STRONG DISCOVERY FUND II INC, 497, 1995-07-18

STRONG DISCOVERY FUND II INC
497, 1995-07-18

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Dated July 14, 1995

STRONG ADVANTAGE FUND II

Strong Advantage Fund II (the "Fund") is a diversified series of the Strong
Variable Insurance Funds, Inc. (the "Corporation"), an open-end management
investment company, commonly called a mutual fund. The Fund seeks current income
with a very low degree of share-price fluctuation. The Fund invests primarily in
ultra short-term, investment-grade debt obligations, and its average effective
portfolio maturity will normally be one year or less.

Shares of the Fund are only offered and sold to the separate accounts of
certain insurance companies for the purpose of funding variable annuity and
variable life insurance contracts. This Prospectus should be read together with
the prospectus of the separate account of the specific insurance product which
preceded or accompanies this Prospectus.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAP-
PROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECU-
RITIES AND EXCHANGE COMMISSION OR ANY STATE SECURI-
TIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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This Prospectus contains information that 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 July 14, 1995, contains further
information, is incorporated by reference into this Prospectus, and has been
filed with the Securities and Exchange Commission ("SEC"). This Statement, which
may be revised from time to time, is available upon request and without charge
by writing to the Fund at P.O. Box 2936, Milwaukee, Wisconsin 53201.

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TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
THE FUND........................................ 2
INVESTMENT OBJECTIVE AND POLICIES............... 3
FUNDAMENTALS OF FIXED INCOME INVESTING.......... 4
IMPLEMENTATION OF POLICIES AND RISKS............ 7
SPECIAL CONSIDERATIONS.......................... 15
MANAGEMENT...................................... 16
ADDITIONAL INFORMATION.......................... 17
APPENDIX A...................................... 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 to any person in
any state or jurisdiction in which such offering may not lawfully be made.

THE FUND

The Fund is a diversified series of the Corporation, which is an open-end
management investment company. The Fund offers and sells its shares only to
separate accounts of insurance companies for the purpose of funding variable
annuity and variable life insurance contracts. The Fund does not impose any
sales or redemption charges. Strong Capital Management, Inc. (the "Advisor") is
the investment advisor for the Fund.

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INVESTMENT OBJECTIVE AND POLICIES

The Fund has adopted certain fundamental investment restrictions that are set
forth in the Fund's Statement of Additional Information ("SAI"). Those
restrictions, the Fund's investment objective and any other investment policies
identified as "fundamental" cannot be changed without shareholder approval. To
further guide investment activities, the Fund has also instituted a number of
non-fundamental operating policies, which are described throughout this
Prospectus and in the SAI. Although these additional policies may be changed by
the Corporation's Board of Directors without shareholder approval, the Fund will
promptly notify shareholders of any material change in operating policies.
The Fund seeks current income with a very low degree of share-price
fluctuation. The Fund invests primarily in ultra short-term investment-grade
debt obligations.
The Fund is designed for investors who seek higher yields than money market
funds generally offer and who are willing to accept some modest principal
fluctuation in order to achieve that objective. Because its share price will
vary, the Fund is not an appropriate investment for those whose primary
objective is absolute principal stability. The Fund's investments include a
combination of high-quality money market instruments, as well as securities with
longer maturities and debt obligations of lower quality. Under normal market
conditions, it is anticipated that the Fund will maintain an average effective
portfolio maturity of one year or less. When the Advisor determines market
conditions warrant a temporary defensive position, the Fund may invest without
limitation in cash and short-term fixed income securities.
Under normal market conditions, at least 75% of the Fund's total assets will
be invested in investment-grade debt obligations, which generally include a
range of obligations from those in the highest rating category to those rated
medium-quality (e.g., BBB or higher by Standard & Poor's Ratings Group or
"S&P"). The Fund may also invest up to 25% of its total assets in
non-investment-grade debt obligations that are rated in the fifth-highest rating
category (e.g., BB by S&P) or unrated securities of comparable quality. In
general, non-investment-grade securities are regarded as predominantly
speculative with respect to the capacity of the issuer to pay interest and repay
principal. However, because these securities compose the tier immediately below
investment-grade, they are considered the least speculative non-investment-grade
securities. (See "Fundamentals of Fixed Income Investing - Credit Quality.")

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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 average portfolio
maturity according to the Advisor's interest rate outlook while seeking to avoid
or reduce, to the extent possible, any negative changes in net asset value.

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.
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

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to mature at the next put-exercise date, (iii) the maturity of mortgage-backed
securities is determined on an "expected life" basis, and (iv) securities being
hedged with futures contracts may be deemed to have a longer maturity, in the
case of purchases of futures contracts, and a shorter maturity, in the case of
sales of futures contracts, than they would otherwise be deemed to have.
The Fund's average "effective portfolio maturity" will be calculated in
nearly the same manner as average portfolio maturity, which is explained above.
However, for the purpose of calculating average effective portfolio maturity, a
security that is subject to redemption at the option of the issuer on a
particular date (the "call date") which is prior to the security's stated
maturity may be deemed to mature on the call date rather than on its stated
maturity date. The call date of a security will be used to calculate average
effective portfolio maturity when the Advisor reasonably anticipates, based upon
information available to it, that the issuer will exercise its right to redeem
the security. The Advisor may base its conclusion on such factors as the
interest rate paid on the security compared to prevailing market rates, the
amount of cash available to the issuer of the security, events affecting the
issuer of the security, and other factors that may compel or make it
advantageous for the issuer to redeem a security prior to its stated maturity.

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 NRSROs. "Appendix A - Ratings of Debt Obligations" presents the
ratings of three well-known such organizations: S&P, Moody's Investors Services,
Inc., and Fitch Investors Service, Inc.

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

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- - short-term bank obligations that are rated in one of the three highest
categories by any NRSRO (e.g., A-3 or higher by S&P), with respect to
obligations maturing in one year or less;
- - commercial paper rated in one of the three highest rating categories (e.g.,
A-3 or higher by S&P);
- - unrated debt obligations determined by the Advisor to be of comparable
quality; and
- - repurchase agreements involving investment-grade debt obligations.

Investment-grade debt obligations are generally believed to have relatively
low degrees of credit risk. However, medium-quality debt obligations, 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.

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The market for high-yield (high-risk) securities initially grew during a
period of economic expansion and has experienced mixed results thereafter. It is
uncertain how the high-yield market will perform during a prolonged period of
rising interest rates. A prolonged economic downturn or a prolonged period of
rising interest rates could adversely affect the market for these securities,
increase their volatility, and reduce their value and liquidity. In addition,
lower-quality securities tend to be less liquid than higher-quality debt
securities because the market for them is not as broad or active. If market
quotations are not available, these securities will be valued in accordance with
procedures established by the Corporation's Board of Directors. Judgment may,
therefore, play a greater role in valuing these securities. The lack of a liquid
secondary market may have an adverse effect on market price and the Fund's
ability to sell particular securities.

IMPLEMENTATION OF POLICIES AND RISKS

In addition to the Fund's investment policies described above (and subject to
certain restrictions described herein), the Fund may invest in some or all of
the following securities and employ some or all of the following investment
techniques, some of which may present special risks as described below. The Fund
may also engage in reverse repurchase agreements and mortgage dollar roll
transactions. A more complete discussion of these securities and investment
techniques and their associated risks is contained in the Fund's SAI.

DEBT OBLIGATIONS

The Fund may invest in any 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

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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:

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

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

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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.
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 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 a portion of its assets 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

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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 SECURITIES AND CURRENCIES

The Fund may invest up to 25% of its total assets directly in foreign
securities. The Fund may also invest in foreign securities through depositary
receipts without regard to this limitation. However, the Advisor currently
intends to invest not more than 25% of the Fund's total assets in foreign
securities, including both direct investments and investments made through
depositary receipts. Depositary receipts are generally issued by banks or trust
companies and evidence ownership of underlying foreign securities.
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 securities are
less liquid and their prices more volatile than comparable U.S. securities.
Although the Fund generally invests only in securities that are regularly traded
on recognized exchanges or in over-the-counter markets, from time to time
foreign securities may be difficult to liquidate rapidly without adverse price
effects. Certain costs attributable to foreign investing, such as custody
charges and brokerage costs, are higher than those attributable to domestic
investing.
Because most foreign securities are denominated in non-U.S. currencies, the
investment performance of the Fund could to a certain extent be significantly
affected by changes in foreign currency exchange rates. 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

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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 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 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 Funds 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.

DERIVATIVE INSTRUMENTS

The Fund may use derivative instruments for any lawful purpose, including
hedging, risk management, or enhancing returns, but not for speculation.
Derivative instruments are securities or agreements whose value is derived from
the value of some underlying asset, for example, securities, reference indexes,
or commodities. Options, futures, and options on futures transactions are
considered derivative transactions. Derivatives generally have investment
characteristics that are based upon either forward contracts (under which one
party is obligated to buy and the other party is obligated to sell an underlying
asset at a specific price on a specified date) or option contracts (under which
the holder of the option has the right but not the obligation to buy or sell an
underlying asset at a specified price on or before a specified date).
Consequently, the change in value of a forward-based derivative generally is
roughly proportional to the change in value of the underlying asset. In
contrast, the buyer of an option-based derivative generally will benefit from
favorable movements in the price of the underlying asset but is not exposed to
corresponding

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losses due to adverse movements in the value of the underlying asset. The seller
of an option-based derivative generally will receive fees or premiums but
generally is exposed to losses due to changes in the value of the underlying
asset. Derivative transactions may include elements of leverage and,
accordingly, the fluctuation of the value of the derivative transaction in
relation to the underlying asset may be magnified. In addition to options,
futures, and options on futures transactions, derivative transactions may
include short sales against the box, in which the Fund sells a security it owns
for delivery at a future date; swaps, in which the two parties agree to exchange
a series of cash flows in the future, such as interest-rate payments;
interest-rate caps, under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates exceed a specified
rate, or "cap"; and interest-rate floors, under which, in return for a premium,
one party agrees to make payments to the other to the extent that interest rates
fall below a specified level, or "floor." Derivative transactions may also
include forward currency contracts and foreign currency exchange-related
securities.
Derivative instruments may be exchange-traded or traded in over-the-counter
transactions between private parties. Over-the-counter transactions are subject
to the credit risk of the counterparty to the instrument and are less liquid
than exchange-traded derivatives since they often can only be closed out with
the other party to the transaction. When required by SEC guidelines, the Fund
will set aside permissible liquid assets or securities positions that
substantially correlate to the market movements of the derivatives transaction
in a segregated account to secure its obligations under derivative transactions.
In order to maintain its required cover for a derivative transaction, the Fund
may need to sell portfolio securities at disadvantageous prices or times since
it may not be possible to liquidate a derivative position.
The successful use of derivative transactions by the Fund is dependent upon
the Advisor's ability to correctly anticipate trends in the underlying asset. To
the extent that the Fund is engaging in derivative transactions other than for
hedging purposes, the Fund's successful use of such transactions is more
dependent upon the Advisor's ability to correctly anticipate such trends, since
losses in these transactions may not be offset by gains in the Fund's portfolio
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. Hedging transactions are also
subject to risks. 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.

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

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these securities are established at the time the purchaser enters into the
commitment, these securities may be delivered and paid for at a future date,
generally within 45 days. Purchasing when-issued securities allows the Fund to
lock in a fixed price or yield on a security it intends to purchase. However,
when the Fund purchases a when-issued security, it immediately assumes the risk
of ownership, including the risk of price fluctuation until the settlement date.
The greater the Fund's outstanding commitments for these securities, the
greater the exposure to potential fluctuations in the net asset value of the
Fund. Purchasing when-issued securities may involve the additional risk that the
yield available in the market when the delivery occurs may be higher or the
market price lower than that obtained at the time of commitment. Although the
Fund may be able to sell these securities prior to the delivery date, it will
purchase when-issued securities for the purpose of actually acquiring the
securities, unless, after entering into the commitment, a sale appears desirable
for investment reasons. When required by SEC guidelines, the Fund will set aside
permissible liquid assets in a segregated account to secure its outstanding
commitments for when-issued securities.

ILLIQUID SECURITIES

The Fund may invest up to 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
Corporation'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 accruing that year.

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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 sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The Fund also could be compensated through the receipt of
fee income equivalent to a lower forward price. When required by SEC guidelines,
the 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

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

PROSPECTUS PAGE 14
<PAGE> 15

in the payment by the Fund of above average amounts of transaction costs. 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. This rate should not
be considered as a limiting factor.

SPECIAL CONSIDERATIONS

The Fund is designed as an investment vehicle for variable annuity and
variable life insurance contracts funded by separate accounts of certain
insurance companies. Section 817(h) of the Internal Revenue Code of 1986, as
amended (the "Code") and the regulations thereunder impose certain
diversification standards on the investments underlying variable annuity and
variable life insurance contracts in order for such contracts to be treated for
tax purposes as annuities or life insurance. Section 817(h) of the Code provides
that a variable annuity and variable life insurance contract based on a separate
account shall not be treated as an annuity or life insurance contract for any
period (and any subsequent period) for which the account's investments are not
adequately diversified. These diversification requirements are in addition to
the diversification requirements applicable to the Fund under Subchapter M of
the Code and the 1940 Act and may affect the composition of the Fund's
investments.
Since the shares of the Fund are currently sold to segregated asset accounts
underlying such variable annuity and variable life insurance contracts, the Fund
intends to comply with the diversification requirements as set forth in the
regulations. The Secretary of the Treasury may in the future issue additional
regulations or revenue rulings that may prescribe the circumstances in which a
contract owner's control of the investments of a separate account may cause the
contract owner, rather than the insurance company, to be treated as the owner of
assets of the separate account. Failure to comply with Section 817(h) of the
Code or any regulation thereunder, or with any future regulations or revenue
rulings on contract owner control, would cause earnings regarding a contract
owner's interest in an insurance company's separate account to be includible in
the contract owner's gross income in the year earned. Such standards may apply
only prospectively, although retroactive application is possible. In the event
that any such regulations or revenue rulings are adopted, the Fund may not be
able to continue to operate as currently described in this prospectus, or
maintain its investment program.
The Fund will be managed in such a manner as to comply with the requirements
of Subchapter L of the Code. It is possible that in order to comply with such
requirements, less desirable investment decisions may be made which would affect
the investment performance of the Fund.

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

PROSPECTUS PAGE 15
<PAGE> 16

The Fund may sell its shares to the separate accounts of various insurance
companies, which are not affiliated with each other, for the purpose of funding
variable annuity and variable life insurance contracts. The Fund currently does
not foresee any disadvantages to contract owners arising out of the fact that it
offers its shares to separate accounts of various insurance companies, which are
not affiliated with each other, to serve as an investment medium for their
variable products. However, it is theoretically possible that the interests of
owners of various contracts participating in the Fund through the separate
accounts might at some time be in conflict. The Board of Directors of the
Corporation, however, will monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken in response to such conflicts. If such a conflict were
to occur, one or more insurance companies' separate accounts might be required
to withdraw its investments in the Fund, and shares of another Fund may be
substituted. This might force the Fund to sell securities at disadvantageous
prices. In addition, the Board of Directors may refuse to sell Fund shares to
any separate account or may suspend or terminate the offering of Fund shares if
such action is required by law or regulatory authority or is in the best
interest of the shareholders of the Fund.

MANAGEMENT

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

PROSPECTUS PAGE 16
<PAGE> 17

Except for expenses voluntarily absorbed by the Advisor or the distributor,
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
for printing and distribution costs 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 of indemnification; extraordinary expenses;
and costs of shareholder and director meetings.

PORTFOLIO MANAGER. Mr. Jeffrey A. Koch joined the Advisor as a portfolio
manager and securities analyst in June 1989. For a brief period prior to that,
he was a market-maker clerk at Fossett Corporation, a clearing firm. Mr. Koch
earned his M.B.A. in Finance at Washington University in St. Louis, Missouri in
1989. His undergraduate degree, awarded in 1987, is from the University of
Minnesota-Morris. Mr. Koch is also a Chartered Financial Analyst. Mr. Koch has
managed the Fund since its inception in June 1995.

ADDITIONAL INFORMATION

HOW TO INVEST. Investments in the Fund may only be made by separate accounts
established and maintained by insurance companies for purposes of funding
variable annuity and variable life insurance contracts. For instructions on how
to direct a separate account to purchase shares in the Fund, please refer to the
prospectus of the insurance company's separate account. The Fund does not impose
any sales charge or 12b-1 fee. Certain sales charges may apply to the variable
annuity or variable life insurance contract, which should be described in the
prospectus of the insurance company's separate account. The Fund may decline to
accept a purchase order upon receipt when, in the judgment of the Advisor, it
would not be in the best interest of the existing shareholders to accept the
order. Shares of the Fund will be sold at the net asset value next determined
after receipt by the Fund of a purchase order in proper form placed by an
insurance company investing in the Fund. Certificates for shares in the Fund
will not be issued.

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

PROSPECTUS PAGE 17
<PAGE> 18

shares and no shares are tendered for redemption. The Fund's NAV is calculated
by taking the fair value of the Fund's total assets, subtracting all its
liabilities, and dividing by the total number of shares outstanding. Expenses
are accrued and applied daily when determining the net asset value.
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 values 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 when purchased 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 REDEEM SHARES. Shares of the Fund may be redeemed on any business day.
The price received upon redemption will be the net asset value next determined
after the redemption request in proper form is received by the Fund. (See
"Calculation of Net Asset Value.") Contract owners should refer to the
withdrawal or surrender instructions in the prospectus of the separate account
for instructions on how to redeem shares. Once the redemption request is
received in proper form, the Fund will ordinarily forward payment to the
separate account no later than seven days after receipt.
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
which makes disposal of portfolio securities or valuation of net assets of the
Fund not reasonably practicable.

DISTRIBUTIONS AND TAXES. The policy of the Fund is to pay dividends to the
insurance company's separate accounts from net investment income monthly and to
distribute substantially all net realized capital gains, after using any
available capital loss carryovers, annually. All dividends and capital gain
distributions paid to the insurance company's separate accounts will be
automatically reinvested in additional Fund shares.
The Fund intends to qualify for treatment as a Regulated Investment Company
or "RIC" under Subchapter M of the 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. If the Fund does not so qualify, however, it would be treated
for tax purposes as an ordinary corporation and would receive no tax deduction
for distributions made to its shareholders. For more information regarding tax
implications for owners of variable annuity or variable life insurance contracts
investing in the Fund, please refer to the prospectus of your insurance
company's separate account. See "Special Considerations" for a

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

PROSPECTUS PAGE 18
<PAGE> 19

discussion of special tax considerations relating to the Fund's compliance with
Subchapter L of the Code, as an investment vehicle for variable annuity and
variable life insurance contracts of certain insurance companies.
This section is not intended to be a full discussion of present or proposed
federal income tax law and its effect on the Fund and investors. (See the SAI
for a further discussion.) Investors are urged to consult their own tax advisor.

ORGANIZATION. The Fund is a series of Common Stock of the Corporation, which
is a Wisconsin corporation. The Corporation is authorized to issue shares of
Common Stock and series and classes of series of shares of Common Stock. All
holders of shares of the Corporation would vote on each matter presented to
shareholders for action except with respect to any matter which affects only one
or more series or classes, in which case only the shares of the affected series
or class shall be entitled to vote.
All shares participate equally in dividends and other capital gains
distributions by the Fund and in the residual assets of the Fund in the event of
liquidation. Generally, the Corporation will not hold an annual meeting of
shareholders unless required by the 1940 Act. Shareholders have certain rights,
including the right to call a meeting upon a vote of 10% of the Corporation's
outstanding shares for the purpose of voting to remove one or more directors or
to transact any other business.
The insurance company separate accounts, as the record shareholders in the
Fund, have the right to vote on matters submitted for a shareholder vote. Under
current interpretations of the 1940 Act, these insurance companies must solicit
voting instructions from contract owners and vote Fund shares in accordance with
the instructions received or, for Fund shares for which no voting instructions
were received, in the same proportion as those Fund shares for which
instructions were received. Contract owners should refer to the prospectus of
the insurance company's separate account for a complete description of their
voting rights.

TRANSFER AGENT, DIVIDEND-DISBURSING AGENT, AND DISTRIBUTOR. The Advisor, P.O.
Box 2936, Milwaukee, Wisconsin 53201, acts as transfer agent and
dividend-disbursing agent for the Fund. 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.

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

PROSPECTUS PAGE 19
<PAGE> 20

the Fund over a specific 30-day period and is shown as a percentage of the net
asset value of the Fund's shares at the end of the period.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in the Fund assuming
the reinvestment of all dividends and distributions. Total return figures are
not annualized and simply represent the aggregate change of the Fund's
investments over a specified period of time.
The Fund's shares are sold at the net asset value per share of the Fund.
Returns and net asset value will fluctuate. Shares of the Fund are redeemable by
the separate accounts of insurance companies at the then current net asset value
per share for the Fund, which may be more or less than the original cost. 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, CONTRACT 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. The Fund will not use information
concerning its investment performance in advertisements or sales materials
unless appropriate information concerning the relevant separate account is also
included. Additional information concerning the Fund's performance appears in
the SAI.

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

PROSPECTUS PAGE 20
<PAGE> 21

APPENDIX A

RATINGS OF DEBT OBLIGATIONS:

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

<TABLE>
<CAPTION>
Moody's S&P Fitch
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM MIG1/VMIG1 Best quality SP-1+ Very strong quality F-1+ Exceptionally strong
quality
---------------------------------------------------------------
MIG2/VMIG2 High quality SP-1 Strong quality F-1 Very strong quality
---------------------------------------------------------------
MIG3/VMIG3 Favorable SP-2 Satisfactory grade F-2 Good credit quality
quality
---------------------------------------------------------------
MIG4/VMIG4 Adequate F-3 Fair credit quality
quality
---------------------------------------------------------------
SG Speculative SP-3 Speculative grade F-S Weak credit quality
grade
- ----------------------------------------------------------------------------
COMMERCIAL P-1 Superior A-1+ Extremely strong F-1+ Exceptionally strong
PAPER quality quality quality
---------------------------------------------------------------
A-1 Strong quality F-1 Very strong quality
---------------------------------------------------------------
P-2 Strong A-2 Satisfactory quality F-2 Good credit quality
quality
---------------------------------------------------------------
P-3 Acceptable A-3 Adequate quality F-3 Fair credit quality
quality
---------------------------------------------------------------
B Speculative quality F-S Weak credit quality
---------------------------------------------------------------
Not Prime C Doubtful quality D Default
- --------------
</TABLE>

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

PROSPECTUS PAGE A-1
<PAGE> 22

Dated July 14, 1995

STRONG ASSET ALLOCATION FUND II

Strong Asset Allocation Fund II (the "Fund") is a diversified series of the
Strong Variable Insurance Funds, Inc. (the "Corporation"), an open-end
management investment company, commonly called a mutual fund. The Fund seeks
high total return consistent with reasonable risk over the long term. The Fund
allocates its assets globally among a diversified portfolio of equity
securities, bonds, and short-term fixed income securities.

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

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

PROSPECTUS PAGE 1
<PAGE> 23

TABLE OF CONTENTS

<TABLE>
<S> <C>
THE FUND................................. 2
INVESTMENT OBJECTIVE AND POLICIES........ 3
IMPLEMENTATION OF POLICIES AND RISKS..... 4
SPECIAL CONSIDERATIONS................... 13
MANAGEMENT............................... 14
ADDITIONAL INFORMATION................... 17
APPENDIX A............................... A-1
</TABLE>

THE FUND

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

PROSPECTUS PAGE 2
<PAGE> 24

INVESTMENT OBJECTIVE AND POLICIES

ASSET-ALLOCATION CATEGORIES

<TABLE>
<CAPTION>
Percentage of Fund
Net Assets
--------------------
Category of Investment Benchmark Range
<S> <C> <C>
- -----------------------------------------------------------
Equities 40% 10-60%
Bonds 40% 20-60%
Short-Term Fixed Income Securities 20% 0-70%
- -----------------------------------------------------------
</TABLE>

Equity securities in which the Fund may invest include common stocks,
preferred stocks, and securities that are convertible into common stocks, such
as warrants and convertible bonds. Bonds purchased by the Fund will be primarily
investment-grade debt obligations, although the Fund may invest up to, but not
including, 35% of its total assets in non-investment-grade debt obligations.
(See "Implementation of Policies and Risks - Debt Obligations.")
The Fund also has the flexibility to take advantage of investment
opportunities around the world by investing in foreign securities. While the
Fund may

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

PROSPECTUS PAGE 3
<PAGE> 25

invest without limitation in foreign securities, the Advisor does not expect
that, under normal market conditions, the Fund will invest more than 40% of its
total assets in foreign securities. Foreign investments involve risks not
normally found when investing in securities of U.S. issuers. (See
"Implementation of Policies and Risks - Foreign Securities and Currencies.")
Within the asset-allocation categories described above, the Advisor will
allocate the Fund's investments among countries, geographic regions, and
currencies in response to changing market and economic trends. In making
geographical allocations of investments, the Advisor will consider such factors
as the historical and prospective relationships among currencies and
governmental policies that influence currency-exchange rates, current and
anticipated interest rates, inflation levels, and business conditions within
various countries, as well as other macroeconomic, social, and political
factors. While there are no prescribed limits on the Fund's geographic
allocations, the Advisor anticipates that the Fund will generally invest in
issuers in industrialized countries and in major currencies, including the
United States, Canada, the countries of Western Europe, Japan, Australia, and
New Zealand. The Fund may also, however, invest in securities of issuers in
developing countries.

IMPLEMENTATION OF POLICIES AND RISKS

DEBT OBLIGATIONS

IN GENERAL. The market value of all debt obligations is affected by changes
in the prevailing interest rates. The market value of such instruments generally
reacts inversely to interest rate changes. If the prevailing interest rates
decline, the market value of debt obligations generally increases. If the
prevailing interest rates increase, the market value of debt obligations
generally decreases. In general, the longer the maturity of a debt obligation,
the greater its sensitivity to changes in interest rates.

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

PROSPECTUS PAGE 4
<PAGE> 26

$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.

RATINGS. Investment-grade debt obligations include:

- - bonds or bank obligations that are rated in one of the four highest categories
of any nationally recognized statistical rating organization or "NRSRO" (e.g.,
BBB or higher by Standard & Poor's Ratings Group or "S&P");
- - U.S. government securities (as defined below);
- - commercial paper rated in one of the three highest ratings categories of any
NRSRO (e.g., A-3 or higher by S&P);
- - short-term bank obligations that are rated in one of the three highest
categories by any NRSRO (e.g., A-3 or higher by S&P) with respect to
obligations maturing in one year or less;
- - repurchase agreements involving investment-grade debt obligations; or
- - unrated obligations determined by the Advisor to be of comparable quality.

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.
Securities rated in the fourth highest category (e.g., BBB by S&P), although
considered investment-grade, have speculative characteristics and may be subject
to greater fluctuations in value than higher-rated securities. Non-
investment-grade debt obligations include:

- - securities rated as low as C by S&P or their equivalents;
- - commercial paper rated as low as C by S&P or its equivalent; and
- - unrated debt securities judged to be of comparable quality by the Advisor.

HIGH-YIELD (HIGH-RISK) SECURITIES. The Fund may invest up to, but not
including, 35% of its total assets in non-investment-grade debt obligations,
also referred to as high-yield (high-risk) securities or "junk bonds." These
securities include those 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

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

PROSPECTUS PAGE 5
<PAGE> 27

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:

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

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 by government agencies or instrumentalities
include, for example, obligations of the following:

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

PROSPECTUS PAGE 6
<PAGE> 28

- - 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.

SHORT-TERM FIXED INCOME SECURITIES. Short-term fixed income securities in
which the Fund may invest include, but are not limited to, debt securities
issued or guaranteed by the U.S. government or its agencies or
instrumentalities, commercial paper, banker's acceptances, certificates of
deposit, and time deposits. The Fund may invest in obligations of domestic and
foreign banks and their subsidiaries and branches.

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.

WHEN-ISSUED SECURITIES

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

PROSPECTUS PAGE 7
<PAGE> 29

risk of ownership, including the risk of price fluctuation until the settlement
date.
The greater the Fund's outstanding commitments for these securities, the
greater the exposure to potential fluctuations in the net asset value of the
Fund. Purchasing when-issued securities may involve the additional risk that the
yield available in the market when the delivery occurs may be higher or the
market price lower than that obtained at the time of commitment. Although the
Fund may be able to sell these securities prior to the delivery date, it will
purchase when-issued securities for the purpose of actually acquiring the
securities, unless, after entering into the commitment, a sale appears desirable
for investment reasons. When required by SEC guidelines, the Fund will set aside
permissible liquid assets in a segregated account to secure its outstanding
commitments for when-issued securities.

FOREIGN SECURITIES AND CURRENCIES

The Fund may invest in foreign securities, either directly or through the use
of depositary receipts. (See "Investment Objective and Policies.") Depositary
receipts are generally issued by banks or trust companies and evidence ownership
of underlying foreign securities. Foreign investments may include other
investment companies which may involve frequent or layered fees and also are
subject to limitations under the Investment Company Act of 1940 (the "1940
Act"). Foreign investments involve special risks, including:

Foreign economies may differ favorably or unfavorably from the U.S. economy
in various respects, including growth of gross domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource
self-sufficiency, and balance of payments positions. Many foreign securities are
less liquid and their prices more volatile than comparable U.S. securities.
Although the Fund generally invests only in securities that are regularly traded
on recognized exchanges or in over-the-counter markets, from time to time
foreign securities may be difficult to liquidate rapidly without adverse price
effects. Certain costs attributable to foreign investing, such as custody
charges and brokerage costs, are higher than those attributable to domestic
investing.
The Fund may invest a significant portion of its assets in the foreign
securities of issuers in developing countries. The risks of foreign investments

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

PROSPECTUS PAGE 8
<PAGE> 30

are generally intensified for investments in developing countries. Risks of
investing in such markets include:

- - less social, political, and economic stability;
- - smaller securities markets and the lower trading volume, which may result in a
lack of liquidity and greater price volatility;
- - certain national policies that may restrict the Fund's investment
opportunities, including restrictions on investments in issuers or industries
deemed sensitive to national interests, or expropriation or confiscation of
assets or property, which could result in the Fund's loss of its entire
investment in that market; and
- - less developed legal structures governing private or foreign investment or
allowing for judicial redress for injury to private property.

In addition, brokerage commissions, custodial services, withholding taxes,
and other costs relating to investment in emerging markets generally are more
expensive than in the U.S. and certain more established foreign markets.
Economies in emerging markets generally are heavily dependent upon international
trade and, accordingly, have been and may continue to be affected adversely by
trade barriers, exchange controls, managed adjustments in relative currency
values, and other protectionist measures negotiated or imposed by the countries
with which they trade.
The Fund may also invest a significant portion of its assets in debt
obligations issued or guaranteed by foreign governments or their agencies,
instrumentalities or political subdivisions, or by supranational issuers
(collectively, sovereign debt). Investment in sovereign debt involves special
risks. Certain foreign countries, particularly developing countries, have
experienced, and may continue to experience, high rates of inflation, high
interest rates, exchange rate fluctuations, large amounts of external debt,
balance of payments and trade difficulties, and extreme poverty and
unemployment. The issuer of the debt or the governmental authorities that
control the repayment of the debt may be unable or unwilling to repay principal
or interest when due in accordance with the terms of such debt, and the Fund may
have limited legal recourse in the event of default.
Because most foreign securities are denominated in non-U.S. currencies, the
investment performance of the Fund could be significantly affected by changes in
foreign currency exchange rates. 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 or any other lawful purpose. (See "Derivative Instruments.")

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

PROSPECTUS PAGE 9
<PAGE> 31

DERIVATIVE INSTRUMENTS

Derivative instruments may be used by the Fund for any lawful purpose,
including hedging, risk management, or enhancing returns, but not for
speculation. Derivative instruments are securities or agreements whose value is
derived from the value of some underlying asset, for example, securities,
currencies, reference indexes, or commodities. Options, futures, and options on
futures transactions are considered derivative transactions. Derivatives
generally have investment characteristics that are based upon either forward
contracts (under which one party is obligated to buy and the other party is
obligated to sell an underlying asset at a specific price on a specified date)
or option contracts (under which the holder of the option has the right but not
the obligation to buy or sell an underlying asset at a specified price on or
before a specified date). Consequently, the change in value of a forward-based
derivative generally is roughly proportional to the change in value of the
underlying asset. In contrast, the buyer of an option-based derivative generally
will benefit from favorable movements in the price of the underlying asset but
is not exposed to corresponding losses due to adverse movements in the value of
the underlying asset. The seller of an option-based derivative generally will
receive fees or premiums but generally is exposed to losses due to changes in
the value of the underlying asset. Derivative transactions may include elements
of leverage and, accordingly, the fluctuation of the value of the derivative
transaction in relation to the underlying asset may be magnified. In addition to
options, futures, and options on futures transactions, derivative transactions
may include short sales against the box, in which the Fund sells a security it
owns for delivery at a future date; swaps, in which the two parties agree to
exchange a series of cash flows in the future, such as interest-rate payments;
interest-rate caps, under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates exceed a specified
rate, or "cap"; and interest-rate floors, under which, in return for a premium,
one party agrees to make payments to the other to the extent that interest rates
fall below a specified level, or "floor." Derivative transactions may also
include forward currency contracts and foreign currency exchange-related
securities.
Derivative instruments may be exchange-traded or traded in over-the-counter
transactions between private parties. Over-the-counter transactions are subject
to the credit risk of the counterparty to the instrument and are less liquid
than exchange-traded derivatives since they often can only be closed out with
the other party to the transaction. When required by SEC guidelines, the Fund
will set aside permissible liquid assets or securities positions that
substantially correlate to the market movements of the derivative transactions
in a segregated account to secure its obligations under derivative transactions.
In order to maintain its required cover for a derivative transaction, the Fund
may need to sell portfolio securities at disadvantageous prices or times since
it may not be possible to liquidate a derivative position.

