<PAGE> 1
As filed with the Securities and Exchange Commission on or about
September 19, 1995
Securities Act Registration No. 33-61545
Investment Company Act Registration No. 811- 7335
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 1 [ X ]
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Post-Effective Amendment No. [ ]
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 1 [ X ]
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(Check appropriate box or boxes)
STRONG INSTITUTIONAL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
100 HERITAGE RESERVE
MENOMONEE FALLS, WISCONSIN 53051
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (414) 359-3400
THOMAS P. LEMKE
STRONG CAPITAL MANAGEMENT, INC.
100 HERITAGE RESERVE
MENOMONEE FALLS, WISCONSIN 53051
(Name and Address of Agent for Service)
Copies to:
SCOTT A. MOEHRKE
GODFREY & KAHN, S.C.
780 NORTH WATER STREET
MILWAUKEE, WISCONSIN 53202
Approximate Date of Proposed Public Offering: As soon as practicable
after the Registration Statement becomes effective.
In accordance with Rule 24f-2(a)(1) under the Investment Company Act
of 1940, Registrant has previously elected to register an indefinite number of
shares of its common stock, $.01 par value.
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STRONG INSTITUTIONAL FUNDS, INC.
CROSS REFERENCE SHEET
FOR STRONG INSTITUTIONAL MONEY FUND
(Pursuant to Rule 481 showing the location in the Prospectus and the
Statement of Additional Information of the responses to the Items of Parts A
and B of Form N-1A.)
<TABLE>
<CAPTION>
CAPTION OR SUBHEADING IN PROSPECTUS OR
ITEM NO. ON FORM N-1A STATEMENT OF ADDITIONAL INFORMATION
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PART A - INFORMATION REQUIRED IN PROSPECTUS
<S> <C>
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
5. Management of the Fund About the Fund
5A. Management's Discussion of Fund Performance Inapplicable
6. Capital Stock and Other Securities About the Fund;
Additional Information
7. Purchase of Securities Being Offered How to Buy Shares,
Determining Your Share Price,
Additional Information
8. Redemption or Repurchase How to Sell Shares, Determining Your
Share Price, Additional Information
9. Pending Legal Proceedings Inapplicable
PART B - INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL
INFORMATION
10. Cover Page Cover page
11. Table of Contents Table of Contents
12. General Information and History *
13. Investment Objectives and Policies Investment Restrictions; Investment
Policies and Techniques
14. Management of the Fund Directors and
Officers of the Corporation
15. Control Persons and Principal Holders Principal Shareholders; Directors
of Securities and Officers of the Corporation;
Investment Advisor and Distributor
16. Investment Advisory and Other Services Investment Advisor and Distributor; About the
Fund (in Prospectus); Custodian; Transfer Agent and
Dividend-Disbursing Agent; Independent Accountants;
Legal Counsel
</TABLE>
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<TABLE>
<CAPTION>
CAPTION OR SUBHEADING IN PROSPECTUS OR
ITEM NO. ON FORM N-1A STATEMENT OF ADDITIONAL INFORMATION
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<S> <C>
17. Brokerage Allocation and Other Practices Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities Included in Prospectus under the heading
About the Fund and in the Statement of Additional
Information under the heading Shareholder Meetings
19. Purchase, Redemption and Pricing of Securities Included in Prospectus under the headings:
Being Offered How to Buy Shares, Determining Your Share Price, How to
Sell Shares, Additional Information; and in the Statement of
Additional Information under the headings: Investment
Advisor and Distributor; Determination of Net Asset Value;
and Shareholder Information
20. Tax Status Included in Prospectus under the heading
About the Fund; and in the Statement of Additional
Information under the heading Taxes
21. Underwriters Investment Advisor and Distributor
22. Calculation of Performance Data Performance Information
23. Financial Statements Statement of Assets and Liabilities
</TABLE>
* Complete answer to Item is contained in Strong Institutional Money
Fund's Prospectus.
<PAGE> 4
Prospectus
STRONG INSTITUTIONAL MONEY FUND
The Strong Institutional Money Fund is a diversified, no-load series of
Strong Institutional Funds, Inc., an open-end management investment company. The
Strong Institutional Money Fund seeks current income, a stable share price, and
daily liquidity. The Fund invests in corporate, bank, and government instruments
that present minimal credit risk. The Fund is designed to provide access to the
professional investment management services offered by Strong Capital
Management, Inc., the Fund's investment advisor. Shares of the Fund are offered
primarily for direct investment by investors such as corporations, pension and
profit-sharing plans, employee benefit trusts, endowments, foundations, and
other institutions.
Additional Information: 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 September
21, 1995, contains further information, is incorporated by reference into this
Prospectus, and has been filed with the Securities and Exchange Commission
("SEC"). This Statement, which may be revised from time to time, is available
without charge by writing to Strong Capital Management, P.O. Box 782, Milwaukee,
Wisconsin 53201-0782 or by calling (800) 733-CASH(2274).
AN INVESTMENT IN THE STRONG INSTITUTIONAL MONEY FUND IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE FUND
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAP-
PROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECU-
RITIES AND EXCHANGE COMMISSION OR ANY STATE SECURI-
TIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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TOLL FREE: 800-733-CASH(2274)
September 21, 1995
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TABLE OF CONTENTS
<TABLE>
<S> <C>
EXPENSES..................................... 3
INVESTMENT OBJECTIVE AND POLICIES............ 4
IMPLEMENTATION OF POLICIES AND RISKS......... 5
ABOUT THE FUND............................... 9
DETERMINING YOUR SHARE PRICE................. 12
HOW TO BUY SHARES............................ 12
HOW TO SELL SHARES........................... 13
ADDITIONAL INFORMATION....................... 14
</TABLE>
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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 Fee.............................. NONE
Exchange Fee................................ NONE
</TABLE>
Purchases and redemptions may also be made through broker-dealers or
financial institutions who may charge a commission or other transaction fee for
their services.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
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Management Fee.............................. .15%
Other Expenses.............................. .06%
Administrative Services Fee................. NONE
12b-1 Fees.................................. NONE
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Total Operating Expenses (with waiver)...... .21%
</TABLE>
STRONG CAPITAL MANAGEMENT, INC., (THE "ADVISOR") VOLUNTARILY HAS AGREED TO
MAINTAIN THE FUND'S TOTAL OPERATING EXPENSES AT NO MORE THAN .21%. Had the
reduction of the management fee otherwise payable not been reflected in the
above table, the management fee payable by the Fund would be .35% of average
daily net assets, and the total operating expenses payable by the Fund would be
.41%. The Advisor has no current intention to, but may in the future,
discontinue or modify any waiver of fees or absorption of expenses at its
discretion without further notification. Since the Fund is new and did not
commence operations until September 21, 1995, the Other Expenses have been
estimated. For additional information concerning fees and expenses, see "About
the Fund -- Management."
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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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<CAPTION>
Period (in years)
Fund 1 3
<S> <C> <C>
Strong Institutional Money Fund $2 $7
</TABLE>
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The Example is based on the Fund's "Total Operating Expenses", as described
above. PLEASE REMEMBER THAT THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND THAT ACTUAL EXPENSES MAY BE HIGHER
OR LOWER THAN THOSE SHOWN. The assumption in the Example of a 5% annual return
is required by regulations of the SEC applicable to all mutual funds. The
assumed 5% annual return is not a prediction of, and does not represent, the
projected or actual performance of the Fund's shares.
INVESTMENT OBJECTIVE AND POLICIES
The Fund has adopted certain fundamental investment restrictions that are
designed to reduce the Fund's investment risk. A complete list of these and
other operating policies are set forth in the Fund's Statement of Additional
Information ("SAI"). To further guide investment activities, the Fund has also
instituted a number of non-fundamental operating policies, which are described
throughout this Prospectus and in the SAI. Although operating policies may be
changed by the Board of Directors for Strong Institutional Funds, Inc. without
shareholder approval, the Fund will promptly notify shareholders of any material
change in operating policies. Because of the risks inherent in all investments,
there can be no assurance that the Fund will meet its objective, which is
discussed below.
STRONG INSTITUTIONAL MONEY FUND
The Fund seeks current income, a stable share price, and daily liquidity. The
Fund is designed for institutional investors who are seeking a high rate of
return, a stable net asset value, and convenient liquidation privileges. The
Fund's minimum account size is $2,000,000.
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
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required or permitted by Rule 2a-7 under the Investment Company Act of 1940
(the "1940 Act") for money market funds. Accordingly, the Fund:
(i) limits its average portfolio maturity to ninety days or less;
(ii) buys only securities with remaining maturities of thirteen months or
less; and
(iii) buys only U.S. dollar-denominated securities that present minimal
credit risk and are "high quality," as described below.
The Fund invests only in high-quality securities. Accordingly, the Fund will
invest at least 95% of its total assets in "first-tier" securities, generally
defined as those securities that, at the time of acquisition, are rated in the
highest rating category by at least two nationally recognized statistical rating
organizations ("NRSROs") or, if unrated, are determined by the Advisor to be of
comparable quality. The balance of the Fund, up to 5% of its total assets, may
be invested in securities that are considered "second-tier" securities,
generally defined as those securities that, at the time of acquisition, are
rated in the second-highest rating category or are determined by the Advisor to
be of comparable quality. (See the SAI for a description of ratings.)
Because the Fund seeks to maintain a constant net asset value of $1.00 per
share, capital appreciation is not expected to play a role in the Fund's
returns, and dividend income alone will provide its entire investment return.
All money market instruments can change in value when interest rates or an
issuer's creditworthiness change dramatically. THE FUND CANNOT GUARANTEE THAT IT
WILL ALWAYS BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. An
investment in the Fund is neither insured nor guaranteed by the U.S. government.
IMPLEMENTATION OF POLICIES
AND RISKS
In addition to the investment policies described above (and subject to
certain restrictions described below), the Fund may invest in the following
securities and may employ the following investment techniques, some of which may
present special risks as described below. 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 obligations, including bonds, debentures, and notes; (ii)
bank obligations, such as certificates of deposit, banker's acceptances, and
time deposits of domestic and foreign banks and their subsidiaries and
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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.
ASSET-BACKED DEBT OBLIGATIONS. The Fund may invest in asset-backed debt
obligations. Asset-backed debt obligations represent direct or indirect
participation in, or secured by and payable from, assets such as motor vehicle
installment sales contracts, other installment loan contracts, home equity
loans, leases of various types of property and receivables from credit card or
other revolving credit arrangements. Payments or distributions of principal and
interest on asset-backed debt obligations may be supported by non-governmental
credit enhancements including letters of credit, reserve funds,
overcollateralization, and guarantees by third parties.
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MUNICIPAL OBLIGATIONS. The Fund may invest in municipal debt obligations
issued by or on behalf of states, territories, and possessions of the United
States and the District of Columbia and their political subdivisions, agencies,
and instrumentalities. Municipal obligations generally include debt obligations
issued to obtain funds for various public purposes. Certain types of municipal
obligations are issued in whole or in part to obtain funding for privately
operated facilities or projects. Municipal obligations include general
obligation bonds, revenue bonds, industrial development bonds, notes, and
municipal lease obligations.
FOREIGN SECURITIES
The Fund may invest up to 25% of its total assets directly in foreign
securities. In accordance with Rule 2a-7 under the 1940 Act, the Fund will limit
its investments in foreign securities to those denominated in U.S. dollars.
Foreign investments involve special risks, including:
- expropriation, confiscatory taxation, and withholding taxes on dividends and
interest;
- less extensive regulation of foreign brokers, securities markets, and issuers;
- less publicly available information and different accounting standards;
- possible delays in settlement in foreign securities markets, limitations on
the use or transfer of assets, and difficulty of enforcing obligations in
other countries; and
- diplomatic developments and political or social instability.
Foreign economies may differ favorably or unfavorably from the U.S. economy
in various respects, including growth of gross domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource
self-sufficiency, and balance of payments positions. Many foreign securities are
less liquid and their prices more volatile than comparable U.S. securities.
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
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<PAGE> 11
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 without limitation in securities purchased on a when-
issued or delayed delivery basis. Although the payment and interest terms of
these securities are established at the time the purchaser enters into the
commitment, these securities may be delivered and paid for at a future date,
generally within 45 days. Purchasing when-issued securities allows the Fund to
lock in a fixed price or yield on a security it intends to purchase. However,
when the Fund purchases a when-issued security, it immediately assumes the risk
of ownership, including the risk of price fluctuation until the settlement date.
The greater the Fund's outstanding commitments for these securities, the
greater the exposure to potential fluctuations in the net asset value of the
Fund. Purchasing when-issued securities may involve the additional risk that the
yield available in the market when the delivery occurs may be higher or the
market price lower than that obtained at the time of commitment. Although the
Fund may be able to sell these securities prior to the delivery date, it will
purchase when-issued securities for the purpose of actually acquiring the
securities, unless, after entering into the commitment, a sale appears desirable
for investment reasons. When required by SEC guidelines, the Fund will set aside
permissible liquid assets in a segregated account to secure its outstanding
commitments for when-issued securities.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its net assets in illiquid securities.
Illiquid securities are those securities that are not readily marketable,
including restricted securities and repurchase obligations maturing in more than
seven days. Certain restricted securities which may be resold to institutional
investors under Rule 144A under the Securities Act of 1933 and Section 4(2)
commercial paper may be determined to be liquid under guidelines adopted by the
Corporation's Board of Directors.
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<PAGE> 12
ABOUT THE FUND
MANAGEMENT
The Board of Directors of the Fund is responsible for managing its business
and affairs. The Fund has entered into an investment advisory agreement with
Strong Capital Management, Inc. (the "Advisor"). Under the terms of the
agreement, the Advisor manages the Fund's investments and business affairs
subject to the supervision of the Fund's Board of Directors.
ADVISOR. The Advisor began conducting business in 1974. Since then, its
principal business has been providing continuous investment supervision for
individuals and institutional accounts, such as pension funds and profit-sharing
plans, as well as mutual funds, seven of which are funding vehicles for variable
insurance products. As of August 31, 1995, the Advisor had over $14 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
Strong Institutional Funds, Inc. (the "Corporation"), is the controlling
shareholder of the Advisor.
As compensation for its services, the Fund pays the Advisor a monthly
management fee based on a percentage of the Fund's average daily net asset
value. The annual rate is .35%. The Advisor has voluntarily agreed to waive its
management fee to .15% of average daily net assets. The Advisor has no current
intention to, but may in the future, discontinue or modify any of such waiver at
its discretion. 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.
Except for expenses assumed by the Advisor or Strong Funds Distributors,
Inc., the Fund is responsible for all its other expenses, including, without
limitation, interest charges, taxes, brokerage commissions, and similar
expenses; expenses of issue, sale, repurchase, or redemption of shares; expenses
of registering or qualifying shares for sale with the states and the SEC;
expenses of printing and distribution costs of prospectuses to existing
shareholders; charges of custodians (including fees as custodian for keeping
books and similar services for a Fund), transfer agents (including the printing
and mailing of reports and notices to shareholders), registrars, auditing and
legal services, and clerical services related to record keeping and shareholder
relations; printing of stock certificates; fees for directors who are not
"interested persons" of the Advisor; expenses of indemnification; extraordinary
expenses; and costs of shareholder and director meetings.
