Dear Shareholder:
Enclosed is a Combined Proxy Statement and Prospectus, which contains important
proposals for you to consider. You are eligible to vote on these proposals
because you were a shareholder of record of the Strong Small Cap Fund (the
"Small Cap Fund") on August 21, 1998.
The Small Cap Fund's Board of Directors has proposed that the Small Cap Fund be
reorganized into the Strong Growth Fund (the "Growth Fund"). If shareholders of
the Small Cap Fund approve, all of its assets (except a small reserve for
liabilities) will be exchanged for an equivalent dollar amount of Growth Fund
shares on October 30, 1998. Shareholders would face no tax liability as a result
of this exchange.
The Board believes this reorganization will be to investors' benefit. Recently,
the Small Cap Fund's performance has lagged that of similar, competitive funds.
As a result, investor interest in the Fund has declined. Since last Fall,
shareholder redemptions have reduced the Fund's asset base considerably. Given
current and foreseeable conditions, we don't anticipate that the Fund will
attract significant new assets soon. We expect this small asset base to result
in increased expense ratios to operate the Fund.
By reorganizing the Small Cap Fund into the larger Growth Fund, we believe we
can provide more efficient operation and better long-term value for investors.
The Growth Fund has a similar investment objective and substantially similar
investment policies as the Small Cap Fund. In addition, the Growth Fund offers
historically superior investment performance and lower expense ratios than the
Small Cap Fund. Accordingly, the Board of Directors strongly urges you to vote
for the proposed reorganization and for the related proposal to amend the
Amended and Restated Articles of Incorporation.
The enclosed materials provide more information about this vote. Please read
this information carefully and call us at 1-800-368-9422 if you have any
questions. Your vote is important to us, no matter how many shares you own.
Please vote your shares early to avoid future mailings.
After you review the enclosed materials, we ask that you vote FOR the proposals
related to this reorganization. Please vote for each proposal by completing,
dating and signing your proxy card, and mailing it to us today. You also may
vote by phone at 1-888-221-0697, or by Internet at our website at
www.strong-funds.com.
Thank you for your support.
Sincerely,
Richard S. Strong
Chairman
<PAGE>
Questions and Answers
Q. I'm a small investor. Why should I bother to vote?
A. Your vote makes a difference. If numerous shareholders just like you fail to
vote their proxies, the Small Cap Fund may not receive enough votes to go
forward with its meeting. If this happens, we'll need to mail proxies again--a
costly proposition for the Small Cap Fund!
Q. Who gets to vote?
A. Any person who owned shares of the Small Cap Fund on the "record date," which
was August 21, 1998, gets to vote--even if the investor later sold the shares.
Shareholders are entitled to cast one vote for each Fund share owned on the
record date.
Q. How can I vote?
A. You can vote in any one of four ways:
. Through the Internet at www.strong-funds.com.
. By toll free telephone, call at 1-888-221-0697.
. By mail, with the enclosed ballot.
. In person at the meeting.
We encourage you to vote by Internet or telephone, using the number that appears
on your proxy card. These voting methods will save the Small Cap Fund a good
deal of money (no return-mail postage!). Whichever method you choose, please
take the time to read the full text of our proxy statement before you vote.
Q. Is it hard to vote by Internet?
A. If you have not yet visited Strong's website -- at www.strong-funds.com
- --this is a great opportunity to check it out. Scan our website and, when you're
ready, click on the "Proxy Voting" link on our homepage to access
www.strong-funds.com (the voting location). If you have problems, please call us
at 1-800-368-9422.
Q. I plan to vote by mail. How should I sign my proxy card?
A. If you are an individual account owner, please sign exactly as your name
appears on the proxy card. Either owner of a joint account may sign the proxy
card, but the signer's name must exactly match the one that appears on the card.
You should sign proxy cards for other types of accounts in a way that indicates
your authority (for instance, "John Brown, Custodian").
<PAGE>
STRONG EQUITY FUNDS, INC. -
STRONG SMALL CAP FUND
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
The Strong Small Cap Fund (the "Small Cap Fund"), a series of the
Strong Equity Funds, Inc. (the "Corporation"), will hold a Special Meeting of
Shareholders on Thursday, October 29, 1998, at 8:00 a.m., Central Time. The
meeting will be held at 100 Heritage Reserve, Menomonee Falls, Wisconsin 53051.
At the meeting, shareholders will be asked to consider and act upon the
proposals noted below and to transact any other business properly brought before
the meeting.
PROPOSAL 1. To approve or disapprove an Agreement and Plan of
Reorganization by and among the Corporation, on behalf of the Small Cap
Fund and the Strong Growth Fund (the "Growth Fund"), and, with respect
to certain matters, Strong Capital Management, Inc. and Strong Funds
Distributors, Inc., and the transactions contemplated thereby.
PROPOSAL 2. To approve or disapprove an amendment to the Corporation's
Amended and Restated Articles of Incorporation (a) to cancel all of the
outstanding shares of the Small Cap Fund and convert them into rights
to receive shares of the Growth Fund in accordance with the
Reorganization Agreement and (b) to eliminate the Small Cap Fund as a
series of the Corporation. Such amendment will be subject to the
approval of Proposal 1 above by the Small Cap Fund's shareholders.
Only shareholders of record at the close of business on August 21,
1998, the record date for this Special Meeting, shall be entitled to vote at the
Special Meeting or any adjournments thereof.
<PAGE>
Your Vote Is Important.
Please promptly return your proxy card or vote by toll free telephone call
(1-888-221-0697) or at our website (www.strong-funds.com).
- --------------------------------------------------------------------------------
As a shareholder of the Small Cap Fund, you are asked to attend the Special
Meeting either in person or by proxy. If you are unable to attend, we urge you
to complete and return the enclosed proxy card in the enclosed envelope, or vote
by toll-free telephone call (1-888-221-0697) or at our website
(www.strong-funds.com). Your prompt vote will help the Small Cap Fund avoid the
expense of follow-up solicitations. Voting your shares by proxy will not prevent
you from voting your shares in person at the Special Meeting and you may revoke
your proxy by advising the Secretary of the Funds in writing (by subsequent
proxy or through the website) or by telephone of such revocation at any time
before the Special Meeting.
- --------------------------------------------------------------------------------
By Order of the Board of Directors,
STEPHEN J. SHENKENBERG
Secretary
Menomonee Falls, Wisconsin
September 4, 1998
<PAGE>
STRONG EQUITY FUNDS, INC. -
STRONG GROWTH FUND
STRONG SMALL CAP FUND
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
Telephone: (414) 359-1400
Toll Free: (800) 368-3863
Device for the Hearing Impaired: (800) 999-2780
COMBINED PROXY STATEMENT AND PROSPECTUS
Dated September 4, 1998
This Combined Proxy Statement and Prospectus (the "Proxy Statement") is
furnished in connection with the solicitation of proxies by the Board of
Directors of the Strong Equity Funds, Inc. (the "Corporation") in connection
with the Special Meeting (the "Special Meeting") of Shareholders of the Strong
Small Cap Fund (the "Small Cap Fund"), a series of the Corporation, to be held
at 100 Heritage Reserve, Menomonee Falls, Wisconsin 53051, on Thursday, October
29, 1998, at 8:00 a.m. Central Time. At the Special Meeting, the shareholders of
the Small Cap Fund will be asked to approve or disapprove the following two
proposals:
Proposal 1. an Agreement and Plan of Reorganization, dated July 24,
1998 (the "Reorganization Agreement"), by and among the
Corporation, on behalf of the Small Cap Fund and the Strong
Growth Fund (the "Growth Fund"), and, with respect to certain
matters, Strong Capital Management, Inc. (the "Advisor") and
Strong Funds Distributors, Inc., and the transactions
contemplated thereby (the "Reorganization"); and
Proposal 2. an amendment to the Amended and Restated Articles of
Incorporation of the Corporation (the "Proposed Amendment")
required in connection with the Reorganization. Such amendment
will be subject to the approval of Proposal 1 above by the
Small Cap Fund's shareholders.
The Corporation is an open-end management investment company consisting
of nine investment portfolios, interests in which are represented by separate
series of the Corporation's shares. The Small Cap Fund and the Growth Fund
(collectively, the "Funds") are two of these portfolios. The Corporation's
Directors, including the non-interested Directors, have determined that it is in
the best interests of the Small Cap Fund and its shareholders for the Small Cap
Fund to be reorganized into the Growth Fund. In making this determination, the
Board of Directors considered the small asset size and the lack of expected
asset growth of the Small Cap Fund, as well as the problems related to the lack
of economies of scale, and concluded that each of these disadvantages would be
addressed, to different degrees, by the Reorganization. Further, the Board of
Directors concluded that, among other advantages, the Reorganization will
provide Small Cap Fund shareholders with an investment vehicle that has the same
investment objective and restrictions and substantially similar policies as the
Small Cap Fund, and is likely both to reduce the expense ratios affecting Small
Cap Fund shareholders and may provide superior investment performance.
<PAGE>
The Reorganization Agreement provides that, on the closing date for the
Reorganization (the "Closing Date"), which currently is scheduled to take place
on October 30, 1998, substantially all of the property and assets of the Small
Cap Fund (except a reserve for certain expenses and liabilities) will be
transferred to the Growth Fund. In exchange, the Growth Fund simultaneously will
issue its shares ("Growth Fund Shares") to the Small Cap Fund. The Small Cap
Fund will then make a liquidating distribution of these Growth Fund Shares to
the shareholders of the Small Cap Fund, so that holders of shares of the Small
Cap Fund ("Small Cap Fund Shares") on the Closing Date will receive Growth Fund
Shares that are equivalent in value to their investments in the Small Cap Fund
at the time of the Reorganization.
In addition, with respect to the Proposed Amendment, the Reorganization
Agreement provides that, upon the closing of the Reorganization, (a) all of the
outstanding shares of the Small Cap Fund will be canceled and automatically
converted into rights to receive from the Small Cap Fund full or fractional
Growth Fund Shares equal to the value of the Small Cap Fund shares, a nd (b) the
Corporation's Amended and Restated Articles of Incorporation will be amended to
eliminate the Small Cap Fund as a series of the Corporation. If the shareholders
approve the Proposed Amendment but do not approve the Reorganization Agreement,
or if for any other reason the Reorganization is not completed, the Proposed
Amendment will not go into effect.
This Proxy Statement provides the information that a shareholder of the
Small Cap Fund should know before voting on the Reorganization Agreement (and
its associated transactions) and the Proposed Amendment. It should be retained
for future reference. The Reorganization Agreement is attached to this Proxy
Statement as Exhibit A and is incorporated herein by reference.
A Prospectus for both the Growth Fund and Small Cap Fund dated May 1,
1998, which describes the investment objectives, program objectives, and
policies of the Growth Fund, has previously been provided to all shareholders of
the Small Cap Fund. Additional information concerning the Growth Fund and the
Small Cap Fund is set forth in the Statement of Additional Information for the
Funds, dated May 1, 1998. Moreover, further information concerning the proposed
Reorganization is set forth in the Statement of Additional Information, dated
September 4, 1998. Each of these documents is on file with the Securities and
Exchange Commission ("SEC"). Although no Prospectus for the Growth Fund or the
Small Cap Fund will be provided with this Proxy Statement, the Prospectus and
Statements of Additional Information may be obtained without charge upon request
by writing or calling the Corporation at the address and telephone numbers shown
on the cover page of this Proxy Statement, or by calling toll-free at
1-800-368-3863. The documents requested will be mailed to you promptly by return
mail. The information contained in the Prospectus for each Fund, which has
previously been provided to each shareholder of the Small Cap Fund, and each of
the Statements of Additional Information noted above is incorporated into this
Proxy Statement by reference.
<PAGE>
This Proxy Statement is the proxy statement of the Small Cap Fund for
the Special Meeting of Shareholders and the Prospectus for the Growth Fund
Shares, which are to be issued in connection with the Reorganization.
These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Securities
and Exchange Commission or any state securities commission passed upon the
accuracy or adequacy of this Proxy Statement. Any representation to the contrary
is a criminal offense.
No person has been authorized to give any information or to make any
representations other than those contained in this Proxy Statement and in the
materials expressly incorporated herein by reference and, if given or made, such
other information or representations must not be relied upon as having been
authorized by the Corporation, the Small Cap Fund, the Growth Fund, the Adviser,
or the Funds' distributor, Strong Funds Distributors, Inc.
Votes required: Proposals 1 and 2 shall be approved by the affirmative vote of a
majority of the outstanding
Small Cap Fund shares.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY..1
Proposed Reorganization And Reorganization Agreement...............1
Proposed Amendment.................................................1
Reasons For Reorganization.........................................2
Federal Income Tax Consequences....................................2
Overview of the Small Cap Fund and the Growth Fund.................3
Risk Considerations................................................5
1. PROPOSAL TO APPROVE OR DISAPPROVE THE REORGANIZATION AGREEMENT...........6
Description Of The Reorganization Agreement........................6
Board Consideration................................................8
Capitalization....................................................11
Federal Income Tax Consequences...................................11
Comparison of the Small Cap Fund and the Growth Fund..............12
Investment Objectives and Policies.......................12
Investment Limitations...................................13
Purchase and Redemption Information, Exchange
Privileges, Distributions, Pricing, and...............14
Organization.............................................13
Other Information........................................14
2. PROPOSAL TO APPROVE OR DISAPPROVE THE PROPOSED AMENDMENT................14
Description of the Proposed Amendment.............................14
Board Consideration...............................................15
INFORMATION RELATING TO VOTING MATTERS.....................................15
General Information...............................................15
Shareholder and Board Approvals...................................16
Quorum............................................................17
Annual Meetings...................................................17
ADDITIONAL INFORMATION ABOUT EACH FUND.....................................18
Directors and Officers............................................18
Financial Information For the Growth Fund.........................18
GROWTH FUND FINANCIAL HIGHLIGHTS...........................................19
FINANCIAL STATEMENTS.......................................................20
OTHER BUSINESS.............................................................20
SHAREHOLDER INQUIRIES......................................................20
EXHIBIT A.................................................................A-1
EXHIBIT B.................................................................B-1
EXHIBIT C.................................................................C-1
<PAGE>
SUMMARY
This section summarizes key information concerning the proposed
Reorganization and the Proposed Amendment. More detailed information is
contained elsewhere in this Proxy Statement and the Statement of Additional
Information hereto, the Prospectus and Statement of Additional Information of
the Funds, and the Reorganization Agreement dated July 24, 1998, which is
attached to this Proxy Statement as Exhibit A.
Proposed Reorganization And Reorganization Agreement
Based upon their evaluations of the relevant information presented to
them, and in light of their fiduciary duties under federal and state law, the
Corporation's Directors, including all of the non-interested Directors, have
determined that the proposed Reorganization is in the best interests of the
shareholders of each Fund. The Board of Directors recommends the approval of the
Reorganization Agreement by the shareholders of the Small Cap Fund.
Subject to shareholder approval, the Reorganization Agreement provides
for: (a) the transfer to the Growth Fund of substantially all of the property
and assets of the Small Cap Fund (except a reserve for certain expenses and
liabilities) (the "Small Cap Fund Net Assets") in exchange for Growth Fund
Shares equal in value to the Small Cap Fund Net Assets; (b) the distribution of
the Growth Fund Shares to the shareholders of the Small Cap Fund in liquidation
of the Small Cap Fund; (c) the cancellation of all outstanding Small Cap Fund
Shares; and (d) the elimination of the Small Cap Fund as a series of the
Corporation.
If the Reorganization is approved, each shareholder of the Small Cap
Fund will become a shareholder of the Growth Fund and, immediately after the
closing of the Reorganization, will hold Growth Fund Shares that are equal in
value to the shareholder's investment in the Small Cap Fund immediately before
the Closing Date with no tax effect to the shareholders. The Reorganization and
related transactions will be accomplished on a tax-free basis.
For further information, see "1. Proposal To Approve or Disapprove the
Reorganization Agreement --Description of the Reorganization Agreement."
