As filed with the Securities and Exchange Commission on or about April 30, 1999
Securities Act Registration No. 33-70764
Investment Company Act Registration No. 811-8100
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 28 [ X ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 29 [ X ]
(Check appropriate box or boxes)
STRONG EQUITY FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (414) 359-3400
Thomas P. Lemke
Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box).
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ X ] on July 1, 1999 pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
This Post-Effective Amendment to the Registration Statement of Strong Equity
Funds, Inc., which is currently comprised of eleven funds, relates only to the
Strong Index 500 Fund which is being updated through this Amendment. This
Post-Effective Amendment does not relate to, amend, supersede, or otherwise
affect the separate Prospectuses and Statements of Additional Information
contained in Post-Effective Amendments No. 21 and 27.
1
<PAGE>
THE STRONG INDEX 500 FUND
PROSPECTUS JULY 1, 1999
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANYONE WHO INFORMS YOU OTHERWISE IS COMMITTING A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
YOUR INVESTMENT
Key Information
What are the fund's goals?
What are the fund's principal investment strategies?
What are the main risks of investing in the fund?
What are the fund's fees and expenses?
Who is the fund's investment advisor?
Other Important Information You Should Know
A further discussion of the fund's investment objective and strategies
A further discussion of risk
Master/Feeder Mutual Fund Structure
Financial Highlights
Your Account
Share Price
Buying Shares
Selling Shares
Additional Policies
Distributions
Taxes
Services For Investors
Reserved Rights
For More Information Back Cover
IN THIS PROSPECTUS, "WE" REFERS TO STRONG CAPITAL MANAGEMENT, INC., THE
TRANSFER AGENT FOR THE STRONG INDEX 500 FUND.
YOUR INVESTMENT
KEY INFORMATION
WHAT ARE THE FUND'S GOALS?
The Strong Index 500 Fund seeks to approximate as closely as practicable,
before fees and expenses, the capitalization-weighted total rate of
return of that portion of the U.S. market for publicly traded common
stocks composed of the larger capitalized companies. The fund invests
all of its assets in a separate mutual fund, called the S&P 500 Index
Master Portfolio (Master Portfolio) of the Master Investment Portfolio,
that has a substantially similar investment objective. For simplicity's
sake, all discussion of the fund's investment objectives, strategies,
and risks refers also to the Master Portfolio's objectives, strategies,
and risks, unless otherwise indicated.
The fund invests all of its assets in the Master Portfolio. The Master
Portfolio holds each of the stocks that make up the S&P 500 COMPOSITE
INDEX* (THE S&P 500 INDEX) which is a widely used measure of large
U.S.-company stock performance. It consists of the common stocks of
500 major corporations selected according to:
- - their size
- - the frequency and ease by which their stocks trade
- - the range and diversity of the American economy
The stocks in the S&P 500 account for nearly three-quarters of the
value of all U.S. stock.
((Side Box))
In a CAPITALIZATION-WEIGHTED TOTAL RATE OF RETURN, each stock
contributes to the index in the same proportion as the value of
its shares in the index. Thus, if the shares of Company A are worth
twice as much as the shares of Company B, A's return will count twice
as much as B's in calculating the index's overall return. This method
contrasts with EQUAL WEIGHTED RETURN, by which A's performance and B's
performance and the performance of every other stock in the index would
count the same even though the companies percentage of the index differ.
*S&P does not sponsor, endorse, sell, or promote the fund or the Master
Portfolio, nor is it affiliated in any way with Barclays Global Fund
Advisors, the Master Portfolio's investment advisor, the fund, or its
Master Portfolio. "Standard & Poor's(R)," "S&P (R)", and "S&P 500(R)"
are trademarks of McGraw-Hill, Inc, and have been licensed for use by
the fund and its Master Portfolio. S&P makes no representation or
warranty, expressed or implied, regarding the advisability of investing
in the fund or the Master Portfolio.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
The fund invests all of its assets in the Master Portfolio. The Master
Portfolio and the fund pursue their goal by:
- -investing in all the securities that make up the S&P 500 Index
- -investing in these securities in proportions that match the weightings of
the S&P 500 Index
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
GENERAL STOCK RISKS: The major risks of the fund are those of investing in
the stock market. That means the fund may experience sudden, unpredictable
declines in value, as well as periods of poor performance. Because stock
values go up and down, the value of your fund's shares may go up and down.
Therefore, when you sell your investment, you may receive more or less
money than you originally invested.
The fund is appropriate for investors who are comfortable with the risks
described here and whose financial goals are five or more years in the
future. The fund is not appropriate for investors concerned primarily
with principal stability.
The return information below gives some indication of the risks of investing
in the fund by comparing the fund's performance with a broad measure of
market performance. Please keep in mind that the fund's past performance
does not represent how it will perform in the future. The information
assumes that you reinvested all dividends and distributions.
CALENDAR YEAR TOTAL RETURNS
1998
28.1%
BEST AND WORST QUARTERLY PERFORMANCE
(DURING THE PERIOD SHOWN ABOVE)
BEST QUARTER RETURN: 21.2% (4th Q 1998)
WORST QUARTER RETURN: -10.0% (3rd Q 1998)
AVERAGE ANNUAL TOTAL RETURNS
AS OF 12-31-98
FUND/INDEX 1-YEAR SINCE INCEPTION
INDEX 500 FUND 28.11% 31.09% (5-1-97)
S&P 500 Stock Index 28.58% 31.60%
S&P 500 STOCK INDEX IS THE STANDARD & POOR'S 500 STOCK INDEX WHICH IS AN
UNMANAGED INDEX GENERALLY REPRESENTATIVE OF THE U.S. STOCK MARKET.
WHAT ARE THE FUND'S FEES AND EXPENSES?
This section describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
The fund is 100% no-load, so you pay no sales charges (loads) to buy or sell
shares. Shares of the fund held for less than six months are subject to a
redemption fee of 0.50%. Redemption fees are paid directly into fund assets
to help cover the costs generated by short-term trading.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets)
The costs of operating the fund are deducted from fund assets, which means
you pay them indirectly. These costs are deducted before computing the daily
share price or making distributions. As a result, they don't appear on your
account statement, but instead reduce the total return you receive from
your fund investment.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENT OF AVERAGE NET ASSETS)
Management Fees 0.05%
Shareholder Servicing Fee 0.25%
Other Expenses ___%
TOTAL ANNUAL FUND
OPERATING EXPENSES ___%*
Fee Waivers and/or Expense Absorptions ___%
NET FUND EXPENSES 0.45%**
* NET FUND EXPENSES INCLUDES THE FUND'S AND THE MASTER PORTFOLIO'S EXPENSES.
**WE HAVE CONTRACTUALLY AGREED TO WAIVE OUR MANAGEMENT FEES AND ABSORB
EXPENSES UNTIL JANUARY 1, 2000 TO KEEP THE FUND'S TOTAL EXPENSES AT 0.45%.
EXAMPLE: This example is intended to help you compare the cost of investing
in the fund, before fee waivers and expense absorptions, with the cost of
investing in other mutual funds. The example assumes that you invest $10,000
in the fund for the time periods indicated, and then redeem all of your
shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based
on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$ ____ $ ____ $ ____ $ ___
WHO IS THE FUND'S INVESTMENT ADVISOR?
The fund does not have its own investment advisor. Instead, the fund
invests all of its assets in a separate mutual fund, called the S&P
500 Index Master Portfolio (Master Portfolio) of the Master Investment
Portfolio. Barclays Global Fund Advisors (BGFA) serves as investment
advisor for the Master Portfolio.
BGFA provides investment guidance and policy direction in connection with
the management of the Master Portfolio's assets. It makes the day-to-day
decisions on buying and selling securities for the Master Portfolio and
conducts the research leading to those decisions. BGFA is located at 45
Fremont Street, San Francisco, California 94105. It is a wholly owned
subsidiary of Barclays Global Investors, N.A., which in turn is an indirect
subsidiary of Barclays Bank PLC. Barclays Global Investors is the world's
largest manager of institutional investment assets. As of December 31, 1998,
Barclays Global Investors and its affiliates, including BGFA, provided
investment advisory services for assets worth $650 billion. Barclays Global
Investors, BGFA, Barclays Bank and their affiliates deal, trade and invest
for their own accounts in the types of securities in which the Master
Portfolio may also invest.
Unlike many traditional active investment funds, there is no single portfolio
manager who makes investment decisions for the Master Portfolio. Instead,
the Master Portfolio tracks the S&P 500 Index. The process reflects BGFA's
commitment to an objective and consistent investment management structure.
ADMINISTRATIVE SERVICES
The Master Portfolio's co-administrators, Barclays Global Investors and
Stephens Inc., a full service broker/dealer, provide services related to:
- - management of the Master Portfolio's non-investment operations
- - preparation of reports for the Master Portfolio's Board of Directors
- - preparation of required reports for the SEC and required filings with
state securities commissions
- - preparation of proxy statements and shareholder reports
((Side Box))
YEAR 2000 ISSUES
Your investment could be adversely affected if the computer systems used by the
fund, Strong, BGFA, and the fund's service providers do not properly process and
calculate date-related information before, on, and after January 1, 2000. Year
2000-related computer problems could have a negative impact on your fund and the
fund's investments, however, we are working to avoid these problems and to
obtain assurances from our service providers that they are taking similar steps.
OTHER IMPORTANT INFORMATION YOU SHOULD KNOW
A FURTHER DISCUSSION OF THE FUND'S INVESTMENT OBJECTIVE AND STRATEGIES.
The fund seeks to achieve its investment objective by investing all of its
assets in the Master Portfolio. The Master Portfolio seeks to come within
95% of S&P 500 Index's total return, before fees and expenses, in falling
as well as rising markets. It does not seek to "beat" the markets it tracks.
BGFA, the Master Portfolio's investment advisor, makes no attempt to apply
economic, financial or market analysis when managing the portfolio. It
selects securities because they will help the Master Portfolio achieve
returns corresponding to index returns. Including a security among the
Master Portfolio's holdings implies no opinion as to its attractiveness
as an investment.
INVESTING IN INDEXES
Investors look to indexes as the standard of performance, but they cannot
own them. Indexes are model portfolios, groups of stocks or bonds selected
to represent not actual securities but an entire market. One way an index
fund can seek to match an index's performance, before fees and expenses,
is through buying all the index's securities in the same proportion as
they are reflected in the index. This is what the Master Portfolio does
with regard to the S&P 500 Index.
INVESTING IN FUTURES AND OPTIONS
The Master Portfolio may invest in index futures contracts and options
on futures contracts. This tactic can reduce the costs associated with
direct investing. It also allows the Master Portfolio to approach the
returns of a fully invested portfolio while keeping cash on hand, either
in anticipation of shareholder redemptions or because it has not yet
invested new shareholder money.
((Side Box))
INDEX FUTURES CONTRACTS are contracts to pay a fixed amount for each
point change in a particular market index between the purchase date
and the agreed-upon delivery date. The seller never actually
delivers "shares" of the index or shares of all the stocks in the index.
Instead, the buyer and the seller settle the difference in cash between
the contract price and the market price on the agreed-upon date-the buyer
paying the difference if the actual price is lower than the contract price
and the seller paying the difference if the actual price is higher.
Unlike futures, which obligate both buyer and seller, OPTIONS obligate
only one of the parties to the transaction, either the buyer or the
seller. They grant the other party a right, for a price, either to buy
or sell a security, an index, or a futures contract at a fixed sum any
time up to an agreed-upon expiration date.
A FURTHER DISCUSSION OF RISK
DERIVATIVES
Index futures contracts and options on index futures contracts are
generally considered derivatives-they derive their value from the
prices of the indexes. The floating rate or variable rate bonds that
the Master Portfolio may purchase are also considered derivatives.
Compared to conventional securities, derivatives can be more sensitive
to changes in interest rates or to sudden fluctuations in market prices.
The Master Portfolio offsets this exposure to increased loss with bank
deposits or money market investments, stable holdings that offset the
potential volatility of their derivative investments, as required by the SEC.
MASTER/FEEDER MUTUAL FUND STRUCTURE
The fund does not have its own investment advisor. Instead, the fund
invests all of its assets in a separate mutual fund, called the S&P 500
Index Master Portfolio of the Master Investment Portfolio, that has a
substantially similar investment objective as the fund. BGFA serves as
investment advisor for the Master Portfolio. The Master Portfolio may
accept investments from other feeder funds.
FEEDER FUND EXPENSES
The feeders bear the Master Portfolio's expenses in proportion to the amount
of assets each invests in the Portfolio. Each feeder can set its own
transaction minimums, fund-specific expenses and conditions.
FEEDER FUND RIGHTS
Under the master/feeder structure, the fund's Board of Directors retains the
right to withdraw the fund's assets from the Master Portfolio if it believes
doing so is in shareholders' best interests. If the Directors withdraw the
fund's assets, they would then consider whether the fund should hire its own
investment adviser, invest in another master portfolio or take other action.
FINANCIAL HIGHLIGHTS
This information describes investment performance for the periods shown.
Certain information reflects financial results for a single fund share.
"Total Return" shows how much your investment in the fund would have
increased (or decreased) during each period, assuming you had reinvested
all dividends and distributions. These figures have been audited by KPMG
Peat Marwick LLP, whose report, along with the fund's financial statements,
is included in the fund's annual report.
<<Financial Highlights>>
YOUR ACCOUNT
All of the Strong Funds are 100% no-load. This means that you may purchase,
redeem, or exchange shares directly at their net asset value without paying
a sales charge.
SHARE PRICE
Your transaction price for buying, selling, or exchanging shares is the next
net asset value per share (NAV) calculated after we accept your order. We
calculate the NAV of the fund based on the value of the NAV of the Master
Portfolio's shares. Both are calculated on the same day.
((Side Box))
We determine a fund's share price or NAV by dividing net assets (the value
of its investments, cash, and other assets minus its liabilities) by the
number of shares outstanding.
The Master Portfolio calculates its share-price in accordance with the
standard formula for valuing mutual fund shares at the close of regular
trading (normally 3 p.m. Central time) every day the New York Stock
Exchange is open. The formula calls for deducting all of the Master
Portfolio's liabilities from the total value of its assets-the market
value of the securities it holds, plus cash reserves-and dividing the
result by the number of shares outstanding. Most of the securities in
the Master Portfolio are valued at their current market prices. If such
prices are not readily available, the securities' fair value is estimated
in accordance with guidelines approved by the Master Portfolio's Board of
Trustees. Bonds and notes with remaining maturities of 60 days or less are
valued according to the amortized cost method.
((Side Box))
The AMORTIZED COST METHOD marks down any premium on short-term debt that
the Master Portfolio buys, or marks up any discount, at a constant rate
until maturity. It does not reflect daily fluctuations in market value.
BUYING SHARES
INVESTMENT MINIMUMS: When buying shares, you must meet the following
investment minimum requirements.
INITIAL INVESTMENT MINIMUM ADDITIONAL INVESTMENT MINIMUM
Regular accounts $2,500 $50
Education IRA $500 $50
accounts
Other IRAs and $250 $50
UGMA/UTMA accounts
SIMPLE IRA, SEP-IRA, the lesser of $50
403(b)(7), Keogh, $250 or $25
Pension Plan, and per month
Profit Sharing Plan
accounts
PLEASE REMEMBER ...
- - If you use an Automatic Investment Plan, we waive the initial investment
minimum to open an account and the additional investment minimum is $50.
- - You cannot use an Automatic Investment Plan with an Education IRA.
- - If you open a qualified retirement plan account where we or one of our
alliance partners provides administrative services, there is no initial
investment minimum.
BUYING INSTRUCTIONS
You can buy shares in several ways.
MAIL
You can open or add to an account by mail with a check or money order made
payable to Strong Funds. Send it to the address listed on the back of this
prospectus, along with your account application (for a new account) or an
additional Investment Form (for an existing account).
TELEPHONE EXCHANGE
Sign up for telephone exchange privileges when you open your account. To
add this option to an existing account, call 1-800-368-3863 for a
Shareholder Account Options Form. Once you establish telephone exchange
privileges, you can call to open a new account or to add to an existing
one by exchanging shares from another identically registered Strong Funds
account.
((Side Box))
Questions?
Call 1-800-368-3863
24 hours a day
7 days a week
TELEPHONE PURCHASE
You can make additional investments to your existing account directly from
your bank account. If you didn't establish this option when you opened
your account, call us at 1-800-368-3863 for a Shareholder Account Options Form.
