<PAGE> 1
As filed with the Securities and Exchange Commission on or about June 29, 1995
Securities Act Registration No. 33-59361
Investment Company Act Registration No. 811-7285
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 2 [X]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 2 [X]
(Check appropriate box or boxes)
STRONG HERITAGE RESERVE SERIES, INC.
(Exact Name of Registrant as Specified in Charter)
100 HERITAGE RESERVE
MENOMONEE FALLS, WISCONSIN 53051
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (414) 359-3400
THOMAS P. LEMKE
STRONG CAPITAL MANAGEMENT, INC.
100 HERITAGE RESERVE
MENOMONEE FALLS, WISCONSIN 53051
(Name and Address of Agent for Service)
Copies to:
SCOTT A. MOEHRKE
GODFREY & KAHN, S.C.
780 NORTH WATER STREET
MILWAUKEE, WISCONSIN 53202
Approximate Date of Proposed Public Offering: As soon as practicable
after the Registration Statement becomes effective.
In accordance with Rule 24f-2(a)(1) under the Investment Company Act of
1940, Registrant has previously elected to register an indefinite number of
shares of its common stock, $.00001 par value.
<PAGE> 2
STRONG HERITAGE RESERVE SERIES, INC.
CROSS REFERENCE SHEET
FOR STRONG HERITAGE MONEY FUND
(Pursuant to Rule 481 showing the location in the Prospectus and the
Statement of Additional Information of the responses to the Items of Parts A
and B of Form N-1A.)
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<CAPTION>
CAPTION OR SUBHEADING IN PROSPECTUS OR
ITEM NO. ON FORM N-1A STATEMENT OF ADDITIONAL INFORMATION
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PART A - INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Expenses
3. Condensed Financial Information Inapplicable
4. General Description of Registrant Investment Objective and Policies; Implementation
of Policies and Risks; About the Fund -
Organization
5. Management of the Fund About the Fund - Management
5A. Management's Discussion of Fund Performance Inapplicable
6. Capital Stock and Other Securities About the Fund - Organization, - Distributions and
Taxes; Shareholders Manual - Shareholder Services
7. Purchase of Securities Being Offered Shareholder Manual - How to Buy Shares, -
Determining Your Share Price, - Shareholder
Services
8. Redemption or Repurchase Shareholder Manual - How to Sell Shares, -
Determining Your Share Price, - Shareholder
Services
9. Pending Legal Proceedings Inapplicable
PART B - INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL
INFORMATION
10. Cover Page Cover page
11. Table of Contents Table of Contents
12. General Information and History *
13. Investment Objectives and Policies Investment Restrictions; Investment Policies and
Techniques
14. Management of the Fund Directors and Officers of the Corporation
15. Control Persons and Principal Holders of Securities Principal Shareholders; Directors and Officers of
the Corporation; Investment Advisor and Distributor
16. Investment Advisory and Other Services Investment Advisor and Distributor; About the Fund
- Management (in Prospectus); Custodian; Transfer
Agent and Dividend-Disbursing Agent; Independent
Accountants; Legal Counsel
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
CAPTION OR SUBHEADING IN PROSPECTUS OR
ITEM NO. ON FORM N-1A STATEMENT OF ADDITIONAL INFORMATION
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17. Brokerage Allocation and Other Practices Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities Included in Prospectus under the heading About the
Fund - Organization and in the Statement of
Additional Information under the heading
Shareholder Meetings
19. Purchase, Redemption and Pricing of Securities Being Included in Prospectus under the headings:
Offered Shareholder Manual - How to Buy Shares, -
Determining Your Share Price, - How to Sell Shares,
- Shareholder Services; and in the Statement of
Additional Information under the headings:
Additional Shareholder Information; Investment
Advisor and Distributor; and Determination of Net
Asset Value
20. Tax Status Included in Prospectus under the heading About the
Fund - Distributions and Taxes; and in the
Statement of Additional Information under the
heading Taxes
21. Underwriters Investment Advisor and Distributor
22. Calculation of Performance Data Performance Information
23. Financial Statements Statement of Assets and Liabilities
</TABLE>
* Complete answer to Item is contained in Strong Heritage Money Fund's
Prospectus.
<PAGE> 4
Dated June 29, 1995
STRONG HERITAGE MONEY FUND
<TABLE>
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STRONG FUNDS
P.O. Box 2936
Milwaukee, Wisconsin 53201
Telephone: (414) 359-1400
Toll-Free: (800) 368-3863
Device for the
Hearing-Impaired:
(800) 999-2780
</TABLE>
The Strong Family of Funds ("Strong Funds") is a family of twenty-three,
diversified and non-diversified, open-end management investment companies,
commonly called mutual funds. All of the Strong Funds are no-load funds. There
are no sales charges or 12b-1 fees. The Strong Funds include growth funds,
growth and income funds, income funds, municipal income funds, and money market
funds. The Strong Heritage Money Fund is described in this Prospectus.
This Prospectus contains information you should consider before you invest.
Please read it carefully and keep it for future reference. A Statement of
Additional Information for the Fund, dated June 29, 1995, contains further
information, is incorporated by reference into this Prospectus, and has been
filed with the Securities and Exchange Commission ("SEC"). This Statement, which
may be revised from time to time, is available without charge upon request to
the above-noted address or telephone number.
AN INVESTMENT IN THE STRONG HERITAGE MONEY FUND IS NOT INSURED OR GUARANTEED
BY THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAP-
PROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECU-
RITIES AND EXCHANGE COMMISSION OR ANY STATE SECURI-
TIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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PROSPECTUS PAGE I-1
<PAGE> 5
STRONG HERITAGE MONEY FUND seeks current income, a stable share price, and
daily liquidity. The Fund invests in corporate, bank, and government instruments
that present minimal credit risk. The Fund is a diversified series of Strong
Heritage Reserve Series, Inc. (the "Corporation").
TABLE OF CONTENTS
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EXPENSES..................................... I-3
INVESTMENT OBJECTIVE AND POLICIES............ I-4
IMPLEMENTATION OF POLICIES AND RISKS......... I-5
ABOUT THE FUND............................... I-9
SHAREHOLDER MANUAL........................... II-1
</TABLE>
Risks: the investment risks associated with investing in the Fund and with
certain types of securities in which the Fund may invest are discussed in the
sections entitled "Investment Objective and Policies" and "Implementation of
Policies and Risks."
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the Statement
of Additional Information, and if given or made, such information or
representations may not be relied upon as having been authorized by the Fund.
This Prospectus does not constitute an offer to sell securities in any state or
jurisdiction in which such offering may not lawfully be made.
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PROSPECTUS PAGE I-2
<PAGE> 6
EXPENSES
The following information is provided in order to help you understand the
various costs and expenses that you, as an investor in the Fund, will bear
directly or indirectly.
SHAREHOLDER TRANSACTION EXPENSES
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Sales Load Imposed on Purchases............. NONE
Sales Load Imposed on Reinvested
Dividends................................. NONE
Deferred Sales Load......................... NONE
Each Redemption, Exchange, or Check......... $3.00*
</TABLE>
* These transaction fees are waived if your account balance at the time of the
transaction is $100,000 or more.
There are certain charges associated with retirement accounts, low balance
accounts, and certain other special shareholder services offered by the Fund.
Additionally, purchases and redemptions may also be made through broker-dealers
or others who may charge a commission or other transaction fee for their
services. (See "Shareholder Manual - How to Buy Shares" and "- How to Sell
Shares.")
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
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Management Fee.............................. 0.00%
Other Expenses.............................. 0.00%
12b-1 Fees.................................. NONE
Total Operating Expenses.................... 0.00%
</TABLE>
THE FUND'S INVESTMENT ADVISOR, STRONG CAPITAL MANAGEMENT, INC. (THE
"ADVISOR"), HAS AGREED TO VOLUNTARILY WAIVE ITS MANAGEMENT FEE AND ABSORB THE
FUND'S OPERATING EXPENSES FROM COMMENCEMENT OF OPERATIONS ON JUNE 29, 1995 TO
JANUARY 1, 1996. Without the waiver and absorption, the Fund's Management Fee
would be .50%, its Other Expenses would be .09%, and its Total Operating
Expenses would be .59%. Since the Fund is new and did not commence operations
until June 29, 1995, the Other Expenses have been estimated. From time to time,
the Advisor may voluntarily waive its management fee and/or absorb certain
expenses for the Fund. For additional information concerning fees and expenses,
see "About the Fund - Management."
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PROSPECTUS PAGE I-3
<PAGE> 7
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
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<CAPTION>
Period (in years)
Fund 1 3
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Strong Heritage Money Fund $ 6 $19
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The Example is based on the Fund's "Total Operating Expenses", as described
above. PLEASE REMEMBER THAT THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND THAT ACTUAL EXPENSES MAY BE HIGHER
OR LOWER THAN THOSE SHOWN. The assumption in the Example of a 5% annual return
is required by regulations of the SEC applicable to all mutual funds. The
assumed 5% annual return is not a prediction of, and does not represent, the
projected or actual performance of the Fund's shares.
INVESTMENT OBJECTIVE AND POLICIES
The Fund has adopted certain fundamental investment restrictions that are
designed to reduce the Fund's investment risk. A complete list of these and
other operating policies are set forth in the Fund's Statement of Additional
Information ("SAI"). To further guide investment activities, the Fund has also
instituted a number of non-fundamental operating policies, which are described
throughout this Prospectus and in the SAI. Although operating policies may be
changed by the Fund's Board of Directors without shareholder approval, the Fund
will promptly notify shareholders of any material change in operating policies.
Because of the risks inherent in all investments, there can be no assurance
that the Fund will meet its objective, which is discussed below. You may want to
pursue more than one investment objective by investing in one of the other
Strong Funds, which are described in separate prospectuses.
STRONG HERITAGE MONEY FUND
The Fund seeks current income, a stable share price, and daily liquidity. The
Fund invests in corporate, bank, and government instruments that present minimal
credit risk.
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PROSPECTUS PAGE I-4
<PAGE> 8
The Strong Heritage Money Fund is designed for investors who are willing to
maintain a balance of at least $25,000 in order to pursue:
- Higher yields from lower expenses; and
- Gaining greater control over their transaction costs.
Because the Fund seeks to maintain a constant net asset value of $1.00 per
share, capital appreciation is not expected to play a role in the Fund's
returns, and dividend income alone will provide its entire investment return.
All money market instruments can change in value when interest rates or an
issuer's creditworthiness change dramatically. THE FUND CANNOT GUARANTEE THAT IT
WILL ALWAYS BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. An
investment in the Fund is neither insured nor guaranteed by the U.S. government.
The Fund invests in a combination of bank, corporate, and government
obligations that present minimal credit risks. The Fund restricts its
investments to instruments that meet certain maturity and quality standards
required or permitted by Rule 2a-7 under the Investment Company Act of 1940 (the
"1940 Act") for money market funds. Accordingly, the Fund:
(i) limits its average portfolio maturity to ninety days or less;
(ii) buys only securities with remaining maturities of thirteen months or
less; and
(iii) buys only U.S. dollar-denominated securities that present minimal
credit risk and are "high quality," as described below.
The Fund invests only in high-quality securities. Accordingly, the Fund will
invest at least 95% of its total assets in "first-tier" securities, generally
defined as those securities that, at the time of acquisition, are rated in the
highest rating category by at least two nationally recognized statistical rating
organizations ("NRSROs") or, if unrated, are determined by the Advisor to be of
comparable quality. The balance of the Fund, up to 5% of its total assets, may
be invested in securities that are considered "second-tier" securities,
generally defined as those securities that, at the time of acquisition, are
rated in the second-highest rating category or are determined by the Advisor to
be of comparable quality. (See the SAI for a description of ratings.)
IMPLEMENTATION OF POLICIES
AND RISKS
In addition to the investment policies described above (and subject to
certain restrictions described below), the Fund may invest in the following
securities and may employ the following investment techniques, some of which may
present special risks as described below. Presently, the Fund does not intend to
engage in cross-trading. A more complete discussion of certain of these
securities and investment techniques and the associated risks is contained in
the Fund's SAI.
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PROSPECTUS PAGE I-5
<PAGE> 9
DEBT OBLIGATIONS
TYPES OF OBLIGATIONS. Debt obligations in which the Fund may invest include
(i) corporate debt obligations, including bonds, debentures, and notes; (ii)
bank obligations, such as certificates of deposit, banker's acceptances, and
time deposits of domestic and foreign banks and their subsidiaries and branches,
and domestic savings and loan associations (in amounts in excess of the
insurance coverage (currently $100,000 per account) provided by the Federal
Deposit Insurance Corporation); (iii) commercial paper (including
variable-amount master demand notes); (iv) repurchase agreements; (v) floating-
or variable-rate debt obligations; (vi) asset-backed debt obligations; (vii)
U.S. dollar denominated foreign debt obligations; (viii) U.S. Government
Securities issued or guaranteed by the U.S. Treasury (such as bills, notes, or
bonds) or by an agency or instrumentality of the U.S. government; and (ix)
municipal obligations. With regard to these types of investments, the Fund may
not invest in any debt obligation that does not meet the maturity and quality
standards of Rule 2a-7 under the 1940 Act for money market funds.
GOVERNMENT SECURITIES. U.S. government securities are issued or guaranteed by
the U.S. government or its agencies or instrumentalities. Securities issued by
the government include U.S. Treasury obligations, such as Treasury bills, notes,
and bonds. Securities issued or guaranteed by government agencies or
instrumentalities include the following:
- - the Federal Housing Administration, Farmers Home Administration, Export-Import
Bank of the United States, Small Business Administration, and the Government
National Mortgage Association, including GNMA pass-through certificates, whose
securities are supported by the full faith and credit of the United States;
- - the Federal Home Loan Banks, Federal Intermediate Credit Banks, and the
Tennessee Valley Authority, whose securities are supported by the right of the
agency to borrow from the U.S. Treasury;
- - the Federal National Mortgage Association, whose securities are supported by
the discretionary authority of the U.S. government to purchase certain
obligations of the agency or instrumentality; and
- - the Student Loan Marketing Association, the Interamerican Development Bank,
and International Bank for Reconstruction and Development, whose securities
are supported only by the credit of such agencies.
Although the U.S. government provides financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so. The U.S. government and its agencies and
instrumentalities do not guarantee the market value of their securities;
consequently, the value of such securities will fluctuate.
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PROSPECTUS PAGE I-6
<PAGE> 10
ASSET-BACKED DEBT OBLIGATIONS. The Fund may invest in asset-backed debt
obligations. Asset-backed debt obligations represent direct or indirect
participation in, or secured by and payable from, assets such as motor vehicle
installment sales contracts, other installment loan contracts, home equity
loans, leases of various types of property and receivables from credit card or
other revolving credit arrangements. Payments or distributions of principal and
interest on asset-backed debt obligations may be supported by non-governmental
credit enhancements including letters of credit, reserve funds,
overcollateralization, and guarantees by third parties.
MUNICIPAL OBLIGATIONS. The Fund may invest in municipal debt obligations
issued by or on behalf of states, territories, and possessions of the United
States and the District of Columbia and their political subdivisions, agencies,
and instrumentalities. Municipal obligations generally include debt obligations
issued to obtain funds for various public purposes. Certain types of municipal
obligations are issued in whole or in part to obtain funding for privately
operated facilities or projects. Municipal obligations include general
obligation bonds, revenue bonds, industrial development bonds, notes, and
municipal lease obligations.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and non-bank
dealers. In a repurchase agreement, the Fund buys a security at one price, and
at the time of sale, the seller agrees to repurchase the obligation at a
mutually agreed upon time and price (usually within seven days). The repurchase
agreement determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. The Fund may enter into repurchase agreements with respect to any
security in which it may invest. The Advisor will monitor, on an ongoing basis,
the value of the underlying securities to ensure that the value always equals or
exceeds the repurchase price plus accrued interest. Repurchase agreements could
involve certain risks in the event of a default or insolvency of the other party
to the agreement, including possible delays or restrictions upon the Fund's
ability to dispose of the underlying securities. Although no definitive
creditworthiness criteria are used, the Advisor reviews the creditworthiness of
the banks and non-bank dealers with which the Fund enters into repurchase
agreements to evaluate those risks. The Fund may, under certain circumstances,
deem repurchase agreements collateralized by U.S. government securities to be
investments in U.S. government securities.
FOREIGN SECURITIES
The Fund may invest up to 25% of its total assets directly in foreign
securities. In accordance with Rule 2a-7 under the 1940 Act, the Fund will limit
its investments in foreign securities to those denominated in U.S. dollars.
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PROSPECTUS PAGE I-7
<PAGE> 11
Foreign investments involve special risks, including:
- - expropriation, confiscatory taxation, and withholding taxes on dividends and
interest;
- - less extensive regulation of foreign brokers, securities markets, and issuers;
- - less publicly available information and different accounting standards;
- - possible delays in settlement in foreign securities markets, limitations on
the use or transfer of assets, and difficulty of enforcing obligations in
other countries; and
- - diplomatic developments and political or social instability.
Foreign economies may differ favorably or unfavorably from the U.S. economy
in various respects, including growth of gross domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource
self-sufficiency, and balance of payments positions. Many foreign securities are
less liquid and their prices more volatile than comparable U.S. securities.
WHEN-ISSUED SECURITIES
The Fund may invest without limitation in securities purchased on a when-
issued or delayed delivery basis. Although the payment and interest terms of
these securities are established at the time the purchaser enters into the
commitment, these securities may be delivered and paid for at a future date,
generally within 45 days. Purchasing when-issued securities allows the Fund to
lock in a fixed price or yield on a security it intends to purchase. However,
when the Fund purchases a when-issued security, it immediately assumes the risk
of ownership, including the risk of price fluctuation until the settlement date.
The greater the Fund's outstanding commitments for these securities, the
greater the exposure to potential fluctuations in the net asset value of the
Fund. Purchasing when-issued securities may involve the additional risk that the
yield available in the market when the delivery occurs may be higher or the
market price lower than that obtained at the time of commitment. Although the
Fund may be able to sell these securities prior to the delivery date, it will
purchase when-issued securities for the purpose of actually acquiring the
securities, unless, after entering into the commitment, a sale appears desirable
for investment reasons. When required by SEC guidelines, the Fund will set aside
permissible liquid assets in a segregated account to secure its outstanding
commitments for when-issued securities.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its net assets in illiquid securities.
