As filed with the Securities and Exchange Commission on or about
December 24, 1997
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. 6 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 8 [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)
It is proposed that this filing will become effective (check appropriate box).
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[X] 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.
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STRONG HERITAGE RESERVE SERIES, INC.
CROSS REFERENCE SHEET
This Post-Effective Amendment to the Registration Statement of Strong
Heritage Reserve Series, Inc., which is currently comprised of one fund,
relates only to Strong 1st Step Money Fund, which is being added to Strong
Heritage Reserve Series, Inc. through this Amendment. This Post-Effective
Amendment does not relate to, amend, supersede, or otherwise affect the
separate Prospectus and Statement of Additional Information contained in
Post-Effective Amendment No. 5.
For Strong 1st Step Money Fund
(Pursuant to Rule 481 showing the location in the Prospectus and the
Statement of Additional Information of the responses to the Items of Parts A
and B of Form N-1A.)
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Caption or Subheading in Prospectus or
ITEM NO. ON FORM N-1A
STATEMENT OF ADDITIONAL INFORMATION
- ---------------------------------------------------------
PART A - Information Required in Prospectus
1. Cover Page Cover Page
2. Synopsis Expenses
3. Condensed Financial Information Inapplicable
4. General Description of Registrant Investment Objective and Policies; Implementation of
Policies and Risks; About the Fund - Organization
5. Management of the Fund About the Fund - Management
5A. Management's Discussion of Fund Performance Inapplicable
6. Capital Stock and Other Securities About the Fund - Organization, - Distributions and
Taxes; 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
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Caption or Subheading in Prospectus or
ITEM NO. ON FORM N-1A
STATEMENT OF ADDITIONAL INFORMATION
- ------------------------------------------------------------
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 Fund
15. Control Persons and Principal Holders of Securities Principal Shareholders; Directors and Officers of the
Fund; Investment Advisor and Distributor
16. Investment Advisory and Other Services Investment Advisor and Distributor; About the Fund
- Management (in Prospectus); Custodian; Transfer
Agent and Dividend-Disbursing Agent; Independent
Accountants; Legal Counsel
17. Brokerage Allocation and Other Practices Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities Included in Prospectus under the heading About the
Fund - Organization and in the Statement of
Additional Information under the heading
Shareholder Meetings
19. Purchase, Redemption and Pricing of Securities Being Included in Prospectus under the headings:
Offered Shareholder Manual - How to Buy Shares, -
Determining Your Share Price, - How to Sell Shares,
- Shareholder Services; and in the Statement of
Additional Information under the headings:
Additional Shareholder Information; Investment
Advisor and Distributor; and Determination of Net
Asset Value
20. Tax Status Included in Prospectus under the heading About the
Fund - Distributions and Taxes; and in the Statement
of Additional Information under the heading Taxes
21. Underwriters Investment Advisor and Distributor
22. Calculation of Performance Data Performance Information
23. Financial Statements Inapplicable
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* Complete answer to Item is contained in the Fund's Prospectus.
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STRONG 1st STEP MONEY FUND
STRONG FUNDS
P.O. Box 2936
Milwaukee, Wisconsin 53201
TELEPHONE: (414) 359-1400
TOLL-FREE: (800) 368-3863
DEVICE FOR THE
HEARING-IMPAIRED:
(800) 999-2780
www.strong-funds.com
The Strong Family of Funds ("Strong Funds") is a family of more than
thirty-five diversified and non-diversified mutual funds. All of the Strong
Funds are no-load funds, meaning that you may purchase, redeem, or exchange
shares without paying a sales charge. Strong Funds include growth funds,
conservative equity funds, income funds, municipal income funds, international
funds, and cash management funds. The Strong 1st Step Money Fund (the "Fund")
seeks current income, a stable share price, and daily liquidity. The Fund
invests in corporate, bank, and government instruments that present minimal
credit risk.
Recognizing that cash and liquidity are important parts of any investor's
portfolio, the Fund has been designed to help investors take a 1st step toward
building a diversified investment portfolio. PLEASE NOTE THAT YOUR MAXIMUM
INVESTMENT IN THE FUND IS LIMITED TO $25,000. This means that you may not make
a purchase of shares if the amount purchased would cause the value of your
account to exceed $25,000. In addition, you may only open one account in the
Fund.
This Prospectus contains information you should consider before you
invest. Please read it carefully and keep it for future reference. A Statement
of Additional Information for the Fund, dated , 1998, 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. If you would like to
electronically access additional information about the Funds after reading the
prospectus, you may do so by accessing the SEC's World Wide Web site (at
http://www.sec.gov) that contains the Statement of Additional Information
regarding the Funds and other related materials.
AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
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.
, 1998
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TABLE OF CONTENTS
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EXPENSES I-__
INVESTMENT OBJECTIVE AND POLICIES . I-__
IMPLEMENTATION OF POLICIES AND RISKS I-__
ABOUT THE FUND I-__
SHAREHOLDER MANUAL II-__
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No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the Statement
of Additional Information, and if given or made, such information or
representations may not be relied upon as having been authorized by the Fund.
This Prospectus does not constitute an offer to sell securities in any state or
jurisdiction in which such offering may not lawfully be made.
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EXPENSES
The following information is provided in order to help you understand the
various costs and expenses that you, as an investor in the Fund, will bear
directly or indirectly.
SHAREHOLDER TRANSACTION EXPENSES
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Sales Load Imposed on Purchases NONE
Sales Load Imposed on Reinvested Dividends . NONE
Deferred Sales Load NONE
Redemption Fees NONE
Exchange Fees NONE
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There are certain charges associated with retirement accounts (such as a
$10 charge for closing an IRA account) and with certain other special
shareholder services offered by the Fund. Additionally, purchases and
redemptions may also be made through broker-dealers or other financial
intermediaries 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 after waiver)
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MANAGEMENT OTHER 12B-1 TOTAL OPERATING
FUND FEE EXPENSES FEE EXPENSES
- ------------------- ---------- -------- ----- ---------------
1st Step Money Fund .50% .__% NONE .00%*
- ------------------- ---------- -------- ----- ---------------
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* Total Operating Expenses reflect the Advisor's waiver of management fees
and absorptions as described below. Without such waivers and absorptions, the
Total Operating Expenses of the Fund would have been __%.
From time to time, the Fund's investment advisor, Strong Capital
Management, Inc. (the "Advisor"), may voluntarily waive its management fee
and/or absorb certain expenses for the Fund. Since the Fund is new and did not
begin operations until , 1998, the Other Expenses have been
estimated. For additional information concerning fees and expenses, see "About
the Fund - Management."
THE ADVISOR HAS AGREED TO VOLUNTARILY WAIVE ALL THE ADVISOR'S MANAGEMENT
FEE AND ABSORB ALL OPERATING EXPENSES OF THE FUND UNTIL .
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EXAMPLE. You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
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FUND PERIOD (IN YEARS)
1st Step Money Fund __ __
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The Example is based on the 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 the Fund's shares.
INVESTMENT OBJECTIVE AND POLICIES
The Fund has adopted certain fundamental investment restrictions that are
set forth in its Statement of Additional Information ("SAI"). Those
restrictions, the Fund's investment objective, and any other investment
policies identified as "fundamental" cannot be changed without shareholder
approval. To further guide investment activities, the Fund has also instituted
a number of non-fundamental operating policies, which are described throughout
this Prospectus and in the SAI. Although operating policies may be changed by
the Fund's Board of Directors without shareholder approval, the Fund will
promptly notify shareholders of any material change in operating policies.
The Fund seeks current income, a stable share price, and daily liquidity.
The Fund's investments include corporate, bank, and government instruments that
present minimal credit risk.
The Fund is designed for investors who seek money-market yields 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 can change
in value when interest rates or an issuer's creditworthiness changes
dramatically. ALTHOUGH THE FUND'S SHARE PRICE HAS REMAINED CONSTANT IN THE
PAST, THE FUND CANNOT GUARANTEE THAT IT WILL ALWAYS BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE. An investment in the Fund is neither
insured nor guaranteed by the U.S. government.
The Fund invests in a combination of bank, corporate, and government
obligations that present minimal credit risks. The Fund restricts its
investments to instruments that meet certain maturity and quality standards
required or permitted by Rule 2a-7 under the Investment Company Act of 1940
(the "1940 Act") for money market funds. Accordingly, the Fund:
(i) limits its average portfolio maturity to ninety days or less;
(ii) buys only securities with remaining maturities of thirteen
months or less; and
(iii) buys only U.S. dollar-denominated securities that represent
minimal credit risks 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.
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IMPLEMENTATION OF POLICIES AND RISKS
In addition to the investment policies described above (and subject to
certain restrictions described below), the Fund may invest in 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 Fund's SAI.
DEBT OBLIGATIONS
TYPES OF OBLIGATIONS. The Fund may not invest in any debt obligation that
does not meet the maturity and quality standards of Rule 2a-7 under the 1940
Act for money market funds. Debt obligations in which the Fund may invest
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) floating-
or variable-rate debt obligations; (vi) asset-backed debt obligations; (vii)
U.S. dollar-denominated foreign debt obligations; (viii) U.S. government
securities issued or guaranteed by the U.S. Treasury (such as bills, notes, or
bonds) or by an agency or instrumentality of the U.S. government; and (ix)
municipal obligations.
GOVERNMENT SECURITIES
U.S. government securities are issued or guaranteed by the U.S. government
or its agencies or instrumentalities. Securities issued by the government
include U.S. Treasury obligations, such as Treasury bills, notes, and bonds.
Securities issued or guaranteed by government agencies or instrumentalities
include the following:
- - the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, and
the Government National Mortgage Association, including GNMA pass-through
certificates, whose securities are supported by the full faith and credit of
the United States;
- - the Federal Home Loan Banks, Federal Intermediate Credit Banks, and the
Tennessee Valley Authority, whose securities are supported by the right of
the agency to borrow from the U.S. Treasury;
- - the Federal National Mortgage Association, whose securities are supported by
the discretionary authority of the U.S. government to purchase certain
obligations of the agency or instrumentality; and
- - the Student Loan Marketing Association, the Interamerican Development Bank,
and International Bank for Reconstruction and Development, whose securities
are supported only by the credit of such agencies.
Although the U.S. government provides financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so. The U.S. government and its agencies and
instrumentalities do not guarantee the market value of their securities;
consequently, the value of such securities will fluctuate.
FOREIGN SECURITIES
The Fund may invest up to 25% of its net assets directly or indirectly in
foreign securities. The Fund will limit its investments in foreign securities
to those denominated in U.S. dollars. The Fund may invest in U.S. securities
enhanced as to credit quality or liquidity by foreign issuers without regard to
this limitation.
Foreign investments involve special risks, including:
- - expropriation, confiscatory taxation, and withholding taxes on dividends and
interest;
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- - less extensive regulation of foreign brokers, securities markets, and
issuers;
- - less publicly available information and different accounting standards;
- - possible delays in settlement in foreign securities markets, limitations on
the use or transfer of assets, and difficulty of enforcing obligations in
other countries; and
- - diplomatic developments and political or social instability.
Foreign economies may differ favorably or unfavorably from the U.S.
economy in various respects, including growth of gross domestic product, rates
of inflation, currency depreciation, capital reinvestment, resource
self-sufficiency, and balance-of-payments positions. Many foreign securities
may be less liquid and their prices more volatile than comparable U.S.
securities.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
non-bank dealers. In a repurchase agreement, the Fund buys a security at one
price, and at the time of sale, the seller agrees to repurchase the obligation
at a mutually agreed upon time and price (usually within seven days). The
repurchase agreement determines the yield during the purchaser's holding
period, while the seller's obligation to repurchase is secured by the value of
the underlying security. The Fund may enter into repurchase agreements with
respect to any security in which it may invest. The Advisor will monitor, on an
ongoing basis, the value of the underlying securities to ensure that the value
always equals or exceeds the repurchase price plus accrued interest. Repurchase
agreements could involve certain risks in the event of a default or insolvency
of the other party to the agreement, including possible delays or restrictions
upon the Fund's ability to dispose of the underlying securities. Although no
definitive creditworthiness criteria are used, the Advisor reviews the
creditworthiness of the banks and non-bank dealers with which the Fund enters
into repurchase agreements to evaluate those risks. The Fund may, under certain
circumstances, deem repurchase agreements collateralized by U.S. government
securities to be investments in U.S. government securities.
WHEN-ISSUED SECURITIES
The Fund may invest in securities purchased on a when-issued or delayed-
delivery basis. Although the payment and interest terms of these securities are
established at the time the purchaser enters into the commitment, these
securities may be delivered and paid for at a future date, generally within 45
days. Purchasing when-issued securities allows the Fund to lock in a fixed
price or yield on a security it intends to purchase. However, when the Fund
purchases a when-issued security, it immediately assumes the risk of ownership,
including the risk of price fluctuation.
The greater the Fund's outstanding commitments for these securities, the
greater the exposure to potential fluctuations in the net asset value of the
Fund. Purchasing when-issued securities may involve the additional risk that
the yield available in the market when the delivery occurs may be higher or the
market price lower than that obtained at the time of commitment. Although the
Fund may be able to sell these securities prior to the delivery date, it will
purchase when-issued securities for the purpose of actually acquiring the
securities, unless, after entering into the commitment, a sale appears
desirable for investment reasons. When required by SEC guidelines, the Fund
will set aside permissible liquid assets in a segregated account to secure its
outstanding commitments for when-issued securities.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its net assets in illiquid securities.
Illiquid securities are those securities that are not readily marketable,
including restricted securities and repurchase obligations maturing in more
than seven days. Certain restricted securities which may be resold to
institutional 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.
6
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ABOUT THE FUND
MANAGEMENT
The Board of Directors of the Fund is responsible for managing its
business and affairs. The Fund has entered into an investment advisory
agreement with Strong Capital Management, Inc. (the "Advisor"). Under the terms
of this agreement, the Advisor manages the Fund's investments and business
affairs subject to the supervision of the Fund's Board of Directors.
ADVISOR. The Advisor began conducting business in 1974. Since then, its
principal business has been providing continuous investment supervision for
individuals and institutional accounts, such as pension funds and
profit-sharing plans, as well as mutual funds, several of which are funding
vehicles for variable insurance products. As of , 1998, the Advisor
had over $___ billion under management. The Advisor's principal mailing address
is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr. Richard S. Strong, the
Chairman of the Board of the Fund, is the controlling shareholder of the
Advisor.
As compensation for its services, the Fund pays the Advisor a monthly
management fee based on a percentage of the Fund's average daily net asset
value. The Fund's annual rate is .50%. From time to time, the Advisor may
voluntarily waive all or a portion of its management fee and/or absorb certain
Fund expenses without further notification of the commencement or termination
of such waiver or absorption. Any such waiver or absorption will temporarily
lower the Fund's overall expense ratio and increase the Fund's overall return
to investors.
The Advisor permits portfolio managers and other persons who may have
access to information about the purchase or sale of securities in the Fund's
portfolio ("access persons") to purchase and sell securities for their own
accounts, subject to the Advisor's policy governing personal investing. The
policy requires access persons to conduct their personal investment activities
in a manner that the Advisor believes is not detrimental to the Fund or to the
Advisor's other advisory clients. Among other things, the policy requires
access persons to obtain preclearance before executing personal trades and
prohibits access persons from keeping profits derived from the purchase or sale
of the same security within 60 calendar days. See the SAI for more information.
PORTFOLIO MANAGER. Mr. Jay N. Mueller serves as the portfolio manager for
the Fund. Mr. Mueller joined the Advisor in September 1991 as a securities
analyst and portfolio manager. For four years prior to that, he was a
securities analyst and portfolio manager with R. Meeder & Associates of Dublin,
Ohio. Mr. Mueller received his bachelor's degree in Economics in 1982 from the
University of Chicago. Mr. Mueller is also a Chartered Financial Analyst. He
has managed the Fund since , 1998.
TRANSFER AND DIVIDEND-DISBURSING AGENT
The Advisor, P.O. Box 2936, Milwaukee, Wisconsin 53201, also acts as
dividend-disbursing agent and transfer agent for the Fund. The Advisor is
compensated for 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 Fund.