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

PROSPECTUS PAGE 10
<PAGE> 32

The successful use of derivative transactions by the Fund is dependent upon
the Advisor's ability to correctly anticipate trends in the underlying asset. To
the extent that the Fund is engaging in derivative transactions other than for
hedging purposes, the Fund's successful use of such transactions is more
dependent upon the Advisor's ability to correctly anticipate such trends, since
losses in these transactions may not be offset in gains in the Fund's portfolio
or in 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. Hedging transactions are also
subject to risks. 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.

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 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.
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.
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

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

PROSPECTUS PAGE 11
<PAGE> 33

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 such market
value may be extremely volatile. With respect to certain stripped securities,
such as interest-only ("IO") and principal-only ("PO") classes, a rate of
prepayment that is faster or slower than anticipated may result in the Fund
failing to recover all or a portion of its investment, even though the
securities are rated investment-grade.

SMALL COMPANIES

The Fund may, from time to time, invest a substantial portion of its assets
in small companies. While smaller companies generally have potential for rapid
growth, investments in smaller companies often involve greater risks than
investments in larger, more established companies because smaller companies may
lack the management experience, financial resources, product diversification,
and competitive strengths of larger companies. In addition, in many instances
the securities of smaller companies are traded only over-the-counter or on a
regional securities exchange, and the frequency and volume of their trading is
substantially less than is typical of larger companies. Therefore, the
securities of smaller companies may be subject to greater and more abrupt price
fluctuations. When making large sales, the Fund may have to sell portfolio
holdings at discounts from quoted prices or may have to make a series of small
sales over an extended period of time due to the trading volume of smaller
company securities. Investors should be aware that, based on the foregoing
factors, an investment in the Fund may be subject to greater price fluctuations
than an investment in a fund that invests primarily in larger, more established
companies. The Advisor's research efforts may also play a greater role in
selecting securities for the Fund than in a fund that invests in larger, more
established companies.

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

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

PROSPECTUS PAGE 12
<PAGE> 34

restricted securities and repurchase obligations maturing in more than
seven days. Certain restricted securities that may be resold to institutional
investors under Rule 144A under the Securities Act and Section 4(2) commercial
paper may be determined to be liquid under guidelines adopted by the
Corporation's Board of Directors.

PORTFOLIO TURNOVER

The annual portfolio turnover rate indicates changes in the Fund's
investments and may also be affected by sales of portfolio securities necessary
to meet cash requirements for redemption of shares. The turnover rate may vary
from year to year, as well as within a year. High turnover in any year will
result in the payment by the Fund of above-average transaction costs. The Fund
has a wide investment scope and an active management investment policy. The
Fund's portfolio turnover rate may be as much as 400% or more. This rate should
not be considered as a limiting factor. The Fund may engage in substantial
short-term trading, which involves significant risk and may be deemed
speculative. Such trading will result in a higher portfolio turnover rate and
correspondingly higher brokerage costs.

SPECIAL CONSIDERATIONS

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

PROSPECTUS PAGE 13
<PAGE> 35

regulations or revenue rulings on contract owner control, would cause earnings
regarding a contract owner's interest in an insurance company's separate account
to be includible in the contract owner's gross income in the year earned. Such
standards may apply only prospectively, although retroactive application is
possible. In the event that any such regulations or revenue rulings are adopted,
the Fund may not be able to continue to operate as currently described in this
prospectus, or maintain its investment program.
The Fund will be managed in such a manner as to comply with the requirements
of Subchapter L of the Code. It is possible that in order to comply with such
requirements, less desirable investment decisions may be made which would affect
the investment performance of the Fund.
The Fund may sell its shares to the separate accounts of various insurance
companies, which are not affiliated with each other, for the purpose of funding
variable annuity and variable life insurance contracts. The Fund currently does
not foresee any disadvantages to contract owners arising out of the fact that it
offers its shares to separate accounts of various insurance companies, which are
not affiliated with each other, to serve as an investment medium for their
variable products. However, it is theoretically possible that the interests of
owners of various contracts participating in the Fund through the separate
accounts might at some time be in conflict. The Board of Directors of the
Corporation, however, will monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken in response to such conflicts. If such a conflict were
to occur, one or more insurance companies' separate accounts might be required
to withdraw its investments in the Fund, and shares of another Fund may be
substituted. This might force the Fund to sell securities at disadvantageous
prices. In addition, the Board of Directors may refuse to sell Fund shares to
any separate account or may suspend or terminate the offering of Fund shares if
such action is required by law or regulatory authority or is in the best
interest of the shareholders of the Fund.

MANAGEMENT

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PROSPECTUS PAGE 14
<PAGE> 36

As compensation for its services, the Fund pays the Advisor a monthly
management fee. The annual fee is .85% of the Fund's average daily net assets up
to $35,000,000 and .80% of the Fund's average daily net assets in excess of
$35,000,000. Under the terms of the Advisory Agreement, the Advisor provides
office space and all necessary office facilities, equipment, and personnel for
servicing the investments of the Fund. 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 without further notification of the commencement or
termination of any such waiver or absorption. Any such waiver or absorption will
have the effect of lowering the overall expense ratio of the Fund and increasing
the Fund's return to investors at the time such amounts were waived and/or
absorbed.
Except for expenses voluntarily absorbed by the Advisor or the distributor,
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
for printing and distribution costs 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 of indemnification; extraordinary expenses;
and costs of shareholder and director meetings.

PORTFOLIO MANAGERS. The following individuals serve as portfolio managers for
the Fund.

BRADLEY C. TANK. Mr. Tank leads the Fund's investment team and allocates the
Fund's assets among equities, bonds, and short-term fixed income securities. In
addition, Mr. Tank co-manages the Fund's bond component. Before joining the
Advisor in June 1990, he spent eight years at Salomon Brothers, Inc., where he
was a fixed income specialist and, for the last six years, a vice president. 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. Mr. Tank co-managed the Fund
since its inception in June 1995. In addition to his Fund duties, Mr. Tank
chairs the Advisor's Fixed Income Investment Committee.

Equity Component

ANTHONY L.T. CRAGG. Mr. Cragg co-manages the equity component of the Fund.
Mr. Cragg joined the Advisor in April 1993 to develop the Advisor's
international investment activities. During the prior seven years, he helped

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

PROSPECTUS PAGE 15
<PAGE> 37

establish Dillon, Read International Asset Management, where he was in charge of
Japanese, Asian, and Australian investments. A graduate of Christ Church, Oxford
University, Mr. Cragg began his investment career as an international investment
manager in 1980 at Gartmore, Ltd., where his tenure included assignments in
London, Hong Kong, and Tokyo. He has co-managed the Fund since its inception in
June 1995.
RONALD C. OGNAR. Mr. Ognar co-manages the equity component of the Fund. Mr.
Ognar, a Chartered Financial Analyst with more than 25 years of investment
experience, joined the Advisor in April 1993 after two years as a principal and
portfolio manager with RCM Capital Management. For approximately three years
prior to that, he was a portfolio manager at Kemper Financial Services in
Chicago. Mr. Ognar began his investment career in 1968 at LaSalle National Bank
in Chicago after serving two years in the U.S. Army. He received his bachelor's
degree in accounting from the University of Illinois in 1968. Mr. Ognar has
co-managed the Fund since its inception in June 1995.
RICHARD S. STRONG. Mr. Strong co-manages the equity component of the Fund.
Mr. Strong founded the Advisor in 1974. He began his investment career at
Employers Insurance of Wausau in 1966, after receiving his master's degree in
finance from the University of Wisconsin-Madison that January. He received his
undergraduate degree in 1963 from Baldwin-Wallace College. Mr. Strong has
co-managed the Fund since its inception in June 1995. In addition to his role as
co-portfolio manager, he is currently the Chairman of the Board, Director, Chief
Investment Officer, and a member of the Advisor's Executive Committee.
RICHARD T. WEISS. Mr. Weiss co-manages the equity component of the Fund. Mr.
Weiss joined the Advisor in 1991 from Chicago-based Stein Roe & Farnham, where
he began his career as a research analyst in 1975. He was named a portfolio
manager in 1981. Mr. Weiss attended Harvard Graduate School of Business
Administration, where he was awarded his M.B.A. in 1975, and the University of
Southern California, where he received his bachelor's degree in business
administration in 1973. Mr. Weiss has co-managed the Fund since its inception in
June 1995. In addition, Mr. Weiss is a member of the Advisor's Executive
Committee.

Bond Component

JEFFREY A. KOCH. Mr. Koch co-manages the bond component of the Fund. Mr. Koch
joined the Advisor as a portfolio manager and securities analyst in June 1989.
For a brief period prior to that, he was a market-maker clerk at Fossett
Corporation, a clearing firm. Mr. Koch earned his M.B.A. in Finance at
Washington University in St. Louis, Missouri in 1989. His undergraduate degree,
awarded in 1987, is from the University of Minnesota-Morris. Mr. Koch is also a
Chartered Financial Analyst. Mr. Koch has co-managed the bond component of the
Fund since its inception in June 1995.
SHIRISH T. MALEKAR. Mr. Malekar co-manages the bond component of the Fund.
Mr. Malekar joined the Advisor in 1994. He was an international bond

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

PROSPECTUS PAGE 16
<PAGE> 38

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. Mr. Malekar has co-managed the bond component of the Fund
since its inception in June 1995.

Short-Term Component

JAY N. MUELLER. Mr. Mueller manages the Fund's short-term component. Mr.
Mueller joined the Advisor in September 1991 as a securities analyst and
portfolio manager. For four years prior to that, he was a securities analyst and
portfolio manager with R. Meeder & Associates of Dublin, Ohio. Mr. Mueller
received his bachelor's degree in economics in 1982 from the University of
Chicago. Mr. Mueller is also a Chartered Financial Analyst. Mr. Mueller has
managed the short-term component of the Fund since its inception in June 1995.

ADDITIONAL INFORMATION

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PROSPECTUS PAGE 17
<PAGE> 39

liabilities, and dividing by the total number of shares outstanding. Expenses
are accrued daily and applied when determining the net asset value.
The Fund's portfolio securities are valued based on market quotations or at
fair value as determined by the method selected by the Fund's Board of
Directors. Equity securities traded on a national securities exchange or NASDAQ
are valued at the last sales price on the national securities exchange or NASDAQ
on which such securities are primarily traded. Securities traded on NASDAQ for
which there were no transactions on a given day or securities not listed on an
exchange or NASDAQ are valued at the average of the most recent bid and asked
prices. Other exchange traded securities (generally foreign securities) will be
valued based on market quotations. Debt securities are valued by a pricing
service that utilizes electronic data processing techniques to determine values
for normal institutional-sized trading units of debt securities without regard
to sale or bid prices when such values are believed to more accurately reflect
the fair market value for 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 when
purchased are valued by the amortized cost method when the Board of Directors
determines that the fair value of such securities is their amortized cost. Under
this method of valuation, a security is initially valued at its acquisition
cost, and thereafter, amortization of any discount or premium is assumed each
day, regardless of the impact of the fluctuating rates on the market value of
the instrument.
Securities quoted in foreign currency are valued daily in U.S. dollars at the
foreign currency exchange rates that are prevailing at the time the daily net
asset value per share is determined. Although the Fund values its foreign assets
in U.S. dollars on a daily basis, the Fund does not intend to convert its
holdings of foreign currencies into U.S. dollars on a daily basis. Foreign
currency exchange rates are generally determined prior to the close of trading
on the Exchange. Occasionally, events affecting the value of foreign investments
and such exchange rates occur between the time at which they are determined and
the close of trading on the Exchange. Such events would not normally be
reflected in a calculation of the Fund's net asset value on that day. If events
that materially affect the value of the Fund's foreign investments or the
foreign currency exchange rates occur during such period, the investments will
be valued at their fair value as determined in good faith by or under the
direction of the Board of Directors.

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

PROSPECTUS PAGE 18
<PAGE> 40

request is received in proper form, the Fund will ordinarily forward payment to
the separate account no later than seven days after receipt.
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
which makes disposal of portfolio securities or valuation of net assets of the
Fund not reasonably practicable.

DISTRIBUTIONS AND TAXES. The policy of the Fund is to pay dividends to the
insurance company's separate accounts from net investment income quarterly and
to distribute substantially all net realized capital gains, after using any
available capital loss carryovers, annually. All dividends and capital gain
distributions paid to the insurance company's separate accounts will be
automatically reinvested in additional Fund shares.
The Fund intends to qualify for treatment as a Regulated Investment Company
or "RIC" under Subchapter M of the 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. If the Fund does not so qualify, however, it would be treated
for tax purposes as an ordinary corporation and would receive no tax deduction
for distributions made to its shareholders. For more information regarding tax
implications for owners of variable annuity or variable life insurance contracts
investing in the Fund, please refer to the prospectus of your insurance
company's separate account. See "Special Considerations" for a discussion of
special tax considerations relating to the Fund's compliance with Subchapter L
of the Code, as an investment vehicle for variable annuity and variable life
insurance contracts of certain insurance companies.
This section is not intended to be a full discussion of present or proposed
federal income tax law and its effect on the Fund and investors. (See the SAI
for a further discussion.) Investors are urged to consult their own tax advisor.

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

PROSPECTUS PAGE 19
<PAGE> 41

The insurance company separate accounts, as the record shareholders in the
Fund, have the right to vote on matters submitted for a shareholder vote. Under
current interpretations of the 1940 Act, these insurance companies must solicit
voting instructions from contract owners and vote Fund shares in accordance with
the instructions received or, for Fund shares for which no voting instructions
were received, in the same proportion as those Fund shares for which
instructions were received. Contract owners should refer to the prospectus of
the insurance company's separate account for a complete description of their
voting rights.

PERFORMANCE INFORMATION. The Fund may advertise "average annual total
return," "total return," and "cumulative total return." Each of these figures is
based upon historical results and does not represent the future performance of
the Fund. Average annual total return and total return figures measure both the
net investment income generated by, and the effect of any realized and
unrealized appreciation or depreciation of, the underlying investments in the
Fund assuming the reinvestment of all dividends and distributions. Total return
figures are not annualized and simply represent the aggregate change of the
Fund's investments over a specified period of time.
The Fund's shares are sold at the net asset value per share of the Fund.
Returns and net asset value will fluctuate. Shares of the Fund are redeemable by
the separate accounts of insurance companies at the then current net asset value
per share for the Fund, which may be more or less than the original cost. 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, CONTRACT 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. The Fund will not use information
concerning its investment performance in advertisements or sales materials
unless appropriate information concerning the relevant separate account is also
included. Additional information concerning the Fund's performance appears in
the SAI.

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

PROSPECTUS PAGE 20
<PAGE> 42

APPENDIX A

RATINGS OF DEBT OBLIGATIONS:

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

<TABLE>
<CAPTION>
Moody's S&P Fitch
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM MIG1/VMIG1 Best quality SP-+ Very strong quality F-1+ Exceptionally strong
quality
----------------------------------------------------------------------------------------
MIG2/VMIG2 High quality SP-1 Strong quality F-1 Very strong quality
----------------------------------------------------------------------------------------
MIG3/VMIG3 Favorable SP-2 Satisfactory grade F-2 Good credit quality
quality
----------------------------------------------------------------------------------------
MIG4/VMIG4 Adequate F-3 Fair credit quality
quality
----------------------------------------------------------------------------------------
SG Speculative SP-3 Speculative grade F-S Weak credit quality
grade
- ------------------------------------------------------------------------------------------------------
COMMERCIAL P-1 Superior quality A-1+ Extremely strong F-1+ Exceptionally strong
PAPER quality quality
----------------------------------------------------------------------------------------
A-1 Strong quality F-1 Very strong quality
----------------------------------------------------------------------------------------
P-2 Strong quality A-2 Satisfactory quality F-2 Good credit quality
----------------------------------------------------------------------------------------
P-3 Acceptable quality A-3 Adequate quality F-3 Fair credit quality
----------------------------------------------------------------------------------------
B Speculative quality F-S Weak credit quality
----------------------------------------------------------------------------------------
Not Prime C Doubtful quality D Default
- ------------------------------------------------------------------------------------------------------
</TABLE>

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

PROSPECTUS PAGE A-1
<PAGE> 43

Dated July 14, 1995

STRONG GOVERNMENT SECURITIES FUND II

Strong Government Securities Fund II (the "Fund") is a diversified series of
the Strong Variable Insurance Funds, Inc. (the "Corporation"), an open-end
management investment company, commonly called a mutual 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 normally invests at least 80% of its
total assets in U.S. government securities.

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

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

PROSPECTUS PAGE 1
<PAGE> 44

TABLE OF CONTENTS

<TABLE>
<S> <C>
THE FUND................................. 2
INVESTMENT OBJECTIVE AND POLICIES........ 3
FUNDAMENTALS OF FIXED INCOME INVESTING... 3
IMPLEMENTATION OF POLICIES AND RISKS..... 5
SPECIAL CONSIDERATIONS................... 12
MANAGEMENT............................... 13
ADDITIONAL INFORMATION................... 14
APPENDIX A............................... A-1
</TABLE>

THE FUND

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

PROSPECTUS PAGE 2
<PAGE> 45

INVESTMENT OBJECTIVE AND POLICIES

FUNDAMENTALS OF
FIXED INCOME INVESTING

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

PROSPECTUS PAGE 3
<PAGE> 46

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

PRICE VOLATILITY

MATURITY

CREDIT QUALITY

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

PROSPECTUS PAGE 4
<PAGE> 47

In conducting its credit research and analysis, the Advisor considers both
qualitative and quantitative factors to evaluate the creditworthiness of
individual issuers. The Advisor also relies, in part, on credit ratings compiled
by a number of NRSROs. "Appendix A - Ratings of Debt Obligations" presents the
ratings of three well-known such organizations: S&P, Moody's Investors Services,
Inc., and Fitch Investors Service, Inc.

- - 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 that are rated in one of the three highest
categories by any NRSRO (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.

IMPLEMENTATION OF POLICIES AND RISKS

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

PROSPECTUS PAGE 5
<PAGE> 48

roll transactions. A more complete discussion of these securities and investment
techniques and their associated risks is contained in the Fund's SAI.

DEBT OBLIGATIONS

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) 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; (vii) 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; (viii) U.S.
government securities; (ix) mortgage-backed securities, collateralized mortgage
obligations, and similar securities; and (x) municipal obligations.

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

PROSPECTUS PAGE 6
<PAGE> 49

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.
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.

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PROSPECTUS PAGE 7
<PAGE> 50

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 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.

REPURCHASE AGREEMENTS

The Fund may enter into repurchase agreements with certain banks and non-bank
dealers. In a repurchase agreement, the Fund buys a security at one price, and
at the time of sale, the seller agrees to repurchase the obligation at a
mutually agreed upon time and price (usually within seven days). The repurchase
agreement determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. The Fund may enter into repurchase agreements with respect to any
security in which it may invest. The Advisor will monitor, on an ongoing basis,
the value of the underlying securities to ensure that the value always equals or
exceeds the repurchase price plus accrued interest. Repurchase agreements could
involve certain risks in the event of a default or insolvency of the other party
to the agreement, including possible delays or restrictions upon the Fund's
ability to dispose of the underlying securities. Although no definitive
creditworthiness criteria are used, the Advisor reviews the creditworthiness of
the banks and non-bank dealers with which the Fund enters into repurchase
agreements to evaluate those risks. The Fund may, under certain circumstances,
deem repurchase agreements collateralized by U.S. government securities to be
investments in U.S. government securities.

DERIVATIVE INSTRUMENTS

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<PAGE> 51

Consequently, the change in value of a forward-based derivative generally is
roughly proportional to the change in value of the underlying asset. In
contrast, the buyer of an option-based derivative generally will benefit from
favorable movements in the price of the underlying asset but is not exposed to
corresponding losses due to adverse movements in the value of the underlying
asset. The seller of an option-based derivative generally will receive fees or
premiums but generally is exposed to losses due to changes in the value of the
underlying asset. Derivative transactions may include elements of leverage and,
accordingly, the fluctuation of the value of the derivative transaction in
relation to the underlying asset may be magnified. In addition to options,
futures, and options on futures transactions, derivative transactions may
include short sales against the box, in which the Fund sells a security it owns
for delivery at a future date; swaps, in which the two parties agree to exchange
a series of cash flows in the future, such as interest-rate payments;
interest-rate caps, under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates exceed a specified
rate, or "cap"; and interest-rate floors, under which, in return for a premium,
one party agrees to make payments to the other to the extent that interest rates
fall below a specified level, or "floor." Derivative transactions may also
include forward currency contracts and foreign currency exchange-related
securities.
Derivative instruments may be exchange-traded or traded in over-the-counter
transactions between private parties. Over-the-counter transactions are subject
to the credit risk of the counterparty to the instrument and are less liquid
than exchange-traded derivatives since they often can only be closed out with
the other party to the transaction. When required by SEC guidelines, the Fund
will set aside permissible liquid assets or securities positions that
substantially correlate to the market movements of the derivatives transaction
in a segregated account to secure its obligations under derivative transactions.
In order to maintain its required cover for a derivative transaction, the Fund
may need to sell portfolio securities at disadvantageous prices or times since
it may not be possible to liquidate a derivative position.
The successful use of derivative transactions by the Fund is dependent upon
the Advisor's ability to correctly anticipate trends in the underlying asset. To
the extent that the Fund is engaging in derivative transactions other than for
hedging purposes, the Fund's successful use of such transactions is more
dependent upon the Advisor's ability to correctly anticipate such trends, since
losses in these transactions may not be offset by gains in the Fund's portfolio
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. Hedging transactions are also
subject to risks. 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.

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PROSPECTUS PAGE 9
<PAGE> 52

WHEN-ISSUED SECURITIES

The Fund may invest without limitation in securities purchased on a when-
issued or delayed delivery basis. Although the payment and interest terms of
these securities are established at the time the purchaser enters into the
commitment, these securities may be delivered and paid for at a future date,
generally within 45 days. Purchasing when-issued securities allows the Fund to
lock in a fixed price or yield on a security it intends to purchase. However,
when the Fund purchases a when-issued security, it immediately assumes the risk
of ownership, including the risk of price fluctuation until the settlement date.
The greater the Fund's outstanding commitments for these securities, the
greater the exposure to potential fluctuations in the net asset value of the
Fund. Purchasing when-issued securities may involve the additional risk that the
yield available in the market when the delivery occurs may be higher or the
market price lower than that obtained at the time of commitment. Although the
Fund may be able to sell these securities prior to the delivery date, it will
purchase when-issued securities for the purpose of actually acquiring the
securities, unless, after entering into the commitment, a sale appears desirable
for investment reasons. When required by SEC guidelines, the Fund will set aside
permissible liquid assets in a segregated account to secure its outstanding
commitments for when-issued securities.

ILLIQUID SECURITIES

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

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<PAGE> 53

issue discount (or deemed discount) and other non-cash income on such
securities accruing that year.

MORTGAGE DOLLAR ROLLS AND
REVERSE REPURCHASE AGREEMENTS

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<PAGE> 54

PORTFOLIO TURNOVER

The annual portfolio turnover rate indicates changes in the Fund's
investments and may also be affected by sales of portfolio securities necessary
to meet cash requirements for redemption of shares. The turnover rate may vary
from year to year, as well as within a year. High turnover in any year will
result in the payment by the Fund of above average amounts of transaction costs.
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. This rate should not be considered as a limiting
factor.

SPECIAL CONSIDERATIONS

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PROSPECTUS PAGE 12
<PAGE> 55

rulings are adopted, the Fund may not be able to continue to operate as
currently described in this prospectus, or maintain its investment program.
The Fund will be managed in such a manner as to comply with the requirements
of Subchapter L of the Code. It is possible that in order to comply with such
requirements, less desirable investment decisions may be made which would affect
the investment performance of the Fund.
The Fund may sell its shares to the separate accounts of various insurance
companies, which are not affiliated with each other, for the purpose of funding
variable annuity and variable life insurance contracts. The Fund currently does
not foresee any disadvantages to contract owners arising out of the fact that it
offers its shares to separate accounts of various insurance companies, which are
not affiliated with each other, to serve as an investment medium for their
variable products. However, it is theoretically possible that the interests of
owners of various contracts participating in the Fund through the separate
accounts might at some time be in conflict. The Board of Directors of the
Corporation, however, will monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken in response to such conflicts. If such a conflict were
to occur, one or more insurance companies' separate accounts might be required
to withdraw its investments in the Fund, and shares of another Fund may be
substituted. This might force the Fund to sell securities at disadvantageous
prices. In addition, the Board of Directors may refuse to sell Fund shares to
any separate account or may suspend or terminate the offering of Fund shares if
such action is required by law or regulatory authority or is in the best
interest of the shareholders of the Fund.

MANAGEMENT

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PROSPECTUS PAGE 13
<PAGE> 56

voluntarily waive all or a portion of its management fee and/or absorb certain
expenses for the Fund without further notification of the commencement or
termination of any such waiver or absorption. Any such waiver or absorption will
have the effect of lowering the overall expense ratio of the Fund and increasing
the Fund's return to investors at the time such amounts were waived and/or
absorbed.
Except for expenses voluntarily absorbed by the Advisor or the distributor,
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
for printing and distribution costs 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 of indemnification; extraordinary expenses;
and costs of shareholder and director meetings.

PORTFOLIO MANAGER. Mr. Bradley C. Tank joined the Advisor in June 1990. Prior
to that, Mr. Tank spent eight years at Salomon Brothers, Inc., where he was a
fixed income specialist and, for the last six years, a vice president. 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. Mr. Tank has managed the Fund since its
inception in June 1995 and chairs the Advisor's Fixed Income Investment
Committee.

ADDITIONAL INFORMATION

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PROSPECTUS PAGE 14
<PAGE> 57

proper form placed by an insurance company investing in the Fund. Certificates
for shares in the Fund will not be issued.

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PROSPECTUS PAGE 15
<PAGE> 58

The Fund intends to qualify for treatment as a Regulated Investment Company
or "RIC" under Subchapter M of the 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. If the Fund does not so qualify, however, it would be treated
for tax purposes as an ordinary corporation and would receive no tax deduction
for distributions made to its shareholders. For more information regarding tax
implications for owners of variable annuity or variable life insurance contracts
investing in the Fund, please refer to the prospectus of your insurance
company's separate account. See "Special Considerations" for a discussion of
special tax considerations relating to the Fund's compliance with Subchapter L
of the Code, as an investment vehicle for variable annuity and variable life
insurance contracts of certain insurance companies.
This section is not intended to be a full discussion of present or proposed
federal income tax law and its effect on the Fund and investors. (See the SAI
for a further discussion.) Investors are urged to consult their own tax advisor.

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PROSPECTUS PAGE 16
<PAGE> 59

PERFORMANCE INFORMATION. The Fund may advertise "yield," "average annual
total return," "total return," and "cumulative total return." Each of these
figures is based upon historical results and does not represent the future
performance of the Fund.
Yield is an annualized figure, which means that it is assumed that the Fund
generates the same level of net investment income over a one-year period. The
Fund's yield is a measure of the net investment income per share earned by the
Fund over a specific 30-day period and is shown as a percentage of the net asset
value of the Fund's shares at the end of the period.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in the Fund assuming
the reinvestment of all dividends and distributions. Total return figures are
not annualized and simply represent the aggregate change of the Fund's
investments over a specified period of time.
The Fund's shares are sold at the net asset value per share of the Fund.
Returns and net asset value will fluctuate. Shares of the Fund are redeemable by
the separate accounts of insurance companies at the then current net asset value
per share for the Fund, which may be more or less than the original cost. 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, CONTRACT 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. The Fund will not use information
concerning its investment performance in advertisements or sales materials
unless appropriate information concerning the relevant separate account is also
included. Additional information concerning the Fund's performance appears in
the SAI.

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PROSPECTUS PAGE 17
<PAGE> 60

APPENDIX A

RATINGS OF DEBT OBLIGATIONS:

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

PROSPECTUS PAGE A-1
<PAGE> 61

NOTES
<PAGE> 62

NOTES
<PAGE> 63

Dated July 14, 1995

STRONG GROWTH FUND II

Strong Growth Fund II (the "Fund") is a diversified series of the Strong
Variable Insurance Funds, Inc. (the "Corporation"), an open-end management
investment company, commonly called a mutual fund. The Fund seeks capital
growth. The Fund invests primarily in equity securities that the Fund's Advisor
believes have above-average growth prospects.

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

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PROSPECTUS PAGE 1
<PAGE> 64

TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
THE FUND................................. 2
INVESTMENT OBJECTIVE AND POLICIES........ 3
IMPLEMENTATION OF POLICIES AND RISKS..... 4
SPECIAL CONSIDERATIONS................... 9
MANAGEMENT............................... 11
ADDITIONAL INFORMATION................... 12
</TABLE>

THE FUND

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PROSPECTUS PAGE 2
<PAGE> 65

INVESTMENT OBJECTIVE AND POLICIES

The Fund has adopted certain fundamental investment restrictions that are set
forth in the Fund's Statement of Additional Information ("SAI"). Those
restrictions, the Fund's investment objective and any other investment policies
identified as "fundamental" cannot be changed without shareholder approval. To
further guide investment activities, the Fund has also instituted a number of
non-fundamental operating policies, which are described throughout this
Prospectus and in the SAI. Although these additional policies may be changed by
the Corporation's Board of Directors without shareholder approval, the Fund will
promptly notify shareholders of any material change in operating policies.
The Fund seeks capital growth. The Fund invests primarily in equity
securities that the Advisor believes have above-average growth prospects.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities, including common stocks, preferred stocks,
and securities that are convertible into common or preferred stocks, such as
warrants and convertible bonds. While the emphasis of the Fund is clearly on
equity securities, the Fund may invest a limited portion of its assets in debt
obligations when the Advisor perceives that they are more attractive than stocks
on a long-term basis. The Fund may invest up to 35% of its total assets in debt
obligations, including intermediate- to long-term corporate or U.S. government
debt securities. When the Advisor determines that market conditions warrant a
temporary defensive position, the Fund may invest without limitation in cash and
short-term fixed income securities. Although the debt obligations in which it
invests will be primarily investment-grade, the Fund may invest up to 5% of its
total assets in non-investment-grade debt obligations. (See "Implementation of
Policies and Risks - Debt Obligations.")
The Fund may invest up to 15% of its total assets directly in the securities
of foreign issuers. It may also invest without limitation in foreign securities
in domestic markets through depositary receipts. However, as a matter of policy,
the Advisor intends to limit total foreign exposure, including both direct
investments and depositary receipts, to no more than 25% of the Fund's total
assets. See "Implementation of Policies and Risks - Foreign Securities and
Currencies" for the special risks associated with foreign investments.
The Fund will generally invest in companies whose earnings are believed to be
in a relatively strong growth trend, and, to a lesser extent, in companies in
which significant further growth is not anticipated but whose market value is
thought to be undervalued. In identifying companies with favorable growth
prospects, the Advisor ordinarily looks to certain other characteristics, such
as the following:

- - prospects for above-average sales and earnings growth;
- - high return on invested capital;

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PROSPECTUS PAGE 3
<PAGE> 66

- - overall financial strength, including sound financial and accounting policies
and a strong balance sheet;
- - competitive advantages, including innovative products and service;
- - effective research, product development, and marketing; and
- - stable, capable management.

IMPLEMENTATION OF POLICIES AND RISKS

FOREIGN SECURITIES AND CURRENCIES

The Fund may invest in foreign securities, either directly or indirectly
through the use of depositary receipts. (See "Investment Objective and
Policies.") Depositary receipts are generally issued by banks or trust companies
and evidence ownership of underlying foreign securities.
Foreign investments involve special risks, including:

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PROSPECTUS PAGE 4
<PAGE> 67

Because most foreign securities are denominated in non-U.S. currencies, the
investment performance of the Fund could be significantly affected by changes in
foreign currency exchange rates. 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 or any other lawful purpose. (See "Derivative Instruments.")