Illiquid securities are those securities that are not readily marketable,
including restricted securities and repurchase obligations maturing in more than
seven days. Certain restricted securities which may be resold to institutional
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PROSPECTUS PAGE I-8
<PAGE> 12
investors under Rule 144A under the Securities Act of 1933 and Section 4(2)
commercial paper may be determined to be liquid under guidelines adopted by the
Corporation's Board of Directors.
ABOUT THE FUND
MANAGEMENT
The Board of Directors of the Fund is responsible for managing its business
and affairs. The Fund has entered into an investment advisory agreement with
Strong Capital Management, Inc. (the "Advisor"). Under the terms of the
agreement, the Advisor manages the Fund's investments and business affairs
subject to the supervision of the Fund's Board of Directors.
ADVISOR. The Advisor began conducting business in 1974. Since then, its
principal business has been providing continuous investment supervision for
individuals and institutional accounts, such as pension funds and profit-sharing
plans. The Advisor also acts as investment advisor for each of the mutual funds
within the Strong Family of Funds. As of May 31, 1995, the Advisor had over $13
billion under management. The Advisor's principal mailing address is P.O. Box
2936, Milwaukee, Wisconsin 53201. Mr. Richard S. Strong, the Chairman of the
Board of the Fund, is the controlling shareholder of the Advisor.
As compensation for its services, the Fund pays the Advisor a monthly
management fee based on a percentage of the Fund's average daily net asset
value. The annual rate is .50%. From time to time, the Advisor may voluntarily
waive all or a portion of its management 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.
PORTFOLIO MANAGER. Mr. Jay N. Mueller serves as the portfolio manager for the
Fund. Mr. Mueller joined the Advisor in September 1991 as a securities analyst
and portfolio manager. For four years prior to that, he was a securities analyst
and portfolio manager with R. Meeder & Associates of Dublin, Ohio. Mr. Mueller
received his bachelor's degree in economics in 1982 from the University of
Chicago. Mr. Mueller is also a Chartered Financial Analyst. Mr. Mueller has
managed the Fund since its inception in June 1995. He has also managed the
Strong Money Market Fund and Strong U.S. Treasury Money Fund since September
1991.
TRANSFER AND DIVIDEND-DISBURSING AGENT
The Advisor, P.O. Box 2936, Milwaukee, Wisconsin 53201, also acts as
dividend-disbursing agent and transfer agent for the Fund. The Advisor is
compensated for these services based on an annual fee per account plus certain
out-of-pocket expenses. The fees received and the services provided as
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PROSPECTUS PAGE I-9
<PAGE> 13
transfer agent and dividend-disbursing agent are in addition to those received
and provided under the advisory agreement between the Advisor and the Fund.
DISTRIBUTOR
Strong Funds Distributors, Inc., P.O. Box 2936, Milwaukee, Wisconsin 53201,
an indirect subsidiary of the Advisor, acts as distributor of the shares of the
Fund.
ORGANIZATION
SHAREHOLDER RIGHTS. The Fund is a series of Common Stock of the Corporation,
a Wisconsin corporation that is authorized to issue shares of Common Stock and
series and classes of series of shares of Common Stock. Each share of the Fund
has one vote, and all shares participate equally in dividends and other capital
gains distributions and in the residual assets of the Fund in the event of
liquidation. Certificates will be issued for shares held in your account only
upon your written request. You will, however, have full shareholder rights
whether or not you request certificates. Generally, the Fund will not hold an
annual meeting of shareholders unless required by the 1940 Act. Shareholders
have certain rights, including the right to call a meeting upon a vote of 10% of
the Fund's outstanding shares for the purpose of voting to remove one or more
directors or to transact any other business.
SHAREHOLDER PRIVILEGES. The shareholders of the Fund may benefit from the
privileges described in the "Shareholder Manual" (see page II-1). However, the
Fund reserves the right, at any time and without prior notice, to suspend,
limit, modify, or terminate any of these privileges or their use in any manner
by any person or class.
DISTRIBUTIONS AND TAXES
PAYMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS. You may elect to have all your
dividends from the Fund automatically reinvested in additional shares of the
Fund or in shares of another Strong Fund at the net asset value determined on
the payment date. If you request in writing that your dividends be paid in cash,
the Fund will credit your bank account by Electronic Funds Transfer ("EFT") or
issue a check to you within five business days of the payment date. You may
change your election at any time by calling or writing Strong Funds. Strong
Funds must receive any such change 7 days (15 days for EFT) prior to a dividend
or capital gain distribution payment date in order for the change to be
effective for that payment.
The policy of the Fund is to pay dividends from net investment income
monthly. The Fund declares dividends on each day its net asset value is
calculated. Income earned on weekends, holidays, and other days on which net
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PROSPECTUS PAGE I-10
<PAGE> 14
asset value is not calculated is declared as a dividend on the day on which the
Fund's net asset value was most recently calculated.
TAX STATUS OF DIVIDENDS. You will be subject to federal income tax at
ordinary income tax rates on any dividends you receive.
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. All state laws provide a pass-through to
mutual fund shareholders of the state and local income tax exemption afforded
owners of direct U.S. government obligations, although there are conditions to
this treatment in some states. You will be notified annually of the percentage
of the Fund's income that is derived from U.S. government securities.
YEAR-END TAX REPORTING. After the end of each calendar year, you will receive
a statement (Form 1099) of the federal income tax status of all dividends paid
(or deemed paid) during the year.
SHARES SOLD OR EXCHANGED. If you redeem all shares in an account at any time
during a month, dividends credited to the account since the beginning of the
month through the day of redemption will be paid with the redemption proceeds.
BACKUP WITHHOLDING. If you are an individual or certain other noncorporate
shareholder and do not furnish the Fund with a correct taxpayer identification
number, the Fund is required to withhold federal income tax at a rate of 31%
(backup withholding) from all dividends payable to you. To avoid backup
withholding, you must provide a taxpayer identification number and state that
you are not subject to backup withholding. This certification is included as
part of your application. Please complete it when you open your account.
TAX STATUS OF THE FUND. The Fund intends to qualify for treatment as a
regulated investment company under Subchapter M of the Internal Revenue Code
and, if so qualified, will not be liable for federal income tax on earnings
timely distributed to its shareholders.
This section is not intended to be a full discussion of present or proposed
federal income tax law and its effects on the Fund and investors therein. See
the SAI for a further discussion. There may be other federal, state, or local
tax considerations applicable to a particular investor. You are therefore urged
to consult your own tax advisor.
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PROSPECTUS PAGE I-11
<PAGE> 15
PERFORMANCE INFORMATION
The Fund may advertise "yield," "effective yield," "average annual total
return," "total return," and "cumulative total return." Each of these figures is
based upon historical results and is not necessarily representative of the
future performance of the Fund.
Yield is an annualized figure, which means that it is assumed that the Fund
generates the same level of net investment income over a one-year period. The
Fund's yield and effective yield are measures of the net investment income per
share earned by the Fund over a specific seven-day period and are shown as a
percentage of the investment. However, effective yield will be slightly higher
than the yield because effective yield assumes that the net investment income
earned by the Fund will be reinvested.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in the Fund assuming
the reinvestment of all dividends. Total return figures are not annualized and
simply represent the aggregate change of the Fund's investments over a specified
period of time.
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PROSPECTUS PAGE I-12
<PAGE> 16
SHAREHOLDER MANUAL
<TABLE>
<S> <C>
HOW TO BUY SHARES...................... II-1
DETERMINING YOUR SHARE PRICE........... II-5
HOW TO SELL SHARES..................... II-6
SHAREHOLDER SERVICES................... II-9
REGULAR INVESTMENT PLANS............... II-10
SPECIAL SITUATIONS..................... II-12
</TABLE>
HOW TO BUY SHARES
All the Strong Funds are 100% no-load, meaning you may purchase, redeem, or
exchange shares directly at net asset value without paying a sales charge.
Whether you are opening a new account or adding to an existing one, Strong
provides you with several methods to buy Fund shares.
----------------------
PROSPECTUS PAGE II-1
<PAGE> 17
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<TABLE>
<S> <C>
TO OPEN A NEW ACCOUNT
- ------------------------------------------------------------------------------
MAIL BY CHECK
- Complete and sign the application. Make your check
or money order payable to "Strong Funds."
- Mail to Strong Funds, P.O. Box 2936, Milwaukee,
Wisconsin 53201. If you're using an express delivery
service, send to Strong Funds, 100 Heritage
Reserve, Menomonee Falls, Wisconsin 53051.
BY EXCHANGE
- Call 1-800-368-3863 for instructions on
establishing an account with an exchange by mail.
- ------------------------------------------------------------------------------
TELEPHONE BY EXCHANGE
- Call 1-800-368-3863 to establish a new account by
1-800-368-3863 exchanging funds from an existing Strong Funds
24 HOURS A DAY, account.
7 DAYS A WEEK - Sign up for telephone exchange services when you
open your account. To add the telephone exchange
option to your account, call 1-800-368-3863 for a
Telephone Exchange Form.
- Please note that your accounts must be identically
registered and that you must exchange enough into the
new account to meet the minimum initial investment.
- ------------------------------------------------------------------------------
IN PERSON - Stop by our Investor Center in Menomonee Falls,
Wisconsin.
Call 1-800-368-3863 for hours and directions.
- The Investor Center can only accept checks or money
orders.
- ------------------------------------------------------------------------------
WIRE Call 1-800-368-3863 for instructions on opening an
account by
wire.
- ------------------------------------------------------------------------------
AUTOMATICALLY (Not Available)
- ------------------------------------------------------------------------------
BROKER-DEALER - You may purchase shares in a Fund through a
broker-dealer
or other institution that may charge a transaction
fee.
- Strong Funds may only accept requests to purchase
shares into a broker-dealer street name account
from the broker-dealer.
</TABLE>
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PROSPECTUS PAGE II-2
<PAGE> 18
-----------------------------------------------------------------------------
TO ADD TO AN EXISTING ACCOUNT
- --------------------------------------------------------------------------------
BY CHECK
- - Complete an Additional Investment Form provided at the bottom of your account
statement, or write a note indicating your fund account number and
registration. Make your check or money order payable to "Strong Funds."
- - Mail to Strong Funds, P.O. Box 2936, Milwaukee, Wisconsin 53201. If you're
using an express delivery service, send to Strong Funds, 100 Heritage Reserve,
Menomonee Falls, Wisconsin 53051.
BY EXCHANGE
- - Call 1-800-368-3863 for instructions on exchanging by mail.
- --------------------------------------------------------------------------------
BY EXCHANGE
- - Add to an account by exchanging funds from another Strong Funds account.
- - Sign up for telephone exchange services when you open your account. To add the
telephone exchange option to your account, call 1-800-368-3863 for a Telephone
Exchange Form.
- - Please note that the accounts must be identically registered and that the
minimum exchange is $1,000 or the balance of your account, whichever is less.
BY TELEPHONE PURCHASE
- - Complete the Request for Telephone Purchase Form at the back of this
Prospectus to make additional investments from $1,000 to $25,000 into your
Strong Funds account by telephone.
- - Use Strong DirectSM, Strong Funds' automated telephone response system. Call
1-800-368-3863 for details.
- --------------------------------------------------------------------------------
- - Stop by our Investor Center in Menomonee Falls, Wisconsin. Call 1-800-368-3863
for hours and directions.
- - The Investor Center can only accept checks or money orders.
- --------------------------------------------------------------------------------
Call 1-800-368-3863 for instructions on adding to an account by wire.
- --------------------------------------------------------------------------------
USE ONE OF STRONG'S AUTOMATIC INVESTMENT PROGRAMS. Sign up for these services
when you open your account, or call 1-800-368-3863 for instructions on how to
add them to your existing account.
- - AUTOMATIC INVESTMENT PLAN. Make regular, systematic investments (minimum
$1,000) into your Strong Funds account from your bank checking or NOW account.
We've included an application at the back of this Prospectus.
- - AUTOMATIC EXCHANGE PLAN. Make regular, systematic exchanges (minimum $1,000)
from one Strong Funds account to another. Call 1-800-368-3863 for an
application.
- - PAYROLL DIRECT DEPOSIT. Have a specified amount (minimum $1,000) regularly
deducted from your paycheck, social security check, military allotment, or
annuity payment invested directly into your Strong Funds account. Call
1-800-368-3863 for an application.
- - AUTOMATIC DIVIDEND REINVESTMENT. Unless you choose otherwise, all your
dividends will be automatically reinvested in additional Fund shares. Or, you
may elect to have your dividends automatically invested in shares of another
Strong Fund.
- --------------------------------------------------------------------------------
- - You may purchase additional shares in a Fund through a broker-dealer or other
institution that may charge a transaction fee.
- - Strong Funds may only accept requests to purchase additional shares into a
broker-dealer street name account from the broker-dealer.
----------------------
PROSPECTUS PAGE II-3
<PAGE> 19
WHAT YOU SHOULD KNOW ABOUT BUYING SHARES
- - Please make all checks or money orders payable to "Strong Funds."
- - We cannot accept third-party checks or checks drawn on banks outside the U.S.
- - You will be charged a $20 service fee for each check, wire, or Electronic
Funds Transfer ("EFT") purchase that is returned unpaid, and you will be
responsible for any resulting losses suffered by the Fund.
- - Further documentation may be requested from corporations, executors,
administrators, trustees, guardians, agents, or attorneys-in-fact.
- - The Fund may decline to accept your purchase order upon receipt when, in the
judgment of the Advisor, it would not be in the best interests of the existing
shareholders.
- - The exchange privileges is available in all 50 states because all the Strong
Funds intend to continue to qualify their shares for sale in all 50 states.
- - Minimum Investment Requirements:
----------------------------------------------------------------------------
To open a regular account..........................................$25,000
To open an IRA, Defined Contribution,
or UGMA/UTMA account.............................................$25,000
To open a 401(k) or 403(b) retirement account......................$25,000
To add to an existing account.......................................$1,000
- - ACCOUNT MAINTENANCE. The Advisor, acting as the Fund's transfer agent,
reserves the right to deduct a quarterly account maintenance fee of $3.00 for
accounts with a value of less than $25,000. It is expected that accounts will
be valued in the last week of each calendar quarter. The fee will not be
deducted if a shareholder's total assets in Strong Funds equals $100,000 or
more. Eligibility for the waiver is determined by aggregating Strong Funds
mutual fund accounts maintained by the Fund's transfer agent that are
registered under the same tax identification number or that list the same tax
identification number for the custodian of a Uniform Gifts/Transfers to Minors
Act account. If your Fund account falls below $25,000, you will be given
notice to reestablish the minimum balance. If you do not so increase your
balance within 60 days, the Advisor reserves the right to close your account
and send the proceeds to you. Note that retirement accounts that fall below
the $25,000 minimum are subject to being closed and will be subject to a 20%
withholding tax.
WHAT YOU SHOULD KNOW ABOUT BUYING SHARES
THROUGH A BROKER-DEALER
- - If you purchase shares through a program of services offered or administered
by a broker-dealer, financial institution, or other service provider, you
should read the program's materials, including information relating to fees,
in connection with the Fund's Prospectus. Certain features of the Fund may
----------------------
PROSPECTUS PAGE II-4
<PAGE> 20
not be available or may be modified in connection with the program of services
provided.
- - Certain broker-dealers, financial institutions, or other service providers
that have entered into an agreement with the Distributor may enter purchase
orders on behalf of their customers by phone, with payment to follow within
several days as specified in the agreement. The Fund may effect such purchase
orders at the net asset value next determined after receipt of the telephone
purchase order. It is the responsibility of the broker-dealer, financial
institution, or other service provider to place the order with the Fund on a
timely basis. If payment is not received within the time specified in the
agreement, the broker-dealer, financial institution, or other service provider
could be held liable for any resulting fees or losses.
DETERMINING YOUR SHARE PRICE
Generally, when you make any purchases, sales, or exchanges, the price of
your shares will be the net asset value ("NAV") next determined after Strong
Funds receives your request in proper form. If Strong Funds receives such
request prior to the close of the New York Stock Exchange (the "Exchange") on a
day on which the Exchange is open, your share price will be the NAV determined
that day. The NAV for the Fund is normally determined as of 3:00 p.m. Central
Time ("CT") each day the Exchange is open. The Fund reserves the right to change
the time at which purchases, redemptions, and exchanges are priced if the
Exchange 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. Expenses are accrued and applied daily when determining the net
asset value.
The securities in the portfolio of the Fund are valued on an amortized-cost
basis. Under this method of valuation, a security is initially valued at its
acquisition cost, and thereafter, amortization of any discount or premium is
assumed each day, regardless of the impact of fluctuating interest rates on the
market value of the instrument. Under most conditions, management believes it
will be possible to maintain the net asset value of the Fund at $1.00 per share.
Calculations are periodically made to compare the value of the Fund's portfolio
valued at amortized cost with market values. If a deviation of 1/2 of 1% or more
were to occur between the net asset value calculated by reference to market
values and the Fund's $1.00 per share net asset value, or if there were any
other deviation that the Board of Directors believed would result in a material
dilution to shareholders or purchasers, the Board of Directors would promptly
consider what action, if any, should be initiated.
----------------------
PROSPECTUS PAGE II-5
<PAGE> 21
HOW TO SELL SHARES
You can access the money in your account at any time by selling (redeeming)
some or all of your shares back to the Fund. Once your redemption request is
received in proper form, Strong will normally mail you the proceeds the next
business day and, in any event, no later than seven days thereafter. Unless your
account balance is $100,000 or more at the time of the transaction, the Fund
reserves the right to deduct from your account a $3.00 transaction fee for each
redemption, exchange, or check.
To redeem shares, you may use any of the methods described in the chart
below. However, if you are selling shares in a retirement account, please call
1-800-368-3863 for instructions. Please note that there is a $10.00 fee for
closing an IRA or other retirement account or for transferring assets to another
custodian. For your protection, certain requests may require a signature
guarantee.
----------------------
PROSPECTUS PAGE II-6
<PAGE> 22
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<TABLE>
<S> <C>
TO SELL SHARES
- ----------------------------------------------------------------------------
MAIL FOR INDIVIDUAL, JOINT TENANT, AND UGMA/UTMA ACCOUNTS
($3 fee) - Write a "letter of instruction" that includes the
following information: your account number, the
dollar amount or number of shares you wish to
redeem, each owner's name, your street address, and
the signature of each owner as it appears on the
account.
