STRONG INSTITUTIONAL FUNDS INC, 485APOS, 1996-10-17

STRONG INSTITUTIONAL FUNDS INC
485APOS, 1996-10-17

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<PAGE> 1
As filed with the Securities and Exchange Commission on or
about October 17, 1996

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. [ ]
------

Post-Effective Amendment No. 3 [X]
------

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 4 [X]
-----

(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

Registrant has registered an indefinite amount of securities pursuant to
Rule 24f-2 under the Securities Act of 1933; the Registrant's Rule 24f-2 Notice
for the period September 21, 1995 through February 29,1996 was filed on or
about April 19, 1996.

It is proposed that this filing will become effective (check appropriate
box).

[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[X] on December 31, 1996 pursuant to paragraph (a)(2) of Rule 485

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.

<PAGE> 2

STRONG 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
- ------------------------------------------------------ -----------------------------------------
<S> <C>
PART A - INFORMATION REQUIRED IN PROSPECTUS

1. Cover Page Cover Page

2. Synopsis Expenses

3. Condensed Financial Information Financial Highlights

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 *

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 of Principal Shareholders; Directors and
Securities 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>

<PAGE> 3

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 Included in Prospectus under the
Securities Being Offered headings: 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;
and Determination of Net Asset Value

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 Financial Statements
</TABLE>

* Complete answer to Item is contained in the Fund's Annual Report.
** Complete answer to Item is contained in Fund's Prospectus.

<PAGE> 4

STRONG INSTITUTIONAL FUNDS, INC.

CROSS REFERENCE SHEET

FOR STRONG INSTITUTIONAL BOND 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.)

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 of Principal Shareholders; Directors and
Securities Officers of the Corporation; Investment
Advisor and Distributor

<PAGE> 5

<TABLE>
<CAPTION>
CAPTION OR SUBHEADING IN PROSPECTUS OR
ITEM NO. ON FORM N-1A STATEMENT OF ADDITIONAL INFORMATION
- ------------------------------------------- --------------------------------------
<S> <C>
17. Brokerage Allocation and Other
Practices Portfolio Transactions and Brokerage

18. Capital Stock and Other Securities Included in Prospectus under the
heading About the Fund and in the
Statement of Additional Information
under the heading Shareholder
Meetings

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 Inapplicable
</TABLE>

* Complete answer to Item is contained in Fund's Prospectus.

<PAGE> 6
PART A

PROSPECTUS

STRONG INSTITUTIONAL MONEY FUND

Incorporated by Reference to the Registrant's Post-Effective Amendment No. 2 to
the Registration Statement on Form N-1A (File No. 33-61545), which was filed
with the Securities and Exchange Commission on or about June 27, 1996 (Edgar
Reference 0000950137-96-001019).

<PAGE> 7
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
ANY STATE IN WHICH SUCH OFFER, IN SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

STRONG INSTITUTIONAL BOND FUND

The Strong Institutional Bond Fund is a diversified, no-load series of
Strong Institutional Funds, Inc., an open-end management investment company.
The Strong Bond Fund (the "Fund") seeks total return by investing for a high
level of current income with a moderate degree of share-price fluctuation. The
Fund invests primarily in investment-grade debt obligations and its average
portfolio duration will normally vary between three and six years. The Fund is
designed to provide access to the professional investment management services
offered by Strong Capital Management, Inc., the Fund's investment advisor.

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 December 31, 1996, 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 Funds Distributors, Inc., P.O. Box ____, Milwaukee, Wisconsin
53201-____ or by calling (800) ___-____.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

TOLL FREE: 800-___-____

December 31, 1996
<PAGE> 8

TABLE OF CONTENTS

<TABLE>
<S> <C>
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 00
Investment Objective And Policies . . . . . . . . . . . . . . . 00
Fundamentals of Fixed Income Investing . . . . . . . . . . . . 00
Implementation Of Policies And Risks . . . . . . . . . . . . . 00
About The Fund . . . . . . . . . . . . . . . . . . . . . . . . 00
Determining Your Share Price . . . . . . . . . . . . . . . . . 00
How To Buy Shares . . . . . . . . . . . . . . . . . . . . . . . 00
How To Sell Shares . . . . . . . . . . . . . . . . . . . . . . 00
Additional Information . . . . . . . . . . . . . . . . . . . . 00
Appendix A - Ratings of Debt Obligations . . . . . . . . . . . A-1
</TABLE>

No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the Statement
of Additional Information, and if given or made, such information or
representations may not be relied upon as having been authorized by the 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.

2
<PAGE> 9

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

<TABLE>
<S> <C>
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
other financial intermediaries who may charge a commission or other
transaction fee for their services.

ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)

<TABLE>
<CAPTION>
Institutional Bond Fund
------------------------------------------------------------------
<S> <C>
Management Fee .25%
Other Expenses .15
Administrative Services Fee NONE
12b-1 Fees NONE
------------------------------------------------------------------
Total Operating Expenses .40%
</TABLE>

STRONG CAPITAL MANAGEMENT, INC. (THE "ADVISOR") HAS VOLUNTARILY AGREED
TO MAINTAIN THE INSTITUTIONAL FUND'S TOTAL OPERATING EXPENSE AT .40% UNTIL
DECEMBER 31, 1997. If this expense cap was not in place, Other Expenses would
have been _____ %. Thereafter, the Advisor may voluntarily waive its
management fee or absorb Other Expenses for the Fund. Since the Fund is new and
did not begin operations until December 31, 1996, the Other Expenses have been
estimated. For additional information concerning fees and expenses, see "About
the Fund - Management."

3
<PAGE> 10

EXAMPLE. You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time
period:

<TABLE>
<CAPTION>
PERIOD (IN YEARS)
<S> <C> <C>
1 3
Institutional Bond Fund $___ $___
</TABLE>

The Example is based on the Fund's "Total Operating Expenses" after
waiver or absorption, as described above. PLEASE REMEMBER THAT THE EXAMPLE
SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND THAT
ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN. The assumption in the
Example of a 5% annual return is required by regulations of the SEC applicable
to all mutual funds. The assumed 5% annual return is not a prediction of, and
does not represent, the projected or actual performance of the Fund's shares.

INVESTMENT OBJECTIVE AND POLICIES

The Fund has adopted certain fundamental investment restrictions that
are designed to reduce the Fund's investment risk. A complete list of these and
other operating policies are set forth in the Fund's Statement of Additional
Information ("SAI"). To further guide investment activities, the Fund has also
instituted a number of non-fundamental operating policies which are described
throughout this Prospectus and in the SAI. Although operating policies may be
changed by the Fund's Board of Directors without shareholder approval, the Fund
will promptly notify shareholders of any material change in operating policies.
Because of the risks inherent in all investments, there can be no assurance
that the Fund will meet its objective.

The Fund seeks total return by investing for a high level of current
income with a moderate degree of share-price fluctuation. The Fund invests
primarily in investment-grade debt obligations and its average portfolio
duration will normally vary between three and six years.

Under normal market conditions, at least 80% of the Fund's net assets
will be invested in investment-grade debt obligations, which include a range of
securities from those in the highest rating category to those rated
medium-quality (e.g., BBB or higher by Standard & Poor's Ratings Group
("S&P")). The Fund may also invest up to 20% of its net assets in
non-investment-grade debt obligations and other high-yield (high-risk)
securities (e.g., those rated BB or below by S&P). (See "Fundamentals of Fixed
Income Investing - Credit Quality.") The Fund may invest up to 20% of its net
assets in securities denominated in foreign currencies, and may invest beyond
this limit in U.S. dollar-denominated securities of foreign issuers. When the
Advisor determines that market conditions warrant a temporary defensive
position, the Fund may invest without limitation in cash and short-term fixed
income securities.

<PAGE> 11

FUNDAMENTALS OF
FIXED INCOME INVESTING

The Fund may invest in a wide variety of debt obligations and other
securities. See "Implementation of Policies and Risks - Debt Obligations."
Issuers of debt obligations have a contractual obligation to pay interest at a
specified rate ("coupon rate") on specified dates and to repay principal ("face
value" or "par value") on a specified maturity date. Certain debt obligations
(usually intermediate- and long-term obligations) have provisions that allow
the issuer to redeem or "call" the obligation before its maturity. Issuers are
most likely to call such debt obligations during periods of falling interest
rates. As a result, the Fund may be required to invest the unanticipated
proceeds of the called obligations at lower interest rates, which may cause the
Fund's income to decline.

Although the net asset value of the Fund is expected to fluctuate, the
Advisor actively manages the Fund's portfolio and adjusts its duration
according to the Advisor's interest rate outlook while seeking to avoid or
reduce, to the extent possible, any negative changes in net asset value.

PRICE VOLATILITY

The market value of debt obligations is affected by changes in
prevailing interest rates. The market value of a debt obligation generally
reacts inversely to interest-rate changes, meaning, when prevailing interest
rates decline, an obligation's price usually rises, and when prevailing
interest rates rise, an obligation's price usually declines. A fund portfolio
consisting primarily of debt obligations will react similarly to changes in
interest rates.

MATURITY

In general, the longer the maturity of a debt obligation, the higher
its yield and the greater its sensitivity to changes in interest rates.
Conversely, the shorter the maturity, the lower the yield but the greater the
price stability. Commercial paper is generally considered the shortest form of
debt obligation. Notes, whose original maturities are two years or less, are
considered short-term obligations. The term "bond" generally refers to
securities with maturities longer than two years. Bonds with maturities of
three years or less are considered short-term, bonds with maturities between
three and seven years are considered intermediate-term, and bonds with
maturities greater than seven years are considered long-term.

DURATION

Duration is a measure of the expected life of a debt obligation that
was developed as a more precise alternative to the concept of "maturity."
Traditionally, a debt

5
<PAGE> 12

obligation's maturity has been used as a proxy for the sensitivity of the
security's price to changes in interest rates (which is the "interest rate
risk" or "volatility" of the security). However, maturity measures only the
time until a debt obligation provides its final payment, taking no account of
the pattern of the security's payments prior to maturity. In contrast, duration
incorporates a bond's yield, coupon interest payments, final maturity and call
features into one measure. Duration management is one of the fundamental tools
used by the Advisor.

CREDIT QUALITY

The values of debt obligations may also be affected by changes in the
credit rating or financial condition of their issuers. Generally, the lower the
quality rating of an obligation, the higher the degree of risk as to the
payment of interest and return of principal. To compensate investors for taking
on such increased risk, those issuers deemed to be less creditworthy generally
must offer their investors higher interest rates than do issuers with better
credit ratings.

In conducting its credit research and analysis, the Advisor considers
both qualitative and quantitative factors to evaluate the creditworthiness of
individual issuers. The Advisor also relies, in part, on credit ratings
compiled by a number of nationally rated statistical rating organizations
("NRSRO"). "Appendix A - Ratings of Debt Obligations" presents a summary of the
ratings of three well-known such organizations: S&P, Moody's Investors Service,
Inc., and Fitch Investors Service, Inc. Please refer to the Appendix in the
Fund's SAI for a more detailed description of these ratings.

INVESTMENT-GRADE DEBT OBLIGATIONS. Debt obligations rated in the
highest- through the medium-quality categories are commonly referred to as
"investment-grade" debt obligations and include the following:

* U.S. government securities (See "Implementation of Policies and Risks
- Debt Obligations" below);
* bonds or bank obligations rated in one of the four highest rating
categories (e.g., BBB or higher by S&P);
* short-term notes rated in one of the two highest rating categories
(e.g., SP-2 or higher by S&P);
* short-term bank obligations rated in one of the three highest rating
categories (e.g., A-3 or higher by S&P), with respect to obligations
maturing in one year or less;
* commercial paper rated in one of the three highest rating categories
(e.g., A-3 or higher by S&P);
* unrated debt obligations determined by the Advisor to be of comparable
quality; and
* repurchase agreements involving investment-grade debt obligations.

6
<PAGE> 13

Investment-grade debt obligations are generally believed to have
relatively low degrees of credit risk. However, medium-quality debt
obligations, while considered investment grade, may have some speculative
characteristics, since their issuers' capacity for repayment may be more
vulnerable to adverse economic conditions or changing circumstances than that
of higher-rated issuers.

All ratings are determined at the time of investment. Any subsequent
rating downgrade of a debt obligation will be monitored by the Advisor to
consider what action, if any, the Fund should take consistent with its
investment objective.

HIGH-YIELD (HIGH-RISK) SECURITIES. High-yield (high-risk) securities,
also referred to as "junk bonds," are those securities that are rated lower
than investment grade and unrated securities of comparable quality. Although
these securities generally offer higher yields than investment-grade securities
with similar maturities, lower-quality securities involve greater risks,
including the possibility of default or bankruptcy. In general, they are
regarded to be predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal. Other potential risks associated with
investing in high-yield securities include:

* substantial market-price volatility resulting from changes in interest
rates, changes in or uncertainty about economic conditions, and
changes in the actual or perceived ability of the issuer to meet its
obligations;
* greater sensitivity of highly leveraged issuers to adverse economic
changes and individual-issuer developments;
* subordination to the prior claims of other creditors;
* additional Congressional attempts to restrict the use or limit the tax
and other advantages of these securities; and
* adverse publicity and changing investor perceptions about these
securities.

As with any other asset in the Fund's portfolio, any reduction in the
value of such securities as a result of the factors listed above would be
reflected in the net asset value of the Fund. In addition, a fund that invests
in lower-quality securities may incur additional expenses to the extent it is
required to seek recovery upon a default in the payment of principal and
interest on its holdings. As a result of the associated risks, successful
investments in high-yield, high-risk securities will be more dependent on the
Advisor's credit analysis than generally would be the case with investments in
investment-grade securities.

It is uncertain how the high-yield market will perform during a
prolonged period of rising interest rates. A prolonged economic downturn or a
prolonged period of rising interest rates could adversely affect the market for
these securities, increase their volatility, and reduce their value and
liquidity. In addition, lower-quality securities tend to be less liquid than
higher-quality debt securities because the market for them is not as broad or
active. If market quotations are not available, these securities will be valued
in accordance with procedures established by the Fund's Board of Directors.
Judgment may,

7
<PAGE> 14

therefore, play a greater role in valuing these securities. The lack of a
liquid secondary market may have an adverse effect on market price and the
Fund's ability to sell particular securities.

IMPLEMENTATION OF POLICIES AND RISKS

In addition to the investment policies described above (and subject to
certain restrictions described below), the Fund may invest in some or all of
the following securities and may employ some or all of the following investment
techniques, some of which may present special risks as described below. A more
complete discussion of certain of these securities and investment techniques
and the associated risks is contained in the Fund's SAI.

DEBT OBLIGATIONS

The Fund may invest in any type of debt obligations. The Fund's
authority to invest in certain types of debt obligations may be restricted or
subject to objective investment criteria. For additional information on these
restrictions, see "Investment Objective and Policies."

TYPES OF OBLIGATIONS. Debt obligations include (i) corporate debt
securities, including bonds, debentures, and notes; (ii) bank obligations, such
as certificates of deposit, banker's acceptances, and time deposits of domestic
and foreign banks and their subsidiaries and branches, and domestic savings and
loan associations (in amounts in excess of the insurance coverage (currently
$100,000 per account) provided by the Federal Deposit Insurance Corporation);
(iii) commercial paper (including variable-amount master demand notes); (iv)
repurchase agreements; (v) loan interests; (vi) foreign debt obligations issued
by foreign issuers traded either in foreign markets or in domestic markets
through depositary receipts; (vii) convertible securities - debt obligations of
corporations convertible into or exchangeable for equity securities or debt
obligations that carry with them the right to acquire equity securities, as
evidenced by warrants attached to such securities, or acquired as part of units
of the securities; (viii) preferred stocks - securities that represent an
ownership interest in a corporation and that give the owner a prior claim over
common stock on the company's earnings or assets; (ix) U.S. government
securities; (x) mortgage-backed securities, collateralized mortgage
obligations, and similar securities; and (xi) municipal obligations.

GOVERNMENT SECURITIES

U.S. government securities are issued or guaranteed by the U.S.
government or its agencies or instrumentalities. Securities issued by the
government include U.S. Treasury obligations, such as Treasury bills, notes,
and bonds. Securities issued or guaranteed by government agencies or
instrumentalities include the following:

8
<PAGE> 15

* the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business
Administration, and the Government National Mortgage Association,
including GNMA pass-through certificates, whose securities are
supported by the full faith and credit of the United States;
* the Federal Home Loan Banks, Federal Intermediate Credit Banks, and
the Tennessee Valley Authority, whose securities are supported by the
right of the agency to borrow from the U.S. Treasury;
* the Federal National Mortgage Association, whose securities are
supported by the discretionary authority of the U.S. government to
purchase certain obligations of the agency or instrumentality; and
* the Student Loan Marketing Association, the Interamerican Development
Bank, and International Bank for Reconstruction and Development, whose
securities are supported only by the credit of such agencies.

Although the U.S. government provides financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so. The U.S. government and its agencies and
instrumentalities do not guarantee the market value of their securities;
consequently, the value of such securities will fluctuate.

MORTGAGE- AND ASSET-BACKED SECURITIES

Mortgage-backed securities represent direct or indirect participation
in, or are secured by and payable from, mortgage loans secured by real
property, and include single- and multi-class pass-through securities and
collateralized mortgage obligations. Such securities may be issued or
guaranteed by U.S. government agencies or instrumentalities or by private
issuers, generally originators in mortgage loans, including savings
associations, mortgage bankers, commercial banks, investment bankers, and
special purpose entities (collectively, "private lenders"). Mortgage-backed
securities issued by private lenders may be supported by pools of mortgage
loans or other mortgage-backed securities that are guaranteed, directly or
indirectly, by the U.S. government or one of its agencies or instrumentalities,
or they may be issued without any governmental guarantee of the underlying
mortgage assets but with some form of non-governmental credit enhancement.

Asset-backed securities have structural characteristics similar to
mortgage-backed securities. However, the underlying assets are not first-lien
mortgage loans or interests therein; rather they include assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property and receivables from credit
card or other revolving credit arrangements. Payments or distributions of
principal and interest on asset-backed securities may be supported by
non-governmental credit enhancements similar to those utilized in connection
with mortgage-backed securities.

9
<PAGE> 16

The yield characteristics of mortgage- and asset-backed securities
differ from those of traditional debt obligations. Among the principal
differences are that interest and principal payments are made more frequently
on mortgage-and asset-backed securities, usually monthly, and that principal
may be prepaid at any time because the underlying mortgage loans or other
assets generally may be prepaid at any time. As a result, if the Fund purchases
these securities at a premium, a prepayment rate that is faster than expected
will reduce yield to maturity, while a prepayment rate that is slower than
expected will have the opposite effect of increasing the yield to maturity.
Conversely, if the Fund purchases these securities at a discount, a prepayment
rate that is faster than expected will increase yield to maturity, while a
prepayment rate that is slower than expected will reduce yield to maturity.
Accelerated prepayments on securities purchased by the Fund at a premium also
impose a risk of loss of principal because the premium may not have been fully
amortized at the time the principal is prepaid in full. The market for
privately issued mortgage- and asset-backed securities is smaller and less
liquid than the market for government sponsored mortgage-backed securities.

The Fund may invest in stripped mortgage- or asset-backed securities,
which receive differing proportions of the interest and principal payments from
the underlying assets. The market value of such securities generally is more
sensitive to changes in prepayment and interest rates than is the case with
traditional mortgage- and asset-backed securities, and in some cases the market
value may be a extremely volatile. With respect to certain stripped
securities, such as interest-only ("IO") and principal-only ("PO") classes, a
rate of prepayment that is faster or slower than anticipated may result in the
Fund failing to recover all or a portion of its investment, even though the
securities are rated investment grade.

LOAN INTERESTS

The Fund may invest in loan interests, which are interests in amounts
owed by a corporate, governmental or other borrower to lenders or lending
syndicates. Loan interests purchased by the Fund may have a maturity of any
number of days or years, and may be secured or unsecured. Loan interests,
which may take the form of participation interests in, assignments of, or
novations of a loan, may be acquired from U.S. and foreign banks, insurance
companies, finance companies or other financial institutions that have made
loans or are members of a lending syndicate or from the holders of loan
interests. Loan interests involve the risk of loss in case of default or
bankruptcy of the borrower and, in the case of participation interests, involve
a risk of insolvency of the agent lending bank or other financial intermediary.
Loan interests are not rated by any NRSROs and are, at present, not readily
marketable and may be subject to contractual restrictions on resale.

FOREIGN INVESTMENTS AND CURRENCIES

The Fund may invest up to 20% of its net assets in securities
denominated in foreign currencies. The Fund may invest without limitation in
U.S. dollar-denominated

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<PAGE> 17

securities of foreign issuers and U.S. securities enhanced as to credit quality
or liquidity by foreign issuers. Foreign investments involve special risks,
including:

* expropriation, confiscatory taxation, and withholding taxes on
dividends and interest;
* less extensive regulation of foreign brokers, securities markets, and
issuers;
* less publicly available information and different accounting
standards;
* costs incurred in conversions between currencies, possible delays in
settlement in foreign securities markets, limitations on the use or
transfer of assets (including suspension of the ability to transfer
currency from a given country), 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 investments
may be less liquid and their prices more volatile than comparable U.S.
securities. Although the Fund generally will invest only in securities that are
regularly traded on recognized exchanges or in over-the-counter markets, from
time to time foreign investments may be difficult to liquidate rapidly without
adverse price effects. Certain costs attributable to foreign investing, such as
custody charges and brokerage costs, may be higher than those attributable to
domestic investing.

Because most foreign investments are denominated in non-U.S.
currencies, the investment performance of the Fund could be affected by changes
in foreign currency exchange rates to some extent. The value of the Fund's
assets denominated in foreign currencies will increase or decrease in response
to fluctuations in the value of those foreign currencies relative to the U.S.
dollar. Currency exchange rates can be volatile at times in response to supply
and demand in the currency exchange markets, international balances of
payments, governmental intervention, speculation, and other political and
economic conditions.

The Fund may purchase and sell foreign currency on a spot basis and
may engage in forward currency contracts, currency options, and futures
transactions for hedging, risk management, or any other lawful purpose. (See
"Derivative Instruments.")