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PORTFOLIO MANAGER. Mr. Jay N. Mueller serves as the portfolio manager for the
Fund. Mr. Mueller joined the Advisor in September 1991 as a securities analyst
and portfolio manager. For four years prior to that, he was a securities analyst
and portfolio manager with R. Meeder & Associates of Dublin, Ohio. Mr. Mueller
received his bachelor's degree in economics in 1982 from the University of
Chicago. Mr. Mueller is also a Chartered Financial Analyst. Mr. Mueller has
managed the Fund since its inception in September 1995. He also manages the
Strong Money Market Fund, Strong U.S. Treasury Money Fund, and Strong Heritage
Money Fund.
TRANSFER AND DIVIDEND-DISBURSING AGENT
The Advisor, P.O. Box 2936, Milwaukee, Wisconsin 53201, also acts as
dividend-disbursing agent and transfer agent for the Fund. As compensation for
these services, the Fund pays the Advisor a monthly fee based on a percentage of
the Fund's average daily net asset value. The annual rate is .03%. 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
agreement between the Advisor and the Fund.
DISTRIBUTOR
Strong Funds Distributors, Inc., P.O. Box 2936, Milwaukee, Wisconsin 53201,
an indirect subsidiary of the Advisor, acts as distributor of the shares of the
Fund.
ORGANIZATION
SHAREHOLDER RIGHTS. The Fund is a series of Common Stock of the Corporation,
a Wisconsin corporation that is authorized to issue shares of Common Stock and
series and classes of series of shares of Common Stock. Each share of the Fund
has one vote, and all shares participate equally in dividends and other capital
gains distributions and in the residual assets of the Fund in the event of
liquidation. Generally, the Fund will not hold an annual meeting of shareholders
unless required by the 1940 Act. Shareholders have certain rights, including the
right to call a meeting upon a vote of 10% of the Fund's outstanding shares for
the purpose of voting to remove one or more directors or to transact any other
business.
SHAREHOLDER PRIVILEGES. The Fund reserves the right, at any time and without
prior notice, to suspend, limit, modify, or terminate any shareholder privilege
discussed in this prospectus or their use in any manner by any person or class.
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DISTRIBUTIONS AND TAXES
PAYMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS. Dividends from the Fund
automatically will be reinvested in additional shares of the Fund at the net
asset value determined on the payment date. If you request in writing that your
dividends be paid in cash, the Fund will credit your bank account by Electronic
Funds Transfer ("EFT") or issue a check to you within five business days of the
payment date. You may change your election at any time by calling or writing
Strong Funds. Strong Funds must receive any such change 7 days (15 days for EFT)
prior to a dividend or capital gain distribution payment date in order for the
change to be effective for that payment.
The policy of the Fund is to pay dividends from net investment income
monthly. The Fund declares dividends on each day its net asset value is
calculated. Income earned on weekends, holidays, and other days on which net
asset value is not calculated is declared as a dividend on the day on which the
Fund's net asset value was most recently calculated.
TAX STATUS OF DIVIDENDS. You will be subject to federal income tax at
ordinary income tax rates on any dividends you receive.
The Fund's distributions are taxable in the year they are paid, whether they
are taken in cash or reinvested in additional shares, except that certain
distributions declared in the last three months of the year and paid in January
are taxable as if paid on December 31. All state laws provide a pass-through to
mutual fund shareholders of the state and local income tax exemption afforded
owners of direct U.S. government obligations, although there are conditions to
this treatment in some states. You will be notified annually of the percentage
of the Fund's income that is derived from U.S. government securities.
YEAR-END TAX REPORTING. After the end of each calendar year, you will receive
a statement (Form 1099) of the federal income tax status of all dividends paid
(or deemed paid) during the year.
SHARES SOLD. If you redeem all shares in an account at any time during a
month, dividends credited to the account since the beginning of the month
through the day of redemption will be paid the day after the redemption proceeds
are paid.
TAX STATUS OF THE FUND. The Fund intends to qualify for treatment as a
regulated investment company under Subchapter M of the Internal Revenue Code
and, if so qualified, will not be liable for federal income tax on earnings
timely distributed to its shareholders.
This section is not intended to be a full discussion of present or proposed
federal income tax law and its effects on the Fund and investors therein. See
the SAI for a further discussion. There may be other federal, state, or local
tax
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considerations applicable to a particular investor. You are therefore urged to
consult your own tax advisor.
PERFORMANCE INFORMATION
The Fund may advertise "yield," "effective yield," "average annual total
return," "total return," and "cumulative total return." Each of these figures is
based upon historical results and is not necessarily representative of the
future performance of the Fund.
Yield is an annualized figure, which means that it is assumed that the Fund
generates the same level of net investment income over a one-year period. The
Fund's yield and effective yield are measures of the net investment income per
share earned by the Fund over a specific seven-day period and are shown as a
percentage of the investment. However, effective yield will be slightly higher
than the yield because effective yield assumes that the net investment income
earned by the Fund will be reinvested.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in the Fund assuming
the reinvestment of all dividends. Total return figures are not annualized and
simply represent the aggregate change of the Fund's investments over a specified
period of time.
DETERMINING YOUR SHARE PRICE
The net asset value ("NAV") for the Fund is normally determined as of 12:00
noon Central Time ("CT") each day the New York Stock Exchange (the "Exchange")
is open. The Fund reserves the right to change the time at which purchases and
redemptions are priced if the Exchange closes at a time prior to 12:00 noon 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 NAV.
The Fund attempts to stabilize the NAV of its shares at $1.00 by valuing the
portfolio securities using the amortized cost method. Under this method, 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. THE
FUND CANNOT GUARANTEE THAT ITS NET ASSET VALUE WILL ALWAYS REMAIN AT $1.00 PER
SHARE.
HOW TO BUY SHARES
An institutional investor may purchase shares at the net asset value next
determined after an order is received in proper form. Although the Fund does
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not impose any sales charge in connection with the purchase of its shares,
institutions may charge their clients fees in connection with purchases for
their accounts. The Fund may decline to accept your order when, in the judgment
of the Advisor, it would not be in the best interests of the existing
shareholders. The Fund may discontinue offering its shares at any time or in any
particular state without notice to shareholders. Shares must be purchased by
wire.
An initial investment in the Fund's shares must be preceded or accompanied by
a completed, signed application and the Fund's prospectus. The application
should be forwarded to: Strong Institutional Investor Services, 100 Heritage
Reserve, P.O. Box 782, Milwaukee, Wisconsin 53201-0782 (or fax to 414-359-3535).
The original application must be on file with the Fund's transfer agent before a
redemption will be processed. The Fund reserves the right to refuse any purchase
at any time.
To purchase by wire, place an order by calling 1-800-733-CASH(2274) before
12:00 noon CT. Payment by federal funds must be received by Firstar Bank
Milwaukee, N.A., the Fund's agent, by 2:30 p.m. CT (3:30 EST) that day. The
order is considered received when Firstar Bank Milwaukee receives the wire in
good order. Federal funds should be wired as follows:
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, WI 53202
ABA routing number: 075000022
Account number: 112737-090
For Further Credit to: (insert your
Strong Institutional Money Fund account number
and registration)
<TABLE>
<CAPTION>
If wire is received: Dividends Begin
------------------------- ------------------
<S> <C>
By 2:30 p.m. CT Same Business Day
After 2:30 p.m. CT Next Business Day
</TABLE>
HOW TO SELL SHARES
An institutional investor may redeem shares at the net asset value next
determined after an order is received in proper form by the Fund's transfer
agent. Although the Fund does not impose any sales charge in connection with the
redemption of its shares, institutions may charge their clients fees in
connection with redemptions for their accounts. Shares must be redeemed by wire.
Wire fees are absorbed by the Fund and are a Fund expense.
To redeem by wire, place an order by calling 1-800-733-CASH(2274) before
12:00 noon CT (1:00 EST). TO REDEEM BY TELEPHONE, THE "YES" BOX IN THE
APPROPRIATE SECTION OF THE ACCOUNT APPLICATION MUST BE CHECKED.
---------------------
13
<PAGE> 17
In accordance with the following, redemption proceeds will be wired to the
bank account(s) designated on a shareholder's application. All redemption
proceeds will ordinarily be wired the same or next business day, but in no event
more than seven days, after receipt of a redemption request.
<TABLE>
<CAPTION>
Redemption request received by Redemption
Strong Institutional Funds proceeds ordinarily Dividends
------------------------------ ----------------------- -----------------
<S> <C> <C>
By 12:00 noon CT Wired Same Business Day Not earned on Day
request is
received
After 12:00 noon CT Wired Next Business Day Earned on Day
request is
received
</TABLE>
WHAT YOU SHOULD KNOW ABOUT REDEEMING SHARES
Shares may be redeemed via telephone or written instructions. 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.
You may redeem shares in writing by mailing or faxing a signature guaranteed
request to Strong Institutional Funds at the address or number on the back of
this prospectus.
ADDITIONAL INFORMATION
TELEPHONE INSTRUCTIONS
The Fund reserves the right to refuse a telephone instruction if it believes
it advisable to do so. Once you place your telephone instruction, 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 they do
not follow these procedures. Because of increased telephone volume, you may
experience difficulty in implementing a telephone redemption during periods of
dramatic economic or market changes.
---------------------
14
<PAGE> 18
ADVANCE NOTICE OF LARGE TRANSACTIONS
To allow the Advisor to manage the Fund most effectively, investors are
strongly urged to initiate all purchases and redemptions as early in the day as
possible and to notify the Advisor at least one day in advance of transactions
in excess of $5 million. In making advance notification of a purchase or
redemption transaction, an investor must provide the Advisor with its name and
account number. To protect the Fund's performance and shareholders, the Advisor
discourages frequent trading in response to short-term market fluctuations.
REDEMPTIONS IN KIND
If the Advisor determines that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in securities
or other financial assets, valued for this purpose as they are valued in
computing the NAV for the Fund's shares. Shareholders receiving securities or
other financial assets on redemption may realize a gain or loss for tax
purposes, and will incur any costs of sale, as well as the associated
inconveniences. If you expect to make a large redemption and would like to avoid
any possibility of being paid in securities, you may do so by providing Strong
with an unconditional instruction to redeem at least 15 days prior to the date
on which the redemption transaction is to occur. The instructions must specify
the dollar amount or number of shares to be redeemed and the date of the
transaction. Receipt of your instruction 15 days prior to the transaction
provides the Fund with sufficient time to raise the cash in an orderly manner to
pay the redemption and thereby minimizes the effect of the redemption.
MINIMUM INVESTMENT AND ACCOUNT BALANCE
The minimum initial investment to establish a new account in the Fund is $2
million. Subsequent transactions may be made in any amount. If an account
balance falls below $2 million due to redemption, the account may be closed and
the proceeds wired to the bank account of record. An investor will be given 30
days' notice that the account will be closed unless an additional investment is
made to increase the account balance to the $2 million minimum.
CERTIFICATES, STATEMENTS, AND REPORTS
The Fund does not issue share certificates. The Fund will send investors a
confirmation statement after every transaction (except a reinvestment of
dividends or capital gains) on an account, and will confirm all transactions for
an account on a quarterly basis. 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.
---------------------
15
<PAGE> 19
Call 1-800-733-CASH(2274) 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.
SIGNATURE GUARANTEES
Investors requesting (i) a written redemption of $25,000 or more, (ii) a
redemption of any amount to be sent to an address other than that on record with
the Fund, (iii) a redemption payable other than to the shareholder of record,
(iv) a change in the account's registration must have their signatures
guaranteed by any eligible guarantor institution, as defined by the SEC, or (v)
a change or addition to a preauthorized bank address. These institutions include
banks, savings associations, credit unions, brokerage firms, and others. Please
note that a notary public stamp or seal is not acceptable.
----------------------------------------------------------------------------
STRONG INSTITUTIONAL INVESTOR SERVICES
P.O. BOX 782
MILWAUKEE, WI 53201-0782
TOLL FREE: 800-733-CASH(2274)
FACSIMILE: 414-359-3535
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.
---------------------
16
<PAGE> 20
STATEMENT OF ADDITIONAL INFORMATION
STRONG INSTITUTIONAL MONEY FUND
P.O. Box 2936
Milwaukee, Wisconsin 53201
Toll-Free: (800) 773-2274
Strong Institutional Money Fund (the "Fund") is a diversified series
of Strong Institutional Funds, Inc. (the "Corporation"), an open-end management
investment company. This Statement of Additional Information ("SAI") is not a
Prospectus and should be read in conjunction with the Prospectus of the Fund,
dated September 21, 1995. Requests for copies of the Prospectus should be made
by writing to the Fund at P.O. Box 2936, Milwaukee, Wisconsin 53201,
Attention: Corporate Secretary, or by calling one of the numbers listed above.
This Statement of Additional Information is dated September 21, 1995.
<PAGE> 21
STRONG INSTITUTIONAL MONEY FUND
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . . . . . . . . . . . . . . . . 5
Rule 2a-7: Maturity, Quality, and Diversification Restrictions . . . . . . . . . 5
Illiquid Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
When-Issued Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Lending of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . 7
Variable- or Floating-Rate Securities . . . . . . . . . . . . . . . . . . . . . 7
Asset-Backed Debt Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 8
Municipal Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
DIRECTORS AND OFFICERS OF THE CORPORATION . . . . . . . . . . . . . . . . . . . . . . 9
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
INVESTMENT ADVISOR AND DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . 12
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . 13
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT . . . . . . . . . . . . . . . . . . . . 15
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ADDITIONAL SHAREHOLDER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 17
FUND ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SHAREHOLDER MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PORTFOLIO MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
LEGAL COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
STATEMENT OF ASSETS AND LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . 24
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
No person has been authorized to give any information or to make any
representations other than those contained in this SAI and the Prospectus dated
September 21, 1995 and, if given or made, such information or representations
may not be relied upon as having been authorized by the Fund.
This SAI does not constitute an offer to sell securities.
<PAGE> 22
INVESTMENT RESTRICTIONS
The investment objective of the Strong Institutional Money Fund is to
seek current income, a stable share price, and daily liquidity. The Fund's
investment objective and policies are described in detail in the Prospectus
under the caption "Investment Objective and Policies." The following are the
Fund's fundamental investment limitations which cannot be changed without
shareholder approval.
The Fund:
1. May not with respect to 75% of its total assets, purchase the
securities of any issuer (except securities issued or guaranteed by
the U.S. government or its agencies or instrumentalities) if, as a
result, (i) more than 5% of the Fund's total assets would be invested
in the securities of that issuer, or (ii) the Fund would hold more
than 10% of the outstanding voting securities of that issuer.
2. May (i) borrow money from banks and (ii) make other investments or
engage in other transactions permissible under the Investment Company
Act of 1940 (the "1940 Act") which may involve a borrowing, provided
that the combination of (i) and (ii) shall not exceed 33 1/3% of the
value of the Fund's total assets (including the amount borrowed), less
the Fund's liabilities (other than borrowings), except that the Fund
may borrow up to an additional 5% of its total assets (not including
the amount borrowed) from a bank for temporary or emergency purposes
(but not for leverage or the purchase of investments). The Fund may
also borrow money from the other Strong Funds or other persons to the
extent permitted by applicable law.
3. May not issue senior securities, except as permitted under the 1940
Act.