- Mail to Strong Funds, P.O. Box 2936, Milwaukee,
Wisconsin 53201. If you're using an express
delivery service, send to Strong Funds, 100
Heritage Reserve, Menomonee Falls, Wisconsin 53051.
FOR TRUST ACCOUNTS
- Same as above. Please ensure that all trustees sign
the letter of instruction.
FOR OTHER REGISTRATIONS
- Call 1-800-368-3863 for instructions.
- ----------------------------------------------------------------------------
TELEPHONE Sign up for telephone redemption services when you
($3 fee) open
your account by checking the "Yes" box in the
1-800-368-3863 appropriate section of the account application. To
24 HOURS A DAY, add the telephone redemption option to your account,
7 DAYS A WEEK call 1-800-368-3863 for a Telephone Redemption Form.
Once the telephone redemption option is in place, you
may sell shares ($1,000 minimum) by phone and arrange
to receive the proceeds in one of three ways:
TO RECEIVE A CHECK BY MAIL
- We will mail a check to the address to which your
account is registered. For an additional $10 fee, we
will deliver your check via an expedited delivery
service.
TO DEPOSIT BY EFT
- We will transmit the proceeds by Electronic Funds
Transfer ("EFT") to a pre-authorized bank account.
Usually, the funds will arrive at your bank two
banking days after we process your redemption.
Use Strong Direct SM, Strong Funds' automated
telephone response system. Call 1-800-368-3863 for
details.
- ----------------------------------------------------------------------------
CHECK WRITING Sign up for the check-writing privilege when you open
($3 fee per check your account. To add check writing to an existing
written) account or to order additional checks, call
1-800-368-3863.
- Please keep in mind that all check redemptions must
be for a minimum of $1,000 and that you cannot write
a check to close an account.
- ----------------------------------------------------------------------------
AUTOMATICALLY You can set up automatic withdrawals from your
($3 fee per withdrawal) account at
regular intervals. To establish the Systematic
Withdrawal Plan, request a form by calling
1-800-368-3863.
- ----------------------------------------------------------------------------
BROKER-DEALER You may also redeem shares through broker-dealers or
(varies by institution) others
who may charge a commission or other transaction fee.
</TABLE>
----------------------
PROSPECTUS PAGE II-7
<PAGE> 23
WHAT YOU SHOULD KNOW ABOUT SELLING SHARES
- - If you have recently purchased shares, please be aware that your redemption
request may not be honored until the purchase check has cleared your bank,
which generally occurs within ten calendar days.
- - The right of redemption may be suspended during any period in which (i)
trading on the Exchange is restricted, as determined by the SEC, or the
Exchange is closed for other than weekends and holidays; (ii) the SEC has
permitted such suspension by order; or (iii) an emergency as determined by the
SEC exists, making disposal of portfolio securities or valuation of net assets
of the Fund not reasonably practicable.
- - If you are selling shares you hold in certificate form, you must submit the
certificates with your redemption request. Each registered owner must endorse
the certificates and all signatures must be guaranteed.
- - Further documentation may be requested from corporations, executors,
administrators, trustees, guardians, agents, or attorneys-in-fact.
- - Expedited Delivery Services -- $10 fee
Express. We will send your check via an overnight delivery service.
Wire. We will transmit the proceeds by wire to a pre-authorized bank
account. Usually, the funds will arrive at your bank the next banking day
after we process your redemption.
- - For complete redemptions, the $3.00 transaction fee will be deducted from the
proceeds of the transaction. For partial redemptions, the $3.00 transaction
fee will be deducted from your account.
WHAT YOU SHOULD KNOW ABOUT TELEPHONE REDEMPTIONS
- - The Fund reserves the right to refuse a telephone redemption if they believe
it advisable to do so.
- - Once you place your telephone redemption request, it cannot be canceled or
modified.
- - Investors will bear the risk of loss from fraudulent or unauthorized
instructions received over the telephone provided that the Fund reasonably
believes that such instructions are genuine. The Fund and its transfer agent
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. The Fund may incur liability if it does not follow
these procedures.
- - Because of increased telephone volume, you may experience difficulty in
implementing a telephone redemption during periods of dramatic economic or
market changes.
----------------------
PROSPECTUS PAGE II-8
<PAGE> 24
SHAREHOLDER SERVICES
INFORMATION SERVICES
24-HOUR ASSISTANCE. Strong Funds has registered representatives available to
help you 24 hours a day, 7 days a week. Call 1-414-359-1400 or toll-free
1-800-368-3863. You may also write to Strong Funds at the address on the cover
of this Prospectus.
STRONG DIRECTSM AUTOMATED TELEPHONE SYSTEM. Also available 24 hours a day,
the Strong DirectSM automated response system enables you to use a touch-tone
phone to hear fund quotes and returns on any Strong Fund. You may also confirm
account balances, hear records of recent transactions and dividend activity, and
perform purchases, exchanges or redemptions among your existing Strong accounts.
Your account information is protected by a personal code that you establish. For
more information on this service, call 1-800-368-3863.
STATEMENTS AND REPORTS. At a minimum, the Fund will confirm all transactions
for your account on a quarterly basis. We recommend that you file each quarterly
statement - and, especially, each calendar year-end statement - with your other
important financial papers, since you may need to refer to them at a later date
for tax purposes. Should you need additional copies of previous statements, you
may order confirmation statements for the current and preceding year at no
charge. Statements for earlier years are available for $10 each. Call
1-800-368-3863 to order past statements.
Each year, you will also receive a statement confirming the tax status of any
distributions paid to you, as well as a semi-annual report and an annual report
containing audited financial statements.
To reduce the volume of mail you receive, only one copy of certain materials,
such as prospectuses and shareholder reports, is mailed to your household. Call
1-800-368-3863 if you wish to receive additional copies, free of charge.
More complete information regarding the Fund's investment policies and
services is contained in its Statement of Additional Information, which you may
request by calling or writing Strong Funds at the phone number and address on
the cover of this Prospectus.
CHANGING YOUR ACCOUNT INFORMATION. So that you continue receiving your Strong
correspondence, including any dividend checks and statements, please notify us
in writing as soon as possible if your address changes. You may use the
Additional Investment Form at the bottom of your confirmation
----------------------
PROSPECTUS PAGE II-9
<PAGE> 25
statement, or simply write us a letter of instruction that contains the
following information:
1. a written request to change the address,
2. the account number(s) for which the address is to be changed,
3. the new address, and
4. the signatures of all owners of the accounts.
Please send your request to the address on the cover of this Prospectus.
Changes to an account's registration - such as adding or removing a joint
owner, changing an owner's name, or changing the type of your account - must
also be submitted in writing. Please call 1-800-368-3863 for instructions. For
your protection, some requests may require a signature guarantee.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may exchange shares between identically registered
Strong Funds accounts, either in writing or by telephone. By establishing the
telephone exchange service, you authorize the Fund and its agents to act upon
your instruction by telephone to redeem or exchange shares from any account you
specify. Please obtain and read the appropriate Prospectus before investing in
any of the Strong Funds. Since an excessive number of exchanges may be
detrimental to the Fund, each Fund reserves the right to discontinue the
exchange privilege of any shareholder who makes more than five exchanges in a
year or three exchanges in a calendar quarter.
CHECK-WRITING PRIVILEGES. You may also redeem shares by check in amounts of
$1,000 or more. The Fund reserves the right to return checks written for less
than $1,000. The Fund may charge a $3.00 redemption fee per check written unless
your account has a balance of $100,000 or more at the time of the transaction.
Redemption by check cannot be honored if share certificates are outstanding and
would need to be liquidated to honor the check. Checks are supplied free of
charge, and additional checks will be sent to you upon request. The Fund does
not return the checks you write, although copies are available upon request.
You may place stop-payment requests on checks by calling Strong Funds at
1-800-368-3863. A $10 fee will be charged for each stop-payment request. A stop
payment will remain in effect for two weeks following receipt of oral
instructions (six months following written instructions) by Strong Funds.
If there are insufficient cleared shares in your account to cover the amount
of your redemption by check, the check will be returned, marked "insufficient
funds," and a fee of $10 will be charged to the account.
REGULAR INVESTMENT PLANS
PAYROLL DIRECT DEPOSIT PLAN. You may purchase additional Fund shares through
the Payroll Direct Deposit Plan. Through this Plan, periodic investments
(minimum $1,000) are made automatically from your payroll check into
-----------------------
PROSPECTUS PAGE II-10
<PAGE> 26
your existing Fund account. By enrolling in the Plan, you authorize your
employer or its agents to deposit a specified amount from your payroll check
into the Fund's bank account. In most cases, your Fund account will be credited
the day after the amount is received by the Fund's bank. In order to participate
in the Plan, your employer must have direct deposit capabilities through
Automated Clearing House available to its employees. The Plan may be used for
other direct deposits, such as social security checks, military allotments, and
annuity payments.
To establish a Direct Deposit for your account, call 1-800-368-3863 to obtain
an Authorization for Payroll Direct Deposit to a Strong Funds Account form. Once
the Plan is established, you may alter the amount of the deposit, alter the
frequency of the deposit, or terminate your participation in the program by
notifying your employer.
AUTOMATIC EXCHANGE PLAN. The Automatic Exchange Plan allows you to make
regular, systematic exchanges (minimum $1,000) from one Strong Funds account
into another Strong Funds account. By setting up the Plan, you authorize the
Fund and its agents to redeem a set dollar amount or number of shares from the
first account and purchase shares of a second Strong Fund. In addition, you
authorize a Fund and its agents to accept telephone instructions to change the
dollar amount and frequency of the exchange. To establish the Plan, request a
form by calling 1-800-368-3863.
To participate in the Automatic Exchange Plan, you must have an initial
account balance of $50,000 in the Fund account and at least the minimum initial
investment in the second account. Exchanges may be made on any day or days of
your choice. If the amount remaining in the first account is less than the
exchange amount you requested, then the remaining amount will be exchanged. At
such time as the first account has a zero balance, your participation in the
Plan will be terminated. You may also terminate the Plan at any time by calling
or writing to the Fund. Once participation in the Plan has been terminated for
any reason, to reinstate the Plan you must do so in writing; simply investing
additional funds will not reinstate the Plan.
SYSTEMATIC WITHDRAWAL PLAN. You may set up automatic withdrawals from your
account at regular intervals. To begin distributions, you must have an initial
balance of $50,000 in your account and withdraw at least $1,000 per payment. To
establish the Systematic Withdrawal Plan, request a form by calling
1-800-368-3863. Depending upon the size of the account and the withdrawals
requested, redemptions for the purpose of satisfying such withdrawals may reduce
or even exhaust the account. If the amount remaining in the account is not
sufficient to meet a payment, the remaining amount will be redeemed and the Plan
will be terminated. Note that the $3.00 redemption fee will be charged for each
withdrawal.
-----------------------
PROSPECTUS PAGE II-11
<PAGE> 27
SPECIAL SITUATIONS
POWER OF ATTORNEY. If you are investing as attorney-in-fact for another
person, please complete the account application in the name of such person and
sign the back of the application in the following form: "[applicant's name] by
[your name], attorney-in-fact." To avoid having to file an affidavit prior to
each transaction, please complete the Power of Attorney form available from
Strong Funds at 1-800-368-3863. However, if you would like to use your own power
of attorney form, please call the same number for instructions.
CORPORATIONS AND TRUSTS. If you are investing for a corporation, please
include with your account application a certified copy of your corporate
resolution indicating which officers are authorized to act on behalf of the
corporation. As an alternative, you may complete a Certification of Authorized
Individuals form, which can be obtained from the Fund. Until a valid corporate
resolution or Certification of Authorized Individuals is received by the Fund,
services such as telephone redemption, wire redemption, and check writing will
not be established.
If you are investing as a trustee, please include the date of the trust. All
trustees must sign the application. If they do not, services such as telephone
redemption, wire redemption, and check writing will not be established. All
trustees must sign redemption requests unless proper documentation to the
contrary is provided to the Fund. Failure to provide these documents, or
signatures as required, when you invest may result in delays in processing
redemption requests.
SIGNATURE GUARANTEES. A signature guarantee is designed to protect you and
the Fund against fraudulent transactions by unauthorized persons. In the
following instances, the Fund will require a signature guarantee for all
authorized owners of an account:
- - when you add the telephone redemption or check-writing options to your
existing account;
- - if you transfer the ownership of your account to another individual or
organization;
- - when you submit a written redemption request for more than $25,000;
- - when you request to redeem or redeposit shares that have been issued in
certificate form;
- - if you open an account and later decide that you want certificates;
- - when you request that redemption proceeds be sent to a different name or
address than is registered on your account;
- - if you add/change your name or add/remove an owner on your account; and
- - if you add/change the beneficiary on your transfer-on-death account.
A signature guarantee may be obtained from any eligible guarantor
institution, as defined by the SEC. These institutions include banks, savings
associations, credit unions, brokerage firms, and others. PLEASE NOTE THAT A
NOTARY PUBLIC STAMP OR SEAL IS NOT ACCEPTABLE.
-----------------------
PROSPECTUS PAGE II-12
<PAGE> 28
STATEMENT OF ADDITIONAL INFORMATION
STRONG HERITAGE MONEY FUND, INC.
P.O. Box 2936
Milwaukee, Wisconsin 53201
Telephone: (414) 359-1400
Toll-Free: (800) 368-3863
Strong Heritage Money Fund (the "Fund") is a diversified series of
Strong Heritage Reserve Series, Inc. (the "Corporation"), an open-end
management investment company. This Statement of Additional Information is not
a Prospectus and should be read in conjunction with the Prospectus of the Fund,
dated June 29, 1995. Requests for copies of the Prospectus should be made by
writing to the Fund at P.O. Box 2936, Milwaukee, Wisconsin 53201, Attention:
Corporate Secretary, or by calling one of the numbers listed above.
This Statement of Additional Information is dated June 29, 1995.
<PAGE> 29
STRONG HERITAGE MONEY FUND
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Maturity and Quality Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Illiquid Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
When-Issued Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Lending of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Variable- or Floating-Rate Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Asset-Backed Debt Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Municipal Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
DIRECTORS AND OFFICERS OF THE CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
INVESTMENT ADVISOR AND DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ADDITIONAL SHAREHOLDER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
FUND ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SHAREHOLDER MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
PORTFOLIO MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
LEGAL COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
STATEMENT OF ASSETS AND LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus dated June 29, 1995 and, if given or made, such
information or representations may not be relied upon as having been authorized
by the Fund.
This Statement of Additional Information does not constitute an
offer to sell securities.
<PAGE> 30
INVESTMENT RESTRICTIONS
The investment objective of the Strong Heritage Money Fund is to seek
current income, a stable share price, and daily liquidity. The Fund's
investment objective and policies are described in detail in the Prospectus
under the caption "Investment Objective and Policies." The following are the
Fund's fundamental investment limitations which cannot be changed without
shareholder approval.
The Fund:
1. May not with respect to 75% of its total assets, purchase the
securities of any issuer (except securities issued or guaranteed by
the U.S. government or its agencies or instrumentalities) if, as a
result, (i) more than 5% of the Fund's total assets would be invested
in the securities of that issuer, or (ii) the Fund would hold more
than 10% of the outstanding voting securities of that issuer.
2. May (i) borrow money from banks and (ii) make other investments or
engage in other transactions permissible under the Investment Company
Act of 1940 (the 1940 Act) which may involve a borrowing, provided
that the combination of (i) and (ii) shall not exceed 33 1/3% of the
value of the Fund's total assets (including the amount borrowed), less
the Fund's liabilities (other than borrowings), except that the Fund
may borrow up to an additional 5% of its total assets (not including
the amount borrowed) from a bank for temporary or emergency purposes
(but not for leverage or the purchase of investments). The Fund may
also borrow money from the other Strong Funds or other persons to the
extent permitted by applicable law.
3. May not issue senior securities, except as permitted under the 1940
Act.
4. May not act as an underwriter of another issuer's securities, except
to the extent that the Fund may be deemed to be an underwriter within
the meaning of the Securities Act of 1933 in connection with the
purchase and sale of portfolio securities.
5. May not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall
not prevent the Fund from purchasing or selling options, futures
contracts, or other derivative instruments, or from investing in
securities or other instruments backed by physical commodities).
6. May not make loans if, as a result, more than 33 1/3% of the Fund's
total assets would be lent to other persons, except through (i)
purchases of debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.
7. May not purchase the securities of any issuer if, as a result, more
than 25% of the Fund's total assets would be invested in the
securities of issuers, the principal business activities of which are
in the same industry. This limitation shall not limit the Fund's
purchases of obligations issued by domestic banks.
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> 31
The following are the Fund's non-fundamental operating policies which
may be changed by the Board of Directors of the Corporation without shareholder
approval.
The Fund may not:
1. Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short,
or unless it covers such short sale as required by the current rules
and positions of the Securities and Exchange Commission or its staff,
and provided that transactions in options, futures contracts, options
on futures contracts, or other derivative instruments are not deemed
to constitute selling securities short.
2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions;
and provided that margin deposits in connection with futures
contracts, options on futures contracts, or other derivative
instruments shall not constitute purchasing securities on margin.
3. Invest in illiquid securities if, as a result of such investment, more
than 10% 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. Purchase the securities of any issuer (other than securities issued or
guaranteed by domestic or foreign governments or political
subdivisions thereof) if, as a result, more than 5% of its total
assets would be invested in the securities of issuers that, including
predecessor or unconditional guarantors, have a record of less than
three years of continuous operation. This policy does not apply to
securities of pooled investment vehicles or mortgage or asset-backed
securities.
7. Invest in direct interests in oil, gas, or other mineral exploration
programs or leases; however, the Fund may invest in the securities of
issuers that engage in these activities.
8. Engage in futures or options on futures transactions which are
impermissible pursuant to Rule 4.5 under the Commodity Exchange Act
and, in accordance with Rule 4.5, will use futures or options on
futures transactions solely for bona fide hedging transactions (within
the meaning of the Commodity Exchange Act), provided, however, that
the Fund may, in addition to bona fide hedging transactions, use
futures and options on futures transactions if the aggregate initial
margin and premiums required to establish such positions, less the
amount by which any such options positions are in the money (within
the meaning of the Commodity Exchange Act), do not exceed 5% of the
Fund's net assets.