Proposed Amendment
Based upon their evaluation of the information presented to them, and
in light of their fiduciary duties, the Directors of the Corporation, including
all of the non-interested Directors, have determined that the Corporation's
Amended and Restated Articles of Incorporation should be amended in connection
with any shareholder approval of the Reorganization Agreement in order: (a) to
cancel all of the outstanding shares of the Small Cap Fund and to convert them
into rights to receive the liquidating distribution of Growth Fund Shares and
(b) to eliminate the Small Cap Fund as a series of the Corporation. In
considering this matter, the Board was advised that the Proposed Amendment is
necessary to effect these purposes.
<PAGE>
If the shareholders approve the Proposed Amendment but do not approve
the Reorganization Agreement, or if for any other reason the Reorganization is
not completed, the Proposed Amendment will not go into effect. Moreover, if
shareholders approve the Reorganization but do not approve the Proposed
Amendment, the outstanding shares of the Small Cap Fund will not be canceled and
automatically converted into rights to receive the liquidating distribution of
the Growth Fund Shares.
For further information, see "2. Proposal To Approve or Disapprove the
Proposed Amendment."
Reasons For Reorganization
In light of certain potential benefits and other factors, the
Corporation's Directors, including the non-interested Directors, have determined
that it is in the best interests of the Small Cap Fund and its shareholders to
reorganize into the Growth Fund. In making this determination, the Board of
Directors considered many factors as described more fully below under "Board
Consideration." Among other things, the Board considered the Small Cap Fund's
relatively poor investment performance, small current size, lack of expected
asset growth and likely further decrease in assets, and the resulting problems
associated with the Small Cap Fund's inability to achieve sufficient economies
of scale. The Board of Directors felt that each of these problems would be
addressed to different degrees by the Reorganization.
In addition, among other advantages, the Corporation's Board of
Directors felt that the Reorganization would: (a) provide an investment option
that has the same investment objective, identical investment restrictions and
substantially similar investment policies and programs as the Small Cap Fund;
(b) likely reduce the overall expense ratio for the Small Cap Fund's
shareholders; and (c) be a tax-free transaction. The Board of Directors also
considered the possible risks and disadvantages of the Reorganization and
determined that the Reorganization is likely to provide benefits to the Small
Cap Fund and its shareholders that outweigh any possible risks and
disadvantages. Finally, the Corporation's Board of Directors concluded that
there are no significant risks or disadvantages to the Small Cap Fund or its
shareholders from the Reorganization and that the interests of the Small Cap
Fund's shareholders would not be diluted.
Additionally, the Corporation's Board of Directors, in approving the
Reorganization, determined that it would be advantageous for the Growth Fund and
its current shareholders to acquire substantially all of the assets of the Small
Cap Fund in exchange for Growth Fund Shares and that the interests of the Growth
Fund's existing shareholders would not be diluted.
Federal Income Tax Consequences
Counsel for this transaction will issue an opinion as of the Closing
Date to the effect that the Reorganization will not give rise to the recognition
of income, gain, or loss for federal income tax purposes to the Small Cap Fund,
the Growth Fund, or their respective shareholders. See "1. Proposal To Approve
or Disapprove the Reorganization Agreement -- Federal Income Tax Consequences."
<PAGE>
Overview of the Small Cap Fund and the Growth Fund
Investment Objectives and Policies. The investment objective and
investment restrictions of the Funds are the same and the investment policies
and programs are substantially similar. Both Funds seek capital growth. The
primary distinctions between the Funds are that: (a) the Small Cap Fund
primarily invests in equity securities of small capitalization companies (i.e.,
companies with capitalization of $2 billion or less at the time of purchase),
whereas the Growth Fund may invest in equity securities of any capitalization
size; (b) the Growth Fund may invest 35% of its total assets in debt obligations
whereas the Small Cap Fund may only invest up to 20% of its net assets in such
securities; and (c) the Growth Fund may invest without limitation in cash and
short-term fixed income securities when the Advisor determines that market
conditions warrant a temporary defensive position whereas the Small Cap Fund is
limited in the amount of its total assets (i.e., 20% of its total assets) that
can be invested in such instruments under similar circumstances. Under normal
conditions, at least 80% of the Small Cap Fund's net assets must be invested in
equity securities and at least 65% of it's total assets must be invested in
equity securities of small market capitalization companies.
Attached as Exhibit B to this Proxy Statement are copies of the
Advisor's Investment Review for the Growth Fund, which appeared in the Annual
Report for the Fund for the fiscal year ended December 31, 1997.
See "Summary - Risk Considerations" and "Comparison of the Small Cap
Fund and the Growth Fund Investment Objectives and Policies" below for a further
description of the similarities and differences between the investment
objectives, policies and risks of the Small Cap Fund and the Growth Fund.
Certain Service Provider Arrangements. The Advisor serves as investment
adviser for both Funds. The Advisor began conducting business in 1974. Since
then, its principal business has been providing continuous investment
supervision for individuals and institutional accounts, such as pension funds
and profit-sharing plans, as well as mutual funds. As of June 30, 1998, the
Advisor had over $31 billion under management. The Advisor's principal mailing
address is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr. Richard S. Strong, the
Chairman of the Board of each Fund, is the controlling shareholder of the
Advisor. For its services to the Funds, the Advisor is entitled to receive a
monthly advisory fee from each Fund, computed on the basis of each Fund's
average daily net asset value at the following annual rates:
ADVISORY FEE
(% OF AVERAGE
FUND DAILY NET ASSET VALUE)
Small Cap Fund 1.00%
Growth Fund 1.00%
<PAGE>
The Advisor also serves as transfer agent and dividend disbursing agent
for the Funds. In the case of both Funds, the Advisor is compensated based on an
annual fee of $21.75 per open account, plus out-of-pocket expenses. The Advisor
also receives an annual fee per closed account of $4.20. The fees received and
the services provided to the Advisor as transfer agent and dividend disbursing
agent are in addition to those received and provided to the Advisor in its
capacity as investment adviser to the Funds. In addition, the Advisor provides
certain printing and mailing services for the Funds.
From time to time, the Funds, directly or indirectly through
arrangements with the Advisor, may pay amounts to third parties that provide
transfer agent and other administrative services relating to the Funds to
persons who beneficially own interests in the Funds. In such cases, the Funds
will not pay fees based on the number of beneficial owners at a rate that is
greater than the rate the Funds are currently paying the Advisor for providing
these services to Fund shareholders.
Custodial services are provided to the Funds by Firstar Trust Company.
Strong Funds Distributors, Inc. (the "Distributor"), an indirect
subsidiary of the Advisor, serves as the distributor of each Fund's shares.
Since the Funds are "no-load" funds, no sales commissions are charged on the
purchase or sale of Fund shares. The Distributor bears certain printing costs,
advertising, and other costs attributable to the distribution of each Fund's
shares.
Comparative Fee Table: The following table sets forth the current fees
and expenses of the Small Cap Fund and the Growth Fund based on the actual
expenses incurred by each Fund for the fiscal year ended December 31, 1997.
Excluding extraordinary expenses, each Fund's "Total Operating Expenses," as
shown in the table below, are consistent with each Fund's current operating
expenses. The current fees and expenses of the Growth Fund are expected to
remain unchanged as a result of the Reorganization.
<PAGE>
Annual Fund Operating Expenses
(As a Percentage of Average Daily Net Assets as of 12/31/97)
SMALL CAP FUND GROWTH FUND
Management Fees 1.00% 1.00%
12b-1 Fees NONE NONE
Other Operating Expenses 0.42% 0.30%
Total Fund Operating Expenses 1.42% 1.30%
Example: An investor in the Small Cap Fund or the Growth Fund would pay the
following expenses on a $1,000 investment, assuming (a) 5% annual return, and
(b) redemption at the end of the following periods.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Small Cap Fund $14 $45 $78 $170
Growth Fund $13 $41 $71 $157
The Example is based on each Fund's "Total Fund Operating Expenses."
The example should not be considered as representative of past or future
expenses. Actual expenses may be higher or lower than those shown. The
assumption in the Example of 5% annual return is required by regulations of the
SEC applicable to all mutual funds. The assumed 5% annual return is not a
prediction of, and does not represent, the projected or actual performance of a
Fund's shares.
Organization and Purchase and Redemption Policies. The Small Cap Fund
and Growth Fund are each series of common stock of the Corporation, which is
incorporated in Wisconsin. The purchase, redemption, dividend, and other
practices and procedures, including exchange rights, of the Funds are identical,
as described further below under "Comparison of the Small Cap Fund and the
Growth Fund."
Risk Considerations.
The risks involved in investing in each Fund are in most respects
identical, given the similarities in the investment objectives and the types of
securities in which each Fund may invest. However, as described below, there is
one material difference between the risk factors associated with the Small Cap
Fund and the risk factors associated with the Growth Fund.
<PAGE>
The Small Cap Fund must invest at least 65% of its total assets in
small capitalization companies. Although the Growth Fund may invest in equity
securities of small companies, the Growth Fund is not required to invest any
particular percentage of its assets in such companies. While small companies
generally have potential for rapid growth, investments in small companies often
involve greater risks than investments in larger, more established companies
because small 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 companies are traded only
over-the-counter or on a regional securities exchange, and the frequency and
volume of their trading is substantially less than is typical of larger
companies. Therefore, the securities of small companies may be subject to
greater and more abrupt price fluctuations. When making large sales of shares of
small companies, a fund may have to sell shares 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 company securities.
Other than as noted above, the main risks of investing in the Small Cap
Fund and Growth Fund are virtually identical. For instance, the Funds' major
risks are those of investing in the stock market. This means that the Funds may
experience sudden, unpredictable declines in value, as well as periods of poor
performance. Because stock values fluctuate, when you sell your investment you
may receive more or less money than you originally invested. Additionally, the
Funds may invest to a limited degree, in foreign securities. Foreign investments
involve additional risks, including currency fluctuations, political
instability, differences in financial reporting standards, and less stringent
regulation of securities markets.
1. PROPOSAL TO APPROVE OR DISAPPROVE THE REORGANIZATION AGREEMENT
The terms and conditions under which the Reorganization may be
consummated are set forth in the Reorganization Agreement. Significant
provisions of the Reorganization Agreement are summarized below; however, this
summary is qualified in its entirety by reference to the Reorganization
Agreement, a copy of which is attached as Exhibit A to this Proxy Statement and
incorporated herein by reference.
Description Of The Reorganization Agreement.
The Reorganization Agreement provides that at the Closing Date
substantially all of the property and assets of the Small Cap Fund will be
transferred to the Growth Fund free and clear of all liens, encumbrances, and
claims, except for cash or bank deposits (the "Reserve Account") in an amount
necessary: (a) to pay the Small Cap Fund's costs and expenses of carrying out
this Agreement (including but not limited to fees of counsel and accountants,
any income dividends payable prior to the Closing Date, and expenses of its
liquidation and termination as a series of the Corporation contemplated under
the Reorganization Agreement); (b) to discharge all of the Small Cap Fund's
unpaid liabilities (other than unamortized organizational expenses) on its books
and records at the Closing Date; and (c) to pay such contingent liabilities, if
any, that the Corporation's Board of Directors shall reasonably deem to exist
against the Small Cap Fund at the Closing Date, for which contingent and other
appropriate liability reserves shall be established on the Small Cap Fund's
books. (The property and assets to be transferred to the Growth Fund are
referred to herein as the "Small Cap Fund Net Assets.") Upon the satisfaction or
other resolution of all such liabilities, costs and expenses, any amount
remaining from the Reserve Account will be transferred to the Growth Fund. The
Advisor will pay or waive, prior to the Closing Date, all of the remaining
unamortized organizational expenses of the Small Cap Fund reflected on the Small
Cap Fund's books and records as of the Closing Date.
<PAGE>
In exchange for the transfer to the Growth Fund of the Small Cap Fund
Net Assets as described above, the Growth Fund will simultaneously issue at the
Closing Date full and fractional Growth Fund Shares to the Small Cap Fund for
distribution pro rata by the Small Cap Fund to its then-current shareholders.
The number of Growth Fund Shares so issued by the Growth Fund will have an
aggregate net asset value equal to the value of the Small Cap Fund Net Assets on
the Closing Date.
Following the close of business on the Closing Date, the Small Cap Fund
will distribute pro rata to its shareholders the Growth Fund Shares received by
the Small Cap Fund in liquidation of the Small Cap Fund. Each shareholder owning
Small Cap Fund Shares at the Closing Date will receive an amount of Growth Fund
Shares equal to the value of his or her Small Cap Fund Shares, plus the right to
receive any dividends or distributions on the Small Cap Fund Shares that were
declared before the Closing Date but that remained unpaid at that time.
The stock transfer books of the Small Cap Fund will be permanently
closed as of the close of business on the day immediately preceding the Closing
Date. Redemption requests received thereafter by the Small Cap Fund will be
deemed to be redemption requests for Growth Fund Shares. If any Small Cap Fund
Shares held by a former Small Cap Fund shareholder are represented by a share
certificate, the certificate must be surrendered to the Growth Fund's transfer
agent for cancellation, or verification of such certificate's loss and
indemnification with respect to such loss must be established, before the Growth
Fund Shares issued to the shareholder in the Reorganization can be redeemed or
transferred.
The Reorganization with respect to the Small Cap Fund is subject to a
number of conditions, including, among other things: (a) approval of the
Reorganization Agreement and the related transactions described in this Proxy
Statement by the Small Cap Fund's shareholders; (b) the receipt of certain legal
opinions described in Sections 7 and 8 of the Reorganization Agreement (which
include a legal opinion that the Growth Fund Shares issued to Small Cap Fund
shareholders in accordance with the terms of the Reorganization Agreement will
be validly issued, fully paid, and non-assessable, except to the extent provided
in Section 180.0622(2)(b) of the Wisconsin Statutes, or any successor provision,
and a legal opinion that the Reorganization will not give rise to the
recognition of income, gain, or loss for federal income tax purposes to the
Small Cap Fund, the Growth Fund, or their respective shareholders); (c) the
receipt of certain certificates from the parties concerning the continuing
accuracy of the representations and warranties in the Reorganization Agreement
and other matters; and (d) the parties' performance of their respective
agreements and undertakings in the Reorganization Agreement. Assuming
satisfaction of the conditions in the Reorganization Agreement, the Closing Date
will be on October 30, 1998, or such other date as is agreed to by the parties.
<PAGE>
The Reorganization Agreement provides that the parties shall each be
responsible for the payment of their own expenses incurred in connection with
the Reorganization (which expenses include the fees and disbursements of
attorneys and auditors, proxy printing, and solicitation expenses) and any
related transfer fees and brokerage fees.
The Reorganization Agreement and the Reorganization may be terminated
by the mutual agreement of the Funds. In addition, either Fund may at its option
terminate the Reorganization Agreement at or prior to the Closing Date because
of: (a) a material breach by the other Fund of any representation, warranty, or
agreement contained in the Reorganization Agreement to be performed at or prior
to the Closing Date; (b) a condition precedent to the obligations of either Fund
which the Corporation's Board of Directors determines has not been met and which
reasonably appears will not or cannot be met; or (c) a determination by the
Corporation's Board of Directors that the Reorganization, either as a whole or
with respect to any Fund, will not be in the best interest of the Corporation,
any of the Corporation's series, or its shareholders. In such event, there shall
be no liability for damages on the part of either Fund, or the Board of
Directors or officers of the Corporation, but each shall bear its own expenses
incidental to the preparation and carrying out of the Reorganization Agreement.
The Reorganization Agreement provides further that, at any time prior to or
after approval of the Reorganization Agreement by the Small Cap Fund's
shareholders, the Funds, by written agreement, may amend, modify, or supplement
the Reorganization Agreement. The Reorganization Agreement further provides that
no such amendment, modification, or supplement may have the effect of changing
the provisions for determining the number of Growth Fund Shares to be
distributed to Small Cap Fund shareholders under the Reorganization Agreement to
the detriment of the Small Cap Fund shareholders, unless the Small Cap Fund
shareholders approve such change. However, the Funds may amend the
Reorganization Agreement to change the Closing Date or any other provision of
the Reorganization Agreement (to the fullest extent permitted by law).
