<PAGE> 1
As filed with the Securities and Exchange Commission on
or about December 22, 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. [ ]
--------
Post-Effective Amendment No. 3 [X]
--------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 5 [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
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.
It is proposed that this filing will become effective (check appropriate
box).
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on December 29, 1995 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
================================================================================
<PAGE> 2
STRONG 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.)
<TABLE>
<CAPTION>
CAPTION OR SUBHEADING IN PROSPECTUS OR
ITEM NO. ON FORM N-1A STATEMENT OF ADDITIONAL INFORMATION
--------------------- -----------------------------------
<S> <C>
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 Objectives and Policies; Implementation
of Policies and Risks; About the Funds -
Organization
5. Management of the Fund About the Funds - Management
5A. Management's Discussion of Fund Performance Inapplicable
6. Capital Stock and Other Securities About the Funds - Organization, - Distributions and
Taxes; Shareholder 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 Funds
15. Control Persons and Principal Holders of Principal Shareholders; Directors and Officers of
Securities the Funds; Investment Advisor and Distributor
16. Investment Advisory and Other Services Investment Advisor and Distributor; About the Funds
- 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
--------------------- -----------------------------------
<S> <C>
17. Brokerage Allocation and Other Practices Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities Included in Prospectus under the heading About the
Funds - Organization and in the Statement of
Additional Information under the heading
Shareholder Meetings
19. Purchase, Redemption and Pricing of Securities Included in Prospectus under the headings:
Being 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
Funds - 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 the Fund's Prospectus.
<PAGE> 4
STRONG CASH MANAGEMENT FUNDS
<TABLE>
<S> <C>
STRONG U.S. TREASURY MONEY FUND STRONG FUNDS
STRONG HERITAGE MONEY FUND P.O. Box 2936
STRONG MUNICIPAL MONEY MARKET FUND Milwaukee, Wisconsin 53201
STRONG MUNICIPAL ADVANTAGE FUND Telephone: (414) 359-1400
STRONG ADVANTAGE FUND 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 more than
twenty-five diversified and non-diversified mutual funds. All of the Strong
Funds are no-load funds. There are no sales charges or 12b-1 fees. Strong Funds
include growth funds, conservative equity funds, income funds, municipal income
funds, international funds, and cash management funds. The five Strong Cash
Management Funds are 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 Strong Cash Management Funds, dated December 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 U.S. TREASURY MONEY FUND, STRONG HERITAGE MONEY
FUND, OR STRONG MUNICIPAL MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE
U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT ANY OF THESE FUNDS WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. THE STRONG
MUNICIPAL ADVANTAGE FUND AND THE STRONG ADVANTAGE FUND ARE NOT MONEY MARKET
FUNDS AND THEIR NET ASSET VALUES WILL FLUCTUATE.
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- ----------------------------------------------------------------------------
Dated December 29, 1995
---------------------
PROSPECTUS PAGE I-1
<PAGE> 5
STRONG CASH MANAGEMENT FUNDS
Strong U.S. Treasury Money Fund, a series of Strong Income Funds, Inc.,
Strong Heritage Money Fund, a series of Strong Heritage Reserve Series, Inc.,
Strong Municipal Money Market Fund and Strong Municipal Advantage Fund, both of
which are a series of Strong Municipal Funds, Inc., and Strong Advantage Fund,
Inc. are separately incorporated, diversified, open-end management investment
companies, or diversified series thereof.
STRONG MONEY FUNDS
STRONG U.S. TREASURY MONEY FUND (the "Treasury Money Fund") seeks current
income, a stable share price, and daily liquidity. The Fund invests only in
securities issued directly by the U.S. government.
STRONG HERITAGE MONEY FUND (the "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.
STRONG MUNICIPAL MONEY MARKET FUND (the "Municipal Money Fund") seeks
federally tax-exempt current income, a stable share price, and daily liquidity.
The Fund invests in high-quality, short-term municipal obligations that present
minimal credit risk.
STRONG ULTRA-SHORT BOND FUNDS*
STRONG MUNICIPAL ADVANTAGE FUND (the "Municipal Advantage Fund") seeks
federally tax-exempt current income with a very low degree of share-price
fluctuation. The Fund invests primarily in ultra short-term, investment-grade
municipal obligations, and its average effective portfolio maturity will
normally be one year or less. The Municipal Advantage Fund is not a money market
fund.
STRONG ADVANTAGE FUND (the "Advantage Fund") seeks current income with a very
low degree of share-price fluctuation. The Fund invests primarily in ultra
short-term, investment-grade debt obligations, and its average effective
portfolio maturity will normally be one year or less. The Advantage Fund is not
a money market fund.
* Because the Municipal Advantage and Advantage Funds' share prices will vary,
the Funds are not appropriate investments for those whose primary objective is
absolute principal stability.
---------------------
PROSPECTUS PAGE I-2
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
EXPENSES..................................... I-4
FINANCIAL HIGHLIGHTS......................... I-6
HIGHLIGHTS................................... I-10
INVESTMENT OBJECTIVES AND POLICIES........... I-11
Comparing the Funds................. I-12
Strong U.S. Treasury Money Fund..... I-13
Strong Heritage Money Fund.......... I-14
Strong Municipal Money Market
Fund.............................. I-14
Strong Municipal Advantage Fund..... I-15
Strong Advantage Fund............... I-16
FUNDAMENTALS OF FIXED INCOME INVESTING....... I-17
IMPLEMENTATION OF POLICIES AND RISKS......... I-21
ABOUT THE FUNDS.............................. I-31
SHAREHOLDER MANUAL........................... II-1
APPENDIX A................................... A-1
APPENDIX B................................... B-1
</TABLE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the Statement
of Additional Information, and if given or made, such information or
representations may not be relied upon as having been authorized by the Strong
Cash Management Funds. This Prospectus does not constitute an offer to sell
securities in any state or jurisdiction in which such offering may not lawfully
be made.
---------------------
PROSPECTUS PAGE I-3
<PAGE> 7
EXPENSES
The following information is provided in order to help you understand the
various costs and expenses that you, as an investor in the Funds, will bear
directly or indirectly.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases............. NONE
Sales Load Imposed on Reinvested
Dividends................................. NONE
Deferred Sales Load......................... NONE
Redemption Fees............................. NONE*
Exchange Fees............................... NONE*
Check-Writing Fees.......................... NONE*
</TABLE>
- -------------------------------------------------------------------------------
* The Heritage Money Fund charges a fee of $3.00 for each redemption, exchange,
and check written against your account. However, 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 certain special shareholder
services offered by the Funds. 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)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Management Other 12b-1 Total Operating
Fund Fees Expenses Fees Expenses
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Treasury Money .40% .37% NONE .77%
Heritage Money .50 .09 NONE .45*
Municipal Money .50 .14 NONE .64
Municipal Advantage .60 .33 NONE .60*
Advantage .60 .22 NONE .82
</TABLE>
- --------------------------------------------------------------------------------
* Total Operating Expenses reflects the Advisor's waiver of management fees and
absorptions as described below. Without such waivers and absorptions, the total
operating expenses of the Heritage Money Fund would have been .59% and of the
Municipal Advantage Fund would have been .93%.
From time to time, the Funds' investment advisor, Strong Capital Management,
Inc. (the "Advisor"), may voluntarily waive its management fee and/or absorb
certain expenses for a Fund. The expenses specified in the table above for the
Advantage Fund are based on actual expenses incurred during the year ended
December 31, 1994. The Advisor waived a portion of its management fee
---------------------
PROSPECTUS PAGE I-4
<PAGE> 8
and absorbed certain expenses for the Treasury Money and Municipal Money
Funds during 1994. Therefore, the Other Expenses for the Treasury Money and
Municipal Money Funds have been restated for the fiscal year ended December 31,
1994 to include such management fees and/or expenses. The actual Total Operating
Expenses incurred for the above stated periods for the Treasury Money and
Municipal Money Funds after waivers and absorptions were 0.24% and 0.63%,
respectively. Since the Heritage Money and Municipal Advantage Funds are new and
did not commence operations until June 29, 1995, and November 30, 1995,
respectively, Other Expenses have been estimated.
THE ADVISOR HAS AGREED TO VOLUNTARILY WAIVE THE ADVISOR'S MANAGEMENT FEE AND
ABSORB OPERATING EXPENSES TO THE EXTENT NECESSARY TO MAINTAIN THE HERITAGE MONEY
FUND'S TOTAL OPERATING EXPENSES AT NO MORE THAN .45% FROM JANUARY 1, 1996 UNTIL
JANUARY 1, 1999, AND THE MUNICIPAL ADVANTAGE FUND'S TOTAL OPERATING EXPENSES AT
NO MORE THAN .60% FROM NOVEMBER 30, 1995 UNTIL NOVEMBER 30, 1997. The absorption
of the Heritage Money and Municipal Advantage Funds' Other Expenses does not
include taxes, interest charges, brokerage commissions, and similar fees, and to
the extent required, extraordinary expenses. For additional information
concerning fees and expenses, see "About the Funds - Management."
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:
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period (in years)
Fund 1 3 5 10
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Treasury Money $ 8 $25 $43 $ 95
Heritage Money 6 19 - -
Municipal Money 7 20 36 80
Municipal Advantage 9 30 - -
Advantage 8 26 46 101
</TABLE>
- ----------------------------------------------------------------------------
The Example is based on each Fund's "Total Operating Expenses" before any
waivers and absorptions, 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 a Fund's shares.
---------------------
PROSPECTUS PAGE I-5
<PAGE> 9
FINANCIAL HIGHLIGHTS
The following annual Financial Highlights for the Treasury Money,
Municipal Money and Advantage Funds have been audited by Coopers & Lybrand
L.L.P., independent certified public accountants. Their report for the
fiscal year ended December 31, 1994 for each of these Funds is included in
the Annual Report of each such Fund which is contained in the Statement of
Additional Information. The Financial Highlights for each of these Funds
should be read in conjunction with the Financial Statements and related
notes included in the Annual Report of each such Fund. Additional
information about each Fund's performance is contained in such Annual
Report, a copy of which may be obtained without charge by calling or
writing Strong Funds. Financial Highlights are not presented for the
Municipal Advantage Fund since the Fund is new and did not commence
operations until November 30, 1995.
---------------------
PROSPECTUS PAGE I-6
<PAGE> 10
The following presents information relating to a share of capital stock of
each of the Funds (except the Municipal Advantage Fund), outstanding for the
entire period.
<TABLE>
<CAPTION>
STRONG U.S. TREASURY
MONEY FUND STRONG HERITAGE
MONEY FUND
1994 1993 1992 1991 1995**
---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income 0.04 0.03 0.04 0.06 0.03
Dividends From Net
Investment Income (0.04) (0.03) (0.04) (0.06 ) (0.03)
---------- ---------- ---------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ======== =======
Total Return +3.8% +2.9% +3.7% +5.8% +2.6%
Net Assets, End of Period (In Thousands) $ 67,527 $ 41,851 $ 29,390 $20,431 $ 640,589
Ratio of Expenses to Average
Net Assets 0.2% 0.2% 0.3% 0.3% 0.0%*
Ratio of Expenses to Average Net Assets Without Waivers
and Absorptions 0.8% 1.0% 0.9% 1.0% 0.4%*
Ratio of Net Investment Income to Average Net Assets 3.8% 2.9% 3.6% 5.4% 6.0%*
</TABLE>
* Calculated on an annualized basis.
** For the period from June 29, 1995 (inception) to November 30, 1995. Total
return is not annualized.
---------------------
PROSPECTUS PAGE I-7
<PAGE> 11
<TABLE>
<CAPTION>
STRONG MUNICIPAL MONEY MARKET FUND
1994 1993 1992 1991 1990 1989 1988 1987 1986**
--------- -------- -------- ------ ------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00
Net Investment Income 0.03 0.02 0.03 0.05 0.06 0.06 0.05 0.05 0.01
Dividends from Net
Investment Income*** (0.03) (0.02) (0.03) (0.05) (0.06) (0.06 ) (0.05) (0.05) (0.01 )
---------- ---------- ---------- -------- -------- ------- ------- ------- ------
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00
========== ========== ========== ======== ======== ======= ======= ======= ======
Total Return +2.9% +2.5% +3.4% +5.2% +6.1% +6.1% +5.2% +4.7% +0.7%
Net Assets, End of Period (In
Thousands) $1,260,617 $1,172,560 $1,105,491 $782,482 $218,205 $73,802 $77,465 $59,085 $2,401
Ratio of Expenses to Average
Net Assets 0.6% 0.7% 0.7% 0.7% 0.8% 0.9% 0.8% 0.6% 0.5% *
Ratio of Expenses to Average
Net Assets Without Waivers 0.6% 0.7% 0.7% 0.7% 0.8% 0.9% 0.8% 1.0% 0.5% *
Ratio of Net Investment
Income to Average Net
Assets 2.9% 2.5% 3.3% 5.0% 6.0% 5.9% 5.0% 4.7% 3.7% *
</TABLE>
*Calculated on an annualized basis.
**Inception date is October 23, 1986. Total return is not annualized.
***Tax-exempt for regular Federal income tax purposes.
---------------------
PROSPECTUS PAGE I-8
<PAGE> 12
<TABLE>
<CAPTION>
STRONG ADVANTAGE FUND
1994 1993 1992 1991 1990 1989 1988**
---------- ---------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.19 $ 10.01 $ 9.90 $ 9.67 $ 9.87 $ 10.00 $ 9.99
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------
Net Investment Income 0.55 0.59 0.70 0.76 0.83 1.03 0.09
Net Realized and Unrealized Gains (Losses) on
Investments (0.19) 0.18 0.11 0.23 (0.20) (0.13) 0.01
-------- -------- -------- -------- -------- -------- -------
TOTAL FROM INVESTMENT OPERATIONS 0.36 0.77 0.81 0.99 0.63 0.90 0.10
LESS DISTRIBUTIONS
- -----------------------------------------------
From Net Investment Income (0.55) (0.59) (0.70) (0.76) (0.83) (1.03) (0.09)
In Excess of Net Realized Gains (0.02) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------
TOTAL DISTRIBUTIONS (0.57) (0.59) (0.70) (0.76) (0.83) (1.03) (0.09)
-------- -------- -------- -------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 9.98 $ 10.19 $ 10.01 $ 9.90 $ 9.67 $ 9.87 $ 10.00
======== ======== ======== ======== ======== ======== =======
Total Return +3.6% +7.9% +8.4% +10.6% +6.6% +9.4% +1.0%
Net Assets, End of Period (In Thousands) $910,508 $415,465 $272,348 $143,215 $119,189 $142,807 $ 7,544
Ratio of Expenses to Average Net Assets 0.8% 0.9% 1.0% 1.2% 1.2% 1.1% 1.1%*
Ratio of Expenses to Average Net Assets Without
Waivers 0.8% 0.9% 1.0% 1.2% 1.2% 1.2% 1.7%*
Ratio of Net Investment Income to Average Net
Assets 5.6% 5.8% 7.0% 7.8% 8.5% 10.0% 11.1%*
Portfolio Turnover Rate 221.0% 304.8% 316.1% 503.0% 274.1% 211.3% 231.8%*
</TABLE>
*Calculated on an annualized basis.
**Inception date is November 25, 1988. Total return is not annualized.
---------------------
PROSPECTUS PAGE I-9
<PAGE> 13
HIGHLIGHTS
INVESTMENT OBJECTIVES AND POLICIES
Each Fund has distinct investment objectives and policies. Each Fund seeks to
provide income consistent with its maturity, quality, and other standards as set
forth under "Investment Objectives and Policies."
IMPLEMENTATION OF POLICIES AND RISKS
While the Treasury Money, Heritage Money and Municipal Money Funds may not
engage in derivative transactions, the Municipal Advantage and Advantage Funds
may engage in such transactions, including options, futures, and options on
futures transactions within specified limits. Each Fund may invest in
when-issued securities, illiquid securities, and except for the Treasury Money
Fund, repurchase agreements. In addition, the Heritage Money and Advantage Funds
may also invest in foreign securities. Each Fund, except the Treasury Money,
Heritage Money, and Municipal Money Funds, may engage in reverse repurchase
agreements and, except for the Treasury Money Fund, may also engage in mortgage
dollar-roll transactions. The Municipal Advantage and Advantage Funds may invest
a portion of their assets in junk bonds. These investment practices involve
risks that are different in some respects from those associated with similar
funds that do not use them. (See "Implementation of Policies and Risks" and
"Fundamentals of Fixed Income Investing - Credit Quality.")
MANAGEMENT
The Advisor, Strong Capital Management, Inc., serves as investment advisor to
the Funds. The Advisor provides investment management services for mutual funds
and other investment portfolios representing assets of over $15 billion. (See
"About the Funds - Management.")
PURCHASE AND REDEMPTION OF SHARES
You may purchase or redeem shares of a Fund at net asset value. There are no
12b-1 charges and, with the exception of the Heritage Money Fund, no redemption
fees. The Treasury Money, Heritage Money, and Municipal Money Funds seek to
maintain stable net asset values of $1.00 per share. The net asset values of the
Municipal Advantage and Advantage Funds change daily with the value of each
Fund's portfolio. You can locate the net asset value for a Fund in newspaper
listings of mutual fund prices under the "Strong
----------------------
PROSPECTUS PAGE I-10
<PAGE> 14
Funds" heading. (See "Shareholder Manual - How to Buy Shares" and "- How to Sell
Shares.")
SHAREHOLDER SERVICES
Shareholder benefits provided by each Fund include: telephone purchase,
exchange, and redemption privileges; professional representatives available 24
hours a day; automatic investment, automatic dividend reinvestment, payroll
direct deposit, automatic exchange and systematic withdrawal plans; and, with
the exception of the Heritage Money Fund, free check writing and a no-minimum
investment program. (See "Shareholder Manual - Shareholder Services.")
DIVIDENDS AND OTHER DISTRIBUTIONS
The policy of each Fund is to pay dividends from net investment income
monthly and to distribute substantially all net realized capital gains annually.
(See "About the Funds - Distributions and Taxes.")
INVESTMENT OBJECTIVES AND POLICIES
The descriptions that follow are designed to help you choose the Fund that
best fits your investment objective. You may want to pursue more than one
objective by investing in more than one of the Funds or by investing in one of
the other Strong Funds, which are described in separate prospectuses. Each Cash
Management Fund's investment objective is discussed below in connection with the
Fund's investment policies. Because of the risks inherent in all investments,
there can be no assurance that the Funds will meet their objectives.
Each Fund's return and risk potential depends in part on the maturity and
credit-quality characteristics of the underlying investments in its portfolio.
In general, longer-maturity fixed income securities carry higher yields and
greater price volatility than shorter-term fixed income securities. Similarly,
fixed income securities issued by less creditworthy entities tend to carry
higher yields than those with higher credit ratings. (See "Fundamentals of Fixed
Income Investing" for a more detailed discussion of the principles and risks
associated with fixed income securities.)
----------------------
PROSPECTUS PAGE I-11
<PAGE> 15
COMPARING THE FUNDS
The following chart is intended to help distinguish the Funds and help you
determine their suitability for your investments.
<TABLE>
<CAPTION>
AVERAGE CREDIT INCOME DEGREE OF SHARE-
FUND MATURITY QUALITY POTENTIAL PRICE FLUCTUATION
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TREASURY 90 days Treasury Low Stable, but not
MONEY or less guaranteed
- ----------------------------------------------------------------------------
HERITAGE 90 days Two highest Low Stable, but not
MONEY or less guaranteed
- ----------------------------------------------------------------------------
MUNICIPAL 90 days Two highest Low Stable, but not
MONEY or less guaranteed
- ----------------------------------------------------------------------------
MUNICIPAL 1 year or At least 90% Low to Very low
ADVANTAGE less investment moderate
grade*
- ----------------------------------------------------------------------------
ADVANTAGE 1 year or At least 75% Low to Very low
less investment moderate
grade*
- ----------------------------------------------------------------------------
</TABLE>
*The Advantage Fund and the Municipal Advantage Fund may invest up to 25% and
10%, respectively, of their assets in junk bonds rated BB by S&P.
The Municipal Money and Municipal Advantage Funds are designed for investors
whose income-tax levels enable them to benefit from tax-exempt income. In
general, neither of these Funds is an appropriate investment for tax-deferred
retirement plans, such as Individual Retirement Accounts.
Each Fund has adopted certain fundamental investment restrictions that are
set forth in the Funds' Statement of Additional Information ("SAI"). Those
restrictions, each Fund's investment objective, and any other investment
policies identified as "fundamental" cannot be changed without shareholder
approval. To further guide investment activities, each Fund has also instituted
a number of non-fundamental operating policies, which are described in this
Prospectus and in the SAI. Although operating policies may be changed by a
Fund's Board of Directors without shareholder approval, a Fund will promptly
notify shareholders of any material change in operating policies.
----------------------
PROSPECTUS PAGE I-12
<PAGE> 16
STRONG U.S. TREASURY MONEY FUND
The Treasury Money Fund seeks current income, a stable share price, and daily
liquidity. The Fund invests only in securities issued directly by the U.S.
government.
The Fund is designed for investors who seek money market yields through
investments in the highest-quality U.S. government securities, with no
anticipated fluctuations in principal. 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, even the
highest-quality U.S. government securities, can change in value for a number of
reasons, including when interest rates 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 diversified portfolio of the highest-quality, U.S.
government securities; that is, those issued directly by the U.S. Treasury
department. These securities include:
(i) Treasury bills, which have initial maturities of one year or less;
(ii) Treasury notes, which have initial maturities of between one and ten
years; and
(iii) Treasury bonds, which have initial maturities of ten years or more.
All U.S. Treasury securities are guaranteed as to the timely payment of
principal and interest by the full faith and credit of the U.S. government.
Please note, however, that the government guarantee does not apply to the market
value of the securities or to the share price of the Fund.
The Fund further limits its investments to instruments that meet the 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 buys only securities with remaining maturities of thirteen months or less
and maintains an average portfolio maturity of ninety days or less.
Under federal law, the interest income earned from U.S. Treasury securities
is exempt from state and local taxes. All states allow mutual funds to "pass
through" that exemption to their shareholders, although there are conditions to
this treatment in some states. Because the requirements vary by state, you
should consult the instructions to your state's income tax return or a qualified
tax adviser to determine whether you may be able to exclude the Fund's
distributions from your state and local taxable income. (See "About the Funds -
Distributions and Taxes.")
----------------------
PROSPECTUS PAGE I-13
<PAGE> 17
STRONG HERITAGE MONEY FUND
The 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 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 to
gain 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. Like the Treasury Money Fund, the
Fund restricts its investments to instruments that meet the maturity and quality
standards required or permitted by Rule 2a-7 under 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 "Fundamentals of Fixed Income Investing - Credit
Quality.")
STRONG MUNICIPAL MONEY MARKET FUND
The Municipal Money Fund seeks federally tax-exempt current income, a stable
share price, and daily liquidity.
The Fund is designed for investors who seek income exempt from federal income
taxes with no anticipated fluctuations in principal. 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
----------------------
PROSPECTUS PAGE I-14
<PAGE> 18
alone will provide its entire investment return. All money market instruments,
including high-quality municipal obligations, can change in value when interest
rates or an issuer's creditworthiness changes significantly. 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 diversified portfolio of high-quality, short-term
municipal obligations. (See "Implementation of Policies and Risks - Municipal
Obligations.") The Fund restricts its investments to instruments that meet
certain maturity and quality standards required or permitted by Rule 2a-7 under
the 1940 Act for tax-exempt money market funds. Accordingly, the Fund:
(i) limits its average portfolio maturity to ninety days or less;
(ii) buys only obligations with remaining maturities of thirteen months or
less; and
(iii) buys only U.S. dollar-denominated obligations that present minimal
credit risks and are "high quality," meaning they are rated in one of
the top two rating categories by at least one NRSRO or are unrated and
determined by the Advisor to be of comparable quality. (See
"Fundamentals of Fixed Income Investing - Credit Quality.")
As a fundamental policy at least 80% of the Fund's net assets will be
invested in municipal securities under normal market conditions. (See
"Implementation of Policies and Risks - Debt Obligations - Municipal
Obligations.") Generally, municipal obligations are those whose interest is
exempt from federal income tax. The Fund may invest, without limitation, in
municipal obligations whose interest is a tax-preference item for purposes of
the federal alternative minimum tax ("AMT"). For taxpayers who are subject to
the AMT, a substantial portion of the Fund's distributions may not be exempt
from federal income tax. Accordingly, the Fund's net return may be lower for
those taxpayers. (Consult with your tax adviser to determine whether you are
subject to the AMT, and see "About the Funds - Distributions and Taxes" for more
information.) The Fund may also invest up to 20% of its net assets in taxable
securities of comparable quality to its investments in municipal securities,
including U.S. government securities, bank and corporate obligations, and
short-term fixed income securities. When the Advisor determines that market
conditions warrant a temporary defensive position, the Fund may invest without
limitation in cash and short-term fixed income securities.
STRONG MUNICIPAL ADVANTAGE FUND
The Municipal Advantage Fund seeks federally tax-exempt current income with a
very low degree of share-price fluctuation. The Fund invests primarily in ultra
short-term, investment-grade municipal obligations.
The Fund is designed for investors who seek higher tax-exempt yields than
municipal money market funds generally offer and who are willing to accept some
modest principal fluctuation in order to achieve that objective. BECAUSE
----------------------
PROSPECTUS PAGE I-15
<PAGE> 19
ITS SHARE PRICE WILL VARY, THE FUND IS NOT AN APPROPRIATE INVESTMENT FOR THOSE
WHOSE PRIMARY OBJECTIVE IS ABSOLUTE PRINCIPAL STABILITY. The Fund's investments
include a combination of high-quality money market instruments, as well as
securities with longer maturities and debt obligations of lower quality. Under
normal market conditions, it is anticipated that the Fund will maintain an
average effective portfolio maturity of one year or less. There is no maturity
limit on any individual bond in the Fund's portfolio. When the Advisor
determines that market conditions warrant a temporary defensive position, the
Fund may invest without limitation in cash and short-term fixed income
securities.
Under normal market conditions, the Fund will invest at least 90%, but
expects to invest at least 95% of its net assets in investment-grade debt
obligations, which generally include a range of obligations from those in the
highest rating category to those in the fourth-highest rating category (e.g.,
BBB or higher by Standard & Poor's Ratings Group or "S&P"). However, the Fund
may invest up to 10% of its net assets in non-investment-grade debt obligations
that are rated in the fifth-highest rating category (e.g., BB by S&P) or unrated
securities of comparable quality. BB securities compose the tier immediately
below investment-grade and are considered the least speculative
non-investment-grade security. (See "Fundamentals of Fixed Income Investing -
Credit Quality.")
As a fundamental policy at least 80% of the Fund's net assets will be
invested in municipal securities under normal market conditions. (See
"Implementation of Policies and Risks - Debt Obligations - Municipal
Obligations.") Generally, municipal obligations are those whose interest is
exempt from federal income tax. The Fund may invest, without limitation, in
municipal obligations whose interest is a tax-preference item for purposes of
the federal alternative minimum tax ("AMT"). For taxpayers who are subject to
the AMT, a substantial portion of the Fund's distributions may not be exempt
from federal income tax. Accordingly, the Fund's net return may be lower for
those taxpayers. (Consult with your tax adviser to determine whether you are
subject to the AMT, and see "About the Fund - Distributions and Taxes" for more
information.) The Fund may also invest up to 20% of its net assets in taxable
securities of comparable quality to its investments in municipal securities,
including U.S. government securities, bank and corporate obligations, and
short-term fixed income securities. The Fund may invest in taxable bonds to take
advantage of capital gain opportunities.
STRONG ADVANTAGE FUND
The Advantage Fund seeks current income with a very low degree of share-price
fluctuation. The Fund invests primarily in ultra short-term investment-grade
debt obligations.
The Fund is designed for investors who seek higher yields than money market
funds generally offer and who are willing to accept some modest
----------------------
PROSPECTUS PAGE I-16
<PAGE> 20
principal fluctuation in order to achieve that objective. BECAUSE ITS SHARE
PRICE WILL VARY, THE FUND IS NOT AN APPROPRIATE INVESTMENT FOR THOSE WHOSE
PRIMARY OBJECTIVE IS ABSOLUTE PRINCIPAL STABILITY. The Fund's investments
include a combination of high-quality money market instruments, as well as
securities with longer maturities and debt obligations of lower quality. Under
normal market conditions, it is anticipated that the Fund will maintain an
average effective portfolio maturity of one year or less. There is no maturity
limit on any individual bond in the Fund's portfolio. When the Advisor
determines that market conditions warrant a temporary defensive position, the
Fund may invest without limitation in cash and short-term fixed income
securities.
Under normal market conditions, at least 75% of the Fund's total assets will
be invested in investment-grade debt obligations, which generally include a
range of obligations from those in the highest rating category to those rated in
the fourth-highest rating category (e.g., BBB or higher by S&P). The Fund may
also invest up to 25% of its total assets in non-investment-grade debt
obligations that are rated in the fifth-highest rating category (e.g., BB by
S&P) or unrated securities of comparable quality. In general,
non-investment-grade securities are regarded as predominantly speculative with
respect to the capacity of the issuer to pay interest and repay principal.
However, because these securities compose the tier immediately below
investment-grade, they are considered the least speculative non-investment-grade
securities. (See "Fundamentals of Fixed Income Investing - Credit Quality.")
FUNDAMENTALS OF
FIXED INCOME INVESTING
The Funds may invest in a wide variety of debt obligations and other
securities. See "Implementation of Policies and Risks - Debt Obligations."
Issuers of debt obligations have a contractual obligation to pay interest at
a specified rate ("coupon rate") on specified dates and to repay principal
("face value" or "par value") on a specified maturity date. Certain debt
obligations, including municipal obligations, (usually intermediate- and
long-term obligations) have provisions that allow the issuer to redeem or "call"
the obligation before its maturity. Issuers are most likely to call such
obligations during periods of falling interest rates. As a result, a Fund may be
required to invest the unanticipated proceeds of the called obligations at lower
interest rates, which may cause the Fund's income to decline.
Although the net asset values of the Municipal Advantage and Advantage Funds
are expected to fluctuate, the Advisor actively manages each Fund's portfolio
and adjusts its average effective portfolio maturity according to the Advisor's
interest rate outlook while seeking to avoid or reduce, to the extent possible,
any negative changes in net asset value. The Treasury Money, Heritage Money and
Municipal Money Funds each seek to maintain a stable net asset value of $1.00
per share.
----------------------
PROSPECTUS PAGE I-17
<PAGE> 21
PRICE VOLATILITY
The market value of debt obligations, including municipal obligations, is
affected by changes in prevailing interest rates. The market value of a debt
obligation generally reacts inversely to interest rate changes, meaning, when
prevailing interest rates decline, an obligation's price usually rises, and when
prevailing interest rates rise, an obligation's price usually declines. A fund
portfolio consisting primarily of debt obligations will react similarly to
changes in interest rates.
MATURITY
In general, the longer the maturity of a debt obligation, the higher its
yield and the greater its sensitivity to changes in interest rates. Conversely,
the shorter the maturity, the lower the yield but the greater the price
stability.
A Fund's average portfolio maturity represents an average based on the actual
stated maturity dates of the debt securities in the Fund's portfolio, except
that (i) variable-rate securities are deemed to mature at the next interest rate
adjustment date, (ii) debt securities with put features are deemed to mature at
the next put-exercise date, (iii) the maturity of mortgage-backed securities is
determined on an "expected life" basis, as determined by the Advisor, and (iv)
securities being hedged with futures contracts may be deemed to have a longer
maturity, in the case of purchases of futures contracts, and a shorter maturity,
in the case of sales of futures contracts, than they would otherwise be deemed
to have. The Treasury Money, Heritage Money and Municipal Money Funds will
calculate average portfolio maturity in accordance with Rule 2a-7 under the 1940
Act.
A Fund's average "effective portfolio maturity" will be calculated in nearly
the same manner as average portfolio maturity, which is explained above.
However, for the purpose of calculating average effective portfolio maturity, a
security that is subject to redemption at the option of the issuer on a
particular date (the "call date") which is prior to the security's stated
maturity may be deemed to mature on the call date rather than on its stated
maturity date. The call date of a security will be used to calculate average
effective portfolio maturity when the Advisor reasonably anticipates, based upon
information available to it, that the issuer will exercise its right to redeem
the security. The Advisor may base its conclusion on such factors as the
interest rate paid on the security compared to prevailing market rates, the
amount of cash available to the issuer of the security, events affecting the
issuer of the security, and other appropriate factors that may compel or make it
advantageous for the issuer to redeem a security prior to its stated maturity.
----------------------
PROSPECTUS PAGE I-18
<PAGE> 22
CREDIT QUALITY
The values of debt obligations may also be affected by changes in the credit
rating or financial condition of their issuers. Generally, the lower the quality
rating of a security, the higher the degree of risk as to the payment of
interest and return of principal. To compensate investors for taking on such
increased risk, those issuers deemed to be less creditworthy generally must
offer their investors higher interest rates than do issuers with better credit
ratings.
In conducting its credit research and analysis, the Advisor considers both
qualitative and quantitative factors to evaluate the creditworthiness of
individual issuers. The Advisor also relies, in part, on credit ratings compiled
by a number of NRSROs. "Appendix A - Ratings of Debt Obligations" presents the
ratings of three well-known such organizations: S&P, Moody's Investors Service,
Inc., and Fitch Investors Service, Inc.
INVESTMENT-GRADE DEBT OBLIGATIONS. Debt obligations rated in the highest-
through the medium-quality categories are commonly referred to as
"investment-grade" debt obligations and include the following:
- - U.S. government securities (See "Implementation of Policies and Risks - Debt
Obligations" below);
- - bonds or bank obligations rated in one of the four highest rating categories
(e.g., BBB or higher by S&P);
- - short-term notes rated in one of the two highest rating categories (e.g., SP-2
or higher by S&P);
- - short-term bank obligations rated in one of the three highest rating
categories (e.g., A-3 or higher by S&P), with respect to obligations maturing
in one year or less;
- - commercial paper rated in one of the three highest rating categories (e.g., A-
3 or higher by S&P);
- - unrated debt obligations determined by the Advisor to be of comparable
quality; and
- - repurchase agreements involving investment-grade debt obligations.
Investment-grade debt obligations are generally believed to have relatively
low degrees of credit risk. However, medium-quality debt obligations (e.g., BBB
by S&P), while considered investment-grade, may have some speculative
characteristics, since their issuers' capacity for repayment may be more
vulnerable to adverse economic conditions or changing circumstances than that of
higher-rated issuers.
All ratings are determined at the time of investment. Any subsequent rating
downgrade of a debt obligation will be monitored by the Advisor to consider what
action, if any, a Fund should take consistent with its investment objective, and
with respect to the Treasury Money, Heritage Money and Municipal Money Funds,
Rule 2a-7 under the 1940 Act.
----------------------
PROSPECTUS PAGE I-19
<PAGE> 23
HIGH-YIELD (HIGH-RISK) SECURITIES. High-yield (high-risk) securities, also
referred to as "junk bonds," are those securities that are rated lower than
investment-grade and unrated securities of comparable quality. Although these
securities generally offer higher yields than investment-grade securities with
similar maturities, lower-quality securities involve greater risks, including
the possibility of default or bankruptcy. In general, they are regarded to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. Other potential risks associated with investing in high-
yield securities include:
- - substantial market-price volatility resulting from changes in interest rates,
changes in or uncertainty about economic conditions, and changes in the actual
or perceived ability of the issuer to meet its obligations;
- - greater sensitivity of highly leveraged issuers to adverse economic changes
and individual-issuer developments;
- - subordination to the prior claims of other creditors;
- - additional Congressional attempts to restrict the use or limit the tax and
other advantages of these securities; and
- - adverse publicity and changing investor perceptions about these securities.
As with any other asset in a Fund's portfolio, any reduction in the value of
such securities as a result of the factors listed above would be reflected in
the net asset value of the Fund. In addition, a Fund that invests in
lower-quality securities may incur additional expenses to the extent it is
required to seek recovery upon a default in the payment of principal and
interest on its holdings. As a result of the associated risks, successful
investments in high-yield (high-risk) securities will be more dependent on the
Advisor's credit analysis than generally would be the case with investments in
investment-grade securities.
The market for high-yield (high-risk) securities initially grew during a
period of economic expansion and has experienced mixed results thereafter. It is
uncertain how the high-yield market will perform during a prolonged period of
rising interest rates. A prolonged economic downturn or a prolonged period of
rising interest rates could adversely affect the market for these securities,
increase their volatility, and reduce their value and liquidity. In addition,
lower-quality securities tend to be less liquid than higher-quality debt
securities because the market for them is not as broad or active. If market
quotations are not available, these securities will be valued in accordance with
procedures established by a Fund's Board of Directors. Judgment may, therefore,
play a greater role in valuing these securities. The lack of a liquid secondary
market may have an adverse effect on market price and a Fund's ability to sell
particular securities.
See Appendix B for information concerning the credit quality of the Advantage
Fund's investments in 1994.
----------------------
PROSPECTUS PAGE I-20
<PAGE> 24
IMPLEMENTATION OF POLICIES AND RISKS
In addition to the investment policies described above (and subject to
certain restrictions described below), the Funds may invest in some or all of
the following securities and may employ some or all of the following investment
techniques, some of which may present special risks as described below. A more
complete discussion of certain of these securities and investment techniques and
the associated risks is contained in the Funds' SAI.
DEBT OBLIGATIONS
The Treasury Money Fund limits its investments to direct debt obligations of
the U.S. government that meet the requirements of Rule 2a-7 under the 1940 Act.
The Heritage Money Fund limits its investments to corporate, bank, and
government debt obligations that meet the requirements of Rule 2a-7 under the
1940 Act. The Municipal Money Fund generally limits its investments to municipal
obligations that meet the requirements of Rule 2a-7 under the 1940 Act. The
Municipal Advantage and the Advantage Funds generally invest in any type of debt
obligation consistent with the Funds' investment objectives and policies. For
additional information, see "Investment Objectives and Policies."
TYPES OF DEBT OBLIGATIONS. Debt obligations include (i) corporate debt
securities, 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) loan interests; (vi) foreign debt obligations issued
by foreign issuers traded either in foreign markets or in domestic markets
through depositary receipts; (vii) convertible securities - debt obligations of
corporations convertible into or exchangeable for equity securities or debt
obligations that carry with them the right to acquire equity securities, as
evidenced by warrants attached to such securities, or acquired as part of units
of the securities; (viii) preferred stocks - securities that represent an
ownership interest in a corporation and that give the owner a prior claim over
common stock on the company's earnings or assets; (ix) U.S. government
securities; (x) mortgage-backed securities, collateralized mortgage obligations,
and similar securities; and (xi) municipal obligations.