In addition, (i) the aggregate value of securities underlying call
options on securities written by the Fund or obligations underlying
put options on securities written by the Fund determined as of the
date the options are written will not exceed 50% of the Fund's net
assets; (ii) the aggregate premiums paid on all options purchased by
the Fund and which are being held will not exceed 20% of the Fund's
net assets; (iii) the Fund will not purchase put or call options,
other than hedging positions, if, as a result thereof, more than 5% of
its total assets would be so invested; and (iv) the aggregate margin
deposits required on all futures and options on futures transactions
being held will not exceed 5% of the Fund's total assets.
9. Pledge, mortgage or hypothecate any assets owned by the Fund except as
may be necessary in connection with permissible borrowings or
investments and then such pledging, mortgaging, or hypothecating may
not exceed 33 1/3% of the Fund's total assets at the time of the
borrowing or investment.
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<PAGE> 32
10. Purchase or retain the securities of any issuer if any officer or
director of the Fund or its investment advisor beneficially owns more
than 1/2 of 1% of the securities of such issuer and such officers and
directors together own beneficially more than 5% of the securities of
such issuer.
11. Purchase warrants, valued at the lower of cost or market value, in
excess of 5% of the Fund's net assets. Included in that amount, but
not to exceed 2% of the Fund's net assets, may be warrants that are
not listed on any stock exchange. Warrants acquired by the Fund in
units or attached to securities are not subject to these restrictions.
12. Borrow money except (i) from banks or (ii) through reverse repurchase
agreements or mortgage dollar rolls, and will not purchase securities
when bank borrowings exceed 5% of its total assets.
13. Make any loans other than loans of portfolio securities, except
through (i) purchases of debt securities or other debt instruments, or
(ii) engaging in repurchase agreements.
14. Engage in any transaction or practice which is not permissible under
Rule 2a-7 of the 1940 Act, notwithstanding any other fundamental
investment limitation or non-fundamental operating policy.
Except for the fundamental investment limitations listed above and the
Fund's investment objective, the other investment policies described in the
Prospectus and this Statement of Additional Information are not fundamental and
may be changed with approval of the Fund's Board.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Fund's
investment objective, policies and techniques that are described in detail in
the Prospectus under the captions "Investment Objective and Policies" and
"Implementation of Policies and Risks."
MATURITY AND QUALITY RESTRICTIONS
The Fund is subject to certain maturity restrictions pursuant to Rule
2a-7 under the 1940 Act for money market funds that use the amortized cost
method of valuation to maintain a stable net asset value of $1.00 per share.
Accordingly, the Fund will (i) maintain a dollar weighted average portfolio
maturity of 90 days or less, and (ii) will purchase securities with a remaining
maturity of no more than 13 months (397 calendar days). The Fund will buy only
U.S. dollar-denominated securities which represent minimal credit risks and
meet certain credit quality and diversification requirements. For purposes of
calculating the maturity of portfolio instruments, the Fund will follow the
requirements of Rule 2a-7. Under Rule 2a-7, the maturity of portfolio
instruments is calculated as indicated below.
Generally, the maturity of a portfolio instrument shall be deemed to
be the period remaining (calculated from the trade date or such other date on
which the Fund's interest in the instrument is subject to market action) until
the date noted on the face of the instrument as the date on which the principal
amount must be paid, or in the case of an instrument called for redemption, the
date on which the redemption payment must be made, except that:
(1) An instrument that is issued or guaranteed by the U.S. government
or any agency thereof which has a variable rate of interest readjusted no less
frequently than every 762 days shall be deemed to have a maturity equal to the
period remaining until the next readjustment of the interest rate.
(2) A Variable Rate Instrument, the principal amount of which is
scheduled on the face of the instrument to be paid on 397 calendar days or less
shall be deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
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<PAGE> 33
(3) A Variable Rate Instrument that is subject to a Demand Feature
shall be deemed to have a maturity equal to the longer of the period remaining
until the next readjustment of the interest rate or the period remaining until
the principal amount can be recovered through demand.
(4) A Floating Rate Instrument that is subject to a Demand Feature
shall be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
(5) A repurchase agreement shall be deemed to have a maturity equal
to the period remaining until the date on which the repurchase of the
underlying securities is scheduled to occur, or, where no date is specified,
but the agreement is subject to a demand, the notice period applicable to a
demand for the repurchase of the securities.
As used herein, all capitalized but undefined terms shall have the meaning such
terms have in Rule 2a-7.
The Fund will invest at least 95% of its assets in instruments
determined to present minimal credit risks and, at the time of acquisition, are
(i) obligations issued or guaranteed by the U.S. government, its agencies, or
instrumentalities; (ii) rated by at least two nationally recognized rating
agencies (or by one agency if only one agency has issued a rating) (the
"required rating agencies") in the highest rating category for short-term debt
obligations; (iii) unrated but whose issuer is rated in the highest category by
the required rating agencies with respect to a class of short-term debt
obligations or any security within that class that is comparable in priority
and security with the instrument; or (iv) unrated (other than the type
described in (iii)) but determined by the Fund's Board to be of comparable
quality to the foregoing (provided the unrated security has not received a
short-term rating, and with respect to a long-term security with a remaining
maturity within the Fund's maturity restrictions, has not received a long-term
rating from any agency that is other than in its highest rating category). The
foregoing are referred to as "first-tier securities."
The balance of the securities in which the Fund may invest are
instruments determined to present minimal credit risks, which do not qualify as
first-tier securities, and, at the time of acquisition, are (i) rated by the
required rating agencies in one of the two highest rating categories for
short-term debt obligations; (ii) unrated but whose issuer is rated in one of
the two highest categories by the required rating agencies with respect to a
class of short-term debt obligations or any security within that class that is
comparable in priority and security with the obligation; or (iii) unrated
(other than described in (ii)) but determined by the Fund's Board to be of
comparable quality to the foregoing (provided the unrated security has not
received a short-term rating and, with respect to a long-term security with a
remaining maturity within the Fund's maturity restrictions, has not received a
long-term rating from any agency that is other than in one of its highest two
rating categories). The foregoing are referred to as "second-tier securities."
In addition to the foregoing quality guidelines, the Fund follows
certain diversification standards and will not (i) acquire a second-tier
security of an issuer if, after giving effect to the acquisition, the Fund
would have invested more than the greater of 1% of its total assets or one
million dollars in second-tier securities issued by that issuer, or (ii) invest
more than 5% of the Fund's total assets in the securities (other than
securities issued by the U.S. government or any agency or instrumentality
thereof) issued by a single issuer.
ILLIQUID SECURITIES
The Fund may invest in illiquid securities (i.e., securities that are
not readily marketable). However, the Fund will not acquire illiquid
securities if, as a result, they would comprise more than 10% of the value of
the Fund's net assets (or such other amounts as may be permitted under the 1940
Act). The Board, or its delegate, has the ultimate authority to determine, to
the extent permissible under the federal securities laws, which securities are
illiquid for purposes of this limitation. Certain securities exempt from
registration or issued in transactions exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"), including securities
that may be resold pursuant to Rule 144A under the Securities Act, may be
considered liquid. The Fund's Board has delegated to Strong Capital Management,
Inc. (the "Advisor") the day-to-day determination of the liquidity of a
security, although it has retained oversight and ultimate responsibility for
such determinations. Although no definitive liquidity criteria are used, the
Fund's Board has directed the Advisor to look to such factors as (i) the
-6-
<PAGE> 34
nature of the market for a security (including the institutional private resale
market), (ii) the terms of certain securities or other instruments allowing for
the disposition to a third party or the issuer thereof (e.g., certain
repurchase obligations and demand instruments), (iii) the availability of
market quotations (e.g., for securities quoted in PORTAL system), and (iv)
other permissible relevant factors.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act. Where registration is
required, a Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to sell. Restricted securities will be priced at
fair value as determined in good faith by the Fund's Board. If through the
appreciation of restricted securities or the depreciation of unrestricted
securities, a Fund should be in a position where more than 10% of the value of
its net assets are invested in illiquid securities, including restricted
securities which are not readily marketable, the Fund will take such steps as
is deemed advisable, if any, to protect liquidity.
WHEN-ISSUED SECURITIES
The Fund may from time to time purchase securities on a "when-issued"
basis. The price of debt securities purchased on a when-issued basis, which
may be expressed in yield terms, is fixed at the time the commitment to
purchase is made, but delivery and payment for the securities take place at a
later date. Normally, the settlement date occurs within one month of the
purchase. During the period between the purchase and settlement, no payment is
made by the Fund to the issuer and no interest on debt securities accrues to
the Fund. Forward commitments involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date, which risk is
in addition to the risk of decline in value of the Fund's other assets. While
when-issued securities may be sold prior to the settlement date, the Fund
intends to purchase such securities with the purpose of actually acquiring them
unless a sale appears desirable for investment reasons. At the time the Fund
makes the commitment to purchase a security on a when-issued basis, it will
record the transaction and reflect the value of the security in determining its
net asset value. The Fund does not believe that its net asset value or income
will be adversely affected by purchases of securities on a when-issued basis.
The Fund will maintain cash and marketable securities equal in value
to commitments for when-issued securities. Such segregated securities either
will mature or, if necessary, be sold on or before the settlement date. When
the time comes to pay for when-issued securities, the Fund will meet its
obligations from then-available cash flow, sale of the securities held in the
separate account, sale of other securities or, although it would not normally
expect to do so, from the sale of the when-issued securities themselves (which
may have a market value greater or less than the Fund's payment obligation).
LENDING OF PORTFOLIO SECURITIES
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<PAGE> 35
The Fund is authorized to lend up to 33 1/3% of the total value of its
portfolio securities to broker-dealers or institutional investors that the
Advisor deems qualified, but only when the borrower maintains with the Fund's
custodian bank collateral either in cash or money market instruments in an
amount at least equal to the market value of the securities loaned, plus
accrued interest and dividends, determined on a daily basis and adjusted
accordingly. However, the Fund does not presently intend to engage in such
lending. In determining whether to lend securities to a particular
broker-dealer or institutional investor, the Advisor will consider, and during
the period of the loan will monitor, all relevant facts and circumstances,
including the creditworthiness of the borrower. The Fund will retain authority
to terminate any loans at any time. The Fund may pay reasonable administrative
and custodial fees in connection with a loan and may pay a negotiated portion
of the interest earned on the cash or money market instruments held as
collateral to the borrower or placing broker. The Fund will receive reasonable
interest on the loan or a flat fee from the borrower and amounts equivalent to
any dividends, interest or other distributions on the securities loaned. The
Fund will retain record ownership of loaned securities to exercise beneficial
rights, such as voting and subscription rights and rights to dividends,
interest or other distributions, when retaining such rights is considered to be
in the Fund's interest.
VARIABLE- OR FLOATING-RATE SECURITIES
The Fund may invest in securities which offer a variable- or
floating-rate of interest. Variable-rate securities provide for automatic
establishment of a new interest rate at fixed intervals (e.g., daily, monthly,
semi-annually, etc.). Floating-rate securities provide for automatic
adjustment of the interest rate whenever some specified interest rate index
changes. The interest rate on variable- or floating-rate securities is
ordinarily determined by reference to or is a percentage of a bank's prime
rate, the 90-day U.S. Treasury bill rate, the rate of return on commercial
paper or bank certificates of deposit, an index of short-term interest rates,
or some other objective measure.
Variable- or floating-rate securities frequently include a demand
feature entitling the holder to sell the securities to the issuer at par. In
many cases, the demand feature can be exercised at any time on 7 days notice;
in other cases, the demand feature is exercisable at any time on 30 days notice
or on similar notice at intervals of not more than one year. Some securities
which do not have variable or floating interest rates may be accompanied by
puts producing similar results and price characteristics. When considering the
maturity of any instrument which may be sold or put to the issuer or a third
party, each Fund may consider that instrument's maturity to be shorter than its
stated maturity. Any such determination by the Fund will be made in accordance
with Rule 2a-7.
Variable-rate demand notes include master demand notes which are
obligations that permit the Fund to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the Fund,
as lender, and the borrower. The interest rates on these notes fluctuate from
time to time. The issuer of such obligations normally has a corresponding
right, after a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of days' notice to the holders of such obligations. The interest rate
on a floating-rate demand obligation is based on a known lending rate, such as
a bank's prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable-rate demand obligation is adjusted
automatically at specified intervals. Frequently, such obligations are secured
by letters of credit or other credit support arrangements provided by banks.
Because these obligations are direct lending arrangements between the lender
and borrower, it is not contemplated that such instruments will generally be
traded. There generally is not an established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, the Fund's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. Such obligations frequently
are not rated by credit rating agencies and, if not so rated, the Fund may
invest in them only if the Fund's Advisor determines that at the time of
investment the obligations are of comparable quality to the other obligations
in which the Fund may invest. The Advisor, on behalf of the Fund, will consider
on an ongoing basis the creditworthiness of the issuers of the floating- and
variable-rate demand obligations in the Fund's portfolio.
-8-
<PAGE> 36
The Fund will not invest more than 10% of its net assets in variable-
and floating-rate demand obligations that are not readily marketable (a
variable- or floating-rate demand obligation that may be disposed of on not
more than seven days notice will be deemed readily marketable and will not be
subject to this limitation). (See "Illiquid Securities" and "Investment
Restrictions.") In addition, each variable- or floating-rate obligation must
meet the credit quality requirements applicable to all the Fund's investments
at the time of purchase. When determining whether such an obligation meets the
Fund's credit quality requirements, the Fund may look to the credit quality of
the financial guarantor providing a letter of credit or other credit support
arrangement.
ASSET-BACKED DEBT OBLIGATIONS
The Fund may invest in asset-backed debt obligations. Asset-backed
debt obligations represent direct or indirect participation in, or secured by
and payable from assets such as motor vehicle installment sales contracts,
other installment loan contracts, home equity loans, leases of various types of
property and receivables from credit card or other revolving credit
arrangements. Payments or distributions of principal and interest on
asset-backed debt obligations may be supported by non-governmental credit
enhancements including letters of credit, reserve funds, overcollateralization,
and guarantees by third parties.
The yield characteristics of asset-backed debt obligations differ from
those of traditional debt obligations. Among the principal differences are
that interest and principal payments are made more frequently on asset-backed
debt obligations, usually monthly, and that principal may be prepaid at any
time because the underlying assets generally may be prepaid at any time. As a
result, if a Fund purchases these debt obligations at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower that expected will have the opposite effect of
increasing the yield to maturity. Conversely, if a Fund purchases these debt
obligations at a discount, a prepayment rate that is faster than expected will
increase yield to maturity, while a prepayment rate that is slower than
expected will reduce yield to maturity. Accelerated prepayments on debt
obligations purchased by a Fund at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is prepaid in full. The market for privately issued asset-backed
debt obligations is smaller and less liquid than the market for government
sponsored mortgage-backed securities.
MUNICIPAL OBLIGATIONS
General obligation bonds are secured by the issuer's pledge of its full
faith, credit, and taxing power for the payment of interest and principal.
Revenue bonds are payable only from the revenues derived from a project or
facility or from the proceeds of a specified revenue source. Industrial
development bonds are generally revenue bonds secured by payments from and the
credit of private users. Municipal notes are issued to meet the short-term
funding requirements of state, regional, and local governments. Municipal
notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes, tax and revenue anticipation notes, construction loan
notes, short-term discount notes, tax-exempt commerical paper, demand notes,
and similar instruments. Municipal obligations include obligations, the
interest on which is exempt from federal income tax, that may become available
in the future as long as the Board of Directors of a Fund determines that an
investment in any such type of obligation is consistent with that Fund's
investment objective.
Municipal lease obligations may take the form of a lease, an
installment purchase, or a conditional sales contract. They are issued by
state and local governments and authorities to acquire land, equipment, and
facilities, such as state and municipal vehicles, telecommunications and
computer equipment, and other capital assets. The Fund may purchase these
obligations directly, or it may purchase participation interests in such
obligations. Municipal leases are generally subject to greater risks than
general obligation or revenue bonds. State constitutions and statutes set
forth requirements that states or municipalities must meet in order to issue
municipal obligations. Municipal leases may contain a covenant by the state or
municipality to budget for, appropriate, and make payments due under the
obligation. Certain municipal leases may, however, contain "non-appropriation"
clauses which provide that the issuer is not obligated to make payments on the
obligation in future years unless funds have been appropriated for this purpose
each year. Accordingly, such obligations are subject to "non-appropriation"
risk. While municipal leases are secured by the underlying capital asset, it
may be difficult to dispose of any such asset in the event of non-appropriation
or other default.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. In a repurchase
agreement, the Fund buys a security at one price, and at the time of sale, the
seller agrees to repurchase the obligation at a mutually agreed upon time and
price (usually within seven days). The repurchase agreement, thereby,
determines the yield during the purchaser's holding period, while the seller's
obligation to repurchase is secured by the value of the underlying security.
If the value of such securities is less than the repurchase price, plus any
agreed-upon additional amount, the other party to the agreement will be
required to provide additional collateral so that at all times the collateral
is at least equal to the repurchase price, plus any agreed-upon additional
amount. The Advisor will monitor, on an ongoing basis, the value of the
underlying securities to ensure that the value always equals or exceeds the
repurchase price plus accrued interest. The Fund may, under certain
circumstances, deem repurchase agreements, collateralized by U.S. government
securities to be investments in U.S. government securities.
BORROWING
The Fund may borrow money from banks, limited by the Fund's
fundamental investment restriction to 33 1/3% of its total assets, and may
engage in mortgage dollar roll transactions and reverse repurchase agreements
which may be considered a form of borrowing. In addition, the Fund may borrow
up to an additional 5% of its total assets from banks for temporary or
emergency purposes. The Fund will not purchase securities when bank borrowings
exceed 5% of the Fund's total assets.
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<PAGE> 37
DIRECTORS AND OFFICERS OF THE CORPORATION
Directors and officers of the Corporation, 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 following registered investment
companies: Strong Advantage Fund, Inc.; Strong American Utilities Fund, Inc.;
Strong Asia Pacific Fund, Inc.; Strong Asset Allocation Fund, Inc.; Strong
Common Stock Fund, Inc.; Strong Corporate Bond Fund, Inc.; Strong Discovery
Fund, Inc.; Strong Government Securities Fund, Inc.; Strong Growth Fund, Inc.;
Strong High-Yield Municipal Bond Fund, Inc.; Strong Insured Municipal Bond
Fund, Inc.; Strong International Bond Fund, Inc.; Strong International Stock
Fund, Inc.; Strong Money Market Fund, Inc.; Strong Municipal Bond Fund, Inc.;
Strong Municipal Money Market Fund, Inc.; Strong Opportunity 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 U.S. Treasury Money Fund, Inc. (collectively, the "Strong Funds") and
Strong Variable Insurance Funds, Inc. and Strong Special Fund II, Inc.