DISTRIBUTOR
Strong Funds Distributors, Inc., P.O. Box 2936, Milwaukee, Wisconsin
53201, an indirect subsidiary of the Advisor, acts as distributor of the shares
of the Fund.
ORGANIZATION
SHAREHOLDER RIGHTS. The Fund is a Wisconsin corporation that is authorized
to issue an indefinite number of shares of common stock and series and classes
of series of shares of common stock. Each share of the Fund has one vote, and
all shares participate equally in dividends and other capital gains
distributions 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
7
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will, however, have full shareholder rights whether or not you request
certificates. Generally, the Fund will not hold an annual meeting of
shareholders unless required by the 1940 Act. Shareholders have certain rights,
including the right to call an annual meeting upon a vote of 10% of the Fund's
outstanding shares for the purposes of voting to remove one or more directors
or to transact any other business. The 1940 Act requires the Fund to assist
the shareholders in calling such a meeting.
SHAREHOLDER PRIVILEGES. The shareholders of the Fund may benefit from the
privileges described in the "Shareholder Manual" (see page II-1). However, the
Fund reserves the right, at any time and without prior notice, to suspend,
limit, modify, or terminate any of these privileges or their use in any manner
by any person or class.
DISTRIBUTIONS AND TAXES
PAYMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS. Unless you choose otherwise,
all your dividends and capital gains distributions will be automatically
reinvested in additional Fund shares, even if this causes your account balance
to exceed $25,000. Or, you may elect to have all your dividends and capital
gain distributions from the Fund automatically invested in additional shares of
another Strong Fund. Shares are purchased 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, the Fund will credit your bank account by
Electronic Funds Transfer ("EFT") or issue a check to you within five business
days of the payment date. You may change your election at any time by calling
or writing Strong Funds. Strong Funds must receive any such change 7 days (15
days for EFT) prior to a dividend or capital gain distribution payment date in
order for the change to be effective for that payment.
The policy of the Fund is to pay dividends from net investment income
monthly. The Fund may make additional distributions if necessary to avoid
imposition of a 4% excise tax on undistributed income. The Fund declares
dividends on each day its net asset value is calculated, except for bank
holidays. Income earned on weekends, holidays (including bank holidays), and
days on which net asset value is not calculated is declared as a dividend on
the day on which the Fund's net asset value was most recently calculated.
TAX STATUS OF DIVIDENDS AND OTHER DISTRIBUTIONS. You will be subject to
federal income tax at ordinary income tax rates on any dividends you receive
that are derived from investment company taxable income.
The Fund's distributions are taxable in the year they are paid, whether
they are taken in cash or reinvested in additional shares, except that certain
distributions declared in the last three months of the year and paid in January
are taxable as if paid on December 31. All state laws provide a pass-through to
mutual fund shareholders of the state and local income tax exemption afforded
owners of direct U.S. government obligations, although there are conditions to
this treatment in some states. You will be notified annually of the percentage
of a Fund's income that is derived from U.S. government securities.
YEAR-END TAX REPORTING. After the end of each calendar year, you will
receive a statement (Form 1099) of the federal income tax status of your
dividends paid (or deemed paid) during the year.
BACKUP WITHHOLDING. If you are an individual or certain other noncorporate
shareholder and do not furnish the Fund with a correct taxpayer identification
number, the Fund is required to withhold federal income tax at a rate of 31%
(backup withholding) from all dividends payable to you.
Withholding at that rate from dividends 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 FUND. The 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 distributed to its shareholders in a timely manner.
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This section is not intended to be a full discussion of present or
proposed federal income tax law and its effects on the Fund and investors
therein. See the SAI for a further discussion. There may be other federal,
state, or local tax considerations applicable to a particular investor. You are
therefore urged to consult your own tax adviser.
PERFORMANCE INFORMATION
The Fund may advertise a variety of types of performance information,
including "yield," "average annual total return," "total return," "cumulative
total return," and "effective yield." Each of these figures is based upon
historical results and does not represent the future performance of the Fund.
Yield is an annualized figure, which means that it is assumed that the
Fund generates the same level of net investment income over a one-year period.
The Fund's yield and effective yield are measures of the net investment income
per share earned by the Fund over a specific seven-day period and are shown as
a percentage of the investment. However, effective yield will be slightly
higher than the yield because effective yield assumes that the net investment
income earned by the Fund will be reinvested.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in the Fund
assuming the reinvestment of all dividends and distributions. Total return
figures are not annualized and simply represent the aggregate change of the
Fund's investments over a specified period of time.
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SHAREHOLDER MANUAL
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HOW TO BUY SHARES II-__
DETERMINING YOUR SHARE PRICE . II-__
HOW TO SELL SHARES II-__
SHAREHOLDER SERVICES II-__
REGULAR INVESTMENT PLANS II-__
SPECIAL SITUATIONS II-__
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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.
Your money will begin earning dividends the first business day after your
purchase order is accepted in proper form. PLEASE NOTE THAT THE MAXIMUM
INVESTMENT IN THE FUND IS $25,000. This means that you may not make a purchase
of shares if the amount purchased would cause the value of your account to
exceed $25,000. In addition, you may only open one account in the Fund (i.e.,
one account per tax identification or social security number).
Whether you are opening a new account or adding to an existing one, Strong
provides you with several methods to buy Fund shares.
10
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TO OPEN A NEW ACCOUNT
<TABLE>
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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, 900
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 exchanging funds from
1-800-368-3863 an existing Strong Funds account.
24 HOURS A DAY, Sign up for telephone exchange services when you open your account. To
7 DAYS A WEEK 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.
Or use STRONG DIRECTSM, Strong Funds' automated telephone response system.
Call 1-800-368-7550.
- -------------------- --------------------------------------------------------------------------
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."
PLEASE NOTE THAT THE If you sign up for Strong's Automatic Investment Plan when you open your
AUTOMATIC INVESTMENT account, Strong Funds will waive the Fund's minimum initial investment
PLAN WILL BE (see chart on page II-4).
DISCONTINUED WHEN Complete the Automatic Investment Plan section on the account
YOUR NEXT PURCHASE application.
WOULD CAUSE THE Mail to the address indicated on the application.
ACCOUNT TO EXCEED
$25,000.
- -------------------- --------------------------------------------------------------------------
BROKER-DEALER You may purchase shares in the 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>
11
<PAGE>
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, 900 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 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 (at least $50) into your Strong Funds account by telephone. To
add this option to your account, call 1-800-368-3863 for a Telephone Purchase
Form.
Or use STRONG DIRECTSM, Strong Funds' automated telephone response system. Call
1-800-368-7550.
- - 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)
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)
from one Strong Funds account to another. 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, even if this causes your account balance to exceed
$25,000. 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 the 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.
12
<PAGE>
13
<PAGE>
WHAT YOU SHOULD KNOW ABOUT BUYING SHARES
- - Please make all checks or money orders payable to "Strong Funds."
- - We cannot accept third-party checks or checks drawn on banks outside the U.S.
- - You will be charged a $20 service fee for each check, wire, or Electronic
Funds Transfer ("EFT") purchase that is returned unpaid, and you will be
responsible for any resulting losses suffered by the Fund.
- - Further documentation may be requested from corporations, executors,
administrators, trustees, guardians, agents, or attorneys-in-fact.
- - The Fund reserves the right to decline to accept your purchase order upon
receipt for any reason.
- - Maximum Investment Requirement - PLEASE NOTE THAT THE MAXIMUM INVESTMENT IN
THE FUND IS $25,000. This means that you may not make a purchase of shares if
the amount purchased would cause the value of your account to exceed $25,000.
Automatic dividend reinvestment
- - One Account - You may only open one account in the Fund (i.e., one account
per tax identification number or social security number).
- - Minimum Investment Requirements:
To open a regular account $1,000
To open a regular IRA, a ROTH IRA, or one-person SEP account $1,000
To open an Educational IRA account $500*
To open an UGMA/UTMA account $250
To open a SIMPLE Plan, SEP-IRA, Keogh, Profit Sharing or Money Purchase
Pension, or 403(b) account the lesser of $250 or $25 a month
To open a qualified retirement plan account where the Advisor (or an alliance
partner of the Advisor) provides administrative services No Minimum
To add to an existing account $50
* Not eligible for the Automatic Investment Plan and No-Minimum Investment
Program.
The Fund offers 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-10). 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 the Fund's minimum initial investment), the
Fund reserves the right to close your account. Before taking such action, the
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.
DETERMINING YOUR SHARE PRICE
Generally, when you make any purchases, sales, or exchanges, the price of
your shares will be the net asset value ("NAV") next determined after Strong
Funds receives your request in proper form. If Strong Funds receives such
request prior to the close of the New York Stock Exchange (the "Exchange") on a
day on which the Exchange is open, your share price will be the NAV determined
that day. The NAV for the Fund is normally determined as of 3:00 p.m. Central
Time ("CT") each day the Exchange is open.
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<PAGE>
The Fund reserves the right to change the time at which purchases, redemptions,
and exchanges are priced if the Exchange closes at a time other than 3:00 p.m.
CT or if an emergency exists. The Fund's NAV is calculated by taking the fair
value of the Fund's total assets, subtracting all its liabilities, and dividing
by the total number of shares outstanding. Expenses are accrued and applied
daily when determining the NAV.
The securities in the portfolios of the Fund are valued on an
amortized-cost basis. Under this method of valuation, a security is initially
valued at its acquisition cost, and thereafter, amortization of any discount or
premium is assumed each day, regardless of the impact of fluctuating interest
rates on the market value of the instrument. Under most conditions, the Advisor
believes it will be possible to maintain the NAV of the Fund at $1.00 per
share. Calculations are periodically made to compare the value of the Fund's
portfolio valued at amortized cost with market values. If a deviation of 1/2 of
1% or more were to occur between the net asset value calculated by reference to
market values and the Fund's $1.00 per share 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 the Fund. Once your redemption
request is received in proper form, Strong will normally mail you the proceeds
the next business day and, in any event, no later than seven days thereafter.
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. (See "Special Situations - Signature Guarantees.")
15
<PAGE>
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<CAPTION>
<S> <C>
TO SELL SHARES
- ------------------------ ---------------------------------------------------------------------------
MAIL FOR INDIVIDUAL, JOINT TENANT, AND UGMA/UTMA ACCOUNTS
Write a "letter of instruction" that includes the following information:
FOR YOUR PROTECTION your account number, the dollar amount or number of shares you wish
CERTAIN REDEMPTION to redeem, each owner's name, your street address, and the signature of
REQUESTS MAY REQUIRE A each owner as it appears on the account.
SIGNATURE
GUARANTEE. SEE "SPECIAL Mail to Strong Funds, P.O. Box 2936, Milwaukee, Wisconsin 53201. If
SITUATIONS - SIGNATURE you're using an express delivery service, send to 900 Heritage Reserve,
GUARANTEES." Menomonee Falls, Wisconsin 53051.
FOR TRUST ACCOUNTS
Same as above. Please ensure that all trustees sign the letter of
instruction.
FOR OTHER REGISTRATIONS
Call 1-800-368-3863 for instructions.
- ------------------------ ---------------------------------------------------------------------------
TELEPHONE Sign up for telephone redemption services when you open your account by
checking the "Yes" box in the appropriate section of the account
1-800-368-3863 application. To add the telephone redemption option to your account, call 1
24 HOURS A DAY, 800-368-3863 for a Telephone Redemption Form.
7 DAYS A WEEK Once the telephone redemption option is in place, you may sell shares by
phone and arrange to receive the proceeds in one of three ways:
TO RECEIVE A CHECK BY MAIL
At no charge, we will mail a check to the address to which your
account is registered.
TO DEPOSIT BY EFT
At no charge, we will transmit the proceeds by Electronic Funds
Transfer (EFT) to a pre-authorized bank account. Usually, the funds
will arrive at your bank two banking days after we process your
redemption.
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 DIRECTSM, Strong Funds' automated telephone
response system. Call 1-800-368-7550.
- ------------------------ ---------------------------------------------------------------------------
CHECK WRITING Sign up for the free check-writing privilege when you open your account.
PLEASE NOTE THAT YOU ARE To add check writing to an existing account or to order additional checks,
LIMITED TO WRITING ___ call 1-800-368-3863.
NUMBER OF CHECKS ON YOUR Please keep in mind that all check redemptions must be for a minimum
ACCOUNT. of $500 and that you cannot write a check to close an account.
- ------------------------ ---------------------------------------------------------------------------
</TABLE>
16
<PAGE>
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<CAPTION>
<S> <C>
BROKER-DEALER You may also redeem shares through broker-dealers or others who may
charge a commission or other transaction fee.
- ------------- -------------------------------------------------------------------
</TABLE>
17
<PAGE>
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.
- - You will be charged a $10 service fee for a stop-payment and replacement of a
redemption or dividend check.
- - The right of redemption may be suspended during any period in which (i)
trading on the Exchange is restricted, as determined by the SEC, or the
Exchange is closed for other than weekends and holidays; (ii) the SEC has
permitted such suspension by order; or (iii) an emergency as determined by
the SEC exists, making disposal of portfolio securities or valuation of net
assets of the Fund not reasonably practicable.
- - If you are selling shares you hold in certificate form, you must submit the
certificates with your redemption request. Each registered owner must endorse
the certificates and all signatures must be guaranteed.
- - Further documentation may be requested from corporations, executors,
administrators, trustees, guardians, agents, or attorneys-in-fact.
WHAT YOU SHOULD KNOW ABOUT TELEPHONE REDEMPTIONS
- - The Fund reserves the right to refuse a telephone redemption if it believes
it advisable to do so.
- - Once you place your telephone redemption request, it cannot be canceled or
modified.
- - Investors will bear the risk of loss from fraudulent or unauthorized
instructions received over the telephone provided that the Fund reasonably
believes that such instructions are genuine. The Fund and its transfer agent
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. The Fund may incur liability if it does not follow
these procedures.
- - Because of increased telephone volume, you may experience difficulty in
implementing a telephone redemption during periods of dramatic economic or
market changes.
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, or e-mail us at [email protected].
STRONG DIRECTSM AUTOMATED TELEPHONE SYSTEM. Also available 24 hours a day,
the STRONG DIRECTSM automated response system enables you to use a touch-tone
phone to hear fund quotes and returns on any Strong Fund. You may also confirm
account balances, hear records of recent transactions and dividend activity
(1-800-368-5550), and perform purchases, exchanges or redemptions among your
existing Strong accounts (1-800-368-7550). You may also perform an exchange to
open a new Strong account provided that your account has the telephone exchange
option. Please note that your accounts must be identically registered and you
must exchange enough into the new account to meet the minimum initial
investment. Your account information is protected by a personal code that you
establish.
STRONG NETDIRECTSM. Available 24 hours a day from your personal computer,
STRONG NETDIRECTSM allows you to use the Internet to access your Strong Funds
account information. You may access specific account history, view current
account balances, obtain recent dividend activity, and perform purchases,
exchanges, or redemptions among your existing Strong accounts.
To register for netDirect, please visit our website at
http://www.strong-funds.com. Your account information is protected by a
personal password and Internet encryption technology. For more information on
this service, please call 1-800-359-3379 or e-mail us at
[email protected].
18
<PAGE>
STATEMENTS AND REPORTS. At a minimum, the Fund will confirm all
transactions for your account on a quarterly basis. We recommend that you file
each quarterly statement - and, especially, each calendar year-end statement -
with your other important financial papers, since you may need to refer to them
at a later date for tax purposes. Should you need additional copies of previous
statements, you may order confirmation statements for the current and preceding
year at no charge. Statements for earlier years are available for $10 each.
Call 1-800-368-3863 to order past statements.
Each year, you will also receive a statement confirming the tax status of
any distributions paid to you, as well as a semi-annual report and an annual
report containing audited financial statements.
To reduce the volume of mail you receive, only one copy of certain
materials, such as prospectuses and shareholder reports, is mailed to your
household. Call 1-800-368-3863 if you wish to receive additional copies, free
of charge.
