHARE PRICE                                                                   18

BUYING SHARES                                                                 18

SELLING SHARES                                                                21

ADDITIONAL POLICIES                                                           23

DISTRIBUTIONS                                                                 25

TAXES                                                                         26

SERVICES FOR INVESTORS                                                        27

RESERVED RIGHTS                                                               30

FOR MORE INFORMATION                                                 BACK COVER


IN THIS PROSPECTUS, "WE" OR "US" REFERS TO STRONG CAPITAL MANAGEMENT,  INC., THE
INVESTMENT ADVISOR, ADMINISTRATOR, AND TRANSFER AGENT FOR THE STRONG FUNDS.



<PAGE>



                                                                 YOUR INVESTMENT

KEY INFORMATION

WHAT ARE THE FUNDS' GOALS?

The STRONG HIGH-YIELD  MUNICIPAL BOND FUND seeks total return by investing for a
high level of federally tax-exempt current income.

The STRONG  MUNICIPAL BOND FUND and the STRONG  SHORT-TERM  HIGH YIELD MUNICIPAL
FUND seek total  return by investing  for a high level of  federally  tax-exempt
current income with a moderate degree of share-price fluctuation.

The STRONG SHORT-TERM  MUNICIPAL BOND FUND seeks total return by investing for a
high  level  of  federally  tax-exempt  current  income  with  a low  degree  of
share-price fluctuation.

WHAT ARE THE FUNDS' PRINCIPAL INVESTMENT STRATEGIES?


The HIGH-YIELD  MUNICIPAL BOND FUND invests primarily in long-term,  medium- and
lower-quality  municipal bonds. The fund's manager emphasizes bonds whose credit
quality may be improving, and issuers that complement current investment themes,
such as the "aging of America." The manager also takes the overall interest rate
environment into consideration. The fund typically maintains an average maturity
between 10 and 25 years.


The  MUNICIPAL   BOND  FUND  invests   primarily  in   long-term,   higher-  and
medium-quality  municipal bonds. The fund's manager conducts  intensive research
on individual  issuers to uncover  solid  investment  opportunities,  especially
looking for bonds whose quality may be improving.  The fund typically  maintains
an average maturity between 10 and 20 years.

The SHORT-TERM HIGH YIELD MUNICIPAL FUND follows a similar  investment  style to
the  HIGH-YIELD  MUNICIPAL  BOND  Fund,  but  invests  primarily  in short-  and
intermediate-term, medium- and lower-quality municipal bonds. The fund typically
maintains an average maturity between one and three years.

The   SHORT-TERM   MUNICIPAL   BOND  FUND   invests   primarily  in  short-  and
intermediate-term,  higher- and  medium-quality  municipal bonds,  following the
investment  style of the MUNICIPAL BOND FUND.  The fund  typically  maintains an
average maturity of three years or less.


Although  each of the funds  invests  primarily  for  income,  they also  employ
techniques designed to realize capital  appreciation.  For example, the managers
may  select  bonds with  maturities  and coupon  rates  that  position  them for
potential capital  appreciation for a variety of reasons,  including a manager's
view on the direction of future interest-rate  movements and the potential for a
credit upgrade.

The funds'  managers may sell a holding if its value becomes  unattractive  (for
example,  when its fundamental qualities deteriorate or when other opportunities
exist that have more  attractive  yields).  Also,  the  managers  may invest any
amount in cash or cash-type securities (high-quality, short-term debt securities
issued by corporations,  financial  institutions,  or the U.S.  government) as a
temporary  defensive  position to avoid losses during adverse market conditions.
This could  reduce the benefit to the funds if the market goes up. In this case,
the funds may not achieve their investment goal.

The funds may invest  without  limitation  in municipal  bonds,  such as private
activity bonds, whose interest may be subject to the federal alternative minimum
tax (AMT).



<PAGE>


((Side Box))


Under  normal  market  conditions,  the funds will  invest at least 80% of their
assets in municipal bonds. MUNICIPAL BONDS are debt obligations issued by or for
U.S. states, territories, and possessions and the District of Columbia and their
political subdivisions, agencies, and instrumentalities.  Municipal bonds can be
issued to obtain money for public purposes or for privately operated  facilities
or  projects.  Some  municipal  bonds pay  interest  that is exempt from federal
income tax. Examples of municipal bonds are general  obligation  bonds,  revenue
bonds, industrial development bonds, notes, and municipal lease obligations.



WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?


BOND  RISKS:  The major  risks of each fund are those of  investing  in the bond
market.  A bond's market value is affected  significantly by changes in interest
rates--generally,  when interest rates rise,  the bond's market value  declines,
and when interest rates decline,  its market value rises  (interest-rate  risk).
Generally, the longer a bond's maturity, the greater the risk and the higher its
yield.  Conversely,  the shorter a bond's  maturity,  the lower the risk and the
lower its yield (maturity  risk). A bond's value can also be affected by changes
in the  bond's  credit  quality  rating  or  its  issuer's  financial  condition
(credit-quality  risk).  Because bond values  fluctuate,  the fund's share price
fluctuates.  So, when you sell your  investment,  you may  receive  more or less
money than you originally invested.

HIGH-YIELD  BOND RISKS:  The  HIGH-YIELD  MUNICIPAL BOND FUND and the SHORT-TERM
HIGH YIELD  MUNICIPAL  FUND invest in  lower-quality  bonds,  commonly  known as
high-yield  bonds or junk  bonds  that  present a  significant  risk for loss of
principal and interest.  These bonds offer the potential for higher  returns but
also involve greater risk than bonds of better  quality,  including an increased
possibility  that the  bond's  issuer  may not be able to make its  payments  of
interest and principal  (credit-quality risk). If that happens, the fund's share
price would decrease and its income  distributions would be reduced. An economic
downturn or period of rising interest rates (interest-rate risk) could adversely
affect  the market  for these  bonds and  reduce the fund's  ability to sell its
bonds  (liquidity  risk).  The lack of a liquid  market  for these  bonds  could
decrease the fund's  share price.  The  HIGH-YIELD  MUNICIPAL  BOND FUND and the
SHORT-TERM  HIGH YIELD  MUNICIPAL  FUND also have the  ability to invest in debt
obligations  that are in default  and these  obligations  possess  an  increased
possibility  that the issuer may not be able to make its  payments of  principal
and interest.

MANAGEMENT  RISK:  The funds are subject to  management  risk  because  they are
actively managed.  There is no guarantee that the investment techniques and risk
analyses used by the managers will produce the desired results.


The funds are  appropriate  for  investors  who are  comfortable  with the risks
described here. Also, the HIGH-YIELD  MUNICIPAL BOND FUND and the MUNICIPAL BOND
FUND are appropriate for investors whose financial goals are four to seven years
in the future.  The  SHORT-TERM  HIGH YIELD  MUNICIPAL  FUND and the  SHORT-TERM
MUNICIPAL BOND FUND are  appropriate for investors whose financial goals are two
to four  years in the  future.  The  funds  are not  appropriate  for  investors
concerned primarily with principal stability.


FUND STRUCTURE
Each of the funds has adopted a multiple class plan. The MUNICIPAL BOND FUND and
the SHORT-TERM  MUNICIPAL  BOND FUND offer Investor Class shares,  Advisor Class
shares, and Institutional  Class shares. The HIGH-YIELD  MUNICIPAL BOND FUND and
the SHORT-TERM HIGH YIELD MUNICIPAL FUND offer Investor Class shares and Advisor
Class  shares.  Only the Investor  Class shares of each fund are offered in this
prospectus.  The principal differences between each of the classes of shares are
that the Advisor  Class  shares are subject to  distribution  fees and  expenses
under  a  12b-1  plan  and  each  class  of  shares  is  subject  to   different
administrative and transfer agency fees and expenses.



<PAGE>




FUND PERFORMANCE
The following return  information  illustrates how the performance of the funds'
Investor  Class  shares  can  vary,  which  is one  indication  of the  risks of
investing  in the funds.  Please keep in mind that the past  performance  of the
funds'  Investor  Class shares does not  represent  how they will perform in the
future.   The  information   assumes  that  you  reinvested  all  dividends  and
distributions.


CALENDAR YEAR TOTAL RETURNS

-------------------------------------------------------------
                        Short-Term   High-Yield  Short-Term
             Municipal  Municipal    Municipal   High Yield
Year           Bond     Bond         Bond        Municipal
-------------------------------------------------------------
-------------------------------------------------------------
1990            4.6%        -             -          -
-------------------------------------------------------------
-------------------------------------------------------------
1991           13.4%        -             -          -
-------------------------------------------------------------
-------------------------------------------------------------
1992           12.2%        7.2%          -          -
-------------------------------------------------------------
-------------------------------------------------------------
1993           11.8%        6.8%          -          -
-------------------------------------------------------------
-------------------------------------------------------------
1994           -4.6%       -1.6%         -1.0%       -
-------------------------------------------------------------
-------------------------------------------------------------
1995           11.4%        5.4%         14.6%       -
-------------------------------------------------------------
-------------------------------------------------------------
1996            2.4%        4.9%          5.1%       -
-------------------------------------------------------------
-------------------------------------------------------------
1997           12.1%        6.9%         13.9%       -
-------------------------------------------------------------
-------------------------------------------------------------
1998            6.7%        5.6%          5.3%       6.1%
-------------------------------------------------------------
-------------------------------------------------------------
1999           -6.5%        1.2%         -5.5%       0.8%
-------------------------------------------------------------

BEST AND WORST QUARTERLY PERFORMANCE
(DURING THE PERIODS SHOWN ABOVE)

<TABLE>
<CAPTION>
<S>                                          <C>                                   <C>


FUND NAME                             BEST QUARTER RETURN                 WORST QUARTER RETURN
------------------------------------- ----------------------------------- -----------------------------------
High-Yield Municipal Bond             4.7% (1st Q 1995)                   -3.5% (4th Q 1999)

Municipal Bond                        5.8% (2nd Q 1992)                   -5.1% (1st Q 1994)

Short-Term High Yield Municipal       1.9% (2nd Q 1998)                   -1.1% (4th Q 1999)

Short-Term Municipal Bond             2.4% (3rd Q 1995)                   -1.8% (1st Q 1994)

</TABLE>



THE YEAR-TO-DATE  RETURNS THROUGH SEPTEMBER 30, 2000 ARE: MUNICIPAL BOND, 2.90%;
SHORT-TERM  MUNICIPAL  BOND,  3.68%;   HIGH-YIELD  MUNICIPAL  BOND,  1.05%;  AND
SHORT-TERM HIGH YIELD MUNICIPAL, 2.43%.


AVERAGE ANNUAL TOTAL RETURNS
                                 AS OF 12-31-99
<TABLE>
<CAPTION>
<S>                                       <C>         <C>           <C>            <C>

FUND/INDEX                               1-YEAR       5-YEAR      10-YEAR       SINCE INCEPTION
HIGH-YIELD MUNICIPAL BOND                -5.49%       6.43%         --          5.38% (10-1-93)
High-Yield Municipal Bond Index          -1.80%       7.40%         --          5.20%
Lipper High Yield Municipal Debt
Funds Index                              -3.65%       6.23%         --          4.33%
MUNICIPAL BOND                           -6.48%       5.00%        6.12%        5.70% (10-23-86)
Lehman Brothers Municipal Bond Index     -2.06%       6.91%        6.89%        7.08%
Lipper General Municipal Debt Funds Index-4.07%       6.14%        6.29%        6.52%
SHORT-TERM HIGH YIELD MUNICIPAL           0.78%        --           --          3.69% (11-30-97)
Lehman Brothers 1-3 Year Non-Investment
Grade Municipal Bond Index                3.66%        --           --          4.63%
Lipper High Yield Municipal Debt
Funds Index                              -3.65%        --           --          1.59%
</TABLE>


<PAGE>

<TABLE>
<CAPTION>
<S>                                       <C>         <C>           <C>            <C>

SHORT-TERM MUNICIPAL BOND                 1.16%       4.76%         --          4.48% (12-31-91)
Lehman Brothers Municipal
3 Year Bond Index                         1.96%       5.17%         --          4.88%
Lipper Short Municipal Debt Funds Average 1.69%       4.35%         --          4.13%
</TABLE>


THE  HIGH-YIELD  MUNICIPAL  BOND INDEX IS COMPRISED  OF THE LEHMAN  BROTHERS BAA
MUNICIPAL  BOND INDEX FROM INCEPTION  THROUGH  DECEMBER 31, 1995, AND THE LEHMAN
BROTHERS  HIGH-YIELD  MUNICIPAL BOND INDEX FROM JANUARY 1, 1996 TO PRESENT.  THE
LEHMAN  BROTHERS  BAA  MUNICIPAL  BOND  INDEX IS AN  UNMANAGED  INDEX  GENERALLY
REPRESENTATIVE  OF  MUNICIPAL  BONDS RATED BAA. THE LEHMAN  BROTHERS  HIGH-YIELD
MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF MUNICIPAL
BONDS RATED BELOW BAA.  THE LIPPER HIGH YIELD  MUNICIPAL  DEBT FUNDS INDEX IS AN
EQUALLY  WEIGHTED  PERFORMANCE  INDEX OF THE  LARGEST  QUALIFYING  FUNDS IN THIS
LIPPER CATEGORY.  THE LEHMAN BROTHERS MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX
GENERALLY  REPRESENTATIVE  OF  INVESTMENT-GRADE,  TAX-EXEMPT  BONDS.  THE LIPPER
GENERAL  MUNICIPAL DEBT FUNDS INDEX IS AN EQUALLY WEIGHTED  PERFORMANCE INDEX OF
THE LARGEST  QUALIFYING FUNDS IN THIS LIPPER  CATEGORY.  THE LEHMAN BROTHERS 1-3
YEAR  NON-INVESTMENT  GRADE MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE  OF  MUNICIPAL  BONDS RATED BELOW BAA WITH  MATURITIES  OF ONE TO
THREE  YEARS.  THE LIPPER  HIGH YIELD  MUNICIPAL  DEBT FUNDS INDEX IS AN EQUALLY
WEIGHTED  PERFORMANCE  INDEX OF THE  LARGEST  QUALIFYING  FUNDS  IN THIS  LIPPER
CATEGORY.  THE LEHMAN BROTHERS MUNICIPAL 3 YEAR BOND INDEX IS AN UNMANAGED INDEX
GENERALLY  REPRESENTATIVE  OF  THREE-YEAR,  TAX-EXEMPT  BONDS.  THE LIPPER SHORT
MUNICIPAL  DEBT FUNDS  AVERAGE  REPRESENTS  FUNDS THAT INVEST IN MUNICIPAL  DEBT
ISSUES WITH DOLLAR-WEIGHTED AVERAGE MATURITIES OF LESS THAN THREE YEARS.


For current yield information on these funds, call 1-800-368-3863.


WHAT ARE THE FUNDS' FEES AND EXPENSES?

This section  describes  the fees and  expenses  that you may pay if you buy and
hold shares of the funds.


SHAREHOLDER FEES
 (fees paid directly from your investment)
The  Investor  Class shares of each fund are 100%  no-load,  so you pay no sales
charges (loads) to buy or sell shares.


ANNUAL FUND OPERATING EXPENSES
 (expenses that are deducted from fund assets)
The costs of operating each fund are deducted from fund assets,  which means you
pay them  indirectly.  These costs are deducted before computing the daily share
price or making  distributions.  As a result,  they don't appear on your account
statement,  but  instead  reduce  the total  return you  receive  from your fund
investment.

ANNUAL FUND OPERATING EXPENSES (AS A PERCENT OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
<S>                                         <C>                  <C>                      <C>


                                                                                      TOTAL ANNUAL FUND
FUND                                     MANAGEMENT FEES       OTHER EXPENSES         OPERATING EXPENSES*
---------------------------------------- --------------------- ---------------------- -----------------------
High-Yield Municipal Bond                0.35%                 0.38%                  0.73%
Municipal Bond                           0.35%                 0.41%                  0.76%
Short-Term High Yield Municipal          0.35%                 0.37%                  0.72%
Short-Term Municipal Bond                0.25%                 0.35%                  0.60%
</TABLE>

*TOTAL  ANNUAL FUND  OPERATING  EXPENSES DO NOT REFLECT OUR WAIVER OF MANAGEMENT
FEES AND/OR  ABSORPTIONS.  WITH WAIVERS AND  ABSORPTIONS,  THE TOTAL ANNUAL FUND
OPERATING  EXPENSES OF THE SHORT-TERM  HIGH YIELD  MUNICIPAL FUND WERE 0.63%. WE
CAN TERMINATE WAIVERS AND ABSORPTIONS FOR THIS FUND AT ANY TIME.


EXAMPLE:  This  example is intended to help you compare the cost of investing in
the funds with the cost of investing in other mutual funds.  The example assumes
that you invest $10,000 in the fund and reinvest all dividends and distributions
for the time periods indicated, and then redeem all of your shares at the end of
those  periods.  The example also assumes that your  investment  has a 5% return
each year and that the funds' operating expenses remain the same.  Although your
actual  costs may be higher or lower,  based on these  assumptions,  your  costs
would be:
<TABLE>
<CAPTION>
<S>                                                <C>            <C>               <C>           <C>


FUND                                              1 YEAR          3 YEARS          5 YEARS       10 YEARS
------------------------------------------------- --------------- ---------------- ------------- ------------
High-Yield Municipal Bond                         $75             $233             $406          $906
Municipal Bond                                    $78             $243             $422          $942
Short-Term High Yield Municipal                   $74             $230             $401          $894
Short-Term Municipal Bond                         $61             $192             $335          $750
</TABLE>




<PAGE>



WHO ARE THE FUNDS' INVESTMENT ADVISOR AND PORTFOLIO MANAGERS?


Strong  Capital  Management,  Inc.  (Strong) is the  investment  advisor for the
funds. Strong provides investment management services for mutual funds and other
investment  portfolios  representing assets, as of October 31, 2000, of over $45
billion.  Strong began  conducting  business in 1974.  Since then, its principal
business has been providing  investment advice for individuals and institutional
accounts,  such as pension and  profit-sharing  plans,  as well as mutual funds,
several of which are available  through variable  insurance  products.  Strong's
address is P.O. Box 2936, Milwaukee, WI 53201.

The following individuals are the funds' portfolio managers.

MARY-KAY  H.  BOURBULAS  manages  the  HIGH-YIELD  MUNICIPAL  BOND  FUND and the
SHORT-TERM  HIGH  YIELD  MUNICIPAL  FUND and has over  ten  years of  investment
experience.  She joined  Strong as a  portfolio  manager in  October  1991.  Ms.
Bourbulas  co-managed the  HIGH-YIELD  MUNICIPAL BOND FUND from its inception in
1993 until December 1995,  when she assumed sole management  responsibility  for
the fund.  She has managed the  SHORT-TERM  HIGH YIELD  MUNICIPAL FUND since its
inception in November 1997. Prior to joining Strong,  Ms. Bourbulas was employed
by Stein Roe & Farnham, where she co-managed two tax-exempt funds. Ms. Bourbulas
received her bachelors degree in Economics from Northwestern University in 1989.

LYLE J. FITTERER  manages the MUNICIPAL BOND FUND and the  SHORT-TERM  MUNICIPAL
BOND  FUND.  Mr.  Fitterer  joined  Strong in 1989 and has over  seven  years of
investment experience.  He is a Chartered Financial Analyst and Certified Public
Accountant.  He has managed the MUNICIPAL BOND FUND and the SHORT-TERM MUNICIPAL
BOND FUND since March 2000. He served as the Managing  Director of Institutional
Client Services from December 1998 to March 2000 and as a fixed income portfolio
manager from January 1996 to December 1998. He served as a fixed income research
analyst/trader  from  February 1993 to January 1996 and as an equity trader from
February 1992 to February 1993. Mr.  Fitterer  received his bachelors  degree in
Accounting from the University of North Dakota in 1989.


OTHER IMPORTANT INFORMATION YOU SHOULD KNOW

COMPARING THE FUNDS

The  following  will  help  you   distinguish  the  funds  and  determine  their
suitability for your investment needs:
<TABLE>
<CAPTION>
<S>                         <C>                 <C>                     <C>                        <C>


                           AVERAGE                                     INCOME
FUND                       MATURITY         CREDIT QUALITY             POTENTIAL                 VOLATILITY
-----------------------------------------------------------------------------------------------------------
High-Yield                 10 to 25         At least 65% rated         High                       Moderate
MUNICIPAL BOND             YEARS*           MEDIUM OR LOWER                                       TO HIGH


----------------------------------------------------------------------------------------------------------
Municipal Bond             10 to 20         At least 85% rated         Moderate                   Moderate
                           years*           higher or medium           to High
                                            UP TO 15% RATED LOWER
----------------------------------------------------------------------------------------------------------
Short-Term High Yield      1 to 3           At least 80% rated         High                       Moderate
MUNICIPAL                  YEARS            MEDIUM OR LOWER
----------------------------------------------------------------------------------------------------------
Short-Term                 3 years          At least 85% rated         Low to                      Low
Municipal Bond             or less          higher or medium           Moderate
                                            UP TO 15% RATED LOWER
----------------------------------------------------------------------------------------------------------
</TABLE>

* EXPECTED RANGE


The MUNICIPAL BOND FUND and the SHORT-TERM  MUNICIPAL BOND FUND invest a portion
of their assets in lower-quality  securities that present a significant risk for
loss of principal and interest.


The HIGH-YIELD  MUNICIPAL BOND FUND and the SHORT-TERM HIGH YIELD MUNICIPAL FUND
may  invest in bonds  that are in  default,  but the funds are not  expected  to
invest more than 10% of net assets in those bonds.


<PAGE>



A WORD ABOUT CREDIT QUALITY

CREDIT  QUALITY  measures  the  issuer's  expected  ability to pay  interest and
principal   payments  on  time.   Credit   quality   can  be   "higher-quality",
"medium-quality", "lower-quality", or "in default".


HIGHER-QUALITY  means  bonds  that  are  in  any of  the  three  highest  rating
categories. For example, bonds rated AAA to A by Standard & Poor's Ratings Group
(S&P)*.


MEDIUM-QUALITY means bonds that are in the fourth-highest  rating category.  For
example, bonds rated BBB by S&P*.

LOWER-QUALITY  means bonds that are below the  fourth-highest  rating  category.
They are also known as non-investment,  high-risk,  high-yield, or "junk bonds".
For example, bonds rated BB to C by S&P*.

IN DEFAULT means the bond's issuer has not paid principal or interest on time.

*OR THOSE RATED IN THIS CATEGORY BY ANY NATIONALLY RECOGNIZED STATISTICAL RATING
ORGANIZATION.  S&P IS ONLY ONE EXAMPLE OF A  NATIONALLY  RECOGNIZED  STATISTICAL
RATING ORGANIZATION.

This chart shows S&P's  definition and ratings group for credit  quality.  Other
rating organizations use similar definitions.
<TABLE>
<CAPTION>
          <S>            <C>                       <C>                   <C>

      CREDIT QUALITY   S&P'S                    S&P'S RATINGS           RATING
                       DEFINITION               GROUP                   CATEGORY

      ---------------- ------------------------ ----------------------- -----------------------
                       Highest quality          AAA                     First highest


      Higher           High quality             AA                      Second highest

                       Upper medium grade       A                       Third highest
      ---------------- ------------------------ ----------------------- -----------------------
      Medium           Medium grade             BBB                     Fourth highest
      ---------------- ------------------------ ----------------------- -----------------------
                       Low grade                BB

      Lower            Speculative              B

                       Submarginal              CCC, CC, C

      ---------------- ------------------------ -----------------------
      In default       Probably in default      D
      ---------------- ------------------------ -----------------------
</TABLE>


We  determine  a  bond's  credit-quality  rating  at the time of  investment  by
conducting  credit  research and  analysis  and by relying on credit  ratings of
several   nationally   recognized   statistical  rating   organizations.   These
organizations  are called  NRSROs.  When we determine if a bond is in a specific
category,  we may use the highest rating  assigned to it by any NRSRO. If a bond
is not rated, we rely on our credit research and analysis to rate the bond. If a
bond's credit-quality rating is downgraded after our investment,  we monitor the
situation to decide if we need to take any action such as selling the bond.

Typically,  municipal  bonds are not  rated.  This  means  that  investments  in
municipal  bonds may require  more credit  analysis  by us than  investments  in
taxable bonds. Also,  investments in lower-quality  bonds will be more dependent
on our  credit  analysis  than  would be  higher-quality  bonds  because,  while
lower-quality bonds generally offer higher yields than higher-quality bonds with
similar  maturities,  lower-quality  bonds involve  greater  risks.  These risks
include the possibility of default or bankruptcy  because the issuer's  capacity
to pay interest and repay  principal is  considered  predominantly  speculative.
Also,  lower-quality  bonds are less liquid,  meaning that they may be harder to
sell than bonds of higher  quality  because the demand for them may be lower and
there are fewer potential buyers.  This lack of liquidity may lower the value of
the fund and your investment.


TAXABLE INVESTMENTS


A fund may invest up to 20% of its net assets in U.S.  government  and corporate
bonds and other  debt  securities  that are of the same  quality  as the  fund's
investments in municipal  bonds. A fund will generally  invest in these bonds to
take  advantage of capital  gains  opportunities.  These bonds  produce  taxable
income, unlike municipal bonds, which generally provide tax-exempt income.


IF YOU ARE SUBJECT TO THE ALTERNATIVE MINIMUM TAX

The funds  may  invest,  without  limitation,  in  municipal  obligations  whose
interest  is a  tax-preference  item for  purposes  of the  federal  alternative
minimum tax (AMT). If you are subject to the AMT, a substantial  portion of your
fund's  distributions  to you may not be exempt from federal income tax. If this
is the case, a fund's net return to you may be lower.

FINANCIAL HIGHLIGHTS


This information  describes investment  performance of the Investor Class shares
of the funds for the  periods  shown.  Certain  information  reflects  financial
results for a single  Investor  Class share  outstanding  for the entire period.
"Total  Return" shows how much an investment in the Investor Class shares of the
fund would have  increased (or decreased)  during each period,  assuming you had
reinvested all dividends and  distributions.  These figures have been audited by
PricewaterhouseCoopers  LLP,  whose  report,  along  with the  fund's  financial
statements, is included in the fund's annual report.


STRONG HIGH-YIELD MUNICIPAL BOND FUND--INVESTOR CLASS
<TABLE>
<CAPTION>
      <S>                                    <C>      <C>      <C>      <C>      <C>      <C>

                                            Aug. 31, Aug. 31, Aug. 31, Aug. 31, Aug. 31,Dec. 31,
SELECTED PER-SHARE DATA(a)                   2000    1999     1998     1997     1996(b)  1995
Net Asset Value, Beginning of Period        $9.79    $10.52   $10.09   $9.45    $9.91   $9.29
Income From Investment Operations:
   Net Investment Income                    0.59     0.58     0.59     0.61     0.44    0.69
   Net Realized and Unrealized Gains
   (Losses) on Investments                  (0.88)   (0.68)   0.45     0.64     (0.46)  0.62
   Total from Investment Operations         (0.29)   (0.10)   1.04     1.25     (0.02)  1.31
Less Distributions:
   From Net Investment Income(c)            (0.59)   (0.58)   (0.59)   (0.61)   (0.44)  (0.69)
   From Net Realized Gains                    --     (0.05)   (0.02)     --       --     --
   Total Distributions                      (0.59)   (0.63)   (0.61)   (0.61)   (0.44)  (0.69)
Net Asset Value, End of Period              $8.91    $9.79    $10.52   $10.09   $9.45   $9.91
RATIOS AND SUPPLEMENTAL DATA
Total Return                                -2.9%    -1.1%    +10.5%   +13.6%   -0.1%   +14.6%
Net Assets, End of Period (In Millions)     $439     $635     $667     $361     $238    $267
Ratio of Expenses to Average Net Assets
   Without Waivers, Absorptions and
   Fees Paid Indirectly by Advisor          0.7%     0.7%     0.7%     0.7%     0.7%*   0.8%
Ratio of Expenses to Average Net Assets     0.7%     0.7%     0.7%     0.7%     0.7%*   0.4%
Ratio of Net Investment Income to Average
   Net Assets                               6.4%     5.7%     5.7%     6.2%     6.9%*   7.1%
Portfolio Turnover Rate(d)                  17.5%    52.5%    66.5%    92.1%    106.8%  113.8%
</TABLE>

* Calculated on an annualized basis.
(a)  Information presented relates to a share of capital stock of the fund
     outstanding for the entire period.
(b)  In 1996, the fund changed its fiscal year-end from December to August.
(c)  Tax-exempt for regular federal income tax purposes.
(d)  Calculated  on the  basis  on the  fund as a whole  without  distinguishing
     between the classes of shares issued.


STRONG MUNICIPAL BOND FUND--INVESTOR CLASS
<TABLE>
<CAPTION>
       <S>                                            <C>      <C>      <C>      <C>     <C>      <C>

                                                     Aug. 31, Aug. 31, Aug. 31, Aug. 31,Aug. 31, Dec. 31,
SELECTED PER-SHARE DATA(a)                           2000     1999     1998     1997    1996(b)  1995
Net Asset Value, Beginning of Period                 $9.37    $9.96    $9.52    $8.99   $9.52    $9.23
Income From Investment Operations:
   Net Investment Income                             0.50     0.51     0.51     0.50    0.33     0.52
   Net Realized and Unrealized Gains
   (Losses) on Investments                           (0.59)   (0.59)   0.44     0.53    (0.53)   0.51
   Total from Investment Operations                  (0.09)   (0.08)   0.95     1.03    (0.20)   1.03
Less Distributions:
   From Net Investment Income(c)                     (0.50)   (0.51)   (0.51)   (0.50)  (0.33)   (0.54)
   In Excess of Net Investment Income                 --        --       --       --      --     (0.20)
   Total Distributions                               (0.50)   (0.51)   (0.51)   (0.50)  (0.33)   (0.74)
Net Asset Value, End of Period                       $8.78    $9.37    $9.96    $9.52   $8.99    $9.52
RATIOS AND SUPPLEMENTAL DATA
Total Return                                         -0.9%    -1.0%    +10.1%   +11.8%  -2.1%    +11.4%
Net Assets, End of Period (In Millions)              $274     $370     $287     $232    $247     $247
Ratio of Expenses to Average Net Assets
   without Fees Paid Indirectly by Advisor           0.8%     0.7%     0.7%     0.8%    0.8%*    0.8%
Ratio of Expenses to Average Net Assets              0.8%     0.7%     0.7%     0.8%    0.8%*    0.8%
Ratio of Net Investment Income to
   Average Net Assets                                5.6%     5.1%     5.2%     5.4%    5.4%*    5.4%
Portfolio Turnover Rate(d)                           19.2%    22.4%    58.5%    85.0%   172.9%   513.8%
</TABLE>

*     Calculated on an annualized basis.
(a)   Information presented relates to a share of capital stock of the fund
      outstanding for the entire period.
(b)   In 1996, the fund changed its fiscal year-end from December to August.
(c)   Tax-exempt for regular federal income tax purposes.
(d)   Calculated  on the  basis  of the  fund as a whole  without
      distinguishing between the classes of shares issued.


STRONG SHORT-TERM HIGH YIELD MUNICIPAL FUND--INVESTOR CLASS
<TABLE>
<CAPTION>
       <S>                                            <C>      <C>      <C>

                                                     Aug. 31, Aug. 31, Aug. 31,
SELECTED PER-SHARE DATA(a)                           2000     1999     1998(b)
Net Asset Value, Beginning of Period                 $9.99    $10.17   $10.00
Income From Investment Operations:
   Net Investment Income                             0.51     0.50     0.37
   Net Realized and Unrealized Gains
   (Losses) on Investments                           (0.39)   (0.18)   0.17
   Total from Investment Operations                  0.12     0.32     0.54
Less Distributions:
   From Net Investment Income(c)                     (0.51)   (0.50)   (0.37)
   Total Distributions                               (0.51)   (0.50)   (0.37)
Net Asset Value, End of Period                       $9.60    $  9.99  $10.17
RATIOS AND SUPPLEMENTAL DATA
Total Return                                         +1.3%    +3.2%    +5.5%
Net Assets, End of Period (In Millions)              $140     $182     $101
Ratio of Expenses to Average Net Assets
   Without Waivers and Absorptions                   0.7%     0.7%     1.0%*
Ratio of Expenses to Average Net Assets              0.6%     0.4%     0.4%*
Ratio of Net Investment Income to
   Average Net Assets                                5.2%     4.9%     5.0%*
Portfolio Turnover Rate(d)                           27.9%    22.7%    8.1%
</TABLE>

* Calculated on an annualized basis.
(a)  Information presented relates to a share of capital stock of the fund
     outstanding for the entire period.
(b)  For the period from November 30, 1997 (inception) to August 31, 1998.
(c)  Tax-exempt for regular federal income tax purposes.
(d)  Calculated  on the  basis  of the  fund as a whole  without  distinguishing
     between the classes of shares issued.



STRONG SHORT-TERM MUNICIPAL BOND FUND--INVESTOR CLASS
<TABLE>
<CAPTION>
       <S>                                            <C>      <C>      <C>      <C>     <C>      <C>

                                                    Aug. 31, Aug. 31, Aug. 31, Aug. 31,Aug. 31, Dec. 31,
SELECTED PER-SHARE DATA(a)                           2000     1999     1998     1997    1996(b)  1995
Net Asset Value, Beginning of Period                 $9.76    $9.95    $9.82    $9.67   $9.77    $9.73
Income From Investment Operations:
   Net Investment Income                             0.46     0.47     0.48     0.49    0.33     0.47
   Net Realized and Unrealized Gains
   (Losses) on Investments                           (0.12)   (0.19)   0.13     0.15    (0.10)   0.04
   Total from Investment Operations                  0.34     0.28     0.61     0.64    0.23     0.51
Less Distributions:
   From Net Investment Income(c)                     (0.46)   (0.47)   (0.48)   (0.49)  (0.33)   (0.47)
   Total Distributions                               (0.46)   (0.47)   (0.48)   (0.49)  (0.33)   (0.47)
Net Asset Value, End of Period                       $9.64    $9.76    $9.95    $9.82   $9.67    $9.77
RATIOS AND SUPPLEMENTAL DATA
Total Return                                         +3.6%    +2.8%    +6.3%    +6.7%   +2.4%    +5.4%
Net Assets, End of Period (In Millions)              $307     $325     $211     $165    $136     $133
Ratio of Expenses to Average Net Assets              0.6%     0.6%     0.6%     0.7%    0.7%*    0.8%
Ratio of Net Investment Income to
   Average Net Assets                                4.8%     4.7%     4.8%     5.0%    5.1%*    4.8%
Portfolio Turnover Rate(d)                           48.6%    22.7%    15.7%    26.2%   38.0%    226.8%
</TABLE>

* Calculated on an annualized basis.
(a)   Information presented relates to a share of capital stock of the fund
      outstanding for the entire period.
(b)   In 1996, the fund changed its fiscal year-end from December to August.
(c)   Tax-exempt for regular federal income tax purposes.
(d)   Calculated  on the  basis  of the  fund as a whole  without
      distinguishing between the classes of shares issued.


YOUR ACCOUNT

SHARE PRICE


Your transaction price for buying, selling, or exchanging shares of the funds or
specific  classes of the funds is the net asset  value per share  (NAV) for that
fund or class of shares. NAV is generally  calculated as of the close of trading
on the New York Stock Exchange (NYSE) (usually 3:00 p.m. Central Time) every day
the NYSE is open.  If the NYSE  closes at any  other  time,  or if an  emergency
exists,  NAV may be calculated at a different time. Your share price will be the
next NAV calculated after we accept your order.


NAV is based on the market value of the  securities  in a fund's  portfolio.  If
market  prices are not  available,  NAV is based on a  security's  fair value as
determined in good faith by us under the  supervision  of the Board of Directors
of the Strong Funds.


((Side Box))
------------------------------------------------------
We  determine  the share price or NAV of a fund or class by dividing  net assets
attributable to the fund or class (the value of the investments, cash, and other
assets  attributable to the fund or class minus the liabilities  attributable to
the fund or class) by the number of fund or class shares outstanding.
------------------------------------------------------

BUYING SHARES

INVESTMENT MINIMUMS:  When buying shares, you must meet the following investment
minimum requirements.

                 INITIAL INVESTMENT MINIMUM   ADDITIONAL INVESTMENT MINIMUM
---------------- --------------------------- ------------------------------
Regular accounts $2,500                       $50




MULTIPLE CLASS PLAN
Each fund has adopted a multiple  class plan.  The  MUNICIPAL  BOND FUND and the
SHORT-TERM  MUNICIPAL  BOND FUND offer  Investor  Class  shares,  Advisor  Class
shares, and Institutional  Class shares. The HIGH-YIELD  MUNICIPAL BOND FUND and
the SHORT-TERM HIGH YIELD MUNICIPAL FUND offer Investor Class shares and Advisor
Class  shares.  Each  class  is  offered  at its net  asset  value  without  the
imposition of any sales load;  however,  each class of shares is subject to fees
and expenses that may differ between classes. The principal  differences between
each of the classes of shares are that the Advisor  Class  shares are subject to
distribution  fees and expenses  under a 12b-1 plan, and each class of shares is
subject to different administrative and transfer agency fees and expenses.


BUYING INSTRUCTIONS You can buy shares in several ways.


MAIL
You can open or add to an account  by mail with a check made  payable to Strong.
Send it to the address  listed on the back of this  prospectus,  along with your
account application (for a new account) or an Additional Investment Form (for an
existing account).

EXCHANGE OPTION
Sign up for the exchange  option when you open your account.  To add this option
to an existing account,  visit the Account Services area at  WWW.ESTRONG.COM  or
call 1-800-368-3863 for a Shareholder Account Options Form.

((Side Box))

        QUESTIONS?
    Call 1-800-368-3863
      24 hours a day,
       7 days a week

EXPRESS PURCHASESM
You can make additional  investments to your existing account directly from your
bank account.  If you didn't establish this option when you opened your account,
visit the Account Services area at  WWW.ESTRONG.COM or call us at 1-800-368-3863
for a Shareholder Account Options Form.

STRONG DIRECT(R)
You can use Strong Direct(R) to add to your investment from your bank account or
to exchange shares between Strong Funds by calling 1-800-368-7550. See "Services
for Investors" for more information.

STRONG ONLINE ACCOUNT ACCESS
You can use  Strong  online  account  access at  WWW.ESTRONG.COM  to add to your
investment  from your bank account or to exchange  shares  between Strong Funds.
See "Services for Investors" for more information.

INVESTOR CENTERS
You can visit our Investor Center in Menomonee Falls, Wisconsin, near Milwaukee.
Visit the Account Services area at  WWW.ESTRONG.COM  or call  1-800-368-3863 for
hours and directions or for the location of our other Investor Centers.

WIRE
Call  1-800-368-3863 for instructions  before wiring funds either to open or add
to an account.  This helps to ensure that your account will be credited promptly
and correctly.

AUTOMATIC INVESTMENT SERVICES
See "Services for  Investors"  for detailed  information on all of our automatic
investment services.  You can sign up for these plans when you open your account
or  you  can  add  them  later  by  visiting  the  Account   Services   area  at
WWW.ESTRONG.COM or by calling 1-800-368-3863 for the appropriate form.

BROKER-DEALER
You may purchase shares through a broker-dealer or other  intermediary,  who may
charge you a fee. Broker-dealers,  including each fund's distributor,  and other
intermediaries  may also from time to time sponsor or participate in promotional
programs  pursuant to which investors  receive  incentives for establishing with
the broker-dealer or intermediary an account and/or for purchasing shares of the
Strong Funds through the account(s).  Investors should contact the broker-dealer
or  intermediary  and consult the Statement of Additional  Information  for more
information about promotional programs.


<PAGE>



PLEASE REMEMBER . . .

o    We only accept checks payable to Strong.

o    We do not accept cash,  third-party checks, credit card convenience checks,
     or checks drawn on banks outside the U.S.

o    You will be charged $20 for every check, wire, or Electronic Funds Transfer
     returned unpaid.


SELLING SHARES

You can access the money in your account by selling (also called redeeming) some
or all of your shares by one of the methods below. After your redemption request
is accepted, we normally send you the proceeds on the next business day.

SELLING INSTRUCTIONS You can sell shares in several ways.


MAIL
Write a letter of instruction. It should specify your account number, the dollar
amount or number of shares you wish to redeem,  the names and  signatures of the
owners (or other authorized persons), and your mailing address. Then, mail it to
the address listed on the back of this prospectus.

REDEMPTION OPTION
Sign up for the redemption option when you open your account, or add it later by
visiting  the  Account   Services  area  at   WWW.ESTRONG.COM,   or  by  calling
1-800-368-3863 to request a Shareholder  Account Options Form. With this option,
you may sell shares by phone or via the Internet and receive the proceeds in one
of three ways:

(1)      We can  mail a check  to your  account's  address.  Checks  will not be
         forwarded by the Postal  Service,  so please  notify us if your address
         has changed.

(2)      We can transmit the proceeds by Electronic Funds Transfer to a properly
         pre-authorized  bank account.  The proceeds usually will arrive at your
         bank two banking days after we process your redemption.

(3)      For a $10 fee,  we can  transmit  the  proceeds  by wire to a  properly
         pre-authorized  bank account.  The proceeds usually will arrive at your
         bank the first banking day after we process your redemption.

STRONG DIRECT(R)
You can redeem shares through Strong Direct(R) at 1-800-368-7550.  See "Services
for Investors" for more information.

STRONG ONLINE ACCOUNT ACCESS
You can use Strong online  account access at  WWW.ESTRONG.COM  to redeem shares.
See "Services for Investors" for more information.

INVESTOR CENTERS
You can visit our Investor Center in Menomonee Falls, Wisconsin, near Milwaukee.
Visit the Account Services area at  WWW.ESTRONG.COM  or call  1-800-368-3863 for
hours and directions or for the location of our other Investor Centers.

SYSTEMATIC WITHDRAWAL PLAN
You can set up automatic withdrawals from your account at regular intervals. You
can sign up for this service when you open your account, or you can add it later
by  visiting  the  Account  Services  area  at  WWW.ESTRONG.COM  or  by  calling
1-800-368-3863  for the appropriate  form. See "Services for Investors" for more
information  on this  service  and other  automatic  investment  and  withdrawal
services.


<PAGE>



BROKER-DEALER
You may sell  shares  through a  broker-dealer  or other  intermediary,  who may
charge you a fee.

CHECK WRITING
Sign up for free check writing when you open your account or call 1-800-368-3863
to add it later to an existing account.  Check redemptions must be for a minimum
of $500. Checks will only be honored if written against purchases that were made
more than 10 days before the check is presented for payment.  You cannot write a
check to close an account.

PLEASE REMEMBER ...

o    If you recently purchased shares,  the payment of your redemption  proceeds
     may be delayed by up to 10 days to allow the purchase  check or  electronic
     transaction to clear.


o    You will be charged a $10 service fee for a stop-payment on a check written
     on your Strong Funds account.

o    Some transactions and requests require a signature guarantee.

o    If you are selling shares you hold in certificate form, you must submit the
     certificates with your redemption request.  Each registered owner must sign
     the certificates and all signatures must be guaranteed.


((Side Box))
------------------------------------------------------
SIGNATURE  GUARANTEES  help  ensure that major  transactions  or changes to your
account  are in fact  authorized  by you.  For  example,  we require a signature
guarantee on written redemption requests for more than $100,000.  You can obtain
a signature  guarantee for a nominal fee from most banks,  brokerage  firms, and
other  financial  institutions.   A  notary  public  stamp  or  seal  cannot  be
substituted for a signature guarantee.
------------------------------------------------------


ADDITIONAL POLICIES


DEPOSIT OF UNSPECIFIED CHECKS
When your  investment  check does not clearly  indicate  the fund that you would
like to  purchase,  we will  deposit the check into the Strong Money Market Fund
until you clarify your investment decision.

INVESTING THROUGH A THIRD PARTY
If you invest through a third party (rather than directly with us), the policies
and fees may be different than  described in this  prospectus.  Banks,  brokers,
401(k)  plans,   financial  advisors,  and  financial  supermarkets  may  charge
transaction  fees and may set different  minimum  investments  or limitations on
buying or selling  shares.  Consult a  representative  of your plan or financial
institution for details.

LOW BALANCE ACCOUNT FEE
Because of the high cost of maintaining  small  accounts,  an annual low balance
account  fee of $10 (or the value of the  account if the  account  value is less
than  $10)  will be  charged  to all  accounts  that  fail to meet  the  initial
investment  minimum.  The fee, which is payable to the transfer agent,  will not
apply to (1) any retirement accounts,  (2) accounts with an automatic investment
plan (unless regular  investments have been  discontinued),  or (3) shareholders
whose combined Strong Funds assets total $100,000 or more. We may waive the fee,
in our discretion,  in the event that a significant  market correction lowers an
account balance below the account's initial investment minimum.


<PAGE>



MARKET TIMERS
The fund  will  consider  the  following  factors  to  identify  market  timers:
shareholders who have (1) requested an exchange out of the fund within two weeks
of an earlier  exchange  request,  (2) exchanged  shares out of a fund more than
twice in a calendar quarter,  (3) exchanged shares equal to at least $5 million,
or more than 1% of a fund's net assets, or (4) otherwise seem to follow a timing
pattern.  Shares under common  ownership or control are combined for purposes of
these limits.

PURCHASES IN KIND
You may, if we approve,  purchase  shares of the fund with  securities  that are
eligible  for  purchase  by the  fund  (consistent  with the  fund's  investment
restrictions,  policies,  and  goal)  and  that  have a value  that  is  readily
ascertainable in accordance with the fund's valuation policies.

TELEPHONE AND ELECTRONIC TRANSACTIONS
We  use   reasonable   procedures  to  confirm  that  telephone  and  electronic
transaction  requests are  genuine.  We may be  responsible  if we do not follow
these  procedures.  You are responsible for losses  resulting from fraudulent or
unauthorized   instructions  received  over  the  telephone  or  electronically,
provided we reasonably believe the instructions were genuine.  To safeguard your
account,  please keep your Strong  Direct(R)  and Strong online  account  access
passwords  confidential.  Contact  us  immediately  if you  believe  there  is a
discrepancy  between a transaction you performed and the confirmation  statement
you received, or if you believe someone has obtained unauthorized access to your
account or password.

During  times of  unusual  market  activity,  our phones may be busy and you may
experience a delay  placing a telephone  request.  During these times,  consider
trying Strong  Direct(R),  our 24-hour  automated  telephone  system, bY calling
1-800-368-7550,  or Strong online account access, our online transaction center,
by  visiting  WWW.ESTRONG.COM.  Please  remember  that you must  have  telephone
redemption  as an  option  on your  account  to  redeem  shares  through  Strong
Direct(R) or Strong online account access.

VERIFICATION OF ACCOUNT STATEMENTS
You should contact us in writing regarding any errors or discrepancies within 60
days after the date of the  statement  confirming a  transaction.  The statement
will be deemed correct if we do not hear from you within those 60 days.


DISTRIBUTIONS
-------------------------------------------------------------------------------

DISTRIBUTION POLICY
Each fund generally  pays you dividends  from net investment  income monthly and
distributes  any net capital  gains that it  realizes  annually.  Dividends  are
declared  on each day NAV is  calculated,  except for bank  holidays.  Dividends
earned on weekends, holidays, and days when the fund's NAV is not calculated are
declared  on  the  first  day  preceding  these  days  that  the  fund's  NAV is
calculated.  Your  investment  generally earns dividends from the first business
day after we accept your purchase order.


REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Your dividends and capital gains distributions will be automatically  reinvested
in  additional  shares of the fund or class,  as  applicable,  unless you choose
otherwise.  Your other options are to receive  checks for these  payments,  have
them automatically  invested in another Strong Fund, or have them deposited into
your bank  account.  To change the current  option for payment of dividends  and
capital gains distributions, please call 1-800-368-3863.


TAXES
-------------------------------------------------------------------------------


Generally,  a  municipal  fund's  distributions  will be composed  primarily  of
tax-exempt  income.  However,  the fund may make distributions of net investment
income and capital gains that are taxable to you.


TAXABLE DISTRIBUTIONS
Any net investment  income and net short-term  capital gains  distributions  you
receive are  generally  taxable as ordinary  dividend  income at your income tax
rate.  Distributions  of net capital  gains are  generally  taxable as long-term
capital  gains.  This is  generally  true no matter how long you have owned your
shares and whether you reinvest your distributions or take them in cash. You may
also have to pay taxes when you  exchange  or sell  shares if your  shares  have
increased in value since you bought them.

TAX-EXEMPT DISTRIBUTIONS
Exempt-interest dividends from municipal funds are generally exempt from federal
income  taxes,  but may be  subject  to state and local  tax.  Also,  if you are
subject to the  Alternative  Minimum  Tax,  you may have to pay federal tax on a
substantial portion of your income from exempt-interest dividends.

RETURN OF CAPITAL
If your fund's  distributions  exceed its earnings and profits, all or a portion
of those distributions may be treated as a return of capital to you. A return of
capital  may be treated as a sale of your  shares.  It may also  reduce the cost
basis of your shares.

YEAR-END STATEMENT
To assist you in tax  preparation,  after the end of each calendar year, we send
you a  statement  of  your  fund's  ordinary  dividends  and net  capital  gains
distributions (Form 1099).

BACKUP WITHHOLDING
By law, we must withhold 31% of your  distributions  and proceeds if (1) you are
subject to backup  withholding or (2) you have not provided us with complete and
correct  taxpayer  information  such  as  your  Social  Security  number  or tax
identification number.