STRONG DIRECT(R)
You can use Strong Direct(R) to add to your investment from your bank
account or to exchange shares between Strong Funds by calling 1-800-368-7550.
See "Services for Investors" for more information.
STRONG NETDIRECT(R)
You can use Strong netDirect(R) at our web site, WWW.STRONGFUNDS.COM, to add
to your investment from your bank account or to exchange shares between
Strong Funds. See "Services for Investors" for more information.
INVESTOR CENTER
You can visit our Investor Center in Menomonee Falls, Wisconsin, near
Milwaukee. Call 1-800-368-3863 for hours and directions. The Investor
Center only accepts checks or money orders payable to Strong Funds.
It does not accept cash or third-party checks.
WIRE
Call 1-800-368-3863 for instructions before wiring funds either to open
or add to an account. This helps to ensure that your account will be
credited promptly and correctly.
AUTOMATIC INVESTMENT SERVICES
See "Services for Investors" for detailed information on all of our
automatic investment services. You can sign up for these plans when
you open your account or call 1-800-368-3863 for instructions on how
to add them.
BROKER-DEALER
You may purchase shares through a broker-dealer or other intermediary
who may charge you a fee.
PLEASE REMEMBER . . .
- - Make checks or money orders payable to Strong Funds.
- - We do not accept cash, third-party checks (checks payable to you
written by another party), credit card convenience checks, or checks
drawn on banks outside the U.S.
- - You will be charged $20 for every check, money order, wire, or
Electronic Funds Transfer returned unpaid.
SELLING SHARES
You can access the money in your account by selling (also called
redeeming) some or all of your shares by one of the methods below.
After your redemption request is accepted, we normally send you the
proceeds on the next business day.
SELLING INSTRUCTIONS
You can sell shares in several ways.
MAIL
Write a letter of instruction. It should specify your account number,
the dollar amount or number of shares you wish to redeem, the names and
signatures of the owners (or other authorized persons), and your mailing
address. Then, mail it to the address listed on the back of this prospectus.
TELEPHONE REDEMPTION
Sign up for telephone redemption privileges when you open your account or add
it later by calling 1-800-368-3863 to request a Shareholder Account Options
Form. With this option, you may sell shares by phone and receive the proceeds
in one of three ways:
(1)We can mail a check to your account's address. Checks will not be
forwarded by the Postal Service, so please notify us if your address has
changed.
(2)We can transmit the proceeds by Electronic Funds Transfer to a properly
pre-authorized bank account. The proceeds usually will arrive at your bank
two banking days after we process your redemption.
(3)For a $10 fee, we can transmit the proceeds by wire to a properly
pre-authorized bank account. The proceeds usually will arrive at your
bank the first banking day after we process your redemption.
STRONG DIRECT(R)
You can redeem shares through Strong Direct(R) at 1-800-368-7550. See
"Services for Investors" for more information.
STRONG NETDIRECT(R)
You can use Strong netDirect(R) at our web site, WWW.STRONGFUNDS.COM,
to redeem shares. See "Services for Investors" for more information.
INVESTOR CENTER
You can visit our Investor Center in Menomonee Falls, Wisconsin, near
Milwaukee. Call 1-800-368-3863 for hours and directions.
AUTOMATIC INVESTMENT SERVICES
You can set up automatic withdrawals from your account at regular intervals.
See "Services for Investors" for information on all of our automatic
investment services.
BROKER-DEALER
You may sell shares through a broker-dealer or other intermediary who may
charge you a fee.
PLEASE REMEMBER ...
- - If you recently purchased shares, a redemption request on those shares will
not be honored until 10 days after we receive the purchase check or electronic
transaction.
- - Some transactions and requests require a signature guarantee.
- - If you are selling shares you hold in certificate form, you must submit the
certificates with your redemption request. Each registered owner must sign
the certificates and all signatures must be guaranteed.
- - With an IRA (or other retirement account), you will be charged (1) a $10
annual account maintenance fee for each account up to a maximum of $30 and
(2) a $10 fee for transferring assets to another custodian or for closing an
account.
- - If you sell shares out of a non-IRA retirement account and you are eligible
to roll the sale proceeds into another retirement plan, we will withhold for
federal income tax purposes a portion of the sale proceeds unless you
transfer all of the proceeds to an eligible retirement plan.
((Side Box))
There may be special distribution requirements that apply to retirement
accounts. For instructions on
- - Roth and Traditional IRA accounts, call
1-800-368-3863, and
- - SIMPLE IRA, SEP-IRA , 403(b)(7), Keogh, Pension Plan, Profit Sharing
Plan, or 401(k) Plan accounts, call 1-800-368-2882.
((Side Box))
SIGNATURE GUARANTEES help ensure that major transactions or changes to
your account are in fact authorized by you. For example, we require a
signature guarantee on written redemption requests for more than $50,000.
You can obtain a signature guarantee for a nominal fee from most banks,
brokerage firms, and other financial institutions. A notary public stamp
or seal cannot be substituted for a signature guarantee.
ADDITIONAL POLICIES
TELEPHONE TRANSACTIONS
Once you place a telephone transaction request, it cannot be canceled or
modified. We use reasonable procedures to confirm that telephone transaction
requests are genuine. We may be responsible if we do not follow these
procedures. You are responsible for losses resulting from fraudulent or
unauthorized instructions received over the telephone, provided we reasonably
believe the instructions were genuine. During times of unusual market activity,
our phones may be busy and you may experience a delay placing a telephone
request. During these times, consider trying Strong Direct(R), our 24-hour
automated telephone system, by calling 1-800-368-7550, or Strong netDirect(R),
our on-line transaction center, by visiting WWW.STRONGFUNDS.COM. Please
remember that you must have telephone redemption as an option on your account
to redeem shares through Strong Direct(R) or Strong netDirect(R).
INVESTING THROUGH A THIRD PARTY
If you invest through a third party (rather than directly with Strong Funds),
the policies and fees may be different than described in this prospectus.
Banks, brokers, 401(k) plans, financial advisors, and financial supermarkets
may charge transaction fees and may set different minimum investments or
limitations on buying or selling shares. Consult a representative of your
plan or financial institution if you are not sure.
EARLY REDEMPTION FEE
The fund can experience substantial price fluctuations and is intended for
long-term investors. Short-term "market timers" (those who engage in frequent
purchases and redemptions) can disrupt a mutual fund's investment program and
create additional transaction costs that are borne by all shareholders.
For these reasons, the fund assesses a 0.50% fee on redemptions
(including exchanges) of fund shares held for less than six months.
Early redemption fees will be paid to the fund to help offset transaction
costs. The fund will use the "first-in, first-out" (FIFO) method to determine
the six-month holding period.
DISTRIBUTIONS
DISTRIBUTION POLICY
The fund generally pays you dividends from net investment income and
distributes any net capital gains that it realizes annually.
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Your dividends and capital gain distributions will be automatically
reinvested in additional shares of the fund, unless you choose otherwise.
Your other options are to receive checks for these payments, have them
automatically invested in another Strong Fund, or have them deposited into
your bank account.
TAXES
TAXABLE DISTRIBUTIONS
Any net investment income and net short-term capital gain distributions you
receive are taxable as ordinary dividend income at your income tax rate.
Distributions of net capital gains are generally taxable as long-term capital
gains. This is generally true no matter how long you have owned your shares
and whether you reinvest your distributions or take them in cash. You may
also have to pay taxes when you exchange or sell shares if your shares have
increased in value since you bought them.
((Side Box))
Generally, if your investment is in a traditional IRA or other TAX-DEFERRED
ACCOUNT, your dividends and distributions will not be taxed at the time they
are paid, but instead at the time you withdraw them from your account.
RETURN OF CAPITAL
If your fund's (1) income distributions exceed its net investment income
and net short-term capital gains or (2) capital gain distributions exceed
its net capital gains in any year, all or a portion of those distributions
may be treated as a return of capital to you. Although a return of capital
is not taxed, it will reduce the cost basis of your shares.
YEAR-END STATEMENT
To assist you in tax preparation, after the end of each calendar year, we
send you a statement of your fund's ordinary dividends and net capital
gain distributions (Form 1099).
BACKUP WITHHOLDING
By law, we must withhold 31% of your distributions and proceeds if (1)
you are subject to backup withholding or (2) you have not provided us
with complete and correct taxpayer information such as your Social
Security Number (SSN) or Tax Identification Number (TIN).
((Side Box))
Unless your investment is in a tax-deferred retirement account such as an
IRA, YOU MAY WANT TO AVOID:
- - Investing a large amount in a fund close to the end of the calendar year.
If the fund makes a capital gains distribution, you may receive some of
your investment back as a taxable distribution.
- - Selling shares of a mutual fund at a loss and then investing in the
same fund within 30 days before or after the sale. This is called a
wash sale and you will not be allowed to claim a tax loss on the transaction.
((Side Box))
COST BASIS is the amount that you paid for the shares. When you sell shares,
you subtract the cost basis from the sale proceeds to determine whether you
realized an investment gain or loss. For example, if you bought a share
of a fund at $10 and you sold it two years later at $11, your cost basis
on the share is $10 and your gain is $1.
Because everyone's tax situation is unique, you should consult your tax
professional for assistance.
SERVICES FOR INVESTORS
Strong provides you with a variety of services to help you manage your
investment. For more details, call 1-800-368-3863, 24 hours a day, 7 days
a week. These services include:
STRONG DIRECT (R) AUTOMATED TELEPHONE SYSTEM
Our 24-hour automated response system enables you to use a touch-tone
phone to access current share prices (1-800-368-3550), to access fund
and account information (1-800-368-5550), and to make purchases, exchanges,
or redemptions among your existing accounts if you have elected these
services (1-800-368-7550). Passwords help to protect your account information.
STRONG ON-LINE
Visit us on-line at WWW.STRONGFUNDS.COM to access your fund's performance
and portfolio holding information. In addition to general information
about investing, Strong On-line offers daily performance information,
portfolio manager commentaries, and information on available account options.
STRONGMAIL
If you register for StrongMail at WWW.STRONGMAIL.COM, you will receive
your fund's closing price by e-mail each business day. In addition,
StrongMail offers market news and updates throughout the day.
STRONG NETDIRECT(R)
If you are a shareholder, you may use netDirect(R) to access your
account information 24 hours a day from your personal computer.
Strong netDirect(R) allows you to view account history, account balances,
and recent dividend activity, as well as to make purchases, exchanges, or
redemptions among your existing accounts if you have elected these services.
Encryption technology and passwords help to protect your account information.
You may register to use netDirect(R) at WWW.STRONGFUNDS.COM.
STRONG EXCHANGE PRIVILEGE
You may exchange shares of a Strong Fund for shares of another Strong Fund,
either in writing, by telephone, or through your personal computer, if the
accounts are identically registered (with the same name, address, and taxpayer
identification number). Please ask us for the appropriate prospectus and read
it before investing in any of the Strong Funds. Remember, an exchange is
considered a sale and a purchase of fund shares for tax purposes and may result
in a capital gain or loss. Some Strong Funds that you may want to exchange into
may charge a redemption fee of 0.50% to 1.00% on the sale of shares held for
less than six months.
STRONG AUTOMATIC INVESTMENT SERVICES
You may invest or redeem automatically in the following ways, some of which
may be subject to additional restrictions or conditions.
AUTOMATIC INVESTMENT PLAN (AIP)
This plan allows you to make regular, automatic investments from your bank
checking or savings account.
AUTOMATIC EXCHANGE PLAN
This plan allows you to make regular, automatic exchanges from one eligible
Strong Fund to another.
AUTOMATIC DIVIDEND REINVESTMENT
Your dividends and capital gains will be automatically reinvested in additional
shares of the Strong Fund that paid them, unless you choose otherwise. Your
other options are to receive checks for these payments, have them automatically
invested in another Strong Fund, or have them deposited into your bank account.
NO-MINIMUM INVESTMENT PLAN
This plan allows you to invest without meeting the minimum initial investment
requirements if you invest monthly and you participate in the AIP, Automatic
Exchange Plan, or Payroll Direct Deposit Plan.
PAYROLL DIRECT DEPOSIT PLAN
This plan allows you to send all or a portion of your paycheck, social security
check, military allotment, or annuity payment to the Strong Funds of your
choice.
SYSTEMATIC WITHDRAWAL PLAN
This plan allows you to redeem a fixed sum from your account on a regular basis.
Payments may be sent electronically to a bank account or as a check to you or
anyone you properly designate.
STRONG RETIREMENT PLAN SERVICES
We offer a wide variety of retirement plans for individuals and institutions,
including large and small businesses. For information on:
* INDIVIDUAL RETIREMENT PLANS, including Traditional IRAs and Roth IRAs,
call 1-800-368-3863.
* QUALIFIED RETIREMENT PLANS, including SIMPLE IRAs, SEP-IRAs,
403(b)(7)s, Keoghs, Pension Plans, Profit Sharing Plans, and 401(k)
Plans, call 1-800-368-2882.
SOME OF THESE SERVICES MAY BE SUBJECT TO ADDITIONAL RESTRICTIONS
OR CONDITIONS. CALL 1-800-368-3863 FOR MORE INFORMATION.
RESERVED RIGHTS
We reserve the right to:
- - Refuse, change, discontinue, or temporarily suspend account services,
including purchase, exchange, or telephone and netDirect(R) redemption
privileges, for any reason.
- - Reject any purchase request for any reason including exchanges from
other Strong Funds. Generally, we do this if the purchase or exchange
is disruptive to the efficient management of a fund (due to the timing
of the investment or an investor's history of excessive trading).
- - Change the minimum or maximum investment amounts.
- - Delay sending out redemption proceeds for up to seven days (this
generally only applies to very large redemptions without notice,
excessive trading, or during unusual market conditions).
- - Suspend redemptions or postpone payments when the NYSE is
closed for any reason other than its usual weekend or holiday
closings, when trading is restricted by the SEC, or under any
emergency circumstances.
- - Make a redemption-in-kind (a payment in portfolio securities rather
than cash) if the amount you are redeeming is in excess of the lesser of
1) $250,000 or (2) 1% of the fund's assets. Generally, redemption-in-kind
is used when large redemption requests may cause harm to the fund and its
shareholders.
- - Close any account that does not meet minimum investment requirements.
We will give you notice and 60 days to begin an automatic investment program
or to increase your balance to the required minimum.
- - Reject any purchase or redemption request that does not contain all
required documentation.
FOR MORE INFORMATION
More information is available upon request at no charge, including:
SHAREHOLDER REPORTS: Additional information is available in the annual
and semi-annual report to shareholders. These reports contain a letter
from management, discuss recent market conditions, economic trends and
investment strategies that significantly affected your investment's
performance during the last fiscal year, and list portfolio holdings.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI contains more details
about investment policies and techniques. A current SAI is on file with the
SEC and is incorporated into this prospectus by reference. This means that
the SAI is legally considered a part of this prospectus even though it is
not physically contained within this prospectus.
To request information or to ask questions:
BY TELEPHONE FOR HEARING-IMPAIRED (TDD)
(414) 359-1400 or (800) 368-3863 (800) 999-2780
BY MAIL BY OVERNIGHT DELIVERY
Strong Funds Strong Funds
P.O. Box 2936 900 Heritage Reserve
Milwaukee, Wisconsin 53201-2936 Menomonee Falls, Wisconsin 53051
ON THE INTERNET BY E-MAIL
VIEW ONLINE OR DOWNLOAD DOCUMENTS: [email protected]
Strong Funds: WWW.STRONGFUNDS.COM
SEC*: www.sec.gov
To reduce the volume of mail you receive, only one copy of most financial
reports and prospectuses is mailed to your household. Call 1-800-368-3863
if you wish to receive additional copies, free of charge.
This prospectus is not an offer to sell securities in any place where it
would be illegal to do so.
*YOU CAN ALSO OBTAIN COPIES BY VISITING THE SEC'S PUBLIC REFERENCE ROOM IN
WASHINGTON, D.C. OR BY SENDING YOUR REQUEST AND A DUPLICATING FEE TO THE
SECURITIES AND EXCHANGE COMMISSION'S PUBLIC REFERENCE SECTION, WASHINGTON,
D.C. 20549-6009. YOU CAN CALL 1-800-SEC-0330 FOR INFORMATION ON THE
OPERATION OF THE PUBLIC REFERENCE ROOM.
Strong Index 500 Fund, a series of Strong Equity Funds, Inc.,
SEC file number: 811-8100
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
STRONG INDEX 500 FUND, A SERIES FUND OF STRONG EQUITY FUNDS, INC.
