<PAGE>
THE STRONG
DISCOVERY FUND II
SEMI-ANNUAL REPORT - JUNE 30, 1996
[Photo of Family]
[Pie Chart]
[Bar Graph]
DESIGNED TO SEEK CAPITAL GROWTH BY
EMPHASIZING INVESTMENTS IN COMPANIES
WITH ATTRACTIVE GROWTH OPPORTUNITIES
[STRONG FUNDS LOGO]
STRONG FUNDS
<PAGE>
THE STRONG
DISCOVERY FUND II
SEMI-ANNUAL REPORT o JUNE 30, 1996
TABLE OF CONTENTS
INVESTMENT REVIEWS
The Strong Discovery Fund II......................................2
FINANCIAL INFORMATION
Schedule of Investments in Securities.............................4
Statement of Operations...........................................7
Statement of Assets and Liabilities...............................8
Statement of Changes in Net Assets................................8
Notes to Financial Statements.....................................9
FINANCIAL HIGHLIGHTS....................................................11
<PAGE>
The Strong DISCOVERY FUND II
================================================================================
In managing the Strong Discovery Fund II, we strive to provide our investors
with long-term capital growth. We pursue our goal by investing primarily in the
stocks of well-managed, small- and mid-cap growth companies, with a core
commitment to large, established companies to provide stability and
diversification. To identify attractive investments, we employ a thorough
research process that includes on-site visits to the companies in which we
invest, and frequent discussions with management, suppliers, customers and
competitors.
On a personal level, I try to add value by drawing on over 30 years of
investment experience. Through the course of my career, I've seen just about
every type of financial market behavior, from euphoria to utter negativity and
back again. At times, emotion can feed on emotion, driving market cycles beyond
the highs and lows dictated by fundamental value. Historically, when it appears
the market has gotten ahead of itself, we've taken defensive positions to help
protect capital. The six-month period ended June 30, 1996, was one of those
times.
THE MARKET SWITCHES GEARS
The year began with investors basking in the glow of a great 1995. The S&P 500
had gained over 37%, fueled by declining long-term interest rates and
skyrocketing corporate profits.*
Late in 1995, however, it appeared to us that the economy was slowing,
increasing the likelihood that corporate earnings would come under pressure,
and that interest rates would trend still lower. These factors suggested that
bonds were becoming more attractive relative to stocks, and therefore we began
to increase our bond exposure, culminating in a 36% allocation to long-term
Treasury bonds by the end of January.
In February and March, however, surprisingly strong economic indicators
suggested that the economy's growth might be accelerating rather than slowing.
At that point, bonds began losing ground while stocks pushed higher. In
response, we reallocated assets back to the stock market, but as a result of the
prior allocation and our reduced exposure to common stocks during the market's
rally, the Fund posted a disappointing return of -2.31% for the first six months
of the year, versus the broader market's gain of 10.10% as measured by the S&P
500.(1)
THE IMPORTANCE OF FOCUS...
The Fund's charter gives us the flexibility to allocate assets away from stocks
when we believe it is appropriate. That said, our true strength has always been
stock selection. We are stock pickers through and through - it's who we are and
what we do - and we believe our highly-developed stock selection process gives
us the greatest opportunity to achieve attractive investment results over the
long term.
While market conditions may occasionally prompt us to adopt a defensive
position, we intend to focus on our stock selection process, honing the skills
that have proven their value over time. That means...
+ VISITING HUNDREDS OF COMPANIES A YEAR, using our ability to judge character
in talks with each firm's management, suppliers and competitors as we
separate those who succeed from those who merely try.
+ EMPHASIZING SOLID FIRMS that offer what we call a "razor relationship," in
that their products are used by consumers on a regular basis, resulting in a
predictable pattern of growth and earnings.
+ MAINTAINING A BROADLY DIVERSIFIED PORTFOLIO that offers the powerful growth
potential of small- and mid-sized companies, but is built on a bedrock of
large, established firms.