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

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<PAGE> 18

respect to any security in which it may invest. The Advisor will monitor, on an
ongoing basis, the value of the underlying securities to ensure that the value
always equals or exceeds the repurchase price plus accrued interest. Repurchase
agreements could involve certain risks in the event of a default or insolvency
of the other party to the agreement, including possible delays or restrictions
upon the Fund's ability to dispose of the underlying securities. Although no
definitive creditworthiness criteria are used, the Advisor reviews the
creditworthiness of the banks and non-bank dealers with which the Fund enters
into repurchase agreements to evaluate those risks. The Fund may, under certain
circumstances, deem repurchase agreements collateralized by U.S. government
securities to be investments in U.S. government securities.

DERIVATIVE INSTRUMENTS

The Fund may use derivative instruments for any lawful purpose
consistent with the Fund's investment objective, such as hedging or managing
risk. Derivative instruments are commonly defined to include securities or
contracts whose values depend on (or "derive" from) the value of one or more
other assets, such as securities, currencies, or commodities. These "other
assets" are commonly referred to as "underlying assets."

A derivative instrument generally consists of, is based upon, or
exhibits characteristics similar to options or forward contracts. Options and
forward contracts are considered to be the basic "building blocks" of
derivatives. For example, forward-based derivatives include forward contracts,
swap contracts, as well as exchange-traded futures. Option-based derivatives
include privately negotiated, over-the-counter (OTC) options (including caps,
floors, collars, and options on forward and swap contracts) and exchange-traded
options on futures. Diverse types of derivatives may be created by combining
options or forward contracts in different ways, and by applying these
structures to a wide range of underlying assets.

An option is a contract in which the "holder" (the buyer) pays a
certain amount (the "premium") to the "writer" (the seller) to obtain the
right, but not the obligation, to buy from the writer (in a "call") or sell to
the writer (in a "put") a specific asset at an agreed upon price at or before a
certain time. The holder pays the premium at inception and has no further
financial obligation. The holder of an option-based derivative generally will
benefit from favorable movements in the price of the underlying asset but is
not exposed to corresponding losses due to adverse movements in the value of
the underlying asset. The writer of an option-based derivative generally will
receive fees or premiums but generally is exposed to losses due to changes in
the value of the underlying asset.

A forward is a sales contract between a buyer (holding the "long"
position) and a seller (holding the "short" position) for an asset with
delivery deferred until a future date. The buyer agrees to pay a fixed price at
the agreed future date and the seller agrees to deliver the asset. The seller
hopes that the market price on the delivery date is less than the agreed upon
price, while the buyer hopes for the contrary. The change in value of a

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<PAGE> 19

forward-based derivative generally is roughly proportional to the change in
value of the underlying asset.

Derivative instruments may include (i) options; (ii) futures; (iii)
options on futures; (iv) short sales against the box, in which the Fund sells a
security it owns for delivery at a future date; (v) swaps, in which two parties
agree to exchange a series of cash flows in the future, such as interest-rate
payments; (vi) interest-rate caps, under which, in return for a premium, one
party agrees to make payments to the other to the extent that interest rates
exceed a specified rate, or "cap"; (vii) interest-rate floors, under which, in
return for a premium, one party agrees to make payments to the other to the
extent that interest rates fall below a specified level, or "floor"; (viii)
forward currency contracts and foreign currency exchange-related securities;
and (ix) structured instruments which combine the foregoing in different ways.

Derivatives may be exchange-traded or traded in OTC transactions
between private parties. OTC transactions are subject to additional risks, such
as the credit risk of the counterparty to the instrument and are less liquid
than exchange-traded derivatives since they often can only be closed out with
the other party to the transaction. Derivative instruments may include elements
of leverage and, accordingly, the fluctuation of the value of the derivative
instrument in relation to the underlying asset may be magnified. When required
by SEC guidelines, the Fund will set aside permissible liquid assets in a
segregated account to secure its obligations under the derivative.

The successful use of derivatives by the Fund is dependent upon a
variety of factors, particularly the Advisor's ability to correctly anticipate
trends in the underlying asset. In a hedging transaction, if the Advisor
incorrectly anticipates trends in the underlying asset, the Fund may be in a
worse position than if no hedging had occurred. In addition, there may be
imperfect correlation between the Fund's derivative transactions and the
instruments being hedged. To the extent that the Fund is engaging in derivative
transactions for risk management, the Fund's successful use of such
transactions is more dependent upon the Advisor's ability to correctly
anticipate such trends, since losses in these transactions may not be offset by
gains in the Fund's portfolio or by lower purchase prices for assets it intends
to acquire. The Advisor's prediction of trends in underlying assets may prove
to be inaccurate, which could result in substantial losses to the Fund.

In addition to the derivative instruments and strategies described
above, the Advisor expects to discover additional derivative instruments and
other hedging or risk-management techniques. The Advisor may utilize these new
derivative instruments and techniques to the extent that they are consistent
with the Fund's investment objective and permitted by the Fund's investment
limitations, operating policies, and applicable regulatory authorities.

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<PAGE> 20

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.

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 15% 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 Fund's Board of Directors.

ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES

The Fund may invest without limitation in zero-coupon, step-coupon,
and pay-in-kind securities. These securities are debt securities that do not
make regular cash interest payments. Zero-coupon and step-coupon securities are
sold at a deep discount to their face value. Pay-in-kind securities pay
interest through the issuance of additional securities. Because such securities
do not pay current cash income, the price of these securities can be volatile
when interest rates fluctuate. While these securities do not pay current cash
income, federal income tax law requires the holders of zero-coupon,
step-coupon, and pay-in-kind securities to include in income each year the
portion of the original issue discount (or deemed discount) and other non-cash
income on such securities accrued during that year. In order to continue to
qualify for treatment as a "regulated investment company" under the Internal
Revenue Code and avoid a certain excise tax, the Fund may be required to
distribute a portion of such discount and income and may be required to dispose
of other portfolio securities, which may occur in periods

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<PAGE> 21

of adverse market prices, in order to generate cash to meet these distribution
requirements.

MORTGAGE DOLLAR ROLLS AND
REVERSE REPURCHASE AGREEMENTS

The Fund may engage in reverse repurchase agreements to facilitate
portfolio liquidity, a practice common in the mutual fund industry, or for
arbitrage transactions discussed below. In a reverse repurchase agreement, the
Fund would sell a security and enter into an agreement to repurchase the
security at a specified future date and price. The Fund generally retains the
right to interest and principal payments on the security. Since the Fund
receives cash upon entering into a reverse repurchase agreement, it may be
considered a borrowing. When required by SEC guidelines, the Fund will set
aside permissible liquid assets in a segregated account to secure its
obligation to repurchase the security.

The Fund may also enter into mortgage dollar rolls, in which the Fund
would sell mortgage-backed securities for delivery in the current month and
simultaneously contract to purchase substantially similar securities on a
specified future date. While the Fund would forego principal and interest paid
on the mortgage-backed securities during the roll period, the Fund would be
compensated by the difference between the current sale price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The Fund also could be compensated through the receipt of
fee income equivalent to a lower forward price. When required by SEC
guidelines, a Fund would set aside permissible liquid assets in a segregated
account to secure its obligation for the forward commitment to buy
mortgage-backed securities. Mortgage dollar roll transactions may be considered
a borrowing by the Fund.

The mortgage dollar rolls and reverse repurchase agreements entered
into by the Fund may be used as arbitrage transactions in which the Fund will
maintain an offsetting position in investment-grade debt obligations or
repurchase agreements that mature on or before the settlement date of the
related mortgage dollar roll or reverse repurchase agreement. Since the Fund
will receive interest on the securities or repurchase agreements in which it
invests the transaction proceeds, such transactions may involve leverage.
However, since such securities or repurchase agreements will be high quality
and will mature on or before the settlement date of the mortgage dollar roll or
reverse repurchase agreement, the Advisor believes that such arbitrage
transactions do not present the risks to the Fund that are associated with
other types of leverage.

PORTFOLIO TURNOVER

The annual portfolio turnover rate indicates changes in the Fund's
portfolio. The turnover rate may vary from year to year, as well as within a
year. It may also be affected by sales of portfolio securities necessary to
meet cash requirements for redemptions of shares. High portfolio turnover in
any year will result in the payment by the Fund of

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<PAGE> 22

above-average amounts of transaction costs and could result in the payment by
shareholders of above-average amounts of taxes on realized investment gains.
The annual portfolio turnover rate for the Fund is expected to be between 200%
and 300%. However, the Fund's portfolio turnover rate may exceed 300% when the
advisor believes the anticipated benefits of short-term investments outweigh
any increase in transaction costs or increase in capital gains.

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 fund and profit-sharing
plans, as well as mutual funds, several of which are funding vehicles for
variable insurance products. As of November 30, 1996, the Advisor had over
$_____ billion under management. The Advisor's principal mailing address is
P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr. Richard S. Strong, the Chairman
of the Board of Strong Institutional Funds, Inc., 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 .25%. 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 of prospectuses to existing
shareholders; charges of custodians (including fees as custodian for keeping
books and similar services for the Fund), transfer agents (including the
printing and mailing of reports and notices to shareholders), registrars,
auditing and legal services, and clerical services related to recordkeeping and
shareholder relations; printing of stock certificates; fees for directors who
are not "interested persons" of the Advisor; expenses

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<PAGE> 23

of indemnification; extraordinary expenses; and costs of shareholder and
director meetings.

PORTFOLIO MANAGERS. The following individuals serve as co-portfolio
managers of the Fund.

BRADLEY C. TANK. Mr. Tank leads the Fund's investment team. Before
joining the Advisor in June 1990, Mr. Tank spent eight years at Salomon
Brothers, Inc., where he was a vice president and fixed income specialist. In
addition, Mr. Tank chairs the Fixed Income Investment Committee. Mr. Tank
received his B.A. in 1980 from the University of Wisconsin-Eau Claire and his
M.B.A. in 1982 from the University of Wisconsin-Madison, where he also
completed the Applied Securities Analysis Program.

JEFFREY A. KOCH. Mr. Koch joined the Advisor as a portfolio manager
and securities analyst in June 1989. For a brief period prior to that, he was a
market-maker clerk at Fossett Corporation, a clearing firm. Mr. Koch earned his
M.B.A. in Finance at Washington University in St. Louis, Missouri in 1989. His
undergraduate degree, awarded in 1987, is from the University of
Minnesota-Morris.

SHIRISH T. MALEKAR. Mr. Malekar joined the Advisor in January 1994. He
was an international bond portfolio manager at Pacific Investment Management
Company in California for the previous three years. Prior to that, he was a
bond trader at Harris Bank in Chicago for one year and a bond trader at
PaineWebber Incorporated in New York and Tokyo for more than two years. He has
an M.S. in Management from the Massachusetts Institute of Technology, an M.S.
in Petroleum Engineering from the University of Pittsburgh, and a B.S. in
Chemical Engineering from the University of Bombay, India.

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 _____%. 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

The Fund is a series of Strong Institutional Funds, Inc., a Wisconsin
corporation that is authorized to issue an indefinite number of shares of
common stock and series and

17
<PAGE> 24

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.

DISTRIBUTIONS AND TAXES

PAYMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS. Dividends from the Fund
automatically will be invested in additional shares of the Fund. Shares are
purchased 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 and to distribute substantially all net realized capital gains
and gains from foreign currency transactions, if any, annually. The Fund may
make additional distributions if necessary to avoid imposition of a 4% excise
tax on undistributed income and gains. The Fund declares dividends on each day
its net asset value is calculated, except for bank holidays. Income earned on
weekends, holidays (including bank holidays), and 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 AND OTHER DISTRIBUTIONS. You may be subject to
federal income tax at ordinary income tax rates on any dividends you receive
that are derived from investment company taxable income (consisting generally
of net investment income, net short-term capital gain, and net gains from
certain foreign currency transactions, if any). Distributions by the Fund of
net capital gain (the excess of net long-term capital gain over net short-term
capital loss), when designated as such, are taxable to you as long-term capital
gains, regardless of how long you have held your Fund shares.

The 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.

If the Fund's distributions exceed its investment company taxable
income and net capital gain in any year, as a result of currency-related losses
or otherwise, all or a portion

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<PAGE> 25

of those distributions may be treated as a return of capital to shareholders
for tax purposes.

YEAR-END TAX REPORTING. After the end of each calendar year, you will
receive a statement (Form 1099) of the federal income tax status of all
dividends and other distributions paid (or deemed paid) during the year.

SHARES SOLD OR EXCHANGED. Your redemption of shares of the Fund may
result in taxable gain or loss to you, depending upon whether the redemption
proceeds payable to you are more or less than your adjusted cost basis for the
redeemed shares. Similar tax consequences generally will result from an
exchange of shares of the Fund for shares of another Strong Fund. If you
purchase shares of the Fund within thirty days before or after redeeming shares
of the Fund at a loss, a portion or all of that loss will not be deductible and
will increase the cost basis of the newly purchased shares. If you redeem
shares out of a non-IRA retirement account, you will be subject to withholding
for federal income tax purposes unless you transfer the distribution directly
to an "eligible retirement plan." In addition, if you redeem all shares in an
account at any time during a month, dividends credited to the account since the
beginning of the month through the day of redemption will be paid with the
redemption proceeds.

BACKUP WITHHOLDING. If your are an individual or certain other
noncorporate shareholder an do not furnish the Fund with a correct taxpayer
identification number, the Fund is required to withhold federal income tax at a
rate of 31% (backup withholding) from all dividends, capital gain
distributions, and redemption proceeds, payable to you. Withholding at that
rate from dividends and capital gain distributions payable to you also is
required if you otherwise are subject to backup withholding. To avoid backup
withholding, you must provide a taxpayer identification number and state that
you are not subject to backup withholding due to the underreporting of you
income. This certification is included as part of your application. Please
complete it when you open your account.

TAX STATUS OF THE FUND. The Fund intends to qualify for treatment as a
regulated investment company under Subchapter M of the Internal Revenue Code
and, if so qualified, will not be liable for federal income tax on earnings and
gains distributed to its shareholders in a timely manner.

This section is not intended to be a full discussion of present or
proposed federal income tax law and its effects on the Fund and investors
therein. See the SAI for a further discussion. There may be other federal,
state, or local tax considerations applicable to a particular investor. You are
therefore urged to consult your own tax adviser.

PERFORMANCE INFORMATION

The Fund may advertise a variety of types of performance information
including "yield," "effective yield," "average annual total return," "total
return," and "cumulative

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<PAGE> 26

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

Generally, when you make any purchases, sales, or exchanges, the price
of your class of shares will be the net asset value ("NAV") next determined
after Strong Funds receives your request in proper form. If Strong Funds
receives such request prior to the close of the New York Stock Exchange (the
"Exchange") on a day on which the Exchange is open, your share price will be
the NAV determined that day. The NAV for the Fund is normally determined as of
3:00 p.m. Central Time ("CT") each day the Exchange is open. The Fund reserves
the right to change the time at which purchases, redemptions, and exchanges are
priced if the Exchange closes at a time other than 3:00 p.m. CT or if an
emergency exists. The Fund's NAV is calculated by taking the fair value of the
Fund's total assets, subtracting all its liabilities, and dividing by the total
number of shares outstanding. Expenses are accrued and applied daily when
determining the NAV.

The Fund's debt securities are valued by a pricing service that
utilizes electronic data processing techniques to determine values for normal
institutional size trading units of debt securities without regard to the
existence of sale or bid prices when such techniques are believed to more
accurately reflect the fair market value of such securities. Otherwise, sale or
bid prices are used. Any securities or other assets for which market quotations
are not readily available are valued at fair value as determined in good faith
by the Board of Directors. Debt securities having remaining maturities of 60
days or less are valued by the amortized cost method when the Board of
Directors determines that the fair value of such securities is their amortized
cost.

HOW TO BUY SHARES

An institutional investor may purchase shares at the NAV next
determined after an order is received in proper form. Although the Fund does
not impose any sales charge

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<PAGE> 27

in connection with the purchase of its shares, institutions may charge their
clients fees in connection with purchases for their accounts. A completed,
signed application must be received by Strong Institutional Investor Services
prior to the initial investment in the Fund's shares. The application should
be forwarded to Strong Institutional Investor Services, 100 Heritage Reserve,
P.O. Box ____, Milwaukee, Wisconsin 53201-____ (or fax to 414-359-____). Shares
must be purchased by wire. Federal funds should be wired as follows:

Firstar Bank Milwaukee, N.A. ("Firstar")
777 East Wisconsin Avenue
Milwaukee, WI 53202
ABA routing number: 075000022
Account number: 112737-090
For Further Credit to: (insert your account number and registration)

The Fund and the Distributor each reserves the right, in its sole
discretion, to suspend the offering of shares of the Fund or to reject any
purchase order, in whole or in part for any reason; to waive the minimum
initial investment for certain investors; and to redeem shares if information
provided in the Client Registration Application should prove to be incorrect in
any manner judged by the Fund to be material (e.g., in a manner such as to
render the shareholder ineligible to purchase shares of the Fund).

HOW TO SELL SHARES

An investor may redeem shares at the NAV next determined after an
order is received in proper form by Strong Institutional Investor Services.
Although the Fund does not impose any sales charges 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. Shares may be
redeemed by either telephone or written instruction.

To redeem by wire, place an order by calling Strong Institutional
Investor Services at (800) ___-____, by sending a fax to (414) 359-____. To
redeem by telephone, the "Yes" box in the appropriate section of the account
application must be checked. Shares may also be redeemed by submitting a
written request to Strong Institutional Investor Services, 100 Heritage
Reserve, P.O. Box ____, Milwaukee, Wisconsin 53201-____ (or fax to
414-359-____). Such written request must be signed exactly as the names of the
registered owners appear on the Fund's account records, and the request must be
signed by the minimum number of persons designated on the account application
that are required to effect a redemption. Please note that any written
redemption request of $25,000 or more must be accompanied by a signature
guarantee. Payment of the redemption proceeds will be wired to the bank
account(s) designated on the account application. Redemption proceeds will
ordinarily be wired the next business day, but in no event more than seven days
after receipt of the redemption .

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<PAGE> 28

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.

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 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.

EXCHANGE PRIVILEGE

Shares of the Fund may be exchanged for shares of any Strong Fund
(except for Strong Institutional Money Fund or any Strong Variable Insurance
Fund). An exchange may be made by calling Strong Institutional Investor
Services at (800) ___-____ or by sending a fax to (414) 359-____. To conduct an
exchange by telephone, the "Yes" box in the appropriate section of the Client
Registration Application must be checked. For tax purposes, an exchange is
considered a sale and a purchase of Fund shares and may result in a capital
gain or loss for tax purposes. Please obtain and read the appropriate
prospectus before investing in any of the Strong Funds. Since an excessive
number of exchanges may be detrimental to the Fund, the Fund reserves the right
to discontinue the exchange privilege of any shareholder who makes more than
five exchanges in a year or three exchanges in a calendar quarter.

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.

22
<PAGE> 29

PURCHASES IN KIND

Investors may, subject to the approval of the Fund, purchase shares of
the Fund with liquid securities that are eligible for purchase by the Fund
(consistent with the Fund's investment restrictions, policies, and objective)
and that have a value that is readily ascertainable in accordance with the
Fund's valuation policies. These transactions will be effected only if the
Advisor intends to retain the security in the Fund as an investment. The Fund
reserves the right to amend or terminate this practice at any time.

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.

MINIMUM INVESTMENT AND ACCOUNT BALANCE

The minimum initial investment to establish a new account in the Fund
is $1 million. Subsequent transactions may be made in any amount. If an
account balance falls below $1 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 $1 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) 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.
Call 1-800-____ 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.

FINANCIAL INTERMEDIARIES

Broker-dealers, financial institutions, and other financial
intermediaries that have entered into agreements with the Distributor may enter
purchase or redemption orders on behalf of their customers. If you purchase or
redeem shares of the Fund through a financial intermediary, certain features of
the Fund relating to such transactions may not be available or may be modified
in accordance with the terms of the intermediaries'

23
<PAGE> 30

agreement with the Distributor. In addition, certain operational policies of
the Fund, including those related to settlement and dividend accrual, may vary
from those applicable to direct shareholders of the Fund and may vary amount
intermediaries. We urge you to consult your financial intermediary for more
information regarding these matters. In addition, the Fund may pay, directly or
indirectly through arrangements with the Advisor, amounts to financial
intermediaries that provide transfer agent services and/or administrative
services relating to the Fund to their customers, provided, however, that the
Fund will not pay more for these services through intermediary relationships
that it would have if the intermediaries' customers were direct shareholders in
the Fund..

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, or (v) a change or
addition to a preauthorized bank address must have their signatures guaranteed
by any eligible guarantor institution, as defined by the SEC. These
institutions include banks, savings associations, credit unions, brokerage
firms, and others. PLEASE NOTE THAT A NOTARY PUBLIC STAMP OR SEAL IS NOT
ACCEPTABLE.

24
<PAGE> 31

APPENDIX A

RATINGS OF DEBT OBLIGATIONS:

<TABLE>
<CAPTION>
Moody's Standard & Fitch
Investors Poor's Ratings Investors
Services, Inc. Group Service, Inc. Definition
<S> <C> <C> <C> <C>
LONG-TERM Aaa AAA AAA Highest quality
Aa AA AA High Quality
A A A Upper medium grade
Baa BBB BBB Medium grade
Ba BB BB Low Grade
B B B Speculative
Caa, Ca, C CCC, CC, C CCC, CC, C Submarginal
D D DDD, DD, D Probably in
default
</TABLE>

<TABLE>
<CAPTION>
Moody's S&P Fitch
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM MIG1/VMIG1 Best SP-1+ Very strong F-1+ Exceptionally
quality quality strong quality
MIG2/VMIG2 High SP-1 Strong quality F-1 Very strong quality
quality
MIG3/VMIG3 Favorable SP-2 Satisfactory F-2 Good credit quality
quality grade
MIG4/VMIG4 Adequate F-3 Fair credit quality
quality
SG Speculative SP-3 Speculative F-S Weak credit quality
grade grade
COMMERCIAL P-1 Superior A-1+ Extremely F-1+ Exceptionally
PAPER quality strong quality strong quality
A-1 Strong quality F-1 Very strong quality

P-2 Strong A-2 Satisfactory F-2 Good credit quality
quality quality
P-3 Acceptable A-3 Adequate F-3 Fair credit quality
quality quality
B Speculative F-S Weak credit quality
quality
Note Prime C Doubtful D Default
quality

</TABLE>

25
<PAGE> 32

STRONG INSTITUTIONAL INVESTOR SERVICES
P.O. BOX ____
MILWAUKEE, WI 53201-____

TOLL FREE: 800-___-____
FACSIMILE: 414-359-____

26
<PAGE> 33
PART B

STATEMENT OF ADDITIONAL INFORMATION

STRONG INSTITUTIONAL MONEY FUND

<PAGE> 34

STATEMENT OF ADDITIONAL INFORMATION

STRONG INSTITUTIONAL BOND FUND
P.O. Box 2936
Milwaukee, Wisconsin 53201
Telephone: (414) 359-1400
Toll-Free: (800) 368-3863

Strong Institutional Bond 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 December 31, 1996. Requests for copies of the Prospectus should be made
by calling the number listed above.