P.O. Box 2936
Milwaukee, Wisconsin 53201
Telephone: (414) 359-1400
Toll-Free: (800) 368-3863
e-mail: [email protected]
Web Site: http://www.strongfunds.com
This SAI is not a Prospectus and should be read together with the Prospectus
for the Fund dated July 1, 1999. Requests for copies of the Prospectus should
be made by calling any number listed above. The financial statements appearing
in the Annual Report, which accompanies this SAI, are incorporated into this
SAI by reference.
THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING SUBSTANTIALLY
ALL OF ITS ASSETS IN THE S&P 500 INDEX MASTER PORTFOLIO (THE "MASTER
PORTFOLIO"), WHICH IS A SERIES OF MASTER INVESTMENT PORTFOLIO ("MIP"), AN
OPEN-END, MANAGEMENT INVESTMENT COMPANY.
The Master Portfolio has substantially the same investment objective as the
Fund. The Fund may withdraw its investment in the Master Portfolio at any
time, if the Board of Directors of the Fund determines that such action is in
the best interests of the Fund and its shareholders. Upon such withdrawal, the
Fund's Board of Directors would consider alternative investments, including
investing all of the Fund's assets in another investment company with the same
investment objective as the Fund or hiring an investment adviser to manage the
Fund's assets in accordance with the investment policies and restrictions
described in the Fund's Prospectus and this SAI.
July 1, 1999
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TABLE OF CONTENTS PAGE
INVESTMENT RESTRICTIONS........................................................3
INVESTMENT POLICIES AND TECHNIQUES.............................................6
Unrated, Downgraded and Below Investment Grade Investments.....................6
Letters of Credit..............................................................7
When-Issued Securities.........................................................7
Loans of Portfolio Securities..................................................7
Futures Contracts..............................................................8
Investment in Warrants........................................................9
DIRECTORS AND OFFICERS.........................................................9
PRINCIPAL SHAREHOLDERS........................................................11
INVESTMENT ADVISOR............................................................11
ADMINISTRATOR AND PLACEMENT AGENT OF THE MASTER PORTFOLIO.....................12
DISTRIBUTOR...................................................................12
PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................13
CUSTODIAN AND FUND ACCOUNTING SERVICES AGENT..................................14
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT..................................14
MASTER PORTFOLIO TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT.................15
FUND SHAREHOLDER SERVICING AGENT..............................................15
TAXES.........................................................................16
DETERMINATION OF NET ASSET VALUE..............................................17
ADDITIONAL SHAREHOLDER INFORMATION............................................17
ORGANIZATION..................................................................19
SHAREHOLDER MEETINGS..........................................................19
MASTER PORTFOLIO ORGANIZATION.................................................20
PERFORMANCE INFORMATION.......................................................20
GENERAL INFORMATION...........................................................25
INDEPENDENT ACCOUNTANTS.......................................................27
LEGAL COUNSEL.................................................................27
FINANCIAL STATEMENTS..........................................................28
No person has been authorized to give any information or to make any
representations other than those contained in this SAI and its corresponding
Prospectus, and if given or made, such information or representations may not
be relied upon as having been authorized. This SAI does not constitute an
offer to sell securities.
2
<PAGE>
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT LIMITATIONS
The following are the Fund's fundamental investment limitations which, along
with the Fund's investment objective (which is described in the Prospectus),
cannot be changed without shareholder approval. To obtain approval, a majority
of the Fund's outstanding voting shares must vote for the change. A majority
of the Fund's outstanding voting securities means the vote of the lesser of:
(1) 67% or more of the voting securities present, if more than 50% of the
outstanding voting securities are present or represented, or (2) more than 50%
of the outstanding voting shares.
Unless indicated otherwise below, the Fund:
1. May not with respect to 75% of its total assets, purchase the securities
of any issuer (except securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities) if, as a result, (1) more than 5% of the
Fund's total assets would be invested in the securities of that issuer, or (2)
the Fund would hold more than 10% of the outstanding voting securities of that
issuer.
2. May (1) borrow money from banks and (2) make other investments or engage
in other transactions permissible under the Investment Company Act of 1940
("1940 Act") which may involve a borrowing, provided that the combination of
(1) and (2) shall not exceed 33 1/3% of the value of the Fund's total assets
(including the amount borrowed), less the Fund's liabilities (other than
borrowings), except that the Fund may borrow up to an additional 5% of its
total assets (not including the amount borrowed) from a bank for temporary or
emergency purposes (but not for leverage or the purchase of investments). The
Fund may also borrow money from the other Strong Funds or other persons to the
extent permitted by applicable law.
3. May not issue senior securities, except as permitted under the 1940 Act.
4. May not act as an underwriter of another issuer's securities, except to
the extent that the Fund may be deemed to be an underwriter within the meaning
of the Securities Act of 1933 in connection with the purchase and sale of
portfolio securities.
5. May not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall not
prevent the Fund from purchasing or selling options, futures contracts, or
other derivative instruments, or from investing in securities or other
instruments backed by physical commodities).
6. May not make loans if, as a result, more than 33 1/3% of the Fund's
total assets would be lent to other persons, except through (1) purchases of
debt securities or other debt instruments, or (2) engaging in repurchase
agreements.
7. May not purchase the securities of any issuer if, as a result, more than
25% of the Fund's total assets would be invested in the securities of issuers,
the principal business activities of which are in the same industry.
8. May not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prohibit the
Fund from purchasing or selling securities or other instruments backed by real
estate or of issuers engaged in real estate activities).
9. May, notwithstanding any other fundamental investment policy or
restriction, invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental
investment objective, policies, and restrictions as the Fund.
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<PAGE>
NON-FUNDAMENTAL OPERATING POLICIES
The following are the Fund's non-fundamental operating policies which may be
changed by the Fund's Board of Directors without shareholder approval.
Unless indicated otherwise below, the Fund may not:
1. Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short, or
unless it covers such short sale as required by the current rules and positions
of the Securities and Exchange Commission ("SEC") or its staff, and provided
that transactions in options, futures contracts, options on futures contracts,
or other derivative instruments are not deemed to constitute selling securities
short.
2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions; and
provided that margin deposits in connection with futures contracts, options on
futures contracts, or other derivative instruments shall not constitute
purchasing securities on margin.
3. Invest in illiquid securities if, as a result of such investment, more
than 15% (10% with respect to a money fund) of its net assets would be invested
in illiquid securities, or such other amounts as may be permitted under the
1940 Act.
4. Purchase securities of other investment companies except in compliance
with the 1940 Act and applicable state law.
5. Invest all of its assets in the securities of a single open-end
investment management company with substantially the same fundamental
investment objective, restrictions and policies as the Fund.
6. Engage in futures or options on futures transactions which are
impermissible pursuant to Rule 4.5 under the Commodity Exchange Act and, in
accordance with Rule 4.5, will use futures or options on futures transactions
solely for bona fide hedging transactions (within the meaning of the Commodity
Exchange Act), provided, however, that the Fund may, in addition to bona fide
hedging transactions, use futures and options on futures transactions if the
aggregate initial margin and premiums required to establish such positions,
less the amount by which any such options positions are in the money (within
the meaning of the Commodity Exchange Act), do not exceed 5% of the Fund's net
assets.
7. Borrow money except (1) from banks or (2) through reverse repurchase
agreements or mortgage dollar rolls, and will not purchase securities when bank
borrowings exceed 5% of its total assets.
8. Make any loans other than loans of portfolio securities, except through
(1) purchases of debt securities or other debt instruments, or (2) engaging in
repurchase agreements.
Non-Fundamental Policy No. 5 does not apply because the Fund seeks to achieve
its investment objective by investing substantially all of its assets in the
Master Portfolio of MIP.
Unless noted otherwise, if a percentage restriction is adhered to at the time
of investment, a later increase or decrease in percentage resulting from a
change in the Fund's assets (I.E. due to cash inflows or redemptions) or in
market value of the investment or the Fund's assets will not constitute a
violation of that restriction.
The Master Portfolio is subject to the following fundamental investment
limitations which cannot be changed without approval by the holders of a
majority (as defined in the 1940 Act) of the Master Portfolio's outstanding
voting securities.
The Master Portfolio may not:
1. invest more than 5% of its assets in the obligations of any single
issuer, except that up to 25% of the value of its total assets may be invested,
and securities issued or guaranteed by the U.S. government, or its agencies or
instrumentalities may be purchased, without regard to any such limitation.
4
<PAGE>
2. hold more than 10% of the outstanding voting securities of any single
issuer. This investment restriction applies only with respect to 75% of its
total assets.
3. invest in commodities, except that the Master Portfolio may purchase and
sell (I.E., write) options, forward contracts, futures contracts, including
those relating to indexes, and options on futures contracts or indexes.
4. purchase, hold or deal in real estate, or oil, gas or other mineral
leases or exploration or development programs, but the Master Portfolio may
purchase and sell securities that are secured by real estate or issued by
companies that invest or deal in real estate.
5. borrow money, except to the extent permitted under the 1940 Act,
provided that the Master Portfolio may borrow up to 20% of the current value of
its net assets for temporary purposes only in order to meet redemptions, and
these borrowings may be secured by the pledge of up to 20% of the current value
of its net assets (but investments may not be purchased while any such
outstanding borrowing in excess of 5% of its net assets exists). For purposes
of this investment restriction, the Master Portfolio's entry into options,
forward contracts, futures contracts, including those relating to indexes, and
options on futures contracts or indexes shall not constitute borrowing to the
extent certain segregated accounts are established and maintained by the Master
Portfolio.
6. make loans to others, except through the purchase of debt obligations
and the entry into repurchase agreements. However, the Master Portfolio may
lend its portfolio securities in an amount not to exceed one-third of the value
of its total assets. Any loans of portfolio securities will be made according
to guidelines established by the SEC and the Master Portfolio's Board of
Trustees.
7. act as an underwriter of securities of other issuers, except to the
extent that the Master Portfolio may be deemed an underwriter under the
Securities Act of 1933, as amended, by virtue of disposing of portfolio
securities.
8. invest 25% or more of its total assets in the securities of issuers in
any particular industry or group of closely related industries except that
there shall be no limitation with respect to investments in (i) obligations of
the U.S. government, its agencies or instrumentalities; or (ii) any industry in
which the S&P 500 Index becomes concentrated to the same degree during the same
period, the Master Portfolio will be concentrated as specified above only to
the extent the percentage of its assets invested in those categories of
investments is sufficiently larger than 25% or more of its total assets would
be invested in a single industry.
9. issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act), except to the extent the activities permitted in the Master
Portfolio's fundamental policies (3) and (5) and non-fundamental policies (2)
and (3), may be deemed to give rise to a senior security.
10. purchase securities on margin, but each Master Portfolio may make
margin deposits in connection with transactions in options, forward contracts,
futures contracts, including those related to indexes, and options on futures
contracts or indexes.
The Master Portfolio is subject to the following non-fundamental operating
policies which may be changed by the Board of Trustees of the Master Portfolio
without the approval of the holders of the Master Portfolio's outstanding
securities.
The Master Portfolio may not:
1. invest in the securities of a company for the purpose of exercising
management or control, but the Master Portfolio will vote the securities it
owns in its portfolio as a shareholder in accordance with its views.
2. pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin
5
<PAGE>
arrangements with respect to options, forward contracts, futures contracts,
including those relating to indexes, and options on futures contracts or
indexes.
3. purchase, sell or write puts, calls or combinations thereof, except as
may be described in the Master Portfolio's offering documents.
4. purchase securities of any company having less than three years'
continuous operations (including operations of any predecessors) unless the
securities are fully guaranteed or insured by the U.S. government, a state,
commonwealth, possession, territory, the District of Columbia or by an entity
in existence at least three years, or the securities are backed by the assets
and revenues of any of the foregoing if such purchase would cause the value of
its investments in all such companies to exceed 5% of the value of its total
assets.
5. enter into repurchase agreements providing for settlement in more than
seven days after notice or purchase securities which are illiquid, if, in the
aggregate, more than 15% of the value of the Master Portfolio's net assets
would be so invested.
6. purchase securities of other investment companies, except to the extent
permitted under the 1940 Act.
7. purchase or retain securities of any issuer if the officers or trustees
of the Master Portfolio or officers or directors of any affiliated investment
companies or the investment advisor owning beneficially more than one-half of
one percent (0.5%) of the securities of the issuer together owned beneficially
more than 5% of such securities.
If a percentage restriction is adhered to at the time of investment, a later
change in percentage resulting from a change in values or assets except with
respect to compliance with fundamental investment limitation number 5, will not
constitute a violation of such restriction.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Fund's investment
objective, policies, and techniques described in the Prospectus.
UNRATED, DOWNGRADED AND BELOW INVESTMENT GRADE INVESTMENTS
The Master Portfolio may purchase instruments that are not rated if, in the
opinion of the advisor, Barclays Global Fund Advisors ("BGFA"), such
obligations are of investment quality comparable to other rated investments
that are permitted to be purchased by such Master Portfolio. After purchase by
the Master Portfolio, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Master Portfolio.
Neither event will require a sale of such security by the Master Portfolio
provided that the amount of such securities held by the Master Portfolio does
not exceed 5% of the Master Portfolio's net assets. To the extent the ratings
given by Moody's or S&P may change as a result of changes in such organizations
or their rating systems, the Master Portfolio will attempt to use comparable
ratings as standards for investments in accordance with the investment policies
contained in its Prospectus and in this SAI. The ratings of Moody's and S&P
and other nationally recognized statistical rating organizations are more fully
described in the SAI Appendix.
Because the Master Portfolio is not required to sell downgraded securities, the
Master Portfolio could hold up to 5% of its net assets in debt securities rated
below "Baa" by Moody's or below "BBB" by S&P or in unrated, low quality (below
investment grade) securities.
Although they may offer higher yields than do higher rated securities, low
rated and unrated low quality debt securities generally involve greater
volatility of price and risk of principal and income, including the possibility
of default by, or bankruptcy of, the issuers of the securities. In addition,
the markets in which low rated and unrated low quality debt are traded are more
limited than those in which higher rated securities are traded. The existence
of limited markets for particular securities may diminish the Master
Portfolio's ability to sell the securities at fair value either to meet
redemption requests or to respond to changes in the economy or in the financial
markets and could adversely affect and cause fluctuations in the daily net
asset value of the Master Portfolio's shares.
6
<PAGE>
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of low rated or unrated low
quality debt securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated or unrated low quality debt securities
may be more complex than for issuers of higher rated securities, and the
ability of the Master Portfolio to achieve its investment objective may, to the
extent it holds low rated or unrated low quality debt securities, be more
dependent upon such creditworthiness analysis than would be the case if the
Master Portfolio held exclusively higher rated or higher quality securities.
Low rated or unrated low quality debt securities may be more susceptible to
real or perceived adverse economic and competitive industry conditions than
investment grade securities. The prices of such debt securities have been
found to be less sensitive to interest rate changes than higher rated or higher
quality investments, but more sensitive to adverse economic downturns or
individual corporate developments. A projection of an economic downturn or of
a period of rising interest rates, for example, could cause a decline in low
rated or unrated low quality debt securities prices because the advent of a
recession could dramatically lessen the ability of a highly leveraged company
to make principal and interest payments on its debt securities. If the issuer
of the debt securities defaults, the Master Portfolio may incur additional
expenses to seek recovery.
LETTERS OF CREDIT
Certain of the debt obligations (including municipal securities, certificates
of participation, commercial paper and other short-term obligations) which the
Master Portfolio may purchase may be backed by an unconditional and irrevocable
letter of credit of a bank, savings and loan association or insurance company
which assumes the obligation for payment of principal and interest in the event
of default by the issuer. Only banks, savings and loan associations and
insurance companies which, in the opinion of BGFA, as investment advisor, are
of comparable quality to issuers of other permitted investments of the Master
Portfolio may be used for letter of credit-backed investments.
WHEN-ISSUED SECURITIES
Certain of the securities in which the Master Portfolio may invest will be
purchased on a when-issued basis, in which case delivery and payment normally
take place within 45 days after the date of the commitment to purchase. The
Master Portfolio only will make commitments to purchase securities on a
when-issued basis with the intention of actually acquiring the securities, but
may sell them before the settlement date if it is deemed advisable.