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
----------------------
PROSPECTUS PAGE I-21
<PAGE> 25
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.
MORTGAGE- AND ASSET-BACKED SECURITIES. Mortgage-backed securities represent
direct or indirect participation in, or are secured by and payable from,
mortgage loans secured by real property, and include single- and multi-class
pass-through securities and collateralized mortgage obligations. Such securities
may be issued or guaranteed by U.S. government agencies or instrumentalities or
by private issuers, generally originators in mortgage loans, including savings
associations, mortgage bankers, commercial banks, investment bankers, and
special purpose entities (collectively, "private lenders"). Mortgage-backed
securities issued by private lenders may be supported by pools of mortgage loans
or other mortgage-backed securities that are guaranteed, directly or indirectly,
by the U.S. government or one of its agencies or instrumentalities, or they may
be issued without any governmental guarantee of the underlying mortgage assets
but with some form of non-governmental credit enhancement, such as letters of
credit, reserve funds, overcollateralization, and guarantees by third parties.
Asset-backed securities have structural characteristics similar to mortgage-
backed securities. However, the underlying assets are not first-lien mortgage
loans or interests therein; rather they include 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
----------------------
PROSPECTUS PAGE I-22
<PAGE> 26
and interest on asset-backed securities may be supported by non-governmental
credit enhancements similar to those utilized in connection with mortgage-backed
securities.
The yield characteristics of mortgage- and asset-backed securities differ
from those of traditional debt obligations. Among the principal differences are
that interest and principal payments are made more frequently on mortgage-and
asset-backed securities, usually monthly, and that principal may be prepaid at
any time because the underlying mortgage loans or other assets generally may be
prepaid at any time. As a result, if a Fund purchases these securities at a
premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing the yield to maturity. Conversely, if a Fund
purchases these securities at a discount, a prepayment rate that is faster than
expected will increase yield to maturity, while a prepayment rate that is slower
than expected will reduce yield to maturity. Accelerated prepayments on
securities purchased by 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 mortgage- and
asset-backed securities is smaller and less liquid than the market for
government sponsored mortgage-backed securities.
Stripped mortgage- or asset-backed securities receive differing proportions
of the interest and principal payments from the underlying assets. The market
value of such securities generally is more sensitive to changes in prepayment
and interest rates than is the case with traditional mortgage- and asset-backed
securities, and in some cases the market value may be extremely volatile. With
respect to certain stripped securities, such as interest-only ("IO") and
principal-only ("PO") classes, a rate of prepayment that is faster or slower
than anticipated may result in the Fund failing to recover all or a portion of
its investment, even though the securities are rated investment grade.
LOAN INTERESTS. Loan interests are interests in amounts owed by a corporate,
governmental or other borrower to lenders or lending syndicates. Loan interests
purchased by a Fund may have a maturity of any number of days or years, and may
be secured or unsecured. Loan interests, which may take the form of
participation interests in, assignments of, or notations of a loan, may be
acquired from U.S. and foreign banks, insurance companies, finance companies or
other financial institutions that have made loans or are members of a lending
syndicate or from the holders of loan interests. Loan interests involve the risk
of loss in case of default or bankruptcy of the borrower and, in the case of
participation interests, involve a risk of insolvency of the agent lending bank
or other financial intermediary. Loan interests are not rated by any NRSROs and
are, at present, not readily marketable and may be subject to contractual
restrictions on resale.
----------------------
PROSPECTUS PAGE I-23
<PAGE> 27
MUNICIPAL OBLIGATIONS
IN GENERAL. Municipal obligations are debt obligations issued by or on behalf
of states, territories, and possessions of the United States and the District of
Columbia and their political subdivisions, agencies, and instrumentalities.
Municipal obligations generally include debt obligations issued to obtain funds
for various public purposes. Certain types of municipal obligations are issued
in whole or in part to obtain funding for privately operated facilities or
projects. Municipal obligations include general obligation bonds, revenue bonds,
industrial development bonds, notes, municipal lease obligations, and
mortgage-backed bonds.
BONDS AND NOTES. General obligation bonds are secured by the issuer's pledge
of its full faith, credit, and taxing power for the payment of interest and
principal. Revenue bonds are payable only from the revenues derived from a
project or facility or from the proceeds of a specified revenue source.
Industrial development bonds are generally revenue bonds secured by payments
from and the credit of private users. Municipal notes are issued to meet the
short-term funding requirements of state, regional, and local governments.
Municipal notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes, tax and revenue anticipation notes, construction loan notes,
short-term discount notes, tax-exempt commercial paper, demand notes, and
similar instruments. 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.
LEASE OBLIGATIONS. Municipal lease obligations may take the form of a lease,
an installment purchase, or a conditional sales contract. They are issued by
state and local governments and authorities to acquire land, equipment, and
facilities, such as state and municipal vehicles, telecommunications and
computer equipment, and other capital assets. A Fund may purchase these
obligations directly, or it may purchase participation interests in such
obligations. (See "Participation Interests" below.) Municipal leases are
generally subject to greater risks than general obligation or revenue bonds.
State constitutions and statutes set forth requirements that states or
municipalities must meet in order to issue municipal obligations. Municipal
leases may contain a covenant by the state or municipality to budget for,
appropriate, and make payments due under the obligation. Certain municipal
leases may, however, contain "non-appropriation" clauses which provide that the
issuer is not obligated to make payments on the obligation in future years
unless funds have been appropriated for this purpose each year. Accordingly,
such obligations are subject to "non-appropriation" risk. While municipal leases
are secured by the underlying capital asset, it may be difficult to dispose of
any such asset in the event of non-appropriation or other default.
----------------------
PROSPECTUS PAGE I-24
<PAGE> 28
MORTGAGE-BACKED BONDS. A Fund's investments in municipal obligations may
include mortgage-backed municipal obligations, which are a type of municipal
security issued by a state, authority, or municipality to provide financing for
residential housing mortgages to target groups, generally low-income individuals
who are first-time home buyers. A Fund's interest, evidenced by such
obligations, is an undivided interest in a pool of mortgages. Payments made on
the underlying mortgages and passed through to the Fund will represent both
regularly scheduled principal and interest payments. A Fund may also receive
additional principal payments representing prepayments of the underlying
mortgages. While a certain level of prepayments can be expected, regardless of
the interest rate environment, it is anticipated that prepayment of the
underlying mortgages will accelerate in periods of declining interest rates. In
the event that a Fund receives principal prepayments in a declining
interest-rate environment, its reinvestment of such funds may be in bonds with a
lower yield.
FOREIGN SECURITIES AND CURRENCIES
The Heritage Money and Advantage Funds each may invest up to 25% of their
total assets directly in foreign securities. The Advantage Fund may also invest
in foreign securities through depositary receipts without regard to this
limitation. However, the Advisor currently intends to invest not more than 25%
of a Fund's total assets in foreign securities, including both direct
investments and investments made through depositary receipts. Depositary
receipts are generally issued by banks or trust companies and evidence ownership
of underlying foreign securities. In accordance with Rule 2a-7 under the 1940
Act, the Heritage Money Fund will limit its investments in foreign securities to
those denominated in U.S. dollars.
Foreign investments involve special risks, including:
- - expropriation, confiscatory taxation, and withholding taxes on dividends and
interest;
- - less extensive regulation of foreign brokers, securities markets, and issuers;
- - less publicly available information and different accounting standards;
- - costs incurred in conversions between currencies, possible delays in
settlement in foreign securities markets, limitations on the use or transfer
of assets, 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.
Although the Funds generally invest only in securities that are regularly traded
on recognized exchanges or in over-the-counter markets, from time to time
foreign securities
----------------------
PROSPECTUS PAGE I-25
<PAGE> 29
may be difficult to liquidate rapidly without adverse price effects. Certain
costs attributable to foreign investing, such as custody charges and brokerage
costs, are higher than those attributable to domestic investing.
Because the Advantage Fund invests in foreign securities which are
denominated in non-U.S. currencies, the investment performance of the Fund could
be affected by changes in foreign currency exchange rates to some extent. The
value of the Fund's assets denominated in foreign currencies will increase or
decrease in response to fluctuations in the value of those foreign currencies
relative to the U.S. dollar. Currency exchange rates can be volatile at times in
response to supply and demand in the currency exchange markets, international
balances of payments, governmental intervention, speculation, and other
political and economic conditions.
The Advantage Fund may purchase and sell foreign currency on a spot basis and
may engage in forward currency contracts, currency options, and futures
transactions for hedging or any other lawful purpose. (See "Derivative
Instruments.")
REPURCHASE AGREEMENTS
Each Fund, other than the Treasury Money Fund, may enter into repurchase
agreements with certain banks and non-bank dealers. In a repurchase agreement, a
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. A 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 a 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 Funds enter into repurchase agreements to evaluate those risks. A
Fund may, under certain circumstances, deem repurchase agreements collateralized
by U.S. government securities to be investments in U.S. government securities.
DERIVATIVE INSTRUMENTS
The Advantage and Municipal Advantage Funds may use derivative instruments
for any lawful purpose consistent with their respective investment objectives,
such as hedging or managing risk but not for speculation. Derivative instruments
are securities or agreements whose value is derived from the
----------------------
PROSPECTUS PAGE I-26
<PAGE> 30
value of some underlying asset, for example, securities, reference indexes, or
commodities. Options, futures, and options on futures transactions are
considered derivative transactions. Derivatives generally have investment
characteristics that are based upon either forward contracts (under which one
party is obligated to buy and the other party is obligated to sell an underlying
asset at a specific price on a specified date) or options contracts (under which
the holder of the option has the right but not the obligation to buy or sell an
underlying asset at a specified price on or before a specified date).
Consequently, the change in value of a forward-based derivative generally is
roughly proportional to the change in value of the underlying asset. In
contrast, the buyer of an option-based derivative generally will benefit from
favorable movements in the price of the underlying asset but is not exposed to
corresponding losses due to adverse movements in the value of the underlying
asset. The seller of an option-based derivative generally will receive fees or
premiums but generally is exposed to losses due to changes in the value of the
underlying asset. Derivative transactions may include elements of leverage and,
accordingly, the fluctuation of the value of the derivative transaction in
relation to the underlying asset may be magnified. In addition to options,
futures, and options on futures transactions, derivative transactions may
include short sales against the box, in which a Fund sells a security it owns
for delivery at a future date; swaps, in which the two parties agree to exchange
a series of cash flows in the future, such as interest-rate payments;
interest-rate caps, under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates exceed a specified
rate, or "cap;" and interest-rate floors, under which, in return for a premium,
one party agrees to make payments to the other to the extent that interest rates
fall below a specified level, or "floor." With respect to the Advantage Fund
only, derivative transactions may also include forward currency contracts and
foreign currency exchange-related securities.
Derivative instruments may be exchange-traded or traded in over-the-counter
transactions between private parties. Over-the-counter transactions are subject
to the credit risk of the counterparty to the instrument and are less liquid
than exchange-traded derivatives since they often can only be closed out with
the other party to the transaction. When required by SEC guidelines, a Fund will
set aside permissible liquid assets or securities positions that substantially
correlate to the market movements of the derivatives transaction in a segregated
account to secure its obligations under derivative transactions. In order to
maintain its required cover for a derivative transaction, a Fund may need to
sell portfolio securities at disadvantageous prices or times since it may not be
possible to liquidate a derivative position.
The successful use of derivative transactions by a Fund is dependent upon the
Advisor's ability to correctly anticipate trends in the underlying asset. To the
extent that a Fund is engaging in derivative transactions other than for hedging
purposes, the Fund's successful use of such transactions is more dependent upon
the Advisor's ability to correctly anticipate such trends, since losses in these
transactions may not be offset by gains in the Fund's portfolio
----------------------
PROSPECTUS PAGE I-27
<PAGE> 31
or by lower purchase prices for assets it intends to acquire. The Advisor's
prediction of trends in underlying assets may prove to be inaccurate, which
could result in substantial losses to a Fund. Hedging transactions are also
subject to risks. If the Advisor incorrectly anticipates trends in the
underlying asset, a Fund may be in a worse position than if no hedging had
occurred. In addition, there may be an imperfect correlation between a Fund's
derivative transactions and the instruments being hedged.
WHEN-ISSUED SECURITIES
Each 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 a Fund to
lock in a fixed price or yield on a security it intends to purchase. However,
when a Fund purchases a when-issued security, it immediately assumes the risk of
ownership, including the risk of price fluctuation.
The greater a Fund's outstanding commitments for these securities, the
greater the exposure to potential fluctuations in the net asset value of a 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 a 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, a Fund will set aside
permissible liquid assets in a segregated account to secure its outstanding
commitments for when-issued securities.
ILLIQUID SECURITIES
The Advantage and Municipal Advantage Funds may each invest up to 15% of
their net assets in illiquid securities. The Treasury Money, Heritage Money and
Municipal Money Funds may each invest up to 10% of their respective 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 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 each Fund's Board of Directors.
----------------------
PROSPECTUS PAGE I-28
<PAGE> 32
ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES
The Advantage Fund may invest without limitation and the Municipal Advantage
Fund may invest up to 15% of its net assets in zero-coupon, step-coupon, and
pay-in-kind securities. These securities are debt securities that do not make
regular cash interest payments. Zero-coupon and step-coupon securities are sold
at a deep discount to their face value. Pay-in-kind securities pay interest
through the issuance of additional securities. Because such securities do not
pay current cash income, the price of these securities can be volatile when
interest rates fluctuate. While these securities do not pay current cash income,
federal income tax law requires the holders of taxable zero-coupon, step-coupon,
and pay-in-kind securities to include in income each year the portion of the
original issue discount (or deemed discount) and other non-cash income on such
securities accrued during that year. In order to continue to qualify for
treatment as a "regulated investment company" under the Internal Revenue Code
and avoid a certain excise tax, the Municipal Advantage and Advantage Funds may
be required to distribute a portion of such discount and income and may be
required to dispose of other portfolio securities, which may occur in periods of
adverse market prices, in order to generate cash to meet these distribution
requirements.
MORTGAGE DOLLAR-ROLLS AND REVERSE REPURCHASE AGREEMENTS
Each Fund, other than the Treasury Money Fund, may enter into mortgage
dollar-rolls, in which the Fund would sell mortgage-backed securities for
delivery in the current month and simultaneously contract to purchase
substantially similar securities on a specified future date. While a Fund would
forego principal and interest paid on the mortgage-backed securities during the
roll period, the Fund would be compensated by the difference between the current
sales price and the lower price for the future purchase as well as by any
interest earned on the proceeds of the initial sale. The Fund also could be
compensated through the receipt of fee income equivalent to a lower forward
price. When required by SEC guidelines, a Fund would set aside permissible
liquid assets in a segregated account to secure its obligation for the forward
commitment to buy mortgage-backed securities. Mortgage dollar-roll transactions
may be considered a borrowing by the Funds.
The Municipal Money, Municipal Advantage, and Advantage Funds may also engage
in reverse repurchase agreements to facilitate portfolio liquidity, a practice
common in the mutual fund industry, or for arbitrage transactions discussed
below. In a reverse repurchase agreement, the Fund would sell a security and
enter into an agreement to repurchase the security at a specified future date
and price. The Fund generally retains the right to interest and principal
payments on the security. Since the Fund receives cash upon entering into a
reverse repurchase agreement, it may be considered a borrowing. When required by
SEC guidelines, a Fund will set aside permissible liquid
----------------------
PROSPECTUS PAGE I-29
<PAGE> 33
assets in a segregated account to secure its obligation to repurchase the
security.
The mortgage dollar-rolls and reverse repurchase agreements entered into by
the Funds may be used as arbitrage transactions in which a Fund will maintain an
offsetting position in investment-grade debt obligations or repurchase
agreements that mature on or before the settlement date of the related mortgage
dollar-roll or reverse repurchase agreement. Since a Fund will receive interest
on the securities or repurchase agreements in which it invests the transaction
proceeds, such transactions may involve leverage. However, since such securities
or repurchase agreements will be high quality and will mature on or before the
settlement date of the mortgage dollar-roll or reverse repurchase agreement, the
Advisor believes that such arbitrage transactions do not present the risks to
the Funds that are associated with other types of leverage. The Heritage Money
and Municipal Money Funds only engage in transactions permissible under Rule
2a-7.
PARTICIPATION INTERESTS
If a Fund may invest in municipal obligations, it may also invest in
participation interests in municipal obligations without limitation. A
participation interest gives a Fund an undivided interest in a municipal
obligation in the proportion that the Fund's participation interest bears to the
principal amount of the obligation. These instruments may have fixed, floating,
or variable rates of interest. A Fund will only purchase participation interests
if accompanied by an opinion of counsel that the interest earned on the
underlying municipal obligations will be tax-exempt. If a Fund purchases unrated
participation interests, the Board of Directors or its delegate must have
determined that the credit risk is equivalent to the rated obligations in which
the Fund may invest. Participation interests may be backed by a letter of credit
or guaranty of the selling institution. When determining whether such a
participation interest meets a Fund's credit quality requirements, the Fund may
look to the credit quality of any financial guarantor providing a letter of
credit or guaranty.
STANDBY COMMITMENTS
In order to facilitate portfolio liquidity, the Municipal Money and Municipal
Advantage Funds may each acquire standby commitments from brokers, dealers, or
banks with respect to securities in their respective portfolios. Standby
commitments entitle the holder to achieve same-day settlement and receive an
exercise price equal to the amortized cost of the underlying security plus
accrued interest. Standby commitments generally increase the cost of the
acquisition of the underlying security, thereby reducing the yield. Standby
commitments are subject to the issuer's ability to fulfill its obligation upon
demand. Although no definitive creditworthiness criteria are used, the Advisor
----------------------
PROSPECTUS PAGE I-30
<PAGE> 34
reviews the creditworthiness of the brokers, dealers, and banks from which a
Fund obtains standby commitments to evaluate those risks.
SECTOR CONCENTRATION
From time to time, the Municipal Money and Municipal Advantage Funds may each
invest 25% or more of their respective net assets in municipal obligations that
are related in such a way that an economic, business, or political development
or change affecting one such security could also affect the other securities.
Such related sectors may include hospitals, retirement centers, pollution
control, single-family housing, multiple-family housing, industrial development,
utilities, education, and general obligation bonds. The Municipal Money and
Municipal Advantage Funds also may invest 25% or more of their respective net
assets in municipal obligations whose issuers are located in the same state.
PORTFOLIO TURNOVER
The historical portfolio turnover rate for the Advantage Fund is listed under
"Financial Highlights." The annual portfolio turnover rate indicates changes in
a Fund's portfolio. The turnover rate may vary from year to year, as well as
within a year. It may also be affected by sales of portfolio securities
necessary to meet cash requirements for redemptions of shares. High portfolio
turnover in any year will result in the payment by a Fund of above
average-amounts of transaction costs and could result in the payment by
shareholders of above average-amounts of taxes on realized investment gains. The
annual portfolio turnover rates for the Municipal Advantage and Advantage Funds
are expected to be between 200% and 300%. However, each Fund's portfolio
turnover rate may exceed 300% when the Advisor believes the anticipated benefits
of short-term investments outweigh any increase in transaction costs or increase
in capital gains. These rates should not be considered as limiting factors.
ABOUT THE FUNDS
MANAGEMENT
The Board of Directors of each Fund is responsible for managing its business
and affairs. Each of the Funds has entered into an investment advisory agreement
(collectively the "Advisory Agreements") with Strong Capital Management, Inc.
(the "Advisor"). Except for the management fee arrangements, the Advisory
Agreements are substantially identical. Under the terms of these agreements, the
Advisor manages each Fund's investments and business affairs subject to the
supervision of each Fund's Board of Directors.
----------------------
PROSPECTUS PAGE I-31
<PAGE> 35
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 as well as mutual funds, several of which are funding vehicles for
variable insurance products. As of October 31, 1995, the Advisor had over $15
billion under management. The Advisor's principal mailing address is P.O. Box
2936, Milwaukee, Wisconsin 53201. Mr. Richard S. Strong, the Chairman of the
Board of each Fund, is the controlling shareholder of the Advisor.
As compensation for its services, each Fund pays the Advisor a monthly
management fee based on a percentage of each Fund's average daily net asset
value. The annual rates are as follows: Treasury Money Fund, .40%; Heritage
Money and Municipal Money Funds, .50%; and Municipal Advantage and Advantage
Funds, .60%. 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 a Fund's
overall expense ratio and increase a Fund's overall return to investors.
Except for expenses assumed by the Advisor or Strong Funds Distributors,
Inc., each Fund is responsible for all its other expenses, including, without
limitation, interest charges, taxes, brokerage commissions, and similar
expenses; expenses of issue, sale, repurchase, or redemption of shares; expenses
of registering or qualifying shares for sale with the states and the SEC;
expenses of printing and distribution of prospectuses to existing shareholders;
charges of custodians (including fees as custodian for keeping books and similar
services for a Fund), transfer agents (including the printing and mailing of
reports and notices to shareholders), registrars, auditing and legal services,
and clerical services related to recordkeeping and shareholder relations;
printing of stock certificates; fees for directors who are not "interested
persons" of the Advisor; expenses of indemnification; extraordinary expenses;
and costs of shareholder and director meetings.
PORTFOLIO MANAGERS. The following individuals serve as portfolio managers for
the five Strong Cash Management Funds.
STRONG U.S. TREASURY MONEY FUND
STRONG HERITAGE MONEY FUND
JAY N. MUELLER. 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. He has
managed the Strong Treasury Money Fund since September 1991, and the Strong
Heritage Money Fund since its inception in June 1995.
----------------------
PROSPECTUS PAGE I-32
<PAGE> 36
Mr. Mueller also manages the Strong Money Market and Strong Institutional Money
Funds.
STRONG MUNICIPAL MONEY MARKET FUND
STRONG MUNICIPAL ADVANTAGE FUND
STEVEN D. HARROP. A Chartered Financial Analyst, Mr. Harrop joined the
Advisor in 1991. Previously, he was employed by USAA Investment Management
Company, where he co-managed a balanced fund and managed five tax-exempt funds.
Mr. Harrop received his bachelor's degree from Brigham Young University in 1972
and his master's degree from Northwestern University in 1973. He has managed the
Strong Municipal Money Market Fund since 1991, the Strong Municipal Advantage
Fund since its inception in November 1995, and the Strong Short-Term Municipal
Bond Fund since December 1995.
STRONG ADVANTAGE FUND
JEFFREY A. KOCH. Mr. Koch joined the Advisor as a portfolio manager and
securities analyst in June 1989. For a brief period prior to that, he was a
market-maker clerk at Fossett Corporation, a clearing firm. Mr. Koch earned his
M.B.A. in Finance at Washington University in St. Louis, Missouri in 1989. His
undergraduate degree, awarded in 1987, is from the University of
Minnesota-Morris. Mr. Koch is also a Chartered Financial Analyst. Mr. Koch co-
managed the Strong Advantage Fund from 1991 until 1993, when he assumed sole
management responsibility for the Fund. Mr. Koch also co-manages the Strong
Corporate Bond Fund.
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 Funds. The Advisor is
compensated for its services based on an annual fee per account plus certain
out-of-pocket expenses. The fees received and the services provided as transfer
agent and dividend-disbursing agent are in addition to those received and
provided under the Advisory Agreements between the Advisor and the Funds.
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
Funds.
----------------------
PROSPECTUS PAGE I-33
<PAGE> 37
ORGANIZATION
SHAREHOLDER RIGHTS. The Treasury Money Fund is a series of common stock of
Strong Income Funds, Inc., the Heritage Money Fund is a series of common stock
of Strong Heritage Reserve Series, Inc., and the Municipal Money and Municipal
Advantage Funds are both series of common stock of Strong Municipal Funds, Inc.
Strong Income Funds, Inc., Strong Heritage Reserve Series, Inc., Strong
Municipal Funds, Inc., and the Advantage Fund are each Wisconsin corporations
authorized to issue shares of common stock and series and classes of shares of
common stock. Each share of each Fund has one vote, and all shares participate
equally in dividends and other capital gains distributions by the respective
Fund and in the residual assets of the respective 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 Funds will not hold
annual meetings of shareholders unless required by the 1940 Act.
SHAREHOLDER PRIVILEGES. The shareholders of each Fund may benefit from the
privileges described in the "Shareholder Manual" (see page II-1). However, each
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 and capital gain distributions from a Fund, if any, automatically
reinvested in additional shares of that 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 and other distributions be paid in cash, a 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 each Fund is to pay dividends from net investment income
monthly and to distribute substantially all net realized capital gains, if any,
and gains from foreign currency transactions, if any, annually. Each Fund may
make additional distributions if necessary to avoid imposition of a 4% excise
tax on undistributed income and gains. Each Fund declares dividends on each day
its net asset value is calculated, except the Treasury Money, Heritage Money,
and Municipal Money Funds do not declare dividends on bank holidays. Income
earned on weekends, holidays (including bank holidays for the Treasury
----------------------
PROSPECTUS PAGE I-34
<PAGE> 38
Money, Heritage Money, and Municipal Money Funds), and days on which net asset
value is not calculated is declared as a dividend on the day on which a Fund's
net asset value was most recently calculated.
TAX STATUS OF DIVIDENDS AND OTHER DISTRIBUTIONS. You will be subject to
federal income tax at ordinary income tax rates on any dividends you receive
other than exempt-interest dividends declared by the Municipal Money and
Municipal Advantage Funds as described below ("taxable distributions") that are
derived from investment company taxable income (consisting generally of net
investment income, net short-term capital gain and net gains from certain
foreign currency transactions, if any). Distributions by the Municipal Advantage
and Advantage Funds from net capital gain (the excess of net long-term capital
gain over net short-term capital loss), when designated as such, are taxable to
you as long-term capital gains, regardless of how long you have held your Fund
shares.
The Funds' taxable distributions are taxable in the year they are paid,
whether they are taken in cash or reinvested in additional shares, except that
certain taxable 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 a Fund's income that is derived from U.S. government
securities.
If a Fund's taxable distributions exceed its investment company taxable
income and net capital gain in any year, as a result of currency-related losses
or otherwise, all or a portion of those distributions may be treated as a return
of capital to shareholders for tax purposes.
With respect to the Municipal Money and Municipal Advantage Funds, if the
Funds satisfy certain requirements described under "Taxes" in the SAI - which
the Funds intend to continue to do - dividends paid by the Funds from the
interest earned on municipal bonds will constitute "exempt-interest dividends"
and will not be subject to federal income tax. However, the Funds may invest in
municipal bonds the interest on which is a tax preference item for purposes of
the alternative minimum tax. Exempt-interest dividends distributed to corporate
shareholders also may be subject to the AMT regardless of the types of municipal
bonds in which the Funds invest, depending on the corporation's tax status.
Distributions by the Funds may be subject to state and local taxes, depending on
the laws of your home state and locality. You will be subject to federal income
tax at ordinary income rates on any income dividends you receive that are
derived from interest on taxable securities or from net realized short-term
capital gains.
----------------------
PROSPECTUS PAGE I-35
<PAGE> 39
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 and
other distributions paid (or deemed paid) during the year.
SHARES SOLD OR EXCHANGED. With respect to the Municipal Advantage and
Advantage Funds only, your redemption of shares of such Funds may result in
taxable gain or loss to you, depending upon whether the redemption proceeds
payable to you are more or less than your adjusted cost basis for the redeemed
shares. Similar tax consequences generally will result from an exchange of
shares of one of these Funds for shares of another Strong Fund. If you purchase
shares of one of these Funds within thirty days before or after redeeming shares
of the same Fund at a loss, a portion or all of that loss will not be deductible
and will increase the cost basis of the newly purchased shares. In addition, if
you redeem shares out of a retirement account, you will be subject to
withholding for federal income tax purposes unless you transfer the distribution
directly to an "eligible retirement plan." Moreover, 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 a 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 taxable dividends (in the case of the Treasury
Money, Heritage Money, and Municipal Money Funds), and from all dividends,
capital gain distributions, and redemption proceeds (in the case of the
Municipal Advantage and Advantage Funds), payable to you.
Withholding at that rate from taxable dividends and capital gain
distributions payable to you also is required if you otherwise are subject to
backup withholding. To avoid backup withholding, you must provide a taxpayer
identification number and state that you are not subject to backup withholding
due to the underreporting of your income. This certification is included as part
of your application. Please complete it when you open your account.
TAX STATUS OF THE FUNDS. Each Fund intends to continue 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 and gains distributed to its shareholders in a timely manner.
This section is not intended to be a full discussion of present or proposed
federal income tax law and its effects on the Funds 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 adviser.
----------------------
PROSPECTUS PAGE I-36
<PAGE> 40
PERFORMANCE INFORMATION
Each Fund may advertise "yield," "average annual total return," "total
return," and "cumulative total return." The Treasury Money, Heritage Money, and
Municipal Money Funds may also advertise "effective yield." In addition, the
Municipal Money and Municipal Advantage Funds may also advertise "equivalent
taxable yield." Each of these figures is based upon historical results and does
not represent the future performance of a Fund.
Yield is an annualized figure, which means that it is assumed that a Fund
generates the same level of net investment income over a one-year period. The
Treasury Money, Heritage Money and Municipal Money Funds' yield and effective
yield are measures of the net investment income per share earned by such 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 a Fund
will be reinvested. The Municipal Advantage and Advantage Funds' yield is a
measure of the net investment income per share earned by a Fund over a specific
one-month period and is shown as a percentage of the net asset value of the
Fund's shares at the end of the period. Equivalent taxable yield represents the
amount a taxable investment would need to generate to equal a Fund's yield for
an investor at stated tax rates.
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 a Fund assuming
the reinvestment of all dividends and distributions. Total return figures are
not annualized and simply represent the aggregate change of a Fund's investments
over a specified period of time.
----------------------
PROSPECTUS PAGE I-37
<PAGE> 41
This page has been left blank intentionally.
----------------------
PROSPECTUS PAGE I-38
<PAGE> 42
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-11
REGULAR INVESTMENT PLANS............... II-13
SPECIAL SITUATIONS..................... II-15
</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.
Because the Municipal Advantage and Advantage Funds' net asset values change
daily, your purchase price will be the next net asset value determined after
Strong receives and accepts your purchase order. Your money will begin earning
dividends the day after your purchase order is accepted in proper form.
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> 43
- ------------------------------------------------------------------------------
<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 USE STRONG'S "NO-MINIMUM INVESTMENT PROGRAM."(3)
- If you sign up for Strong's Automatic Investment
Plan when you open your account, Strong Funds will
waive the Fund's minimum initial investment (see
chart on page II-4).
- Complete the Automatic Investment Plan section on
the account application.
- Mail to the address indicated on the application.
- ------------------------------------------------------------------------------
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>
----------------------
PROSPECTUS PAGE II-2
<PAGE> 44
- ------------------------------------------------------------------------------
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 $50(1) or the balance of your account, whichever is less.
BY TELEPHONE PURCHASE
- - Sign up for telephone purchase when you open your account to make additional
investments from $50 to $25,000 into your Strong Funds account by
telephone.(2) To add this option to your account, call 1-800-368-3863 for a
Telephone Purchase Form.
Or use Strong Direct(SM), 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
$50)(1) into your Strong Funds account from your bank checking or NOW account.
Complete the Automatic Investment Plan section on the account application.
- - AUTOMATIC EXCHANGE PLAN. Make regular, systematic exchanges (minimum $50)(1)
from one Strong Funds account to another. Call 1-800-368-3863 for an
application.
- - PAYROLL DIRECT DEPOSIT. Have a specified amount (minimum $50)(1) 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 and capital gain distributions will be automatically reinvested in
additional Fund shares. Or, you may elect to have your dividends and capital
gain distributions 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.
(1)The minimum amount for the Heritage Money Fund is $1,000.
(2)With respect to the Heritage Money Fund, additional investments from $1,000
to $25,000 may be made.
(3)Not available for the Heritage Money Fund.
----------------------
PROSPECTUS PAGE II-3
<PAGE> 45
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 a Fund.
- - Further documentation may be requested from corporations, executors,
administrators, trustees, guardians, agents, or attorneys-in-fact.
- - A 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 privilege 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:
<TABLE>
<CAPTION>
Open an
Open an IRA or Open a
Open a UGMA/ Defined 401(k) or Add to
Regular UTMA Contribution 403(b) Existing
Fund Account Account Plan Account Account
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Treasury Money $ 2,500 $250 $1,000 No Minimum $50
Heritage Money $25,000 $25,000 $25,000 $25,000 $1,000
Municipal Money $ 2,500 $250 Not Not $50
Available Available
Municipal Advantage $ 2,500 $250 Not Not $50
Available Available
Advantage $ 2,500 $250 $1,000 No Minimum $50
</TABLE>
All of the Funds (except the Heritage Money Fund) offer a No-Minimum
Investment Program that waives the minimum initial investment requirements for
investors who participate in the Strong Automatic Investment Plan (described on
page II-14). Unless you participate in the Strong No-Minimum Investment Program,
please ensure that your purchases meet the minimum investment requirements.
Under certain circumstances (for example, if you discontinue a No-Minimum
Investment Program before you reach a Fund's minimum initial investment), each
Fund reserves the right to close your account. Before taking such action, a Fund
will provide you with written notice and at least 60 days in which to reinstate
an investment program or otherwise reach the minimum initial investment
required.
- - ACCOUNT MAINTENANCE (HERITAGE MONEY FUND). With respect to the Heritage Money
Fund only, the Advisor, acting as the Fund's transfer agent, reserves the
right to deduct a quarterly account maintenance fee of $3.00 for
----------------------
PROSPECTUS PAGE II-4
<PAGE> 46
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 Heritage Money 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 Funds' Prospectus. Certain features of a Fund may 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 Funds may affect 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 Funds 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 each Fund is normally determined as of 3:00 p.m. Central
Time ("CT") each day the Exchange is open. The Funds
----------------------
PROSPECTUS PAGE II-5
<PAGE> 47
reserve 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. Each Fund's NAV is calculated by taking the fair value
of a 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 NAV.
With respect to the Municipal Advantage and Advantage Funds, debt securities,
including municipal obligations, are valued at fair market value as determined
by a pricing service that is designated by the Board of Directors of each Fund.
The pricing service generally values securities at the average of the most
recent bid and asked prices, but may also look to such factors as market
transactions among institutional investors and dealer quotations for similar
securities in determining the value of debt securities. Any securities or other
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by the Board of Directors. Any debt securities
having remaining maturities of 60 days or less may be valued by the amortized
cost method when the Board of Directors determines that the fair value of such
securities is their amortized cost.
The securities in the portfolios of the Treasury Money, Heritage Money, and
Municipal Money Funds 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 NAV of these Funds at $1.00 per share. Calculations are
periodically made to compare the value of a 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 NAV calculated by reference to market values and a Fund's $1.00 per
share NAV, 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.
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 a 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.
With respect to the Heritage Money Fund only, 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. There are no transaction fees for redemptions in the Treasury Money,
Municipal Money, Municipal Advantage, and Advantage Funds.
----------------------
PROSPECTUS PAGE II-6
<PAGE> 48
To redeem shares, you may use any of the methods described in the following
chart. 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-7
<PAGE> 49
-------------------------------------------------------------------------
<TABLE>
<S> <C>
TO SELL SHARES
- ----------------------------------------------------------------------------
MAIL FOR INDIVIDUAL, JOINT TENANT, AND UGMA/UTMA ACCOUNTS
($3 fee for - Write a "letter of instruction" that includes the
Heritage following information: your account number, the dollar
Money Fund) 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 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
($3 fee for Sign up for telephone redemption services when you open
Heritage your account by checking the "Yes" box in the appropriate
Money Fund) section of the account application. To add the telephone
redemption option to your account, call 1-800-368-3863 for
1-800-368-3863 a Telephone Redemption Form.
24 HOURS A DAY, Once the telephone redemption option is in place, you may
7 DAYS A WEEK sell shares ($500 minimum)(1) 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 at no charge. (Except with respect to the
Heritage Money Fund, for which a $3 fee is charged.)
- If you wish to redeem shares in the Heritage Money Fund,
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 at no
charge. (Except with respect to the Heritage Money Fund,
for which a $3 fee is charged.) Usually, the funds will
arrive at your bank two banking days after we process
your redemption.
TO DEPOSIT BY WIRE
- For a $10 fee, 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.
You may also use Strong Direct (SM), Strong Funds' automated
telephone response system. Call 1-800-368-3863 for details.
- ----------------------------------------------------------------------------
CHECK WRITING
($3 fee for Sign up for the free (except with respect to the Heritage
Heritage Money Fund) check-writing privilege when you open your
Money Fund) account. To add check writing to an existing 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 $500(1) and that you cannot write a check
to close an account.
- ----------------------------------------------------------------------------
AUTOMATICALLY
($3 fee per with- You can set up automatic withdrawals from your account at
drawal for regular intervals. To establish the Systematic Withdrawal
Heritage Money Plan, request a form by calling 1-800-368-3863.
Fund)
- ----------------------------------------------------------------------------
BROKER-DEALER
(varies by You may also redeem shares through broker-dealers or others
institution) who may charge a commission or other transaction fee.
</TABLE>
(1) The minimum amount for the Heritage Money Fund is $1,000.
----------------------
PROSPECTUS PAGE II-8
<PAGE> 50
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 a 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.
- - Heritage Money Fund. For complete redemptions, the $3.00 transaction fee
charged by the Heritage Money Fund will be deducted from the proceeds of the
transaction. For partial redemptions, the $3.00 transaction fee will be
deducted from your account.
REDEMPTIONS IN KIND
The Funds have elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates each Fund to redeem shares in cash, with respect to any one
shareholder during any 90-day period, up to the lesser of $250,000 or 1% of the
assets of the Fund. If the Advisor determines that existing conditions make cash
payments undesirable, redemption payments may be made in whole or in part in
securities or other financial assets, valued for this purpose as they are valued
in computing the NAV for a Fund's shares (a "redemption-in-kind"). Shareholders
receiving securities or other financial assets in a redemption-in-kind may
realize a gain or loss for tax purposes, and will incur any costs of sale, as
well as the associated inconveniences. If you expect to make a redemption in
excess of the lesser of $250,000 or 1% of the Fund's assets during any 90-day
period and would like to avoid any possibility of being paid with securities
in-kind, you may do so by providing Strong Funds with an unconditional
instruction to redeem at least 15 calendar days prior to the date on which the
redemption transaction is to occur, specifying the dollar amount or number of
shares to be redeemed and the date of the transaction (please call
1-800-368-3863). This will provide the relevant Fund with sufficient time to
raise the cash in an orderly manner to pay the redemption and thereby minimize
the effect of the redemption on the interests of the Fund's remaining
shareholders. Redemption checks in excess of the lesser of $250,000 or 1% of a
----------------------
PROSPECTUS PAGE II-9
<PAGE> 51
Fund's assets during any 90-day period may not be honored by the Fund if the
Advisor determines that existing conditions make cash payments undesirable.