Board Consideration
Based upon their evaluation of the relevant information presented to
them, and in light of their fiduciary duties under federal and state law, the
Corporation's Directors have unanimously determined that the proposed
Reorganization is in the best interest of the Small Cap Fund and its
shareholders, and recommends the approval of the Reorganization Agreement by the
Small Cap Fund's shareholders at the Special Meeting. The following is a summary
of the information that was presented to, and considered by, the Directors in
making their determination.
At a meeting of the Board of Directors of the Funds held on July 24,
1998, the Corporation's Board of Directors considered the proposed
Reorganization. During the course of their review and deliberation, the
Directors evaluated the potential benefits and detriments to the Small Cap Fund
and its shareholders. The Directors requested and received from the Advisor
written materials containing relevant information about the Growth Fund and the
proposed Reorganization, including fee structure and expense information, and
comparative performance data. The Advisor also provided the Directors with
historical asset growth information, comparative expense ratio information,
analyses of the benefits to the shareholders of the Small Cap Fund resulting
from the proposed Reorganization, and a variety of other information relevant to
the consideration of the proposed Reorganization. In this regard, the Board of
Directors evaluated the current actual and contractual expense levels of the
Growth Fund and compared such expense levels with the current actual and
contractual expense levels of the Small Cap Fund and considered the anticipated
expenses and charges of the Growth Fund after the Reorganization that would be
borne directly and indirectly by the shareholders of the Small Cap Fund. (The
Board of Directors noted that the Advisor will waive the obligation of the Small
Cap Fund to reimburse the Advisor for all of the Small Cap Fund's unamortized
organizational expenses of approximately $17,000, all of which previously were
paid by the Advisor.)
<PAGE>
The Board of Directors also considered other alternatives including:
(a) the complete liquidation and dissolution of the Small Cap Fund; and (b) the
reorganization of the Small Cap Fund into another one of the Strong Mutual
Funds. The Board of Directors carefully considered the advantages and
disadvantages of each other alternative. In particular, the Board considered the
tax consequences and other effects that each alternative would have on the Small
Cap Fund shareholders. However, the alternative that the Board of Directors felt
would be most beneficial to the Small Cap Fund shareholders was the
reorganization of the Small Cap Fund into an investment company with an
identical investment objective and similar investment policies and restrictions.
The Board of Directors considered the reasons for the proposed
Reorganization and the benefits for the shareholders of the Small Cap Fund
expected to result from the Reorganization. These benefits include superior
investment performance and potential asset growth with resulting economies of
scale, such as lower per share expenses. In this regard, the Board specifically
considered the fact that the Small Cap Fund's recent performance has
significantly lagged that of the Growth Fund, the Russell 2000 Index (the Small
Cap Fund's benchmark) and the Lipper Small Cap Index. The Growth Fund's
performance, however, has had a consistent track record of solid performance
exceeding that of the Small Cap Fund. In this regard, the Board considered the
information provided in the chart below.
Average Annual Total Return
(as of June 30, 1998)
Period SMALL CAP FUND GROWTH FUND
1 -Year 13.14% 26.30%
3-Year N/A 25.07%
Since Inception* 9.87% 25.08%
*Inception date is 12/29/95 for the Small Cap Fund and 12/31/93 for the Growth
Fund.
<PAGE>
Additionally, the Board considered the fact that the Small Cap Fund had
experienced a significant net decline of more than $55 million in net assets
from October 1997 through June 1998 and that its current size and diminishing
asset base would likely cause the Small Cap Fund's expense ratio to increase,
possibly exacerbating the Fund's subpar performance. The Growth Fund's greater
size and lower expense ratio, on the other hand, would enable Small Cap Fund
shareholders to realize the benefits of investing in a fund that has achieved
consistent economies of scale.
The Board of Directors considered the compatibility of the Funds. In
this regard, the Board noted that, as separate series of the same registered
investment company, the two Funds share the same board of directors, articles of
incorporation, and by-laws. Additionally, the Board of Directors specifically
considered the fact that the investment objectives and investment restrictions
of each Fund are identical and that the investment policies of each are
substantially similar. Both Funds seek to achieve capital growth by investing
primarily in equity securities, although under normal conditions, the Small Cap
Fund must invest at least 80% of its net assets in equity securities, whereas
the Growth Fund must invest at least 65% of its total assets in equity
securities. As a result of this difference, the Small Cap Fund may invest up to
20% of its net assets and the Growth Fund may invest up to 35% of its total
assets in debt obligations. Moreover, the Board noted that shareholders of the
Small Cap Fund are currently subject to potentially more risk than they would be
as shareholders of the Growth Fund because the Small Cap Fund must invest at
least 65% of its net assets in equity securities of companies that have small
market capitalizations. The Growth Fund, by contrast, is not limited in this
respect and may purchase equity securities of any capitalization size. The Board
of Directors also considered those provisions of the Reorganization Agreement
relating to the price of shares to be exchanged.
The Board of Directors further noted that the Reorganization would
result in continuity of investment advisory, transfer agent, and distributor
services, since both Funds currently employ the Advisor as investment adviser
and transfer agent and the Distributor as distributor. The Board of Directors
further noted that the terms of the agreements governing the provision of those
services to each of the Funds are the same. The Board of Directors also noted
that the purchase, redemption, and shareholder services offered by the Funds are
essentially identical, and that, therefore, the Reorganization would result in
continuity in the level of such services to the Small Cap Fund's shareholders.
The Board of Directors noted further that no sales or other charges would be
imposed on any shares of the Growth Fund acquired by shareholders of the Small
Cap Fund in connection with the Reorganization and that it was the Growth Fund's
intention to remain a "no-load" fund.
<PAGE>
Finally, the Corporation's Board of Directors reviewed the terms of the
Reorganization Agreement. The Board of Directors noted that the Small Cap Fund
would be provided with an opinion of counsel for the transaction with respect to
the tax-free treatment of the Reorganization.
Based upon their evaluation of the relevant information presented to
them, and in light of their fiduciary duties under federal and state law, the
Corporation's Directors unanimously determined that (a) the proposed
Reorganization is in the best interests of the Small Cap Fund and its
shareholders and (b) the interests of the Small Cap Fund shareholders will not
be diluted as a result of the proposed Reorganization. Consequently, the Board
recommended the approval of the Reorganization Agreement by shareholders at the
Special Meeting.
Additionally, the Corporation's Board of Directors considered the
proposed Reorganization with respect to the Growth Fund. Based upon their
evaluation of the relevant information provided to them, and in light of their
fiduciary duties under federal and state law, the Directors unanimously
determined that (a) the proposed Reorganization is in the best interests of the
Growth Fund and its shareholders and (b) the interests of the existing Growth
Fund shareholders will not be diluted as a result of the proposed
Reorganization.
Capitalization
Because the Small Cap Fund will be combined in the Reorganization with
the Growth Fund, the total capitalization of the Growth Fund after the
Reorganization is expected to be greater than the current capitalization of the
Growth Fund. The following table sets forth as of June 30, 1998: (a) the
capitalization of the Small Cap Fund; (b) the capitalization of the Growth Fund;
and (c) the pro forma capitalization of the Growth Fund as adjusted to reflect
the Reorganization. If the Reorganization is consummated, the capitalization of
the Growth Fund is likely to be different than that in the table at the Closing
Date as a result of daily share purchase and redemption activity in the Small
Cap Fund and the Growth Fund.
PRO FORMA
SMALL CAP FUND GROWTH FUND COMBINED
Total Net Assets $137.5 million $1.693 billion $1.83 billion
Shares Outstanding 11,131,286 79,529,566 85,988,848
Net Asset Value Per Share $12.36 $21.30 $21.30
Federal Income Tax Consequences
Consummation of the Reorganization is subject to the condition that the
Funds receive an opinion from counsel, substantially to the effect that, based
upon certain facts, assumptions and representations, the transactions
contemplated by the Reorganization Agreement with respect to the Small Cap Fund
and the Growth Fund constitute a tax-free reorganization for federal income tax
purposes. The delivery of such opinion is conditioned upon receipt by counsel of
representations it shall request of the Corporation.
<PAGE>
The Funds have not sought a tax ruling from the Internal Revenue
Service ("IRS"). The opinion of counsel is not binding on the IRS and does not
preclude the IRS from adopting a contrary position. Shareholders should consult
their own tax advisers concerning the potential tax consequences to them,
including state and local income tax consequences.
Comparison of the Small Cap Fund and the Growth Fund
The investment objectives and investment restrictions of both Funds are
identical and the investment policies of the Funds are, in many respects,
substantially similar. There are, however, some noteworthy differences. The
following discussion summarizes some of the more significant similarities and
differences in the investment policies of the Funds and is qualified in its
entirety by the discussion elsewhere herein, and in the Prospectus and Statement
of Additional Information of the Funds, which, as previously noted, is
incorporated by reference.
Investment Objectives and Policies. The investment objectives of the
Funds are fundamental, meaning that they may not be changed without a vote of
the holders of a majority of the particular Fund's outstanding shares. This
section describes certain policies that are common to the Small Cap Fund and the
Growth Fund and certain noteworthy differences.
Although each Fund seeks capital growth, the Small Cap Fund invests
primarily in equity securities of companies that have small market
capitalizations ($2 billion or less). Under normal market conditions, at least
80% of the Small Cap Fund's net assets must be invested in equity securities,
including common stocks, preferred stocks, and securities that are convertible
into common or preferred stocks, (such as warrants and convertible bonds) and at
least 65% of the Small Cap Fund's total assets must be invested in equity
securities of small market capitalization companies. In general,
smaller-capitalization companies often involve greater risks than investments in
established companies. The Small Cap Fund may invest up to 20% of its net assets
in debt obligations, including intermediate- to long-term corporate or U.S.
government debt securities.
The Growth Fund, on the other hand, is not limited to any particular
capitalization for the equity securities in which it may invest. Under normal
market conditions, the Growth Fund invests at least 65% of its total assets in
equity securities, including common stocks, preferred stocks, and securities
that are convertible into common or preferred stocks, such as warrants and
convertible bonds. While the emphasis of the Growth Fund is on equity
securities, the Fund may invest up to 35% of its total assets in debt
obligations, including intermediate- to long-term corporate or U.S. government
debt securities.
Each Fund may invest in cash and short-term fixed income securities
when the Fund's Advisor determines that market conditions warrant a temporary
defensive position; however, the Growth Fund may do so without limitation
whereas the Small Cap Fund may do so only with respect to 20% of its net assets.
<PAGE>
Each Fund may invest up to 5% of its net assets in non-investment-grade
debt obligations. Additionally, each Fund may invest up to 25% of its net assets
in foreign securities, including both direct investments and investments made
through depositary receipts.
Each Fund may also invest in fixed and variable-rate obligations,
debentures, notes, leases, certificates of deposit, commercial paper, repurchase
agreements, banker's acceptances, other short-term fixed income securities,
structured investments such as mortgage- and asset- backed securities, loan
participation, convertible debt and zero coupon, step-coupon, and pay-in-kind
securities. Each Fund may also borrow funds and engage in mortgage dollar roll
transactions and reverse repurchase agreements. In order to facilitate portfolio
liquidity, each Fund may acquire standby commitments from brokers, dealers, or
banks with respect to securities in its portfolio. Each Fund may also invest
without limitation in securities purchased on a when-issued or delayed delivery
basis.
Derivative instruments may be used by the Funds for any lawful purpose,
including hedging or managing risk. Derivative instruments are securities or
agreements the value of which is derived from the value of some underlying
asset, for example, securities, reference indexes, or commodities. Options,
futures, and options on futures transactions are considered derivative
transactions.
Please see the Prospectus for each Fund for further information
concerning each Fund's investment policies and risks.
Investment Limitations. Neither the Growth Fund nor the Small Cap Fund
may change its fundamental investment limitations without the affirmative vote
of the holders of a majority of its outstanding shares (as defined in the
Investment Company Act of 1940, as amended (the "1940 Act")). However,
investment limitations which are non-fundamental policies ("non-fundamental" or
"operating" policies) of the Funds may be changed by the Corporation's Board of
Directors without shareholder approval. The fundamental and non-fundamental
investment limitations of the Growth Fund and the Small Cap Fund are identical
and are set forth in the Statement of Additional Information with respect to
both Funds. Please see the Statement of Additional Information for further
information concerning each Fund's investment limitations.
Purchase and Redemption Information, Exchange Privileges,
Distributions, Pricing, and Organization. Each Fund's shares are sold on a
continuous basis by the Distributor and may be purchased directly by individuals
and institutions or by broker-dealers, financial institutions, or other service
providers. Each Fund's shares are sold on a 100% no-load basis, meaning that
shares may be purchased, redeemed, and exchanged directly at net asset value
without paying a sales charge. Broker-dealers, financial institutions, and other
service providers, however, may charge an administrative fee on the purchase or
redemption of each Fund's shares. The purchase price for each Fund's shares is
the net asset value next determined after the Fund receives the shareholder's
request in proper form.
<PAGE>
No sales charge will be imposed on the issuance of Growth Fund Shares
in connection with the Reorganization.
The minimum initial investment for each Fund is $2,500 per account and
$250 for UGMA/UTMA Accounts. The minimum initial investment amount is waived for
shareholders who enroll in a Fund's Automatic Investment Plan. The minimum
subsequent investment for each Fund is $50 per account. Purchase orders for
shares of each Fund are effected on any "business day," that is, any day on
which the New York Stock Exchange is open for trading. Each Fund offers an
automatic investment plan, payroll direct deposit plan, automatic exchange plan,
and systematic withdrawal plan in connection with the purchase and redemption of
its shares.
Each Fund's policies, procedures, and restrictions concerning share
redemption and exchange, dividend payment, and the determination of net asset
value are identical, as set forth in the Prospectus for the Funds.
Please refer to that Prospectus for further information on these subjects.
Other Information. The Corporation is registered as an open-end
management investment company under the 1940 Act, and the Small Cap Fund and
Growth Fund are two of the Corporation's investment portfolios. Currently, the
Corporation offers nine investment portfolios.
The Corporation is organized as a Wisconsin corporation and, as such,
is subject to the provisions of its Articles of Incorporation and Bylaws and to
the Wisconsin Business Corporation Law. The attributes of a share of common
stock of each Fund are identical.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR PROPOSAL 1
2. PROPOSAL TO APPROVE OR DISAPPROVE THE
PROPOSED AMENDMENT
Summarized below are the reasons for the Proposed Amendment and the
substance of the Proposed Amendment. However, this summary is qualified in its
entirety by reference to the Proposed Amendment, a copy of which is attached as
Exhibit C to this Proxy Statement and incorporated herein by reference.
<PAGE>
Description of the Proposed Amendment
The Proposed Amendment has two purposes in connection with the
Reorganization: (a) on the Closing Date of the Reorganization, all of the
outstanding shares of the Small Cap Fund will be canceled and automatically
converted into the right to receive full or fractional Growth Fund Shares with a
net asset value equal to the value of the Small Cap Fund Shares, as described in
the Reorganization Agreement; and (b) following the Closing Date, the Small Cap
Fund will be eliminated as a series of the Corporation. If the shareholders
approve the Proposed Amendment but do not approve the Reorganization Agreement,
or if for any other reason the Reorganization is not completed, the Proposed
Amendment will not go into effect. Moreover, if the shareholders approve the
Reorganization but do not approve the Proposed Amendment, the above-stated
purposes of the Proposed Amendment in connection with the Reorganization will
not be realized.
Board Consideration
Based on their evaluation of the information presented to them, and in
light of their fiduciary duties, the Directors of the Corporation have
unanimously determined that the Proposed Amendment is in the best interest of
the Small Cap Fund and its shareholders and recommend the approval of the
Proposed Amendment at the Special Meeting.