((Side Box))
-------------------------------------------------------
YOU MAY  WANT TO AVOID  selling  shares  of a mutual  fund at a loss if you have
purchased additional shares of the same fund within 30 days prior to the sale or
if you plan to  purchase  additional  shares  of the same  fund  within  30 days
following  the sale.  This is called a wash sale and you will not be  allowed to
claim a tax loss on this transaction.
-------------------------------------------------------




Because  everyone's  tax  situation  is  unique,  you  should  consult  your tax
professional for assistance.

SERVICES FOR INVESTORS


We provide you with a variety of  services  to help you manage your  investment.
For more  details,  call  1-800-368-3863,  24 hours a day, 7 days a week.  These
services include:

STRONG DIRECT (R) AUTOMATED TELEPHONE SYSTEM
Our 24-hour  automated  response system enables you to use a touch-tone phone to
access  current  share  prices  (1-800-368-3550),  to  access  fund and  account
information (1-800-368-5550),  and to make purchases,  exchanges, or redemptions
among   your   existing   accounts   if  you   have   elected   these   services
(1-800-368-7550). Passwords help to protect your account information.

ESTRONG.COM
Visit us online  at  WWW.ESTRONG.COM  to  access  your  fund's  performance  and
portfolio  holding  information.   In  addition  to  general  information  about
investing, our web site offers daily performance information,  portfolio manager
commentaries, and information on available account options.

STRONG ONLINE ACCOUNT ACCESS
If you are a  shareholder,  you may use Strong online  account  access to access
your account  information  24 hours a day from your  personal  computer.  Strong
online account access allows you to view account history,  account balances, and
recent  dividend  activity,  as  well  as  to  make  purchases,   exchanges,  or
redemptions  among your existing  accounts if you have elected  these  services.
Encryption  technology and passwords  help to protect your account  information.
You may register to use Strong online account access at WWW.ESTRONG.COM.



<PAGE>




STRONGMAIL
If you  register for  StrongMail  at  WWW.STRONGMAIL.COM,  you will receive your
fund's closing price by e-mail each business day. In addition, StrongMail offers
market news and updates throughout the day.

STRONG EXCHANGE OPTION
You may exchange  shares of a fund for shares of another Strong Fund,  either in
writing,  by telephone,  or through your personal computer,  if the accounts are
identically registered (with the same name, address, and taxpayer identification
number).  Please  ask us for the  appropriate  prospectus  and  read  it  before
investing  in any of the Strong  Funds.  Remember,  an exchange of shares of one
Strong Fund for those of another Strong Fund is considered a sale and a purchase
of shares for  several  purposes,  including  tax  purposes  and may result in a
capital gain or loss.  Some Strong Funds that you may want to exchange  into may
charge an initial sales charge, or may charge a redemption fee of 0.50% to 1.00%
on the sale of shares held for less than 6 to 12 months.  Purchases  by exchange
are  subject  to the  investment  requirements  and other  criteria  of the fund
purchased.

STRONG CHECK WRITING
Strong Funds offers  check  writing on most of its bond and money market  funds.
Checks written on your account are subject to this  prospectus and the terms and
conditions found in the front of the book of checks.

STRONG AUTOMATIC INVESTMENT SERVICES
You may invest or redeem  automatically in the following ways, some of which may
be subject to additional restrictions or conditions.


     AUTOMATIC  INVESTMENT  PLAN  (AIP) This plan  allows  you to make  regular,
     automatic investments from your bank checking or savings account.

     AUTOMATIC  EXCHANGE  PLAN This plan allows you to make  regular,  automatic
     exchanges from one eligible Strong Fund to another.

     AUTOMATIC DIVIDEND REINVESTMENT
     Your  dividends  and  capital  gains will be  automatically  reinvested  in
     additional  shares unless you choose  otherwise.  Your other options are to
     receive  checks for these  payments,  have them  automatically  invested in
     another Strong Fund, or have them deposited into your bank account.




     PAYROLL DIRECT DEPOSIT PLAN
     This plan  allows  you to send all or a portion  of your  paycheck,  Social
     Security check, military allotment,  or annuity payment to the Strong Funds
     of your choice.


     SYSTEMATIC WITHDRAWAL PLAN
     This plan  allows you to redeem a fixed sum from your  account on a regular
     basis.  Payments may be sent electronically to a bank account or as a check
     to you or anyone you properly designate.


SOME OF THESE SERVICES MAY BE SUBJECT TO ADDITIONAL  RESTRICTIONS OR CONDITIONS.
CALL 1-800-368-3863 FOR MORE INFORMATION.



<PAGE>



RESERVED RIGHTS...
------------------------------------------------------------------------------

We reserve the right to:


o    Refuse,  change,  discontinue,  or temporarily  suspend  account  services,
     including purchase, exchange, or telephone and Strong online account access
     redemption privileges, for any reason.


o    Reject any purchase request for any reason,  including exchanges from other
     Strong  Funds.  Generally,  we do  this  if the  purchase  or  exchange  is
     disruptive to the efficient  management of a fund (due to the timing of the
     investment or an investor's history of excessive trading).


o    Change the minimum or maximum investment amounts.

o    Delay sending out redemption  proceeds for up to seven days (this generally
     only applies to very large redemptions  without notice,  excessive trading,
     or during unusual market conditions).

o    Suspend  redemptions  or postpone  payments when the NYSE is closed for any
     reason other than its usual  weekend or holiday  closings,  when trading is
     restricted by the SEC, or under any emergency circumstances.


o    Make a redemption  in kind (a payment in portfolio  securities  rather than
     cash) if the  amount  you are  redeeming  is in excess of the lesser of (1)
     $250,000 or (2) 1% of the fund's assets.  Generally,  redemption in kind is
     used when  large  redemption  requests  may cause  harm to the fund and its
     shareholders. This includes redemptions made by check writing.

o    Close any account that does not meet minimum  investment  requirements.  We
     will give you notice and 60 days to increase  your  balance to the required
     minimum.

o    Waive the initial investment minimum at our discretion.


o    Reject  any  purchase  or  redemption  request  that does not  contain  all
     required documentation.


o    Amend or terminate purchases in kind at any time.




<PAGE>




FOR MORE INFORMATION

More information is available upon request at no charge, including:

SHAREHOLDER  REPORTS:  Additional  information  is  available  in the annual and
semi-annual  report  to  shareholders.  These  reports  contain  a  letter  from
management,  discuss recent market  conditions,  economic  trends and investment
strategies that significantly affected your investment's  performance during the
last fiscal year, and list portfolio holdings.

STATEMENT OF ADDITIONAL  INFORMATION  (SAI): The SAI contains more details about
investment policies and techniques. A current SAI is on file with the SEC and is
incorporated  into this  prospectus  by  reference.  This  means that the SAI is
legally  considered a part of this  prospectus  even though it is not physically
contained within this prospectus.

To request information or to ask questions:


BY TELEPHONE                                  FOR HEARING-IMPAIRED (TDD)
1-414-359-1400 or 1-800-368-3863              1-800-999-2780

BY MAIL                                       BY OVERNIGHT DELIVERY
Strong Funds                                  Strong Funds
P.O. Box 2936                                 900 Heritage Reserve
Milwaukee, WI 53201-2936                      Menomonee Falls, WI 53051

ON THE INTERNET                                BY E-MAIL
View online or download documents:             [email protected]
Strong Funds: WWW.ESTRONG.COM
SEC*: www.sec.gov


To reduce the volume of mail you receive,  only one copy of  financial  reports,
prospectuses,  and other regulatory  materials is mailed to your household.  You
can call us at  1-800-368-3863,  or write to us at the address listed above,  to
request  (1)  additional  copies free of charge or (2) that we  discontinue  our
practice of householding regulatory materials.

This  prospectus  is not an offer to sell  securities  in places  other than the
United States and its territories.

*INFORMATION ABOUT A FUND (INCLUDING THE SAI) CAN ALSO BE REVIEWED AND COPIED AT
THE SECURITIES AND EXCHANGE  COMMISSION'S  PUBLIC  REFERENCE ROOM IN WASHINGTON,
D.C. YOU MAY CALL THE COMMISSION AT  1-202-942-8090  FOR  INFORMATION  ABOUT THE
OPERATION OF THE PUBLIC REFERENCE ROOM.  REPORTS AND OTHER  INFORMATION  ABOUT A
FUND ARE ALSO  AVAILABLE FROM THE EDGAR  DATABASE ON THE  COMMISSION'S  INTERNET
SITE AT WWW.SEC.GOV.  YOU MAY OBTAIN A COPY OF THIS INFORMATION,  AFTER PAYING A
DUPLICATING  FEE,  BY  SENDING  A WRITTEN  REQUEST  TO THE  COMMISSION'S  PUBLIC
REFERENCE  SECTION,  WASHINGTON,  D.C.  20549-0102,  OR BY SENDING AN ELECTRONIC
REQUEST TO THE FOLLOWING E-MAIL ADDRESS: [email protected].


Strong High-Yield  Municipal Bond Fund, a series of Strong High-Yield  Municipal
Bond Fund, Inc., SEC file number:  811-7930
Strong Municipal Bond Fund, a series of Strong Municipal Bond Fund, Inc.,
SEC file number: 811-4769
Strong Short-Term High Yield Municipal Fund, a series of Strong  Municipal
Funds,  Inc., SEC file number:  811-4770
Strong  Short-Term  Municipal  Bond Fund,  a series of Strong
Short-Term Municipal Bond Fund, Inc., SEC file number: 811-6409







                                                      PROSPECTUS JANUARY 1, 2001

[ADVISOR CLASS (written vertically)]




                                                                      The Strong
                                                                Municipal Income
                                                                           Funds


[PICTURE OF MAN HOLDING TELEPHONE]















                         Strong High-Yield Municipal Bond Fund
                                    Strong Municipal Bond Fund
                   Strong Short-Term High Yield Municipal Fund
                         Strong Short-Term Municipal Bond Fund


                                                            [STRONG LOGO] STRONG


THE SECURITIES AND EXCHANGE  COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED OF
THESE  SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.  ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.






<PAGE>


TABLE OF CONTENTS


YOUR INVESTMENT

KEY INFORMATION

WHAT ARE THE FUNDS' GOALS?                                                    1

WHAT ARE THE FUNDS' PRINCIPAL INVESTMENT STRATEGIES?                          1

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?                            3

WHAT ARE THE FUNDS' FEES AND EXPENSES?                                        8

WHO ARE THE FUNDS' INVESTMENT ADVISOR AND PORTFOLIO MANAGERS?                 9

OTHER IMPORTANT INFORMATION YOU SHOULD KNOW

COMPARING THE FUNDS                                                           11

A WORD ABOUT CREDIT QUALITY                                                   12

TAXABLE INVESTMENTS                                                           13


IF YOU ARE SUBJECT TO THE ALTERNATIVE MINIMUM TAX                             14


FINANCIAL HIGHLIGHTS                                                          14


YOUR ACCOUNT

DISTRIBUTION FEES                                                             19

SHARE PRICE                                                                   19

BUYING SHARES                                                                 20

SELLING SHARES                                                                22

ADDITIONAL POLICIES                                                           23

DISTRIBUTIONS                                                                 24

TAXES                                                                         25

RESERVED RIGHTS                                                               26

FOR MORE INFORMATION                                                 BACK COVER


IN THIS PROSPECTUS, "WE" OR "US" REFERS TO STRONG CAPITAL MANAGEMENT,  INC., THE
INVESTMENT ADVISOR, ADMINISTRATOR, AND TRANSFER AGENT FOR THE STRONG FUNDS.



<PAGE>




                                                                 YOUR INVESTMENT


KEY INFORMATION


WHAT ARE THE FUNDS' GOALS?

The STRONG HIGH-YIELD  MUNICIPAL BOND FUND seeks total return by investing for a
high level of federally tax-exempt current income.

The STRONG  MUNICIPAL BOND FUND and the STRONG  SHORT-TERM  HIGH YIELD MUNICIPAL
FUND seek total  return by investing  for a high level of  federally  tax-exempt
current income with a moderate degree of share-price fluctuation.

The STRONG SHORT-TERM  MUNICIPAL BOND FUND seeks total return by investing for a
high  level  of  federally  tax-exempt  current  income  with  a low  degree  of
share-price fluctuation.


WHAT ARE THE FUNDS' PRINCIPAL INVESTMENT STRATEGIES?


The HIGH-YIELD  MUNICIPAL BOND FUND invests primarily in long-term,  medium- and
lower-quality  municipal bonds. The fund's manager emphasizes bonds whose credit
quality may be improving, and issuers that complement current investment themes,
such as the "aging of America." The manager also takes the overall interest rate
environment into consideration. The fund typically maintains an average maturity
between 10 and 25 years.


The  MUNICIPAL   BOND  FUND  invests   primarily  in   long-term,   higher-  and
medium-quality  municipal bonds. The fund's manager conducts  intensive research
on individual  issuers to uncover  solid  investment  opportunities,  especially
looking for bonds whose quality may be improving.  The fund typically  maintains
an average maturity between 10 and 20 years.

The SHORT-TERM HIGH YIELD MUNICIPAL FUND follows a similar  investment  style to
the  HIGH-YIELD  MUNICIPAL  BOND  Fund,  but  invests  primarily  in short-  and
intermediate-term, medium- and lower-quality municipal bonds. The fund typically
maintains an average maturity between one and three years.

The   SHORT-TERM   MUNICIPAL   BOND  FUND   invests   primarily  in  short-  and
intermediate-term,  higher- and  medium-quality  municipal bonds,  following the
investment  style of the MUNICIPAL BOND FUND.  The fund  typically  maintains an
average maturity of three years or less.


Although  each of the funds  invests  primarily  for  income,  they also  employ
techniques designed to realize capital  appreciation.  For example, the managers
may  select  bonds with  maturities  and coupon  rates  that  position  them for
potential capital  appreciation for a variety of reasons,  including a manager's
view on the direction of future interest-rate  movements and the potential for a
credit upgrade.

The funds'  managers may sell a holding if its value becomes  unattractive  (for
example,  when its fundamental qualities deteriorate or when other opportunities
exist that have more  attractive  yields).  Also,  the  managers  may invest any
amount in cash or cash-type securities (high-quality, short-term debt securities
issued by corporations,  financial  institutions,  or the U.S.  government) as a
temporary  defensive  position to avoid losses during adverse market conditions.
This could  reduce the benefit to the funds if the market goes up. In this case,
the funds may not achieve their investment goal.

The funds may invest  without  limitation  in municipal  bonds,  such as private
activity bonds, whose interest may be subject to the federal alternative minimum
tax (AMT).




<PAGE>


((Side Box))


Under  normal  market  conditions,  the funds will  invest at least 80% of their
assets in municipal bonds. MUNICIPAL BONDS are debt obligations issued by or for
U.S. states, territories, and possessions and the District of Columbia and their
political subdivisions, agencies, and instrumentalities.  Municipal bonds can be
issued to obtain money for public purposes or for privately operated  facilities
or  projects.  Some  municipal  bonds pay  interest  that is exempt from federal
income tax. Examples of municipal bonds are general  obligation  bonds,  revenue
bonds, industrial development bonds, notes, and municipal lease obligations.




WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?


BOND  RISKS:  The major  risks of each fund are those of  investing  in the bond
market.  A bond's market value is affected  significantly by changes in interest
rates--generally,  when interest rates rise,  the bond's market value  declines,
and when interest rates decline,  its market value rises  (interest-rate  risk).
Generally, the longer a bond's maturity, the greater the risk and the higher its
yield.  Conversely,  the shorter a bond's  maturity,  the lower the risk and the
lower its yield (maturity  risk). A bond's value can also be affected by changes
in  the  bond's  credit-quality  rating  or  its  issuer's  financial  condition
(credit-quality  risk).  Because bond values  fluctuate,  the fund's share price
fluctuates.  So, when you sell your  investment,  you may  receive  more or less
money than you originally invested.

HIGH-YIELD  BOND RISKS:  The  HIGH-YIELD  MUNICIPAL BOND FUND and the SHORT-TERM
HIGH YIELD  MUNICIPAL  FUND invest in  lower-quality  bonds,  commonly  known as
high-yield  bonds or junk  bonds  that  present a  significant  risk for loss of
principal and interest.  These bonds offer the potential for higher  returns but
also involve greater risk than bonds of better  quality,  including an increased
possibility  that the  bond's  issuer  may not be able to make its  payments  of
interest and principal  (credit-quality risk). If that happens, the fund's share
price would decrease and its income  distributions would be reduced. An economic
downturn or period of rising interest rates (interest-rate risk) could adversely
affect  the market  for these  bonds and  reduce the fund's  ability to sell its
bonds  (liquidity  risk).  The lack of a liquid  market  for these  bonds  could
decrease the fund's  share price.  The  HIGH-YIELD  MUNICIPAL  BOND FUND and the
SHORT-TERM  HIGH YIELD  MUNICIPAL  FUND also have the  ability to invest in debt
obligations  that are in default  and these  obligations  possess  an  increased
possibility  that the issuer may not be able to make its  payments of  principal
and interest.

MANAGEMENT  RISK:  The funds are subject to  management  risk  because  they are
actively managed.  There is no guarantee that the investment techniques and risk
analyses used by the managers will produce the desired results.


The funds are  appropriate  for  investors  who are  comfortable  with the risks
described here. Also, the HIGH-YIELD  MUNICIPAL BOND FUND and the MUNICIPAL BOND
FUND are appropriate for investors whose financial goals are four to seven years
in the future.  The  SHORT-TERM  HIGH YIELD  MUNICIPAL  FUND and the  SHORT-TERM
MUNICIPAL BOND FUND are  appropriate for investors whose financial goals are two
to four  years in the  future.  The  funds  are not  appropriate  for  investors
concerned primarily with principal stability.

FUND STRUCTURE

Each of the funds has adopted a multiple class plan. The MUNICIPAL BOND FUND and
the SHORT-TERM  MUNICIPAL  BOND FUND offer Investor Class shares,  Advisor Class
shares, and Institutional  Class shares. The HIGH-YIELD  MUNICIPAL BOND FUND and
the SHORT-TERM HIGH YIELD MUNICIPAL FUND offer Investor Class shares and Advisor
Class  shares.  Only the Advisor  Class  shares of each fund are offered in this
prospectus.  The principal differences between each of the classes of shares are
that the Advisor  Class  shares are subject to  distribution  fees and  expenses
under  a  12b-1  plan  and  each  class  of  shares  is  subject  to   different
administrative  and transfer  agency fees and  expenses.  Because 12b-1 fees are
paid out of the fund's assets on an ongoing  basis,  over time,  these fees will
increase  the cost of an  investment  in Advisor  Class shares and may cost more
than paying other types of sales charges.



<PAGE>



FUND PERFORMANCE

The following return  information  illustrates how the performance of the funds'
Advisor Class shares can vary, which is one indication of the risks of investing
in the funds.  Performance  results for Advisor Class  shares,  which were first
offered on February 29, 2000,  are based on the  historical  performance  of the
Investor  Class shares from the  inception of the funds up to February 28, 2000,
recalculated  to reflect  the higher  annual  expense  ratio  applicable  to the
Advisor  Class  shares.  The  Investor  Class  shares  are not  offered  by this
prospectus. The returns for the Advisor Class are substantially similar to those
of the Investor  Class shares because each are invested in the same portfolio of
securities and the only  differences  relate to the  differences in the fees and
expenses of each class of shares.  Please keep in mind that the past performance
of each fund's  shares does not  represent  how they will perform in the future.
The information assumes that you reinvested all dividends and distributions.


 CALENDAR YEAR TOTAL RETURNS

-------------------------------------------------------------
                        Short-Term   High-Yield  Short-Term
            Municipal   Municipal    Municipal   High Yield
Year        Bond        Bond         Bond        Municipal
-------------------------------------------------------------
-------------------------------------------------------------
1990           4.3%          -            -           -
-------------------------------------------------------------
-------------------------------------------------------------
1991           13.0%         -            -           -
-------------------------------------------------------------
-------------------------------------------------------------
1992           11.8%        6.8%          -           -
-------------------------------------------------------------
-------------------------------------------------------------
1993           11.4%        6.4%          -           -
-------------------------------------------------------------
-------------------------------------------------------------
1994           -4.9%       -2.0%        -1.3%         -
-------------------------------------------------------------
-------------------------------------------------------------
1995           11.0%        5.0%        14.2%         -
-------------------------------------------------------------
-------------------------------------------------------------
1996           2.1%         4.5%        4.7%          -
-------------------------------------------------------------
-------------------------------------------------------------
1997           11.7%        6.5%        13.5%         -
-------------------------------------------------------------
-------------------------------------------------------------
1998           6.3%         5.2%        4.9%        5.7%
-------------------------------------------------------------
-------------------------------------------------------------
1999           -6.8%        0.8%        -5.8%       0.4%
-------------------------------------------------------------


THE YEAR-TO-DATE  RETURNS THROUGH SEPTEMBER 30, 2000 ARE: MUNICIPAL BOND, 2.65%;
SHORT-TERM  MUNICIPAL  BOND,  3.38%;   HIGH-YIELD  MUNICIPAL  BOND,  0.78%;  AND
SHORT-TERM HIGH YIELD MUNICIPAL, 2.12%.


BEST AND WORST QUARTERLY PERFORMANCE
(DURING THE PERIODS SHOWN ABOVE)
<TABLE>
<CAPTION>
<S>                                          <C>                                <C>

FUND NAME                             BEST QUARTER RETURN                 WORST QUARTER RETURN
------------------------------------- ----------------------------------- -----------------------------------
High-Yield Municipal Bond             4.6% (1st Q 1995)                   -3.6% (4th Q 1999)
-------------------------------------
Municipal Bond                        5.7% (2nd Q 1992)                   -5.2% (1st Q 1994)
-------------------------------------
Short-Term High Yield Municipal       1.8% (2nd Q 1998)                   -1.2% (4th Q 1999)
-------------------------------------
Short-Term Municipal Bond             2.3% (3rd Q 1995)                   -1.9% (1st Q 1994)
-------------------------------------
</TABLE>

AVERAGE ANNUAL TOTAL RETURNS
                                 AS OF 12-31-99
<TABLE>
<CAPTION>
<S>                                        <C>         <C>         <C>           <C>


FUND/INDEX                                1-YEAR      5-YEAR     10-YEAR      SINCE INCEPTION
HIGH-YIELD MUNICIPAL BOND                -5.83%       6.04%        --           5.00% (10-1-93)
High-Yield Municipal Bond Index          -1.80%       7.40%        --           5.20%
Lipper High Yield Municipal Debt
Funds Index                              -3.65%       6.23%        --           4.33%
MUNICIPAL BOND                           -6.80%       4.65%       5.77%         5.34% (10-23-86)
Lehman Brothers Municipal Bond Index     -2.06%       6.91%       6.89%         7.08%
Lipper General Municipal Debt Funds Index-4.07%       6.14%       6.29%         6.52%


</TABLE>

<PAGE>

<TABLE>
<CAPTION>
<S>                                       <C>        <C>        <C>              <C>


SHORT-TERM HIGH YIELD MUNICIPAL           0.39%        --        --             3.28% (11-30-97)
Lehman Brothers 1-3 Year Non-Investment
Grade Municipal Bond Index                3.66%        --        --             4.63%
Lipper High Yield Municipal Debt
Funds Index                              -3.65%        --        --             1.59%
SHORT-TERM MUNICIPAL BOND                 0.79%       4.37%      --             4.10% (12-31-91)
Lehman Brothers Municipal
3 Year Bond Index                         1.96%       5.17%      --             4.88%
Lipper Short Municipal Debt Funds Average 1.69%       4.35%      --             4.13%


</TABLE>


THE  HIGH-YIELD  MUNICIPAL  BOND INDEX IS COMPRISED  OF THE LEHMAN  BROTHERS BAA
MUNICIPAL  BOND INDEX FROM INCEPTION  THROUGH  DECEMBER 31, 1995, AND THE LEHMAN
BROTHERS  HIGH-YIELD  MUNICIPAL BOND INDEX FROM JANUARY 1, 1996 TO PRESENT.  THE
LEHMAN  BROTHERS  BAA  MUNICIPAL  BOND  INDEX IS AN  UNMANAGED  INDEX  GENERALLY
REPRESENTATIVE  OF  MUNICIPAL  BONDS RATED BAA. THE LEHMAN  BROTHERS  HIGH-YIELD
MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF MUNICIPAL
BONDS RATED BELOW BAA.  THE LIPPER HIGH YIELD  MUNICIPAL  DEBT FUNDS INDEX IS AN
EQUALLY  WEIGHTED  PERFORMANCE  INDEX OF THE  LARGEST  QUALIFYING  FUNDS IN THIS
LIPPER CATEGORY.  THE LEHMAN BROTHERS MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX
GENERALLY  REPRESENTATIVE  OF  INVESTMENT-GRADE,  TAX-EXEMPT  BONDS.  THE LIPPER
GENERAL  MUNICIPAL DEBT FUNDS INDEX IS AN EQUALLY WEIGHTED  PERFORMANCE INDEX OF
THE LARGEST  QUALIFYING FUNDS IN THIS LIPPER  CATEGORY.  THE LEHMAN BROTHERS 1-3
YEAR  NON-INVESTMENT  GRADE MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE  OF  MUNICIPAL  BONDS RATED BELOW BAA WITH  MATURITIES  OF ONE TO
THREE  YEARS.  THE LIPPER  HIGH YIELD  MUNICIPAL  DEBT FUNDS INDEX IS AN EQUALLY
WEIGHTED  PERFORMANCE  INDEX OF THE  LARGEST  QUALIFYING  FUNDS  IN THIS  LIPPER
CATEGORY.  THE LEHMAN BROTHERS MUNICIPAL 3 YEAR BOND INDEX IS AN UNMANAGED INDEX
GENERALLY  REPRESENTATIVE  OF  THREE-YEAR,  TAX-EXEMPT  BONDS.  THE LIPPER SHORT
MUNICIPAL  DEBT FUNDS  AVERAGE  REPRESENTS  FUNDS THAT INVEST IN MUNICIPAL  DEBT
ISSUES WITH DOLLAR-WEIGHTED AVERAGE MATURITIES OF LESS THAN THREE YEARS.


For current yield information on these funds, call 1-800-368-1683.



WHAT ARE THE FUNDS' FEES AND EXPENSES?

This section  describes  the fees and  expenses  that you may pay if you buy and
hold shares of the funds.


SHAREHOLDER FEES

(fees paid directly from your investment)

The  Advisor  Class  shares of each fund are 100%  no-load,  so you pay no sales
charges (loads) to buy or sell shares.


ANNUAL FUND OPERATING EXPENSES
 (expenses that are deducted from
fund  assets) The costs of operating  each fund are  deducted  from fund assets,
which means you pay them  indirectly.  These costs are deducted before computing
the daily share price or making distributions. As a result, they don't appear on
your  account  statement,  but instead  reduce the total return you receive from
your fund investment.

ANNUAL FUND OPERATING EXPENSES (AS
A PERCENT OF AVERAGE NET ASSETS)

<TABLE>
<CAPTION>
<S>                                       <C>                <C>               <C>                <C>

                                                                                             TOTAL ANNUAL FUND
FUND                                 MANAGEMENT FEES      12B-1 FEES       OTHER EXPENSES   OPERATING EXPENSES*
------------------------------------ --------------------------------------------------------------------------------

High-Yield Municipal Bond                0.35%              0.25%              0.54%              1.14%
Municipal Bond                           0.35%              0.25%              0.51%              1.11%
Short-Term High Yield Municipal          0.35%              0.25%              0.60%              1.20%
Short-Term Municipal Bond                0.25%              0.25%              0.43%              0.93%
</TABLE>

*TOTAL  ANNUAL FUND  OPERATING  EXPENSES DO NOT REFLECT OUR WAIVER OF MANAGEMENT
FEES AND/OR  ABSORPTIONS.  WITH WAIVERS AND  ABSORPTIONS,  THE TOTAL ANNUAL FUND
OPERATING  EXPENSES OF THE  FOLLOWING  FUNDS WERE:  HIGH-YIELD  MUNICIPAL  BOND;
1.11%, MUNICIPAL BOND; 1.09%; AND SHORT-TERM HIGH YIELD MUNICIPAL, 1.09%. WE CAN
TERMINATE WAIVERS AND ABSORPTIONS FOR THESE FUNDS AT ANY TIME.



EXAMPLE:  This  example is intended to help you compare the cost of investing in
the funds with the cost of investing in other mutual funds.  The example assumes
that you invest $10,000 in the fund and reinvest all dividends and distributions
for the time periods indicated, and then redeem all of your shares at the end of
those  periods.  The example also assumes that your  investment  has a 5% return
each year and that the funds' operating expenses remain the same.  Although your
actual  costs may be higher or lower,  based on these  assumptions,  your  costs
would be:

<TABLE>
<CAPTION>
<S>                                                <C>             <C>              <C>           <C>

FUND                                              1 YEAR          3 YEARS          5 YEARS       10 YEARS
------------------------------------------------- --------------- ---------------- ------------- ------------

High-Yield Municipal Bond                         $116            $362             $628          $1386
Municipal Bond                                    $113            $353             $612          $1352
Short-Term High Yield Municipal                   $122            $381             $660          $1455
Short-Term Municipal Bond                         $95             $296             $515          $1143

</TABLE>


WHO ARE THE FUNDS' INVESTMENT ADVISOR AND PORTFOLIO MANAGERS?


Strong  Capital  Management,  Inc.  (Strong) is the  investment  advisor for the
funds. Strong provides investment management services for mutual funds and other
investment  portfolios  representing assets, as of October 31, 2000, of over $45
billion.  Strong began  conducting  business in 1974.  Since then, its principal
business has been providing  investment advice for individuals and institutional
accounts,  such as pension and  profit-sharing  plans,  as well as mutual funds,
several of which are available  through variable  insurance  products.  Strong's
address is P.O. Box 2936, Milwaukee, WI 53201.


The following individuals are the funds' portfolio managers.

MARY-KAY  H.  BOURBULAS  manages  the  HIGH-YIELD  MUNICIPAL  BOND  FUND and the
SHORT-TERM  HIGH  YIELD  MUNICIPAL  FUND and has over  ten  years of  investment
experience.  She joined  Strong as a  portfolio  manager in  October  1991.  Ms.
Bourbulas  co-managed the  HIGH-YIELD  MUNICIPAL BOND FUND from its inception in
1993 until December 1995,  when she assumed sole management  responsibility  for
the fund.  She has managed the  SHORT-TERM  HIGH YIELD  MUNICIPAL FUND since its
inception in November 1997. Prior to joining Strong,  Ms. Bourbulas was employed
by Stein Roe & Farnham, where she co-managed two tax-exempt funds. Ms. Bourbulas
received her bachelors degree in Economics from Northwestern University in 1989.



LYLE J. FITTERER  manages the MUNICIPAL BOND FUND and the  SHORT-TERM  MUNICIPAL
BOND  FUND.  Mr.  Fitterer  joined  Strong in 1989 and has over  seven  years of
investment experience.  He is a Chartered Financial Analyst and Certified Public
Accountant.  He has managed the MUNICIPAL BOND FUND and the SHORT-TERM MUNICIPAL
BOND FUND since March 2000. He served as the Managing  Director of Institutional
Client Services from December 1998 to March 2000 and as a fixed income portfolio
manager from January 1996 to December 1998. He served as a fixed income research
analyst/trader  from  February 1993 to January 1996 and as an equity trader from
February 1992 to February 1993. Mr.  Fitterer  received his bachelors  degree in
Accounting from the University of North Dakota in 1989.




OTHER IMPORTANT INFORMATION YOU SHOULD KNOW



COMPARING THE FUNDS

The  following  will  help  you   distinguish  the  funds  and  determine  their
suitability for your investment needs:
<TABLE>
<CAPTION>
<S>                          <C>                 <C>                    <C>                         <C>

                           AVERAGE                                     INCOME

FUND                       MATURITY         CREDIT QUALITY             POTENTIAL                 VOLATILITY
----------------------------------------------------------------------------------------------------------
High-Yield                 10 to 25         At least 65% rated         High                      Moderate
MUNICIPAL BOND             YEARS*           MEDIUM OR LOWER                                      TO HIGH
----------------------------------------------------------------------------------------------------------
Municipal Bond             10 to 20         At least 85% rated         Moderate                  Moderate

                           years*           higher or medium           to High
                                            UP TO 15% RATED LOWER
----------------------------------------------------------------------------------------------------------
Short-Term High Yield      1 to 3           At least 80% rated         High                      Moderate
MUNICIPAL                  YEARS            MEDIUM OR LOWER
----------------------------------------------------------------------------------------------------------
Short-Term                 3 years          At least 85% rated         Low to                    Low
Municipal Bond             or less          higher or medium           Moderate
                                            UP TO 15% RATED LOWER
----------------------------------------------------------------------------------------------------------
* EXPECTED RANGE
</TABLE>


<PAGE>



The MUNICIPAL BOND FUND and the SHORT-TERM  MUNICIPAL BOND FUND invest a portion
of their assets in lower-quality  securities that present a significant risk for
loss of principal and interest.


The HIGH-YIELD  MUNICIPAL BOND FUND and the SHORT-TERM HIGH YIELD MUNICIPAL FUND
may  invest in bonds  that are in  default,  but the funds are not  expected  to
invest more than 10% of net assets in those bonds.


A WORD ABOUT CREDIT QUALITY

CREDIT  QUALITY  measures  the  issuer's  expected  ability to pay  interest and
principal   payments  on  time.   Credit   quality   can  be   "higher-quality",
"medium-quality", "lower-quality", or "in default".


HIGHER-QUALITY  means  bonds  that  are  in  any of  the  three  highest  rating
categories. For example, bonds rated AAA to A by Standard & Poor's Ratings Group
(S&P)*.


MEDIUM-QUALITY means bonds that are in the fourth-highest  rating category.  For
example, bonds rated BBB by S&P*.

LOWER-QUALITY  means bonds that are below the  fourth-highest  rating  category.
They are also known as non-investment,  high-risk,  high-yield, or "junk bonds".
For example, bonds rated BB to C by S&P*.

IN DEFAULT means the bond's issuer has not paid principal or interest on time.

*OR THOSE RATED IN THIS CATEGORY BY ANY NATIONALLY RECOGNIZED STATISTICAL RATING
ORGANIZATION.  S&P IS ONLY ONE EXAMPLE OF A  NATIONALLY  RECOGNIZED  STATISTICAL
RATING ORGANIZATION.

This chart shows S&P's  definition and ratings group for credit  quality.  Other
rating organizations use similar definitions.

<TABLE>
<CAPTION>
            <S>         <C>                        <C>                     <C>

      CREDIT QUALITY   S&P'S                    S&P'S RATINGS           RATING
                       DEFINITION               GROUP                   CATEGORY

      ---------------- ------------------------ ----------------------- -----------------------
                       Highest quality          AAA                     First highest


      Higher           High quality             AA                      Second highest

                       Upper medium grade       A                       Third highest
      ---------------- ------------------------ ----------------------- -----------------------
      Medium           Medium grade             BBB                     Fourth highest
      ---------------- ------------------------ ----------------------- -----------------------
                       Low grade                BB

      Lower            Speculative              B

                       Submarginal              CCC, CC, C

      ---------------- ------------------------ -----------------------
      In default       Probably in default      D
      ---------------- ------------------------ -----------------------
</TABLE>



We  determine  a  bond's  credit-quality  rating  at the time of  investment  by
conducting  credit  research and  analysis  and by relying on credit  ratings of
several   nationally   recognized   statistical  rating   organizations.   These
organizations  are called  NRSROs.  When we determine if a bond is in a specific
category,  we may use the highest rating  assigned to it by any NRSRO. If a bond
is not rated, we rely on our credit research and analysis to rate the bond. If a
bond's credit-quality rating is downgraded after our investment,  we monitor the
situation to decide if we need to take any action such as selling the bond.

Typically,  municipal  bonds are not  rated.  This  means  that  investments  in
municipal  bonds may require  more credit  analysis  by us than  investments  in
taxable bonds. Also,  investments in lower-quality  bonds will be more dependent
on our  credit  analysis  than  would be  higher-quality  bonds  because,  while
lower-quality bonds generally offer higher yields than higher-quality bonds with
similar  maturities,  lower-quality  bonds involve  greater  risks.  These risks
include the possibility of default or bankruptcy  because the issuer's  capacity
to pay interest and repay  principal is  considered  predominantly  speculative.
Also,  lower-quality  bonds are less liquid,  meaning that they may be harder to
sell than bonds of higher  quality  because the demand for them may be lower and
there are fewer potential buyers.  This lack of liquidity may lower the value of
the fund and your investment.



<PAGE>




TAXABLE INVESTMENTS


A fund may invest up to 20% of its net assets in U.S.  government  and corporate
bonds and other  debt  securities  that are of the same  quality  as the  fund's
investments in municipal  bonds. A fund will generally  invest in these bonds to
take  advantage of capital  gains  opportunities.  These bonds  produce  taxable
income, unlike municipal bonds, which generally provide tax-exempt income.



IF YOU ARE SUBJECT TO THE ALTERNATIVE MINIMUM TAX

The funds  may  invest,  without  limitation,  in  municipal  obligations  whose
interest  is a  tax-preference  item for  purposes  of the  federal  alternative
minimum tax (AMT). If you are subject to the AMT, a substantial  portion of your
fund's  distributions  to you may not be exempt from federal income tax. If this
is the case, a fund's net return to you may be lower.


FINANCIAL HIGHLIGHTS


This information describes investment performance of the Advisor Class shares of
the funds for the periods shown.  Certain information reflects financial results
for a single  Advisor  Class share  outstanding  for the entire  period.  "Total
Return"  shows how much an  investment  in the Advisor  Class shares of the fund
would have  increased  (or  decreased)  during  each  period,  assuming  you had
reinvested all dividends and distributions. The Advisor Class shares of the fund
were first  offered on February  29,  2000.  These  figures have been audited by
PricewaterhouseCoopers  LLP,  whose  report,  along  with the  fund's  financial
statements, is included in the fund's annual report.



STRONG HIGH-YIELD MUNICIPAL BOND FUND--ADVISOR CLASS
<TABLE>
<CAPTION>
          <S>                                                   <C>

                                                              Aug. 31,
SELECTED PER-SHARE DATA(a)                                    2000(b)
Net Asset Value, Beginning of Period                          $8.92
Income From Investment Operations:
   Net Investment Income                                      0.28
   Net Realized and Unrealized Losses on Investments          (0.01)
   Total from Investment Operations                           0.27
Less Distributions:
   From Net Investment Income(c)                              (0.28)
   Total Distributions                                        (0.28)
Net Asset Value, End of Period                                $8.91
RATIOS AND SUPPLEMENTAL DATA
Total Return                                                  +3.1%
Net Assets, End of Period (In Millions)                       $0(d)
Ratio of Expenses to Average Net Assets
   Without Waivers and Absorptions                            1.1%*
Ratio of Expenses to Average Net Assets                       1.1%*
Ratio of Net Investment Income to
   Average Net Assets                                         6.3%*
Portfolio Turnover Rate(e)                                    17.5%
</TABLE>


* Calculated on an annualized basis.
(a)   Information presented relates to a share of capital stock of the fund
      outstanding for the entire period.
(b)   For the period from March 1, 2000 (Commencement of Class) to
      August 31, 2000.
(c)   Tax-exempt for regular federal income tax purposes.
(d)   Amount is less than $500,000.
(e)  Calculated  on the  basis  of the  fund as a whole  without  distinguishing
     between the classes of shares issued.


STRONG MUNICIPAL BOND FUND--ADVISOR CLASS
<TABLE>
<CAPTION>
     <S>                                              <C>

                                                     Aug. 31,
SELECTED PER-SHARE DATA(a)                           2000(b)
Net Asset Value, Beginning of Period                 $8.64
Income From Investment Operations:
   Net Investment Income                             0.24
   Net Realized and Unrealized Gains
   on Investments                                    0.14
   Total from Investment Operations                  0.38
Less Distributions:
   From Net Investment Income(c)                     (0.24)
   Total Distributions                               (0.24)
Net Asset Value, End of Period                       $8.78
RATIOS AND SUPPLEMENTAL DATA
Total Return                                         +4.4%
Net Assets, End of Period (In Millions)              $0(d)
Ratio of Expenses to Average Net Assets
   Without Waivers and Absorptions                   1.1%*
Ratio of Expenses to Average Net Assets              1.1%*
Ratio of Net Investment Income to
   Average Net Assets                                5.4%*
Portfolio Turnover(e)                               19.2%
</TABLE>

*     Calculated on an annualized basis.
(a)   Information presented relates to a share of capital stock of the fund
      outstanding for the entire period.
(b)   For the period from March 1, 2000 (Commencement of Class) to
      August 31, 2000.
(c)   Tax-exempt for regular federal income tax purposes.
(d)   Amount is less than $500,000.
(e)   Calculated  on the  basis  of the  fund as a whole  without
      distinguishing between classes of shares issued.


STRONG SHORT-TERM HIGH YIELD MUNICIPAL FUND--ADVISOR CLASS
<TABLE>
<CAPTION>
         <S>                                                   <C>

                                                              Aug. 31,
SELECTED PER-SHARE DATA(a)                                    2000(b)
Net Asset Value, Beginning of Period                          $9.63
Income From Investment Operations:
   Net Investment Income                                      0.24
   Net Realized and Unrealized Losses on Investments          (0.03)
   Total from Investment Operations                           0.21
Less Distributions:
   From Net Investment Income(c)                              (0.24)
   Total Distributions                                        (0.24)
Net Asset Value, End of Period                                $9.60
RATIOS AND SUPPLEMENTAL DATA
Total Return                                                  +2.2%
Net Assets, End of Period (In Millions)                       $0(d)
Ratio of Expenses to Average Net Assets
   Without Waivers and Absorptions                            1.2%*
Ratio of Expenses to Average Net Assets                       1.1%*
Ratio of Net Investment Income to Average Net Assets          4.9%*
Portfolio Turnover Rate(e)                                    27.9%
</TABLE>


* Calculated on an annualized basis.
(a)   Information presented relates to a share of capital stock of the fund
      outstanding for the entire period.
(b)   For the period from March 1, 2000 (Commencement of Class) to
      August 31, 2000.
(c)   Tax-exempt for regular federal income tax purposes.
(d)   Amount is less than $500,000.
(e)   Calculated  on the  basis  of the  fund as a whole  without
      distinguishing between the classes of shares issued.


STRONG SHORT-TERM MUNICIPAL BOND FUND--ADVISOR CLASS
<TABLE>
<CAPTION>
         <S>                                                   <C>

                                                              Aug. 31,
SELECTED PER-SHARE DATA(a)                                    2000(b)
Net Asset Value, Beginning of Period                          $9.58
Income From Investment Operations:
   Net Investment Income                                      0.22
   Net Realized and Unrealized Gains on Investments           0.06
   Total from Investment Operations                           0.28
Less Distributions:
   From Net Investment Income(c)                              (0.22)
   Total Distributions                                        (0.22)
Net Asset Value, End of Period                                $9.64
RATIOS AND SUPPLEMENTAL DATA
Total Return                                                  +2.9%
Net Assets, End of Period (In Millions)                       $3
Ratio of Expenses to Average Net Assets                       0.9%*
Ratio of Net Investment Income to Average Net Assets          4.5%*
Portfolio Turnover Rate(d)                                    48.6%
</TABLE>

* Calculated on an annualized basis.
(a)   Information presented relates to a share of capital stock of the fund
      outstanding for the entire period.
(b)   For the period from March 1, 2000 (Commencement of Class) to
      August 31, 2000.
(c)   Tax-exempt for regular federal income tax purposes.
(d)   Calculated  on the  basis  of the  fund as a whole  without
      distinguishing between the classes of shares issued.


YOUR ACCOUNT


DISTRIBUTION FEES


The Strong  Funds have  adopted a Rule 12b-1  distribution  plan for the Advisor
Class  shares of the  funds.  Under the  distribution  plan,  each fund may make
monthly  payments to the fund's  distributor  at the annual rate of 1.00% of the
average daily net assets of the fund  attributable  to its Advisor Class shares.
However, under the Distribution Agreement for the Advisor Class shares, payments
to the fund's  distributor  under the distribution plan are currently limited to
payment  at  an  annual  rate  equal  to  0.25%  of  average  daily  net  assets
attributable   to  Advisor  Class   shares.   Such  payments  may  be  made  for
distribution-related  services and other services that are primarily intended to
result in the sale of Advisor Class shares of the fund.  Because Rule 12b-1 fees
are  ongoing,  over time they will  increase  the cost of an  investment  in the
Advisor  Class  shares of the fund and may cost more than  other  types of sales
charges.



SHARE PRICE


Your transaction price for buying,  selling, or exchanging shares of the fund or
specific classes of the fund is the net asset value per share (NAV) for the fund
or class of shares.  NAV is generally  calculated  as of the close of trading on
the New York Stock Exchange  (NYSE)  (usually 3:00 p.m.  Central Time) every day
the NYSE is open.  If the NYSE  closes at any  other  time,  or if an  emergency
exists,  NAV may be calculated at a different time. Your share price will be the
next NAV calculated after we accept your order.


NAV is based on the market value of the  securities  in a fund's  portfolio.  If
market  prices are not  available,  NAV is based on a  security's  fair value as
determined in good faith by us under the  supervision  of the Board of Directors
of the Strong Funds.


<PAGE>



((Side Box))
------------------------------------------------------

We  determine  the share price or NAV of a fund or class by dividing  net assets
attributable to the fund or class (the value of the investments, cash, and other
assets  attributable to the fund or class minus the liabilities  attributable to
the fund or class) by the number of fund or class shares outstanding.

------------------------------------------------------


BUYING SHARES

INVESTMENT MINIMUMS:  When buying shares, you must meet the following investment
minimum requirements.
<TABLE>
<CAPTION>
<S>                                               <C>                                  <C>

                                             INITIAL INVESTMENT MINIMUM           ADDITIONAL INVESTMENT MINIMUM
-------------------------------------------- ------------------------------------ -------------------------------------
Regular accounts                             $2,500                               $50
</TABLE>



MULTIPLE CLASS PLAN:  Each fund has adopted a multiple class plan. The MUNICIPAL
BOND FUND and the  SHORT-TERM  MUNICIPAL  BOND FUND offer Investor Class shares,
Advisor Class shares, and Institutional  Class shares. The HIGH-YIELD  MUNICIPAL
BOND FUND and the  SHORT-TERM  HIGH YIELD  MUNICIPAL  FUND offer  Investor Class
shares and Advisor  Class  shares.  Each class is offered at its net asset value
without  the  imposition  of any sales  load;  however,  each class of shares is
subject to fees and expenses  that may differ  between  classes.  The  principal
differences  between  each of the classes of shares are that the  Advisor  Class
shares are subject to  distribution  fees and expenses  under a 12b-1 plan,  and
each class of shares is subject to different  administrative and transfer agency
fees and expenses.


BUYING INSTRUCTIONS You can buy shares in several ways.


MAIL
You can open or add to an account  by mail with a check made  payable to Strong.
Send it to the address  listed on the back of this  prospectus,  along with your
account application (for a new account) or an Additional Investment Form (for an
existing account).

EXCHANGE OPTION
Sign up for the  exchange  option when you open your  account.  You may exchange
your  shares of the fund for  shares of  another  Strong  Fund.  You may make an
exchange by calling Strong Institutional Client Services at 1-800-368-1683 or by
sending a facsimile to  1-414-359-3535.  Please obtain and read the  appropriate
prospectus before investing in any of the Strong Funds. Remember, an exchange of
shares of one Strong Fund for those of another  Strong Fund is considered a sale
and a purchase of fund shares for several  purposes,  including tax purposes and
may result in a capital  gain or loss.  Some  Strong  Funds that you may want to
exchange into may charge an initial sales charge, or may charge a redemption fee
of  0.50% to 1.00% on the  sale of  shares  held for less  than 6 to 12  months.
Purchases  by exchange  are  subject to the  investment  requirements  and other
criteria of the fund or class purchased.

WIRE
Call  1-800-368-1683 for instructions  before wiring funds either to open or add
to an account.  This helps to ensure that your account will be credited promptly
and correctly.

BROKER-DEALER
You may purchase shares through a broker-dealer or other  intermediary,  who may
charge you a fee. Broker-dealers,  including each fund's distributor,  and other
intermediaries  may also from time to time sponsor or participate in promotional
programs  pursuant to which investors  receive  incentives for establishing with
the broker-dealer or intermediary an account and/or for purchasing shares of the
Strong Funds through the account(s).  Investors should contact the broker-dealer
or  intermediary  and consult the Statement of Additional  Information  for more
information about promotional programs.



<PAGE>





PLEASE REMEMBER . . .
o    We only accept checks payable to Strong.

o    We do not accept cash,  third-party checks, credit card convenience checks,
     or checks drawn on banks outside the U.S.

o    You will be charged $20 for every check, wire, or Electronic Funds Transfer
     returned unpaid.



SELLING SHARES

You can access the money in your account by selling (also called redeeming) some
or all of your shares by one of the methods below. After your redemption request
is accepted, we normally send you the proceeds on the next business day.

SELLING INSTRUCTIONS You can sell shares in several ways.

MAIL
Write a letter of instruction. It should specify your account number, the dollar
amount or number of shares you wish to redeem,  the names and  signatures of the
owners (or other authorized persons), and your mailing address. Then, mail it to
the address listed on the back of this prospectus.