WHAT YOU SHOULD KNOW ABOUT TELEPHONE REDEMPTIONS
- - The Funds reserve 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 Funds and their transfer
agent employ reasonable procedures to confirm that instructions communicated
by telephone are genuine. The Funds may incur liability if they do 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.
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 DIRECT(SM) AUTOMATED TELEPHONE SYSTEM. Also available 24 hours a day,
the Strong Direct(SM) 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, each 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
-----------------------
PROSPECTUS PAGE II-10
<PAGE> 52
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 semiannual 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 each Fund's investment policies and
services is contained in its SAI, 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 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 services, you authorize the Fund and its agents to act upon
your instruction by telephone to exchange shares from any account you specify.
For tax purposes, an exchange is considered a sale and a purchase. 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 Funds, 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
$500 or more ($1,000 or more for the Heritage Money Fund). With
-----------------------
PROSPECTUS PAGE II-11
<PAGE> 53
respect to all of the Funds except the Heritage Money Fund, there is no charge
for this privilege. The Heritage Money 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.
In addition, a check may not be honored if the check results in you redeeming
more than the lesser of $250,000 or 1% of the Fund's assets during any 90-day
period and the Advisor determines that existing conditions make cash payments
undesirable. Checks are supplied free of charge, and additional checks will be
sent to you upon request. The Funds do 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
AUTOMATIC INVESTMENT PLAN (NOT AVAILABLE FOR HERITAGE MONEY FUND). The
Automatic Investment Plan allows you to make regular, systematic investments in
a Fund from your bank checking or NOW account. You may choose to make
investments on any day of the month in amounts of $50 or more. You can set up
the Automatic Investment Plan with any financial institution that is a member of
the Automated Clearing House. Because each Fund has the right to close an
investor's account for failure to reach the minimum initial investment, please
consider your ability to continue this Plan until you reach the minimum initial
investment. Such closing may occur in periods of declining share prices. To
establish the Plan, complete the Automatic Investment Plan section on the
account application, or call 1-800-368-3863 for an application.
PAYROLL DIRECT DEPOSIT PLAN. Once you meet a Fund's minimum initial
investment requirement, you may purchase additional Fund shares through the
Payroll Direct Deposit Plan. Through this Plan, periodic investments (minimum
$50 for all but Heritage Money Fund, which requires a minimum of $1,000) are
made automatically from your payroll check into 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 the Automated Clearing House available to
its employees. The Plan may be used for other
-----------------------
PROSPECTUS PAGE II-12
<PAGE> 54
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 $50 for all but Heritage Money Fund,
which requires a minimum of $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. An exchange transaction is a sale and purchase of
shares for federal income tax purposes and may result in a capital gain or loss.
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 $2,500 (the Heritage Money Fund requires $50,000 initial
account balance in such Fund) in the first 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 $5,000 (the Heritage Money Fund requires $50,000 initial account
balance in such Fund) in your account and withdraw at least $50 ($1,000 for the
Heritage Money Fund) 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 (and fluctuations, if any, in net asset value of
the shares redeemed), 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 Plan payment, the remaining amount will be redeemed
and the Plan will be terminated. Note that with respect to each withdrawal made
against the Heritage Money Fund, a $3.00 redemption fee will be charged.
-----------------------
PROSPECTUS PAGE II-13
<PAGE> 55
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 Funds. 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 Funds against fraudulent transactions by unauthorized persons. In the
following instances, the Funds 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.
-----------------------
PROSPECTUS PAGE II-14
<PAGE> 56
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-15
<PAGE> 57
APPENDIX A
RATINGS OF DEBT OBLIGATIONS:
<TABLE>
<CAPTION>
Moody's Standard & Fitch
Investors Poor's Ratings Investors
Service, Inc. Group Service, Inc. Definition
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG-TERM Aaa AAA AAA Highest quality
Aa AA AA High quality
A A A Upper medium grade
Baa BBB BBB Medium grade
Ba BB BB Low grade
B B B Speculative
Caa, Ca, C CCC, CC, C CCC, CC, C Submarginal
D D DDD, DD, D Probably in default
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Moody's S&P Fitch
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM MIG1/VMIG1 Best quality SP-1+ Very strong quality F-1+ Exceptionally strong
quality
----------------------------------------------------------------------------------------
MIG2/VMIG2 High quality SP-1 Strong quality F-1 Very strong quality
----------------------------------------------------------------------------------------
MIG3/VMIG3 Favorable SP-2 Satisfactory grade F-2 Good credit quality
quality
----------------------------------------------------------------------------------------
MIG4/VMIG4 Adequate F-3 Fair credit quality
quality
----------------------------------------------------------------------------------------
SG Speculative SP-3 Speculative grade F-S Weak credit quality
grade
- --------------------------------------------------------------------------------------------------------
COMMERCIAL P-1 Superior A-1+ Extremely strong F-1+ Exceptionally strong
PAPER quality quality quality
----------------------------------------------------------------------------------------
A-1 Strong quality F-1 Very strong quality
----------------------------------------------------------------------------------------
P-2 Strong A-2 Satisfactory quality F-2 Good credit quality
quality
----------------------------------------------------------------------------------------
P-3 Acceptable A-3 Adequate quality F-3 Fair credit quality
quality
----------------------------------------------------------------------------------------
B Speculative quality F-S Weak credit quality
----------------------------------------------------------------------------------------
Not Prime C Doubtful quality D Default
- --------------------------------------------------------------------------------------------------------
</TABLE>
----------------------
PROSPECTUS PAGE A-1
<PAGE> 58
APPENDIX B
Advantage Fund
WEIGHTED AVERAGE RATINGS OF DEBT OBLIGATIONS(1)
<TABLE>
<CAPTION>
Average Percentage of Assets Held Percentage of Assets Held on
During 1994(2) December 31, 1994
- ------------------------------------------- -------------------------------------------
Advantage Fund(3) Advantage Fund(3)
----------------- -----------------
Equivalent Equivalent
S&P Moody's Rated Unrated(4) S&P Moody's Rated Unrated(4)
<S> <C> <C> <C> <C> <C> <C> <C>
AAA Aaa(5) 13.7% - AAA Aaa(6) 15.1% -
AA Aa 9.9 - AA Aa 11.2 -
A A 12.0 - A A 15.2 -
BBB Baa 34.6 0.1% BBB Baa 35.8 0.9%
BB Ba 15.8 1.1 BB Ba 17.6 1.9
B B 1.6 0.2 B B - -
CCC Caa - - CCC Caa - -
CC Ca - - CC Ca - -
C C - - C C - -
Totals 87.6% 1.4% Totals 94.9% 2.8%
</TABLE>
WEIGHTED AVERAGE RATINGS OF CORPORATE COMMERCIAL PAPER(1)
<TABLE>
<CAPTION>
Average Percentage of Assets Held During 1994(2)
- ------------------------------------------------
Rated(4)
S&P Moody's Advantage Fund
- ------------------------------------------------
<S> <C> <C>
A1 P1(6) 2.6%
A2 P2(6) 2.4
A3 P3 -
- ------------------------------------------------
Totals 5.0%
</TABLE>
<TABLE>
<CAPTION>
Percentage of Assets Held on December 31, 1994
- ------------------------------------------------
Rated(4)
S&P Moody's Advantage Fund
- ------------------------------------------------
<S> <C> <C>
A1 P1(6) -
A2 P2(6) 3.2%
A3 P3 -
- ------------------------------------------------
Totals 3.2%
</TABLE>
(1) A security rated differently by two or more rating services is included in
the category representing the higher of the ratings assigned to the
security.
(2) Based on a weighted average of the securities held at the end of each month.
Investment-grade debt obligations are those rated in one of the four highest
categories by an NRSRO, and investment-grade commercial paper is commercial
paper rated in one of the top three categories by such organizations. See
"Fundamentals of Fixed Income Investing" in this Prospectus for a
discussion of the risks associated with non-investment-grade debt
obligations and Appendix A and the SAI for a description of credit ratings.
The Appendix does not contain information on the Treasury Money, Heritage
Money, Municipal Money and Municipal Advantage Funds because these Funds
may not invest in, or limit their investments in, non-investment-grade debt
obligations.
(3) Effective June 15, 1994, the Board of Directors increased the Fund's
authorization to invest in non-investment-grade BB debt obligations from
20% to 25% of its total assets.
(4) This category represents the comparable quality of unrated securities, as
determined by the Advisor.
(5) Includes all U.S. government obligations.
(6) Includes commercial paper rated in an equivalent category by either S&P or
Fitch.
----------------------
PROSPECTUS PAGE B-1
<PAGE> 59
STATEMENT OF ADDITIONAL INFORMATION
STRONG U.S. TREASURY MONEY FUND
STRONG HERITAGE MONEY FUND
STRONG MUNICIPAL MONEY MARKET FUND
STRONG MUNICIPAL ADVANTAGE FUND
STRONG ADVANTAGE FUND
P.O. Box 2936
Milwaukee, Wisconsin 53201
Telephone: (414) 359-1400
Toll-Free: (800) 368-3863
This Statement of Additional Information is not a Prospectus and
should be read in conjunction with the Prospectus of Strong Advantage Fund,
Inc. (the "Advantage Fund"); Strong U.S. Treasury Money Fund (the "Treasury
Money Fund"), which is a series of Strong Income Funds, Inc.; Strong Heritage
Money Fund (the "Heritage Money Fund"), which is a series of Strong Heritage
Reserve Series, Inc.; and Strong Municipal Money Market Fund (the "Municipal
Money Fund") and Strong Municipal Advantage Fund (the "Municipal Advantage
Fund"), both of which are series of Strong Municipal Funds, Inc. (hereinafter
collectively referred to as the "Funds") dated December 29, 1995. Requests for
copies of the Prospectus should be made by calling one of the numbers listed
above.
Financial statements for the Treasury Money, Municipal Money, and
Advantage Funds appearing in the Annual Report for each such Fund, which
accompany this Statement of Additional Information, are incorporated herein by
reference. The Financial Highlights for the Heritage Money and the Municipal
Advantage Funds are not provided because they did not commence operations until
June 29, 1995, and November 30, 1995, respectively.
This Statement of Additional Information is dated December 29, 1995.
<PAGE> 60
STRONG CASH MANAGEMENT FUNDS
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 3
INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . . . . . . . . . . 5
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Depositary Receipts . . . . . . . . . . . . . . . . . . . . . . . . 5
Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . 6
Foreign Investment Companies . . . . . . . . . . . . . . . . . . . 13
High-Yield (High-Risk) Securities . . . . . . . . . . . . . . . . . 13
Illiquid Securities . . . . . . . . . . . . . . . . . . . . . . . . 14
Lending of Portfolio Securities . . . . . . . . . . . . . . . . . . 15
Loan Interests . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Mortgage- and Asset-Backed Securities . . . . . . . . . . . . . . . 17
Mortgage Dollar Rolls and Reverse Repurchase Agreements . . . . . . 17
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . 18
Rule 2a-7: Maturity, Quality, and Diversification Restrictions . . 18
Sector Concentration . . . . . . . . . . . . . . . . . . . . . . . 20
Short Sales Against the Box . . . . . . . . . . . . . . . . . . . . 20
Taxable Securities . . . . . . . . . . . . . . . . . . . . . . . . 20
Temporary Defensive Position . . . . . . . . . . . . . . . . . . . 20
Variable- or Floating-Rate Securities . . . . . . . . . . . . . . . 20
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
When-Issued Securities . . . . . . . . . . . . . . . . . . . . . . 22
DIRECTORS AND OFFICERS OF THE FUNDS . . . . . . . . . . . . . . . . . . . 22
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . 25
INVESTMENT ADVISOR AND DISTRIBUTOR . . . . . . . . . . . . . . . . . . . 25
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . 28
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT . . . . . . . . . . . . . . 31
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . 34
ADDITIONAL SHAREHOLDER INFORMATION . . . . . . . . . . . . . . . . . . . 34
FUND ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SHAREHOLDER MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 36
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 37
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
PORTFOLIO MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 48
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . 50
LEGAL COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 51
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 December 29, 1995 and, if given or made,
such information or representations may not be relied upon as having been
authorized by the Funds.
This Statement of Additional Information does not constitute an offer to sell
securities.
<PAGE> 61
INVESTMENT RESTRICTIONS
The investment objective of both the Treasury Money and Heritage Money
Funds is to seek current income, a stable share price and daily liquidity. The
investment objective of the Municipal Money Fund is to seek federally
tax-exempt current income, a stable share price and daily liquidity. The
investment objective of the Advantage Fund is to seek current income with a
very low degree of share-price fluctuation. The investment objective of the
Municipal Advantage Fund is to seek federally tax-exempt current income with a
very low degree of share-price fluctuation. The Funds' investment objectives
and policies are described in detail in the Prospectus under the caption
"Investment Objectives and Policies." The following are the Funds' fundamental
investment limitations which cannot be changed without shareholder approval.
Each 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. With respect to the Treasury Money and Heritage
Money Funds only, this limitation shall not limit the Funds' 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.
Municipal Money and Municipal Advantage Funds. In addition to the common
fundamental investment limitations described above, the Municipal Money and
Municipal Advantage Funds may not, under normal market conditions, invest less
than 80% of their respective net assets in municipal securities.
-3-
<PAGE> 62
The following are the Funds' non-fundamental operating policies which may be
changed by the Board of Directors of each Fund without shareholder approval.
Each Fund may not:
1. Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short,
or unless it covers such short sale as required by the current rules
and positions of the Securities and Exchange Commission or its staff,
and provided that transactions in options, futures contracts, options
on futures contracts, or other derivative instruments are not deemed
to constitute selling securities short.
2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions;
and provided that margin deposits in connection with futures
contracts, options on futures contracts, or other derivative
instruments shall not constitute purchasing securities on margin.
3. Invest in illiquid securities if, as a result of such investment, more
than 15% (10% with respect to the Treasury Money, Heritage Money, and
Municipal Money Funds) 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.
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.
-4-
<PAGE> 63
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.
Treasury Money, Heritage Money, and Municipal Money Funds. In addition to the
common non-fundamental restrictions described above, the Treasury Money,
Heritage Money, and Municipal Money Funds may not 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
each 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 a Fund's Board of Directors.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Funds'
investment objectives, policies and techniques that are described in detail in
the Prospectus under the captions "Investment Objectives and Policies" and
"Implementation of Policies and Risks."
BORROWING
(ALL FUNDS)
Each Fund may borrow money from banks, limited by each Fund's
fundamental investment restriction to 33 1/3% of its total assets, and may
engage in mortgage dollar roll transactions (except the Treasury Money Fund)
and reverse repurchase agreements (except the Treasury Money and Heritage Money
Funds) which may be considered a form of borrowing. (See Mortgage Dollar Rolls
and Reverse Repurchase Agreements" below.) In addition, each Fund may borrow
up to an additional 5% of its total assets from banks for temporary or
emergency purposes. A Fund will not purchase securities when bank borrowings
exceed 5% of the Fund's total assets.
DEPOSITARY RECEIPTS
(ADVANTAGE FUND)
As indicated in the Prospectus, the Fund may invest in foreign
securities by purchasing depositary receipts, including American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other securities
convertible into securities or issuers based in foreign countries. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. Generally, ADRs, in registered
form, are denominated in U.S. dollars and are designed for use in the U.S.
securities markets, while EDRs, in bearer form, may be denominated in other
currencies and are designed for use in European securities markets. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying securities. EDRs are European receipts evidencing a similar
arrangement. For purposes of the Fund's investment policies, ADRs and EDRs are
deemed to have the same classification as the underlying securities they
represent. Thus, an ADR or EDR representing ownership of common stock will be
treated as common stock.
ADR facilities may be established as either "unsponsored" or
"sponsored." While ADRs issued under these two types of facilities are in some
respects similar, there are distinctions between them relating to the rights
and obligations of ADR holders and the practices of market participants. A
depositary may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depositary requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of
-5-
<PAGE> 64
such facilities. The depositary usually charges fees upon the deposit and
withdrawal of the deposited securities, the conversion of dividends into U.S.
dollars, the disposition of non-cash distributions, and the performance of
other services. The depositary of an unsponsored facility frequently is under
no obligation to distribute shareholder communications received from the issuer
of the deposited securities or to pass through voting rights to ADR holders in
respect of the deposited securities. Sponsored ADR facilities are created in
generally the same manner as unsponsored facilities, except that the issuer of
the deposited securities enters into a deposit agreement with the depositary.
The deposit agreement sets out the rights and responsibilities of the issuer,
the depositary and the ADR holders. With sponsored facilities, the issuer of
the deposited securities generally will bear some of the costs relating to the
facility (such as dividend payment fees of the depositary), although ADR
holders continue to bear certain other costs (such as deposit and withdrawal
fees). Under the terms of most sponsored arrangements, depositories agree to
distribute notices of shareholder meetings and voting instructions, and to
provide shareholder communications and other information to the ADR holders at
the request of the issuer of the deposited securities.
DERIVATIVE INSTRUMENTS
(ADVANTAGE AND MUNICIPAL ADVANTAGE FUNDS)
GENERAL DESCRIPTION. As discussed in the Prospectus, the Funds may
use a variety of derivative instruments, including options, futures contracts
(sometimes referred to as "futures") and options on futures contracts for any
lawful purpose consistent with each Fund's investment objective, such as
hedging the Fund's portfolio and managing risk but not for speculation.
The use of these instruments is subject to applicable regulations of
the Securities and Exchange Commission (the "SEC"), the several options and
futures exchanges upon which they may be traded, the Commodity Futures Trading
Commission ("CFTC") and various state regulatory authorities. In addition, the
Funds' ability to use these instruments will be limited by tax considerations.
In addition to the products, strategies and risks described below and
in the Prospectus, the Advisor may discover additional derivative instruments
and other hedging techniques. These new opportunities may become available as
the Advisor develops new techniques or as regulatory authorities broaden the
range of permitted transactions. The Advisor may utilize these opportunities
to the extent that they are consistent with the Funds' investment objectives
and permitted by the Funds' investment limitations and applicable regulatory
authorities.
SPECIAL RISKS OF THESE INSTRUMENTS. The use of derivative instruments
involves special considerations and risks as described below. Risks pertaining
to particular instruments are described in the sections that follow.
(1) Successful use of most of these instruments depends upon the
Advisor's ability to predict movements of the overall securities and currency
markets, which requires different skills than predicting changes in the prices
of individual securities. While the Advisor is experienced in the use of these
instruments, there can be no assurance that any particular strategy adopted
will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of an instrument and price movements of investments
being hedged. For example, if the value of an instrument used in a short hedge
(such as writing a call option, buying a put option, or selling a futures
contract) increased by less than the decline in value of the hedged investment,
the hedge would not be fully successful. Such a lack of correlation might
occur due to factors unrelated to the value of the investments being hedged,
such as speculative or other pressures on the markets in which these
instruments are traded. The effectiveness of hedges using instruments on
indices will depend on the degree of correlation between price movements in the
index and price movements in the investments being hedged.
(3) Hedging strategies, if successful, can reduce the risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can
also reduce opportunity for gain by offsetting the positive effect of favorable
price movements in the hedged investments. For example, if a Fund entered into
a short hedge because the Advisor projected a decline in the price of a
security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the instrument. Moreover, if the price of the
instrument declined by more than the increase in the price of the security, the
Fund could suffer a loss.
-6-
<PAGE> 65
(4) As described below, a Fund might be required to maintain assets
as "cover," maintain segregated accounts, or make margin payments when it takes
positions in these instruments involving obligations to third parties (i.e.,
instruments other than purchased options). If a Fund were unable to close out
its positions in such instruments, it might be required to continue to maintain
such assets or accounts or make such payments until the position expired or
matured. The requirements might impair the Fund's ability to sell a portfolio
security or make an investment at a time when it would otherwise be favorable
to do so, or require that the Fund sell a portfolio security at a
disadvantageous time. A Fund's ability to close out a position in an
instrument prior to expiration or maturity depends on the existence of a liquid
secondary market or, in the absence of such a market, the ability and
willingness of the other party to the transaction ("counter party") to enter
into a transaction closing out the position. Therefore, there is no assurance
that any hedging position can be closed out at a time and price that is
favorable to a Fund.
For a discussion of the federal income tax treatment of the Funds'
derivative instruments, see "Taxes -- Derivative Instruments" below.
GENERAL LIMITATIONS ON CERTAIN DERIVATIVE TRANSACTIONS. The Funds
have each filed a notice of eligibility for exclusion from the definition of
the term "commodity pool operator" with the CFTC and the National Futures
Association, which regulate trading in the futures markets. Pursuant to Rule
4.5 of the regulations under the Commodity Exchange Act (the "CEA"), the notice
of eligibility for each Fund includes representations that the Fund will use
futures contracts and related options solely for bona fide hedging purposes
within the meaning of CFTC regulations, provided that a Fund may hold other
positions in futures contracts and related options that do not qualify as a
bona fide hedging position if the aggregate initial margin deposits and
premiums required to establish these positions, less the amount by which any
such options positions are "in the money," do not exceed 5% of the Fund's net
assets. Adoption of these guidelines does not limit the percentage of a Fund's
assets at risk to 5%.
In addition, (i) the aggregate value of securities underlying call
options on securities written by a Fund or obligations underlying put options
on securities written by a 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 a Fund and which are being held will
not exceed 20% of the Fund's net assets; and (iii) a 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 a Fund's total assets.
The foregoing limitations are not fundamental policies of the Funds
and may be changed by each Fund's Board of Directors without shareholder
approval as regulatory agencies permit.
Transactions using options (other than purchased options) expose the
Funds to counter-party risk. To the extent required by SEC guidelines, a Fund
will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities, other options, or futures or (2)
cash and liquid high grade debt securities with a value sufficient at all times
to cover its potential obligations to the extent not covered as provided in (1)
above. Each Fund will also set aside cash and/or appropriate liquid assets in
a segregated custodial account if required to do so by the SEC and CFTC
regulations. Assets used as cover or held in a segregated account cannot be
sold while the position in the corresponding option or futures contract is
open, unless they are replaced with similar assets. As a result, the
commitment of a large portion of a Fund's assets to segregated accounts as a
cover could impede portfolio management or a Fund's ability to meet redemption
requests or other current obligations.
In some cases, a Fund may be required to maintain or limit exposure to
a specified percentage of its assets to a particular asset class or foreign
country. In such cases, when a Fund uses a derivative instrument to increase
or decrease exposure to an asset class or foreign country and is required by
applicable SEC guidelines to set aside liquid assets in a segregated account to
secure its obligations under the derivative instruments, the Advisor will
measure compliance with the applicable percentage by reference to the nature of
the economic exposure created through the use of the derivative instrument and
not by reference to the nature of the exposure arising from the liquid assets
set aside in the segregated account (unless another interpretation is specified
by applicable regulatory requirements).
OPTIONS. Each Fund may also purchase or write put and call options on
securities and enter into closing transactions with respect to such options to
terminate an existing position. The purchase of call options serves as a long
hedge, and the purchase of put options serves as a short hedge. Writing put or
call options can enable a Fund to enhance income by reason of the
-7-
<PAGE> 66
premiums paid by the purchaser of such options. Writing call options serves as
a limited short hedge because declines in the value of the hedged investment
would be offset to the extent of the premium received for writing the option.
However, if the security appreciates to a price higher than the exercise price
of the call option, it can be expected that the option will be exercised and
the Fund will be obligated to sell the security at less than its market value
or will be obligated to purchase the security at a price greater than that at
which the security must be sold under the option. All or a portion of any
assets used as cover for over-the-counter ("OTC") options written by a Fund
would be considered illiquid to the extent described under "Common Investment
Policies and Techniques--Illiquid Securities." Writing put options serves as a
limited long hedge because increases in the value of the hedged investment
would be offset to the extent of the premium received for writing the option.
However, if the security depreciates to a price lower than the exercise price
of the put option, it can be expected that the put option will be exercised and
the Fund will be obligated to purchase the security at more than its market
value.
The value of an option position will reflect, among other things, the
historical price volatility of the underlying investment, the current market
value of the underlying investment, the time remaining until expiration, the
relationship of the exercise price to the market price of the underlying
investment, and general market conditions. Options that expire unexercised
have no value.
A Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, a Fund may
terminate its obligation under a call or put option that it had written by
purchasing an identical call or put option; this is known as a closing purchase
transaction. Conversely, a Fund may terminate a position in a put or call
option it had purchased by writing an identical put or call option; this is
known as a closing sale transaction. Closing transactions permit the Funds to
realize the profit or limit the loss on an option position prior to its
exercise or expiration.
The Funds may purchase or write both exchange-traded and OTC options.
Exchange-traded options are issued by a clearing organization affiliated with
the exchange on which the option is listed that, in effect, guarantees
completion of every exchange-traded option transaction. OTC options are
contracts between a Fund and the other party to the transaction ("counter
party") (usually a securities dealer or a bank) with no clearing organization
guarantee. Thus, when a Fund purchases or writes an OTC option, it relies on
the counter party to make or take delivery of the underlying investment upon
exercise of the option. Failure by the counter party to do so would result in
the loss of any premium paid by the Fund as well as the loss of any expected
benefit of the transaction.
The Funds' ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. The Funds
intend to purchase or write only those exchange-traded options for which there
appears to be a liquid secondary market. However, there can be no assurance
that such a market will exist at any particular time. Closing transactions can
be made for OTC options only by negotiating directly with the counter party, or
by a transaction in the secondary market if any such market exists. Although
the Funds will enter into OTC options only with counter parties that are
expected to be capable of entering into closing transactions with the Funds,
there is no assurance that the Funds will in fact be able to close out an OTC
option at a favorable price prior to expiration. In the event of insolvency of
the counter party, a Fund might be unable to close out an OTC option position
at any time prior to its expiration.
If a Fund were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call
option written by a Fund could cause material losses because the Fund would be
unable to sell the investment used as a cover for the written option until the
option expires or is exercised.
The writing and purchasing of options is a highly specialized activity
that involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. Imperfect correlation between
the options and securities markets may detract the effectiveness of attempted
hedging.
SPREAD TRANSACTIONS. Each Fund may purchase from securities dealers
covered spread options. Such covered spread options are not presently
exchange-listed or exchange-traded. The purchase of a spread option gives the
Fund the right to put, or sell, a security that it owns at a fixed dollar
spread or fixed yield spread in relationship to another security that the Fund
does not own, but which is used as a benchmark. The risk to the Fund in
purchasing covered spread options is the cost of the premium paid for the
spread option and any transaction costs. In addition, there is no assurance
that closing transactions will be available.
-8-
<PAGE> 67
The purchase of spread options will be used to protect the Fund against adverse
changes in prevailing credit quality spreads, i.e., the yield spread between
high quality and lower quality securities. Such protection is only provided
during the life of the spread option.
FUTURES CONTRACTS. Each Fund may enter into futures contracts,
including interest rate and index futures. Each Fund may also purchase put and
call options, and write covered put and call options, on futures in which it is
allowed to invest. The purchase of futures or call options thereon can serve
as a long hedge, and the sale of futures or the purchase of put options thereon
can serve as a short hedge. Writing covered call options on futures contracts
can serve as a limited short hedge, and writing covered put options on futures
contracts can serve as a limited long hedge, using a strategy similar to that
used for writing covered options in securities. The Funds' hedging may include
purchases of futures as an offset against the effect of expected increases in
securities prices and sales of futures as an offset against the effect of
expected declines in securities prices. The Funds' futures transactions may be
entered into for any lawful purpose consistent with each Fund's investment
objective, such as hedging purposes, risk management, or to enhance returns,
but not for speculation. The Funds may also write put options on interest rate
futures contracts while at the same time purchasing call options on the same
futures contracts in order to create synthetically a long futures contract
position. Such options would have the same strike prices and expiration dates.
The Funds will engage in this strategy only when the Advisor believes it is
more advantageous to the Funds than is purchasing the futures contract.
To the extent required by regulatory authorities, the Funds only enter
into futures contracts that are traded on national futures exchanges and are
standardized as to maturity date and underlying financial instrument. Futures
exchanges and trading are regulated under the CEA by the CFTC. Although
techniques other than sales and purchases of futures contracts could be used to
reduce a Fund's exposure to interest rate fluctuations, a Fund may be able to
hedge its exposure more effectively and perhaps at a lower cost through using
futures contracts.
An interest rate futures contract provides for the future sale by one
party and purchase by another party of a specified amount of a specific
financial instrument (e.g., debt security) for a specified price at a
designated date, time, and place. An index futures contract is an agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the close of the
last trading day of the contract and the price at which the index futures
contract was originally written. Transaction costs are incurred when a futures
contract is bought or sold and margin deposits must be maintained. A futures
contract may be satisfied by delivery or purchase, as the case may be, of the
instrument or by payment of the change in the cash value of the index. More
commonly, futures contracts are closed out prior to delivery by entering into
an offsetting transaction in a matching futures contract. Although the value
of an index might be a function of the value of certain specified securities,
no physical delivery of those securities is made. If the offsetting purchase
price is less than the original sale price, a Fund realizes a gain; if it is
more, a Fund realizes a loss. Conversely, if the offsetting sale price is more
than the original purchase price, a Fund realizes a gain; if it is less, a Fund
realizes a loss. The transaction costs must also be included in these
calculations. There can be no assurance, however, that a Fund will be able to
enter into an offsetting transaction with respect to a particular futures
contract at a particular time. If a Fund is not able to enter into an
offsetting transaction, the Fund will continue to be required to maintain the
margin deposits on the futures contract.
No price is paid by a Fund upon entering into a futures contract.
Instead, at the inception of a futures contract, a Fund is required to deposit
in a segregated account with its custodian, in the name of the futures broker
through whom the transaction was effected, "initial margin" consisting of cash,
U.S. government securities or other liquid, high grade debt securities, in an
amount generally equal to 10% or less of the contract value. High grade
securities include securities rated "A" or better by an NRSRO. Margin must
also be deposited when writing a call or put option on a futures contract, in
accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Fund at the termination of the transaction if
all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, a Fund may be required by an exchange to
increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the
futures broker daily as the value of the futures position varies, a process
known as "marking to market." Variation margin does not involve borrowing, but
rather represents a daily settlement of a Fund's obligations to or from a
futures broker. When a Fund purchases an option on a future, the premium paid
plus transaction costs is all that is at risk. In contrast, when a Fund
purchases or sells a futures contract or writes a call or put
-9-
<PAGE> 68
option thereon, it is subject to daily variation margin calls that could be
substantial in the event of adverse price movements. If a Fund has
insufficient cash to meet daily variation margin requirements, it might need to
sell securities at a time when such sales are disadvantageous. Purchasers and
sellers of futures positions and options on futures can enter into offsetting
closing transactions by selling or purchasing, respectively, an instrument
identical to the instrument held or written. Positions in futures and options
on futures may be closed only on an exchange or board of trade that provides a
secondary market. The Funds intend to enter into futures transactions only on
exchanges or boards of trade where there appears to be a liquid secondary
market. However, there can be no assurance that such a market will exist for a
particular contract at a particular time.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a future or option on a futures contract
can vary from the previous day's settlement price; once that limit is reached,
no trades may be made that day at a price beyond the limit. Daily price limits
do not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If a Fund were unable to liquidate a futures or option on a futures
contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In
addition, except in the case of purchased options, the Fund would continue to
be required to make daily variation margin payments and might be required to
maintain the position being hedged by the future or option or to maintain cash
or securities in a segregated account.
Certain characteristics of the futures market might increase the risk
that movements in the prices of futures contracts or options on futures
contracts might not correlate perfectly with movements in the prices of the
investments being hedged. For example, all participants in the futures and
options on futures contracts markets are subject to daily variation margin
calls and might be compelled to liquidate futures or options on futures
contracts positions whose prices are moving unfavorably to avoid being subject
to further calls. These liquidations could increase price volatility of the
instruments and distort the normal price relationship between the futures or
options and the investments being hedged. Also, because initial margin deposit
requirements in the futures markets are less onerous than margin requirements
in the securities markets, there might be increased participation by
speculators in the future markets. This participation also might cause
temporary price distortions. In addition, activities of large traders in both
the futures and securities markets involving arbitrage, "program trading" and
other investment strategies might result in temporary price distortions.
FOREIGN CURRENCY-RELATED DERIVATIVE STRATEGIES - SPECIAL
CONSIDERATIONS. The Advantage Fund may purchase and sell foreign currency on a
spot basis, and may use currency-related derivatives instruments such as
options on foreign currencies, futures on foreign currencies, options on
futures on foreign currencies and forward currency contracts (i.e., an
obligation to purchase or sell a specific currency at a specified future date,
which may be any fixed number of days from the contract date agreed upon by the
parties, at a price set at the time the contract is entered into). The Fund
may use these instruments for hedging or any other lawful purpose consistent
with its investment objective, including transaction hedging, anticipatory
hedging, cross hedging, proxy hedging, and position hedging. The Fund's use of
currency-related derivative instruments will be directly related to its current
or anticipated portfolio securities, and the Fund may engage in transactions in
currency-related derivative instruments as a means to protect against some or
all of the effects of adverse changes in foreign currency exchange rates on its
portfolio investments. In general, if the currency in which a portfolio
investment is denominated appreciates against the U.S. dollar, the dollar value
of the security will increase. Conversely, a decline in the exchange rate of
the currency would adversely affect the value of the portfolio investment
expressed in U.S. dollars.
For example, the Fund might use currency-related derivative
instruments to "lock in" a U.S. dollar price for a portfolio investment,
thereby enabling the Fund to protect itself against a possible loss resulting
from an adverse change in the relationship between the U.S. dollar and the
subject foreign currency during the period between the date the security is
purchased or sold and the date on which payment is made or received. The Fund
also might use currency-related derivative instruments when the Advisor
believes that one currency may experience a substantial movement against
another currency, including the U.S. dollar, and it may use currency-related
derivative instruments to sell or buy the amount of the former foreign
currency, approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. Alternatively, where
appropriate, the Fund may use currency-related derivative instruments to hedge
all or part of its foreign currency exposure through the use of a basket of
currencies or a proxy currency where such currency or currencies act as an
effective proxy for other currencies. The use of this basket hedging technique
may be more efficient and economical than using separate currency-related
derivative
-10-
<PAGE> 69
instruments for each currency exposure held by the Fund. Furthermore,
currency-related derivative instruments may be used for short hedges - for
example, the Fund may sell a forward currency contract to lock in the U.S.
dollar equivalent of the proceeds from the anticipated sale of a security
denominated in a foreign currency.
In addition, the Fund may use a currency-related derivative instrument
to shift exposure to foreign currency fluctuations from one foreign country to
another foreign country where the Advisor believes that the foreign currency
exposure purchased will appreciate relative to the U.S. dollar and thus better
protect the Fund against the expected decline in the foreign currency exposure
sold. For example, if the Fund owns securities denominated in a foreign
currency and the Advisor believes that currency will decline, it might enter
into a forward contract to sell an appropriate amount of the first foreign
currency, with payment to be made in a second foreign currency that the Advisor
believes would better protect the Fund against the decline in the first
security than would a U.S. dollar exposure. Hedging transactions that use two
foreign currencies are sometimes referred to as "cross hedges." The effective
use of currency-related derivative instruments by the Fund in a cross hedge is
dependent upon a correlation between price movements of the two currency
instruments and the underlying security involved, and the use of two currencies
magnifies the risk that movements in the price of one instrument may not
correlate or may correlate unfavorably with the foreign currency being hedged.
Such a lack of correlation might occur due to factors unrelated to the value of
the currency instruments used or investments being hedged, such as speculative
or other pressures on the markets in which these instruments are traded.
The Fund also might seek to hedge against changes in the value of a
particular currency when no hedging instruments on that currency are available
or such hedging instruments are more expensive than certain other hedging
instruments. In such cases, the Fund may hedge against price movements in that
currency by entering into transactions using currency-related derivative
instruments on another foreign currency or a basket of currencies, the values
of which the Advisor believes will have a high degree of positive correlation
to the value of the currency being hedged. The risk that movements in the
price of the hedging instrument will not correlate perfectly with movements in
the price of the currency being hedged is magnified when this strategy is used.
The use of currency-related derivative instruments by the Fund
involves a number of risks. The value of currency-related derivative
instruments depends on the value of the underlying currency relative to the
U.S. dollar. Because foreign currency transactions occurring in the interbank
market might involve substantially larger amounts than those involved in the
use of such derivative instruments, the Fund could be disadvantaged by having
to deal in the odd lot market (generally consisting of transactions of less
than $1 million) for the underlying foreign currencies at prices that are less
favorable than for round lots (generally consisting of transactions of greater
than $1 million).
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information generally is representative of very large transactions in
the interbank market and thus might not reflect odd-lot transactions where
rates might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying markets
that cannot be reflected in the markets for the derivative instruments until
they re-open.
Settlement of transactions in currency-related derivative instruments
might be required to take place within the country issuing the underlying
currency. Thus, the Fund might be required to accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign regulations
regarding the maintenance of foreign banking arrangements by U.S. residents and
might be required to pay any fees, taxes and charges associated with such
delivery assessed in the issuing country.
When the Fund engages in a transaction in a currency-related
derivative instrument, it relies on the counterparty to make or take delivery
of the underlying currency at the maturity of the contract or otherwise
complete the contract. In other words, the Fund will be subject to the risk
that a loss may be sustained by the Fund as a result of the failure of the
counterparty to comply with the terms of the transaction. The counterparty
risk for exchange-traded instruments is generally less than for
privately-negotiated or OTC currency instruments, since generally a clearing
agency, which is the issuer or counterparty to each instrument, provides a
guarantee of performance. For privately-negotiated instruments, there is no
similar clearing agency guarantee. In all transactions, the Fund will bear the
risk that the counterparty will default, and this could result in a loss of the
expected benefit of the transaction and possibly other losses to the Fund. The
Fund will enter into transactions in currency-related derivative instruments
only with counterparties that the Advisor reasonably believes are capable of
performing under the contract.
