STRONG VARIABLE INS FDS INC, 485BPOS, 1996-04-23

STRONG VARIABLE INS FDS INC
485BPOS, 1996-04-23

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<PAGE> 1
As filed with the Securities and Exchange Commission on or about April 23, 1996

Securities Act Registration No. 33-45321
Investment Company Act Registration No. 811-6553

SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]

Pre-Effective Amendment No. [ ]

Post-Effective Amendment No. 11 [X]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]

Amendment No. 12 [X]

(Check appropriate box or boxes)

STRONG VARIABLE INSURANCE FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)

100 HERITAGE RESERVE
MENOMONEE FALLS, WISCONSIN 53051
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (414) 359-3400

THOMAS P. LEMKE
STRONG CAPITAL MANAGEMENT, INC.
100 HERITAGE RESERVE
MENOMONEE FALLS, WISCONSIN 53051
(Name and Address of Agent for Service)

Copies to:
SCOTT A. MOEHRKE
GODFREY & KAHN, S.C.
780 NORTH WATER STREET
MILWAUKEE, WISCONSIN 53202

Registrant has registered an indefinite amount of securities pursuant to
Rule 24f-2 under the Securities Act of 1933; the Registrant's Rule 24f-2 Notice
for the fiscal year ended December 31, 1995 was filed on or about February 21,
1996.

It is proposed that this filing will become effective (check appropriate
box):

[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1996 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.

<PAGE> 2
STRONG VARIABLE INSURANCE FUNDS, INC.

CROSS REFERENCE SHEET

FOR STRONG DISCOVERY FUND II,
STRONG ASSET ALLOCATION FUND II,
STRONG INTERNATIONAL STOCK FUND II, AND
STRONG ADVANTAGE FUND II

(Pursuant to Rule 481 showing the location in the Prospectus and the
Statement of Additional Information of the responses to the Items of Parts A
and B of Form N-1A.)

<TABLE>
<CAPTION>
CAPTION OR SUBHEADING IN PROSPECTUS OR
ITEM NO. ON FORM N-1A STATEMENT OF ADDITIONAL INFORMATION
- ------------------------------------------------------ -----------------------------------------
<S> <C>
PART A - INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Inapplicable
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant The Fund; Investment Objective and
Policies; Implementation of Policies and
Risks; Special Considerations;
Additional Information
5. Management of the Fund Management, Additional Information
5A. Management's Discussion of Fund Performance *
6. Capital Stock and Other Securities Additional Information
7. Purchase of Securities Being Offered Additional Information
8. Redemption or Repurchase Additional Information
9. Pending Legal Proceedings Inapplicable

</TABLE>
<PAGE> 3

<TABLE>
<CAPTION>
CAPTION OR SUBHEADING IN PROSPECTUS OR
ITEM NO. ON FORM N-1A STATEMENT OF ADDITIONAL INFORMATION
- ------------------------------------------------------ -----------------------------------------
<S> <C>
18. Capital Stock and Other Securities Included in Prospectus under the heading
Additional Information
19. Purchase, Redemption and Pricing of Securities Included in Prospectus under the
Being Offered headings: Additional Information; and
in the Statement of Additional
Information under the headings:
Investment Advisor and Distributor; and
Determination of Net Asset Value
20. Tax Status Included in Prospectus under the heading
Additional Information; and Special
Considerations; and in the Statement of
Additional Information under the heading
Taxes
21. Underwriters Investment Advisor and Distributor
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>

* Complete answer to Item is contained in each Fund's Annual Report.
** Complete answer to Item is contained in each Fund's Prospectus.

<PAGE> 4
STRONG VARIABLE INSURANCE FUNDS, INC.

CROSS REFERENCE SHEET

FOR STRONG GROWTH FUND II,
STRONG GOVERNMENT SECURITIES FUND II, AND
STRONG SHORT-TERM BOND FUND II

(Pursuant to Rule 481 showing the location in the Prospectus and the
Statement of Additional Information of the responses to the Items of Parts A
and B of Form N-1A.)

<TABLE>
<CAPTION>
CAPTION OR SUBHEADING IN PROSPECTUS OR
ITEM NO. ON FORM N-1A STATEMENT OF ADDITIONAL INFORMATION
- ------------------------------------------------------ -----------------------------------------
<S> <C>
PART A - INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Inapplicable
3. Condensed Financial Information Inapplicable
4. General Description of Registrant The Fund; Investment Objective and
Policies; Implementation of Policies and
Risks; Special Considerations;
Additional Information
5. Management of the Fund Management, Additional Information
5A. Management's Discussion of Fund Performance Inapplicable
6. Capital Stock and Other Securities Additional Information
7. Purchase of Securities Being Offered Additional Information
8. Redemption or Repurchase Additional Information
9. Pending Legal Proceedings Inapplicable

PART B - INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
<S> <C>
10. Cover Page Cover page
11. Table of Contents Table of Contents
12. General Information and History *
13. Investment Objectives and Policies Investment Restrictions; Investment
Policies and Techniques
14. Management of the Fund Directors and Officers of the Corporation
15. Control Persons and Principal Holders of Principal Shareholders; Directors and
Securities Officers of the Corporation; Investment
Advisor and Distributor
16. Investment Advisory and Other Services Investment Advisor and Distributor;
Management (in Prospectus); Custodian;
Transfer Agent and Dividend-Disbursing
Agent; Administrative Services;
Independent Accountants; Legal Counsel
17. Brokerage Allocation and Other Practices Portfolio Transactions and Brokerage
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
CAPTION OR SUBHEADING IN PROSPECTUS OR
ITEM NO. ON FORM N-1A STATEMENT OF ADDITIONAL INFORMATION
- ------------------------------------- --------------------------------------
<S> <C>
18. Capital Stock and Other Included in Prospectus under the
Securities heading Additional Information
19. Purchase, Redemption and Pricing Included in Prospectus under the
of Securities Being Offered headings: Additional Information;
and in the Statement of Additional
Information under the headings:
Additional Shareholder Information;
Investment Advisor and Distributor;
and Determination of Net Asset Value
20. Tax Status Included in Prospectus under the
heading Additional Information; and
Special Considerations; and in the
Statement of Additional Information
under the heading Taxes
21. Underwriters Investment Advisor and Distributor
22. Calculation of Performance Data Performance Information
23. Financial Statements Inapplicable
</TABLE>

* Complete answer to Item is contained in each Fund's Prospectus.

<PAGE> 6

STRONG DISCOVERY FUND II

Strong Discovery Fund II (the "Fund") is a diversified series of the Strong
Variable Insurance Funds, Inc. (the "Corporation"), an open-end management
investment company, commonly called a mutual fund. The Fund seeks capital
growth. The Fund's Advisor seeks to identify emerging investment trends and
attractive growth opportunities. While the Fund normally emphasizes equity
investments, it also has the flexibility to invest in debt obligations and
short-term fixed income securities.

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

This Prospectus contains information that you should consider before you
invest. Please read it carefully and keep it for future reference. A Statement
of Additional Information for the Fund, dated May 1, 1996, contains further
information, is incorporated by reference into this Prospectus, and has been
filed with the Securities and Exchange Commission ("SEC"). This Statement, which
may be revised from time to time, is available upon request and without charge
by writing to the Fund at P.O. Box 2936, Milwaukee, Wisconsin 53201.

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

----------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAP-
PROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECU-
RITIES AND EXCHANGE COMMISSION OR ANY STATE SECURI-
TIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- ----------------------------------------------------------------------------

Dated May 1, 1996

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

PROSPECTUS PAGE 1
<PAGE> 7

TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
THE FUND................................. 2
FINANCIAL HIGHLIGHTS..................... 3
INVESTMENT OBJECTIVE AND POLICIES........ 4
IMPLEMENTATION OF POLICIES AND RISKS..... 5
SPECIAL CONSIDERATIONS................... 11
MANAGEMENT............................... 13
ADDITIONAL INFORMATION................... 13
APPENDIX A............................... A-1
</TABLE>

No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the Statement
of Additional Information and, if given or made, such information or
representations may not be relied upon as having been authorized by the Fund.
This Prospectus does not constitute an offer to sell securities to any person in
any state or jurisdiction in which such offering may not lawfully be made.

THE FUND

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

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

PROSPECTUS PAGE 2
<PAGE> 8

FINANCIAL HIGHLIGHTS

The following annual Financial Highlights for the Fund have been audited by
Coopers & Lybrand L.L.P., independent certified public accountants. Their report
for the fiscal year ended December 31, 1995 is included in the Fund's Annual
Report that is contained in the Fund's Statement of Additional Information. The
Financial Highlights should be read in conjunction with the Financial Statements
and related notes included in the Fund's Annual Report. Additional information
about the performance of the Fund is contained in the Fund's Annual Report,
which may be obtained without charge by calling or writing Strong Funds. The
following presents information relating to a share of common 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 (0.03) 0.10 0.05 0.04
Net Realized and Unrealized Gains
(Losses) on Investments 3.58 (0.71) 2.09 0.78
-------- -------- ------- --------
TOTAL FROM INVESTMENT OPERATIONS 3.55 (0.61) 2.14 0.82
LESS DISTRIBUTIONS
From Net Investment Income -- (0.10) (0.05) (0.04 )
In Excess of Net Investment Income (0.18) (0.43) (0.70) --
From Net Realized Gains -- (0.33) -- (0.63 )(1)
-------- -------- ------- --------
TOTAL DISTRIBUTIONS (0.18) (0.86) (0.75) (0.67 )
-------- -------- ------- --------
NET ASSET VALUE, END OF PERIOD $ 13.44 $ 10.07 $ 11.54 $ 10.15
======== ======== ======= ========
Total Return +35.3% -5.4% +22.0% +8.9%
Net Assets, End of Period (In Thousands) $245,047 $118,927 $71,938 $26,739
Ratio of Expenses to Average Net Assets 1.3% 1.2% 1.3% 1.7% *
Ratio of Net Investment Income to
Average Net Assets (0.3%) 1.1% 0.5% 0.5% *
Portfolio Turnover Rate 542.1% 662.5% 976.5% 1,149.6%
</TABLE>

*Calculated on an annualized basis.

**Inception date is May 8, 1992. Total return and portfolio turnover rate are
not annualized.

(1)Ordinary income distribution for tax purposes.

Please note that the total return shown in the Financial Highlights does not
reflect expenses that apply to the separate account or the related insurance
policies. Inclusion of these charges would reduce the total return for the
periods shown.

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

PROSPECTUS PAGE 3
<PAGE> 9

INVESTMENT OBJECTIVE AND POLICIES

The Fund seeks capital growth. The Fund invests in securities that the
Advisor believes represent attractive growth opportunities.

The Fund may invest up to 25% of its net assets in foreign securities,
including both direct investments and investments made through depositary
receipts. See "Implementation of Policies and Risks - Foreign Securities and
Currencies" for the special risks associated with foreign investments.

The Advisor seeks to uncover emerging investment trends and attractive growth
opportunities. In its search for potential investments, the Advisor attempts to
identify companies that are poised for accelerated earnings growth due to
innovative products or services, new management, or favorable economic or market
cycles. These companies may be small, unseasoned firms in the early stages of
development, or they may be mature organizations. (See "Implementation of
Policies and Risks - Small Companies.") Whatever their size, history, or
industry, the Advisor believes their potential earnings growth is not yet
reflected in their market value and that, over time, the market prices of these
securities will move higher.

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

PROSPECTUS PAGE 4
<PAGE> 10

IMPLEMENTATION OF POLICIES AND RISKS

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

FOREIGN SECURITIES AND CURRENCIES

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

Foreign investments involve special risks, including:

- - expropriation, confiscatory taxation, and withholding taxes on dividends and
interest;
- - less extensive regulation of foreign brokers, securities markets, and issuers;
- - less publicly available information and different accounting standards;
- - costs incurred in conversions between currencies, possible delays in
settlement in foreign securities markets, limitations on the use or transfer
of assets (including suspension of the ability to transfer currency from a
given country), and difficulty of enforcing obligations in other countries;
and
- - diplomatic developments and political or social instability.

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

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

PROSPECTUS PAGE 5
<PAGE> 11

The Fund may invest in securities of issuers in developing or emerging
markets and economies. Risks of investing in developing or emerging markets
include:

- - less social, political, and economic stability;
- - smaller securities markets and lower trading volume, which may result in a
lack of liquidity and greater price volatility;

- - less developed legal structures governing private or foreign investment or
allowing for judicial redress for injury to private property.

Because most foreign securities are denominated in non-U.S. currencies, the
investment performance of the Fund could be affected by changes in foreign
currency exchange rates to some extent. The value of the Fund's assets
denominated in foreign currencies will increase or decrease in response to
fluctuations in the value of those foreign currencies relative to the U.S.
dollar. Currency exchange rates can be volatile at times in response to supply
and demand in the currency exchange markets, international balances of payments,
governmental intervention, speculation, and other political and economic
conditions.

The Fund may purchase and sell foreign currency on a spot basis and may
engage in forward currency contracts, currency options, and futures transactions
for hedging or any other lawful purpose. (See "Derivative Instruments.")

DERIVATIVE INSTRUMENTS

The Fund may use derivative instruments for any lawful purpose consistent
with the Fund's investment objective such as hedging or managing risk, but not
for speculation. Derivative instruments are commonly defined to include
securities or contracts whose values depend on (or "derive" from) the value of
one or more other assets, such as securities, currencies, or commodities. These
"other assets" are commonly referred to as "underlying assets."

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

PROSPECTUS PAGE 6
<PAGE> 12

A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to options or forward contracts. Options and forward
contracts are considered to be the basic "building blocks" of derivatives. For
example, forward-based derivatives include forward contracts, swap contracts, as
well as exchange-traded futures. Option-based derivatives include privately
negotiated, over-the-counter (OTC) options (including caps, floors, collars, and
options on forward and swap contracts) and exchange-traded options on futures.
Diverse types of derivatives may be created by combining options or forward
contracts in different ways, and by applying these structures to a wide range of
underlying assets.

An option is a contract in which the "holder" (the buyer) pays a certain
amount (the "premium") to the "writer" (the seller) to obtain the right, but not
the obligation, to buy from the writer (in a "call") or sell to the writer (in a
"put") a specific asset at an agreed upon price at or before a certain time. The
holder pays the premium at inception and has no further financial obligation.
The holder of an option-based derivative generally will benefit from favorable
movements in the price of the underlying asset but is not exposed to
corresponding losses due to adverse movements in the value of the underlying
asset. The writer of an option-based derivative generally will receive fees or
premiums but generally is exposed to losses due to changes in the value of the
underlying asset.

A forward is a sales contract between a buyer (holding the "long" position)
and a seller (holding the "short" position) for an asset with delivery deferred
until a future date. The buyer agrees to pay a fixed price at the agreed future
date and the seller agrees to deliver the asset. The seller hopes that the
market price on the delivery date is less than the agreed upon price, while the
buyer hopes for the contrary. The change in value of a forward-based derivative
generally is roughly proportional to the change in value of the underlying
asset.

Derivative instruments may include (i) options; (ii) futures; (iii) options
on futures; (iv) short sales against the box, in which the Fund sells a security
it owns for delivery at a future date; (v) swaps, in which two parties agree to
exchange a series of cash flows in the future, such as interest-rate payments;
(vi) interest-rate caps, under which, in return for a premium, one party agrees
to make payments to the other to the extent that interest rates exceed a
specified rate, or "cap"; (vii) interest-rate floors, under which, in return for
a premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified level, or "floor"; (viii) forward currency
contracts and foreign currency exchange-related securities; and (ix) structured
instruments which combine the foregoing in different ways.

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

PROSPECTUS PAGE 7
<PAGE> 13

instrument in relation to the underlying asset may be magnified. When
required by SEC guidelines, the Fund will set aside permissible liquid assets or
securities positions that substantially correlate to the market movements of the
derivative in a segregated account to secure its obligations under the
derivative. In order to maintain its required cover for a derivative, the Fund
may need to sell portfolio securities at disadvantageous prices or times since
it may not be possible to liquidate a derivative position.

The successful use of derivatives by the Fund is dependent upon a variety of
factors, particularly the Advisor's ability to correctly anticipate trends in
the underlying asset. In a hedging transaction, if the Advisor incorrectly
anticipates trends in the underlying asset, the Fund may be in a worse position
than if no hedging had occurred. In addition, there may be imperfect correlation
between the Fund's derivative transactions and the instruments being hedged. To
the extent that the Fund is engaging in derivative transactions for risk
management, 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.

In addition to the derivative instruments and strategies described above, the
Advisor expects to discover additional derivative instruments and other hedging
or risk management techniques. The Advisor may utilize these new derivative
instruments and techniques to the extent that they are consistent with the
Fund's investment objective and permitted by the Fund's investment limitations,
operating policies, and applicable regulatory authorities.

ILLIQUID SECURITIES

The Fund may invest up to 15% of its net assets in illiquid securities.
Illiquid securities are those securities that are not readily marketable,
including restricted securities and repurchase obligations maturing in more than
seven days. Certain restricted securities that may be resold to institutional
investors pursuant to Rule 144A under the Securities Act of 1933 and Section
4(2) commercial paper may be determined to be liquid under guidelines adopted by
the Fund's Board of Directors.