REDEMPTION OPTION
Sign up for the redemption option when you open your account.  With this option,
you may sell shares by phone and receive the proceeds in one of three ways:

(1)      We can  mail a check  to your  account's  address.  Checks  will not be
         forwarded by the Postal  Service,  so please  notify us if your address
         has changed.

(2)      We can transmit the proceeds by Electronic Funds Transfer to a properly
         pre-authorized  bank account.  The proceeds usually will arrive at your
         bank two banking days after we process your redemption.

(3)      For a $10 fee,  we can  transmit  the  proceeds  by wire to a  properly
         pre-authorized  bank account.  The proceeds usually will arrive at your
         bank the first banking day after we process your redemption.


BROKER-DEALER
You may sell  shares  through a  broker-dealer  or other  intermediary,  who may
charge you a fee.

PLEASE REMEMBER ...
o    If you recently purchased shares,  the payment of your redemption  proceeds
     may be delayed by up to 10 days to allow the purchase  check or  electronic
     transaction to clear.


o    You will be charged a $10 service fee for a stop-payment on a check written
     on your Strong Funds account.

o    Some transactions and requests require a signature guarantee.


((Side Box))
SIGNATURE  GUARANTEES  help  ensure that major  transactions  or changes to your
account  are in fact  authorized  by you.  For  example,  we require a signature
guarantee on written redemption requests for more than $100,000.  You can obtain
a signature  guarantee for a nominal fee from most banks,  brokerage  firms, and
other  financial  institutions.   A  notary  public  stamp  or  seal  cannot  be
substituted for a signature guarantee.




ADDITIONAL POLICIES


DEPOSIT OF UNSPECIFIED CHECKS
When your  investment  check does not clearly  indicate  the fund that you would
like to  purchase,  we will  deposit the check into the Strong Money Market Fund
until you clarify your investment decision.

INVESTING THROUGH A THIRD PARTY
If you invest through a third party (rather than directly with us), the policies
and fees may be different than  described in this  prospectus.  Banks,  brokers,
401(k)  plans,   financial  advisors,  and  financial  supermarkets  may  charge
transaction  fees and may set different  minimum  investments  or limitations on
buying or selling  shares.  Consult a  representative  of your plan or financial
institution for details.

MARKET TIMERS
The fund  will  consider  the  following  factors  to  identify  market  timers:
shareholders who have (1) requested an exchange out of the fund within two weeks
of an earlier  exchange  request,  (2) exchanged  shares out of a fund more than
twice in a calendar quarter,  (3) exchanged shares equal to at least $5 million,
or more than 1% of a fund's net assets, or (4) otherwise seem to follow a timing
pattern.  Shares under common  ownership or control are combined for purposes of
these limits.

PURCHASES IN KIND
You may, if we approve,  purchase  shares of the fund with  securities  that are
eligible  for  purchase  by the  fund  (consistent  with the  fund's  investment
restrictions,  policies,  and  goal)  and  that  have a value  that  is  readily
ascertainable in accordance with the fund's valuation policies.

TELEPHONE TRANSACTIONS
We use reasonable  procedures to confirm that telephone transaction requests are
genuine.  We may be  responsible if we do not follow these  procedures.  You are
responsible for losses  resulting from  fraudulent or unauthorized  instructions
received over the  telephone,  provided we reasonably  believe the  instructions
were genuine.  During times of unusual market  activity,  our phones may be busy
and you may experience a delay placing a telephone request.

VERIFICATION OF ACCOUNT STATEMENTS
You should contact us in writing regarding any errors or discrepancies within 60
days after the date of the  statement  confirming a  transaction.  The statement
will be deemed correct if we do not hear from you within those 60 days.



DISTRIBUTIONS
-------------------------------------------------------------------------------

DISTRIBUTION POLICY
Each fund generally  pays you dividends  from net investment  income monthly and
distributes  any net capital  gains that it  realizes  annually.  Dividends  are
declared  on each day NAV is  calculated,  except for bank  holidays.  Dividends
earned on weekends, holidays, and days when the fund's NAV is not calculated are
declared  on  the  first  day  preceding  these  days  that  the  fund's  NAV is
calculated.  Your  investment  generally earns dividends from the first business
day after we accept your purchase order.


REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Your dividends and capital gains distributions will be automatically  reinvested
in additional shares of the fund or class, as applicable, that paid them, unless
you  choose  otherwise.  Your  other  options  are to  receive  checks for these
payments,  have them automatically invested in another Strong Fund, or have them
deposited  into your bank account.  To change the current  option for payment of
dividends and capital gains distributions, please call 1-800-368-1683.



<PAGE>




TAXES
-------------------------------------------------------------------------------

Generally,  a  municipal  fund's  distributions  will be composed  primarily  of
tax-exempt  income.  However,  the fund may make distributions of net investment
income and capital gains that are taxable to you.


TAXABLE DISTRIBUTIONS
Any net investment  income and net short-term  capital gains  distributions  you
receive are  generally  taxable as ordinary  dividend  income at your income tax
rate.  Distributions  of net capital  gains are  generally  taxable as long-term
capital  gains.  This is  generally  true no matter how long you have owned your
shares and whether you reinvest your distributions or take them in cash. You may
also have to pay taxes when you  exchange  or sell  shares if your  shares  have
increased in value since you bought them.

TAX-EXEMPT DISTRIBUTIONS
Exempt-interest dividends from municipal funds are generally exempt from federal
income  taxes,  but may be  subject  to state and local  tax.  Also,  if you are
subject to the  Alternative  Minimum  Tax,  you may have to pay federal tax on a
substantial portion of your income from exempt-interest dividends.

RETURN OF CAPITAL
If your fund's  distributions  exceed its earnings and profits, all or a portion
of those distributions may be treated as a return of capital to you. A return of
capital  may be treated as a sale of your  shares.  It may also  reduce the cost
basis of your shares.

YEAR-END STATEMENT
To assist you in tax  preparation,  after the end of each calendar year, we send
you a  statement  of  your  fund's  ordinary  dividends  and net  capital  gains
distributions (Form 1099).

BACKUP WITHHOLDING
By law, we must withhold 31% of your  distributions  and proceeds if (1) you are
subject to backup  withholding or (2) you have not provided us with complete and
correct  taxpayer  information  such  as  your  Social  Security  number  or tax
identification number.



Because  everyone's  tax  situation  is  unique,  you  should  consult  your tax
professional for assistance.


RESERVED RIGHTS...
-------------------------------------------------------------------------------

We reserve the right to:

o    Refuse,  change,  discontinue,  or temporarily  suspend  account  services,
     including purchase,  exchange, or telephone redemption privileges,  for any
     reason.


o    Reject any purchase request for any reason,  including exchanges from other
     Strong  Funds.  Generally,  we do  this  if the  purchase  or  exchange  is
     disruptive to the efficient  management of a fund (due to the timing of the
     investment or an investor's history of excessive trading).


o    Change the minimum or maximum investment amounts.

o    Delay sending out redemption  proceeds for up to seven days (this generally
     only applies to very large redemptions  without notice,  excessive trading,
     or during unusual market conditions).

o    Suspend  redemptions  or postpone  payments when the NYSE is closed for any
     reason other than its usual  weekend or holiday  closings,  when trading is
     restricted by the SEC, or under any emergency circumstances.


o    Make a redemption  in kind (a payment in portfolio  securities  rather than
     cash) if the  amount  you are  redeeming  is in excess of the lesser of (1)
     $250,000 or (2) 1% of the fund's assets.  Generally,  redemption in kind is
     used when  large  redemption  requests  may cause  harm to the fund and its
     shareholders.

o    Close any account that does not meet minimum  investment  requirements.  We
     will give you notice and 60 days to increase  your  balance to the required
     minimum.

o    Waive the initial investment minimum at our discretion.

o    Reject any purchase or  redemption  request that does not contain all
     required documentation.

o    Amend or terminate purchases in kind at any time.




<PAGE>





FOR MORE INFORMATION

More information is available upon request at no charge, including:

SHAREHOLDER  REPORTS:  Additional  information  is  available  in the annual and
semi-annual  report  to  shareholders.  These  reports  contain  a  letter  from
management,  discuss recent market  conditions,  economic  trends and investment
strategies that significantly affected your investment's  performance during the
last fiscal year, and list portfolio holdings.

STATEMENT OF ADDITIONAL  INFORMATION  (SAI): The SAI contains more details about
investment policies and techniques. A current SAI is on file with the SEC and is
incorporated  into this  prospectus  by  reference.  This  means that the SAI is
legally  considered a part of this  prospectus  even though it is not physically
contained within this prospectus.

To request information or to ask questions:


BY TELEPHONE                               BY OVERNIGHT DELIVERY
1-800-368-1683                             Strong Institutional Client Services
                                           100 Heritage Reserve
                                           Menomonee Falls, WI 53051
BY MAIL
Strong Institutional Client Services       ON THE INTERNET
P.O. Box 2936                              View online or download documents:
Milwaukee, WI 53201-2936                   SEC*: www.sec.gov



This  prospectus  is not an offer to sell  securities  in places  other than the
United States and its territories.

*INFORMATION ABOUT A FUND (INCLUDING THE SAI) CAN ALSO BE REVIEWED AND COPIED AT
THE SECURITIES AND EXCHANGE  COMMISSION'S  PUBLIC  REFERENCE ROOM IN WASHINGTON,
D.C. YOU MAY CALL THE COMMISSION AT  1-202-942-8090  FOR  INFORMATION  ABOUT THE
OPERATION OF THE PUBLIC REFERENCE ROOM.  REPORTS AND OTHER  INFORMATION  ABOUT A
FUND ARE ALSO  AVAILABLE FROM THE EDGAR  DATABASE ON THE  COMMISSION'S  INTERNET
SITE AT WWW.SEC.GOV.  YOU MAY OBTAIN A COPY OF THIS INFORMATION,  AFTER PAYING A
DUPLICATING  FEE,  BY  SENDING  A WRITTEN  REQUEST  TO THE  COMMISSION'S  PUBLIC
REFERENCE  SECTION,  WASHINGTON,  D.C.  20549-0102,  OR BY SENDING AN ELECTRONIC
REQUEST TO THE FOLLOWING E-MAIL ADDRESS: [email protected].


Strong High-Yield  Municipal Bond Fund, a series of Strong High-Yield  Municipal
Bond Fund, Inc., SEC file number:  811-7930
Strong Municipal Bond Fund, a series
of Strong Municipal Bond Fund, Inc., SEC file number: 811-4769
Strong Short-Term
High Yield Municipal Fund, a series of Strong  Municipal  Funds,  Inc., SEC file
number:  811-4770
Strong  Short-Term  Municipal  Bond Fund,  a series of Strong
Short-Term Municipal Bond Fund, Inc., SEC file number: 811-6409








                                                      PROSPECTUS JANUARY 1, 2001

[INSTITUTIONAL CLASS (written vertically)]





                                                                      The Strong
                                                                Municipal Income
                                                                           Funds


[PICTURE OF MAN HOLDING TELEPHONE]















                                    Strong Municipal Bond Fund
                         Strong Short-Term Municipal Bond Fund


                                                            [STRONG LOGO] STRONG


THE SECURITIES AND EXCHANGE  COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED OF
THESE  SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.  ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.





<PAGE>



TABLE OF CONTENTS

YOUR INVESTMENT

KEY INFORMATION

WHAT ARE THE FUNDS' GOALS?                                                    1

WHAT ARE THE FUNDS' PRINCIPAL INVESTMENT STRATEGIES?                          1

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?                            2

WHAT ARE THE FUNDS' FEES AND EXPENSES?                                        6


WHO ARE THE FUNDS' INVESTMENT ADVISOR AND PORTFOLIO MANAGER?                  7


OTHER IMPORTANT INFORMATION YOU SHOULD KNOW

COMPARING THE FUNDS                                                           7

A WORD ABOUT CREDIT QUALITY                                                   8

TAXABLE INVESTMENTS                                                           10

IF YOU ARE SUBJECT TO THE ALTERNATIVE MINIMUM TAX                             10

FINANCIAL HIGHLIGHTS                                                          10

YOUR ACCOUNT

SHARE PRICE                                                                   13

BUYING SHARES                                                                 13

SELLING SHARES                                                                14

ADDITIONAL POLICIES                                                           15

DISTRIBUTIONS                                                                 17

TAXES                                                                         18

RESERVED RIGHTS                                                               19

FOR MORE INFORMATION                                                  BACK COVER


IN THIS PROSPECTUS, "WE" OR "US" REFERS TO STRONG CAPITAL MANAGEMENT,  INC., THE
INVESTMENT ADVISOR, ADMINISTRATOR, AND TRANSFER AGENT FOR THE STRONG FUNDS.



<PAGE>



                                                                 YOUR INVESTMENT

KEY INFORMATION

WHAT ARE THE FUNDS' GOALS?

The STRONG  MUNICIPAL BOND FUND seeks total return by investing for a high level
of federally  tax-exempt  current  income with a moderate  degree of share-price
fluctuation.

The STRONG SHORT-TERM  MUNICIPAL BOND FUND seeks total return by investing for a
high  level  of  federally  tax-exempt  current  income  with  a low  degree  of
share-price fluctuation.

WHAT ARE THE FUNDS' PRINCIPAL INVESTMENT STRATEGIES?

The  MUNICIPAL   BOND  FUND  invests   primarily  in   long-term,   higher-  and
medium-quality  municipal bonds. The fund's manager conducts  intensive research
on individual  issuers to uncover  solid  investment  opportunities,  especially
looking for bonds whose quality may be improving.  The fund typically  maintains
an average maturity between 10 and 20 years.

The   SHORT-TERM   MUNICIPAL   BOND  FUND   invests   primarily  in  short-  and
intermediate-term,  higher- and  medium-quality  municipal bonds,  following the
investment  style of the MUNICIPAL BOND FUND.  The fund  typically  maintains an
average maturity of three years or less.

((Side Box))


Under  normal  market  conditions,  the funds will  invest at least 80% of their
assets in municipal bonds. MUNICIPAL BONDS are debt obligations issued by or for
U.S. states, territories, and possessions and the District of Columbia and their
political subdivisions, agencies, and instrumentalities.  Municipal bonds can be
issued to obtain money for public purposes or for privately operated  facilities
or  projects.  Some  municipal  bonds pay  interest  that is exempt from federal
income tax. Examples of municipal bonds are general  obligation  bonds,  revenue
bonds, industrial development bonds, notes, and municipal lease obligations.


Although  each of the funds  invests  primarily  for  income,  they also  employ
techniques designed to realize capital  appreciation.  For example,  the manager
may  select  bonds with  maturities  and coupon  rates  that  position  them for
potential capital  appreciation for a variety of reasons,  including a manager's
view on the direction of future interest-rate  movements and the potential for a
credit upgrade.

The funds'  manager may sell a holding if its value  becomes  unattractive  (for
example,  when its fundamental qualities deteriorate or when other opportunities
exist that have more attractive yields). Also, the manager may invest any amount
in cash or cash-type securities (high-quality, short-term debt securities issued
by corporations,  financial institutions, or the U.S. government) as a temporary
defensive position to avoid losses during adverse market conditions.  This could
reduce the benefit to the funds if the market  goes up. In this case,  the funds
may not achieve their investment goal.

The funds may invest  without  limitation  in municipal  bonds,  such as private
activity bonds, whose interest may be subject to the federal alternative minimum
tax (AMT).


WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?


BOND  RISKS:  The major  risks of each fund are those of  investing  in the bond
market.  A bond's market value is affected  significantly by changes in interest
rates--generally,  when interest rates rise,  the bond's market value  declines,
and when interest rates decline,  its market value rises  (interest-rate  risk).
Generally, the longer a bond's maturity, the greater the risk and the higher its
yield.  Conversely,  the shorter a bond's  maturity,  the lower the risk and the
lower its yield (maturity  risk). A bond's value can also be affected by changes
in the  bond's  credit  quality  rating  or  its  issuer's  financial  condition
(credit-quality  risk).  Because bond values  fluctuate,  the fund's share price
fluctuates.  So, when you sell your  investment,  you may  receive  more or less
money than you originally invested.

MANAGEMENT  RISK:  The funds are subject to  management  risk  because  they are
actively managed.  There is no guarantee that the investment techniques and risk
analyses used by the manager will produce the desired results.


The funds are  appropriate  for  investors  who are  comfortable  with the risks
described here. Also, the MUNICIPAL BOND FUND is appropriate for investors whose
financial goals are four to seven years in the future. The SHORT-TERM  MUNICIPAL
BOND FUND is appropriate  for investors  whose  financial  goals are two to four
years in the  future.  The funds are not  appropriate  for  investors  concerned
primarily with principal stability.

FUND STRUCTURE

Each of the funds has adopted a multiple  class plan.  The funds offer  Investor
Class shares,  Advisor Class shares,  and Institutional  Class shares.  Only the
Institutional  Class  shares of each fund are  offered in this  prospectus.  The
principal differences between each of the classes of shares are that the Advisor
Class shares are subject to  distribution  fees and expenses  under a 12b-1 plan
and each class of shares is subject to  different  administrative  and  transfer
agency fees and expenses.


FUND PERFORMANCE

The following return  information  illustrates how the performance of the funds'
Institutional  Class shares can vary,  which is one  indication  of the risks of
investing in the funds.  Performance results for the Institutional Class shares,
which  were  first  offered  on July  31,  2000,  are  based  on the  historical
performance of each fund's  Investor Class shares from the inception of the fund
up to July 30,  2000.  The Investor  Class shares of these funds,  which are not
offered by this prospectus,  achieved  performance  results which are lower than
those that are expected to be achieved by the Institutional Class shares because
the Investor  Class shares are invested in the same  portfolio of securities but
are subject to a higher annual expense ratio. The returns for the  Institutional
Class shares are  substantially  similar to those of the  Investor  Class shares
because  each are  invested in the same  portfolio  of  securities  and the only
differences  relate to the differences in the fees and expenses of each class of
shares.  Please keep in mind that the past performance of the funds' shares does
not represent how they will perform in the future. The information  assumes that
you reinvested all dividends and distributions.



<PAGE>



 CALENDAR YEAR TOTAL RETURNS

-------------------------------------
                        Short-Term
             Municipal  Municipal
Year           Bond     Bond
-------------------------------------
-------------------------------------
1990            4.6%        -
-------------------------------------
-------------------------------------
1991           13.4%        -
-------------------------------------
-------------------------------------
1992           12.2%        7.2%
-------------------------------------
-------------------------------------
1993           11.8%        6.8%
-------------------------------------
-------------------------------------
1994           -4.6%       -1.6%
-------------------------------------
-------------------------------------
1995           11.4%        5.4%
-------------------------------------
-------------------------------------
1996            2.4%        4.9%
-------------------------------------
-------------------------------------
1997           12.1%        6.9%
-------------------------------------
-------------------------------------
1998            6.7%        5.6%
-------------------------------------
-------------------------------------
1999           -6.5%        1.2%
-------------------------------------


BEST AND WORST QUARTERLY PERFORMANCE
(DURING THE PERIODS SHOWN ABOVE)
<TABLE>
<CAPTION>
<S>                                        <C>                                  <C>

FUND NAME                             BEST QUARTER RETURN                 WORST QUARTER RETURN
------------------------------------- ----------------------------------- -----------------------------------
Municipal Bond                        5.8% (2nd Q 1992)                   -5.1% (1st Q 1994)

Short-Term Municipal Bond             2.4% (3rd Q 1995)                   -1.8% (1st Q 1994)

</TABLE>


THE YEAR-TO-DATE  RETURNS THROUGH  SEPTEMBER 30, 2000 ARE: MUNICIPAL BOND, 2.95%
AND SHORT-TERM MUNICIPAL BOND, 3.72%.


AVERAGE ANNUAL TOTAL RETURNS
                                 AS OF 12-31-99
<TABLE>
<CAPTION>
<S>                                         <C>          <C>          <C>              <C>

FUND/INDEX                                 1-YEAR       5-YEAR       10-YEAR      SINCE INCEPTION
MUNICIPAL BOND                             -6.48%        5.00%       6.12%        5.70% (10-23-86)
Lehman Brothers Municipal Bond Index       -2.06%        6.91%       6.89%        7.08%
Lipper General Municipal Debt Funds Index  -4.07%        6.14%       6.29%        6.52%
SHORT-TERM MUNICIPAL BOND                   1.16%        4.76%       --           4.48% (12-31-91)
Lehman Brothers Municipal
3 Year Bond Index                           1.96%        5.17%       --           4.88%
Lipper Short Municipal Debt Funds Average   1.70%        4.36%       --           4.13%
</TABLE>


THE  LEHMAN  BROTHERS  MUNICIPAL  BOND  INDEX IS AN  UNMANAGED  INDEX  GENERALLY
REPRESENTATIVE  OF  INVESTMENT-GRADE,   TAX-EXEMPT  BONDS.  THE  LIPPER  GENERAL
MUNICIPAL  DEBT FUNDS  INDEX IS AN  EQUALLY  WEIGHTED  PERFORMANCE  INDEX OF THE
LARGEST QUALIFYING FUNDS IN THIS LIPPER CATEGORY.  THE LEHMAN BROTHERS MUNICIPAL
3 YEAR BOND INDEX IS AN UNMANAGED INDEX GENERALLY  REPRESENTATIVE OF THREE-YEAR,
TAX-EXEMPT BONDS. THE LIPPER SHORT MUNICIPAL DEBT FUNDS AVERAGE REPRESENTS FUNDS
THAT INVEST IN MUNICIPAL DEBT ISSUES WITH DOLLAR-WEIGHTED  AVERAGE MATURITIES OF
LESS THAN THREE YEARS.

For current yield information on these funds, call 1-800-733-2274.


WHAT ARE THE FUNDS' FEES AND EXPENSES?

This section  describes  the fees and  expenses  that you may pay if you buy and
hold shares of the funds.

SHAREHOLDER FEES
 (fees paid directly from your investment)
The  Institutional  Class  shares of each fund are 100%  no-load,  so you pay no
sales charges (loads) to buy or sell shares.


<PAGE>


ANNUAL FUND OPERATING EXPENSES
 (expenses that are deducted from fund assets)
The costs of operating each fund are deducted from fund assets,  which means you
pay them  indirectly.  These costs are deducted before computing the daily share
price or making  distributions.  As a result,  they don't appear on your account
statement,  but  instead  reduce  the total  return you  receive  from your fund
investment.

ANNUAL FUND OPERATING EXPENSES (AS A PERCENT OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
<S>                                           <C>                <C>                      <C>


                                                                                      TOTAL ANNUAL FUND
FUND                                     MANAGEMENT FEES       OTHER EXPENSES         OPERATING EXPENSES

---------------------------------------- --------------------- ---------------------- -----------------------

Municipal Bond                           0.35%                 0.09%                  0.44%
Short-Term Municipal Bond                0.25%                 0.08%                  0.33%

</TABLE>

EXAMPLE:  This  example is intended to help you compare the cost of investing in
the funds with the cost of investing in other mutual funds.  The example assumes
that  you  invest   $10,000  in  the  funds  and  reinvest  all   dividends  and
distributions for the time periods indicated, and then redeem all of your shares
at the end of those periods. The example also assumes that your investment has a
5% return  each year and that the  funds'  operating  expenses  remain the same.
Although your actual costs may be higher or lower,  based on these  assumptions,
your costs would be:
<TABLE>
<CAPTION>
<S>                                               <C>              <C>             <C>            <C>

FUND                                              1 YEAR          3 YEARS          5 YEARS       10 YEARS
------------------------------------------------- --------------- ---------------- ------------- ------------

Municipal Bond                                    $45             $141             $246          $555
Short-Term Municipal Bond                         $34             $106             $185          $418

</TABLE>

WHO ARE THE FUNDS' INVESTMENT ADVISOR AND PORTFOLIO MANAGER?


Strong  Capital  Management,  Inc.  (Strong) is the  investment  advisor for the
funds. Strong provides investment management services for mutual funds and other
investment  portfolios  representing assets, as of October 31, 2000, of over $45
billion.  Strong began  conducting  business in 1974.  Since then, its principal
business has been providing  investment advice for individuals and institutional
accounts,  such as pension and  profit-sharing  plans,  as well as mutual funds,
several of which are available  through variable  insurance  products.  Strong's
address is P.O. Box 2936, Milwaukee, WI 53201.

LYLE J. FITTERER  manages the MUNICIPAL BOND FUND and the  SHORT-TERM  MUNICIPAL
BOND  FUND.  Mr.  Fitterer  joined  Strong in 1989 and has over  seven  years of
investment experience.  He is a Chartered Financial Analyst and Certified Public
Accountant.  He has managed the MUNICIPAL BOND FUND and the SHORT-TERM MUNICIPAL
BOND FUND since March 2000. He served as the Managing  Director of Institutional
Client Services from December 1998 to March 2000 and as a fixed income portfolio
manager from January 1996 to December 1998. He served as a fixed income research
analyst/trader  from  February 1993 to January 1996 and as an equity trader from
February 1992 to February 1993. Mr.  Fitterer  received his bachelors  degree in
Accounting from the University of North Dakota in 1989.


OTHER IMPORTANT INFORMATION YOU SHOULD KNOW

COMPARING THE FUNDS

The  following  will  help  you   distinguish  the  funds  and  determine  their
suitability for your investment needs:
<TABLE>
<CAPTION>
<S>                        <C>                <C>                     <C>               <C>

FUND                 AVERAGE MATURITY    CREDIT QUALITY         INCOME POTENTIAL     VOLATILITY
-------------------- ------------------- --------------------    -------------      ------------
Municipal Bond       10 to 20 years*     At least 85% rated     Moderate to High     Moderate
                                         higher or medium
                                         Up to 15% rated lower

-------------------- ------------------- ---------------------- -------------------- -------------
Short-Term           3 years or less     At least 85% rated     Low to Moderate      Low
Municipal Bond                           higher or medium
                                         Up to 15% rated lower
-------------------- ------------------- ---------------------- -------------------- -------------
</TABLE>

* EXPECTED RANGE


The MUNICIPAL BOND FUND and the SHORT-TERM  MUNICIPAL BOND FUND invest a portion
of their assets in lower-quality  securities that present a significant risk for
loss of principal and interest.


A WORD ABOUT CREDIT QUALITY

CREDIT  QUALITY  measures  the  issuer's  expected  ability to pay  interest and
principal   payments  on  time.   Credit   quality   can  be   "higher-quality",
"medium-quality", "lower-quality", or "in default".

HIGHER-QUALITY  means  bonds  that  are  in  any of  the  three  highest  rating
categories. For example, bonds rated AAA to A by Standard & Poor's Ratings Group
(S&P)*.

MEDIUM-QUALITY means bonds that are in the fourth-highest  rating category.  For
example, bonds rated BBB by S&P*.

LOWER-QUALITY  means bonds that are below the  fourth-highest  rating  category.
They are also known as non-investment,  high-risk,  high-yield, or "junk bonds".
For example, bonds rated BB to C by S&P*.

IN DEFAULT means the bond's issuer has not paid principal or interest on time.

*OR THOSE RATED IN THIS CATEGORY BY ANY NATIONALLY RECOGNIZED STATISTICAL RATING
ORGANIZATION.  S&P IS ONLY ONE EXAMPLE OF A  NATIONALLY  RECOGNIZED  STATISTICAL
RATING ORGANIZATION.

This chart shows S&P's  definition and ratings group for credit  quality.  Other
rating organizations use similar definitions.
<TABLE>
<CAPTION>
          <S>                   <C>                     <C>                      <C>

      CREDIT QUALITY            S&P'S               S&P'S RATINGS               RATING
                             DEFINITION                 GROUP                  CATEGORY

      ---------------- ------------------------ ----------------------- -----------------------
                           Highest quality               AAA                First highest


          Higher            High quality                  AA                Second highest

                         Upper medium grade               A                 Third highest
      ---------------- ------------------------ ----------------------- -----------------------
          Medium            Medium grade                 BBB                Fourth highest
      ---------------- ------------------------ ----------------------- -----------------------
                              Low grade                   BB

           Lower             Speculative                  B

                             Submarginal              CCC, CC, C

      ---------------- ------------------------ -----------------------
        In default       Probably in default              D
      ---------------- ------------------------ -----------------------
</TABLE>


We  determine  a  bond's  credit-quality  rating  at the time of  investment  by
conducting  credit  research and  analysis  and by relying on credit  ratings of
several   nationally   recognized   statistical  rating   organizations.   These
organizations  are called  NRSROs.  When we determine if a bond is in a specific
category,  we may use the highest rating  assigned to it by any NRSRO. If a bond
is not rated, we rely on our credit research and analysis to rate the bond. If a
bond's credit-quality rating is downgraded after our investment,  we monitor the
situation to decide if we need to take any action such as selling the bond.

Typically,  municipal  bonds are not  rated.  This  means  that  investments  in
municipal  bonds may require  more credit  analysis  by us than  investments  in
taxable bonds. Also,  investments in lower-quality  bonds will be more dependent
on our  credit  analysis  than  would be  higher-quality  bonds  because,  while
lower-quality bonds generally offer higher yields than higher-quality bonds with
similar  maturities,  lower-quality  bonds involve  greater  risks.  These risks
include the possibility of default or bankruptcy  because the issuer's  capacity
to pay interest and repay  principal is  considered  predominantly  speculative.
Also,  lower-quality  bonds are less liquid,  meaning that they may be harder to
sell than bonds of higher  quality  because the demand for them may be lower and
there are fewer potential buyers.  This lack of liquidity may lower the value of
the fund and your investment.


TAXABLE INVESTMENTS


A fund may invest up to 20% of its net assets in U.S.  government  and corporate
bonds,  and other  debt  securities  that are of the same  quality as the fund's
investments in municipal  bonds. A fund will generally  invest in these bonds to
take  advantage of capital  gains  opportunities.  These bonds  produce  taxable
income, unlike municipal bonds, which generally provide tax-exempt income.


IF YOU ARE SUBJECT TO THE ALTERNATIVE MINIMUM TAX

The funds  may  invest,  without  limitation,  in  municipal  obligations  whose
interest  is a  tax-preference  item for  purposes  of the  federal  alternative
minimum tax (AMT). If you are subject to the AMT, a substantial  portion of your
fund's  distributions  to you may not be exempt from federal income tax. If this
is the case, a fund's net return to you may be lower.

FINANCIAL HIGHLIGHTS


This information  describes  investment  performance of the Institutional  Class
shares  of the  funds  for  the  periods  shown.  Certain  information  reflects
financial  results for a single  Institutional  Class share  outstanding for the
entire period.  "Total Return" shows how much an investment in the Institutional
Class shares of the fund would have increased (or decreased) during each period,
assuming you had reinvested all dividends and  distributions.  The Institutional
Class  shares  were first  offered on July 31,  2000.  These  figures  have been
audited  by  PricewaterhouseCoopers  LLP,  whose  report,  along with the fund's
financial statements, is included in the fund's annual report.



STRONG MUNICIPAL BOND FUND--INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
     <S>                                                       <C>

                                                              Aug. 31,
SELECTED PER-SHARE DATA(a)                                    2000(b)
Net Asset Value, Beginning of Period                          $8.73
Income From Investment Operations:
   Net Investment Income                                      0.04
   Net Realized and Unrealized Gains on Investments           0.06
   Total from Investment Operations                           0.10
Less Distributions:
   From Net Investment Income(c)                              (0.04)
   Total Distributions                                        (0.04)
Net Asset Value, End of Period                                $8.79
RATIOS AND SUPPLEMENTAL DATA
Total Return                                                  +1.2%
Net Assets, End of Period (In Millions)                       $0(d)
Ratio of Expenses to Average Net Assets                       0.4%*
Ratio of Net Investment Income to
   Average Net Assets                                         5.5%*
Portfolio Turnover Rate(e)                                    19.2%
</TABLE>

* Calculated on an annualized basis.
(a)   Information presented relates to a share of capital stock of the fund
      outstanding for the entire period.
(b)   For the period from August 1, 2000 (Commencement of Class) to
      August 31, 2000.
(c)   Tax-exempt for regular federal income tax purposes.
(d)   Amount is less than $500,000.
(e)   Calculated  on the  basis  of the  fund as a whole  without
      distinguishing between the classes of shares issued.



STRONG SHORT-TERM MUNICIPAL BOND FUND--INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
        <S>                                                    <C>

                                                              Aug. 31,
SELECTED PER-SHARE DATA(a)                                    2000(b)
Net Asset Value, Beginning of Period                          $9.61
Income From Investment Operations:
   Net Investment Income                                      0.04
   Net Realized and Unrealized Gains on Investments           0.03
   Total from Investment Operations                           0.07
Less Distributions:
   From Net Investment Income(c)                              (0.04)
   Total Distributions                                        (0.04)
Net Asset Value, End of Period                                $9.64
RATIOS AND SUPPLEMENTAL DATA
Total Return                                                  +0.8%
Net Assets, End of Period (In Millions)                       $0(d)
Ratio of Expenses to Average Net Assets                       0.3%*
Ratio of Net Investment Income to Average Net Assets          5.3%*
Portfolio Turnover Rate(e)                                    48.6%
</TABLE>

* Calculated on an annualized basis.
(a)   Information presented relates to a share of capital stock of the fund
      outstanding for the entire period.
(b)   For the period from August 1, 2000 (Commencement of Class) to
      August 31, 2000.
(c)   Tax-exempt for regular federal income tax purposes.
(d)   Amount is less than $500,000
(e)   Calculated  on the  basis  of the  fund as a whole  without
      distinguishing between the classes of shares issued.


YOUR ACCOUNT

SHARE PRICE


Your transaction price for buying, selling, or exchanging shares of the funds or
specific  classes of the funds is the net asset  value per share  (NAV) for that
fund or class of shares. NAV is generally  calculated as of the close of trading
on the New York Stock Exchange (NYSE) (usually 3:00 p.m. Central Time) every day
the NYSE is open.  If the NYSE  closes at any  other  time,  or if an  emergency
exists,  NAV may be calculated at a different time. Your share price will be the
next NAV calculated after we accept your order.


NAV is based on the market value of the  securities  in a fund's  portfolio.  If
market  prices are not  available,  NAV is based on a  security's  fair value as
determined in good faith by us under the  supervision  of the Board of Directors
of the Strong Funds.

((Side Box))
------------------------------------------------------
We  determine  the share price or NAV of a fund or class by dividing  net assets
attributable to the fund or class (the value of the investments, cash, and other
assets  attributable to the fund or class minus the liabilities  attributable to
the fund or class) by the number of fund or class shares outstanding.
------------------------------------------------------

BUYING SHARES


Prior to your initial  investment,  complete and sign an application and send it
to Strong Institutional Client Services, P.O. Box 2936, Milwaukee, WI 53201-2936
or send it by facsimile to  1-414-359-3535.  The initial  investment minimum for
each fund is $1 million.  The initial investment minimum for the funds is waived
for  registered  investment  advisors with an initial  investment  minimum of at
least $250,000.  After your initial investment,  additional  transactions may be
made in any amount. Shares must be purchased by wire unless you use the Exchange
Option described below. To purchase by wire, place




<PAGE>


an order by calling  1-800-733-2274  before 3:00 p.m. Central Time. Firstar Bank
Milwaukee,  N.A.,  the fund's  agent,  must receive  payment by the close of the
federal wire system that day. If payment is not received by this deadline,  your
order may be canceled or you may be liable for the resulting  interest expenses.
You should wire federal funds as follows:

         Firstar Bank Milwaukee, N.A.
         777 East Wisconsin Avenue
         Milwaukee, WI  53202
         ABA routing number: 075000022
         Account number: 112737-090
         For further credit to: (insert your account number and registration)

MULTIPLE CLASS PLAN
Each fund has adopted a multiple  class plan.  The funds  offer  Investor  Class
shares,  Advisor Class shares,  and  Institutional  Class shares.  Each class is
offered  at its net asset  value  without  the  imposition  of any  sales  load;
however,  each class of shares is subject to fees and  expenses  that may differ
between classes. The principal differences between each of the classes of shares
are that the Advisor Class shares are subject to distribution  fees and expenses
under  a  12b-1  plan  and  each  class  of  shares  is  subject  to   different
administrative and transfer agency fees and expenses.


BROKER-DEALER
Broker-dealers,  including each fund's distributor, and other intermediaries may
also from time to time sponsor or participate in promotional  programs  pursuant
to which investors receive incentives for establishing with the broker-dealer or
intermediary an account and/or for purchasing shares of the Strong Funds through
the account(s).  Investors should contact the  broker-dealer or intermediary and
consult the  Statement of  Additional  Information  for more  information  about
promotional programs.

SELLING SHARES


Shares must be redeemed by wire  unless you use the  Exchange  Option  described
below.  The fund pays the wire fees,  which are a fund  expense.  You may redeem
shares by either telephone or written instruction.

To  redeem  by  wire,  place an order by  calling  Strong  Institutional  Client
Services  at  1-800-733-2274   before  3:00  p.m.  Central  Time.  The  original
application  must be on file with the fund's  transfer agent before a redemption
will be processed.  You may also redeem  shares by sending a written  request to
Strong Institutional Client Services, P.O. Box 2936, Milwaukee, WI 53201-2936 or
sending it by facsimile to  1-414-359-3535.  Your written request must be signed
exactly  as the names of the  registered  owners  appear on the  fund's  account
records,  and the  request  must be signed  by the  minimum  number  of  persons
designated on the account  application that are required to effect a redemption.
Please  note that any  written  redemption  request of  $100,000 or more must be
accompanied by a signature guarantee. Payment of the redemption proceeds will be
wired to the bank account(s)  designated on the account application.  Redemption
proceeds  will  ordinarily  be wired the next business day, but in no event more
than seven days after receipt of the redemption.

((Side Box))
------------------------------------------------------
SIGNATURE  GUARANTEES  help  ensure that major  transactions  or changes to your
account  are in fact  authorized  by you.  For  example,  we require a signature
guarantee on written redemption requests for more than $100,000.  You can obtain
a signature  guarantee for a nominal fee from most banks,  brokerage  firms, and
other  financial  institutions.   A  notary  public  stamp  or  seal  cannot  be
substituted for a signature guarantee.
------------------------------------------------------

ADDITIONAL POLICIES

ADVANCE NOTICE OF LARGE TRANSACTIONS
We strongly urge you to begin all purchases and  redemptions as early in the day
as  possible  and to notify us at least one day in  advance of  transactions  in
excess  of  $5  million.  This  will  allow  Strong  to  manage  the  fund  most
effectively. When you give us this advance notice, you must provide us with your
name and account number.

DEPOSIT OF UNSPECIFIED CHECKS
When your  investment  check does not clearly  indicate  the fund that you would
like to  purchase,  we will  deposit the check into the Strong Money Market Fund
until you clarify your investment decision.

EXCHANGE OPTION
You may exchange your shares of the fund for shares of another  Strong Fund. You
may  make an  exchange  by  calling  Strong  Institutional  Client  Services  at
1-800-733-2274  or by sending a facsimile to  1-414-359-3535.  Please obtain and
read the  appropriate  prospectus  before  investing in any of the Strong Funds.
Remember,  an exchange of shares of one Strong Fund for those of another  Strong
Fund is  considered  a sale and a purchase of fund shares for several  purposes,
including  tax purposes  and may result in a capital  gain or loss.  Some Strong
Funds that you may want to exchange into may charge an initial sales charge,  or
may  charge a  redemption  fee of 0.50% to 1.00% on the sale of shares  held for
less than 6 to 12 months.  Purchases by exchange  are subject to the  investment
requirements and other criteria of the fund and class purchased.

INVESTING THROUGH A THIRD PARTY
If you invest through a third party (rather than directly with us), the policies
and fees may be different than  described in this  prospectus.  Banks,  brokers,
401(k)  plans,   financial  advisors,  and  financial  supermarkets  may  charge
transaction  fees and may set different  minimum  investments  or limitations on
buying or selling  shares.  Consult a  representative  of your plan or financial
institution for details.

MARKET TIMERS
The fund  will  consider  the  following  factors  to  identify  market  timers:
shareholders who have (1) requested an exchange out of the fund within two weeks
of an earlier  exchange  request,  (2) exchanged  shares out of a fund more than
twice in a calendar quarter,  (3) exchanged shares equal to at least $5 million,
or more than 1% of a fund's net assets, or (4) otherwise seem to follow a timing
pattern.  Shares under common  ownership or control are combined for purposes of
these limits.

PURCHASES IN KIND
You may, if we approve,  purchase  shares of the fund with  securities  that are
eligible  for  purchase  by the  fund  (consistent  with the  fund's  investment
restrictions,  policies,  and  goal)  and  that  have a value  that  is  readily
ascertainable in accordance with the fund's valuation policies.

TELEPHONE TRANSACTIONS
We use reasonable  procedures to confirm that telephone transaction requests are
genuine.  We may be  responsible if we do not follow these  procedures.  You are
responsible for losses  resulting from  fraudulent or unauthorized  instructions
received over the  telephone,  provided we reasonably  believe the  instructions
were genuine.  During times of unusual market  activity,  our phones may be busy
and you may experience a delay placing a telephone request.

VERIFICATION OF ACCOUNT STATEMENTS
You should contact us in writing regarding any errors or discrepancies within 60
days after the date of the  statement  confirming a  transaction.  The statement
will be deemed correct if we do not hear from you within those 60 days.


DISTRIBUTIONS
------------------------------------------------------------------------------

DISTRIBUTION POLICY
The fund generally  pays you dividends  from net  investment  income monthly and
distributes  any net capital  gains that it  realizes  annually.  Dividends  are
declared  on each day NAV is  calculated,  except for bank  holidays.  Dividends
earned on weekends, holidays, and days when the fund's NAV is not calculated are
declared  on  the  first  day  preceding  these  days  that  the  fund's  NAV is
calculated.  Your  investment  generally earns dividends from the first business
day after we accept your purchase order.


REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Your dividends and capital gains distributions will be automatically  reinvested
in  additional  shares of the fund or class,  as  applicable,  unless you choose
otherwise.  Your other options are to receive checks for these payments, or have
them credited to your bank account by Electronic  Funds Transfer.  To change the
current option for payment of dividends and capital gains distributions,  please
call 1-800-733-2274.


TAXES
------------------------------------------------------------------------------

Generally,  a  municipal  fund's  distributions  will be composed  primarily  of
tax-exempt  income.  However,  the fund may make distributions of net investment
income and capital gains that are taxable to you.


TAXABLE DISTRIBUTIONS
Any net investment  income and net short-term  capital gains  distributions  you
receive are  generally  taxable as ordinary  dividend  income at your income tax
rate.  Distributions  of net capital  gains are  generally  taxable as long-term
capital  gains.  This is  generally  true no matter how long you have owned your
shares and whether you reinvest your distributions or take them in cash. You may
also have to pay taxes when you  exchange  or sell  shares if your  shares  have
increased in value since you bought them.

TAX-EXEMPT DISTRIBUTIONS
Exempt-interest dividends from municipal funds are generally exempt from federal
income  taxes,  but may be  subject  to state and local  tax.  Also,  if you are
subject to the  Alternative  Minimum  Tax,  you may have to pay federal tax on a
substantial portion of your income from exempt-interest dividends.

RETURN OF CAPITAL
If your fund's  distributions  exceed its earnings and profits, all or a portion
of those distributions may be treated as a return of capital to you. A return of
capital  may be treated as a sale of your  shares.  It may also  reduce the cost
basis of your shares.

YEAR-END STATEMENT
To assist you in tax  preparation,  after the end of each calendar year, we send
you a  statement  of  your  fund's  ordinary  dividends  and net  capital  gains
distributions (Form 1099).

BACKUP WITHHOLDING
By law, we must withhold 31% of your  distributions  and proceeds if (1) you are
subject to backup  withholding or (2) you have not provided us with complete and
correct  taxpayer  information  such  as  your  Social  Security  number  or tax
identification number.


Because  everyone's  tax  situation  is  unique,  you  should  consult  your tax
professional for assistance.

RESERVED RIGHTS
-------------------------------------------------------------------------------

We reserve the right to:


o    Reject any purchase request for any reason,  including exchanges from other
     Strong  Funds.  Generally,  we do  this  if the  purchase  or  exchange  is
     disruptive to the efficient  management of a fund (due to the timing of the
     investment or an investor's history of excessive trading).


o    Change the minimum or maximum investment amounts.

o    Close any account that does not meet minimum  investment  requirements.  We
     will give you notice and 60 days to increase  your  balance to the required
     minimum.


o    Waive the initial investment minimum at our discretion.


o    Reject any purchase or  redemption  request that does not contain all
     required documentation.

o    Amend or terminate purchases in kind at any time.

o    Where principles of fair treatment and fiduciary responsibility dictate:

   o    Delay sending out redemption proceeds for up to seven days.

   o    Suspend  redemptions  or postpone  payments when the NYSE is closed for
        any reason other than its usual  weekend or holiday  closings,  when
        trading is restricted by the SEC, or under any emergency circumstances.

   o    Make a redemption  in kind (a payment in portfolio  securities  rather
        than cash) if the  amount  you are  redeeming  is in excess of the
        lesser of (1)$250,000 or (2) 1% of the fund's assets.



<PAGE>




FOR MORE INFORMATION

More information is available upon request at no charge, including:

SHAREHOLDER  REPORTS:  Additional  information  is  available  in the annual and
semi-annual  report  to  shareholders.  These  reports  contain  a  letter  from
management,  discuss recent market  conditions,  economic  trends and investment
strategies that significantly affected your investment's  performance during the
last fiscal year, and list portfolio holdings.

STATEMENT OF ADDITIONAL  INFORMATION  (SAI): The SAI contains more details about
investment policies and techniques. A current SAI is on file with the SEC and is
incorporated  into this  prospectus  by  reference.  This  means that the SAI is
legally  considered a part of this  prospectus  even though it is not physically
contained within this prospectus.

To request information or to ask questions:


BY TELEPHONE                                BY OVERNIGHT DELIVERY
1-800-733-2274                              Strong Institutional Client Services
                                            100 Heritage Reserve
                                            Menomonee Falls, WI 53051
BY MAIL
Strong Institutional Client Services        ON THE INTERNET
P.O. Box 2936                               View online or download documents:
Milwaukee, WI 53201-2936                    SEC*: www.sec.gov


This  prospectus  is not an offer to sell  securities  in places  other than the
United States and its territories.

*INFORMATION ABOUT A FUND (INCLUDING THE SAI) CAN ALSO BE REVIEWED AND COPIED AT
THE SECURITIES AND EXCHANGE  COMMISSION'S  PUBLIC  REFERENCE ROOM IN WASHINGTON,
D.C. YOU MAY CALL THE COMMISSION AT  1-202-942-8090  FOR  INFORMATION  ABOUT THE
OPERATION OF THE PUBLIC REFERENCE ROOM.  REPORTS AND OTHER  INFORMATION  ABOUT A
FUND ARE ALSO  AVAILABLE FROM THE EDGAR  DATABASE ON THE  COMMISSION'S  INTERNET
SITE AT WWW.SEC.GOV.  YOU MAY OBTAIN A COPY OF THIS INFORMATION,  AFTER PAYING A
DUPLICATING  FEE,  BY  SENDING  A WRITTEN  REQUEST  TO THE  COMMISSION'S  PUBLIC
REFERENCE  SECTION,  WASHINGTON,  D.C.  20549-0102,  OR BY SENDING AN ELECTRONIC
REQUEST TO THE FOLLOWING E-MAIL ADDRESS: [email protected].


Strong Municipal Bond Fund, a series of Strong Municipal Bond Fund, Inc.,
SEC file number: 811-4769
Strong Short-Term Municipal Bond Fund, a series of Strong Short-Term Municipal
Bond Fund, Inc., SEC file number: 811-6409


                  STATEMENT OF ADDITIONAL INFORMATION ("SAI")


STRONG  HIGH-YIELD  MUNICIPAL  BOND  FUND,  A SERIES  FUND OF STRONG  HIGH-YIELD
MUNICIPAL BOND FUND,  INC.  STRONG  MUNICIPAL BOND FUND, A SERIES FUND OF STRONG
MUNICIPAL BOND FUND, INC. STRONG  SHORT-TERM HIGH YIELD MUNICIPAL FUND, A SERIES
FUND OF STRONG MUNICIPAL FUNDS,  INC. STRONG  SHORT-TERM  MUNICIPAL BOND FUND, A
SERIES FUND OF STRONG SHORT-TERM MUNICIPAL BOND FUND, INC.

P.O. Box 2936
Milwaukee, WI 53201

Telephone: 1-414-359-1400
Toll-Free: 1-800-368-3863
e-mail: [email protected]
web site:  www.eStrong.com


Throughout  this SAI, "the Fund" is intended to refer to each Fund listed above,
unless  otherwise  indicated.  This SAI is not a  Prospectus  and should be read
together with the  Prospectus  for the Fund dated January 1, 2001.  Requests for
copies of the Prospectus  should be made by calling any number listed above. The
financial statements appearing in the Annual Report, which accompanies this SAI,
are incorporated into this SAI by reference.





