*Richard S. Strong (DOB 5/12/42), Chairman of the Board and Director
of the Corporation.
Prior to August 1985, Mr. Strong was Chief Executive Officer of the
Advisor, which he founded in 1974. Since August 1985, Mr. Strong has been a
Security Analyst and Portfolio Manager of the Advisor. In October 1991, Mr.
Strong also became the Chairman of the Advisor. Mr. Strong is a director of
the Advisor. Since October 1993, Mr. Strong has been Chairman and a director
of Strong Holdings, Inc., a Wisconsin corporation and subsidiary of the Advisor
("Holdings"), and the Fund's underwriter, Strong Funds Distributors, Inc., a
Wisconsin corporation and subsidiary of Holdings ("Distributor"). Since
January 1994, Mr. Strong has been Chairman and a director of Heritage Reserve
Development Corporation, a Wisconsin corporation and subsidiary of Holdings;
and since February 1994, Mr. Strong has been a member of the Managing Boards of
Fussville Real Estate Holdings L.L.C., a Wisconsin Limited Liability Company
and subsidiary of the Advisor, and Fussville Development L.L.C. a Wisconsin
Limited Liability Company and subsidiary of the Advisor, and certain of its
subsidiaries. Mr. Strong has served as a director of the Corporation since
incorporation in June 1989 and Chairman of the Board of the Corporation since
May 1995. Mr. Strong has been in the investment management business since
1967.
Marvin E. Nevins (DOB 7/9/18), Director of the Corporation.
Private Investor. From 1945 to 1980, Mr. Nevins was Chairman of
Wisconsin Centrifugal Inc., a foundry. From July 1983 to December 1986, he was
Chairman of General Casting Corp., Waukesha, Wisconsin, a foundry. Mr. Nevins
is a former Chairman of the Wisconsin Association of Manufacturers & Commerce.
He was also a regent of the Milwaukee School of Engineering and a member of the
Board of Trustees of the Medical College of Wisconsin. Mr. Nevins has served
as a director of the Corporation since May 1995.
Willie D. Davis (DOB 7/24/34), Director of the Corporation.
Mr. Davis has been director of Alliance Bank since 1980, Sara Lee
Corporation (a food/consumer products company) since 1983, KMart Corporation (a
discount consumer products company) since 1985, YMCA Metropolitan - Los Angeles
since 1985, Dow Chemical Company since 1988, MGM Grand, Inc. (an
entertainment/hotel company) since 1990, WICOR, Inc. (a utility company) since
1990, Johnson Controls, Inc. (an industrial company) since 1992, L.A. Gear (a
footwear/sportswear company) since 1992, and Rally's Hamburger, Inc. since
1994. Mr. Davis has been a trustee of the University of Chicago since 1980,
Marquette University since 1988, and Occidental College since 1990. Since
1977, Mr. Davis has been President and Chief Executive Officer of All Pro
Broadcasting, Inc. Mr. Davis was a director of the Fireman's Fund (an
insurance company) from 1975 until 1990. Mr. Davis has served as a director of
the Corporation since May 1995.
*John Dragisic (DOB 11/26/40), Vice Chairman and Director of the
Corporation.
Mr. Dragisic has been Vice Chairman and a director of the Advisor and
a director of Holdings and Distributor since July 1994. Mr. Dragisic
previously served as a director of the Strong Funds between 1991 and
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1994. Mr. Dragisic was the President and Chief Executive Officer of Grunau
Company, Inc. (a mechanical contracting and engineering firm), Milwaukee,
Wisconsin from 1987 until July 1994. From 1981 to 1987, he was an Executive
Vice President with Grunau Company, Inc. From 1969 until 1973, Mr. Dragisic
worked for the InterAmerican Development Bank. Mr. Dragisic received his Ph.D.
in Economics in 1971 from the University of Wisconsin - Madison and his B.A.
degree in Economics in 1962 from Lake Forest College. Mr. Dragisic has served
as Vice Chairman and director of the Corporation since May 1995.
Stanley Kritzik (DOB 1/9/30), Director of the Corporation.
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. He has served as a director of the Corporation since May 1995.
William F. Vogt (DOB 7/19/47), Director of the Corporation.
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. He has served as a director
of the Corporation since May 1995.
Lawrence A. Totsky (DOB 5/6/59), C.P.A., Vice President of the
Corporation.
Mr. Totsky has been Senior Vice President of the Advisor since
September 1994. Mr. Totsky served as Vice President of the Advisor from
December 1992 to September 1994. Mr. Totsky acted as the Advisor's Manager of
Shareholder Accounting and Compliance from June 1987 to June 1991 when he was
named Director of Mutual Fund Administration. Mr. Totsky has been a Vice
President of the Corporation since May 1995.
Thomas P. Lemke (DOB 7/30/54), Vice President of the Corporation.
Mr. Lemke has been Senior Vice President, Secretary, and General
Counsel of the Advisor since September 1994. For two years prior to joining
the Advisor, Mr. Lemke acted as Resident Counsel for Funds Management at J.P.
Morgan & Co., Inc. From February 1989 until April 1992, Mr. Lemke acted as
Associate General Counsel to Sanford C. Bernstein Co., Inc. For two years
prior to that, Mr. Lemke was Of Counsel at the Washington, D.C. law firm of Tew
Jorden & Schulte, a successor of Finley, Kumble Wagner. From August 1979 until
December 1986, Mr. Lemke worked at the Securities and Exchange Commission, most
notably as the Chief Counsel to the Division of Investment Management (November
1984 - December 1986), and as Special Counsel to the Office of Insurance
Products, Division of Investment Management (April 1982 - October 1984). Mr.
Lemke has been a Vice President of the Corporation since May 1995.
Ann E. Oglanian (DOB 12/7/61), Secretary of the Corporation.
Ms. Oglanian has been an Associate Counsel to the Advisor since
January 1992. Ms. Oglanian acted as Associate Counsel for the Chicago-based
investment management firm, Kemper Financial Services, Inc., from June 1988
until December 1991. Ms. Oglanian has been the Secretary of the Corporation
since May 1995.
Ronald A. Neville (DOB 5/21/47), C.P.A., Treasurer of the Corporation.
Mr. Neville has been the Senior Vice President and Chief Financial
Officer of the Advisor since January 1995. For fourteen years prior to that,
Mr. Neville worked at Twentieth Century Companies, Inc., most notably as Senior
Vice President and Chief Financial Officer (1988 until December 1994). Mr.
Neville received his M.B.A. in 1972 from the University of Missouri - Kansas
City and his B.A. degree in Business Administration and Economics in 1969 from
Drury College. Mr. Neville has been the Treasurer of the Corporation since May
1995.
Except for Messrs. Nevins, Davis, Kritzik and Vogt, the address of all
of the above persons is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr. Nevins'
address is 6075 Pelican Bay Boulevard, Naples, Florida 33963. Mr. Davis'
address is 161 North La Brea, Inglewood, California 90301, Mr. Kritzik's
address is 1123 North Astor Street, P.O. Box 92547, Milwaukee, Wisconsin
53202-0547. Mr. Vogt's address is 3003 East Third Avenue, Denver, Colorado
80206.
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<PAGE> 39
The Strong Funds, a fund complex composed of 23 open-end management
investment companies, of which the Fund is a part, in the aggregate, pays each
Director who is not a director, officer, or employee of the Advisor, or any
affiliated company (a "disinterested director") an annual fee of $50,000, plus
$100 per Board meeting for each Fund. In addition, each disinterested director
is reimbursed by the Funds for travel and other expenses incurred in connection
with attendance at such meetings. Other officers and directors of the Funds
receive no compensation or expense reimbursement from the Funds.
As of July 15, 1995, the officers and directors of the Corporation in
the aggregate beneficially owned less than 1% of the Fund's then outstanding
shares.
PRINCIPAL SHAREHOLDERS
As of June 19, 1995, Strong Capital Management, Inc. owned of record
and beneficially 100,000 shares, representing all of the Fund's outstanding
common stock.
INVESTMENT ADVISOR AND DISTRIBUTOR
The Advisor to the Fund is Strong Capital Management, Inc. Mr.
Richard S. Strong controls the Advisor. Mr. Strong is the Chairman and a
director of the Advisor, Mr. Dragisic is the Vice Chairman and a director of
the Advisor, Mr. Totsky is a Senior Vice President of the Advisor, Mr. Lemke is
a Senior Vice President, Secretary and General Counsel of the Advisor, Mr.
Neville is a Senior Vice President and Chief Financial Officer of the Advisor,
Ms. Oglanian is an Associate Counsel of the Advisor and Mr. Thomas M. Zoeller
is the Treasurer of the Advisor. A brief description of the Fund's investment
advisory agreement ("Advisory Agreement") is set forth in the Prospectus under
"About the Fund - Management."
The Fund's Advisory Agreement is dated _______, 1995 and will remain
in effect as to the Fund for a period of two years. The Advisory Agreement was
last approved by the sole shareholder on _______, 1995. Thereafter, the
Advisory Agreement is required to be approved annually by the Board of
Directors of the Corporation or by vote of a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act). In either case, each annual
renewal must be approved by the vote of a majority of the Corporation's
directors who are not parties to the Advisory Agreement or interested persons
of any such party, cast in person at a meeting called for the purpose of voting
on such approval. The Advisory Agreement is terminable, without penalty, on 60
days' written notice by the Board of Directors of the Corporation, by vote of a
majority of the Fund's outstanding voting securities, or by the Advisor. In
addition, the Advisory Agreement will terminate automatically in the event of
its assignment.
Under the terms of the Advisory Agreement, the Advisor manages the
Fund's investments subject to the supervision of the Fund's Board. The Advisor
is responsible for investment decisions and supplies investment research and
portfolio management. At its expense, the Advisor provides office space and
all necessary office facilities, equipment and personnel for servicing the
investments of the Fund. The Advisor places all orders for the purchase and
sale of the Fund's securities at its expense.
Except for expenses assumed by the Advisor as set forth above or by
the Distributor as described below with respect to the distribution of the
Fund's shares, the Fund is responsible for all its other expenses, including,
without limitation, interest charges, taxes, brokerage commissions, and similar
expenses; expenses of issue, sale, repurchase, or redemption of shares;
expenses of registering or qualifying shares for sale; expenses for printing
and distribution costs of Prospectuses and quarterly financial statements
mailed to existing shareholders; and charges of custodians, transfer agents
(including the printing and mailing of reports and notices to shareholders),
registrars, auditing and legal services, clerical services related to
recordkeeping and shareholder relations, printing stock certificates; and fees
for directors who are not "interested persons" of the Advisor, and its
allocable share of the Corporation's expenses.
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<PAGE> 40
As compensation for its services, the Fund pays to the Advisor a
monthly advisory fee at the annual rate of .50% of the Fund's average daily net
assets. From time to time, the Advisor may voluntarily waive all or a portion
of its management fee for a Fund. The organizational expenses of the Fund,
which were $74,235, were advanced by the Advisor and will be reimbursed by the
Fund over a period of not more than 60 months from the Fund's date of
inception.
The Advisory Agreement requires the Advisor to reimburse the Fund in
the event that the expenses and charges payable by the Fund in any fiscal year,
including the advisory fee but excluding taxes, interest, brokerage
commissions, and similar fees and to the extent permitted extraordinary
expenses, exceed the percentage of the average net asset value of the Fund for
such year. Such excess is determined by valuations made as of the close of
each business day of the year, which is the most restrictive percentage
provided by the laws of the various states in which the Fund's shares are
qualified for sale; or if the states in which the Fund's shares are qualified
for sale impose no restrictions, the Advisor shall reimburse the Fund in the
event the expenses and charges payable by the Fund in any fiscal year (as
described above) exceed 2%. The most restrictive percentage limitation
currently applicable to the Fund is 2.5% of its average daily net assets up to
$30,000,000, 2% on the next $70,000,000 of its average daily net assets and
1.5% of its average daily net assets in excess of $100,000,000. Reimbursement
of expenses in excess of the applicable limitation will be made on a monthly
basis and will be paid to the Fund by reduction of the Advisor's fee, subject
to later adjustment, month by month, for the remainder of the Fund's fiscal
year. The Advisor may from time to time voluntarily absorb expenses for the
Fund in addition to the reimbursement of expenses in excess of application
limitations.
On July 12, 1994, the Securities and Exchange Commission (the SEC)
filed an administrative action (Order) against the Advisor, Mr. Strong, and
another employee of the Advisor in connection with conduct that occurred
between 1987 and early 1990. In re Strong/Corneliuson Capital Management, Inc.,
et al. Admin. Proc. File No. 3-8411. The proceeding was settled by consent
without admitting or denying the allegations in the Order. The Order alleged
that the Advisor and Mr. Strong aided and abetted violations of Section 17(a)
of the 1940 Act by effecting trades between mutual funds, and between mutual
funds and Harbour Investments Ltd. ("Harbour"), without complying with the
exemptive provisions of SEC Rule 17a-7 or otherwise obtaining an exemption. It
further alleged that the Advisor violated, and Mr. Strong aided and abetted
violations of, the disclosure provisions of the 1940 Act and the Investment
Advisers Act of 1940 by misrepresenting the Advisor's policy on personal
trading and by failing to disclose trading by Harbour, an entity in which
principals of the Advisor owned between 18 and 25 percent of the voting stock.
As part of the settlement, the respondents agreed to a censure and a cease and
desist order and the Advisor agreed to various undertakings, including adoption
of certain procedures and a limitation for six months on accepting certain
types of new advisory clients.
The staff of the U.S. Department of Labor (the "Staff") has contacted
the Advisor regarding alleged cross-trading of securities between 1987 and
early 1990 involving various customer accounts subject to the Employee
Retirement Security Act of 1974 ("ERISA") and managed by the Advisor. The
Advisor has informed the Staff of the basis for its position that the trades
complied with ERISA and that, in any event, any alleged noncompliance was not
the cause of any losses to the accounts. The Staff has stated that it
disagrees with the Advisor's positions, although to date it has not filed any
action against the Advisor. At this time, the Advisor is negotiating with the
Staff regarding a possible resolution of the matter, but it cannot presently
determine whether the matter will be settled or litigated or, if it is settled
or litigated, how it ultimately will be resolved. However, management
presently believes, based on current knowledge and the Advisor's insurance
coverage, that the ultimate resolution of this matter should not have a
material adverse effect on the Advisor's financial position.
Under a Distribution Agreement dated June 23, 1995 with the
Corporation (the "Distribution Agreement"), Strong Funds Distributors, Inc.
("Distributor"), a subsidiary of the Advisor, acts as underwriter of the Fund's
shares. The Distribution Agreement provides that the Distributor will use its
best efforts to distribute the Fund's shares. 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 the Advisor and controlled by the
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<PAGE> 41
Advisor and Richard S. Strong. The Distribution Agreement is subject to the
same termination and renewal provisions as are described above with respect to
the Advisory Agreement.
From time to time, the Distributor may hold in-house sales incentive
programs for its associated persons under which these persons may receive
non-cash compensation awards in connection with the sale and distribution of
the Fund's shares. These awards may include items such as, but not limited to,
gifts, merchandise, gift certificates, and payment of travel expenses, meals
and lodging. As required by the National Association of Securities Dealers,
Inc. or NASD's proposed rule amendments in this area, 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 Advisor is responsible for decisions to buy and sell securities
for the Fund and for the placement of the Fund's portfolio business and the
negotiation of the commissions to be paid on such transactions. It is the
policy of the Advisor to seek the best execution at the best security price
available with respect to each transaction, in light of the overall quality of
brokerage and research services provided to the Advisor or the Fund. In
over-the-counter transactions, orders are placed directly with a principal
market maker unless it is believed that a better price and execution can be
obtained using a broker. The best price to the Fund means the best net price
without regard to the mix between purchase or sale price and commissions, if
any. In selecting broker-dealers and in negotiating commissions, the Advisor
considers a variety of factors, including best price and execution, the full
range of brokerage services provided by the broker, as well as its capital
strength and stability, and the quality of the research and research services
provided by the broker. Brokerage will not be allocated based on the sale of
any shares of the Strong Funds.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment advisor, under certain circumstances, to cause an account
to pay a broker or dealer a commission for effecting a transaction in excess of
the amount of commission another broker or dealer would have charged for
effecting the transaction in recognition of the value of the brokerage and
research services provided by the broker or dealer. Brokerage and research
services include (a) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody).
In carrying out the provisions of the Advisory Agreement, the Advisor
may cause the Fund to pay a broker, which provides brokerage and research
services to the Advisor, a commission for effecting a securities transaction in
excess of the amount another broker would have charged for effecting the
transaction. The Advisor believes it is important to its investment
decision-making process to have access to independent research. The Advisory
Agreement provides that such higher commissions will not be paid by the Fund
unless (a) the Advisor determines in good faith that the amount is reasonable
in relation to the services in terms of the particular transaction or in terms
of the Advisor's overall responsibilities with respect to the accounts as to
which it exercises investment discretion; (b) such payment is made in
compliance with the provisions of Section 28(e), other applicable state and
federal laws, and the Advisory Agreement; and (c) in the opinion of the
Advisor, the total commissions paid by the Fund will be reasonable in relation
to the benefits to the Fund over the long term. The investment advisory fees
paid by the Fund under the Advisory Agreement are not reduced as a result of
the Advisor's receipt of research services.
Generally, research services provided by brokers may include
information on the economy, industries, groups of securities, individual
companies, statistical information, accounting and tax law interpretations,
political developments, legal developments affecting portfolio securities,
technical market action, pricing and appraisal services, credit analysis, risk
measurement analysis, performance analysis, and analysis of corporate
responsibility issues. Such research services are received primarily in the
form of written reports, telephone contacts, and personal
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<PAGE> 42
meetings with security analysts. In addition, such research services may be
provided in the form of access to various computer-generated data, computer
hardware and software, and meetings arranged with corporate and industry
spokespersons, economists, academicians, and government representatives. In
some cases, research services are generated by third parties but are provided
to the Advisor by or through brokers. Such brokers may pay for all or a portion
of computer hardware and software costs relating to the pricing of securities.
