<PAGE> 1
SEMIANNUAL REPORT
JUNE 30, 1995
THE STRONG
DISCOVERY FUND II
[PHOTO OF LITTLE BOY BY A LAKE]
[STRONG FUNDS LOGO]
<PAGE> 2
TABLE OF CONTENTS
INVESTMENT REVIEW
The Strong Discovery Fund II............................................ 2
FINANCIAL INFORMATION
Schedule of Investments in Securities................................... 4
Statement of Operations................................................. 8
Statement of Assets and Liabilities..................................... 9
Statement of Changes in Net Assets...................................... 10
Notes to Financial Statements........................................... 11
FINANCIAL HIGHLIGHTS....................................................... 15
<PAGE> 3
The Strong Discovery Fund II
The Strong Discovery Fund II is all about growth. We believe that investing in
the common stock of companies that are growing considerably faster than the
overall economy-companies with a special product, run by enlightened and
dedicated management-will produce superior investment returns over time for our
shareholders.
Our task is to find those growth companies and own their stock at the most
opportune time. That, in a nutshell, is what drives our investment decisions.
MARKET SUMMARY
The first half of 1995 was a good period for equity investors. The benchmark
S&P 500 Index rose a robust 20.21%, while Strong Discovery Fund II increased by
16.62%. While our Fund was a little slow out of the blocks-finishing the first
quarter up a modest 4.60%-the second quarter saw a much more attractive gain of
11.49%.1
Since its inception in May 1992 through June 30 of this year, Strong Discovery
Fund II has generated a cumulative total return of 46.58%.
As of June 30, 1995, the Fund was "fully invested." Of the Fund's $156.5
million in net assets, nearly all were invested in stocks. The Fund was
aggressively positioned to take advantage of the bull market. At mid-year, the
Fund's diversified portfolio owned stock in a wide variety of domestic and
foreign concerns, from computer software (SAP AG) to copier dealers (Danka
Business Systems) to motorcycles (Harley-Davidson).
PREVAILING THEMES
While our team of investment professionals monitors economic trends across the
nation and world, four investment themes dominated our portfolio during the
first half of 1995: technology, consolidation, the continued deregulation of
radio and television, and financial services.
TECHNOLOGY. The worldwide technological revolution is having a dramatic effect
on the productivity and efficiency of business and industry. Consequently,
technology stocks were the biggest winners in the market's stellar performance
through the first half of 1995. We believe the advance of technology and its
positive impact on industry will persist. In our portfolio, computer software
manufacturers like the German firm SAP AG and McAfee Associates, a Santa Clara,
California firm that specializes in computer virus software, have positioned
their companies and products for prosperity.
CONSOLIDATION. Across a variety of individual industries, companies are
consolidating to increase efficiency and market share. This is a trend we see
in businesses as diverse as medical services and video rental. In the former
category, we particularly like Medpartners, of Birmingham, Alabama, and Phy
Cor, of Nashville, Tennessee, operators of multi-specialty medical clinics.
In the latter category, the Movie Gallery, based in Dothan, Alabama, has been
strategically acquiring video stores from Texas to Illinois at a steady and
impressive clip.
DEREGULATION OF RADIO AND TELEVISION. Thanks to the continuing pro-deregulation
mood in Washington, some well-positioned and ambitious media companies have
been expanding their operations and growing their earnings at a convincing
rate. Evergreen Media, an Irving, Texas, radio-station complex, and SFX
Broadcasting are two such properties that have made contributions to the Fund's
performance.
FINANCIAL SERVICES. Lower interest rates-a concept that the Federal Reserve has
now embraced-have benefited a number of our holdings in the financial services
sector. A good example of a company poised to capitalize on this trend is
Mercury Finance Company, of Northbrook, Illinois,
2
<PAGE> 4
which, among other credit operations, purchases installment contracts from
automobile dealers and retail vendors.
OUR OUTLOOK
As the second half of the year began, the Federal Reserve, inspired by a
general slowdown in the nation's economy, cut short-term rates by one-quarter
of a percentage point (0.25%). The market responded favorably.
Our portfolio management team believes that inflation will remain under
control, that the Federal Reserve will likely continue to ratchet down interest
rates through the second half of 1995, and that the financial climate-allowing
for an occasional correction-will continue to be hospitable to investors.
And one final, personal note: I think U.S. industry, pretty much across the
board, is in the best shape I've seen in the nearly 30 years since I graduated
from business school. Overall, American companies are more efficient, more
productive, and more competitive than at any moment in my professional
lifetime.
Which, at the risk of sounding repetitious, is good news for growth stocks.
Thank you for your continued confidence in the Strong Discovery Fund II. We
look forward to making your investment grow.
Sincerely,
Richard S. Strong
Portfolio Manager
ASSET ALLOCATION
(as of 6/30/95)
Cash Equivalents 4.6%
Common & Preferred Stocks 95.4%
The Fund's allocation is presented as a percentage of net assets. Please see
the Schedule of Investments in Securities for a complete listing of the Fund's
portfolio.
Growth of an assumed $10,000 investment
from 5/8/92 to 6/30/95
The Strong Discovery Fund II
5/92 10000
6/92 9591
12/92 10887
6/93 11392
12/93 13285
6/94 11885
12/94 12569
6/95 14658
S&P 500 Stock Index
5/92 10000
6/92 9857
12/92 10680
6/93 11201
12/93 11756
6/94 11358
12/94 11912
6/95 14319
Average annual total returns
through 6/30/95
Since inception 12.92%
on 5/8/92
3-year 15.19%
1-year 23.34%
This graph, prepared in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with a similar investment in the
Standard & Poor's 500 Stock Index, an unmanaged index generally representative
of the U.S. stock market. Results include the reinvestment of all dividends
and capital gains distributions. Source for the index data is Micropal.