We believe it's this diligent approach that offers the most potential as we
pursue our goal of long-term capital growth.
ASSET ALLOCATION
Based on net assets as of 6-30-96
Common Stocks 92.6%
Convertible Corporate Bonds 0.4%
Short-Term Investments 7.0%
2
<PAGE>
...AND THE IMPORTANCE OF PERSPECTIVE
Earlier this year, the emotions of the market drove prices to unreasonably high
levels. Now, with interest rates moved up, investors are trying to evaluate the
ability of corporate America to sustain earnings. As a result, emotion may drive
prices down to unreasonably low levels. To guard against this, nearly 7% of the
portfolio was positioned in cash and equivalent instruments at the end of June.
These near-term concerns aside, we encourage you to keep the market's volatility
in perspective. Stocks have always had their cycles, and they always will. What
matters most is the overall economic picture, which appears positive for stocks.
The Federal Reserve seems determined to maintain a balance of growth with low
inflation regardless of who is in the White House.
Moreover, we expect the nation's savings rate to increase as baby boomers begin
saving for retirement, which should provide a solid flow of capital into the
stock market for years to come. And, when we factor in the growth of capitalism
and free market economies around the world, and the likelihood that global
competition will keep inflation subdued, we are encouraged by the prospects for
growth stocks over the next several years.
For our part, we will continue to use our disciplined investment process and our
vigorous research as we strive to add long-term value for our shareholders.
Thank you for your continued confidence in the Strong Discovery Fund II.
Sincerely,
/s/ Richard S. Strong
Richard S. Strong
Portfolio Manager
[Photo of Richard S. Strong]
- --------------------------------------------------------------------------------
GROWTH OF AN ASSUMED $10,000 INVESTMENT AVERAGE ANNUAL
from 5-8-92 to 6-30-96 TOTAL RETURNS(1)
The Strong S & P 500 as of 6-30-96
Discovery Fund II Stock Index*
4-92 10,000 10,000 1-YEAR
12-92 10,886 10,680 13.31%
12-93 13,284 11,756
12-94 12,569 11,911 3-YEAR
12-95 17,000 16,387 13.39%
6-96 16,609 18,043
SINCE INCEPTION
(on 5-8-92)
13.01%
This graph, provided 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 ("S&P 500"). Results include the reinvestment
of all dividends and capital gains distributions. 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. To equalize time periods,
the indexes' performance was prorated for the month of May, 1992.
- --------------------------------------------------------------------------------
* The S&P 500 is an unmanaged index generally representative of the U.S.
stock market. Source for the index data is Micropal.
1 Average annual total return and total return measure change in the value of
an investment, assuming reinvestment of all dividends and capital gains.
