STRONG SPECIAL FUND II INC, 485BPOS, 1996-04-23

STRONG SPECIAL FUND II INC
485BPOS, 1996-04-23

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<PAGE> 1

As filed with the Securities and Exchange Commission on or about April 23, 1996

Securities Act Registration No. 33-45320
Investment Company Act Registration No. 811-6552
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C.

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]

Pre-Effective Amendment No. [ ]
------

Post-Effective Amendment No. 8 [X]
------

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]

Amendment No. 9 [X]

(Check appropriate box or boxes)

STRONG SPECIAL FUND II, INC.
(Exact Name of Registrant as Specified in Charter)

100 HERITAGE RESERVE
MENOMONEE FALLS, WISCONSIN 53051
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (414) 359-3400

THOMAS P. LEMKE
STRONG CAPITAL MANAGEMENT, INC.
100 HERITAGE RESERVE
MENOMONEE FALLS, WISCONSIN 53051
(Name and Address of Agent for Service)

Copies to
SCOTT A. MOEHRKE
GODFREY & KAHN, S.C.
780 NORTH WATER STREET
MILWAUKEE, WISCONSIN 53202

Registrant has registered an indefinite amount of securities pursuant
to Rule 24f-2 under the Securities Act of 1933; the Registrant's Rule 24f-2
Notice for the fiscal year ended December 31, 1995 was filed on or about
February 21, 1996.

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

[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1996 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of
Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
================================================================================
<PAGE> 2

STRONG SPECIAL FUND II, INC.

CROSS REFERENCE SHEET

(Pursuant to Rule 481 showing the location in the Prospectus and the
Statement of Additional Information of the responses to the Items of Parts A
and B of Form N-1A.)

2. Synopsis Inapplicable

3. Condensed Financial Information Financial Highlights

4. General Description of Registrant The Fund; Investment Objective and Policies;
Implementation of Policies and Certain Risks;
Special Considerations; Additional Information

5. Management of the Fund Management; Additional Information

5A. Management's Discussion of Fund Performance *

6. Capital Stock and Other Securities Additional Information

7. Purchase of Securities Being Offered Additional Information

8. Redemption or Repurchase Additional Information

9. Pending Legal Proceedings Inapplicable

PART B - INFORMATION REQUIRED IN STATEMENT OF
ADDITIONAL INFORMATION

10. Cover Page Cover page

11. Table of Contents Table of Contents

12. General Information and History **

13. Investment Objectives and Policies Investment Restrictions; Investment Policies and
Techniques

14. Management of the Fund Directors and Officers of the Fund

15. Control Persons and Principal Holders of Securities Principal Shareholders; Directors and Officers of
the Fund; Investment Advisor and Distributor

16. Investment Advisory and Other Services Investment Advisor and Distributor; Management (in
Prospectus); Custodian; Transfer Agent and
Dividend-Disbursing Agent; Independent Accountants;
Legal Counsel

17. Brokerage Allocation and Other Practices Portfolio Transactions and Brokerage

18. Capital Stock and Other Securities Included in Prospectus under the heading Additional
Information
</TABLE>

<PAGE> 3

<TABLE>
<CAPTION>
CAPTION OR SUBHEADING IN PROSPECTUS OR
ITEM NO. ON FORM N-1A STATEMENT OF ADDITIONAL INFORMATION
--------------------- -----------------------------------
<S> <C>
19. Purchase, Redemption and Pricing of Securities Included in Prospectus under the headings:
Being Offered Additional Information; and in the Statement of
Additional Information under the headings:
Investment Advisor and Distributor; and
Determination of Net Asset Value

20. Tax Status Included in Prospectus under the heading Additional
Information and Special Considerations; and in the
Statement of Additional Information under the
heading Taxes

21. Underwriters Investment Advisor and Distributor

22. Calculation of Performance Data Performance Information

23. Financial Statements Financial Statements
</TABLE>

* Complete answer to Item is contained in Registrant's Annual Report.
** Complete answer to Item is contained in Registrant's Prospectus.

<PAGE> 4

STRONG SPECIAL FUND II

Strong Special Fund II (the "Fund") is a diversified open-end management
investment company, commonly called a mutual fund. The Fund seeks capital
growth. It currently emphasizes medium-sized companies that the Advisor believes
are under-researched and attractively valued.

Shares of the Fund are only offered and sold to the separate accounts of
certain insurance companies for the purpose of funding variable annuity and
variable life insurance contracts. This Prospectus should be read together with
the prospectus of the separate account of the specific insurance product which
preceded or accompanies this Prospectus.

This Prospectus contains information that you should consider before you
invest. Please read it carefully and keep it for future reference. A Statement
of Additional Information for the Fund, dated May 1, 1996, contains further
information, is incorporated by reference into this Prospectus, and has been
filed with the Securities and Exchange Commission ("SEC"). This Statement, which
may be revised from time to time, is available upon request and without charge
by writing to the Fund at P.O. Box 2936, Milwaukee, Wisconsin 53201.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

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

Dated May 1, 1996

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

PROSPECTUS PAGE 1
<PAGE> 5

TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
THE FUND................................. 2
FINANCIAL HIGHLIGHTS..................... 3
INVESTMENT OBJECTIVE AND POLICIES........ 4
IMPLEMENTATION OF POLICIES AND RISKS..... 5
SPECIAL CONSIDERATIONS................... 11
MANAGEMENT............................... 12
ADDITIONAL INFORMATION................... 13
</TABLE>

No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the Statement
of Additional Information and, if given or made, such information or
representations may not be relied upon as having been authorized by the Fund.
This Prospectus does not constitute an offer to sell securities to any person in
any state or jurisdiction in which such offering may not lawfully be made.

THE FUND

The Fund is a diversified, open-end management investment company. The Fund
offers and sells its shares only to separate accounts of insurance companies for
the purpose of funding variable annuity and variable life insurance contracts.
The Fund does not impose any sales or redemption charges. Strong Capital
Management, Inc. (the "Advisor") is the investment advisor for the Fund.

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PROSPECTUS PAGE 2
<PAGE> 6

FINANCIAL HIGHLIGHTS

The following annual Financial Highlights for the Fund have been audited by
Coopers & Lybrand L.L.P., independent certified public accountants. Their report
for the fiscal year ended December 31, 1995 is included in the Fund's Annual
Report that is contained in the Fund's Statement of Additional Information. The
Financial Highlights should be read in conjunction with the Financial Statements
and related notes included in the Fund's Annual Report. Additional information
about the performance of the Fund is contained in the Fund's Annual Report,
which may be obtained without charge by calling or writing Strong Funds. The
following presents information relating to a share of common stock outstanding
for the entire period.

<TABLE>
<CAPTION>
1995 1994 1993 1992**
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.23 $ 14.12 $ 11.33 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.12 0.11 0.06 0.02
Net Realized and Unrealized Gains
on Investments 3.42 0.41 2.79 1.57
-------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 3.54 0.52 2.85 1.59
LESS DISTRIBUTIONS
From Net Investment Income (0.12) (0.11) (0.06) (0.02)
In Excess of Net Investment Income (0.03) -- -- --
From Net Realized Gains (0.58) (0.30) -- (0.24)
-------- -------- -------- --------
TOTAL DISTRIBUTIONS (0.73) (0.41) (0.06) (0.26)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 17.04 $ 14.23 $ 14.12 $ 11.33
======== ======== ======== ========
Total Return +25.8% +3.6% +25.2% +16.2%
Net Assets, End of Period (In
Thousands) $452,373 $300,433 $151,206 $ 26,649
Ratio of Expenses to Average Net Assets 1.2% 1.1% 1.1% 1.6%*
Ratio of Net Investment Income to
Average Net Assets 0.8% 0.9% 0.5% 0.3%*
Portfolio Turnover Rate 91.1% 74.8% 103.1% 249.5%
</TABLE>

*Calculated on an annualized basis.

**Inception date is May 8, 1992. Total return and portfolio turnover rate are
not annualized.

Please note that the total return shown in the Financial Highlights does not
reflect expenses that apply to the separate account or the related insurance
policies. Inclusion of these charges would reduce the total return for the
periods shown.

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

PROSPECTUS PAGE 3
<PAGE> 7

INVESTMENT OBJECTIVE AND POLICIES

The Fund has adopted certain fundamental investment restrictions that are set
forth in the Fund's Statement of Additional Information ("SAI"). Those
restrictions, the Fund's investment objective and any other investment policies
identified as "fundamental" cannot be changed without shareholder approval. To
further guide investment activities, the Fund has also instituted a number of
non-fundamental operating policies, which are described throughout this
Prospectus and in the SAI. Although these additional policies may be changed by
the Fund's Board of Directors without shareholder approval, the Fund will
promptly notify shareholders of any material change in operating policies.

The Fund seeks capital growth. The Fund invests primarily in equity
securities and currently emphasizes investments in medium-sized companies the
Advisor believes are under-researched and attractively valued.

The Fund will invest at least 80% of its net assets in equity securities,
including common stocks (which must constitute at least 65% of its total
assets), preferred stocks, and securities that are convertible into common or
preferred stocks, such as warrants and convertible bonds. Under normal market
conditions, the Fund expects to be fully invested in equity securities. The Fund
may, however, invest up to 20% of its net assets in debt obligations, including
intermediate- to long-term corporate or U.S. government debt securities and,
when the Advisor determines that market conditions warrant a temporary defensive
position, it may use that allowance to invest up to 20% of its net assets in
cash and short-term fixed income securities. Although the debt obligations in
which it invests will be primarily investment-grade, the Fund may invest up to
5% of its net assets in non-investment-grade debt obligations. (See
"Implementation of Policies and Risks - Debt Obligations.") The Fund may invest
up to 25% of its net assets in foreign securities, including both direct
investments and investments made through depositary receipts. See
"Implementation of Policies and Risks - Foreign Securities and Currencies" for
the special risks associated with foreign investments.

In selecting its equity investments, the Advisor seeks to identify attractive
investment opportunities that have not become widely recognized by other stock
analysts or the financial press. Through first-hand research that often includes
on-site visits with the leaders of companies, the Advisor looks for companies
with fundamental value or growth potential that is not yet reflected in their
current market prices.
In many cases, companies in the small- and medium-capitalization markets are
under-followed and, as a result, less efficiently priced than their larger,
better-known counterparts. The Fund's investments are therefore likely to
consist, in part, of securities in small- and medium-sized companies. Many of
these companies may have successfully emerged from the start-up phase and have
potential for future growth. Because of their longer track records and more
seasoned management, they generally pose less investment uncertainty

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

PROSPECTUS PAGE 4
<PAGE> 8

than do the smallest companies. In general, however, smaller-capitalization
companies often involve greater risks than investments in established companies.
(See "Implementation of Policies and Risks - Small Companies.")

IMPLEMENTATION OF POLICIES AND RISKS

In addition to the Fund's investment policies described above (and subject to
certain restrictions described herein), the Fund may invest in some or all of
the following securities and employ some or all of the following investment
techniques, some of which may present special risks as described below. The Fund
may also engage in reverse repurchase agreements and mortgage dollar roll
transactions. A more complete discussion of these securities and investment
techniques and their associated risks is contained in the Fund's SAI.

FOREIGN SECURITIES AND CURRENCIES

The Fund may invest in foreign securities either directly or indirectly
through the use of depositary receipts. Depositary receipts are generally issued
by banks or trust companies and evidence ownership of underlying foreign
securities. Foreign investments may include other investment companies which may
involve frequent or layered fees and are also subject to limitations under the
Investment Company Act of 1940 (the "1940 Act").

Foreign investments involve special risks, including:

- - expropriation, confiscatory taxation, and withholding taxes on dividends and
interest;
- - less extensive regulation of foreign brokers, securities markets, and issuers;
- - less publicly available information and different accounting standards;
- - costs incurred in conversions between currencies, possible delays in
settlement in foreign securities markets, limitations on the use or transfer
of assets (including suspension of the ability to transfer currency from a
given country), and difficulty of enforcing obligations in other countries;
and
- - diplomatic developments and political or social instability.

Foreign economies may differ favorably or unfavorably from the U.S. economy
in various respects, including growth of gross domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource
self-sufficiency, and balance of payments positions. Many foreign securities may
be less liquid and their prices more volatile than comparable U.S. securities.
Although the Fund generally invests only in securities that are regularly traded
on recognized exchanges or in over-the-counter markets, from time to time
foreign securities may be difficult to liquidate rapidly without adverse price
effects.

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

PROSPECTUS PAGE 5
<PAGE> 9

Certain costs attributable to foreign investing, such as custody charges and
brokerage costs, may be higher than those attributable to domestic investing.

Because most foreign securities are denominated in non-U.S. currencies, the
investment performance of the Fund could be affected by changes in foreign
currency exchange rates to some extent. The value of the Fund's assets
denominated in foreign currencies will increase or decrease in response to
fluctuations in the value of those foreign currencies relative to the U.S.
dollar. Currency exchange rates can be volatile at times in response to supply
and demand in the currency exchange markets, international balances of payments,
governmental intervention, speculation, and other political and economic
conditions.

The Fund may purchase and sell foreign currency on a spot basis and may
engage in forward currency contracts, currency options, and futures transactions
for hedging or any other lawful purpose. (See "Derivative Instruments.")

DERIVATIVE INSTRUMENTS

The Fund may use derivative instruments for any lawful purpose consistent
with the Fund's investment objective such as hedging or managing risk, but not
for speculation. Derivative instruments are commonly defined to include
securities or contracts whose values depend on (or "derive" from) the value of
one or more other assets, such as securities, currencies, or commodities. These
"other assets" are commonly referred to as "underlying assets."

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

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

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

PROSPECTUS PAGE 6
<PAGE> 10

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.

Derivative instruments may include (i) options; (ii) futures; (iii) options
on futures; (iv) short sales against the box, in which the Fund sells a security
it owns for delivery at a future date; (v) swaps, in which two parties agree to
exchange a series of cash flows in the future, such as interest-rate payments;
(vi) interest-rate caps, under which, in return for a premium, one party agrees
to make payments to the other to the extent that interest rates exceed a
specified rate, or "cap"; (vii) the interest-rate floors, under which, in return
for a premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified level, or "floor"; (viii) forward currency
contracts and foreign currency exchange-related securities; and (ix) structured
instruments which combine the foregoing in different ways.

Derivatives may be exchange-traded in OTC transactions between private
parties. OTC transactions are subject to additional risks, such as the credit
risk of the counterparty to the instrument and are less liquid than
exchange-traded derivatives since they often can only be closed out with the
other party to the transaction. Derivative instruments may include elements of
leverage and, accordingly, the fluctuation of the value of the derivative
instrument in relation to the underlying asset may be magnified. When required
by SEC guidelines, the Fund will set aside permissible liquid assets or
securities positions that substantially correlate to the market movements of the
derivative in a segregated account to secure its obligations under the
derivative. In order to maintain its required cover for a derivative, the Fund
may need to sell portfolio securities at disadvantageous prices or times since
it may not be possible to liquidate a derivative position.

The successful use of derivatives by the Fund is dependent upon a variety of
factors, particularly the Advisor's ability to correctly anticipate trends in
the underlying asset. In a hedging transaction, if the Advisor incorrectly
anticipates trends in the underlying asset, the Fund may be in a worse position
than if no hedging had occurred. In addition, there may be imperfect correlation
between the Fund's derivative transactions and the instruments being hedged. To
the extent that the Fund is engaging in derivative transactions for risk
management, the Fund's successful use of such transactions is more dependent
upon the Advisor's ability to correctly anticipate such trends, since losses in
these transactions may not be offset in gains in the Fund's portfolio or in
lower purchase prices for assets it intends to acquire. The Advisor's prediction
of trends in underlying assets may prove to be inaccurate, which could result in
substantial losses to the Fund.

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

PROSPECTUS PAGE 7
<PAGE> 11

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

ILLIQUID SECURITIES

The Fund may invest up to 15% of its net assets in illiquid securities.
Illiquid securities are those securities that are not readily marketable,
including restricted securities and repurchase obligations maturing in more than
seven days. Certain restricted securities that may be resold to institutional
investors pursuant to Rule 144A under the Securities Act of 1933 and Section
4(2) commercial paper may be determined to be liquid under guidelines adopted by
the Fund's Board of Directors.

SMALL COMPANIES

The Fund may, from time to time, invest a substantial portion of its assets
in small companies. While smaller companies generally have potential for rapid
growth, investments in smaller companies often involve greater risks than
investments in larger, more established companies because smaller companies may
lack the management experience, financial resources, product diversification,
and competitive strengths of larger companies. In addition, in many instances
the securities of smaller companies are traded only over-the-counter or on a
regional securities exchange, and the frequency and volume of their trading is
substantially less than is typical of larger companies. Therefore, the
securities of smaller companies may be subject to greater and more abrupt price
fluctuations. When making large sales, the Fund may have to sell portfolio
holdings at discounts from quoted prices or may have to make a series of small
sales over an extended period of time due to the trading volume of smaller
company securities. Investors should be aware that, based on the foregoing
factors, an investment in the Fund may be subject to greater price fluctuations
than an investment in a fund that invests primarily in larger, more established
companies. The Advisor's research efforts may also play a greater role in
selecting securities for the Fund than in a fund that invests in larger, more
established companies.

DEBT OBLIGATIONS

Debt obligations in which the Fund will invest will be primarily investment-
grade debt obligations, although the Fund may invest up to 5% of its net assets
in non-investment-grade debt obligations. The market value of all debt
obligations is affected by changes in the prevailing interest rates. The market
value

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

PROSPECTUS PAGE 8
<PAGE> 12

of such instruments generally reacts inversely to interest rate changes. If the
prevailing interest rates decline, the market value of debt obligations
generally increases. If the prevailing interest rates increase, the market value
of debt obligations generally decreases. In general, the longer the maturity of
a debt obligation, the greater its sensitivity to changes in interest rates.
Investment-grade debt obligations include:

- - U.S. government securities (as defined below);

- - bonds or bank obligations rated in one of the four highest rating categories
(e.g., BBB or higher by Standard & Poor's Ratings Group or "S&P");

- - short-term notes rated in one of the two highest rating categories (e.g., SP-2
or higher by S&P);

- - short-term bank obligations rated in one of the three highest rating
categories (e.g., A-3 or higher by S&P), with respect to obligations maturing
in one year or less;

- - commercial paper rated in one of the three highest rating categories (e.g.,
A-3 or higher by S&P);

- - unrated debt obligations which are determined by the Advisor to be of
comparable quality; and

- - repurchase agreements involving investment-grade debt obligations.

All ratings are determined at the time of investment. Any subsequent rating
downgrade of a debt obligation will be monitored by the Advisor to consider what
action, if any, the Fund should take consistent with its investment objective.
Securities rated in the fourth-highest category (e.g., BBB by S&P), although
considered investment grade, have speculative characteristics and may be subject
to greater fluctuations in value than higher-rated securities. Non-
investment-grade debt obligations include:

- - securities rated as low as C by S&P or their equivalents;
- - commercial paper rated as low as C by S&P or its equivalents; and
- - unrated debt securities judged to be of comparable quality by the Advisor.

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, for example,
obligations of the following:

- - the Federal Housing Administration, Farmers Home Administration, Export-Import
Bank of the United States, Small Business Administration, and the Government
National Mortgage Association, including GNMA pass-through

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PROSPECTUS PAGE 9
<PAGE> 13

certificates, whose securities are supported by the full faith and credit of the
United States;
- - the Federal Home Loan Banks, Federal Intermediate Credit Banks, and the
Tennessee Valley Authority, whose securities are supported by the right of the
agency to borrow from the U.S. Treasury;
- - the Federal National Mortgage Association, whose securities are supported by
the discretionary authority of the U.S. government to purchase certain
obligations of the agency or instrumentality; and
- - 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.

WHEN-ISSUED SECURITIES

The Fund may invest without limitation in securities purchased on a when-
issued or delayed delivery basis. Although the payment and interest terms of
these securities are established at the time the purchaser enters into the
commitment, these securities may be delivered and paid for at a future date,
generally within 45 days. Purchasing when-issued securities allows the Fund to
lock in a fixed price or yield on a security it intends to purchase. However,
when the Fund purchases a when-issued security, it immediately assumes the risk
of ownership, including the risk of price fluctuation.

The greater the Fund's outstanding commitments for these securities, the
greater the exposure to potential fluctuations in the net asset value of the
Fund. Purchasing when-issued securities may involve the additional risk that the
yield available in the market when the delivery occurs may be higher or the
market price lower than that obtained at the time of commitment. Although the
Fund may be able to sell these securities prior to the delivery date, it will
purchase when-issued securities for the purpose of actually acquiring the
securities, unless after entering into the commitment a sale appears desirable
for investment reasons. When required by SEC guidelines, the Fund will set aside
permissible liquid assets in a segregated account to secure its outstanding
commitments for when-issued securities.

PORTFOLIO TURNOVER

The Fund's historical portfolio turnover rate is listed under "Financial
Highlights." The annual portfolio turnover rate indicates changes in the Fund's
portfolio. The turnover rate may vary from year to year, as well as within a

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

PROSPECTUS PAGE 10
<PAGE> 14

year. It may also be affected by sales of portfolio securities necessary to meet
cash requirements for redemptions of shares. High portfolio turnover in any year
will result in the payment by the Fund of above-average amounts of transaction
costs. The Fund may engage in substantial short-term trading, which involves
substantial risks and may be considered speculative.

SPECIAL CONSIDERATIONS

The Fund is designed as an investment vehicle for variable annuity and
variable life insurance contracts funded by separate accounts of certain
insurance companies. Section 817(h) of the Internal Revenue Code of 1986, as
amended (the "Code") and the regulations thereunder impose certain
diversification standards on the investments underlying variable annuity and
variable life insurance contracts in order for such contracts to be treated for
tax purposes as annuities or life insurance. Section 817(h) of the Code provides
that a variable annuity and variable life insurance contract based on a separate
account shall not be treated as an annuity or life insurance contract for any
period (and any subsequent period) for which the account's investments are not
adequately diversified. These diversification requirements are in addition to
the diversification requirements applicable to the Fund under Subchapter M of
the Code and the 1940 Act and may affect the composition of the Fund's
investments.
Since the shares of the Fund are currently sold to segregated asset accounts
underlying such variable annuity and variable life insurance contracts, the Fund
intends to comply with the diversification requirements as set forth in the
regulations. The Secretary of the Treasury may in the future issue additional
regulations or revenue rulings that may prescribe the circumstances in which a
contract owner's control of the investments of a separate account may cause the
contract owner, rather than the insurance company, to be treated as the owner of
assets of the separate account. Failure to comply with Section 817(h) of the
Code or any regulation thereunder, or with any future regulations or revenue
rulings on contract owner control, would cause earnings regarding a contract
owner's interest in an insurance company's separate account to be includible in
the contract owner's gross income in the year earned. Such standards may apply
only prospectively, although retroactive application is possible. In the event
that any such regulations or revenue rulings are adopted, the Fund may not be
able to continue to operate as currently described in this prospectus, or
maintain its investment program.
The Fund will be managed in such a manner as to comply with the requirements
of Subchapter L of the Code. It is possible that in order to comply with such
requirements, less desirable investment decisions may be made which would affect
the investment performance of the Fund.
The Fund may sell its shares to the separate accounts of various insurance
companies, which are not affiliated with each other, for the purpose of funding

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

PROSPECTUS PAGE 11
<PAGE> 15

variable annuity and variable life insurance contracts. The Fund currently does
not foresee any disadvantages to contract owners arising out of the fact that it
offers its shares to separate accounts of various insurance companies, which are
not affiliated with each other, to serve as an investment medium for their
variable products. However, it is theoretically possible that the interests of
owners of various contracts participating in the Fund through the separate
accounts might at some time be in conflict. The Board of Directors of the Fund,
however, will monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any, should
be taken in response to such conflicts. If such a conflict were to occur, one or
more insurance companies' separate accounts might be required to withdraw its
investments in the Fund, and shares of another fund may be substituted. This
might force the Fund to sell securities at disadvantageous prices. In addition,
the Board of Directors may refuse to sell Fund shares to any separate account or
may suspend or terminate the offering of Fund shares if such action is required
by law or regulatory authority or is in the best interest of the shareholders of
the Fund.

Except for the organizational shares of the Fund, the Fund's shares may be
held of record only by insurance company separate accounts. As of March 31,
1996, Nationwide Life Insurance Company owned approximately 99.97% of the Fund.
Nationwide Life Insurance Company's ownership of greater than 25% of the Fund's
shares may result in it being deemed to be the controlling entity of the Fund.
It may continue to be deemed as such until other insurance companies, if any,
selling significant numbers of variable annuity and variable life insurance
contracts, have made substantial investments in the Fund's shares.

MANAGEMENT

The Board of Directors of the Fund is responsible for managing its business
and affairs. The Fund has entered into an investment advisory agreement (an
"Advisory Agreement") with the Advisor. Under the terms of the Advisory
Agreement, the Advisor manages the Fund's investments and business affairs,
subject to the supervision of the Board of Directors.

The Advisor began conducting business in 1974. Since then, its principal
business has been providing continuous investment supervision for individuals
and institutional accounts, such as pension funds and profit-sharing plans, as
well as mutual funds, several of which are funding vehicles for variable
insurance products. As of April 15, 1996, the Advisor had over $19 billion under
management. The Advisor's principal mailing address is P.O. Box 2936, Milwaukee,
Wisconsin 53201. Mr. Richard S. Strong, the Chairman of the Board of the Fund,
is the controlling shareholder of the Advisor.

As compensation for its services, the Fund pays the Advisor a monthly
management fee. The annual fee is 1.00% of the average daily net asset value of
the Fund. Under the terms of the Advisory Agreement, the Advisor provides

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

PROSPECTUS PAGE 12
<PAGE> 16

office space and all necessary office facilities, equipment, and personnel for
servicing the investments of the Fund. From time to time, the Advisor may
voluntarily waive all or a portion of its management fee and/or absorb certain
expenses for the Fund without further notification of the commencement or
termination of any such waiver or absorption. Any such waiver or absorption will
have the effect of lowering the overall expense ratio of the Fund and increasing
the Fund's return to investors at the time such amounts were waived and/or
absorbed.

PORTFOLIO MANAGERS. The following individuals serve as portfolio managers for
the Fund.

RICHARD T. WEISS. Mr. Weiss joined the Advisor in 1991 from Chicago-based
Stein Roe & Farnham, where he began his career as a research analyst in 1975. He
was named a portfolio manager in 1981. Mr. Weiss attended Harvard Graduate
School of Business Administration, where he was awarded his M.B.A. in 1975, and
the University of Southern California, where he received his bachelor's degree
in business administration in 1973. He has managed the Strong Special Fund II
since its inception in May 1992.
MARINA T. CARLSON. Before she joined the Advisor as an equity research
analyst in 1991, Ms. Carlson worked in a similar capacity at Stein Roe &
Farnham, where she began her investment career in 1986. She has worked with
portfolio manager Richard T. Weiss since 1989, and, in 1993, she was named a
co-manager of the Strong Special Fund II. A Chartered Financial Analyst, Ms.
Carlson received her M.B.A. from DePaul University in 1989 and her bachelor's
degree in business administration from Drake University in 1986.

ADDITIONAL INFORMATION

HOW TO INVEST. Investments in the Fund may only be made by separate accounts
established and maintained by insurance companies for purposes of funding
variable annuity and variable life insurance contracts. For instructions on how
to direct a separate account to purchase shares in the Fund, please refer to the
prospectus of the insurance company's separate account. The Fund does not impose
any sales charge or 12b-1 fee. Certain sales charges may apply to the variable
annuity or variable life insurance contract, which should be described in the
prospectus of the insurance company's separate account. The Fund may decline to
accept a purchase order upon receipt when, in the judgment of the Advisor, it
would not be in the best interest of the existing shareholders to accept the
order. Shares of the Fund will be sold at the net asset value next determined
after receipt by the Fund of a purchase order in proper form placed by an
insurance company invested in the Fund. Certificates for shares in the Fund will
not be issued.

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PROSPECTUS PAGE 13
<PAGE> 17

CALCULATION OF NET ASSET VALUE. The net asset value ("NAV") per share for the
Fund is determined as of the close of trading on the New York Stock Exchange
(the "Exchange"), currently 3:00 p.m. Central Time, on days the Exchange is open
for business. The NAV will not be determined for the Fund on days during which
the Fund receives no orders to purchase shares and no shares are tendered for
redemption. The Fund's NAV is calculated by taking the fair value of the Fund's
total assets, subtracting all liabilities, and dividing by the total number of
outstanding shares. Expenses are accrued and applied daily 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 Board of Directors.
Equity securities traded on a national securities exchange or NASDAQ are valued
at the last sales price on the national securities exchange or NASDAQ on which
such securities are primarily traded. Securities traded on NASDAQ for which
there were no transactions on a given day or securities not listed on an
exchange or NASDAQ are valued at the average of the most recent bid and asked
prices. Other exchange-traded securities (generally foreign securities) will be
valued based on market quotations.

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
valuations 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. Debt securities of
the Fund having remaining maturities of 60 days or less are valued by the
amortized cost method when the fair value of such securities is their amortized
cost.

HOW TO REDEEM SHARES. Shares of the Fund may be redeemed on any business day.
The price received upon redemption will be the net asset value next determined
after the redemption request in proper form is received by the Fund. (See
"Calculation of Net Asset Value.") Contract owners should refer to the
withdrawal or surrender instructions in the prospectus of the separate account
for instructions on how to redeem shares. Once the redemption request is
received in proper form, the Fund will ordinarily forward payment to the
separate account no later than seven days after receipt.
The right of redemption may be suspended during any period in which: (i)
trading on the Exchange is restricted, as determined by the SEC, or the Exchange
is closed for other than weekends and holidays; (ii) the SEC has permitted such
suspension by order; or (iii) an emergency, as determined by the SEC, exists
which makes disposal of portfolio securities or valuation of net assets of the
Fund not reasonably practicable.

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PROSPECTUS PAGE 14
<PAGE> 18

DISTRIBUTIONS AND TAXES. The policy of the Fund is to pay dividends to the
insurance company's separate accounts from net investment income quarterly and
to distribute substantially all net realized capital gains, after using any
available capital loss carryovers, annually. All dividends and capital gain
distributions paid to the insurance company's separate accounts will be
automatically reinvested in additional Fund shares.
The Fund intends to continue to qualify for treatment as a Regulated
Investment Company or "RIC" under Subchapter M of the Code and, if so qualified,
will not be liable for federal income tax on earnings and gains distributed to
its shareholders in a timely manner. If the Fund does not so qualify, however,
it would be treated for tax purposes as an ordinary corporation and would
receive no tax deduction for distributions made to its shareholders. For more
information regarding tax implications for owners of variable annuity or
variable life insurance contracts investing in the Fund, please refer to the
prospectus of your insurance company's separate account. See "Special
Considerations" for a discussion of special tax considerations relating to the
Fund's compliance with Subchapter L of the Code, as an investment vehicle for
variable annuity and variable life insurance contracts of certain insurance
companies.

This section is not intended to be a full discussion of present or proposed
federal income tax law and its effect on the Fund and investors. (See the SAI
for a further discussion.) Investors are urged to consult their own tax adviser.

ORGANIZATION. The Fund is a Wisconsin corporation that is authorized to issue
shares of common stock and series and classes of series of shares of common
stock. Each share of the 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. Generally, the Fund
will not hold an annual meeting of shareholders unless required by the 1940 Act.

The insurance company separate accounts, as the record shareholders in the
Fund, have the right to vote on matters submitted for a shareholder vote. Under
current interpretations of the 1940 Act, these insurance companies must solicit
voting instructions from contract owners and vote Fund shares in accordance with
the instructions received or, for Fund shares for which no voting instructions
were received, in the same proportion as those Fund shares for which
instructions were received. Contract owners should refer to the prospectus of
the insurance company's separate account for a complete description of their
voting rights.

TRANSFER AGENT, DIVIDEND-DISBURSING AGENT, AND DISTRIBUTOR. The Advisor, P.O.
Box 2936, Milwaukee, Wisconsin 53201, acts as transfer agent and
dividend-disbursing agent for the Fund. Strong Funds Distributors, Inc., P.O.
Box 2936, Milwaukee, Wisconsin 53201, an indirect subsidiary of the Advisor,
acts as distributor of the shares of the Fund.

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PROSPECTUS PAGE 15
<PAGE> 19

PERFORMANCE INFORMATION. The Fund may advertise a variety of types of
performance information, including "average annual total return," "total
return," and "cumulative total return." Each of these figures is based upon
historical results and does not represent the future performance of the Fund.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in the Fund assuming
the reinvestment of all dividends and distributions. Total return figures are
not annualized and simply represent the aggregate change of the Fund's
investments over a specified period of time.

The Fund's shares are sold at the net asset value per share of the Fund.
Returns and net asset value will fluctuate. Shares of the Fund are redeemable by
the separate accounts of insurance companies at the then current net asset value
per share for the Fund, which may be more or less than the original cost. TOTAL
RETURNS CONTAINED IN ADVERTISEMENTS INCLUDE THE EFFECT OF DEDUCTING THE FUND'S
EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY
PARTICULAR INSURANCE PRODUCT. SINCE SHARES MAY ONLY BE PURCHASED BY THE SEPARATE
ACCOUNTS OF CERTAIN INSURANCE COMPANIES, CONTRACT OWNERS SHOULD CAREFULLY REVIEW
THE PROSPECTUS OF THE SEPARATE ACCOUNT FOR INFORMATION ON FEES AND EXPENSES.
Excluding such fees and expenses from the Fund's total return quotations has the
effect of increasing the performance quoted. The Fund will not use information
concerning its investment performance in advertisements or sales materials
unless appropriate information concerning the relevant separate account is also
included. Additional information concerning the Fund's performance appears in
the SAI.

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PROSPECTUS PAGE 16
<PAGE> 20
STATEMENT OF ADDITIONAL INFORMATION

STRONG SPECIAL FUND II

P.O. Box 2936
Milwaukee, Wisconsin 53201

Telephone: (414) 359-1400

Toll-Free: (800) 368-3863

Strong Special Fund II (the "Fund") is a separately incorporated,
diversified open-end management investment company designed to provide an
investment vehicle for variable annuity and variable life insurance contracts
of certain insurance companies. Shares in the Fund are only offered and sold
to the separate accounts of such insurance companies. The Fund is described
herein and in the Prospectus for the Fund dated May 1, 1996.

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus for the Fund dated May 1, 1996 and the
prospectus for the separate account of the specific insurance product.
Requests for copies of the Fund's Prospectus may be made by calling one of the
numbers listed above. The financial statements appearing in the Fund's Annual
Report, which accompanies this Statement of Additional Information, are
incorporated herein by reference.

This Statement of Additional Information is dated May 1, 1996.

<PAGE> 21
STRONG SPECIAL FUND II, INC.

<TABLE>
<S> <C>
TABLE OF CONTENTS PAGE

INVESTMENT RESTRICTIONS............................................................ 4
INVESTMENT POLICIES AND TECHNIQUES................................................. 6
Borrowing........................................................................ 6
Convertible Securities........................................................... 6
Debt Obligations................................................................. 7
Depositary Receipts.............................................................. 7
Derivative Instruments........................................................... 8
Foreign Investment Companies..................................................... 17
Foreign Securities............................................................... 18
High-Yield (High-Risk) Securities................................................ 18
Illiquid Securities.............................................................. 20
Lending of Portfolio Securities.................................................. 20
Mortgage- and Asset-Backed Securities............................................ 21
Mortgage Dollar Rolls and Reverse Repurchase Agreements.......................... 22
Repurchase Agreements............................................................ 22
Short Sales Against the Box...................................................... 23
Short-Term Cash Management....................................................... 23
Small Companies.................................................................. 23
Temporary Defensive Position..................................................... 23
Warrants......................................................................... 23
When-Issued Securities........................................................... 24
Zero-Coupon, Step-Coupon and Pay-in-Kind Securities.............................. 24
DIRECTORS AND OFFICERS OF THE FUND................................................. 24
PRINCIPAL SHAREHOLDERS............................................................. 27
INVESTMENT ADVISOR AND DISTRIBUTOR................................................. 27
PORTFOLIO TRANSACTIONS AND BROKERAGE............................................... 29
CUSTODIAN.......................................................................... 32
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT....................................... 32
ADMINISTRATIVE SERVICES............................................................ 32
TAXES.............................................................................. 32
DETERMINATION OF NET ASSET VALUE................................................... 35
FUND ORGANIZATION.................................................................. 35
PERFORMANCE INFORMATION............................................................ 36
GENERAL INFORMATION................................................................ 40
PORTFOLIO MANAGEMENT............................................................... 41
INDEPENDENT ACCOUNTANTS............................................................ 42
LEGAL COUNSEL...................................................................... 42
FINANCIAL STATEMENTS............................................................... 42
APPENDIX........................................................................... A-1
</TABLE>

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

No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus dated May 1, 1996 and, if given or made, such
information or representations may not be relied upon as having been authorized
by the Fund.

This Statement of Additional Information does not constitute an offer to sell
securities.

3
<PAGE> 22
INVESTMENT RESTRICTIONS

The investment objective of the Fund is to seek capital growth. The
Fund's investment objective and policies are described in detail in the
Prospectus under the caption "Investment Objective and Policies." The
following are the Fund's fundamental investment limitations which cannot be
changed without shareholder approval.

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, (i) more
than 5% of the Fund's total assets would be invested in the securities of
that issuer, or (ii) the Fund would hold more than 10% of the outstanding
voting securities of that issuer.

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

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

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

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

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

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

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

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

4
<PAGE> 23
The following are the Fund's non-fundamental operating policies which may
be changed by the Board of Directors of the Fund without shareholder approval.

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 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% of its net assets would be invested in illiquid securities, or
such other amounts as may be required under the 1940 Act.