Performance is historical and does not represent future results. Investment
returns and principal value vary, and you may have a gain or loss when you sell
shares.
1 Source of index information: Micropal
2 The Fund's returns include the effect of deducting the Fund's expenses,
but do not include charges and expenses attributable to any particular
insurance product. Excluding such fees and expenses from the Fund's
return quotations has the effect of increasing the performance quoted.
3
<PAGE> 5
SCHEDULE OF INVESTMENTS IN SECURITIES June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
SHARES OR VALUE
PRINCIPAL AMOUNT (NOTE 2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 90.0%*
DOMESTIC STOCKS 80.7%*
AIRLINE 0.8%*
46,500 America West Airlines, Inc. Class B+ $ 563,812
19,600 Southwest Airlines Company 467,950
4,500 ValuJet Airlines, Inc.+ 147,937
------------
1,179,699
AUTO & TRUCK PARTS 1.6%*
14,000 Bandag, Inc. Class A 801,500
11,300 Exide Corporation 485,900
22,450 The Goodyear Tire & Rubber Company 926,062
21,900 Thompson PBE, Inc.+ 361,350
------------
2,574,812
AUTOMOBILE 3.4%*
63,200 Chrysler Corporation 3,025,700
37,600 Ford Motor Company 1,118,600
23,500 General Motors Corporation 1,101,562
------------
5,245,862
BANK -- MONEY CENTER 0.3%*
7,300 Citicorp 422,487
BROKERAGE & INVESTMENT MANAGEMENT 2.1%*
8,800 Associated Estates Realty Corporation 185,900
3,900 Equity Inns, Inc. 41,925
7,900 Franklin Resources, Inc. 351,550
9,000 Merry Land & Investment Company, Inc. 183,375
9,150 The Quick & Reilly Group, Inc. 331,687
4,200 RFS Hotel Investors, Inc. 64,050
35,100 ROC Communities, Inc. 776,587
35,600 Salomon, Inc. 1,428,450
------------
3,363,524
CHEMICAL -- SPECIALTY 1.2%*
30,500 W.R. Grace & Company 1,871,937
COMMERCIAL SERVICE 3.2%*
37,400 Career Horizons Corporation+ 710,600
67,100 Consolidated Graphic, Inc.+ 922,625
5,000 Diebold, Inc. 217,500
99,675 Education Alternatives, Inc.+ 1,221,019
15,000 Insurance Auto Auctions, Inc.+ 438,750
40,200 Sensormatic Electronics Corporation 1,427,100
------------
4,937,594
COMPUTER -- MAINFRAME 0.5%*
1,700 International Business Machines Corporation 163,200
62,900 Unisys Corporation+ 684,037
------------
847,237
COMPUTER -- PERIPHERAL EQUIPMENT 1.7%*
8,500 American Power Conversion+ 194,437
14,100 Digi International, Inc.+ 320,775
30,300 EMC Communications Corporation+ 734,775
3,900 FileNet Corporation+ 157,462
14,950 Komag, Inc.+ 777,400
3,700 U.S. Robotics, Inc.+ 403,300
3,600 Western Digital Corporation 62,550
------------
2,650,699
COMPUTER -- PERSONAL & WORKSTATION 2.4%*
40,900 Apple Computer, Inc. $ 1,899,294
36,650 Compaq Computer Corporation+ 1,662,994
3,650 Sun Microsystems, Inc.+ 177,025
------------
3,739,313
COMPUTER SERVICE 1.3%*
4,250 Cycare Systems, Inc.+ 115,812
40,500 Datalogix International, Inc.+ 987,187
44,600 Pyxis Corporation+ 1,009,075
------------
2,112,074
COMPUTER SOFTWARE 13.1%*
47,500 Acclaim Entertainment, Inc.+ 875,781
14,200 Adobe Systems, Inc. 823,600
3,700 Ascend Communications, Inc.+ 186,850
7,000 Aspen Technology, Inc.+ 178,500
15,425 Autodesk, Inc. 663,275
10,500 BMC Software, Inc.+ 811,125
33,000 Cabletron Systems, Inc.+ 1,757,250
31,800 Computer Associates International, Inc. 2,154,450
51,900 Computer Network Technology Corporation+ 531,975
17,200 Concentra Corporation+ 167,700
22,400 Electronic Arts, Inc.+ 607,600
5,850 Expert Software, Inc.+ 108,225
17,400 Hyperion Software Corporation+ 787,350
64,200 Informix Corporation+ 1,629,075
150,000 McAfee Associates, Inc.+ 4,546,875
11,100 Medic Computer Systems, Inc.+ 427,350
8,850 Microsoft Corporation+ 799,819
46,500 NetManage, Inc.+ 790,500
49,000 Novell, Inc.+ 976,937
13,900 Platinum Technology, Inc.+ 251,937
93,300 Saber Software Corporation+ 810,544
12,000 Spyglass, Inc.+ 343,500
1,950 Sterling Software, Inc.+ 75,075
9,000 Symantec Corporation+ 259,875
------------
20,565,168
COMPUTER SYSTEMS 1.0%*
33,800 Oracle Systems Corporation+ 1,305,525
10,600 System Software Associates, Inc. 212,000
------------
1,517,525
CONSUMER -- MISCELLANEOUS 0.2%*
16,400 Equity Corporation International+ 332,100
DIVERSIFIED OPERATIONS 1.3%*
11,300 Alco Standard Corporation 902,587
26,125 Jason, Inc. (Acquired 1/21/94; Cost $229,900) (r)+ 224,152
4,050 Lockheed Martin Corporation 255,656
11,700 Tyco International, Ltd. 631,800
------------
2,014,195
ELECTRONIC PART DISTRIBUTION 0.1%*
2,450 Kent Electronics Corporation+ 92,794
22,000 Richey Electronics, Inc.+ 132,000
------------
224,794
ELECTRONIC PRODUCTS -- MISCELLANEOUS 0.4%*
30,900 Teltrend, Inc.+ 610,275
</TABLE>
See notes to financial statements.