4. May not act as an underwriter of another issuer's securities, except
to the extent that the Fund may be deemed to be an underwriter within
the meaning of the Securities Act of 1933 in connection with the
purchase and sale of portfolio securities.
5. May not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall
not prevent the Fund from purchasing or selling options, futures
contracts, or other derivative instruments, or from investing in
securities or other instruments backed by physical commodities).
6. May not make loans if, as a result, more than 33 1/3% of the Fund's
total assets would be lent to other persons, except through (i)
purchases of debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.
7. May not purchase the securities of any issuer if, as a result, more
than 25% of the Fund's total assets would be invested in the
securities of issuers, the principal business activities of
which are in the same industry. This limitation shall not
limit the Fund's purchases of obligations issued by domestic banks.
8. May not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prohibit the Fund from purchasing or selling securities or other
instruments backed by real estate or of issuers engaged in real estate
activities).
9. May, notwithstanding any other fundamental investment policy or
restriction, invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objective, policies, and restrictions as the
Fund.
-3-
<PAGE> 23
The following are the Fund's non-fundamental operating policies which
may be changed by the Board of Directors of the Corporation without shareholder
approval.
The Fund may not:
1. Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short,
or unless it covers such short sale as required by the current rules
and positions of the Securities and Exchange Commission or its staff,
and provided that transactions in options, futures contracts, options
on futures contracts, or other derivative instruments are not deemed
to constitute selling securities short.
2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions;
and provided that margin deposits in connection with futures
contracts, options on futures contracts, or other derivative
instruments shall not constitute purchasing securities on margin.
3. Invest in illiquid securities if, as a result of such investment, more
than 10% of its net assets would be invested in illiquid securities,
or such other amounts as may be permitted under the 1940 Act.
4. Purchase securities of other investment companies except in compliance
with the 1940 Act and applicable state law.
5. Invest all of its assets in the securities of a single open-end
investment management company with substantially the same fundamental
investment objective, restrictions and policies as the Fund.
6. Purchase the securities of any issuer (other than securities issued or
guaranteed by domestic or foreign governments or political
subdivisions thereof) if, as a result, more than 5% of its total
assets would be invested in the securities of issuers that, including
predecessor or unconditional guarantors, have a record of less than
three years of continuous operation. This policy does not apply to
securities of pooled investment vehicles or mortgage or asset-backed
securities.
7. Invest in direct interests in oil, gas, or other mineral exploration
programs or leases; however, the Fund may invest in the securities of
issuers that engage in these activities.
8. Engage in futures or options on futures transactions which are
impermissible pursuant to Rule 4.5 under the Commodity Exchange Act
and, in accordance with Rule 4.5, will use futures or options on
futures transactions solely for bona fide hedging transactions (within
the meaning of the Commodity Exchange Act), provided, however, that
the Fund may, in addition to bona fide hedging transactions, use
futures and options on futures transactions if the aggregate initial
margin and premiums required to establish such positions, less the
amount by which any such options positions are in the money (within
the meaning of the Commodity Exchange Act), do not exceed 5% of the
Fund's net assets.
In addition, (i) the aggregate value of securities underlying call
options on securities written by the Fund or obligations underlying
put options on securities written by the Fund determined as of the
date the options are written will not exceed 50% of the Fund's net
assets; (ii) the aggregate premiums paid on all options purchased by
the Fund and which are being held will not exceed 20% of the Fund's
net assets; (iii) the Fund will not purchase put or call options,
other than hedging positions, if, as a result thereof, more than 5% of
its total assets would be so invested; and (iv) the aggregate margin
deposits required on all futures and options on futures transactions
being held will not exceed 5% of the Fund's total assets.
9. Pledge, mortgage or hypothecate any assets owned by the Fund except as
may be necessary in connection with permissible borrowings or
investments and then such pledging, mortgaging, or hypothecating may
not exceed 33 1/3% of the Fund's total assets at the time of the
borrowing or investment.
10. Purchase or retain the securities of any issuer if any officer or
director of the Fund or its investment advisor beneficially owns more
than 1/2 of 1% of the securities of such issuer and such officers and
directors together own beneficially more than 5% of the securities of
such issuer.
-4-
<PAGE> 24
11. Purchase warrants, valued at the lower of cost or market value, in
excess of 5% of the Fund's net assets. Included in that amount, but
not to exceed 2% of the Fund's net assets, may be warrants that are
not listed on any stock exchange. Warrants acquired by the Fund in
units or attached to securities are not subject to these restrictions.
12. Borrow money except (i) from banks or (ii) through reverse repurchase
agreements or mortgage dollar rolls, and will not purchase securities
when bank borrowings exceed 5% of its total assets.
13. Make any loans other than loans of portfolio securities, except
through (i) purchases of debt securities or other debt instruments, or
(ii) engaging in repurchase agreements.
14. Engage in any transaction or practice which is not permissible under
Rule 2a-7 of the 1940 Act, notwithstanding any other fundamental
investment limitation or non-fundamental operating policy.
Except for the fundamental investment limitations listed above and the
Fund's investment objective, the other investment policies described in the
Prospectus and this SAI are not fundamental and may be changed with approval of
the Fund's Board.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Fund's
investment objective, policies and techniques that are described in detail in
the Prospectus under the captions "Investment Objective and Policies" and
"Implementation of Policies and Risks."
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). The Fund will buy only
U.S. dollar-denominated securities which represent minimal credit risks and
meet certain credit quality and diversification requirements. For purposes of
calculating the maturity of portfolio instruments, the Fund will follow the
requirements of Rule 2a-7. Under Rule 2a-7, the maturity of portfolio
instruments is calculated as indicated below.
Generally, the maturity of a portfolio instrument shall be deemed to
be the period remaining (calculated from the trade date or such other date on
which the Fund's interest in the instrument is subject to market action) until
the date noted on the face of the instrument as the date on which the principal
amount must be paid, or in the case of an instrument called for redemption, the
date on which the redemption payment must be made, except that:
(1) An instrument that is issued or guaranteed by the U.S. government
or any agency thereof which has a variable rate of interest readjusted no less
frequently than every 762 days shall be deemed to have a maturity equal to the
period remaining until the next readjustment of the interest rate.
(2) A Variable Rate Instrument, the principal amount of which is
scheduled on the face of the instrument to be paid on 397 calendar days or less
shall be deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
(3) A Variable Rate Instrument that is subject to a Demand Feature
shall be deemed to have a maturity equal to the longer of the period remaining
until the next readjustment of the interest rate or the period remaining until
the principal amount can be recovered through demand.
(4) A Floating Rate Instrument that is subject to a Demand Feature
shall be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
-5-
<PAGE> 25
(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 Fund's Board to be of
comparable quality to the foregoing (provided the unrated security has not
received a short-term rating, and with respect to a long-term security with a
remaining maturity within the Fund's maturity restrictions, has not received a
long-term rating from any agency that is other than in its highest rating
category). The foregoing are referred to as "first-tier securities."
The balance of the securities in which the Fund may invest are
instruments determined to present minimal credit risks, which do not qualify as
first-tier securities, and, at the time of acquisition, are (i) rated by the
required rating agencies in one of the two highest rating categories for
short-term debt obligations; (ii) unrated but whose issuer is rated in one of
the two highest categories by the required rating agencies with respect to a
class of short-term debt obligations or any security within that class that is
comparable in priority and security with the obligation; or (iii) unrated
(other than described in (ii)) but determined by the Fund's Board to be of
comparable quality to the foregoing (provided the unrated security has not
received a short-term rating and, with respect to a long-term security with a
remaining maturity within the Fund's maturity restrictions, has not received a
long-term rating from any agency that is other than in one of its highest two
rating categories). The foregoing are referred to as "second-tier securities."
In addition to the foregoing 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.
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 Corporation's Board of Directors, or its delegate, has the ultimate
authority to determine, to the extent permissible under the federal securities
laws, which securities are illiquid for purposes of this limitation. Certain
securities exempt from registration or issued in transactions exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), including securities that may be resold pursuant to Rule 144A under the
Securities Act, may be considered liquid. The Corporation's Board of Directors
has delegated to Strong Capital Management, Inc. (the "Advisor") the day-to-day
determination of the liquidity of a security, although it has retained
oversight and ultimate responsibility for such determinations. Although no
definitive liquidity criteria are used, the Board of Directors has directed the
Advisor to look to such factors as (i) the nature of the market for a security
(including the institutional private resale market), (ii) the terms of certain
securities or other instruments allowing for the disposition to a third party
or the issuer thereof (e.g., certain repurchase obligations and demand
instruments), (iii) the availability of market quotations (e.g., for securities
quoted in PORTAL system), and (iv) other permissible relevant factors.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act. Where registration is
required, a Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
-6-
<PAGE> 26
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. If through
the appreciation of restricted securities or the depreciation of unrestricted
securities, a Fund should be in a position where more than 10% of the value of
its net assets are invested in illiquid securities, including restricted
securities which are not readily marketable, the Fund will take such steps as
is deemed advisable, if any, to protect liquidity.
WHEN-ISSUED SECURITIES
The Fund may from time to time purchase securities on a "when-issued"
basis. The price of debt securities purchased on a when-issued basis, which
may be expressed in yield terms, is fixed at the time the commitment to
purchase is made, but delivery and payment for the securities take place at a
later date. Normally, the settlement date occurs within one month of the
purchase. During the period between the purchase and settlement, no payment is
made by the Fund to the issuer and no interest on debt securities accrues to
the Fund. Forward commitments involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date, which risk is
in addition to the risk of decline in value of the Fund's other assets. While
when-issued securities may be sold prior to the settlement date, the Fund
intends to purchase such securities with the purpose of actually acquiring them
unless a sale appears desirable for investment reasons. At the time the Fund
makes the commitment to purchase a security on a when-issued basis, it will
record the transaction and reflect the value of the security in determining its
net asset value. The Fund does not believe that its net asset value or income
will be adversely affected by purchases of securities on a when-issued basis.
The Fund will maintain cash and marketable securities equal in value
to commitments for when-issued securities. Such segregated securities either
will mature or, if necessary, be sold on or before the settlement date. When
the time comes to pay for when-issued securities, the Fund will meet its
obligations from then-available cash flow, sale of the securities held in the
separate account, sale of other securities or, although it would not normally
expect to do so, from the sale of the when-issued securities themselves (which
may have a market value greater or less than the Fund's payment obligation).
LENDING OF PORTFOLIO SECURITIES
The Fund is authorized to lend up to 33 1/3% of the total value of its
portfolio securities to broker-dealers or institutional investors that the
Advisor deems qualified, but only when the borrower maintains with the Fund's
custodian bank collateral either in cash or money market instruments in an
amount at least equal to the market value of the securities loaned, plus
accrued interest and dividends, determined on a daily basis and adjusted
accordingly. However, the Fund does not presently intend to engage in such
lending. In determining whether to lend securities to a particular
broker-dealer or institutional investor, the Advisor will consider, and during
the period of the loan will monitor, all relevant facts and circumstances,
including the creditworthiness of the borrower. The Fund will retain authority
to terminate any loans at any time. The Fund may pay reasonable administrative
and custodial fees in connection with a loan and may pay a negotiated portion
of the interest earned on the cash or money market instruments held as
collateral to the borrower or placing broker. The Fund will receive reasonable
interest on the loan or a flat fee from the borrower and amounts equivalent to
any dividends, interest or other distributions on the securities loaned. The
Fund will retain record ownership of loaned securities to exercise beneficial
rights, such as voting and subscription rights and rights to dividends,
interest or other distributions, when retaining such rights is considered to be
in the Fund's interest.
VARIABLE- OR FLOATING-RATE SECURITIES
The Fund may invest in securities which offer a variable- or
floating-rate of interest. Variable-rate securities provide for automatic
establishment of a new interest rate at fixed intervals (e.g., daily, monthly,
semi-annually, etc.). Floating-rate securities provide for automatic
adjustment of the interest rate whenever some specified interest rate index
changes. The interest rate on variable- or floating-rate securities is
ordinarily determined by reference to or is a percentage of a bank's prime
rate, the 90-day U.S. Treasury bill rate, the rate of return on commercial
paper or bank certificates of deposit, an index of short-term interest rates,
or some other objective measure.
Variable- or floating-rate securities frequently include a demand
feature entitling the holder to sell the securities to the issuer at par. In
many cases, the demand feature can be exercised at any time on 7 days notice;
in other cases, the demand feature is exercisable at any time on 30 days notice
or on similar notice at intervals of not more than one year. Some securities
which do not have variable or floating interest rates may be accompanied by
puts producing similar results and price characteristics. When
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<PAGE> 27
considering the maturity of any instrument which may be sold or put to the
issuer or a third party, each Fund may consider that instrument's maturity to
be shorter than its stated maturity. Any such determination by the Fund will
be made in accordance with Rule 2a-7.
Variable-rate demand notes include master demand notes which are
obligations that permit the Fund to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the Fund,
as lender, and the borrower. The interest rates on these notes fluctuate from
time to time. The issuer of such obligations normally has a corresponding
right, after a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of days' notice to the holders of such obligations. The interest rate
on a floating-rate demand obligation is based on a known lending rate, such as
a bank's prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable-rate demand obligation is adjusted
automatically at specified intervals. Frequently, such obligations are secured
by letters of credit or other credit support arrangements provided by banks.
Because these obligations are direct lending arrangements between the lender
and borrower, it is not contemplated that such instruments will generally be
traded. There generally is not an established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, the Fund's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. Such obligations frequently
are not rated by credit rating agencies and, if not so rated, the Fund may
invest in them only if the Fund's Advisor determines that at the time of
investment the obligations are of comparable quality to the other obligations
in which the Fund may invest. The Advisor, on behalf of the Fund, will consider
on an ongoing basis the creditworthiness of the issuers of the floating- and
variable-rate demand obligations in the Fund's portfolio.
The Fund will not invest more than 10% of its net assets in variable-
and floating-rate demand obligations that are not readily marketable (a
variable- or floating-rate demand obligation that may be disposed of on not
more than seven days notice will be deemed readily marketable and will not be
subject to this limitation). (See "Illiquid Securities" and "Investment
Restrictions.") In addition, each variable- or floating-rate obligation must
meet the credit quality requirements applicable to all the Fund's investments
at the time of purchase. When determining whether such an obligation meets the
Fund's credit quality requirements, the Fund may look to the credit quality of
the financial guarantor providing a letter of credit or other credit support
arrangement.
ASSET-BACKED DEBT OBLIGATIONS
The Fund may invest in asset-backed debt obligations. Asset-backed
debt obligations represent direct or indirect participation in, or secured by
and payable from assets such as motor vehicle installment sales contracts,
other installment loan contracts, home equity loans, leases of various types of
property and receivables from credit card or other revolving credit
arrangements. Payments or distributions of principal and interest on
asset-backed debt obligations may be supported by non-governmental credit
enhancements including letters of credit, reserve funds, overcollateralization,
and guarantees by third parties.
