<PAGE> 1
THE STRONG INTERNATIONAL STOCK FUND II
ANNUAL REPORT - DECEMBER 31, 1995
[PHOTO OF FAMILY] [GRAPHIC OF WORLD] [BAR GRAPH]
DESIGNED TO SEEK CAPTIAL GROWTH
BY INVESTING PRIMARILY IN STOCKS
OF FOREIGN-BASED COMPANIES
[STRONG LOGO]
STRONG FUNDS
<PAGE> 2
THE STRONG INTERNATIONAL STOCK FUND II
ANNUAL REPORT - DECEMBER 31, 1995
TABLE OF CONTENTS
INVESTMENT REVIEW
The Strong International Stock Fund II . . . . . . . . . . . . . . . 2
FINANCIAL INFORMATION
Schedule of Investments in Securities . . . . . . . . . . . . . . . 4
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . 5
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . 5
Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . 6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . 6
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
REPORT OF INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . 8
<PAGE> 3
TOP FIVE HOLDINGS BY COUNTRY*
based on net assets as of 12-31-95
Japan 21.56%
United Kingdom 6.93%
New Zealand 6.49%
Indonesia 6.16%
Italy 5.85%
Please see the Schedule of Investments in Securities for a complete
listing of the Fund's portfolio.
*Excluding cash equivalents
THE STRONG INTERNATIONAL STOCK FUND II
- -------------------------------------------------------------------------------
By investing primarily in the stocks of companies based outside the United
States, the Strong International Stock Fund II pursues capital growth. The Fund
provides convenient access to growth opportunities world-wide and, when added
to a domestic portfolio, will increase diversification while providing the
potential for higher returns compared to a U.S.- only portfolio.
INTERNATIONAL MARKETS
Following a turbulent first quarter, international stock markets became less
volatile later in the year. The effects of the Mexican peso devaluation
subsided, and the dollar turned the corner, strengthening substantially against
the Japanese yen. The Japanese market also bounced back significantly, driven
by renewed foreign buying as the government stimulated the country's economy
and the yen weakened.
[GRAPHIC OF GLOBE]
These factors contributed to the Fund's total return of 2.61% since its
inception on 10-20-95 through year-end.(1) The global markets as a whole, as
measured by the MSCI EAFE(TM) Index, saw a gain of 4.91% for the same period.(2)
HIGHLIGHTING ASIA
Since the Fund's inception in October of this year, we have weighted the
portfolio heavily toward Asia, where we see better long-term opportunities,
strong growth, and moderate inflation. Many Pacific Basin countries boast
fast-growing economies and feature markets with valuations between 15 and 20
times earnings. New Zealand, with its solid economic growth and under-control
inflation, remains particularly attractive.
We have also invested the Fund more heavily in Japan, which we believe has
begun to recover, aided by a weakened yen and efforts to correct its banking
problems. One of the Fund's top performers to date has been Nomura Securities
Company, Ltd., the leading Japanese stock-brokerage firm. At year end, 21.56%
of the Fund was invested in Japanese securities--close to our benchmark of 25%
to be invested in that country.
Several small- to mid-cap European companies have also been attractive
additions to the Fund. Top performers to date include Gucci Group NV, an
Italian manufacturer of fine leather goods, and De Rigo Spa, an Italian
eyeglass frame maker. We have not found good value in larger European stocks
since the Fund's inception, due to the continent's difficult macro-economic
environment and continuing struggle toward a unified currency.
The Fund has tapped emerging markets, within reason, by diversifying into Latin
America, Eastern Europe, Indonesia, Thailand, China, Malaysia, and New Zealand.
At year-end, 23.8% of the Fund was invested in these emerging markets. As
always, however, we retained our "bottom up" approach by attending to country
weightings only after first identifying value in individual companies.
FIVE LARGEST STOCK HOLDINGS
based on net assets as of 12-31-95
Nomura Securities Co., Ltd. Brokerage & Investment 3.62%
Management
Mitsubishi Motors Corp. Automobile 3.16%
Zodiac SA Leisure Product 2.59%
Nichiha Housing Related 2.51%
Keppel Corp., Ltd. Conglomerate 2.47%
Please see the Schedule of investments in Securities for a complete listing of
the Fund's portfolio.