SMALL COMPANIES

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

PROSPECTUS PAGE 8
<PAGE> 14

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

DEBT OBLIGATIONS

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

Investment-grade debt obligations include:

- - U.S. government securities (as defined below);

- - bonds or bank obligations rated in one of the four highest rating categories
e.g., BBB or higher by Standard & Poor's Ratings Group or "S&P");

- - short-term notes rated in one of the two highest rating categories (e.g., Sp-2
or higher by S&P);

- - short-term bank obligations rated in one of the three highest rating
categories (e.g., A-3 or higher by S&P), with respect to obligations maturing
in one year or less;

- - commercial paper rated in one of the three highest rating categories of any
NRSRO (e.g., A-3 or higher by S&P);

- - unrated debt obligations determined by the Advisor to be of comparable
quality, and

- - repurchase agreements involving investment-grade debt obligations.

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

PROSPECTUS PAGE 9
<PAGE> 15

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

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

GOVERNMENT SECURITIES

U.S. government securities are issued or guaranteed by the U.S. government or
its agencies or instrumentalities. Securities issued by the government include
U.S. Treasury obligations, such as Treasury bills, notes, and bonds. Securities
issued by government agencies or instrumentalities include, for example,
obligations of the following:

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

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

WHEN-ISSUED SECURITIES

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

PROSPECTUS PAGE 10
<PAGE> 16

when the Fund purchases a when-issued security, it immediately assumes the
risk of ownership, including the risk of price fluctuation.

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

PORTFOLIO TURNOVER

SPECIAL CONSIDERATIONS

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

PROSPECTUS PAGE 11
<PAGE> 17

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

Except for the organizational shares of the Fund, the Fund's shares may be
held of record only by insurance company separate accounts. As of March 31,
1996, Nationwide Life Insurance Company owned approximately 96.22% of the Fund.
Nationwide Life Insurance Company's ownership of greater than 25% of the Fund's
shares may result in it being deemed to be the controlling entity of the Fund.
It may continue to be deemed as such until other insurance companies, if any,
selling significant numbers of variable annuity and variable life insurance
contracts, have made substantial investments in the Fund's shares.

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

PROSPECTUS PAGE 12
<PAGE> 18

MANAGEMENT

The Board of Directors of the Fund is responsible for managing its business
and affairs. The Fund has entered into an investment advisory agreement (an
"Advisory Agreement") with the Advisor. Under the terms of the Advisory
Agreement, the Advisor manages the Fund's investments and business affairs,
subject to the supervision of the Board of Directors.

The Advisor began conducting business in 1974. Since then, its principal
business has been providing continuous investment supervision for individuals
and institutional accounts, such as pension funds and profit-sharing plans as
well as mutual funds, several of which are funding vehicles for variable
insurance products. As of April 15, 1996, the Advisor had over $19 billion under
management. The Advisor's principal mailing address is P.O. Box 2936, Milwaukee,
Wisconsin 53201. Mr. Richard S. Strong, the Chairman of the Board of the Fund,
is the controlling shareholder of the Advisor.

As compensation for its services, the Fund pays the Advisor a monthly
management fee. The annual fee is 1.00% of the average daily net asset value of
the Fund. Under the terms of the Advisory Agreement, the Advisor provides office
space and all necessary office facilities, equipment, and personnel for
servicing the investments of the Fund. From time to time, the Advisor may
voluntarily waive all or a portion of its management fee and/or absorb certain
expenses for the Fund without further notification of the commencement or
termination of any such waiver or absorption. Any such waiver or absorption will
have the effect of lowering the overall expense ratio of the Fund and increasing
the Fund's return to investors at the time such amounts were waived and/or
absorbed.

PORTFOLIO MANAGER. Mr. Richard S. Strong founded the Advisor in 1974. He
began his investment career at Employers Insurance of Wausau in 1966, after
receiving his master's degree in finance from the University of Wisconsin-
Madison that January. He received his undergraduate degree in 1963 from
Baldwin-Wallace College. Mr. Strong has managed the Strong Discovery Fund II
since its inception in May 1992. In addition to his role as a portfolio manager,
he is currently the Chairman of the Board, Director, Chief Investment Officer,
and Member of the Advisor's Executive Committee.

ADDITIONAL INFORMATION

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

PROSPECTUS PAGE 13
<PAGE> 19

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

CALCULATION OF NET ASSET VALUE. The net asset value ("NAV") per share for the
Fund is determined as of the close of trading on the New York Stock Exchange
(the "Exchange"), currently 3:00 p.m. Central Time, on days the Exchange is open
for business. The NAV will not be determined for the Fund on days during which
the Fund receives no orders to purchase shares and no shares are tendered for
redemption. The Fund's NAV is calculated by taking the fair value of the Fund's
total assets, subtracting all liabilities, and dividing by the total number of
outstanding shares. Expenses are accrued and applied daily when determining the
NAV.

The Fund's portfolio securities are valued based on market quotations or at
fair value as determined by the method selected by the Board of Directors.
Equity securities traded on a national securities exchange or NASDAQ are valued
at the last sales price on the national securities exchange or NASDAQ on which
such securities are primarily traded. Securities traded on NASDAQ for which
there were no transactions on a given day or securities not listed on an
exchange or NASDAQ are valued at the average of the most recent bid and asked
prices. Other exchange-traded securities (generally foreign securities) will be
valued based on market quotations.

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

PROSPECTUS PAGE 14
<PAGE> 20

request is received in proper form, the Fund will ordinarily forward payment to
the separate account no later than seven days after receipt.
The right of redemption may be suspended during any period in which: (i)
trading on the Exchange is restricted, as determined by the SEC, or the Exchange
is closed for other than weekends and holidays; (ii) the SEC has permitted such
suspension by order; or (iii) an emergency, as determined by the SEC, exists
which makes disposal of portfolio securities or valuation of net assets of the
Fund not reasonably practicable.

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

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

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

PROSPECTUS PAGE 15
<PAGE> 21

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

TRANSFER AGENT, DIVIDEND-DISBURSING AGENT, AND DISTRIBUTOR. The Advisor, P.O.
Box 2936, Milwaukee, Wisconsin 53201, acts as transfer agent and
dividend-disbursing agent for the Fund. Strong Funds Distributors, Inc., P.O.
Box 2936, Milwaukee, Wisconsin 53201, an indirect subsidiary of the Advisor,
acts as distributor of the shares of the Fund.

PERFORMANCE INFORMATION. The Fund may advertise a variety of types of
performance information including "average annual total return," "total return,"
and "cumulative total return." Each of these figures is based upon historical
results and does not represent the future performance of the Fund. Average
annual total return and total return figures measure both the net investment
income generated by, and the effect of any realized and unrealized appreciation
or depreciation of, the underlying investments in the Fund assuming the
reinvestment of all dividends and distributions. Total return figures are not
annualized and simply represent the aggregate change of the Fund's investments
over a specified period of time.

The Fund's shares are sold at the net asset value per share of the Fund.
Returns and net asset value will fluctuate. Shares of the Fund are redeemable by
the separate accounts of insurance companies at the then current net asset value
per share for the Fund, which may be more or less than the original cost. TOTAL
RETURNS CONTAINED IN ADVERTISEMENTS INCLUDE THE EFFECT OF DEDUCTING THE FUND'S
EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY
PARTICULAR INSURANCE PRODUCT. SINCE SHARES MAY ONLY BE PURCHASED BY THE SEPARATE
ACCOUNTS OF CERTAIN INSURANCE COMPANIES, CONTRACT OWNERS SHOULD CAREFULLY REVIEW
THE PROSPECTUS OF THE SEPARATE ACCOUNT FOR INFORMATION ON FEES AND EXPENSES.
Excluding such fees and expenses from the Fund's total return quotations has the
effect of increasing the performance quoted. The Fund will not use information
concerning its investment performance in advertisements or sales materials
unless appropriate information concerning the relevant separate account is also
included. Additional information concerning the Fund's performance appears in
the SAI.

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

PROSPECTUS PAGE 16
<PAGE> 22

APPENDIX A

RATINGS OF DEBT OBLIGATIONS:

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

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

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

PROSPECTUS PAGE A-1
<PAGE> 23

STATEMENT OF ADDITIONAL INFORMATION

STRONG DISCOVERY FUND II
P.O. Box 2936
Milwaukee, Wisconsin 53201

Telephone: (414) 359-1400

Toll-Free: (800) 368-3863

Strong Discovery Fund II (the "Fund") is a diversified series of the
Strong Variable Insurance Funds, Inc. (the "Corporation"), an open-end
management investment company designed to provide an investment vehicle for
variable annuity and variable life insurance contracts of certain insurance
companies. Shares in the Fund are only offered and sold to the separate
accounts of such insurance companies. The Fund is described herein and in the
Prospectus for the Fund dated May 1, 1996.

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus for the Fund dated May 1, 1996 and the
prospectus for the separate account of the specific insurance product.
Requests for copies of the Fund's Prospectus may be made by calling one of the
numbers listed above. The financial statements appearing in the Fund's Annual
Report, which accompanies this Statement of Additional Information, are
incorporated herein by reference.

This Statement of Additional Information is dated May 1, 1996.

<PAGE> 24

STRONG DISCOVERY FUND II

<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
INVESTMENT RESTRICTIONS.................................... 3
INVESTMENT POLICIES AND TECHNIQUES......................... 5
Borrowing................................................ 5
Convertible Securities................................... 5
Debt Obligations......................................... 6
Depositary Receipts...................................... 6
Derivative Instruments................................... 7
Foreign Investment Companies............................. 16
Foreign Securities....................................... 17
High-Yield (High-Risk) Securities........................ 17
Illiquid Securities...................................... 19
Lending of Portfolio Securities.......................... 19
Mortgage- and Asset-Backed Securities.................... 20
Mortgage Dollar Rolls and Reverse Repurchase Agreements.. 21
Repurchase Agreements.................................... 21
Short Sales Against the Box.............................. 22
Short-Term Cash Management............................... 22
Small Companies.......................................... 22
Temporary Defensive Position............................. 22
Warrants................................................. 22
When-Issued Securities................................... 23
Zero-Coupon, Step-Coupon and Pay-in-Kind Securities...... 23
DIRECTORS AND OFFICERS OF THE CORPORATION.................. 23
PRINCIPAL SHAREHOLDERS..................................... 26
INVESTMENT ADVISOR AND DISTRIBUTOR......................... 26
PORTFOLIO TRANSACTIONS AND BROKERAGE....................... 28
CUSTODIAN.................................................. 31
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT............... 31
ADMINISTRATIVE SERVICES.................................... 31
TAXES...................................................... 32
DETERMINATION OF NET ASSET VALUE........................... 34
FUND ORGANIZATION.......................................... 34
PERFORMANCE INFORMATION.................................... 35
GENERAL INFORMATION........................................ 40
PORTFOLIO MANAGEMENT....................................... 41
INDEPENDENT ACCOUNTANTS.................................... 42
LEGAL COUNSEL.............................................. 42
FINANCIAL STATEMENTS....................................... 42
APPENDIX................................................... A-1
</TABLE>

______________________________

No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus dated May 1, 1996 and, if given or made, such
information or representations may not be relied upon as having been authorized
by the Fund.

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

<PAGE> 25

INVESTMENT RESTRICTIONS

The investment objective of the Fund is to seek capital growth. The
Fund's investment objective and policies are described in detail in the
Prospectus under the caption "Investment Objective and Policies." The
following are the Fund's fundamental investment limitations which cannot be
changed without shareholder approval.

The Fund:

1. May not with respect to 75% of its total assets, purchase the securities
of any issuer (except securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities) if, as a result, (i) more
than 5% of the Fund's total assets would be invested in the securities of
that issuer, or (ii) the Fund would hold more than 10% of the outstanding
voting securities of that issuer.

2. May (i) borrow money from banks and (ii) make other investments or engage
in other transactions permissible under the Investment Company Act of 1940
(the "1940 Act") which may involve a borrowing, provided that the
combination of (i) and (ii) shall not exceed 33 1/3% of the value of the
Fund's total assets (including the amount borrowed), less the Fund's
liabilities (other than borrowings), except that the Fund may borrow up to
an additional 5% of its total assets (not including the amount borrowed)
from a bank for temporary or emergency purposes (but not for leverage or
the purchase of investments). The Fund may also borrow money from the
other Strong Funds or other persons to the extent permitted by applicable
law.

3. May not issue senior securities, except as permitted under the 1940 Act.

4. May not act as an underwriter of another issuer's securities, except to
the extent that the Fund may be deemed to be an underwriter within the
meaning of the Securities Act of 1933 in connection with the purchase and
sale of portfolio securities.

5. May not purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not
prevent the Fund from purchasing or selling options, futures contracts, or
other derivative instruments, or from investing in securities or other
instruments backed by physical commodities).

6. May not make loans if, as a result, more than 33 1/3% of the Fund's total
assets would be lent to other persons, except through (i) purchases of
debt securities or other debt instruments, or (ii) engaging in repurchase
agreements.

7. May not purchase the securities of any issuer if, as a result, more than
25% of the Fund's total assets would be invested in the securities of
issuers, the principal business activities of which are in the same
industry.

8. May not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prohibit
the Fund from purchasing or selling securities or other instruments backed
by real estate or of issuers engaged in real estate activities).

9. May, notwithstanding any other fundamental investment policy or
restriction, invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objective, policies, and restrictions as the Fund.

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

<PAGE> 26

The Fund may not:

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

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

3. Invest in illiquid securities if, as a result of such investment, more
than 15% of its net assets would be invested in illiquid securities, or
such other amounts as may be permitted under the 1940 Act.

4. Purchase securities of other investment companies except in compliance
with the 1940 Act and applicable state law.

5. Invest all of its assets in the securities of a single open-end
investment management company with substantially the same fundamental
investment objective, restrictions and policies as the Fund.

6. Purchase the securities of any issuer (other than securities issued or
guaranteed by domestic or foreign governments or political subdivisions
thereof) if, as a result, more than 5% of its total assets would be
invested in the securities of issuers that, including predecessor or
unconditional guarantors, have a record of less than three years of
continuous operation. This policy does not apply to securities of pooled
investment vehicles or mortgage or asset-backed securities.

7. Invest in direct interests in oil, gas, or other mineral exploration
programs or leases; however, the Fund may invest in the securities of
issuers that engage in these activities.

8. Engage in futures or options on futures transactions which are
impermissible pursuant to Rule 4.5 under the Commodity Exchange Act and,
in accordance with Rule 4.5, will use futures or options on futures
transactions solely for bona fide hedging transactions (within the meaning
of the Commodity Exchange Act), provided, however, that the Fund may, in
addition to bona fide hedging transactions, use futures and options on
futures transactions if the aggregate initial margin and premiums required
to establish such positions, less the amount by which any such options
positions are in the money (within the meaning of the Commodity Exchange
Act), do not exceed 5% of the Fund's net assets.

In addition, (i) the aggregate value of securities underlying call
options on securities written by the Fund or obligations underlying put
options on securities written by the Fund determined as of the date the
options are written will not exceed 50% of the Fund's net assets; (ii)
the aggregate premiums paid on all options purchased by the Fund and
which are being held will not exceed 20% of the Fund's net assets; (iii)
the Fund will not purchase put or call options, other than hedging
positions, if, as a result thereof, more than 5% of its total assets
would be so invested; and (iv) the aggregate margin deposits required on
all futures and options on futures transactions being held will not
exceed 5% of the Fund's total assets.

9. Pledge, mortgage or hypothecate any assets owned by the Fund except as
may be necessary in connection with permissible borrowings or investments
and then such pledging, mortgaging, or hypothecating may not exceed 33
1/3% of the Fund's total assets at the time of the borrowing or
investment.

10. Purchase or retain the securities of any issuer if any officer or
director of the Fund or its investment advisor beneficially owns more than
1/2 of 1% of the securities of such issuer and such officers and directors
together own beneficially more than 5% of the securities of such issuer.

<PAGE> 27

11. Purchase warrants, valued at the lower of cost or market value, in excess
of 5% of the Fund's net assets. Included in that amount, but not to
exceed 2% of the Fund's net assets, may be warrants that are not listed on
any stock exchange. Warrants acquired by the Fund in units or attached to
securities are not subject to these restrictions.

12. Borrow money except (i) from banks or (ii) through reverse repurchase
agreements or mortgage dollar rolls, and will not purchase securities when
bank borrowings exceed 5% of its total assets.

13. Make any loans other than loans of portfolio securities, except through
(i) purchases of debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.

Except for the fundamental investment limitations listed above and the
Fund's investment objective, the other investment policies described in the
Prospectus and this Statement of Additional Information are not fundamental and
may be changed with approval of the Corporation's Board of Directors.

Unless noted otherwise, if a percentage restriction is adhered to at the
time of investment, a later increase or decrease in percentage resulting from a
change in the Fund's assets (i.e., due to cash inflows or redemptions) or in
market value of the investment or the Fund's assets will not constitute a
violation of that restriction.

INVESTMENT POLICIES AND TECHNIQUES

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

BORROWING

The Fund may borrow money from banks and make other investments or engage
in other transactions permissible under the 1940 Act which may be considered a
borrowing (such as mortgage dollar rolls and reverse repurchase agreements) as
discussed under "Investment Restrictions." However, the Fund may not purchase
securities when bank borrowings exceed 5% of the Fund's total assets.
Presently, the Fund only intends to borrow from banks for temporary or
emergency purposes.