The yield characteristics of asset-backed debt obligations differ from
those of traditional debt obligations. Among the principal differences are that
interest and principal payments are made more frequently on asset-backed debt
obligations, usually monthly, and that principal may be prepaid at any time
because the underlying assets generally may be prepaid at any time. As a
result, if a Fund purchases these debt obligations at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing the yield to maturity. Conversely, if a Fund purchases these debt
obligations at a discount, a prepayment rate that is faster than expected will
increase yield to maturity, while a prepayment rate that is slower than
expected will reduce yield to maturity. Accelerated prepayments on debt
obligations purchased by a Fund at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is prepaid in full. The market for privately issued asset-backed debt
obligations is smaller and less liquid than the market for government sponsored
mortgage-backed securities.
MUNICIPAL OBLIGATIONS
General obligation bonds are secured by the issuer's pledge of its
full faith, credit, and taxing power for the payment of interest and principal.
Revenue bonds are payable only from the revenues derived from a project or
facility or from the proceeds of a specified revenue source. Industrial
development bonds are generally revenue bonds secured by payments from and the
credit of private users. Municipal notes are issued to meet the short-term
funding requirements of state, regional, and local governments. Municipal notes
include tax anticipation notes, bond anticipation notes, revenue anticipation
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<PAGE> 28
notes, tax and revenue anticipation notes, construction loan notes, short-term
discount notes, tax-exempt commercial paper, demand notes, and similar
instruments. Municipal obligations include obligations, the interest on which
is exempt from federal income tax, that may become available in the future as
long as the Board of Directors of a Fund determines that an investment in any
such type of obligation is consistent with that Fund's investment objective.
Municipal lease obligations may take the form of a lease, an
installment purchase, or a conditional sales contract. They are issued by state
and local governments and authorities to acquire land, equipment, and
facilities, such as state and municipal vehicles, telecommunications and
computer equipment, and other capital assets. The Fund may purchase these
obligations directly, or it may purchase participation interests in such
obligations. Municipal leases are generally subject to greater risks than
general obligation or revenue bonds. State constitutions and statutes set
forth requirements that states or municipalities must meet in order to issue
municipal obligations. Municipal leases may contain a covenant by the state or
municipality to budget for, appropriate, and make payments due under the
obligation. Certain municipal leases may, however, contain "non-appropriation"
clauses which provide that the issuer is not obligated to make payments on the
obligation in future years unless funds have been appropriated for this purpose
each year. Accordingly, such obligations are subject to "non-appropriation"
risk. While municipal leases are secured by the underlying capital asset, it
may be difficult to dispose of any such asset in the event of non-appropriation
or other default.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. In a repurchase
agreement, the Fund buys a security at one price, and at the time of sale, the
seller agrees to repurchase the obligation at a mutually agreed upon time and
price (usually within seven days). The repurchase agreement, thereby,
determines the yield during the purchaser's holding period, while the seller's
obligation to repurchase is secured by the value of the underlying security.
If the value of such securities is less than the repurchase price, plus any
agreed-upon additional amount, the other party to the agreement will be
required to provide additional collateral so that at all times the collateral
is at least equal to the repurchase price, plus any agreed-upon additional
amount. The Advisor will monitor, on an ongoing basis, the value of the
underlying securities to ensure that the value always equals or exceeds the
repurchase price plus accrued interest. The Fund may, under certain
circumstances, deem repurchase agreements, collateralized by U.S. government
securities to be investments in U.S. government securities.
BORROWING
The Fund may borrow money from banks, limited by the Fund's
fundamental investment restriction to 33 1/3% of its total assets, and may
engage in mortgage dollar roll transactions which may be considered a form of
borrowing. In addition, the Fund may borrow up to an additional 5% of its total
assets from banks for temporary or emergency purposes. The Fund will not
purchase securities when bank borrowings exceed 5% of the Fund's total assets.
DIRECTORS AND OFFICERS OF THE CORPORATION
Directors and officers of the Corporation, together with information
as to their principal business occupations during the last five years, and
other information are shown below. Each director who is deemed an "interested
person," as defined in the 1940 Act, is indicated by an asterisk. Each officer
and director holds the same position with the following registered investment
companies: Strong Advantage Fund, Inc.; Strong American Utilities Fund, Inc.;
Strong Asia Pacific Fund, Inc.; Strong Asset Allocation Fund, Inc.; Strong
Common Stock Fund, Inc.; Strong Corporate Bond Fund, Inc.; Strong Discovery
Fund, Inc.; Strong Government Securities Fund, Inc.; Strong Growth Fund, Inc.;
Strong Heritage Reserve Series, Inc.; Strong High-Yield Municipal Bond Fund,
Inc.; Strong Insured Municipal Bond Fund, Inc.; Strong International Bond Fund,
Inc.; Strong International Stock Fund, Inc.; Strong Money Market Fund, Inc.;
Strong Municipal Bond Fund, Inc.; Strong Municipal Money Market Fund, Inc.;
Strong Opportunity Fund, Inc.; Strong Short-Term Bond Fund, Inc.; Strong
Short-Term Global Bond Fund, Inc.; Strong Short-Term Municipal Bond Fund, Inc.;
Strong Total Return Fund, Inc.; and Strong U.S. Treasury Money Fund, Inc.
(collectively, the "Strong Funds") and Strong Special Fund II, Inc. and Strong
Variable Insurance Funds, Inc.
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<PAGE> 29
*Richard S. Strong (DOB 5/12/42), Chairman of the Board and Director
of the Corporation.
Prior to August 1985, Mr. Strong was Chief Executive Officer of the
Advisor, which he founded in 1974. Since August 1985, Mr. Strong has been a
Security Analyst and Portfolio Manager of the Advisor. In October 1991, Mr.
Strong also became the Chairman of the Advisor. Mr. Strong is a director of
the Advisor. Since October 1993, Mr. Strong has been Chairman and a director
of Strong Holdings, Inc., a Wisconsin corporation and subsidiary of the Advisor
("Holdings"), and the Fund's underwriter, Strong Funds Distributors, Inc., a
Wisconsin corporation and subsidiary of Holdings ("Distributor"). Since
January 1994, Mr. Strong has been Chairman and a director of Institutional
Reserve Development Corporation, a Wisconsin corporation and subsidiary of
Holdings; and since February 1994, Mr. Strong has been a member of the Managing
Boards of Fussville Real Estate Holdings L.L.C., a Wisconsin Limited Liability
Company and subsidiary of the Advisor, and Fussville Development L.L.C. a
Wisconsin Limited Liability Company and subsidiary of the Advisor, and certain
of its subsidiaries. Mr. Strong has served as a director and Chairman of the
Board of the Corporation since July 1995. Mr. Strong has been in the
investment management business since 1967.
Marvin E. Nevins (DOB 7/9/18), Director of the Corporation.
Private Investor. From 1945 to 1980, Mr. Nevins was Chairman of
Wisconsin Centrifugal Inc., a foundry. From July 1983 to December 1986, he was
Chairman of General Casting Corp., Waukesha, Wisconsin, a foundry. Mr. Nevins
is a former Chairman of the Wisconsin Association of Manufacturers & Commerce.
He was also a regent of the Milwaukee School of Engineering and a member of the
Board of Trustees of the Medical College of Wisconsin. Mr. Nevins has served
as a director of the Corporation since July 1995.
Willie D. Davis (DOB 7/24/34), Director of the Corporation.
Mr. Davis has been director of Alliance Bank since 1980, Sara Lee
Corporation (a food/consumer products company) since 1983, KMart Corporation (a
discount consumer products company) since 1985, YMCA Metropolitan - Los Angeles
since 1985, Dow Chemical Company since 1988, MGM Grand, Inc. (an
entertainment/hotel company) since 1990, WICOR, Inc. (a utility company) since
1990, Johnson Controls, Inc. (an industrial company) since 1992, L.A. Gear (a
footwear/sportswear company) since 1992, and Rally's Hamburger, Inc. since
1994. Mr. Davis has been a trustee of the University of Chicago since 1980,
Marquette University since 1988, and Occidental College since 1990. Since
1977, Mr. Davis has been President and Chief Executive Officer of All Pro
Broadcasting, Inc. Mr. Davis was a director of the Fireman's Fund (an
insurance company) from 1975 until 1990. Mr. Davis has served as a director of
the Corporation since July 1995.
*John Dragisic (DOB 11/26/40), Vice Chairman and Director of the
Corporation.
Mr. Dragisic has been Vice Chairman and a director of the Advisor and
a director of Holdings and Distributor since July 1994. Mr. Dragisic
previously served as a director of the Strong Funds between 1991 and 1994. Mr.
Dragisic was the President and Chief Executive Officer of Grunau Company, Inc.
(a mechanical contracting and engineering firm), Milwaukee, Wisconsin from 1987
until July 1994. From 1981 to 1987, he was an Executive Vice President with
Grunau Company, Inc. From 1969 until 1973, Mr. Dragisic worked for the
InterAmerican Development Bank. Mr. Dragisic received his Ph.D. in Economics
in 1971 from the University of Wisconsin - Madison and his B.A. degree in
Economics in 1962 from Lake Forest College. Mr. Dragisic has served as Vice
Chairman and director of the Corporation since July 1995.
Stanley Kritzik (DOB 1/9/30), Director of the Corporation.
Mr. Kritzik has been a Partner of Metropolitan Associates since 1962,
a Director of Aurora Health Care since 1987, and Health Network Ventures, Inc.
since 1992. He has served as a director of the Corporation since July 1995.
William F. Vogt (DOB 7/19/47), Director of the Corporation.
Mr. Vogt has been the President of Vogt Management Consulting, Inc.
since 1990. From 1982 until 1990, he served as Executive Director of
University Physicians of the University of Colorado. Mr. Vogt is the Past
President of the Medical Group Management Association and a Fellow of the
American College of Medical Practice Executives. He has served as a director
of the Corporation since July 1995.
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<PAGE> 30
Lawrence A. Totsky (DOB 5/6/59), C.P.A., Vice President of the
Corporation.
Mr. Totsky has been Senior Vice President of the Advisor since
September 1994. Mr. Totsky served as Vice President of the Advisor from
December 1992 to September 1994. Mr. Totsky acted as the Advisor's Manager of
Shareholder Accounting and Compliance from June 1987 to June 1991 when he was
named Director of Mutual Fund Administration. Mr. Totsky has been a Vice
President of the Corporation since July 1995.
Thomas P. Lemke (DOB 7/30/54), Vice President of the Corporation.
Mr. Lemke has been Senior Vice President, Secretary, and General
Counsel of the Advisor since September 1994. For two years prior to joining
the Advisor, Mr. Lemke acted as Resident Counsel for Funds Management at J.P.
Morgan & Co., Inc. From February 1989 until April 1992, Mr. Lemke acted as
Associate General Counsel to Sanford C. Bernstein Co., Inc. For two years
prior to that, Mr. Lemke was Of Counsel at the Washington, D.C. law firm of Tew
Jorden & Schulte, a successor of Finley, Kumble Wagner. From August 1979 until
December 1986, Mr. Lemke worked at the Securities and Exchange Commission, most
notably as the Chief Counsel to the Division of Investment Management (November
1984 - December 1986), and as Special Counsel to the Office of Insurance
Products, Division of Investment Management (April 1982 - October 1984). Mr.
Lemke has been a Vice President of the Corporation since July 1995.
Ann E. Oglanian (DOB 12/7/61), Secretary of the Corporation.
Ms. Oglanian has been an Associate Counsel to the Advisor since
January 1992. Ms. Oglanian acted as Associate Counsel for the Chicago-based
investment management firm, Kemper Financial Services, Inc., from June 1988
until December 1991. Ms. Oglanian has been the Secretary of the Corporation
since July 1995.
Ronald A. Neville (DOB 5/21/47), C.P.A., Treasurer of the Corporation.
Mr. Neville has been the Senior Vice President and Chief Financial
Officer of the Advisor since January 1995. For fourteen years prior to that,
Mr. Neville worked at Twentieth Century Companies, Inc., most notably as Senior
Vice President and Chief Financial Officer (1988 until December 1994). Mr.
Neville received his M.B.A. in 1972 from the University of Missouri - Kansas
City and his B.A. degree in Business Administration and Economics in 1969 from
Drury College. Mr. Neville has been the Treasurer of the Corporation since
July 1995.
Except for Messrs. Nevins, Davis, Kritzik and Vogt, the address of all
of the above persons is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr. Nevins'
address is 6075 Pelican Bay Boulevard, Naples, Florida 33963. Mr. Davis'
address is 161 North La Brea, Inglewood, California 90301, Mr. Kritzik's
address is 1123 North Astor Street, P.O. Box 92547, Milwaukee, Wisconsin
53202-0547. Mr. Vogt's address is 3003 East Third Avenue, Denver, Colorado
80206.
The mutual fund complex that is managed by the Advisor, which is
composed of 26 open-end management investment companies consisting of 31 mutual
funds, of which the Fund is a part, in the aggregate, pays each Director who is
not a director, officer, or employee of the Advisor, or any affiliated company
(a "disinterested director") an annual fee of $50,000, plus $100 per Board
meeting for each mutual fund. In addition, each disinterested director is
reimbursed by the mutual funds for travel and other expenses incurred in
connection with attendance at such meetings. Other officers and directors of
the mutual funds receive no compensation or expense reimbursement from the
mutual funds.
As of August 30, 1995, the officers and directors of the Corporation
in the aggregate beneficially owned less than 1% of the Fund's then outstanding
shares.
PRINCIPAL SHAREHOLDERS
As of September 12, 1995, Strong Capital Management, Inc. owned of
record and beneficially 100,000 shares, representing all of the Fund's
outstanding common stock.
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<PAGE> 31
INVESTMENT ADVISOR AND DISTRIBUTOR
The Advisor to the Fund is Strong Capital Management, Inc. Mr.
Richard S. Strong controls the Advisor. Mr. Strong is the Chairman and a
director of the Advisor, Mr. Dragisic is the Vice Chairman and a director of
the Advisor, Mr. Totsky is a Senior Vice President of the Advisor, Mr. Lemke is
a Senior Vice President, Secretary, and General Counsel of the Advisor, Mr.
Neville is a Senior Vice President and Chief Financial Officer of the Advisor,
and Ms. Oglanian is an 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 Fund's Advisory Agreement is dated Septemer 12, 1995 and will
remain in effect as to the Fund for a period of two years. The Advisory
Agreement was last approved by the sole shareholder on September 12, 1995.
Thereafter, the Advisory Agreement is required to be approved annually by the
Board of Directors of the Corporation or by vote of a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). In either case,
each annual renewal must be approved by the vote of a majority of the
Corporation's directors who are not parties to the Advisory Agreement or
interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval. The Advisory Agreement is terminable,
without penalty, on 60 days' written notice by the Board of Directors of the
Corporation, by vote of a majority of the Fund's outstanding voting securities,
or by the Advisor. In addition, the Advisory Agreement will terminate
automatically in the event of its assignment.
Under the terms of the Advisory Agreement, the Advisor manages the
Fund's investments subject to the supervision of the Fund's Board. The Advisor
is responsible for investment decisions and supplies investment research and
portfolio management. At its expense, the Advisor provides office space and
all necessary office facilities, equipment and personnel for servicing the
investments of the Fund. The Advisor places all orders for the purchase and
sale of the Fund's securities at its expense.