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

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

6. Purchase the securities of any issuer (other than securities issued or
guaranteed by domestic or foreign governments or political subdivisions
thereof) if, as a result, more than 5% of its total assets would be
invested in the securities of issuers that, including predecessor or
unconditional guarantors, have a record of less than three years of
continuous operation. This policy does not apply to securities of pooled
investment vehicles or mortgage or asset-backed securities.

7. Invest in direct interests in oil, gas, or other mineral exploration
programs or leases; however, the Fund may invest in the securities of
issuers that engage in these activities.

8. Engage in futures or options on futures transactions which are
impermissible pursuant to Rule 4.5 under the Commodity Exchange Act and,
in accordance with Rule 4.5, will use futures or options on futures
transactions solely for bona fide hedging transactions (within the meaning
of the Commodity Exchange Act), provided, however, that the Fund may, in
addition to bona fide hedging transactions, use futures and options on
futures transactions if the aggregate initial margin and premiums required
to establish such positions, less the amount by which any such options
positions are in the money (within the meaning of the Commodity Exchange
Act), do not exceed 5% of the Fund's net assets.

In addition, (i) the aggregate value of securities underlying call
options on securities written by the Fund or obligations underlying put
options on securities written by the Fund determined as of the date the
options are written will not exceed 50% of the Fund's net assets; (ii)
the aggregate premiums paid on all options purchased by the Fund and
which are being held will not exceed 20% of the Fund's net assets; (iii)
the Fund will not purchase put or call options, other than hedging
positions, if, as a result thereof, more than 5% of its total assets
would be so invested; and (iv) the aggregate margin deposits required on
all futures and options on futures transactions being held will not
exceed 5% of the Fund's total assets.

9. Pledge, mortgage or hypothecate any assets owned by the Fund except as
may be necessary in connection with permissible borrowings or investments
and then such pledging, mortgaging, or hypothecating may not exceed 33
1/3% of the Fund's total assets at the time of the borrowing or investment.

10. Purchase or retain the securities of any issuer if any officer or
director of the Fund or its investment advisor beneficially owns more
than 1/2 of 1% of the securities of such issuer and such officers and
directors together own beneficially more than 5% of the securities of such
issuer.

5
<PAGE> 24
11. Purchase warrants, valued at the lower of cost or market value, in excess
of 5% of the Fund's net assets. Included in that amount, but not to
exceed 2% of the Fund's net assets, may be warrants that are not listed on
any stock exchange. Warrants acquired by the Fund in units or attached to
securities are not subject to these restrictions.

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

13. Make any loans other than loans of portfolio securities, except through
(i) purchases of debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.

Except for the fundamental investment limitations listed above and the
Fund's investment objective, the other investment policies described in the
Prospectus and this Statement of Additional Information are not fundamental and
may be changed with approval of the Fund's Board of Directors.

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.

INVESTMENT POLICIES AND TECHNIQUES

The following information supplements the discussion of the Fund's
investment objective, policies and techniques that are described in detail in
the Prospectus under the captions "Investment Objective and Policies" and
"Implementation of Policies and Risks."

BORROWING

The Fund may borrow money from banks and make other investments or engage
in other transactions permissible under the 1940 Act which may be considered a
borrowing (such as mortgage dollar rolls and reverse repurchase agreements) as
discussed under "Investment Restrictions." 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 they 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 sixty 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 which are unfavorable to the
Fund's remaining shareholders. The Fund pays a commitment fee to the banks for
the LOC.

CONVERTIBLE SECURITIES

The Fund may invest in convertible securities, which 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 (i) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (ii) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics,
and (iii) 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.

6
<PAGE> 25

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 held by the Fund 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.

DEBT OBLIGATIONS

The Fund may invest a portion of its assets in debt obligations. Issuers
of debt obligations have a contractual obligation to pay interest at a
specified rate on specified dates and to repay principal on a specified
maturity date. Certain debt obligations (usually intermediate- and long-term
bonds) have provisions that allow the issuer to redeem or "call" a bond before
its maturity. Issuers are most likely to call such securities during periods
of falling interest rates and the Fund may have to replace such securities with
lower yielding securities, which could result in a lower return for the Fund.

PRICE VOLATILITY. The market value of debt obligations is affected
primarily by changes in prevailing interest rates. The market value of a debt
obligation generally reacts inversely to interest-rate changes, meaning, when
prevailing interest rates decline, an obligation's price usually rises, and
when prevailing interest rates rise, an obligation's price usually declines.

MATURITY. In general, the longer the maturity of a debt obligation, the
higher its yield and the greater its sensitivity to changes in interest rates.
Conversely, the shorter the maturity, the lower the yield but the greater the
price stability. Commercial paper is generally considered the shortest form of
debt obligation.

CREDIT QUALITY. The values of debt obligations may also be affected by
changes in the credit rating or financial condition of their issuers.
Generally, the lower the quality rating of a security, the higher the degree of
risk as to the payment of interest and return of principal. To compensate
investors for taking on such increased risk, those issuers deemed to be less
creditworthy generally must offer their investors higher interest rates than do
issuers with better credit ratings.

In conducting its credit research and analysis, the Advisor considers both
qualitative and quantitative factors to evaluate the creditworthiness of
individual issuers. The Advisor also relies, in part, on credit ratings
compiled by a number of Nationally Recognized Statistical Rating Organizations
("NRSROs"). Refer to the Appendix for a discussion of securities ratings.

DEPOSITARY RECEIPTS

The Fund may invest in foreign securities by purchasing depositary
receipts, including American Depositary Receipts ("ADRs") and European
Depositary Receipts ("EDRs"), or other securities convertible into securities
of foreign issuers. These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. Generally,
ADRs, in registered form, are denominated in U.S. dollars and are designed for
use in the U.S. securities markets, while EDRs, in bearer form, may be
denominated in other currencies and are designed for use in the European
securities markets. ADRs are receipts typically issued by a U.S. bank or
trust company evidencing ownership of the underlying securities. EDRs are
European receipts evidencing a similar arrangement. For purposes of the Fund's
investment policies, ADRs and EDRs are deemed to have the same classification
as the underlying securities they represent, except that ADRs and

7
<PAGE> 26

EDRs shall be treated as indirect foreign investments. Thus, an ADR or EDR
representing ownership of common stock will be treated as common stock. ADR
and EDR depositary receipts do not eliminate all of the risks associated with
directly investing in the securities of foreign issuers.

ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants.

A depositary may establish an unsponsored facility without participation
by (or even necessarily the acquiescence of) the issuer of the deposited
securities, although typically the depositary requests a letter of
non-objection from such issuer prior to the establishment of the facility.
Holders of unsponsored ADRs generally bear all the costs of such facilities.
The depositary usually charges fees upon the deposit and withdrawal of the
deposited securities, the conversion of dividends into U.S. dollars, the
disposition of non-cash distributions, and the performance of other services.
The depositary of an unsponsored facility frequently is under no obligation to
pass through voting rights to ADR holders in respect of the deposited
securities. In addition, an unsponsored facility is generally not obligated to
distribute communications received from the issuer of the deposited securities
or to disclose material information about such issuer in the U.S. and thus
there may not be a correlation between such information and the market value of
the depositary receipts.

Sponsored ADR facilities are created in generally the same manner as
unsponsored facilities, except that the issuer of the deposited securities
enters into a deposit agreement with the depositary. The deposit agreement
sets out the rights and responsibilities of the issuer, the depositary, and the
ADR holders. With sponsored facilities, the issuer of the deposited securities
generally will bear some of the costs relating to the facility (such as
dividend payment fees of the depositary), although ADR holders continue to bear
certain other costs (such as deposit and withdrawal fees). Under the terms of
most sponsored arrangements, depositories agree to distribute notices of
shareholder meetings and voting instructions, and to provide shareholder
communications and other information to the ADR holders at the request of the
issuer of the deposited securities.

DERIVATIVE INSTRUMENTS

IN GENERAL. The Fund may use derivative instruments for any lawful
purpose consistent with the Fund's investment objective such as hedging or
managing risk, but not for speculation. Derivative instruments are commonly
defined to include securities or contracts whose values depend on (or "derive"
from) the value of one or more other assets, such as securities, currencies, or
commodities. These "other assets" are commonly referred to as "underlying
assets.

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

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

A forward is a sales contract between a buyer (holding the "long"
position) and a seller (holding the "short" position) for an asset with
delivery deferred until a future date. The buyer agrees to pay a fixed price
at the agreed future date and the seller agrees to deliver the asset. The
seller hopes that the market 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.

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<PAGE> 27

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, the Fund's portfolio. Derivatives may also be used
by the Fund to "lock-in" the Fund's 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.

MANAGING RISK. The Fund may also use derivative instruments to manage the
risks of the Fund's 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 the Fund's 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, and foreign securities. The use of
derivative instruments may provide a less expensive, more expedient or more
specifically focused way for the Fund to invest than "traditional" securities
(i.e., stocks or bonds) would.

EXCHANGE OR 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. Over-the-counter 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.

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
Advisor's ability 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 the Advisor's 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 by the Fund 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 to the Fund. 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

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<PAGE> 28

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, 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 Securities and Exchange Commission (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. For a discussion of the federal
income tax treatment of the Fund's derivative instruments, see "Taxes -
Derivative Instruments."

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
(the "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.

In addition, certain state regulations presently require that (i) the
aggregate value of securities underlying call options on securities written by
the Fund or obligations underlying put options on securities written by the
Fund determined as of the date the options are written will not exceed 50% of
the Fund's net assets; (ii) the aggregate premiums paid on all options
purchased by the Fund and which are being held will not exceed 20% of the
Fund's net assets; (iii) the Fund will not purchase put or call options, other
than hedging positions, if, as a result thereof, more than 5% of its total
assets would be so invested; and

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<PAGE> 29

(iv) the aggregate margin deposits required on all futures and options on
futures transactions being held will not exceed 5% of the Fund's total assets.

The 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 the segregation 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: (i) an offsetting ("covered")
position in securities, options, futures, or derivative instruments; or (ii)
cash, liquid high grade debt obligations, or securities positions that
substantially correlate to the market movements of the instrument, with a value
sufficient at all times to cover its potential obligations to the extent that
the position is not "covered". For this purpose, a high grade debt obligation
shall include any debt obligation rated A or better by an NRSRO. The Fund will
also set aside cash and/or appropriate liquid assets in a segregated custodial
account if required to do so by the SEC and CFTC regulations. Assets used as
cover or held in a segregated account cannot be sold while the derivative
position is open, unless they are replaced with similar assets. As a result,
the commitment of a large portion of the Fund's assets to segregated accounts
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 set aside liquid
assets in a segregated account 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
set aside in the segregated account (unless another interpretation is specified
by applicable regulatory requirements).

OPTIONS. The Fund may use options for any lawful purpose consistent with
the Fund's investment objective such as hedging or managing risk but not for
speculation. An option is a contract in which the "holder" (the buyer) pays a
certain amount (the "premium") to the "writer" (the seller) to obtain the
right, but not the obligation, to buy from the writer (in a "call") or sell to
the writer (in a "put") a specific asset at an agreed upon price (the "strike
price" or "exercise price") at or before a certain time (the "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, 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 call options serves
as a long hedge, and the purchase of put options serves as a short hedge.
Writing put or call options can enable 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 increases in the value of the hedged investment would be
offset to the extent of the premium received for writing the option. However,
if the security depreciates to a price lower than the exercise price of the put
option, it can be expected that the put option will be exercised and the Fund
will be obligated to purchase the security at more than its market value.

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<PAGE> 30

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
("counter party") (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 counter party to make or take delivery of the underlying
investment upon exercise of the option. Failure by the counter party to do so
would result in the loss of any premium paid by the Fund as well as the loss of
any expected benefit of the transaction.

The 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 counter party, 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 counter
party, 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 in
general.

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
attempted hedging.

SPREAD TRANSACTIONS. The Fund may use spread transactions for any lawful
purpose consistent with the Fund's investment objective such as hedging or
managing risk, but not for speculation. 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 relationship to another security that the Fund
does not own, but which is used as a benchmark. The risk to the Fund in
purchasing covered spread options is the cost of the premium paid for the
spread option and any transaction costs. In addition, there is no assurance
that closing transactions will be available. The purchase of spread options
will be used to protect the Fund against adverse changes in prevailing credit
quality spreads, i.e., the yield spread between high quality and lower quality
securities. Such protection is only provided during the life of the spread
option.

FUTURES CONTRACTS. The Fund may use futures contracts for any lawful
purpose consistent with the Fund's investment objective such as hedging or
managing risk but not for speculation. The Fund may enter into futures
contracts, including interest rate, index, and currency 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's hedging may include purchases of futures as an offset
against the effect of expected increases in currency exchange rates and
securities prices and sales of futures as an offset against the effect of
expected declines in currency exchange rates and securities prices. The Fund

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<PAGE> 31

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 is
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, currency, or interest rate fluctuations,
the Fund may be able to hedge its exposure more effectively and perhaps at a
lower cost through using futures contracts.

An interest rate futures contract provides for the future sale by one
party and purchase by another party of a specified amount of a specific
financial instrument (e.g., debt security) or currency 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, the currency 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, U.S. government securities or other liquid, high grade debt
obligations, in an amount generally equal to 10% or less of the contract value.
High grade securities include securities rated "A" or better by an NRSRO.
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

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<PAGE> 32

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 maintain cash
or securities in a segregated account.

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

FOREIGN CURRENCIES. The Fund may purchase and sell foreign currency on a
spot basis, and may use currency-related derivatives instruments such as
options on foreign currencies, futures on foreign currencies, options on
futures on foreign currencies and forward currency contracts (i.e., an
obligation to purchase or sell a specific currency at a specified future date,
which may be any fixed number of days from the contract date agreed upon by the
parties, at a price set at the time the contract is entered into). The Fund
may use these instruments for hedging or any other lawful purpose consistent
with its investment objective, including transaction hedging, anticipatory
hedging, cross hedging, proxy hedging, and position hedging. The Fund's use of
currency-related derivative instruments will be directly related to the Fund's
current or anticipated portfolio securities, and the Fund may engage in
transactions in currency-related derivative instruments as a means to protect
against some or all of the effects of adverse changes in foreign currency
exchange rates on its portfolio investments. In general, if the currency in
which a portfolio investment is denominated appreciates against the U.S.
dollar, the dollar value of the security will increase. Conversely, a decline
in the exchange rate of the currency would adversely affect the value of the
portfolio investment expressed in U.S. dollars.

For example, the Fund might use currency-related derivative instruments to
"lock in" a U.S. dollar price for a portfolio investment, thereby enabling the
Fund to protect itself against a possible loss resulting from an adverse change
in the relationship between the U.S. dollar and the subject foreign currency
during the period between the date the security is purchased or sold and the
date on which payment is made or received. The Fund also might use
currency-related derivative instruments when the Advisor believes that one
currency may experience a substantial movement against another currency,
including the U.S. dollar, and it may use currency-related derivative
instruments to sell or buy the amount of the former foreign currency,
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency. Alternatively, where appropriate, the
Fund may use currency-related derivative instruments to hedge all or part of
its foreign currency exposure through the use of a basket of currencies or a
proxy currency where such currency or currencies act as an effective proxy for
other currencies. The use of this basket hedging technique may be more
efficient and economical than using separate currency-related derivative
instruments for each currency exposure held by the Fund. Furthermore,
currency-related derivative instruments may be used for short hedges - for
example, the Fund may sell a forward currency contract to lock in the U.S.
dollar equivalent of the proceeds from the anticipated sale of a security
denominated in a foreign currency.

In addition, the Fund may use a currency-related derivative instrument to
shift exposure to foreign currency fluctuations from one foreign country to
another foreign country where the Advisor believes that the foreign currency
exposure purchased will appreciate relative to the U.S. dollar and thus better
protect the Fund against the expected decline in the foreign currency exposure
sold. For example, if the Fund owns securities denominated in a foreign
currency and the Advisor believes that currency will decline, it might enter
into a forward contract to sell an appropriate amount of the first foreign
currency, with payment to be made in a second foreign currency that the Advisor
believes would better protect the Fund against the decline in the first
security than would a U.S. dollar exposure. Hedging transactions that use two
foreign currencies are sometimes

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<PAGE> 33

referred to as "cross hedges." The effective use of currency-related
derivative instruments by the Fund in a cross hedge is dependent upon a
correlation between price movements of the two currency instruments and the
underlying security involved, and the use of two currencies magnifies the risk
that movements in the price of one instrument may not correlate or may
correlate unfavorably with the foreign currency being hedged. Such a lack of
correlation might occur due to factors unrelated to the value of the currency
instruments used or investments being hedged, such as speculative or other
pressures on the markets in which these instruments are traded.

The Fund also might seek to hedge against changes in the value of a
particular currency when no hedging instruments on that currency are available
or such hedging instruments are more expensive than certain other hedging
instruments. In such cases, the Fund may hedge against price movements in that
currency by entering into transactions using currency-related derivative
instruments on another foreign currency or a basket of currencies, the values
of which the Advisor believes will have a high degree of positive correlation
to the value of the currency being hedged. The risk that movements in the
price of the hedging instrument will not correlate perfectly with movements in
the price of the currency being hedged is magnified when this strategy is used.

The use of currency-related derivative instruments by the Fund involves a
number of risks. The value of currency-related derivative instruments depends
on the value of the underlying currency relative to the U.S. dollar. Because
foreign currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such derivative
instruments, the Fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots (generally consisting of transactions of greater than $1 million).

There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information generally is representative of very large transactions in
the interbank market and thus might not reflect odd-lot transactions where
rates might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying markets
that cannot be reflected in the markets for the derivative instruments until
they re-open.

Settlement of transactions in currency-related derivative instruments
might be required to take place within the country issuing the underlying
currency. Thus, the Fund might be required to accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign regulations
regarding the maintenance of foreign banking arrangements by U.S. residents
and might be required to pay any fees, taxes and charges associated with such
delivery assessed in the issuing country.

When the Fund engages in a transaction in a currency-related derivative
instrument, it relies on the counterparty to make or take delivery of the
underlying currency at the maturity of the contract or otherwise complete the
contract. In other words, the Fund will be subject to the risk that a loss may
be sustained by the Fund as a result of the failure of the counterparty to
comply with the terms of the transaction. The counterparty risk for
exchange-traded instruments is generally less than for privately-negotiated or
OTC currency instruments, since generally a clearing agency, which is the
issuer or counterparty to each 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 transaction and possibly other losses to the Fund. The Fund
will enter into transactions in currency-related derivative instruments only
with counterparties that the Advisor reasonably believes are capable of
performing under the contract.

Purchasers and sellers of currency-related derivative instruments may
enter into offsetting closing transactions by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can
be no assurance that the Fund will in fact be able to close out a forward
currency contract (or any other currency-related derivative instrument) at a
time and price favorable to the Fund. In addition, in the event of insolvency
of the counterparty, the Fund might be unable to close out a forward currency
contract at any time prior to maturity. In the case of an exchange-traded
instrument, the Fund will be able to close the position

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<PAGE> 34

out only on an exchange which provides a market for the instruments. The
ability to establish and close out positions on an exchange is subject to the
maintenance of a liquid market, and there can be no assurance that a liquid
market will exist for any instrument at any specific time. In the case of a
privately-negotiated instrument, the Fund will be able to realize the value of
the instrument only by entering into a closing transaction with the issuer or
finding a third party buyer for the instrument. While the Fund will enter into
privately-negotiated transactions only with entities who are expected to be
capable of entering into a closing transaction, there can be no assurance that
the Fund will in fact be able to enter into such closing transactions.

The precise matching of currency-related derivative instrument amounts and
the value of the portfolio securities involved generally will not be possible
because the value of such securities, measured in the foreign currency, will
change after the currency-related derivative instrument position has been
established. Thus, the Fund might need to purchase or sell foreign currencies
in the spot (cash) market. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain.

Permissible foreign currency options will include options traded primarily
in the OTC market. Although options on foreign currencies are traded primarily
in the OTC market, the Fund will normally purchase or sell OTC options on
foreign currency only when the Advisor reasonably believes a liquid secondary
market will exist for a particular option at any specific time.

There will be a cost to the Fund of engaging in transactions in
currency-related derivative instruments that will vary with factors such as the
contract or currency involved, the length of the contract period and the market
conditions then prevailing. The Fund using these instruments may have to pay a
fee or commission or, in cases where the instruments are entered into on a
principal basis, foreign exchange dealers or other counterparties will realize
a profit based on the difference ("spread") between the prices at which they
are buying and selling various currencies. Thus, for example, a dealer may
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange should the Fund desire to resell that currency to the
dealer.

When required by the SEC guidelines, the Fund will set aside permissible
liquid assets in segregated accounts or otherwise cover its potential
obligations under currency-related derivatives instruments. To the extent the
Fund's assets are so set aside, they cannot be sold while the corresponding
currency position is open, unless they are replaced with similar assets. As a
result, if a large portion of the Fund's assets are so set aside, this could
impede portfolio management or the Fund's ability to meet redemption requests
or other current obligations.

The Advisor's decision to engage in a transaction in a particular
currency-related derivative instrument will reflect the Advisor's judgment that
the transaction will provide value to the Fund and its shareholders and is
consistent with the Fund's objectives and policies. In making such a judgment,
the Advisor will analyze the benefits and risks of the transaction and weigh
them in the context of the Fund's entire portfolio and objectives. The
effectiveness of any transaction in a currency-related derivative instrument is
dependent on a variety of factors, including the Advisor's skill in analyzing
and predicting currency values and upon a correlation between price movements
of the currency instrument and the underlying security. There might be
imperfect correlation, or even no correlation, between price movements of an
instrument and price movements of investments being hedged. 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. In addition, the Fund's use of
currency-related derivative instruments is always subject to the risk that the
currency in question could be devalued by the foreign government. In such a
case, any long currency positions would decline in value and could adversely
affect any hedging position maintained by the Fund.

The Fund's dealing in currency-related derivative instruments will
generally be limited to the transactions described above. However, the Fund
reserves the right to use currency-related derivatives instruments for
different purposes and under different circumstances. Of course, the Fund is
not required to use currency-related derivatives instruments and will not do so
unless deemed appropriate by the Advisor. It also should be realized that use
of these instruments does not eliminate, or protect against, price movements in
the Fund's securities that are attributable to other (i.e., non-currency
related) causes. Moreover, while the use of currency-related derivatives
instruments may reduce the risk of loss due to a decline in the value of a
hedged currency, at the same time the use of these instruments tends to limit
any potential gain which may result from an increase in the value of that
currency.

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<PAGE> 35

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 (the "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 the maintenance of a segregated
account consisting of cash, or liquid high grade debt obligations.

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 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 Fund's
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.

FOREIGN INVESTMENT COMPANIES

The Fund may invest, to a limited extent, in foreign investment
companies. Some of the countries in which the Fund invests may not permit
direct investment by outside investors. Investments in such countries may
only be permitted through foreign government-approved or-authorized
investment vehicles, which may include other investment companies. In
addition, it may be less expensive and more expedient for the Fund to invest
in a foreign investment company in a country which permits direct foreign
investment. Investing through such vehicles may involve frequent or layered
fees or expenses and may also be subject to limitation under the 1940 Act.
Under the 1940 Act, the Fund may invest up to 10% of its assets in shares of
other investment companies and up to 5% of its assets in any one investment
company as long as the investment does not represent more than 3% of the
voting stock of the acquired investment company. The Fund does not intend to
invest

17
<PAGE> 36

in such investment companies unless, in the judgment of the Advisor, the
potential benefits of such investments justify the payment of any associated
fees and expenses.

FOREIGN SECURITIES

Investing in foreign securities involves a series of risks not present in
investing in U.S. securities. Many of the foreign securities held by the Fund
will not be registered with the Securities and Exchange Commission (the "SEC"),
nor will the foreign issuers be subject to SEC reporting requirements.
Accordingly, there may be less publicly available information concerning
foreign issuers of securities held by the Fund than is available concerning
U.S. companies. Disclosure and regulatory standards in many respects are less
stringent in emerging market countries than in the U.S. and other major
markets. There also may be a lower level of monitoring and regulation of
emerging markets and the activities of investors in such markets, and
enforcement of existing regulations may be extremely limited. Foreign
companies, and in particular, companies in smaller and emerging capital markets
are not generally subject to uniform accounting, auditing and financial
reporting standards, or to other regulatory requirements comparable to those
applicable to U.S. companies. The Fund's net investment income and capital
gains from its foreign investment activities may be subject to non-U.S.
withholding taxes.

The costs attributable to foreign investing that the Fund must bear
frequently are higher than those attributable to domestic investing; this is
particularly true with respect to emerging capital markets. For example, the
cost of maintaining custody of foreign securities exceeds custodian costs for
domestic securities, and transaction and settlement costs of foreign investing
also frequently are higher than those attributable to domestic investing.
Costs associated with the exchange of currencies also make foreign investing
more expensive than domestic investing. Investment income on certain foreign
securities in which the Fund may invest may be subject to foreign withholding
or other government taxes that could reduce the return of these securities.
Tax treaties between the United States and foreign countries, however, may
reduce or eliminate the amount of foreign tax to which the Fund would be
subject.

Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have failed to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to
settlement problems could cause the Fund to miss investment opportunities.
Inability to dispose of a portfolio security due to settlement problems could
result either in losses to the Fund due to subsequent declines in the value of
such portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.

HIGH-YIELD (HIGH-RISK) SECURITIES

IN GENERAL. The Fund may invest up to 5% of its net assets in
non-investment grade debt obligations. Non-investment grade debt obligations
(hereinafter referred to as "lower-quality securities") include (i) bonds rated
as low as C by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("S&P"), or Fitch Investors Service, Inc. ("Fitch"), or CCC by
Duff & Phelps, Inc. ("D&P"); (ii) commercial paper rated as low as C by S&P,
Not Prime by Moody's, or Fitch 4 by Fitch; and (iii) unrated debt 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 with respect to the issuer's capacity to
pay interest and repay principal. The special risk considerations in
connection with investments in these securities are discussed below. Refer to
the Appendix for a discussion of securities ratings.

EFFECT OF INTEREST RATES AND ECONOMIC CHANGES. The lower-quality and
comparable unrated security market is relatively new and its growth has
paralleled a long economic expansion. As a result, it is not clear how this
market may withstand a prolonged recession or economic downturn. Such
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

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<PAGE> 37

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 which permit the
issuer of such securities containing such provisions to, at its discretion,
redeem the securities. During periods of falling interest rates, issuers of
these securities are likely to redeem or prepay the securities and refinance
them with debt securities with a lower interest rate. To the extent an issuer
is able to refinance the securities, or otherwise redeem them, 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.

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<PAGE> 38

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 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, they would comprise more than 15% 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 (the "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 Strong Capital
Management, Inc. (the "Advisor") the day-to-day determination of the liquidity
of a security, although it has retained oversight and ultimate responsibility
for such determinations. The Board of Directors has directed the Advisor to
look to such factors as (i) the frequency of trades or quotes for a security,
(ii) the number of dealers willing to purchase or sell the security and number
of potential buyers, (iii) the willingness of dealers to undertake to make a
market in the security, (iv) 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, (v) the likelihood
that the security's marketability will be maintained throughout the anticipated
holding period, and (vi) any other relevant factors. The Advisor may determine
4(2) commercial paper to be liquid if (i) the 4(2) commercial paper is not
traded flat or in default as to principal and interest, (ii) the 4(2)
commercial paper is rated in one of the two highest rating categories by at
least two nationally rated statistical rating organizations ("NRSRO"), or if
only one NRSRO rates the security, by that NRSRO, or is determined by the
Advisor to be of equivalent quality, and (iii) the Advisor considers the
trading market for the specific security taking into account all relevant
factors. With respect to the Fund's 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. 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 which 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 liquidity.

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

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

20
<PAGE> 39

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.

MORTGAGE- AND ASSET-BACKED 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 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. 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.

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,

21
<PAGE> 40

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 which 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.

MORTGAGE DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS

The Fund may engage in reverse repurchase agreements to facilitate
portfolio liquidity, a practice common in the mutual fund industry, or for
arbitrage transactions discussed below. In a reverse repurchase agreement, the
Fund would sell a security and enter into an agreement to repurchase the
security at a specified future date and price. The Fund generally retains the
right to interest and principal payments on the security. Since the Fund
receives cash upon entering into a reverse repurchase agreement, it may be
considered a borrowing. (See "Borrowing".) 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. (See "Borrowing" above.)

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.

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

22
<PAGE> 41

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.

SHORT SALES AGAINST THE BOX

The Fund may sell securities short against the box to hedge unrealized
gains on portfolio securities. Selling securities short against the box
involves selling a security that 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.

SHORT-TERM CASH MANAGEMENT

From time to time the Advisor may determine to use a non-affiliated money
market fund to manage some or all of the Fund's short-term cash positions. The
Advisor will do this only when the Advisor reasonably believes that this action
will result in a return to the Fund that is equal to, or better than, the
return that could be achieved by direct investments in money market
instruments. In such cases, to ensure no double charging of fees, the Advisor
will credit any management or other fees of the non-affiliated money market
fund against the Advisor's management fee.

SMALL COMPANIES

The Fund may, from time to time, invest a portion of its assets in small
companies. While smaller companies generally have the potential for rapid
growth, investments in smaller companies often involve greater risks than
investments in larger, more established companies because smaller companies
may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In addition,
in many instances the securities of smaller companies are traded only
over-the-counter or on a regional securities exchange, and the frequency and
volume of their trading is substantially less than is typical of larger
companies. Therefore, the securities of smaller companies may be subject to
greater and more abrupt price fluctuations. When making large sales, the Fund
may have to sell portfolio holdings at discounts from quoted prices or may
have to make a series of small sales over an extended period of time due to
the trading volume of smaller company securities. Investors should be aware
that, based on the foregoing factors, an investment in the Fund may be subject
to greater price fluctuations than an investment in a fund that invests
primarily in larger, more established companies. The Advisor's research
efforts may also play a greater role in selecting securities for the Fund than
in a fund that invests in larger, more established companies.

TEMPORARY DEFENSIVE POSITION

When the Advisor determines that market conditions warrant a temporary
defensive position, the Fund may invest up to 20% of its net assets in cash and
short-term fixed income securities, including U.S. government securities,
commercial paper, banker's acceptances, certificates of deposit, and time
deposits.

WARRANTS

The Fund may acquire warrants. Warrants are securities giving the holder
the right, but not the obligation, to buy the stock of an issuer at a given
price (generally higher than the value of the stock at the time of issuance)
during a specified period or perpetually. Warrants may be acquired separately
or in connection with the acquisition of securities. The Fund will not
purchase warrants, valued at the lower of cost or market value, in excess of 5%
of the Fund's net assets. Included in that amount, but not to exceed 2% of the
Fund's net assets, may be warrants that are not listed on any stock exchange.
Warrants acquired by the Fund in units or attached to securities are not
subject to these restrictions. Warrants do not carry with them the right to
dividends or voting rights with respect to the securities that they entitle
their holder to purchase, and they do not represent any rights in the assets of
the issuer. As a result, warrants may be considered to have more speculative
characteristics

23
<PAGE> 42

than certain other types of investments. In addition, the value of a warrant
does not necessarily change with the value of the underlying securities, and a
warrant ceases to have value if it is not exercised prior to its expiration
date.

WHEN-ISSUED SECURITIES

The Fund may from time to time purchase securities on a "when-issued"
basis. The price of debt obligations purchased on a when-issued basis, 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. Normally, the settlement date occurs within one month of the
purchase although is some cases settlement may take longer. 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 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 a security on a when-issued basis, it will record the transaction and
reflect the value of the security in determining its net asset value.

To the extent required by the SEC, the Fund will maintain cash and
marketable securities equal in value to commitments for when-issued 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
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 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" under the Internal Revenue Code 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.

DIRECTORS AND OFFICERS OF THE FUND

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 26 registered open-end
management investment companies consisting of 37 mutual funds, which are
managed by the Advisor (the "Strong Funds"). The Strong Funds, in the
aggregate, pays each Director who is not a director, officer, or employee of
the Advisor, or any affiliated company (a "disinterested director") an annual
fee of $50,000, plus $100 per Board meeting for each Strong Fund. 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.

24
<PAGE> 43

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

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. Mr. Strong has served the Fund as a director since December 1990 and as
Chairman of the Board since January 1992.

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

Private Investor. From 1945 to 1980, Mr. Nevins was Chairman of Wisconsin
Centrifugal Inc., a foundry. From July 1983 to December 1986, he was Chairman
of General Casting Corp., Waukesha, Wisconsin, a foundry. Mr. Nevins is a
former Chairman of the Wisconsin Association of Manufacturers & Commerce. He
was also a regent of the Milwaukee School of Engineering and a member of the
Board of Trustees of the Medical College of Wisconsin. Mr. Nevins has served
the Fund as a director since December 1990.

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

Mr. Davis has been director of Alliance Bank Since 1980, Sara Lee
Corporation (a food/consumer products company) since 1983, KMart Corporation (a
discount consumer products company) since 1985, YMCA Metropolitan - Los Angeles
since 1985, Dow Chemical Company since 1988, MGM Grand, Inc. (an
entertainment/hotel company) since 1990, WICOR, Inc. (a utility company) since
1990, Johnson Controls, Inc. (an industrial company) since 1992, L.A. Gear (a
footwear/sportswear company) since 1992, and Rally's Hamburger, Inc. since
1994. Mr. Davis has been a trustee of the University of Chicago since 1980,
Marquette University since 1988, and Occidental College since 1990. Since
1977, Mr. Davis has been President and Chief Executive Officer of All Pro
Broadcasting, Inc. Mr. Davis was a director of the Fireman's Fund (an
insurance company) from 1975 until 1990. Mr. Davis has served the Fund as a
director since July 1994.

* JOHN DRAGISIC (DOB 11/26/40), President and Director of the Fund.

Mr. Dragisic has been President of the Advisor since October 1995, and a
director of the Advisor and Distributor since July 1994. Mr. Dragisic served
as Vice Chairman of the Advisor from July 1994 until October 1995. Mr.
Dragisic was the President and Chief Executive Officer of Grunau Company, Inc.
(a mechanical contracting and engineering firm), Milwaukee, Wisconsin from 1987
until July 1994. From 1981 to 1987, he was an Executive Vice President with
Grunau Company, Inc. From 1969 until 1973, Mr. Dragisic worked for the
InterAmerican Development Bank. Mr. Dragisic received his Ph.D. in Economics
in 1971 from the University of Wisconsin - Madison and his B.A. degree in
Economics in 1962 from Lake Forest College. Mr. Dragisic has served the Fund
as Vice Chairman from July 1994 until October 1995; as President since October
1995; and as a director from July 1991 until July 1994, and since April 1995.

STANLEY KRITZIK (DOB 1/9/30), Director of the Fund.

Mr. Kritzik has been a Partner of Metropolitan Associates since 1962, a
Director of Aurora Health Care since 1987, and Health Network Ventures, Inc.
since 1992. Mr. Kritzik has served the Fund as a director since April 1995.

WILLIAM F. VOGT (DOB 7/19/47), Director of the Fund.

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. Mr. Vogt has served the Fund as a director
since April 1995.

25
<PAGE> 44

LAWRENCE A. TOTSKY (DOB 5/6/59), C.P.A., Vice President of the Fund.

Mr. Totsky has been Senior Vice President of the Advisor since December
1994. Mr. Totsky acted as the Advisor's Manager of Shareholder Accounting and
Compliance from June 1987 to June 1991 when he was named Director of Mutual
Fund Administration. Mr. Totsky has served the Fund as a Vice President since
May 1993.

THOMAS P. LEMKE (DOB 7/30/54), Vice President of the Fund.

Mr. Lemke has been Senior Vice President, Secretary, and General Counsel
of the Advisor since September 1994. For two years prior to joining the
Advisor, Mr. Lemke acted as Resident Counsel for Funds Management at J.P.
Morgan & Co., Inc. From February 1989 until April 1992, Mr. Lemke acted as
Associate General Counsel to Sanford C. Bernstein Co., Inc. For two years
prior to that, Mr. Lemke was Of Counsel at the Washington, D.C. law firm of Tew
Jorden & Schulte, a successor of Finley, Kumble Wagner. From August 1979 until
December 1986, Mr. Lemke worked at the Securities and Exchange Commission, most
notably as the Chief Counsel to the Division of Investment Management (November
1984 - December 1986), and as Special Counsel to the Office of Insurance
Products, Division of Investment Management (April 1982 - October 1984). Mr.
Lemke has served the Fund as a Vice President since October 1994.

ANN E. OGLANIAN (DOB 12/7/61), Vice President and Secretary of the Fund.

Ms. Oglanian has been an Associate Counsel of the Advisor since January
1992. Ms. Oglanian acted as Associate Counsel for the Chicago-based investment
management firm, Kemper Financial Services, Inc. from June 1988 until December
1991. Ms. Oglanian has served the Fund as a Vice President since January 1996
and as the Secretary since May 1994.

STEPHEN J. SHENKENBERG (DOB 6/14/58), Vice President of the Fund.

Mr. Shenkenberg has been an Associate Counsel to the Advisor since
December 1992. From June 1987 until December 1992, Mr. Shenkenberg was an
attorney for Godfrey & Kahn, S.C., a Milwaukee law firm. Mr. Shenkenberg has
served the Fund as a Vice President since April 1996.

JOHN S. WEITZER (DOB 10/31/67), Vice President of the Fund.

Mr. Weitzer has been an Associate Counsel of the Advisor since July 1993.
Mr. Weitzer has served the Fund as a Vice President since January 1996.

RONALD A. NEVILLE (DOB 5/21/47), C.P.A., Treasurer of the Fund.

Mr. Neville has been the Senior Vice President and Chief Financial Officer
of the Advisor since January 1995. For fourteen years prior to that, Mr.
Neville worked at Twentieth Century Companies, Inc., most notably as Senior
Vice President and Chief Financial Officer (1988 until December 1994). Mr.
Neville received his M.B.A. in 1972 from the University of Missouri - Kansas
City and his B.A. degree in Business Administration and Economics in 1969 from
Drury College. Mr. Neville has served the Fund as Treasurer since April 1995.