<PAGE> 4
CYCLE MAY BENEFIT LONG=TERM INVESTORS
At year end, assets under management in the Strong International Stock Fund II
approached $2 million. The Fund held approximately 50 stocks, and short-term
investments represented 16.1% of the Fund. As the Fund increases in asset size,
it will more closely mirror the Strong International Stock Fund, hold more
individual stocks, and carry a smaller cash reserve.
We believe the Fund was launched at an opportune time for international stocks.
We are very optimistic about the prospects for international markets,
especially in light of Wall Street's maturing bull market. Attention could
return to the international markets in 1996 as investors who previously have
kept their funds invested solely in U.S. stocks may be more inclined to plug
into the faster growth rates in international and emerging markets.
Shareholders should keep in mind, however, that the Fund is likely to be more
volatile than a U.S.-only fund, due to changes in stock market conditions,
currency values, interest rates, local regulations, and economic and political
conditions. But given the value currently available in international markets,
we believe foreign equities offer long-term investors an attractive
opportunity.
We thank you for your support and look forward to earning your continued
confidence.
Sincerely,
/s/ Anthony L.T. Cragg
Anthony L.T. Cragg
Portfolio Manager
[Photo of Anthony L.T. Craig]
<TABLE>
<CAPTION>
Growth of an assumed $10,000 Investment
From 10-20-95 to 12-31-95
The Strong International Stock Fund II S&P 500 Stock Index Morgan Stanley EAFE(R) Index
- -------------------------------------- ------------------- -----------------------------
<S> <C> <C>
10-20-95 10000 10-20-95 10000 10-20-95 10000
10-31-95 10090 10-31-95 9902 10-31-95 9812
11-95 9950 11-95 10337 11-95 10085
12-95 10261 12-95 10536 12-95 10491
</TABLE>
- --------------------------------------------------------------------------------
This graph, provided in accordance with SEC regulations, compares a
$10,000 investment in the Fund, made at its inception, with similar investments
in the Standard & Poor's 500 Stock Index ("S&P 500") and the Morgan Stanley
Capital International Europe, Australasia, and Far East Index ("MSCI EAFE(TM)").
Results include the reinvestment of all dividends and capital gains
distributions. The S&P 500 is an unmanaged index generally representative of
the U.S. stock market. The MSCI EAFE(TM) Index is an unmanaged,
market-capitalization weighted index generally representative of major overseas
stock markets. MSCI EAFE(TM) Index data are dollar-adjusted. 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 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.
2 Source of index data: Micropal.
3
<PAGE> 5
SCHEDULE OF INVESTMENTS IN SECURITIES DECEMBER 31,1995
- --------------------------------------------------------------------------------
SHARES OR VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
COMMON STOCKS 83.9%
AUSTRALIA 4.3%
John Fairfax Holdings, Ltd. 17,000 $ 35
Novus Petroleum, Ltd. (b) 18,000 22
Sydney Aquarium, Ltd. 11,200 22
----
79
BRAZIL 1.4%
Telecommunicacoes Brasileiras S.A. ADR 530 25
CHINA 1.4%
The China Fund, Inc. 800 9
EK Chor China Motorcycle Company, Ltd. 1,400 16
----
25
FINLAND 1.4%
Pohjola Insurance Company 'B' 2,000 26
FRANCE 3.7%
Compagnie Generale des Eaux 215 21
Zodiac SA 300 47
----
68
HONG KONG 3.1%
CDL Hotels International, Ltd. 44,000 22