4
<PAGE> 6
<TABLE>
<CAPTION>
SHARES OR VALUE
PRINCIPAL AMOUNT (NOTE 2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ELECTRONICS -- SEMICONDUCTOR/COMPONENT 8.5%*
4,100 Advanced Micro Devices, Inc.+ $ 149,137
13,500 Altera Corporation 583,875
7,650 Applied Materials, Inc.+ 662,681
30,700 Atmel Corporation+ 1,700,012
12,300 The Cherry Corporation+ 162,975
30,725 Cypress Semiconductor, Inc.+ 1,244,362
4,350 Dallas Semiconductor Corporation 89,175
3,100 Integrated Device Technology, Inc.+ 143,375
3,400 Integrated Silicon Solution, Inc.+ 177,650
18,200 Intel Corporation 1,152,287
2,400 Kulicke & Soffa Industries, Inc.+ 159,150
3,200 Linear Technology Corporation 211,200
7,400 LSI Logic Corporation+ 289,525
24,050 Maxim Integrated Products, Inc.+ 1,226,550
17,400 Micron Technology, Inc. 954,825
34,000 Motorola, Inc. 2,282,250
2,550 Sierra Semiconductor Corporation+ 80,962
4,600 Texas Instruments, Inc. 615,825
35,000 VLSI Technology, Inc.+ 1,054,375
3,400 Xilinx, Inc.+ 319,600
------------
13,259,791
FINANCE -- MISCELLANEOUS 1.4%*
14,500 Advanta Corporation Class B 547,375
7,400 American Express Company 259,925
9,250 Dean Witter, Discover & Company 434,750
11,700 MBNA Corporation 394,875
25,100 Mercury Finance Company 483,175
------------
2,120,100
FOOD 0.2%*
9,100 Lancaster Colony Corporation 325,325
HEALTHCARE -- DRUG/DIVERSIFIED 0.5%*
38,000 Barr Laboratories, Inc.+ 821,750
HEALTHCARE -- MEDICAL SUPPLY 2.5%*
8,200 Bausch & Lomb, Inc. 340,300
12,900 Dentsply International, Inc. 464,400
54,672 Laboratory Corporation of America Holdings+ 724,404
9,801 Laboratory Corporation of America Holdings
Warrants, Expire 4/28/00+ 14,702
12,200 McKesson Corporation 570,350
51,600 Omnicare, Inc. 1,399,650
6,550 Patterson Dental Company+ 155,562
4,900 Sybron International Corporation+ 195,388
------------
3,864,756
HEALTHCARE -- PATIENT CARE 2.7%*
16,900 American Oncology Resources, Inc.+ 468,975
14,400 Apria Healthcare Group+ 406,800
12,500 FPA Medical Management, Inc.+ 125,000
4,350 Manor Care, Inc. 126,694
25,250 Medpartners, Inc.+ 486,062
48,300 Phy Cor, Inc.+ 1,696,538
29,600 Physician Reliance Network, Inc.+ 577,200
34,200 Professional Sports Care Management, Inc.+ 348,413
------------
4,235,682
HOUSEHOLD APPLIANCES & FURNISHINGS 0.3%*
25,500 SHAW Industries, Inc. $ 433,500
HOUSING RELATED 0.1%*
4,850 Danaher Corporation 146,713
INSURANCE -- MULTI-LINE 0.1%*
2,250 MGIC Investment Corporation 105,469
INSURANCE -- PROPERTY & CASUALTY 0.4%*
16,700 Vesta Insurance Group, Inc. 574,063
LEISURE PRODUCT 3.4%*
23,500 Custom Chrome, Inc.+ 470,000
197,825 Harley-Davidson, Inc. 4,821,984
------------
5,291,984
LEISURE SERVICE 1.3%*
12,800 Bally Entertainment Corporation+ 156,800
14,550 GTECH Holdings Corporation+ 425,588
37,450 Promus Companies, Inc.+ 1,460,550
------------
2,042,938
MACHINE TOOL 1.0%*
54,900 Applied Power, Inc. 1,585,238
MACHINERY -- MISCELLANEOUS 0.2%*
8,550 PRI Automation, Inc.+ 280,013
MACHINERY -- TRANSPORTATION & EQUIPMENT PARTS 0.5%*
23,550 Trinity Industries, Inc. 783,038
MANUFACTURING 0.0%*
1,600 Matthews International Corporation Class A 30,000
MEDIA -- PUBLISHING 0.5%*
20,800 Time Warner, Inc. 855,400
MEDIA -- RADIO/TV 1.1%*
20,000 Comcast Corporation Class A 371,250
36,586 Evergreen Media Corporation Class A+ 951,236
7,500 SFX Broadcasting, Inc.+ 200,625
9,400 Tele-Communications, Inc. Class A+ 220,313
------------
1,743,424
MORTGAGE & RELATED SERVICE 1.9%*
92,150 Countrywide Credit Industries, Inc. 1,935,150
7,800 Finova Group, Inc. 273,000
8,350 Green Tree Financial Corporation 370,531
5,850 North American Mortgage Company 135,281
8,800 Pulte Corporation 246,400
------------
2,960,362
OFFICE AUTOMATION 2.2%*
35,850 Corporate Express, Inc.+ 766,294
52,850 Nu-Kote Holding, Inc.+ 1,677,988
1,600 Pitney Bowes, Inc. 61,400
8,500 Xerox Corporation 996,625
------------
3,502,307
</TABLE>
See notes to financial statements.