Except for Messrs. Nevins, Davis, Kritzik and Vogt, the address of all of
the above persons is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr. Nevins'
address is 6075 Pelican Bay Boulevard, Naples, Florida 33963. 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 2830 East Third Avenue, Denver, Colorado
80206.

In addition to the positions listed above, Mr. Strong has been Chairman
and a director of Strong Holdings, Inc., a Wisconsin corporation and subsidiary
of the Advisor ("Holdings") since October 1993; Chairman and a director of the
Funds' underwriter, Strong Funds Distributors, Inc., a Wisconsin Corporation
and subsidiary of Holdings ("Distributor") since October 1993; Chairman and a
director of Heritage Reserve Development Corporation, a Wisconsin corporation
and subsidiary of Holdings ("Heritage") since January 1994; Chairman and a
director of Strong Service Corporation, a Wisconsin corporation and subsidiary
of Holdings ("SSC") since November 1995; Chairman and a member of the Managing
Board of Fussville Real Estate Holdings L.L.C., a Wisconsin Limited Liability
Company and subsidiary of the Advisor ("Real Estate Holdings") since

26
<PAGE> 45

February 1994; Chairman and a member of the Managing Board of Fussville
Development L.L.C., a Wisconsin Limited Liability Company and subsidiary of the
Advisor and Real Estate Holdings ("Fussville Development") since February 1994;
and Chairman and a member of the Managing Board of Sherwood Development
L.L.C., a Wisconsin Limited Liability Company and subsidiary of the Advisor
("Sherwood") since December 1995 and April 1995, respectively. In addition to
the positions listed above, Mr. Dragisic has been a director of Distributors
since July 1994; President and a director of Holdings since December 1995 and
July 1994, respectively; President and a director of SSC since November 1995;
Vice Chairman and a director of Heritage since August 1994; Vice Chairman and a
member of the Managing Board of Fussville Development since December 1995 and
August 1994, respectively; Vice Chairman and a member of the Managing Board of
Real Estate Holdings since December 1995 and August 1994, respectively; and
Vice Chairman and a member of the Managing Board of Sherwood since December
1995 and April 1995, respectively. In addition to the positions listed above,
Mr. Lemke has been President of Distributors since December 1995; Vice
President of Holdings since December 1995; Vice President of SSC since November
1995; Vice President of Heritage since December 1995; Vice President of
Fussville Development since December 1995; Vice President of Real Estate
Holdings since December 1995; and Vice President of Sherwood since December
1995. In addition to the positions listed above, Mr. Shenkenberg has been Vice
President and Secretary of Distributors since December 1995; Secretary of SSC
since November 1995; and Secretary of Holdings, Heritage, Fussville
Development, Real Estate Holdings, and Sherwood since December 1995. In
addition to the positions listed above, Mr. Neville has been Vice President of
Distributors since December 1995; Vice President of Holdings since December
1995; Vice President of SSC since November 1995; Vice President of Heritage
since December 1995; Vice President of Fussville Development since December
1995; Vice President of Real Estate Holdings since December 1995; and Vice
President of Sherwood since December 1995.

As of March 31, 1996, the officers and directors of the Fund in the
aggregate beneficially owned less than 1% of the Fund's then outstanding
shares.

PRINCIPAL SHAREHOLDERS

Except for the organizational shares of the Fund, the Fund's shares are
held of record by an insurance company separate account. As of March 31, 1996,
the following persons owned of record or is known by the Fund to own of record
or beneficially more than 5% of the Fund's outstanding shares:

<TABLE>
<S> <C> <C>
Name and Address Shares Percent of Class
---------------------------------- ---------- ----------------
Nationwide Insurance 30,174,625 99.97%
For Exclusive Benefit of Customers
P.O. Box 182029
Columbus, OH 43218
</TABLE>

A shareholder owning more than 25% of the Fund's shares may be considered
a "controlling person" of the Fund. Accordingly, its vote could have a more
significant effect on matters presented to shareholders for approval than the
vote of other Fund shareholders.

INVESTMENT ADVISOR AND DISTRIBUTOR

The Advisor to the Fund is Strong Capital Management, Inc. Mr. Richard S.
Strong controls the Advisor. Mr. Strong is the Chairman and a director of the
Advisor, Mr. Dragisic is the President and a director of the Advisor, Mr.
Totsky is a Senior Vice President of the Advisor, Mr. Lemke is a Senior Vice
President, Secretary, and General Counsel of the Advisor, Mr. Neville is a
Senior Vice President and Chief Financial Officer of the Advisor, Mr.
Shenkenberg is Vice President, Assistant Secretary, and Associate Counsel of
the Advisor, and Ms. Oglanian and Mr. Weitzer are Associate Counsel of the
Advisor. A brief description of the Fund's investment advisory agreement
("Advisory Agreement") is set forth in the Prospectus under "Management."

The Fund's Advisory Agreement, is dated May 1, 1995, was last approved by
shareholders at the annual meeting of shareholders held on April 13, 1995. The
Advisory Agreement is required to be approved annually by the Board of
Directors of the Fund or by vote of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act). In either case,

<PAGE> 46

each annual renewal must also 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. In addition, the Advisory Agreement 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. 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 securities at its expense.

Except for expenses assumed by the Advisor as set forth above or by the
Distributor as described below 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; expenses for printing
and distribution costs of prospectuses and quarterly financial statements
mailed to existing shareholders; and charges of custodians, transfer agent fees
(including the printing and mailing of reports and notices to shareholders),
fees of registrars, fees for auditing and legal services, fees for clerical
services related to recordkeeping and shareholder relations, the cost of stock
certificates and fees for directors who are not "interested persons" of the
Advisor.

As compensation for its services, the Fund pays to the Advisor a monthly
management fee at the annual rate of 1.00% of the Fund's average daily net
asset value. (See "Additional Information - Calculation of Net Asset Value" in
the Prospectus.) From time to time, the Advisor may voluntarily waive all or a
portion of its management fee for the Fund. The organizational expenses of the
Fund which were $22,238, were advanced by the Advisor and will be reimbursed by
the Fund over a period of not more than 60 months from the Fund's date of
inception. In 1993, 1994, and 1995 the Fund paid the Advisor $855,622,
$2,222,650, and $3,754,907, respectively, in management fees.

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 that percentage 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, which is the most restrictive percentage expense limitation
provided by the laws of the various states in which the Fund's shares are
qualified for sale; or if the states in which the Fund's shares are qualified
for sale impose no restrictions, then 2%. The most restrictive percentage
limitation currently applicable to the Fund is 2.5% of its average daily net
assets up to $30,000,000, 2% on the next $70,000,000 of its average daily net
assets and 1.5% of its average daily net assets in excess of $100,000,000.
Reimbursement of expenses in excess of the applicable limitation will be made
on a monthly basis and will be paid to 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 absorb expenses for the Fund in
addition to the reimbursement of expenses in excess of applicable limitations.

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

<PAGE> 47

The staff of the U.S. Department of Labor (the "Staff") has contacted the
Advisor regarding alleged cross-trading of securities between 1987 and early
1990 involving various customer accounts subject to the Employee Retirement
Security Act of 1974 ("ERISA") and managed by the Advisor. The Advisor has
informed the Staff of the basis for its position that the trades complied with
ERISA and that, in any event, any alleged noncompliance was not the cause of
any losses to the accounts. The Staff has stated that it disagrees with the
Advisor's positions, although to date it has not filed any action against the
Advisor. At this time, the Advisor is negotiating with the Staff regarding a
possible resolution of the matter, but it cannot presently determine whether
the matter will be settled or litigated or, if it is settled or litigated, how
it ultimately will be resolved. However, management presently believes, based
on current knowledge and the Advisor's insurance coverage, that the ultimate
resolution of this matter should not have a material adverse effect on the
Advisor's financial position.

The Advisor has adopted a Code of Ethics (the "Code") which governs the
personal trading activities of all "Access Persons" of the Advisor. Access
Persons include every director and officer of the Advisor and the investment
companies managed by the Advisor, including the Fund, as well as certain
employees of the Advisor 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 Advisor's 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 which, at the time, is 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
which prohibit trading by Access Persons who are portfolio managers within
seven calendar days of trading in the same securities by any mutual fund or
other account managed by the portfolio manager.

Under a Distribution Agreement dated December 1, 1993 with the Fund (the
"Distribution Agreement"), Strong Funds Distributors, Inc. ("Distributor"), a
subsidiary of the Advisor, acts as underwriter of the Fund's shares. The
Distribution Agreement provides that the Distributor will use its best efforts
to distribute the Fund's shares. Shares are only offered and sold to the
separate accounts of certain insurance companies. Since the Fund is a
"no-load" fund, no sales commissions are charged on the purchase of Fund
shares. Certain sales charges may apply to the variable annuity or life
insurance contract, which should be described in the prospectus of the
insurance company's separate account. The Distribution Agreement further
provides that the Distributor will bear the additional costs of printing
prospectuses and shareholder reports which are used for selling purposes, as
well as advertising and other costs attributable to the distribution of the
Fund's shares. The Distributor is an indirect subsidiary of the Advisor and
controlled by the Advisor and Richard S. Strong. Prior to December 1, 1993,
the Advisor acted as underwriter for the Fund. On December 1, 1993, the
Distributor succeeded to the broker-dealer registration of the Advisor and, in
connection therewith, a Distribution Agreement was executed on substantially
identical terms as the former distribution agreement with the Advisor as
distributor. The Distribution Agreement is subject to the same termination and
renewal provisions as are described above with respect to the Advisory
Agreement.

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
over-the-counter transactions, orders are placed directly with a principal
market maker unless it is believed that a better price and execution can be
obtained 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 commission, 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

<PAGE> 48

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, the "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 (a) 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; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody).

In carrying out the provisions of the Advisory Agreement, the Advisor may
cause the Fund to pay a broker, which provides brokerage and research services
to the Advisor, a commission for effecting a securities transaction in excess
of the amount another broker would have charged for effecting the transaction.
The Advisor 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 (a) the Advisor
determines in good faith that the amount is reasonable in relation to the
services in terms of the particular transaction or in terms of the Advisor's
overall responsibilities with respect to the accounts as to which it exercises
investment discretion; (b) such payment is made in compliance with the
provisions of Section 28(e), other applicable state and federal laws, and the
Advisory Agreement; and (c) in the opinion of the Advisor, the total
commissions paid by the Fund will be reasonable in relation to the benefits to
the Fund over the long term. The investment management fee paid by the Fund
under the Advisory Agreement is not reduced as a result of the Advisor's
receipt of research 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 of costs 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 a
Fund in a fixed 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
National Association of Securities Dealers has adopted rules expressly

<PAGE> 49

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).

Each year, 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 their brokerage and
research services were satisfactory to the Advisor and their execution
capabilities were compatible with the Advisor's policy of seeking best
execution at the best security price available, as discussed above. 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 (including the Fund) 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.

Where consistent with a client's investment objectives, investment
restrictions, and risk tolerance, the Advisor may purchase securities sold in
underwritten public offerings for client accounts, commonly referred to as
"deal" securities. The Advisor has adopted deal allocation procedures (the
"procedures"), summarized below, that reflect the Advisor's overriding policy
that deal securities must be allocated among participating client accounts in a
fair and equitable manner and that deal securities may not be allocated in a
manner that unfairly discriminates in favor of certain clients or types of
clients.

The procedures provide that, in determining which client accounts a
portfolio manager team will seek to have purchase deal securities, the team
will consider all relevant factors including, but not limited to, the nature,
size, and expected allocation to the Advisor of deal securities; the size of
the account(s); the accounts' investment objectives and restrictions; the risk
tolerance of the client; the client's tolerance for possibly higher portfolio
turnover; the amount of commissions generated by the account during the past
year; and the number of other deals the client has participated in during the
past year.

Where more than one of the Advisor's portfolio manager team seeks to have
client accounts participate in a deal and the amount of deal securities
allocated to the Advisor by the underwriting syndicate is less than the
aggregate amount ordered

<PAGE> 50

by the Advisor (a "reduced allocation"), the deal securities will be allocated
among the portfolio manager teams based on all relevant factors. The primary
factor shall be assets under management, although other factors that may be
considered in the allocation decision include, but are not limited to, the
nature, size, and expected allocation of the deal; the amount of brokerage
commissions or other amounts generated by the respective participating
portfolio manager teams; and which portfolio manager team is primarily
responsible for the Advisor receiving securities in the deal. Based on the
relevant factors, the Advisor has established general allocation percentages
for its portfolio manager teams, and these percentages are reviewed on a
regular basis to determine whether asset growth or other factors make it
appropriate to use different general allocation percentages for reduced
allocations.

When a portfolio manager team receives a reduced allocation of deal
securities, the portfolio manager team will allocate the reduced allocation
among client accounts in accordance with the allocation percentages set forth
in the team's initial allocation instructions for the deal securities, except
where this would result in a de minimis allocation to any client account. On a
regular basis, the Advisor reviews the allocation of deal securities to ensure
that they have been allocated in a fair and equitable manner that does not
unfairly discriminate in favor of certain clients or types of clients.

During 1993, 1994, and 1995, the Fund paid approximately $435,000,
$901,000, and $1,330,000, respectively, in brokerage commissions.

CUSTODIAN

As custodian of the Fund's assets, Firstar Trust Company, P.O. Box 701,
Milwaukee, Wisconsin 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.

TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT

The Advisor acts as transfer agent and dividend-disbursing agent for the
Fund at no cost.

ADMINISTRATIVE SERVICES

From time to time the Fund and/or the Advisor may enter into arrangements
under which certain administrative services may be performed by the insurance
companies that purchase shares in the Fund. These administrative services may
include, among other things, responding to ministerial inquiries concerning the
Fund's investment objective, investment program, policies and performance,
transmitting, on behalf of the Fund, proxy statements, annual reports, updated
prospectuses, and other communications regarding the Fund, and providing only
related services as the Fund or its shareholders may reasonably request.
Depending on the arrangements, the Fund and/or Advisor may compensate such
insurance companies or their agents directly or indirectly for the
administrative services. To the extent the Fund compensates the insurance
company for these services, the Fund will pay the insurance company an annual
fee that will vary depending upon the number of contract holders that utilize
the Fund as the funding medium for their contracts. The insurance company may
impose other account or service charges. See the prospectus for the separate
account of the insurance company for additional information regarding such
charges.

TAXES

GENERAL

<PAGE> 51

As indicated under "Additional Information - Distributions and Taxes" in
the Prospectus, the Fund intends to continue to qualify annually for treatment
as a regulated investment company ("RIC") under the Internal Revenue Code of
1986, as amended ( the "Code"). This qualification does not involve government
supervision of the Fund's management practices or policies.

In order to qualify for treatment as a RIC under the Code, the Fund must
distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gain, and net gains from certain foreign
currency transactions) ("Distribution Requirement") and must meet several
additional requirements. Among these requirements are 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, or other
income (including gains from options, futures, or forward contracts) derived
with respect to its business of investing in securities or those currencies
("Income Requirement"); (2) the Fund must derive less than 30% of its gross
income each taxable year from the sale or other disposition of securities, or
any of the following, that were held for less than three months - options or
futures (other than those on foreign currencies), or foreign currencies (or
options, futures, or forward contracts thereon) that are not directly related
to the Fund's principal business or investing in securities (or options and
futures with respect to securities) ("30% Limitation"); (3) at the close of
each quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. government securities,
securities of other RICs, and other securities, with these other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities; and (4) at the close of each
quarter of 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. 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
Code.

If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received on those shares.

In addition, the Fund must satisfy the diversification requirements of
Section 817(h) of the Code. In general, for a Fund to meet these investment
diversification requirements, Treasury regulations require that no more than
55% of the total value of the assets of the Fund may be represented by any one
investment, no more than 70% by two investments, no more than 80% by three
investments and no more than 90% by four investments. Generally, for purposes
of the regulations, all securities of the same issuer are treated as a single
investment. With respect to the United States Government securities (including
any security that is issued, guaranteed or insured by the United States or an
instrumentality of the United States), each governmental agency or
instrumentality is treated as a separate issuer. Compliance with the
regulations is tested on the last day of each calendar year quarter. There is
a 30-day period after the end of each calendar year quarter in which to cure
any non-compliance with these requirements.

FOREIGN TRANSACTIONS

Interest and dividends received by the Fund may be subject to income,
withholding, or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors.

The Fund maintains its accounts and calculates its income in U.S. dollars.
In general, gain or loss (1) from the disposition of foreign currencies and
forward currency contracts, (2) from the disposition of
foreign-currency-denominated debt securities that are attributable to
fluctuations in exchange rates between the date the securities are acquired and
their disposition date, and (3) attributable to fluctuations in exchange rates
between the time the Fund accrues interest or other receivables or expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects those receivables or pays those liabilities, will be treated
as ordinary income or loss. A foreign-currency-denominated debt security
acquired by the Fund may bear interest at a high normal rate that takes into
account expected decreases in the value of the principal amount of the security
due to anticipated currency devaluations; in that case, the Fund would be
required to include the interest in income as it accrues but generally would
realize a currency loss with respect to the principal only when the principal
was received (through disposition or upon maturity).

<PAGE> 52

The Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of
the following tests: (1) at least 75% of its gross income is passive or (2) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, the Fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock or of any gain on disposition of the stock (collectively, "PFIC income"),
plus interest thereon, even if the Fund distributes the PFIC income to its
shareholders. The balance of the PFIC income will be included in the Fund's
investment company taxable income and, accordingly, will not be taxable to it
to the extent that income is distributed to its shareholders. If the Fund
invests in a PFIC and elects to treat the PFIC as a "qualified electing fund,"
then in lieu of the foregoing tax and interest obligation, the Fund will be
required to include in income each year its pro rata share of the qualified
electing fund's annual ordinary earnings and net capital gain (the excess of
net long-term capital gain over net short-term capital loss) -- which probably
would have to be distributed to its shareholders to satisfy the Distribution
Requirement -- even if those earnings and gain were not received by the Fund.
In most instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.

DERIVATIVE INSTRUMENTS

The use of derivatives strategies, such as purchasing and selling
(writing) options and futures and entering into forward currency contracts,
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
(except certain gains therefrom that may be excluded by future regulations),
and income from transactions in options, futures, and forward currency
contracts derived by the Fund with respect to its business of investing in
securities or foreign currencies, will qualify as permissible income under the
Income Requirement. However, income from the disposition of options and
futures (other than those on foreign currencies) will be subject to the 30%
Limitation if they are held for less than three months. Income from the
disposition of foreign currencies, and options, futures, and forward contracts
on foreign currencies, that are not directly related to the Fund's principal
business of investing in securities (or options and futures with respect to
securities) also will be subject to the 30% Limitation if they are held for
less than three months.

If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
30% Limitation. Thus, only the net gain (if any) from the designated hedge
will be included in gross income for purposes of that limitation. The Funds
intend that, when they engage in hedging strategies, the hedging transactions
will qualify for this treatment, but at the present time it is not clear
whether this treatment will be available for all of the Fund's hedging
transactions. To the extent this treatment is not available or is not elected
by the Fund, it may be forced to defer the closing out of certain options,
futures, or forward currency contracts beyond the time when it otherwise would
be advantageous to do so, in order for the Fund to continue to qualify as a
RIC.

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, and forward currency contracts that are subject to section 1256 of the
Code ("Section 1256 Contracts") and are held by the Fund as of the end of the
year, as well as gains and losses on Section 1256 Contracts actually realized
during the year. Except for Section 1256 Contracts that are part of a "mixed
straddle" and with respect to which 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. Unrealized
gains on Section 1256 Contracts that have been held by the Fund for less than
three months as of the end of its taxable year, and that are recognized for
federal income tax purposes as described above, will not be considered gains on
investments held for less than three months for purposes of the 30% Limitation.

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

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

<PAGE> 53

substantially all of its investment company taxable income, including any
original issue discount and other non-cash income, to satisfy the Distribution
Requirement, it may be required in a particular year to distribute as a
dividend an amount that is greater than the total amount of cash it actually
receives. Those distributions may be made from the proceeds on sales of
portfolio securities, if necessary. 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. In addition, any such
gains may be realized on the disposition of securities held for less than three
months. Because of the 30% Limitation, any such gains would reduce the Fund's
ability to sell other securities, or certain options, futures, or forward
currency contracts, held for less that three months that it might wish to sell
in the ordinary course of its portfolio management.

The foregoing federal tax discussion as well as the tax discussion
contained within the Prospectus under "Additional Information - Distributions
and Taxes" 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.

DETERMINATION OF NET ASSET VALUE

A more complete discussion of the Fund's determination of net asset value
is contained in the Prospectus. Generally, the net asset value of the Fund
will be determined as of the close of trading on each day the New York Stock
Exchange (the "NYSE") is open for trading. The NYSE is open Monday through
Friday except New Year's Day, 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 the yearly accounting period.

FUND ORGANIZATION

The Fund was incorporated in Wisconsin on December 28, 1990 under the name
Strong E Fund, Inc. The Fund is authorized to issue 10,000,000,000 shares of
common stock and series and classes of series of shares of common stock, with a
par value of $.00001 per share. Each share 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 Fund have no preemptive, conversion, or subscription rights. The
Fund currently has only one series of common stock outstanding. If the Fund
issues additional series, the assets belonging to each series of shares will be
held separately by the custodian and in effect each series will be a separate
fund. All holders of shares of the Fund would vote on each matter presented to
shareholders for action except with respect to any matter which affects only
one or more series or classes, in which case only the shares of the affected
series or class shall be entitled to vote. Because of current federal
securities law requirements the Fund expects that its shareholders will offer
the owners of variable annuity and variable life insurance contracts the
opportunity to instruct them as to how shares allocable to their contracts will
be voted with respect to certain matters, such as approval of changes to the
investment advisory agreement. 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 Corporation'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 Corporation 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

<PAGE> 54

payment to the Corporation of such costs, the Corporation shall give not less
than ten nor more than sixty days notice of the special meeting.

PERFORMANCE INFORMATION

As described under "Additional Information - Performance Information" in
the Prospectus, the Fund's historical performance or return may be shown in the
form of "average annual total return," "total return," and "cumulative total
return." From time to time, the Advisor may voluntarily waive all or a portion
of its management fee and/or absorb certain expenses for the Fund. Total
returns contained in advertisements include the effect of deducting the Fund's
expenses, but may not include charges and expenses attributable to any
particular insurance product. Since shares may only be purchased by the
separate accounts of certain insurance companies, contracts owners should
carefully review the prospectus of the separate account for information on fees
and expenses. Excluding such fees and expenses from the Fund's total return
quotations has the effect of increasing the performance quoted.

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 found by first taking a
hypothetical $10,000 investment ("initial investment") in the Fund's shares on
the first day of the period and computing the "redeemable value" of that
investment at the end of the period. The redeemable value is then divided by
the initial investment, and this quotient is taken to the Nth root (N
representing the number of years in the period) and 1 is subtracted from the
result, which is then expressed as a percentage. The calculation assumes that
all income and capital gains dividends paid by the Fund have been reinvested at
net asset value on the reinvestment dates during the period. Average annual
total return figures for various periods are set forth in the table below.

TOTAL RETURN

Calculation of 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 on the reinvestment dates during the period. Total return may also be
shown as the increased dollar value of the hypothetical investment over the
period. Total return figures for various periods are set forth in the table
below.

CUMULATIVE TOTAL RETURN

Calculation of the Fund's cumulative total return is not subject to a
standardized formula and 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.

The Fund's performance figures are based upon historical results and do
not represent future performance. The Fund's shares are sold at net asset
value per share. The Fund's returns and net asset value will fluctuate and
shares are redeemable at the then current net asset value of the Fund, which
may be more or less than original cost. Factors affecting the Fund's
performance include general market conditions, operating expenses, and
investment management. Any additional fees charged by an insurance company or
other financial services firm would reduce the returns described in this
section.

<PAGE> 55

The table below shows performance information for various periods ended
December 31, 1995. Securities prices fluctuated during these periods.

SPECIAL FUND II

<TABLE>
<CAPTION>
Average
Total Return Annual Total Return
------------------- -------------------
Initial $10,000 Ending Value Percentage Percentage
Investment December 31, 1995 Increase Increase
==================================================================================
<S> <C> <C> <C> <C>
Life of Fund* $10,000 18,953 89.53% 19.16%
One Year 10,000 12,582 25.82 25.82
</TABLE>
- ------------------------------------
* Commenced operations on May 8, 1992.

The Fund's total return for the three months ending March 31, 1996, was
5.52%.

COMPARISONS

(1) U.S. TREASURY BILLS, NOTES, OR BONDS
Investors may also wish to compare the performance of the Fund to that of
United States Treasury bills, notes, or bonds, which are issued by the U.S.
government, because such instruments represent alternative income producing
products. Treasury obligations are issued in selected denominations. Rates of
Treasury obligations are fixed at the time of issuance and payment of principal
and interest is backed by the full faith and credit of the United States
Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Generally, the values of obligations with shorter maturities will
fluctuate less than those with longer maturities.

(2) CERTIFICATES OF DEPOSIT
Investors may wish to compare the Fund's performance to that of
certificates of deposit offered by banks and other depositary institutions.
Certificates of deposit represent an alternative income producing product.
Certificates of deposit may offer fixed or variable interest rates and
principal is guaranteed and may be insured. Withdrawal of the deposits prior to
maturity normally will be subject to a penalty. Rates offered by banks and
other depositary institutions are subject to change at any time specified by
the issuing institution.

(3) 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 an investment
in money market fund shares is neither insured nor guaranteed by the U.S.
government, but share values usually remain stable.

(4) LIPPER ANALYTICAL SERVICES, 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 gain 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.

(5) 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 the Fund as a weighted average for 3, 5, and 10
year periods. Ratings are not absolute and do not represent future results.

<PAGE> 56

(6) VARDS REPORT
The Fund's performance may also be compared to the performance of other
variable annuity products in general or to the performance of particular types
of variable annuity products, with similar investment goals, as tracked by the
VARDS Report (Variable Annuity Research and Data Service Report) produced by
Financial Planning Resources, Inc. The VARDS Report is a monthly performance
analysis of the variable annuity industry.

(7) INDEPENDENT SOURCES
Evaluations of Fund performance made by independent sources may also be
used in advertisements concerning the Fund, including reprints of, or
selections from, editorials or articles about the Fund, especially those with
similar objectives. Sources for Fund performance information and articles
about the Fund may include publications such as Money, Forbes, Kiplinger's,
Smart Money, Morningstar, Inc., Financial World, Business Week, U.S. News and
World Report, The Wall Street Journal, Barron's, and a variety of investment
newsletters.

(8) INDICES
A Fund may compare its performance to a wide variety of indices including
the following:

(a) Consumer Price Index
(b) Dow Jones Average of 30 Industrials
(c) NASDAQ Over-the-Counter Composite Index
(d) Standard & Poor's 500 Stock Index
(e) Standard & Poor's 400 Mid-Cap Stock Index
(f) Standard & Poor's 600 Small-Cap Index
(g) Russell 2000 Stock Index
(h) Russell 3000 Stock Index
(i) Russell MidCap Index
(j) Russell MidCap Growth Index
(k) Russell MidCap Value Index
(l) Morgan Stanley Capital International EAFE(R) Index (Net
Dividend, Gross Dividend, and Price-Only). In addition, a Fund may
compare its performance to certain other indices that measure stock
market performance in geographic areas in which the Fund may invest.
The market prices and yields of the stocks in these indexes will
fluctuate. A Fund may also compare its portfolio weighting to the
EAFE Index weighting, which represents the relative capitalization
of the major overseas markets on a dollar-adjusted basis

(9) 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.

<PAGE> 57

(10) STRONG VARIABLE INSURANCE FUNDS
The Strong Variable Insurance Funds offer a range of investment options.
All of the members of the Strong Variable Insurance Funds and their investment
objectives are listed below. The Funds are listed in ascending order of risk
and return, as determined by the Funds' Advisor.

FUND NAME INVESTMENT OBJECTIVE

<TABLE>
<S> <C>
Strong Advantage Fund II Current income with a very low degree of share-price fluctuation.
Strong Short-Term Bond Fund II Total return by investing for a high level of current income with
a low degree of share-price fluctuation.
Strong Government Securities Fund II Total return by investing for a high level of current income with a
moderate degree of share-price fluctuation.
Strong Asset Allocation Fund II High total return consistent with reasonable risk over the long term.
Strong Special Fund II Capital growth.
Strong Growth Fund II Capital growth.
Strong Discovery Fund II Capital growth.
Strong International Stock Fund II Capital growth.
</TABLE>

Each Fund may from time to time be compared to the other Funds in the
Strong Variable Insurance 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 Variable Insurance Funds'
risk/reward continuum or any Fund's position on the continuum may be described
or diagrammed in marketing materials. The Strong Variable Insurance Funds'
risk/reward continuum positions the risk and reward potential of each Fund
relative to the other Strong Variable Insurance Funds, but is not intended to
position any 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. Financial goals vary from
person to person. You may choose one or more of the Strong Variable Insurance
Funds to help you reach your financial goals.

The Advisor also serves as advisor to the Strong Family of Funds, which is
a retail fund complex composed of 26 open-end management investment companies.

ADDITIONAL FUND INFORMATION

(1) PORTFOLIO CHARACTERISTICS

In order to present a more complete picture of a Fund's portfolio,
marketing materials may include various actual or estimated portfolio
characteristics, including but not limited to median market capitalizations,
earnings per share, alphas, betas, price/earnings ratios, returns on equity,
dividend yields, capitalization ranges, growth rates, price/book ratios, top
holdings, sector breakdowns, asset allocations, quality breakdowns, and
breakdowns by geographic region.

(2) 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.

<PAGE> 58

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 a Fund's relative performance. One
such measure is alpha. Alpha measures the actual return of a fund compared to
the expected return of a fund given its risk (as measured by beta). The
expected return is based on how the market as a whole performed, and how the
particular fund has historically performed against the market. Specifically,
alpha is the actual return less the expected return. The expected return is
computed by multiplying the advance or decline in a market representation by
the fund's beta. A positive alpha quantifies the value that the fund manager
has added, and a negative alpha quantifies the value that the fund manager has
lost.

Other measures of volatility and relative performance may be used as
appropriate. However, all such measures will fluctuate and do not represent
future results.

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.

<PAGE> 59

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.

PORTFOLIO MANAGEMENT

The Advisor uses a research-intensive, "bottom up" securities selection
discipline to identify well-run, profitable companies whose prospects for
growth and other financial characteristics, when compared to the price of their
securities, indicate fundamental value and the potential for significant
capital appreciation. The Advisor's goal is to find well-managed companies
that have sustainable growth prospects but that are selling at prices below
their private market values. While not limited to smaller-capitalization
stocks, this investment approach often leads to smaller, newer companies that
have not yet captured the attention of investment professionals.

It should be noted, however, that investments in securities of under
researched companies with smaller market capitalizations, while generally
offering a greater opportunity for appreciation, also involve a greater risk of
depreciation than securities of companies with larger market capitalization.
In addition, since companies with smaller market capitalizations are not as
broadly traded as those of companies with larger market capitalizations. these
securities are often subject to wider and more abrupt fluctuations in market
price.

The Advisor's investment philosophy is that (i) underfollowed stocks with
low institutional ownership and low analyst coverage tend to be undervalued;
(ii) unpopular or "quiet" sectors of the market tend to be undervalued; (iii)
stock prices are more volatile than underlying intrinsic business values; and
(iv) smaller capitalization stocks historically have had higher growth rates
and have outperformed larger cap stocks, but may also entail significantly
greater price variability than those of larger companies.

The Advisor's investment process includes (i) independent, fundamental
analysis; (ii) screening for stocks covered by fewer than 10 analysts; (iii)
identifying unpopular or "quiet" sectors of the market; (iv) identifying
companies with consistent earnings per share growth greater than 10% and
price/earnings ratios below the S&P 500; (v) visiting companies and meeting
management; (vi) establishing intrinsic business value and buy/sell targets;
and (vii) diversifying the portfolio.

The Advisor considers selling a stock when it reaches 80 to 100% of
private market value, it becomes widely followed, or there is a change in
company fundamentals.

The portfolio managers work with a team of analysts, traders, and
administrative personnel. From time to time, marketing materials may discuss
various members of the team, including their education, investment experience,
and other credentials.

<PAGE> 60

Financial goals vary from person to person. Many experienced investors
know the potential benefits of staying with an investment over time, and the
Fund may use its performance results to demonstrate this.

INDEPENDENT ACCOUNTANTS

Coopers & Lybrand L.L.P., 411 East Wisconsin Avenue, Milwaukee, Wisconsin
53202, have been selected as 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, Wisconsin 53202,
acts as outside legal counsel for the Fund.

FINANCIAL STATEMENTS

The Annual Report that is attached hereto contains the following financial
information for the Fund:

(a) Schedule of Investments in Securities.
(b) Statement of Operations.
(c) Statement of Assets and Liabilities.
(d) Statement of Changes in Net Assets.
(e) Notes to Financial Statements.
(f) Financial Highlights.
(g) Report of Independent Accountants.

<PAGE> 61

APPENDIX

BOND RATINGS

STANDARD & POOR'S DEBT RATINGS

A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.

The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.

The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as
a result of changes in, or unavailability of, such information, or based on
other circumstances.

The ratings are based, in varying degrees, on the following
considerations:

1. Likelihood of default capacity and willingness of
the obligor as to the timely payment of interest and repayment
of principal in accordance with the terms of the obligation.

2. Nature of and provisions of the obligation.

3. Protection afforded by, and relative position of,
the obligation in the event of bankruptcy, reorganization, or
other arrangement under the laws of bankruptcy and other laws
affecting creditors' rights.

INVESTMENT GRADE
AAA Debt rated 'AAA' has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

A Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB Debt rated 'BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

SPECULATIVE GRADE
Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. 'BB' indicates the least degree of speculation
and 'C' the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.

BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-'rating.

A-1

<PAGE> 62

B Debt rated 'B' has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The 'B' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied 'BB' or 'BB-'rating.

CCC Debt rated 'CCC' has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The 'CCC'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'B' or 'B-'rating.

CC Debt rated 'CC' typically is applied to debt subordinated to senior
debt that is assigned an actual or implied 'CCC' rating.

C Debt rated 'C' typically is applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC-' rating. The 'C' rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.

CI The rating 'CI' is reserved for income bonds on which no interest is
being paid.

D Debt rated 'D' is in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grade period. The 'D' rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

MOODY'S LONG-TERM DEBT RATINGS

Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than in Aaa
securities.

A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.

Baa - Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
maintenance of other terms of the contract over any long period of time may be
small.

A-2

<PAGE> 63

Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.

Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.

C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

FITCH INVESTORS SERVICE, INC. BOND RATINGS

Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.

The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength and credit quality.

Fitch ratings do not reflect any credit enhancement that may be provided
by insurance policies or financial guaranties unless otherwise indicated.

Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.

Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.

Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.

AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected
by reasonably foreseeable events.

AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds
rated 'AAA'. Because bonds rated in the 'AAA' and 'AA' categories
are not significantly vulnerable to foreseeable future
developments, short-term debt of the issuers is generally rated
'F-1+'.

A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with
higher ratings.

BBB Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have
adverse impact on these bonds and, therefore, impair timely payment.
The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

A-3

<PAGE> 64

Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
('BB' to 'C') represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ('DDD' to 'D') is an
assessment of the ultimate recovery value through reorganization or
liquidation.

Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories cannot fully reflect the
differences in the degrees of credit risk.

BB Bonds are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by
adverse economic changes. However, business and financial
alternatives can be identified, which could assist the obligor in
satisfying its debt service requirements.

B Bonds are considered highly speculative. While bonds in
this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest
reflects the obligor's limited margin of safety and the need for
reasonable business and economic activity throughout the life of
the issue.

CCC Bonds have certain identifiable characteristics that, if not
remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.

CC Bonds are minimally protected. Default in payment of
interest and/or principal seems probable over time.

C Bonds are in imminent default in payment of interest or
principal.

DDD, DD,
and D Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the
basis of their ultimate recovery value in liquidation or
reorganization of the obligor. 'DDD' represents the highest
potential for recovery of these bonds, and 'D' represents the lowest
potential for recovery.

DUFF & PHELPS, INC. LONG-TERM DEBT RATINGS

These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks related to
such factors as competition, government action, regulation, technological
obsolescence, demand shifts, cost structure, and management depth and
expertise. The projected viability of the obligor at the trough of the cycle
is a critical determination.

Each rating also takes into account the legal form of the security, (e.g.,
first mortgage bonds, subordinated debt, preferred stock, etc.). The extent of
rating dispersion among the various classes of securities is determined by
several factors including relative weightings of the different security classes
in the capital structure, the overall credit strength of the issuer, and the
nature of covenant protection. Review of indenture restrictions is important
to the analysis of a company's operating and financial constraints.

A-4

<PAGE> 65

The Credit Rating Committee formally reviews all ratings once per quarter (more
frequently, if necessary). Ratings of 'BBB-'and higher fall within the
definition of investment grade securities, as defined by bank and insurance
supervisory authorities.