FOREIGN INVESTMENT COMPANIES

DERIVATIVE INSTRUMENTS

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PROSPECTUS PAGE 5
<PAGE> 68

addition to options, futures, and options on futures transactions, derivative
transactions may include short sales against the box, in which the Fund sells a
security it owns for delivery at a future date; swaps, in which the two parties
agree to exchange a series of cash flows in the future, such as interest-rate
payments; interest-rate caps, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates exceed a
specified rate, or "cap"; and interest-rate floors, under which, in return for a
premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified level, or "floor." Derivative transactions
may also include forward currency contracts and foreign currency exchange-
related securities.
Derivative instruments may be exchange-traded or traded in over-the-counter
transactions between private parties. Over-the-counter transactions are subject
to the credit risk of the counterparty to the instrument and are less liquid
than exchange-traded derivatives since they often can only be closed out with
the other party to the transaction. When required by SEC guidelines, the Fund
will set aside permissible liquid assets or securities positions that
substantially correlate to the market movements of the derivatives transactions
in a segregated account to secure its obligations under derivative transactions.
In order to maintain its required cover for a derivative transaction, the Fund
may need to sell portfolio securities at disadvantageous prices or times since
it may not be possible to liquidate a derivative position.
The successful use of derivative transactions by the Fund is dependent upon
the Advisor's ability to correctly anticipate trends in the underlying asset. To
the extent that the Fund is engaging in derivative transactions other than for
hedging purposes, the Fund's successful use of such transactions is more
dependent upon the Advisor's ability to correctly anticipate such trends, since
losses in these transactions may not be offset in gains in the Fund's portfolio
or in 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. Hedging transactions are also
subject to risks. 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.

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 that may be resold to institutional
investors pursuant to Rule 144A under the Securities Act of 1933 and Section
4(2) commercial paper may be considered liquid under guidelines adopted by the
Corporation's Board of Directors.

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PROSPECTUS PAGE 6
<PAGE> 69

SMALL COMPANIES

DEBT OBLIGATIONS

IN GENERAL. Debt obligations in which the Fund may invest will primarily be
investment-grade debt obligations, although the Fund may invest up to 5% of its
assets in non-investment-grade debt obligations. The market value of all debt
obligations is affected by changes in the prevailing interest rates. The market
value of such instruments generally reacts inversely to interest rate changes.
If the prevailing interest rates decline, the market value of debt obligations
generally increases. If the prevailing interest rates increase, the market value
of debt obligations generally decreases. In general, the longer the maturity of
a debt obligation, the greater its sensitivity to changes in interest rates.
Investment-grade debt obligations include:

- - bonds or bank obligations rated in one of the four highest rating categories
of any nationally recognized statistical rating organization or "NRSRO" (e.g.,
BBB or higher by Standard & Poor's Ratings Group or "S&P"),
- - U.S. government securities (as defined below),
- - commercial paper rated in one of the three highest ratings categories of any
NRSRO (e.g., A-3 or higher by S&P);
- - short-term bank obligations that are rated in one of the three highest
categories by any NRSRO (e.g., A-3 or higher by S&P), with respect to
obligations maturing in one year or less;
- - repurchase agreements involving investment-grade debt obligations; or

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PROSPECTUS PAGE 7
<PAGE> 70

- - unrated debt obligations which are determined by the Advisor to be of
comparable quality.

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 by government agencies or instrumentalities
include, for example, obligations of the following:

WHEN-ISSUED SECURITIES

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PROSPECTUS PAGE 8
<PAGE> 71

commitment, these securities may be delivered and paid for at a future date,
generally within 45 days. Purchasing when-issued securities allows the Fund to
lock in a fixed price or yield on a security it intends to purchase. However,
when the Fund purchases a when-issued security, it immediately assumes the risk
of ownership, including the risk of price fluctuation until the settlement date.
The greater the Fund's outstanding commitments for these securities, the
greater the exposure to potential fluctuations in the net asset value of the
Fund. Purchasing when-issued securities may involve the additional risk that the
yield available in the market when the delivery occurs may be higher or the
market price lower than that obtained at the time of commitment. Although the
Fund may be able to sell these securities prior to the delivery date, it will
purchase when-issued securities for the purpose of actually acquiring the
securities, unless after entering into the commitment a sale appears desirable
for investment reasons. When required by SEC guidelines, the Fund will set aside
permissible liquid assets in a segregated account to secure its outstanding
commitments for when-issued securities.

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. The Fund will not generally trade in
securities for short-term profits, but, when the Advisor determines that
circumstances warrant, securities may be purchased and sold without regard to
the length of time held. Under normal market conditions, it is anticipated that
the rate of portfolio turnover of the Fund generally will not exceed 150%. This
rate should not be considered as a limiting factor.

SPECIAL CONSIDERATIONS

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PROSPECTUS PAGE 9
<PAGE> 72

of the Code and the 1940 Act and may affect the composition of the Fund's
investments.
Since the shares of the Fund are currently sold to segregated asset accounts
underlying such variable annuity and variable life insurance contracts, the Fund
intends to comply with the diversification requirements as set forth in the
regulations. The Secretary of the Treasury may in the future issue additional
regulations or revenue rulings that may prescribe the circumstances in which a
contract owner's control of the investments of a separate account may cause the
contract owner, rather than the insurance company, to be treated as the owner of
assets of the separate account. Failure to comply with Section 817(h) of the
Code or any regulation thereunder, or with any future regulations or revenue
rulings on contract owner control, would cause earnings regarding a contract
owner's interest in an insurance company's separate account to be includible in
the contract owner's gross income in the year earned. Such standards may apply
only prospectively, although retroactive application is possible. In the event
that any such regulations or revenue rulings are adopted, the Fund may not be
able to continue to operate as currently described in this prospectus, or
maintain its investment program.
The Fund will be managed in such a manner as to comply with the requirements
of Subchapter L of the Code. It is possible that in order to comply with such
requirements, less desirable investment decisions may be made which would affect
the investment performance of the Fund.
The Fund may sell its shares to the separate accounts of various insurance
companies, which are not affiliated with each other, for the purpose of funding
variable annuity and variable life insurance contracts. The Fund currently does
not foresee any disadvantages to contract owners arising out of the fact that it
offers its shares to separate accounts of various insurance companies, which are
not affiliated with each other, to serve as an investment medium for their
variable products. However, it is theoretically possible that the interests of
owners of various contracts participating in the Fund through the separate
accounts might at some time be in conflict. The Board of Directors of the
Corporation, however, will monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken in response to such conflicts. If such a conflict were
to occur, one or more insurance companies' separate accounts might be required
to withdraw its investments in the Fund, and shares of another Fund may be
substituted. This might force the Fund to sell securities at disadvantageous
prices. In addition, the Board of Directors may refuse to sell Fund shares to
any separate account or may suspend or terminate the offering of Fund shares if
such action is required by law or regulatory authority or is in the best
interest of the shareholders of the Fund.

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

PROSPECTUS PAGE 10
<PAGE> 73

MANAGEMENT

The Board of Directors of the Corporation is responsible for managing the
Fund's business and affairs. The Fund has entered into an investment advisory
agreement (an "Advisory Agreement") with the Advisor. Under the terms of the
Advisory Agreement, the Advisor manages the Fund's investments and business
affairs, subject to the supervision of the Board of Directors.
The Advisor began conducting business in 1974. Since then, its principal
business has been providing continuous investment supervision for mutual funds,
individuals, and institutional accounts, such as pension funds and profit-
sharing plans. As of June 30, 1995, the Advisor had approximately $13 billion
under management. The Advisor's principal mailing address is P.O. Box 2936,
Milwaukee, Wisconsin 53201. Mr. Richard S. Strong, the Chairman of the Board of
the Corporation, is the controlling shareholder of the Advisor.
As compensation for its services, the Fund pays the Advisor a monthly
management fee. The annual fee is 1.00% of the average daily net asset value of
the Fund. Under the terms of the Advisory Agreement, the Advisor provides office
space and all necessary office facilities, equipment, and personnel for
servicing the investments of the Fund. 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 without further notification of the commencement or
termination of any such waiver or absorption. Any such waiver or absorption will
have the effect of lowering the overall expense ratio of the Fund and increasing
the Fund's return to investors at the time such amounts were waived and/or
absorbed.
Except for expenses voluntarily absorbed by the Advisor or the distributor,
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
for printing and distribution costs 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 of indemnification; extraordinary expenses;
and costs of shareholder and director meetings.

PORTFOLIO MANAGER. Mr. Ronald C. Ognar, a Chartered Financial Analyst with
more than 25 years of investment experience, joined the Advisor in April 1993
after two years as a principal and portfolio manager with RCM Capital
Management. For approximately three years prior to that, he was a portfolio
manager at Kemper Financial Services in Chicago. Mr. Ognar began his

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PROSPECTUS PAGE 11
<PAGE> 74

investment career in 1968 at LaSalle National Bank in Chicago after serving two
years in the U.S. Army. He received his bachelor's degree in accounting from the
University of Illinois in 1968. Mr. Ognar has managed the Fund since its
inception in June 1995.

ADDITIONAL INFORMATION

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PROSPECTUS PAGE 12
<PAGE> 75

holdings of foreign currencies into U.S. dollars on a daily basis. Foreign
currency exchange rates are generally determined prior to the close of trading
on the Exchange. Occasionally, events affecting the value of foreign investments
and such exchange rates occur between the time at which they are determined and
the close of trading on the Exchange. Such events would not normally be
reflected in a calculation of the Fund's net asset value on that day. If events
that materially affect the value of the Fund's foreign investments or the
foreign currency exchange rates occur during such period, the investments will
be valued at their fair value as determined in good faith by or under the
direction of the Board of Directors.

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

PROSPECTUS PAGE 13
<PAGE> 76

This section is not intended to be a full discussion of present or proposed
federal income tax law and its effect on the Fund and investors. (See the SAI
for a further discussion.) Investors are urged to consult their own tax advisor.

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

PROSPECTUS PAGE 14
<PAGE> 77

by the separate accounts of insurance companies at the then current net asset
value per share for the Fund, which may be more or less than the original cost.
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, CONTRACT 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. The Fund will not use information
concerning its investment performance in advertisements or sales materials
unless appropriate information concerning the relevant separate account is also
included. Additional information concerning the Fund's performance appears in
the SAI.

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

PROSPECTUS PAGE 15
<PAGE> 78

Dated July 14, 1995

STRONG INTERNATIONAL STOCK FUND II

Strong International Stock Fund II (the "Fund") is a diversified series of
the Strong Variable Insurance Funds, Inc. (the "Corporation"), an open-end
management investment company, commonly called a mutual fund. The Fund seeks
capital growth. The Fund invests primarily in the equity securities of issuers
located outside the United States.

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

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

PROSPECTUS PAGE 1
<PAGE> 79

TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
THE FUND................................. 2
INVESTMENT OBJECTIVE AND POLICIES........ 3
IMPLEMENTATION OF POLICIES AND RISKS..... 4
SPECIAL CONSIDERATIONS................... 10
MANAGEMENT............................... 11
ADDITIONAL INFORMATION................... 12
</TABLE>

THE FUND

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

PROSPECTUS PAGE 2
<PAGE> 80

INVESTMENT OBJECTIVE AND POLICIES

The Fund has adopted certain fundamental investment restrictions that are set
forth in the Fund's Statement of Additional Information ("SAI"). Those
restrictions, the Fund's investment objective and any other investment policies
identified as "fundamental" cannot be changed without shareholder approval. To
further guide investment activities, the Fund has also instituted a number of
non-fundamental operating policies, which are described throughout this
Prospectus and in the SAI. Although these additional policies may be changed by
the Corporation's Board of Directors without shareholder approval, the Fund will
promptly notify shareholders of any material change in operating policies.
The Fund seeks capital growth. The Fund invests primarily in the equity
securities of issuers located outside the United States.
The Fund will invest at least 65% of its total assets in foreign equity
securities, including common stocks, preferred stocks, and securities that are
convertible into common or preferred stocks, such as warrants and convertible
bonds, that are issued by companies whose principal headquarters are located
outside the United States.
Under normal market conditions, the Fund expects to invest at least 90% of
its total assets in foreign equity securities. The Fund may, however, invest up
to 35% of its total assets in equity securities of U.S. issuers or debt
obligations, including intermediate- to long-term debt obligations of U.S.
issuers or foreign-government entities. When the Advisor determines that market
conditions warrant a temporary defensive position, the Fund may invest without
limitation in cash (U.S. dollars, foreign currencies, or multicurrency units)
and short-term fixed income securities. Although the debt obligations in which
it invests will be primarily investment-grade, the Fund may invest up to 5% of
its total assets in non-investment-grade debt obligations. (See "Implementation
of Policies and Risks - Debt Obligations.")
The Fund will normally invest in securities of issuers located in at least
three different countries. The Advisor expects that the majority of the Fund's
investments will be in issuers in the following markets: Argentina, Australia,
Brazil, Chile, Cambodia, the Czech Republic, France, Germany, Hong Kong,
Hungary, India, Indonesia, Italy, Japan, Malaysia, Mexico, the Netherlands, New
Zealand, Norway, Peru, the Philippines, Poland, Russia, Singapore, South Africa,
South Korea, Spain, Sweden, Switzerland, Taiwan, the United Kingdom, and
Vietnam. The Fund will also invest in other European, Pacific Rim, and Latin
American markets.
As market and global conditions change, the Fund will change its allocations
among the countries of the world, and nothing herein will limit the Fund's
ability to invest in or avoid any particular countries or regions. In allocating
the Fund's assets among various countries, the Advisor will seek

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

PROSPECTUS PAGE 3
<PAGE> 81

economic and market environments favorable for capital appreciation and, with
respect to developing countries, economic, political, and stock-market
environments that show signs of stabilizing or improving. See "Implementation of
Policies and Risks - Foreign Securities and Currencies" for a discussion of the
special risks involved in investing in foreign securities.
In analyzing foreign companies for investment, the Advisor will ordinarily
look for one or more of the following characteristics in relation to the
company's prevailing stock price:

- - prospects for above-average sales and earnings growth and high return on
invested capital;
- - overall financial strength, including sound financial and accounting policies
and a strong balance sheet;
- - significant competitive advantages, including innovative products and
efficient service;
- - effective research, product development, and marketing;
- - pricing flexibility;
- - stable, capable management; and
- - other general operating characteristics that will enable the company to
compete successfully in its marketplace.

IMPLEMENTATION OF POLICIES AND RISKS

FOREIGN SECURITIES AND CURRENCIES

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

PROSPECTUS PAGE 4
<PAGE> 82

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 securities are
less liquid and their prices more volatile than comparable U.S. securities.
Although the Fund generally invests only in securities that are regularly traded
on recognized exchanges or in over-the-counter markets, from time to time
foreign securities may be difficult to liquidate rapidly without adverse price
effects. Certain costs attributable to foreign investing, such as custody
charges and brokerage costs, are higher than those attributable to domestic
investing.
The Fund may invest a significant portion of its assets in securities of
issuers in developing or emerging markets and economies, including Asia and the
Pacific Basin. Investing in securities of issuers in Asia and the Pacific Basin
involves special risks. Risks of investing in developing or emerging markets
include:

- - less social, political, and economic stability;
- - smaller securities markets and lower trading volume, which may result in a
lack of liquidity and greater price volatility;
- - certain national policies that may restrict the Fund's investment
opportunities, including restrictions on investments in issuers or industries
deemed sensitive to national interests, or expropriation or confiscation of
assets or property, which could result in the Fund's loss of its entire
investment in that market; and
- - less developed legal structures governing private or foreign investment or
allowing for judicial redress for injury to private property.

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

PROSPECTUS PAGE 5
<PAGE> 83

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 or any other lawful purpose. (See "Derivative Instruments.")

FOREIGN INVESTMENT COMPANIES

DERIVATIVE INSTRUMENTS

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

PROSPECTUS PAGE 6
<PAGE> 84

premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified level, or "floor." Derivative transactions
may also include forward currency contracts and foreign currency exchange-
related securities.
Derivative instruments may be exchange-traded or traded in over-the-counter
transactions between private parties. Over-the-counter transactions are subject
to the credit risk of the counterparty to the instrument and are less liquid
than exchange-traded derivatives since they often can only be closed out with
the other party to the transaction. When required by SEC guidelines, the Fund
will set aside permissible liquid assets or securities positions that
substantially correlate to the market movements of the derivatives transactions
in a segregated account to secure its obligations under derivative transactions.
In order to maintain its required cover for a derivative transaction, the Fund
may need to sell portfolio securities at disadvantageous prices or times since
it may not be possible to liquidate a derivative position.
The successful use of derivative transactions by the Fund is dependent upon
the Advisor's ability to correctly anticipate trends in the underlying asset. To
the extent that the Fund is engaging in derivative transactions other than for
hedging purposes, the Fund's successful use of such transactions is more
dependent upon the Advisor's ability to correctly anticipate such trends, since
losses in these transactions may not be offset in gains in the Fund's portfolio
or in 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. Hedging transactions are also
subject to risks. 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.

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 that may be resold to institutional
investors pursuant to Rule 144A under the Securities Act of 1933 and Section
4(2) commercial paper may be considered liquid under guidelines adopted by the
Corporation's Board of Directors.

SMALL COMPANIES

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

PROSPECTUS PAGE 7
<PAGE> 85

diversification, and competitive strengths of larger companies. In addition, in
many instances the securities of smaller companies are traded only over-the-
counter or on a regional securities exchange, and the frequency and volume of
their trading is substantially less than is typical of larger companies.
Therefore, the securities of smaller companies may be subject to greater and
more abrupt price fluctuations. When making large sales, the Fund may have to
sell portfolio holdings at discounts from quoted prices or may have to make a
series of small sales over an extended period of time due to the trading volume
of smaller company securities. Investors should be aware that, based on the
foregoing factors, an investment in the Fund may be subject to greater price
fluctuations than an investment in a fund that invests primarily in larger, more
established companies. The Advisor's research efforts may also play a greater
role in selecting securities for the Fund than in a fund that invests in larger,
more established companies.

DEBT OBLIGATIONS

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

PROSPECTUS PAGE 8
<PAGE> 86

although considered investment-grade, have speculative characteristics and may
be subject to greater fluctuations in value than higher-rated securities.
Non-investment-grade debt obligations include:

- - securities rated as low as C by S&P or their equivalents;
- - commercial paper rated as low as C by S&P or its equivalents; and
- - unrated debt securities judged to be of comparable quality by the Advisor.

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 by government agencies or instrumentalities
include, for example, obligations of the following:

WHEN-ISSUED SECURITIES

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

PROSPECTUS PAGE 9
<PAGE> 87

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.

PORTFOLIO TURNOVER

SPECIAL CONSIDERATIONS

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

PROSPECTUS PAGE 10
<PAGE> 88

treated as the owner of assets of the separate account. Failure to comply with
Section 817(h) of the Code or any regulation thereunder, or with any future
regulations or revenue rulings on contract owner control, would cause earnings
regarding a contract owner's interest in an insurance company's separate account
to be includible in the contract owner's gross income in the year earned. Such
standards may apply only prospectively, although retroactive application is
possible. In the event that any such regulations or revenue rulings are adopted,
the Fund may not be able to continue to operate as currently described in this
prospectus, or maintain its investment program.
The Fund will be managed in such a manner as to comply with the requirements
of Subchapter L of the Code. It is possible that in order to comply with such
requirements, less desirable investment decisions may be made which would affect
the investment performance of the Fund.
The Fund may sell its shares to the separate accounts of various insurance
companies, which are not affiliated with each other, for the purpose of funding
variable annuity and variable life insurance contracts. The Fund currently does
not foresee any disadvantages to contract owners arising out of the fact that it
offers its shares to separate accounts of various insurance companies, which are
not affiliated with each other, to serve as an investment medium for their
variable products. However, it is theoretically possible that the interests of
owners of various contracts participating in the Fund through the separate
accounts might at some time be in conflict. The Board of Directors of the
Corporation, however, will monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken in response to such conflicts. If such a conflict were
to occur, one or more insurance companies' separate accounts might be required
to withdraw its investments in the Fund, and shares of another Fund may be
substituted. This might force the Fund to sell securities at disadvantageous
prices. In addition, the Board of Directors may refuse to sell Fund shares to
any separate account or may suspend or terminate the offering of Fund shares if
such action is required by law or regulatory authority or is in the best
interest of the shareholders of the Fund.

MANAGEMENT

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

PROSPECTUS PAGE 11
<PAGE> 89

under management. The Advisor's principal mailing address is P.O. Box 2936,
Milwaukee, Wisconsin 53201. Mr. Richard S. Strong, the Chairman of the Board of
the Corporation, is the controlling shareholder of the Advisor.
As compensation for its services, the Fund pays the Advisor a monthly
management fee. The annual fee is 1.00% of the average daily net asset value of
the Fund. Under the terms of the Advisory Agreement, the Advisor provides office
space and all necessary office facilities, equipment, and personnel for
servicing the investments of the Fund. 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 without further notification of the commencement or
termination of any such waiver or absorption. Any such waiver or absorption will
have the effect of lowering the overall expense ratio of the Fund and increasing
the Fund's return to investors at the time such amounts were waived and/or
absorbed.
Except for expenses voluntarily absorbed by the Advisor or the distributor,
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
for printing and distribution costs 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 of indemnification; extraordinary expenses;
and costs of shareholder and director meetings.

PORTFOLIO MANAGER. Mr. Anthony L.T. Cragg joined the Advisor in April 1993 to
develop the Advisor's international investment activities. During the prior
seven years, he helped establish Dillon, Read International Asset Management,
where he was in charge of Japanese, Asian, and Australian investments. A
graduate of Christ Church, Oxford University, Mr. Cragg began his investment
career in 1980 at Gartmore, Ltd., as an international investment manager, where
his tenure included assignments in London, Hong Kong, and Tokyo. He has managed
the Fund since its inception in June 1995.

ADDITIONAL INFORMATION

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

PROSPECTUS PAGE 12
<PAGE> 90

does not impose any sales charge or 12b-1 fee. Certain sales charges may apply
to the variable annuity or variable life insurance contract, which should be
described in the prospectus of the insurance company's separate account. The
Fund may decline to accept a purchase order upon receipt when, in the judgment
of the Advisor, it would not be in the best interest of the existing
shareholders to accept the order. Shares of the Fund will be sold at the net
asset value next determined after receipt by the Fund of a purchase order in
proper form placed by an insurance company investing in the Fund. Certificates
for shares in the Fund will not be issued.

CALCULATION OF NET ASSET VALUE. The net asset value ("NAV") per share for the
Fund is determined as of the close of trading on the New York Stock Exchange
(the "Exchange"), currently 3:00 p.m. Central Time, on days the Exchange is open
for business. The net asset value will not be determined for the Fund on days
during which the Fund receives no orders to purchase shares and no shares are
tendered for redemption. 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 daily and applied when
determining the net asset value.
The Fund's portfolio securities are valued based on market quotations or at
fair value as determined by the method selected by the Corporation's Board of
Directors. Equity securities traded on a national securities exchange or NASDAQ
are valued at the last sales price on the national securities exchange or NASDAQ
on which such securities are primarily traded. Securities traded on NASDAQ for
which there were no transactions on a given day or securities not listed on an
exchange or NASDAQ are valued at the average of the most recent bid and asked
prices. Other exchange traded securities (generally foreign securities) will be
valued based on market quotations.
Securities quoted in foreign currency are valued daily in U.S. dollars at the
foreign currency exchange rates that are prevailing at the time the daily net
asset value per share is determined. Although the Fund values its foreign assets
in U.S. dollars on a daily basis, the Fund does not intend to convert its
holdings of foreign currencies into U.S. dollars on a daily basis. Foreign
currency exchange rates are generally determined prior to the close of trading
on the Exchange. Occasionally, events affecting the value of foreign investments
and such exchange rates occur between the time at which they are determined and
the close of trading on the Exchange. Such events would not normally be
reflected in a calculation of the Fund's net asset value on that day. If events
that materially affect the value of the Fund's foreign investments or the
foreign currency exchange rates occur during such period, the investments will
be valued at their fair value as determined in good faith by or under the
direction of the Board of Directors. The Fund's portfolio securities, from time
to time, may be listed primarily on foreign exchanges that trade on other days
than those on which the Exchange is open for business, (e.g., Saturday). As a
result, the net asset value of the Fund may be significantly affected by

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

PROSPECTUS PAGE 13
<PAGE> 91

such trading on days when shareholders cannot effect transactions on their
accounts.

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

PROSPECTUS PAGE 14
<PAGE> 92

presented to shareholders for action except with respect to any matter which
affects only one or more series or classes, in which case only the shares of the
affected series or class shall be entitled to vote.
All shares participate equally in dividends and other capital gains
distributions by the Fund and in the residual assets of the Fund in the event of
liquidation. Generally, the Corporation will not hold an annual meeting of
shareholders unless required by the 1940 Act. Shareholders have certain rights,
including the right to call a meeting upon a vote of 10% of the Corporation's
outstanding shares for the purpose of voting to remove one or more directors or
to transact any other business.
The insurance company separate accounts, as the record shareholders in the
Fund, have the right to vote on matters submitted for a shareholder vote. Under
current interpretations of the 1940 Act, these insurance companies must solicit
voting instructions from contract owners and vote Fund shares in accordance with
the instructions received or, for Fund shares for which no voting instructions
were received, in the same proportion as those Fund shares for which
instructions were received. Contract owners should refer to the prospectus of
the insurance company's separate account for a complete description of their
voting rights.

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

PROSPECTUS PAGE 15
<PAGE> 93

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. The Fund will not use information concerning its investment
performance in advertisements or sales materials unless appropriate information
concerning the relevant separate account is also included. Additional
information concerning the Fund's performance appears in the SAI.

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

PROSPECTUS PAGE 16
<PAGE> 94

STATEMENT OF ADDITIONAL INFORMATION

STRONG ADVANTAGE FUND II
P.O. Box 2936
Milwaukee, Wisconsin 53201
Telephone: 1-414-359-1400
Toll-Free: 1-800-368-3863

Strong Advantage Fund II (the "Fund") is a diversified series of the
Strong Variable Insurance Funds, Inc. (the "Corporation"), an open-end
management investment company designed to provide an investment vehicle for
variable annuity and variable life insurance contracts of certain insurance
companies. Shares in the Fund are only offered and sold to the separate
accounts of such insurance companies. The Fund is described herein and in the
Prospectus for the Fund dated July 14, 1995.

This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus for the Fund dated July 14,
1995 and the prospectus for the separate account of the specific insurance
product. Requests for copies of the Fund's Prospectus may be made by writing
to the Fund, P.O. Box 2936, Milwaukee, Wisconsin 53201, Attention: Corporate
Secretary; or by calling one of the numbers listed above.

This Statement of Additional Information is dated July 14, 1995.
<PAGE> 95

STRONG ADVANTAGE FUND II

<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>

INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Short Sales Against the Box . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Lending of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
High-Yield (High-Risk) Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Mortgage- and Asset-Backed Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
When-Issued Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Illiquid Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Depositary Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Foreign Investment Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Variable- or Floating-Rate Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Temporary Defensive Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Loan Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
DIRECTORS AND OFFICERS OF THE CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
INVESTMENT ADVISOR AND DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ADMINISTRATIVE SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
FUND ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
PORTFOLIO MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
LEGAL COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>

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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 July 14, 1995 and, if given or made, such
information or representations may not be relied upon as having been authorized
by the Fund.

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

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<PAGE> 96

INVESTMENT RESTRICTIONS

The investment objective of the Fund is to seek current income with a
very low 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.

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<PAGE> 97

The following are the Fund's non-fundamental operating policies which may be
changed by the Board of Directors of the Corporation without shareholder
approval.

The Fund may not:

1. Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold
short, or unless it covers such short sale as required by the current
rules and positions of the Securities and Exchange Commission or
its staff, and provided that transactions in options, futures
contracts, options on futures contracts, or other derivative
instruments are not deemed to constitute selling securities short.

2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of
transactions; and provided that margin deposits in connection with
futures contracts, options on futures contracts, or other derivative
instruments shall not constitute purchasing securities on margin.

3. Invest in illiquid securities if, as a result of such investment, more
than 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.

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<PAGE> 98

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.

INVESTMENT POLICIES AND TECHNIQUES

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

DERIVATIVE INSTRUMENTS

GENERAL DESCRIPTION. As discussed in the Prospectus, the Advisor may
use a variety of derivative instruments, including options, futures contracts
(sometimes referred to as "futures"), and options on futures contracts for any
lawful purpose, such as to hedge the Fund's portfolio, risk management, or to
attempt to enhance returns.

The use of these instruments is subject to applicable regulations of
the Securities and Exchange Commission (the "SEC"), the several options and
futures exchanges upon which they may be traded, the Commodity Futures Trading
Commission ("CFTC") and various state regulatory authorities. In addition, the
Fund's ability to use these instruments will be limited by tax considerations.

In addition to the products, strategies and risks described below and
in the Prospectus, the Advisor may discover additional derivative
instruments and other hedging techniques. These new opportunities may become
available as the Advisor develops new techniques or as regulatory authorities
broaden the range of permitted transactions. The Advisor may utilize these
opportunities to the extent that they are consistent with the Fund's investment
objective and permitted by the Fund's investment limitations and applicable
regulatory authorities.

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

(1) Successful use of most of these instruments depends upon the
Advisor's ability to predict movements of the overall securities and currency
markets, which requires different skills than predicting changes in the prices
of individual securities. While the Advisor is experienced in the use of these
instruments, there can be no assurance that any particular strategy adopted
will succeed.

(2) There might be imperfect correlation, or even no correlation,
between price movements of an instrument and price movements of investments
being hedged. For example, if the value of an instrument used in a short hedge
(such as writing a call option, buying a put option, or selling a futures
contract) increased by less than the decline in value of the hedged investment,
the hedge would not be fully successful. Such a lack of correlation might
occur due to factors unrelated to the value of the investments being hedged,
such as speculative or other pressures on the markets in which these
instruments are traded. The effectiveness of hedges using instruments on
indices will depend on the degree of correlation between price movements in the
index and price movements in the investments being hedged.

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<PAGE> 99

(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can
also reduce opportunity for gain by offsetting the positive effect of favorable
price movements in the hedged investments. For example, if the Fund entered
into a short hedge because the Advisor projected a decline in the price of a
security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the instrument. Moreover, if the price of the
instrument declined by more than the increase in the price of the security, the
Fund could suffer a loss.

(4) As described below, the Fund might be required to maintain
assets as "cover," maintain segregated accounts, or make margin payments when
it takes positions in these instruments involving obligations to third parties
(i.e., instruments other than purchased options). If the Fund were unable to
close out its positions in such instruments, it might be required to continue
to maintain such assets or accounts or make such payments until the position
expired or matured. The requirements might impair the Fund's ability to sell a
portfolio security or make an investment at a time when it would otherwise be
favorable to do so, or require that the Fund sell a portfolio security at a
disadvantageous time. The Fund's ability to close out a position in an
instrument prior to expiration or maturity depends on the existence of a liquid
secondary market or, in the absence of such a market, the ability and
willingness of the other party to the transaction ("counter party") to enter
into a transaction closing out the position. Therefore, there is no assurance
that any hedging position can be closed out at a time and price that is
favorable to the Fund.

For a discussion of the federal income tax treatment of the Fund's
derivative instruments, see "Taxes -- Derivative Instruments" below.

GENERAL LIMITATIONS ON CERTAIN DERIVATIVE TRANSACTIONS. 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. Pursuant to Rule 4.5 of the
regulations under the Commodity Exchange Act (the "CEA"), the notice of
eligibility 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 options positions
are "in the money," do not exceed 5% of the Fund's net assets. Adoption of
these guidelines does not limit the percentage of the Fund's assets at risk to
5%.

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.

The foregoing limitations are not fundamental policies of the Fund and
may be changed by the Corporation's Board of Directors without shareholder
approval as regulatory agencies permit.

Transactions using options (other than purchased options) expose the
Fund to counter-party risk. To the extent required by SEC guidelines, the Fund
will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities, other options, or futures or (2)
cash and liquid high grade debt securities with a value sufficient at all times
to cover its potential obligations to the extent not covered as provided in (1)
above. 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 position in the corresponding option or futures contract is
open, unless they are replaced with similar assets. As a result, the
commitment of a large portion of the Fund's assets to segregated accounts as a
cover could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.

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<PAGE> 100

OPTIONS. The Fund may also purchase and write put and call options on
securities, and enter into closing transactions with respect to such options to
terminate an existing position. The purchase of call options serves as a long
hedge, and the purchase of put options serves as a short hedge. Writing put or
call options can enable 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 over-the-counter ("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 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. 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 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 inability to enter into a closing purchase transaction for a covered call
option written by the Fund could cause material losses because the Fund would
be unable to sell the investment used as cover for the written option until the
option expires or is exercised.

