As filed with the Securities and Exchange Commission on or about
February 24, 2000
Securities Act Registration No. 33-61358
Investment Company Act Registration No. 811-7656
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 20 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 22 [X]
(Check appropriate box or boxes)
STRONG CONSERVATIVE EQUITY FUNDS, 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
Stephen J. Shenkenberg
Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box).
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on February 29, 2000 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:
[X] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
This Post-Effective Amendment to the Registration Statement of Strong
Conservative Equity Funds, Inc., which is currently comprised of five funds,
Strong American Utilities Fund, Strong Blue Chip 100 Fund, Strong Equity Income
Fund, Strong Growth and Income Fund, and Strong Limited Resources Fund,
contains the annual update and adds an Advisor Class of shares to the Strong
Blue Chip 100 Fund, and an Advisor and Institutional Class of shares to the
Strong Growth and Income Fund.
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[Strong logo and picture of man and two children fishing]
prospectus
THE STRONG CONSERVATIVE
EQUITY FUNDS
investor class
February 29, 2000
The Strong American Utilities Fund
The Strong Asset Allocation Fund
The Strong Blue Chip 100 Fund
The Strong Equity Income Fund
The Strong Growth and Income Fund
The Strong Limited Resources Fund
The Strong Total Return Fund
THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED OF
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
YOUR INVESTMENT.................................................................
KEY INFORMATION.................................................................
What are the funds' goals?.....................................................1
What are the funds' principal investment strategies?...........................1
What are the main risks of investing in the funds?.............................4
What are the funds' fees and expenses?........................................10
Who are the funds' investment advisor and portfolio managers?.................11
OTHER IMPORTANT INFORMATION YOU SHOULD KNOW...................................16
Comparing the Funds...........................................................16
A Word About Credit Quality...................................................17
Historical Performance Data of W. H. Reaves & Co., Inc........................18
Financial Highlights..........................................................21
YOUR ACCOUNT....................................................................
Share Price...................................................................29
Buying Shares.................................................................30
Selling Shares................................................................33
Additional Policies...........................................................36
Distributions.................................................................37
Taxes.........................................................................38
Services For Investors........................................................39
Reserved Rights...............................................................42
For More Information..................................................Back Cover
IN THIS PROSPECTUS, "WE" REFERS TO STRONG CAPITAL MANAGEMENT, INC., THE
INVESTMENT ADVISOR, ADMINISTRATOR, AND TRANSFER AGENT FOR THE STRONG FUNDS.
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YOUR INVESTMENT
KEY INFORMATION
WHAT ARE THE FUNDS' GOALS?
The STRONG AMERICAN UTILITIES FUND and STRONG EQUITY INCOME FUND seek total
return by investing for both income and capital growth.
The STRONG ASSET ALLOCATION FUND seeks high total return consistent with
reasonable risk over the long term.
The STRONG BLUE CHIP 100 FUND and STRONG LIMITED RESOURCES FUND seek total
return by investing for capital growth and income.
The STRONG GROWTH AND INCOME FUND and STRONG TOTAL RETURN FUND seek high total
return by investing for capital growth and income.
WHAT ARE THE FUNDS' PRINCIPAL INVESTMENT STRATEGIES?
The AMERICAN UTILITIES FUND invests primarily in the stocks of U.S. public
utility companies. These include companies that provide products and services
related to electric power, communications, gas, and water. The stocks of public
utility companies generally pay consistent and above-average dividends. The
fund also invests in energy stocks. To a limited extent, the fund may also
invest in foreign securities. The managers may sell a holding if its prospects
for growth and income decline.
The ASSET ALLOCATION FUND invests in a combination of stocks, bonds, and cash.
Under normal conditions, about 60% of assets will be invested in stocks, 35% in
bonds (all of which may be high-yield or junk bonds), and 5% in cash. The
fund's bond portfolio consists primarily of intermediate-term corporate bonds
of higher-, medium-, and lower-quality. The managers focus primarily on
high-yield bonds with positive or improving credit fundamentals. The fund's
managers attempt to strike a balance between an investment's growth and income
prospects, and its potential risks. To a limited extent, the fund may also
invest in foreign securities. The managers may sell a holding when they
believe it no longer offers an attractive balance between risk and return.
The BLUE CHIP 100 FUND invests in the common stocks of the 100 largest market
capitalization companies primarily traded in the U.S. as determined by the
fund's manager. These blue chip stocks generally tend to pay higher dividends
than medium- and small-capitalization stocks. Half of the fund's assets are
invested in these stocks in proportion to size. The other half of the fund's
assets are selectively invested in 20 to 30 of those same 100 companies. The
portfolio manager focuses on those companies that the fund's manager believes
offer greater return potential. To a limited extent, the fund may also invest
in dollar-denominated foreign securities. The manager may sell stocks from the
actively managed half of the portfolio when they no longer offer attractive
growth prospects.
The EQUITY INCOME FUND focuses primarily on the stocks of large-capitalization,
dividend-paying U.S. companies. To choose investments, the manager evaluates
domestic and international economic conditions and events. The manager then
identifies stocks in those sectors that appear likely to benefit from those
conditions, and avoids those that appear likely to suffer. When changes in
economic conditions make the environment unfavorable for a security or its
industry, the manager may sell a holding. The manager's philosophy is to remain
fully invested in stocks, despite market fluctuations. Rather than attempting
to time the markets by investing in cash or cash-type investments as market
conditions change, the manager attempts to move out of sectors and companies
that appear to be especially vulnerable to deterioration, and into those that
appear less likely to be affected.
The GROWTH AND INCOME FUND focuses primarily on the stocks of
large-capitalization, dividend-paying U.S. companies that also offer potential
for capital growth. To choose investments, the manager evaluates domestic and
international economic conditions and events. The manager then identifies
stocks in those sectors that appear likely to benefit from those conditions,
and avoids those that appear likely to suffer. To a limited extent, the fund
may also invest in foreign-based companies, primarily
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through American Depositary Receipts (ADRs). When changes in economic
conditions make the environment unfavorable for a security or its industry, the
manager may sell a holding. The manager's philosophy is to remain fully
invested in stocks, despite market fluctuations. Rather than attempting to time
the markets by investing in cash or cash-type investments as market conditions
change, the manager attempts to move out of sectors and companies that appear
to be especially vulnerable to deterioration, and into those that appear less
likely to be affected.
The LIMITED RESOURCES FUND invests primarily in the stocks of companies
involved in the exploration, development, production, or distribution of energy
and other natural resources. It focuses on large- and medium-capitalization
companies that pay current dividends and whose earnings are expected to
improve. To a limited extent, the fund may invest in foreign securities. The
manager may sell a holding when it believes it no longer has potential for
earnings growth, or when it is otherwise unattractive.
The TOTAL RETURN FUND emphasizes stocks of large- and medium-capitalization
companies with steady or growing dividends. The fund's managers seek to
identify reasonably priced companies that have accelerating sales and earnings,
enjoy a competitive advantage, and have effective management teams. When market
conditions are favorable, the fund may invest a significant portion of its
assets in bonds. The managers may choose to sell a holding if its fundamental
qualities decline. The fund writes put and call options. This means that the
fund sells an option to another party to either sell a stock to (put) or buy a
stock from (call) the fund at a predetermined price in the future. When the
fund writes put or call options, it will receive fees or premiums but is
exposed to losses due to changes in the value of the stock that the put or call
is written against. Writing options can serve as a limited or partial hedge
against adverse market movements. This is because declines in the value of the
hedged stock will be offset by the premium received for writing the option.
Whether or not this hedging strategy is successful depends on a variety of
factors, particularly the ability of the fund's managers to predict movements
of the price of the hedged stock. The managers' decision to engage in this
hedging strategy will reflect the managers' judgment that writing an option on
a stock will provide value to the fund and its shareholders. To a limited
extent, the fund may invest in foreign securities. The fund's active trading
approach may increase the fund's costs which may reduce the fund's performance.
The fund's active trading approach may also increase the amount of capital
gains tax that you pay on the fund's returns.
The managers of the AMERICAN UTILITIES FUND, the LIMITED RESOURCES FUND, and
the ASSET ALLOCATION FUND may invest any amount in cash or cash-type securities
(high-quality, short-term debt securities issued by corporations, financial
institutions, or the U.S. government) as a temporary defensive position to
avoid losses during adverse market conditions. The managers of the BLUE CHIP
100 FUND and the TOTAL RETURN FUND may take a temporary defensive position, but
only up to 50% and 40% of assets, respectively. Taking a temporary defensive
position could reduce the benefit to the funds if the market goes up. In this
case, the funds may not achieve their investment goals.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?
GENERAL STOCK RISKS: The major risks of each fund are those of investing in the
stock market. That means the funds may experience sudden, unpredictable
declines in value, as well as periods of poor performance. Because stock values
go up and down, the value of your fund's shares may go up and down. Therefore,
when you sell your investment, you may receive more or less money than you
originally invested.
STYLE INVESTING: Different types of stocks tend to shift into and out of favor
with stock market investors depending on market and economic conditions.
Because each of the funds focuses on stocks selected in accordance with the
fund's goal and investment strategies, each fund's performance may at times be
better or worse than the performance of funds that focus on other types of
stocks or that have a broader investment style.
MEDIUM-SIZE COMPANIES: The LIMITED RESOURCES FUND invests significantly in the
stocks of medium-capitalization companies. The TOTAL RETURN FUND invests a
small portion of its assets in medium-capitalization companies.
Medium-capitalization companies often have narrower markets and more limited
managerial and financial resources than larger, more established companies. As
a result, their performance can be more volatile and they face greater risk of
business failure, which could increase the volatility of the funds' portfolios.
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BOND RISKS: The ASSET ALLOCATION FUND maintains a significant position in bonds
and, at times, the TOTAL RETURN FUND invests in bonds. To the extent they do
so, the funds are exposed to the risks of bond investing. A bond's market value
is affected significantly by changes in interest rates-generally, when interest
rates rise, the bond's market value declines and when interest rates decline,
its market value rises (interest-rate risk). Generally, the longer a bond's
maturity, the greater the risk and the higher its yield. Conversely, the
shorter a bond's maturity, the lower the risk and the lower its yield (maturity
risk). A bond's value can also be affected by changes in the bond's credit
quality rating or its issuer's financial condition (credit-quality risk).
Because bond values fluctuate, the fund's share price fluctuates. So, when you
sell your investment, you may receive more or less money than you originally
invested.
HIGH-YIELD BONDS: The ASSET ALLOCATION FUND invests in medium- and
lower-quality bonds, including high-yield bonds (commonly referred to as junk
bonds). Lower-quality bonds involve greater interest-rate and credit-quality
risks than higher- and medium-quality bonds. High-yield bonds possess an
increased possibility that the bond's issuer may not be able to make its
payments of interest and principal. If that happens, the fund's share price
would decrease and its income distributions would be reduced. An economic
downturn or period of rising interest rates could adversely affect the
high-yield bond market and reduce the fund's ability to sell its high-yield
bonds (liquidity risk). A lack of a liquid market for these bonds could
decrease the fund's share price.
WRITING OPTIONS: The TOTAL RETURN FUND writes put and call options. The fund
will receive fees for writing options but is exposed to losses due to an
adverse change in the value of the underlying asset that the option was written
against. Transactions involving written options may include elements of
leverage and could magnify a fund's losses. Using options in this manner may
reduce a fund's opportunity for investment gain. The fund will segregate liquid
assets, such as cash, short-term debt, and other liquid securities, in a
segregated account to the extent required to cover the financial exposure
created by the use of these instruments.
FOREIGN SECURITIES: The AMERICAN UTILITIES FUND, ASSET ALLOCATION FUND, GROWTH
AND INCOME FUND, LIMITED RESOURCES FUND and TOTAL RETURN FUND may invest up to
25% of their assets in foreign securities. The GROWTH AND INCOME FUND invests
in the stocks of foreign-based companies primarily through American Depositary
Receipts (ADRs). The BLUE CHIP 100 FUND invests in dollar-denominated foreign
securities. Foreign investments involve additional risks, including
currency-rate fluctuations, political and economic instability, differences in
financial reporting standards, and less-strict regulation of securities
markets.
CONCENTRATED PORTFOLIOS: The AMERICAN UTILITIES FUND concentrates its assets in
the utilities industry. The LIMITED RESOURCES FUND concentrates its assets in
the energy and natural resources industries. As a result, each fund's shares
are likely to fluctuate in value more than those of a fund investing in a
broader range of securities.
NONDIVERSIFIED PORTFOLIO: The AMERICAN UTILITIES FUND is a nondiversified fund
so it takes large positions in individual stocks. As a result, the shares of
this fund are likely to fluctuate in value more than those of a fund investing
in a broader range of securities.
The funds are appropriate for investors who are comfortable with the risks
described here and whose financial goals are five or more years in the future.
The funds are not appropriate for investors concerned primarily with principal
stability.
FUND STRUCTURE
Each of the funds has adopted a multiple class plan. The GROWTH AND INCOME
FUND offers Investor Class shares, Advisor Class shares, and Institutional
Class shares. The BLUE CHIP 100 FUND offers Investor Class shares and Advisor
Class shares. The AMERICAN UTILITIES FUND, the ASSET ALLOCATION FUND, the
EQUITY INCOME FUND, the LIMITED RESOURCES FUND, and the TOTAL RETURN FUND offer
Investor Class shares. Only the Investor Class shares of each fund are offered
in this prospectus. The principal differences between each of the classes of
shares are that the Advisor Class shares are subject to a front-end sales load
and distribution fees and expenses under a 12b-1 plan, and each class of shares
is subject to different administrative and transfer agency fees and expenses.
FUND PERFORMANCE
The return information on the following pages illustrates how the performance of
the fund's Investor Class shares can vary, which is one indication of the risks
of investing in the funds. Please keep in mind that the past performance of a
fund's Investor Class
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shares does not represent how it will perform in the future. The information
assumes that you reinvested all dividends and distributions.
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CALENDAR YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Asset American Growth and Limited
Year Allocation Total Return Utilities Equity Income Income Blue Chip 100 Resources
- ---- ----------- ------------- ---------- ------------- ---------- ------------- ---------
1990 2.8% -7.1% - - - - -
- ---- ----------- ------------- ---------- ------------- ---------- ------------- ---------
1991 19.6% 33.6% - - - - -
- ---- ----------- ------------- ---------- ------------- ---------- ------------- ---------
1992 3.2% 0.5% - - - - -
- ---- ----------- ------------- ---------- ------------- ---------- ------------- ---------
1993 14.5% 22.5% - - - - -
- ---- ----------- ------------- ---------- ------------- ---------- ------------- ---------
1994 -1.5% -1.4% -2.6% - - - -
- ---- ----------- ------------- ---------- ------------- ---------- ------------- ---------
1995 22.0% 27.0% 37.0% - - - -
- ---- ----------- ------------- ---------- ------------- ---------- ------------- ---------
1996 10.5% 14.1% 8.4% 28.1% 31.9% - -
- ---- ----------- ------------- ---------- ------------- ---------- ------------- ---------
1997 16.7% 24.2% 27.6% 31.3% 30.4% - -
- ---- ----------- ------------- ---------- ------------- ---------- ------------- ---------
1998 21.3% 32.0% 20.3% 22.6% 33.0% 43.9% -21.8%
- ---- ----------- ------------- ---------- ------------- ---------- ------------- ---------
1999 15.5% 59.7% 0.6% 15.0% 32.2% 38.9% 19.6%
- ---- ----------- ------------- ---------- ------------- ---------- ------------- ---------
</TABLE>
BEST AND WORST QUARTERLY PERFORMANCE
(DURING THE PERIODS SHOWN ABOVE)
<TABLE>
<CAPTION>
<S> <C> <C>
FUND NAME BEST QUARTER RETURN WORST QUARTER RETURN
- -------------------- -------------------- ---------------------
American Utilities 13.8% (2nd Q 1999) -7.0% (1st Q 1999)
Asset Allocation 15.9% (4th Q 1998) -8.2% (3rd Q 1998)
Blue Chip 100 27.9% (4th Q 1999) -7.4% (3rd Q 1998)
Equity Income 20.0% (4th Q 1998) -11.1% (3rd Q 1998)
Growth and Income 23.4% (4th Q 1998) -9.3% (3rd Q 1998)
Limited Resources 17.7% (2nd Q 1999) -13.3% (3rd Q 1998)
Total Return 42.2% (4th Q 1999) -7.2% (3rd Q 1998)
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
AS OF 12-31-99
FUND/INDEX 1-YEAR 5-YEAR 10-YEAR SINCE INCEPTION
AMERICAN UTILITIES 0.58% 18.04% - 13.92% (7-1-93)
S&P 500 Stock Index 21.04% 28.56% - 22.47%
Lipper Utility Funds Index 14.53% 18.83% - 12.78%
ASSET ALLOCATION 15.50% 17.11% 12.17% 14.47% (12-30-81)
S&P 500 Stock Index 21.04% 28.56% 18.21% 18.52%
Lipper Flexible Portfolio
Funds Average 12.18% 16.68% 12.32% 13.75%
BLUE CHIP 100 38.88% - - 36.40% (6-30-97)
S&P 500 Stock Index 21.04% - - 24.25%
Lipper Large-Cap Growth
Funds Index 34.82% - - 32.25%
EQUITY INCOME 15.05% - - 24.12% (12-29-95)
S&P 500 Stock Index 21.04% - - 26.39%
Lipper Large-Cap Value
Funds Index 10.78% - - 19.47%
GROWTH AND INCOME 32.23% - - 31.87% (12-29-95)
S&P 500 Stock Index 21.04% - - 26.39%
Lipper Large-Cap Core
Funds Index 19.35% - - 23.76%
LIMITED RESOURCES 19.55% - - -6.02% (9-30-97)
S&P 500 Stock Index 21.04% - - 23.27%
Lipper Natural Resources
Funds Index 33.52% - - -2.21%
TOTAL RETURN 59.75% 30.57% 19.06% 18.85% (12-30-81)
S&P 500 Stock Index 21.04% 28.56% 18.21% 18.52%
Lipper Large-Cap Growth
Funds Index 34.82% 30.73% 19.70% 18.58%
THE S&P 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF THE
U.S. STOCK MARKET. THE LIPPER UTILITY FUNDS INDEX IS AN EQUALLY-WEIGHTED
PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS IN THIS LIPPER CATEGORY. THE
LIPPER FLEXIBLE PORTFOLIO FUNDS AVERAGE REPRESENTS FUNDS THAT ALLOCATE THEIR
INVESTMENTS ACROSS VARIOUS ASSET CLASSES, INCLUDING DOMESTIC COMMON STOCKS,
BONDS AND MONEY MARKET INSTRUMENTS WITH A FOCUS ON TOTAL RETURN. THE LIPPER
LARGE-CAP GROWTH FUNDS INDEX IS AN EQUALLY-WEIGHTED PERFORMANCE INDEX OF THE
LARGEST QUALIFYING FUNDS IN THIS LIPPER CATEGORY. THE LIPPER LARGE-CAP VALUE
FUNDS INDEX IS AN EQUALLY-WEIGHTED PERFORMANCE INDEX OF THE LARGEST QUALIFYING
FUNDS IN THIS LIPPER CATEGORY. THE LIPPER LARGE-CAP CORE FUNDS INDEX IS AN
EQUALLY-WEIGHTED PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS IN THIS
LIPPER CATEGORY. THE LIPPER NATURAL RESOURCES FUNDS INDEX IS AN
EQUALLY-WEIGHTED PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS IN THIS
LIPPER CATEGORY.
Recent returns for the TOTAL RETURN FUND were primarily achieved during
favorable conditions in the market, particularly for technology companies. You
should not expect that such favorable returns can be consistently achieved.
WHAT ARE THE FUNDS' FEES AND EXPENSES?
This section describes the fees and expenses that you may pay if you buy and
hold shares of the funds.
SHAREHOLDER FEES
(fees paid directly from your investment)
The Investor Class shares of each fund are 100% no-load, so you pay no sales
charges (loads) to buy or sell shares.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets)
The costs of operating each fund are deducted from fund assets, which means you
pay them indirectly. These costs are deducted before computing the daily share
price or making distributions. As a result, they don't appear on your account
statement, but instead reduce the total return you receive from your fund
investment.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENT OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TOTAL ANNUAL FUND
FUND MANAGEMENT FEES OTHER EXPENSES OPERATING EXPENSES
American Utilities 0.50% 0.52% 1.02%
Asset Allocation 0.55% 0.51% 1.06%
Blue Chip 100 0.50% 0.57% 1.07%
Equity Income 0.55% 0.52% 1.07%
Growth and Income 0.55% 0.50% 1.05%
Limited Resources 0.75% 1.25% 2.00%
Total Return 0.55% 0.44% 0.99%
</TABLE>
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EXAMPLE: This example is intended to help you compare the cost of investing in
the funds with the cost of investing in other mutual funds. The example assumes
that you invest $10,000 in the funds and reinvest all dividends and
distributions for the time periods indicated, and then redeem all of your
shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the funds' operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
American Utilities $104 $325 $563 $1,248
Asset Allocation $108 $337 $585 $1,294
Blue Chip 100 $109 $340 $590 $1,306
Equity Income $109 $340 $590 $1,306
Growth and Income $107 $334 $579 $1,283
Limited Resources $203 $627 $1,078 $2,327
Total Return $101 $315 $547 $1,213
</TABLE>
WHO ARE THE FUNDS' INVESTMENT ADVISOR AND PORTFOLIO MANAGERS?
Strong Capital Management, Inc. (Strong) is the investment advisor for the
funds. Strong provides investment management services for mutual funds and
other investment portfolios representing assets of over $38 billion. Strong
began conducting business in 1974. Since then, its principal business has been
providing investment advice for individuals and institutional accounts, such as
pension and profit-sharing plans, as well as mutual funds, several of which are
available through variable insurance products. Strong's address is P.O. Box
2936, Milwaukee, WI 53201.
SUBADVISOR FOR AMERICAN UTILITIES FUND. W.H. Reaves & Co., Inc. (Reaves) is the
subadvisor for the AMERICAN UTILITIES FUND under an agreement with Strong.
Under this agreement and under the supervision of the fund's Board of Directors
and Strong, Reaves provides a continuous investment program for the fund. This
means Reaves selects the securities the fund buys and sells. However, Strong
manages the fund's cash. Reaves began conducting business in 1961 and had
approximately $1 billion under management as of January 31, 2000. Since 1977,
its principal business has been providing continuous investment supervision to
institutional investors such as corporations, corporate pension funds, employee
savings plans, foundations, and endowments. Reaves may also act as a broker for
the AMERICAN UTILITIES FUND. Reaves' address is 10 Exchange Place, Jersey City,
NJ 07302.
SUBADVISOR FOR LIMITED RESOURCES FUND. Scarborough Investment Advisers LLC
(Scarborough) is the subadvisor for the LIMITED RESOURCES FUND under an
agreement with Strong. Under the supervision of the fund's Board of Directors
and Strong, Scarborough provides a continuous investment program for the fund.
This means Scarborough selects the securities the fund buys and sells.
However, Strong manages the fund's cash. Scarborough began conducting business
in 1996 and has approximately $12 million under management as of January 31,
2000. Its principal business has been providing continuous investment
supervision to institutional investors and high net worth clients. Its address
is 100 Park Avenue, 16th Floor, New York, NY 10017
The following individuals are the funds' portfolio managers.
MARK A. BASKIR manages the LIMITED RESOURCES FUND. He has over 30 years of
investment experience and is a Chartered Financial Analyst. He joined
Scarborough in February 1997. Prior to joining Scarborough, he was an
investment adviser at Pecksland Associates. Prior to that, Mr. Baskir worked at
Neuberger & Berman LLC, which he joined in 1970. While at Neuberger & Berman,
he specialized in energy stocks as a research analyst (1970-1996) and as the
portfolio manager (1983-1996) for separate accounts. From 1987 to 1992, he
managed or co-managed the Energy Fund (now called the Focus Fund). Mr. Baskir
received his bachelors degree in Political Science from Princeton University in
1964 and a Masters of Business Administration from the Columbia University
Graduate School of Business Administration in 1967.
WILLIAM A. FERER co-manages the AMERICAN UTILITIES FUND and has been a
portfolio manager and Energy Analyst for Reaves since 1987. He was a Vice
President of Reaves from 1987 to November 1997 and has been an Executive Vice
President of Reaves since November 1997. He has worked as a securities analyst
since 1971.
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JEFFREY A. KOCH co-manages the bond and cash portions of the ASSET ALLOCATION
FUND. He has over ten years of investment experience and is a Chartered
Financial Analyst. Mr. Koch joined Strong in June 1989. He has been a
portfolio manager since January 1990. He has co-managed the ASSET ALLOCATION
FUND since December 1994. Prior to joining Strong, Mr. Koch was employed by
Fossett Corporation, a clearing firm, as a market maker clerk. Mr. Koch
received his bachelors degree in Economics from the University of Minnesota in
1987 and his Masters of Business Administration in Finance from Washington
University in 1989.
MARK D. LUFTIG co-manages the AMERICAN UTILITIES FUND. He has been a Utilities
Analyst of Reaves since January 1995. Mr. Luftig was a Vice President of
Reaves from January 1995 to November 1997 and has been an Executive Vice
President of Reaves since November 1997. Prior to joining Reaves, Mr. Luftig
was employed by Kemper Securities, Inc. where he served as Senior Vice
President from 1992 to 1994, and Executive Vice President and Director of
Equity Research, from 1994 to January 1995. From 1989 to 1992, Mr. Luftig
served as the Vice President of the National Economic Research Association,
Inc. From 1975 until 1989, he worked at Salomon Brothers Inc as the Director -
Research.
KAREN E. MCGRATH manages the BLUE CHIP 100 FUND. She has over 25 years of
investment experience and is a Chartered Financial Analyst. She joined Strong
as a portfolio manager in September 1995. Ms. McGrath has managed the BLUE CHIP
100 FUND since its inception in June 1997. From January 1994 until September
1995, she served as a portfolio manager of equity accounts and President of
National Investment Services, Inc. (NIS). From January 1990 until December
1993, she served as a portfolio manager of equity accounts and Vice President
and Senior Vice President of National Investment Services of America, Inc., a
predecessor organization to NIS. Ms. McGrath began her career at Loomis Sayles
& Company, Inc., where she worked as a portfolio manager of equity accounts for
over 15 years. Ms. McGrath received her bachelors degree in Accounting from
Marquette University in 1959.
RIMAS M. MILAITIS manages the equity portion of the ASSET ALLOCATION FUND and
manages the EQUITY INCOME FUND and GROWTH AND INCOME FUND. He has over ten
years of investment experience. He joined Strong as a portfolio manager in
December 1995. He has managed the EQUITY INCOME FUND and GROWTH AND INCOME
FUND since their inception in December 1995 and co-managed the ASSET ALLOCATION
FUND since December 1995. For four years prior to joining Strong, he managed
several conservative equity portfolios that invested in stocks and bonds at Aon
Advisors, Inc. (AAI). For two years prior to that, he
served as an equity trader/analyst to AAI. Prior to working at AAI, Mr.
Milaitis served for three years as an equity portfolio assistant to the
Illinois State Board of Investment. Mr. Milaitis received his bachelors degree
in Economics from Illinois State University in 1984 and his Masters of Business
Administration in Finance from DePaul University in 1991.
RONALD C. OGNAR co-manages the TOTAL RETURN FUND. He has over 30 years of
investment experience and is a Chartered Financial Analyst. He joined Strong
as a portfolio manager in April 1993. Mr. Ognar has co-managed the TOTAL
RETURN FUND since April 1993. For two years prior to joining Strong, he was a
principal and portfolio manager with RCM Capital Management. For approximately
three years prior to that, he was a portfolio manager at Kemper Financial
Services. Mr. Ognar began his investment career in 1968 at LaSalle National
Bank after serving two years in the U.S. Army. He received his bachelors degree
in Accounting from the University of Illinois in 1968.
WILLIAM H. REAVES is the senior co-manager of the AMERICAN UTILITIES FUND. Mr.
Reaves has been the President, Chief Investment Officer, portfolio manager, and
Utilities Analyst of Reaves since 1961. He has worked as a utilities analyst
since 1946.
IAN J. ROGERS co-manages the TOTAL RETURN FUND. He has over 15 years of
investment experience. Mr. Rogers joined Strong as an equity analyst in August
1993. He has co-managed the TOTAL RETURN FUND since October 1994. Prior to
joining Strong, Mr. Rogers worked for seven years as an equity analyst with
Kemper Financial Services. For approximately two years prior to that, he was an
equity analyst for Allstate Insurance Company. Mr. Rogers began his investment
career in 1983 as an equity analyst for Comerica Bank. Mr. Rogers received his
bachelors degree in Business Administration from Ferris State College in 1966
and his Masters of Business Administration in Finance from Central Michigan
University in 1983.
10
<PAGE>
RONALD J. SORENSON co-manages the AMERICAN UTILITIES FUND and has been a Vice
President and portfolio manager of Reaves since 1991. For three years prior to
that, he was a partner and portfolio manager of PVF Inc., an investment
advisory firm. For two years prior to that, Mr. Sorenson was the Chairman of
the Board and Chairman of the Investment Committee of The American Life
Insurance Company of New York. Mr. Sorenson has acted as President of RWS
Energy Services, Chief Financial Officer of Emerging Market Services A.G.,
Controller of Triad Holding Corporation S.A., and was a C.P.A. for Arthur Young
& Co.
BRADLEY C. TANK co-manages the bond and cash portion of the ASSET ALLOCATION
FUND. Mr. Tank has over 15 years of investment experience. He joined Strong as
a portfolio manager in June 1990. He has co-managed the ASSET ALLOCATION FUND
since January 1993. For eight years prior to joining Strong, he worked for
Salomon Brothers Inc. He was a vice president and fixed income specialist for
six years and for the two years prior to that, a fixed income specialist. He
received his bachelors degree in English from the University of Wisconsin in
1980 and his Masters of Business Administration in Finance from the University
of Wisconsin in 1982, where he also completed the Applied Securities Analysis
Program. Mr. Tank chairs Strong's Fixed Income Investment Committee.
OTHER IMPORTANT INFORMATION YOU SHOULD KNOW
To a limited extent, a fund may participate in the initial public offering
(IPO) market. IPOs may significantly increase a fund's total returns during
any period that the fund has a small asset base. As a fund's assets grow,
any impact of IPO investments on the fund's total return may decline.
COMPARING THE FUNDS
The following will help you distinguish the funds and determine their
suitability for your investment needs:
EQUITY BOND FOREIGN
FUND RANGE RANGE RANGE FOCUS
American
Utilities 65 to 100% 0 to 35% Up to 25% Utility and Energy
Stocks
Asset Allocation 30 to 70% 20 to 70% Up to 25% Allocated Across
Asset Classes
Blue Chip 100 100% --- --- 100 Largest Blue
Chip Companies
Equity Income 65 to 100% 0 to 35% Up to 5% Dividend-Paying Stocks
Growth and Income 65 to 100% 0 to 35% Up to 25% Dividend-Paying and
Growth Stocks
Limited Resources 80 to 100% 0 to 20% Up to 25% Energy and Natural
Resources Stocks
Total Return 60 to 100% 0 to 40% Up to 25% Large- and Mid-Cap,
Dividend-Paying Growth
Stocks
11
<PAGE>
A WORD ABOUT CREDIT QUALITY
CREDIT QUALITY measures the issuer's expected ability to pay interest and
principal payments on time. Credit quality can be "higher-quality",
"medium-quality", "lower-quality", or "in default".
HIGHER-QUALITY means bonds that are in any of the three highest rating
categories. For example, bonds rated AAA to A by Standard & Poor's Ratings
Group (S&P)*.
MEDIUM-QUALITY means bonds that are in the fourth-highest rating category. For
example, bonds rated BBB by S&P*.
LOWER-QUALITY means bonds that are below the fourth-highest rating category.
They are also known as non-investment, high-risk, high-yield, or "junk bonds".
For example, bonds rated BB to C by S&P*.
IN DEFAULT means the bond's issuer has not paid principal or interest on time.
*OR THOSE RATED IN THIS CATEGORY BY ANY NATIONALLY RECOGNIZED STATISTICAL
RATING ORGANIZATION. S&P IS ONLY ONE EXAMPLE OF A NATIONALLY RECOGNIZED
STATISTICAL RATING ORGANIZATION.
This chart shows S&P's definition and ratings group for credit quality. Other
rating organizations use similar definitions.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CREDIT S&P'S DEFINITION S&P'S RATINGS GROUP RATING CATEGORY
QUALITY
- ---------- ---------------------- ---------------------- ----------------------
Highest quality AAA First highest
Higher High quality AA Second highest
Upper medium grade A Third highest
- ---------- ---------------------- ---------------------- ----------------------
Medium Medium grade BBB Fourth highest
- ---------- ---------------------- ---------------------- ----------------------
Low grade BB
Lower Speculative B
Submarginal CCC, CC, C
- ---------- ---------------------- ----------------------
In default Probably in default D
- ---------- ---------------------- ----------------------
</TABLE>
We determine a bond's credit quality rating at the time of investment by
conducting credit research and analysis and by relying on credit ratings of
several nationally recognized statistical rating organizations. These
organizations are called NRSROs. When we determine if a bond is in a specific
category, we may use the highest rating assigned to it by any NRSRO. If a bond
is not rated, we rely on our credit research and analysis to rate the bond. If
a bond's credit quality rating is downgraded after our investment, we monitor
the situation to decide if we need to take any action such as selling the bond.
Investments in lower-quality bonds (junk bonds) will be more dependent on our
credit analysis than would be higher-quality bonds because, while lower-quality
bonds generally offer higher yields than higher-quality bonds with similar
maturities, lower-quality bonds involve greater risks. These include the
possibility of default or bankruptcy because the issuer's capacity to pay
interest and repay principal is considered predominantly speculative. Also,
lower-quality bonds are less liquid, meaning that they may be harder to sell
than bonds of higher quality because the demand for them may be lower and there
are fewer potential buyers. This lack of liquidity may lower the value of the
fund and your investment.
HISTORICAL PERFORMANCE DATA OF W. H. REAVES & CO., INC.
The following table gives the historical performance of a composite of actual,
fee-paying, discretionary equity accounts and the designated equity portion
(including designated cash reserves) of equity accounts with assets over $1
million ("Equity Accounts") managed by Reaves, since the dates indicated, that
have investment objectives, policies, strategies, and risks substantially
similar to those of the AMERICAN UTILITIES FUND. We are providing the data to
illustrate the past performance of Reaves in managing substantially similar
accounts. The data does not represent the performance of the AMERICAN
UTILITIES FUND. PERFORMANCE IS HISTORICAL AND DOES NOT REPRESENT THE FUTURE
PERFORMANCE OF THE AMERICAN UTILITIES FUND OR OF REAVES.
12
<PAGE>
This composite performance data was calculated in accordance with the
recommended standards of the Association for Investment Management and Research
(AIMR)* retroactively applied for all time periods. All returns presented were
calculated on a total return basis and include all dividends and interest,
accrued income, and realized and unrealized gains and losses. All returns
reflect the payment of investment management fees, brokerage commissions, and
execution costs paid by the Equity Accounts, without taking into account
federal or state income taxes. Custodial fees, if any, were not included in the
calculation. Securities transactions are accounted for on the trade date and
accrual accounting is utilized. Cash and equivalents are included in
performance returns. The composite's returns are calculated on a time-weighted
basis.
The Equity Accounts that are included in Reaves' composite are not subject to
the same type of expenses to which the AMERICAN UTILITIES FUND is subject nor
to the diversification requirements, specific tax restrictions, and investment
limitations imposed by the federal securities and tax laws. Consequently, the
performance results for Reaves' composite could have been adversely affected if
the Equity Accounts in the composite were subject to the federal securities and
tax laws.
The investment results for the Subadvisor's Equity Composite presented on the
next page are not intended to predict or suggest the future returns of the
fund. Investors should be aware that the use of a methodology different than
that used below to calculate performance could result in different performance
data.
<TABLE>
<CAPTION>
<S> <C> <C>
SUBADVISOR'S
EQUITY
TIME PERIOD COMPOSITE S&P 500(1)
Average Annual Returns (as of 12/31/99)
1 Year 2.8% 21.0%
3 Year 16.0% 27.6%
5 Year 18.3% 28.6%
10 Year 12.3% 18.2%
15 Year 15.4% 18.9%
1/1/78 - 12/31/99(2) 17.0% 17.3%
Cumulative Returns
1/1/78 - 12/31/99(2) 3057.6% 3252.6%
</TABLE>
(1) S&P 500 is the Standard & Poor's 500 Stock Index which is an unmanaged
index generally representative of the U.S. stock market. The index does not
reflect investment management fees, brokerage commissions, and other expenses
associated with investing in equity securities.
(2) Reaves' Equity Composite began on January 1, 1978.
[FN]
* AIMR is a non-profit membership and education organization with more than
60,000 members worldwide that, among other things, has formulated a set of
performance presentation standards for investment advisers. These AIMR
performance presentation standards are intended to (i) promote full and fair
presentations by investment advisers of their performance results, and (ii)
ensure uniformity in reporting so that performance results of investment
advisers are directly comparable.
</FN>
FINANCIAL HIGHLIGHTS
This information describes investment performance of the Investor Class shares
of the funds for the periods shown. Certain information reflects financial
results for a single Investor Class share. "Total return" shows how much an
investment in the Investor Class shares of the fund would have increased (or
decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been audited by PricewaterhouseCoopers LLP,
whose report, along with the fund's financial statements, is included in the
fund's annual report.
13
<PAGE>
<TABLE>
<CAPTION>
STRONG AMERICAN UTILITIES FUND - INVESTOR CLASS
<S> <C> <C> <C> <C> <C> <C>
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31, Dec. 31,
SELECTED PER-SHARE DATA(a) 1999 1998 1997 1996 1995(b) 1994
Net Asset Value,
Beginning of Period $16.31 $13.97 $12.64 $11.73 $9.46 $10.19
Income From Investment Operations:
Net Investment Income 0.37 0.35 0.40 0.40 0.27 0.46
Net Realized and Unrealized Gains
(Losses) on Investments 1.52 3.12 1.98 0.90 2.25 (0.73)
- --------------------------------------------------------------------------------
Total from Investment
Operations 1.89 3.47 2.38 1.30 2.52 (0.27)
Less Distributions:
From Net Investment Income (0.41) (0.37) (0.38) (0.39) (0.25) (0.46)
From Net Realized Gains (0.61) (0.76) (0.67) - - -
- --------------------------------------------------------------------------------
Total Distributions (1.02) (1.13) (1.05) (0.39) (0.25) (0.46)
- --------------------------------------------------------------------------------
Net Asset Value,
End of Period $17.18 $16.31 $13.97 $12.64 $11.73 $ 9.46
================================================================================
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Total Return +11.8% +25.7% +19.7% +11.2% +26.9% -2.6%
Net Assets, End of Period
(In Millions) $245 $214 $135 $122 $92 $38
Ratio of Expenses to Average
Net Assets without Waivers 1.0% 1.0% 1.1% 1.2% 1.2%* 1.6%
Ratio of Expenses to Average
Net Assets 1.0% 1.0% 1.1% 1.2% 1.2%* 0.5%
Ratio of Net Investment Income
to Average Net Assets 2.2% 2.4% 3.0% 3.2% 3.4%* 4.8%
Portfolio Turnover Rate 74.9% 69.0% 61.9% 84.0% 56.4% 105.4%
</TABLE>
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the
fund outstanding for the entire period.
(b) In 1995, the Fund changed its fiscal year end from December to
October.
<TABLE>
<CAPTION>
STRONG ASSET ALLOCATION FUND - INVESTOR CLASS
<S> <C> <C> <C> <C> <C> <C>
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31, Dec. 31,
SELECTED PER-SHARE DATA(a) 1999 1998 1997 1996 1995(b) 1994
Net Asset Value,
Beginning of Period $21.14 $21.44 $20.12 $20.31 $17.91 $19.06
Income From Investment Operations:
Net Investment Income 0.71 0.55 0.67 0.78 0.66 0.70
Net Realized and Unrealized Gains
(Losses) on Investments 3.75 1.75 2.96 1.05 2.32 (0.99)
Total from Investment
Operations 4.46 2.30 3.63 1.83 2.98 (0.29)
Less Distributions:
From Net Investment Income (0.68) (0.54) (0.67) (0.84) (0.58) (0.70)
In Excess of Net Investment
Income - - (0.10) - - -
From Net Realized Gains - (2.04) (1.54) (1.18) - -
In Excess of Net Realized
Gains - (0.02) - - - (0.16)
Total Distributions (0.68) (2.60) (2.31) (2.02) (0.58) (0.86)
Net Asset Value,
End of Period $24.92 $21.14 $21.44 $20.12 $20.31 $17.91
RATIOS AND SUPPLEMENTAL DATA
Total Return +21.3% +11.8% +19.3% +9.5% +16.8% -1.5%
Net Assets, End of Period
(In Millions) $344 $288 $277 $263 $261 $249
Ratio of Expenses to
Average Net Assets 1.1% 1.0% 1.1% 1.1% 1.2%* 1.2%
Ratio of Net Investment Income
to Average Net Assets 3.0% 2.5% 3.2% 3.9% 4.1%* 3.8%
Portfolio Turnover Rate 64.7% 185.9% 276.5% 446.7% 326.8% 359.7%
</TABLE>
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the
fund outstanding for the entire period.
(b) In 1995, the Fund changed its fiscal year end from December to
October.
<TABLE>
<CAPTION>
STRONG BLUE CHIP 100 FUND - INVESTOR CLASS
<S> <C> <C> <C>
Oct. 31, Oct. 31, Oct. 31,
SELECTED PER-SHARE DATA(a) 1999 1998 1997(b)
Net Asset Value, Beginning of Period $13.24 $10.39 $10.00
Income From Investment Operations:
Net Investment Income (Loss) (0.04) 0.10 0.01
Net Realized and Unrealized Gains
on Investments 4.90 2.86 0.38
Total from Investment Operations 4.86 2.96 0.39
Less Distributions:
From Net Investment Income (0.00)(c) (0.11) -
Total Distributions (0.00)(c) (0.11) -
Net Asset Value, End of Period $18.10 $13.24 $10.39
RATIOS AND SUPPLEMENTAL DATA
Total Return +36.7% +28.6% +3.9%
Net Assets, End of Period (In Millions) $485 $90 $5
Ratio of Expenses to Average Net Assets
without Waivers 1.2% 1.3% 2.0%*
Ratio of Expenses to Average Net Assets 1.2% 0.6% 1.0%*
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.3%) 0.7% 0.6%*
Portfolio Turnover Rate 75.4% 46.5% 21.5%
</TABLE>
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the
fund outstanding for the entire period.
(b) For the period from June 30, 1997 (Inception) to October 31, 1997.
(c) Amount calculated is less than $0.01 or 0.1%.
<TABLE>
<CAPTION>
STRONG EQUITY INCOME FUND - INVESTOR CLASS
<S> <C> <C> <C> <C>
Oct. 31, Oct. 31, Oct. 31, Oct. 31,
SELECTED PER-SHARE DATA(a) 1999 1998 1997 1996(b)
Net Asset Value, Beginning of Period $17.20 $15.84 $12.03 $10.00
Income From Investment Operations:
Net Investment Income 0.06 0.11 0.13 0.12
Net Realized and Unrealized Gains
on Investments 3.39 2.05 3.81 2.02
Total from Investment Operations 3.45 2.16 3.94 2.14
Less Distributions:
From Net Investment Income (0.07) (0.11) (0.13) (0.11)
From Net Realized Gains - (0.64) - -
In Excess of Net Realized Gains - (0.05) - -
Total Distributions (0.07) (0.80) (0.13) (0.11)
Net Asset Value, End of Period $20.58 $17.20 $15.84 $12.03
RATIOS AND SUPPLEMENTAL DATA
Total Return +20.1% +14.2% +32.9% +21.5%
Net Assets, End of Period
(In Millions) $182 $171 $134 $29
Ratio of Expenses to Average Net Assets 1.1% 1.1% 1.1% 1.3%*
Ratio of Net Investment Income to
Average Net Assets 0.3% 0.7% 0.9% 1.6%*
Portfolio Turnover Rate 32.3% 83.2% 152.6% 158.3%
</TABLE>
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the
fund outstanding for the entire period.
(b) For the period from December 31, 1995 (Inception) to October 31, 1996.
<TABLE>
<CAPTION>
STRONG GROWTH AND INCOME FUND - INVESTOR CLASS
<S> <C> <C> <C> <C>
Oct. 31, Oct. 31, Oct. 31, Oct. 31,
SELECTED PER-SHARE DATA(a) 1999 1998 1997 1996(b)
Net Asset Value, Beginning of Period $18.73 $16.35 $12.38 $10.00
Income From Investment Operations:
Net Investment Income (Loss) (0.03) 0.03 0.07 0.04
Net Realized and Unrealized Gains on
Investments 6.56 3.07 3.99 2.38
Total from Investment Operations 6.53 3.10 4.06 2.42
Less Distributions:
From Net Investment Income (0.00)(c) (0.03) (0.07) (0.04)
From Net Realized Gains - (0.62) (0.02) -
In Excess of Net Realized Gains - (0.07) - -
Total Distributions (0.00)(c) (0.72) (0.09) (0.04)
Net Asset Value, End of Period $25.26 $18.73 $16.35 $12.38
RATIOS AND SUPPLEMENTAL DATA
Total Return +34.9% +19.7% +32.9% +24.2%
Net Assets, End of Period (In Millions) $861 $399 $227 $18
Ratio of Expenses to Average Net Assets 1.1% 1.1% 1.2% 1.9%*
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.1%) 0.1% 0.5% 0.6%*
Portfolio Turnover Rate 52.3% 107.5% 237.8% 174.1%
</TABLE>
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the
fund outstanding for the entire period.
(b) For the period from December 31, 1995 (Inception) to October 31, 1996.
(c) Amount calculated is less than $0.01.
<TABLE>
<CAPTION>
STRONG LIMITED RESOURCES FUND - INVESTOR CLASS
<S> <C> <C> <C>
Oct. 31, Oct. 31, Oct. 31,
SELECTED PER-SHARE DATA(a) 1999 1998 1997(b)
Net Asset Value, Beginning of Period $7.79 $9.51 $10.00
Income From Investment Operations:
Net Investment Loss (0.02) (0.04) -
Net Realized and Unrealized Gains
(Losses) on Investments 0.86 (1.68) (0.49)
Total from Investment Operations 0.84 (1.72) (0.49)
Less Distributions:
From Net Investment Income - (0.00)(c) -
In Excess of Net Investment Income (0.01) - -
Total Distributions (0.01) (0.00)(c) -
Net Asset Value, End of Period $8.62 $7.79 $9.51
RATIOS AND SUPPLEMENTAL DATA
Total Return +10.8% -18.0% -4.9%
Net Assets, End of Period (In Millions) $6 $5 $5
Ratio of Expenses to Average Net Assets 2.0% 2.0% 2.0%*
Ratio of Net Investment Income
(Loss) to Average Net Assets (0.3%) (0.4%) 0.0%*(c)
Portfolio Turnover Rate 55.4% 61.2% 1.2%
</TABLE>
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the
fund outstanding for the entire period.
(b) For the period from September 30, 1997 (Inception) to October 31, 1997.
(c) Amount calculated is less than $0.01 or 0.1%.
<TABLE>
<CAPTION>
STRONG TOTAL RETURN FUND - INVESTOR CLASS
<S> <C> <C> <C> <C> <C> <C>
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31, Dec. 31,
SELECTED PER-SHARE DATA(a) 1999 1998 1997 1996 1995(b) 1994
Net Asset Value, Beginning of Period $29.10 $32.66 $31.36 $28.02 $23.62 $24.30
Income From Investment Operations:
Net Investment Income (Loss) (0.03) 0.13 0.19 0.24 0.26 0.25
Net Realized and Unrealized Gains
(Losses) on Investments 12.84 3.44 6.21 4.65 4.41 (0.59)
Total from Investment Operations 12.81 3.57 6.40 4.89 4.67 (0.34)
Less Distributions:
From Net Investment Income - (0.14) (0.19) (0.24) (0.26) (0.26)
In Excess of Net Investment Income (0.01) - (0.17) (0.06) (0.01) (0.08)
From Net Realized Gains (0.38) (6.89) (4.74) (1.25) - -
In Excess of Net Realized Gains - (0.10) - - - -
Total Distributions (0.39) (7.13) (5.10) (1.55) (0.27) (0.34)
Net Asset Value, End of Period $41.52 $29.10 $32.66 $31.36 $28.02 $23.62
RATIOS AND SUPPLEMENTAL DATA
Total Return +44.3% +13.6% +23.4% +18.0% +19.8% -1.4%
Net Assets, End of Period
(In Millions) $1,253 $863 $832 $760 $671 $607
Ratio of Expenses to Average
Net Assets 1.0% 1.0% 1.1% 1.1% 1.1%* 1.2%
Ratio of Net Investment Income
(Loss) to Average Net Assets (0.1%) 0.4% 0.6% 0.8% 1.2%* 1.1%
Portfolio Turnover Rate 402.3% 267.8% 404.6% 502.4% 298.8% 290.4%
</TABLE>
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the
fund outstanding for the entire period.
(b) In 1995, the fund changed its fiscal year end from December to October.
YOUR ACCOUNT
SHARE PRICE
Your transaction price for buying, selling, or exchanging shares of the funds
or specific classes of the funds is the net asset value per share (NAV) for
that fund or class of shares. NAV is generally calculated as of the close of
trading on the New York Stock Exchange (usually 3:00 p.m. Central Time) every
day the NYSE is open. If the NYSE closes at any other time, or if an emergency
exists, NAV may be calculated at a different time. Your share price will be
the next NAV calculated after we accept your order.
NAV is based on the market value of the securities in a fund's portfolio. If
market prices are not available, NAV is based on a security's fair value as
determined in good faith by us under the supervision of the Board of Directors
of the Strong Funds.
FOREIGN SECURITIES
Some of the fund's portfolio securities may be listed on foreign exchanges that
trade on days when we do not calculate an NAV. As a result, the market value
of securities in a fund's portfolio may change on days when you will not be
able to purchase or redeem shares. In addition, a foreign exchange may not
value its listed securities at the same time that we calculate a fund's NAV.
Events affecting the values of portfolio securities that occur between the time
a foreign exchange assigns a price to the portfolio securities and the time
when we calculate a fund's NAV generally will not be reflected in the fund's
NAV. These events will be reflected in the fund's NAV when we, under the
supervision of the Board of Directors of the Strong Funds, determine that they
would have a material effect on the fund's NAV.
((Side Box))
<TABLE>
<CAPTION>
<S> <C>
We determine the share price or NAV of a fund or class by
dividing net assets attributable to the fund or class (the value of
the investments, cash, and other assets attributable to the fund or
class minus the liabilities attributable to the fund or class) by the
number of fund or class shares outstanding.
- ---------------------------------------------------------------------
</TABLE>
BUYING SHARES
INVESTMENT MINIMUMS: When buying shares, you must meet the following investment
minimum requirements.
<TABLE>
<CAPTION>
<S> <C> <C>
INITIAL INVESTMENT MINIMUM ADDITIONAL INVESTMENT MINIMUM
- -------------------------------------- ----------------------------------- -----------------------------------
Regular accounts $2,500 for all funds except: $50
$250 for ASSET ALLOCATION FUND
- -------------------------------------- ----------------------------------- -----------------------------------
Education IRA accounts $500 $50
- -------------------------------------- ----------------------------------- -----------------------------------
Other IRAs and UGMA/UTMA accounts $250 $50
- -------------------------------------- ----------------------------------- -----------------------------------
SIMPLE IRA, SEP-IRA, 403(b)(7), Keogh, the lesser of $250 or $25 per month $50
Pension Plan, and Profit Sharing Plan
accounts
- -------------------------------------- ----------------------------------- -----------------------------------
</TABLE>
PLEASE REMEMBER ...
- - If you use an Automatic Investment Plan, we waive the initial investment
minimum to open an account and the additional investment minimum is $50.
- - You cannot use an Automatic Investment Plan with an Education IRA.
- - If you open a qualified retirement plan account where we or one of our
alliance partners provides administrative services, there is no initial
investment minimum.
14
<PAGE>
MULTIPLE CLASS PLAN
Each fund has adopted a multiple class plan which currently permits the GROWTH
AND INCOME FUND to offer Investor Class shares, Advisor Class shares,
and Instituional Class shares; the BLUE CHIP 100 FUND to offer Investor Class
shares and Advisor Class shares; and all other funds to offer Investor Class
shares. Each class is offered at its net asset value and is subject to fees
and expenses which may differ. The principal differences between each of the
classes of shares are that the Advisor Class shares are subject to a front-end
sales load and distribution fees and expenses under a 12b-1 plan, and each
class of shares is subject to different administrative and transfer agency
fees and expenses.
BUYING INSTRUCTIONS
You can buy shares in several ways.
MAIL
You can open or add to an account by mail with a check or money order made
payable to Strong. Send it to the address listed on the back of this
prospectus, along with your account application (for a new account) or an
Additional Investment Form (for an existing account).
EXCHANGE OPTION
Sign up for the exchange option when you open your account. To add this
option to an existing account, visit the Investor Services area at
WWW.ESTRONG.COM or call 800-368-3863 for a Shareholder Account Options Form.
((Side Box))
QUESTIONS?
Call 800-368-3863
24 hours a day
7 days a week
EXPRESS PURCHASESM
You can make additional investments to your existing account directly from
your bank account. If you didn't establish this option when you opened your
account, visit the Investor Services area at WWW.ESTRONG.COM or call us at
800-368-3863 for a Shareholder Account Options Form.
STRONG DIRECT(R)
You can use Strong Direct(R) to add to your investment from your bank account
or to exchange shares between Strong Funds by calling 800-368-7550. See
"Services for Investors" for more information.
STRONG NETDIRECT(R)
You can use Strong netDirect(R) at WWW.ESTRONG.COM, to add to your investment
from your bank account or to exchange shares between Strong Funds. See
"Services for Investors" for more information.
INVESTOR CENTERS
You can visit our Investor Center in Menomonee Falls, Wisconsin, near
Milwaukee. Call 800-368-3863 for hours and directions, or for the location of
our other Investor Centers. The Investor Centers only accept checks or money
orders payable to Strong. They do not accept cash, third-party checks (checks
payable to you written by another party), credit card convenience checks, or
checks drawn on banks outside the U.S.
WIRE
Call 800-368-3863 for instructions before wiring funds either to open or add
to an account. This helps to ensure that your account will be credited
promptly and correctly.
AUTOMATIC INVESTMENT SERVICES
See "Services for Investors" for detailed information on all of our automatic
investment services. You can sign up for these plans when you open your
account or you can add them later by visiting the Investor Services area at
WWW.ESTRONG.COM or by calling 800-368-3863 for the appropriate form.
15
<PAGE>
BROKER-DEALER
You may purchase shares through a broker-dealer or other intermediary who may
charge you a fee. Broker-dealers, including each fund's distributor, and
other intermediaries may also from time to time sponsor or participate in
promotional programs pursuant to which investors receive incentives for
establishing with the broker-dealer or intermediary an account and/or for
purchasing shares of the Strong Funds through the account(s). Investors
should contact the broker-dealer or intermediary and consult the Statement of
Additional Information for more information about promotional programs.
PLEASE REMEMBER . . .
- - Make checks or money orders payable to Strong.
- - We do not accept cash, third-party checks (checks payable to you written by
another party), credit card convenience checks, or checks drawn on banks
outside the U.S.
- - You will be charged $20 for every check, money order, wire, or Electronic
Funds Transfer returned unpaid.
SELLING SHARES
You can access the money in your account by selling (also called redeeming)
some or all of your shares by one of the methods below. After your redemption
request is accepted, we normally send you the proceeds on the next business
day.
SELLING INSTRUCTIONS
You can sell shares in several ways.
MAIL
Write a letter of instruction. It should specify your account number, the
dollar amount or number of shares you wish to redeem, the names and signatures
of the owners (or other authorized persons), and your mailing address. Then,
mail it to the address listed on the back of this prospectus.
REDEMPTION OPTION
Sign up for the redemption option when you open your account or add it later
by visiting the Investor Services area at WWW.ESTRONG.COM or by calling
800-368-3863 to request a Shareholder Account Options Form. With this option,
you may sell shares by phone or via the Internet and receive the proceeds in
one of three ways:
(1) We can mail a check to your account's address. Checks will not be
forwarded by the Postal Service, so please notify us if your address has
changed.
(2) We can transmit the proceeds by Electronic Funds Transfer to a
properly pre-authorized bank account. The proceeds usually will arrive at
your bank two banking days after we process your redemption.
(3) For a $10 fee, we can transmit the proceeds by wire to a properly
pre-authorized bank account. The proceeds usually will arrive at your bank the
first banking day after we process your redemption.
STRONG DIRECT(R)
You can redeem shares through Strong Direct(R) at 800-368-7550. See "Services
for Investors" for more information.
STRONG NETDIRECT(R)
You can use Strong netDirect(R) at WWW.ESTRONG.COM, to redeem shares. See
"Services for Investors" for more information.
INVESTOR CENTERS
You can visit our Investor Center in Menomonee Falls, Wisconsin, near
Milwaukee. Call 800-368-3863 for hours and directions, or for the location of
our other Investor Centers.
AUTOMATIC INVESTMENT SERVICES
You can set up automatic withdrawals from your account at regular intervals.
See "Services for Investors" for detailed information on all of our automatic
investment services. You can sign up for these plans when you open your
account, or you
16
<PAGE>
can add them later by visiting the Investor Services area at WWW.ESTRONG.COM or
by calling 800-368-3863 for the appropriate form.
BROKER-DEALER
You may sell shares through a broker-dealer or other intermediary who may
charge you a fee.
PLEASE REMEMBER ...
- - If you recently purchased shares, a redemption request on those shares
generally will not be honored until 10 days after we receive the purchase
check or electronic transaction.
- - Some transactions and requests require a signature guarantee.
- - If you are selling shares you hold in certificate form, you must submit the
certificates with your redemption request. Each registered owner must sign
the certificates and all signatures must be guaranteed.
- - With an IRA (or other retirement account), you will be charged (1) a $50
annual account maintenance fee for each account up to a maximum of $30 and
(2) a $10 fee for transferring assets to another custodian or for closing an
account.
- - If you sell shares out of a non-IRA retirement account and you are eligible
to roll the sale proceeds into another retirement plan, we will withhold for
federal income tax purposes a portion of the sale proceeds unless you
transfer all of the proceeds to an eligible retirement plan.
((Side Box))
There may be special distribution requirements that apply to retirement
accounts. For instructions on
- - Roth and Traditional IRA accounts, call
800-368-3863, and
- - SIMPLE IRA, SEP-IRA , 403(b)(7), Keogh, Pension Plan, Profit Sharing Plan, or
401(k) Plan accounts, call 800-368-2882.
((Side Box))
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE GUARANTEES help ensure that major
transactions or changes to your account are in fact
authorized by you. For example, we require a signature
guarantee on written redemption requests for more than
$50,000. You can obtain a signature guarantee for a
nominal fee from most banks, brokerage firms, and
other financial institutions. A notary public stamp or
seal cannot be substituted for a signature guarantee.
- --------------------------------------------------------
</TABLE>
ADDITIONAL POLICIES
TELEPHONE AND INTERNET TRANSACTIONS
Once you place a telephone or Internet transaction request, it cannot be
canceled or modified. We use reasonable procedures to confirm that telephone
and Internet transaction requests are genuine. We may be responsible if we do
not follow these procedures. You are responsible for losses resulting from
fraudulent or unauthorized instructions received over the telephone or by
computer, provided we reasonably believe the instructions were genuine. To
safeguard your account, please keep your Strong Direct(R) and Strong
netDirect(R) passwords confidential. Contact us immediately if you believe
there is a discrepancy between a transaction you performed and the confirmation
statement you received, or if you believe someone has obtained unauthorized
access to your account or password.
During times of unusual market activity, our phones may be busy and you may
experience a delay placing a telephone request. During these times, consider
trying Strong Direct(R), our 24-hour automated telephone system, by calling
800-368-7550, or
17
<PAGE>
Strong netDirect(R), our on-line transaction center, by visiting
WWW.ESTRONG.COM. Please remember that you must have telephone redemption as an
option on your account to redeem shares through Strong Direct(R) or Strong
netDirect(R).
INVESTING THROUGH A THIRD PARTY
If you invest through a third party (rather than directly with Strong), the
policies and fees may be different than described in this prospectus. Banks,
brokers, 401(k) plans, financial advisors, and financial supermarkets may
charge transaction fees and may set different minimum investments or
limitations on buying or selling shares. Consult a representative of your
plan or financial institution if you are not sure.
PURCHASES IN KIND
You may, if we approve, purchase shares of the fund with securities that are
eligible for purchase by the fund (consistent with the fund's investment
restrictions, policies, and goal) and that have a value that is readily
ascertainable in accordance with the fund's valuation policies.
LOW BALANCE ACCOUNT FEE
Because of the high cost of maintaining small accounts, an annual low balance
account fee of $10 (or the value of the account if the account value is less
than $10) will be charged to all accounts that fail to meet the initial
investment minimum. The fee, which is payable to the transfer agent, will not
apply to (1) any retirement accounts, (2) accounts with an automatic investment
plan (unless regular investments have been discontinued), or (3) shareholders
whose combined Strong Funds accounts total $100,000 or more. We may waive the
fee, in our discretion, in the event that a significant market correction
lowers an account balance below the account's initial investment minimum. The
effective date of this policy is September 1, 2000.
DISTRIBUTIONS
DISTRIBUTION POLICY
Each fund generally pays you dividends from net investment income quarterly
and distributes any net capital gains that it realizes annually.
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Your dividends and capital gain distributions will be automatically reinvested
in additional shares, unless you choose otherwise. Your other options are to
receive checks for these payments, have them automatically invested in another
Strong Fund, or have them deposited into your bank account. To change the
current option for payment of dividends and capital gain distributions, please
call 800-368-3863.
TAXES
TAXABLE DISTRIBUTIONS
Any net investment income and net short-term capital gain distributions you
receive are taxable as ordinary dividend income at your income tax rate.
Distributions of net capital gains are generally taxable as long-term capital
gains. This is generally true no matter how long you have owned your shares
and whether you reinvest your distributions or take them in cash. You may
also have to pay taxes when you exchange or sell shares if your shares have
increased in value since you bought them.
((Side Box))
<TABLE>
<CAPTION>
<S> <C>
Generally, if your investment is in a traditional IRA or
other TAX-DEFERRED ACCOUNT, your dividends and
distributions will not be taxed at the time they are paid,
but instead at the time you withdraw them from your
account.