                                 January 1, 2001



<PAGE>

<TABLE>
<CAPTION>
<S>                                                                                                            <C>

TABLE OF CONTENTS                                                                                              PAGE

INVESTMENT RESTRICTIONS...........................................................................................4
INVESTMENT POLICIES AND TECHNIQUES................................................................................6
   Strong High-Yield Municipal Bond Fund..........................................................................6
   Strong Municipal Bond Fund.....................................................................................6
   Strong Short-Term High Yield Municipal Fund....................................................................6
   Strong Short-Term Municipal Bond Fund..........................................................................6
   Borrowing......................................................................................................7
   Cash Management................................................................................................7
   Convertible Securities.........................................................................................7
   Derivative Instruments.........................................................................................8
   High-Yield (High-Risk) Securities.............................................................................14
   Illiquid Securities...........................................................................................15
   Lending of Portfolio Securities...............................................................................16
   Maturity......................................................................................................16
   Mortgage- and Asset-Backed Debt Securities....................................................................17
   Municipal Obligations.........................................................................................18
   Participation Interests.......................................................................................19
   Repurchase Agreements.........................................................................................19
   Reverse Repurchase Agreements and Mortgage Dollar Rolls.......................................................19
   Sector Concentration..........................................................................................20
   Short Sales...................................................................................................20
   Standby Commitments...........................................................................................20
   Taxable Securities............................................................................................20
   Temporary Defensive Position..................................................................................20
   U.S. Government Securities....................................................................................21
   Variable- or Floating-Rate Securities.........................................................................21
   When-Issued and Delayed-Delivery Securities...................................................................22
   Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities..........................................................22
DIRECTORS AND OFFICERS...........................................................................................23
PRINCIPAL SHAREHOLDERS...........................................................................................25
INVESTMENT ADVISOR...............................................................................................26
ADMINISTRATOR....................................................................................................30
DISTRIBUTOR......................................................................................................33
DISTRIBUTION PLAN................................................................................................33
PORTFOLIO TRANSACTIONS AND BROKERAGE.............................................................................35
CUSTODIAN........................................................................................................38
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT.....................................................................39
TAXES............................................................................................................41
DETERMINATION OF NET ASSET VALUE.................................................................................43
ADDITIONAL SHAREHOLDER INFORMATION...............................................................................43
ORGANIZATION.....................................................................................................47
SHAREHOLDER MEETINGS.............................................................................................48
PERFORMANCE INFORMATION..........................................................................................48
GENERAL INFORMATION..............................................................................................58
INDEPENDENT ACCOUNTANTS..........................................................................................59
LEGAL COUNSEL....................................................................................................59
APPENDIX A- DEFINITION OF BOND RATINGS...........................................................................60
APPENDIX B - ASSET COMPOSITION BY BOND RATINGS...................................................................67
</TABLE>



No  person  has  been  authorized  to  give  any  information  or  to  make  any
representations  other than those  contained  in this SAI and its  corresponding
Prospectus and, if given or made, such information or representations may not be
relied upon as having been authorized.  This SAI does not constitute an offer to
sell securities.



<PAGE>




INVESTMENT RESTRICTIONS

FUNDAMENTAL INVESTMENT LIMITATIONS

The following are the Fund's  fundamental  investment  limitations  which, along
with the Fund's  investment  objective  (which is described in the  Prospectus),
cannot be changed without shareholder  approval.  To obtain approval, a majority
of the Fund's  outstanding voting shares must vote for the change. A majority of
the Fund's  outstanding  voting  securities means the vote of the lesser of: (1)
67%  or  more  of  the  voting  securities  present,  if  more  than  50% of the
outstanding  voting securities are present or represented,  or (2) more than 50%
of the outstanding voting shares.

Unless indicated otherwise below, the Fund:

1.       May  not  with  respect  to 75%  of  its  total  assets,  purchase  the
         securities of any issuer (except securities issued or guaranteed by the
         U.S. government or its agencies or instrumentalities)  if, as a result,
         (1) more than 5% of the Fund's  total  assets  would be invested in the
         securities of that issuer,  or (2) the Fund would hold more than 10% of
         the outstanding voting securities of that issuer.

2.       May (1)  borrow  money from  banks and (2) make  other  investments  or
         engage in other  transactions  permissible under the Investment Company
         Act of 1940 ("1940 Act") which may involve a borrowing,  provided  that
         the combination of (1) and (2) shall not exceed 33 1/3% of the value of
         the Fund's  total  assets  (including  the amount  borrowed),  less the
         Fund's  liabilities  (other than borrowings),  except that the Fund may
         borrow up to an  additional  5% of its total assets (not  including the
         amount  borrowed) from a bank for temporary or emergency  purposes (but
         not for  leverage or the  purchase of  investments).  The Fund may also
         borrow money from the other Strong Funds or other persons to the extent
         permitted by applicable law.

3.       May not issue senior securities, except as permitted under the 1940
         Act.

4.       May not act as an underwriter of another issuer's securities, except to
         the extent that the Fund may be deemed to be an underwriter  within the
         meaning of the Securities  Act of 1933 in connection  with the purchase
         and sale of portfolio securities.

5.       May not  purchase or sell  physical  commodities  unless  acquired as a
         result of ownership of securities or other  instruments (but this shall
         not  prevent  the Fund from  purchasing  or  selling  options,  futures
         contracts,  or  other  derivative  instruments,  or from  investing  in
         securities or other instruments backed by physical commodities).

6.       May not make  loans if, as a  result,  more than 33 1/3% of the  Fund's
         total  assets  would  be lent to  other  persons,  except  through  (1)
         purchases of debt securities or other debt instruments, or (2) engaging
         in repurchase agreements.

7.       May not purchase  the  securities  of any issuer if, as a result,  more
         than 25% of the Fund's total assets would be invested in the securities
         of issuers,  the principal business activities of which are in the same
         industry.

8.       May not  purchase  or sell real estate  unless  acquired as a result of
         ownership  of  securities  or other  instruments  (but  this  shall not
         prohibit  the Fund  from  purchasing  or  selling  securities  or other
         instruments  backed by real estate or of issuers engaged in real estate
         activities).

9.       May,   notwithstanding  any  other  fundamental  investment  policy  or
         restriction,  invest  all of its assets in the  securities  of a single
         open-end  management  investment  company with  substantially  the same
         fundamental  investment  objective,  policies,  and restrictions as the
         Fund.

10.      May not, under normal market conditions, invest less than 80% of its
         net assets in municipal securities.



<PAGE>



NON-FUNDAMENTAL OPERATING POLICIES


The following are the Fund's  non-fundamental  operating policies,  which may be
changed by the Fund's Board of Directors without shareholder approval.


Unless indicated otherwise below, the Fund may not:

1.   Sell  securities  short,  unless  the Fund  owns or has the right to obtain
     securities  equivalent in kind and amount to the securities  sold short, or
     unless it covers  such  short sale as  required  by the  current  rules and
     positions of the Securities and Exchange  Commission  ("SEC") or its staff,
     and provided that transactions in options,  futures  contracts,  options on
     futures  contracts,  or other  derivative  instruments  are not  deemed  to
     constitute selling securities short.

2.   Purchase  securities  on  margin,  except  that the Fund  may  obtain  such
     short-term credits as are necessary for the clearance of transactions;  and
     provided that margin deposits in connection with futures contracts, options
     on futures contracts,  or other derivative instruments shall not constitute
     purchasing securities on margin.

3.   Invest in illiquid securities if, as a result of such investment, more than
     15% (10% with  respect to a money fund) of its net assets would be invested
     in illiquid securities, or such other amounts as may be permitted under the
     1940 Act.

4.   Purchase securities of other investment companies except in compliance with
     the 1940 Act and applicable state law.

5.   Invest all of its assets in the securities of a single open-end  investment
     management  company  with  substantially  the same  fundamental  investment
     objective, restrictions and policies as the Fund.

6.   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.

7.   Borrow  money  except  (1) from  banks or (2)  through  reverse  repurchase
     agreements or mortgage dollar rolls, and will not purchase  securities when
     bank borrowings exceed 5% of its total assets.

8.   Make any loans other than loans of portfolio securities, except through (1)
     purchases of debt securities or other debt instruments,  or (2) engaging in
     repurchase agreements.

Unless noted otherwise, if a percentage restriction is adhered to at the time of
investment,  a later increase or decrease in percentage  resulting from a change
in the Fund's  assets  (I.E.  due to cash inflows or  redemptions)  or in market
value of the  investment or the Fund's assets will not constitute a violation of
that restriction.


<PAGE>




INVESTMENT POLICIES AND TECHNIQUES


STRONG HIGH-YIELD MUNICIPAL BOND FUND

o    Under normal market  conditions  the Fund invests at least 65% of its total
     assets in medium- and lower-quality  municipal obligations.  Medium-quality
     debt  obligations  are those rated in the  fourth-highest  category  (E.G.,
     bonds rated BBB by S&P).

o    The Fund may also invest in debt obligations that are in default,  but such
     obligations are not expected to exceed 10% of the Fund's net assets.

o    The Fund may also invest up to 20% of its net assets in taxable  securities
     of comparable quality to its investments in municipal securities, including
     U.S. government securities, bank and corporate obligations,  and short-term
     fixed-income securities.

o    When the  Advisor  determines  that market  conditions  warrant a temporary
     defensive  position,  the Fund may invest  without  limitation  in cash and
     short-term fixed-income securities.



STRONG MUNICIPAL BOND FUND

o    Under normal  market  conditions,  the Fund invests at least 85% of its net
     assets in investment-grade debt obligations,  which range from those in the
     highest  rating  category  to  those  rated  in the  fourth-highest  rating
     category (E.G., BBB or higher by S&P).
o    The   Fund   may   also   invest   up  to  15%  of  its   net   assets   in
     non-investment-grade   debt,  otherwise  known  as  high-yield  (high-risk)
     securities or "junk bonds" (E.G.,  those debt obligations  rated as high as
     BB and as low as C by S&P).
o    The Fund may also invest up to 20% of its net assets in taxable  securities
     of comparable quality to its investments in municipal securities, including
     U.S. government securities, bank and corporate obligations,  and short-term
     fixed-income securities.

o    When the  Advisor  determines  that market  conditions  warrant a temporary
     defensive  position,  the Fund may invest  without  limitation  in cash and
     short-term fixed-income securities.



STRONG SHORT-TERM HIGH YIELD MUNICIPAL FUND

o    Under normal market conditions,  the Fund invests at least 80% of its total
     assets in medium- and lower-quality  municipal obligations.  Medium-quality
     debt  obligations  are those rated in the  fourth-highest  category  (E.G.,
     bonds rated BBB through C by S&P).

o    The Fund may also invest in debt obligations that are in default,  but such
     obligations are not expected to exceed 10% of the Fund's net assets.

o    The Fund may also invest up to 20% of its net assets in taxable  securities
     of comparable quality to its investments in municipal securities, including
     U.S. government securities, bank and corporate obligations,  and short-term
     fixed-income securities.

o    When the  Advisor  determines  that market  conditions  warrant a temporary
     defensive  position,  the Fund may invest  without  limitation  in cash and
     short-term fixed-income securities.



STRONG SHORT-TERM MUNICIPAL BOND FUND

o    Under normal  market  conditions,  the Fund invests at least 85% of its net
     assets in investment-grade debt obligations,  which range from those in the
     highest  rating  category  to  those  rated  in the  fourth-highest  rating
     category (E.G., BBB or higher by S&P).
o    The   Fund   may   also   invest   up  to  15%  of  its   net   assets   in
     non-investment-grade   debt,  otherwise  known  as  high-yield  (high-risk)
     securities or "junk bonds" (E.G.,  those debt obligations  rated as high as
     BB and as low as C by S&P).
o    The Fund may also invest up to 20% of its net assets in taxable  securities
     of comparable quality to its investments in municipal securities, including
     U.S. government securities, bank and corporate obligations,  and short-term
     fixed-income securities.

o    When the  Advisor  determines  that market  conditions  warrant a temporary
     defensive  position,  the Fund may invest  without  limitation  in cash and
     short-term fixed-income securities.

The following  information  supplements the discussion of the Fund's  investment
objective, policies, and techniques described in the Prospectus.


BORROWING


The Fund may borrow  money from  banks and make other  investments  or engage in
other  transactions  permissible  under  the 1940 Act that may be  considered  a
borrowing  (such as mortgage  dollar rolls and reverse  repurchase  agreements).
However,  the Fund may not purchase securities when bank borrowings exceed 5% of
the Fund's total assets.  Presently,  the Fund only intends to borrow from banks
for temporary or emergency purposes.

The Fund has established a line-of-credit ("LOC") with certain banks by which it
may borrow funds for temporary or emergency purposes. A borrowing is presumed to
be for  temporary  or  emergency  purposes if it is repaid by the Fund within 60
days and is not  extended  or renewed.  The Fund  intends to use the LOC to meet
large or unexpected redemptions that would otherwise force the Fund to liquidate
securities  under  circumstances  that are  unfavorable to the Fund's  remaining
shareholders. The Fund pays a commitment fee to the banks for the LOC.



CASH MANAGEMENT


The Fund may invest  directly in cash and  short-term  fixed-income  securities,
including, for this purpose, shares of one or more money market funds managed by
Strong Capital  Management,  Inc.,  the Fund's  investment  advisor  ("Advisor")
(collectively,  the "Strong Money  Funds").  The Strong Money Funds seek current
income,  a stable share price of $1.00,  and daily  liquidity.  All money market
instruments   can  change  in  value  when   interest   rates  or  an   issuer's
creditworthiness  change  dramatically.  The Strong Money Funds cannot guarantee
that they will  always be able to maintain a stable net asset value of $1.00 per
share.



CONVERTIBLE SECURITIES

Convertible securities are bonds, debentures,  notes, preferred stocks, or other
securities  that may be converted  into or exchanged  for a specified  amount of
common stock of the same or a different  issuer  within a  particular  period of
time at a specified price or formula. A convertible security entitles the holder
to receive  interest  normally  paid or accrued on debt or the dividend  paid on
preferred  stock  until  the  convertible   security  matures  or  is  redeemed,
converted,   or  exchanged.   Convertible   securities  have  unique  investment
characteristics  in that they  generally  (1) have  higher  yields  than  common
stocks,  but lower yields than comparable  non-convertible  securities,  (2) are
less subject to fluctuation  in value than the underlying  stock since they have
fixed  income  characteristics,  and  (3)  provide  the  potential  for  capital
appreciation if the market price of the underlying common stock increases.  Most
convertible  securities  currently  are  issued by U.S.  companies,  although  a
substantial  Eurodollar  convertible  securities  market has developed,  and the
markets  for  convertible   securities   denominated  in  local  currencies  are
increasing.

The value of a  convertible  security  is a function of its  "investment  value"
(determined  by its yield in comparison  with the yields of other  securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying  common  stock).  The investment  value of a convertible  security is
influenced by changes in interest  rates,  with  investment  value  declining as
interest rates  increase and  increasing as interest  rates decline.  The credit
standing  of the  issuer  and  other  factors  also  may have an  effect  on the
convertible  security's  investment value. The conversion value of a convertible
security is determined by the market price of the  underlying  common stock.  If
the conversion  value is low relative to the investment  value, the price of the
convertible security is governed principally by its investment value. Generally,
the conversion value decreases as the convertible  security approaches maturity.
To the extent the market  price of the  underlying  common stock  approaches  or
exceeds the  conversion  price,  the price of the  convertible  security will be
increasingly   influenced  by  its  conversion  value.  A  convertible  security
generally  will sell at a premium  over its  conversion  value by the  extent to
which investors place value on the right to acquire the underlying  common stock
while holding a fixed income security.

A convertible  security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument.  If a
convertible  security  is called for  redemption,  the Fund will be  required to
permit the issuer to redeem the security,  convert it into the underlying common
stock, or sell it to a third party.


<PAGE>




DERIVATIVE INSTRUMENTS

IN  GENERAL.  The Fund may use  derivative  instruments  for any lawful  purpose
consistent  with its  investment  objective  such as hedging or  managing  risk.
Derivative  instruments are commonly defined to include  securities or contracts
whose values depend on (or "derive" from) the value of one or more other assets,
such as  securities,  currencies,  or  commodities.  These  "other  assets"  are
commonly referred to as "underlying assets."

A  derivative  instrument  generally  consists  of, is based  upon,  or exhibits
characteristics  similar to OPTIONS or FORWARD  CONTRACTS.  Options  and forward
contracts are considered to be the basic "building  blocks" of derivatives.  For
example, forward-based derivatives include forward contracts, swap contracts, as
well as  exchange-traded  futures.  Option-based  derivatives  include privately
negotiated,  over-the-counter  ("OTC") options (including caps, floors, collars,
and  options on  forward  and swap  contracts)  and  exchange-traded  options on
futures.  Diverse types of  derivatives  may be created by combining  options or
forward  contracts in different ways, and by applying these structures to a wide
range of underlying assets.

An option is a contract in which the "holder" (the buyer) pays a certain  amount
("premium")  to the  "writer"  (the  seller) to obtain  the  right,  but not the
obligation,  to buy from the  writer  (in a "call")  or sell to the writer (in a
"put") a specific asset at an agreed upon price at or before a certain time. The
holder pays the premium at inception  and has no further  financial  obligation.
The holder of an option-based  derivative  generally will benefit from favorable
movements  in  the  price  of  the  underlying  asset  but  is  not  exposed  to
corresponding  losses due to adverse  movements  in the value of the  underlying
asset. The writer of an option-based  derivative  generally will receive fees or
premiums  but  generally is exposed to losses due to changes in the value of the
underlying asset.

A forward is a sales contract  between a buyer (holding the "long" position) and
a seller  (holding the "short"  position)  for an asset with  delivery  deferred
until a future date.  The buyer agrees to pay a fixed price at the agreed future
date and the seller  agrees to  deliver  the  asset.  The seller  hopes that the
market price on the delivery date is less than the agreed upon price,  while the
buyer hopes for the contrary. The change in value of a forward-based  derivative
generally  is  roughly  proportional  to the  change in value of the  underlying
asset.

HEDGING.  The Fund may use derivative  instruments to protect  against  possible
adverse changes in the market value of securities held in, or are anticipated to
be held in, its portfolio.  Derivatives  may also be used to "lock-in"  realized
but  unrecognized  gains  in the  value  of its  portfolio  securities.  Hedging
strategies,  if  successful,  can reduce the risk of loss by wholly or partially
offsetting the negative effect of unfavorable price movements in the investments
being hedged.  However,  hedging  strategies can also reduce the opportunity for
gain by  offsetting  the  positive  effect of favorable  price  movements in the
hedged  investments.  To the extent that a hedge  matures  prior to or after the
disposition  of the  investment  subject to the  hedge,  any gain or loss on the
hedge will be realized  earlier or later than any offsetting gain or loss on the
hedged investment.

MANAGING RISK. The Fund may also use derivative  instruments to manage the risks
of its portfolio.  Risk management  strategies include,  but are not limited to,
facilitating the sale of portfolio  securities,  managing the effective maturity
or duration of debt obligations in its portfolio, establishing a position in the
derivatives markets as a substitute for buying or selling certain securities, or
creating or altering exposure to certain asset classes, such as equity, debt, or
foreign  securities.  The  use of  derivative  instruments  may  provide  a less
expensive,  more  expedient  or more  specifically  focused  way to invest  than
"traditional" securities (I.E., stocks or bonds) would.

EXCHANGE AND OTC DERIVATIVES.  Derivative  instruments may be exchange-traded or
traded in OTC transactions between private parties.  Exchange-traded derivatives
are standardized options and futures contracts traded in an auction on the floor
of a regulated  exchange.  Exchange  contracts  are generally  very liquid.  The
exchange clearinghouse is the counterparty of every contract.  Thus, each holder
of an exchange contract bears the credit risk of the clearinghouse  (and has the
benefit  of  its   financial   strength)   rather  than  that  of  a  particular
counterparty.  OTC  transactions  are subject to additional  risks,  such as the
credit  risk of the  counterparty  to the  instrument,  and are less liquid than
exchange-traded  derivatives  since  they  often can only be closed out with the
other party to the transaction.


<PAGE>



RISKS AND SPECIAL  CONSIDERATIONS.  The use of derivative  instruments  involves
risks and  special  considerations  as  described  below.  Risks  pertaining  to
particular derivative instruments are described in the sections that follow.

(1) MARKET RISK.  The primary risk of derivatives is the same as the risk of the
underlying  assets,  namely that the value of the underlying  asset may go up or
down.  Adverse movements in the value of an underlying asset can expose the Fund
to  losses.  Derivative  instruments  may  include  elements  of  leverage  and,
accordingly,  the  fluctuation  of the  value of the  derivative  instrument  in
relation  to the  underlying  asset  may be  magnified.  The  successful  use of
derivative  instruments  depends  upon a variety of  factors,  particularly  the
ability of the Advisor to predict movements of the securities,  currencies,  and
commodity  markets,  which requires  different skills than predicting changes in
the  prices  of  individual  securities.  There  can be no  assurance  that  any
particular strategy adopted will succeed.  The Advisor's decision to engage in a
derivative instrument will reflect its judgment that the derivative  transaction
will provide value to the Fund and its  shareholders  and is consistent with the
Fund's objectives,  investment  limitations,  and operating policies.  In making
such a  judgment,  the  Advisor  will  analyze  the  benefits  and  risks of the
derivative  transaction  and weigh  them in the  context  of the  Fund's  entire
portfolio and investment objective.

(2)  CREDIT  RISK.  The Fund  will be  subject  to the  risk  that a loss may be
sustained as a result of the failure of a counterparty  to comply with the terms
of a derivative instrument. The counterparty risk for exchange-traded derivative
instruments  is generally  less than for privately  negotiated or OTC derivative
instruments,  since  generally  a  clearing  agency,  which  is  the  issuer  or
counterparty  to  each  exchange-traded  instrument,  provides  a  guarantee  of
performance. For privately negotiated instruments,  there is no similar clearing
agency  guarantee.  In all  transactions,  the Fund  will bear the risk that the
counterparty  will  default,  and this  could  result in a loss of the  expected
benefit of the derivative  transaction and possibly other losses.  The Fund will
enter into transactions in derivative  instruments only with counterparties that
the Advisor reasonably believes are capable of performing under the contract.

(3) CORRELATION RISK. When a derivative  transaction is used to completely hedge
another  position,  changes in the market  value of the combined  position  (the
derivative  instrument  plus the position being hedged) result from an imperfect
correlation  between the price movements of the two instruments.  With a perfect
hedge, the value of the combined  position  remains  unchanged for any change in
the price of the underlying  asset.  With an imperfect  hedge, the values of the
derivative  instrument and its hedge are not perfectly  correlated.  Correlation
risk  is the  risk  that  there  might  be  imperfect  correlation,  or  even no
correlation,  between price  movements of an instrument  and price  movements of
investments being hedged. For example, if the value of a derivative  instruments
used in a short hedge (such as writing a call  option,  buying a put option,  or
selling a futures  contract)  increased by less than the decline in value of the
hedged investments,  the hedge would not be perfectly correlated. Such a lack of
correlation might occur due to factors unrelated to the value of the investments
being hedged,  such as  speculative  or other  pressures on the markets in which
these  instruments are traded.  The effectiveness of hedges using instruments on
indices  will  depend,  in part,  on the  degree of  correlation  between  price
movements in the index and price movements in the investments being hedged.


(4) LIQUIDITY RISK.  Derivatives  are also subject to liquidity risk.  Liquidity
risk is the risk that a  derivative  instrument  cannot be sold,  closed out, or
replaced quickly at or very close to its fundamental value. Generally,  exchange
contracts are very liquid because the exchange clearinghouse is the counterparty
of every  contract.  OTC  transactions  are  less  liquid  than  exchange-traded
derivatives  since they often can only be closed out with the other party to the
transaction.  The Fund might be required by applicable regulatory requirement to
maintain assets as "cover," maintain  segregated  accounts,  designate assets on
its books and records,  and/or make margin  payments when it takes  positions in
derivative instruments involving obligations to third parties (I.E., instruments
other than purchased options). If the Fund was unable to close out its positions
in such instruments, it might be required to continue to maintain such assets or
accounts or make such  payments  until the  position  expired,  matured,  or was
closed out. The requirements might impair the Fund's ability to sell a portfolio
security or make an investment at a time when it would otherwise be favorable to
do so, or require that the Fund sell a portfolio  security at a  disadvantageous
time. The Fund's ability to sell or close out a position in an instrument  prior
to expiration or maturity  depends on the existence of a liquid secondary market
or,  in the  absence  of such a  market,  the  ability  and  willingness  of the
counterparty  to enter into a transaction  closing out the position.  Therefore,
there is no assurance that any derivatives position can be sold or closed out at
a time and price that is favorable to the Fund.


(5)  LEGAL  RISK.   Legal  risk  is  the  risk  of  loss  caused  by  the  legal
unenforcibility  of a party's  obligations  under the derivative.  While a party
seeking price certainty agrees to surrender the potential upside in exchange for
downside protection, the party taking the risk is looking for a positive payoff.
Despite this voluntary assumption of risk, a counterparty that has lost money in
a derivative  transaction  may try to avoid payment by exploiting  various legal
uncertainties about certain derivative products.

(6) SYSTEMIC OR "INTERCONNECTION" RISK.  Interconnection risk is the risk that a
disruption  in the  financial  markets  will cause  difficulties  for all market
participants.  In other words,  a disruption  in one market will spill over into
other markets,  perhaps  creating a chain reaction.  Much of the OTC derivatives
market  takes  place  among the OTC dealers  themselves,  thus  creating a large
interconnected web of financial obligations.  This interconnectedness raises the
possibility  that a default by one large  dealer  could  create  losses at other
dealers and destabilize the entire market for OTC derivative instruments.

GENERAL LIMITATIONS.  The use of derivative instruments is subject to applicable
regulations  of the SEC, the several  options and futures  exchanges  upon which
they may be traded,  the Commodity  Futures  Trading  Commission  ("CFTC"),  and
various state  regulatory  authorities.  In addition,  the Fund's ability to use
derivative instruments may be limited by certain tax considerations.


The Fund has filed a notice of eligibility  for exclusion from the definition of
the term  "commodity  pool  operator"  with the  CFTC and the  National  Futures
Association,  which regulate trading in the futures markets.  In accordance with
Rule 4.5 of the regulations under the Commodity Exchange Act ("CEA"), the notice
of  eligibility  for the Fund  includes  representations  that the Fund will use
futures  contracts  and related  options  solely for bona fide hedging  purposes
within the meaning of CFTC  regulations,  provided  that the Fund may hold other
positions in futures contracts and related options that do not qualify as a bona
fide hedging  position if the  aggregate  initial  margin  deposits and premiums
required to establish these positions, less the amount by which any such futures
contracts and related options  positions are "in the money," do not exceed 5% of
the Fund's net assets.  Adherence to these  guidelines does not limit the Fund's
risk to 5% of the Fund's assets.

The  SEC  has  identified   certain  trading  practices   involving   derivative
instruments  that involve the  potential for  leveraging  the Fund's assets in a
manner that raises  issues  under the 1940 Act. In order to limit the  potential
for the leveraging of the Fund's assets,  as defined under the 1940 Act, the SEC
has stated that the Fund may use coverage or  designation  of the Fund's assets.
To the extent required by SEC guidelines,  the Fund will not enter into any such
transactions  unless it owns either: (1) an offsetting  ("covered")  position in
securities,  options, futures, or derivative instruments;  or (2) cash or liquid
securities positions with a value sufficient at all times to cover its potential
obligations to the extent that the position is not "covered". The Fund will also
designate  on its  record  liquid  assets if  required  to do so by SEC and CFTC
regulations.  Assets  designated on the Fund's  records cannot be sold while the
derivative  position is open, unless they are replaced with similar assets. As a
result,  the  designation  of a large  portion of the Fund's assets could impede
portfolio  management or the Fund's ability to meet redemption requests or other
current obligations.

In some cases,  the Fund may be  required  to  maintain  or limit  exposure to a
specified  percentage of its assets to a particular  asset class. In such cases,
when the Fund uses a derivative  instrument to increase or decrease  exposure to
an asset class and is required by applicable SEC guidelines to designate  liquid
assets on its books and records to secure its  obligations  under the derivative
instruments,  the Advisor may, where  reasonable in light of the  circumstances,
measure compliance with the applicable  percentage by reference to the nature of
the economic  exposure created through the use of the derivative  instrument and
not by reference to the nature of the  exposure  arising from the liquid  assets
designated on the Fund's books and records  (unless  another  interpretation  is
specified by applicable regulatory requirements).


OPTIONS.  The Fund may use options for any lawful  purpose  consistent  with its
investment  objective  such as hedging or managing risk. An option is a contract
in which the  "holder"  (the buyer)  pays a certain  amount  ("premium")  to the
"writer" (the seller) to obtain the right,  but not the obligation,  to buy from
the writer (in a "call") or sell to the writer (in a "put") a specific  asset at
an agreed upon price ("strike price" or "exercise price") at or before a certain
time  ("expiration  date").  The holder pays the premium at inception and has no
further  financial  obligation.  The  holder  of an  option  will  benefit  from
favorable  movements in the price of the underlying  asset but is not exposed to
corresponding  losses due to adverse  movements  in the value of the  underlying
asset.  The writer of an option will  receive fees or premiums but is exposed to
losses due to changes in the value of the underlying  asset. The Fund may buy or
write (sell) put and call  options on assets,  such as  securities,  currencies,
financial  commodities,  and indices of debt and equity securities  ("underlying
assets")  and enter into  closing  transactions  with respect to such options to
terminate an existing  position.  Options used by the Fund may include European,
American,  and  Bermuda  style  options.  If an  option is  exercisable  only at
maturity,  it is a  "European"  option;  if  it is  also  exercisable  prior  to
maturity,  it is an  "American"  option.  If it is  exercisable  only at certain
times, it is a "Bermuda" option.

The Fund may purchase  (buy) and write  (sell) put and call  options  underlying
assets and enter  into  closing  transactions  with  respect to such  options to
terminate an existing  position.  The purchase of a call option serves as a long
hedge, and the purchase of a put option serves as a short hedge.  Writing put or
call  options  can enable the Fund to enhance  income by reason of the  premiums
paid by the purchaser of such options.  Writing call options serves as a limited
short  hedge  because  declines in the value of the hedged  investment  would be
offset to the extent of the premium received for writing the option. However, if
the security  appreciates  to a price higher than the exercise price of the call
option,  it can be expected  that the option will be exercised and the Fund will
be  obligated  to sell the  security  at less than its  market  value or will be
obligated  to purchase  the  security at a price  greater than that at which the
security  must be sold under the option.  All or a portion of any assets used as
cover for OTC options  written by the Fund would be  considered  illiquid to the
extent  described  under   "Investment   Policies  and  Techniques  --  Illiquid
Securities."  Writing  put  options  serves  as a  limited  long  hedge  because
decreases in the value of the hedged investment would be offset to the extent of
the  premium  received  for  writing  the  option.   However,  if  the  security
depreciates to a price lower than the exercise  price of the put option,  it can
be expected that the put option will be exercised and the Fund will be obligated
to purchase the security at more than its market value.

The value of an option position will reflect, among other things, the historical
price volatility of the underlying  investment,  the current market value of the
underlying investment,  the time remaining until expiration, the relationship of
the exercise price to the market price of the underlying investment, and general
market conditions.

The Fund may  effectively  terminate its right or obligation  under an option by
entering  into a closing  transaction.  For example,  the Fund may terminate its
obligation  under a call or put  option  that it had  written by  purchasing  an
identical call or put option;  this is known as a closing purchase  transaction.
Conversely,  the Fund may  terminate  a position  in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction.  Closing transactions permit the Fund to realize the profit or
limit the loss on an option position prior to its exercise or expiration.

The  Fund  may  purchase  or  write  both   exchange-traded   and  OTC  options.
Exchange-traded  options are issued by a clearing  organization  affiliated with
the  exchange  on which  the  option  is  listed  that,  in  effect,  guarantees
completion of every exchange-traded option transaction. In contrast, OTC options
are  contracts  between  the  Fund  and  the  other  party  to  the  transaction
("counterparty")  (usually  a  securities  dealer  or a bank)  with no  clearing
organization  guarantee.  Thus, when the Fund purchases or writes an OTC option,
it  relies  on the  counterparty  to  make or take  delivery  of the  underlying
investment  upon exercise of the option.  Failure by the  counterparty  to do so
would  result in the loss of any premium paid by the Fund as well as the loss of
any expected benefit of the transaction.

The Fund's  ability to  establish  and close out  positions  in  exchange-listed
options  depends  on the  existence  of a liquid  market.  The Fund  intends  to
purchase or write only those exchange-traded  options for which there appears to
be a liquid  secondary  market.  However,  there can be no assurance that such a
market will exist at any particular time.  Closing  transactions can be made for
OTC  options  only  by  negotiating  directly  with  the  counterparty,  or by a
transaction in the secondary market if any such market exists. Although the Fund
will enter into OTC options  only with  counter  parties that are expected to be
capable  of  entering  into  closing  transactions  with the  Fund,  there is no
assurance  that the Fund  will in fact be able to close  out an OTC  option at a
favorable  price  prior  to  expiration.  In  the  event  of  insolvency  of the
counterparty,  the Fund might be unable to close out an OTC option  position  at
any time prior to its  expiration.  If the Fund were  unable to effect a closing
transaction for an option it had purchased, it would have to exercise the option
to realize any profit.

The Fund may engage in options  transactions  on indices in much the same manner
as the options on securities discussed above, except the index options may serve
as a hedge against overall  fluctuations in the securities market represented by
the relevant market index.

The writing and  purchasing  of options is a highly  specialized  activity  that
involves  investment  techniques and risks different from those  associated with
ordinary portfolio securities  transactions.  Imperfect  correlation between the
options  and  securities  markets  may  detract  from the  effectiveness  of the
attempted hedging.

SPREAD TRANSACTIONS. The Fund may use spread transactions for any lawful purpose
consistent  with its investment  objective such as hedging or managing risk. The
Fund may purchase covered spread options from securities  dealers.  Such covered
spread  options  are  not  presently  exchange-listed  or  exchange-traded.  The
purchase of a spread option gives the Fund the right to put, or sell, a security
that it owns at a fixed  dollar  spread or fixed  yield  spread in  relation  to
another  security  that the Fund does not own, but which is used as a benchmark.
The risk to the Fund in  purchasing  covered  spread  options is the cost of the
premium paid for the spread option and any transaction costs. In addition, there
is no assurance  that closing  transactions  will be available.  The purchase of
spread  options  will be used to protect  the Fund  against  adverse  changes in
prevailing  credit quality spreads,  I.E., the yield spread between high quality
and lower quality  securities.  Such protection is only provided during the life
of the spread option.

FUTURES  CONTRACTS.  The Fund may use futures  contracts for any lawful  purpose
consistent  with its investment  objective such as hedging or managing risk. The
Fund may enter into futures contracts,  including,  but not limited to, interest
rate and index  futures.  The Fund may also purchase put and call  options,  and
write covered put and call options, on futures in which it is allowed to invest.
The purchase of futures or call options  thereon can serve as a long hedge,  and
the sale of futures or the purchase of put options  thereon can serve as a short
hedge.  Writing covered call options on futures contracts can serve as a limited
short hedge, and writing covered put options on futures contracts can serve as a
limited long hedge,  using a strategy  similar to that used for writing  covered
options in securities.  The Fund may also write put options on futures contracts
while at the same time purchasing call options on the same futures  contracts in
order to create  synthetically a long futures  contract  position.  Such options
would have the same strike prices and expiration  dates. The Fund will engage in
this strategy only when the Advisor believes it is more advantageous to the Fund
than purchasing the futures contract.

To the extent  required  by  regulatory  authorities,  the Fund only enters into
futures  contracts  that  are  traded  on  national  futures  exchanges  and are
standardized as to maturity date and underlying  financial  instrument.  Futures
exchanges  and  trading  are  regulated  under  the  CEA by the  CFTC.  Although
techniques other than sales and purchases of futures  contracts could be used to
reduce the Fund's exposure to market or interest rate fluctuations, the Fund may
be able to hedge its  exposure  more  effectively  and  perhaps  at a lower cost
through the use of futures contracts.

An interest rate futures contract  provides for the future sale by one party and
purchase  by  another  party  of a  specified  amount  of a  specific  financial
instrument  (E.G.,  debt security) for a specified  price at a designated  date,
time, and place. An index futures contract is an agreement pursuant to which the
parties  agree  to take or make  delivery  of an  amount  of cash  equal  to the
difference  between the value of the index at the close of the last  trading day
of the contract and the price at which the index futures contract was originally
written.  Transaction  costs are incurred  when a futures  contract is bought or
sold and margin deposits must be maintained. A futures contract may be satisfied
by delivery or purchase,  as the case may be, of the instrument or by payment of
the change in the cash value of the index. More commonly,  futures contracts are
closed out prior to delivery by entering  into an  offsetting  transaction  in a
matching futures contract. Although the value of an index might be a function of
the  value of  certain  specified  securities,  no  physical  delivery  of those
securities is made. If the  offsetting  purchase price is less than the original
sale price,  the Fund realizes a gain; if it is more,  the Fund realizes a loss.
Conversely,  if the  offsetting  sale price is more than the  original  purchase
price,  the Fund realizes a gain; if it is less,  the Fund realizes a loss.  The
transaction costs must also be included in these  calculations.  There can be no
assurance,  however,  that the Fund  will be able to  enter  into an  offsetting
transaction with respect to a particular  futures contract at a particular time.
If the Fund is not able to enter into an offsetting  transaction,  the Fund will
continue to be required to maintain the margin deposits on the futures contract.

No price is paid by the Fund upon entering into a futures contract.  Instead, at
the  inception  of a futures  contract,  the Fund is  required  to  deposit in a
segregated account with its custodian, in the name of the futures broker through
whom the transaction was effected,  "initial  margin"  consisting of cash and/or
other  appropriate  liquid assets in an amount generally equal to 10% or less of
the contract  value.  Margin must also be  deposited  when writing a call or put
option on a futures  contract,  in accordance  with  applicable  exchange rules.
Unlike margin in securities  transactions,  initial margin on futures  contracts
does not  represent a  borrowing,  but rather is in the nature of a  performance
bond or good-faith  deposit that is returned to the Fund at the  termination  of
the  transaction  if all  contractual  obligations  have been  satisfied.  Under
certain  circumstances,  such as  periods  of high  volatility,  the Fund may be
required by an exchange to increase the level of its initial margin payment, and
initial  margin  requirements  might be  increased  generally  in the  future by
regulatory action.

Subsequent  "variation  margin" payments are made to and from the futures broker
daily as the value of the futures  position  varies, a process known as "marking
to market." Variation margin does not involve borrowing, but rather represents a
daily settlement of the Fund's obligations to or from a futures broker. When the
Fund purchases an option on a future, the premium paid plus transaction costs is
all that is at risk.  In  contrast,  when the Fund  purchases or sells a futures
contract  or  writes  a call or put  option  thereon,  it is  subject  to  daily
variation  margin calls that could be  substantial in the event of adverse price
movements.  If the Fund has  insufficient  cash to meet daily  variation  margin
requirements,  it might  need to sell  securities  at a time when such sales are
disadvantageous.  Purchasers  and  sellers of futures  positions  and options on
futures can enter into offsetting closing transactions by selling or purchasing,
respectively,  an  instrument  identical  to the  instrument  held  or  written.
Positions in futures and options on futures may be closed only on an exchange or
board of trade that provides a secondary market.  The Fund intends to enter into
futures transactions only on exchanges or boards of trade where there appears to
be a liquid  secondary  market.  However,  there can be no assurance that such a
market will exist for a particular contract at a particular time.

Under certain circumstances, futures exchanges may establish daily limits on the
amount that the price of a future or option on a futures  contract can vary from
the previous day's settlement price;  once that limit is reached,  no trades may
be made that day at a price  beyond the limit.  Daily price  limits do not limit
potential  losses  because  prices  could  move to the daily  limit for  several
consecutive days with little or no trading,  thereby  preventing  liquidation of
unfavorable positions.


If the Fund were unable to  liquidate a futures or option on a futures  contract
position due to the absence of a liquid  secondary  market or the  imposition of
price limits, it could incur substantial  losses.  The Fund would continue to be
subject to market risk with respect to the position. In addition,  except in the
case of purchased options,  the Fund would continue to be required to make daily
variation  margin  payments and might be required to maintain the position being
hedged by the future or option or to  designate  liquid  assets on its books and
records.


Certain  characteristics  of the futures  market  might  increase  the risk that
movements  in the prices of futures  contracts  or options on futures  contracts
might not correlate  perfectly with  movements in the prices of the  investments
being  hedged.  For  example,  all  participants  in the  futures and options on
futures  contracts markets are subject to daily variation margin calls and might
be  compelled  to liquidate  futures or options on futures  contracts  positions
whose prices are moving  unfavorably  to avoid being  subject to further  calls.
These  liquidations  could  increase  price  volatility of the  instruments  and
distort  the normal  price  relationship  between the futures or options and the
investments being hedged.  Also, because initial margin deposit  requirements in
the futures markets are less onerous than margin  requirements in the securities
markets,  there might be increased  participation  by  speculators in the future
markets.  This participation  also might cause temporary price  distortions.  In
addition, activities of large traders in both the futures and securities markets
involving  arbitrage,  "program  trading" and other investment  strategies might
result in temporary price distortions.

SWAP  AGREEMENTS.  The Fund may enter  into  interest  rate,  securities  index,
commodity, or security and currency exchange rate swap agreements for any lawful
purpose consistent with the Fund's investment objective, such as for the purpose
of attempting to obtain or preserve a particular  desired  return or spread at a
lower cost to the Fund than if the Fund had invested  directly in an  instrument
that yielded that desired  return or spread.  The Fund also may enter into swaps
in order to  protect  against  an  increase  in the price  of,  or the  currency
exchange rate applicable to, securities that the Fund anticipates  purchasing at
a later date. Swap agreements are two-party  contracts entered into primarily by
institutional  investors for periods  ranging from a few weeks to several years.
In a standard "swap" transaction,  two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments  or  instruments.  The gross  returns to be  exchanged  or "swapped"
between the parties are  calculated  with respect to a "notional  amount" (I.E.,
the return on or increase in value of a particular  dollar amount  invested at a
particular interest rate) in a particular foreign currency,  or in a "basket" of
securities representing a particular index. Swap agreements may include interest
rate  caps,  under  which,  in return for a  premium,  one party  agrees to make
payments to the other to the extent that interest rates exceed a specified rate,
or "cap;" interest rate floors,  under which, in return for a premium, one party
agrees to make  payments  to the other to the extent  that  interest  rates fall
below a specified  level,  or "floor;" and interest rate collars,  under which a
party sells a cap and purchases a floor, or vice versa, in an attempt to protect
itself  against  interest  rate  movements  exceeding  given  minimum or maximum
levels.


The  "notional  amount"  of the swap  agreement  is the  agreed  upon  basis for
calculating the obligations  that the parties to a swap agreement have agreed to
exchange.  Under most swap agreements  entered into by the Fund, the obligations
of the parties  would be exchanged on a "net  basis."  Consequently,  the Fund's
obligation  (or rights) under a swap  agreement  will generally be equal only to
the net amount to be paid or received under the agreement  based on the relative
values of the positions held by each party to the agreement ("net amount").  The
Fund's  obligation  under a swap agreement will be accrued daily (offset against
amounts  owed to the Fund) and any accrued but unpaid net amounts owed to a swap
counterparty  will be covered by  designating  liquid assets on the Fund's books
and records.


Whether the Fund's use of swap  agreements  will be successful in furthering its
investment  objective will depend,  in part, on the Advisor's ability to predict
correctly  whether  certain types of investments  are likely to produce  greater
returns  than  other  investments.  Swap  agreements  may  be  considered  to be
illiquid. Moreover, the Fund bears the risk of loss of the amount expected to be
received  under a swap  agreement in the event of the default or bankruptcy of a
swap agreement  counterparty.  Certain  restrictions  imposed on the Fund by the
Internal  Revenue Code of 1986 ("IRC") may limit the Fund's  ability to use swap
agreements. The swaps market is largely unregulated.

The Fund will enter swap  agreements only with  counterparties  that the Advisor
reasonably  believes are capable of  performing  under the swap  agreements.  If
there is a default by the other party to such a transaction,  the Fund will have
to rely  on its  contractual  remedies  (which  may be  limited  by  bankruptcy,
insolvency  or  similar  laws)  pursuant  to  the  agreements   related  to  the
transaction.

ADDITIONAL DERIVATIVE INSTRUMENTS AND STRATEGIES.  In addition to the derivative
instruments and strategies  described  above and in the Prospectus,  the Advisor
expects to discover additional derivative  instruments and other hedging or risk
management techniques.  The Advisor may utilize these new derivative instruments
and techniques to the extent that they are consistent with the Fund's investment
objective  and  permitted  by  the  Fund's  investment  limitations,   operating
policies, and applicable regulatory authorities.


HIGH-YIELD (HIGH-RISK) SECURITIES


IN GENERAL.  Non-investment grade debt obligations ("lower-quality  securities")
include (1) bonds rated as low as C by Moody's Investors ("Moody's"), Standard &
Poor's  Ratings  Group  ("S&P"),  and  comparable  ratings  of other  nationally
recognized  statistical rating  organizations  ("NRSROs");  (2) commercial paper
rated as low as C by S&P, Not Prime by Moody's,  and comparable ratings of other
NRSROs;  and (3) unrated debt obligations of comparable  quality.  Lower-quality
securities,  while  generally  offering  higher  yields  than  investment  grade
securities  with  similar  maturities,  involve  greater  risks,  including  the
possibility  of  default  or  bankruptcy.  They are  regarded  as  predominantly
speculative  and present a significant  risk for loss of principal and interest.
The  special  risk  considerations  in  connection  with  investments  in  these
securities are discussed  below.  Refer to the Appendix for a description of the
securities ratings.


EFFECT OF INTEREST RATES AND ECONOMIC CHANGES.  The lower-quality and comparable
unrated  security  market is relatively new and its growth has paralleled a long
economic expansion. As a result, it is not clear how this market may withstand a
prolonged recession or economic downturn. Such conditions could severely disrupt
the market for and adversely affect the value of such securities.

All interest-bearing  securities typically experience appreciation when interest
rates decline and  depreciation  when interest  rates rise. The market values of
lower-quality  and  comparable  unrated  securities  tend to reflect  individual
corporate  developments  to a greater  extent than do higher  rated  securities,
which react  primarily to  fluctuations  in the general level of interest rates.
Lower-quality and comparable  unrated  securities also tend to be more sensitive
to economic  conditions  than are  higher-rated  securities.  As a result,  they
generally  involve  more  credit  risks  than  securities  in  the  higher-rated
categories. During an economic downturn or a sustained period of rising interest
rates,   highly  leveraged  issuers  of  lower-quality  and  comparable  unrated
securities may experience  financial stress and may not have sufficient revenues
to meet their  payment  obligations.  The  issuer's  ability to service its debt
obligations may also be adversely affected by specific  corporate  developments,
the issuer's  inability to meet  specific  projected  business  forecasts or the
unavailability  of additional  financing.  The risk of loss due to default by an
issuer of these securities is significantly greater than issuers of higher-rated
securities  because  such  securities  are  generally  unsecured  and are  often
subordinated to other  creditors.  Further,  if the issuer of a lower-quality or
comparable unrated security defaulted,  the Fund might incur additional expenses
to seek  recovery.  Periods  of  economic  uncertainty  and  changes  would also
generally  result  in  increased  volatility  in  the  market  prices  of  these
securities and thus in the Fund's net asset value.

As  previously  stated,  the  value of a  lower-quality  or  comparable  unrated
security will decrease in a rising interest rate market and accordingly, so will
the Fund's net asset value. If the Fund  experiences  unexpected net redemptions
in such a market,  it may be  forced to  liquidate  a portion  of its  portfolio
securities  without  regard  to  their  investment  merits.  Due to the  limited
liquidity of lower-quality and comparable unrated securities  (discussed below),
the Fund may be forced to liquidate these securities at a substantial  discount.
Any such liquidation would force the Fund to sell the more liquid portion of its
portfolio.


PAYMENT EXPECTATIONS.  Lower-quality and comparable unrated securities typically
contain  redemption,  call, or prepayment  provisions  that permit the issuer of
such securities  containing  such  provisions to, at its discretion,  redeem the
securities.   During  periods  of  falling  interest  rates,  issuers  of  these
securities are likely to redeem or prepay the securities and refinance them with
debt  securities  with a lower interest rate. To the extent an issuer is able to
refinance the securities, or otherwise redeem them, the Fund may have to replace
the  securities  with a lower yielding  security,  which would result in a lower
return for the Fund.

CREDIT RATINGS.  Credit ratings issued by credit rating agencies are designed to
evaluate the safety of principal and interest payments of rated securities. They
do not, however, evaluate the market value risk of lower-quality securities and,
therefore,  may not fully reflect the true risks of an investment.  In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the  condition of the issuer that affect the market
value  of  the  security.  Consequently,  credit  ratings  are  used  only  as a
preliminary  indicator of investment  quality.  Investments in lower-quality and
comparable  unrated  obligations  will be more dependent on the Advisor's credit
analysis  than  would be the case  with  investments  in  investment-grade  debt
obligations.  The Advisor  employs its own credit  research and analysis,  which
includes a study of existing debt,  capital  structure,  ability to service debt
and to pay  dividends,  the issuer's  sensitivity  to economic  conditions,  its
operating history,  and the current trend of earnings.  The Advisor  continually
monitors the investments in the Fund's portfolio and carefully evaluates whether
to dispose of or to retain lower-quality and comparable unrated securities whose
credit ratings or credit quality may have changed.