Average annual total return reflects annualized change, while total return
reflects aggregate change. 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>
SCHEDULE OF INVESTMENTS IN SECURITIES June 30, 1996(Unaudited)
- --------------------------------------------------------------------------------
SHARES OR VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
COMMON STOCKS 92.6%
AEROSPACE & DEFENSE 1.0%
Greenwich Air Services, Inc. (b) 44,500 $ 868
Northrop Grumman Corporation 20,200 1,376
Sundstrand Corporation 3,350 123
-----
2,367
AIRLINE 0.5%
America West Airlines, Inc. Class B (b) 16,400 361
Midwest Express Holdings, Inc. (b) 15,800 507
UAL Corporation (b) 4,200 226
-----
1,094
AUTO & TRUCK PARTS 0.3%
Keystone Automotive Industries, Inc. (b) 10,400 108
Strattec Security Corporation (b) 6,500 115
Thompson PBE, Inc. (b) 46,600 559
---
782
AUTOMOBILE 0.0%
Daihatsu Motor Company, Ltd. 6,000 39
BANK - MONEY CENTER 2.1%
The Bank of Tokyo - Mitsubishi 139,950 3,242
Chase Manhattan Corporation 2,368 167
Citicorp 9,025 746
Dai-Ichi Kangyo Bank, Ltd. Japan 29,000 539
Long-Term Credit Bank of Japan 31,000 240
-----
4,934
BROKERAGE & INVESTMENT MANAGEMENT 1.0%
CWM Mortgage Holdings, Inc. 38,900 661
Nomura Securities Company, Ltd. 60,000 1,171
The Quick & Reilly Group, Inc. 16,762 545
-----
2,377
CHEMICAL 0.8%
FMC Corporation (b) 28,900 1,886
CHEMICAL - SPECIALTY 1.5%
W.R. Grace & Company 45,175 3,202
Great Lakes Chemical Corporation 1,600 99
Praxair, Inc. 6,700 283
-----
3,584
COMMERCIAL SERVICE 9.9%
Accustaff, Inc. (b) 210,200 5,728
Amresco, Inc. 12,500 214
Bacou U.S.A., Inc. (b) 93,350 1,657
Career Horizons, Inc. (b) 125,500 4,392
Consolidated Graphics, Inc. (b) 90,500 1,968
Corestaff, Inc. (b) 31,300 1,401
Corrections Corporation America (b) 4,200 294
HealthPlan Services Corporation (b) 9,600 221
Iron Mountain, Inc. (b) 70,000 1,470
Manpower, Inc. 53,900 2,116
PIA Merchandising Services, Inc. (b) 47,600 690
Romac International, Inc. (b) 14,800 377
Sensormatic Electronics Corporation 9,625 158
Sheridan Healthcare, Inc. (b) 131,800 1,252
Sitel Corporation (b) 11,450 481
Ultrak, Inc. (b) 34,500 591
Vallen Corporation (b) 22,600 395
------
23,405
COMPUTER - MAINFRAME 0.7%
International Business Machines
Corporation 16,300 1,614
COMPUTER - PERIPHERAL EQUIPMENT 1.2%
Cerion Technologies, Inc. (b) 60,700 592
Micros Systems, Inc. (b) 61,600 1,717
Security Dynamics Technologies, Inc. (b) 1,900 156
U.S. Robotics, Inc. (b) 1,400 120
VideoServer, Inc. (b) 4,400 172
-----
2,757
COMPUTER SERVICE 2.9%
America Online, Inc. (b) 35,600 1,558
Electronic Data Systems Corporation 39,600 2,129
Fiserv, Inc. (b) 24,000 720
Shared Medical Systems Corporation 2,000 128
Sykes Enterprises, Inc. (b) 45,100 2,221
-----
6,756
COMPUTER SOFTWARE 6.1%
BMC Software, Inc. (b) 40,450 2,417
CBT Group PLC ADR (b) 8,700 402
Citrix Systems, Inc. (b) 7,100 270
Cognos, Inc. (b) 19,100 439
Computer Associates International, Inc. 8,800 627
Comshare, Inc. (b) 4,600 143