Where the Advisor itself receives both administrative benefits and
research and brokerage services from the services provided by brokers, it makes
a good faith allocation between the administrative benefits and the research
and brokerage services, and will pay for any administrative benefits with cash.
In making good faith allocations of costs between administrative benefits and
research and brokerage services, a conflict of interest may exist by reason of
the Advisor's allocation of the costs of such benefits and services between
those that primarily benefit the Advisor and those that primarily benefit the
Fund and other advisory clients.
From time to time, the Advisor may purchase securities for the Fund in
a fixed price offering. In these situations, the seller may be a member of the
selling group that will, in addition to selling the securities to the Fund and
other advisory clients, provide the Advisor with research. The National
Association of Securities Dealers has adopted rules expressly permitting these
types of arrangements under certain circumstances. Generally, the seller will
provide research "credits" in these situations at a rate that is higher than
that which is available for typical secondary market transactions. These
arrangements may not fall within the safe harbor of Section 28(e).
Each year, the Advisor considers the amount and nature of research and
research services provided by brokers, as well as the extent to which such
services are relied upon, and attempts to allocate a portion of the brokerage
business of the Fund and other advisory clients on the basis of that
consideration. In addition, brokers may suggest a level of business they would
like to receive in order to continue to provide such services. The actual
brokerage business received by a broker may be more or less than the suggested
allocations, depending upon the Advisor's evaluation of all applicable
considerations.
During its last fiscal year, the Advisor had an arrangement with
various brokers whereby, in consideration of the providing of research
services, the Advisor allocated brokerage to those firms, provided that their
brokerage and research services were satisfactory to the Advisor and their
execution capabilities were compatible with the Advisor's policy of seeking
best execution at the best security price available, as discussed above.
The Advisor may direct the purchase of securities on behalf of the
Fund and other advisory clients in secondary market transactions, in public
offerings directly from an underwriter, or in privately negotiated transactions
with an issuer. When the Advisor believes the circumstances so warrant,
securities purchased in public offerings may be resold shortly after
acquisition in the immediate aftermarket for the security in order to take
advantage of price appreciation from the public offering price or for other
reasons. Short-term trading of securities acquired in public offerings, or
otherwise, may result in higher portfolio turnover and associated brokerage
expenses.
The Advisor places portfolio transactions for other advisory accounts,
including other mutual funds managed by the Advisor. Research services
furnished by firms through which the Fund effects its securities transactions
may be used by the Advisor in servicing all of its accounts; not all of such
services may be used by the Advisor in connection with the Fund. In the
opinion of the Advisor, it is not possible to measure separately the benefits
from research services to each of the accounts (including the Fund) managed by
the Advisor. Because the volume and nature of the trading activities of the
accounts are not uniform, the amount of commissions in excess of those charged
by another broker paid by each account for brokerage and research services will
vary. However, in the opinion of the Advisor, such costs to the Fund will not
be disproportionate to the benefits received by the Fund on a continuing basis.
The Advisor seeks to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell securities by the
Fund and another advisory account. In some cases, this procedure could have an
adverse effect on the price or the amount of securities available to the Fund.
In making such allocations between the Fund and other advisory accounts, the
main factors considered by the Advisor are the respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held, and the opinions of the persons responsible for
recommending the investment.
CUSTODIAN
As custodian of the Fund's assets, Firstar Trust Company, P.O. Box
701, Milwaukee, Wisconsin 53201, has custody of all securities and cash of the
Fund, delivers and receives payment for securities sold, receives and pays for
securities purchased, collects income from investments, and performs other
duties, all as directed by the officers of the Fund. The Fund's custodian has
entered into a sub-custodial arrangement with Bankers Trust Company ("BTC")
pursuant to which BTC may retain custody of certain of the Fund's
dollar-denominated foreign securities. The custodian and, if applicable, the
sub-custodian are in no way responsible for any of the investment policies or
decisions of the Fund.
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<PAGE> 43
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
The Advisor acts as transfer agent and dividend-disbursing agent for
the Fund. The Advisor is compensated based on an annual fee per open account of
$32.50, plus out-of-pocket expenses, such as postage and printing expenses in
connection with shareholder communications. The Advisor also receives an annual
fee per closed account of $4.20 from the Fund. The fees received and the
services provided as transfer agent and dividend disbursing agent are in
addition to those received and provided by the Advisor under the Advisory
Agreement. In addition, the Advisor 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 the Advisor, may pay amounts to third parties that provide
transfer agent 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, answering inquiries relating to the Fund, transmitting, on behalf of
the Fund, 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 at a rate that is greater than the rate the Fund is currently paying the
Advisor for providing these services to Fund shareholders.
TAXES
GENERAL
As indicated under "About the Fund - Distributions and Taxes" in the
Prospectus, the Fund intends to qualify annually for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
(the "Code"). This qualification does not involve government supervision of
the Fund's management practices or policies.
In order to qualify for treatment as a RIC under the Code, the Fund
must distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gain, and net gains from certain foreign
currency transactions ) ("Distribution Requirement") and must meet several
additional requirements. 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 or other income
(including gains from options, futures, or forward currency contracts) derived
with respect to its business of investing in securities or these currencies
("Income Requirement"); (2) the Fund must derive less than 30% of its gross
income each taxable year from the sale or other disposition of securities, that
were held for less than three months ("30% Limitation"); (3) at the close of
each quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. government securities,
securities of other RICs, and other securities, with these other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities; and (4) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. government securities or
the securities of other RICs) of any one issuer.
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.
FOREIGN TRANSACTIONS
Interest and dividends received by the Fund may be subject to income,
withholding, or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. The Fund maintains its accounts
and calculates its income in U.S. dollars.
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<PAGE> 44
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus under the caption "Shareholder Manual -
Determining Your Share Price," the net asset value of the Fund will be
determined as of the close of trading on each day the New York Stock Exchange
(the "NYSE") is open for trading. The New York Stock Exchange is open for
trading Monday through Friday except New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. Additionally, if any of the aforementioned holidays falls on a
Saturday, the NYSE will not be open for trading on the preceding Friday, and
when any such holiday falls on a Sunday, the NYSE will not be open for trading
on the succeeding Monday, unless unusual business conditions exist, such as the
ending of a monthly or yearly accounting period.
The Fund values its securities on the amortized cost basis and seek to
maintain their net asset value at a constant $1.00 per share. In the event a
difference of 1/2 of 1% or more were to occur between the net asset value
calculated by reference to market values and the Fund's $1.00 per share net
asset value, or if there were any other deviation which the Board of Directors
of the Corporation believed would result in a material dilution to shareholders
or purchasers, the Board of Directors would consider taking any one or more of
the following actions or any other action considered appropriate: selling
portfolio securities to shorten average portfolio maturity or to realize
capital gains or losses, reducing or suspending shareholder income accruals,
redeeming shares in kind, or utilizing a value per unit based upon available
indications of market value. Available indications of market value may
include, among other things, quotations or market value estimates of securities
and/or values based on yield data relating to money market securities that are
published by reputable sources.
ADDITIONAL SHAREHOLDER INFORMATION
TELEPHONE EXCHANGE AND REDEMPTION PRIVILEGES AND AUTOMATIC EXCHANGE PLAN
Shares of the Fund and any other funds sponsored by the Advisor may be
exchanged for each other at relative net asset values. Exchanges will be
effected by redemption of shares of the Fund held and purchase of shares of the
fund for which Fund shares are being exchanged (the "New Fund"). For federal
income tax purposes, any such exchange constitutes a sale upon which a capital
gain or loss will be realized, depending upon whether the value of the shares
being exchanged is more or less than the shareholder's adjusted cost basis. If
you are interested in exercising any of these exchange privileges, you should
obtain Prospectuses of other funds sponsored by the Advisor from the Advisor.
Upon a telephone exchange, the transfer agent establishes a new account in the
New Fund with the same registration and dividend and capital gains options as
the redeemed account, unless otherwise specified, and confirms the purchase to
you.
Strong Funds' Automatic Investment Plan, Payroll Direct Deposit Plan,
and Automatic Exchange Plan, all discussed below, are methods of implementing
DOLLAR COST AVERAGING. Dollar cost averaging is an investment strategy that
involves investing a fixed amount of money at regular time intervals. By
always investing the same set amount, you will be purchasing more shares when
the price is low and fewer shares when the price is high. Ultimately, by using
this principle in conjunction with fluctuations in share price, your average
cost per share may be less than your average transaction price. A program of
regular investment cannot ensure a profit or protect against a loss during
declining markets. Since such a program involves continuous investment
regardless of fluctuating share values, you should consider your ability to
continue the program through periods of both low and high share-price levels.
The Fund employs reasonable procedures to confirm that instructions
communicated by telephone 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, providing written confirmations of such
transactions to the address of record, and tape recording telephone
instructions.
The Telephone Exchange and Redemption Privileges and Automatic
Exchange Plan are available only in states where shares of the New Fund may be
sold, and may be modified or discontinued at any time. Additional information
regarding the Telephone Exchange and Redemption Privileges and Automatic
Exchange Plan is contained in the Fund's Prospectus.
-17-
<PAGE> 45
RETIREMENT PLANS
Individual Retirement Account (IRA): Everyone under age 70 1/2 with earned
income may contribute to a tax-deferred IRA. The Strong Funds offer a prototype
plan for you to establish your own IRA. You are allowed to contribute up to the
lesser of $2,000 or 100% of your earned income each year to your IRA. Under
certain circumstances, your contribution will be deductible.
Direct Rollover IRA: To avoid the mandatory 20% federal withholding tax on
distributions, you must transfer the qualified retirement or Code section
403(b) plan distribution directly into an IRA. This tax cannot be avoided if
you receive a distribution and then roll it over into an IRA. 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 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
is a type of SEP-IRA 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.
Defined Contribution Plan: A defined contribution plan allows self-employed
individuals, partners, or a corporation to provide retirement benefits for
themselves and their employees. There are three plan types: a profit-sharing
plan, a money purchase pension plan, and a paired plan (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 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 tax-sheltered custodial account designed to qualify under
section 403(b)(7) of the Code is available for use by employees of certain
educational, non-profit, hospital, and charitable organizations.
FUND ORGANIZATION
The Fund is a series of common stock of Strong Heritage Reserve
Series, Inc., a Wisconsin corporation (the "Corporation"). The Corporation was
organized on June 2, 1989 and is authorized to issue 10,000,000,000 shares of
common stock and series and classes of series of shares of common stock, with a
par value of $.00001 per share. The Corporation is authorized to issue
2,000,000,000 shares of common stock of the Fund. The shares in any one
portfolio may, in turn, be offered in separate classes, each with differing
preferences, limitations or relative rights. However, the Corporation's
Articles of Incorporation provides that if additional classes of shares are
issued by the Fund, such new classes of shares may not affect the preferences,
limitations or relative rights of the Fund's outstanding shares. In addition,
the Corporation's Board 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 with 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 is
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<PAGE> 46
entitled to vote. Fractional shares have the same rights proportionately as do
full shares. Shares of the Fund have no preemptive, conversion, or subscription
rights. The Fund currently has only one series of common stock outstanding. If
the Fund issues additional series, the assets belonging to each series of
shares will be held separately by the custodian, and in effect each series will
be a separate fund.
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 their discretion, not hold an annual meeting in any year in which
the election of directors is not required to be acted on by shareholders under
the 1940 Act.
The Corporation's Bylaws allow for a director to be removed by its
shareholders with or without cause, only at a meeting called for the purpose
of removing the director. Upon the written request of the holders of shares
entitled to not less than ten percent (10%) of all the votes entitled to be
cast at such meeting, the Secretary of the Corporation shall promptly call a
special meeting of shareholders for the purpose of voting upon the question of
removal of any director. The Secretary of the Corporation shall inform such
shareholders of the reasonable estimated costs of preparing and mailing the
notice of the meeting, and upon payment to the Corporation of such costs, the
Corporation shall give not less than ten nor more than sixty days notice of the
special meeting.
PERFORMANCE INFORMATION
As described in the "About the Fund - Performance Information" section
of the Fund's Prospectus, the Fund's historical performance or return may be
shown in the form of "yield," "average annual total return," "total return,"
"cumulative total return," and "effective yield." From time to time, the
Advisor agrees to waive or reduce its management fee and to absorb certain
operating expenses for the Fund.
CURRENT YIELD
The Fund's current yield quotation is based on a seven-day period and
is computed as follows. The first calculation is net investment income per
share, which is accrued interest on portfolio securities, plus or minus
amortized premium, less accrued expenses. This number is then divided by the
price per share (expected to remain constant at $1.00) at the beginning of the
period ("base period return"). The result is then divided by 7 and multiplied
by 365 and the resulting yield figure is carried to the nearest one-hundredth
of one percent. Realized capital gains or losses and unrealized appreciation
or depreciation of investments are not included in the calculation.
EFFECTIVE YIELD
The Fund's effective yield is determined by taking the base period
return (computed as described above) and calculating the effect of assumed
compounding. The formula for the effective yield is: (base period return +
1)(365/7) - 1.
DISTRIBUTION RATE
The distribution rate 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 premium income from option writing and
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.
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<PAGE> 47
AVERAGE ANNUAL TOTAL RETURN
The Fund's average annual total return quotation is computed in
accordance with a standardized method prescribed by rules of the SEC. The
average annual total return for the Fund for a specific period is found by
first taking a hypothetical $10,000 investment ("initial investment") in the
Fund's shares on the first day of the period and computing the "redeemable
value" of that investment at the end of the period. The redeemable value is
then divided by the initial investment, and this quotient is taken to the Nth
root (N representing the number of years in the period) and 1 is subtracted
from the result, which is then expressed as a percentage. The calculation
assumes that all income and capital gains dividends paid by the Fund have been
reinvested at net asset value on the reinvestment dates during the period.
TOTAL RETURN
Calculation of the Fund's total return is not subject to a
standardized formula. Total return performance for a specific period is
calculated by first taking an investment (assumed below to be $10,000)
("initial investment") in the Fund's shares on the first day of the period and
computing the "ending value" of that investment at the end of the period. The
total return percentage is then determined by subtracting the initial
investment from the ending value and dividing the remainder by the initial
investment and expressing the result as a percentage. The calculation assumes
that all income and capital gains dividends paid by the Fund have been
reinvested at net asset value on the reinvestment dates during the period.
Total return may also be shown as the increased dollar value of the
hypothetical investment over the period.
CUMULATIVE TOTAL RETURN
Calculation of the Fund's cumulative total return is not subject to a
standardized formula and represents the simple change in value of our
investment over a stated period and may be quoted as a percentage or as a
dollar amount. Total returns and cumulative total returns may be broken down
into their components of income and capital (including capital gains and
changes in share price) in order to illustrate the relationship between these
factors and their contributions to total return.
The Fund's performance figures are based upon historical results and
do not represent future results. The Fund's shares are sold at net asset value
per share. The yield for the Fund will fluctuate. While the Fund seeks to
maintain a stable net asset value of $1.00, there is no assurance that the Fund
will be able to do so. An investment in the Fund is neither insured nor
guaranteed by the U.S. government. Factors affecting the Fund's performance
include general market conditions, operating expenses and investment
management. Any additional fees charged by a dealer or other financial
services firm would reduce the returns described in this section.
COMPARISONS
(1) 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 United States Treasury.
The market value of such instruments will generally fluctuate inversely with
interest rates prior to maturity and will equal par value at maturity.
Generally, the values of obligations with shorter maturities will fluctuate
less than those with longer maturities.
(2) CERTIFICATES OF DEPOSIT
Investors may 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.
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<PAGE> 48
(3) MONEY MARKET FUNDS
Investors may also want to compare performance of the Fund to that of
money market funds. Money market fund yields will fluctuate and shares are not
insured, but share values usually remain stable.
(4) LIPPER ANALYTICAL SERVICES, INC. ("LIPPER") AND OTHER INDEPENDENT
RANKING ORGANIZATIONS
From time to time, in marketing and other fund literature, the Fund's
performance may be compared to the performance of other mutual funds in general
or to the performance of particular types of mutual funds, with similar
investment goals, as tracked by independent organizations. Among these
organizations, Lipper, a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets, may be
cited. Lipper performance figures are based on changes in net asset value,
with all income and capital gain dividends reinvested. Such calculations do
not include the effect of any sales charges imposed by other funds. The Fund
will be compared to Lipper's appropriate fund category, that is, by fund
objective and portfolio holdings. The Fund's performance may also be compared
to the average performance of its Lipper category.
(5) MORNINGSTAR, INC.
The Fund's performance may also be compared to the performance of
other mutual funds by Morningstar, Inc. which ranks funds on the basis of
historical risk and total return. Morningstar's rankings 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. Rankings are not absolute and do not represent future
results.
(6) IBC/DONOGHUE, INC.
IBC/Donoghue, Inc. is an independently operated financial newsletter
publishing firm specializing in the statistical analysis of the trends in the
money market mutual fund industry. From time to time, in marketing and other
fund literature, IBC/Donoghue data may be quoted or compared to the fund's
performance. IBC/Donoghue, Inc. provides current (7 and 30 day yields) and
historical performance (1, 3, and 5 year returns), rankings and category
averages for over 1,100 money market mutual funds.
(7) INDEPENDENT SOURCES
Evaluations of Fund performance made by independent sources may also
be used in advertisements concerning a Fund, including reprints of, or
selections from, editorials or articles about the Fund, especially those with
similar objectives. Sources for Fund performance information and articles
about the Fund may include publications such as Money, Forbes, Kiplinger's,
Smart Money, Morningstar, Inc., Financial World, Business Week, U.S. News and
World Report, The Wall Street Journal, Barron's, and a variety of investment
newsletters.
(8) VARIOUS BANK PRODUCTS
The Fund's performance also may be compared on a before or after-tax
basis to various bank products, including the average rate of bank and thrift
institution money market deposit accounts, Super N.O.W. accounts and
certificates of deposit of various maturities as reported in the Bank Rate
Monitor, National Index of 100 leading banks, and thrift institutions as
published by the Bank Rate Monitor, Miami Beach, Florida. The rates published
by the Bank Rate Monitor National Index are averages of the personal account
rates offered on the Wednesday prior to the date of publication by 100 large
banks and thrifts in the top ten Consolidated Standard Metropolitan Statistical
Areas. The rates provided for the bank accounts assume no compounding and are
for the lowest minimum deposit required to open an account. Higher rates may
be available for larger deposits.