More complete information regarding the Fund's investment policies and
services is contained in its 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 of Fund
shares. 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, the 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. There is no charge for check-writing privileges but you may
only write __ number of checks on your account. Redemption by check cannot be
honored if share certificates are outstanding and would need to be liquidated
to honor the check. The Fund does not return the checks you write, although
copies are available upon request.
You may place stop-payment requests on checks by calling Strong Funds at
1-800-368-3863. A $10 fee will be charged for each stop-payment request. A stop
payment will remain in effect for two weeks following receipt of oral
instructions (six months following written instructions) by Strong Funds.
If there are insufficient cleared shares in your account to cover the
amount of your redemption by check, the check will be returned, marked
"insufficient funds," and a fee of $10 will be charged to the account.
19
<PAGE>
REGULAR INVESTMENT PLANS
AUTOMATIC INVESTMENT PLAN. The Automatic Investment Plan allows you to
make regular, systematic investments in the 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 the 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. To establish the Plan, complete the
Automatic Investment Plan section on the account application, or call
1-800-368-3863 for an application. THE AUTOMATIC INVESTMENT PLAN WILL BE
DISCONTINUED WHEN YOUR NEXT AUTOMATIC PURCHASE WOULD CAUSE YOUR ACCOUNT BALANCE
TO EXCEED $25,000.
AUTOMATIC EXCHANGE PLAN. The Automatic Exchange Plan allows you to make
regular, systematic exchanges (minimum $50) 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
the 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 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.
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, which can be obtained from the Fund. Until a valid corporate
resolution or Certification of Authorized Individuals is received by the Fund,
services such as telephone redemption, wire redemption, and check writing will
not be established.
If you are investing as a trustee, please include the date of the trust.
All trustees must sign the application. If they do not, services such as
telephone redemption, wire redemption, and check writing will not be
established. All trustees must sign redemption requests unless proper
documentation to the contrary is provided to the Fund. Failure to provide these
documents or signatures as required when you invest may result in delays in
processing redemption requests.
FINANCIAL INTERMEDIARIES. Broker-dealers, financial institutions, and
other financial intermediaries that have entered into agreements with the
Distributor may enter purchase or redemption orders on behalf of their
customers. If you purchase or redeem shares of a Fund through a financial
intermediary, certain features of the Fund relating to such transactions may
not be available or may be modified in accordance with the terms of the
intermediaries' agreement with the Distributor. In addition,
20
<PAGE>
certain operational policies of a Fund, including those related to settlement
and dividend accrual, may vary from those applicable to direct shareholders of
the Fund and may vary among intermediaries. We urge you to consult your
financial intermediary for more information regarding these matters. In
addition, a Fund may pay, directly or indirectly through arrangements with the
Advisor, amounts to financial intermediaries that provide transfer agent and/or
other administrative services relating to the Fund to their customers provided,
however, that the Fund will not pay more for these services through
intermediary relationships than it would if the intermediaries' customers were
direct shareholders in the Fund. Certain financial intermediaries may charge a
commission or other transaction fee for their services. You will not be charged
for such fees if you purchase or redeem your Fund shares directly from a Fund
without the intervention of a financial intermediary.
SIGNATURE GUARANTEES. A signature guarantee is designed to protect you and
the Fund against fraudulent transactions by unauthorized persons. In the
following instances, the Fund will require a signature guarantee for all
authorized owners of an account:
- - when you add the telephone redemption or check-writing options to your
existing account;
- - if you transfer the ownership of your account to another individual or
organization;
- - when you request to redeem or redeposit shares that have been issued in
certificate form;
- - if you open an account and later decide that you want certificates;
- - when you request that redemption proceeds be sent to a different name or
address than is registered on your account;
- - if you add/change your name or add/remove an owner on your account; and
- - if you add/change the beneficiary on your transfer-on-death account.
A signature guarantee may be obtained from any eligible guarantor
institution, as defined by the SEC. These institutions include banks, savings
associations, credit unions, brokerage firms, and others. PLEASE NOTE THAT A
NOTARY PUBLIC STAMP OR SEAL IS NOT ACCEPTABLE.
21
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
STRONG 1ST STEP FUND
P.O. Box 2936
Milwaukee, Wisconsin 53201
Telephone: (414) 359-1400
Toll-Free: (800) 368-3863
www.strong-funds.com
This Statement of Additional Information is not a Prospectus and should be
read in conjunction with the Prospectus of Strong 1st Step Money Fund, Inc.
(the "Fund"), dated _______, 1998. Requests for copies of the Prospectus
should be made by calling one of the numbers listed above.
This Statement of Additional Information is dated ______, 1998.
2
<PAGE>
TABLE OF CONTENTS PAGE
INVESTMENT RESTRICTIONS........................................................3
INVESTMENT POLICIES AND TECHNIQUES.............................................4
Asset-Backed Debt Obligations..................................................4
Borrowing......................................................................5
Illiquid Securities............................................................5
Lending of Portfolio Securities................................................6
Mortgage Dollar Rolls and Reverse Repurchase Agreements........................6
Repurchase Agreements..........................................................7
Rule 2a-7: Maturity, Quality, and Diversification Restrictions................7
Stripped-Debt Obligations......................................................8
Variable- or Floating-Rate Securities..........................................8
When-Issued Securities.........................................................9
DIRECTORS AND OFFICERS OF THE FUND............................................10
PRINCIPAL SHAREHOLDERS........................................................12
INVESTMENT ADVISOR AND DISTRIBUTOR............................................12
PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................15
CUSTODIAN.....................................................................17
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT..................................17
TAXES.........................................................................17
DETERMINATION OF NET ASSET VALUE..............................................18
ADDITIONAL SHAREHOLDER INFORMATION............................................19
FUND ORGANIZATION.............................................................20
SHAREHOLDER MEETINGS..........................................................20
PERFORMANCE INFORMATION.......................................................21
GENERAL INFORMATION...........................................................27
PORTFOLIO MANAGEMENT..........................................................30
LEGAL COUNSEL.................................................................31
INDEPENDENT ACCOUNTANTS.......................................................31
APPENDIX.....................................................................A-1
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 _____, 1998 and, if given or made, such
information or representations may not be relied upon as having been authorized
by the Fund.
This Statement of Additional Information does not constitute an offer to sell
securities.
3
<PAGE>
INVESTMENT RESTRICTIONS
The investment objective of the Fund is to seek current income, a stable
share price and daily liquidity. The Fund's investment objectives and policies
are described in detail in the Prospectus under the caption "Investment
Objective and Policies." The following are the Fund's fundamental investment
limitations which cannot be changed without shareholder approval.
The Fund:
1. May not with respect to 75% of its total assets, purchase the securities
of any issuer (except securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities) if, as a result, (i) more than 5% of the
Fund's total assets would be invested in the securities of that issuer, or (ii)
the Fund would hold more than 10% of the outstanding voting securities of that
issuer.
2. May (i) borrow money from banks and (ii) make other investments or
engage in other transactions permissible under the Investment Company Act of
1940 (the "1940 Act") which may involve a borrowing, provided that the
combination of (i) and (ii) shall not exceed 33 1/3% of the value of the Fund's
total assets (including the amount borrowed), less the Fund's liabilities
(other than borrowings), except that the Fund may borrow up to an additional 5%
of its total assets (not including the amount borrowed) from a bank for
temporary or emergency purposes (but not for leverage or the purchase of
investments). The Fund may also borrow money from the other Strong Funds or
other persons to the extent permitted by applicable law.
3. May not issue senior securities, except as permitted under the 1940 Act.
4. May not act as an underwriter of another issuer's securities, except to
the extent that the Fund may be deemed to be an underwriter within the meaning
of the Securities Act of 1933 in connection with the purchase and sale of
portfolio securities.
5. May not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall not
prevent the Fund from purchasing or selling options, futures contracts, or
other derivative instruments, or from investing in securities or other
instruments backed by physical commodities).
6. May not make loans if, as a result, more than 33 1/3% of the Fund's
total assets would be lent to other persons, except through (i) purchases of
debt securities or other debt instruments, or (ii) engaging in repurchase
agreements.
7. May not purchase the securities of any issuer if, as a result, more than
25% of the Fund's total assets would be invested in the securities of issuers,
the principal business activities of which are in the same industry. With
respect to the Money Market 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.
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The following are the Fund's non-fundamental operating policies which may
be changed by the Board of Directors of the Fund without shareholder approval.
The Fund may not:
1. Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short, or
unless it covers such short sale as required by the current rules and positions
of the Securities and Exchange Commission or its staff, and provided that
transactions in options, futures contracts, options on futures contracts, or
other derivative instruments are not deemed to constitute selling securities
short.
2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions; and
provided that margin deposits in connection with futures contracts, options on
futures contracts, or other derivative instruments shall not constitute
purchasing securities on margin.
3. Invest in illiquid securities if, as a result of such investment, more
than 10% of its net assets would be invested in illiquid securities, or such
other amounts as may be permitted under the 1940 Act.
4. Purchase securities of other investment companies except in compliance
with the 1940 Act and applicable state law.
5. Invest all of its assets in the securities of a single open-end
investment management company with substantially the same fundamental
investment objective, restrictions and policies as the Fund.
6. Engage in futures or options on futures transactions which are
impermissible pursuant to Rule 4.5 under the Commodity Exchange Act and, in
accordance with Rule 4.5, will use futures or options on futures transactions
solely for bona fide hedging transactions (within the meaning of the Commodity
Exchange Act), provided, however, that the Fund may, in addition to bona fide
hedging transactions, use futures and options on futures transactions if the
aggregate initial margin and premiums required to establish such positions,
less the amount by which any such options positions are in the money (within
the meaning of the Commodity Exchange Act), do not exceed 5% of the Fund's net
assets.
7. Borrow money except (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.
8. 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.
9. Engage in any transaction or practice which is not permissible under
Rule 2a-7 of the 1940 Act, notwithstanding any other fundamental investment
limitation or non-fundamental operating policy.
Except for the fundamental investment limitations listed above and the
Fund's investment objective, the other investment policies described in the
Prospectus and this Statement of Additional Information are not fundamental and
may be changed with approval of the Fund's Board of Directors. Unless noted
otherwise, if a percentage restriction is adhered to at the time of investment,
a later increase or decrease in percentage resulting from a change in the
Fund's assets (I.E., due to cash inflows or redemptions) or in market value of
the investment or the Fund's assets will not constitute a violation of that
restriction.
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."
ASSET-BACKED DEBT OBLIGATIONS
The Fund may invest in asset-backed debt obligations. Asset-backed debt
obligations represent direct or indirect participation in, or secured by and
payable from, assets such as motor vehicle installment sales contracts, other
installment loan
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contracts, home equity loans, leases of various types of property, and
receivables from credit card or other revolving credit arrangements.
Asset-backed debt obligations purchased by the Fund may include collateralized
mortgage obligations ("CMOs") issued by private companies. The credit quality
of most asset-backed securities depends primarily on the credit quality of the
assets underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement of the
securities. Payments or distributions of principal and interest on
asset-backed debt obligations may be supported by non-governmental credit
enhancements including letters of credit, reserve funds, overcollateralization,
and guarantees by third parties. The market for privately issued asset-backed
debt obligations is smaller and less liquid than the market for government
sponsored mortgage-backed securities.
The rate of principal payment on asset-backed securities generally depends
on the rate of principal payments received on the underlying assets which in
turn may be affected by a variety of economic and other factors. As a result,
the yield on any asset-backed security is difficult to predict with precision
and actual yield to maturity may be more or less than the anticipated yield to
maturity. The yield characteristics of asset-backed debt obligations differ
from those of traditional debt obligations. Among the principal differences
are that interest and principal payments are made more frequently on
asset-backed debt obligations, usually monthly, and that principal may be
prepaid at any time because the underlying assets generally may be prepaid at
any time. As a result, if the Fund purchases these debt obligations at a
premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing the yield to maturity. Conversely, if the Fund
purchases these debt obligations at a discount, a prepayment rate that is
faster than expected will increase yield to maturity, while a prepayment rate
that is slower than expected will reduce yield to maturity. Accelerated
prepayments on debt obligations purchased by the Fund at a premium also imposes
a risk of loss of principal because the premium may not have been fully
amortized at the time the principal is prepaid in full.
While many asset-backed securities are issued with only one class of
security, many asset-backed securities are issued in more than one class, each
with different payment terms. Multiple class asset-backed securities are
issued for two main reasons. First, multiple classes may be used as a method
of providing credit support. This is accomplished typically through creation
of one or more classes whose right to payments on the asset-backed security is
made subordinate to the right to such payments of the remaining class or
classes. Second, multiple classes may permit the issuance of securities with
payment terms, interest rates, or other characteristics differing both from
those of each other and from those of the underlying assets. Examples include
so-called "strips" (asset-backed securities entitling the holder to
disproportionate interests with respect to the allocation of interest and
principal of the assets backing the security), and securities with class or
classes having characteristics which mimic the characteristics of
non-asset-backed securities, such as floating interest rates (I.E., interest
rates which adjust as a specified benchmark changes) or scheduled amortization
of principal.
Asset-backed securities backed by assets, other than as described above,
or in which the payment streams on the underlying assets are allocated in a
manner different than those described above may be issued in the future. The
Fund may invest in such asset-backed securities if such investment is otherwise
consistent with its investment objectives and policies and with the investment
restrictions of the Fund.
BORROWING
The Fund may borrow money from banks and make other investments or engage
in other transactions permissible under the 1940 Act which may be considered a
borrowing (such as mortgage dollar rolls and reverse repurchase agreements) as
discussed under "Investment Restrictions." However, the Fund may not purchase
securities when bank borrowings exceed 5% of the Fund's total assets.
Presently, the Fund only intends to borrow from banks for temporary or
emergency purposes.
ILLIQUID SECURITIES
The Fund may invest in illiquid securities (I.E., securities that are not
readily marketable). However, the Fund will not acquire illiquid securities
if, as a result, they would comprise more than 10% of the value of the Fund's
net assets (or such other amounts as may be permitted under the 1940 Act).
The Board of Directors of the Fund, or its delegate, has the ultimate
authority to determine, to the extent permissible under the federal securities
laws, which securities are illiquid for purposes of this limitation. Certain
securities exempt from registration or issued in transactions exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"),
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such as securities that may be resold to institutional investors under Rule
144A under the Securities Act and Section 4(2) commercial paper, may be
considered liquid under guidelines adopted by the Fund's Board of Directors.
The Board of Directors of the Fund has delegated to the Advisor the
day-to-day determination of the liquidity of a security, although it has
retained oversight and ultimate responsibility for such determinations. The
Board of Directors has directed the Advisor to look to such factors as (i) the
frequency of trades or quotes for a security, (ii) the number of dealers
willing to purchase or sell the security and number of potential buyers, (iii)
the willingness of dealers to undertake to make a market in the security, (iv)
the nature of the security and nature of the marketplace trades, such as the
time needed to dispose of the security, the method of soliciting offers, and
the mechanics of transfer, (v) the likelihood that the security's marketability
will be maintained throughout the anticipated holding period, and (vi) any
other relevant factors. The Advisor may determine 4(2) commercial paper to be
liquid if (i) the 4(2) commercial paper is not traded flat or in default as to
principal and interest, (ii) the 4(2) commercial paper is rated in one of the
two highest rating categories by at least two nationally rated statistical
rating organizations ("NRSRO"), or if only one NRSRO rates the security, by
that NRSRO, or is determined by the Advisor to be of equivalent quality, and
(iii) the Advisor considers the trading market for the specific security taking
into account all relevant factors.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act. Where registration is
required, a Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to sell. Restricted securities will be priced at
fair value as determined in good faith by the Board of Directors of the Fund.
If through the appreciation of restricted securities or the depreciation of
unrestricted securities, the Fund should be in a position where more than 10%
of the value of its net assets are invested in illiquid securities, including
restricted securities which are not readily marketable (except for 144A
Securities and 4(2) commercial paper deemed to be liquid by the Advisor), the
Fund will take such steps as is deemed advisable, if any, to protect liquidity.