Cybercash, Inc. (b) 17,700 969
Electronic Arts, Inc. (b) 25,500 682
Enterprise Systems, Inc. (b) 1,600 44
Excite, Inc. (b) 41,300 346
Gemstar International Group, Ltd. (b) 62,100 1,863
Intuit, Inc. (b) 2,300 109
McAfee Associates, Inc. (b) 35,325 1,731
Mechanical Dynamics, Inc. (b) 7,100 107
National Instruments Corporation (b) 24,800 558
Netscape Communications Corporation (b) 4,000 249
Platinum Technology, Inc. (b) 22,300 337
Powercerv Corporation (b) 14,900 183
Saville Systems PLC Sponsored ADR (b) 9,600 265
Tecnomatix Technologies, Ltd. (b) 54,700 1,039
Vantive Corporation (b) 4,700 157
Visio Corporation (b) 5,300 191
Xylan Corporation (b) 11,800 549
Zebra Technologies Corporation (b) 41,000 728
------
14,405
COMPUTER SYSTEMS 2.5%
Imnet Systems, Inc. (b) 44,800 1,366
LanVision Systems, Inc. (b) 2,200 26
Oracle Systems Corporation (b) 11,100 438
System Software Associates, Inc. 207,862 3,534
Verifone, Inc. (b) 12,650 534
-----
5,898
CONSUMER - MISCELLANEOUS 0.5%
Canon, Inc. 36,000 748
Service Corporation International 8,800 506
-----
1,254
COSMETIC & PERSONAL CARE 1.5%
Jenny Craig, Inc. (b) 10,100 181
Parlux Fragrances, Inc. (b) 322,000 3,260
-----
3,441
DIVERSIFIED OPERATIONS 0.0%
Allied Products Corporation 1,900 54
ELECTRICAL EQUIPMENT 0.6%
Methode Electronics, Inc. Class A 49,700 845
Toshiba Corporation 15,000 107
Westinghouse Electric Corporation 25,400 476
-----
1,428
ELECTRONIC PARTS DISTRIBUTION 0.8%
Anixter International, Inc. (b) 13,700 204
Kent Electronics Corporation (b) 16,500 515
Marshall Industries (b) 38,850 1,088
Richey Electronics, Inc. (b) 5,100 60
-----
1,867
4
See notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
SHARES OR VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
ELECTRONIC PRODUCTS - MISCELLANEOUS 0.3%
General Motors Corporation Class H 4,300 $ 258
Hitachi, Ltd. 14,000 130
Universal Electronics, Inc. (b) 23,025 268
---
656
ELECTRONICS - SEMICONDUCTOR/
COMPONENT 0.6%
Computer Products, Inc. (b) 12,000 206
Intel Corporation 6,600 485
Motorola, Inc. 1,900 119
Transwitch Corporation (b) 31,500 417
Uniphase Corporation (b) 7,600 270
-----
1,497
FINANCE - MISCELLANEOUS 1.6%
American Express Company 3,200 143
Checkfree Corporation (b) 11,000 218
Medaphis Corporation (b) 85,300 3,391
-----
3,752
HEALTHCARE - BIOMEDICAL/GENETIC 0.3%
Curative Technologies, Inc. (b) 2,000 53
Neurocrine Biosciences, Inc. (b) 85,100 755
---
808
HEALTHCARE - DRUG/DIVERSIFIED 3.9%
Dura Pharmaceuticals, Inc. (b) 72,000 4,032
Halsey Drug Company, Inc. (b) 172,300 991
Pharmacia & Upjohn, Inc. 89,170 3,957
Teva Pharmaceutical Industries, Ltd. ADR 8,800 333
-----
9,313
HEALTHCARE - INSTRUMENTATION 1.4%
Biopsys Medical, Inc. (b) 27,900 558
Datascope Corporation (b) 70,500 1,251
FemRx, Inc. (b) 115,100 1,244
St. Jude Medical, Inc. (b) 8,225 276
-----
3,329
HEALTHCARE - MEDICAL SUPPLY 6.1%
Cardinal Health, Inc. 15,700 1,132
Cohr, Inc. (b) 1,400 33
Dentsply International, Inc. 22,800 969
Gulf South Medical Supply, Inc. (b) 17,100 667