The Fund has established a line-of-credit (LOC) with certain banks by
which they may borrow funds for temporary or emergency purposes. A borrowing
is presumed to be for temporary or emergency purposes if it is repaid by the
Fund within sixty days and is not extended or renewed. The Fund intends to use
the LOC to meet large or unexpected redemptions that would otherwise force the
Fund to liquidate securities under circumstances which are unfavorable to the
Fund's remaining shareholders. The Fund pays a commitment fee to the banks for
the LOC.

CONVERTIBLE SECURITIES

The Fund may invest in convertible securities, which are bonds,
debentures, notes, preferred stocks, or other securities that may be converted
into or exchanged for a specified amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest
normally paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted, or exchanged.
Convertible securities have unique investment characteristics in that they
generally (i) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (ii) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics,
and (iii) provide the potential for capital appreciation if the market price of
the underlying common stock increases. Most convertible securities currently
are issued by U.S. companies, although a substantial Eurodollar convertible
securities market has developed, and the markets for convertible securities
denominated in local currencies are increasing.

<PAGE> 28

value" (the security's worth, at market value, if converted into the underlying
common stock). The investment value of a convertible security is influenced by
changes in interest rates, with investment value declining as interest rates
increase and increasing as interest rates decline. The credit standing of the
issuer and other factors also may have an effect on the convertible security's
investment value. The conversion value of a convertible security is determined
by the market price of the underlying common stock. If the conversion value is
low relative to the investment value, the price of the convertible security is
governed principally by its investment value. Generally, the conversion value
decreases as the convertible security approaches maturity. To the extent the
market price of the underlying common stock approaches or exceeds the
conversion price, the price of the convertible security will be increasingly
influenced by its conversion value. A convertible security generally will sell
at a premium over its conversion value by the extent to which investors place
value on the right to acquire the underlying common stock while holding a fixed
income security.

A convertible security may be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Fund is called for
redemption, the Fund will be required to permit the issuer to redeem the
security, convert it into the underlying common stock, or sell it to a third
party.

DEBT OBLIGATIONS

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

PRICE VOLATILITY. The market value of debt obligations is affected
primarily by changes in prevailing interest rates. The market value of a debt
obligation generally reacts inversely to interest-rate changes, meaning, when
prevailing interest rates decline, an obligation's price usually rises, and
when prevailing interest rates rise, an obligation's price usually declines.

MATURITY. In general, the longer the maturity of a debt obligation, the
higher its yield and the greater its sensitivity to changes in interest rates.
Conversely, the shorter the maturity, the lower the yield but the greater the
price stability. Commercial paper is generally considered the shortest form of
debt obligation.

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

DEPOSITARY RECEIPTS

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

<PAGE> 29

treated as common stock. ADR and EDR depositary receipts do not eliminate all
of the risks associated with directly investing in the securities of foreign
issuers.

ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants.

A depositary may establish an unsponsored facility without participation
by (or even necessarily the acquiescence of) the issuer of the deposited
securities, although typically the depositary requests a letter of
non-objection from such issuer prior to the establishment of the facility.
Holders of unsponsored ADRs generally bear all the costs of such facilities.
The depositary usually charges fees upon the deposit and withdrawal of the
deposited securities, the conversion of dividends into U.S. dollars, the
disposition of non-cash distributions, and the performance of other services.
The depositary of an unsponsored facility frequently is under no obligation to
pass through voting rights to ADR holders in respect of the deposited
securities. In addition, an unsponsored facility is generally not obligated to
distribute communications received from the issuer of the deposited securities
or to disclose material information about such issuer in the U.S. and thus
there may not be a correlation between such information and the market value of
the depositary receipts.

Sponsored ADR facilities are created in generally the same manner as
unsponsored facilities, except that the issuer of the deposited securities
enters into a deposit agreement with the depositary. The deposit agreement
sets out the rights and responsibilities of the issuer, the depositary, and the
ADR holders. With sponsored facilities, the issuer of the deposited securities
generally will bear some of the costs relating to the facility (such as
dividend payment fees of the depositary), although ADR holders continue to bear
certain other costs (such as deposit and withdrawal fees). Under the terms of
most sponsored arrangements, depositories agree to distribute notices of
shareholder meetings and voting instructions, and to provide shareholder
communications and other information to the ADR holders at the request of the
issuer of the deposited securities.

DERIVATIVE INSTRUMENTS

IN GENERAL. The Fund may use derivative instruments for any lawful
purpose consistent with the Fund's investment objective such as hedging or
managing risk, but not for speculation. Derivative instruments are commonly
defined to include securities or contracts whose values depend on (or "derive"
from) the value of one or more other assets, such as securities, currencies, or
commodities. These "other assets" are commonly referred to as "underlying
assets.

A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to options or forward contracts. Options and forward
contracts are considered to be the basic "building blocks" of derivatives. For
example, forward-based derivatives include forward contracts, swap contracts,
as well as exchange-traded futures. Option-based derivatives include privately
negotiated, over-the-counter (OTC) options (including caps, floors, collars,
and options on forward and swap contracts) and exchange-traded options on
futures. Diverse types of derivatives may be created by combining options or
forward contracts in different ways, and by applying these structures to a wide
range of underlying assets.

An option is a contract in which the "holder" (the buyer) pays a certain
amount (the "premium") to the "writer" (the seller) to obtain the right, but
not the obligation, to buy from the writer (in a "call") or sell to the writer
(in a "put") a specific asset at an agreed upon price at or before a certain
time. The holder pays the premium at inception and has no further financial
obligation. The holder of an option-based derivative generally will benefit
from favorable movements in the price of the underlying asset but is not
exposed to corresponding losses due to adverse movements in the value of the
underlying asset. The writer of an option-based derivative generally will
receive fees or premiums but generally is exposed to losses due to changes in
the value of the underlying asset.

A forward is a sales contract between a buyer (holding the "long"
position) and a seller (holding the "short" position) for an asset with
delivery deferred until a future date. The buyer agrees to pay a fixed price
at the agreed future date and the seller agrees to deliver the asset. The
seller hopes that the market price on the delivery date is less than the agreed
upon price, while the buyer hopes for the contrary. The change in value of a
forward-based derivative generally is roughly proportional to the change in
value of the underlying asset.

<PAGE> 30

HEDGING. The Fund may use derivative instruments to protect against
possible adverse changes in the market value of securities held in, or are
anticipated to be held in, the Fund's portfolio. Derivatives may also be used
by the Fund to "lock-in" the Fund's realized but unrecognized gains in the
value of its portfolio securities. Hedging strategies, if successful, can
reduce the risk of loss by wholly or partially offsetting the negative effect
of unfavorable price movements in the investments being hedged. However,
hedging strategies can also reduce the opportunity for gain by offsetting the
positive effect of favorable price movements in the hedged investments.

MANAGING RISK. The Fund may also use derivative instruments to manage the
risks of the Fund's portfolio. Risk management strategies include, but are not
limited to, facilitating the sale of portfolio securities, managing the
effective maturity or duration of debt obligations in the Fund's portfolio,
establishing a position in the derivatives markets as a substitute for buying
or selling certain securities, or creating or altering exposure to certain
asset classes, such as equity, debt, and foreign securities. The use of
derivative instruments may provide a less expensive, more expedient or more
specifically focused way for the Fund to invest than "traditional" securities
(i.e., stocks or bonds) would.

EXCHANGE OR OTC DERIVATIVES. Derivative instruments may be
exchange-traded or traded in OTC transactions between private parties.
Exchange-traded derivatives are standardized options and futures contracts
traded in an auction on the floor of a regulated exchange. Exchange contracts
are generally very liquid. The exchange clearinghouse is the counterparty of
every contract. Thus, each holder of an exchange contract bears the credit
risk of the clearinghouse (and has the benefit of its financial strength)
rather than that of a particular counterparty. Over-the-counter transactions
are subject to additional risks, such as the credit risk of the counterparty to
the instrument and are less liquid than exchange-traded derivatives since they
often can only be closed out with the other party to the transaction

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

(1) MARKET RISK. The primary risk of derivatives is the same as the risk
of the underlying assets, namely that the value of the underlying asset may go
up or down. Adverse movements in the value of an underlying asset can expose
the Fund to losses. Derivative instruments may include elements of leverage
and, accordingly, the fluctuation of the value of the derivative instrument in
relation to the underlying asset may be magnified. The successful use of
derivative instruments depends upon a variety of factors, particularly the
Advisor's ability to predict movements of the securities, currencies, and
commodity markets, which requires different skills than predicting changes in
the prices of individual securities. There can be no assurance that any
particular strategy adopted will succeed. The Advisor's decision to engage in
a derivative instrument will reflect the Advisor's judgment that the derivative
transaction will provide value to the Fund and its shareholders and is
consistent with the Fund's objectives, investment limitations, and operating
policies. In making such a judgment, the Advisor will analyze the benefits and
risks of the derivative transaction and weigh them in the context of the Fund's
entire portfolio and investment objective.

(2) CREDIT RISK. The Fund will be subject to the risk that a loss may be
sustained by the Fund as a result of the failure of a counterparty to comply
with the terms of a derivative instrument. The counterparty risk for
exchange-traded derivative instruments is generally less than for
privately-negotiated or OTC derivative instruments, since generally a clearing
agency, which is the issuer or counterparty to each exchange-traded instrument,
provides a guarantee of performance. For privately-negotiated instruments,
there is no similar clearing agency guarantee. In all transactions, the Fund
will bear the risk that the counterparty will default, and this could result in
a loss of the expected benefit of the derivative transaction and possibly other
losses to the Fund. The Fund will enter into transactions in derivative
instruments only with counterparties that the Advisor reasonably believes are
capable of performing under the contract.

<PAGE> 31

perfectly correlated. Such a lack of correlation might occur due to factors
unrelated to the value of the investments being hedged, such as speculative or
other pressures on the markets in which these instruments are traded. The
effectiveness of hedges using instruments on indices will depend, in part, on
the degree of correlation between price movements in the index and price
movements in the investments being hedged.

(4) LIQUIDITY RISK. Derivatives are also subject to liquidity risk.
Liquidity risk is the risk that a derivative instrument cannot be sold, closed
out, or replaced quickly at or very close to its fundamental value. Generally,
exchange contracts are very liquid because the exchange clearinghouse is the
counterparty of every contract. OTC transactions are less liquid than
exchange-traded derivatives since they often can only be closed out with the
other party to the transaction. The Fund might be required by applicable
regulatory requirement to maintain assets as "cover," maintain segregated
accounts, and/or make margin payments when it takes positions in derivative
instruments involving obligations to third parties (i.e., instruments other
than purchased options). If the Fund was unable to close out its positions in
such instruments, it might be required to continue to maintain such assets or
accounts or make such payments until the position expired, matured, or was
closed out. The requirements might impair the Fund's ability to sell a
portfolio security or make an investment at a time when it would otherwise be
favorable to do so, or require that the Fund sell a portfolio security at a
disadvantageous time. The Fund's ability to sell or close out a position in an
instrument prior to expiration or maturity depends on the existence of a liquid
secondary market or, in the absence of such a market, the ability and
willingness of the counterparty to enter into a transaction closing out the
position. Therefore, there is no assurance that any derivatives position can
be sold or closed out at a time and price that is favorable to the Fund.

(5) LEGAL RISK. Legal risk is the risk of loss caused by the legal
unenforcibility of a party's obligations under the derivative. While a party
seeking price certainty agrees to surrender the potential upside in exchange
for downside protection, the party taking the risk is looking for a positive
payoff. Despite this voluntary assumption of risk, a counterparty that has
lost money in a derivative transaction may try to avoid payment by exploiting
various legal uncertainties about certain derivative products.

(6) SYSTEMIC OR "INTERCONNECTION" RISK. Interconnection risk is the risk
that a disruption in the financial markets will cause difficulties for all
market participants. In other words, a disruption in one market will spill
over into other markets, perhaps creating a chain reaction. Much of the OTC
derivatives market takes place among the OTC dealers themselves, thus creating
a large interconnected web of financial obligations. This interconnectedness
raises the possibility that a default by one large dealer could create losses
at other dealers and destabilize the entire market for OTC derivative
instruments.

GENERAL LIMITATIONS. The use of derivative instruments is subject to
applicable regulations of the Securities and Exchange Commission (the "SEC"),
the several options and futures exchanges upon which they may be traded, the
Commodity Futures Trading Commission ("CFTC"), and various state regulatory
authorities. In addition, the Fund's ability to use derivative instruments may
be limited by certain tax considerations. For a discussion of the federal
income tax treatment of the Fund's derivative instruments, see "Taxes -
Derivative Instruments."

The Fund has filed a notice of eligibility for exclusion from the
definition of the term "commodity pool operator" with the CFTC and the National
Futures Association, which regulate trading in the futures markets. In
accordance with Rule 4.5 of the regulations under the Commodity Exchange Act
(the "CEA"), the notice of eligibility for the Fund includes representations
that the Fund will use futures contracts and related options solely for bona
fide hedging purposes within the meaning of CFTC regulations, provided that the
Fund may hold other positions in futures contracts and related options that do
not qualify as a bona fide hedging position if the aggregate initial margin
deposits and premiums required to establish these positions, less the amount by
which any such futures contracts and related options positions are "in the
money," do not exceed 5% of the Fund's net assets. Adherence to these
guidelines does not limit the Fund's risk to 5% of the Fund's assets.

In addition, certain state regulations presently require that (i) the
aggregate value of securities underlying call options on securities written by
the Fund or obligations underlying put options on securities written by the
Fund determined as of the date the options are written will not exceed 50% of
the Fund's net assets; (ii) the aggregate premiums paid on all options
purchased by the Fund and which are being held will not exceed 20% of the
Fund's net assets; (iii) the Fund will not purchase put or call options, other
than hedging positions, if, as a result thereof, more than 5% of its total
assets would be so invested; and

9
<PAGE> 32

(iv) the aggregate margin deposits required on all futures and options on
futures transactions being held will not exceed 5% of the Fund's total assets.

The SEC has identified certain trading practices involving derivative
instruments that involve the potential for leveraging the Fund's assets in a
manner that raises issues under the 1940 Act. In order to limit the potential
for the leveraging of the Fund's assets, as defined under the 1940 Act, the SEC
has stated that the Fund may use coverage or the segregation of the Fund's
assets. To the extent required by SEC guidelines, the Fund will not enter into
any such transactions unless it owns either: (i) an offsetting ("covered")
position in securities, options, futures, or derivative instruments; or (ii)
cash, liquid high grade debt obligations, or securities positions that
substantially correlate to the market movements of the instrument, with a value
sufficient at all times to cover its potential obligations to the extent that
the position is not "covered". For this purpose, a high grade debt obligation
shall include any debt obligation rated A or better by an NRSRO. The Fund will
also set aside cash and/or appropriate liquid assets in a segregated custodial
account if required to do so by the SEC and CFTC regulations. Assets used as
cover or held in a segregated account cannot be sold while the derivative
position is open, unless they are replaced with similar assets. As a result,
the commitment of a large portion of the Fund's assets to segregated accounts
could impede portfolio management or the Fund's ability to meet redemption
requests or other current obligations.

In some cases the Fund may be required to maintain or limit exposure to a
specified percentage of its assets to a particular asset class. In such cases,
when the Fund uses a derivative instrument to increase or decrease exposure to
an asset class and is required by applicable SEC guidelines to set aside liquid
assets in a segregated account to secure its obligations under the derivative
instruments, the Advisor may, where reasonable in light of the circumstances,
measure compliance with the applicable percentage by reference to the nature of
the economic exposure created through the use of the derivative instrument and
not by reference to the nature of the exposure arising from the liquid assets
set aside in the segregated account (unless another interpretation is specified
by applicable regulatory requirements).

OPTIONS. The Fund may use options for any lawful purpose consistent with
the Fund's investment objective such as hedging or managing risk but not for
speculation. An option is a contract in which the "holder" (the buyer) pays a
certain amount (the "premium") to the "writer" (the seller) to obtain the
right, but not the obligation, to buy from the writer (in a "call") or sell to
the writer (in a "put") a specific asset at an agreed upon price (the "strike
price" or "exercise price") at or before a certain time (the "expiration
date"). The holder pays the premium at inception and has no further financial
obligation. The holder of an option will benefit from favorable movements in
the price of the underlying asset but is not exposed to corresponding losses
due to adverse movements in the value of the underlying asset. The writer of
an option will receive fees or premiums but is exposed to losses due to changes
in the value of the underlying asset. The Fund may buy or write (sell) put and
call options on assets, such as securities, currencies, commodities, and
indices of debt and equity securities ("underlying assets") and enter into
closing transactions with respect to such options to terminate an existing
position. Options used by the Fund may include European, American, and Bermuda
style options. If an option is exercisable only at maturity, it is a
"European" option; if it is also exercisable prior to maturity, it is an
"American" option. If it is exercisable only at certain times, it is a
"Bermuda" option.

The Fund may purchase (buy) and write (sell) put and call options
underlying assets and enter into closing transactions with respect to such
options to terminate an existing position. The purchase of call options serves
as a long hedge, and the purchase of put options serves as a short hedge.
Writing put or call options can enable the Fund to enhance income by reason of
the premiums paid by the purchaser of such options. Writing call options
serves as a limited short hedge because declines in the value of the hedged
investment would be offset to the extent of the premium received for writing
the option. However, if the security appreciates to a price higher than the
exercise price of the call option, it can be expected that the option will be
exercised and the Fund will be obligated to sell the security at less than its
market value or will be obligated to purchase the security at a price greater
than that at which the security must be sold under the option. All or a
portion of any assets used as cover for OTC options written by the Fund would
be considered illiquid to the extent described under "Investment Policies and
Techniques -- Illiquid Securities." Writing put options serves as a limited
long hedge because increases in the value of the hedged investment would be
offset to the extent of the premium received for writing the option. However,
if the security depreciates to a price lower than the exercise price of the put
option, it can be expected that the put option will be exercised and the Fund
will be obligated to purchase the security at more than its market value.