5
<PAGE> 7
SCHEDULE OF INVESTMENTS IN SECURITIES (continued) June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
SHARES OR VALUE
PRINCIPAL AMOUNT (NOTE 2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OIL -- NORTH AMERICAN EXPLORATION &
PRODUCTION 0.8%*
8,100 Cross Timber Oil Company $ 128,588
92,300 Flores & Rucks, Inc.+ 1,130,675
------------
1,259,263
PAPER & FOREST PRODUCTS 0.0%*
2,350 Specialty Paperboard, Inc.+ 31,138
PERSONAL & COMMERCIAL LENDING 0.6%*
20,400 First USA, Inc. 905,250
POLLUTION CONTROL 0.0%*
2,000 Asyst Technologies, Inc.+ 74,250
PRECIOUS METAL/GEM/STONE 1.1%*
39,850 Barrick Gold Corporation 1,006,213
8,700 Newmont Mining Company 364,313
26,800 Santa Fe Pacific Gold Corporation 324,950
------------
1,695,476
RAILROAD 1.0%*
3,750 Kansas City Southern Industries, Inc. 139,688
27,994 Santa Fe Pacific Corporation 713,847
15,600 Wisconsin Central Transportation Corporation+ 764,400
------------
1,617,935
RETAIL -- DEPARTMENT STORE 0.8%*
8,200 Dillard Department Stores, Inc. Class A 240,875
33,800 Federated Department Stores, Inc.+ 870,350
4,000 May Department Stores Company 166,500
900 Mercantile Stores Company, Inc. 41,850
------------
1,319,575
RETAIL -- DISCOUNT & VARIETY 0.4%*
39,600 Price/Costco, Inc.+ 643,500
RETAIL -- RESTAURANT 1.0%*
7,700 Apple South, Inc. 150,150
29,600 DF & R Restaurants, Inc.+ 654,900
20,400 Quality Dining, Inc.+ 331,500
21,000 Wendy's International, Inc. 375,375
------------
1,511,925
RETAIL -- SPECIALTY 6.0%*
600 Borders Group, Inc. 8,625
45,700 CUC International, Inc.+ 1,919,400
22,500 Friedman's, Inc. Class A+ 427,500
1,500 The Gap, Inc. 52,313
47,200 The Home Depot, Inc. 1,917,500
3,650 Just For Feet, Inc.+ 145,544
29,400 The Limited, Inc. 646,800
3,000 Michaels Stores, Inc.+ 63,750
59,800 Movie Gallery, Inc.+ 2,096,738
25,700 Neostar Retail Group, Inc.+ 398,350
45,700 Office Depot, Inc.+ 1,285,313
3,400 OfficeMax, Inc.+ 94,775
1,600 Tandy Corporation 83,000
4,800 Viking Office Products, Inc.+ 175,800
------------
9,315,408
TELECOMMUNICATION EQUIPMENT 5.1%*
$11,000 ADC Telecommunications, Inc.+ $ 393,250
14,500 The Allen Group, Inc. 429,563
35,600 Boston Technology, Inc.+ 663,050
19,300 C-Cor Electronics, Inc.+ 530,750
48,500 Comverse Technology, Inc.+ 860,875
3,500 DSC Communications Corporation+ 162,750
29,200 General Instrument Corporation 1,120,550
10,200 Global Village Communication+ 159,375
11,000 Newbridge Networks Corporation+ 387,750
112,250 Scientific-Atlanta, Inc. 2,469,500
4,050 Spectrian Corporation+ 160,988
14,750 Tellabs, Inc.+ 709,844
------------
8,048,245
TELECOMMUNICATION SERVICE 0.2%*
3,500 Comsat Corporation 68,688
13,600 EqualNet Holding Corporation+ 204,000
2,000 Sprint Corporation 67,250
------------
339,938
TRANSPORTATION SERVICE 0.2%*
4,700 Fritz Companies, Inc.+ 275,831
TRUCKING 0.1%*
9,050 Knight Transportation, Inc.+ 122,175
------------
Total Domestic Stocks 126,331,057
FOREIGN STOCKS 9.3%*
CANADA 0.8%*
CONSUMER -- MISCELLANEOUS 0.2%*
9,400 The Loewen Group, Inc. (USD) 334,875
LEISURE SERVICE 0.1%*
17,000 CINAR Films, Inc. (USD)+ 166,813
PRECIOUS METAL/GEM/STONE 0.5%*
28,800 Placer Dome, Inc. (USD) 752,400
------------
1,254,088
FINLAND 0.8%*
TELECOMMUNICATION EQUIPMENT
21,150 Nokia Corporation ADR (USD) 1,261,069
HONG KONG 3.7%*
BANK -- MONEY CENTER 1.1%*
13,700 HSBC Holdings PLC ADR (USD) 1,757,315
CONGLOMERATE 1.5%*
315,000 Citic Pacific, Ltd. 791,856
56,000 Guangdong Investment, Ltd. 30,580
21,300 Hutchison Whampoa, Ltd. ADR (USD) 514,776
23,500 Swire Pacific, Ltd. 'A' 179,199
102,500 Swire Pacific, Ltd. ADR (USD) 781,573
------------
2,297,984
ELECTRIC POWER 0.5%*
338,000 Consolidated Electric Power Asia, Ltd. 784,147
FINANCE -- MISCELLANEOUS 0.0%*
16,000 Guoco Group, Ltd. 74,652
</TABLE>
See notes to financial statements.