This Statement of Additional Information is dated December 31, 1996.

<PAGE> 35

<TABLE>
<CAPTION>
STRONG INSTITUTIONAL BOND FUND

TABLE OF CONTENTS PAGE
<S> <C>
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Convertible Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Illiquid Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Lending of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Loan Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Mortgage- and Asset-Backed Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Mortgage Dollar Rolls and Reverse Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Municipal Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Short Sales Against the Box . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Short-Term Cash Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Temporary Defensive Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Variable- or Floating-Rate Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
When-Issued Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Zero-Coupon, Step-Coupon and Pay-in-Kind Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
DIRECTORS AND OFFICERS OF THE CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
INVESTMENT ADVISOR AND DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ADDITIONAL SHAREHOLDER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
FUND ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SHAREHOLDER MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
LEGAL COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
</TABLE>

No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus dated December 31, 1996 and, if given or made,
such information or representations may not be relied upon as having been
authorized by the Fund.

This Statement of Additional Information does not constitute an offer to sell
securities.

2
<PAGE> 36

INVESTMENT RESTRICTIONS

The investment objective of the Fund is to seek total return by
investing for a high level of current income with a moderate degree of
share-price fluctuation. 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.

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.

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.

3
<PAGE> 37

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 15% 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> 38

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.

Except for the fundamental investment limitations listed above and the
Fund's investment objective, the other investment policies described in the
Prospectus and this Statement of Additional Information are not fundamental and
may be changed with approval of the Corporation's Board of Directors.

Unless noted otherwise, if a percentage restriction is adhered to at
the time of investment, a later increase or decrease in percentage resulting
from a change in the Fund's assets (i.e., due to cash inflows or redemptions)
or in market value of the investment or the Fund's assets will not constitute a
violation of that restriction.

INVESTMENT POLICIES AND TECHNIQUES

The information supplements the discussion of the Fund's investment
objective, policies, techniques that are described in detail in the Prospectus
under the captions "Investment Objectives and Policies" and "Implementation of
Policies and Risks."

BORROWING

The Fund may borrow money from banks and make other investments or
engage in other transactions permissible under the 1940 Act which may be
considered a borrowing (such as mortgage dollar rolls and reverse repurchase
agreements) as discussed under "Investment Restrictions." However, the Fund
may not purchase securities when bank borrowings exceed 5% of the Fund's total
assets. Presently, the Fund only intends to borrow from banks for temporary or
emergency purposes.

The Fund has established a line-of-credit (LOC) with certain banks by
which the Fund may borrow funds for temporary or emergency purposes. A
borrowing is presumed to be for temporary or emergency purposes if it is repaid
by the Fund within sixty days and is not extended or renewed. The Fund intends
to use the LOC to meet large or unexpected redemptions that would otherwise
force the Fund to liquidate securities under circumstances which are
unfavorable to the Fund's remaining shareholders. The Fund pays a commitment
fee to the banks for the LOC.

CONVERTIBLE SECURITIES

The Fund may invest in convertible securities, which are bonds,
debentures, notes, preferred stocks, or other securities that may be converted
into or exchanged for a specified amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest
normally paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted, or exchanged.
Convertible securities have unique investment characteristics in that they
generally (i) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (ii) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics,
and (iii) provide the potential for capital appreciation if the market price of
the underlying common stock increases. Most convertible securities currently
are issued by U.S. companies, although a substantial Eurodollar convertible
securities market has developed, and the markets for convertible securities
denominated in local currencies are increasing.

The value of a convertible security is a function of its "investment
value" (determined by its yield in comparison with the yields of other
securities of comparable maturity and quality that do not have a conversion
privilege) and its "conversion value" (the security's worth, at market value,
if converted into the underlying common stock). The investment value of a

5
<PAGE> 39

convertible security is influenced by changes in interest rates, with
investment value declining as interest rates increase and increasing as
interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value. The
conversion value of a convertible security is determined by the market price of
the underlying common stock. If the conversion value is low relative to the
investment value, the price of the convertible security is governed principally
by its investment value. Generally, the conversion value decreases as the
convertible security approaches maturity. To the extent the market price of
the underlying common stock approaches or exceeds the conversion price, the
price of the convertible security will be increasingly influenced by its
conversion value. A convertible security generally will sell at a premium over
its conversion value by the extent to which investors place value on the right
to acquire the underlying common stock while holding a fixed income security.

A convertible security may be subject to redemption at the option of
the issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Fund is called for
redemption, the Fund will be required to permit the issuer to redeem the
security, convert it into the underlying common stock, or sell it to a third
party.

DERIVATIVE INSTRUMENTS

IN GENERAL. The Fund may use derivative instruments for any lawful
purpose consistent with the Fund's investment objective such as hedging or
managing risk. Derivative instruments are commonly defined to include
securities or contracts whose values depend on (or "derive" from) the value of
one or more other assets, such as securities, currencies, or commodities.
These "other assets" are commonly referred to as "underlying assets."

A forward is a sales contract between a buyer (holding the "long"
position) and a seller (holding the "short" position) for an asset with
delivery deferred until a future date. The buyer agrees to pay a fixed price
at the agreed future date and the seller agrees to deliver the asset. The
seller hopes that the market price on the delivery date is less than the agreed
upon price, while the buyer hopes for the contrary. The change in value of a
forward-based derivative generally is roughly proportional to the change in
value of the underlying asset.

HEDGING. The Fund may use derivative instruments to protect against
possible adverse changes in the market value of securities held in, or are
anticipated to be held in, the Fund's portfolio. Derivatives may also be used
by the Fund to "lock-in" the Fund's realized but unrecognized gains in the
value of its portfolio securities. Hedging strategies, if successful, can
reduce the risk of loss by wholly or partially offsetting the negative effect
of unfavorable price movements in the investments being hedged. However,
hedging strategies can also reduce the opportunity for gain by offsetting the
positive effect of favorable price movements in the hedged investments.

MANAGING RISK. The Fund may also use derivative instruments to manage
the risks of the Fund's portfolio. Risk management strategies include, but are
not limited to, facilitating the sale of portfolio securities, managing the
effective maturity or duration of debt obligations in the Fund's portfolio,
establishing a position in the derivatives markets as a substitute for buying
or selling certain securities, or creating or altering exposure to certain
asset classes, such as equity, debt, and foreign

6
<PAGE> 40

securities. The use of derivative instruments may provide a less expensive,
more expedient or more specifically focused way for the Fund to invest than
"traditional" securities (i.e., stocks or bonds) would.

EXCHANGE OR OTC DERIVATIVES. Derivative instruments may be
exchange-traded or traded in OTC transactions between private parties.
Exchange-traded derivatives are standardized options and futures contracts
traded in an auction on the floor of a regulated exchange. Exchange contracts
are generally very liquid. The exchange clearinghouse is the counterparty of
every contract. Thus, each holder of an exchange contract bears the credit
risk of the clearinghouse (and has the benefit of its financial strength)
rather than that of a particular counterparty. Over-the- counter transactions
are subject to additional risks, such as the credit risk of the counterparty to
the instrument and are less liquid than exchange-traded derivatives since they
often can only be closed out with the other party to the transaction

RISKS AND SPECIAL CONSIDERATIONS. The use of derivative instruments
involves risks and special considerations as described below. Risks pertaining
to particular derivative instruments are described in the sections that follow.

(1) MARKET RISK. The primary risk of derivatives is the same as
the risk of the underlying assets, namely that the value of the underlying
asset may go up or down. Adverse movements in the value of an underlying asset
can expose the Fund to losses. Derivative instruments may include elements of
leverage and, accordingly, the fluctuation of the value of the derivative
instrument in relation to the underlying asset may be magnified. The
successful use of derivative instruments depends upon a variety of factors,
particularly the Advisor's ability to predict movements of the securities,
currencies, and commodity markets, which requires different skills than
predicting changes in the prices of individual securities. There can be no
assurance that any particular strategy adopted will succeed. The Advisor's
decision to engage in a derivative instrument will reflect the Advisor's
judgment that the derivative transaction will provide value to the Fund and its
shareholders and is consistent with the Fund's objective, investment
limitations, and operating policies. In making such a judgment, the Advisor
will analyze the benefits and risks of the derivative transaction and weigh
them in the context of the Fund's entire portfolio and investment objective.

(2) CREDIT RISK. The Fund will be subject to the risk that a loss
may be sustained by the Fund as a result of the failure of a counterparty to
comply with the terms of a derivative instrument. The counterparty risk for
exchange-traded derivative instruments is generally less than for
privately-negotiated or OTC derivative instruments, since generally a clearing
agency, which is the issuer or counterparty to each exchange-traded instrument,
provides a guarantee of performance. For privately-negotiated instruments,
there is no similar clearing agency guarantee. In all transactions, the Fund
will bear the risk that the counterparty will default, and this could result in
a loss of the expected benefit of the derivative transaction and possibly other
losses to the Fund. The Fund will enter into transactions in derivative
instruments only with counterparties that the Advisor reasonably believes are
capable of performing under the contract.

(3) CORRELATION RISK. When a derivative transaction is used to
completely hedge another position, changes in the market value of the combined
position (the derivative instrument plus the position being hedged) result from
an imperfect correlation between the price movements of the two instruments.
With a perfect hedge, the value of the combined position remains unchanged for
any change in the price of the underlying asset. With an imperfect hedge, the
values of the derivative instrument and its hedge are not perfectly correlated.
Correlation risk is the risk that there might be imperfect correlation, or even
no correlation, between price movements of an instrument and price movements of
investments being hedged. For example, if the value of a derivative
instruments used in a short hedge (such as writing a call option, buying a put
option, or selling a futures contract) increased by less than the decline in
value of the hedged investments, the hedge would not be perfectly correlated.
Such a lack of correlation might occur due to factors unrelated to the value of
the investments being hedged, such as speculative or other pressures on the
markets in which these instruments are traded. The effectiveness of hedges
using instruments on indices will depend, in part, on the degree of correlation
between price movements in the index and price movements in the investments
being hedged.

(4) LIQUIDITY RISK. Derivatives are also subject to liquidity
risk. Liquidity risk is the risk that a derivative instrument cannot be sold,
closed out, or replaced quickly at or very close to its fundamental value.
Generally, exchange contracts are very liquid because the exchange
clearinghouse is the counterparty of every contract. OTC transactions are less
liquid than exchange-traded derivatives since they often can only be closed out
with the other party to the transaction. The Fund might be required by
applicable regulatory requirement to maintain assets as "cover," maintain
segregated accounts, and/or make margin payments when it takes positions in
derivative instruments involving obligations to third parties (i.e.,

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<PAGE> 41

instruments other than purchased options). If the Fund was unable to close out
its positions in such instruments, it might be required to continue to maintain
such assets or accounts or make such payments until the position expired,
matured, or was closed out. The requirements might impair the Fund's ability
to sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time. The Fund's ability to sell or close out a
position in an instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a market, the
ability and willingness of the counterparty to enter into a transaction closing
out the position. Therefore, there is no assurance that any derivatives
position can be sold or closed out at a time and price that is favorable to the
Fund.

(5) LEGAL RISK. Legal risk is the risk of loss caused by the
legal unenforcibility of a party's obligations under the derivative. While a
party seeking price certainty agrees to surrender the potential upside in
exchange for downside protection, the party taking the risk is looking for a
positive payoff. Despite this voluntary assumption of risk, a counterparty
that has lost money in a derivative transaction may try to avoid payment by
exploiting various legal uncertainties about certain derivative products.

(6) SYSTEMIC OR "INTERCONNECTION" RISK. Interconnection risk is
the risk that a disruption in the financial markets will cause difficulties for
all market participants. In other words, a disruption in one market will spill
over into other markets, perhaps creating a chain reaction. Much of the OTC
derivatives market takes place among the OTC dealers themselves, thus creating
a large interconnected web of financial obligations. This interconnectedness
raises the possibility that a default by one large dealer could create losses
at other dealers and destabilize the entire market for OTC derivative
instruments.

GENERAL LIMITATIONS. The use of derivative instruments is subject to
applicable regulations of the Securities and Exchange Commission (the "SEC"),
the several options and futures exchanges upon which they may be traded, the
Commodity Futures Trading Commission ("CFTC"), and various state regulatory
authorities. In addition, the Fund's ability to use derivative instruments may
be limited by certain tax considerations. For a discussion of the federal
income tax treatment of the Fund's derivative instruments, see "Taxes -
Derivative Instruments."

The Fund has filed a notice of eligibility for exclusion from the
definition of the term "commodity pool operator" with the CFTC and the National
Futures Association, which regulate trading in the futures markets. In
accordance with Rule 4.5 of the regulations under the Commodity Exchange Act
(the "CEA"), the notice of eligibility for the Fund includes representations
that the Fund will use futures contracts and related options solely for bona
fide hedging purposes within the meaning of CFTC regulations, provided that the
Fund may hold other positions in futures contracts and related options that do
not qualify as a bona fide hedging position if the aggregate initial margin
deposits and premiums required to establish these positions, less the amount by
which any such futures contracts and related options positions are "in the
money," do not exceed 5% of the Fund's net assets. Adherence to these
guidelines does not limit the Fund's risk to 5% of the Fund's assets.

In addition, certain state regulations presently require that (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 net 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 net assets.

The SEC has identified certain trading practices involving derivative
instruments that involve the potential for leveraging the Fund's assets in a
manner that raises issues under the 1940 Act. In order to limit the potential
for the leveraging of the Fund's assets, as defined under the 1940 Act, the SEC
has stated that the Fund may use coverage or the segregation of the Fund's
assets. To the extent required by SEC guidelines, the Fund will not enter into
any such transactions unless it owns either: (i) an offsetting ("covered")
position in securities, options, futures, or derivative instruments; or (ii)
liquid securities with a value sufficient at all times to cover its potential
obligations to the extent that the position is not "covered". The Fund will
also set aside cash and/or appropriate liquid assets in a segregated custodial
account if required to do so by the SEC and CFTC regulations. Assets used as
cover or held in a segregated account cannot be sold while the derivative
position is open, unless

8
<PAGE> 42

they are replaced with similar assets. As a result, the commitment of a large
portion of the Fund's assets to segregated accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.

In some cases the Fund may be required to maintain or limit exposure
to a specified percentage of its assets to a particular asset class. In such
cases, when the Fund uses a derivative instrument to increase or decrease
exposure to an asset class and is required by applicable SEC guidelines to set
aside liquid assets in a segregated account to secure its obligations under the
derivative instruments, the Advisor may, where reasonable in light of the
circumstances, measure compliance with the applicable percentage by reference
to the nature of the economic exposure created through the use of the
derivative instrument and not by reference to the nature of the exposure
arising from the liquid assets set aside in the segregated account (unless
another interpretation is specified by applicable regulatory requirements).

OPTIONS. The Fund may use options for any lawful purpose consistent
with the Fund's investment objective such as hedging or managing risk. An
option is a contract in which the "holder" (the buyer) pays a certain amount
(the "premium") to the "writer" (the seller) to obtain the right, but not the
obligation, to buy from the writer (in a "call") or sell to the writer (in a
"put") a specific asset at an agreed upon price (the "strike price" or
"exercise price") at or before a certain time (the "expiration date"). The
holder pays the premium at inception and has no further financial obligation.
The holder of an option will benefit from favorable movements in the price of
the underlying asset but is not exposed to corresponding losses due to adverse
movements in the value of the underlying asset. The writer of an option will
receive fees or premiums but is exposed to losses due to changes in the value
of the underlying asset. The Fund may buy or write (sell) put and call options
on assets, such as securities, currencies, commodities, and indices of debt and
equity securities ("underlying assets") and enter into closing transactions
with respect to such options to terminate an existing position. Options used
by the Fund may include European, American, and Bermuda style options. If an
option is exercisable only at maturity, it is a "European" option; if it is
also exercisable prior to maturity, it is an "American" option. If it is
exercisable only at certain times, it is a "Bermuda" option.

The Fund may purchase (buy) and write (sell) put and call options
underlying assets and enter into closing transactions with respect to such
options to terminate an existing position. The purchase of call options serves
as a long hedge, and the purchase of put options serves as a short hedge.
Writing put or call options can enable the Fund to enhance income by reason of
the premiums paid by the purchaser of such options. Writing call options
serves as a limited short hedge because declines in the value of the hedged
investment would be offset to the extent of the premium received for writing
the option. However, if the security appreciates to a price higher than the
exercise price of the call option, it can be expected that the option will be
exercised and the Fund will be obligated to sell the security at less than its
market value or will be obligated to purchase the security at a price greater
than that at which the security must be sold under the option. All or a
portion of any assets used as cover for OTC options written by the Fund would
be considered illiquid to the extent described under "Investment Policies and
Techniques -- Illiquid Securities." Writing put options serves as a limited
long hedge because increases in the value of the hedged investment would be
offset to the extent of the premium received for writing the option. However,
if the security depreciates to a price lower than the exercise price of the put
option, it can be expected that the put option will be exercised and the Fund
will be obligated to purchase the security at more than its market value.

The value of an option position will reflect, among other things, the
historical price volatility of the underlying investment, the current market
value of the underlying investment, the time remaining until expiration, the
relationship of the exercise price to the market price of the underlying
investment, and general market conditions.

The Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, the Fund may
terminate its obligation under a call or put option that it had written by
purchasing an identical call or put option; this is known as a closing purchase
transaction. Conversely, the Fund may terminate a position in a put or call
option it had purchased by writing an identical put or call option; this is
known as a closing sale transaction. Closing transactions permit the Fund to
realize the profit or limit the loss on an option position prior to its
exercise or expiration.

The Fund may purchase or write both exchange-traded and OTC options.
Exchange-traded options are issued by a clearing organization affiliated with
the exchange on which the option is listed that, in effect, guarantees
completion of every exchange-traded option transaction. In contrast, OTC
options are contracts between the Fund and the other party to the transaction
("counter party") (usually a securities dealer or a bank) with no clearing
organization guarantee. Thus, when the Fund purchases or writes an OTC option,
it relies on the counter party to make or take delivery of the underlying
investment

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<PAGE> 43

upon exercise of the option. Failure by the counter party to do so would
result in the loss of any premium paid by the Fund as well as the loss of any
expected benefit of the transaction.

The Fund's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. The Fund
intends to purchase or write only those exchange-traded options for which there
appears to be a liquid secondary market. However, there can be no assurance
that such a market will exist at any particular time. Closing transactions can
be made for OTC options only by negotiating directly with the counter party, or
by a transaction in the secondary market if any such market exists. Although
the Fund will enter into OTC options only with counter parties that are
expected to be capable of entering into closing transactions with the Fund,
there is no assurance that the Fund will in fact be able to close out an OTC
option at a favorable price prior to expiration. In the event of insolvency of
the counter party, the Fund might be unable to close out an OTC option position
at any time prior to its expiration. If the Fund were unable to effect a
closing transaction for an option it had purchased, it would have to exercise
the option to realize any profit.

The Fund may engage in options transactions on indices in much the
same manner as the options on securities discussed above, except the index
options may serve as a hedge against overall fluctuations in the securities
market in general.

The writing and purchasing of options is a highly specialized activity
that involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. Imperfect correlation between
the options and securities markets may detract from the effectiveness of
attempted hedging.

SPREAD TRANSACTIONS. The Fund may use spread transactions for any
lawful purpose consistent with the Fund's investment objective such as hedging
or managing risk. The Fund may purchase covered spread options from securities
dealers. Such covered spread options are not presently exchange-listed or
exchange-traded. The purchase of a spread option gives the Fund the right to
put, or sell, a security that it owns at a fixed dollar spread or fixed yield
spread in relationship to another security that the Fund does not own, but
which is used as a benchmark. The risk to the Fund in purchasing covered
spread options is the cost of the premium paid for the spread option and any
transaction costs. In addition, there is no assurance that closing
transactions will be available. The purchase of spread options will be used to
protect the Fund against adverse changes in prevailing credit quality spreads,
i.e., the yield spread between high quality and lower quality securities. Such
protection is only provided during the life of the spread option.

FUTURES CONTRACTS. The Fund may use futures contracts for any lawful
purpose consistent with the Fund's investment objective such as hedging or
managing risk. The Fund may enter into futures contracts, including interest
rate, index, and currency futures. The Fund may also purchase put and call
options, and write covered put and call options, on futures in which it is
allowed to invest. The purchase of futures or call options thereon can serve
as a long hedge, and the sale of futures or the purchase of put options thereon
can serve as a short hedge. Writing covered call options on futures contracts
can serve as a limited short hedge, and writing covered put options on futures
contracts can serve as a limited long hedge, using a strategy similar to that
used for writing covered options in securities. The Fund's hedging may include
purchases of futures as an offset against the effect of expected increases in
currency exchange rates and securities prices and sales of futures as an offset
against the effect of expected declines in currency exchange rates and
securities prices. The Fund may also write put options on futures contracts
while at the same time purchasing call options on the same futures contracts in
order to create synthetically a long futures contract position. Such options
would have the same strike prices and expiration dates. The Fund will engage
in this strategy only when the Advisor believes it is more advantageous to the
Fund than is purchasing the futures contract.

To the extent required by regulatory authorities, the Fund only enters
into futures contracts that are traded on national futures exchanges and are
standardized as to maturity date and underlying financial instrument. Futures
exchanges and trading are regulated under the CEA by the CFTC. Although
techniques other than sales and purchases of futures contracts could be used to
the a Fund's exposure to market, currency, or interest rate fluctuations, the
Fund may be able to hedge its exposure more effectively and perhaps at a lower
cost through using futures contracts.