LENDING OF PORTFOLIO SECURITIES
The Fund is authorized to lend up to 33 1/3% of the total value of its
portfolio securities to broker-dealers or institutional investors that the
Advisor deems qualified, but only when the borrower maintains with the Fund's
custodian bank collateral either in cash or money market instruments in an
amount at least equal to the market value of the securities loaned, plus
accrued interest and dividends, determined on a daily basis and adjusted
accordingly. Although the Fund is authorized to lend, the Fund does not
presently intend to engage in lending. In determining whether to lend
securities to a particular broker-dealer or institutional investor, the Advisor
will consider, and during the period of the loan will monitor, all relevant
facts and circumstances, including the creditworthiness of the borrower. The
Fund will retain authority to terminate any loans at any time. The Fund may
pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The Fund
will receive reasonable interest on the loan or a flat fee from the borrower
and amounts equivalent to any dividends, interest or other distributions on the
securities loaned. The Fund will retain record ownership of loaned securities
to exercise beneficial rights, such as voting and subscription rights and
rights to dividends, interest or other distributions, when retaining such
rights is considered to be in the Fund's interest.
MORTGAGE DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS
The Fund may 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. (See "Borrowing".) When required by guidelines of the
SEC, the Fund will set aside permissible liquid assets in a segregated account
to secure its obligations to repurchase the security.
The Fund may also enter into mortgage dollar rolls, in which the Fund
would sell mortgage-backed securities for delivery in the current month and
simultaneously contract to purchase substantially similar securities on a
specified future date. While the Fund would forego principal and interest paid
on the mortgage-backed securities during the roll period, the Fund would
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be compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The Fund also could be compensated through the receipt of
fee income equivalent to a lower forward price. At the time the Fund would
enter into a mortgage dollar roll, it would set aside permissible liquid assets
in a segregated account to secure its obligation for the forward commitment to
buy mortgage-backed securities. Mortgage dollar roll transactions may be
considered a borrowing by the Fund. (See "Borrowing".)
The mortgage dollar rolls and reverse repurchase agreements entered into
by the Fund may be used as arbitrage transactions in which the Fund will
maintain an offsetting position in investment grade debt obligations or
repurchase agreements that mature on or before the settlement date on the
related mortgage dollar roll or reverse repurchase agreements. Since the Fund
will receive interest on the securities or repurchase agreements in which it
invests the transaction proceeds, such transactions may involve leverage.
However, since such securities or repurchase agreements will be high quality
and will mature on or before the settlement date of the mortgage dollar roll or
reverse repurchase agreement, the Advisor believes that such arbitrage
transactions do not present the risks to the Fund that are associated with
other types of leverage.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks or
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, thereby, determines the yield during the purchaser's
holding period, while the seller's obligation to repurchase is secured by the
value of the underlying security. The Advisor will monitor, on an ongoing
basis, the value of the underlying securities to ensure that the value always
equals or exceeds the repurchase price plus accrued interest. Repurchase
agreements could involve certain risks in the event of a default or insolvency
of the other party to the agreement, including possible delays or restrictions
upon the Fund's ability to dispose of the underlying securities. Although no
definitive creditworthiness criteria are used, the Advisor reviews the
creditworthiness of the banks and non-bank dealers with which the Fund enters
into repurchase agreements to evaluate those risks. The Fund may, under
certain circumstances, deem repurchase agreements collateralized by U.S.
government securities to be investments in U.S. government securities.
RULE 2A-7: MATURITY, QUALITY, AND DIVERSIFICATION RESTRICTIONS
The Fund is subject to certain maturity restrictions pursuant to Rule 2a-7
under the 1940 Act for money market funds that use the amortized cost method of
valuation to maintain a stable net asset value of $1.00 per share.
Accordingly, the Fund will (i) maintain a dollar weighted average portfolio
maturity of 90 days or less, and (ii) will purchase securities with a remaining
maturity of no more than 13 months (397 calendar days). Further, the Fund will
limit its 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 Fund will follow the requirements of Rule 2a-7. Under Rule
2a-7, the maturity of portfolio instruments is calculated as indicated below.
Generally, the maturity of a portfolio instrument shall be deemed to be
the period remaining (calculated from the trade date or such other date on
which the Fund's interest in the instrument is subject to market action) until
the date noted on the face of the instrument as the date on which the principal
amount must be paid, or in the case of an instrument called for redemption, the
date on which the redemption payment must be made, except that:
(1) An instrument that is issued or guaranteed by the U.S. government or
any agency thereof which has a variable rate of interest readjusted no less
frequently than every 762 days shall be deemed to have a maturity equal to the
period remaining until the next readjustment of the interest rate.
(2) A Variable Rate Instrument, the principal amount of which is
scheduled on the face of the instrument to be paid on 397 calendar days or less
shall be deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
(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.
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(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 Fund is subject to certain credit quality restrictions pursuant to
Rule 2a-7 under the 1940 Act. The Fund will invest at least 95% of its assets
in instruments determined to present minimal credit risks and, at the time of
acquisition, are (i) obligations issued or guaranteed by the U.S. government,
its agencies, or instrumentalities; (ii) rated by at least two nationally
recognized rating agencies (or by one agency if only one agency has issued a
rating) (the "required rating agencies") in the highest rating category for
short-term debt obligations; (iii) unrated but whose issuer is rated in the
highest category by the required rating agencies with respect to a class of
short-term debt obligations or any security within that class that is
comparable in priority and security with the instrument; or (iv) unrated (other
than the type described in (iii)) but determined by the Board of Directors of
the Fund to be of comparable quality to the foregoing (provided the issue of
the unrated security has not received a short-term rating, and with respect to
a long-term security with a remaining maturity within the Fund's maturity
restrictions, has not received a long-term rating from any agency that is other
than in one of its highest two rating categories). The foregoing are referred
to as "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 the
Fund to be of comparable quality to the foregoing (provided the issue of the
unrated security has not received a short-term rating and, with respect to a
long-term security with a remaining maturity within the Fund's maturity
restrictions, has not received a long-term rating from any agency that is other
than in one of its highest two rating categories). The foregoing are referred
to as "second-tier securities."
In addition to the foregoing guidelines, the 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.
As used herein, all capitalized but undefined terms shall have the meaning
such terms have in Rule 2a-7.
STRIPPED-DEBT OBLIGATIONS
To the extent consistent with its investment objective and Rule 2a-7 under
the Investment Component Act, the Fund may purchase Treasury receipts and other
"stripped" securities that evidence ownership in either the future interest
payments or the future principal payments on U.S. Government and other
obligations. These participations, which may be issued by the U.S. Government
(or a U.S. Government agency or instrumentality) or by private issuers such as
banks and other institutions, are issued at a discount to their "face value."
Stripped securities may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors.
VARIABLE- OR FLOATING-RATE SECURITIES
The Fund may invest in securities which offer a variable- or floating-rate
of interest. Variable-rate securities provide for automatic establishment of a
new interest rate at fixed intervals (E.G., daily, monthly, semi-annually,
etc.). Floating-rate securities generally provide for automatic adjustment of
the interest rate whenever some specified interest rate index changes. The
interest rate on variable- or floating-rate securities is ordinarily determined
by reference to or is a percentage of a bank's prime rate, the
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90-day U.S. Treasury bill rate, the rate of return on commercial paper or bank
certificates of deposit, an index of short-term interest rates, or some other
objective measure.
Variable- or floating-rate securities frequently include a demand feature
entitling the holder to sell the securities to the issuer at par. In many
cases, the demand feature can be exercised at any time on 7 days notice; in
other cases, the demand feature is exercisable at any time on 30 days notice or
on similar notice at intervals of not more than one year. Some securities
which do not have variable or floating interest rates may be accompanied by
puts producing similar results and price characteristics. When considering the
maturity of any instrument which may be sold or put to the issuer or a third
party, the Fund may consider that instrument's maturity to be shorter than its
stated maturity. Any such determination by the Fund will be made in accordance
with Rule 2a-7.
Variable-rate demand notes include master demand notes which are
obligations that permit the Fund to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the Fund,
as lender, and the borrower. The interest rates on these notes fluctuate from
time to time. The issuer of such obligations normally has a corresponding
right, after a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of days' notice to the holders of such obligations. The interest rate
on a floating-rate demand obligation is based on a known lending rate, such as
a bank's prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable-rate demand obligation is adjusted
automatically at specified intervals. Frequently, such obligations are secured
by letters of credit or other credit support arrangements provided by banks.
Because these obligations are direct lending arrangements between the lender
and borrower, it is not contemplated that such instruments will generally be
traded. There generally is not an established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, the Fund's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. Such obligations frequently
are not rated by credit rating agencies and, if not so rated, the Fund may
invest in them only if the Advisor determines that at the time of investment
the obligations are of comparable quality to the other obligations in which the
Fund may invest. The Advisor, on behalf of the Fund, will consider on an
ongoing basis the creditworthiness of the issuers of the floating- and
variable-rate demand obligations in the Fund's portfolio.
The Fund will not invest more than 10% of its net assets in variable- and
floating-rate demand obligations that are not readily marketable (a variable-
or floating-rate demand obligation that may be disposed of on not more than
seven days notice will be deemed readily marketable and will not be subject to
this limitation). (See "Illiquid Securities" and "Investment Restrictions.")
In addition, each variable- or floating-rate obligation must meet the credit
quality requirements applicable to all the Fund's investments at the time of
purchase. When determining whether such an obligation meets the Fund's credit
quality requirements, the Fund may look to the credit quality of the financial
guarantor providing a letter of credit or other credit support arrangement.
In determining the Fund's weighted average portfolio maturity, the Fund
will consider a floating or variable rate security to have a maturity equal to
its stated maturity (or redemption date if it has been called for redemption),
except that it may consider (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
amortized cost following the readjustment in the interest rate.
WHEN-ISSUED SECURITIES
The Fund may from time to time purchase securities on a "when-issued"
basis. The price of debt obligations purchased on a when-issued basis, which
may be expressed in yield terms, generally is fixed at the time the commitment
to purchase is made, but delivery and payment for the securities take place at
a later date. Normally, the settlement date occurs within 45 days of the
purchase although in some cases settlement may take longer. During the period
between the purchase and settlement, no payment is made by a Fund to the issuer
and no interest on the debt obligations accrues to the Fund. Forward
commitments involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the risk of
decline in value of the Fund's other assets. While when-issued securities may
be sold prior to the settlement date, the Fund intends
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to purchase such securities with the purpose of actually acquiring them unless
a sale appears desirable for investment reasons. At the time the Fund makes
the commitment to purchase a security on a when-issued basis, it will record
the transaction and reflect the value of the security in determining its net
asset value. The Fund does not believe that its net asset values will be
adversely affected by purchases of securities on a when-issued basis.
To the extent required by the SEC, the Fund will maintain cash and
marketable securities equal in value to commitments for when-issued securities.
Such segregated securities either will mature or, if necessary, be sold on or
before the settlement date. When the time comes to pay for when-issued
securities, the Fund will meet its obligations from then-available cash flow,
sale of the securities held in the separate account, described above, sale of
other securities or, although it would not normally expect to do so, from the
sale of the when-issued securities themselves (which may have a market value
greater or less than the Fund's payment obligation).
DIRECTORS AND OFFICERS OF THE FUND
Directors and officers of the Fund, together with information as to its
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 25 registered open-end
management investment companies consisting of 46 mutual funds, which are
managed by the Advisor (the "Strong Funds"). The Strong Funds, 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 Strong Fund. In addition,
each disinterested director is reimbursed by the Strong Funds for travel and
other expenses incurred in connection with attendance at such meetings. Other
officers and directors of the Strong Funds receive no compensation or expense
reimbursement from the Strong Funds.
*RICHARD S. STRONG (DOB 5/12/42), Chairman of the Board and Director of the
Fund.
Prior to August 1985, Mr. Strong was Chief Executive Officer of the
Advisor, which he founded in 1974. Since August 1985, Mr. Strong has been a
Security Analyst and Portfolio Manager of the Advisor. In October 1991, Mr.
Strong also became the Chairman of the Advisor. Mr. Strong is a Director of
the Advisor. Mr. Strong has been in the investment management business since
1967. Mr. Strong has served the Fund as Chairman and Director since July
1986.
MARVIN E. NEVINS (DOB 7/9/18), Director of the Fund.
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
the Fund as a Director since July 1986.
WILLIE D. DAVIS (DOB 7/24/34), Director of the Fund.
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 the Fund as a
Director since July 1994.
STANLEY KRITZIK (DOB 1/9/30), Director of the Fund.
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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. Mr. Kritzik has served the Fund as a Director since April 1995.
WILLIAM F. VOGT (DOB 7/19/47), Director of the Fund.
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 the Fund as a Director since
April 1995.
LAWRENCE A. TOTSKY (DOB 5/6/59), C.P.A., Vice President of the Fund.
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 served the Fund as a
Vice President since May 1993.
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THOMAS P. LEMKE (DOB 7/30/54), Vice President of the Fund.
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 served the Fund as a Vice President since October
1994.
STEPHEN J. SHENKENBERG (DOB 6/14/58), Vice President and Secretary of the Fund.
Mr. Shenkenberg has been Deputy General Counsel to the Advisor since
November 1996. From December 1992 until November 1996, Mr. Shenkenberg acted
as Associate Counsel to the Advisor. From June 1987 until December 1992, Mr.
Shenkenberg was an attorney for Godfrey & Kahn, S.C., a Milwaukee law firm.
Mr. Shenkenberg has served the Fund as a Vice President since April 1996 and as
Secretary since October 1996.
JOHN S. WEITZER (DOB 10/31/67), Vice President of the Fund.
Mr. Weitzer has been an Associate Counsel to the Advisor since July 1993.
Mr. Weitzer has served the Fund as a Vice President since January 1996.
Except for Messrs. Nevins, Davis, Kritzik and Vogt, the address of all of
the above persons is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr. Nevins'
address is 6075 Pelican Bay Boulevard, Naples, Florida 34108. Mr. Davis'
address is 161 North La Brea, Inglewood, California 90301. Mr. Kritzik's
address is 1123 North Astor Street, P.O. Box 92547, Milwaukee, Wisconsin
53202-0547. Mr. Vogt's address is 2830 East Third Avenue, Denver, Colorado
80206.
JOHN A. FLANAGAN (DOB 6/5/46), Treasurer of the Fund.
Mr. Flanagan has been Senior Vice President of the Advisor since April
1997. For three years prior to joining the Advisor, Mr. Flanagan was a Partner
with Coopers & Lybrand L.L.P. (an international professional services firm).
From November 1992 to April 1994, Mr. Flanagan was an independent consultant.
From October 1970 to November 1992, Mr. Flanagan was with Ernst & Young (an
international professional services firm), most notably as Partner in charge of
the Investment Company Practice of that firm's Boston office from 1982 to 1992.
Mr. Flanagan has served the Fund as the Treasurer since December 1997.
As of _____, 1998, the officers and directors of the Fund did not own any
of the Fund's shares.
PRINCIPAL SHAREHOLDERS
As of _____, 1998, no one owned of record and beneficially any shares of
the Fund.
INVESTMENT ADVISOR AND DISTRIBUTOR
The Advisor to the Fund is Strong Capital Management, Inc. Mr. Richard S.
Strong controls the Advisor. Mr. Strong is the Chairman and a director of the
Advisor, Mr. Totsky is a Senior Vice President of the Advisor, Mr. Lemke is a
Senior Vice President, Secretary and General Counsel of the Advisor, Mr.
Shenkenberg is Vice President, Assistant Secretary, and Deputy General Counsel
of the Advisor, and Mr. Weitzer is Associate Counsel of the Advisor. A brief
description of the Fund's investment advisory agreement ("Advisory Agreement")
is set forth in the Prospectus under "About the Fund - Management."