Laboratory Corporation of America
Holdings Warrants, Expire 4/28/00 (b) 9,801 5
McKesson Corporation 56,600 2,696
Omnicare, Inc. 100,400 2,661
Patterson Dental Company (b) 2,900 105
Henry Schein, Inc. (b) 52,000 1,989
Steris Corporation (b) 46,150 1,477
Sybron International Corporation (b) 106,775 2,669
------
14,403
HEALTHCARE - PATIENT CARE 2.9%
Healthsource, Inc. (b) 46,700 817
Humana, Inc. (b) 131,100 2,344
Medpartners/Mullikin, Inc. (b) 81,200 1,695
Ornda Healthcorp (b) 55,200 1,325
Raytel Medical Group (b) 10,300 131
United Dental Care, Inc. (b) 12,800 541
-----
6,853
HEALTHCARE - PRODUCT 1.3%
Cytyc Corporation (b) 60,700 1,571
Nellcor Puritan Bennett, Inc. (b) 25,100 1,217
Pall Corporation 11,300 273
-----
3,061
HOUSEHOLD APPLIANCE & FURNISHINGS 1.0%
Fedders Corporation Class A 241,400 1,418
Matsushita-Kotobuki Electronics
Industries, Ltd. 5,000 131
Tupperware Corporation (b) 19,600 828
-----
2,377
HOUSING 0.1%
Southern Energy Homes, Inc. (b) 14,800 318
INSURANCE - PROPERTY & CASUALTY 0.4%
Risk Capital Holdings, Inc. (b) 52,800 1,036
LEISURE PRODUCT 2.6%
Custom Chrome, Inc. (b) 104,300 2,803
Harley-Davidson, Inc. 76,875 3,161
Hasbro, Inc. 5,175 185
Metromedia International Group, Inc. (b) 4,700 58
-----
6,207
LEISURE SERVICE 3.0%
Carmike Cinemas, Inc. (b) 900 24
Casino Data Systems (b) 15,800 239
The Walt Disney Company 50,850 3,197
Grand Casinos, Inc. (b) 11,800 304
Harrahs Entertainment, Inc. (b) 13,950 394
MGM Grand, Inc. (b) 32,000 1,276
Premier Parks, Inc. (b) 2,600 57
Promus Hotel Corporation (b) 5,250 156
Sholodge, Inc. (b) 33,900 424
Stratosphere Corporation (b) 153,050 918
-----
6,989
MACHINE TOOL 0.3%
Applied Power, Inc. 26,500 742
MEDIA - PUBLISHING 0.3%
Scholastic Corporation (b) 9,800 608
MEDIA - RADIO/TV 1.1%
Children's Broadcasting Corporation (b) 89,900 629
Clear Channel Communications, Inc. (b) 16,300 1,343
Evergreen Media Corporation Class A (b) 12,075 516
SFX Broadcasting, Inc. Class A (b) 1,300 51
Sinclair Broadcast Group, Inc. Class A (b) 500 22
-----
2,561
NATURAL GAS DISTRIBUTION 0.2%
WICOR, Inc. 13,625 514
OFFICE AUTOMATION 3.9%
Danka Business Systems PLC
Sponsored ADR 122,975 3,597
Nu-Kote Holding, Inc. Class A (b) 290,300 4,826
Xerox Corporation 16,900 904
-----
9,327
OIL - NORTH AMERICAN EXPLORATION
& PRODUCTION 4.8%
Cairn Energy USA, Inc. (b) 4,100 59
Flores & Rucks, Inc. (b) 160,525 5,538
Nuevo Energy Company (b) 4,300 139
Triton Energy, Ltd. (b) 62,525 3,040
Union Pacific Resources Group, Inc. 37,800 1,011
United Meridian Corporation (b) 41,400 1,491
------
11,278
OIL WELL EQUIPMENT & SERVICE 0.1%
Global Marine, Inc. (b) 21,600 300
Pride Petroleum Services, Inc. (b) 4,350 62
---
362
PAPER & FOREST PRODUCTS 0.4%
Fort Howard Corporation (b) 42,400 843
PERSONAL & COMMERCIAL LENDING 1.3%
Associates First Capital Corporation (b) 63,500 2,389
Mercury Finance Company 33,225 424
National Auto Credit, Inc. (b) 33,160 377
-----
3,190
5
See notes to financial statements.