An interest rate futures contract provides for the future sale by one
party and purchase by another party of a specified amount of a specific
financial instrument (e.g., debt security) or currency for a specified price at
a designated date, time, and place. An index futures contract is an agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the close of the
last trading day of the contract and the price at which the index futures
contract was originally written. Transaction costs are incurred when a futures
contract is bought or sold

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<PAGE> 44

and margin deposits must be maintained. A futures contract may be satisfied by
delivery or purchase, as the case may be, of the instrument, the currency or by
payment of the change in the cash value of the index. More commonly, futures
contracts are closed out prior to delivery by entering into an offsetting
transaction in a matching futures contract. Although the value of an index
might be a function of the value of certain specified securities, no physical
delivery of those securities is made. If the offsetting purchase price is less
than the original sale price, the Fund realizes a gain; if it is more, the Fund
realizes a loss. Conversely, if the offsetting sale price is more than the
original purchase price, the Fund realizes a gain; if it is less, the Fund
realizes a loss. The transaction costs must also be included in these
calculations. There can be no assurance, however, that the Fund will be able
to enter into an offsetting transaction with respect to a particular futures
contract at a particular time. If the Fund is not able to enter into an
offsetting transaction, the Fund will continue to be required to maintain the
margin deposits on the futures contract.

No price is paid by the Fund upon entering into a futures contract.
Instead, at the inception of a futures contract, the Fund is required to
deposit in a segregated account with its custodian, in the name of the futures
broker through whom the transaction was effected, "initial margin" consisting
of cash, U.S. government securities or other liquid, high grade debt
obligations, in an amount generally equal to 10% or less of the contract value.
High grade securities include securities rated "A" or better by an NRSRO.
Margin must also be deposited when writing a call or put option on a futures
contract, in accordance with applicable exchange rules. Unlike margin in
securities transactions, initial margin on futures contracts does not represent
a borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Fund at the termination of the transaction if
all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, the Fund may be required by an exchange to
increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory action.

Subsequent "variation margin" payments are made to and from the
futures broker daily as the value of the futures position varies, a process
known as "marking to market." Variation margin does not involve borrowing, but
rather represents a daily settlement of the Fund's obligations to or from a
futures broker. When the Fund purchases an option on a future, the premium
paid plus transaction costs is all that is at risk. In contrast, when the Fund
purchases or sells a futures contract or writes a call or put option thereon,
it is subject to daily variation margin calls that could be substantial in the
event of adverse price movements. If the Fund has insufficient cash to meet
daily variation margin requirements, it might need to sell securities at a time
when such sales are disadvantageous. Purchasers and sellers of futures
positions and options on futures can enter into offsetting closing transactions
by selling or purchasing, respectively, an instrument identical to the
instrument held or written. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary market.
The Fund intends to enter into futures transactions only on exchanges or boards
of trade where there appears to be a liquid secondary market. However, there
can be no assurance that such a market will exist for a particular contract at
a particular time.

Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a future or option on a futures contract
can vary from the previous day's settlement price; once that limit is reached,
no trades may be made that day at a price beyond the limit. Daily price limits
do not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.

If the Fund were unable to liquidate a futures or option on a futures
contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In
addition, except in the case of purchased options, the Fund would continue to
be required to make daily variation margin payments and might be required to
maintain the position being hedged by the future or option or to maintain cash
or securities in a segregated account.

Certain characteristics of the futures market might increase the risk
that movements in the prices of futures contracts or options on futures
contracts might not correlate perfectly with movements in the prices of the
investments being hedged. For example, all participants in the futures and
options on futures contracts markets are subject to daily variation margin
calls and might be compelled to liquidate futures or options on futures
contracts positions whose prices are moving unfavorably to avoid being subject
to further calls. These liquidations could increase price volatility of the
instruments and distort the normal price relationship between the futures or
options and the investments being hedged. Also, because initial margin deposit
requirements in the futures markets are less onerous than margin requirements
in the securities markets, there might be increased participation by
speculators in the future markets. This participation also might cause
temporary price distortions. In

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<PAGE> 45

addition, activities of large traders in both the futures and securities
markets involving arbitrage, "program trading" and other investment strategies
might result in temporary price distortions.

FOREIGN CURRENCIES. The Fund may purchase and sell foreign currency
on a spot basis, and may use currency- related derivatives instruments such as
options on foreign currencies, futures on foreign currencies, options on
futures on foreign currencies and forward currency contracts (i.e., an
obligation to purchase or sell a specific currency at a specified future date,
which may be any fixed number of days from the contract date agreed upon by the
parties, at a price set at the time the contract is entered into). The Fund
may use these instruments for hedging or any other lawful purpose consistent
with its investment objective, including transaction hedging, anticipatory
hedging, cross hedging, proxy hedging, and position hedging. The Fund's use of
currency-related derivative instruments will be directly related to the Fund's
current or anticipated portfolio securities, and the Fund may engage in
transactions in currency-related derivative instruments as a means to protect
against some or all of the effects of adverse changes in foreign currency
exchange rates on its portfolio investments. In general, if the currency in
which a portfolio investment is denominated appreciates against the U.S.
dollar, the dollar value of the security will increase. Conversely, a decline
in the exchange rate of the currency would adversely affect the value of the
portfolio investment expressed in U.S. dollars.

For example, the Fund might use currency-related derivative
instruments to "lock in" a U.S. dollar price for a portfolio investment,
thereby enabling the Fund to protect itself against a possible loss resulting
from an adverse change in the relationship between the U.S. dollar and the
subject foreign currency during the period between the date the security is
purchased or sold and the date on which payment is made or received. The Fund
also might use currency- related derivative instruments when the Advisor
believes that one currency may experience a substantial movement against
another currency, including the U.S. dollar, and it may use currency-related
derivative instruments to sell or buy the amount of the former foreign
currency, approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. Alternatively, where
appropriate, the Fund may use currency-related derivative instruments to hedge
all or part of its foreign currency exposure through the use of a basket of
currencies or a proxy currency where such currency or currencies act as an
effective proxy for other currencies. The use of this basket hedging technique
may be more efficient and economical than using separate currency-related
derivative instruments for each currency exposure held by the Fund.
Furthermore, currency-related derivative instruments may be used for short
hedges - for example, the Fund may sell a forward currency contract to lock in
the U.S. dollar equivalent of the proceeds from the anticipated sale of a
security denominated in a foreign currency.

In addition, the Fund may use a currency-related derivative instrument
to shift exposure to foreign currency fluctuations from one foreign country to
another foreign country where the Advisor believes that the foreign currency
exposure purchased will appreciate relative to the U.S. dollar and thus better
protect the Fund against the expected decline in the foreign currency exposure
sold. For example, if the Fund owns securities denominated in a foreign
currency and the Advisor believes that currency will decline, it might enter
into a forward contract to sell an appropriate amount of the first foreign
currency, with payment to be made in a second foreign currency that the Advisor
believes would better protect the Fund against the decline in the first
security than would a U.S. dollar exposure. Hedging transactions that use two
foreign currencies are sometimes referred to as "cross hedges." The effective
use of currency-related derivative instruments by the Fund in a cross hedge is
dependent upon a correlation between price movements of the two currency
instruments and the underlying security involved, and the use of two currencies
magnifies the risk that movements in the price of one instrument may not
correlate or may correlate unfavorably with the foreign currency being hedged.
Such a lack of correlation might occur due to factors unrelated to the value of
the currency instruments used or investments being hedged, such as speculative
or other pressures on the markets in which these instruments are traded.

The Fund also might seek to hedge against changes in the value of a
particular currency when no hedging instruments on that currency are available
or such hedging instruments are more expensive than certain other hedging
instruments. In such cases, the Fund may hedge against price movements in that
currency by entering into transactions using currency-related derivative
instruments on another foreign currency or a basket of currencies, the values
of which the Advisor believes will have a high degree of positive correlation
to the value of the currency being hedged. The risk that movements in the
price of the hedging instrument will not correlate perfectly with movements in
the price of the currency being hedged is magnified when this strategy is used.

The use of currency-related derivative instruments by the Fund
involves a number of risks. The value of currency-related derivative
instruments depends on the value of the underlying currency relative to the
U.S. dollar. Because foreign

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<PAGE> 46

currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such derivative
instruments, the Fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots (generally consisting of transactions of greater than $1 million).

There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information generally is representative of very large transactions in
the interbank market and thus might not reflect odd-lot transactions where
rates might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying markets
that cannot be reflected in the markets for the derivative instruments until
they re-open.

Settlement of transactions in currency-related derivative instruments
might be required to take place within the country issuing the underlying
currency. Thus, the Fund might be required to accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign regulations
regarding the maintenance of foreign banking arrangements by U.S. residents
and might be required to pay any fees, taxes and charges associated with such
delivery assessed in the issuing country.

When the Fund engages in a transaction in a currency-related
derivative instrument, it relies on the counterparty to make or take delivery
of the underlying currency at the maturity of the contract or otherwise
complete the contract. In other words, the Fund will be subject to the risk
that a loss may be sustained by the Fund as a result of the failure of the
counterparty to comply with the terms of the transaction. The counterparty
risk for exchange- traded instruments is generally less than for
privately-negotiated or OTC currency instruments, since generally a clearing
agency, which is the issuer or counterparty to each instrument, provides a
guarantee of performance. For privately-negotiated instruments, there is no
similar clearing agency guarantee. In all transactions, the Fund will bear the
risk that the counterparty will default, and this could result in a loss of the
expected benefit of the transaction and possibly other losses to the Fund. The
Fund will enter into transactions in currency-related derivative instruments
only with counterparties that the Advisor reasonably believes are capable of
performing under the contract.

Purchasers and sellers of currency-related derivative instruments may
enter into offsetting closing transactions by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can
be no assurance that the Fund will in fact be able to close out a forward
currency contract (or any other currency- related derivative instrument) at a
time and price favorable to the Fund. In addition, in the event of insolvency
of the counterparty, the Fund might be unable to close out a forward currency
contract at any time prior to maturity. In the case of an exchange-traded
instrument, the Fund will be able to close the position out only on an exchange
which provides a market for the instruments. The ability to establish and
close out positions on an exchange is subject to the maintenance of a liquid
market, and there can be no assurance that a liquid market will exist for any
instrument at any specific time. In the case of a privately-negotiated
instrument, the Fund will be able to realize the value of the instrument only
by entering into a closing transaction with the issuer or finding a third party
buyer for the instrument. While the Fund will enter into privately-negotiated
transactions only with entities who are expected to be capable of entering into
a closing transaction, there can be no assurance that the Fund will in fact be
able to enter into such closing transactions.

The precise matching of currency-related derivative instrument amounts
and the value of the portfolio securities involved generally will not be
possible because the value of such securities, measured in the foreign
currency, will change after the currency-related derivative instrument position
has been established. Thus, the Fund might need to purchase or sell foreign
currencies in the spot (cash) market. The projection of short-term currency
market movements is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain.

Permissible foreign currency options will include options traded
primarily in the OTC market. Although options on foreign currencies are traded
primarily in the OTC market, the Fund will normally purchase or sell OTC
options on foreign currency only when the Advisor reasonably believes a liquid
secondary market will exist for a particular option at any specific time.

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<PAGE> 47

There will be a cost to the Fund of engaging in transactions in
currency-related derivative instruments that will vary with factors such as the
contract or currency involved, the length of the contract period and the market
conditions then prevailing. The Fund using these instruments may have to pay a
fee or commission or, in cases where the instruments are entered into on a
principal basis, foreign exchange dealers or other counterparties will realize
a profit based on the difference ("spread") between the prices at which they
are buying and selling various currencies. Thus, for example, a dealer may
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange should the Fund desire to resell that currency to the
dealer.

When required by the SEC guidelines, the Fund will set aside
permissible liquid assets in segregated accounts or otherwise cover their
respective potential obligations under currency-related derivatives
instruments. To the extent the Fund's assets are so set aside, they cannot be
sold while the corresponding currency position is open, unless they are
replaced with similar assets. As a result, if a large portion of the Fund's
assets are so set aside, this could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.

The Advisor's decision to engage in a transaction in a particular
currency-related derivative instrument will reflect the Advisor's judgment that
the transaction will provide value to the Fund and its shareholders and is
consistent with the Fund's objectives and policies. In making such a judgment,
the Advisor will analyze the benefits and risks of the transaction and weigh
them in the context of the Fund's entire portfolio and objectives. The
effectiveness of any transaction in a currency-related derivative instrument is
dependent on a variety of factors, including the Advisor's skill in analyzing
and predicting currency values and upon a correlation between price movements
of the currency instrument and the underlying security. There might be
imperfect correlation, or even no correlation, between price movements of an
instrument and price movements of investments being hedged. Such a lack of
correlation might occur due to factors unrelated to the value of the
investments being hedged, such as speculative or other pressures on the markets
in which these instruments are traded. In addition, the Fund's use of
currency-related derivative instruments is always subject to the risk that the
currency in question could be devalued by the foreign government. In such a
case, any long currency positions would decline in value and could adversely
affect any hedging position maintained by the Fund.

The Fund's dealing in currency-related derivative instruments will
generally be limited to the transactions described above. However, the Fund
reserves the right to use currency-related derivatives instruments for
different purposes and under different circumstances. Of course, the Fund is
not required to use currency-related derivatives instruments and will not do so
unless deemed appropriate by the Advisor. It also should be realized that use
of these instruments does not eliminate, or protect against, price movements in
the Fund's securities that are attributable to other (i.e., non-currency
related) causes. Moreover, while the use of currency-related derivatives
instruments may reduce the risk of loss due to a decline in the value of a
hedged currency, at the same time the use of these instruments tends to limit
any potential gain which may result from an increase in the value of that
currency.

SWAP AGREEMENTS. The Fund may enter into interest rate, securities
index, commodity, or security and currency exchange rate swap agreements for
any lawful purpose consistent with the Fund's investment objective, such as for
the purpose of attempting to obtain or preserve a particular desired return or
spread at a lower cost to the Fund than if the Fund had invested directly in an
instrument that yielded that desired return or spread. The Fund also may enter
into swaps in order to protect against an increase in the price of, or the
currency exchange rate applicable to, securities that the Fund anticipates
purchasing at a later date. Swap agreements are two-party contracts entered
into primarily by institutional investors for periods ranging from a few weeks
to several years. In a standard "swap" transaction, two parties agree to
exchange the returns (or differentials in rates of return) earned or realized
on particular predetermined investments or instruments. The gross returns to
be exchanged or "swapped" between the parties are calculated with respect to a
"notional amount," i.e., the return on or increase in value of a particular
dollar amount invested at a particular interest rate, in a particular foreign
currency, or in a "basket" of securities representing a particular index. Swap
agreements may include interest rate caps, under which, in return for a
premium, one party agrees to make payments to the other to the extent that
interest rates exceed a specified rate, or "cap;" interest rate floors, under
which, in return for a premium, one party agrees to make payments to the other
to the extent that interest rates fall below a specified level, or "floor;" and
interest rate collars, under which a party sells a cap and purchases a floor,
or vice versa, in an attempt to protect itself against interest rate movements
exceeding given minimum or maximum levels.

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<PAGE> 48

The "notional amount" of the swap agreement is the agreed upon basis
for calculating the obligations that the parties to a swap agreement have
agreed to exchange. Under most swap agreements entered into by the Fund, the
obligations of the parties would be exchanged on a "net basis." Consequently,
the Fund's obligation (or rights) under a swap agreement will generally be
equal only to the net amount to be paid or received under the agreement based
on the relative values of the positions held by each party to the agreement
(the "net amount"). The Fund's obligation under a swap agreement will be
accrued daily (offset against amounts owed to the Fund) and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by the
maintenance of a segregated account consisting of cash, or liquid high grade
debt obligations.

Whether the Fund's use of swap agreements will be successful in
furthering its investment objective will depend, in part, on the Advisor's
ability to predict correctly whether certain types of investments are likely to
produce greater returns than other investments. Swap agreements may be
considered to be illiquid. Moreover, the Fund bears the risk of loss of the
amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counterparty. Certain restrictions
imposed on the Fund by the Internal Revenue Code may limit the Fund's ability
to use swap agreements. The swaps market is largely unregulated.

The Fund will enter swap agreements only with counterparties that the
Advisor reasonably believes are capable of performing under the swap
agreements. If there is a default by the other party to such a transaction,
the Fund will have to rely on its contractual remedies (which may be limited by
bankruptcy, insolvency or similar laws) pursuant to the agreements related to
the transaction.

ADDITIONAL DERIVATIVE INSTRUMENTS AND STRATEGIES. In addition to the
derivative instruments and strategies described above and in the Fund's
Prospectus, the Advisor expects to discover additional derivative instruments
and other hedging or risk management techniques. The Advisor may utilize these
new derivative instruments and techniques to the extent that they are
consistent with the Fund's investment objective and permitted by the Fund's
investment limitations, operating policies, and applicable regulatory
authorities.

DURATION

Duration is a measure of the expected life of a debt obligation that
was developed as a more precise alternative to the concept of "maturity."
Traditionally, a debt obligations' maturity has been used as a proxy for the
sensitivity of the security's price to changes in interest rates (which is the
"interest rate risk" or "volatility" of the security). However, maturity
measures only the time until a debt obligation provides its final payment,
taking no account of the pattern of the security's payments prior to maturity.
In contrast, duration incorporates a bond's yield, coupon interest payments,
final maturity and call features into one measure. Duration management is one
of the fundamental tools used by the Advisor.

Duration is a measure of the expected life of a debt obligation on a
present value basis. Duration takes the length of the time intervals between
the present time and the time that the interest and principal payments are
scheduled or, in the case of a callable bond, expected to be received, and
weights them by the present values of the cash to be received at each future
point in time. For any debt obligation with interest payments occurring prior
to the payment of principal, duration is always less than maturity. In general,
all other things being equal, the lower the stated or coupon rate of interest
of a fixed income security, the longer the duration of the security;
conversely, the higher the stated or coupon rate of interest of a fixed income
security, the shorter the duration of the security.

Futures, options and options on futures have durations which, in
general, are closely related to the duration of the securities which underlie
them. Holding long futures or call option positions will lengthen the Fund's
duration by approximately the same amount that holding an equivalent amount of
the underlying securities would.

Short futures or put option positions have durations roughly equal to
the negative duration of the securities that underlie these positions, and have
the effect of reducing portfolio duration by approximately the same amount that
selling an equivalent amount of the underlying securities would.

There are some situations where even the standard duration calculation
does not properly reflect the interest rate exposure of a security. For
example, floating and variable rate securities often have final maturities of
ten or more years; however, their interest rate exposure corresponds to the
frequency of the coupon reset. Another example where the interest rate

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<PAGE> 49

exposure is not properly captured by duration is the case of mortgage
pass-through securities. The stated final maturity of such securities is
generally 30 years, but current prepayment rates are more critical in
determining the securities' interest rate exposure. Finally, the duration of a
debt obligation may vary over time in response to changes in interest rates and
other market factors. In these and other similar situations, the Advisor will
use more sophisticated analytical techniques that incorporate the economic life
of a security into the determination of its interest rate exposure.

FOREIGN INVESTMENT COMPANIES

The Fund may invest, to a limited extent, in foreign investment
companies. Some of the countries in which the Fund may invest may not permit
direct investment by outside investors. Investments in such countries may only
be permitted through foreign government-approved or -authorized investment
vehicles, which may include other investment companies. In addition, it may be
less expensive and more expedient for the Fund to invest in a foreign
investment company in a country which permits direct foreign investment.
Investing through such vehicles may involve frequent or layered fees or
expenses and may also be subject to limitation under the 1940 Act. Under the
1940 Act, the Fund may invest up to 10% of its assets in shares of other
investment companies and up to 5% of its assets in any one investment company
as long as the investment does not represent more than 3% of the voting stock
of the acquired investment company. The Fund does not intend to invest in such
investment companies unless, in the judgment of the Advisor, the potential
benefits of such investments justify the payment of any associated fees and
expenses.

FOREIGN SECURITIES

Investing in foreign securities involves a series of risks not present
in investing in U.S. securities. Many of the foreign securities held by the
Fund will not be registered with the Securities and Exchange Commission (the
"SEC"), nor will the foreign issuers be subject to SEC reporting requirements.
Accordingly, there may be less publicly available information concerning
foreign issuers of securities held by the Fund than is available concerning
U.S. companies. Disclosure and regulatory standards in many respects are less
stringent in emerging market countries than in the U.S. and other major
markets. There also may be a lower level of monitoring and regulation of
emerging markets and the activities of investors in such markets, and
enforcement of existing regulations may be extremely limited. Foreign
companies, and in particular, companies in smaller and emerging capital markets
are not generally subject to uniform accounting, auditing and financial
reporting standards, or to other regulatory requirements comparable to those
applicable to U.S. companies. The Fund's net investment income and capital
gains from its foreign investment activities may be subject to non-U.S.
withholding taxes.

The costs attributable to foreign investing that the Fund must bear
frequently are higher than those attributable to domestic investing; this is
particularly true with respect to emerging capital markets. For example, the
cost of maintaining custody of foreign securities exceeds custodian costs for
domestic securities, and transaction and settlement costs of foreign investing
also frequently are higher than those attributable to domestic investing.
Costs associated with the exchange of currencies also make foreign investing
more expensive than domestic investing. Investment income on certain foreign
securities in which the Fund may invest may be subject to foreign withholding
or other government taxes that could reduce the return of these securities.
Tax treaties between the United States and foreign countries, however, may
reduce or eliminate the amount of foreign tax to which the Fund would be
subject.

Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
failed to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of the Fund are uninvested and no return is
earned thereon. The inability of the Fund to make intended security purchases
due to settlement problems could cause the Fund to miss investment
opportunities. Inability to dispose of a portfolio security due to settlement
problems could result either in losses to the Fund due to subsequent declines
in the value of such portfolio security or, if the Fund has entered into a
contract to sell the security, could result in possible liability to the
purchaser.

HIGH-YIELD (HIGH-RISK) SECURITIES

IN GENERAL. The Fund may invest up to 20% of its net assets in
non-investment grade debt obligations. Non-investment grade debt obligations
(hereinafter referred to as "lower-quality securities") include (i) bonds rated
as low as C by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("S&P"), or Fitch Investors Service, Inc.