Except for expenses assumed by the Advisor as set forth above or by
the Distributor as described below with respect to the distribution of the
Fund's shares, the Fund is responsible for all its other expenses, including,
without limitation, interest charges, taxes, brokerage commissions, and similar
expenses; expenses of issue, sale, repurchase, or redemption of shares;
expenses of registering or qualifying shares for sale; expenses for printing
and distribution costs of Prospectuses and quarterly financial statements
mailed to existing shareholders; and charges of custodians, transfer agents
(including the printing and mailing of reports and notices to shareholders),
registrars, auditing and legal services, clerical services related to
recordkeeping and shareholder relations, printing stock certificates; and fees
for directors who are not "interested persons" of the Advisor, and its
allocable share of the Corporation's expenses.
As compensation for its services, the Fund pays to the Advisor a
monthly management fee at the annual rate of .35% of the Fund's average daily
net assets. From time to time, the Advisor may voluntarily waive all or a
portion of its management fee for a Fund. The organizational expenses of the
Fund, which were $87,445, were advanced by the Advisor and will be reimbursed
by the Fund over a period of not more than 60 months from the Fund's date of
inception.
The Advisory Agreement requires the Advisor to reimburse the Fund in
the event that the expenses and charges payable by the Fund in any fiscal year,
including the management fee but excluding taxes, interest, brokerage
commissions, and similar fees and to the extent permitted extraordinary
expenses, exceed the percentage of the average net asset value of the Fund for
such year. Such excess is determined by valuations made as of the close of
each business day of the year, which is the most restrictive percentage
provided by the laws of the various states in which the Fund's shares are
qualified for sale; or if the states in which the Fund's shares are qualified
for sale impose no restrictions, the Advisor shall reimburse the Fund in the
event the expenses and charges payable by the Fund in any fiscal year (as
described above) exceed 2%. The most restrictive percentage limitation
currently applicable to the Fund is 2.5% of its average daily net assets up to
$30,000,000, 2% on the next $70,000,000 of its average daily net assets and
1.5% of its average daily net assets in excess of $100,000,000. Reimbursement
of expenses in excess of the applicable limitation will be made on a monthly
basis and will be paid to the Fund by reduction of the Advisor's fee, subject
to later adjustment, month by month, for the remainder of the Fund's fiscal
year. The Advisor may from time to time voluntarily absorb expenses for the
Fund in addition to the reimbursement of expenses in excess of application
limitations.
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<PAGE> 32
On July 12, 1994, the Securities and Exchange Commission (the SEC)
filed an administrative action (Order) against the Advisor, Mr. Strong, and
another employee of the Advisor in connection with conduct that occurred
between 1987 and early 1990. In re Strong/Corneliuson Capital Management, Inc.,
et al. Admin. Proc. File No. 3-8411. The proceeding was settled by consent
without admitting or denying the allegations in the Order. The Order alleged
that the Advisor and Mr. Strong aided and abetted violations of Section 17(a)
of the 1940 Act by effecting trades between mutual funds, and between mutual
funds and Harbour Investments Ltd. ("Harbour"), without complying with the
exemptive provisions of SEC Rule 17a-7 or otherwise obtaining an exemption. It
further alleged that the Advisor violated, and Mr. Strong aided and abetted
violations of, the disclosure provisions of the 1940 Act and the Investment
Advisers Act of 1940 by misrepresenting the Advisor's policy on personal
trading and by failing to disclose trading by Harbour, an entity in which
principals of the Advisor owned between 18 and 25 percent of the voting stock.
As part of the settlement, the respondents agreed to a censure and a cease and
desist order and the Advisor agreed to various undertakings, including adoption
of certain procedures and a limitation for six months on accepting certain
types of new advisory clients.
The staff of the U.S. Department of Labor (the "Staff") has contacted
the Advisor regarding alleged cross-trading of securities between 1987 and
early 1990 involving various customer accounts subject to the Employee
Retirement Security Act of 1974 ("ERISA") and managed by the Advisor. The
Advisor has informed the Staff of the basis for its position that the trades
complied with ERISA and that, in any event, any alleged noncompliance was not
the cause of any losses to the accounts. The Staff has stated that it
disagrees with the Advisor's positions, although to date it has not filed any
action against the Advisor. At this time, the Advisor is negotiating with the
Staff regarding a possible resolution of the matter, but it cannot presently
determine whether the matter will be settled or litigated or, if it is settled
or litigated, how it ultimately will be resolved. However, management
presently believes, based on current knowledge and the Advisor's insurance
coverage, that the ultimate resolution of this matter should not have a
material adverse effect on the Advisor's financial position.
Under a Distribution Agreement dated September 12, 1995 with the
Corporation (the "Distribution Agreement"), Strong Funds Distributors, Inc.
("Distributor"), a subsidiary of the Advisor, acts as underwriter of the Fund's
shares. The Distribution Agreement provides that the Distributor will use its
best efforts to distribute the Fund's shares. Since the Fund is a "no-load"
fund, no sales commissions are charged on the purchase of Fund shares. The
Distribution Agreement further provides that the Distributor will bear the
additional costs of printing Prospectuses and shareholder reports which are
used for selling purposes, as well as advertising and any other costs
attributable to the distribution of the Fund's shares. The Distributor is an
indirect subsidiary of the Advisor and controlled by the Advisor and Richard S.
Strong. The Distribution Agreement is subject to the same termination and
renewal provisions as are described above with respect to the Advisory
Agreement.
From time to time, the Distributor may hold in-house sales incentive
programs for its associated persons under which these persons may receive
non-cash compensation awards in connection with the sale and distribution of
the Fund's shares. These awards may include items such as, but not limited to,
gifts, merchandise, gift certificates, and payment of travel expenses, meals
and lodging. As required by the National Association of Securities Dealers,
Inc. or NASD's proposed rule amendments in this area, any in-house sales
incentive program will be multi-product oriented, i.e., any incentive will be
based on an associated person's gross production of all securities within a
product type and will not be based on the sales of shares of any specifically
designated mutual fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisor is responsible for decisions to buy and sell securities
for the Fund and for the placement of the Fund's portfolio business and the
negotiation of the commissions to be paid on such transactions. It is the
policy of the Advisor to seek the best execution at the best security price
available with respect to each transaction, in light of the overall quality of
brokerage and research services provided to the Advisor or the Fund. In
over-the-counter transactions, orders are placed directly with a principal
market maker unless it is believed that a better price and execution can be
obtained using a broker. The best price to the Fund means the best net price
without regard to the mix between purchase or sale price and commissions, if
any. In selecting broker-dealers and in negotiating commissions, the Advisor
considers a variety of factors, including best price and execution, the full
range of brokerage services provided by the broker, as well as its capital
strength and stability, and the quality of the research and research services
provided by the broker. Brokerage will not be allocated based on the sale of
any shares of the Strong Funds.
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<PAGE> 33
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment advisor, under certain circumstances, to cause an account
to pay a broker or dealer a commission for effecting a transaction in excess of
the amount of commission another broker or dealer would have charged for
effecting the transaction in recognition of the value of the brokerage and
research services provided by the broker or dealer. Brokerage and research
services include (a) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody).
In carrying out the provisions of the Advisory Agreement, the Advisor
may cause the Fund to pay a broker, which provides brokerage and research
services to the Advisor, a commission for effecting a securities transaction in
excess of the amount another broker would have charged for effecting the
transaction. The Advisor believes it is important to its investment
decision-making process to have access to independent research. The Advisory
Agreement provides that such higher commissions will not be paid by the Fund
unless (a) the Advisor determines in good faith that the amount is reasonable
in relation to the services in terms of the particular transaction or in terms
of the Advisor's overall responsibilities with respect to the accounts as to
which it exercises investment discretion; (b) such payment is made in
compliance with the provisions of Section 28(e), other applicable state and
federal laws, and the Advisory Agreement; and (c) in the opinion of the
Advisor, the total commissions paid by the Fund will be reasonable in relation
to the benefits to the Fund over the long term. The investment advisory fees
paid by the Fund under the Advisory Agreement are not reduced as a result of
the Advisor's receipt of research services.
Generally, research services provided by brokers may include
information on the economy, industries, groups of securities, individual
companies, statistical information, accounting and tax law interpretations,
political developments, legal developments affecting portfolio securities,
technical market action, pricing and appraisal services, credit analysis, risk
measurement analysis, performance analysis, and analysis of corporate
responsibility issues. Such research services are received primarily in the
form of written reports, telephone contacts, and personal meetings with
security analysts. In addition, such research services may be provided in the
form of access to various computer-generated data, computer hardware and
software, and meetings arranged with corporate and industry spokespersons,
economists, academicians, and government representatives. In some cases,
research services are generated by third parties but are provided to the
Advisor by or through brokers. Such brokers may pay for all or a portion of
computer hardware and software costs relating to the pricing of securities.
Where the Advisor itself receives both administrative benefits and
research and brokerage services from the services provided by brokers, it makes
a good faith allocation between the administrative benefits and the research
and brokerage services, and will pay for any administrative benefits with cash.
In making good faith allocations of costs between administrative benefits and
research and brokerage services, a conflict of interest may exist by reason of
the Advisor's allocation of the costs of such benefits and services between
those that primarily benefit the Advisor and those that primarily benefit the
Fund and other advisory clients.
From time to time, the Advisor may purchase securities for the Fund in
a fixed price offering. In these situations, the seller may be a member of the
selling group that will, in addition to selling the securities to the Fund and
other advisory clients, provide the Advisor with research. The National
Association of Securities Dealers has adopted rules expressly permitting these
types of arrangements under certain circumstances. Generally, the seller will
provide research "credits" in these situations at a rate that is higher than
that which is available for typical secondary market transactions. These
arrangements may not fall within the safe harbor of Section 28(e).
Each year, the Advisor considers the amount and nature of research and
research services provided by brokers, as well as the extent to which such
services are relied upon, and attempts to allocate a portion of the brokerage
business of the Fund and other advisory clients on the basis of that
consideration. In addition, brokers may suggest a level of business they would
like to receive in order to continue to provide such services. The actual
brokerage business received by a broker may be more or less than the suggested
allocations, depending upon the Advisor's evaluation of all applicable
considerations.
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<PAGE> 34
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.
The Advisor places portfolio transactions for other advisory accounts,
including other mutual funds managed by the Advisor. Research services
furnished by firms through which the Fund effects its securities transactions
may be used by the Advisor in servicing all of its accounts; not all of such
services may be used by the Advisor in connection with the Fund. In the
opinion of the Advisor, it is not possible to measure separately the benefits
from research services to each of the accounts (including the Fund) managed by
the Advisor. Because the volume and nature of the trading activities of the
accounts are not uniform, the amount of commissions in excess of those charged
by another broker paid by each account for brokerage and research services will
vary. However, in the opinion of the Advisor, such costs to the Fund will not
be disproportionate to the benefits received by the Fund on a continuing basis.
The Advisor seeks to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell securities by the
Fund and another advisory account. In some cases, this procedure could have an
adverse effect on the price or the amount of securities available to the Fund.
In making such allocations between the Fund and other advisory accounts, the
main factors considered by the Advisor are the respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held, and the opinions of the persons responsible for
recommending the investment.
CUSTODIAN
As custodian of the Fund's assets, Firstar Trust Company, P.O. Box
701, Milwaukee, Wisconsin 53201, has custody of all securities and cash of the
Fund, delivers and receives payment for securities sold, receives and pays for
securities purchased, collects income from investments, and performs other
duties, all as directed by the officers of the Fund. The Fund's custodian has
entered into a sub-custodial arrangement with Bankers Trust Company ("BTC")
pursuant to which BTC may retain custody of certain of the Fund's
dollar-denominated foreign securities. The custodian and, if applicable, the
sub-custodian are in no way responsible for any of the investment policies or
decisions of the Fund.
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
The Advisor acts as transfer agent and dividend-disbursing agent for
the Fund. As compensation for these services, the Fund pays the Advisor a
monthly fee based on a percentage of the Fund's average daily net asset value.
The fees received and the services provided as transfer agent and dividend
disbursing agent are in addition to those received and provided by the Advisor
under the Advisory Agreement. In addition, the Advisor provides certain
printing and mailing services for the Fund, such as printing and mailing of
shareholder account statements, checks, and tax forms.
From time to time, the Fund, directly or indirectly through
arrangements with the Advisor, may pay amounts to third parties that provide
transfer agent and other administrative services relating to the Fund to
persons who beneficially own interests in the Fund, such as participants in
401(k) plans. These services may include, among other things, sub-accounting
services, answering inquiries relating to the Fund, transmitting, on behalf of
the Fund, proxy statements, annual reports, updated Prospectuses, other
communications regarding the Fund, and related services as the Fund or
beneficial owners may reasonably request. In such cases, the Fund will not pay
fees at a rate that is greater than the rate the Fund is currently paying the
Advisor for providing these services to Fund shareholders.
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<PAGE> 35
TAXES
GENERAL
As indicated under "About the Fund - Distributions and Taxes" in the
Prospectus, the Fund intends to qualify annually for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
(the "Code"). This qualification does not involve government supervision of
the Fund's management practices or policies.
In order to qualify for treatment as a RIC under the Code, the Fund
must distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gain, and net gains from certain foreign
currency transactions ) ("Distribution Requirement") and must meet several
additional requirements. These requirements include the following: (1) the Fund
must derive at least 90% of its gross income each taxable year from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of securities or foreign currencies or other income
(including gains from options, futures, or forward currency contracts) derived
with respect to its business of investing in securities or these currencies
("Income Requirement"); (2) the Fund must derive less than 30% of its gross
income each taxable year from the sale or other disposition of securities, that
were held for less than three months ("30% Limitation"); (3) at the close of
each quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. government securities,
securities of other RICs, and other securities, with these other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities; and (4) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. government securities or
the securities of other RICs) of any one issuer.
The Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year.
FOREIGN TRANSACTIONS
Interest and dividends received by the Fund may be subject to income,
withholding, or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. The Fund maintains its accounts
and calculates its income in U.S. dollars.
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 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.
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus under the caption "Determining Your
Share Price," the net asset value of the Fund will be determined as of 12:00
noon Central Time on each day the New York Stock Exchange (the "NYSE") is open
for trading. The New York Stock Exchange is open for trading Monday through
Friday except New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Additionally, if any of the aforementioned holidays falls on a Saturday, the
NYSE will not be open for trading on the preceding Friday, and when any such
holiday falls on a Sunday, the NYSE will not be open for trading on the
succeeding Monday, unless unusual business conditions exist, such as the ending
of a monthly or yearly accounting period.
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<PAGE> 36
The Fund values its securities on the amortized cost basis and seek to
maintain their net asset value at a constant $1.00 per share. In the event a
difference of 1/2 of 1% or more were to occur between the net asset value
calculated by reference to market values and the Fund's $1.00 per share net
asset value, or if there were any other deviation which the Board of Directors
of the Corporation believed would result in a material dilution to shareholders
or purchasers, the Board of Directors would consider taking any one or more of
the following actions or any other action considered appropriate: selling
portfolio securities to shorten average portfolio maturity or to realize
capital gains or losses, reducing or suspending shareholder income accruals,
redeeming shares in kind, or utilizing a value per unit based upon available
indications of market value. Available indications of market value may
include, among other things, quotations or market value estimates of securities
and/or values based on yield data relating to money market securities that are
published by reputable sources.