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

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<PAGE> 101
SPREAD TRANSACTIONS. The Fund may purchase covered spread options.
Such covered spread options are not presently exchange-listed or
exchange-traded. The purchase of a spread option gives the Fund the right to
put, or sell, a security that it owns at a fixed dollar spread or fixed yield
spread in relationship to another security that the Fund does not own, but
which is used as a benchmark. The risk to the Fund in purchasing covered
spread options is the cost of the premium paid for the spread option and any
transaction costs. In addition, there is no assurance that closing
transactions will be available. 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 enter into futures contracts,
including interest rate and index 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
securities prices and sales of futures as an offset against the effect of
expected declines in securities prices. The Fund's futures transactions may be
entered into for any lawful purpose such as hedging purposes, risk management,
or to enhance returns. The Fund may also write put options on interest rate
futures contracts while at the same time purchasing call options on the same
futures contracts in order to create synthetically a long futures contract
position. Such options would have the same strike prices and expiration dates.
The 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
reduce the Fund's exposure to 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) for a specified price at a designated
date, time, and place. An index futures contract is an agreement pursuant to
which the parties agree to take or make delivery of an amount of cash equal to
the difference between the value of the index at the close of the last trading
day of the contract and the price at which the index futures contract was
originally written. Transaction costs are incurred when a futures contract is
bought or sold and margin deposits must be maintained. A futures contract may
be satisfied by delivery or purchase, as the case may be, of the instrument or
by payment of the change in the cash value of the index. More commonly,
futures contracts are closed out prior to delivery by entering into an
offsetting transaction in a matching futures contract. Although the value of
an index might be a function of the value of certain specified securities, no
physical delivery of those securities is made. If the offsetting purchase
price is less than the original sale price, 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
securities, in an amount generally equal to 10% or less of the contract value.
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.

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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 market are less onerous than margin requirements in
the securities markets, there might be increased participation by speculators
in the future markets. This participation also might cause temporary price
distortions. In addition, activities of large traders in both the futures and
securities markets involving arbitrage, "program trading" and other investment
strategies might result in temporary price distortions.

FOREIGN CURRENCY-RELATED DERIVATIVE STRATEGIES-SPECIAL CONSIDERATIONS.
The Fund may use options and futures on foreign currencies, as described
above, and forward currency contracts, as described below, to hedge against
movements in the values of the foreign currencies in which the Fund's
securities are denominated. The Fund may utilize foreign currency-related
derivative instruments to seek to enhance returns through exposure to a
particular foreign currency. Such currency hedges can protect against price
movements in a security the Fund owns or intends to acquire that are
attributable to changes in the value of the currency in which it is
denominated. Such hedges do not, however, protect against price movements in
the securities that are attributable to other causes.

The Fund 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 hedging 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.

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<PAGE> 103

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.

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 reopen.

Settlement of derivative transactions involving foreign currencies
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.

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 OTC options on
foreign currency only when the Advisor believes a liquid secondary market will
exist for a particular option at any specific time.

FORWARD CURRENCY CONTRACTS. A forward currency contract involves 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 enter into forward currency contracts to purchase or sell
foreign currencies for a fixed amount of U.S. dollars or another foreign
currency for any lawful purpose. Such transactions may serve as long hedges --
for example, the Fund may purchase a forward currency contract to lock in the
U.S. dollar price of a security denominated in a foreign currency that the Fund
intends to acquire. Forward currency contracts may also serve as 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.

As noted above, the Fund may seek to hedge against changes in the
value of a particular currency by using forward contracts on another foreign
currency or a basket of currencies, the value of which the Advisor believes
will have a positive correlation to the values of the currency being hedged.
In addition, the Fund may use forward currency contracts to shift exposure to
foreign currency fluctuations from one country to another. For example, if the
Fund owns securities denominated in a foreign currency and the Advisor believes
that currency will decline relative to another currency, it might enter into a
forward contract to sell an appropriate amount of the first foreign currency,
with payment to be made in the second foreign currency. Transactions that use
two foreign currencies are sometimes referred to as "cross hedges." Use of
different foreign currency magnifies the risk that movements in the price of
the instrument will not correlate or will correlate unfavorably with the
foreign currency being hedged.

The cost to the Fund of engaging in forward currency contracts varies
with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. When the Fund enters into a forward currency contract, it relies on
the counter party to make or take delivery of the underlying currency at the
maturity of the contract. Failure by the counter party to do so would result
in the loss of any expected benefit of the transaction.

As is the case with futures contracts, purchasers and sellers of
forward currency contracts can enter into offsetting closing transactions,
similar to closing transactions on futures, 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 counter party. Thus, there can
be no assurance that the Fund will in fact be able to close out a forward
currency contract at a favorable price prior to maturity. In addition, in the
event of insolvency of the counter party, the Fund might be unable to close out
a forward currency contract at

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any time prior to maturity. In either event, the Fund would continue to be
subject to market risk with respect to the position, and would continue to be
required to maintain a position in securities denominated in the foreign
currency or to maintain cash or securities in a segregated account.

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

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.

LENDING OF PORTFOLIO SECURITIES

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

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 more speculative 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.

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HIGH-YIELD (HIGH-RISK) SECURITIES

IN GENERAL. The Fund may invest up to 25% of its assets only in
non-investment grade debt obligations rated in the fifth highest rating
category (e.g., BB by S&P) or comparable unrated securities. Securities rated
BB are considered the least speculative of non-investment grade obligations.
Lower-quality securities, while generally offering higher yields than
investment grade securities with similar maturities, involve greater risks,
including the possibility of default or bankruptcy. They are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. The special risk considerations in connection with
investments in these securities are discussed below. Refer to the Appendix of
this Statement of Additional Information for a discussion of securities
ratings.

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

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

PAYMENT EXPECTATIONS. Lower-quality and comparable unrated securities
typically contain redemption, call or prepayment provisions which permit the
issuer of such securities containing such provisions to, at its discretion,
redeem the securities. During periods of falling interest rates, issuers of
these securities are likely to redeem or prepay the securities and refinance
them with debt securities with a lower interest rate. To the extent an issuer
is able to refinance the securities, or otherwise redeem them, 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
evaluate the safety of principal and interest payments of rated securities.
They do not, however, evaluate the market value risk of lower-quality and
comparable unrated securities and, therefore, may not fully reflect the true
risks of an investment. In addition, credit rating agencies may or may not
make timely changes in a rating to reflect changes in the economy or in the
condition of the issuer that affect the market value of the security.
Consequently, credit ratings are used only as a preliminary indicator of
investment quality. Investments in lower-quality and comparable unrated
securities will be more dependent on the Advisor's credit analysis than would
be the case with investments in investment-grade debt securities. The Advisor
employs its own credit research and analysis, which includes a study of
existing debt, capital structure, ability to service debt and to pay dividends,
the issuer's sensitivity to economic conditions, its operating history and the
current trend of earnings. The Advisor continually monitors the investments in
the Fund's portfolio and carefully

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<PAGE> 106

evaluates whether to dispose of or to retain lower-quality and comparable
unrated securities whose credit ratings or credit quality may have changed.

LIQUIDITY AND VALUATION. 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.

RECENT AND PROPOSED LEGISLATION. Recent legislation has been adopted,
and from time to time proposals have been discussed, regarding new legislation
designed to limit the use of certain lower-quality and comparable unrated
securities by certain issuers. An example of legislation is a recent law which
requires federally insured savings and loan associations to divest their
investments in these securities over time. It is not currently possible to
determine the impact of the recent legislation or the proposed legislation on
the lower-quality and comparable unrated securities market. However, it is
anticipated that if additional legislation is enacted or proposed, it could
have a material affect on the value of these securities and the existence of a
secondary trading market for the securities.

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.

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

The yield characteristics of mortgage- and asset-backed securities
differ from those of traditional debt securities. Among the principal
differences are that interest and principal payments are made more frequently
on mortgage- and asset-backed securities, usually monthly, and that principal
may be prepaid at any time because the underlying mortgage loans or other
assets generally may be prepaid at any time. As a result, if 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. Amounts available for reinvestment by the Fund are likely to be
greater during a period of declining interest rates and, as a result, are
likely to be reinvested at lower interest rates than during a period of rising
interest rates. Accelerated prepayments on securities purchased by the Fund at
a premium also impose a risk of loss of principal because the premium may not
have been fully

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<PAGE> 107

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 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.

WHEN-ISSUED SECURITIES

The Fund may from time to time purchase securities on a "when-issued"
basis. The price of debt securities purchased on a when-issued basis, which
may be expressed in yield terms, is fixed at the time the commitment to
purchase is made, but delivery and payment for the securities take place at a
later date. Normally, the settlement date occurs within one month of the
purchase. During the period between the purchase and settlement, no payment is
made by the Fund to the issuer and no interest on debt securities accrues to
the Fund. Forward commitments involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date, which risk is
in addition to the risk of decline in value of the Fund's other assets. While
when-issued securities may be sold prior to the settlement date, the Fund
intends to purchase such securities with the purpose of actually acquiring them
unless a sale appears desirable for investment reasons. At the time the Fund
makes the commitment to purchase a security on a when-issued basis, it will
record the transaction and reflect the value of the security in determining its
net asset value. The Fund does not believe that its net asset value or income
will be adversely affected by its purchases of securities on a when-issued
basis.

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

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). The Board of Directors of the Corporation, or its delegate, has the
ultimate authority to determine, to the extent permissible under the federal
securities laws, which securities are illiquid for purposes of this limitation.
Certain securities exempt from registration or issued in transactions exempt
from registration under the Securities Act of 1933, as amended (the "Securities
Act"), including securities that may be resold pursuant to Rule 144A under the
Securities Act, may be considered liquid. The Board of Directors has delegated
to Strong Capital Management, Inc. (the "Advisor") the day-to-day determination
of the liquidity of a security, although it has retained oversight and ultimate
responsibility for such determinations. Although no definitive liquidity
criteria are used, the Corporation's Board of Directors has directed the Advisor
to look to such factors as (i) the nature of the market for a security
(including the institutional private resale market), (ii) the terms of certain
securities or other instruments allowing for the disposition to a third party
or the issuer thereof (e.g., certain repurchase obligations and demand
instruments), (iii) the availability of market quotations (e.g., for securities
quoted in PORTAL system), and (iv) other permissible relevant factors.

Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act. Where registration is
required, 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. Restricted securities will be priced at
fair value as determined in good faith by the Board of Directors. If through
the appreciation of restricted securities or the depreciation of unrestricted
securities, the Fund should be in a position where more than 15% of the value
of its

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<PAGE> 108

net assets are invested in illiquid assets, including restricted securities
which are not readily marketable, 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.

Notwithstanding the above, the Advisor intends, as a matter of
internal policy, to limit the Fund's investments in illiquid securities to 10%
of its net assets.

DEPOSITARY RECEIPTS

As indicated in the Prospectus, the Fund may invest in foreign
securities by purchasing depositary receipts, including American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs"), or other
securities convertible into securities or issuers based in foreign countries.
These securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. Generally, ADRs, in registered
form, are denominated in U.S. dollars and are designed for use in the U.S.
securities markets, while EDRs, in bearer form, may be denominated in other
currencies and are designed for use in European securities markets. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying securities. EDRs are European receipts evidencing a similar
arrangement. For purposes of the Fund's investment policies, ADRs and EDRs are
deemed to have the same classification as the underlying securities they
represent. Thus, an ADR or EDR representing ownership of common stock will be
treated as common stock.

ADR facilities may be established as either "unsponsored" or
"sponsored." While ADRs issued under these two types of facilities are in some
respects similar, there are distinctions between them relating to the rights
and obligations of ADR holders and the practices of market participants. A
depositary may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depositary requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depositary usually
charges fees upon the deposit and withdrawal of the deposited securities, the
conversion of dividends into U.S. dollars, the disposition of non-cash
distributions, and the performance of other services. The depositary of an
unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited securities
or to pass through voting rights to ADR holders in respect of the deposited
securities. Sponsored ADR facilities are created in generally the same manner
as unsponsored facilities, except that the issuer of the deposited securities
enters into a deposit agreement with the depositary. The deposit agreement
sets out the rights and responsibilities of the issuer, the depositary and the
ADR holders. With sponsored facilities, the issuer of the deposited securities
generally will bear some of the costs relating to the facility (such as
dividend payment fees of the depositary), although ADR holders continue to bear
certain other costs (such as deposit and withdrawal fees). Under the terms of
most sponsored arrangements, depositories agree to distribute notices of
shareholder meetings and voting instructions, and to provide shareholder
communications and other information to the ADR holders at the request of the
issuer of the deposited securities.

FOREIGN INVESTMENT COMPANIES

Some of the countries in which the Fund invests may not permit direct
investment by outside investors. Investments in such countries may only be
permitted through foreign government-approved or -authorized investment
vehicles, which may include other investment companies. Investing through such
vehicles may involve frequent or layered fees or expenses and may also be
subject to limitation under the 1940 Act. Under the 1940 Act, a Fund may
invest up to 10% of its assets in shares of investment companies and up to 5%
of its assets in any one investment company as long as the investment does not
represent more than 3% of the voting stock of the acquired investment company.

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<PAGE> 109

REPURCHASE AGREEMENTS

The Fund may invest in repurchase agreements. In a repurchase
agreement, the Fund buys a security at one price, and at the time of sale, the
seller agrees to repurchase the obligation at a mutually agreed upon time and
price (usually within seven days). The repurchase agreement, thereby,
determines the yield during the purchaser's holding period, while the seller's
obligation to repurchase is secured by the value of the underlying security.
If the value of such securities is less than the repurchase price, plus any
agreed-upon additional amount, the other party to the agreement will be
required to provide additional collateral so that at all times the collateral
is at least equal to the repurchase price, plus any agreed-upon additional
amount. The Advisor will monitor, on an ongoing basis, the value of the
underlying securities to ensure that the value always equals or exceeds the
repurchase price plus accrued interest. The Fund may, under certain
circumstances, deem repurchase agreements, collateralized by U.S. government
securities to be investments in U.S. government securities.

BORROWING

The Fund may borrow money from banks, limited by the Fund's
fundamental investment restriction to 33 1/3% of its total assets, and may
engage in mortgage dollar roll transactions and reverse repurchase agreements
which may be considered a form of borrowing. (See "Implementation of Policies
and Risks - Mortgage Dollar Rolls and Reverse Repurchase Agreements" in the
Fund's Prospectus.) In addition, the Fund may borrow up to an additional 5% of
its total assets from banks for temporary or emergency purposes. The Fund will
not purchase securities when bank borrowings exceed 5% of the Fund's total
assets.

VARIABLE- OR FLOATING-RATE SECURITIES

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

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

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<PAGE> 110

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.

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.

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

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

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

Purchasers of Loan Interests depend primarily upon the
creditworthiness of the borrower for payment of principal and interest. If the
Fund does not receive scheduled interest or principal payments on such
indebtedness, the Fund's share price and yield could be adversely affected.
Loans that are fully secured offer the Fund more protections than an unsecured
loan in the event of non-payment of scheduled interest or principal. However,
there is no assurance that the liquidation of collateral from a secured loan
would satisfy the borrower's obligation, or that the collateral can be
liquidated. Indebtedness of borrowers whose 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.

DIRECTORS AND OFFICERS OF THE CORPORATION

Directors and officers of the Corporation, together with information as
to their principal business occupations during the past 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 positions with the following registered investment
companies: Strong Advantage Fund, Inc.; Strong American Utilities Fund, Inc.;
Strong Asia Pacific Fund, Inc.; Strong Asset Allocation Fund, Inc.; Strong
Common Stock Fund, Inc.; Strong Corporate Bond Fund, Inc.; Strong Discovery
Fund, Inc.; Strong Government Securities Fund, Inc.; Strong Growth Fund, Inc.;
Strong Heritage Reserve Series, Inc.; Strong High-Yield Municipal Bond Fund,
Inc.; Strong Insured Municipal Bond Fund, Inc.; Strong International Bond Fund,
Inc.; Strong International Stock Fund, Inc.; Strong Money Market Fund, Inc.;
Strong Municipal Bond Fund, Inc.; Strong Municipal Money Market Fund, Inc.;
Strong Opportunity Fund, Inc.; Strong Short-Term Bond Fund, Inc.; Strong
Short-Term Global Bond Fund, Inc.; Strong Short-Term Municipal Bond Fund, Inc.;
Strong Special Fund II, Inc.; Strong Total Return Fund, Inc.; and Strong U.S.
Treasury Money Market Fund, Inc. (collectively, the "Strong Funds").

*Richard S. Strong (DOB 5/12/42), Chairman of the Board and Director
of the Corporation.

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<PAGE> 112
subsidiary of Holdings; and since February 1994, Mr. Strong has been a
member of the Managing Boards of Fussville Real Estate Holdings L.L.C., a
Wisconsin Limited Liability Company and subsidiary of the Advisor, and
Fussville Development L.L.C. a Wisconsin Limited Liability Company and
subsidiary of the Advisor, and certain of its subsidiaries. Mr. Strong has
served as a director of the Corporation since incorporation in December 1990
and Chairman of the Board of the Corporation since January 1992. Mr. Strong
has been in the investment management business since 1967.

Marvin E. Nevins (DOB 7/9/18), Director of the Corporation.

Private Investor. From 1945 to 1980, Mr. Nevins was Chairman of
Wisconsin Centrifugal Inc.; a foundry. From July 1983 to December 1986, he was
Chairman of General Casting Corp., Waukesha, Wisconsin, a foundry. Mr. Nevins
is a former Chairman of the Wisconsin Association of Manufacturers & Commerce.
He was also a regent of the Milwaukee School of Engineering and a member of the
Board of Trustees of the Medical College of Wisconsin. Mr. Nevins has served
as a director of the Corporation since incorporation in 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 as a director of
the Corporation since July 1994.

*John Dragisic (DOB 11/26/40), Vice Chairman and Director of the
Corporation.

Mr. Dragisic has been Vice Chairman and a director of the Advisor and
a director of Holdings and Distributor since July 1994. Mr. Dragisic
previously served as a director of the Fund from 1992 and 1994. Mr. Dragisic
was the President and Chief Executive Officer of Grunau Company, Inc. (a
mechanical contracting and engineering firm), Milwaukee, Wisconsin from 1987
until July 1994. From 1981 to 1987, he was an Executive Vice President with
Grunau Company, Inc. From 1969 until 1973, Mr. Dragisic worked for the
InterAmerican Development Bank. Mr. Dragisic received his Ph.D. in Economics
in 1971 from the University of Wisconsin - Madison and his B.A. degree in
Economics in 1962 from Lake Forest College. Mr. Dragisic has served as Vice
Chairman of the Corporation since July 1994 and director of the Corporation
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. He has served as a director of the Corporation 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. He has served as a director
of the Corporation 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 been a Vice President
of the Corporation since May 1993.

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<PAGE> 113

Thomas P. Lemke (DOB 7/30/54), Vice President of the Corporation.

Mr. Lemke has been Senior Vice President, Secretary, and General
Counsel of the Advisor since September 1994. For two years prior to joining
the Advisor, Mr. Lemke acted as Resident Counsel for Funds Management at J.P.
Morgan & Co., Inc. From February 1989 until April 1992, Mr. Lemke acted as
Associate General Counsel to Sanford C. Bernstein Co., Inc. For two years
prior to that, Mr. Lemke was Of Counsel at the Washington, D.C. law firm of Tew
Jorden & Schulte, a successor of Finley, Kumble Wagner. From August 1979 until
December 1986, Mr. Lemke worked at the Securities and Exchange Commission, most
notably as the Chief Counsel to the Division of Investment Management (November
1984 - December 1986), and as Special Counsel to the Office of Insurance
Products, Division of Investment Management (April 1982 - October 1984). Mr.
Lemke has been a Vice President of the Corporation since October 1994.

Ann E. Oglanian (DOB 12/7/61), Secretary of the Corporation.

Ms. Oglanian has been an Associate Counsel of the Advisor since
January 1992. Ms. Oglanian acted as Associate Counsel for the Chicago-based
investment management firm, Kemper Financial Services, Inc.; from June 1988
until December 1991. Ms. Oglanian has been the Secretary of the Corporation
since May 1994.

Ronald A. Neville (DOB 5/21/47), C.P.A., Treasurer of the Corporation.

Mr. Neville has been the Senior Vice President and Chief Financial
Officer of the Advisor since January 1995. For fourteen years prior to that,
Mr. Neville worked at Twentieth Century Companies, Inc., most notably as Senior
Vice President and Chief Financial Officer (1988 until December 1994). Mr.
Neville received his M.B.A. in 1972 from the University of Missouri - Kansas
City and his B.A. degree in Business Administration and Economics in 1969 from
Drury College. Mr. Neville has been the Treasurer of the Corporation since
April 1995.

Except for Messrs. Nevins, Davis, Kritzik and Vogt, the address of all
of the above persons is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr. Nevins'
address is 6075 Pelican Bay Boulevard, Naples, Florida 33963. Mr. Davis'
address is 161 North La Brea, Inglewood, California 90301. Mr. Kritzik's
address is 1123 North Astor Street, P.O. Box 92547, Milwaukee, Wisconsin
53202-0547. Mr. Vogt's address is 3003 Third Street Avenue, Denver, Colorado
80206.

The Strong Funds, a complex of open-end management investment
companies composed of 30 funds, of which the Fund is a part, in the aggregate,
pays each Director who is not a director, officer, or employee of the Advisor,
or any affiliated company (a "disinterested director") an annual fee of
$50,000, plus $100 per Board meeting for each fund. In addition, each
disinterested director is reimbursed by the funds for travel and other expenses
incurred in connection with attendance at such meetings. Other officers and
directors of the funds receive no compensation or expense reimbursement from
the funds.

As of July 14, 1995, the officers and directors of the Corporation
did not own any of the Fund's shares.

PRINCIPAL SHAREHOLDERS

As of July 14, 1995, no one owned of record and beneficially any shares
of the Fund.

INVESTMENT ADVISOR AND DISTRIBUTOR

The Advisor to the Fund is Strong Capital Management, Inc. Mr.
Richard S. Strong controls the Advisor. Mr. Strong is the Chairman and a
director of the Advisor, Mr. Dragisic is the Vice Chairman and a director of
the Advisor, Mr. Totsky is a Senior Vice President of the Advisor, Mr. Lemke is
a Senior Vice President, Secretary and General Counsel of the Advisor, Mr.
Neville is a Senior Vice President and Chief Financial Officer of the Advisor,
Ms. Oglanian is an Associate Counsel of the Advisor and Mr. Zoeller is the
Treasurer of the Advisor. A brief description of the Fund's investment
advisory agreement ("Advisory Agreement") is set forth in the Prospectus under
"Management."

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<PAGE> 114

The Fund's Advisory Agreement is dated July 10, 1995, 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.

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.

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, the cost of stock
certificates and fees for directors who are not "interested persons" of the
Advisor; and its allocable share of the Corporation's expenses.

As compensation for its services, the Fund pays to the Advisor a
monthly management fee at the annual rate of .60% 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. Such excess is determined by valuations made as of the close of each
business day of the year, which is the most restrictive percentage provided by
the state laws of the various states in which the Fund's shares are qualified
for sale; or if the states in which the Fund's shares are qualified for sale
impose no restrictions, the Advisor shall reimburse the Fund in the event the
expenses and charges payable by the Fund in any fiscal year (as described
above) exceed 2%. The most restrictive percentage limitation currently
applicable to the Fund is 2.5% of its average daily net assets up to
$30,000,000, 2% on the next $70,000,000 of its average daily net assets and
1.5% of its average daily net assets in excess of $100,000,000. Reimbursement
of expenses in excess of the applicable limitation will be made on a monthly
basis and will be paid to the Fund by reduction of the Advisor's fee, subject
to later adjustment month by month for the remainder of the Fund's fiscal year.
The Advisor may from time to time absorb expenses for the Fund in addition to
the reimbursement of expenses in excess of applicable limitations.

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

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<PAGE> 115

respondents agreed to a censure and a cease and desist order and the Advisor
agreed to various undertakings, including adoption of certain procedures and a
limitation for six months on accepting certain types of new advisory clients.

The staff of the U.S. Department of Labor (the "Staff") has contacted
the Advisor regarding alleged cross-trading of securities between 1987 and
early 1990 involving various customer accounts subject to the Employee
Retirement Security Act of 1974 ("ERISA") and managed by the Advisor. The
Advisor has informed the Staff of the basis for its position that the trades
complied with ERISA and that, in any event, any alleged noncompliance was not
the cause of any losses to the accounts. The Staff has stated that it
disagrees with the Advisor's positions, although to date it has not filed any
action against the Advisor. At this time, the Advisor is negotiating with the
Staff regarding a possible resolution of the matter, but it cannot presently
determine whether the matter will be settled or litigated or, if it is settled
or litigated, how it ultimately will be resolved. However, management
presently believes, based on current knowledge and the Advisor's insurance
coverage, that the ultimate resolution of this matter should not have a
material adverse effect on the Advisor's financial position.

Under a Distribution Agreement dated July 10, 1995 with the
Corporation (the "Distribution Agreement"), Strong Funds Distributors, Inc.
("Distributor"), a subsidiary of the Advisor, acts as underwriter of the Fund's
shares. The Distribution Agreement provides that the Distributor will use its
best efforts to distribute the Fund's shares. Shares are only offered and sold
to the separate accounts of certain insurance companies. Since the Fund is a
"no-load" fund, no sales commissions are charged on the purchase of Fund
shares. Certain sales charges may apply to the variable annuity or life
insurance contract, which should be described in the prospectus of the
insurance company's separate account. 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.

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

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<PAGE> 116

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

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

During its last fiscal year, the Advisor had an arrangement with
various brokers whereby, in consideration of the providing of research
services, the Advisor allocated brokerage to those firms, provided that their
brokerage and research services were satisfactory to the Advisor and their
execution capabilities were compatible with the Advisor's policy of seeking
best execution at the best security price available, as discussed above.

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

The Advisor places portfolio transactions for other advisory accounts,
including other mutual funds managed by the Advisor. Research services
furnished by firms through which the Fund effects its securities transactions
may be used by the Advisor in servicing all of its accounts; not all of such
services may be used by the Advisor in connection with the Fund. In the
opinion of the Advisor, it is not possible to measure separately the benefits
from research services to each of the accounts (including the Fund) managed by
the Advisor. Because the volume and nature of the trading activities of the
accounts are not uniform, the amount of commissions in excess of those charged
by another broker paid by each account for brokerage and research services will
vary. However, in the opinion of the Advisor, such costs to the Fund will not
be disproportionate to the benefits received by the Fund on a continuing basis.

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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.

The Corporation has entered into agreements with the Advisor and each
of Salomon and PaineWebber (collectively, the "Brokers"), in which the Brokers
have agreed to pay directly to vendors certain investment management and other
related expenses incurred and otherwise payable by the Fund ("Expense
Agreements"). In accordance with the Expense Agreements, the Advisor directs
the delivery to the Brokers of invoices determined by the Fund to be
appropriate for payment by the Brokers. The Brokers pay the invoices with the
proceeds of certain commissions received from the Fund. The Expense Agreements
provide that a percentage of commissions received from the Fund for completed
agency transactions in certain securities for the Fund, designated by the
Advisor as directed commissions subject to the Expense Agreements, shall be
used by the Brokers to pay the invoices. In all cases, such credits have been
immaterial in amount. The Advisor believes that this practice has not resulted
in any increase in the level of commissions paid by the Fund. Investment
management and other related expenses include those payable by the Fund, as
described under "Investment Advisor and Distributor" in this Statement of
Additional Information.

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 at no cost.

ADMINISTRATIVE SERVICES

From time to time the Fund and/or the Advisor may enter into
arrangements under which certain administrative services may be performed by
the insurance companies that purchase shares in the Fund. These administrative
services may include, among other things, responding to ministerial inquiries
concerning the Fund's investment objective, investment program, policies and
performance, transmitting, on behalf of the Fund, proxy statements, annual
reports, updated prospectuses, and other communications regarding the Fund, and
providing only related services as the Fund or its shareholders may reasonably
request. Depending on the arrangements, the Fund and/or Advisor may compensate
such insurance companies or their agents directly or indirectly for the
administrative services. To the extent the Fund compensates the insurance
company for these services, the Fund will pay the insurance company an annual
fee that will vary depending upon the number of contract holders that utilize
the Fund as the funding medium for their contracts. The insurance company may
impose other account or service charges. See the prospectus for the separate
account of the insurance company for additional information regarding such
charges.

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.

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<PAGE> 118

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% 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.

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.

In addition, the Fund must satisfy the diversification requirements of
Section 817(h) of the Code. In general, for the Fund to meet these investment
diversification requirements, Treasury regulations require that no more than
55% of the total value of the assets of the Fund may be represented by any one
investment, no more than 70% by two investments, no more than 80% by three
investments and no more than 90% by four investments. Generally, for purposes
of the regulations, all securities of the same issuer are treated as a single
investment. With respect to the United States Government securities (including
any security that is issued, guaranteed or insured by the United States or an
instrumentality of the United States), each governmental agency or
instrumentality is treated as a separate issuer. Compliance with the
regulations is tested on the last day of each calendar year quarter. There is
a 30-day period after the end of each calendar year quarter in which to cure
any non-compliance with these requirements.

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

25
<PAGE> 119

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.

The "Tax Simplification and Technical Corrections Bill of 1993,"
passed in May 1994 by the House of Representatives would substantially modify
the taxation of U.S. shareholders of foreign corporations, including
eliminating the provisions described above dealing with PFICs and replacing
them (and other provisions) with a regulatory scheme involving entities called
"passive foreign corporations." Three similar bills were passed by Congress in
1991 and 1992 and were vetoed. It is unclear at this time whether, and in what
form, the proposed modifications may be enacted into law.

Pursuant to proposed regulations, open-end RICs such as the Fund would
be entitled to elect to "mark-to-market" their stock in certain PFICs.
"Marking-to-market," in this context, means recognizing as gain for each
taxable year the excess, as of the end of that year, of the fair market value
of each such PFIC's stock over the adjusted basis in that stock (including
mark-to-market gain for each prior year for which an election was in effect).

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.

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

26
<PAGE> 120

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.

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. 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.

FUND ORGANIZATION

The Fund is a series of Strong Variable Insurance Funds, Inc., a
Wisconsin corporation (the "Corporation"). The Corporation (formerly known as
Strong Discovery Fund II, Inc., formerly known as Strong D Fund, Inc.) was
organized on December 28, 1990 and is authorized to issue 10,000,000,000 shares
of common stock and series and classes of series of shares of common stock,
with a par value of $.00001 per share. The Corporation is authorized to issue
300,000,000 shares of common stock of the Fund. Each share of the Corporation
has one vote, and all shares of a series participate equally in dividends and
other capital gains distributions and in the residual assets of that Fund in
the event of liquidation. Fractional shares have the same rights
proportionately as do full shares. Shares of the Corporation have no
preemptive, conversion, or subscription rights. The Corporation currently has
six series of common stock outstanding. The assets belonging to each
series of shares is held separately by a custodian, and in effect each series
is a separate fund. All holders of shares of the Corporation would vote on
each matter presented to shareholders for action except with respect to any
matter which affects only one or more series or classes, in which case only the
shares of the affected series or class shall be entitled to vote. Because of
current federal securities law requirements the Corporation expects that its
shareholders will offer to owners of variable annuity and variable life
insurance contracts the opportunity to instruct them as to how shares allocable
to their contracts will be voted with respect to certain matters, such as
approval of changes to the investment advisory agreement. 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 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.

27
<PAGE> 121

of all shareholders as recorded on the books of the Corporation; or (2) inform
such applicants as to the approximate number of shareholders of record and the
approximate cost of mailing to them the proposed communication and form of
request.

If the Secretary elects to follow the course specified in clause (2)
of the last sentence of the preceding paragraph, the Secretary, upon the
written request of such applicants, accompanied by a tender of the material to
be mailed and of the reasonable expenses of mailing, shall, with reasonable
promptness, mail such material to all shareholders of record at their addresses
as recorded on the books unless within five business days after such tender the
Secretary shall mail to such applicants and file with the SEC, together with a
copy of the material to be mailed, a written statement signed by at least a
majority of the Board of Directors to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion.

After opportunity for hearing upon the objections specified in the
written statement so filed, the SEC may, and if demanded by the Board of
Directors or by such applicants shall, enter an order either sustaining one or
more of such objections or refusing to sustain any of them. If the SEC shall
enter an order refusing to sustain any of such objections, or if, after the
entry of an order sustaining one or more of such objections, the SEC shall
find, after notice and opportunity for hearing, that all objections so
sustained have been met, and shall enter an order so declaring, the Secretary
shall mail copies of such material to all shareholders with reasonable
promptness after the entry of such order and the renewal of such tender.

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:

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

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

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.

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<PAGE> 122

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.

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 also wish to compare the performance of the Fund to that
of United States Treasury bills, notes, or bonds, which are issued by the U.S.
government, because such instruments represent alternative income producing
products. Treasury obligations are issued in selected denominations. Rates of
Treasury obligations are fixed at the time of issuance and payment of principal
and interest is backed by the full faith and credit of the United States
Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity.

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<PAGE> 123

(2) CERTIFICATES OF DEPOSIT
Investors may wish to compare the Fund's performance to that of
certificates of deposit offered by banks and other depositary institutions.
Certificates of deposit represent an alternative income producing product.
Certificates of deposit may offer fixed or variable interest rates and
principal is guaranteed and may be insured. Withdrawal of the deposits prior to
maturity normally will be subject to a penalty. Rates offered by banks and
other depositary institutions are subject to change at any time specified by
the issuing institution.