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<PAGE> 50

("Fitch"), or CCC by Duff & Phelps, Inc. ("D&P"); (ii) commercial paper rated
as low as C by S&P, Not Prime by Moody's, or Fitch 4 by Fitch; and (iii)
unrated debt obligations of comparable quality. Lower-quality securities, while
generally offering higher yields than investment grade securities with similar
maturities, involve greater risks, including the possibility of default or
bankruptcy. They are regarded as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal. The special risk
considerations in connection with investments in these securities are discussed
below. Refer to the Appendix for a discussion of securities ratings.

EFFECT OF INTEREST RATES AND ECONOMIC CHANGES. The lower-quality and
comparable unrated security market is relatively new and its growth has
paralleled a long economic expansion. As a result, it is not clear how this
market may withstand a prolonged recession or economic downturn. Such
conditions could severely disrupt the market for and adversely affect the value
of such securities.

All interest-bearing securities typically experience appreciation when
interest rates decline and depreciation when interest rates rise. The market
values of lower-quality and comparable unrated securities tend to reflect
individual corporate developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Lower-quality and comparable unrated securities also tend to
be more sensitive to economic conditions than are higher-rated securities. As
a result, they generally involve more credit risks than securities in the
higher-rated categories. During an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of lower-quality and comparable
unrated securities may experience financial stress and may not have sufficient
revenues to meet their payment obligations. The issuer's ability to service
its debt obligations may also be adversely affected by specific corporate
developments, the issuer's inability to meet specific projected business
forecasts or the unavailability of additional financing. The risk of loss due
to default by an issuer of these securities is significantly greater than
issuers of higher-rated securities because such securities are generally
unsecured and are often subordinated to other creditors. Further, if the
issuer of a lower-quality or comparable unrated security defaulted, the Fund
might incur additional expenses to seek recovery. Periods of economic
uncertainty and changes would also generally result in increased volatility in
the market prices of these securities and thus in the Fund's net asset value.

As previously stated, the value of a lower-quality or comparable
unrated security will decrease in a rising interest rate market and
accordingly, so will the Fund's net asset value. If the Fund experiences
unexpected net redemptions in such a market, it may be forced to liquidate a
portion of its portfolio securities without regard to their investment merits.
Due to the limited liquidity of lower-quality and comparable unrated securities
(discussed below), the Fund may be forced to liquidate these securities at a
substantial discount. Any such liquidation would force the Fund to sell the
more liquid portion of its portfolio.

PAYMENT EXPECTATIONS. Lower-quality and comparable unrated securities
typically contain redemption, call or prepayment provisions which permit the
issuer of such securities containing such provisions to, at its discretion,
redeem the securities. During periods of falling interest rates, issuers of
these securities are likely to redeem or prepay the securities and refinance
them with debt securities with a lower interest rate. To the extent an issuer
is able to refinance the securities, or otherwise redeem them, the Fund may
have to replace the securities with a lower yielding security, which would
result in a lower return for the Fund.

CREDIT RATINGS. Credit ratings issued by credit rating agencies are
designed to evaluate the safety of principal and interest payments of rated
securities. They do not, however, evaluate the market value risk of lower-
quality securities and, therefore, may not fully reflect the true risks of an
investment. In addition, credit rating agencies may or may not make timely
changes in a rating to reflect changes in the economy or in the condition of
the issuer that affect the market value of the security. Consequently, credit
ratings are used only as a preliminary indicator of investment quality.
Investments in lower-quality and comparable unrated obligations will be more
dependent on the Advisor's credit analysis than would be the case with
investments in investment-grade debt obligations. The Advisor employs its own
credit research and analysis, which includes a study of existing debt, capital
structure, ability to service debt and to pay dividends, the issuer's
sensitivity to economic conditions, its operating history and the current trend
of earnings. The Advisor continually monitors the investments in the Fund's
portfolio and carefully evaluates whether to dispose of or to retain
lower-quality and comparable unrated securities whose credit ratings or credit
quality may have changed.

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<PAGE> 51

LIQUIDITY AND VALUATION. The Fund may have difficulty disposing of
certain lower-quality and comparable unrated securities because there may be a
thin trading market for such securities. Because not all dealers maintain
markets in all lower-quality and comparable unrated securities, there is no
established retail secondary market for many of these securities. The Fund
anticipates that such securities could be sold only to a limited number of
dealers or institutional investors. To the extent a secondary trading market
does exist, it is generally not as liquid as the secondary market for
higher-rated securities. The lack of a liquid secondary market may have an
adverse impact on the market price of the security. As a result, the Fund's
asset value and ability to dispose of particular securities, when necessary to
meet the Fund's liquidity needs or in response to a specific economic event,
may be impacted. The lack of a liquid secondary market for certain securities
may also make it more difficult for the Fund to obtain accurate market
quotations for purposes of valuing the Fund's portfolio. Market quotations are
generally available on many lower- quality and comparable unrated issues only
from a limited number of dealers and may not necessarily represent firm bids of
such dealers or prices for actual sales. During periods of thin trading, the
spread between bid and asked prices is likely to increase significantly. In
addition, adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of lower-quality
and comparable unrated securities, especially in a thinly traded market.

LEGISLATION. Legislation may be adopted, from time to time designed
to limit the use of certain lower-quality and comparable unrated securities by
certain issuers. It is anticipated that if legislation is enacted or proposed,
it could have a material affect on the value of these securities and the
existence of a secondary trading market for the securities.

ILLIQUID SECURITIES

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 15% of the value of
the Fund's net assets (or such other amounts as may be permitted under the 1940
Act). However, as a matter of internal policy, the Advisor intends to limit
the Fund's investments in illiquid securities to 10% of its net assets.

The Board of Directors of the Fund, or its delegate, has the ultimate
authority to determine, to the extent permissible under the federal securities
laws, which securities are illiquid for purposes of this limitation. Certain
securities exempt from registration or issued in transactions exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), such as securities that may be resold to institutional investors under
Rule 144A under the Securities Act and Section 4(2) commercial paper, may be
considered liquid under guidelines adopted by the Fund's Board of Directors.

The Board of Directors of the Fund has delegated to 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. The Board of Directors has directed
the Advisor to look to such factors as (i) the frequency of trades or quotes
for a security, (ii) the number of dealers willing to purchase or sell the
security and number of potential buyers, (iii) the willingness of dealers to
undertake to make a market in the security, (iv) the nature of the security and
nature of the marketplace trades, such as the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of transfer, (v)
the likelihood that the security's marketability will be maintained throughout
the anticipated holding period, and (vi) any other relevant factors. The
Advisor may determine 4(2) commercial paper to be liquid if (i) the 4(2)
commercial paper is not traded flat or in default as to principal and interest,
(ii) the 4(2) commercial paper is rated in one of the two highest rating
categories by at least two nationally rated statistical rating organizations
("NRSRO"), or if only one NRSRO rates the security, by that NRSRO, or is
determined by the Advisor to be of equivalent quality, and (iii) the Advisor
considers the trading market for the specific security taking into account all
relevant factors. With respect to the Fund's foreign holdings, a foreign
security may be considered liquid by the Advisor (despite its restricted nature
under the Securities Act) if the security can be freely traded in a foreign
securities market and all the facts and circumstances support a finding of
liquidity.

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, the Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to sell. If through the appreciation of restricted
securities or the depreciation of unrestricted securities, the Fund should be
in a position where more than 15% of the value of its net assets are invested
in illiquid securities, including restricted securities which are not

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<PAGE> 52

readily marketable (except for 144A Securities and 4(2) commercial paper deemed
to be liquid by the Advisor), the Fund will take such steps as is deemed
advisable, if any, to protect liquidity.

The Fund may sell over-the-counter ("OTC") options and, in connection
therewith, segregate assets or cover its obligations with respect to OTC
options written by the Fund. The assets used as cover for OTC options written
by the Fund will be considered illiquid unless the OTC options are sold to
qualified dealers who agree that the Fund may repurchase any OTC option it
writes at a maximum price to be calculated by a formula set forth in the option
agreement. The cover for an OTC option written subject to this procedure would
be considered illiquid only to the extent that the maximum repurchase price
under the formula exceeds the intrinsic value of the option.

LENDING OF PORTFOLIO SECURITIES

The Fund is authorized to lend up to 33 1/3% of the total value of its
portfolio securities to broker-dealers or institutional investors that the
Advisor deems qualified, but only when the borrower maintains with the Fund's
custodian bank collateral either in cash or money market instruments in an
amount at least equal to the market value of the securities loaned, plus
accrued interest and dividends, determined on a daily basis and adjusted
accordingly. Although the Fund is authorized to lend, the Fund does not
presently intend to engage in lending. In determining whether to lend
securities to a particular broker-dealer or institutional investor, the Advisor
will consider, and during the period of the loan will monitor, all relevant
facts and circumstances, including the creditworthiness of the borrower. The
Fund will retain authority to terminate any loans at any time. The Fund may
pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The Fund
will receive reasonable interest on the loan or a flat fee from the borrower
and amounts equivalent to any dividends, interest or other distributions on the
securities loaned. The Fund will retain record ownership of loaned securities
to exercise beneficial rights, such as voting and subscription rights and
rights to dividends, interest or other distributions, when retaining such
rights is considered to be in the Fund's interest.

LOAN INTERESTS

The Fund may acquire a loan interest (a "Loan Interest"). A Loan
Interest is typically originated, negotiated, and structured by a U.S. or
foreign commercial bank, insurance company, finance company, or other financial
institution (the "Agent") for a lending syndicate of financial institutions.
The Agent typically administers and enforces the loan on behalf of the other
lenders in the syndicate. In addition, an institution, typically but not
always the Agent (the "Collateral Bank"), holds collateral (if any) on behalf
of the lenders. These Loan Interests may take the form of participation
interests in, assignments of or novations of a loan during its secondary
distribution, or direct interests during a primary distribution. Such Loan
Interests may be acquired from U.S. or foreign banks, insurance companies,
finance companies, or other financial institutions who have made loans or are
members of a lending syndicate or from other holders of Loan Interests. The
Fund may also acquire Loan Interests under which the Fund derives its rights
directly from the borrower. Such Loan Interests are separately enforceable by
the Fund against the borrower and all payments of interest and principal are
typically made directly to the Fund from the borrower. In the event that the
Fund and other lenders become entitled to take possession of shared collateral,
it is anticipated that such collateral would be held in the custody of a
Collateral Bank for their mutual benefit. The Fund may not act as an Agent, a
Collateral Bank, a guarantor or sole negotiator or structurer with respect to a
loan.

The Advisor will analyze and evaluate the financial condition of the
borrower in connection with the acquisition of any Loan Interest. The Advisor
also analyzes and evaluates the financial condition of the Agent and, in the
case of Loan Interests in which the Fund does not have privity with the
borrower, those institutions from or through whom the Fund derives its rights
in a loan (the "Intermediate Participants").

In a typical loan the Agent administers the terms of the loan
agreement. In such cases, the Agent is normally responsible for the collection
of principal and interest payments from the borrower and the apportionment of
these payments to the credit of all institutions which are parties to the loan
agreement. The Fund will generally rely upon the Agent or an Intermediate
Participant to receive and forward to the Fund its portion of the principal and
interest payments on the loan. Furthermore, unless under the terms of a
participation agreement the Fund has direct recourse against the borrower, the
Fund will rely on the Agent and the other members of the lending syndicate to
use appropriate credit remedies against the borrower. The Agent is typically
responsible for monitoring compliance with covenants contained in the loan
agreement based upon

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<PAGE> 53

reports prepared by the borrower. The seller of the Loan Interest usually
does, but is often not obligated to, notify holders of Loan Interests of any
failures of compliance. The Agent may monitor the value of the collateral and,
if the value of the collateral declines, may accelerate the loan, may give the
borrower an opportunity to provide additional collateral or may seek other
protection for the benefit of the participants in the loan. The Agent is
compensated by the borrower for providing these services under a loan
agreement, and such compensation may include special fees paid upon structuring
and funding the loan and other fees paid on a continuing basis. With respect
to Loan Interests for which the Agent does not perform such administrative and
enforcement functions, the Fund will perform such tasks on its own behalf,
although a Collateral Bank will typically hold any collateral on behalf of the
Fund and the other lenders pursuant to the applicable loan agreement.

A financial institution's appointment as Agent may usually be
terminated in the event that it fails to observe the requisite standard of care
or becomes insolvent, enters Federal Deposit Insurance Corporation ("FDIC")
receivership, or, if not FDIC insured, enters into bankruptcy proceedings. A
successor Agent would generally be appointed to replace the terminated Agent,
and assets held by the Agent under the loan agreement should remain available
to holders of Loan Interests. However, if assets held by the Agent for the
benefit of the Fund were determined to be subject to the claims of the Agent's
general creditors, the Fund might incur certain costs and delays in realizing
payment on a loan interest, or suffer a loss of principal and/or interest. In
situations involving Intermediate Participants similar risks may arise.

Purchasers of Loan Interests depend primarily upon the
creditworthiness of the borrower for payment of principal and interest. If the
Fund does not receive scheduled interest or principal payments on such
indebtedness, the Fund's share price and yield could be adversely affected.
Loans that are fully secured offer the Fund more protections than an unsecured
loan in the event of non-payment of scheduled interest or principal. However,
there is no assurance that the liquidation of collateral from a secured loan
would satisfy the borrower's obligation, or that the collateral can be
liquidated. Indebtedness of borrowers whose creditworthiness is poor involves
substantially greater risks, and may be highly speculative. Borrowers that are
in bankruptcy or restructuring may never pay off their indebtedness, or may pay
only a small fraction of the amount owed. Direct indebtedness of developing
countries will also involve a risk that the governmental entities responsible
for the repayment of the debt may be unable, or unwilling, to pay interest and
repay principal when due.

MATURITY

The Fund's average portfolio maturity represents an average based on
the actual stated maturity dates of the debt securities in the Fund's
portfolio, except that (i) variable-rate securities are deemed to mature at the
next interest-rate adjustment date, (ii) debt securities with put features are
deemed to mature at the next put-exercise date, (iii) the maturity of
mortgage-backed securities is determined on an "expected life" basis as
determined by the Advisor, and (iv) securities being hedged with futures
contracts may be deemed to have a longer maturity, in the case of purchases of
futures contracts, and a shorter maturity, in the case of sales of futures
contracts, than they would otherwise be deemed to have. In addition, a
security that is subject to redemption at the option of the issuer on a
particular date (the "call date"), which is prior to the security's stated
maturity, may be deemed to mature on the call date rather than on its stated
maturity date. The call date of a security will be used to calculate average
portfolio maturity when the Advisor reasonably anticipates, based upon
information available to it, that the issuer will exercise its right to redeem
the security. The average portfolio maturity of the Fund is dollar-weighted
based upon the market value of the Fund's securities at the time of the
calculation.

MORTGAGE- AND ASSET-BACKED SECURITIES

Mortgage-backed securities represent direct or indirect participations
in, or are secured by and payable from, mortgage loans secured by real
property, and include single- and multi-class pass-through securities and
collateralized mortgage obligations. Such securities may be issued or
guaranteed by U.S. government agencies or instrumentalities, such as the
Government National Mortgage Association and the Federal National Mortgage
Association, or by private issuers, generally originators and investors in
mortgage loans, including savings associations, mortgage bankers, commercial
banks, investment bankers, and special purpose entities (collectively, "private
lenders"). Mortgage-backed securities issued by private lenders may be
supported by pools of mortgage loans or other mortgage-backed securities that
are guaranteed, directly or indirectly, by the U.S. government or one of its
agencies or instrumentalities, or they may be issued without any governmental
guarantee of the underlying mortgage assets but with some form of non-
governmental credit enhancement.

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<PAGE> 54

Asset-backed securities have structural characteristics similar to
mortgage-backed securities. 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. The credit quality of most asset-
backed securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement of the
securities. Payments or distributions of principal and interest on
asset-backed debt obligations may be supported by non-governmental credit
enhancements including letters of credit, reserve funds, overcollateralization,
and guarantees by third parties. The market for privately issued asset-backed
debt obligations is smaller and less liquid than the market for government
sponsored mortgage-backed securities.

The rate of principal payment on mortgage- and asset-backed securities
generally depends on the rate of principal payments received on the underlying
assets which in turn may be affected by a variety of economic and other
factors. As a result, the yield on any mortgage- and asset-backed security is
difficult to predict with precision and actual yield to maturity may be more or
less than the anticipated yield to maturity. The yield characteristics of
mortgage- and asset-backed securities differ from those of traditional debt
securities. Among the principal differences are that interest and principal
payments are made more frequently on mortgage-and asset-backed securities,
usually monthly, and that principal may be prepaid at any time because the
underlying mortgage loans or other assets generally may be prepaid at any time.
As a result, if the Fund purchases these securities at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing the yield to maturity. Conversely, if the Fund purchases these
securities at a discount, a prepayment rate that is faster than expected will
increase yield to maturity, while a prepayment rate that is slower than
expected will reduce yield to maturity. Accelerated prepayments on securities
purchased by the 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.

While many mortgage- and asset-backed securities are issued with only
one class of security, many are issued in more than one class, each with
different payment terms. Multiple class mortgage- and asset-backed securities
are issued for two main reasons. First, multiple classes may be used as a
method of providing credit support. This is accomplished typically through
creation of one or more classes whose right to payments on the security is made
subordinate to the right to such payments of the remaining class or classes.
Second, multiple classes may permit the issuance of securities with payment
terms, interest rates, or other characteristics differing both from those of
each other and from those of the underlying assets. Examples include so-called
"strips" (mortgage - and asset-backed securities entitling the holder to
disproportionate interests with respect to the allocation of interest and
principal of the assets backing the security), and securities with class or
classes having characteristics which mimic the characteristics of non-mortgage-
or asset-backed securities, such as floating interest rates (i.e., interest
rates which adjust as a specified benchmark changes) or scheduled amortization
of principal.

The Fund may invest in stripped mortgage- or asset-backed securities,
which receive differing proportions of the interest and principal payments from
the underlying assets. The market value of such securities generally is more
sensitive to changes in prepayment and interest rates than is the case with
traditional mortgage- and asset-backed securities, and in some cases such
market value may be extremely volatile. With respect to certain stripped
securities, such as interest only and principal only classes, a rate of
prepayment that is faster or slower than anticipated may result in the Fund
failing to recover all or a portion of its investment, even though the
securities are rated investment grade.

Mortgage- and asset-backed securities backed by assets, other than as
described above, or in which the payment streams on the underlying assets are
allocated in a manner different than those described above may be issued in the
future. The Fund may invest in such securities if such investment is otherwise
consistent with its investment objectives and policies and with the investment
restrictions of the Fund.

MORTGAGE DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS

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repurchase agreement, it may be considered a borrowing. (See "Borrowing".)
When required by guidelines of the SEC, the Fund will set aside permissible
liquid assets in a segregated account to secure its obligations to repurchase
the security.

The Fund may also enter into mortgage dollar rolls, in which the Fund
would sell mortgage-backed securities for delivery in the current month and
simultaneously contract to purchase substantially similar securities on a
specified future date. While the Fund would forego principal and interest paid
on the mortgage-backed securities during the roll period, the Fund would be
compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The Fund also could be compensated through the receipt of
fee income equivalent to a lower forward price. At the time the Fund would
enter into a mortgage dollar roll, it would set aside permissible liquid assets
in a segregated account to secure its obligation for the forward commitment to
buy mortgage-backed securities. Mortgage dollar roll transactions may be
considered a borrowing by the Fund. (See "Borrowing".)

The mortgage dollar rolls and reverse repurchase agreements entered
into by the Fund may be used as arbitrage transactions in which the Fund will
maintain an offsetting position in investment grade debt obligations or
repurchase agreements that mature on or before the settlement date on the
related mortgage dollar roll or reverse repurchase agreements. Since the Fund
will receive interest on the securities or repurchase agreements in which it
invests the transaction proceeds, such transactions may involve leverage.
However, since such securities or repurchase agreements will be high quality
and will mature on or before the settlement date of the mortgage dollar roll or
reverse repurchase agreement, the Advisor believes that such arbitrage
transactions do not present the risks to the Fund that are associated with
other types of leverage.

MUNICIPAL OBLIGATIONS

General obligation bonds are secured by the issuer's pledge of its
full faith, credit, and taxing power for the payment of interest and principal.
Revenue bonds are payable only from the revenues derived from a project or
facility or from the proceeds of a specified revenue source. Industrial
development bonds are generally revenue bonds secured by payments from and the
credit of private users. Municipal notes are issued to meet the short-term
funding requirements of state, regional, and local governments. Municipal
notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes, tax and revenue anticipation notes, construction loan
notes, short-term discount notes, tax- exempt 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 the 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 enter into repurchase agreements with certain banks or
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, thereby, determines the yield during the purchaser's
holding period, while the seller's obligation to repurchase is secured by the
value of the underlying security. The Advisor will monitor, on an ongoing
basis, the value of the underlying securities to ensure that the value always
equals or exceeds the repurchase price plus accrued interest. Repurchase
agreements could involve certain risks in the event of a default or insolvency
of the other party to the agreement, including possible delays or restrictions
upon the Fund's ability to dispose of the underlying securities. Although no
definitive creditworthiness criteria are used, the Advisor reviews the
creditworthiness of

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<PAGE> 56

the banks and non-bank dealers with which the Fund enter 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.

SHORT SALES AGAINST THE BOX

The Fund may sell securities short against the box to hedge unrealized
gains on portfolio securities. Selling securities short against the box
involves selling a security that the Fund owns or has the right to acquire, for
delivery at a specified date in the future. If the Fund sells securities short
against the box, it may protect unrealized gains, but will lose the opportunity
to profit on such securities if the price rises.

SHORT-TERM CASH MANAGEMENT

From time to time the Advisor may determine to use a non-affiliated
money market fund to manage some or all of the Fund's short-term cash
positions. The Advisor will do this only when the Advisor reasonably believes
that this action will result in a return to the Fund that is equal to, or
better than, the return that could be achieved by direct investments in money
market instruments. In such cases, to ensure no double charging of fees, the
Advisor will credit any management or other fees of the non-affiliated money
market fund against the Advisor's management fee.