-11-
<PAGE> 70
Purchasers and sellers of currency-related derivative instruments may
enter into offsetting closing transactions by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can
be no assurance that the Fund will in fact be able to close out a forward
currency contract (or any other currency-related derivative instrument) at a
time and price favorable to the Fund. In addition, in the event of insolvency
of the counterparty, the Fund might be unable to close out a forward currency
contract at any time prior to maturity. In the case of an exchange-traded
instrument, the Fund will be able to close the position out only on an exchange
which provides a market for the instruments. The ability to establish and
close out positions on an exchange is subject to the maintenance of a liquid
market, and there can be no assurance that a liquid market will exist for any
instrument at any specific time. In the case of a privately-negotiated
instrument, the Fund will be able to realize the value of the instrument only
by entering into a closing transaction with the issuer or finding a third party
buyer for the instrument. While the Fund will enter into privately-negotiated
transactions only with entities who are expected to be capable of entering into
a closing transaction, there can be no assurance that the Fund will in fact be
able to enter into such closing transactions.
The precise matching of currency-related derivative instrument amounts
and the value of the portfolio securities involved generally will not be
possible because the value of such securities, measured in the foreign
currency, will change after the currency-related derivative instrument position
has been established. Thus, the Fund might need to purchase or sell foreign
currencies in the spot (cash) market. The projection of short-term currency
market movements is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain.
Permissible foreign currency options will include options traded
primarily in the OTC market. Although options on foreign currencies are traded
primarily in the OTC market, the Fund will normally purchase or sell OTC
options on foreign currency only when the Advisor reasonably believes a liquid
secondary market will exist for a particular option at any specific time.
There will be a cost to the Fund of engaging in transactions in
currency-related derivative instruments that will vary with factors such as the
contract or currency involved, the length of the contract period and the market
conditions then prevailing. The Fund may have to pay a fee or commission or,
in cases where the instruments are entered into on a principal basis, foreign
exchange dealers or other counterparties will realize a profit based on the
difference ("spread") between the prices at which they are buying and selling
various currencies. Thus, for example, a dealer may offer to sell a foreign
currency to the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer.
When required by the SEC guidelines, the Fund will set aside
permissible liquid assets in segregated accounts or otherwise cover their
respective potential obligations under currency-related derivatives
instruments. To the extent the Fund's assets are so set aside, they cannot be
sold while the corresponding currency position is open, unless they are
replaced with similar assets. As a result, if a large portion of the Fund's
assets are so set aside, this could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
The Advisor's decision to engage in a transaction in a particular
currency-related derivative instrument will reflect the Advisor's judgment that
the transaction will provide value to the Fund and its shareholders and is
consistent with the Fund's objectives and policies. In making such a judgment,
the Advisor will analyze the benefits and risks of the transaction and weigh
them in the context of the Fund's entire portfolio and objectives. The
effectiveness of any transaction in a currency-related derivative instrument is
dependent on a variety of factors, including the Advisor's skill in analyzing
and predicting currency values and upon a correlation between price movements
of the currency instrument and the underlying security. There might be
imperfect correlation, or even no correlation, between price movements of an
instrument and price movements of investments being hedged. Such a lack of
correlation might occur due to factors unrelated to the value of the
investments being hedged, such as speculative or other pressures on the markets
in which these instruments are traded. In addition, the Fund's use of
currency-related derivative instruments is always subject to the risk that the
currency in question could be devalued by the foreign government. In such a
case, any long currency positions would decline in value and could adversely
affect any hedging position maintained by the Fund.
The Advantage Fund's dealing in currency-related derivative
instruments will generally be limited to the transactions described above.
However, the Fund reserves the right to use currency-related derivatives
instruments for different purposes and
-12-
<PAGE> 71
under different circumstances. Of course, the Fund is not required to use
currency-related derivatives instruments and will not do so unless deemed
appropriate by the Advisor. It also should be realized that use of these
instruments does not eliminate, or protect against, price movements in the
Fund's securities that are attributable to other (i.e., non-currency related)
causes. Moreover, while the use of currency-related derivatives instruments
may reduce the risk of loss due to a decline in the value of a hedged currency,
at the same time the use of these instruments tends to limit any potential gain
which may result from an increase in the value of that currency.
FOREIGN INVESTMENT COMPANIES
(ADVANTAGE FUND)
Some of the countries in which the Fund invests may not permit direct
investment by outside investors. Investments in such countries may only be
permitted through foreign government-approved or -authorized investment
vehicles, which may include other investment companies. Investing through such
vehicles may involve frequent or layered fees or expenses and may also be
subject to limitation under the 1940 Act. Under the 1940 Act, a Fund may
invest up to 10% of its assets in shares of investment companies and up to 5%
of its assets in any one investment company as long as the investment does not
represent more than 3% of the voting stock of the acquired investment company.
HIGH-YIELD (HIGH-RISK) SECURITIES
(ADVANTAGE AND MUNICIPAL ADVANTAGE FUNDS)
IN GENERAL. The Advantage Fund may invest up to 25% of its assets and
the Municipal Advantage Fund may invest up to 10% of its net assets in
non-investment grade debt obligations rated in the fifth highest rating
category (e.g., BB by S&P) or comparable unrated securities. Securities rated
BB are considered the least speculative of non-investment grade obligations.
Lower-quality securities, while generally offering higher yields than
investment grade securities with similar maturities, involve greater risks,
including the possibility of default or bankruptcy. They are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. The special risk considerations in connection with
investments in these securities are discussed below. Refer to the Appendix of
this Statement of Additional Information for a discussion of securities
ratings.
EFFECT OF INTEREST RATES AND ECONOMIC CHANGES. The lower-quality and
comparable unrated securities market is relatively new and its growth has
paralleled a long economic expansion. As a result, it is not clear how this
market may withstand a prolonged recession or economic downturn. Such an
economic downturn could severely disrupt the market for and adversely affect
the value of such securities.
All interest-bearing securities typically experience appreciation when
interest rates decline and depreciation when interest rates rise. The market
values of lower-quality and comparable unrated securities tend to reflect
individual corporate developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Lower-quality and comparable unrated securities also tend to be
more sensitive to economic conditions than are higher-rated securities. As a
result, they generally involve more credit risks than securities in the
higher-rated categories. During an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of lower-quality and comparable
unrated securities may experience financial stress and may not have sufficient
revenues to meet their payment obligations. The issuer's ability to service
its debt obligations may also be adversely affected by specific corporate
developments, the issuer's inability to meet specific projected business
forecasts or the unavailability of additional financing. The risk of loss due
to default by an issuer of these securities is significantly greater than
issuers of higher-rated securities because such securities are generally
unsecured and are often subordinated to other creditors. Further, if the
issuer of a lower-quality or comparable unrated security defaulted, a Fund
might incur additional expenses to seek recovery. Periods of economic
uncertainty and changes would also generally result in increased volatility in
the market prices of these securities and thus in a Fund's net asset value.
As previously stated, the value of a lower-quality or comparable
unrated security will decrease in a rising interest rate market, and
accordingly so will a Fund's net asset value. If a Fund experiences unexpected
net redemptions in such a market, it may be forced to liquidate a portion of
its portfolio securities without regard to their investment merits. Due to the
limited liquidity of lower-quality and comparable unrated securities (discussed
below), a Fund may be forced to liquidate these securities at a
-13-
<PAGE> 72
substantial discount. Any such liquidation would reduce the Fund's asset base
over which expenses could be allocated and could result in a reduced rate of
return for the Fund.
PAYMENT EXPECTATIONS. Lower-quality and comparable unrated securities
typically contain redemption, call or prepayment provisions which permit the
issuer of such securities containing such provisions to, at its discretion,
redeem the securities. During periods of falling interest rates, issuers of
these securities are likely to redeem or prepay the securities and refinance
them with debt securities with a lower interest rate. To the extent an issuer
is able to refinance the securities, or otherwise redeem them, a Fund may have
to replace the securities with a lower yielding security, which would result in
a lower return for the Funds.
CREDIT RATINGS. Credit ratings issued by credit-rating agencies
evaluate the safety of principal and interest payments of rated securities.
They do not, however, evaluate the market value risk of lower-quality and
comparable unrated securities and, therefore, may not fully reflect the true
risks of an investment. In addition, credit rating agencies may or may not
make timely changes in a rating to reflect changes in the economy or in the
condition of the issuer that affect the market value of the security.
Consequently, credit ratings are used only as a preliminary indicator of
investment quality. Investments in lower-quality and comparable unrated
securities will be more dependent on the Advisor's credit analysis than would
be the case with investments in investment-grade debt securities. The Advisor
employs its own credit research and analysis, which includes a study of
existing debt, capital structure, ability to service debt and to pay dividends,
the issuer's sensitivity to economic conditions, its operating history and the
current trend of earnings. The Advisor continually monitors the investments in
each Fund's portfolio and carefully evaluates whether to dispose of or to
retain lower-quality and comparable unrated securities whose credit ratings or
credit quality may have changed.
LIQUIDITY AND VALUATION. A Fund may have difficulty disposing of
certain lower-quality and comparable unrated securities because there may be a
thin trading market for such securities. Because not all dealers maintain
markets in all lower-quality and comparable unrated securities, there is no
established retail secondary market for many of these securities. The Funds
anticipate that such securities could be sold only to a limited number of
dealers or institutional investors. To the extent a secondary trading market
does exist, it is generally not as liquid as the secondary market for
higher-rated securities. The lack of a liquid secondary market may have an
adverse impact on the market price of the security. As a result, a Fund's
asset value and ability to dispose of particular securities, when necessary to
meet the Fund's liquidity needs or in response to a specific economic event,
may be impacted. The lack of a liquid secondary market for certain securities
may also make it more difficult for a Fund to obtain accurate market quotations
for purposes of valuing the Fund's portfolio. Market quotations are generally
available on many lower-quality and comparable unrated issues only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales. During periods of thin trading, the spread
between bid and asked prices is likely to increase significantly. In addition,
adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of lower-quality and comparable
unrated securities, especially in a thinly traded market.
RECENT AND PROPOSED LEGISLATION. Recent legislation has been adopted,
and from time to time proposals have been discussed, regarding new legislation
designed to limit the use of certain lower-quality and comparable unrated
securities by certain issuers. An example of legislation is a recent law which
requires federally insured savings and loan associations to divest their
investments in these securities over time. It is not currently possible to
determine the impact of the recent legislation or the proposed legislation on
the lower-quality and comparable unrated securities market. However, it is
anticipated that if additional legislation is enacted or proposed, it could
have a material affect on the value of these securities and the existence of a
secondary trading market for the securities.
ILLIQUID SECURITIES
(ALL FUNDS)
The Funds may invest in illiquid securities (i.e., securities that are
not readily marketable). However, a Fund will not acquire illiquid securities
if, as a result, they would comprise more than 15%, or with respect to the
Treasury Money, Heritage Money and Municipal Money Funds, 10%, of the value of
the Fund's net assets (or such other amounts as may be permitted under the 1940
Act). The Board of Directors of each Fund, or its delegate, has the ultimate
authority to determine, to the extent permissible under the federal securities
laws, which securities are illiquid for purposes of this limitation. Certain
securities exempt from registration or issued in transactions exempt from
registration under the Securities Act of 1933, as amended (the "Securities
-14-
<PAGE> 73
Act"), including securities that may be resold pursuant to Rule 144A under the
Securities Act, may be considered liquid. The Board of Directors of each Fund
has delegated to Strong Capital Management, Inc. (the "Advisor") the day-to-day
determination of the liquidity of a security, although it has retained
oversight and ultimate responsibility for such determinations. Although no
definitive liquidity criteria are used, the Board of Directors has directed the
Advisor to look to such factors as (i) the 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, a 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 Board of Directors of each Fund.
If through the appreciation of restricted securities or the depreciation of
unrestricted securities, a Fund should be in a position where more than 15%, or
with respect to the Treasury Money, Heritage Money and Municipal Money Funds,
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.
A Fund may sell over-the-counter ("OTC") options and, in connection
therewith, segregate assets or cover its obligations with respect to OTC
options written by the Fund. The assets used as cover for OTC options written
by a Fund will be considered illiquid unless the OTC options are sold to
qualified dealers who agree that the Fund may repurchase any OTC option it
writes at a maximum price to be calculated by a formula set forth in the option
agreement. The cover for an OTC option written subject to this procedure would
be considered illiquid only to the extent that the maximum repurchase price
under the formula exceeds the intrinsic value of the option.
In addition, the Municipal Money and Municipal Advantage Funds may
acquire standby commitments to facilitate portfolio liquidity. Standby
commitments are puts or rights that entitle the holders thereof to achieve
same-day settlement and to receive an exercise price equal to the amortized
cost of the underlying security plus accrued interest, if any, at the time of
exercise. A standby commitment is generally not transferable by a Fund,
although the underlying security is separately transferable. The Municipal
Money and Municipal Advantage Funds may pay for standby commitments either
separately, in cash, or as part of the higher acquisition cost of securities
subject to such commitments (thus reducing the yield on such securities).
Standby commitments are subject to certain risks, including (i) the
creditworthiness of the issuers of standby commitments to pay for the
securities at the time the commitments are exercised, (ii) the possible
restrictions on transfer of the standby commitments, and (iii) the term of the
standby commitment, which may be shorter than the maturity of the underlying
security.
Notwithstanding the above, the Advisor intends, as a matter of
internal policy, to limit each Fund's investments in illiquid securities to 10%
of its net assets.
LENDING OF PORTFOLIO SECURITIES
(ALL FUNDS)
Each 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 Funds do 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 Funds will retain
authority to terminate any loans at any time. The Funds 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 Funds
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 Funds will retain record ownership of loaned securities
to exercise beneficial rights, such as voting and
-15-
<PAGE> 74
subscription rights and rights to dividends, interest or other distributions,
when retaining such rights is considered to be in a Fund's interest.
LOAN INTERESTS
(ADVANTAGE FUND)
The Fund may acquire loan interests ("Loan Interests"). A Loan
Interest is typically originated, negotiated, and structured by a U.S. or
foreign commercial bank, insurance company finance company, or other financial
institution (the "Agent") for a lending syndicate of financial institutions.
The Agent typically administers and enforces the loan on behalf of the other
lenders in the syndicate. In addition, an institution, typically but not
always the Agent (the "Collateral Bank"), holds collateral (if any) on behalf
of the lenders. These Loan Interests may take the form of participation
interests in, assignments of or notations of a loan during its secondary
distribution, or direct interests during a primary distribution. Such Loan
Interests may be acquired from U.S. or foreign banks, insurance companies,
finance companies, or other financial institutions who have made loans or are
members of a lending syndicate or from other holders of Loan Interests. The
Fund may also acquire Loan Interests under which the Fund derives its rights
directly from the borrower. Such Loan Interests are separately enforceable by
the Fund against the borrower and all payments of interest and principal are
typically made directly to the Fund from the borrower. In the event that the
Fund and other lenders become entitled to take possession of shared collateral,
it is anticipated that such collateral would be held in the custody of a
Collateral Bank for their mutual benefit. The Fund may not act as an Agent, a
Collateral Bank, a guarantor or sole negotiator or structurer with respect to a
loan.
The Advisor will analyze and evaluate the financial condition of the
borrower in connection with the acquisition of any Loan Interest. The Advisor
also analyzes and evaluates the financial condition of the Agent and, in the
case of Loan Interests in which the Fund does not have privity with the
borrower, those institutions from or through whom the Fund derives its rights
in a loan (the "Intermediate Participants").
In a typical loan the Agent administers the terms of the loan
agreement. In such cases, the Agent is normally responsible for the collection
of principal and interest payments from the borrower and the apportionment of
these payments to the credit of all institutions which are parties to the loan
agreement. The Fund will generally rely upon the Agent or an Intermediate
Participant to receive and forward to the Fund its portion of the principal and
interest payments on the loan. Furthermore, unless under the terms of a
participation agreement the Fund has direct recourse against the borrower, the
Fund will rely on the Agent and the other members of the lending syndicate to
use appropriate credit remedies against the borrower. The Agent is typically
responsible for monitoring compliance with covenants contained in the loan
agreement based upon reports prepared by the borrower. The seller of the Loan
Interest usually does, but is often not obligated to, notify holders of Loan
Interests of any failures of compliance. The Agent may monitor the value of
the collateral and, if the value of the collateral declines, may accelerate the
loan, may give the borrower an opportunity to provide additional collateral or
may seek other protection for the benefit of the participants in the loan. The
Agent is compensated by the borrower for providing these services under a loan
agreement, and such compensation may include special fees paid upon structuring
and funding the loan and other fees paid on a continuing basis. With respect
to Loan Interests for which the Agent does not perform such administrative and
enforcement functions, the Fund will perform such tasks on its own behalf,
although a Collateral Bank will typically hold any collateral on behalf of the
Fund and the other lenders pursuant to the applicable loan agreement.
A financial institution's appointment as Agent may usually be
terminated in the event that it fails to observe the requisite standard of care
or becomes insolvent, enters Federal Deposit Insurance Corporation ("FDIC")
receivership, or, if not FDIC insured, enters into bankruptcy proceedings. A
successor Agent would generally be appointed to replace the terminated Agent,
and assets held by the Agent under the loan agreement should remain available
to holders of Loan Interests. However, if assets held by the Agent for the
benefit of the Fund were determined to be subject to the claims of the Agent's
general creditors, the Fund might incur certain costs and delays in realizing
payment on a loan interest, or suffer a loss of principal and/or interest. In
situations involving Intermediate Participants similar risks may arise.
Purchasers of Loan Interests depend primarily upon the
creditworthiness of the borrower for payment of principal and interest. If the
Fund does not receive scheduled interest or principal payments on such
indebtedness, the Fund's share price and yield could be adversely affected.
Loans that are fully secured offer the Fund more protections than an unsecured
loan in the event of non-payment of scheduled interest or principal. However,
there is no assurance that the liquidation of collateral from a secured loan
would satisfy the borrower's obligation, or that the collateral can be
liquidated. Indebtedness of borrowers whose
-16-
<PAGE> 75
creditworthiness is poor involves substantially greater risks, and may be
highly speculative. Borrowers that are in bankruptcy or restructuring may
never pay off their indebtedness, or may pay only a small fraction of the
amount owed. Direct indebtedness of developing countries will also involve a
risk that the governmental entities responsible for the repayment of the debt
may be unable, or unwilling, to pay interest and repay principal when due.
MORTGAGE- AND ASSET-BACKED SECURITIES
(HERITAGE MONEY AND ADVANTAGE FUNDS)
The Advantage Fund may invest in mortgage-backed securities.
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and collateralized
mortgage obligations. Such securities may be issued or guaranteed by U.S.
government agencies or instrumentalities, such as the Government National
Mortgage Association and the Federal National Mortgage Association, or by
private issuers, generally originators and investors in mortgage loans,
including savings associations, mortgage bankers, commercial banks, investment
bankers, and special purpose entities (collectively, "private lenders").
Mortgage-backed securities issued by private lenders may be supported by pools
of mortgage loans or other mortgage-backed securities that are guaranteed,
directly or indirectly, by the U.S. government or one of its agencies or
instrumentalities, or they may be issued without any governmental guarantee of
the underlying mortgage assets but with some form of non-governmental credit
enhancement, including letters of credit, reserve funds, overcollateralization,
and guarantees by third parties.
The Heritage Money and Advantage Funds may each invest in asset-backed
securities. Asset-backed securities have structural characteristics similar to
mortgage-backed securities. However, the underlying assets are not first lien
mortgage loans or interests therein, but include 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 securities may be supported by non-governmental
credit enhancements similar to those utilized in connection with
mortgage-backed securities.
The yield characteristics of mortgage- and asset-backed securities
differ from those of traditional debt securities. Among the principal
differences are that interest and principal payments are made more frequently
on mortgage-and asset-backed securities, usually monthly, and that principal
may be prepaid at any time because the underlying mortgage loans or other
assets generally may be prepaid at any time. As a result, if a Fund purchases
these securities at a premium, a prepayment rate that is faster than expected
will reduce yield to maturity, while a prepayment rate that is slower than
expected will have the opposite effect of increasing the yield to maturity.
Conversely, if a Fund purchases these securities at a discount, a prepayment
rate that is faster than expected will increase yield to maturity, while a
prepayment rate that is slower than expected will reduce yield to maturity.
Amounts available for reinvestment by a Fund are likely to be greater during a
period of declining interest rates and, as a result, are likely to be
reinvested at lower interest rates than during a period of rising interest
rates. Accelerated prepayments on securities purchased by 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 mortgage- and asset-backed securities is smaller and less
liquid than the market for government-sponsored mortgage-backed securities.
The Advantage Fund may invest in stripped mortgage- or asset-backed
securities, which receive differing proportions of the interest and principal
payments from the underlying assets. The market value of such securities
generally is more sensitive to changes in prepayment and interest rates than is
the case with traditional mortgage- and asset-backed securities, and in some
cases such market value may be extremely volatile. With respect to certain
stripped securities, such as interest only ("IO") and principal only ("PO")
classes, a rate of prepayment that is faster or slower than anticipated may
result in the Fund failing to recover all or a portion of its investment, even
though the securities are rated investment-grade.
MORTGAGE DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS
(HERITAGE MONEY, MUNICIPAL MONEY, ADVANTAGE, AND MUNICIPAL ADVANTAGE FUNDS)
The Funds may enter into mortgage dollar rolls, in which a Fund would
sell mortgage-backed securities for delivery in the current month and
simultaneously contract to purchase substantially similar securities on a
specified future date. While a Fund would forego principal and interest paid
on the mortgage-backed securities during the roll period, the Fund would be
compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The Fund also could be compensated through the receipt of
fee income equivalent to a lower forward
-17-
<PAGE> 76
price. At the time a Fund would enter into a mortgage dollar roll, it would
set aside permissible liquid assets in a segregated account to secure its
obligation for the forward commitment to buy mortgage-backed securities.
Mortgage dollar roll transactions may be considered a borrowing by the Funds.
(See "Borrowing" above.)
Each Fund (except the Heritage Money Fund) may also engage in reverse
repurchase agreements to facilitate portfolio liquidity, a practice common in
the mutual fund industry, or for arbitrage transactions discussed below. In a
reverse repurchase agreement, a Fund would sell a security and enter into an
agreement to repurchase the security at a specified future date and price. The
Fund generally retains the right to interest and principal payments on the
security. Since the Fund receives cash upon entering into a reverse repurchase
agreement, it may be considered a borrowing. (See "Borrowing" above.) When
required by guidelines of the SEC, a Fund will set aside permissible liquid
assets in a segregated account to secure its obligation to repurchase the
security.
The mortgage dollar rolls and reverse repurchase agreements entered
into by the Funds may be used as arbitrage transactions in which a Fund will
maintain an offsetting position in investment grade securities or repurchase
agreements that mature on or before the settlement date on the related mortgage
dollar roll or reverse repurchase agreement. Since a Fund will receive
interest on the securities or repurchase agreements in which it invests the
transaction proceeds, such transactions may involve leverage. However, since
such securities or repurchase agreements will be high quality and will mature
on or before the settlement date of the mortgage dollar roll or reverse
repurchase agreement, the Advisor believes that such arbitrage transactions do
not present the risks to the Funds that are associated with other types of
leverage. The Heritage Money and Municipal Money Funds will only engage in
transactions permissible under Rule 2a-7.
REPURCHASE AGREEMENTS
(HERITAGE MONEY, MUNICIPAL MONEY, ADVANTAGE, AND MUNICIPAL ADVANTAGE FUNDS)
A Fund may invest in repurchase agreements with respect to any
security in which it may invest. In a repurchase agreement, a 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.
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 a 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 a Fund enters into repurchase agreements to evaluate those risks. The
Heritage Money and Municipal Money Funds will not invest more than 10%, and the
Advantage and Municipal Advantage Funds will not invest more than 15%, of their
respective net assets in repurchase agreements maturing in more than seven days
and other securities that are not readily marketable. (See "Illiquid
Securities" above.) A Fund may, under certain circumstances, deem repurchase
agreements, collateralized by U.S. government securities to be investments in
U.S. government securities.
RULE 2A-7: MATURITY, QUALITY, AND DIVERSIFICATION RESTRICTIONS
(TREASURY MONEY, HERITAGE MONEY, AND MUNICIPAL MONEY FUNDS)
The Funds are 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, these Funds 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). Further, the Funds
will limit their investments to 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 Funds will follow the requirements of Rule 2a-7.
Under Rule 2a-7, the maturity of portfolio instruments is calculated as
indicated below.
-18-
<PAGE> 77
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 a 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.
(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.
The Funds are subject to certain credit quality restrictions pursuant
to Rule 2a-7 under the 1940 Act. A 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 Board of Directors of a
Fund 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 Board of Directors of a
Fund 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 a 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 guidelines, a Fund is subject to certain
diversification restrictions pursuant to Rule 2a-7 under the 1940 Act, which
include (i) the Fund will not 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) the Fund will not invest more than 5%
of the Fund's assets in the securities (other than securities issued by the
U.S. government or any agency or instrumentality thereof) issued by a single
issuer, except for certain investments held for not more than 3 business days.
These diversification restrictions are not currently applicable to the
Municipal Money Fund. However, the SEC has proposed amendments to Rule 2a-7
which would impose such restrictions on tax-exempt money market funds, such as
the Municipal Money Fund. To the extent these amendments, if adopted, limit
the universe of permitted investments, they may lower the Municipal Money
Fund's yield potential.
-19-
<PAGE> 78
As used herein, all capitalized but undefined terms shall have the
meaning such terms have in Rule 2a-7.
SECTOR CONCENTRATION
(MUNICIPAL MONEY AND MUNICIPAL ADVANTAGE FUNDS)
From time to time, the Municipal Money and Municipal Advantage Funds
may each invest 25% or more of their respective net assets in municipal bonds
that are related in such a way that an economic, business, or political
development or change affecting one such security could also affect the other
securities (for example, securities whose issuers are located in the same
state). Such related sectors may include hospitals, retirement centers,
pollution control, single family housing, multiple family housing, industrial
development, utilities, education, and general obligation bonds. Each Fund also
may invest 25% or more of its assets in municipal bonds whose issuers are
located in the same state. Such states may include California, Pennsylvania,
Texas, New York, Florida, and Illinois.
SHORT SALES AGAINST THE BOX
(ADVANTAGE AND MUNICIPAL ADVANTAGE FUNDS)
The Funds may sell securities short against the box to hedge
unrealized gains on portfolio securities. Selling securities short against the
box involves selling a security that a Fund owns or has the right to acquire,
for delivery at a specified date in the future. If a Fund sells securities
short against the box, it may protect unrealized gains, but will lose the
opportunity to profit on such securities if the price rises.
TAXABLE SECURITIES
(MUNICIPAL MONEY AND MUNICIPAL ADVANTAGE FUNDS)
From time to time, the Municipal Money and Municipal Advantage Funds
may each invest up to 20% of their respective net assets in taxable investments
(of comparable quality to their respective tax-free investments), which would
produce interest not exempt from federal income tax, including: (i) obligations
issued or guaranteed, as to principal and interest, by the United States
government, its agencies, or instrumentalities; (ii) obligations of financial
institutions, including banks, savings and loan institutions, insurance
companies and mortgage banks, such as certificates of deposit, bankers'
acceptances, and time deposits; (iii) corporate obligations, including
preferred stock and commercial paper, with equivalent credit quality to the
municipal securities in which the Funds may invest; and (iv) repurchase
agreements with respect to any of the foregoing instruments. For example, a
Fund may invest in such taxable investments pending the investment or
reinvestment of such assets in municipal securities, in order to avoid the
necessity of liquidating portfolio securities to satisfy redemptions or pay
expenses, or when such action is deemed to be in the interest of a Fund's
shareholders. In addition, each Fund may invest up to 100% of its total assets
in private activity bonds, the interest on which is a tax-preference item for
taxpayers subject to the federal alternative minimum tax.
TEMPORARY DEFENSIVE POSITION
(MUNICIPAL MONEY, ADVANTAGE, AND MUNICIPAL ADVANTAGE FUNDS)
When the Advisor determines that market conditions warrant a temporary
defensive position, the Funds may invest without limitation in cash and
short-term fixed income securities, including U.S. government securities,
commercial paper, banker's acceptances, certificates of deposit, and time
deposits.
VARIABLE- OR FLOATING-RATE SECURITIES
(ALL FUNDS)
The Funds 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.
-20-
<PAGE> 79
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 Treasury Money, Heritage Money,
and Municipal Money Funds will be made in accordance with Rule 2a-7.
Variable-rate demand notes include master demand notes which are
obligations that permit a Fund to invest fluctuating amounts, which may change
daily without penalty, pursuant to direct arrangements between a 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, a 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 Funds may
invest in them only if the Funds' Advisor determines that at the time of
investment the obligations are of comparable quality to the other obligations
in which the Funds may invest. The Advisor, on behalf of the Funds, will
consider on an ongoing basis the creditworthiness of the issuers of the
floating- and variable-rate demand obligations in the Funds' portfolio.
Each Fund will not invest more than 15%, or with respect to the
Treasury Money, Heritage Money and Municipal Money Funds, 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 a Fund's credit quality requirements, the Fund may look to the
credit quality of the financial guarantor providing a letter of credit or other
credit support arrangement.
In determining a Fund's dollar-weighted average portfolio maturity, a
Fund will consider a floating or variable rate security to have a maturity
equal to its stated maturity (or redemption date if it has been called for
redemption), except that it may consider (i) variable rate securities to have a
maturity equal to the period remaining until the next readjustment in the
interest rate, unless subject to a demand feature, (ii) variable rate
securities subject to a demand feature to have a remaining maturity equal to
the longer of (a) the next readjustment in the interest rate or (b) the period
remaining until the principal can be recovered through demand, and (iii)
floating rate securities subject to a demand feature to have a maturity equal
to the period remaining until the principal can be recovered through demand.
Variable and floating rate securities generally are subject to less principal
fluctuation than securities without these attributes since the securities
usually trade at par following the readjustment in the interest rate.
WARRANTS
(ADVANTAGE FUND)
Warrants are securities giving the holder the right, but not the
obligation, to buy the stock of an issuer at a given price (generally higher
than the value of the stock at the time of issuance) during a specified period
or perpetually. Warrants may be acquired separately or in connection with the
acquisition of securities. The Fund will not purchase warrants, valued at the
lower of cost or market value, in excess of 5% of its net assets. Included in
that amount, but not to exceed 2% of the Fund's net assets, may be warrants
that are not listed on any stock exchange. Warrants acquired by the Fund in
units or attached to securities are not subject to these restrictions.
Warrants do not carry with them the right to dividends or voting rights with
respect to the securities that they entitle their holder to purchase, and they
do not represent any rights in the assets of the issuer. As a result, warrants
may be considered more speculative than certain other types of investments. In
addition, the value of a warrant does not necessarily
-21-
<PAGE> 80
change with the value of the underlying securities, and a warrant ceases to
have value if it is not exercised prior to its expiration date.
WHEN-ISSUED SECURITIES
(ALL FUNDS)
The Funds 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 Funds
intend to purchase such securities with the purpose of actually acquiring them
unless a sale appears desirable for investment reasons. At the time a 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 Funds do not believe that their respective net asset
values or income will be adversely affected by purchases of securities on a
when-issued basis.
The Funds 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 Funds will meet their
respective 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 respective
Fund's payment obligation).
DIRECTORS AND OFFICERS OF THE FUNDS
Directors and officers of the Funds, 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 Asset Allocation Fund, Inc.; Strong Common Stock Fund, Inc.;
Strong Conservative Equity Funds, Inc.; Strong Corporate Bond Fund, Inc.;
Strong Discovery Fund, Inc.; Strong Equity Funds, Inc.; Strong Government
Securities Fund, Inc.; Strong Heritage Reserve Series, Inc.; Strong High-Yield
Municipal Bond Fund, Inc.; Strong Income Funds, Inc.; Strong Insured Municipal
Bond Fund, Inc.; Strong International Bond Fund, Inc.; Strong International
Stock Fund, Inc.; Strong Money Market Fund, Inc.; Strong Municipal Bond Fund,
Inc.; Strong Municipal Funds, Inc.; Strong Opportunity Fund, Inc.; Strong
Short-Term Bond Fund, Inc.; Strong Short-Term Global Bond Fund, Inc.; Strong
Short-Term Municipal Bond Fund, Inc.; and Strong Total Return Fund, Inc.
(collectively, the "Strong Funds"); and Strong Institutional Funds, Inc.;
Strong Special Fund II, Inc.; and Strong Variable Insurance Funds, Inc.
*Richard S. Strong (DOB 5/12/42), Chairman of the Board and Director
of the Funds.
Prior to August 1985, Mr. Strong was Chief Executive Officer of the
Advisor, which he founded in 1974. Since August 1985, Mr. Strong has been a
Security Analyst and Portfolio Manager of the Advisor. In October 1991, Mr.
Strong also became the Chairman of the Advisor. Mr. Strong is a director of
the Advisor. 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 (i) a director and Chairman of the
Treasury Money Fund since February 1989; (ii) a director and Chairman of the
Heritage Money Fund since May 1995; (iii) director and Chairman of the
Municipal Money Fund since October 1986; (iv) a director and Chairman of the
Municipal Advantage Fund since November 1995; and (v) a director and Chairman
of the Advantage Fund since November 1988.
-22-
<PAGE> 81
Marvin E. Nevins (DOB 7/9/18), Director of the Funds.
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 (i) Treasury Money Fund since February 1989; (ii) Heritage
Money Fund since May 1995; (iii) Municipal Money Fund since October 1986; (iv)
Municipal Advantage Fund since November 1995; and (v) the Advantage Fund since
November 1988.
Willie D. Davis (DOB 7/24/34), Director of the Funds.
Mr. Davis has been director of Alliance Bank since 1980, Sara Lee
Corporation (a food/consumer products company) since 1983, KMart Corporation (a
discount consumer products company) since 1985, 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 (i) Treasury Money, Municipal Money, and Advantage Funds since July 1994;
(ii) Municipal Advantage Fund since November 1995; and (iii) the Heritage Money
since May 1995.
*John Dragisic (DOB 11/26/40), President and Director of the Funds.
Mr. Dragisic has been President of the Advisor since October 1995, 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 1994, and as Vice Chairman of the Strong Funds between July 1994 and
October 1995. Mr. Dragisic was the President and Chief Executive Officer of
Grunau Company, Inc. (a mechanical contracting and engineering firm),
Milwaukee, Wisconsin from 1987 until July 1994. From 1981 to 1987, he was an
Executive Vice President with Grunau Company, Inc. From 1969 until 1973, Mr.
Dragisic worked for the InterAmerican Development Bank. Mr. Dragisic received
his Ph.D. in Economics in 1971 from the University of Wisconsin - Madison and
his B.A. degree in Economics in 1962 from Lake Forest College. Mr. Dragisic
has served as (i) President of the Treasury Money, Heritage Money, Municipal
Money, Advantage, and Municipal Advantage Funds since October 1995; and (ii) as
a director of the Treasury Money, Municipal Money, and Advantage Funds since
April 1995; and of the Heritage Money Fund since May 1995; and of the Municipal
Advantage Fund since November 1995.
Stanley Kritzik (DOB 1/9/30), Director of the Funds.
Mr. Kritzik has been a Partner of Metropolitan Associates since 1962,
a Director of Aurora Health Care since 1987, and Health Network Ventures, Inc.
since 1992. He has served as a director of the Treasury Money, Municipal
Money, and Advantage Funds since April 1995; of the Heritage Money Fund since
May 1995; and of the Municipal Advantage Fund since November 1995.
William F. Vogt (DOB 7/19/47), Director of the Funds.
Mr. Vogt has been the President of Vogt Management Consulting, Inc.
since 1990. From 1982 until 1990, he served as Executive Director of
University Physicians of the University of Colorado. Mr. Vogt is the Past
President of the Medical Group Management Association and a Fellow of the
American College of Medical Practice Executives. He has served as a director
of the Treasury Money, Municipal Money, and Advantage Funds since April 1995;
of the Heritage Money Fund since May 1995; and of the Municipal Advantage Fund
since November 1995.
-23-
<PAGE> 82
Lawrence A. Totsky (DOB 5/6/59), C.P.A., Vice President of the Funds.
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 Treasury Money, Municipal Money, and Advantage Funds since May
1993; of the Heritage Money Fund since May 1995; and of the Municipal Advantage
Fund since November 1995.
Thomas P. Lemke (DOB 7/30/54), Vice President of the Funds.
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 Treasury Money, Municipal Money, and
Advantage Funds since October 1994; of the Heritage Money Fund since May 1995;
and of the Municipal Advantage Fund since November 1995.
Ann E. Oglanian (DOB 12/7/61), Secretary of the Funds.
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 Treasury
Money, Municipal Money, and Advantage Funds since May 1994; of the Heritage
Money Fund since May 1995; and of the Municipal Advantage Fund since November
1995.
Ronald A. Neville (DOB 5/21/47), C.P.A., Treasurer of the Funds.
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 Treasury Money,
Municipal Money, and Advantage Funds since April 1995; of the Heritage Money
Fund since May 1995; and of the Municipal Advantage Fund since November 1995.
Except for Messrs. Nevins, Davis, Kritzik and Vogt, the address of all
of the above persons is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr. Nevins'
address is 6075 Pelican Bay Boulevard, Naples, Florida 33963. Mr. Davis'
address is 161 North La Brea, Inglewood, California 90301. Mr. Kritzik's
address is 1123 North Astor Street, P.O. Box 92547, Milwaukee, Wisconsin
53202-0547. Mr. Vogt's address is 2830 East Third Avenue, Denver, Colorado
80206.
The mutual fund complex that is managed by the Advisor, which is
composed of 26 open-end management investment companies consisting of 37 mutual
funds, of which the Funds are 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 mutual fund. In addition, each disinterested director
is reimbursed by the mutual funds for travel and other expenses incurred in
connection with attendance at such meetings. Other officers and directors of
the mutual funds receive no compensation or expense reimbursement from the
mutual funds.
As of March 31, 1995, the officers and directors of the Treasury
Money, Heritage Money, Municipal Money, and Advantage Funds in the aggregate
beneficially owned less than 1% of each Fund's then outstanding shares.
As of November 30, 1995, the officers and directors of the Municipal
Advantage Fund in the aggregate beneficially owned less than 1% of each Fund's
then outstanding shares.
-24-
<PAGE> 83
PRINCIPAL SHAREHOLDERS
As of March 31, 1995, the following persons owned of record or are
known by the Funds (except for the Municipal Advantage Fund) to own of record
or beneficially, more than 5% of the listed Fund's outstanding shares:
<TABLE>
<CAPTION>
NAME AND ADDRESS FUND/SHARES PERCENT OF CLASS
---------------- ----------- ----------------
<S> <C> <C>
Charles Schwab & Co., Inc. Advantage/20,871,140 24.37%
101 Montgomery Street
San Francisco, California 94104
</TABLE>
As of November 30, 1995, Strong Capital Management, Inc. owned of
record and beneficially 20,000 shares representing all of the Fund's
outstanding shares.