- ----------------------------------------------------------
</TABLE>
RETURN OF CAPITAL
If your fund's (1) income distributions exceed its net investment income and
net short-term capital gains or (2) capital gain distributions exceed its net
capital gains in any year, all or a portion of those distributions may be
treated as a return of capital to you. Although a return of capital is not
taxed, it will reduce the cost basis of your shares.
18
<PAGE>
YEAR-END STATEMENT
To assist you in tax preparation, after the end of each calendar year, we send
you a statement of your fund's ordinary dividends and net capital gain
distributions (Form 1099).
BACKUP WITHHOLDING
By law, we must withhold 31% of your distributions and proceeds if (1) you are
subject to backup withholding or (2) you have not provided us with complete
and correct taxpayer information such as your Social Security Number (SSN) or
Tax Identification Number (TIN).
((Side Box))
<TABLE>
<CAPTION>
<S> <C>
Unless your investment is in a tax-deferred retirement
account such as an IRA, YOU MAY WANT TO AVOID:
- -Investing a large amount in a fund close to the end of
the calendar year. If the fund makes a capital gains
distribution, you may receive some of your
investment back as a taxable distribution.
- -Selling shares of a mutual fund at a loss and then
investing in the same fund within 30 days before or
after the sale. This is called a wash sale and you will
not be allowed to claim a tax loss on the transaction.
- ---------------------------------------------------------
</TABLE>
((Side Box))
<TABLE>
<CAPTION>
<S> <C>
COST BASIS is the amount that you paid for the shares.
When you sell shares, you subtract the cost basis from the
sale proceeds to determine whether you realized an
investment gain or loss. For example, if you bought a
share of a fund at $10 and you sold it two years later at
$11, your cost basis on the share is $10 and your gain is
$1.
- ---------------------------------------------------------
</TABLE>
Because everyone's tax situation is unique, you should consult your tax
professional for assistance.
SERVICES FOR INVESTORS
Strong provides you with a variety of services to help you manage your
investment. For more details, call 800-368-3863, 24 hours a day, 7 days a
week. These services include:
STRONG DIRECT (R) AUTOMATED TELEPHONE SYSTEM
Our 24-hour automated response system enables you to use a touch-tone phone to
access current share prices (800-368-3550), to access fund and account
information (800-368-5550), and to make purchases, exchanges, or redemptions
among your existing accounts if you have elected these services (800-368-7550).
Passwords help to protect your
account information.
ESTRONG.COM
Visit us on-line at WWW.ESTRONG.COM to access your fund's performance and
portfolio holding information. In addition to general information about
investing, our web site offers daily performance information, portfolio
manager commentaries, and information on available account options.
STRONG NETDIRECT(R)
If you are a shareholder, you may use Strong netDirect(R) to access your
account information 24 hours a day from your personal computer. Strong
netDirect(R) allows you to view account history, account balances, and recent
dividend activity, as well as to make purchases, exchanges, or redemptions
among your existing accounts if you have elected these services. Encryption
19
<PAGE>
technology and passwords help to protect your account information. You may
register to use Strong netDirect(R) at WWW.ESTRONG.COM.
STRONGMAIL
If you register for StrongMail at WWW.STRONGMAIL.COM, you will receive your
fund's closing price by e-mail each business day. In addition, StrongMail
offers market news and updates throughout the day.
STRONG EXCHANGE OPTION
You may exchange shares of a fund for shares of another Strong Fund, either in
writing, by telephone, or through your personal computer, if the accounts are
identically registered (with the same name, address, and taxpayer
identification number). Please ask us for the appropriate prospectus and read
it before investing in any of the Strong Funds. Remember, an exchange of
shares of one Strong Fund for those of another Strong Fund is considered a
sale and a purchase of shares for tax purposes and may result in a capital
gain or loss. Some Strong Funds that you may want to exchange into may charge
a redemption fee of 0.50% to 1.00% on the sale of shares held for less than
six months. Purchases by exchange are subject to the investment requirements
and other criteria of the fund purchased.
STRONG AUTOMATIC INVESTMENT SERVICES
You may invest or redeem automatically in the following ways, some of which
may be subject to additional restrictions or conditions.
AUTOMATIC INVESTMENT PLAN (AIP)
This plan allows you to make regular, automatic investments from your bank
checking or savings account.
AUTOMATIC EXCHANGE PLAN
This plan allows you to make regular, automatic exchanges from one eligible
Strong Fund to another.
AUTOMATIC DIVIDEND REINVESTMENT
Your dividends and capital gains will be automatically reinvested in
additional shares, unless you choose otherwise. Your other options are to
receive checks for these payments, have them automatically invested in another
Strong Fund, or have them deposited into your bank account.
NO-MINIMUM INVESTMENT PLAN
This plan allows you to invest without meeting the minimum initial investment
requirements if you invest monthly and you participate in the AIP, Automatic
Exchange Plan, or Payroll Direct Deposit Plan.
PAYROLL DIRECT DEPOSIT PLAN
This plan allows you to send all or a portion of your paycheck, social
security check, military allotment, or annuity payment to the Strong Funds of
your choice.
SYSTEMATIC WITHDRAWAL PLAN
This plan allows you to redeem a fixed sum from your account on a regular
basis. Payments may be sent electronically to a bank account or as a check to
you or anyone you properly designate.
STRONG RETIREMENT PLAN SERVICES
We offer a wide variety of retirement plans for individuals and institutions,
including large and small businesses. For information on:
- - INDIVIDUAL RETIREMENT PLANS, including Traditional IRAs and Roth IRAs, call
800-368-3863.
- - QUALIFIED RETIREMENT PLANS, including SIMPLE IRAs, SEP-IRAs, 403(b)(7)s,
Keoghs, Pension Plans, Profit Sharing Plans, and 401(k) Plans, call
800-368-2882.
SOME OF THESE SERVICES MAY BE SUBJECT TO ADDITIONAL RESTRICTIONS OR
CONDITIONS. CALL 800-368-3863 FOR MORE INFORMATION.
20
<PAGE>
RESERVED RIGHTS
We reserve the right to:
- - Refuse, change, discontinue, or temporarily suspend account services,
including purchase, exchange, or telephone and Strong netDirect(R) redemption
privileges, for any reason.
- - Reject any purchase request for any reason including exchanges from other
Strong Funds. Generally, we do this if the purchase or exchange is
disruptive to the efficient management of a fund (due to the timing of the
investment or an investor's history of excessive trading).
- - Change the minimum or maximum investment amounts.
- - Delay sending out redemption proceeds for up to seven days (this generally
only applies to very large redemptions without notice, excessive trading, or
during unusual market conditions).
- - Suspend redemptions or postpone payments when the NYSE is closed for any
reason other than its usual weekend or holiday closings, when trading is
restricted by the SEC, or under any emergency circumstances.
- - Make a redemption-in-kind (a payment in portfolio securities rather than
cash) if the amount you are redeeming is in excess of the lesser of (1)
$250,000 or (2) 1% of the fund's assets. Generally, redemption-in-kind is
used when large redemption requests may cause harm to the fund and its
shareholders.
- - Close any account that does not meet minimum investment requirements. We
will give you notice and 60 days to begin an automatic investment program or
to increase your balance to the required minimum. We may waive the minimum
initial investment at our discretion.
- - Reject any purchase or redemption request that does not contain all required
documentation.
21
<PAGE>
FOR MORE INFORMATION
More information is available upon request at no charge, including:
SHAREHOLDER REPORTS: Additional information is available in the annual and
semi-annual report to shareholders. These reports contain a letter from
management, discuss recent market conditions, economic trends and investment
strategies that significantly affected your investment's performance during the
last fiscal year, and list portfolio holdings.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI contains more details about
investment policies and techniques. A current SAI is on file with the SEC and
is incorporated into this prospectus by reference. This means that the SAI is
legally considered a part of this prospectus even though it is not physically
contained within this prospectus.
To request information or to ask questions:
BY TELEPHONE FOR HEARING-IMPAIRED (TDD)
414-359-1400 or 800-368-3863 800-999-2780
BY MAIL BY OVERNIGHT DELIVERY
Strong Funds Strong Funds
P.O. Box 2936 900 Heritage Reserve
Milwaukee, WI 53201-2936 Menomonee Falls, WI 53051
ON THE INTERNET BY E-MAIL
View on-line or download documents: [email protected]
Strong Funds: WWW.ESTRONG.COM
SEC*: www.sec.gov
To reduce the volume of mail you receive, only one copy of financial reports,
prospectuses, and other regulatory materials is mailed to your household. You
can call us at 800-368-3863, or write to us at the address listed above, to
request (1) additional copies free of charge, or (2) that we discontinue our
practice of householding regulatory materials.
This prospectus is not an offer to sell securities in places other than the
United States and its territories.
*INFORMATION ABOUT A FUND (INCLUDING THE SAI) CAN ALSO BE REVIEWED AND COPIED
AT THE SECURITIES AND EXCHANGE COMMISSION'S PUBLIC REFERENCE ROOM IN
WASHINGTON, D.C. YOU MAY CALL THE COMMISSION AT 202-942-8090 FOR INFORMATION
ABOUT THE OPERATION OF THE PUBLIC REFERENCE ROOM. REPORTS AND OTHER INFORMATION
ABOUT A FUND ARE ALSO AVAILABLE FROM THE EDGAR DATABASE ON THE COMMISSION'S
INTERNET SITE AT WWW.SEC.GOV. YOU MAY OBTAIN A COPY OF THIS INFORMATION, AFTER
PAYING A DUPLICATING FEE, BY SENDING A WRITTEN REQUEST TO THE COMMISSION'S
PUBLIC REFERENCE SECTION, WASHINGTON, D.C. 20549-0102, OR BY SENDING AN
ELECTRONIC REQUEST TO THE FOLLOWING E-MAIL ADDRESS: [email protected].
Strong American Utilities Fund, a series of Strong Conservative Equity Funds,
Inc., SEC file number: 811-7656
Strong Asset Allocation Fund, Inc., SEC file number: 811-3256
Strong Blue Chip 100 Fund, a series of Strong Conservative Equity Funds, Inc.,
SEC file number: 811-7656
Strong Equity Income Fund, a series of Strong Conservative Equity Funds, Inc.,
SEC file number: 811-7656
Strong Growth and Income Fund, a series of Strong Conservative Equity Funds,
Inc., SEC file number: 811-7656
Strong Limited Resources Fund, a series of Strong Conservative Equity Funds,
Inc., SEC file number: 811-7656
Strong Total Return Fund, Inc., SEC file number: 811-3254
22
<PAGE>
[Strong logo and picture of man and two children fishing]
prospectus
THE STRONG CONSERVATIVE
EQUITY FUNDS
advisor class
February 29, 2000
The Strong Blue Chip 100 Fund
The Strong Growth and Income Fund
THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED OF
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
TABLE OF CONTENTS
YOUR INVESTMENT.................................................................
KEY INFORMATION.................................................................
What are the funds' goals?.....................................................1
What are the funds' principal investment strategies?...........................1
What are the main risks of investing in the funds?.............................2
What are the funds' fees and expenses?.........................................5
Who are the funds' investment advisor and portfolio managers?..................7
OTHER IMPORTANT INFORMATION YOU SHOULD KNOW....................................8
Financial Highlights...........................................................8
YOUR ACCOUNT....................................................................
Distribution Fees.............................................................11
Share Price...................................................................11
Buying Shares.................................................................12
Selling Shares................................................................16
Additional Policies...........................................................17
Distributions.................................................................18
Taxes.........................................................................19
Reserved Rights...............................................................20
For More Information..................................................Back Cover
IN THIS PROSPECTUS, "WE" REFERS TO STRONG CAPITAL MANAGEMENT, INC., THE
INVESTMENT ADVISOR, ADMINISTRATOR, AND TRANSFER AGENT FOR THE STRONG FUNDS.
2
<PAGE>
YOUR INVESTMENT
KEY INFORMATION
WHAT ARE THE FUNDS' GOALS?
The STRONG BLUE CHIP 100 FUND seeks total return by investing for capital
growth and income.
The STRONG GROWTH AND INCOME FUND seeks high total return by investing for
capital growth and income.
WHAT ARE THE FUNDS' PRINCIPAL INVESTMENT STRATEGIES?
The BLUE CHIP 100 FUND invests in the common stocks of the 100 largest market
capitalization companies primarily traded in the U.S. as determined by the
fund's manager. These blue chip stocks generally tend to pay higher dividends
than medium- and small-capitalization stocks. Half of the fund's assets are
invested in these stocks in proportion to size. The other half of the fund's
assets are selectively invested in 20-30 of those same 100 companies. The
portfolio manager focuses on those companies that the fund's manager believes
offer greater return potential. To a limited extent, the fund may also invest
in dollar-denominated foreign securities. The manager may sell stocks from the
actively managed half of the portfolio when they no longer offer attractive
growth prospects.
The GROWTH AND INCOME FUND focuses primarily on the stocks of
large-capitalization, dividend-paying U.S. companies that also offer potential
for capital growth. To choose investments, the manager evaluates domestic and
international economic conditions and events. The manager then identifies
stocks in those sectors that appear likely to benefit from those conditions,
and avoids those that appear likely to suffer. To a limited extent, the fund
may also invest in foreign-based companies, primarily through American
Depositary Receipts (ADRs). When changes in economic conditions make the
environment unfavorable for a security or its industry, the manager may sell a
holding. The manager's philosophy is to remain fully invested in stocks,
despite market fluctuations. Rather than attempting to time the markets by
investing in cash or cash-type investments as market conditions change, the
manager attempts to move out of sectors and companies that appear to be
especially vulnerable to deterioration, and into those that appear less likely
to be affected.
The manager of the BLUE CHIP 100 FUND may invest up to 50% of the fund's assets
in cash or cash-type securities (high-quality, short-term debt securities
issued by corporations, financial institutions, or the U.S. government) as a
temporary defensive position to avoid losses during adverse market conditions.
Taking a temporary defensive position could reduce the benefit to the fund if
the market goes up. In this case, the fund may not achieve its investment
goals.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?
GENERAL STOCK RISKS: The major risks of each fund are those of investing in the
stock market. That means the funds may experience sudden, unpredictable
declines in value, as well as periods of poor performance. Because stock values
go up and down, the value of your fund's shares may go up and down. Therefore,
when you sell your investment, you may receive more or less money than you
originally invested.
STYLE INVESTING: Different types of stocks tend to shift into and out of favor
with stock market investors depending on market and economic conditions.
Because each of the funds focuses on stocks selected in accordance with the
fund's goal and investment strategies, each fund's performance may at times be
better or worse than the performance of funds that focus on other types of
stocks or that have a broader investment style.
FOREIGN SECURITIES: The GROWTH AND INCOME FUND may invest up to 25% of its
assets in foreign securities. The fund invests in the stocks of foreign-based
companies primarily through American Depositary Receipts (ADRs). The BLUE CHIP
100 FUND invests in dollar-denominated foreign securities. Foreign investments
involve additional risks, including currency-rate
3
<PAGE>
fluctuations, political and economic instability, differences in financial
reporting standards, and less-strict regulation of securities markets.
The funds are appropriate for investors who are comfortable with the risks
described here and whose financial goals are five or more years in the future.
The funds are not appropriate for investors concerned primarily with principal
stability.
FUND STRUCTURE
Each fund offers multiple classes of shares. The GROWTH AND INCOME FUND offers
Investor Class shares, Advisor Class shares, and Institutional Class shares.
The BLUE CHIP 100 FUND offers Investor Class shares and Advisor Class shares.
Only the Advisor Class shares are offered in this prospectus. The principal
differences between each of the classes of shares are that the Advisor Class
shares are subject to a front-end sales load and distribution fees and expenses
under a 12b-1 plan, and each class of shares is subject to different
administrative and transfer agency fees and expenses.
FUND PERFORMANCE
The return information on the following pages illustrates how the performance
of each of the fund's Advisor Class shares can vary, which is one indication of
the risks of investing in the fund. Performance results for Advisor Class
shares, which were first offered on February 29, 2000, are based on the
historical performance of the Investor Class shares from the inception of each
fund up to February 28, 2000, recalculated to reflect the higher annual expense
ratio applicable to the Advisor Class shares. The Investor Class shares are
not offered by this prospectus. The returns for the Advisor Class shares are
substantially similar to those of the Investor Class shares since each are
invested in the same portfolio of securities and the only differences relate to
the differences in the fees and expenses of each class of shares. Please keep
in mind that the past performance of each fund's Advisor Class shares does not
represent how it will perform in the future. The information assumes that you
reinvested all dividends and distributions.
CALENDAR YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C>
Growth and Blue Chip 100
Year Income
- ---- ---------- -------------
1996 31.6% -
- ---- ---------- -------------
1997 30.1% -
- ---- ---------- -------------
1998 32.7% 43.7%
- ---- ---------- -------------
1999 32.0% 38.7%
- ---- ---------- -------------
</TABLE>
The bar chart does not reflect the initial sales charge which was first charged
on February 29, 2000. If it did, returns would be lower than those shown.
BEST AND WORST QUARTERLY PERFORMANCE
(DURING THE PERIODS SHOWN ABOVE)
<TABLE>
<CAPTION>
<S> <C> <C>
FUND NAME BEST QUARTER RETURN WORST QUARTER RETURN
- -------------------- -------------------- ---------------------
Blue Chip 100 27.9% (4th Q 1999) -7.4% (3rd Q 1998)
Growth and Income 23.3% (4th Q 1998) -9.4% (3rd Q 1998)
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
AS OF 12-31-99
FUND/INDEX 1-YEAR SINCE INCEPTION
BLUE CHIP 100 30.71% 33.01% (6-30-97)
S&P 500 Stock Index 21.04% 24.25%
Lipper Large-Cap Growth Funds Index 34.82% 32.25%
GROWTH AND INCOME 24.40% 29.68% (12-29-95)
S&P 500 Stock Index 21.04% 26.39%
Lipper Large-Cap Core Funds Index 19.35% 23.76%
4
<PAGE>
THE S&P 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF THE
U.S. STOCK MARKET. . THE LIPPER LARGE-CAP GROWTH FUNDS INDEX IS AN
EQUALLY-WEIGHTED PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS IN THIS
LIPPER CATEGORY. THE LIPPER LARGE-CAP CORE FUNDS INDEX IS AN EQUALLY-WEIGHTED
PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS IN THIS LIPPER CATEGORY
Unlike the bar chart, the performance table reflects the impact of the maximum
initial sales charge which was first charged on February 29, 2000. No sales
charge is imposed on reinvested dividends and distributions.
WHAT ARE THE FUNDS' FEES AND EXPENSES?
This section describes the fees and expenses that you may pay if you buy and
hold shares of the funds.
SHAREHOLDER FEES
(fees paid directly from your investment)
<TABLE>
<CAPTION>
<S> <C>
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON
FUND PURCHASES (AS A PERCENTAGE OF OFFERING PRICE)
Blue Chip 100 5.75%
Growth and Income 5.75%
</TABLE>
You may not have to pay the maximum sales charge because waivers and reduced
sales charges are available. Call 800-368-1683 for more information.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets)
The costs of operating each fund are deducted from fund assets, which means you
pay them indirectly. These costs are deducted before computing the daily share
price or making distributions. As a result, they don't appear on your account
statement, but instead reduce the total return you receive from your fund
investment.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENT OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
TOTAL ANNUAL FUND
FUND MANAGEMENT FEES 12B-1 FEES OTHER EXPENSES OPERATING EXPENSES
- --------------- --------------- --------------- --------------- ------------------
Blue Chip 100 0.50% 0.25% 0.51% 1.26%
Growth and Income 0.55% 0.25% 0.50% 1.30%
</TABLE>
EXAMPLE: This example is intended to help you compare the cost of investing in
the funds with the cost of investing in other mutual funds. The maximum initial
sales charge imposed on purchases of Advisor Class shares is reflected in this
example. The example assumes that you invest $10,000 in the funds and reinvest
all dividends and distributions for the time periods indicated, and then redeem
all of your shares at the end of those periods. The example also assumes that
your investment has a 5% return each year and that the funds' operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------- ------------ ------------ ------- ------------
Blue Chip 100 $696 $952 $1,227 $2,010
Growth and Income $700 $963 $1,247 $2,053
</TABLE>
WHO ARE THE FUNDS' INVESTMENT ADVISOR AND PORTFOLIO MANAGERS?
Strong Capital Management, Inc. (Strong) is the investment advisor for the
funds. Strong provides investment management services for mutual funds and
other investment portfolios representing assets of over $38 billion. Strong
began conducting business in 1974. Since then, its principal business has been
providing investment advice for individuals and institutional accounts, such as
pension and profit-sharing plans, as well as mutual funds, several of which are
available through variable insurance products. Strong's address is P.O. Box
2936, Milwaukee, WI 53201.
5
<PAGE>
The following individuals are the funds' portfolio managers.
KAREN E. MCGRATH manages the BLUE CHIP 100 FUND. She has over 25 years of
investment experience and is a Chartered Financial Analyst. She joined Strong
as a portfolio manager in October 1995. Ms. McGrath has managed the BLUE CHIP
100 FUND since its inception in June 1997. From January 1994 until September
1995, she served as a portfolio manager of equity accounts and President of
National Investment Services, Inc. (NIS). From January 1990 until December
1993, she served as a portfolio manager of equity accounts and Vice President
and Senior Vice President of National Investment Services of America, Inc., a
predecessor organization to NIS. Ms. McGrath began her career at Loomis Sayles
& Company, Inc., where she worked as a portfolio manager of equity accounts for
over 15 years. Ms. McGrath received her bachelors degree in Accounting from
Marquette University in 1959.
RIMAS M. MILAITIS manages the GROWTH AND INCOME FUND. He has over ten years of
investment experience. He joined Strong as a portfolio manager in December
1995 and has managed the GROWTH AND INCOME FUND since its inception in December
1995. For four years prior to joining Strong, he managed several conservative
equity portfolios that invested in stocks and bonds at Aon Advisors, Inc.
(AAI). For two years prior to that, he served as an equity trader/analyst to
AAI. Prior to working at AAI, Mr. Milaitis served for three years as an equity
portfolio assistant to the Illinois State Board of Investment. Mr. Milaitis
received his bachelors degree in Economics from Illinois State University in
1984 and his Masters of Business Administration in Finance from DePaul
University in 1991.
OTHER IMPORTANT INFORMATION YOU SHOULD KNOW
To a limited extent, a fund may participate in the initial public offering
(IPO) market. IPOs may significantly increase a fund's total returns during
any period that the fund has a small asset base. As a fund's assets grow, any
impact of IPO investments on the fund's total return may decline.
FINANCIAL HIGHLIGHTS
This information describes investment performance of the Investor Class shares
of the funds for the periods shown. Certain information reflects financial
results for a single Investor Class share. "Total Return" shows how much an
investment in the Investor Class shares of the fund would have increased (or
decreased) during each period, assuming you had reinvested all dividends and
distributions. The Advisor Class shares of the fund were first offered on
February 29, 2000. These figures for the fund have been audited by
PricewaterhouseCoopers LLP, whose report, along with the fund's financial
statements, is included in the fund's annual report.
<TABLE>
<CAPTION>
STRONG BLUE CHIP 100 FUND - INVESTOR CLASS
<S> <C> <C> <C>
Oct. 31, Oct. 31, Oct. 31,
SELECTED PER-SHARE DATA(a) 1999 1998 1997(b)
Net Asset Value, Beginning of Period $13.24 $10.39 $10.00
Income From Investment Operations:
Net Investment Income (Loss) (0.04) 0.10 0.01
Net Realized and Unrealized Gains
on Investments 4.90 2.86 0.38
Total from Investment Operations 4.86 2.96 0.39
Less Distributions:
From Net Investment Income (0.00)(c) (0.11) -
Total Distributions (0.00)(c) (0.11) -
Net Asset Value, End of Period $18.10 $13.24 $10.39
RATIOS AND SUPPLEMENTAL DATA
Total Return +36.7% +28.6% +3.9%
Net Assets, End of Period (In Millions) $485 $90 $5
Ratio of Expenses to Average Net Assets
without Waivers 1.2% 1.3% 2.0%*
Ratio of Expenses to Average Net Assets 1.2% 0.6% 1.0%*
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.3%) 0.7% 0.6%*
Portfolio Turnover Rate 75.4% 46.5% 21.5%
</TABLE>
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the
fund outstanding for the entire period.
(b) For the period from June 30, 1997 (inception) to October 31, 1997.
(c) Amount calculated is less than $0.01 or 0.1%.
<TABLE>
<CAPTION>
STRONG GROWTH AND INCOME FUND - INVESTOR CLASS
<S> <C> <C> <C> <C>
Oct. 31, Oct. 31, Oct. 31, Oct. 31,
SELECTED PER-SHARE DATA(a) 1999 1998 1997 1996(b)
Net Asset Value, Beginning of Period $18.73 $16.35 $12.38 $10.00
Income From Investment Operations:
Net Investment Income (Loss) (0.03) 0.03 0.07 0.04
Net Realized and Unrealized Gains on
Investments 6.56 3.07 3.99 2.38
Total from Investment Operations 6.53 3.10 4.06 2.42
Less Distributions:
From Net Investment Income (0.00)(c) (0.03) (0.07) (0.04)
From Net Realized Gains - (0.62) (0.02) -
In Excess of Net Realized Gains - (0.07) - -
Total Distributions (0.00)(c) (0.72) (0.09) (0.04)
Net Asset Value, End of Period $25.26 $18.73 $16.35 $12.38
RATIOS AND SUPPLEMENTAL DATA
Total Return +34.9% +19.7% +32.9% +24.2%
Net Assets, End of Period (In Millions) $861 $399 $227 $18
Ratio of Expenses to Average Net Assets 1.1% 1.1% 1.2% 1.9%*
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.1%) 0.1% 0.5% 0.6%*
Portfolio Turnover Rate 52.3% 107.5% 237.8% 174.1%
</TABLE>
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the
fund outstanding for the entire period.
(b) For the period from December 31, 1995 (inception) to October 31, 1996.
(c) Amount calculated is less than $0.01 or 0.1%.
YOUR ACCOUNT
DISTRIBUTION FEES
The Strong Funds have adopted a Rule 12b-1 distribution plan for the Advisor
Class shares of the funds. Under the distribution plan, each fund may make
monthly payments to the fund's distributor at the annual rate of 1.00% of the
average daily net assets of the fund attributable to its Advisor Class shares.
However, under the Distribution Agreement for the Advisor Class shares,
payments to the fund's distributor under the distribution plan are currently
limited to payment at an annual rate equal to 0.25% of average daily net assets
attributable to Advisor Class shares. Such payments may be made for
distribution related services and other services which are primarily intended
to result in the sale of Advisor Class shares of the fund. Because Rule 12b-1
fees are ongoing, over time they will increase the cost of an investment in the
Advisor Class shares of the fund and may cost more than other types of sales
charges.
SHARE PRICE
Your transaction price for buying, selling, or exchanging Advisor Class shares
is the net asset value per share (NAV) of that class of shares. Any applicable
sales charge will be added to the purchase price for Advisor Class shares. The
"offering price" is the initial sales charge plus the NAV. NAV is generally
calculated as of the close of trading on the New York Stock Exchange (usually
3:00 p.m. Central Time) every day the NYSE is open. If the NYSE closes at any
other time, or if an emergency exists, NAV may be calculated at a different
time. Your share price will be the next NAV calculated after we accept your
order.
NAV is based on the market value of the securities in a fund's portfolio. If
market prices are not available, NAV is based on a security's fair value as
determined in good faith by us under the supervision of the Board of Directors
of the Strong Funds.
FOREIGN SECURITIES
Some of the fund's portfolio securities may be listed on foreign exchanges that
trade on days when we do not calculate an NAV. As a result, the fund's NAV may
change on days when you will not be able to purchase or redeem shares. In
addition, a foreign exchange may not value its listed securities at the same
time that we calculate a fund's NAV. Events affecting the values of portfolio
securities that occur between the time a foreign exchange assigns a price to
the portfolio securities and the time when we calculate a fund's NAV generally
will not be reflected in the fund's NAV. These events will be reflected in the
fund's NAV when we, under the supervision of the Board of Directors of the
Strong Funds, determine that they would have a material effect on the fund's
NAV.
((Side Box))
<TABLE>
<CAPTION>
<C> <C>
We determine the share price or NAV of a class of shares by
dividing net assets attributable to the class of shares (the value of
the fund's investments, cash, and other assets attributable to the
class of shares minus the fund's liabilities attributable to the class
of shares) by the number of shares in the class outstanding.
- ----------------------------------------------------------------------
</TABLE>
BUYING SHARES
INVESTMENT MINIMUMS: When buying shares, you must meet the following investment
minimum requirements.
<TABLE>
<CAPTION>
<S> <C> <C>
INITIAL INVESTMENT MINIMUM ADDITIONAL INVESTMENT MINIMUM
- -------------------------------------- ----------------------------------- -----------------------------------
Regular accounts $2,500 $50
- -------------------------------------- ----------------------------------- -----------------------------------
Education IRA accounts $500 $50
- -------------------------------------- ----------------------------------- -----------------------------------
Other IRAs and UGMA/UTMA accounts $250 $50
- -------------------------------------- ----------------------------------- -----------------------------------
SIMPLE IRA, SEP-IRA, 403(b)(7), Keogh, the lesser of $250 or $25 per month $50
Pension Plan, and Profit Sharing Plan
accounts*
- -------------------------------------- ----------------------------------- -----------------------------------
</TABLE>
* IF YOU OPEN A QUALIFIED RETIREMENT PLAN ACCOUNT WHERE WE OR ONE OF OUR
ALLIANCE PARTNERS PROVIDE ADMINISTRATIVE SERVICES, THERE IS NO INITIAL
INVESTMENT MINIMUM.
7
<PAGE>
OFFERING PRICE: The offering price is the next NAV calculated after we accept
your order, plus any initial sales charge. No sales charge is imposed on
reinvested dividends and distributions. Advisor Class shares are also subject
to Rule 12b-1 fees at an annual rate of 0.25% of average daily net assets. The
amount of the initial sales charge you pay when you buy Advisor Class shares
differs depending on the amount you invest, as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNT OF AS A PERCENTAGE AS A PERCENTAGE
YOUR INVESTMENT OF OFFERING PRICE OF YOUR INVESTMENT
Less than $50,000 5.75% 6.10%
$50,000 but less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.50% 3.63%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $1,000,000 2.00% 2.04%
$1,000,000 or more 0.00% 0.00%
</TABLE>
INITIAL SALES CHARGE WAIVERS: The initial sales charge on the Advisor Class
shares may be waived in certain circumstances. These circumstances are
described in the Statement of Additional Information. Call 800-368-1683 for a
copy.
REINSTATEMENT PRIVILEGE: After you have redeemed Advisor Class shares, you
have a one time right to reinvest the proceeds back into the same fund within
90 days of the redemption at the current net asset value (without an initial
sales charge).
LETTER OF INTENT (LOI): If you intend to invest $50,000 or more, you may buy
Advisor Class shares at the reduced sales charge as though the total amount
were invested in Advisor Class shares in one lump sum. Shares equal to the
difference between the lower sales charge and the higher sales charge you would
have paid had you not purchased your shares through this program will be held
in escrow until the intended amount is invested. These escrowed shares may be
redeemed by a fund if the investor is required to pay additional sales charges.
RIGHTS OF ACCUMULATION: You will qualify for a lower sales charge on your
purchases of Advisor Class shares when your new investment in Advisor Class
shares, together with the current (offering price) value of all your holdings
in the Advisor Class shares, reaches a reduced sales charge level.
MULTIPLE CLASS PLAN: The fund has adopted a multiple class plan which currently
permits the GROWTH AND INCOME FUND to offer Investor Class shares, Advisor
Class shares, and Institutional Class shares, and the BLUE CHIP 100 FUND to
offer Investor Class shares and Advisor Class shares. Each class is offered at
its net asset value and is subject to fees and expenses which may differ
between classes. The principal differences between each of the classes of
shares are that the Advisor Class shares are subject to a front-end sales load
and distribution fees and expenses under a 12b-1 plan, and each class of shares
is subject to different administrative and transfer agency fees and expenses.
BUYING INSTRUCTIONS
You can buy shares in several ways.
MAIL
You can open or add to an account by mail with a check or money order made
payable to Strong Funds. Send it to the address listed on the back of this
prospectus, along with your account application (for a new account) or an
Additional Investment Form (for an existing account).
EXCHANGE OPTION
Sign up for the exchange option when you open your account. You may exchange
your shares of the fund for shares of another Strong Fund. You will not pay an
initial sales charge when you exchange, unless you exchange Advisor Class
shares of the Strong Advantage Fund into another fund's Advisor Class shares.
You may make an exchange by calling Strong Institutional Client Services at
800-368-1683 or by sending a facsimile to 414-359-3535. Please obtain and
read the appropriate prospectus before investing in any of the Strong Funds.
Remember, an exchange of shares of one Strong Fund for those of another Strong
Fund, is considered a sale and a purchase of fund shares for tax purposes and
may result in a capital gain or loss. Some Strong Funds that you may want to
exchange into may charge a redemption fee of 0.50% to 1.00% on the sale of
shares held for less
8
<PAGE>
than six months. Purchases by exchange are subject to the investment
requirements and other criteria of the fund or class purchased.
WIRE
Call 800-368-1683 for instructions before wiring funds either to open or add
to an account. This helps to ensure that your account will be credited
promptly and correctly.
BROKER-DEALER
You may purchase shares through a broker-dealer or other intermediary who may
charge you a fee. Broker-dealers, including each fund's distributor, and other
intermediaries may also from time to time sponsor or participate in
promotional programs pursuant to which investors receive incentives for
establishing with the broker-dealer or intermediary an account and/or for
purchasing shares of the Strong Funds through the account(s). Investors
should contact the broker-dealer or intermediary and consult the Statement of
Additional Information for more information about promotional programs.
PLEASE REMEMBER . . .
- - Make checks or money orders payable to Strong.
- - We do not accept cash, third-party checks (checks payable to you written by
another party), credit card convenience checks, or checks drawn on banks
outside the U.S.
- - You will be charged $20 for every check, money order, wire, or Electronic
Funds Transfer returned unpaid.
SELLING SHARES
You can access the money in your account by selling (also called redeeming)
some or all of your shares by one of the methods below. After your redemption
request is accepted, we normally send you the proceeds on the next business
day.
SELLING INSTRUCTIONS
You can sell shares in several ways.
MAIL
Write a letter of instruction. It should specify your account number, the
dollar amount or number of shares you wish to redeem, the names and signatures
of the owners (or other authorized persons), and your mailing address. Then,
mail it to the address listed on the back of this prospectus.
REDEMPTION OPTION
Sign up for the redemption option when you open your account. With this
option, you may sell shares by phone and receive the proceeds in one of three
ways:
(1) We can mail a check to your account's address. Checks will not be
forwarded by the Postal Service, so please notify us if your address has
changed.
(2) We can transmit the proceeds by Electronic Funds Transfer to a
properly pre-authorized bank account. The proceeds usually will arrive at
your bank two banking days after we process your redemption.
(3) For a $10 fee, we can transmit the proceeds by wire to a properly
pre-authorized bank account. The proceeds usually will arrive at your bank the
first banking day after we process your redemption.
9
<PAGE>
BROKER-DEALER
You may sell shares through a broker-dealer or other intermediary who may
charge you a fee.
PLEASE REMEMBER ...
- - If you recently purchased shares, a redemption request on those shares
generally will not be honored until 10 days after we receive the purchase
check or electronic transaction.
- - Some transactions and requests require a signature guarantee.
- - With an IRA (or other retirement account), you will be charged (1) a $10
annual account maintenance fee for each account up to a maximum of $30 and
(2) a $50 fee for transferring assets to another custodian or for closing an
account.
- - If you sell shares out of a non-IRA retirement account and you are eligible
to roll the sale proceeds into another retirement plan, we will withhold for
federal income tax purposes a portion of the sale proceeds unless you
transfer all of the proceeds to an eligible retirement plan.
((Side Box))
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE GUARANTEES help ensure that major
transactions or changes to your account are in fact
authorized by you. For example, we require a signature
guarantee on written redemption requests for more than
$50,000. You can obtain a signature guarantee for a
nominal fee from most banks, brokerage firms, and
other financial institutions. A notary public stamp or
seal cannot be substituted for a signature guarantee.
- --------------------------------------------------------
</TABLE>
ADDITIONAL POLICIES
TELEPHONE TRANSACTIONS
Once you place a telephone transaction request, it cannot be canceled or
modified. We use reasonable procedures to confirm that telephone transaction
requests are genuine. We may be responsible if we do not follow these
procedures. You are responsible for losses resulting from fraudulent or
unauthorized instructions received over the telephone, provided we reasonably
believe the instructions were genuine. During times of unusual market
activity, our phones may be busy and you may experience a delay placing a
telephone request.
INVESTING THROUGH A THIRD PARTY
If you invest through a third party (rather than directly with Strong), the
policies and fees may be different than described in this prospectus. Banks,
brokers, 401(k) plans, financial advisors, and financial supermarkets may
charge transaction fees and may set different minimum investments or
limitations on buying or selling shares. Consult a representative of your
plan or financial institution if you are not sure.
PURCHASES IN KIND
You may, if we approve, purchase shares of the fund with securities that are
eligible for purchase by the fund (consistent with the fund's investment
restrictions, policies, and goal) and that have a value that is readily
ascertainable in accordance with the fund's valuation policies.
DISTRIBUTIONS
DISTRIBUTION POLICY
Each fund generally pays you dividends from net investment income quarterly
and distributes any net capital gains that it realizes annually.
10
<PAGE>
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Your dividends and capital gain distributions will be automatically reinvested
in additional shares, unless you choose otherwise. Your other options are to
receive checks for these payments, have them automatically invested in another
Strong Fund, or have them deposited into your bank account. To change the
current option for payment of dividends and capital gain distributions, please
call 800-368-1683.
TAXES
TAXABLE DISTRIBUTIONS
Any net investment income and net short-term capital gain distributions you
receive are taxable as ordinary dividend income at your income tax rate.
Distributions of net capital gains are generally taxable as long-term capital
gains. This is generally true no matter how long you have owned your shares
and whether you reinvest your distributions or take them in cash. You may
also have to pay taxes when you exchange or sell shares if your shares have
increased in value since you bought them.
RETURN OF CAPITAL
If your fund's (1) income distributions exceed its net investment income and
net short-term capital gains or (2) capital gain distributions exceed its net
capital gains in any year, all or a portion of those distributions may be
treated as a return of capital to you. Although a return of capital is not
taxed, it will reduce the cost basis of your shares.
YEAR-END STATEMENT
To assist you in tax preparation, after the end of each calendar year, we send
you a statement of your fund's ordinary dividends and net capital gain
distributions (Form 1099).
BACKUP WITHHOLDING
By law, we must withhold 31% of your distributions and proceeds if (1) you are
subject to backup withholding or (2) you have not provided us with complete
and correct taxpayer information such as your Social Security Number (SSN) or
Tax Identification Number (TIN).
((Side Box))
<TABLE>
<CAPTION>
<S> <C>
COST BASIS is the amount that you paid for the shares.
When you sell shares, you subtract the cost basis from the
sale proceeds to determine whether you realized an
investment gain or loss. For example, if you bought a
share of a fund at $10 and you sold it two years later at
$11, your cost basis on the share is $10 and your gain is
$1.
- ----------------------------------------------------------
</TABLE>
Because everyone's tax situation is unique, you should consult your tax
professional for assistance.
RESERVED RIGHTS
We reserve the right to:
- - Refuse, change, discontinue, or temporarily suspend account services,
including purchase, exchange, or telephone redemption privileges, for any
reason.
- - Reject any purchase request for any reason including exchanges from other
Strong Funds. Generally, we do this if the purchase or exchange is
disruptive to the efficient management of a fund (due to the timing of the
investment or an investor's history of excessive trading).
- - Change the minimum or maximum investment amounts.
11
<PAGE>
- - Delay sending out redemption proceeds for up to seven days (this generally
only applies to very large redemptions without notice, excessive trading, or
during unusual market conditions).
- - Suspend redemptions or postpone payments when the NYSE is closed for any
reason other than its usual weekend or holiday closings, when trading is
restricted by the SEC, or under any emergency circumstances.
- - Make a redemption-in-kind (a payment in portfolio securities rather than
cash) if the amount you are redeeming is in excess of the lesser of (1)
$250,000 or (2) 1% of the fund's assets. Generally, redemption-in-kind is
used when large redemption requests may cause harm to the fund and its
shareholders.
- - Close any account that does not meet minimum investment requirements. We
will give you notice and 60 days to begin an automatic investment program or
to increase your balance to the required minimum. We may waive the minimum
initial investment at our discretion.
- - Reject any purchase or redemption request that does not contain all required
documentation.
12
<PAGE>
FOR MORE INFORMATION
More information is available upon request at no charge, including:
SHAREHOLDER REPORTS: Additional information is available in the annual and
semi-annual report to shareholders. These reports contain a letter from
management, discuss recent market conditions, economic trends and investment
strategies that significantly affected your investment's performance during the
last fiscal year, and list portfolio holdings.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI contains more details about
investment policies and techniques. A current SAI is on file with the SEC and
is incorporated into this prospectus by reference. This means that the SAI is
legally considered a part of this prospectus even though it is not physically
contained within this prospectus.
To request information or to ask questions:
BY TELEPHONE BY OVERNIGHT DELIVERY
800-368-1683 Strong Institutional Client Services
100 Heritage Reserve
BY MAIL Menomonee Falls, WI 53051
Strong Institutional Client Services
P.O. Box 2936 ON THE INTERNET
Milwaukee, WI 53201-2936 View on-line or download documents:
SEC*: www.sec.gov
This prospectus is not an offer to sell securities in places other than the
United States and its territories.
*INFORMATION ABOUT A FUND (INCLUDING THE SAI) CAN ALSO BE REVIEWED AND COPIED
AT THE SECURITIES AND EXCHANGE COMMISSION'S PUBLIC REFERENCE ROOM IN
WASHINGTON, D.C. YOU MAY CALL THE COMMISSION AT 202-942-8090 FOR INFORMATION
ABOUT THE OPERATION OF THE PUBLIC REFERENCE ROOM. REPORTS AND OTHER
INFORMATION ABOUT A FUND ARE ALSO AVAILABLE FROM THE EDGAR DATABASE ON THE
COMMISSION'S INTERNET SITE AT WWW.SEC.GOV. YOU MAY OBTAIN A COPY OF THIS
INFORMATION, AFTER PAYING A DUPLICATING FEE, BY SENDING A WRITTEN REQUEST TO
THE COMMISSION'S PUBLIC REFERENCE SECTION, WASHINGTON, D.C. 20549-0102, OR BY
SENDING AN ELECTRONIC REQUEST TO THE FOLLOWING E-MAIL ADDRESS:
[email protected].
Strong Blue Chip 100 Fund, a series of Strong Conservative Equity Funds, Inc.,
SEC file number: 811-7656
Strong Growth and Income Fund, a series of Strong Conservative Equity Funds,
Inc., SEC file number: 811-7656
13
<PAGE>
[Strong logo and picture of man and 2 children fishing]
prospectus
THE STRONG GROWTH AND
INCOME FUND
institutional class
February 29, 2000
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THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED OF
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
YOUR INVESTMENT.................................................................
KEY INFORMATION.................................................................
What are the fund's goals?.....................................................1
What are the fund's principal investment strategies?...........................1
What are the main risks of investing in the fund?..............................1
What are the fund's fees and expenses?.........................................4
Who are the fund's investment advisor and portfolio manager?...................5
OTHER IMPORTANT INFORMATION YOU SHOULD KNOW....................................5
Financial Highlights...........................................................6
YOUR ACCOUNT....................................................................
Share Price....................................................................7
Buying Shares..................................................................8
Selling Shares.................................................................9
Additional Policies...........................................................10
Distributions.................................................................11
Taxes.........................................................................12
Reserved Rights...............................................................13
For More Information..................................................Back Cover
IN THIS PROSPECTUS, "WE" REFERS TO STRONG CAPITAL MANAGEMENT, INC., THE
INVESTMENT ADVISOR, ADMINISTRATOR, AND TRANSFER AGENT FOR THE STRONG FUNDS.
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YOUR INVESTMENT
KEY INFORMATION
WHAT ARE THE FUND'S GOALS?
The STRONG GROWTH AND INCOME FUND seeks high total return by investing for
capital growth and income.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
The fund focuses primarily on the stocks of large-capitalization,
dividend-paying U.S. companies that also offer potential for capital growth. To
choose investments, the manager evaluates domestic and international economic
conditions and events. The manager then identifies stocks in those sectors that
appear likely to benefit from those conditions, and avoids those that appear
likely to suffer. To a limited extent, the fund may also invest in
foreign-based companies, primarily through American Depositary Receipts (ADRs).
When changes in economic conditions make the environment unfavorable for a
security or its industry, the manager may sell a holding. The manager's
philosophy is to remain fully invested in stocks, despite market fluctuations.
Rather than attempting to time the markets by investing in cash or cash-type
investments as market conditions change, the manager attempts to move out of
sectors and companies that appear to be especially vulnerable to deterioration,
and into those that appear less likely to be affected.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
GENERAL STOCK RISKS: The major risks of the fund are those of investing in the
stock market. That means the fund may experience sudden, unpredictable declines
in value, as well as periods of poor performance. Because stock values go up
and down, the value of your fund's shares may go up and down. Therefore, when
you sell your investment, you may receive more or less money than you
originally invested.
STYLE INVESTING: Different types of stocks tend to shift into and out of favor
with stock market investors depending on market and economic conditions.
Because the fund focuses on stocks selected in accordance with the fund's goal
and investment strategies, the fund's performance may at times be better or
worse than the performance of funds that focus on other types of stocks or that
have a broader investment style.
FOREIGN SECURITIES: The fund may invest up to 25% of its assets in foreign
securities. The fund invests in the stocks of foreign-based companies primarily
through American Depositary Receipts (ADRs). Foreign investments involve
additional risks, including currency-rate fluctuations, political and economic
instability, differences in financial reporting standards, and less-strict
regulation of securities markets.
The fund is appropriate for investors who are comfortable with the risks
described here and whose financial goals are five or more years in the future.
The fund is not appropriate for investors concerned primarily with principal
stability.
FUND STRUCTURE
The fund offers multiple classes of shares: Investor Class shares, Advisor
Class shares, and Institutional Class shares. Only the Institutional Class
shares are offered in this prospectus. The principal differences between each
of the classes of shares are that the Advisor Class shares are subject to a
front-end sales load and distribution fees and expenses under a 12b-1 plan, and
each class of shares is subject to different administrative and transfer agency
fees and expenses.
FUND PERFORMANCE
The return information on the following pages illustrates how the performance
of the fund's Institutional Class shares can vary, which is one indication of
the risks of investing in the fund. Performance results for the Institutional
Class shares, which were first offered on February 29, 2000, are based on the
historical performance of the fund's Investor Class shares from the inception
of the fund up to February 28, 2000. The Investor Class shares of the fund,
which are not offered by this prospectus, achieved
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performance results which are lower than those that are expected to be achieved
by the Institutional Class shares because the Investor Class shares are
invested in the same portfolio of securities but are subject to a higher annual
expense ratio. The returns for the Institutional Class are substantially
similar to those of the Investor Class shares depicted below since each are
invested in the same portfolio of securities and the only differences relate to
the differences in the fees and expenses of each class of shares. Please keep
in mind that the past performance of the fund's Institutional Class shares does
not represent how it will perform in the future. The information assumes that
you reinvested all dividends and distributions.
CALENDAR YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C>
Year Growth and Income
- ---- ----------------------
1996 31.9%
- ---- ----------------------
1997 30.4%
- ---- ----------------------
1998 33.0%
- ---- ----------------------
1999 32.2%
- ---- ----------------------
</TABLE>
BEST AND WORST QUARTERLY PERFORMANCE
(DURING THE PERIODS SHOWN ABOVE)
<TABLE>
<CAPTION>
<S> <C>
BEST QUARTER RETURN WORST QUARTER RETURN
- --------------------- ---------------------
23.4% (4th Q 1998) -9.3% (3rd Q 1998)
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
AS OF 12-31-99
FUND/INDEX 1-YEAR SINCE INCEPTION
GROWTH AND INCOME 32.23% 31.87% (12-29-95)
S&P 500 Stock Index 21.04% 26.39%
Lipper Large-Cap Core Funds Index 19.35% 23.76%
THE S&P 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF THE
U.S. STOCK MARKET. THE LIPPER LARGE-CAP CORE FUNDS INDEX IS AN EQUALLY-WEIGHTED
PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS IN THIS LIPPER CATEGORY.
WHAT ARE THE FUND'S FEES AND EXPENSES?
This section describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
The Institutional Class shares of the fund are 100% no-load, so you pay no
sales charges (loads) to buy or sell shares.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets)
The costs of operating the fund are deducted from fund assets, which means you
pay them indirectly. These costs are deducted before computing the daily share
price or making distributions. As a result, they don't appear on your account
statement, but instead reduce the total return you receive from your fund
investment.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENT OF AVERAGE NET ASSETS)
Management Fee: 0.55%
Other Expenses: 0.08%
Total Annual Fund
Operating Expenses: 0.63%
EXAMPLE: This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. The example assumes
that you invest $10,000 in the fund and reinvest all dividends and
distributions for the time
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periods indicated, and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each
year and that the fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:
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<S> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------- ---------- ------- ----------
$64 $202 $351 $786
</TABLE>
WHO ARE THE FUND'S INVESTMENT ADVISOR AND PORTFOLIO MANAGER?
Strong Capital Management, Inc. (Strong) is the investment advisor for the
fund. Strong provides investment management services for mutual funds and other
investment portfolios representing assets of over $38 billion. Strong began
conducting business in 1974. Since then, its principal business has been
providing investment advice for individuals and institutional accounts, such as
pension and profit-sharing plans, as well as mutual funds, several of which are
available through variable insurance products. Strong's address is P.O. Box
2936, Milwaukee, WI 53201.
RIMAS M. MILAITIS manages the fund. He has over ten years of investment
experience. He joined Strong as a portfolio manager in December 1995 and has
managed the fund since its inception in December 1995. For four years prior to
joining Strong, he managed several conservative equity portfolios that invested
in stocks and bonds at Aon Advisors, Inc. (AAI). For two years prior to that,
he served as an equity trader/analyst to AAI. Prior to working at AAI, Mr.
Milaitis served for three years as an equity portfolio assistant to the
Illinois State Board of Investment. Mr. Milaitis received his bachelors degree
in Economics from Illinois State University in 1984 and his Masters of Business
Administration in Finance from DePaul University in 1991.
OTHER IMPORTANT INFORMATION YOU SHOULD KNOW
To a limited extent, the fund may participate in the initial public offering
(IPO) market. IPOs may significantly increase a fund's total returns during
any period that the fund has a small asset base. As a fund's assets grow, any
impact of IPO investments on the fund's total return may decline.
FINANCIAL HIGHLIGHTS
This information describes investment performance of the Investor Class shares
of the fund for the periods shown. Certain information reflects financial
results for a single Investor Class share. "Total Return" shows how much an
investment in the Investor Class shares of the fund would have increased (or
decreased) during each period, assuming you had reinvested all dividends and
distributions. The Institutional Class shares of the fund were first offered
on February 29, 2000. These figures for the fund have been audited by
PricewaterhouseCoopers LLP, whose report, along with the fund's financial
statements, is included in the fund's annual report.
<TABLE>
<CAPTION>
STRONG GROWTH AND INCOME FUND - INVESTOR CLASS
<S> <C> <C> <C> <C>
Oct. 31, Oct. 31, Oct. 31, Oct. 31,
SELECTED PER-SHARE DATA(a) 1999 1998 1997 1996(b)
Net Asset Value, Beginning of Period $18.73 $16.35 $12.38 $10.00
Income From Investment Operations:
Net Investment Income (Loss) (0.03) 0.03 0.07 0.04
Net Realized and Unrealized Gains on
Investments 6.56 3.07 3.99 2.38
Total from Investment Operations 6.53 3.10 4.06 2.42
Less Distributions:
From Net Investment Income (0.00)(c) (0.03) (0.07) (0.04)
From Net Realized Gains - (0.62) (0.02) -
In Excess of Net Realized Gains - (0.07) - -
Total Distributions (0.00)(c) (0.72) (0.09) (0.04)
Net Asset Value, End of Period $25.26 $18.73 $16.35 $12.38
RATIOS AND SUPPLEMENTAL DATA
Total Return +34.9% +19.7% +32.9% +24.2%
Net Assets, End of Period (In Millions) $861 $399 $227 $18
Ratio of Expenses to Average Net Assets 1.1% 1.1% 1.2% 1.9%*
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.1%) 0.1% 0.5% 0.6%*
Portfolio Turnover Rate 52.3% 107.5% 237.8% 174.1%
</TABLE>
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the
fund outstanding for the entire period.
(b) For the period from December 31, 1995 (inception) to October 31, 1996.
(c) Amount calculated is less than $0.01.
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YOUR ACCOUNT
SHARE PRICE
Your transaction price for buying, selling, or exchanging Institutional Class
shares is the net asset value per share (NAV) of that class of shares. NAV is
generally calculated as of the close of trading on the New York Stock Exchange
(usually 3:00 p.m. Central Time) every day the NYSE is open. If the NYSE
closes at any other time, or if an emergency exists, NAV may be calculated at a
different time. Your share price will be the next NAV calculated after we
accept your order.
NAV is based on the market value of the securities in a fund's portfolio. If
market prices are not available, NAV is based on a security's fair value as
determined in good faith by us under the supervision of the Board of Directors
of the Strong Funds.
FOREIGN SECURITIES
Some of the fund's portfolio securities may be listed on foreign exchanges that
trade on days when we do not calculate an NAV. As a result, the fund's NAV may
change on days when you will not be able to purchase or redeem shares. In
addition, a foreign exchange may not value its listed securities at the same
time that we calculate a fund's NAV. Events affecting the values of portfolio
securities that occur between the time a foreign exchange assigns a price to
the portfolio securities and the time when we calculate a fund's NAV generally
will not be reflected in the fund's NAV. These events will be reflected in the
fund's NAV when we, under the supervision of the Board of Directors of the
Strong Funds, determine that they would have a material effect on the fund's
NAV.
((Side Box))
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We determine the share price or NAV of a class of shares by
dividing net assets attributable to the class of shares (the value of
the fund's investments, cash, and other assets attributable to the
class of shares minus the fund's liabilities attributable to the class
of shares) by the number of shares in the class outstanding.
- ----------------------------------------------------------------------
</TABLE>
BUYING SHARES
Prior to your initial investment, complete and sign an application and send it
to Strong Institutional Client Services, P.O. Box 2936, Milwaukee, WI
53201-2936 or send it by facsimile to 414-359-3535. The initial investment
minimum is $1 million. The minimum initial investment minimum is waived for
registered investment advisors with a minimum initial investment of at least
$250,000. After your initial investment, additional transactions may be made
in any amount. Shares must be purchased by wire unless you use the Exchange
Option described below. To purchase by wire, place an order by calling
800-368-1683 before 3:00 p.m. Central Time. Firstar Bank Milwaukee, N.A., the
fund's agent, must receive payment by the close of the federal wire system
that day. If payment is not received by this deadline, your order may be
canceled or you may be liable for the resulting interest expenses. You should
wire federal funds as follows:
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, WI 53202
ABA routing number: 075000022
Account number: 112737-090
For Further Credit to: (your account number and registration)
MULTIPLE CLASS PLAN
The fund has adopted a multiple class plan which currently permits it to offer
Investor Class shares, Advisor Class shares, and Institutional Class shares.
Each class is offered at its net asset value and is subject to fees and
expenses which may differ between classes. The principal differences between
each of the classes of shares are that the Advisor Class shares are subject to
a front-end sales load and distribution fees and expenses under a 12b-1 plan,
and each class of shares is subject to different administrative and transfer
agency fees and expenses.
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BROKER-DEALER
Broker-dealers, including the fund's distributor, and other intermediaries may
also from time to time sponsor or participate in promotional programs pursuant
to which investors receive incentives for establishing with the broker-dealer
or intermediary an account and/or for purchasing shares of the Strong Funds
through the account(s). Investors should contact the broker-dealer or
intermediary and consult the Statement of Additional Information for more
information about promotional programs.
SELLING SHARES
Shares must be redeemed by wire unless you use the Exchange Option described
below. The fund pays the wire fees which are a fund expense. You may redeem
shares by either telephone or written instruction.
To redeem by wire, place an order by calling Strong Institutional Client
Services at 800-368-1683 before 3:00 p.m. Central Time. The original
application must be on file with the fund's transfer agent before a redemption
will be processed. You may also redeem shares by sending a written request to
Strong Institutional Client Services, P.O. Box 2936, Milwaukee, WI 53201-2936
or sending it by facsimile to 414-359-3535. Your written request must be signed
exactly as the names of the registered owners appear on the fund's account
records, and the request must be signed by the minimum number of persons
designated on the account application that are required to effect a redemption.
Please note that any written redemption request of $50,000 or more must be
accompanied by a signature guarantee. Payment of the redemption proceeds will
be wired to the bank account(s) designated on the account application.
Redemption proceeds will ordinarily be wired the next business day, but in no
event more than seven days after receipt of the redemption.
((Side Box))
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<CAPTION>
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SIGNATURE GUARANTEES help ensure that major
transactions or changes to your account are in fact
authorized by you. For example, we require a signature
guarantee on written redemption requests for more than
$50,000. You can obtain a signature guarantee for a
nominal fee from most banks, brokerage firms, and
other financial institutions. A notary public stamp or
seal cannot be substituted for a signature guarantee.
- --------------------------------------------------------
</TABLE>
ADDITIONAL POLICIES
EXCHANGE OPTION
You may exchange your shares of the fund for shares of another Strong Fund. You
may make an exchange by calling Strong Institutional Client Services at
800-368-1683 or by sending a facsimile to 414-359-3535. Please obtain and read
the appropriate prospectus before investing in any of the Strong Funds.
Remember, an exchange of shares of one Strong Fund for those of another Strong
Fund, is considered a sale and a purchase of fund shares for tax purposes and
may result in a capital gain or loss. Some Strong Funds that you may want to
exchange into may charge a redemption fee of 0.50% to 1.00% on the sale of
shares held for less than six months. Purchases by exchange are subject to the
investment requirements and other criteria of the fund and class purchased.
ADVANCE NOTICE OF LARGE TRANSACTIONS
We strongly urge you to begin all purchases and redemptions as early in the day
as possible and to notify us at least one day in advance of transactions in
excess of $5 million. This will allow Strong to manage the fund most
effectively. When you give us this advance notice, you must provide us with
your name and account number. To protect the fund's performance and
shareholders, we discourage frequent trading in response to short-term market
fluctuations.
PURCHASES IN KIND
You may, if we approve, purchase shares of the fund with securities that are
eligible for purchase by the fund (consistent with the fund's investment
restrictions, policies, and goal) and that have a value that is readily
ascertainable in accordance with the fund's valuation policies.
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TELEPHONE TRANSACTIONS
Once you place a telephone transaction request, it cannot be canceled or
modified. We use reasonable procedures to confirm that telephone transaction
requests are genuine. We may be responsible if we do not follow these
procedures. You are responsible for losses resulting from fraudulent or
unauthorized instructions received over the telephone, provided we reasonably
believe the instructions were genuine. During times of unusual market activity,
our phones may be busy and you may experience a delay placing a telephone
request.
INVESTING THROUGH A THIRD PARTY
If you invest through a third party (rather than directly with Strong), the
policies and fees may be different than described in this prospectus. Banks,
brokers, 401(k) plans, financial advisors, and financial supermarkets may
charge transaction fees and may set different minimum investments or
limitations on buying or selling shares. Consult a representative of your plan
or financial institution if you are not sure.
DISTRIBUTIONS
DISTRIBUTION POLICY
The fund generally pays you dividends from net investment income quarterly and
distributes any net capital gains that it realizes annually.
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Your dividends and capital gain distributions will be automatically reinvested
in additional shares, unless you choose otherwise. Your other options are to
receive checks for these payments, or have them credited to your bank account
by Electronic Funds Transfer. To change the current option for payment of
dividends and capital gain distributions, please call 800-368-1683.
TAXES
TAXABLE DISTRIBUTIONS
Any net investment income and net short-term capital gain distributions you
receive are taxable as ordinary dividend income at your income tax rate.
Distributions of net capital gains are generally taxable as long-term capital
gains. This is generally true no matter how long you have owned your shares
and whether you reinvest your distributions or take them in cash. You may
also have to pay taxes when you exchange or sell shares if your shares have
increased in value since you bought them.
RETURN OF CAPITAL
If your fund's (1) income distributions exceed its net investment income and
net short-term capital gains or (2) capital gain distributions exceed its net
capital gains in any year, all or a portion of those distributions may be
treated as a return of capital to you. Although a return of capital is not
taxed, it will reduce the cost basis of your shares.
YEAR-END STATEMENT
To assist you in tax preparation, after the end of each calendar year, we send
you a statement of your fund's ordinary dividends and net capital gain
distributions (Form 1099).
BACKUP WITHHOLDING
By law, we must withhold 31% of your distributions and proceeds if (1) you are
subject to backup withholding or (2) you have not provided us with complete
and correct taxpayer information such as your Social Security Number (SSN) or
Tax Identification Number (TIN).
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Because everyone's tax situation is unique, you should consult your tax
professional for assistance.
RESERVED RIGHTS
We reserve the right to:
- - Reject any purchase request for any reason including exchanges from other
Strong Funds. Generally, we do this if the purchase or exchange is
disruptive to the efficient management of a fund (due to the timing of the
investment or an investor's history of excessive trading).
- - Change the minimum or maximum investment amounts.
- - Delay sending out redemption proceeds for up to seven days (this generally
only applies to very large redemptions without notice, excessive trading, or
during unusual market conditions).
- - Suspend redemptions or postpone payments when the NYSE is closed for any
reason other than its usual weekend or holiday closings, when trading is
restricted by the SEC, or under any emergency circumstances.
- - Make a redemption-in-kind (a payment in portfolio securities rather than
cash) if the amount you are redeeming is in excess of the lesser of (1)
$250,000 or (2) 1% of the fund's assets. Generally, redemption-in-kind is
used when large redemption requests may cause harm to the fund and its
shareholders.
- - Close any account that does not meet minimum investment requirements. We
will give you notice and 60 days to increase your balance to the required
minimum. We may waive the minimum initial investment at our discretion.
- - Reject any purchase or redemption request that does not contain all required
documentation.
- - Amend or terminate purchases-in-kind at any time.
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FOR MORE INFORMATION
More information is available upon request at no charge, including:
SHAREHOLDER REPORTS: Additional information is available in the annual and
semi-annual report to shareholders. These reports contain a letter from
management, discuss recent market conditions, economic trends and investment
strategies that significantly affected your investment's performance during the
last fiscal year, and list portfolio holdings.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI contains more details about
investment policies and techniques. A current SAI is on file with the SEC and
is incorporated into this prospectus by reference. This means that the SAI is
legally considered a part of this prospectus even though it is not physically
contained within this prospectus.