LIQUIDITY  AND  VALUATION.  The Fund may have  difficulty  disposing  of certain
lower-quality  and  comparable  unrated  securities  because there may be a thin
trading market for such securities.  Because not all dealers maintain markets in
all lower-quality  and comparable  unrated  securities,  there is no established
retail secondary market for many of these securities.  The Fund anticipates that
such  securities  could  be  sold  only  to  a  limited  number  of  dealers  or
institutional investors. To the extent a secondary trading market does exist, it
is generally not as liquid as the secondary market for higher-rated  securities.
The lack of a liquid  secondary  market may have an adverse impact on the market
price of the  security.  As a result,  the  Fund's  asset  value and  ability to
dispose of particular  securities,  when necessary to meet the Fund's  liquidity
needs or in response to a specific economic event, may be impacted.  The lack of
a liquid secondary market for certain securities may also make it more difficult
for the Fund to obtain  accurate  market  quotations for purposes of valuing the
Fund's   portfolio.   Market   quotations   are  generally   available  on  many
lower-quality  and  comparable  unrated  issues  only from a  limited  number of
dealers and may not  necessarily  represent  firm bids of such dealers or prices
for actual sales.  During  periods of thin trading,  the spread  between bid and
asked prices is likely to increase significantly. In addition, adverse publicity
and investor  perceptions,  whether or not based on  fundamental  analysis,  may
decrease  the values and  liquidity  of  lower-quality  and  comparable  unrated
securities, especially in a thinly traded market.

LEGISLATION.  Legislation may be adopted,  from time to time,  designed to limit
the use of certain  lower-quality and comparable  unrated  securities by certain
issuers.  It is  anticipated  that  if  additional  legislation  is  enacted  or
proposed,  it could have a material affect on the value of these  securities and
the existence of a secondary trading market for the securities.


ILLIQUID SECURITIES

The Fund may  invest  in  illiquid  securities  (I.E.,  securities  that are not
readily marketable).  However, the Fund will not acquire illiquid securities if,
as a result, the illiquid securities would comprise more than 15% (10% for money
market  funds) of the value of the Fund's  net assets (or such other  amounts as
may be permitted under the 1940 Act).  However,  as a matter of internal policy,
the Advisor  intends to limit the Fund's  investments in illiquid  securities to
10% of its net assets.


The Board of Directors of the Fund, or its delegate,  has the ultimate authority
to determine, to the extent permissible under the federal securities laws, which
securities  are  illiquid for purposes of this  limitation.  Certain  securities
exempt from  registration  or issued in  transactions  exempt from  registration
under  the  Securities  Act of 1933,  as  amended  ("Securities  Act"),  such as
securities that may be resold to  institutional  investors under Rule 144A under
the Securities Act and Section 4(2) commercial  paper, may be considered  liquid
under  guidelines  adopted  by the  Fund's  Board  of  Directors.  The  Board of
Directors of the Fund has delegated to the Advisor the day-to-day  determination
of the liquidity of a security,  although it has retained oversight and ultimate
responsibility for such determinations.  The Board of Directors has directed the
Advisor to look to such  factors as (1) the  frequency of trades or quotes for a
security, (2) the number of dealers willing to purchase or sell the security and
number of potential buyers,  (3) the willingness of dealers to undertake to make
a market in the  security,  (4) the  nature of the  security  and  nature of the
marketplace  trades,  such as the time  needed to dispose of the  security,  the
method of soliciting offers,  and the mechanics of transfer,  (5) the likelihood
that the security's  marketability will be maintained throughout the anticipated
holding period,  and (6) any other relevant  factors.  The Advisor may determine
4(2)  commercial  paper to be  liquid  if (1) the 4(2)  commercial  paper is not
traded flat or in default as to principal and interest,  (2) the 4(2) commercial
paper is rated  in one of the two  highest  rating  categories  by at least  two
NRSROs, or if only one NRSRO rates the security, by that NRSRO, or is determined
by the Advisor to be of equivalent  quality,  and (3) the Advisor  considers the
trading  market for the  specific  security  taking into  account  all  relevant
factors.  With  respect  to any  foreign  holdings,  a foreign  security  may be
considered  liquid by the  Advisor  (despite  its  restricted  nature  under the
Securities  Act) if the  security can be freely  traded in a foreign  securities
market and all the facts and circumstances support a finding of liquidity.

Restricted  securities may be sold only in privately negotiated  transactions or
in a public offering with respect to which a registration statement is in effect
under the  Securities  Act.  Where  registration  is  required,  the Fund may be
obligated to pay all or part of the  registration  expenses  and a  considerable
period may elapse between the time of the decision to sell and the time the Fund
may be permitted to sell a security under an effective  registration  statement.
If, during such a period,  adverse market  conditions were to develop,  the Fund
might  obtain a less  favorable  price than  prevailed  when it decided to sell.
Restricted  securities  will be priced in  accordance  with  pricing  procedures
adopted by the Board of Directors of the Fund.  If through the  appreciation  of
restricted  securities or the  depreciation of unrestricted  securities the Fund
should be in a  position  where more than 15% of the value of its net assets are
invested in illiquid securities,  including  restricted  securities that are not
readily  marketable (except for 144A Securities and 4(2) commercial paper deemed
to be  liquid  by the  Advisor),  the Fund  will  take  such  steps as is deemed
advisable, if any, to protect the liquidity of the Fund's portfolio.


The Fund may sell OTC options and, in connection therewith,  segregate assets or
cover its  obligations  with  respect to OTC  options  written by the Fund.  The
assets  used as cover for OTC  options  written  by the Fund will be  considered
illiquid unless the OTC options are sold to qualified dealers who agree that the
Fund may repurchase any OTC option it writes at a maximum price to be calculated
by a formula  set forth in the  option  agreement.  The cover for an OTC  option
written  subject to this  procedure  would be  considered  illiquid  only to the
extent that the maximum repurchase price under the formula exceeds the intrinsic
value of the option.


LENDING OF PORTFOLIO SECURITIES


The Fund is authorized to lend up to 33 1/3% of the total value of its portfolio
securities to broker-dealers  or institutional  investors that the Advisor deems
qualified,  but only when the borrower  maintains with the Fund's custodian bank
collateral  either  in cash or money  market  instruments  in an amount at least
equal to the market value of the securities  loaned,  plus accrued  interest and
dividends,  determined on a daily basis and adjusted  accordingly.  Although the
Fund is  authorized  to lend,  the Fund does not  presently  intend to engage in
lending. In determining whether to lend securities to a particular broker-dealer
or institutional  investor,  the Advisor will consider, and during the period of
the loan will  monitor,  all relevant  facts and  circumstances,  including  the
creditworthiness  of the borrower.  The Fund will retain  authority to terminate
any loans at any time. The Fund may pay reasonable  administrative and custodial
fees in connection with a loan and may pay a negotiated  portion of the interest
earned  on the  cash or  money  market  instruments  held as  collateral  to the
borrower or placing  broker.  The Fund will receive  reasonable  interest on the
loan or a flat fee from the borrower and amounts  equivalent  to any  dividends,
interest,  or other distributions on the securities loaned. The Fund will retain
record ownership of loaned  securities to exercise  beneficial  rights,  such as
voting  and  subscription  rights and rights to  dividends,  interest,  or other
distributions,  when  retaining  such rights is  considered  to be in the Fund's
interest.



MATURITY


The Fund's average portfolio maturity  represents an average based on the actual
stated  maturity dates of the debt  securities in the Fund's  portfolio,  except
that (1) variable-rate securities are deemed to mature at the next interest-rate
adjustment  date, (2) debt  securities with put features are deemed to mature at
the next  put-exercise  date,  (3) the maturity of  mortgage-backed  and certain
other  asset-backed  securities is determined on an "expected life" basis by the
Advisor, and (4) securities being hedged with futures contracts may be deemed to
have a longer  maturity,  in the case of purchases of futures  contracts,  and a
shorter  maturity,  in the case of sales of futures  contracts,  than they would
otherwise  be deemed  to have.  In  addition,  a  security  that is  subject  to
redemption at the option of the issuer on a particular date ("call date"), which
is prior to the security's stated maturity,  may be deemed to mature on the call
date rather than on its stated  maturity  date. The call date of a security will
be used to calculate  average  portfolio  maturity  when the Advisor  reasonably
anticipates,  based upon  information  available  to it,  that the  issuer  will
exercise its right to redeem the security. The average portfolio maturity of the
Fund is dollar-weighted  based upon the market value of the Fund's securities at
the time of the calculation.



<PAGE>




The Fund may  utilize  puts which are  provided  on a "best  efforts" or similar
basis (a "soft put") to shorten  the  maturity  of  securities  when the Advisor
reasonably  believes,  based upon  information  available  to it at the time the
security  is  acquired,  that the  issuer  of the put has or will  have both the
willingness and the resources or  creditworthiness  to repurchase the securities
at the time the Fund exercises the put. Failure of an issuer to honor a soft put
may,  depending on the specific  put,  have a variety of possible  consequences,
including  (a) an  automatic  extension  of the  put to a  later  date,  (b) the
elimination of the put, in which case the effective maturity of the security may
be its final  maturity date, or (c) a default of the security,  typically  after
the  passage  of a cure  period.  Should  either  the  exercise  date of the put
automatically  extend or the put right be  eliminated as a result of the failure
to honor a soft put, the affected  security may include a provision that adjusts
the  interest  rate on the  security  to an  amount  intended  to  result in the
security  being  priced at par.  However,  not all  securities  have rate  reset
provisions or, if they have such  provisions,  the reset rate may be capped at a
rate that would prevent the security from being priced at par.  Furthermore,  it
is  possible  that the  interest  rate may reset to a level that  increases  the
interest expense to the issuer by an amount which negatively  affects the credit
quality of the security.



MORTGAGE- AND ASSET-BACKED DEBT SECURITIES

Mortgage-backed  securities  represent direct or indirect  participations in, or
are secured by and payable from,  mortgage loans secured by real  property,  and
include  single- and  multi-class  pass-through  securities  and  collateralized
mortgage  obligations.  Such  securities  may be  issued or  guaranteed  by U.S.
government  agencies  or  instrumentalities,  such  as the  Government  National
Mortgage  Association  and the  Federal  National  Mortgage  Association,  or by
private  issuers,   generally  originators  and  investors  in  mortgage  loans,
including savings associations,  mortgage bankers,  commercial banks, investment
bankers,  and  special  purpose  entities  (collectively,   "private  lenders").
Mortgage-backed  securities  issued by private lenders may be supported by pools
of  mortgage  loans or other  mortgage-backed  securities  that are  guaranteed,
directly  or  indirectly,  by the  U.S.  government  or one of its  agencies  or
instrumentalities,  or they may be issued without any governmental  guarantee of
the underlying  mortgage  assets but with some form of  non-governmental  credit
enhancement.

Asset-backed    securities   have   structural    characteristics   similar   to
mortgage-backed  securities.  Asset-backed debt obligations  represent direct or
indirect  participation  in, or are secured by and payable from,  assets such as
motor vehicle  installment  sales contracts,  other  installment loan contracts,
home equity loans,  leases of various types of property,  and  receivables  from
credit card or other revolving credit  arrangements.  The credit quality of most
asset-backed  securities  depends  primarily on the credit quality of the assets
underlying  such  securities,  how well  the  entity  issuing  the  security  is
insulated  from  the  credit  risk of the  originator  or any  other  affiliated
entities,  and  the  amount  and  quality  of  any  credit  enhancement  of  the
securities.  Payments or distributions of principal and interest on asset-backed
debt  obligations  may be  supported  by  non-governmental  credit  enhancements
including  letters  of  credit,   reserve  funds,   overcollateralization,   and
guarantees by third parties.  The market for privately issued  asset-backed debt
obligations is smaller and less liquid than the market for government  sponsored
mortgage-backed securities.

The rate of principal payment on mortgage- and asset-backed securities generally
depends on the rate of  principal  payments  received on the  underlying  assets
which in turn may be affected by a variety of economic and other  factors.  As a
result,  the yield on any  mortgage- and  asset-backed  security is difficult to
predict with precision and actual yield to maturity may be more or less than the
anticipated  yield to  maturity.  The yield  characteristics  of  mortgage-  and
asset-backed securities differ from those of traditional debt securities.  Among
the principal differences are that interest and principal payments are made more
frequently on mortgage-and  asset-backed  securities,  usually monthly, and that
principal may be prepaid at any time because the  underlying  mortgage  loans or
other  assets  generally  may be prepaid at any time.  As a result,  if the Fund
purchases these  securities at a premium,  a prepayment rate that is faster than
expected will reduce yield to maturity,  while a prepayment  rate that is slower
than expected will have the opposite effect of increasing the yield to maturity.
Conversely,  if the Fund purchases these securities at a discount,  a prepayment
rate that is faster than  expected  will  increase  yield to  maturity,  while a
prepayment  rate that is slower than  expected  will reduce  yield to  maturity.
Amounts available for reinvestment by the Fund are likely to be greater during a
period of declining interest rates and, as a result, are likely to be reinvested
at lower  interest  rates  than  during  a  period  of  rising  interest  rates.
Accelerated  prepayments  on securities  purchased by the Fund at a premium also
impose a risk of loss of  principal  because the premium may not have been fully
amortized at the time the principal is prepaid in full. The market for privately
issued mortgage- and asset-backed securities is smaller and less liquid than the
market for government-sponsored mortgage-backed securities.


While many mortgage- and asset-backed  securities are issued with only one class
of security, many are issued in more than one class, each with different payment
terms.  Multiple class mortgage- and asset-backed  securities are issued for two
main  reasons.  First,  multiple  classes  may be used as a method of  providing
credit support.  This is accomplished  typically through creation of one or more
classes whose right to payments on the security is made subordinate to the right
to such payments of the remaining class or classes. Second, multiple classes may
permit the issuance of securities  with payment terms,  interest rates, or other
characteristics  differing  both from  those of each other and from those of the
underlying   assets.   Examples  include  so-called   "strips"   (mortgage-  and
asset-backed securities entitling the holder to disproportionate  interests with
respect to the  allocation of interest and  principal of the assets  backing the
security),  and  securities  with class or classes having  characteristics  that
mimic the characteristics of non-mortgage- or asset-backed  securities,  such as
floating  interest  rates  (I.E.,  interest  rates  which  adjust as a specified
benchmark changes) or scheduled amortization of principal.


The Fund may invest in stripped  mortgage-  or  asset-backed  securities,  which
receive  differing  proportions of the interest and principal  payments from the
underlying  assets.  The  market  value  of such  securities  generally  is more
sensitive  to changes in  prepayment  and  interest  rates than is the case with
traditional mortgage- and asset-backed securities, and in some cases such market
value may be extremely  volatile.  With respect to certain stripped  securities,
such as interest only and principal only classes,  a rate of prepayment  that is
faster or slower than  anticipated may result in the Fund failing to recover all
or a portion of its investment,  even though the securities are rated investment
grade.

Mortgage- and asset-backed  securities backed by assets, other than as described
above, or in which the payment streams on the underlying assets are allocated in
a manner  different than those described above may be issued in the future.  The
Fund may invest in such  securities if such  investment is otherwise  consistent
with its investment objectives and policies and with the investment restrictions
of the Fund.


MUNICIPAL OBLIGATIONS

IN GENERAL. Municipal obligations are debt obligations issued by or on behalf of
states,  territories,  and  possessions of the United States and the District of
Columbia and their  political  subdivisions,  agencies,  and  instrumentalities.
Municipal  obligations generally include debt obligations issued to obtain funds
for various public purposes.  Certain types of municipal  obligations are issued
in whole or in part to obtain  funding  for  privately  operated  facilities  or
projects. Municipal obligations include general obligation bonds, revenue bonds,
industrial development bonds, notes, and municipal lease obligations.  Municipal
obligations  also  include  obligations,  the  interest  on which is exempt from
federal income tax, that may become available in the future as long as the Board
of  Directors  of the Fund  determines  that an  investment  in any such type of
obligation is consistent with the Fund's investment objective.

BONDS AND NOTES.  General obligation bonds are secured by the issuer's pledge of
its full  faith,  credit,  and  taxing  power for the  payment of  interest  and
principal.  Revenue  bonds are payable  only from the  revenues  derived  from a
project  or  facility  or from  the  proceeds  of a  specified  revenue  source.
Industrial  development  bonds are  generally  revenue bonds secured by payments
from and the credit of  private  users.  Municipal  notes are issued to meet the
short-term  funding  requirements  of state,  regional,  and local  governments.
Municipal notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes, tax and revenue anticipation notes, construction loan notes,
short-term  discount  notes,  tax-exempt  commercial  paper,  demand notes,  and
similar instruments.


LEASE OBLIGATIONS.  Municipal lease obligations may take the form of a lease, an
installment purchase, or a conditional sales contract.  They are issued by state
and  local  governments  and  authorities  to  acquire  land,   equipment,   and
facilities,  such  as  state  and  municipal  vehicles,  telecommunications  and
computer  equipment,  and other  capital  assets.  The Fund may  purchase  these
obligations  directly,  or it  may  purchase  participation  interests  in  such
obligations.   (See  "Participation  Interests"  below.)  Municipal  leases  are
generally  subject to greater risks than general  obligation  or revenue  bonds.
State   constitutions  and  statutes  set  forth  requirements  that  states  or
municipalities  must  meet in order to issue  municipal  obligations.  Municipal
leases  may  contain a  covenant  by the state or  municipality  to budget  for,
appropriate,  and make  payments  due under the  obligation.  Certain  municipal
leases may, however, contain "non-appropriation" clauses, which provide that the
issuer is not  obligated  to make  payments on the  obligation  in future  years
unless funds have been  appropriated  for this  purpose each year.  Accordingly,
such obligations are subject to "non-appropriation" risk. While municipal leases
are secured by the underlying  capital asset,  it may be difficult to dispose of
any such asset in the event of non-appropriation or other default.


MORTGAGE-BACKED  BONDS.  The Fund's  investments  in municipal  obligations  may
include  mortgage-backed  municipal  obligations,  which are a type of municipal
security issued by a state,  authority, or municipality to provide financing for
residential housing mortgages to target groups, generally low-income individuals
who  are  first-time  home  buyers.  The  Fund's  interest,  evidenced  by  such
obligations,  is an undivided interest in a pool of mortgages.  Payments made on
the  underlying  mortgages and passed  through to the Fund will  represent  both
regularly scheduled  principal and interest payments.  The Fund may also receive
additional  principal  payments  representing   prepayments  of  the  underlying
mortgages.  While a certain level of prepayments can be expected,  regardless of
the  interest  rate  environment,  it is  anticipated  that  prepayment  of  the
underlying  mortgages will accelerate in periods of declining interest rates. In
the  event  that  the  Fund  receives  principal   prepayments  in  a  declining
interest-rate environment, its reinvestment of such funds may be in bonds with a
lower yield.


PARTICIPATION INTERESTS

A  participation  interest  gives the Fund an undivided  interest in a municipal
obligation in the proportion that the Fund's participation interest bears to the
principal amount of the obligation.  These instruments may have fixed, floating,
or  variable  rates of  interest.  The Fund  will  only  purchase  participation
interests if  accompanied  by an opinion of counsel that the interest  earned on
the underlying municipal  obligations will be tax-exempt.  If the Fund purchases
unrated  participation  interests,  the Board of Directors or its delegate  must
have determined  that the credit risk is equivalent to the rated  obligations in
which the Fund may invest.  Participation interests may be backed by a letter of
credit or guaranty of the selling  institution.  When determining whether such a
participation  interest meets the Fund's credit quality  requirements,  the Fund
may look to the credit quality of any financial  guarantor providing a letter of
credit or guaranty.


REPURCHASE AGREEMENTS

The Fund may enter into  repurchase  agreements  with certain  banks or non-bank
dealers. In a repurchase  agreement,  the Fund buys a security at one price, and
at the time of sale,  the  seller  agrees  to  repurchase  the  obligation  at a
mutually agreed upon time and price (usually within seven days).  The repurchase
agreement,  thereby, determines the yield during the purchaser's holding period,
while the  seller's  obligation  to  repurchase  is  secured by the value of the
underlying security. The Advisor will monitor, on an ongoing basis, the value of
the underlying  securities to ensure that the value always equals or exceeds the
repurchase  price plus accrued  interest.  Repurchase  agreements  could involve
certain  risks in the event of a default or insolvency of the other party to the
agreement,  including possible delays or restrictions upon the Fund's ability to
dispose of the underlying  securities.  Although no definitive  creditworthiness
criteria are used,  the Advisor  reviews the  creditworthiness  of the banks and
non-bank  dealers  with which the Fund  enters  into  repurchase  agreements  to
evaluate those risks. The Fund may, under certain circumstances, deem repurchase
agreements  collateralized  by U.S.  government  securities to be investments in
U.S. government securities.


REVERSE REPURCHASE AGREEMENTS AND MORTGAGE DOLLAR ROLLS

The Fund may engage in reverse  repurchase  agreements to  facilitate  portfolio
liquidity,  a practice  common in the mutual  fund  industry,  or for  arbitrage
transactions as discussed  below. In a reverse  repurchase  agreement,  the Fund
would sell a security and enter into an agreement to repurchase  the security at
a  specified  future  date and price.  The Fund  generally  retains the right to
interest and principal  payments on the  security.  Since the Fund receives cash
upon  entering  into a reverse  repurchase  agreement,  it may be  considered  a
borrowing.  When  required  by  guidelines  of the SEC,  the Fund will set aside
permissible  liquid assets in a segregated  account to secure its obligations to
repurchase the security.

The Fund may also enter into mortgage dollar rolls, in which the Fund would sell
mortgage-backed  securities for delivery in the current month and simultaneously
contract to purchase  substantially  similar  securities  on a specified  future
date.   While  the  Fund  would  forego  principal  and  interest  paid  on  the
mortgage-backed securities during the roll period, the Fund would be compensated
by the  difference  between the current  sales price and the lower price for the
future purchase as well as by any interest earned on the proceeds of the initial
sale.  The Fund also  could be  compensated  through  the  receipt of fee income
equivalent  to a lower  forward  price.  At the time the Fund would enter into a
mortgage  dollar  roll,  it would  set  aside  permissible  liquid  assets  in a
segregated  account to secure its obligation  for the forward  commitment to buy
mortgage-backed securities.  Mortgage dollar roll transactions may be considered
a borrowing by the Fund.


<PAGE>



The mortgage dollar rolls and reverse repurchase  agreements entered into by the
Fund may be used as arbitrage  transactions  in which the Fund will  maintain an
offsetting   position  in  investment   grade  debt  obligations  or  repurchase
agreements that mature on or before the settlement date on the related  mortgage
dollar  roll or  reverse  repurchase  agreements.  Since the Fund  will  receive
interest on the  securities  or  repurchase  agreements  in which it invests the
transaction  proceeds,  such transactions may involve leverage.  However,  since
such securities or repurchase agreements will be high quality and will mature on
or before the settlement date of the mortgage dollar roll or reverse  repurchase
agreement,  the Advisor believes that such arbitrage transactions do not present
the risks to the Fund that are associated with other types of leverage.


SECTOR CONCENTRATION

From time to time,  the Fund may invest  25% or more of its assets in  municipal
bonds that are related in such a way that an  economic,  business,  or political
development  or change  affecting one such security  could also affect the other
securities  (for  example,  securities  whose  issuers  are  located in the same
state).  Such  related  sectors  may  include  hospitals,   retirement  centers,
pollution control,  single family housing,  multiple family housing,  industrial
development,  utilities,  education, and general obligation bonds. The Fund also
may  invest 25% or more of its  assets in  municipal  bonds  whose  issuers  are
located in the same state.  Such states may  include  California,  Pennsylvania,
Texas, New York, Florida, and Illinois.


SHORT SALES

The Fund may sell securities  short (1) to hedge  unrealized  gains on portfolio
securities or (2) if it covers such short sale with liquid assets as required by
the current  rules and  positions  of the SEC or its staff.  Selling  securities
short against the box involves  selling a security that the Fund owns or has the
right to acquire,  for delivery at a specified  date in the future.  If the 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.


STANDBY COMMITMENTS

In order to  facilitate  portfolio  liquidity,  the  Fund  may  acquire  standby
commitments  from brokers,  dealers,  or banks with respect to securities in its
portfolio. Standby commitments entitle the holder to achieve same-day settlement
and receive an  exercise  price equal to the  amortized  cost of the  underlying
security plus accrued interest.  Standby commitments generally increase the cost
of the  acquisition  of the  underlying  security,  thereby  reducing the yield.
Standby  commitments  are  subject  to  the  issuer's  ability  to  fulfill  its
obligation  upon demand.  Although no definitive  creditworthiness  criteria are
used, the Advisor  reviews the  creditworthiness  of the brokers,  dealers,  and
banks from which the Fund obtains standby commitments to evaluate those risks.


TAXABLE SECURITIES

From time to time when the Advisor deems it appropriate,  the Fund may invest up
to 20% of its net  assets  on a  temporary  basis  in  taxable  investments  (of
comparable  quality  to their  respective  tax-free  investments),  which  would
produce interest not exempt from federal income tax, including among others: (1)
obligations  issued or guaranteed,  as to principal and interest,  by the United
States  government,  its agencies,  or  instrumentalities;  (2)  obligations  of
financial   institutions,   including  banks,  savings  and  loan  institutions,
insurance  companies  and  mortgage  banks,  such as  certificates  of  deposit,
bankers' acceptances,  and time deposits; (3) corporate  obligations,  including
preferred  stock and commercial  paper,  with  equivalent  credit quality to the
municipal securities in which the Fund may invest; and (4) repurchase agreements
with respect to any of the  foregoing  instruments.  For  example,  the Fund may
invest in such taxable  investments  pending the investment or  reinvestment  of
such  assets  in  municipal  securities,  in  order to avoid  the  necessity  of
liquidating portfolio securities to satisfy redemptions or pay expenses, or when
such  action is deemed to be in the  interest  of the  Fund's  shareholders.  In
addition, the Fund may invest up to 100% of its total assets in private activity
bonds, the interest on which is a tax-preference  item for taxpayers  subject to
the federal alternative minimum tax.


TEMPORARY DEFENSIVE POSITION

When the Advisor determines that market conditions warrant a temporary defensive
position,  the Fund may invest without  limitation in cash and short-term  fixed
income  securities,  including U.S.  government  securities,  commercial  paper,
banker's acceptances, certificates of deposit, and time deposits.


U.S. GOVERNMENT SECURITIES

U.S.  government  securities are issued or guaranteed by the U.S.  government or
its agencies or  instrumentalities.  Securities issued by the government include
U.S. Treasury obligations,  such as Treasury bills, notes, and bonds. Securities
issued by government  agencies or  instrumentalities  include obligations of the
following:

o    the  Federal   Housing   Administration,   Farmers   Home   Administration,
     Export-Import Bank of the United States, Small Business Administration, and
     the  Government  National  Mortgage  Association  ("GNMA"),  including GNMA
     pass-through certificates, whose securities are supported by the full faith
     and credit of the United States;
o    the Federal Home Loan Banks,  Federal  Intermediate  Credit Banks,  and the
     Tennessee Valley Authority,  whose securities are supported by the right of
     the agency to borrow from the U.S. Treasury;
o    the Federal National Mortgage  Association,  whose securities are supported
     by the discretionary  authority of the U.S.  government to purchase certain
     obligations of the agency or instrumentality; and
o    the Student Loan Marketing Association, the Interamerican Development Bank,
     and International Bank for Reconstruction and Development, whose securities
     are supported only by the credit of such agencies.

Although  the  U.S.   government   provides   financial  support  to  such  U.S.
government-sponsored  agencies or  instrumentalities,  no assurance can be given
that  it  will  always  do  so.  The  U.S.   government  and  its  agencies  and
instrumentalities  do not  guarantee  the  market  value  of  their  securities;
consequently, the value of such securities will fluctuate.



VARIABLE- OR FLOATING-RATE SECURITIES

The Fund may invest in securities  which offer a variable- or  floating-rate  of
interest.  Variable-rate securities provide for automatic establishment of a new
interest rate at fixed intervals (E.G., daily,  monthly,  semi-annually,  etc.).
Floating-rate  securities  generally  provide for  automatic  adjustment  of the
interest rate whenever some specified interest rate index changes.  The interest
rate on  variable- or  floating-rate  securities  is  ordinarily  determined  by
reference to or is a percentage of a bank's prime rate, the 90-day U.S. Treasury
bill  rate,  the rate of  return on  commercial  paper or bank  certificates  of
deposit, an index of short-term interest rates, or some other objective measure.

Variable-  or  floating-rate  securities  frequently  include  a demand  feature
entitling the holder to sell the securities to the issuer at par. In many cases,
the demand  feature can be exercised at any time on seven days notice;  in other
cases,  the demand  feature is  exercisable  at any time on 30 days notice or on
similar notice at intervals of not more than one year. Some securities  which do
not  have  variable  or  floating  interest  rates  may be  accompanied  by puts
producing  similar  results  and price  characteristics.  When  considering  the
maturity  of any  instrument  which may be sold or put to the  issuer or a third
party, the Fund may consider that  instrument's  maturity to be shorter than its
stated maturity.


Variable-rate  demand notes include  master  demand notes which are  obligations
that  permit  the Fund to invest  fluctuating  amounts,  that may  change  daily
without penalty,  pursuant to direct  arrangements  between the Fund, as lender,
and the borrower. The interest rates on these notes fluctuate from time to time.
The issuer of such obligations normally has a corresponding right, after a given
period,  to prepay in its discretion  the  outstanding  principal  amount of the
obligations  plus accrued interest upon a specified number of days notice to the
holders  of  such  obligations.  The  interest  rate on a  floating-rate  demand
obligation is based on a known lending rate, such as a bank's prime rate, and is
adjusted  automatically each time such rate is adjusted.  The interest rate on a
variable-rate   demand   obligation  is  adjusted   automatically  at  specified
intervals.  Frequently,  such  obligations  are  secured by letters of credit or
other credit support  arrangements  provided by banks. Because these obligations
are direct  lending  arrangements  between  the lender and  borrower,  it is not
contemplated that such instruments will generally be traded.  There generally is
not an established  secondary  market for these  obligations,  although they are
redeemable at face value.  Accordingly,  where these obligations are not secured
by letters of credit or other credit support  arrangements,  the Fund's right to
redeem is dependent on the ability of the borrower to pay principal and interest
on demand.  Such obligations  frequently are not rated by credit rating agencies
and, if not so rated, the Fund may invest in them only if the Advisor determines
that at the time of investment the obligations are of comparable  quality to the
other  obligations in which the Fund may invest.  The Advisor,  on behalf of the
Fund, will consider on an ongoing basis the  creditworthiness  of the issuers of
the floating- and variable-rate demand obligations in the Fund's portfolio.


The Fund will not invest more than 15% of its net assets  (10% for money  market
funds) in variable- and  floating-rate  demand  obligations that are not readily
marketable (a variable- or floating-rate  demand obligation that may be disposed
of on not more than seven days notice will be deemed readily marketable and will
not be subject to this limitation). In addition, each variable- or floating-rate
obligation  must meet the  credit  quality  requirements  applicable  to all the
Fund's  investments at the time of purchase.  When  determining  whether such an
obligation  meets the Fund's credit quality  requirements,  the Fund may look to
the credit  quality of the financial  guarantor  providing a letter of credit or
other credit support arrangement.


In determining the Fund's weighted average portfolio maturity,  the Fund (except
money market funds) will consider a floating- or variable-rate  security to have
a  maturity  equal to its stated  maturity  (or  redemption  date if it has been
called for redemption), except that it may consider (1) variable-rate securities
to have a maturity equal to the period remaining until the next  readjustment in
the  interest  rate,  unless  subject  to a demand  feature,  (2)  variable-rate
securities subject to a demand feature to have a remaining maturity equal to the
longer  of (a) the next  readjustment  in the  interest  rate or (b) the  period
remaining  until  the  principal  can  be  recovered  through  demand,  and  (3)
floating-rate securities subject to a demand feature to have a maturity equal to
the period  remaining  until the  principal  can be  recovered  through  demand.
Variable- and floating-rate  securities  generally are subject to less principal
fluctuation  than  securities  without  these  attributes  since the  securities
usually trade at amortized cost following the readjustment in the interest rate.
Money market funds will  determine the maturity of floating-  and  variable-rate
securities  in  accordance  with Rule 2a-7 under the  Investment  Company Act of
1940.



WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES

The Fund may purchase securities on a when-issued or delayed-delivery basis. The
price of debt  obligations so purchased,  which may be expressed in yield terms,
generally is fixed at the time the  commitment to purchase is made, but delivery
and payment  for the  securities  take place at a later date.  During the period
between  the  purchase  and  settlement,  no  payment is made by the Fund to the
issuer and no  interest  on the debt  obligations  accrues to the Fund.  Forward
commitments  involve a risk of loss if the value of the security to be purchased
declines prior to the settlement  date, which risk is in addition to the risk of
decline  in  value  of  the  Fund's  other   assets.   While   when-issued   and
delayed-delivery  securities may be sold prior to the settlement  date, the Fund
intends to purchase such securities with the purpose of actually  acquiring them
unless a sale appears  desirable for  investment  reasons.  At the time the Fund
makes the commitment to purchase  these types of securities,  it will record the
transaction  and reflect the value of the security in determining  its net asset
value.  The Fund does not  believe  that its net asset  value will be  adversely
affected by these types of securities purchases.

To the extent  required by the SEC, the Fund will maintain  cash and  marketable
securities  equal in value to commitments  for  when-issued or  delayed-delivery
securities.  Such segregated securities either will mature or, if necessary,  be
sold  on or  before  the  settlement  date.  When  the  time  comes  to pay  for
when-issued or delayed-delivery  securities,  the Fund will meet its obligations
from  then-available  cash flow,  sale of the  securities  held in the  separate
account,  described  above,  sale of other  securities or, although it would not
normally expect to do so, from the sale of the  when-issued or  delayed-delivery
securities  themselves  (which may have a market value  greater or less than the
Fund's payment obligation).


ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES

The Fund may invest in zero-coupon,  step-coupon,  and  pay-in-kind  securities.
These  securities  are debt  securities  that do not make regular cash  interest
payments.  Zero-coupon and step-coupon securities are sold at a deep discount to
their face value.  Pay-in-kind  securities pay interest  through the issuance of
additional  securities.  Because such securities do not pay current cash income,
the price of these  securities  can be volatile when interest  rates  fluctuate.
While these  securities do not pay current cash income,  federal  income tax law
requires the holders of zero-coupon,  step-coupon, and pay-in-kind securities to
include in income  each year the  portion of the  original  issue  discount  (or
deemed  discount) and other  non-cash  income on such  securities  accruing that
year.  In order to continue to qualify as a  "regulated  investment  company" or
"RIC" under the IRC and avoid a certain  excise tax, the Fund may be required to
distribute a portion of such  discount and income and may be required to dispose
of other  portfolio  securities,  which may occur in periods  of adverse  market
prices, in order to generate cash to meet these distribution requirements.


<PAGE>




DIRECTORS AND OFFICERS


The Board of  Directors  of the Fund is  responsible  for  managing  the  Fund's
business  and  affairs.  Directors  and  officers  of the  Fund,  together  with
information  as to their  principal  business  occupations  during the last five
years,  and other  information  are shown below.  Each director who is deemed an
"interested  person,"  as defined in the 1940 Act, is  indicated  by an asterisk
(*).  Each officer and director  holds the same  position with the 27 registered
open-end management  investment companies consisting of 60 mutual funds ("Strong
Funds").  The Strong  Funds,  in the  aggregate,  pay each Director who is not a
director,  officer,  or employee of the Advisor,  or any  affiliated  company (a
"disinterested  director")  an annual  fee of  $101,000  plus  $6,000  per Board
meeting,  except for the Chairman of the Independent  Directors  Committee.  The
Chairman  of the  Independent  Directors  Committee  receives  an annual  fee of
$111,100 plus $6,600 per Board meeting. The Independent Directors have formed an
Audit  Committee.  For their services on the Audit  Committee,  each Independent
Director receives an additional $2,500 per meeting attended. The Chairman of the
Audit  Committee  receives  $2,750  per  meeting  attended.  In  addition,  each
disinterested  director is  reimbursed  by the Strong Funds for travel and other
expenses incurred in connection with attendance at such meetings. Other officers
and  directors  of  the  Strong  Funds  receive  no   compensation   or  expense
reimbursement from the Strong Funds.


 *RICHARD S. STRONG (DOB  5/12/42),  Director  and  Chairman of the Board of the
Strong Funds.

Prior to August 1985,  Mr.  Strong was Chief  Executive  Officer of the Advisor,
which he founded in 1974.  Since  August  1985,  Mr.  Strong has been a Security
Analyst and Portfolio  Manager of the Advisor.  In October 1991, Mr. Strong also
became the Chairman of the Advisor. Mr. Strong is a Director of the Advisor. Mr.
Strong has been in the investment management business since 1967.

MARVIN E. NEVINS (DOB 7/9/18), Director of the Strong Funds.

Private  Investor.  From 1945 to 1980,  Mr.  Nevins was  Chairman  of  Wisconsin
Centrifugal  Inc., a foundry.  From 1980 until 1981, Mr. Nevins was the Chairman
of the Wisconsin Association of Manufacturers & Commerce. He has been a Director
of A-Life Medical,  Inc., San Diego, CA since 1996 and Surface Systems,  Inc. (a
weather information company),  St. Louis, MO since 1992. He was also a regent of
the Milwaukee School of Engineering and a member of the Board of Trustees of the
Medical College of Wisconsin and Carroll College.

WILLIE D. DAVIS (DOB 7/24/34), Director of the Strong Funds.


Mr. Davis has been Director of Alliance Bank since 1980, Sara Lee Corporation (a
food/consumer  products  company)  since  1983,  KMart  Corporation  (a discount
consumer  products  company)  since 1985,  Dow Chemical  Company since 1988, MGM
Mirage (formerly MGM Grand, Inc.) (an  entertainment/hotel  company) since 1990,
Wisconsin Energy  Corporation  (formerly WICOR,  Inc.) (a utility company) since
1990, Johnson Controls, Inc. (an industrial company) since 1992, Checker's Drive
In  Restaurants,   Inc.   (formerly  Rally's   Hamburgers,   Inc.)  since  1994,
Metro-Goldwyn-Mayer,  Inc. (an  entertainment  company)  since 1998, and Bassett
Furniture  Industries,  Inc.  since  1997.  Mr.  Davis has been a trustee of the
University  of Chicago  since 1980 and Marquette  University  since 1988.  Since
1977,  Mr.  Davis has been  President  and Chief  Executive  Officer  of All Pro
Broadcasting,  Inc. Mr. Davis was a Director of the Fireman's Fund (an insurance
company) from 1975 until 1990.

STANLEY  KRITZIK (DOB 1/9/30),  Director and Chairman of the Audit  Committee of
the Strong Funds.

Mr. Kritzik has been a Partner of Metropolitan Associates since 1962, a Director
of Aurora  Health Care since 1987 and of Wisconsin  Health  Information  Network
since  November  1997,  and a member of the Board of  Governors  of the Snowmass
Village  Resort  Association  since  October  1999.  He was a Director of Health
Network Ventures, Inc. from 1992 until April 2000.


WILLIAM  F.  VOGT  (DOB  7/19/47),  Director  and  Chairman  of the  Independent
Directors Committee of the Strong Funds.

Mr. Vogt has been the President of Vogt Management Consulting,  Inc. since 1990.
From 1982 until 1990, he served as Executive  Director of University  Physicians
of the  University  of Colorado.  Mr. Vogt is the Past  President of the Medical
Group  Management  Association  and a Fellow of the American  College of Medical
Practice Executives.


<PAGE>



NEAL MALICKY (DOB 9/14/34), Director of the Strong Funds.


Mr. Malicky has been President  Emeritus of  Baldwin-Wallace  College since July
2000.  From July 1999 to June 2000, he served as  Chancellor of  Baldwin-Wallace
College.  From 1981 to June  1999,  he served as  President  of  Baldwin-Wallace
College.  He is a Trustee  of  Southwest  Community  Health  Systems,  Cleveland
Scholarship  Program,  and The National  Conference  for  Community  Justice and
President of the Reserve Homeowners  Association.  He is also the Past President
of the  National  Association  of Schools and  Colleges of the United  Methodist
Church,  the Past  Chairperson of the  Association  of Independent  Colleges and
Universities  of Ohio,  and the Past  Secretary of the National  Association  of
Independent Colleges and Universities.

ELIZABETH N. COHERNOUR (DOB 4/26/50), Vice President and Secretary of the Strong
Funds.


Ms.  Cohernour has been General Counsel and Senior Vice President of the Advisor
since January 2000.  From February 1999 until January 2000, Ms.  Cohernour acted
as Counsel to MFP Investors. From May 1988 to February 1999, Ms. Cohernour acted
as General Counsel and Vice President to Franklin Mutual Advisers, Inc.


CATHLEEN A. EBACHER (DOB 11/9/62), Vice President and Assistant Secretary of the
Strong Funds.


Ms. Ebacher has been Senior  Counsel of the Advisor since  December  1997.  From
November 1996 until December 1997, Ms. Ebacher acted as Associate Counsel to the
Advisor.  From May 1992 until  November  1996,  Ms.  Ebacher  acted as Corporate
Counsel to Carson Pirie Scott & Co., a department store retailer. From June 1989
until May 1992, Ms. Ebacher was an attorney for Reinhart,  Boerner,  Van Deuren,
Norris & Rieselbach, s.c., a Milwaukee law firm.

RHONDA K. HAIGHT (DOB 11/13/64), Assistant Treasurer of the Strong Funds.

Ms.  Haight has been  Manager of the Mutual Fund  Accounting  Department  of the
Advisor  since January  1994.  From May 1990 to January  1994,  Ms. Haight was a
supervisor in the Mutual Fund  Accounting  Department of the Advisor.  From June
1987 to May 1990, Ms. Haight was a Mutual Fund Accountant of the Advisor.


SUSAN A. HOLLISTER (DOB 7/8/68),  Vice President and Assistant  Secretary of the
Strong Funds.

Ms.  Hollister has been Associate  Counsel of the Advisor since July 1999.  From
August  1996  until May 1999,  Ms.  Hollister  completed  a Juris  Doctor at the
University  of Wisconsin Law School.  From December 1993 until August 1996,  Ms.
Hollister was Deposit  Operations  Supervisor for First Federal Savings Bank, La
Crosse - Madison.


DENNIS A. WALLESTAD (DOB 11/3/62), Vice President of the Strong Funds.

Mr.  Wallestad has been Director of Finance and  Operations of the Advisor since
February 1999.  From April 1997 to February  1999,  Mr.  Wallestad was the Chief
Financial  Officer of The Ziegler  Companies,  Inc.  From November 1996 to April
1997,  Mr.  Wallestad  was the Chief  Administrative  Officer of  Calamos  Asset
Management,  Inc.  From July 1994 to  November  1996,  Mr.  Wallestad  was Chief
Financial  Officer for Firstar Trust and Investments  Group. From September 1991
to June 1994 and from September 1985 to August 1989, Mr.  Wallestad was an Audit
Manager for Arthur Andersen & Co., LLP in Milwaukee.  Mr. Wallestad  completed a
Masters of  Accountancy  from the  University of Oklahoma from September 1989 to
August 1991.

JOHN W. WIDMER (DOB 1/19/65), Treasurer of the Strong Funds.

Mr. Widmer has been Treasurer of the Advisor since April 1999.  From May 1997 to
January  2000,  Mr.  Widmer was the Manager of  Financial  Management  and Sales
Reporting  Systems.  From May 1992 to May 1997, Mr. Widmer was an Accounting and
Business  Advisory  Manager in the Milwaukee office of Arthur Andersen LLP. From
June 1987 to May 1992, Mr. Widmer was an accountant at Arthur Andersen LLP.


<PAGE>



THOMAS M. ZOELLER (DOB 2/21/64), Vice President of the Strong Funds.

Mr.  Zoeller has been Senior Vice President and Chief  Financial  Officer of the
Advisor since  February  1998 and a member of the Office of the Chief  Executive
since  November  1998.  From October 1991 to February  1998, Mr. Zoeller was the
Treasurer and Controller of the Advisor, and from August 1991 to October 1991 he
was the  Controller.  From  August  1989 to August  1991,  Mr.  Zoeller  was the
Assistant  Controller of the Advisor.  From  September  1986 to August 1989, Mr.
Zoeller was a Senior Accountant at Arthur Andersen & Co.


Except for Messrs. Nevins, Davis, Kritzik, Vogt, and Malicky, the address of all
of the above persons is P.O. Box 2936,  Milwaukee,  Wisconsin 53201. Mr. Nevins'
address is 6075 Pelican Bay Boulevard #1006,  Naples,  Florida 34108. Mr. Davis'
address is 161 North La Brea, Inglewood, California 90301. Mr. Kritzik's address
is 1123 North Astor Street, P.O. Box 92547, Milwaukee, Wisconsin 53202-0547. Mr.
Vogt's  address is 55 North Holden  Road,  P.O. Box 7657,  Avon,  CO 81620.  Mr.
Malicky's address is 518 Bishop Place, Berea, OH 44017.

Unless  otherwise  noted  below,  as of November  30,  2000,  the  officers  and
directors of the Fund in the  aggregate  beneficially  owned less than 1% of any
class of the Fund's then outstanding shares.

<TABLE>
<CAPTION>
<S>                                             <C>                                                 <C>
    FUND                                    CLASS/SHARES                                          PERCENT

---------------------------------------- ---------------------------------------------- ------------------------------

High-Yield Municipal Bond                Advisor Class - 1,682                                      100%*
Municipal Bond                           Investor Class - 323,801                                  1.09%
                                         Advisor Class - 1,736                                      100%*
                                         Institutional Class - 1,718                                100%*
Short-Term High Yield Municipal          Investor Class - 143,991                                  1.09%
                                         Advisor Class - 1,558                                      100%*
Short-Term Municipal Bond                Investor Class - 949,087                                  2.81%

</TABLE>

* This represents the initial capital of the class of shares of the Fund.


PRINCIPAL SHAREHOLDERS


Unless otherwise noted below, as of November 30, 2000 no persons owned of record
or are known to own of record or  beneficially  more than 5% of any class of the
Fund's then outstanding shares.

<TABLE>
<CAPTION>
<S>                                                      <C>                                        <C>

 NAME AND ADDRESS                                  FUND/CLASS/SHARES                              PERCENT
-------------------------------------- ------------------------------------------------------- -----------------------

Charles Schwab & Co., Inc.               High-Yield Municipal Bond - Investor Class -              19.67%
101 Montgomery Street                    8,973,645
San Francisco, CA  94104-4122


----------------------------------------

Strong Capital Management, Inc.          High Yield Municipal Bond - Advisor Class -               100%*
100 Heritage Reserve                     1,682
Menomonee Falls, WI  53051-4400


----------------------------------------

Charles Schwab & Co., Inc.               Municipal Bond - Investor Class - 3,305,113               11.13%
101 Montgomery Street
San Francisco, CA  94104-4122


----------------------------------------

Strong Capital Management, Inc.          Municipal Bond - Advisor Class - 1,736                    100%*
100 Heritage Reserve
Menomonee Falls, WI  53051-4400


----------------------------------------

Strong Capital Management, Inc.          Municipal Bond - Institutional Class - 1,718              100%*
100 Heritage Reserve
Menomonee Falls, WI  53051-4400


----------------------------------------

Dean V. White                            Short-Term High Yield Municipal - Investor                20.22%
1000 E. 80th Place Ste. 700N             Class - 2,666,236
Merrillville, IN  46410-5667


----------------------------------------

Charles Schwab & Co., Inc.               Short-Term High Yield Municipal - Investor                13.54%
101 Montgomery Street                    Class - 1,784,388
San Francisco, CA  94104-4122


----------------------------------------

Walter H. Morris                         Short-Term High Yield Municipal - Investor                5.05%
3610 W. River Ridge Court                Class - 666,186
Mequon, WI  53092-2754


----------------------------------------

Strong Capital Management, Inc.          Short-Term High Yield Municipal - Advisor                 100%*
100 Heritage Reserve                     Class - 1,558
Menomonee Falls, WI  53051-4400


----------------------------------------

Charles Schwab & Co., Inc.               Short-Term Municipal Bond - Investor Class -              16.74%
101 Montgomery Street                    5,644,892
San Francisco, CA  94104-4122


----------------------------------------

Skywest, Inc.                            Short-Term Municipal Bond - Investor Class -              6.53%
444 S. River Road                        2,200,635
St. George, UT  84790-2085


----------------------------------------

DB Alex Brown LLC                        Short-Term Municipal Bond - Advisor Class -               100%*
P.O.  Box 1346                           100,000
Baltimore, MD  21203


----------------------------------------

Charles Schwab & Co., Inc.             Short-Term Municipal Bond - Institutional Class -                  100%
101 Montgomery Street                  70,172
San Francisco, CA  94104-4122


--------------------------------------
</TABLE>

* This represents the initial capital of the class of shares of the Fund.


INVESTMENT ADVISOR


The Fund has entered into an Advisory Agreement with Strong Capital  Management,
Inc. ("Advisor").  Mr. Strong controls the Advisor due to his stock ownership of
the Advisor.  Mr.  Strong is the  Chairman  and a Director of the  Advisor,  Ms.
Cohernour  is Senior Vice  President  and General  Counsel of the  Advisor,  Ms.
Ebacher is Senior  Counsel of the Advisor,  Ms.  Haight is Manager of the Mutual
Fund Accounting Department of the Advisor, Ms. Hollister is Associate Counsel of
the Advisor,  Mr. Wallestad is Senior Vice President of the Advisor,  Mr. Widmer
is Treasurer of the Advisor,  and Mr. Zoeller is Senior Vice President and Chief
Financial  Officer of the Advisor.  As of October 31, 2000, the Advisor had over
$45 billion under management.