INVESTMENT ADVISOR AND DISTRIBUTOR
The Advisor to the Funds is Strong Capital Management, Inc. Mr.
Richard S. Strong controls the Advisor. Mr. Strong is the Chairman and a
director of the Advisor, Mr. Dragisic is the President and a director of the
Advisor, Mr. Totsky is a Senior Vice President of the Advisor, Mr. Lemke is a
Senior Vice President, Secretary and General Counsel of the Advisor, Mr.
Neville is a Senior Vice President and Chief Financial Officer of the Advisor,
and Ms. Oglanian is an Associate Counsel of the Advisor. A brief description
of each Fund's investment advisory agreement ("Advisory Agreement") is set
forth in the Prospectus under "About the Funds - Management."
The Advisory Agreements for the Treasury Money, Municipal Money and
Advantage Funds, each of which is dated May 1, 1995, were last approved by
shareholders of each Fund at the annual meeting of shareholders held on April
13, 1995. In addition, the Heritage Money Fund's Advisory Agreement, dated
June 23, 1995, was last approved by the initial shareholder of such Fund on
June 29, 1995, and the Municipal Advantage Fund's Advisory Agreement, dated
November 29, 1995, was last approved by the initial shareholder of such Fund on
November 29, 1995 (both the Heritage Money and Municipal Advantage Funds'
Advisory Agreements will remain in effect for a period of two years after
initial approval) (the Advisory Agreements for the Funds are hereinafter
collectively referred to as the "Advisory Agreements"). Each Advisory
Agreement is required to be approved annually by either the Board of Directors
of the Fund or by vote of a majority of the Fund's outstanding voting
securities, as defined in the 1940 Act (in the case of the Advisory Agreements
for the Heritage Money and Municipal Advantage Funds, such yearly approval
requirements will not commence until the initial two year term of each
Agreement expires). In either case, each annual renewal must be approved by
the vote of a majority of the Fund's directors who are not parties to the
Advisory Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval. Each Advisory
Agreement is terminable, without penalty, on 60 days' written notice by the
Board of Directors of the Fund, by vote of a majority of the Fund's outstanding
voting securities, or by the Advisor. In addition, an Advisory Agreement will
terminate automatically in the event of its assignment.
Under the terms of each Advisory Agreement, the Advisor manages the
Fund's investments subject to the supervision of the Fund's Board of Directors.
The Advisor is responsible for investment decisions and supplies investment
research and portfolio management. At its expense, the Advisor provides office
space and all necessary office facilities, equipment and personnel for
servicing the investments of the Fund. The Advisor places all orders for the
purchase and sale of the Fund's portfolio securities at the Fund's 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 a Fund's
shares, each 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 and semiannual financial
statements mailed to existing shareholders; charges of custodians, transfer
agent fees (including the printing and mailing of reports and notices to
shareholders), fees of registrars, fees for auditing and legal services, fees
for clerical services related to recordkeeping and shareholder relations, the
cost of stock certificates; and fees for directors who are not "interested
-25-
<PAGE> 84
persons" of the Advisor; expenses of indemnification; extraordinary expenses;
costs of shareholder and director meetings; and its allocable share of
shareholder and director meetings.
As compensation for its services, each Fund pays to the Advisor
monthly management fees at the following annual rates: (1) Treasury Money
Fund: .40% of average daily net assets; (2) Heritage Money and Municipal Money
Funds: .50% of average daily net assets; and (3) Advantage and Municipal
Advantage Funds: .60% of average daily net assets. (See "Shareholder Manual -
Determining Your Share Price" in the Prospectus.) 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 Treasury Money and Heritage Money
Funds, which were $61,800 and $74,235, respectively, were advanced by the
Advisor and will be reimbursed by the respective Funds over a period of not
more than 60 months from each Fund's date of inception.
The following table sets forth certain information concerning management fees
for each Fund that has completed a fiscal year:
<TABLE>
<CAPTION>
Management Fee
Incurred Management Fee Management Fee
by Fund Waiver Paid by Fund
------- ------ ------------
<S> <C> <C> <C>
Treasury Money Fund
1992 $ 101,521 $ 101,521 $ 0
1993 112,541 112,541 0
1994 276,272 262,326 13,946
Municipal Money Fund
1992 $ 5,167,616 $ 31,046 $ 5,136,570
1993 5,863,644 0 5,863,644
1994 6,638,362 186,998 6,451,364
Advantage Fund
1992 $ 1,298,790 $ 0 $ 1,298,790
1993 1,953,255 0 1,953,255
1994 3,981,369 0 3,981,369
</TABLE>
Each Advisory Agreement requires the Advisor to reimburse a Fund in
the event that the expenses and charges payable by the Fund in any fiscal year,
including the management fee but excluding taxes, interest, brokerage
commissions, and similar fees and to the extent permitted extraordinary
expenses, exceed 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 Funds' common stock is
qualified for sale; or if the states in which the Funds' common stock is
qualified for sale impose no restrictions, the Advisor shall reimburse a 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 a 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 a 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
-26-
<PAGE> 85
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.
The Advisor has adopted a Code of Ethics (the "Code") which governs
the personal trading activities of all "Access Persons" of the Advisor. Access
Persons include every director and officer of the Advisor and the investment
companies managed by the Advisor, including the Funds, as well as certain
employees of the Advisor who have access to information relating to the
purchase or sale of securities by the Advisor on behalf of accounts managed by
it. The Code is based upon the principal that such Access Persons have a
fiduciary duty to place the interests of the Advisor's clients ahead of their
own.
The Code requires Access Persons (other than Access Persons who are
independent directors of the investment companies managed by the Advisor,
including the Funds) to, among other things, preclear their securities
transactions (with limited exceptions, such as transactions in shares of mutual
funds, direct obligations of the U.S. government and certain options on
broad-based securities market indexes) and to execute such transactions through
the Advisor's trading department. The Code, which applies to all Access Persons
(other than Access Persons who are independent directors of the investment
companies managed by the Advisor, including the Funds), includes a ban on
acquiring any securities in an initial public offering, other than a new
offering of a registered open-end investment company, and a prohibition from
profiting on short-term trading in securities. In addition, no Access Person
may purchase or sell any security which, at the time, is being purchased or
sold, or to the knowledge of the Access Person, is being considered for
purchase or sale, by the Advisor on behalf of any mutual fund or other account
managed by it. Finally, the Code provides for trading "black out" periods
which prohibit trading by Access Persons who are portfolio managers within
seven calendar days of trading in the same securities by any mutual fund or
other account managed by the portfolio manager.
Under Distribution Agreements with the Treasury Money, Municipal
Money, and Advantage Funds dated December 1, 1993, the Heritage Money Fund
dated June 23, 1995, and the Municipal Advantage Fund dated November 29, 1995
(collectively, the "Distribution Agreements"), Strong Funds Distributors, Inc.
("Distributor") acts as underwriter of each Fund's shares. The Distribution
Agreements provide that the Distributor will use its best efforts to distribute
each Fund's shares. Since the Funds are "no-load" funds, no sales commissions
are charged on the purchase of Fund shares. Each Distribution Agreement
further provides that the Distributor will bear the 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 a
Fund's shares. The Distributor is an indirect subsidiary of the Advisor and
controlled by the Advisor and Richard S. Strong. The Distribution Agreements
are subject to the same termination and renewal provisions as are described
above with respect to the Advisory Agreements.
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 a
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. 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.
-27-
<PAGE> 86
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisor is responsible for decisions to buy and sell securities
for the Funds and for the placement of the Funds' 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 Funds. 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 Funds means the best net price
without regard to the mix between purchase or sale price and commissions. 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, 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 Agreements, the Advisor
may cause the Funds 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
Agreements provide that such higher commissions will not be paid by a 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 a Fund will be reasonable in relation to
the benefits to the Fund over the long term. The investment management fees
paid by the Funds under the Advisory Agreements 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 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
Funds and other advisory clients.
From time to time, the Advisor may purchase securities for a Fund in a
fixed price offering. In these situations, the seller may be a member of the
selling group that will, in addition to selling the securities to the Funds 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
-28-
<PAGE> 87
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 Funds 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
Funds 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 Funds effect their 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 Funds. 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 Funds) 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 Funds will not
be disproportionate to the benefits received by the Funds on a continuing
basis.
The Advisor seeks to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell securities by the
Funds 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 Funds.
In making such allocations between a Fund and other advisory accounts, the main
factors considered by the Advisor are the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held, and the opinions of the persons responsible for recommending
the investment.
Where consistent with a client's investment objectives, investment
restrictions, and risk tolerance, the Advisor may purchase securities sold in
underwritten public offerings for client accounts, commonly referred to as
"deal" securities. The Advisor has adopted deal allocation procedures (the
"procedures"), summarized below, that reflect the Advisor's overriding policy
that deal securities must be allocated among participating client accounts in a
fair and equitable manner and that deal securities may not be allocated in a
manner that unfairly discriminates in favor of certain clients or types of
clients.
The procedures provide that, in determining which client accounts a
portfolio manager team will seek to have purchase deal securities, the team
will consider all relevant factors including, but not limited to, the nature,
size, and expected allocation to the Advisor of deal securities; the size of
the account(s); the accounts' investment objectives and restrictions; the risk
tolerance of the client; the client's tolerance for possibly higher portfolio
turnover; the amount of commissions generated by the account during the past
year; and the number of other deals the client has participated in during the
past year.
Where more than one of the Advisor's portfolio manager teams seeks to
have client accounts participate in a deal and the amount of deal securities
allocated to the Advisor by the underwriting syndicate is less than the
aggregate amount ordered by the Advisor (a "reduced allocation"), the deal
securities will be allocated among the portfolio manager teams based on all
relevant factors. The primary factor shall be assets under management,
although other factors that may be considered in the allocation decision
include, but are not limited to, the nature, size, and expected Advisor
allocation of the deal; the amount of brokerage
-29-
<PAGE> 88
commissions or other amounts generated by the respective participating
portfolio manager teams; and which portfolio manager team is primarily
responsible for the Advisor receiving securities in the deal. Based on the
relevant factors, the Advisor has established general allocation percentages
for its portfolio manager teams, and these percentages are reviewed on a
regular basis to determine whether asset growth or other factors make it
appropriate to use different general allocation percentages for reduced
allocations.
When a portfolio manager team receives a reduced allocation of deal
securities, the portfolio manager team will allocate the reduced allocation
among client accounts in accordance with the allocation percentages set forth
in the team's initial allocation instructions for the deal securities, except
where this would result in a de minimis allocation to any client account. On a
regular basis, the Advisor reviews the allocation of deal securities to ensure
that they have been allocated in a fair and equitable manner that does not
unfairly discriminate in favor of certain clients or types of clients.
The Treasury Money and Municipal Money Funds did not pay any
brokerage commissions during 1992, 1993, and 1994. In addition, because the
Heritage Money and Municipal Advantage Funds did not commence operations until
June 29, 1995 and November 30, 1995, respectively, neither Fund paid any
brokerage commissions in the years from 1992 to 1994. Finally, the Advantage
Fund paid brokerage commissions during 1992, 1993, and 1994 of approximately
$75,000, $49,000, and $4,000, respectively.
For the 1993 fiscal period ended December 31, the Advantage Fund's
portfolio turnover rate was 304.8%. This portfolio turnover rate was higher
than anticipated primarily because the Advantage Fund employed a trading
strategy to take advantage of yield spread opportunities to help enhance the
Fund's total return.
As of December 31, 1994, the Advantage Fund had acquired securities of
its regular brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or
their parents in the following amounts:
<TABLE>
<CAPTION>
Regular Broker or Dealer or Parent Issuer Value of Securities Owned as of December 31, 1994*
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Lehman Brothers $20,780,000
Chase Manhattan 29,059,000
- --------------------
</TABLE>
*To the nearest thousand.
CUSTODIAN
As custodian of each Fund's assets, Firstar Trust Company, P.O. Box
701, Milwaukee, Wisconsin 53201, has custody of all securities and cash of the
Funds, 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 Funds. With respect to the
Heritage Money Fund only, the custodian has entered into a sub-custodial
arrangement with Bankers Trust Company ("BTC") pursuant to which BTC may
retain custody of certain of the Heritage Money 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
Funds.
-30-
<PAGE> 89
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
The Advisor acts as transfer agent and dividend-disbursing agent for
the Funds. The Advisor is compensated based on an annual fee per open account
of $32.50 for the Treasury Money, Heritage Money and Municipal Money Funds, and
$31.50 for the Advantage and Municipal Advantage Funds, 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 each 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 Funds, such as printing
and mailing of shareholder account statements, checks, and tax forms.
The following table sets forth certain information concerning amounts
paid by the Funds for transfer agency and dividend disbursing and printing and
mailing services for each Fund that has completed a fiscal year:
<TABLE>
<CAPTION>
Transfer Agency and Dividend Disbursement
Services Charges Incurred
----------------------------------------------------------------------------
Per Printing and Amounts Net Amount
Account Expense Mailing Waived By Paid By
Fund Charges Reimbursements Services Advisor Fund
- -------- ------- -------------- -------- ------- ----
<S> <C> <C> <C> <C> <C>
Treasury Money Fund
1992 $ 36,290 $ 21,186 $ 1,134 $ 47,932 $ 10,678
1993 50,411 22,958 2,030 75,399 0
1994 91,501 26,314 3,170 75,937 45,048
Municipal Money Fund
1992 $ 690,433 $ 584,742 $ 46,600 $ 0 $1,321,775
1993 812,633 497,291 46,480 0 1,356,404
1994 867,886 530,206 33,624 0 1,431,716
Advantage Fund
1992 $ 438,374 $ 140,534 $ 19,474 $ 0 $ 598,382
1993 515,380 139,749 19,731 0 674,860
1994 898,713 178,059 22,392 0 1,099,164
</TABLE>
From time to time, the Advisor and/or the Funds, directly or
indirectly through arrangements with the Advisor, and/or the Advisor may pay
amounts to third parties that provide administrative services relating to the
Funds to persons who beneficially own interests in the Funds, such as
participants in 401(k) plans. These services may include, among other things,
sub-accounting services, answering inquiries relating to the Funds,
transmitting, on behalf of the Funds, proxy statements, annual reports, updated
Prospectuses, other communications regarding the Funds, and related services as
the Funds or beneficial owners may reasonably request. In such cases, the
Funds will not pay fees at a rate that is greater than the rate the Funds are
currently paying the Advisor for providing these services to Fund shareholders.
TAXES
GENERAL
As indicated under "About the Funds - Distributions and Taxes" in the
Prospectus, each Fund intends to continue to qualify annually for treatment as
a regulated investment company ("RIC") under the Internal Revenue Code of 1986,
as amended (the "Code"). This qualification does not involve government
supervision of the Funds' management practices or policies.
In order to qualify for treatment as a RIC under the Code, the
Treasury Money, Heritage Money, and Advantage Funds, must each distribute to
their respective shareholders for each taxable year at least 90% of their
respective investment company taxable income (consisting generally of net
investment income, net short-term capital gain, and net gains from certain
foreign currency transactions, if any) and the Municipal Money and Municipal
Advantage Funds must each distribute to their respective shareholders at least
90% of the sum of their respective investment company taxable income plus net
interest income excludable
-31-
<PAGE> 90
from gross income under section 103(a) of the Code ("Distribution
Requirement"). In addition, each Fund must meet several additional
requirements, which include the following: (1) the Fund must derive at least
90% of its gross income each taxable year from dividends, interest, payments
with respect to securities loans, and gains from the sale or other disposition
of securities or foreign currencies, if any, or other income (including gains
from options, futures, or forward currency contracts, if any), 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, or options or
futures (other than those on foreign currencies, if any), or foreign currencies
(or options, futures, or forward contracts thereon), if any, that are not
directly related to the Fund's principal business of investing in securities
(or options and futures with respect to securities) that were held for less
than three months ("30% Limitation"); (3) at the close of each quarter of a
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.
Dividends paid by the Municipal Money and Municipal Advantage Funds
will qualify as "exempt-interest dividends," as defined in the Prospectus, and
thus will be excludable from gross income by their respective shareholders, if
the Funds satisfy the requirement that, at the close of each quarter of their
respective taxable years, at least 50% of the value of their respective total
assets consists of securities the interest on which is excludable from gross
income under section 103(a); each Fund intends to continue to satisfy this
requirement. The aggregate dividends excludable from a Fund's shareholders'
gross income may not exceed the Fund's net tax-exempt income. The
shareholders' treatment of dividends from the Municipal Money and Municipal
Advantage Funds under local and state income tax laws may differ from the
treatment thereof under the Code.
With respect to the Municipal Money and Municipal Advantage Funds, if
Fund shares are sold at a loss after being held for six months or less, the
loss will be disallowed to the extent of any exempt-interest dividends received
on those shares. Any portion of such a loss that is not disallowed will be
treated as long-term, instead of short-term, capital loss to the extent of any
capital gain distributions received on those shares. Whereas, with respect to
the Treasury Money, Heritage Money, and Advantage Funds, if Fund shares are
sold at a loss after being held for six months or less, the loss will simply be
treated as long-term, instead of short-term, capital loss to the extent of any
capital gain distributions received on those shares.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
FOREIGN TRANSACTIONS (HERITAGE MONEY AND ADVANTAGE FUNDS)
Interest and dividends received by the Heritage Money and Advantage
Funds may be subject to income, withholding, or other taxes imposed by foreign
countries and U.S. possessions that would reduce the yield on their respective
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.
Each Fund maintains its accounts and calculates its income in U.S.
dollars. In general, gain or loss (1) from the disposition of foreign
currencies and forward currency contracts, (2) from the disposition of
foreign-currency-denominated debt securities that are attributable to
fluctuations in exchange rates between the date the securities are acquired and
their disposition date, and (3) attributable to fluctuations in exchange rates
between the time a Fund accrues interest or other receivables or expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects those receivables or pays those liabilities, will be treated
as ordinary income or loss. A foreign-currency-denominated debt security
acquired by a Fund may bear interest at a high normal rate that takes into
account expected decreases in the value of the principal amount of the security
due to anticipated currency devaluations; in that case, the Fund would be
required to include the interest in income as it accrues but generally would
realize a currency loss with respect to the principal only when the principal
was received (through disposition or upon maturity).
-32-
<PAGE> 91
DERIVATIVE INSTRUMENTS (ADVANTAGE AND MUNICIPAL ADVANTAGE FUNDS)
The use of derivatives strategies, such as purchasing and selling
(writing) options and futures and entering into forward currency contracts,
involves complex rules that will determine for income tax purposes the
character and timing of recognition of the gains and losses the Advantage and
Municipal Advantage Funds realize in connection therewith. Gains from the
disposition of foreign currencies (except certain gains therefrom that may be
executed by future regulations), and income from transactions in options,
futures, and forward currency contracts derived by a Fund with respect to its
business of investing in securities or foreign currencies, will qualify as
permissible income under the Income Requirement. However, income from the
disposition of options and futures (other than those on foreign currencies)
will be subject to the 30% Limitation if they are held for less than three
months. Income from the disposition of foreign currencies, and options,
futures, and forward contracts on foreign currencies that are not directly
related to a Fund's principal business of investing in securities (or options
and futures with respect to securities) also will be subject to the 30%
Limitation if they are held for less than three months.
If a Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
30% Limitation. Thus, only the net gain (if any) from the designated hedge
will be included in gross income for purposes of that limitation. The Funds
intend that, when they engage in hedging strategies, the hedging transactions
will qualify for this treatment, but at the present time it is not clear
whether this treatment will be available for all of the Funds' hedging
transactions. To the extent this treatment is not available or is not elected
by a Fund, it may be forced to defer the closing out of certain options,
futures, or forward currency contracts beyond the time when it otherwise would
be advantageous to do so, in order for the Fund to continue to qualify as a
RIC.
For federal income tax purposes, each Fund is required to recognize as
income for each taxable year its net unrealized gains and losses on options,
futures, or forward currency contracts that are subject to section 1256 of the
Code ("Section 1256 Contracts") and are held by the Fund as of the end of the
year, as well as gains and losses on Section 1256 Contracts actually realized
during the year. Except for Section 1256 Contracts that are part of a "mixed
straddle" and with respect to which a Fund makes a certain election, any gain
or loss recognized with respect to Section 1256 Contracts is considered to be
60% long-term capital gain or loss and 40% short-term capital gain or loss,
without regard to the holding period of the Section 1256 Contract. Unrealized
gains on Section 1256 Contracts that have been held by a Fund for less than
three months as of the end of its taxable year, and that are recognized for
federal income tax purposes as described above, will not be considered gains on
investments held for less than three months for purposes of the 30% Limitation.
INVESTMENTS IN CERTAIN MUNICIPAL SECURITIES (MUNICIPAL MONEY AND MUNICIPAL
ADVANTAGE FUNDS)
Tax-exempt interest attributable to certain private activity bonds
("PABs") (including, in the case of a RIC receiving interest on such bonds, a
proportionate part of the exempt-interest dividends paid by that RIC) is
subject to the alternative minimum tax. Exempt-interest dividends received by
a corporate shareholder also may be indirectly subject to that tax without
regard to whether a Fund's tax-exempt interest was attributable to such bonds.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by PABs or industrial development
bonds ("IDBs") should consult their tax advisers before purchasing shares of
the Municipal Money and Municipal Advantage Funds because, for users of certain
of these facilities, the interest on such bonds is not exempt from federal
income tax. For these purposes, the term "substantial user" is defined
generally to include a "non-exempt person" who regularly uses in trade or
business a part of a facility financed from the proceeds of PABs or IDBs.
The Municipal Money and Municipal Advantage Funds may each invest in
municipal bonds that are purchased, generally not on their original issue, with
market discount (that is, at a price less than the principal amount of the bond
or, in the case of a bond that was issued with original issue discount, a price
less than the amount of the issue price plus accrued original issue discount)
("municipal market discount bonds"). Market discount generally arises when the
value of the bond declines after issuance (typically, because of an increase in
prevailing interest rates or a decline in the issuer's creditworthiness). Gain
on the disposition of a municipal market discount bond purchased by a Fund
after April 30, 1993 (other than a bond with a fixed maturity date within one
year from its issuance), generally is treated as ordinary (taxable) income,
rather than capital gain, to the extent of the bond's accrued market discount
at the time of disposition. Market discount on such a bond generally is
accrued ratably, on a daily basis, over the period from the acquisition date to
the date of maturity. In lieu of treating the disposition gain as above, a
Fund may elect to include market discount in its gross income currently, for
each taxable year to which it is attributable.
-33-
<PAGE> 92
ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES (ADVANTAGE AND MUNICIPAL
ADVANTAGE FUNDS)
The Advantage and Municipal Advantage Funds may acquire zero-coupon,
step-coupon, or other securities issued with original issue discount. As the
holder of those securities, a Fund must take into account or include in its
income (with respect to taxable securities) the original issue discount that
accrues on the securities during the taxable year, even if the Fund receives no
corresponding payment on the securities during the year. Similarly, a Fund
must take into account or include in its gross income (with respect to taxable
securities) securities it receives as "interest" on pay-in-kind securities.
Because a Fund annually must distribute substantially all of its investment
company taxable income, including any tax-exempt original issue discount and
other non-cash income, to satisfy the Distribution Requirement, it may be
required in a particular year to distribute as a dividend an amount that is
greater than the total amount of cash it actually receives. Those
distributions may be made from the proceeds on sales of portfolio securities,
if necessary. A Fund may realize capital gains or losses from those sales,
which would increase or decrease its investment company taxable income or net
capital gain, or both. In addition, any such gains may be realized on the
disposition of securities held for less than three months. Because of the 30%
Limitation, any such gains would reduce a Fund's ability to sell other
securities, or certain options, or futures, or forward currency contracts,
held for less that three months that it might wish to sell in the ordinary
course of its portfolio management.
The foregoing federal tax discussion as well as the tax discussion
contained within the Prospectus under "About the Funds - Distributions and
Taxes" is intended to provide you with an overview of the impact of federal
income tax provisions on each Fund or its shareholders. These tax provisions
are subject to change by legislative or administrative action at the federal,
state, or local level, and any changes may be applied retroactively. Any such
action that limits or restricts a Fund's current ability to pass-through
earnings without taxation at the Fund level, or otherwise materially changes a
Fund's tax treatment, could adversely affect the value of a shareholder's
investment in a Fund. Because each Fund's taxes are a complex matter, you
should consult your tax adviser for more detailed information concerning the
taxation of a Fund and the federal, state, and local tax consequences to
shareholders of an investment in a Fund.
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 each Fund will be
determined as of the close of trading on each day the New York Stock Exchange
(the "NYSE") is open for trading. The NYSE is open 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 Treasury Money, Heritage Money, and Municipal Money Funds value
their 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 a Fund's $1.00 per share net asset value, or if there were
any other deviation which the Board of Directors of the particular Fund
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 a 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
-34-
<PAGE> 93
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.
The Funds employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. The Funds 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 Funds' Prospectus.
DOLLAR COST AVERAGING
Strong Funds' Automatic Investment Plan, Payroll Direct Deposit Plan,
and Automatic Exchange Plan, all discussed in the Funds' Prospectus under the
heading "Shareholder Manual - How to Buy Shares," 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.
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.
-35-
<PAGE> 94
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 Advantage Fund is a Wisconsin corporation that is authorized to
offer separate series of shares representing interests in separate portfolios
of securities, each with differing investment objectives. The Municipal Money
and Municipal Advantage Funds are series of common stock of Strong Municipal
Funds, Inc., a Wisconsin corporation that is authorized to offer separate
series of shares representing interests in separate portfolios of securities,
each with differing objectives. The U.S. Treasury Money Fund is a series of
common stock of Strong Income Funds, Inc., a Wisconsin corporation that is
authorized to offer separate series of shares representing interests in
separate portfolios of securities, each with differing objectives. The
Heritage Money Fund is a series of common stock of Strong Heritage Reserve
Series, Inc., a Wisconsin corporation that is authorized to offer separate
series of shares representing interests in separate portfolios of securities,
each with differing objectives. The shares in any one portfolio may, in turn,
be offered in separate classes, each with differing preferences, limitations or
relative rights. However, the Articles of Incorporation for each of the
FundCorporations provides that if additional classes of shares are issued by a
FundCorporation, such new classes of shares may not affect the preferences,
limitations or relative rights of the FundCorporation's outstanding shares. In
addition, the Board of Directors of each FundCorporation is authorized to
allocate assets, liabilities, income and expenses to each series and class.
Classes within a series may have different expense arrangements than other
classes of the same series and, accordingly, the net asset value of shares
within a series may differ. Finally, all holders of shares of a
FundCorporation may vote on each matter presented to shareholders for action
except with respect to any matter which affects only one or more series or
class, in which case only the shares of the affected series or class are
entitled to vote. Fractional shares have the same rights proportionately as do
full shares. Shares of the FundsCorporation have no preemptive, conversion, or
subscription rights. Each Fund currently has only one series of common stock
outstanding. If a FundIf a Corporation issues additional series, the assets
belonging to each series of shares will be held separately by the custodian,
and in effect each series will be a separate fund.
Each Corporation was organized on the following dates and currently
has the following authorized shares of capital stock:
<TABLE>
<CAPTION>
Incorporation Date Series Authorized Par
Corporation Date Created Shares Value ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Strong Income Funds, Inc. 02/24/89 10,000,000,000 .00001
- Strong U.S. Treasury Money Fund 02/24/89 3,000,000,000 .00001
- Strong High-Yield Bond Fund* 10/27/95 300,000,000 .00001
Strong Heritage Reserve Series, Inc. 06/02/89 10,000,000,000 .00001
- Strong Heritage Money Fund 05/11/95 2,000,000,000 .00001
Strong Municipal Funds, Inc. 07/28/86 10,000,000,000 .00001
- Strong Municipal Money Market Fund 07/28/86 3,000,000,000 .00001
- Strong Municipal Advantage Fund 10/27/95 300,000,000 .00001
Strong Advantage Fund, Inc. 08/31/88 1,000,000,000 .0001
</TABLE>
*Described in a different prospectus and statement of additional information.
SHAREHOLDER MEETINGS
The Wisconsin Business Corporation Law permits registered investment
companies, or series thereof, such as the Funds, to operate without an annual
meeting of shareholders under specified circumstances if an annual meeting is
not required by the 1940 Act. The Funds have adopted the appropriate
provisions in their 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.
Each Fund's Bylaws allow for a director to be removed by its shareholders
with or without cause, only at a meeting called for the purpose of removing the
director. Upon the written request of the holders of shares entitled to not
less than ten percent (10%) of all the votes entitled to be cast at such
meeting, the Secretary of a Fund shall promptly call a special meeting of
shareholders for the purpose of voting upon the question of removal of any
director. The Secretary of a Fund shall inform such
-36-
<PAGE> 95
shareholders of the reasonable estimated costs of preparing and mailing the
notice of the meeting, and upon payment to the Fund of such costs, the Fund
shall give not less than ten nor more than sixty days notice of the special
meeting.
PERFORMANCE INFORMATION
As described in the "About the Funds - Performance Information" section
of the Funds' Prospectus, each Fund's historical performance or return may be
shown in the form of "yield," "average annual total return," "total return,"
and "cumulative total return." In addition, the Treasury Money, Heritage
Money, and Municipal Money Funds' performance may be shown in the form of
"effective yield," and the Municipal Money and Municipal Advantage Funds'
performance may be shown in the form of "equivalent taxable yield." From time
to time, the Advisor may agree to waive or reduce its management fee and to
absorb certain operating expenses for a Fund. All performance and returns
noted herein are historical and do not represent the future performance of a
Fund.
YIELD
The Advantage and Municipal Advantage Funds' yield is computed in
accordance with a standardized method prescribed by rules of the SEC. Under
that method, the current yield quotation for a Fund is based on a one month or
30-day period. The yield is computed by dividing the net investment income per
share earned during the 30-day or one month period by the maximum offering
price per share on the last day of the period, according to the following
formula:
6
YIELD = 2[( a-b + 1) - 1]
---
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
For the 30-day period ended December 30, 1994, the Advantage Fund's yield
was 6.82. Yield figures for the Municipal Advantage Fund are not available
since the Fund is new and just recently commenced operations on November 30,
1995. In computing yield, the Funds follow certain standardized accounting
practice specified by SEC rules. These practices are not necessarily
consistent with those that the Funds use to prepare annual and interim
financial statements in conformity with generally accepted accounting
principles.
CURRENT YIELD
The Treasury Money, Heritage Money, and Municipal Money Funds' current
yield quotations are based on a seven-day period 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. For the seven-day period ended
December 30, 1994, the Treasury Money Fund's current yield was 4.70% and the
Municipal Money Fund's current yield was 4.54%. During this period, the
Advisor waived management fees of 0.15% for the Treasury Money Fund. Without
this waiver, the Treasury Money Fund's current yield would have been 4.55%.
EFFECTIVE YIELD
The Treasury Money, Heritage Money, and Municipal Money Funds' 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. For the seven-day
period ended December 30, 1994, the Treasury Money Fund's effective yield was
4.81% and the Municipal Money Fund's effective yield was 4.64%. Without the
waiver noted above, the Treasury Money Fund's effective yield would have been
4.66%.
-37-
<PAGE> 96
TAX-EQUIVALENT YIELD
The tax-equivalent yield for the Municipal Money and Municipal Advantage
Funds' is computed by dividing that portion of a Fund's yield (computed as
described above) that is tax-exempt by one minus the stated federal income tax
rate and adding the result to that portion, if any, of the yield of the Fund
that is not tax-exempt. Tax-equivalent yield does not reflect possible
variations due to the federal alternative minimum tax. Based upon a marginal
federal income tax rate of 31.0% and the Municipal Money Fund's yield computed
as described above, such Fund's 7-day tax equivalent yield (period ended
December 30, 1994) was 6.58%. The tax-equivalent yield for the Municipal
Advantage Fund is not available since the Fund is new and just recently
commenced operations on November 30, 1995. For additional information
concerning tax-exempt yields, see "Tax-Exempt versus Taxable Yield" below.
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
a 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 a 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, a Fund's distribution rate may be
substantially different than its yield. Both a Fund's yield and distribution
rate will fluctuate.
AVERAGE ANNUAL TOTAL RETURN
The Funds' 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 a Fund for a specific period is found by first
taking a hypothetical $10,000 investment ("initial investment") in the Fund's
shares on the first day of the period and computing the "redeemable value" of
that investment at the end of the period. The redeemable value is then divided
by the initial investment, and this quotient is taken to the Nth root (N
representing the number of years in the period) and 1 is subtracted from the
result, which is then expressed as a percentage. The calculation assumes that
all income and capital gains dividends paid by the Fund have been reinvested at
net asset value on the reinvestment dates during the period. Average annual
total return figures for various periods are set forth in the table below.
TOTAL RETURN
Calculation of each 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 a
Fund's shares on the first day of the period and computing the "ending value"
of that investment at the end of the period. The total return percentage is
then determined by subtracting the initial investment from the ending value and
dividing the remainder by the initial investment and expressing the result as a
percentage. The calculation assumes that all income and capital gains
dividends paid by the Fund have been reinvested at net asset value on the
reinvestment dates during the period. Total return may also be shown as the
increased dollar value of the hypothetical investment over the period. Total
return figures for various periods are set forth in the table below.
CUMULATIVE TOTAL RETURN
Calculation of each 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.
A Fund's performance figures are based upon historical results and do not
represent future results. Each Fund's shares are sold at net asset value per
share. The Advantage and Municipal Advantage Funds' returns and net asset
values will fluctuate and shares are redeemable at the then current net asset
value of each Fund, which may be more or less than original cost. In addition,
although the Treasury Money, Heritage Money, and Municipal Money Funds seek to
maintain a stable net asset value of $1.00, there is no assurance that any such
Fund will be able to do so. As a result, the yield for these Funds will
fluctuate. An
-38-
<PAGE> 97
investment in the Treasury Money, Heritage Money, and Municipal Money Funds is
neither insured nor guaranteed by the U.S. government. Factors affecting a
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.
The figures below show performance information for various periods ended
December 31, 1994. No adjustment has been made for taxes, if any, payable on
dividends. Securities prices fluctuated during these periods.
ADVANTAGE FUND
<TABLE>
<CAPTION>
Total Average Annual
Return Total Return
------ ------------
Initial Ending Value
$10,000 December 31, Percentage Percentage
Investment 1994 Increase Increase
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Life of Fund(1) $10,000 $15,793 57.93% 7.78%
Five Years 10,000 14,289 42.89 7.40
One Year 10,000 10,356 3.56 3.56
</TABLE>
- -----------------------
(1) November 25, 1988
The Advantage Fund's total return for the three months ending March 31,
1995 was 1.56%. Because the Municipal Advantage Fund did not commence
operations until November 30, 1995, total return information is not yet
available.
TAX-EXEMPT VERSUS TAXABLE YIELD. An investor may want to determine which
investment, tax-exempt or taxable, will provide you with a higher after-tax
return. To determine the tax-equivalent yield, simply divide the yield from
the tax-exempt investment by the sum of (1 minus the investor's marginal tax
rate). The tables below are provided for making this calculation for selected
tax-exempt yield and taxable income levels. These yields are presented for
purposes of illustration only and are not representative of any yield that a
Fund may generate. The tables are based upon the 1995 federal tax rates (in
effect as of December 31, 1994).
TAXABLE EQUIVALENT YIELD
<TABLE>
<CAPTION>
A TAX-FREE YIELD OF:
------------------------------------------------------------
4% 5% 6% 7% 8%
1995 Taxable Income Levels
- ----------------------------------------------------------------------------------------------------------------------
Single Married Filing Marginal IS EQUIVALENT TO A TAXABLE YIELD OF:
Jointly Tax Rate
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
under 23,351 under 39,001 15% 4.71% 5.88% 7.06% 8.24% 9.41%
23,351-56,550 39,001-94,250 28% 5.56% 6.94% 8.33% 9.72% 11.11%
56,551-117,950 94,251-143,600 31% 5.80% 7.25% 8.70% 10.14% 11.59%
117,951-256,500 143,601-256,500 36% 6.25% 7.81% 9.38% 10.94% 12.50%
over 256,500 over 256,500 39.6% 6.62% 8.28% 9.93% 11.59% 13.25%
</TABLE>
COMPARISONS
(1) U.S. TREASURY BILLS, NOTES, OR BONDS
Investors may want to compare the performance of a Fund to that of U.S.
Treasury bills, notes or bonds, which are issued by the U.S. government
because such investments represent alternative income producing products.
Treasury obligations are issued in selected denominations. Rates of Treasury
obligations are fixed at the time of issuance and payment of principal and
interest is backed by the full faith and credit of the United States Treasury.
The market value of such instruments will generally fluctuate inversely with
interest rates prior to maturity and will equal par value at maturity.
Generally, the values of obligations with shorter maturities will fluctuate
less than those with longer maturities.
-39-
<PAGE> 98
(2) CERTIFICATES OF DEPOSIT
Investors may want to compare a Fund's performance to that of
certificates of deposit offered by banks and other depositary institutions.
Certificates of deposit, which are taxable income producing products, may offer
fixed or variable interest rates and principal is guaranteed and may be
insured. Withdrawal of the deposits prior to maturity normally will be subject
to a penalty. Rates offered by banks and other depositary institutions are
subject to change at any time specified by the issuing institution.
(3) MONEY MARKET FUNDS
Investors may also want to compare performance of a Fund to that of money
market funds. Money market fund yields will fluctuate and an investment in
money market fund shares is neither insured nor guaranteed by the U.S.
government, but share values usually remain stable.
(4) LIPPER ANALYTICAL SERVICES, INC. ("LIPPER") AND OTHER INDEPENDENT RANKING
ORGANIZATIONS
From time to time, in marketing and other fund literature, a 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. A Fund
will be compared to Lipper's appropriate fund category, that is, by fund
objective and portfolio holdings. A Fund's performance may also be compared to
the average performance of its Lipper category. Lipper also issues a monthly
yield analysis for fixed income funds.
(5) MORNINGSTAR, INC.
A Fund's performance may also be compared to the performance of other
mutual funds by Morningstar, Inc. which rates funds on the basis of historical
risk and total return. Morningstar's ratings range from five stars (highest)
to one star (lowest) and represent Morningstar's assessment of the historical
risk level and total return of a fund as a weighted average for 3, 5, and 10
year periods. Ratings are not absolute and do not represent future results.