When-issued securities are subject to market fluctuation, and no income accrues
to the purchaser during the period prior to issuance. The purchase price and
the interest rate that will be received on debt securities are fixed at the
time the purchaser enters into the commitment. Purchasing a security on a
when-issued basis can involve a risk that the market price at the time of
delivery may be lower than the agreed-upon purchase price, in which case there
could be an unrealized loss at the time of delivery. The Master Portfolio
currently does not intend on investing more than 5% of its assets in
when-issued securities during the coming year. The Master Portfolio will
establish a segregated account in which it will maintain cash or liquid
securities in an amount at least equal in value to the Master Portfolio's
commitments to purchase when-issued securities. If the value of these assets
declines, the Master Portfolio will place additional liquid assets in the
account on a daily basis so that the value of the assets in the account is
equal to the amount of such commitments.
LOANS OF PORTFOLIO SECURITIES
The Master Portfolio may lend securities from its portfolio to brokers, dealers
and financial institutions (but not individuals) if cash or liquid securities
equal to at least 100% of the current market value of the securities loan
(including accrued interest thereon) plus the interest payable to the Master
Portfolio with respect to the loan is maintained with the Master Portfolio. In
determining whether to lend a security to a particular broker, dealer or
financial institution, BGFA will consider all relevant facts and circumstances,
including the size, creditworthiness and reputation of the broker, dealer, or
financial institution. Any loans of portfolio securities will be fully
collateralized based on values that are marked to market daily. The Master
Portfolio will not enter into any portfolio security lending arrangement having
a duration of longer than one year. Any securities that the Master Portfolio
may receive as collateral will not become part of the Master Portfolio's
investment portfolio at the time of the loan and, in the event of a default by
the borrower, the Master Portfolio will, if permitted by law, dispose of such
collateral except for such part thereof that is a security in which the Master
Portfolio is permitted to invest. During the time securities are on loan, the
borrower will pay the Master Portfolio any accrued income on those securities,
and the Master Portfolio may invest
7
<PAGE>
the cash collateral and earn income or receive an agreed-upon fee from a
borrower that has delivered cash-equivalent collateral. The Master Portfolio
will not lend securities having a value that exceeds one-third of the current
value of its total assets. Loans of securities by the Master Portfolio will be
subject to termination at the Master Portfolio's or the borrower's option. The
Master Portfolio may pay reasonable administrative and custodial fees in
connection with a securities loan and may pay a negotiated portion of the
interest or fee earned with respect to the collateral to the borrower or the
placing broker. Borrowers and placing brokers may not be affiliated, directly
or indirectly, with the Fund, MIP, BGFA, Stephens (the Master Portfolio's
underwriter), or Strong Funds Distributors, Inc. (the Fund's distributor
"Distributors").
FUTURES CONTRACTS
The Master Portfolio may use futures contracts as a hedge against the effects
of interest rate changes or changes in the market value of the stocks
comprising the index in which the Master Portfolio invests. In managing its
cash flows, the Master Portfolio also may use futures contracts as a substitute
for holding the designated securities underlying the futures contract. A
futures contract is an agreement between two parties, a buyer and a seller, to
exchange a particular commodity at a specific price on a specific date in the
future. At the time it enters into a futures transaction, the Master Portfolio
is required to make a performance deposit (initial margin) of cash or liquid
securities in a segregated account in the name of the futures broker.
Subsequent payments of "variation margin" are then made on a daily basis,
depending on the value of the futures position which is continually "marked to
market."
The Master Portfolio may engage only in futures contract transactions involving
(i) the sale of a futures contract (I.E., short positions) to hedge the value
of securities held by the Master Portfolio; (ii) the purchase of a futures
contract when the Master Portfolio holds a short position having the same
delivery month (I.E., a long position offsetting a short position); or (iii)
the purchase of a futures contract to permit the Master Portfolio to, in
effect, participate in the market for the designated securities underlying the
futures contract without actually owning such designated securities. When the
Master Portfolio purchases a futures contract, it will create a segregated
account consisting of cash or other liquid assets in an amount equal to the
total market value of such futures contract, less the amount of initial margin
for the contract.
If the Master Portfolio enters into a short position in a futures contract as a
hedge against anticipated adverse market movements and the market then rises,
the increase in the value of the hedged securities will be offset, in whole or
in part, by a loss on the futures contract. If instead the Master Portfolio
purchases a futures contract as a substitute for investing in the designated
underlying securities, the Master Portfolio will experience gains or losses
that correspond generally to gains or losses in the underlying securities. The
latter type of futures contract transactions permit the Master Portfolio to
experience the results of being fully invested in a particular asset class,
while maintaining the liquidity needed to manage cash flows into or out of the
Master Portfolio (E.G., from purchases and redemptions of Master Portfolio
shares). Under normal market conditions, futures contract positions may be
closed out on a daily basis. The Master Portfolio expects to apply a portion
of its cash or cash equivalents maintained for liquidity needs to such
activities.
Transactions by the Master Portfolio in futures contracts involve certain
risks. One risk in employing futures contracts as a hedge against cash market
price volatility is the possibility that futures prices will correlate
imperfectly with the behavior of the prices of the securities in the Master
Portfolio's investment portfolio. Similarly, in employing futures contracts as
a substitute for purchasing the designated underlying securities, there is a
risk that the performance of the futures contract may correlate imperfectly
with the performance of the direct investments for which the futures contract
is a substitute. In addition, commodity exchanges generally limit the amount
of fluctuation permitted in futures contract prices during a single trading
day, and the existence of such limits may prevent the prompt liquidation of
futures positions in certain cases. Limits on price fluctuations are designed
to stabilize prices for the benefit of market participants; however, there
could be cases where the Master Portfolio could incur a larger loss due to the
delay in trading than it would have if no limit rules had been in effect.
In order to comply with undertakings made by the Master Portfolio pursuant to
Commodity Futures Trading Commission ("CFTC") Regulation 4.5, the Master
Portfolio will use futures and option contracts solely for bona fide hedging
purposes within the meaning and intent of CFTC Reg. 1.3(z); provided, however,
that in addition, with respect to positions in commodity futures or commodity
option contracts which do not come within the meaning and intent of CFTC Reg.
1.3(z), the aggregate initial margin and premiums required to establish such
positions will not exceed 5% of the liquidation value of the Master Portfolio's
portfolio, after taking into account unrealized profits and unrealized losses
on any such contract it has entered into;
8
<PAGE>
and provided further, that in the case of an option that is in-the-money at the
time of purchase, the in-the-money amount as defined in CFTC Reg. 190.01(x) may
be excluded in computing such 5%.
INVESTMENT IN WARRANTS
The Master Portfolio may invest up to 5% of its net assets in warrants.
Warrants represent rights to purchase securities at a specific price valid for
a specific period of time. The prices of warrants do not necessarily correlate
with the prices of the underlying securities. The Master Portfolio may only
purchase warrants on securities in which the Master Portfolio may invest
directly.
DIRECTORS AND OFFICERS
Directors and officers of the Fund, together with information as to their
principal business occupations during the last five years, and other
information are shown below. Each director who is deemed an "interested
person," as defined in the 1940 Act, is indicated by an asterisk (*). Each
officer and director holds the same position with the 27 registered open-end
management investment companies consisting of 53 mutual funds ("Strong Funds").
The Strong Funds, in the aggregate, pay each Director who is not a director,
officer, or employee of Strong Capital Management, Inc. ("Strong"), or any
affiliated company (a "disinterested director") an annual fee of $50,000, plus
$100 per Board meeting for each Strong Fund. In addition, each disinterested
director is reimbursed by the Strong Funds for travel and other expenses
incurred in connection with attendance at such meetings. Other officers and
directors of the Strong Funds receive no compensation or expense reimbursement
from the Strong Funds.
*RICHARD S. STRONG (DOB 5/12/42), Director and Chairman of the Board of the
Strong Funds.
Prior to August 1985, Mr. Strong was Chief Executive Officer of Strong, which
he founded in 1974. Since August 1985, Mr. Strong has been a Security Analyst
and Portfolio Manager of Strong. In October 1991, Mr. Strong also became the
Chairman of Strong. Mr. Strong is a Director of Strong. Mr. Strong has been
in the investment management business since 1967.
MARVIN E. NEVINS (DOB 7/19/18), Director of the Strong Funds.
Private Investor. From 1945 to 1980, Mr. Nevins was Chairman of Wisconsin
Centrifugal Inc., a foundry. Mr. Nevins is a former Chairman of the Wisconsin
Association of Manufacturers & Commerce. He has been a Director of A-Life
Medical, Inc., San Diego, CA since 1996 and Surface Systems, Inc. (a weather
information company), St. Louis, MO since 1992. He was also a regent of the
Milwaukee School of Engineering and a member of the Board of Trustees of the
Medical College of Wisconsin and Carroll College.
WILLIE D. DAVIS (DOB 7/24/34), Director of the Strong Funds.
Mr. Davis has been Director of Alliance Bank since 1980, Sara Lee Corporation
(a food/consumer products company) since 1983, KMart Corporation (a discount
consumer products company) since 1985, Dow Chemical Company since 1988, MGM
Grand, Inc. (an entertainment/hotel company) since 1990, WICOR, Inc. (a utility
company) since 1990, Johnson Controls, Inc. (an industrial company) since 1992,
and Rally's Hamburger, Inc. since 1994. Mr. Davis has been a trustee of the
University of Chicago since 1980 and Marquette University since 1988. Since
1977, Mr. Davis has been President and Chief Executive Officer of All Pro
Broadcasting, Inc. Mr. Davis was a Director of the Fireman's Fund (an
insurance company) from 1975 until 1990.
STANLEY KRITZIK (DOB 1/9/30), Director of the Strong Funds.
Mr. Kritzik has been a Partner of Metropolitan Associates since 1962, a
Director of Aurora Health Care since 1987, and Health Network Ventures, Inc.
since 1992.
9
<PAGE>
WILLIAM F. VOGT (DOB 7/19/47), Director of the Strong Funds.
Mr. Vogt has been the President of Vogt Management Consulting, Inc. since 1990.
From 1982 until 1990, he served as Executive Director of University Physicians
of the University of Colorado. Mr. Vogt is the Past President of the Medical
Group Management Association and a Fellow of the American College of Medical
Practice Executives.
THOMAS P. LEMKE (DOB 7/30/54), Vice President of the Strong Funds.
Mr. Lemke has been Senior Vice President, Secretary, and General Counsel of
Strong since September 1994 and Chief Operating Officer of Strong since
November 1997. For two years prior to joining Strong, Mr. Lemke acted as
Resident Counsel for Funds Management at J.P. Morgan & Co., Inc. From February
1989 until April 1992, Mr. Lemke acted as Associate General Counsel to Sanford
C. Bernstein Co., Inc. For two years prior to that, Mr. Lemke was Of Counsel
at the Washington D.C. law firm of Tew Jorden & Schulte, a successor of Finley,
Kumble & Wagner. From August 1979 until December 1986, Mr. Lemke worked at the
SEC, most notably as the Chief Counsel to the Division of Investment Management
(November 1984 - December 1986), and as Special Counsel to the Office of
Insurance Products, Division of Investment Management (April 1982 - October
1984).
STEPHEN J. SHENKENBERG (DOB 6/14/58), Vice President and Secretary of the
Strong Funds.
Mr. Shenkenberg has been Acting General Counsel of Strong since January 1998.
From November 1996 until January 1998, Mr. Shenkenberg acted as Deputy General
Counsel to Strong. From December 1992 until November 1996, Mr. Shenkenberg
acted as Associate Counsel to Strong. From June 1987 until December 1992, Mr.
Shenkenberg was an attorney for Godfrey & Kahn, S.C., a Milwaukee law firm.
JOHN S. WEITZER (DOB 10/31/67), Vice President of the Strong Funds.
Mr. Weitzer has been Senior Counsel of Strong since December 1997. From July
1993 until December 1997, Mr. Weitzer acted as Associate Counsel to Strong.
MARY F. HOPPA (DOB 5/31/64), Vice President of the Strong Funds.
Ms. Hoppa has been Vice President and Director of Mutual Fund Administration of
Strong since January 1998. From October 1996 to January 1998, Ms. Hoppa acted
as Director of Transfer Agency Services of Strong and, from January 1988 to
October 1996, as Transfer Agency Systems Liaison Manager of Strong. From
January 1987 to January 1988, Ms. Hoppa acted as a Shareholder Services
Associate of Strong.
JOHN W. WIDMER (DOB 1/19/65), Treasurer of the Strong Funds.
Mr. Widmer has been Manager of Financial Management & Sales Reporting Systems
since May 1997. From May 1992 to May 1997, Mr. Widmer was an Accounting and
Business Advisory Manager in the Milwaukee office of Arthur Andersen LLP. From
June 1987 to May 1992, Mr. Widmer was an accountant at Arthur Andersen LLP.
RHONDA K. HAIGHT (DOB 11/13/64), Assistant Treasurer of the Strong Funds.
Ms. Haight has been Manager of the Mutual Fund Accounting Department of the
Advisor since January 1994. From May 1990 to January 1994, Ms. Haight was a
supervisor in the Mutual Fund Accounting Department of the Advisor. From June
1987 to May 1990, Ms. Haight was a Mutual Fund Accountant of the Advisor.
10
<PAGE>
Except for Messrs. Nevins, Davis, Kritzik, and Vogt, the address of all of the
above persons is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr. Nevins'
address is 6075 Pelican Bay Boulevard, Naples, Florida 34108. Mr. Davis'
address is 161 North La Brea, Inglewood, California 90301. Mr. Kritzik's
address is 1123 North Astor Street, P.O. Box 92547, Milwaukee, Wisconsin
53202-0547. Mr. Vogt's address is 2830 East Third Avenue, Denver, Colorado
80206.
Unless otherwise noted below, as of May 31, 1999, the officers and directors of
the Fund in the aggregate beneficially owned less than 1% of the Fund's then
outstanding shares.
<TABLE>
<CAPTION>
<S> <C> <C>
FUND SHARES PERCENT
- ---- ------ -------
</TABLE>
PRINCIPAL SHAREHOLDERS
Unless otherwise noted below, as of May 31, 1999 no persons owned of record or
are known to own of record or beneficially more than 5% of the Fund's then
outstanding shares.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AND ADDRESS SHARES PERCENT
- ---------------- ------ -------
</TABLE>
INVESTMENT ADVISOR
The advisor to the Master Portfolio is Barclays Global Fund Advisors ("BGFA").
BGFA is an indirect subsidiary of Barclays Bank PLC. Pursuant to an Investment
Advisory Contract dated January 1, 1996 (the "Advisory Contract") with the
Master Portfolio, BGFA provides investment guidance and policy direction in
connection with the management of the Master Portfolio's assets. Pursuant to
the Advisory Contract, BGFA furnishes to the Master Portfolio's Boards of
Trustees periodic reports on the investment strategy and performance of the
Master Portfolio.
BGFA is entitled to receive monthly fees at the annual rate of 0.05% of the
average daily net assets of the Master Portfolio as compensation for its
advisory services to the Master Portfolio. The Advisory Contract provides that
the advisory fee is accrued daily and paid monthly. This advisory fee is an
expense of the Master Portfolio borne proportionately by its interestholders,
such as the Fund.
The Fund paid the following management fees for the time period indicated:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MANAGEMENT FEE
FISCAL PERIOD ENDED MANAGEMENT FEE ($) WAIVER($) BY BGFA AFTER WAIVER ($)
- ------------------- ------------------ ----------------- ----------------
2/28/98* 5,726 0 5,726
2/28/99
</TABLE>
* Commenced operations on May 1, 1997.
The Master Portfolio paid the following management fees for the time period
indicated:
11
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MANAGEMENT FEE
FISCAL YEAR ENDED MANAGEMENT FEE ($) WAIVER($) BY BGFA AFTER WAIVER ($)
- ----------------- ------------------ ----------------- ----------------
2/28/98 939,051 0 939,051
2/28/99
</TABLE>
The Advisory Contract for the Master Portfolio provides that if, in any fiscal
year, the total expenses of the Master Portfolio (excluding taxes, interest,
brokerage commissions and its extraordinary expenses but including the fees
provided for in the Advisory Contract) exceed the most restrictive expense
limitation applicable to the Master Portfolio imposed by the securities laws or
regulations of the states having jurisdiction over the Master Portfolio, BGFA
shall waive its fees under the Advisory Contract for the fiscal year to the
extent of the excess or reimburse the excess, but only to the extent of its
fees.
BGFA has agreed to provide to the Master Portfolio, among other things, money
market security and fixed-income research, analysis and statistical and
economic data and information concerning interest rate and security market
trends, portfolio composition, credit conditions and average maturities of the
Master Portfolio's investment portfolio.