<PAGE> 33

The value of an option position will reflect, among other things, the
historical price volatility of the underlying investment, the current market
value of the underlying investment, the time remaining until expiration, the
relationship of the exercise price to the market price of the underlying
investment, and general market conditions.

The Fund may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, the Fund may terminate
its obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a
closing sale transaction. Closing transactions permit the Fund to realize the
profit or limit the loss on an option position prior to its exercise or
expiration.

The Fund may purchase or write both exchange-traded and OTC options.
Exchange-traded options are issued by a clearing organization affiliated with
the exchange on which the option is listed that, in effect, guarantees
completion of every exchange-traded option transaction. In contrast, OTC
options are contracts between the Fund and the other party to the transaction
("counter party") (usually a securities dealer or a bank) with no clearing
organization guarantee. Thus, when the Fund purchases or writes an OTC option,
it relies on the counter party to make or take delivery of the underlying
investment upon exercise of the option. Failure by the counter party to do so
would result in the loss of any premium paid by the Fund as well as the loss of
any expected benefit of the transaction.

The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The Fund intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the counter party, or by a
transaction in the secondary market if any such market exists. Although the
Fund will enter into OTC options only with counter parties that are expected to
be capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option at a
favorable price prior to expiration. In the event of insolvency of the counter
party, the Fund might be unable to close out an OTC option position at any time
prior to its expiration. If the Fund were unable to effect a closing
transaction for an option it had purchased, it would have to exercise the
option to realize any profit.

The Fund may engage in options transactions on indices in much the same
manner as the options on securities discussed above, except the index options
may serve as a hedge against overall fluctuations in the securities market in
general.

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

SPREAD TRANSACTIONS. The Fund may use spread transactions for any lawful
purpose consistent with the Fund's investment objective such as hedging or
managing risk, but not for speculation. The Fund may purchase covered spread
options from securities dealers. Such covered spread options are not presently
exchange-listed or exchange-traded. The purchase of a spread option gives the
Fund the right to put, or sell, a security that it owns at a fixed dollar
spread or fixed yield spread in relationship to another security that the Fund
does not own, but which is used as a benchmark. The risk to the Fund in
purchasing covered spread options is the cost of the premium paid for the
spread option and any transaction costs. In addition, there is no assurance
that closing transactions will be available. The purchase of spread options
will be used to protect the Fund against adverse changes in prevailing credit
quality spreads, i.e., the yield spread between high quality and lower quality
securities. Such protection is only provided during the life of the spread
option.

FUTURES CONTRACTS. The Fund may use futures contracts for any lawful
purpose consistent with the Fund's investment objective such as hedging or
managing risk but not for speculation. The Fund may enter into futures
contracts, including interest rate, index, and currency futures. The Fund may
also purchase put and call options, and write covered put and call options, on
futures in which it is allowed to invest. The purchase of futures or call
options thereon can serve as a long hedge, and the sale of futures or the
purchase of put options thereon can serve as a short hedge. Writing covered
call options on futures contracts can serve as a limited short hedge, and
writing covered put options on futures contracts can serve as a limited long
hedge, using a strategy similar to that used for writing covered options in
securities. The Fund's hedging may include purchases of futures as an offset
against the effect of expected increases in currency exchange rates and
securities prices and sales of futures as an offset against the effect of
expected declines in currency exchange rates and securities prices. The Fund

<PAGE> 34

may also write put options on futures contracts while at the same time
purchasing call options on the same futures contracts in order to create
synthetically a long futures contract position. Such options would have the
same strike prices and expiration dates. The Fund will engage in this strategy
only when the Advisor believes it is more advantageous to the Fund than is
purchasing the futures contract.

To the extent required by regulatory authorities, the Fund only enters
into futures contracts that are traded on national futures exchanges and are
standardized as to maturity date and underlying financial instrument. Futures
exchanges and trading are regulated under the CEA by the CFTC. Although
techniques other than sales and purchases of futures contracts could be used to
reduce the Fund's exposure to market, currency, or interest rate fluctuations,
the Fund may be able to hedge its exposure more effectively and perhaps at a
lower cost through using futures contracts.

An interest rate futures contract provides for the future sale by one
party and purchase by another party of a specified amount of a specific
financial instrument (e.g., debt security) or currency for a specified price at
a designated date, time, and place. An index futures contract is an agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the close of the
last trading day of the contract and the price at which the index futures
contract was originally written. Transaction costs are incurred when a futures
contract is bought or sold and margin deposits must be maintained. A futures
contract may be satisfied by delivery or purchase, as the case may be, of the
instrument, the currency or by payment of the change in the cash value of the
index. More commonly, futures contracts are closed out prior to delivery by
entering into an offsetting transaction in a matching futures contract.
Although the value of an index might be a function of the value of certain
specified securities, no physical delivery of those securities is made. If the
offsetting purchase price is less than the original sale price, the Fund
realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The transaction
costs must also be included in these calculations. There can be no assurance,
however, that the Fund will be able to enter into an offsetting transaction
with respect to a particular futures contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will
continue to be required to maintain the margin deposits on the futures
contract.

No price is paid by the Fund upon entering into a futures contract.
Instead, at the inception of a futures contract, the Fund is required to
deposit in a segregated account with its custodian, in the name of the futures
broker through whom the transaction was effected, "initial margin" consisting
of cash, U.S. government securities or other liquid, high grade debt
obligations, in an amount generally equal to 10% or less of the contract value.
High grade securities include securities rated "A" or better by an NRSRO.
Margin must also be deposited when writing a call or put option on a futures
contract, in accordance with applicable exchange rules. Unlike margin in
securities transactions, initial margin on futures contracts does not represent
a borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Fund at the termination of the transaction if
all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, the Fund may be required by an exchange to
increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory action.

Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Fund's obligations to or from a futures
broker. When the Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when the Fund purchases
or sells a futures contract or writes a call or put option thereon, it is
subject to daily variation margin calls that could be substantial in the event
of adverse price movements. If the Fund has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous. Purchasers and sellers of futures positions
and options on futures can enter into offsetting closing transactions by
selling or purchasing, respectively, an instrument identical to the instrument
held or written. Positions in futures and options on futures may be closed
only on an exchange or board of trade that provides a secondary market. The
Fund intends to enter into futures transactions only on exchanges or boards of
trade where there appears to be a liquid secondary market. However, there can
be no assurance that such a market will exist for a particular contract at a
particular time.

<PAGE> 35
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.

If the Fund were unable to liquidate a futures or option on a futures
contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In
addition, except in the case of purchased options, the Fund would continue to
be required to make daily variation margin payments and might be required to
maintain the position being hedged by the future or option or to maintain cash
or securities in a segregated account.

Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or options on futures contracts
might not correlate perfectly with movements in the prices of the investments
being hedged. For example, all participants in the futures and options on
futures contracts markets are subject to daily variation margin calls and might
be compelled to liquidate futures or options on futures contracts positions
whose prices are moving unfavorably to avoid being subject to further calls.
These liquidations could increase price volatility of the instruments and
distort the normal price relationship between the futures or options and the
investments being hedged. Also, because initial margin deposit requirements in
the futures markets are less onerous than margin requirements in the securities
markets, there might be increased participation by speculators in the future
markets. This participation also might cause temporary price distortions. In
addition, activities of large traders in both the futures and securities
markets involving arbitrage, "program trading" and other investment strategies
might result in temporary price distortions.

FOREIGN CURRENCIES. The Fund may purchase and sell foreign currency on a
spot basis, and may use currency-related derivatives instruments such as
options on foreign currencies, futures on foreign currencies, options on
futures on foreign currencies and forward currency contracts (i.e., an
obligation to purchase or sell a specific currency at a specified future date,
which may be any fixed number of days from the contract date agreed upon by the
parties, at a price set at the time the contract is entered into). The Fund
may use these instruments for hedging or any other lawful purpose consistent
with their respective investment objectives, including transaction hedging,
anticipatory hedging, cross hedging, proxy hedging, and position hedging. The
Fund's use of currency-related derivative instruments will be directly related
to the Fund's current or anticipated portfolio securities, and the Fund may
engage in transactions in currency-related derivative instruments as a means to
protect against some or all of the effects of adverse changes in foreign
currency exchange rates on their portfolio investments. In general, if the
currency in which a portfolio investment is denominated appreciates against the
U.S. dollar, the dollar value of the security will increase. Conversely, a
decline in the exchange rate of the currency would adversely affect the value
of the portfolio investment expressed in U.S. dollars.

For example, the Fund might use currency-related derivative instruments to
"lock in" a U.S. dollar price for a portfolio investment, thereby enabling the
Fund to protect itself against a possible loss resulting from an adverse change
in the relationship between the U.S. dollar and the subject foreign currency
during the period between the date the security is purchased or sold and the
date on which payment is made or received. The Fund also might use
currency-related derivative instruments when the Advisor believes that one
currency may experience a substantial movement against another currency,
including the U.S. dollar, and it may use currency-related derivative
instruments to sell or buy the amount of the former foreign currency,
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency. Alternatively, where appropriate, the
Fund may use currency-related derivative instruments to hedge all or part of
its foreign currency exposure through the use of a basket of currencies or a
proxy currency where such currency or currencies act as an effective proxy for
other currencies. The use of this basket hedging technique may be more
efficient and economical than using separate currency-related derivative
instruments for each currency exposure held by the Fund. Furthermore,
currency-related derivative instruments may be used for short hedges - for
example, the Fund may sell a forward currency contract to lock in the U.S.
dollar equivalent of the proceeds from the anticipated sale of a security
denominated in a foreign currency.

13
<PAGE> 36

sometimes referred to as "cross hedges." The effective use of currency-related
derivative instruments by the Fund in a cross hedge is dependent upon a
correlation between price movements of the two currency instruments and the
underlying security involved, and the use of two currencies magnifies the risk
that movements in the price of one instrument may not correlate or may
correlate unfavorably with the foreign currency being hedged. Such a lack of
correlation might occur due to factors unrelated to the value of the currency
instruments used or investments being hedged, such as speculative or other
pressures on the markets in which these instruments are traded.

The Fund also might seek to hedge against changes in the value of a
particular currency when no hedging instruments on that currency are available
or such hedging instruments are more expensive than certain other hedging
instruments. In such cases, the Fund may hedge against price movements in that
currency by entering into transactions using currency-related derivative
instruments on another foreign currency or a basket of currencies, the values
of which the Advisor believes will have a high degree of positive correlation
to the value of the currency being hedged. The risk that movements in the
price of the hedging instrument will not correlate perfectly with movements in
the price of the currency being hedged is magnified when this strategy is used.

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

There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information generally is representative of very large transactions in
the interbank market and thus might not reflect odd-lot transactions where
rates might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying markets
that cannot be reflected in the markets for the derivative instruments until
they re-open.

Settlement of transactions in currency-related derivative instruments
might be required to take place within the country issuing the underlying
currency. Thus, the Fund might be required to accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign regulations
regarding the maintenance of foreign banking arrangements by U.S. residents
and might be required to pay any fees, taxes and charges associated with such
delivery assessed in the issuing country.

When the Fund engages in a transaction in a currency-related derivative
instrument, it relies on the counterparty to make or take delivery of the
underlying currency at the maturity of the contract or otherwise complete the
contract. In other words, the Fund will be subject to the risk that a loss may
be sustained by the Fund as a result of the failure of the counterparty to
comply with the terms of the transaction. The counterparty risk for
exchange-traded instruments is generally less than for privately-negotiated or
OTC currency instruments, since generally a clearing agency, which is the
issuer or counterparty to each instrument, provides a guarantee of performance.
For privately-negotiated instruments, there is no similar clearing agency
guarantee. In all transactions, the Fund will bear the risk that the
counterparty will default, and this could result in a loss of the expected
benefit of the transaction and possibly other losses to the Fund. The Fund
will enter into transactions in currency-related derivative instruments only
with counterparties that the Advisor reasonably believes are capable of
performing under the contract.

14
<PAGE> 37

to close the position out only on an exchange which provides a market for the
instruments. The ability to establish and close out positions on an exchange
is subject to the maintenance of a liquid market, and there can be no assurance
that a liquid market will exist for any instrument at any specific time. In
the case of a privately-negotiated instrument, the Fund will be able to realize
the value of the instrument only by entering into a closing transaction with
the issuer or finding a third party buyer for the instrument. While the Fund
will enter into privately-negotiated transactions only with entities who are
expected to be capable of entering into a closing transaction, there can be no
assurance that the Fund will in fact be able to enter into such closing
transactions.

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

Permissible foreign currency options will include options traded primarily
in the OTC market. Although options on foreign currencies are traded primarily
in the OTC market, the Fund will normally purchase or sell OTC options on
foreign currency only when the Advisor reasonably believes a liquid secondary
market will exist for a particular option at any specific time.

There will be a cost to the Fund of engaging in transactions in
currency-related derivative instruments that will vary with factors such as the
contract or currency involved, the length of the contract period and the market
conditions then prevailing. The Fund using these instruments may have to pay a
fee or commission or, in cases where the instruments are entered into on a
principal basis, foreign exchange dealers or other counterparties will realize
a profit based on the difference ("spread") between the prices at which they
are buying and selling various currencies. Thus, for example, a dealer may
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange should the Fund desire to resell that currency to the
dealer.

When required by the SEC guidelines, the Fund will set aside permissible
liquid assets in segregated accounts or otherwise cover their respective
potential obligations under currency-related derivatives instruments. To the
extent the Fund's assets are so set aside, they cannot be sold while the
corresponding currency position is open, unless they are replaced with similar
assets. As a result, if a large portion of the Fund's assets are so set aside,
this could impede portfolio management or the Fund's ability to meet redemption
requests or other current obligations.

The Advisor's decision to engage in a transaction in a particular
currency-related derivative instrument will reflect the Advisor's judgment that
the transaction will provide value to the Fund and its shareholders and is
consistent with the Fund's objectives and policies. In making such a judgment,
the Advisor will analyze the benefits and risks of the transaction and weigh
them in the context of the Fund's entire portfolio and objectives. The
effectiveness of any transaction in a currency-related derivative instrument is
dependent on a variety of factors, including the Advisor's skill in analyzing
and predicting currency values and upon a correlation between price movements
of the currency instrument and the underlying security. There might be
imperfect correlation, or even no correlation, between price movements of an
instrument and price movements of investments being hedged. Such a lack of
correlation might occur due to factors unrelated to the value of the
investments being hedged, such as speculative or other pressures on the markets
in which these instruments are traded. In addition, the Fund's use of
currency-related derivative instruments is always subject to the risk that the
currency in question could be devalued by the foreign government. In such a
case, any long currency positions would decline in value and could adversely
affect any hedging position maintained by the Fund.

The Fund's dealing in currency-related derivative instruments will
generally be limited to the transactions described above. However, the Fund
reserves the right to use currency-related derivatives instruments for
different purposes and under different circumstances. Of course, the Fund is
not required to use currency-related derivatives instruments and will not do so
unless deemed appropriate by the Advisor. It also should be realized that use
of these instruments does not eliminate, or protect against, price movements in
the Fund's securities that are attributable to other (i.e., non-currency
related) causes. Moreover, while the use of currency-related derivatives
instruments may reduce the risk of loss due to a decline in the value of a
hedged currency, at the same time the use of these instruments tends to limit
any potential gain which may result from an increase in the value of that
currency.

<PAGE> 38

SWAP AGREEMENTS. The Fund may enter into interest rate, securities index,
commodity, or security and currency exchange rate swap agreements for any
lawful purpose consistent with the Fund's investment objective, such as for the
purpose of attempting to obtain or preserve a particular desired return or
spread at a lower cost to the Fund than if the Fund had invested directly in an
instrument that yielded that desired return or spread. The Fund also may enter
into swaps in order to protect against an increase in the price of, or the
currency exchange rate applicable to, securities that the Fund anticipates
purchasing at a later date. Swap agreements are two-party contracts entered
into primarily by institutional investors for periods ranging from a few weeks
to several years. In a standard "swap" transaction, two parties agree to
exchange the returns (or differentials in rates of return) earned or realized
on particular predetermined investments or instruments. The gross returns to
be exchanged or "swapped" between the parties are calculated with respect to a
"notional amount," i.e., the return on or increase in value of a particular
dollar amount invested at a particular interest rate, in a particular foreign
currency, or in a "basket" of securities representing a particular index. Swap
agreements may include interest rate caps, under which, in return for a
premium, one party agrees to make payments to the other to the extent that
interest rates exceed a specified rate, or "cap;" interest rate floors, under
which, in return for a premium, one party agrees to make payments to the other
to the extent that interest rates fall below a specified level, or "floor;" and
interest rate collars, under which a party sells a cap and purchases a floor,
or vice versa, in an attempt to protect itself against interest rate movements
exceeding given minimum or maximum levels.