6
<PAGE> 8
<TABLE>
<CAPTION>
SHARES OR VALUE
PRINCIPAL AMOUNT (NOTE 2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
REAL ESTATE 0.4%*
56,000 Cheung Kong Holdings, Ltd. $ 277,206
60,000 New World Development Company, Ltd. 199,685
21,300 Sun Hung Kai Properties, Ltd. 157,605
------------
634,496
TELECOMMUNICATION SERVICE 0.2%*
96,000 Hong Kong Telecommunications, Ltd. 189,836
3,700 Hong Kong Telecommunications, Ltd. ADR (USD) 73,538
------------
263,374
------------
5,811,968
IRELAND 0.6%*
COMPUTER SOFTWARE 0.4%*
13,950 CBT Group PLC ADR (USD)+ 591,131
HEALTHCARE -- DRUG/DIVERSIFIED 0.2%*
5,600 Elan Corporation PLC ADR (USD)+ 228,900
------------
820,031
ISRAEL 0.6%*
HEALTHCARE -- DRUG/DIVERSIFIED
25,750 Teva Pharmaceutical Industries, Ltd. ADR (USD) 965,625
SWEDEN 0.1%*
TELECOMMUNICATION EQUIPMENT
5,200 Ericsson (LM) Telephone Company ADR (USD) 104,000
THAILAND 0.3%*
BANK -- MONEY CENTER
50,000 Bangkok Bank Public Company, Ltd. (Fgn Reg) 551,165
UNITED KINGDOM 2.4%*
OFFICE AUTOMATION
157,575 Danka Business Systems PLC ADR (USD) 3,811,345
------------
Total Foreign Stocks 14,579,291
------------
TOTAL COMMON STOCKS
(COST $129,052,460) 140,910,348
FOREIGN PREFERRED STOCK 5.4%*
GERMANY
6,600 SAP AG (Cost $6,711,899) 8,377,842
CASH EQUIVALENTS 3.8%*
COMMERCIAL PAPER 3.8%*
DISCOUNTED 3.6%*
$5,700,000 Burlington Northern Railroad Company
Due 7/03/95 $ 5,700,000
INTEREST BEARING, DUE UPON DEMAND 0.2%*
100 Eli Lilly & Company, 5.55% 100
119,500 General Mills, Inc., 5.72% 119,500
2,000 Pitney Bowes Credit Corporation, 5.73% 2,000
134,800 Southwestern Bell Telephone Company, 5.71% 134,800
------------
256,400
------------
Total Cash Equivalents (Cost $5,956,400) 5,956,400
------------
TOTAL INVESTMENTS IN SECURITIES
(COST $141,720,759) 99.2%* 155,244,590
Other Assets and Liabilities, Net 0.8%* 1,262,368
------------
NET ASSETS 100.0%* $156,506,958
============
</TABLE>
* Percentages are calculated as a percentage of net assets.
(USD) U.S. Dollar-denominated.
(r) Restricted Security.
+ Non-income producing.
See notes to financial statements.
7
<PAGE> 9
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1995 (Unaudited)
<TABLE>
<S> <C>
INCOME:
Dividends $ 697,501
Interest 168,044
-----------
Total Income 865,545
EXPENSES:
Investment Advisory Fees 659,273
Custodian Fees 52,621
Shareholder Servicing Costs 2,493
Reports to Shareholders 11,520
Federal and State Registration Fees 10,409
Other 24,337
-----------
Total Expenses 760,653
-----------
NET INVESTMENT INCOME 104,892
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 5,503,025
Futures Contracts, Options, and Forward Foreign
Currency Contracts (247,895)
Foreign Currencies 61
Change in Unrealized Appreciation/Depreciation on:
Investments 16,206,842
Futures Contracts, Options, and Forward Foreign
Currency Contracts (95,171)
-----------
NET GAIN 21,366,862
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $21,471,754
===========
</TABLE>
See notes to financial statements.
8
<PAGE> 10
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments in Securities, at Value (Cost of $141,720,759) $ 155,244,590
Receivable from Brokers for Securities and Forward Foreign
Currency Contracts Sold 3,150,421
Dividends and Interest Receivable 123,328
Other 26,275
---------------
Total Assets 158,544,614
LIABILITIES:
Payable to Brokers for Securities and Forward Foreign Currency
Contracts Purchased 1,851,831
Accrued Operating Expenses and Other Liabilities 185,825
---------------
Total Liabilities 2,037,656
---------------
NET ASSETS $ 156,506,958
===============
Capital Shares
Authorized 10,000,000,000
Outstanding 13,330,128
NET ASSET VALUE PER SHARE $ 11.74
===============
</TABLE>
See notes to financial statements.