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES (continued) June 30, 1996(Unaudited)
- --------------------------------------------------------------------------------
SHARES OR VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
POLLUTION CONTROL 0.4%
Allied Waste Industries, Inc. (b) 87,100 $ 773
United Waste Systems, Inc. (b) 4,200 135
---
908
RAILROAD 0.2%
Burlington Northern Santa Fe Corporation 4,473 362
RETAIL - DEPARTMENT STORE 1.2%
Federated Department Stores, Inc. (b) 80,175 2,736
RETAIL - DISCOUNT & VARIETY 1.1%
Consolidated Stores Corporation (b) 70,700 2,598
RETAIL - DRUG STORE 1.2%
Rite Aid Corporation 98,700 2,936
RETAIL - FOOD CHAIN 0.1%
Whole Foods Marketing, Inc. (b) 5,300 140
RETAIL - RESTAURANT 1.5%
Casa Ole Restaurants, Inc. (b) 31,700 434
Longhorn Steaks, Inc. (b) 25,500 637
Outback Steakhouse, Inc. (b) 19,050 657
Quality Dining, Inc. (b) 34,600 1,133
Rainforest Cafe, Inc. (b) 11,500 575
-----
3,436
RETAIL - SPECIALTY 9.1%
CUC International, Inc. (b) 362,575 12,871
Casey's General Stores, Inc. 11,100 221
Central Garden and Pet Company (b) 159,200 2,866
Claire's Stores, Inc. 24,400 674
Corporate Express, Inc. (b) 52,700 2,108
Global Directmail Corporation (b) 16,200 640
Goody's Family Clothing, Inc. (b) 10,600 109
MSC Industrial Direct Company A (b) 17,500 564
Marks Brothers Jewelers, Inc. (b) 12,900 293
Movie Gallery, Inc. (b) 51,100 1,073
Office Depot, Inc. (b) 2,200 45
Staples, Inc. (b) 7,800 152
------
21,616
SHOE & APPAREL MANUFACTURING 0.1%
Sankyo Seiki Manufacturing (b) 17,000 140
TELECOMMUNICATION EQUIPMENT 1.4%
Belden, Inc. 50,100 1,503
InterVoice, Inc. (b) 2,300 46
Loral Space & Communications (b) 81,150 1,105
Nokia Corporation Sponsored ADR 18,100 670
-----
3,324
TELECOMMUNICATION SERVICE 3.7%
Comsat Corporation 173,375 4,508
IDT Corporation (b) 12,600 121
Intermedia Communications, Inc. (b) 2,400 78
LCI International, Inc. (b) 8,500 267
McLeod, Inc. (b) 2,600 62
Mobile Telecommunication Technologies
Corporation (b) 19,850 290
Paging Network, Inc. (b) 32,300 775
Premiere Technologies, Inc. (b) 80,600 2,539
-----
8,640
TRANSPORTATION SERVICE 0.8%
Coach USA, Inc. (b) 44,800 997
Fritz Companies, Inc. (b) 13,100 422
Hub Group, Inc. Class A (b) 25,800 526
-----
1,945
-------
TOTAL COMMON STOCKS (COST $216,346) 218,747
CONVERTIBLE BONDS 0.4%
Bangkok Bank PCL Subordinated Notes,
3.25%, Due 3/03/04 (Acquired 5/30/96;
Cost $519)(c) $427,000 488
Corporate Express, Inc. Subordinated
Notes, 4.50%, Due 7/01/00 (Acquired
6/19/96; Cost $395) (c) 395,000 391
---
TOTAL CONVERTIBLE BONDS (COST $913) 879
SHORT-TERM INVESTMENTS (a) 6.7%
COMMERCIAL PAPER 6.5%
DISCOUNTED 6.3%
Newell Company, Due 7/01/96 15,000 15,000
INTEREST BEARING, DUE UPON DEMAND 0.2%
General Mills, Inc., 5.14% 195 195
Johnson Controls, Inc., 5.17% 153 153
Wisconsin Electric Power Company, 5.19% 10 10
---
358
------
Total Commercial Paper 15,358
UNITED STATES GOVERNMENT ISSUES 0.2%
United States Treasury Bills:
Due 9/19/96 210,000 207
Due 9/26/96 360,000 356
---
563
---
TOTAL SHORT-TERM INVESTMENTS
(COST $15,921) 15,921
-------
TOTAL INVESTMENTS IN SECURITIES
(COST $233,180) 99.7% 235,547
Other Assets and Liabilities, Net 0.3% 754
-------
NET ASSETS 100.0% $236,301
========
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
- -------------------------------------------
VALUE UNREALIZED
SETTLEMENT IN USD APPRECIATION
DATE (In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
Sold:
732,530,000 JPY 8/13/96 ($6,724) $340
PERCENTAGE OF
COUNTRY DIVERSIFICATION NET ASSETS
- --------------------------------------------------------------------------------
United States........................................ 93.3%
Japan................................................ 2.7%
United Kingdom....................................... 1.5%
Hong Kong............................................ 1.0%
Israel............................................... 0.6%
Finland.............................................. 0.3%
Ireland.............................................. 0.3%
Other Assets and Liabilities, Net.................... 0.3%
------
Total 100.0%
======
LEGEND
- ------
(a) Short-term investments include any security which has a maturity of less
than one year.