The "notional amount" of the swap agreement is the agreed upon basis for
calculating the obligations that the parties to a swap agreement have agreed to
exchange. Under most swap agreements entered into by the Fund, the obligations
of the parties would be exchanged on a "net basis." Consequently, the Fund's
obligation (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement (the "net amount").
The Fund's obligation under a swap agreement will be accrued daily (offset
against amounts owed to the Fund) and any accrued but unpaid net amounts owed
to a swap counterparty will be covered by the maintenance of a segregated
account consisting of cash, or liquid high grade debt obligations.

Whether the Fund's use of swap agreements will be successful in furthering
its investment objective will depend, in part, on the Advisor's ability to
predict correctly whether certain types of investments are likely to produce
greater returns than other investments. Swap agreements may be considered to
be illiquid. Moreover, the Fund bears the risk of loss of the amount expected
to be received under a swap agreement in the event of the default or bankruptcy
of a swap agreement counterparty. Certain restrictions imposed on the Fund by
the Internal Revenue Code may limit the Fund's ability to use swap agreements.
The swaps market is largely unregulated.

The Fund will enter swap agreements only with counterparties that the
Advisor reasonably believes are capable of performing under the swap
agreements. If there is a default by the other party to such a transaction,
the Fund will have to rely on its contractual remedies (which may be limited by
bankruptcy, insolvency or similar laws) pursuant to the agreements related to
the transaction.

ADDITIONAL DERIVATIVE INSTRUMENTS AND STRATEGIES. In addition to the
derivative instruments and strategies described above and in the Fund's
Prospectus, the Advisor expects to discover additional derivative instruments
and other hedging or risk management techniques. The Advisor may utilize these
new derivative instruments and techniques to the extent that they are
consistent with the Fund's investment objective and permitted by the Fund's
investment limitations, operating policies, and applicable regulatory
authorities.

FOREIGN INVESTMENT COMPANIES

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

<PAGE> 39

in such investment companies unless, in the judgment of the Advisor, the
potential benefits of such investments justify the payment of any associated
fees and expenses.

FOREIGN SECURITIES

Investing in foreign securities involves a series of risks not present in
investing in U.S. securities. Many of the foreign securities held by the Fund
will not be registered with the Securities and Exchange Commission (the "SEC"),
nor will the foreign issuers be subject to SEC reporting requirements.
Accordingly, there may be less publicly available information concerning
foreign issuers of securities held by the Fund than is available concerning
U.S. companies. Disclosure and regulatory standards in many respects are less
stringent in emerging market countries than in the U.S. and other major
markets. There also may be a lower level of monitoring and regulation of
emerging markets and the activities of investors in such markets, and
enforcement of existing regulations may be extremely limited. Foreign
companies, and in particular, companies in smaller and emerging capital markets
are not generally subject to uniform accounting, auditing and financial
reporting standards, or to other regulatory requirements comparable to those
applicable to U.S. companies. The Fund's net investment income and capital
gains from its foreign investment activities may be subject to non-U.S.
withholding taxes.

The costs attributable to foreign investing that the Fund must bear
frequently are higher than those attributable to domestic investing; this is
particularly true with respect to emerging capital markets. For example, the
cost of maintaining custody of foreign securities exceeds custodian costs for
domestic securities, and transaction and settlement costs of foreign investing
also frequently are higher than those attributable to domestic investing.
Costs associated with the exchange of currencies also make foreign investing
more expensive than domestic investing. Investment income on certain foreign
securities in which the Fund may invest may be subject to foreign withholding
or other government taxes that could reduce the return of these securities.
Tax treaties between the United States and foreign countries, however, may
reduce or eliminate the amount of foreign tax to which the Fund would be
subject.

Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have failed to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to
settlement problems could cause the Fund to miss investment opportunities.
Inability to dispose of a portfolio security due to settlement problems could
result either in losses to the Fund due to subsequent declines in the value of
such portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.

HIGH-YIELD (HIGH-RISK) SECURITIES

IN GENERAL. The Fund may invest up to 5% of its net assets in
non-investment grade debt obligations. Non-investment grade debt obligations
(hereinafter referred to as "lower-quality securities") include (i) bonds rated
as low as C by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("S&P"), or Fitch Investors Service, Inc. ("Fitch"), or CCC by
Duff & Phelps, Inc. ("D&P"); (ii) commercial paper rated as low as C by S&P,
Not Prime by Moody's, or Fitch 4 by Fitch; and (iii) unrated debt obligations
of comparable quality. Lower-quality securities, while generally offering
higher yields than investment grade securities with similar maturities, involve
greater risks, including the possibility of default or bankruptcy. They are
regarded as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal. The special risk considerations in
connection with investments in these securities are discussed below. Refer to
the Appendix for a discussion of securities ratings.

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

17
<PAGE> 40

interest rates. Lower-quality and comparable unrated securities also tend to
be more sensitive to economic conditions than are higher-rated securities. As
a result, they generally involve more credit risks than securities in the
higher-rated categories. During an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of lower-quality and comparable
unrated securities may experience financial stress and may not have sufficient
revenues to meet their payment obligations. The issuer's ability to service
its debt obligations may also be adversely affected by specific corporate
developments, the issuer's inability to meet specific projected business
forecasts or the unavailability of additional financing. The risk of loss due
to default by an issuer of these securities is significantly greater than
issuers of higher-rated securities because such securities are generally
unsecured and are often subordinated to other creditors. Further, if the
issuer of a lower-quality or comparable unrated security defaulted, the Fund
might incur additional expenses to seek recovery. Periods of economic
uncertainty and changes would also generally result in increased volatility in
the market prices of these securities and thus in the Fund's net asset value.

As previously stated, the value of a lower-quality or comparable unrated
security will decrease in a rising interest rate market and accordingly, so
will the Fund's net asset value. If the Fund experiences unexpected net
redemptions in such a market, it may be forced to liquidate a portion of its
portfolio securities without regard to their investment merits. Due to the
limited liquidity of lower-quality and comparable unrated securities (discussed
below), the Fund may be forced to liquidate these securities at a substantial
discount. Any such liquidation would force the Fund to sell the more liquid
portion of its portfolio.

PAYMENT EXPECTATIONS. Lower-quality and comparable unrated securities
typically contain redemption, call or prepayment provisions which permit the
issuer of such securities containing such provisions to, at its discretion,
redeem the securities. During periods of falling interest rates, issuers of
these securities are likely to redeem or prepay the securities and refinance
them with debt securities with a lower interest rate. To the extent an issuer
is able to refinance the securities, or otherwise redeem them, the Fund may
have to replace the securities with a lower yielding security, which would
result in a lower return for the Fund.

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

LIQUIDITY AND VALUATION. The Fund may have difficulty disposing of
certain lower-quality and comparable unrated securities because there may be a
thin trading market for such securities. Because not all dealers maintain
markets in all lower-quality and comparable unrated securities, there is no
established retail secondary market for many of these securities. The Fund
anticipates that such securities could be sold only to a limited number of
dealers or institutional investors. To the extent a secondary trading market
does exist, it is generally not as liquid as the secondary market for
higher-rated securities. The lack of a liquid secondary market may have an
adverse impact on the market price of the security. As a result, the Fund's
asset value and ability to dispose of particular securities, when necessary to
meet the Fund's liquidity needs or in response to a specific economic event,
may be impacted. The lack of a liquid secondary market for certain securities
may also make it more difficult for the Fund to obtain accurate market
quotations for purposes of valuing the Fund's portfolio. Market quotations are
generally available on many lower-quality and comparable unrated issues only
from a limited number of dealers and may not necessarily represent firm bids of
such dealers or prices for actual sales. During periods of thin trading, the
spread between bid and asked prices is likely to increase significantly. In
addition, adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of lower-quality
and comparable unrated securities, especially in a thinly traded market.

<PAGE> 41

LEGISLATION. Legislation may be adopted, from time to time designed to
limit the use of certain lower-quality and comparable unrated securities by
certain issuers. It is anticipated that if legislation is enacted or proposed,
it could have a material affect on the value of these securities and the
existence of a secondary trading market for the securities.

ILLIQUID SECURITIES

The Fund may invest in illiquid securities (i.e., securities that are not
readily marketable). However, the Fund will not acquire illiquid securities
if, as a result, they would comprise more than 15% of the value of the Fund's
net assets (or such other amounts as may be permitted under the 1940 Act).
However, as a matter of internal policy, the Advisor intends to limit the
Fund's investments in illiquid securities to 10% of its net assets.

The Board of Directors of the Fund, or its delegate, has the ultimate
authority to determine, to the extent permissible under the federal securities
laws, which securities are illiquid for purposes of this limitation. Certain
securities exempt from registration or issued in transactions exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), such as securities that may be resold to institutional investors under
Rule 144A under the Securities Act and Section 4(2) commercial paper, may be
considered liquid under guidelines adopted by the Fund's Board of Directors.

The Board of Directors of the Fund has delegated to Strong Capital
Management, Inc. (the "Advisor") the day-to-day determination of the liquidity
of a security, although it has retained oversight and ultimate responsibility
for such determinations. The Board of Directors has directed the Advisor to
look to such factors as (i) the frequency of trades or quotes for a security,
(ii) the number of dealers willing to purchase or sell the security and number
of potential buyers, (iii) the willingness of dealers to undertake to make a
market in the security, (iv) the nature of the security and nature of the
marketplace trades, such as the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer, (v) the likelihood
that the security's marketability will be maintained throughout the anticipated
holding period, and (vi) any other relevant factors. The Advisor may determine
4(2) commercial paper to be liquid if (i) the 4(2) commercial paper is not
traded flat or in default as to principal and interest, (ii) the 4(2)
commercial paper is rated in one of the two highest rating categories by at
least two nationally rated statistical rating organizations ("NRSRO"), or if
only one NRSRO rates the security, by that NRSRO, or is determined by the
Advisor to be of equivalent quality, and (iii) the Advisor considers the
trading market for the specific security taking into account all relevant
factors. With respect to the Fund's foreign holdings, a foreign security may
be considered liquid by the Advisor (despite its restricted nature under the
Securities Act) if the security can be freely traded in a foreign securities
market and all the facts and circumstances support a finding of liquidity.

Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act. Where registration is
required, the Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to sell. If through the appreciation of restricted
securities or the depreciation of unrestricted securities, the Fund should be
in a position where more than 15% of the value of its net assets are invested
in illiquid securities, including restricted securities which are not readily
marketable (except for 144A Securities and 4(2) commercial paper deemed to be
liquid by the Advisor), the Fund will take such steps as is deemed advisable,
if any, to protect liquidity.

The Fund may sell over-the-counter ("OTC") options and, in connection
therewith, segregate assets or cover its obligations with respect to OTC
options written by the Fund. The assets used as cover for OTC options written
by the Fund will be considered illiquid unless the OTC options are sold to
qualified dealers who agree that the Fund may repurchase any OTC option it
writes at a maximum price to be calculated by a formula set forth in the option
agreement. The cover for an OTC option written subject to this procedure would
be considered illiquid only to the extent that the maximum repurchase price
under the formula exceeds the intrinsic value of the option.

LENDING OF PORTFOLIO SECURITIES

<PAGE> 42

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

MORTGAGE- AND ASSET-BACKED SECURITIES

Mortgage-backed securities represent direct or indirect participations in,
or are secured by and payable from, mortgage loans secured by real property,
and include single- and multi-class pass-through securities and collateralized
mortgage obligations. Such securities may be issued or guaranteed by U.S.
government agencies or instrumentalities, such as the Government National
Mortgage Association and the Federal National Mortgage Association, or by
private issuers, generally originators and investors in mortgage loans,
including savings associations, mortgage bankers, commercial banks, investment
bankers, and special purpose entities (collectively, "private lenders").
Mortgage-backed securities issued by private lenders may be supported by pools
of mortgage loans or other mortgage-backed securities that are guaranteed,
directly or indirectly, by the U.S. government or one of its agencies or
instrumentalities, or they may be issued without any governmental guarantee of
the underlying mortgage assets but with some form of non-governmental credit
enhancement.

Asset-backed securities have structural characteristics similar to
mortgage-backed securities. Asset-backed debt obligations represent direct or
indirect participation in, or secured by and payable from, assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property, and receivables from credit
card or other revolving credit arrangements. The credit quality of most
asset-backed securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement of the
securities. Payments or distributions of principal and interest on
asset-backed debt obligations may be supported by non-governmental credit
enhancements including letters of credit, reserve funds, overcollateralization,
and guarantees by third parties. The market for privately issued asset-backed
debt obligations is smaller and less liquid than the market for government
sponsored mortgage-backed securities.

The rate of principal payment on mortgage- and asset-backed securities
generally depends on the rate of principal payments received on the underlying
assets which in turn may be affected by a variety of economic and other
factors. As a result, the yield on any mortgage- and asset-backed security is
difficult to predict with precision and actual yield to maturity may be more or
less than the anticipated yield to maturity. The yield characteristics of
mortgage- and asset-backed securities differ from those of traditional debt
securities. Among the principal differences are that interest and principal
payments are made more frequently on mortgage-and asset-backed securities,
usually monthly, and that principal may be prepaid at any time because the
underlying mortgage loans or other assets generally may be prepaid at any time.
As a result, if the Fund purchases these securities at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing the yield to maturity. Conversely, if the Fund purchases these
securities at a discount, a prepayment rate that is faster than expected will
increase yield to maturity, while a prepayment rate that is slower than
expected will reduce yield to maturity. Accelerated prepayments on securities
purchased by the Fund at a premium also impose a risk of loss of principal
because the premium may not have been fully amortized at the time the principal
is prepaid in full.

<PAGE> 43

interest rates, or other characteristics differing both from those of each
other and from those of the underlying assets. Examples include so-called
"strips" (mortgage - and asset-backed securities entitling the holder to
disproportionate interests with respect to the allocation of interest and
principal of the assets backing the security), and securities with class or
classes having characteristics which mimic the characteristics of non-mortgage-
or asset-backed securities, such as floating interest rates (i.e., interest
rates which adjust as a specified benchmark changes) or scheduled amortization
of principal.

The Fund may invest in stripped mortgage- or asset-backed securities,
which receive differing proportions of the interest and principal payments from
the underlying assets. The market value of such securities generally is more
sensitive to changes in prepayment and interest rates than is the case with
traditional mortgage- and asset-backed securities, and in some cases such
market value may be extremely volatile. With respect to certain stripped
securities, such as interest only and principal only classes, a rate of
prepayment that is faster or slower than anticipated may result in the Fund
failing to recover all or a portion of its investment, even though the
securities are rated investment grade.

Mortgage- and asset-backed securities backed by assets, other than as
described above, or in which the payment streams on the underlying assets are
allocated in a manner different than those described above may be issued in the
future. The Fund may invest in such securities if such investment is otherwise
consistent with its investment objectives and policies and with the investment
restrictions of the Fund.

MORTGAGE DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS

The Fund may also enter into mortgage dollar rolls, in which the Fund
would sell mortgage-backed securities for delivery in the current month and
simultaneously contract to purchase substantially similar securities on a
specified future date. While the Fund would forego principal and interest paid
on the mortgage-backed securities during the roll period, the Fund would be
compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The Fund also could be compensated through the receipt of
fee income equivalent to a lower forward price. At the time the Fund would
enter into a mortgage dollar roll, it would set aside permissible liquid assets
in a segregated account to secure its obligation for the forward commitment to
buy mortgage-backed securities. Mortgage dollar roll transactions may be
considered a borrowing by the Fund. (See "Borrowing" above.)

The mortgage dollar rolls and reverse repurchase agreements entered into
by the Fund may be used as arbitrage transactions in which the Fund will
maintain an offsetting position in investment grade debt obligations or
repurchase agreements that mature on or before the settlement date on the
related mortgage dollar roll or reverse repurchase agreements. Since the Fund
will receive interest on the securities or repurchase agreements in which it
invests the transaction proceeds, such transactions may involve leverage.
However, since such securities or repurchase agreements will be high quality
and will mature on or before the settlement date of the mortgage dollar roll or
reverse repurchase agreement, the Advisor believes that such arbitrage
transactions do not present the risks to the Fund that are associated with
other types of leverage.

REPURCHASE AGREEMENTS

21
<PAGE> 44

the underlying securities. Although no definitive creditworthiness criteria
are used, the Advisor reviews the creditworthiness of the banks and non-bank
dealers with which the Fund enters into repurchase agreements to evaluate those
risks. The Fund may, under certain circumstances, deem repurchase agreements
collateralized by U.S. government securities to be investments in U.S.
government securities.

SHORT SALES AGAINST THE BOX

The Fund may sell securities short against the box to hedge unrealized
gains on portfolio securities. Selling securities short against the box
involves selling a security that the Fund owns or has the right to acquire, for
delivery at a specified date in the future. If the Fund sells securities short
against the box, it may protect unrealized gains, but will lose the opportunity
to profit on such securities if the price rises.

SHORT-TERM CASH MANAGEMENT

From time to time the Advisor may determine to use a non-affiliated money
market fund to manage some or all of the Fund's short-term cash positions. The
Advisor will do this only when the Advisor reasonably believes that this action
will result in a return to the Fund that is equal to, or better than, the
return that could be achieved by direct investments in money market
instruments. In such cases, to ensure no double charging of fees, the Advisor
will credit any management or other fees of the non-affiliated money market
fund against the Advisor's management fee.