To request information or to ask questions:
BY TELEPHONE BY OVERNIGHT DELIVERY
800-368-1683 Strong Institutional Client Services
100 Heritage Reserve
BY MAIL Menomonee Falls, WI 53051
Strong Institutional Client Services
P.O. Box 2936 ON THE INTERNET
Milwaukee, WI 53201-2936 View on-line or download
documents:
SEC*: www.sec.gov
This prospectus is not an offer to sell securities in places other than the
United States and its territories.
*INFORMATION ABOUT A FUND (INCLUDING THE SAI) CAN ALSO BE REVIEWED AND COPIED
AT THE SECURITIES AND EXCHANGE COMMISSION'S PUBLIC REFERENCE ROOM IN
WASHINGTON, D.C. YOU MAY CALL THE COMMISSION AT 202-942-8090 FOR INFORMATION
ABOUT THE OPERATION OF THE PUBLIC REFERENCE ROOM. REPORTS AND OTHER
INFORMATION ABOUT A FUND ARE ALSO AVAILABLE FROM THE EDGAR DATABASE ON THE
COMMISSION'S INTERNET SITE AT WWW.SEC.GOV. YOU MAY OBTAIN A COPY OF THIS
INFORMATION, AFTER PAYING A DUPLICATING FEE, BY SENDING A WRITTEN REQUEST TO
THE COMMISSION'S PUBLIC REFERENCE SECTION, WASHINGTON, D.C. 20549-0102, OR BY
SENDING AN ELECTRONIC REQUEST TO THE FOLLOWING E-MAIL ADDRESS:
[email protected].
Strong Growth and Income Fund, a series of Strong Conservative Equity Funds,
Inc., SEC file number: 811-7656
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STATEMENT OF ADDITIONAL INFORMATION ("SAI")
STRONG AMERICAN UTILITIES FUND, A SERIES FUND OF STRONG CONSERVATIVE EQUITY
FUNDS, INC.
STRONG ASSET ALLOCATION FUND, INC.
STRONG BLUE CHIP 100 FUND, A SERIES FUND OF STRONG CONSERVATIVE EQUITY FUNDS,
INC.
STRONG EQUITY INCOME FUND, A SERIES FUND OF STRONG CONSERVATIVE EQUITY FUNDS,
INC.
STRONG GROWTH AND INCOME FUND, A SERIES FUND OF STRONG CONSERVATIVE EQUITY
FUNDS, INC.
STRONG LIMITED RESOURCES FUND, A SERIES FUND OF STRONG CONSERVATIVE EQUITY
FUNDS, INC.
STRONG TOTAL RETURN FUND, INC.
P.O. Box 2936
Milwaukee, WI 53201
Telephone: (414) 359-1400
Toll-Free: (800) 368-3863
e-mail: [email protected]
Web Site: www.eStrong.com
Throughout this SAI, "the Fund" is intended to refer to each Fund listed above,
unless otherwise indicated. This SAI is not a Prospectus and should be read
together with the Prospectus for the Fund dated February 29, 2000. Requests
for copies of the Prospectus should be made by calling any number listed above.
The financial statements appearing in the Annual Report, which accompanies this
SAI, are incorporated into this SAI by reference.
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February 29, 2000
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TABLE OF CONTENTS PAGE
INVESTMENT RESTRICTIONS........................................................4
INVESTMENT POLICIES AND TECHNIQUES.............................................7
Strong American Utilities Fund.................................................7
Strong Asset Allocation Fund...................................................7
Strong Blue Chip 100 Fund......................................................7
Strong Equity Income Fund......................................................8
Strong Growth and Income Fund..................................................8
Strong Limited Resources Fund..................................................8
Strong Total Return Fund.......................................................9
Borrowing......................................................................9
Cash Management................................................................9
Convertible Securities.........................................................9
Debt Obligations..............................................................10
Depositary Receipts...........................................................10
Derivative Instruments........................................................11
Energy Companies..............................................................20
Foreign Investment Companies..................................................20
Foreign Securities............................................................20
High-Yield (High-Risk) Securities.............................................21
Illiquid Securities...........................................................22
Lending of Portfolio Securities...............................................23
Mortgage- and Asset-Backed Debt Securities....................................24
Municipal Obligations.........................................................25
Participation Interests.......................................................26
Public Utility Companies......................................................26
Repurchase Agreements.........................................................26
Reverse Repurchase Agreements and Mortgage Dollar Rolls.......................27
Short Sales...................................................................27
Small and Medium Companies....................................................27
Sovereign Debt................................................................28
Standby Commitments...........................................................30
U.S. Government Securities....................................................30
Variable- or Floating-Rate Securities.........................................30
Warrants......................................................................31
When-Issued and Delayed-Delivery Securities...................................31
Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities..........................32
DIRECTORS AND OFFICERS........................................................32
PRINCIPAL SHAREHOLDERS........................................................34
INVESTMENT ADVISOR............................................................35
INVESTMENT SUBADVISOR.........................................................39
American Utilities Fund.......................................................39
Limited Resources Fund........................................................40
ADMINISTRATOR.................................................................41
DISTRIBUTOR...................................................................42
DISTRIBUTION PLAN.............................................................43
PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................44
CUSTODIAN.....................................................................48
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT..................................49
TAXES.........................................................................51
DETERMINATION OF NET ASSET VALUE..............................................53
ADDITIONAL SHAREHOLDER INFORMATION............................................54
ORGANIZATION..................................................................57
SHAREHOLDER MEETINGS..........................................................58
PERFORMANCE INFORMATION.......................................................58
GENERAL INFORMATION...........................................................66
INDEPENDENT ACCOUNTANTS.......................................................68
LEGAL COUNSEL.................................................................68
FINANCIAL STATEMENTS..........................................................68
APPENDIX A - ASSET COMPOSITION BY BOND RATINGS................................69
APPENDIX B - DEFINITION OF BOND RATINGS.......................................70
APPENDIX C - ADVISOR CLASS SHARES.............................................79
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No person has been authorized to give any information or to make any
representations other than those contained in this SAI and its corresponding
Prospectus, and if given or made, such information or representations may not
be relied upon as having been authorized. This SAI does not constitute an
offer to sell securities.
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INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT LIMITATIONS
The following are the Fund's fundamental investment limitations which, along
with the Fund's investment objective (which is described in the Prospectus),
cannot be changed without shareholder approval. To obtain approval, a majority
of the Fund's outstanding voting shares must vote for the change. A majority
of the Fund's outstanding voting securities means the vote of the lesser of:
(1) 67% or more of the voting securities present, if more than 50% of the
outstanding voting securities are present or represented, or (2) more than 50%
of the outstanding voting shares.
Unless indicated otherwise below, the Fund:
1. May not with respect to 75% of its total assets, purchase the securities
of any issuer (except securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities) if, as a result, (1) more than 5% of the
Fund's total assets would be invested in the securities of that issuer, or (2)
the Fund would hold more than 10% of the outstanding voting securities of that
issuer.
2. May (1) borrow money from banks and (2) make other investments or engage
in other transactions permissible under the Investment Company Act of 1940
("1940 Act") which may involve a borrowing, provided that the combination of
(1) and (2) shall not exceed 33 1/3% of the value of the Fund's total assets
(including the amount borrowed), less the Fund's liabilities (other than
borrowings), except that the Fund may borrow up to an additional 5% of its
total assets (not including the amount borrowed) from a bank for temporary or
emergency purposes (but not for leverage or the purchase of investments). The
Fund may also borrow money from the other Strong Funds or other persons to the
extent permitted by applicable law.
3. May not issue senior securities, except as permitted under the 1940 Act.
4. May not act as an underwriter of another issuer's securities, except to
the extent that the Fund may be deemed to be an underwriter within the meaning
of the Securities Act of 1933 in connection with the purchase and sale of
portfolio securities.
5. May not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall not
prevent the Fund from purchasing or selling options, futures contracts, or
other derivative instruments, or from investing in securities or other
instruments backed by physical commodities).
6. May not make loans if, as a result, more than 33 1/3% of the Fund's
total assets would be lent to other persons, except through (1) purchases of
debt securities or other debt instruments, or (2) engaging in repurchase
agreements.
7. May not purchase the securities of any issuer if, as a result, more than
25% of the Fund's total assets would be invested in the securities of issuers,
the principal business activities of which are in the same industry.
8. May not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prohibit the
Fund from purchasing or selling securities or other instruments backed by real
estate or of issuers engaged in real estate activities).
9. May, notwithstanding any other fundamental investment policy or
restriction, invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental
investment objective, policies, and restrictions as the Fund.
With respect to the American Utilities Fund, (1) Fundamental Policy No. 1 does
not apply because the Fund is non-diversified and (2) Fundamental Policy No. 7
applies to the Fund, however, under normal market conditions, the Fund will
invest more than 25% of its total assets in the securities of issuers in the
public utility industry.
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With respect to the Limited Resources Fund, Fundamental Policy No. 7 applies to
the Fund, however, under normal market conditions, the Fund will invest more
than 25% of its total assets in the securities of issuers in the energy and
natural resources industry.
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NON-FUNDAMENTAL OPERATING POLICIES
The following are the Fund's non-fundamental operating policies which may be
changed by the Fund's Board of Directors without shareholder approval.
Unless indicated otherwise below, the Fund may not:
1. Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short, or
unless it covers such short sale as required by the current rules and positions
of the Securities and Exchange Commission ("SEC") or its staff, and provided
that transactions in options, futures contracts, options on futures contracts,
or other derivative instruments are not deemed to constitute selling securities
short.
2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions; and
provided that margin deposits in connection with futures contracts, options on
futures contracts, or other derivative instruments shall not constitute
purchasing securities on margin.
3. Invest in illiquid securities if, as a result of such investment, more
than 15% (10% with respect to a money fund) of its net assets would be invested
in illiquid securities, or such other amounts as may be permitted under the
1940 Act.
4. Purchase securities of other investment companies except in compliance
with the 1940 Act and applicable state law.
5. Invest all of its assets in the securities of a single open-end
investment management company with substantially the same fundamental
investment objective, restrictions and policies as the Fund.
6. Engage in futures or options on futures transactions which are
impermissible pursuant to Rule 4.5 under the Commodity Exchange Act and, in
accordance with Rule 4.5, will use futures or options on futures transactions
solely for bona fide hedging transactions (within the meaning of the Commodity
Exchange Act), provided, however, that the Fund may, in addition to bona fide
hedging transactions, use futures and options on futures transactions if the
aggregate initial margin and premiums required to establish such positions,
less the amount by which any such options positions are in the money (within
the meaning of the Commodity Exchange Act), do not exceed 5% of the Fund's net
assets.
7. Borrow money except (1) from banks or (2) through reverse repurchase
agreements or mortgage dollar rolls, and will not purchase securities when bank
borrowings exceed 5% of its total assets.
8. Make any loans other than loans of portfolio securities, except through
(1) purchases of debt securities or other debt instruments, or (2) engaging in
repurchase agreements.
Unless noted otherwise, if a percentage restriction is adhered to at the time
of investment, a later increase or decrease in percentage resulting from a
change in the Fund's assets (I.E. due to cash inflows or redemptions) or in
market value of the investment or the Fund's assets will not constitute a
violation of that restriction.
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INVESTMENT POLICIES AND TECHNIQUES
STRONG AMERICAN UTILITIES FUND
- - The Fund normally will invest at least 65% of its total assets in the equity
securities of public utility companies headquartered in the United States.
Equity securities in which the Fund may invest include common stocks,
preferred stocks, and securities that are convertible into common stocks,
such as warrants and convertible bonds.
- - The balance of the Fund, up to 35% of its total assets, may be invested in
any type of security, including debt obligations and equity securities of
companies in other industries. The Fund intends to use this allowance
primarily to invest in the equity securities of energy companies, which may
compose up to 25% of the Fund's total assets.
- - The Fund may invest up to 5% of its net assets in non-investment-grade debt
securities.
- - The Fund may invest up to 25% of its net assets in foreign securities,
including both direct investments and investments made through depositary
receipts.
STRONG ASSET ALLOCATION FUND
- - Under normal market conditions, the Fund's net assets will be allocated
according to a benchmark of 60% equities, 35% bonds, and 5% cash. Equity
securities in which the Fund may invest include common stocks, preferred
stocks, and securities that are convertible into common stocks, such as
warrants and convertible bonds.
- - Asset allocations will normally be within the ranges indicated below.
ASSET-ALLOCATION CATEGORIES
<TABLE>
<CAPTION>
PERCENTAGE OF FUND NET ASSETS
-----------------------------
<S> <C> <C>
CATEGORY OF INVESTMENT BENCHMARK RANGE
- ---------------------- ----------------------------- --------
Equities 60% 30-70%
Bonds 35% 20-70%
Cash 5% 0-50%
- ---------------------- ----------------------------- --------
</TABLE>
- - The Fund may invest up to 35% of its net assets in non-investment-grade 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.
STRONG BLUE CHIP 100 FUND
- - Under normal market conditions, the Fund intends to be fully invested in a
diversified portfolio of common stocks of the 100 largest market
capitalization companies traded in the U.S., as determined by the Advisor
(collectively, "Blue Chip Companies").
- - With approximately 50% of the Fund's net assets, the Fund will maintain
capitalization-weighted positions in each of the Blue Chip Companies'
securities.
- - The remainder of the Fund's net assets will be invested in some or all of
these Blue Chip Companies, as selected by the Advisor.
- - Generally, the Fund will not have a position in any company greater than 5%
of the Fund's net assets.
- - The Fund typically maintains representation in as many market sectors as
possible, but may concentrate in any sectors represented by the Blue Chip
Companies.
- - The Advisor will regularly readjust the capitalization-weighted portion of
the Fund's portfolio to reflect the current capitalization weightings of the
Blue Chip Companies.
- - The Advisor intends to frequently review the list of the Blue Chip Companies
in which the Fund invests and update the list when necessary.
- - The Fund may invest in dollar-denominated foreign securities to the extent
that they are issued by Blue Chip Companies.
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8
<PAGE>
STRONG EQUITY INCOME FUND
- - Under normal market conditions, the Fund will invest at least 65% of its
total assets in dividend-paying equity securities, including common stocks,
preferred stocks, and securities that are convertible into common stocks,
such as warrants and convertible bonds.
- - The Fund may invest up to 35% of its total assets in non-dividend paying
equity securities and intermediate- to long-term corporate or U.S. government
bonds.
- - The Fund may invest up to 10% of its net assets in non-investment-grade
bonds.
- - The Fund may invest up to 10% of its net assets in foreign securities,
including both direct investment and investments made through depositary
receipts.
STRONG GROWTH AND INCOME FUND
- - Under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities, with a focus on those that pay current
dividends and offer potential growth of earnings. At times, however, the Fund
may invest in equity securities that are not currently paying dividends, but
offer prospects for either capital growth or future income. Equity securities
include common stocks, preferred stocks, and securities that are convertible
into common stocks, such as warrants and convertible bonds.
- - The Fund may invest up to 35% of its total assets in intermediate- to
long-term corporate or U.S. government bonds.
- - The Fund may invest up to 5% of its net assets in non-investment-grade bonds.
- - The Fund may invest up to 25% of net assets in foreign securities, including
both direct investments and investments made through depositary receipts.
STRONG LIMITED RESOURCES FUND
- - Under normal market conditions, the Fund will invest at least 80% of its
total assets in the equity securities of issuers principally engaged in the
energy and other natural resources industries with a focus on mid- and
large-cap stocks that pay current dividends and offer potential growth of
earnings. Equity securities in which the Fund may invest include common
stocks, preferred stocks, and securities that are convertible into common
stocks, such as warrants and convertible bonds.
- - Energy and natural resource companies include companies principally engaged
in the discovery, development, production, generation, transmission, or
distribution of energy or other natural resources, the development of
technologies for the production or efficient use of energy and other natural
resources, or the furnishing of related supplies or services. Such companies
may participate in the discovery and development of natural resources, own or
produce natural resources, provide natural resources transportation,
distribution, or processing services, contribute new technologies for the
production or efficient use of natural resources, own or control oil, gas, or
other mineral leases (which may or may not produce recoverable energy or
resources), rights, or royalty interests, and/or provide services or supplies
related to natural resources such as drilling, well servicing, chemicals,
parts, and equipment.
- - A company is deemed to be "principally engaged" in these industries if at the
time of investment Scarborough believes that at least 50% of the company's
(i) assets relate to, or (ii) revenues or profits are derived from, these
industries.
- - Energy sources include, but are not limited to, oil, natural gas, coal,
nuclear power, and renewable energy sources, such as wind, solar, and
geothermal. As new sources of energy are developed and current methods of
exploiting and developing energy are advanced, then companies in these new
areas will also be considered for investment by the Fund. Natural resources
other than energy sources include, but are not limited to, basic materials
such as chemicals, forest products, steel, copper, and aluminum.
- - The balance of the Fund, up to 20% of total assets, may be invested in any
type of security, including debt obligations and equity securities of
companies in industries other than the energy and other natural resource
industries.
- - The Fund may invest up to 5% of its net assets in non-investment-grade debt
securities.
- - The Fund may invest up to 25% of its net assets in foreign securities,
including both direct investments and investments made through depositary
receipts.
- - The Fund's investments will be concentrated in the energy and natural
resources industries. This means that more than 25% of the Fund's total
assets will normally be invested in these industries. Because the Fund's
investments are
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<PAGE>
concentrated, the value of its shares is especially affected by factors
relating to these industries, and may fluctuate more widely than the value of
shares of a fund which invests in a broader range of industries.
STRONG TOTAL RETURN FUND
- - Under normal market conditions, the Fund will invest at least 60% of its net
assets in equity securities, including common stocks, preferred stocks, and
securities that are convertible into common stocks, such as warrants and
convertible bonds.
- - The Fund expects to invest at least 80% of its net assets in equity
securities.
- - At times, however, it may invest up to 40% of its net assets in intermediate-
to long-term corporate or U.S. government bonds.
- - The Fund may invest up to 5% of its net assets in non-investment-grade bonds.
- - The Fund may invest up to 25% of its net assets in foreign securities,
including both direct investments and investments made through depositary
receipts.
The following information supplements the discussion of the Fund's investment
objective, policies, and techniques described in the Prospectus.
BORROWING
The Fund may borrow money from banks and make other investments or engage in
other transactions permissible under the 1940 Act which may be considered a
borrowing (such as mortgage dollar rolls and reverse repurchase agreements).
However, the Fund may not purchase securities when bank borrowings exceed 5% of
the Fund's total assets. Presently, the Fund only intends to borrow from banks
for temporary or emergency purposes.
The Fund has established a line-of-credit ("LOC") with certain banks by which
it may borrow funds for temporary or emergency purposes. A borrowing is
presumed to be for temporary or emergency purposes if it is repaid by the Fund
within 60 days and is not extended or renewed. The Fund intends to use the LOC
to meet large or unexpected redemptions that would otherwise force the Fund to
liquidate securities under circumstances which are unfavorable to the Fund's
remaining shareholders. The Fund pays a commitment fee to the banks for the
LOC.
CASH MANAGEMENT
The Fund may invest directly in cash and short-term fixed-income securities,
including, for this purpose, shares of one or more money market funds managed
by Strong Capital Management, Inc., the Fund's investment advisor ("Advisor")
(collectively, the "Strong Money Funds"). The Strong Money Funds seek current
income, a stable share price of $1.00, and daily liquidity. All money market
instruments can change in value when interest rates or an issuer's
creditworthiness change dramatically. The Strong Money Funds cannot guarantee
that they will always be able to maintain a stable net asset value of $1.00 per
share.
CONVERTIBLE SECURITIES
Convertible securities are bonds, debentures, notes, preferred stocks, or other
securities that may be converted into or exchanged for a specified amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the
holder to receive interest normally paid or accrued on debt or the dividend
paid on preferred stock until the convertible security matures or is redeemed,
converted, or exchanged. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stock since they have
fixed income characteristics, and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
Most convertible securities currently are issued by U.S. companies, although a
substantial Eurodollar convertible securities market has developed, and the
markets for convertible securities denominated in local currencies are
increasing.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and
its "conversion value" (the
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<PAGE>
security's worth, at market value, if converted into the underlying common
stock). The investment value of a convertible security is influenced by
changes in interest rates, with investment value declining as interest rates
increase and increasing as interest rates decline. The credit standing of the
issuer and other factors also may have an effect on the convertible security's
investment value. The conversion value of a convertible security is determined
by the market price of the underlying common stock. If the conversion value is
low relative to the investment value, the price of the convertible security is
governed principally by its investment value. Generally, the conversion value
decreases as the convertible security approaches maturity. To the extent the
market price of the underlying common stock approaches or exceeds the
conversion price, the price of the convertible security will be increasingly
influenced by its conversion value. A convertible security generally will sell
at a premium over its conversion value by the extent to which investors place
value on the right to acquire the underlying common stock while holding a fixed
income security.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If
a convertible security is called for redemption, the Fund will be required to
permit the issuer to redeem the security, convert it into the underlying common
stock, or sell it to a third party.
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
maturity 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").
THE FOLLOWING SECTION APPLIES TO EACH FUND, EXCEPT BLUE CHIP 100 FUND:
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 EDRs shall be treated as
indirect foreign investments. For example, an ADR or EDR representing
ownership of common stock will be treated as common stock. Depositary receipts
do not eliminate all of the risks associated with directly investing in the
securities of foreign issuers.
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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 permission 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 facility. 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 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 its investment objective such as hedging or managing risk.
Derivative instruments are commonly defined to include securities or contracts
whose values depend on (or "derive" from) the value of one or more other
assets, such as securities, currencies, or commodities. These "other assets"
are commonly referred to as "underlying assets."
A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to OPTIONS or FORWARD CONTRACTS. Options and forward
contracts are considered to be the basic "building blocks" of derivatives. For
example, forward-based derivatives include forward contracts, swap contracts,
as well as exchange-traded futures. Option-based derivatives include privately
negotiated, over-the-counter ("OTC") options (including caps, floors, collars,
and options on forward and swap contracts) and exchange-traded options on
futures. Diverse types of derivatives may be created by combining options or
forward contracts in different ways, and by applying these structures to a wide
range of underlying assets.
An option is a contract in which the "holder" (the buyer) pays a certain amount
("premium") to the "writer" (the seller) to obtain the right, but not the
obligation, to buy from the writer (in a "call") or sell to the writer (in a
"put") a specific asset at an agreed upon price at or before a certain time.
The holder pays the premium at inception and has no further financial
obligation. The holder of an option-based derivative generally will benefit
from favorable movements in the price of the underlying asset but is not
exposed to corresponding losses due to adverse movements in the value of the
underlying asset. The writer of an option-based derivative generally will
receive fees or premiums but generally is exposed to losses due to changes in
the value of the underlying asset.
A forward is a sales contract between a buyer (holding the "long" position) and
a seller (holding the "short" position) for an asset with delivery deferred
until a future date. The buyer agrees to pay a fixed price at the agreed
future date and the seller agrees to deliver the asset. The seller hopes that
the market price on the delivery date is less than the agreed upon price, while
the buyer hopes for the contrary. The change in value of a forward-based
derivative generally is roughly proportional to the change in value of the
underlying asset.
HEDGING. The Fund may use derivative instruments to protect against possible
adverse changes in the market value of securities held in, or are anticipated
to be held in, its portfolio. Derivatives may also be used to "lock-in"
realized but unrecognized gains in the value of its portfolio securities.
Hedging strategies, if successful, can reduce the risk of loss by
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<PAGE>
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can
also reduce the opportunity for gain by offsetting the positive effect of
favorable price movements in the hedged investments. To the extent that a
hedge matures prior to or after the disposition of the investment subject to
the hedge, any gain or loss on the hedge will be realized earlier or later than
any offsetting gain or loss on the hedged investment.
MANAGING RISK. The Fund may also use derivative instruments to manage the
risks of its portfolio. Risk management strategies include, but are not
limited to, facilitating the sale of portfolio securities, managing the
effective maturity or duration of debt obligations in its portfolio,
establishing a position in the derivatives markets as a substitute for buying
or selling certain securities, or creating or altering exposure to certain
asset classes, such as equity, debt, or foreign securities. The use of
derivative instruments may provide a less expensive, more expedient or more
specifically focused way to invest than "traditional" securities (I.E., stocks
or bonds) would.
EXCHANGE AND OTC DERIVATIVES. Derivative instruments may be exchange-traded or
traded in OTC transactions between private parties. Exchange-traded
derivatives are standardized options and futures contracts traded in an auction
on the floor of a regulated exchange. Exchange contracts are generally very
liquid. The exchange clearinghouse is the counterparty of every contract.
Thus, each holder of an exchange contract bears the credit risk of the
clearinghouse (and has the benefit of its financial strength) rather than that
of a particular counterparty. OTC transactions are subject to additional
risks, such as the credit risk of the counterparty to the instrument, and are
less liquid than exchange-traded derivatives since they often can only be
closed out with the other party to the transaction.
RISKS AND SPECIAL CONSIDERATIONS. The use of derivative instruments involves
risks and special considerations as described below. Risks pertaining to
particular derivative instruments are described in the sections that follow.
(1) MARKET RISK. The primary risk of derivatives is the same as the risk
of the underlying assets, namely that the value of the underlying asset may go
up or down. Adverse movements in the value of an underlying asset can expose
the Fund to losses. Derivative instruments may include elements of leverage
and, accordingly, the fluctuation of the value of the derivative instrument in
relation to the underlying asset may be magnified. The successful use of
derivative instruments depends upon a variety of factors, particularly the
ability of the Advisor to predict movements of the securities, currencies, and
commodity markets, which requires different skills than predicting changes in
the prices of individual securities. There can be no assurance that any
particular strategy adopted will succeed. The Advisor's decision to engage in
a derivative instrument will reflect its judgment that the derivative
transaction will provide value to the Fund and its shareholders and is
consistent with the Fund's objectives, investment limitations, and operating
policies. In making such a judgment, the Advisor will analyze the benefits and
risks of the derivative transaction and weigh them in the context of the Fund's
entire portfolio and investment objective.
(2) CREDIT RISK. The Fund will be subject to the risk that a loss may be
sustained as a result of the failure of a counterparty to comply with the terms
of a derivative instrument. The counterparty risk for exchange-traded
derivative instruments is generally less than for privately negotiated or OTC
derivative instruments, since generally a clearing agency, which is the issuer
or counterparty to each exchange-traded instrument, provides a guarantee of
performance. For privately negotiated instruments, there is no similar
clearing agency guarantee. In all transactions, the Fund will bear the risk
that the counterparty will default, and this could result in a loss of the
expected benefit of the derivative transaction and possibly other losses. The
Fund will enter into transactions in derivative instruments only with
counterparties that the Advisor reasonably believes are capable of performing
under the contract.
(3) CORRELATION RISK. When a derivative transaction is used to completely
hedge another position, changes in the market value of the combined position
(the derivative instrument plus the position being hedged) result from an
imperfect correlation between the price movements of the two instruments. With
a perfect hedge, the value of the combined position remains unchanged for any
change in the price of the underlying asset. With an imperfect hedge, the
values of the derivative instrument and its hedge are not perfectly correlated.
Correlation risk is the risk that there might be imperfect correlation, or even
no correlation, between price movements of an instrument and price movements of
investments being hedged. For example, if the value of a derivative
instruments used in a short hedge (such as writing a call option, buying a put
option, or selling a futures contract) increased by less than the decline in
value of the hedged investments, the hedge would not be perfectly correlated.
Such a lack of correlation might occur due to factors unrelated to the value of
the investments being hedged, such as speculative or other pressures on the
markets in which these instruments are traded. The effectiveness of hedges
using instruments on
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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 SEC, the several options and futures exchanges
upon which they may be traded, the Commodity Futures Trading Commission
("CFTC"), and various state regulatory authorities. In addition, the Fund's
ability to use derivative instruments may be limited by certain tax
considerations.
The Fund has filed a notice of eligibility for exclusion from the definition of
the term "commodity pool operator" with the CFTC and the National Futures
Association, which regulate trading in the futures markets. In accordance with
Rule 4.5 of the regulations under the Commodity Exchange Act ("CEA"), the
notice of eligibility for the Fund includes representations that the Fund will
use futures contracts and related options solely for bona fide hedging purposes
within the meaning of CFTC regulations, provided that the Fund may hold other
positions in futures contracts and related options that do not qualify as a
bona fide hedging position if the aggregate initial margin deposits and
premiums required to establish these positions, less the amount by which any
such futures contracts and related options positions are "in the money," do not
exceed 5% of the Fund's net assets. Adherence to these guidelines does not
limit the Fund's risk to 5% of the Fund's assets.
The SEC has identified certain trading practices involving derivative
instruments that involve the potential for leveraging the Fund's assets in a
manner that raises issues under the 1940 Act. In order to limit the potential
for the leveraging of the Fund's assets, as defined under the 1940 Act, the SEC
has stated that the Fund may use coverage or 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: (1) an offsetting ("covered")
position in securities, options, futures, or derivative instruments; or (2)
cash or liquid securities positions with a value sufficient at all times to
cover its potential obligations to the extent that the position is not
"covered". The Fund will also set aside cash and/or appropriate liquid assets
in a segregated custodial account if required to do so by 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.
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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 its
investment objective such as hedging or managing risk. An option is a contract
in which the "holder" (the buyer) pays a certain amount ("premium") to the
"writer" (the seller) to obtain the right, but not the obligation, to buy from
the writer (in a "call") or sell to the writer (in a "put") a specific asset at
an agreed upon price ("strike price" or "exercise price") at or before a
certain time ("expiration date"). The holder pays the premium at inception and
has no further financial obligation. The holder of an option will benefit from
favorable movements in the price of the underlying asset but is not exposed to
corresponding losses due to adverse movements in the value of the underlying
asset. The writer of an option will receive fees or premiums but is exposed to
losses due to changes in the value of the underlying asset. The Fund may buy
or write (sell) put and call options on assets, such as securities, currencies,
financial commodities, and indices of debt and equity securities ("underlying
assets") and enter into closing transactions with respect to such options to
terminate an existing position. Options used by the Fund may include European,
American, and Bermuda style options. If an option is exercisable only at
maturity, it is a "European" option; if it is also exercisable prior to
maturity, it is an "American" option. If it is exercisable only at certain
times, it is a "Bermuda" option.
The Fund may purchase (buy) and write (sell) put and call options underlying
assets and enter into closing transactions with respect to such options to
terminate an existing position. The purchase of a call option serves as a long
hedge, and the purchase of a put option serves as a short hedge. Writing put
or call options can enable the Fund to enhance income by reason of the premiums
paid by the purchaser of such options. Writing call options serves as a
limited short hedge because declines in the value of the hedged investment
would be offset to the extent of the premium received for writing the option.
However, if the security appreciates to a price higher than the exercise price
of the call option, it can be expected that the option will be exercised and
the Fund will be obligated to sell the security at less than its market value
or will be obligated to purchase the security at a price greater than that at
which the security must be sold under the option. All or a portion of any
assets used as cover for OTC options written by the Fund would be considered
illiquid to the extent described under "Investment Policies and Techniques -
Illiquid Securities." Writing put options serves as a limited long hedge
because decreases in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the
security depreciates to a price lower than the exercise price of the put
option, it can be expected that the put option will be exercised and the Fund
will be obligated to purchase the security at more than its market value.
The value of an option position will reflect, among other things, the
historical price volatility of the underlying investment, the current market
value of the underlying investment, the time remaining until expiration, the
relationship of the exercise price to the market price of the underlying
investment, and general market conditions.
The Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a
closing sale transaction. Closing transactions permit the Fund to realize the
profit or limit the loss on an option position prior to its exercise or
expiration.
The Fund may purchase or write both exchange-traded and OTC options.
Exchange-traded options are issued by a clearing organization affiliated with
the exchange on which the option is listed that, in effect, guarantees
completion of every exchange-traded option transaction. In contrast, OTC
options are contracts between the Fund and the other party to the transaction
("counterparty") (usually a securities dealer or a bank) with no clearing
organization guarantee. Thus, when the Fund purchases or writes an OTC option,
it relies on the counterparty to make or take delivery of the underlying
investment upon exercise of the option. Failure by the counterparty to do so
would result in the loss of any premium paid by the Fund as well as the loss of
any expected benefit of the transaction.
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The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The Fund intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the counterparty, or by a
transaction in the secondary market if any such market exists. Although the
Fund will enter into OTC options only with counter parties that are expected to
be capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option at a
favorable price prior to expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration. If the Fund were unable to effect a closing
transaction for an option it had purchased, it would have to exercise the
option to realize any profit.
The Fund may engage in options transactions on indices in much the same manner
as the options on securities discussed above, except the index options may
serve as a hedge against overall fluctuations in the securities market
represented by the relevant market index.
The writing and purchasing of options is a highly specialized activity that
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. Imperfect correlation between the
options and securities markets may detract from the effectiveness of the
attempted hedging.
SPREAD TRANSACTIONS. The Fund may use spread transactions for any lawful
purpose consistent with its investment objective such as hedging or managing
risk. The Fund may purchase covered spread options from securities dealers.
Such covered spread options are not presently exchange-listed or
exchange-traded. The purchase of a spread option gives the Fund the right to
put, or sell, a security that it owns at a fixed dollar spread or fixed yield
spread in relation to another security that the Fund does not own, but which is
used as a benchmark. The risk to the Fund in purchasing covered spread options
is the cost of the premium paid for the spread option and any transaction
costs. In addition, there is no assurance that closing transactions will be
available. The purchase of spread options will be used to protect the Fund
against adverse changes in prevailing credit quality spreads, I.E., the yield
spread between high quality and lower quality securities. Such protection is
only provided during the life of the spread option.
FUTURES CONTRACTS. The Fund may use futures contracts for any lawful purpose
consistent with its investment objective such as hedging or managing risk. The
Fund may enter into futures contracts, including, but not limited to, interest
rate and index futures. The Fund may also purchase put and call options, and
write covered put and call options, on futures in which it is allowed to
invest. The purchase of futures or call options thereon can serve as a long
hedge, and the sale of futures or the purchase of put options thereon can serve
as a short hedge. Writing covered call options on futures contracts can serve
as a limited short hedge, and writing covered put options on futures contracts
can serve as a limited long hedge, using a strategy similar to that used for
writing covered options in securities. The Fund may also write put options on
futures contracts while at the same time purchasing call options on the same
futures contracts in order to create synthetically a long futures contract
position. Such options would have the same strike prices and expiration dates.
The Fund will engage in this strategy only when the Advisor believes it is more
advantageous to the Fund than purchasing the futures contract.
To the extent required by regulatory authorities, the Fund only enters into
futures contracts that are traded on national futures exchanges and are
standardized as to maturity date and underlying financial instrument. Futures
exchanges and trading are regulated under the CEA by the CFTC. Although
techniques other than sales and purchases of futures contracts could be used to
reduce the Fund's exposure to market or interest rate fluctuations, the Fund
may be able to hedge its exposure more effectively and perhaps at a lower cost
through the use of futures contracts.
An interest rate futures contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial
instrument (E.G., debt security) for a specified price at a designated date,
time, and place. An index futures contract is an agreement pursuant to which
the parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading day
of the contract and the price at which the index futures contract was
originally written. Transaction costs are incurred when a futures contract is
bought or sold and margin deposits must be maintained. A futures contract may
be satisfied by delivery or purchase, as the case may be, of the instrument or
by payment of the change in the cash value of the index. More commonly,
futures contracts are closed out prior to delivery by entering into an
offsetting transaction in a matching futures contract. Although the value of
an index might be a function of the value of certain specified securities, no
physical delivery of those securities is made. If the offsetting purchase
price is less
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than the original sale price, the Fund realizes a gain; if it is more, the Fund
realizes a loss. Conversely, if the offsetting sale price is more than the
original purchase price, the Fund realizes a gain; if it is less, the Fund
realizes a loss. The transaction costs must also be included in these
calculations. There can be no assurance, however, that the Fund will be able
to enter into an offsetting transaction with respect to a particular futures
contract at a particular time. If the Fund is not able to enter into an
offsetting transaction, the Fund will continue to be required to maintain the
margin deposits on the futures contract.
No price is paid by the Fund upon entering into a futures contract. Instead,
at the inception of a futures contract, the Fund is required to deposit in a
segregated account with its custodian, in the name of the futures broker
through whom the transaction was effected, "initial margin" consisting of cash
and/or other appropriate liquid assets in an amount generally equal to 10% or
less of the contract value. Margin must also be deposited when writing a call
or put option on a futures contract, in accordance with applicable exchange
rules. Unlike margin in securities transactions, initial margin on futures
contracts does not represent a borrowing, but rather is in the nature of a
performance bond or good-faith deposit that is returned to the Fund at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility,
the Fund may be required by an exchange to increase the level of its initial
margin payment, and initial margin requirements might be increased generally in
the future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures broker
daily as the value of the futures position varies, a process known as "marking
to market." Variation margin does not involve borrowing, but rather represents
a daily settlement of the Fund's obligations to or from a futures broker. When
the Fund purchases an option on a future, the premium paid plus transaction
costs is all that is at risk. In contrast, when the Fund purchases or sells a
futures contract or writes a call or put option thereon, it is subject to daily
variation margin calls that could be substantial in the event of adverse price
movements. If the Fund has insufficient cash to meet daily variation margin
requirements, it might need to sell securities at a time when such sales are
disadvantageous. Purchasers and sellers of futures positions and options on
futures can enter into offsetting closing transactions by selling or
purchasing, respectively, an instrument identical to the instrument held or
written. Positions in futures and options on futures may be closed only on an
exchange or board of trade that provides a secondary market. The Fund intends
to enter into futures transactions only on exchanges or boards of trade where
there appears to be a liquid secondary market. However, there can be no
assurance that such a market will exist for a particular contract at a
particular time.
Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a future or option on a futures contract can vary
from the previous day's settlement price; once that limit is reached, no trades
may be made that day at a price beyond the limit. Daily price limits do not
limit potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.
If the Fund were unable to liquidate a futures or option on a futures contract
position due to the absence of a liquid secondary market or the imposition of
price limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in
the case of purchased options, the Fund would continue to be required to make
daily variation margin payments and might be required to maintain the position
being hedged by the future or option or to 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
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is entered into). The Fund may use these instruments for hedging or any other
lawful purpose consistent with the Fund's 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 investment
portfolio. 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 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
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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 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.
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When required by the SEC guidelines, the Fund will set aside permissible liquid
assets in segregated accounts or otherwise cover the Fund's 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.
SWAP AGREEMENTS. The Fund may enter into interest rate, securities index,
commodity, or security and currency exchange rate swap agreements for any
lawful purpose consistent with the Fund's investment objective, such as for the
purpose of attempting to obtain or preserve a particular desired return or
spread at a lower cost to the Fund than if the Fund had invested directly in an
instrument that yielded that desired return or spread. The Fund also may enter
into swaps in order to protect against an increase in the price of, or the
currency exchange rate applicable to, securities that the Fund anticipates
purchasing at a later date. Swap agreements are two-party contracts entered
into primarily by institutional investors for periods ranging from a few weeks
to several years. In a standard "swap" transaction, two parties agree to
exchange the returns (or differentials in rates of return) earned or realized
on particular predetermined investments or instruments. The gross returns to
be exchanged or "swapped" between the parties are calculated with respect to a
"notional amount" (I.E., the return on or increase in value of a particular
dollar amount invested at a particular interest rate) in a particular foreign
currency, or in a "basket" of securities representing a particular index. Swap
agreements may include interest rate caps, under which, in return for a
premium, one party agrees to make payments to the other to the extent that
interest rates exceed a specified rate, or "cap;" interest rate floors, under
which, in return for a premium, one party agrees to make payments to the other
to the extent that interest rates fall below a specified level, or "floor;" and
interest rate collars, under which a party sells a cap and purchases a floor,
or vice versa, in an attempt to protect itself against interest rate movements
exceeding given minimum or maximum levels.
The "notional amount" of the swap agreement is the agreed upon basis for
calculating the obligations that the parties to a swap agreement have agreed to
exchange. Under most swap agreements entered into by the Fund, the obligations
of the parties would be exchanged on a "net basis." Consequently, the Fund's
obligation (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement ("net amount").
The Fund's obligation under a swap agreement will be accrued daily (offset
against amounts owed to the Fund) and any accrued but unpaid net amounts owed
to a swap counterparty will be covered by the maintenance of a segregated
account consisting of cash and/or other appropriate liquid assets.
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
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investments. Swap agreements may be considered to be illiquid. Moreover, the
Fund bears the risk of loss of the amount expected to be received under a swap
agreement in the event of the default or bankruptcy of a swap agreement
counterparty. Certain restrictions imposed on the Fund by the Internal Revenue
Code of 1986 ("IRC") may limit the Fund's ability to use swap agreements. The
swaps market is largely unregulated.
The Fund will enter swap agreements only with counterparties that the Advisor
reasonably believes are capable of performing under the swap agreements. If
there is a default by the other party to such a transaction, the Fund will have
to rely on its contractual remedies (which may be limited by bankruptcy,
insolvency or similar laws) pursuant to the agreements related to the
transaction.
ADDITIONAL DERIVATIVE INSTRUMENTS AND STRATEGIES. In addition to the
derivative instruments and strategies described above and in the Prospectus,
the Advisor expects to discover additional derivative instruments and other
hedging or risk management techniques. The Advisor may utilize these new
derivative instruments and techniques to the extent that they are consistent
with the Fund's investment objective and permitted by the Fund's investment
limitations, operating policies, and applicable regulatory authorities.
THE FOLLOWING SECTION APPLIES TO THE AMERICAN UTILITIES FUND ONLY:
ENERGY COMPANIES
Under normal market conditions, the Fund anticipates it may invest a
substantial portion, but not more than 25% of its total assets, in the equity
securities of energy companies. Energy companies are generally defined as
companies in the conventional areas of oil, gas, electricity, and coal, as well
as those involved in alternative sources of energy, such as nuclear,
geothermal, shale, and solar power. The business activities of energy companies
may include production, generation, refining, transmission, transportation,
marketing, control, or measurement of energy or energy fuels; providing
component parts or services to companies engaged in these energy activities;
energy research or experimentation; and environmental activities related to the
solution of energy problems, such as energy conservation and pollution control.
For purposes of this 25% investment limitation, energy companies shall exclude
companies that are also public utility companies.
To the extent the Fund makes significant investments in energy companies, the
Fund's performance will depend in part on conditions in the energy industry.
The securities of companies in the energy industry are subject to changes in
value and dividend yield that depend to a large extent on the price and supply
of energy fuels. Swift price and supply fluctuations of energy fuels may be
caused by events relating to international politics, energy conservation, the
success of exploration projects, currency exchange rate fluctuations, and tax
and other regulatory policies of various governments.
THE FOLLOWING SECTION APPLIES TO EACH FUND, EXCEPT BLUE CHIP 100 FUND:
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 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.
THE FOLLOWING SECTION APPLIES TO EACH FUND, EXCEPT BLUE CHIP 100 FUND:
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 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
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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 U.S. 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 are earning no investment return. 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.
THE FOLLOWING SECTION APPLIES TO EACH FUND, EXCEPT BLUE CHIP 100 FUND:
HIGH-YIELD (HIGH-RISK) SECURITIES
IN GENERAL. Non-investment grade debt obligations ("lower-quality securities")
include (1) bonds rated as low as C by Moody's Investors ("Moody's"), Standard
& Poor's Ratings Group ("S&P"), and comparable ratings of other nationally
recognized statistical rating organizations ("NRSROs"); (2) commercial paper
rated as low as C by S&P, Not Prime by Moody's, and comparable ratings of other
NRSROs; and (3) unrated debt obligations of comparable quality. Lower-quality
securities, while generally offering higher yields than investment grade
securities with similar maturities, involve greater risks, including the
possibility of default or bankruptcy. They are regarded as predominantly
speculative 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 description
of the securities ratings.
EFFECT OF INTEREST RATES AND ECONOMIC CHANGES. The lower-quality and
comparable unrated security market is relatively new and its growth has
paralleled a long economic expansion. As a result, it is not clear how this
market may withstand a prolonged recession or economic downturn. Such
conditions could severely disrupt the market for and adversely affect the value
of such securities.
All interest-bearing securities typically experience appreciation when interest
rates decline and depreciation when interest rates rise. The market values of
lower-quality and comparable unrated securities tend to reflect individual
corporate developments to a greater extent than do higher rated securities,
which react primarily to fluctuations in the general level of interest rates.
Lower-quality and comparable unrated securities also tend to be more sensitive
to economic conditions than are higher-rated securities. As a result, they
generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising
interest rates, highly leveraged issuers of lower-quality and comparable
unrated securities may experience financial stress and may not have sufficient
revenues to meet their payment obligations. The issuer's ability to service
its debt obligations may also be adversely affected by specific corporate
developments, the issuer's inability to meet specific projected business
forecasts or the unavailability of additional financing. The risk of loss due
to default by an issuer of these securities is significantly greater than
issuers of higher-rated securities because such securities are generally
unsecured and are often subordinated to other creditors. Further, if the
issuer of a lower-quality or comparable unrated security defaulted, the Fund
might incur additional expenses to seek recovery. Periods of economic
uncertainty and
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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.
LEGISLATION. Legislation may be adopted, from time to time, designed to limit
the use of certain lower-quality and comparable unrated securities by certain
issuers. It is anticipated that if additional legislation is enacted or
proposed, it could have a material affect on the value of these securities and
the existence of a secondary trading market for the securities.
ILLIQUID SECURITIES
The Fund may invest in illiquid securities (I.E., securities that are not
readily marketable). However, the Fund will not acquire illiquid securities
if, as a result, the illiquid securities would comprise more than 15% (10% for
money market funds) of the value of the Fund's net assets (or such other
amounts as may be permitted under the 1940 Act). However, as a matter of
internal policy, the Advisor intends to limit the Fund's investments in
illiquid securities to 10% of its net assets.
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The Board of Directors of the Fund, or its delegate, has the ultimate authority
to determine, to the extent permissible under the federal securities laws,
which securities are illiquid for purposes of this limitation. Certain
securities exempt from registration or issued in transactions exempt from
registration under the Securities Act of 1933, as amended ("Securities Act"),
such as securities that may be resold to institutional investors under Rule
144A under the Securities Act and Section 4(2) commercial paper, may be
considered liquid under guidelines adopted by the Fund's Board of Directors.
The Board of Directors of the Fund has delegated to the Advisor the day-to-day
determination of the liquidity of a security, although it has retained
oversight and ultimate responsibility for such determinations. The Board of
Directors has directed the Advisor to look to such factors as (1) the frequency
of trades or quotes for a security, (2) the number of dealers willing to
purchase or sell the security and number of potential buyers, (3) the
willingness of dealers to undertake to make a market in the security, (4) the
nature of the security and nature of the marketplace trades, such as the time
needed to dispose of the security, the method of soliciting offers, and the
mechanics of transfer, (5) the likelihood that the security's marketability
will be maintained throughout the anticipated holding period, and (6) any other
relevant factors. The Advisor may determine 4(2) commercial paper to be liquid
if (1) the 4(2) commercial paper is not traded flat or in default as to
principal and interest, (2) the 4(2) commercial paper is rated in one of the
two highest rating categories by at least two NRSROs), or if only one NRSRO
rates the security, by that NRSRO, or is determined by the Advisor to be of
equivalent quality, and (3) the Advisor considers the trading market for the
specific security taking into account all relevant factors. With respect to
any foreign holdings, a foreign security may be considered liquid by the
Advisor (despite its restricted nature under the Securities Act) if the
security can be freely traded in a foreign securities market and all the facts
and circumstances support a finding of liquidity.
Restricted securities may be sold only in privately negotiated transactions or
in a public offering with respect to which a registration statement is in
effect under the Securities Act. Where registration is required, the Fund may
be obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time the
Fund may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to
develop, the Fund might obtain a less favorable price than prevailed when it
decided to sell. Restricted securities will be priced in accordance with
pricing procedures adopted by the Board of Directors of the Fund. If through
the appreciation of restricted securities or the depreciation of unrestricted
securities the Fund should be in a position where more than 15% of the value of
its net assets are invested in illiquid securities, including restricted
securities 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 the liquidity of the
Fund's portfolio.
The Fund may sell OTC options and, in connection therewith, segregate assets or
cover its obligations with respect to OTC options written by the Fund. The
assets used as cover for OTC options written by the Fund will be considered
illiquid unless the OTC options are sold to qualified dealers who agree that
the Fund may repurchase any OTC option it writes at a maximum price to be
calculated by a formula set forth in the option agreement. The cover for an
OTC option written subject to this procedure would be considered illiquid only
to the extent that the maximum repurchase price under the formula exceeds the
intrinsic value of the option.
LENDING OF PORTFOLIO SECURITIES
The Fund is authorized to lend up to 33 1/3% of the total value of its
portfolio securities to broker-dealers or institutional investors that the
Advisor deems qualified, but only when the borrower maintains with the Fund's
custodian bank collateral either in cash or money market instruments in an
amount at least equal to the market value of the securities loaned, plus
accrued interest and dividends, determined on a daily basis and adjusted
accordingly. Although the Fund is authorized to lend, the Fund does not
presently intend to engage in lending. In determining whether to lend
securities to a particular broker-dealer or institutional investor, the Advisor
will consider, and during the period of the loan will monitor, all relevant
facts and circumstances, including the creditworthiness of the borrower. The
Fund will retain authority to terminate any loans at any time. The Fund may
pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The Fund
will receive reasonable interest on the loan or a flat fee from the borrower
and amounts equivalent to any dividends, interest or other distributions on the
securities loaned. The Fund will retain record ownership of loaned securities
to exercise beneficial rights, such as voting and subscription rights and
rights to dividends, interest or other distributions, when retaining such
rights is considered to be in the Fund's interest.
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THE FOLLOWING SECTION APPLIES TO EACH FUND, EXCEPT BLUE CHIP 100 FUND:
MORTGAGE- AND ASSET-BACKED DEBT SECURITIES
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and collateralized
mortgage obligations. Such securities may be issued or guaranteed by U.S.
government agencies or instrumentalities, such as the Government National
Mortgage Association and the Federal National Mortgage Association, or by
private issuers, generally originators and investors in mortgage loans,
including savings associations, mortgage bankers, commercial banks, investment
bankers, and special purpose entities (collectively, "private lenders").
Mortgage-backed securities issued by private lenders may be supported by pools
of mortgage loans or other mortgage-backed securities that are guaranteed,
directly or indirectly, by the U.S. government or one of its agencies or
instrumentalities, or they may be issued without any governmental guarantee of
the underlying mortgage assets but with some form of non-governmental credit
enhancement.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. Asset-backed debt obligations represent direct or
indirect participation in, or are secured by and payable from, assets such as
motor vehicle installment sales contracts, other installment loan contracts,
home equity loans, leases of various types of property, and receivables from
credit card or other revolving credit arrangements. The credit quality of most
asset-backed securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement of the
securities. Payments or distributions of principal and interest on
asset-backed debt obligations may be supported by non-governmental credit
enhancements including letters of credit, reserve funds, overcollateralization,
and guarantees by third parties. The market for privately issued asset-backed
debt obligations is smaller and less liquid than the market for government
sponsored mortgage-backed securities.
The rate of principal payment on mortgage- and asset-backed securities
generally depends on the rate of principal payments received on the underlying
assets which in turn may be affected by a variety of economic and other
factors. As a result, the yield on any mortgage- and asset-backed security is
difficult to predict with precision and actual yield to maturity may be more or
less than the anticipated yield to maturity. The yield characteristics of
mortgage- and asset-backed securities differ from those of traditional debt
securities. Among the principal differences are that interest and principal
payments are made more frequently on mortgage-and asset-backed securities,
usually monthly, and that principal may be prepaid at any time because the
underlying mortgage loans or other assets generally may be prepaid at any time.
As a result, if the Fund purchases these securities at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing the yield to maturity. Conversely, if the Fund purchases these
securities at a discount, a prepayment rate that is faster than expected will
increase yield to maturity, while a prepayment rate that is slower than
expected will reduce yield to maturity. Amounts available for reinvestment by
the Fund are likely to be greater during a period of declining interest rates
and, as a result, are likely to be reinvested at lower interest rates than
during a period of rising interest rates. Accelerated prepayments on
securities purchased by the Fund at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is prepaid in full. The market for privately issued mortgage- and
asset-backed securities is smaller and less liquid than the market for
government-sponsored mortgage-backed securities.
While many mortgage- and asset-backed securities are issued with only one class
of security, many are issued in more than one class, each with different
payment terms. Multiple class mortgage- and asset-backed securities are issued
for two main reasons. First, multiple classes may be used as a method of
providing credit support. This is accomplished typically through creation of
one or more classes whose right to payments on the security is made subordinate
to the right to such payments of the remaining class or classes. Second,
multiple classes may permit the issuance of securities with payment terms,
interest rates, or other characteristics differing both from those of each
other and from those of the underlying assets. Examples include so-called
"strips" (mortgage- and asset-backed securities entitling the holder to
disproportionate interests with respect to the allocation of interest and
principal of the assets backing the security), and securities with class or
classes having characteristics 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
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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.
THE FOLLOWING SECTION APPLIES TO THE ASSET ALLOCATION FUND ONLY:
MUNICIPAL OBLIGATIONS
IN GENERAL. Municipal obligations are debt obligations issued by or on behalf
of states, territories, and possessions of the United States and the District
of Columbia and their political subdivisions, agencies, and instrumentalities.
Municipal obligations generally include debt obligations issued to obtain funds
for various public purposes. Certain types of municipal obligations are issued
in whole or in part to obtain funding for privately operated facilities or
projects. Municipal obligations include general obligation bonds, revenue
bonds, industrial development bonds, notes, and municipal lease obligations.
Municipal obligations also include obligations, the interest on which is exempt
from federal income tax, that may become available in the future as long as the
Board of Directors of the Fund determines that an investment in any such type
of obligation is consistent with the Fund's investment objective.
BONDS AND NOTES. General obligation bonds are secured by the issuer's pledge of
its full faith, credit, and taxing power for the payment of interest and
principal. Revenue bonds are payable only from the revenues derived from a
project or facility or from the proceeds of a specified revenue source.
Industrial development bonds are generally revenue bonds secured by payments
from and the credit of private users. Municipal notes are issued to meet the
short-term funding requirements of state, regional, and local governments.
Municipal notes include tax anticipation notes, bond anticipation notes,
revenue anticipation notes, tax and revenue anticipation notes, construction
loan notes, short-term discount notes, tax-exempt commercial paper, demand
notes, and similar instruments.
LEASE OBLIGATIONS. Municipal lease obligations may take the form of a lease, an
installment purchase, or a conditional sales contract. They are issued by state
and local governments and authorities to acquire land, equipment, and
facilities, such as state and municipal vehicles, telecommunications and
computer equipment, and other capital assets. The Fund may purchase these
obligations directly, or it may purchase participation interests in such
obligations. (See "Participation Interests" below.) Municipal leases are
generally subject to greater risks than general obligation or revenue bonds.
State constitutions and statutes set forth requirements that states or
municipalities must meet in order to issue municipal obligations. Municipal
leases may contain a covenant by the state or municipality to budget for,
appropriate, and make payments due under the obligation. Certain municipal
leases may, however, contain "non-appropriation" clauses which provide that the
issuer is not obligated to make payments on the obligation in future years
unless funds have been appropriated for this purpose each year. Accordingly,
such obligations are subject to "non-appropriation" risk. While municipal
leases are secured by the underlying capital asset, it may be difficult to
dispose of any such asset in the event of non-appropriation or other default.
MORTGAGE-BACKED BONDS. The Fund's investments in municipal obligations may
include mortgage-backed municipal obligations, which are a type of municipal
security issued by a state, authority, or municipality to provide financing for
residential housing mortgages to target groups, generally low-income
individuals who are first-time home buyers. The Fund's interest, evidenced by
such obligations, is an undivided interest in a pool of mortgages. Payments
made on the underlying mortgages and passed through to the Fund will represent
both regularly scheduled principal and interest payments. The Fund may also
receive additional principal payments representing prepayments of the
underlying mortgages. While a certain level of prepayments can be expected,
regardless of the interest rate environment, it is anticipated that prepayment
of the underlying mortgages will accelerate in periods of declining interest
rates. In the event that the Fund receives principal prepayments in a declining
interest-rate environment, its reinvestment of such funds may be in bonds with
a lower yield.
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THE FOLLOWING SECTION APPLIES TO EACH FUND, EXCEPT BLUE CHIP 100 FUND:
PARTICIPATION INTERESTS
A participation interest gives the Fund an undivided interest in a municipal
obligation in the proportion that the Fund's participation interest bears to
the principal amount of the obligation. These instruments may have fixed,
floating, or variable rates of interest. The Fund will only purchase
participation interests if accompanied by an opinion of counsel that the
interest earned on the underlying municipal obligations will be tax-exempt. If
the Fund purchases unrated participation interests, the Board of Directors or
its delegate must have determined that the credit risk is equivalent to the
rated obligations in which the Fund may invest. Participation interests may be
backed by a letter of credit or guaranty of the selling institution. When
determining whether such a participation interest meets the Fund's credit
quality requirements, the Fund may look to the credit quality of any financial
guarantor providing a letter of credit or guaranty.
THE FOLLOWING SECTION APPLIES TO THE AMERICAN UTILITIES FUND ONLY:
PUBLIC UTILITY COMPANIES
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in the equity securities of public utility companies headquartered in
the United States. Accordingly, the Fund's performance will depend in part on
conditions in the public utility industry. Stocks of public utility companies
have traditionally been attractive to conservative stock market investors
because they have generally paid consistent and above-average dividends. The
Fund's investments in public utility securities may or may not pay consistent
and above-average dividends. Moreover, the securities of public utility
companies can still be affected by the risks of the stock market, as well as
factors specific to public utility companies. Government regulation of public
utility companies can limit their ability to expand their businesses or to pass
cost increases on to customers. Additionally, companies providing power or
energy-related services may also be affected by the following factors:
increases in fuel and other operating costs; high costs of borrowing to finance
capital construction during inflationary periods; operational restrictions,
increased costs, and delays associated with compliance with environmental and
nuclear safety regulations; difficulties involved in obtaining natural gas for
resale or fuel for generating electricity at reasonable prices; risks
associated with constructing and operating nuclear power plants; effects of
energy conservation; and effects of regulatory changes. Some public utility
companies are facing increased competition, which may reduce their profits. All
of these factors are subject to rapid change, which may affect utility
companies independently from the stock market as a whole. Equity securities
issued by public utility companies tend to be more affected by changes in
interest rates than are the equity securities of other issuers and, therefore,
may react to such changes somewhat like debt instruments.
In accordance with its investment objective and fundamental investment
restrictions, the Fund will normally concentrate its investments in the public
utility industry. This means that more than 25% of the value of the Fund's
total assets will normally be invested in the public utility industry. The Fund
does not have set policies to concentrate within any particular segment of the
public utilities industry; however, the Fund generally emphasizes investments
in established electric utility, telephone, natural gas, and energy stocks with
sound financial structures.
Due to the Fund's concentration of investments in the public utility industry,
an investment in the Fund may be subject to greater fluctuations in value than
a Fund that does not concentrate its investments in a similar manner. For
example, as discussed above, certain economic factors or specific events may
exert a disproportionate impact upon the prices of equity securities of
companies within the public utilities industry relative to their impact on the
prices of securities of companies engaged in other industries. Additionally,
changes in the market price of the equity securities of a particular company
that occupies a dominant position in an industry may tend to influence the
market prices of other companies within the same industry. As a result of the
foregoing factors, the net asset value of the Fund may be more susceptible to
change than those of investment companies that diversify their investments over
many different industries.
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
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price plus accrued interest. Repurchase agreements could involve certain risks
in the event of a default or insolvency of the other party to the agreement,
including possible delays or restrictions upon the Fund's ability to dispose of
the underlying securities. Although no definitive creditworthiness criteria
are used, the Advisor reviews the creditworthiness of the banks and non-bank
dealers with which the Fund enters into repurchase agreements to evaluate those
risks. The Fund may, under certain circumstances, deem repurchase agreements
collateralized by U.S. government securities to be investments in U.S.
government securities.
THE FOLLOWING SECTION APPLIES TO EACH FUND, EXCEPT BLUE CHIP 100 FUND:
REVERSE REPURCHASE AGREEMENTS AND MORTGAGE DOLLAR ROLLS
The Fund may engage in reverse repurchase agreements to facilitate portfolio
liquidity, a practice common in the mutual fund industry, or for arbitrage
transactions as discussed below. In a reverse repurchase agreement, the Fund
would sell a security and enter into an agreement to repurchase the security at
a specified future date and price. The Fund generally retains the right to
interest and principal payments on the security. Since the Fund receives cash
upon entering into a reverse repurchase agreement, it may be considered a
borrowing. When required by guidelines of the SEC, the Fund will set aside
permissible liquid assets in a segregated account to secure its obligations to
repurchase the security.
The Fund may also enter into mortgage dollar rolls, in which the Fund would
sell mortgage-backed securities for delivery in the current month and
simultaneously contract to purchase substantially similar securities on a
specified future date. While the Fund would forego principal and interest paid
on the mortgage-backed securities during the roll period, the Fund would be
compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The Fund also could be compensated through the receipt of
fee income equivalent to a lower forward price. At the time the Fund would
enter into a mortgage dollar roll, it would set aside permissible liquid assets
in a segregated account to secure its obligation for the forward commitment to
buy mortgage-backed securities. Mortgage dollar roll transactions may be
considered a borrowing by the Fund.
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.
SHORT SALES
The Fund may sell securities short (1) to hedge unrealized gains on portfolio
securities or (2) if it covers such short sale with liquid assets as required
by the current rules and positions of the SEC or its staff. Selling securities
short against the box involves selling a security that the Fund owns or has the
right to acquire, for delivery at a specified date in the future. If the Fund
sells securities short against the box, it may protect unrealized gains, but
will lose the opportunity to profit on such securities if the price rises.
THE FOLLOWING SECTION APPLIES TO EACH FUND, EXCEPT BLUE CHIP 100 FUND:
SMALL AND MEDIUM COMPANIES
The Fund may invest its assets in small- and medium-capitalization companies.
While small- and medium-capitalization companies generally have the potential
for rapid growth, investments in small- and medium-capitalization companies
often involve greater risks than investments in larger, more established
companies because small- and medium-capitalization companies may lack the
management experience, financial resources, product diversification, and
competitive strengths of larger companies. In addition, in many instances the
securities of small- and medium-capitalization companies are traded only OTC
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 small- and medium-capitalization 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 small
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and medium 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 the 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 the Fund that invests
in larger, more established companies.