The Advisory Contract will continue in effect for more than two years provided
the continuance is approved annually (i) by the holders of a majority of the
Master Portfolio's outstanding voting securities or by the Master Portfolio's
Boards of Trustees and (ii) by a majority of the Trustees of the Master
Portfolio who are not parties to the Advisory Contract or "interested persons"
(as defined in the 1940 Act) of any such party. The Advisory Contract may be
terminated on 60 days' written notice by either party and will terminate
automatically if assigned.
The Advisor also provides a program of custom portfolio management called the
Strong Advisor. This program is designed to determine which investment
approach fits an investor's financial needs and then provides the investor with
a custom built portfolio of Strong Funds based on that allocation. The
Advisor, on behalf of participants in the Strong Advisor program, may determine
to invest a portion of the program's assets in any one Strong Fund, which
investment, particularly in the case of a smaller Strong Fund, could represent
a material portion of the Fund's assets. In such cases, a decision to redeem
the Strong Advisor program's investment in a Fund on short notice could raise a
potential conflict of interest for the Advisor, between the interests of
participants in the Strong Advisor program and of the Fund's other
shareholders. In general, the Advisor does not expect to direct the Strong
Advisor program to make redemption requests on short notice. However, should
the Advisor determine this to be necessary, the Advisor will use its best
efforts and act in good faith to balance the potentially competing interests of
participants in the Strong Advisor program and the Fund's other shareholders in
a manner the Advisor deems most appropriate for both parties in light of the
circumstances.
For more complete information about the Advisor, including its services,
investment strategies, policies, and procedures, please call 1-800-368-3863 and
ask for a copy of the Advisor's Form ADV.
ADMINISTRATOR AND PLACEMENT AGENT OF THE MASTER PORTFOLIO
Stephens and Barclays Global Investors, N.A. ("BGI") serve as co-administrators
on behalf of the Master Portfolio. Under the Co-Administration Agreement
between Stephens, BGI and the Master Portfolio, Stephens and BGI provide as
administrative services, among other things: (i) general supervision of the
operation of the Master Portfolio, including coordination of the services
performed by the investment advisor, transfer and dividend disbursing agent,
custodian, shareholder servicing agent(s), independent auditors and legal
counsel; (ii) general supervision of regulatory compliance matters, including
the compilation of information for documents such as reports to, and filings
with, the SEC and state securities commissions; and preparation of proxy
statements and shareholder reports for the Master Portfolio; and (iii) general
supervision relative to the compilation of data required for the preparation of
periodic reports distributed to the Master Portfolio's officers and Board.
Stephens also furnishes office space and certain facilities required for
conducting the business of the Master Portfolio together with those ordinary
clerical and bookkeeping services that are not furnished by BGFA. Stephens
also pays the compensation of the Master Portfolio's trustees, officers and
employees who are affiliated with Stephens. Furthermore, except as provided in
the Advisory Contract, Stephens and BGI bears substantially all costs of the
Master Portfolio and the Master Portfolio's operations.
11
<PAGE>
However, Stephens and BGI are not required to bear any cost or expense which a
majority of the disinterested trustees of the Master Portfolio deem to be an
extraordinary expense.
Stephens also acts as the placement agent of Master Portfolio's shares pursuant
to a Placement Agency Agreement (the "Placement Agency Agreement") with the
Master Portfolio.
DISTRIBUTOR
Under a Distribution Agreement with the Fund ("Distribution Agreement"), Strong
Funds Distributors, Inc. ("Distributor") acts as underwriter of the Fund's
shares. Mr. Strong is the Chairman and Director of the Distributor, Mr. Lemke
is a Vice President of the Distributor, and Mr. Shenkenberg is a Vice President
and Secretary of the Distributor. The Distribution Agreement provides that the
Distributor will use its best efforts to distribute the Fund's shares. Since
the Fund is a "no-load" fund, no sales commissions are charged on the purchase
of Fund shares. The Distribution Agreement further provides that the
Distributor will bear the additional costs of printing prospectuses and
shareholder reports which are used for selling purposes, as well as advertising
and any other costs attributable to the distribution of the Fund's shares. The
Distributor is an indirect subsidiary of Strong and controlled by Strong and
Richard S. Strong. The Distribution Agreement is subject to the same
termination and renewal provisions as are described above with respect to the
Advisory Agreement.
From time to time, the Distributor may hold in-house sales incentive programs
for its associated persons under which these persons may receive non-cash
compensation awards in connection with the sale and distribution of the Fund's
shares. These awards may include items such as, but not limited to, gifts,
merchandise, gift certificates, and payment of travel expenses, meals, and
lodging. As required by the proposed rule amendments of the National
Association of Securities Dealers, Inc. ("NASD"), any in-house sales incentive
program will be multi-product oriented, I.E., any incentive will be based on an
associated person's gross production of all securities within a product type
and will not be based on the sales of shares of any specifically designated
mutual fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Master Portfolio has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Master Portfolio's Board of Trustees, BGFA as
advisor, is responsible for the Master Portfolio's investment portfolio
decisions and the placing of portfolio transactions. In placing orders, it is
the policy of the Master Portfolio to obtain the best results taking into
account the broker/dealer's general execution and operational facilities, the
type of transaction involved and other factors such as the broker/dealer's risk
in positioning the securities involved. While BGFA generally seek reasonably
competitive spreads or commissions, the Master Portfolio will not necessarily
be paying the lowest spread or commission available.
Purchase and sale orders of the securities held by the Master Portfolio may be
combined with those of other accounts that BGFA manages, and for which it has
brokerage placement authority, in the interest of seeking the most favorable
overall net results. When BGFA determines that a particular security should be
bought or sold for the Master Portfolio and other accounts managed by BGFA,
BGFA undertakes to allocate those transactions among the participants
equitably.
Under the 1940 Act, persons affiliated with the Master Portfolio such as
Stephens, BGFA and their affiliates are prohibited from dealing with the Master
Portfolio as a principal in the purchase and sale of securities unless an
exemptive order allowing such transactions is obtained from the SEC or an
exemption is otherwise available.
Except in the case of equity securities purchased by the Master Portfolio,
purchases and sales of securities usually will be principal transactions.
Portfolio securities normally will be purchased or sold from or to dealers
serving as market makers for the securities at a net price. The Master
Portfolio also will purchase portfolio securities in underwritten offerings and
may purchase securities directly from the issuer. Generally, money market
securities, adjustable rate mortgage securities ("ARMS"), municipal
obligations, and collateralized mortgage obligations ("CMOs") are traded on a
net basis and do not involve brokerage commissions. The cost of executing the
Master Portfolio's investment portfolio securities transactions will consist
primarily of dealer spreads and underwriting commissions.
12
<PAGE>
Purchases and sales of equity securities on a securities exchange are effected
through brokers who charge a negotiated commission for their services. Orders
may be directed to any broker including, to the extent and in the manner
permitted by applicable law, Stephens or BGI. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.
In placing orders for portfolio securities of the Master Portfolio, BGFA is
required to give primary consideration to obtaining the most favorable price
and efficient execution. This means that BGFA seeks to execute each
transaction at a price and commission, if any, that provide the most favorable
total cost or proceeds reasonably attainable in the circumstances. While BGFA
generally seeks reasonably competitive spreads or commissions, the Master
Portfolio will not necessarily be paying the lowest spread or commission
available. In executing portfolio transactions and selecting brokers or
dealers, BGFA seeks to obtain the best overall terms available for the Master
Portfolio. In assessing the best overall terms available for any transaction,
BGFA considers factors deemed relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission,
if any, both for the specific transaction and on a continuing basis. Rates are
established pursuant to negotiations with the broker based on the quality and
quantity of execution services provided by the broker in the light of generally
prevailing rates. The allocation of orders among brokers and the commission
rates paid are reviewed periodically by the Master Portfolio's Board of
Trustees.
Certain of the brokers or dealers with whom the Master Portfolio may transact
business offers commission rebates to the Master Portfolio. BGFA considers such
rebates in assessing the best overall terms available for any transaction. The
overall reasonableness of brokerage commissions paid is evaluated by BGFA based
upon its knowledge of available information as to the general level of
commission paid by other institutional investors for comparable services.
The portfolio turnover rate for the Master Portfolio generally is not expected
to exceed 50%. This portfolio turnover rate will not be a limiting factor when
BGFA deems portfolio changes appropriate.
The Master Portfolio paid the following brokerage commissions for the time
periods indicated below. None of these brokerage commissions were paid to
affiliated brokers.
<TABLE>
<CAPTION>
<S> <C>
FISCAL YEAR ENDED BROKERAGE COMMISSIONS ($)
- ------------------ -------------------------
2/28/98 112,100
2/28/99
</TABLE>
Unless otherwise noted below, the Master Portfolio has not acquired securities
of its regular brokers or dealers (as defined in Rule 10b-1 under the 1940 Act)
or their parents.
<TABLE>
<CAPTION>
<S> <C>
REGULAR BROKER OR DEALER (OR PARENT) ISSUER VALUE OF SECURITIES OWNED AS OF FEBRUARY 28, 1999
- ------------------------------------------- -------------------------------------------------
</TABLE>
CUSTODIAN AND FUND ACCOUNTING SERVICES AGENT
Investors Bank & Trust Company ("IBT") located at 200 Clarendon Street, Boston,
MA 02111, serves as custodian of the assets of the Fund and Master Portfolio.
As a result, IBT has custody of all securities and cash of the Fund and the
Master Portfolio, delivers and receives payment for securities sold, receives
and pays for securities purchased, collects income from investments, and
performs other duties, all as directed by the officers of the Fund and the
Master Portfolio. The custodian is in
13
<PAGE>
no way responsible for any of the investment policies or decisions of the Fund
and the Master Portfolio. IBT also acts as the Fund's Accounting Services
Agent.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Strong acts as transfer agent and dividend-disbursing agent for the Fund.
Strong is compensated based on an annual fee per open account of $21.75 for
equity funds, $31.50 for income and municipal income funds, and $32.50 for
money market funds, plus out-of-pocket expenses, such as postage and printing
expenses in connection with shareholder communications. Strong also receives an
annual fee per closed account of $4.20 from the Fund. In addition, Strong
provides certain printing and mailing services for the Fund, such as printing
and mailing of shareholder account statements, checks, and tax forms.
From time to time, the Fund, directly or indirectly through arrangements with
Strong, and/or Strong may pay amounts to third parties that provide transfer
agent type services and other administrative services relating to the Fund to
persons who beneficially own interests in the Fund, such as participants in
401(k) plans. These services may include, among other things, sub-accounting
services, transfer agent type activities, answering inquiries relating to the
Fund, transmitting proxy statements, annual reports, updated prospectuses,
other communications regarding the Fund, and related services as the Fund or
beneficial owners may reasonably request. In such cases, the Fund will not pay
fees based on the number of beneficial owners at a rate that is greater than
the rate the Fund is currently paying Strong for providing these services to
Fund shareholders.
On July 12, 1994, the SEC filed an administrative action ("Order") against
Strong, Mr. Strong, and another employee of Strong in connection with conduct
that occurred between 1987 and early 1990. In re Strong/Corneliuson Capital
Management, Inc., et al. Admin. Proc. File No. 3-8411. The proceeding was
settled by consent without admitting or denying the allegations in the Order.
The Order found that Strong and Mr. Strong aided and abetted violations of
Section 17(a) of the 1940 Act by effecting trades between mutual funds, and
between mutual funds and Harbour Investments Ltd. ("Harbour"), without
complying with the exemptive provisions of SEC Rule 17a-7 or otherwise
obtaining an exemption. It further found that Strong violated, and Mr. Strong
aided and abetted violations of, the disclosure provisions of the 1940 Act and
the Investment Advisers Act of 1940 by misrepresenting Strong's policy on
personal trading and by failing to disclose trading by Harbour, an entity in
which principals of Strong owned between 18 and 25 percent of the voting stock.
As part of the settlement, the respondents agreed to a censure and a cease and
desist order and Strong agreed to various undertakings, including adoption of
certain procedures and a limitation for six months on accepting certain types
of new advisory clients.
On June 6, 1996, the Department of Labor ("DOL") filed an action against Strong
for equitable relief alleging violations of the Employee Retirement Income
Security Act of 1974 ("ERISA") in connection with cross trades that occurred
between 1987 and late 1989 involving certain pension accounts managed by
Strong. Contemporaneous with this filing, Strong, without admitting or denying
the DOL's allegations, agreed to the entry of a consent judgment resolving all
matters relating to the allegations. Reich v. Strong Capital Management, Inc.,
(U.S.D.C. E.D. WI) ("Consent Judgment"). Under the terms of the Consent
Judgment, Strong agreed to reimburse the affected accounts a total of $5.9
million. The settlement did not have any material impact on Strong's financial
position or operations.
The organizational expenses for the Fund which were advanced by Strong and
which will be reimbursed by the Fund over a period of not more than 60 months
from the Fund's date of inception are listed below.
<TABLE>
<CAPTION>
<S> <C>
FUND ORGANIZATIONAL EXPENSES
- --------------------- -----------------------
Strong Index 500 Fund
</TABLE>
The Fund paid the following amounts for the time periods indicated for transfer
agency and dividend disbursing and printing and mailing services:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FISCAL YEAR PER ACCOUNT OUT-OF-POCKET PRINTING/MAILING TOTAL COST AFTER
ENDED CHARGES ($) EXPENSES ($) SERVICES ($) WAIVER ($) WAIVER ($)
- ----------- ----------- ------------- ---------------- ---------- ----------------
2/28/98* 21,551 5,731 720 7,642 20,360
2/28/99
</TABLE>
14
<PAGE>
* Commenced operations on May 1, 1997.
MASTER PORTFOLIO TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, Boston, MA
02111, acts as transfer agent and dividend-disbursing agent for the Master
Portfolio.
FUND SHAREHOLDER SERVICING AGENT
Under a Shareholder Servicing Agreement with the Fund dated April 30, 1997,
Strong acts as shareholder servicing agent for the Fund. As shareholder
servicing agent, Strong provides personal services to the Fund's shareholders
and maintains the Fund's shareholder accounts. Such services include, (i)
answering shareholder inquiries regarding account status and history, the
manner in which purchases and redemptions of the Fund's shares may be effected,
and certain other matters pertaining to the Fund; (ii) assisting shareholders
in designating and changing dividend options, account designations and
addresses; (iii) providing necessary personnel and facilities to coordinate the
establishment and maintenance of shareholder accounts and records with the
Fund's transfer agent; (iv) transmitting shareholders' purchase and redemption
orders to the Fund's transfer agent; (v) arranging for the wiring or other
transfer of funds to and from shareholder accounts in connection with
shareholder orders to purchase or redeem shares of the Fund; (vi) verifying
purchase and redemption orders, transfers among and changes in
shareholder-designated accounts; (vii) informing the distributor of the Fund of
the gross amount of purchase and redemption orders for the Fund's shares;
(viii) monitoring the activities of the Fund's transfer agent related to
shareholders' accounts, and to statements, confirmations or other reports
furnished to shareholders by the Fund's transfer agent; and (ix) providing such
other related services as the Fund or a shareholder may reasonably request, to
the extent permitted by applicable law.
As compensation for its services, the Fund pays Strong a monthly fee based on a
percentage of the Fund's average daily net asset value. The annual rate is
0.25%. From time to time, Strong may voluntarily waive all or a portion of its
shareholder servicing fee and/or absorb certain Fund expenses without further
notification of the commencement or termination of such waiver or absorption.
Any such waiver or absorption will temporarily lower the Fund's overall expense
ratio and increase the Fund's overall return to investors.
The Fund paid the following servicing fees for the time periods indicated:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SERVICING FEE
FISCAL YEAR ENDED SERVICING FEE ($) WAIVER($) BY STRONG AFTER WAIVER ($)
- ----------------- ----------------- ------------------- ----------------
2/28/98* 28,770 28,770 0
2/28/99
</TABLE>
* Commenced operations on May 1, 1997.
TAXES
GENERAL
The Fund intends to qualify annually for treatment as a regulated investment
company ("RIC") under Subchapter M of the IRC. If so qualified, the Fund will
not be liable for federal income tax on earnings and gains distributed to its
shareholders in a timely manner. This qualification does not involve
government supervision of the Fund's management practices or policies. The
following federal tax discussion is intended to provide you with an overview of
the impact of federal income tax provisions on the Fund or its shareholders.