The Advisory Agreement for the Fund is dated _____, 1998, and will remain
in effect for a period of two years. The Advisory Agreement was approved by
the Fund's initial shareholder on its first day of operations. The Advisory
Agreement is
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required to be approved annually by either the Board of Directors of the Fund
or by vote of a majority of the Fund's outstanding voting securities (as
defined in the 1940 Act). In either case, each annual renewal must be approved
by the vote of a majority of the Fund's directors who are not parties to the
Advisory Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval. 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 the Advisory Agreement, the Advisor manages the Fund's
investments subject to the supervision of the Fund's Board of Directors. The
Advisor is responsible for investment decisions and supplies investment
research and portfolio management. 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 the Fund's
shares, a Fund is responsible for all its other expenses, including, without
limitation, interest charges, taxes, brokerage commissions, and similar
expenses; expenses of issue, sale, repurchase, or redemption of shares;
expenses of registering or qualifying shares for sale; expenses for printing
and distribution costs of Prospectuses and quarterly financial statements
mailed to existing shareholders; and charges of custodians, transfer agents
(including the printing and mailing of reports and notices to shareholders),
registrars, auditing and legal services, clerical services related to
recordkeeping and shareholder relations, printing stock certificates; and fees
for directors who are not "interested persons" of the Advisor.
As compensation for its services, the Fund pays to the Advisor a monthly
management fee at the annual rate of .50% of the Fund's average daily net
assets. From time to time, the Advisor may voluntarily waive all or a portion
of its management fee for the Fund.
The Advisory Agreement requires the Advisor to reimburse the Fund in the
event that the expenses and charges payable by the Fund in any fiscal year,
including the management fee but excluding taxes, interest, brokerage
commissions, and similar fees and to the extent permitted extraordinary
expenses, exceed two percent (2%) of the average net asset value of the Fund
for such year, as determined by valuations made as of the close of each
business day of the year. Reimbursement of expenses in excess of the
applicable limitation will be made on a monthly basis and will be paid to the
Fund by reduction of the Advisor's fee, subject to later adjustment, month by
month, for the remainder of the Fund's fiscal year. The Advisor may from time
to time voluntarily absorb expenses for the Fund in addition to the
reimbursement of expenses in excess of application limitations.
On July 12, 1994, the Securities and Exchange Commission (the "SEC") filed
an administrative action (the "Order") against the Advisor, Mr. Strong, and
another employee of the Advisor in connection with conduct that occurred
between 1987 and early 1990. IN RE STRONG/CORNELIUSON CAPITAL MANAGEMENT, INC.,
ET AL. Admin. Proc. File No. 3-8411. The proceeding was settled by consent
without admitting or denying the allegations in the Order. The Order found that
the Advisor and Mr. Strong aided and abetted violations of Section 17(a) of the
1940 Act by effecting trades between mutual funds, and between mutual funds and
Harbour Investments Ltd. ("Harbour"), without complying with the exemptive
provisions of SEC Rule 17a-7 or otherwise obtaining an exemption. It further
found that the Advisor violated, and Mr. Strong aided and abetted violations
of, the disclosure provisions of the 1940 Act and the Investment Advisers Act
of 1940 by misrepresenting the Advisor's policy on personal trading and by
failing to disclose trading by Harbour, an entity in which principals of the
Advisor owned between 18 and 25 percent of the voting stock. As part of the
settlement, the respondents agreed to a censure and a cease and desist order
and the Advisor agreed to various undertakings, including adoption of certain
procedures and a limitation for six months on accepting certain types of new
advisory clients.
On June 6, 1996, the Department of Labor (the "DOL") filed an action
against the Advisor for equitable relief alleging violations of the Employee
Retirement Income Security Act of 1974 ("ERISA") in connection with cross
trades that occurred between 1987 and late 1989 involving certain pension
accounts managed by the Advisor. Contemporaneous with this filing, the
Advisor, without admitting or denying the DOL's allegations, agreed to the
entry of a consent judgment resolving all matters relating to the allegations.
REICH V. STRONG CAPITAL MANAGEMENT, INC., (U.S.D.C. E.D. WI) (the "Consent
Judgment"). Under the terms of the Consent Judgment, the Advisor agreed to
reimburse the affected accounts a total of $5.9 million. The settlement did
not have any material impact on the Advisor's financial position or operations.
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The Fund and the Advisor have 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 Fund and the Advisor's other
clients ahead of their own.
The Code requires Access Persons (other than Access Persons who are
independent directors of the investment companies managed by the Advisor,
including the 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, is contemporaneously being purchased
or sold, or to the knowledge of the Access Person, is being considered for
purchase or sale, by the Advisor on behalf of any mutual fund or other account
managed by it. Finally, the Code provides for trading "black out" periods of
seven calendar days during which time Access Persons who are portfolio managers
may not trade in securities which have been purchased or sold by any mutual
fund or other account managed by the portfolio manager.
From time to time the Advisor votes the shares owned by the Fund according
to its Statement of General Proxy Voting Policy ("Proxy Voting Policy"). The
general principal of the Proxy Voting Policy is to vote any beneficial interest
in an equity security prudently and solely in the best long-term economic
interest of the Fund and its beneficiaries considering all relevant factors and
without undue influence from individuals or groups who may have an economic
interest in the outcome of a proxy vote. Shareholders may obtain a copy of the
Proxy Voting Policy upon request from the Advisor.
The Advisor provides investment advisory services for multiple clients and
may give advice and take action, with respect to any client, that may differ
from the advice given, or the timing or nature of action taken, with respect to
any one account. However, the Advisor will allocate over a period of time, to
the extent practical, investment opportunities to each account on a fair and
equitable basis relative to other similarly-situated client accounts. The
Advisor, its principals and associates (to the extent not prohibited by the
Code), and other clients of the Advisor may have, acquire, increase, decrease,
or dispose of securities or interests therein at or about the same time that
the Advisor is purchasing or selling securities or interests therein for an
account that are or may be deemed to be inconsistent with the actions taken by
such persons.
Under a Distribution Agreement dated _____, 1998 with the Fund (the
"Distribution Agreement"), Strong Funds Distributors, Inc. ("Distributor"), a
subsidiary of the Advisor, acts as underwriter of the Fund's shares. The
Distribution Agreement provides that the Distributor will use its best efforts
to distribute the Fund's shares. Since the Fund is a "no-load" fund, no sales
commissions are charged on the purchase of Fund shares. The Distribution
Agreement further provides that the Distributor will bear the additional costs
of printing Prospectuses and shareholder reports which are used for selling
purposes, as well as advertising and any other costs attributable to the
distribution of the Fund's shares. The Distributor is an indirect subsidiary
of the Advisor and controlled by the Advisor and Richard S. Strong. The
Distribution Agreement is subject to the same termination and renewal
provisions as are described above with respect to the Advisory Agreement.
From time to time, the Distributor may hold in-house sales incentive
programs for its associated persons under which these persons may receive
non-cash compensation awards in connection with the sale and distribution of
the Fund's shares. These awards may include items such as, but not limited to,
gifts, merchandise, gift certificates, and payment of travel expenses, meals
and lodging. As required by the National Association of Securities Dealers,
Inc. or NASD's proposed rule amendments in this area, any in-house sales
incentive program will be multi-product oriented, i.e., any incentive will be
based on an associated person's gross production of all securities within a
product type and will not be based on the sales of shares of any specifically
designated mutual fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
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The Advisor is responsible for decisions to buy and sell securities for
the Fund and for the placement of the Fund's portfolio business and the
negotiation of the commissions to be paid on such transactions. It is the
policy of the Advisor to seek the best execution at the best security price
available with respect to each transaction, in light of the overall quality of
brokerage and research services provided to the Advisor or the Fund. In
over-the-counter transactions, orders are placed directly with a principal
market maker unless it is believed that a better price and execution can be
obtained using a broker. The best price to the Fund means the best net price
without regard to the mix between purchase or sale price and commissions, if
any. In selecting broker-dealers and in negotiating commissions, the Advisor
considers a variety of factors, including best price and execution, the full
range of brokerage services provided by the broker, as well as its capital
strength and stability, and the quality of the research and research services
provided by the broker. Brokerage will not be allocated based on the sale of
any shares of the Strong Funds.
The Advisor has adopted procedures that provide generally for the Advisor
to seek to bunch orders for the purchase or sale of the same security for the
Fund, other mutual funds managed by the Advisor, and other advisory clients
(collectively, the "client accounts"). The Advisor will bunch orders when it
deems it to be appropriate and in the best interests of the client accounts.
When a bunched order is filled in its entirety, each participating client
account will participate at the average share price for the bunched order on
the same business day, and transaction costs shall be shared pro rata based on
each client's participation in the bunched order. When a bunched order is only
partially filled, the securities purchased will be allocated on a pro rata
basis to each client account participating in the bunched order based upon the
initial amount requested for the account, subject to certain exceptions, and
each participating account will participate at the average share price for the
bunched order on the same business day.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment advisor, under certain circumstances, to cause an account
to pay a broker or dealer a commission for effecting a transaction in excess of
the amount of commission another broker or dealer would have charged for
effecting the transaction in recognition of the value of the brokerage and
research services provided by the broker or dealer. Brokerage and research
services include (a) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody).
In carrying out the provisions of the Advisory Agreement, the Advisor may
cause the Fund to pay a broker, which provides brokerage and research services
to the Advisor, a commission for effecting a securities transaction in excess
of the amount another broker would have charged for effecting the transaction.
The Advisor believes it is important to its investment decision-making process
to have access to independent research. The Advisory Agreement provides that
such higher commissions will not be paid by the Fund unless (a) the Advisor
determines in good faith that the amount is reasonable in relation to the
services in terms of the particular transaction or in terms of the Advisor's
overall responsibilities with respect to the accounts as to which it exercises
investment discretion; (b) such payment is made in compliance with the
provisions of Section 28(e), other applicable state and federal laws, and the
Advisory Agreement; and (c) in the opinion of the Advisor, the total
commissions paid by the Fund will be reasonable in relation to the benefits to
the Fund over the long term. The investment management fees paid by the Fund
under the Advisory Agreement is 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
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benefits and services between those that primarily benefit the Advisor and
those that primarily benefit the Fund and other advisory clients.
From time to time, the Advisor may purchase new issues of securities for
the Fund in a fixed price offering. In these situations, the seller may be a
member of the selling group that will, in addition to selling the securities to
the Fund and other advisory clients, provide the Advisor with research. The
National Association of Securities Dealers has adopted rules expressly
permitting these types of arrangements under certain circumstances. Generally,
the seller will provide research "credits" in these situations at a rate that
is higher than that which is available for typical secondary market
transactions. These arrangements may not fall within the safe harbor of Section
28(e).
Each year, the Advisor considers the amount and nature of research and
research services provided by brokers, as well as the extent to which such
services are relied upon, and attempts to allocate a portion of the brokerage
business of the Fund and other advisory clients on the basis of that
consideration. In addition, brokers may suggest a level of business they would
like to receive in order to continue to provide such services. The actual
brokerage business received by a broker may be more or less than the suggested
allocations, depending upon the Advisor's evaluation of all applicable
considerations.
The Advisor has informal arrangements with various brokers whereby, in
consideration for providing research services and subject to Section 28(e), the
Advisor allocates brokerage to those firms, provided that 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. In no case
will the Advisor make binding commitments as to the level of brokerage
commissions it will allocate to a broker, nor will it commit to pay cash if any
informal targets are not met. The Advisor anticipates it will continue to
enter into such brokerage arrangements.
The Advisor may direct the purchase of securities on behalf of the Fund
and other advisory clients in secondary market transactions, in public
offerings directly from an underwriter, or in privately negotiated transactions
with an issuer. When the Advisor believes the circumstances so warrant,
securities purchased in public offerings may be resold shortly after
acquisition in the immediate aftermarket for the security in order to take
advantage of price appreciation from the public offering price or for other
reasons. Short-term trading of securities acquired in public offerings, or
otherwise, may result in higher portfolio turnover and associated brokerage
expenses.
The Advisor places portfolio transactions for other advisory accounts,
including other mutual funds managed by the Advisor. Research services
furnished by firms through which the Fund effects its securities transactions
may be used by the Advisor in servicing all of its accounts; not all of such
services may be used by the Advisor in connection with the Fund. In the
opinion of the Advisor, it is not possible to measure separately the benefits
from research services to each of the accounts (including the 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 Fund will not
be disproportionate to the benefits received by the Fund on a continuing basis.
The Advisor seeks to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities by the Fund and
another advisory account. In some cases, this procedure could have an adverse
effect on the price or the amount of securities available to the Fund. In
making such allocations between the Fund and other advisory accounts, the main
factors considered by the Advisor are the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held, and the opinions of the persons responsible for recommending
the investment.
Where consistent with a client's investment objectives, investment
restrictions, and risk tolerance, the Advisor may purchase securities sold in
underwritten public offerings for client accounts, commonly referred to as
"deal" securities. 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
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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 portfolio manager team seeks to have
client accounts participate in a deal and the amount of deal securities
allocated to the Advisor by the underwriting syndicate is less than the
aggregate amount ordered by the Advisor (a "reduced allocation"), the deal
securities will be allocated among the portfolio manager teams based on all
relevant factors. The primary factor shall be assets under management,
although other factors that may be considered in the allocation decision
include, but are not limited to, the nature, size, and expected Advisor
allocation of the deal; the amount of brokerage commissions or other amounts
generated by the respective participating portfolio manager teams; and which
portfolio manager team is primarily responsible for the Advisor receiving
securities in the deal. Based on 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.
CUSTODIAN
As custodian of the Fund assets, Firstar Trust Company, P.O. Box 701,
Milwaukee, Wisconsin 53201, has custody of all securities and cash of the Fund,
delivers and receives payment for securities sold, receives and pays for
securities purchased, collects income from investments, and performs other
duties, all as directed by the officers of the Fund. The Fund's custodian has
entered into a sub-custodial arrangement with First National Bank of Chicago
("First Chicago") pursuant to which First Chicago may retain custody of the
Fund's dollar-denominated foreign securities. The custodian and, if
applicable, the sub-custodian are in no way responsible for any of the
investment policies or decisions of the Fund.
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
The Advisor acts as transfer agent and dividend-disbursing agent for the
Fund. The Advisor is compensated based on an annual fee per open account of
$32.50 for the Fund, plus out-of-pocket expenses, such as postage and printing
expenses in connection with shareholder communications. The Advisor also
receives an annual fee per closed account of $4.20 from the Fund. The fees
received and the services provided as transfer agent and dividend disbursing
agent are in addition to those received and provided by the Advisor under the
Advisory Agreement. In addition, the Advisor provides certain printing and
mailing services for the Fund, such as printing and mailing of shareholder
account statements, checks, and tax forms.
From time to time, the Fund, directly or indirectly through arrangements
with the Advisor, and/or the Advisor may pay amounts to third parties that
provide transfer agent and other administrative services relating to the Fund
to persons who beneficially own interests in the Fund, such as participants in
401(k) plans. These services may include, among other things, sub-accounting
services, transfer agent type activities, answering inquiries relating to the
Fund, transmitting, on behalf of the Fund, proxy statements, annual reports,
updated Prospectuses, other communications regarding the Fund, and related
services as the Fund or beneficial owners may reasonably request. In such
cases, the Fund will not pay fees based on the number of beneficial owners at a
rate that is greater than the rate the Fund is currently paying the Advisor for
providing these services to Fund shareholders.
TAXES
GENERAL
The Fund intends to qualify annually for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986 (the "Tax
Code"). This qualification does not involve governmental supervision of the
Fund's management practices or policies. The following federal tax discussion
is intended to provide you with an overview of the impact
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of federal income tax provisions on the Fund or its shareholders. These tax
provisions are subject to change by legislative or administrative action at the
federal, state or local level, and any changes may be applied retroactively.
Any such action that limits or restricts the Fund's current ability to
pass-through earnings without taxation at the Fund level, or otherwise
materially changes the Fund's tax treatment, could adversely affect the value
of a shareholder's investment in the Fund. Because the Fund's taxes are a
complex matter, you should consult your tax adviser for more detailed
information concerning the taxation of the Fund and the federal, state and
local tax consequences to shareholders of an investment in the Fund.