(3) MONEY MARKET FUNDS
Investors may also want to compare performance of the Fund to that of
money market funds. Money market fund yields will fluctuate and an investment
in money market fund shares is neither insured nor guaranteed by the U.S.
government, but share values usually remain stable.

(4) LIPPER ANALYTICAL SERVICES, INC. ("LIPPER") AND OTHER INDEPENDENT
RANKING ORGANIZATIONS
From time to time, in marketing and other fund literature, the Fund's
performance may be compared to the performance of other mutual funds in general
or to the performance of particular types of mutual funds, with similar
investment goals, as tracked by independent organizations. Among these
organizations, Lipper, a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets, may be
cited. Lipper performance figures are based on changes in net asset value,
with all income and capital gain dividends reinvested. Such calculations do
not include the effect of any sales charges imposed by other funds. The Fund
will be compared to Lipper's appropriate fund category, that is, by fund
objective and portfolio holdings.

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

(6) VARDS REPORT
The Fund's performance may also be compared to the performance of
other variable annuity products in general or to the performance of particular
types of variable annuity products, with similar investment goals, as tracked
by the VARDS Report (Variable Annuity Research and Data Service Report)
produced by Financial Planning Resources, Inc. The VARDS Report is a monthly
performance analysis of the variable annuity industry.

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

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

30
<PAGE> 124

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.

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

(a) The Consumer Price Index
(b) Merrill Lynch 91 Day Treasury Bill Index
(c) Merrill Lynch Government/Corporate 1-3 Year Index
(d) IBC/Donoghue's Taxable Money Fund Average(TM)
(e) IBC/Donoghue's Government Money Fund Average(TM)
(f) Salomon Brothers 1-Month Treasury Bill Index
(g) Salomon Brothers 3-Month Treasury Bill Index
(h) Salomon Brothers 1-Year Treasury Benchmark-on-the-Run Index
(i) Salomon Brothers 1-3 Year Treasury/Government-Sponsored/
Corporate Bond Index
(j) Salomon Brothers Corporate Bond Index
(k) Salomon Brothers AAA, AA, A, BBB, and BB Corporate Bond Indexes
(l) Salomon Brothers Broad Investment-Grade Bond Index
(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

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

(11) STRONG VARIABLE INSURANCE FUNDS
The Strong Variable Insurance Funds offer a range of investment
options. All of the members of the Strong Variable Insurance Funds and their
investment objectives are listed below. The Funds are listed in ascending order
of risk and return, as determined by the Funds' Advisor.

<TABLE>
<CAPTION>
FUND NAME INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Strong Advantage Fund II Current income with a very low degree of
share-price fluctuation.
- --------------------------------------------------------------------------------------------------------------
Strong Government Securities Fund II Total return by investing for a high level of current income
with a moderate degree of share-price fluctuation.
- --------------------------------------------------------------------------------------------------------------
Strong Asset Allocation Fund II High total return consistent with reasonable risk over the
long term.
- --------------------------------------------------------------------------------------------------------------
Strong Special Fund II Capital growth.
- --------------------------------------------------------------------------------------------------------------
Strong Growth Fund II Capital growth.
- --------------------------------------------------------------------------------------------------------------
Strong Discovery Fund II Capital growth.
- --------------------------------------------------------------------------------------------------------------
Strong International Stock Fund II Capital growth.
- --------------------------------------------------------------------------------------------------------------
</TABLE>

Each Fund may from time to time be compared to the other Funds in
the Strong Variable Insurance 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 Variable
Insurance Funds' risk/reward continuum or any Fund's position on the continuum
may be described or diagrammed in marketing materials. The Strong Variable
Insurance Funds' risk/reward continuum positions the risk and reward potential
of each Fund relative to the other Strong Variable Insurance Funds, but is not
intended to position any 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 Variable
Insurance Funds to help you reach your financial goals.

The Advisor also serves as advisor to the Strong Family of Funds, which
is a retail fund complex composed of 23 open-end management investment
companies.

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.

31
<PAGE> 125

(2) PORTFOLIO CHARACTERISTICS

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

(3) MEASURES OF VOLATILITY AND RELATIVE PERFORMANCE

Occasionally statistics may be used to specify Fund volatility or
risk. The general premise is that greater volatility connotes greater risk
undertaken in achieving performance. Measures of volatility or risk are
generally used to compare the Fund's net asset value or performance relative to
a market index. One measure of volatility is beta. Beta is the volatility of
a fund relative to the total market as represented by the Standard & Poor's 500
Stock Index. A beta of more than 1.00 indicates volatility greater than the
market, and a beta of less than 1.00 indicates volatility less than the market.
Another measure of volatility or risk is standard deviation. Standard deviation
is a statistical tool that measures the degree to which a fund's performance
has varied from its average performance during a particular time period.

Standard deviation is calculated using the following formula:

Standard deviation = the square root of a(x - x)2
i m
-----------
n-1
where a = "the sum of",
xi = each individual return during the time period,
xm = the average return over the time period, and
n = the number of individual returns during the time period.

Statistics may also be used to discuss a fund's relative performance.
One such measure is alpha. Alpha measures the actual return of a fund compared
to the expected return of a fund given its risk (as measured by beta). The
expected return is based on how the market as a whole performed, and how the
particular fund has historically performed against the market. Specifically,
alpha is the actual return less the expected return. The expected return is
computed by multiplying the advance or decline in a market representation by
the fund's beta. A positive alpha quantifies the value that the fund manager
has added, and a negative alpha quantifies the value that the fund manager has
lost.

Other measures of volatility and relative performance may be used as
appropriate. However, all such measures will fluctuate and do not represent
future results.

GENERAL INFORMATION

BUSINESS PHILOSOPHY

The Advisor is an independent, Midwestern-based investment advisor,
owned by professionals active in its management. Recognizing that investors are
the focus of its business, the Advisor strives for excellence both in
investment management and in the service provided to investors. This commitment
affects many aspects of the business, including professional staffing, product
development, investment management, and service delivery. Through its
commitment to excellence, the Advisor intends to benefit investors and to
encourage them to think of Strong Funds as their mutual fund family.

The increasing complexity of the capital markets requires specialized
skills and processes for each asset class and style. Therefore, the Advisor
believes that active management should produce greater returns than a passively
managed index. The Advisor has brought together a group of top-flight
investment professionals with diverse product expertise, and each concentrates
on their investment specialty. The Advisor believes that people are the firm's
most important asset. For this reason, continuity of professionals is critical
to the firm's long-term success.

32
<PAGE> 126

INVESTMENT ENVIRONMENT

Discussions of economic, social, and political conditions and their
impact on the Fund may be used in advertisements and sales materials. Such
factors that may impact the Fund include, but are not limited to, changes in
interest rates, political developments, the competitive environment, consumer
behavior, industry trends, technological advances, macroeconomic trends, and
the supply and demand of various financial instruments. In addition, marketing
materials may cite the portfolio management's views or interpretations of such
factors.

EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING
These common sense rules are followed by many successful investors.
They make sense for beginners, too. If you have a question on these principles,
or would like to discuss them with us, please contact us at 1-800-368-3863.

1. Have a plan - even a simple plan can help you take control of your
financial future. Review your plan once a year, or if your circumstances
change.

2. Start investing as soon as possible. Make time a valuable ally. Let it put
the power of compounding to work for you, while helping to
reduce your potential investment risk.

3. Diversify your portfolio. By investing in different asset classes - stocks,
bonds, and cash - you help protect against poor performance in
one type of investment while including investments most likely to help you
achieve your important goals.

4. Invest regularly. Investing is a process, not a one-time event. Make a
habit of investing. And make it easy for yourself with an "automatic
investment plan." This popular strategy not only helps you manage investment
risk, it also ensures you "pay yourself first" on a regular basis.

5. Maintain a long-term perspective. For most individuals, the best discipline
is staying invested as market conditions change. Reactive,
emotional investment decisions are all too often a source of regret - and
principal loss.

6. Consider stocks to help achieve major long-term goals. Over time, stocks
have provided the more powerful returns needed to help the value
of your investments stay well ahead of inflation.

7. Keep a comfortable amount of cash in your portfolio. To meet current needs,
including emergencies, use a money market fund or a bank account - not your
long-term investment assets.

8. Know what you're buying. Make sure you understand the potential risks and
rewards associated with each of your investments. Ask
questions...request information...make up your own mind. And choose a fund
company that helps you make informed investment decisions.

PORTFOLIO MANAGEMENT

33
<PAGE> 127

The Advisor believes that actively managing the Fund's portfolio and
adjusting the average portfolio maturity according to the Advisor's interest
rate outlook is the best way to achieve the Fund's objectives. This policy is
based on a fundamental belief that economic and financial conditions create
favorable and unfavorable investment periods (or seasons) and that these
different seasons require different investment approaches. Through its active
management approach, the Advisor seeks to avoid or reduce any negative change
in the Fund's net asset value per share during the periods of falling bond
prices and provide consistently positive annual returns throughout the seasons
of investment.

The Advisor's investment philosophy includes the following basic beliefs:

1. Active management pursued by a team with a uniform discipline across the
fixed income spectrum can produce results that are superior to
those produced through passive management.

2. Controlling risk by making only moderate deviations from the defined
benchmark is the cornerstone of successful fixed income investing.

3. Successful fixed income management is best pursued on a top-down basis
utilizing fundamental techniques.

The investment process includes decisions made at four levels that are
consistent with the Advisor's viewpoint of the path of economic activity,
interest rates, and the supply of and demand for credit. The goal is to derive
equivalent amounts of excess performance and risk control over the long run
from each of the four levels of decision-making:

1. Duration. Each Fund's portfolio duration is managed within a range
relative to its respective benchmark.

2. Yield Curve. Modest overweights and underweights along the yield curve are
made to benefit from changes in the yield curve's shape.

3. Sector/Quality. Sector weightings are generally maintained between zero and
two times those of the benchmark.

4. Security Selection. Quantitative analysis drives issue selection in the
Treasury and mortgage marketplace. Proactive credit research drives
corporate issue selection.

Risk control is pursued at three levels:

1. Portfolio structure. In structuring the portfolio, the Advisor carefully
considers such factors as position sizes, duration, benchmark
characteristics, and the use of illiquid securities.

2. Credit research. Proactive credit research is used to identify issues which
the Advisor believes will be candidates for credit upgrade.
This research includes visiting company management, establishing appropriate
values for credit ratings, and monitoring yield spread relationships.

3. Portfolio monitoring. Portfolio fundamentals are re-evaluated continuously,
and buy/sell targets are established and generally adhered to.

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.

34
<PAGE> 128

APPENDIX

BOND RATINGS

STANDARD & POOR'S DEBT RATINGS

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

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

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

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

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

2. Nature of and provisions of the obligation.

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

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

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

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

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

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

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

A-1
<PAGE> 129

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-' debt rating. The 'C' rating
may be used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.

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

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

MOODY'S LONG-TERM DEBT RATINGS

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

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

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

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

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

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

A-2
<PAGE> 130

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> 131

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. Moreover, the character of the risk
factor varies from industry to industry and between corporate, health care and
municipal obligations.

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

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

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

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

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

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

DUFF & PHELPS, INC. LONG-TERM DEBT RATINGS

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

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

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

A-4
<PAGE> 132

<TABLE>
<CAPTION>
RATING SCALE DEFINITION
<S> <C>
- --------------------------------------------------------------------------------------------------------------
AAA Highest credit quality. The risk factors are negligible, being only slightly more
than for risk-free U.S. Treasury debt.
- --------------------------------------------------------------------------------------------------------------
AA+ High credit quality. Protection factors are strong. Risk is modest, but may
AA vary slightly from time to time because of economic conditions.
AA-
- --------------------------------------------------------------------------------------------------------------
A+ Protection factors are average but adequate. However, risk factors are more
A variable and greater in periods of economic stress.
A-
- --------------------------------------------------------------------------------------------------------------
BBB+ Below average protection factors but still considered sufficient for prudent
BBB investment. Considerable variability in risk during economic cycles.
BBB-
- --------------------------------------------------------------------------------------------------------------
BB+ Below investment grade but deemed likely to meet obligations when due.
BB Present or prospective financial protection factors fluctuate according to
BB- industry conditions or company fortunes. Overall quality may move up or
down frequently within this category.
- --------------------------------------------------------------------------------------------------------------
B+ Below investment grade and possessing risk that obligations will not be met
B when due. Financial protection factors will fluctuate widely according to
B- economic cycles, industry conditions and/or company fortunes. Potential
exists for frequent changes in the rating within this category or into a higher
or lower rating grade.
- --------------------------------------------------------------------------------------------------------------
CCC Well below investment grade securities. Considerable uncertainty exists as to
timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
- --------------------------------------------------------------------------------------------------------------
DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP Preferred stock with dividend arrearages.
- --------------------------------------------------------------------------------------------------------------
</TABLE>

A-5
<PAGE> 133

SHORT-TERM RATINGS

STANDARD & POOR'S COMMERCIAL PAPER RATINGS

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

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

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

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

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

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

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

D Debt rated 'D' is in payment default. The 'D' rating category is
used when interest payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.

STANDARD & POOR'S NOTE RATINGS

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

The following criteria will be used in making the assessment:

Amortization schedule - the larger the final maturity relative
to other maturities, the more likely the issue is to be treated
as a note.

Source of payment - the more the issue depends on the market for
its refinancing, the more likely it is to be considered a note.

The note rating symbols and definitions are as follows:

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

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

SP-3 Speculative capacity to pay principal and interest.

A-6
<PAGE> 134

MOODY'S COMMERCIAL PAPER RATINGS

The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
makes no representation as to whether such commercial paper is by any other
definition "commercial paper" or is exempt from registration under the
Securities Act of 1933, as amended.

Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of nine months. Moody's makes no representation that such
obligations are exempt from registration under the Securities Act of 1933, nor
does it represent that any specific note is a valid obligation of a rated
issuer or issued in conformity with any applicable law. Moody's employs the
following three designations, all judged to be investment grade, to indicate
the relative repayment capacity of rated issuers:

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

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

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

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

MOODY'S NOTE RATINGS

MIG 1/VMIG 1 This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.

MIG 2/VMIG 2 This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

MIG 3/VMIG 3 This designation denotes favorable quality. All
security elements are accounted for but there is lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.

MIG 4/VMIG 4 This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.

SG This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.

A-7
<PAGE> 135

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.

<TABLE>
<S> <C>
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.
</TABLE>

DUFF & PHELPS, INC. SHORT-TERM DEBT RATINGS

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

Emphasis is placed on liquidity which we define 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>
<CAPTION>
Rating Scale Definition
------------ ----------
<S> <C>

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

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

Duff 1- High certainty of timely payment. Liquidity factors are strong and supported by good fundamental
protection factors. Risk factors are very small.
</TABLE>

A-8
<PAGE> 136

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

Satisfactory Grade
------------------

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

Non-investment Grade
--------------------

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

Default
-------

Duff 5 Issuer failed to meet scheduled principal and/or interest payments.
</TABLE>

A-9
<PAGE> 137

STATEMENT OF ADDITIONAL INFORMATION

STRONG ASSET ALLOCATION FUND II
P.O. Box 2936
Milwaukee, Wisconsin 53201
Telephone: 1-414-359-1400
Toll-Free: 1-800-368-3863

Strong Asset Allocation Fund II (the "Fund") is a diversified series of
the Strong Variable Insurance Funds, Inc. (the "Corporation"), an open-end
management investment company designed to provide an investment vehicle for
variable annuity and variable life insurance contracts of certain insurance
companies. Shares in the Fund are only offered and sold to the separate
accounts of such insurance companies. The Fund is described herein and in the
Prospectus for the Fund dated July 14, 1995.

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus for the Fund dated July 14, 1995 and
the prospectus for the separate account of the specific insurance product.
Requests for copies of the Fund's Prospectus may be made by writing to the
Fund, P.O. Box 2936, Milwaukee, Wisconsin 53201, Attention: Corporate
Secretary; or by calling one of the numbers listed above.

This Statement of Additional Information is dated July 14, 1995.

<PAGE> 138

STRONG ASSET ALLOCATION FUND II
<TABLE>
<CAPTION>

TABLE OF CONTENTS PAGE
<S> <C>
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Short Sales Against the Box . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Lending of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Debt Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
High-Yield (High-Risk) Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Mortgage- and Asset-Backed Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
When-Issued Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Illiquid Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Foreign Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Sovereign Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Depositary Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Foreign Investment Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Mortgage Dollar Rolls and Reverse Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Variable- or Floating-Rate Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Small Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
DIRECTORS AND OFFICERS OF THE CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
INVESTMENT ADVISOR AND DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ADMINISTRATIVE SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
FUND ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
PORTFOLIO MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
LEGAL COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
------------------------------

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

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<PAGE> 139

INVESTMENT RESTRICTIONS

The investment objective of the Fund is to seek high total return
consistent with reasonable risk over the long term. 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).

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<PAGE> 140

The following are the Fund's non-fundamental operating policies which may be
changed by the Board of Directors of the Corporation without shareholder
approval.

The Fund may not:

1. Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short, or
unless it covers such short sale as required by the current rules and
positions of the Securities and Exchange Commission or its staff, and
provided that transactions in options, futures contracts, options on
futures contracts, or other derivative instruments are not deemed to
constitute selling securities short.

2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions; and
provided that margin deposits in connection with futures contracts,
options on futures contracts, or other derivative instruments shall not
constitute purchasing securities on margin.

3. Invest in illiquid securities if, as a result of such investment, more
than 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.

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<PAGE> 141

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.

INVESTMENT POLICIES AND TECHNIQUES

DERIVATIVE INSTRUMENTS

GENERAL DESCRIPTION. As discussed in the Prospectus, the Advisor may use
a variety of derivative instruments, including options, futures contracts
(sometimes referred to as "futures"), options on futures contracts, forward
currency contracts and swap agreements for any lawful purpose, such as to hedge
the Fund's portfolio, manage risk, or attempt to enhance returns.

The use of these instruments is subject to applicable regulations of the
Securities and Exchange Commission (the "SEC"), the several options and futures
exchanges upon which they may be traded, the Commodity Futures Trading
Commission (the "CFTC") and various state regulatory authorities. In addition,
the Fund's ability to use these instruments will be limited by tax
considerations.

In addition to the products, strategies and risks described below and in
the Prospectus, the Advisor may discover additional derivative instruments and
other hedging techniques. These new opportunities may become available as the
Advisor develops new techniques or as regulatory authorities broaden the range
of permitted transactions. The Advisor may utilize these opportunities to the
extent that they are consistent with the Fund's investment objective and
permitted by the Fund's investment limitations and applicable regulatory
authorities.

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<PAGE> 142

For a discussion of the federal income tax treatment of the Fund's
derivative instruments, see "Taxes -- Derivative Instruments" below.

GENERAL LIMITATIONS ON CERTAIN DERIVATIVE TRANSACTIONS. 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. Pursuant to Rule 4.5 of the
regulations under the Commodity Exchange Act (the "CEA"), the notice of
eligibility 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 options positions
are "in the money," do not exceed 5% of the Fund's net assets. Adoption of
these guidelines does not limit the percentage of the Fund's assets at risk to
5%.

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.

The foregoing limitations are not fundamental policies of the Fund and may
be changed by the Corporation's Board of Directors without shareholder approval
as regulatory agencies permit.

Transactions using options (other than purchased options), forward
currency contracts, and swaps expose the Fund to counter-party risk. To the
extent required by SEC guidelines, the Fund will not enter into any such
transactions unless it owns either (1) an offsetting ("covered") position in
securities, currencies, or other options, futures, or forward currency
contracts or (2) cash and liquid high grade debt obligations with a value
sufficient at all times to cover its potential obligations to the extent not
covered as provided in (1) above. The Fund will also segregate such assets
with respect to futures contracts and its net obligations under swap
agreements. See "Swap Agreements" below. Assets used as cover or held in a
segregated account cannot be sold while the position in the corresponding
option, futures contract, or forward currency contract is open, unless they are
replaced with similar assets. As a result, the commitment of a large portion
of the Fund's assets to segregated accounts as a cover could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.

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<PAGE> 143

OPTIONS. The Fund may purchase and write put and call options on
securities, on indices and on foreign currencies 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. Options used by the Fund may
include European-style options. This means that the option is only exercisable
at its expiration. This is in contrast to American-style options which are
exercisable at any time prior to the expiration date of the option. Options
that expire unexercised have no value.

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'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
inability to enter into a closing purchase transaction for a covered call
option written by the Fund could cause material losses because the Fund would
be unable to sell the investment used as cover for the written option until the
option expires or is exercised.

The Fund may purchase and write put and call options on indices in much
the same manner as the options discussed above, except the index options may
serve as a hedge against overall fluctuations in the securities markets in
general.

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<PAGE> 144

SPREAD TRANSACTIONS. 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 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's futures transactions may be entered into for any
lawful purpose such as hedging purposes, risk management, or to enhance
returns. 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
reduce the 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.

A 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. 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. A foreign currency contract is a bilateral agreement pursuant to
which one party agrees to make and the other party agrees to accept delivery of
a specified type of currency at a specified future time and at a specified
price. Transaction costs are incurred when a futures contract is bought or
sold and margin deposits must be maintained. A futures contract may be
satisfied by delivery or purchase, as the case may be, of the instrument, 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.

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<PAGE> 145

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.

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

SWAP AGREEMENTS. The Fund may enter into interest rate, securities index
and currency exchange rate swap agreements for purposes 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,

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<PAGE> 146

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.

The "notional amount" of the swap agreement is only 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 obligations (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 obligations 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 counter party 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 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 counter party. 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 into swap agreements only with banks and recognized
securities dealers believed by the Advisor to present minimal credit risks in
accordance with guidelines established by the Fund's Board of Directors. 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.

FOREIGN CURRENCY-RELATED DERIVATIVE STRATEGIES-SPECIAL CONSIDERATIONS.
The Fund may also use options and futures on foreign currencies, as described
above, and forward currency contracts, as described below, to hedge against
movements in the values of the foreign currencies in which the Fund's
securities are denominated. The Fund may utilize foreign currency-related
derivative instruments for any lawful purpose, such as for bona fide hedging or
to seek to enhance returns through exposure to a particular foreign currency.
Such currency hedges can protect against price movements in a security the Fund
owns or intends to acquire that are attributable to changes in the value of the
currency in which it is denominated. Such hedges do not, however, protect
against price movements in the securities that are attributable to other
causes.

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

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Settlement of derivative transactions involving foreign currencies 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.

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 OTC options on foreign
currency only when the Advisor believes a liquid secondary market will exist
for a particular option at any specific time.

As noted above, the Fund may seek to hedge against changes in the value of
a particular currency by using forward contracts on another foreign currency or
a basket of currencies, the value of which the Advisor believes will have a
positive correlation to the values of the currency being hedged. In addition,
the Fund may use forward currency contracts to shift exposure to foreign
currency fluctuations from one country to another. For example, if the Fund
owns securities denominated in a foreign currency and the Advisor believes that
currency will decline relative to another currency, it might enter into a
forward contract to sell an appropriate amount of the first foreign currency,
with payment to be made in the second foreign currency. Transactions that use
two foreign currencies are sometimes referred to as "cross hedges." Use of
different foreign currency magnifies the risk that movements in the price of
the instrument will not correlate or will correlate unfavorably with the
foreign currency being hedged.

The cost to the Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and
the market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
When the Fund enters into a forward currency contract, it relies on the counter
party to make or take delivery of the underlying currency at the maturity of
the contract. Failure by the counter party to do so would result in the loss
of any expected benefit of the transaction.

As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, 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 counter party. Thus, there can be no
assurance that the Fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the counter party, the Fund might be unable to close out a
forward currency contract at any time prior to maturity. In either event, the
Fund would continue to be subject to market risk with respect to the position,
and would continue to be required to maintain a position in securities
denominated in the foreign currency or to maintain cash or securities in a
segregated account.

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

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SHORT SALES AGAINST THE BOX

LENDING OF PORTFOLIO SECURITIES

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 more speculative 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.

DEBT OBLIGATIONS

The Fund may invest a portion of its assets in debt obligations, including
U.S. government securities, commercial paper, banker's acceptances,
certificates of deposit, and time deposits. Issuers of debt obligations have a
contractual obligation to pay interest at a specified rate on specified dates
and to repay principal on a specified maturity date. Certain debt obligations
(usually intermediate- and long-term bonds) have provisions that allow the
issuer to redeem or "call" a bond before its maturity. Issuers are most likely
to call such securities during periods of falling interest rates.

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.

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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.

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

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.

HIGH-YIELD (HIGH-RISK) SECURITIES

IN GENERAL. The Fund has the authority to invest up to, but not
including, 35% of its 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. ("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 such
investments are discussed below. Refer to the Appendix of this Statement of
Additional Information for a discussion of securities ratings.

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

All interest-bearing securities typically experience appreciation when
interest rates decline and depreciation when interest rates rise. The market
values of lower-quality 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 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 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 lower-quality 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 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 lower-quality securities and thus in the Fund's net asset
value.

As previously stated, the value of such a 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
securities (discussed below) the Fund may be forced to liquidate these
securities at a substantial discount. Any such liquidation would reduce the
Fund's asset base over which expenses could be allocated and could result in a
reduced rate of return for the Fund.

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PAYMENT EXPECTATIONS. Lower-quality securities typically contain
redemption, call, or prepayment provisions which permit the issuer of such
securities containing such provisions to, at their discretion, redeem the
securities. During periods of falling interest rates, issuers of lower-quality
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
evaluate the safety of principal and interest payments of rated securities.
They do not, however, evaluate the market value risk of lower rated 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 rated
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 rated securities whose credit ratings or credit quality may have changed.

LIQUIDITY AND VALUATION. The Fund may have difficulty disposing of
certain lower-quality securities because there may be a thin trading market for
such securities. Because not all dealers maintain markets in all lower-quality
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 the Fund's 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 securities 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 rated
securities, especially in a thinly traded market.

RECENT AND PROPOSED LEGISLATION. Recent legislation has been adopted, and
from time to time, proposals have been discussed, regarding new legislation
designed to limit the use of certain lower-quality securities by certain
issuers. An example of legislation is a recent law which requires federally
insured savings and loan associations to divest their investments in these
securities over time. It is not currently possible to determine the impact of
the recent legislation or the proposed legislation on the lower-quality
securities market. However, it is anticipated that if additional legislation
is enacted or proposed, it could have a material affect on the value of these
securities and the existence of a secondary trading market for the securities.

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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other installment loan contracts, home equity loans, leases of various types of
property, and receivables from credit card or other revolving credit
arrangements. Payments or distributions of principal and interest on
asset-backed securities may be supported by non-governmental credit
enhancements similar to those utilized in connection with mortgage-backed
securities.

The yield characteristics of mortgage- and asset-backed securities differ
from those of traditional debt 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. Amounts available
for reinvestment by the Fund are likely to be greater during a period of
declining interest rates and, as a result, are likely to be reinvested at lower
interest rates than during a period of rising interest rates. Accelerated
prepayments on securities purchased by 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 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.

WHEN-ISSUED SECURITIES

The Fund may invest without limitation in when-issued and delayed delivery
securities (collectively "When-Issued Securities"). The price of such
securities, which may be expressed in yield terms, is fixed at the time the
commitment to purchase is made, but delivery and payment for the When-Issued
Securities take place at a later date. Normally, the settlement date occurs
within one month of the purchase. During the period between purchase and
settlement, no payment is made by the Fund to the issuer and no interest
accrues to the Fund. Forward commitments involve a risk of loss if the value of
the security to be purchased declines prior to the settlement date, which risk
is in addition to the risk of decline in value of the Fund's other assets.
While When-Issued Securities may be sold prior to the settlement date, the Fund
intends to purchase such securities with the purpose of actually acquiring them
unless a sale appears desirable for investment reasons. At the time the Fund
makes the commitment to purchase a security on a when-issued basis, it will
record the transaction and reflect the value of the security in determining its
net asset value. The Fund does not believe that its net asset value or income
will be adversely affected by its purchases of securities on a when-issued
basis.

The Fund will maintain cash and marketable securities equal in value to
commitments for When-Issued Securities. Such segregated securities either will
mature or, if necessary, be sold on or before the settlement date. When the
time comes to pay for When-Issued Securities, the Fund will meet its obligation
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 respective
Fund's payment obligation).

ILLIQUID SECURITIES

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amended (the "Securities Act"), including securities that may be resold
pursuant to Rule 144A under the Securities Act or Section 4(2) commercial
paper, may be considered liquid. The Board of Directors has delegated to the
Advisor the day-to-day determination of the liquidity of a security, although
it has retained oversight and ultimate responsibility for such determinations.
Although no definitive liquidity criteria are used, the Corporation's Board of
Directors has directed the Advisor to look to such factors as (i) the nature of
the market for a security (including the institutional private resale market),
(ii) the terms of certain securities or other instruments allowing for the
disposition to a third party or the issuer thereof (e.g., certain repurchase
obligations and demand instruments), (iii) the availability of market
quotations (e.g., for securities quoted in the PORTAL system), and (iv) other
permissible relevant factors.

Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act. Where registration is
required, 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. Restricted securities will be priced at
fair value as determined in good faith by the Corporation's Board of Directors.
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 readily marketable, the Fund will take such
steps as are deemed advisable, if any, to protect liquidity.

The Fund may sell 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.

Notwithstanding the above, the Advisor intends, as a matter of internal
policy, to limit the Fund's investments in illiquid securities to 10% of its
net assets.

FOREIGN SECURITIES

The Fund may invest without limitation in foreign securities. Many of the
foreign securities held by the Fund will not be registered with the SEC, nor
will the issuers thereof 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

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earned thereon. The inability of the Fund to make intended security purchases
due to settlement problems could cause the Fund to miss attractive 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.

SOVEREIGN DEBT

Sovereign debt differs from debt obligations issued by private entities in
that, generally, remedies for defaults must be pursued in the courts of the
defaulting party. Legal recourse is therefore limited. Political conditions,
especially a sovereign entity's willingness to meet the terms of its debt
obligations, are of considerable significance. Also, there can be no assurance
that the holders of commercial bank loans to the same sovereign entity may not
contest payments to the holders of sovereign debt in the event of default under
commercial bank loan agreements.

A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's
policy toward principal international lenders and the political constraints to
which a sovereign debtor may be subject. A country whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international price of such commodities. Increased protectionism on the part
of a country's trading partners, or political changes in those countries, could
also adversely affect its exports. Such events could diminish a country's
trade account surplus, if any, or the credit standing of a particular local
government or agency. Another factor bearing on the ability of a country to
repay sovereign debt is the level of the country's international reserves.
Fluctuations in the level of these reserves can affect the amount of foreign
exchange readily available for external debt payments and, thus, could have a
bearing on the capacity of the country to make payments on its sovereign debt.

To the extent that a country has a current account deficit (generally when
exports of merchandise and services are less than the country's imports of
merchandise and services plus net transfers (e.g., gifts of currency and goods)
to foreigners), it will need to depend on loans from foreign governments,
multilateral organizations or private commercial banks, aid payments from
foreign governments and inflows of foreign investment. The access of a country
to these forms of external funding may not be certain, and a withdrawal of
external funding could adversely affect the capacity of a government to make
payments on its obligations. In addition, the cost of servicing debt
obligations can be affected by a change in international interest rates since
the majority of these obligations carry interest rates that are adjusted
periodically based upon international rates.

With respect to sovereign debt of emerging market issuers, investors
should be aware that certain emerging market countries are among the largest
debtors to commercial banks and foreign governments. At times certain emerging
market countries have declared moratoria on the payment of principal and
interest on external debt.

Certain emerging market countries have experienced difficulty in servicing
their sovereign debt on a timely basis which led to defaults on certain
obligations and the restructuring of certain indebtedness. Restructuring
arrangements have included, among other things, reducing and rescheduling
interest and principal payments by negotiating new or amended credit agreements
or converting outstanding principal and unpaid interest to Brady Bonds
(discussed below), and obtaining new credit to finance interest payments.
Holders of sovereign debt, including the Fund, may be requested to participate
in the rescheduling of such debt and to extend further loans to sovereign
debtors. The interests of holders of sovereign debt could be adversely
affected in the course of restructuring arrangements or by certain other
factors referred to below. Furthermore, some of the participants in the
secondary market for sovereign debt may also be directly involved in
negotiating the terms of these arrangements and may therefore have access to
information not available to other market participants. Obligations arising
from past restructuring agreements may affect the economic performance and
political and social stability of certain issuers of sovereign debt. There is
no bankruptcy proceeding by which sovereign debt on which a sovereign has
defaulted may be collected in whole or in part.