<TABLE>

RATING SCALE DEFINITION
<S> <C>
- ------------------------------------------------------------------------------------------------
AAA Highest credit quality. The risk factors are negligible, being only slightly more
than for risk-free U.S. Treasury debt.
- ------------------------------------------------------------------------------------------------
AA+ High credit quality. Protection factors are strong. Risk is modest, but may
AA vary slightly from time to time because of economic conditions.
AA-
- ------------------------------------------------------------------------------------------------
A+ Protection factors are average but adequate. However, risk factors are more
A variable and greater in periods of economic stress.
A-
- ------------------------------------------------------------------------------------------------
BBB+ Below-average protection factors but still considered sufficient for prudent
BBB investment. Considerable variability in risk during economic cycles.
BBB-
- ------------------------------------------------------------------------------------------------
BB+ Below investment grade but deemed likely to meet obligations when due.
BB Present or prospective financial protection factors fluctuate according to
BB- industry conditions or company fortunes. Overall quality may move up or
down frequently within this category.
- ------------------------------------------------------------------------------------------------
B+ Below investment grade and possessing risk that obligations will not be met
B when due. Financial protection factors will fluctuate widely according to
B- economic cycles, industry conditions and/or company fortunes. Potential
exists for frequent changes in the rating within this category or into a higher
or lower rating grade.
- ------------------------------------------------------------------------------------------------
CCC Well below investment grade securities. Considerable uncertainty exists as to
timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
- ------------------------------------------------------------------------------------------------
DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP Preferred stock with dividend arrearages.
- ------------------------------------------------------------------------------------------------
</TABLE>

A-5

<PAGE> 66
SHORT-TERM RATINGS

STANDARD & POOR'S COMMERCIAL PAPER RATINGS

A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.

Ratings are graded into several categories, ranging from 'A-1' for the
highest quality obligations to 'D' for the lowest. These categories are as
follows:

A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.

A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated 'A-1'.

A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.

B Issues rated 'B' are regarded as having only speculative capacity for
timely payment.

C This rating is assigned to short-term debt obligations with doubtful
capacity for payment.

STANDARD & POOR'S NOTE RATINGS

An S&P note rating reflects the liquidity factors and market-access risks
unique to notes. Notes maturing in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating.

The following criteria will be used in making the assessment:

- Amortization schedule - the larger the final maturity
relative to other maturities, the more likely the issue is to be
treated as a note.

- Source of payment - the more the issue depends on the market
for its refinancing, the more likely it is to be considered a note.

Note rating symbols and definitions are as follows:

SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.

SP-2 Satisfactory capacity to pay 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.

A-6

<PAGE> 67

MOODY'S SHORT-TERM 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:

Issuers rated PRIME-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment will
often be evidenced by many of the following characteristics: (i) leading
market positions in well-established industries, (ii) high rates of return on
funds employed, (iii) conservative capitalization structure with moderate
reliance on debt and ample asset protection, (iv) broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and (v)
well established access to a range of financial markets and assured sources of
alternate liquidity.

Issuers rated PRIME-2 (or 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.

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.

Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.

MOODY'S NOTE RATINGS

MIG 1/VMIG 1 This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.

MIG 2/VMIG 2 This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

MIG 3/VMIG 3 This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.

MIG 4/VMIG 4 This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.

SG This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.

A-7

<PAGE> 68

FITCH INVESTORS SERVICE, INC. SHORT-TERM RATINGS

Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.

The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.

F-1+ Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of assurance for
timely payment.

F-1 Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in degree
than issues rated 'F-1+'.

F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment but the margin
of safety is not as great as for issues assigned 'F-1+' and 'F-1'
ratings.

F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause
these securities to be rated below investment grade.

F-S Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial
and economic conditions.

D Default. Issues assigned this rating are in actual or
imminent payment default.

LOC The symbol LOC indicates that the rating is based on a letter
of credit issued by a commercial bank.

DUFF & PHELPS, INC. SHORT-TERM DEBT RATINGS

Duff & Phelps' short-term ratings are consistent with the rating criteria
used by money market participants. The ratings apply to all obligations with
maturities of under one year, including commercial paper, the uninsured portion
of certificates of deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit, and current maturities of long-term
debt. Asset-backed commercial paper is also rated according to this scale.

Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.

Rating Scale: Definition

High Grade

D-1+ Highest certainty of timely payment. Short-Term liquidity,
including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.

D-1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors.
Risk factors are minor.

A-8

<PAGE> 69

D-1- High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk
factors are very small.

Good Grade

D-2 Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is
good. Risk factors are small.

Satisfactory Grade

D-3 Satisfactory liquidity and other protection factors qualify
issues as to investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.

Non-Investment Grade

D-4 Speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service. Operating
factors and market access may be subject to a high degree of
variation.

Default

D-5 Issuer failed to meet scheduled principal and/or interest payments.

THOMSON BANKWATCH (TBW) SHORT-TERM RATINGS

The TBW Short-Term Ratings apply, unless otherwise noted, to specific debt
instruments of the rated entities with a maturity of one year or less. TBW
Short-Term Ratings are intended to assess the likelihood of an untimely or
incomplete payments of principal or interest.

TBW-1 The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.

TBW-2 The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1".

TBW-3 The lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.

TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.

A-9

<PAGE> 70

IBCA SHORT-TERM RATINGS

IBCA Short-Term Ratings assess the borrowing characteristics of banks and
corporations, and the capacity for timely repayment of debt obligations. The
Short-Term Ratings relate to debt which has a maturity of less than one year.

<TABLE>
<S> <C>
A1+ Obligations supported by the highest capacity for timely repayment and possess a particularly strong credit
feature.

A1 Obligations supported by the highest capacity for timely repayment.

A2 Obligations supported by a good capacity for timely repayment.

A3 Obligations supported by a satisfactory capacity for timely repayment.

B Obligations for which there is an uncertainty as to the capacity to ensure timely repayment.

C Obligations for which there is a high risk of default or which are currently in default.
</TABLE>

A-10

<PAGE> 71
STRONG SPECIAL FUND II, INC.

PART C
OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(a) Financial Statements (all included or incorporated by reference
in Parts A & B)

Schedule of Investments in Securities
Statement of Operations
Statement of Assets and Liabilities
Statement of Changes in Net Assets
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants

(b) Exhibits
(1) Amended and Restated Articles of Incorporation
(2) Bylaws
(3) Inapplicable
(4) Specimen Stock Certificate
(5) Investment Advisory Agreement
(6) Distribution Agreement
(7) Inapplicable
(8) Custody Agreement
(8.1) Global Custody Agreement
(9) Shareholder Servicing Agent Agreement
(9.1) Amended and Restated Fund Participation Agreement
(10) Inapplicable
(11) Consent of Auditor
(12) Inapplicable
(13) Inapplicable
(14) Inapplicable
(15) Inapplicable
(16) Computation of Performance Figures
(17) Power of Attorney
(18) Letter of Representation
(27) Financial Data Schedule

Item 25. Persons Controlled by or under Common Control with Registrant

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

Item 26. Number of Holders of Securities

Number of Record Holders
Title of Class as of March 31, 1996
-------------- ------------------------
<S> <C>
Common Stock, $.00001 par value 10

</TABLE>

<PAGE> 72
Item 27. Indemnification

Officers and directors are insured under a joint errors and omissions
insurance policy underwritten by American International Surplus Lines Insurance
Company and First State Insurance Company in the aggregate amount of
$10,000,000, subject to certain deductions. Pursuant to the authority of the
Wisconsin Business Corporation Law, Article VII of Registrant's 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 28. Business and Other Connections of Investment Advisor

The information contained under "Management" in the Prospectus and
under "Directors and Officers of the Fund" and "Investment Advisor and
Distributor" in the Statement of Additional Information is hereby incorporated
by reference pursuant to Rule 411 under the Securities Act of 1933.

Item 29. Principal Underwriters

(a) Strong Funds Distributors, Inc., principal underwriter for
Registrant, also serves as principal underwriter for Strong Advantage Fund,
Inc.; Strong Asia Pacific Fund, Inc.; Strong Asset Allocation Fund, Inc.;
Strong Common Stock Fund, Inc.; Strong Conservative Equity Funds, 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 Institutional Funds, Inc.; Strong Insured Municipal Bond Fund, Inc.;
Strong International Bond Fund, Inc.; Strong International Stock Fund, Inc.;
Strong Money Market Fund, Inc.; Strong Municipal Bond Fund, Inc.; Strong
Municipal Funds, Inc.; Strong Opportunity Fund, Inc.; Strong Schafer Value
Fund, Inc.; Strong Short-Term Bond Fund, Inc.; Strong Short-Term Global Bond
Fund, Inc.; Strong Short-Term Municipal Bond Fund, Inc.; Strong Total Return
Fund, Inc.; and Strong Variable Insurance Funds, Inc.

(b) The information contained under "Management" in the Prospectus and
under "Directors and Officers of the Fund" and "Investment Advisor and
Distributor" in the Statement of Additional Information is hereby incorporated
by reference pursuant to Rule 411 under the Securities Act of 1933.

C-2

<PAGE> 73
Item 30. Location of Accounts and Records

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

Item 31. Management Services

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

Item 32. Undertakings

The Registrant undertakes to furnish to each person to whom a
prospectus is delivered, upon request and without charge, a copy of the
Registrant's latest annual report to shareholders.

C-3
<PAGE> 74
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant hereby certifies that this
Post-Effective Amendment No. 8 meets all the requirements for effectiveness
pursuant to paragraph (b) of Rule 485 under the Securities Act of 1933, as
amended, and that it has duly caused this Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Village of Menomonee Falls, the
State of Wisconsin on the 22nd day of April, 1996.

STRONG SPECIAL FUND II, INC.
(Registrant)

BY: /s/John Dragisic
-----------------------------------
John Dragisic, President

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 8 to the Registration Statement on Form N-1A has
been signed below by the following persons in the capacities and on the date
indicated.

Name Title Date
---- ----- ----

President (Principal Executive Officer)
/s/John Dragisic and a Director April 22, 1996
- ------------------------
John Dragisic
Treasurer (Principal Financial and
/s/Ronald A. Neville Accounting Officer) April 22, 1996
- ------------------------
Ronald A. Neville

/s/Richard S. Strong Chairman of the Board and a Director April 22, 1996
- ------------------------
Richard S. Strong

Director April 22, 1996
- ------------------------
Marvin E. Nevins*

Director April 22, 1996
- ------------------------
Willie D. Davis*

Director April 22, 1996
- ------------------------
William F. Vogt*

Director April 22, 1996
- ------------------------
Stanley Kritzik*

* Ann E. Oglanian signs this document pursuant to powers of attorney filed
with Post-Effective Amendment No. 7 to the Registration Statement of
Registrant filed with the SEC on or about April 21, 1995.

BY: /s/Ann E. Oglanian
---------------------------------------
Ann E. Oglanian

<PAGE> 75
EXHIBIT INDEX

EDGAR
Exhibit No. Exhibit Exhibit no.

<S> <C> <C>
(1) Amended and Restated Articles of Incorporation EX-99.B1(1)
(2) Bylaws EX-99.B2
(3) Inapplicable
(4) Specimen Stock Certificate EX-99.B4
(5) Investment Advisory Agreement EX-99.B5(1)
(6) Distribution Agreement EX-99.B6
(7) Inapplicable
(8) Custody Agreement EX-99.B8
(8.1) Global Custody Agreement EX-99.B8.1
(9) Shareholder Servicing Agent Agreement EX-99.B9
(9.1) Amended and Restated Fund Participation Agreement EX-99.B9.1
(10) Inapplicable
(11) Consent of Auditor EX-99.B11
(12) Inapplicable
(13) Inapplicable
(14) Inapplicable
(15) Inapplicable
(16) Computation of Performance Figures EX-99.B16
(17) Power of Attorney (See Signature Page)(1)
(18) Letter of Represetation EX-99.B18
(27) Financial Data Schedule EX-27.CLASSA
</TABLE>
- --------------------------
(1) Incorporated herein by reference to Pre-Effective Amendment No. 7 to the
Registration Statement on Form N-1A of Registrant filed on or about April 21,
1995.

<PAGE> 1
EXHIBIT 99.B2

BYLAWS

ARTICLE I. OFFICES

SECTION 1.01. Principal and Other Offices. The principal
office of the Corporation shall be located at any place either within or
outside the State of Wisconsin as designated in the Corporation's most current
Annual Report filed with the Wisconsin Secretary of State. The Corporation may
have such other offices, either within or outside the State of Wisconsin, as
the Board of Directors may designate or as the business of the Corporation may
require from time to time.

SECTION 1.02. Registered Office. The registered office of
the Corporation required by the Wisconsin Business Corporation Law (the "WBCL")
to be maintained in the State of Wisconsin may, but need not, be the same as
any of its places of business. The registered office may be changed from time
to time.

SECTION 1.03. Registered Agent. The registered agent of the
Corporation required by the WBCL to maintain a business office in the State of
Wisconsin may, but need not, be an officer or employee of the Corporation as
long as such agent's business office is identical with the registered office.
The registered agent may be changed from time to time.

ARTICLE II. SHAREHOLDERS

SECTION 2.01. Annual Meeting. The annual meeting of the
shareholders, if the annual meeting shall be held, shall be held in April of
each year, or at such other time and date as may be fixed by or under the
authority of the Board of Directors, for the purpose of electing directors and
for the transaction of such other business as may properly come before the
meeting. The Corporation shall not be required to hold an annual meeting in
any year in which none of the following is required to be acted on by
shareholders under the Investment Company Act of 1940, as amended, and the
rules and regulations promulgated thereunder (the "Investment Company Act"):

(i) Election of directors;

(ii) Approval of the Corporation's investment advisory
contract;

(iii) Ratification of the selection of the Corporation's
independent public accountants; or

(iv) Approval of the Corporation's distribution agreement.
<PAGE> 2

SECTION 2.02. Special Meetings. Special meetings of the
shareholders for any purpose or purposes, unless otherwise prescribed by the
WBCL, may be called by the Board of Directors, the Chairman of the Board, Vice
Chairman or President. Notwithstanding any other provision of these By-Laws,
the Corporation shall call a special meeting of shareholders in the event that
the holders of at least 10% of all of the votes entitled to be cast on any
issue proposed to be considered at the proposed special meeting sign, date and
deliver to the Corporation one or more written demands for the meeting
describing one or more purposes for which it is to be held. 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 Corporation of
such costs, the Corporation shall give not less than ten nor more than sixty
days notice of the special meeting.

SECTION 2.03. Place of Meeting. The Board of Directors may
designate any place, either within or without the State of Wisconsin, as the
place of meeting for any annual or special meeting of shareholders. If no
designation is made, the place of meeting shall be the principal office of the
Corporation. Any meeting may be adjourned to reconvene at any place designated
by vote of a majority of the shares represented thereat.

SECTION 2.04. Notice of Meeting. Written notice stating the
date, time and place of any meeting of shareholders and, in case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
delivered not less than ten days nor more than sixty days before the date of
the meeting (unless a different time is provided by applicable law or
regulation or the Articles of Incorporation), either personally or by mail, by
or at the direction of the Chairman of the Board, Vice Chairman, President or
Secretary, to each shareholder of record entitled to vote at such meeting and
to such other persons as required by the WBCL. If mailed, such notice shall be
deemed to be effective when deposited in the United States mail, addressed to
the shareholder at his or her address as it appears on the stock record books
of the Corporation, with postage thereon prepaid. If an annual or special
meeting of shareholders is adjourned to a different date, time or place, the
Corporation shall not be required to give notice of the new date, time or place
if the new date, time or place is announced at the meeting before adjournment;
provided, however, that if a new record date for an adjourned meeting is or
must be fixed, the Corporation shall give notice of the adjourned meeting to
persons who are shareholders as of the new record date.

SECTION 2.05. Waiver of Notice. A shareholder may waive any
notice required by the WBCL, the Articles of Incorporation or these By-Laws
before or after the date and time stated in the notice. The waiver shall be in
writing and signed by the shareholder entitled to the notice, contain the same
information that would have been required in the notice
<PAGE> 3

under applicable provisions of the WBCL (except that the time and place of
meeting need not be stated) and be delivered to the Corporation for inclusion
in the corporate records. A shareholder's attendance at a meeting, in person
or by proxy, waives objection to all of the following: (a) lack of notice or
defective notice of the meeting, unless the shareholder at the beginning of the
meeting or promptly upon arrival objects to holding the meeting or transacting
business at the meeting; and (b) consideration of a particular matter at the
meeting that is not within the purpose described in the meeting notice, unless
the shareholder objects to considering the matter when it is presented.

SECTION 2.06. Fixing of Record Date. For the purpose of
determining shareholders of any voting group entitled to notice of or to vote
at any meeting of shareholders or any adjournment thereof, or shareholders
entitled to receive payment of any distribution or dividend, or in order to
make a determination of shareholders for any other proper purpose, the Board of
Directors may fix in advance a date as the record date for any such
determination of shareholders. Such record date shall not be more than 70 days
prior to the date on which the particular action, requiring such determination
of shareholders, is to be taken. If no record date is so fixed for the
determination of shareholders entitled to notice of, or to vote at a meeting of
shareholders, or shareholders entitled to receive a share dividend or
distribution, the record date for determination of such shareholders shall be
at the close of business on:

(a) With respect to an annual shareholders meeting or any
special shareholders meeting called by the Board of Directors or any
person specifically authorized by the Board of Directors or these
By-Laws to call a meeting, the day before the first notice is mailed
to shareholders;

(b) With respect to a special shareholders meeting demanded
by the shareholders, the date the first shareholder signs the demand;

(d) With respect to a distribution to shareholders (other
than one involving a repurchase or reacquisition of shares), the date
the Board of Directors authorizes the distribution.

SECTION 2.07. Voting Lists. After fixing a record date for a
meeting, the Corporation shall prepare a list of the name of all its
shareholders who are entitled to notice of a shareholders meeting. The list
shall be arranged by class or series of shares and show the address of and the
number of shares held by each shareholder. The shareholders list must be

3
<PAGE> 4

available for inspection by any shareholder, beginning two business days after
notice of the meeting is given for which the list was prepared and continuing
to the date of the meeting. The list shall be available at the Corporation's
principal office or at a place identified in the meeting notice in the city
where the meeting is to be held. Subject to the provisions of the WBCL, a
shareholder or his or her agent or attorney may, on written demand, inspect and
copy the list during regular business hours and at his expense, during the
period it is available for inspection. The Corporation shall make the
shareholders list available at the meeting, and any shareholder or his or her
agent or attorney may inspect the list at any time during the meeting or any
adjournment thereof. Refusal or failure to prepare or make available the
shareholders list shall not affect the validity of any action taken at such
meeting.

SECTION 2.08. Shareholder Quorum and Voting Requirements.
Shares entitled to vote as a separate voting group may take action on a matter
at a meeting only if a quorum of those shares exists with respect to that
matter. Unless the Articles of Incorporation or the WBCL provide otherwise, a
majority of the votes entitled to be cast on the matter by the voting group
constitutes a quorum of that voting group for action on that matter.

If the Articles of Incorporation or the WBCL provide for
voting by two or more voting groups on a matter, action on that matter is taken
only when voted upon by each of those voting groups counted separately as
provided in the WBCL. Action may be taken by one voting group on a matter even
though no action is taken by another voting group entitled to vote on the
matter. A voting group described in the WBCL constitutes a single voting group
for purpose of voting on the matter on which the shares are entitled to vote,
unless otherwise required under applicable laws and regulations, including the
Investment Company Act.

Once a share is represented for any purpose at a meeting,
other than for the purpose of objecting to holding the meeting or transacting
business at the meeting, it is deemed present for purposes of determining
whether a quorum exists, for the remainder of the meeting and for any
adjournment of that meeting to the extent provided in Section 2.13.

If a quorum exists, action on a matter, other than the
election of directors, by a voting group is approved if the votes cast within
the voting group favoring the action exceed the votes cast opposing the action,
unless the Articles of Incorporation, the By-Laws, the WBCL or other applicable
laws and regulations, including the Investment Company Act, require a greater
number of affirmative votes. With respect to the election of directors, unless
otherwise provided in the Articles of Incorporation, directors are elected by a
plurality of the votes cast by the shares entitled to vote. For purposes of
this Section 2.08, "plurality" means that the individuals with the largest
number of votes are elected as directors up to the maximum number of directors
to be chosen at the election.

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SECTION 2.09. Proxies. For all meetings of shareholders, a
shareholder may appoint a proxy to vote or otherwise act for the shareholder by
signing an appointment form, either personally or by a duly authorized
attorney-in-fact. Such proxy shall be effective when filed with the Secretary
of the Corporation or other officer or agent authorized to tabulate votes
before or at the time of the meeting. No proxy shall be valid after eleven
months from the date of its execution, unless otherwise provided in the proxy.

SECTION 2.10. Voting of Shares. Unless otherwise provided in
the Articles of Incorporation, each outstanding share, regardless of class, is
entitled to one vote upon each matter submitted to a vote at a meeting of
shareholders.

No shares in the Corporation held by another corporation may
be voted if the Corporation owns, directly or indirectly, a sufficient number
of shares entitled to elect a majority of the directors of such other
corporation; provided, however, that the Corporation shall not be limited in
its power to vote any shares, including its own shares, held by it in a
fiduciary capacity.

Redeemable shares are not entitled to vote after written
notice of redemption that complies with the WBCL is mailed to the holders
thereof and a sum sufficient to redeem the shares has been deposited with a
bank, trust company or other financial institution under an irrevocable
obligation to pay the holders the redemption price on surrender of the shares.

SECTION 2.11. Voting Shares Owned by the Corporation. Shares
of the Corporation belonging to it shall not be voted directly or indirectly at
any meeting and shall not be counted in determining the total number of
outstanding shares at any given time, but shares held by the Corporation in a
fiduciary capacity may be voted and shall be counted in determining the total
number of outstanding shares at any given time.

SECTION 2.12. Acceptance of Instruments Showing Shareholder
Action.

(a) If the name signed on a vote, consent, waiver or proxy
appointment corresponds to the name of a shareholder, the Corporation,
if acting in good faith, may accept the vote, consent, waiver or proxy
appointment and give it effect as the act of the shareholder.

(b) If the name signed on a vote, consent, waiver or proxy
appointment does not correspond to the name of a shareholder, the
Corporation, if acting in good faith,

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may accept the vote, consent, waiver or proxy appointment and give it effect as
the act of the shareholder if any of the following apply:

(1) the shareholder is an entity, within the meaning
of the WBCL, and the name signed purports to be that of an
officer or agent of the entity;

(2) the name signed purports to be that of a
personal representative, administrator, executor, guardian or
conservator representing the shareholder and, if the
Corporation or its agent request, evidence of fiduciary status
acceptable to the Corporation is presented with respect to the
vote, consent, waiver or proxy appointment;

(3) the name signed purports to be that of a
receiver or trustee in bankruptcy of the shareholder and, if
the Corporation or its agent request, evidence of this status
acceptable to the Corporation is presented with respect to the
vote, consent, waiver or proxy appointment;

(4) the name signed purports to be that of a
pledgee, beneficial owner, or attorney-in-fact of the
shareholder and, if the Corporation or its agent request,
evidence acceptable to the Corporation of the signatory's
authority to sign for the shareholder is presented with
respect to the vote, consent, waiver or proxy appointment; or

(5) two or more persons are the shareholders as
cotenants or fiduciaries and the name signed purports to be
the name of at least one of the coowners and the persons
signing appears to be acting on behalf of all coowners.

(c) The Corporation may reject a vote, consent, waiver or
proxy appointment if the Secretary or other officer or agent of the
Corporation who is authorized to tabulate votes, acting in good faith,
has reasonable basis for doubt about the validity of the signature on
it or about the signatory's authority to sign for the shareholder.

SECTION 2.13. Adjournments. An annual or special meeting of
shareholders may be adjourned at any time, including after action on one or
more matters, by a majority of shares represented, even if less than a quorum.
The meeting may be adjourned for any purpose, including, but not limited to,
allowing additional time to solicit votes on one or more matters, to
disseminate additional information to shareholders or to count votes. Upon
being reconvened, the adjourned meeting shall be deemed to be a continuation of
the initial meeting.

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(a) Quorum. Once a share is represented for any purpose at
the original meeting, other than for the purpose of objecting to
holding the meeting or transacting business at a meeting, it is
considered present for purposes of determining if a quorum exists, for
the remainder of the meeting and for any adjournment of that meeting
unless a new record date is or must be set for that adjourned meeting.

(b) Record Date. When a determination of shareholders
entitled to notice of or to vote at any meeting of shareholders has
been made as provided in Section 2.06, such determination shall be
applied to any adjournment thereof unless the Board of Directors fixes
a new record date, which it shall do if the meeting is adjourned to a
date more than 120 days after the date fixed for the original meeting.

(c) Notice. Unless a new record date for an adjourned
meeting is or must be fixed pursuant to Section 2.13(b), the
Corporation is not required to give notice of the new date, time or
place if the new date, time or place is announced at the meeting
before adjournment.

SECTION 2.14. Waiver of Notice by Shareholders. A
shareholder may waive any notice required by the WBCL, the Articles of
Incorporation or the By-Laws before or after the date and time stated in the
notice. The waiver shall be in writing and signed by the shareholder entitled
to the notice, contain the same information that would have been required in
the notice under any applicable provisions of the WBCL, except that the time
and place of the meeting need not be stated, and be delivered to the
Corporation for inclusion in the Corporation's records. A shareholder's
attendance at a meeting, in person or by proxy, waives objection to (i) lack of
notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting or promptly upon arrival objects to the holding of the
meeting or transacting business at the meeting, and (ii) consideration of a
particular matter at the meeting that is not within the purpose described in
the meeting notice, unless the shareholder objects to considering the matter
when it is presented.

SECTION 2.15. Conduct of Meeting. The Chairman of the Board,
Vice Chairman, President or any person chosen by the Chairman of the Board,
shall call the meeting of the shareholders to order and shall act as chairman
of the meeting, and the Secretary of the Corporation or any other person
appointed by the chairman of the meeting, shall act as secretary of all
meetings of the shareholders.

SECTION 2.16. Unanimous Consent without Meeting. Any action
required or permitted to be taken at a meeting of shareholders may be taken
without a meeting only by

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unanimous written consent or consents signed by all of the shareholders of the
Corporation and delivered to the Corporation for inclusion in the Corporation's
records.

ARTICLE III. BOARD OF DIRECTORS

SECTION 3.01. General Powers and Number. All corporate
powers shall be exercised by or under the authority of, and the business and
affairs of the Corporation managed under the direction of, the Board of
Directors. The number of directors of the Corporation shall be six.

SECTION 3.02. Tenure and Qualifications. Each director shall
hold office until the next annual meeting of shareholders and until his or her
successor shall have been elected and, if necessary, qualified, or until there
is a decrease in the number of directors which takes effect after the
expiration of his or her term, or until his or her prior death, resignation or
removal. A director may be removed by the shareholders, with or without cause,
only at a meeting called for the purpose of removing the director, and the
meeting notice shall state that the purpose, or one of the purposes, of the
meeting is removal of the director. A director may resign at any time by
delivering written notice which complies with the WBCL to the Board of
Directors, to the Chairman of the Board or to the Corporation. A director's
resignation is effective when the notice is delivered unless the notice
specifies a later effective date. Directors need not be residents of the State
of Wisconsin or shareholders of the Corporation.

SECTION 3.03. Regular Meetings. A regular meeting of the
Board of Directors shall be held without other notice than this Section 3.03
immediately before or after the annual meeting of shareholders and each
adjourned session thereof. The place of such regular meeting shall be the same
as the place of the meeting of shareholders which precedes or follows it, as
the case may be, or such other suitable place as may be announced at such
meeting of shareholders. The Board of Directors shall provide, by resolution,
the date, time and place, either within or without the State of Wisconsin, for
the holding of additional regular meetings of the Board of Directors without
other notice than such resolution. Regular meetings of the Board of Directors
may also be called by the Chairman of the Board, Vice Chairman, President or
Secretary.

SECTION 3.04. Special Meetings. Special meetings of the
Board of Directors may be called by or at the request of the Chairman of the
Board, Vice Chairman, President, Secretary or any two directors. The Chairman
of the Board, Vice Chairman, President or Secretary may fix any place, either
within or without the State of Wisconsin, as the place for holding any special
meeting of the Board of Directors, and if no other place is fixed the place of
the meeting shall be the principal business office of the Corporation in the
State of Wisconsin.

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SECTION 3.05. Notice; Waiver. Notice of special meetings
shall be given at least twenty-four hours previously thereto and shall state
the date, time and place of the meeting of the Board of Directors or committee.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board of Directors or committee need be specified in the
notice of such meeting. Notice may be communicated in person, by telephone,
telegraph, teletype, facsimile or other form of wire or wireless communication,
or by mail or private carrier. Written notice is effective at the earliest of
the following: (1) when received; (2) when mailed postpaid and correctly
addressed; (3) when given to a telegram carrier; or (4) the date it is
deposited with a private carrier. Oral notice is deemed effective when
communicated. Facsimile or teletype notice is deemed effective when sent.

A director may waive any notice required by the WBCL, the
Articles of Incorporation or the By-Laws before or after the date and time
stated in the notice. The waiver shall be in writing, signed by the director
entitled to the notice and retained by the Corporation. Notwithstanding the
foregoing, a director's attendance at or participation in a meeting waives any
required notice to such director of the meeting unless the director at the
beginning of the meeting or promptly upon such director's arrival objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.

SECTION 3.06. Quorum. Except as otherwise provided by the
WBCL, the Articles of Incorporation or the By-Laws, a majority of the number of
directors specified in Section 3.01 shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors. A majority
of the directors present (though less than such quorum) may adjourn any meeting
of the Board of Directors or any committee thereof, as the case may be, from
time to time without further notice.

SECTION 3.07. Manner of Acting. The affirmative vote of a
majority of the directors present at a meeting of the Board of Directors at
which a quorum is present shall be the act of the Board of Directors, unless
the WBCL, the Articles of Incorporation, the By-Laws or other applicable law or
regulation, including the Investment Company Act, require the vote of a greater
number of directors.

SECTION 3.08. Conduct of Meetings. The Chairman of the
Board, and in his absence, the Vice Chairman or any director chosen by the
directors present, shall call meetings of the Board of Directors to order and
shall act as chairman of the meeting. The Secretary of the Corporation shall
act as secretary of all meetings of the Board of Directors unless the presiding
officer appoints another person present to act as secretary of the meeting.
Minutes of any

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regular or special meeting of the Board of Directors shall be prepared and
distributed to each director.

SECTION 3.09. Vacancies. Except as provided below, any
vacancy occurring in the Board of Directors, including a vacancy resulting from
an increase in the number of directors, may be filled, subject to the
requirements of the Investment Company Act, by any of the following: (a) the
shareholders; (b) the Board of Directors; or (c) if the directors remaining in
office constitute fewer than a quorum of the Board of Directors, the directors,
by the affirmative vote of a majority of all directors remaining in office. If
the vacant office was held by a director elected by a voting group of
shareholders, only the holders of shares of that voting group may vote to fill
the vacancy if it is filled by the shareholders, and only the remaining
directors elected by that voting group may vote to fill the vacancy if it is
filled by the directors. A vacancy that will occur at a specific later date,
because of a resignation effective at a later date or otherwise, may be filled
before the vacancy occurs, but the new director may not take office until the
vacancy occurs.

SECTION 3.10. Compensation. No director shall receive any
stated salary or fees from the Corporation for his services as such director if
such director is, otherwise than by reason of being such director, an
interested person (as such term is defined by the Investment Company Act) of
the Corporation or its investment adviser. Except as provided in the preceding
sentence, directors shall be entitled to receive such compensation from the
Corporation for their services as may from time to time be voted by the Board
of Directors.

SECTION 3.11. Presumption of Assent. A director who is
present and is announced as present at a meeting of the Board of Directors,
when corporate action is taken, assents to the action taken unless any of the
following occurs: (a) the director objects at the beginning of the meeting or
promptly upon his or her arrival to holding the meeting or transacting business
at the meeting; (b) the director dissents or abstains from an action taken and
minutes of the meeting are prepared that show the director's dissent or
abstention; (c) the director delivers written notice that complies with the
WBCL of his or her dissent or abstention to the presiding officer of the
meeting before its adjournment or to the Corporation immediately after
adjournment of the meeting; or (d) the director dissents or abstains from an
action taken, minutes of the meeting are prepared that fail to show the
director's dissent or abstention from the action taken and the director
delivers to the Corporation a written notice of that failure that complies with
the WBCL promptly after receiving the minutes. Such right of dissent or
abstention shall not apply to a director who votes in favor of the action
taken.

SECTION 3.12. Telephonic Meetings. Except as herein provided
and notwithstanding any place set forth in the notice of the meeting or these
By-Laws, members of

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the Board of Directors may participate in regular or special meetings by, or
through the use of, any means of communication by which all participants may
simultaneously hear each other, such as by conference telephone. If a meeting
is conducted by such means, then at the commencement of such meeting the
presiding officer shall inform the participating directors that a meeting is
taking place at which official business may be transacted. Any participant in
a meeting by such means shall be deemed present in person at such meeting.
Notwithstanding the foregoing, no action may be taken at any meeting held by
such means (i) on any particular matter which the presiding officer determines,
in his or her sole discretion, to be inappropriate under the circumstances for
action at a meeting held by such means (such determination shall be made and
announced in advance of such meeting), or (ii) if the action must be approved
in person pursuant to the requirements of the Investment Company Act.

SECTION 3.13. Action Without Meeting. Any action required or
permitted by the WBCL to be taken at a meeting of the Board of Directors may be
taken without a meeting if the action is taken by all members of the Board.
The action shall be evidenced by one or more written consents describing the
action taken, signed by each director and retained by the Corporation. Such
action shall be effective when the last director signs the consent, unless the
consent specifies a different effective date. Notwithstanding this Section
3.13, no action may be taken by the Board of Directors pursuant to a written
consent with respect to which the action must be approved in person pursuant to
the requirements of the Investment Company Act.

ARTICLE IV. OFFICERS

SECTION 4.01. Number. The principal officers of the
Corporation shall be a Chairman of the Board, a Vice Chairman of the Board, a
President, the number of Vice Presidents as authorized from time to time by the
Board of Directors, a Secretary, and a Treasurer, each of whom shall be elected
by the Board of Directors. Such other officers and assistant officers as may
be deemed necessary may be elected or appointed by the Board of Directors. The
Board of Directors may also authorize any duly authorized officer to appoint
one or more officers or assistant officers. Any two or more offices may be
held by the same person.

SECTION 4.02. Election and Term of Office. The officers of
the Corporation to be elected by the Board of Directors shall be elected
annually by the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of the shareholders, if any, or on or
after the anniversary of the last annual meeting if no annual meeting is held.
If the election of officers shall not be held at such first meeting of the
Board of Directors, such election shall be held as soon thereafter as is
practicable. Each officer shall hold office until his or her successor shall
have been duly elected or until his or her prior death, resignation or removal.

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SECTION 4.03. Removal. The Board of Directors may remove any
officer and, unless restricted by the Board of Directors or these By-Laws, an
officer may remove any officer or assistant officer appointed by that officer.
An officer may be removed at any time, with or without cause and
notwithstanding the contract rights, if any, of the officer removed. The
appointment of an officer does not of itself create contract rights.

SECTION 4.04. Resignation. An officer may resign at any time
by delivering notice to the Corporation that complies with the WBCL. The
resignation shall be effective when the notice is delivered, unless the notice
specifies a later effective date and the Corporation accepts the later
effective date.

SECTION 4.05. Vacancies. A vacancy in any principal office
because of death, resignation, removal, disqualification or otherwise, shall be
filled by the Board of Directors for the unexpired portion of the term. If a
resignation of an officer is effective at a later date as contemplated by
Section 4.04 hereof, the Board of Directors may fill the pending vacancy before
the effective date if the Board provides that the successor may not take office
until the effective date of the registration.

SECTION 4.06. Chairman of the Board. The Chairman of the
Board shall be the chief executive officer of the Corporation. The Chairman of
the Board shall preside at all meetings of the shareholders and directors,
shall have general and active management of the business of the Corporation,
and shall see that all orders and resolutions of the Board of Directors are
carried into effect.

SECTION 4.07. The Vice Chairman. During the absence or
disability of the Chairman of the Board, the Vice Chairman shall exercise all
the functions of the Chairman of the Board. The Vice Chairman shall perform
all duties incident to the office of the Vice Chairman and such other duties as
shall from time to time be assigned by the Board of Directors, the Chairman of
the Board or as prescribed by these By-Laws.

SECTION 4.08. President. The President shall be the chief
operating officer of the Corporation and, subject to the direction of the Board
of Directors, shall in general supervise and control all of the business and
affairs of the Corporation. The President shall, when present, preside at all
meetings of the shareholders in the absence of the Chairman of the Board and
the Vice Chairman. The President shall have authority, subject to such rules
as may be prescribed by the Board of Directors, to appoint such agents and
employees of the Corporation as he or she shall deem necessary, to prescribe
their powers, duties and compensation, and to delegate authority to them. Such
agents and employees shall hold office at the discretion of the President.

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The President shall have authority to sign, execute and acknowledge, on behalf
of the Corporation, all deeds, mortgages, bonds, stock certificates, contracts,
leases, reports and all other documents or instruments necessary or proper to
be executed in the course of the Corporation's regular business, or which shall
be authorized by resolution of the Board of Directors; and, except as otherwise
provided by law or the Board of Directors, he or she may authorize any Vice
President or other officer or agent of the Corporation to sign, execute and
acknowledge such documents or instruments in his or her place and stead. In
general he or she shall perform all duties incident to the office of President
and such other duties as may be prescribed by the Board of Directors from time
to time.

SECTION 4.09. The Vice Presidents. In the absence of the
President or in the event of the President's death, inability or refusal to
act, or in the event for any reason it shall be impracticable for the President
to act personally, the Vice President (or in the event there be more than one
Vice President, the Vice Presidents in the order designated by the Board of
Directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. Any Vice President may sign, with the Secretary or Assistant
Secretary, certificates for shares of the Corporation; and shall perform such
other duties and have such authority as from time to time may be delegated or
assigned to him or her by the Chairman of the Board, Vice Chairman or President
or by the Board of Directors. The execution of any instrument of the
Corporation by any Vice President shall be conclusive evidence, as to third
parties, of his or her authority to act for the Corporation.