In order to qualify for treatment as a RIC under the Tax Code, the Fund
must distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of taxable net
investment income, net short-term capital gain, and net gains from certain
foreign currency transactions, if applicable) ("Distribution Requirement") plus
its net interest income excludable from gross income under Section 103(a) of
the Tax Code and must meet several additional requirements. These requirements
include the following: (1) the Fund must derive at least 90% of its gross
income each taxable year from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of securities or
foreign currencies, or other income (including gains from options, futures, or
forward contracts) derived with respect to its business of investing in
securities ("Income Requirement"); (2) at the close of each quarter of the
Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. government securities, securities of
other RICs, and other securities, with these other securities limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value of
the Fund's total assets and that does not represent more than 10% of the
issuer's outstanding voting securities; and (3) at the close of each quarter of
the Fund's taxable year, not more than 25% of the value of its total assets may
be invested in securities (other than U.S. government securities or the
securities of other RICs) of any one issuer. From time to time the Advisor may
find it necessary to make certain types of investments for the purpose of
ensuring that the Fund continues to qualify for treatment as RICs under the Tax
Code.
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.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary taxable 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
Interest and dividends received by the Fund may be subject to income,
withholding, or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors.
The foregoing federal tax discussion as well as the tax discussion
contained within the Prospectus under "About the Fund - Distributions and
Taxes" is intended to provide you with an overview of the impact of federal
income tax provisions on the Fund or its shareholders. These tax provisions
are subject to change by legislative or administrative action at the federal,
state, or local level, and any changes may be applied retroactively. Any such
action that limits or restricts the Fund's current ability to pass-through
earnings without taxation at the Fund level, or otherwise materially changes
the Fund's tax treatment, could adversely affect the value of a shareholder's
investment in the Fund. Because each Fund's taxes are a complex matter, you
should consult your tax adviser for more detailed information concerning the
taxation of the Fund and the federal, state, and local tax consequences to
shareholders of an investment in the Fund.
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus under the caption "Shareholder Manual -
Determining Your Share Price," the net asset value of the Fund will be
determined as of the close of trading on each day the New York Stock Exchange
(the "NYSE") is open for trading. The New York Stock Exchange is open for
trading Monday through Friday except New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. Additionally, if any of the aforementioned holidays falls on a
Saturday, the NYSE will not be open for trading on the preceding Friday, and
when any such
18
<PAGE>
holiday falls on a Sunday, the NYSE will not be open for trading on the
succeeding Monday, unless unusual business conditions exist, such as the ending
of a monthly or yearly accounting period.
The Fund values its securities on the amortized cost basis and seeks to
maintain its net asset value at a constant $1.00 per share. In the event a
difference of 1/2 of 1% or more were to occur between the net asset value
calculated by reference to market values and the Fund's $1.00 per share net
asset value, or if there were any other deviation which the Board of Directors
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 OR INTERNET EXCHANGE AND REDEMPTION PRIVILEGES
The Fund employs reasonable procedures to confirm that instructions
communicated by telephone or the Internet are genuine. The Fund may not be
liable for losses due to unauthorized or fraudulent instructions. Such
procedures include but are not limited to requiring a form of personal
identification prior to acting on instructions received by telephone or the
Internet, providing written confirmations of such transactions to the address
of record, tape recording telephone instructions and backing up Internet
transactions.
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 (or up to
$4,000 between your IRA and your non-working spouses' IRA). Under certain
circumstances, your contribution will be deductible.
ROTH IRA: Taxpayers, of any age, who have earned income, and whose AGI does
not exceed $110,000 (single) or $160,000 (joint) can contribute to a Roth IRA.
Allowed contributions begin to phase-out at $95,000 (single) or $150,000
(joint). You are allowed to contribute up to the lesser of $2,000 or 100% of
earned income each year into a Roth IRA. If you also maintain a Traditional
IRA, the maximum contribution to your Roth IRA is reduced by any contributions
that you make to your Traditional IRA. Distributions from a Roth IRA, if they
meet certain requirements, may be federally tax free. If your AGI is $100,000
or less, you can convert your Traditional IRAs into a Roth IRA. Conversions of
earnings and deductible contributions are taxable in the year of the
distribution. The early distribution penalty does not apply to amounts
converted to a Roth IRA even if you are under age 59 1/2.
EDUCATION IRA: Taxpayers may contribute up to $500 per year into an Education
IRA for the benefit of a child under age 18. Total contributions to any one
child cannot exceed $500 per year. The contributor must have adjusted income
under $110,000 (single) or $160,000 (joint) to contribute to an Education IRA.
Allowed contributions begin to phase-out at $95,000 (single) or $150,000
(joint). Withdrawals from the Education IRA to pay qualified higher education
expenses are federally tax free. Any withdrawal in excess of higher education
expenses for the year are potentially subject to tax and an additional 10%
penalty.
DIRECT ROLLOVER IRA: To avoid the mandatory 20% federal withholding tax on
distributions, you must transfer the qualified retirement or Code section
403(b) plan distribution directly into an IRA. The distribution must be
eligible for rollover. The amount of your Direct Rollover IRA contribution
will not be included in your taxable income for the year.
SIMPLIFIED EMPLOYEE PENSION PLAN (SEP-IRA): A SEP-IRA plan allows an employer
to make deductible contributions to separate IRA accounts established for each
eligible employee.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN (SAR SEP-IRA): A SAR SEP-IRA
plan is a type of SEP-IRA plan in which an employer may allow employees to
defer part of their salaries and contribute to an IRA account. These deferrals
help lower the
19
<PAGE>
employees' taxable income. Please note that you may no longer open new SAR
SEP-IRA plans (since December 31, 1996). However, employers with SAR SEP-IRA
plans that were established prior to January 31, 1997 may still open accounts
for new employees.
SIMPLIFIED INCENTIVE MATCH PLAN FOR EMPLOYEES (SIMPLE-IRA): A SIMPLE-IRA plan
is a retirement savings plan that allows employees to contribute a percentage
of their compensation, up to $6,000, on a pre-tax basis, to a SIMPLE-IRA
account. The employer is required to make annual contributions to eligible
employees' accounts. All contributions grow tax-deferred.
DEFINED CONTRIBUTION PLAN: A defined contribution plan allows self-employed
individuals, partners, or a corporation to provide retirement benefits for
themselves and their employees. Plan types include: profit-sharing plans,
money purchase pension plans, and paired plans (a combination of a
profit-sharing plan and a money purchase plan).
401(K) PLAN: A 401(k) plan is a type of profit-sharing plan that allows
employees to have part of their salary contributed on a pre-tax basis to a
retirement plan which will earn tax-deferred income. A 401(k) plan is funded by
employee contributions, employer contributions, or a combination of both.
403(B)(7) PLAN: A tax-sheltered custodial account designed to qualify under
section 403(b)(7) of the Code is available for use by employees of certain
educational, non-profit, hospital, and charitable organizations.
FUND ORGANIZATION
The Fund is a Wisconsin corporation (the "Corporation"). The Corporation
was incorporated on June 2, 1989 and is authorized to issue an indefinite
number of shares of common stock and series and classes of series of shares of
common stock, with a par value of .00001 per share. The Corporation is
authorized to offer separate series of shares representing interests in
separate portfolios of securities, each with differing investment objectives.
The shares in any one portfolio may, in turn, be offered in separate classes,
each with differing preferences, limitations or relative rights. However, the
Articles of Incorporation for the Corporation provides that if additional
classes of shares are issued by the Corporation, such new classes of shares may
not affect the preferences, limitations or relative rights of the Corporation's
outstanding shares. In addition, the Board of Directors of the Corporation is
authorized to allocate assets, liabilities, income and expenses to each series
and class. Classes within a series may have different expense arrangements
than other classes of the same series and, accordingly, the net asset value of
shares within a series may differ. Finally, all holders of shares of the
Corporation may vote on each matter presented to shareholders for action except
with respect to any matter which affects only one or more series or class, in
which case only the shares of the affected series or class are entitled to
vote. Fractional shares have the same rights proportionately as do full shares.
Shares of the Corporation have no preemptive, conversion, or subscription
rights. The Corporation currently has two series of common stock outstanding.
If the Corporation issues additional series, the assets belonging to each
series of shares will be held separately by the custodian, and in effect each
series will be a separate fund.
SHAREHOLDER MEETINGS
The Wisconsin Business Corporation Law permits registered investment
companies, such as the Corporation, to operate without an annual meeting of
shareholders under specified circumstances if an annual meeting is not required
by the 1940 Act. The Corporation has adopted the appropriate provisions in its
Bylaws and may, at its discretion, not hold an annual meeting in any year in
which the election of directors is not required to be acted on by shareholders
under the 1940 Act.
The Corporation's Bylaws allow for a director to be removed by its
shareholders with or without cause, only at a meeting called for the purpose
of removing the director. Upon the written request of the holders of shares
entitled to not less than ten percent (10%) of all the votes entitled to be
cast at such meeting, the Secretary of the Corporation shall promptly call a
special meeting of shareholders for the purpose of voting upon the question of
removal of any director. The Secretary of the Corporation shall inform such
shareholders of the reasonable estimated costs of preparing and mailing the
notice of the meeting, and upon payment to the Corporation of such costs, the
Corporation shall give not less than ten nor more than sixty days notice of the
special meeting.
PERFORMANCE INFORMATION
20
<PAGE>
As described in the "About the Fund - Performance Information" section of
the Fund's Prospectus, the Fund's historical performance or return may be shown
in the form of "yield." In addition, the Fund's performance may be shown in
the form of "average annual total return," "total return," and "cumulative
total return," and "effective yield." From time to time, the Advisor agrees to
waive or reduce its management fee and to absorb certain operating expenses for
the Fund. Without these waivers and absorptions, the performance results for
the Fund would have been lower. All performance and returns noted herein are
historical and do not represent the future performance of the Fund.
CURRENT YIELD
The Fund's current yield quotation is based on a seven-day period and is
computed as follows. The first calculation is net investment income per share,
which is accrued interest on portfolio securities, plus or minus amortized
premium, less accrued expenses. This number is then divided by the price per
share (expected to remain constant at $1.00) at the beginning of the period
("base period return"). The result is then divided by 7 and multiplied by 365
and the resulting yield figure is carried to the nearest one-hundredth of one
percent. Realized capital gains or losses and unrealized appreciation or
depreciation of investments are not included in the calculation.
EFFECTIVE YIELD
The Fund's effective yield is determined by taking the base period return
(computed as described above) and calculating the effect of assumed
compounding. The formula for the effective yield is: (base period return +
1)(365/7) - 1.
DISTRIBUTION RATE
The distribution rate is computed, according to a non-standardized
formula, by dividing the total amount of actual distributions per share paid by
the Fund over a twelve month period by the Fund's net asset value on the last
day of the period. The distribution rate differs from the Fund's yield because
the distribution rate includes distributions to shareholders from sources other
than dividends and interest, such as premium income from option writing and
short-term capital gains. Therefore, the Fund's distribution rate may be
substantially different than its yield. Both the Fund's yield and distribution
rate will fluctuate.
AVERAGE ANNUAL TOTAL RETURN
The Fund's average annual total return quotation is computed in accordance
with a standardized method prescribed by rules of the SEC. The average annual
total return for the Fund for a specific period is found by first taking a
hypothetical $10,000 investment ("initial investment") in the Fund's shares on
the first day of the period and computing the "redeemable value" of that
investment at the end of the period. The redeemable value is then divided by
the initial investment, and this quotient is taken to the Nth root (N
representing the number of years in the period) and 1 is subtracted from the
result, which is then expressed as a percentage. The calculation assumes that
all income and capital gains dividends paid by the Fund have been reinvested at
net asset value on the reinvestment dates during the period. Average annual
total return figures for various periods are set forth in the table below.
TOTAL RETURN
Calculation of the Fund's total return is not subject to a standardized
formula. Total return performance for a specific period is calculated by first
taking an investment (assumed below to be $10,000) ("initial investment") in
the Fund's shares on the first day of the period and computing the "ending
value" of that investment at the end of the period. The total return
percentage is then determined by subtracting the initial investment from the
ending value and dividing the remainder by the initial investment and
expressing the result as a percentage. The calculation assumes that all income
and capital gains dividends paid by the Fund have been reinvested at net asset
value on the reinvestment dates during the period. Total return may also be
shown as the increased dollar value of the hypothetical investment over the
period. Total return figures for various periods are set forth in the table
below.
CUMULATIVE TOTAL RETURN
Calculation of the Fund's cumulative total return is not subject to a
standardized formula and represents the simple change in value of our
investment over a stated period and may be quoted as a percentage or as a
dollar amount. Total returns and
21
<PAGE>
cumulative total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order to
illustrate the relationship between these factors and their contributions to
total return.
The Fund's performance figures are based upon historical results and do
not represent future results. The Fund's shares are sold at net asset value
per share. The Fund's returns and net asset value will fluctuate and shares
are redeemable at the then current net asset value of the Fund, which may be
more or less than original cost. The yield for the Fund will fluctuate. While
the Fund seeks to maintain a stable net asset value of $1.00, there is no
assurance that the Fund will be able to do so. An investment in the Fund is
neither insured nor guaranteed by the U.S. government. Factors affecting the
Fund's performance include general market conditions, operating expenses and
investment management. Any additional fees charged by a dealer or other
financial services firm would reduce the returns described in this section.
COMPARISONS
(1) U.S. TREASURY BILLS, NOTES, OR BONDS
Investors may want to compare the performance of the Fund to that of U.S.
Treasury bills, notes or bonds, which are issued by the U.S. government.
Treasury obligations are issued in selected denominations. Rates of Treasury
obligations are fixed at the time of issuance and payment of principal and
interest is backed by the full faith and credit of the United States Treasury.
The market value of such instruments will generally fluctuate inversely with
interest rates prior to maturity and will equal par value at maturity.
Generally, the values of obligations with shorter maturities will fluctuate
less than those with longer maturities.
(2) CERTIFICATES OF DEPOSIT
Investors may want to compare the Fund's performance to that of
certificates of deposit offered by banks and other depositary institutions.
Certificates of deposit may offer fixed or variable interest rates and
principal is guaranteed and may be insured. Withdrawal of the deposits prior to
maturity normally will be subject to a penalty. Rates offered by banks and
other depositary institutions are subject to change at any time specified by
the issuing institution.
(3) MONEY MARKET FUNDS
Investors may also want to compare performance of the Fund to that of
money market funds. Money market fund yields will fluctuate and shares are not
insured, but share values usually remain stable.
(4) LIPPER ANALYTICAL SERVICES, INC. ("LIPPER") AND OTHER INDEPENDENT
RANKING ORGANIZATIONS
From time to time, in marketing and other fund literature, the Fund's
performance may be compared to the performance of other mutual funds in general
or to the performance of particular types of mutual funds, with similar
investment goals, as tracked by independent organizations. Among these
organizations, Lipper, a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets, may be
cited. Lipper performance figures are based on changes in net asset value,
with all income and capital gain dividends reinvested. Such calculations do
not include the effect of any sales charges imposed by other funds. The Fund
will be compared to Lipper's appropriate fund category, that is, by fund
objective and portfolio holdings. The Fund's performance may also be compared
to the average performance of its Lipper category.
(5) MORNINGSTAR, INC.
The Fund's performance may also be compared to the performance of other
mutual funds by Morningstar, Inc. which 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) INDEPENDENT SOURCES
Evaluations of Fund performance made by independent sources may also be
used in advertisements concerning the Fund, including reprints of, or
selections from, editorials or articles about the Fund, especially those with
similar objectives. Sources for Fund performance information and articles
about the Fund may include publications such as MONEY, FORBES, KIPLINGER'S,
SMART MONEY, MORNINGSTAR, INC., FINANCIAL WORLD, BUSINESS WEEK, U.S. NEWS AND
WORLD REPORT, THE WALL STREET JOURNAL, BARRON'S, and a variety of investment
newsletters.