ADDITIONAL SHAREHOLDER INFORMATION
The Fund employs reasonable procedures to confirm that instructions
communicated by telephone are genuine. The Fund may not be liable for losses
due to unauthorized or fraudulent instructions. Such procedures include but
are not limited to requiring a form of personal identification prior to acting
on instructions received by telephone, providing written confirmations of such
transactions to the address of record, and tape recording telephone
instructions. The Redemption Privileges are available only in states where
shares of the New Fund may be sold, and may be modified or discontinued at any
time.
FUND ORGANIZATION
The Fund is a series of common stock of Strong Institutional Funds,
Inc., a Wisconsin corporation (the "Corporation"). The Corporation was
incorporated on July 1, 1994 and is authorized to issue 200,000,000,000 shares
of common stock and series and classes of series of shares of common stock,
with a par value of $.01 per share. The Corporation is authorized to issue
10,000,000,000 shares of common stock of the Fund. The shares in any one
portfolio may, in turn, be offered in separate classes, each with differing
preferences, limitations or relative rights. However, the Corporation's
Articles of Incorporation provides that if additional classes of shares are
issued by the Fund, such new classes of shares may not affect the preferences,
limitations or relative rights of the Fund's outstanding shares. In addition,
the Corporation's Board is authorized to allocate assets, liabilities, income
and expenses to each series and class. Classes within a series may have
different expense arrangements than other classes of the same series and,
accordingly, the net asset value of shares 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 Fund have no
preemptive, conversion, or subscription rights. The Corporation currently has
one 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 Fund, to operate without an annual meeting of
shareholders under specified circumstances if an annual meeting is not required
by the 1940 Act. The Fund has adopted the appropriate provisions in its Bylaws
and may, at their discretion, not hold an annual meeting in any year in which
the election of directors is not required to be acted on by shareholders under
the 1940 Act.
The Corporation's Bylaws allow for a director to be removed by its
shareholders with or without cause, only at a meeting called for the purpose
of removing the director. Upon the written request of the holders of shares
entitled to not less than ten percent (10%) of all the votes entitled to be
cast at such meeting, the Secretary of the Corporation shall promptly call a
special meeting of shareholders for the purpose of voting upon the question of
removal of any director. The Secretary of the Corporation shall inform such
shareholders of the reasonable estimated costs of preparing and mailing the
notice of the meeting, and upon payment to the Corporation of such costs, the
Corporation shall give not less than ten nor more than sixty days notice of the
special meeting.
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<PAGE> 37
PERFORMANCE INFORMATION
As described in the "About the Fund - Performance Information" section
of the Fund's Prospectus, the Fund's historical performance or return may be
shown in the form of "yield," "average annual total return," "total return,"
"cumulative total return," and "effective yield." From time to time, the
Advisor agrees to waive or reduce its management fee and to absorb certain
operating expenses for the Fund.
CURRENT YIELD
The Fund's current yield quotation is based on a seven-day period and
is computed as follows. The first calculation is net investment income per
share, which is accrued interest on portfolio securities, plus or minus
amortized premium, less accrued expenses. This number is then divided by the
price per share (expected to remain constant at $1.00) at the beginning of the
period ("base period return"). The result is then divided by 7 and multiplied
by 365 and the resulting yield figure is carried to the nearest one-hundredth
of one percent. Realized capital gains or losses and unrealized appreciation
or depreciation of investments are not included in the calculation.
EFFECTIVE YIELD
The Fund's effective yield is determined by taking the base period
return (computed as described above) and calculating the effect of assumed
compounding. The formula for the effective yield is: (base period return +
1)(365/7) - 1.
DISTRIBUTION RATE
The distribution rate is computed, according to a non-standardized
formula, by dividing the total amount of actual distributions per share paid by
the Fund over a twelve month period by the Fund's net asset value on the last
day of the period. The distribution rate differs from the Fund's yield because
the distribution rate includes distributions to shareholders from sources other
than dividends and interest, such as premium income from option writing and
short-term capital gains. Therefore, the Fund's distribution rate may be
substantially different than its yield. Both the Fund's yield and distribution
rate will fluctuate.
AVERAGE ANNUAL TOTAL RETURN
The Fund's average annual total return quotation is computed in
accordance with a standardized method prescribed by rules of the SEC. The
average annual total return for the Fund for a specific period is found by
first taking a hypothetical $10,000 investment ("initial investment") in the
Fund's shares on the first day of the period and computing the "redeemable
value" of that investment at the end of the period. The redeemable value is
then divided by the initial investment, and this quotient is taken to the Nth
root (N representing the number of years in the period) and 1 is subtracted
from the result, which is then expressed as a percentage. The calculation
assumes that all income and capital gains dividends paid by the Fund have been
reinvested at net asset value on the reinvestment dates during the period.
TOTAL RETURN
Calculation of the Fund's total return is not subject to a
standardized formula. Total return performance for a specific period is
calculated by first taking an investment (assumed below to be $10,000)
("initial investment") in the Fund's shares on the first day of the period and
computing the "ending value" of that investment at the end of the period. The
total return percentage is then determined by subtracting the initial
investment from the ending value and dividing the remainder by the initial
investment and expressing the result as a percentage. The calculation assumes
that all income and capital gains dividends paid by the Fund have been
reinvested at net asset value on the reinvestment dates during the period.
Total return may also be shown as the increased dollar value of the
hypothetical investment over the period.
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<PAGE> 38
CUMULATIVE TOTAL RETURN
Calculation of the Fund's cumulative total return is not subject to a
standardized formula and represents the simple change in value of our
investment over a stated period and may be quoted as a percentage or as a
dollar amount. Total returns and cumulative total returns may be broken down
into their components of income and capital (including capital gains and
changes in share price) in order to illustrate the relationship between these
factors and their contributions to total return.
The Fund's performance figures are based upon historical results and
do not represent future results. The Fund's shares are sold at net asset value
per share. The yield for the Fund will fluctuate. While the Fund seeks to
maintain a stable net asset value of $1.00, there is no assurance that the Fund
will be able to do so. An investment in the Fund is neither insured nor
guaranteed by the U.S. government. Factors affecting the Fund's performance
include general market conditions, operating expenses and investment
management. Any additional fees charged by a dealer or other financial
services firm would reduce the returns described in this section.
COMPARISONS
(1) U.S. TREASURY BILLS, NOTES, OR BONDS
Investors may want to compare the performance of the Fund to that of
U.S. Treasury bills, notes or bonds, which are issued by the U.S. government.
Treasury obligations are issued in selected denominations. Rates of Treasury
obligations are fixed at the time of issuance and payment of principal and
interest is backed by the full faith and credit of the United States Treasury.
The market value of such instruments will generally fluctuate inversely with
interest rates prior to maturity and will equal par value at maturity.
Generally, the values of obligations with shorter maturities will fluctuate
less than those with longer maturities.
(2) CERTIFICATES OF DEPOSIT
Investors may want to compare the Fund's performance to that of
certificates of deposit offered by banks and other depositary institutions.
Certificates of deposit may offer fixed or variable interest rates and
principal is guaranteed and may be insured. Withdrawal of the deposits prior to
maturity normally will be subject to a penalty. Rates offered by banks and
other depositary institutions are subject to change at any time specified by
the issuing institution.
(3) MONEY MARKET FUNDS
Investors may also want to compare performance of the Fund to that of
money market funds. Money market fund yields will fluctuate and shares are not
insured, but share values usually remain stable.
(4) LIPPER ANALYTICAL SERVICES, INC. ("LIPPER") AND OTHER INDEPENDENT
RANKING ORGANIZATIONS
From time to time, in marketing and other fund literature, the Fund's
performance may be compared to the performance of other mutual funds in general
or to the performance of particular types of mutual funds, with similar
investment goals, as tracked by independent organizations. Among these
organizations, Lipper, a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets, may be
cited. Lipper performance figures are based on changes in net asset value,
with all income and capital gain dividends reinvested. Such calculations do
not include the effect of any sales charges imposed by other funds. The Fund
will be compared to Lipper's appropriate fund category, that is, by fund
objective and portfolio holdings. The Fund's performance may also be compared
to the average performance of its Lipper category.
(5) MORNINGSTAR, INC.
The Fund's performance may also be compared to the performance of
other mutual funds by Morningstar, Inc. which ranks funds on the basis of
historical risk and total return. Morningstar's rankings range from five stars
(highest) to one star (lowest) and represent Morningstar's assessment of the
historical risk level and total return of a fund as a weighted average for 3,
5, and 10 year periods. Rankings are not absolute and do not represent future
results.
(6) IBC/DONOGHUE, INC.
IBC/Donoghue, Inc. is an independently operated financial newsletter
publishing firm specializing in the statistical analysis of the trends in the
money market mutual fund industry. From time to time, in marketing and other
fund literature,
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<PAGE> 39
IBC/Donoghue data may be quoted or compared to the fund's performance.
IBC/Donoghue, Inc. provides current (7 and 30 day yields) and historical
performance (1, 3, and 5 year returns), rankings and category averages for over
1,100 money market mutual funds.
(7) INDEPENDENT SOURCES
Evaluations of Fund performance made by independent sources may also
be used in advertisements concerning a Fund, including reprints of, or
selections from, editorials or articles about the Fund, especially those with
similar objectives. Sources for Fund performance information and articles
about the Fund may include publications such as Money, Forbes, Kiplinger's,
Smart Money, Morningstar, Inc., Financial World, Business Week, U.S. News and
World Report, The Wall Street Journal, Barron's, and a variety of investment
newsletters.
(8) VARIOUS BANK PRODUCTS
The Fund's performance also may be compared on a before or after-tax
basis to various bank products, including the average rate of bank and thrift
institution money market deposit accounts, Super N.O.W. accounts and
certificates of deposit of various maturities as reported in the Bank Rate
Monitor, National Index of 100 leading banks, and thrift institutions as
published by the Bank Rate Monitor, Miami Beach, Florida. The rates published
by the Bank Rate Monitor National Index are averages of the personal account
rates offered on the Wednesday prior to the date of publication by 100 large
banks and thrifts in the top ten Consolidated Standard Metropolitan Statistical
Areas. The rates provided for the bank accounts assume no compounding and are
for the lowest minimum deposit required to open an account. Higher rates may
be available for larger deposits.
With respect to money market deposit accounts and Super N.O.W.
accounts, account minimums range upward from $2,000 in each institution and
compounding methods vary. Super N.O.W. accounts generally offer unlimited
check writing while money market deposit accounts generally restrict the number
of checks that may be written. If more than one rate is offered, the lowest
rate is used. Rates are determined by the financial institution and are
subject to change at any time specified by the institution. Generally, the
rates offered for these products take market conditions and competitive product
yields into consideration when set. Bank products represent a taxable
alternative income producing product. Bank and thrift institution deposit
accounts may be insured. Shareholder accounts in the Fund are not insured.
Bank passbook savings accounts compete with money market mutual fund products
with respect to certain liquidity features but may not offer all of the
features available from a money market mutual fund, such as check writing.
Bank passbook savings accounts normally offer a fixed rate of interest while
the yield of the Fund fluctuates. Bank checking accounts normally do not pay
interest but compete with money market mutual fund products with respect to
certain liquidity features (e.g., the ability to write checks against the
account). Bank certificates of deposit may offer fixed or variable rates for a
set term. (Normally, a variety of terms are available.) Withdrawal of these
deposits prior to maturity will normally be subject to a penalty. In contrast,
shares of the Fund are redeemable at the net asset value (normally, $1.00 per
share) next determined after a request is received, without charge.
(9) INDICES
The Fund may compare its performance to a wide variety of indices
including the following:
(a) The Consumer Price Index
(b) Merrill Lynch 91 Day Treasury Bill Index
(c) Merrill Lynch Government/Corporate 1-3 Year Index
(d) IBC/Donoghue's Taxable Money Fund Average(TM)
(e) IBC/Donoghue's Government Money Fund Average(TM)
(f) Salomon Brothers 1-Month Treasury Bill Index
(g) Salomon Brothers 3-Month Treasury Bill Index
(h) Salomon Brothers 1-Year Treasury Benchmark-on-the-Run Index
(i) Salomon Brothers 1-3 Year Treasury/Government-Sponsored/Corporate Bond
Index
(j) Salomon Brothers Broad Investment-Grade Bond Index
(k) Lehman Brothers Aggregate Bond Index
(l) Lehman Brothers 1-3 Year Government/Corporate Bond Index
There are differences and similarities between the investments which
the Fund may purchase and the investments measured by the indices which are
noted herein. The market prices and yields of taxable and tax-exempt bonds
will fluctuate.
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<PAGE> 40
There are important differences among the various investments included in the
indices that should be considered in reviewing this information.
(10) HISTORICAL ASSET CLASS RETURNS
From time to time, marketing materials may portray the historical
returns of various asset classes. Such presentations will typically compare
the average annual rates of return of inflation, U.S. Treasury bills, bonds,
common stocks, and small stocks. There are important differences between each
of these investments that should be considered in viewing any such comparison.
The market value of stocks will fluctuate with market conditions, and
small-stock prices generally will fluctuate more than large-stock prices. Bond
prices generally will fluctuate inversely with interest rates and other market
conditions, and the prices of bonds with longer maturities generally will
fluctuate more than those of shorter-maturity bonds. Interest rates for bonds
may be fixed at the time of issuance, and payment of principal and interest may
be guaranteed by the issuer and backed by the full faith and credit of the U.S.
Treasury.
ADDITIONAL FUND INFORMATION
(1) DURATION
Duration is a calculation that measures the price sensitivity of a
fund to changes in interest rates. Theoretically, if a fund had a duration of
2.0, a 1% increase in interest rates would cause the prices of the bonds in the
fund to decrease by approximately 2%. Conversely, a 1% decrease in interest
rates would cause the prices of the bonds in the fund to increase by
approximately 2%. Depending on the direction of market interest rates, a fund's
duration may be shorter or longer than its average maturity.
(2) PORTFOLIO CHARACTERISTICS
In order to present a more complete picture of a fund's portfolio,
marketing materials may include various actual or estimated portfolio
characteristics, including but not limited to median market capitalizations,
earnings per share, alphas, betas, price/earnings ratios, returns on equity,
dividend yields, capitalization ranges, growth rates, price/book ratios, top
holdings, sector breakdowns, asset allocations, quality breakdowns, and
breakdowns by geographic region.
(3) MEASURES OF VOLATILITY AND RELATIVE PERFORMANCE
Occasionally statistics may be used to specify Fund volatility or
risk. The general premise is that greater volatility connotes greater risk
undertaken in achieving performance. Measures of volatility or risk are
generally used to compare the fund's net asset value or performance relative to
a market index. One measure of volatility is beta. Beta is the volatility of
a fund relative to the total market as represented by the Standard & Poor's 500
Stock Index. A beta of more than 1.00 indicates volatility greater than the
market, and a beta of less than 1.00 indicates volatility less than the market.
Another measure of volatility or risk is standard deviation. Standard deviation
is a statistical tool that measures the degree to which a fund's performance
has varied from its average performance during a particular time period.
Standard deviation is calculated using the following formula:
2
Standard deviation = the square root of *(x - x)
i m
----------
n-1
where * = "the sum of",
x = each individual return during the time period,
i
x = the average return over the time period, and
m
n = the number of individual returns during the time period.