THE FOLLOWING SECTION APPLIES TO THE ASSET ALLOCATION FUND ONLY:
SOVEREIGN DEBT
Sovereign debt differs from debt obligations issued by private entities in
that, generally, remedies for defaults must be pursued in the courts of the
defaulting party. Legal recourse is therefore limited. Political conditions,
especially a sovereign entity's willingness to meet the terms of its debt
obligations, are of considerable significance. Also, there can be no assurance
that the holders of commercial bank loans to the same sovereign entity may not
contest payments to the holders of sovereign debt in the event of default under
commercial bank loan agreements.
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by a variety of factors, including among
others, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
sovereign debtor's policy toward principal international lenders and the
political constraints to which a sovereign debtor may be subject. A country
whose exports are concentrated in a few commodities could be vulnerable to a
decline in the international price of such commodities. Increased
protectionism on the part of a country's trading partners, or political changes
in those countries, could also adversely affect its exports. Such events could
diminish a country's trade account surplus, if any, or the credit standing of a
particular local government or agency. Another factor bearing on the ability
of a country to repay sovereign debt is the level of the country's
international reserves. Fluctuations in the level of these reserves can affect
the amount of foreign exchange readily available for external debt payments
and, thus, could have a bearing on the capacity of the country to make payments
on its sovereign debt.
To the extent that a country has a current account deficit (generally when its
exports of merchandise and services are less than its country's imports of
merchandise and services plus net transfers (E.G., gifts of currency and goods)
to foreigners), it may need to depend on loans from foreign governments,
multilateral organizations or private commercial banks, aid payments from
foreign governments and inflows of foreign investment. The access of a country
to these forms of external funding may not be certain, and a withdrawal of
external funding could adversely affect the capacity of a government to make
payments on its obligations. In addition, the cost of servicing debt
obligations can be adversely affected, by a change in international interest
rates since the majority of these obligations carry interest rates that are
adjusted periodically based upon international rates.
With respect to sovereign debt of emerging market issuers, investors should be
aware that certain emerging market countries are among the largest debtors to
commercial banks and foreign governments. At times, certain emerging market
countries have declared moratoria on the payment of principal and interest on
external debt.
Certain emerging market countries have experienced difficulty in servicing
their sovereign debt on a timely basis which led to defaults on certain
obligations and the restructuring of certain indebtedness. Restructuring
arrangements have included, among other things, reducing and rescheduling
interest and principal payments by negotiating new or amended credit agreements
or converting outstanding principal and unpaid interest to Brady Bonds
(discussed below), and obtaining new credit to finance interest payments.
Holders of sovereign debt, including the Fund, may be requested to participate
in the rescheduling of such debt and to extend further loans to sovereign
debtors, and the interests of holders of sovereign debt could be adversely
affected in the course of restructuring arrangements or by certain other
factors referred to below. Furthermore, some of the participants in the
secondary market for sovereign debt may also be directly involved in
negotiating the terms of these arrangements and may therefore have access to
information not available to other market participants, such as the Fund.
Obligations arising from past restructuring agreements may affect the economic
performance and political and social stability of certain issuers of sovereign
debt. There is no bankruptcy proceeding by which sovereign debt on which a
sovereign has defaulted may be collected in whole or in part.
Foreign investment in certain sovereign debt is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
foreign investment in such sovereign debt and increase the costs and expenses
of the Fund. Certain countries in which the Fund may invest require
governmental approval prior to investments by foreign persons, limit the
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amount of investment by foreign persons in a particular issuer, limit the
investment by foreign persons only to a specific class of securities of an
issuer that may have less advantageous rights than the classes available for
purchase by domiciliaries of the countries, or impose additional taxes on
foreign investors. Certain issuers may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in a
country's balance of payments, the country could impose temporary restrictions
on foreign capital remittances. The Fund could be adversely affected by delays
in, or a refusal to grant, any required governmental approval for repatriation
of capital, as well as by the application to the Fund of any restrictions on
investments. Investing in local markets may require the Fund to adopt special
procedures, seek local government approvals or take other actions, each of
which may involve additional costs to the Fund.
The sovereign debt in which the Fund may invest includes Brady Bonds, which are
securities issued under the framework of the Brady Plan, an initiative
announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a
mechanism for debtor nations to restructure their outstanding external
commercial bank indebtedness. In restructuring its external debt under the
Brady Plan framework, a debtor nation negotiates with its existing bank lenders
as well as multilateral institutions such as the International Monetary Fund
("IMF"). The Brady Plan framework, as it has developed, contemplates the
exchange of commercial bank debt for newly issued Brady Bonds. Brady Bonds may
also be issued in respect of new money being advanced by existing lenders in
connection with the debt restructuring. The World Bank and the IMF support the
restructuring by providing Fund pursuant to loan agreements or other
arrangements which enable the debtor nation to collateralize the new Brady
Bonds or to repurchase outstanding bank debt at a discount.
There can be no assurance that the circumstances regarding the issuance of
Brady Bonds by these countries will not change. Investors should recognize
that Brady Bonds do not have a long payment history. Agreements implemented
under the Brady Plan to date are designed to achieve debt and debt-service
reduction through specific options negotiated by a debtor nation with its
creditors. As a result, the financial packages offered by each country differ.
The types of options have included the exchange of outstanding commercial bank
debt for bonds issued at 100% of face value of such debt, which carry a
below-market stated rate of interest (generally known as par bonds), bonds
issued at a discount from the face value of such debt (generally known as
discount bonds), bonds bearing an interest rate which increases over time, and
bonds issued in exchange for the advancement of new money by existing lenders.
Regardless of the stated face amount and stated interest rate of the various
types of Brady Bonds the Fund will purchase Brady Bonds, if any, in secondary
markets, as described below, in which the price and yield to the investor
reflect market conditions at the time of purchase.
Certain Brady Bonds have been collateralized as to principal due at maturity by
U.S. Treasury zero coupon bonds with maturities equal to the final maturity of
such Brady Bonds. Collateral purchases are financed by the IMF, the World
Bank, and the debtor nations' reserves. In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments which would have
then been due on the Brady Bonds in the normal course. In addition, interest
payments on certain types of Brady Bonds may be collateralized by cash or high
grade securities in amounts that typically represent between 12 and 18 months
of interest accruals on these instruments with the balance of the interest
accruals being uncollateralized. Brady Bonds are often viewed as having
several valuation components: (1) the collateralized repayment of principal,
if any, at final maturity, (2) the collateralized interest payments, if any,
(3) the uncollateralized interest payments, and (4) any uncollateralized
repayment of principal at maturity (these uncollateralized amounts constitute
the "residual risk"). In light of the residual risk of Brady Bonds and, among
other factors, the history of defaults with respect to commercial bank loans by
public and private entities of countries issuing Brady Bonds, investments in
Brady Bonds have speculative characteristics. The Fund may purchase Brady
Bonds with no or limited collateralization, and will be relying for payment of
interest and (except in the case of principal collateralized Brady Bonds)
principal primarily on the willingness and ability of the foreign government to
make payment in accordance with the terms of the Brady Bonds. Brady Bonds
issued to date are purchased and sold in secondary markets through U.S.
securities dealers and other financial institutions and are generally
maintained through European transnational securities depositories.
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THE FOLLOWING SECTION APPLIES TO EACH FUND, EXCEPT BLUE CHIP 100 FUND:
STANDBY COMMITMENTS
In order to facilitate portfolio liquidity, the Fund may acquire standby
commitments from brokers, dealers, or banks with respect to securities in its
portfolio. Standby commitments entitle the holder to achieve same-day
settlement and receive an exercise price equal to the amortized cost of the
underlying security plus accrued interest. Standby commitments generally
increase the cost of the acquisition of the underlying security, thereby
reducing the yield. Standby commitments are subject to the issuer's ability to
fulfill its obligation upon demand. Although no definitive creditworthiness
criteria are used, the Advisor reviews the creditworthiness of the brokers,
dealers, and banks from which the Fund obtains standby commitments to evaluate
those risks.
U.S. GOVERNMENT SECURITIES
U.S. government securities are issued or guaranteed by the U.S. government or
its agencies or instrumentalities. Securities issued by the government include
U.S. Treasury obligations, such as Treasury bills, notes, and bonds. Securities
issued by government agencies or instrumentalities include obligations of the
following:
- - the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, and
the Government National Mortgage Association ("GNMA"), including GNMA
pass-through certificates, whose securities are supported by the full faith
and credit of the United States;
- - 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.
VARIABLE- OR FLOATING-RATE SECURITIES
The Fund may invest in securities which offer a variable- or floating-rate of
interest. Variable-rate securities provide for automatic establishment of a
new interest rate at fixed intervals (E.G., daily, monthly, semi-annually,
etc.). Floating-rate securities generally provide for automatic adjustment of
the interest rate whenever some specified interest rate index changes. The
interest rate on variable- or floating-rate securities is ordinarily
determined by reference to or is a percentage of a bank's prime rate, the
90-day U.S. Treasury bill rate, the rate of return on commercial paper or bank
certificates of deposit, an index of short-term interest rates, or some other
objective measure.
Variable- or floating-rate securities frequently include a demand feature
entitling the holder to sell the securities to the issuer at par. In many
cases, the demand feature can be exercised at any time on seven days notice;
in other cases, the demand feature is exercisable at any time on 30 days
notice or on similar notice at intervals of not more than one year. Some
securities which do not have variable or floating interest rates may be
accompanied by puts producing similar results and price characteristics. When
considering the maturity of any instrument which may be sold or put to the
issuer or a third party, the Fund may consider that instrument's maturity to
be shorter than its stated maturity.
Variable-rate demand notes include master demand notes which are obligations
that permit the Fund to invest fluctuating amounts, which may change daily
without penalty, pursuant to direct arrangements between the Fund, as lender,
and the borrower. The interest rates on these notes fluctuate from time to
time. The issuer of such obligations normally has a corresponding right,
after a given period, to prepay in its discretion the outstanding principal
amount of the obligations plus accrued interest upon a specified number of
days notice to the holders of such obligations. The interest rate on a
floating-rate demand obligation is based on a known lending rate, such as a
bank's prime rate, and is adjusted automatically each time such
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rate is adjusted. The interest rate on a variable-rate demand obligation is
adjusted automatically at specified intervals. Frequently, such obligations
are secured by letters of credit or other credit support arrangements provided
by banks. Because these obligations are direct lending arrangements between
the lender and borrower, it is not contemplated that such instruments will
generally be traded. There generally is not an established secondary market
for these obligations, although they are redeemable at face value.
Accordingly, where these obligations are not secured by letters of credit or
other credit support arrangements, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies and, if not so
rated, the Fund may invest in them only if the Advisor determines that at the
time of investment the obligations are of comparable quality to the other
obligations in which the Fund may invest. The Advisor, on behalf of the Fund,
will consider on an ongoing basis the creditworthiness of the issuers of the
floating- and variable-rate demand obligations in the Fund's portfolio.
The Fund will not invest more than 15% of its net assets (10% for money market
funds) in variable- and floating-rate demand obligations that are not readily
marketable (a variable- or floating-rate demand obligation that may be
disposed of on not more than seven days notice will be deemed readily
marketable and will not be subject to this limitation). In addition, each
variable- or floating-rate obligation must meet the credit quality
requirements applicable to all the Fund's investments at the time of purchase.
When determining whether such an obligation meets the Fund's credit quality
requirements, the Fund may look to the credit quality of the financial
guarantor providing a letter of credit or other credit support arrangement.
In determining the Fund's weighted average portfolio maturity, the Fund will
consider a floating- or variable-rate security to have a maturity equal to its
stated maturity (or redemption date if it has been called for redemption),
except that it may consider (1) variable-rate securities to have a maturity
equal to the period remaining until the next readjustment in the interest
rate, unless subject to a demand feature, (2) variable-rate securities subject
to a demand feature to have a remaining maturity equal to the longer of (a)
the next readjustment in the interest rate or (b) the period remaining until
the principal can be recovered through demand, and (3) floating-rate
securities subject to a demand feature to have a maturity equal to the period
remaining until the principal can be recovered through demand. Variable- and
floating-rate securities generally are subject to less principal fluctuation
than securities without these attributes since the securities usually trade at
amortized cost following the readjustment in the interest rate.
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. 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 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.
THE FOLLOWING SECTION APPLIES TO EACH FUND, EXCEPT BLUE CHIP 100 FUND:
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
The Fund may purchase securities on a when-issued or delayed-delivery basis.
The price of debt obligations so purchased, which may be expressed in yield
terms, generally is fixed at the time the commitment to purchase is made, but
delivery and payment for the securities take place at a later date. During
the period between the purchase and settlement, no payment is made by the Fund
to the issuer and no interest on the debt obligations accrues to the Fund.
Forward commitments involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the Fund's other assets. While when-issued
and delayed-delivery securities may be sold prior to the settlement date, the
Fund intends to purchase such securities with the purpose of actually
acquiring them unless a sale appears desirable for investment reasons. At the
time the Fund makes the commitment to purchase these types of securities, it
will record the transaction and reflect the value of the security in
determining its net asset value. The Fund does not believe that its net asset
value will be adversely affected by these types of securities purchases.
To the extent required by the SEC, the Fund will maintain cash and marketable
securities equal in value to commitments for when-issued or delayed-delivery
securities. Such segregated securities either will mature or, if necessary,
be sold on or before
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the settlement date. When the time comes to pay for when-issued or
delayed-delivery securities, the Fund will meet its obligations from
then-available cash flow, sale of the securities held in the separate account,
described above, sale of other securities or, although it would not normally
expect to do so, from the sale of the when-issued or delayed-delivery
securities themselves (which may have a market value greater or less than the
Fund's payment obligation).
ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES
The Fund may invest in zero-coupon, step-coupon, and pay-in-kind securities.
These securities are debt securities that do not make regular cash interest
payments. Zero-coupon and step-coupon securities are sold at a deep discount
to their face value. Pay-in-kind securities pay interest through the issuance
of additional securities. Because such securities do not pay current cash
income, the price of these securities can be volatile when interest rates
fluctuate. While these securities do not pay current cash income, federal
income tax law requires the holders of zero-coupon, step-coupon, and
pay-in-kind securities to include in income each year the portion of the
original issue discount (or deemed discount) and other non-cash income on such
securities accruing that year. In order to continue to qualify as a
"regulated investment company" or "RIC" under the IRC and avoid a certain
excise tax, the Fund may be required to distribute a portion of such discount
and income and may be required to dispose of other portfolio securities, which
may occur in periods of adverse market prices, in order to generate cash to
meet these distribution requirements.
DIRECTORS AND OFFICERS
The Board of Directors of the Fund is responsible for managing the Fund's
business and affairs. Directors and officers of the Fund, together with
information as to their principal business occupations during the last five
years, and other information are shown below. Each director who is deemed an
"interested person," as defined in the 1940 Act, is indicated by an asterisk
(*). Each officer and director holds the same position with the 27 registered
open-end management investment companies consisting of 56 mutual funds
("Strong Funds"). The Strong Funds, in the aggregate, pay each Director who
is not a director, officer, or employee of the Advisor, or any affiliated
company (a "disinterested director") an annual fee of $86,000 plus $6,000 per
Board meeting, except for the Chairman of the Independent Directors Committee.
The Chairman of the Independent Directors Committee receives an annual fee of
$94,600 plus $6,600 per Board meeting. In addition, each disinterested
director is reimbursed by the Strong Funds for travel and other expenses
incurred in connection with attendance at such meetings. Other officers and
directors of the Strong Funds receive no compensation or expense reimbursement
from the Strong Funds.
*RICHARD S. STRONG (DOB 5/12/42), Director and Chairman of the Board of the
Strong Funds.
Prior to August 1985, Mr. Strong was Chief Executive Officer of the Advisor,
which he founded in 1974. Since August 1985, Mr. Strong has been a Security
Analyst and Portfolio Manager of the Advisor. In October 1991, Mr. Strong
also became the Chairman of the Advisor. Mr. Strong is a Director of the
Advisor. Mr. Strong has been in the investment management business since
1967.
MARVIN E. NEVINS (DOB 7/9/18), Director of the Strong Funds.
Private Investor. From 1945 to 1980, Mr. Nevins was Chairman of Wisconsin
Centrifugal Inc., a foundry. From 1980 until 1981, Mr. Nevins was the Chairman
of the Wisconsin Association of Manufacturers & Commerce. He has been a
Director of A-Life Medical, Inc., San Diego, CA since 1996 and Surface Systems,
Inc. (a weather information company), St. Louis, MO since 1992. He was also a
regent of the Milwaukee School of Engineering and a member of the Board of
Trustees of the Medical College of Wisconsin and Carroll College.
WILLIE D. DAVIS (DOB 7/24/34), Director of the Strong Funds.
Mr. Davis has been Director of Alliance Bank since 1980, Sara Lee Corporation
(a food/consumer products company) since 1983, KMart Corporation (a discount
consumer products company) since 1985, Dow Chemical Company since 1988, MGM
Grand, Inc. (an entertainment/hotel company) since 1990, WICOR, Inc. (a utility
company) since 1990, Johnson Controls, Inc. (an industrial company) since 1992,
and Checker's Hamburger, Inc. since 1994, and MGM, Inc. (an entertainment
company) since 1998. Mr. Davis has been a trustee of the University of Chicago
since 1980 and Marquette University since 1988. Since
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1977, Mr. Davis has been President and Chief Executive Officer of All Pro
Broadcasting, Inc. Mr. Davis was a Director of the Fireman's Fund (an
insurance company) from 1975 until 1990.
STANLEY KRITZIK (DOB 1/9/30), Director of the Strong Funds.
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.
WILLIAM F. VOGT (DOB 7/19/47), Director and Chairman of the Independent
Directors Committee of the Strong Funds.
Mr. Vogt has been the President of Vogt Management Consulting, Inc. since 1990.
From 1982 until 1990, he served as Executive Director of University Physicians
of the University of Colorado. Mr. Vogt is the Past President of the Medical
Group Management Association and a Fellow of the American College of Medical
Practice Executives.
NEAL MALICKY (DOB 9/14/34), Director of the Strong Funds.
Mr. Malicky has been Chancellor at Baldwin-Wallace College since July 1999.
From 1981 to July 1999, he served as President of Baldwin-Wallace College. He
is a Trustee of Southwest Community Health Systems, Cleveland Scholarship
Program, and The National Conference for Community Justice (NCCJ). He is also
the Past President of the National Association of Schools and Colleges of the
United Methodist Church, the Past Chairperson of the Association of Independent
Colleges and Universities of Ohio, and the Past Secretary of the National
Association of Independent Colleges and Universities.
STEPHEN J. SHENKENBERG (DOB 6/14/58), Vice President and Secretary of the
Strong Funds.
Mr. Shenkenberg has been Deputy General Counsel of the Advisor since November
1996. From December 1992 until November 1996, Mr. Shenkenberg acted as
Associate Counsel to the Advisor. From June 1987 until December 1992, Mr.
Shenkenberg was an attorney for Godfrey & Kahn, S.C., a Milwaukee law firm.
JOHN S. WEITZER (DOB 10/31/67), Vice President of the Strong Funds.
Mr. Weitzer has been Senior Counsel of the Advisor since December 1997. From
July 1993 until December 1997, Mr. Weitzer acted as Associate Counsel to the
Advisor.
THOMAS M. ZOELLER (DOB 2/21/64), Vice President of the Strong Funds.
Mr. Zoeller has been Senior Vice President, Chief Financial Officer, Treasurer
and Controller of the Advisor since February 1998 and a member of the Office of
the Chief Executive since November 1998. From October 1991 to February 1998,
Mr. Zoeller was the Treasurer and Controller of the Advisor, and from August
1991 to October 1991 he was the Controller. From August 1989 to August 1991,
Mr. Zoeller was the Assistant Controller of the Advisor. From September 1986
to August 1989, Mr. Zoeller was a Senior Accountant at Arthur Anderson & Co.
DENNIS A. WALLESTAD (DOB 11/3/62), Vice President of the Strong Funds.
Mr. Wallestad has been Director of Finance and Operations of the Advisor since
February 1999. From April 1997 to February 1999, Mr. Wallestad was the Chief
Financial Officer of The Ziegler Companies, Inc. From November 1996 to April
1997, Mr. Wallestad was the Chief Administrative Officer of Calamos Asset
Management, Inc. From July 1994 to November 1996, Mr. Wallestad was Chief
Financial Officer for Firstar Trust and Investments Group. From September 1991
to June 1994 and from September 1985 to August 1989, Mr. Wallestad was an Audit
Manager for Arthur Andersen & Co., LLP in Milwaukee. Mr. Wallestad completed a
Masters of Accountancy from the University of Oklahoma from September 1989 to
August 1991.
35
<PAGE>
JOHN W. WIDMER (DOB 1/19/65), Treasurer of the Strong Funds.
Mr. Widmer has been Manager of Financial Management and Sales Reporting
Systems since May 1997. From May 1992 to May 1997, Mr. Widmer was an
Accounting and Business Advisory Manager in the Milwaukee office of Arthur
Andersen LLP. From June 1987 to May 1992, Mr. Widmer was an accountant at
Arthur Andersen LLP.
RHONDA K. HAIGHT (DOB 11/13/64), Assistant Treasurer of the Strong Funds.
Ms. Haight has been Manager of the Mutual Fund Accounting Department of the
Advisor since January 1994. From May 1990 to January 1994, Ms. Haight was a
supervisor in the Mutual Fund Accounting Department of the Advisor. From June
1987 to May 1990, Ms. Haight was a Mutual Fund Accountant of the Advisor.
Except for Messrs. Nevins, Davis, Kritzik, Vogt, and Malicky, the address of
all of the above persons is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr.
Nevins' address is 6075 Pelican Bay Boulevard #1006, Naples, Florida 34108.
Mr. Davis' address is 161 North La Brea, Inglewood, California 90301. Mr.
Kritzik's address is 1123 North Astor Street, P.O. Box 92547, Milwaukee,
Wisconsin 53202-0547. Mr. Vogt's address is 2830 East Third Avenue, Denver,
Colorado 80206. Mr. Malicky's address is 518 Bishops Place, Berea, OH 44017.
Unless otherwise noted below, as of January 31, 2000, the officers and
directors of the Fund in the aggregate beneficially owned less than 1% of the
Fund's then outstanding shares. The Advisor Class shares of the Blue Chip
100 Fund were not offered for sale until February 29, 2000. The Advisor and
Institutional Class shares of the Growth and Income Fund were not offered for
sale until February 29, 2000.
<TABLE>
<CAPTION>
<S> <C> <C>
FUND CLASS/SHARES PERCENT
- ---------------------- -------------------------- -------
Growth and Income Fund Investor Class - 2,149,427 5.96%
Equity Income Fund Investor Class - 3,035,823 35.31%
Blue Chip 100 Fund Investor Class - 2,654,105 9.77%
</TABLE>
PRINCIPAL SHAREHOLDERS
Unless otherwise noted below, as of January 31, 2000 no persons owned of
record or are known to own of record or beneficially more than 5% of the
Fund's then outstanding shares. The Advisor Class shares of the Blue Chip 100
Fund were not offered for sale until February 29, 2000. The Advisor and
Institutional Class shares of the Growth and Income Fund were not offered for
sale until February 29, 2000.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AND ADDRESS FUND/ SHARES PERCENT
- ----------------------------- ----------------------------- -------
Emre & Co. Asset Allocation - 1,076,973 7.68%
P.O. Box 1408
Milwaukee, WI 53201-1408
Emre & Co. Growth and Income - 2,974,956 8.24%
P.O. Box 1408
Milwaukee, WI 53201-1408
Charles B. Levinson & Limited Resources - 80,206 12.00%
Sara M. Levinson
14044 W. Rico Dr.
Sun City West, AZ 85375-2801
Michael W. Foster Limited Resources - 59,397 8.89%
5459 N. Santa Monica Blvd.
Whitefish Bay, WI 53217-5126
Emre & Co. Limited Resources - 51,843 7.76%
P.O. Box 1408
Milwaukee, WI 53201-1408
</TABLE>
36
<PAGE>
INVESTMENT ADVISOR
The Fund has entered into an Advisory Agreement with Strong Capital
Management, Inc. ("Advisor"). Mr. Strong controls the Advisor due to his
stock ownership of the Advisor. Mr. Strong is the Chairman and a Director of
the Advisor, Mr. Zoeller is Senior Vice President and Chief Financial Officer
of the Advisor, Mr. Shenkenberg is Vice President, Secretary, and Deputy
General Counsel of the Advisor, Mr. Weitzer is Senior Counsel of the Advisor,
Mr. Widmer is Treasurer and Manager of Financial Management & Sales Reporting
Systems of the Advisor, and Ms. Haight is Assistant Treasurer and Manager of
the Mutual Fund Accounting Department of the Advisor. As of December 31,
1999, the Advisor had over $38 billion under management.
The Advisory Agreement is required to be approved annually by either the Board
of Directors of the Fund or by vote of a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act). In either case, each annual
renewal must be approved by the vote of a majority of the Fund's directors who
are not parties to the Advisory Agreement or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement is terminable, without penalty, on 60 days
written notice by the Board of Directors of the Fund, by vote of a majority of
the Fund's outstanding voting securities, or by the Advisor, and will
terminate automatically in the event of its assignment.
Under the terms of the Advisory Agreement, the Advisor manages the Fund's
investments subject to the supervision of the Fund's Board of Directors. The
Advisor is responsible for investment decisions and supplies investment
research and portfolio management. The Advisory Agreement authorizes the
Advisor to delegate its investment advisory duties to a subadvisor in
accordance with a written agreement under which the subadvisor would furnish
such investment advisory services to the Advisor. In that situation, the
Advisor continues to have responsibility for all investment advisory services
furnished by the subadvisor under the subadvisory agreement. At its expense,
the Advisor provides office space and all necessary office facilities,
equipment and personnel for servicing the investments of the Fund. The
Advisor places all orders for the purchase and sale of the Fund's portfolio
securities at the Fund's expense.
Except for expenses assumed by the Advisor, as set forth above, or by Strong
Investments, Inc. with respect to the distribution of the Fund's shares, the
Fund is responsible for all its other expenses, including, without limitation,
interest charges, taxes, brokerage commissions, and similar expenses; expenses
of issue, sale, repurchase or redemption of shares; expenses of registering or
qualifying shares for sale with the states and the SEC; expenses for printing
and distribution of prospectuses to existing shareholders; charges of
custodians (including fees as custodian for keeping books and similar services
for the Fund), transfer agents (including the printing and mailing of reports
and notices to shareholders), registrars, auditing and legal services, and
clerical services related to recordkeeping and shareholder relations; printing
of stock certificates; fees for directors who are not "interested persons" of
the Advisor; expenses of indemnification; extraordinary expenses; and costs of
shareholder and director meetings.
On January 28, 2000, the Board of Directors of the Fund determined that
certain administrative services provided by the Advisor under the then current
Advisory Agreement should be provided pursuant to a separate administration
agreement, which would more clearly delineate the nature of the administrative
services to be provided and the cost to the Fund associated with those
administrative services. The Board of Directors also approved an amendment to
the Advisory Agreement ("Amended Advisory Agreement") that would remove all
references in the Advisory Agreement regarding the provision of administrative
services and approved the adoption of a separate Administration Agreement with
the Advisor. The specific terms of the new Administration Agreement are
described below. The advisory and administrative services that will be
provided under the Amended Advisory Agreement and the new Administration
Agreement for the then existing class of shares will be, at a minimum, the
same services as those provided under the then current Advisory Agreement for
the then existing class of shares, the quality of those services will remain
the same, and the personnel performing such services will remain the same.
As a result of these arrangements, the annual advisory fee paid by each Fund
has been reduced by 0.25% of the average daily net asset value of the Fund,
effective February 29, 2000. In no event will the fees under the
Administrative Agreement for the Investor Class and Advisor Class shares of
these Funds exceed 0.25% of the average daily net asset value of the Fund. In
no event will the fees under the Administrative Agreement for the Institutional
Class shares of the Fund exceed 0.02% of the average daily net asset value of
the Fund.
37
<PAGE>
The Advisor Class shares of the Blue Chip 100 Fund and the Advisor and
Institutional Class shares of the Growth and Income Fund were not affected by
the new advisory and administrative arrangements because those classes of
shares were first offered for sale on February 29, 2000.
As compensation for its advisory services, the Fund pays to the Advisor a
monthly management fee at the annual rate specified below of the average daily
net asset value of the Fund. From time to time, the Advisor may voluntarily
waive all or a portion of its management fee for the Fund.
<TABLE>
<CAPTION>
<S> <C> <C>
FUND CURRENT ANNUAL RATE
ANNUAL RATE PRIOR TO 2/29/00
- ----------------------- ------------------------------- -------------------------------
American Utilities Fund 0.50% 0.75%
Asset Allocation Fund 0.60% on the first $35 million, 0.85% on the first $35 million;
0.55% thereafter 0.80% thereafter
Blue Chip 100 Fund 0.50% 0.75%
Equity Income Fund 0.55% 0.80%
Growth and Income Fund 0.55% 0.80%
Limited Resources Fund 0.75% 1.00%
Total Return Fund 0.60% on the first $35 million, 0.85% on the first $35 million;
0.55% thereafter 0.80% thereafter
</TABLE>
The Fund paid the following management fees for the time periods indicated:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MANAGEMENT FEE
FISCAL YEAR ENDED MANAGEMENT FEE ($) WAIVER($) AFTER WAIVER ($)
- ----------------- ------------------ --------- ----------------
</TABLE>
American Utilities Fund
<TABLE>
<CAPTION>
<S> <C> <C><C>
10/31/97 973,587 0 973,587
10/31/98 1,414,323 0 1,414,323
10/31/99 1,822,191 0 1,822,191
</TABLE>
Asset Allocation Fund
<TABLE>
<CAPTION>
<S> <C> <C><C>
10/31/97 2,231,400 0 2,231,400
10/31/98 2,329,813 0 2,329,813
10/31/99 2,645,959 0 2,645,959
</TABLE>
Blue Chip 100 Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10/31/97(1) 8,487 2,096 6,391
10/31/98 307,768 281,313 26,455
10/31/99 2,605,272 0 2,605,272
</TABLE>
Equity Income Fund
<TABLE>
<CAPTION>
<S> <C> <C><C>
10/31/97 668,330 0 668,330
10/31/98 1,322,456 0 1,322,456
10/31/99 1,471,763 0 1,471,763
</TABLE>
38
<PAGE>
Growth and Income Fund
<TABLE>
<CAPTION>
<S> <C> <C><C>
10/31/97 1,056,308 0 1,056,308
10/31/98 2,555,813 0 2,555,813
10/31/99 5,169,305 0 5,169,305
</TABLE>
Limited Resources Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10/31/97(2) 2,673 0 2,673
10/31/98 54,363 17,840 36,523
10/31/99 57,185 0 57,185
</TABLE>
Total Return Fund
<TABLE>
<CAPTION>
<S> <C> <C><C>
10/31/97 6,411,932 0 6,411,932
10/31/98 7,026,166 0 7,026,166
10/31/99 8,908,037 0 8,908,037
</TABLE>
(1) Commenced operations on June 30, 1997.
(2) Commenced operations on September 30, 1997.
The organizational expenses for the Fund which were advanced by the Advisor
and which will be reimbursed by the Fund over a period of not more than 60
months from the Fund's date of inception are listed below.
<TABLE>
<CAPTION>
<S> <C>
FUND ORGANIZATIONAL EXPENSES
- ---------------------- -----------------------
Blue Chip 100 Fund $2,027
Equity Income Fund $10,809
Growth and Income Fund $10,142
Limited Resources Fund $6,005
</TABLE>
The Advisory Agreement requires the Advisor to reimburse the Fund in the event
that the expenses and charges payable by the Fund in any fiscal year,
including the management fee but excluding taxes, interest, brokerage
commissions, and similar fees and to the extent permitted extraordinary
expenses, exceed two percent (2%) of the average net asset value of the Fund
for such year, as determined by valuations made as of the close of each
business day of the year. Reimbursement of expenses in excess of the
applicable limitation will be made on a monthly basis and will be paid to the
Fund by reduction of the Advisor's fee, subject to later adjustment, month by
month, for the remainder of the Fund's fiscal year. The Advisor may from time
to time voluntarily absorb expenses for the Fund in addition to the
reimbursement of expenses in excess of applicable limitations.
On July 12, 1994, the SEC filed an administrative action ("Order") against the
Advisor, Mr. Strong, and another employee of the Advisor in connection with
conduct that occurred between 1987 and early 1990. In re Strong/Corneliuson
Capital Management, Inc., et al. Admin. Proc. File No. 3-8411. The proceeding
was settled by consent without admitting or denying the allegations in the
Order. The Order found that the Advisor and Mr. Strong aided and abetted
violations of Section 17(a) of the 1940 Act by effecting trades between mutual
funds, and between mutual funds and Harbour Investments Ltd. ("Harbour"),
without complying with the exemptive provisions of SEC Rule 17a-7 or otherwise
obtaining an exemption. It further found that the Advisor violated, and Mr.
Strong aided and abetted violations of, the disclosure provisions of the 1940
Act and the Investment Advisers Act of 1940 by misrepresenting the Advisor's
policy on personal trading and by failing to disclose trading by Harbour, an
entity in which principals of the Advisor owned between 18 and 25 percent of
the voting stock. As part of the settlement, the respondents agreed to a
censure and a cease and desist order and the Advisor agreed to various
undertakings, including adoption of certain procedures and a limitation for
six months on accepting certain types of new advisory clients.
On June 6, 1996, the Department of Labor ("DOL") filed an action against the
Advisor for equitable relief alleging violations of the Employee Retirement
Income Security Act of 1974 ("ERISA") in connection with cross trades that
occurred between 1987 and late 1989 involving certain pension accounts managed
by the Advisor. Contemporaneous with this filing, the Advisor,
39
<PAGE>
without admitting or denying the DOL's allegations, agreed to the entry of a
consent judgment resolving all matters relating to the allegations. Reich v.
Strong Capital Management, Inc., (U.S.D.C. E.D. WI) ("Consent Judgment").
Under the terms of the Consent Judgment, the Advisor agreed to reimburse the
affected accounts a total of $5.9 million. The settlement did not have any
material impact on the Advisor's financial position or operations.
The Fund and the Advisor have adopted a Code of Ethics ("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 Fund and the Advisor 's
other clients ahead of their own.
The Code requires Access Persons (other than Access Persons who are
independent directors of the investment companies managed by the Advisor,
including the Fund) to, among other things, preclear their securities
transactions (with limited exceptions, such as transactions in shares of
mutual funds, direct obligations of the U.S. government, and certain options
on broad-based securities market indexes) and to execute such transactions
through the Advisor's trading department. The Code, which applies to all
Access Persons (other than Access Persons who are independent directors of the
investment companies managed by the Advisor, including the Fund), includes a
ban on acquiring any securities in an initial public offering, other than a
new offering of a registered open-end investment company, and a prohibition
from profiting on short-term trading in securities. In addition, no Access
Person may purchase or sell any security which is contemporaneously being
purchased or sold, or to the knowledge of the Access Person, is being
considered for purchase or sale, by the Advisor on behalf of any mutual fund
or other account managed by it. Finally, the Code provides for trading "black
out" periods of seven calendar days during which time Access Persons who are
portfolio managers may not trade in securities which have been purchased or
sold by any mutual fund or other account managed by the portfolio manager.
The Advisor provides investment advisory services for multiple clients through
different types of investment accounts (E.G., mutual funds, hedge funds,
separately managed accounts, etc.) who may have similar or different
investment objectives and investment policies (E.G., some accounts may have an
active trading strategy while others follow a "buy and hold" strategy). In
managing these accounts, the Advisor seeks to maximize each account's return,
consistent with the account's investment objectives and investment strategies.
While the Advisor's policies are designed to ensure that over time
similarly-situated clients receive similar treatment, to the maximum extent
possible, because of the range of the Advisor's clients, the Advisor may give
advice and take action with respect to one account that may differ from the
advice given, or the timing or nature of action taken, with respect to another
account (the Advisor, its principals and associates also may take such actions
in their personal securities transactions, to the extent permitted by and
consistent with the Code). For example, the Advisor may use the same
investment style in managing two accounts, but one may have a shorter-term
horizon and accept high-turnover while the other may have a longer-term
investment horizon and desire to minimize turnover. If the Advisor reasonably
believes that a particular security may provide an attractive opportunity due
to short-term volatility but may no longer be attractive on a long-term basis,
the Advisor may cause accounts with a shorter-term investment horizon to buy
the security at the same time it is causing accounts with a longer-term
investment horizon to sell the security. The Advisor takes all reasonable
steps to ensure that investment opportunities are, over time, allocated to
accounts on a fair and equitable basis relative to the other
similarly-situated accounts and that the investment activities of different
accounts do not unfairly disadvantage other accounts.
From time to time, the Advisor votes the shares owned by the Fund according to
its Statement of General Proxy Voting Policy ("Proxy Voting Policy"). The
general principal of the Proxy Voting Policy is to vote any beneficial
interest in an equity security prudently and solely in the best long-term
economic interest of the Fund and its beneficiaries considering all relevant
factors and without undue influence from individuals or groups who may have an
economic interest in the outcome of a proxy vote. Shareholders may obtain a
copy of the Proxy Voting Policy upon request from the Advisor.
The Advisor also provides a program of custom portfolio management called the
Strong Advisor. This program is designed to determine which investment
approach fits an investor's financial needs and then provides the investor
with a custom built portfolio of Strong Funds based on that allocation. The
Advisor, on behalf of participants in the Strong Advisor program, may
determine to invest a portion of the program's assets in any one Strong Fund,
which investment, particularly in the case of a smaller Strong Fund, could
represent a material portion of the Fund's assets. In such cases, a decision
to redeem the Strong Advisor program's investment in a Fund on short notice
could raise a potential conflict of interest for the Advisor, between the
40
<PAGE>
interests of participants in the Strong Advisor program and of the Fund's other
shareholders. In general, the Advisor does not expect to direct the Strong
Advisor program to make redemption requests on short notice. However, should
the Advisor determine this to be necessary, the Advisor will use its best
efforts and act in good faith to balance the potentially competing interests of
participants in the Strong Advisor program and the Fund's other shareholders in
a manner the Advisor deems most appropriate for both parties in light of the
circumstances.
From time to time, the Advisor may make available to third parties current and
historical information about the portfolio holdings of the Advisor's mutual
funds or other clients. Release may be made to entities such as fund ratings
entities, industry trade groups, and financial publications. Generally, the
Advisor will release this type of information only where it is otherwise
publicly available. This information may also be released where the Advisor
reasonably believes that the release will not be to the detriment of the best
interests of its clients.
For more complete information about the Advisor, including its services,
investment strategies, policies, and procedures, please call 800-368-3863 and
ask for a copy of Part II of the Advisor's Form ADV.
INVESTMENT SUBADVISOR
AMERICAN UTILITIES FUND
The Advisor has entered into a Subadvisory Agreement with W.H. Reaves & Co.,
Inc. ("Subadvisor") with respect to the American Utilities Fund. Under the
terms of the Subadvisory Agreement, the Subadvisor furnishes investment
advisory and portfolio management services to the Fund with respect to its
investments. The Subadvisor is responsible for decisions to buy and sell the
Fund's investments and all other transactions related to investments and the
negotiation of brokerage commissions, if any, except that the Advisor is
responsible for managing the cash equivalent investments maintained by the
Fund in the ordinary course of its business and which, on average, are
expected to equal approximately five to seven percent of the Fund's total
assets. Purchases and sales of securities on a securities exchange are
effected through brokers who charge a negotiated commission for their
services. However, because the Subadvisor is a member of the New York Stock
Exchange ("NYSE"), it is anticipated that the Subadvisor will directly effect
purchases and sales of securities on the NYSE and be paid a commission for
such services commensurate with the commissions charged by unaffiliated
brokers in arm's length transactions. (See "Portfolio Transactions and
Brokerage.") During the term of the Subadvisory Agreement, the Subadvisor
will bear all expenses incurred by it in connection with its services under
the Subadvisory Agreement.
The Subadvisory Agreement may be terminated at any time, without payment of
any penalty, by vote of the Board of Directors of the Fund or by a vote of a
majority of the outstanding voting securities of the Fund on 60 days written
notice to the Subadvisor. The Subadvisory Agreement may also be terminated by
the Advisor for breach upon 20 days notice, immediately in the event that the
Subadvisor becomes unable to discharge its duties and obligations, and upon 60
days notice for any reason. The Subadvisory Agreement may be terminated by
the Subadvisor upon 180 days notice for any reason. The Subadvisory Agreement
will terminate automatically in the event of its unauthorized assignment.
The Subadvisory Agreement requires the Advisor, not the Fund, to pay the
Subadvisor a fee, computed and paid monthly, at an annual rate of (i) 0.50% of
the Fund's average daily net asset value on the first $200 million of the
Fund's net assets, (ii) 0.30% of the Fund's average daily net asset value on
the Fund's net assets over $200 million and up to $1.0 billion, (iii) 0.375%
of the Fund's average daily net asset value on the Fund's net assets over $1.0
billion and up to $1.5 billion, and (iv) 0.30% of the Fund's average daily net
asset value on the Fund's net assets over $1.5 billion. The Subadvisor's fee
is reduced by 50% of any payments the Advisor is obligated to make to third
party financial intermediaries for various administrative services such third
party intermediaries provide for the Fund's shareholders who invest through
them.
41
<PAGE>
The Subadvisor received the following subadvisory fees from the Advisor for
the time periods indicated.
<TABLE>
<CAPTION>
<S> <C>
FISCAL YEAR ENDED SUBADVISORY FEE ($)
- ----------------- -------------------
10/31/97 $646,590
10/31/98 $940,175
10/31/99 $1,074,706
</TABLE>
In addition, the Subadvisor has also adopted a Code of Ethics ("Reaves Code")
which is identical to the Code discussed above under "Investment Advisor" in
all but two respects. First, instead of a flat prohibition against profiting
on short-term trading in securities, the Reaves Code gives the Subadvisor's
compliance official the authority to require forfeiture of such profits if
such person believes that the profits were gained at the expense of an
advisory client. Second, the Reaves Code modifies the seven day trading
"black out" period as contained in the Code to prohibit only like transactions
by a portfolio manager (E.G., a purchase by both the Fund and a portfolio
manager of the Fund) within seven calendar days of the establishment of an
initial position or liquidation of a position of the same securities by the
Fund or other account of the Subadvisor managed by that portfolio manager.
LIMITED RESOURCES FUND
The Advisor has entered into a Subadvisory Agreement with Scarborough
Investment Advisers, LLC ("Subadvisor") with respect to the Limited Resources
Fund. Under the terms of the Subadvisory Agreement, the Subadvisor furnishes
investment advisory and portfolio management services to the Fund with respect
to its investments. The Subadvisor is responsible for decisions to buy and
sell the Fund's investments and all other transactions related to investment
and the negotiation of brokerage commissions, if any, except that the Advisor
is responsible for managing the cash equivalent investments maintained by the
Fund in the ordinary course of its business and which, on average, are
expected to equal approximately five percent of the Fund's total assets.
During the term of the Subadvisory Agreement, the Subadvisor will bear all
expenses incurred by it in connection with its services under the Subadvisory
Agreement.
The Subadvisory Agreement may be terminated at any time, without payment of
any penalty, by vote of the Board of Directors of the Fund or by a vote of a
majority of the outstanding voting securities of the Fund on 60 days written
notice to the Subadvisor. The Subadvisory Agreement may also be terminated by
the Advisor for breach upon 20 days notice, immediately in the event that the
Subadvisor becomes unable to discharge its duties and obligations, and upon 60
days notice for any reason. The Subadvisory Agreement may be terminated by
the Subadvisor upon 180 days notice for any reason. The Subadvisory Agreement
will terminate automatically in the event of its unauthorized assignment.
The Subadvisory Agreement requires the Advisor, not the Fund, to pay the
Subadvisor a fee, computed and paid monthly, at an annual rate of (i) 0.50% of
the Fund's average daily net asset value on the first $250 million of the
Fund's net assets, (ii) 0.40% of the Fund's average daily net asset value on
the Fund's net assets over $250 million and up to $1.25 billion, and (iii)
0.35% of the Fund's average daily net asset value on the Fund's net assets
over $1.25 billion.
The Subadvisor received the following subadvisory fees from the Advisor for
the time periods indicated.
<TABLE>
<CAPTION>
<S> <C>
FISCAL YEAR ENDED SUBADVISORY FEE ($)
- ----------------- -------------------
10/31/97* $1,643
10/31/98 $26,683
10/31/99 $28,076
</TABLE>
* Commenced operations on September 30, 1997.
The Subadvisor has adopted a Code of Ethics which is substantially identical
to the Code discussed above under "Investment Advisor."
42
<PAGE>
ADMINISTRATOR
The Fund has entered into a separate administration services agreement with
the Advisor in order to provide administration services to the Fund that
previously were provided under the Advisory Agreement ("Administration
Agreement").
The Fund has adopted a Rule 18f-3 Plan under the 1940 Act ("Multi-Class Plan").
The Multi-Class Plan permits the Fund to have multiple classes of shares. The
Fund has entered into a separate administration agreement with the Advisor for
each of its separate class of shares ("Administration Agreement - Investor
Class," "Administration Agreement - Institutional Class," and "Administration
Agreement - Advisor Class"). The Growth and Income Fund currently offers three
classes of shares: Investor Class shares, Advisor Class shares, and
Institutional Class shares. The Blue Chip 100 Fund currently offers two
classes of shares: Investor Class and Advisor Class shares. The American
Utilities, Asset Allocation, Equity Income, Limited Resources, and Total Return
Funds currently offer only one class of shares: Investor Class shares.
The fees received and the services provided by the Advisor, as administrator,
are in addition to fees received and services provided by the Advisor under
the Amended Advisory Agreement.
ADMINISTRATION AGREEMENT - INVESTOR CLASS
Under the Administration Agreement - Investor Class, the Advisor provides
certain administrative functions for the Investor Class shares of the Fund,
including: (i) authorizing expenditures and approving bills for payment on
behalf of the Fund and the Investor Class shares; (ii) supervising preparation
of the periodic updating of the Fund's registration statements with respect to
the Investor Class shares, including Investor Class prospectuses and
statements of additional information, for the purpose of filings with the SEC
and state securities administrators and monitoring and maintaining the
effectiveness of such filings, as appropriate; (iii) supervising preparation
of shareholder reports, notices of dividends, capital gains distributions and
tax credits for the Fund's Investor Class shareholders, and attending to
routine correspondence and other communications with individual Investor Class
shareholders; (iv) supervising the daily pricing of the Fund's investment
portfolios and the publication of the respective net asset values of the
Investor Class shares of the Fund, earnings reports and other financial data
to the extent required by the Fund's Advisory Agreement prior to the adoption
of this Administration Agreement; (v) monitoring relationships with
organizations providing services to the Fund, with respect to the Investor
Class shares, including the Custodian, DST and printers; (vi) supervising
compliance by the Fund, with respect to the Investor Class Shares, with
recordkeeping requirements under the 1940 Act and regulations thereunder,
maintaining books and records for the Fund (other than those maintained by the
Custodian and the Fund's transfer agent) and preparing and filing of tax
reports other than the Fund's income tax returns; (vii) answering shareholder
inquiries regarding account status and history, the manner in which purchases
and redemptions of the Investor Class shares may be effected, and certain
other matters pertaining to the Investor Class shares; (viii) assisting
shareholders in designating and changing dividend options, account
designations and addresses; (ix) providing necessary personnel and facilities
to coordinate the establishment and maintenance of shareholder accounts and
records with the Fund's transfer agent; (x) transmitting shareholders'
purchase and redemption orders to the Fund's transfer agent; (xi) arranging
for the wiring or other transfer of funds to and from shareholder accounts in
connection with shareholder orders to purchase or redeem Investor Class
shares; (xii) verifying purchase and redemption orders, transfers among and
changes in shareholder-designated accounts; (xiii) informing the distributor
of the gross amount of purchase and redemption orders for Investor Class
shares; and (xiv) providing such other related services as the Fund or a
shareholder may reasonably request, to the extent permitted by applicable law.
For its services for the Investor Class shares of the Fund under the
Administration Agreement - Investor Class, the Advisor receives a monthly fee
from the Fund at the annual rate of 0.25% of the Fund's average daily net
assets attributable to the Investor Class shares.
ADMINISTRATION AGREEMENT - INSTITUTIONAL CLASS
Under the Administration Agreement - Institutional Class, the Advisor provides
certain administrative functions for the Institutional Class shares of the
Fund, including: (i) authorizing expenditures and approving bills for payment
on behalf of the Fund and the Institutional Class shares; (ii) supervising
preparation of the periodic updating of the Fund's registration statements
with respect to the Institutional Class shares, including Institutional Class
prospectuses and statements of additional information, for the purpose of
filings with the SEC and state securities administrators and monitoring and
maintaining the effectiveness of such filings, as appropriate; (iii)
supervising preparation of shareholder reports, notices of dividends, capital
43
<PAGE>
gains distributions and tax credits for the Fund's Institutional Class
shareholders, and attending to routine correspondence and other communications
with individual shareholders; (iv) supervising the daily pricing of the Fund's
investment portfolios and the publication of the respective net asset values of
the Institutional Class shares of the Fund, earnings reports and other
financial data to the extent required by the Fund's Advisory Agreement prior to
the adoption of this Administration Agreement; (v) monitoring relationships
with organizations providing services to the Fund, with respect to the
Institutional Class shares, including the Custodian, DST and printers; (vi)
supervising compliance by the Fund, with respect to the Institutional Class
shares, with recordkeeping requirements under the 1940 Act and regulations
thereunder, maintaining books and records for the Fund (other than those
maintained by the Custodian and the Fund's transfer agent) and preparing and
filing of tax reports other than the Fund's income tax returns; (vii)
transmitting shareholders' purchase and redemption orders to the Fund's
transfer agent; (viii) arranging for the wiring or other transfer of funds to
and from shareholder accounts in connection with shareholder orders to purchase
or redeem Institutional Class shares; (ix) verifying purchase and redemption
orders, transfers among and changes in shareholder-designated accounts;
(x) informing the distributor of the gross amount of purchase and redemption
orders for Institutional Class shares; and (xi) providing such other related
services as the Fund or a shareholder may reasonably request, to the extent
permitted by applicable law. For its services for the Institutional Class
shares of the Fund under the Administration Agreement - Institutional Class,
the Advisor receives a monthly fee from the Fund at the annual rate of 0.02% of
the Fund's average daily net assets attributable to the Institutional Class
shares.
ADMINISTRATION AGREEMENT - ADVISOR CLASS
Under the Administration Agreement - Advisor Class, the Advisor provides
certain administrative functions for the Advisor Class shares of the Fund,
including: (i) authorizing expenditures and approving bills for payment on
behalf of the Fund and the Advisor Class shares; (ii) supervising preparation
of the periodic updating of the Fund's registration statements with respect to
the Advisor Class shares, including Advisor Class prospectuses and statements
of additional information, for the purpose of filings with the SEC and state
securities administrators and monitoring and maintaining the effectiveness of
such filings, as appropriate; (iii) supervising preparation of shareholder
reports, notices of dividends, capital gains distributions and tax credits for
the Fund's Advisor Class shareholders, and attending to routine correspondence
and other communications with individual shareholders; (iv) supervising the
daily pricing of the Fund's investment portfolios and the publication of the
respective net asset values of the Advisor Class shares of the Fund, earnings
reports and other financial data to the extent required by the Fund's Advisory
Agreement prior to the adoption of this Administration Agreement; (v)
monitoring relationships with organizations providing services to the Fund,
with respect to the Advisor Class shares, including the Custodian, DST and
printers; (vi) supervising compliance by the Fund, with respect to the Advisor
Class shares, with recordkeeping requirements under the 1940 Act and
regulations thereunder, maintaining books and records for the Fund (other than
those maintained by the Custodian and the Fund's transfer agent) and preparing
and filing of tax reports other than the Fund's income tax returns; (vii)
providing necessary personnel and facilities to coordinate the establishment
and maintenance of shareholder accounts and records with the Fund's transfer
agent; (viii) transmitting shareholders' purchase and redemption orders to the
Fund's transfer agent; (ix) arranging for the wiring or other transfer of
funds to and from shareholder accounts in connection with shareholder orders
to purchase or redeem Advisor Class shares; (x) verifying purchase and
redemption orders, transfers among and changes in shareholder-designated
accounts; (xi) informing the distributor of the gross amount of purchase and
redemption orders for Advisor Class shares; and (xii) providing such other
related services as the Fund or a shareholder may reasonably request, to the
extent permitted by applicable law. For its services for the Advisor Class
shares of the Fund under the Administration Agreement - Advisor Class, the
Advisor receives a monthly fee from the Fund at the annual rate of 0.25% of
the Fund's average daily net assets attributable to the Advisor Class shares.
DISTRIBUTOR
Under a Distribution Agreement with the Fund ("Distribution Agreement"),
Strong Investments, Inc. ("Distributor"), P.O. Box 2936, Milwaukee, Wisconsin,
53201, acts as underwriter of the Fund's shares. Mr. Strong is the Chairman
and Director of the Distributor, and Mr. Shenkenberg is Vice President, Chief
Compliance Officer and Secretary of the Distributor. The Distribution
Agreement provides that the Distributor will use its best efforts to
distribute the Fund's shares. The Distribution Agreement further provides
that the Distributor will bear the additional costs of printing prospectuses
and shareholder reports which are used for selling purposes, as well as
advertising and any other costs attributable to the distribution of the Fund's
shares. The Distributor is a direct subsidiary of the Advisor and controlled
by the Advisor and Richard S. Strong. The Distribution Agreement is subject
to the same termination and renewal provisions as are described above with
respect to the Advisory Agreement.
44
<PAGE>
The Investor Class shares of the fund and the Institutional Class shares of
the Growth and Income Fund are offered on a "no-load" basis, which means that
no sales commissions are charged on the purchases of those shares.
The Advisor Class shares of the Blue Chip 100 and Growth and Income Funds are
offered at net asset value plus an initial sales charge. The "offering price"
is the initial sales charge plus the net asset value. The Distributor may pay
up to 100% of the applicable initial sales charges due upon the purchase of
the Advisor Class shares to the brokers, if any, involved in the transaction.
As compensation for its services under the Distribution Agreement the
Distributor may retain all or a portion of the initial sales charge from
purchases of Advisor Class shares of the Blue Chip 100 and Growth and Income
Funds. See Appendix C for more information on Advisor class shares, including
sales charge breakpoints and waivers.
Pursuant to a distribution plan adopted on behalf of the Advisor Class shares
of the Blue Chip 100 and Growth and Income Funds in accordance to Rule 12b-1
("Rule 12b-1 Plan") under the 1940 Act, the Distribution Agreement for the
Advisor Class shares of these Funds authorizes the Fund to bear the costs of
preparing and mailing prospectuses and shareholder reports that are used for
selling purposes as well as advertising and other costs attributable to the
distribution of those shares. Under the Distribution Agreement for the
Advisor Class shares of the Fund, payments to the Distributor under the Rule
12b-1 Plan are limited to payment at an annual rate equal of 0.25% of average
daily net assets attributable to Advisor Class shares.
From time to time, the Distributor may hold in-house sales incentive programs
for its associated persons under which these persons may receive non-cash
compensation awards in connection with the sale and distribution of the Fund's
shares. These awards may include items such as, but not limited to, gifts,
merchandise, gift certificates, and payment of travel expenses, meals, and
lodging. As required by the National Association of Securities Dealers, Inc.
("NASD"), any in-house sales incentive program will be multi-product oriented,
I.E., any incentive will be based on an associated person's gross production
of all securities and will not be based on the sales of shares of any
specifically designated mutual fund.
THE FOLLOWING SECTION APPLIES TO THE ADVISOR CLASS SHARES OF THE BLUE CHIP 100
AND GROWTH AND INCOME FUNDS ONLY.
DISTRIBUTION PLAN
The Fund has adopted a Rule 12b-1 Plan pursuant to Rule 12b-1 under the 1940
Act, on behalf of the Advisor Class shares of the Fund. The Rule 12b-1 Plan
authorizes the Fund, with respect to its Advisor Class shares, to make
payments to the Distributor in connection with the distribution of its Advisor
Class shares at an annual rate of up to 1.00% of the Fund's average daily net
assets attributable to its Advisor Class shares. However, under the
Distribution Agreement for the Advisor Class shares of the Fund, payments to
the Distributor under the Rule 12b-1 Plan are limited to payment at an annual
rate equal of 0.25% of average daily net assets attributable to Advisor Class
shares. Amounts received by the Distributor under the Distribution Agreement
for the Advisor Class shares of the Fund may be spent by the Distributor for
any activities or expenses primarily intended to result in the sale of Advisor
Class shares or the servicing of shareholders, including, but not limited to:
compensation to and expenses, including overhead and telephone expenses, of
employees of the Distributor who engage in or support the distribution of
Advisor Class shares; printing and distribution of prospectuses, statements of
additional information and any supplements thereto, and shareholder reports to
persons other than existing shareholders; preparation, printing and
distribution of sales literature and advertising materials; holding seminars
and sales meetings with wholesale and retail sales personnel, which are
designed to promote the distribution of Advisor Class shares; and compensation
of broker-dealers. The Distributor may determine the services to be provided
by the broker-dealer to shareholders in connection with the sale of Advisor
Class shares. All or any portion of the compensation paid to the Distributor
may be reallocated by the Distributor to broker-dealers who sell Advisor Class
shares.
The Rule 12b-1 Plan is known as a "compensation" plan because payments under
the Rule 12b-1 Plan are made for services rendered to the Fund with respect to
its Advisor Class shares regardless of the level of expenditures by the
Distributor. The Board of Directors of the Fund, however, will take into
account any expenditures made by the Distributor for purposes of both their
quarterly review of the operation of the Rule 12b-1 Plan and in connection
with their annual consideration of the Rule 12b-1 Plan's renewal.
The Rule 12b-1 Plan will continue in effect from year to year, provided that
such continuance is approved annually by a vote of the Board of Directors of
the Fund, and a majority of the Directors of the Fund who are not interested
persons (as defined in the
45
<PAGE>
1940 Act) of the Fund and have no direct or indirect financial interest in the
operation of the Rule 12b-1 Plan or any agreements related to the Rule 12b-1
Plan ("Rule 12b-1 Independent Directors"), cast in person at a meeting called
for the purpose of voting on the Rule 12 b-1 Plan. The Rule 12b-1 Plan may not
be amended to increase materially the amount to be spent for the services
described in the Rule 12b-1 Plan without the approval of the Advisor Class
shareholders of the Fund, and all material amendments to the Rule 12b-1 Plan
must also be approved by the Directors in the manner described above. The Rule
12b-1 Plan may be terminated at any time, without payment of a penalty, by a
vote of a majority of the Rule 12b-1 Independent Directors, or by a vote of a
majority of the outstanding voting securities of the Fund (as defined in the
1940 Act) on not more than 60 days' written notice to any other party to the
Rule 12b-1 Plan. The Board of Directors of the Fund and the Rule 12b-1
Independent Directors have determined that, in their judgment, there is a
reasonable likelihood that the Rule 12b-1 Plan will benefit the Fund and its
Advisor Class shareholders. Under the Rule 12b-1 Plan, the Distributor will
provide the Board of Directors of the Fund and the Directors will review, at
least quarterly, a written report of the amounts expended under the Rule 12b-1
Plan and the purposes for which such expenditures were made. As part of their
quarterly review of the Rule 12b-1 Plan, the Directors will consider the
continued appropriateness of the Rule 12b-1 Plan and the level of compensation
provided thereunder.
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. Reference in
this section to the Advisor also refer to the Subadvisor unless indicated
otherwise. It is the policy of the Advisor, to seek the best execution at the
best security price available with respect to each transaction, in light of
the overall quality of brokerage and research services provided to the
Advisor, or the Fund. In OTC transactions, orders are placed directly with a
principal market maker unless it is believed that a better price and execution
can be obtained using a broker. The best price to the Fund means the best net
price without regard to the mix between purchase or sale price and
commissions, if any. In selecting broker-dealers and in negotiating
commissions, the Advisor considers a variety of factors, including best price
and execution, the full range of brokerage services provided by the broker, as
well as its capital strength and stability, and the quality of the research
and research services provided by the broker. Brokerage will not be allocated
based on the sale of any shares of the Strong Funds.
The Advisor has adopted procedures that provide generally for the Advisor to
seek to bunch orders for the purchase or sale of the same security for the
Fund, other mutual funds managed by the Advisor, and other advisory clients
(collectively, "client accounts"). The Advisor will bunch orders when it
deems it to be appropriate and in the best interest of the client accounts.
When a bunched order is filled in its entirety, each participating client
account will participate at the average share price for the bunched order on
the same business day, and transaction costs shall be shared pro rata based on
each client's participation in the bunched order. When a bunched order is
only partially filled, the securities purchased will be allocated on a pro
rata basis to each client account participating in the bunched order based
upon the initial amount requested for the account, subject to certain
exceptions, and each participating account will participate at the average
share price for the bunched order on the same business day.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)") permits
an investment advisor, under certain circumstances, to cause an account to pay
a broker or dealer a commission for effecting a transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
the transaction in recognition of the value of the brokerage and research
services provided by the broker or dealer. Brokerage and research services
include (1) furnishing advice as to the value of securities, the advisability
of investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; (2) furnishing analyses and
reports concerning issuers, industries, securities, economic factors and
trends, portfolio strategy, and the performance of accounts; and (3) effecting
securities transactions and performing functions incidental thereto (such as
clearance, settlement, and custody).
In carrying out the provisions of the Advisory Agreement, the Advisor may
cause the Fund to pay a broker, 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 (1) the Advisor
determines in good faith that the amount is reasonable in relation to the
services in terms of the particular transaction or in terms of the Advisor's
overall responsibilities with respect to the accounts as to which it exercises
investment discretion; (2) such payment is made in compliance with the
provisions of
46
<PAGE>
Section 28(e), other applicable state and federal laws, and the Advisory
Agreement; and (3) in the opinion of the Advisor, the total commissions paid by
the Fund will be reasonable in relation to the benefits to the Fund over the
long term. The investment management fee paid by the Fund under the Advisory
Agreement is not reduced as a result of the Advisor's receipt of research
services. To request a copy of the Advisor's Soft Dollar Practices, please
call 800-368-3863.
The Advisor may engage in "step-out" and "give-up" brokerage transactions
subject to best price and execution. In a step-out or give-up trade, an
investment advisor directs trades to a broker-dealer who executes the
transactions while a second broker-dealer clears and settles part or all of the
transaction. The first broker-dealer then shares part of its commission with
the second broker-dealer. The Advisor engages in step-out and give-up
transactions primarily (1) to satisfy directed brokerage arrangements of
certain of its client accounts and/or (2) to pay commissions to broker-dealers
that supply research or analytical services.