(6) IBC/DONOGHUE, INC. (TREASURY MONEY, HERITAGE MONEY AND MUNICIPAL MONEY
FUNDS ONLY)
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, Inc. data may be quoted or compared to the
Treasury Money, Heritage Money and Municipal Money Funds' 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) INDIVIDUAL MUNICIPAL BONDS (MUNICIPAL ADVANTAGE FUND ONLY)
The Municipal Advantage Fund may compare and contrast in advertising the
relative advantages of investing in a mutual fund versus an individual
municipal bond. Unlike municipal bond mutual funds, individual municipal bonds
offer a stated rate of interest and, if held to maturity, repayment of
principal. Although some individual municipal bonds might offer a higher
return, they may not offer the reduced risk of a mutual fund which invests in
many different securities. The initial investment requirements and sales
charges of many municipal bond mutual funds are lower than the purchase cost of
individual municipal bonds, which are generally issued in $5,000 denominations
and are subject to direct brokerage costs.
(8) 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 a Fund, especially those with similar
objectives. Sources for Fund performance information and articles about a Fund
may include publications such as Money, Forbes, Kiplinger's, Smart Money,
Financial World, Business Week, U.S. News and World Report, The Wall Street
Journal, Barron's, and a variety of investment newsletters.
-40-
<PAGE> 99
(9) VARIOUS BANK PRODUCTS (EXCEPT ADVANTAGE AND MUNICIPAL ADVANTAGE FUNDS)
Each of the Treasury Money, Heritage Money, and Municipal Money 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 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 each Fund are redeemable at the net asset value (normally, $1.00 per share)
next determined after a request is received, without charge (with the exception
of a $3.00 redemption fee charged by the Heritage Money Fund under certain
circumstances).
(10) INDICES
The Funds may compare their performance to a wide variety of indices
including the following:
(a) The Consumer Price Index
(b) Bond Buyer Index
(c) Bond Buyer 1-Year Note
(d) Merrill Lynch 91 Day Treasury Bill Index
(e) Merrill Lynch Government/Corporate 1-3 Year Index
(f) IBC/Donoghue's Taxable Money Fund Average(TM)
(g) IBC/Donoghue's Tax-Free Money Fund Average
(h) IBC/Donoghue's Government Money Fund Average(TM)
(i) Salomon Brothers 1-Month Treasury Bill Index
(j) Salomon Brothers 3-Month Treasury Bill Index
(k) Salomon Brothers 1-Year Treasury Benchmark-on-the-Run Index
(l) Salomon Brothers 1-3 Year Treasury/Government-Sponsored/Corporate
Bond Index
(m) Salomon Brothers High Grade Corporate Bond Index
(n) Salomon Brothers Corporate Bond Index
(o) Salomon Brothers AAA, AA, A, BBB, and BB Corporate Bond Indexes
(p) Salomon Brothers Broad Investment-Grade Bond Index
(q) Salomon Brothers High-Yield BBB Index
(r) Lehman Brothers Aggregate Bond Index
(s) Lehman Brothers 1-3 Year Government/Corporate Bond Index
(t) Lehman Brothers Intermediate Government/Corporate Bond Index
(u) Lehman Brothers Intermediate AAA, AA, and A Corporate Bond Indexes
(v) Lehman Brothers Government/Corporate Bond Index
(w) Lehman Brothers Corporate Baa Index
-41-
<PAGE> 100
(x) Lehman Brothers Intermediate Corporate Baa Index
(y) Lehman Brothers Municipal Bond Index
(z) Lehman Brothers 1-Year Municipal Bond Index
(aa) Lehman Brothers 3-Year Municipal Bond Index
(bb) Lehman Brothers Insured Municipal Bond Index
(cc) Lehman Brothers Baa Municipal Bond Index
(dd) S&P Municipal One Million 1-Year Index
There are differences and similarities between the investments which a
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.
(11) HISTORICAL ASSET CLASS RETURNS
From time to time, marketing materials may portray the historical returns
of various asset classes. Such presentations will typically compare the
average annual rates of return of inflation, U.S. Treasury bills, bonds, common
stocks, and small stocks. There are important differences between each of these
investments that should be considered in viewing any such comparison. The
market value of stocks will fluctuate with market conditions, and small-stock
prices generally will fluctuate more than large-stock prices. Stocks are
generally more volatile than bonds. In return for this volatility, stocks have
generally performed better than bonds or cash over time. Bond prices generally
will fluctuate inversely with interest rates and other market conditions, and
the prices of bonds with longer maturities generally will fluctuate more than
those of shorter-maturity bonds. Interest rates for bonds may be fixed at the
time of issuance, and payment of principal and interest may be guaranteed by
the issuer and, in the case of U.S. Treasury obligations, backed by the full
faith and credit of the U.S. Treasury.
(12) 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.
-42-
<PAGE> 101
<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 Current income, a stable share price, and daily liquidity.
Strong Municipal Money Market Federally tax-exempt current income, a stable share-price, and daily
Fund liquidity.
Strong Municipal Advantage Fund Federally tax-exempt current income with a very low degree of
share-price fluctuation.
Strong Advantage Fund Current income with a very low degree of share-price fluctuation.
Strong Short-Term 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 Bond Fund Total return by investing for a high level of current income and capital
growth.
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 Equity Income Fund* Total return by investing for both income and capital growth.
Strong American Utilities Fund Total return by investing for both income and capital growth.
Strong Total Return Fund High total return by investing for capital growth and income.
Strong Growth and Income Fund* High total return by investing for capital growth and income.
Strong Value Fund Capital growth.
Strong Opportunity Fund Capital growth.
Strong Growth Fund Capital growth.
Strong Common Stock Fund* Capital growth.
Strong Small Cap Fund* Capital growth.
Strong Discovery Fund Capital growth.
Strong International Stock Fund Capital growth.
Strong Asia Pacific Fund Capital growth.
</TABLE>
* The 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.
-43-
<PAGE> 102
Each 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.
(13) TYING TIME FRAMES TO YOUR GOALS
There are many issues to consider as you make your investment decisions,
including analyzing your risk tolerance, investing experience, and asset
allocations. You should start to organize your investments by learning to link
your many financial goals to specific time frames. Then you can begin to
identify the appropriate types of investments to help meet your goals. As a
general rule of thumb, the longer your time horizon, the more price fluctuation
you will be able to tolerate in pursuit of higher returns. For that reason,
many people with longer-term goals select stocks or long-term bonds, and many
people with nearer-term goals match those up with for instance, short-term
bonds. The Advisor developed the following suggested holding periods to help
our investors set realistic expectations for both the risk and reward potential
of our funds. (See table below.) Of course, time is just one element to
consider when making your investment decision.
STRONG FUNDS SUGGESTED MINIMUM HOLDING PERIODS
<TABLE>
<CAPTION>
UNDER 1 YEAR 1 TO 2 YEARS 4 TO 7 YEARS 5 OR MORE YEARS
------------ ------------ ------------ ---------------
<S> <C> <C> <C>
U.S. Treasury Money Fund Municipal Advantage Fund Government Securities Total Return Fund
Money Market Fund Advantage Fund Fund Opportunity Fund
Heritage Money Fund Insured Municipal Bond Growth Fund
Municipal Money Market 2 TO 4 YEARS Fund Common Stock Fund*
Fund ------------
Short-Term Bond Fund Municipal Bond Fund Discovery Fund
Short-Term Municipal Bond Corporate Bond Fund International Stock
Fund International Bond Fund Fund
Short-Term Global Bond High-Yield Municipal Bond Asia Pacific Fund
Fund Fund Value Fund
Asset Allocation Fund Small Cap Fund*
American Utilities Fund Equity Income Fund*
High-Yield Bond Fund Growth and Income
Fund*
</TABLE>
*This fund is currently closed to new investors.
ADDITIONAL FUND INFORMATION
(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.
-44-
<PAGE> 103
(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 a 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 E(x - x )
i m
-----------
n-1
where E = "the sum of",
x = each individual return during the time period,
i
x = the average return over the time period, and
m
n = the number of individual returns during the time period.
Statistics may also be used to discuss a Fund's relative performance. One
such measure is alpha. Alpha measures the actual return of a fund compared to
the expected return of a fund given its risk (as measured by beta). The
expected return is based on how the market as a whole performed, and how the
particular fund has historically performed against the market. Specifically,
alpha is the actual return less the expected return. The expected return is
computed by multiplying the advance or decline in a market representation by
the fund's beta. A positive alpha quantifies the value that the fund manager
has added, and a negative alpha quantifies the value that the fund manager has
lost.
Other measures of volatility and relative performance may be used as
appropriate. However, all such measures will fluctuate and do not represent
future results.
GENERAL INFORMATION
BUSINESS PHILOSOPHY
The Advisor is an independent, Midwestern-based investment advisor, owned
by professionals active in its management. Recognizing that investors are the
focus of its business, the Advisor strives for excellence both in investment
management and in the service provided to investors. This commitment affects
many aspects of the business, including professional staffing, product
development, investment management, and service delivery. 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 Funds may be used in advertisements and sales materials. Such factors
that may impact the Funds 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.
-45-
<PAGE> 104
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. By
investing regularly over the long term, you reduce the impact of
short-term market gyrations, and you attend to your long-term plan before
you are tempted to spend those assets on short-term needs.
5. Maintain a long-term perspective. For most individuals, the best
discipline is staying invested as market conditions change. Reactive,
emotional investment decisions are all too often a source of regret - and
principal loss.
6. Consider stocks to help achieve major long-term goals. Over time, stocks
have provided the more powerful returns needed to help the value of your
investments stay well ahead of inflation.
7. Keep a comfortable amount of cash in your portfolio. To meet current
needs, including emergencies, use a money market fund or a bank account -
not your long-term investment assets.
8. Know what you're buying. Make sure you understand the potential risks and
rewards associated with each of your investments. Ask questions... request
information...make up your own mind. And choose a fund company that helps
you make informed investment decisions.
STRONG RETIREMENT PLAN SERVICES
Strong Retirement Plan Services offers a full menu of high quality,
affordable retirement plan options, including traditional money purchase
pension and profit sharing plans, 401(k) plans, simplified employee pension
plans, salary reduction plans, Keoghs, and 403(b) plans. Retirement plan
specialists are available to help companies determine which type of retirement
plan may be appropriate for their particular situation.
Markets:
The retirement plan services provided by the Advisor focus on four
distinct markets, based on the belief that a retirement plan should fit the
customer's needs, not the other way around.
1. Small company plans. Small company plans are designed for companies with
1-50 plan participants. The objective is to incorporate the features and
benefits typically reserved for large companies, such as sophisticated
recordkeeping systems, outstanding service, and investment expertise, into
a small company plan without administrative hassles or undue expense.
Small company plan sponsors receive a comprehensive plan administration
manual as well as toll-free telephone support.
2. Large company plans. Large company plans are designed for companies with
between 51 and 1,000 plan participants. Each large company plan is
assigned a team of professionals consisting of an account manager, who is
typically an attorney, CPA, or holds a graduate degree in business, a
conversion specialist (if applicable), an accounting manager, a
legal/technical manager, and an education/communications educator.
-46-
<PAGE> 105
3. Women-owned businesses.
4. Non-profit and educational organizations (the 403(b) market).
Turnkey approach:
The retirement plans offered by the Advisor are designed to be
streamlined and simple to administer. To this end, the Advisor has invested
heavily in the equipment, systems, and people necessary to adopt or convert a
plan, and to keep it running smoothly. The Advisor provides all aspects of the
plan, including plan design, administration, recordkeeping, and investment
management. To streamline plan design, the Advisor provides customizable
IRS-approved prototype documents. The Advisor's services also include annual
government reporting and testing as well as daily valuation of each
participant's account. This structure is intended to eliminate the confusion
and complication often associated with dealing with multiple vendors. It is
also designed to save plan sponsors time and expense.
The Advisor strives to provide one-stop retirement savings programs
that combine the advantages of proven investment management, flexible plan
design and a wide range of investment options. The open architecture design of
the plans allow for the use of the family of mutual funds managed by the
Advisor as well as a stable asset value option. Large company plans may
supplement these options with their company stock (if publicly traded) or funds
from other well-known mutual fund families.
Education:
Participant education and communication is key to the success of any
retirement program, and therefore is one of the most important services that
the Advisor provides. The Advisor's goal is twofold: to make sure that plan
participants fully understand their options and to educate them about the
lifelong investment process. To this end, the Advisor provides attractive,
readable print materials that are supplemented with audio and video tapes and
retirement education programs.
Service:
The Advisor's goal is to provide a world class level of service. One
aspect of that service is an experienced, knowledgeable team that provides
ongoing support for plan sponsors, both at adoption or conversion and
throughout the life of a plan. The Advisor is committed to delivering accurate
and timely information, evidenced by straightforward, complete, and
understandable reports, participant account statements and plan summaries.
The Advisor has designed both "high-tech" and "high-touch" systems,
providing an automated telephone system as well as personal contact.
Participants can access daily account information, conduct transactions, or
have questions answered in the way that is most comfortable for them.
STRONG FINANCIAL ADVISORS GROUP
The Strong Financial Advisors Group is dedicated to helping financial
advisors better serve their clients. Financial advisors receive regular
updates on the mutual funds managed by the Advisor, access to portfolio
managers through special conference calls, consolidated mailings of duplicate
confirmation statements, access to the Advisor's network of regional
representatives, and other specialized services. For more information on the
Strong Financial Advisors Group, call 1-800-368-1683.
STRONG CASH MANAGEMENT APPROACH
Many investors overlook the importance of managing the "cash" portion
of their portfolios. Often they leave large amounts of cash in low-yielding
accounts for extended periods of time. There is, however, a smarter way to
think about investing these assets. This approach - known as cash management -
has long been used by private banking institutions. Now, this approach is
available to a wider range of investors to provide investors potentially higher
yields for their cash savings. Our Guide to Effective Cash Management
(described below) is designed to help you get more from the "cash" portion of
your portfolio.
-47-
<PAGE> 106
FOUR STEPS TO MANAGING CASH MORE EFFECTIVELY
1. DIVIDE YOUR CASH INTO TWO GROUPS. The first step toward managing your
cash effectively is to think of it as two separate groups:
CURRENT CASH: The portion you generally put aside for regular
transactions - goals less than one year away - and to cover routine
expenditures.
PORTFOLIO CASH: The portion you invest for extended periods - for
goals between one and two years away - to cover unforeseen
emergencies, or as a permanent, conservative position in your
portfolio.
2. CONSIDER YOUR CASH INVESTMENT OPTIONS.
"CONVENIENCE" MONEY FUNDS. Many investors keep current cash and
portfolio cash in "convenience" money funds, which typically require low
minimum initial investments, offer an array of services (such as free
check-writing), but are relatively low-yielding. However, there are other
options:
"Higher-yielding specialized money funds" designed to offer more
income potential than "convenience" money funds. To pursue higher yields, they
often require larger initial investments and impose transaction charges. In
addition, investors in the top tax brackets can pursue higher after-tax yields
by investing in a municipal money fund.
"Ultra-short bond funds" - investments with average effective
maturities of typically one year or less - are designed to PROVIDE HIGHER
YIELDS than money funds. To pursue higher yields, these funds may invest in
lower quality bonds and maintain slightly longer average effective maturities.
Unlike money funds, the SHARE PRICE OF AN ULTRA-SHORT BOND FUND WILL VARY.
3. ALLOCATE YOUR CASH BASED ON HOW YOU INTEND TO USE IT.
The key to managing your cash effectively is to allocate it according
to how you intend to use it. Certainly, it's wise to keep your current cash in
a fund that allows you to draw on it without penalty. But you can supplement
that current cash position with potentially higher-yielding short-term
investments that enable you to earn more income on your portfolio cash.
4. CONSIDER MUNICIPAL INVESTING.
You may be able to further enhance the return potential of your cash
by investing in a municipal fund. Because these funds invest in municipal
securities, the income they earn is exempt from federal income tax. Even if
you're taxed at a lower rate, the difference in income may be dramatic when
taxes don't take a bite out of your earnings.
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 each Fund's portfolio and
adjusting the average portfolio maturity according to the Advisor's interest
rate outlook is the best way to achieve the Funds' 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. Through its active
management approach, the Advisor seeks to avoid or reduce any negative change
in a Fund's net asset value per share during the periods of falling bond
prices.
-48-
<PAGE> 107
U.S. TREASURY MONEY FUND
The Advisor's investment philosophy includes the following basic beliefs:
- - Successful fixed-income management begins with a top-down, fundamental
analysis of the economy, interest rates, and the supply of and demand
for credit.
- - Value can be added through active management of average maturity and
yield curve positioning.
HERITAGE MONEY FUND
The Advisor's investment philosophy includes the following basic beliefs:
- - Successful fixed-income management begins with a top-down, fundamental
analysis of the economy, interest rates, and the supply and demand for
credit.
- - Value can be added through active management of average maturity,
yield curve positioning, sector emphasis, and issue selection.
The Heritage Money 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.
MUNICIPAL MONEY FUND
The Advisor's investment philosophy includes the following basic beliefs:
- - 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.
- - Intensive research on individual issuers can uncover solid investment
opportunities, especially in improving credits.
MUNICIPAL ADVANTAGE FUND
The Advisor believes that the Fund represents an opportunity for investors
seeking higher yields than municipal money market funds generally provide, with
less share-price fluctuation than short-term bond funds generally provide. As
an ultra-short term bond fund with an average effective maturity of one year or
less, the Fund may complement a short-term cash-oriented investment portfolio,
by providing higher risk and return potential than a money market fund.
The Advisor intends to adjust the average effective portfolio maturity,
carefully select market sectors, industries, and issues, and intensively manage
other aspects of the portfolio to pursue the investment objectives of the Fund.
The investment process is research driven, and includes extensive canvassing of
available municipal securities.
The Advisor believes that a considerable portion of the municipal investment
marketplace consists of smaller, local individual issuers which are
underfollowed and which offer potential value. The Advisor intends to actively
seek out such issuers. After locating such issues, independent, fundamental
analysis is conducted to determine their suitability, from the standpoint of
credit risk and return potential, for the portfolio. By this active management
approach, the Advisor intends to add value to the investment selection process,
and to the portfolio as a whole.
-49-
<PAGE> 108
ADVANTAGE FUND
The Advisor's investment philosophy includes the following basic beliefs:
- - Active management pursued by a team with a uniform discipline across
the fixed income spectrum can produce results that are superior to
those produced through passive management.
- - Controlling risk by making only moderate deviations from the defined
benchmark is the cornerstone of successful fixed income investing.
- - Successful fixed income management is best pursued on a top-down basis
utilizing fundamental techniques.
The investment process includes decisions made at four levels that are
consistent with the Advisor's viewpoint of the path of economic activity,
interest rates, and the supply of and demand for credit.
Financial goals vary from person to person. Investors may choose one
or more of the Strong Funds to help them reach their financial goals. To help
you better understand the Strong Cash Management Funds and determine which Fund
or combination of Funds best meets your personal investment objectives, they
are described in the same Prospectus. Though they appear in the same
Prospectus, each of the Strong Cash Management Funds are separately
incorporated investment companies, or series thereof. Because the Funds share
a Prospectus, there may be the possibility of cross liability between the
Funds.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., 411 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, are the independent certified public accountants for the
Funds, providing audit services and assistance and consultation with respect to
the preparation of filings with the SEC.
LEGAL COUNSEL
Godfrey & Kahn, S.C., 780 North Water Street, Milwaukee, Wisconsin
53202, acts as outside legal counsel for the Funds.
-50-
<PAGE> 109
FINANCIAL STATEMENTS
The Annual Reports that are attached hereto contain the following
audited financial information for the Treasury Money, Municipal Money, and
Advantage Funds:
(a) Schedule of Investments in Securities.
(b) Statement of Operations.
(c) Statement of Assets and Liabilities.
(d) Statement of Changes in Net Assets.
(e) Notes to Financial Statements.
(f) Financial Highlights.
(g) Report of Independent Accountants.
The unaudited financial statements for the fiscal period from June 29,
1995 to November 30, 1995 that are attached hereto contain the following
financial information for the Heritage Money Fund:
(a) Schedule of Investments in Securities.
(b) Statement of Operations.
(c) Statement of Assets and Liabilities.
(d) Statement of Changes in Net Assets.
(e) Notes to Financial Statements.
(f) Financial Highlights.
-51-
<PAGE> 110
SCHEDULE OF INVESTMENTS IN SECURITIES November 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
Strong Heritage Money Market Fund
<TABLE>
<CAPTION>
Principal Amortized
Amount (in Yield to Cost (c) (in
Security Thousands) Maturity Maturity Date (b) Thousands)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Banker's Acceptances 1.1%
Bank of Tokyo, Ltd. $1,000 6.00% 1/19/96 $992
5,000 5.82 1/22/96 4,958
Fuji Bank, Ltd. Chicago 1,000 6.09 1/04/96 1,000
---------
Total Banker's Acceptances 6,950
Certificates of Deposit 7.6%
Dai-Ichi Kangyo Bank, Ltd. Yankee Dollar Certificates of Deposit:
5.98% 14,000 5.98 1/16/96 14,001
5.93% 5,000 5.93 1/25/96 5,000
6.18% 3,320 6.18 1/30/96 3,321
Fuji Bank, Ltd. New York Yankee Dollar Certificate of Deposit 15,000 6.02 1/12/96 15,000
Sumitomo Bank, Ltd. Yankee Dollar Certificate of Deposit 11,800 6.00 1/12/96 11,800
---------
Total Certificates of Deposit 49,122
Corporate Commercial Paper 70.8%
American Honda Finance Corporation 10,000 5.72 3/14/96 9,835
Anaheim, California Electric System 2,000 5.90 2/01/96 2,000
Aristar, Inc. 5,000 5.84 1/03/96 4,973
13,300 5.80 1/18/96 13,197
5,135 5.80 1/19/96 5,094
Astro Capital Corporation 7,150 5.85 12/08/95 7,142
Brazos River Authority, Texas Pollution Control Revenue 7,285 5.90 12/20/95 7,285
6,700 5.90 12/27/95 6,700
Brownsville, Texas Utility Systems 4,000 5.78 12/13/95 3,992
Dayton Hudson Corporation 5,000 5.79 12/01/95 5,000
5,000 5.80 12/26/95 4,980
5,000 5.86 1/09/96 4,968
10,000 5.87 1/10/96 9,935
3,260 5.85 1/16/96 3,236
Dynamic Funding Corporation 4,616 5.92 1/04/96 4,590
7,629 5.90 1/31/96 7,553
Equitable of Iowa Companies 15,100 5.85 12/05/95 15,090
Finova Capital Corporation 1,800 5.97 1/04/96 1,790
5,800 5.94 1/23/96 5,749
8,275 5.94 1/24/96 8,201
</TABLE>
<PAGE> 111
<TABLE>
<S> <C> <C> <C> <C>
3,800 5.92 1/25/96 3,766
4,600 5.88 1/26/96 4,558
4,125 5.87 1/29/96 4,085
3,600 5.79 3/07/96 3,544
Fleet Mortgage Group, Inc. 15,700 5.80 12/06/95 15,687
Frontier Corporation 15,000 5.88 1/26/96 14,863
General Mills, Inc. 212 5.44 Upon Demand 212
Hartz 667 Corporation 5,447 6.05 1/22/96 5,399
Heller Financial, Inc. 8,000 5.95 1/23/96 7,930
5,000 6.05 1/29/96 4,950
5,630 5.95 1/30/96 5,574
International Securitization 6,370 5.80 12/22/95 6,348
5,145 5.70 4/15/96 5,034
Leathers L.P. 3,480 5.90 2/06/96 3,442
Locap, Inc. 4,000 5.90 1/04/96 3,978
Mercury Finance Corporation 2,100 5.86 12/04/95 2,099
4,850 5.90 12/05/95 4,847
2,850 5.88 1/17/96 2,828
2,000 5.87 1/22/96 1,983
1,200 5.87 1/24/96 1,189
1,300 5.93 1/30/96 1,287
2,500 5.87 2/09/96 2,471
2,000 5.92 2/12/96 1,976
3,350 5.92 2/13/96 3,309
4,000 5.94 2/15/96 3,950
1,300 5.92 2/20/96 1,283
2,290 5.94 2/27/96 2,257
2,150 5.92 2/29/96 2,118
Mitsubishi Motors Credit of America, Inc. 2,380 5.80 12/20/95 2,373
New England Power Company 8,300 6.00 1/22/96 8,300
4,875 5.95 2/23/96 4,875
City of New York General Obligation 1,325 6.10 2/14/96 1,325
New York State Job Development Authority 2,670 6.00 12/22/95 2,670
1,335 6.00 12/27/95 1,335
6,370 5.98 12/28/95 6,370
6,200 5.95 2/05/96 6,200
6,675 6.05 2/20/96 6,675
Orix America, Inc. 2,000 5.96 1/16/96 1,985
8,000 5.70 5/29/96 7,772
Pitney Bowes Credit Corporation 21 5.45 Upon Demand 21
Quaker Oats Company 10,000 5.87 1/18/96 9,922
Salomon, Inc. 4,145 5.92 12/01/95 4,145
5,500 5.95 12/14/95 5,488
</TABLE>
<PAGE> 112
<TABLE>
<S> <C> <C> <C> <C>
2,520 5.95 12/27/95 2,509
5,040 5.95 12/28/95 5,018
12,360 5.95 12/29/95 12,303
San Diego, California Industrial Development Revenue - San Diego Gas & Electric
Company (Acquired 10/6/95; Cost $6,895)(a) 6,895 5.95 12/18/95 6,895
Sara Lee Corporation 213 5.43 Upon Demand 213
Seiko Corporation of America 6,000 6.03 2/22/96 5,917
2,000 6.00 2/28/96 1,970
Sierra Funding Corporation 6,200 6.03 1/25/96 6,143
Society of the New York Hospital Fund, Inc. 10,000 5.88 2/14/96 9,878
Strait Capital Corporation 3,868 5.98 1/08/96 3,843
Strategic Asset Funding Corporation 6,000 5.95 2/26/96 5,914
Sunshine State Government Finance 9,670 5.90 12/13/95 9,651
8,830 5.85 12/29/95 8,790
Torchmark Corporation 5,775 5.78 12/07/95 5,769
9,750 5.82 2/02/96 9,651
5,400 5.78 2/14/96 5,335
7,755 5.78 2/16/96 7,659
Tri-Lateral Capital, Inc. 5,540 6.00 2/16/96 5,469
Washington Square Mortgage Company 3,200 5.87 12/18/95 3,191
Wisconsin Electric Power Company 57 5.49 Upon Demand 57
Working Capital Management Company, Limited Partnership 7,125 5.85 12/19/95 7,104
8,600 6.10 1/31/96 8,511
---------
Total Corporate Commercial Paper 453,523
Corporate Floating Rate Notes 1.6%
American Honda Finance Corporation (Acquired 11/27/95; Cost $10,099)(a) 10,100 6.06 7/03/96 10,099
Corporate Obligations 12.4%
AT & T Capital Corporation Medium Term Notes, 6.19% 4,150 5.90 4/30/96 4,155
Bankers Trust NY Corporation, 4.70% 8,000 5.95 7/01/96 7,943
Beta Finance, Inc. Medium Term Notes, 6.00% 2,000 6.12 7/29/96 1,998
Chrysler Financial Corporation Notes, 7.61% 7,920 5.90 10/30/96 8,039
Chrysler Financial Corporation Medium Term Notes, 10.34% 4,090 6.23 5/15/96 4,165
Chrysler Financial Corporation Medium Term Notes, Tranche #20, 6.00% 5,000 6.01 6/17/96 5,000
Cooper Industries, Inc., 7.60% 3,000 5.96 10/15/96 3,041
Countrywide Funding Corporation Medium Term Notes, Tranche #20, 6.10% 1,000 6.01 7/31/96 1,000
First Interstate Bancorp Debentures, 10.50% 2,050 6.05 3/01/96 2,073
First National Bank Akron, Ohio Medium Term Notes, Tranche 1, 5.95% 7,000 5.91 8/01/96 7,002
General Motors Acceptance Corporation, 8.00% 1,000 6.07 10/01/96 1,016
General Motors Acceptance Corporation Medium Term Notes:
Tranche #533, 8.70% 5,450 5.99 5/01/96 5,510
</TABLE>
<PAGE> 113
<TABLE>
<S> <C> <C> <C> <C>
Tranche #552, 8.60% 1,000 5.91 5/10/96 1,011
Tranche #623, 8.80% 3,550 5.94 7/08/96 3,609
Tranche #694, 8.70% 1,100 6.07 8/02/96 1,119
Tranche #728, 8.375% 2,000 6.08 9/04/96 2,034
Tranche #883, 7.80% 3,675 6.02 11/15/96 3,735
Harsco Corporation, 8.75% 2,350 6.00 5/15/96 2,379
Huntington National Bank Medium Term Notes, Tranche #30, 6.05% 3,000 6.14 8/01/96 2,998
Lehman Brothers, Inc. Notes, 9.75% 6,395 6.14 4/01/96 6,471
Smith Barney Holdings, Inc. Notes, 5.375% 1,000 6.03 6/01/96 997
Washington Gas Light Company, 7.875% 2,500 6.02 9/01/96 2,534
Waste Management, Inc. 4,550 6.15 6/30/96 1,726
---------
Total Corporate Obligations 79,555
Taxable Municipal Variable Rate Put Bonds 6.5%
Aurora, Kane & Dupage Counties, Illinois Industrial Development Revenue 3,300 6.13 12/07/95 3,300
Galliano Marine Services, Inc. 6,300 5.95 12/07/95 6,300
Gardena, California First-Time Homebuyer Refunding Program 5,250 6.15 12/06/95 5,250
Kinder-Care Learning Centers, Inc. Industrial Refunding - Kinder-Care Learning
Centers, Inc. Projects 4,500 6.02 12/06/95 4,500
Maine Regional Waste System, Inc.- Solid Waste Resource Recovery Revenue 2,200 6.00 12/06/95 2,200
Montgomery County, Pennsylvania Industrial Development Authority Revenue 830 6.10 12/06/95 830
New Jersey Sports & Exposition Authority Sports Complex Subordinated Refunding
Revenue 2,000 5.98 12/01/95 2,000
Passaic County, New Jersey General Obligation Refunding 13,900 5.90 12/06/95 13,900
Thayer Properties, LLC 3,200 5.95 12/07/95 3,200
---------
Total Taxable Municipal Variable Rate Put Bonds 41,480
---------
Total Investments In Securities 100.0% 640,729
Other Assets and Liabilities, Net 0.0% (140)
---------
Net Assets 100.0% $640,589
=========
</TABLE>
See notes to financial statements.
(a) Restricted Security.
(b) Maturity date represents actual maturity, earliest put date, or for U.S.
Government Agency Securities, the next interest adjustment date.
(c) Amortized cost for Federal income tax and financial reporting purposes is
the same.
<PAGE> 114
STATEMENTS OF OPERATIONS
For the Period June 29,1995 (Inception) to November 30, 1995 (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Strong Heritage
Money
---------------
<S> <C>
Interest Income $ 7,711
Expenses:
Investment Advisory Fees 399
Custodian Fees 9
Shareholder Servicing Costs 23
Reports to Shareholders 23
Federal and State Registration Fees 20
Other 1
-------
Total Expenses before Waivers and Absorptions 475
Voluntary Expense Waivers and Absorptions by Advisor (475)
-------
Expenses, Net 0
-------
Net Investment Income $ 7,711
=======
</TABLE>
See notes to financial statements.
<PAGE> 115
STATEMENTS OF ASSETS AND LIABILITIES
November 30, 1995 (Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Strong Heritage
Money
---------------
<S> <C>
Assets:
Investments in Securities, at Amortized Cost $ 640,729
Interest Receivable 2,747
Other 81
----------
Total Assets 643,557
Liabilities:
Dividends Payable 2,886
Accrued Operating Expenses and Other
Liabilities 82
----------
Total Liabilities 2,968
----------
Net Assets $ 640,589
==========
Capital Shares
Authorized 2,000,000
Outstanding 640,589
Net Asset Value Per Share $1.00
==========
Net Assets Consist of:
Capital (Par Value and Paid-in Surplus) $ 640,589
==========
</TABLE>
See notes to financial statements.
<PAGE> 116
STATEMENT OF CHANGES IN NET ASSETS
For the Period June 29,1995 (Inception) to November 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
Strong Heritage
Money
---------------
<S> <C>
Operations:
Net Investment Income $ 7,711
Capital Share Transactions:
Proceeds from Shares Sold 792,239
Proceeds from Reinvestment of Distributions 4,170
Payment for Shares Redeemed (155,920)
---------
Net Increase in Net Assets from Capital Share Transactions 640,489
Distributions:
From Net Investment Income (7,711)
---------
Total Increase in Net Assets 640,489
Net Assets:
Beginning of Period 100
---------
End of Period $ 640,589
=========
Transactions in Shares of the Fund:
(In Thousands)
Sold 792,239
Issued in Reinvestment of Distributions 4,170
Redeemed (155,920)
---------
Net Increase 640,489
=========
</TABLE>
See notes to financial statements.
<PAGE> 117
NOTES TO FINANCIAL STATEMENTS
November 30, 1995 (Unaudited)
1. ORGANIZATION
The Strong Heritage Money Fund is a diversified series of Strong Heritage
Reserve Series, Inc., an open-end management investment company registered
under the Investment Company Act of 1940.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.
(A) Security Valuation ---Investments are valued using the
amortized cost method or original cost, both of which approximate
current value.
The Fund owns certain investment securities which are
restricted as to resale. These securities are valued by the Fund
after giving due consideration to pertinent factors including
recent private sales, market conditions and the issuer's financial
performance. The Fund bears the costs, if any, associated with the
disposition of restricted securities. Where such disposition
depends on a security's registration under the Securities Act of
1933, the Fund will bear such registration costs unless the Fund
has registration rights, in which case the issuer will bear such
costs. Aggregate cost and fair value (in thousands) of these
restricted securities at November 30, 1995 were $16,994 and $16,994
respectively, representing 2.7% of net assets of the Fund.
(B) Federal Income and Excise Taxes and Distributions to
Shareholders ---It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to shareholders. Accordingly, no Federal income or
excise tax provision is required.
(C) Deferred Organizational Costs --- Costs incurred by the Fund in
connection with its organization and initial registration and
public offering of shares have been deferred and are being
amortized to expense over a sixty-month period. These costs were
advanced by the Advisor and will be reimbursed by the Fund over a
period of not more than sixty months.
(D) Other --- Investment security transactions are recorded on the
trade date. Dividend distributions to shareholders are
recorded on the ex-dividend date. Interest income is recorded on
the accrual basis and includes amortization of premiums and
discounts.
3. RELATED PARTY TRANSACTIONS
Strong Capital Management, Inc. (the "Advisor"), with whom certain
officers and directors of the Fund are affiliated, provides investment
advisory services and shareholder recordkeeping and related services to the
Fund. The investment advisory fee, which is established by terms of the
Advisory Agreement, is based on an annualized rate of .50% of the average
daily net assets of the Fund. Advisory fees are subject to reimbursement by
the Advisor if the Fund's operating expenses exceed certain levels.
Shareholder recordkeeping and related service fees are based on
contractually established rates for each open and closed shareholder
account. In addition, the Advisor is compensated for certain other
services related to costs incurred for reports to shareholders. Excluding
the effects of waivers and reimbursements, the amount payable (in
thousands) to the Advisor at November 30, 1995 was $84.
<PAGE> 118
FINANCIAL HIGHLIGHTS
The following presents information relating to a share of capital stock of the
Fund, outstanding for the entire period.
STRONG HERITAGE MONEY FUND
<TABLE>
<CAPTION>
1995**
------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
Net Investment Income 0.03
Dividends from Net Investment Income (0.03)
--------
NET ASSET VALUE, END OF PERIOD $ 1.00
========
Total Return +2.6%
Net Assets, End of Period (In Thousands) $640,589
Ratio of Expenses to Average Net Assets 0.0%*
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 0.4%*
Ratio of Net Investment Income to Average
Net Assets 6.0%*
</TABLE>
* Calculated on an annualized basis.
** For the period from June 29, 1995 (inception) to November 30,1995. Total
return is not annualized.
<PAGE> 119
APPENDIX
BOND RATINGS
STANDARD & POOR'S DEBT RATINGS
A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended, or
withdrawn as a result of changes in, or unavailability of, such information, or
for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default -- capacity and willingness of
the obligor as to the timely payment of interest and
repayment of principal in accordance with the terms
of the obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy,
reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditors'
rights.
INVESTMENT GRADE
AAA Debt rated 'AAA' has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA Debt rated 'AA' has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small degree.
A Debt rated 'A' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB Debt rated 'BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. 'BB' indicates the least degree of speculation
and 'C' the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
BB Debt rated 'BB' has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The 'BB' rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied 'BBB-' rating.
B Debt rated 'B' has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest
A-1
<PAGE> 120
and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-'
rating.
CCC Debt rated 'CCC' has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The 'CCC'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'B' or 'B-' rating.
CC Debt rated 'CC' typically is applied to debt subordinated to senior
debt that is assigned an actual or implied 'CCC' rating.
C Debt rated 'C' typically is applied to debt subordinated to senior
debt which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating
may be used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.
CI The rating 'CI' is reserved for income bonds on which no interest
is being paid.
D Debt rated 'D' is in payment default. The 'D' rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grade period. The 'D' rating also will
be used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
MOODY'S LONG-TERM DEBT RATINGS
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
A-2
<PAGE> 121
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
FITCH INVESTORS SERVICE, INC. BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be
provided by insurance policies or financial guaranties unless otherwise
indicated.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any
security. Ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt nature
or taxability of payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely
to be affected by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong
as bonds rated 'AAA'. Because bonds rated in the 'AAA' and
'AA' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of the
issuers is generally rated 'F-1+'.
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes
in economic conditions and circumstances, however, are more
likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than
for bonds with higher ratings.
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
('BB' to 'C') represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ('DDD' to 'D') is an
assessment of the ultimate recovery value through reorganization or
liquidation.
A-3
<PAGE> 122
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories cannot fully reflect the
differences in the degrees of credit risk. Moreover, the character of the risk
factor varies from industry to industry and between corporate, health care and
municipal obligations.
BB Bonds are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by
adverse economic changes. However, business and financial
alternatives can be identified which could assist the obligor
in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the
probability of continued timely payment of principal and
interest reflects the obligor's limited margin of safety and
the need for reasonable business and economic activity
throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet
obligations requires an advantageous business and economic
environment.
CC Bonds are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C Bonds are in imminent default in payment of interest or
principal.