SMALL COMPANIES

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

TEMPORARY DEFENSIVE POSITION

When the Advisor determines that market conditions warrant a temporary
defensive position, the Fund may invest without limitation in cash and
short-term fixed income securities, including U.S. government securities,
commercial paper, banker's acceptances, certificates of deposit, and time
deposits.

WARRANTS

The Fund may acquire warrants. Warrants are securities giving the holder
the right, but not the obligation, to buy the stock of an issuer at a given
price (generally higher than the value of the stock at the time of issuance)
during a specified period or perpetually. Warrants may be acquired separately
or in connection with the acquisition of securities. The Fund will not
purchase warrants, valued at the lower of cost or market value, in excess of 5%
of the Fund's net assets. Included in that amount, but not to exceed 2% of the
Fund's net assets, may be warrants that are not listed on any stock exchange.
Warrants acquired by the Fund in units or attached to securities are not
subject to these restrictions. Warrants do not carry with them the right to
dividends or voting rights with respect to the securities that they entitle
their holder to purchase, and they do not represent any rights in the assets of
the issuer. As a result, warrants may be considered to have more speculative
characteristics

<PAGE> 45

than certain other types of investments. In addition, the value of a warrant
does not necessarily change with the value of the underlying securities, and a
warrant ceases to have value if it is not exercised prior to its expiration
date.

WHEN-ISSUED SECURITIES

The Fund may from time to time purchase securities on a "when-issued"
basis. The price of debt obligations purchased on a when-issued basis, which
may be expressed in yield terms, generally is fixed at the time the commitment
to purchase is made, but delivery and payment for the securities take place at
a later date. Normally, the settlement date occurs within one month of the
purchase although is some cases settlement may take longer. During the period
between the purchase and settlement, no payment is made by the Fund to the
issuer and no interest on the debt obligations accrues to the Fund. Forward
commitments involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the risk of
decline in value of the Fund's other assets. While when-issued securities may
be sold prior to the settlement date, the Fund intends to purchase such
securities with the purpose of actually acquiring them unless a sale appears
desirable for investment reasons. At the time the Fund makes the commitment to
purchase a security on a when-issued basis, it will record the transaction and
reflect the value of the security in determining its net asset value.

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

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

The Fund may invest in zero-coupon, step-coupon, and pay-in-kind
securities. These securities are debt securities that do not make regular cash
interest payments. Zero-coupon and step-coupon securities are sold at a deep
discount to their face value. Pay-in-kind securities pay interest through the
issuance of additional securities. Because such securities do not pay current
cash income, the price of these securities can be volatile when interest rates
fluctuate. While these securities do not pay current cash income, federal
income tax law requires the holders of zero-coupon, step-coupon, and
pay-in-kind securities to include in income each year the portion of the
original issue discount (or deemed discount) and other non-cash income on such
securities accruing that year. In order to continue to qualify as a "regulated
investment company" under the Internal Revenue Code and avoid a certain excise
tax, the Fund may be required to distribute a portion of such discount and
income and may be required to dispose of other portfolio securities, which may
occur in periods of adverse market prices, in order to generate cash to meet
these distribution requirements.

DIRECTORS AND OFFICERS OF THE CORPORATION

Directors and officers of the Corporation, together with information as to
their principal business occupations during the last five years, and other
information are shown below. Each director who is deemed an "interested
person," as defined in the 1940 Act, is indicated by an asterisk (*). Each
officer and director holds the same position with the 26 registered open-end
management investment companies consisting of 37 mutual funds, which are
managed by the Advisor (the "Strong Funds"). The Strong Funds, in the
aggregate, pays each Director who is not a director, officer, or employee of
the Advisor, or any affiliated company (a "disinterested director") an annual
fee of $50,000, plus $100 per Board meeting for each Strong Fund. In addition,
each disinterested director is reimbursed by the Strong Funds for travel and
other expenses incurred in connection with attendance at such meetings. Other
officers and directors of the Strong Funds receive no compensation or expense
reimbursement from the Strong Funds.

<PAGE> 46

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

Prior to August 1985, Mr. Strong was Chief Executive Officer of the
Advisor, which he founded in 1974. Since August 1985, Mr. Strong has been a
Security Analyst and Portfolio Manager of the Advisor. In October 1991, Mr.
Strong also became the Chairman of the Advisor. Mr. Strong is a director of
the Advisor. Mr. Strong has been in the investment management business since
1967. Mr. Strong has served the Corporation as a director since December 1990
and as Chairman of the Board since January 1992.

MARVIN E. NEVINS (DOB 7/9/18), Director of the Corporation.

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

WILLIE D. DAVIS (DOB 7/24/34), Director of the Corporation.

Mr. Davis has been director of Alliance Bank Since 1980, Sara Lee
Corporation (a food/consumer products company) since 1983, KMart Corporation (a
discount consumer products company) since 1985, YMCA Metropolitan - Los Angeles
since 1985, Dow Chemical Company since 1988, MGM Grand, Inc. (an
entertainment/hotel company) since 1990, WICOR, Inc. (a utility company) since
1990, Johnson Controls, Inc. (an industrial company) since 1992, L.A. Gear (a
footwear/sportswear company) since 1992, and Rally's Hamburger, Inc. since
1994. Mr. Davis has been a trustee of the University of Chicago since 1980,
Marquette University since 1988, and Occidental College since 1990. Since
1977, Mr. Davis has been President and Chief Executive Officer of All Pro
Broadcasting, Inc. Mr. Davis was a director of the Fireman's Fund (an
insurance company) from 1975 until 1990. Mr. Davis has served the Corporation
as a director since July 1994.

*JOHN DRAGISIC (DOB 11/26/40), President and Director of the Corporation.

Mr. Dragisic has been President of the Advisor since October 1995, and a
director of the Advisor and Distributor since July 1994. Mr. Dragisic served
as Vice Chairman of the Advisor from July 1994 until October 1995. Mr.
Dragisic was the President and Chief Executive Officer of Grunau Company, Inc.
(a mechanical contracting and engineering firm), Milwaukee, Wisconsin from 1987
until July 1994. From 1981 to 1987, he was an Executive Vice President with
Grunau Company, Inc. From 1969 until 1973, Mr. Dragisic worked for the
InterAmerican Development Bank. Mr. Dragisic received his Ph.D. in Economics
in 1971 from the University of Wisconsin - Madison and his B.A. degree in
Economics in 1962 from Lake Forest College. Mr. Dragisic has served the
Corporation as Vice Chairman from July 1994 until October 1995; as President
since October 1995; and as a director from July 1991 until July 1994, and since
April 1995.

STANLEY KRITZIK (DOB 1/9/30), Director of the Corporation.

Mr. Kritzik has been a Partner of Metropolitan Associates since 1962, a
Director of Aurora Health Care since 1987, and Health Network Ventures, Inc.
since 1992. Mr. Kritzik has served the Corporation as a director since April
1995.

WILLIAM F. VOGT (DOB 7/19/47), Director of Corporation.

Mr. Vogt has been the President of Vogt Management Consulting, Inc. since
1990. From 1982 until 1990, he served as Executive Director of University
Physicians of the University of Colorado. Mr. Vogt is the Past President of
the Medical Group Management Association and a Fellow of the American College
of Medical Practice Executives. Mr. Vogt has served the Corporation as a
director since April 1995.

<PAGE> 47
LAWRENCE A. TOTSKY (DOB 5/6/59), C.P.A., Vice President of the Corporation.

Mr. Totsky has been Senior Vice President of the Advisor since December
1994. Mr. Totsky acted as the Advisor's Manager of Shareholder Accounting and
Compliance from June 1987 to June 1991 when he was named Director of Mutual
Fund Administration. Mr. Totsky has served the Corporation as a Vice President
since May 1993.

THOMAS P. LEMKE (DOB 7/30/54), Vice President of the Corporation.

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

ANN E. OGLANIAN (DOB 12/7/61), Vice President and Secretary of the Corporation.

Ms. Oglanian has been an Associate Counsel of the Advisor since January
1992. Ms. Oglanian acted as Associate Counsel for the Chicago-based investment
management firm, Kemper Financial Services, Inc.; from June 1988 until December
1991. Ms. Oglanian has served the Corporation as a Vice President since
January 1996 and as the Secretary since May 1994.

STEPHEN J. SHENKENBERG (DOB 6/14/58), Vice President of the Corporation.

Mr. Shenkenberg has been an Associate Counsel to the Advisor since
December 1992. From June 1987 until December 1992, Mr. Shenkenberg was an
attorney for Godfrey & Kahn, S.C., a Milwaukee law firm. Mr. Shenkenberg has
served the Corporation as a Vice President since April 1996.

JOHN S. WEITZER (DOB 10/31/67), Vice President of the Corporation.

Mr. Weitzer has been an Associate Counsel of the Advisor since July 1993.
Mr. Weitzer has served the Corporation as a Vice President since January 1996.

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

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

Except for Messrs. Nevins, Davis, Kritzik and Vogt, the address of all of
the above persons is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr. Nevins'
address is 6075 Pelican Bay Boulevard, Naples, Florida 33963. Mr. Davis'
address is 161 North La Brea, Inglewood, California 90301. Mr. Kritzik's
address is 1123 North Astor Street, P.O. Box 92547, Milwaukee, Wisconsin
53202-0547. Mr. Vogt's address is 2830 East Third Avenue, Denver, Colorado
80206.

25
<PAGE> 48

and subsidiary of Holdings ("SSC") since November 1995; Chairman and a member
of the Managing Board of Fussville Real Estate Holdings L.L.C., a Wisconsin
Limited Liability Company and subsidiary of the Advisor ("Real Estate
Holdings") since February 1994; Chairman and a member of the Managing Board of
Fussville Development L.L.C., a Wisconsin Limited Liability Company and
subsidiary of the Advisor and Real Estate Holdings ("Fussville
Development") since February 1994; and Chairman and a member of the Managing
Board of Sherwood Development L.L.C., a Wisconsin Limited Liability Company and
subsidiary of the Advisor ("Sherwood") since December 1995 and April 1995,
respectively. In addition to the positions listed above, Mr. Dragisic has been
a director of Distributors since July 1994; President and a director of
Holdings since December 1995 and July 1994, respectively; President and a
director of SSC since November 1995; Vice Chairman and a director of Heritage
since August 1994; Vice Chairman and a member of the Managing Board of
Fussville Development since December 1995 and August 1994, respectively; Vice
Chairman and a member of the Managing Board of Real Estate Holdings since
December 1995 and August 1994, respectively; and Vice Chairman and a member of
the Managing Board of Sherwood since December 1995 and April 1995,
respectively. In addition to the positions listed above, Mr. Lemke has been
President of Distributors since December 1995; Vice President of Holdings since
December 1995; Vice President of SSC since November 1995; Vice President of
Heritage since December 1995; Vice President of Fussville Development since
December 1995; Vice President of Real Estate Holdings since December 1995; and
Vice President of Sherwood since December 1995. In addition to the positions
listed above, Mr. Shenkenberg has been Vice President and Secretary of
Distributors since December 1995; Secretary of SSC since November 1995; and
Secretary of Holdings, Heritage, Fussville Development, Real Estate Holdings,
and Sherwood since December 1995. In addition to the positions listed above,
Mr. Neville has been Vice President of Distributors since December 1995; Vice
President of Holdings since December 1995; Vice President of SSC since November
1995; Vice President of Heritage since December 1995; Vice President of
Fussville Development since December 1995; Vice President of Real Estate
Holdings since December 1995; and Vice President of Sherwood since December
1995.

As of March 31, 1996, the officers and directors of the Fund in the
aggregate beneficially owned less than 1% of the Fund's then outstanding
shares.

PRINCIPAL SHAREHOLDERS

Except for the organizational shares of the Fund, the Fund's shares are
held of record by an insurance company separate account. As of March 31, 1996,
the following persons owned of record or is known by the Fund to own of record
or beneficially more than 5% of the Fund's outstanding shares:

<TABLE>
<CAPTION>
Name and Address Shares Percent of Class
- ------------------------------------ ---------- ----------------
<S> <C> <C>
Nationwide Insurance 19,624,385 96.22%
For Exclusive Benefit of Customers
P.O. Box 182029
Columbus, OH 43218
</TABLE>

A shareholder owning more than 25% of the Fund's shares may be considered
a "controlling person" of the Fund. Accordingly, its vote could have a more
significant effect on matters presented to shareholders for approval than the
vote of other Fund shareholders.

INVESTMENT ADVISOR AND DISTRIBUTOR

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

<PAGE> 49

The Fund's Advisory Agreement, dated May 1, 1995, was last approved by
shareholders at the annual meeting of shareholders held on April 13, 1995. The
Advisory Agreement is required to be approved annually by the Board of
Directors of the Corporation or by vote of a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act). In either case, each annual
renewal must also be approved by the vote of a majority of the Corporation's
directors who are not parties to the Advisory Agreement or interested persons
of any such party, cast in person at a meeting called for the purpose of voting
on such approval. The Advisory Agreement is terminable, without penalty, on 60
days' written notice by the Board of Directors of the Corporation, by vote of a
majority of the Fund's outstanding voting securities, or by the Advisor. In
addition, the Advisory Agreement will terminate automatically in the event of
its assignment.

Under the terms of the Advisory Agreement, the Advisor manages the Fund's
investments subject to the supervision of the Corporation's Board of Directors.
The Advisor is responsible for investment decisions and supplies investment
research and portfolio management. At its expense, the Advisor provides office
space and all necessary office facilities, equipment, and personnel for
servicing the investments of the Fund. The Advisor places all orders for the
purchase and sale of the Fund's securities at its expense.

Except for expenses assumed by the Advisor as set forth above or by the
Distributor as described below with respect to the distribution of the Fund's
shares, the Fund is responsible for all its other expenses, including, without
limitation, interest charges, taxes, brokerage commissions, and similar
expenses; expenses of issue, sale, repurchase, or redemption of shares;
expenses of registering or qualifying shares for sale; expenses for printing
and distribution costs of prospectuses and quarterly financial statements
mailed to existing shareholders; and charges of custodians, transfer agent fees
(including the printing and mailing of reports and notices to shareholders),
fees of registrars, fees for auditing and legal services, fees for clerical
services related to recordkeeping and shareholder relations, the cost of stock
certificates and fees for directors who are not "interested persons" of the
Advisor; and its allocable share of the Corporation's expenses.

As compensation for its services, the Fund pays to the Advisor a monthly
management fee at the annual rate of 1.00% of the Fund's average daily net
asset value. (See "Additional Information - Calculation of Net Asset Value" in
the Prospectus.) From time to time, the Advisor may voluntarily waive all or a
portion of its management fee for the Fund. The organizational expenses of the
Fund which were $22,238, were advanced by the Advisor and will be reimbursed by
the Fund over a period of not more than 60 months from the Fund's date of
inception. In 1993, 1994, and 1995 the Fund paid the Advisor $438,815,
$920,374, and $1,676,828, respectively, in management fees.

The Advisory Agreement requires the Advisor to reimburse the Fund in the
event that the expenses and charges payable by the Fund in any fiscal year,
including the management fee but excluding taxes, interest, brokerage
commissions, and similar fees and to the extent permitted extraordinary
expenses, exceed that percentage of the average net asset value of the Fund for
such year, as determined by valuations made as of the close of each business
day of the year, which is the most restrictive percentage expense limitation
provided by the laws of the various states in which the Fund's shares are
qualified for sale; or if the states in which the Fund's shares are qualified
for sale impose no restrictions, then 2%. The most restrictive percentage
limitation currently applicable to the Fund is 2.5% of its average daily net
assets up to $30,000,000, 2% on the next $70,000,000 of its average daily net
assets and 1.5% of its average daily net assets in excess of $100,000,000.
Reimbursement of expenses in excess of the applicable limitation will be made
on a monthly basis and will be paid to the Fund by reduction of the Advisor's
fee, subject to later adjustment month by month for the remainder of the Fund's
fiscal year. The Advisor may from time to time absorb expenses for the Fund in
addition to the reimbursement of expenses in excess of applicable limitations.

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

<PAGE> 50

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

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

The Advisor has adopted a Code of Ethics (the "Code") which governs the
personal trading activities of all "Access Persons" of the Advisor. Access
Persons include every director and officer of the Advisor and the investment
companies managed by the Advisor, including the Fund, as well as certain
employees of the Advisor who have access to information relating to the
purchase or sale of securities by the Advisor on behalf of accounts managed by
it. The Code is based upon the principal that such Access Persons have a
fiduciary duty to place the interests of the Advisor's clients ahead of their
own.

The Code requires Access Persons (other than Access Persons who are
independent directors of the investment companies managed by the Advisor,
including the Fund) to, among other things, preclear their securities
transactions (with limited exceptions, such as transactions in shares of mutual
funds, direct obligations of the U.S. government and certain options on
broad-based securities market indexes) and to execute such transactions through
the Advisor's trading department. The Code, which applies to all Access Persons
(other than Access Persons who are independent directors of the investment
companies managed by the Advisor, including the Fund), includes a ban on
acquiring any securities in an initial public offering, other than a new
offering of a registered open-end investment company, and a prohibition from
profiting on short-term trading in securities. In addition, no Access Person
may purchase or sell any security which, at the time, is being purchased or
sold, or to the knowledge of the Access Person, is being considered for
purchase or sale, by the Advisor on behalf of any mutual fund or other account
managed by it. Finally, the Code provides for trading "black out" periods
which prohibit trading by Access Persons who are portfolio managers within
seven calendar days of trading in the same securities by any mutual fund or
other account managed by the portfolio manager.