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<PAGE> 41
Statistics may also be used to discuss a fund's relative performance.
One such measure is alpha. Alpha measures the actual return of a fund compared
to the expected return of a fund given its risk (as measured by beta). The
expected return is based on how the market as a whole performed, and how the
particular fund has historically performed against the market. Specifically,
alpha is the actual return less the expected return. The expected return is
computed by multiplying the advance or decline in a market representation by
the fund's beta. A positive alpha quantifies the value that the fund manager
has added, and a negative alpha quantifies the value that the fund manager has
lost.
Other measures of volatility and relative performance may be used as
appropriate. However, all such measures will fluctuate and do not represent
future results.
GENERAL INFORMATION
BUSINESS PHILOSOPHY
The Advisor is an independent, Midwestern-based investment advisor,
owned by professionals active in its management. Recognizing that investors are
the focus of its business, the Advisor strives for excellence both in
investment management and in the service provided to investors. This commitment
affects many aspects of the business, including professional staffing, product
development, investment management, and service delivery. Through its
commitment to excellence, the Advisor intends to benefit investors and to
encourage them to think of Strong Funds as their mutual fund family.
The increasing complexity of the capital markets requires specialized
skills and processes for each asset class and style. Therefore, the Advisor
believes that active management should produce greater returns than a passively
managed index. The Advisor has brought together a group of top-flight
investment professionals with diverse product expertise, and each concentrates
on their investment specialty. The Advisor believes that people are the firm's
most important asset. For this reason, continuity of professionals is critical
to the firm's long-term success.
INVESTMENT ENVIRONMENT
Discussions of economic, social, and political conditions and their
impact on the Fund may be used in advertisements and sales materials. Such
factors that may impact the Fund include, but are not limited to, changes in
interest rates, political developments, the competitive environment, consumer
behavior, industry trends, technological advances, macroeconomic trends, and
the supply and demand of various financial instruments. In addition, marketing
materials may cite the portfolio management's views or interpretations of such
factors.
EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING
These common sense rules are followed by many successful investors.
They make sense for beginners, too. If you have a question on these principles,
or would like to discuss them with us, please contact us at 1-800-368-3863.
1. Have a plan - even a simple plan can help you take control of your
financial future. Review your plan once a year, or if your
circumstances change.
2. Start investing as soon as possible. Make time a valuable ally. Let it
put the power of compounding to work for you, while helping to reduce
your potential investment risk.
3. Diversify your portfolio. By investing in different asset classes -
stocks, bonds, and cash - you help protect against poor performance in
one type of investment while including investments most likely to help
you achieve your important goals.
4. Invest regularly. Investing is a process, not a one-time event. Make a
habit of investing. And make it easy for yourself with an "automatic
investment plan." This popular strategy not only helps you manage
investment risk, it also ensures you "pay yourself first" on a regular
basis.
-22-
<PAGE> 42
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.
PORTFOLIO MANAGEMENT
Each portfolio manager works with a team of analysts, traders, and
administrative personnel. From time to time, marketing materials may discuss
various members of the team, including their education, investment experience,
and other credentials.
The Advisor believes that actively managing the Fund's portfolio and
adjusting the average portfolio maturity according to the Advisor's interest
rate outlook is the best way to achieve the Fund's objectives. This policy is
based on a fundamental belief that economic and financial conditions create
favorable and unfavorable investment periods (or seasons) and that these
different seasons require different investment approaches.
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.
-23-
<PAGE> 43
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder
Strong Institutional Funds, Inc. -
Strong Institutional Money Fund
We have audited the accompanying statement of assets and liabilities of Strong
Institutional Funds, Inc. - Strong Institutional Money Fund as of September 13,
1995. This financial statement is the responsibility of the Fund's management.
Our responsibility is to express an opinion on this financial statement based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets and liabilities is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
statement of assets and liabilities presentation. We believe that our audit of
the statement of assets and liabilities provides a reasonable basis for our
opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Strong
Institutional Funds, Inc. - Strong Institutional Money Fund as of September 13,
1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
September 13, 1995
STATEMENT OF ASSETS AND LIABILITIES
STRONG INSTITUTIONAL FUNDS, INC. -
STRONG INSTITUTIONAL MONEY FUND
STATEMENT OF ASSETS AND LIABILITIES - SEPTEMBER 13, 1995
<TABLE>
<S> <C>
ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000
Deferred organizational costs (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . 87,445
--------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187,445
LIABILITIES:
Due to Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,445
--------
NET ASSETS:
Net assets applicable to 100,000 issued and outstanding shares of $.01 par value
Common Stock; authorized ten billion shares . . . . . . . . . . . . . . . . . . . . . $100,000
========
NET ASSET VALUE:
Net asset value, redemption price and offering price per share ($100,000/100,000) . . $ 1.00
========
</TABLE>
------------------------------------
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
1. Strong Institutional Funds, Inc. (the "Corporation") was incorporated in the
State of Wisconsin; 100,000 shares of Common Stock of Strong Institutional
Funds, Inc. - Strong Institutional Money Fund (the "Fund") were issued to
Strong Capital Management, Inc. (the "Advisor"). The Corporation may establish
multiple series; currently one series has been established.
2. Costs incurred by the Fund in connection with its organization and public
offering of shares, estimated at $87,445, are deferred and will be amortized
over a period of not more than five years beginning with the date of sales of
shares to the public. These costs were advanced by the Advisor and will be
reimbursed by the Fund over a period of not more than 60 months. The proceeds
of any redemption of the initial shares by any holder thereof will be reduced
by any unamortized deferred organizational costs in the same proportion as the
number of initial shares being redeemed bears to the number of initial shares
outstanding at the time of such redemption.
-24-
<PAGE> 44
APPENDIX
SHORT-TERM RATINGS
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market.
Ratings graded into several categories, ranging from 'A-1' for the
highest quality obligations to 'D' for the lowest. These categories are as
follows:
A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated 'A-1'.
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
B Issues rated 'B' are regarded as having only speculative capacity
for timely payment.
C This rating is assigned to short-term debt obligations with doubtful
capacity for payment.
D Debt rated 'D' is in payment default. The 'D' rating category is
used when interest payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.
STANDARD & POOR'S NOTE RATINGS
A S&P note rating reflects the liquidity factors and market-access
risks unique to notes. Notes maturing in three years or less will likely
receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating.
The following criteria will be used in making the assessment:
Amortization schedule - the larger the final maturity relative to
other maturities, the more likely the issue is to be treated as a
note.
Source of payment - the more the issue depends on the market for its
refinancing, the more likely it is to be considered a note.
The note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined
to possess very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay interest and principal, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3 Speculative capacity to pay principal and interest.
A-1
<PAGE> 45
MOODY'S COMMERCIAL PAPER RATINGS
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
makes no representation as to whether such commercial paper is by any other
definition "commercial paper" or is exempt from registration under the
Securities Act of 1933, as amended.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of nine months. Moody's makes no representation that such
obligations are exempt from registration under the Securities Act of 1933, nor
does it represent that any specific note is a valid obligation of a rated
issuer or issued in conformity with any applicable law. Moody's employs the
following three designations, all judged to be investment grade, to indicate
the relative repayment capacity of rated issuers:
Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
(i) leading market positions in well established industries, (ii) high rates of
return on funds employed, (iii) conservative capitalization structures with
moderate reliance on debt and ample asset protection, (iv) broad margins in
earnings coverage of fixed financial charges and high internal cash generation,
and (v) well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Issuers rated PRIME-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
MOODY'S NOTE RATINGS
MIG 1/VMIG 1 This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
MIG 3/VMIG 3 This designation denotes favorable quality. All
security elements are accounted for but there is lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
MIG 4/VMIG 4 This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
SG This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.
A-2
<PAGE> 46
FITCH INVESTORS SERVICE, INC. SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating
on the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+ (Exceptionally Strong Credit Quality) Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 (Very Strong Credit Quality) Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated 'F-1+'.
F-2 (Good Credit Quality) Issues assigned this rating have a
satisfactory degree of assurance for timely payment but the
margin of safety is not as great as for issues assigned 'F-1+'
and 'F-1' ratings.
F-3 (Fair Credit Quality) Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate, however, near-term adverse changes
could cause these securities to be rated below investment
grade.
F-S (Weak Credit Quality) Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes
in financial and economic conditions.
D (Default) Issues assigned this rating are in actual or
imminent payment default.
LOC The symbol LOC indicates that the rating is based on a letter
of credit issued by a commercial bank.
DUFF & PHELPS, INC. SHORT-TERM DEBT RATINGS
Duff & Phelps' short-term ratings are consistent with the rating
criteria utilized by money market participants. The ratings apply to all
obligations with maturities of under one year, including commercial paper, the
uninsured portion of certificates of deposit, unsecured bank loans, master
notes, bankers acceptances, irrevocable letters of credit, and current
maturities of long-term debt. Asset-backed commercial paper is also rated
according to this scale.
Emphasis is placed on liquidity which as defined as not only cash from
operations, but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.
Rating Scale: Definition
Duff 1+ Highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding,
and safety is just below risk-free U.S. Treasury
short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors
are excellent and supported by good fundamental protection
factors. Risk factors are minor.
Duff 1- High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection
factors. Risk factors are very small.
A-3
<PAGE> 47
Good Grade
Duff 2 Good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing
requirements, access to capital markets is good.
Risk factors are small.
Satisfactory Grade
Duff 3 Satisfactory liquidity and other protection factors
qualify issue as to investment grade. Risk factors
are larger and subject to more variation.
Nevertheless, timely payment is expected.
Non-investment Grade
Duff 4 Speculative investment characteristics. Liquidity is
not sufficient to insure against disruption in debt
service. Operating factors and market access may be
subject to a high degree of variation.
Default
Duff 5 Issuer failed to meet scheduled principal and/or
interest payments.
A-4
<PAGE> 48
STRONG INSTITUTIONAL FUNDS, INC.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements for Strong Institutional Money Fund (all
included in Part B)
Report of Independent Accountants
Statement of Assets and Liabilities
(b) Exhibits
(1) Amended and Restated Articles of Incorporation
(2) Bylaws
(3) Inapplicable
(4) Specimen Stock Certificate
(5) Investment Advisory Agreement
(6) Distribution Agreement
(7) Inapplicable
(8) Custody Agreement
(9) Shareholder Servicing Agent Agreement
(10) Opinion of Counsel
(11) Consent of Auditor
(12) Inapplicable
(13) Subscription Agreement
(14) Inapplicable
(15) Inapplicable
(16) Inapplicable
(17) Inapplicable
(18) Power of Attorney
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant neither controls any person nor is under common control
with any other person.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of September 15, 1995
-------------- ------------------------
Common Stock, $.01 par value
Strong Institutional Money Fund 1
C-1
<PAGE> 49
Item 27. Indemnification
Officers and directors are insured under a joint errors and omissions
insurance policy underwritten by American International Surplus Lines Insurance
Company and First State Insurance Company in the aggregate amount of
$10,000,000, subject to certain deductions. Pursuant to the authority of the
Wisconsin Business Corporation Law, Article VII of Registrant's 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.
SECTION 7.02. Permissive Supplementary Benefits. The
Corporation may, but shall not be required to, supplement the right of
indemnification under Section 7.01 by (a) the purchase of insurance on
behalf of any one or more of such persons, whether or not the
Corporation would be obligated to indemnify such person under Section
7.01; (b) individual or group indemnification agreements with any one
or more of such persons; and (c) advances for related expenses of such
a person.
SECTION 7.03. Amendment. This Article VII may be amended or
repealed only by a vote of the shareholders and not by a vote of the
Board of Directors.
SECTION 7.04. Investment Company Act. In no event shall the
Corporation indemnify any person hereunder in contravention of any
provision of the Investment Company Act.
Item 28. Business and Other Connections of Investment Advisor
The information contained under "About the Fund - Management" in the
Prospectus and under "Directors and Officers of the Corporation" and
"Investment Advisor and Distributor" in the Statement of Additional Information
is hereby incorporated by reference pursuant to Rule 411 under the Securities
Act of 1933.
Item 29. Principal Underwriters
(a) Strong Funds Distributors, Inc., principal underwriter for
Registrant, also serves as principal underwriter for Strong Advantage Fund,
Inc.; Strong American Utilities Fund, Inc.; Strong Asia Pacific Fund, Inc.;
Strong Asset Allocation Fund, Inc.; Strong Common Stock Fund, Inc.; Strong
Corporate Bond Fund, Inc.; Strong Discovery Fund, Inc.; Strong Government
Securities Fund, Inc.; Strong Growth Fund, Inc.; Strong Heritage Reserve
Series, Inc.; Strong High-Yield Municipal Bond Fund, Inc.; Strong Insured
Municipal Bond Fund, Inc.; Strong International Bond Fund, Inc.; Strong
International Stock Fund, Inc.; Strong Money Market Fund, Inc.; Strong
Municipal Bond Fund, Inc.; Strong Municipal Money Market Fund, Inc.; Strong
Opportunity Fund, Inc.; Strong Short-Term Bond Fund, Inc.; Strong Short-Term
Global Bond Fund, Inc.; Strong Short-Term Municipal Bond Fund, Inc.; Strong
Special Fund II, Inc.; Strong Total Return Fund, Inc.; Strong U.S. Treasury
Money Fund, Inc.; and Strong Variable Insurance Funds, Inc.
(b) The information contained under "About the Fund - Management" in
the Prospectus and under "Directors and Officers of the Corporation" and
"Investment Advisor and Distributor" in the Statement of Additional Information
is hereby incorporated by reference pursuant to Rule 411 under the Securities
Act of 1933.
(c) Inapplicable
C-2
<PAGE> 50
Item 30. Location of Accounts and Records
All accounts, books, or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are in the physical possession of Registrant's Treasurer, Ronald A.
Neville, at Registrant's corporate offices, 100 Heritage Reserve, Menomonee
Falls, Wisconsin 53051.
Item 31. Management Services
All management-related service contracts entered into by Registrant
are discussed in Parts A and B of this Registration Statement.
Item 32. Undertakings
(a) Inapplicable.
(b) Registrant undertakes to file a post-effective amendment to this
Registration Statement within four to six months of the effective date of this
Registration Statement which will contain financial statements (which need not
be certified) as of and for the time period reasonably close or as soon as
practicable to the date of such post-effective amendment.
(c) The Registrant undertakes to furnish to each person to whom a
prospectus is delivered, upon request and without charge, a copy of the
Registrant's latest annual report to shareholders.
C-3
<PAGE> 51
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
Village of Menomonee Falls, and State of Wisconsin on the 15th day of
September, 1995.
STRONG INSTITUTIONAL FUNDS, INC.
(Registrant)
BY: /s/ John Dragisic
------------------------------------
John Dragisic, Vice Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A has
been signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
Vice Chairman of the Board (Principal
/s/ John Dragisic Executive Officer) September 15, 1995
-------------------------------
John Dragisic
Treasurer (Principal Financial and
/s/ Ronald A. Neville Accounting Officer) September 15, 1995
-------------------------------
Ronald A. Neville
/s/ Richard S. Strong Chairman of the Board and a Director September 15, 1995
-------------------------------
Richard S. Strong
------------------------------- Director September 15, 1995
Marvin E. Nevins*
------------------------------- Director September 15, 1995
Willie D. Davis*
------------------------------- Director September 15, 1995
William F. Vogt*
------------------------------- Director September 15, 1995
Stanley Kritzik*
</TABLE>
* Ann E. Oglanian signs this document pursuant to powers of attorney
filed with the Registration Statement of Registrant filed on or about
August 3, 1995.