(b) Non-income producing security.
(c) Restricted security.
All principal amounts and costs are stated in thousands.
Percentages are stated as a percent of net assets.
CURRENCY ABBREVIATIONS
- ----------------------
JPY Japanese Yen
6
See notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1996 (Unaudited) (In Thousands)
<S> <C>
INCOME:
Dividends $ 421
Interest 931
------
Total Income 1,352
EXPENSES:
Investment Advisory Fees 1,170
Custodian Fees 76
Shareholder Servicing Costs 80
Other 30
------
Total Expenses 1,356
------
NET INVESTMENT LOSS (4)
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 9,463
Futures Contracts, Options and Forward Foreign Currency Contracts (5,356)
Change in Unrealized Appreciation/Depreciation on:
Investments (8,810)
Futures Contracts, Options and Forward Foreign Currency Contracts (983)
Foreign Currencies (1)
------
NET LOSS (5,687)
-------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ($5,691)
========
7
</TABLE>
See notes to financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
June 30, 1996 (Unaudited)
(In Thousands, Except Per Share Amounts)
<S> <C>
ASSETS:
Investments in Securities, at Value (Cost of $233,180) $235,547
Receivable from Brokers for Securities and
Forward Foreign Currency Contracts Sold 5,464
Dividends and Interest Receivable 770
--------
Total Assets 241,781
LIABILITIES:
Payable to Brokers for Securities and
Forward Foreign Currency Contracts Purchased 5,179
Accrued Operating Expenses and Other Liabilities 301
--------
Total Liabilities 5,480
--------
NET ASSETS $236,301
========
Capital Shares
Authorized 300,000
Outstanding 22,247
NET ASSET VALUE PER SHARE $ 10.62
=======
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
For the Six Months Ended June 30, 1996 (Unaudited) and the Year Ended December 31, 1995
<S> <C> <C>
(In Thousands)
JUNE 30, 1996 DEC. 31, 1995
------------- -------------
OPERATIONS:
Net Investment Loss ($ 4) ($ 587)
Net Realized Gain 4,107 33,875
Change in Unrealized Appreciation/Depreciation (9,794) 15,183
------- -------
Increase (Decrease) in Net Assets Resulting from Operations (5,691) 48,471
CAPITAL SHARE TRANSACTIONS 41,212 80,827
DISTRIBUTIONS:
From Net Investment Income (3,498) --
In Excess of Net Investment Income (13,692) (3,178)
From Net Realized Gains (27,077) --
-------- --------
TOTAL INCREASE (DECREASE) IN NET ASSETS (8,746) 126,120
NET ASSETS:
Beginning of Period 245,047 118,927
------- -------
End of Period $236,301 $245,047
======== ========
</TABLE>
8
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1996 (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
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. Aggregate cost and fair value of these restricted
securities held at June 30, 1996 were as follows (in thousands):
Aggregate Cost $914
Aggregate Fair Value 879
Percent of Net Assets 0.4%
(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.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
June 30, 1996 (Unaudited)
(H) Additional Investment Risk -- The use of futures contracts, options,
foreign denominated assets, forward foreign currency exchange
contracts and other similar instruments 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.