Generally, research services provided by brokers may include information on
the economy, industries, groups of securities, individual companies,
statistical information, accounting and tax law interpretations, political
developments, legal developments affecting portfolio securities, technical
market action, pricing and appraisal services, credit analysis, risk
measurement analysis, performance analysis, and analysis of corporate
responsibility issues. Such research services are received primarily in the
form of written reports, telephone contacts, and personal meetings with
security analysts. In addition, such research services may be provided in the
form of access to various computer-generated data, computer hardware and
software, and meetings arranged with corporate and industry spokespersons,
economists, academicians, and government representatives. In some cases,
research services are generated by third parties but are provided to the
Advisor by or through brokers. Such brokers may pay for all or a portion of
computer hardware and software costs relating to the pricing of securities.
Where the Advisor itself receives both administrative benefits and research
and brokerage services from the services provided by brokers, it makes a good
faith allocation between the administrative benefits and the research and
brokerage services, and will pay for any administrative benefits with cash.
In making good faith allocations between administrative benefits and research
and brokerage services, a conflict of interest may exist by reason of the
Advisor's allocation of the costs of such benefits and services between those
that primarily benefit the Advisor and those that primarily benefit the Fund
and other advisory clients.
From time to time, the Advisor may purchase new issues of securities for the
Fund in a fixed income price offering. In these situations, the seller may be
a member of the selling group that will, in addition to selling the securities
to the Fund and other advisory clients, provide the Advisor with research. The
NASD has adopted rules expressly permitting these types of arrangements under
certain circumstances. Generally, the seller will provide research "credits"
in these situations at a rate that is higher than that which is available for
typical secondary market transactions. These arrangements may not fall within
the safe harbor of Section 28(e).
At least annually, the Advisor considers the amount and nature of research and
research services provided by brokers, as well as the extent to which such
services are relied upon, and attempts to allocate a portion of the brokerage
business of the Fund and other advisory clients on the basis of that
consideration. In addition, brokers may suggest a level of business they would
like to receive in order to continue to provide such services. The actual
brokerage business received by a broker may be more or less than the suggested
allocations, depending upon the Advisor's evaluation of all applicable
considerations.
The Advisor has informal arrangements with various brokers whereby, in
consideration for providing research services and subject to Section 28(e),
the Advisor allocates brokerage to those firms, provided that the value of any
research and brokerage services was reasonable in relationship to the amount
of commission paid and was subject to best execution. In no case will the
Advisor make binding commitments as to the level of brokerage commissions it
will allocate to a broker, nor will it commit to pay cash if any informal
targets are not met. The Advisor anticipates it will continue to enter into
such brokerage arrangements.
The Advisor may direct the purchase of securities on behalf of the Fund and
other advisory clients in secondary market transactions, in public offerings
directly from an underwriter, or in privately negotiated transactions with an
issuer. When the Advisor believes the circumstances so warrant, securities
purchased in public offerings may be resold shortly after acquisition in the
immediate aftermarket for the security in order to take advantage of price
appreciation from the public offering price or
47
<PAGE>
for other reasons. Short-term trading of securities acquired in public
offerings, or otherwise, may result in higher portfolio turnover and associated
brokerage expenses.
With respect to the Fund's foreign equity investing, the Advisor is
responsible for selecting brokers in connection with foreign securities
transactions. The fixed commissions paid in connection with most foreign
stock transactions are usually higher than negotiated commissions on U.S.
stock transactions. Foreign stock exchanges and brokers are subject to less
government supervision and regulation as compared with the U.S. exchanges and
brokers. In addition, foreign security settlements may in some instances be
subject to delays and related administrative uncertainties.
The Advisor places portfolio transactions for other advisory accounts,
including other mutual funds managed by the Advisor. Research services
furnished by firms through which the Fund effects its securities transactions
may be used by the Advisor in servicing all of its accounts; not all of such
services may be used by the Advisor in connection with the Fund. In the
opinion of the Advisor, it is not possible to measure separately the benefits
from research services to each of the accounts managed by the Advisor. Because
the volume and nature of the trading activities of the accounts are not
uniform, the amount of commissions in excess of those charged by another
broker paid by each account for brokerage and research services will vary.
However, in the opinion of the Advisor, such costs to the Fund will not be
disproportionate to the benefits received by the Fund on a continuing basis.
The Advisor seeks to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities by the Fund and
another advisory account. In some cases, this procedure could have an adverse
effect on the price or the amount of securities available to the Fund. In
making such allocations between the Fund and other advisory accounts, the main
factors considered by the Advisor are the respective investment objectives,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held, and the opinions of the persons responsible for recommending
the investment.
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. To the extent the Fund participates in deals in the initial
public offering market ("IPOs") and during the period that the Fund has a small
asset base, a significant portion of the Fund's returns may be attributable to
its IPO investments. As the Fund's assets grow, any impact of IPO investments
on the Fund's total return may decline and the Fund may not continue to
experience substantially similar performance.
The Advisor has adopted deal allocation procedures ("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 and nature 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 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 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.
48
<PAGE>
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.
Transactions in futures contracts are executed through futures commission
merchants ("FCMs"). The Fund's procedures in selecting FCMs to execute the
Fund's transactions in futures contracts are similar to those in effect with
respect to brokerage transactions in securities.
The Fund paid the following brokerage commissions for the time periods
indicated:
<TABLE>
<CAPTION>
<S> <C>
FISCAL YEAR ENDED BROKERAGE COMMISSIONS ($)
- ------------------ -------------------------
</TABLE>
American Utilities Fund
<TABLE>
<CAPTION>
<S> <C>
10/31/97 244,297
10/31/98 410,867
10/31/99 488,513
</TABLE>
Asset Allocation Fund
<TABLE>
<CAPTION>
<S> <C>
10/31/97 1,169,279
10/31/98 530,274
10/31/99 170,667
</TABLE>
Blue Chip 100 Fund
<TABLE>
<CAPTION>
<S> <C>
10/31/97(1) 2,040
10/31/98 29,075
10/31/99 416,604
</TABLE>
Equity Income Fund
<TABLE>
<CAPTION>
<S> <C>
10/31/97 379,137
10/31/98 348,507
10/31/99 181,737
</TABLE>
Growth and Income Fund
<TABLE>
<CAPTION>
<S> <C>
10/31/97 871,596
10/31/98 904,787
10/31/99 963,568
</TABLE>
Limited Resources Fund
<TABLE>
<CAPTION>
<S> <C>
10/31/97(2) 8,574
10/31/98 15,465
10/31/99 16,957
</TABLE>
49
<PAGE>
Total Return Fund
<TABLE>
<CAPTION>
<S> <C>
10/31/97 5,878,054
10/31/98 4,619,664
10/31/99 7,674,568
</TABLE>
(1) Commenced operations on June 30, 1997.
(2) Commenced operations on September 30, 1997.
With respect to the American Utilities Fund only, because Reaves is a member
of the NYSE, it expects to act as a broker for transactions in the Fund's
securities. In order for Reaves to effect any portfolio transactions for the
Fund on an exchange, the commissions, fees or other remuneration received by
Reaves must be reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers in connection with comparable transactions
involving similar securities being purchased or sold on an exchange during a
comparable period of time. This standard allows Reaves to receive no more
than the remuneration which would be expected to be received by an
unaffiliated broker in a commensurate arm's-length transaction. For the
periods indicated in the brokerage commission table above, the Fund paid
Reaves the full amount of the brokerage commissions indicated in the table.
The payments made to Reaves during the indicated time periods represented 100%
of the Fund's aggregate brokerage commissions.
<TABLE>
<CAPTION>
<S> <C>
FISCAL YEAR ENDED BROKERAGE COMMISSIONS PAID TO REAVES($)
- ------------------ ---------------------------------------
10/31/97 244,297
10/31/98 410,867
10/31/99 488,513
</TABLE>
Unless otherwise noted below, the Fund has not acquired securities of its
regular brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or
their parents.
<TABLE>
<CAPTION>
<S> <C>
REGULAR BROKER OR DEALER (OR PARENT) ISSUER VALUE OF SECURITIES OWNED AS OF OCTOBER 31, 1999
- ------------------------------------------- ------------------------------------------------
Morgan Stanley, Dean Witter & Co. $574,000 (Asset Allocation)
Morgan Stanley, Dean Witter & Co. $1,875,000 (Blue Chip 100)
Goldman, Sachs, & Co. $937,000 (Blue Chip 100)
Merrill Lynch & Co., Inc. $864,000 (Blue Chip 100)
Morgan Stanley, Dean Witter & Co. $496,000 (Equity Income)
Morgan Stanley, Dean Witter & Co. $7,115,000 (Growth and Income)
Goldman, Sachs, & Co. $8,165,000 (Total Return)
Morgan Stanley, Dean Witter & Co. $6,067,000 (Total Return)
</TABLE>
For the fiscal year ended October 31, 1999 and October 31, 1998, the Total
Return Fund's portfolio turnover rate was 402.3% and 267.8%, respectively.
This portfolio turnover rate was higher than anticipated primarily because the
Fund repositioned its portfolio in light of its investment objective, policies,
and the then prevailing market environment.
CUSTODIAN
As custodian of the Fund's assets, Firstar Bank Milwaukee, N.A., P.O. Box 761,
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.
50
<PAGE>
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
The Advisor, P.O. Box 2936, Milwaukee, Wisconsin, 53201, acts as transfer
agent and dividend-disbursing agent for the Fund. The Advisor is compensated
as follows:
<TABLE>
<CAPTION>
<S> <C>
FUND TYPE/SHARE CLASS FEE*
- ------------------------------------ ------------------------------------------------------------------------------
Money Funds and Investor Class $32.50 annual open account fee, $4.20 annual closed account fee.
shares of Money Funds
- ------------------------------------ ------------------------------------------------------------------------------
Advisor Class shares of Money 0.20% of the average daily net asset value of all Advisor Class shares.
Funds(1)
- ------------------------------------ ------------------------------------------------------------------------------
Institutional class shares of Money 0.015% of the average daily net asset value of all Institutional Class shares.
Funds
- ------------------------------------ ------------------------------------------------------------------------------
Income Funds and Investor Class $31.50 annual open account fee, $4.20 annual closed account fee.
shares of Income Funds
- ------------------------------------ ------------------------------------------------------------------------------
Advisor Class shares of Income 0.20% of the average daily net asset value of all Advisor Class shares.
Funds
- ------------------------------------ ------------------------------------------------------------------------------
Institutional Class shares of Income 0.015% of the average daily net asset value of all Institutional Class shares.
Funds
- ------------------------------------ ------------------------------------------------------------------------------
Equity Funds and Investor Class $21.75 annual open account fee, $4.20 annual closed account fee.
shares of Equity Funds
- ------------------------------------ ------------------------------------------------------------------------------
Advisor Class shares of Equity Funds 0.20% of the average daily net asset value of all Advisor Class shares.
- ------------------------------------ ------------------------------------------------------------------------------
Institutional Class shares of Equity 0.015% of the average daily net asset value of all Institutional Class shares.
Funds
- ------------------------------------ ------------------------------------------------------------------------------
</TABLE>
* Plus out-of-pocket expenses, such as postage and printing expenses in
connection with shareholder communications.
(1) Excluding the Strong Heritage Money Fund. The fee for the Heritage
Money Fund is 0.015% of the average daily net asset value of all Advisor Class
shares.
The fees received and the services provided as transfer agent and dividend
disbursing agent are in addition to those received and provided by the Advisor
under the Administration Agreements. The fees and services provided as
transfer agent and dividend disbursing agent are in addition to those received
and provided by the Advisor under the Advisory Agreements.
From time to time, the Fund, directly or indirectly through arrangements with
the Advisor, and/or the Advisor may pay amounts to third parties that provide
transfer agent type services and other administrative services relating to the
Fund to persons who beneficially own interests in the Fund, such as
participants in 401(k) plans. These services may include, among other things,
sub-accounting services, transfer agent type activities, answering inquiries
relating to the Fund, transmitting proxy statements, annual reports, updated
prospectuses, other communications regarding the Fund, and related services as
the Fund or beneficial owners may reasonably request. In such cases, the Fund
will not pay fees based on the number of beneficial owners at a rate that is
greater than the rate the Fund is currently paying the Advisor for providing
these services to Fund shareholders.
The Fund paid the following amounts for the time periods indicated for
transfer agency and dividend disbursing and printing and mailing services:
51
<PAGE>
NOTE - THE FOLLOWING TABLE DOES NOT CONTAIN INFORMATION ON THE ADVISOR CLASS
SHARES OF THE BLUE CHIP 100 FUND OR THE ADVISOR OR INSTITUTIONAL CLASS SHARES
OF THE GROWTH AND INCOME FUND SINCE THEY WERE NOT OFFERED UNTIL FEBRUARY 29,
2000.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
OUT-OF-POCKET PRINTING/MAILING TOTAL COST AFTER
FUND FEE ($) EXPENSES ($) SERVICES ($) WAIVER ($) WAIVER ($)
- ---- ------- ------------- ---------------- ---------- ----------------
</TABLE>
American Utilities Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C><C>
10/31/97 326,398 20,559 4,109 0 351,066
10/31/98 361,440 27,101 2,816 0 391,357
10/31/99 465,020 42,604 2,796 0 570,420
</TABLE>
Asset Allocation Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C><C>
10/31/97 581,766 48,301 9,704 0 639,771
10/31/98 549,162 42,169 5,796 0 597,127
10/31/99 603,750 57,314 4,175 0 665,239
</TABLE>
Blue Chip 100 Fund - Investor Class
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
10/31/97(1) 4,859 840 160 1,794 4,065
10/31/98 89,060 14,039 1,230 52,540 51,789
10/31/99 909,100 128,550 6,062 0 1,043,712
</TABLE>
Equity Income Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C><C>
10/31/97 157,147 18,849 1,992 0 177,988
10/31/98 312,136 30,813 3,153 0 346,102
10/31/99 356,916 41,489 2,223 0 400,628
</TABLE>
Growth and Income Fund - Investor Class
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C><C>
10/31/97 306,928 40,868 4,989 0 352,785
10/31/98 725,914 79,134 9,198 0 814,246
10/31/99 1,510,500 171,490 10,404 0 1,692,394
</TABLE>
Limited Resources Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
10/31/97(2) 638 0 0 0 638
10/31//98 8,916 2,962 98 0 11,976
10/31/99 14,488 2,337 96 128 16,793
</TABLE>
Total Return Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C><C>
10/31/97 1,558,512 126,550 17,860 0 1,702,922
10/31/98 1,538,340 121,224 33,226 0 1,692,790
10/31/99 1,577,271 163,265 10,693 0 1,751,229
</TABLE>
(1) Commenced operations on June 30, 1997.
(2) Commenced operations on September 30, 1997.
52
<PAGE>
TAXES
GENERAL
The Fund intends to qualify annually for treatment as a regulated investment
company ("RIC") under Subchapter M of the IRC. If so qualified, the Fund will
not be liable for federal income tax on earnings and gains distributed to its
shareholders in a timely manner. This qualification does not involve
government supervision of the Fund's management practices or policies. The
following federal tax discussion is intended to provide you with an overview
of the impact of federal income tax provisions on the Fund or its
shareholders. These tax provisions are subject to change by legislative or
administrative action at the federal, state, or local level, and any changes
may be applied retroactively. Any such action that limits or restricts the
Fund's current ability to pass-through earnings without taxation at the Fund
level, or otherwise materially changes the Fund's tax treatment, could
adversely affect the value of a shareholder's investment in the Fund. Because
the Fund's taxes are a complex matter, you should consult your tax adviser for
more detailed information concerning the taxation of the Fund and the federal,
state, and local tax consequences to shareholders of an investment in the
Fund.
In order to qualify for treatment as a RIC under the IRC, the Fund must
distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of taxable net
investment income, net short-term capital gain, and net gains from certain
foreign currency transactions, if applicable) ("Distribution Requirement") and
must meet several additional requirements. These requirements include the
following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of securities (or foreign
currencies if applicable) or other income (including gains from options,
futures, or forward contracts) derived with respect to its business of
investing in securities ("Income Requirement"); (2) at the close of each
quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. government securities,
securities of other RICs, and other securities, with these other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities; and (3) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its
total assets may be invested in securities (other than U.S. government
securities or the securities of other RICs) of any one issuer. From time to
time the Advisor may find it necessary to make certain types of investments
for the purpose of ensuring that the Fund continues to qualify for treatment
as a RIC under the IRC.
If Fund shares are sold at a loss after being held for 12 months or less, the
loss will be treated as short-term, instead of long-term, capital loss to the
extent of any capital gain distributions received on those shares.
The Fund's distributions are taxable in the year they are paid, whether they
are taken in cash or reinvested in additional shares, except that certain
distributions declared in the last three months of the year and paid in
January are taxable as if paid on December 31.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts. The Fund may make additional distributions if necessary to
avoid imposition of a 4% excise tax on undistributed income and gains.
PASS-THROUGH INCOME TAX EXEMPTION
Most state laws provide a pass-through to mutual fund shareholders of the
state and local income tax exemption afforded owners of direct U.S. government
obligations. You will be notified annually of the percentage of a Fund's
income that is derived from U.S. government securities.
FOREIGN TRANSACTIONS
Dividends and interest 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 U.S may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
53
<PAGE>
respect of investments by foreign investors. If more than 50% of the value of
the Fund's total assets at the close of its taxable year consists of securities
of foreign corporations, it will be eligible to, and may, file an election with
the Internal Revenue Service that would enable its shareholders, in effect, to
receive the benefit of the foreign tax credit with respect to any foreign and
U.S. possessions income taxes paid by it. The Fund would treat those taxes as
dividends paid to its shareholders and each shareholder would be required to
(1) include in gross income, and treat as paid by the shareholder, the
shareholder's proportionate share of those taxes, (2) treat the shareholder's
share of those taxes and of any dividend paid by the Fund that represents
income from foreign or U.S. possessions sources as the shareholder's own income
from those sources, and (3) either deduct the taxes deemed paid by the
shareholder in computing the shareholder's taxable income or, alternatively,
use the foregoing information in calculating the foreign tax credit against the
shareholder's federal income tax. The Fund will report to its shareholders
shortly after each taxable year their respective shares of its income from
sources within, and taxes paid to, foreign countries and U.S. possessions if it
makes this election.
The Fund holding foreign securities in its investment portfolio 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).
The Fund may invest in the stock of "passive foreign investment companies"
("PFICs") in accordance with its investment objective, policies and
restrictions. 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 as a taxable dividend 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 and
avoid imposition of the Excise Tax -- 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, if
applicable, involves complex rules that will determine for income tax purposes
the character and timing of recognition of the gains and losses the Fund
realizes in connection therewith. Gains from the disposition of foreign
currencies, if any (except certain gains therefrom that may be excluded by
future regulations), and income from transactions in options, futures, and
forward currency contracts, if applicable, derived by the Fund with respect to
its business of investing in securities or foreign currencies, if applicable,
will qualify as permissible income under the Income Requirement.
For federal income tax purposes, the Fund is required to recognize as income
for each taxable year its net unrealized gains and losses on options, futures,
or forward currency contracts, if any, that are subject to section 1256 of the
IRC ("Section 1256 Contracts") and are held by the Fund as of the end of the
year, as well as gains and losses on Section 1256 Contracts actually realized
during the year. Except for Section 1256 Contracts that are part of a "mixed
straddle" and with respect to which the Fund makes a certain election, any
gain or loss recognized with respect to Section 1256 Contracts is considered
to be 60% long-term capital gain or loss and 40% short-term capital gain or
loss, without regard to the holding period of the Section 1256 Contract.
54
<PAGE>
ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES
The Fund may acquire zero-coupon, step-coupon, or other securities issued with
original issue discount. As a holder of those securities, the Fund must
include in its income the original issue discount that accrues on the
securities during the taxable year, even if the Fund receives no corresponding
payment on the securities during the year. Similarly, the Fund must include
in its income securities it receives as "interest" on pay-in-kind securities.
Because the Fund annually must distribute substantially all of its investment
company taxable income, including any original issue discount and other
non-cash income, to satisfy the Distribution Requirement and avoid imposition
of the Excise Tax, it may be required in a particular year to distribute as a
dividend an amount that is greater than the total amount of cash it actually
receives. Those distributions may be made from the proceeds on sales of
portfolio securities, if necessary. The Fund may realize capital gains or
losses from those sales, which would increase or decrease its investment
company taxable income or net capital gain, or both.
DETERMINATION OF NET ASSET VALUE
Generally, when an investor makes any purchases, sales, or exchanges, the
price of the investor's shares will be the net asset value ("NAV") next
determined after Strong Funds receives a request in proper form (which
includes receipt of all necessary and appropriate documentation and subject to
available funds). Any applicable sales charge will be added to the purchase
price for Advisor Class shares of the fund, if any. The "offering price" is
the initial sales charge plus the NAV. If Strong Funds receives such a
request prior to the close of the New York Stock Exchange ("NYSE") on a day on
which the NYSE is open, the share price will be the NAV determined that day.
The NAV for each Fund or each class of shares is normally determined as of
3:00 p.m. Central Time ("CT") each day the NYSE is open. The NYSE is open for
trading Monday through Friday except, New Year's Day, Martin Luther King Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. Additionally, if any of the
aforementioned holidays falls on a Saturday, the NYSE will not be open for
trading on the preceding Friday, and when any such holiday falls on a Sunday,
the NYSE will not be open for trading on the succeeding Monday, unless unusual
business conditions exist, such as the ending of a monthly or yearly
accounting period. The Fund reserves the right to change the time at which
purchases, redemptions, and exchanges are priced if the NYSE closes at a time
other than 3:00 p.m. CT or if an emergency exists. The NAV of each Fund or of
each class of shares of a Fund is calculated by taking the fair value of the
Fund's total assets attributable to that Fund or class, subtracting all its
liabilities attributable to that Fund or class, and dividing by the total
number of shares outstanding of that Fund or class. Expenses are accrued
daily and applied when determining the NAV. The Fund's portfolio securities
are valued based on market quotations or at fair value as determined by the
method selected by the Fund's Board of Directors.
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-trade securities (generally foreign securities)
will be valued based on market quotations.
Securities quoted in foreign currency are valued daily in U.S. dollars at the
foreign currency exchange rates that are prevailing at the time the daily NAV
per share is determined. Although the Fund values its foreign assets in U.S.
dollars on a daily basis, it does not intend to convert its holdings of
foreign currencies into U.S. dollars on a daily basis. Foreign currency
exchange rates are generally determined prior to the close of trading on the
NYSE. Occasionally, events affecting the value of foreign investments and
such exchange rates occur between the time at which they are determined and
the close of trading on the NYSE. Such events would not normally be reflected
in a calculation of the Fund's NAV on that day. If events that materially
affect the value of the Fund's foreign investments or the foreign currency
exchange rates occur during such period, the investments will be valued at
their fair value as determined in good faith by or under the direction of the
Board of Directors.
Debt securities are valued by a pricing service that utilizes electronic data
processing techniques to determine values for normal institutional-sized
trading units of debt securities without regard to sale or bid prices when
such values are believed to more accurately reflect the fair market value for
such securities. Otherwise, sale or bid prices are used. Any securities or
other assets for which market quotations are not readily available are valued
at fair value as determined in good faith by the Board of Directors of the
Fund. Debt securities having remaining maturities of 60 days or less are
valued by the amortized cost method when the Fund's Board of Directors
determines that the fair value of such securities is their amortized cost.
Under this method
55
<PAGE>
of valuation, a security is initially valued at its acquisition cost, and
thereafter, amortization of any discount or premium is assumed each day,
regardless of the impact of the fluctuating rates on the market value of the
instrument.
ADDITIONAL SHAREHOLDER INFORMATION
FUND REDEMPTIONS
Shareholders (except Institutional Class shareholders) can gain access to the
money in their accounts by selling (also called redeeming) some or all of
their shares by mail, telephone, computer, automatic withdrawals, through a
broker-dealer, or by writing a check (assuming all the appropriate documents
and requirements have been met for these account options). Institutional
Class shareholders may redeem some or all of their shares by telephone or by
faxing a written request. After a redemption request is processed, the
proceeds from the sale will normally be sent on the next business day but, in
any event, no more than seven days later.
TELEPHONE AND INTERNET EXCHANGE/REDEMPTION PRIVILEGES
The Fund employs reasonable procedures to confirm that instructions
communicated by telephone or the Internet are genuine. The Fund may not be
liable for losses due to unauthorized or fraudulent instructions. Such
procedures include but are not limited to requiring a form of personal
identification prior to acting on instructions received by telephone or the
Internet, providing written confirmations of such transactions to the address
of record, tape recording telephone instructions and backing up Internet
transactions.
MOVING ACCOUNT OPTIONS AND INFORMATION
When establishing a new account (other than an Institutional Class account) by
exchanging funds from an existing Strong Funds account, some account options
(such as checkwriting, telephone exchange, telephone purchase and telephone
redemption), if existing on the account from which money is exchanged, will
automatically be made available on the new account unless the shareholder
indicates otherwise, or the option is not available on the new account.
Subject to applicable Strong Funds policies, other account options, including
automatic investment, automatic exchange and systematic withdrawal, may be
moved to the new account at the request of the shareholder. These options are
not available for Institutional Class accounts. If allowed by Strong Funds
policies (i) once the account options are established on the new account, the
shareholder may modify or amend the options, and (ii) account options may be
moved or added from one existing account to another new or existing account.
Account information, such as the shareholder's address of record and social
security number, will be copied from the existing account to the new account.
REDEMPTION-IN-KIND
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the Fund to redeem shares in cash, with respect to any one
shareholder during any 90-day period, up to the lesser of $250,000 or 1% of
the assets of the Fund. If the Advisor determines that existing conditions
make cash payments undesirable, redemption payments may be made in whole or in
part in securities or other financial assets, valued for this purpose as they
are valued in computing the NAV for the Fund's shares (a
"redemption-in-kind"). Shareholders receiving securities or other financial
assets in a redemption-in-kind may realize a gain or loss for tax purposes,
and will incur any costs of sale, as well as the associated inconveniences.
If you expect to make a redemption in excess of the lesser of $250,000 or 1%
of the Fund's assets during any 90-day period and would like to avoid any
possibility of being paid with securities in-kind, you may do so by providing
Strong Funds with an unconditional instruction to redeem at least 15 calendar
days prior to the date on which the redemption transaction is to occur,
specifying the dollar amount or number of shares to be redeemed and the date
of the transaction (please call 1-800-368-3863). This will provide the Fund
with sufficient time to raise the cash in an orderly manner to pay the
redemption and thereby minimize the effect of the redemption on the interests
of the Fund's remaining shareholders.
56
<PAGE>
SHARES IN CERTIFICATE FORM
Certificates will be issued for shares (other than Institutional Class or
Advisor Class shares) held in a Fund account only upon written request.
Certificates will not be issued for Institutional Class or Advisor Class
shares of any Fund. A shareholder will, however, have full shareholder rights
whether or not a certificate is requested.
DOLLAR COST AVERAGING
Strong Funds' Automatic Investment Plan, Payroll Direct Deposit Plan, and
Automatic Exchange Plan are methods of implementing dollar cost averaging.
Dollar cost averaging is an investment strategy that involves investing a
fixed amount of money at regular time intervals. By always investing the same
set amount, an investor will be purchasing more shares when the price is low
and fewer shares when the price is high. Ultimately, by using this principle
in conjunction with fluctuations in share price, an investor's average cost
per share may be less than the average transaction price. A program of
regular investment cannot ensure a profit or protect against a loss during
declining markets. Since such a program involves continuous investment
regardless of fluctuating share values, investors should consider their
ability to continue the program through periods of both low and high
share-price levels. These methods are unavailable for Institutional Class
accounts.
FINANCIAL INTERMEDIARIES
If an investor purchases or redeems shares of the Fund through a financial
intermediary, certain features of the Fund relating to such transactions may
not be available or may be modified. In addition, certain operational
policies of the Fund, including those related to settlement and dividend
accrual, may vary from those applicable to direct shareholders of the Fund and
may vary among intermediaries. Please consult your financial intermediary for
more information regarding these matters. In addition, the Fund may pay,
directly or indirectly through arrangements with the Advisor, amounts to
financial intermediaries that provide transfer agent type and/or other
administrative services to their customers provided, however, that the Fund
will not pay more for these services through intermediary relationships than
it would if the intermediaries' customers were direct shareholders in the
Fund. Certain financial intermediaries may charge an advisory, transaction,
or other fee for their services. Investors will not be charged for such fees
if investors purchase or redeem Fund shares directly from the Fund without the
intervention of a financial intermediary.
SIGNATURE GUARANTEES
A signature guarantee is designed to protect shareholders and the Fund against
fraudulent transactions by unauthorized persons. In the following instances,
the Fund will require a signature guarantee for all authorized owners of an
account:
- - when adding the telephone redemption option to an existing account;
- - when transferring the ownership of an account to another individual or
organization;
- - when submitting a written redemption request for more than $50,000;
- - when requesting to redeem or redeposit shares that have been issued in
certificate form;
- - if requesting a certificate after opening an account;
- - when requesting that redemption proceeds be sent to a different name or
address than is registered on an account;
- - if adding/changing a name or adding/removing an owner on an account; and
- - if adding/changing the beneficiary on a transfer-on-death account.
A signature guarantee may be obtained from any eligible guarantor institution,
as defined by the SEC. These institutions include banks, savings associations,
credit unions, brokerage firms, and others. Please note that a notary public
stamp or seal is not acceptable.
57
<PAGE>
RIGHT OF SET-OFF
To the extent not prohibited by law, the Fund, any other Strong Fund, and the
Advisor, each has the right to set-off against a shareholder's account balance
with a Strong Fund, and redeem from such account, any debt the shareholder may
owe any of these entities. This right applies even if the account is not
identically registered.
BROKERS RECEIPT OF PURCHASE AND REDEMPTION ORDERS
The Fund has authorized certain brokers to accept purchase and redemption
orders on the Fund's behalf. These brokers are, in turn, authorized to
designate other intermediaries to accept purchase and redemption orders on the
Fund's behalf. The Fund will be deemed to have received a purchase or
redemption order when an authorized broker or, if applicable, a broker's
authorized designee, accepts the order. Purchase and redemption orders
received in this manner will be priced at the Fund's net asset value next
computed after they are accepted by an authorized broker or the broker's
authorized designee.
RETIREMENT PLANS
TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNT (IRA): Everyone under age 70 1/2 with
earned income may contribute to a tax-deferred Traditional IRA. The Strong
Funds offer a prototype plan for you to establish your own Traditional IRA. You
are allowed to contribute up to the lesser of $2,000 or 100% of your earned
income each year to your Traditional IRA (or up to $4,000 between your
Traditional IRA and your non-working spouses' Traditional IRA). Under certain
circumstances, your contribution will be deductible.
ROTH IRA: Taxpayers, of any age, who have earned income, and whose adjusted
gross income ("AGI") does not exceed $110,000 (single) or $160,000 (joint) can
contribute to a Roth IRA. Allowed contributions begin to phase-out at $95,000
(single) or $150,000 (joint). You are allowed to contribute up to the lesser
of $2,000 or 100% of earned income each year into a Roth IRA. If you also
maintain a Traditional IRA, the maximum contribution to your Roth IRA is
reduced by any contributions that you make to your Traditional IRA.
Distributions from a Roth IRA, if they meet certain requirements, may be
federally tax free. If your AGI is $100,000 or less, you can convert your
Traditional IRAs into a Roth IRA. Conversions of earnings and deductible
contributions are taxable in the year of the distribution. The early
distribution penalty does not apply to amounts converted to a Roth IRA even if
you are under age 59 1/2.
EDUCATION IRA: Taxpayers may contribute up to $500 per year into an Education
IRA for the benefit of a child under age 18. Total contributions to any one
child cannot exceed $500 per year. The contributor must have adjusted income
under $110,000 (single) or $160,000 (joint) to contribute to an Education IRA.
Allowed contributions begin to phase-out at $95,000 (single) or $150,000
(joint). Withdrawals from the Education IRA to pay qualified higher education
expenses are federally tax free. Any withdrawal in excess of higher education
expenses for the year are potentially subject to tax and an additional 10%
penalty.
DIRECT ROLLOVER IRA: To avoid the mandatory 20% federal withholding tax on
distributions, you must transfer the qualified retirement or IRC section 403(b)
plan distribution directly into an IRA. The distribution must be eligible for
rollover. The amount of your Direct Rollover IRA contribution will not be
included in your taxable income for the year.
SIMPLIFIED EMPLOYEE PENSION PLAN (SEP-IRA): A SEP-IRA plan allows an employer
to make deductible contributions to separate IRA accounts established for each
eligible employee.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN (SAR SEP-IRA): A SAR SEP-IRA
plan is a type of SEP-IRA plan in which an employer may allow employees to
defer part of their salaries and contribute to an IRA account. These deferrals
help lower the employees' taxable income. Please note that you may no longer
open new SAR SEP-IRA plans (since December 31, 1996). However, employers with
SAR SEP-IRA plans that were established prior to January 1, 1997 may still open
accounts for new employees.
SIMPLIFIED INCENTIVE MATCH PLAN FOR EMPLOYEES (SIMPLE-IRA): A SIMPLE-IRA plan
is a retirement savings plan that allows employees to contribute a percentage
of their compensation, up to $6,000, on a pre-tax basis, to a SIMPLE-IRA
58
<PAGE>
account. The employer is required to make annual contributions to eligible
employees' accounts. All contributions grow tax-deferred.
DEFINED CONTRIBUTION PLAN: A defined contribution plan allows self-employed
individuals, partners, or a corporation to provide retirement benefits for
themselves and their employees. Plan types include: profit-sharing plans,
money purchase pension plans, and paired plans (a combination of a
profit-sharing plan and a money purchase plan).
401(K) PLAN: A 401(k) plan is a type of profit-sharing plan that allows
employees to have part of their salary contributed on a pre-tax basis to a
retirement plan which will earn tax-deferred income. A 401(k) plan is funded by
employee contributions, employer contributions, or a combination of both.
403(B)(7) PLAN: A 403(b)(7) plan is a tax-sheltered custodial account designed
to qualify under section 403(b)(7) of the IRC and is available for use by
employees of certain educational, non-profit, hospital, and charitable
organizations.
PROMOTIONAL ITEMS
From time to time, the Advisor and/or Distributor may give de minimis gifts or
other immaterial consideration to investors who open new accounts or add to
existing accounts with the Strong Funds. In addition, from time to time, the
Advisor and/or Distributor, alone or with other entities or persons, may
sponsor, participate in conducting, or be involved with sweepstakes,
give-aways, contests, incentive promotions, or other similar programs
("Give-Aways"). This is done in order to, among other reasons, increase the
number of users of and visits to the Fund's Internet web site. As part of the
Give-Aways, persons may receive cash or other awards including without
limitation, gifts, merchandise, gift certificates, travel, meals, and lodging.
Under the Advisor's and Distributor's standard rules for Give-Aways, their
employees, subsidiaries, advertising and promotion agencies, and members of
their immediate families are not eligible to enter the Give-Aways.
ORGANIZATION
The Fund is either a "Corporation" or a "Series" of common stock of a
Corporation, as described in the chart below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Incorporation Date Series Date Class Authorized Par
Corporation Date Created Created Shares Value ($)
- ----------------------------------------- ------------- ----------- ---------- ---------- ---------
Strong Asset Allocation Fund, Inc.(1) 9/03/81 Indefinite .01
Strong Conservative Equity Funds, Inc.(2) 12/28/90 Indefinite .00001
- - Strong American Utilities Fund 12/28/90 Indefinite .00001
- - Strong Equity Income Fund 10/27/95 Indefinite .00001
- - Strong Growth and Income Fund 10/27/95 Indefinite .00001
+Investor Class(3) 10/27/95 Indefinite .00001
+Advisor Class 2/22/00 Indefinite .00001
+Institutional Class 2/22/00 Indefinite .00001
- - Strong Blue Chip 100 Fund 6/25/97 Indefinite .00001
+Investor Class(3) 6/25/97 Indefinite .00001
+Advisor Class 2/22/00 Indefinite .00001
- - Strong Limited Resources Fund 8/14/97 Indefinite .00001
Strong Total Return Fund, Inc. 9/03/81 Indefinite .01
</TABLE>
(1) Prior to December 21, 1994, the Corporation's name was Strong Investment
Fund, Inc.
(2) Prior to October 27, 1995, the Corporation's name was Strong American
Utilities Fund, Inc.
(3) Prior to February 22, 2000 the Investor Class shares of the Fund were
designated as shares of common stock of the Fund.
The Strong Asset Allocation Fund, Inc. and the Strong Total Return Fund, Inc.
are separately incorporated, diversified, open-end management investment
companies. The Strong American Utilities Fund is a non-diversified series, and
the Strong Equity Income Fund, Strong Growth and Income Fund, Strong Blue Chip
100 Fund, and Strong Limited Resources Fund are diversified series of Strong
Conservative Equity Funds, Inc., which is an open-end management investment
company.
59
<PAGE>
The Corporation is a Wisconsin corporation that is authorized to offer separate
series of shares representing interests in separate portfolios of securities,
each with differing investment objectives. The shares in any one portfolio
may, in turn, be offered in separate classes, each with differing preferences,
limitations or relative rights. However, the Articles of Incorporation for the
Corporation provide that if additional series of shares are issued by the
Corporation, such new series of shares may not affect the preferences,
limitations or relative rights of the Corporation's outstanding shares. In
addition, the Board of Directors of the Corporation is authorized to allocate
assets, liabilities, income and expenses to each series and class. Classes
within a series may have different expense arrangements than other classes of
the same series and, accordingly, the net asset value of shares within a series
may differ. Finally, all holders of shares of the Corporation may vote on each
matter presented to shareholders for action except with respect to any matter
which affects only one or more series or class, in which case only the shares
of the affected series or class are entitled to vote. Each share of the Fund
has one vote, and all shares participate equally in dividends and other capital
gains distributions by the Fund and in the residual assets of the Fund in the
event of liquidation. Fractional shares have the same rights proportionately
as do full shares. Shares of the Corporation have no preemptive, conversion, or
subscription rights. If the Corporation issues additional series, the assets
belonging to each series of shares will be held separately by the custodian,
and in effect each series will be a separate fund.
SHAREHOLDER MEETINGS
The Wisconsin Business Corporation Law permits registered investment companies,
such as the Fund, to operate without an annual meeting of shareholders under
specified circumstances if an annual meeting is not required by the 1940 Act.
The Fund has adopted the appropriate provisions in its Bylaws and may, at its
discretion, not hold an annual meeting in any year in which the election of
directors is not required to be acted on by shareholders under the 1940 Act.
The Fund's Bylaws allow for a director to be removed by its shareholders with
or without cause, only at a meeting called for the purpose of removing the
director. Upon the written request of the holders of shares entitled to not
less than ten percent (10%) of all the votes entitled to be cast at such
meeting, the Secretary of the Fund shall promptly call a special meeting of
shareholders for the purpose of voting upon the question of removal of any
director. The Secretary shall inform such shareholders of the reasonable
estimated costs of preparing and mailing the notice of the meeting, and upon
payment to the Fund of such costs, the Fund shall give not less than ten nor
more than sixty days notice of the special meeting.
PERFORMANCE INFORMATION
The Strong Funds may advertise a variety of types of performance information
as more fully described below. The Fund's performance is historical and past
performance does not guarantee the future performance of the Fund. From time
to time, the Advisor may agree to waive or reduce its management fee and/or to
absorb certain operating expenses for the Fund. Waivers of management fees
and absorption of expenses will have the effect of increasing the Fund's
performance.
A multiple class Fund will separately calculate performance information for
each class of shares. The performance figures for each class of shares will
vary based on differences in their expense ratios.
Performance figures for Institutional Class shares of the Growth and Income
Fund which were first offered to the public on February 29, 2000, include the
historical performance of the Fund's Investor Class shares for the period from
the Fund's inception through February 28, 2000. For the Advisor Class shares
of the Blue Chip 100 and Growth and Income Funds, which also were first offered
to the public on February 29, 2000, performance is based on the historical
performance of each Fund's Investor Class of shares, which has been
recalculated to reflect the additional expenses imposed on the Advisor Class
shares. The performance figures for each class of shares will vary based on
differences in their expense ratios.
DISTRIBUTION RATE
The distribution rate for the Fund is computed, according to a
non-standardized formula, by dividing the total amount of actual distributions
per share paid by the Fund over a twelve month period by the Fund's net asset
value on the last day of the period. The distribution rate differs from the
Fund's yield because the distribution rate includes distributions to
shareholders from sources other than dividends and interest, such as
short-term capital gains. Therefore, the Fund's distribution rate may be
substantially different than its yield. Both the Fund's yield and
distribution rate will fluctuate.
60
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
The Fund's average annual total return quotation is computed in accordance
with a standardized method prescribed by rules of the SEC. The average annual
total return for the Fund for a specific period is calculated by first taking
a hypothetical $10,000 investment ("initial investment") in the Fund's shares
on the first day of the period and computing the "redeemable value" of that
investment at the end of the period. The redeemable value is then divided by
the initial investment, and this quotient is taken to the Nth root (N
representing the number of years in the period) and 1 is subtracted from the
result, which is then expressed as a percentage. The calculation assumes that
all income and capital gains dividends paid by the Fund have been reinvested
at net asset value on the reinvestment dates during the period. Average
annual total returns reflect the impact of sales charges, if any.
TOTAL RETURN
Calculation of the Fund's total return is not subject to a standardized
formula. Total return performance for a specific period is calculated by
first taking an investment (assumed below to be $10,000) ("initial
investment") in the Fund's shares on the first day of the period and computing
the "ending value" of that investment at the end of the period. The total
return percentage is then determined by subtracting the initial investment
from the ending value and dividing the remainder by the initial investment and
expressing the result as a percentage. The calculation assumes that all
income and capital gains dividends paid by the Fund have been reinvested at
net asset value of the Fund on the reinvestment dates during the period.
Total return may also be shown as the increased dollar value of the
hypothetical investment over the period. Total returns reflect the impact of
sales charges, if any.
CUMULATIVE TOTAL RETURN
Cumulative total return represents the simple change in value of an investment
over a stated period and may be quoted as a percentage or as a dollar amount.
Total returns and cumulative total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship between these factors and their
contributions to total return. Cumulative total returns reflect the impact of
sales charges, if any.
TOTAL RETURN
AMERICAN UTILITIES FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment October 31, 1999 Total Return Total Return
- ------------- --------------- ---------------- ------------ ---------------
One Year $10,000 11,181 11.81% 11.81%
- ------------- --------------- ---------------- ------------ ---------------
Five Year $10,000 22,951 129.51% 18.08%
- ------------- --------------- ---------------- ------------ ---------------
Life of Fund* $10,000 24,151 151.51% 14.94%
- ------------- --------------- ---------------- ------------ ---------------
</TABLE>
* Commenced operations on July 1, 1993.
ASSET ALLOCATION FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment October 31, 1999 Total Return Total Return
- ------------- --------------- ---------------- ------------ ---------------
One Year $10,000 12,126 21.26 21.26%
- ------------- --------------- ---------------- ------------ ---------------
Five Year $10,000 20,570 105.70% 15.52%
- ------------- --------------- ---------------- ------------ ---------------
Ten Year $10,000 30,272 202.71% 11.71%
- ------------- --------------- ---------------- ------------ ---------------
Life of Fund* $10,000 106,877 968.77% 14.21%
- ------------- --------------- ---------------- ------------ ---------------
</TABLE>
* Commenced operations on December 30, 1981.
61
<PAGE>
BLUE CHIP 100 FUND - INVESTOR CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment October 31, 1999 Total Return Total Return
- ------------- --------------- ---------------- ------------ ---------------
One Year $10,000 13,671 36.71% 36.71%
- ------------- --------------- ---------------- ------------ ---------------
Life of Fund* $10,000 18,260 82.60% 29.44%
- ------------- --------------- ---------------- ------------ ---------------
</TABLE>
* Commenced operations on June 30, 1997.
BLUE CHIP 100 FUND - ADVISOR CLASS+
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment October 31, 1999 Total Return Total Return
- ----------- --------------- ---------------- ------------ ---------------
One Year $10,000 12,867 28.67% 28.67%
- ----------- --------------- ---------------- ------------ ---------------
Life of Fund* $10,000 17,149 71.49% 26.01%
- ------------- ------------- ---------------- ------------ ---------------
</TABLE>
* Commenced operations on June 30, 1997.
+ Commenced operations on February 29, 2000.
EQUITY INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment October 31, 1999 Total Return Total Return
- ------------- --------------- ---------------- ------------ ---------------
One Year $10,000 12,007 20.07% 20.07%
- ------------- --------------- ---------------- ------------ ---------------
Life of Fund* $10,000 22,132 121.32% 23.03%
- ------------- --------------- ---------------- ------------ ---------------
</TABLE>
* Commenced operations on December 29, 1995.
GROWTH AND INCOME FUND - INVESTOR CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment October 31, 1999 Total Return Total Return
- ------------- --------------- ---------------- ------------ ---------------
One Year $10,000 13,488 34.88% 34.88%
- ------------- --------------- ---------------- ------------ ---------------
Life of Fund* $10,000 26,654 166.54% 29.14%
- ------------- --------------- ---------------- ------------ ---------------
</TABLE>
* Commenced operations on December 29, 1995.
GROWTH AND INCOME FUND - ADVISOR CLASS+
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment October 31, 1999 Total Return Total Return
- ------------- --------------- ---------------- ------------ ---------------
One Year $10,000 12,869 26.89% 26.89%
- ------------- --------------- ---------------- ------------ ---------------
Life of Fund* $10,000 24,939 149.39% 26.92%
- ------------- --------------- ---------------- ------------ ---------------
</TABLE>
* Commenced operations on December 29, 1995.
+ Commenced operations on February 29, 2000.
62
<PAGE>
GROWTH AND INCOME FUND - INSTITUTIONAL CLASS+
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment October 31, 1999 Total Return Total Return
- ------------- --------------- ---------------- ------------ ---------------
One Year $10,000 13,488 34.88% 34.88%
- ------------- --------------- ---------------- ------------ ---------------
Life of Fund* $10,000 26,654 166.54% 29.14%
- ------------- --------------- ---------------- ------------ ---------------
</TABLE>
* Commenced operations on December 29, 1995.
+ Commenced operations on February 29, 2000.
LIMITED RESOURCES FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment October 31, 1999 Total Return Total Return
- ------------- --------------- ---------------- ------------ ---------------
One Year $10,000 11,080 10.80% 10.80%
- ------------- --------------- ---------------- ------------ ---------------
Life of Fund* $10,000 8,637 13.63% -6.79%
- ------------- --------------- ---------------- ------------ ---------------
</TABLE>
* Commenced operations on September 30, 1997.
TOTAL RETURN FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment October 31, 1999 Total Return Total Return
- ------------- --------------- ---------------- ------------ ---------------
One Year $10,000 14,426 44.26% 44.26%
- ------------- --------------- ---------------- ------------ ---------------
Five Year $10,000 28,046 180.46% 22.91%
- ------------- --------------- ---------------- ------------ ---------------
Ten Year $10,000 43,158 331.58% 15.75%
- ------------- --------------- ---------------- ------------ ---------------
Life of Fund* $10,000 168,835 1,588.35% 17.17%
- ------------- --------------- ---------------- ------------ ---------------
</TABLE>
* Commenced operations on December 30, 1981.
COMPARISONS
U.S. TREASURY BILLS, NOTES, OR BONDS. Investors may want to compare the
performance of the Fund to that of U.S. Treasury bills, notes, or bonds, which
are issued by the U.S. Government. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Generally, the values of obligations with shorter maturities will
fluctuate less than those with longer maturities.
CERTIFICATES OF DEPOSIT. Investors may want to compare the Fund's performance
to that of certificates of deposit offered by banks and other depositary
institutions. Certificates of deposit may offer fixed or variable interest
rates and principal is guaranteed and may be insured. Withdrawal of the
deposits prior to maturity normally will be subject to a penalty. Rates
offered by banks and other depositary institutions are subject to change at
any time specified by the issuing institution.
MONEY MARKET FUNDS. Investors may also want to compare performance of the Fund
to that of money market funds. Money market fund yields will fluctuate and
shares are not insured, but share values usually remain stable.
LIPPER 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
63
<PAGE>
asset value, with all income and capital gains dividends reinvested. Such
calculations do not include the effect of any sales charges imposed by other
funds. The Fund will be compared to Lipper's appropriate fund category, that
is, by fund objective and portfolio holdings. The Fund's performance may also
be compared to the average performance of its Lipper category.
MORNINGSTAR, INC. The Fund's performance may also be compared to the
performance of other mutual funds by Morningstar, Inc., which rates funds on
the basis of historical risk and total return. Morningstar's ratings range
from five stars (highest) to one star (lowest) and represent Morningstar's
assessment of the historical risk level and total return of a fund as a
weighted average for 3, 5, and 10 year periods. Ratings are not absolute and
do not represent future results.
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 and
articles about the Fund may include publications such as Money, Forbes,
Kiplinger's, Smart Money, Financial World, Business Week, U.S. News and World
Report, The Wall Street Journal, Barron's, and a variety of investment
newsletters.
INDICES. The Fund may compare its performance to a wide variety of indices.
There are differences and similarities between the investments that a Fund may
purchase and the investments measured by the indices.
HISTORICAL ASSET CLASS RETURNS. From time to time, marketing materials may
portray the historical returns of various asset classes. Such presentations
will typically compare the average annual rates of return of inflation, U.S.
Treasury bills, bonds, common stocks, and small stocks. There are important
differences between each of these investments that should be considered in
viewing any such comparison. The market value of stocks will fluctuate with
market conditions, and small-stock prices generally will fluctuate more than
large-stock prices. Stocks are generally more volatile than bonds. In return
for this volatility, stocks have generally performed better than bonds or cash
over time. Bond prices generally will fluctuate inversely with interest rates
and other market conditions, and the prices of bonds with longer maturities
generally will fluctuate more than those of shorter-maturity bonds. Interest
rates for bonds may be fixed at the time of issuance, and payment of principal
and interest may be guaranteed by the issuer and, in the case of U.S. Treasury
obligations, backed by the full faith and credit of the U.S. Treasury.
STRONG FUNDS. The Strong Funds offer a comprehensive range of conservative to
aggressive investment options. The Strong Funds and their investment
objectives are listed below.
FUND NAME INVESTMENT OBJECTIVE
<TABLE>
<CAPTION>
<S> <C>
Strong Investors Money Fund Current income, a stable share price, and daily liquidity.
- ---------------------------------- ---------------------------------------------------------------------------------
Strong Money Market Fund Current income, a stable share price, and daily liquidity.
- ---------------------------------- ---------------------------------------------------------------------------------
Strong Heritage Money Fund Current income, a stable share price, and daily liquidity.
- ---------------------------------- ---------------------------------------------------------------------------------
Strong Municipal Money Market Fund Federally tax-exempt current income, a stable share-price, and daily liquidity.
- ---------------------------------- ---------------------------------------------------------------------------------
Strong Municipal Advantage Fund Federally tax-exempt current income with a very low degree of share-price
fluctuation.
- ---------------------------------- ---------------------------------------------------------------------------------
Strong Advantage Fund Current income with a very low degree of share-price fluctuation.
- ---------------------------------- ---------------------------------------------------------------------------------
Strong Short-Term Municipal Bond Total return by investing for a high level of federally tax-exempt current income
Fund with a low degree of share-price fluctuation.
- ---------------------------------- ---------------------------------------------------------------------------------
Strong Short-Term Bond Fund Total return by investing for a high level of current income with a low degree of
share-price fluctuation.
- ---------------------------------- ---------------------------------------------------------------------------------
Strong Short-Term Global Bond Fund Total return by investing for a high level of income with a low degree of share
price fluctuation.
- ---------------------------------- ---------------------------------------------------------------------------------
Strong Short-Term High Yield Total return by investing for a high level of federally tax-exempt current income
Municipal Fund with a moderate degree of share-price fluctuation.
- ---------------------------------- ---------------------------------------------------------------------------------
Strong Short-Term High Yield Bond Total return by investing for a high level of current income with a moderate
Fund degree of share-price fluctuation.
- ---------------------------------- ---------------------------------------------------------------------------------
Strong Government Securities Fund Total return by investing for a high level of current income with a moderate
degree of share-price fluctuation.
- ---------------------------------- ---------------------------------------------------------------------------------
Strong Municipal Bond Fund Total return by investing for a high level of federally tax-exempt current income
with a moderate degree of share-price fluctuation.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Corporate Bond Fund Total return by investing for a high level of current income with a moderate
degree of share-price fluctuation.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong High-Yield Municipal Bond Total return by investing for a high level of federally tax-exempt current
Fund income.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Conservative Portfolio Total return by investing primarily for income and secondarily for capital
growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong High-Yield Bond Fund Total return by investing for a high level of current income and capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Global High-Yield Bond Fund Total return by investing for a high level of current income and capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong International Bond Fund High total return by investing for both income and capital appreciation.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Asset Allocation Fund High total return consistent with reasonable risk over the long term.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Equity Income Fund Total return by investing for both income and capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong American Utilities Fund Total return by investing for both income and capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Blue Chip 100 Fund Total return by investing for both income and capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Limited Resources Fund Total return by investing for both capital growth and income.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Moderate Portfolio Total return by investing primarily for capital growth and secondarily for
income.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Total Return Fund High total return by investing for capital growth and income.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Growth and Income Fund High total return by investing for capital growth and income.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Index 500 Fund To approximate as closely as practicable (before fees and expenses) the
capitalization-weighted total rate of return of that portion of the U.S. market for
publicly traded common stocks composed of the larger capitalized companies.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Schafer Balanced Fund Total return by investing for both income and capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Schafer Value Fund Long-term capital appreciation principally through investment in common
stocks and other equity securities. Current income is a secondary objective.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Aggressive Portfolio Capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Dow 30 Value Fund Capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Value Fund Capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Opportunity Fund Capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Mid Cap Disciplined Fund Capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Mid Cap Growth Fund Capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Common Stock Fund* Capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Strategic Growth Fund Capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Small Cap Value Fund Capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Growth Fund Capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Discovery Fund Capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong U.S. Emerging Growth Fund Capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Technology Index Plus Fund Capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Enterprise Fund Capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Technology 100 Fund Capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Internet Fund Capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Growth 20 Fund Capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong International Stock Fund Capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Overseas Fund Capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Foreign MajorMarketsSM Fund Capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
Strong Asia Pacific Fund Capital growth.
- ---------------------------------- -----------------------------------------------------------------------------------
</TABLE>
* The Fund is closed to new investors, except the Fund may continue to
offer its shares through certain 401(k) plans and similar company-sponsored
retirement plans.
65
<PAGE>
The Advisor also serves as Advisor to several management investment companies,
some of which fund variable annuity separate accounts of certain insurance
companies.
The Fund may from time to time be compared to other Strong Funds based on a
risk/reward spectrum. In general, the amount of risk associated with any
investment product is commensurate with that product's potential level of
reward. The Strong Funds risk/reward continuum or any Fund's position on the
continuum may be described or diagrammed in marketing materials. The Strong
Funds risk/reward continuum positions the risk and reward potential of each
Strong Fund relative to the other Strong Funds, but is not intended to
position any Strong Fund relative to other mutual funds or investment
products. Marketing materials may also discuss the relationship between risk
and reward as it relates to an individual investor's portfolio.
TYING TIME FRAMES TO YOUR GOALS. There are many issues to consider as you make
your investment decisions, including analyzing your risk tolerance, investing
experience, and asset allocations. You should start to organize your
investments by learning to link your many financial goals to specific time
frames. Then you can begin to identify the appropriate types of investments to
help meet your goals. As a general rule of thumb, the longer your time
horizon, the more price fluctuation you will be able to tolerate in pursuit of
higher returns. For that reason, many people with longer-term goals select
stocks or long-term bonds, and many people with nearer-term goals match those
up with for instance, short-term bonds. The Advisor developed the following
suggested holding periods to help our investors set realistic expectations for
both the risk and reward potential of our funds. (See table below.) Of
course, time is just one element to consider when making your investment
decision.
STRONG FUNDS SUGGESTED MINIMUM HOLDING PERIODS
<TABLE>
<CAPTION>
<S> <C> <C>
UNDER 1 YEAR 1 TO 2 YEARS 4 TO 7 YEARS
- ---------------------- -------------------------- ---------------------------
Money Market Fund Advantage Fund Government Securities Fund
Heritage Money Fund Municipal Advantage Fund Municipal Bond Fund
Municipal Money Market Corporate Bond Fund
Fund 2 TO 4 YEARS International Bond Fund
Investors Money Fund Short-Term Bond Fund High-Yield Municipal Bond
Short-Term Municipal Bond Fund
Fund High-Yield Bond Fund
Short-Term Global Bond Global High-Yield Bond Fund
Fund Conservative Portfolio
Short-Term High Yield Bond
Fund
Short-Term High Yield
Municipal Fund
<S> <C>
5 OR MORE YEARS
- -----------------------
Asset Allocation Fund
American Utilities Fund
Index 500 Fund
Total Return Fund
Opportunity Fund
Growth Fund
Common Stock Fund*
Discovery Fund
International Stock Fund
Asia Pacific Fund
Value Fund
Growth and Income Fund
Equity Income Fund
Mid Cap Growth Fund
Schafer Value Fund
Growth 20 Fund
Blue Chip 100 Fund
Small Cap Value Fund
Dow 30 Value Fund
Schafer Balanced Fund
Limited Resources Fund
Overseas Fund
Foreign MajorMarketsSM
Fund
Strategic Growth Fund
Enterprise Fund
Mid Cap Disciplined Fund
U.S. Emerging Growth
Fund
Aggressive Portfolio
Moderate Portfolio
Technology 100 Fund
Technology Index Plus Fund
Internet Fund
</TABLE>
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* This Fund is closed to new investors, except the Fund may continue to
offer its shares through certain 401(k) plans and similar company-sponsored
retirement plans.
PRODUCT LIFE CYCLES. Discussions of product life cycles and their potential
impact on the Fund's investments may be used in advertisements and sales
materials. The basic idea is that most products go through a life cycle that
generally consists of an early adoption phase, a rapid growth phase, and a
maturity phase. The early adoption phase generally includes the time period
during which the product is first being developed and marketed. The rapid
growth phase usually occurs when the general public becomes aware of the new
product and sales are rising. The maturity phase generally includes the time
period when the public has been aware of the product for a period of time and
sales have leveled off or declined.
By identifying and investing in companies that produce or service products that
are in the early adoption phase of their life cycle, it may be possible for the
Fund to benefit if the product moves into a prolonged period of rapid growth
that enhances the company's stock price. However, you should keep in mind that
investing in a product in its early adoption phase does not provide any
guarantee of profit. A product may experience a prolonged rapid growth and
maturity phase without any corresponding increase in the company's stock price.
In addition, different products have life cycles that may be longer or shorter
than those depicted and these variations may influence whether the product has
a positive effect on the company's stock price. For example, a product may not
positively impact a company's stock price if it experiences an extremely short
rapid growth or maturity phase because the product becomes obsolete soon after
it is introduced to the general public. Other products may never move past the
early adoption phase and have no impact on the company's stock price.
ADDITIONAL FUND INFORMATION
PORTFOLIO CHARACTERISTICS. In order to present a more complete picture of the
Fund's portfolio, marketing materials may include various actual or estimated
portfolio characteristics, including but not limited to median market
capitalizations, earnings per share, alphas, betas, price/earnings ratios,
returns on equity, dividend yields, capitalization ranges, growth rates,
price/book ratios, top holdings, sector breakdowns, asset allocations, quality
breakdowns, and breakdowns by geographic region.
MEASURES OF VOLATILITY AND RELATIVE PERFORMANCE. Occasionally statistics may
be used to specify fund volatility or risk. The general premise is that
greater volatility connotes greater risk undertaken in achieving performance.
Measures of volatility or risk are generally used to compare the Fund's net
asset value or performance relative to a market index. One measure of
volatility is beta. Beta is the volatility of a fund relative to the total
market as represented by the Standard & Poor's 500 Stock Index. A beta of
more than 1.00 indicates volatility greater than the market, and a beta of
less than 1.00 indicates volatility less than the market. Another measure of
volatility or risk is standard deviation. Standard deviation is a statistical
tool that measures the degree to which a fund's performance has varied from
its average performance during a particular time period.
Standard deviation is calculated using the following formula:
Standard deviation = the square root of S(xi - xm)2
n-1
Where: S = "the sum of",
xi = each individual return during the time period,
xm = the average return over the time period, and
n = the number of individual returns during the time period.
Statistics may also be used to discuss the Fund's relative performance. One
such measure is alpha. Alpha measures the actual return of a fund compared to
the expected return of a fund given its risk (as measured by beta). The
expected return is based on
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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 800-368-3863.
1. HAVE A PLAN - even a simple plan can help you take control of your
financial future. Review your plan once a year, or if your circumstances
change.
2. START INVESTING AS SOON AS POSSIBLE. Make time a valuable ally. Let it
put the power of compounding to work for you, while helping to reduce your
potential investment risk.
3. DIVERSIFY YOUR PORTFOLIO. By investing in different asset classes -
stocks, bonds, and cash - you help protect against poor performance in one
type of investment while including investments most likely to help you achieve
your important goals.
4. INVEST REGULARLY. Investing is a process, not a one-time event. By
investing regularly over the long term, you reduce the impact of short-term
market gyrations, and you attend to your long-term plan before you're tempted
to spend those assets on short-term needs.
5. MAINTAIN A LONG-TERM PERSPECTIVE. For most individuals, the best
discipline is staying invested as market conditions change. Reactive,
emotional investment decisions are all too often a source of regret - and
principal loss.
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<PAGE>
6. CONSIDER STOCKS TO HELP ACHIEVE MAJOR LONG-TERM GOALS. Over time,
stocks have provided the more powerful returns needed to help the value of
your investments stay well ahead of inflation.
7. KEEP A COMFORTABLE AMOUNT OF CASH IN YOUR PORTFOLIO. To meet current
needs, including emergencies, use a money market fund or a bank account - not
your long-term investment assets.
8. KNOW WHAT YOU'RE BUYING. Make sure you understand the potential risks
and rewards associated with each of your investments. Ask questions... request
information...make up your own mind. And choose a fund company that helps you
make informed investment decisions.
STRONG RETIREMENT PLAN SERVICES
Strong Retirement Plan Services offers a full menu of high quality, affordable
retirement plan options, including traditional money purchase pension and
profit sharing plans, 401(k) plans, simplified employee pension plans, salary
reduction plans, Keoghs, and 403(b) plans. Retirement plan specialists are
available to help companies determine which type of retirement plan may be
appropriate for their particular situation.
MARKETS. The retirement plan services provided by the Advisor focus on four
distinct markets, based on the belief that a retirement plan should fit the
customer's needs, not the other way around.