The Advisory  Agreement is required to be approved  annually by either the Board
of  Directors  of the Fund or by vote of a majority  of the  Fund's  outstanding
voting  securities  (as defined in the 1940 Act).  In either  case,  each annual
renewal must be approved by the vote of a majority of the Fund's  directors  who
are not parties to the  Advisory  Agreement  or  interested  persons of any such
party,  cast in person at a meeting  called  for the  purpose  of voting on such
approval.  The Advisory  Agreement is terminable,  without  penalty,  on 60 days
written  notice by the Board of Directors of the Fund,  by vote of a majority of
the Fund's outstanding voting securities,  or by the Advisor, and will terminate
automatically in the event of its assignment.


Under the terms of the  Advisory  Agreement,  the  Advisor  manages  the  Fund's
investments  subject to the  supervision  of the Fund's Board of Directors.  The
Advisor is responsible for investment decisions and supplies investment research
and  portfolio  management.  The Advisory  Agreement  authorizes  the Advisor to
delegate its  investment  advisory  duties to a subadvisor in accordance  with a
written  agreement  under which the  subadvisor  would  furnish such  investment
advisory  services to the Advisor.  In that situation,  the Advisor continues to
have  responsibility  for all  investment  advisory  services  furnished  by the
subadvisor under the subadvisory agreement. At its expense, the Advisor provides
office space and all necessary office facilities,  equipment,  and personnel for
servicing the  investments  of the Fund.  The Advisor  places all orders for the
purchase and sale of the Fund's portfolio securities at the Fund's expense.

Except for  expenses  assumed by the Advisor,  as set forth above,  or by Strong
Investments, Inc. ("Distributor") with respect to the distribution of the Fund's
shares, the Fund is responsible for all its other expenses,  including,  without
limitation,   interest  charges,  taxes,  brokerage  commissions,   and  similar
expenses; expenses of issue, sale, repurchase, or redemption of shares; expenses
of  registering  or  qualifying  shares  for sale with the  states  and the SEC;
expenses for printing and distribution of prospectuses to existing shareholders;
charges of custodians (including fees as custodian for keeping books and similar
services for the Fund),  transfer agents  (including the printing and mailing of
reports and notices to shareholders),  registrars,  auditing and legal services,
and  clerical  services  related to  recordkeeping  and  shareholder  relations;
printing  of stock  certificates;  fees for  directors  who are not  "interested
persons" of the Advisor;  expenses of indemnification;  extraordinary  expenses;
and costs of shareholder and director meetings.


On January 28, 2000, the Board of Directors of the Fund  determined that certain
administrative  services provided by the Advisor under the then current Advisory
Agreement should be provided  pursuant to a separate  administration  agreement,
which would more clearly delineate the nature of the administrative  services to
be  provided  and the  cost to the Fund  associated  with  those  administrative
services.  The Board of  Directors  also  approved an  amendment to the Advisory
Agreement ("Amended Advisory Agreement") that would remove all references in the
Advisory  Agreement  regarding  the  provision  of  administrative  services and
approved the adoption of a separate  Administration  Agreement with the Advisor.
The specific terms of the new Administration  Agreement are described below. The
advisory and  administrative  services  that will be provided  under the Amended
Advisory  Agreement and the new  Administration  Agreement for the then existing
class of shares will be, at a minimum, the same services as those provided under
the then current Advisory  Agreement for the then existing class of shares,  the
quality of those  services will remain the same,  and the  personnel  performing
such services will remain the same.

As a result of these arrangements, the annual advisory fee paid by each Fund has
been  reduced  by  0.25% of the  average  daily  net  asset  value of the  Fund,
effective  February 29, 2000. In no event will the fees under the Administrative
Agreement for the Investor  Class and Advisor Class shares of these Funds exceed
0.25% of the  average  daily net asset  value of the Fund.  In no event will the
fees under the  Administration  Agreement for the Institutional  Class shares of
the  Municipal  Bond and  Short-Term  Municipal  Bond Funds  exceed 0.02% of the
average daily net asset value of the Funds.

The Advisor Class shares of the Fund and the  Institutional  Class shares of the
Municipal Bond and Short-Term  Municipal Bond Funds were not affected by the new
advisory and  administrative  arrangements  because those classes of shares were
first offered for sale on February 29, 2000, and July 31, 2000, respectively.

As  compensation  for its  advisory  services,  the Fund  pays to the  Advisor a
monthly  management fee at the annual rate specified  below of the average daily
net asset value of the Fund.  From time to time,  the  Advisor  may  voluntarily
waive all or a portion of its management fee for the Fund.
<TABLE>
<CAPTION>
  <S>                                                          <C>                                 <C>

                                                             CURRENT                            ANNUAL RATE
   FUND                                                    ANNUAL RATE                       PRIOR TO 2/29/00
---------------------------------------------- ------------------------------------- ----------------------------------
High-Yield Municipal Bond Fund                                 0.35%                               0.60%
Municipal Bond Fund                                            0.35%                               0.60%
Short-Term High Yield Municipal Fund                           0.35%                               0.60%
Short-Term Municipal Bond Fund                                 0.25%                               0.50%
</TABLE>



<PAGE>



The Fund paid the following management fees for the time periods indicated:
<TABLE>
<CAPTION>
<S>                                 <C>                            <C>                            <C>
                                                                                             Management Fee
FISCAL YEAR ENDED          MANAGEMENT FEE ($)                    WAIVER ($)                  AFTER WAIVER ($)
-----------------          ------------------                   ----------                   ----------------

High-Yield Municipal Bond Fund


8/31/98                          2,989,819                           0                        2,989,819
8/31/99                          3,859,214                           0                        3,859,214
8/31/00                          2,371,409                           0                        2,371,409


Municipal Bond Fund


8/31/98                          1,525,080                           0                        1,525,080
8/31/99                          2,168,588                           0                        2,168,588
8/31/00                          1,427,897                           0                        1,427,897


Short-Term High Yield Municipal Fund


8/31/98(1)                         187,415                     164,129                           23,286
8/31/99                            880,013                     458,998                          421,015
8/31/00                            658,698                      89,790                          568,908


Short-Term Municipal Bond Fund


8/31/98                            942,734                           0                          942,734
8/31/99                          1,379,237                           0                        1,379,237
8/31/00                          1,049,689                           0                        1,049,689


</TABLE>



 (1)  For the nine-month fiscal period ended August 31, 1998.

The organizational  expenses for the Fund which were advanced by the Advisor and
which  will be  reimbursed  by the Fund over a period of not more than 60 months
from the Fund's date of inception are listed below.


FUND                                                 ORGANIZATIONAL EXPENSES


Short-Term High Yield Municipal Fund                          $6,104

The Advisory  Agreement  requires the Advisor to reimburse the Fund in the event
that the expenses and charges payable by the Fund in any fiscal year,  including
the management fee but excluding taxes,  interest,  brokerage  commissions,  and
similar  fees and to the extent  permitted  extraordinary  expenses,  exceed two
percent  (2%) of the  average  net  asset  value of the Fund for such  year,  as
determined by valuations  made as of the close of each business day of the year.
Reimbursement of expenses in excess of the applicable limitation will be made on
a monthly basis and will be paid to the Fund by reduction of the Advisor's  fee,
subject to later  adjustment,  month by month,  for the  remainder of the Fund's
fiscal year. The Advisor may from time to time  voluntarily  absorb expenses for
the Fund in addition to the  reimbursement  of expenses in excess of  applicable
limitations.

On July 12, 1994, the SEC filed an  administrative  action ("Order") against the
Advisor,  Mr.  Strong,  and another  employee of the Advisor in connection  with
conduct  that  occurred  between 1987 and early 1990.  In re  Strong/Corneliuson
Capital  Management,  Inc., et al. Admin.  Proc. File No. 3-8411. The proceeding
was  settled by consent  without  admitting  or denying the  allegations  in the
Order.  The Order  found  that the  Advisor  and Mr.  Strong  aided and  abetted
violations of Section 17(a) of the 1940 Act by effecting  trades  between mutual
funds,  and between  mutual  funds and  Harbour  Investments  Ltd.  ("Harbour"),
without  complying with the exemptive  provisions of SEC Rule 17a-7 or otherwise
obtaining an  exemption.  It further  found that the Advisor  violated,  and Mr.
Strong aided and abetted  violations of, the  disclosure  provisions of the 1940
Act and the  Investment  Advisers Act of 1940 by  misrepresenting  the Advisor's
policy on personal  trading and by failing to  disclose  trading by Harbour,  an
entity in which principals of the Advisor owned between 18 and 25 percent of the
voting stock. As part of the settlement, the respondents agreed to a censure and
a cease  and  desist  order and the  Advisor  agreed  to  various  undertakings,
including  adoption of certain  procedures  and a  limitation  for six months on
accepting certain types of new advisory clients.

On June 6, 1996,  the  Department of Labor  ("DOL") filed an action  against the
Advisor for equitable  relief  alleging  violations  of the Employee  Retirement
Income  Security  Act of 1974  ("ERISA")  in  connection  with cross trades that
occurred  between 1987 and late 1989 involving  certain pension accounts managed
by the Advisor. Contemporaneous with this filing, the Advisor, without admitting
or  denying  the DOL's  allegations,  agreed to the entry of a consent  judgment
resolving  all matters  relating  to the  allegations.  Reich v. Strong  Capital
Management,  Inc., (U.S.D.C.  E.D. WI) ("Consent Judgment").  Under the terms of
the Consent  Judgment,  the Advisor agreed to reimburse the affected  accounts a
total of $5.9 million.  The settlement  did not have any material  impact on the
Advisor's financial position or operations.


The  Fund,  the  Advisor,  and the  Distributor  have  adopted  a Code of Ethics
("Code") that governs the personal trading activities of all "Access Persons" of
the Advisor and the  Distributor.  Access  Persons  include  every  director and
officer of the Advisor, the Distributor, and the investment companies managed by
the Advisor, including the Fund, as well as certain employees of the Advisor and
the Distributor who have access to information  relating to the purchase or sale
of  securities  by the Advisor on behalf of accounts  managed by it. The Code is
based upon the principal that such Access Persons have a fiduciary duty to place
the  interests of the Fund and the  Advisor's  and  Distributor's  other clients
ahead of their own.

The Code requires  Access Persons (other than Access Persons who are independent
directors of the  investment  companies  managed by the Advisor,  including  the
Fund) to, among other  things,  preclear  their  securities  transactions  (with
limited  exceptions,  such as  transactions  in shares of mutual  funds,  direct
obligations  of  the  U.S.  government,   and  certain  options  on  broad-based
securities  market  indexes)  and  to  execute  such  transactions  through  the
Advisor's  trading  department.  The Code,  which applies to all Access  Persons
(other  than Access  Persons who are  independent  directors  of the  investment
companies  managed  by the  Advisor,  including  the  Fund),  includes  a ban on
acquiring  any  securities  in an  initial  public  offering,  other  than a new
offering of a registered  open-end  investment  company,  and a prohibition from
profiting on short-term trading in securities. In addition, no Access Person may
purchase or sell any security that is contemporaneously being purchased or sold,
or to the knowledge of the Access  Person,  is being  considered for purchase or
sale,  by the Advisor on behalf of any mutual fund or other  account  managed by
it. Finally, the Code provides for trading "black out" periods of seven calendar
days during which time Access Persons may not trade in securities that have been
purchased  or sold by any client for which the Advisor  serves as an  investment
advisor or subadvisor, renders investment advice, makes investment decisions, or
places orders through its Trading Department.

The Advisor provides  investment  advisory services for multiple clients through
different  types of  investment  accounts  (E.G.,  mutual  funds,  hedge  funds,
separately managed accounts,  etc.) who may have similar or different investment
objectives  and  investment  policies  (E.G.,  some  accounts may have an active
trading  strategy  while others follow a "buy and hold"  strategy).  In managing
these accounts, the Advisor seeks to maximize each account's return,  consistent
with the account's investment  objectives and investment  strategies.  While the
Advisor's  policies  are  designed to ensure  that over time  similarly-situated
clients receive similar  treatment,  to the maximum extent possible,  because of
the range of the Advisor's clients,  the Advisor may give advice and take action
with respect to one account that may differ from the advice given, or the timing
or nature of action taken,  with respect to another account (the Advisor and its
principals  and  associates  also  may  take  such  actions  in  their  personal
securities  transactions,  to the extent  permitted by and  consistent  with the
Code).  For example,  the Advisor may use the same investment  style in managing
two accounts,  but one may have a shorter-term  horizon and accept high-turnover
while the other may have a longer-term investment horizon and desire to minimize
turnover.  If the Advisor  reasonably  believes  that a particular  security may
provide an attractive opportunity due to short-term volatility but may no longer
be  attractive  on a long-term  basis,  the Advisor  may cause  accounts  with a
shorter-term  investment  horizon  to buy the  security  at the same  time it is
causing accounts with a longer-term investment horizon to sell the security. The
Advisor takes all reasonable steps to ensure that investment  opportunities are,
over time,  allocated to accounts on a fair and equitable  basis relative to the
other  similarly-situated   accounts  and  that  the  investment  activities  of
different accounts do not unfairly disadvantage other accounts.



<PAGE>



From time to time,  the Advisor votes the shares owned by the Fund  according to
its  Statement of General  Proxy Voting  Policy  ("Proxy  Voting  Policy").  The
general principal of the Proxy Voting Policy is to vote any beneficial  interest
in an  equity  security  prudently  and  solely in the best  long-term  economic
interest of the Fund and its beneficiaries  considering all relevant factors and
without  undue  influence  from  individuals  or groups who may have an economic
interest in the outcome of a proxy vote.  Shareholders  may obtain a copy of the
Proxy Voting Policy upon request from the Advisor.


The Advisor also  provides two programs of custom  portfolio  management  called
Strong  Advisor  and Strong  Private  Client.  These  programs  are  designed to
determine an investment  approach that fits an  investor's  financial  needs and
then  provide the  investor  with a custom  built  portfolio of Strong Funds and
certain other  unaffiliated  mutual funds,  in the case of Strong  Advisor,  and
Strong Funds,  and  individual  stocks and bonds,  in the case of Strong Private
Client, based on that allocation.  The Advisor, on behalf of participants in the
Strong  Advisor and Strong Private  Client  programs,  may determine to invest a
portion  of the  program's  assets in any one  Strong  Fund,  which  investment,
particularly  in the case of a smaller Strong Fund,  could  represent a material
portion of the Fund's  assets.  In such  cases,  a decision to redeem the Strong
Advisor or Strong Private Client program's  investment in a Fund on short notice
could  raise a  potential  conflict of  interest  for the  Advisor,  between the
interests of participants in the Strong Advisor or Strong Private Client program
and of the Fund's other shareholders. In general, the Advisor does not expect to
direct the Strong Advisor or Strong  Private  Client program to make  redemption
requests  on short  notice.  However,  should the Advisor  determine  this to be
necessary,  the  Advisor  will use its  best  efforts  and act in good  faith to
balance  the  potentially  competing  interests  of  participants  in the Strong
Advisor and Strong Private Client program and the Fund's other shareholders in a
manner the  Advisor  deems  most  appropriate  for both  parties in light of the
circumstances


From time to time, the Advisor may make  available to third parties  current and
historical  information  about the portfolio  holdings of the  Advisor's  mutual
funds or other  clients.  Release may be made to entities  such as fund  ratings
entities,  industry trade groups,  and financial  publications.  Generally,  the
Advisor  will  release  this  type of  information  only  where it is  otherwise
publicly  available.  This  information  may also be released  where the Advisor
reasonably  believes  that the release will not be to the  detriment of the best
interests of its clients.


For more  complete  information  about  the  Advisor,  including  its  services,
investment strategies,  policies, and procedures, please call 1-800-368-3863 and
ask for a copy of Part II of the Advisor's Form ADV.



ADMINISTRATOR

The Fund has entered into a separate  administration services agreement with the
Advisor in order to provide administration  services to the Fund that previously
were provided under the Advisory Agreement ("Administration Agreement").

The Fund has adopted a Rule 18f-3 Plan under the 1940 Act ("Multi-Class  Plan").
The Multi-Class  Plan permits the Fund to have multiple  classes of shares.  The
Fund has entered into a separate  administration  agreement with the Advisor for
each of its  separate  class of shares  ("Administration  Agreement  -  Investor
Class,"   "Administration   Agreement  -  Advisor  Class,"  and  "Administration
Agreement -  Institutional  Class") The Short-Term High Yield Municipal Fund and
High-Yield  Municipal Bond Fund currently offer Investor Class and Advisor Class
shares and the  Municipal  Bond Fund and  Short-Term  Municipal  Bond Fund offer
Investor Class, Advisor Class, and Institutional Class shares.

The fees received and the services  provided by the Advisor,  as  administrator,
are in addition to fees received and services  provided by the Advisor under the
Amended Advisory Agreement.

ADMINISTRATION AGREEMENT - INVESTOR CLASS

Under the  Administration  Agreement  - Investor  Class,  the  Advisor  provides
certain  administrative  functions  for the  Investor  Class shares of the Fund,
including:  (i)  authorizing  expenditures  and  approving  bills for payment on
behalf of the Fund and the Investor Class shares;  (ii) supervising  preparation
of the periodic updating of the Fund's  registration  statements with respect to
the Investor Class shares,  including Investor Class prospectuses and statements
of  additional  information,  for the purpose of filings  with the SEC and state
securities  administrators  and monitoring and maintaining the  effectiveness of
such filings,  as  appropriate;  (iii)  supervising  preparation  of shareholder
reports,  notices of dividends,  capital gains distributions and tax credits for
the Fund's Investor Class shareholders,  and attending to routine correspondence
and other  communications  with  individual  Investor Class  shareholders;  (iv)
supervising  the daily  pricing  of the  Fund's  investment  portfolios  and the
publication  of the  respective net asset values of the Investor Class shares of
the Fund,  earnings  reports and other  financial data to the extent required by
the Fund's  Advisory  Agreement  prior to the  adoption  of this  Administration
Agreement; (v) monitoring relationships with organizations providing services to
the Fund,  with respect to the Investor  Class shares,  including the Custodian,
DST and printers;  (vi) supervising  compliance by the Fund, with respect to the
Investor Class Shares,  with  recordkeeping  requirements under the 1940 Act and
regulations  thereunder,  maintaining books and records for the Fund (other than
those  maintained by the Custodian and the Fund's  transfer agent) and preparing
and  filing of tax  reports  other than the Fund's  income  tax  returns;  (vii)
answering shareholder inquiries regarding account status and history, the manner
in which purchases and redemptions of the Investor Class shares may be effected,
and certain  other  matters  pertaining  to the Investor  Class  shares;  (viii)
assisting  shareholders in designating and changing  dividend  options,  account
designations and addresses; (ix) providing necessary personnel and facilities to
coordinate the establishment and maintenance of shareholder accounts and records
with the Fund's  transfer agent;  (x)  transmitting  shareholders'  purchase and
redemption orders to the Fund's transfer agent; (xi) arranging for the wiring or
other  transfer of funds to and from  shareholder  accounts in  connection  with
shareholder orders to purchase or redeem Investor Class shares;  (xii) verifying
purchase   and   redemption    orders,    transfers   among   and   changes   in
shareholder-designated  accounts;  (xiii) informing the distributor of the gross
amount of purchase and redemption  orders for Investor  Class shares;  and (xiv)
providing  such  other  related  services  as  the  Fund  or a  shareholder  may
reasonably  request, to the extent permitted by applicable law. For its services
for the Investor Class shares of the Fund under the  Administration  Agreement -
Investor Class,  the Advisor  receives a monthly fee from the Fund at the annual
rate of 0.25%  of the  Fund's  average  daily  net  assets  attributable  to the
Investor Class shares.

ADMINISTRATION AGREEMENT - ADVISOR CLASS

Under the Administration Agreement - Advisor Class, the Advisor provides certain
administrative  functions for the Advisor  Class shares of the Fund,  including:
(i)  authorizing  expenditures  and approving bills for payment on behalf of the
Fund and the Advisor Class shares; (ii) supervising  preparation of the periodic
updating of the Fund's registration statements with respect to the Advisor Class
shares,  including  Advisor  Class  prospectuses  and  statements  of additional
information,  for the  purpose  of  filings  with the SEC and  state  securities
administrators and monitoring and maintaining the effectiveness of such filings,
as appropriate; (iii) supervising preparation of shareholder reports, notices of
dividends,  capital gains  distributions  and tax credits for the Fund's Advisor
Class   shareholders,   and  attending  to  routine   correspondence  and  other
communications with individual shareholders;  (iv) supervising the daily pricing
of the Fund's  investment  portfolios and the  publication of the respective net
asset values of the Advisor Class shares of the Fund, earnings reports and other
financial data to the extent required by the Fund's Advisory  Agreement prior to
the adoption of this Administration Agreement; (v) monitoring relationships with
organizations  providing services to the Fund, with respect to the Advisor Class
shares,  including the Custodian,  DST and printers; (vi) supervising compliance
by the Fund,  with  respect to the  Advisor  Class  shares,  with  recordkeeping
requirements  under the 1940 Act and regulations  thereunder,  maintaining books
and records for the Fund (other than those  maintained  by the Custodian and the
Fund's  transfer  agent) and  preparing and filing of tax reports other than the
Fund's income tax returns; (vii) providing necessary personnel and facilities to
coordinate the establishment and maintenance of shareholder accounts and records
with the Fund's transfer agent; (viii) transmitting  shareholders'  purchase and
redemption orders to the Fund's transfer agent; (ix) arranging for the wiring or
other  transfer of funds to and from  shareholder  accounts in  connection  with
shareholder  orders to purchase or redeem  Advisor Class  shares;  (x) verifying
purchase   and   redemption    orders,    transfers   among   and   changes   in
shareholder-designated  accounts;  (xi)  informing the  distributor of the gross
amount of purchase and  redemption  orders for Advisor Class  shares;  and (xii)
providing  such  other  related  services  as  the  Fund  or a  shareholder  may
reasonably  request, to the extent permitted by applicable law. For its services
for the Advisor  Class shares of the Fund under the  Administration  Agreement -
Advisor  Class,  the Advisor  receives a monthly fee from the Fund at the annual
rate of 0.25% of the Fund's average daily net assets attributable to the Advisor
Class shares.

ADMINISTRATION AGREEMENT - INSTITUTIONAL CLASS

Under the Administration  Agreement - Institutional  Class, the Advisor provides
certain administrative functions for the Institutional Class shares of the Fund,
including:  (i)  authorizing  expenditures  and  approving  bills for payment on
behalf  of the  Fund  and  the  Institutional  Class  shares;  (ii)  supervising
preparation of the periodic updating of the Fund's registration  statements with
respect  to  the  Institutional  Class  shares,  including  Institutional  Class
prospectuses  and  statements  of  additional  information,  for the  purpose of
filings with the SEC and state  securities  administrators  and  monitoring  and
maintaining the effectiveness of such filings, as appropriate; (iii) supervising
preparation  of  shareholder  reports,  notices  of  dividends,   capital  gains
distributions and tax credits for the Fund's  Institutional  Class shareholders,
and attending to routine correspondence and other communications with individual
shareholders;  (iv)  supervising  the daily  pricing  of the  Fund's  investment
portfolios  and the  publication  of the  respective  net  asset  values  of the
Institutional  Class shares of the Fund,  earnings  reports and other  financial
data to the  extent  required  by the  Fund's  Advisory  Agreement  prior to the
adoption of this  Administration  Agreement;  (v) monitoring  relationships with
organizations  providing services to the Fund, with respect to the Institutional
Class  shares,  including the  Custodian,  DST and  printers;  (vi)  supervising
compliance by the Fund,  with respect to the  Institutional  Class shares,  with
recordkeeping  requirements  under  the  1940  Act and  regulations  thereunder,
maintaining  books and records for the Fund (other than those  maintained by the
Custodian and the Fund's transfer agent) and preparing and filing of tax reports
other  than the Fund's  income tax  returns;  (vii)  transmitting  shareholders'
purchase and redemption  orders to the Fund's transfer agent;  (viii)  arranging
for the wiring or other  transfer of funds to and from  shareholder  accounts in
connection with  shareholder  orders to purchase or redeem  Institutional  Class
shares;  (ix) verifying  purchase and  redemption  orders,  transfers  among and
changes in shareholder-designated accounts; (x) informing the distributor of the
gross amount of purchase and redemption orders for  Institutional  Class shares;
and (xi) providing such other related  services as the Fund or a shareholder may
reasonably  request, to the extent permitted by applicable law. For its services
for  the  Institutional  Class  shares  of the  Fund  under  the  Administration
Agreement -  Institutional  Class,  the Advisor  receives a monthly fee from the
Fund at the  annual  rate of  0.02%  of the  Fund's  average  daily  net  assets
attributable to the Institutional Class shares.


The fund paid the following administrative fees for the time periods indicated.
<TABLE>
<CAPTION>
   <S>                                     <C>                             <C>                         <C>

                                                                                              ADMINISTRATIVE FEE
 FISCAL YEAR ENDED                  ADMINISTRATIVE FEE ($)              WAIVER($)                AFTER WAIVER ($)

------------------------------- ---------------------------- ---------------------------- ----------------------------


High-Yield Municipal Bond Fund - Investor Class

8/31/00                                  562,379                             0                        562,379

High-Yield Municipal Bond Fund - Advisor Class(1)

8/31/00                                       19                             0                             19

Municipal Bond Fund - Investor Class

8/31/00                                  349,719                             0                        349,719

Municipal Bond Fund - Advisor Class(1)

8/31/00                                       19                             0                             19

Municipal Bond Fund - Institutional Class(2)

8/31/00                                        0                             0                              0

Short-Term High Yield Municipal Fund - Investor Class

8/31/00                                  156,232                        25,727                        130,505

Short-Term High Yield Municipal Fund - Advisor Class(1)

8/31/00                                       18                             3                             15

Short-Term Municipal Bond Fund - Investor Class

8/31/00                                  353,088                             0                        353,088


</TABLE>


<PAGE>

<TABLE>
<CAPTION>
<S>                                        <C>                              <C>                         <C>



Short-Term Municipal Bond Fund - Advisor Class(1)

8/31/00                                    1,190                             0                          1,190

Short-Term Municipal Bond Fund - Institutional Class(2)

8/31/00                                        0                             0                              0
</TABLE>

(1)    For the six-month fiscal period ended August 31, 2000.
(2)    For the one-month fiscal period ended August 31, 2000.



DISTRIBUTOR


Under a Distribution Agreement with the Fund ("Distribution Agreement"),  Strong
Investments,  Inc. ("Distributor"),  P.O. Box 2936, Milwaukee, WI 53201, acts as
underwriter of the Fund's shares. Mr. Strong is the Chairman and Director of the
Distributor.  The Distribution  Agreement provides that the Distributor will use
its best efforts to distribute the Fund's  shares.  The  Distribution  Agreement
further provides that the Distributor will bear the additional costs of printing
prospectuses and shareholder reports that are used for selling purposes, as well
as  advertising  and any other costs  attributable  to the  distribution  of the
Fund's  shares.  The  Distributor  is a direct  subsidiary  of the  Advisor  and
controlled by the Advisor and Richard S. Strong.  The Distribution  Agreement is
subject to the same  termination  and renewal  provisions as are described above
with respect to the Advisory Agreement.


The shares of the Fund are  offered on a  "no-load"  basis,  which means that no
sales commissions are charged on the purchases of those shares.

Pursuant to a distribution plan adopted on behalf of the Advisor Class shares of
the Fund in accordance to Rule 12b-1 ("Rule 12b-1 Plan") under the 1940 Act, the
Distribution  Agreement for the Advisor Class shares of the Fund  authorizes the
Fund to bear the costs of preparing  and mailing  prospectuses  and  shareholder
reports  that are used for  selling  purposes as well as  advertising  and other
costs  attributable to the distribution of those shares.  Under the Distribution
Agreement for the Advisor Class shares of the Fund,  payments to the Distributor
under the Rule  12b-1 Plan are  limited  to  payment at an annual  rate equal to
0.25% of average daily net assets attributable to Advisor Class shares.

From time to time, the Distributor  may hold in-house sales  incentive  programs
for its  associated  persons under which these persons may receive  compensation
awards in connection with the sale and distribution of the Fund's shares.  These
awards may include items such as, but not limited to, cash, gifts,  merchandise,
gift  certificates,  and payment of travel  expenses,  meals,  and lodging.  Any
in-house sales incentive  program will be conducted in accordance with the rules
of the National Association of Securities Dealers, Inc. ("NASD").

THE FOLLOWING SECTION APPLIES TO THE ADVISOR CLASS SHARES ONLY.


DISTRIBUTION PLAN

The Fund has  adopted a Rule 12b-1 Plan  pursuant  to Rule 12b-1  under the 1940
Act,  on behalf of the  Advisor  Class  shares of the Fund.  The Rule 12b-1 Plan
authorizes the Fund, with respect to its Advisor Class shares,  to make payments
to the  Distributor  in connection  with the  distribution  of its Advisor Class
shares at an annual rate of up to 1.00% of the Fund's  average  daily net assets
attributable  to its  Advisor  Class  shares.  However,  under the  Distribution
Agreement for the Advisor Class shares of the Fund,  payments to the Distributor
under the Rule  12b-1 Plan are  limited  to  payment at an annual  rate equal of
0.25% of average daily net assets attributable to Advisor Class shares.  Amounts
received by the  Distributor  under the  Distribution  Agreement for the Advisor
Class shares of the Fund may be spent by the  Distributor  for any activities or
expenses primarily intended to result in the sale of Advisor Class shares or the
servicing of shareholders,  including,  but not limited to:  compensation to and
expenses,  including  overhead  and  telephone  expenses,  of  employees  of the
Distributor  who engage in or support the  distribution of Advisor Class shares;
printing and distribution of prospectuses,  statements of additional information
and any  supplements  thereto,  and  shareholder  reports to persons  other than
existing shareholders; preparation, printing and distribution of


<PAGE>


sales literature and advertising materials;  holding seminars and sales meetings
with  wholesale  and retail sales  personnel,  which are designed to promote the
distribution of Advisor Class shares;  and compensation of  broker-dealers.  The
Distributor  may determine the services to be provided by the  broker-dealer  to
shareholders  in connection  with the sale of Advisor  Class shares.  All or any
portion of the  compensation  paid to the  Distributor may be reallocated by the
Distributor to broker-dealers who sell Advisor Class shares.

The Rule 12b-1 Plan is known as a "compensation" plan because payments under the
Rule 12b-1 Plan are made for  services  rendered to the Fund with respect to its
Advisor Class shares regardless of the level of expenditures by the Distributor.
The  Board of  Directors  of the Fund,  however,  will  take  into  account  any
expenditures made by the Distributor for purposes of both their quarterly review
of the  operation  of the Rule 12b-1 Plan and in  connection  with their  annual
consideration of the Rule 12b-1 Plan's renewal.

The Rule 12b-1 Plan will  continue  in effect from year to year,  provided  that
such continuance is approved annually by a vote of the Board of Directors of the
Fund, and a majority of the Directors of the Fund who are not interested persons
(as  defined  in the  1940  Act) of the  Fund and  have no  direct  or  indirect
financial  interest in the  operation  of the Rule 12b-1 Plan or any  agreements
related to the Rule 12b-1 Plan ("Rule  12b-1  Independent  Directors"),  cast in
person at a meeting called for the purpose of voting on the Rule 12b-1 Plan. The
Rule 12b-1 Plan may not be amended to increase materially the amount to be spent
for the  services  described  in the Rule 12b-1 Plan without the approval of the
Advisor Class shareholders of the Fund, and all material  amendments to the Rule
12b-1 Plan must also be approved by the Directors in the manner described above.
The Rule 12b-1 Plan may be terminated at any time, without payment of a penalty,
by a vote of a majority of the Rule 12b-1 Independent Directors, or by a vote of
a majority of the outstanding  voting  securities of the Fund (as defined in the
1940 Act) on not more  than 60 days'  written  notice to any other  party to the
Rule  12b-1  Plan.  The  Board of  Directors  of the  Fund  and the  Rule  12b-1
Independent  Directors  have  determined  that,  in their  judgment,  there is a
reasonable  likelihood  that the Rule 12b-1 Plan will  benefit  the Fund and its
Advisor Class  shareholders.  Under the Rule 12b-1 Plan,  the  Distributor  will
provide the Board of Directors  of the Fund and the  Directors  will review,  at
least  quarterly,  a written report of the amounts expended under the Rule 12b-1
Plan and the purposes for which such  expenditures  were made.  As part of their
quarterly  review of the Rule  12b-1  Plan,  the  Directors  will  consider  the
continued  appropriateness  of the Rule 12b-1 Plan and the level of compensation
provided thereunder.


The Fund paid the following  distribution  and service fees under its Rule 12b-1
Plan:
<TABLE>
<CAPTION>
   <S>                                        <C>                        <C>                         <C>

  FISCAL YEAR ENDED                                                   RETAINED BY              PAID TO DEALERS
                                          PAID BY FUND               DISTRIBUTORS(1)

High-Yield Municipal Bond Fund

8/31/00(1)                                     19                         18                           1

Municipal Bond Fund

8/31/00(1)                                     19                         19                           0

Short-Term High Yield Municipal Fund

8/31/00(1)                                     18                         18                           0

Short-Term Municipal Bond Fund

8/31/00(1)                                  1,190                      1,190                           0
</TABLE>

---------------------------------

(1) For the six-month fiscal period ended August 31, 2000.



<PAGE>




PORTFOLIO TRANSACTIONS AND BROKERAGE

The Advisor is responsible for decisions to buy and sell securities for the Fund
and for the placement of the Fund's  investment  business and the negotiation of
the  commissions  to be paid  on  such  transactions.  It is the  policy  of the
Advisor,  to seek the best execution at the best security  price  available with
respect to each  transaction,  in light of the overall  quality of brokerage and
research  services  provided to the Advisor,  or the Fund. In OTC  transactions,
orders are placed  directly with a principal  market maker unless it is believed
that a better price and execution can be obtained using a broker. The best price
to the Fund means the best net price without regard to the mix between  purchase
or sale  price and  commissions,  if any.  In  selecting  broker-dealers  and in
negotiating commissions,  the Advisor considers a variety of factors,  including
best price and execution,  the full range of brokerage  services provided by the
broker,  as well as its capital  strength and stability,  and the quality of the
research and research  services  provided by the broker.  Brokerage  will not be
allocated based on the sale of any shares of the Strong Funds.

The Advisor has adopted  procedures  that provide  generally  for the Advisor to
seek to bunch orders for the purchase or sale of the same security for the Fund,
other  mutual  funds  managed  by  the  Advisor,   and  other  advisory  clients
(collectively,  "client accounts").  The Advisor will bunch orders when it deems
it to be  appropriate  and in the best interest of the client  accounts.  When a
bunched order is filled in its entirety,  each participating client account will
participate  at the  average  share  price  for the  bunched  order  on the same
business  day,  and  transaction  costs  shall be shared  pro rata based on each
client's  participation  in the  bunched  order.  When a  bunched  order is only
partially filled, the securities purchased will be allocated on a pro rata basis
to each client account participating in the bunched order based upon the initial
amount  requested  for the  account,  subject  to certain  exceptions,  and each
participating  account  will  participate  at the  average  share  price for the
bunched order on the same business day.


Section 28(e) of the Securities  Exchange Act of 1934 ("Section  28(e)") permits
an investment advisor, under certain circumstances, to cause an account to pay a
broker or dealer a  commission  for  effecting  a  transaction  in excess of the
amount of commission  another  broker or dealer would have charged for effecting
the  transaction  in  recognition  of the value of the  brokerage  and  research
services  provided  by the broker or dealer.  Brokerage  and  research  services
include (1) furnishing advice as to the value of securities, the advisability of
investing  in,  purchasing,  or  selling  securities,  and the  availability  of
securities or purchasers or sellers of securities;  (2) furnishing  analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio  strategy,   and  the  performance  of  accounts;  and  (3)  effecting
securities  transactions and performing  functions  incidental  thereto (such as
clearance, settlement, and custody).

In carrying out the provisions of the Advisory Agreement,  the Advisor may cause
the Fund to pay a broker,  who provides  brokerage and research  services to the
Advisor,  a commission  for effecting a securities  transaction in excess of the
amount  another  broker would have charged for  effecting the  transaction.  The
Advisor  believes it is important to its investment  decision-making  process to
have access to independent  research.  The Advisory Agreement provides that such
higher  commissions  will  not be  paid  by the  Fund  unless  (1)  the  Advisor
determines  in good faith  that the  amount is  reasonable  in  relation  to the
services in terms of the  particular  transaction  or in terms of the  Advisor's
overall  responsibilities  with respect to the accounts as to which it exercises
investment  discretion;  (2)  such  payment  is  made  in  compliance  with  the
provisions of Section 28(e),  other  applicable  state and federal laws, and the
Advisory Agreement; and (3) in the opinion of the Advisor, the total commissions
paid by the Fund will be reasonable in relation to the benefits to the Fund over
the long term. The investment management fee paid by the Fund under the Advisory
Agreement  is not  reduced  as a result of the  Advisor's  receipt  of  research
services. To request a copy of the Advisor's Soft Dollar Practices,  please call
1-800-368-3863.

The  Advisor  may engage in  "step-out"  and  "give-up"  brokerage  transactions
subject  to best  price and  execution.  In a  step-out  or  give-up  trade,  an
investment   advisor  directs  trades  to  a  broker-dealer   who  executes  the
transactions while a second  broker-dealer clears and settles part or all of the
transaction. The first broker-dealer then shares part of its commission with the
second  broker-dealer.  The Advisor engages in step-out and give-up transactions
primarily  (1) to  satisfy  directed  brokerage  arrangements  of certain of its
client  accounts  and/or (2) to pay  commissions  to  broker-dealers  who supply
research or analytical services.


Generally,  research services provided by brokers may include information on the
economy,  industries,  groups of securities,  individual companies,  statistical
information,  accounting and tax law  interpretations,  political  developments,
legal  developments  affecting  portfolio  securities,  technical market action,
pricing and appraisal  services,  credit analysis,  risk  measurement  analysis,
performance  analysis,  and analysis of corporate  responsibility  issues.  Such
research  services  are  received  primarily  in the  form of  written  reports,
telephone contacts,  and personal meetings with security analysts.  In addition,
such  research  services  may be  provided  in the  form of  access  to  various
computer-generated  data, computer hardware and software,  and meetings arranged
with  corporate  and  industry  spokespersons,   economists,  academicians,  and
government  representatives.  In some cases,  research services are generated by
third  parties  but are  provided  to the  Advisor by or through  brokers.  Such
brokers may pay for all or a portion of computer  hardware  and  software  costs
relating to the pricing of securities.

Where the Advisor itself receives both administrative  benefits and research and
brokerage services from the services provided by brokers,  it makes a good faith
allocation  between the  administrative  benefits and the research and brokerage
services, and will pay for any administrative benefits with cash. In making good
faith  allocations  between  administrative  benefits and research and brokerage
services, a conflict of interest may exist by reason of the Advisor's allocation
of the costs of such benefits and services between those that primarily  benefit
the  Advisor  and those  that  primarily  benefit  the Fund and  other  advisory
clients.

From time to time,  the Advisor may  purchase new issues of  securities  for the
Fund in a fixed income price offering. In these situations,  the seller may be a
member of the selling group that will, in addition to selling the  securities to
the Fund and other advisory clients, provide the Advisor with research. The NASD
has adopted rules expressly permitting these types of arrangements under certain
circumstances.  Generally,  the seller will provide research  "credits" in these
situations  at a rate that is higher  than that which is  available  for typical
secondary market  transactions.  These arrangements may not fall within the safe
harbor of Section 28(e).

At least annually,  the Advisor  considers the amount and nature of research and
research  services  provided  by  brokers,  as well as the  extent to which such
services  are relied upon,  and attempts to allocate a portion of the  brokerage
business  of  the  Fund  and  other  advisory  clients  on  the  basis  of  that
consideration.  In addition,  brokers may suggest a level of business they would
like to  receive  in order to  continue  to provide  such  services.  The actual
brokerage  business  received by a broker may be more or less than the suggested
allocations,   depending  upon  the  Advisor's   evaluation  of  all  applicable
considerations.

The  Advisor  has  informal   arrangements  with  various  brokers  whereby,  in
consideration for providing  research services and subject to Section 28(e), the
Advisor  allocates  brokerage  to those  firms,  provided  that the value of any
research and brokerage  services was reasonable in relationship to the amount of
commission paid and was subject to best  execution.  In no case will the Advisor
make  binding  commitments  as to the  level of  brokerage  commissions  it will
allocate to a broker, nor will it commit to pay cash if any informal targets are
not met. The Advisor  anticipates  it will continue to enter into such brokerage
arrangements.

The Advisor  may direct the  purchase  of  securities  on behalf of the Fund and
other advisory  clients in secondary  market  transactions,  in public offerings
directly from an underwriter,  or in privately  negotiated  transactions with an
issuer.  When the Advisor  believes  the  circumstances  so warrant,  securities
purchased in public  offerings may be resold  shortly after  acquisition  in the
immediate  aftermarket  for the  security  in order to take  advantage  of price
appreciation  from the public  offering price or for other  reasons.  Short-term
trading of securities acquired in public offerings, or otherwise,  may result in
higher portfolio turnover and associated brokerage expenses.

The Advisor places portfolio transactions for other advisory accounts, including
other mutual funds managed by the Advisor.  Research services furnished by firms
through which the Fund effects its  securities  transactions  may be used by the
Advisor in servicing all of its  accounts;  not all of such services may be used
by the Advisor in connection with the Fund. In the opinion of the Advisor, it is
not possible to measure  separately the benefits from research  services to each
of the  accounts  managed by the  Advisor.  Because the volume and nature of the
trading activities of the accounts are not uniform, the amount of commissions in
excess of those charged by another broker paid by each account for brokerage and
research services will vary. However, in the opinion of the Advisor,  such costs
to the Fund will not be disproportionate to the benefits received by the Fund on
a continuing basis.

The  Advisor  seeks  to  allocate  portfolio   transactions  equitably  whenever
concurrent  decisions  are made to purchase or sell  securities  by the 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 the Fund. In making
such allocations between the Fund and other advisory accounts,  the main factors
considered by the Advisor are the respective investment objectives, the relative
size  of  portfolio  holdings  of  the  same  or  comparable   securities,   the
availability  of  cash  for  investment,  the  size  of  investment  commitments
generally held, and the opinions of the persons responsible for recommending the
investment.


<PAGE>




From time to time,  the  Advisor  may  invest for a client in  securities  being
offered in an initial public  offering  ("IPO"),  if the portfolio  manager team
responsible  for the account  believes the investment  appropriate and desirable
for that client. In making this judgment,  the team generally  considers,  among
other things, the client's investment objectives and restrictions, tolerance for
risk and high portfolio turnover and tax situation; the investment merits of the
IPO; the account's  current  holdings and the  availability of funds to make the
investment;  whether  a  meaningful  position  in the IPO  securities  could  be
obtained for the account; and expected transaction and other costs to the client
making  the   investment.   The  team  also  may  consider  the  account's  past
participation  in  IPOs  and  secondary  offerings;  brokerage  commissions  and
mark-ups  or  mark-downs  generated  by trading for the  account;  and any other
indicators  of  the  client's  contribution  to  the  availability  of  the  IPO
investment  opportunity.  After weighing these and other relevant  factors,  the
portfolio manager team may decide to invest in a particular IPO for some but not
all clients,  or for no clients.  IPO investments made by a team for two or more
clients  may  be  in  amounts  that  are  not  equal  or  proportionate  to  the
participating  account's  asset size.  Other  portfolio  manager  teams may make
different investment decisions for their clients about the same IPO. When a Fund
is small,  IPOs may greatly increase the Fund's total returns.  But, as the Fund
grows  larger,  the Fund is unlikely  to achieve the same level of returns  from
IPOs.  Investing  in IPOs is risky,  and the prices of stocks  purchased in IPOs
tend to fluctuate more widely than stocks of more established companies.

"Hot  issues" are IPOs that trade at a premium  when  secondary  market  trading
begins.  Typically,  the demand for "hot  issues"  exceeds the  supply,  and the
amount of any "hot issue" IPO made  available to an investment  manager like the
Advisor usually is limited.  In addition,  IPO  underwriters  tend to offer "hot
issues" on a priority  basis to  investors  that have  invested or are likely to
invest in other offerings  underwritten by the same firm or that have executed a
significant  volume of trades through the firm. A portfolio manager team may buy
larger  amounts  of "hot  issue"  IPOs for those  clients  whose  past  trading,
investing and other  activities have contributed to the availability of specific
"hot issue" IPOs or "hot issue" IPOs generally to the Advisor.

Each portfolio manager team places its clients' orders for a particular IPO with
the  Advisor's  trading  desk,  and the trading  desk seeks to fill those orders
together.  If the  trading  desk is not  able to  obtain  the  total  amount  of
securities needed to fill all orders, the shares actually obtained are allocated
by  the  trading  desk  among  the  participating  portfolio  manager  teams  in
accordance with pre-established percentages for each team. The trading desk then
reallocates each team's percentage among those team clients participating in the
order  PRO RATA  according  to the  number of shares  ordered  for each  client,
subject to rounding up or down to eliminate odd lots or de minimis amounts.  The
percentages of each limited availability IPO, typically a "hot issue," allocated
to each  team are  fixed  in  advance,  based  on the  amount  of  assets  under
management by each team and other indicators of a team's overall contribution to
IPO deal flow,  including brokerage generated and the team's overall trading and
investing pattern. Team allocation percentages are periodically  reevaluated and
adjusted  if  appropriate,  generally  at  intervals  of six months or more.  In
addition,  a  separate,  fixed  portion  of  the  percentage  allocation  of the
portfolio manager team that manages the Advisor's private investment  companies,
or "hedge funds," is specifically  designated to go to the hedge funds. Like the
team level allocations,  the amount designated for the hedge funds is determined
in  advance  and is subject  to  periodic  reevaluation  and  adjustment.  It is
designed  to  recognize  the  significant  contribution  made by the trading and
investing of the hedge funds to IPO deal flow to the Advisor.

The Advisor's policy and procedures for allocating IPO investment opportunities,
including  "hot  issues,"  are  designed  to ensure that all clients are treated
fairly and  equitably  over time.  The Advisor does not,  however,  allocate IPO
investment opportunities among its clients in equal amounts or PRO RATA based on
the size of an account's assets. Under the Advisor's IPO allocation  procedures,
certain  clients,  including  the hedge funds,  may receive a greater share than
other clients (in  proportion  to the size of their  account  assets) of the IPO
investment  opportunities available to the Advisor,  including "hot issue" IPOs.
These  differences  in IPO  allocations  result from,  among other  things,  (1)
different  judgments  made by each  portfolio  manager  team at the  time an IPO
investment  opportunity  arises  as to  whether  it  would  be a  desirable  and
appropriate  investment  for each  particular  client  and (2) the fact that the
Advisor's IPO allocation  procedures permit those clients who contribute more to
"hot issue" deal flow to receive  greater  allocations  of limited  availability
"hot  issue"  IPOs in  proportion  to the  size of  their  accounts  than may be
allocated to other clients. .

The Advisor also has a policy of blocking further  purchases of IPOs for certain
client  accounts when the portion of the account's total return for the trailing
four-calendar-quarter  period-to-date  that is  attributable  to IPO investments
exceeds  certain  percentage  limits.  The  restriction  remains in place  until
IPO-driven  performance  falls  below  the  percentage  limits.  This  policy is
designed  to help ensure that the  Advisor  does not  attract  separate  account
clients  or fund  investors  on the  basis of  IPO-driven  performance  that the
Advisor may not be able to sustain or replicate.  The blocking policy is applied
only to those registered investment companies and separate account clients whose
performance is advertised or included in composites of account  performance used
to market the Advisor's services. The hedge funds managed by the Advisor are not
subject to these limits.

The  Advisor's   policies  and  procedures   generally  result  in  greater  IPO
allocations  (as a percentage  of client assets under  management)  to the hedge
funds  and to other  clients  whose  accounts  are  actively  traded,  have high
portfolio  turnover  rates or invest  heavily in all types of IPOs and secondary
offerings.  As do the hedge  funds,  these  clients may pay the  Advisor  higher
account management fees, including performance fees.


Transactions  in futures  contracts  are  executed  through  futures  commission
merchants  ("FCMs").  The Fund's  procedures  in  selecting  FCMs to execute the
Fund's  transactions  in futures  contracts  are similar to those in effect with
respect to brokerage transactions in securities.

The  Fund  paid  the  following  brokerage  commissions  for  the  time  periods
indicated:
<TABLE>
<CAPTION>
<S>                                                                                  <C>

FISCAL YEAR ENDED                                                          BROKERAGE COMMISSIONS ($)
------------------------------------------------------------ ---------------------------------------------------------

High-Yield Municipal Bond Fund


8/31/98                                                                            11,570
8/31/99                                                                            18,021
8/31/00                                                                                12


Municipal Bond Fund


8/31/98                                                                             1,641
8/31/99                                                                             8,196
8/31/00                                                                                31


Short-Term High Yield Municipal Fund


8/31/98(1)                                                                              0
8/31/99                                                                             1,932
8/31/00                                                                                 5


Short-Term Municipal Bond Fund


8/31/98                                                                               955
8/31/99                                                                                 0
8/31/00                                                                                 4



</TABLE>


(1)  For the nine-month fiscal period ended August 31, 1998.


CUSTODIAN


As custodian of the Fund's assets,  Firstar Bank Milwaukee,  N.A., P.O. Box 761,
Milwaukee,  WI  53201,  has  custody  of all  securities  and cash of the  Fund,
delivers  and  receives  payment  for  securities  sold,  receives  and pays for
securities  purchased,  collects  income from  investments,  and performs  other
duties,  all as directed by officers  of the Fund.  The  custodian  is in no way
responsible for any of the investment policies or decisions of the Fund.