The Board was advised by counsel that the Proposed Amendment would be
necessary, on the Closing Date, to cancel the Small Cap Fund's outstanding
shares in connection with the Reorganization of the Small Cap Fund and the
distribution of Growth Fund Shares to the Small Cap Fund's shareholders, as
contemplated under the Reorganization Agreement, and, following the
Reorganization, to eliminate the Small Cap Fund as a series of the Corporation.
THE DIRECTORS UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS
VOTE FOR PROPOSAL 2
INFORMATION RELATING TO VOTING MATTERS
General Information
This Proxy Statement is being furnished in connection with the
solicitation of proxies by the Corporation's Board of Directors in connection
with the Special Meeting. It is expected that the solicitation of proxies will
be primarily by mail. Officers and service contractors of the Funds may also
solicit proxies by telephone, telegraph, personal interview or through the
Internet. Small Cap Fund shareholders can vote in any one of four ways: (1)
through the Internet at www.strong-funds.com; (2) by telephone, with a toll-free
call to 1-888-221-0697; (3) by mail, with the enclosed ballot; or (4) in person
at the meeting. Any shareholder giving a proxy may revoke it at any time before
it is exercised at the Special Meeting by submitting to the Small Cap Fund a
written notice of revocation or a subsequently executed proxy or by attending
the Special Meeting and voting in person. In addition, a prior proxy can be
revoked simply by voting again by toll-free telephone call or at our website.
Only shareholders of record at the close of business on August 21,
1998, will be entitled to vote at the Special Meeting. On that date there were
outstanding and entitled to be voted ap[proximately 8,856,007 shares of the
Small Cap Fund. Each share or fraction thereof is entitled to one vote or
fraction thereof.
<PAGE>
If the accompanying proxy is executed and returned in time for the
Special Meeting, or if prior to the Special Meeting you vote your shares by
telephone or through the Internet, the shares covered thereby will be voted in
accordance with the proxy on all matters that may properly come before the
Special Meeting or any adjournment thereof. For information on adjournment of
the Special Meeting, see "Quorum" below.
Shareholder and Board Approvals
The Reorganization Agreement (and the transactions contemplated
thereby) and the Proposed Amendment are being submitted at the Special Meeting
for approval by the shareholders of the Small Cap Fund. The affirmative vote of
the majority of the Small Cap Fund shares voting on the Proposals is required
for approval of the Proposals. Abstentions will not be counted as voting and,
therefore, will have no impact on the approval of the Proposals.
The vote of the shareholders of the Growth Fund is not being solicited,
because their approval or consent is not required for the Reorganization to be
consummated or the Proposed Amendment to be approved.
The approval of the Reorganization Agreement by the Board of Directors
of the Funds is discussed above under "1. Proposal To Approve or Disapprove the
Reorganization Agreement -- Board Consideration." The approval of the Proposed
Amendment by the Board of Directors of the Small Cap Fund is discussed above
under "2. Proposal To Approve or Disapprove the Proposed Amendment--Board
Consideration."
On August 21, 1998, the name, address, and share ownership of the
persons who beneficially owned 5% or more of the Small Cap Fund's outstanding
shares, and the percentage of shares that would be owned by such persons with
respect to those shares upon consummation of the Reorganization based upon their
holdings and outstanding shares on that date, are as follows:
Share Ownership of Share Ownership of Growth
Name/Address Small Cap Fund Fund after Reorganization
- ------------ ------------------ -------------------------
Charles Schwab & Co. Inc.
101 Montgomery Street 10.11% 0.56%
San Francisco, CA 94104-4122
Suntrust Bank 5.10% 0.28%
P.O. Box 105870
Atlanta, GA 30348-5870
<PAGE>
On August 21, 1998, the name, address, and share ownership of the
persons who beneficially owned 5% or more of the outstanding shares of the
Growth Fund and the percentage of shares that would be owned by such persons
with respect to those shares upon consummation of the Reorganization based upon
their holdings and outstanding shares on that date, are as follows:
Share Ownership of Share Ownership of Growth
Name/Address Growth Fund Fund after Reorganization
Charles Schwab & Co. Inc.
101 Montgomery Street 18.45% 17.42%
San Francisco, CA 94104-4122
On August 21, 1998, the directors and officers of the Corporation, as a
group, owned less than 1% of the outstanding shares of either the Growth Fund or
Small Cap Fund.
Quorum
In the event that a quorum is not present at the Special Meeting, or in
the event that a quorum is present at the Special Meeting but sufficient votes
to approve the Reorganization Agreement and the transactions contemplated
thereby are not received, the persons named as proxies may propose one or more
adjournments of the Special Meeting to permit further solicitation of proxies.
Any such adjournment will require the affirmative vote of a majority of those
shares voting on the adjournment. Abstentions will not be counted as voting and,
therefore, will have no impact on the approval of any adjournment. If a quorum
is present, the persons named as proxies will vote those proxies that they are
entitled to vote FOR the Reorganization Agreement in favor of such adjournments,
and will vote those proxies required to be voted AGAINST such proposal against
any adjournment. A quorum is constituted by the presence in person or by proxy
of the holders of more than 50% of the outstanding Small Cap Fund Shares.
Proxies properly executed and marked with a negative vote or an abstention, or
broker non-votes, will be considered to be present at the Special Meeting for
the purposes of determining the existence of a quorum for the transaction of
business. Broker non-votes exist where a broker proxy indicates that the broker
is not authorized to vote on a particular proposal.
Annual Meetings
The Growth Fund does not presently intend to hold annual meetings of
shareholders for the election of directors and other business unless and until
such time as less than a majority of the directors holding office have been
elected by the shareholders, at which time the directors then in office will
call a shareholders' special meeting for the election of directors. Shareholders
have the right to call a special meeting of the shareholders to consider any
matter on which the shareholders properly may act, provided that such a matter
has been requested in writing by the holders of record of 10% or more of the
Growth Fund's outstanding shares of common stock entitled to vote on any issue
proposed to be considered at the special meeting and upon the payment to the
Fund by such shareholders of the reasonable estimated costs of preparing and
mailing the notice of the special meeting. To the extent required by law, the
Growth Fund will assist in shareholder communications on such matters.
<PAGE>
ADDITIONAL INFORMATION ABOUT EACH FUND
The Corporation, the Small Cap Fund and the Growth Fund are each
subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and the 1940 Act, as applicable, and, in accordance with such
requirements, file proxy materials, reports, and other information with the SEC.
These materials can be inspected and copied at the Public Reference Facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at the
offices of the Growth Fund listed on the first page hereof, and at the SEC's
Regional Offices at 7 World Trade Center, Room 1300, New York, New York 10007,
and at the Everett McKinley Dirksen Building, 219 S. Dearborn Street, Room 1204,
Chicago, Illinois 60604. Copies of such materials can also be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549, at prescribed rates.
Directors and Officers
The current directors and officers of the Corporation will continue as
directors and officers of the Growth Fund following the Reorganization. The
Growth Fund and Small Cap Fund are each series of the Corporation. Information
concerning such persons is contained in the Statement of Additional Information
for the Funds.
Financial Information For the Growth Fund
Below are financial highlights for the Growth Fund as of the fiscal
year ended December 31, 1997. It is based on a single share outstanding through
such period. This information is derived from financial statements audited by
Coopers & Lybrand L.L.P., independent accountants to the Funds. The data should
be read in conjunction with the financial statements, related notes, and Coopers
& Lybrand L.L.P.'s report thereon which are included in the Annual Report
incorporated by reference in the Statement of Additional Information to the
Proxy Statement, dated September 4, 1998.
<PAGE>
GROWTH FUND
FINANCIAL HIGHLIGHTS
Per Share Data and
Ratios for a Share
Outstanding Throughout
the Period Indicated:
<TABLE>
<S> <C> <C> <C> <C>
1997 1996 1995 1994
---- ---- ---- ----
Net asset value, Beginning of period $18.50 $15.88 $11.61 $10.00
Income from Investment
Operations
Net Investment Income (Loss) (0.08) (0.03) (0.04) --
Net Gains or (Losses) on Securities (both 3.41 3.13 4.79 1.72
realized and unrealized
Total From Investment Operations 3.33 3.10 4.75 1.72
In Excess of Net Investment Income -- (0.02) (0.03) (0.11)
From Net Realized Gains (2.70) (0.46) (0.16) --
In Excess of Net Realized Gains (0.82) -- (0.29) --
Total Distributions (3.52) (0.48) (0.48) (0.11)
Net Asset Value, End of Period $18.31 $18.50 $15.88 $11.61
Total Return: +19.1% +19.5% +41.0% +17.3%
Net Assets, End of Period (In Millions) $1,597 $1,308 $643 $106
Ratio of Expenses to Average Net Assets 1.3% 1.3% 1.4% 1.6%
Ratio of Net Investment Income to Average (0.5%) (0.2%) (0.5%) (0.1%)
Net Assets
Portfolio Turnover Rate 295.7% 294.9% 321.2% 385.8%
</TABLE>
Inception date is December 31, 1993. Total return and portfolio
turnover rate are not annualized.
<PAGE>
Information included in this Proxy Statement concerning the Small Cap
Fund was provided by the Small Cap Fund and the Advisor. Information included in
this Proxy Statement concerning the Growth Fund was provided by the Growth Fund
and the Advisor.
FINANCIAL STATEMENTS
The financial statements and financial highlights for each Fund for the
fiscal year ended December 31, 1997 which are included in the Prospectus and
Statement of Additional Information for the Funds and in the Proxy Statement and
the Statement of Additional Information related thereto, have been audited by
Coopers & Lybrand L.L.P., independent accountants, to the extent indicated in
its reports thereon. The financial statements and financial highlights audited
by Coopers & Lybrand L.L.P. and included in such Prospectus, Proxy Statement and
Statements of Additional Information have been included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
OTHER BUSINESS
The Board of Directors of the Corporation knows of no other business to
be brought before the Special Meeting. However, if any other matters come before
the Special Meeting, it is the intention that proxies that do not contain
specific restrictions to the contrary will be voted on such matters in
accordance with the judgment of the persons named in the enclosed form of proxy.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Small Cap Fund in writing
at the address on the cover page of this Proxy Statement or by telephoning
1-800-368-9422.
* * *
Shareholders who do not expect to be present at the Special Meeting are
urged to date and sign the enclosed Proxy and promptly return it in the enclosed
envelope which is addressed for your convenience and needs no postage if mailed
in the United States or vote by toll-free telephone call or at our website. In
order to avoid the expense of further solicitation, we ask your cooperation in
voting promptly.
By Order of the Board of Directors
Stephen J. Shenkenberg
Secretary
Menomonee Falls, Wisconsin
September 4, 1998
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this 24th day of July, 1998, by and between the Strong Small Cap Fund (the
"Acquired Fund") and the Strong Growth Fund (the "Acquiring Fund"). The Acquired
Fund and the Acquiring Fund are both series of the Strong Equity Funds, Inc.
(the "Corporation"), a Wisconsin corporation. It is understood that the
Corporation is acting on behalf of both the Acquired Fund and the Acquiring Fund
and that the Corporation is hereby undertaking the requirements imposed on each
series by this Agreement. (The Acquiring Fund and the Acquired Fund are
sometimes referred to collectively as the "Funds" and individually as a "Fund".)
This Agreement is intended to be and is adopted as a plan of
reorganization within the meaning of Section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"). The reorganization ("Reorganization")
will consist of the transfer of substantially all of the property, assets, and
goodwill of the Acquired Fund to the Acquiring Fund in exchange solely for
shares of the voting common stock of the Acquiring Fund ("Acquiring Fund
Shares"), followed by the distribution by the Acquired Fund, on or promptly
after the Closing Date, as defined herein, of the Acquiring Fund Shares to the
shareholders of the Acquired Fund, the cancellation of all of the outstanding
shares of the Acquired Fund ("Acquired Fund Shares") pursuant to an amendment of
the Acquired Fund's Amended and Restated Articles of Incorporation, and the
liquidation of the Acquired Fund and the termination of the Acquired Fund as a
series of Corporation as provided herein, all upon the terms and conditions
hereinafter set forth in this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ACQUIRING
FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND
1.1 No later than the time of the closing of the Reorganization as
provided in Section 3.1 of this Agreement (the "Closing Time") on the Closing
Date, the Acquired Fund shall transfer substantially all of its property and
assets (consisting, without limitation, of portfolio securities and instruments,
dividends and interest receivables, claims, cash, cash equivalents, deferred or
prepaid expenses shown as assets on the Acquired Fund's books, goodwill and
intangible property, books and records, and other assets), as set forth in the
statement of assets and liabilities referred to in Section 8.2 hereof (the
"Statement of Assets and Liabilities"), to the Acquiring Fund free and clear of
all liens, encumbrances, and claims, except for cash or bank deposits in an
amount necessary: (a) to pay its costs and expenses of carrying out this
Agreement (including but not limited to fees of counsel and independent
accountants, any income dividends payable prior to the Closing Date, and
expenses of its liquidation and termination as a series of the Corporation
contemplated hereunder); (b) to discharge all of the unpaid liabilities (other
than any unamortized organizational expenses) reflected on its books and records
at the Closing Date; and (c) to pay such contingent liabilities, if any, as the
Board of Directors of the Corporation shall reasonably deem to exist against the
Acquired Fund at the Closing Date, for which contingent and other appropriate
liability reserves shall be established on the Acquired Fund's books. Any
unspent portion of such cash or bank deposits retained shall be delivered to the
Acquiring Fund upon the satisfaction of all of the foregoing liabilities, costs,
and expenses of the Acquired Fund. (The property and assets to be transferred to
the Acquiring Fund under this Agreement are referred to herein as the "Acquired
Fund Net Assets".) In exchange for the transfer of the Acquired Fund Net Assets,
the Acquiring Fund shall deliver to the Acquired Fund, for distribution pro rata
by the Acquired Fund to its shareholders as of the close of business on the
Closing Date, a number of the Acquiring Fund Shares having an aggregate net
asset value equal to the value of the Acquired Fund Net Assets, all determined
as provided in Section 2 of this Agreement and as of the date and time specified
therein.
<PAGE>
1.2 The Acquired Fund reserves the right to purchase or sell any of its
portfolio securities prior to the Closing Date, except to the extent such
purchases or sales may be limited by the representations made in connection with
issuance of the tax opinion described in Section 8.9. hereof.
1.3 On or promptly after the Closing Date, the Acquired Fund shall
liquidate and distribute pro rata to its shareholders of record at the Closing
Time on the Closing Date (the "Acquired Fund Shareholders") the Acquiring Fund
Shares received by the Acquired Fund pursuant to Section 1.1 of this Agreement.
(The date of such liquidation and distribution is referred to as the
"Liquidation Date.") In addition, each Acquired Fund Shareholder shall have the
right to receive any dividends or other distributions that were declared prior
to the Closing Date, but unpaid at that time, with respect to the Acquired Fund
Shares that are held by such Acquired Fund Shareholders on the Closing Date.
Such liquidation and distribution shall be accomplished by Strong Capital
Management, Inc. ("SCM"), in its capacity as transfer agent for the Acquiring
Fund, opening accounts on the share records of the Acquiring Fund in the names
of the Acquired Fund Shareholders and transferring to each such Acquired Fund
Shareholder account the pro rata number of the Acquiring Fund Shares due each
such Acquired Fund Shareholder from the Acquiring Fund Shares then credited to
the account of the Acquired Fund on the Acquiring Fund's books and records. The
Acquiring Fund shall not issue certificates representing Acquiring Fund Shares
in connection with such exchange, except in accordance with the procedures set
forth in the Corporation's current Prospectus and Statement of Additional
Information or as provided in Section 1.4 hereof.
1.4 The Acquired Fund Shareholders holding certificates representing
their ownership of Acquired Fund Shares may be requested to surrender such
certificates or deliver an affidavit with respect to lost certificates, in such
form and accompanied by such surety bonds as the Acquired Fund may require
(collectively, an "Affidavit"), to the Acquired Fund prior to the Closing Date.