Peregrine Investments Holdings, Ltd. 26,000 34
----
56
INDONESIA 6.2%
Astra International PT (Fgn Reg) 9,000 19
Bank Tiara Asia PT (Fgn Reg) 17,000 17
Semen Cibinong PT (Fgn Reg) 15,000 37
Tambang Timah PT GDR 3,200 38
----
111
ITALY 5.8%
De Rigo Spa ADR (b) 900 20
Gucci Group NV (b) 450 17
Pininfarina Spa 4,400 38
Simint Spa (b) 27,000 29
----
104
JAPAN 21.6%
Chubu Steel Plate Company, Ltd. (b) 5,000 29
Diamond City Company 5,000 38
Ishikawajima Harima Heavy Industries
Company, Ltd. 7,000 29
Marubeni Corporation 6,000 32
Mitsubishi Motors Corporation 7,000 57
Nichiha 2,000 45
Nippon Shinpan Company 5,000 38
Nomura Securities Company, Ltd. 3,000 65
Ohmoto Gumi Company, Ltd. 1,000 25
TOC Company, Ltd. 3,000 30
----
388
MALAYSIA 2.2%
Arab-Malaysian Corporation 3,000 11
IJM Corporation BHD 'A' 5,000 8
Road Builder Holdings BHD (b) 6,000 21
----
40
MEXICO 0.8%
Mexico Fund 1,100 14
NETHERLANDS 4.8%
Ceteco Holding N.V. 990 32
Koninklijke Boskalis Westminster N.V. 2,300 33
Philips Electronics N.V. ADR 600 22
----
87
NEW ZEALAND 6.5%
Air New Zealand, Ltd. Class B 5,500 19
Evergreen Forests, Ltd. (b) 76,000 32
Guinness Peat Group PLC 71,000 37
Shortland Properties, Ltd. 52,000 29
-----
117
NORWAY 1.3%
Tomra Systems A/S 3,000 24
RUSSIA 2.0%
The Central European Growth Fund PLC 60,000 37
SINGAPORE 2.5%
Keppel Corporation, Ltd. 5,000 45
See notes to financial statements.
4
<PAGE> 6
<TABLE>
<CAPTION>
Shares or Value
Principal (Note 2)
Amount (In Thousands)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
SOUTH KOREA 1.3%
Korea Electric Power Company ADR (b) 850 $ 23
SWITZERLAND 4.6%
Nestle AG 40 44
SGS (Societe Generale de Surveillance) Holdings S.A. 20 40
------
84
THAILAND 2.1%
Loxley PCL (Fgn Reg) 500 10
The Ruam Pattana Two Fund (Fgn Reg) (b) 18,000 11
Sahaviriya Steel Industries PCL (b) 12,000 16
------
37
UNITED KINGDOM 6.9%
Allied Domecq PLC (b) 3,900 32
British Gas PLC 8,000 31
Cordiant PLC (b) 20,000 28
De La Rue PLC 2,800 28
Takare PLC 2,000 6
------
125
------
TOTAL COMMON STOCKS (COST $1,482) 1,515
CASH EQUIVALENTS (a) 34.6%
COMMERCIAL PAPER 1.4%
INTEREST BEARING, DUE UPON DEMAND
United States Cayman Eurodollar Call Deposit, 4.75% $ 25 25
TIME DEPOSITS 33.2%
UNITED STATES
Toronto Dominion Bank of Montreal Time Deposit,
Due 01/02/96 600 600
------
Total Cash Equivalents (Cost $625) 625
------
TOTAL INVESTMENTS IN SECURITIES
(COST $2,107) 118.5% 2,140
Other Assets and Liabilities, Net (18.5%) (335)
------
NET ASSETS 100.0% $1,805
======
</TABLE>
<TABLE>
<CAPTION>
INDUSTRY DIVERSIFICATION Percentage of
Net Assets
<S> <C>
Bank -- Money Center 36.1%
Engineering & Construction 8.5%
Conglomerate 8.1%
Automobile 7.2%
Brokerage & Investment Management 5.5%
Real Estate 5.4%
Media -- Publishing 5.1%
Finance -- Miscellaneous 4.3%
Food 4.2%
Closed--End Fund 3.9%
Leisure Product 2.6%
Housing Related 2.5%
Steel 2.5%
Leisure Service 2.4%
Metals & Mining 2.1%
Paper & Forest Products 1.8%
Retail -- Major Chain 1.8%
Natural Gas Distribution 1.7%
Shoe & Apparel Manufacturing 1.6%
Insurance -- Multi-Line 1.4%
Telecommunication Service 1.4%
Electric Power 1.3%
Machinery -- Miscellaneous 1.3%
Household Appliance & Furnishings 1.2%
Oil -- International Integrated 1.2%
Consumer -- Miscellaneous 1.1%
Airline 1.0%
Retail -- Specialty 1.0%
Healthcare -- Patient Care 0.3%
Other Assets and Liabilities, Net (18.5%)
-----
Total 100.0%
=====
</TABLE>
LEGEND
(a) Cash equivalents include any security which has a maturity of less than one
year.