Foreign investment in certain sovereign debt is restricted or controlled
to varying degrees. These restrictions or controls may at times limit or
preclude foreign investment in such sovereign debt and increase the costs and
expenses of the Fund. Certain countries in which the Fund will invest require
governmental approval prior to investments by foreign persons, limit the amount
of investment by foreign persons in a particular issuer, limit the investment
by foreign persons only to a specific class of securities of an issuer that may
have less advantageous rights than the classes available for purchase by
domiciliaries of the countries, or

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impose additional taxes on foreign investors. Certain issuers may require
governmental approval for the repatriation of investment income, capital or the
proceeds of sales of securities by foreign investors. In addition, if a
deterioration occurs in a country's balance of payments, the country could
impose temporary restrictions on foreign capital remittances. The Fund could
be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the
application to the Fund of any restrictions on investments. Investing in local
markets may require the Fund to adopt special procedures, seek local government
approvals or take other actions, each of which may involve additional costs to
the Fund.

The sovereign debt in which the Fund may invest includes Brady Bonds,
which are securities issued under the framework of the Brady Plan, an
initiative announced by former U.S. Treasury Secretary Nicholas F. Brady in
1989 as a mechanism for debtor nations to restructure their outstanding
external commercial bank indebtedness. In restructuring its external debt
under the Brady Plan framework, a debtor nation negotiates with its existing
bank lenders as well as multilateral institutions such as the International
Monetary Fund ("IMF"). The Brady Plan framework, as it has developed,
contemplates the exchange of commercial bank debt for newly issued Brady Bonds.
Brady Bonds may also be issued in respect of new money being advanced by
existing lenders in connection with the debt restructuring. The World Bank and
the IMF support the restructuring by providing funds pursuant to loan
agreements or other arrangements which enable the debtor nation to
collateralize the new Brady Bonds or to repurchase outstanding bank debt at a
discount.

There can be no assurance that the circumstances regarding the issuance of
Brady Bonds by these countries will not change. Investors should recognize
that Brady Bonds have been issued only recently, and accordingly do not have a
long payment history. Agreements implemented under the Brady Plan to date are
designed to achieve debt and debt-service reduction through specific options
negotiated by a debtor nation with its creditors. As a result, the financial
packages offered by each country differ. The types of options have included
the exchange of outstanding commercial bank debt for bonds issued at 100% of
face value of such debt, which carry a below-market stated rate of interest
(generally known as par bonds), bonds issued at a discount from the face value
of such debt (generally known as discount bonds), bonds bearing an interest
rate which increases over time, and bonds issued in exchange for the
advancement of new money by existing lenders. Regardless of the stated face
amount and stated interest rate of the various types of Brady Bonds, the Fund
will purchase Brady Bonds in secondary markets, as described below, in which
the price and yield to the investor reflect market conditions at the time of
purchase.

Certain Brady Bonds have been collateralized as to principal due at
maturity by U.S. Treasury zero coupon bonds with maturities equal to the final
maturity of such Brady Bonds. Collateral purchases are financed by the IMF,
the World Bank, and the debtor nations' reserves. In the event of a default
with respect to collateralized Brady Bonds as a result of which the payment
obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will equal the
principal payments which would have then been due on the Brady Bonds in the
normal course. In addition, interest payments on certain types of Brady Bonds
may be collateralized by cash or high grade securities in amounts that
typically represent between 12 and 18 months of interest accruals on these
instruments with the balance of the interest accruals being uncollateralized.
Brady Bonds are often viewed as having several valuation components: (1) the
collateralized repayment of principal, if any, at final maturity, (2) the
collateralized interest payments, if any, (3) the uncollateralized interest
payments, and (4) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constitute the "residual risk"). In light of
the residual risk of Brady Bonds and, among other factors, the history of
defaults with respect to commercial bank loans by public and private entities
of countries issuing Brady Bonds, investments in Brady Bonds are to be viewed
as speculative. The Fund may purchase Brady Bonds with no or limited
collateralization, and will be relying for payment of interest and (except in
the case of principal collateralized Brady Bonds) principal primarily on the
willingness and ability of the foreign government to make payment in accordance
with the terms of the Brady Bonds. Brady Bonds issued to date are purchased
and sold in secondary markets through U.S. securities dealers and other
financial institutions and are generally maintained through European
transnational securities depositories.

DEPOSITARY RECEIPTS

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securities into which they may be converted. Generally, ADRs, in registered
form, are denominated in U.S. dollars and are designed for use in the U.S.
securities markets, while EDRs, in bearer form, may be denominated in other
currencies and are designed for use in European securities markets. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying securities. EDRs are European receipts evidencing a similar
arrangement. For purposes of the Fund's investment policies, ADRs and EDRs are
deemed to have the same classification as the underlying securities they
represent. Thus, an ADR or EDR representing ownership of common stock will be
treated as common stock.

ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depositary may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depositary requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depositary usually
charges fees upon the deposit and withdrawal of the deposited securities, the
conversion of dividends into U.S. dollars, the disposition of non-cash
distributions, and the performance of other services. The depositary of an
unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited securities
or to pass through voting rights to ADR holders in respect of the deposited
securities. Sponsored ADR facilities are created in generally the same manner
as unsponsored facilities, except that the issuer of the deposited securities
enters into a deposit agreement with the depositary. The deposit agreement
sets out the rights and responsibilities of the issuer, the depositary and the
ADR holders. With sponsored facilities, the issuer of the deposited securities
generally will bear some of the costs relating to the facility (such as
dividend payment fees of the depositary), although ADR holders continue to bear
certain other costs (such as deposit and withdrawal fees). Under the terms of
most sponsored arrangements, depositories agree to distribute notices of
shareholder meetings and voting instructions, and to provide shareholder
communications and other information to the ADR holders at the request of the
issuer of the deposited securities.

FOREIGN INVESTMENT COMPANIES

REPURCHASE AGREEMENTS

The Fund may invest in 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. If the value of such securities is less than
the repurchase price, plus any agreed-upon additional amount, the other party
to the agreement will be required to provide additional collateral so that at
all times the collateral is at least equal to the repurchase price, plus any
agreed-upon additional amount. The Advisor will monitor, on an ongoing basis,
the value of the underlying securities to ensure that the value always equals
or exceeds the repurchase price plus accrued interest. Repurchase agreements
could involve certain risks in the event of a default or insolvency of the
other party to the agreement, including possible delays or restrictions upon
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.

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<PAGE> 156

BORROWING

The Fund may borrow money from banks, limited by the Fund's fundamental
investment restriction to 33 1/3% of its total assets, and may engage in
mortgage dollar roll transactions and reverse repurchase agreements which may
be considered a form of borrowing. (See "Mortgage Dollar Rolls and Reverse
Repurchase Agreements" below.) In addition, the Fund may borrow up to an
additional 5% of its total assets from banks for temporary or emergency
purposes. The Fund will not purchase securities when bank borrowings exceed 5%
of the Fund's total assets.

MORTGAGE DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS

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.

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 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.

VARIABLE- OR FLOATING-RATE SECURITIES

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

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<PAGE> 157

corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. The
interest rate on a floating-rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable-rate demand obligation is
adjusted automatically at specified intervals. Frequently, such obligations
are secured by letters of credit or other credit support arrangements provided
by banks. Because these obligations are direct-lending arrangements between the
lender and borrower, it is not contemplated that such instruments will
generally be traded. There generally is not an established secondary market
for these obligations, although they are redeemable at face value.
Accordingly, where these obligations are not secured by letters of credit or
other credit support arrangements, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies and, if not so
rated, the Fund may invest in them only if the Fund's Advisor determines that,
at the time of investment, the obligations are of comparable quality to the
other obligations in which the Fund may invest. The Advisor, on behalf of the
Fund, will consider on an ongoing basis the creditworthiness of the issuers of
the floating- and variable-rate demand obligations in the Fund's portfolio.

The Fund will not invest more than 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.

SMALL COMPANIES

The Fund may, from time to time, invest a substantial portion of its
assets in small companies. While smaller companies generally have the
potential for rapid growth, investments in smaller companies often involve
greater risks than investments in larger, more established companies because
smaller companies may lack the management experience, financial resources,
product diversification, and competitive strengths of larger companies. In
addition, in many instances the securities of smaller companies are traded only
over-the-counter or on a regional securities exchange, and the frequency and
volume of their trading is substantially less than is typical of larger
companies. Therefore, the securities of smaller companies may be subject to
greater and more abrupt price fluctuations. When making large sales, the Fund
may have to sell portfolio holdings at discounts from quoted prices or may have
to make a series of small sales over an extended period of time due to the
trading volume of smaller company securities. Investors should be aware that,
based on the foregoing factors, an investment in the Fund may be subject to
greater price fluctuations than an investment in a fund that invests primarily
in larger, more established companies. The Advisor's research efforts may also
play a greater role in selecting securities for the Fund than in a fund that
invests in larger, more established companies.

DIRECTORS AND OFFICERS OF THE CORPORATION

Directors and officers of the Corporation, together with information as to
their principal business occupations during the past 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 positions with the following registered investment
companies: Strong Advantage Fund, Inc.; Strong American Utilities Fund, Inc.;
Strong Asia Pacific Fund, Inc.; Strong Asset Allocation Fund, Inc.; Strong
Common Stock Fund, Inc.; Strong Corporate Bond Fund, Inc.; Strong Discovery
Fund, Inc.; Strong Government Securities Fund, Inc.; Strong Growth Fund, Inc.;
Strong Heritage Reserve Series, Inc.; Strong High-Yield Municipal Bond Fund,
Inc.; Strong Insured Municipal Bond Fund, Inc.; Strong International Bond Fund,
Inc.; Strong International Stock Fund, Inc.; Strong Money Market Fund, Inc.;
Strong Municipal Bond Fund, Inc.; Strong Municipal Money Market Fund, Inc.;
Strong Opportunity Fund, Inc.; Strong Short-Term Bond Fund, Inc.; Strong
Short-Term Global Bond Fund, Inc.; Strong Short-Term Municipal Bond Fund, Inc.;
Strong Special Fund II, Inc.; Strong Total Return Fund, Inc.; and Strong U.S.
Treasury Money Market Fund, Inc. (collectively, the "Strong Funds").

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<PAGE> 158

*Richard S. Strong (DOB 5/12/42), Chairman of the Board and Director of
the Corporation.

Prior to August 1985, Mr. Strong was Chief Executive Officer of the
Advisor, which he founded in 1974. Since August 1985, Mr. Strong has been a
Security Analyst and Portfolio Manager of the Advisor. In October 1991, Mr.
Strong also became the Chairman of the Advisor. Mr. Strong is a director of
the Advisor. Since October 1993, Mr. Strong has been Chairman and a director
of Strong Holdings, Inc.; a Wisconsin corporation and subsidiary of the Advisor
("Holdings"), and the Fund's underwriter, Strong Funds Distributors, Inc.; a
Wisconsin corporation and subsidiary of Holdings ("Distributor"). Since
January 1994, Mr. Strong has been Chairman and a director of Heritage Reserve
Development Corporation, a Wisconsin corporation and subsidiary of Holdings;
and since February 1994, Mr. Strong has been a member of the Managing Boards of
Fussville Real Estate Holdings L.L.C., a Wisconsin Limited Liability Company
and subsidiary of the Advisor, and Fussville Development L.L.C. a Wisconsin
Limited Liability Company and subsidiary of the Advisor, and certain of its
subsidiaries. Mr. Strong has served as a director of the Corporation since
incorporation in December 1990 and Chairman of the Board of the Corporation
since January 1992. Mr. Strong has been in the investment management business
since 1967.

Marvin E. Nevins (DOB 7/9/18), Director of the Corporation.

Private Investor. From 1945 to 1980, Mr. Nevins was Chairman of Wisconsin
Centrifugal Inc.; a foundry. From July 1983 to December 1986, he was Chairman
of General Casting Corp., Waukesha, Wisconsin, a foundry. Mr. Nevins is a
former Chairman of the Wisconsin Association of Manufacturers & Commerce. He
was also a regent of the Milwaukee School of Engineering and a member of the
Board of Trustees of the Medical College of Wisconsin. Mr. Nevins has served
as a director of the Corporation since incorporation in December 1990.

Willie D. Davis (DOB 7/24/34), Director of the Corporation.

*John Dragisic (DOB 11/26/40), Vice Chairman and Director of the
Corporation.

Mr. Dragisic has been Vice Chairman and a director of the Advisor and a
director of Holdings and Distributor since July 1994. Mr. Dragisic previously
served as a director of the Fund from 1992 and 1994. Mr. Dragisic was the
President and Chief Executive Officer of Grunau Company, Inc. (a mechanical
contracting and engineering firm), Milwaukee, Wisconsin from 1987 until July
1994. From 1981 to 1987, he was an Executive Vice President with Grunau
Company, Inc. From 1969 until 1973, Mr. Dragisic worked for the InterAmerican
Development Bank. Mr. Dragisic received his Ph.D. in Economics in 1971 from
the University of Wisconsin - Madison and his B.A. degree in Economics in 1962
from Lake Forest College. Mr. Dragisic has served as Vice Chairman of the
Corporation since July 1994 and director of the Corporation 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. He has served as a director of the Corporation since April 1995.

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<PAGE> 159

William F. Vogt (DOB 7/19/47), Director of the Corporation.

Mr. Vogt has been the President of Vogt Management Consulting, Inc. since
1990. From 1982 until 1990, he served as Executive Director of University
Physicians of the University of Colorado. Mr. Vogt is the Past President of
the Medical Group Management Association and a Fellow of the American College
of Medical Practice Executives. He has served as a director of the Corporation
since 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 been a Vice President of the Corporation
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 been a Vice President of the Corporation since October 1994.

Ann E. Oglanian (DOB 12/7/61), Secretary of the Corporation.

Ms. Oglanian has been an Associate Counsel of the Advisor since January
1992. Ms. Oglanian acted as Associate Counsel for the Chicago-based investment
management firm, Kemper Financial Services, Inc.; from June 1988 until December
1991. Ms. Oglanian has been the Secretary of the Corporation since May 1994.

Ronald A. Neville (DOB 5/21/47), C.P.A., Treasurer of the Corporation.

Mr. Neville has been the Senior Vice President and Chief Financial Officer
of the Advisor since January 1995. For fourteen years prior to that, Mr.
Neville worked at Twentieth Century Companies, Inc., most notably as Senior
Vice President and Chief Financial Officer (1988 until December 1994). Mr.
Neville received his M.B.A. in 1972 from the University of Missouri - Kansas
City and his B.A. degree in Business Administration and Economics in 1969 from
Drury College. Mr. Neville has been the Treasurer of the Corporation since
April 1995.

Except for Messrs. Nevins, Davis, Kritzik and Vogt, the address of all of
the above persons is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr. Nevins'
address is 6075 Pelican Bay Boulevard, Naples, Florida 33963. Mr. Davis'
address is 161 North La Brea, Inglewood, California 90301. Mr. Kritzik's
address is 1123 North Astor Street, P.O. Box 92547, Milwaukee, Wisconsin
53202-0547. Mr. Vogt's address is 3003 Third Street Avenue, Denver, Colorado
80206.

The Strong Funds, a complex of open-end management investment companies
composed of 30 funds (the "funds"), of which the Fund is a part, in the
aggregate, pays each Director who is not a director, officer, or employee of
the Advisor, or any affiliated company (a "disinterested director") an annual
fee of $50,000, plus $100 per Board meeting for each fund or series thereof.
In addition, each disinterested director is reimbursed by the funds for travel
and other expenses incurred in connection with attendance at such meetings.
Other officers and directors of the funds receive no compensation or expense
reimbursement from the funds.

As of July 14, 1995, the officers and directors of the Corporation did not
own any of the Fund's shares.

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<PAGE> 160
PRINCIPAL SHAREHOLDERS

As of July 14, 1995, no one owned of 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 Vice Chairman and a director of the Advisor, Mr.
Totsky is a Senior Vice President of the Advisor, Mr. Lemke is a Senior Vice
President, Secretary and General Counsel of the Advisor, Mr. Neville is a
Senior Vice President and Chief Financial Officer of the Advisor, and Ms.
Oglanian is an Associate Counsel of the Advisor and Mr. Zoeller is the
Treasurer of the Advisor. A brief description of the Fund's investment
advisory agreement ("Advisory Agreement") is set forth in the Prospectus under
"Management."

The Fund's Advisory Agreement is dated July 10, 1995, 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.

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.

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, the cost of stock
certificates and fees for directors who are not "interested persons" of the
Advisor; and its allocable share of the Corporation's expenses.

As compensation for its services, the Fund pays to the Advisor a monthly
management fee at the annual rate of .85% of the first $35,000,000 of the Fund's
average daily net asset value and at the annual rate of .80% of the Fund's
average daily net asset value in excess of $35,000,000. (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.

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<PAGE> 161

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

The staff of the U.S. Department of Labor (the "Staff") has contacted the
Advisor regarding alleged cross-trading of securities between 1987 and early
1990 involving various customer accounts subject to the Employee Retirement
Security Act of 1974 ("ERISA") and managed by the Advisor. The Advisor has
informed the Staff of the basis for its position that the trades complied with
ERISA and that, in any event, any alleged noncompliance was not the cause of
any losses to the accounts. The Staff has stated that it disagrees with the
Advisor's positions, although to date it has not filed any action against the
Advisor. At this time, the Advisor is negotiating with the Staff regarding a
possible resolution of the matter, but it cannot presently determine whether
the matter will be settled or litigated or, if it is settled or litigated, how
it ultimately will be resolved. However, management presently believes, based
on current knowledge and the Advisor's insurance coverage, that the ultimate
resolution of this matter should not have a material adverse effect on the
Advisor's financial position.

Under a Distribution Agreement dated July 10, 1995 with the Corporation
(the "Distribution Agreement"), Strong Funds Distributors, Inc.
("Distributor"), a subsidiary of the Advisor, acts as underwriter of the Fund's
shares. The Distribution Agreement provides that the Distributor will use its
best efforts to distribute the Fund's shares. Shares are only offered and sold
to the separate accounts of certain insurance companies. Since the Fund is a
"no-load" fund, no sales commissions are charged on the purchase of Fund
shares. Certain sales charges may apply to the variable annuity or life
insurance contract, which should be described in the prospectus of the
insurance company's separate account. 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.

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<PAGE> 162

commission another broker or dealer would have charged for effecting the
transaction in recognition of the value of the brokerage and research services
provided by the broker or dealer. Brokerage and research services include (a)
furnishing advice as to the value of securities, the advisability of investing
in, purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities; (b) furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts; and (c) effecting
securities transactions and performing functions incidental thereto (such as
clearance, settlement, and custody).

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

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

During its last fiscal year, the Advisor had an arrangement with various
brokers whereby, in consideration of the providing of research services, the
Advisor allocated brokerage to those firms, provided that their brokerage and
research services were satisfactory to the Advisor and their execution
capabilities were compatible with the Advisor's policy of seeking best
execution at the best security price available, as discussed above.

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<PAGE> 163
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 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.

The Corporation has entered into agreements with the Advisor and each of
Salomon and PaineWebber (collectively, the "Brokers"), in which the Brokers
have agreed to pay directly to vendors certain investment management and other
related expenses incurred and otherwise payable by the Fund ("Expense
Agreements"). In accordance with the Expense Agreements, the Advisor directs
the delivery to the Brokers of invoices determined by the Fund to be
appropriate for payment by the Brokers. The Brokers pay the invoices with the
proceeds of certain commissions received from the Fund. The Expense Agreements
provide that a percentage of commissions received from the Fund for completed
agency transactions in certain securities for the Fund, designated by the
Advisor as directed commissions subject to the Expense Agreements, shall be
used by the Brokers to pay the invoices. In all cases, such credits have been
immaterial in amount. The Advisor believes that this practice has not resulted
in any increase in the level of commissions paid by the Fund. Investment
management and other related expenses include those payable by the Fund, as
described under "Investment Advisor and Distributor" in this Statement of
Additional Information.

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 at no cost.

ADMINISTRATIVE SERVICES

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<PAGE> 164

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% 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.

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.

FOREIGN TRANSACTIONS

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

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<PAGE> 165

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.

The "Tax Simplification and Technical Corrections Bill of 1993," passed in
May 1994 by the House of Representatives would substantially modify the
taxation of U.S. shareholders of foreign corporations, including eliminating
the provisions described above dealing with PFICs and replacing them (and other
provisions) with a regulatory scheme involving entities called "passive foreign
corporations." Three similar bills were passed by Congress in 1991 and 1992 and
were vetoed. It is unclear at this time whether, and in what form, the
proposed modifications may be enacted into law.

Pursuant to proposed regulations, open-end RICs such as the Fund would be
entitled to elect to "mark-to-market" their stock in certain PFICs.
"Marking-to-market," in this context, means recognizing as gain for each
taxable year the excess, as of the end of that year, of the fair market value
of each such PFIC's stock over the adjusted basis in that stock (including
mark-to-market gain for each prior year for which an election was in effect).

DERIVATIVE INSTRUMENTS

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<PAGE> 166

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.

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. 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.

FUND ORGANIZATION

The Fund is a series of Strong Variable Insurance Funds, Inc., a Wisconsin
corporation (the "Corporation"). The Corporation (formerly known as Strong
Discovery Fund II, Inc., formerly known as Strong D Fund, Inc.) was organized
on December 28, 1990 and is authorized to issue 10,000,000,000 shares of common
stock and series and classes of series of shares of common stock, with a par
value of $.00001 per share. The Corporation is authorized to issue 300,000,000
shares of common stock of the Fund. Each share of the Corporation has one
vote, and all shares of a series participate equally in dividends and other
capital gains distributions and in the residual assets of that Fund in the
event of liquidation. Fractional shares have the same rights proportionately as
do full shares. Shares of the Corporation have no preemptive, conversion, or
subscription rights. The Corporation currently has six series of common
stock outstanding. The assets belonging to each series of shares is held
separately by a custodian, and in effect each series is a separate fund. All
holders of shares of the Corporation would vote on each matter presented to
shareholders for action except with respect to any matter which affects only
one or more series or classes, in which case only the shares of the affected
series or class shall be entitled to vote. Because of current federal
securities law requirements the Corporation expects that its shareholders will
offer to owners of variable annuity and variable life insurance contracts the
opportunity to instruct them as to how shares allocable to their contracts will
be voted with respect to certain matters, such as approval of changes to the
investment advisory agreement. 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.

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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.

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 "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.

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.

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<PAGE> 168

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

Cumulative total return represents the simple change in value of our
investment over a stated period and may be quoted as a percentage or as a
dollar amount. Total returns and cumulative total returns may be broken down
into their components of income and capital (including capital gains and
changes in share price) in order to illustrate the relationship between these
factors and their contributions to total return.

The Fund's performance figures are based upon historical results and do
not represent future 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 a dealer or other
financial services firm would reduce the returns described in this section.

COMPARISONS

(1) U.S. TREASURY BILLS, NOTES, OR BONDS
Investors may also wish to compare the performance of the Fund to that of
United States Treasury bills, notes, or bonds, which are issued by the U.S.
government, because such instruments represent alternative income producing
products. Treasury obligations are issued in selected denominations. Rates of
Treasury obligations are fixed at the time of issuance and payment of principal
and interest is backed by the full faith and credit of the United States
Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity.

(4) LIPPER ANALYTICAL SERVICES, INC. ("LIPPER") AND OTHER INDEPENDENT RANKING
ORGANIZATIONS
From time to time, in marketing and other fund literature, the Fund's
performance may be compared to the performance of other mutual funds in general
or to the performance of particular types of mutual funds, with similar
investment goals, as tracked by independent organizations. Among these
organizations, Lipper, a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets, may be
cited. Lipper performance figures are based on changes in net asset value,
with all income and capital gain dividends reinvested. Such calculations do
not include the effect of any sales charges imposed by other funds. The Fund
will be compared to Lipper's appropriate fund category, that is, by fund
objective and portfolio holdings.

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<PAGE> 169

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

(6) VARDS REPORT
The Fund's performance may also be compared to the performance of other
variable annuity products in general or to the performance of particular types
of variable annuity products, with similar investment goals, as tracked by the
VARDS Report (Variable Annuity Research and Data Service Report) produced by
Financial Planning Resources, Inc. The VARDS Report is a monthly performance
analysis of the variable annuity industry.

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

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

(a) The Consumer Price Index
(b) Dow Jones Average of 30 Industrials
(c) Standard & Poor's 500 Stock Index
(d) NASDAQ Over-the-Counter Composite Index
(e) Russell 2000 Small Stock Index
(f) Russell 3000 Stock Index
(g) Salomon Brothers 3-month Treasury Bill Index
(h) Salomon Brothers Broad Investment-Grade Bond Index
(i) Lehman Brothers Aggregate Bond Index
(j) Lehman Brothers Intermediate Government/Corporate Bond Index
(k) A blended index consisting of: Standard & Poor's 500 Stock
Index (40% weighted), Salomon Brothers Broad Investment Grade
Bond Index (40% weighted), and Salomon Brothers 3-Month
Treasury Bill Index (20% weighted).

There are differences and similarities between the investments that the
Fund may purchase and the investments measured by the indices which are noted
herein.

(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. 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.

(10) STRONG VARIABLE INSURANCE FUNDS
The Strong Variable Insurance Funds offer a range of investment
options. All of the members of the Strong Variable Insurance Funds and their
investment objectives are listed below. The Funds are listed in ascending order
of risk and return, as determined by the Funds' Advisor.

The Advisor also serves as advisor to the Strong Family of Funds, which
is a retail fund complex composed of 23 open-end management investment
companies.

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<PAGE> 170

ADDITIONAL FUND INFORMATION

(1) PORTFOLIO CHARACTERISTICS

(2) MEASURES OF VOLATILITY AND RELATIVE PERFORMANCE

Occasionally statistics may be used to specify Fund volatility or risk.
The general premise is that greater volatility connotes greater risk undertaken
in achieving performance. Measures of volatility or risk are generally used to
compare the Fund's net asset value or performance relative to a market index.
One measure of volatility is beta. Beta is the volatility of a fund relative
to the total market as represented by the Standard & Poor's 500 Stock Index. A
beta of more than 1.00 indicates volatility greater than the market, and a beta
of less than 1.00 indicates volatility less than the market. Another measure
of volatility or risk is standard deviation. Standard deviation is a
statistical tool that measures the degree to which a fund's performance has
varied from its average performance during a particular time period.

Standard deviation is calculated using the following formula:

2
Standard deviation = the square root of +(x - x )
i m
-------------
n-1
where + = "the sum of",

x = each individual return during the time period,
i

x = the average return over the time period, and
m

n = the number of individual returns during the time period.

Statistics may also be used to discuss a Fund's relative performance. One
such measure is alpha. Alpha measures the actual return of a fund compared to
the expected return of a fund given its risk (as measured by beta). The
expected return is based on how the market as a whole performed, and how the
particular fund has historically performed against the market. Specifically,
alpha is the actual return less the expected return. The expected return is
computed by multiplying the advance or decline in a market representation by
the fund's beta. A positive alpha quantifies the value that the fund manager
has added, and a negative alpha quantifies the value that the fund manager has
lost.

Other measures of volatility and relative performance may be used as
appropriate. However, all such measures will fluctuate and do not represent
future results.
GENERAL INFORMATION

BUSINESS PHILOSOPHY

The Advisor is an independent, Midwestern-based investment advisor, owned
by professionals active in its management. Recognizing that investors are the
focus of its business, the Advisor strives for excellence both in investment
management and in the service provided to investors. This commitment affects
many aspects of the business, including professional staffing, product
development, investment management, and service delivery. Through its
commitment to excellence, the Advisor intends to benefit investors and to
encourage them to think of Strong Funds as their mutual fund family.

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<PAGE> 171

INVESTMENT ENVIRONMENT

Discussions of economic, social, and political conditions and their impact
on the Fund may be used in advertisements and sales materials. Such factors
that may impact the Fund include, but are not limited to, changes in interest
rates, political developments, the competitive environment, consumer behavior,
industry trends, technological advances, macroeconomic trends, and the supply
and demand of various financial instruments. In addition, marketing materials
may cite the portfolio management's views or interpretations of such factors.

EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING

These common sense rules are followed by many successful investors. They
make sense for beginners, too. If you have a question on these principles, or
would like to discuss them with us, please contact us at 1-800-368-3863.

1. Have a plan - even a simple plan can help you take control of your
financial future. Review your plan once a year, or if your circumstances
change.

2. Start investing as soon as possible. Make time a valuable ally. Let it put
the power of compounding to work for you, while helping to reduce your
potential investment risk.

3. Diversify your portfolio. By investing in different asset classes -
stocks, bonds, and cash - you help protect against poor performance in one
type of investment while including investments most likely to help you
achieve your important goals.

4. Invest regularly. Investing is a process, not a one-time event. Make a
habit of investing. And make it easy for yourself with an "automatic
investment plan." This popular strategy not only helps you manage
investment risk, it also ensures you "pay yourself first" on a regular
basis.

5. Maintain a long-term perspective. For most individuals, the best
discipline is staying invested as market conditions change. Reactive,
emotional investment decisions are all too often a source of regret - and
principal loss.

6. Consider stocks to help achieve major long-term goals. Over time, stocks
have provided the more powerful returns needed to help the value of your
investments stay well ahead of inflation.

7. Keep a comfortable amount of cash in your portfolio. To meet current
needs, including emergencies, use a money market fund or a bank account -
not your long-term investment assets.

8. Know what you're buying. Make sure you understand the potential risks and
rewards associated with each of your investments. Ask questions...request
information...make up your own mind. And choose a fund company that helps
you make informed investment decisions.

PORTFOLIO MANAGEMENT

The Advisor believes that active management is the best way to achieve the
Fund's objective. This policy is based on the fundamental belief that economic
and financial conditions create favorable and unfavorable investment periods
(or seasons) and that these different seasons require different investment
approaches. During favorable investment periods, the Fund seeks to generate
real (inflation plus) growth, and its portfolio may be more heavily weighted in
equities. During uncertain periods, income and capital preservation may be
emphasized, and the Fund's portfolio may be more heavily weighted in bonds or
short-term securities. Through their understanding and willingness to change
with investment cycles or periods, the co-managers of the Fund seek to achieve
the Fund's objectives throughout the seasons of investment.

The Fund's co-managers intend to employ an investment strategy which will
permit it to participate in a rising market in equities with less risk and
volatility and more income than a fund which concentrates its investments in
stocks. On the other

35
<PAGE> 172

hand, since the Fund's portfolio will generally have significant holdings in
equities, it will be subject to greater volatility and produce less income than
a fund which concentrates its investments solely in bonds or money market
instruments.

In allocating the Fund's assets among equities, bonds, and short-term
securities, the team's lead portfolio manager will employ top-down fundamental
analysis in evaluating the attractiveness of the three asset components on the
basis of economic trends such as inflation, growth of corporate profits and
Federal Reserve Board policies in conjunction with measures of market valuation
such as price-earnings ratios, dividend yields and real interest rates. The
relative weights of the Fund's three asset components are adjusted gradually,
perhaps as often as several times a year, rather than making dramatic
reallocations in anticipation of a major shift in the attractiveness of one
asset category over another. Therefore, the Fund should be viewed as a
long-term investment suitable for investors with an investment horizon of five
years or more. In light of the nature of the Fund and its long-term investment
horizon, it may be most appropriate for persons attempting to achieve long-term
goals such as accumulating funds for retirement, college tuition or a better
life for one's family.

Each portfolio manager works with a team of analysts, traders, and
administrative personnel. From time to time, marketing materials may discuss
various members of the team, including their education, investment experience,
and other credentials.

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.

36
<PAGE> 173

APPENDIX

BOND RATINGS

STANDARD & POOR'S DEBT RATINGS

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

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

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

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

2. Nature of and provisions of the obligation.

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.

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> 174

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.

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

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

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

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

MOODY'S LONG-TERM DEBT RATINGS

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.

A-2
<PAGE> 175

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 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.

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> 176

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

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

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

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

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

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

DUFF & PHELPS, INC. LONG-TERM DEBT RATINGS

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

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

A-4
<PAGE> 177

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

AAA Highest credit quality. The risk factors are negligible, being only slightly more
than for risk-free U.S. Treasury debt.
- -----------------------------------------------------------------------------------------------------------
AA+ High credit quality. Protection factors are strong. Risk is modest, but may
AA vary slightly from time to time because of economic conditions.
AA-
- -----------------------------------------------------------------------------------------------------------
A+ Protection factors are average but adequate. However, risk factors are more
A variable and greater in periods of economic stress.
A-
- -----------------------------------------------------------------------------------------------------------
BBB+ Below average protection factors but still considered sufficient for prudent
BBB investment. Considerable variability in risk during economic cycles.
BBB-
- -----------------------------------------------------------------------------------------------------------
BB+ Below investment grade but deemed likely to meet obligations when due.
BB Present or prospective financial protection factors fluctuate according to
BB- industry conditions or company fortunes. Overall quality may move up or
down frequently within this category.
- -----------------------------------------------------------------------------------------------------------
B+ Below investment grade and possessing risk that obligations will not be met
B when due. Financial protection factors will fluctuate widely according to
B- economic cycles, industry conditions and/or company fortunes. Potential
exists for frequent changes in the rating within this category or into a higher
or lower rating grade.
- -----------------------------------------------------------------------------------------------------------
CCC Well below investment grade securities. Considerable uncertainty exists as to
timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
- -----------------------------------------------------------------------------------------------------------
DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP Preferred stock with dividend arrearages.
- -----------------------------------------------------------------------------------------------------------
</TABLE>

A-5
<PAGE> 178

SHORT-TERM RATINGS

STANDARD & POOR'S COMMERCIAL PAPER RATINGS

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

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

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

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

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

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

D Debt rated 'D' is in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.