By: /s/ Ann E. Oglanian
--------------------------
Ann E. Oglanian
<PAGE> 52
EXHIBIT INDEX
<TABLE>
<CAPTION>
EDGAR
Exhibit No. Exhibit Exhibit No.
----------- ------- -----------
<S> <C> <C>
(1) Amended and Restated Articles of Incorporation EX-99.B1(1)
(2) Bylaws EX-99.B2(1)
(3) Inapplicable
(4) Specimen Stock Certificate EX-99.B4(1)
(5) Investment Advisory Agreement EX-99.B5(1)
(6) Distribution Agreement EX-99.B6(1)
(7) Inapplicable
(8) Custody Agreement EX-99.B8(1)
(9) Shareholder Servicing Agent Agreement EX-99.B9
(10) Opinion of Counsel EX-99.B10
(11) Consent of Auditor EX-99.B11
(12) Inapplicable
(13) Subscription Agreement EX-99.B13(1)
(14) Inapplicable
(15) Inapplicable
(16) Inapplicable
(17) Inapplicable
(18) Power of Attorney EX-99.B18(1)
--------------------
</TABLE>
(1) Incorporated herein by reference to the Registration Statement on Form N-1A
of Registrant filed on or about August 3, 1995.
<PAGE> 1
EXHIBIT 99.B9
SHAREHOLDER SERVICING AGENT AGREEMENT
THIS AGREEMENT is made and entered into on this ___ day of _____,
1995, between STRONG INSTITUTIONAL FUNDS, INC., a Wisconsin corporation
(the "Company"), on behalf of the Funds (as defined below) of the Company, and
STRONG CAPITAL MANAGEMENT, INC., a Wisconsin corporation ("Strong").
WITNESSETH
WHEREAS, the Company is an open-end management investment company
registered under the Investment Company Act of 1940;
WHEREAS, the Company is authorized to create separate series, each
with its own separate investment portfolio, and the beneficial interest in each
such series will be represented by a separate series of shares (each series is
hereinafter individually referred to as a "Fund" and collectively, the
"Funds");
WHEREAS, the Company is authorized to issue shares of its $.01 par
value common stock (the "Shares") of each Fund;
WHEREAS, the Company desires to retain Strong as the shareholder
servicing agent of the Shares of each Fund on whose behalf this Agreement has
been executed.
NOW, THEREFORE, the Company and Strong do mutually agree and promise
as follows:
1. Appointment. The Company hereby appoints Strong to act as
shareholder servicing agent of the Shares of each Fund listed on Schedule A
hereto, as such Schedule may be amended from time to time. Strong shall, at
its own expense, render the services and assume the obligations herein set
forth subject to being compensated therefor as herein provided.
2. Authority of Strong. Strong is hereby authorized by the
Company to receive all cash which may from time to time be delivered to it by
or for the account of the Funds; to issue confirmations and/or certificates for
Shares of the Funds upon receipt of payment; to redeem or repurchase on behalf
of the Funds Shares upon receipt of certificates properly endorsed or properly
executed written requests as described in the current prospectus of each Fund
and to act as dividend disbursing agent for the Funds.
3. Duties of Strong. Strong hereby agrees to:
A. Process new accounts.
<PAGE> 2
B. Process purchases, both initial and subsequent, of
Fund Shares in accordance with conditions set forth
in the prospectus of each Fund as mutually agreed by
the Company and Strong.
C. Transfer Fund Shares to an existing account or to a
new account upon receipt of required documentation
in good order.
D. Redeem uncertificated and/or certificated shares upon
receipt of required documentation in good order.
E. Issue and/or cancel certificates as instructed;
replace lost, stolen or destroyed certificates upon
receipt of satisfactory indemnification or bond.
F. Distribute dividends and/or capital gain
distributions. This includes disbursement as cash or
reinvestment and to change the disbursement option at
the request of shareholders.
G. Process exchanges between Funds (process and direct
purchase/redemption and initiate new account or
process to existing account).
H. Make miscellaneous changes to records.
I. Prepare and mail a confirmation to shareholders as
each transaction is recorded in a shareholder
account. Duplicate confirmations to be available on
request within current year.
J. Handle phone calls and correspondence in reply to
shareholder requests except those items set forth in
Referrals to Company, below.
K. Prepare Reports for the Funds:
i. Monthly analysis of transactions and accounts
by types.
ii. Quarterly state sales analysis; sales by
size; analysis of systematic withdrawals,
Keogh, IRA and 403(b)(7) plans; print-out of
shareholder balances.
L. Perform daily control and reconciliation of Fund
Shares with Strong's records and the Company's
office records.
M. Prepare address labels or confirmations for four
reports to shareholders per year.
2
<PAGE> 3
N. Mail and tabulate proxies for one Annual Meeting of
Shareholders, including preparation of certified
shareholder list and daily report to Company
management, if required.
O. Prepare and mail required Federal income taxation
information to shareholders to whom dividends or
distributions are paid, with a copy for the IRS and a
copy for the Company if required.
P. Provide readily obtainable data which may from time
to time be requested for audit purposes.
Q. Replace lost or destroyed checks.
R. Continuously maintain all records for active and
closed accounts.
S. Furnish shareholder data information for a current
calendar year in connection with IRA and Keogh Plans
in a format suitable for mailing to shareholders.
4. Referrals to Company. Strong hereby agrees to refer to the
Company for reply the following:
A. Requests for investment information, including
performance and outlook.
B. Requests for information about specific plans (i.e.,
IRA, Keogh, Systematic Withdrawal).
C. Requests for information about exchanges between the
Funds.
D. Requests for historical Fund prices.
E. Requests for information about the value and timing
of dividend payments.
F. Questions regarding correspondence from the Company
and newspaper articles.
G. Any requests for information from non-shareholders.
H. Any other types of shareholder requests as the
Company may request from Strong in writing.
5. Compensation to Strong. Strong shall be compensated for its
services hereunder in accordance with the Shareholder Servicing Fee Schedule
(the "Fee Schedule") attached hereto as Schedule B and as such Fee Schedule may
from time to time be amended in writing between the two parties. The Company
will reimburse Strong for all out-of-pocket expenses, including, but not
3
<PAGE> 4
necessarily limited to, postage, confirmation forms, etc. Special projects,
not included in the Fee Schedule and requested by proper instructions from the
Company with respect to the relevant Funds, shall be completed by Strong and
invoiced to the Company and the relevant Funds as mutually agreed upon.
6. Rights and Powers of Strong. Strong's rights and powers with
respect to acting for and on behalf of the Company, including rights and powers
of Strong's officers and directors, shall be as follows:
A. No order, direction, approval, contract or obligation
on behalf of the Company with or in any way affecting Strong shall be
deemed binding unless made in writing and signed on behalf of the
Company by an officer or officers of the Company who have been duly
authorized to so act on behalf of the Company by its Board of
Directors.
B. Directors, officers, agents and shareholders of the
Company are or may at any time or times be interested in Strong as
officers, directors, agents, shareholders, or otherwise.
Correspondingly, directors, officers, agents and shareholders of
Strong are or may at any time or times be interested in the Company as
directors, officers, agents, shareholders or otherwise. Strong shall,
if it so elects, also have the right to be a shareholder of the
Company.
C. The services of Strong to the Company are not to be
deemed exclusive and Strong shall be free to render similar services
to others as long as its services for others do not in any manner or
way hinder, preclude or prevent Strong from performing its duties and
obligations under this Agreement.
D. The Company will indemnify Strong and hold it
harmless from and against all costs, losses, and expenses which may be
incurred by it and all claims or liabilities which may be asserted or
assessed against it as a result of any action taken by it without
negligence and in good faith, and for any act, omission, delay or
refusal made by Strong in connection with this agency in reliance upon
or in accordance with any instruction or advice of any duly authorized
officer of the Company.
7. Effective Date. This Agreement shall become effective as of
the date hereof.
8. Termination of Agreement. This Agreement shall continue in
force and effect until terminated or amended to such an extent that a new
Agreement is deemed advisable by either party. Notwithstanding anything herein
to the contrary, this Agreement may be terminated at any time, without payment
of any penalty, by the Company or Strong upon ninety (90) days' written notice
to the other party.
9. Amendment. This Agreement may be amended by the mutual
written consent of the parties. If, at any time during the existence of this
Agreement, the Company deems it necessary or advisable in the best interests of
Company that any amendment of this Agreement be made in order to
4
<PAGE> 5
comply with the recommendations or requirements of the Securities and Exchange
Commission or state regulatory agencies or other governmental authority, or to
obtain any advantage under state or federal laws, the Company shall notify
Strong of the form of amendment which it deems necessary or advisable and the
reasons therefor, and if Strong declines to assent to such amendment, the
Company may terminate this Agreement forthwith.
10. Notice. Any notice that is required to be given by the
parties to each other under the terms of this Agreement shall be in writing,
addressed and delivered, or mailed postpaid to the other party at the principal
place of business of such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed as of the day and year first stated above.
Attest: Strong Capital Management, Inc.
______________________________________ ___________________________________
Thomas P. Lemke, Senior Vice President John Dragisic, Vice Chairman
Attest: Strong Institutional Funds, Inc.
______________________________________ ___________________________________
Ann E. Oglanian, Secretary Lawrence A. Totsky, Vice President
5
<PAGE> 6
SCHEDULE A
The Fund(s) of the Company currently subject to this Agreement are as follows:
Date of Addition
Fund(s) to this Agreement
------- -----------------
Strong Institutional Money Fund
Attest: Strong Capital Management, Inc.
______________________________________ ____________________________________
Thomas P. Lemke, Senior Vice President John Dragisic, Vice Chairman
Attest: Strong Institutional Funds, Inc.
______________________________________ ____________________________________
Ann E. Oglanian, Secretary Lawrence A. Totsky, Vice President
6
<PAGE> 7
SCHEDULE B
SHAREHOLDER SERVICING FEE SCHEDULE
Until such time that this schedule is replaced or modified, Strong
Institutional Funds, Inc. (the "Company"), on behalf of each Fund set forth
on Schedule A to this Agreement, agrees to compensate Strong Capital
Management, Inc. ("Strong") for performing as shareholder servicing agent as
specified below, plus out-of-pocket expenses attributable to the Company and
the Fund(s).
Annual Rate per
Fund(s) Open Fund Account
------- -----------------
Strong Institutional Money Fund .03%
Out-of-pocket expenses include, but are not limited to, the following:
1. All materials, paper and other costs associated with necessary
and ordinary shareholder correspondence.
2. Postage and printing of confirmations, statements, tax forms
and any other necessary shareholder correspondence. Printing
is to include the cost of printing account statements and
confirmations by third-party vendors as well as the cost of
printing the actual forms.
3. The cost of mailing (sorting, inserting, etc.) by third-party
vendors.
4. All banking charges of Company, including deposit slips and
stamps, checks and share drafts, wire fees not paid by
shareholders, and any other deposit account or checking
account fees.
5. The cost of storage media for Company records, including phone
recorder tapes, microfilm and microfiche, forms and paper.
6. Offsite storage costs for older Company records.
7. Charges incurred in the delivery of Company materials and mail.
8. Any costs for outside contractors used in providing necessary
and ordinary services to the Company, a Fund or shareholders,
not contemplated to be performed by Strong.
7
<PAGE> 8
9. Any costs associated with enhancing, correcting or developing
the record keeping system currently used by the Company,
including the development of new statement or tax form
formats.
For the services to be furnished during any month by Strong under this
Agreement, each Fund listed above shall pay Strong a monthly fee equal to
1/12th of the annual fee as set forth above of the average daily net asset
value of the Fund determined as of the close of business on each business day
throughout the month, plus any out-of-pocket expenses paid by Strong during the
month. These fees are in addition to any fees the Company may pay Strong for
providing investment management services or for underwriting the sale of
Company shares. Out-of-pocket expenses will be charged to the applicable Fund,
except for those out-of-pocket expenses attributable to the Company in general,
which shall be charged pro rata to each Fund.
Attest: Strong Capital Management, Inc.
______________________________________ ____________________________________
Thomas P. Lemke, Senior Vice President John Dragisic, Vice Chairman
Attest: Strong Institutional Funds, Inc.
______________________________________ ____________________________________
Ann E. Oglanian, Secretary Lawrence A. Totsky, Vice President
8
<PAGE> 1
EXHIBIT 99.B10
[GODFREY & KAHN, S.C. LETTERHEAD]
September 12, 1995
Strong Institutional Funds, Inc.
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
Gentlemen:
We have acted as your counsel in connection with the preparation of a
Registration Statement on Form N-1A (Registration No. 33-61545) (the
"Registration Statement") relating to the sale by you of an indefinite number
of shares (limited by resolution of the Board of Directors to ten billion
shares) (the "Shares") of common stock, $.01 par value of Strong Institutional
Money Fund (the "Fund"), a series of Strong Institutional Funds, Inc. (the
"Company"), in the manner set forth in the Registration Statement (and the
Prospectus of the Fund included therein).
We have examined: (a) the Registration Statement (and the Prospectus
of the Fund included therein), (b) the Company's Amended and Restated Articles
of Incorporation and By-Laws, (c) certain resolutions of the Company's Board of
Directors, and (d) such other proceedings, documents and records as we have
deemed necessary to enable us to render this opinion.
Based upon the foregoing, we are of the opinion that the Shares, when
sold as contemplated in the Registration Statement, will be duly authorized and
validly issued, fully paid and nonassessable except to the extent provided in
Section 180.0622(2)(b) of the Wisconsin Statutes, or any successor provision,
which provides that shareholders of a corporation organized under Chapter 180
of the Wisconsin Statutes may be assessed up to the par value of their shares
to satisfy the
<PAGE> 2
obligations of such corporation to its employees for services rendered, but not
exceeding six months service in the case of any individual employee; certain
Wisconsin courts have interpreted "par value" to mean the full amount paid by
the purchaser of shares upon the issuance thereof.
We consent to the use of this opinion as an exhibit to the Registration
Statement. In giving this consent, however, we do not admit that we are
"experts" within the meaning of Section 11 of the Securities Act of 1933, as
amended, or within the category of persons whose consent is required by Section
7 of said Act.
Very truly yours,
/s/ Godfrey & Kahn, S.C.
-------------------------
GODFREY & KAHN, S.C.
SM/jh
<PAGE> 1
EXHIBIT 99.B11
[COOPERS & LYBRAND LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder
Strong Institutional Funds, Inc. -
Strong Institutional Money Fund
We consent to the inclusion in Pre-Effective Amendment No. 1 to the
Registration Statement of Strong Institutional Funds, Inc. - Strong
Institutional Money Fund on Form N-1A of our report dated September 13, 1995 on
our audit of the statement of assets and liabilities of Strong Institutional
Money Fund as of September 13, 1995. We also consent to the reference to our
Firm under the caption "Independent Accountants" in the Statement of Additional
Information.
Coopers & Lybrand LLP
Milwaukee, Wisconsin
September 13, 1995