Under a Distribution Agreement dated December 1, 1993 with the Corporation
(the "Distribution Agreement"), Strong Funds Distributors, Inc.
("Distributor"), a subsidiary of the Advisor, acts as underwriter of the Fund's
shares. The Distribution Agreement provides that the Distributor will use its
best efforts to distribute the Fund's shares. Shares are only offered and sold
to the separate accounts of certain insurance companies. Since the Fund is a
"no-load" fund, no sales commissions are charged on the purchase of Fund
shares. Certain sales charges may apply to the variable annuity or life
insurance contract, which should be described in the prospectus of the
insurance company's separate account. The Distribution Agreement further
provides that the Distributor will bear the additional costs of printing
prospectuses and shareholder reports which are used for selling purposes, as
well as advertising and other costs attributable to the distribution of the
Fund's shares. The Distributor is an indirect subsidiary of the Advisor and
controlled by the Advisor and Richard S. Strong. Prior to December 1, 1993,
the Advisor acted as underwriter for the Fund. On December 1, 1993, the
Distributor succeeded to the broker-dealer registration of the Advisor and, in
connection therewith, a Distribution Agreement was executed on substantially
identical terms as the former distribution agreement with the Advisor as
distributor. The Distribution Agreement is subject to the same termination and
renewal provisions as are described above with respect to the Advisory
Agreement.

PORTFOLIO TRANSACTIONS AND BROKERAGE

<PAGE> 51

best price to the Fund means the best net price without regard to the mix
between purchase or sale price and commission, if any. In selecting
broker-dealers and in negotiating commissions, the Advisor considers a variety
of factors, including best price and execution, the full range of brokerage
services provided by the broker, as well as its capital strength and stability,
and the quality of the research and research services provided by the broker.
Brokerage will not be allocated based on the sale of any shares of the Strong
Funds.

The Advisor has adopted procedures that provide generally for the Advisor
to seek to bunch orders for the purchase or sale of the same security for the
Fund, other mutual funds managed by the Advisor, and other advisory clients
(collectively, the "client accounts"). The Advisor will bunch orders when it
deems it to be appropriate and in the best interest of the client accounts.
When a bunched order is filled in its entirety, each participating client
account will participate at the average share price for the bunched order on
the same business day, and transaction costs shall be shared pro rata based on
each client's participation in the bunched order. When a bunched order is only
partially filled, the securities purchased will be allocated on a pro rata
basis to each client account participating in the bunched order based upon the
initial amount requested for the account, subject to certain exceptions, and
each participating account will participate at the average share price for the
bunched order on the same business day.

Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment advisor, under certain circumstances, to cause an account
to pay a broker or dealer a commission for effecting a transaction in excess of
the amount of commission another broker or dealer would have charged for
effecting the transaction in recognition of the value of the brokerage and
research services provided by the broker or dealer. Brokerage and research
services include (a) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody).

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

Generally, research services provided by brokers may include information
on the economy, industries, groups of securities, individual companies,
statistical information, accounting and tax law interpretations, political
developments, legal developments affecting portfolio securities, technical
market action, pricing and appraisal services, credit analysis, risk
measurement analysis, performance analysis, and analysis of corporate
responsibility issues. Such research services are received primarily in the
form of written reports, telephone contacts, and personal meetings with
security analysts. In addition, such research services may be provided in the
form of access to various computer-generated data, computer hardware and
software, and meetings arranged with corporate and industry spokespersons,
economists, academicians, and government representatives. In some cases,
research services are generated by third parties but are provided to the
Advisor by or through brokers. Such brokers may pay for all or a portion of
computer hardware and software costs relating to the pricing of securities.

Where the Advisor itself receives both administrative benefits and
research and brokerage services from the services provided by brokers, it makes
a good faith allocation between the administrative benefits and the research
and brokerage services, and will pay for any administrative benefits with cash.
In making good faith allocations of costs between administrative benefits and
research and brokerage services, a conflict of interest may exist by reason of
the Advisor's allocation of the costs of such benefits and services between
those that primarily benefit the Advisor and those that primarily benefit the
Fund and other advisory clients.

<PAGE> 52

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

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

The Advisor has informal arrangements with various brokers whereby, in
consideration for providing research services and subject to Section 28(e), the
Advisor allocates brokerage to those firms, provided that their brokerage and
research services are satisfactory to the Advisor and their execution
capabilities were compatible with the Advisor's policy of seeking best
execution at the best security price available, as discussed above. In no case
will the Advisor make binding commitments as to the level of brokerage
commissions it will allocate to a broker, nor will it commit to pay cash if any
informal targets are not met. The Advisor anticipates it will continue to
enter into such brokerage arrangements.

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

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

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

Where consistent with a client's investment objectives, investment
restrictions, and risk tolerance, the Advisor may purchase securities sold in
underwritten public offerings for client accounts, commonly referred to as
"deal" securities. The Advisor has adopted deal allocation procedures (the
"procedures"), summarized below, that reflect the Advisor's overriding policy
that deal securities must be allocated among participating client accounts in a
fair and equitable manner and that deal securities may not be allocated in a
manner that unfairly discriminates in favor of certain clients or types of
clients.

The procedures provide that, in determining which client accounts a
portfolio manager team will seek to have purchase deal securities, the team
will consider all relevant factors including, but not limited to, the nature,
size, and expected allocation to the Advisor of deal securities; the size of
the account(s); the accounts' investment objectives and restrictions; the risk
tolerance of the client; the client's tolerance for possibly higher portfolio
turnover; the amount of commissions generated by the account during the past
year; and the number of other deals the client has participated in during the
past year.

30
<PAGE> 53

Where more than one of the Advisor's portfolio manager team seeks to have
client accounts participate in a deal and the amount of deal securities
allocated to the Advisor by the underwriting syndicate is less than the
aggregate amount ordered by the Advisor (a "reduced allocation"), the deal
securities will be allocated among the portfolio manager teams based on all
relevant factors. The primary factor shall be assets under management,
although other factors that may be considered in the allocation decision
include, but are not limited to, the nature, size, and expected allocation of
the deal; the amount of brokerage commissions or other amounts generated by the
respective participating portfolio manager teams; and which portfolio manager
team is primarily responsible for the Advisor receiving securities in the deal.
Based on the relevant factors, the Advisor has established general allocation
percentages for its portfolio manager teams, and these percentages are reviewed
on a regular basis to determine whether asset growth or other factors make it
appropriate to use different general allocation percentages for reduced
allocations.

When a portfolio manager team receives a reduced allocation of deal
securities, the portfolio manager team will allocate the reduced allocation
among client accounts in accordance with the allocation percentages set forth
in the team's initial allocation instructions for the deal securities, except
where this would result in a de minimis allocation to any client account. On a
regular basis, the Advisor reviews the allocation of deal securities to ensure
that they have been allocated in a fair and equitable manner that does not
unfairly discriminate in favor of certain clients or types of clients.

During 1993, 1994, and 1995 the Fund paid approximately $986,000,
$1,429,000, and $2,469,000, respectively, in brokerage commissions.

CUSTODIAN

As custodian of the Fund's assets, Firstar Trust Company, P.O. Box 761,
Milwaukee, Wisconsin 53201, has custody of all securities and cash of the Fund,
delivers and receives payment for securities sold, receives and pays for
securities purchased, collects income from investments, and performs other
duties, all as directed by officers of the Corporation. The custodian is in no
way responsible for any of the investment policies or decisions of the Fund.

TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT

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

ADMINISTRATIVE SERVICES

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

<PAGE> 54

TAXES

GENERAL

As indicated under "Additional Information - Distributions and Taxes" in
the Prospectus, the Fund intends to continue to qualify annually for treatment
as a regulated investment company ("RIC") under the Internal Revenue Code of
1986, as amended (the "Code"). This qualification does not involve government
supervision of the Fund's management practices or policies.

In order to qualify for treatment as a RIC under the Code, the Fund must
distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gain, and net gains from certain foreign
currency transactions) ("Distribution Requirement") and must meet several
additional requirements. Among these requirements are the following: (1) the
Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of securities or foreign currencies, or other
income (including gains from options, futures, or forward contracts) derived
with respect to its business of investing in securities or those currencies
("Income Requirement"); (2) the Fund must derive less than 30% of its gross
income each taxable year from the sale or other disposition of securities, or
any of the following, that were held for less than three months - options or
futures (other than those on foreign currencies), or foreign currencies (or
options, futures, or forward contracts thereon) that are not directly related
to the Fund's principal business or investing in securities (or options and
futures with respect to securities) ("30% Limitation"); (3) at the close of
each quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. government securities,
securities of other RICs, and other securities, with these other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities; and (4) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. government securities or
the securities of other RICs) of any one issuer. From time to time the Advisor
may find it necessary to make certain types of investments for the purpose of
ensuring that the Fund continues to qualify for treatment as a RIC under the
Code.

If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received on those shares.

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

FOREIGN TRANSACTIONS

Interest and dividends received by the Fund may be subject to income,
withholding, or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors.

<PAGE> 55

acquired by the Fund may bear interest at a high normal rate that takes into
account expected decreases in the value of the principal amount of the security
due to anticipated currency devaluations; in that case, the Fund would be
required to include the interest in income as it accrues but generally would
realize a currency loss with respect to the principal only when the principal
was received (through disposition or upon maturity).

The Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of
the following tests: (1) at least 75% of its gross income is passive or (2) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, the Fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock or of any gain on disposition of the stock (collectively, "PFIC income"),
plus interest thereon, even if the Fund distributes the PFIC income to its
shareholders. The balance of the PFIC income will be included in the Fund's
investment company taxable income and, accordingly, will not be taxable to it
to the extent that income is distributed to its shareholders. If the Fund
invests in a PFIC and elects to treat the PFIC as a "qualified electing fund,"
then in lieu of the foregoing tax and interest obligation, the Fund will be
required to include in income each year its pro rata share of the qualified
electing fund's annual ordinary earnings and net capital gain (the excess of
net long-term capital gain over net short-term capital loss) -- which probably
would have to be distributed to its shareholders to satisfy the Distribution
Requirement -- even if those earnings and gain were not received by the Fund.
In most instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.

DERIVATIVE INSTRUMENTS

The use of derivatives strategies, such as purchasing and selling
(writing) options and futures and entering into forward currency contracts,
involves complex rules that will determine for income tax purposes the
character and timing of recognition of the gains and losses the Fund realizes
in connection therewith. Gains from the disposition of foreign currencies
(except certain gains therefrom that may be excluded by future regulations),
and income from transactions in options, futures, and forward currency
contracts derived by the Fund with respect to its business of investing in
securities or foreign currencies, will qualify as permissible income under the
Income Requirement. However, income from the disposition of options and
futures (other than those on foreign currencies) will be subject to the 30%
Limitation if they are held for less than three months. Income from the
disposition of foreign currencies, and options, futures, and forward contracts
on foreign currencies, that are not directly related to the Fund's principal
business of investing in securities (or options and futures with respect to
securities) also will be subject to the 30% Limitation if they are held for
less than three months.

If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
30% Limitation. Thus, only the net gain (if any) from the designated hedge
will be included in gross income for purposes of that limitation. The Funds
intend that, when they engage in hedging strategies, the hedging transactions
will qualify for this treatment, but at the present time it is not clear
whether this treatment will be available for all of the Fund's hedging
transactions. To the extent this treatment is not available or is not elected
by the Fund, it may be forced to defer the closing out of certain options,
futures, or forward currency contracts beyond the time when it otherwise would
be advantageous to do so, in order for the Fund to continue to qualify as a
RIC.

For federal income tax purposes, the Fund is required to recognize as
income for each taxable year its net unrealized gains and losses on options,
futures, and forward currency contracts that are subject to section 1256 of the
Code ("Section 1256 Contracts") and are held by the Fund as of the end of the
year, as well as gains and losses on Section 1256 Contracts actually realized
during the year. Except for Section 1256 Contracts that are part of a "mixed
straddle" and with respect to which the Fund makes a certain election, any gain
or loss recognized with respect to Section 1256 Contracts is considered to be
60% long-term capital gain or loss and 40% short-term capital gain or loss,
without regard to the holding period of the Section 1256 Contract. Unrealized
gains on Section 1256 Contracts that have been held by the Fund for less than
three months as of the end of its taxable year, and that are recognized for
federal income tax purposes as described above, will not be considered gains on
investments held for less than three months for purposes of the 30% Limitation.

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

<PAGE> 56

The Fund may acquire zero-coupon, step-coupon, or other securities issued
with original issue discount. As a holder of those securities, the Fund must
include in its income the original issue discount that accrues on the
securities during the taxable year, even if the Fund receives no corresponding
payment on the securities during the year. Similarly, the Fund must include in
its income securities it receives as "interest" on pay-in-kind securities.
Because the Fund annually must distribute substantially all of its investment
company taxable income, including any original issue discount and other
non-cash income, to satisfy the Distribution Requirement, it may be required in
a particular year to distribute as a dividend an amount that is greater than
the total amount of cash it actually receives. Those distributions may be made
from the proceeds on sales of portfolio securities, if necessary. The Fund may
realize capital gains or losses from those sales, which would increase or
decrease its investment company taxable income or net capital gain, or both.
In addition, any such gains may be realized on the disposition of securities
held for less than three months. Because of the 30% Limitation, any such gains
would reduce the Fund's ability to sell other securities, or certain options,
futures, or forward currency contracts, held for less that three months that
it might wish to sell in the ordinary course of its portfolio management.

The foregoing federal tax discussion as well as the tax discussion
contained within the Prospectus under "Additional Information - Distributions
and Taxes" is intended to provide you with an overview of the impact of federal
income tax provisions on the Fund or its shareholders. These tax provisions
are subject to change by legislative or administrative action at the federal,
state, or local level, and any changes may be applied retroactively. Any such
action that limits or restricts the Fund's current ability to pass-through
earnings without taxation at the Fund level, or otherwise materially changes
the Fund's tax treatment, could adversely affect the value of a shareholder's
investment in the Fund. Because the Fund's taxes are a complex matter, you
should consult your tax adviser for more detailed information concerning the
taxation of the Fund and the federal, state, and local tax consequences to
shareholders of an investment in the Fund.

DETERMINATION OF NET ASSET VALUE

A more complete discussion of the Fund's determination of net asset value
is contained in the Prospectus. Generally, the net asset value of the Fund
will be determined as of the close of trading on each day the New York Stock
Exchange (the "NYSE") is open for trading. The NYSE is open for trading Monday
through Friday except New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Additionally, if any of the aforementioned holidays falls on a Saturday, the
NYSE will not be open for trading on the preceding Friday, and when any such
holiday falls on a Sunday, the NYSE will not be open for trading on the
succeeding Monday, unless unusual business conditions exist, such as the ending
of a monthly or the yearly accounting period.

Debt securities are valued by a pricing service that utilizes electronic
data processing techniques to determine values for normal institutional-sized
trading units of debt securities without regard to sale or bid prices when
such values are believed to more accurately reflect the fair market value for
such securities. Otherwise, sale or bid prices are used. Any securities or
other assets for which market quotations are not readily available are valued
at fair value as determined in good faith by the Board of Directors of the
Corporation. Debt securities having remaining maturities of 60 days or less
are valued by the amortized cost method when the Corporation's Board of
Directors determines that the fair value of such securities is their amortized
cost. Under this method of valuation, a security is initially valued at its
acquisition cost, and thereafter, amortization of any discount or premium is
assumed each day, regardless of the impact of the fluctuating rates on the
market value of the instrument.

FUND ORGANIZATION

<PAGE> 57

series of shares is held separately by the custodian, and in effect each series
is a separate fund. All holders of shares of the Corporation would vote on
each matter presented to shareholders for action except with respect to any
matter which affects only one or more series or classes, in which case only the
shares of the affected series or class shall be entitled to vote. Because of
current federal securities law requirements the Corporation expects that its
shareholders will offer to owners of variable annuity and variable life
insurance contracts the opportunity to instruct them as to how shares allocable
to their contracts will be voted with respect to certain matters, such as
approval of changes to the investment advisory agreement.

The Wisconsin Business Corporation Law permits registered investment
companies, such as the series of the Corporation, to operate without an annual
meeting of shareholders under specified circumstances if an annual meeting is
not required by the 1940 Act. The Corporation has adopted the appropriate
provisions in its Bylaws and may, at its discretion, not hold an annual meeting
in any year in which the election of directors is not required to be acted on
by shareholders under the 1940 Act.

The Corporation's Bylaws allow for a director to be removed by its
shareholders with or without cause, only at a meeting called for the purpose of
removing the director. Upon the written request of the holders of shares
entitled to not less than ten percent (10%) of all the votes entitled to be
cast at such meeting, the Secretary of the Corporation shall promptly call a
special meeting of shareholders for the purpose of voting upon the question of
removal of any director. The Secretary shall inform such shareholders of the
reasonable estimated costs of preparing and mailing the notice of the meeting,
and upon payment to the Corporation of such costs, the Corporation shall give
not less than ten nor more than sixty days notice of the special meeting.