DDD, DD
and, D Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on
the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. 'DDD' represents the highest
potential for recovery of these bonds, and 'D' represents the
lowest potential for recovery.
DUFF & PHELPS, INC. LONG-TERM DEBT RATINGS
These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks related to
such factors as competition, government action, regulation, technological
obsolescence, demand shifts, cost structure, and management depth and
expertise. The projected viability of the obligor at the trough of the cycle
is a critical determination.
Each rating also takes into account the legal form of the security,
(e.g., first mortgage bonds, subordinated debt, preferred stock, etc.). The
extent of rating dispersion among the various classes of securities is
determined by several factors including relative weightings of the different
security classes in the capital structure, the overall credit strength of the
issuer, and the nature of covenant protection. Review of indenture
restrictions is important to the analysis of a company's operating and
financial constraints.
The Credit Rating Committee formally reviews all ratings once per
quarter (more frequently, if necessary). Ratings of 'BBB-' and higher fall
within the definition of investment grade securities, as defined by bank and
insurance supervisory authorities.
A-4
<PAGE> 123
<TABLE>
<CAPTION>
RATING SCALE DEFINITION
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
AAA Highest credit quality. The risk factors are negligible, being only slightly more
than for risk-free U.S. Treasury debt.
- -----------------------------------------------------------------------------------------------------------------
AA+ High credit quality. Protection factors are strong. Risk is modest, but may
AA vary slightly from time to time because of economic conditions.
AA-
- -----------------------------------------------------------------------------------------------------------------
A+ Protection factors are average but adequate. However, risk factors are more
A variable and greater in periods of economic stress.
A-
- -----------------------------------------------------------------------------------------------------------------
BBB+ Below average protection factors but still considered sufficient for prudent
BBB investment. Considerable variability in risk during economic cycles.
BBB-
- -----------------------------------------------------------------------------------------------------------------
BB+ Below investment grade but deemed likely to meet obligations when due.
BB Present or prospective financial protection factors fluctuate according to
BB- industry conditions or company fortunes. Overall quality may move up or
down frequently within this category.
- -----------------------------------------------------------------------------------------------------------------
B+ Below investment grade and possessing risk that obligations will not be met
B when due. Financial protection factors will fluctuate widely according to
B- economic cycles, industry conditions and/or company fortunes. Potential
exists for frequent changes in the rating within this category or into a higher
or lower rating grade.
- -----------------------------------------------------------------------------------------------------------------
CCC Well below investment grade securities. Considerable uncertainty exists as to
timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
- -----------------------------------------------------------------------------------------------------------------
DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP Preferred stock with dividend arrearages.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
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-5
<PAGE> 124
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.
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
A-6
<PAGE> 125
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.
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+'.
A-7
<PAGE> 126
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 is defined as not only cash from
operations, but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.
Rating Scale: Definition
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.
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.
A-8
<PAGE> 127
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.
THOMSON BANKWATCH (TBW) SHORT-TERM RATINGS
The TBW Short-Term Ratings apply, unless otherwise noted, to
unsubordinated instruments of the rated entities with a maturity of one year or
less, including deposits, bank notes, bankers' acceptances, federal funds,
letters of credit, commercial paper and other obligations comparable in
priority and security to those specifically listed herein. These ratings do
not consider any collateral or security as the basis for the rating, although
some of the securities may in fact have collateral. Further, these ratings do
not incorporate consideration of the possible sovereign risk associated with a
foreign deposit (defined as a deposit taken in a branch outside the country in
which the rated entity is headquartered) of the rated entity. TBW Short-Term
Ratings are intended to assess the likelihood of an untimely or incomplete
payment of principal or interest.
TBW-1 The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1".
TBW-3 The lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
IBCA SHORT-TERM RATINGS
IBCA Short-Term Ratings assess the borrowing characteristics of banks and
corporations, and the capacity for timely repayment of debt obligations. The
Short-Term Ratings relate to debt which has a maturity of less than one year.
A1+ Obligations supported by the highest capacity for timely repayment
and possess a particularly strong credit feature.
A1 Obligations supported by the highest capacity for timely repayment.
A2 Obligations supported by a good capacity for timely repayment.
A3 Obligations supported by a satisfactory capacity for timely
repayment.
B Obligations for which there is an uncertainty as to the capacity to
ensure timely repayment.
C Obligations for which there is a high risk of default or which are
currently in default.
D Obligations which are currently in default.
A-9
<PAGE> 128
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 Parts A & B)
Schedules of Investments in Securities
Statement of Operations
Statement of Assets and Liabilities
Statement of Changes in Net Assets
Notes to Financial Statements
Financial Highlights
(b) Exhibits
(1) Amended and Restated Articles of Incorporation
(2) Restated Bylaws
(3) Inapplicable
(4) Specimen Stock Certificate
(5) Investment Advisory Agreement
(6) Distribution Agreement
(7) Inapplicable
(8) Custody Agreement
(9) Shareholder Servicing Agent Agreement
(10) Inapplicable
(11) Inapplicable
(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) Letter of Representation
(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 November 30, 1995
-------------- ---------------------------
<S> <C>
Common Stock, $.00001 par value
Strong Heritage Money Fund 3,647
</TABLE>
C-1
<PAGE> 129
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 Funds - Management" in the
Prospectus and under "Directors and Officers of the Funds" and "Investment
Advisor and Distributor" in the Statement of Additional Information is hereby
incorporated by reference pursuant to Rule 411 under the Securities Act of
1933.
Item 29. Principal Underwriters
(a) Strong Funds Distributors, Inc., principal underwriter for Registrant,
also serves as principal underwriter for Strong Advantage Fund, Inc.; Strong
Asia Pacific Fund, Inc.; Strong Asset Allocation Fund, Inc.; Strong Common
Stock Fund, Inc.; Strong Conservative Equity Funds, Inc.; Strong Corporate Bond
Fund, Inc.; Strong Discovery Fund, Inc.; Strong Equity Funds, Inc.; Strong
Government Securities Fund, Inc.; Strong High-Yield Municipal Bond Fund, Inc.;
Strong Income Funds, Inc.; Strong Insured Municipal Bond Fund, Inc.; Strong
International Bond Fund, Inc.; Strong International Stock Fund, Inc.; Strong
Money Market Fund, Inc.; Strong Municipal Bond Fund, Inc.; Strong Municipal
Funds, Inc.; Strong Opportunity Fund, Inc.; Strong 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.; and
Strong Variable Insurance Funds, Inc.
(b) The information contained under "About the Funds - Management" in the
Prospectus and under "Directors and Officers of the Funds" 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> 130
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) Inapplicable.
(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> 131
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant hereby certifies that this
Post-Effective Amendment No. 3 meets all the requirements for effectiveness
pursuant to paragraph (b) of Rule 485 under the Securities Act of 1933, as
amended, and that it has duly caused this Post-Effective Amendment No. 3 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 22nd day of December, 1995.
STRONG HERITAGE RESERVE SERIES, INC.
(Registrant)
BY: /s/ John Dragisic
-------------------------
John Dragisic, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 3 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>
President (Principal Executive Officer)
/s/ John Dragisic and a Director December 22, 1995
- -------------------------
John Dragisic
Treasurer (Principal Financial and
/s/ Ronald A. Neville Accounting Officer) December 22, 1995
- -------------------------
Ronald A. Neville
/s/ Richard S. Strong Chairman of the Board and a Director December 22, 1995
- -------------------------
Richard S. Strong
Director December 22, 1995
- -------------------------
Marvin E. Nevins *
Director December 22, 1995
- -------------------------
Willie D. Davis *
Director December 22, 1995
- -------------------------
William F. Vogt *
Director December 22, 1995
- -------------------------
Stanley Kritzik *
</TABLE>
* Thomas P. Lemke signs this document pursuant to powers of attorney filed
with the Registration Statement of Registrant filed on or about May 16, 1995.
By: /s/ Thomas P. Lemke
-------------------
Thomas P. Lemke
<PAGE> 132
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) Restated Bylaws EX-99.B2
(3) Inapplicable
(4) Specimen Stock Certificate EX-99.B4(2)
(5) Investment Advisory Agreement EX-99.B5(3)
(6) Distribution Agreement EX-99.B6(2)
(7) Inapplicable
(8) Custody Agreement EX-99.B8
(9) Shareholder Servicing Agent Agreement EX-99.B9
(10) Inapplicable
(11) Inapplicable
(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) Letter of Representation EX-99.B17
(18) Power of Attorney(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 Pre-Effective Amendment No. 1 to
the Registration Statement on Form N-1A of Registrant filed on or
about June 23, 1995.
(3) Incorporated herein by reference to Pre-Effective Amendment No. 2 to
the Registration Statement on Form N-1A of Registrant filed on or
about June 29, 1995.
<PAGE> 1
EXHIBIT 99.B2
BYLAWS
ARTICLE I. OFFICES
SECTION 1.01. Principal and Other Offices. The principal
office of the Corporation shall be located at any place either within or
outside the State of Wisconsin as designated in the Corporation's most current
Annual Report filed with the Wisconsin Secretary of State. The Corporation may
have such other offices, either within or outside the State of Wisconsin, as
the Board of Directors may designate or as the business of the Corporation may
require from time to time.
SECTION 1.02. Registered Office. The registered office of
the Corporation required by the Wisconsin Business Corporation Law (the "WBCL")
to be maintained in the State of Wisconsin may, but need not, be the same as
any of its places of business. The registered office may be changed from time
to time.
SECTION 1.03. Registered Agent. The registered agent of the
Corporation required by the WBCL to maintain a business office in the State of
Wisconsin may, but need not, be an officer or employee of the Corporation as
long as such agent's business office is identical with the registered office.
The registered agent may be changed from time to time.
ARTICLE II. SHAREHOLDERS
SECTION 2.01. Annual Meeting. The annual meeting of the
shareholders, if the annual meeting shall be held, shall be held in April of
each year, or at such other time and date as may be fixed by or under the
authority of the Board of Directors, for the purpose of electing directors and
for the transaction of such other business as may properly come before the
meeting. The Corporation shall not be required to hold an annual meeting in
any year in which none of the following is required to be acted on by
shareholders under the Investment Company Act of 1940, as amended, and the
rules and regulations promulgated thereunder (the "Investment Company Act"):
(i) Election of directors;
(ii) Approval of the Corporation's investment advisory
contract;
(iii) Ratification of the selection of the Corporation's
independent public accountants; or
(iv) Approval of the Corporation's distribution agreement.
<PAGE> 2
SECTION 2.02. Special Meetings. Special meetings of the
shareholders for any purpose or purposes, unless otherwise prescribed by the
WBCL, may be called by the Board of Directors, the Chairman of the Board, Vice
Chairman or President. Notwithstanding any other provision of these By-Laws,
the Corporation shall call a special meeting of shareholders in the event that
the holders of at least 10% of all of the votes entitled to be cast on any
issue proposed to be considered at the proposed special meeting sign, date and
deliver to the Corporation one or more written demands for the meeting
describing one or more purposes for which it is to be held. The Secretary
shall inform such shareholders of the reasonable estimated costs of preparing
and mailing the notice of the meeting, and upon payment to the Corporation of
such costs, the Corporation shall give not less than ten nor more than sixty
days notice of the special meeting.
SECTION 2.03. Place of Meeting. The Board of Directors may
designate any place, either within or without the State of Wisconsin, as the
place of meeting for any annual or special meeting of shareholders. If no
designation is made, the place of meeting shall be the principal office of the
Corporation. Any meeting may be adjourned to reconvene at any place designated
by vote of a majority of the shares represented thereat.
SECTION 2.04. Notice of Meeting. Written notice stating the
date, time and place of any meeting of shareholders and, in case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
delivered not less than ten days nor more than sixty days before the date of
the meeting (unless a different time is provided by applicable law or
regulation or the Articles of Incorporation), either personally or by mail, by
or at the direction of the Chairman of the Board, Vice Chairman, President or
Secretary, to each shareholder of record entitled to vote at such meeting and
to such other persons as required by the WBCL. If mailed, such notice shall be
deemed to be effective when deposited in the United States mail, addressed to
the shareholder at his or her address as it appears on the stock record books
of the Corporation, with postage thereon prepaid. If an annual or special
meeting of shareholders is adjourned to a different date, time or place, the
Corporation shall not be required to give notice of the new date, time or place
if the new date, time or place is announced at the meeting before adjournment;
provided, however, that if a new record date for an adjourned meeting is or
must be fixed, the Corporation shall give notice of the adjourned meeting to
persons who are shareholders as of the new record date.
SECTION 2.05. Waiver of Notice. A shareholder may waive any
notice required by the WBCL, the Articles of Incorporation or these By-Laws
before or after the date and time stated in the notice. The waiver shall be in
writing and signed by the shareholder entitled to the notice, contain the same
information that would have been required in the notice
<PAGE> 3
under applicable provisions of the WBCL (except that the time and place of
meeting need not be stated) and be delivered to the Corporation for inclusion
in the corporate records. A shareholder's attendance at a meeting, in person
or by proxy, waives objection to all of the following: (a) lack of notice or
defective notice of the meeting, unless the shareholder at the beginning of the
meeting or promptly upon arrival objects to holding the meeting or transacting
business at the meeting; and (b) consideration of a particular matter at the
meeting that is not within the purpose described in the meeting notice, unless
the shareholder objects to considering the matter when it is presented.
SECTION 2.06. Fixing of Record Date. For the purpose of
determining shareholders of any voting group entitled to notice of or to vote
at any meeting of shareholders or any adjournment thereof, or shareholders
entitled to receive payment of any distribution or dividend, or in order to
make a determination of shareholders for any other proper purpose, the Board of
Directors may fix in advance a date as the record date for any such
determination of shareholders. Such record date shall not be more than 70 days
prior to the date on which the particular action, requiring such determination
of shareholders, is to be taken. If no record date is so fixed for the
determination of shareholders entitled to notice of, or to vote at a meeting of
shareholders, or shareholders entitled to receive a share dividend or
distribution, the record date for determination of such shareholders shall be
at the close of business on:
(a) With respect to an annual shareholders meeting or any
special shareholders meeting called by the Board of Directors or any
person specifically authorized by the Board of Directors or these
By-Laws to call a meeting, the day before the first notice is mailed
to shareholders;
(b) With respect to a special shareholders meeting demanded
by the shareholders, the date the first shareholder signs the demand;
(c) With respect to the payment of a share dividend, the date
the Board of Directors authorizes the share dividend; and
(d) With respect to a distribution to shareholders (other
than one involving a repurchase or reacquisition of shares), the date
the Board of Directors authorizes the distribution.
SECTION 2.07. Voting Lists. After fixing a record date for a
meeting, the Corporation shall prepare a list of the name of all its
shareholders who are entitled to notice of a shareholders meeting. The list
shall be arranged by class or series of shares and show the address of and the
number of shares held by each shareholder. The shareholders list must be
3
<PAGE> 4
available for inspection by any shareholder, beginning two business days after
notice of the meeting is given for which the list was prepared and continuing
to the date of the meeting. The list shall be available at the Corporation's
principal office or at a place identified in the meeting notice in the city
where the meeting is to be held. Subject to the provisions of the WBCL, a
shareholder or his or her agent or attorney may, on written demand, inspect and
copy the list during regular business hours and at his expense, during the
period it is available for inspection. The Corporation shall make the
shareholders list available at the meeting, and any shareholder or his or her
agent or attorney may inspect the list at any time during the meeting or any
adjournment thereof. Refusal or failure to prepare or make available the
shareholders list shall not affect the validity of any action taken at such
meeting.
SECTION 2.08. Shareholder Quorum and Voting Requirements.
Shares entitled to vote as a separate voting group may take action on a matter
at a meeting only if a quorum of those shares exists with respect to that
matter. Unless the Articles of Incorporation or the WBCL provide otherwise, a
majority of the votes entitled to be cast on the matter by the voting group
constitutes a quorum of that voting group for action on that matter.
If the Articles of Incorporation or the WBCL provide for
voting by two or more voting groups on a matter, action on that matter is taken
only when voted upon by each of those voting groups counted separately as
provided in the WBCL. Action may be taken by one voting group on a matter even
though no action is taken by another voting group entitled to vote on the
matter. A voting group described in the WBCL constitutes a single voting group
for purpose of voting on the matter on which the shares are entitled to vote,
unless otherwise required under applicable laws and regulations, including the
Investment Company Act.
Once a share is represented for any purpose at a meeting,
other than for the purpose of objecting to holding the meeting or transacting
business at the meeting, it is deemed present for purposes of determining
whether a quorum exists, for the remainder of the meeting and for any
adjournment of that meeting to the extent provided in Section 2.13.
If a quorum exists, action on a matter, other than the
election of directors, by a voting group is approved if the votes cast within
the voting group favoring the action exceed the votes cast opposing the action,
unless the Articles of Incorporation, the By-Laws, the WBCL or other applicable
laws and regulations, including the Investment Company Act, require a greater
number of affirmative votes. With respect to the election of directors, unless
otherwise provided in the Articles of Incorporation, directors are elected by a
plurality of the votes cast by the shares entitled to vote. For purposes of
this Section 2.08, "plurality" means that the individuals with the largest
number of votes are elected as directors up to the maximum number of directors
to be chosen at the election.
4
<PAGE> 5
SECTION 2.09. Proxies. For all meetings of shareholders, a
shareholder may appoint a proxy to vote or otherwise act for the shareholder by
signing an appointment form, either personally or by a duly authorized
attorney-in-fact. Such proxy shall be effective when filed with the Secretary
of the Corporation or other officer or agent authorized to tabulate votes
before or at the time of the meeting. No proxy shall be valid after eleven
months from the date of its execution, unless otherwise provided in the proxy.
SECTION 2.10. Voting of Shares. Unless otherwise provided in
the Articles of Incorporation, each outstanding share, regardless of class, is
entitled to one vote upon each matter submitted to a vote at a meeting of
shareholders.
No shares in the Corporation held by another corporation may
be voted if the Corporation owns, directly or indirectly, a sufficient number
of shares entitled to elect a majority of the directors of such other
corporation; provided, however, that the Corporation shall not be limited in
its power to vote any shares, including its own shares, held by it in a
fiduciary capacity.
Redeemable shares are not entitled to vote after written
notice of redemption that complies with the WBCL is mailed to the holders
thereof and a sum sufficient to redeem the shares has been deposited with a
bank, trust company or other financial institution under an irrevocable
obligation to pay the holders the redemption price on surrender of the shares.
SECTION 2.11. Voting Shares Owned by the Corporation. Shares
of the Corporation belonging to it shall not be voted directly or indirectly at
any meeting and shall not be counted in determining the total number of
outstanding shares at any given time, but shares held by the Corporation in a
fiduciary capacity may be voted and shall be counted in determining the total
number of outstanding shares at any given time.
SECTION 2.12. Acceptance of Instruments Showing Shareholder
Action.
(a) If the name signed on a vote, consent, waiver or proxy
appointment corresponds to the name of a shareholder, the Corporation,
if acting in good faith, may accept the vote, consent, waiver or proxy
appointment and give it effect as the act of the shareholder.
(b) If the name signed on a vote, consent, waiver or proxy
appointment does not correspond to the name of a shareholder, the
Corporation, if acting in good faith,
5
<PAGE> 6
may accept the vote, consent, waiver or proxy appointment and give it effect as
the act of the shareholder if any of the following apply:
(1) the shareholder is an entity, within the meaning
of the WBCL, and the name signed purports to be that of an
officer or agent of the entity;
(2) the name signed purports to be that of a
personal representative, administrator, executor, guardian or
conservator representing the shareholder and, if the
Corporation or its agent request, evidence of fiduciary status
acceptable to the Corporation is presented with respect to the
vote, consent, waiver or proxy appointment;
(3) the name signed purports to be that of a
receiver or trustee in bankruptcy of the shareholder and, if
the Corporation or its agent request, evidence of this status
acceptable to the Corporation is presented with respect to the
vote, consent, waiver or proxy appointment;
(4) the name signed purports to be that of a
pledgee, beneficial owner, or attorney-in-fact of the
shareholder and, if the Corporation or its agent request,
evidence acceptable to the Corporation of the signatory's
authority to sign for the shareholder is presented with
respect to the vote, consent, waiver or proxy appointment; or
(5) two or more persons are the shareholders as
cotenants or fiduciaries and the name signed purports to be
the name of at least one of the coowners and the persons
signing appears to be acting on behalf of all coowners.
(c) The Corporation may reject a vote, consent, waiver or
proxy appointment if the Secretary or other officer or agent of the
Corporation who is authorized to tabulate votes, acting in good faith,
has reasonable basis for doubt about the validity of the signature on
it or about the signatory's authority to sign for the shareholder.
SECTION 2.13. Adjournments. An annual or special meeting of
shareholders may be adjourned at any time, including after action on one or
more matters, by a majority of shares represented, even if less than a quorum.
The meeting may be adjourned for any purpose, including, but not limited to,
allowing additional time to solicit votes on one or more matters, to
disseminate additional information to shareholders or to count votes. Upon
being reconvened, the adjourned meeting shall be deemed to be a continuation of
the initial meeting.
6
<PAGE> 7
(a) Quorum. Once a share is represented for any purpose at
the original meeting, other than for the purpose of objecting to
holding the meeting or transacting business at a meeting, it is
considered present for purposes of determining if a quorum exists, for
the remainder of the meeting and for any adjournment of that meeting
unless a new record date is or must be set for that adjourned meeting.
(b) Record Date. When a determination of shareholders
entitled to notice of or to vote at any meeting of shareholders has
been made as provided in Section 2.06, such determination shall be
applied to any adjournment thereof unless the Board of Directors fixes
a new record date, which it shall do if the meeting is adjourned to a
date more than 120 days after the date fixed for the original meeting.
(c) Notice. Unless a new record date for an adjourned
meeting is or must be fixed pursuant to Section 2.13(b), the
Corporation is not required to give notice of the new date, time or
place if the new date, time or place is announced at the meeting
before adjournment.
SECTION 2.14. Waiver of Notice by Shareholders. A
shareholder may waive any notice required by the WBCL, the Articles of
Incorporation or the By-Laws before or after the date and time stated in the
notice. The waiver shall be in writing and signed by the shareholder entitled
to the notice, contain the same information that would have been required in
the notice under any applicable provisions of the WBCL, except that the time
and place of the meeting need not be stated, and be delivered to the
Corporation for inclusion in the Corporation's records. A shareholder's
attendance at a meeting, in person or by proxy, waives objection to (i) lack of
notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting or promptly upon arrival objects to the holding of the
meeting or transacting business at the meeting, and (ii) consideration of a
particular matter at the meeting that is not within the purpose described in
the meeting notice, unless the shareholder objects to considering the matter
when it is presented.
SECTION 2.15. Conduct of Meeting. The Chairman of the Board,
Vice Chairman, President or any person chosen by the Chairman of the Board,
shall call the meeting of the shareholders to order and shall act as chairman
of the meeting, and the Secretary of the Corporation or any other person
appointed by the chairman of the meeting, shall act as secretary of all
meetings of the shareholders.
SECTION 2.16. Unanimous Consent without Meeting. Any action
required or permitted to be taken at a meeting of shareholders may be taken
without a meeting only by
7
<PAGE> 8
unanimous written consent or consents signed by all of the shareholders of the
Corporation and delivered to the Corporation for inclusion in the Corporation's
records.
ARTICLE III. BOARD OF DIRECTORS
SECTION 3.01. General Powers and Number. All corporate
powers shall be exercised by or under the authority of, and the business and
affairs of the Corporation managed under the direction of, the Board of
Directors. The number of directors of the Corporation shall be six.
SECTION 3.02. Tenure and Qualifications. Each director shall
hold office until the next annual meeting of shareholders and until his or her
successor shall have been elected and, if necessary, qualified, or until there
is a decrease in the number of directors which takes effect after the
expiration of his or her term, or until his or her prior death, resignation or
removal. A director may be removed by the shareholders, with or without cause,
only at a meeting called for the purpose of removing the director, and the
meeting notice shall state that the purpose, or one of the purposes, of the
meeting is removal of the director. A director may resign at any time by
delivering written notice which complies with the WBCL to the Board of
Directors, to the Chairman of the Board or to the Corporation. A director's
resignation is effective when the notice is delivered unless the notice
specifies a later effective date. Directors need not be residents of the State
of Wisconsin or shareholders of the Corporation.
SECTION 3.03. Regular Meetings. A regular meeting of the
Board of Directors shall be held without other notice than this Section 3.03
immediately before or after the annual meeting of shareholders and each
adjourned session thereof. The place of such regular meeting shall be the same
as the place of the meeting of shareholders which precedes or follows it, as
the case may be, or such other suitable place as may be announced at such
meeting of shareholders. The Board of Directors shall provide, by resolution,
the date, time and place, either within or without the State of Wisconsin, for
the holding of additional regular meetings of the Board of Directors without
other notice than such resolution. Regular meetings of the Board of Directors
may also be called by the Chairman of the Board, Vice Chairman, President or
Secretary.
SECTION 3.04. Special Meetings. Special meetings of the
Board of Directors may be called by or at the request of the Chairman of the
Board, Vice Chairman, President, Secretary or any two directors. The Chairman
of the Board, Vice Chairman, President or Secretary may fix any place, either
within or without the State of Wisconsin, as the place for holding any special
meeting of the Board of Directors, and if no other place is fixed the place of
the meeting shall be the principal business office of the Corporation in the
State of Wisconsin.
8
<PAGE> 9
SECTION 3.05. Notice; Waiver. Notice of special meetings
shall be given at least twenty-four hours previously thereto and shall state
the date, time and place of the meeting of the Board of Directors or committee.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board of Directors or committee need be specified in the
notice of such meeting. Notice may be communicated in person, by telephone,
telegraph, teletype, facsimile or other form of wire or wireless communication,
or by mail or private carrier. Written notice is effective at the earliest of
the following: (1) when received; (2) when mailed postpaid and correctly
addressed; (3) when given to a telegram carrier; or (4) the date it is
deposited with a private carrier. Oral notice is deemed effective when
communicated. Facsimile or teletype notice is deemed effective when sent.
A director may waive any notice required by the WBCL, the
Articles of Incorporation or the By-Laws before or after the date and time
stated in the notice. The waiver shall be in writing, signed by the director
entitled to the notice and retained by the Corporation. Notwithstanding the
foregoing, a director's attendance at or participation in a meeting waives any
required notice to such director of the meeting unless the director at the
beginning of the meeting or promptly upon such director's arrival objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
SECTION 3.06. Quorum. Except as otherwise provided by the
WBCL, the Articles of Incorporation or the By-Laws, a majority of the number of
directors specified in Section 3.01 shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors. A majority
of the directors present (though less than such quorum) may adjourn any meeting
of the Board of Directors or any committee thereof, as the case may be, from
time to time without further notice.
SECTION 3.07. Manner of Acting. The affirmative vote of a
majority of the directors present at a meeting of the Board of Directors at
which a quorum is present shall be the act of the Board of Directors, unless
the WBCL, the Articles of Incorporation, the By-Laws or other applicable law or
regulation, including the Investment Company Act, require the vote of a greater
number of directors.
SECTION 3.08. Conduct of Meetings. The Chairman of the
Board, and in his absence, the Vice Chairman or any director chosen by the
directors present, shall call meetings of the Board of Directors to order and
shall act as chairman of the meeting. The Secretary of the Corporation shall
act as secretary of all meetings of the Board of Directors unless the presiding
officer appoints another person present to act as secretary of the meeting.
Minutes of any
9
<PAGE> 10
regular or special meeting of the Board of Directors shall be prepared and
distributed to each director.
SECTION 3.09. Vacancies. Except as provided below, any
vacancy occurring in the Board of Directors, including a vacancy resulting from
an increase in the number of directors, may be filled, subject to the
requirements of the Investment Company Act, by any of the following: (a) the
shareholders; (b) the Board of Directors; or (c) if the directors remaining in
office constitute fewer than a quorum of the Board of Directors, the directors,
by the affirmative vote of a majority of all directors remaining in office. If
the vacant office was held by a director elected by a voting group of
shareholders, only the holders of shares of that voting group may vote to fill
the vacancy if it is filled by the shareholders, and only the remaining
directors elected by that voting group may vote to fill the vacancy if it is
filled by the directors. A vacancy that will occur at a specific later date,
because of a resignation effective at a later date or otherwise, may be filled
before the vacancy occurs, but the new director may not take office until the
vacancy occurs.
SECTION 3.10. Compensation. No director shall receive any
stated salary or fees from the Corporation for his services as such director if
such director is, otherwise than by reason of being such director, an
interested person (as such term is defined by the Investment Company Act) of
the Corporation or its investment adviser. Except as provided in the preceding
sentence, directors shall be entitled to receive such compensation from the
Corporation for their services as may from time to time be voted by the Board
of Directors.
SECTION 3.11. Presumption of Assent. A director who is
present and is announced as present at a meeting of the Board of Directors,
when corporate action is taken, assents to the action taken unless any of the
following occurs: (a) the director objects at the beginning of the meeting or
promptly upon his or her arrival to holding the meeting or transacting business
at the meeting; (b) the director dissents or abstains from an action taken and
minutes of the meeting are prepared that show the director's dissent or
abstention; (c) the director delivers written notice that complies with the
WBCL of his or her dissent or abstention to the presiding officer of the
meeting before its adjournment or to the Corporation immediately after
adjournment of the meeting; or (d) the director dissents or abstains from an
action taken, minutes of the meeting are prepared that fail to show the
director's dissent or abstention from the action taken and the director
delivers to the Corporation a written notice of that failure that complies with
the WBCL promptly after receiving the minutes. Such right of dissent or
abstention shall not apply to a director who votes in favor of the action
taken.
SECTION 3.12. Telephonic Meetings. Except as herein provided
and notwithstanding any place set forth in the notice of the meeting or these
By-Laws, members of
10
<PAGE> 11
the Board of Directors may participate in regular or special meetings by, or
through the use of, any means of communication by which all participants may
simultaneously hear each other, such as by conference telephone. If a meeting
is conducted by such means, then at the commencement of such meeting the
presiding officer shall inform the participating directors that a meeting is
taking place at which official business may be transacted. Any participant in
a meeting by such means shall be deemed present in person at such meeting.
Notwithstanding the foregoing, no action may be taken at any meeting held by
such means (i) on any particular matter which the presiding officer determines,
in his or her sole discretion, to be inappropriate under the circumstances for
action at a meeting held by such means (such determination shall be made and
announced in advance of such meeting), or (ii) if the action must be approved
in person pursuant to the requirements of the Investment Company Act.
SECTION 3.13. Action Without Meeting. Any action required or
permitted by the WBCL to be taken at a meeting of the Board of Directors may be
taken without a meeting if the action is taken by all members of the Board.
The action shall be evidenced by one or more written consents describing the
action taken, signed by each director and retained by the Corporation. Such
action shall be effective when the last director signs the consent, unless the
consent specifies a different effective date. Notwithstanding this Section
3.13, no action may be taken by the Board of Directors pursuant to a written
consent with respect to which the action must be approved in person pursuant to
the requirements of the Investment Company Act.
ARTICLE IV. OFFICERS
SECTION 4.01. Number. The principal officers of the
Corporation shall be a Chairman of the Board, a Vice Chairman of the Board, a
President, the number of Vice Presidents as authorized from time to time by the
Board of Directors, a Secretary, and a Treasurer, each of whom shall be elected
by the Board of Directors. Such other officers and assistant officers as may
be deemed necessary may be elected or appointed by the Board of Directors. The
Board of Directors may also authorize any duly authorized officer to appoint
one or more officers or assistant officers. Any two or more offices may be
held by the same person.
SECTION 4.02. Election and Term of Office. The officers of
the Corporation to be elected by the Board of Directors shall be elected
annually by the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of the shareholders, if any, or on or
after the anniversary of the last annual meeting if no annual meeting is held.
If the election of officers shall not be held at such first meeting of the
Board of Directors, such election shall be held as soon thereafter as is
practicable. Each officer shall hold office until his or her successor shall
have been duly elected or until his or her prior death, resignation or removal.
11
<PAGE> 12
SECTION 4.03. Removal. The Board of Directors may remove any
officer and, unless restricted by the Board of Directors or these By-Laws, an
officer may remove any officer or assistant officer appointed by that officer.
An officer may be removed at any time, with or without cause and
notwithstanding the contract rights, if any, of the officer removed. The
appointment of an officer does not of itself create contract rights.
SECTION 4.04. Resignation. An officer may resign at any time
by delivering notice to the Corporation that complies with the WBCL. The
resignation shall be effective when the notice is delivered, unless the notice
specifies a later effective date and the Corporation accepts the later
effective date.
SECTION 4.05. Vacancies. A vacancy in any principal office
because of death, resignation, removal, disqualification or otherwise, shall be
filled by the Board of Directors for the unexpired portion of the term. If a
resignation of an officer is effective at a later date as contemplated by
Section 4.04 hereof, the Board of Directors may fill the pending vacancy before
the effective date if the Board provides that the successor may not take office
until the effective date of the registration.
SECTION 4.06. Chairman of the Board. The Chairman of the
Board shall be the chief executive officer of the Corporation. The Chairman of
the Board shall preside at all meetings of the shareholders and directors,
shall have general and active management of the business of the Corporation,
and shall see that all orders and resolutions of the Board of Directors are
carried into effect.
SECTION 4.07. The Vice Chairman. During the absence or
disability of the Chairman of the Board, the Vice Chairman shall exercise all
the functions of the Chairman of the Board. The Vice Chairman shall perform
all duties incident to the office of the Vice Chairman and such other duties as
shall from time to time be assigned by the Board of Directors, the Chairman of
the Board or as prescribed by these By-Laws.
SECTION 4.08. President. The President shall be the chief
operating officer of the Corporation and, subject to the direction of the Board
of Directors, shall in general supervise and control all of the business and
affairs of the Corporation. The President shall, when present, preside at all
meetings of the shareholders in the absence of the Chairman of the Board and
the Vice Chairman. The President shall have authority, subject to such rules
as may be prescribed by the Board of Directors, to appoint such agents and
employees of the Corporation as he or she shall deem necessary, to prescribe
their powers, duties and compensation, and to delegate authority to them. Such
agents and employees shall hold office at the discretion of the President.
12
<PAGE> 13
The President shall have authority to sign, execute and acknowledge, on behalf
of the Corporation, all deeds, mortgages, bonds, stock certificates, contracts,
leases, reports and all other documents or instruments necessary or proper to
be executed in the course of the Corporation's regular business, or which shall
be authorized by resolution of the Board of Directors; and, except as otherwise
provided by law or the Board of Directors, he or she may authorize any Vice
President or other officer or agent of the Corporation to sign, execute and
acknowledge such documents or instruments in his or her place and stead. In
general he or she shall perform all duties incident to the office of President
and such other duties as may be prescribed by the Board of Directors from time
to time.
SECTION 4.09. The Vice Presidents. In the absence of the
President or in the event of the President's death, inability or refusal to
act, or in the event for any reason it shall be impracticable for the President
to act personally, the Vice President (or in the event there be more than one
Vice President, the Vice Presidents in the order designated by the Board of
Directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. Any Vice President may sign, with the Secretary or Assistant
Secretary, certificates for shares of the Corporation; and shall perform such
other duties and have such authority as from time to time may be delegated or
assigned to him or her by the Chairman of the Board, Vice Chairman or President
or by the Board of Directors. The execution of any instrument of the
Corporation by any Vice President shall be conclusive evidence, as to third
parties, of his or her authority to act for the Corporation.
SECTION 4.10. The Secretary. The Secretary shall: (a) keep
minutes of the meetings of the shareholders and of the Board of Directors (and
of committees thereof) in one or more books provided for that purpose
(including records of actions taken by the shareholders or the Board of
Directors (or committees thereof) without a meeting); (b) see that all notices
are duly given in accordance with the provisions of these By-Laws or as
required by the WBCL; (c) be custodian of the corporate records and of the seal
of the Corporation and see that the seal of the Corporation is affixed to all
documents the execution of which on behalf of the Corporation under its seal is
duly authorized; (d) maintain a record of the shareholders of the Corporation,
in a form that permits preparation of a list of the names and addresses of all
shareholders, by class or series of shares and showing the number and class or
series of shares held by each shareholder; (e) sign with the President, a Vice
President, or any other officer authorized by the Board of Directors,
certificates for shares of the Corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors; (f) have general
charge of the stock transfer books of the Corporation; and (g) in general
perform all duties incident to the office of Secretary and have such other
duties and exercise such authority as from time to time may be
13
<PAGE> 14
delegated or assigned by the Chairman of the Board, Vice Chairman, President or
the Board of Directors.
SECTION 4.11. The Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Corporation and shall have
general charge of the finances and books of account of the Corporation. Except
as otherwise provided by the Board of Directors, he or she shall have general
supervision of the funds and property of the Corporation and of the performance
by the Custodian of its duties with respect thereto. The Treasurer shall
render to the Board of Directors, whenever directed by the Board, an account of
the financial condition of the Corporation and of all his or her transactions
as Treasurer. The Treasurer shall perform all acts incidental to the office of
Treasurer, subject to the control of the Board of Directors.
SECTION 4.12. Assistant Secretaries and Assistant Treasurers.
There shall be such number of Assistant Secretaries and Assistant Treasurers as
the Board of Directors may from time to time authorize. The Assistant
Secretaries may sign with the President, a Vice President or any other officer
authorized by the Board of Directors, certificates for shares of the
Corporation the issuance of which shall have been authorized by a resolution of
the Board of Directors. The Assistant Secretaries and Assistant Treasurers, in
general, shall perform such duties and have such authority as shall from time
to time be delegated or assigned to them by the Secretary or the Treasurer,
respectively, or by the Chairman of the Board, Vice Chairman, President or the
Board of Directors.
SECTION 4.13. Other Assistants and Acting Officers. The
Board of Directors shall have the power to appoint, or to authorize any duly
appointed officer of the Corporation to appoint, any person to act as assistant
to any officer, or as agent for the Corporation in his or her stead, or to
perform the duties of such officer whenever for any reason it is impracticable
for such officer to act personally, and such assistant or acting officer or
other agent so appointed by the Board of Directors or an authorized officer
shall have the power to perform all the duties of the office to which he or she
is so appointed to be an assistant, or as to which he or she is so appointed to
act, except as such power may be otherwise defined or restricted by the Board
of Directors or the appointing officer.
SECTION 4.14. Surety Bonds. The Board of Directors may
require any officer or agent of the Corporation to execute a bond (including,
without limitation, any bond required by the Investment Company Act of 1940) to
the Corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his or
her duties to the Corporation, including responsibility for negligence and for
the accounting of any of the Corporation's property, funds or securities that
may come into his or her hands.
