<PAGE> 1
THE STRONG ADVANTAGE FUND II
ANNUAL REPORT - DECEMBER 31, 1995
TABLE OF CONTENTS
FINANCIAL INFORMATION
Schedule of Investments in Securities................2
Statement of Operations..............................3
Statement of Assets and Liabilities..................3
Statement of Changes in Net Assets...................4
Notes to Financial Statements........................5
FINANCIAL HIGHLIGHTS..........................................7
REPORT OF INDEPENDENT ACCOUNTANTS.............................7
1
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SCHEDULE OF INVESTMENTS IN SECURITIES December 31, 1995
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<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- -------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS 43.6%
American Reinsurance Corporation Senior
Subordinated Debentures, 10.875%,
Due 9/15/04 $ 20,000 $ 22,431
American Standard, Inc. Senior Debentures,
11.375%, Due 5/15/04 20,000 22,300
Cablevision Industries Corporation Senior Notes,
10.75%, Due 1/30/02 20,000 21,900
Caesars World, Inc. Senior Subordinated Debentures,
8.875%, Due 8/15/02 20,000 21,350
Citicorp Floating Rate Notes, 6.50%, Due 5/01/04 20,000 20,213
Citicorp Subordinated Floating Rate Notes, 5.85%,
Due 10/25/05 20,000 19,650
Hook-SupeRx, Inc. Senior Notes, 10.125%,
Due 6/01/02 20,000 21,906
MGM Grand Hotel Finance Corporation First
Mortgage Notes, 12.00%, Due 5/01/02 20,000 21,925
Magma Copper Company Senior Subordinated
Notes, 12.00%, Due 12/15/01 20,000 22,275
NBD Bancorp, Inc. Subordinated Floating Rate
Notes, 5.8125%, Due 12/18/05 25,000 24,699
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TOTAL CORPORATE BONDS (COST $218,060) 218,649
NON-AGENCY MORTGAGE AND ASSET-BACKED
SECURITIES 9.7%
Morgan Stanley Capital I, Inc. Collateralized
Mortgage Obligation, Series 86-C, Class C-4,
9.00%, Due 5/01/16 23,234 24,005
Suncoast Collateralized Mortgage Obligation
Trust III, Class C, 8.75%, Due 2/27/18 24,317 24,586
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TOTAL NON-AGENCY MORTGAGE AND
ASSET-BACKED SECURITIES (COST $48,316) 48,591
UNITED STATES GOVERNMENT AND
AGENCY ISSUES 20.0%
United States Treasury Notes, 5.25%,
Due 12/31/97 (Cost $99,938) 100,000 100,188
CASH EQUIVALENTS (a) 44.4%
COMMERCIAL PAPER 1.9%
INTEREST BEARING, DUE UPON DEMAND
American Family Financial, 5.49% 2,700 2,700
Southwestern Bell Telephone Company, 5.72% 2,700 2,700
Wisconsin Electric Power Company, 5.53% 4,300 4,300
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9,700
CORPORATE OBLIGATION 4.1%
USG Corporation Senior Notes, 8.00%,
Due 12/15/96 20,000 20,375
UNITED STATES GOVERNMENT ISSUES 38.4%
United States Treasury Bills, Due 3/28/96 195,000 192,694
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Total Cash Equivalents (Cost $222,624) 222,769
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TOTAL INVESTMENTS IN SECURITIES
(Cost $588,938) 117.7% 590,197
Other Assets and Liabilities (17.7%) (88,938)
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Net Assets 100.0% $501,259
========
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Percentage of
INDUSTRY DIVERSIFICATION Net Assets
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U. S. Government 58.4%
Non-Agency Single Family 9.7
Leisure Service 8.6
Bank - Money Center 8.0
Bank - Super Regional 4.9
Insurance - Property & Casualty 4.5
Diversified Operations 4.4
Metals & Mining 4.4
Retail - Drug Store 4.4
Media - Radio/TV 4.4
Housing Related 4.1
Electric Power 0.9
Finance - Miscellaneous 0.5
Telecommunication Service 0.5
Other Assets & Liabilities, Net (17.7)
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Total 100.0%
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LEGEND
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(a) Cash equivalents include any security which has a maturity of less than
one year.
Percentages are stated as a percent of net assets.
</TABLE>
See notes to financial statements.
2
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STATEMENT OF OPERATIONS
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For the Period from November 30, 1995 (inception) to December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
INTEREST INCOME $2,741
EXPENSES:
Investment Advisory Fees 266
Custodian Fees 35
Shareholder Servicing Costs 31
Professional Fees 70
Reports to Shareholders 40
Other 8
------
Total Expenses 450
------
NET INVESTMENT INCOME 2,291
CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS 1,259
------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,550
======
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES
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December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in Securities, at Value (Cost of $588,938) $ 590,197
Interest Receivable 4,441
Other Assets 8,975
-----------
Total Assets 603,613
LIABILITIES:
Payable to Brokers for Securities Purchased 99,938
Dividends Payable 2,291
Accrued Operating Expenses and Other Liabilities 125
-----------
Total Liabilities 102,354
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NET ASSETS $ 501,259
===========
Capital Shares
Authorized 300,000,000
Outstanding 50,000
NET ASSET VALUE PER SHARE $ 10.03
===========
</TABLE>
3
See notes to financial statements.