1. SMALL COMPANY PLANS. Small company plans are designed for companies
with 1-50 plan participants. The objective is to incorporate the features and
benefits typically reserved for large companies, such as sophisticated
recordkeeping systems, outstanding service, and investment expertise, into a
small company plan without administrative hassles or undue expense. Small
company plan sponsors receive a comprehensive plan administration manual as
well as toll-free telephone support.
2. LARGE COMPANY PLANS. Large company plans are designed for companies
with between 51 and 1,000 plan participants. Each large company plan is
assigned a team of professionals consisting of an account manager, who is
typically an attorney, CPA, or holds a graduate degree in business, a
conversion specialist (if applicable), an accounting manager, a
legal/technical manager, and an education/communications educator.
3. WOMEN-OWNED BUSINESSES.
4. NON-PROFIT AND EDUCATIONAL ORGANIZATIONS (THE 403(B) MARKET).
TURNKEY APPROACH. The retirement plans offered by the Advisor are designed to
be streamlined and simple to administer. To this end, the Advisor has
invested heavily in the equipment, systems, and people necessary to adopt or
convert a plan, and to keep it running smoothly. The Advisor provides all
aspects of the plan, including plan design, administration, recordkeeping, and
investment management. To streamline plan design, the Advisor provides
customizable IRS-approved prototype documents. The Advisor's services also
include annual government reporting and testing as well as daily valuation of
each participant's account. This structure is intended to eliminate the
confusion and complication often associated with dealing with multiple
vendors. It is also designed to save plan sponsors time and expense.
The Advisor strives to provide one-stop retirement savings programs that
combine the advantages of proven investment management, flexible plan design,
and a wide range of investment options. The open architecture design of the
plans allow for the use of the family of mutual funds managed by the Advisor
as well as a stable asset value option. Large company plans may supplement
these options with their company stock (if publicly traded) or funds from
other well-known mutual fund families.
EDUCATION. Participant education and communication is key to the success of
any retirement program, and therefore is one of the most important services
that the Advisor provides. The Advisor's goal is twofold: to make sure that
plan participants fully understand their options and to educate them about the
lifelong investment process. To this end, the Advisor provides attractive,
readable print materials that are supplemented with audio and video tapes, and
retirement education programs.
SERVICE. The Advisor's goal is to provide a world class level of service.
One aspect of that service is an experienced, knowledgeable team that provides
ongoing support for plan sponsors, both at adoption or conversion and
throughout the life of
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a plan. The Advisor is committed to delivering accurate and timely
information, evidenced by straightforward, complete, and understandable
reports, participant account statements, and plan summaries.
The Advisor has designed both "high-tech" and "high-touch" systems, providing
an automated telephone system as well as personal contact. Participants can
access daily account information, conduct transactions, or have questions
answered in the way that is most comfortable for them.
STRONG FINANCIAL ADVISORS GROUP
The Strong Financial Advisors Group is dedicated to helping financial advisors
better serve their clients. Financial advisors receive regular updates on the
mutual funds managed by the Advisor, access to portfolio managers through
special conference calls, consolidated mailings of duplicate confirmation
statements, access to the Advisor's network of regional representatives, and
other specialized services. For more information on the Strong Financial
Advisors Group, call 800-368-1683.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 100 East Wisconsin Avenue, Milwaukee, Wisconsin
53202, are the independent accountants for the Fund, providing audit services
and assistance and consultation with respect to the preparation of filings with
the SEC.
LEGAL COUNSEL
Godfrey & Kahn, S.C., 780 North Water Street, Milwaukee, Wisconsin 53202, acts
as legal counsel for the Fund.
FINANCIAL STATEMENTS
The Annual Report for the Fund that is attached to this SAI contains the
following audited financial information:
1. Schedule of Investments in Securities.
2. Statement of Operations.
3. Statement of Assets and Liabilities.
4. Statement of Changes in Net Assets.
5. Notes to Financial Statements.
6. Financial Highlights.
7. Report of Independent Accountants.
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APPENDIX A - ASSET COMPOSITION BY BOND RATINGS
For the fiscal year ended October 31, 1999, the Fund's assets were invested in
the credit categories shown below. Percentages are computed on a
dollar-weighted basis and are an average of twelve monthly calculations.
STRONG ASSET ALLOCATION FUND
<TABLE>
<CAPTION>
<S> <C> <C>
RATED ADVISOR'S ASSESSMENT
RATING SECURITIES* OF UNRATED SECURITIES
- -------- ----------- ---------------------------------------
AAA 4.3% 0.0%
AA 0.0 0.0
A 0.6 0.0
BBB 3.2 0.0
BB 6.8 0.2
B 14.3 0.7
CCC 0.0 0.2
CC 0.0 0.0
C 0.0 0.0
D 0.0 0.0
Subtotal 31.2% + 1.1% = 32.3%
Equity Securities + 67.7%
Total 100%
</TABLE>
* The indicated percentages are based on the highest rating received from any
one NRSRO. Each of the NRSROs utilizes rating categories that are substantially
similar to those used in this chart (see the information below for the rating
categories of several NRSROs).
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APPENDIX B - DEFINITION OF BOND RATINGS
STANDARD & POOR'S ISSUE CREDIT RATINGS
A Standard & Poor's issue credit rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial
obligation, a specific class of financial obligations, or a specific financial
program (including ratings on medium-term note programs and commercial paper
programs). It takes into consideration the creditworthiness of guarantors,
insurers, or other forms of credit enhancement of the obligation and takes
into account the currency in which the obligation is denominated. The issue
credit rating is not a recommendation to purchase, sell, or hold a financial
obligation, inasmuch as it does not comment as 7to market price or suitability
for a particular investor.
Issue credit ratings are based on current information furnished by the
obligors or obtained by Standard & Poor's from other sources it considers to
be reliable. Standard & Poor's does not perform an audit in connection with
any credit rating and may, on occasion, rely on unaudited financial
information. Credit ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on
other circumstances.
Issue credit ratings can be either long-term or short-term. Short-term
ratings are generally assigned to those obligations considered short-term in
the relevant market. In the U.S., for example, that means obligations with an
original maturity of no more than 365 days - including commercial paper.
Short-term ratings are also used to indicate the creditworthiness of an
obligor with respect to put features on long-term obligations. The result is
a dual rating, in which the short-term rating addresses the put feature, in
addition to the usual long-term rating. Medium-term notes are assigned
long-term ratings.
Issue credit ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of payment capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms of the
obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
The issue rating definitions are expressed in terms of default risk. As such,
they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority
in bankruptcy, as noted above. (Such differentiation applies when an entity
has both senior and subordinated obligations, secured and unsecured
obligations, or operating company and holding company obligations.)
Accordingly, in the case of junior debt, the rating may not conform exactly
with the category definition.
'AAA'
An obligation rated 'AAA' has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is EXTREMELY STRONG.
'AA'
An obligation rated 'AA' differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is VERY STRONG.
'A'
An obligation rated 'A' is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still STRONG.
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'BBB'
An obligation rated 'BBB' exhibits ADEQUATE protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity of the obligor to meet its financial commitment on the
obligation.
Obligations rated 'BB', 'B', 'CCC', 'CC' and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
'BB'
An obligation rated 'BB' is LESS VULNERABLE to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
'B'
An obligation rated 'B' is MORE VULNERABLE to nonpayment than obligations
rated 'BB', but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet
its financial commitment on the obligation.
'CCC'
An obligation rated 'CCC' is CURRENTLY VULNERABLE to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
'CC'
An obligation rated 'CC' is CURRENTLY HIGHLY VULNERABLE to nonpayment.
'C'
The 'C' rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this
obligation are being continued.
'D'
An obligation rated 'D' is in payment default. The 'D' rating category is
used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless Standard & Poor's believes
that such payments will be made during such grade period. The 'D' rating also
will be used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
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<PAGE>
MOODY'S LONG-TERM DEBT RATINGS
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment some time in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade obligations
(I.E., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
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 IBCA, INC. ("FITCH") LONG-TERM NATIONAL CREDIT RATINGS
AAA
Obligations which have the highest rating assigned by Fitch on its national
rating scale for that country. This rating is automatically assigned to all
obligations issued or guaranteed by the sovereign state. Capacity for timely
repayment of principal and interest is extremely strong, relative to other
obligors in the same country.
AA
Obligations for which capacity for timely repayment of principal and interest
is very strong relative to other obligors in the same country. The risk
attached to these obligations differs only slightly from the country's highest
rated debt.
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A
Obligations for which capacity for timely repayment of principal and interest
is strong relative to other obligors in the same country. However, adverse
changes in business, economic or financial conditions are more likely to
affect the capacity for timely repayment than for obligations in higher rated
categories.
BBB
Obligations for which capacity for timely repayment of principal and interest
is adequate relative to other obligors in the same country. However, adverse
changes in business, economic or financial conditions are more likely to
affect the capacity for timely repayment than for obligations in higher rated
categories.
BB
Obligations for which capacity for timely repayment of principal and interest
is uncertain relative to other obligors in the same country. Within the
context of the country, these obligations are speculative to some degree and
capacity for timely repayment remains susceptible over time to adverse changes
in business, financial or economic conditions.
B
Obligations for which capacity for timely repayment of principal and interest
is uncertain relative to other obligors in the same country. Timely repayment
of principal and interest is not sufficiently protected against adverse
changes in business, economic or financial conditions and these obligations
are more speculative than those in higher rated categories.
CCC
Obligations for which there is a current perceived possibility of default
relative to other obligors in the same country. Timely repayment of principal
and interest is dependent on favorable business, economic or financial
conditions and these obligations are far more speculative than those in higher
rated categories.
CC
Obligations which are highly speculative relative to other obligors in the
same country or which have a high risk of default.
C
Obligations which are currently in default.
DUFF & PHELPS, INC. LONG-TERM DEBT AND PREFERRED STOCK RATING SCALE
Rating Definition
AAA Highest credit quality. The risk factors are negligible, being only
slightly more
than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. 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 in periods of greater economic stress.
A-
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<PAGE>
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. 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.
THOMSON BANKWATCH LONG-TERM DEBT RATINGS
Long-Term Debt Ratings assigned by Thomson BankWatch ALSO WEIGH HEAVILY
GOVERNMENT OWNERSHIP AND SUPPORT. The quality of both the company's
management and franchise are of even greater importance in the Long-Term Debt
Rating decisions. Long-Term Debt Ratings look out over a cycle and are not
adjusted frequently for what it believes are short-term performance
aberrations.
Long-Term Debt Ratings can be restricted to local currency debt - ratings will
be identified by the designation LC. In addition, Long-Term Debt Ratings may
include a plus (+) or minus (-) to indicate where within the category the
issue is placed. BankWatch Long-Term Debt Ratings are based on the following
scale:
INVESTMENT GRADE
AAA (LC-AAA) - Indicates that the ability to repay principal and interest on a
timely basis is extremely high.
AA (LC-AA) - Indicates a very strong ability to repay principal and interest
on a timely basis, with limited incremental risk compared to issues rated in
the highest category.
A (LC-A) - Indicates the ability to repay principal and interest is strong.
Issues rated A could be more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
BBB (LC-BBB) - The lowest investment-grade category; indicates an acceptable
capacity to repay principal and interest. BBB issues are more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
NON-INVESTMENT GRADE - may be speculative in the likelihood of timely
repayment of principal and interest
BB (LC-BB) - While not investment grade, the BB rating suggests that the
likelihood of default is considerably less than for lower-rated issues.
However, there are significant uncertainties that could affect the ability to
adequately service debt obligations.
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B (LC-B) - Issues rated B show a higher degree of uncertainty and therefore
greater likelihood of default than higher-rated issues. Adverse developments
could negatively affect the payment of interest and principal on a timely
basis.
CCC (LC-CCC) - Issues rated CCC clearly have a high likelihood of default,
with little capacity to address further adverse changes in financial
circumstances.
CC (LC-CC) - CC is applied to issues that are subordinate to other obligations
rated CCC and are afforded less protection in the event of bankruptcy or
reorganization.
D (LC-D) - Default.
SHORT-TERM RATINGS
STANDARD & POOR'S SHORT-TERM ISSUE CREDIT RATINGS
'A-1'
A short-term obligation rated 'A-1' is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity
to meet its financial commitment on these obligations is extremely strong.
'A-2'
A short-term obligation rated 'A-2' is somewhat more susceptible to the averse
effects of changes in circumstances and economic conditions than obligations
in higher rating categories. However, the obligor's capacity to meet its
financial commitment on the obligation is satisfactory.
'A-3'
A short-term obligation rated 'A-3' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
'B'
A short-term obligation rated 'B' is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet
its financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet
its financial commitment on the obligation.
'C'
A short-term obligation rated 'C' is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
'D'
A short-term obligation rated 'D' is in payment default. The 'D' rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The 'D'
rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
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<PAGE>
MOODY'S SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
PRIME - 1 Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term Debt
obligations. Prime-1 repayment ability will often be evidenced by many of the
following characteristics:
- - Leading market positions in well-established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - Well-established access to a range of financial markets and assured sources
of alternate liquidity.
PRIME - 2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while
sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
PRIME - 3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market compositions
may be more pronounced. Variability in earnings and profitability
may result in changes in the level of debt protection measurements
and may require relatively high financial leverage. Adequate alternate
liquidity is maintained.
NOT PRIME Issuers rated Not Prime do not fall within any of the Prime
rating categories.
FITCH IBCA, INC. ("FITCH") SHORT-TERM NATIONAL CREDIT RATINGS
F1
Obligations assigned this rating have the highest capacity for timely repayment
under Fitch's national rating scale for that country, relative to other
obligations in the same country. This rating is automatically assigned to all
obligations issued or guaranteed by the sovereign state. Where issues possess
a particularly strong credit feature, a "+" is added to the assigned rating.
F2
Obligations supported by a strong capacity for timely repayment relative to
other obligors in the same country. However, the relative degree of risk is
slightly higher than for issues classified as 'A1' and capacity for timely
repayment may be susceptible to adverse changes in business, economic, or
financial conditions.
F3
Obligations supported by an adequate capacity for timely repayment relative to
other obligors in the same country. Such capacity is more susceptible to
adverse changes in business, economic, or financial conditions than for
obligations in higher categories.
78
<PAGE>
B
Obligations for which the capacity for timely repayment is uncertain relative
to other obligors in the same country. The capacity for timely repayment is
susceptible to adverse changes in business, economic, or financial conditions.
C
Obligations for which there is a high risk of default to other obligors in the
same country or which are in default.
DUFF & PHELPS, INC. SHORT-TERM DEBT RATINGS
RATING: 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.
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.
79
<PAGE>
THOMSON BANKWATCH (TBW) SHORT-TERM RATINGS
TBW assigns Short-Term Debt Ratings to specific debt instruments with original
maturities of one year or less.
TBW-1 (LC-1) The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 (LC-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 (LC-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 (LC-4) The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
80
<PAGE>
APPENDIX C - ADVISOR CLASS SHARES
FRONT-END SALES LOAD
The offering price for Advisor Class shares is the next NAV calculated after a
purchase order is accepted, plus any applicable initial sales charges. No
sales charge is imposed on reinvested dividends and distributions. Advisor
Class shares are also subject to Rule 12b-1 fees at an annual rate of 0.25% of
average daily net assets. The amount of the initial sales charge you pay when
you buy Advisor Class shares differs depending on the amount you invest and the
Fund you invest in, as follows:
FOR THE BLUE CHIP 100 AND GROWTH AND INCOME FUNDS.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Dealer Reallowance as
Amount of As a Percentage As a Percentage a Percentage of
Your Investment Of Offering Price of Investment Offering Price
Less than $50,000 5.75% 6.10% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 3.75%
$100,000 but less than $250,000 3.50% 3.63% 2.80%
$250,000 but less than $500,000 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000 2.00% 2.04% 1.60%
$1,000,000 or more None None None
</TABLE>
DEALER REALLOWANCES. As shown above, Distributor pays (or "reallows") a
portion of the initial sales charge. The dealer reallowance is expressed as a
percentage of the Advisor Class shares' offering price.
WAIVER OF FRONT-END SALES LOAD
As used in this Appendix, the term "dealer" includes any broker, dealer, bank
(including bank trust departments), registered investment adviser, financial
planner and any other financial institutions having a selling agreement or
other similar agreement with Distributor. In the following circumstances, the
initial sales charge imposed on purchases of Advisor Class shares are waived:
1. DIVIDEND REINVESTMENT. Shares acquired through reinvestment of dividends
and distributions.
2. CERTAIN ACQUISITIONS/LIQUIDATIONS. Shares acquired on account of the
acquisition or liquidation of assets of other investment companies.
3. WRAP ACCOUNT AND FUND "SUPERMARKET" INVESTMENTS. Shares acquired by
investments through certain dealers (including registered investment
advisors and financial planners) which have established certain operational
arrangements with the Advisor which include a requirement that such shares
be sold for the sole benefit of clients participating in a "wrap" account,
mutual fund "supermarket" account, or a similar program under which such
clients pay a fee to such dealer.
4. INVESTMENTS BY INSURANCE COMPANY SEPARATE ACCOUNTS. Shares acquired by
insurance company separate accounts.
5. CERTAIN RETIREMENT PLANS. Shares acquired by certain retirement plans or
trust accounts whose third party administrators or dealers have entered into
an administrative services agreement with Distributor or the Advisor or one
of their affiliates to perform certain administrative services, subject to
certain operational and minimum size requirements specified from time to
time by Distributor or the Advisor or one of their affiliates.
6. BANK TRUST DEPARTMENTS AND LAW FIRMS. Shares acquired by certain bank trust
departments or law firms acting as trustee or manager for trust accounts
which have entered into an administrative services agreement with
Distributor or the Advisor or one of their affiliates and the shares are
being acquired for the benefit of their trust account clients.
81
<PAGE>
OTHER ADVISOR CLASS SHARES INFORMATION
1. REINSTATEMENT PRIVILEGE. Shareholders of the Fund who have redeemed their
shares have a one-time right to reinvest the redemption proceeds at net
asset value (without a sales charge). Such a reinvestment must be made
within 90 days of the redemption and is limited to the amount of the
redemption proceeds. Although redemptions and repurchases of shares are
taxable events, a reinvestment within a certain period of time in the same
fund may be considered a "wash sale" and may result in the inability to
recognize currently all or a portion of a loss realized on the original
redemption for federal income tax purposes. Please see your tax adviser for
further information.
2. LETTER OF INTENT (LOI). If a shareholder (other than a group purchaser
described below) anticipates purchasing $50,000 or more of Advisor Class
shares of a Fund within a 13-month period, the shareholder may obtain
Advisor Class shares of the Fund at the same reduced sales charge as though
the total quantity were invested in one lump sum by completing the Letter of
Intent and delivering the Letter of Intent to the Advisor within 90 days of
the commencement of purchases. Subject to acceptance by the Advisor and the
conditions mentioned below, each purchase will be made at a public offering
price applicable to a single transaction of the dollar amount specified in
the Letter of Intent. The shareholder or his dealer must inform the Advisor
that the Letter of Intent is in effect each time shares are purchased. The
shareholder makes no commitment to purchase additional shares, but if his
purchases within 13 months plus the value of shares credited toward
completion of the Letter of Intent do not total the sum specified, the
shareholder will pay the increased amount of the sales charge as described
below. Instructions for issuance of shares in the name of a person other
than the person signing the Letter of Intent application must be accompanied
by a written statement from the dealer stating that the shares were paid for
by the person signing such Letter. Neither income dividends nor capital gain
distributions taken in additional shares will apply toward the completion of
the Letter of Intent. Out of the shareholder's initial purchase (or
subsequent purchases if necessary), shares equal to difference between the
lower sales charge and the higher sales charge the investor would have paid
had the investor not purchased shares through this program will be held in
escrow until the intended amount is invested. These escrowed shares may be
redeemed by the Fund if the investor is required to pay additional sales
charges. When the minimum investment so specified is completed the escrowed
shares will be released. If the intended investment is not completed, the
Advisor or Distributor will redeem an appropriate number of the escrowed
shares in order to realize such difference. Shares remaining after any such
redemption will be released by the Advisor or Distributor. By completing
and signing the Account Application or Letter of Intent, the shareholder
irrevocably appoints the Advisor and/or the Distributor as the shareholder's
attorney to surrender for redemption any or all escrowed shares with full
power of substitution in the premises.
3. RIGHT OF ACCUMULATION. A shareholder qualifies for cumulative quantity
discounts on the purchase of Advisor Class shares when the shareholder's new
investment, together with the current offering price value of Advisor Class
shares of that Fund reaches a discount level. A shareholder (or his
investment adviser) must provide the Advisor or Distributor with information
to verify that the quantity sales charge discount is applicable at the time
the investment is made.
4. GROUP PURCHASES. A bona fide group and all its members may be treated as a
single purchaser and, under the Right of Accumulation (but not the Letter of
Intent) obtain quantity sales charge discounts on the purchase of Advisor
Class shares if the group (1) gives its endorsement or authorization to the
investment program so it may be used by the investment dealer to facilitate
solicitation of the membership, thus effecting economies of sales effort;
(2) has been in existence for at least six months and has a legitimate
purpose other than to purchase mutual fund shares at a discount; (3) is not
a group of individuals whose sole organizational nexus is as credit
cardholders of a company, policyholders of an insurance company, customers
of a bank or broker-dealer, clients of an investment adviser or other
similar groups; and (4) agrees to provide certification of membership of
those members investing money in the Advisor Class shares upon the request
of the Advisor or Distributor.
82
<PAGE>
ADDITIONAL DEALER COMMISSIONS/CONCESSIONS
Dealers may receive different compensation with respect to sales of Advisor
Class shares. In addition, from time to time, Distributor may pay dealers 100%
of the applicable sales charge on sales of Advisor Class shares of certain
specified Funds sold by such dealer during a specified sales period. In
addition, from time to time, Distributor, at its expense, may provide
additional commissions, compensation or promotional incentives ("concessions")
to dealers which sell or arrange for the sale of shares of the Fund. Such
concessions provided by Distributor may include financial assistance to dealers
in connection with pre-approved conferences or seminars, sales or training
programs for invited registered representatives and other employees, payment
for travel expenses, including lodging, incurred by registered representatives
and other employees for such seminars or training programs, seminars for the
public, advertising and sales campaigns regarding one or more Funds, and/or
other dealer-sponsored events. From time to time, Distributor may make expense
reimbursements for special training of a dealer's registered representatives
and other employees in group meetings or to help pay the expenses of sales
contests. Other concessions may be offered to the extent not prohibited by
state laws or any self-regulatory agency, such as the NASD.
83
<PAGE>
STRONG CONSERVATIVE EQUITY FUNDS, INC.
PART C
OTHER INFORMATION
Item 23. EXHIBITS
(a) Articles of Incorporation dated July 31, 1996(3)
(a.1) Amendment to Articles of Incorporation dated June 24, 1997(5)
(a.2) Amendment to Articles of Incorporation dated August 7, 1997(6)
(a.3) Amendment to Articles of Incorporation dated February 22, 2000
(b) Bylaws dated October 20, 1995(1)
(b.1) Amendment to Bylaws dated May 1, 1998(7)
(c) Specimen Stock Certificate
(d) Amended and Restated Investment Advisory Agreement
(d.1) Amended and Restated Subadvisory Agreement (Strong American
Utilities Fund)
(d.2) Subadvisory Agreement (Strong Limited Resources Fund)(6)
(e) Distribution Agreement - Investor and Institutional Class
(e.1) Distribution Agreement - Advisor Class
(e.2) Dealer Agreement
(e.3) Services Agreement
(f) Inapplicable
(g) Custody Agreement with Firstar(2)
(g.1) Global Custody Agreement with Brown Brothers Harriman & Co.(2)
(g.2) Amendment to Global Custody Agreement with Brown Brothers
Harriman & Co. dated August 26, 1996(4)
(h) Amended and Restated Transfer and Dividend Disbursing Agent
Agreement
(h.1) Administration Agreement - Investor Class
(h.2) Administration Agreement - Advisor Class
(h.3) Administration Agreement - Institutional Class
(i) Opinion and Consent of Counsel
(j) Consent of Independent Accountants
(k) Inapplicable
(l) Inapplicable
(m) Amended and Restated Rule 12b-1 Plan
(n) Amended and Restated Rule 18f-3 Plan
(o) Inapplicable
(p) Code of Ethics for Access Persons dated January 1, 1999(8)
(p.1) Code of Ethics for Non-Access Persons dated January 1, 1999(8)
(q) Power of Attorney dated February 25, 1999(8)
(q.1) Power of Attorney dated December 27, 1999(9)
(r) Letter of Representation
(1) Incorporated herein by reference to Post-Effective Amendment No. 6 to
the Registration Statement on Form N-1A of Registrant filed on or about
December 13, 1995.
(2) Incorporated herein by reference to Post-Effective Amendment No. 8 to
the Registration Statement on Form N-1A of the Registrant filed on or about
June 26, 1996.
(3) Incorporated herein by reference to Post-Effective Amendment No. 9 to
the Registration Statement on Form N-1A of the Registrant filed on or about
December 30, 1996.
2
<PAGE>
(4) Incorporated herein by reference to Post-Effective Amendment No. 10 to
the Registration Statement on Form N-1A of the Registrant filed on or about
February 27, 1997.
(5) Incorporated herein by reference to Post-Effective Amendment No. 12 to
the Registration Statement on Form N-1A of the Registrant filed on or about
June 27, 1997.
(6) Incorporated herein by reference to Post-Effective Amendment No. 14 to
the Registration Statement on Form N-1A of the Registrant filed on or about
September 26, 1997.
(7) Incorporated herein by reference to Post-Effective Amendment No. 17 to
the Registration Statement on Form N-1A of the Registrant filed on or about
December 31, 1998.
(8) Incorporated herein by reference to Post-Effective Amendment No. 18 to
the Registration Statement on Form N-1A of the Registrant filed on or about
February 26, 1999.
(9) Incorporated herein by reference to Post-Effective Amendment No. 19 to
the Registration Statement on Form N-1A of the Registrant filed on or about
January 3, 2000.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant neither controls any person nor is under common control with
any other person.
Item 25. INDEMNIFICATION
Officers and directors of the Funds, its advisor and underwriter are
insured under a joint directors and officers/errors and omissions insurance
policy underwritten by a group of insurance companies in the aggregate amount
of $115,000,000, subject to certain deductions. Pursuant to the authority of
the Wisconsin Business Corporation Law ("WBCL"), Article VII of Registrant's
Bylaws provides as follows:
ARTICLE VII. INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 7.01 MANDATORY INDEMNIFICATION. The Corporation shall indemnify,
to the full extent permitted by the WBCL, as in effect from time to time, the
persons described in Sections 180.0850 through 180.0859 (or any successor
provisions) of the WBCL or other provisions of the law of the State of
Wisconsin relating to indemnification of directors and officers, as in effect
from time to time. The indemnification afforded such persons by this section
shall not be exclusive of other rights to which they may be entitled as a
matter of law.
SECTION 7.02. PERMISSIVE SUPPLEMENTARY BENEFITS. The Corporation may,
but shall not be required to, supplement the right of indemnification under
Section 7.01 by (a) the purchase of insurance on behalf of any one or more of
such persons, whether or not the Corporation would be obligated to indemnify
such person under Section 7.01; (b) individual or group indemnification
agreements with any one or more of such persons; and (c) advances for related
expenses of such a person.
SECTION 7.03. AMENDMENT. This Article VII may be amended or repealed
only by a vote of the shareholders and not by a vote of the Board of Directors.
SECTION 7.04. INVESTMENT COMPANY ACT. In no event shall the Corporation
indemnify any person hereunder in contravention of any provision of the
Investment Company Act.
3
<PAGE>
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
AMERICAN UTILITIES AND LIMITED RESOURCES FUNDS
The information contained under "Who are the funds' investment advisor and
portfolio managers?" in the Prospectus and under "Directors and Officers,"
"Investment Advisor," "Investment Subadvisor," and "Distributor" in the
Statement of Additional Information is hereby incorporated by reference
pursuant to Rule 411 under the Securities Act of 1933.
BLUE CHIP 100, EQUITY INCOME, AND GROWTH AND INCOME FUNDS
The Information contained under "Who are the funds' investment advisor and
portfolio managers?" in the Prospectus and under "Directors and Officers,"
"Investment Advisor," and "Distributor" in the Statement of Additional
Information is hereby incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
Item 27. PRINCIPAL UNDERWRITERS
(a) Strong Investments, Inc., principal underwriter for Registrant, also
serves as principal underwriter for Strong Advantage Fund, Inc.; Strong Asia
Pacific Fund, Inc.; Strong Asset Allocation Fund, Inc.; Strong Common Stock
Fund, Inc.; Strong Corporate Bond Fund, Inc.; Strong Discovery Fund, Inc.;
Strong Equity Funds, Inc.; Strong Government Securities Fund, Inc.; Strong
Heritage Reserve Series, Inc.; Strong High-Yield Municipal Bond Fund, Inc.;
Strong Income Funds, Inc.; Strong Income Funds II, Inc.; Strong International
Equity Funds, Inc.; Strong International Income Funds, Inc.; Strong Life Stage
Series, Inc.; Strong Money Market Fund, Inc.; Strong Municipal Bond Fund, Inc.;
Strong Municipal Funds, Inc.; Strong Opportunity Fund, Inc.; Strong Opportunity
Fund II, Inc.; Strong Schafer Funds, Inc.; Strong Schafer Value Fund, Inc.;
Strong Short-Term Bond Fund, Inc.; Strong Short-Term Global Bond Fund, Inc.;
Strong Short-Term Municipal Bond Fund, Inc.; Strong Total Return Fund, Inc.;
and Strong Variable Insurance Funds, Inc.
(b)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH UNDERWRITER WITH FUND
Richard S. Strong Director and Chairman Director and Chairman
100 Heritage Reserve of the Board of the Board
Menomonee Falls, WI 53051
Stephen J. Shenkenberg Vice President, Vice President and
100 Heritage Reserve Chief Compliance Officer Secretary
Menomonee Falls, WI 53051 and Secretary
Bradley C. Tank President none
100 Heritage Reserve
Menomonee Falls, WI 53051
Dana J. Russart Vice President none
100 Heritage Reserve
Menomonee Falls, WI 53051
Lyle J. Fitterer Vice President none
100 Heritage Reserve
Menomonee Falls, WI 53051
4
<PAGE>
Michael W. Stefano Vice President none
100 Heritage Reserve
Menomonee Falls, WI 53051
Thomas M. Zoeller Treasurer and Chief Vice President
100 Heritage Reserve Financial Officer
Menomonee Falls, WI 53051
Richard T. Weiss Director none
100 Heritage Reserve
Menomonee Falls, WI 53051
(c) None
Item 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are in the physical possession of Registrant's Vice President,
Stephen J. Shenkenberg, at Registrant's corporate offices, 100 Heritage
Reserve, Menomonee Falls, Wisconsin 53051.
Item 29. MANAGEMENT SERVICES
All management-related service contracts entered into by Registrant are
discussed in Parts A and B of this Registration Statement.
Item 30. UNDERTAKINGS
None
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment No. 20 to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933, and has duly caused this Post-Effective Amendment No. 20 to the
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the Village of Menomonee Falls, and State of Wisconsin on
the 23rd day of February, 2000.
STRONG CONSERVATIVE EQUITY FUNDS, INC.
(Registrant)
By: /S/ STEPHEN J. SHENKENBERG
Stephen J. Shenkenberg, Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 20 to the Registration Statement on Form N-1A has
been signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME TITLE DATE
- --------------------- ---------------------------------- -----------------
Chairman of the Board (Principal
/s/ Richard S. Strong Executive Officer) and a Director February 23, 2000
- ---------------------
Richard S. Strong
Treasurer (Principal Financial and
/s/ John W. Widmer Accounting Officer) February 23, 2000
- ---------------------
John W. Widmer
Director February 23, 2000
- ---------------------
Marvin E. Nevins*
Director February 23, 2000
- ---------------------
Willie D. Davis*
Director February 23, 2000
- ---------------------
William F. Vogt*
Director February 23, 2000
- ---------------------
Stanley Kritzik*
Director February 23, 2000
- ---------------------
Neal Malicky*
</TABLE>
* John S. Weitzer signs this document pursuant to powers of attorney filed
with Post-Effective Amendment No. 18 and with Post-Effective Amendment No. 19
to the Registration Statement on Form N-1A.
By: /S/ JOHN S. WEITZER
John S. Weitzer
1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
EDGAR
EXHIBIT NO. EXHIBIT EXHIBIT NO.
- ----------- --------------------------------------------------------------------------- ----------
(a.3) Amendment to Articles of Incorporation EX-99.a3
(c) Specimen Stock Certificate EX-99.c
(d) Amended and Restated Investment Advisory Agreement EX-99.d
(d.1) Amended and Restated Subadvisory Agreement (Strong American Utilities Fund) EX-99.d1
(e) Distribution Agreement - Investor and Institutional Class EX-99.e
(e.1) Distribution Agreement - Advisor Class EX-99.e1
(e.2) Dealer Agreement EX-99.e3
(e.3) Services Agreement EX-99.e4
(h) Amended and Restated Transfer and Dividend Disbursing Agent Agreement EX-99.h
(h.1) Administration Agreement - Investor Class EX-99.h1
(h.2) Administration Agreement - Advisor Class EX-99.h2
(h.3) Administration Agreement - Institutional Class EX-99.h3
(i) Opinion and Consent of Counsel EX-99.i
(j) Consent of Independent Accountants EX-99.j
(m) Amended and Restated Rule 12b-1 Plan EX-99.m
(n) Amended and Restated Rule 18f-3 Plan EX-99.n
(r) Letter of Representation EX-99.r
</TABLE>
1
<PAGE>
TO BE EFFECTIVE FEBRUARY 22, 2000
AMENDMENT OF ARTICLES OF INCORPORATION
OF
STRONG CONSERVATIVE EQUITY FUNDS, INC.
The undersigned Vice President of Strong Conservative Equity Funds,
Inc. (the "Corporation"), hereby certifies that in accordance with Section
180.1002 of the Wisconsin Statutes, the following Amendment was duly adopted to
redesignate the Corporation's shares of Strong Growth and Income Fund and
Strong Blue Chip 100 Fund as the Investor series of the Strong Growth and
Income Fund and Strong Blue Chip 100 Fund, respectively, as indicated below,
and to create the Advisor series of the Strong Blue Chip 100 Fund and the
Advisor and Institutional series of the Strong Growth and Income Fund.
"Paragraph A of Article IV is hereby amended by deleting Paragraph A
thereof and inserting the following as a new paragraph:
'A. The Corporation shall have the authority to issue an indefinite
number of shares of Common Stock with a par value of $.00001 per share. Subject
to the following paragraph the authorized shares are classified as follows:
CLASS SERIES AUTHORIZED NUMBER OF SHARES
Strong American Utilities Fund Indefinite
Strong Equity Income Fund Indefinite
Strong Growth and Income Fund Investor Indefinite
Advisor Indefinite
Institutional Indefinite
Strong Blue Chip 100 Fund Investor Indefinite
Advisor Indefinite
Strong Limited Resources Fund Indefinite'''
This Amendment to the Articles of Incorporation of the Corporation
was adopted by the Board of Directors on January 28, 2000 in accordance with
Section 180.1002 and 180.0602 of the Wisconsin Statutes. Shareholder approval
was not required. No shares of the Advisor series of the Strong Blue Chip 100
Fund or the Advisor or Institutional series of the Strong Growth and Income
Fund have been issued.
1
<PAGE>
Executed in duplicate this 31st day of January, 2000.
STRONG CONSERVATIVE EQUITY FUNDS, INC.
By: /s/ Stephen J. Shenkenberg
Stephen J. Shenkenberg, Vice President
This instrument was drafted by:
Susan Anne Hollister
Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
2
<PAGE>
SPECIMEN STOCK CERTIFICATE
NUMBER STRONG LOGO SHARES
_________
___________
CUSIP
___________
STRONG <<FUND>>, a series of
STRONG <<FUND>>, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF WISCONSIN
Investor Class
This Certifies that is the owner
of
Shares of the Common Stock, Par Value $.__________ per share, of Strong
<<Fund>>, Inc. - Strong <<FUND>> 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/ Stephen J. Shenkenberg /s/ John S. Weitzer
Secretary Vice President
<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 the (Cust) (Minor)
right of survivorship Under Uniform Transfers to Minors
and not as tenants in Act - ___________________________________
common 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 the capital stock represented by the within Certificate, and do
hereby
irrevocably constitute and
appoint______________________________________________
________________________________________________________________________________
as attorney, to transfer the said shares on the books of the within named
Corporation with full power of substitution.
Date ______________________________
__________________________________________
Signature
NOTICE: THE SIGNATURE TO 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
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Strong <<Funds>>, Inc. is authorized to issue common stock for multiple
1
<PAGE>
series and classes of shares of the Corporation. Upon written request and
without charge, a Shareholder will be given a summary of the designations,
relative rights, preferences and limitations determined for each series and
class. The Board of Directors is authorized to determine variations for
different series or classes of unissued shares, and to redesignate any
existing series or classes of issued shares of the Corporation.
2
<PAGE>
AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made and entered into on ___________, and as amended and
restated on this _____ day of _______, 2000, between STRONG ___________, INC.,
a Wisconsin corporation (the "Corporation"), and STRONG CAPITAL MANAGEMENT,
INC., a Wisconsin corporation (the "Adviser");
WITNESSETH
WHEREAS, the Corporation is an open-end management investment company
under the Investment Company Act of 1940 (the "1940 Act");
WHEREAS, the Corporation is authorized to create separate series, each
with its own separate investment portfolio; and,
WHEREAS, the Corporation desires to retain the Adviser, which is a
registered investment adviser under the Investment Advisers Act of 1940, to act
as investment adviser for each series of the Corporation listed in Schedule A
attached hereto, and to manage each of their assets;
NOW, THEREFORE, the Corporation and the Adviser do mutually agree and
promise as follows:
1. EMPLOYMENT. The Corporation hereby appoints Adviser as investment
adviser for each series of the Corporation listed on Schedule A attached hereto
(a "Portfolio" or collectively, the "Portfolios"), and Adviser accepts such
appointment. Subject to the supervision of the Board of Directors of the
Corporation and the terms of this Agreement, the Adviser shall act as
investment adviser for and manage the investment and reinvestment of the assets
of any Portfolio. The Adviser is hereby authorized to delegate some or all of
its services subject to necessary approval, which includes without limitation,
the delegation of its investment adviser duties hereunder to a subadvisor
pursuant to a written agreement (a "Subadvisory Agreement") under which the
subadvisor shall furnish the services specified therein to the Adviser. The
Adviser will continue to have responsibility for all investment advisory
services furnished pursuant to a Subadvisory Agreement. The Adviser shall (i)
provide for use by the Corporation, at the Adviser's expense, office space and
all necessary office facilities, equipment and personnel for servicing the
investments of each Portfolio, (ii) pay the salaries and fees of all officers
and directors of the Corporation who are "interested persons" of the Adviser as
such term is defined under the 1940 Act, and (iii) pay for all clerical
services relating to research, statistical and investment work.
2. ALLOCATION OF PORTFOLIO BROKERAGE. The Adviser is authorized,
subject to the supervision of the Board of Directors of the Corporation, to
place orders for the purchase and sale of securities and to negotiate
commissions to be paid on such transactions. The Adviser may, on behalf of each
Portfolio, pay brokerage commissions to a broker which provides brokerage and
research services to the Adviser in excess of the amount another broker would
have charged for effecting the transaction, provided (i) the Adviser determines
in good faith that the amount is reasonable in relation to the value of the
brokerage and research services provided by the executing broker in terms of
the particular transaction or in terms of the Adviser's overall
responsibilities with respect to a Portfolio and the accounts as to which the
Adviser exercises investment discretion, (ii) such payment is made in
compliance with Section 28(e) of the Securities Exchange Act of 1934 and other
applicable state and federal laws, and (iii) in the opinion of the Adviser, the
total commissions paid by a Portfolio will be reasonable in relation to the
benefits to such Portfolio over the long term.
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3. EXPENSES. Each Portfolio will pay all its expenses and the
Portfolio's allocable share of the Corporation's expenses, other than those
expressly stated to be payable by the Adviser hereunder, which expenses payable
by a Portfolio shall include, without limitation, interest charges, taxes,
brokerage commissions and similar expenses, expenses of issue, sale, repurchase
or redemption of shares, expenses of registering or qualifying shares for sale,
expenses of printing and distributing prospectuses to existing shareholders,
charges of custodians (including sums as custodian and for keeping books and
similar services of the Portfolios), transfer agents (including the printing
and mailing of reports and notices to shareholders), registrars, auditing and
legal services, clerical services related to recordkeeping and shareholder
relations, printing of share certificates, fees for directors who are not
"interested persons" of the Adviser, and other expenses not expressly assumed
by the Adviser under Paragraph 1 above. If expenses payable by a Portfolio,
except interest charges, taxes, brokerage commissions and similar fees, and to
the extent permitted, extraordinary expenses, in any given fiscal year exceed
that percentage of the average net asset value of the Portfolio for such year,
as determined by valuations made as of the close of each business day of such
year, which is the most restrictive percentage expense limitation provided by
the laws of the various states in which the Portfolio's shares are qualified
for sale, or if the states in which the shares qualified for sale impose no
restrictions, then 2%, the Adviser shall reimburse the Portfolio for such
excess. Reimbursement of expenses by the Adviser shall be made on a monthly
basis and will be paid to a Portfolio by a reduction in the Adviser's fee,
subject to later adjustment month by month for the remainder of the Portfolio's
fiscal year.
4. AUTHORITY OF ADVISER. The Adviser shall for all purposes herein be
considered an independent contractor and shall not, unless expressly authorized
and empowered by the Corporation or any Portfolio, have authority to act for or
represent the Corporation or any Portfolio in any way, form or manner. Any
authority granted by the Corporation on behalf of itself or any Portfolio to
the Adviser shall be in the form of a resolution or resolutions adopted by the
Board of Directors of the Corporation.
5. COMPENSATION OF ADVISER. For the services to be furnished during
any month by the Adviser hereunder, each Portfolio listed in Schedule A shall
pay the Adviser, and the Adviser agrees to accept as full compensation for all
services rendered hereunder, an Advisory Fee as soon as practical after the
last day of such month. The Advisory Fee shall be an amount equal to 1/12th of
the annual fee as set forth in Schedule B of the average of the net asset value
of the Portfolio determined as of the close of business on each business day
throughout the month (the "Average Asset Value"). In case of termination of
this Agreement with respect to any Portfolio during any month, the fee for that
month shall be reduced proportionately on the basis of the number of calendar
days during which it is in effect and the fee computed upon the Average Asset
Value of the business days during which it is so in effect.
6. RIGHTS AND POWERS OF ADVISER. The Adviser's rights and powers with
respect to acting for and on behalf of the Corporation or any Portfolio,
including the rights and powers of the Adviser's officers and directors, shall
be as follows:
(a) Directors, officers, agents and shareholders of the Corporation
are or may at any time or times be interested in the Adviser as officers,
directors, agents, shareholders or otherwise. Correspondingly, directors,
officers, agents and shareholders of the Adviser are or may at any time or
times be interested in the Corporation as directors, officers, agents and as
shareholders or otherwise, but nothing herein shall be deemed to require the
Corporation to take any action contrary to its Articles of Incorporation or any
applicable statute or regulation. The Adviser shall, if it so elects, also have
the right to be a shareholder in any Portfolio.
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<PAGE>
(b) Except for initial investments in a Portfolio, not in excess of
$100,000 in the aggregate for the Corporation, the Adviser shall not take any
long or short positions in the shares of the Portfolios and that insofar as it
can control the situation it shall prevent any and all of its officers,
directors, agents or shareholders from taking any long or short position in the
shares of the Portfolios. This prohibition shall not in any way be considered
to prevent the Adviser or an officer, director, agent or shareholder of the
Adviser from purchasing and owning shares of any of the Portfolios for
investment purposes. The Adviser shall notify the Corporation of any sales of
shares of any Portfolio made by the Adviser within two months after purchase by
the Adviser of shares of any Portfolio.
(c) The services of the Adviser to each Portfolio and the Corporation
are not to be deemed exclusive and Adviser shall be free to render similar
services to others as long as its services for others does not in any way
hinder, preclude or prevent the Adviser from performing its duties and
obligations under this Agreement. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject to
liability to the Corporation or to any of the Portfolios or to any shareholder
for any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security.
7. DURATION AND TERMINATION. The following shall apply with respect to
the duration and termination of this Agreement:
(a) This Agreement shall begin for each Portfolio as of the date of
this Agreement and shall continue in effect for two years. With respect to each
Portfolio added by execution of an Addendum to Schedule A, the term of this
Agreement shall begin on the date of such execution and, unless sooner
terminated as hereinafter provided, this Agreement shall remain in effect to
the date two years after such execution. Thereafter, in each case, this
Agreement shall remain in effect, for successive periods of one year, subject
to the provisions for termination and all of the other terms and conditions
hereof if: (a) such continuation shall be specifically approved at least
annually by either (i) the affirmative vote of a majority of the Board of
Directors of the Corporation, including a majority of the Directors who are not
parties to this Agreement or interested persons of any such party (other than
as Directors of the Corporation), cast in person at a meeting called for that
purpose or (ii) by the affirmative vote of a majority of a Portfolio's
outstanding voting securities; and (b) Adviser shall not have notified a
Portfolio in writing at least sixty (60) days prior to the anniversary date of
this Agreement in any year thereafter that it does not desire such continuation
with respect to that Portfolio. Prior to voting on the renewal of this
Agreement, the Board of Directors of the Corporation may request and evaluate,
and the Adviser 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 with respect to any Portfolio,
without payment of any penalty, by affirmative vote of a majority of the Board
of Directors of the Corporation, or by vote of a majority of the outstanding
voting securities of that Portfolio, as defined in Section 2(a)(42) of the 1940
Act, or by the Adviser, in each case, upon sixty (60) days' written notice to
the other party and shall terminate automatically in the event of its
assignment.
8. AMENDMENT. This Agreement may be amended by mutual consent of the
parties, provided that the terms of each such amendment shall be approved by
the vote of a majority of the Board of Directors of the
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Corporation, including a majority of the Directors who are not parties to this
Agreement or interested persons of any such party to this Agreement (other than
as Directors of the Corporation) cast in person at a meeting called for that
purpose, and, where required by Section 15(a)(2) of the 1940 Act, on behalf of
a Portfolio by a majority of the outstanding voting securities (as defined in
Section 2(a)(42) of the 1940 Act) of such Portfolio. If such amendment is
proposed in order to comply with the recommendations or requirements of the
Securities and Exchange Commission or state regulatory bodies or other
governmental authority, or to obtain any advantage under state or federal laws,
the Corporation shall notify the Adviser of the form of amendment which it
deems necessary or advisable and the reasons therefor, and if the Adviser
declines to assent to such amendment, the Corporation may terminate this
Agreement forthwith.
9. NOTICE. Any notice that is required to be given by the parties to
each other under the terms of this Agreement shall be in writing, addressed and
delivered, or mailed postpaid to the other party at the principal place of
business of such party.
10. ASSIGNMENT. This Agreement shall neither be assignable nor subject
to pledge or hypothecation and in the event of assignment, pledge or
hypothecation shall automatically terminate. For purposes of determining
whether an "assignment" has occurred, the definition of "assignment" in Section
2(a)(4) of the 1940 Act shall control.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed as of the day and year first stated above.
<TABLE>
<CAPTION>
<S> <C> <C>
Attest: Strong Capital Management, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Strong ___________, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
</TABLE>
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<PAGE>
SCHEDULE A
The Portfolio(s) of the Strong ___________, Inc. currently subject to this
Agreement are as follows:
Date of Addition
PORTFOLIO(S) TO THIS AGREEMENT
<TABLE>
<CAPTION>
<S> <C> <C>
Attest: Strong Capital Management, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Strong ___________, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
</TABLE>
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<PAGE>
SCHEDULE B
Compensation pursuant to Paragraph 5 of this Agreement shall be calculated in
accordance with the following schedules:
PORTFOLIO(S) ANNUAL FEE
<TABLE>
<CAPTION>
<S> <C> <C>
Attest: Strong Capital Management, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Strong ___________, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
</TABLE>
6
<PAGE>
AMENDED AND RESTATED
SUBADVISORY AGREEMENT
THIS AGREEMENT is made and entered into on this 25th day of June,
1993, and as amended and restated as of February 28, 2000, between STRONG
CAPITAL MANAGEMENT, INC. (the "Adviser"), a Wisconsin corporation registered
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and
W.H. REAVES & CO., INC. (the "Subadviser"), a Delaware corporation registered
under the Advisers Act.
WITNESSETH:
WHEREAS, Strong American Utilities Fund (the "Fund"), a series of the
Strong Conservative Equity Funds, Inc., a Wisconsin corporation, is registered
with the U.S. Securities and Exchange Commission (the "Commission") as a series
fund of an open-end management investment company under the Investment Company
Act of 1940, as amended (the "Investment Company Act");
WHEREAS, the Advisory Agreement permits the Adviser to delegate
certain of its duties under the Advisory Agreement to other investment
advisers, subject to the requirements of the Investment Company Act; and
WHEREAS, the Adviser desires to retain the Subadviser as subadviser
for the Fund to act as investment adviser for and to manage the Fund's
Investments (as defined below) and the Subadviser desires to render such
services.
NOW, THEREFORE, the Adviser and Subadviser do mutually agree and
promise as follows:
1. APPOINTMENT AS SUBADVISER. The Adviser hereby retains the
Subadviser to act as investment adviser for and to manage certain assets of the
Fund subject to the supervision of the Adviser and the Board of Directors of
the Fund and subject to the terms of this Agreement; and the Subadviser hereby
accepts such employment. In such capacity, the Subadviser shall be responsible
for the Fund's investments.
2. DUTIES OF SUBADVISER.
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(a) INVESTMENTS. The Subadviser is hereby authorized and
directed and hereby agrees, subject to the stated investment policies and
restrictions of the Fund as set forth in the Fund's current prospectus and
statement of additional information as currently in effect and as supplemented
or amended from time to time (collectively referred to hereinafter as the
"Prospectus") and subject to the directions of the Adviser and the Fund's Board
of Directors, to purchase, hold and sell investments for the account of the
Fund (hereinafter "Investments") and to monitor on a continuous basis the
performance of such Investments.
(b) ALLOCATION OF BROKERAGE. The Subadviser is authorized,
subject to the supervision of the Adviser and the Board of Directors of the
Fund, to place orders for the purchase and sale of the Fund's Investments with
or through such persons, brokers or dealers, including the Subadviser or
affiliates thereof, and to negotiate commissions to be paid on such
transactions in accordance with the Fund's policy with respect to brokerage as
set forth in the Prospectus. The Subadviser may, on behalf of the Fund, pay
brokerage commissions to a broker which provides brokerage and research
services to the Subadviser in excess of the amount another broker would have
charged for effecting the transaction, provided (i) the Subadviser determines
in good faith that the amount is reasonable in relation to the value of the
brokerage and research services provided by the executing broker in terms of
the particular transaction or in terms of the Subadviser's overall
responsibilities with respect to the Fund and the accounts as to which the
Subadviser exercises investment discretion, (ii) such payment is made in
compliance with Section 28(e) of the Securities Exchange Act of 1934, as
amended, and any other applicable laws and regulations, and (iii) in the
opinion of the Subadviser, the total commissions paid by the Fund will be
reasonable in relation to the benefits to the Fund over the long term. It is
recognized that the services provided by such brokers may be useful to the
Subadviser in connection with the Subadviser's services to other clients. On
occasions when the Subadviser deems the purchase or sale of a security to be in
the best interests of the Fund as well as other clients of the Subadviser, the
Subadviser, to the extent permitted by applicable laws and regulations, may,
but shall be under no obligation to, aggregate the securities to be sold or
purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of securities
so sold or purchased, as well as the expenses incurred in the transaction, will
be made by the Subadviser in the manner the Subadviser considers to be the most
equitable and consistent with its fiduciary obligations to the Fund and to such
other clients.
(c) SECURITIES TRANSACTIONS. The Subadviser and any affiliated
person of the Subadviser will not purchase securities or other instruments from
or sell securities or other instruments to the Fund; PROVIDED, HOWEVER, the
Subadviser may purchase
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<PAGE>
securities or other instruments from or sell securities or other instruments to
the Fund if such transaction is permissible under applicable laws and
regulations, including, without limitation, the Investment Company Act and the
Advisers Act and the rules and regulations promulgated thereunder.
The Subadviser agrees to observe and comply with Rule 17j-1 under the
Investment Company Act and the Fund's Code of Ethics, as the same may be
amended from time to time. The Subadviser will make available to the Adviser
or the Fund at any time upon request, including facsimile without delay, during
any business day any reports required to be made by the Subadviser pursuant to
Rule 17j-1 under the Investment Company Act.
(d) BOOKS AND RECORDS. The Subadviser will maintain all books
and records required to be maintained pursuant to the Investment Company Act
and the rules and regulations promulgated thereunder with respect to
transactions made by it on behalf of the Fund including, without limitation,
the books and records required by Subsections (b)(1), (5), (6), (7), (9), (10)
and (11) and Subsection (f) of Rule 31a-1 under the Investment Company Act and
shall timely furnish to the Adviser all information relating to the
Subadviser's services hereunder needed by the Adviser to keep such other books
and records of the Fund required by Rule 31a-1 under the Investment Company
Act. The Subadviser will also preserve all such books and records for the
periods prescribed in Rule 31a-2 under the Investment Company Act, and agrees
that such books and records shall remain the sole property of the Fund and
shall be immediately surrendered to the Fund upon request. The Subadviser
further agrees that all books and records maintained hereunder shall be made
available to the Fund or the Adviser at any time upon request, including
facsimile without delay, during any business day.
(e) INFORMATION CONCERNING INVESTMENTS AND SUBADVISER. From time
to time as the Adviser or the Fund may request, the Subadviser will furnish the
requesting party reports on portfolio transactions and reports on Investments
held in the portfolio, all in such detail as the Adviser or the Fund may
request. The Subadviser will also provide the Fund and the Adviser on a
regular basis with economic and investment analyses and reports or other
investment services normally available to institutional or other clients of the
Subadviser.
The Subadviser will make available its officers and employees to meet
with the Fund's Board of Directors at the Fund's principal place of business on
due notice to review the Investments of the Fund. The Subadviser further
agrees to inform the Fund and the Adviser on a current basis of changes in
investment strategy, tactics or key personnel.
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<PAGE>
The Subadviser will also provide such information or perform such
additional acts as are customarily performed by a subadviser and may be
required for the Fund or the Adviser to comply with their respective
obligations under applicable laws, including, without limitation, the Internal
Revenue Code of 1986, as amended (the "Code"), the Investment Company Act, the
Advisers Act, the Securities Act of 1933, as amended (the "Securities Act") and
any state securities laws, and any rule or regulation thereunder.
(f) CUSTODY ARRANGEMENTS. The Subadviser acknowledges receipt of
the Custody Agreement dated as of June 10, 1993, for the Fund and agrees to
comply at all times with all requirements relating to such arrangements. The
Subadviser shall provide the Adviser, and the Adviser shall provide the Fund's
custodian, on each business day with information relating to all transactions
concerning the Fund's assets.
(g) ADVISER REPRESENTATIVES. The Subadviser shall include at
least two (2) representatives of the Adviser, as specified by the Adviser, in
the list of individuals authorized to give directions (without restrictions of
any kind) to brokers and dealers utilized by the Subadviser to execute
portfolio transactions for the Fund and custodians or depositories that hold
securities or other assets of the Fund at any time. Subadviser shall have no
liability or responsibility for the actions of such representatives of the
Adviser.
(h) COMPLIANCE WITH APPLICABLE LAWS AND GOVERNING DOCUMENTS. The
Subadviser agrees that in all matters relating to its performance under this
Agreement, the Subadviser and its directors, officers, partners, employees and
interested persons, will act in accordance with all applicable laws, including,
without limitation, the Investment Company Act, the Advisers Act, the Code, the
Public Utility Holding Company Act of 1935, the Commodity Exchange Act, as
amended (the "CEA") and state securities laws, and any rules and regulations
promulgated thereunder. The Subadviser further agrees to act in accordance
with the Fund's Articles of Incorporation, By-Laws, currently effective
registration statement under the Investment Company Act, including any
amendments or supplements thereto, and Notice of Eligibility under Rule 4.5 of
the CEA, if applicable, (collectively, "Governing Instruments and Regulatory
Filings") and any instructions or directions of the Fund, its Board of
Directors or the Adviser.
The Subadviser acknowledges receipt of the Fund's Governing
Instruments and Regulatory Filings. The Adviser hereby agrees to provide to
the Subadviser any amendments, supplements or other changes to the Governing
Instruments and Regulatory Filings as soon as practicable after such materials
become available and,
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<PAGE>
upon receipt by the Subadviser, the Subadviser will act in accordance with such
amended, supplemented or otherwise changed Governing Instruments and Regulatory
Filings.
(i) FUND'S NAME; ADVISER'S NAME. The Subadviser agrees that it
shall have no rights of any kind relating to the Fund's name or in the name
"Strong" as it is used in connection with investment products, services or
otherwise, and that it shall make no use of such names without the express
written consent of the Fund or the Adviser, as the case may be.
(j) VOTING OF PROXIES. The Subadviser shall direct the custodian
as to how to vote such proxies as may be necessary or advisable in connection
with any matters submitted to a vote of shareholders of securities held by the
Fund.
3. SERVICES EXCLUSIVE.
(a) EXCLUSIVE INVESTMENT ADVICE. Except as provided in
Subsection (b) of this Section 3 or as otherwise agreed to in writing between
the parties hereto, during the term of this Agreement, as provided in Section
14 hereof, and for a period of two (2) years after the date the Subadviser
gives notice to the Adviser of its intention to terminate this Agreement or six
(6) months after the date the Adviser gives notice to the Subadviser of its
intention to terminate this Agreement, the Subadviser (which for purposes of
this Section 3 shall also include any successors to the Subadviser), and any
person or entity controlled by, or under common control with, the Subadviser,
shall not act as investment adviser or subadviser, or otherwise render
investment advice to, or sponsor, promote or distribute, any investment company
or comparable entity registered under the Investment Company Act or other
investment fund consisting of more than 100 investors that is offered publicly
but is not subject to the registration requirements of the Investment Company
Act that is substantially similar to the Fund. For purposes hereof, BMC Fund,
Inc. and Wall Street Preferred Money Managers are not, as such accounts are
presently operating and managed by the Subadviser, substantially similar to the
Fund.
(b) EXCEPTIONS. The Subadviser may, except as provided in
Subsection (a) of this Section 3, act as investment adviser for non-investment
company clients; PROVIDED, HOWEVER, that such services for others shall not in
any way hinder, impair, preclude or prevent the Subadviser from performing its
duties and obligations under this Agreement and that whenever the Fund and one
or more other accounts advised by the Subadviser have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with procedures that are equitable for each account. Similarly,
opportunities to sell securities will be allocated in an equitable manner.
5
<PAGE>
4. NON-COMPETITION. The Subadviser and any person or entity
controlled by the Subadviser will not in any manner sponsor, promote or
distribute any new investment product or service substantially similar to the
Fund, as the phrase is used in Section 3 hereof, for the period that the
Subadviser is required to provide exclusive services to the Fund pursuant to
Section 3 hereof.
5. INDEPENDENT CONTRACTOR. In the performance of its duties
hereunder, the Subadviser is and shall be an independent contractor and unless
otherwise expressly provided herein or otherwise authorized in writing, shall
have no authority to act for or represent the Fund or the Adviser in any way or
otherwise be deemed an agent of the Fund or the Adviser.
6. COMPENSATION. The Adviser shall pay to the Subadviser a fee
for its services hereunder (the "Subadvisory Fee") computed as follows, based
on the net asset value of the Fund:
(a) FEE RATE. The Subadvisory Fee shall be the sum of (i) the annual rate of
0.50% of the Fund's average daily net asset value on the first $200 million
of the Fund's net assets (regardless of any decision by the Adviser to
waive all or any portion of its management fee), (ii) the annual rate of
0.30% of the Fund's average daily net asset value on the Fund's net assets
over $200 million and up to $1.0 billion, (iii) the annual rate of 0.375%
of the Fund's average daily net asset value on the Fund's net assets over
$1.0 billion and up to $1.5 billion, and (iv) the annual rate of 0.30% of
the Fund's average daily net asset value on the Fund's net assets over $1.5
billion. In connection with subsections (a)(ii), (iii) and (iv) hereof,
Subadviser acknowledges and agrees that the Adviser may waive all or any
portion of its management fee at such times and for such periods of time as
it determines in its sole and absolute discretion.
(b) MOST FAVORED CLIENT COMPENSATION DISCLOSURE. In the event
the Subadviser charges any of its similarly situated advisory clients on a more
favorable compensation basis, the Subadviser shall immediately notify and fully
disclose to the Adviser the nature and exact terms of such arrangement.
(c) METHOD OF COMPUTATION; PAYMENT. The Subadvisory Fee shall be
accrued for each calendar day the Subadviser renders subadvisory services
hereunder and the sum of the daily fee accruals shall be paid monthly to the
Subadviser as soon as practicable following the last day of each month, by wire
transfer if so requested by the
6
<PAGE>
Subadviser, but no later than eight (8) calendar days thereafter. The daily
fee accruals on will be computed by multiplying the fraction of one (1) over
the number of calendar days in the year by the annual rate as described in
Subsection (a) of this Section 6 and multiplying the product by the net asset
value of the Fund as determined in accordance with the Prospectus as of the
close of business on the previous business day on which the Fund was open for
business. The Subadvisory Fee will reflect any waivers by the Advisor as
described in Subsection (a) of this Section 6.
7. COMMISSIONS. The Adviser understands that the Subadviser may act as
executing and clearing broker in connection with the transactions effected by
the Fund and that the Subadviser will be paid commissions by the Fund in
connection therewith in accordance with all applicable laws, including, but not
limited to Rule 17e-1 promulgated under the Investment Company Act.
Notwithstanding the foregoing, under no circumstances shall the commissions
paid to the Subadvisor on such transactions exceed the lesser of (a) fifty
percent (50%) of the regular New York Stock Exchange rates in effect
immediately prior to the institution of fully negotiated rates on May 1, 1975,
or (ii) six cents ($0.06) per share.
8. EXPENSES. The Subadviser shall bear all expenses incurred by
it in connection with its services under this Agreement and will, from time to
time, at its sole expense employ or associate itself with such persons as it
believes to be particularly fitted to assist it in the execution of its duties
hereunder.