TEMPORARY DEFENSIVE POSITION

When the Advisor determines that market conditions warrant a temporary
defensive position, the Fund may invest without limitation in cash and
short-term fixed income securities, including U.S. government securities,
commercial paper, banker's acceptances, certificates of deposit, and time
deposits.

VARIABLE- OR FLOATING-RATE SECURITIES

The Fund may invest in securities which offer a variable- or
floating-rate of interest. Variable-rate securities provide for automatic
establishment of a new interest rate at fixed intervals (e.g., daily, monthly,
semi-annually, etc.). Floating-rate securities generally provide for automatic
adjustment of the interest rate whenever some specified interest rate index
changes. The interest rate on variable- or floating-rate securities is
ordinarily determined by reference to or is a percentage of a bank's prime
rate, the 90-day U.S. Treasury bill rate, the rate of return on commercial
paper or bank certificates of deposit, an index of short-term interest rates,
or some other objective measure.

Variable- or floating-rate securities frequently include a demand
feature entitling the holder to sell the securities to the issuer at par. In
many cases, the demand feature can be exercised at any time on 7 days notice;
in other cases, the demand feature is exercisable at any time on 30 days notice
or on similar notice at intervals of not more than one year. Some securities
which do not have variable or floating interest rates may be accompanied by
puts producing similar results and price characteristics. When considering the
maturity of any instrument which may be sold or put to the issuer or a third
party, the Fund may consider that instrument's maturity to be shorter than its
stated maturity.

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

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<PAGE> 57

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 15% of its net assets in variable-
and floating-rate demand obligations that are not readily marketable (a
variable- or floating-rate demand obligation that may be disposed of on not
more than seven days notice will be deemed readily marketable and will not be
subject to this limitation). (See "Illiquid Securities" and "Investment
Restrictions.") In addition, each variable- or floating-rate obligation must
meet the credit quality requirements applicable to all the Fund's investments
at the time of purchase. When determining whether such an obligation meets the
Fund's credit quality requirements, the Fund may look to the credit quality of
the financial guarantor providing a letter of credit or other credit support
arrangement.

In determining the Fund's weighted average portfolio maturity, the
Fund will consider a floating or variable rate security to have a maturity
equal to its stated maturity (or redemption date if it has been called for
redemption), except that it may consider (i) variable rate securities to have a
maturity equal to the period remaining until the next readjustment in the
interest rate, unless subject to a demand feature, (ii) variable rate
securities subject to a demand feature to have a remaining maturity equal to
the longer of (a) the next readjustment in the interest rate or (b) the period
remaining until the principal can be recovered through demand, and (iii)
floating rate securities subject to a demand feature to have a maturity equal
to the period remaining until the principal can be recovered through demand.
Variable and floating rate securities generally are subject to less principal
fluctuation than securities without these attributes since the securities
usually trade at par following the readjustment in the interest rate.

WARRANTS

The Fund may acquire warrants. Warrants are securities giving the
holder the right, but not the obligation, to buy the stock of an issuer at a
given price (generally higher than the value of the stock at the time of
issuance) during a specified period or perpetually. Warrants may be acquired
separately or in connection with the acquisition of securities. The Fund will
not purchase warrants, valued at the lower of cost or market value, in excess
of 5% of 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. Warrants do not carry with them the right
to dividends or voting rights with respect to the securities that they entitle
their holder to purchase, and they do not represent any rights in the assets of
the issuer. As a result, warrants may be considered to have more speculative
characteristics than certain other types of investments. In addition, the
value of a warrant does not necessarily change with the value of the underlying
securities, and a warrant ceases to have value if it is not exercised prior to
its expiration date.

WHEN-ISSUED SECURITIES

The Fund may from time to time purchase securities on a "when-issued"
basis. The price of debt obligations purchased on a when-issued basis, which
may be expressed in yield terms, generally is fixed at the time the commitment
to purchase is made, but delivery and payment for the securities take place at
a later date. Normally, the settlement date occurs within 45 days of the
purchase, although in some cases settlement may take longer. During the period
between the purchase and settlement, no payment is made by the Fund to the
issuer and no interest on the debt obligations accrues to the Fund. Forward
commitments involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the risk of
decline in value of the Fund's other assets. While when-issued securities may
be sold prior to the settlement date, the Fund intends 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.

To the extent required by the SEC, the Fund will maintain cash and
marketable securities equal in value to commitments for when-issued securities.
Such segregated securities either will mature or, if necessary, be sold on or
before the settlement date. When the time comes to pay for when-issued
securities, the Fund will meet its obligations from then-available cash flow,
sale of the securities held in the separate account, described above, sale of
other securities or, although it would not normally expect to do so, from the
sale of the when-issued securities themselves (which may have a market value
greater or less than the Fund's payment obligation).

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ZERO-COUPON, STEP-COUPON AND PAY-IN-KIND SECURITIES

The Fund may invest in zero-coupon, step-coupon, and pay-in-kind
securities. These securities are debt securities that do not make regular cash
interest payments. Zero-coupon and step-coupon securities are sold at a deep
discount to their face value. Pay-in-kind securities pay interest through the
issuance of additional securities. Because such securities do not pay current
cash income, the price of these securities can be volatile when interest rates
fluctuate. While these securities do not pay current cash income, federal
income tax law requires the holders of zero-coupon, step-coupon, and
pay-in-kind securities to include in income each year the portion of the
original issue discount (or deemed discount) and other non-cash income on such
securities accruing that year. In order to continue to qualify as a "regulated
investment company" under the Internal Revenue Code and avoid a certain excise
tax, the Fund may be required to distribute a portion of such discount and
income and may be required to dispose of other portfolio securities, which may
occur in periods of adverse market prices, in order to generate cash to meet
these distribution requirements.

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 25 registered open-end
management investment companies consisting of 36 mutual funds, which are
managed by the Advisor (the "Strong Funds"). The Strong Funds, in the
aggregate, pays each Director who is not a director, officer, or employee of
the Advisor, or any affiliated company (a "disinterested director") an annual
fee of $50,000, plus $100 per Board meeting for each Strong Fund. In addition,
each disinterested director is reimbursed by the Strong Funds for travel and
other expenses incurred in connection with attendance at such meetings. Other
officers and directors of the Strong Funds receive no compensation or expense
reimbursement from the Strong Funds.

*RICHARD S. STRONG (DOB 5/12/42), Chairman of the Board and Director of the
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. Mr. Strong has been in the investment management business since
1967. Mr. Strong has served the Corporation as a director since December 1990
and Chairman of the Board since January 1992.

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
the Corporation as a director since December 1990.

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 the Corporation
as a director since July 1994.

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*JOHN DRAGISIC (DOB 11/26/40), President and Director of the Corporation.

Mr. Dragisic has been President of the Advisor since October 1995, and
a director of the Advisor and Distributor since July 1994. Mr. Dragisic served
as Vice Chairman of the Advisor from July 1994 until October 1995. Mr.
Dragisic was the President and Chief Executive Officer of Grunau Company, Inc.
(a mechanical contracting and engineering firm), Milwaukee, Wisconsin from 1987
until July 1994. From 1981 to 1987, he was an Executive Vice President with
Grunau Company, Inc. From 1969 until 1973, Mr. Dragisic worked for the
InterAmerican Development Bank. Mr. Dragisic received his Ph.D. in Economics
in 1971 from the University of Wisconsin - Madison and his B.A. degree in
Economics in 1962 from Lake Forest College. Mr. Dragisic has served the
Corporation as Vice Chairman from July 1994 until October 1995; as President
since October 1995; and as a director from July 1991 until July 1994, and since
April 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. Mr. Kritzik has served the Corporation as a director since April
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. Mr. Vogt has served the
Corporation as a director since April 1995.

LAWRENCE A. TOTSKY (DOB 5/6/59), C.P.A., Vice President of the Corporation.

Mr. Totsky has been Senior Vice President of the Advisor since
December 1994. Mr. Totsky acted as the Advisor's Manager of Shareholder
Accounting and Compliance from June 1987 to June 1991 when he was named
Director of Mutual Fund Administration. Mr. Totsky has served the Corporation
as a Vice President since May 1993.

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 served the Corporation as a Vice President since October 1994.

STEPHEN J. SHENKENBERG (DOB 6/14/58), Vice President of the Corporation.

Mr. Shenkenberg has been an Associate Counsel to the Advisor since
December 1992. From June 1987 until December 1992, Mr. Shenkenberg was an
attorney for Godfrey & Kahn, S.C., a Milwaukee law firm. Mr. Shenkenberg has
served the Corporation as a Vice President since April 1996.

JOHN S. WEITZER (DOB 10/31/67), Vice President of the Corporation.

Mr. Weitzer has been an Associate Counsel of the Advisor since July
1993. Mr. Weitzer has served the Corporation as a Vice President since January
1996.

Except for Messrs. Nevins, Davis, Kritzik, and Vogt, the address of
all of the above persons is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr.
Nevins' address is 6075 Pelican Bay Boulevard, Naples, Florida 33963. Mr.
Davis'

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address is 161 North La Brea, Inglewood, California 90301. Mr. Kritzik's
address is 1123 North Astor Street, P.O. Box 92547, Milwaukee, Wisconsin
53202-0547. Mr. Vogt's address is 2830 East Third Avenue, Denver, Colorado
80206.

In addition to the positions listed above, Mr. Strong has been
Chairman and a director of Strong Holdings, Inc., a Wisconsin corporation and
subsidiary of the Advisor ("Holdings") since October 1993; Chairman and a
director of the Funds' underwriter, Strong Funds Distributors, Inc., a
Wisconsin Corporation and subsidiary of Holdings ("Distributor") since October
1993; Chairman and a director of Heritage Reserve Development Corporation, a
Wisconsin corporation and subsidiary of Holdings ("Heritage") since January
1994; Chairman and a director of Strong Service Corporation, a Wisconsin
corporation and subsidiary of Holdings ("SSC") since November 1995; Chairman
and a member of the Managing Board of Fussville Real Estate Holdings L.L.C., a
Wisconsin Limited Liability Company and subsidiary of the Advisor ("Real Estate
Holdings") since February 1994; Chairman and a member of the Managing Board of
Fussville Development L.L.C., a Wisconsin Limited Liability Company and
subsidiary of the Advisor and Real Estate Holdings ("Fussville Development")
since February 1994; and Chairman and a member of the Managing Board of
Sherwood Development L.L.C., a Wisconsin Limited Liability Company and
subsidiary of the Advisor ("Sherwood") since December 1995 and April 1995,
respectively. In addition to the positions listed above, Mr. Dragisic has been
a director of Distributors since July 1994; President and a director of
Holdings since December 1995 and July 1994, respectively; President and a
director of SSC since November 1995; Vice Chairman and a director of Heritage
since August 1994; Vice Chairman and a member of the Managing Board of
Fussville Development since December 1995 and August 1994, respectively; Vice
Chairman and a member of the Managing Board of Real Estate Holdings since
December 1995 and August 1994, respectively; and Vice Chairman and a member of
the Managing Board of Sherwood since December 1995 and April 1995,
respectively. In addition to the positions listed above, Mr. Lemke has been
President of Distributors since December 1995; Vice President of Holdings since
December 1995; Vice President of SSC since November 1995; Vice President of
Heritage since December 1995; Vice President of Fussville Development since
December 1995; Vice President of Real Estate Holdings since December 1995; and
Vice President of Sherwood since December 1995. In addition to the positions
listed above, Mr. Shenkenberg has been Vice President and Secretary of
Distributors since December 1995; Secretary of SSC since November 1995; and
Secretary of Holdings, Heritage, Fussville Development, Real Estate Holdings,
and Sherwood since December 1995.

As of December 31, 1996, the officers and directors of the Corporation
did not own any of the Fund's shares.

PRINCIPAL SHAREHOLDERS

As of December 31, 1996, no one owned or record or beneficially any
shares of the Fund.

INVESTMENT ADVISOR AND DISTRIBUTOR

The Advisor to the Fund is Strong Capital Management, Inc. Mr.
Richard S. Strong controls the Advisor. Mr. Strong is the Chairman and a
director of the Advisor, Mr. Dragisic is the President and a director of the
Advisor, Mr. Totsky is a Senior Vice President of the Advisor, Mr. Lemke is a
Senior Vice President, Secretary, and General Counsel of the Advisor, , Mr.
Shenkenberg is Vice President, Assistant Secretary, and Associate Counsel of
the Advisor, and Mr. Weitzer 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 "Management."

The Fund's Advisory Agreement is dated December __, 1996, and will
remain in effect as to the Fund for a period of two years. The Advisory
Agreement was approved by the Fund's initial shareholder on its first day of
operations. 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 also 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.

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Under the terms of the Advisory Agreement, the Advisor manages the
Fund's investments subject to the supervision of the Corporation's Board of
Directors. The Advisor is responsible for investment decisions and supplies
investment research and portfolio management. At its expense, the Advisor
provides office space and all necessary office facilities, equipment, and
personnel for servicing the investments of the Fund. The Advisor places all
orders for the purchase and sale of the Fund's securities at its expense.

As compensation for its services, the Fund pays to the Advisor a
monthly management fee at the annual rate of .25% of the Fund's average daily
net asset value. (See "Additional Information - Calculation of Net Asset
Value" in the Prospectus.) From time to time, the Advisor may voluntarily
waive all or a portion of its management fee for the Fund.

The Advisory Agreement requires the Advisor to reimburse the Fund in
the event that the expenses and charges payable by the Fund in any fiscal year,
including the management fee but excluding taxes, interest, brokerage
commissions, and similar fees and to the extent permitted extraordinary
expenses, exceed that percentage of the average net asset value of the Fund for
such year, as determined by valuations made as of the close of each business
day of the year, which is the most restrictive percentage expense limitation
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, then 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 absorb expenses for the Fund in
addition to the reimbursement of expenses in excess of applicable limitations.

On July 12, 1994, the Securities and Exchange Commission (the "SEC")
filed an administrative action (Order) against the Advisor, Mr. Strong, and
another employee of the Advisor in connection with conduct that occurred
between 1987 and early 1990. In re Strong/Corneliuson Capital Management, Inc.;
et al. Admin. Proc. File No. 3-8411. The proceeding was settled by consent
without admitting or denying the allegations in the Order. The Order found that
the Advisor and Mr. Strong aided and abetted violations of Section 17(a) of the
1940 Act by effecting trades between mutual funds, and between mutual funds and
Harbour Investments Ltd. ("Harbour"), without complying with the exemptive
provisions of SEC Rule 17a-7 or otherwise obtaining an exemption. It further
found that the Advisor violated, and Mr. Strong aided and abetted violations
of, the disclosure provisions of the 1940 Act and the Investment Advisers Act
of 1940 by misrepresenting the Advisor's policy on personal trading and by
failing to disclose trading by Harbour, an entity in which principals of the
Advisor owned between 18 and 25 percent of the voting stock. As part of the
settlement, the respondents agreed to a censure and a cease and desist order
and the Advisor agreed to various undertakings, including adoption of certain
procedures and a limitation for six months on accepting certain types of new
advisory clients.

On June 6, 1996, the Department of Labor (the "DOL") filed an action
against the Advisor for equitable relief alleging violations of the Employee
Retirement Security Act of 1974 ("ERISA") in connection with cross trades that
occurred between 1987 and late 1989 involving certain pension accounts managed
by the Advisor. Contemporaneous with this filing, the Advisor, without
admitting or denying the DOL's allegations, agreed to the entry of a consent
judgment resolving all matters relating to the allegations. Reich v. Strong
Capital Management, Inc., (U.S.D.C. E.D. WI)(the "Consent Judgment"). Under
the terms of the Consent Judgment, the Advisor agreed to reimburse the affected
accounts a total of $5.9 million. The settlement did not have any material
impact on the Advisor's financial position or operations.

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; charges of custodians, transfer agent fees
(including the printing and mailing of reports and notices to shareholders),
fees of registrars, fees for auditing and legal services, fees for clerical
services related to recordkeeping and shareholder relations, and the cost of
stock certificates and fees for directors who are not "interested persons" of
the Advisor.

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The Advisor has adopted a Code of Ethics (the "Code") which governs
the personal trading activities of all "Access Persons" of the Advisor. Access
Persons include every director and officer of the Advisor and the investment
companies managed by the Advisor, including the Fund, as well as certain
employees of the Advisor who have access to information relating to the
purchase or sale of securities by the Advisor on behalf of accounts managed by
it. The Code is based upon the principal that such Access Persons have a
fiduciary duty to place the interests of the Advisor's clients ahead of their
own.

The Code requires Access Persons (other than Access Persons who are
independent directors of the investment companies managed by the Advisor,
including the Fund) to, among other things, preclear their securities
transactions (with limited exceptions, such as transactions in shares of mutual
funds, direct obligations of the U.S. government and certain options on
broad-based securities market indexes) and to execute such transactions through
the Advisor's trading department. The Code, which applies to all Access Persons
(other than Access Persons who are independent directors of the investment
companies managed by the Advisor, including the Fund), includes a ban on
acquiring any securities in an initial public offering, other than a new
offering of a registered open-end investment company, and a prohibition from
profiting on short-term trading in securities. In addition, no Access Person
may purchase or sell any security which, at the time, is being purchased or
sold, or to the knowledge of the Access Person, is being considered for
purchase or sale, by the Advisor on behalf of any mutual fund or other account
managed by it. Finally, the Code provides for trading "black out" periods
which prohibit trading by Access Persons who are portfolio managers within
seven calendar days of trading in the same securities by any mutual fund or
other account managed by the portfolio manager.

From time to time the Advisor votes the shares owned by the Funds
according to its Statement of General Proxy Voting Policy ("Proxy Voting
Policy"). The general principal of the Proxy Voting Policy is to vote any
beneficial interest in an equity security prudently and solely in the best
long-term economic interest of the Fund and its beneficiaries considering all
relevant factors and without undue influence from individuals or groups who may
have an economic interest in the outcome of a proxy vote. Shareholders may
obtain a copy of the Proxy Voting Policy upon request from the Advisor.

Under a Distribution Agreement dated December _____, 1996 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 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.

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 investment 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 commission, if
any. In selecting broker-dealers and in negotiating commissions, the Advisor
considers a variety of factors, including best price and execution, the full
range of brokerage services provided by the broker, as well as its capital
strength and stability, and the quality of the research and research services
provided by the broker. Brokerage will not be allocated based on the sale of
any shares of the Strong Funds.

The Advisor has adopted procedures that provide generally for the
Advisor to seek to bunch orders for the purchase or sale of the same security
for the Fund, other mutual funds managed by the Advisor, and other advisory
clients (collectively, the "client accounts"). The Advisor will bunch orders
when it deems it to be appropriate and in the best interest of the client
accounts. When a bunched order is filled in its entirety, each participating
client account will participate at the average share price for the bunched
order on the same business day, and transaction costs shall be shared pro rata
based on each client's participation in the bunched order. When a bunched
order is only partially filled, the securities purchased will be allocated on a

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pro rata basis to each client account participating in the bunched order based
upon the initial amount requested for the account, subject to certain
exceptions, and each participating account will participate at the average
share price for the bunched order on the same business day.

Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment advisor, under certain circumstances, to cause an account
to pay a broker or dealer a commission for effecting a transaction in excess of
the amount of commission another broker or dealer would have charged for
effecting the transaction in recognition of the value of the brokerage and
research services provided by the broker or dealer. Brokerage and research
services include (a) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody).

In carrying out the provisions of the Advisory Agreement, the Advisor
may cause the Fund to pay a broker, which provides brokerage and research
services to the Advisor, a commission for effecting a securities transaction in
excess of the amount another broker would have charged for effecting the
transaction. The Advisor believes it is important to its investment
decision-making process to have access to independent research. The Advisory
Agreement provides that such higher commissions will not be paid by the Fund
unless (a) the Advisor determines in good faith that the amount is reasonable
in relation to the services in terms of the particular transaction or in terms
of the Advisor's overall responsibilities with respect to the accounts as to
which it exercises investment discretion; (b) such payment is made in
compliance with the provisions of Section 28(e), other applicable state and
federal laws, and the Advisory Agreement; and (c) in the opinion of the
Advisor, the total commissions paid by the Fund will be reasonable in relation
to the benefits to the Fund over the long term. The investment management fee
paid by the Fund under the Advisory Agreement is not reduced as a result of the
Advisor's receipt of research services.

Generally, research services provided by brokers may include
information on the economy, industries, groups of securities, individual
companies, statistical information, accounting and tax law interpretations,
political developments, legal developments affecting portfolio securities,
technical market action, pricing and appraisal services, credit analysis, risk
measurement analysis, performance analysis, and analysis of corporate
responsibility issues. Such research services are received primarily in the
form of written reports, telephone contacts, and personal meetings with
security analysts. In addition, such research services may be provided in the
form of access to various computer-generated data, computer hardware and
software, and meetings arranged with corporate and industry spokespersons,
economists, academicians, and government representatives. In some cases,
research services are generated by third parties but are provided to the
Advisor by or through brokers. Such brokers may pay for all or a portion of
computer hardware and software costs relating to the pricing of securities.

Where the Advisor itself receives both administrative benefits and
research and brokerage services from the services provided by brokers, it makes
a good faith allocation between the administrative benefits and the research
and brokerage services, and will pay for any administrative benefits with cash.
In making good faith allocations of costs between administrative benefits and
research and brokerage services, a conflict of interest may exist by reason of
the Advisor's allocation of the costs of such benefits and services between
those that primarily benefit the Advisor and those that primarily benefit the
Fund and other advisory clients.

From time to time, the Advisor may purchase new issues of securities
for the Fund in a fixed price offering. In these situations, the seller may be
a member of the selling group that will, in addition to selling the securities
to the Fund and other advisory clients, provide the Advisor with research. The
National Association of Securities Dealers has adopted rules expressly
permitting these types of arrangements under certain circumstances. Generally,
the seller will provide research "credits" in these situations at a rate that
is higher than that which is available for typical secondary market
transactions. These arrangements may not fall within the safe harbor of Section
28(e).

Each year, the Advisor considers the amount and nature of research and
research services provided by brokers, as well as the extent to which such
services are relied upon, and attempts to allocate a portion of the brokerage
business of the Fund and other advisory clients on the basis of that
consideration. In addition, brokers may suggest a level of business they would
like to receive in order to continue to provide such services. The actual
brokerage business received by a broker may be more or less than the suggested
allocations, depending upon the Advisor's evaluation of all applicable
considerations.