With respect to money market deposit accounts and Super N.O.W.
accounts, account minimums range upward from $2,000 in each institution and
compounding methods vary. Super N.O.W. accounts generally offer unlimited
check writing while money market deposit accounts generally restrict the number
of checks that may be written. If more than one rate is offered, the lowest
rate is used. Rates are determined by the financial institution and are
subject to change at any time specified by the institution. Generally, the
rates offered for these products take market conditions and competitive product
yields into consideration when set. Bank products represent a taxable
alternative income producing product. Bank and thrift institution deposit
accounts may be insured. Shareholder accounts in the Fund are not insured.
Bank passbook savings accounts compete with money market
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<PAGE> 49
mutual fund products with respect to certain liquidity features but may not
offer all of the features available from a money market mutual fund, such as
check writing. Bank passbook savings accounts normally offer a fixed rate of
interest while the yield of the Fund fluctuates. Bank checking accounts
normally do not pay interest but compete with money market mutual fund products
with respect to certain liquidity features (e.g., the ability to write checks
against the account). Bank certificates of deposit may offer fixed or variable
rates for a set term. (Normally, a variety of terms are available.)
Withdrawal of these deposits prior to maturity will normally be subject to a
penalty. In contrast, shares of the Fund are redeemable at the net asset value
(normally, $1.00 per share) next determined after a request is received,
without charge.
(9) INDICES
The Fund may compare its performance to a wide variety of indices
including the following:
(a) The Consumer Price Index
(b) Merrill Lynch 91 Day Treasury Bill Index
(c) Merrill Lynch Government/Corporate 1-3 Year Index
(d) IBC/Donoghue's Taxable Money Fund Average(TM)
(e) IBC/Donoghue's Government Money Fund AverageTM
(f) Salomon Brothers 1-Month Treasury Bill Index
(g) Salomon Brothers 3-Month Treasury Bill Index
(h) Salomon Brothers 1-Year Treasury Benchmark-on-the-Run Index
(i) Salomon Brothers 1-3 Year Treasury/Government-Sponsored/
Corporate Bond Index
(j) Salomon Brothers Broad Investment-Grade Bond Index
(k) Lehman Brothers Aggregate Bond Index
(l) Lehman Brothers 1-3 Year Government/Corporate Bond Index
There are differences and similarities between the investments which
the Fund may purchase and the investments measured by the indices which are
noted herein. The market prices and yields of taxable and tax-exempt bonds
will fluctuate. There are important differences among the various investments
included in the indices that should be considered in reviewing this
information.
(10) 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. 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 backed by the full faith and credit of the U.S.
Treasury.
(11) STRONG FAMILY OF FUNDS
The Strong Family of Funds offers a comprehensive range of
conservative to aggressive investment options. All of the members of the Strong
Family and their investment objectives are listed below. The Funds are listed
in ascending order of risk and return, as determined by the Funds' Advisor.
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<PAGE> 50
<TABLE>
<CAPTION>
FUND NAME INVESTMENT OBJECTIVE
<S> <C>
Strong U.S. Treasury 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
Strong Municipal Money Market Federally tax-exempt current income, a stable share-price and daily
Fund liquidity.
Strong Advantage Fund Current income with a very 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 Municipal Bond Total return by investing for a high level of federally tax-exempt
Fund current income with a low degree of share-price fluctuation.
Strong Short-Term Global Bond Total return by investing for a high level of income with a low degree
Fund of share-price fluctuation.
Strong Government Securities Total return by investing for a high level of current income with a
Fund moderate degree of share-price fluctuation.
Strong Insured Municipal Bond Total return by investing for a high level of federally tax-exempt
Fund current income with a moderate degree of share-price fluctuation.
Strong Municipal Bond Fund Total return by investing for a high level of federally tax-exempt
current income with a moderate degree of share-price fluctuation.
Strong Corporate Bond Fund Total return by investing for a high level of current income with a
moderate degree of share-price fluctuation.
Strong International Bond Fund High total return by investing for both income and capital appreciation.
Strong High-Yield Municipal Bond Total return by investing for a high level of federally tax-exempt
Fund current income.
Strong Asset Allocation Fund High total return consistent with reasonable risk over the long term.
Strong American Utilities Fund Total return by investing for both income and capital growth.
Strong Total Return Fund High total return by investing for capital growth and income.
Strong Opportunity Fund Capital growth.
Strong Growth Fund Capital growth.
Strong Common Stock Fund* Capital growth.
Strong Discovery Fund Capital growth.
Strong International Stock Fund Capital growth.
Strong Asia Pacific Fund Capital growth.
</TABLE>
* The Strong Common Stock Fund is currently closed to new investors.
The Advisor also serves as Advisor or Subadvisor 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 the other funds in the
Strong Family of 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.
Financial goals vary from person to person. You may choose one or more of the
Strong Funds to help you reach your financial goals.
ADDITIONAL FUND INFORMATION
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<PAGE> 51
(1) DURATION
Duration is a calculation that measures the price sensitivity of a fund to
changes in interest rates. Theoretically, if a fund had a duration of 2.0, a 1%
increase in interest rates would cause the prices of the bonds in the fund to
decrease by approximately 2%. Conversely, a 1% decrease in interest rates would
cause the prices of the bonds in the fund to increase by approximately 2%.
Depending on the direction of market interest rates, a fund's duration may be
shorter or longer than its average maturity.
(2) PORTFOLIO CHARACTERISTICS
In order to present a more complete picture of a fund's portfolio,
marketing materials may include various actual or estimated portfolio
characteristics, including but not limited to median market capitalizations,
earnings per share, alphas, betas, price/earnings ratios, returns on equity,
dividend yields, capitalization ranges, growth rates, price/book ratios, top
holdings, sector breakdowns, asset allocations, quality breakdowns, and
breakdowns by geographic region.
(3) 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:
2
Standard deviation = the square root of +(xi - xm)
-----------
n-1
where + = "the sum of",
xi = each individual return during the time period,
xm = the average return over the time period, and
n = the number of individual returns during the time period.
Statistics may also be used to discuss a fund's relative performance. One
such measure is alpha. Alpha measures the actual return of a fund compared to
the expected return of a fund given its risk (as measured by beta). The
expected return is based on how the market as a whole performed, and how the
particular fund has historically performed against the market. Specifically,
alpha is the actual return less the expected return. The expected return is
computed by multiplying the advance or decline in a market representation by
the fund's beta. A positive alpha quantifies the value that the fund manager
has added, and a negative alpha quantifies the value that the fund manager has
lost.
Other measures of volatility and relative performance may be used as
appropriate. However, all such measures will fluctuate and do not represent
future results.
GENERAL INFORMATION
BUSINESS PHILOSOPHY
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<PAGE> 52
The Advisor is an independent, Midwestern-based investment advisor, owned
by professionals active in its management. Recognizing that investors are the
focus of its business, the Advisor strives for excellence both in investment
management and in the service provided to investors. This commitment affects
many aspects of the business, including professional staffing, product
development, investment management, and service delivery. Through its
commitment to excellence, the Advisor intends to benefit investors and to
encourage them to think of Strong Funds as their mutual fund family.
The increasing complexity of the capital markets requires specialized
skills and processes for each asset class and style. Therefore, the Advisor
believes that active management should produce greater returns than a passively
managed index. The Advisor has brought together a group of top-flight
investment professionals with diverse product expertise, and each concentrates
on their investment specialty. The Advisor believes that people are the firm's
most important asset. For this reason, continuity of professionals is critical
to the firm's long-term success.
INVESTMENT ENVIRONMENT
Discussions of economic, social, and political conditions and their impact
on the Fund may be used in advertisements and sales materials. Such factors
that may impact the Fund include, but are not limited to, changes in interest
rates, political developments, the competitive environment, consumer behavior,
industry trends, technological advances, macroeconomic trends, and the supply
and demand of various financial instruments. In addition, marketing materials
may cite the portfolio management's views or interpretations of such factors.
EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING
These common sense rules are followed by many successful investors. They
make sense for beginners, too. If you have a question on these principles, or
would like to discuss them with us, please contact us at 1-800-368-3863.
1. Have a plan - even a simple plan can help you take control of your
financial future. Review your plan once a year, or if your circumstances
change.
2. Start investing as soon as possible. Make time a valuable ally. Let it put
the power of compounding to work for you, while helping to reduce your
potential investment risk.
3. Diversify your portfolio. By investing in different asset classes -
stocks, bonds, and cash - you help protect against poor performance in one
type of investment while including investments most likely to help you
achieve your important goals.
4. Invest regularly. Investing is a process, not a one-time event. Make a
habit of investing. And make it easy for yourself with an "automatic
investment plan." This popular strategy not only helps you manage
investment risk, it also ensures you "pay yourself first" on a regular
basis.
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.
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<PAGE> 53
8. Know what you're buying. Make sure you understand the potential risks and
rewards associated with each of your investments. Ask questions... request
information...make up your own mind. And choose a fund company that helps
you make informed investment decisions.
PORTFOLIO MANAGEMENT
Each portfolio manager works with a team of analysts, traders, and
administrative personnel. From time to time, marketing materials may discuss
various members of the team, including their education, investment experience,
and other credentials.
The Advisor believes that actively managing the Fund's portfolio and
adjusting the average portfolio maturity according to the Advisor's interest
rate outlook is the best way to achieve the Fund's objectives. This policy is
based on a fundamental belief that economic and financial conditions create
favorable and unfavorable investment periods (or seasons) and that these
different seasons require different investment approaches. The Advisor's
investment philosophy is that:
- - successful fixed-income management begins with a top-down analysis of the
economy, interest rates, and the supply of and demand for credit
- - defining benchmarks for duration, yield-curve characteristics, and
sector/quality composition, making only moderate deviations from those
benchmarks, and then modeling the effects of different economic scenarios
on the portfolio is an efficient way to add value and control risk.
The Fund is designed for investors who place a premium on the value of the
money fund portions of their portfolios and are seeking higher yields over the
long-term than a typical money fund through lower costs. The Fund pursues a
higher yield by reducing costs in two ways. First, investors are required to
maintain higher account balances, enabling the Fund to reduce costs through
economies of scale and more efficient operation. Second, with certain
exceptions, investors are charged a fee on transactions. These charges help to
reduce Fund costs because they are paid to the Fund. The Fund's investors are
rewarded for being disciplined because the fewer transactions they perform, the
fewer charges they incur. The Fund's low-cost design is built into its
structure and is intended to provide long-term continuous value for its
investors.
LEGAL COUNSEL
Godfrey & Kahn, S.C., 780 North Water Street, Milwaukee, Wisconsin 53202,
acts as outside legal counsel for the Fund.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., 411 East Wisconsin Avenue, Milwaukee, Wisconsin
53202, are the independent accountants for the Fund, providing audit services
and assistance and consultation with respect to the preparation of filings with
the SEC.
26
<PAGE> 54
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder
Strong Heritage Reserve Series, Inc. -
Strong Heritage Money Fund
We have audited the accompanying statement of assets and liabilities of Strong
Heritage Reserve Series, Inc. - Strong Heritage Money Fund as of June 19, 1995.
This financial statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets and liabilities is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
statement of assets and liabilities presentation. We believe that our audit of
the statement of assets and liabilities provides a reasonable basis for our
opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Strong
Heritage Reserve Series, Inc. - Strong Heritage Money Fund as of June 19, 1995,
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
June 20, 1995
STATEMENT OF ASSETS AND LIABILITIES
STRONG HERITAGE RESERVE SERIES, INC. -
STRONG HERITAGE MONEY FUND
STATEMENT OF ASSETS AND LIABILITIES - JUNE 19, 1995
<TABLE>
<S> <C>
ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100,000
Deferred organizational costs (Note 2) . . . . . . . . . . . . . . . . 74,235
---------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . 174,235
LIABILITIES:
Due to Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,235
--------
NET ASSETS:
Net assets applicable to 100,000 issued and outstanding shares of
$.00001 par value Common Stock; authorized three hundred
million shares . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100,000
=========
NET ASSET VALUE:
Net asset value, redemption price and offering price per
share ($100,000/100,000) . . . . . . . . . . . . . . . . . . . . . $ 1.00
=========
</TABLE>
- ---------------
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
1. Strong Heritage Reserve Series, Inc. (the "Corporation") was incorporated in
the State of Wisconsin; 100,000 shares of Common Stock of Strong Heritage
Reserve Series, Inc. - Strong Heritage Money Fund (the "Fund") were issued to
Strong Capital Management, Inc. (the "Advisor"). The Corporation may establish
multiple series; currently one series has been established.
2. Costs incurred by the Fund in connection with its organization and
public offering of shares, estimated at $74,235, are deferred and will be
amortized over a period of not more than five years beginning with the date of
sales of shares to the public. These costs were advanced by the Advisor and will
be reimbursed by the Fund over a period of not more than 60 months. The proceeds
of any redemption of the initial shares by any holder thereof will be reduced by
any unamortized deferred organizational costs in the same proportion as the
number of initial shares being redeemed bears to the number of initial shares
outstanding at the time of such redemption.
27
<PAGE> 55
APPENDIX
SHORT-TERM RATINGS
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
Ratings graded into several categories, ranging from 'A-1' for the highest
quality obligations to 'D' for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated 'A-1'.
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
B Issues rated 'B' are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with doubtful
capacity for payment.
D Debt rated 'D' is in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
STANDARD & POOR'S NOTE RATINGS
A S&P note rating reflects the liquidity factors and market-access risks
unique to notes. Notes maturing in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating.
The following criteria will be used in making the assessment:
- Amortization schedule - the larger the final maturity relative to
other maturities, the more likely the issue is to be treated as a
note.
- Source of payment - the more the issue depends on the market for its
refinancing, the more likely it is to be considered a note.
The note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined
to possess very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay interest and principal, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3 Speculative capacity to pay principal and interest.
A-1
<PAGE> 56
MOODY'S COMMERCIAL PAPER RATINGS
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
makes no representation as to whether such commercial paper is by any other
definition "commercial paper" or is exempt from registration under the
Securities Act of 1933, as amended.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations
are exempt from registration under the Securities Act of 1933, nor does it
represent that any specific note is a valid obligation of a rated issuer or
issued in conformity with any applicable law. Moody's employs the following
three designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: (i)
leading market positions in well established industries, (ii) high rates of
return on funds employed, (iii) conservative capitalization structures with
moderate reliance on debt and ample asset protection, (iv) broad margins in
earnings coverage of fixed financial charges and high internal cash generation,
and (v) well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Issuers rated PRIME-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
MOODY'S NOTE RATINGS
MIG 1/VMIG 1 This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
MIG 3/VMIG 3 This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
MIG 4/VMIG 4 This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
SG This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.
A-2
<PAGE> 57
FITCH INVESTORS SERVICE, INC. SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+ (Exceptionally Strong Credit Quality) Issues assigned this
rating are regarded as having the strongest degree of assurance
for timely payment.
F-1 (Very Strong Credit Quality) Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated 'F-1+'.
F-2 (Good Credit Quality) Issues assigned this rating have a
satisfactory degree of assurance for timely payment but the
margin of safety is not as great as for issues assigned 'F-1+'
and 'F-1' ratings.
F-3 (Fair Credit Quality) Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate, however, near-term adverse changes
could cause these securities to be rated below investment grade.
F-S (Weak Credit Quality) Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes
in financial and economic conditions.
D (Default) Issues assigned this rating are in actual or imminent
payment default.
LOC The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.
DUFF & PHELPS, INC. SHORT-TERM DEBT RATINGS
Duff & Phelps' short-term ratings are consistent with the rating criteria
utilized by money market participants. The ratings apply to all obligations
with maturities of under one year, including commercial paper, the uninsured
portion of certificates of deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit, and current maturities of long-term
debt. Asset-backed commercial paper is also rated according to this scale.
Emphasis is placed on liquidity which as defined as not only cash from
operations, but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.
Rating Scale: Definition
Duff 1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors.
Risk factors are minor.
A-3
<PAGE> 58
Duff 1- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk
factors are very small.
Good Grade
Duff 2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets
is good. Risk factors are small.
Satisfactory Grade
Duff 3 Satisfactory liquidity and other protection factors qualify
issue as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is
expected.
Non-investment Grade
Duff 4 Speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high
degree of variation.
Default
Duff 5 Issuer failed to meet scheduled principal and/or interest
payments.
A-4
<PAGE> 59
STRONG HERITAGE RESERVE SERIES, INC.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements for Strong Heritage Money Fund (all
included in Part B)
Report of Independent Accountants
Statement of Assets and Liabilities
(b) Exhibits
(1) Amended and Restated Articles of Incorporation
(2) By-Laws
(3) Inapplicable
(4) Specimen Stock Certificate
(5) Amended Investment Advisory Agreement
(6) Distribution Agreement
(7) Inapplicable
(8) Custody Agreement
(9) Shareholder Servicing Agent Agreement
(10) Opinion of Counsel
(11) Consent of Auditors
(12) Inapplicable
(13) Subscription Agreement
(14.1) Amended Prototype Defined Contribution Retirement
Plan with Standardized Adoption Agreements
(14.2) Amended Individual Retirement Custodial Account
(14.3) Amended Section 403(b)(7) Retirement Plan
(15) Inapplicable
(16) Inapplicable
(17) Inapplicable
(18) Power of Attorney
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant neither controls any person nor is under common control
with any other person.
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record Holders
Title of Class as of June 22, 1995
-------------- -----------------------
<S> <C>
Common Stock, $.00001 par value
Strong Heritage Money Fund 1
</TABLE>
C-1
<PAGE> 60
Item 27. Indemnification
Officers and directors are insured under a joint errors and omissions
insurance policy underwritten by American International Surplus Lines Insurance
Company and First State Insurance Company in the aggregate amount of
$10,000,000, subject to certain deductions. Pursuant to the authority of the
Wisconsin Business Corporation Law, Article VII of Registrant's By-Laws
provides as follows:
ARTICLE VII. INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 7.01. Mandatory Indemnification. The corporation shall
indemnify, to the full extent permitted by the WBCL, as in effect from
time to time, the persons described in Sections 180.0850 through 180.0859
(or any successor provisions) of the WBCL or other provisions of the law
of the State of Wisconsin relating to indemnification of directors and
officers, as in effect from time to time. The indemnification afforded
such persons by this section shall not be exclusive of other rights to
which they may be entitled as a matter of law.