<PAGE>




TRANSFER AGENT AND DIVIDEND DISBURSING AGENT


The Advisor,  P.O. Box 2936,  Milwaukee,  WI 53201,  acts as transfer  agent and
dividend-disbursing agent for the Fund. The Advisor is compensated as follows:

<TABLE>
<CAPTION>
<S>                                                                 <C>

-------------------------------------- -------------------------------------------------------------------------------
FUND TYPE/SHARE CLASS                                               FEE*
-------------------------------------- -------------------------------------------------------------------------------
-------------------------------------- -------------------------------------------------------------------------------
Money Funds and Investor Class         $32.50 annual open account fee, $4.20 annual closed account fee.
shares of Money Funds
-------------------------------------- -------------------------------------------------------------------------------
-------------------------------------- -------------------------------------------------------------------------------
Advisor Class shares of Money          0.20% of the average daily net asset value of all Advisor Class shares.
Funds(1)
-------------------------------------- -------------------------------------------------------------------------------
-------------------------------------- -------------------------------------------------------------------------------
Institutional class shares of Money    0.015% of the average daily net asset value of all Institutional Class shares.
Funds
-------------------------------------- -------------------------------------------------------------------------------
-------------------------------------- -------------------------------------------------------------------------------
Income Funds and Investor Class        $31.50 annual open account fee, $4.20 annual closed account fee.
shares of Income Funds
-------------------------------------- -------------------------------------------------------------------------------
-------------------------------------- -------------------------------------------------------------------------------
Advisor Class shares of Income Funds   0.20% of the average daily net asset value of all Advisor Class shares.
-------------------------------------- -------------------------------------------------------------------------------
-------------------------------------- -------------------------------------------------------------------------------
Institutional Class shares of Income   0.015% of the average daily net asset value of all Institutional Class shares.
Funds
-------------------------------------- -------------------------------------------------------------------------------
-------------------------------------- -------------------------------------------------------------------------------
Equity Funds and Investor Class        $21.75 annual open account fee, $4.20 annual closed account fee.
shares of Equity Funds
-------------------------------------- -------------------------------------------------------------------------------
-------------------------------------- -------------------------------------------------------------------------------
Advisor Class shares of Equity Funds   0.20% of the average daily net asset value of all Advisor Class shares.
-------------------------------------- -------------------------------------------------------------------------------
-------------------------------------- -------------------------------------------------------------------------------
Institutional Class shares of Equity   0.015% of the average daily net asset value of all Institutional Class shares.
Funds
-------------------------------------- -------------------------------------------------------------------------------
</TABLE>

* Plus  out-of-pocket  expenses,  such  as  postage  and  printing  expenses  in
connection with  shareholder  communications.  (1) Excluding the Strong Heritage
Money Fund.  The fee for the Heritage  Money Fund is 0.015% of the average daily
net asset value of all Advisor Class shares.

The fees and services  provided as transfer agent and dividend  disbursing agent
are in addition to those received and provided by the Advisor under the Advisory
Agreements.

From time to time, the Fund,  directly or indirectly  through  arrangements with
the  Advisor,  and/or the Advisor  may pay fees to third  parties  that  provide
transfer  agent type services and other  administrative  services to persons who
beneficially own interests in the Fund, such as participants in 401(k) plans and
shareholders who invest through other financial  intermediaries.  These services
may include, among other things,  sub-accounting  services,  transfer agent type
activities,  answering  inquiries  relating  to  the  Fund,  transmitting  proxy
statements, annual reports, updated prospectuses, other communications regarding
the Fund, and related  services as the Fund or beneficial  owners may reasonably
request.  In such  cases,  the Fund  will not pay fees  based on the  number  of
beneficial  owners at a rate that is greater than the rate the Fund is currently
paying the Advisor for providing these services to Fund  shareholders;  however,
the Advisor may pay to the third party amounts in excess of such  limitation out
of its own profits.

The Fund paid the following  amounts for the time periods indicated for transfer
agency and dividend disbursing and printing and mailing services:
<TABLE>
<CAPTION>
<S>                          <C>               <C>                 <C>                 <C>                <C>


                                           Out-of-Pocket     Printing/Mailing                          Total Cost
Fund                       Fee ($)          Expenses ($)       Services ($)         Waiver ($)      After Waiver ($)

--------------------- ------------------ ------------------- ------------------ ------------------- ------------------

High-Yield Municipal Bond Fund - Investor Class


8/31/1998                   291,726            20,274              9,999                 0                321,999
8/31/1999                   436,171            46,645              2,370                 0                485,186
8/31/2000                   420,155            23,983                954                 0                445,092

High-Yield Municipal Bond Fund - Advisor Class

8/31/2000(2)                     15                 0                  0                 0                     15


Municipal Bond Fund - Investor Class



8/31/1998                   284,090            18,348              4,059                 0                306,497
8/31/1999                   347,518            26,735              1,904                 0                376,157
8/31/2000                   329,410            21,365                967                 0                351,743

Municipal Bond Fund - Advisor Class

8/31/2000(2)                     15                 0                  0                 0                     15

Municipal Bond Fund - Institutional Class

8/31/2000(3)                      0                 0                  0                 0                      0


Short-Term High Yield Municipal Fund - Investor Class


8/31/1998(1)                 10,648             5,028                 57             1,862                 13,871
8/31/1999                    48,819             9,380                273                 0                 58,472
8/31/2000                    70,864             7,622                144                 0                 78,630

Short-Term High Yield Municipal Fund - Advisor Class

8/31/2000(2)                     15                 0                  0                 0                     15


Short-Term Municipal Bond Fund - Investor Class


8/31/1998                   147,004             9,941              2,029                 0                158,974
8/31/1999                   175,340            24,622                909                 0                200,871
8/31/2000                   193,524            17,283                463                 0                211,270

Short-Term Municipal Bond Fund - Advisor Class

8/31/2000(2)                    956                 1                  0                 0                    957


Short-Term Municipal Bond Fund - Institutional Class

8/31/2000(3)                      0                 0                  0                 0                      0


</TABLE>



(1)  For the nine-month fiscal period ended August 31, 1998.
(2)  For the six-month fiscal period ended August 31, 2000.
(3)  For the one-month fiscal period ended August 31, 2000.



<PAGE>




TAXES

GENERAL


The Fund intends to qualify  annually for treatment as a RIC under  Subchapter M
of the IRC. If so qualified,  the Fund will not be liable for federal income tax
on earnings and gains  distributed to its shareholders in a timely manner.  This
qualification does not involve  government  supervision of the Fund's management
practices or  policies.  The  following  federal tax  discussion  is intended to
provide you with an overview of the impact of federal  income tax  provisions on
the Fund or its  shareholders.  These tax  provisions  are  subject to change by
legislative or administrative action at the federal,  state, or local level, and
any  changes  may be  applied  retroactively.  Any such  action  that  limits or
restricts the Fund's current ability to pass-through  earnings  without taxation
at the Fund level,  or otherwise  materially  changes the Fund's tax  treatment,
could  adversely  affect the value of a  shareholder's  investment  in the Fund.
Because  the Fund's  taxes are a complex  matter,  you should  consult  your tax
adviser for more detailed  information  concerning  the taxation of the Fund and
the federal,  state, and local tax consequences to shareholders of an investment
in the Fund.


In order to  qualify  for  treatment  as a RIC  under  the  IRC,  the Fund  must
distribute  to its  shareholders  for  each  taxable  year at  least  90% of its
investment  company  taxable  income   (consisting   generally  of  taxable  net
investment  income,  net  short-term  capital  gain,  and net gains from certain
foreign currency transactions,  if applicable) ("Distribution Requirement") plus
its net investment  income  excludable from gross income under Section 103(a) of
the Tax Code and must meet several additional  requirements.  These requirements
include the following: (1) the Fund must derive at least 90% of its gross income
each taxable year from dividends,  interest, payments with respect to securities
loans,  and gains from the sale or other  disposition  of securities (or foreign
currencies  if  applicable)  or other  income  (including  gains  from  options,
futures, or forward contracts) derived with respect to its business of investing
in securities  ("Income  Requirement");  (2) at the close of each quarter of the
Fund's  taxable  year,  at least 50% of the value of its  total  assets  must be
represented by cash and cash items, U.S.  government  securities,  securities of
other RICs,  and other  securities,  with these  other  securities  limited,  in
respect of any one issuer,  to an amount that does not exceed 5% of the value of
the  Fund's  total  assets  and that  does not  represent  more  than 10% of the
issuer's outstanding voting securities;  and (3) at the close of each quarter of
the Fund's  taxable year, not more than 25% of the value of its total assets may
be  invested  in  securities  (other  than  U.S.  government  securities  or the
securities of other RICs) of any one issuer.  There is a 30-day period after the
end of each calendar year quarter in which to cure any non-compliance with these
requirements.  From  time to time  the  Advisor  may find it  necessary  to make
certain types of investments for the purpose of ensuring that the Fund continues
to qualify for treatment as a RIC under the IRC.


If Fund  shares are sold at a loss after  being held for 12 months or less,  the
loss will be disallowed to the extent of any exempt interest  dividends received
on those  shares.  Any  portion  of such a loss that is not  disallowed  will be
treated as long-term,  instead of short-term,  capital loss to the extent of any
capital gain distributions received on those shares.

The Fund's distributions are taxable in the year they are paid, whether they are
taken  in  cash  or  reinvested  in  additional  shares,   except  that  certain
distributions  declared in the last three months of the year and paid in January
are taxable as if paid on December 31.


The Fund will be subject to a nondeductible  4% excise tax ("Excise Tax") to the
extent it fails to distribute by the end of any calendar year  substantially all
of its  ordinary  income  for that  year and  capital  gain net  income  for the
one-year  period ending on October 31 of that year,  plus certain other amounts.
The Fund may make additional  distributions  if necessary to avoid imposition of
the Excise Tax on undistributed income and gains.

DERIVATIVE INSTRUMENTS

The use of  derivatives  strategies,  such as purchasing  and selling  (writing)
options and futures and entering into forward currency contracts, if applicable,
involves complex rules that will determine for income tax purposes the character
and  timing  of  recognition  of the  gains  and  losses  the Fund  realizes  in
connection therewith.  Gains from the disposition of foreign currencies,  if any
(except certain gains therefrom that may be excluded by future regulations), and
income from transactions in options, futures, and forward currency contracts, if
applicable,  derived by the Fund with  respect to its  business of  investing in
securities or foreign  currencies,  if  applicable,  will qualify as permissible
income under the Income Requirement.

For federal income tax purposes, the Fund is required to recognize as income for
each taxable year its net unrealized  gains and losses on options,  futures,  or
forward currency contracts,  if any, that are subject to section 1256 of the IRC
("Section 1256  Contracts")  and are held by the Fund as of the end of the year,
as well as gains and losses on Section 1256 Contracts  actually  realized during
the year.  Except for Section 1256 Contracts that are part of a "mixed straddle"
and with  respect to which the Fund makes a certain  election,  any gain or loss
recognized  with  respect to Section  1256  Contracts  is  considered  to be 60%
long-term capital gain or loss and 40% short-term  capital gain or loss, without
regard to the holding period of the Section 1256 Contract.


MUNICIPAL SECURITIES

A  substantial  portion  of the  dividends  paid by the  Fund  will  qualify  as
exempt-interest  dividends and thus will be excludable  from gross income by its
shareholders,  if the Fund satisfies the requirement  that, at the close of each
quarter  of its  taxable  year,  at least 50% of the  value of its total  assets
consists of  securities  the interest on which is  excludable  from gross income
under section 103(a);  the Fund intends to continue to satisfy this requirement.
The aggregate  dividends  excludable from the Fund's  shareholders' gross income
may not exceed the Fund's net tax-exempt income. The shareholders'  treatment of
dividends  from the Fund under  local and state  income tax laws may differ from
the treatment thereof under the Tax Code.

Tax-exempt  interest  attributable  to certain  private  activity bonds ("PABs")
(including,  in  the  case  of  a  RIC  receiving  interest  on  such  bonds,  a
proportionate part of the exempt-interest dividends paid by that RIC) is subject
to  the  alternative  minimum  tax.  Exempt-interest  dividends  received  by  a
corporate  shareholder also may be indirectly subject to that tax without regard
to whether  the Fund's  tax-exempt  interest  was  attributable  to such  bonds.
Entities  or  persons  who  are  "substantial  users"  (or  persons  related  to
"substantial  users") of facilities  financed by PABs or industrial  development
bonds ("IDBs") should consult their tax advisors before purchasing shares of the
Fund  because,  for users of certain of these  facilities,  the interest on such
bonds is not exempt  from  federal  income  tax.  For these  purposes,  the term
"substantial  user" is defined  generally to include a  "non-exempt  person" who
regularly  uses in trade or  business  a part of a  facility  financed  from the
proceeds of PABs or IDBs.

The Fund may invest in  municipal  bonds that are  purchased,  generally  not on
their original  issue,  with market  discount (that is, at a price less than the
principal  amount  of the bond or, in the case of a bond  that was  issued  with
original  issue  discount,  a price less than the amount of the issue price plus
accrued original issue discount)  ("municipal  market discount  bonds").  Market
discount  generally  arises when the value of the bond declines  after  issuance
(typically,  because of an increase in prevailing interest rates or a decline in
the issuer's  creditworthiness).  Gain on the disposition of a municipal  market
discount bond purchased by the Fund after April 30, 1993 (other than a bond with
a fixed maturity date within one year from its  issuance),  generally is treated
as ordinary  (taxable)  income,  rather than capital  gain, to the extent of the
bond's accrued market  discount at the time of  disposition.  Market discount on
such a bond generally is accrued ratably, on a daily basis, over the period from
the  acquisition  date  to the  date  of  maturity.  In  lieu  of  treating  the
disposition  gain as above, the Fund may elect to include market discount in its
gross income currently, for each taxable year to which it is attributable.


PASS-THROUGH INCOME TAX EXEMPTION

Most state laws provide a pass-through to mutual fund  shareholders of the state
and local  income  tax  exemption  afforded  owners of  direct  U.S.  government
obligations.  You will be notified annually of the percentage of a Fund's income
that is derived from U.S. government securities.

USE OF TAX-LOT ACCOUNTING

When sell  decisions  are made by the  Fund's  portfolio  manager,  the  Advisor
generally sells the tax lots of the Fund's securities that results in the lowest
amount  of taxes  to be paid by the  shareholders  on the  Fund's  capital  gain
distributions.  The Advisor uses tax-lot accounting to identify and sell the tax
lots of a security  that have the  highest  cost basis  and/or  longest  holding
period to minimize adverse tax consequences to the Fund's shareholders. However,
if the Fund has a capital loss carry forward position, the Advisor would reverse
its strategy and sell the tax lots of a security that have the lowest cost basis
and/or  shortest  holding  period to maximize the use of the Fund's capital loss
carry forward position.



<PAGE>



ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES

The Fund may acquire zero-coupon,  step-coupon,  or other securities issued with
original issue discount. As a holder of those securities,  the Fund must include
in its income the original issue discount that accrues on the securities  during
the taxable  year,  even if the Fund  receives no  corresponding  payment on the
securities  during  the year.  Similarly,  the Fund must  include  in its income
securities it receives as "interest" on pay-in-kind securities. Because the Fund
annually must  distribute  substantially  all of its investment  company taxable
income,  including any original  issue discount and other  non-cash  income,  to
satisfy the Distribution  Requirement and avoid imposition of the Excise Tax, it
may be required in a particular  year to distribute as a dividend an amount that
is  greater  than  the  total  amount  of  cash  it  actually  receives.   Those
distributions may be made from the proceeds on sales of portfolio securities, if
necessary.  The Fund may realize capital gains or losses from those sales, which
would increase or decrease its investment  company taxable income or net capital
gain, or both.


DETERMINATION OF NET ASSET VALUE


Generally, when an investor makes any purchases,  sales, or exchanges, the price
of the  investor's  shares will be the net asset value  ("NAV") next  determined
after Strong Funds receives a request in proper form (which includes  receipt of
all necessary and appropriate documentation and subject to available funds). The
"offering  price" is the initial sales  charge,  if any, plus the NAV. If Strong
Funds  receives such a request prior to the close of the New York Stock Exchange
("NYSE")  on a day on which the NYSE is open,  the share  price  will be the NAV
determined  that day.  The NAV for each Fund or each class of shares is normally
determined  as of 3:00 p.m.  Central Time ("CT") each day the NYSE is open.  The
NYSE is open for trading  Monday  through  Friday except New Year's Day,  Martin
Luther King Jr. Day,  Presidents' Day, Good Friday,  Memorial Day,  Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day. Additionally, if any of the
aforementioned  holidays  falls on a  Saturday,  the  NYSE  will not be open for
trading on the  preceding  Friday,  and when any such holiday falls on a Sunday,
the NYSE will not be open for trading on the succeeding  Monday,  unless unusual
business  conditions exist, such as the ending of a monthly or yearly accounting
period.  The Fund  reserves  the  right to change  the time at which  purchases,
redemptions,  and  exchanges  are priced if the NYSE closes at a time other than
3:00 p.m. CT or if an emergency exists. The NAV of each Fund or of each class of
shares of a Fund is  calculated  by taking the fair  value of the  Fund's  total
assets  attributable  to that Fund or  class,  subtracting  all its  liabilities
attributable  to that Fund or class,  and dividing by the total number of shares
outstanding  of that Fund or class.  Expenses are accrued daily and applied when
determining the NAV. The Fund's portfolio  securities are valued based on market
quotations or at fair value as  determined by the method  selected by the Fund's
Board of Directors.


Debt  securities are valued by a pricing  service that utilizes  electronic data
processing techniques to determine values for normal institutional-sized trading
units of debt  securities  without regard to sale or bid prices when such values
are  believed  to more  accurately  reflect  the  fair  market  value  for  such
securities.  Otherwise,  sale or bid prices are used.  Any  securities  or other
assets for which market  quotations are not readily available are valued at fair
value as  determined  in good faith by the Board of Directors of the Fund.  Debt
securities  having  remaining  maturities  of 60 days or less are  valued by the
amortized  cost method when the Fund's  Board of Directors  determines  that the
fair value of such  securities  is their  amortized  cost.  Under this method of
valuation,  a  security  is  initially  valued  at  its  acquisition  cost,  and
thereafter,  amortization  of any  discount  or  premium  is  assumed  each day,
regardless  of the impact of the  fluctuating  rates on the market  value of the
instrument.


ADDITIONAL SHAREHOLDER INFORMATION


BROKERS RECEIPT OF PURCHASE AND REDEMPTION ORDERS

The Fund has authorized certain brokers to accept purchase and redemption orders
on the Fund's behalf. These brokers are, in turn,  authorized to designate other
intermediaries  to accept  purchase and redemption  orders on the Fund's behalf.
The Fund will be deemed to have received a purchase or redemption  order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order.  Purchase and redemption orders received in this manner will be priced at
the  Fund's  net  asset  value  next  computed  after  they are  accepted  by an
authorized broker or the broker's authorized designee.

DEPOSIT OF UNSPECIFIED CHECKS
When your  investment  check does not clearly  indicate  the fund that you would
like to  purchase,  we will  deposit the check into the Strong Money Market Fund
until you clarify your investment decision.

DOLLAR COST AVERAGING

Strong Funds'  Automatic  Investment  Plan,  Payroll  Direct  Deposit Plan,  and
Automatic  Exchange  Plan are methods of  implementing  dollar  cost  averaging.
Dollar cost averaging is an investment  strategy that involves investing a fixed
amount of money at regular  time  intervals.  By always  investing  the same set
amount,  an investor  will be  purchasing  more shares when the price is low and
fewer  shares when the price is high.  Ultimately,  by using this  principle  in
conjunction  with  fluctuations in share price,  an investor's  average cost per
share may be less than the  average  transaction  price.  A program  of  regular
investment  cannot  ensure a profit or protect  against a loss during  declining
markets.  Since such a program  involves  continuous  investment  regardless  of
fluctuating  share values,  investors  should consider their ability to continue
the  program  through  periods of both low and high  share-price  levels.  These
methods are unavailable for Institutional Class accounts.


FEE WAIVERS

The Fund  reserves  the right to waive  some or all fees in  certain  conditions
where the application of the fee would not serve its purpose.

FINANCIAL INTERMEDIARIES

If an  investor  purchases  or redeems  shares of the Fund  through a  financial
intermediary, certain features of the Fund relating to such transactions may not
be available or may be modified.  In addition,  certain operational  policies of
the Fund,  including those related to settlement and dividend accrual,  may vary
from  those  applicable  to direct  shareholders  of the Fund and may vary among
intermediaries.  Please consult your financial intermediary for more information
regarding these matters.  In addition,  the Fund may pay, directly or indirectly
through arrangements with the Advisor,  amounts to financial intermediaries that
provide  transfer  agent type  and/or  other  administrative  services  to their
customers.  The Fund will not pay more for these services  through  intermediary
relationships  than  it  would  if the  intermediaries'  customers  were  direct
shareholders  in the  Fund;  however,  the  Advisor  may  pay  to the  financial
intermediary  amounts  in  excess  of such  limitation  out of its own  profits.
Certain financial intermediaries may charge an advisory,  transaction,  or other
fee for their services. Investors will not be charged for such fees if investors
purchase or redeem Fund shares  directly from the Fund without the  intervention
of a financial intermediary.

FUND REDEMPTIONS

Shareholders  (except Advisor and  Institutional  Class  shareholders)  can gain
access to the money in their accounts by selling (also called redeeming) some or
all of their shares by mail, telephone, computer, automatic withdrawals, through
a broker-dealer,  or by writing a check (assuming all the appropriate  documents
and  requirements  have  been  met  for  these  account  options).  Advisor  and
Institutional  Class  shareholders  may  redeem  some or all of their  shares by
telephone  or by  faxing  a  written  request.  After a  redemption  request  is
processed, the proceeds from the sale will normally be sent on the next business
day but, in any event, no more than seven days later.


MOVING ACCOUNT OPTIONS AND INFORMATION


When  establishing a new account (other than an Institutional  Class account) by
exchanging  funds from an existing  Strong Funds account,  some account  options
(such as  check  writing,  the  Exchange  Option,  Express  PurchaseSM,  and the
Redemption  Option),  if existing on the account from which money is  exchanged,
will  automatically  be made available on the new account unless the shareholder
indicates otherwise, or the option is not available on the new account.  Subject
to applicable Strong Funds policies, other account options,  including automatic
investment,  automatic exchange, and systematic withdrawal,  may be moved to the
new account at the request of the  shareholder.  These options are not available
for Institutional  Class accounts.  If allowed by Strong Funds policies (i) once
the account  options are  established on the new account,  the  shareholder  may
modify or amend the options, and (ii) account options may be moved or added from
one existing account to another new or existing  account.  Account  information,
such as the shareholder's  address of record and social security number, will be
copied from the existing account to the new account.



<PAGE>




PROMOTIONAL ITEMS

From time to time, the Advisor and/or  Distributor  may give de minimis gifts or
other  immaterial  consideration  to  investors  who open new accounts or add to
existing  accounts with the Strong Funds.  In addition,  from time to time,  the
Advisor  and/or  Distributor,  alone or with  other  entities  or  persons,  may
sponsor, participate in conducting, or be involved with sweepstakes, give-aways,
contests,  incentive promotions, or other similar programs ("Give-Aways").  This
is done in order to,  among other  reasons,  increase the number of users of and
visits to the Fund's Internet web site. As part of the  Give-Aways,  persons may
receive cash or other awards including without limitation,  gifts,  merchandise,
gift  certificates,   travel,  meals,  and  lodging.  Under  the  Advisor's  and
Distributor's  standard rules for  Give-Aways,  their  employees,  subsidiaries,
advertising and promotion agencies,  and members of their immediate families are
not eligible to enter the Give-Aways.

REDEMPTION IN KIND

The Fund has  elected to be  governed  by Rule 18f-1  under the 1940 Act,  which
obligates the Fund to redeem shares in cash, with respect to any one shareholder
during any 90-day  period,  up to the lesser of  $250,000 or 1% of the assets of
the Fund. If the Advisor determines that existing  conditions make cash payments
undesirable,  redemption  payments may be made in whole or in part in securities
or other  financial  assets,  valued  for this  purpose  as they are  valued  in
computing the NAV for the Fund's shares (a "redemption  in kind").  Shareholders
receiving  securities  or other  financial  assets in a  redemption  in kind may
realize a gain or loss for tax  purposes,  and will incur any costs of sale,  as
well as the  associated  inconveniences.  If you expect to make a redemption  in
excess of the lesser of  $250,000 or 1% of the Fund's  assets  during any 90-day
period and would  like to avoid any  possibility  of being paid with  securities
in-kind,  you  may  do  so by  providing  Strong  Funds  with  an  unconditional
instruction  to redeem at least 15 calendar  days prior to the date on which the
redemption  transaction  is to occur,  specifying the dollar amount or number of
shares  to  be  redeemed   and  the  date  of  the   transaction   (please  call
1-800-368-3863).  This will provide the Fund with  sufficient  time to raise the
cash in an orderly manner to pay the redemption and thereby  minimize the effect
of the redemption on the interests of the Fund's remaining shareholders.


Redemption checks in excess of the lesser of $250,000 or 1% of the Fund's assets
during  any  90-day  period  may  not be  honored  by the  Fund  if the  Advisor
determines that existing conditions make cash payments undesirable.


RETIREMENT PLANS

TRADITIONAL  INDIVIDUAL RETIREMENT ACCOUNT (IRA): Everyone under age 70 1/2 with
earned income may contribute to a tax-deferred Traditional IRA. The Strong Funds
offer a prototype  plan for you to establish your own  Traditional  IRA. You are
allowed to  contribute  up to the lesser of $2,000 or 100% of your earned income
each year to your  Traditional IRA (or up to $4,000 between your Traditional IRA
and your non-working  spouses'  Traditional  IRA). Under certain  circumstances,
your contribution will be deductible.

ROTH IRA: Taxpayers, of any age, who have earned income and whose adjusted gross
income  ("AGI")  does not exceed  $110,000  (single)  or  $160,000  (joint)  can
contribute to a Roth IRA.  Allowed  contributions  begin to phase-out at $95,000
(single) or $150,000 (joint).  You are allowed to contribute up to the lesser of
$2,000 or 100% of earned  income each year into a Roth IRA. If you also maintain
a Traditional  IRA, the maximum  contribution to your Roth IRA is reduced by any
contributions  that you make to your Traditional IRA.  Distributions from a Roth
IRA, if they meet certain  requirements,  may be federally tax free. If your AGI
is $100,000  or less,  you can convert  your  Traditional  IRAs into a Roth IRA.
Conversions of earnings and deductible  contributions are taxable in the year of
the  distribution.  The early  distribution  penalty  does not apply to  amounts
converted to a Roth IRA even if you are under age 59 1/2.

EDUCATION  IRA:  Taxpayers may  contribute up to $500 per year into an Education
IRA for the  benefit of a child  under age 18.  Total  contributions  to any one
child cannot exceed $500 per year.  The  contributor  must have adjusted  income
under $110,000  (single) or $160,000  (joint) to contribute to an Education IRA.
Allowed  contributions  begin to  phase-out  at  $95,000  (single)  or  $150,000
(joint).  Withdrawals  from the Education IRA to pay qualified  higher education
expenses are federally tax free.  Any  withdrawal in excess of higher  education
expenses  for the year are  potentially  subject  to tax and an  additional  10%
penalty.

DIRECT  ROLLOVER  IRA: To avoid the  mandatory  20% federal  withholding  tax on
distributions,  you must transfer the qualified retirement or IRC section 403(b)
plan  distribution  directly into an IRA. The distribution  must be eligible for
rollover.  The  amount of your  Direct  Rollover  IRA  contribution  will not be
included in your taxable income for the year.

SIMPLIFIED EMPLOYEE PENSION PLAN (SEP-IRA): A SEP-IRA plan allows an employer to
make  deductible  contributions  to separate IRA accounts  established  for each
eligible employee.

SALARY REDUCTION  SIMPLIFIED EMPLOYEE PENSION PLAN (SAR SEP-IRA):  A SAR SEP-IRA
plan is a type of SEP-IRA plan in which an employer may allow employees to defer
part of their  salaries and contribute to an IRA account.  These  deferrals help
lower the employees' taxable income. Please note that you may no longer open new
SAR SEP-IRA plans (since December 31, 1996). However, employers with SAR SEP-IRA
plans that were established prior to January 1, 1997 may still open accounts for
new employees.

SIMPLIFIED INCENTIVE MATCH PLAN FOR EMPLOYEES (SIMPLE-IRA): A SIMPLE-IRA plan is
a retirement  savings plan that allows  employees to  contribute a percentage of
their  compensation,  up to $6,000, on a pre-tax basis, to a SIMPLE-IRA account.
The  employer is required to make annual  contributions  to eligible  employees'
accounts. All contributions grow tax-deferred.

DEFINED  CONTRIBUTION  PLAN: A defined  contribution  plan allows  self-employed
individuals,  partners,  or a  corporation  to provide  retirement  benefits for
themselves and their employees. Plan types include:  profit-sharing plans, money
purchase pension plans, and paired plans (a combination of a profit-sharing plan
and a money purchase plan).

401(K)  PLAN:  A  401(k)  plan  is a type of  profit-sharing  plan  that  allows
employees  to have part of their  salary  contributed  on a  pre-tax  basis to a
retirement plan which will earn tax-deferred  income. A 401(k) plan is funded by
employee contributions, employer contributions, or a combination of both.

403(B)(7) PLAN: A 403(b)(7) plan is a tax-sheltered  custodial  account designed
to  qualify  under  section  403(b)(7)  of the IRC and is  available  for use by
employees  of  certain  educational,   non-profit,   hospital,   and  charitable
organizations.

RIGHT OF SET-OFF

To the extent not  prohibited by law, the Fund,  any other Strong Fund,  and the
Advisor,  each has the right to set-off against a shareholder's  account balance
with a Strong Fund, and redeem from such account,  any debt the  shareholder may
owe any of  these  entities.  This  right  applies  even if the  account  is not
identically registered.


SHARES IN CERTIFICATE FORM

Certificates   will  be  issued  for  shares   (other  than  Advisor   Class  or
Institutional  Class  shares) held in a Fund account only upon written  request.
Certificates will not be issued for Institutional  Class or Advisor Class shares
of any Fund. A shareholder will,  however,  have full shareholder rights whether
or not a certificate is requested.

SIGNATURE GUARANTEES

A signature  guarantee is designed to protect  shareholders and the Fund against
fraudulent transactions by unauthorized persons. In the following instances, the
Fund will require a signature guarantee for all authorized owners of an account:


o    when adding the redemption option to an existing account;
o    when adding check writing to an existing account;
o    when  transferring  the  ownership of an account to another  individual  or
     organization;
o    when submitting a written redemption request for more than $100,000;
o    when  requesting  to redeem or  redeposit  shares  that have been issued in
     certificate form;
o    if requesting a certificate after opening an account;
o    when requesting that redemption proceeds be sent to a different name or
     address than is registered on an account;
o    if  adding/changing a name or  adding/removing an owner on an account;
     and
o    if  adding/changing  the  beneficiary  on a transfer-on-death account.


A signature  guarantee may be obtained from any eligible guarantor  institution,
as defined by the SEC. These institutions include banks,  savings  associations,
credit unions,  brokerage  firms,  and others.  Please note that a notary public
stamp or seal is not acceptable.


TELEPHONE AND ELECTRONIC EXCHANGE/REDEMPTION/PURCHASE PRIVILEGES

The Fund employs reasonable procedures to confirm that instructions communicated
by  telephone  or  electronically  are  genuine.  The Fund may not be liable for
losses due to unauthorized or fraudulent  instructions.  Such procedures include
but are not  limited to  requiring a form of  personal  identification  prior to
acting on  instructions  received  by  telephone  or  electronically,  providing
written  confirmations  of such  transactions  to the  address of  record,  tape
recording telephone instructions, and backing up electronic transactions.



ORGANIZATION

The  Fund  is  either  a  "Corporation"  or a  "Series"  of  common  stock  of a
Corporation, as described in the chart below:
<TABLE>
<CAPTION>
<S>                                                    <C>            <C>          <C>          <C>          <C>

                                                   Incorporation  Date Series   Date Class   Authorized      Par
 Corporation                                           Date         Created       Created      Shares     Value ($)
-------------------------------------------------- -------------- ------------- ------------ ------------ -----------
Strong High-Yield Municipal Bond Fund, Inc.          03/20/87                                Indefinite       .001
       oInvestor Class(2)                                                        03/20/87    Indefinite       .001
       oAdvisor Class                                                            02/22/00    Indefinite       .001
Strong Municipal Bond Fund, Inc.                     07/28/86                                Indefinite       .001
       oInvestor Class(2)                                                        07/28/86    Indefinite       .001
       oAdvisor Class                                                            02/22/00    Indefinite       .001
       oInstitutional Class                                                      07/24/00    Indefinite       .001
Strong Municipal Funds, Inc. (1)                     07/28/86                                Indefinite     .00001
   - Strong Municipal Advantage Fund*                               07/28/86                 Indefinite     .00001
   - Strong Municipal Money Market Fund*                            07/28/86                 Indefinite     .00001
   - Strong Short-Term High Yield                                   10/13/97                 Indefinite     .00001
    Municipal                         Fund
       oInvestor Class(2)                                                        10/13/97    Indefinite     .00001
       oAdvisor Class                                                            02/22/00    Indefinite     .00001
Strong Short-Term Municipal Bond Fund, Inc.          12/28/90                                Indefinite     .00001
       oInvestor Class(2)                                                        12/28/90    Indefinite     .00001
       oAdvisor Class                                                            02/22/00    Indefinite     .00001
       oInstitutional Class                                                      07/24/00    Indefinite     .00001
</TABLE>

* Described in a different prospectus and Statement of Additional Information.
(1)  Prior to October 27, 1995, the Corporation's name was Strong Municipal
 Money Market Fund, Inc.
(2)  Prior to  February  22,  2000 the  Investor  Class  shares of the Fund were
designated as shares of common stock of the Fund.

The Strong  Short-Term  Municipal Bond Fund,  Inc.,  Strong Municipal Bond Fund,
Inc.,  and  Strong   High-Yield   Municipal  Bond  Fund,   Inc.  are  separately
incorporated,  diversified,  open-end management  investment  companies.  Strong
Short-Term High Yield Municipal Fund is a diversified series of Strong Municipal
Funds, Inc., which is an open-end management investment company.


The Corporation is a Wisconsin  corporation that is authorized to offer separate
series of shares  representing  interests in separate  portfolios of securities,
each with differing investment objectives.  The shares in any one portfolio may,
in turn,  be offered  in  separate  classes,  each with  differing  preferences,
limitations,  or relative rights. However, the Articles of Incorporation for the
Corporation  provide  that if  additional  series  of shares  are  issued by the
Corporation,  such  new  series  of  shares  may  not  affect  the  preferences,
limitations,  or relative rights of the  Corporation's  outstanding  shares.  In
addition,  the Board of Directors of the  Corporation  is authorized to allocate
assets,  liabilities,  income,  and  expenses to each series and class.  Classes
within a series may have different  expense  arrangements  than other classes of
the same series and, accordingly,  the net asset value of shares within a series
may differ.  Finally,  all holders of shares of the Corporation may vote on each
matter  presented to  shareholders  for action except with respect to any matter
that affects only one or more series or class,  in which case only the shares of
the affected  series or class are  entitled to vote.  Each share of the Fund has
one vote,  and all shares  participate  equally in dividends  and other  capital
gains  distributions  by the Fund and in the residual  assets of the Fund in the
event of liquidation.  Fractional shares have the same rights proportionately as
do full shares.  Shares of the Corporation  have no preemptive,  conversion,  or
subscription  rights. If the Corporation  issues additional  series,  the assets
belonging  to each series of shares will be held  separately  by the  custodian,
and, in effect, each series will be a separate fund.



SHAREHOLDER MEETINGS

The Wisconsin Business Corporation Law permits registered  investment companies,
such as the Fund, to operate  without an annual  meeting of  shareholders  under
specified  circumstances  if an annual  meeting is not required by the 1940 Act.
The Fund has adopted the  appropriate  provisions  in its Bylaws and may, at its
discretion,  not hold an annual  meeting  in any year in which the  election  of
directors is not required to be acted on by shareholders under the 1940 Act.

The Fund's Bylaws allow for a director to be removed by its shareholders with or
without  cause,  only at a  meeting  called  for the  purpose  of  removing  the
director. Upon the written request of the holders of shares entitled to not less
than ten percent (10%) of all the votes entitled to be cast at such meeting, the
Secretary of the Fund shall promptly call a special meeting of shareholders  for
the  purpose  of voting  upon the  question  of  removal  of any  director.  The
Secretary shall inform such  shareholders  of the reasonable  estimated costs of
preparing and mailing the notice of the meeting, and upon payment to the Fund of
such  costs,  the Fund  shall  give not less than ten nor more than  sixty  days
notice of the special meeting.


PERFORMANCE INFORMATION

The Strong Funds may advertise a variety of types of performance  information as
more fully  described  below.  The Fund's  performance  is  historical  and past
performance does not guarantee the future  performance of the Fund. From time to
time,  the  Advisor  may agree to waive or reduce its  management  fee and/or to
absorb certain operating  expenses for the Fund.  Waivers of management fees and
absorption  of  expenses   will  have  the  effect  of  increasing   the  Fund's
performance.

A multiple class Fund will separately calculate performance information for each
class of shares.  The  performance  figures  for each class of shares  will vary
based on differences in their expense ratios.

Performance  figures for the Advisor Class shares of the Fund,  which were first
offered to the public on February 29, 2000,  include the historical  performance
of each Fund's  Investor  Class  shares for the period  from a Fund's  inception
through  February  28, 2000,  recalculated  to reflect the  additional  expenses
imposed on the Advisor Class shares.  Performance  figures for the Institutional
Class shares of the Municipal  Bond and Short-Term  Municipal Bond Funds,  which
were first  offered  to the  public on July 31,  2000,  include  the  historical
performance of each Fund's  Investor Class shares for the period from the Fund's
inception through July 30, 2000.

30-DAY YIELD

The Fund's yield is computed in accordance with a standardized method prescribed
by rules of the SEC. Under that method, the current yield quotation for the Fund
is based on a one month or 30-day  period.  In  computing  its  yield,  the Fund
follows certain standardized accounting practices specified by rules of the SEC.
These practices are not necessarily  consistent with those that the Fund uses to
prepare  annual and interim  financial  statements in conformity  with generally
accepted  accounting  principles.  The yield is  computed  by  dividing  the net
investment  income per share earned during the 30-day or one month period by the
maximum offering price per share on the last day of the period, according to the
following formula:

                           YIELD = 2[( A-B + 1)6 - 1]
                                      ----
                                       cd
Where a = dividends and interest earned during the period.
      b = expenses accrued for the period (net of reimbursements).
      c = the average daily number of shares outstanding during the period that
          were entitled to receive dividends.
      d = the maximum offering price per share on the last day of the period.

TAXABLE EQUIVALENT YIELD

The Fund's  tax-equivalent  yield is computed by  dividing  that  portion of the
Fund's yield  (computed as described  above) that is tax-exempt by one minus the
stated federal income tax rate and adding the result to that portion, if any, of
the  yield of the Fund that is not  tax-exempt.  Tax-equivalent  yield  does not
reflect possible variations due to the federal alternative minimum tax.

An investor may want to determine which investment,  tax-exempt or taxable, will
provide you with a higher  after-tax  return.  To determine  the  tax-equivalent
yield,  simply divide the yield from the tax-exempt  investment by the sum of (1
minus the  investor's  marginal  tax rate).  The tables  below are  provided for
making this calculation for selected tax-exempt yield and taxable income levels.
These  yields  are  presented  for  purposes  of  illustration  only and are not
representative of any yield that a Fund may generate.

The  following  table is based upon the 2000  federal  tax rates in effect as of
January 1, 2000.
<TABLE>
<CAPTION>
<S>                                                                            <C>

------------------------------------------------- -------------------------------------------------------------------
                                                                          A TAX-FREE YIELD OF:
------------------------------------------------- -------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
<S>                                                    <C>           <C>          <C>          <C>          <C>

------------------------------------------------- -------------- ------------ ------------- ------------ ------------
2000 Taxable Income Levels*                            4%            5%            6%           7%           8%
------------------------------------------------- -------------- ------------ ------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
       <S>                <C>             <C>                                 <C>

------------------ ------------------ ----------- -------------------------------------------------------------------
     Single         Married Filing    Marginal                   IS EQUIVALENT TO A TAXABLE YIELD OF:
                        Jointly        Tax Rate
</TABLE>
<TABLE>
<CAPTION>
        <S>                 <C>          <C>             <C>            <C>          <C>          <C>          <C>

------------------ ------------------ ----------- -------------------------------------------------------------------
------------------ ------------------ ----------- -------------- ------------ ------------- ------------ ------------
    under $26,250      under $43,850     15%              4.71%        5.88%         7.06%        8.24%        9.41%
------------------ ------------------ ----------- -------------- ------------ ------------- ------------ ------------
------------------ ------------------ ----------- -------------- ------------ ------------- ------------ ------------
  $26,250-$63,550  $43,850 -$105,950     28%              5.56%        6.94%         8.33%        9.72%       11.11%
------------------ ------------------ ----------- -------------- ------------ ------------- ------------ ------------
------------------ ------------------ ----------- -------------- ------------ ------------- ------------ ------------
 $63,550-$132,600  $105,950-$161,450     31%              5.80%        7.25%         8.70%       10.14%       11.59%
------------------ ------------------ ----------- -------------- ------------ ------------- ------------ ------------
------------------ ------------------ ----------- -------------- ------------ ------------- ------------ ------------
$132,600-$288,350  $161,450-$288,350     36%              6.25%        7.81%         9.38%       10.94%       12.50%
------------------ ------------------ ----------- -------------- ------------ ------------- ------------ ------------
------------------ ------------------ ----------- -------------- ------------ ------------- ------------ ------------
    over $288,350      over $288,350    39.6%             6.62%        8.28%         9.93%       11.59%       13.25%
------------------ ------------------ ----------- -------------- ------------ ------------- ------------ ------------
</TABLE>

     *    A taxpayer with an adjusted gross income in excess of $128,950 may, to
          the extent such taxpayer itemizes  deductions,  be subject to a higher
          effective marginal rate.

DISTRIBUTION RATE

The distribution rate for the Fund is computed,  according to a non-standardized
formula, by dividing the total amount of actual  distributions per share paid by
the Fund over a twelve  month  period by the Fund's net asset  value on the last
day of the period.  The distribution  rate differs from the Fund's yield because
the distribution rate includes  distributions to shareholders from sources other
than dividends and interest,  such as short-term capital gains.  Therefore,  the
Fund's distribution rate may be substantially different than its yield. Both the
Fund's yield and distribution rate will fluctuate.

AVERAGE ANNUAL TOTAL RETURN

The Fund's average annual total return  quotation is computed in accordance with
a standardized  method  prescribed by rules of the SEC. The average annual total
return  for the Fund for a  specific  period  is  calculated  by first  taking a
hypothetical $10,000 investment  ("initial  investment") in the Fund's shares on
the  first  day of the  period  and  computing  the  "redeemable  value" of that
investment at the end of the period. The redeemable value is then divided by the
initial  investment,  and this quotient is taken to the Nth root (N representing
the number of years in the period) and 1 is subtracted from the result, which is
then  expressed as a  percentage.  The  calculation  assumes that all income and
capital gains dividends paid by the Fund have been reinvested at net asset value
on the  reinvestment  dates  during the period.  Average  annual  total  returns
reflect the impact of sales charges, if any.


<PAGE>



TOTAL RETURN

Calculation of the Fund's total return is not subject to a standardized formula.
Total return  performance for a specific period is calculated by first taking an
investment  (assumed below to be $10,000)  ("initial  investment") in the Fund's
shares on the first day of the period and computing  the "ending  value" of that
investment  at the  end of the  period.  The  total  return  percentage  is then
determined  by  subtracting  the initial  investment  from the ending  value and
dividing the remainder by the initial  investment and expressing the result as a
percentage.  The calculation assumes that all income and capital gains dividends
paid by the Fund have  been  reinvested  at net  asset  value of the Fund on the
reinvestment  dates  during the  period.  Total  return may also be shown as the
increased  dollar value of the  hypothetical  investment over the period.  Total
returns reflect the impact of sales charges, if any.

CUMULATIVE TOTAL RETURN

Cumulative  total return  represents the simple change in value of an investment
over a stated  period and may be quoted as a percentage  or as a dollar  amount.
Total  returns  and  cumulative  total  returns  may be broken  down into  their
components of income and capital  (including  capital gains and changes in share
price) in order to illustrate the  relationship  between these factors and their
contributions  to total return.  Cumulative  total returns reflect the impact of
sales charges, if any.

SPECIFIC FUND PERFORMANCE

                                  30-DAY YIELD


                     (30-day period ended November 30, 2000)



<TABLE>
<CAPTION>
<S>                          <C>             <C>                  <C>           <C>                   <C>

                                                                Waived
                                     Tax Equivalent Yield     Management      Absorbed       Yield Without Waivers
 Fund                       Yield      (31% Tax Bracket)         Fees         Expenses          and Absorptions
-------------------------- --------- ---------------------- --------------- -------------- --------------------------
-------------------------- --------- ---------------------- --------------- -------------- --------------------------

High-Yield Municipal Bond   6.52%            9.45%                -               -                  6.52%
 - Investor Class

-------------------------- --------- ---------------------- --------------- -------------- --------------------------
-------------------------- --------- ---------------------- --------------- -------------- --------------------------

High-Yield                  6.11%            8.86%                -             0.11%                6.00%
Municipal Bond
 - Advisor Class

-------------------------- --------- ---------------------- --------------- -------------- --------------------------
-------------------------- --------- ---------------------- --------------- -------------- --------------------------

Municipal Bond              5.48%            7.94%                -               -                  5.48%
 - Investor Class

-------------------------- --------- ---------------------- --------------- -------------- --------------------------
-------------------------- --------- ---------------------- --------------- -------------- --------------------------

Municipal Bond              5.15%            7.46%                -             0.11%                5.04%
 - Advisor Class

-------------------------- --------- ---------------------- --------------- -------------- --------------------------
-------------------------- --------- ---------------------- --------------- -------------- --------------------------

Municipal Bond              5.80%            8.41%                -               -                  5.80
 - Institutional Class

-------------------------- --------- ---------------------- --------------- -------------- --------------------------
-------------------------- --------- ---------------------- --------------- -------------- --------------------------

Short-Term High Yield       5.48%            7.94%                -             0.05%                5.43%
Municipal
 - Investor Class

-------------------------- --------- ---------------------- --------------- -------------- --------------------------
-------------------------- --------- ---------------------- --------------- -------------- --------------------------

Short-Term High Yield       4.99%            7.23%                -             0.08%                4.91%
Municipal
 - Advisor Class

-------------------------- --------- ---------------------- --------------- -------------- --------------------------
-------------------------- --------- ---------------------- --------------- -------------- --------------------------

Short-Term Municipal Bond   4.86%            7.04%                -               -                  4.86
 - Investor Class

-------------------------- --------- ---------------------- --------------- -------------- --------------------------
-------------------------- --------- ---------------------- --------------- -------------- --------------------------

Short-Term                  4.43%            6.42%                -               -                  4.43%
Municipal Bond
 - Advisor Class

-------------------------- --------- ---------------------- --------------- -------------- --------------------------
-------------------------- --------- ---------------------- --------------- -------------- --------------------------

Short-Term                  5.15%            7.46%                -               -                  5.15%
Municipal Bond
 - Institutional Class

-------------------------- --------- ---------------------- --------------- -------------- --------------------------
</TABLE>


                                  TOTAL RETURN

HIGH-YIELD MUNICIPAL BOND FUND

INVESTOR CLASS
<TABLE>
<CAPTION>
<S>                            <C>                   <C>                   <C>                      <C>

----------------------- --------------------- -------------------- ----------------------- --------------------------

                          Initial $10,000        Ending value            Cumulative          Average Annual Total
Time Period                 Investment         August 31, 2000         Total Return                Return

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

One Year                       $10,000              $9,708.93              -2.91%                   -2.91%

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

Five Year                      $10,000            $12,590.54               25.91%                    4.71%

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

Life of Fund*                  $10,000            $14,028.18               40.28%                    5.02%

----------------------- --------------------- -------------------- ----------------------- --------------------------
</TABLE>

* Commenced operations on October 1, 1993.

ADVISOR CLASS++
<TABLE>
<CAPTION>
<S>                            <C>                   <C>                    <C>                      <C>

----------------------- --------------------- -------------------- ----------------------- --------------------------

                          Initial $10,000        Ending value            Cumulative          Average Annual Total
Time Period                  Investment         August 31, 2000         Total Return                Return

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

One Year                       $10,000              $9,673.60              -3.26%                   -3.26%

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

Five Year                      $10,000            $12,364.40               23.64%                    4.34%

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

Life of Fund*                  $10,000            $13,680.92               36.81%                    4.64%

----------------------- --------------------- -------------------- ----------------------- --------------------------
</TABLE>


* Commenced  operations on October 1, 1993. ++ Commenced  operations on February
29, 2000.