On the Closing Date, any Acquired Fund Share certificates that remain
outstanding shall be deemed to be canceled. Corporation's transfer books with
respect to the Acquired Fund shall be closed permanently as of the close of
business on the day immediately prior to the Closing Date. All unsurrendered
Acquired Fund Share certificates shall no longer evidence ownership of common
stock of the Acquired Fund and shall be deemed for all corporate purposes to
evidence ownership of the number of Acquiring Fund Shares into which the
Acquired Fund Shares were effectively converted. Unless and until any such
certificate shall be so surrendered or an Affidavit relating thereto shall be
delivered to the Acquiring Fund, dividends and other distributions payable by
the Acquiring Fund subsequent to the Liquidation Date with respect to such
Acquiring Fund Shares shall be paid to the holders of such certificate(s), but
such Shareholders may not redeem or transfer Acquiring Fund Shares received in
the Reorganization with respect to unsurrendered Acquired Fund Share
certificates.
<PAGE>
1.5 Any transfer taxes payable upon issuance of Acquiring Fund Shares
in a name other than the registered holder of the Acquiring Fund Shares on the
books of the Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund Shares
are to be issued and transferred.
1.6 As soon as practicable following the Liquidation Date, the
Corporation shall take all steps necessary to terminate the existence of the
Acquired Fund as a series of the Corporation.
2. VALUATION
2.1 The net asset value of the Acquiring Fund Shares and the value of
the Acquired Fund Net Assets shall in each case be determined as of the close of
regular trading on the New York Stock Exchange ("NYSE") and after the
declaration of any dividends on the Closing Date, unless on such date (a) the
NYSE is not open for unrestricted trading or (b) the reporting of trading on the
NYSE or elsewhere is disrupted or (c) any other extraordinary financial event or
market condition occurs (all such events described in (a), (b) and (c) are each
referred to as a "Market Disruption"). The net asset value per share of
Acquiring Fund Shares shall be computed in accordance with the policies and
procedures set forth in the then-current Prospectus and Statement of Additional
Information of the Corporation with respect to the Acquiring Fund and shall be
computed to not fewer than two (2) decimal places. The value of the Acquired
Fund Net Assets shall be computed in accordance with the policies and procedures
set forth in the then-current Prospectus and Statement of Additional Information
of the Corporation with respect to the Acquired Fund.
2.2 In the event of a Market Disruption on the proposed Closing Date so
that accurate appraisal of the net asset value of the Acquiring Fund or the
value of the Acquired Fund Net Assets is impracticable, the Closing Date shall
be postponed until the first business day when regular trading on the NYSE shall
have been fully resumed and reporting shall have been restored and other trading
markets are otherwise stabilized.
<PAGE>
2.3 The number of Acquiring Fund Shares to be issued (including
fractional shares) in exchange for the Acquired Fund Net Assets shall be
determined by dividing the value of the Acquired Fund Net Assets by the
Acquiring Fund's net asset value per share, both as determined in accordance
with Section 2.1 of this Agreement.
2.4 All computations of value regarding the Funds shall be provided by
SCM and shall be certified by the Treasurer for the Corporation.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be October 30, 1998 or such later date as
the parties may agree. The Closing Time shall be at 3:30 P.M., Central Time. The
Closing shall be held at the offices of SCM, 100 Heritage Reserve, Menomonee
Falls, Wisconsin 53051, or at such other time and/or place as the parties may
agree.
3.2 Portfolio securities that are not held in book-entry form (together
with cash or other assets) shall be transferred or delivered, as appropriate, by
Firstar Trust Company (the "Custodian") or its agents or nominees from the
Acquired Fund's account with the Custodian to the account of the Acquiring Fund
on the Closing Date, in accordance with applicable custody provisions under the
Investment Company Act of 1940, as amended ("1940 Act"), and, as appropriate,
duly endorsed in proper form for transfer, in such condition as to constitute
good delivery thereof. Such portfolio securities shall be accompanied by any
necessary federal and state stock transfer stamps or a check for the appropriate
purchase price of such stamps. Portfolio securities held of record by the
Custodian or its agents or nominees in book-entry form on behalf of the Acquired
Fund shall be transferred to the Acquiring Fund by the Custodian by recording
the transfer of beneficial ownership thereof on its records and those of its
agents and nominees. Any cash of the Acquired Fund delivered on the Closing Date
shall be in any form as is reasonably directed by the Acquiring Fund and shall
be delivered on the Closing Date by the Custodian crediting the Acquiring Fund's
account maintained with the Custodian with immediately available funds.
3.3 If any of the Acquired Fund Net Assets, for any reason, are not
transferred on the Closing Date, the Acquired Fund shall cause the Acquired Fund
Net Assets to be transferred to the Acquiring Fund in accordance with this
Agreement at the earliest practicable date thereafter.
3.4 SCM, in its capacity as transfer agent for the Acquired Fund, shall
deliver to the Acquiring Fund at the Closing Time a list of the names,
addresses, federal taxpayer identification numbers, and backup withholding and
nonresident alien withholding status of Acquired Fund Shareholders and the
number and aggregate net asset value of outstanding shares of common stock of
the Acquired Fund owned by each such Acquired Fund Shareholder, all as of the
close of regular trading on the NYSE on the Closing Date, certified by an
appropriate officer of SCM (the "Shareholder List"). SCM, in its capacity as
transfer agent for the Acquiring Fund, shall issue and deliver to the Acquired
Fund a confirmation evidencing the Acquiring Fund Shares to be credited to each
Acquired Fund Shareholder on the Liquidation Date, or provide evidence
satisfactory to the Acquired Fund that such Acquiring Fund Shares have been
credited to each Acquired Fund Shareholder's account on the books of the
Acquiring Fund. At the Closing, each Fund shall deliver to the other Fund such
bills of sale, checks, assignments, certificates, receipts, or other documents
as the other Fund or its counsel may reasonably request.
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRED FUND
The Acquired Fund represents and warrants to the Acquiring Fund as
follows:
4.1 The Acquired Fund is a duly organized series of the Corporation,
which is a corporation duly organized, validly existing, and in "good standing"
under the laws of the State of Wisconsin (meaning it has filed its most recent
annual report and has not filed articles of dissolution) and has the power to
own all of its properties and assets and, subject to approval of the Acquired
Fund Shareholders, to perform its obligations under this Agreement and to
consummate the transactions contemplated by this Agreement. The Acquired Fund is
not required to qualify to do business in any jurisdiction in which it is not so
qualified or where failure to qualify would not subject it to any material
liability or disability. The Acquired Fund has all necessary federal, state, and
local authorizations, consents, and approvals required, to own all of its
properties and assets and to carry on its business as now being conducted and to
consummate the transactions contemplated by this Agreement.
4.2 The Corporation is a registered investment company classified as a
management company of the open-end diversified type and its registration with
the SEC as an investment company under the 1940 Act, is in full force and
effect. The Acquired Fund is a separate series of the Corporation for purposes
of the 1940 Act.
4.3 The execution, delivery, and performance of this Agreement have
been duly authorized by all necessary action on the part of the Corporation's
Board of Directors on behalf of the Acquired Fund, and this Agreement
constitutes a valid and binding obligation of the Acquired Fund, subject to the
approval of the Acquired Fund Shareholders, enforceable in accordance with the
terms of this Agreement, subject as to enforcement to bankruptcy, insolvency,
reorganization, arrangement, moratorium, and other similar laws of general
applicability relating to or affecting creditors' rights and to general
Corporation principles.
4.4 The Acquired Fund is not, and the execution, delivery, and
performance of this Agreement by the Acquired Fund will not result in violation
of any provision of the Amended and Restated Articles of Incorporation or
By-Laws of the Corporation or of any agreement, indenture, instrument, contract,
lease, or other arrangement or undertaking to which the Acquired Fund is a party
or by which it is bound.
4.5 The Acquired Fund has elected to be treated as a regulated
investment company ("RIC") for federal income tax purposes under Part I of
Subchapter M of the Code, has qualified as a RIC and has been eligible to and
has computed its federal income tax under Section 852 of the Code for each
taxable year of its operations, and will continue to so qualify as a RIC and be
eligible to and compute its income tax as of the Closing Date and with respect
to its final taxable year ending upon its liquidation, and will have distributed
all of its investment company taxable income and net capital gain (as defined in
the Code) that has accrued through the Closing Date.
<PAGE>
4.6 The financial statements of the Acquired Fund for the fiscal years
ended December 31, 1997 and 1996, (which were audited by the independent
accountants), present fairly the financial position of the Acquired Fund as of
the date indicated and the results of its operations and changes in net assets
for the respective stated periods (in accordance with generally accepted
accounting principles ("GAAP") consistently applied).
4.7 The Prospectus of the Corporation with respect to the Acquired
Fund, dated May 1, 1998, and the corresponding Statement of Additional
Information, dated May 1, 1998 and any supplements thereto, do not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and any amended,
revised, or new Prospectus or Statement of Additional Information of the
Corporation with respect to the Acquired Fund or any supplement thereto, that is
hereafter filed with the SEC (copies of which documents shall be provided to the
Acquiring Fund promptly after such filing), shall not contain any untrue
statement of a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
4.8 No material legal or administrative proceeding or investigation of
or before any court or governmental body is currently pending or, to its
knowledge, threatened as to the Acquired Fund or any of its properties or
assets. The Acquired Fund knows of no facts which might form the basis for the
institution of such proceedings. The Acquired Fund is not party to or subject to
the provisions of any order, decree, or judgment of any court or governmental
body which materially and adversely affects its business or its ability to
consummate the transactions herein contemplated.
4.9 The Corporation has furnished the Acquiring Fund with copies or
descriptions of all agreements or other arrangements to which the Corporation,
on behalf of the Acquired Fund, is a party. The Corporation with respect to the
Acquired Fund has no material contracts or other commitments (other than this
Agreement or agreements for the purchase of securities entered into in the
ordinary course of business and consistent with its obligations under this
Agreement) which will not be terminated by the Corporation with respect to the
Acquired Fund in accordance with its terms at or prior to the Closing Date.
4.10 The Acquired Fund does not have any known liabilities, costs or
expenses of a material amount, contingent or otherwise, other than those
reflected in the financial statements referred to in Section 4.6 hereof and
those incurred in the ordinary course of business as a series of an investment
company since the dates of those financial statements. On the Closing Date, the
Corporation shall advise the Acquiring Fund in writing of all of the Acquired
Fund's known liabilities, contingent or otherwise, whether or not incurred in
the ordinary course of business, existing or accrued at such time.
<PAGE>
4.11 Since December 31, 1997, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of its business,
other than those that have been fully disclosed to the Acquiring Fund.
4.12 At the date hereof and by the Closing Date, all federal, state,
and other tax returns and reports, including information returns and payee
statements, of the Acquired Fund required by law to have been filed or furnished
by such dates shall have been filed or furnished and shall be correct in all
material respects, or extensions concerning such tax returns and reports shall
have been obtained, and all federal, state, and other taxes, interest, and
penalties shall have been paid so far as due, or adequate provision shall have
been made on the Acquired Fund's books for the payment thereof, and to the best
of the Acquired Fund's knowledge no such tax return is currently under audit and
no tax deficiency or liability has been asserted with respect to such tax
returns or reports by the Internal Revenue Service or any state or local tax
authority.
4.13 At the Closing Date, the Acquired Fund will have good and
marketable title to the Acquired Fund Net Assets, and subject to approval by the
Acquired Fund Shareholders, full right, power and authority to sell, assign,
transfer, and deliver such assets hereunder, and upon delivery and in payment
for such assets, the Acquiring Fund will acquire good and marketable title
thereto subject to no liens or encumbrances of any nature whatsoever or
restrictions on the ownership or transfer thereof, except (a) such imperfections
of title or encumbrances as do not materially detract from the value or use of
the assets subject thereto, or materially affect title thereto, or (b) such
restrictions as might arise under federal or state securities laws or the rules
and regulations thereunder.
4.14 No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired Fund of
the transactions contemplated by this Agreement, except such as may be required
under the federal or state securities laws or the rules and regulations
thereunder.
4.15 The Combined Proxy Statement/Prospectus of the Funds referred to
in Section 6.7 hereof (the "Proxy Statement/Prospectus") and any Prospectus or
Statement of Additional Information of the Corporation with respect to the
Acquired Fund contained or incorporated by reference into the Form N-14
Registration Statement, and referred to in Section 6.7 hereof, any supplement or
amendment to such documents on the effective and clearance dates of the Form
N-14 Registration Statement, on the date of the Special Meeting of Acquired Fund
Shareholders, and on the Closing Date and only insofar as such Proxy
Statement/Prospectus and the Prospectus and Statement of Additional Information
relate to the Acquired Fund or the transactions contemplated by this Agreement
and is based on information furnished by the Acquired Fund for inclusion
therein: (a) shall comply in all material respects with the provisions of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act, the
rules and regulations thereunder, and all other applicable federal securities
laws and rules and regulations thereunder; and (b) shall not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances under which such statements were made, not misleading.
<PAGE>
4.16 All of the issued and outstanding shares of common stock of the
Acquired Fund are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable, except to the extent provided in
Section 180.0622(2)(b) of the Wisconsin Statutes, or any successor provision,
which provides that shareholders of a corporation organized under Chapter 180 of
the Wisconsin Statutes may be assessed up to the par value of their shares to
satisfy the obligations of such corporation to its employees for services
rendered, but not exceeding six months in the case of any individual employee.
All of the issued and outstanding shares of common stock of the Acquired Fund
will, at the time of Closing, be held by the persons and in the amounts set
forth in the Shareholder List.
4.17 All of the issued and outstanding shares of common stock of the
Acquired Fund have been offered for sale and sold in conformity, in all material
respects, with all applicable federal and state securities laws, including the
registration or exemption from registration of such shares, except as may have
been previously disclosed in writing to the Acquiring Fund.
4.18 The Acquired Fund is not under the jurisdiction of a Court in
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
4.19 All information to be furnished by the Acquired Fund for use in
preparing any application for orders, the Form N-14 Registration Statement
referred to in Section 6.7 hereof, and the Proxy Statement/Prospectus to be
included in the Form N-14 Registration Statement, proxy materials, and other
documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete and shall comply in all
material respects with federal securities and other laws and regulations
thereunder applicable thereto.
4.20 There is no intercorporate indebtedness existing between the
Acquired Fund and the Acquiring Fund that was issued, acquired, or will be
settled at a discount.
4.21 The Acquired Fund has valued and will continue to value its
portfolio securities and other assets in material compliance with all applicable
legal requirements.
5. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRING FUND
The Acquiring Fund represents and warrants to the Acquired Fund as
follows:
5.1 The Acquiring Fund is a duly organized series of the Corporation,
which is a corporation duly organized, validly existing, and in "good standing"
under the laws of the State of Wisconsin (meaning it has filed its most recent
annual report and has not filed articles of dissolution) and has the power to
own all of its properties and assets and to perform its obligations under this
Agreement and to consummate the transactions contemplated herein. The Acquiring
Fund is not required to qualify to do business in any jurisdiction in which it
is not so qualified or where failure to qualify would subject it to any material
liability or disability. The Acquiring Fund has all necessary federal, state,
and local authorizations, consents, and approvals required to own all of its
properties and assets and to carry on its business as now being conducted and to
consummate the transactions contemplated herein.
<PAGE>
5.2 The Corporation is a registered investment company classified as a
management company of the open-end diversified type and its registration with
the SEC as an investment company under the 1940 Act is in full force and effect.
The Acquiring Fund is a separate series of the Corporation for purposes of the
1940 Act.
5.3 The execution, delivery, and performance of this Agreement have
been duly authorized by all necessary action on the part of the Corporation's
Board of Directors on behalf of the Acquiring Fund, and this Agreement
constitutes a valid and binding obligation of the Acquiring Fund, enforceable in
accordance with the terms of this Agreement, subject as to enforcement to
bankruptcy, insolvency, reorganization, arrangement, moratorium, and other
similar laws of general applicability relating to or affecting creditors' rights
and to general Corporation principles.