These tax provisions are subject to change by legislative or administrative
action at the federal, state, or local level, and any changes may be applied
retroactively. Any such action that limits or restricts the Fund's current
ability to pass-through earnings without taxation at the Fund level, or
otherwise materially changes the Fund's tax treatment, could adversely affect
the value of a shareholder's investment in the Fund. Because the
15
<PAGE>
Fund's taxes are a complex matter, you should consult your tax adviser for more
detailed information concerning the taxation of the Fund and the federal,
state, and local tax consequences to shareholders of an investment in the Fund.
In order to qualify for treatment as a RIC under the IRC, the Fund must
distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of taxable net
investment income, net short-term capital gain, and net gains from certain
foreign currency transactions, if applicable) ("Distribution Requirement") and
must meet several additional requirements. These requirements include the
following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of securities (or foreign
currencies if applicable) or other income (including gains from options,
futures, or forward contracts) derived with respect to its business of
investing in securities ("Income Requirement"); (2) at the close of each
quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. government securities,
securities of other RICs, and other securities, with these other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities; and (3) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. government securities or
the securities of other RICs) of any one issuer.
If Fund shares are sold at a loss after being held for 12 months or less, the
loss will be treated as long-term, instead of short-term, capital loss to the
extent of any capital gain distributions received on those shares.
The Fund's distributions are taxable in the year they are paid, whether they
are taken in cash or reinvested in additional shares, except that certain
distributions declared in the last three months of the year and paid in January
are taxable as if paid on December 31.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to the
extent it fails to distribute by the end of any calendar year substantially all
of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
The Fund may make additional distributions if necessary to avoid imposition of
a 4% excise tax on undistributed income and gains.
From time to time, BGFA may find it necessary to make certain types of
investments for the purpose of ensuring that the Master Portfolio, and
therefore the Fund, continues to qualify for treatment as a RIC under the Code.
For purposes of complying with these qualification requirements the Fund will
be deemed to own a proportionate share of the Master Portfolio.
DETERMINATION OF NET ASSET VALUE
The Fund is 100% no load. This means that an investor may purchase, redeem or
exchange shares at the Fund's net asset value ("NAV") without paying a sales
charge. Generally, when an investor makes any purchases, sales, or exchanges,
the price of the investor's shares will be the NAV next determined after Strong
Funds receives a request in proper form (which includes receipt of all
necessary and appropriate documentation and subject to available funds). If
Strong Funds receives such a request prior to the close of the New York Stock
Exchange ("NYSE") on a day on which the NYSE is open, the share price will be
the NAV determined that day. The NAV for each Fund is normally determined as
of 3:00 p.m. Central Time ("CT") each day the NYSE is open. The NYSE is open
for trading Monday through Friday except, New Year's Day, Martin Luther King
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day. Additionally, if any of the
aforementioned holidays falls on a Saturday, the NYSE will not be open for
trading on the preceding Friday, and when any such holiday falls on a Sunday,
the NYSE will not be open for trading on the succeeding Monday, unless unusual
business conditions exist, such as the ending of a monthly or yearly accounting
period. The Fund reserves the right to change the time at which purchases,
redemptions, and exchanges are priced if the NYSE closes at a time other than
3:00 p.m. CT or if an emergency exists. The Fund's NAV is calculated by taking
the fair value of the Fund's total assets, subtracting all its liabilities, and
dividing by the total number of shares outstanding.
17
<PAGE>
Expenses are accrued daily and applied when determining the NAV. The Fund's
portfolio securities are valued based on market quotations or at fair value as
determined by the method selected by the Fund's Board of Directors.
ADDITIONAL SHAREHOLDER INFORMATION
TELEPHONE AND INTERNET EXCHANGE/REDEMPTION PRIVILEGES
The Fund employs reasonable procedures to confirm that instructions
communicated by telephone or the Internet are genuine. The Fund may not be
liable for losses due to unauthorized or fraudulent instructions. Such
procedures include but are not limited to requiring a form of personal
identification prior to acting on instructions received by telephone or the
Internet, providing written confirmations of such transactions to the address
of record, tape recording telephone instructions and backing up Internet
transactions.
RIGHT OF SET-OFF
To the extent not prohibited by law, the Fund, any other Strong Fund, and
Strong, each has the right to set-off against a shareholder's account balance
with a Strong Fund, and redeem from such account, any debt the shareholder may
owe any of these entities. This right applies even if the account is not
identically registered.
BROKERS RECEIPT OF PURCHASE AND REDEMPTION ORDERS
The Fund has authorized certain brokers to accept purchase and redemption
orders on the Fund's behalf. These brokers are, in turn, authorized to
designate other intermediaries to accept purchase and redemption orders on the
Fund's behalf. The Fund will be deemed to have received a purchase or
redemption order when an authorized broker or, if applicable, a broker's
authorized designee, accepts the order. Purchase and redemption orders
received in this manner will be priced at the Fund's net asset value next
computed after they are accepted by an authorized broker or the broker's
authorized designee.
RETIREMENT PLANS
TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNT (IRA): Everyone under age 70 1/2 with
earned income may contribute to a tax-deferred Traditional IRA. The Strong
Funds offer a prototype plan for you to establish your own Traditional IRA. You
are allowed to contribute up to the lesser of $2,000 or 100% of your earned
income each year to your Traditional IRA (or up to $4,000 between your
Traditional IRA and your non-working spouses' Traditional IRA). Under certain
circumstances, your contribution will be deductible.
ROTH IRA: Taxpayers, of any age, who have earned income, and whose adjusted
gross income ("AGI") does not exceed $110,000 (single) or $160,000 (joint) can
contribute to a Roth IRA. Allowed contributions begin to phase-out at $95,000
(single) or $150,000 (joint). You are allowed to contribute up to the lesser
of $2,000 or 100% of earned income each year into a Roth IRA. If you also
maintain a Traditional IRA, the maximum contribution to your Roth IRA is
reduced by any contributions that you make to your Traditional IRA.
Distributions from a Roth IRA, if they meet certain requirements, may be
federally tax free. If your AGI is $100,000 or less, you can convert your
Traditional IRAs into a Roth IRA. Conversions of earnings and deductible
contributions are taxable in the year of the distribution. The early
distribution penalty does not apply to amounts converted to a Roth IRA even if
you are under age 59 1/2.
EDUCATION IRA: Taxpayers may contribute up to $500 per year into an Education
IRA for the benefit of a child under age 18. Total contributions to any one
child cannot exceed $500 per year. The contributor must have adjusted income
under $110,000 (single) or $160,000 (joint) to contribute to an Education IRA.
Allowed contributions begin to phase-out at $95,000 (single) or $150,000
(joint). Withdrawals from the Education IRA to pay qualified higher education
expenses are federally tax free. Any withdrawal in excess of higher education
expenses for the year are potentially subject to tax and an additional 10%
penalty.
17
<PAGE>
DIRECT ROLLOVER IRA: To avoid the mandatory 20% federal withholding tax on
distributions, you must transfer the qualified retirement or IRC section 403(b)
plan distribution directly into an IRA. The distribution must be eligible for
rollover. The amount of your Direct Rollover IRA contribution will not be
included in your taxable income for the year.
SIMPLIFIED EMPLOYEE PENSION PLAN (SEP-IRA): A SEP-IRA plan allows an employer
to make deductible contributions to separate IRA accounts established for each
eligible employee.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN (SAR SEP-IRA): A SAR SEP-IRA
plan is a type of SEP-IRA plan in which an employer may allow employees to
defer part of their salaries and contribute to an IRA account. These deferrals
help lower the employees' taxable income. Please note that you may no longer
open new SAR SEP-IRA plans (since December 31, 1996). However, employers with
SAR SEP-IRA plans that were established prior to January 1, 1997 may still open
accounts for new employees.
SIMPLIFIED INCENTIVE MATCH PLAN FOR EMPLOYEES (SIMPLE-IRA): A SIMPLE-IRA plan
is a retirement savings plan that allows employees to contribute a percentage
of their compensation, up to $6,000, on a pre-tax basis, to a SIMPLE-IRA
account. The employer is required to make annual contributions to eligible
employees' accounts. All contributions grow tax-deferred.
DEFINED CONTRIBUTION PLAN: A defined contribution plan allows self-employed
individuals, partners, or a corporation to provide retirement benefits for
themselves and their employees. Plan types include: profit-sharing plans,
money purchase pension plans, and paired plans (a combination of a
profit-sharing plan and a money purchase plan).
401(K) PLAN: A 401(k) plan is a type of profit-sharing plan that allows
employees to have part of their salary contributed on a pre-tax basis to a
retirement plan which will earn tax-deferred income. A 401(k) plan is funded by
employee contributions, employer contributions, or a combination of both.
403(B)(7) PLAN: A 403(b)(7) plan is a tax-sheltered custodial account designed
to qualify under section 403(b)(7) of the IRC and is available for use by
employees of certain educational, non-profit, hospital, and charitable
organizations.
ORGANIZATION
The Fund is either a "Corporation" or a "Series" of common stock of a
Corporation, as described in the chart below:
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Incorporation Date Series Authorized Par
Corporation Date Created Shares Value ($)
- ---------------------------------- ------------- ----------- ---------- ---------
Strong Equity Funds, Inc.(1) 12/28/90 Indefinite .00001
- - Strong Growth Fund* 12/28/90 Indefinite .00001
- - Strong Value Fund* 11/01/95 Indefinite .00001
- - Strong Mid Cap Growth Fund* 10/28/96 Indefinite .00001
- - Strong Index 500 Fund 04/08/97 Indefinite .00001
- - Strong Growth 20 Fund* 06/04/97 Indefinite .00001
- - Strong Small Cap Value Fund* 12/10/97 Indefinite .00001
- - Strong Dow 30 Value Fund* 12/10/97 Indefinite .00001
- - Strong Strategic Growth Fund* 5/4/98 Indefinite .00001
- - Strong Enterprise Fund* 9/15/98 Indefinite .00001
- - Strong Mid Cap Disciplined Fund* 12/15/98 Indefinite .00001
- -Strong U.S. Emerging Growth Fund* 12/15/98 Indefinite .00001
</TABLE>
* Described in a different prospectus and SAI.
(1) Prior to November 1, 1995, the Corporation's name was Strong Growth Fund,
Inc.
The Corporation is a Wisconsin corporation that is authorized to offer separate
series of shares representing interests in separate portfolios of securities,
each with differing investment objectives. The shares in any one portfolio
may, in turn, be offered in separate classes, each with differing preferences,
limitations or relative rights. However, the Articles of Incorporation for the
Corporation provide that if additional series of shares are issued by the
Corporation, such new series of shares may not affect the preferences,
limitations or relative rights of the Corporation's outstanding shares. In
addition, the Board of Directors of the Corporation is authorized to allocate
assets, liabilities, income and expenses to each series and class. Classes
within a series may have different expense arrangements than other classes of
the same series and, accordingly, the net asset value of shares within a series
may differ. Finally, all holders of shares of the Corporation may vote on each
matter presented to shareholders for action except with respect to any matter
which affects only one or more series or class, in which case only the shares
of the affected series or class are entitled to vote. Each share of the Fund
has one vote, and all shares participate equally in dividends and other capital
gains distributions by the Fund and in the residual assets of the Fund in the
event of liquidation. Fractional shares have the same rights proportionately
as do full shares. Shares of the Corporation have no preemptive, conversion, or
subscription rights. If the Corporation issues additional series, the assets
belonging to each series of shares will be held separately by the custodian,
and in effect each series will be a separate fund.
SHAREHOLDER MEETINGS
The Wisconsin Business Corporation Law permits registered investment companies,
such as the Fund, to operate without an annual meeting of shareholders under
specified circumstances if an annual meeting is not required by the 1940 Act.
The Fund has adopted the appropriate provisions in its Bylaws and may, at its
discretion, not hold an annual meeting in any year in which the election of
directors is not required to be acted on by shareholders under the 1940 Act.
The Fund's Bylaws allow for a director to be removed by its shareholders with
or without cause, only at a meeting called for the purpose of removing the
director. Upon the written request of the holders of shares entitled to not
less than ten percent (10%) of all the votes entitled to be cast at such
meeting, the Secretary of the Fund shall promptly call a special meeting of
shareholders for the purpose of voting upon the question of removal of any
director. The Secretary shall inform such shareholders of the reasonable
estimated costs of preparing and mailing the notice of the meeting, and upon
payment to the Fund of such costs, the Fund shall give not less than ten nor
more than sixty days notice of the special meeting.
20
<PAGE>
MASTER PORTFOLIO ORGANIZATION
The Master Portfolio is a series of Master Investment Portfolio ("MIP"), an
open-end, series management investment company organized as Delaware business
trust. MIP was organized on October 21 1993. In accordance with Delaware law
and in connection with the tax treatment sought by MIP, the Declaration of
Trust provides that its investors are personally responsible for Trust
liabilities and obligations, but only to the extent the Trust property is
insufficient to satisfy such liabilities and obligations. The Declaration of
Trust also provides that MIP must maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust, its investors, trustees, officers, employees and agents covering
possible tort and other liabilities, and that investors will be indemnified to
the extent they are held liable for a disproportionate share of MIP's
obligations. Thus, the risk of an investor incurring financial loss on account
of investor liability is limited to circumstances in which both inadequate
insurance existed and MIP itself was unable to meet its obligations.
The Declaration of Trust further provide that obligations of MIP are not
binding upon its trustees individually but only upon the property of MIP and
that the trustees will not be liable for any action or failure to act, but
nothing in the Declarations of Trust protects a trustee against any liability
to which the trustee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of the trustee's office.
The interests in the Master Portfolio have substantially identical voting and
other rights as those rights enumerated above for shares of the Fund. MIP is
generally not required to hold annual meetings, but is required by Section
16(c) of the 1940 Act to hold a special meeting and assist investor
communications under certain circumstances. Whenever the Fund is requested to
vote on a matter with respect to the Master Portfolio, the Fund will hold a
meeting of Fund shareholders and will cast its votes as instructed by such
shareholders.
In a situation where the Fund does not receive instruction from certain of its
shareholders on how to vote the corresponding shares of the Master Portfolio,
such Fund will vote such shares in the same proportion as the shares for which
the Fund does receive voting instructions.
PERFORMANCE INFORMATION
The Strong Funds may advertise a variety of types of performance information as
more fully described below. The Fund's performance is historical and past
performance does not guarantee the future performance of the Fund. From time
to time, Strong may agree to waive or reduce its management fee and/or to
absorb certain operating expenses for the Fund. Waivers of management fees and
absorption of expenses will have the effect of increasing the Fund's
performance.
DISTRIBUTION RATE
The distribution rate for the Fund is computed, according to a non-standardized
formula, by dividing the total amount of actual distributions per share paid by
the Fund over a twelve month period by the Fund's net asset value on the last
day of the period. The distribution rate differs from the Fund's yield because
the distribution rate includes distributions to shareholders from sources other
than dividends and interest, such as short-term capital gains. Therefore, the
Fund's distribution rate may be substantially different than its yield. Both
the Fund's yield and distribution rate will fluctuate.
AVERAGE ANNUAL TOTAL RETURN
The Fund's average annual total return quotation is computed in accordance with
a standardized method prescribed by rules of the SEC. The average annual total
return for the Fund for a specific period is calculated by first taking a
hypothetical $10,000 investment ("initial investment") in the Fund's shares on
the first day of the period and computing the "redeemable value" of that
investment at the end of the period. The redeemable value is then divided by
the initial investment, and this quotient is taken to the Nth root (N
representing the number of years in the period) and 1 is subtracted from the
result, which is then expressed as a percentage. The calculation assumes that
all income and capital gains dividends paid by the Fund have been reinvested at
net asset value on the reinvestment dates during the period.
20
<PAGE>
TOTAL RETURN
Calculation of the Fund's total return is not subject to a standardized
formula. Total return performance for a specific period is calculated by first
taking an investment (assumed below to be $10,000) ("initial investment") in
the Fund's shares on the first day of the period and computing the "ending
value" of that investment at the end of the period. The total return
percentage is then determined by subtracting the initial investment from the
ending value and dividing the remainder by the initial investment and
expressing the result as a percentage. The calculation assumes that all income
and capital gains dividends paid by the Fund have been reinvested at net asset
value of the Fund on the reinvestment dates during the period. Total return
may also be shown as the increased dollar value of the hypothetical investment
over the period.
CUMULATIVE TOTAL RETURN
Cumulative total return represents the simple change in value of an investment
over a stated period and may be quoted as a percentage or as a dollar amount.
Total returns and cumulative total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship between these factors and their
contributions to total return.