3. NET ASSETS
Net assets as of June 30, 1996 were as follows (in thousands):
Capital Stock $245,868
Undistributed Net Investment Loss (3,736)
Undistributed Net Realized Loss (8,536)
Net Unrealized Appreciation 2,705
---------
$236,301
=========
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the six months ended June 30, 1996
and the year ended December 31, 1995 were as follows (in thousands):
1996 1995
----------------- -----------------
SHARES DOLLARS SHARES DOLLARS
------ ------- ------ -------
Shares Sold 5,546 $67,687 11,517 $141,163
Dividends Reinvested 4,087 44,241 240 3,176
Shares Redeemed (5,619) (70,716) (5,338) (63,512)
------ ------- ------ -------
4,014 $41,212 6,419 $ 80,827
===== ======= ===== ========
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.
The amount payable to the Advisor at June 30, 1996 and unaffiliated
directors' fees for the six months ended June 30, 1996 were (in thousands)
$199 and $3, respectively.
6. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities for the six
months ended June 30, 1996 were as follows (in thousands):
Purchases:
U.S. Government and Agency $ 298,315
Other 1,262,183
Sales:
U.S. Government and Agency 325,222
Other 1,238,930
7. INCOME TAX INFORMATION
At June 30, 1996, the investment cost, gross unrealized appreciation and
depreciation on investments for Federal income tax purposes were as follows
(in thousands):
Aggregate Investment Cost $234,193
========
Aggregate Unrealized:
Appreciation $ 17,669
Depreciation (16,315)
-------
$ 1,354
========
10
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
The following presents information relating to a share of capital stock of the Fund, outstanding for the entire period.
1996(a) 1995 1994 1993 1992(b)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.44 $ 10.07 $ 11.54 $ 10.15 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.13 (0.03) 0.10 0.05 0.04
Net Realized and Unrealized Gains (Losses) on Investments (0.47) 3.58 (0.71) 2.09 0.78
----- ---- ----- ---- ----
TOTAL FROM INVESTMENT OPERATIONS (0.34) 3.55 (0.61) 2.14 0.82
LESS DISTRIBUTIONS
From Net Investment Income (0.18) -- (0.10) (0.05) (0.04)
In Excess of Net Investment Income (0.72) (0.18) (0.43) (0.70) --
From Net Realized Gains (1.58) -- (0.33) -- (0.63)(c)
----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS (2.48) (0.18) (0.86) (0.75) (0.67)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $ 10.62 $ 13.44 $ 10.07 $ 11.54 $ 10.15
======== ======== ======== ======== ========
Total Return -2.3% +35.3% -5.4% +22.0% +8.9%
Net Assets, End of Period (In Thousands) $236,301 $245,047 $118,927 $ 71,938 $ 26,739
Ratio of Expenses to Average Net Assets 1.1%* 1.3% 1.2% 1.3% 1.7%*
Ratio of Net Investment Income to Average Net Assets 0.0%* (0.3%) 1.1% 0.5% 0.5%*
Portfolio Turnover Rate 725.3% 542.1% 662.5% 976.5% 1,149.6%
Average Commission Rate Paid(d) $.0256
</TABLE>
* Calculated on an annualized basis.
(a) For the six months ended June 30, 1996 (Unaudited). Total return and
portfolio turnover rate are not annualized.
(b) Inception date is May 8, 1992. Total return and portfolio turnover rate are
not annualized.
(c) Ordinary income distribution for tax purposes.
(d) Disclosure required, effective for reporting periods beginning after
September 1, 1995.
11
<PAGE>
NOTES
- --------------------------------------------------------------------------------
12
<PAGE>
[Strong Funds Logo]
STRONG FUNDS DISTRIBUTORS, INC.
P.O. Box 2936
Milwaukee, Wisconsin 53201
http://www.strong-funds.com
Strong Funds offered by prospectus only
3239F960