5.4 The Acquiring Fund is not, and the execution, delivery, and
performance of this Agreement by the Acquiring Fund will not result in violation
of any provisions of the Amended and Restated Articles of Incorporation or
By-Laws of the Acquiring Fund or of any agreement, indenture, instrument,
contract, lease, or other arrangement or undertaking to which the Acquiring Fund
is a party or by which it is bound.
5.5 The Acquiring Fund has elected to be treated as a RIC for federal
income tax purposes under Part I of Subchapter M of the Code, has qualified as a
RIC and has been eligible to and has computed its federal income tax under
Section 852 of the Code for each taxable year since its inception, and will so
qualify as a RIC and be eligible to and compute its income tax for its taxable
year, including the Closing Date, in accordance with those provisions applicable
to RICs.
5.6 The financial statements of the Acquiring Fund, for the fiscal year
ended December 31, 1997, and each of the previous two fiscal years (which were
audited by the independent accountants), present fairly the financial position
of the Acquiring Fund as of the dates indicated and the results of its
operations and changes in net assets for the respective stated periods (in
accordance with GAAP consistently applied).
5.7 The Prospectus of the Corporation with respect to the Acquiring
Fund, dated May 1, 1998, and the corresponding Statement of Additional
Information, dated May 1, 1998 and any supplements thereto, do not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and any amended,
revised, or new Prospectus or Statement of Additional Information of the
Corporation with respect to the Acquiring Fund or any supplement thereto, that
is hereafter filed with the SEC (copies of which documents shall be provided to
the Acquired Fund promptly after such filing), shall not contain any untrue
statement of a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
<PAGE>
5.8 No material legal or administrative proceeding, or investigation of
or before any court or governmental body is currently pending or, to its
knowledge, threatened as to the Acquiring Fund or any of its properties or
assets. The Acquiring Fund knows of no facts which might form the basis for the
institution of such proceedings. The Acquiring Fund is not a party to or subject
to the provisions of any order, decree, or judgment of any court or governmental
body which materially and adversely affects the Acquiring Fund's business or its
ability to consummate the transactions herein contemplated.
5.9 The Acquiring Fund does not have any known liabilities, costs or
expenses of a material amount, contingent or otherwise, other than those
reflected in the financial statements referred to in Section 5.6 hereof and
those incurred in the ordinary course of business as a series of an investment
company since the date of those financial statements. On the Closing Date, the
Acquiring Fund shall advise the Acquired Fund in writing of all of the Acquiring
Fund's known liabilities, contingent or otherwise, whether or not incurred in
the ordinary course of business, existing or accrued at such time.
5.10 Since December 31, 1997, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of its business.
5.11 At the date hereof and by the Closing Date, all federal, state,
and other tax returns and reports, including information returns and payee
statements, of the Acquiring Fund required by law to have been filed or
furnished and shall be correct in all material respects, by such dates shall
have been filed or furnished or extensions concerning such tax returns and
reports shall have been obtained, and all federal, state, and other taxes,
interest, and penalties shall have been paid so far as due, or adequate
provision shall have been made on the Acquiring Fund's books for the payment
thereof, and to the best of the Acquiring Fund's knowledge no such tax return is
currently under audit and no tax deficiency or liability has been asserted with
respect to such tax returns or reports by the Internal Revenue Service or any
state or local tax authority.
5.12 No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring Fund of
the transactions contemplated by the Agreement, except for the registration of
the Acquiring Fund Shares under the Securities Act of 1933 (the "1933 Act"), or
as may otherwise be required under the federal and state securities laws or the
rules and regulations thereunder.
<PAGE>
5.13 The Form N-14 Registration Statement and the Proxy
Statement/Prospectus referred to in Section 6.7 hereof (other than the portions
of such documents based on written information furnished by the Acquired Fund
for inclusion or incorporation by reference therein as covered by the Acquired
Fund's warranty in Section 4.15 and 4.19 hereof) and any Prospectus or Statement
of Additional Information of the Corporation with respect to the Acquiring Fund
contained or incorporated therein by reference, and any supplement or amendment
to the Form N-14 Registration Statement or any such Prospectus or Statement of
Additional Information, on the effective and clearance dates of the Form N-14
Registration Statement, on the date of the Special Meeting of the Acquired Fund
Shareholders, and on the Closing Date and only insofar as such Proxy
Statement/Prospectus and the Prospectus and Statement of Additional Information
relate to the Acquiring Fund or the transactions contemplated by this Agreement
and is based on information furnished by the Acquiring Fund for inclusion
therein: (a) shall comply in all material respects with the provisions of the
1934 Act, the 1940 Act, the rules and regulations thereunder, and all other
applicable federal securities laws and the rules and regulations thereunder; and
(b) shall not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which the statements
were made, not misleading.
5.14 All of the issued and outstanding shares of common stock of the
Acquiring Fund are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable, except to the extent provided in
Section 180.0622(2)(b) of the Wisconsin Statutes (which is summarized in Section
4.16 of this Agreement), or any successor provision.
5.15 All of the issued and outstanding shares of common stock of the
Acquiring Fund have been offered for sale and sold in conformity, in all
material respects, with all applicable federal and state securities laws,
including the registration or exemption from registration of such shares, except
as may previously have been disclosed in writing to the Acquired Fund.
5.16 The Acquiring Fund Shares to be issued and delivered to the
Acquired Fund pursuant to the terms of this Agreement, when so issued and
delivered, will be duly and validly issued shares of common stock of the
Acquiring Fund, will be fully paid and nonassessable by the Acquiring Fund,
except to the extent provided in Section 180.0622(2)(b) of the Wisconsin
Statutes (which is summarized in Section 4.16 of this Agreement), or any
successor provision, and will be duly registered in conformity with all
applicable federal securities laws, and no shareholder of the Acquiring Fund
shall have any option, warrant, or preemptive right of subscription or purchase
with respect thereto.
5.17 The Acquiring Fund is not under the jurisdiction of a Court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
5.18 All information to be furnished by the Acquiring Fund to the
Acquired Fund for use in preparing the Proxy Statement/Prospectus, and other
documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete and shall comply in all
material respects with federal securities and other laws and regulations
applicable thereto.
5.19 There is no intercorporate indebtedness existing between the
Acquired Fund and the Acquiring Fund that was issued, acquired, or will be
settled at a discount.
<PAGE>
5.20 The Acquiring Fund does not own, directly or indirectly, nor has
it owned during the past five years, directly or indirectly, any stock of the
Acquired Fund.
5.21 The Acquiring Fund has valued and will continue to value its
portfolio securities and other assets in material compliance with all applicable
legal requirements.
6. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
6.1 Except as expressly contemplated herein to the contrary, each Fund
shall operate its business in the ordinary course between the date hereof and
the Closing Date, it being understood that such ordinary course of business will
include customary dividends and distributions and any other distribution
necessary or desirable to avoid federal income or excise taxes.
6.2 After the effective date of the Form N-14 Registration Statement
referred to in Section 6.7 hereof, and before the Closing Date and as a
condition thereto, the Board of Directors of the Corporation on behalf of the
Acquired Fund shall call, and Corporation shall hold, a Special Meeting of the
Acquired Fund Shareholders to consider and vote upon this Agreement and the
transactions contemplated hereby (including the amendment of the Corporation's
Amended and Restated Articles of Incorporation to cancel all of the Acquired
Fund's outstanding shares, effective as of the Closing) and the Corporation with
respect to the Acquired Fund and the Acquiring Fund shall take all other actions
reasonably necessary to obtain approval of the transactions contemplated herein.
6.3 The Acquired Fund covenants that it shall not sell or otherwise
dispose of any of the Acquiring Fund Shares to be received in the transactions
contemplated herein, except in distribution to the Acquired Fund Shareholders as
contemplated herein.
6.4 The Acquired Fund shall provide such information within its
possession or reasonably obtainable as the Acquiring Fund may reasonably request
concerning the beneficial ownership of the Acquired Fund Shares.
6.5 Subject to the provisions of this Agreement, the Acquiring Fund and
the Acquired Fund shall take, or cause to be taken, all action, and do or cause
to be done, all things reasonably necessary, proper, or advisable to consummate
the transactions contemplated by this Agreement.
6.6 The Acquired Fund shall furnish to the Acquiring Fund on the
Closing Date the Statement of the Assets and Liabilities of the Acquired Fund as
of the Closing Date, which statement shall be prepared in accordance with GAAP
consistently applied and shall be certified by the Corporation's Treasurer or
Assistant Treasurer. As promptly as practicable, but in any case within
forty-five (45) days after the Closing Date, the Acquired Fund shall furnish to
the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring
Fund, a statement of the earnings and profits of the Acquired Fund for federal
income tax purposes, and of any capital loss carryovers and other items that
will be carried over to the Acquiring Fund as a result of Section 381 of the
Code, which statement shall be certified by the Treasurer or Assistant Treasurer
of the Corporation. The Acquired Fund covenants that the Acquired Fund has no
earnings and profits that were accumulated by it or any acquired entity during a
taxable year when it or such entity did not qualify as a RIC under the Code or,
if it has such earnings and profits, shall distribute them to its shareholders
prior to the Closing Date.
<PAGE>
6.7 The Corporation on behalf of the Acquiring Fund shall prepare and
file with the SEC a Registration Statement on Form N-14 (the "Form N-14
Registration Statement"), which shall include the Proxy Statement/Prospectus, as
promptly as practicable in connection with the issuance of the Acquiring Fund
Shares and the holding of the Special Meeting of the Acquired Fund Shareholders
to consider approval of this Agreement as contemplated herein and transactions
contemplated thereunder. The Acquiring Fund shall prepare any pro forma
financial statement that may be required under applicable law to be included in
the Form N-14 Registration Statement. The Acquired Fund shall provide the
Acquiring Fund with all information about the Acquired Fund that is necessary to
prepare the pro forma financial statements. The Funds shall cooperate with each
other and shall furnish each other with any information relating to itself that
is required by the 1933 Act, the 1934 Act, and the 1940 Act, the rules and
regulations thereunder, and applicable state securities laws, to be included in
the Form N-14 Registration Statement and the Proxy Statement/Prospectus.
6.8 The Acquired Fund shall deliver to the Acquiring Fund at the
Closing Date confirmation or other adequate evidence as to the tax costs and
holding periods of the assets and property of the Acquired Fund delivered to the
Acquiring Fund in accordance with the terms of this Agreement.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund hereunder shall
be subject to the following conditions precedent provided,
however, that the Acquired Fund may, at its option, waive
compliance with any conditions precedent other than those in
Sections 7.1, 7.8, 7.11 and 7.15.
7.1 This agreement and the transactions contemplated by this Agreement
shall have been approved by the Board of Directors of the Corporation on behalf
of the Acquiring Fund in the manner required by Corporation's Amended and
Restated Articles of Incorporation and applicable law, and this Agreement, the
transactions contemplated by this Agreement, and the proposed amendment to
Corporation's Amended and Restated Articles of Incorporation described in
Section 6.2 hereof shall have been approved by the Acquired Fund Shareholders in
the manner required by the Corporation's Articles of Incorporation and By-Laws
and applicable law.
<PAGE>
7.2 As of the Closing Date, there shall have been no material adverse
change in the financial position, assets, or liabilities of the Acquiring Fund
since the dates of the financial statements referred to in Section 5.6 of this
Agreement. For purposes of this Section 7.2, a decline in the net asset value
per share of the Acquiring Fund due to the effect of normal market conditions on
liquid securities shall not constitute a material adverse change.
7.3 All representations and warranties of Corporation or the Acquiring
Fund made in this Agreement, except as they may be affected by the transactions
contemplated by this Agreement, shall be true and correct in all material
respects as if made at and as of the Closing Date.
7.4 The Corporation and the Acquiring Fund shall have performed and
complied in all material respects with their obligations, agreements, and
covenants required by this Agreement to be performed or complied with by each of
them prior to or at the Closing Date.
7.5 The Acquiring Fund shall have furnished the Acquired Fund at the
Closing Date with a certificate or certificates of any of its Vice Presidents
and/or Treasurer as of the Closing Date to the effect that the conditions
precedent set forth in the Sections 7.2, 7.3, 7.4, 7.10 and 7.15 hereof have
been fulfilled.
7.6 The Acquired Fund shall have received a legal opinion or opinions
from counsel, in form reasonably satisfactory to the Acquired Fund, and dated as
of the Closing Date, to the effect that: (a) the Acquiring Fund is a duly
organized series of Corporation, which is a corporation that is duly organized
and validly existing under the laws of the State of Wisconsin; (b) the shares of
the Acquiring Fund issued and outstanding at the Closing Date are duly
authorized, validly issued, fully paid, and non-assessable by the Acquiring
Fund, except to the extent provided in Section 180.0622(2)(b) of the Wisconsin
Statutes (which is summarized in Section 4.16 of this Agreement), or any
successor provision, and the Acquiring Fund Shares to be delivered to the
Acquired Fund, as provided for by this Agreement, are duly authorized and upon
delivery pursuant to the terms of this Agreement will be validly issued, fully
paid and non-assessable by the Acquiring Fund, except to the extent provided in
Section 180.0622(2)(b) of the Wisconsin Statutes (which is summarized in Section
4.16 of this Agreement), or any successor provision, and to such counsel's
knowledge, no shareholder of the Acquiring Fund has any option, warrant, or
preemptive right to subscription or purchase in respect thereof; (c) this
Agreement has been duly authorized, executed, and delivered by the Acquiring
Fund and represents a valid and binding contract of the Acquiring Fund,
enforceable in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and similar laws
relating to or affecting creditors' rights generally and court decisions with
respect thereto and to the exercise of judicial discretion in accordance with
general principles of Corporation, whether in a proceeding at law or in
Corporation; provided, however, that no opinion need be expressed with respect
to provisions of this Agreement relating to indemnification; (d) the execution
and delivery of this Agreement did not, and the consummation of the transactions
contemplated by this Agreement will not, violate the Amended and Restated
Articles of Incorporation or By-Laws of Corporation or any material agreement
known to such counsel to which the Acquiring Fund is a party or by which it is
bound; (e) to the knowledge of such counsel, no consent, approval,
authorization, or order of any court or governmental authority is required for
the consummation, by the Acquiring Fund of the transactions contemplated by this
Agreement, except such as have been obtained under the 1933 Act, the 1934 Act,
the 1940 Act, the rules and regulations under those statutes, and such as may be
required by state securities laws, rules and regulations; and (f) Corporation is
registered as an investment company under the 1940 Act and the Acquiring Fund is
a separate series thereof and such registration with the SEC as an investment
company under the 1940 Act is in full force and effect. Such opinion: (a) shall
state that while such counsel have not verified, and are not passing upon and do
not assume responsibility for, the accuracy, completeness, or fairness of any
portion of the Form N-14 Registration Statement or any amendment thereof or
supplement thereto, they have generally reviewed and discussed certain
information included therein with respect to the Acquiring Fund with certain of
its officers and that in the course of such review and discussion no facts came
to the attention of such counsel which caused them to believe that, on the
respective effective or clearance dates of the Form N-14 Registration Statement
and any amendment thereof or supplement thereto and only insofar as they relate
to information with respect to the Acquiring Fund, the Form N-14 Registration
Statement or any amendment thereof or supplement thereto contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading; (b)
shall state that such counsel does not express any opinion or belief as to the
financial statements, other financial data, statistical data, or information
relating to the Acquiring Fund contained or incorporated by reference in the
Form N-14 Registration Statement or any exhibits or attachments to the text
thereof; (c) may rely on the opinion of other counsel to the extent set forth in
such opinion, provided such other counsel is reasonably acceptable to the
Acquired Fund; and (d) shall state that such opinion is solely for the benefit
of the Acquired Fund and the Corporation's Board of Directors and officers.