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The Advisor has informal arrangements with various brokers whereby, in
consideration for providing research services and subject to Section 28(e), the
Advisor allocates brokerage to those firms, provided that their brokerage and
research services were satisfactory to the Advisor and their execution
capabilities were compatible with the Advisor's policy of seeking best
execution at the best security price available, as discussed above. In no case
will the Advisor make binding commitments as to the level of brokerage
commissions it will allocate to a broker, nor will it commit to pay cash if any
informal targets are not met. The Advisor anticipates it will continue to
enter into such brokerage arrangements.

The Advisor may direct the purchase of securities on behalf of the
Fund and other advisory clients in secondary market transactions, in public
offerings directly from an underwriter, or in privately negotiated transactions
with an issuer. When the Advisor believes the circumstances so warrant,
securities purchased in public offerings may be resold shortly after
acquisition in the immediate aftermarket for the security in order to take
advantage of price appreciation from the public offering price or for other
reasons. Short-term trading of securities acquired in public offerings, or
otherwise, may result in higher portfolio turnover and associated brokerage
expenses.

The Advisor places portfolio transactions for other advisory accounts,
including other mutual funds managed by the Advisor. Research services
furnished by firms through which the Fund effects its securities transactions
may be used by the Advisor in servicing all of its accounts; not all of such
services may be used by the Advisor in connection with the Fund. In the
opinion of the Advisor, it is not possible to measure separately the benefits
from research services to each of the accounts (including the 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.

Where consistent with a client's investment objectives, investment
restrictions, and risk tolerance, the Advisor may purchase securities sold in
underwritten public offerings for client accounts, commonly referred to as
"deal" securities. The Advisor has adopted deal allocation procedures (the
"procedures"), summarized below, that reflect the Advisor's overriding policy
that deal securities must be allocated among participating client accounts in a
fair and equitable manner and that deal securities may not be allocated in a
manner that unfairly discriminates in favor of certain clients or types of
clients.

The procedures provide that, in determining which client accounts a
portfolio manager team will seek to have purchase deal securities, the team
will consider all relevant factors including, but not limited to, the nature,
size, and expected allocation to the Advisor of deal securities; the size of
the account(s); the accounts' investment objectives and restrictions; the risk
tolerance of the client; the client's tolerance for possibly higher portfolio
turnover; the amount of commissions generated by the account during the past
year; and the number of other deals the client has participated in during the
past year.

Where more than one of the Advisor's portfolio manager team seeks to
have client accounts participate in a deal and the amount of deal securities
allocated to the Advisor by the underwriting syndicate is less than the
aggregate amount ordered by the Advisor (a "reduced allocation"), the deal
securities will be allocated among the portfolio manager teams based on all
relevant factors. The primary factor shall be assets under management,
although other factors that may be considered in the allocation decision
include, but are not limited to, the nature, size, and expected allocation of
the deal; the amount of brokerage commissions or other amounts generated by the
respective participating portfolio manager teams; and which portfolio manager
team is primarily responsible for the Advisor receiving securities in the deal.
Based on the relevant factors, the Advisor has established general allocation
percentages for its portfolio manager teams, and these percentages are reviewed
on a regular basis to determine whether asset growth or other factors make it
appropriate to use different general allocation percentages for reduced
allocations.

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When a portfolio manager team receives a reduced allocation of deal
securities, the portfolio manager team will allocate the reduced allocation
among client accounts in accordance with the allocation percentages set forth
in the team's initial allocation instructions for the deal securities, except
where this would result in a de minimis allocation to any client account. On a
regular basis, the Advisor reviews the allocation of deal securities to ensure
that they have been allocated in a fair and equitable manner that does not
unfairly discriminate in favor of certain clients or types of clients.

CUSTODIAN

As custodian of the Fund's assets, Firstar Trust Company, P.O. Box
761, 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 officers of the Corporation. The custodian is 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 and/or the Advisor, may pay amounts to third
parties that provide transfer agent and/or other administrative services
relating to the Fund to persons who beneficially own interests in the Fund,
such as participants in 401(k) plans. These services may include, among other
things, sub-accounting services, transfer agent type activities, answering
inquiries relating to the Fund, transmitting, on behalf of the Fund, proxy
statements, annual reports, updated Prospectuses, other communications
regarding the Fund, and related services as the Fund or beneficial owners may
reasonably request.

TAXES

GENERAL

As indicated under "Additional Information - Distributions and Taxes"
in the Prospectus, the Fund intends to continue to qualify annually for
treatment as a regulated investment company ("RIC") under the Internal Revenue
Code of 1986, as amended (the "Code"). This qualification does not involve
government supervision of the 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. Among these requirements are 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 contracts) derived
with respect to its business of investing in securities or those currencies
("Income Requirement"); (2) the Fund must derive less than 30% of its gross
income each taxable year from the sale or other disposition of securities, or
any of the following, that were held for less than three months - options or
futures (other than those on foreign currencies), or foreign currencies (or
options, futures, or forward contracts thereon) that are not directly related
to the Fund's principal business or investing in securities (or options and
futures with respect to securities) ("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%

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of the value of its total assets may be invested in securities (other than U.S.
government securities or the securities of other RICs) of any one issuer. From
time to time the Advisor may find it necessary to make certain types of
investments for the purpose of ensuring that the Fund continues to qualify for
treatment as a RIC under the Code.

If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as long- term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.

The Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.

FOREIGN TRANSACTIONS

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. In general, gain or loss (1) from the disposition of foreign
currencies and forward currency contracts, (2) from the disposition of
foreign-currency- denominated debt securities that are attributable to
fluctuations in exchange rates between the date the securities are acquired and
their disposition date, and (3) attributable to fluctuations in exchange rates
between the time the Fund accrues interest or other receivables or expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects those receivables or pays those liabilities, will be treated
as ordinary income or loss. A foreign-currency-denominated debt security
acquired by the Fund may bear interest at a high normal rate that takes into
account expected decreases in the value of the principal amount of the security
due to anticipated currency devaluations; in that case, the Fund would be
required to include the interest in income as it accrues but generally would
realize a currency loss with respect to the principal only when the principal
was received (through disposition or upon maturity).

The Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, the Fund will be
subject to federal income tax on a portion of any "excess distribution"
received on the stock or of any gain on disposition of the stock (collectively,
"PFIC income"), plus interest thereon, even if the Fund distributes the PFIC
income to its shareholders. The balance of the PFIC income will be included in
the Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its shareholders. If
the Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund," then in lieu of the foregoing tax and interest obligation, the
Fund will be required to include in income each year its pro rata share of the
qualified electing fund's annual ordinary earnings and net capital gain (the
excess of net long-term capital gain over net short-term capital loss) -- which
probably would have to be distributed to its shareholders to satisfy the
Distribution Requirement -- even if those earnings and gain were not received
by the Fund. In most instances it will be very difficult, if not impossible,
to make this election because of certain requirements thereof.

DERIVATIVE INSTRUMENTS

The use of derivatives strategies, such as purchasing and selling
(writing) options and futures and entering into forward currency contracts,
involves complex rules that will determine for income tax purposes the
character and timing of recognition of the gains and losses the Fund realizes
in connection therewith. Gains from the disposition of foreign currencies
(except certain gains therefrom that may be excluded by future regulations),
and income from transactions in options, futures, and forward currency
contracts derived by the Fund with respect to its business of investing in
securities or foreign currencies, will qualify as permissible income under the
Income Requirement. However, income from the disposition of options and
futures (other than those on foreign currencies) will be subject to the 30%
Limitation if they are held for less than three months. Income from the
disposition of foreign currencies, and options, futures, and forward contracts
on foreign currencies, that are not directly related to the Fund's principal
business of investing in securities (or options and futures with respect to
securities) also will be subject to the 30% Limitation if they are held for
less than three months.

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If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
30% Limitation. Thus, only the net gain (if any) from the designated hedge
will be included in gross income for purposes of that limitation. The Fund
intends that, when it engages in hedging strategies, the hedging transactions
will qualify for this treatment, but at the present time it is not clear
whether this treatment will be available for all of the Fund's hedging
transactions. To the extent this treatment is not available or is not elected
by the Fund, it may be forced to defer the closing out of certain options,
futures, or forward currency contracts beyond the time when it otherwise would
be advantageous to do so, in order for the Fund to continue to qualify as a
RIC.

For federal income tax purposes, the Fund is required to recognize as
income for each taxable year its net unrealized gains and losses on options,
futures, and forward currency contracts that are subject to section 1256 of the
Code ("Section 1256 Contracts") and are held by the Fund as of the end of the
year, as well as gains and losses on Section 1256 Contracts actually realized
during the year. Except for Section 1256 Contracts that are part of a "mixed
straddle" and with respect to which the Fund makes a certain election, any gain
or loss recognized with respect to Section 1256 Contracts is considered to be
60% long-term capital gain or loss and 40% short-term capital gain or loss,
without regard to the holding period of the Section 1256 Contract. Unrealized
gains on Section 1256 Contracts that have been held by the Fund for less than
three months as of the end of its taxable year, and that are recognized for
federal income tax purposes as described above, will not be considered gains on
investments held for less than three months for purposes of the 30% Limitation.

ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES

The Fund may acquire zero-coupon, step-coupon, or other securities
issued with original issue discount. As a holder of those securities, the Fund
must include in its income the original issue discount that accrues on the
securities during the taxable year, even if the Fund receives no corresponding
payment on the securities during the year. Similarly, the Fund must include in
its income securities it receives as "interest" on pay-in-kind securities.
Because the Fund annually must distribute substantially all of its investment
company taxable income, including any original issue discount and other
non-cash income, to satisfy the Distribution Requirement, it may be required in
a particular year to distribute as a dividend an amount that is greater than
the total amount of cash it actually receives. Those distributions may be made
from the proceeds on sales of portfolio securities, if necessary. The Fund may
realize capital gains or losses from those sales, which would increase or
decrease its investment company taxable income or net capital gain, or both.
In addition, any such gains may be realized on the disposition of securities
held for less than three months. Because of the 30% Limitation, any such gains
would reduce the Fund's ability to sell other securities, or certain options,
futures, or forward currency contracts, held for less that three months that
it might wish to sell in the ordinary course of its portfolio management.

The foregoing federal tax discussion as well as the tax discussion
contained within the Prospectus under "Additional Information - 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

A more complete discussion of the Fund's determination of net asset
value is contained in the Prospectus. Generally, the net asset value of the
Fund will be determined as of the close of trading on each day the New York
Stock Exchange (the "NYSE") is open for trading except for bank holidays. The
NYSE is open for trading Monday through Friday except New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. Additionally, if any of the
aforementioned holidays falls on a Saturday, the NYSE will not be open for
trading on the preceding Friday, and when any such holiday falls on a Sunday,
the NYSE will not be open for trading on the succeeding Monday, unless unusual
business conditions exist, such as the ending of a monthly or the yearly
accounting period.

34
<PAGE> 68

ADDITIONAL SHAREHOLDER INFORMATION

TELEPHONE EXCHANGE AND REDEMPTION PRIVILEGES

Shares of the Fund and any other funds sponsored by the Advisor may be
exchanged for each other at relative net asset values. Exchanges will be
effected by redemption of shares of the Fund held and purchase of shares of the
fund for which Fund shares are being exchanged (the "New Fund"). For federal
income tax purposes, any such exchange constitutes a sale upon which a capital
gain or loss will be realized, depending upon whether the value of the shares
being exchanged is more or less than the shareholder's adjusted cost basis. If
you are interested in exercising any of these exchange privileges, you should
obtain Prospectuses of other funds sponsored by the Advisor from the Advisor.
Upon a telephone exchange, the transfer agent establishes a new account in the
New Fund with the same registration and dividend and capital gains options as
the redeemed account, unless otherwise specified, and confirms the purchase to
you.

The Funds employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. The Funds may not be liable for losses
due to unauthorized or fraudulent instructions. Such procedures include but are
not limited to requiring a form of personal identification prior to acting on
instructions received by telephone, providing written confirmations of such
transactions to the address of record, and tape recording telephone
instructions.

The Telephone Exchange and Redemption Privileges are available only in
states where shares of the New Fund may be sold, and may be modified or
discontinued at any time. Additional information regarding the Telephone
Exchange and Redemption Privileges is contained in the Funds' Prospectus.

RETIREMENT PLANS

Individual Retirement Account (IRA): Everyone under age 70 1/2 with earned
income may contribute to a tax-deferred IRA. The Strong Funds offer a
prototype plan for you to establish your own IRA. You are allowed to contribute
up to the lesser of $2,000 or 100% of your earned income each year to your IRA.
Under certain circumstances, your contribution will be deductible.

Direct Rollover IRA: To avoid the mandatory 20% federal withholding tax on
distributions, you must transfer the qualified retirement or Code section
403(b) plan distribution directly into an IRA. This tax cannot be avoided if
you receive a distribution and then roll it over into an IRA. The amount of
your Direct Rollover IRA contribution will not be included in your taxable
income for the year.

Simplified Employee Pension Plan (SEP-IRA): A SEP-IRA allows an employer to
make deductible contributions to separate IRA accounts established for each
eligible employee.

Salary Reduction Simplified Employee Pension Plan (SAR SEP-IRA): A SAR SEP-IRA
is a type of SEP-IRA in which an employer may allow employees to defer part of
their salaries and contribute to an IRA account. These deferrals help lower the
employees' taxable income.

Defined Contribution Plan: A defined contribution plan allows self-employed
individuals, partners, or a corporation to provide retirement benefits for
themselves and their employees. There are three plan types: a profit-sharing
plan, a money purchase pension plan, and a paired plan (a combination of a
profit-sharing plan and a money purchase plan).

401(k) Plan: A 401(k) plan is a type of profit-sharing plan that allows
employees to have part of their salary contributed to a retirement plan which
will earn tax-deferred income. A 401(k) plan is funded by employee
contributions, employer contributions, or a combination of both.

403(b)(7) Plan: A tax-sheltered custodial account designed to qualify under
section 403(b)(7) of the Code is available for use by employees of certain
educational, non-profit, hospital, and charitable organizations.

35
<PAGE> 69

FUND ORGANIZATION

The Fund is a series of common stock of Strong Institutional Funds,
Inc., a Wisconsin corporation (the "Corporation") that is authorized to offer
separate series of shares representing interests in separate portfolios of
securities, each with differing objectives. The shares in any one portfolio
may, in turn, be offered in separate classes, each with differing preferences,
limitations or relative rights. However, the 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 two series of common stock
outstanding, each with an indefinite number of authorized shares. 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.

The Corporation was organized on the following dates and currently has
the following authorized shares of capital stock:

<TABLE>
<CAPTION>
Incorporation Date Series Date Class Authorized Par
Corporation Date Created Created Shares Value ($)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Strong Institutional Funds, Inc 07/01/94 Indefinite .01
- Strong Institutional Money Fund* 07/01/94 Indefinite .01
- Strong Institutional Bond Fund 10/--/96 Indefinite .01
</TABLE>

* Described in a different prospectus and statement of additional information.

SHAREHOLDER MEETINGS

The Wisconsin Business Corporation Law permits registered investment
companies, such as the series of the Corporation, to operate without an annual
meeting of shareholders under specified circumstances if an annual meeting is
not required by the 1940 Act. The Corporation has adopted the appropriate
provisions in its Bylaws and may, at its discretion, not hold an annual meeting
in any year in which the election of directors is not required to be acted on
by shareholders under the 1940 Act.

The Corporation's Bylaws allow for a director to be removed by its
shareholders with or without cause, only at a meeting called for the purpose of
removing the director. Upon the written request of the holders of shares
entitled to not less than ten percent (10%) of all the votes entitled to be
cast at such meeting, the Secretary of the Corporation shall promptly call a
special meeting of shareholders for the purpose of voting upon the question of
removal of any director. The Secretary 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.

36
<PAGE> 70

PERFORMANCE INFORMATION

As described under "Additional Information - Performance Information"
in the Prospectus, the Fund's historical performance or return may be shown in
the form of "yield," "average annual total return," "total return," and
"cumulative total return." From time to time, the Advisor may voluntarily
waive all or a portion of its management fee and/or absorb certain expenses for
the Fund. Total returns contained in advertisements include the effect of
deducting the Fund's expenses, but may not include charges and expenses
attributable to any particular insurance product. Since shares may only be
purchased by the separate accounts of certain insurance companies, contracts
owners should carefully review the prospectus of the separate account for
information on fees and expenses. Excluding such fees and expenses from the
Fund's total return quotations has the effect of increasing the performance
quoted.

YIELD

The Fund's yield is computed in accordance with a standardized method
prescribed by rules of the SEC. Under that method, the current yield quotation
for the Fund is based on a one month or 30-day period. The yield is computed
by dividing the net investment income per share earned during the 30-day or one
month period by the maximum offering price per share on the last day of the
period, according to the following formula:

YIELD = 2[(a-b + 1)6 - 1]
---
cd

Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.

In computing yield, the Fund follows certain standardized accounting
practices specified by SEC rules. These practices are not necessarily
consistent with those that the Fund uses to prepare annual and interim
financial statements in conformity with generally accepted accounting
principles.

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 one 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.

37
<PAGE> 71

TOTAL RETURN

Calculation of the Fund's total return is not subject to a
standardized formula. Total return performance for a specific period is
calculated by first taking an investment (assumed below to be $10,000)
("initial investment") in the Fund's shares on the first day of the period and
computing the "ending value" of that investment at the end of the period. The
total return percentage is then determined by subtracting the initial
investment from the ending value and dividing the remainder by the initial
investment and expressing the result as a percentage. The calculation assumes
that all income and capital gains dividends paid by the Fund have been
reinvested at net asset value on the reinvestment dates during the period.
Total return may also be shown as the increased dollar value of the
hypothetical investment over the period.

CUMULATIVE TOTAL RETURN

Calculation of the Fund's cumulative total return is not subject to a
standardized formula and represents the simple change in value of an investment
over a stated period and may be quoted as a percentage or as a dollar amount.
Total returns and cumulative total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship between these factors and their
contributions to total return.

The Fund's performance figures are based upon historical results and
do not represent future performance. The Fund's shares are sold at net asset
value per share. The Fund's returns and net asset value will fluctuate and
shares are redeemable at the then current net asset value of the Fund, which
may be more or less than original cost. Factors affecting the Fund's
performance include general market conditions, operating expenses, and
investment management. Any additional fees charged by an insurance company 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 a 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 a 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 a 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, a Fund's performance may be compared to the performance of other
mutual funds in general or to the performance of particular types of mutual
funds, with similar investment goals, as tracked by independent organizations.
Among these organizations, Lipper, a widely used independent research firm
which ranks mutual funds by overall performance, investment objectives, and
assets, may be cited. Lipper performance figures are based on changes in net
asset value, with all income and capital gain dividends reinvested. Such
calculations do not include the effect of any sales charges imposed by other
funds. A Fund will be compared to Lipper's appropriate fund category, that is,
by fund objective and portfolio holdings. A Fund's performance may also be
compared to the average performance of its Lipper category.

38
<PAGE> 72

(5) MORNINGSTAR, INC.
A Fund's performance may also be compared to the performance of other
mutual funds by Morningstar, Inc. which rates funds on the basis of historical
risk and total return. Morningstar's ratings range from five stars (highest)
to one star (lowest) and represent Morningstar's assessment of the historical
risk level and total return of a fund as a weighted average for 3, 5, and 10
year periods. Ratings are not absolute and do not represent future results.

(6) INDEPENDENT SOURCES
Evaluations of Fund performance made by independent sources may also
be used in advertisements concerning a Fund, including reprints of, or
selections from, editorials or articles about a Fund, especially those with
similar objectives. Sources for Fund performance information and articles
about a Fund may include publications such as Money, Forbes, Kiplinger's, Smart
Money, Morningstar, Inc., Financial World, Business Week, U.S. News and World
Report, The Wall Street Journal, Barron's, and a variety of investment
newsletters.

(7) VARIOUS BANK PRODUCTS
Each Fund's performance also may be compared on a before or after-tax
basis to various bank products, including the average rate of bank and thrift
institution money market deposit accounts, Super N.O.W. accounts and
certificates of deposit of various maturities as reported in the Bank Rate
Monitor, National Index of 100 leading banks, and thrift institutions as
published by the Bank Rate Monitor, Miami Beach, Florida. The rates published
by the Bank Rate Monitor National Index are averages of the personal account
rates offered on the Wednesday prior to the date of publication by 100 large
banks and thrifts in the top ten Consolidated Standard Metropolitan Statistical
Areas. The rates provided for the bank accounts assume no compounding and are
for the lowest minimum deposit required to open an account. Higher rates may
be available for larger deposits.

With respect to money market deposit accounts and Super N.O.W.
accounts, account minimums range upward from $2,000 in each institution and
compounding methods vary. Super N.O.W. accounts generally offer unlimited
check writing while money market deposit accounts generally restrict the number
of checks that may be written. If more than one rate is offered, the lowest
rate is used. Rates are determined by the financial institution and are
subject to change at any time specified by the institution. Generally, the
rates offered for these products take market conditions and competitive product
yields into consideration when set. Bank products represent a taxable
alternative income producing product. Bank and thrift institution deposit
accounts may be insured. Shareholder accounts in the Fund are not insured.
Bank passbook savings accounts compete with money market mutual fund products
with respect to certain liquidity features but may not offer all of the
features available from a money market mutual fund, such as check writing.
Bank passbook savings accounts normally offer a fixed rate of interest while
the yield of the Fund fluctuates. Bank checking accounts normally do not pay
interest but compete with money market mutual fund products with respect to
certain liquidity features (e.g., the ability to write checks against the
account). Bank certificates of deposit may offer fixed or variable rates for a
set term. (Normally, a variety of terms are available.) Withdrawal of these
deposits prior to maturity will normally be subject to a penalty. In contrast,
shares of each Fund are redeemable at the net asset value (normally, $1.00 per
share) next determined after a request is received, without charge.