(7) VARIOUS BANK PRODUCTS
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<PAGE>
The Fund's performance also may be compared on a before or after-tax basis
to various bank products, including the average rate of bank and thrift
institution money market deposit accounts, Super N.O.W. accounts and
certificates of deposit of various maturities as reported in the Bank Rate
Monitor, National Index of 100 leading banks, and thrift institutions as
published by the Bank Rate Monitor, Miami Beach, Florida. The rates published
by the Bank Rate Monitor National Index are averages of the personal account
rates offered on the Wednesday prior to the date of publication by 100 large
banks and thrifts in the top ten Consolidated Standard Metropolitan Statistical
Areas. The rates provided for the bank accounts assume no compounding and are
for the lowest minimum deposit required to open an account. Higher rates may
be available for larger deposits.
With respect to money market deposit accounts and Super N.O.W. accounts,
account minimums range upward from $2,000 in each institution and compounding
methods vary. Super N.O.W. accounts generally offer unlimited check writing
while money market deposit accounts generally restrict the number of checks
that may be written. If more than one rate is offered, the lowest rate is
used. Rates are determined by the financial institution and are subject to
change at any time specified by the institution. Generally, the rates offered
for these products take market conditions and competitive product yields into
consideration when set. Bank products represent a taxable alternative income
producing product. Bank and thrift institution deposit accounts may be
insured. Shareholder accounts in the Fund are not insured. Bank passbook
savings accounts compete with money market mutual fund products with respect to
certain liquidity features but may not offer all of the features available from
a money market mutual fund, such as check writing. Bank passbook savings
accounts normally offer a fixed rate of interest while the yield of the Fund
fluctuates. Bank checking accounts normally do not pay interest but compete
with money market mutual fund products with respect to certain liquidity
features (e.g., the ability to write checks against the account). Bank
certificates of deposit may offer fixed or variable rates for a set term.
(Normally, a variety of terms are available.) Withdrawal of these deposits
prior to maturity will normally be subject to a penalty. In contrast, shares
of the Fund are redeemable at the net asset value (normally, $1.00 per share)
next determined after a request is received, without charge.
(8) INDICES
The Fund may compare its performance to a wide variety of indices including the
following:
(a) The Consumer Price Index
(b) Merrill Lynch 91 Day Treasury Bill Index
(c) Merrill Lynch Government/Corporate 1-3 Year Index
(d) IBC/Donoghue's General Purpose Money Fund AverageTM
(e) IBC/Donoghue's Taxable Money Fund AverageTM
(f) IBC/Donoghue's Government Money Fund AverageTM
(g) Salomon Brothers 1-Month Treasury Bill Index
(h) Salomon Brothers 3-Month Treasury Bill Index
(i) Salomon Brothers 1-Year Treasury Benchmark-on-the-Run Index
(j) Salomon Brothers 1-3 Year Treasury/Government-Sponsored/Corporate Bond
Index
(k) Salomon Brothers Broad Investment-Grade Bond Index
(l) Lehman Brothers Aggregate Bond Index
(m) Lehman Brothers 1-3 Year Government/Corporate Bond Index
There are differences and similarities between the investments which the
Fund may purchase and the investments measured by the indices which are noted
herein. The market prices and yields of taxable and tax-exempt bonds will
fluctuate. There are important differences among the various investments
included in the indices that should be considered in reviewing this
information.
(9) 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
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<PAGE>
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.
(10) 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 Fund is listed in ascending
order of risk and return, as determined by the Fund's Advisor.
FUND NAME INVESTMENT OBJECTIVE
<TABLE>
<CAPTION>
<S> <C>
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 liquidity.
Fund
- --------------------------------- ---------------------------------------------------------------------------------------
Strong Municipal Advantage Fund Federally tax-exempt current income with a very low degree of share-price
fluctuation.
- --------------------------------- ---------------------------------------------------------------------------------------
Strong Advantage Fund Current income with a very low degree of share-price fluctuation.
- --------------------------------- ---------------------------------------------------------------------------------------
Strong Short-Term Municipal Bond Total return by investing for a high level of federally tax-exempt current income with
Fund a low degree of share-price fluctuation.
- --------------------------------- ---------------------------------------------------------------------------------------
Strong Short-Term Bond Fund Total return by investing for a high level of current income with a low degree of share
price fluctuation.
- --------------------------------- ---------------------------------------------------------------------------------------
Strong Short-Term Global Bond Total return by investing for a high level of income with a low degree of share-price
Fund fluctuation.
- --------------------------------- ---------------------------------------------------------------------------------------
Strong Government Securities Fund Total return by investing for a high level of current income with a moderate degree of
share-price fluctuation.
- --------------------------------- ---------------------------------------------------------------------------------------
Strong Municipal Bond Fund Total return by investing for a high level of federally tax-exempt current income with
a moderate degree of share-price fluctuation.
- --------------------------------- ---------------------------------------------------------------------------------------
Strong Corporate Bond Fund Total return by investing for a high level of current income with a moderate degree of
share-price fluctuation.
- --------------------------------- ---------------------------------------------------------------------------------------
Strong High-Yield Municipal Bond Total return by investing for a high level of federally tax-exempt current income.
Fund
- --------------------------------- ---------------------------------------------------------------------------------------
Strong High-Yield Bond Fund Total return by investing for a high level of current income and capital growth.
- --------------------------------- ---------------------------------------------------------------------------------------
Strong International Bond Fund High total return by investing for both income and capital appreciation.
- --------------------------------- ---------------------------------------------------------------------------------------
Strong Asset Allocation Fund High total return consistent with reasonable risk over the long term.
- --------------------------------- ---------------------------------------------------------------------------------------
Strong Equity Income Fund Total return by investing for both income and capital growth.
- --------------------------------- ---------------------------------------------------------------------------------------
Strong American Utilities Fund Total return by investing for both income and capital growth.
- --------------------------------- ---------------------------------------------------------------------------------------
Strong 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 Schafer Value Fund Long-term capital appreciation principally through investment in common stocks and
other equity securities. Current income is a secondary objective.
- --------------------------------- ---------------------------------------------------------------------------------------
Strong Value Fund Capital growth.
- --------------------------------- ---------------------------------------------------------------------------------------
Strong Opportunity Fund Capital growth.
- --------------------------------- ---------------------------------------------------------------------------------------
Strong Growth Fund Capital growth.
- --------------------------------- ---------------------------------------------------------------------------------------
Strong Common Stock Fund* Capital growth.
- --------------------------------- ---------------------------------------------------------------------------------------
Strong Mid Cap 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 closed to new investors, except the Fund may continue to offer
its shares through certain 401(k) plans and similar company-sponsored
retirement plans.
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<PAGE>
The Advisor also serves as Advisor or Subadvisor to several management
investment companies, some of which fund variable annuity separate accounts of
certain insurance companies.
The Fund may from time to time be compared to the other funds in the
Strong Family of Funds based on a risk/reward spectrum. In general, the amount
of risk associated with any investment product is commensurate with that
product's potential level of reward. The Strong Funds risk/reward continuum or
the Fund's position on the continuum may be described or diagrammed in
marketing materials. The Strong Funds risk/reward continuum positions the risk
and reward potential of each Strong Fund relative to the other Strong Funds,
but is not intended to position any Strong Fund relative to other mutual funds
or investment products. Marketing materials may also discuss the relationship
between risk and reward as it relates to an individual investor's portfolio.
Financial goals vary from person to person. You may choose one or more of
the Strong Funds to help you reach your financial goals.
(10) TYING TIME FRAMES TO YOUR GOALS
There are many issues to consider as you make your investment decisions,
including analyzing your risk tolerance, investing experience, and asset
allocations. You should start to organize your investments by learning to link
your many financial goals to specific time frames. Then you can begin to
identify the appropriate types of investments to help meet your goals. As a
general rule of thumb, the longer your time horizon, the more price fluctuation
you will be able to tolerate in pursuit of higher returns. For that reason,
many people with longer-term goals select stocks or long-term bonds, and many
people with nearer-term goals match those up with for instance, short-term
bonds. The Advisor developed the following suggested holding periods to help
our investors set realistic expectations for both the risk and reward potential
of our funds. (See table below.) Of course, time is just one element to
consider when making your investment decision.
STRONG FUNDS SUGGESTED MINIMUM HOLDING PERIODS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
UNDER 1 YEAR 1 TO 2 YEARS 4 TO 7 YEARS 5 OR MORE YEARS
- --------------------------- ------------------------------ ------------------------------ ------------------------
Money Market Fund Advantage Fund Government Securities Fund Total Return Fund
Heritage Money Fund Municipal Advantage Fund Municipal Bond Fund Opportunity Fund
Municipal Money Market Fund Corporate Bond Fund Growth Fund
2 TO 4 YEARS International Bond Fund Common Stock Fund*
Short-Term Bond Fund High-Yield Municipal Bond Fund Discovery Fund
Short-Term Municipal Bond Fund Asset Allocation Fund International Stock Fund
Short-Term Global Bond Fund American Utilities Fund Asia Pacific Fund
High-Yield Bond Fund Value Fund
Equity Income Fund
Small Cap Fund
Growth and Income Fund
Mid Cap Fund
Schafer Value Fund
</TABLE>
* This Fund is closed to new investors, except the Fund may continue to offer
its shares through certain 401(k) plans and similar company-sponsored
retirement plans.
ADDITIONAL FUND INFORMATION
(1) DURATION
Duration is a calculation that seeks to measure the price sensitivity of a
bond or a bond fund to changes in interest rates. It measures bond price
sensitivity to interest rate changes by taking into account the time value of
cash flows generated over the bond's life. Future interest and principal
payments are discounted to reflect their present value and then are multiplied
by the number of years they will be received to produce a value that is
expressed in years. Since duration can also be computed for the Fund, you can
estimate the effect of interest rates on the Fund's share price. Simply
multiply the Fund's duration by an expected
25
<PAGE>
change in interest rates. For example, the price of the Fund with a duration
of two years would be expected to fall approximately two percent if market
interest rates rose by one percentage point.
26
<PAGE>
(2) PORTFOLIO CHARACTERISTICS
In order to present a more complete picture of the Fund's portfolio,
marketing materials may include various actual or estimated portfolio
characteristics, including but not limited to median market capitalizations,
earnings per share, alphas, betas, price/earnings ratios, returns on equity,
dividend yields, capitalization ranges, growth rates, price/book ratios, top
holdings, sector breakdowns, asset allocations, quality breakdowns, and
breakdowns by geographic region.
(3) MEASURES OF VOLATILITY AND RELATIVE PERFORMANCE
Occasionally statistics may be used to specify Fund volatility or risk.
The general premise is that greater volatility connotes greater risk undertaken
in achieving performance. Measures of volatility or risk are generally used to
compare the Fund's net asset value or performance relative to a market index.
One measure of volatility is beta. Beta is the volatility of a fund relative
to the total market as represented by the Standard & Poor's 500 Stock Index. A
beta of more than 1.00 indicates volatility greater than the market, and a beta
of less than 1.00 indicates volatility less than the market. Another measure
of volatility or risk is standard deviation. Standard deviation is a
statistical tool that measures the degree to which a fund's performance has
varied from its average performance during a particular time period.
Standard deviation is calculated using the following formula:
Standard deviation = the square root of E(XI - XM)2
n-1
where E = "the sum of",
xi = each individual return during the time period,
xm = the average return over the time period, and
n = the number of individual returns during the time period.
Statistics may also be used to discuss the Fund's relative performance.
One such measure is alpha. Alpha measures the actual return of a fund compared
to the expected return of a fund given its risk (as measured by beta). The
expected return is based on how the market as a whole performed, and how the
particular fund has historically performed against the market. Specifically,
alpha is the actual return less the expected return. The expected return is
computed by multiplying the advance or decline in a market representation by
the fund's beta. A positive alpha quantifies the value that the fund manager
has added, and a negative alpha quantifies the value that the fund manager has
lost.
Other measures of volatility and relative performance may be used as
appropriate. However, all such measures will fluctuate and do not represent
future results.
GENERAL INFORMATION
BUSINESS PHILOSOPHY
The Advisor is an independent, Midwestern-based investment advisor, owned
by professionals active in its management. Recognizing that investors are the
focus of its business, the Advisor strives for excellence both in investment
management and in the service provided to investors. This commitment affects
many aspects of the business, including professional staffing, product
development, investment management, and service delivery.
The increasing complexity of the capital markets requires specialized
skills and processes for each asset class and style. Therefore, the Advisor
believes that active management should produce greater returns than a passively
managed index. The Advisor has brought together a group of top-flight
investment professionals with diverse product expertise, and each concentrates
on their investment specialty. The Advisor believes that people are the firm's
most important asset. For this reason, continuity of professionals is critical
to the firm's long-term success.
INVESTMENT ENVIRONMENT
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Discussions of economic, social, and political conditions and their impact
on the Fund may be used in advertisements and sales materials. Such factors
that may impact the Fund includes, but are not limited to, changes in interest
rates, political developments, the competitive environment, consumer behavior,
industry trends, technological advances, macroeconomic trends, and the supply
and demand of various financial instruments. In addition, marketing materials
may cite the portfolio management's views or interpretations of such factors.
EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING
These common sense rules are followed by many successful investors. They
make sense for beginners, too. If you have a question on these principles, or
would like to discuss them with us, please contact us at 1-800-368-3863.
1. HAVE A PLAN - even a simple plan can help you take control of your financial
future. Review your plan once a year, or if your circumstances change.
2. START INVESTING AS SOON AS POSSIBLE. Make time a valuable ally. Let it put
the power of compounding to work for you, while helping to reduce your
potential investment risk.
3. DIVERSIFY YOUR PORTFOLIO. By investing in different asset classes - stocks,
bonds, and cash - you help protect against poor performance in one type of
investment while including investments most likely to help you achieve your
important goals.
4. INVEST REGULARLY. Investing is a process, not a one-time event. By investing
regularly over the long term, you reduce the impact of short-term market
gyrations, and you attend to your long-term plan before you're tempted to
spend those assets on short-term needs.
5. MAINTAIN A LONG-TERM PERSPECTIVE. For most individuals, the best discipline
is staying invested as market conditions change. Reactive, emotional
investment decisions are all too often a source of regret - and principal
loss.
6. CONSIDER STOCKS TO HELP ACHIEVE MAJOR LONG-TERM GOALS. Over time, stocks
have provided the more powerful returns needed to help the value of your
investments stay well ahead of inflation.
7. KEEP A COMFORTABLE AMOUNT OF CASH IN YOUR PORTFOLIO. To meet current needs,
including emergencies, use a money market fund or a bank account - not your
long-term investment assets.
8. KNOW WHAT YOU'RE BUYING. Make sure you understand the potential risks and
rewards associated with each of your investments. Ask questions... request
information...make up your own mind. And choose a fund company that helps you
make informed investment decisions.
STRONG RETIREMENT PLAN SERVICES
Strong Retirement Plan Services offers a full menu of high quality,
affordable retirement plan options, including traditional money purchase
pension and profit sharing plans, 401(k) plans, simplified employee pension
plans, salary reduction plans, Keoghs, and 403(b) plans. Retirement plan
specialists are available to help companies determine which type of retirement
plan may be appropriate for their particular situation.
MARKETS:
The retirement plan services provided by 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.
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2. Large company plans. Large company plans are designed for companies with
between 51 and 1,000 plan participants. Each large company plan is assigned
a team of professionals consisting of an account manager, who is typically
an attorney, CPA, or holds a graduate degree in business, a conversion
specialist (if applicable), an accounting manager, a legal/technical
manager, and an education/communications educator.
3. Women-owned businesses.
4. Non-profit and educational organizations (the 403(b) market).
TURNKEY APPROACH:
The retirement plans offered by the Advisor are designed to be streamlined
and simple to administer. To this end, the Advisor has invested heavily in the
equipment, systems, and people necessary to adopt or convert a plan, and to
keep it running smoothly. The Advisor provides all aspects of the plan,
including plan design, administration, recordkeeping, and investment
management. To streamline plan design, the Advisor provides customizable
IRS-approved prototype documents. The Advisor's services also include annual
government reporting and testing as well as daily valuation of each
participant's account. This structure is intended to eliminate the confusion
and complication often associated with dealing with multiple vendors. It is
also designed to save plan sponsors time and expense.
The Advisor strives to provide one-stop retirement savings programs that
combine the advantages of proven investment management, flexible plan design
and a wide range of investment options. The open architecture design of the
plans allow for the use of the family of mutual funds managed by the Advisor as
well as a stable asset value option. Large company plans may supplement these
options with their company stock (if publicly traded) or funds from other
well-known mutual fund families.