<PAGE>
7.7 The Acquired Fund shall have received an opinion of counsel
regarding the transaction addressed to the Funds in form reasonably satisfactory
to them and dated as of the Closing Date, with respect to the matters specified
in Section 8.9 hereof.
7.8 The Form N-14 Registration Statement shall have become effective
under the 1933 Act and no stop order suspending the effectiveness shall have
been instituted, or to the knowledge of the Funds, contemplated by the SEC.
7.9 The parties shall have received: a memorandum, in form reasonably
satisfactory to each of them, prepared by counsel regarding the transaction or
another person approved by the parties containing assurance reasonably
satisfactory to them that all authorizations or approvals necessary under state
securities laws to consummate the transactions contemplated herein have been
obtained.
7.10 No action, suit, or other proceeding shall be threatened or
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
7.11 The SEC shall not have issued any unfavorable advisory report
under Section 25(b) of the 1940 Act nor instituted any proceedings seeking to
enjoin consummation of the transactions contemplated by this Agreement under
Section 25(c) of the 1940 Act.
7.12 The Acquired Fund shall have received from the Acquiring Fund all
such documents, including but not limited to, checks, share certificates, if
any, and receipts, which the Acquired Fund or its counsel may reasonably
request.
7.13 The Acquiring Fund shall have furnished the Acquired Fund on the
Closing Date with a certificate or certificates of any of its Vice Presidents
and/or Treasurer or Assistant Treasurer of the Corporation dated as of said date
to the effect that: (a) the Acquiring Fund has no plan or intention to reacquire
any of the Acquiring Fund Shares to be issued in the Reorganization, except in
the ordinary course of business; (b) the Acquiring Fund has no plan or intention
to sell or otherwise dispose of any of the assets of the Acquired Fund acquired
in the Reorganization, except for dispositions made in the ordinary course of
business or transfers described in Section 368(a)(2)(C) of the Code; and (c)
following the Closing, the Acquiring Fund will continue the historic business of
the Acquired Fund or use a significant portion of the Acquired Fund's assets in
a business.
7.14 SCM, in its capacity as transfer agent for the Acquiring Fund,
shall issue and deliver to any of the Vice Presidents of the Corporation with
respect to the Acquired Fund a confirmation statement evidencing the Acquiring
Fund Shares to be credited at the Closing Date or provide evidence satisfactory
to the Acquired Fund that the Acquiring Fund Shares have been credited to the
accounts of each of the Acquired Fund Shareholders on the books of the Acquiring
Fund.
7.15 SCM shall have paid or waived all of the then outstanding
unamortized organizational expenses of the Acquired Fund then reflected on its
books and records.
7.16 At the Closing Date, the registration of the Corporation with the
Commission as an investment company under the 1940 Act and the Acquiring Fund as
a series thereof will be in full force and effect.
<PAGE>
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund hereunder shall be
subject to the following conditions precedent provided,
however, that the Acquiring Fund may, at its option, waive
compliance with any conditions precedent other than those in
Sections 8.1, 8.11 and 8.14:
8.1 This Agreement and the transactions contemplated by this Agreement,
and the proposed amendment to the Corporation's Amended and Restated Articles of
Incorporation described in Section 6.2 of this Agreement shall have been
approved by the Board of Directors of the Corporation and the Acquired Fund
Shareholders in the manner required by the Corporation's Amended and Restated
Articles of Incorporation and By-Laws and applicable law.
8.2 The Acquired Fund shall have furnished the Acquiring Fund with the
Statement of Assets and Liabilities of the Acquired Fund, with values determined
as provided in Section 2 of this Agreement, with their respective dates of
acquisition and tax costs, all as of the Closing Date, certified on the Acquired
Fund's behalf by its Treasurer or Assistant Treasurer. The Statement of Assets
and Liabilities shall list all of the securities owned by the Acquired Fund as
of the Closing Date and a final statement of assets and liabilities of the
Acquired Fund prepared in accordance with GAAP consistently applied.
8.3 As of the Closing Date, there shall have been no material adverse
change in the financial position, assets, or liabilities of the Acquired Fund
since the dates of the financial statements referred to in Section 4.6 of this
Agreement. For purposes of this Section 8.3, a decline in the value of the
Acquired Fund Net Assets due to the effect of normal market conditions on liquid
securities shall not constitute a material adverse change.
8.4 All representations and warranties of Corporation or the Acquired
Fund made in this Agreement, except as they may be affected by the transactions
contemplated by this Agreement, shall be true and correct in all material
respects as if made at and as of the Closing Date.
8.5 The Corporation and the Acquired Fund shall have performed and
complied in all material respects with their obligations, agreements, and
covenants required by this Agreement to be performed or complied with by each of
them prior to or at the Closing Date.
8.6 The Acquired Fund shall have furnished the Acquiring Fund at the
Closing Date with a certificate or certificates of any of its Vice Presidents
and/or Treasurer, dated as of the Closing Date, to the effect that the
conditions precedent set forth in Sections 8.1, 8.3, 8.4, 8.5, 8.13, 8.15 and
8.18 hereof have been fulfilled.
8.7 The Acquired Fund shall have duly executed and delivered to the
Acquiring Fund (a) bills of sale, assignments, certificates and other
instruments of transfer ("Transfer Documents") as the Acquiring Fund may deem
necessary or desirable to transfer all of the Acquired Fund's right, title, and
interest in and to the Acquired Fund Net Assets, and (b) all such other
documents, including but not limited to, checks, share certificates, if any, and
receipts, which the Acquiring Fund may reasonably request. Such assets of the
Acquired Fund shall be accompanied by all necessary state stock transfer stamps
or cash for the appropriate purchase price therefor.
<PAGE>
8.8 The Acquiring Fund shall have received a legal opinion or opinions
from counsel, in form reasonably satisfactory to the Acquiring Fund, and dated
as of the Closing Date, to the effect that: (a) the Acquired Fund is a duly
organized series of the Corporation, which is a Wisconsin corporation duly
organized and validly existing under the laws of the State of Wisconsin; (b) the
shares of the Acquired Fund issued and outstanding at the Closing Date are duly
authorized, validly issued, fully paid and non-assessable by the Acquired Fund,
except to the extent provided in Section 180.0622(2)(b) of the Wisconsin
Statutes (which is summarized in Section 4.16 of this Agreement), or any
successor provision; (c) this Agreement and the Transfer Documents have been
duly authorized, executed, and delivered by the Acquired Fund and represent
valid and binding contracts of the Acquired Fund, enforceable in accordance with
their terms, subject to the effect of bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, and similar laws relating to or affecting
creditors' rights generally and court decisions with respect thereto and to the
exercise of judicial discretion in accordance with general principles of
Corporation, whether in a proceeding at law or in Corporation; provided,
however, that no opinion need be expressed with respect to provisions of this
Agreement relating to indemnification; (d) the execution and delivery of this
Agreement did not, and the consummation of the transactions contemplated by this
Agreement will not, violate the Amended and Restated Articles of Incorporation
or By-laws of Corporation or any material agreement known to such counsel to
which the Acquired Fund is a party or by which it is bound; (e) to the knowledge
of such counsel, no consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired Fund of
the transactions contemplated by this Agreement, except such as have been
obtained under the 1933 Act, the 1934 Act, the 1940 Act, the rules and
regulations under those statutes, and such as may be required under state
securities laws, rules, and regulations; and (f) Corporation is registered as an
investment company under the 1940 Act and the Acquired Fund is a separate series
thereof and such registration with the SEC is in full force and effect. Such
opinion: (a) shall state that while such counsel have not verified, and are not
passing upon and do not assume responsibility for, the accuracy, completeness,
or fairness of any portion of the Form N-14 Registration Statement or any
amendment thereof or supplement thereto, they have generally reviewed and
discussed certain information included therein with respect to the Acquired Fund
with certain of its officers and that in the course of such review and
discussion no facts came to the attention of such counsel which caused them to
believe that, on the respective effective or clearance dates of the Form N-14
Registration Statement, and any amendment thereof or supplement thereto and only
insofar as they relate to information with respect to the Acquired Fund, the
Form N-14 Registration Statement or any amendment thereof or supplement thereto
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading; (b) shall state that such counsel does not express any
opinion or belief as to the financial statements, other financial data,
statistical data, or any information relating to the Acquired Fund contained or
incorporated by reference in the Form N-14 Registration Statement; (c) may rely
upon the opinion of other counsel to the extent set forth in the opinion,
provided such other counsel is reasonably acceptable to the Acquiring Fund; and
(d) shall state that such opinion is solely for the benefit of the Acquiring
Fund and its Board of Directors and officers.
8.9 The Acquiring Fund shall have received a legal opinion or opinions
of counsel, addressed to the Funds and in form reasonably satisfactory to them,
and dated as of the Closing Date, substantially to the effect that, based upon
certain facts, assumptions and representations, the transactions contemplated by
this Agreement with respect to the Acquired Fund and the Acquiring Fund
constitute a tax-free reorganization for federal income tax purposes. The
delivery of such opinion or opinions is conditioned upon receipt by counsel of
all necessary representations that it shall request of the Acquired Fund and
Acquiring Fund.
<PAGE>
8.10 The property and assets to be transferred to the Acquiring Fund
under this Agreement shall include no assets which the Acquiring Fund may not
properly acquire.
8.11 The Form N-14 Registration Statement shall have become effective
under the 1933 Act and no stop order suspending such effectiveness shall have
been instituted or, to the knowledge of the Funds, contemplated by the SEC.
8.12 The parties shall have received: a memorandum, in form reasonably
satisfactory to each of them, prepared by counsel to the Acquiring Fund or
another person approved by the parties containing assurance reasonably
satisfactory to them that all authorizations and other approvals necessary under
state securities laws to consummate the transactions contemplated by this
Agreement have been obtained.
8.13 No action, suit, or other proceeding shall be threatened or
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
8.14 The SEC shall not have issued any unfavorable advisory report
under Section 25(b) of the 1940 Act nor instituted any proceeding seeking to
enjoin consummation of the transactions contemplated by this Agreement under
Section 25(c) of the 1940 Act.
8.15 Prior to the Closing Date, the Acquired Fund shall have declared a
dividend or dividends, which, together with all previous dividends, shall have
the effect of distributing to its shareholders all of its net investment company
income, if any, for each taxable period or year ending prior to the Closing Date
and for the periods from the end of each such taxable period or year to and
including the Closing Date (computed without regard to any deduction for
dividends paid), and all of its net capital gain, if any, realized in each
taxable period or year ending prior to the Closing Date and in the periods from
the end of each such taxable period or year to and including the Closing Date.
8.16 The Acquired Fund shall have furnished the Acquiring Fund at the
Closing Date with a certificate or certificates of any of its Vice Presidents
and/or Treasurer dated as of said date to the effect that: (a) the Acquired Fund
will tender for acquisition by the Acquiring Fund its assets consisting of at
least ninety percent (90%) of the fair market value of the Acquired Fund's net
assets and at least seventy percent (70%) of the fair market value of its gross
assets immediately prior to the Closing Date. For purposes of this
certification, all of the following shall be considered as assets of the
Acquired Fund held immediately prior to the Closing Date: (i) amounts used by
the Acquired Fund to pay its expenses in connection with the transactions
contemplated hereby or retained by the Acquired Fund to pay its liabilities; and
(ii) all amounts used to make redemptions of or distributions on the Acquired
Fund Shares (except for redemptions in the ordinary course of its business as
required by Section 22(e) of the 1940 Act pursuant to a demand for redemption by
an Acquired Fund Shareholder and not in connection with the Reorganization, and
distributions of net investment income and net capital gains in the ordinary
course to maintain its status and avoid Fund-level taxes); (b) the Acquired Fund
will distribute to Acquired Fund Shareholders in complete liquidation of the
Acquired Fund the Acquiring Fund Shares that it will receive in the transactions
contemplated hereby on or as promptly as practicable after the Closing Date and
in pursuance of the plan contemplated by this Agreement and having made such
distributions will take all necessary steps to liquidate and terminate the
Acquired Fund as a series of Corporation; and (c) with respect to the Acquired
Fund, there is no current plan or intention of any of its shareholders who own
five percent (5%) or more of the Acquired Fund Shares, and to the best of the
Acquired Fund's knowledge, there is no current plan or intention on the part of
the remaining shareholders of the Acquired Fund to sell, exchange, or otherwise
dispose of a number of shares of the Acquiring Fund received in the
Reorganization that would reduce the ownership of the Acquired Fund Shareholder
of Acquiring Fund Shares to a number of shares having a value, as of the Closing
Date, of less than fifty percent (50%) of the value of all of the formerly
outstanding Acquired Fund Shares as of the Closing Date. For purposes of this
certification, (i) Acquired Fund Shares surrendered by dissenters will be
treated as outstanding Acquired Fund Shares at the Closing Date; and (ii)
Acquired Fund Shares and the Acquiring Fund Shares held by Acquired Fund
Shareholders and otherwise sold, redeemed, or disposed of prior to or subsequent
to the Reorganization, will be taken into account, except for redemptions of
Acquired Fund Shares or Acquiring Fund Shares occurring in the ordinary course
of the respective business of the Funds as series of open-end investment
companies, as required by Section 22(e) of the 1940 Act, and not in connection
with the Reorganization.
<PAGE>
8.17 SCM, in its capacity as transfer agent for the Acquired Fund,
shall have furnished to the Acquiring Fund immediately prior to the Closing Date
a list of the names and addresses of the Acquired Fund Shareholders and the
number and percentage ownership of outstanding Acquired Fund Shares owned by
each such shareholder as of the close of regular trading on the NYSE on the
Closing Date, certified on behalf of the Acquired Fund by any of its Vice
Presidents.
8.18 At the Closing Date, the registration of the Acquired Fund with
the SEC as an investment company under the 1940 Act shall be in full force and
effect.
9. FINDER'S FEES AND OTHER EXPENSES
9.1 Each Fund represents and warrants to the other that there is no
person or entity entitled to receive any finder's fees or other similar fees or
commission payments in connection with the transactions provided for herein.
9.2 Each Fund shall be liable solely for its own expenses incurred in
connection with entering into and carrying out the transactions contemplated by
this Agreement, whether or not the transactions contemplated hereby are
consummated. Any such expenses that are so borne by each Fund shall be solely
and directly related to the Reorganization within the meaning of Revenue Ruling
73-54, 1973-1 C.B. 187.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Funds and Corporation agree that neither party has made any
representation, warranty, or covenant not set forth herein or referred to in
Sections 4 and 5 of this Agreement, and that this Agreement constitutes the
entire agreement between the Funds and supersedes any and all prior agreements,
arrangements, and undertakings relating to the matters provided for herein.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder for a
period of three years following the Closing Date. In the event of a breach by
the Acquired Fund of any such representation, warranty, or covenant, the
Acquired Fund, until the time of its liquidation and termination as a series of
the Corporation, and SCM jointly and severally shall be liable to the Acquiring
Fund for any such breach.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Funds. In addition, either Fund may at its option terminate this Agreement at or
prior to the Closing Date because of:
11.1(a) a material breach by the other Fund of any
representation, warranty, or agreement contained herein to be performed
at or prior to the Closing Date; or
11.1(b) a condition precedent to the obligations of either
Fund which the Corporation's Board of Directors determines has not been
met and which reasonably appears will not or cannot be met.
<PAGE>
11.1(c) a determination by the Board of Directors of the
Corporation that the Reorganization, either as a whole or with respect
to any Fund, will not be in the best interest of the Corporation, any
of Corporation's series, or its shareholders.
11.2 In the event of any such termination, there shall be no liability
for damages on the part of either Fund, or the Corporation's Boards of Directors
or officers, but each shall bear its expenses incidental to the preparation and
carrying out of this Agreement.