MOODY'S COMMERCIAL PAPER RATINGS

Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations
are exempt from registration under the Securities Act of 1933, nor does it
represent that any specific note is a valid obligation of a rated issuer or
issued in conformity with any applicable law. Moody's employs the following
three designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:

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

A-6
<PAGE> 179

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

FITCH INVESTORS SERVICE, INC. SHORT-TERM RATINGS

Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.

The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.

F-1+ (Exceptionally Strong Credit Quality) Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.

F-1 (Very Strong Credit Quality) Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated 'F-1+'.

F-2 (Good Credit Quality) Issues assigned this rating have a
satisfactory degree of assurance for timely payment but the margin
of safety is not as great as for issues assigned 'F-1+' and 'F-1'
ratings.

F-3 (Fair Credit Quality) Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely
payment is adequate, however, near-term adverse changes could cause
these securities to be rated below investment grade.

F-S (Weak Credit Quality) Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial
and economic conditions.

D (Default) Issues assigned this rating are in actual or imminent
payment default.

LOC The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.

DUFF & PHELPS, INC. SHORT-TERM DEBT RATINGS

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

A-7
<PAGE> 180

Rating Scale: Definition

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

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

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

Good Grade

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

Satisfactory Grade

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

Non-investment Grade

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

Default

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

A-8
<PAGE> 181

STATEMENT OF ADDITIONAL INFORMATION

STRONG GOVERNMENT SECURITIES FUND II
P.O. Box 2936
Milwaukee, Wisconsin 53201
Telephone: 1-414-359-1400
Toll-Free: 1-800-368-3863

Strong Government Securities Fund II (the "Fund") is a diversified
series of the Strong Variable Insurance Funds, Inc. (the "Corporation"), an
open-end management investment company designed to provide an investment
vehicle for variable annuity and variable life insurance contracts of certain
insurance companies. Shares in the Fund are only offered and sold to the
separate accounts of such insurance companies. The Fund is described herein
and in the Prospectus for the Fund dated July 14, 1995.

This Statement of Additional Information is dated July 14, 1995.
<PAGE> 182

STRONG GOVERNMENT SECURITIES FUND II
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Short Sales Against the Box . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Lending of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Mortgage- and Asset-Backed Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
When-Issued Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Illiquid Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Variable- or Floating-Rate Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Temporary Defensive Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
DIRECTORS AND OFFICERS OF THE CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
INVESTMENT ADVISOR AND DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ADMINISTRATIVE SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
FUND ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PORTFOLIO MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
LEGAL COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
- ------------------------------
</TABLE>

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

2
<PAGE> 183

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).

3
<PAGE> 184

The following are the Fund's non-fundamental operating policies which may be
changed by the Board of Directors of the Corporation without shareholder
approval.

The Fund may not:

1. Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short,
or unless it covers such short sale as required by the current rules
and positions of the Securities and Exchange Commission or its staff,
and provided that transactions in options, futures contracts, options
on futures contracts, or other derivative instruments are not deemed
to constitute selling securities short.

2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions;
and provided that margin deposits in connection with futures
contracts, options on futures contracts, or other derivative
instruments shall not constitute purchasing securities on margin.

3. Invest in illiquid securities if, as a result of such investment, more
than 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.

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.

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.

4
<PAGE> 185

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.

INVESTMENT POLICIES AND TECHNIQUES

DERIVATIVE INSTRUMENTS

5
<PAGE> 186

For a discussion of the federal income tax treatment of the Fund's
derivative instruments, see "Taxes -- Derivative Instruments" below.

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.

The foregoing limitations are not fundamental policies of the Fund and
may be changed by the Corporation's Board of Directors without shareholder
approval as regulatory agencies permit.

6
<PAGE> 187

OPTIONS. The Fund may also purchase and write put and call options on
securities and enter into closing transactions with respect to such options to
terminate an existing position. The purchase of call options serves as a long
hedge, and the purchase of put options serves as a short hedge. Writing put or
call options can enable 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 over-the-counter ("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.

7
<PAGE> 188

SPREAD TRANSACTIONS. The Fund may purchase covered spread options.
Such covered spread options are not presently exchange-listed or
exchange-traded. The purchase of a spread option gives the Fund the right
to put, or sell, a security that it owns at a fixed dollar spread or fixed
yield spread in relationship to another security that the Fund does not own,
but which is used as a benchmark. The risk to the Fund in purchasing covered
spread options is the cost of the premium paid for the spread option and any
transaction costs. In addition, there is no assurance that closing
transactions will be available. 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.

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<PAGE> 189

SHORT SALES AGAINST THE BOX

LENDING OF PORTFOLIO SECURITIES

9
<PAGE> 190

such lending. In determining whether to lend securities to a particular
broker-dealer or institutional investor, the Advisor will consider, and during
the period of the loan will monitor, all relevant facts and circumstances,
including the creditworthiness of the borrower. The Fund will retain authority
to terminate any loans at any time. The Fund may pay reasonable administrative
and custodial fees in connection with a loan and may pay a negotiated portion
of the interest earned on the cash or money market instruments held as
collateral to the borrower or placing broker. The Fund will receive reasonable
interest on the loan or a flat fee from the borrower and amounts equivalent to
any dividends, interest or other distributions on the securities loaned. The
Fund will retain record ownership of loaned securities to exercise beneficial
rights, such as voting and subscription rights and rights to dividends,
interest or other distributions, when retaining such rights is considered to be
in the Fund's interest.

WARRANTS

MORTGAGE- AND ASSET-BACKED SECURITIES

10
<PAGE> 191

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.

WHEN-ISSUED 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). The Board of Directors of the Corporation, or its delegate, has the
ultimate authority to determine, to the extent permissible under the federal
securities laws, which securities are illiquid for purposes of this limitation.
Certain securities exempt from registration or issued in transactions exempt
from registration under the Securities Act of 1933, as amended (the "Securities
Act"), including securities that may be resold pursuant to Rule 144A under the
Securities Act, may be considered liquid. The Board of Directors has delegated
to Strong Capital Management, Inc. (the "Advisor") the day-to-day determination
of the liquidity of a security, although it has retained oversight and
ultimate responsibility for such determinations. Although no definitive
liquidity criteria are used, the Corporation's Board of Directors has directed
the Advisor to look to such factors as (i) the nature of the market for a
security (including the institutional private resale market), (ii) the terms of
certain securities or other instruments allowing for the disposition to a third
party or the issuer thereof (e.g., certain repurchase obligations and demand
instruments), (iii) the availability of market quotations (e.g., for securities
quoted in PORTAL system), and (iv) other permissible relevant factors.

11
<PAGE> 192

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.

Notwithstanding the above, the Advisor intends, as a matter of
internal policy, to limit the Fund's investments in illiquid securities to 10%
of its net assets.

REPURCHASE AGREEMENTS

BORROWING

VARIABLE- OR FLOATING-RATE SECURITIES

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<PAGE> 193

demand obligation is based on a known lending rate, such as a bank's prime
rate, and is adjusted automatically each time such rate is adjusted. The
interest rate on a variable-rate demand obligation is adjusted automatically at
specified intervals. Frequently, such obligations are secured by letters of
credit or other credit support arrangements provided by banks. Because these
obligations are direct lending arrangements between the lender and borrower, it
is not contemplated that such instruments will generally be traded. There
generally is not an established secondary market for these obligations,
although they are redeemable at face value. Accordingly, where these
obligations are not secured by letters of credit or other credit support
arrangements, the Fund's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. Such obligations frequently
are not rated by credit rating agencies and, if not so rated, the Fund may
invest in them only if the Fund's Advisor determines that at the time of
investment the obligations are of comparable quality to the other obligations
in which the Fund may invest. The Advisor, on behalf of the Fund, will consider
on an ongoing basis the creditworthiness of the issuers of the floating- and
variable-rate demand obligations in the Fund's portfolio.

TEMPORARY DEFENSIVE POSITION

DIRECTORS AND OFFICERS OF THE CORPORATION

Directors and officers of the Corporation, together with information
as to their principal business occupations during the past 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 positions with the following registered investment
companies: Strong Advantage Fund, Inc.; Strong American Utilities Fund, Inc.;
Strong Asia Pacific Fund, Inc.; Strong Asset Allocation Fund, Inc.; Strong
Common Stock Fund, Inc.; Strong Corporate Bond Fund, Inc.; Strong Discovery
Fund, Inc.; Strong Government Securities Fund, Inc.; Strong Growth Fund, Inc.;
Strong Heritage Reserve Series, Inc.; Strong High-Yield Municipal Bond Fund,
Inc.; Strong Insured Municipal Bond Fund, Inc.; Strong International Bond Fund,
Inc.; Strong International Stock Fund, Inc.; Strong Money Market Fund, Inc.;
Strong Municipal Bond Fund, Inc.; Strong Municipal Money Market Fund, Inc.;
Strong Opportunity Fund, Inc.; Strong Short-Term Bond Fund, Inc.; Strong
Short-Term Global Bond Fund, Inc.; Strong Short-Term Municipal Bond Fund, Inc.;
Strong Special Fund II, Inc.; Strong Total Return Fund, Inc.; and Strong U.S.
Treasury Money Market Fund, Inc. (collectively, the "Strong Funds").

13
<PAGE> 194

*Richard S. Strong (DOB 5/12/42), Chairman of the Board and Director
of the Corporation.

Marvin E. Nevins (DOB 7/9/18), Director of the Corporation.

Willie D. Davis (DOB 7/24/34), Director of the Corporation.

*John Dragisic (DOB 11/26/40), Vice Chairman and Director of the
Corporation.

Stanley Kritzik (DOB 1/9/30), Director of the Corporation.

14
<PAGE> 195

William F. Vogt (DOB 7/19/47), Director of the Corporation.

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

Thomas P. Lemke (DOB 7/30/54), Vice President of the Corporation.

Ann E. Oglanian (DOB 12/7/61), Secretary of the Corporation.

Ms. Oglanian has been an Associate Counsel of the Advisor since
January 1992. Ms. Oglanian acted as Associate Counsel for the Chicago- based
investment management firm, Kemper Financial Services, Inc.; from June 1988
until December 1991. Ms. Oglanian has been the Secretary of the Corporation
since May 1994.

Ronald A. Neville (DOB 5/21/47), C.P.A., Treasurer of the Corporation.

The Strong Funds, a complex of open-end management investment
companies composed of 30 mutual funds, of which the Fund is a part, in the
aggregate, pays each Director who is not a director, officer, or employee of
the Advisor, or any affiliated company (a "disinterested director") an annual
fee of $50,000, plus $100 per Board meeting for each fund. In addition, each
disinterested director is reimbursed by the funds for travel and other expenses
incurred in connection with attendance at such meetings. Other officers and
directors of the funds receive no compensation or expense reimbursement from
the funds.

As of July 14, 1995, the officers and directors of the Corporation
did not own any of the Fund's shares.

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<PAGE> 196

PRINCIPAL SHAREHOLDERS

As of July 14, 1995, no one owned of record and beneficially any shares
of the Fund.

INVESTMENT ADVISOR AND DISTRIBUTOR

The Fund's Advisory Agreement is dated July 10, 1995, 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.
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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<PAGE> 197

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.

17
<PAGE> 198

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).

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.

18
<PAGE> 199

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 seeks to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell securities by the
Fund and another advisory account. In some cases, this procedure could have an
adverse effect on the price or the amount of securities available to the Fund.
In making such allocations between the Fund and other advisory accounts, the
main factors considered by the Advisor are the respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held, and the opinions of the persons responsible for
recommending the investment.

CUSTODIAN

TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT

The Advisor acts as transfer agent and dividend-disbursing agent for
the Fund at no cost.

ADMINISTRATIVE SERVICES

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<PAGE> 200

TAXES

GENERAL

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, or other income
(including gains from options, futures, or forward contracts) derived with
respect to its business of investing in securities ("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 (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% 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.

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.

In addition, the Fund must satisfy the diversification requirements of
Section 817(h) of the Code. In general, for a Fund to meet these investment
diversification requirements, Treasury regulations require that no more than
55% of the total value of the assets of the Fund may be represented by any one
investment, no more than 70% by two investments, no more than 80% by three
investments and no more than 90% by four investments. Generally, for purposes
of the regulations, all securities of the same issuer are treated as a single
investment. With respect to the United States Government securities (including
any security that is issued, guaranteed or insured by the United States or an
instrumentality of the United States), each governmental agency or
instrumentality is treated as a separate issuer. Compliance with the
regulations is tested on the last day of each calendar year quarter. There is
a 30-day period after the end of each calendar year quarter in which to cure
any non-compliance with these requirements.

DERIVATIVE INSTRUMENTS

The use of derivatives strategies, such as purchasing and selling
(writing) options and futures, 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. Income from transactions in
options and futures derived by the Fund with respect to its business of
investing in securities will qualify as permissible income under the Income
Requirement. However, income from the disposition of options and futures will
be subject to the 30% Limitation if they are held for less than three months.
Income from the disposition of options and futures 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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<PAGE> 201

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 and
futures 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.

DETERMINATION OF NET ASSET VALUE

FUND ORGANIZATION

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<PAGE> 202

contracts the opportunity to instruct them as to how shares allocable to their
contracts will be voted with respect to certain matters, such as approval of
changes to the investment advisory agreement. 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 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 or more than sixty days notice of the special meeting.

PERFORMANCE INFORMATION

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<PAGE> 203

YIELD

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

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

DISTRIBUTION RATE

AVERAGE ANNUAL TOTAL RETURN

TOTAL RETURN

CUMULATIVE TOTAL RETURN

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<PAGE> 204

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.

COMPARISONS

24
<PAGE> 205

Sources for Fund performance information and articles about the Fund may
include publications such as Money, Forbes, Kiplinger's, Smart Money,
Morningstar, Inc., Financial World, Business Week, U.S. News and World Report,
The Wall Street Journal, Barron's, and a variety of investment newsletters.

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.

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

(a) The Consumer Price Index
(b) Merrill Lynch 91 Day Treasury Bill Index
(c) Merrill Lynch Government/Corporate 1-3 Year Index
(d) IBC/Donoghue's Taxable Money Fund 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
(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

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<PAGE> 206

There are important differences between each of these investments that should
be considered in viewing any such comparison. The market value of stocks will
fluctuate with market conditions, and small-stock prices generally will
fluctuate more than large-stock prices. Bond prices generally will fluctuate
inversely with interest rates and other market conditions, and the prices of
bonds with longer maturities generally will fluctuate more than those of
shorter-maturity bonds. Interest rates for bonds may be fixed at the time of
issuance, and payment of principal and interest may be guaranteed by the issuer
and, in the case of U.S. Treasury obligations, backed by the full faith and
credit of the U.S. Treasury.

The Advisor also serves as advisor to the Strong Family of Funds, which
is a retail fund complex composed of 23 open-end management investment
companies.

ADDITIONAL FUND INFORMATION

(1) DURATION

(2) PORTFOLIO CHARACTERISTICS

(3) MEASURES OF VOLATILITY AND RELATIVE PERFORMANCE

Standard deviation is calculated using the following formula:
2
Standard deviation = the square root of +(x - x )
i m
----------
n-1
where + = "the sum of",

x = each individual return during the time period,
i

x = the average return over the time period, and
m

n = the number of individual returns during the time period.

Statistics may also be used to discuss a Fund's relative performance.
One such measure is alpha. Alpha measures the actual return of a fund compared
to the expected return of a fund given its risk (as measured by beta). The
expected return is based on how the market as a whole performed, and how the
particular fund has historically performed against the market. Specifically,
alpha is the actual return less the expected return. The expected return is
computed by multiplying the advance or decline in a market representation by
the fund's beta. A positive alpha quantifies the value that the fund manager
has added, and a negative alpha quantifies the value that the fund manager has
lost.

Other measures of volatility and relative performance may be used as
appropriate. However, all such measures will fluctuate and do not represent
future results.

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<PAGE> 207

GENERAL INFORMATION

BUSINESS PHILOSOPHY

INVESTMENT ENVIRONMENT

EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING

These common sense rules are followed by many successful investors.
They make sense for beginners, too. If you have a question on these principles,
or would like to discuss them with us, please contact us at 1-800-368-3863.

1. Have a plan - even a simple plan can help you take control of your
financial future. Review your plan once a year, or if your circumstances
change.

2. Start investing as soon as possible. Make time a valuable ally. Let it put
the power of compounding to work for you, while helping to reduce your
potential investment risk.

3. Diversify your portfolio. By investing in different asset classes - stocks,
bonds, and cash - you help protect against poor performance in one type of
investment while including investments most likely to help you achieve your
important goals.

4. Invest regularly. Investing is a process, not a one-time event. Make a
habit of investing. And make it easy for yourself with an "automatic
investment plan." This popular strategy not only helps you manage
investment risk, it also ensures you "pay yourself first" on a regular
basis.

5. Maintain a long-term perspective. For most individuals, the best discipline
is staying invested as market conditions change. Reactive, emotional
investment decisions are all too often a source of regret - and principal
loss.

6. Consider stocks to help achieve major long-term goals. Over time, stocks
have provided the more powerful returns needed to help the value of your
investments stay well ahead of inflation.

7. Keep a comfortable amount of cash in your portfolio. To meet current needs,
including emergencies, use a money market fund or a bank account - not your
long-term investment assets.

8. Know what you're buying. Make sure you understand the potential risks and
rewards associated with each of your investments. Ask questions... request
information...make up your own mind. And choose a fund company that helps
you make informed investment decisions.

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<PAGE> 208

PORTFOLIO MANAGEMENT

The Advisor's investment philosophy includes the following basic beliefs:
1. Active management pursued by a team with a uniform discipline across the
fixed income spectrum can produce results that are superior to those
produced through passive management.
2. Controlling risk by making only moderate deviations from the defined
benchmark is the cornerstone of successful fixed income investing.
3. Successful fixed income management is best pursued on a top-down basis
utilizing fundamental techniques.

1. Duration. Each Fund's portfolio duration is managed within a range
relative to its respective benchmark.
2. Yield Curve. Modest overweights and underweights along the yield curve are
made to benefit from changes in the yield curve's shape.
3. Sector/Quality. Sector weightings are generally maintained between zero
and two times those of the benchmark.
4. Security Selection. Quantitative analysis drives issue selection in the
Treasury and mortgage marketplace. Proactive credit research drives
corporate issue selection.

Risk control is pursued at three levels:

1. Portfolio structure. In structuring the portfolio, the Advisor carefully
considers such factors as position sizes, duration, benchmark
characteristics, and the use of illiquid securities.
2. Credit research. Proactive credit research is used to identify issues which
the Advisor believes will be candidates for credit upgrade. This research
includes visiting company management, establishing appropriate values for
credit ratings, and monitoring yield spread relationships.
3. Portfolio monitoring. Portfolio fundamentals are re-evaluated continuously,
and buy/sell targets are established and generally adhered to.

INDEPENDENT ACCOUNTANTS

LEGAL COUNSEL

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

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<PAGE> 209

APPENDIX

BOND RATINGS

STANDARD & POOR'S DEBT RATINGS

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, 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.

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-1
<PAGE> 210

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

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

MOODY'S LONG-TERM DEBT RATINGS

A-2
<PAGE> 211

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 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.

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> 212

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

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

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

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

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

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

DUFF & PHELPS, INC. LONG-TERM DEBT RATINGS

A-4
<PAGE> 213

<TABLE>
<CAPTION>
RATING SCALE DEFINITION
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
AAA Highest credit quality. The risk factors are negligible, being only slightly more
than for risk-free U.S. Treasury debt.
- ---------------------------------------------------------------------------------------------------------------------------

AA+ High credit quality. Protection factors are strong. Risk is modest, but may
AA vary slightly from time to time because of economic conditions.
AA-
- ---------------------------------------------------------------------------------------------------------------------------
A+ Protection factors are average but adequate. However, risk factors are more
A variable and greater in periods of economic stress.
A-
- ---------------------------------------------------------------------------------------------------------------------------
BBB+ Below average protection factors but still considered sufficient for prudent
BBB investment. Considerable variability in risk during economic cycles.
BBB-
- ---------------------------------------------------------------------------------------------------------------------------
BB+ Below investment grade but deemed likely to meet obligations when due.
BB Present or prospective financial protection factors fluctuate according to
BB- industry conditions or company fortunes. Overall quality may move up or
down frequently within this category.
- ---------------------------------------------------------------------------------------------------------------------------
B+ Below investment grade and possessing risk that obligations will not be met
B when due. Financial protection factors will fluctuate widely according to
B- economic cycles, industry conditions and/or company fortunes. Potential
exists for frequent changes in the rating within this category or into a higher
or lower rating grade.
- ---------------------------------------------------------------------------------------------------------------------------
CCC Well below investment grade securities. Considerable uncertainty exists as to timely payment of
principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
- ---------------------------------------------------------------------------------------------------------------------------
DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP Preferred stock with dividend arrearages.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

A-5
<PAGE> 214

SHORT-TERM RATINGS

STANDARD & POOR'S COMMERCIAL PAPER RATINGS

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

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

A-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'.

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

The following criteria will be used in making the assessment:

Amortization schedule - the larger the final maturity relative
to other maturities, the more likely the issue is to be
treated as a note.

Source of payment - the more the issue depends on the market
for its refinancing, the more likely it is to be considered a
note.

The note rating symbols and definitions are as follows:

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

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

SP-3 Speculative capacity to pay principal and interest.

A-6
<PAGE> 215

MOODY'S COMMERCIAL PAPER RATINGS

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

FITCH INVESTORS SERVICE, INC. SHORT-TERM RATINGS

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.

A-7
<PAGE> 216

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.

MOODY'S NOTE RATINGS

MIG 2/VMIG 2 This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

SG This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.

DUFF & PHELPS, INC. SHORT-TERM DEBT RATINGS

Rating Scale: Definition

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

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

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

A-8
<PAGE> 217

Good Grade

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

Satisfactory Grade

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

Non-investment Grade

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

Default

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

A-9
<PAGE> 218

STATEMENT OF ADDITIONAL INFORMATION

STRONG GROWTH FUND II
P.O. Box 2936
Milwaukee, Wisconsin 53201
Telephone: 1-414-359-1400
Toll-Free: 1-800-368-3863

Strong Growth Fund II (the "Fund") is a diversified series of the
Strong Variable Insurance Funds, Inc. (the "Corporation"), an open-end
management investment company designed to provide an investment vehicle for
variable annuity and variable life insurance contracts of certain insurance
companies. Shares in the Fund are only offered and sold to the separate
accounts of such insurance companies. The Fund is described herein and in the
Prospectus for the Fund dated July 14, 1995.

This Statement of Additional Information is dated July 14, 1995.

<PAGE> 219

STRONG GROWTH FUND II

<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Short Sales Against the Box . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Lending of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Debt Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
High-Yield (High-Risk) Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Zero-Coupon, Step-Coupon and Pay-in-Kind Securities . . . . . . . . . . . . . . . . . . . . . 14
Mortgage- and Asset-Backed Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
When-Issued Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Illiquid Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Depositary Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Foreign Investment Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Mortgage Dollar Rolls and Reverse Repurchase Agreements . . . . . . . . . . . . . . . . . . . 17
DIRECTORS AND OFFICERS OF THE CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
INVESTMENT ADVISOR AND DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ADMINISTRATIVE SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
FUND ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
PORTFOLIO MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
LEGAL COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
STATEMENT OF ASSETS AND LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>

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

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

2
<PAGE> 220

INVESTMENT RESTRICTIONS

The investment objective of the Fund is to seek capital growth. 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).

3
<PAGE> 221

The following are the Fund's non-fundamental operating policies which may be
changed by the Board of Directors of the Corporation without shareholder
approval.

The Fund may not:

1. Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short,
or unless it covers such short sale as required by the current rules
and positions of the Securities and Exchange Commission or its staff,
and provided that transactions in options, futures contracts, options
on futures contracts, or other derivative instruments are not deemed
to constitute selling securities short.

2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions;
and provided that margin deposits in connection with futures
contracts, options on futures contracts, or other derivative
instruments shall not constitute purchasing securities on margin.

3. Invest in illiquid securities if, as a result of such investment, more
than 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.

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.

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.

4
<PAGE> 222

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.

INVESTMENT POLICIES AND TECHNIQUES

DERIVATIVE INSTRUMENTS

GENERAL DESCRIPTION. As discussed in the Prospectus, the Advisor may
use a variety of derivative instruments, including options, futures contracts
(sometimes referred to as "futures"), options on futures contracts, and forward
currency contracts for any lawful purpose, such as to hedge the Fund's
portfolio, risk management, or to attempt to enhance returns.

In addition to the products, strategies and risks described below and
in the Prospectus, the Advisor expects to discover additional derivative
instruments and other hedging techniques. These new opportunities may become
available as the Advisor develops new techniques or as regulatory authorities
broaden the range of permitted transactions. The Advisor may utilize these
opportunities to the extent that they are consistent with the Fund's investment
objective and permitted by the Fund's investment limitations and applicable
regulatory authorities.

5
<PAGE> 223

For a discussion of the federal income tax treatment of the Fund's
derivative instruments, see "Taxes -- Derivative Instruments" below.

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.

The foregoing limitations are not fundamental policies of the Fund and
may be changed by the Corporation's Board of Directors without shareholder
approval as regulatory agencies permit.

6
<PAGE> 224

OPTIONS. The Fund may purchase and write put and call options on
securities, on indices of securities, and foreign currency, 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 over-the-counter ("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. Options that expire unexercised
have no value. Options used by the Fund may include European-style options.
This means that the option is only exercisable at its expiration. This is in
contrast to American-style options which are exercisable at any time prior to
the expiration date of the option.

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
markets in general.

7
<PAGE> 225

SPREAD TRANSACTIONS. 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 enter into futures contracts,
including interest rate, index, and foreign 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 securities prices and currency
exchange rates and sales of futures as an offset against the effect of
expected declines in securities prices and currency exchange rates. The Fund's
futures transactions may be entered into for any lawful purpose such as hedging
purposes, risk management, or to enhance returns. 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
reduce the 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.

A 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 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.
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

8
<PAGE> 226

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.

FOREIGN CURRENCY-RELATED DERIVATIVE STRATEGIES-SPECIAL CONSIDERATIONS.
The Fund may also use options and futures on foreign currencies and forward
currency contracts to hedge against movements in the values of the foreign
currencies in which the Fund's securities are denominated. The Fund may
utilize foreign currency-related derivative instruments for any lawful purposes
such as for bona fide hedging or to seek to enhance returns through exposure to
a particular foreign currency. Such currency hedges can protect against price
movements in a security the Fund owns or intends to acquire that are
attributable to changes in the value of the currency in which it is
denominated. Such hedges do not, however, protect against price movements in
the securities that are attributable to other causes.

9
<PAGE> 227

amounts than those involved in the use of such hedging 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.

The Fund may seek to hedge against changes in the value of a
particular currency by using forward contracts on another foreign currency or a
basket of currencies, the value of which the Advisor believes will have a
positive correlation to the values of the currency being hedged. In addition,
the Fund may use forward currency contracts to shift exposure to foreign
currency fluctuations from one country to another. For example, if the Fund
owns securities denominated in a foreign currency and the Advisor believes that
currency will decline relative to another currency, it might enter into a
forward contract to sell an appropriate amount of the first foreign currency,
with payment to be made in the second foreign currency. Transactions that use
two foreign currencies are sometimes referred to as "cross hedges." Use of
different foreign currency magnifies the risk that movements in the price of
the instrument will not correlate or will correlate unfavorably with the
foreign currency being hedged.

As is the case with futures contracts, holders and writers of
forward currency contracts can enter into offsetting closing transactions,
similar to closing transactions on futures, by selling or purchasing,
respectively, an instrument identical to the instrument held or written.
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 counter party. Thus, there can
be no assurance that the Fund will in fact be able to close out a forward
currency contract at a favorable price prior to maturity. In addition, in the
event of insolvency of the counter party, the Fund might be unable to close out
a forward

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currency contract at any time prior to maturity. In either event,
the Fund would continue to be subject to market risk with respect to the
position, and would continue to be required to maintain a position in
securities denominated in the foreign currency or to maintain cash or
securities in a segregated account.

SHORT SALES AGAINST THE BOX

LENDING OF PORTFOLIO SECURITIES

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 more speculative 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.

DEBT OBLIGATIONS

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The Fund may invest a portion of its assets in debt obligations.
Issuers of debt obligations have a contractual obligation to pay interest at a
specified rate on specified dates and to repay principal on a specified
maturity date. Certain debt obligations (usually intermediate- and long-term
bonds) have provisions that allow the issuer to redeem or "call" a bond before
its maturity. Issuers are most likely to call such securities during periods
of falling 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. 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.

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

HIGH-YIELD (HIGH-RISK) SECURITIES

IN GENERAL. The Fund has the authority to invest up to 5% 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.
("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 of this Statement of Additional Information for a
discussion of securities ratings.

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<PAGE> 230

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.

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

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.

MORTGAGE- AND ASSET-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 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.

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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, is fixed at the time the commitment to
purchase is made, but delivery and payment for the securities take place at a
later date. Normally, the settlement date occurs within one month of the
purchase. During the period between the purchase and settlement, no payment is
made by the Fund to the issuer and no interest on 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. The Fund does not believe that its net asset value or income
will be adversely affected by its purchases of securities on a when-issued
basis.

The Fund will maintain cash and marketable securities equal in value
to commitments for when-issued securities. Such segregated securities either
will mature or, if necessary, be sold on or before the settlement date. When
the time comes to pay for when-issued securities, the Fund will meet its
obligations from then-available cash flow, sale of the securities held in the
separate account, 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).

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). The Board of Directors of the Corporation, or its delegate, has the
ultimate authority to determine, to the extent permissible under the federal
securities laws, which securities are illiquid for purposes of this limitation.
Certain securities exempt from registration or issued in transactions exempt
from registration under the Securities Act of 1933, as amended (the "Securities
Act"), including securities that may be resold pursuant to Rule 144A under the
Securities Act, may be considered liquid. The Corporation's Board of Directors
has delegated to Strong Capital Management, Inc. (the "Advisor") the day-to-day
determination of the liquidity of a security, although it has retained
oversight and ultimate responsibility for such determinations. Although no
definitive liquidity criteria are used, the Board of Directors has directed the
Advisor to look to such factors as (i) the nature of the market for a security
(including the institutional private resale market), (ii) the terms of certain
securities or other instruments allowing for the disposition to a third party
or the issuer thereof (e.g., certain repurchase obligations and demand
instruments), (iii) the availability of market quotations (e.g., for securities
quoted in PORTAL system), and (iv) other permissible relevant factors.

The Fund may sell 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 of
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.

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Notwithstanding the above, the Advisor intends, as a matter of
internal policy, to limit the Fund's investments in illiquid securities to 10%
of its net assets.

DEPOSITARY RECEIPTS

FOREIGN INVESTMENT COMPANIES

Some of the countries in which the Fund invests may not permit direct
investment by outside investors. Investments in such countries may only be
permitted through foreign government-approved or -authorized investment
vehicles, which may include other investment companies. Investing through such
vehicles may involve frequent or layered fees or expenses and may also be
subject to limitation under the 1940 Act. Under the 1940 Act, the Fund may
invest up to 10% of its assets in shares of investment companies and up to 5%
of its assets in any one investment company as long as the investment does not
represent more than 3% of the voting stock of the acquired investment company.

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 the banks and non-bank dealers with which the Fund enters
into repurchase agreements to evaluate those risks. The Fund may, under certain

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<PAGE> 234

circumstances, deem repurchase agreements collateralized by U.S. government
securities to be investments in U.S. government securities.

BORROWING

The Fund may borrow money from banks, limited by the Fund's
fundamental investment restriction to 33 1/3% of its total assets, and may
engage in mortgage dollar roll transactions and reverse repurchase agreements
which may be considered a form of borrowing. (See "Mortgage Dollar Rolls and
Reverse Repurchase Agreements" below.) In addition, the Fund may borrow up to
an additional 5% of its total assets from banks for temporary or emergency
purposes. The Fund will not purchase securities when bank borrowings exceed 5%
of the Fund's total assets.

MORTGAGE DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS

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 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.