14
<PAGE> 15
ARTICLE V. CERTIFICATES FOR SHARES; TRANSFER OF SHARES
SECTION 5.01. Certificates for Shares. Each shareholder
shall be entitled upon request to have a certificate or certificates which
shall represent and certify the number and kind of shares owned by him or her
in the Corporation. Certificates representing shares of the Corporation shall
be in such form, consistent with the WBCL, as shall be determined by the Board
of Directors. Such certificates shall be signed, either manually or in
facsimile, by the President, a Vice President or any other officer authorized
by the Board of Directors and by the Secretary or an Assistant Secretary. All
certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares represented
thereby are issued, with the number of shares and class of shares and series,
if any, and date of issue, shall be entered on the stock transfer books of the
Corporation. All certificates surrendered to the Corporation for transfer
shall be cancelled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
cancelled, except as provided in Section 5.04.
Shares may also be issued without certificates. Within a
reasonable time after issuance or transfer of shares without certificates, the
Corporation shall send the shareholder a written statement of the information
required on share certificates under the WBCL, including the following:
(a) the name of the Corporation;
(b) the name of the person to whom shares were issued;
(c) the number and class of shares and the designation of the
series, if any, of the shares issued; and
(d) either (i) a summary of the designations, relative
rights, preferences and limitations, applicable to each class, and the
variations in rights, preferences and limitations determined for each
series and the authority of the Board of Directors to determine
variations for future series, or (ii) a conspicuous statement that the
Corporation will furnish the information specified in clause (i),
above, on request, in writing and without charge.
15
<PAGE> 16
SECTION 5.02. Signature by Former Officers. The validity of
a share certificate is not affected if a person who signed the certificate
(either manually or in facsimile) no longer holds office when the certificate
is issued.
SECTION 5.03. Transfer of Shares. Prior to due presentment
of a certificate for shares for redemption or registration of transfer, the
Corporation may treat the registered owner of such shares as the person
exclusively entitled to vote, to receive notifications and otherwise to have
and exercise all the rights and power of an owner. Where a certificate for
shares is presented to the Corporation with a request for redemption or to
register for transfer, the Corporation shall not be liable to the owner or any
other person suffering loss as a result of such registration of transfer or
redemption if (a) there were on or with the certificate the necessary
endorsements, and (b) the Corporation had no duty to inquire into adverse
claims or has discharged any such duty. The Corporation may require reasonable
assurance that such endorsements are genuine and effective and compliance with
such other regulations as may be prescribed by or under the authority of the
Board of Directors. All certificates and uncertificated shares surrendered to
the Corporation for redemption shall be cancelled, returned to the status of
authorized and unissued shares and the transaction recorded in the stock
transfer books. Transfer or redemption of shares of the Corporation shall be
made only on the stock transfer books of the Corporation by the holder of
record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto duly authorized
by power of attorney duly executed and filed with the transfer agent or the
Secretary of the Corporation, and on surrender for cancellation of the
certificate for such shares, if any.
SECTION 5.04. Lost, Destroyed or Stolen Certificates. Where
the owner claims that certificates for shares have been lost, destroyed or
wrongfully taken, a new certificate shall be issued in place thereof if the
owner (a) so requests before the Corporation has notice that such shares have
been acquired by a bona fide purchaser, (b) files with the Corporation a
sufficient indemnity bond if required by the Board of Directors or any
principal officer, and (c) satisfies such other reasonable requirements as may
be prescribed by or under the authority of the Board of Directors.
SECTION 5.05. Stock Regulations. The Board of Directors
shall have the power and authority to make all such further rules and
regulations not inconsistent with law as it may deem expedient concerning the
issue, transfer and registration of shares of the Corporation and to appoint or
designate one or more stock transfer agents and one or more stock registrars.
ARTICLE VI. SEAL
16
<PAGE> 17
SECTION 6.01. The seal of the Corporation shall be circular
in form and shall bear, at a minimum, the name of the Corporation, Wisconsin as
its state of incorporation and the words "Corporate Seal."
ARTICLE VII. INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 7.01. Mandatory Indemnification. The Corporation
shall indemnify, to the full extent permitted by the WBCL, as in effect from
time to time, the persons described in Sections 180.0850 through 180.0859 (or
any successor provisions) of the WBCL or other provisions of the law of the
State of Wisconsin relating to indemnification of directors and officers, as in
effect from time to time. The indemnification afforded such persons by this
section shall not be exclusive of other rights to which they may be entitled as
a matter of law.
SECTION 7.02. Permissive Supplementary Benefits. The
Corporation may, but shall not be required to, supplement the right of
indemnification under Section 7.01 by (a) the purchase of insurance on behalf
of any one or more of such persons, whether or not the Corporation would be
obligated to indemnify such person under Section 7.01; (b) individual or group
indemnification agreements with any one or more of such persons; and (c)
advances for related expenses of such a person.
SECTION 7.03. Amendment. This Article VII may be amended or
repealed only by a vote of the shareholders and not by a vote of the Board of
Directors.
SECTION 7.04. Investment Company Act. In no event shall the
Corporation indemnify any person hereunder in contravention of any provision of
the Investment Company Act.
ARTICLE VIII. AMENDMENTS
SECTION 8.01. By Shareholders. These By-Laws may be amended
or repealed and new By-Laws may be adopted by the shareholders at any annual or
special meeting of the shareholders at which a quorum is in attendance.
SECTION 8.02. By Board of Directors. Except as otherwise
provided by the WBCL, the Articles of Incorporation or a particular By-Law
herein, these By-Laws may also be amended or repealed and new By-Laws may be
adopted by the Board of Directors by affirmative vote of a majority of the
number of directors present at any meeting at which a quorum is in
17
<PAGE> 18
attendance; provided, however, that the shareholders in adopting, amending or
repealing a particular By-Law may provide therein that the Board of Directors
may not amend, repeal or readopt that By-Law.
SECTION 8.03. Implied Amendments. Any action taken or
authorized by the shareholders or by the Board of Directors which would be
inconsistent with the By-Laws then in effect but which is taken or authorized
by affirmative vote of not less than the number of shares or the number of
directors required to amend the By-Laws so that the By-Laws would be consistent
with such action shall be given the same effect as though the By-Laws had been
temporarily amended or suspended so far, but only so far, as is necessary to
permit the specific action so taken or authorized.
ARTICLE IX. DEPOSITARIES, CUSTODIANS, ENDORSEMENTS
SECTION 9.01. Depositories. The funds of the Corporation
shall be deposited with such banks or other depositories as the Board of
Directors of the Corporation may from time to time determine in accordance with
the requirements of the Investment Company Act.
SECTION 9.02. Custodians. All securities and other similar
investments of the Corporation shall be deposited in the safekeeping of such
banks or other companies as the Board of Directors may from time to time
determine in accordance with the requirements of the Investment Company Act.
Every arrangement entered into with any bank or other company for the
safekeeping of the securities and other similar investments of the Corporation
shall contain provisions complying with the requirements of the Investment
Company Act.
SECTION 9.03. Checks, Notes, Drafts, etc. Checks, notes,
drafts, acceptances, bills of exchange and other orders or obligations for the
payment of money shall be signed by such officer or officers or such person or
persons as designated from time to time by the Board of Directors.
SECTION 9.04. Endorsements, Assignments and Transfer of
Securities. All endorsements, assignments, stock powers or other instruments
of transfer of securities standing in the name of the Corporation or its
nominee or directions for the transfer of securities belonging to the
Corporation shall be made by such officer or officers or other person or
persons as may be designated from time to time by the Board of Directors.
ARTICLE X. INDEPENDENT PUBLIC ACCOUNTANTS
18
<PAGE> 19
SECTION 10.01. Independent Public Accountants. The
Corporation shall employ an independent public accountant or a firm of
independent public accountants as its accountants to examine the accounts of
the Corporation and to sign and certify financial statements filed by the
Corporation.
ARTICLE XI. SALES AND REDEMPTION OF SHARES; DIVIDENDS
SECTION 11.01. Sale of Shares. Shares of Common Stock of the
Corporation shall be sold by it for the net asset value per share of such
Common Stock calculated in accordance with the requirements of the Investment
Company Act, and the Corporation's then current prospectus.
SECTION 11.02. Periodic Investment, Dividend Reinvestment and
Other Plans. The Corporation shall offer such periodic investment, dividend
reinvestment, periodic redemption or other plans as are specified in the
Corporation's then current prospectus, provided such plans are offered in
accordance with the requirements of the Investment Company Act. Any such plans
may be discontinued at any time if determined advisable by or under the
authority of the Board of Directors.
SECTION 11.03. Redemption of Shares. Subject to the
suspension of the right of redemption or postponement of the date of payment or
satisfaction upon redemption in accordance with the Investment Company Act,
each shareholder, upon request and after complying with the redemption
procedures established by or under the supervision of the Board of Directors,
shall be entitled to require the Corporation to redeem out of legally available
funds all or any part of the Common Stock standing in the name of such holder
at the net asset value per share calculated in accordance with the requirements
of the Investment Company Act, and the Corporation's then current prospectus.
SECTION 11.04. Dividends and Other Distributions. The
Corporation shall pay such dividends and make other distributions to
shareholders, at such times and in such amounts as are determined by or under
the authority of the Board of Directors, from time to time and in accordance
with the requirements of the WBCL, the Investment Company Act, and other
applicable laws and regulations.
19
<PAGE> 1
EXHIBIT 99.B8
CUSTODIAN AGREEMENT
THIS AGREEMENT is made and entered into on this ___ day of ____, ____,
between STRONG <<FUND>>, INC., a Wisconsin corporation (the "Corporation"), on
behalf of the Funds (as defined below) of the Corporation, and FIRSTAR TRUST
COMPANY, a Wisconsin corporation (the "Custodian").
WITNESSETH:
WHEREAS, the Corporation is registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940 (the "Investment Company Act");
WHEREAS, the Corporation is authorized to create separate series, each
with its own separate investment portfolio, and the beneficial interest in each
such series will be represented by a separate series of shares (each series
indicated on Schedule A is hereinafter individually referred to as a "Fund" and
collectively as the "Funds"); and
WHEREAS, the Corporation desires to retain the Custodian to hold and
administer the securities and cash of each Fund listed in Schedule A hereto,
and any additional Funds the Corporation and the Custodian may agree upon and
include in Schedule A as such Schedule may be amended from time to time,
pursuant to the terms of this Agreement.
NOW, THEREFORE, the Corporation and the Custodian do mutually agree and
promise as follows:
1. Definitions
The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive,
purchase or subscribe for the same, or evidencing or representing any other
rights or interests therein, or in any property or assets.
The words "officers' certificate" shall mean a request or direction or
certification in writing signed in the name of the Corporation by any two of
the President, a Vice President, the Secretary and the Treasurer of the
Corporation, or any other persons duly authorized to sign by the Board of
Directors.
The word "Board" shall mean the Board of Directors the Corporation.
2. Names, Titles and Signatures of the Corporation's Officers
An officer of the Corporation will certify to the Custodian the names
and signatures of those persons authorized to sign the officers' certificates
described in Section 1, hereof, and the names of the members of the Board of
Directors, together with any changes which may occur from time to time.
<PAGE> 2
3. Receipt and Disbursement of Money
A. The Custodian shall open and maintain a separate account or
accounts in the name of each Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this Agreement. The Custodian shall
hold in such account or accounts, subject to the provisions hereof, all cash
received by it from or for the account of a Fund. The Custodian shall make
payments of cash to, or for the account of, a Fund from such cash only:
(a) for the purchase of securities for the portfolio of a
Fund upon the delivery of such securities to the Custodian, registered
in the name of the Fund or of the nominee of the Custodian referred to
in Section 7 or in proper form for transfer;
(b) for the purchase or redemption of shares of common
stock of a Fund upon delivery thereof to Custodian, or upon proper
instructions from the Fund;
(c) for the payment of interest, dividends, taxes,
investment adviser's fees or operating expenses (including, without
limitation thereto, fees for legal, accounting, auditing and custodian
services and expenses for printing and postage);
(d) for payments in connection with the conversion,
exchange or surrender of securities owned or subscribed to by a Fund
held by or to be delivered to Custodian; or
(e) for other proper corporate purposes certified by
resolution of the Board of Directors of the Corporation, on behalf of a
Fund.
Before making any such payment, the Custodian shall receive
(and may rely upon) an officers' certificate requesting such payment
and stating that it is for a purpose permitted under the terms of
items (a), (b), (c) or (d) of this Subsection A, and also, in respect
of item (e), upon receipt of an officers' certificate specifying the
amount of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom such payment is to
be made, provided, however, that an officers' certificate need not
precede the disbursement of cash for the purpose of purchasing a money
market instrument, or any other security with same or next-day
settlement, if the President, a Vice President, the Secretary or the
Treasurer of the Corporation, on behalf of a particular Fund, issues
appropriate oral or facsimile instructions to the Custodian and an
appropriate officers' certificate is received by the Custodian within
two business days thereafter.
Regardless of the foregoing, if the Corporation's investment
advisor (the "Advisor") is a member of the Institutional Delivery
("ID") system and desires to affirm trades on behalf of a Fund with
the Depository Trust Company ("DTC") for those transactions affirmed
through the ID system; or (ii) has established an automated interface
to transmit trade authorization detail to the Custodian, then no
officers' certificate is required; provided that the appropriate
ID/DTC letter agreement or automated trade authorization agreement has
been executed by both the Advisor and the Custodian.
2
<PAGE> 3
B. The Custodian is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received by the
Custodian for each Fund's account.
C. The Custodian shall, upon receipt of proper instructions, make
federal funds available to the Funds as of specified times agreed upon from
time to time by the Corporation, on behalf of the Funds, and the Custodian in
the amount of checks received in payment for shares of the Funds which are
deposited into the respective Fund's account.
4. Segregated Accounts
Upon receipt of proper instructions, the Custodian shall establish and
maintain a segregated account or accounts for and on behalf of each Fund, into
which account or accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to paragraph 14
hereof, (i) in accordance with the provisions of any agreement among the
Corporation, on behalf of a Fund or Funds, the Custodian and a broker-dealer
registered under the Exchange Act and a member of the National Association of
Securities Dealers, Inc. (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of the
Options Clearing Corporation and of any registered national securities exchange
(or the Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding escrow or
other arrangements in connection with transactions for a Fund, (ii) for the
purpose of segregating cash or securities in connection with options purchased,
sold or written for a Fund or commodity futures contracts or options thereon
purchased or sold for a Fund, (iii) for the purpose of compliance by the
Corporation or a Fund with the procedures required by any release or
interpretations of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment companies, and (iv)
as mutually agreed upon from time to time between the Corporation, on behalf of
a Fund or Funds, and the Custodian.
5. Transfer, Exchange, Redelivery, etc. of Securities
The Custodian shall have sole power to release or deliver any
securities of the Funds held by it pursuant to this Agreement. The Custodian
agrees to transfer, exchange or deliver securities held by it hereunder only:
(a) for sales of such securities for the account of a Fund upon
receipt by Custodian of payment therefore;
(b) when such securities are called, redeemed or retired or
otherwise become payable;
(c) for examination by any broker selling any such securities in
accordance with "street delivery" custom;
(d) in exchange for, or upon conversion into, other securities
alone or other securities and cash whether pursuant to any plan of merger,
consolidation, reorganization, recapitalization or readjustment, or otherwise;
3
<PAGE> 4
(e) upon conversion of such securities pursuant to their terms
into other securities;
(f) upon exercise of subscription, purchase or other similar
rights represented by such securities;
(g) for the purpose of exchanging interim receipts or temporary
securities for definitive securities;
(h) for the purpose of redeeming in kind shares of common stock of
a Fund upon delivery thereof to the Custodian; or
(i) for other proper corporate purposes.
As to any deliveries made by the Custodian pursuant to items (a), (b),
(d), (e), (f), and (g), securities or cash receivable in exchange therefore
shall be deliverable to the Custodian.
Before making any such transfer, exchange or delivery, the Custodian
shall receive (and may rely upon) an officers' certificate requesting such
transfer, exchange or delivery, and stating that it is for a purpose permitted
under the terms of items (a), (b), (c), (d), (e), (f), (g) or (h) of this
Section 5 and also, in respect of item (i), upon receipt of an officers'
certificate specifying the securities to be delivered, setting forth the
purpose for which such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to whom delivery of
such securities shall be made, provided, however, that an officers' certificate
need not precede any such transfer, exchange or delivery of a money market
instrument, or any other security with same or next-day settlement, if the
President, a Vice President, the Secretary or the Treasurer of the Corporation,
on behalf of a particular Fund, issues appropriate oral or facsimile
instructions to the Custodian and an appropriate officers' certificate is
received by the Custodian within two business days thereafter.
Regardless of the foregoing, if the Advisor is a member of the ID
system and desires to affirm trades on behalf of a Fund with the DTC for those
transactions affirmed through the ID system; or (ii) has established an
automated interface to transmit trade authorization detail to the Custodian,
then no officers' certificate is required; provided that the appropriate ID/DTC
letter agreement or automated trade authorization agreement has been executed
by both the Advisor and the Custodian.
6. Custodian's Acts Without Instructions
Unless and until the Custodian receives an officers' certificate to
the contrary, the Custodian shall: (a) present for payment all coupons and
other income items held by it for the account of each Fund which call for
payment upon presentation, and hold the cash received by it upon such payment
for the account of the respective Fund; (b) collect interest and cash dividends
received, with notice to each Fund, for the account of the respective Fund; (c)
hold for the account of each Fund hereunder all stock dividends, rights and
similar securities issued with respect to any securities held by it hereunder;
and (d) execute, as agent on behalf of each Fund, all necessary ownership
certificates required by the Internal
4
<PAGE> 5
Revenue Code or the Income Tax Regulations of the United States Treasury
Department or under the laws of any state now or hereafter in effect, inserting
the Fund's name on such certificates as the owner of the securities covered
thereby, to the extent it may lawfully do so.
7. Registration of Securities
Except as otherwise directed by an officers' certificate, the
Custodian shall register all securities, except such as are in bearer form, in
the name of a registered nominee of the Custodian as defined in the Internal
Revenue Code and any Regulations of the Treasury Department issued hereunder or
in any provision of any subsequent federal tax law exempting such transaction
from liability for stock transfer taxes, and shall execute and deliver all such
certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state. The Custodian shall use its best
efforts to the end that the specific securities held by it hereunder shall be
at all times identifiable in its records.
The Corporation shall from time to time furnish to the Custodian
appropriate instruments to enable the Custodian to hold or deliver in proper
form for transfer, or to register in the name of its registered nominee, any
securities which it may hold for the account of the Funds and which may from
time to time be registered in the name of a particular Fund.
8. Voting and Other Action
Neither the Custodian nor any nominee of the Custodian shall vote any
of the securities held hereunder by or for the account of any Fund, except in
accordance with the instructions contained in an officers' certificate. The
Custodian shall deliver, or cause to be executed and delivered, to the
Corporation all notices, proxies and proxy soliciting materials with relation
to such securities, such proxies to be executed by the registered holder of
such securities (if registered otherwise than in the name of a Fund), but
without indicating the manner in which such proxies are to be voted.
9. Transfer Tax and Other Disbursements
The Corporation, on behalf of the Funds, shall pay or reimburse the
Custodian from time to time for any transfer taxes payable upon transfers of
securities made hereunder, and for all other necessary and proper disbursements
and expenses made or incurred by the Custodian in the performance of this
Agreement.
The Custodian shall execute and deliver such certificates in
connection with securities delivered to it or by it under this Agreement as may
be required under the provisions of the Internal Revenue Code and any
Regulations of the Treasury Department issued thereunder, or under the laws of
any state, to exempt from taxation any exemptable transfers and/or deliveries
of any such securities.
10. Concerning Custodian
The Custodian shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed upon in
writing between the Corporation, on behalf of
5
<PAGE> 6
the Funds, and the Custodian. Until modified in writing, such compensation
shall be as set forth in Schedule B attached hereto.
The Custodian shall not be liable for any action taken in good faith
upon any certificate herein described or certified copy of any resolution of
the Board, and may rely on the genuineness of any such document which it may in
good faith believe to have been validly executed.
The Corporation, on behalf of the Funds, agrees to indemnify and hold
harmless the Custodian and its nominee from all taxes, charges, expenses,
assessments, claims and liabilities (including counsel fees) incurred or
assessed against it or by its nominee in connection with the performance of
this Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct. The
Custodian is authorized to charge the applicable account of a Fund for such
items. In the event of any advance of cash by the Custodian which results in
any overdraft of a Fund, which is a money market fund subject to Rule 2a-7
under the Investment Company Act, the Custodian is granted a security interest
in such Fund's assets limited to the extent of the overdraft.
11. Subcustodians
The Custodian is hereby authorized to engage another bank or trust
company as a Subcustodian for all or any part of the Corporation's assets, so
long as any such bank or trust company meets the requirements of the Investment
Company Act, as amended and the rules and regulations thereunder and provided
further that, if the Custodian utilizes the services of a Subcustodian, the
Custodian shall remain fully liable and responsible for any losses caused to
any of the Funds by the Subcustodian as fully as if the Custodian was directly
responsible for any such losses under the terms of the Custodian Agreement.
Notwithstanding anything contained herein, if the Corporation requires
the Custodian to engage specific Subcustodians for the safekeeping and/or
clearing of assets, the Corporation agrees to indemnify and hold harmless the
Custodian from all claims, expenses and liabilities incurred or assessed
against it in connection with the use of such Subcustodian in regard to the
Corporation's assets, except as may arise from its own negligent action,
negligent failure to act or willful misconduct.
12. Reports by Custodian
The Custodian shall furnish the Corporation periodically as agreed upon
with a statement summarizing all transactions and entries for the account of
each Fund. The Custodian shall furnish to the Corporation, at the end of every
month, a list of the securities held by each Fund, showing the aggregate cost
of each issue. The books and records of the Custodian pertaining to its
actions under this Agreement shall be open to inspection and audit at
reasonable times by officers of, and of auditors employed by, the Corporation.
13. Termination or Assignment
This Agreement may be terminated by the Corporation, on behalf of the
Funds, or by the Custodian, on ninety (90) days notice, given in writing and
sent by registered mail to the Custodian at P. O. Box 2054, Milwaukee,
Wisconsin 53201, or to the Corporation at 100 Heritage Reserve, Menomonee Falls,
Wisconsin 53051, as the case may be. Upon any termination of this Agreement,
pending appointment of a successor to the Custodian or a vote of the
shareholders of the Corporation to dissolve or
6
<PAGE> 7
to function without a custodian of its cash, securities and other property,
the Custodian shall not deliver cash, securities or other property of
the Corporation to the Corporation, but may deliver them to a bank or trust
company of its own selection, that meets the requirements of the Investment
Company Act as a Custodian for the Corporation to be held under terms similar
to those of this Agreement, provided, however, that the Custodian shall not be
required to make any such delivery or payment until full payment shall have
been made by the Corporation of all liabilities constituting a charge on or
against the properties then held by the Custodian or on or against the
Custodian, and until full payment shall have been made to the Custodian of all
its fees, compensation, costs and expenses, subject to the provisions of
Section 10 of this Agreement.
This Agreement may not be assigned by the Custodian without the consent
of the Corporation, authorized or approved by a resolution of its Board of
Directors.
14. Deposits of Securities in Securities Depositories
No provision of this Agreement shall be deemed to prevent the use by
the Custodian of a central securities clearing agency or securities depository,
provided, however, that the Custodian and the central securities clearing
agency or securities depository meet all applicable federal and state laws and
regulations, including the requirements of the Investment Company Act, and the
Board of Directors of the Corporation approves by resolution the use of such
central securities clearing agency or securities depository.
15. Records
To the extent that the Custodian in any capacity prepares or maintains
any records required to be maintained and preserved by the Corporation pursuant
to the provisions of the Investment Company Act, the Custodian agrees to make
any such records available to the Corporation upon request and to preserve such
records for the periods prescribed in Rule 31a-2 under the Investment Company
Act.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first written above.
Attest: Firstar Trust Company
____________________________________ ___________________________________
By: By:
Its: Its:
Attest: Strong <<Name>>, Inc.
____________________________________ ___________________________________
By: Ann E. Oglanian By: Lawrence A. Totsky
Its: Secretary Its: Vice President
7
<PAGE> 8
SCHEDULE A
The Fund(s) of the Corporation currently subject to this Agreement are as
follows:
Fund(s) Date of Addition
------- to this Agreement
-----------------
<<SERIES>> <<AGT DATE>>
Attest: Firstar Trust Company
______________________ ______________________________
By: By:
Its: Its:
Attest: Strong <<NAME>>, Inc.
_______________________ ______________________________
By: Ann E. Oglanian By: Lawrence A. Totsky
Its: Secretary Its: Vice President
<PAGE> 9
SCHEDULE B
FIRSTAR TRUST COMPANY
MUTUAL FUND SERVICES
MUTUAL FUND CUSTODIAL AGENT SERVICE
ANNUAL FEE SCHEDULE FOR THE
STRONG MUTUAL FUNDS
EFFECTIVE JULY 1, 1993
Annual fee on the aggregate market value of all Strong Mutual Funds
$0.10 per $1,000 (one basis point) on the first $2 billion
$0.08 per $1,000 (.8 basis point) on the balance
Aggregate fee shall be apportioned among the funds(1) based upon
market value.
Investment transactions; (purchase, sale, exchange, tender,
redemption, maturity, receipt, delivery)
$ 9.00 per Depository Trust Company or Federal Reserve System
trade, automated and non-automated
$25.00 per definitive security (physical)
$ 8.50 per commercial paper trade
$50.00 per Euroclear
$ 6.00 per principal reduction on pass-through certificates
$35.00 per option/futures contract
$ 7.50 per variation margin transaction
$ 7.50 per Fed wire deposit or withdrawal
__________________________________
1 The term "fund" includes each series of a series company.
<PAGE> 1
EXHIBIT 99.B9
SHAREHOLDER SERVICING AGENT AGREEMENT
THIS AGREEMENT is made and entered into on this ___ day of _____, 1995,
between STRONG [ ], INC., a Wisconsin corporation (the
"Corporation"), on behalf of the Funds (as defined below) of the Corporation,
and STRONG CAPITAL MANAGEMENT, INC., a Wisconsin corporation ("Strong").
WITNESSETH
WHEREAS, the Corporation is an open-end management investment company
registered under the Investment Company Act of 1940;
WHEREAS, the Corporation is authorized to create separate series, each
with its own separate investment portfolio, and the beneficial interest in each
such series will be represented by a separate series of shares (each series is
hereinafter individually referred to as a "Fund" and collectively, the
"Funds");
WHEREAS, the Corporation is authorized to issue shares of its $._____
par value common stock (the "Shares") of each Fund; and
WHEREAS, the Corporation desires to retain Strong as the shareholder
servicing agent of the Shares of each Fund on whose behalf this Agreement has
been executed.
NOW, THEREFORE, the Corporation and Strong do mutually agree and
promise as follows:
1. Appointment. The Corporation hereby appoints Strong to act as
shareholder servicing agent of the Shares of each Fund listed on Schedule A
hereto, as such Schedule may be amended from time to time. Strong shall, at
its own expense, render the services and assume the obligations herein set
forth subject to being compensated therefor as herein provided.
2. Authority of Strong. Strong is hereby authorized by the
Corporation to receive all cash which may from time to time be delivered to it
by or for the account of the Funds; to issue confirmations and/or certificates
for Shares of the Funds upon receipt of payment; to redeem or repurchase on
behalf of the Funds Shares upon receipt of certificates properly endorsed or
properly executed written requests as described in the current prospectus of
each Fund and to act as dividend disbursing agent for the Funds. Strong is
authorized to charge shareholder transaction fees payable to the Fund on a per
account basis and to deduct a quarterly account maintenance fee which is
payable to Strong as set forth in each Fund's prospectus.
3. Duties of Strong. Strong hereby agrees to:
A. Process new accounts.
<PAGE> 2
B. Process purchases, both initial and subsequent, of
Fund Shares in accordance with conditions set forth
in the prospectus of each Fund as mutually agreed by
the Corporation and Strong.
C. Transfer Fund Shares to an existing account or to a
new account upon receipt of required documentation
in good order.
D. Redeem uncertificated and/or certificated shares upon
receipt of required documentation in good order.
E. Issue and/or cancel certificates as instructed;
replace lost, stolen or destroyed certificates upon
receipt of satisfactory indemnification or bond.
F. Distribute dividends and/or capital gain
distributions. This includes disbursement as cash or
reinvestment and to change the disbursement option at
the request of shareholders.
G. Process exchanges between Funds (process and direct
purchase/redemption and initiate new account or
process to existing account).
H. Make miscellaneous changes to records.
I. Prepare and mail a confirmation to shareholders as
each transaction is recorded in a shareholder
account. Duplicate confirmations to be available on
request within current year.
J. Handle phone calls and correspondence in reply to
shareholder requests except those items set forth in
Referrals to Corporation, below.
K. Prepare Reports for the Funds:
i. Monthly analysis of transactions and accounts
by types.
ii. Quarterly state sales analysis; sales by
size; analysis of systematic withdrawals,
Keogh, IRA and 403(b)(7) plans; print-out of
shareholder balances.
L. Perform daily control and reconciliation of Fund
Shares with Strong's records and the Corporation's
office records.
M. Prepare address labels or confirmations for four
reports to shareholders per year.
2
<PAGE> 3
N. Mail and tabulate proxies for one Annual Meeting of
Shareholders, including preparation of certified
shareholder list and daily report to Corporation
management, if required.
O. Prepare and mail required Federal income taxation
information to shareholders to whom dividends or
distributions are paid, with a copy for the IRS and a
copy for the Corporation if required.
P. Provide readily obtainable data which may from time
to time be requested for audit purposes.
Q. Replace lost or destroyed checks.
R. Continuously maintain all records for active and
closed accounts.
S. Furnish shareholder data information for a current
calendar year in connection with IRA and Keogh Plans
in a format suitable for mailing to shareholders.
T. Charge shareholder transaction fees and deduct a
quarterly account maintenance fee as set forth
under paragraph 2.
4. Referrals to Corporation. Strong hereby agrees to refer to the
Corporation for reply the following:
A. Requests for investment information, including
performance and outlook.
B. Requests for information about specific plans (i.e.,
IRA, Keogh, Systematic Withdrawal).
C. Requests for information about exchanges between
Funds.
D. Requests for historical Fund prices.
E. Requests for information about the value and timing
of dividend payments.
F. Questions regarding correspondence from the
Corporation and newspaper articles.
G. Any requests for information from non-shareholders.
H. Any other types of shareholder requests as the
Corporation may request from Strong in writing.
5. Compensation to Strong. Strong shall be compensated for its
services hereunder in accordance with the Shareholder Servicing Fee Schedule
(the "Fee Schedule") attached hereto as Schedule B and as such Fee Schedule may
from time to time be amended in writing between the two parties. The
Corporation will reimburse Strong for all out-of-pocket expenses, including,
but not
3
<PAGE> 4
necessarily limited to, postage, confirmation forms, etc. Special projects,
not included in the Fee Schedule and requested by proper instructions from the
Corporation with respect to the relevant Funds, shall be completed by Strong and
invoiced to the Corporation and the relevant Funds as mutually agreed upon.
6. Rights and Powers of Strong. Strong's rights and powers with
respect to acting for and on behalf of the Corporation, including rights and
powers of Strong's officers and directors, shall be as follows:
A. No order, direction, approval, contract or obligation
on behalf of the Corporation with or in any way affecting Strong shall
be deemed binding unless made in writing and signed on behalf of the
Corporation by an officer or officers of the Corporation who have been
duly authorized to so act on behalf of the Corporation by its Board of
Directors.
B. Directors, officers, agents and shareholders of the
Corporation are or may at any time or times be interested in Strong as
officers, directors, agents, shareholders, or otherwise.
Correspondingly, directors, officers, agents and shareholders of
Strong are or may at any time or times be interested in the
Corporation as directors, officers, agents, shareholders or otherwise.
Strong shall, if it so elects, also have the right to be a shareholder
of the Corporation.
C. The services of Strong to the Corporation are not to
be deemed exclusive and Strong shall be free to render similar services
to others as long as its services for others do not in any manner or
way hinder, preclude or prevent Strong from performing its duties and
obligations under this Agreement.
D. The Corporation will indemnify Strong and hold it
harmless from and against all costs, losses, and expenses which may be
incurred by it and all claims or liabilities which may be asserted or
assessed against it as a result of any action taken by it without
negligence and in good faith, and for any act, omission, delay or
refusal made by Strong in connection with this agency in reliance upon
or in accordance with any instruction or advice of any duly authorized
officer of the Corporation.
7. Effective Date. This Agreement shall become effective as of
the date hereof.
8. Termination of Agreement. This Agreement shall continue in
force and effect until terminated or amended to such an extent that a new
Agreement is deemed advisable by either party. Notwithstanding anything herein
to the contrary, this Agreement may be terminated at any time, without payment
of any penalty, by the Corporation or Strong upon ninety (90) days' written
notice to the other party.
9. Amendment. This Agreement may be amended by the mutual
written consent of the parties. If, at any time during the existence of this
Agreement, the Corporation deems it necessary or advisable in the best
interests of Corporation that any amendment of this Agreement be made in
order to
4
<PAGE> 5
comply with the recommendations or requirements of the Securities and Exchange
Commission or state regulatory agencies or other governmental authority, or to
obtain any advantage under state or federal laws, the Corporation shall notify
Strong of the form of amendment which it deems necessary or advisable and the
reasons therefor, and if Strong declines to assent to such amendment, the
Corporation may terminate this Agreement forthwith.
10. Notice. Any notice that is required to be given by the
parties to each other under the terms of this Agreement shall be in writing,
addressed and delivered, or mailed postpaid to the other party at the principal
place of business of such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed as of the day and year first stated above.
Attest: Strong Capital Management, Inc.
______________________________________ ___________________________________
Thomas P. Lemke, Senior Vice President John Dragisic, Vice Chairman
Attest: Strong [ ], Inc.
______________________________________ ___________________________________
Ann E. Oglanian, Secretary Lawrence A. Totsky, Vice President
5
<PAGE> 6
SCHEDULE A
The Fund(s) of the Corporation currently subject to this Agreement are as
follows:
Date of Addition
Fund(s) to this Agreement
------- -----------------
Strong [ ] Fund ___________, 1995
Attest: Strong Capital Management, Inc.
______________________________________ ____________________________________
Thomas P. Lemke, Senior Vice President John Dragisic, Vice Chairman
Attest: Strong [ ], Inc.
______________________________________ ____________________________________
Ann E. Oglanian, Secretary Lawrence A. Totsky, Vice President
6
<PAGE> 7
SCHEDULE B
SHAREHOLDER SERVICING FEE SCHEDULE
Until such time that this schedule is replaced or modified, Strong
[ ], Inc. (the "Corporation"), on behalf of each Fund set
forth on Schedule A to this Agreement, agrees to compensate Strong Capital
Management, Inc. ("Strong") for performing as shareholder servicing agent as
specified below per open Fund account, plus out-of-pocket expenses attributable
to the Corporation and the Fund(s).
Annual Rate per
Fund(s) Open Fund Account
------- -----------------
Strong [ ] Fund $_____
- - an equity fund $21.75
- - an income fund $31.50
- - a money market fund $32.50
Out-of-pocket expenses include, but are not limited to, the following:
1. All materials, paper and other costs associated with necessary
and ordinary shareholder correspondence.
2. Postage and printing of confirmations, statements, tax forms
and any other necessary shareholder correspondence. Printing
is to include the cost of printing account statements and
confirmations by third-party vendors as well as the cost of
printing the actual forms.
3. The cost of mailing (sorting, inserting, etc.) by third-party
vendors.
4. All banking charges of Corporation, including deposit slips and
stamps, checks and share drafts, wire fees not paid by
shareholders, and any other deposit account or checking
account fees.
5. The cost of storage media for Corporation records, including
phone recorder tapes, microfilm and microfiche, forms and
paper.
6. Offsite storage costs for older Corporation records.
7. Charges incurred in the delivery of Corporation materials and
mail.
8. Any costs for outside contractors used in providing necessary
and ordinary services to the Corporation, a Fund or
shareholders, not contemplated to be performed by Strong.
7
<PAGE> 8
9. Any costs associated with enhancing, correcting or developing
the record keeping system currently used by the Corporation,
including the development of new statement or tax form
formats.
For purposes of calculating Strong's compensation pursuant to this
Agreement, all subaccounts which hold shares in a Fund through 401(k) plans,
401(k) alliances, and financial institutions, such as insurance companies,
broker/dealers, and investment advisors shall be treated as direct open
accounts of the Fund upon approval of such arrangement by the Corporation's
Board of Directors. Out-of-pocket expenses will be charged to the applicable
Fund, except for those out-of-pocket expenses attributable to the Corporation
in general, which shall be charged pro rata to each Fund.
In addition, a Fund will pay a fee for closed accounts at an annual
rate of $4.20 per account. All fees will be billed to the Corporation monthly
based upon the number of open and closed accounts existing on the last day of
the month plus any out-of-pocket expenses paid by Strong during the month.
These fees are in addition to any fees the Corporation may pay Strong for
providing investment management services or for underwriting the sale of
Corporation shares.
Attest: Strong Capital Management, Inc.
______________________________________ ____________________________________
Thomas P. Lemke, Senior Vice President John Dragisic, Vice Chairman
Attest: Strong [ ],Inc.
______________________________________ ____________________________________
Ann E. Oglanian, Secretary Lawrence A. Totsky, Vice President
8
<PAGE> 1
EXHIBIT 99.B17
[GODFREY & KAHN, S.C. LETTERHEAD]
December 12, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Strong Heritage Reserve Series, Inc.
Gentlemen:
We represent Strong Heritage Reserve Series, Inc. (the "Company"), in
connection with its filing of Post-Effective Amendment No. 3 (the
"Post-Effective Amendment") to the Companys Registration Statement
(Registration Nos. 33-59361; 811-7285) on Form N-1A under the Securities Act of
1933 (the "Securities Act") and the Investment Company Act of 1940. The
Post-Effective Amendment is being filed pursuant to Rule 485(b) under the
Securities Act.
We have reviewed the Post-Effective Amendment and, in accordance with
Rule 485(b)(4) under the Securities Act, hereby represent that the
Post-Effective Amendment does not contain disclosures which would render it
ineligible to become effective pursuant to Rule 485(b).
Very truly yours,
GODFREY & KAHN, S.C.
/s/ Scott A. Moehrke
Scott A. Moehrke