9
<PAGE> 11
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1995 (Unaudited) and the Year Ended December
31, 1994
<TABLE>
<CAPTION>
June 30, 1995 Dec. 31, 1994
------------- -------------
<S> <C> <C>
OPERATIONS:
Net Investment Income $ 104,892 $ 1,047,186
Net Realized Gain 5,255,191 2,742,107
Change in Unrealized Appreciation/Depreciation 16,111,671 (8,202,698)
------------ ------------
Increase (Decrease) in Net Assets Resulting from Operations 21,471,754 (4,413,405)
CAPITAL SHARE TRANSACTIONS 16,149,397 60,217,692
DISTRIBUTIONS:
From Net Investment Income (41,510) (1,047,186)
In Excess of Net Investment Income -- (4,473,221)
From Net Realized Gains -- (3,294,825)
------------ ------------
TOTAL INCREASE IN NET ASSETS 37,579,641 46,989,055
NET ASSETS:
Beginning of Period 118,927,317 71,938,262
------------ ------------
End of Period $156,506,958 $118,927,317
============ ============
</TABLE>
See notes to financial statements.
10
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 (Unaudited)
1. ORGANIZATION
The Strong Discovery Fund II is a diversified series of the Strong
Variable Insurance Funds, Inc., an open-end management investment
company registered with the Securities and Exchange Commission under the
Investment Company Act of 1940.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
by the Fund in the preparation of its financial statements.
(A) Security Valuation -- Investments in securities for which market
quotations are readily available are valued at fair value as
determined by a pricing service on the basis of the average of
the most recent bid and asked prices in the principal market
(closing sales prices if the principal market is an exchange) in
which such securities are normally traded. Securities for which
quotations are not readily available are valued at fair value as
determined in good faith under consistently applied procedures
established by and under the general supervision of the Directors
of the Fund. Debt securities which are purchased within 60 days
of their stated maturity are valued at amortized cost, which
approximates current value.
The Fund owns certain investment securities which are
restricted as to resale. These securities are valued after giving
due consideration to pertinent factors including recent private
sales, market conditions, and the issuer's financial performance.
The Fund bears the costs, if any, associated with the disposition
of restricted securities. Where such disposition depends on a
security's registration under the Securities Act of 1933, the
Fund will bear such registration costs unless the Fund has
registration rights, in which case the issuer will bear such
costs. Aggregate cost and fair value of these restricted
securities held at June 30, 1995 were $229,900 and $224,152
respectively, representing 0.1% of net assets of the Fund.
(B) Federal Income Taxes and Distributions to Shareholders -- It is
the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its
shareholders in a manner which results in no tax cost to the
Fund. Therefore, no Federal income tax provision is required.
The character of distributions made during the year from net
investment income or net realized gains may differ from the
characterization for Federal tax purposes due to differences in
the recognition of income and expense items for financial
statement and tax purposes.
(C) Realized Gains and Losses On Investment Transactions -- The Fund
determines the gain or loss realized on investment transactions
by comparing the identified cost of the security lot sold with
the net sales proceeds.
(D) Futures -- The Fund may enter into futures contracts for any
lawful purpose, including hedging, risk management, or enhancing
returns, but not for speculation. Upon entering into a futures
contract, the Fund deposits cash, U.S. government securities or
other liquid, high-grade debt obligations in a segregated account
with its custodian, in the name of the futures broker through
whom the transaction was effected, equal to the minimum "initial
margin" requirements of the applicable futures exchange.
Additionally, the Fund receives from or pays to the broker an
amount of cash equal to the daily fluctuation in the value of the
contract. Such receipts or payments are known as "variation
margin," and are recorded by the Fund as unrealized gains or
losses. When the contract is closed, the Fund records a realized
gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it
was closed.
The use of futures contracts may involve, to varying degrees,
elements of market risk in excess of the amount recognized in the
statement of assets and liabilities. The successful use of
futures contracts by the Fund is dependent upon the ability of
Strong Capital Management, Inc. (the "Advisor") to correctly
anticipate trends in the underlying assets of the futures
contracts. To the extent that the Fund is engaging in futures
contracts 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 use of futures contracts and the
assets being hedged.
(E) Options -- The Fund may engage in options transactions for any
lawful purpose, including hedging, risk management, or enhancing
returns, but not for speculation. The Fund may purchase or write
put and call options on securities, futures contracts, indices,
and foreign currency, and enter into closing transactions with
respect to such options to terminate an existing position.
11
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1995 (Unaudited)
Premiums received by the Fund upon writing put or call options
are recorded in the Fund's statement of assets and liabilities as
an asset with a corresponding liability which is subsequently
adjusted to the current market value of the option. When an
option that is written by the Fund expires, is exercised, or is
closed, the Fund realizes a gain or loss, and the liability is
eliminated. The Fund continues to bear the risk of adverse
movements in the price of the underlying asset during the period
of the option, although any potential loss during the period
would be reduced by the amount of the option premium received.
The use of written option contracts may involve elements of
market risk in excess of the amount recognized in the statement
of assets and liabilities. The contract value represents the
Fund's involvement in these financial instruments. When required
by SEC guidelines, the Fund will set aside permissible liquid
assets in a segregated account to secure its potential
obligations under its written options positions.