DIRECTORS AND OFFICERS OF THE CORPORATION

Directors and officers of the Corporation, together with information
as to their principal business occupations during the past 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 positions with the following registered investment
companies: Strong Advantage Fund, Inc.; Strong American Utilities Fund, Inc.;
Strong Asia Pacific Fund, Inc.; Strong Asset Allocation Fund, Inc.; Strong
Common Stock Fund, Inc.; Strong Corporate Bond Fund, Inc.; Strong Discovery
Fund, Inc.; Strong Government Securities Fund, Inc.; Strong Growth Fund, Inc.;
Strong Heritage Reserve Series, Inc.; Strong High-Yield Municipal Bond Fund,
Inc.; Strong Insured Municipal Bond Fund, Inc.; Strong International Bond Fund,
Inc.; Strong International Stock Fund, Inc.; Strong Money Market Fund, Inc.;
Strong Municipal Bond Fund, Inc.; Strong Municipal Money Market Fund, Inc.;
Strong Opportunity Fund, Inc.; Strong Short-Term Bond Fund, Inc.; Strong
Short-Term Global Bond Fund, Inc.; Strong Short-Term Municipal Bond Fund, Inc.;
Strong Special Fund II, Inc.; Strong Total Return Fund, Inc.; and Strong U.S.
Treasury Money Market Fund, Inc. (collectively, the "Strong Funds").

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*Richard S. Strong (DOB 5/12/42), Chairman of the Board and Director
of the Corporation.

Marvin E. Nevins (DOB 7/9/18), Director of the Corporation.

Willie D. Davis (DOB 7/24/34), Director of the Corporation.

*John Dragisic (DOB 11/26/40), Vice Chairman and Director of the
Corporation.

Mr. Dragisic has been Vice Chairman and a director of the Advisor and
a director of Holdings and Distributor since July 1994. Mr. Dragisic
previously served as a director of the Corporation from 1992 and 1994. Mr.
Dragisic was the President and Chief Executive Officer of Grunau Company, Inc.
(a mechanical contracting and engineering firm), Milwaukee, Wisconsin from 1987
until July 1994. From 1981 to 1987, he was an Executive Vice President with
Grunau Company, Inc. From 1969 until 1973, Mr. Dragisic worked for the
InterAmerican Development Bank. Mr. Dragisic received his Ph.D. in Economics
in 1971 from the University of Wisconsin - Madison and his B.A. degree in
Economics in 1962 from Lake Forest College. Mr. Dragisic has served as Vice
Chairman of the Corporation since July 1994 and director of the Corporation
since April 1995.

Stanley Kritzik (DOB 1/9/30), Director of the Corporation.

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<PAGE> 236

William F. Vogt (DOB 7/19/47), Director of the Corporation.

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

Thomas P. Lemke (DOB 7/30/54), Vice President of the Corporation.

Ann E. Oglanian (DOB 12/7/61), Secretary of the Corporation.

Ronald A. Neville (DOB 5/21/47), C.P.A., Treasurer of the Corporation.

The Strong Funds, a complex of open-end management investment
companies composed of 30 funds (the "funds"), of which the Fund is a part, in
the aggregate, pays each Director who is not a director, officer, or employee
of the Advisor, or any affiliated company (a "disinterested director") an
annual fee of $50,000, plus $100 per Board meeting for each fund. In addition,
each disinterested director is reimbursed by the funds for travel and other
expenses incurred in connection with attendance at such meetings. Other
officers and directors of the funds receive no compensation or expense
reimbursement from the funds.

As of July 14, 1995, the officers and directors of the Corporation did
not own any of the Fund's shares.

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PRINCIPAL SHAREHOLDERS

As of July 14, 1995, no one owned of record and beneficially any
shares of the Fund.

INVESTMENT ADVISOR AND DISTRIBUTOR

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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.

Under a Distribution Agreement dated July 10, 1995 with the Corporation
(the "Distribution Agreement"), Strong Funds Distributors, Inc.
("Distributor"), a subsidiary of the Advisor, acts as underwriter of the Fund's
shares. The Distribution Agreement provides that the Distributor will use its
best efforts to distribute the Fund's shares. Shares are only offered and sold
to the separate accounts of certain insurance companies. Since the Fund is a
"no-load" fund, no sales commissions are charged on the purchase of Fund
shares. Certain sales charges may apply to the variable annuity or life
insurance contract, which should be described in the prospectus of the
insurance company's separate account. 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

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<PAGE> 239

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).

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<PAGE> 240

The Advisor seeks to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell securities by the
Fund and another advisory account. In some cases, this procedure could have an
adverse effect on the price or the amount of securities available to the Fund.
In making such allocations between the Fund and other advisory accounts, the
main factors considered by the Advisor are the respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held, and the opinions of the persons responsible for
recommending the investment.

CUSTODIAN

TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT

The Advisor acts as transfer agent and dividend-disbursing agent for
the Fund at no cost.

ADMINISTRATIVE SERVICES

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TAXES

GENERAL

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% 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.

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.

FOREIGN TRANSACTIONS

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<PAGE> 242

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).

DERIVATIVE INSTRUMENTS

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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.

DETERMINATION OF NET ASSET VALUE

Debt securities are valued by a pricing service that utilizes
electronic data processing techniques to determine values for normal
institutional-sized trading units of debt securities without regard to sale or
bid prices when such values are believed to more accurately reflect the fair
market value for 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 of the Corporation. Debt securities having remaining maturities of
60 days or less when purchased are valued by the amortized cost method when the
Corporation's Board of Directors determines that the fair value of such
securities is their amortized cost. Under this method of valuation, a security
is initially valued at its acquisition cost, and thereafter, amortization of
any discount or premium is assumed each day, regardless of the impact of the
fluctuating rates on the market value of the instrument.

FUND ORGANIZATION

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Corporation currently has six series of common stock outstanding. The
assets belonging to each series of shares is held separately by the custodian,
and in effect each series is a separate fund. All holders of shares of the
Corporation would vote on each matter presented to shareholders for action
except with respect to any matter which affects only one or more series or
classes, in which case only the shares of the affected series or class shall be
entitled to vote. Because of current federal securities law requirements the
Corporation expects that its shareholders will offer to owners of variable
annuity and variable life insurance contracts the opportunity to instruct them
as to how shares allocable to their contracts will be voted with respect to
certain matters, such as approval of changes to the investment advisory
agreement. The Wisconsin Business Corporation Law permits registered
investment companies, such as the series of the Corporation, to operate without
an annual meeting of shareholder 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 with or
without cause, only at a meeting called for the pupose 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.

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 "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

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<PAGE> 245

fees and expenses. Excluding such fees and expenses from the Fund's total
return quotations has the effect of increasing the performance quoted.

AVERAGE ANNUAL TOTAL RETURN

TOTAL RETURN

CUMULATIVE TOTAL RETURN

COMPARISONS

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<PAGE> 246

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

(a) Consumer Price Index
(b) Dow Jones Average of 30 Industrials
(c) NASDAQ Over-the-Counter Composite Index
(d) Standard & Poor's 500 Stock Index
(e) Standard & Poor's 400 Mid-Cap Stock Index
(f) Standard & Poor's 600 Small-Cap Index
(g) Wilshire 4500 Index
(h) Wilshire 5000 Index
(i) Wilshire Small Cap Index
(j) Wilshire Small Cap Growth Index
(k) Wilshire Small Cap Value Index
(l) Wilshire Midcap 750 Index
(m) Wilshire Midcap Growth Index
(n) Wilshire Midcap Value Index
(o) Wilshire Large Cap Growth Index
(p) Russell 1000 Index
(q) Russell 1000 Growth Index
(r) Russell 2000 Index

29
<PAGE> 247

(s) Russell 2000 Small Stock Index
(t) Russell 2000 Growth Index
(u) Russell 2000 Value Index
(v) Russell 2500 Index
(w) Russell 3000 Stock Index
(x) Russell MidCap Index
(y) Russell MidCap Growth Index
(z) Russell MidCap Value Index
(aa) Value Line Index
(bb) Morgan Stanley Capital International EAFE(R) Index (Net
Dividend, Gross Dividend, and Price-Only). In addition, a Fund
may compare its performance to certain other indices that
measure stock market performance in geographic areas in which
the Fund may invest. The market prices and yields of the
stocks in these indexes will fluctuate. A Fund may also
compare its portfolio weighting to the EAFE Index weighting,
which represents the relative capitalization of the major
overseas markets on a dollar-adjusted basis
(cc) Morgan Stanley Capital International World Index

There are differences and similarities between the investments that a
Fund may purchase for its portfolio and the investments measured by these
indicies.

(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. 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.

(10)
STRONG VARIABLE INSURANCE FUNDS
The Strong Variable Insurance Funds offer a range of investment
options. All of the members of the Strong Variable Insurance Funds and their
investment objectives are listed below. The Funds are listed in ascending order
of risk and return, as determined by the Funds' Advisor.

The Advisor also serves as advisor to the Strong Family of Funds, which
is a retail fund complex composed of 23 open-end management investment
companies.

ADDITIONAL FUND INFORMATION

(1) PORTFOLIO CHARACTERISTICS

(2) MEASURES OF VOLATILITY AND RELATIVE PERFORMANCE

30
<PAGE> 248

Standard deviation is calculated using the following formula:

2
Standard deviation = the square root of +(x - x )
i m
--------
n-1
where + = "the sum of",
x = each individual return during the time period,
i
x = the average return over the time period, and
m
n = the number of individual returns during the time period.

Statistics may also be used to discuss a Fund's relative performance.
One such measure is alpha. Alpha measures the actual return of a fund compared
to the expected return of a fund given its risk (as measured by beta). The
expected return is based on how the market as a whole performed, and how the
particular fund has historically performed against the market. Specifically,
alpha is the actual return less the expected return. The expected return is
computed by multiplying the advance or decline in a market representation by
the fund's beta. A positive alpha quantifies the value that the fund manager
has added, and a negative alpha quantifies the value that the fund manager has
lost.

Other measures of volatility and relative performance may be used as
appropriate. However, all such measures will fluctuate and do not represent
future results.
GENERAL INFORMATION

BUSINESS PHILOSOPHY

INVESTMENT ENVIRONMENT

EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING

These common sense rules are followed by many successful investors.
They make sense for beginners, too. If you have a question on these principles,
or would like to discuss them with us, please contact us at 1-800-368-3863.

1. Have a plan - even a simple plan can help you take control of your
financial future. Review your plan once a year, or if your circumstances
change.

2. Start investing as soon as possible. Make time a valuable ally. Let it put
the power of compounding to work for you, while helping to reduce your
potential investment risk.

31
<PAGE> 249

3. Diversify your portfolio. By investing in different asset classes - stocks,
bonds, and cash - you help protect against poor performance in one type of
investment while including investments most likely to help you achieve your
important goals.

4. Invest regularly. Investing is a process, not a one-time event. Make a
habit of investing. And make it easy for yourself with an "automatic
investment plan." This popular strategy not only helps you manage
investment risk, it also ensures you "pay yourself first" on a regular
basis.

5. Maintain a long-term perspective. For most individuals, the best discipline
is staying invested as market conditions change. Reactive, emotional
investment decisions are all too often a source of regret - and principal
loss.

6. Consider stocks to help achieve major long-term goals. Over time, stocks
have provided the more powerful returns needed to help the value of your
investments stay well ahead of inflation.

7. Keep a comfortable amount of cash in your portfolio. To meet current needs,
including emergencies, use a money market fund or a bank account - not your
long-term investment assets.

8. Know what you're buying. Make sure you understand the potential risks and
rewards associated with each of your investments. Ask questions...request
information...make up your own mind. And choose a fund company that helps
you make informed investment decisions.

PORTFOLIO MANAGEMENT

Conventional wisdom often divides fund managers into two schools --
growth and value. Growth-style managers look for companies that exhibit
faster-than-average gains in earnings and profits. Value-style managers
generally concentrate more on the price side of the equation, looking for
companies that are undervalued and selling at a discount to what they believe
is their intrinsic value.

The style of the portfolio manager for the Fund, Mr. Ronald C. Ognar,
leans more toward growth, although he keeps an eye on valuations. The Fund's
core investments tend to be growth stocks at reasonable prices. The Advisor
looks for growth of both sales and earnings. The Advisor believes that, in
general, good growth companies exhibit accelerating sales and earnings, high
return on equity, and, typically, low debt. They offer products or services
that should show strong future growth, and their market share is expanding.
Other characteristics that the Advisor looks for in companies include low cost
production, innovative products, and strong fundamentals versus an index. In
short, they offer some unique, sustainable competitive advantage. However,
the Advisor believes that the key is the management. Mr. Ognar meets
face-to-face with the management of many companies, which helps him get to know
and trust a company and the people in charge of it.

Currently, the Advisor is focusing on some companies that are
undergoing positive change. Oftentimes, a new product, a new technology, or a
change in management can positively affect a company's earnings growth
prospects. Themes also play a part in the investment strategy. Some examples
would be the aging population, telecommunications, and the rapid development of
foreign economies where U.S. companies have strong revenue growth.

The Advisor believes that, in the '90s, growth investors need to have
both large and small companies because core holdings with growing dividends are
usually found in larger companies, but faster growth should continue in medium
and small companies. Therefore, the Advisor utilizes a broad range of equity
market capitalizations.

32
<PAGE> 250

INDEPENDENT ACCOUNTANTS

LEGAL COUNSEL

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

33
<PAGE> 251

APPENDIX

BOND RATINGS

STANDARD & POOR'S DEBT RATINGS

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, 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-1
<PAGE> 252

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

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

MOODY'S LONG-TERM DEBT RATINGS

A-2
<PAGE> 253

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 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.

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> 254

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

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

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

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

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

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

DUFF & PHELPS, INC. LONG-TERM DEBT RATINGS

A-4
<PAGE> 255

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

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> 256

SHORT-TERM RATINGS

STANDARD & POOR'S COMMERCIAL PAPER RATINGS

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

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

A-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'.

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

The following criteria will be used in making the assessment:

Amortization schedule - the larger the final maturity relative
to other maturities, the more likely the issue is to be
treated as a note.

Source of payment - the more the issue depends on the market
for its refinancing, the more likely it is to be considered a
note.

The note rating symbols and definitions are as follows:

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

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

SP-3 Speculative capacity to pay principal and interest.

MOODY'S COMMERCIAL PAPER RATINGS

A-6
<PAGE> 257

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

MOODY'S NOTE RATINGS

MIG 2/VMIG 2 This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

SG This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.

FITCH INVESTORS SERVICE, INC. SHORT-TERM RATINGS

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.

A-7
<PAGE> 258

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

Rating Scale: Definition

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

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

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

A-8
<PAGE> 259

Good Grade

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

Satisfactory Grade

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

Non-investment Grade

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

Default

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

A-9
<PAGE> 260

NOTES
<PAGE> 261

STATEMENT OF ADDITIONAL INFORMATION

STRONG INTERNATIONAL STOCK FUND II
P.O. Box 2936
Milwaukee, Wisconsin 53201
Telephone: 1-414-359-1400
Toll-Free: 1-800-368-3863

Strong International Stock Fund II (the "Fund" ) is a diversified
series of the Strong Variable Insurance Funds, Inc. (the "Corporation" ), an
open-end management investment company designed to provide an investment
vehicle for variable annuity and variable life insurance contracts of certain
insurance companies. Shares in the Fund are only offered and sold to the
separate accounts of such insurance companies. The Fund is described herein
and in the Prospectus for the Fund dated July 14, 1995.
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus for the Fund dated July 14, 1995 and
the prospectus for the separate account of the specific insurance product.
Requests for copies of the Fund's Prospectus may be made by writing to the
Fund, P.O. Box 2936, Milwaukee, Wisconsin 53201, Attention: Corporate
Secretary; or by calling one of the numbers listed above.

This Statement of Additional Information is dated July 14, 1995.

<PAGE> 262

STRONG INTERNATIONAL STOCK FUND II

<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . . . . . . . . . . . . . . . 5
Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Short Sales Against the Box . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Lending of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . 11
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Debt Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
High-Yield (High-Risk) Securities . . . . . . . . . . . . . . . . . . . . . . . . 12
Zero-Coupon, Step-Coupon and Pay-in-Kind Securities . . . . . . . . . . . . . . . 14
Mortgage- and Asset-Backed Securities . . . . . . . . . . . . . . . . . . . . . . 14
When-Issued Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Illiquid Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Depositary Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Foreign Investment Companies . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Mortgage Dollar Rolls and Reverse Repurchase Agreements . . . . . . . . . . . . . 17
DIRECTORS AND OFFICERS OF THE CORPORATION . . . . . . . . . . . . . . . . . . . . . 17
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
INVESTMENT ADVISOR AND DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . 20
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . 21
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT . . . . . . . . . . . . . . . . . . . 23
ADMINISTRATIVE SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . 26
FUND ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
PORTFOLIO MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
LEGAL COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
- ------------------------------
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus dated July 14, 1995 and, if given or made, such
information or representations may not be relied upon as having been authorized
by the Fund.

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

2
<PAGE> 263

INVESTMENT RESTRICTIONS

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).

3
<PAGE> 264

The following are the Fund's non-fundamental operating policies which may be
changed by the Board of Directors of the Corporation without shareholder
approval.

The Fund may not:

1. Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short,
or unless it covers such short sale as required by the current rules
and positions of the Securities and Exchange Commission or its staff,
and provided that transactions in options, futures contracts, options
on futures contracts, or other derivative instruments are not deemed
to constitute selling securities short.

2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions;
and provided that margin deposits in connection with futures
contracts, options on futures contracts, or other derivative
instruments shall not constitute purchasing securities on margin.

3. Invest in illiquid securities if, as a result of such investment, more
than 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.

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.

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.

4
<PAGE> 265

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.

INVESTMENT POLICIES AND TECHNIQUES

DERIVATIVE INSTRUMENTS

GENERAL DESCRIPTION. As discussed in the Prospectus, the Advisor may
use a variety of derivative instruments, including options, futures contracts
(sometimes referred to as "futures"), options on futures contracts, and forward
currency contracts for any lawful purpose, such as to hedge the Fund's
portfolio, risk management, or to attempt to enhance returns.

5
<PAGE> 266

For a discussion of the federal income tax treatment of the Fund's
derivative instruments, see "Taxes -- Derivative Instruments" below.

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.

The foregoing limitations are not fundamental policies of the Fund and
may be changed by the Corporation's Board of Directors without shareholder
approval as regulatory agencies permit.

6
<PAGE> 267

OPTIONS. The Fund may purchase and write put and call options on
securities, on indices of securities, and foreign currency, 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 over-the-counter ("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. Options that expire unexercised have
no value. Options used by the Fund may include European-style options. This
means that the option is only exercisable at its expiration. This is in
contrast to American-style options which are exercisable at any time prior to
the expiration date of the option.

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 markets in general.

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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 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.

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
reduce the 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.

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.
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

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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.

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The Fund may seek to hedge against changes in the value of a
particular currency by using forward contracts on another foreign
currency or a basket of currencies, the value of which the Advisor believes
will have a positive correlation to the values of the currency being hedged.
In addition, the Fund may use forward currency contracts to shift exposure to
foreign currency fluctuations from one country to another. For example, if the
Fund owns securities denominated in a foreign currency and the Advisor believes
that currency will decline relative to another currency, it might enter into a
forward contract to sell an appropriate amount of the first foreign currency,
with payment to be made in the second foreign currency. Transactions that use
two foreign currencies are sometimes referred to as "cross hedges." Use of
different foreign currency magnifies the risk that movements in the price of
the instrument will not correlate or will correlate unfavorably with the
foreign currency being hedged.

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currency contract at any time prior to maturity. In either event,
the Fund would continue to be subject to market risk with respect to the
position, and would continue to be required to maintain a position in
securities denominated in the foreign currency or to maintain cash or
securities in a segregated account.

SHORT SALES AGAINST THE BOX

LENDING OF PORTFOLIO SECURITIES

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 more speculative 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.

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DEBT OBLIGATIONS

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

HIGH-YIELD (HIGH-RISK) SECURITIES

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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.

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

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.

MORTGAGE- AND ASSET-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 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.

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WHEN-ISSUED SECURITIES

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).

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). The Board of Directors of the Corporation, or its delegate, has the
ultimate authority to determine, to the extent permissible under the federal
securities laws, which securities are illiquid for purposes of this limitation.
Certain securities exempt from registration or issued in transactions exempt
from registration under the Securities Act of 1933, as amended (the "Securities
Act"), including securities that may be resold pursuant to Rule 144A under the
Securities Act, may be considered liquid. The Board of Directors has delegated
to Strong Capital Management, Inc. (the "Advisor") the day-to-day determination
of the liquidity of a security, although it has retained oversight and ultimate
responsibility for such determinations. Although no definitive liquidity
criteria are used, the Corporation's Board of Directors has directed the
Advisor to look to such factors as (i) the nature of the market for a security
(including the institutional private resale market), (ii) the terms of certain
securities or other instruments allowing for the disposition to a third party
or the issuer thereof (e.g., certain repurchase obligations and demand
instruments), (iii) the availability of market quotations (e.g., for securities
quoted in PORTAL system), and (iv) other permissible relevant factors.

The Fund may sell 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 of
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.

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Notwithstanding the above, the Advisor intends, as a matter of
internal policy, to limit the Fund's investments in illiquid securities to 10%
of its net assets.

DEPOSITARY RECEIPTS

FOREIGN INVESTMENT COMPANIES

Some of the countries in which the Fund invests may not permit direct
investment by outside investors. Investments in such countries may only be
permitted through foreign government-approved or -authorized investment
vehicles, which may include other investment companies. Investing through such
vehicles may involve frequent or layered fees or expenses and may also be
subject to limitation under the 1940 Act. Under the 1940 Act, the Fund may
invest up to 10% of its assets in shares of investment companies and up to 5%
of its assets in any one investment company as long as the investment does not
represent more than 3% of the voting stock of the acquired investment company.

REPURCHASE AGREEMENTS

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circumstances, deem repurchase agreements collateralized by U.S. government
securities to be investments in U.S. government securities.

BORROWING

The Fund may borrow money from banks, limited by the Fund's
fundamental investment restriction to 33 1/3% of its total assets, and may
engage in mortgage dollar roll transactions and reverse repurchase agreements
which may be considered a form of borrowing. (See "Mortgage Dollar Rolls and
Reverse Repurchase Agreements" below.) In addition, the Fund may borrow up to
an additional 5% of its total assets from banks for temporary or emergency
purposes. The Fund will not purchase securities when bank borrowings exceed 5%
of the Fund's total assets.

MORTGAGE DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS

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 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.

DIRECTORS AND OFFICERS OF THE CORPORATION

Directors and officers of the Corporation, together with information as
to their principal business occupations during the past 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 positions with the following registered investment
companies: Strong Advantage Fund, Inc.; Strong American Utilities Fund, Inc.;
Strong Asia Pacific Fund, Inc.; Strong Asset Allocation Fund, Inc.; Strong
Common Stock Fund, Inc.; Strong Corporate Bond Fund, Inc.; Strong Discovery
Fund, Inc.; Strong Government Securities Fund, Inc.; Strong Growth Fund, Inc.;
Strong Heritage Reserve Series, Inc., Strong High-Yield Municipal Bond Fund,
Inc.; Strong Insured Municipal Bond Fund, Inc.; Strong International Bond Fund,
Inc.; Strong International Stock Fund, Inc.; Strong Money Market Fund, Inc.;
Strong Municipal Bond Fund, Inc.; Strong Municipal Money Market Fund, Inc.;
Strong Opportunity Fund, Inc.; Strong Short-Term Bond Fund, Inc.; Strong
Short-Term Global Bond Fund, Inc.; Strong Short-Term Municipal Bond Fund, Inc.;
Strong Special Fund II, Inc.; Strong Total Return Fund, Inc.; and Strong U.S.
Treasury Money Market Fund, Inc. (collectively, the "Strong Funds").

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*Richard S. Strong (DOB 5/12/42), Chairman of the Board and Director
of the Corporation.

Marvin E. Nevins (DOB 7/9/18), Director of the Corporation.

Willie D. Davis (DOB 7/24/34), Director of the Corporation.

*John Dragisic (DOB 11/26/40), Vice Chairman and Director of the
Corporation.

Stanley Kritzik (DOB 1/9/30), Director of the Corporation.

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William F. Vogt (DOB 7/19/47), Director of the Corporation.

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

Thomas P. Lemke (DOB 7/30/54), Vice President of the Corporation.

Ann E. Oglanian (DOB 12/7/61), Secretary of the Corporation.

Ronald A. Neville (DOB 5/21/47), C.P.A., Treasurer of the Corporation.

The Strong Funds, a complex of open-end management investment
companies composed of 30 funds (the "funds"), of which the Fund is a part, in
the aggregate, pays each Director who is not a director, officer, or employee
of the Advisor, or any affiliated company (a "disinterested director") an
annual fee of $50,000, plus $100 per Board meeting for each fund. In addition,
each disinterested director is reimbursed by the funds for travel and other
expenses incurred in connection with attendance at such meetings. Other
officers and directors of the funds receive no compensation or expense
reimbursement from the funds.

As of July 14, 1995, the officers and directors of the Corporation did
not own any of the Fund's shares.

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PRINCIPAL SHAREHOLDERS
As of July 14, 1995, no one owned of record and beneficially any shares
of the Fund.

INVESTMENT ADVISOR AND DISTRIBUTOR

As compensation for its services, the Fund pays to the Advisor a
monthly management fee at the annual rate of 1.00% 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. Such excess is determined by valuations made as of the close of each
business day of the year, which is the most restrictive percentage provided by
the state laws of the various states in which the Fund's shares are qualified
for sale; or if the states in which the Fund's shares are qualified for sale
impose no restrictions, the Advisor shall reimburse the Fund in the event the
expenses and charges payable by the Fund in any fiscal year (as described
above) exceed 2%. The most restrictive percentage limitation currently
applicable to the Fund is 2.5% of its average daily net assets up to
$30,000,000, 2% on the next $70,000,000 of its average daily net assets and
1.5% of its average daily net assets in excess of $100,000,000. Reimbursement
of

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Under a Distribution Agreement dated July 10, 1995 with the Corporation
(the "Distribution Agreement"), Strong Funds Distributors, Inc.
("Distributor"), a subsidiary of the Advisor, acts as underwriter of the Fund's
shares. The Distribution Agreement provides that the Distributor will use its
best efforts to distribute the Fund's shares. Shares are only offered and sold
to the separate accounts of certain insurance companies. Since the Fund is a
"no-load" fund, no sales commissions are charged on the purchase of Fund
shares. Certain sales charges may apply to the variable annuity or life
insurance contract, which should be described in the prospectus of the
insurance company's separate account. 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

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The Advisor is responsible for selecting brokers in connection with
foreign securities transactions. The fixed commissions paid in connection with
most foreign stock transactions are usually higher than negotiated commissions
on U.S. stock transactions. Foreign stock exchanges and brokers are subject to
less government supervision and regulation as compared with the U.S. exchanges
and brokers. In addition, foreign security settlements may in some instances
be subject to delays and related administrative uncertainties.

The Advisor seeks to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell securities by the
Fund and another advisory account. In some cases, this procedure could have an
adverse effect on the price or the amount of securities available to the Fund.
In making such allocations between the Fund and other advisory accounts, the
main factors considered by the Advisor are the respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held, and the opinions of the persons responsible for
recommending the investment.

CUSTODIAN

As custodian of the Fund's assets, Brown Brothers Harriman & Co., 40
Water Street, Boston, Massachusetts 02109, 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. In
addition, with the approval of the Corporation's Board of Directors and subject
to the rules of the SEC, the Fund will have sub-custodians in those foreign
countries in which their respective assets may be invested. The custodian and,
if applicable, the sub-custodian are in no way responsible for any of the
investment policies or decisions of the Fund.

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TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT

The Advisor acts as transfer agent and dividend-disbursing agent for
the Fund at no cost.

ADMINISTRATIVE SERVICES

TAXES

GENERAL

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% 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.

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.

FOREIGN TRANSACTIONS

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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.

DERIVATIVE INSTRUMENTS

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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.

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.

DETERMINATION OF NET ASSET VALUE

Debt securities are valued by a pricing service that utilizes
electronic data processing techniques to determine values for normal
institutional-sized trading units of debt securities without regard to sale or
bid prices when such values are believed to more accurately reflect the fair
market value for 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 of each Corporation. Debt securities having remaining maturities of
60 days or less when purchased are valued by the amortized cost method when the
Corporation's Board of Directors determines that the fair value of such
securities is their amortized cost. Under this method of valuation, a security
is initially valued at its acquisition cost, and thereafter, amortization of
any discount or premium is assumed each day, regardless of the impact of the
fluctuating rates on the market value of the instrument.

FUND ORGANIZATION

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The Fund is a series of common stock of Strong Variable Insurance
Funds, Inc., a Wisconsin corporation (the "Corporation"). The Corporation
(formerly known as Strong Discovery Fund II, Inc., formerly known as Strong D
Fund, Inc.) was organized on December 28, 1990 and is authorized to issue
10,000,000,000 shares of common stock and series and classes of series of
shares of common stock, with a par value of $.00001 per share. The Corporation
is authorized to issue 300,000,000 shares of common stock of the Fund. Each
share of the Corporation has one vote, and all shares of a series participate
equally in dividends and other capital gains distributions and in the residual
assets of that Fund in the event of liquidation. Fractional shares have the
same rights proportionately as do full shares. Shares of the Corporation have
no preemptive, conversion, or subscription rights. The Corporation currently
has six series of common stock outstanding. The assets belonging to each
series of shares is held separately by the custodian, and in effect each series
is a separate fund. All holders of shares of the Corporation would vote on
each matter presented to shareholders for action except with respect to any
matter which affects only one or more series or classes, in which case only the
shares of the affected series or class shall be entitled to vote. Because of
current federal securities law requirements the Corporation expects that its
shareholders will offer to owners of variable annuity and variable life
insurance contracts the opportunity to instruct them as to how shares allocable
to their contracts will be voted with respect to certain matters, such as
approval of changes to the investment advisory agreement. 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.

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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 "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.

AVERAGE ANNUAL TOTAL RETURN

TOTAL RETURN

CUMULATIVE TOTAL RETURN

COMPARISONS

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

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(i) Wilshire Small Cap Index
(j) Wilshire Small Cap Growth Index
(k) Wilshire Small Cap Value Index
(l) Wilshire Midcap 750 Index
(m) Wilshire Midcap Growth Index
(n) Wilshire Midcap Value Index
(o) Wilshire Large Cap Growth Index
(p) Russell 1000 Index
(q) Russell 1000 Growth Index
(r) Russell 2000 Index
(s) Russell 2000 Small Stock Index
(t) Russell 2000 Growth Index
(u) Russell 2000 Value Index
(v) Russell 2500 Index
(w) Russell 3000 Stock Index
(x) Russell MidCap Index
(y) Russell MidCap Growth Index
(z) Russell MidCap Value Index
(aa) Value Line Index
(bb) Morgan Stanley Capital International EAFE(R) Index (Net
Dividend, Gross Dividend, and Price-Only). In addition, a
Fund may compare its performance to certain other indices
that measure stock market performance in geographic areas in
which the Fund may invest. The market prices and yields of
the stocks in these indexes will fluctuate. A Fund may also
compare its portfolio weighting to the EAFE Index weighting,
which represents the relative capitalization of the major
overseas markets on a dollar-adjusted basis
(cc) Morgan Stanley Capital International World Index

There are differences and similarities between the investments that a
Fund may purchase for its portfolio and the investments measured by these
indices.

(9) HISTORICAL INFORMATION
Because the Fund's investments primarily are denominated in foreign
currencies, the strength or weakness of the U.S. dollar as against these
currencies may account for part of the Fund's investment performance.
Historical information regarding the value of the dollar versus foreign
currencies may be used from time to time in advertisements concerning the Fund.
Such historical information is not indicative of future fluctuations in the
value of the U.S. dollar against these currencies. Marketing materials may
cite country and economic statistics and historical stock market performance
for any of the countries in which the Fund invests, including, but not limited
to, the following: population growth, gross domestic product, inflation rate,
average stock market price earnings ratios and the total value of stock
markets. Sources for such statistics may include official publications of
various foreign governments, exchanges, or investment research firms. In
addition, marketing materials may cite the portfolio manager's views or
interpretations of such statistical data or historical performance.

The Advisor also serves as advisor to the Strong Family of Funds, which
is a retail fund complex composed of 23 open-end management investment
companies.

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ADDITIONAL FUND INFORMATION

(1) PORTFOLIO CHARACTERISTICS

(2) MEASURES OF VOLATILITY AND RELATIVE PERFORMANCE

Standard deviation is calculated using the following formula:
2
Standard deviation = the square root of +(x - x )
i m
-----------
n-1
where + = "the sum of",
x = each individual return during the time period,
i
x = the average return over the time period, and
m
n = the number of individual returns during the time period.

Statistics may also be used to discuss a Fund's relative performance.
One such measure is alpha. Alpha measures the actual return of a fund compared
to the expected return of a fund given its risk (as measured by beta). The
expected return is based on how the market as a whole performed, and how the
particular fund has historically performed against the market. Specifically,
alpha is the actual return less the expected return. The expected return is
computed by multiplying the advance or decline in a market representation by
the fund's beta. A positive alpha quantifies the value that the fund manager
has added, and a negative alpha quantifies the value that the fund manager has
lost.

Other measures of volatility and relative performance may be used as
appropriate. However, all such measures will fluctuate and do not represent
future results.
GENERAL INFORMATION

BUSINESS PHILOSOPHY

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