(8) INDICES
The Fund may compare its performance to a wide variety of indices
including the following:

<TABLE>
<S> <C>
(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 AverageTM
(e) IBC/Donoghue's Government Money Fund AverageTM
(f) Salomon Brothers 1-Month Treasury Bill Index
(g) Salomon Brothers 3-Month Treasury Bill Index
(h) Salomon Brothers 1-Year Treasury Benchmark-on-the-Run Index
(i) Salomon Brothers 1-3 Year Treasury/Government-Sponsored/Corporate Bond Index
(j) Salomon Brothers Corporate Bond Index
(k) Salomon Brothers AAA, AA, A, BBB, and BB Corporate Bond Indexes
(l) Salomon Brothers Broad Investment-Grade Bond Index
</TABLE>

39
<PAGE> 73

<TABLE>
<S> <C>
(m) Salomon Brothers High-Yield BBB Index
(n) Lehman Brothers Aggregate Bond Index
(o) Lehman Brothers 1-3 Year Government/Corporate Bond Index
(p) Lehman Brothers Intermediate Government/Corporate Bond Index
(q) Lehman Brothers Intermediate AAA, AA, and A Corporate Bond Indexes
(r) Lehman Brothers Government/Corporate Bond Index
(s) Lehman Brothers Corporate Baa Index
(t) Lehman Brothers Intermediate Corporate Baa Index
</TABLE>

(9) HISTORICAL ASSET CLASS RETURNS
From time to time, marketing materials may portray the historical
returns of various asset classes. Such presentations will typically compare
the average annual rates of return of inflation, U.S. Treasury bills, bonds,
common stocks, and small stocks. There are important differences between each
of these investments that should be considered in viewing any such comparison.
The market value of stocks will fluctuate with market conditions, and
small-stock prices generally will fluctuate more than large-stock prices.
Stocks are generally more volatile than bonds. In return for this volatility,
stocks have generally performed better than bonds or cash over time. Bond
prices generally will fluctuate inversely with interest rates and other market
conditions, and the prices of bonds with longer maturities generally will
fluctuate more than those of shorter-maturity bonds. Interest rates for bonds
may be fixed at the time of issuance, and payment of principal and interest may
be guaranteed by the issuer and, in the case of U.S. Treasury obligations,
backed by the full faith and credit of the U.S. Treasury.

Each Fund may from time to time be compared to the other funds in the
Strong Family of Funds based on a risk/reward spectrum. In general, the amount
of risk associated with any investment product is commensurate with that
product's potential level of reward. The Strong Funds risk/reward continuum or
any Fund's position on the continuum may be described or diagrammed in
marketing materials. The Strong Funds risk/reward continuum positions the risk
and reward potential of each Strong Fund relative to the other Strong Funds,
but is not intended to position any Strong Fund relative to other mutual funds
or investment products. Marketing materials may also discuss the relationship
between risk and reward as it relates to an individual investor's portfolio.

Financial goals vary from person to person. You may choose one or
more of the Strong Funds to help you reach your financial goals. To help you
better understand the Strong Income Funds and determine which Fund or
combination of Funds best meets your personal investment objectives, they are
described in the same Prospectus.

ADDITIONAL FUND INFORMATION

(1) DURATION

Duration is a calculation that measures the price sensitivity of the
Fund to changes in interest rates. Theoretically, if the 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, the
Fund's duration may be shorter or longer than its average maturity.

(2) PORTFOLIO CHARACTERISTICS

In order to present a more complete picture of the Fund's portfolio,
marketing materials may include various actual or estimated portfolio
characteristics, including but not limited to median market capitalizations,
earnings per share, alphas, betas, price/earnings ratios, returns on equity,
dividend yields, capitalization ranges, growth rates, price/book ratios, top
holdings, sector breakdowns, asset allocations, quality breakdowns, and
breakdowns by geographic region.

(3) MEASURES OF VOLATILITY AND RELATIVE PERFORMANCE

Occasionally statistics may be used to specify Fund volatility or
risk. The general premise is that greater volatility connotes greater risk
undertaken in achieving performance. Measures of volatility or risk are
generally used to compare the Fund's net asset value or performance relative to
a market index. One measure of volatility is beta. Beta is the volatility of
the

40
<PAGE> 74

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 the Fund's performance
has varied from its average performance during a particular time period.

Standard deviation is calculated using the following formula:

Standard deviation = the square root of # (xi - xm)2
------------
n-1

where # = "the sum of",
xi = each individual return during the time period,
xm = the average return over the time period, and
n = the number of individual returns during the time period.

Statistics may also be used to discuss the Fund's relative
performance. One such measure is alpha. Alpha measures the actual return of the
Fund compared to the expected return of the 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.

INDEPENDENT ACCOUNTANTS

Coopers & Lybrand L.L.P., 411 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, have been selected as the independent accountants for the
Fund, providing audit services and assistance and consultation with respect to
the preparation of filings with the SEC.

LEGAL COUNSEL

Godfrey & Kahn, S.C., 780 North Water Street, Milwaukee, Wisconsin
53202, acts as outside legal counsel for the Fund.

41
<PAGE> 75

APPENDIX

BOND RATINGS

STANDARD & POOR'S DEBT RATINGS

A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.

The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.

The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as
a result of changes in, or unavailability of, such information, or based on
other circumstances.

The ratings are based, in varying degrees, on the following
considerations:

1. Likelihood of default capacity and willingness of
the obligor as to the timely payment of interest and repayment
of principal in accordance with the terms of the obligation.

2. Nature of and provisions of the obligation.

3. Protection afforded by, and relative position of,
the obligation in the event of bankruptcy, reorganization, or
other arrangement under the laws of bankruptcy and other laws
affecting creditors' rights.

INVESTMENT GRADE
AAA Debt rated 'AAA' has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

A Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB Debt rated 'BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

SPECULATIVE GRADE
Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. 'BB' indicates the least degree of speculation
and 'C' the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.

BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.

A-1

<PAGE> 76

B Debt rated 'B' has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The 'B' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied 'BB' or 'BB-' rating.

CCC Debt rated 'CCC' has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The 'CCC'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'B' or 'B-' rating.

CC Debt rated 'CC' typically is applied to debt subordinated to senior
debt that is assigned an actual or implied 'CCC' rating.

C Debt rated 'C' typically is applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC-' rating. The 'C' rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.

CI The rating 'CI' is reserved for income bonds on which no interest is
being paid.

D Debt rated 'D' is in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grade period. The 'D' rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

MOODY'S LONG-TERM DEBT RATINGS

Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than in Aaa
securities.

A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.

Baa - Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
maintenance of other terms of the contract over any long period of time may be
small.

A-2

<PAGE> 77

Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.

Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.

C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

FITCH INVESTORS SERVICE, INC. BOND RATINGS

Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.

The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength and credit quality.

Fitch ratings do not reflect any credit enhancement that may be provided
by insurance policies or financial guaranties unless otherwise indicated.

Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.

Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.

Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.

AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected
by reasonably foreseeable events.

AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds
rated 'AAA'. Because bonds rated in the 'AAA' and 'AA' categories
are not significantly vulnerable to foreseeable future
developments, short-term debt of the issuers is generally rated
'F-1+'.

A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with
higher ratings.

BBB Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have
adverse impact on these bonds and, therefore, impair timely payment.
The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

A-3

<PAGE> 78

Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
('BB' to 'C') represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ('DDD' to 'D') is an
assessment of the ultimate recovery value through reorganization or
liquidation.

Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories cannot fully reflect the
differences in the degrees of credit risk.

BB Bonds are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by
adverse economic changes. However, business and financial
alternatives can be identified, which could assist the obligor in
satisfying its debt service requirements.

B Bonds are considered highly speculative. While bonds in
this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest
reflects the obligor's limited margin of safety and the need for
reasonable business and economic activity throughout the life of
the issue.

CCC Bonds have certain identifiable characteristics that, if not
remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.

CC Bonds are minimally protected. Default in payment of
interest and/or principal seems probable over time.

C Bonds are in imminent default in payment of interest or
principal.

DDD, DD,
and D Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the
basis of their ultimate recovery value in liquidation or
reorganization of the obligor. 'DDD' represents the highest
potential for recovery of these bonds, and 'D' represents the lowest
potential for recovery.

DUFF & PHELPS, INC. LONG-TERM DEBT RATINGS

These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks related to
such factors as competition, government action, regulation, technological
obsolescence, demand shifts, cost structure, and management depth and
expertise. The projected viability of the obligor at the trough of the cycle
is a critical determination.

Each rating also takes into account the legal form of the security, (e.g.,
first mortgage bonds, subordinated debt, preferred stock, etc.). The extent of
rating dispersion among the various classes of securities is determined by
several factors including relative weightings of the different security classes
in the capital structure, the overall credit strength of the issuer, and the
nature of covenant protection. Review of indenture restrictions is important
to the analysis of a company's operating and financial constraints.

A-4

<PAGE> 79

The Credit Rating Committee formally reviews all ratings once per quarter (more
frequently, if necessary). Ratings of 'BBB-' and higher fall within the
definition of investment grade securities, as defined by bank and insurance
supervisory authorities.

<TABLE>
<S> <C>
RATING SCALE DEFINITION
- ------------------------------------------------------------------------------------------------

AAA Highest credit quality. The risk factors are negligible, being only slightly more
than for risk-free U.S. Treasury debt.

- ------------------------------------------------------------------------------------------------

AA+ High credit quality. Protection factors are strong. Risk is modest, but may
AA vary slightly from time to time because of economic conditions.
AA-

- ------------------------------------------------------------------------------------------------

A+ Protection factors are average but adequate. However, risk factors are more
A variable and greater in periods of economic stress.
A-

- ------------------------------------------------------------------------------------------------

BBB+ Below-average protection factors but still considered sufficient for prudent
BBB investment. Considerable variability in risk during economic cycles.
BBB-

- ------------------------------------------------------------------------------------------------

BB+ Below investment grade but deemed likely to meet obligations when due.
BB Present or prospective financial protection factors fluctuate according to
BB- industry conditions or company fortunes. Overall quality may move up or
down frequently within this category.

- ------------------------------------------------------------------------------------------------

B+ Below investment grade and possessing risk that obligations will not be met
B when due. Financial protection factors will fluctuate widely according to
B- economic cycles, industry conditions and/or company fortunes. Potential
exists for frequent changes in the rating within this category or into a higher
or lower rating grade.

- ------------------------------------------------------------------------------------------------

CCC Well below investment grade securities. Considerable uncertainty exists as to
timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.

- ------------------------------------------------------------------------------------------------

DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP Preferred stock with dividend arrearages.
- ------------------------------------------------------------------------------------------------
</TABLE>

A-5

<PAGE> 80

SHORT-TERM RATINGS

STANDARD & POOR'S COMMERCIAL PAPER RATINGS

A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.

Ratings are graded into several categories, ranging from 'A-1' for the
highest quality obligations to 'D' for the lowest. These categories are as
follows:

A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.

A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated 'A-1'.

A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.

B Issues rated 'B' are regarded as having only speculative capacity for
timely payment.

C This rating is assigned to short-term debt obligations with doubtful
capacity for payment.

STANDARD & POOR'S NOTE RATINGS

An S&P note rating reflects the liquidity factors and market-access risks
unique to notes. Notes maturing in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating.

The following criteria will be used in making the assessment:

- 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.

Note rating symbols and definitions are as follows:

SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.

SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.

SP-3 Speculative capacity to pay principal and interest.

A-6

<PAGE> 81

MOODY'S SHORT-TERM RATINGS

Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.

Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:

Issuers rated PRIME-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment will
often be evidenced by many of the following characteristics: (i) leading
market positions in well-established industries, (ii) high rates of return on
funds employed, (iii) conservative capitalization structure with moderate
reliance on debt and ample asset protection, (iv) broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and (v)
well established access to a range of financial markets and assured sources of
alternate liquidity.

Issuers rated PRIME-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.

Issuers rated PRIME-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.

Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.

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-7

<PAGE> 82

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
used by money market participants. The ratings apply to all obligations with
maturities of under one year, including commercial paper, the uninsured portion
of certificates of deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit, and current maturities of long-term
debt. Asset-backed commercial paper is also rated according to this scale.

Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.

<TABLE>
<S> <C>
Rating Scale: Definition
------------- ----------

High Grade
----------
</TABLE>

D-1+ Highest certainty of timely payment. Short-Term liquidity,
including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.

D-1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors.
Risk factors are minor.

A-8

<PAGE> 83

D-1- High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk
factors are very small.

Good Grade

D-2 Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is
good. Risk factors are small.

Satisfactory Grade

D-3 Satisfactory liquidity and other protection factors qualify
issues as to investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.

Non-Investment Grade

D-4 Speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service. Operating
factors and market access may be subject to a high degree of
variation.

Default

D-5 Issuer failed to meet scheduled principal and/or interest payments.

THOMSON BANKWATCH (TBW) SHORT-TERM RATINGS

The TBW Short-Term Ratings apply, unless otherwise noted, to specific debt
instruments of the rated entities with a maturity of one year or less. TBW
Short-Term Ratings are intended to assess the likelihood of an untimely or
incomplete payments of principal or interest.

TBW-1 The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.

TBW-2 The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1".

TBW-3 The lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.

TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.

A-9

<PAGE> 84

IBCA SHORT-TERM RATINGS

IBCA Short-Term Ratings assess the borrowing characteristics of banks and
corporations, and the capacity for timely repayment of debt obligations. The
Short-Term Ratings relate to debt which has a maturity of less than one year.

<TABLE>
<S> <C>
A1+ Obligations supported by the highest capacity for timely
repayment and possess a particularly strong credit feature.

A1 Obligations supported by the highest capacity for timely repayment.

A2 Obligations supported by a good capacity for timely repayment.

A3 Obligations supported by a satisfactory capacity for timely repayment.

B Obligations for which there is an uncertainty as to the capacity to ensure timely repayment.

C Obligations for which there is a high risk of default or which are currently in default.
</TABLE>

A-10

<PAGE> 85

STRONG INSTITUTIONAL FUNDS, INC.

PART C
OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(a) Financial Statements:

(1) Strong Institutional Money Fund (all included or
incorporated by reference in Part A & B)

Schedules of Investments in Securities
Statement of Operations
Statement of Assets and Liabilities
Statement of Changes in Net Assets
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants

(2) Strong Institutional Bond Fund

Inapplicable

(b) Exhibits

(1) Articles of Incorporation
(1.1) Amendment to Articles of Incorporation
(2) Bylaws
(3) Inapplicable
(4) Specimen Stock Certificate
(5) Investment Advisory Agreement
(5.1) Schedule of Additional Funds (Strong Institutional Bond
Fund)
(6) Distribution Agreement
(7) Inapplicable
(8) Custody Agreement with Firstar (Strong Institutional
Money Fund and Strong Institutional Bond Fund)
(8.1) Global Custody Agreement with Brown Brothers Harriman &
Co. (Strong Institutional Bond Fund)
(9) Shareholder Servicing Agent Agreement
(10) Opinion of Counsel
(11) Consent of Auditor
(12) Inapplicable
(13) Inapplicable
(14.1) Prototype Defined Contribution Retirement Plan with
Standardized Adoption Agreements - No. 1
(14.1.1) Prototype Defined Contribution Retirement Plan with
Standardized Adoption Agreements - No. 2
(14.2) Individual Retirement Custodial Account
(14.3) Section 403(b)(7) Retirement Plan
(14.4) Simplified Employee Pension Plan Brochure
(15) Inapplicable
(16) Computation of Performance Figures
(17) Financial Data Schedule
(18) Inapplicable
(19) Power of Attorney

C-1

<PAGE> 86

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 30, 1996
-------------- ------------------------

Common Stock, $.01 par value

Strong Institutional Money Fund 36
Strong Institutional Bond Fund None

Item 27. Indemnification

Officers and directors are insured under a joint errors and omissions
insurance policy underwritten by American International Group, First State
Insurance Company, Chubb Group, and Gulf Insurance Companies in the aggregate
amount of $40,000,000, 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.

C-2

<PAGE> 87

Item 29. Principal Underwriters

(a) Strong Funds Distributors, Inc., principal underwriter for
Registrant, also serves as principal underwriter for Strong Advantage
Fund, Inc.; Strong Asia Pacific Fund, Inc.; Strong Asset Allocation Fund, Inc.;
Strong Common Stock Fund, Inc.; Strong Conservative Equity Funds, Inc.; Strong
Corporate Bond Fund, Inc.; Strong Discovery Fund, Inc.; Strong Equity Funds,
Inc.; Strong Government Securities Fund, Inc.; Strong Heritage Reserve Series,
Inc.; Strong High-Yield Municipal Bond Fund, Inc.; Strong Income Funds, Inc.;
Strong International Bond Fund, Inc.; Strong International Stock Fund, Inc.;
Strong Money Market Fund, Inc.; Strong Municipal Funds, Inc.; Strong Municipal
Bond Fund, Inc.; Strong Opportunity Fund, Inc.; Strong Schafer Value Fund, Inc.;
Strong Short-Term Bond Fund, Inc.; Strong Short-Term Global Bond Fund, Inc.;
Strong Short-Term Municipal Bond Fund, Inc.; Strong Special Fund II, Inc.;
Strong Total Return 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.

Item 30. Location of Accounts and Records

All accounts, books, or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are in the physical possession of Registrant's Vice President,
Thomas P. Lemke, at Registrant's corporate offices, 100 Heritage Reserve,
Menomonee Falls, Wisconsin 53051.

Item 31. Management Services

All management-related service contracts entered into by Registrant
are discussed in Parts A and B of this Registration Statement.

Item 32. Undertakings

(a) Inapplicable.

(b) The Registrant undertakes to file a post-effective amendment,
using financial statements which need not be certified, within four to
six months from the effective date of this Registration Statement with respect
to Strong Institutional Bond Fund.

(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> 88

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant hereby certifies that it has
duly caused this Post-Effective Amendment No. 3 to the Registration Statement
on Form N-1A to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Village of Menomonee Falls, and State of Wisconsin on the
16th day of October, 1996.

STRONG INSTITUTIONAL FUNDS, INC.
(Registrant)

BY: /s/ John Dragisic
---------------------------
John Dragisic, President

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 3 to the Registration Statement on Form N-1A has
been signed below by the following persons in the capacities and on the date
indicated.

<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
President (Principal Executive Officer
and acting Principal Financial and
/s/ John Dragisic Accounting Officer) and a Director October 16, 1996
- --------------------------
John Dragisic

/s/ Richard S. Strong Chairman of the Board and a Director October 16, 1996
- --------------------------
Richard S. Strong
Director October 16, 1996
- --------------------------
Marvin E. Nevins*
Director October 16, 1996
- --------------------------
Willie D. Davis*
Director October 16, 1996
- --------------------------
William F. Vogt*
Director October 16, 1996
- --------------------------
Stanley Kritzik*
</TABLE>

* Thomas P. Lemke signs this document pursuant to powers of attorney filed with
the Registration Statement of Registrant filed on or about August 3, 1995.

By: /s/ Thomas P. Lemke
-----------------------------------
Thomas P. Lemke

<PAGE> 89

EXHIBIT INDEX

EDGAR
Exhibit No. Exhibit Exhibit No.
- ----------- ------- -----------

(1) Articles of Incorporation *

(1.1) Amendment to Articles of Incorporation *

(2) Bylaws EX-99.B2(1)

(3) Inapplicable

(4) Specimen Stock Certificate EX-99.B4(1)

(5) Investment Advisory Agreement EX-99.B5(1)

(5.1) Schedule of Additional Funds *

(6) Distribution Agreement EX-99.B6(1)

(7) Inapplicable

(8) Custody Agreement with Firstar (Strong EX-99.B8(3)
Institutional Money Fund and Strong Institutional
Bond Fund)

(8.1) Global Custody Agreement with Brown Brothers *
Harriman & Co. (Strong Institutional Bond Fund)

(9) Shareholder Servicing Agent Agreement EX-99.B9(2)

(10) Opinion of Counsel *

(11) Consent of Auditor EX-99.B11

(12) Inapplicable

(13) Inapplicable

(14.1) Prototype Defined Contribution Retirement Plan *
with Standardized
Adoption Agreements - No. 1

(14.1.1) Prototype Defined Contribution Retirement Plan *
with Standardized
Adoption Agreements - No. 2

(14.2) Individual Retirement Custodial Account *

(14.3) Section 403(b)(7) Retirement Plan *

(14.4) Simplified Employee Pension Plan Brochure *

(15) Inapplicable

(16) Computation of Performance Figures EX-99.B16(3)

<PAGE> 90

(17) Financial Data Schedule EX-27.1 (Money)

(18) Inapplicable

(19) Power of Attorney(1)

- --------------

(1) Incorporated herein by reference to the Registration Statement on Form
N-1A of Registrant filed on or about August 3, 1995.

(2) Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A filed on or about September 19, 1995.

(3) Incorporated herein by reference to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A filed on or about June 27, 1996.

* To be included by amendment prior to the effective date of this
Post-Effective Amendment to the Registration Statement on Form N-1A.

<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Strong Institutional Funds, Inc.

We consent to the incorporation by reference in Post-Effective Amendment No. 3
to the Registration Statement of Strong Institutional Funds, Inc. on Form N-1A
of our report dated March 20, 1996 on our audit of the financial statements and
financial highlights of Strong Institutional Money Fund, a series of Strong
Institutional Funds, Inc., which report is included in the Annual Report to
Shareholders for the period from September 21, 1995 (inception) to February 29,
1996, which is also incorporated by reference in the Registration Statement.
We also consent to the reference to our Firm under the caption "Independent
Accountants" in the Statement of Additional Information.

\s\ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.

Milwaukee, Wisconsin
October 16, 1996

<ARTICLE> 6
<CIK> 0000948336
<NAME> STRONG INSTITUTIONAL FUNDS, INC.
<SERIES>
<NUMBER> 1
<NAME> STRONG INSTITUTIONAL MONEY FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> SEP-21-1995
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 127,490
<INVESTMENTS-AT-VALUE> 127,490
<RECEIVABLES> 399
<ASSETS-OTHER> 181
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 128,070
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 609
<TOTAL-LIABILITIES> 609
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 127,461
<SHARES-COMMON-STOCK> 127,461
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 127,461
<DIVIDEND-INCOME> 0
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<OTHER-INCOME> 0
<EXPENSES-NET> (65)
<NET-INVESTMENT-INCOME> 1,769
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,769
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,769)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 347,284
<NUMBER-OF-SHARES-REDEEMED> (220,959)
<SHARES-REINVESTED> 1,036
<NET-CHANGE-IN-ASSETS> 127,361
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 113
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 131
<AVERAGE-NET-ASSETS> 70656
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>