EDUCATION:
Participant education and communication is key to the success of any
retirement program, and therefore is one of the most important services that
the Advisor provides. The Advisor's goal is twofold: to make sure that plan
participants fully understand their options and to educate them about the
lifelong investment process. To this end, the Advisor provides attractive,
readable print materials that are supplemented with audio and video tapes and
retirement education programs.
SERVICE:
The Advisor's goal is to provide a world class level of service. One
aspect of that service is an experienced, knowledgeable team that provides
ongoing support for plan sponsors, both at adoption or conversion and
throughout the life of 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.
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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.
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's investment philosophy includes the following basic beliefs:
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- - 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, yield curve
positioning, sector emphasis, and issue selection.
LEGAL COUNSEL
Godfrey & Kahn, S.C., 780 North Water Street, Milwaukee, Wisconsin 53202,
acts as outside legal counsel for the Fund.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., 411 East Wisconsin Avenue, Milwaukee, Wisconsin
53202, are the independent accountants for the Fund, providing audit services
and assistance and consultation with respect to the preparation of filings with
the SEC.
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NOTE: FITCH INVESTORS SERVICE, INC. AND IBCA, INC. MERGED ON DECEMBER 3, 1997
FORMING FITCH IBCA, INC. AS OF DECEMBER 24, 1997, FITCH IBCA, INC. WAS WORKING
ON ESTABLISHING NEW RATINGS CRITERIA FOR DEBT OBLIGATIONS.
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 based on
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 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.
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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 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-' 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
maintenance of other terms of the contract over any long period of time may be
small.
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Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Fitch Investors Service, Inc. Bond Ratings
Fitch investment grade bond and preferred stock 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 or preferred issue 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 and preferred stock carrying 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 and preferred stock considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and/or dividends and repay principal, which is unlikely to be affected
by reasonably foreseeable events.
AA Bonds and preferred stock considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest and/or
dividends and repay principal is very strong, although not quite as strong as
bonds rated 'AAA'. Because bonds and preferred stock 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 and preferred stock considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and/or dividends
and repay principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than debt or preferred
securities with higher ratings.
BBB Bonds and preferred stock considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest or
dividends 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 securities and, therefore, impair timely payment. The
likelihood that the ratings of these bonds or preferred will fall below
investment grade is higher than for securities with higher ratings.
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Fitch speculative grade bond or preferred stock 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 or dividends in accordance with the
terms of obligation for issues not in default. For defaulted bonds or
preferred stock, the rating ('DDD' to 'D') is an assessment of the ultimate
recovery value through reorganization or liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer or possible recovery value in
bankruptcy, 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 or preferred stock 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.
BB Bonds or preferred stock are considered speculative. The obligor's
ability to pay interest or dividends 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 or preferred stock are considered highly speculative. While
bonds in this class are currently meeting debt service requirements or paying
dividends, 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 or preferred stock have certain identifiable characteristics
that, if not remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC Bonds or preferred stock 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 or
suspension of preferred stock dividends is imminent.
DDD, DD,
and D Bonds are in default on interest and/or principal payments or
preferred stock dividends are suspended. Such securities 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 securities, 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. From time
to time, Duff & Phelps Credit Rating Co. places issuers or security classes on
Rating Watch. The Rating Watch Status results from a need to notify investors
and the issuer that there are conditions present leading us to re-evaluate the
current rating(s). A listing on Rating Watch, however, does not mean a rating
change is inevitable. The Rating Watch Status can either be resolved quickly
or over a longer period of time, depending on the reasons surrounding the
placement on Rating Watch. The "up" designation means a rating may be
upgraded; the "down" designation means a rating may be downgraded, and the
uncertain designation means a rating may be raised or lowered.
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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. Structured finance issues, including real estate,
asset-backed and mortgage-backed financings, use this same rating scale with
minor modification in the definitions. Thus, an investor can compare the
credit quality of investment alternatives across industries and structural
types. A "Cash Flow Rating" (as noted for specific ratings) addresses the
likelihood that aggregate principal and interest will equal or exceed the rated
amount under appropriate stress conditions.
Rating Scale Definition
AAA Highest credit quality. The risk factors are negligible, being only
slightly more
than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest,
but may
AA vary slightly from time to time because of economic conditions.
AA-
A+ Protection factors are average but adequate. However, risk factors are
more
A variable 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.
_______________________________________________________________________________
___________
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IBCA Long-Term Debt Ratings
AAA - Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk substantially.
AA - Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions may increase
investment risk, albeit not very significantly.
A - Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
BB - Obligations for which there is a possibility of investment risk
developing. Capacity for timely repayment of principal and interest exists,
but is susceptible over time to adverse changes in business, economic or
financial conditions.
B - Obligations for which investment risk exists. Timely repayment of
principal and interest is not sufficiently protected against adverse changes in
business, economic or financial conditions.
CCC - Obligations for which there is a current perceived possibility of
default. Timely repayment of principal and interest is dependent on favorable
business, economic or financial conditions.
CC - Obligations which are highly speculative or which have a high risk of
default.
C - Obligations which are currently in default.
Notes: "+" or "-" may be appended to a rating below AAA to denote
relative status within major rating categories. Ratings of BB and below are
assigned where it is considered that speculative characteristics are present.
Thomson BankWatch Long-Term Debt Ratings
Long-Term Debt Ratings assigned by Thomson BankWatch also weigh heavily
government ownership and support. The quality of both the company's management
and franchise are of even greater importance in the Long-Term Debt Rating
decisions. Long-Term Debt Ratings look out over a cycle and are not adjusted
frequently for what we believe are short-term performance aberrations.
Long-Term Debt Ratings can be restricted to local currency debt - ratings
will be identified by the designation LC. In addition, Long-Term Debt Ratings
may include a plus (+) or minus (-) to indicate where within the category the
issue is placed. BankWatch Long-Term Debt Ratings are based on the following
scale:
Investment Grade
AAA (LC-AAA) - Indicates that the ability to repay principal and interest
on a timely basis is extremely high.
AA (LC-AA) - Indicates a very strong ability to repay principal and
interest on a timely basis, with limited incremental risk compared to issues
rated in the highest category.
A (LC-A) - Indicates the ability to repay principal and interest is
strong. Issues rated A could be more vulnerable to adverse developments (both
internal and external) than obligations with higher ratings.
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BBB (LC-BBB) - The lowest investment-grade category; indicates an
acceptable capacity to repay principal and interest. BBB issues are more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
Non-Investment Grade - may be speculative in the likelihood of timely repayment
of principal and interest
BB (LC-BB) - While not investment grade, the BB rating suggests that the
likelihood of default is considerably less than for lower-rated issues.
However, there are significant uncertainties that could affect the ability to
adequately service debt obligations.
B (LC-B) - Issues rated B show higher degree of uncertainty and therefore
greater likelihood of default than higher-rated issues. Adverse developments
could negatively affect the payment of interest and principal on a timely
basis.
CCC (LC-CCC) - Issues rated CCC clearly have a high likelihood of default,
with little capacity to address further adverse changes in financial
circumstances.
CC (LC-CC) - CC is applied to issues that are subordinate to other
obligations rated CCC and are afforded less protection in the event of
bankruptcy or reorganization.
D (LC-D) - Default.
SHORT-TERM RATINGS
Standard & Poor's 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 are graded into several categories, ranging from 'A-1' for the
highest quality obligations to 'D' for the lowest. These categories are as
follows:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated 'A-1'.
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
B Issues rated 'B' are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with doubtful
capacity for payment.
D Debt rated 'D' is in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
Standard & Poor's Note Ratings
An 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:
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- - 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 treated as a note.
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 principal and interest, 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 Short-Term Ratings
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability
will often be evidenced by many of the following characteristics: (i) leading
market positions in well-established industries, (ii) high rates of return on
funds employed, (iii) conservative capitalization structure 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 supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
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.
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F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
'F-1+'.
F-2 Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment but the margin of safety is not as great
as for issues assigned 'F-1+' and 'F-1' ratings.
F-3 Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate;
however, near-term adverse changes could cause these securities to be rated
below investment grade.
F-S Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic conditions.
D Default. Issues assigned this rating are in actual or imminent payment
default.
LOC The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
Duff & Phelps, Inc. Short-Term Debt Ratings
Duff & Phelps' short-term ratings are consistent with the rating criteria
used 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.
The distinguishing feature of Duff & Phelps' short-term ratings is the
refinement of the traditional '1' category. The majority of short-term debt
issuers carry the highest rating, yet quality differences exist within that
tier. As a consequence, Duff & Phelps has incorporated gradations of '1+' (one
plus) and '1-' (one minus) to assist investors in recognizing those
differences.
From time to time, Duff & Phelps places issuers or security classes on
Rating Watch. The Rating Watch status results from a need to notify investors
and the issuer that there are conditions present leading us to re-evaluate the
current rating(s). A listing on Rating Watch, however, does not mean a rating
change is inevitable.
The Rating Watch status can either be resolved quickly or over a longer
period of time, depending on the reasons surrounding the placement on Rating
Watch. The "up" designation means a rating may be upgraded; the "down"
designation means a rating may be downgraded, and the "uncertain" designation
means a rating may be raised or lowered.
RATING SCALE: DEFINITION
HIGH GRADE
D-1+ Highest certainty of timely payment. Short-Term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.
D-1 Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
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GOOD GRADE
D-2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
SATISFACTORY GRADE
D-3 Satisfactory liquidity and other protection factors qualify issues as
to investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
NON-INVESTMENT GRADE
D-4 Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service. Operating factors and market access
may be subject to a high degree of variation.
DEFAULT
D-5 Issuer failed to meet scheduled principal and/or interest
payments.
Thomson BankWatch (TBW) Short-Term Ratings
The TBW Short-Term Ratings apply, unless otherwise noted, to specific debt
instruments of the rated entities with a maturity of one year or less. TBW
Short-Term Ratings are intended to assess the likelihood of an untimely or
incomplete payments 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.
Where issues possess a particularly strong credit feature, a rating of A1+
is assigned.
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.
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STRONG HERITAGE RESERVE SERIES, INC.
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
(1) Strong Heritage Money Fund (all included or incorporated by
reference 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
Report of Independent Accountants
Incorporated by reference to the Annual Report to Shareholders of the Strong
Heritage Money Fund dated February 28, 1997, pursuant to Rule 411 under the
Securities Act of 1933. (File Nos. 33-59361 and 811-7285)
(2) Strong 1st Step Money Fund
Inapplicable
(b) Exhibits
(1) Articles of Incorporation dated July 31, 1996(6)
(1.1) Amendment to Articles of Incorporation dated October 22,
1996(*)
(2) Bylaws dated October 20, 1995(4)
(3) Inapplicable
(4) Specimen Stock Certificate(2)
(5) Investment Advisory Agreement(3)
(6) Distribution Agreement(2)
(7) Inapplicable
(8) Custody Agreement(4)
(9) Shareholder Servicing Agent Agreement(4)
(10) Inapplicable
(11) Inapplicable
(12) Inapplicable
(13) Stock Subscription Agreement (1st Step Money Fund)
(14.1) Prototype Defined Contribution Retirement Plan - No. 1(5)
(14.1.1) Prototype Defined Contribution Retirement Plan - No. 2(5)
(14.2) Individual Retirement Custodial Account(5)
(14.3) Section 403(b)(7) Retirement Plan(5)
(14.4) Simplified Employee Pension Plan Brochure(6)
(15) Inapplicable
(16) Inapplicable
(17) Inapplicable
(18) Inapplicable
(19) Power of Attorney dated June 26, 1997(6)
(20) Inapplicable
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(21.1) Code of Ethics for Access Persons dated October 18,
1996(6)
(21.2) Code of Ethics for Non-Access Persons dated October 18,
1996(6)
____________________
(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.
(4) Incorporated herein by reference to Post-Effective Amendment No. 3 to
the Registration Statement on Form N-1A of Registrant filed on or about
December 22, 1995.
(5) Incorporated herein by reference to Post-Effective Amendment No. 4 to
the Registration Statement on Form N-1A of Registrant filed on or about April
24, 1996.
(6) Incorporated herein by reference to Post-Effective Amendment No. 5 to
the Registration Statement on Form N-1A of Registrant filed on or about June
27, 1996.
* To be filed by amendment.
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
Number of Record Holders
TITLE OF CLASS AS OF , 1998
Common Stock, $.00001 par value
Strong Heritage Money Fund
Strong 1st Step Money Fund
Item 27. INDEMNIFICATION
Officers and directors are insured under a joint errors and omissions
insurance policy underwritten by American International Group and Great
American Insurance Company in the aggregate amount of $80,000,000, subject to
certain deductions. Pursuant to the authority of the Wisconsin Business
Corporation Law, Article VII of Registrant's Bylaws provides as follows:
ARTICLE VII. INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 7.01. MANDATORY INDEMNIFICATION. The Corporation shall
indemnify, to the full extent permitted by the WBCL, as in effect from time to
time, the persons described in Sections 180.0850 through 180.0859 (or any
successor provisions) of the WBCL or other provisions of the law of the State
of Wisconsin relating to indemnification of directors and officers, as in
effect from time to time. The indemnification afforded such persons by this
section shall not be exclusive of other rights to which they may be entitled as
a matter of law.
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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
(a) STRONG HERITAGE MONEY FUND
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.
(b) STRONG 1ST STEP MONEY FUND
The information contained under "About the Fund - Management" in the
Prospectus and under "Directors and Officers of the Fund" 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 Government Securities Fund,
Inc.; Strong Heritage Reserve Series, Inc.; Strong High-Yield Municipal Bond
Fund, Inc.; Strong Income Funds, Inc.; Strong Institutional Funds, Inc.; Strong
International 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 Opportunity Fund II, Inc.;
Strong Schafer Funds, Inc.; Strong Schafer Value Fund, Inc.; Strong Short-Term
Bond Fund, Inc.; Strong Short-Term Global Bond Fund, Inc.; Strong Short-Term
Municipal Bond Fund, Inc.; Strong Total Return Fund, Inc.; and Strong Variable
Insurance Funds, Inc.
(b) STRONG HERITAGE MONEY FUND
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.
STRONG 1ST STEP MONEY FUND
The information contained under "About the Fund - Management" in the
Prospectus and under "Directors and Officers of the Fund" and "Investment
Advisor and Distributor" in the Statement of
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Additional Information is hereby incorporated by reference pursuant to Rule 411
under the Securities Act of 1933.
(c) Inapplicable
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 Vice President,
Thomas P. Lemke, 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.
4
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective No. 6 to the Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the Village of Menomonee Falls,
and State of Wisconsin on the 23rd day of December, 1997.
STRONG HERITAGE RESERVE SERIES, INC.
(Registrant)
By: /S/ THOMAS P. LEMKE
Thomas P. Lemke, Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 6 to the Registration Statement on Form N-1A has
been signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME TITLE DATE
- --------------------- ------------------------------------ -----------------
Vice President (Acting Principal
/s/ Thomas P. Lemke Executive Officer) December 23, 1997
- ---------------------
Thomas P. Lemke
/s/ Richard S. Strong Chairman of the Board and a Director December 23, 1997
- ---------------------
Richard S. Strong
Treasurer (Principal Financial and
/s/ John A. Flanagan Accounting Officer) December 23, 1997
- ---------------------
John A. Flanagan
Director December 23, 1997
- ---------------------
Marvin E. Nevins*
Director December 23, 1997
- ---------------------
Willie D. Davis*
Director December 23, 1997
- ---------------------
William F. Vogt*
Director December 23, 1997
- ---------------------
Stanley Kritzik*
</TABLE>
* John S. Weitzer signs this document pursuant to powers of attorney filed
with Post-Effective Amendment No. 5 to the Registration Statement on Form N-1A.
By: /S/ JOHN S. WEITZER
John S. Weitzer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
EDGAR
EXHIBIT NO. EXHIBIT EXHIBIT NO.
NONE
</TABLE>
1
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