SECTION 7.02. Permissive Supplementary Benefits. The
Corporation may, but shall not be required to, supplement the right of
indemnification under Section 7.01 by (a) the purchase of insurance on
behalf of any one or more of such persons, whether or not the Corporation
would be obligated to indemnify such person under Section 7.01; (b)
individual or group indemnification agreements with any one or more of
such persons; and (c) advances for related expenses of such a person.
SECTION 7.03. Amendment. This Article VII may be amended or
repealed only by a vote of the shareholders and not by a vote of the Board
of Directors.
SECTION 7.04. Investment Company Act. In no event shall the
Corporation indemnify any person hereunder in contravention of any
provision of the Investment Company Act.
Item 28. Business and Other Connections of Investment Advisor
The information contained under "About the Fund - Management" in the
Prospectus and under "Directors and Officers of the Corporation" and
"Investment Advisor and Distributor" in the Statement of Additional Information
is hereby incorporated by reference pursuant to Rule 411 under the Securities
Act of 1933.
Item 29. Principal Underwriters
(a) Strong Funds Distributors, Inc., principal underwriter for Registrant,
also serves as principal underwriter for Strong Advantage Fund, Inc.; Strong
American Utilities Fund, Inc.; Strong Asia Pacific Fund, Inc.; Strong Asset
Allocation Fund, Inc.; Strong Common Stock Fund, Inc.; Strong Corporate Bond
Fund, Inc.; Strong Discovery Fund, Inc.; Strong Government Securities Fund,
Inc.; Strong Growth Fund, Inc.; Strong High-Yield Municipal Bond Fund, Inc.;
Strong Insured Municipal Bond Fund, Inc.; Strong International Bond Fund, Inc.;
Strong International Stock Fund, Inc.; Strong Money Market Fund, Inc.; Strong
Municipal Bond Fund, Inc.; Strong Municipal Money Market Fund, Inc.; Strong
Opportunity Fund, Inc.; Strong Short-Term Bond Fund, Inc.; Strong Short-Term
Global Bond Fund, Inc.; Strong Short-Term Municipal Bond Fund, Inc.; Strong
Special Fund II, Inc.; Strong Total Return Fund, Inc.; Strong U.S. Treasury
Money Fund, Inc.; and Strong Variable Insurance Funds, Inc.
(b) The information contained under "About the Fund - Management" in the
Prospectus and under "Directors and Officers of the Corporation" and
"Investment Advisor and Distributor" in the Statement of Additional Information
is hereby incorporated by reference pursuant to Rule 411 under the Securities
Act of 1933.
(c) Inapplicable
C-2
<PAGE> 61
Item 30. Location of Accounts and Records
All accounts, books, or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are in the physical possession of Registrant's Treasurer, Ronald A.
Neville, at Registrant's corporate offices, 100 Heritage Reserve, Menomonee
Falls, Wisconsin 53051.
Item 31. Management Services
All management-related service contracts entered into by Registrant are
discussed in Parts A and B of this Registration Statement.
Item 32. Undertakings
(a) Inapplicable.
(b) Registrant undertakes to file a post-effective amendment to this
Registration Statement within four to six months of the effective date of this
Registration Statement which will contain financial statements (which need not
be certified) as of and for the time period reasonably close or as soon as
practicable to the date of such post-effective amendment.
(c) The Registrant undertakes to furnish to each person to whom a
prospectus is delivered, upon request and without charge, a copy of the
Registrant's latest annual report to shareholders.
C-3
<PAGE> 62
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment No. 2 to the Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
Village of Menomonee Falls, and State of Wisconsin on the 28nd day of June,
1995.
STRONG HERITAGE RESERVE SERIES, INC.
(Registrant)
BY: /s/ John Dragisic
----------------------------
John Dragisic, Vice Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 2 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>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
Vice Chairman of the Board (Principal
/s/ John Dragisic Executive Officer) June 28, 1995
- ------------------------------
John Dragisic
Treasurer (Principal Financial and
/s/ Ronald A. Neville Accounting Officer) June 28, 1995
- ------------------------------
Ronald A. Neville
/s/ Richard S. Strong Chairman of the Board and a Director June 28, 1995
- ------------------------------
Richard S. Strong
Director June 28, 1995
- ------------------------------
Marvin E. Nevins *
Director June 28, 1995
- ------------------------------
Willie D. Davis *
Director June 28, 1995
- ------------------------------
William F. Vogt *
Director June 28, 1995
- ------------------------------
Stanley Kritzik *
</TABLE>
* Ann E. Oglanian signs this document pursuant to powers of attorney filed
with the Registration Statement of Registrant filed on or about May 16,
1995.
By: /s/ Ann E. Oglanian
----------------------------
Ann E. Oglanian
<PAGE> 63
EXHIBIT INDEX
<TABLE>
<CAPTION>
EDGAR
Exhibit No. Exhibit Exhibit No.
----------- ------- -----------
<S> <C> <C>
(1) Amended and Restated Articles of Incorporation EX-99.B1(1)
(2) By-Laws EX-99.B2(2)
(3) Inapplicable
(4) Specimen Stock Certificate EX-99.B4(2)
(5) Amended Investment Advisory Agreement EX-99.B5
(6) Distribution Agreement EX-99.B6(2)
(7) Inapplicable
(8) Custody Agreement EX-99.B8(2)
(9) Shareholder Servicing Agent Agreement EX-99.B9(2)
(10) Opinion of Counsel EX-99.B10(2)
(11) Consent of Auditor EX-99.B11(2)
(12) Inapplicable
(13) Subscription Agreement EX-99.B13(2)
(14.1) Amended Prototype Defined Contribution Retirement Plan with EX-99.B14.1(2)
Standardized Adoption Agreements
(14.2) Amended Individual Retirement Custodial Account EX-99.B14.2(2)
(14.3) Amended Section 403(b)(7) Retirement Plan EX-99.B14.3(2)
(15) Inapplicable
(16) Inapplicable
(17) Inapplicable
(18) Power of Attorney EX-99.B18(1)
- --------------------
</TABLE>
(1) Incorporated herein by reference to the Registration Statement on Form N-1A
of Registrant filed on or about May 16, 1995.
(2) Incorporated herein by reference to the Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A of Registrant filed on or
about June 23, 1995.
<PAGE> 1
EXHIBIT 99.B5
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made and entered into on this ____ day of June,
1995, between STRONG HERITAGE RESERVE SERIES, INC., a Wisconsin corporation
(the "Corporation"), and STRONG CAPITAL MANAGEMENT, INC., a Wisconsin
corporation (the "Adviser");
WITNESSETH
WHEREAS, the Corporation is an open-end management investment company
under the Investment Company Act of 1940 (the "1940 Act");
WHEREAS, the Corporation is authorized to create separate series, each
with its own separate investment portfolio; and,
WHEREAS, the Corporation desires to retain the Adviser, which is a
registered investment adviser under the Investment Advisers Act of 1940, to act
as investment adviser for each series of the Corporation listed in Schedule A
attached hereto, and to manage each of their assets;
NOW, THEREFORE, the Corporation and the Adviser do mutually agree and
promise as follows:
1. Employment. The Corporation hereby appoints Adviser as
investment adviser for each series of the Corporation listed on Schedule A
attached hereto (a "Portfolio" or collectively, the "Portfolios"), and Adviser
accepts such appointment. Subject to the supervision of the Board of Directors
of the Corporation and the terms of this Agreement, the Adviser shall act as
investment adviser for and manage the investment and reinvestment of the assets
of any Portfolio. The Adviser is hereby authorized to delegate some or all of
its services subject to necessary approval, which includes without limitation,
the delegation of its investment adviser duties hereunder to a subadvisor
pursuant to a written agreement (a "Subadvisory Agreement") under which the
subadvisor shall furnish the services specified therein to the Adviser. The
Adviser will continue to have responsibility for all investment advisory
services furnished pursuant to a Subadvisory Agreement. The Adviser shall (i)
provide for use by the Corporation, at the Adviser's expense, office space and
all necessary office facilities, equipment and personnel for servicing the
investments of each Portfolio and maintaining the Corporation's organization,
(ii) pay the salaries and fees of all officers and directors of the Corporation
who are "interested persons" of the Adviser as such term is defined under the
1940 Act, and (iii) pay for all clerical services relating to research,
statistical and investment work.
2. Allocation of Portfolio Brokerage. The Adviser is authorized,
subject to the supervision of the Board of Directors of the Corporation, to
place orders for the purchase and sale of securities and to negotiate
commissions to be paid on such transactions. The Adviser may, on behalf of each
Portfolio, pay brokerage commissions to a broker which provides brokerage and
research services to the Adviser in excess of the
<PAGE> 2
amount another broker would have charged for effecting the transaction,
provided (i) the Adviser determines in good faith that the amount is reasonable
in relation to the value of the brokerage and research services provided by the
executing broker in terms of the particular transaction or in terms of the
Adviser's overall responsibilities with respect to a Portfolio and the accounts
as to which the Adviser exercises investment discretion, (ii) such payment is
made in compliance with Section 28(e) of the Securities Exchange Act of 1934
and other applicable state and federal laws, and (iii) in the opinion of the
Adviser, the total commissions paid by a Portfolio will be reasonable in
relation to the benefits to such Portfolio over the long term.
3. Expenses. Each Portfolio will pay all its expenses and the
Portfolio's allocable share of the Corporation's expenses, other than those
expressly stated to be payable by the Adviser hereunder, which expenses payable
by a Portfolio shall include, without limitation, interest charges, taxes,
brokerage commissions and similar expenses, expenses of issue, sale, repurchase
or redemption of shares, expenses of registering or qualifying shares for sale,
expenses of printing and distributing prospectuses to existing shareholders,
charges of custodians (including sums as custodian and for keeping books and
similar services of the Portfolios), transfer agents (including the printing
and mailing of reports and notices to shareholders), registrars, auditing and
legal services, clerical services related to recordkeeping and shareholder
relations, printing of share certificates, fees for directors who are not
"interested persons" of the Adviser, and other expenses not expressly assumed
by the Adviser under Paragraph 1 above. If expenses payable by a Portfolio,
except interest charges, taxes, brokerage commissions and similar fees, and to
the extent permitted, extraordinary expenses, in any given fiscal year exceed
that percentage of the average net asset value of the Portfolio for such year,
as determined by valuations made as of the close of each business day of such
year, which is the most restrictive percentage expense limitation provided by
the laws of the various states in which the Portfolio's shares are qualified
for sale, or if the states in which the shares qualified for sale impose no
restrictions, then 2%, the Adviser shall reimburse the Portfolio for such
excess. Reimbursement of expenses by the Adviser shall be made on a monthly
basis and will be paid to a Portfolio by a reduction in the Adviser's fee,
subject to later adjustment month by month for the remainder of the Portfolio's
fiscal year.
4. Authority of Adviser. The Adviser shall for all purposes
herein be considered an independent contractor and shall not, unless expressly
authorized and empowered by the Corporation or any Portfolio, have authority to
act for or represent the Corporation or any Portfolio in any way, form or
manner. Any authority granted by the Corporation on behalf of itself or any
Portfolio to the Adviser shall be in the form of a resolution or resolutions
adopted by the Board of Directors of the Corporation.
5. Compensation of Adviser. For the services to be furnished
during any month by the Adviser hereunder, each Portfolio listed in Schedule A
shall pay the Adviser, and the Adviser agrees to accept as full compensation
for all services rendered hereunder, an Advisory Fee as soon as practical after
the last day of such month. The Advisory Fee shall be an amount equal to 1/12th
of the annual fee as set forth in Schedule B of the average of the net asset
value of the Portfolio determined as of the close of business on each business
day throughout the month (the "Average Asset Value"). In case of termination of
this Agreement with respect to any Portfolio during any month, the fee for that
month shall be reduced proportionately on the basis of the number of calendar
days during which it is in effect and the fee computed upon the Average Asset
Value of the business days during which it is so in effect.
2
<PAGE> 3
6. Rights and Powers of Adviser. The Adviser's rights and powers
with respect to acting for and on behalf of the Corporation or any Portfolio,
including the rights and powers of the Adviser's officers and directors, shall
be as follows:
(a) Directors, officers, agents and shareholders of the
Corporation are or may at any time or times be interested in the Adviser as
officers, directors, agents, shareholders or otherwise. Correspondingly,
directors, officers, agents and shareholders of the Adviser are or may at any
time or times be interested in the Corporation as directors, officers, agents
and as shareholders or otherwise, but nothing herein shall be deemed to require
the Corporation to take any action contrary to its Articles of Incorporation or
any applicable statute or regulation. The Adviser shall, if it so elects, also
have the right to be a shareholder in any Portfolio.
(b) Except for initial investments in a Portfolio, not in excess
of $100,000 in the aggregate for the Corporation, the Adviser shall not take
any long or short positions in the shares of the Portfolios and that insofar as
it can control the situation it shall prevent any and all of its officers,
directors, agents or shareholders from taking any long or short position in the
shares of the Portfolios. This prohibition shall not in any way be considered
to prevent the Adviser or an officer, director, agent or shareholder of the
Adviser from purchasing and owning shares of any of the Portfolios for
investment purposes. The Adviser shall notify the Corporation of any sales of
shares of any Portfolio made by the Adviser within two months after purchase by
the Adviser of shares of any Portfolio.
(c) The services of the Adviser to each Portfolio and the
Corporation are not to be deemed exclusive and Adviser shall be free to render
similar services to others as long as its services for others does not in any
way hinder, preclude or prevent the Adviser from performing its duties and
obligations under this Agreement. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject to
liability to the Corporation or to any of the Portfolios or to any shareholder
for any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security.
7. Duration and Termination. The following shall apply with
respect to the duration and termination of this Agreement:
(a) This Agreement shall begin for each Portfolio as of the date
of this Agreement and shall continue in effect for two years. With respect to
each Portfolio added by execution of an Addendum to Schedule A, the term of
this Agreement shall begin on the date of such execution and, unless sooner
terminated as hereinafter provided, this Agreement shall remain in effect to
the date two years after such execution. Thereafter, in each case, this
Agreement shall remain in effect, for successive periods of one year, subject
to the provisions for termination and all of the other terms and conditions
hereof if: (a) such continuation shall be specifically approved at least
annually by either (i) the affirmative vote of a majority of the Board of
Directors of the Corporation, including a majority of the Directors who are not
parties to this Agreement or interested persons of any such party (other than
as Directors of the Corporation), cast in person at a meeting called for that
purpose or (ii) by the affirmative vote of a majority of a Portfolio's
outstanding voting securities; and (b) Adviser shall not have notified a
Portfolio in writing at least sixty (60) days prior to the anniversary date of
this Agreement in any year thereafter that it does not desire such continuation
with respect to that Portfolio. Prior to
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voting on the renewal of this Agreement, the Board of Directors of the
Corporation may request and evaluate, and the Adviser shall furnish, such
information as may reasonably be necessary to enable the Corporation's Board of
Directors to evaluate the terms of this Agreement.
(b) Notwithstanding whatever may be provided herein to the
contrary, this Agreement may be terminated at any time with respect to any
Portfolio, without payment of any penalty, by affirmative vote of a majority of
the Board of Directors of the Corporation, or by vote of a majority of the
outstanding voting securities of that Portfolio, as defined in Section 2(a)(42)
of the 1940 Act, or by the Adviser, in each case, upon sixty (60) days' written
notice to the other party and shall terminate automatically in the event of its
assignment.
8. Amendment. This Agreement may be amended by mutual consent of
the parties, provided that the terms of each such amendment shall be approved
by the vote of a majority of the Board of Directors of the Corporation,
including a majority of the Directors who are not parties to this Agreement or
interested persons of any such party to this Agreement (other than as Directors
of the Corporation) cast in person at a meeting called for that purpose, and,
where required by Section 15(a)(2) of the 1940 Act, on behalf of a Portfolio by
a majority of the outstanding voting securities (as defined in Section 2(a)(42)
of the 1940 Act) of such Portfolio. If such amendment is proposed in order to
comply with the recommendations or requirements of the Securities and Exchange
Commission or state regulatory bodies or other governmental authority, or to
obtain any advantage under state or federal laws, the Corporation shall notify
the Adviser of the form of amendment which it deems necessary or advisable and
the reasons therefor, and if the Adviser declines to assent to such amendment,
the Corporation may terminate this Agreement forthwith.
9. Notice. Any notice that is required to be given by the parties
to each other under the terms of this Agreement shall be in writing, addressed
and delivered, or mailed postpaid to the other party at the principal place of
business of such party.
10. Assignment. This Agreement shall neither be assignable nor
subject to pledge or hypothecation and in the event of assignment, pledge or
hypothecation shall automatically terminate. For purposes of determining
whether an "assignment" has occurred, the definition of "assignment" in Section
2(a)(4) of the 1940 Act shall control.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed as of the day and year first stated above.
Attest: Strong Capital Management, Inc.
______________________________________ ____________________________________
Thomas P. Lemke, Senior Vice President John Dragisic, Vice Chairman
Attest: Strong Heritage Reserve Series, Inc.
______________________________________ ____________________________________
Ann E. Oglanian, Secretary Lawrence A. Totsky, Vice President
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<PAGE> 5
SCHEDULE A
The Portfolio(s) of Strong Heritage Reserve Series, Inc. currently subject to
this Agreement are as follows:
Date of Addition
Portfolio(s) to this Agreement
------------ -----------------
Strong Heritage Money Fund
Attest: Strong Capital Management, Inc.
______________________________________ ___________________________________
Thomas P. Lemke, Senior Vice President John Dragisic, Vice Chairman
Attest: Strong Heritage Reserve Series, Inc.
______________________________________ ___________________________________
Ann E. Oglanian, Secretary Lawrence A. Totsky, Vice President
<PAGE> 6
SCHEDULE B
Compensation pursuant to Paragraph 5 of this Agreement shall be calculated in
accordance with the following schedules:
Portfolio(s) Annual Fee
------------ ----------
Strong Heritage Money Fund .50%
Attest: Strong Capital Management, Inc.
______________________________________ ___________________________________
Thomas P. Lemke, Senior Vice President John Dragisic, Vice Chairman
Attest: Strong Heritage Reserve Series, Inc.
_____________________________________ ___________________________________
Ann E. Oglanian, Secretary Lawrence A. Totsky, Vice President