SECTION 4.10. The Secretary. The Secretary shall: (a) keep
minutes of the meetings of the shareholders and of the Board of Directors (and
of committees thereof) in one or more books provided for that purpose
(including records of actions taken by the shareholders or the Board of
Directors (or committees thereof) without a meeting); (b) see that all notices
are duly given in accordance with the provisions of these By-Laws or as
required by the WBCL; (c) be custodian of the corporate records and of the seal
of the Corporation and see that the seal of the Corporation is affixed to all
documents the execution of which on behalf of the Corporation under its seal is
duly authorized; (d) maintain a record of the shareholders of the Corporation,
in a form that permits preparation of a list of the names and addresses of all
shareholders, by class or series of shares and showing the number and class or
series of shares held by each shareholder; (e) sign with the President, a Vice
President, or any other officer authorized by the Board of Directors,
certificates for shares of the Corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors; (f) have general
charge of the stock transfer books of the Corporation; and (g) in general
perform all duties incident to the office of Secretary and have such other
duties and exercise such authority as from time to time may be

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delegated or assigned by the Chairman of the Board, Vice Chairman, President or
the Board of Directors.

SECTION 4.11. The Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Corporation and shall have
general charge of the finances and books of account of the Corporation. Except
as otherwise provided by the Board of Directors, he or she shall have general
supervision of the funds and property of the Corporation and of the performance
by the Custodian of its duties with respect thereto. The Treasurer shall
render to the Board of Directors, whenever directed by the Board, an account of
the financial condition of the Corporation and of all his or her transactions
as Treasurer. The Treasurer shall perform all acts incidental to the office of
Treasurer, subject to the control of the Board of Directors.

SECTION 4.12. Assistant Secretaries and Assistant Treasurers.
There shall be such number of Assistant Secretaries and Assistant Treasurers as
the Board of Directors may from time to time authorize. The Assistant
Secretaries may sign with the President, a Vice President or any other officer
authorized by the Board of Directors, certificates for shares of the
Corporation the issuance of which shall have been authorized by a resolution of
the Board of Directors. The Assistant Secretaries and Assistant Treasurers, in
general, shall perform such duties and have such authority as shall from time
to time be delegated or assigned to them by the Secretary or the Treasurer,
respectively, or by the Chairman of the Board, Vice Chairman, President or the
Board of Directors.

SECTION 4.13. Other Assistants and Acting Officers. The
Board of Directors shall have the power to appoint, or to authorize any duly
appointed officer of the Corporation to appoint, any person to act as assistant
to any officer, or as agent for the Corporation in his or her stead, or to
perform the duties of such officer whenever for any reason it is impracticable
for such officer to act personally, and such assistant or acting officer or
other agent so appointed by the Board of Directors or an authorized officer
shall have the power to perform all the duties of the office to which he or she
is so appointed to be an assistant, or as to which he or she is so appointed to
act, except as such power may be otherwise defined or restricted by the Board
of Directors or the appointing officer.

SECTION 4.14. Surety Bonds. The Board of Directors may
require any officer or agent of the Corporation to execute a bond (including,
without limitation, any bond required by the Investment Company Act of 1940) to
the Corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his or
her duties to the Corporation, including responsibility for negligence and for
the accounting of any of the Corporation's property, funds or securities that
may come into his or her hands.

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ARTICLE V. CERTIFICATES FOR SHARES; TRANSFER OF SHARES

SECTION 5.01. Certificates for Shares. Each shareholder
shall be entitled upon request to have a certificate or certificates which
shall represent and certify the number and kind of shares owned by him or her
in the Corporation. Certificates representing shares of the Corporation shall
be in such form, consistent with the WBCL, as shall be determined by the Board
of Directors. Such certificates shall be signed, either manually or in
facsimile, by the President, a Vice President or any other officer authorized
by the Board of Directors and by the Secretary or an Assistant Secretary. All
certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares represented
thereby are issued, with the number of shares and class of shares and series,
if any, and date of issue, shall be entered on the stock transfer books of the
Corporation. All certificates surrendered to the Corporation for transfer
shall be cancelled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
cancelled, except as provided in Section 5.04.

Shares may also be issued without certificates. Within a
reasonable time after issuance or transfer of shares without certificates, the
Corporation shall send the shareholder a written statement of the information
required on share certificates under the WBCL, including the following:

(a) the name of the Corporation;

(b) the name of the person to whom shares were issued;

(d) either (i) a summary of the designations, relative
rights, preferences and limitations, applicable to each class, and the
variations in rights, preferences and limitations determined for each
series and the authority of the Board of Directors to determine
variations for future series, or (ii) a conspicuous statement that the
Corporation will furnish the information specified in clause (i),
above, on request, in writing and without charge.

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SECTION 5.02. Signature by Former Officers. The validity of
a share certificate is not affected if a person who signed the certificate
(either manually or in facsimile) no longer holds office when the certificate
is issued.

SECTION 5.03. Transfer of Shares. Prior to due presentment
of a certificate for shares for redemption or registration of transfer, the
Corporation may treat the registered owner of such shares as the person
exclusively entitled to vote, to receive notifications and otherwise to have
and exercise all the rights and power of an owner. Where a certificate for
shares is presented to the Corporation with a request for redemption or to
register for transfer, the Corporation shall not be liable to the owner or any
other person suffering loss as a result of such registration of transfer or
redemption if (a) there were on or with the certificate the necessary
endorsements, and (b) the Corporation had no duty to inquire into adverse
claims or has discharged any such duty. The Corporation may require reasonable
assurance that such endorsements are genuine and effective and compliance with
such other regulations as may be prescribed by or under the authority of the
Board of Directors. All certificates and uncertificated shares surrendered to
the Corporation for redemption shall be cancelled, returned to the status of
authorized and unissued shares and the transaction recorded in the stock
transfer books. Transfer or redemption of shares of the Corporation shall be
made only on the stock transfer books of the Corporation by the holder of
record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto duly authorized
by power of attorney duly executed and filed with the transfer agent or the
Secretary of the Corporation, and on surrender for cancellation of the
certificate for such shares, if any.

SECTION 5.04. Lost, Destroyed or Stolen Certificates. Where
the owner claims that certificates for shares have been lost, destroyed or
wrongfully taken, a new certificate shall be issued in place thereof if the
owner (a) so requests before the Corporation has notice that such shares have
been acquired by a bona fide purchaser, (b) files with the Corporation a
sufficient indemnity bond if required by the Board of Directors or any
principal officer, and (c) satisfies such other reasonable requirements as may
be prescribed by or under the authority of the Board of Directors.

SECTION 5.05. Stock Regulations. The Board of Directors
shall have the power and authority to make all such further rules and
regulations not inconsistent with law as it may deem expedient concerning the
issue, transfer and registration of shares of the Corporation and to appoint or
designate one or more stock transfer agents and one or more stock registrars.

ARTICLE VI. SEAL

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SECTION 6.01. The seal of the Corporation shall be circular
in form and shall bear, at a minimum, the name of the Corporation, Wisconsin as
its state of incorporation and the words "Corporate Seal."

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.

ARTICLE VIII. AMENDMENTS

SECTION 8.01. By Shareholders. These By-Laws may be amended
or repealed and new By-Laws may be adopted by the shareholders at any annual or
special meeting of the shareholders at which a quorum is in attendance.

SECTION 8.02. By Board of Directors. Except as otherwise
provided by the WBCL, the Articles of Incorporation or a particular By-Law
herein, these By-Laws may also be amended or repealed and new By-Laws may be
adopted by the Board of Directors by affirmative vote of a majority of the
number of directors present at any meeting at which a quorum is in

17
<PAGE> 18

attendance; provided, however, that the shareholders in adopting, amending or
repealing a particular By-Law may provide therein that the Board of Directors
may not amend, repeal or readopt that By-Law.

SECTION 8.03. Implied Amendments. Any action taken or
authorized by the shareholders or by the Board of Directors which would be
inconsistent with the By-Laws then in effect but which is taken or authorized
by affirmative vote of not less than the number of shares or the number of
directors required to amend the By-Laws so that the By-Laws would be consistent
with such action shall be given the same effect as though the By-Laws had been
temporarily amended or suspended so far, but only so far, as is necessary to
permit the specific action so taken or authorized.

ARTICLE IX. DEPOSITARIES, CUSTODIANS, ENDORSEMENTS

SECTION 9.01. Depositories. The funds of the Corporation
shall be deposited with such banks or other depositories as the Board of
Directors of the Corporation may from time to time determine in accordance with
the requirements of the Investment Company Act.

SECTION 9.02. Custodians. All securities and other similar
investments of the Corporation shall be deposited in the safekeeping of such
banks or other companies as the Board of Directors may from time to time
determine in accordance with the requirements of the Investment Company Act.
Every arrangement entered into with any bank or other company for the
safekeeping of the securities and other similar investments of the Corporation
shall contain provisions complying with the requirements of the Investment
Company Act.

SECTION 9.03. Checks, Notes, Drafts, etc. Checks, notes,
drafts, acceptances, bills of exchange and other orders or obligations for the
payment of money shall be signed by such officer or officers or such person or
persons as designated from time to time by the Board of Directors.

SECTION 9.04. Endorsements, Assignments and Transfer of
Securities. All endorsements, assignments, stock powers or other instruments
of transfer of securities standing in the name of the Corporation or its
nominee or directions for the transfer of securities belonging to the
Corporation shall be made by such officer or officers or other person or
persons as may be designated from time to time by the Board of Directors.

ARTICLE X. INDEPENDENT PUBLIC ACCOUNTANTS

18
<PAGE> 19

SECTION 10.01. Independent Public Accountants. The
Corporation shall employ an independent public accountant or a firm of
independent public accountants as its accountants to examine the accounts of
the Corporation and to sign and certify financial statements filed by the
Corporation.

ARTICLE XI. SALES AND REDEMPTION OF SHARES; DIVIDENDS

SECTION 11.01. Sale of Shares. Shares of Common Stock of the
Corporation shall be sold by it for the net asset value per share of such
Common Stock calculated in accordance with the requirements of the Investment
Company Act, and the Corporation's then current prospectus.

SECTION 11.02. Periodic Investment, Dividend Reinvestment and
Other Plans. The Corporation shall offer such periodic investment, dividend
reinvestment, periodic redemption or other plans as are specified in the
Corporation's then current prospectus, provided such plans are offered in
accordance with the requirements of the Investment Company Act. Any such plans
may be discontinued at any time if determined advisable by or under the
authority of the Board of Directors.

SECTION 11.03. Redemption of Shares. Subject to the
suspension of the right of redemption or postponement of the date of payment or
satisfaction upon redemption in accordance with the Investment Company Act,
each shareholder, upon request and after complying with the redemption
procedures established by or under the supervision of the Board of Directors,
shall be entitled to require the Corporation to redeem out of legally available
funds all or any part of the Common Stock standing in the name of such holder
at the net asset value per share calculated in accordance with the requirements
of the Investment Company Act, and the Corporation's then current prospectus.

SECTION 11.04. Dividends and Other Distributions. The
Corporation shall pay such dividends and make other distributions to
shareholders, at such times and in such amounts as are determined by or under
the authority of the Board of Directors, from time to time and in accordance
with the requirements of the WBCL, the Investment Company Act, and other
applicable laws and regulations.

<PAGE> 1
EXHIBIT 99.B4

SPECIMEN STOCK CERTIFICATE

NUMBER STRONG LOGO SHARES

________ _______

CUSIP ___________

STRONG <<FUND>>, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF WISCONSIN

This Certifies that is the owner of

Shares of the Common Stock, Par Value $._____ per share, of Strong <<Fund>>,
Inc. transferable on the books of the Corporation by the holder hereof
in person or by duly authorized attorney upon surrender of this certificate
properly endorsed.

This certificate is not valid until countersigned by the Transfer
Agent.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.

Dated:

CORPORATE SEAL

/s/ Ann E. Oglanian /s/ John Dragisic

Secretary Vice Chairman

Countersigned:

Strong Capital Management, Inc.
Transfer Agent

Authorized Signature
<PAGE> 2

The following abbreviations, when used in the inscription on the face of
this certificate shall be construed as though they were written out in full
according to applicable laws or regulations:

UNIF GIFT MIN ACT _____Custodian_______
(Cust) (Minor)
Under Uniform Gift to Minors

Act - _________________________________
State

TEN COM - as tenants in common
TEN ENT - as tenants by the
entireties UNIF TRANS MIN ACT ____Custodian _______
JT TEN - as joint tenants with (Cust) (Minor)
right of survivorship
and not as tenants Under Uniform Transfers to Minors
in common Act - _________________________________
State

Additional abbreviations also may be used though not in the above list.
For Value Received, __________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

________________________________________________________________________________
________________________________________________________________________________
Shares of capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
________________________________________________________________________________
Attorney, to transfer the said shares on the books of the within named
Corporation with full power of substitution in the premises.

Date ________________________________ ___________________________________
Signature

___________________________________
Signature

NOTICE: THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.

___________________________________
Signature(s) Guarantee

Strong <<Fund>>, Inc. is authorized to issue common stock for multiple series.
Upon request, a Shareholder will be given a summary of the designations,
relative rights, preferences and limitations determined by the Board of
Directors for each series in writing and without charge. The Board of
Directors is authorized to determine variations for different series.

<PAGE> 1

EXHIBIT 99.B6

DISTRIBUTION AGREEMENT

THIS AGREEMENT is made and entered into on this ______day of
___________,____, between STRONG [ ] FUNDS, INC., a Wisconsin
corporation (the "Corporation"), and STRONG FUNDS DISTRIBUTORS, INC., a
Wisconsin corporation (the "Distributor"):

WITNESSETH:

WHEREAS, the Corporation is an open-end management investment company
registered under the Investment Company Act of 1940 (the "Investment Company
Act");

WHEREAS, the Corporation is authorized to issue shares of its $.______
par value common stock (the "Shares") in separate series;

WHEREAS, the Distributor is a registered broker-dealer under state and
federal laws and regulations and is a member of the National Association of
Securities Dealers (the "NASD"); and

WHEREAS, the Corporation desires to retain Distributor as the
distributor of the Shares of each series on whose behalf this Agreement has
been executed.

NOW, THEREFORE, the Corporation and Distributor mutually agree and
promise as follows:

1. Appointment of Distributor

The Company hereby appoints the Distributor as its agent for the
distribution of the Shares of each series of the Corporation listed on Schedule
A attached hereto (each series is hereinafter referred to as a "Fund"), as such
Schedule may be amended from time to time, in jurisdictions wherein the Shares
may legally be offered for sale; provided, however, that the Corporation may
(a) issue or sell Shares directly to holders of such Shares upon such terms and
conditions and for such consideration, if any, as it may determine, whether in
connection with the distribution of subscription or purchase rights, the
payment or reinvestment of dividends or distributions, or otherwise; or (b)
issue or sell Shares at net asset value to the shareholders of any other
investment corporation, as defined in the Investment Company Act, for which the
Distributor shall act as exclusive distributor, who wish to exchange all or a
portion of their investment in shares of such other investment company for
Shares of the Corporation.

2. Acceptance; Services of Distributor

The Distributor hereby accepts appointment as agent for the
distribution of the Shares and agrees that it will use its best efforts with
reasonable promptness to sell such part of the authorized Shares remaining
unissued as from time to time shall be effectively registered under the
Securities Act of 1933 (the "Securities Act"), at prices determined as
hereinafter provided and on terms hereinafter set forth, all

<PAGE> 2

subject to applicable federal and state laws and regulations and the Articles
of Incorporation and By-Laws of the Corporation.

3. Manner of Sale; Compliance with Securities Laws and Regulations

a. The Distributor shall sell Shares to or through qualified
dealers or others in such manner, not inconsistent with the provisions hereof
and the Corporation's then effective Registration Statement under the
Securities Act, as the Distributor may determine from time to time, provided
that no dealer or other person shall be appointed or authorized to act as agent
of the Corporation without the prior consent of the Corporation. The
Distributor shall cause subscriptions for Shares to be transmitted in
accordance with any subscription agreement then in force for the purchase of
Shares. Distributor and Corporation shall cooperate in implementing procedures
to ensure that the sales commission, if any, payable on the purchase of Shares
is paid to the Distributor in a timely manner.

b. The Distributor, as agent of and for the account of the
Corporation, may repurchase Shares at such prices and upon such terms and
conditions as shall be specified in the Corporation's current prospectus
relating to each Fund.

c. The Corporation will furnish to the Distributor from time to
time such information with respect to the Corporation, each Fund, and the
Shares as the Distributor may reasonably request for use in connection with the
sale of the Shares. The Distributor agrees that it will not use or distribute
or authorize the use, distribution or dissemination by its dealers or others,
in connection with the sale of such Shares, of any statements, other than those
contained in the Corporation's current prospectus relating to each Fund, except
such supplemental literature or advertising as shall be lawful under federal
and state securities laws and regulations, and that it will furnish the
Corporation with copies of all such material.

d. In selling or reacquiring Shares for the account of the
Corporation, the Distributor will in all respects conform to the requirements
of all state and federal laws and the Rules of Fair Practice of the NASD,
relating to such sale or reacquisition, as the case may be, and will indemnify
and save harmless the Corporation, each Fund, each person who has been, is or
may hereafter be a director or officer of the Corporation or any Fund from any
damage or expense on account of any wrongful act by the Distributor or any
employee, representative or agent of the Distributor. The Distributor will
observe and be bound by all the provisions of the Articles of Incorporation of
the Corporation (and of any fundamental policies adopted by the Corporation
and/or each Fund pursuant to the Investment Company Act, notice of which shall
have been given to the Distributor) which at the time in any way require,
limit, restrict or prohibit or otherwise regulate any action on the part of the
Distributor.

e. The Distributor will require each dealer to conform to the
provisions hereof and the Registration Statement (and related prospectus or
prospectuses) at the time in effect under the Securities Act with respect to
the public offering price of the Shares.

<PAGE> 3

4. Price of Shares

a. Shares offered for sale or sold by the Distributor for the
account of the Corporation shall be so offered or sold at a price per Share
determined in accordance with the then current prospectus relating to the sale
of such Shares except as departure from such prices shall be permitted by the
rules and regulations of the Securities and Exchange Commission (the "SEC").

b. The price the Corporation shall receive for all Shares
purchased from the Corporation shall be the net asset value used in determining
the public offering price applicable to the sale of each Fund's Shares. The
excess, if any, of the sales price over the net asset value of the Shares sold
by the Distributor as agent for the account of the Corporation shall be
retained by the Distributor as a commission for its services hereunder.

5. Registration of Shares and Distributor

a. The Corporation agrees that it will use its best efforts to
keep effectively registered under the Securities Act for sale as herein
contemplated such Shares as the Distributor shall reasonably request and as the
SEC shall permit to be so registered.

b. The Corporation on behalf of each Fund will execute any and all
documents and furnish any and all information which may be reasonably necessary
in connection with the qualification of its Shares for sale (including the
qualification of the Corporation or a Fund as a dealer where necessary or
advisable) in such states as the Distributor may reasonably request (it being
understood that the Corporation shall not be required without its consent to
comply with any requirement which in its opinion is unduly burdensome). The
Distributor, at its own expense, will effect all required qualifications of the
Distributor as a dealer or broker or otherwise under all applicable state or
federal laws in order that the Shares may be sold in as broad a territory as is
reasonably practicable.

c. Notwithstanding any other provision hereof, the Corporation on
behalf of a Fund may terminate, suspend or withdraw the offering of its Shares
whenever, in its sole discretion, the Corporation deems such action to be
desirable.

6. Expenses

The Corporation or respective Fund will pay or cause to be paid the
expenses (including the fees and disbursements of its own counsel) of any
registration of the Shares under the Securities Act, expenses of qualifying or
continuing the qualification of the Shares for sale, and in connection
therewith, of qualifying or continuing the qualification of the Corporation or
respective Fund as a dealer or broker under the laws of such states as may be
designated by the Distributor under the conditions herein specified, and
expenses incident to the issuance of Shares, such as the cost of share
certificates, issue taxes and fees of the transfer agent. The Distributor will
pay all other expenses (other than expenses which one or more dealers may bear
pursuant to any agreement with the Distributor) incident to the sale and
distribution of the Shares issued or sold hereunder, including, without
limiting the generality of the foregoing, all (a) expenses of printing and
distributing or disseminating any other literature, advertising

3
<PAGE> 4

and selling aids in connection with such offering of the Shares for
sale (except that such expenses shall not include expenses incurred by the
Corporation or any Fund in connection with the preparation, printing and
distribution of any report or other communication to holders of Shares in their
capacity as such); and (b) expenses of advertising in connection with such
offering. No transfer taxes, if any, which may be payable in connection with
the issue or delivery of Shares sold as herein contemplated or of the
certificates for such Shares shall be borne by the Corporation or any Fund, and
the Distributor will indemnify and hold harmless the Corporation and each Fund
against liability for all such transfer taxes.

7. Duration and Termination

a. This Agreement shall become effective as of the date hereof
and shall continue in effect until ________, 1996, and from year to year
thereafter, but only so long as such continuance is specifically approved each
year by either (i) the Board of Directors of the Corporation, or (ii) the
affirmative vote of a majority of the relevant Fund's respective outstanding
voting securities. In addition to the foregoing, each renewal of this
Agreement must be approved by the vote of a majority of the Corporation's
directors who are not parties to this Agreement or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on
such approval. Prior to voting on the renewal of this Agreement, the Board of
Directors of the Corporation shall request and evaluate, and the Distributor
shall furnish, such information as may reasonably be necessary to enable the
Corporation's Board of Directors to evaluate the terms of this Agreement.

b. Notwithstanding whatever may be provided herein to the
contrary, this Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Board of Directors of the Corporation, or
by vote of a majority of the outstanding voting securities of the relevant
Fund, or by the Distributor, in each case, on not more than sixty (60) days'
written notice to the other party and shall terminate automatically in the
event of its assignment as set forth in paragraph 9 of this Agreement.

8. Notice

Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as
such other party may from time to time designate for the receipt of such
notice.

9. Assignment

This Agreement shall neither be assignable nor subject to pledge or
hypothecation and in the event of assignment, pledge or hypothecation shall
automatically terminate. For purposes of determining whether an "assignment"
has occurred, the definition of "assignment" in Section 2(a)(4) of the
Investment Company Act shall control.

10. Miscellaneous

<PAGE> 5

a. This Agreement shall be construed in accordance with the laws
of the State of Wisconsin, provided that nothing herein shall be construed in a
manner inconsistent with the Investment Company Act, the Securities Act, the
Securities Exchange Act of 1934 or any rule or order of the SEC under such Acts
or any rule of the NASD.

b. The captions of this Agreement are included for convenience
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect.

c. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby and, to this extent, the provisions of
this Agreement shall be deemed to be severable.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed as of the day and year first stated above.

Attest: Strong Funds Distributors, Inc.

__________________________________________ ___________________________________
Thomas M. Zoeller, Treasurer and Secretary Stephen J. Shenkenberg, President

Attest: Strong ________________ Funds, Inc.

__________________________________________ ___________________________________
Ann E. Oglanian, Secretary Lawrence A. Totsky, Vice President

5
<PAGE> 6

SCHEDULE A

The Fund(s) of the Corporation currently subject to this Agreement are as
follows:

Date of Addition
Fund(s) to this Agreement
------- -----------------
Strong [ ] Fund ____________

Attest: Strong Funds Distributors, Inc.

__________________________________________ __________________________________
Thomas M. Zoeller, Treasurer and Secretary Stephen J. Shenkenberg, President

Attest: Strong ______________ Funds, Inc.

__________________________________________ __________________________________
Ann E. Oglanian, Secretary Lawrence A. Totsky, Vice President

<PAGE> 1
EXHIBIT 99.B8

CUSTODIAN AGREEMENT

THIS AGREEMENT is made and entered into on this ___ day of ____, ____,
between STRONG <<FUND>>, INC., a Wisconsin corporation (the "Corporation"), on
behalf of the Funds (as defined below) of the Corporation, and FIRSTAR TRUST
COMPANY, a Wisconsin corporation (the "Custodian").

WITNESSETH:

WHEREAS, the Corporation is registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940 (the "Investment Company Act");

WHEREAS, the Corporation is authorized to create separate series, each
with its own separate investment portfolio, and the beneficial interest in each
such series will be represented by a separate series of shares (each series
indicated on Schedule A is hereinafter individually referred to as a "Fund" and
collectively as the "Funds"); and

WHEREAS, the Corporation desires to retain the Custodian to hold and
administer the securities and cash of each Fund listed in Schedule A hereto,
and any additional Funds the Corporation and the Custodian may agree upon and
include in Schedule A as such Schedule may be amended from time to time,
pursuant to the terms of this Agreement.

NOW, THEREFORE, the Corporation and the Custodian do mutually agree and
promise as follows:

1. Definitions

The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive,
purchase or subscribe for the same, or evidencing or representing any other
rights or interests therein, or in any property or assets.

The words "officers' certificate" shall mean a request or direction or
certification in writing signed in the name of the Corporation by any two of
the President, a Vice President, the Secretary and the Treasurer of the
Corporation, or any other persons duly authorized to sign by the Board of
Directors.

The word "Board" shall mean the Board of Directors the Corporation.

2. Names, Titles and Signatures of the Corporation's Officers

An officer of the Corporation will certify to the Custodian the names
and signatures of those persons authorized to sign the officers' certificates
described in Section 1, hereof, and the names of the members of the Board of
Directors, together with any changes which may occur from time to time.
<PAGE> 2

3. Receipt and Disbursement of Money

A. The Custodian shall open and maintain a separate account or
accounts in the name of each Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this Agreement. The Custodian shall
hold in such account or accounts, subject to the provisions hereof, all cash
received by it from or for the account of a Fund. The Custodian shall make
payments of cash to, or for the account of, a Fund from such cash only:

(a) for the purchase of securities for the portfolio of a
Fund upon the delivery of such securities to the Custodian, registered
in the name of the Fund or of the nominee of the Custodian referred to
in Section 7 or in proper form for transfer;

(b) for the purchase or redemption of shares of common
stock of a Fund upon delivery thereof to Custodian, or upon proper
instructions from the Fund;

(c) for the payment of interest, dividends, taxes,
investment adviser's fees or operating expenses (including, without
limitation thereto, fees for legal, accounting, auditing and custodian
services and expenses for printing and postage);

(d) for payments in connection with the conversion,
exchange or surrender of securities owned or subscribed to by a Fund
held by or to be delivered to Custodian; or

(e) for other proper corporate purposes certified by
resolution of the Board of Directors of the Corporation, on behalf of a
Fund.

Before making any such payment, the Custodian shall receive
(and may rely upon) an officers' certificate requesting such payment
and stating that it is for a purpose permitted under the terms of
items (a), (b), (c) or (d) of this Subsection A, and also, in respect
of item (e), upon receipt of an officers' certificate specifying the
amount of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom such payment is to
be made, provided, however, that an officers' certificate need not
precede the disbursement of cash for the purpose of purchasing a money
market instrument, or any other security with same or next-day
settlement, if the President, a Vice President, the Secretary or the
Treasurer of the Corporation, on behalf of a particular Fund, issues
appropriate oral or facsimile instructions to the Custodian and an
appropriate officers' certificate is received by the Custodian within
two business days thereafter.

Regardless of the foregoing, if the Corporation's investment
advisor (the "Advisor") is a member of the Institutional Delivery
("ID") system and desires to affirm trades on behalf of a Fund with
the Depository Trust Company ("DTC") for those transactions affirmed
through the ID system; or (ii) has established an automated interface
to transmit trade authorization detail to the Custodian, then no
officers' certificate is required; provided that the appropriate
ID/DTC letter agreement or automated trade authorization agreement has
been executed by both the Advisor and the Custodian.

2
<PAGE> 3

B. The Custodian is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received by the
Custodian for each Fund's account.

C. The Custodian shall, upon receipt of proper instructions, make
federal funds available to the Funds as of specified times agreed upon from
time to time by the Corporation, on behalf of the Funds, and the Custodian in
the amount of checks received in payment for shares of the Funds which are
deposited into the respective Fund's account.

4. Segregated Accounts

Upon receipt of proper instructions, the Custodian shall establish and
maintain a segregated account or accounts for and on behalf of each Fund, into
which account or accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to paragraph 14
hereof, (i) in accordance with the provisions of any agreement among the
Corporation, on behalf of a Fund or Funds, the Custodian and a broker-dealer
registered under the Exchange Act and a member of the National Association of
Securities Dealers, Inc. (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of the
Options Clearing Corporation and of any registered national securities exchange
(or the Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding escrow or
other arrangements in connection with transactions for a Fund, (ii) for the
purpose of segregating cash or securities in connection with options purchased,
sold or written for a Fund or commodity futures contracts or options thereon
purchased or sold for a Fund, (iii) for the purpose of compliance by the
Corporation or a Fund with the procedures required by any release or
interpretations of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment companies, and (iv)
as mutually agreed upon from time to time between the Corporation, on behalf of
a Fund or Funds, and the Custodian.

5. Transfer, Exchange, Redelivery, etc. of Securities

The Custodian shall have sole power to release or deliver any
securities of the Funds held by it pursuant to this Agreement. The Custodian
agrees to transfer, exchange or deliver securities held by it hereunder only:

(a) for sales of such securities for the account of a Fund upon
receipt by Custodian of payment therefore;

(b) when such securities are called, redeemed or retired or
otherwise become payable;

(d) in exchange for, or upon conversion into, other securities
alone or other securities and cash whether pursuant to any plan of merger,
consolidation, reorganization, recapitalization or readjustment, or otherwise;

3
<PAGE> 4

(e) upon conversion of such securities pursuant to their terms
into other securities;

(f) upon exercise of subscription, purchase or other similar
rights represented by such securities;

(g) for the purpose of exchanging interim receipts or temporary
securities for definitive securities;

(h) for the purpose of redeeming in kind shares of common stock of
a Fund upon delivery thereof to the Custodian; or

(i) for other proper corporate purposes.

As to any deliveries made by the Custodian pursuant to items (a), (b),
(d), (e), (f), and (g), securities or cash receivable in exchange therefore
shall be deliverable to the Custodian.

Before making any such transfer, exchange or delivery, the Custodian
shall receive (and may rely upon) an officers' certificate requesting such
transfer, exchange or delivery, and stating that it is for a purpose permitted
under the terms of items (a), (b), (c), (d), (e), (f), (g) or (h) of this
Section 5 and also, in respect of item (i), upon receipt of an officers'
certificate specifying the securities to be delivered, setting forth the
purpose for which such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to whom delivery of
such securities shall be made, provided, however, that an officers' certificate
need not precede any such transfer, exchange or delivery of a money market
instrument, or any other security with same or next-day settlement, if the
President, a Vice President, the Secretary or the Treasurer of the Corporation,
on behalf of a particular Fund, issues appropriate oral or facsimile
instructions to the Custodian and an appropriate officers' certificate is
received by the Custodian within two business days thereafter.

Regardless of the foregoing, if the Advisor is a member of the ID
system and desires to affirm trades on behalf of a Fund with the DTC for those
transactions affirmed through the ID system; or (ii) has established an
automated interface to transmit trade authorization detail to the Custodian,
then no officers' certificate is required; provided that the appropriate ID/DTC
letter agreement or automated trade authorization agreement has been executed
by both the Advisor and the Custodian.

6. Custodian's Acts Without Instructions

Unless and until the Custodian receives an officers' certificate to
the contrary, the Custodian shall: (a) present for payment all coupons and
other income items held by it for the account of each Fund which call for
payment upon presentation, and hold the cash received by it upon such payment
for the account of the respective Fund; (b) collect interest and cash dividends
received, with notice to each Fund, for the account of the respective Fund; (c)
hold for the account of each Fund hereunder all stock dividends, rights and
similar securities issued with respect to any securities held by it hereunder;
and (d) execute, as agent on behalf of each Fund, all necessary ownership
certificates required by the Internal

4
<PAGE> 5

Revenue Code or the Income Tax Regulations of the United States Treasury
Department or under the laws of any state now or hereafter in effect, inserting
the Fund's name on such certificates as the owner of the securities covered
thereby, to the extent it may lawfully do so.

7. Registration of Securities

Except as otherwise directed by an officers' certificate, the
Custodian shall register all securities, except such as are in bearer form, in
the name of a registered nominee of the Custodian as defined in the Internal
Revenue Code and any Regulations of the Treasury Department issued hereunder or
in any provision of any subsequent federal tax law exempting such transaction
from liability for stock transfer taxes, and shall execute and deliver all such
certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state. The Custodian shall use its best
efforts to the end that the specific securities held by it hereunder shall be
at all times identifiable in its records.

The Corporation shall from time to time furnish to the Custodian
appropriate instruments to enable the Custodian to hold or deliver in proper
form for transfer, or to register in the name of its registered nominee, any
securities which it may hold for the account of the Funds and which may from
time to time be registered in the name of a particular Fund.

8. Voting and Other Action

Neither the Custodian nor any nominee of the Custodian shall vote any
of the securities held hereunder by or for the account of any Fund, except in
accordance with the instructions contained in an officers' certificate. The
Custodian shall deliver, or cause to be executed and delivered, to the
Corporation all notices, proxies and proxy soliciting materials with relation
to such securities, such proxies to be executed by the registered holder of
such securities (if registered otherwise than in the name of a Fund), but
without indicating the manner in which such proxies are to be voted.

9. Transfer Tax and Other Disbursements

The Corporation, on behalf of the Funds, shall pay or reimburse the
Custodian from time to time for any transfer taxes payable upon transfers of
securities made hereunder, and for all other necessary and proper disbursements
and expenses made or incurred by the Custodian in the performance of this
Agreement.

The Custodian shall execute and deliver such certificates in
connection with securities delivered to it or by it under this Agreement as may
be required under the provisions of the Internal Revenue Code and any
Regulations of the Treasury Department issued thereunder, or under the laws of
any state, to exempt from taxation any exemptable transfers and/or deliveries
of any such securities.

10. Concerning Custodian

The Custodian shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed upon in
writing between the Corporation, on behalf of

5
<PAGE> 6

the Funds, and the Custodian. Until modified in writing, such compensation
shall be as set forth in Schedule B attached hereto.

The Custodian shall not be liable for any action taken in good faith
upon any certificate herein described or certified copy of any resolution of
the Board, and may rely on the genuineness of any such document which it may in
good faith believe to have been validly executed.

The Corporation, on behalf of the Funds, agrees to indemnify and hold
harmless the Custodian and its nominee from all taxes, charges, expenses,
assessments, claims and liabilities (including counsel fees) incurred or
assessed against it or by its nominee in connection with the performance of
this Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct. The
Custodian is authorized to charge the applicable account of a Fund for such
items. In the event of any advance of cash by the Custodian which results in
any overdraft of a Fund, which is a money market fund subject to Rule 2a-7
under the Investment Company Act, the Custodian is granted a security interest
in such Fund's assets limited to the extent of the overdraft.

11. Subcustodians

The Custodian is hereby authorized to engage another bank or trust
company as a Subcustodian for all or any part of the Corporation's assets, so
long as any such bank or trust company meets the requirements of the Investment
Company Act, as amended and the rules and regulations thereunder and provided
further that, if the Custodian utilizes the services of a Subcustodian, the
Custodian shall remain fully liable and responsible for any losses caused to
any of the Funds by the Subcustodian as fully as if the Custodian was directly
responsible for any such losses under the terms of the Custodian Agreement.

Notwithstanding anything contained herein, if the Corporation requires
the Custodian to engage specific Subcustodians for the safekeeping and/or
clearing of assets, the Corporation agrees to indemnify and hold harmless the
Custodian from all claims, expenses and liabilities incurred or assessed
against it in connection with the use of such Subcustodian in regard to the
Corporation's assets, except as may arise from its own negligent action,
negligent failure to act or willful misconduct.

12. Reports by Custodian

The Custodian shall furnish the Corporation periodically as agreed upon
with a statement summarizing all transactions and entries for the account of
each Fund. The Custodian shall furnish to the Corporation, at the end of every
month, a list of the securities held by each Fund, showing the aggregate cost
of each issue. The books and records of the Custodian pertaining to its
actions under this Agreement shall be open to inspection and audit at
reasonable times by officers of, and of auditors employed by, the Corporation.

13. Termination or Assignment

This Agreement may be terminated by the Corporation, on behalf of the
Funds, or by the Custodian, on ninety (90) days notice, given in writing and
sent by registered mail to the Custodian at P. O. Box 2054, Milwaukee,
Wisconsin 53201, or to the Corporation at 100 Heritage Reserve, Menomonee Falls,
Wisconsin 53051, as the case may be. Upon any termination of this Agreement,
pending appointment of a successor to the Custodian or a vote of the
shareholders of the Corporation to dissolve or

6
<PAGE> 7

to function without a custodian of its cash, securities and other property,
the Custodian shall not deliver cash, securities or other property of
the Corporation to the Corporation, but may deliver them to a bank or trust
company of its own selection, that meets the requirements of the Investment
Company Act as a Custodian for the Corporation to be held under terms similar
to those of this Agreement, provided, however, that the Custodian shall not be
required to make any such delivery or payment until full payment shall have
been made by the Corporation of all liabilities constituting a charge on or
against the properties then held by the Custodian or on or against the
Custodian, and until full payment shall have been made to the Custodian of all
its fees, compensation, costs and expenses, subject to the provisions of
Section 10 of this Agreement.

This Agreement may not be assigned by the Custodian without the consent
of the Corporation, authorized or approved by a resolution of its Board of
Directors.

14. Deposits of Securities in Securities Depositories

No provision of this Agreement shall be deemed to prevent the use by
the Custodian of a central securities clearing agency or securities depository,
provided, however, that the Custodian and the central securities clearing
agency or securities depository meet all applicable federal and state laws and
regulations, including the requirements of the Investment Company Act, and the
Board of Directors of the Corporation approves by resolution the use of such
central securities clearing agency or securities depository.