(b) Non-income producing security.
All principal amounts and costs are stated in thousands. Percentages are stated
as a percent of net assets.
See notes to financial statements.
<PAGE> 7
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
For the Period from October 20, 1995 (inception) to December 31, 1995
<TABLE>
<S> <C>
INCOME:
Dividends $ 2,064
Interest 4,511
------------
Total Income 6,575
EXPENSES:
Investment Advisory Fees 2,075
Custodian Fees 1,534
Shareholder Servicing Costs 159
Reports to Shareholders 196
Other 397
------------
Total Expenses 4,361
------------
NET INVESTMENT INCOME 2,214
REALIZED AND UNREALIZED GAIN:
Net Realized Gain on Investments 2,133
Change in Unrealized Appreciation on Investments 33,201
------------
NET GAIN 35,334
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 37,548
============
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments in Securities, at Value (Cost of $2,106,976) $ 2,140,177
Dividends and Interest Receivable 1,751
Other 12,095
------------
Total Assets 2,154,023
LIABILITIES:
Payable to Brokers for Securities Purchased 346,317
Accrued Operating Expenses and Other Liabilities 2,693
------------
Total Liabilities 349,010
------------
NET ASSETS $ 1,805,013
============
Capital Shares
Authorized 300,000,000
Outstanding 176,563
NET ASSET VALUE PER SHARE $ 10.22
============
</TABLE>
5
See notes to financial statements.
<PAGE> 8
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Period from October 20, 1995 (inception) to December 31, 1995
<TABLE>
<S> <C>
OPERATIONS:
Net Investment Income $ 2,214
Net Realized Gain 2,133
Change in Unrealized Appreciation 33,201
----------
Increase in Net Assets Resulting from Operations 37,548
CAPITAL SHARE TRANSACTIONS 1,774,607
DISTRIBUTIONS:
From Net Investment Income (2,214)
In Excess of Net Investment Income (4,928)
----------
TOTAL INCREASE IN NET ASSETS 1,805,013
NET ASSETS:
Beginning of Period -
----------
End of Period $1,805,013
==========
</TABLE>
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1995
1. ORGANIZATION
The Strong International Stock Fund II commenced operations on October
20, 1995, and is a diversified series of the Strong Variable Insurance
Funds, Inc., an open-end management investment company registered 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 - Portfolio securities traded primarily on a
principal securities exchange are valued at the last reported sales
price or the mean between the latest bid and asked prices where no
last sales price is available. Securities traded over-the-counter
are valued at the mean of the latest bid and asked prices or the
last reported sales price. Debt securities not traded on a
principal securities exchange are valued through valuations
obtained from a commercial pricing service, otherwise sale or bid
prices are used. Securities for which market 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 Board of Directors.
Securities which are purchased within 60 days of their stated
maturity are valued at amortized cost, which approximates current
value.
The Fund may own 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 generally bears the costs, if any, associated with the
disposition of restricted securities.
(B) Federal Income and Excise 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 or excise 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 income tax purposes due to differences
in the recognition of income and expense items for financial
statement and tax purposes. Where appropriate, reclassifications
between net asset accounts are made for such differences that are
permanent in nature.
(C) Realized Gains and Losses on Investment Transactions - Gains or
losses realized on investment transactions are determined by
comparing the identified cost of the security lot sold with the net
sales proceeds.
6
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS (continued)
----------------------------------------------------------------------------
December 31, 1995
(D) Foreign Currency Translation -- Investment securities and other
assets and liabilities initially expressed 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.