7
<PAGE>
9. REPRESENTATIONS AND WARRANTIES OF SUBADVISER. The Subadviser
represents and warrants to the Adviser and the Fund as follows:
(a) The Subadviser is registered as an investment adviser under
the Advisers Act;
(b) The Subadviser has filed a notice of exemption pursuant to Rule 4.14
under the CEA with the Commodity Futures Trading Commission (the "CFTC") and
the National Futures Association;
(c) The Subadviser is a corporation duly organized and validly
existing under the laws of the State of Delaware with the power to own and
possess its assets and carry on its business as it is now being conducted;
(d) The execution, delivery and performance by the Subadviser of
this Agreement are within the Subadviser's powers and have been duly authorized
by all necessary action on the part of its shareholders, and no action by or in
respect of, or filing with, any governmental body, agency or official is
required on the part of the Subadviser for the execution, delivery and
performance by the Subadviser of this Agreement, and the execution, delivery
and performance by the Subadviser of this Agreement do not contravene or
constitute a default under (i) any provision of applicable law, rule or
7
<PAGE>
regulation, (ii) the Subadviser's governing instruments, or (iii) any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Subadviser;
(e) This Agreement is a valid and binding agreement of the
Subadviser;
(f) The Subadviser and any affiliated person of the Subadviser
have not:
(i) within 10 years from the date hereof been convicted of any
felony or misdemeanor involving the purchase or sale of any securities or
arising out of the conduct as an underwriter, broker, dealer, investment
adviser, municipal securities dealer, government securities broker, government
securities dealer, transfer agent, or entity or person required to be
registered under the CEA, or as an affiliated person, salesman, or employee of
any investment company, bank, insurance company, or entity or person required
to be registered under the CEA; or
(ii) by reason of any misconduct, been permanently or temporarily
enjoined by an order, judgment or decree of any court of competent jurisdiction
or other governmental authority from acting as an underwriter, broker, dealer,
investment adviser, municipal securities dealer, government securities broker,
government securities dealer, transfer agent, or entity or person required to
be registered under the CEA, or an affiliated person, salesman, or employee of
any investment company, bank, insurance company, or entity or person required
to be registered under the CEA or from engaging in or continuing any conduct or
practice in connection with any such activity or in connection with the
purchase or sale of any security; or
(iii) been a party to litigation or other adversarial proceedings
involving any former or current client;
(g) The Form ADV of the Subadviser attached hereto as Exhibit A
is a true and complete copy of the form filed with the Commission and the
information contained therein is accurate and complete in all material respects
and does not omit to state any material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading;
(h) The Subadviser's unaudited financial statements attached
hereto as Exhibit B for the fiscal years ended November 30, 1992, 1991 and 1990
are true and
9
<PAGE>
complete copies of the Subadviser's financial statements, are accurate and
complete in all material respects and do not omit to state any material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading;
(i) The Subadviser's performance figures for certain client
accounts attached hereto as Exhibit C are accurate and complete in all material
respects and do not omit to state any material fact necessary in order to make
the statements made, in light of the circumstances under which they were made,
not misleading; and
(j) The Subadviser's written code of ethics attached hereto as
Exhibit D has been duly adopted by the Subadviser, meets the requirements of
Rule 17j-1 under the Investment Company Act and such code has been complied
with and no violation has occurred.
10. REPRESENTATIONS AND WARRANTIES OF ADVISER. The Adviser
represents and warrants to the Subadviser as follows:
(a) The Adviser is registered as an investment adviser under the
Advisers Act;
(b) The Adviser has filed a notice of exemption pursuant to Rule
4.14 under the CEA with the Commodity Futures Trading Commission ("CFTC") and
the National Futures Association;
(c) The Adviser is a corporation duly organized and validly
existing under the laws of the State of Wisconsin with the power to own and
possess its assets and carry on its business as it is now being conducted;
(d) The execution, delivery and performance by the Adviser of
this Agreement are within and Adviser's powers and have been duly authorized by
all necessary action on the part of its shareholders, and no action by or in
respect of, or filing with, any governmental body, agency or official is
required on the part of the Adviser for the execution, delivery and performance
by the Adviser of this Agreement, and the execution, delivery and performance
by the Adviser of this Agreement do not contravene or constitute a default
under (i) any provision of applicable law, rule or regulation, (ii) the
Adviser's governing instruments, or (iii) any agreement, judgment, injunction,
order, decree or other instrument binding upon the Adviser;
(e) This Agreement is a valid and binding agreement of the
Adviser;
10
<PAGE>
(f) The Adviser and any affiliated person of the Subadviser have
not:
(i) within 10 years from the date hereof been convicted of any
felony or misdemeanor involving the purchase or sale of any securities or
arising out of the conduct as an underwriter, broker, dealer, investment
adviser, municipal securities dealer, government securities broker, government
securities dealer, transfer agent, or entity or person required to be
registered under the CEA, or as an affiliated person, salesman, or employee of
any investment company, bank, insurance company, or entity or person required
to be registered under the CEA; or
(ii) by reason of any misconduct, been permanently or temporarily
enjoined by an order, judgment or decree of any court of competent jurisdiction
or other governmental authority from acting as an underwriter, broker, dealer,
investment adviser, municipal securities dealer, government securities broker,
government securities dealer, transfer agent, or entity or person required to
be registered under the CEA, or an affiliated person, salesman, or employee of
any investment company, bank, insurance company, or entity or person required
to be registered under the CEA or from engaging in or continuing any conduct or
practice in connection with any such activity or in connection with the
purchase or sale of any security; or
(iii) been a party to litigation or other adversarial proceedings
involving any former or current client;
(g) The Form ADV of the Adviser attached hereto as Exhibit E is a
true and complete copy of the form filed with the Commission and the
information contained therein is accurate and complete in all material respects
and does not omit to state any material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading;
(h) The Adviser acknowledges that it received a copy of the
Subadviser's Form ADV at least 48 hours prior to the execution of this
Agreement.
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; DUTY TO UPDATE
INFORMATION. All representations and warranties made by the Subadviser and the
Adviser pursuant to Sections 9 and 10 hereof shall survive for the duration of
this Agreement and the parties hereto shall immediately notify, but in no event
later than five (5) business days, each other in writing upon becoming aware
that any of the foregoing representations and warranties are no longer true. In
11
<PAGE>
addition, the Subadviser will deliver to the Adviser and the Fund copies of any
amendments, supplements or updates to any of the information provided to the
Adviser and attached as exhibits hereto within fifteen (15) days after becoming
available. Within forty-five (45) days after the end of each calendar year
during the term hereof, the Subadviser shall certify to the Adviser that it has
complied with the requirements of Rule 17j-1 under the Investment Company Act
with regard to its duties hereunder during the prior year and that there has
been no violation of the Subadviser's written Code of Ethics with respect to
the Fund or in respect of any matter or circumstance that is material to the
performance of the Subadviser's duties hereunder or, if such violation has
occurred, that appropriate action was taken in response to such violation.
12. LIABILITY AND INDEMNIFICATION.
(a) LIABILITY. In the absence of wilful misfeasance, bad faith
or negligence on the part of the Subadviser or a breach of its duties
hereunder, the Subadviser shall not be subject to any liability to the Adviser
or the Fund or any of the Fund's shareholders, and, in the absence of wilful
misfeasance, bad faith or negligence on the part of the Adviser or a breach of
its duties hereunder, the Adviser shall not be subject to any liability to the
Subadviser, for any act or omission in the case of, or connected with,
rendering services hereunder or for any losses that may be sustained in the
purchase, holding or sale of Investments; PROVIDED, HOWEVER, that nothing
herein shall relieve the Adviser and the Subadviser from any of their
obligations under applicable law, including, without limitation, the federal
and state securities laws and the CEA.
(b) INDEMNIFICATION. The Subadviser shall indemnify the Adviser
and the Fund, and their respective officers and directors, for any liability
and expenses, including attorneys' fees, which may be sustained as a result of
the Subadviser's wilful misfeasance, bad faith, negligence, breach of its
duties hereunder or violation of applicable law, including, without limitation,
the U.S. federal and state securities laws or the CEA. The Adviser shall
indemnify the Subadviser and its officers and directors, for any liability and
expenses, including attorneys' fees, which may be sustained as a result of the
Adviser's wilful misfeasance, bad faith, negligence, breach of its duties
hereunder or violation of applicable law, including, without limitation, the
U.S. federal and state securities laws or the CEA.
13. DURATION AND TERMINATION.
(a) DURATION. This Agreement shall be submitted for approval by
shareholders of the Fund at the first meeting of shareholders of the Fund
following the effective date of its Registration Statement on Form N-1A
covering the initial offering of shares of the Fund. This Agreement shall
continue in effect for a period of two years
12
<PAGE>
from the date hereof, subject thereafter to being continued in force and effect
from year to year if specifically approved each year by either (i) the Board of
Directors of the Fund, or (ii) by the affirmative vote of a majority of the
Fund's outstanding voting securities. In addition to the foregoing, each
renewal of this Agreement must be approved by the vote of a majority of the
Fund'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 Fund may request and evaluate, and the Subadviser shall
furnish, such information as may reasonably be necessary to enable the Fund's
Board of Directors to evaluate the terms of this Agreement.
(b) TERMINATION. Notwithstanding whatever may be provided herein
to the contrary, this Agreement may be terminated at any time, without payment
of any penalty:
(i) By vote of a majority of the Board of Directors of the Fund,
or by vote of a majority of the outstanding voting securities of the Fund, or
by the Adviser, in each case, upon sixty (60) days' written notice to the
Subadviser;
(ii) By the Adviser upon breach by the Subadviser of any
representation or warranty contained in Section 9 hereof, which shall not have
been cured during the notice period, upon twenty (20) days written notice;
(iii) By the Adviser immediately upon written notice to the
Subadviser if the Subadviser becomes unable to discharge its duties and
obligations under this Agreement; or
(iv) By the Subadviser upon 180 days written notice to the
Adviser and the Fund.
This Agreement shall not be assigned (as such term is defined in the Investment
Company Act) without the prior written consent of the parties hereto. This
Agreement shall terminate automatically in the event of its assignment without
such consent or upon the termination of the Advisory Agreement.
14. DUTIES OF THE ADVISER. The Adviser shall continue to have
responsibility for all services to be provided to the Fund pursuant to the
Advisory Agreement and shall oversee and review the Subadviser's performance of
its duties under this Agreement. Nothing contained in this Agreement shall
obligate the Adviser to provide any funding or other support for the purpose of
directly or indirectly promoting investments in the Fund.
13
<PAGE>
15. AMENDMENT. This Agreement may be amended by mutual consent
of the parties, provided that the terms of each such amendment shall be
approved by the Board of Directors of the Fund or by a vote of a majority of
the outstanding voting securities of the Fund. If such amendment is proposed
in order to comply with the recommendations or requirements of the Commission
or state regulatory bodies or other governmental authority, or to expressly
obtain any advantage under federal or state or non-U.S. laws, the Adviser shall
notify the Subadviser of the form of amendment which it deems necessary or
advisable and the reasons therefor, and if the Subadviser declines to assent to
such amendment, the Adviser may terminate this Agreement forthwith.
16. CONFIDENTIALITY. Subject to the duties of the Adviser, the
Fund and the Subadviser to comply with applicable law, including any demand of
any regulatory or taxing authority having jurisdiction, the parties hereto
shall treat as confidential all information pertaining to the Fund and the
actions of the Subadviser, the Adviser and the Fund in respect thereof.
17. 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,
delivered, or mailed postpaid to the other party, or transmitted by facsimile
with acknowledgment of receipt, to the parties at the following addresses or
facsimile numbers, which may from time to time be changed by the parties by
notice to the other party:
(a) If to the Adviser:
Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
Attention: General Counsel
Facsimile: (414) 359-3948
(b) If to the Subadviser:
W.H. Reaves & Co., Inc.
30 Montgomery Street
Jersey City, N. J. 07302
Attention: Mr. Lloyd R. Karp
Facsimile: (201) 332-8593
14
<PAGE>
(c) If to the Fund:
Strong American Utilities Fund
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
Attention: General Counsel
Facsimile: (414) 359-3948
18. GOVERNING LAW; JURISDICTION. This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
Wisconsin and the Subadviser consents to the exclusive jurisdiction of courts,
both federal and state, and venue in Wisconsin, with respect to any dispute
arising under or in connection with this Agreement.
19. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall together constitute one and the same
instrument.
20. CAPTIONS. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof.
21. SEVERABILITY. If any provision of this Agreement shall be
held or made invalid by a court decision or applicable law, the remainder of
the Agreement shall not be affected adversely and shall remain in full force
and effect.
22. CERTAIN DEFINITIONS.
(a) "BUSINESS DAY." As used herein, business day means any
customary business day in the United States on which the New York Stock
Exchange is open.
(b) MISCELLANEOUS. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the Investment Company Act shall be resolved by reference
to such term or provision of the Investment Company Act and to interpretations
thereof, if any, by the U.S. courts or, in the absence of any controlling
decisions of any such court, by rules, regulation or order of the Commission
validly issued pursuant to the Investment Company Act. Specifically, as used
herein, "investment company," "affiliated person," "interested person,"
"assignment," "broker," "dealer" and "affirmative vote of the majority of the
Fund's outstanding voting securities" shall all have such meaning as such terms
have in the Investment Company Act. The term "investment adviser" shall have
such meaning as such term has in the Advisers Act and the Investment
15
<PAGE>
Company Act, and in the event of a conflict between such Acts, the most
expansive definition shall control. In addition, where the effect of a
requirement of the Investment Company Act reflected in any provision of this
Agreement is relaxed by a rule, regulation or order of the Commission, whether
of special or general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first written above.
STRONG CAPITAL MANAGEMENT, INC.
By:
Name:
Title:
Attest:
Name:
Title:
W.H. REAVES & CO., INC.
(the "Subadviser")
By:
Name:
Title:
Attest:
17
<PAGE>
Name:
Title:
17
<PAGE>
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made and entered into on this ____ day of _________,
2000, between STRONG __________, INC., a Wisconsin corporation (the
"Corporation"), and STRONG INVESTMENTS, 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 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;
WHEREAS, the Corporation is authorized to create separate classes of beneficial
interest within each series, each with its own expenses;
WHEREAS, the Corporation is authorized to issue shares of its $.00001 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 Corporation 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 company, 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
1
<PAGE>
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 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 Conduct Rules 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.
2
<PAGE>
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
a. 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.
b. 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 and selling aids in
3
<PAGE>
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.
c. 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 _________ 23, 2002, 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
4
<PAGE>
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 Investments, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Strong __________, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
5
<PAGE>
SCHEDULE A
The Fund(s) of the Corporation currently subject to this Agreement are as
follows:
Date of Addition
FUND(S) CLASS TO THIS AGREEMENT
Attest: Strong Investments, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Strong __________, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
6
<PAGE>
ADVISOR CLASS SHARES
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made and entered into on this ____ day of ________,
2000, between STRONG ___________, INC., a Wisconsin corporation (the
"Corporation"), and STRONG INVESTMENTS, 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 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;
WHEREAS, the Corporation is authorized to create separate classes of beneficial
interest within each series, each with its own expenses;
WHEREAS, the Corporation is authorized to issue shares of its $.00001 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 Corporation 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 company, 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
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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 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 Conduct Rules 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.
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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
a. 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.
b. 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 and selling aids in
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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.
c. As compensation to the Distributor or other appropriate persons or
service organizations for services rendered and expenses borne as described
above, each Fund will pay the Distributor or other appropriate persons or
service organizations a fee at a rate equal to 0.25% per annum of the Fund's
average daily net assets attributable to the Advisor Class shares of the Fund
with respect to which the Distributor or such other appropriate persons or
service organizations provides services and/or assumes expenses under the
Fund's Advisor Class Plan of Distribution under Rule 12b-1 under the Investment
Company Act ("12b-1 Fee"). Each Fund shall pay the 12b-1 Fee monthly or at
such other intervals as the Fund shall determine. The Distributor may determine
the services to be provided by other persons or service organizations to
shareholders in connection with the sale of Advisor Class shares. All or any
portion of the compensation paid to the Distributor may be paid by the
Distributor to other persons or service organizations who provide services to
or participate in the sale of Advisor Class shares.
d. 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 ________ 23, 2002, 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.
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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
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 Investments, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Strong ___________, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
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<PAGE>
SCHEDULE A
The Fund(s) of the Corporation currently subject to this Agreement are as
follows:
Date of Addition
FUND(S) CLASS TO THIS AGREEMENT
Attest: Strong Investments, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Strong ___________, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
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<PAGE>
DEALER AGREEMENT (ADVISOR CLASS SHARES)
STRONG INVESTMENTS, INC.
Strong Investments, Inc. ("Distributor") and _________________ ("Dealer") have
agreed that Dealer will participate in the distribution of shares ("Shares") of
all the mutual funds or series or portfolios thereof (as they may exist from
time to time) comprising each of the mutual funds, including any classes
thereof, in the Strong family of funds (each a "Fund" and collectively the
"Funds") as identified on Schedule A to this Agreement, for which Distributor
now or in the future serves as distributor, subject to the terms of this Dealer
Agreement ("Agreement"). Any such additional Funds will be included in this
Agreement upon Distributor's written notification to Dealer. Nothing in this
Agreement shall limit Dealer's right to engage one or more subcontractors or
agents, but no such engagement shall relieve Dealer of its duties,
responsibilities, obligations, agreements or liabilities under this Agreement.
1. LICENSING
a. Dealer represents and warrants that it is: (i) a broker-dealer
registered with the Securities and Exchange Commission ("SEC"); (ii) a member
in good standing of the National Association of Securities Dealers, Inc.
("NASD"); and (iii) licensed by the appropriate regulatory agency of each state
or other jurisdiction in which Dealer will offer and sell Shares of the Funds,
to the extent necessary to perform the duties and activities contemplated by
this Agreement.
b. Dealer represents and warrants that each of its partners, directors,
officers, employees, and agents who will be utilized by Dealer with respect to
its duties and activities under this Agreement is either appropriately licensed
or exempt from such licensing requirements by the appropriate regulatory agency
of each state or other jurisdiction in which Dealer will offer and sell Shares
of the Funds.
c. Dealer agrees that, (i) termination or suspension of its registration
with the SEC, (ii) termination or suspension of its membership with the NASD,
or (iii) termination or suspension of its license to do business by any state
or other jurisdiction or federal regulatory agency, shall immediately cause the
automatic termination of this Agreement. Dealer further agrees to immediately
notify Distributor in writing of any such action or event.
d. Dealer agrees that this Agreement is in all respects subject to the
Conduct Rules of the NASD and such Conduct Rules shall control any provision to
the contrary in this Agreement.
e. Dealer agrees to be bound by and to comply with all applicable state and
federal laws and all rules and regulations promulgated thereunder generally
affecting the sale or distribution of mutual fund shares or classes of such
shares.
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<PAGE>
2. ORDERS
a. Dealer agrees to offer and sell Shares of the Funds (including those of
each of its classes) only at the regular public offering price applicable to
such Shares and in effect at the time of each transaction. The procedures
relating to all orders and the handling of each order (including the manner of
computing the net asset value of Shares and the effective time of orders
received from Dealer) are subject to: (i) the terms of the then current
prospectus and statement of additional information (including any supplements,
stickers or amendments thereto) relating to each Fund (or, as appropriate,
class thereof), as filed with the SEC ("Prospectus"); (ii) the new account
application, or appropriate substitute, for each Fund as supplemented or
amended from time to time; (iii) Distributor's written instructions and
multiple class pricing procedures and guidelines, as provided to Dealer from
time to time; and, when applicable, (iv) the terms and conditions set forth in
the [Operating and Services] [Services] Agreement, dated as of ____________,
between [Dealer] [Entity Name] and Distributor ("Operating Agreement"),
attached as Schedule B, as may be amended from time to time, the terms and
conditions of which shall set forth procedures governing, among other things,
the establishment of Dealer's accounts, pricing and distribution information,
and the placement and settlement of orders, including all orders placed and/or
settled outside of the NSCC Fund/Serv Networking program, as defined below. To
the extent that the Prospectus contains provisions that are inconsistent with
this Agreement or any other document, the terms of the Prospectus shall be
controlling.
b. Distributor reserves the right at any time, and without notice to
Dealer, to suspend the sale of Shares or to withdraw or limit the offering of
Shares. Distributor reserves the unqualified right not to accept any specific
order for the purchase or sale of Shares.
c. In all offers and sales of the Shares to the public, Dealer is not
authorized to act as broker or agent for, or employee of, Distributor, any Fund
or any other dealer, and Dealer shall not in any manner represent to any third
party that Dealer has such authority or is acting in such capacity, unless
expressly provided for elsewhere in this Agreement. Rather, Dealer agrees that
it is acting as principal for Dealer's own account or as agent on behalf of
Dealer's customers in all transactions in Shares, except as provided in Section
3.i. hereof. Dealer acknowledges that it is solely responsible for all
suitability determinations with respect to sales of Shares of the Funds to
Dealer's customers and that Distributor has no responsibility for the manner of
Dealer's performance of, or for Dealer's acts or omissions in connection with,
the duties and activities Dealer provides under this Agreement.
Notwithstanding the previous sentence, Dealer represents and warrants that each
customer of Dealer has received the Prospectus for each Fund to be purchased by
such customer.
d. All orders are subject to acceptance by Distributor in its sole
discretion and become effective only upon confirmation by Distributor.
e. Distributor agrees that it will accept from Dealer orders placed through
a remote terminal or otherwise electronically transmitted via the National
Securities Clearing Corporation ("NSCC") Fund/Serv Networking program,
provided, however, that appropriate
2
<PAGE>
documentation thereof and agreements relating thereto are executed by both
parties to this Agreement, including in particular the standard NSCC Networking
Agreement and any other related agreements between Distributor and Dealer
deemed appropriate by Distributor, and that all accounts opened or maintained
pursuant to that program will be governed by applicable NSCC rules and
procedures. Both parties further agree that, if the NSCC Fund/Serv Networking
program is used to place orders, the standard NSCC Networking Agreement will
control insofar as there is any conflict between any provision of the Dealer
Agreement and the standard NSCC Networking Agreement. To the extent that the
Prospectus contains provisions that are inconsistent with the standard NSCC
Networking Agreement, the terms of the Prospectus shall control.
3. DUTIES OF DEALER
a. Dealer agrees to purchase Shares only from Distributor or from Dealer's
customers.
b. Dealer agrees to enter orders for the purchase of Shares only from
Distributor and only for the purpose of covering purchase orders Dealer has
already received from its customers or for Dealer's own bona fide investment.
c. Dealer agrees to date and time stamp all orders received by Dealer and
promptly, upon receipt of any and all orders, to transmit to Distributor all
orders received prior to the time described in the Prospectus, and in
accordance with any schedules attached to this Agreement, for the calculation
of each Fund's net asset value (and public offering price) so as to permit
Distributor to process all orders at the price next determined after receipt by
Dealer, in accordance with the Prospectus. Dealer agrees not to withhold
placing orders for Shares with Distributor so as to profit itself as a result
of such inaction.
d. Dealer agrees to maintain records of all purchases and sales of Shares
made through Dealer and to furnish Distributor or regulatory authorities with
copies of such records upon request. In that regard, Dealer agrees that,
unless Dealer holds Shares as nominee for its customers or participates in the
NSCC Fund/Serv Networking program, at certain matrix levels, it will provide
Distributor with all necessary information to comply properly with all federal,
state and local reporting requirements and backup and nonresident alien
withholding requirements for its customer accounts including, without
limitation, those requirements that apply by treating Shares issued by the
Funds as readily tradable instruments. Dealer represents and agrees that all
Taxpayer Identification Numbers ("TINs") provided are certified, and that no
account that requires a certified TIN will be established without such
certified TIN. With respect to all other accounts, including Shares held by
Dealer in omnibus accounts and Shares purchased or sold through the NSCC
Fund/Serv Networking program, at certain matrix levels, Dealer agrees to
perform all federal, state and local tax reporting with respect to such
accounts, including without limitation redemptions and exchanges.
e. Dealer agrees to distribute or cause to be delivered to its customers
Prospectuses, proxy solicitation materials and related information and proxy
cards, semi-annual
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<PAGE>
and annual shareholder reports and any other materials in compliance with
applicable legal requirements, except to the extent that Distributor expressly
undertakes in writing to do so.
f. Dealer agrees that if any Share is repurchased by any Fund or is
tendered for redemption within seven (7) business days after confirmation by
Distributor of the original purchase order from Dealer, Dealer shall forfeit
its right to any concession or commission received by Dealer with respect to
such Share and shall forthwith refund to Distributor the full concession or
commission, if any, allowed or paid to Dealer on the original sale.
Distributor agrees to notify Dealer of such repurchase or redemption within a
reasonable time after settlement. Termination or cancellation of this
Agreement shall not relieve Dealer from its obligation under this provision.
g. Dealer agrees that payment for Shares ordered from Distributor shall be
in Fed Funds, New York clearinghouse or other immediately available funds, and
that such funds shall be received by Distributor by the earlier of: (i) the
end of the third (3rd) business day following Dealer's receipt of the
customer's order to purchase such Shares; (ii) the settlement date established
in accordance with Rule 15c6-1 under the Securities Exchange Act of 1934, as
amended; or (iii) the settlement date as set forth in a schedule attached to
this Agreement. If such payment is not received by Distributor by such date,
Dealer shall forfeit its right to any concessions or commission with respect to
such order, and Distributor reserves the right, without notice, forthwith to
cancel the sale, or, at its option, to sell the Shares ordered back to the
Fund, in which case Distributor may hold Dealer responsible for any loss,
including loss of profit, suffered by Distributor resulting from Dealer's
failure to make payment as aforesaid. If a purchase is made by check, the
purchase is deemed made upon conversion of the purchase instrument into Fed
Funds, New York clearinghouse or other immediately available funds.
h. Dealer agrees that it: (i) shall assume responsibility for any loss to
the Fund caused by a correction to any order placed by Dealer that is made
subsequent to the trade date for the order, provided such order correction was
not based on any negligence on Distributor's part; and (ii) will immediately
pay such loss to the Fund upon notification.
i. Dealer agrees that, in connection with orders for the purchase of Shares
on behalf of any individual retirement accounts ("IRAs"), 401(k) plans or other
retirement plan (collectively, "Retirement Plans") accounts by mail, telephone,
or wire, Dealer shall act as agent for the custodian or trustee of such
Retirement Plans (solely with respect to the time of receipt of the application
and payments), and Dealer shall not place such an order with Distributor until
it has received from its customer payment for such purchase and, if such
purchase represents the first contribution to such a Retirement Plan account,
the completed documents necessary to establish the Retirement Plan. Dealer
agrees to indemnify Distributor and its affiliates for any claim, loss, or
liability resulting from incorrect investment instructions received by
Distributor from Dealer. Dealer represents and warrants to Distributor that
Dealer is informed and knowledgeable as to the requirements imposed under the
Internal Revenue Code of 1986, as amended (the "Code"), and the rules,
regulations and rulings adopted pursuant thereto, on and in respect to IRAs, as
defined under the Code. Dealer further represents and warrants that for all
IRA orders placed by Dealer under this Agreement, Dealer: (i) shall deliver to
the customer the
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<PAGE>
appropriate trust and disclosure statement before placing such order; and (ii)
shall ensure that the contribution from the customer is properly designated as
to the year of contribution. Distributor shall not be responsible for
monitoring orders placed by Dealer with regard to compliance with the Code and
other rules and regulations promulgated under the Code, including, but not
limited to, those related to over-contributions, eligibility, income
restrictions, timeliness of contribution, or any other matters related to the
status of any IRA order, nor for Dealer's compliance with Distributor's
procedures with respect to such IRA orders.
j. Dealer agrees that it will not make any conditional orders for the
purchase or redemption of Shares and acknowledges that Distributor will not
accept conditional orders for Shares.
k. Dealer agrees that all out-of-pocket expenses incurred by it in
connection with its activities under this Agreement will be borne by Dealer.
l. Dealer agrees that it will keep in force appropriate broker's blanket
bond insurance policies covering any and all acts of Dealer's partners,
directors, officers, employees, and agents adequate to reasonably protect and
indemnify Distributor and the Funds against any loss which any party may suffer
or incur, directly or indirectly, as a result of any action by Dealer or
Dealer's partners, directors, officers, employees, and agents.
m. Dealer agrees that it will maintain the required net capital as
specified by the rules and regulations of the SEC, NASD and other regulatory
authorities.
4. DEALER COMPENSATION
a. On each purchase of Shares by Dealer from Distributor, the total sales
charges and dealer concessions or commissions, if any, payable to Dealer shall
be as stated on Schedule C to this Agreement, which may be amended by
Distributor from time to time. Distributor reserves the right, without prior
notice, to suspend or eliminate such Dealer concession or commissions by
amendment, sticker or supplement to the Prospectus for each Fund. Such sales
charges and dealer concessions or commissions, are subject to reduction[s]
under a variety of circumstances as described in each Fund's Prospectus. For a
customer to obtain any such reduction in the applicable sales charge,
Distributor must be notified by Dealer at the time of the sale that the sale
qualifies for the reduced sales charge. If Dealer fails to notify Distributor
of the applicability of a reduction in the sales charge at the time the trade
is placed, neither Distributor nor any Fund will be liable for amounts
necessary to reimburse any customer for the reduction that should have been
effected. Dealer acknowledges that no sales charge or concession or commission
will be paid to Dealer on the reinvestment of dividends or capital gains
reinvested in additional Shares. Dealer further acknowledges that Shares
acquired in exchange for Shares of another Fund, or class thereof, shall not be
assessed a sales charge, except for exchanges with respect to Advisor Class
Shares that are sold at their net asset value, in accordance with the
Prospectus.
b. With respect to purchases of Shares by Dealer from Distributor with
respect to any Fund or class thereof that are authorized to make payments of
asset-based sales
5
<PAGE>
charges (I.E., payments of fees and expenses made in accordance with a
distribution or service plan adopted by certain Funds or classes thereof
pursuant to Rule 12b-1 ("Rule 12b-1 Plan") under the Investment Company Act of
1940, as amended ("1940 Act")), all payments to Dealer shall be in accordance
with the Rule 12b-1 Plan adopted by that Fund or classes thereof as specified
in each applicable Prospectus for each Fund or class thereof. With respect to
any Fund or class thereof that offers Shares for which a Rule 12b-1 Plan has
been adopted, Distributor is authorized to pay Dealer continuing distribution
and/or service fees, as specified in the relevant Prospectus to the extent that
Dealer provides distribution, marketing, administrative and other services and
activities regarding the promotion of such Shares and the servicing or
maintenance of related shareholder accounts. The Fund or the Distributor
reserves the right, without prior notice, to suspend or eliminate the payment
of such Rule 12b-1 Plan payments or other dealer compensation by amendment,
sticker or supplement to the Prospectus for each Fund.
c. In accordance with the Funds' Prospectuses, Distributor or any affiliate
of the Distributor may, but is not obligated to, make payments to dealers from
Distributor's or such affiliate's own resources as compensation for certain
sales that are made at net asset value or as payment to dealers that otherwise
would not be fully compensated ("Qualifying Sales"). If Dealer notifies
Distributor of a Qualifying Sale, Distributor may make a contingent advance
payment up to the maximum amount available for payment on the sale. If any of
the Shares purchased in a Qualifying Sale are redeemed within twelve (12)
months of the end of the month of purchase, Distributor shall be entitled to
recover any advance payment attributable to the redeemed Shares by reducing any
account payable or other monetary obligation Distributor may owe to Dealer or
by making demand upon Dealer for repayment in cash. Distributor reserves the
right to withhold advances to Dealer, if for any reason Distributor believes
that it may not be able to recover unearned advances from Dealer.
d. In connection with the receipt of distribution fees and/or service fees
under Rule 12b-1 Plans applicable to Shares purchased by Dealer's customers,
Distributor directs Dealer to provide enhanced shareholder services such as:
processing purchase and redemption transactions; establishing shareholder
accounts; and providing certain information and assistance with respect to the
Funds. (Redemption levels of shareholder accounts assigned to Dealer will be
considered in evaluating Dealer's continued ability to receive payments of
distribution and/or service fees.) In addition, Dealer agrees to support
Distributor's marketing efforts by, among other things, (i) granting reasonable
requests for visits to Dealer's office by Distributor's wholesalers and/or
marketing representatives, (ii) including all Funds covered by a Rule 12b-1
Plan on Dealer's "approved," "preferred" or other similar product lists, if
applicable, and (iii) otherwise providing satisfactory product, marketing and
sales support. Further, Dealer agrees to provide Distributor with supporting
documentation concerning the shareholder services provided, as Distributor may
reasonably request from time to time.
e. All Rule 12b-1 Plan distribution and/or servicing fees shall be based on
the value of Shares attributable to Dealer's customers and eligible for such
payment under a Rule 12b-1 Plan, and shall be calculated on the basis of and at
the rates set forth in the Prospectus for each Fund or class thereof. Dealer
represents and warrants that Distributor has made no representations with
respect to the Rule 12b-1 Plans of such Funds in addition to, or conflicting
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<PAGE>
with, the description set forth in their respective Prospectuses. Without
prior approval by a majority of the outstanding shares of a Fund, the aggregate
annual fees paid to Dealer pursuant to any Rule 12b-1 Plan shall not exceed the
amounts stated as the "annual maximums" in each Fund's Prospectus, which amount
shall be a specified percent of the value of the Fund's net assets held in
Dealer's customers' accounts that are eligible for payment pursuant to the Rule
12b-1 Plans (determined in the same manner as each Fund uses to compute its net
assets as set forth in its Prospectus).
f. The provisions of any Rule 12b-1 Plan and distribution agreement between
the Funds and the Distributor shall control over this Agreement in the event of
any inconsistency. Each Rule 12b-1 Plan in effect on the date of this
Agreement is described in the relevant Fund's statement of additional
information. Dealer hereby acknowledges that all payments under Rule 12b-1
Plans are subject to limitations contained in such Rule 12b-1 Plans and
distribution agreements and may be varied or discontinued at any time; in
particular, Dealer acknowledges that the Rule 12b-1 Plan may be terminated at
any time by a vote of a majority of the independent directors of the Fund, or
by a vote of a majority of the outstanding voting securities of a Fund.
5. REDEMPTIONS, REPURCHASES AND EXCHANGES
a. The Prospectus for each Fund describes the provisions whereby the Fund,
under all ordinary circumstances, will redeem Shares held by shareholders on
demand. Dealer agrees that it will not make any representations to
shareholders relating to the redemption of their Shares other than the
statements contained in the Prospectus and the underlying organizational
documents of the Fund, to which it refers, and that Dealer will pay as
redemption proceeds to shareholders the net asset value, minus any applicable
contingent deferred sales charge or redemption fee, determined after receipt of
the order as discussed in the Prospectus.
b. Dealer agrees not to repurchase any Shares from its customers at a price
below that next quoted by the Fund for redemption or repurchase, I.E., at the
net asset value of such Shares, less any applicable contingent deferred sales
charge or redemption fee, in accordance with the Fund's Prospectus. Dealer
shall, however, be permitted to sell Shares for the account of the customer or
record owner to the Funds at the repurchase price then currently in effect for
such Shares and may charge the customer or record owner a fair service fee or
commission for handling the transaction, provided Dealer discloses the fee or
commission to the customer or record owner. Nevertheless, Dealer agrees that
it shall not under any circumstances maintain a secondary market in such
repurchased Shares.
c. Dealer agrees that, with respect to a redemption order it has made, if
instructions in proper form, including any outstanding certificates, are not
received by Distributor within the time customary or the time required by law,
the redemption may be canceled forthwith without any responsibility or
liability on Distributor's part or on the part of any Fund, or Distributor, at
its option, may buy the shares redeemed on behalf of the Fund, in which latter
case Distributor may hold Dealer responsible for any loss, including loss of
profit, suffered by Distributor resulting from Distributor's failure to settle
the redemption.
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<PAGE>
d. Dealer agrees that it will comply with any restrictions and limitations
on transactions described in each Fund's Prospectus, including any restrictions
or prohibitions relating to frequent purchases and redemptions (I.E., market
timing).
6. MULTIPLE CLASSES OF SHARES
Distributor may, from time to time, provide Dealer with written guidelines or
standards relating to the sale, distribution or servicing of Funds offering
multiple classes of Shares having different sales loads, Rule 12b-1 Plan fees
and expenses, and other operating expenses.
7. FUND INFORMATION
a. Dealer agrees that neither it nor any of its partners, directors,
officers, employees, and agents is authorized to give any information or make
any representations concerning Shares of any Fund except those contained in the
Fund's Prospectus or in materials provided by Distributor.
b. Distributor will supply to Dealer Prospectuses, reasonable quantities of
sales literature, sales bulletins, and additional sales information.
Distributor may, at its discretion, elect to provide Dealer with such
materials in an electronic format. If so requested by Dealer, Distributor shall
use its best efforts to review sales literature and other marketing materials
prepared by Dealer which relate to the Funds or Distributor for factual
accuracy as to these entities, provided that Distributor is provided at least
five business days to review the materials. In no event, however, shall
Distributor review the materials for compliance with applicable laws.
Notwithstanding the foregoing, Dealer shall provide Distributor with copies of
all sales literature and other marketing materials which refer to the Funds or
the Distributor within five business days after their first use, regardless of
whether Distributor has previously reviewed the materials. If so requested by
Distributor, Dealer shall cease to use any sales literature or marketing
materials which refer to the Funds or Distributor that Distributor determines
to be inaccurate, misleading or otherwise unacceptable.
8. SHARES
a. Distributor acts solely as agent for the Fund and Distributor shall have
no obligation or responsibility with respect to Dealer's right to purchase or
sell Shares in any state or jurisdiction.
b. Distributor shall periodically furnish Dealer with information
identifying the states or jurisdictions in which it is believed that all
necessary notice, registration or exemptive filings for Shares have been made
under applicable securities laws such that offers and sales of Shares may be
made in such states or jurisdictions. Distributor shall have no obligation to
make such notice, registration or exemptive filings with respect to Shares in
any state or jurisdiction.
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<PAGE>
c. Dealer agrees not to transact orders for Shares in states or
jurisdictions in which it has been informed that Shares may not be sold or in
which it and its personnel are not authorized to sell Shares.
d. Distributor shall have no responsibility, under the laws regulating the
sale of securities in the United States or any foreign jurisdiction, with
respect to the qualification or status of Dealer or Dealer's personnel selling
Fund Shares. Distributor shall not, in any event, be liable or responsible for
the issue, form, validity, enforceability and value of such Shares or for any
matter in connection therewith.
e. Dealer agrees that it will make no offers or sales of Shares in any
foreign jurisdiction, except with the express written consent of Distributor.
9. INDEMNIFICATION
a. Dealer agrees to indemnify, defend and hold harmless Distributor and the
Funds and their predecessors, successors, and affiliates, each current or
former director, officer, employee, shareholder or agent and each person who
controls or is controlled by Distributor from any and all losses, claims,
liabilities, costs, and expenses, including reasonable attorney fees, that may
be assessed against or suffered or incurred by any of them howsoever they
arise, and as they are incurred, which relate in any way to: (i) any alleged
violation of any statute or regulation (including without limitation the
securities laws and regulations of the United States or any state or foreign
country) or any alleged tort or breach of contract, related to the offer or
sale by Dealer of Shares of the Funds pursuant to this Agreement (except to the
extent that Distributor's gross negligence or failure to follow correct
instructions received from Dealer is the cause of such loss, claim, liability,
cost or expense); (ii) any redemption or exchange pursuant to instructions
received from Dealer or its directors, partners, affiliates, officers,
employees or agents; or (iii) the breach by Dealer of any of its
representations and warranties specified herein or Dealer's failure to comply
with the terms and conditions of this Agreement, whether or not such action,
failure, error, omission, misconduct or breach is committed by Dealer or its
predecessor, successor, or affiliate, each current or former partner, officer,
director, employee or agent and each person who controls or is controlled by
Dealer. This indemnity agreement is in addition to any other liability which
Dealer may otherwise have.
b. Distributor agrees to indemnify, defend and hold harmless Dealer and its
predecessors, successors and affiliates, each current or former partner,
officer, director, employee or agent, and each person who controls or is
controlled by Dealer from any and all losses, claims, liabilities, costs and
expenses, including reasonable attorney fees, that may be assessed against or
suffered or incurred by any of them which arise, and which relate to any untrue
statement of or omission to state a material fact contained in the Prospectus
or any written sales literature or other marketing materials provided by the
Distributor to Dealer, required to be stated therein or necessary to make the
statements therein not misleading. This indemnity agreement is in addition to
any other liability which Distributor may otherwise have.
(c) Promptly after receipt by a party entitled to indemnification
under this Section 9 (an "Indemnified Party") of notice of the commencement of
an investigation, action,
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<PAGE>
claim or proceeding, such Indemnified Party shall, if a claim in respect
thereof is to be made against the indemnifying party under this Section 9 (the
"Indemnifying Party"), notify the Indemnifying Party of the commencement
thereof; but the omission so to notify the Indemnifying Party shall not relieve
it from any liability which it may have to any Indemnified Party otherwise than
under this Section 9. In case any such action is brought against any
Indemnified Party, and it notified the Indemnifying Party of the commencement
thereof, the Indemnifying Party shall 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
Section 9 for any legal or other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof other than reasonable
costs of investigation. The Indemnified Party may not settle any action
without the written consent of the Indemnifying Party. The Indemnifying Party
may not settle any action without the written consent of the Indemnified Party
unless such settlement completely and finally releases the Indemnified Party
from any and all liability. In either event, consent shall not be unreasonably
withheld.
d. Dealer further agrees promptly to send Distributor copies of (i) any
report filed pursuant to NASD Conduct Rule 3070, including, without limitation
quarterly reports filed pursuant to Rule 3070(c), (ii) reports filed with any
other self-regulatory organization in lieu of Rule 3070 reports pursuant to
Rule 3070(e) and (iii) amendments to Dealer's Form BD.
e. Each party's obligations under these indemnification provisions shall
survive any termination of this Agreement.
10. TERMINATION; AMENDMENT
a. In addition to the automatic termination of this Agreement specified in
Section 1.c. of this Agreement, each party to this Agreement may unilaterally
cancel its participation in this Agreement by giving sixty (60) days prior
written notice to the other party. In addition, each party to this Agreement
may terminate this Agreement immediately by giving written notice to the other
party of that other party's material breach of this Agreement.
b. This Agreement shall terminate immediately upon the appointment of a
Trustee under the Securities Investor Protection Act or any other act of
insolvency by Dealer.
c. The termination of this Agreement by any of the foregoing
means shall have no effect upon transactions entered into prior to the
effective date of termination and shall not relieve Dealer of its obligations,
duties and indemnities specified in this Agreement; provided, however, that
Distributor's obligation to pay Rule 12b-1 fees to Dealer shall survive for a
period no longer than one year from the date of termination (unless termination
is the result of an event described in Section 1.c., in which case
Distributor's obligation to pay such Rule 12b-1 fees shall end as of the date
of such termination). A trade placed by Dealer subsequent to its voluntary
termination of this Agreement will not serve to reinstate the Agreement.
10
<PAGE>
Reinstatement, except in the case of a temporary suspension of Dealer, will
only be effective upon written notification by Distributor.
d. This Agreement is not assignable or transferable and will terminate
automatically in the event of its "assignment," as defined in the Investment
Company Act of 1940, as amended and the rules, regulations and interpretations
thereunder. The Distributor may, however, transfer any of its rights or duties
under this Agreement to any entity that controls or is under common control
with Distributor.
e. This Agreement may be amended by Distributor at any time by written
notice to Dealer. Dealer's placing of an order or accepting payment of any
kind after the effective date and receipt of notice of such amendment shall
constitute Dealer's acceptance of such amendment.
11. DISTRIBUTOR'S REPRESENTATIONS AND WARRANTIES
Distributor represents and warrants that:
a. It is a corporation duly organized and existing and in good standing
under the laws of the state of Wisconsin and is duly registered or exempt from
registration as a broker-dealer in all states and jurisdictions in which it
provides services as a non-exclusive distributor for the Funds.
b. It is a member in good standing of the NASD.
c. It is empowered under applicable laws and by Distributor's
organizational documents to enter into this Agreement and perform all
activities and services of the Distributor provided for herein and that there
are no impediments, prior or existing, regulatory, self-regulatory,
administrative, civil or criminal matters affecting Distributor's ability to
perform under this Agreement.
d. All requisite actions have been taken to authorize Distributor to enter
into and perform this Agreement.
12. ADDITIONAL DEALER REPRESENTATIONS AND WARRANTIES
In addition to the representations and warranties found elsewhere in this
Agreement, Dealer represents and warrants that:
a. It is duly organized and existing and in good standing under the laws of
the state, commonwealth or other jurisdiction in which Dealer is organized and
that Dealer will not offer Shares of any Fund for sale in any state or
jurisdiction where such Shares may not be legally sold or where Dealer is not
qualified to act as a broker-dealer.
b. It is empowered under applicable laws and by Dealer's organizational
documents to enter into this Agreement and perform all activities and services
of the Dealer
11
<PAGE>
provided for herein and that there are no impediments ( prior, existing or
threatened) regulatory, self-regulatory, administrative, civil or criminal
matters affecting or reasonably likely to affect Dealer's ability to perform
under this Agreement.
c. All requisite actions have been taken to authorize Dealer to enter into
and perform this Agreement.
d. It is not, at the time of the execution of this Agreement, subject to
any enforcement or other proceeding with respect to its activities under state
or federal securities laws, rules or regulations.
e. This Agreement constitutes the legal, valid and binding obligation of
Dealer and is enforceable against Dealer in accordance with its terms.
13. SETOFF; DISPUTE RESOLUTION; GOVERNING LAW
a. Should any of Dealer's compensation accounts with Distributor have a
debit balance, Distributor shall be permitted to offset and recover the amount
owed from any other account Dealer has with Distributor, without notice or
demand to Dealer.
b. In the event of a dispute concerning any provision of this Agreement,
either party may require the dispute to be submitted to binding arbitration
under the commercial arbitration rules and procedures of the NASD. The parties
agree that, to the extent permitted under such arbitration rules and
procedures, the arbitrators selected shall be from the securities industry.
Judgment upon any arbitration award may be entered by any state or federal
court having jurisdiction.
c. This Agreement shall be governed and construed in accordance with the
laws of the state of Wisconsin, not including any provision or judicial
interpretation which would require the general application of the law of
another jurisdiction.
14. INVESTIGATIONS AND PROCEEDINGS
The parties to this Agreement agree to cooperate fully in any securities
regulatory investigation or proceeding or judicial proceeding with respect to
each party's activities under this Agreement and promptly to notify the other
party of any such investigation or proceeding.
15. CAPTIONS
All captions used in this Agreement are for convenience only, are not a part
hereof, and are not to be used in construing or interpreting any aspect hereof.
16. SEVERABILITY
Whenever possible, each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law. If, however,
any provision of this Agreement is held under applicable law to be invalid,
illegal, or unenforceable in any respect,
12
<PAGE>
such provision shall be ineffective only to the extent of such invalidity, and
the validity, legality and enforceability of the remaining provisions of this
Agreement shall not be affected or impaired in any way.
17. RELATIONSHIP OF PARTIES
Unless expressly provided for elsewhere in this Agreement, all
services performed under this Agreement by Dealer shall be as an independent
contractor and not as an employee or agent of Distributor or the Funds, and
none of the parties shall hold itself out as an agent of any other party with
the authority to bind such party. Neither the execution nor performance of
this Agreement shall be deemed to create a partnership or joint venture by and
among any of the parties.
18. NOTICES
All notices under this Agreement shall be given in writing (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
facsimile, by registered or certified mail or by overnight delivery (postage
prepaid, return receipt requested) to the respective parties as follows:
if to Dealer:
___________________________________
___________________________________
___________________________________
Attention: __________________________
Facsimile No.: (____) ______
if to Distributor:
Strong Investments, Inc.
100 Heritage Reserve
Milwaukee, WI 53051
Attention: General Counsel
Facsimile No.: (414) 359-3948
19. ENTIRE AGREEMENT
This Agreement, along with any attached schedules, and the NSCC Networking
Agreement, if approved, contains the entire understanding of the parties hereto
with respect to the subject matter contained herein and supersedes all previous
agreements and/or understandings of the parties. This Agreement shall be
binding upon the parties hereto when signed by Dealer and accepted by
Distributor.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year set forth below.
STRONG INVESTMENTS, INC.
By: ________________________________
Stephen J. Shenkenberg, Vice President
Date: ________________________________
[DEALER]
By: _________________________________
(Signature)
Name: _________________________________
Title: _________________________________
Address:________________________________
________________________________
________________________________
Telephone: _____________________________
NASD CRD # __________________________
Date: _________________________________________
Strong Dealer #___________ (Internal Use Only)
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<PAGE>
SCHEDULE A
The Advisor Class shares of Funds subject to this Agreement are as follows:
Strong Advantage Fund
Strong Blue Chip 100 Fund
Strong Bond Fund
Strong Corporate Bond Fund
Strong Enterprise Fund
Strong Government Securities Fund
Strong Growth Fund
Strong Growth 20 Fund
Strong Growth and Income Fund
Strong High-Yield Bond Fund
Strong High-Yield Municipal Bond Fund
Strong Municipal Bond Fund
Strong Opportunity Fund
Strong Short-Term Bond Fund
Strong Short-Term High Yield Bond Fund
Strong Short-Term High Yield Municipal Bond Fund
Strong Short-Term Municipal Bond Fund
15
<PAGE>
SCHEDULE B
[INSERT OPERATING AGREEMENT, WHEN APPLICABLE, HERE]
16
<PAGE>
SCHEDULE C
[INSERT THE SALES LOAD SCHEDULE HERE.]
17
<PAGE>
SERVICES AGREEMENT
STRONG INVESTMENTS, INC.
Strong Investments, Inc. ("Distributor") and ______________ ("Servicer") have
agreed that Servicer will perform administrative functions and support services
("Services") for clients of Servicer who purchase shares ("Shares") of any of
the Strong family of funds (each a "Fund" and collectively the "Funds"), or
series thereof (as they may exist from time to time), including any classes
thereof, as identified on Schedule A to this Agreement, for which Distributor
now or in the future serves as distributor, subject to the terms of this
Services Agreement ("Agreement"). Any such additional Funds will be included
in this Agreement upon written notification to Servicer. Nothing in this
Agreement shall limit Servicer's right to engage one or more subcontractors or
agents, but no such engagement shall relieve Servicer of its duties,
responsibilities, obligations, agreements or liabilities under this Agreement.
1. LICENSING
a. Servicer represents and warrants that it and all of its partners,
directors, officers, employees and agents ("Servicer's Personnel") are licensed
by the appropriate regulatory agency of each state or other jurisdiction in
which Servicer or Servicer's Personnel provides the Services contemplated by
this Agreement, to the extent necessary to perform the Services and assume the
duties and responsibilities contemplated by this Agreement.
b. Servicer agrees that termination or suspension of its license to do
business by any state or other jurisdiction or federal regulatory agency, shall
immediately cause the automatic termination of this Agreement. Servicer further
agrees to immediately notify Distributor in writing of any such action or
event.
2. DUTIES OF SERVICER
a. Servicer is hereby authorized and may from time to time undertake to
provide Services to clients in connection with clients' investment in the
Shares of a Fund, which Services may include, but are not limited to: the
provision of personal, continuing services to shareholders in each Fund
including advisory and educational services; communicating as needed with
shareholders and answering questions from shareholders; and providing such
other similar services as the Distributor may reasonably request, from time to
time, to the extent the Servicer is permitted to do so under applicable
statues, rules, or regulations.
b. Servicer acknowledges that it has agreed to provide additional services
and to assume other duties and responsibilities not contemplated by this
Agreement in accordance with the terms and conditions set forth in another
[Operating and Services] [Services] Agreement, dated as of ____________,
between [Entity Name] [Servicer] and Distributor ("Other Agreement"), attached
as Schedule B, as may be amended from time to time, the terms and conditions of
which may set forth procedures governing, among other things, the establishment
of Servicer's accounts, pricing of Shares and the placement and settlement of
orders. To the extent that the current prospectus and statement of additional
information (including any supplements, stickers or amendments thereto)
relating to each Fund, as filed with the Securities and Exchange Commission
("SEC") for a Fund ("Prospectus") contains provisions
1
<PAGE>
that are inconsistent with this Agreement or any Other Agreement, the terms of
the Prospectus shall be controlling.
c. Servicer agrees to maintain all records as required by law to be
maintained in connection with providing the Services under this Agreement and
to furnish Distributor or regulatory authorities with copies of such records
upon request. Servicer represents and agrees that all Taxpayer Identification
Numbers ("TINs") provided are certified, and that no account that requires a
certified TIN will be established without such certified TIN.
d. Servicer agrees that all out-of-pocket expenses incurred by it in
connection with its activities under this Agreement will be borne by Servicer.
3. SERVICER COMPENSATION
a. With respect to the Services provided by Servicer with respect to any
Fund or class thereof that is authorized to make payments of service fees
(I.E., payments of fees and expenses made in accordance with a service plan
adopted by certain Funds or classes thereof pursuant to Rule 12b-1 ("Rule 12b-1
Plan") under the Investment Company Act of 1940, as amended ("1940 Act")), all
payments to Servicer shall be in accordance with the Rule 12b-1 Plan adopted by
that Fund or classes thereof as specified in each applicable Prospectus for
each Fund or class thereof. With respect to any Fund or class thereof that
offers Shares for which a Rule 12b-1 Plan has been adopted, Distributor is
authorized to pay Servicer continuing service fees, as specified in the
relevant Prospectus to the extent that Servicer provides the Services specified
in Section 2.a. above regarding the servicing of shareholder accounts for its
clients. Distributor reserves the right, without prior notice, to suspend or
eliminate the payment of such Rule 12b-1 Plan payments or other compensation to
Servicer by amendment, sticker or supplement to the Prospectus for each Fund.
b. In connection with the receipt of service fees under Rule 12b-1 Plans
applicable to the Services provided for Servicer's clients, Distributor directs
Servicer to provide the Services specified in Section 2.a. above. (Redemption
levels of shareholder accounts assigned to Servicer will be considered in
evaluating Servicer's continued ability to receive payments of service fees.)
Further, Servicer agrees to provide Distributor with supporting documentation
concerning the shareholder services provided, as Distributor may reasonably
request from time to time.
c. All Rule 12b-1 Plan servicing fees shall be based on the value of Shares
attributable to Servicer's clients and eligible for such payment under a Rule
12b-1 Plan, and shall be calculated on the basis of and at the rates set forth
in the Prospectus for each Fund or class thereof. Servicer represents and
warrants that Distributor has made no representations with respect to the Rule
12b-1 Plans of such Funds in addition to, or conflicting with, the description
set forth in their respective Prospectuses. Without prior approval by a
majority of the outstanding shares of a Fund, the aggregate annual fees paid to
Servicer pursuant to any Rule 12b-1 Plan shall not exceed the amounts stated as
the "annual maximums" in each Fund's Prospectus, which amount shall be a
specified percent of the value of the Fund's net assets held in Servicer's
clients' accounts that are eligible for payment pursuant to the Rule 12b-1
Plans (determined in the same manner as each Fund uses to compute its net
assets as set forth in its Prospectus).
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<PAGE>
d. The provisions of any Rule 12b-1 Plan and distribution agreement between
the Funds and the Distributor shall control over this Agreement in the event of
any inconsistency. Each Rule 12b-1 Plan in effect on the date of this
Agreement is described in the relevant Fund's Prospectus. Servicer hereby
acknowledges that all payments under Rule 12b-1 Plans are subject to
limitations contained in such Rule 12b-1 Plans and distribution agreements and
may be varied or discontinued at any time; in particular, Servicer acknowledges
that the Rule 12b-1 Plan may be terminated at any time by a vote of a majority
of the independent directors of the Fund, or by a vote of a majority of the
outstanding voting securities of a Fund.
4. MULTIPLE CLASSES OF SHARES
Distributor may, from time to time, provide Servicer with written guidelines or
standards relating to the servicing of Funds offering multiple classes of
Shares having different sales loads, Rule 12b-1 Plan fees, and expenses and
other operating expenses.
5. FUND INFORMATION
Servicer agrees that neither it nor any of its partners, directors, officers,
employees, and agents is authorized to give any information or make any
representations concerning Shares of any Fund except those contained in the
Fund's Prospectus or in materials provided by Distributor.
6. INDEMNIFICATION
a. Servicer agrees to indemnify, defend and hold harmless Distributor and
the Funds and their predecessors, successors, and affiliates, each current or
former director, officer, employee, shareholder or agent and each person who
controls or is controlled by Distributor from any and all losses, claims,
liabilities, costs, and expenses, including reasonable attorney fees, that may
be assessed against or suffered or incurred by any of them howsoever they
arise, and as they are incurred, which relate in any way to: (i) any alleged
violation of any statute or regulation (including without limitation the
securities laws and regulations of the United States or any state or foreign
country) or any alleged tort or breach of contract, related to the provision of
Services by Servicer pursuant to this Agreement (except to the extent that
Distributor's gross negligence or failure to follow correct instructions
received from Servicer is the cause of such loss, claim, liability, cost or
expense); (ii) any redemption or exchange pursuant to instructions received
from Servicer or Servicer's Personnel; or (iii) the breach by Servicer of any
of its representations and warranties specified herein or Servicer's failure to
comply with the terms and conditions of this Agreement, whether or not such
action, failure, error, omission, misconduct or breach is committed by Servicer
or its predecessor, successor, or affiliate, each current or former partner,
officer, director, employee or agent and each person who controls or is
controlled by Servicer. This indemnity agreement is in addition to any other
liability which Servicer may otherwise have.
b. Distributor agrees to indemnify, defend and hold harmless Servicer and
its predecessors, successors and affiliates, each current or former partner,
officer, director, employee or agent, and each person who controls or is
controlled by Servicer from any and all losses, claims, liabilities, costs and
expenses, including reasonable attorney fees, that may be assessed against or
suffered or incurred by any of them which arise, and which relate to any untrue
statement of or omission to state a material fact contained in the Prospectus
or any written sales
3
<PAGE>
literature or other marketing materials provided by the Distributor to the
Servicer, required to be stated therein or necessary to make the statements
therein not misleading. This indemnity agreement is in addition to any other
liability which Distributor may otherwise have.
c. Promptly after receipt by a party entitled to indemnification under this
Section 6 (an "Indemnified Party") of notice of the commencement of an
investigation, action, claim or proceeding, such Indemnified Party shall, if a
claim in respect thereof is to be made against the indemnifying party under
this Section 6 (the "Indemnifying Party"), notify the Indemnifying Party of the
commencement thereof; but the omission so to notify the Indemnifying Party
shall not relieve it from any liability which it may have to any Indemnified
Party otherwise than under this Section 6. In case any such action is brought
against any Indemnified Party, and it notified the Indemnifying Party of the
commencement thereof, the Indemnifying Party shall 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 Section 6 for any legal or other expenses subsequently incurred by
such Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation. The Indemnified Party may not settle any
action without the written consent of the Indemnifying Party. The Indemnifying
Party may not settle any action without the written consent of the Indemnified
Party unless such settlement completely and finally releases the Indemnified
Party from any and all liability. In either event, consent shall not be
unreasonably withheld.
d. Each party's obligations under these indemnification provisions shall
survive any termination of this Agreement.
7. TERMINATION; AMENDMENT
a. In addition to the automatic termination of this Agreement specified in
Section 1.b. of this Agreement, each party to this Agreement may unilaterally
cancel its participation in this Agreement by giving sixty (60) days prior
written notice to the other party. In addition, each party to this Agreement
may terminate this Agreement immediately by giving written notice to the other
party of that other party's material breach of this Agreement.
b. The termination of this Agreement by any of the foregoing means shall
not relieve Servicer of its obligations, duties and indemnities specified in
this Agreement; provided, however, that Distributor's obligation to pay fees to
Servicer shall survive for a period no longer than one year from the date of
termination (unless termination is the result of an event described in Section
1.c., in which case Distributor's obligation to pay such fees shall end as of
the date of such termination).
c. This Agreement is not assignable or transferable and will terminate
automatically in the event of its "assignment," as defined in the Investment
Company Act of 1940, as amended and the rules, regulations and interpretations
thereunder. The Distributor may, however, transfer any of its rights or duties
under this Agreement to any entity that controls or is under common control
with Distributor.
4
<PAGE>
d. This Agreement may be amended by Distributor at any time by written
notice to Servicer.
8. DISTRIBUTOR'S REPRESENTATIONS AND WARRANTIES
Distributor represents and warrants that:
a. It is a corporation duly organized and existing and in good standing
under the laws of the state of Wisconsin and is duly registered or exempt from
registration as a broker-dealer in all states and jurisdictions in which it
provides services as a non-exclusive distributor for the Funds.
b. It is a member in good standing of the NASD.
c. It is empowered under applicable laws and by Distributor's
organizational documents to enter into this Agreement and perform all
activities and services of the Distributor provided for herein and that there
are no impediments, prior or existing, regulatory, self-regulatory,
administrative, civil or criminal matters affecting Distributor's ability to
perform under this Agreement.
d. All requisite actions have been taken to authorize Distributor to enter
into and perform this Agreement.
9. ADDITIONAL SERVICER REPRESENTATIONS AND WARRANTIES
In addition to the representations and warranties found elsewhere in this
Agreement, Servicer represents and warrants that:
a. It is duly organized and existing and in good standing under the laws of
the state, commonwealth or other jurisdiction in which Servicer is organized.
b. It is empowered under applicable laws and by Servicer's organizational
documents to enter into this Agreement and perform all activities and services
of the Servicer provided for herein and that there are no impediments (prior,
existing or threatened) regulatory, self-regulatory, administrative, civil or
criminal matters affecting or reasonably likely to affect Servicer's ability to
perform under this Agreement.
c. All requisite actions have been taken to authorize Servicer to enter
into and perform this Agreement.
d. It is not, at the time of the execution of this Agreement, subject to
any enforcement or other proceeding with respect to its activities under state
or federal securities, banking or commodities laws, rules or regulations.
e. This Agreement constitutes the legal, valid and binding obligation of
Servicer and is enforceable against Servicer in accordance with its terms.
5
<PAGE>
10. GOVERNING LAW
This Agreement shall be governed and construed in accordance with the laws of
the state of Wisconsin, not including any provision or judicial interpretation
that would require the general application of the law of another jurisdiction.
11. INVESTIGATIONS AND PROCEEDINGS
The parties to this Agreement agree to cooperate fully in any securities
regulatory investigation or proceeding or judicial proceeding with respect to
each party's activities under this Agreement and promptly to notify the other
party of any such investigation or proceeding.
12. CAPTIONS
All captions used in this Agreement are for convenience only, are not a part
hereof, and are not to be used in construing or interpreting any aspect hereof.
13. SEVERABILITY
Whenever possible, each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law. If, however,
any provision of this Agreement is held under applicable law to be invalid,
illegal, or unenforceable in any respect, such provision shall be ineffective
only to the extent of such invalidity, and the validity, legality and
enforceability of the remaining provisions of this Agreement shall not be
affected or impaired in any way.