<PAGE> 4
STATEMENT OF CHANGES IN NET ASSETS
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For the Period from November 30, 1995 (inception) to December 31, 1995
<TABLE>
<S> <C>
OPERATIONS:
Net Investment Income $ 2,291
Change in Unrealized Appreciation 1,259
--------
Increase in Net Assets Resulting from Operations 3,550
CAPITAL SHARE TRANSACTIONS 500,000
DISTRIBUTIONS FROM NET INVESTMENT INCOME (2,291)
-------
TOTAL INCREASE IN NET ASSETS 501,259
NET ASSETS:
Beginning of Period --
--------
End of Period $501,259
========
</TABLE>
4
See notes to financial statements.
<PAGE> 5
NOTES TO FINANCIAL STATEMENTS
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December 31, 1995
1. ORGANIZATION
The Strong Advantage Fund II commenced operations on November 30, 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 valuation 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.
(D) Futures -- Upon entering into a futures contract, the Fund
pledges to the broker cash, U.S. government securities or other
liquid, high-grade debt obligations equal to the minimum "initial
margin" requirements of the exchange. The Fund also 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 as unrealized gains or losses.
When the futures contract is closed, a realized gain or loss is
recorded 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.
(E) Options -- Premiums received by the Fund upon writing put or
call options are recorded as an asset with a corresponding liability
which is subsequently adjusted to the current market value of the
option. When an option 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.
(F) 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.
(G) Forward Foreign Currency Exchange Contracts -- Forward foreign
currency exchange contracts are valued at the forward rate and are
marked-to-market daily. The change in market value is recorded 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.
5
<PAGE> 6
NOTES TO FINANICAL STATEMENTS (CONTINUED)
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December 31, 1995
(H) 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.
(I) 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.
<TABLE>
3. NET ASSETS
Net assets as of December 31, 1995 were as follows:
<S> <C>
Capital Stock $500,000
Net Unrealized Appreciation 1,259
--------
$501,259
========
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the period ended December 31, 1995
were as follows:
SHARES DOLLARS
------ -------
Shares Sold 50,000 $500,000
Dividends Reinvested -- --
Shares Redeemed -- --
------ -------
50,000 $500,000
====== ========
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 0.60% 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.
The Advisor owns all of the outstanding shares of the Fund as of December
31, 1995. The amount payable to the Advisor at December 31, 1995 was $16.
6. INVESTMENT TRANSACTIONS
Aggregate purchases of long-term securities and
U.S. Government and Agency Securities for the period ended December 31,
1995 were $266,701 and $99,938, respectively.
7. INCOME TAX INFORMATION
At December 31, 1995, the investment cost and gross
unrealized appreciation and depreciation on investments for Federal income
tax purposes were as follows:
Aggregate Investment Cost $588,938
========
Aggregate Unrealized:
Appreciation $ 1,347
Depreciation (88)
--------
$ 1,259
========
</TABLE>
6
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FINANCIAL HIGHLIGHTS
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The following presents information relating to a share of capital stock of the
Fund, outstanding for the entire period.
<TABLE>
<S> <C>
1995(a)
-------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income 0.05
Net Realized and Unrealized Gains (Losses) 0.03
on Investments -------
TOTAL FROM INVESTMENT OPERATIONS 0.08
LESS DISTRIBUTIONS
- ------------------
From Net Investment Income (0.05)
--------
TOTAL DISTRIBUTIONS (0.05)
--------
NET ASSET VALUE, END OF PERIOD $ 10.03
========
Total Return +0.8%
Net Assets, End of Period (In Thousands) $501
Ratio of Expenses to Average Net Assets 1.0%*
Ratio of Net Investment Income to Average Net Assets 5.2%*
Portfolio Turnover Rate 0.0%
</TABLE>
* Calculated on an annualized basis.
(a)Inception date is November 30, 1995. Total return and portfolio turnover
rate are not annualized.
REPORT OF INDEPENDENT ACCOUNTANTS
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To the Shareholders and Board of Directors of the
Strong Advantage Fund II
We have audited the accompanying statement of assets and liabilities of Strong
Advantage 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 the financial highlights for the period from November 30, 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 about 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 Advantage Fund II as of December 31, 1995, the results of its
operations, the changes in its net assets, and the financial highlights for the
period from November 30, 1995 to December 31, 1995, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
February 8, 1995
7