(E) Additional Investment Risk-- The use of futures contracts,
options, foreign denominated assets and forward foreign currency
exchange contracts for purposes of hedging the Fund's investment
portfolio involves, to varying degrees, elements of market risk
in excess of the amount recognized in the statement of assets and
liabilities. The predominant risk with futures contracts is
an imperfect correlation between the value of the contracts and
the underlying securities. Foreign denominated assets and forward
foreign currency exchange contracts may involve greater risks
than domestic transactions, including currency, political and
economic, regulatory and market risks.
(F) Other--Investment security transactions are recorded as of the
trade date. Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Interest income is recorded on
the accrual basis and includes amortization of premium and
discounts.
3. NET ASSETS
Net assets as of December 31, 1995 were as follows:
<TABLE>
<S> <C>
Capital Stock $1,774,607
Undistributed Net Investment Loss (884)
Undistributed Net Realized Loss (1,911)
Net Unrealized Appreciation 33,201
----------
$1,805,013
==========
</TABLE>
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the period ended December 31,
1995 were as follows:
<TABLE> Shares Dollars
<CAPTION> ------ -------
<S> <C> <C>
Shares Sold 242,355 $2,436,766
Dividends Reinvested 700 7,142
Shares Redeemed (66,492) (669,301)
-------- ----------
176,563 $1,774,607
======== ==========
</TABLE>
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 to the Fund. Investment advisory fees,
which are established by terms of the 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.
6. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities for the
period ended December 31, 1995 were as follows:
<TABLE>
<S> <C>
Purchases $1,761,095
Sales 277,209
</TABLE>
7. INCOME TAX INFORMATION
At December 31, 1995, the investment cost, gross unrealized appreciation
and depreciation on investments and capital loss carryover (expiring
in 2003) for Federal income tax purposes were as follows:
Aggregrate Investment Cost $2,106,976
==========
Aggregrate Unrealized:
Appreciation $ 74,273
Depreciation (41,072)
----------
$ 33,201
==========
Capital Loss Carryover $ 1,911
==========
For corporate shareholders in the Fund, the percentage of dividend income
distributed for the year ended December 31, 1995, which is designated as
qualifying for the dividends-received deduction is 0.0%.
7
<PAGE> 10
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following presents information relating to a share of capital stock of the
Fund outstanding for the entire period.
<TABLE>
<CAPTION>
1995 (a)
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income 0.01
Net Realized and Unrealized Gains on
Investments 0.25
----
TOTAL FROM INVESTMENT OPERATIONS 0.26
LESS DISTRIBUTIONS
- ------------------
From Net Investment Income (0.01)
In Excess of Net Investment Income (0.03)
-----
TOTAL DISTRIBUTIONS (0.04)
-----
NET ASSET VALUE, END OF PERIOD $10.22
======
Total Return +2.6%
Net Assets, End of Period (In Thousands) $1,805
Ratio of Expenses to Average Net Assets 2.0%*
Ratio of Net Investment Income to Average Net Assets 1.0%*
Portfolio Turnover Rate 26.9%
</TABLE>
* Calculated on an annualized basis.
(a) Inception date is October 20, 1995. Total return and portfolio turnover
rate are not annualized.
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of the
Strong International Stock Fund II
We have audited the accompanying statement of assets and liabilities of Strong
International Stock Fund II (one of the portfolios constituting the Strong
Variable Insurance Funds, Inc.), including the schedule of investments in
securities, as of December 31, 1995, and the related statements of operations
and changes in net assets, and financial highlights for the period from October
20, 1995 (inception) to December 31, 1995. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance above whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995 by correspondence with the custodians and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Strong International Stock Fund II as of December 31, 1995 and the results of
its operations, the changes in its net assets, and the financial highlights for
the period from October 20, 1995 to December 31, 1995, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
February 8, 1996
8
<PAGE> 11
[STRONG LOGO]
STRONG FUNDS DISTRIBUTORS, INC.
P.O. Box 2936
Milwaukee, Wisconsin 53201