The successful use of option contracts by the Fund is dependent
upon the ability of the Advisor to correctly anticipate trends in
the underlying assets of the option contracts. To the extent that
the Fund is engaging in option contracts 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 use of option
contracts and the assets being hedged.
(F) Foreign Currency Translation -- Investment securities and other
assets and liabilities denominated in foreign currencies are
converted to U.S. dollars based upon current exchange rates.
Purchases and sales of foreign investment securities and income
are converted to U.S. dollars based upon currency exchange rates
prevailing on the respective dates of such transactions. The
effect of changes in foreign exchange rates on realized and
unrealized security gains or losses is reflected as a component
of such gains or losses.
(G) When-Issued Securities -- The Fund may purchase securities 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 agreement, these securities may be
delivered and paid for at a future date, generally within 45
days. The Fund records purchases of when-issued securities and
reflects the values of such securities in determining net asset
value in the same manner as other portfolio securities. The Fund
segregates and maintains at all times permissible liquid assets
in an amount at least equal to the amount of outstanding
commitments for when-issued securities.
(H) Other -- Portfolio transactions are recorded on the trade date.
Dividend income and distributions to shareholders are recorded on
the ex-dividend date. Interest income is recorded on the accrual
basis.
3. NET ASSETS
Net assets as of June 30, 1995 were as follows:
<TABLE>
<S> <C>
Capital Stock $139,978,516
Undistributed Net Investment Income 63,327
Undistributed Net Realized Gain 3,036,455
Net Unrealized Appreciation 13,428,660
------------
Net Assets $156,506,958
============
</TABLE>
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the six months ended June 30,
1995 and the year ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
------------------------------- ------------------------------
Shares Dollars Shares Dollars
------ ------- ------ -------
<S> <C> <C> <C> <C>
Shares Sold 3,756,836 $ 39,652,194 9,271,840 $101,330,716
Shares Issued in Reinvestment of Dividends 3,924 41,477 851,339 8,806,683
Shares Redeemed (2,245,025) (23,544,274) (4,541,890) (49,919,707)
---------- ------------ ---------- -----------
Net Increase 1,515,735 $ 16,149,397 5,581,289 $ 60,217,692
========== ============ ========== ============
</TABLE>
12
<PAGE> 14
5. RELATED PARTY TRANSACTIONS
Strong Capital Management, Inc. (the "Advisor"), with whom certain
officers and directors of the Fund are affiliated, provides investment
advisory services and shareholder recordkeeping and related services to
the Fund. Investment advisory fees, which are established by terms of an
Advisory Agreement, are based on an annualized rate of 1.00% of the
average daily net assets of the Fund. Advisory fees are subject to
reimbursement by the Advisor if the Fund's operating expenses exceed
certain levels. Shareholder recordkeeping and related service fees are
based on contractually established rates for each open and closed
shareholder account. In addition, the Advisor is compensated for certain
other services related to costs incurred for reports to shareholders.
Certain information regarding these transactions for the six months
ended June 30, 1995 is as follows:
<TABLE>
<S> <C>
Payable to Advisor at June 30, 1995 $142,930
Other Shareholder Servicing Expenses Paid to Advisor 92
Unaffiliated Directors' Fees 1,588
</TABLE>
6. INVESTMENT TRANSACTIONS
Aggregate purchases and sales of long-term securities for the six months
ended June 30, 1995 were $287,333,907 and $258,057,681, respectively.
7. INCOME TAX INFORMATION
At June 30, 1995, based on investment cost for Federal income tax
purposes of $142,209,995.21, net unrealized appreciation was
$12,939,497.65, consisting of $15,585,414.78 in aggregate gross
unrealized appreciation and $2,645,917.13 in aggregate gross unrealized
depreciation.
8. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts for
any lawful purpose, including hedging, risk management, or enhancing
returns, but not for speculation.
Forward foreign currency exchange contracts are typically used by the
Fund to hedge currency exposure related to receivables from securities
sold and payables for securities purchased. Forward foreign currency
exchange contracts are valued at the forward rate, and are
marked-to-market daily. The change in market value is recorded by the
Fund as an unrealized gain or loss. When the contract is closed, the
Fund records an exchange gain or loss equal to the difference between
the value of the contract at the time it was opened and the value at the
time it was closed.
The use of forward foreign currency exchange contracts does not
eliminate fluctuations in the underlying prices of the Fund's portfolio
securities, but it does establish a rate of exchange that can be
achieved in the future. Although forward foreign currency exchange
contracts limit the risk of loss due to a decline in the value of the
hedged currency, they also limit any potential gain that might result
should the value of the currency increase. In addition, the Fund could
be exposed to risks if the counterparties to the contracts are unable to
meet the terms of their contracts.
At June 30, 1995, the Fund had entered into forward foreign currency
exchange contracts as follows:
<TABLE>
<CAPTION>
Currency Settlement Currency Value Unrealized
Sold Date in USD Depreciation
------------------------- ---------- -------------- ------------
<S> <C> <C> <C> <C>
9,572,734 German Marks 7/19/95 $6,942,303 $89,952
1,297,466 German Marks 7/26/95 940,843 4,450
165,000 German Marks 7/31/95 119,645 769
</TABLE>
9. FOREIGN INVESTMENTS
Investments in foreign markets can pose more risks than U.S.
investments, and to the extent that the Fund invests in foreign
securities, the Fund's share price is expected to be more volatile than
that of a U.S. securities-only fund. The value of the Fund's foreign
securities will fluctuate with changes in stock market conditions,
currency values, interest rates, foreign government regulations, and
economic and political conditions in countries in which the Fund
invests. These risks are generally intensified for investments in
emerging markets.