14. RELATIONSHIP OF PARTIES
Unless expressly provided for elsewhere in this Agreement, all services
performed under this Agreement by Servicer shall be as an independent
contractor and not as an employee or agent of Distributor or the Funds, and
none of the parties shall hold itself out as an agent of any other party with
the authority to bind such party. Neither the execution nor performance of
this Agreement shall be deemed to create a partnership or joint venture by and
among any of the parties.
15. NOTICES
All notices under this Agreement shall be given in writing (and shall be deemed
to have been duly given upon receipt) by delivery in person, by facsimile, by
registered or certified mail or by overnight delivery (postage prepaid, return
receipt requested) to the respective parties as follows:
if to Servicer:
___________________________________
___________________________________
___________________________________
Attention: __________________________
Facsimile No.: (____) _________________
6
<PAGE>
if to Distributor:
Strong Investments, Inc.
100 Heritage Reserve
Milwaukee, WI 53051
Attention: General Counsel
Facsimile No.: (414) 359-3948
16. ENTIRE AGREEMENT
This Agreement, along with any attached schedules if approved, contains the
entire understanding of the parties hereto with respect to the subject matter
contained herein and supersedes all previous agreements and/or understandings
of the parties. This Agreement shall be binding upon the parties hereto when
signed by Servicer and accepted by Distributor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date set forth below.
STRONG INVESTMENTS, INC.
By: ________________________________
Stephen J. Shenkenberg, Vice President
Date: ________________________________
[SERVICER]
By: _________________________________
(Signature)
Name: _________________________________
Title: _________________________________
Address:________________________________
________________________________
________________________________
Telephone: _____________________________
Date: _________________________________________
Strong Servicer #___________ (Internal Use Only)
7
<PAGE>
SCHEDULE A
The Advisor Class shares of Funds subject to this Agreement are as follows:
Strong Advantage Fund
Strong Blue Chip 100 Fund
Strong Bond Fund
Strong Corporate Bond Fund
Strong Enterprise Fund
Strong Government Securities Fund
Strong Growth Fund
Strong Growth 20 Fund
Strong Growth and Income Fund
Strong High-Yield Bond Fund
Strong High-Yield Municipal Bond Fund
Strong Municipal Bond Fund
Strong Opportunity Fund
Strong Short-Term Bond Fund
Strong Short-Term High Yield Bond Fund
Strong Short-Term High Yield Municipal Bond Fund
Strong Short-Term Municipal Bond Fund
8
<PAGE>
SCHEDULE B
[INSERT OPERATING AGREEMENT, WHEN APPLICABLE, HERE]
9
<PAGE>
AMENDED AND RESTATED
TRANSFER AND DIVIDEND DISBURSING AGENT AGREEMENT
THIS AGREEMENT is made and entered into on _________________, and as
amended and restated on this ____ day of ________, 2000, 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 $.00001 par
value common stock (the "Shares") of each Fund; and,
WHEREAS, the Corporation desires to retain Strong as the transfer and
dividend disbursing 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
transfer and dividend disbursing 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.
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.
1
<PAGE>
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.
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.
2
<PAGE>
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.
T. Prepare and/or deliver any written communication to a potential
purchaser of Fund shares, provided that the content of such communications is
approved by an authorized person of the Corporation.
U. Respond to inquiries of a potential purchaser of Fund shares in a
communication initiated by the potential purchaser, provided that the content
of such response is limited to information contained in the Corporation's
current registration statement filed under the Securities Act of 1933 and
Investment Company Act of 1940.
V. Perform ministerial and clerical work involved in effecting any Fund
transaction.
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 Transfer and Dividend Disbursing 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>
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 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
4
<PAGE>
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.
5
<PAGE>
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.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Strong ____________, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
6
<PAGE>
SCHEDULE A
The Fund(s) of the Corporation currently subject to this Agreement are as
follows:
Date of Addition
FUND(S) TO THIS AGREEMENT
Attest: Strong Capital Management, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Strong ____________, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
7
<PAGE>
TRANSFER AND DIVIDEND DISBURSING 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 transfer and dividend disbursing agent as
specified below, plus out-of-pocket expenses attributable to the Corporation
and the Fund(s).
<TABLE>
<CAPTION>
<S> <C> <C>
FUND SHARE CLASS FEE(S)
- -------- ----------- -----------
- -------- ----------- -----------
</TABLE>
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.
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.
INVESTOR CLASS SHARES
For purposes of calculating Strong's compensation pursuant to this
Agreement, all subaccounts which hold Investor Class shares of 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. Out-of-pocket expenses will be charged to the
applicable Fund, except
8
<PAGE>
for those out-of-pocket expenses attributable to the Corporation in general,
which shall be charged pro rata to each Fund.
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, administrative services, or for underwriting the sale of
Corporation shares.
ADVISOR AND INSTITUTIONAL CLASS SHARES
For the services to be furnished during any month by Strong under this
Agreement, each Fund listed above shall pay Strong a monthly fee equal to
1/12th of the annual fee as set forth above of the average daily net asset
value of the Fund determined as of the close of business on each business day
throughout 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, administrative services, or for
underwriting the sale of Corporation shares. 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.
9
<PAGE>
Attest: Strong Capital Management, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Strong ____________, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
10
<PAGE>
INVESTOR CLASS SHARES
ADMINISTRATION AGREEMENT
THIS AGREEMENT is entered into on this ____ day of ________, 2000 between
Strong ___________, Inc., a Wisconsin corporation (the "Corporation"), and
Strong Capital Management, Inc., a Wisconsin corporation ("SCM"), with respect
to the shares of each of the Funds. All capitalized terms not defined herein
shall have the same meaning as in the Fund's current prospectus.
WITNESSETH
WHEREAS, the Corporation is an open-end management investment company
registered under the Investment Company Act of 1940 (the "1940 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 is
hereinafter individually referred to as a "Fund" and collectively, the
"Funds");
WHEREAS, it is in the interest of the Corporation to make administrative
services available to shareholders of the Funds;
WHEREAS, SCM wishes to act as the administrator for the Funds to perform
certain administrative functions in connection with purchases and redemptions
of shares of the Funds ("Shares") and to provide related services to
shareholders in connection with their investments in the Funds; and
NOW, THEREFORE, the Corporation and SCM do mutually agree and promise as
follows:
1. APPOINTMENT. SCM hereby agrees to perform certain administrative
services for the Corporation with respect to the Funds listed on Schedule A
hereto, as such Schedule A may be amended from time to time, as hereinafter set
forth.
2. SERVICES TO BE PERFORMED.
2.1 SHAREHOLDER SERVICES. SCM shall be responsible for performing
administrative and servicing functions, which shall include without limitation:
(i) authorizing expenditures and approving bills for payment on behalf of the
Funds; (ii) supervising preparation of the periodic updating of the Funds'
registration statements, including prospectuses and statements of additional
information, for the purpose of filings with the Securities and Exchange
Commission ("SEC") and state securities administrators and monitoring and
maintaining the effectiveness of such filings, as appropriate; (iii)
supervising preparation of shareholder reports, notices of dividends, capital
gains distributions and tax credits for the Funds' shareholders, and attending
to routine correspondence and other communications with individual
shareholders; (iv) supervising the daily pricing of the Funds' investment
portfolios and the publication of the respective net asset values of the shares
of each Fund, earnings reports and other financial data to the extent required
by the Fund's Advisory Agreement prior to the adoption of this Administration
Agreement; (v) monitoring relationships with organizations providing services
to the Funds, including the Custodian, DST and printers; (vi) supervising
compliance by the Funds with recordkeeping requirements under the 1940 Act and
regulations thereunder, maintaining books and records for the Funds (other than
those maintained by the Custodian and the Funds' transfer agent) and preparing
and filing of tax reports other than the Funds' income tax returns; (vii)
answering shareholder inquiries regarding account status and history, the
manner in which purchases and redemptions of the shares may be effected, and
certain other matters pertaining to the Funds; (viii) assisting shareholders in
designating and changing dividend options, account designations and addresses;
(ix) providing necessary personnel and facilities to coordinate the
establishment and maintenance of shareholder accounts and records with the
Funds' transfer agent; (x) transmitting shareholders' purchase and redemption
orders to the Funds' transfer agent; (xi) arranging for the wiring or other
transfer of funds to and from shareholder accounts in connection
1
<PAGE>
with shareholder orders to purchase or redeem shares; (xii) verifying purchase
and redemption orders, transfers among and changes in shareholder-designated
accounts; (xiii) informing the distributor of the gross amount of purchase and
redemption orders for shares; and (xiv) providing such other related services
as the Funds or a shareholder may reasonably request, to the extent permitted
by applicable law. SCM shall provide all personnel and facilities necessary in
order for it to perform the functions contemplated by this paragraph with
respect to shareholders.
2.2 STANDARD OF SERVICES. All services to be rendered by SCM hereunder
shall be performed in a professional, competent and timely manner subject to
the supervision of the Board of Directors of the Corporation on behalf of the
Funds. The details of the operating standards and procedures to be followed by
SCM in the performance of the services described above shall be determined from
time to time by agreement between SCM and the Corporation.
3. FEES. As full compensation for the services described in Section 2
hereof and expenses incurred by SCM, the Funds shall pay SCM a monthly fee at
an annual rate, as specified on Schedule A, of each Fund's average daily net
asset value. This fee will be computed daily and will be payable as agreed by
the Corporation and SCM, but no more frequently than monthly.
4. INFORMATION PERTAINING TO THE SHARES. SCM and its officers, employees
and agents are not authorized to make any representations concerning the Funds
or the Shares except to communicate accurately to shareholders factual
information contained in the Funds' Prospectus and Statement of Additional
Information and objective historical performance information. SCM shall act as
agent for shareholders only in furnishing information regarding the Funds and
shall have no other authority to act as agent for the Funds.
During the term of this Agreement, the Funds agree to furnish SCM all
prospectuses, statements of additional information, proxy statements, reports
to shareholders, sales literature, or other material the Funds will distribute
to shareholders of the Funds or the public, which refer in any way to SCM as
the administrator of the Funds, and SCM agrees to furnish the Funds all
material prepared for shareholders, in each case prior to use thereof. The
Funds shall furnish or otherwise make available to SCM such other information
relating to the business affairs of the Funds as SCM may, from time to time,
reasonably request in order to discharge its obligations hereunder.
Nothing in this Section 4 shall be construed to make the Funds liable for the
use of any information about the Funds which is disseminated by SCM.
5. USE OF SCM'S NAME. The Funds shall not use the name of SCM in any
prospectus, sales literature or other material relating to the Funds in a
manner not approved by SCM prior thereto; PROVIDED, HOWEVER, that the approval
of SCM shall not be required for any use of its name which merely refers in
accurate and factual terms to its appointment hereunder or which is required by
the SEC or any state securities authority or any other appropriate regulatory,
governmental or judicial authority; PROVIDED, FURTHER, that in no event shall
such approval be unreasonably withheld or delayed.
6. USE OF THE FUNDS' NAME. SCM shall not use the name of the Funds on any
checks, bank drafts, bank statements or forms for other than internal use in a
manner not approved by the Funds prior thereto; PROVIDED, HOWEVER, that the
approval of the Funds shall not be required for the use of the Funds' names in
connection with communications permitted by Sections 2 and 4 hereof or for any
use of the Funds' names which merely refer in accurate and factual terms to
SCM's role hereunder or which is required by the SEC or any state securities
authority or any other appropriate regulatory, governmental or judicial
authority; PROVIDED, FURTHER, that in no event shall such approval be
unreasonably withheld or delayed.
7. SECURITY. SCM represents and warrants that the various procedures and
systems which it has implemented with regard to safeguarding from loss or
damage attributable to fire, theft or any other cause any Fund's records and
other data and SCM's records, data, equipment, facilities and other property
used in the performance of its obligations hereunder are adequate and that it
will make such changes therein from time to time as in its judgment are
required for the secure performance of its obligations hereunder. The parties
shall review such systems and procedures on a periodic basis, and the Funds
shall from time to time specify the types of records and other data of the
Funds to be safeguarded in accordance with this Section 7.
2
<PAGE>
8. COMPLIANCE WITH LAWS. SCM assumes no responsibilities under this
Agreement other than to render the services called for hereunder, on the terms
and conditions provided herein. SCM shall comply with all applicable federal
and state laws and regulations. SCM represents and warrants to the Funds that
the performance of all its obligations hereunder will comply with all
applicable laws and regulations, the provisions of its articles of
incorporation and by-laws and all material contractual obligations binding upon
SCM. SCM furthermore undertakes that it will promptly inform the Funds of any
change in applicable laws or regulations (or interpretations thereof) which
would prevent or impair full performance of any of its obligations hereunder.
9. FORCE MAJEURE. SCM shall not be liable or responsible for delays or
errors by reason of circumstances beyond its control, including, but not
limited to, acts of civil or military authority, national emergencies, labor
difficulties, fire, mechanical breakdown, flood or catastrophe, acts of God,
insurrection, war, riots or failure of communication or power supply.
10. INDEMNIFICATION.
10.1 INDEMNIFICATION OF SCM. SCM, its directors, officers, employees and
agents shall not be liable for any error of judgment or mistake of law or any
loss suffered by the Funds in connection with the performance of its
obligations and duties under this Agreement, except a loss resulting from
willful misfeasance, bad faith, or gross negligence in the performance of such
obligations or duties or by reason of the reckless disregard thereof by SCM,
its directors, officers, employees and agents. The Funds will indemnify and
hold SCM, its directors, officers, employees and agents harmless, from all
losses, claims, damages, liabilities or expenses (including reasonable fees and
disbursements of counsel) from any losses, liabilities, damages, or expenses
(collectively, "Losses") resulting from any and all claims, demands, actions or
suits (collectively, "Claims") arising out of or in connection with actions or
omissions in the Funds including, but not limited to, any misstatements or
omissions in a prospectus, actions or inactions by the Funds or any of its
agents or contractors or the performance of SCM's obligations hereunder or
otherwise not resulting from the willful misfeasance, bad faith, or gross
negligence of SCM, its directors, officers, employees or agents, in the
performance of SCM's duties or from reckless disregard by SCM, its directors,
officers, employees or agents of SCM's obligations and duties under this
Agreement.
Notwithstanding anything herein to the contrary, the Funds will indemnify and
hold SCM harmless from any and all Losses (including reasonable counsel fees
and expenses) resulting from any Claims as a result of SCM's acting in
accordance with any received instructions from the Funds.
10.2 INDEMNIFICATION OF THE FUNDS. Without limiting the rights of the
Funds under applicable law, SCM will indemnify and hold the Funds harmless from
any and all Losses (including reasonable fees and disbursements of counsel)
from any Claims resulting from the willful misfeasance, bad faith, or gross
negligence of SCM, its directors, officers, employees or agents, in the
performance of SCM's duties or from reckless disregard by SCM, its directors,
officers, employees or agents of SCM's obligations and duties under this
Agreement.
10.3 SURVIVAL OF INDEMNITIES. The indemnities granted by the parties in
this Section 10 shall survive the termination of this Agreement.
11. INSURANCE. SCM shall maintain such reasonable insurance coverage as is
appropriate against any and all liabilities which may arise in connection with
the performance of its duties hereunder.
12. FURTHER ASSURANCES. Each party agrees to perform such further acts and
execute further documents as are necessary to effectuate the purposes hereof.
13. TERMINATION. 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 either party upon ninety (90) days written notice to the other party.
14. NON-EXCLUSIVITY. Nothing in this Agreement shall limit or restrict the
right of SCM to engage in any other business or to render services of any kind
to any other corporation, firm, individual or association.
3
<PAGE>
15. AMENDMENTS. This Agreement may be amended only by mutual written
consent.
16. 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 post paid to the other party at the principal place of
business of such party.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin.
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.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Strong ___________, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
4
<PAGE>
SCHEDULE A
The Funds of the Corporation currently subject to this Agreement are as
follows:
Date of Addition
PORTFOLIO(S) ANNUAL RATE TO THIS AGREEMENT
Attest: Strong Capital Management, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Strong ___________, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
5
<PAGE>
ADVISOR CLASS SHARES
ADMINISTRATION AGREEMENT
THIS AGREEMENT is entered into on this ____ day of _________, 2000 between
Strong ____________, Inc., a Wisconsin corporation (the "Corporation"), and
Strong Capital Management, Inc., a Wisconsin corporation ("SCM"), with respect
to the Advisor Class shares of each of the Funds. All capitalized terms not
defined herein shall have the same meaning as in the Fund's current prospectus.
WITNESSETH
WHEREAS, the Corporation is an open-end management investment company
registered under the Investment Company Act of 1940 (the "1940 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 is
hereinafter individually referred to as a "Fund" and collectively, the
"Funds");
WHEREAS, it is in the interest of the Corporation to make administrative
services available to shareholders of the Funds;
WHEREAS, SCM wishes to act as the administrator for the Funds to perform
certain administrative functions in connection with purchases and redemptions
of Advisor Class shares of the Funds ("Shares") and to provide related services
to Advisor Class shareholders in connection with their investments in the
Funds; and
NOW, THEREFORE, the Corporation and SCM do mutually agree and promise as
follows:
1. APPOINTMENT. SCM hereby agrees to perform certain administrative
services for the Corporation with respect to the Funds listed on Schedule A
hereto, as such Schedule A may be amended from time to time, as hereinafter set
forth.
2. SERVICES TO BE PERFORMED.
2.1 SHAREHOLDER SERVICES. SCM shall be responsible for performing
administrative and servicing functions, which shall include without limitation:
(i) authorizing expenditures and approving bills for payment on behalf of the
Funds and the Advisor Class shares; (ii) supervising preparation of the
periodic updating of the Funds' registration statements with respect to the
Advisor Class shares, including Advisor Class prospectuses and statements of
additional information, for the purpose of filings with the Securities and
Exchange Commission ("SEC") and state securities administrators and monitoring
and maintaining the effectiveness of such filings, as appropriate; (iii)
supervising preparation of shareholder reports, notices of dividends, capital
gains distributions and tax credits for the Funds' Advisor Class shareholders,
and attending to routine correspondence and other
1
<PAGE>
communications with individual shareholders; (iv) supervising the daily pricing
of the Funds' investment portfolios and the publication of the respective net
asset values of the Advisor Class shares of each Fund, earnings reports and
other financial data to the extent required by the Fund's Advisory Agreement
prior to the adoption of this Administration Agreement; (v) monitoring
relationships with organizations providing services to the Funds, with respect
to the Advisor Class shares, including the Custodian, DST and printers; (vi)
supervising compliance by the Funds with recordkeeping requirements under the
1940 Act and regulations thereunder, maintaining books and records for the
Funds (other than those maintained by the Custodian and the Funds' transfer
agent) and preparing and filing of tax reports other than the Funds' income tax
returns; (vii) providing necessary personnel and facilities to coordinate the
establishment and maintenance of shareholder accounts and records with the
Funds' transfer agent; (viii) transmitting shareholders' purchase and
redemption orders to the Funds' transfer agent; (ix) arranging for the wiring
or other transfer of funds to and from shareholder accounts in connection with
shareholder orders to purchase or redeem Advisor Class shares; (x) verifying
purchase and redemption orders, transfers among and changes in
shareholder-designated accounts; (xi) informing the distributor of the gross
amount of purchase and redemption orders for Advisor Class shares; and (xii)
providing such other related services as the Funds or a shareholder may
reasonably request, to the extent permitted by applicable law. SCM shall
provide all personnel and facilities necessary in order for it to perform the
functions contemplated by this paragraph with respect to shareholders.
2.2 STANDARD OF SERVICES. All services to be rendered by SCM hereunder
shall be performed in a professional, competent and timely manner subject to
the supervision of the Board of Directors of the Corporation on behalf of the
Funds. The details of the operating standards and procedures to be followed by
SCM in the performance of the services described above shall be determined from
time to time by agreement between SCM and the Corporation.
3. FEES. As full compensation for the services described in Section 2
hereof and expenses incurred by SCM, the Funds shall pay SCM a monthly fee at
an annual rate, as specified on Schedule A, of each Fund's average daily net
asset value attributable to the Advisor Class shares. This fee will be
computed daily and will be payable as agreed by the Corporation and SCM, but no
more frequently than monthly.
4. INFORMATION PERTAINING TO THE SHARES. SCM and its officers, employees
and agents are not authorized to make any representations concerning the Funds
or the Shares except to communicate accurately to shareholders factual
information contained in the Funds' Prospectus and Statement of Additional
Information and objective historical performance information. SCM shall act as
agent for shareholders only in furnishing information regarding the Funds and
shall have no other authority to act as agent for the Funds.
During the term of this Agreement, the Funds agree to furnish SCM all
prospectuses, statements of additional information, proxy statements, reports
to shareholders, sales literature, or other material the Funds will distribute
to shareholders of the Funds or the public, which refer in any way to SCM as
the administrator of the Funds, and SCM agrees to furnish the Funds all
material prepared for shareholders, in each case prior to use thereof. The
Funds shall furnish or otherwise make available to SCM such other information
relating to the
2
<PAGE>
business affairs of the Funds as SCM may, from time to time, reasonably request
in order to discharge its obligations hereunder.
Nothing in this Section 4 shall be construed to make the Funds liable for the
use of any information about the Funds which is disseminated by SCM.
5. USE OF SCM'S NAME. The Funds shall not use the name of SCM in any
prospectus, sales literature or other material relating to the Funds in a
manner not approved by SCM prior thereto; PROVIDED, HOWEVER, that the approval
of SCM shall not be required for any use of its name which merely refers in
accurate and factual terms to its appointment hereunder or which is required by
the SEC or any state securities authority or any other appropriate regulatory,
governmental or judicial authority; PROVIDED, FURTHER, that in no event shall
such approval be unreasonably withheld or delayed.
6. USE OF THE FUNDS' NAME. SCM shall not use the name of the Funds on any
checks, bank drafts, bank statements or forms for other than internal use in a
manner not approved by the Funds prior thereto; PROVIDED, HOWEVER, that the
approval of the Funds shall not be required for the use of the Funds' names in
connection with communications permitted by Sections 2 and 4 hereof or for any
use of the Funds' names which merely refer in accurate and factual terms to
SCM's role hereunder or which is required by the SEC or any state securities
authority or any other appropriate regulatory, governmental or judicial
authority; PROVIDED, FURTHER, that in no event shall such approval be
unreasonably withheld or delayed.
7. SECURITY. SCM represents and warrants that the various procedures and
systems which it has implemented with regard to safeguarding from loss or
damage attributable to fire, theft or any other cause any Fund's records and
other data and SCM's records, data, equipment, facilities and other property
used in the performance of its obligations hereunder are adequate and that it
will make such changes therein from time to time as in its judgment are
required for the secure performance of its obligations hereunder. The parties
shall review such systems and procedures on a periodic basis, and the Funds
shall from time to time specify the types of records and other data of the
Funds to be safeguarded in accordance with this Section 7.
8. COMPLIANCE WITH LAWS. SCM assumes no responsibilities under this
Agreement other than to render the services called for hereunder, on the terms
and conditions provided herein. SCM shall comply with all applicable federal
and state laws and regulations. SCM represents and warrants to the Funds that
the performance of all its obligations hereunder will comply with all
applicable laws and regulations, the provisions of its articles of
incorporation and by-laws and all material contractual obligations binding upon
SCM. SCM furthermore undertakes that it will promptly inform the Funds of any
change in applicable laws or regulations (or interpretations thereof) which
would prevent or impair full performance of any of its obligations hereunder.
9. FORCE MAJEURE. SCM shall not be liable or responsible for delays or
errors by reason of circumstances beyond its control, including, but not
limited to, acts of civil or military authority, national emergencies, labor
difficulties, fire, mechanical breakdown, flood or catastrophe, acts of God,
insurrection, war, riots or failure of communication or power supply.
3
<PAGE>
10. INDEMNIFICATION.
10.1 INDEMNIFICATION OF SCM. SCM, its directors, officers, employees and
agents shall not be liable for any error of judgment or mistake of law or any
loss suffered by the Funds in connection with the performance of its
obligations and duties under this Agreement, except a loss resulting from
willful misfeasance, bad faith, or gross negligence in the performance of such
obligations or duties or by reason of the reckless disregard thereof by SCM,
its directors, officers, employees and agents. The Funds will indemnify and
hold SCM, its directors, officers, employees and agents harmless, from all
losses, claims, damages, liabilities or expenses (including reasonable fees and
disbursements of counsel) from any losses, liabilities, damages, or expenses
(collectively, "Losses") resulting from any and all claims, demands, actions or
suits (collectively, "Claims") arising out of or in connection with actions or
omissions in the Funds including, but not limited to, any misstatements or
omissions in a prospectus, actions or inactions by the Funds or any of its
agents or contractors or the performance of SCM's obligations hereunder or
otherwise not resulting from the willful misfeasance, bad faith, or gross
negligence of SCM, its directors, officers, employees or agents, in the
performance of SCM's duties or from reckless disregard by SCM, its directors,
officers, employees or agents of SCM's obligations and duties under this
Agreement.
Notwithstanding anything herein to the contrary, the Funds will indemnify and
hold SCM harmless from any and all Losses (including reasonable counsel fees
and expenses) resulting from any Claims as a result of SCM's acting in
accordance with any received instructions from the Funds.
10.2 INDEMNIFICATION OF THE FUNDS. Without limiting the rights of the
Funds under applicable law, SCM will indemnify and hold the Funds harmless from
any and all Losses (including reasonable fees and disbursements of counsel)
from any Claims resulting from the willful misfeasance, bad faith, or gross
negligence of SCM, its directors, officers, employees or agents, in the
performance of SCM's duties or from reckless disregard by SCM, its directors,
officers, employees or agents of SCM's obligations and duties under this
Agreement.
10.3 SURVIVAL OF INDEMNITIES. The indemnities granted by the parties in
this Section 10 shall survive the termination of this Agreement.
11. INSURANCE. SCM shall maintain such reasonable insurance coverage as is
appropriate against any and all liabilities which may arise in connection with
the performance of its duties hereunder.
12. FURTHER ASSURANCES. Each party agrees to perform such further acts and
execute further documents as are necessary to effectuate the purposes hereof.
13. TERMINATION. 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 either party upon ninety (90) days written notice to the other party.
4
<PAGE>
14. NON-EXCLUSIVITY. Nothing in this Agreement shall limit or restrict the
right of SCM to engage in any other business or to render services of any kind
to any other corporation, firm, individual or association.
15. AMENDMENTS. This Agreement may be amended only by mutual written
consent.
16. 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 post paid to the other party at the principal place of
business of such party.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin.
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.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Strong ____________, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
5
<PAGE>
SCHEDULE A
The Funds of the Corporation currently subject to this Agreement are as
follows:
Date of Addition
PORTFOLIO(S) ANNUAL RATE TO THIS AGREEMENT
Attest: Strong Capital Management, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Strong ____________, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
6
<PAGE>
INSTITUTIONAL CLASS SHARES
ADMINISTRATION AGREEMENT
THIS AGREEMENT is entered into on this ____ day of _________, 2000 between
Strong ___________, Inc., a Wisconsin corporation (the "Corporation"), and
Strong Capital Management, Inc., a Wisconsin corporation ("SCM"), with respect
to the Institutional Class shares of each of the Funds. All capitalized terms
not defined herein shall have the same meaning as in the Fund's current
prospectus.
WITNESSETH
WHEREAS, the Corporation is an open-end management investment company
registered under the Investment Company Act of 1940 (the "1940 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 is
hereinafter individually referred to as a "Fund" and collectively, the
"Funds");
WHEREAS, it is in the interest of the Corporation to make administrative
services available to shareholders of the Funds;
WHEREAS, SCM wishes to act as the administrator for the Funds to perform
certain administrative functions in connection with purchases and redemptions
of Institutional Class shares of the Funds ("Shares") and to provide related
services to Institutional Class shareholders in connection with their
investments in the Funds; and
NOW, THEREFORE, the Corporation and SCM do mutually agree and promise as
follows:
1. APPOINTMENT. SCM hereby agrees to perform certain administrative
services for the Corporation with respect to the Funds listed on Schedule A
hereto, as such Schedule A may be amended from time to time, as hereinafter set
forth.
2. SERVICES TO BE PERFORMED.
2.1 SHAREHOLDER SERVICES. SCM shall be responsible for performing
administrative and servicing functions, which shall include without limitation:
(i) authorizing expenditures and approving bills for payment on behalf of
the Funds and the Institutional Class shares; (ii) supervising preparation of
the periodic updating of the Funds' registration statements, with respect to
the Institutional Class shares, including Institutional Class prospectuses and
statements of additional information, for the purpose of filings with the
Securities and Exchange Commission ("SEC") and state securities administrators
and monitoring and maintaining the effectiveness of such filings, as
appropriate; (iii) supervising preparation of shareholder reports, notices of
dividends, capital gains distributions and tax credits for the Fund's
Institutional Class shareholders, and attending to
1
<PAGE>
routine correspondence and other communications with individual shareholders;
(iv) supervising the daily pricing of the Funds' investment portfolios and the
publication of the respective net asset values of the Institutional Class
shares of each Fund, earnings reports and other financial data to the extent
required by the Fund's Advisory Agreement prior to the adoption of this
Administration Agreement; (v) monitoring relationships with organizations
providing services to the Funds, including the Custodian, DST and printers;
(vi) supervising compliance by the Funds, with respect to the Institutional
Class shareholders, with recordkeeping requirements under the 1940 Act and
regulations thereunder, maintaining books and records for the Funds (other than
those maintained by the Custodian and the Funds' transfer agent) and preparing
and filing of tax reports other than the Funds' income tax returns; (vii)
transmitting shareholders' purchase and redemption orders to the Funds'
transfer agent; (viii) arranging for the wiring or other transfer of funds to
and from shareholder accounts in connection with shareholder orders to purchase
or redeem Institutional Class shares; (ix) verifying purchase and redemption
orders, transfers among and changes in shareholder-designated accounts;
(x) informing the distributor of the gross amount of purchase and redemption
orders for Institutional Class shares; and (xi) providing such other related
services as the Funds or a shareholder may reasonably request, to the extent
permitted by applicable law. SCM shall provide all personnel and facilities
necessary in order for it to perform the functions contemplated by this
paragraph with respect to shareholders.
2.2 STANDARD OF SERVICES. All services to be rendered by SCM hereunder
shall be performed in a professional, competent and timely manner subject to
the supervision of the Board of Directors of the Corporation on behalf of the
Funds. The details of the operating standards and procedures to be followed by
SCM in the performance of the services described above shall be determined from
time to time by agreement between SCM and the Corporation.
3. FEES. As full compensation for the services described in Section 2
hereof and expenses incurred by SCM, the Funds shall pay SCM a monthly fee at
an annual rate, as specified on Schedule A, of each Fund's average daily net
asset value attributable to the Institutional Class shares. This fee will be
computed daily and will be payable as agreed by the Corporation and SCM, but no
more frequently than monthly.
4. INFORMATION PERTAINING TO THE SHARES. SCM and its officers, employees
and agents are not authorized to make any representations concerning the Funds
or the Shares except to communicate accurately to shareholders factual
information contained in the Funds' Prospectus and Statement of Additional
Information and objective historical performance information. SCM shall act as
agent for shareholders only in furnishing information regarding the Funds and
shall have no other authority to act as agent for the Funds.
During the term of this Agreement, the Funds agree to furnish SCM all
prospectuses, statements of additional information, proxy statements, reports
to shareholders, sales literature, or other material the Funds will distribute
to shareholders of the Funds or the public, which refer in any way to SCM as
the administrator of the Funds, and SCM agrees to furnish the Funds all
material prepared for shareholders, in each case prior to use thereof. The
Funds shall furnish or otherwise make available to SCM such other information
relating to the business affairs of the Funds as SCM may, from time to time,
reasonably request in order to discharge its obligations hereunder.
2
<PAGE>
Nothing in this Section 4 shall be construed to make the Funds liable for the
use of any information about the Funds which is disseminated by SCM.
5. USE OF SCM'S NAME. The Funds shall not use the name of SCM in any
prospectus, sales literature or other material relating to the Funds in a
manner not approved by SCM prior thereto; PROVIDED, HOWEVER, that the approval
of SCM shall not be required for any use of its name which merely refers in
accurate and factual terms to its appointment hereunder or which is required by
the SEC or any state securities authority or any other appropriate regulatory,
governmental or judicial authority; PROVIDED, FURTHER, that in no event shall
such approval be unreasonably withheld or delayed.
6. USE OF THE FUNDS' NAME. SCM shall not use the name of the Funds on any
checks, bank drafts, bank statements or forms for other than internal use in a
manner not approved by the Funds prior thereto; PROVIDED, HOWEVER, that the
approval of the Funds shall not be required for the use of the Funds' names in
connection with communications permitted by Sections 2 and 4 hereof or for any
use of the Funds' names which merely refer in accurate and factual terms to
SCM's role hereunder or which is required by the SEC or any state securities
authority or any other appropriate regulatory, governmental or judicial
authority; PROVIDED, FURTHER, that in no event shall such approval be
unreasonably withheld or delayed.
7. SECURITY. SCM represents and warrants that the various procedures and
systems which it has implemented with regard to safeguarding from loss or
damage attributable to fire, theft or any other cause any Fund's records and
other data and SCM's records, data, equipment, facilities and other property
used in the performance of its obligations hereunder are adequate and that it
will make such changes therein from time to time as in its judgment are
required for the secure performance of its obligations hereunder. The parties
shall review such systems and procedures on a periodic basis, and the Funds
shall from time to time specify the types of records and other data of the
Funds to be safeguarded in accordance with this Section 7.
8. COMPLIANCE WITH LAWS. SCM assumes no responsibilities under this
Agreement other than to render the services called for hereunder, on the terms
and conditions provided herein. SCM shall comply with all applicable federal
and state laws and regulations. SCM represents and warrants to the Funds that
the performance of all its obligations hereunder will comply with all
applicable laws and regulations, the provisions of its articles of
incorporation and by-laws and all material contractual obligations binding upon
SCM. SCM furthermore undertakes that it will promptly inform the Funds of any
change in applicable laws or regulations (or interpretations thereof) which
would prevent or impair full performance of any of its obligations hereunder.
9. FORCE MAJEURE. SCM shall not be liable or responsible for delays or
errors by reason of circumstances beyond its control, including, but not
limited to, acts of civil or military authority, national emergencies, labor
difficulties, fire, mechanical breakdown, flood or catastrophe, acts of God,
insurrection, war, riots or failure of communication or power supply.
3
<PAGE>
10. INDEMNIFICATION.
10.1 INDEMNIFICATION OF SCM. SCM, its directors, officers, employees and
agents shall not be liable for any error of judgment or mistake of law or any
loss suffered by the Funds in connection with the performance of its
obligations and duties under this Agreement, except a loss resulting from
willful misfeasance, bad faith, or gross negligence in the performance of such
obligations or duties or by reason of the reckless disregard thereof by SCM,
its directors, officers, employees and agents. The Funds will indemnify and
hold SCM, its directors, officers, employees and agents harmless, from all
losses, claims, damages, liabilities or expenses (including reasonable fees and
disbursements of counsel) from any losses, liabilities, damages, or expenses
(collectively, "Losses") resulting from any and all claims, demands, actions or
suits (collectively, "Claims") arising out of or in connection with actions or
omissions in the Funds including, but not limited to, any misstatements or
omissions in a prospectus, actions or inactions by the Funds or any of its
agents or contractors or the performance of SCM's obligations hereunder or
otherwise not resulting from the willful misfeasance, bad faith, or gross
negligence of SCM, its directors, officers, employees or agents, in the
performance of SCM's duties or from reckless disregard by SCM, its directors,
officers, employees or agents of SCM's obligations and duties under this
Agreement.
Notwithstanding anything herein to the contrary, the Funds will indemnify and
hold SCM harmless from any and all Losses (including reasonable counsel fees
and expenses) resulting from any Claims as a result of SCM's acting in
accordance with any received instructions from the Funds.
10.2 INDEMNIFICATION OF THE FUNDS. Without limiting the rights of the
Funds under applicable law, SCM will indemnify and hold the Funds harmless from
any and all Losses (including reasonable fees and disbursements of counsel)
from any Claims resulting from the willful misfeasance, bad faith, or gross
negligence of SCM, its directors, officers, employees or agents, in the
performance of SCM's duties or from reckless disregard by SCM, its directors,
officers, employees or agents of SCM's obligations and duties under this
Agreement.
10.3 SURVIVAL OF INDEMNITIES. The indemnities granted by the parties in
this Section 10 shall survive the termination of this Agreement.
11. INSURANCE. SCM shall maintain such reasonable insurance coverage as is
appropriate against any and all liabilities which may arise in connection with
the performance of its duties hereunder.
12. FURTHER ASSURANCES. Each party agrees to perform such further acts and
execute further documents as are necessary to effectuate the purposes hereof.
13. TERMINATION. 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 either party upon ninety (90) days written notice to the other party.
4
<PAGE>
14. NON-EXCLUSIVITY. Nothing in this Agreement shall limit or restrict the
right of SCM to engage in any other business or to render services of any kind
to any other corporation, firm, individual or association.
15. AMENDMENTS. This Agreement may be amended only by mutual written
consent.
16. 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 post paid to the other party at the principal place of
business of such party.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin.
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.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Strong ___________, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
5
<PAGE>
SCHEDULE A
The Funds of the Corporation currently subject to this Agreement are as
follows:
Date of Addition
PORTFOLIO(S) ANNUAL RATE TO THIS AGREEMENT
Attest: Strong Capital Management, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
Attest: Strong ___________, Inc.
--------------------------------------
John S. Weitzer Stephen J. Shenkenberg, Vice President
6
<PAGE>
GODFREY & KAHN, S.C.
ATTORNEYS AT LAW
780 North Water Street
Milwaukee, Wisconsin 53202
Phone (414) 273-3500 Fax (414) 273-5198
February 23, 2000
Strong Conservative Equity Funds, Inc.
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
Re: Strong Blue Chip 100 Fund
Strong Growth and Income Fund
Gentlemen:
We have acted as your counsel in connection with the preparation of a
Registration Statement on Form N-1A (Registration Nos. 33-61358; 811-7656) (the
"Registration Statement") relating to the sale by you of an indefinite number
of shares (the "Shares") of common stock, $.00001 par value of the Investor,
Advisor and Institutional classes of the Strong Growth and Income Fund and the
Investor and Advisor classes of the Strong Blue Chip 100 Fund (the "Funds"),
both of which are series of Strong Conservative Equity Funds, Inc. (the
"Company"), in the manner set forth in the Registration Statement (and the
Prospectuses of the Funds included therein).
We have examined: (a) the Registration Statement (and the Prospectuses of the
Funds included therein), (b) the Company's Articles of Incorporation and
By-Laws, each as amended to date, (c) certain resolutions of the Company's
Board of Directors, and (d) such other proceedings, documents and records as we
have deemed necessary to enable us to render this opinion.
Based upon the foregoing, we are of the opinion that the Shares, when sold as
contemplated in the Registration Statement, will be duly authorized and validly
issued, fully paid and nonassessable except to the extent provided in Section
180.0622(2)(b) of the Wisconsin Statutes.
We consent to the use of this opinion as an exhibit to the Registration
Statement. In giving this consent, however, we do not admit that we are
"experts" within the meaning of Section 11 of the Securities Act of 1933, as
amended, or within the category of persons whose consent is required by Section
7 of said Act.
Very truly yours,
/s/ Godfrey & Kahn, S.C.
GODFREY & KAHN, S.C.
1
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our report dated December 6, 1999, relating to the
financial statements and financial highlights which appear in the October 31,
1999 Annual Report to Shareholders of Strong American Utilities Fund, Strong
Blue Chip 100 Fund, Strong Equity Income Fund, Strong Growth and Income Fund
and Strong Limited Resources Fund (five of the portfolios constituting the
Strong Conservative Equity Funds, Inc.), which is also incorporated by
reference into the Registration Statement. We also consent to the references
to us under the headings "Financial Highlights" and "Independent Accountants"
in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 23, 2000
1
<PAGE>
RULE 12B-1
DISTRIBUTION PLAN
WHEREAS, the corporations listed on Schedule A, as such Schedule A may be
amended from time to time, each a Wisconsin corporation (the "Corporation"),
engages in business as an open-end management investment company and is
registered as such under the Investment Company Act of 1940 (the "1940 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 is
hereinafter individually referred to as a "Fund" and collectively, the
"Funds");
WHEREAS, the Corporation, on behalf of each Fund listed on Schedule A, as such
Schedule A may be amended from time to time, desires to adopt a Plan of
Distribution pursuant to Rule 12b-1 under the 1940 Act with respect to Advisor
Class shares of each Fund ("Distribution Plan");
WHEREAS, the Corporation employs Strong Investments, Inc. ("Distributor") as
distributor of the Advisor Class Shares of each Fund;
WHEREAS, the Funds, with respect to their Advisor Class shares, intend to enter
into Selected Dealer Agreements and other distribution or servicing agreements
("Agreements") pursuant to the Distribution Plan with various service
organizations ("Service Organizations") either directly or through the Funds'
Distributor, pursuant to which the Service Organization will make available or
service Advisor Class shares or will offer Advisor Class shares of the Funds
for sale to the public; and
WHEREAS, the Board of Directors of the Corporation, including the Independent
Directors, as defined herein, have determined in the exercise of their
reasonable business judgement and in light of their fiduciary duties that there
is a reasonable likelihood that adoption of this Distribution Plan will benefit
each of the Funds and each Fund's Advisor Class shareholders;
NOW, THEREFORE, the Corporation, on behalf of the Funds, hereby adopts this
Distribution Plan on the following terms and conditions:
1. COMPENSATION. The Funds are authorized to pay to the Distributor,
as the distributor of the Advisor Class shares of each Fund, or pay directly to
a Service Organization as compensation for the distribution of the Advisor
Class shares of each Fund and/or the servicing of shareholders of Advisor Class
shares of each Fund at an annual rate not to exceed 1.00% of each Fund's
average daily net assets attributable to Advisor Class shares. Notwithstanding
the foregoing, in no event shall any such expenditure paid by the Fund as an
"asset-based sales charge," as defined in NASD Conduct Rule 2830, exceed an
amount calculated at the rate of 6.25% of the average daily net assets of a
Fund attributable to its Advisor Class shares. The amount of such compensation
shall be calculated and accrued daily and paid monthly or at such
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other intervals as the Corporation shall determine, subject to any applicable
restriction imposed by rules of the National Association of Securities Dealers,
Inc.
2. DISTRIBUTION AND SERVICING ACTIVITIES. The amount of the
distribution or shareholder servicing fees set forth in Paragraph 1 of this
Distribution Plan may be spent by the Distributor or paid directly to a Service
Organization for any activities or expenses primarily intended to result in the
sale or servicing of Advisor Class shares, including, but not limited to:
compensation to and expenses, including overhead and telephone expenses, of
employees of the Distributor who engage in or support the distribution of
Advisor Class shares; printing and distribution of prospectuses, statements of
additional information and any supplements thereto, and shareholder reports to
persons other than existing shareholders; preparation, printing and
distribution of sales literature and advertising materials; holding seminars
and sales meetings with wholesale and retail sales personnel, which are
designed to promote the distribution of Advisor Class shares; and compensation
to Service Organizations. The Fund or the Distributor may determine the
services to be provided by the Service Organizations to shareholders in
connection with the sale or servicing of Advisor Class shares. All or any
portion of the compensation paid to the Distributor may be paid by the
Distributor to broker-dealers or Service Organizations who sell or service
Advisor Class shares.
3. DISTRIBUTION AND SERVICING ACTIVITIES OF SERVICE ORGANIZATIONS.
Services that a Servicing Organization may provide under an Agreement for which
they receive compensation in accordance with the Distribution Plan include, but
are not limited to, the following functions: providing answers to questions
from prospective Advisor Class investors about the Funds; receiving and
answering correspondence, including requests for Advisor Class prospectuses and
statements of additional information; preparing, printing and delivering
Advisor Class prospectuses and shareholder reports to prospective Advisor Class
shareholders; complying with federal and state securities laws pertaining to
the sale of Advisor Class shares; and assisting Advisor Class investors in
completing application forms and selecting dividend and other account options.
In addition, Service Organizations can provide their endorsement of the Advisor
Class shares of a Fund to their clients, members or customers as an inducement
to invest in the Funds.
4. SHAREHOLDER APPROVAL. This Distribution Plan shall not take effect
with respect to the Advisor Class shares of a Fund until it has been approved
by a vote of at least a majority of the outstanding Advisor Class shares (as
defined in the 1940 Act) of such Fund, if such Distribution Plan is adopted by
any Fund's Advisor Class shares after a public offering of such shares.
5. DIRECTOR APPROVAL. This Distribution Plan shall not take effect
with respect to a Fund until it, together with any related agreements, has been
approved by votes of a majority of both (a) the Board of Directors of the
Corporation and (b) those Directors of the Corporation who are not "interested
persons" of the Corporation (as defined in the 1940 Act) and who have no direct
or indirect financial interest in the operation of this Distribution Plan or
any agreements related to it (the "Rule 12b-1 Directors"), cast in person at a
meeting (or meetings) called for the purpose of voting on this Distribution
Plan and such related agreements.
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<PAGE>
6. TERM. This Distribution Plan shall continue in effect for a term
of one year. Thereafter, this Distribution Plan shall continue in force and
effect as to the Funds for so long as such continuance is specifically
approved, at least annually, in the manner provided for approval of this
Distribution Plan in Paragraph 5.
7. QUARTERLY REPORTS. The Distributor or any other person authorized
to direct the disposition of monies pursuant to the Distribution Plan or any
related agreement shall provide to the Board of Directors of the Corporation
and the Board of Directors shall review, at least quarterly, a written report
of the amounts so expended and the purposes for which such expenditures were
made.
8. TERMINATION. This Distribution Plan and any agreement related to
the Distribution Plan shall be in writing and shall provide that (a) such
agreement or the Distribution Plan may be terminated as to any Fund at any
time, without payment of any penalty, by vote of a majority of the Rule 12b-1
Directors, or by a vote of a majority of the outstanding voting Advisor Class
shares of such Fund on not more than 60 days' written notice to any other party
to the Distribution Plan; and (b) that such agreement shall terminate
automatically in the event of its assignment.
9. SEVERABILITY. The provisions of this Distribution Plan are
severable for each Fund and if provisions of the Distribution Plan applicable
to a particular Fund are terminated, the remainder of the Distribution Plan
provisions' application to the other remaining Funds shall not be invalidated
thereby and shall be given full force and effect.
10. AMENDMENTS. This Distribution Plan may not be amended to increase
materially the amount of compensation provided for in Paragraph 1 unless such
amendment is approved in the manner provided for initial approval in Paragraph
4, and no material amendment to the Distribution Plan of any kind, including an
amendment which would increase materially the amount of such compensation,
shall be made unless approved in the manner provided for approval and annual
renewal in Paragraph 5.
11. SELECTION AND NOMINATION OF DIRECTORS. While this Distribution
Plan is in effect, the selection and nomination of Directors who are not
interested persons (as defined in the 1940 Act) of the Corporation shall be
committed to the discretion of the then current Directors who are not
interested persons (as defined in the 1940 Act) of the Corporation.
12. RECORDKEEPING. The Funds shall preserve copies of this
Distribution Plan and any related agreements and all reports made pursuant to
Paragraph 7 for a period of not less than six (6) years from the date of this
Distribution Plan, such agreements or such reports, as the case may be, the
first two (2) years in an easily accessible place.
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<PAGE>
IN WITNESS WHEREOF, the Corporation has adopted this Distribution Plan
effective as of the 28th day of January, 2000.
Each Corporation Listed on Schedule A.
By:
John S. Weitzer, Vice President
4
<PAGE>
SCHEDULE A
The Funds of the Corporation currently subject to this Distribution Plan are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Date of Addition
CORPORATION/FUND TO THIS DISTRIBUTION PLAN
- --------------------------------------------------
Strong Advantage Fund, Inc. August 30, 1999
-Strong Advantage Fund
Strong Corporate Bond Fund, Inc. August 30, 1999
-Strong Corporate Bond Fund
Strong Government Securities Fund, Inc. August 30, 1999
-Strong Government Securities Fund
Strong Income Funds II, Inc. August 30, 1999
-Strong Bond Fund
Strong Short-Term Bond Fund, Inc. August 30, 1999
-Strong Short-Term Bond Fund
Strong Equity Funds, Inc. February 23, 2000
-Strong Enterprise Fund
-Strong Growth Fund
-Strong Growth 20 Fund
Strong Opportunity Fund, Inc. February 23, 2000
-Strong Opportunity Fund
Strong Conservative Equity Funds, Inc. February 28, 2000
-Strong Blue Chip 100 Fund
-Strong Growth and Income Fund
Strong High-Yield Municipal Bond Fund, Inc. February 28, 2000
-Strong High-Yield Municipal Bond Fund
Strong Income Funds, Inc. February 28, 2000
-Strong High-Yield Bond Fund
-Strong Short-Term High Yield Bond Fund
Strong Municipal Bond Fund, Inc. February 28, 2000
-Strong Municipal Bond Fund
Strong Municipal Funds Inc. February 28, 2000
-Strong Short-Term High Yield Municipal Fund
Strong Short-Term Municipal Bond Fund, Inc. February 28, 2000
-Strong Short-Term Municipal Bond Fund
Strong Heritage Reserve Series, Inc. March 30, 2000
-Strong Heritage Money Fund
</TABLE>
1
<PAGE>
AMENDED AND RESTATED RULE 18F-3
MULTIPLE CLASS PLAN
THIS AMENDED AND RESTATED 18F-3 MULTIPLE CLASS PLAN, adopted on _______, 19xx,
is amended and restated this ____ day of __________ 2000 by, the corporations
listed on Schedule A, as such Schedule A may be amended from time to time, each
a Wisconsin corporation (each a "Corporation" and collectively, the
"Corporations"); and
WHEREAS, each Corporation engages in business as an open-end management
investment company and is registered as such under the Investment Company Act
of 1940 (the "1940 Act"); and
WHEREAS, the Corporations are 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"); and
WHEREAS, each Corporation, on behalf of the Funds listed on Schedule A, as such
Schedule A may be amended from time to time, have adopted a Multiple Class Plan
pursuant to Rule 18f-3 under the 1940 Act ("Plan"); and
WHEREAS, each Corporation, on behalf of the Funds, employs Strong Capital
Management, Inc. ("SCM") as its investment adviser, administrator, and transfer
agent and Strong Investments, Inc. (the "Distributor") as distributor of the
securities of the Funds; and
WHEREAS, the Board of Directors of each Corporation, including a majority of
the Directors of the Corporation who are not "interested persons", as defined
in the 1940 Act, of the Corporation, SCM, or the Distributors ("Independent
Directors") have found the Plan, as proposed, to be in the best interests of
each class of shares individually, each Fund, and the Corporation as a whole;
and
WHEREAS, certain Funds, as of the effective date of this Plan, have in
registration a Prospectus, which Prospectus, when effective, shall offer
Advisor Class Shares for certain Funds that are subject to a front-end sales
load and other Advisor Class Shares that are not subject to a sales load; and
WHEREAS, each Corporation desires to amended the Plan to cover any Advisor
Class Shares that are offered subject to a sales load without otherwise
affecting any other class of shares covered by this Plan;
NOW, THEREFORE, each Corporation, on behalf of the Funds, hereby adopts the
Plan, in accordance with Rule 18f-3 under the 1940 Act on the following terms
and conditions:
1. FEATURES OF THE CLASSES. Each of the Funds shall offer, at the
discretion of the Board and as indicated on Schedule A, up to three classes of
shares: "Investor Class Shares," "Institutional Class Shares," and "Advisor
Class Shares." Shares of each class of a Fund shall
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<PAGE>
represent an equal pro rata interest in such Fund and, generally, shall have
identical voting, dividend, distribution, liquidation, and other rights,
preferences, powers, restrictions, limitations, qualifications, and terms and
conditions, except that: (a) each class shall have a different designation; (b)
each class of shares shall bear any Class Expenses, as defined in Section 3
below; (c) each class shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its distribution arrangements;
and (d) each class shall have separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class. In addition, Investor Class, Institutional Class, and Advisor
Class shares of a Fund shall have the features described in Sections 2, 3, and
4 below.
2. DISTRIBUTION FEE STRUCTURE.
(a) INVESTOR CLASS SHARES. Investor Class Shares of a Fund shall be
offered at their then current net asset value ("NAV") without the imposition of
an initial sales charge, contingent deferred sales charge, asset-based sales
charge or service fee under a Distribution Plan (as defined below).
(b) INSTITUTIONAL CLASS SHARES. Institutional Class Shares of a Fund shall
be offered at their then current NAV without the imposition of an initial sales
charge, contingent deferred sales charge, asset-based sales or service fee
under a Distribution Plan (as defined below).
(c) ADVISOR CLASS SHARES. Advisor Class Shares of a Fund shall be offered
at their then current NAV plus any applicable sales charge as indicated in each
Fund's prospectus. The Corporation has adopted, on behalf of the Funds, a
distribution plan with respect to the Advisor Class shares of each Fund, if
any, pursuant to Rule 12b-1 under the 1940 Act ("Distribution Plan"). The
Distribution Plan authorizes a Fund to make payments for distribution services
and shareholder services at an annual rate of up to 1.00% of a Fund's average
daily net assets attributable to Advisor Class shares.
3. ALLOCATION OF INCOME AND EXPENSES.
(a) The NAV of all outstanding shares representing interests in a Fund
shall be computed on the same days and at the same time. For purposes of
computing NAV, the gross investment income of each Fund shall be allocated to
each class on the basis of the relative net assets of each class at the
beginning of the day adjusted for capital share activity for each class as of
the prior day as reported by the Fund's transfer agent. Realized and
unrealized gains and losses for each class will be allocated based on relative
net assets at the beginning of the day, adjusted for capital share activity for
each class of the prior day, as reported by the Fund's transfer agent. To the
extent practicable, certain expenses, (other than Class Expenses as defined
below, which shall be allocated more specifically), shall be allocated to each
class based on the relative net assets of each class at the beginning of the
day, adjusted for capital share activity for each class as of the prior day, as
reported by the Fund's transfer agent. Allocated expenses to each class shall
be subtracted from allocated gross income. These expenses include:
(1) Expenses incurred by a Corporation (for example, fees of Directors,
auditors, insurance costs, and legal counsel) that are not attributable to a
particular Fund or class of shares of such Fund ("Corporation Level Expenses");
and
2
<PAGE>
(2) Expenses incurred by each Fund that are not attributable to any
particular class of the Fund's shares (for example, advisory fees, custodial
fees, banking charges, organizational costs, or other expenses relating to the
management of the Fund's assets) ("Fund Expenses").
(b) CLASS EXPENSES. Expenses attributable to a particular class ("Class
Expenses") shall be limited to: (i) payments made pursuant to a Distribution
Plan; (ii) transfer agent fees attributable to a specific class; (iii) printing
and postage expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxies to current shareholders of a
specific class; (iv) the expense of administrative personnel and services to
support the shareholders of a specific class, including, but not limited to,
fees and expenses under an administrative service agreement; (v) litigation or
other legal expenses relating solely to one class; and (vi) directors' fees
incurred as a result of issues relating to one class. Expenses in category (i)
above must be allocated to the class for which such expenses are incurred. All
other "Class Expenses" listed in categories (ii)-(vi) above may be allocated to
a class but only if an officer of the Corporation has determined, subject to
Board approval or ratification, which of such categories of expenses will be
treated as Class Expenses consistent with applicable legal principles under the
1940 Act and the Internal Revenue Code of 1986 ("Code").
(c) Therefore, expenses of the Fund shall be apportioned to each class of
shares depending on the nature of the expense item. Corporation Level Expenses
and Fund Expenses shall be allocated among the classes of shares based on their
relative NAVs. Approved Class Expenses shall be allocated to the particular
class to which they are attributable. In addition, certain expenses may be
allocated differently if their method of imposition changes. Thus, if a Class
Expense can no longer be attributed to a class, it shall be charged to the Fund
for allocation among the classes, as determined by the Board of Directors. Any
additional Class Expenses not specifically identified above that are
subsequently identified and determined to be properly allocated to one class of
shares shall not be so allocated until approved by the Board of Directors of
the Corporation in light of the requirements of the 1940 Act and the Code.
4. EXCHANGE PRIVILEGES. The Investor Class, Institutional Class, and
Advisor Class shares of a Fund may be exchanged at their relative NAVs, without
the imposition of any sales charge applicable to the Advisor Class shares,
except as described below, for: (i) Investor Class, Institutional Class, or
Advisor Class shares of the same Fund; (ii) Investor Class, Institutional
Class, or Advisor Class shares of another Strong Fund; or (iii) if the Strong
Fund does not have multiple classes of shares, the existing shares of another
Strong Fund. Notwithstanding the foregoing, exchanges of Advisor Class shares
of a Strong Fund that does not charge an initial sales load into Advisor Class
shares of another Strong Fund that does charge an initial sales load will be
subject to a sales charge. Purchases of Fund shares by exchange are subject to
the same minimum investment requirements and other criteria imposed for
purchases made in any other manner.
5. CONVERSION FEATURES. There shall be no conversion features associated
with the Investor Class, Institutional Class, or Advisor Class shares of a
Fund.
6. QUARTERLY AND ANNUAL REPORT. The Directors shall receive quarterly and
annual written reports concerning all allocated Class Expenses and expenditures
under the Distribution
3
<PAGE>
Plan complying with paragraph (b)(3)(ii) of Rule 12b-1. The reports, including
the allocations upon which they are based, shall be subject to the review and
approval of the Independent Directors in the exercise of their fiduciary
duties.
7. WAIVER OR REIMBURSEMENT OF EXPENSE. Expenses may be waived or
reimbursed by SCM or any other provider of services to the Funds without the
prior approval of a Corporation's Board of Directors.
8. EFFECTIVENESS OF PLAN. The Plan shall not take effect until it has been
approved by votes of a majority of both (a) the Directors of the Corporation
and (b) those Directors of the Corporation who are not "interested persons" of
the Corporation, SCM, or the Distributor (as defined in the 1940 Act) and who
have no direct or indirect financial interest in the operation of this Plan,
cast in person at a meeting (or meetings) called for the purpose of voting on
this Plan.
9. MATERIAL MODIFICATIONS. This Plan may not be amended to materially
modify its terms unless such amendment is approved in the manner provided for
initial approval in Paragraph 8 hereof.
10. LIMITATION OF LIABILITY. The Directors of each Corporation and the
shareholders of the Funds shall not be liable for any obligations of the Funds
under this Plan, and any person in asserting any rights or claims under this
Plan shall look only to the assets and property of the Funds in settlement of
such right or claim and not to such Directors or shareholders.
On behalf of each Corporation Listed on Schedule A.
By:
Name:
Title:
4
<PAGE>
SCHEDULE A
The Funds of the Corporation currently subject to this Multiple Class Plan are
as follows:
<TABLE>
<CAPTION>
<S> <C>
Date of Addition
CORPORATION/FUND/CLASS TO THIS MULTIPLE CLASS PLAN
- -----------------------------------------------------
Strong Advantage Fund, Inc. January 28, 2000
-Strong Advantage Fund
* Investor Class
* Advisor Class
* Institutional Class
Strong Corporate Bond Fund, Inc. January 28, 2000
-Strong Corporate Bond Fund
* Investor Class
* Advisor Class
* Institutional Class
Strong Government Securities Fund, Inc. January 28, 2000
-Strong Government Securities Fund
* Investor Class
* Advisor Class
* Institutional Class
Strong Heritage Reserve Series, Inc. January 28, 2000
-Strong Heritage Money Fund
* Investor Class
* Advisor Class
* Institutional Class
-Strong Investors Money Fund
Strong Income Funds, Inc. January 28, 2000
-Strong High-Yield Bond Fund
* Investor Class
* Advisor Class
-Strong Short-Term High Yield Bond Fund
* Investor Class
* Advisor Class
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Strong Income Funds II, Inc. January 28, 2000
-Strong Bond Fund
* Investor Class
* Advisor Class
* Institutional Class
Strong Money Market Fund, Inc. January 28, 2000
Strong Municipal Funds, Inc. January 28, 2000
-Strong Short-Term High Yield Municipal Fund
* Investor Class
* Advisor Class
-Strong Municipal Advantage Fund
-Strong Municipal Money Market Fund
Strong Short-Term Bond Fund, Inc. January 28, 2000
-Strong Short-Term Bond Fund
* Investor Class
* Advisor Class
* Institutional Class
Strong Asset Allocation Fund, Inc. January 28, 2000
Strong Common Stock Fund, Inc. January 28, 2000
Strong Conservative Equity Funds, Inc. January 28, 2000
-Strong American Utilities Fund
-Strong Blue Chip 100 Fund
* Investor Class
* Advisor Class
-Strong Equity Income Fund
-Strong Growth and Income Fund
* Investor Class
* Advisor Class
* Institutional Class
-Strong Limited Resources Fund
January 28, 2000
Strong Discovery Fund, Inc.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Strong Equity Funds, Inc. January 28, 2000
-Strong Enterprise Fund
* Investor Class
* Advisor Class
-Strong Growth Fund
* Investor Class
* Advisor Class
* Institutional Class
-Strong Growth 20 Fund
* Investor Class
* Advisor Class
-Strong Mid Cap Disciplined Fund
-Strong Mid Cap Growth Fund
-Strong Small Cap Value Fund
-Strong Strategic Growth Fund
-Strong U.S. Emerging Growth Fund
Strong Opportunity Fund, Inc. January 28, 2000
-Strong Opportunity Fund
* Investor Class
* Advisor Class
Strong High-Yield Municipal Bond Fund, Inc. January 28, 2000
-Strong High-Yield Municipal Bond Fund
* Investor Class
* Advisor Class
Strong Municipal Bond Fund, Inc. January 28, 2000
-Strong Municipal Bond Fund
* Investor Class
* Advisor Class
Strong Short-Term Municipal Bond Fund, Inc. January 28, 2000
-Strong Short-Term Municipal Bond Fund
* Investor Class
* Advisor Class
Strong Total Return Fund, Inc. January 28, 2000
</TABLE>
3
<PAGE>
GODFREY & KAHN, S.C.
ATTORNEYS AT LAW
780 North Water Street
Milwaukee, Wisconsin 53202
Phone (414) 273-3500 Fax (414) 273-5198
February 23, 2000
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: STRONG CONSERVATIVE EQUITY FUNDS, INC.
Gentlemen:
We represent Strong Conservative Equity Funds, Inc. (the "Company"), in
connection with its filing of Post-Effective Amendment No. 20 (the
"Post-Effective Amendment") to the Company's Registration Statement
(Registration Nos. 33-61358; 811-7656) 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).
We consent to the use of this letter in the Post-Effective Amendment.
Very truly yours,
GODFREY & KAHN, S.C.
/s/ Renee M. Hardt
Renee M. Hardt
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