15. Records

To the extent that the Custodian in any capacity prepares or maintains
any records required to be maintained and preserved by the Corporation pursuant
to the provisions of the Investment Company Act, the Custodian agrees to make
any such records available to the Corporation upon request and to preserve such
records for the periods prescribed in Rule 31a-2 under the Investment Company
Act.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first written above.

Attest: Firstar Trust Company

____________________________________ ___________________________________
By: By:
Its: Its:

Attest: Strong <<Name>>, Inc.

____________________________________ ___________________________________
By: Ann E. Oglanian By: Lawrence A. Totsky
Its: Secretary Its: Vice President

7
<PAGE> 8

SCHEDULE A

The Fund(s) of the Corporation currently subject to this Agreement are as
follows:

Fund(s) Date of Addition
------- to this Agreement
-----------------
<<SERIES>> <<AGT DATE>>

Attest: Firstar Trust Company

______________________ ______________________________
By: By:
Its: Its:

Attest: Strong <<NAME>>, Inc.

_______________________ ______________________________
By: Ann E. Oglanian By: Lawrence A. Totsky
Its: Secretary Its: Vice President
<PAGE> 9

ADDENDUM TO SCHEDULE B

FIRSTAR TRUST COMPANY
MUTUAL FUND SERVICES

MUTUAL FUND CUSTODIAL AGENT SERVICE
ANNUAL FEE SCHEDULE FOR THE
STRONG MUTUAL FUNDS

EFFECTIVE APRIL 1, 1996 THROUGH MARCH 31, 1997

Annual fee on all Strong Mutual Funds

$500,000.00 BASE FEE ON TOTAL FUND FAMILY

Investment transactions (purchase, sale, exchange, tender,
redemption, maturity, receipt, delivery)

$ 7.00 per Depository Trust Company or Federal Reserve System
trade, automated and non-automated

$25.00 per definitive security (physical)

$ 8.50 per commercial paper trade

$50.00 per Euroclear

$ 6.00 per principal reduction on pass-through certificates

$35.00 per option/futures contract

$10.00 per variation margin transaction

$10.00 per Fed wire deposit or withdrawal

STRONG CAPITAL MANAGEMENT FIRSTAR TRUST COMPANY

By: /s/ Ronald A. Neville By: /s/
Its: Senior VP and CFO Its: First Vice President
Date: April 15, 1996 Date: April 4, 1996

<PAGE> 1

EXHIBIT 99.B8.1

AGREEMENT BETWEEN

BROWN BROTHERS HARRIMAN & CO.

AND

FIRSTAR TRUST COMPANY

AND

THE STRONG FUNDS
<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<S> <C>
1. Employment of Subcustodian 1

2. Powers and Duties of the Subcustodian
with respect to Property of the Funds
held by the Subcustodian 2

2.1 Safekeeping 2
2.2 Manner of Holding Securities 2
2.3 Registration 2
2.4 Purchases 3
2.5 Exchanges 4
2.6 Sales of Securities 5
2.7 Depositary Receipts 6
2.8 Exercise of Rights; Tender Offers 7
2.9 Stock Dividends, Rights, Etc. 7
2.10 Options 7
2.11 Borrowings 8
2.12 Demand Deposit Bank Accounts 9
2.13 Interest Bearing Call or Time Deposits 10
2.14 Futures Contracts 12
2.15 Foreign Exchange Transactions 13
2.16 Stock Loans 14
2.17 Collections 14
2.18 Dividends, Distributions and Redemptions 16
2.19 Proxies, Notices, Etc. 16
2.20 Nondiscretionary Details 17
2.21 Bills 17
2.22 Deposit of Fund Assets in Securities Systems 18
2.23 Other Transfers 20
2.24 Investment Limitations 21
2.25 Subcustodian Advances 21
2.26 Restricted Securities 22
2.27 Proper Instructions 24
2.28 Segregated Account 26
2.29 Opinion of Fund's Independent Certified
Public Accountants 27
2.30 Reports by Independent Certified Public Accountants 27
2.31 Proceeds from Shares Sold 27

3. Powers and Duties of the Subcustodian with
Respect to the Appointment of Secondary Subcustodians 28

4. Assistance by the Subcustodian as to Certain Matters 33

</TABLE>
<PAGE> 3

<TABLE>
<S> <C>
5. Powers and Duties of the Subcustodian with
Respect to its Role as Recordkeeping Agent 34

5.1 Records 34
5.2 Accounts 34
5.3 Access to Records 34

6. Standard of Care and Related Matters 35

6.1 Liability of the Subcustodian with
Respect to Proper Instructions;
Evidence of Authority; Etc. 35
6.2 Liability of the Subcustodian with
Respect to Use of Securities Systems
and Foreign Depositories 36
6.3 Liability of the Subcustodian with
respect to Secondary Subcustodians 37
6.4 Standard of Care; Liability;
Indemnification 38
6.5 Mitigation by Subcustodian 40
6.6 Expenses of the Custodian and the Funds 40
6.7 Liability for Past Records 41
6.8 Reimbursement of Disbursements, Etc. 41
6.9 Notice of Litigation; Right to Prosecute, Etc. 41
6.10 Security for Obligations to Subcustodian 42
6.11 Appointment of Agents 45
6.12 Powers of Attorney 45

7. Compensation of the Subcustodian 46

8. Termination; Successor Custodian/Subcustodian;
Additional Funds 46

9. Amendment; Waiver 48

10. Governing Law 48

11. Notices 48

12. Binding Effect 49

13. Severability 49

14. Counterparts 49

</TABLE>
<PAGE> 4

CUSTODIAN AGREEMENT

AGREEMENT made this 22nd day of December, 1993, between FIRSTAR TRUST
COMPANY (the "Custodian") and each of the Funds listed in Appendix B attached
hereto as said Exhibit may from time to time be revised (collectively, the
"Funds" individually, a "Fund") and Brown Brothers Harriman & Co, (the
"Subcustodian");
WITNESSETH: That in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. Employment of Subcustodian: The Custodian and the Funds hereby
employ and appoint the Subcustodian as a subcustodian for the term and subject
to the provisions of this Agreement. The Subcustodian shall not be under any
duty or obligation to require a Fund to deliver to it any securities, funds or
other property owned by the Fund and shall have no responsibility or liability
for or on account of securities, funds or other property not so delivered. Each
Fund will deposit with the Subcustodian copies of its Declaration of Trust or
Certificate of Incorporation and By-Laws (or comparable documents) and all
amendments thereto, and copies of such votes and other proceedings of the
shareholders or Trustees or Directors of the Fund as may be necessary for or
convenient to the Subcustodian in the performance of its duties. The
Subcustodian shall maintain separate accounts and records for each of the Funds.

- 1 -
<PAGE> 5

2. Powers and Duties of the Subcustodian with respect to Property
of the Funds held by the Subcustodian: Except for securities, funds and other
property held by any Secondary Subcustodian appointed pursuant to the
provisions of Section 3 hereof or held by any Foreign Depository (as said term
is defined in Section 3) utilized by a Secondary Subcustodian, the Subcustodian
shall have and perform the following powers and duties with respect to
securities, funds and other property of the Funds:
2.1 Safekeeping - To keep safely the securities, funds and other
property of each Fund that have been delivered to the Subcustodian and, on
behalf of the Custodian and each Fund, from time to time to receive delivery of
securities and other property for safekeeping.
2.2 Manner of Holding Securities - To hold securities of each Fund
(1) by physical possession of the share certificates or other instruments
representing such securities in registered or bearer form, or (2) in book-entry
form by a Securities System (as said term is defined in Section 2.22) or a
Foreign Depository,
2.3 Registration - To hold registered securities of each Fund, with
or without any indication of fiduciary capacity, provided that securities are
held in an account of the Subcustodian containing only property of such Fund or
only property held as fiduciary or custodian for customers; provided that the
records of the Subcustodian shall indicate at all times the Funds or other
customers for which such securities and other

- 2 -
<PAGE> 6

property are held in such account and the respective interests therein.
2.4 Purchases - Upon receipt of proper instructions, as defined in
Section 2.27, insofar as funds are available for the purpose, to pay for and
receive securities purchased for the account of a Fund, payment being made only
upon receipt of the securities (1) by the Subcustodian, or (2) by a clearing
corporation of a national securities exchange of which the Subcustodian is a
member, or (3) by a Securities System or a Foreign Depository. However, (i) in
the case of repurchase agreements entered into by a Fund, the Subcustodian (as
well as an Agent) may release funds to a Securities System, a Foreign
Depository or a Secondary Subcustodian prior to the receipt of advice from the
Securities System, Foreign Depository or Secondary Subcustodian that the
securities underlying such repurchase agreement have been transferred by
book-entry into the Account (as defined in Section 2.22) of the Subcustodian
(or such Agent) maintained with such Securities System or to the Foreign
Depository or Secondary Subcustodian, so long as such payment instructions to
the Securities System, Foreign Depository or Secondary Subcustodian include a
requirement that delivery is only against payment for securities, (ii) in the
case of foreign exchange contracts, options, time deposits, call account
deposits, currency deposits, and other deposits, contracts or options pursuant
to Sections 2.10, 2.72, 2.13, 2.14 and 2.15, the Subcustodian may make payment
therefor without receiving an

- 3 -
<PAGE> 7

instrument evidencing said deposits, contracts or options so long as such
payment instructions detail specific deposits, contracts or options to be
acquired, and (iii) in the case of securities as to which payment for the
securities and receipt of the instrument evidencing the securities ordinarily
take place in different locations or through separate parties, the Subcustodian
may make payment for such securities prior to delivery thereof only if such
payment is in accordance with the terms of the instrument representing the
security or the generally accepted practice of Institutional Clients (as
hereinafter defined) in the country or countries in which the settlement occurs
or the terms of the instrument representing the security, but in all events
subject to the standard of care set forth in Section 6 hereof. "Institutional
Clients" shall mean major commercial banks, corporations, insurance companies,
or substantially similar institutions, which, as a substantial part of their
business operations, purchase or sell securities and make use of custodial
services.
2.5 Exchanges - Upon receipt of proper instructions, to exchange
securities held by it for the account of a Fund for other securities in
connection with any reorganization, recapitalization, split-up of shares,
change of par value, conversion or other event relating to the securities or
the issuer of such securities and to deposit any such securities in accordance
with the terms of any reorganization or protective plan. Without proper
instructions, the Subcustodian may

- 4 -
<PAGE> 8

surrender securities in temporary form for definitive securities, may surrender
securities for transfer into an account as permitted in Section 2.3, and may
surrender securities for a different number of certificates or instruments
representing the same number of shares or same principal amount of
indebtedness, provided the securities to be issued are to be delivered to the
Subcustodian.
2.6 Sales of Securities - Upon receipt of proper instructions, to
make delivery of securities which have been sold for the account of a Fund, but
only against payment therefor (1) in cash, by a certified check, bank cashier's
check, bank credit, or bank wire transfer, or (2) by credit to the account of
the Subcustodian with a clearing corporation of a national securities exchange
of which the Subcustodian is a member, or (3) by credit to the account of the
Subcustodian or an Agent of the Subcustodian with a Securities System or a
Foreign Depository. Notwithstanding the foregoing: (i) in the case of delivery
of physical certificates or instruments representing securities, the
Subcustodian may make delivery to the broker buying the securities, against
receipt therefor, for examination in accordance with "street delivery" custom,
provided that the payment therefor is to be made to the Subcustodian (which
payment may be made by a broker's check) or that such securities are to be
returned to the Subcustodian, and (ii) in the case of securities referred to in
clause (iii) of Section 2.4, the Subcustodian may make settlement, including
with respect to the

- 5 -
<PAGE> 9

form of payment, in accordance with the terms of the instrument representing
the security or the generally accepted trade practice of Institutional Clients
in the country or countries in which the settlement occurs, but in all events
subject to the standard of care set forth in Section 6 hereof, provided that
the Subcustodian shall have taken all reasonable steps to ensure prompt
collection of the payment for, or return of, such securities by the broker or
its clearing agent and provided further that the Subcustodian shall not be
responsible for the selection of a broker or clearing agent that fails or is
unable to perform.
2.7 Depositary Receipts - Upon receipt of proper instructions, to
instruct a Secondary Subcustodian or an Agent to surrender securities to the
depositary used by an issuer of American Depositary Receipts or International
Depositary Receipts (hereinafter collectively referred to as "ADRs") for such
securities against a written receipt therefor adequately describing such
securities and written evidence satisfactory to the Secondary Subcustodians or
Agent that the depositary has acknowledged receipt of instructions to issue
with respect to such securities ADRs in the name of the Subcustodian, or a
nominee of the Subcustodian, for delivery to the Subcustodian in Boston,
Massachusetts, or at such other place as the Subcustodian may from time to time
designate.
Upon receipt of proper instructions, to surrender ADRs to the issuer
thereof against a written receipt therefor adequately

- 6 -
<PAGE> 10

describing the ADRs surrendered and written evidence satisfactory to the
Subcustodian that the issuer of the ADRs has acknowledged receipt of
instructions to cause its depositary to deliver the securities underlying such
ADRs to a Secondary Subcustodian or an Agent.
2.8 Exercise of Rights; Tender Offers - Upon timely receipt of
proper instructions, to promptly deliver to the issuer or trustee thereof, or
to the agent of either, warrants, puts, calls, rights or similar securities for
the purpose of being exercised or sold, provided that the new securities and
cash, if any, acquired by such action are to be delivered to the Subcustodian,
and, upon receipt of proper instructions, to promptly deposit securities upon
invitations for tenders of securities, provided that the consideration is to be
paid or delivered or the tendered securities are to be returned to the
Subcustodian.
2.9 Stock Dividends, Rights, Etc. - To receive and collect all
stock dividends, rights and other items of like nature; and to deal
with the same pursuant to proper instructions relative thereto.
2.10 Options - Upon receipt of proper instructions or upon
receipt of instructions given pursuant to any agreement relating to an option
or as otherwise provided in any such agreement to (i) receive and retain, to
the extent provided to the Subcustodian, confirmations or other documents
evidencing the purchase, sale or writing of an option of any type on or in

- 7 -
<PAGE> 11
respect of a security, securities index or similar form of property by a Fund;
(ii) deposit and maintain in a segregated account, either physically or by
book-entry in a Securities System or Foreign Depository or with a broker,
dealer or other entity, securities, funds or other property in connection with
options transactions entered into by a Fund; (iii) transfer securities, funds
or other property to a Securities System, Foreign Depository, broker, dealer or
other entity, as margin (including variation margin) or other security for a
Fund's obligations in respect of any option; and (iv) pay, release and/or
transfer such securities, funds or other property in accordance with a notice
or other communication evidencing the expiration, termination or exercise of or
default under any such option furnished by The Options Clearing Corporation, by
the securities or options exchange on which such option is traded or by such
broker, dealer or other entity as may be responsible for handling such options
transaction or have authority to give such notice or communication. The
Subcustodian shall not be responsible for the sufficiency of property held in
any segregated account established in compliance with applicable margin
maintenance requirements or the performance of the other terms of any agreement
relating to an option. Notwithstanding the foregoing, options on futures
contracts and options to purchase and sell foreign currencies shall be governed
by Sections 2.14 and 2.15.
2.11 Borrowings - Upon receipt of proper instructions, to

- 8 -
<PAGE> 12

deliver securities of a Fund to lenders or their agents as collateral for
borrowings effected by the Fund, provided that such borrowed money is payable
by the lender to or upon the Subcustodian's order as Subcustodian for the Fund.
2.12 Demand Deposit Bank Accounts - To open and operate an account or
accounts in the name of each Fund, subject only to draft or order by the
Custodian or a Fund, and to hold in such account or accounts as a deposit
accepted on the Subcustodian's books cash, including foreign currency, received
for the account of such Fund other than cash held as deposits with Banking
Institutions in accordance with the following paragraph. The responsibilities
of the Subcustodian for cash, including foreign currency, of a Fund accepted on
the Subcustodian's books as a deposit shall be that of a U. S. bank for a
similar deposit.
If and when authorized by proper instructions, the Subcustodian may open
and operate an additional account(s) in such other banks or trust companies as
may be designated by the Custodian or a Fund in such instructions (any such
bank or trust company so designated by the Custodian and a Fund being referred
to hereafter as a "Banking Institution"), and may deposit cash, including
foreign currency, of such Fund in such account or accounts, provided that such
account(s) (hereinafter collectively referred to as "demand deposit bank
accounts") shall be in the name of the Subcustodian or a nominee of the
Subcustodian for the account of such Fund or for the account of the
Subcustodian's customers generally and shall be subject only to the

- 9 -
<PAGE> 13
Subcustodian's draft or order; provided that any such demand deposit bank
account shall contain only property held by the Subcustodian as a fiduciary or
custodian for the Fund and/or other customers and that the records of the
Subcustodian shall indicate at all times such Fund and/or other customers for
which such funds are held in such account and the respective interests therein.
Such demand deposit accounts may be opened with Banking Institutions in the
United States and in other countries and may be denominated in either U. S.
Dollars or other currencies as the Custodian or a Fund may determine. The
records for each such account will be maintained by the Subcustodian but the
deposits in any such account shall not constitute a deposit liability of the
Subcustodian. All such deposits, including with Secondary Subcustodians, shall
be deemed to be portfolio securities of a Fund and accordingly the
responsibility of the Subcustodian therefor shall be the same as and no greater
than the Subcustodian's responsibility in respect of other portfolio securities
of the Fund. The authorization by Custodian or a Fund to appoint a Secondary
Subcustodian as such shall also constitute a proper instruction to open a
demand deposit bank account subject to the provisions of this paragraph with
such Secondary Subcustodian.
2.13 Interest Bearing Call or Time Deposits - To place interest
bearing fixed term and call deposits with such banks and in such amounts as the
Custodian or a Fund may authorize pursuant to proper instructions. Such
deposits may be placed with the

- 10 -
<PAGE> 14
Subcustodian or with Secondary Subcustodians or other Banking Institutions as
the Custodian or a Fund may determine, in the name of the Subcustodian or a
nominee of the Subcustodian for the account of the Fund or the account of the
Subcustodian's customers generally and subject only to the Subcustodian's draft
or order; provided that any such deposit shall be held in an account containing
only property held by the Subcustodian as a fiduciary or custodian for the Fund
and/or other customers and that the records of the Subcustodian shall indicate
at all times such Fund and/or other customers for which such funds are held in
such account and the respective interests therein. Deposits may be denominated
in U. S. Dollars or other currencies and need not be evidenced by the issuance
or delivery of a certificate to the Subcustodian, provided that the
Subcustodian shall include in its records with respect to the assets of a Fund
appropriate notation as to the amount and currency of each such deposit, the
accepting Banking Institution and other appropriate details, and shall retain
such forms of advice or receipt evidencing the deposit, if any, as may be
forwarded to the Subcustodian by the Banking Institution. Funds, other than
those accepted on the Subcustodian's books as a deposit, but including those
placed with Secondary Subcustodians, shall be deemed portfolio securities of a
Fund and the responsibilities of the Subcustodian therefor shall be the same as
those for demand deposit bank accounts placed with other banks, as described in
the second paragraph of Section 2.12 of this Agreement. The responsibility

- 11 -
<PAGE> 15
of the Subcustodian for funds accepted on the Subcustodian's books as a deposit
shall be that of a U. S. bank for a similar deposit.
2.14 Futures Contracts - Upon receipt of proper instructions or upon
receipt of instructions given pursuant to any agreement relating to a futures
contract or an option thereon or as otherwise provided in any such agreement,
to (i) receive and retain, to the extent provided to the Subcustodian,
confirmations or other documents evidencing the purchase or sale of a futures
contract or an option on a futures contract by a Fund; (ii) deposit and
maintain in a segregated account, either physically or by book-entry in a
Securities System or Foreign Depository, for the benefit of any futures
commission merchant, or pay to such futures commission merchant, securities,
cash or other property designated by the Custodian or a Fund as initial,
maintenance or variation "margin" deposits intended to secure the Fund's
performance of its obligations under any futures contract purchased or sold or
any option on a futures contract written, purchased or sold by the Fund, in
accordance with the provisions of any agreement relating thereto or the rules
of the Commodity Futures Trading Commission and/or any contract market or any
similar organization on which such contract or option is traded; and (iii) pay,
release and/or transfer securities, cash or other property into or out of such
margin accounts only in accordance with any such agreement or rules. The
Subcustodian shall not be responsible for the sufficiency of property held in
any

- 12 -
<PAGE> 16

segregated account established in compliance with applicable margin maintenance
requirements or the performance of the other terms of any agreement relating to
a futures contract or an option thereon.
2.15 Foreign Exchange Transactions - Pursuant to proper instructions,
to settle foreign exchange contracts or options to purchase and sell foreign
currencies for spot and future delivery on behalf and for the account of a Fund
with such currency brokers or Banking Institutions, including Secondary
Subcustodians, as the Custodian or the Fund may direct pursuant to proper
instructions. The Subcustodian shall be responsible for the transmission of
cash and instructions to and from the currency broker or Banking Institution
with which the contract or option is made, the safekeeping of all certificates
and other documents and agreements evidencing or relating to such foreign
exchange transactions as the Subcustodian may receive and the maintenance of
proper records as set forth in Section 5.1. In connection with such
transactions, the Subcustodian is authorized to make free outgoing payments of
cash in the form of U. S. Dollars or foreign currency without receiving
confirmation of a foreign exchange contract or option or confirmation that the
countervalue currency completing the foreign exchange contract has been
delivered or received or that the option has been delivered or received. Each
Fund accepts full responsibility for its use of third-party foreign exchange
dealers and for execution of said foreign exchange contracts and options and
understands

- 13 -
<PAGE> 17
that the Fund shall be responsible for any and all costs and interest charges
which may be incurred by the Fund or the Subcustodian as a result of the
failure or delay of third parties to deliver foreign exchange.
Alternatively, such transactions may be undertaken by the Subcustodian
as principal, if instructed by a Fund.
Foreign exchange contracts and options, other than those executed with
the Subcustodian as principal, but including those executed with Secondary
Subcustodians, shall be deemed to be portfolio securities of a Fund and the
responsibility of the Subcustodian therefor shall be the same as and no greater
than the Subcustodian's responsibility in respect of other portfolio securities
of the Fund. The responsibility of the Subcustodian with respect to foreign
exchange contracts and options executed with the Subcustodian as principal
shall be that of a U. S. bank with respect to a similar contract or option.
2.16 Stock Loans - Upon receipt of proper instructions, to deliver
securities of a Fund, in connection with loans of securities by the Fund, to
the borrower thereof prior to receipt of the collateral, if any, for such
borrowing, provided that for stock loans secured by cash collateral the
Subcustodian's instructions to any Securities System holding such securities
require that the Securities System may deliver the securities to the borrower
thereof only upon receipt of the collateral for such borrowing.
2.17 Collections - (i) To collect and receive all income,

- 14 -
<PAGE> 18

payments of principal and other payments with respect to the securities held
hereunder, and in connection therewith to deliver the certificates or other
instruments representing the securities to the issuer thereof or its agent when
securities are called, redeemed, retired or otherwise become payable; provided,
that the payment is to be made in such form and manner and at such time, which
may be after delivery by the Subcustodian of the instrument representing the
security, as is in accordance with the terms of the instrument representing the
security, or such proper instructions as the Subcustodian may receive, or
governmental regulations, the rules of Securities Systems, Foreign Depositories
or other U.S. or foreign securities depositories and clearing agencies or, with
respect to securities referred to in clause (iii) of Section 2.4, in accordance
with the terms of the instrument representing the security or the generally
accepted practice of Institutional Clients in the country or countries in which
the settlement occurs, but in all events subject to the standard of care set
forth in Section 6 hereof, provided that the Subcustodian shall have taken all
reasonable steps to ensure prompt collection of the payment for, or return of,
such securities by the broker or its clearing agent and provided further that
the Subcustodian shall not be responsible for the selection of a broker or
clearing agent that fails or is unable to perform; (ii) to execute ownership
and other certificates and affidavits for all federal and state tax purposes in
connection with receipt of income, principal or other payments with respect

- 15 -
<PAGE> 19
to securities of a Fund or in connection with transfer of securities; and (iii)
pursuant to proper instructions to take such other actions with respect to
collection or receipt of funds or transfer of securities which involve an
investment decision.
2.18 Dividends, Distributions and Redemptions - Upon receipt of
proper instructions from the Custodian or a Fund, or upon receipt of
instructions from the Fund's shareholder servicing agent or agent with
comparable duties (the "Shareholder Servicing Agent") (given by such person or
persons and in such manner on behalf of the Shareholder Servicing Agent as the
Custodian or the Fund shall have authorized), the Subcustodian shall release
securities, funds or other property to the Shareholder Servicing Agent or other
wise apply securities, funds or other property, insofar as available, for the
payment of dividends or other distributions to Fund shareholders. Upon receipt
of proper instructions from the Custodian or the Fund, or upon receipt of
instructions from the Shareholder Servicing Agent (given by such person or
persons and in such manner on behalf of the Shareholder Servicing Agent as the
Custodian or the Fund shall have authorized), the Subcustodian shall release
securities, funds or other property, insofar as available, to the Shareholder
Servicing Agent or as such Agent shall otherwise instruct for payment to Fund
shareholders who have delivered to such Agent a request for repurchase or
redemption of their shares of the Fund.
2.19 Proxies, Notices, Etc. - Promptly to deliver or mail

- 16 -
<PAGE> 20

to the Custodian or a Fund all forms of proxies and all notices of meetings and
any other notices or announcements affecting or relating to securities owned by
the Fund that are received by the Subcustodian, and upon receipt of proper
instructions, to promptly execute and deliver or cause its nominee to promptly
execute and deliver such proxies or other authorizations as may be required.
Neither the Subcustodian nor its nominee shall vote upon any of such securities
or execute any proxy to vote thereon or give any consent or take any other
action with respect thereto (except as otherwise herein provided) unless
ordered to do so by proper instructions.
2.20 Nondiscretionary Details - Without the necessity of express
authorization from the Custodian or a Fund, (1) to attend to all
nondiscretionary details in connection with the sale, exchange, substitution,
purchase, transfer or other dealings with securities, funds or other property
of the Fund held by the Subcustodian except as otherwise directed from time to
time by the Custodian or the Directors or Trustees of the Fund, and (2) to
make payments to itself or others for minor expenses of handling securities or
other similar items relating to the Subcustodian's duties under this Agreement,
provided that all such payments shall be accounted for to a Fund.
2.21 Bills - Upon receipt of proper instructions, to pay or cause to
be paid, insofar as funds are available for the purpose, bills, statements and
other obligations of a Fund (including but not limited to interest charges,
taxes, management

- 17 -
<PAGE> 21

fees, compensation to Fund officers and employees, and other operating expenses
of a Fund).
2.22 Deposit of Fund Property in Securities Systems - The
Subcustodian may deposit and/or maintain securities owned by a Fund in (i) The
Depository Trust Company, (ii) the Participants Trust Company, (iii) any
book-entry system as provided in Subpart O of Treasury Circular No. 300, 31 CFR
306, Subpart B of 31 CFR Part 350, or the book-entry regulations of federal
agencies substantially in the form of Subpart O, or (iv) any other domestic
clearing agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934 which acts as a securities
depository and whose use the Custodian or the Fund has previously approved in
writing (each of the foregoing being referred to in this Agreement as a
"Securities System"). Utilization of a Securities System shall be in
accordance with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
1) The Subcustodian may deposit and/or maintain Fund securities, either
directly or through one or more Agents appointed by the Subcustodian (provided
that any such agent shall be qualified to act as a custodian of a Fund pursuant
to the Investment Company Act of 1940 and the rules and regulations
thereunder), in a Securities System provided that such securities are
represented in an account ("Account") of the Subcustodian or such Agent in the
Securities System which shall not include any

- 18 -
<PAGE> 22

assets of the Subcustodian or Agent other than property held as a fiduciary,
custodian, or otherwise for customers;
2) The records of the Subcustodian with respect to securities of a Fund
which are maintained in a Securities System shall identify by book-entry those
securities belonging to the Fund;
3) The Subcustodian shall pay for securities purchased for the account
of a Fund upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account, and (ii) the making of an
entry on the records of the Subcustodian to reflect such payment and transfer
for the account of the Fund. The Subcustodian shall transfer securities sold
for the account of a Fund upon (i) receipt of advice from the Securities System
that payment for such securities has been transferred to the Account, and (ii)
the making of an entry on the records of the Subcustodian to reflect such
transfer and payment for the account of the Fund. Copies of all advices from
the Securities System of transfers of securities for the account of a Fund
shall identify the Fund, be maintained for a Fund by the Subcustodian or an
Agent as referred to above, and be provided to the Custodian or the Fund at its
request. The Subcustodian shall furnish the Custodian or a Fund confirmation
of each transfer to or from the account of the Fund in the form of a written
advice or notice and shall furnish to the Custodian or the Fund copies of daily
transaction sheets reflecting each day's transactions in the Securities System
for the account of the Custodian or the Fund on the next business day;

- 19 -
<PAGE> 23

4) The Subcustodian shall provide the Custodian or a Fund with any
report obtained by the Subcustodian or any Agent as referred to above on the
Securities System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the Securities System; and
the Subcustodian and such Agents shall send to the Custodian or the Fund such
reports on their own systems of internal accounting control as the Custodian or
the Fund may reasonably request from time to time; and
5) At the written request of the Custodian or the Fund, the Subcustodian
will terminate the use of any such Securities System on behalf of the Fund as
promptly as practicable.

2.23 Other Transfers - Upon receipt of proper instructions, to deliver
securities, funds and other property of a Fund to a Secondary Subcustodian or
another custodian for the Fund as necessary to effect transactions authorized
by proper instructions and upon receipt of proper instructions, to deliver
securities, funds and other property of a Fund to a Secondary Subcustodian or
another custodian of the Fund; and, upon receipt of proper instructions, to
make such other disposition of securities, funds or other property of a Fund in
a manner other than or for purposes other than as enumerated elsewhere in this
Agreement, provided that the instructions relating to such disposition shall
state the amount of securities to be delivered and the name of the person or
persons to whom delivery is to be made.

- 20 -
<PAGE> 24

2.24 Investment Limitations - In performing its duties generally, and
more particularly in connection with the purchase, sale and exchange of
securities made by or for a Fund, the Subcustodian may assume unless and until
notified in writing to the contrary that proper instructions received by it are
not in conflict with or in any way contrary to any provisions of the Fund's
Declaration of Trust or Certificate of Incorporation or By-Laws (or comparable
documents) or votes or proceedings of the shareholders or Trustees or Directors
of the Fund. The Subcustodian shall in no event be liable to the Custodian or
any Fund and shall be indemnified by the Custodian and the Fund for any
violation which occurs in the course of carrying out instructions given by the
Custodian or the Fund of any investment limitations to which the Fund is
subject or other limitations with respect to the Fund's powers to make
expenditures, encumber securities, borrow or take similar actions affecting the
Fund.
2.25 Subcustodian Advances - In the event that the Subcustodian is
directed by proper instructions to make any payment or transfer of funds on
behalf of a Fund for which there would be, at the close of business on the date
of such payment or transfer, insufficient funds held by the Subcustodian on
behalf of the Fund, the Subcustodian may, in its discretion without further
proper instructions, provide an advance ("Advance") to the Fund in an amount
sufficient to allow the completion of the transaction by reason of which such
payment or transfer of funds is to be made. In addition, in the event the
Subcustodian is

- 21 -
<PAGE> 25

directed by proper instructions to make any payment or transfer of funds on
behalf of a Fund as to which it is subsequently determined that the Fund has
overdrawn its cash account with the Subcustodian as of the close of business on
the date of such payment or transfer, said overdraft shall constitute an
Advance. Any Advance shall be payable by the Fund or the Custodian on demand by
Subcustodian, unless otherwise agreed by the Custodian or the Fund and the
Subcustodian, and shall accrue interest from the date of the Advance to the
date of payment by the Fund or the Custodian at a rate agreed upon in writing
from time to time by the Subcustodian and the Custodian or the Fund. It is
understood that any transaction in respect of which the Subcustodian shall have
made an Advance, including but not limited to a foreign exchange contract or
transaction in respect of which the Subcustodian is not acting as a principal,
is for the account of and at the risk of a Fund, and not, by reason of such
Advance, deemed to be a transaction undertaken by the Subcustodian for its own
account and risk. The Subcustodian and each Fund acknowledge that the purpose
of Advances is to finance temporarily the purchase or sale of securities for
prompt delivery in accordance with the settlement terms of such transactions or
to meet emergency expenses not reasonably foreseeable by the Fund. The
Subcustodian shall promptly notify a Fund of any Advance. Such notification
shall be sent by facsimile transmission or in such other manner as such Fund
and the Subcustodian may agree.
2.26 Restricted Securities - In the case of a "restricted

- 22 -
<PAGE> 26
security", the Custodian or the Fund shall have the responsibility to provide
to or obtain for the Subcustodian, the issuer of the security or other
appropriate third party any necessary documentation, including without
limitation, legal opinions or consents, and to take any necessary actions
required in connection with the registration of restricted securities in the
manner provided in Section 2.3 upon acquisition thereof by the Fund or required
in connection with any sale or other disposition thereof by the Fund. Upon
acquisition and until so registered, the Subcustodian shall use its best
efforts to service such restricted securities (including, without limitation,
the receipt and collection of cash and stock dividends, rights and other items
of like nature); to exercise in a timely manner any right in respect of any
restricted security; and to take any action in a timely manner in respect of
any other type of corporate action relating to a restricted security. The
Subcustodian shall not have responsibility for the inability of a Fund to sell
or otherwise transfer in a timely manner any restricted security in the absence
of any such documentation or action to be provided, obtained or taken by the
Custodian or the Fund or for the Subcustodian's inability to take in a timely
manner any of the actions referred to in the preceeding sentence provided that
such inability of the Custodian or the Fund to sell or otherwise transfer
restricted securities pursuant to this Section 2.26 or the Subcustodian's
inability to take the aforesaid actions is not caused by the negligence,
misfeasance or

- 23 -
<PAGE> 27

misconduct of the Subcustodian or its nominees. At such time as the
Subcustodian shall receive any restricted security, regardless of when it shall
be registered as aforesaid, the Custodian or the Fund shall also deliver to the
Subcustodian a term sheet summarizing those rights, restrictions or other
matters of which the Subcustodian should have knowledge, such as exercise
periods, expiration dates and payment dates, in order to assist the
Subcustodian in servicing such securities. As used herein, the term
"restricted security" shall mean a security which is subject to restrictions on
transfer, whether by reason of contractual restrictions or federal, state or
foreign securities or similar laws, or a security which has special rights or
contractual features which do not apply to publicly-traded shares of, or
comparable interests representing, such security.
2.27 Proper Instructions - Proper instructions shall mean a tested
telex or a swift message from the Custodian or a Fund or a written request,
direction, instruction or certification signed or initialled on behalf of the
Custodian or the Fund by two or more persons as the Custodian or the Board of
Trustees or Directors of the Fund shall have from time to time authorized,
provided, however, that no such instructions directing the delivery of
securities or the payment of funds to an authorized signatory of the Custodian
or the Fund shall be signed by such person. Those persons authorized to give
proper instructions may be identified by the Custodian or the Fund's Board of
Trustees or

- 24 -
<PAGE> 28
Directors by name, title or position and will include at least one officer
empowered by the Custodian or the Board to name other individuals who are
authorized to give proper instructions on behalf of the Custodian or the Fund.
Telephonic or other oral instructions or instructions given by facsimile
transmission may be given by any one of the above persons and will be
considered proper instructions if the Subcustodian reasonably believes them to
have been given by a person authorized to give such instructions with respect
to the transaction involved. Oral instructions will be confirmed by tested
telex or in writing in the manner set forth above but the lack of such
confirmation shall in no way affect any action taken by the Subcustodian in
reasonable reliance upon such oral instructions. The Custodian and each Fund
authorizes the Subcustodian to tape record any and all telephonic or other oral
instructions given to the Subcustodian by or on behalf of the Custodian or the
Fund (including any of their respective officers, Directors, Trustees,
employees or agents or any investment manager or adviser of the Fund or person
or entity with similar reponsibilities which is authorized to give proper
instructions on behalf of the Custodian or the Fund to the Subcustodian).
Proper instructions may relate to specific transactions or to types or classes
of transactions, and may be in the form of standing instructions.
Proper instructions may include communications effected directly between
electromechanical or electronic devices or systems, in addition to tested
telex, provided that the Custodian

- 25 -
<PAGE> 29

or the Fund and the Subcustodian agree to the use of such device or system.
2.28 Segregated Account - The Subcustodian shall upon receipt of
proper instructions establish and maintain on its books a segregated account or
accounts for and on behalf of each Fund, into which account or accounts may be
transferred cash and/or securities of the Fund, including securities maintained
by the Subcustodian pursuant to Section 2.22 hereof, (i) in accordance with the
provisions of any agreement among the Fund, the Subcustodian and/or Custodian
and a broker-dealer registered under the Securities Exchange Act of 1934 and a
member of the National Association of Securities Dealers, Inc. (or any futures
commission merchant registered under the Commodity Exchange Act) relating to
compliance with the rules of the Options Clearing Corporation and of any
registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Fund, (ii) for purposes of segregating cash or securities
in connection with options purchased, sold or written by the Fund or commodity
futures contracts or options thereon purchased or sold by the Fund, (iii) for
the purposes of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or releases
of the Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment

- 26 -
<PAGE> 30

companies, or (iv) as mutually agreed from time to time between the Custodian
or the Fund and the Subcustodian.
2.29 Opinion of Fund's Independent Certified Public Accountants - The
Subcustodian shall take all reasonable action as a Fund may request to obtain
from year to year favorable opinions from the Fund's independent certified
public accountants with respect to the Subcustodian's activities hereunder in
connection with the preparation of the Fund's Securities and Exchange
Commission registration statement and all amendments thereto and the Fund's
Form N-SAR or other periodic reports to the Securities and Exchange Commission
and with respect to any other requirements of the Securities and Exchange
Commission.
2.30 Reports by Independent Certified Public Accountants - At the
request of a Fund, the Subcustodian shall deliver to the Fund a written report
prepared by the Subcustodian's independent certified public accountants with
respect to the services provided by the Subcustodian under this Agreement,
including, without limitation, the Subcustodian's accounting system, internal
accounting control and procedures for safeguarding cash, securities and other
property, including cash, securities and other property deposited and/or
maintained in a Securities System or with a Secondary Subcustodian. Such
report shall be sufficient scope and in sufficient detail as may reasonably be
required by a Fund and as may reasonably be obtained by the Subcustodian.
2.31 Proceeds from Shares Sold - The Subcustodian shall

- 27 -
<PAGE> 31

receive funds representing cash payments received for Fund shares issued or
sold from time to time by a Fund, and shall promptly credit such funds to the
account of the applicable Fund. The Subcustodian shall promptly notify such
Fund of the Subcustodian's receipt of cash in payment for shares issued by the
Fund by facsimile transmission or in such other manner as the Fund and
Subcustodian may agree in writing. Upon receipt of proper instructions, the
Subcustodian shall: (a) deliver all federal funds received by the Subcustodian
in payment for Fund shares in payment for such investments and at the time
agreed upon by the Subcustodian and the relevant Fund; and (b) make federal
funds available to such Fund as of specified times agreed upon from time to
time by the Fund and the Subcustodian, in the amount of checks received in
payment for Fund shares that are deposited in the account of the Fund.
3. Powers and Duties of the Subcustodian with Respect to the
Appointment of Secondary Subcustodians: With regard to the selection of a
Secondary Subcustodian or Foreign Depository pursuant to this Section 3, the
Subcustodian may, at any time and from time to time; appoint, subject to
approval of the relevant Fund or Funds: (i) any bank, trust company or other
entity meeting the requirements of an "eligible foreign custodian" under
Section 17(f) of the Investment Company Act of 1940 and the rules and
regulations thereunder or by order of the Securities and Exchange Commission
exempted therefrom, or (ii) any bank as defined in Section 2(a)(5) of the
Investment Company Act of 1940

- 28 -
<PAGE> 32

meeting the requirements of a custodian under Section 17(f) of the Investment
Company Act of 1940 and the rules and regulations thereunder. The Custodian
and each Fund hereby authorize and instruct the Subcustodian to hold
securities, funds and other property of the Fund which are maintained outside
the United States at subcustodians appointed pursuant to the provisions of this
Section 3 (a "Secondary Subcustodian"). The Custodian and each Fund shall
approve in writing (1) the appointment of each Secondary Subcustodian and the
subcustodian agreement to be entered into between such Secondary Subcustodian
and the Subcustodian, and (2) if the Secondary Subcustodians is organized under
the laws of a country other than the United States, the country or countries in
which the Secondary Subcustodians is authorized to hold securities, funds and
other property of the Fund. The Custodian and each Fund hereby further
authorize and instruct the Subcustodian and any Secondary Subcustodian to
utilize such securities depositories located outside the United States which
are approved in writing by the Custodian and the Fund to hold securities, funds
and other property of the Fund (a "Foreign Depository"). Upon such approval by
the Custodian and the Fund, the Subcustodian is authorized on behalf of the
Custodian and the Fund to notify each Secondary Subcustodian of its appointment
as such.
Those Secondary Subcustodians, and the countries where and the Foreign
Depositories through which they or the Subcustodian may hold securities, funds
and other property of a Fund which the

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<PAGE> 33

Custodian and each Fund has approved to date are set forth on Appendix A
hereto. The Custodian shall monitor the performance and financial condition of
the Subcustodians, Secondary Subcustodians and Foreign Depositories to the
extent practicable and shall promptly report to each Fund any material adverse
facts of which it becomes aware. Upon request of a Fund, the Custodian shall
deliver to the Fund a certificate stating: (i) the identity of each
Subcustodian or Secondary Subcustodian then acting on behalf of the Custodian,
as identified in Appendix A and as such Appendix may be amended from time to
time; (ii) the countries in which and the securities depositories and clearing
agents through which each such Subcustodian or Secondary Subcustodian is then
holding securities, funds and other property of the Fund; and (iii) such other
information as may be requested by the Fund and as the Custodian shall be
reasonably able to obtain to evidence compliance with Rule 17f-5 under the
Investment Company Act of 1940. Upon approval by a Fund in accordance with
this Section 3, Appendix A shall be amended from time to time as Secondary
Subcustodians, and/or countries and/or Foreign Depositories are changed, added
or deleted. The Custodian or the Fund shall be responsible for informing the
Subcustodian sufficiently in advance of a proposed investment which is to be
held in a country not listed on Appendix A, in order that there shall be
sufficient time for the Custodian and the Fund to give the approval required by
the preceding paragraph and for the Subcustodian to put the appropriate
arrangements in

- 30 -
<PAGE> 34

place with such Secondary Subcustodian, including negotiation of a subcustodian
agreement and submission of such subcustodian agreement to the Custodian and
the Fund for approval.
If a Fund shall have invested in a security to be held in a country
before the foregoing procedures have been completed, such security shall be
held by such agent as the Subcustodian may appoint. In any event, the
Subcustodian shall be liable to the Custodian and the Fund for the actions of
such agent if and only to the extent the Subcustodian shall have recovered from
such agent for any damages caused the Custodian and/or the Fund by such agent.
At the request of the Custodian or a Fund, the Subcustodian agrees to remove
any securities held on behalf of the Fund by such agent, if practical, to an
approved Secondary Subcustodian. Under such circumstances the Subcustodian
will collect income and respond to corporate actions on a best efforts basis.
With respect to securities and funds held by a Secondary Subcustodian,
either directly or indirectly (including by a Foreign Depository or foreign
clearing agency) or by a Foreign Depository or foreign clearing agency utilized
by the Subcustodian, notwithstanding any provision of this Agreement to the
contrary, payment for securities purchased and delivery of securities sold may
be made prior to receipt of the securities or payment, respectively, and
securities or payment may be received in a form, in accordance with
governmental regulations, rules of Foreign Depositories and foreign clearing
agencies, or generally accepted trade practice in the applicable local market.

- 31 -
<PAGE> 35

In the event that any Secondary Subcustodian appointed pursuant to the
provisions of this Section 3 fails to perform any of its obligations under the
terms and conditions of the applicable subcustodian agreement, the Subcustodian
shall use its best efforts to cause such Secondary Subcustodian to perform such
obligations. In the event that the Subcustodian is unable to cause such
Secondary Subcustodian to perform fully its obligations thereunder, the
Subcustodian shall forthwith upon the Custodian or a Fund's request terminate
such Secondary Subcustodian as a Secondary Subcustodian for such Fund in
accordance with the termination provisions under the applicable subcustodian
agreement and, if necessary or desirable, appoint another subcustodian in
accordance with the provisions of this Section 3. At the election of the
Custodian or a Fund, it shall have the right to enforce, to the extent
permitted by the subcustodian agreement and applicable law, the Subcustodian's
rights against any such Secondary Subcustodian for loss, damage or expense
caused the Custodian or the Fund by such Secondary Subcustodian. The
Subcustodian agrees to cooperate with the Fund and or the Custodian, as the
case may be, and take all actions reasonably requested by the Fund or the
Custodian, at the Fund's expense, in connection with the enforcement of any
rights of the Subcustodian by the Fund or the Custodian.
The Subcustodian will not amend any subcustodian agreement or agree to
change or permit any changes thereunder in respect of a Fund except upon the
prior written approval of the Custodian and the Fund.

- 32 -
<PAGE> 36

The Subcustodian may, at any time in its discretion upon notification to
the Custodian and a Fund, terminate any Secondary Subcustodian of the Fund in
accordance with the termination provisions under the applicable secondary
subcustodian agreement, and at the written request of the Custodian or a Fund,
the Subcustodian will terminate any Secondary Subcustodian in respect of the
Fund in accordance with the termination provisions under the applicable
secondary subcustodian agreement.
If necessary or desirable, the Subcustodian may appoint another
subcustodian in respect of a Fund to replace a Secondary Subcustodian
terminated pursuant to the foregoing provisions of this Section 3, such
appointment to be made upon approval of the successor subcustodian by the
Custodian and the Fund's Board of Directors or Trustees in accordance with the
provisions of this Section 3.
In the event the Subcustodian receives a claim from a Secondary
Subcustodian under the indemnification provisions of any subcustodian agreement
in respect of a Fund, the Subcustodian shall promptly give written notice to
the Custodian and the Fund of such claim. No more than thirty days after
written notice to the Custodian and the Fund of the Subcustodian's intention to
make such payment, the Custodian or the Fund will reimburse the Subcustodian
the amount of such payment except in respect of any negligence or misconduct of
the Subcustodian.
4. Assistance by the Subcustodian as to Certain Matters: The
Subcustodian may assist generally in the preparation of

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<PAGE> 37

reports to Fund shareholders and others, audits of accounts, and other
ministerial matters of like nature.
5. Powers and Duties of the Subcustodian with Respect to its Role
as Recordkeeping Agent: The Subcustodian shall have and perform the following
powers and duties with respect to recordkeeping:
5.1 Records - To create, maintain and retain such records relating
to its activities and obligations under this Agreement as are required under
the Investment Company Act of 1940 and the rules and regulations thereunder
(including Section 31 thereof and Rules 31a-1 and 31a-2 thereunder) and under
applicable Federal and State tax laws. All such records will be the property
of the relevant Fund and in the event of termination of this Agreement shall be
delivered to the Fund or successor custodian.
5.2 Accounts - To keep books of account and render statements,
including interim monthly and complete quarterly financial statements, or
copies thereof, from time to time as reasonably requested by proper
instructions.
5.3 Access to Records - The books and records maintained by the
Subcustodian pursuant to Sections 5.1 and 5.2 shall at all times during the
Subcustodian's regular business hours be open to inspection and audit by
officers of, attorneys for and auditors employed by the Custodian or a Fund and
by employees and agents of the Securities and Exchange Commission, provided
that all such individuals shall observe all security requirements of the

- 34 -
<PAGE> 38

Subcustodian applicable to its own employees having access to similar records
within the Subcustodian and such regulations as may be reasonably imposed by
the Subcustodian.
6. Standard of Care and Related Matters:
6.1 Liability of the Subcustodian with Respect to Proper
Instructions; Evidence of Authority, Etc. The Subcustodian shall not be liable
for any action taken or omitted in reliance upon proper instructions reasonably
believed by it to be genuine or upon any other written notice, request,
direction, instruction, certificate or other instrument believed by it to be
genuine and signed by the proper party or parties.
The Secretary or Assistant Secretary of the Custodian and of each Fund
shall certify to the Subcustodian the names, signatures and scope of authority
of all persons authorized to give proper instructions or any other such notice,
request, direction, instruction, certificate or instrument on behalf of the
Custodian or the Fund, respectively, the names and signatures of the officers
of the Custodian or the Fund, respectively, the name and address of the
Shareholder Servicing Agent, and any resolutions, votes, instructions or
directions of the Custodian or the Fund's respective Board of Directors or
Trustees or shareholders. Such certificate may be accepted and relied upon by
the Subcustodian as conclusive evidence of the facts set forth therein and may
be considered in full force and effect until receipt of a similar certificate
to the contrary.
So long as and to the extent that it is in the exercise of

- 35 -
<PAGE> 39

reasonable care, the Subcustodian shall not be responsible for the title,
validity or genuineness of any property or evidence of title thereto received
by it or delivered by it pursuant to this Agreement.
The Subcustodian shall be entitled, at the expense of a Fund, to receive
and act upon advice of (i) counsel regularly retained by the Subcustodian in
respect of custodian matters, (ii) counsel for the Custodian or the Fund, or
(iii) such other counsel as the Custodian or the Fund and the Subcustodian may
agree upon, with respect to all matters, and the Subcustodian shall be without
liability for any action reasonably taken or omitted pursuant to such advice.
6.2 Liability of the Subcustodian with Respect to Use of Securities
Systems and Foreign Depositories - With respect to the portfolio securities,
funds and other property of a Fund held by a Securities System or by a Foreign
Depository utilized by the Subcustodian or any Secondary Subcustodian, the
Subcustodian shall be liable to the Custodian or a Fund only for any loss,
damage or expense to the Custodian or the Fund resulting from use of the
Securities System or Foreign Depository if caused by any negligence,
misfeasance or misconduct of the Subcustodian or any of its Agents (as said
term is defined in Section 6.6) or of any of its or its Agents' employees or
from any failure of the Subcustodian or any such Agent to enforce effectively
such rights as it may have against the Securities System or Foreign Depository.
At the election of the Custodian or a Fund, it shall

- 36 -
<PAGE> 40

be entitled to be subrogated to the rights of the Subcustodian with respect to
any claim against the Securities System, Foreign Depository or any other person
which the Subcustodian may have as a consequence of any such loss, damage or
expense to the Custodian or the Fund if and to the extent that the Custodian or
the Fund has not been made whole for any such loss, damage or expense. The
Subcustodian agrees to cooperate with the Fund or the Custodian, as the case
may be, and take all actions reasonably requested by the Fund or the Custodian,
at the Fund's expense, in connection with the enforcement of any rights of the
Subcustodian by the Fund or the Custodian.
6.3 Liability of the Subcustodian with respect to Secondary
Subcustodians - The Subcustodian shall be liable to a Fund for the actions or
omissions of any Secondary Subcustodian to the same extent as if such actions
or omissions were performed by the Subcustodian itself in the country in which
the Secondary Subcustodian is operating under the terms of the secondary
subcustodian agreement; provided, however, that if there has been a final
adjudication of any term or provision thereof or of the governing law of such
agreement by a court of competent jurisdication, then such determination shall
govern the determination of the Subcustodian's liability under this Section
6.3. In the event of any loss, damage or expense suffered or incurred by a
Fund caused by or resulting from the actions or omissions of any Secondary
Subcustodian for which the Subcustodian would be liable pursuant to this
Section 6.3, the

- 37 -
<PAGE> 41

Subcustodian shall promptly reimburse the Fund in the amount of any such loss,
damage or expense.
The Subcustodian shall also be liable to a Fund for the Subcustodian's
own negligence in transmitting any instructions received by it from a Fund and
for the Subcustodian's own negligence in connection with the delivery of any
securities, funds or other property held by it to any Secondary Subcustodian.
6.4 Standard of Care; Liability; Indemnification - The Subcustodian
shall be held to the exercise of reasonable care and diligence in carrying out
the provisions of this Agreement, and shall be liable to the Custodian and the
relevant Fund for all loss, damage and expense suffered or incurred by the
Custodian or the Fund resulting from the failure of the Subcustodian to
exercise such reasonable care and diligence; provided that the Subcustodian
shall not thereby be required to take any action which is in contravention of
any applicable law, rule or regulation or any order or judgment of any court of
competent jurisdiction.
The Custodian and each Fund agree to indemnify and hold harmless the
Subcustodian and its nominees from all claims and liabilities (including
counsel fees) incurred or assessed against it or its nominees in connection
with the performance of this Agreement, except such as may arise from the
Subcustodian or its nominee's breach of the relevant standard of conduct set
forth in this Agreement. Notwithstanding the above, no Fund shall be liable to
indemnify the Subcustodian for any claims and liabilities other than those
arising from services provided to that particular Fund. Without limiting the

- 38 -
<PAGE> 42

foregoing indemnification obligation of the Custodian and each Fund, the
Custodian and each relevant Fund agree to indemnify the Subcustodian and any
nominee in whose name portfolio securities or other property of the Fund is
registered against any liability the Subcustodian or such nominee may incur by
reason of taxes assessed to the Subcustodian or such nominee or other costs,
liability or expense incurred by the Subcustodian or such nominee resulting
directly or indirectly from the fact that portfolio securities or other
property of the Fund is registered in the name of the Subcustodian or such
nominee.
In no event shall the Subcustodian incur liability under this Agreement
if the Subcustodian or any Secondary Subcustodian, Securities System, Foreign
Depository, Banking Institution or any agent or entity utilized by any of them
(each individually, a "Person") is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which this Ageement provides
shall be performed or omitted to be performed, by reason of (i) any Sovereign
Risk or (ii) any provision of any present or future law or regulation or order
of the United States of America or any state thereof, or of any foreign country
or political subdivision thereof, or of any securities depository or clearing
agency which operates a central system for handling of securities or equivalent
book-entries in a country or which operates a transnational system for the
central handling of securities or equivalent book-entries, or (iii) any
provision of any order or judgment of any court of competent jurisdiction. A
"Sovereign Risk" shall mean nationalization, expropriation, devaluation,
revaluation,

- 39 -
<PAGE> 43

confiscation, seizure, cancellation, destruction or similar action by any
governmental authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges affecting a
Fund's property; or acts of war, terrorism, insurrection or revolution; or any
other act or event beyond the Subcustodian's control.
6.5 Mitigation by Subcustodian - Upon the occurence of any event
that causes or may cause loss, damage or expense to the Custodian or a Fund,
(i) the Subcustodian or a Secondary Subcustodian shall and (ii) the
Subcustodian or a Secondary Subcustodian shall cause any applicable
Subcustodian or Secondary Subcustodian to use all commercially reasonable
efforts and take all reasonable steps under the circumstances to mitigate the
effects of such event and to avoid continuing harm to the Custodian or the
Fund.
6.6 Expenses of the Custodian and the Funds - In addition to the
liability of the Subcustodian or a Secondary Subcustodian under this Section 6,
the Subcustodian or a Secondary Subcustodian shall be liable to the Custodian
or the relevant Fund for all reasonable costs and expenses incurred by the
Custodian or the Fund in connection with any claim by the Custodian or the Fund
against the Subcustodian or a Secondary Subcustodian arising from the
obligations of the Subcustodian or Secondary Subcustodian hereunder including,
without limitation,

- 40 -
<PAGE> 44

all reasonable attorneys' fees and expenses incurred by the Custodian or the
Fund in asserting any such claim, and all expenses incurred by the Fund in
connection with any investigations, lawsuits or proceedings relating to such
claims; provided, that the Custodian or relevant Fund has recovered from the
Subcustodian or a Secondary Subcustodian for such claim.
6.7 Liability for Past Records - The Subcustodian shall have no
liability in respect of any loss, damage or expense suffered by a Fund, insofar
as such loss, damage or expense arises from the performance of the
Subcustodian's duties hereunder by reason of the Subcustodian's reasonable
reliance upon records that were maintained for the Fund by entities other than
the Subcustodian prior to the Subcustodian's employment hereunder.
6.8 Reimbursement of Disbursements, Etc. - The Subcustodian shall be
entitled to receive reimbursement from the Custodian or the relevant Fund on
demand, in the manner provided in Section 7, for its cash disbursements,
expenses and charges (including the fees and expenses of any Secondary
Subcustodian or any Agent) in connection with this Agreement, but excluding
salaries and usual overhead expenses.
6.9 Notice of Litigation; Right to Prosecute, Etc. - Neither the
Custodian nor the Fund shall be liable for indemnification under Section 6 of
this Agreement unless a Person shall have promptly notified the Custodian or
the relevant Fund in writing of the commencement of any litigation or
proceeding

- 41 -
<PAGE> 45

brought against such Person in respect of which indemnity may be sought under
Section 6. With respect to claims in such litigation or proceedings for which
indemnity by the Custodian or a Fund may be sought and subject to applicable
law and the ruling of any court of competent jurisdiction, the Custodian and
the Fund shall be entitled to participate in any such litigation or proceeding
and, after written notice from the Custodian or the Fund to any Person, the
Custodian or the relevant Fund may assume the defense of such litigation or
proceeding with counsel of its choice at its own expense in respect of that
portion of the litigation for which the Custodian or the Fund may be subject to
an indemnification obligation; provided, however, a Person shall be entitled to
participate in (but not control), at its own expense, the defense of any such
litigation or proceeding if the Custodian or the Fund has not acknowledged in
writing its obligation to indemnify the Person with respect to such litigation
or proceeding. If the Custodian or the Fund is not permitted to participate in
or control such litigation or proceeding under applicable law or by a ruling of
a court of competent jurisdiction, such Person shall reasonably prosecute such
litigation or proceeding.
6.10 Security for Obligations to Subcustodian - If the Subcustodian
or any nominee thereof shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of this
Agreement (collectively a "Liability"), except such as may arise from its

- 42 -
<PAGE> 46

or such nominee's breach of the relevant standard of conduct set forth in this
Agreement, or if the Subcustodian shall make any Advance to a Fund, then in
such event property equal in value to not more than 125% of such Advance and
accrued interest on the Advance or the anticipated amount of such Liability,
held at any time for the account of the Fund by the Subcustodian or a Secondary
Subcustodian may be held as security for such Liability or for such Advance and
accrued interest on the Advance. The Subcustodian shall designate the security
or securities constituting security for an Advance or Liability (the
"Designated Securities") by notice in writing to the Fund (which may be sent by
telefax or telex). In the event the value of the Designated Securities shall
decline to less than 110% of the amount of such Advance and accrued interest on
the Advance or the anticipated amount of such Liability, then the Subcustodian
may designate in the same manner an additional security for such obligation but
the aggregate value of the Designated Securities and Additional Securities
shall not be in excess of 125% of the amount of such Advance and the accrued
interest on the Advance or the anticipated amount of such Liability. At the
request of the Fund, the Subcustodian shall agree to substitution of a security
or securities which have a value equal to the value of the Designated or
Additional Securities which the Fund desires be released from their status as
security, and such release from status as security shall be effective upon the
Subcustodian and the Fund agreeing in writing as to the identity of the

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<PAGE> 47

substituted security or securities, which shall thereupon become Designated
Securities.
Notwithstanding the above, the Subcustodian shall, at the request of a
Fund, immediately release from their status as security any or all of the
Designated Securities or Additional Securities upon the Subcustodian's receipt
from such Fund cash or cash equivalents in an amount equal to 100% of the value
of the Designated Securities or Additional Securities that the Fund desires to
be released from their status as security pursuant to this Section. The Fund
shall reimburse or indemnify the Subcustodian and shall pay any Advances upon
demand; provided, however, that the Subcustodian first notified the Custodian
or the Fund of such demand for repayment, reimbursement or indemnification.
If, upon notification, the Custodian or the Fund shall fail to pay such Advance
or interest when due or shall fail to reimburse or indemnify the Subcustodian
promptly in respect of a Liability, the Subcustodian shall be entitled to
dispose of the Designated Securities and Additional Securities to the extent
necessary to obtain repayment, reimbursement or indemnification. Interest,
dividends and other distributions paid or received on the Designated Securities
and Additional Securities, other than payments of principal or payments upon
retirement, redemption or repurchase, shall remain the property of the Fund,
and shall not be subject to this Section 6.10. To the extent that the
disposition of a Fund's property, designated as security for such Advance or
Liability, results in an amount

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<PAGE> 48

less than necessary to obtain repayment, reimbursement or indemnification, the
Fund shall continue to be liable to the Subcustodian for the difference between
the proceeds of the disposition of the Fund's property, designated as security
for such Advance or Liability, and the amount of the repayment, reimbursement
or indemnification due to the Subcustodian.
6.11 Appointment of Agents - The Subcustodian may at any time or
times in its discretion appoint (and may at any time remove) any other bank or
trust company as its agent (an "Agent") to carry out such of the provisions of
this Agreement as the Subcustodian may from time to time direct, provided,
however, that the appointment of such Agent (other than an Agent appointed
pursuant to the third paragraph of Section 3) shall not relieve the
Subcustodian of any of its responsibilities under this Agreement.
In the event of any loss, damage, or expense suffered or incurred by the
Custodian or a Fund caused by or resulting from the actions or omissions of any
Agent for which the Subcustodian would otherwise be liable, the Subcustodian
shall promptly reimburse the Custodian or the Fund, as the case may be, in the
amount of any such loss, damage or expense.
6.12 Powers of Attorney - Upon request, the Custodian or a Fund shall
deliver to the Subcustodian such proxies, powers of attorney or other
instruments as may be reasonable and necessary or desirable in connection with
the performance by the Subcustodian or any Secondary Subcustodian of their
respective

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<PAGE> 49
obligations under this Agreement or any applicable subcustodian agreement.
7. Compensation of the Subcustodian: The Custodian or such Fund
shall pay the Subcustodian a custody fee based on such fee schedule as may from
time to time be agreed upon in writing by the Subcustodian, the Custodian and
each Fund. Such fee, together with all amounts for which the Subcustodian is
to be reimbursed in accordance with Section 6.4, shall be billed to the
Custodian or the Fund and be paid in cash to the Subcustodian.
8. Termination; Successor Custodian/Subcustodian; Additional Funds:
This Agreement shall continue in full force and effect until terminated as to
one or more of the Funds by the Custodian, the Subcustodian or such Fund or
Funds by an instrument in writing delivered or mailed, postage prepaid, to the
other parties, such termination to take effect not sooner than sixty (60) days
after the date of such delivery or mailing. In the event of termination, the
Subcustodian shall be entitled to receive prior to delivery of the securities,
funds and other property held by it all accrued fees and unreimbursed expenses
the payment of which is contemplated by Sections 6.4 and 7, and all Advances
and Liabilities, upon receipt by the Custodian or the relevant Fund or Funds of
a statement setting forth such fees, expenses, Advances and Liabilities.
In the event of the appointment of a successor custodian, the
Subcustodian shall take all reasonable steps to execute an agreement with the
successor custodian and a Fund or Funds on

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<PAGE> 50

substantially the same terms as contained in this Agreement. The Subcustodian
agrees to cooperate with the Custodian, the successor custodian, and such Fund
or Funds in execution of documents and performance of other actions necessary
or desirable in order to substitute the successor custodian for the Custodian.
In the event of the appointment of a successor subcustodian, it is
agreed that the securities, funds and other property owned by a Fund or Funds
as to which this Agreement has been terminated and held by the Subcustodian or
any Secondary Subcustodian shall be delivered to the successor subcustodian,
unless the Subcustodian is otherwise instructed by the Custodian or the Fund or
Funds. The Subcustodian agrees to cooperate with the Custodian, the successor
custodian, and such Fund or Funds in execution of documents and performance of
other actions necessary or desirable in order to substitute the successor
subcustodian for the Subcustodian under this Agreement.
An additional Fund or Funds may become a party to this Agreement after
the date hereof by an instrument in writing to such effect signed by such Fund
or Funds, the Custodian and the Subcustodian. If this Agreement is terminated
as to one or more of the Funds (but less than all of the Funds) of if an
additional Fund or Funds shall become a party to this Agreement, there shall be
delivered to the Subcustodian by the Custodian an amended Appendix B deleting
or adding such Fund or Funds, as the case may be. The termination of this
Agreement as to less than all of the Funds shall not affect the obligations of
the Custodian, the

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<PAGE> 51

Subcustodian and the remaining Funds hereunder as set forth in Appendix B, as
revised from time to time.
9. Amendment; Waiver: This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof. No provision of this Agreement may be waived, amended or
terminated except by a statement in writing signed by the party or parties
against which enforcement of the waiver, amendment or termination is sought.
In connection with the operation of this Agreement, the Subcustodian,
the Custodian and one or more of the Funds may agree in writing from time to
time on such provisions interpretative of or in addition to the provisions of
this Agreement as may in their joint opinion be consistent with the general
tenor of this Agreement. No interpretative or additional provisions made as
provided in the preceding sentence shall be deemed to be an amendment of this
Agreement.
The section headings in this Agreement are for the convenience of the
parties and in no way alter, amend, limit or restrict the contractual
obligations of the parties set forth in this Agreement.
10. Governing Law: This Agreement is executed and delivered in The
Commonwealth of Massachusetts and shall be governed by and construed according
to the laws of said Commonwealth.
11. Notices: Notices and other writings delivered or mailed
postage prepaid to a Fund addressed to the Fund at 100

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<PAGE> 52

Heritage Reserve, Menomonee Falls, Wisconsin 53051 Attention: Helge Krist Lee,
or to such other address as the Fund may have designated to the Subcustodian
and the Custodian in writing, or to the Custodian at 615 East Michigan Street,
P. 0. Box 701, Milwaukee, Wisconsin 53201, Attention: J. Redwine, or to such
other address as the Custodian may have designated to the Funds and the
Subcustodian in writing or to the Subcustodian at 40 Water Street, Boston,
Massachusetts 02109, Attention: Manager, Securities Department, or to such
other address as the Subcustodian may have designated to the Custodian and the
Funds in writing, shall be deemed to have been properly delivered or given
hereunder to the respective addressee.
12. Binding Effect: This Agreement shall be binding on and shall
inure to the benefit of the Funds, the Custodian and the Subcustodian and their
respective successors and assigns, provided that no party hereto may assign
this Agreement or any of its rights or obligations hereunder without the prior
written consent of the other parties (except that assignment by a Fund shall
not require the consent of any other Funds).
13. Severability: If any provision of this Agreement shall be held
or made unenforceable by a court decision, statute, rule, regulation or
otherwise, the remaining provisions of this Agreement shall not be affected
thereby.
14. Counterparts: This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more

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<PAGE> 53

counterparts have been signed and delivered by each of the parties.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.

FIRSTAR TRUST COMPANY BROWN BROTHERS HARRIMAN & CO.

By _____________________ per pro ______________________
Title ____________________

FUNDS LISTED IN APPENDIX B

By ______________________
Title _____________________

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<PAGE> 54

GLOBAL CUSTODY TRI-PARTY AGREEMENT

WITH FIRSTAR TRUST COMPANY

AND THE INDIVIDUAL STRONG FUNDS LISTED IN

APPENDIX B ATTACHED HERETO

DATE ______________________________

SPECIAL TERMS AND CONDITIONS RIDER

1. Multiple Accounts

Pursuant to Sections 1 and 8 of the Agreement, Brown Brothers Harriman & Co.
and Firstar Trust Company have established the Accounts set forth on Appendix B
to be separately accounted for under the terms of this Agreement. Appendix B
shall be updated from time to time by the Custodian to reflect any changes in
the Funds a party to the Agreement.

- 51 -
<PAGE> 55

STRONG CAPITAL MANAGEMENT, INC.

DOMESTIC MUTUAL FUND

GLOBAL CUSTODY FEE SCHEDULE
JULY, 1995

Payable quarterly on the value of assets:

Foreign (excluding Euroclear)

.0015 per year on first $50 million
.0012 per year on next $50 million
.0010 per year on all over $100 million

Euroclear

.0012 per year on first $50 million
.0010 per year on next $50 million
.0008 per year on all over $100 million

Minimum: $45,000 (all domestic portfolios combined)

Transaction Charge: $35

Emerging markets will be negotiated at the time of investment

OUT-OF-POCKET EXPENSES

Out-of-pocket expenses including, but not limited to telex, legal,
telephone, postage and direct expenses including but not limited to customized
systems programming, registration and certificate fees would be additional.
Brokerage, stamp duty and Euroclear deposit and withdrawl charges are for the
account of the Fund.

This schedule includes all custody fees and transaction charges of
subcustodians. Emerging markets may require the use of a local administrative
agent. Administrative fees will be for the account of the Fund. Charges
associated with income collection, governmental stamp or other taxes will also
be for the account of the Fund.
<PAGE> 56

STRONG CAPITAL MANAGEMENT, INC.

DOMESTIC MUTUAL FUND

DOMESTIC CUSTODY FEE SCHEDULE
JULY, 1993

Payable quarterly on the value of assets:

Domestic Assets (Based on Entire Relationship)

.0001 per year on first $1 billion
.000075 per year on all over $1 billion

Transaction Charges:
DTC Eligible: $8
Non-DTC Eligible: $10
Domestic Wires: $10
Options and Futures Variation Margin: $10
Mortgage Backed Securities Paydowns: $8
Transaction charges on trades where BBH&Co. acts as broker will be
waived.

Brokerage Credit
Brokerage commissions executed through BBH&Co. will be available to
reduce custody and transaction charges on the basis of the offset formula of
2:1.

OUT-OF-POCKET EXPENSES
Out-of-pocket expenses including, but not limited to, telex, legal,
telephone and postage would be additional.

<PAGE> 1
EXHIBIT 99.B9

SHAREHOLDER SERVICING AGENT AGREEMENT

THIS AGREEMENT is made and entered into on this ___ day of _____, 1995,
between STRONG [ ], INC., a Wisconsin corporation (the
"Corporation"), on behalf of the Funds (as defined below) of the Corporation,
and STRONG CAPITAL MANAGEMENT, INC., a Wisconsin corporation ("Strong").

WITNESSETH

WHEREAS, the Corporation is an open-end management investment company
registered under the Investment Company Act of 1940;

WHEREAS, the Corporation is authorized to create separate series, each
with its own separate investment portfolio, and the beneficial interest in each
such series will be represented by a separate series of shares (each series is
hereinafter individually referred to as a "Fund" and collectively, the
"Funds");

WHEREAS, the Corporation is authorized to issue shares of its $._____
par value common stock (the "Shares") of each Fund; and

WHEREAS, the Corporation desires to retain Strong as the shareholder
servicing agent of the Shares of each Fund on whose behalf this Agreement has
been executed.

NOW, THEREFORE, the Corporation and Strong do mutually agree and
promise as follows:

1. Appointment. The Corporation hereby appoints Strong to act as
shareholder servicing agent of the Shares of each Fund listed on Schedule A
hereto, as such Schedule may be amended from time to time. Strong shall, at
its own expense, render the services and assume the obligations herein set
forth subject to being compensated therefor as herein provided.

2. Authority of Strong. Strong is hereby authorized by the
Corporation to receive all cash which may from time to time be delivered to it
by or for the account of the Funds; to issue confirmations and/or certificates
for Shares of the Funds upon receipt of payment; to redeem or repurchase on
behalf of the Funds Shares upon receipt of certificates properly endorsed or
properly executed written requests as described in the current prospectus of
each Fund and to act as dividend disbursing agent for the Funds.

3. Duties of Strong. Strong hereby agrees to:

A. Process new accounts.
<PAGE> 2

B. Process purchases, both initial and subsequent, of
Fund Shares in accordance with conditions set forth
in the prospectus of each Fund as mutually agreed by
the Corporation and Strong.

C. Transfer Fund Shares to an existing account or to a
new account upon receipt of required documentation
in good order.

D. Redeem uncertificated and/or certificated shares upon
receipt of required documentation in good order.

E. Issue and/or cancel certificates as instructed;
replace lost, stolen or destroyed certificates upon
receipt of satisfactory indemnification or bond.

F. Distribute dividends and/or capital gain
distributions. This includes disbursement as cash or
reinvestment and to change the disbursement option at
the request of shareholders.

G. Process exchanges between Funds (process and direct
purchase/redemption and initiate new account or
process to existing account).

H. Make miscellaneous changes to records.

I. Prepare and mail a confirmation to shareholders as
each transaction is recorded in a shareholder
account. Duplicate confirmations to be available on
request within current year.

J. Handle phone calls and correspondence in reply to
shareholder requests except those items set forth in
Referrals to Corporation, below.

K. Prepare Reports for the Funds:

i. Monthly analysis of transactions and accounts
by types.

ii. Quarterly state sales analysis; sales by
size; analysis of systematic withdrawals,
Keogh, IRA and 403(b)(7) plans; print-out of
shareholder balances.

L. Perform daily control and reconciliation of Fund
Shares with Strong's records and the Corporation's
office records.

M. Prepare address labels or confirmations for four
reports to shareholders per year.

2
<PAGE> 3

N. Mail and tabulate proxies for one Annual Meeting of
Shareholders, including preparation of certified
shareholder list and daily report to Corporation
management, if required.

O. Prepare and mail required Federal income taxation
information to shareholders to whom dividends or
distributions are paid, with a copy for the IRS and a
copy for the Corporation if required.

P. Provide readily obtainable data which may from time
to time be requested for audit purposes.

Q. Replace lost or destroyed checks.

R. Continuously maintain all records for active and
closed accounts.

S. Furnish shareholder data information for a current
calendar year in connection with IRA and Keogh Plans
in a format suitable for mailing to shareholders.

4. Referrals to Corporation. Strong hereby agrees to refer to the
Corporation for reply the following:

A. Requests for investment information, including
performance and outlook.

B. Requests for information about specific plans (i.e.,
IRA, Keogh, Systematic Withdrawal).

C. Requests for information about exchanges between
Funds.

D. Requests for historical Fund prices.

E. Requests for information about the value and timing
of dividend payments.

F. Questions regarding correspondence from the
Corporation and newspaper articles.

G. Any requests for information from non-shareholders.

H. Any other types of shareholder requests as the
Corporation may request from Strong in writing.

5. Compensation to Strong. Strong shall be compensated for its
services hereunder in accordance with the Shareholder Servicing Fee Schedule
(the "Fee Schedule") attached hereto as Schedule B and as such Fee Schedule may
from time to time be amended in writing between the two parties. The
Corporation will reimburse Strong for all out-of-pocket expenses, including,
but not

3
<PAGE> 4

necessarily limited to, postage, confirmation forms, etc. Special projects,
not included in the Fee Schedule and requested by proper instructions from the
Corporation with respect to the relevant Funds, shall be completed by Strong and
invoiced to the Corporation and the relevant Funds as mutually agreed upon.

6. Rights and Powers of Strong. Strong's rights and powers with
respect to acting for and on behalf of the Corporation, including rights and
powers of Strong's officers and directors, shall be as follows:

A. No order, direction, approval, contract or obligation
on behalf of the Corporation with or in any way affecting Strong shall
be deemed binding unless made in writing and signed on behalf of the
Corporation by an officer or officers of the Corporation who have been
duly authorized to so act on behalf of the Corporation by its Board of
Directors.

B. Directors, officers, agents and shareholders of the
Corporation are or may at any time or times be interested in Strong as
officers, directors, agents, shareholders, or otherwise.
Correspondingly, directors, officers, agents and shareholders of
Strong are or may at any time or times be interested in the
Corporation as directors, officers, agents, shareholders or otherwise.
Strong shall, if it so elects, also have the right to be a shareholder
of the Corporation.