12. INDEMNIFICATION
12.1 The Acquiring Fund shall indemnify, defend, and hold harmless the
Acquired Fund, Corporation's Board of Directors, officers, trustees, employees,
and agents (collectively "Acquired Fund Indemnified Parties") against all
losses, claims, demands, liabilities, and expenses, including reasonable legal
and other expenses incurred in defending third party claims, actions, suits, or
proceedings, whether or not resulting in any liability to such Acquired Fund
Indemnified Parties and including amounts paid by any one or more of the
Acquired Fund Indemnified Parties in a compromise or settlement of any such
claim, action, suit, or proceeding, or threatened third party claim, suit,
action, or proceeding, made with the consent of the Acquiring Fund, arising from
any untrue statement or alleged untrue statement of a material fact contained in
the Form N-14 Registration Statement, as filed and in effect with the SEC, or
any exemptive application ("Application") prepared by the Acquiring Fund with
any regulatory agency in connection with the transactions contemplated by this
Agreement under the securities laws thereof; or which arises out of or is based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Acquiring Fund shall only be liable in such case to
the extent that any such loss, claim, demand, liability, or expense arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission about the Acquiring Fund or the transactions contemplated by
this Agreement made in the Form N-14 Registration Statement or any Application.
12.2 The Acquired Fund, until the time of its liquidation and
termination as a series of Corporation, and SCM on a joint and several basis
shall indemnify, defend, and hold harmless the Acquiring Fund, Corporation's
Board of Directors, officers, employees and agents ("Acquiring Fund Indemnified
Parties") against all losses, claims, demands, liabilities, and expenses,
including reasonable legal and other expenses incurred in defending third party
claims, actions, suits, or proceedings, whether or not resulting in any
liability to such Acquiring Fund Indemnified Parties and including amounts paid
by any one or more of the Acquiring Fund Indemnified Parties in a compromise or
settlement of any such claim, suit, action, or proceeding, made with the consent
of the Acquired Fund (if it still exists) or Strong Funds Distributors, Inc.
("SFD"), arising from any untrue statement or alleged untrue statement of a
material fact contained in the Form N-14 Registration Statement, as filed and in
effect with the SEC or any Application; or which arises out of or is based upon
any omission or alleged omission to state therein a material fact required to be
stated therein and necessary to make the statements therein not misleading;
provided, however, that the Acquired Fund and SFD shall only be liable in such
case to the extent that any such loss, claim, demand, liability, or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission about the Acquired Fund or about the
transactions contemplated by this Agreement made in the Form N-14 Registration
Statement or any Application.
<PAGE>
12.3 A party seeking indemnification hereunder is hereinafter called
the "indemnified party" and the party from whom the indemnified party is seeking
indemnification hereunder is hereinafter called the "indemnifying party." Each
indemnified party shall notify the indemnifying party in writing within ten (10)
days of the receipt by such indemnified party of any notice of legal process of
any suit brought against or claim made against such indemnified party as to any
matters covered by this Section, but the failure to notify the indemnifying
party shall not relieve the indemnifying party from any liability which it may
have to any indemnified party otherwise than under this Section. The
indemnifying party shall be entitled to participate at its own expense in the
defense of any claim, action, suit, or proceeding covered by this Section, or,
if it so elects, to assume at its own expense the defense thereof with
reasonably counsel satisfactory to the indemnified parties; provided, however,
if the defendants in any such action include both the indemnifying party and any
indemnified party and the indemnified party shall have reasonably concluded that
there may be legal defenses available to it which are different from or
additional to those available to the indemnifying party, the indemnified party
shall have the right to select separate counsel to assume such legal defense and
to otherwise participate in the defense of such action on behalf of such
indemnified party.
Upon receipt of notice from the indemnifying party to the indemnified
parties of the election by the indemnifying party to assume the defense of such
action, the indemnifying party shall not be liable to such indemnified parties
under this Section for any legal or other expenses subsequently incurred by such
indemnified parties in connection with the defense thereof unless (i) the
indemnified parties shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the provision of the immediately
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel), (ii)
the indemnifying party does not employ counsel reasonably satisfactory to the
indemnified parties to represent the indemnified parties within a reasonable
time after notice of commencement of the action, or (iii) the indemnifying party
has authorized the employment of counsel for the indemnified parties at its
expenses.
12.4 This Section shall survive the termination of this Agreement and
for a period of three (3) years following the Closing Date.
13. LIABILITY OF THE FUNDS
13.1 Each party acknowledges and agrees that: (a) all obligations of
the Acquiring Fund under this Agreement are binding only with respect to the
Acquiring Fund; (b) any liability of the Acquiring Fund under this Agreement or
in connection with the transactions contemplated herein shall be discharged only
out of the assets of the Acquiring Fund; and (c) no other series of the
Corporation shall be liable with respect to this Agreement or in connection with
the transactions contemplated herein.
Each party acknowledges and agrees that: (a) all obligations of the
Acquired Fund under this Agreement are binding only with respect to the Acquired
Fund; and (b) any liability of the Acquired Fund under this Agreement or in
connection with the transactions contemplated herein shall be discharged only
out of the assets of the Acquired Fund.
<PAGE>
14. AMENDMENTS
This Agreement may be amended, modified, or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of the
Funds; provided, however, that following the Special Meeting of Acquired Fund
Shareholders called by the Board of Directors of Corporation pursuant to Section
6.2 hereof, no such amendment may have the effect of changing the provisions for
determining the number of Acquiring Fund Shares to be issued to Acquired Fund
Shareholders under this Agreement to the detriment of such shareholders without
their further approval, provided that nothing contained in this Section 13 shall
be construed to prohibit the parties from amending this Agreement to change the
Closing Date or any other provision of this Agreement (to the fullest extent
permitted by law).
15. NOTICES
Any notice, report, statement, or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed to be
properly given when delivered personally or by telecopier to the party entitled
to receive the notice or when sent by certified or registered mail, postage
prepaid, or delivered to a recognized overnight courier service, in each case
properly addressed to the party entitled to receive such notice or communication
at 100 Heritage Reserve, Menomonee Falls, Wisconsin 53051, or such other address
as may hereafter be furnished in writing by notice similarly given by one party
to the other.
16. FAILURE TO ENFORCE
The failure of any party hereto to enforce at any time any of the
provisions of this Agreement shall in no way be construed to be a waiver of any
such provision, nor in any way to affect the validity of this Agreement or any
part hereof as the right of any party thereafter to enforce each and every such
provision. No waiver of any breach of this Agreement shall be held to be a
waiver of any other or subsequent breach.
17. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
17.1 The article and Section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
17.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
<PAGE>
17.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Wisconsin.
17.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm, or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
17.5 It is expressly understood and agreed that the obligations of the
Acquired Fund and the Acquiring Fund under this Agreement, including but not
limited to any liability as a result of the breach of any of their respective
representations and warranties, are not binding on their respective Board of
Directors, shareholders, nominees, officers, agents, or employees individually,
but bind only the respective assets of the Acquiring Fund and the Acquired Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its Vice President and its seal to be affixed
thereto and attested by its Secretary.
Attest: STRONG EQUITY FUNDS, INC. on behalf
of STRONG GROWTH FUND
____________________________ By:_________________________________
Attest: STRONG EQUITY FUNDS, INC. on behalf
of STRONG SMALL CAP FUND
____________________________ By:_________________________________
Strong Capital Management, Inc. hereby joins in this Agreement with
respect to and agrees to the matters described in Sections 10.2 and 12.2.
Attest: STRONG CAPITAL MANAGEMENT, INC.
____________________________ By:_________________________________
Strong Funds Distributors, Inc. hereby joins in this Agreement with
respect to and agrees to the matters described in Sections 12.2.
Attest: STRONG FUNDS DISTRIBUTORS, INC.
____________________________ By:_________________________________
<PAGE>
EXHIBIT B
ADVISOR'S INVESTMENT REVIEW OF THE FUNDS
THE STRONG GROWTH FUND
WHILE WE ARE CAUTIOUS OVER THE NEAR TERM, WE REMAIN BULLISH FOR THE LONG RUN.
The Strong Growth Fund seeks capital growth. The Fund invests primarily in
equity securities that the Fund's Advisor believes have above-average growth
prospects. The Fund is able to invest in any company regardless of size. For the
year ended December 31, 1997, the Strong Growth Fund generated a positive total
return of 19.05% by maintaining a primarily mid-to-small-cap portfolio of
promising growth stocks.
The S&P 500 Index,* a broad stock market index and benchmark, finished the year
with a 33.36% total return. We believe this difference in performance can be
primarily attributed to an investor preference for very large companies which
were not heavily represented in our portfolio. Illustrating the strength of
large caps is the fact that the average performance of the top 50 companies in
terms of market capitalization size in the S&P 500 was 35.29% for 1997 vs. the
average for the remaining 450 stocks which was only 19.7% for the year.
ASSET ALLOCATION
Based on net assets as of 12-31-97
Stocks 89.8%
Short-Term Investments 10.2%
TOP FIVE SECTORS
As of 12-31-97
Sector % of Net Assets
Technology 20.2%
Financial 14.9%
Healthcare 13.4%
Retail 12.6%
Consumer Cyclical 10.1%
Please see the Schedule of Investments in Securities for a complete listing of
the Fund's portfolio.
<PAGE>
GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 12-31-93 to 12-31-97
The Strong Growth Lipper Growth Funds
Fund S&P 500 Index* Index*
---- -------------- ------
12-93 10,000 10,000 10,000
12-94 11,727 10,132 9,843
12-95 16,535 13,940 13,057
12-96 19,763 17,140 15,339
12-97 23,528 22,859 19,645
This graph, prepared in accordance with SEC regulations, compares a
$10,000 investment in the Fund, made at its inception, with a similar investment
in the Standard & Poor's 500 Stock Index ("S&P 500") and the Lipper Growth Funds
Index. Results include the reinvestment of all dividends and capital gains
distributions. Performance is historical and does not represent future results.
Investment returns and principal value vary, and you may have a gain or loss
when you sell shares
AVERAGE ANNUAL TOTAL RETURNS
As of 12-31-97
1-Year 19.05%
3-Year 26.13%
Since Inception 23.85%
(on 12-31-93)
- -------------------------------------------------------------------------------
* The S& P 500 is an unmanaged index generally representative of the U.S.
stock market, without regard to company size. The Lipper Growth Funds Index
is an equally-weighted performance index of the largest qualifying funds in
this Lipper category. Source of the S&P index data is Standard & Poor's
Micropal. Source of the Lipper index data is Lipper Analytical Services,
Inc.
<PAGE>
SEEKING GROWTH OPPORTUNITIES IN A CHALLENGING MARKET
The strong performance of large-cap equities early in the year was followed by a
brief correction in March and early April, and then followed by a market rebound
to new highs in the second quarter. Even though large-cap stocks led this
rebound, there was a gradual broadening out to small- and mid-cap issues later
in the quarter which favored this Fund's portfolio.
Also, in the second quarter, when it appeared that the Fed would not raise
interest rates any further, we used our modest cash reserves and boosted the
Fund's weightings in higher-growth technology and health care stocks. We also
added to our current positions in retail and media stocks, which typically
benefit from high levels of employment and consumer confidence. At the same
time, we pared back our positions in financial stocks to their market weightings
after their big run-up in the first quarter.
The Strong Growth Fund narrowly outperformed the S&P 500 Index during the second
quarter with a quarterly return of 17.70% vs. 17.46%. And, as the broadening of
the market increased in the third quarter, the Fund's small- to mid-cap focus
continued to generate strong results. The specific sectors which did well--and
where the Fund was overweighted--were those of energy, technology, and consumer
cyclicals.
In October, the world's major markets were forced to deal with concerns over the
economies in Southeast Asia. Those concerns eventually halted the summer rally
in small- and mid-cap stocks, and money flowed into the perceived safety of U.S.
bonds and larger-cap stocks, such as utilities, telephones, drugs and consumer
staples. As a result, the S&P 500 Index had an up quarter, while small- and
mid-cap stocks, the Fund's primary focus, came under heavy selling pressure.
This led to the Fund's under performance in the fourth quarter.
FIVE LARGEST HOLDINGS
As of 12-31-97
<TABLE>
<S> <C> <C>
SECURITY INDUSTRY % OF NET ASSETS
Kohl's Corporation Retail-Department Store 2.3%
Cendant Corporation Retail-Specialty 2.3%
Chancellor Media Corporation Media-Radio/TV 2.0%
Travelers Group, Inc. Insurance-diversified 1.9%
Schlumberger, Ltd. Oil Well Equipment and Service 1.8%
</TABLE>
Please see the Schedule of Investments in Securities (in the Annual Report to
Shareholders) for a complete listing of the Fund's portfolio (as of 12-31-97).
<PAGE>
Specifically, while the Fund had previously sold its holdings in companies with
any significant Southeast Asian exposure early in the third quarter, the
portfolio was negatively impacted in the fourth quarter by the sell-off in most
of the technology and energy stocks. Overall, domestic-oriented groups, such as
media, regional banks, and retailers, were the top performers in the fourth
quarter.
A FOCUS ON FUNDAMENTALS GOING FORWARD
In our opinion, the market could remain in a set trading range over the next six
months until the full effects of the Asian crisis are understood, and we are
likely to see continued volatility in the meantime. Inflation and interest rates
should remain low as the economy and earnings show signs of slowing, and should
produce a better climate for investing in companies with solid assured earnings
growth.
Therefore, we will continue to pay strict attention to the fundamentals and
valuations of the companies in which we invest. While we are cautious over the
near term, we remain bullish for the long run. As always, it is our belief that
outstanding companies with superior earnings and revenue growth will outperform
the market over time.
Thank you for your investment in the Strong Growth Fund. We appreciate the
opportunity to serve you, and look forward to helping you pursue your important
financial goals in the years ahead.
Sincerely,
/s/ Ronald C. Ognar
Ronald C. Ognar
Portfolio Manager
<PAGE>
EXHIBIT C
FORM OF AMENDMENT
TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
STRONG EQUITY FUNDS, INC.
The undersigned Secretary of Strong Equity Funds, Inc. (the
"Corporation"), hereby certifies that, in accordance with Section 180.1003 of
the Wisconsin Statutes, the following Amendment was duly adopted by the Board of
Directors of the Corporation on July 24, 1998 and approved by the shareholders
of Strong Small Cap Fund, a class of Common Stock of the Corporation, on October
29, 1998 in order to eliminate the Strong Small Cap Fund as a series of the
Corporation in connection with a reorganization effected pursuant to the terms
of the Agreement and Plan of Reorganization, attached hereto as Exhibit A (the
"Agreement") between the Corporation, on behalf of Strong Small Cap Fund, and
the Corporation, on behalf of Strong Growth Fund, another class of Common Stock
of the Corporation:
1. 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 Authorized Number of Shares
----- ---------------------------
Strong Growth Fund Indefinite
Strong Value Fund Indefinite
Strong Mid Cap Fund Indefinite
Strong Index 500 Fund Indefinite
Strong Growth 20 Fund Indefinite
Strong Small Cap Value Fund Indefinite
Strong Dow 30 Value Fund Indefinite
Strong Strategic Growth Fund Indefinite
2. Article IV is hereby amended by adding a new Paragraph,
labeled Paragraph J, and inserting the following language:
"J. On the Closing Date (as defined in the Agreement) of the
reorganization involving Strong Small Cap Fund and Strong Growth Fund, each
outstanding share of Strong Small Cap Fund shall be deemed canceled and restored
to the status of authorized but unissued shares of the Corporation, and shall be
automatically converted into the right to receive shares of Strong Growth Fund
in accordance with the terms of the Agreement. Certificates representing shares
of Strong Small Cap Fund shall be surrendered at the time and in the manner set
forth in the Agreement. Any such certificates that remain outstanding on the
Closing Date shall be deemed to be automatically canceled, and shares
represented by such certificates shall be restored to the status of authorized
but unissued shares, and shall be automatically converted as noted above."
3. The Amendment herein certified shall become effective on
the date it is received for filing by the Department of Financial Institutions.
Executed in duplicate this 30th day of October, 1998.
STRONG EQUITY FUNDS, INC.
By: ________________________
Stephen J. Shenkenberg
This instrument was drafted by:
John S. Weitzer
Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, WI 53202