MUNICIPAL BOND FUND

INVESTOR CLASS
<TABLE>
<CAPTION>
<S>                             <C>                  <C>                    <C>                      <C>

----------------------- --------------------- -------------------- ----------------------- --------------------------

                          Initial $10,000        Ending value            Cumulative          Average Annual Total
Time Period                  Investment         August 31, 2000         Total Return                Return

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

One Year                       $10,000              $9,914.15               -0.86%                  -0.86%

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

Five Year                      $10,000            $12,382.68                23.83%                   4.37%

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

Ten Year                       $10,000            $18,638.84                86.39%                   6.42%

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

Life of Fund*                  $10,000            $21,450.91              114.51%                    5.66%

----------------------- --------------------- -------------------- ----------------------- --------------------------
</TABLE>

* Commenced operations on October 23, 1986.

ADVISOR CLASS++
<TABLE>
<CAPTION>
<S>                             <C>                  <C>                    <C>                      <C>

----------------------- --------------------- -------------------- ----------------------- --------------------------

                          Initial $10,000        Ending value            Cumulative          Average Annual Total
Time Period                  Investment         August 31, 2000         Total Return                Return

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

One Year                       $10,000              $9,881.35               -1.19%                  -1.19%

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

Five Year                      $10,000            $12,176.09                21.76%                   4.02%

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

Ten Year                       $10,000             $18,021.45               80.21%                   6.07%

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

Life of Fund*                  $10,000             $20,471.74             104.72%                    5.31%

----------------------- --------------------- -------------------- ----------------------- --------------------------
</TABLE>


* Commenced  operations on October 23, 1986. ++ Commenced operations on February
29, 2000.


<PAGE>



INSTITUTIONAL CLASS++
<TABLE>
<CAPTION>
<S>                             <C>                  <C>                    <C>                      <C>

----------------------- --------------------- -------------------- ----------------------- --------------------------

                          Initial $10,000        Ending value            Cumulative          Average Annual Total
Time Period                  Investment         August 31, 2000         Total Return                Return

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

One Year                       $10,000              $9,927.97               -0.72%                  -0.72%

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

Five Year                      $10,000            $12,399.94                24.00%                   4.40%

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

Ten Year                       $10,000            $18,664.82                86.65%                   6.44%

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

Life of Fund*                  $10,000            $21,480.81              114.81%                    5.67%

----------------------- --------------------- -------------------- ----------------------- --------------------------
</TABLE>

* Commenced  operations on October 23, 1986. ++ Commenced operations on July 31,
2000.

SHORT-TERM HIGH YIELD MUNICIPAL FUND

INVESTOR CLASS
<TABLE>
<CAPTION>
<S>                             <C>                  <C>                   <C>                        <C>

----------------------- --------------------- -------------------- ----------------------- --------------------------

                          Initial $10,000        Ending value            Cumulative          Average Annual Total
Time Period                  Investment         August 31, 2000         Total Return                Return

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

One Year                       $10,000            $10,125.17                1.25%                    1.25%

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

Life of Fund*                  $10,000            $11,020.19               10.20%                    3.60%

----------------------- --------------------- -------------------- ----------------------- --------------------------
</TABLE>

* Commenced operations on November 30, 1997.

ADVISOR CLASS++
<TABLE>
<CAPTION>
<S>                             <C>                  <C>                    <C>                      <C>

----------------------- --------------------- -------------------- ----------------------- --------------------------

                          Initial $10,000        Ending value            Cumulative          Average Annual Total
Time Period                  Investment         August 31, 2000         Total Return                Return

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

One Year                       $10,000            $10,085.58               0.86%                     0.86%

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

Life of Fund*                  $10,000            $10,901.59               9.02%                     3.19%

----------------------- --------------------- -------------------- ----------------------- --------------------------
</TABLE>

* Commenced operations on November 30, 1997. ++ Commenced operations on February
29, 2000.

SHORT-TERM MUNICIPAL BOND FUND

INVESTOR CLASS
<TABLE>
<CAPTION>
<S>                              <C>                 <C>                    <C>                      <C>

----------------------- --------------------- -------------------- ----------------------- --------------------------

                          Initial $10,000        Ending value            Cumulative          Average Annual Total
Time Period                  Investment         August 31, 2000         Total Return                Return

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

One Year                       $10,000            $10,361.43                3.61%                    3.61%

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

Five Year                      $10,000            $12,573.98               25.74%                    4.69%

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

Life of Fund*                  $10,000            $14,679.00               46.79%                    4.53%

----------------------- --------------------- -------------------- ----------------------- --------------------------
</TABLE>

* Commenced operations on December 31, 1991.


<PAGE>



ADVISOR CLASS++
<TABLE>
<CAPTION>
<S>                             <C>                  <C>                    <C>                      <C>

----------------------- --------------------- -------------------- ----------------------- --------------------------

                          Initial $10,000        Ending value            Cumulative          Average Annual Total
Time Period                  Investment         August 31, 2000         Total Return                Return

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

One Year                       $10,000            $10,322.67                 3.23%                   3.23%

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

Five Year                      $10,000            $12,342.44               23.42%                    4.30%

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

Life of Fund*                  $10,000            $14,213.88               42.14%                    4.14%

----------------------- --------------------- -------------------- ----------------------- --------------------------
</TABLE>

* Commenced operations on December 31, 1991. ++ Commenced operations on February
29, 2000.

INSTITUTIONAL CLASS++
<TABLE>
<CAPTION>
<S>                              <C>                <C>                      <C>                     <C>

----------------------- --------------------- -------------------- ----------------------- --------------------------

                          Initial $10,000        Ending value            Cumulative          Average Annual Total
Time Period                 Investment         August 31, 2000         Total Return                Return

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

One Year                       $10,000            $10,363.53                3.64%                    3.64%

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

Five Year                      $10,000            $12,576.52               25.77%                    4.69%

----------------------- --------------------- -------------------- ----------------------- --------------------------
----------------------- --------------------- -------------------- ----------------------- --------------------------

Life of Fund*                  $10,000            $14,681.96               46.82%                    4.53%

----------------------- --------------------- -------------------- ----------------------- --------------------------
</TABLE>

* Commenced operations on December 31, 1991. ++ Commenced operations on July 31,
2000.

COMPARISONS

U.S.  TREASURY  BILLS,  NOTES,  OR  BONDS.  Investors  may want to  compare  the
performance of the Fund to that of U.S. Treasury bills,  notes, or bonds,  which
are issued by the U.S.  Government.  Treasury obligations are issued in selected
denominations.  Rates of Treasury  obligations are fixed at the time of issuance
and payment of principal  and interest is backed by the full faith and credit of
the Treasury.  The market value of such  instruments  will  generally  fluctuate
inversely  with  interest  rates prior to  maturity  and will equal par value at
maturity.  Generally,  the values of obligations  with shorter  maturities  will
fluctuate less than those with longer maturities.

CERTIFICATES OF DEPOSIT. Investors may want to compare the Fund's performance to
that  of  certificates  of  deposit  offered  by  banks  and  other   depositary
institutions. Certificates of deposit may offer fixed or variable interest rates
and principal is guaranteed and may be insured. Withdrawal of the deposits prior
to maturity  normally  will be subject to a penalty.  Rates offered by banks and
other depositary institutions are subject to change at any time specified by the
issuing institution.

MONEY MARKET FUNDS.  Investors may also want to compare  performance of the Fund
to that of money  market  funds.  Money  market fund yields will  fluctuate  and
shares are not insured, but share values usually remain stable.


LIPPER INC. ("LIPPER") AND OTHER INDEPENDENT RANKING ORGANIZATIONS. From time to
time,  in marketing and other fund  literature,  the Fund's  performance  may be
compared  to  the  performance  of  other  mutual  funds  in  general  or to the
performance of particular types of mutual funds with similar  investment  goals,
as tracked by independent  organizations.  Among these organizations,  Lipper, a
widely  used  independent  research  firm which  ranks  mutual  funds by overall
performance, investment objectives, and assets, may be cited. Lipper performance
figures  are based on changes in net asset  value,  with all income and  capital
gains dividends  reinvested.  Such calculations do not include the effect of any
sales  charges  imposed by other  funds.  The Fund will be  compared to Lipper's
appropriate  fund category,  that is, by fund objective and portfolio  holdings.
The Fund's  performance  may also be compared to the average  performance of its
Lipper category.



<PAGE>



MORNINGSTAR, INC. The Fund's performance may also be compared to the performance
of other mutual funds by  Morningstar,  Inc.,  which rates funds on the basis of
historical  risk and total return.  Morningstar's  ratings range from five stars
(highest) to one star  (lowest) and  represent  Morningstar's  assessment of the
historical risk level and total return of a fund as a weighted average for 3, 5,
and 10 year  periods.  Ratings  are not  absolute  and do not  represent  future
results.


OTHER SOURCES.  The Fund's  advertisements and supplemental sales literature may
contain full or partial reprints of editorials or articles evaluating the Fund's
management  and  performance  from such sources as Money,  Forbes,  Kiplinger's,
Smart Money,  Financial  World,  Business Week, U.S. News and World Report,  The
Wall Street  Journal,  Mutual Fund Magazine,  Barron's,  and various  investment
newsletters. The Fund may also include testimonials from shareholders,  clients,
and others that describe their  experiences  with the Fund, the Advisor,  or the
Distributor,  including  descriptions of the Fund's performance,  features,  and
attributes and the services,  tools,  and  assistance  provided by the Fund, the
Advisor, or the Distributor.


IBC/DONOGHUE,  INC.  IBC/Donoghue,  Inc. is an independently  operated financial
newsletter  publishing  firm  specializing  in the  statistical  analysis of the
trends in the money market mutual fund industry. From time to time, in marketing
and other fund  literature,  IBC/Donoghue  data may be quoted or compared to the
Fund's  performance.  IBC/Donoghue,  Inc. provides current (7 and 30 day yields)
and historical  performance  (1, 3, and 5 year  returns),  rankings and category
averages for over 1,100 money market mutual funds.

INDIVIDUAL MUNICIPAL BONDS. The Fund may compare and contrast in advertising the
relative advantages of investing in a mutual fund versus an individual municipal
bond.  Unlike  municipal bond mutual funds,  individual  municipal bonds offer a
stated  rate of interest  and,  if held to  maturity,  repayment  of  principal.
Although some individual  municipal bonds might offer a higher return,  they may
not offer the  reduced  risk of a mutual  fund which  invests in many  different
securities.  The  initial  investment  requirements  and sales  charges  of many
municipal  bond  mutual  funds are lower than the  purchase  cost of  individual
municipal  bonds,  which are generally  issued in $5,000  denominations  and are
subject to direct brokerage costs.

INDICES.  The Fund may compare  its  performance  to a wide  variety of indices.
There are differences and  similarities  between the investments that a Fund may
purchase and the investments measured by the indices.

HISTORICAL  ASSET CLASS  RETURNS.  From time to time,  marketing  materials  may
portray the historical returns of various asset classes. Such presentations will
typically compare the average annual rates of return of inflation, U.S. Treasury
bills, bonds, common stocks, and small stocks.  There are important  differences
between each of these  investments that should be considered in viewing any such
comparison.  The market value of stocks will fluctuate  with market  conditions,
and small-stock  prices generally will fluctuate more than  large-stock  prices.
Stocks are generally  more volatile than bonds.  In return for this  volatility,
stocks have generally performed better than bonds or cash over time. Bond prices
generally  will  fluctuate  inversely  with  interest  rates  and  other  market
conditions,  and the  prices of bonds  with  longer  maturities  generally  will
fluctuate more than those of  shorter-maturity  bonds.  Interest rates for bonds
may be fixed at the time of issuance,  and payment of principal and interest may
be  guaranteed  by the issuer  and,  in the case of U.S.  Treasury  obligations,
backed by the full faith and credit of the U.S. Treasury.


INVESTMENT  OBJECTIVE.  The Funds offer a comprehensive range of conservative to
aggressive  investment  options.  The Funds and their investment  objectives are
listed below.


FUND NAME                                   INVESTMENT OBJECTIVE
---------                                   --------------------
<TABLE>
<CAPTION>
<S>                                               <C>

----------------------------------------- --------------------------------------------------------------------------
CASH MANAGEMENT
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong  Advantage  Fund                   Current  income  with a very low degree of  share-price
fluctuation.
----------------------------------------- --------------------------------------------------------------------------
Strong  Heritage  Money Fund              Current  income,  a stable  share price,  and daily
liquidity.
----------------------------------------- --------------------------------------------------------------------------
Strong  Investors  Money Fund             Current  income,  a stable share price,  and daily
liquidity.
----------------------------------------- --------------------------------------------------------------------------
Strong  Money  Market Fund                Current  income,  a stable  share  price,  and daily
liquidity.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Municipal   Advantage  Fund        Federally tax-exempt  current income with a very
                                          low degree of share-price fluctuation.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Municipal  Money Market Fund       Federally tax-exempt  current  income,  a stable
                                          share-price, and daily liquidity.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------

Strong Tax-Free    Money    Fund          Federally tax-exempt  current  income,  a stable
                                          share-price, and daily liquidity.

----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------

----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
GROWTH AND INCOME
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong  American  Utilities  Fund         Total return by investing  for both income and
                                          capital growth.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Balanced Fund                      High total return  consistent with reasonable risk over the
                                          long term.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Blue Chip 100 Fund                 Total return by investing for both income and capital growth.
----------------------------------------- --------------------------------------------------------------------------


----------------------------------------- --------------------------------------------------------------------------
Strong Growth and Income Fund             High total return by investing for capital growth and income.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Limited  Resources Fund            Total return by investing for both capital growth
                                          and income.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong  Schafer  Balanced  Fund           Total  return by  investing  for both income and
                                          capital growth.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Schafer Value Fund                 Long-term  capital appreciation    principally    through
                                          investment  in common stocks and other equity securities. Current income is a
                                          secondary objective.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------

----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
EQUITY
----------------------------------------- --------------------------------------------------------------------------


----------------------------------------- --------------------------------------------------------------------------
Strong Discovery Fund                     Capital growth.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Dow 30 Value Fund                  Capital growth.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Enterprise Fund                    Capital growth.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Growth Fund                        Capital growth.
----------------------------------------- --------------------------------------------------------------------------


<PAGE>


----------------------------------------- --------------------------------------------------------------------------
Strong Growth 20 Fund                     Capital growth.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Index 500 Fund                     To approximate as closely as practicable (before fees and expenses) the
                                          capitalization-weighted total rate of return of that portion of the U.S.
                                          market for publicly traded common stocks composed of the larger
                                          capitalized companies.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Internet Fund                      Capital growth.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Large Cap Growth Fund              Capital growth.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Mid Cap Disciplined Fund           Capital growth.
----------------------------------------- --------------------------------------------------------------------------


----------------------------------------- --------------------------------------------------------------------------
Strong Opportunity Fund                   Capital growth.
----------------------------------------- --------------------------------------------------------------------------


----------------------------------------- --------------------------------------------------------------------------
Strong Strategic Growth Fund              Capital growth.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Technology 100 Fund                Capital growth.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong U.S. Emerging Growth Fund          Capital growth.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Value Fund                         Capital growth.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------

----------------------------------------- --------------------------------------------------------------------------


<PAGE>


----------------------------------------- --------------------------------------------------------------------------

INCOME

----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Corporate  Bond Fund               Total  return by investing  for a high level of current
                                          income  with  a  moderate   degree  of
                                          share-price fluctuation.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Government   Securities   Fund     Total return by  investing  for a high level
                                          of  current  income  with  a  moderate
                                          degree of share-price fluctuation.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong High-Yield Bond Fund               Total return by investing for a high level of current income and capital
                                          growth.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Short-Term  Bond Fund              Total  return by investing  for a high level of current
                                          income    with   a   low   degree   of
                                          share-price fluctuation.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Short-Term  High Yield Bond Fund   Total return by  investing  for a high level
                                          of  current  income  with  a  moderate
                                          degree of share-price fluctuation.
----------------------------------------- --------------------------------------------------------------------------

----------------------------------------- --------------------------------------------------------------------------
INTERNATIONAL
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Asia Pacific Fund                  Capital growth.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Foreign MajorMarketsSM Fund        Capital growth.
----------------------------------------- --------------------------------------------------------------------------


----------------------------------------- --------------------------------------------------------------------------
Strong International Bond Fund            High total return by investing for both income and capital appreciation.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong International Stock Fund           Capital growth.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Overseas Fund                      Capital growth.
----------------------------------------- --------------------------------------------------------------------------


----------------------------------------- --------------------------------------------------------------------------

----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
LIFE STAGE SERIES
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Aggressive Portfolio               Capital growth.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Conservative Portfolio             Total return by
                                          investing  primarily  for  income  and
                                          secondarily for capital growth.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Moderate  Portfolio                Total  return  by
                                          investing primarily for capital growth
                                          and secondarily for income.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
MUNICIPAL INCOME
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong High-Yield  Municipal  Bond Fund   Total return by  investing  for a high level
                                          of   federally    tax-exempt   current
                                          income.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Municipal  Bond Fund               Total  return by investing   for  a   high   level   of
                                          federally  tax-exempt  current  income
                                          with a moderate  degree of share-price
                                          fluctuation.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong  Short-Term  High Yield  Municipal Total return by investing  for a high
                                          level of  federally  tax-exempt  Fund current  income with a moderate  degree of
                                          share-price fluctuation.
----------------------------------------- --------------------------------------------------------------------------
----------------------------------------- --------------------------------------------------------------------------
Strong Short-Term  Municipal  Bond Fund   Total return by  investing  for a high level
                                          of federally tax-exempt current income
                                          with  a  low  degree  of   share-price
                                          fluctuation.
----------------------------------------- --------------------------------------------------------------------------
</TABLE>


The Advisor also serves as Advisor to several management  investment  companies,
some of which fund  variable  annuity  separate  accounts  of certain  insurance
companies.

The Fund may from time to time be  compared  to other  Strong  Funds  based on a
risk/reward  spectrum.  In  general,  the  amount  of risk  associated  with any
investment  product  is  commensurate  with that  product's  potential  level of
reward.  The Strong Funds  risk/reward  continuum or any Fund's  position on the
continuum  may be described or  diagrammed  in marketing  materials.  The Strong
Funds  risk/reward  continuum  positions  the risk and reward  potential of each
Strong Fund relative to the other Strong Funds,  but is not intended to position
any Strong Fund relative to other mutual funds or investment products. Marketing
materials  may also  discuss  the  relationship  between  risk and  reward as it
relates to an individual investor's portfolio.

TYING TIME FRAMES TO YOUR  GOALS.  There are many issues to consider as you make
your investment  decisions,  including analyzing your risk tolerance,  investing
experience, and asset allocations. You should start to organize your investments
by learning to link your many financial goals to specific time frames.  Then you
can begin to identify the  appropriate  types of  investments  to help meet your
goals. As a general rule of thumb, the longer your time horizon,  the more price
fluctuation you will be able to tolerate in pursuit of higher returns.  For that
reason, many people with longer-term goals select stocks or long-term bonds, and
many people with nearer-term goals match those up with for instance,  short-term
bonds. The Advisor developed the following suggested holding periods to help our
investors set realistic  expectations  for both the risk and reward potential of
our funds.  (See table  below.) Of course,  time is just one element to consider
when making your investment decision.

                 STRONG FUNDS SUGGESTED MINIMUM HOLDING PERIODS
<TABLE>
<CAPTION>
<S>                                 <C>                            <C>                          <C>


UNDER 1 YEAR                   1 TO 2 YEARS                  4 TO 7 YEARS                 5 OR MORE YEARS
------------                   ------------                  ------------                 ---------------
Heritage Money Fund          Advantage Fund               Conservative Portfolio         Aggressive Portfolio
Investors Money Fund         Municipal Advantage Fund     Corporate Bond Fund            American Utilities Fund
Money Market Fund                                         Government Securities Fund     Asia Pacific Fund
Municipal Money Market Fund    2 TO 4 YEARS               High-Yield Bond Fund           Balanced Fund
                               ------------
Tax-Free Money Fund          Short-Term Bond Fund         High-Yield Municipal Bond      Blue Chip 100 Fund
                             Short-Term High Yield Bond   Fund                           Discovery Fund
                             Fund                         International Bond Fund        Dow 30 Value Fund
                             Short-Term High Yield        Municipal Bond Fund            Enterprise Fund
                             Municipal Fund                                              Foreign MajorMarketsSM Fund
                             Short-Term Municipal Bond                                   Growth Fund
                             Fund                                                        Growth 20 Fund
                                                                                         Growth and Income Fund
                                                                                         Index 500 Fund
                                                                                         International Stock Fund
                                                                                         Internet Fund
                                                                                         Large Cap Growth Fund
                                                                                         Limited Resources Fund
                                                                                         Mid Cap Disciplined Fund
                                                                                         Moderate Portfolio
                                                                                         Opportunity Fund
                                                                                         Overseas Fund
                                                                                         Schafer Balanced Fund
                                                                                         Schafer Value Fund
                                                                                         Strategic Growth Fund
                                                                                         Technology 100 Fund
                                                                                         U.S. Emerging Growth Fund
                                                                                         Value Fund

</TABLE>


PRODUCT LIFE  CYCLES.  Discussions  of product  life cycles and their  potential
impact  on the  Fund's  investments  may be used  in  advertisements  and  sales
materials.  The basic  idea is that most  products  go through a life cycle that
generally  consists of an early  adoption  phase,  a rapid growth  phase,  and a
maturity  phase.  The early  adoption phase  generally  includes the time period
during which the product is first being developed and marketed. The rapid growth
phase usually  occurs when the general  public  becomes aware of the new product
and sales are rising. The maturity phase generally includes the time period when
the  public has been  aware of the  product  for a period of time and sales have
leveled off or declined.

By identifying and investing in companies that produce or service  products that
are in the early adoption phase of their life cycle,  it may be possible for the
Fund to benefit if the  product  moves into a prolonged  period of rapid  growth
that enhances the company's stock price.  However,  you should keep in mind that
investing  in a  product  in its  early  adoption  phase  does not  provide  any
guarantee  of profit.  A product may  experience  a prolonged  rapid  growth and
maturity phase without any corresponding  increase in the company's stock price.
In addition,  different  products have life cycles that may be longer or shorter
than those depicted and these variations may influence whether the product has a
positive  effect on the company's  stock price.  For example,  a product may not
positively  impact a company's  stock price if it experiences an extremely short
rapid growth or maturity phase because the product  becomes  obsolete soon after
it is introduced to the general  public.  Other products may never move past the
early adoption phase and have no impact on the company's stock price.

ADDITIONAL FUND INFORMATION

PORTFOLIO  CHARACTERISTICS.  In order to present a more complete  picture of the
Fund's  portfolio,  marketing  materials may include various actual or estimated
portfolio   characteristics,   including   but  not  limited  to  median  market
capitalizations,  earnings  per share,  alphas,  betas,  price/earnings  ratios,
returns  on  equity,  dividend  yields,  capitalization  ranges,  growth  rates,
price/book ratios, top holdings, sector breakdowns,  asset allocations,  quality
breakdowns, and breakdowns by geographic region.

MEASURES OF VOLATILITY AND RELATIVE PERFORMANCE.  Occasionally statistics may be
used to specify fund  volatility  or risk.  The general  premise is that greater
volatility connotes greater risk undertaken in achieving  performance.  Measures
of volatility  or risk are generally  used to compare the Fund's net asset value
or  performance  relative to a market index.  One measure of volatility is beta.
Beta is the  volatility of a fund relative to the total market as represented by
the  Standard  & Poor's  500 Stock  Index.  A beta of more  than 1.00  indicates
volatility  greater  than the  market,  and a beta of less than  1.00  indicates
volatility  less than the  market.  Another  measure  of  volatility  or risk is
standard  deviation.  Standard deviation is a statistical tool that measures the
degree to which a fund's  performance  has varied from its  average  performance
during a particular time period.

Standard deviation is calculated using the following formula:

         Standard deviation = the square root of  (SIGMA)(xi - xm)2

                                                     ---------
                                                        n-1

Where:   (SIGMA) = "the sum of",
         xi = each  individual  return during the time period,
         xm = the average return over the time period,  and
          n = the number of individual  returns
              during the time period.

Statistics may also be used to discuss the Fund's relative performance. One such
measure is alpha.  Alpha  measures the actual  return of a fund  compared to the
expected  return of a fund given its risk (as  measured by beta).  The  expected
return is based on how the market as a whole  performed,  and how the particular
fund has historically performed against the market.  Specifically,  alpha is the
actual  return less the  expected  return.  The  expected  return is computed by
multiplying  the  advance or decline  in a market  representation  by the Fund's
beta. A positive alpha quantifies the value that the fund manager has added, and
a negative alpha quantifies the value that the fund manager has lost.

Other  measures  of  volatility  and  relative   performance   may  be  used  as
appropriate.  However,  all such  measures  will  fluctuate and do not represent
future results.

DURATION.  Duration is a calculation that seeks to measure the price sensitivity
of a bond or a bond fund to changes in interest  rates.  It measures  bond price
sensitivity  to interest  rate  changes by taking into account the time value of
cash flows  generated  over the  bond's  life.  Future  interest  and  principal
payments are  discounted to reflect their present value and then are  multiplied
by the  number  of years  they  will be  received  to  produce  a value  that is
expressed in years.  Since  duration can also be computed for the Fund,  you can
estimate the effect of interest rates on the Fund's share price. Simply multiply
the Fund's duration by an expected change in interest  rates.  For example,  the
price of the Fund  with a  duration  of two  years  would  be  expected  to fall
approximately two percent if market interest rates rose by one percentage point.


GENERAL INFORMATION

BUSINESS PHILOSOPHY

The Advisor is an independent,  Midwestern-based  investment  advisor,  owned by
professionals active in its management. Recognizing that investors are the focus
of  its  business,  the  Advisor  strives  for  excellence  both  in  investment
management and in the service  provided to investors.  This  commitment  affects
many  aspects  of  the  business,   including  professional  staffing,   product
development, investment management, and service delivery.

The increasing complexity of the capital markets requires specialized skills and
processes for each asset class and style.  Therefore,  the Advisor believes that
active management should produce greater returns than a passively managed index.
The Advisor has brought together a group of top-flight investment  professionals
with  diverse  product  expertise,  and each  concentrates  on their  investment
specialty. The Advisor believes that people are the firm's most important asset.
For this reason, continuity of professionals is critical to the firm's long-term
success.

INVESTMENT ENVIRONMENT

Discussions of economic,  social,  and political  conditions and their impact on
the Fund may be used in  advertisements  and sales materials.  Such factors that
may impact the Fund include,  but are not limited to, changes in interest rates,
political developments, the competitive environment, consumer behavior, industry
trends, technological advances,  macroeconomic trends, and the supply and demand
of various financial instruments. In addition,  marketing materials may cite the
portfolio management's views or interpretations of such factors.

EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING


These common sense rules are followed by many  successful  investors.  They make
sense for beginners,  too. If you have a question on these principles,  or would
like to discuss them with us, please contact us at 1-800-368-3863.



1.   HAVE A PLAN - even a  simple  plan  can  help  you  take  control  of  your
     financial  future.  Review your plan once a year, or if your  circumstances
     change.

2.   START INVESTING AS SOON AS POSSIBLE.  Make time a valuable ally. Let it put
     the power of  compounding  to work for you,  while  helping to reduce  your
     potential investment risk.

3.   DIVERSIFY YOUR  PORTFOLIO.  By investing in  different  asset  classes -
     stocks, bonds,  and cash - you help protect against poor performance in one
     type of investment while including investments most likely to help you
     achieve your important goals.

4.   INVEST  REGULARLY.  Investing  is a  process,  not  a  one-time  event.  By
     investing regularly over the long term, you reduce the impact of short-term
     market  gyrations,  and you attend to your  long-term  plan  before  you're
     tempted to spend those assets on short-term needs.

5.   MAINTAIN A LONG-TERM PERSPECTIVE. For most individuals, the best discipline
     is  staying  invested  as market  conditions  change.  Reactive,  emotional
     investment  decisions  are all too often a source of regret - and principal
     loss.

6.   CONSIDER STOCKS TO HELP ACHIEVE MAJOR LONG-TERM  GOALS.  Over time,  stocks
     have  provided the more powerful  returns  needed to help the value of your
     investments stay well ahead of inflation.

7.   KEEP A COMFORTABLE AMOUNT OF CASH IN YOUR PORTFOLIO. To meet current needs,
     including emergencies, use a money market fund or a bank account - not your
     long-term investment assets.

8.   KNOW WHAT YOU'RE BUYING.  Make sure you understand the potential  risks and
     rewards associated with each of your investments. Ask questions...  request
     information...make  up your own mind.  And choose a fund company that helps
     you make informed investment decisions.


STRONG FINANCIAL INTERMEDIARY GROUP

The Strong  Financial  Intermediary  Group is  dedicated  to  helping  financial
advisors better serve their clients.  Financial advisors receive regular updates
on the mutual funds managed by the Advisor, access to portfolio managers through
special  conference  calls,  consolidated  mailings  of  duplicate  confirmation
statements,  access to the Advisor's  network of regional  representatives,  and
other  specialized  services.  For  more  information  on the  Strong  Financial
Intermediary Group, call 1-800-368-1683.



INDEPENDENT ACCOUNTANTS


PricewaterhouseCoopers  LLP, 100 East Wisconsin Avenue, Milwaukee, WI 53202, are
the  independent   accountants  for  the  Fund,  providing  audit  services  and
assistance and consultation  with respect to the preparation of filings with the
SEC.



LEGAL COUNSEL


Godfrey & Kahn, S.C., 780 North Water Street, Milwaukee, WI 53202, acts as legal
counsel for the Fund.


                              FINANCIAL STATEMENTS

The  Annual  Report  for the Fund  that is  attached  to this SAI  contains  the
following audited financial information:

1.       Schedule of Investments in Securities.
2.       Statement of Operations.
3.       Statement of Assets and Liabilities.
4.       Statements of Changes in Net Assets.
5.       Notes to Financial Statements.
6.       Financial Highlights.
7.       Report of Independent Accountant.










<PAGE>


                                       87



   APPENDIX A- DEFINITION OF BOND RATINGS


                     STANDARD & POOR'S ISSUE CREDIT RATINGS

A  Standard  &  Poor's  issue  credit  rating  is  a  current   opinion  of  the
creditworthiness of an obligor with respect to a specific financial  obligation,
a specific  class of  financial  obligations,  or a specific  financial  program
(including  ratings on medium term note programs and commercial paper programs).
It takes into consideration the  creditworthiness  of guarantors,  insurers,  or
other forms of credit  enhancement  on the obligation and takes into account the
currency in which the obligation is denominated.  The issue credit rating is not
a recommendation to purchase, sell, or hold a financial obligation,  inasmuch as
it does not comment as to market price or suitability for a particular investor.

Issue credit ratings are based on current information  furnished by the obligors
or  obtained  by Standard & Poor's  from other  sources it  considers  reliable.
Standard & Poor's does not perform an audit in connection with any credit rating
and may, on occasion,  rely on unaudited financial  information.  Credit ratings
may  be  changed,  suspended,  or  withdrawn  as a  result  of  changes  in,  or
unavailability of, such information, or based on other circumstances.

Issue credit ratings can be either long-term or short-term.  Short-term  ratings
are  generally  assigned  to  those  obligations  considered  short-term  in the
relevant  market.  In the U.S.,  for  example,  that means  obligations  with an
original  maturity  of no more  than  365  days -  including  commercial  paper.
Short-term ratings are also used to indicate the  creditworthiness of an obligor
with  respect to put  features on  long-term  obligations.  The result is a dual
rating, in which the short-term rating addresses the put feature, in addition to
the usual long-term rating. Medium-term notes are assigned long-term ratings.

Issue  credit  ratings  are  based,  in  varying   degrees,   on  the  following
considerations:

1.       Likelihood  of payment - capacity  and  willingness  of the  obligor to
         meet its  financial  commitment  on an  obligation  in
         accordance with the terms of the obligation;

2.       Nature of and provisions of the obligation;

3.       Protection afforded by, and relative position of, the obligation in the
         event of bankruptcy,  reorganization,  or other  arrangement  under the
         laws of bankruptcy and other laws affecting creditors' rights.

The issue rating  definitions  are  expressed in terms of default risk. As such,
they  pertain  to  senior  obligations  of an  entity.  Junior  obligations  are
typically rated lower than senior obligations,  to reflect the lower priority in
bankruptcy,  as noted above.  (Such  differentiation  applies when an entity has
both senior and subordinated obligations,  secured and unsecured obligations, or
operating company and holding company obligations.) Accordingly,  in the case of
junior debt, the rating may not conform exactly with the category definition.

'AAA'

An obligation  rated 'AAA' has the highest rating assigned by Standard & Poor's.
The  obligor's  capacity to meet its financial  commitment on the  obligation is
extremely strong.

'AA'

An  obligation  rated 'AA' differs from the highest  rated  obligations  only in
small  degree.  The obligor's  capacity to meet its financial  commitment on the
obligation is very strong.

'A'

An obligation  rated 'A' is somewhat more  susceptible to the adverse effects of
changes in  circumstances  and economic  conditions  than  obligations in higher
rated  categories.  However,  the  obligor's  capacity  to  meet  its  financial
commitment on the obligation is still strong.

'BBB'

An obligation  rated 'BBB' exhibits  adequate  protection  parameters.  However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened  capacity  of the  obligor to meet its  financial  commitment  on the
obligation.

Obligations  rated  'BB',  'B',  'CCC',  'CC'  and 'C' are  regarded  as  having
significant  speculative  characteristics.  'BB'  indicates  the least degree of
speculation and 'C' the highest.  While such  obligations  will likely have some
quality  and  protective  characteristics,  these  may be  outweighed  by  large
uncertainties or major exposures to adverse conditions.

'BB'

An obligation rated 'BB' is less vulnerable to nonpayment than other speculative
issues.  However,  it faces major ongoing  uncertainties  or exposure to adverse
business,  financial,  or economic  conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.

'B'

An obligation rated 'B' is more vulnerable to nonpayment than obligations  rated
'BB',  but  the  obligor  currently  has the  capacity  to  meet  its  financial
commitment  on  the  obligation.   Adverse  business,   financial,  or  economic
conditions will likely impair the obligor's  capacity or willingness to meet its
financial commitment on the obligation.

'CCC'

An  obligation  rated  'CCC'  is  currently  vulnerable  to  nonpayment,  and is
dependent upon favorable  business,  financial,  and economic conditions for the
obligor to meet its  financial  commitment  on the  obligation.  In the event of
adverse business,  financial, or economic conditions,  the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.

'CC'

An obligation rated 'CC' is currently highly vulnerable to nonpayment.

'C'

A subordinated  debt or preferred stock obligation rated 'C' is CURRENTLY HIGHLY
VULNERABLE to nonpayment.  The 'C' rating may be used to cover a situation where
a bankruptcy  petition has been filed or similar  action taken,  but payments on
this obligation are being continued.  A 'C' also will be assigned to a preferred
stock  issue in  arrears on  dividends  or sinking  fund  payments,  but that is
currently paying.

'D'

An obligation rated 'D' is in payment  default.  The 'D' rating category is used
when  payments  on an  obligation  are not  made on the  date  due,  even if the
applicable grace period has not expired,  unless Standard & Poor's believes that
such payments will be made during such grace period. The 'D' rating also will be
used upon the filing of a bankruptcy  petition or the taking of a similar action
if payments on an obligation are jeopardized.

Plus (+) or minus (-) : The  ratings  from 'AA' to 'CCC' may be  modified by the
addition  of a plus or minus  sign to show  relative  standing  within the major
rating categories.


<PAGE>



r

This symbol is attached to the ratings of instruments with significant noncredit
risks. It highlights  risks to principal or volatility of expected returns which
are not addressed in the credit rating. Examples include:  obligations linked or
indexed to equities,  currencies, or commodities;  obligations exposed to severe
prepayment risk - such as interest-only or principal-only  mortgage  securities;
and obligations with unusually risky interest terms, such as inverse floaters.

N.R.

This indicates  that no rating has been  requested,  that there is  insufficient
information on which to base a rating, or that Standard & Poor's does not rate a
particular obligation as a matter of policy.

                         MOODY'S LONG-TERM DEBT RATINGS

Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest  degree of investment  risk and are generally  referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change,  such changes as can be  visualized  are most  unlikely to impair the
fundamentally strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds.  They are rated lower than the best bonds  because  margins of protection
may not be as large as in Aaa securities or  fluctuation of protective  elements
may be of greater  amplitude or there may be other  elements  present which make
the long-term risk appear somewhat larger than the Aaa securities.

A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade  obligations.  Factors giving security to
principal  and interest  are  considered  adequate,  but elements may be present
which suggest a susceptibility to impairment some time in the future.

Baa - Bonds  which are  rated Baa are  considered  as  medium-grade  obligations
(i.e., they are neither highly protected nor poorly secured).  Interest payments
and principal  security appear  adequate for the present but certain  protective
elements may be lacking or may be  characteristically  unreliable over any great
length of time. Such bonds lack outstanding  investment  characteristics  and in
fact have speculative characteristics as well.

Ba - Bonds  which are rated Ba are judged to have  speculative  elements;  their
future cannot be considered as  well-assured.  Often the  protection of interest
and principal  payments may be very moderate,  and thereby not well  safeguarded
during  both  good  and bad  times  over the  future.  Uncertainty  of  position
characterizes bonds in this class.

B - Bonds  which are rated B generally  lack  characteristics  of the  desirable
investment.  Assurance of interest and principal  payments or of  maintenance of
other terms of the contract over any long period of time may be small.

Caa - Bonds  which are rated Caa are of poor  standing.  Such  issues  may be in
default or there may be present  elements of danger with respect to principal or
interest.

Ca - Bonds which are rated Ca represent  obligations  which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C - Bonds which are rated C are the lowest  rated class of bonds,  and issues so
rated can be regarded as having  extremely  poor prospects of ever attaining any
real investment standing.


<PAGE>





             FITCH, INC. ("FITCH") LONG-TERM NATIONAL CREDIT RATINGS

AAA (xxx)

'AAA'  national  ratings  denote the  highest  rating  assigned  by Fitch in its
national  rating scale for that  country.  This rating is assigned to the "best"
credit risk relative to all other issuers or issues in the same country and will
normally be assigned to all  financial  commitments  issued or guaranteed by the
sovereign state.

AA (xxx)

'AA' national ratings denote a very strong credit risk relative to other issuers
or issues in the same  country.  The credit  risk  inherent  in these  financial
commitments  differs only slightly  from the country's  highest rated issuers or
issues.

A (xxx)

'A' national  ratings  denote a strong  credit risk relative to other issuers or
issues in the same  country.  However,  changes  in  circumstances  or  economic
conditions  may affect the  capacity  for timely  repayment  of these  financial
commitments  to a greater  degree than for  financial  commitments  denoted by a
higher rated category.

BBB (xxx)

'BBB' national  ratings denote an adequate credit risk relative to other issuers
or issues in the same country.  However,  changes in  circumstances  or economic
conditions are more likely to affect the capacity for timely  repayment of these
financial  commitments than for financial  commitments denoted by a higher rated
category.

BB (xxx)

'BB' national ratings denote a fairly weak credit risk relative to other issuers
or issues in the same  country.  Within the context of the  country,  payment of
these financial  commitments is uncertain to some degree and capacity for timely
repayment remains more vulnerable to adverse economic change over time.

B (xxx)

'B' national  ratings denote a significantly  weak credit risk relative to other
issuers or issues in the same country. Financial commitments are currently being
met but a limited  margin of safety  remains and capacity for  continued  timely
payments is  contingent  upon a  sustained,  favourable  business  and  economic
environment.

CCC (xxx), CC (xxx), C (xxx)

These  categories  of  national  ratings  denote an  extremely  weak credit risk
relative to other  issuers or issues in the same  country.  Capacity for meeting
financial  commitments is solely reliant upon sustained,  favourable business or
economic developments.

DDD (xxx), DD (xxx), D (xxx)

These  categories  of  national  ratings are  assigned to entities or  financial
commitments which are currently in default.

A special  identifier  for the country  concerned  will be added to all national
ratings. For illustrative purposes, (xxx) has been used, as above.

"+" or "-" may be appended to a national rating to denote relative status within
a major rating category. Such suffixes are not added to the 'AAA (xxx)' national
rating category or to categories below 'CCC (xxx)'.


<PAGE>




                               SHORT-TERM RATINGS

                STANDARD & POOR'S SHORT-TERM ISSUE CREDIT RATINGS

'A-1'

A short-term obligation rated 'A-1' is rated in the highest category by Standard
&  Poor's.  The  obligor's  capacity  to meet its  financial  commitment  on the
obligation is strong.  Within this category,  certain obligations are designated
with a plus sign (+). This  indicates  that the  obligor's  capacity to meet its
financial commitment on these obligations is extremely strong.

'A-2'

A short-term  obligation rated 'A-2' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic  conditions than obligations in
higher rating categories.  However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.

'A-3'

A short-term  obligation rated 'A-3' exhibits  adequate  protection  parameters.
However,  adverse economic conditions or changing  circumstances are more likely
to lead to a weakened  capacity of the obligor to meet its financial  commitment
on the obligation.

'B'

A short-term obligation rated 'B' is regarded as having significant  speculative
characteristics.  The obligor  currently  has the capacity to meet its financial
commitment on the  obligation;  however,  it faces major  ongoing  uncertainties
which could lead to the  obligor's  inadequate  capacity  to meet its  financial
commitment on the obligation.

'C'

A short-term  obligation rated 'C' is currently  vulnerable to nonpayment and is
dependent upon favorable  business,  financial,  and economic conditions for the
obligor to meet its financial commitment on the obligation.

'D'

A short-term obligation rated 'D' is in payment default. The 'D' rating category
is used when payments on an obligation  are not made on the date due even if the
applicable grace period has not expired,  unless Standard & Poor's believes that
such payments will be made during such grace period. The 'D' rating also will be
used upon the filing of a bankruptcy  petition or the taking of a similar action
if payments on an obligation are jeopardized.


           STANDARD & POOR'S SHORT-TERM MUNICIPAL ISSUE CREDIT RATINGS

SP-1

Strong capacity to pay principal and interest.  An issue determined to possess a
very strong capacity to pay debt service is given a plus (+) designation.

SP-2

Satisfactory capacity to pay principal and interest,  with some vulnerability to
adverse financial and economic changes over the term of the notes.

SP-3

Speculative capacity to pay principal and interest.


                         MOODY'S SHORT-TERM DEBT RATINGS

Moody's  short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations.  These obligations have an original maturity
not exceeding one year, unless explicitly noted.

Moody's  employs the following three  designations,  all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:


PRIME - 1 Issuers rated  Prime-1 (or  supporting  institutions)  have a superior
ability for repayment of senior short-term debt  obligations.  Prime-1 repayment
ability will often be evidenced by many of the following characteristics:


o        Leading market positions in well-established industries.
o        High rates of return on funds employed.
o        Conservative capitalization structure with moderate reliance on debt
         and ample asset  protection.
o        Broad  margins in  earnings  coverage  of fixed  financial
         charges and high internal cash generation.
o        Well-established access to a range
         of financial markets and assured sources of alternate liquidity.

PRIME - 2 Issuers  rated  Prime-2  (or  supporting  institutions)  have a strong
ability for repayment of senior short-term debt obligations.  This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings  trends  and  coverage  ratios,  while  sound,  may be more  subject to
variation. Capitalization characteristics,  while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

PRIME - 3 Issuers rated Prime-3 (or supporting  institutions) have an acceptable
ability for repayment of senior short-term  obligations.  The effect of industry
characteristics and market  compositions may be more pronounced.  Variability in
earnings and profitability may result in changes in the level of debt protection
measurements  and may  require  relatively  high  financial  leverage.  Adequate
alternate liquidity is maintained.

NOT PRIME  Issuers  rated Not Prime do not fall  within any of the Prime  rating
categories.


            FITCH, INC. ("FITCH") SHORT-TERM NATIONAL CREDIT RATINGS

F1 (xxx)

Indicates the  strongest  capacity for timely  payment of financial  commitments
relative to other issuers or issues in the same country.  Under Fitch's national
rating scale,  this rating is assigned to the "best" credit risk relative to all
others in the same country and is normally assigned to all financial commitments
issued  or  guaranteed  by  the  sovereign  state.  Where  the  credit  risk  is
particularly strong, a "+" is added to the assigned rating.

F2 (xxx)

Indicates a satisfactory  capacity for timely  payment of financial  commitments
relative to other issuers or issues in the same country.  However, the margin of
safety is not as great as in the case of the higher ratings.

F3 (xxx)

Indicates  an adequate  capacity  for timely  payment of  financial  commitments
relative to other issuers or issues in the same country.  However, such capacity
is more susceptible to near-term adverse changes than for financial  commitments
in higher rated categories.

B (xxx)

Indicates an  uncertain  capacity  for timely  payment of financial  commitments
relative to other issuers or issues in the same country. Such capacity is highly
susceptible to near-term adverse changes in financial and economic conditions.

C (xxx)

Indicates  a  highly   uncertain   capacity  for  timely  payment  of  financial
commitments relative to other issuers or issues in the same country. Capacity or
meeting  financial  commitments  is solely  reliant upon a sustained,  favorable
business and economic environment.

D (xxx)

Indicates actual or imminent payment default.

A special  identifier  for the country  concerned  will be added to all national
ratings. For illustrative purposes, (xxx) has been used, as above.

"+" or "-" may be appended to a national rating to denote relative status within
a major rating  category.  Such suffixes are not added to ratings other than 'F1
(xxx)'.

In certain  countries,  regulators have established  credit rating scales, to be
used within  their  domestic  markets,  using  specific  nomenclature.  In these
countries, our rating definitions for F1+ (xxx), F1 (xxx), F2 (xxx) and F3 (xxx)
may be substituted by the regulatory scales, E.G. A1+, A1, A2 and A3.






<PAGE>




APPENDIX B - ASSET COMPOSITION BY BOND RATINGS



For the fiscal year ended August 31, 2000,  the Fund's  assets were  invested in
the credit categories shown below. Percentages are computed on a dollar-weighted
basis and are an average of twelve monthly calculations.



STRONG HIGH-YIELD MUNICIPAL BOND FUND

                          RATED                   ADVISOR'S ASSESSMENT
RATING                 SECURITIES*               OF UNRATED SECURITIES
-------------- ---------------------------- -----------------------------------

AAA                     2.5                            1.8
AA                      0.1                            2.4
A                       2.3                            0.0
BBB                     8.2                            7.5
BB                      5.7                           38.4
B                       0.1                           26.0
CCC                     0.0                            1.3
CC                      0.0                            0.2
C                       0.0                            0.1
D                       2.1                            1.3
Total                  21.0                 +         79.0           =  100%


STRONG MUNICIPAL BOND FUND

                          RATED                 ADVISOR'S ASSESSMENT
RATING                 SECURITIES*             OF UNRATED SECURITIES
-------------- ---------------------------- -----------------------------------

AAA                    20.9                            0.7
AA                     14.4                            3.9
A                      11.5                            1.4
BBB                    22.5                            9.0
BB                      0.8                           10.3
B                       0.0                            2.2
CCC                     0.0                            0.6
CC                      0.0                            0.2
C                       0.0                            0.1
D                       0.3                            1.2
Total                  70.4                 +         29.6           =  100%

* The indicated  percentages  are based on the highest rating  received from any
one NRSRO.  Each of the NRSROs utilizes rating categories that are substantially
similar to those used in this chart (see Appendix A for the rating categories of
several NRSROs).



<PAGE>


STRONG SHORT-TERM MUNICIPAL BOND FUND

                          RATED                   ADVISOR'S ASSESSMENT
RATING                 SECURITIES*               OF UNRATED SECURITIES
-------------- ---------------------------- -----------------------------------

AAA                    17.5                            1.9

               ---------------------------- -----------------------------------

AA                     13.3                            7.0

               ---------------------------- -----------------------------------

A                      11.5                            1.9

               ---------------------------- -----------------------------------

BBB                    17.6                           14.6

               ---------------------------- -----------------------------------

BB                      0.6                           11.6

               ---------------------------- -----------------------------------

B                       0.0                            2.1

               ---------------------------- ----------------------------------

CCC                     0.0                            0.1

               ---------------------------- ----------------------------------

CC                      0.0                            0.0

               ---------------------------- ----------------------------------

C                       0.0                            0.0

               ---------------------------- -----------------------------------

D                       0.3                            0.0

               ---------------------------- -----------------------------------

Total                  60.8                 +         39.2            =  100%

-------------- ---------------------------- -----------------------------------

STRONG SHORT-TERM HIGH YIELD MUNICIPAL FUND

                          RATED                ADVISOR'S ASSESSMENT
RATING                 SECURITIES*             OF UNRATED SECURITIES
-------------- ---------------------------- ----------------------------------

AAA                     1.6                            0.5

               ---------------------------- ----------------------------------

AA                      0.0                            1.8

               ---------------------------- ----------------------------------

A                       2.7                            0.1

               ---------------------------- ----------------------------------

BBB                    13.4                            8.5

               ---------------------------- ----------------------------------

BB                     18.3                           43.0

               ---------------------------- ----------------------------------

B                       1.0                            8.6

               ---------------------------- ----------------------------------

CCC                     0.0                            0.0

               ---------------------------- ----------------------------------

CC                      0.0                            0.0

               ---------------------------- ----------------------------------

C                       0.0                            0.0

               ---------------------------- ----------------------------------

D                       0.1                            0.4

               ---------------------------- ----------------------------------

Total                  37.1                 +         62.9            =  100%

-------------- ---------------------------- ----------------------------------


* The indicated  percentages  are based on the highest rating  received from any
one NRSRO.  Each of the NRSROs utilizes rating categories that are substantially
similar to those used in this chart (see Appendix A for the rating categories of
several NRSROs).





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