C. The services of Strong to the Corporation are not to
be deemed exclusive and Strong shall be free to render similar services
to others as long as its services for others do not in any manner or
way hinder, preclude or prevent Strong from performing its duties and
obligations under this Agreement.

D. The Corporation will indemnify Strong and hold it
harmless from and against all costs, losses, and expenses which may be
incurred by it and all claims or liabilities which may be asserted or
assessed against it as a result of any action taken by it without
negligence and in good faith, and for any act, omission, delay or
refusal made by Strong in connection with this agency in reliance upon
or in accordance with any instruction or advice of any duly authorized
officer of the Corporation.

7. Effective Date. This Agreement shall become effective as of
the date hereof.

8. Termination of Agreement. This Agreement shall continue in
force and effect until terminated or amended to such an extent that a new
Agreement is deemed advisable by either party. Notwithstanding anything herein
to the contrary, this Agreement may be terminated at any time, without payment
of any penalty, by the Corporation or Strong upon ninety (90) days' written
notice to the other party.

9. Amendment. This Agreement may be amended by the mutual
written consent of the parties. If, at any time during the existence of this
Agreement, the Corporation deems it necessary or advisable in the best
interests of Corporation that any amendment of this Agreement be made in
order to

4
<PAGE> 5

comply with the recommendations or requirements of the Securities and Exchange
Commission or state regulatory agencies or other governmental authority, or to
obtain any advantage under state or federal laws, the Corporation shall notify
Strong of the form of amendment which it deems necessary or advisable and the
reasons therefor, and if Strong declines to assent to such amendment, the
Corporation may terminate this Agreement forthwith.

10. Notice. Any notice that is required to be given by the
parties to each other under the terms of this Agreement shall be in writing,
addressed and delivered, or mailed postpaid to the other party at the principal
place of business of such party.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed as of the day and year first stated above.

Attest: Strong Capital Management, Inc.

______________________________________ ___________________________________
Thomas P. Lemke, Senior Vice President John Dragisic, Vice Chairman

Attest: Strong [ ], Inc.

______________________________________ ___________________________________
Ann E. Oglanian, Secretary Lawrence A. Totsky, Vice President

5
<PAGE> 6

SCHEDULE A

The Fund(s) of the Corporation currently subject to this Agreement are as
follows:

Date of Addition
Fund(s) to this Agreement
------- -----------------

Strong [ ] Fund ___________, 1995

Attest: Strong Capital Management, Inc.

______________________________________ ____________________________________
Thomas P. Lemke, Senior Vice President John Dragisic, Vice Chairman

Attest: Strong [ ], Inc.

______________________________________ ____________________________________
Ann E. Oglanian, Secretary Lawrence A. Totsky, Vice President

6
<PAGE> 7

SCHEDULE B

SHAREHOLDER SERVICING FEE SCHEDULE

Until such time that this schedule is replaced or modified, Strong
[ ], Inc. (the "Corporation"), on behalf of each Fund set
forth on Schedule A to this Agreement, agrees to compensate Strong Capital
Management, Inc. ("Strong") for performing as shareholder servicing agent as
specified below per open Fund account, plus out-of-pocket expenses attributable
to the Corporation and the Fund(s).

Annual Rate per
Fund(s) Open Fund Account
------- -----------------

Strong [ ] Fund $_____

- - an equity fund $21.75

- - an income fund $31.50

- - a money market fund $32.50

Out-of-pocket expenses include, but are not limited to, the following:

1. All materials, paper and other costs associated with necessary
and ordinary shareholder correspondence.

2. Postage and printing of confirmations, statements, tax forms
and any other necessary shareholder correspondence. Printing
is to include the cost of printing account statements and
confirmations by third-party vendors as well as the cost of
printing the actual forms.

3. The cost of mailing (sorting, inserting, etc.) by third-party
vendors.

4. All banking charges of Corporation, including deposit slips and
stamps, checks and share drafts, wire fees not paid by
shareholders, and any other deposit account or checking
account fees.

5. The cost of storage media for Corporation records, including
phone recorder tapes, microfilm and microfiche, forms and
paper.

6. Offsite storage costs for older Corporation records.

7. Charges incurred in the delivery of Corporation materials and
mail.

8. Any costs for outside contractors used in providing necessary
and ordinary services to the Corporation, a Fund or
shareholders, not contemplated to be performed by Strong.

7
<PAGE> 8

9. Any costs associated with enhancing, correcting or developing
the record keeping system currently used by the Corporation,
including the development of new statement or tax form
formats.

For purposes of calculating Strong's compensation pursuant to this
Agreement, all subaccounts which hold shares in a Fund through 401(k) plans,
401(k) alliances, and financial institutions, such as insurance companies,
broker/dealers, and investment advisors shall be treated as direct open
accounts of the Fund upon approval of such arrangement by the Corporation's
Board of Directors. Out-of-pocket expenses will be charged to the applicable
Fund, except for those out-of-pocket expenses attributable to the Corporation
in general, which shall be charged pro rata to each Fund.

In addition, a Fund will pay a fee for closed accounts at an annual
rate of $4.20 per account. All fees will be billed to the Corporation monthly
based upon the number of open and closed accounts existing on the last day of
the month plus any out-of-pocket expenses paid by Strong during the month.
These fees are in addition to any fees the Corporation may pay Strong for
providing investment management services or for underwriting the sale of
Corporation shares.

Attest: Strong Capital Management, Inc.

______________________________________ ____________________________________
Thomas P. Lemke, Senior Vice President John Dragisic, Vice Chairman

Attest: Strong [ ],Inc.

______________________________________ ____________________________________
Ann E. Oglanian, Secretary Lawrence A. Totsky, Vice President

<PAGE> 1
EX-99.B9.1

AMENDED AND RESTATED
FUND PARTICIPATION AGREEMENT

This Amended and Restated Fund Participation Agreement, made and entered
into as of the 1st day of December, 1993, by and among Nationwide Life
Insurance Company ("Nationwide"), Strong Special Fund II, Inc. (the "Fund"),
the Fund's investment adviser and transfer agent, Strong/Corneliuson
Management, Inc. (the "Adviser"), and the Fund's distributor, Strong Funds
Distributors, Inc. ("Distributors").

WHEREAS, Nationwide, Fund and Adviser entered into a Fund Participation
Agreement dated as of May 1, 1992 (the "First Agreement"); and

WHEREAS, Adviser determined to transfer its Fund distribution operations
to Distributors, a newly-formed subsidiary; and

WHEREAS, Nationwide, Fund and Adviser agree to amend and restate the First
Agreement to reflect the respective duties and obligations of parties hereto
subsequent to the transfer of Adviser's Fund distribution operations to
Distributors.

NOW, THEREFORE, each of the parties hereto hereby agrees that shares of
the Fund shall be made available to serve as an underlying investment medium
for Individual Deferred Variable Annuity and Variable Life Contracts
(collectively, "Contracts") offered by Nationwide commencing, subject to the
following provisions:

1. Nationwide represents that it has established the Nationwide Variable
Account-II and the Nationwide VLI Separate Account-2 (collectively and
individually, the "Variable Account"), as separate accounts under Ohio
law, and has registered them as unit investment trusts under the
Investment Company Act of 1940 (the "1940 Act") to serve as investment
vehicles for the Contracts. The Contracts provide for the allocation of
net amounts received by Nationwide to separate series of the Variable
Account for investment in the shares of specified investment companies
selected among those companies available through the Variable Account to
act as underlying investment media. Selection of a particular investment
company is made by the Contract owner who may change such selection from
time to time in accordance with the terms of the applicable Contract.

2. Nationwide agrees to make every reasonable effort to market its
Contracts. It will use its best efforts to give equal emphasis and
promotion to shares of the Fund as is given to other underlying
investments of the Variable Account. In

<PAGE> 2

marketing its Contracts, Nationwide will comply with all applicable state
or Federal laws.

3. The Fund or the Distributor will provide closing net asset value,
dividend and capital gain information immediately following the close of
trading each business day to Nationwide. For purposes of this paragraph
3, "business day" shall mean any day on which the New York Stock Exchange
is open for trading and on which the Fund calculates its net asset value
as set forth in the Fund's Prospectus and Statement of Additional
Information, as amended from time to time. Nationwide will use this Fund
data to calculate unit values, which will in turn be used to process that
same business day's Variable Account unit value. The Variable Account
processing will be done the same evening, and orders will be placed the
morning of the following business day. Orders will be sent directly to the
Fund or its specified agent, and payment for purchases will be wired to an
account designated by the Fund or the Distributor, so as to coincide with
the order for Fund shares. The Fund will execute orders at the net asset
value as determined as of the close of trading on the prior business day.
Dividends and capital gains distributions shall be reinvested in
additional shares at the ex-date net asset value.

4. All expenses incident to the performance by each party of its respective
duties under this Agreement shall be paid by that party. The Fund shall
pay the cost of registration of Fund shares with the Securities and
Exchange Commission ("SEC"). The Fund shall provide, either directly or
through its authorized agent, Nationwide with a reasonable quantity of its
proxy material, periodic Fund reports to shareholders and other material
the Fund may require to be sent to beneficial owners of its shares.
Nationwide will pay the costs of distribution of such material to its
Contract owners. The Distributor or the Fund shall pay the cost of
qualifying Fund shares in states where required by state securities laws.
The Distributor shall provide Nationwide with a reasonable quantity of the
Fund's Prospectus, and the Fund shall provide Nationwide a copy of the
Statement of Additional Information suitable for duplication by
Nationwide.

5. Nationwide and its agents shall make no representations concerning the
Adviser, the Distributor, the Fund or Fund shares except those contained
in the then current prospectuses of the Fund and in current printed sales
literature of the Fund.

6. The Fund shall comply with Section 817(h) and 851 of the Internal Revenue
Code of 1986, if applicable, and the

<PAGE> 3

regulations thereunder, and the applicable provisions of Section 5(b)(1)
of the 1940 Act. The Adviser or the Fund shall provide Nationwide with a
letter from the appropriate calendar officer following the end of each
quarter of the Fund, certifying the Fund's compliance during that
calendar quarter with the diversification requirements and qualification
as a regulated investment company, and including a detailed listing of
the individual securities held by each Portfolio of the Fund.

7. Nationwide agrees to promptly notify the Board of Directors of the Fund,
in writing, of any potential or existing material irreconcilable conflict
of interest between the interests of the Contract owners of the Variable
Account investing in the Fund, including such conflict with any other
separate account of any other insurance company investing in the Fund.

Any material irreconcilable conflict may arise for a variety of reasons,
including:

(a) an action by any state insurance regulatory authority;

(b) a change in applicable federal or state insurance, tax or securities
laws or regulations, or a public ruling, private letter ruling, or any
similar action by insurance, tax or securities regulatory authorities;

(d) the manner in which the investments of the Fund are being managed;

(e) a difference in voting instructions given by Contract owners and
variable life insurance contract owners or by contract owners of
different life insurance companies utilizing the Fund; or

(f) a decision by Nationwide to disregard the voting instructions of
Contract owners.

Nationwide will be responsible for assisting the Board of Directors of
the Fund in carrying out its responsibilities by providing the Board in a
timely manner with all information reasonably necessary for the Board to
consider any issue raised, including information as to a decision by
Nationwide to disregard voting instructions of Contract owners.

<PAGE> 4

It is agreed that if it is determined by a majority of the members of the
Board of Directors of the Fund or a majority of its disinterested
Directors that a material irreconcilable conflict exists affecting
Nationwide, Nationwide shall, at its own expense, take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict,
which steps may include, but are not limited to,

(a) withdrawing the assets allocable to some or all of the separate
accounts from the Fund and reinvesting such assets in a different
investment medium, including another fund managed by the Adviser or
submitting the questions of whether such segregation should be
implemented to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any particular group (i.e.,
annuity Contract owners, life insurance Contract owners or qualified
Contract owners) that votes in favor of such segregation, or offering to
the affected Contract owners the option of making such a change; or

(b) establishing a new registered management investment company or
managed separate account.

If a material irreconcilable conflict arises because of Nationwide's
decision to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority
vote, Nationwide may be required, at the Fund's election, to withdraw the
Variable Account's investment in the Fund. No charge or penalty will be
imposed against the Variable Account as a result of such withdrawal.
Nationwide agrees that its responsibilities and obligations under this
paragraph 7 will be carried out with a view only to the interests of
Contract owners.

For purposes hereof, a majority of the disinterested members of the Board
of Directors of the Fund shall determine whether any proposed action
adequately remedies any material irreconcilable conflict. In no event
will the Fund, the Adviser or the Distributor be required to establish a
new funding medium for any Contracts. Nationwide shall not be required
by the terms hereof to establish a new funding medium for any Contracts
if an offer to do so has been declined by vote of a majority of affected
Contract owners.

The Fund will undertake to promptly notify Nationwide, in writing, of the
Board of Directors' determination of the existence of a material
irreconcilable conflict and its implications.

<PAGE> 5

8. Nationwide shall provide pass-through voting privileges to its Contract
owners as long as the SEC continues to interpret the 1940 Act to require
pass-through voting privileges for variable account owners, consistent
with the method of calculation of voting privileges for all other separate
accounts investing in the Fund. Nationwide will vote shares in the Fund
for which it has not received voting instructions as well as shares
attributable to it, in the same proportion as it votes shares for which it
has received instructions from its Contract owners.

9. This Agreement shall terminate as to the sale and issuance of new
Contracts:

(a) at the option of Nationwide, the Adviser, the Distributor or the
Fund upon six months' advance written notice to the other;

(b) at the option of Nationwide if Fund shares are not available for any
reason to meet the requirements of Contracts as determined by Nationwide.
Reasonable advance notice of election to terminate shall be furnished by
Nationwide;

(c) at the option of Nationwide, the Adviser, the Distributor or the
Fund, upon institution of formal proceedings against the Variable
Account, Nationwide, the Fund, the Distributor or the Adviser by the
National Association of Securities Dealers, Inc. ("NASD"), the SEC or any
other regulatory body;

(d) upon a decision by Nationwide, in accordance with regulations of the
SEC, to substitute such Fund shares with the shares of another investment
company for Contracts for which the Fund shares have been selected to
serve as the underlying investment medium. Nationwide will give 60 days,
written notice to the Fund, the Distributor and the Adviser of any
proposed vote to replace Fund shares;

(e) upon assignment of this Agreement unless made with the written
consent of each other party.

(f) in the event Fund shares are not registered, issued or sold in
conformance with Federal law or such law precludes the use of Fund shares
as an underlying investment medium of Contracts issued or to be issued by
Nationwide. Prompt notice shall be given by either party to the other in
the event the conditions of this provision occur.

10. Termination as the result of any cause listed in the preceding paragraph
shall not affect the Fund's obligation

<PAGE> 6

to furnish Fund shares for Contracts then in force for which the shares
of the fund serve or may serve as an underlying medium, unless such
further sale of Fund shares is proscribed by law or the SEC or other
regulatory body.

11. Each notice required by this Agreement shall be given by wire and
confirmed in writing to:

Nationwide Life Insurance Company
One Nationwide Plaza
Columbus, Ohio 43216

Fund
Strong Special Fund II, Inc.
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
Attention: Mr. Helge Krist Lee

Adviser
Strong/Corneliuson Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
Attention: Mr. Helge Krist Lee

Distributor
Strong Funds Distributors, Inc.
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
Attention: Mr. Helge Krist Lee

12. Advertising and sales literature with respect to the Fund, the
Distributor or the Adviser prepared by Nationwide or its agents will be
submitted to the Distributor for review before such material is submitted
to the SEC or NASD for review and before such material is placed in use.

13. Nationwide will distribute all proxy material furnished by the Fund and
will vote Fund shares in accordance with instructions received from the
Contract owners of such Fund shares. Nationwide shall vote the Fund
shares for which no instructions have been received in the same proportion
as Fund shares for which said instructions have been received from
Contract owners. Nationwide and its agents will in no way recommend
action in connection with or oppose or interfere with the solicitation of
proxies for the Fund shares held for such Contract owners.

14. (a) Nationwide agrees to indemnify and hold harmless the Fund, the
Distributor and the Adviser and each of their respective directors,
officers, employees, agents and each

<PAGE> 7

person, if any, who controls the Fund, the Distributor or the Adviser
within the meaning of the Securities Act of 1933 (the "Act") against any
losses, claims, damages or liabilities to which the Fund, the
Distributor, the Adviser or any such director, officer, employee, agent
of controlling person may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in information
furnished by Nationwide for use in the Registration Statement or
prospectus of the Fund or in the Registration Statement, prospectus or
sales literature for the Variable Account, or arise out of or are based
upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or arise out of or as a result of conduct,
statements or representations (other than statements or representations
made in reliance upon and in conformity with information furnished to
Nationwide by or on behalf of the Fund for use in the prospectus and
sales literature of the Contracts) of Nationwide or its agents, with
respect to the sale and distribution of Fund shares or Contracts for
which Fund shares are an underlying investment; and Nationwide will
reimburse any reasonable legal or other expenses incurred by the Fund,
the Distributor, the Adviser or any such director, officer, employee,
agent or controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action. This indemnity
agreement will be in addition to any liability which Nationwide may
otherwise have.

(b)(1) The Adviser and the Distributor agree to indemnify and hold
harmless Nationwide and each of its directors, officers, employees,
agents and each person, if any, who controls Nationwide within the
meaning of the Act against any losses, claims, damages or liabilities to
which Nationwide or any such director, officer, employee, agent or
controlling person may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement or prospectus or sales literature of the Fund, or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, or arise out of or are
based upon the Adviser's or the Distributor's, as the case may be,
failure to keep the Fund's portfolio fully diversified and the Fund

<PAGE> 8

qualified as a regulated investment company as required by the applicable
provisions of the Internal Revenue Code and the 1940 Act, and the Adviser
and the Distributor will reimburse any reasonable legal or other expenses
incurred by Nationwide or any such director, officer, employee, agent or
controlling person in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that neither
the Adviser nor the Distributor will be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or omission or alleged omission made in
such Registration Statement, prospectus or sales literature in conformity
with written information furnished to the Fund, the Distributor or the
Adviser by or on behalf of Nationwide. This indemnity agreement will be
in addition to any liability which the Adviser or the Distributor may
otherwise have.

(b)(2) The Fund agrees to indemnify and hold harmless Nationwide and
each of its directors, officers, employees, agents and each person, if
any, who controls Nationwide within the meaning of the Act against any
losses, claims, damages or liabilities to which Nationwide or any such
director, officer, employee, agent or controlling person may become
subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or prospectus of
the Fund, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or arise out
of or are based upon the Fund's failure to keep each of the Fund's
portfolio fully diversified and the Fund qualified as a regulated
investment company as required by the applicable provisions of the
Internal Revenue Code and the 1940 Act, and the Fund will reimburse any
reasonable legal or other expenses incurred by Nationwide or any such
director, officer, employee, agent or controlling person in connection
with investigating or defending any such loss, claim, damage, liability
or action; provided, however, that the Fund will not liable in any such
case to the extent that any such loss, claim, damage or liability arises
out of or is based upon any untrue statement or omission or alleged
omission made in such Registration Statement or prospectus in conformity
with written information furnished to the Fund, the Distributor or the
Adviser by or on behalf of Nationwide. This indemnity agreement will be
in addition to any liability which the Fund may otherwise have.

<PAGE> 9

(c) Neither Nationwide, the Fund, the Distributor nor the Adviser shall
be liable under the indemnification provisions contained in this
Agreement with respect to any loss, claim, damage, liability or action to
which an indemnified party would otherwise be subject by reason of such
indemnified party's willful misfeasance, bad faith, or gross negligence
in the performance of such indemnified party's duties or by reason of
such indemnified party's reckless disregard of obligations and duties
under this Agreement.

(d) Promptly after receipt by an indemnified party under this paragraph
of notice of the commencement of action, such indemnified party
will, if a claim in respect thereof is to be made against the
indemnifying party under this paragraph, notify the indemnifying party of
the commencement thereof; but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party otherwise than under this paragraph. In case any such
action is brought against any indemnified party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party
will be entitled to participate therein and, to the extent that it may
wish, assume the defense thereof, with counsel satisfactory to such
indemnified party. After notice from the indemnifying party of its
intention to assume the defense of an action, the indemnified party shall
bear the expenses of any additional counsel obtained by it, and the
indemnifying party shall not be liable to such indemnified party under
this paragraph for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation.

15. If, in the course of future marketing of the Contracts, Nationwide or its
agents shall request the continued assistance of the Distributor's sales
personnel, compensation (which will be negotiated by the Distributor and
Nationwide) shall be paid by Nationwide to the Distributor.

16. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the
same instrument. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of
the Agreement shall not be affected thereby. Each party hereto shall
cooperate with each other party and all appropriate governmental
authorities (including without limitation the SEC, the NASD and state
insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry

<PAGE> 10

relating to this Agreement or the transactions contemplated hereby. The
rights, remedies, and obligation contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws. It is understood by the parties that this Agreement is not an
exclusive arrangement in any respect. The foregoing constitutes the entire
Agreement between the parties hereto and shall not be modified, amended or
assigned except by an agreement in writing signed by an authorized
representative of each party.

NATIONWIDE LIFE INSURANCE COMPANY

December 1, 1993 By: Joseph F. Ciminero
- ---------------------- ----------------------
Date Joseph F. Ciminero
Vice President-Financial
Operations

FUND
STRONG SPECIAL FUND II, INC.

December 1, 1993 By: Helge Krist Lee
- ---------------------- ----------------------
Date Helge Krist Lee
Secretary

ADVISER
STRONG/CORNELIUSON CAPITAL
MANAGEMENT, INC.

December 1, 1993 By: Helge Krist Lee
- ---------------------- ----------------------
Date Helge Krist Lee
Senior Vice President and
General Counsel

DISTRIBUTOR
STRONG FUNDS DISTRIBUTORS, INC.

December 1, 1993 By: Helge Krist Lee
- ---------------------- ----------------------
Date Helge Krist Lee
President

<PAGE> 11

SECOND AMENDMENT TO
FUND PARTICIPATION AGREEMENT

This Second Amendment, effective July 1, 1995, hereby amends the Amended and
Restated Fund Participation Agreement dated as of December 1, 1993, by and
between Nationwide Life Insurance Company ("Nationwide"), Strong Special Fund
II, Inc. (the "fund"), the Fund's investment adviser and transfer agent, Strong
Capital Management, Inc., formerly Strong/Corneliuson Capital Management, Inc.,
(the "Adviser"), and the Fund's distributor, Strong Funds Distributors, Inc.
("Distributors").

RECITALS

WHEREAS, Nationwide, the Fund, and the Adviser entered into a Fund
Participation Agreement dated May 1, 1992, which defined the rights and
obligations of the parties; and into an Amended and Restated Fund Participation
Agreement dated December 1, 1993 (the "Agreement"). Nationwide, Nationwide Life
and Annuity Insurance Company, the Fund, the Adviser and the Distributors now
seek to modify the agreement effective July 1, 1995 as follows:

I. Nationwide Life and Annuity Insurance Company shall be a party to this
agreement and any references to Nationwide Life Insurance Company in the
Agreement shall also include the Nationwide Life and Annuity Insurance
Company where applicable.

II. Within the Agreement and all amendments thereto, the party "Nationwide"
shall be defined to include Nationwide Life Insurance Company and its
subsidiary company Nationwide Life and Annuity Insurance Company.

III. The parties agree that shares of the Fund shall be made available to
serve as underlying investment media within the Nationwide VA Separate
Account B for the Individual Deferred Variable Annuity Contracts and
Variable Life Contracts offered by Nationwide.

IV. Section I of the Agreement is hereby amended to include the following
paragraph:

Nationwide further represents that it has established the Nationwide VA
Separate Account B, a separate account under Ohio law, and has registered
it as a unit investment trust under the Investment Company Act of 1940 to
serve as an investment vehicle for Nationwide Contracts. The Contracts
provide for the allocation of net amounts received by Nationwide to
separate series of the Nationwide VA Separate Account B for investments
in the shares of specified investment companies selected among those
companies available through the Nationwide VA Separate Account B to act
as underlying investment media.

V. Beginning with Section 1 of the Agreement and thereafter, all references
to the Variable Account in the Agreement shall include the Nationwide VA
Separate Account B, unless specifically provided to the contrary in
certain provisions of this Second Amendment, as set out above.

VI. The Fund will establish an account for transactions within the
Nationwide VA Separate Account B. Distributors hereby appoints
Nationwide as its agent for the limited purpose of accepting orders for
Fund shares by the Nationwide VA Separate Account B.

VII. The Fund shall provide Nationwide, within five (5) business days after
the end of each month, a monthly statement of account confirming all
transactions made in the Nationwide VA Separate Account B during that
month.

<PAGE> 12

VIII. In the event there is any conflict between the terms of this Amendment
No. 2 and the Agreement, it is the intention of the parties that the
terms of this Amendment No. 2 shall control and the Agreement shall be
interpreted on that basis. To the extent the provisions of the Agreement
have not been amended by this Amendment No. 2, the parties hereby
confirm and ratify the Agreement.

IN WITNESS WHEREOF, the parties have executed this Second Amendment on the date
first above written.

Attest: NATIONWIDE LIFE INSURANCE COMPANY AND
NATIONWIDE LIFE AND ANNUITY INSURANCE
COMPANY

N/A By: R. Dennis Noice
- ----------------------------- --------------------------------
R. Dennis Noice

Title: Vice President - Individual Investment
Products
-----------------------------------

Attest: STRONG CAPITAL MANAGEMENT, INC.

N/A By: /s/
- ----------------------------- --------------------------------

Title: Vice President
-----------------------------------

Attest: STRONG SPECIAL FUND II, INC.

N/A By: /s/
- ----------------------------- --------------------------------

Title: Vice President
-----------------------------------

Attest: STRONG FUNDS DISTRIBUTORS, INC.

N/A By: /s/
- ----------------------------- --------------------------------

Title: Assistant Secretary
-----------------------------------

<PAGE> 13

THIRD AMENDMENT TO
FUND PARTICIPATION AGREEMENT

This Third Amendment, effective August 1, 1995, hereby amends the Amended and
Restated Fund Participation Agreement dated as of December 1, 1993 by and
between Nationwide Life Insurance Company and Nationwide Life and Annuity
Insurance Company ("Nationwide"), Strong Special Fund II, Inc. (the "Fund"),
the Funds investment adviser and transfer agent, Strong Capital Management,
Inc., formerly Strong/Corneliuson Capital Management, Inc., (the "Adviser), and
the Fund's distributor, Strong Funds Distributors, Inc. ("Distributors"), and
amended as of July 1, 1995. This Third Amendment is made and entered into by
and among Nationwide, the Fund, the Adviser and Distributors.

RECITALS

WHEREAS, Nationwide, the Fund, and the Adviser entered into a Fund
Participation Agreement dated May 1, 1992, which defined the rights and
obligations of the parties; and into an Amended and Restated Fund Participation
Agreement dated December 1, 1993 (the "Agreement") as further amended on July
1, 1995. Nationwide, the Fund, the Adviser and Distributors now desire to
modify such Agreement effective August 1, 1995 as follows:

I. The parties agree that shares of the Fund shall be made available to
serve as underlying investment media within the VLI-3 Variable Account for
the Individual Deferred Variable Annuity Contracts and Variable Life
Contracts offered by Nationwide.

II. Section I of the Agreement is hereby amended to include the following
paragraph:

Nationwide further represents that it has established the VLI-3 Variable
Account, a separate account under Ohio law, and has registered it as a
unit investment trust under the Investment Company Act of 1940 to serve
as an investment vehicle for Nationwide Contracts. The Contracts provide
for the allocation of net amounts received by Nationwide to separate
series of the VLI-3 Variable Account for investments in the shares of
specified investment companies selected among those companies available
through the VLI-3 Variable Account to act as underlying investment media.

III. Beginning with Section 1 of the Agreement and thereafter, all references
to the Variable Account in the Agreement shall include the VLI-3 Variable
Account, unless specifically provided to the contrary in certain
provisions of this Third Amendment, as set out above.

IV. The Fund will establish an account for transactions within the VLI-3
Variable Account. Distributors hereby appoints Nationwide as its agent for
the limited purpose of accepting orders for Fund shares by the VLI-3
Variable Account.

V. The Fund shall provide Nationwide, within five (5) business days after
the end of each month, a monthly statement of account confirming all
transactions made in the VLI-3 Variable Account during that month.

VI. In the event there is any conflict between the terms of this Amendment
No. 3 and the Agreement, it is the intention of the parties that the terms
of this Amendment No. 3 shall control and the Agreement shall be
interpreted on that basis. To the extent the provisions of the Agreement
have not been amended by this Amendment No. 3, the parties hereby confirm
and ratify the Agreement.

<PAGE> 14

IN WITNESS WHEREOF, the parties have executed this Third Amendment on the date
first above written.

Attest: NATIONWIDE LIFE INSURANCE COMPANY AND
NATIONWIDE LIFE AND ANNUITY INSURANCE
COMPANY

N/A By: R. Dennis Noice
- ----------------------------- --------------------------------
R. Dennis Noice

Title: Vice President - Individual
Investment Products
-----------------------------------

Attest: STRONG CAPITAL MANAGEMENT, INC.

N/A By: /s/
- ----------------------------- --------------------------------

Title: President - Strong Advisory Services
-----------------------------------

Attest: STRONG SPECIAL FUND II, INC.

N/A By: /s/
- ----------------------------- --------------------------------

Title: Vice President
-----------------------------------

Attest: STRONG FUNDS DISTRIBUTORS, INC.

N/A By: /s/
- ----------------------------- --------------------------------

Title: Assistant Secretary
-----------------------------------

<PAGE> 15

FOURTH AMENDMENT TO
FUND PARTICIPATION AGREEMENT

This Fourth Amendment, effective September 4, 1995, hereby amends the Amended
and Restated Fund Participation Agreement dated as of December 1, 1993 by and
between Nationwide Life Insurance Company and Nationwide Life and Annuity
Insurance Company ("Nationwide"), Strong Special Fund II, Inc. (the "Fund"),
the Fund's investment adviser and transfer agent, Strong Capital Management,
Inc., formerly Strong/Corneliuson Capital Management, Inc., (the "Adviser"),
and the Fund's distributor Strong Funds Distributors, Inc. ("Distributors"),
and amended as of July 1, 1995 and August 1, 1995. This Fourth Amendment is
made and entered into by and among Nationwide, the Fund, the Adviser, and
Distributors.

RECITALS

WHEREAS, Nationwide, the Fund, and the Adviser entered into a Fund
Participation Agreement dated May 1, 1992, which defined the rights and
obligations of the parties; and into an Amended and Restated Fund Participation
Agreement dated December 1, 1993 (the "Agreement") as further amended July 1,
1995 and August 1, 1995. Nationwide, the Fund, the Adviser and Distributors now
desire to modify such Agreement effective September 4, 1995 as follows:

I. The parties agree that shares of the Fund shall be made available to
serve as underlying investment media within the Multi-Flex Variable
Account for the Individual Deferred Variable Annuity Contracts and
Variable Life Contracts offered by Nationwide.

II. Section I of the Agreement is hereby amended to include the following
paragraph:

Nationwide further represents that it has established the Multi-Flex
Variable Account, a separate account under Ohio law, and has registered
it as a unit investment trust under the Investment Company Act of 1940 to
serve as an investment vehicle for Nationwide Contracts. The Contracts
provide for the allocation of net amounts received by Nationwide to
separate series of the Multi-Flex Variable Account for investments in the
shares of specified investment companies selected among those companies
available through the Multi-Flex Variable Account to act as underlying
investment media.

III. Beginning with Section 1 of the Agreement and thereafter, all references
to the Variable Account in the Agreement shall include the Multi-Flex
Variable Account, unless specifically provided to the contrary in certain
provisions of this Fourth Amendment, as set out above.

IV. The Fund will establish an account for transactions within the Multi-Flex
Variable Account. Distributors hereby appoints Nationwide as its agent for
the limited purpose of accepting orders for Fund shares by the Multi-Flex
Variable Account.

V. The Fund shall provide Nationwide, within five (5) business days after
the end of each month, a monthly statement of account confirming all
transactions made in the Multi-Flex Variable Account during that month.

VI. In the event there is any conflict between the terms of this Amendment
No. 4 and the Agreement, it is the intention of the parties that the terms
of this Amendment No. 4 shall control and the Agreement shall be
interpreted on that basis. To the extent the provisions of the Agreement
have not been amended by this Amendment No. 4, the parties hereby confirm
and ratify the Agreement.

<PAGE> 16

IN WITNESS WHEREOF, the parties have executed this Fourth Amendment on the
date first above written.

Attest: NATIONWIDE LIFE INSURANCE COMPANY AND
NATIONWIDE LIFE AND ANNUITY INSURANCE
COMPANY

N/A By: R. Dennis Noice
- ----------------------------- --------------------------------
R. Dennis Noice

Title: Vice President - Individual
Investment Products
-----------------------------------

Attest: STRONG CAPITAL MANAGEMENT, INC.

N/A By: /s/
- ----------------------------- --------------------------------

Title: Strong Advisory Services
-----------------------------------

Attest: STRONG SPECIAL FUND II, INC.

N/A By: /s/
- ----------------------------- --------------------------------

Title: Vice President
-----------------------------------

Attest: STRONG FUNDS DISTRIBUTORS, INC.

N/A By: /s/
- ----------------------------- --------------------------------

Title: Assistant Secretary
-----------------------------------

<PAGE> 1
EXHIBIT 99.B11

CONSENT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Strong Special Fund II, Inc.

We consent to the incorporation by reference in Post-Effective Amendment No. 8
to the Registration Statement of Strong Special Fund II, Inc. on Form N-1A of
our report dated February 8, 1996 on our audit of the financial statements and
financial highlights of Strong Special Fund II, Inc., which report is included
in the Annual Report to Shareholders for the year ended December 31, 1995, which
is also incorporated by reference in the Registration Statement. We also consent
to the reference to our Firm under the caption "Independent Accountants" in the
Statement of Additional Information.

/s/ COOPERS & LYBRAND L.L.P.

Milwaukee, Wisconsin
April 22, 1996

<PAGE> 1
Strong Special Fund II, Inc.

EXHIBIT 16

SCHEDULE OF COMPUTATION OF
PERFORMANCE QUOTATIONS

I. AVERAGE ANNUAL TOTAL RETURN

A. Formula

n _____
P (1 + T) = ERV or T = \n/ERV/P - 1

Where: P = a hypothetical initial payment of $10,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $10,000 payment made
at the beginning of the stated periods at the end of the stated
periods.

B. Calculation
_____
T = \n/ERV/P - 1

1. One-year period 12-31-94 through 12-31-95
_____________
25.82% = \1/12,582/10,000 - 1

2. Since inception 05-08-92 through 12-31-95
_____________
19.16% = \3.647/18,953/10,000 - 1

III. TOTAL RETURN

A. Formula

EV-IV
-----
IV = TR

Where: EV = Value at the end of the period, including reinvestment
of all dividends and capital gains distributions

IV = Initial value of a hypothetical investment at the net asset
value

TR = Total Return

B. Calculation

EV-IV
-----
IV = TR

One-year period ended December 31, 1995

12,582 - 10,000
--------------- = 25.82%
10,000

<PAGE> 1
EXHIBIT 18

[GODFREY & KAHN, S.C. LETTERHEAD]

April 22, 1996

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: Strong Special Fund II, Inc.

Gentlemen:

We represent Strong Special Fund, Inc. (the "Company"), in connection
with its filing of Post-Effective Amendment No. 8 (the "Post-Effective
Amendment") to the Company's Registration Statement (Registration Nos.
33-45320; 811-6552) on Form N-1A under the Securities Act of 1933 (the
"Securities Act") and the Investment Company Act of 1940. The Post-Effective
Amendment is being filed pursuant to Rule 485(b) under the Securities Act.

We have reviewed the Post-Effective Amendment and, in accordance with
Rule 485(b)(4) under the Securities Act, hereby represent that the
Post-Effective Amendment does not contain disclosures which would render it
ineligible to become effective pursuant to Rule 485(b).

Very truly yours,

GODFREY & KAHN, S.C.

/s/ Scott A. Moehrke

Scott A. Moehrke

<ARTICLE> 6
<CIK> 0000883678
<NAME> STRONG SPECIAL FUND II, INC.
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 379735
<INVESTMENTS-AT-VALUE> 447520
<RECEIVABLES> 6465
<ASSETS-OTHER> 319
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 454304
<PAYABLE-FOR-SECURITIES> 996
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 935
<TOTAL-LIABILITIES> 1931
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 366261
<SHARES-COMMON-STOCK> 26554
<SHARES-COMMON-PRIOR> 21117
<ACCUMULATED-NII-CURRENT> (365)
<OVERDISTRIBUTION-NII> 848
<ACCUMULATED-NET-GAINS> 18456
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 68021
<NET-ASSETS> 452373
<DIVIDEND-INCOME> 4767
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<EXPENSES-NET> 4509
<NET-INVESTMENT-INCOME> 2865
<REALIZED-GAINS-CURRENT> 19655
<APPREC-INCREASE-CURRENT> 63868
<NET-CHANGE-FROM-OPS> 86388
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3722)
<DISTRIBUTIONS-OF-GAINS> (13221)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9208
<NUMBER-OF-SHARES-REDEEMED> (4931)
<SHARES-REINVESTED> 1159
<NET-CHANGE-IN-ASSETS> 151940
<ACCUMULATED-NII-PRIOR> 9
<ACCUMULATED-GAINS-PRIOR> 12504
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3755
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4509
<AVERAGE-NET-ASSETS> 376099
<PER-SHARE-NAV-BEGIN> 14.23
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 3.42
<PER-SHARE-DIVIDEND> (0.15)
<PER-SHARE-DISTRIBUTIONS> (0.58)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.04
<EXPENSE-RATIO> 1.2
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>