TOTAL RETURN
INDEX 500 FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Initial $10,000 Ending $ value Cumulative Average Annual
Time Period Investment February 28, 1999 Total Return Total Return
- ------------- --------------- ----------------- ------------ ---------------
Life of Fund* $10,000
- ------------- --------------- ----------------- ------------ ---------------
</TABLE>
* Commenced operations on May 1, 1997.
COMPARISONS
U.S. TREASURY BILLS, NOTES, OR BONDS. Investors may want to compare the
performance of the Fund to that of U.S. Treasury bills, notes, or bonds, which
are issued by the U.S. Government. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Generally, the values of obligations with shorter maturities will
fluctuate less than those with longer maturities.
CERTIFICATES OF DEPOSIT. Investors may want to compare the Fund's performance
to that of certificates of deposit offered by banks and other depositary
institutions. Certificates of deposit may offer fixed or variable interest
rates and principal is guaranteed and may be insured. Withdrawal of the
deposits prior to maturity normally will be subject to a penalty. Rates
offered by banks and other depositary institutions are subject to change at any
time specified by the issuing institution.
MONEY MARKET FUNDS. Investors may also want to compare performance of the Fund
to that of money market funds. Money market fund yields will fluctuate and
shares are not insured, but share values usually remain stable.
LIPPER ANALYTICAL SERVICES, INC. ("LIPPER") AND OTHER INDEPENDENT RANKING
ORGANIZATIONS. From time to time, in marketing and other fund literature, the
Fund's performance may be compared to the performance of other mutual funds in
general or to the performance of particular types of mutual funds with similar
investment goals, as tracked by independent organizations. Among these
organizations, Lipper, a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets, may be
cited. Lipper performance figures are based on changes in
22
<PAGE>
net asset value, with all income and capital gains dividends reinvested. Such
calculations do not include the effect of any sales charges imposed by other
funds. The Fund will be compared to Lipper's appropriate fund category, that
is, by fund objective and portfolio holdings. The Fund's performance may also
be compared to the average performance of its Lipper category.
MORNINGSTAR, INC. The Fund's performance may also be compared to the
performance of other mutual funds by Morningstar, Inc., which rates funds on
the basis of historical risk and total return. Morningstar's ratings range
from five stars (highest) to one star (lowest) and represent Morningstar's
assessment of the historical risk level and total return of a fund as a
weighted average for 3, 5, and 10 year periods. Ratings are not absolute and
do not represent future results.
INDEPENDENT SOURCES. Evaluations of fund performance made by independent
sources may also be used in advertisements concerning the Fund, including
reprints of, or selections from, editorials or articles about the Fund,
especially those with similar objectives. Sources for fund performance and
articles about the Fund may include publications such as Money, Forbes,
Kiplinger's, Smart Money, Financial World, Business Week, U.S. News and World
Report, The Wall Street Journal, Barron's, and a variety of investment
newsletters.
INDICES. The Fund may compare its performance to a wide variety of indices.
There are differences and similarities between the investments that a Fund may
purchase and the investments measured by the indices.
HISTORICAL ASSET CLASS RETURNS. From time to time, marketing materials may
portray the historical returns of various asset classes. Such presentations
will typically compare the average annual rates of return of inflation, U.S.
Treasury bills, bonds, common stocks, and small stocks. There are important
differences between each of these investments that should be considered in
viewing any such comparison. The market value of stocks will fluctuate with
market conditions, and small-stock prices generally will fluctuate more than
large-stock prices. Stocks are generally more volatile than bonds. In return
for this volatility, stocks have generally performed better than bonds or cash
over time. Bond prices generally will fluctuate inversely with interest rates
and other market conditions, and the prices of bonds with longer maturities
generally will fluctuate more than those of shorter-maturity bonds. Interest
rates for bonds may be fixed at the time of issuance, and payment of principal
and interest may be guaranteed by the issuer and, in the case of U.S. Treasury
obligations, backed by the full faith and credit of the U.S. Treasury.
STRONG FUNDS. The Strong Funds offer a comprehensive range of conservative to
aggressive investment options. The Strong Funds and their investment objectives
are listed below. The Funds are listed in ascending order of risk and return,
as determined by the Funds' Advisor.
FUND NAME INVESTMENT OBJECTIVE
<TABLE>
<CAPTION>
<S> <C>
Strong Investors Money Fund Current income, a stable share price, and daily liquidity.
- ---------------------------------- -------------------------------------------------------------------------------
Strong Money Market Fund Current income, a stable share price, and daily liquidity.
- ---------------------------------- -------------------------------------------------------------------------------
Strong Heritage Money Fund Current income, a stable share price, and daily liquidity.
- ---------------------------------- -------------------------------------------------------------------------------
Strong Municipal Money Market Fund Federally tax-exempt current income, a stable share-price, and daily liquidity.
- ---------------------------------- -------------------------------------------------------------------------------
Strong Municipal Advantage Fund Federally tax-exempt current income with a very low degree of share-price
fluctuation.
- ---------------------------------- -------------------------------------------------------------------------------
Strong Advantage Fund Current income with a very low degree of share-price fluctuation.
- ---------------------------------- -------------------------------------------------------------------------------
Strong Short-Term Municipal Bond Total return by investing for a high level of federally tax-exempt current
Fund income with a low degree of share-price fluctuation.
- ---------------------------------- -------------------------------------------------------------------------------
Strong Short-Term Bond Fund Total return by investing for a high level of current income with a low degree
of share-price fluctuation.
- ---------------------------------- -------------------------------------------------------------------------------
Strong Short-Term Global Bond Fund Total return by investing for a high level of income with a low degree of
share-price fluctuation.
- ---------------------------------- -------------------------------------------------------------------------------
Strong Short-Term High Yield Total return by investing for a high level of federally tax-exempt current
Municipal Fund income with a moderate degree of share-price fluctuation.
- ---------------------------------- -------------------------------------------------------------------------------
Strong Short-Term High Yield Bond Total return by investing for a high level of current income with a moderate
Fund degree of share-price fluctuation.
- ---------------------------------- -------------------------------------------------------------------------------
Strong Government Securities Fund Total return by investing for a high level of current income with a moderate
degree of share-price fluctuation.
- ---------------------------------- -------------------------------------------------------------------------------
Strong Municipal Bond Fund Total return by investing for a high level of federally tax-exempt current
income with a moderate degree of share-price fluctuation.
- ---------------------------------- -------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Strong Corporate Bond Fund Total return by investing for a high level of current income with a moderate
degree of share-price fluctuation.
- ---------------------------------- --------------------------------------------------------------------------------
Strong High-Yield Municipal Bond Total return by investing for a high level of federally tax-exempt current
Fund income.
- ---------------------------------- --------------------------------------------------------------------------------
Strong High-Yield Bond Fund Total return by investing for a high level of current income and capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Global High-Yield Bond Fund Total return by investing for a high level of current income and capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong International Bond Fund High total return by investing for both income and capital appreciation.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Asset Allocation Fund High total return consistent with reasonable risk over the long term.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Equity Income Fund Total return by investing for both income and capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong American Utilities Fund Total return by investing for both income and capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Blue Chip 100 Fund Total return by investing for both income and capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Limited Resources Fund Total return by investing for both capital growth and income.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Total Return Fund High total return by investing for capital growth and income.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Growth and Income Fund High total return by investing for capital growth and income.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Index 500 Fund To approximate as closely as practicable (before fees and expenses) the
capitalization-weighted total rate of return of that portion of the U.S. market
for publicly traded common stocks composed of the larger capitalized
companies.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Schafer Balanced Fund Total return by investing for both income and capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Schafer Value Fund Long-term capital appreciation principally through investment in common
stocks and other equity securities. Current income is a secondary objective.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Dow 30 Value Fund Capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Value Fund Capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Opportunity Fund Capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Mid Cap Disciplined Fund Capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Mid Cap Growth Fund Capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Common Stock Fund* Capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Strategic Growth Fund Capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Small Cap Value Fund Capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Growth Fund Capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Discovery Fund Capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong U.S. Emerging Growth Fund Capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Enterprise Fund Capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Growth 20 Fund Capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong International Stock Fund Capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Overseas Fund Capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Foreign MajorMarketsSM Fund Capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
Strong Asia Pacific Fund Capital growth.
- ---------------------------------- --------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
* The Fund is closed to new investors, except the Fund may continue to
offer its shares through certain 401(k) plans and similar company-sponsored
retirement plans.
Strong also serves as investment adviser to several management investment
companies, some of which fund variable annuity separate accounts of certain
insurance companies.
The Fund may from time to time be compared to other Strong Funds based on a
risk/reward spectrum. In general, the amount of risk associated with any
investment product is commensurate with that product's potential level of
reward. The Strong Funds risk/reward continuum or any Fund's position on the
continuum may be described or diagrammed in marketing materials. The Strong
Funds risk/reward continuum positions the risk and reward potential of each
Strong Fund relative to the other Strong Funds, but is not intended to position
any Strong Fund relative to other mutual funds or investment products.
Marketing materials may also discuss the relationship between risk and reward
as it relates to an individual investor's portfolio.
TYING TIME FRAMES TO YOUR GOALS. There are many issues to consider as you make
your investment decisions, including analyzing your risk tolerance, investing
experience, and asset allocations. You should start to organize your
investments by learning to link your many financial goals to specific time
frames. Then you can begin to identify the appropriate types of investments to
help meet your goals. As a general rule of thumb, the longer your time
horizon, the more price fluctuation you will be able to tolerate in pursuit of
higher returns. For that reason, many people with longer-term goals select
stocks or long-term bonds, and many people with nearer-term goals match those
up with for instance, short-term bonds. Strong developed the following
suggested holding periods to help our investors set realistic expectations for
both the risk and reward potential of our funds. (See table below.) Of
course, time is just one element to consider when making your investment
decision.
STRONG FUNDS SUGGESTED MINIMUM HOLDING PERIODS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
UNDER 1 YEAR 1 TO 2 YEARS 4 TO 7 YEARS 5 OR MORE YEARS
- ---------------------- -------------------------- --------------------------- ------------------------
Money Market Fund Advantage Fund Government Securities Fund Asset Allocation Fund
Heritage Money Fund Municipal Advantage Fund Municipal Bond Fund American Utilities Fund
Municipal Money Market Corporate Bond Fund Index 500 Fund
Fund 2 TO 4 YEARS International Bond Fund Total Return Fund
Investors Money Fund Short-Term Bond Fund High-Yield Municipal Bond Opportunity Fund
Short-Term Municipal Bond Fund Growth Fund
Fund High-Yield Bond Fund Common Stock Fund*
Short-Term Global Bond Global High-Yield Bond Fund Discovery Fund
Fund International Stock Fund
Short-Term High Yield Bond Asia Pacific Fund
Fund Value Fund
Short-Term High Yield Growth and Income Fund
Municipal Fund Equity Income Fund
Mid Cap Growth Fund
Schafer Value Fund
Growth 20 Fund
Blue Chip 100 Fund
Small Cap Value Fund
Dow 30 Value Fund
Schafer Balanced Fund
Limited Resources Fund
Overseas Fund
Foreign MajorMarketsSM
Fund
Strategic Growth Fund
Enterprise Fund
Mid Cap Disciplined Fund
U.S. Emerging Growth
Fund
</TABLE>
24
<PAGE>
* This Fund is closed to new investors, except the Fund may continue to
offer its shares through certain 401(k) plans and similar company-sponsored
retirement plans.
ADDITIONAL FUND INFORMATION
PORTFOLIO CHARACTERISTICS. In order to present a more complete picture of the
Fund's portfolio, marketing materials may include various actual or estimated
portfolio characteristics, including but not limited to median market
capitalizations, earnings per share, alphas, betas, price/earnings ratios,
returns on equity, dividend yields, capitalization ranges, growth rates,
price/book ratios, top holdings, sector breakdowns, asset allocations, quality
breakdowns, and breakdowns by geographic region.
MEASURES OF VOLATILITY AND RELATIVE PERFORMANCE. Occasionally statistics may
be used to specify fund volatility or risk. The general premise is that greater
volatility connotes greater risk undertaken in achieving performance. Measures
of volatility or risk are generally used to compare the Fund's net asset value
or performance relative to a market index. One measure of volatility is beta.
Beta is the volatility of a fund relative to the total market as represented by
the Standard & Poor's 500 Stock Index. A beta of more than 1.00 indicates
volatility greater than the market, and a beta of less than 1.00 indicates
volatility less than the market. Another measure of volatility or risk is
standard deviation. Standard deviation is a statistical tool that measures the
degree to which a fund's performance has varied from its average performance
during a particular time period.
Standard deviation is calculated using the following formula:
Standard deviation = the square root of S(xi - xm)2
n-1
25
<PAGE>
Where: S = "the sum of",
xi = each individual return during the time period,
xm = the average return over the time period, and
n = the number of individual returns during the time period.
Statistics may also be used to discuss the Fund's relative performance. One
such measure is alpha. Alpha measures the actual return of a fund compared to
the expected return of a fund given its risk (as measured by beta). The
expected return is based on how the market as a whole performed, and how the
particular fund has historically performed against the market. Specifically,
alpha is the actual return less the expected return. The expected return is
computed by multiplying the advance or decline in a market representation by
the Fund's beta. A positive alpha quantifies the value that the fund manager
has added, and a negative alpha quantifies the value that the fund manager has
lost.
Other measures of volatility and relative performance may be used as
appropriate. However, all such measures will fluctuate and do not represent
future results.
GENERAL INFORMATION
BUSINESS PHILOSOPHY
Strong is an independent, Midwestern-based investment advisor, owned by
professionals active in its management. Recognizing that investors are the
focus of its business, Strong strives for excellence both in investment
management and in the service provided to investors. This commitment affects
many aspects of the business, including professional staffing, product
development, investment management, and service delivery.
The increasing complexity of the capital markets requires specialized skills
and processes for each asset class and style. Therefore, Strong believes that
active management should produce greater returns than a passively managed
index. Strong has brought together a group of top-flight investment
professionals with diverse product expertise, and each concentrates on their
investment specialty. Strong believes that people are the firm's most important
asset. For this reason, continuity of professionals is critical to the firm's
long-term success.
INVESTMENT ENVIRONMENT
Discussions of economic, social, and political conditions and their impact on
the Fund may be used in advertisements and sales materials. Such factors that
may impact the Fund include, but are not limited to, changes in interest rates,
political developments, the competitive environment, consumer behavior,
industry trends, technological advances, macroeconomic trends, and the supply
and demand of various financial instruments. In addition, marketing materials
may cite the portfolio management's views or interpretations of such factors.
EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING
These common sense rules are followed by many successful investors. They make
sense for beginners, too. If you have a question on these principles, or would
like to discuss them with us, please contact us at 1-800-368-3863.
1. HAVE A PLAN - even a simple plan can help you take control of your
financial future. Review your plan once a year, or if your circumstances
change.
2. START INVESTING AS SOON AS POSSIBLE. Make time a valuable ally. Let it
put the power of compounding to work for you, while helping to reduce your
potential investment risk.
27
<PAGE>
3. DIVERSIFY YOUR PORTFOLIO. By investing in different asset classes -
stocks, bonds, and cash - you help protect against poor performance in one type
of investment while including investments most likely to help you achieve your
important goals.
4. INVEST REGULARLY. Investing is a process, not a one-time event. By
investing regularly over the long term, you reduce the impact of short-term
market gyrations, and you attend to your long-term plan before you're tempted
to spend those assets on short-term needs.
5. MAINTAIN A LONG-TERM PERSPECTIVE. For most individuals, the best
discipline is staying invested as market conditions change. Reactive, emotional
investment decisions are all too often a source of regret - and principal loss.
6. CONSIDER STOCKS TO HELP ACHIEVE MAJOR LONG-TERM GOALS. Over time, stocks
have provided the more powerful returns needed to help the value of your
investments stay well ahead of inflation.
7. KEEP A COMFORTABLE AMOUNT OF CASH IN YOUR PORTFOLIO. To meet current
needs, including emergencies, use a money market fund or a bank account - not
your long-term investment assets.
8. KNOW WHAT YOU'RE BUYING. Make sure you understand the potential risks
and rewards associated with each of your investments. Ask questions... request
information...make up your own mind. And choose a fund company that helps you
make informed investment decisions.