13
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1995 (Unaudited)
10. ANNUAL MEETING
A shareholder meeting was held on April 13, 1995 in Milwaukee,
Wisconsin. Results of the shareholder vote, calculated as a percentage
of total shares voted, are as follows:
<TABLE>
<CAPTION>
SHARES VOTED 11,784,081.469
---------------------------------------------------
PROPOSALS AFFIRMATIVE WITHHOLD
--------- ----------- --------
<S> <C> <C>
1 Election of Directors
Richard S. Strong 97.69% 2.31%
John Dragisic 97.56 2.44
Marvin E. Nevins 96.90 3.10
Willie D. Davis 97.47 2.53
William F. Vogt 97.67 2.33
Stanley Kritzik 97.47 2.53
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN
----------- ------- -------
<S> <C> <C> <C>
2 Ratify Selection of Auditors 96.64% 0.61% 2.75%
3 Adopt Advisory Agreement 93.51 2.42 4.07
4 Adopt Revised Articles 92.92 2.76 4.32
5 Amend Investment Objective 92.86 2.60 4.54
6 Amend or Adopt a Fundamental
Investment Limitation Concerning:
6A Diversification 93.21 1.27 5.52
6B Concentration 93.14 1.31 5.55
6C Lending 92.41 2.06 5.53
6D Purchasing and Selling Real Estate 92.27 2.19 5.54
6E Borrowing 90.92 3.54 5.54
6F Underwriting Securities 92.40 2.07 5.53
6G Purchasing or Selling Financial
Commodities 91.62 2.86 5.52
6H Issuing Senior Securities 93.04 1.43 5.53
6I Pooled Fund Structures 92.27 2.20 5.53
7 Eliminate a Fundamental
Investment Limitation Concerning:
7A Use of Margin 87.82 4.04 8.14
7B Purchase of Investment Company
Securities 89.64 2.18 8.18
7C Investment in Oil and Gas Interests 89.72 2.12 8.16
7D Pledging Assets 88.27 3.57 8.16
7E Securities Investments of
Directors and Officers 88.83 3.03 8.14
7F Fund Portfolio Transactions with
Directors and Officers 88.29 3.52 8.19
7G Investing in Securities for the
Purpose of Management
or Control 89.53 2.29 8.18
</TABLE>
14
<PAGE> 16
FINANCIAL HIGHLIGHTS
The following presents information relating to a share of capital stock
outstanding for the entire period.
<TABLE>
<CAPTION>
1995*** 1994 1993 1992**
------- ---- ---- ------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.07 $11.54 $10.15 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.01 0.10 0.05 0.04
Net Realized and Unrealized Gains
(Losses) on Investments 1.66 (0.71) 2.09 0.78
------ ------ ------- ------
TOTAL FROM INVESTMENT OPERATIONS 1.67 (0.61) 2.14 0.82
LESS DISTRIBUTIONS
From Net Investment Income (0.00) (0.10) (0.05) (0.04)
In Excess of Net Investment Income -- (0.43) (0.70) --
From Net Realized Gains -- (0.33) -- (0.63)(1)
------ ------ ------- ------
TOTAL DISTRIBUTIONS (0.00) (0.86) (0.75) (0.67)
------ ------ ------- ------
NET ASSET VALUE, END OF PERIOD $11.74 $10.07 $ 11.54 $10.15
====== ====== ======= ======
Total Return +16.6% -5.4% +22.0% +8.9%
Net Assets, End of Period (In Thousands) $156,507 $118,927 $71,938 $26,739
Ratio of Expenses to Average Net Assets 1.2%* 1.2% 1.3% 1.7%*
Ratio of Net Investment Income to Average Net Assets 0.2%* 1.1% 0.5% 0.5%*
Portfolio Turnover Rate 204.9% 662.5% 976.5% 1,767.9%*
</TABLE>
* Calculated on an annualized basis.
** Inception date is May 8, 1992. Total return is not annualized.
*** For the six months ended June 30, 1995 (Unaudited). Total return and
portfolio turnover rate are not annualized.
(1) Ordinary income distribution for tax purposes.
15
<PAGE> 17
DIRECTORS OF THE FUND
Richard S. Strong John Dragisic
Marvin E. Nevins Stanley Kritzik
Willie D. Davis William F. Vogt
OFFICERS OF THE FUND
Richard S. Strong
Chairman of the Board
John Dragisic
Vice Chairman
Lawrence A. Totsky
Vice President
Thomas P. Lemke
Vice President
Ann E. Oglanian
Secretary
Ronald A. Neville
Treasurer
Investment Advisor
Strong Capital Management, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
Distributor
Strong Funds Distributors, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
Custodian
Firstar Trust Company
P.O. Box 701, Milwaukee, Wisconsin 53201
Transfer Agent and Dividend-Disbursing Agent
Strong Capital Management, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
Auditors
Coopers & Lybrand L.L.P.
411 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
Legal Counsel
Godfrey & Kahn, S.C.
780 North Water Street, Milwaukee, Wisconsin 53202
<PAGE> 18
This report must be preceded or accompanied by the prospectus for
the Strong Discovery Fund II.
[STRONG FUNDS LOGO]
STRONG FUNDS DISTRIBUTORS, INC.
P.O. Box 2936
Milwaukee, Wisconsin 53201