STRONG RETIREMENT PLAN SERVICES
Strong Retirement Plan Services offers a full menu of high quality, affordable
retirement plan options, including traditional money purchase pension and
profit sharing plans, 401(k) plans, simplified employee pension plans, salary
reduction plans, Keoghs, and 403(b) plans. Retirement plan specialists are
available to help companies determine which type of retirement plan may be
appropriate for their particular situation.
MARKETS. The retirement plan services provided by Strong focus on four
distinct markets, based on the belief that a retirement plan should fit the
customer's needs, not the other way around.
1. SMALL COMPANY PLANS. Small company plans are designed for companies
with 1-50 plan participants. The objective is to incorporate the features and
benefits typically reserved for large companies, such as sophisticated
recordkeeping systems, outstanding service, and investment expertise, into a
small company plan without administrative hassles or undue expense. Small
company plan sponsors receive a comprehensive plan administration manual as
well as toll-free telephone support.
2. LARGE COMPANY PLANS. Large company plans are designed for companies
with between 51 and 1,000 plan participants. Each large company plan is
assigned a team of professionals consisting of an account manager, who is
typically an attorney, CPA, or holds a graduate degree in business, a
conversion specialist (if applicable), an accounting manager, a legal/technical
manager, and an education/communications educator.
3. WOMEN-OWNED BUSINESSES.
4. NON-PROFIT AND EDUCATIONAL ORGANIZATIONS (THE 403(B) MARKET).
TURNKEY APPROACH. The retirement plans offered by Strong are designed to be
streamlined and simple to administer. To this end, Strong has invested heavily
in the equipment, systems, and people necessary to adopt or convert a plan, and
to keep it running smoothly. Strong provides all aspects of the plan,
including plan design, administration, recordkeeping, and investment
management. To streamline plan design, Strong provides customizable
IRS-approved prototype documents. Strong's services also include annual
government reporting and testing as well as daily valuation of each
participant's account. This structure is intended to eliminate the confusion
and complication often associated with dealing with multiple vendors. It is
also designed to save plan sponsors time and expense.
27
<PAGE>
29
<PAGE>
Strong strives to provide one-stop retirement savings programs that combine the
advantages of proven investment management, flexible plan design, and a wide
range of investment options. The open architecture design of the plans allow
for the use of the family of mutual funds managed by Strong as well as a stable
asset value option. Large company plans may supplement these options with
their company stock (if publicly traded) or funds from other well-known mutual
fund families.
EDUCATION. Participant education and communication is key to the success of
any retirement program, and therefore is one of the most important services
that Strong provides. Strong's goal is twofold: to make sure that plan
participants fully understand their options and to educate them about the
lifelong investment process. To this end, Strong provides attractive, readable
print materials that are supplemented with audio and video tapes, and
retirement education programs.
SERVICE. Strong's goal is to provide a world class level of service. One
aspect of that service is an experienced, knowledgeable team that provides
ongoing support for plan sponsors, both at adoption or conversion and
throughout the life of a plan. Strong is committed to delivering accurate and
timely information, evidenced by straightforward, complete, and understandable
reports, participant account statements, and plan summaries.
Strong has designed both "high-tech" and "high-touch" systems, providing an
automated telephone system as well as personal contact. Participants can
access daily account information, conduct transactions, or have questions
answered in the way that is most comfortable for them.
STRONG FINANCIAL ADVISORS GROUP
The Strong Financial Advisors Group is dedicated to helping financial advisors
better serve their clients. Financial advisors receive regular updates on the
mutual funds managed by Strong, access to portfolio managers through special
conference calls, consolidated mailings of duplicate confirmation statements,
access to Strong's network of regional representatives, and other specialized
services. For more information on the Strong Financial Advisors Group, call
1-800-368-1683.
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP, Three Embarcadero Center, San Francisco, California
94111, have been selected as the independent accountants for the Fund and the
Master Portfolio, providing audit services and assistance and consultation with
respect to the preparation of filings with the SEC.
LEGAL COUNSEL
Godfrey & Kahn, S.C., 780 North Water Street, Milwaukee, Wisconsin 53202, acts
as legal counsel for the Fund.
FINANCIAL STATEMENTS
The Annual Report for the Fund and the Master Investment Portfolio - S&P 500
Index Master Portfolio that is attached to this SAI contains the following
audited financial information:
1. Schedule of Investments in Securities.
2. Statements of Operations.
3. Statements of Assets and Liabilities.
4. Statements of Changes in Net Assets.
5. Notes to Financial Statements.
6. Financial Highlights.
7. Report of Independent Accountants.
29
<PAGE>
STRONG EQUITY FUNDS, INC.
PART C
OTHER INFORMATION
Item 23. EXHIBITS
(a) Articles of Incorporation dated July 31, 1996(3)
(a.1) Amendment to Articles of Incorporation dated October 22, 1996(4)
(a.2) Amendment to Articles of Incorporation dated April 4, 1997(5)
(a.3) Amendment to Articles of Incorporation dated June 24, 1997(6)
(a.4) Amendment to Articles of Incorporation dated December 15,
1997(7)
(a.5) Amendment to Articles of Incorporation dated May 4, 1998(8)
(a.6) Amendment to Articles of Incorporation dated September 15,
1998(9)
(a.7) Amendment to Articles of Incorporation dated December 15,
1998(10)
(a.8) Amendment to Articles of Incorporation dated February 3,
1999(11)
(b) Bylaws dated October 20, 1995(1)
(b.1) Amendment to Bylaws dated May 1, 1998(8)
(c) Specimen Stock Certificate and Article IV to the Articles of
Incorporation(1)
(d) Investment Advisory Agreement(1) [Excluding Index 500 Fund]
(d.1) Subadvisory Agreement (Value Fund)(1)
(d.2) Subadvisory Agreement (Dow 30 Value Fund)(7)
(d.3) Subadvisory Agreement (U.S. Emerging Growth Fund)(10)
(e) Distribution Agreement(1)
(f) Inapplicable
(g) Custody Agreement with Firstar (Growth, Value, Mid Cap Growth,
Growth 20, Small Cap Value, Dow 30 Value, Strategic Growth, Enterprise, Mid Cap
Disciplined, and U.S. Emerging Growth Funds) (2)
(g.1) Global Custody Agreement with Brown Brothers Harriman & Co.
(Growth, Value, Mid Cap Growth, Growth 20, Small Cap Value, Strategic Growth,
Enterprise, Mid Cap Disciplined, and U.S. Emerging Growth Funds)(2)
(g.2) Amendment to Global Custody Agreement with Brown Brothers
Harriman & Co. dated August 26, 1996 (Growth, Value, Mid Cap Growth, Growth 20,
Small Cap Value, Strategic Growth, Enterprise, Mid Cap Disciplined, and U.S.
Emerging Growth Funds)(11)
(g.3) Custody Agreement with Investors Bank and Trust (Index 500
Fund)(5)
(h) Shareholder Servicing Agent Agreement (relating to transfer and
dividend-disbursing agent activities) [Excluding Index 500 Fund](1)
(h.1) Shareholder Servicing Agent Agreement (relating to personal
services provided to shareholders)[Index 500 Fund](5)
(i) Inapplicable
(j) Inapplicable
(k) Inapplicable
(l) Inapplicable
(m) Inapplicable
(n) Inapplicable
(o) Inapplicable
(p) Power of Attorney for the Registrant dated April 28, 1999(12)
(p.1) Power of Attorney for the Master Investment Portfolio dated
February 13, 1997(5)
(q) Inapplicable
(r) Code of Ethics for Access Persons dated January 1, 1999(12)
(r.1) Code of Ethics for Non-Access Persons dated January 1, 1999(12)
__________________________
1
<PAGE>
(1) Incorporated herein by reference to Post-Effective Amendment No. 5 to
the Registration Statement on Form N-1A filed on or about December 15, 1995.
(2) Incorporated herein by reference to Post-Effective Amendment No. 7 to
the Registration Statement on Form N-1A filed on or about July 30, 1996.
(3) Incorporated herein by reference to Post-Effective Amendment No. 8 to
the Registration Statement on Form N-1A filed on or about October 17, 1996.
(4) Incorporated herein by reference to Post-Effective Amendment No. 9 to
the Registration Statement on Form N-1A filed on or about December 30, 1996.
(5) Incorporated herein by reference to Post-Effective Amendment No. 12 to
the Registration Statement on Form N-1A filed on or about April 25, 1997.
(6) Incorporated herein by reference to Post-Effective Amendment No. 13 to
the Registration Statement on Form N-1A filed on or about June 27, 1997.
(7) Incorporated herein by reference to Post-Effective Amendment No. 16 to
the Registration Statement on Form N-1A filed on or about December 24, 1997.
(8) Incorporated herein by reference to Post-Effective Amendment No. 20 to
the Registration Statement on Form N-1A filed on or about May 18, 1998.
(9) Incorporated herein by reference to Post-Effective Amendment No. 23 to
the Registration Statement on Form N-1A filed on or about September 28, 1998.
(10) Incorporated herein by reference to Post-Effective Amendment No. 25 to
the Registration Statement on Form N-1A filed on or about December 30, 1998.
(11) Incorporated herein by reference to Post-Effective Amendment No. 26 to
the Registration Statement on Form N-1A filed on or about March 2, 1999.
(12) Incorporated herein by reference to Post-Effective Amendment No. 27 to
the Registration Statement on Form N-1A filed on or about April 29, 1999.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant neither controls any person nor is under common control with
any other person.
Item 25. INDEMNIFICATION
Officers and directors of the Funds, its advisor and underwriter are
insured under a joint directors and officers/errors and omissions insurance
policy underwritten by a group of insurance companies in the aggregate amount
of $115,000,000, subject to certain deductions. Pursuant to the authority of
the Wisconsin Business Corporation Law ("WBCL"), Article VII of Registrant's
Bylaws provides as follows:
ARTICLE VII. INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 7.01. MANDATORY INDEMNIFICATION. The Corporation shall
indemnify, to the full extent permitted by the WBCL, as in effect from time to
time, the persons described in Sections 180.0850 through 180.0859 (or any
successor provisions) of the WBCL or other provisions of the law of the State
of Wisconsin relating to indemnification of directors and officers, as in
effect from time to time. The
2
<PAGE>
indemnification afforded such persons by this section shall not be exclusive of
other rights to which they may be entitled as a matter of law.
SECTION 7.02. PERMISSIVE SUPPLEMENTARY BENEFITS. The Corporation
may, but shall not be required to, supplement the right of indemnification
under Section 7.01 by (a) the purchase of insurance on behalf of any one or
more of such persons, whether or not the Corporation would be obligated to
indemnify such person under Section 7.01; (b) individual or group
indemnification agreements with any one or more of such persons; and (c)
advances for related expenses of such a person.
SECTION 7.03. AMENDMENT. This Article VII may be amended or
repealed only by a vote of the shareholders and not by a vote of the Board of
Directors.
SECTION 7.04. INVESTMENT COMPANY ACT. In no event shall the
Corporation indemnify any person hereunder in contravention of any provision of
the Investment Company Act.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
GROWTH, GROWTH 20, SMALL CAP VALUE, MID CAP GROWTH, STRATEGIC GROWTH,
ENTERPRISE, AND MID CAP DISCIPLINED FUNDS
The information contained under "Who are the funds' investment advisor and
portfolio managers?" in the Prospectus and under "Directors and Officers,"
"Investment Advisor," and "Distributor" in the Statement of Additional
Information is hereby incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
VALUE, DOW 30 VALUE, AND U.S. EMERGING GROWTH FUNDS
The information contained under "Who are the funds' investment advisor and
portfolio managers?" in the Prospectus and under "Directors and Officers,"
"Investment Advisor," "Subadvisor," and "Distributor" in the Statement of
Additional Information is hereby incorporated by reference pursuant to Rule 411
under the Securities Act of 1933.
INDEX 500 FUND
The information contained under "Who is the fund's investment advisor?" in
the Prospectus and under "Directors and Officers" "Investment Advisor," and
"Distributor" in the Statement of Additional Information is hereby incorporated
by reference pursuant to Rule 411 under the Securities Act of 1933.
Item 27. PRINCIPAL UNDERWRITERS
(a) Strong Investments, Inc., principal underwriter for Registrant, also
serves as principal underwriter for Strong Advantage Fund, Inc.; Strong Asia
Pacific Fund, Inc.; Strong Asset Allocation Fund, Inc.; Strong Common Stock
Fund, Inc.; Strong Conservative Equity Funds, Inc.; Strong Corporate Bond Fund,
Inc.; Strong Discovery Fund, Inc.; Strong Government Securities Fund, Inc.;
Strong Heritage Reserve Series, Inc.; Strong High-Yield Municipal Bond Fund,
Inc.; Strong Income Funds, Inc.; Strong Institutional Funds, Inc.; Strong
International Equity Funds, Inc.; Strong International Income Funds, Inc.;
Strong Life Stage Series, Inc.; Strong Money Market Fund, Inc.; Strong
Municipal Bond Fund, Inc.; Strong Municipal Funds, Inc.; Strong Opportunity
Fund, Inc.; Strong Opportunity Fund II, Inc.; Strong Schafer Funds, Inc.;
Strong Schafer Value Fund, Inc.; Strong Short-Term Bond Fund, Inc.; Strong
Short-Term Global Bond Fund, Inc.; Strong Short-Term Municipal Bond Fund, Inc.;
Strong Total Return Fund, Inc.; and Strong Variable Insurance Funds, Inc.
3
<PAGE>
(b)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH UNDERWRITER WITH FUND
Richard S. Strong Director and Chairman Director and Chairman of
900 Heritage Reserve of the Board the Board
Menomonee Falls, WI 53051
Thomas P. Lemke Vice President and Chief Vice President
900 Heritage Reserve Compliance Officer
Menomonee Falls, WI 53051
Stephen J. Shenkenberg Vice President, Deputy Vice President
900 Heritage Reserve Chief Compliance Officer and Secretary
Menomonee Falls, WI 53051 and Secretary
Peter D. Schwab Vice President none
900 Heritage Reserve
Menomonee Falls, WI 53051
Joseph R. DeMartine Vice President none
900 Heritage Reserve
Menomonee Falls, WI 53051
Anthony J. D'Amato Vice President none
900 Heritage Reserve
Menomonee Falls, WI 53051
Dana J. Russart Vice President none
900 Heritage Reserve
Menomonee Falls, WI 53051
Mary F. Hoppa Vice President none
900 Heritage Reserve
Menomonee Falls, WI 53051
Thomas M. Zoeller Treasurer and Chief none
900 Heritage Reserve Financial Officer
Menomonee Falls, WI 53051
Richard T. Weiss Director none
900 Heritage Reserve
Menomonee Falls, WI 53051
(c) None
Item 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are in the physical possession of Registrant's Vice President,
Thomas P. Lemke, at Registrant's corporate offices, 100 Heritage Reserve,
Menomonee Falls, Wisconsin 53051.
4
<PAGE>
Item 29. MANAGEMENT SERVICES
All management-related service contracts entered into by Registrant are
discussed in Parts A and B of this Registration Statement.
Item 30. UNDERTAKINGS
None
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly
caused this Post-Effective Amendment No. 28 to the Registration Statement on
Form N-1A to be signed on its behalf by the undersigned, thereto duly
authorized, in the Village of Menomonee Falls, and State of Wisconsin on the
29th day of April, 1999.
STRONG EQUITY FUNDS, INC.
(Registrant)
By: /S/ THOMAS P. LEMKE
Thomas P. Lemke, Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 28 to the Registration Statement on Form N-1A has
been signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME TITLE DATE
- --------------------------- ---------------------------------- ----------------
Chairman of the Board (Principal
/s/ Richard S. Strong Executive Officer) and a Director April 29, 1999
- ---------------------------
Richard S. Strong
Treasurer (Principal Financial and
/s/ Dana J. Russart Accounting Officer) April 29, 1999
- ---------------------------
Dana J. Russart
Director April 29, 1999
- ---------------------------
Marvin E. Nevins*
Director April 29, 1999
- ---------------------------
Willie D. Davis*
Director April 29, 1999
- ---------------------------
William F. Vogt*
Director April 29, 1999
- ---------------------------
Stanley Kritzik*
</TABLE>
* John S. Weitzer signs this document pursuant to powers of attorney filed
with Post-Effective Amendment No. 27 to the Registration Statement on Form
N-1A.
By: /S/ JOHN S. WEITZER
John S. Weitzer
1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
EDGAR
EXHIBIT NO. EXHIBIT EXHIBIT NO.
- ----------- -----------------
None
</TABLE>
1
<PAGE>