PERFORMANCE INFORMATION

As described under "Additional Information - Performance Information" in
the Prospectus, the Fund's historical performance or return may be shown in the
form of "average annual total return," "total return," and "cumulative total
return." From time to time, the Advisor may voluntarily waive all or a portion
of its management fee and/or absorb certain expenses for the Fund. Total
returns contained in advertisements include the effect of deducting the Fund's
expenses, but may not include charges and expenses attributable to any
particular insurance product. Since shares may only be purchased by the
separate accounts of certain insurance companies, contracts owners should
carefully review the prospectus of the separate account for information on fees
and expenses. Excluding such fees and expenses from the Fund's total return
quotations has the effect of increasing the performance quoted.

AVERAGE ANNUAL TOTAL RETURN

The Fund's average annual total return quotation is computed in accordance
with a standardized method prescribed by rules of the SEC. The average annual
total return for the Fund for a specific period is found by first taking a
hypothetical $10,000 investment ("initial investment") in the Fund's shares on
the first day of the period and computing the "redeemable value" of that
investment at the end of the period. The redeemable value is then divided by
the initial investment, and this quotient is taken to the Nth root (N
representing the number of years in the period) and one is subtracted from the
result, which is then expressed as a percentage. The calculation assumes that
all income and capital gains dividends paid by the Fund have been reinvested at
net asset value on the reinvestment dates during the period. Average annual
total return figures for various periods are set forth in the table below.

TOTAL RETURN

Calculation of the Fund's total return is not subject to a standardized
formula. Total return performance for a specific period is calculated by first
taking an investment (assumed below to be $10,000) ("initial investment") in
the Fund's shares on the first day of the period and computing the "ending
value" of that investment at the end of the period. The total return
percentage is then determined by subtracting the initial investment from the
ending value and dividing the remainder by the initial investment and
expressing the result as a percentage. The calculation assumes that all income
and capital gains dividends paid by the Fund have been reinvested at net asset
value on the reinvestment dates during the period. Total return may also be
shown as the increased dollar value of the hypothetical investment over the
period. Total return figures for various periods are set forth in the table
below.

<PAGE> 58

<PAGE> 59

CUMULATIVE TOTAL RETURN

Calculation of the Fund's cumulative total return is not subject to a
standardized formula and represents the simple change in value of an investment
over a stated period and may be quoted as a percentage or as a dollar amount.
Total returns and cumulative total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship between these factors and their
contributions to total return.

The Fund's performance figures are based upon historical results and do
not represent future performance. The Fund's shares are sold at net asset
value per share. The Fund's returns and net asset value will fluctuate and
shares are redeemable at the then current net asset value of the Fund, which
may be more or less than original cost. Factors affecting the Fund's
performance include general market conditions, operating expenses, and
investment management. Any additional fees charged by an insurance company or
other financial services firm would reduce the returns described in this
section.

The table below shows performance information for various periods ended
December 31, 1995. Securities prices fluctuated during these periods.

DISCOVERY FUND II

<TABLE>
<CAPTION>
Average
Total Return Annual Total Return
------------------- -------------------
Initial $10,000 Ending Value Percentage Percentage
Investment December 31, 1995 Increase Increase
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Life of Fund* $10,000 17,001 70.01% 15.66%
One Year 10,000 13,526 35.26% 35.26%
</TABLE>

* Commenced operations on May 8, 1992.

The Fund's total return for the three months ending March 31, 1996, was
- -3.04%.

COMPARISONS

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

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

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

<PAGE> 60

goals, as tracked by independent organizations. Among these organizations,
Lipper, a widely used independent research firm which ranks mutual funds by
overall performance, investment objectives, and assets, may be cited. Lipper
performance figures are based on changes in net asset value, with all income
and capital gain dividends reinvested. Such calculations do not include the
effect of any sales charges imposed by other funds. The Fund will be compared
to Lipper's appropriate fund category, that is, by fund objective and portfolio
holdings.

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

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

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

(8) INDICES

The Fund may compare its performance to a wide variety of indices
including the following:

(l) Morgan Stanley Capital International EAFE(R) Index (Net
Dividend, Gross Dividend, and Price-Only). In addition, the Fund may
compare its performance to certain other indices that measure stock
market performance in geographic areas in which the Fund may invest.
The market prices and yields of the stocks in these indexes will
fluctuate. The Fund may also compare its portfolio weighting to the
EAFE Index weighting, which represents the relative capitalization
of the major overseas markets on a dollar-adjusted basis

(9) HISTORICAL ASSET CLASS RETURNS

From time to time, marketing materials may portray the historical returns
of various asset classes. Such presentations will typically compare the
average annual rates of return of inflation, U.S. Treasury bills, bonds, common
stocks, and small stocks. There are important differences between each of these
investments that should be considered in viewing any such comparison. The
market value of stocks will fluctuate with market conditions, and small-stock
prices generally will fluctuate more than large-stock prices. Stocks are
generally more volatile than bonds. In return for this volatility, stocks have
generally performed better than bonds or cash over time. Bond prices generally
will fluctuate inversely with interest rates and other market conditions, and
the prices of bonds with longer maturities generally will fluctuate more than
those of shorter-maturity

<PAGE> 61

bonds. Interest rates for bonds may be fixed at the time of issuance, and
payment of principal and interest may be guaranteed by the issuer and, in the
case of U.S. Treasury obligations, backed by the full faith and credit of the
U.S. Treasury.

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

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

Each Fund may from time to time be compared to the other Funds in the
Strong Variable Insurance Funds based on a risk/reward spectrum. In general,
the amount of risk associated with any investment product is commensurate with
that product's potential level of reward. The Strong Variable Insurance Funds'
risk/reward continuum or any Fund's position on the continuum may be described
or diagrammed in marketing materials. The Strong Variable Insurance Funds'
risk/reward continuum positions the risk and reward potential of the Fund
relative to the other Strong Variable Insurance Funds, but is not intended to
position any Fund relative to other mutual funds or investment products.
Marketing materials may also discuss the relationship between risk and reward
as it relates to an individual investor's portfolio. Financial goals vary from
person to person. You may choose one or more of the Strong Variable Insurance
Funds to help you reach your financial goals.

The Advisor also serves as advisor to the Strong Family of Funds, which is
a retail fund complex composed of 26 open-end management investment companies.

ADDITIONAL FUND INFORMATION

(1) PORTFOLIO CHARACTERISTICS

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

(2) MEASURES OF VOLATILITY AND RELATIVE PERFORMANCE

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

<PAGE> 62

Standard deviation is calculated using the following formula:

2
Standard deviation = the square root of E(x - x )
i m
------------
n-1

where E = "the sum of",

x = each individual return during the time period,
i

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

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

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

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

GENERAL INFORMATION

BUSINESS PHILOSOPHY

The Advisor is an independent, Midwestern-based investment advisor, owned
by professionals active in its management. Recognizing that investors are the
focus of its business, the Advisor strives for excellence both in investment
management and in the service provided to investors. This commitment affects
many aspects of the business, including professional staffing, product
development, investment management, and service delivery.

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

INVESTMENT ENVIRONMENT

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

EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING

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

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

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

<PAGE> 63

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

4. Invest regularly. Investing is a process, not a one-time event. By
investing regularly over the long term, you reduce the impact of
short-term market gyrations, and you attend to your long-term plan before
you're tempted to spend those assets on short-term needs.

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

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

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

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

PORTFOLIO MANAGEMENT

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

While the Fund has the ability to take advantage of favorable trends in
stock prices, it also retains the flexibility to invest up to 100% of its
assets in conservative, short-term, money market securities. The need for this
flexibility is based on a fundamental belief by the Advisor that economic and
financial conditions create favorable and unfavorable investment periods (or
seasons) and that these different seasons require different investment
approaches. Through its understanding and willingness to change with these
investment cycles, the Advisor seeks to achieve the Fund's objectives
throughout the seasons of investment. The Fund is managed to capitalize on
change, which can include technological, regulatory, political, social,
economic, market, management and demographic change.

The Advisor's investment philosophy is that (i) the maximum capital growth
should be aggressively pursued in a favorable market environment; (ii) capital
preservation is critical under unfavorable market conditions; and (iii) broad
use of asset classes and investment vehicles provides flexibility in achieving
capital growth and risk control. The Advisor also believes that (i) the
purpose of investment capital is to finance corporate growth, (ii) companies
that are growing rapidly often provide excellent opportunities for capital
appreciation, (iii) assessing the management behind a company is as important
as "crunching the numbers", and (iv) American and foreign economies are
increasingly intertwined, creating growth opportunities for both American and
foreign companies.

The Advisors investment process includes (i) independent, fundamental
analysis; (ii) top-down economic and secular research to determine the current
position of the economic cycle, identify unique secular trends and themes, and
allocate asset classes; (iii) bottom-up security analysis and selection process
with particular emphasis on the following: free cash flow, revenue and earnings
growth, balance sheet strength, share repurchase programs, competitive
position, discounted cash flow value, private market value, relative price
earnings ratio, and assessment of management, including on-site visits; (iv)
reducing equity exposure in bear markets; and (v) aggressively pursuing unique
investment opportunities.

<PAGE> 64

The Advisor considers selling a stock when there is a change in market
conditions, a change in company fundamentals, or when the stock is excessively
overvalued. The Advisor attempts to reduce risk by diversifying broadly across
industries and by generally limiting position sizes up to 5% or less.

INDEPENDENT ACCOUNTANTS

Coopers & Lybrand L.L.P., 411 East Wisconsin Avenue, Milwaukee, Wisconsin
53202, have been selected as the independent accountants for the Fund,
providing audit services and assistance and consultation with respect to the
preparation of filings with the SEC.

LEGAL COUNSEL

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

FINANCIAL STATEMENTS

The Annual Report that is attached hereto contains the following financial
information for the Fund:

(a) Schedule of Investments in Securities.
(b) Statement of Operations.
(c) Statement of Assets and Liabilities.
(d) Statement of Changes in Net Assets.
(e) Notes to Financial Statements.
(f) Financial Highlights.
(g) Report of Independent Accountants.

<PAGE> 65

APPENDIX

BOND RATINGS

STANDARD & POOR'S DEBT RATINGS

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

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

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

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

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

2. Nature of and provisions of the obligation.

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

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

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

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

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

SPECULATIVE GRADE

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

A-1

<PAGE> 66

capacity to meet timely interest and principal payments. The 'BB' rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied 'BBB-' rating.

B Debt rated 'B' has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The 'B' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied 'BB' or 'BB-' rating.

CCC Debt rated 'CCC' has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The 'CCC'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'B' or 'B-' rating.

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

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

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

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

MOODY'S LONG-TERM DEBT RATINGS

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

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

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

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

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

A-2

<PAGE> 67

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

Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.

Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.

C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

FITCH INVESTORS SERVICE, INC. BOND RATINGS

Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.

The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength and credit quality.

Fitch ratings do not reflect any credit enhancement that may be provided
by insurance policies or financial guaranties unless otherwise indicated.

Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.

Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.

Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.

AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected
by reasonably foreseeable events.

AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds
rated 'AAA'. Because bonds rated in the 'AAA' and 'AA' categories
are not significantly vulnerable to foreseeable future
developments, short-term debt of the issuers is generally rated
'F-1+'.

A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with
higher ratings.

A-3

<PAGE> 68

timely payment. The likelihood that the ratings of these bonds
will fall below investment grade is higher than for bonds with
higher ratings.

Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
('BB' to 'C') represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ('DDD' to 'D') is an
assessment of the ultimate recovery value through reorganization or
liquidation.

Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories cannot fully reflect the
differences in the degrees of credit risk.

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

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

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

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

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

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

DUFF & PHELPS, INC. LONG-TERM DEBT RATINGS

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

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

A-4

<PAGE> 69

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

RATING SCALE DEFINITION

AAA Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.

AA+ High credit quality. Protection factors are strong. Risk is
AA modest, but may vary slightly from time to time because of
AA- economic conditions.

A+ Protection factors are average but adequate. However, risk
A factors are more and greater in periods of economic stress.
A-

BBB+ Below-average protection factors but still considered sufficient
BBB for prudent investment. Considerable variability in risk during
BBB- economic cycles.

BB+ Below investment grade but deemed likely to meet obligations
BB when due. Present or prospective financial protection factors
BB- fluctuate according to industry conditions or company fortunes.
Overall quality may move up or down frequently within this
category.

B+ Below investment grade and possessing risk that obligations will
B not be met when due. Financial protection factors will fluctuate
B- widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the
rating within this category or into a higher or lower rating
grade.

CCC Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be
substantial with unfavorable economic/industry conditions,
and/or with unfavorable company developments.

DD Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
DP Preferred stock with dividend arrearages.

A-5

<PAGE> 70

SHORT-TERM RATINGS

STANDARD & POOR'S COMMERCIAL PAPER RATINGS

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

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

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

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

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

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

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

STANDARD & POOR'S NOTE RATINGS

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

The following criteria will be used in making the assessment:

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

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

Note rating symbols and definitions are as follows:

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

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

SP-3 Speculative capacity to pay principal and interest.

A-6

<PAGE> 71

MOODY'S SHORT-TERM RATINGS

Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.

Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:

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

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

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

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

MOODY'S NOTE RATINGS

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

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

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

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

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

FITCH INVESTORS SERVICE, INC. SHORT-TERM RATINGS

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

A-7

<PAGE> 72

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

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

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

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

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

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

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

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

DUFF & PHELPS, INC. SHORT-TERM DEBT RATINGS

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

Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.

Rating Scale: Definition
High Grade

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

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

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

A-8

<PAGE> 73

Good Grade

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

Satisfactory Grade

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

Non-Investment Grade

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

Default

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

THOMSON BANKWATCH (TBW) SHORT-TERM RATINGS

The TBW Short-Term Ratings apply, unless otherwise noted, to specific debt
instruments of the rated entities with a maturity of one year or less. TBW
Short-Term Ratings are intended to assess the likelihood of an untimely or
incomplete payments of principal or interest.

TBW-1 The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.

TBW-2 The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1".

TBW-3 The lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.

TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.

A-9

<PAGE> 74

IBCA SHORT-TERM RATINGS

IBCA Short-Term Ratings assess the borrowing characteristics of banks and
corporations, and the capacity for timely repayment of debt obligations. The
Short-Term Ratings relate to debt which has a maturity of less than one year.

A1+ Obligations supported by the highest capacity for timely
repayment and possess a particularly strong credit feature.

A1 Obligations supported by the highest capacity for timely repayment.

A2 Obligations supported by a good capacity for timely repayment.

A3 Obligations supported by a satisfactory capacity for timely
repayment.

B Obligations for which there is an uncertainty as to the capacity to
ensure timely repayment.

C Obligations for which there is a high risk of default or which are
currently in default.

A-10
<PAGE> 75

STRONG ASSET ALLOCATION FUND II

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

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

Dated May 1, 1996

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PROSPECTUS PAGE 1
<PAGE> 76

TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
THE FUND................................. 2
FINANCIAL HIGHLIGHTS..................... 3
INVESTMENT OBJECTIVE AND POLICIES........ 4
IMPLEMENTATION OF POLICIES AND RISKS..... 5
SPECIAL CONSIDERATIONS................... 14
MANAGEMENT............................... 16
ADDITIONAL INFORMATION................... 18
APPENDIX A............................... A-1
APPENDIX B............................... B-1
</TABLE>

THE FUND

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

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PROSPECTUS PAGE 2
<PAGE> 77

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
1995**
------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.04
Net Realized and Unrealized Gains (Losses)
on Investments (0.02)
------
TOTAL FROM INVESTMENT OPERATIONS 0.02
LESS DISTRIBUTIONS
From Net Investment Income (0.04)
------
TOTAL DISTRIBUTIONS (0.04)
------
NET ASSET VALUE, END OF PERIOD $ 9.98
======
Total Return +0.2%
Net Assets, End of Period (In Thousands) $ 499
Ratio of Expenses to Average Net Assets 1.6%*
Ratio of Net Investment Income to
Average Net Assets 4.3%*
Portfolio Turnover Rate 0.0%
</TABLE>

*Calculated on an annualized basis.

**Inception date is November 30, 1995. Total return and portfolio turnover rate
are not annualized.

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PROSPECTUS PAGE 3
<PAGE> 78

INVESTMENT OBJECTIVE AND POLICIES

Under normal market conditions, the Fund's net assets will be allocated
according to a benchmark of 40% equities, 40% bonds, and 20% cash. The Advisor
intends to actively manage the Fund's assets, maintaining a balance over time
between investment opportunities and their associated potential risks. In
response to changing market and economic conditions, the Advisor may reallocate
the Fund's net assets among these asset categories. Those allocations normally
will be within the ranges indicated below. However, in pursuit of total return,
the Advisor may under-allocate or over-allocate the Fund's net assets in a
particular category.

ASSET-ALLOCATION CATEGORIES

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

Equity securities in which the Fund may invest include common stocks,
preferred stocks, and securities that are convertible into common stocks, such
as warrants and convertible bonds. Bonds purchased by the Fund will be primarily
investment-grade debt obligations, although the Fund may invest up to, but not
including, 35% of its net assets in non-investment-grade debt obligations. (See
"Implementation of Policies and Risks - Debt Obligations.")

The Cash portion of the Fund may include, but is not limited to, debt
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities, commercial paper, banker's acceptances, certificates of
deposit, and time deposits. The Fund may invest in obligations of domestic and
foreign banks and their subsidiaries and branches.

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PROSPECTUS PAGE 4
<PAGE> 79

The Fund also has the flexibility to take advantage of investment
opportunities around the world by investing in foreign securities. The Fund may
invest up to 25% of its net assets in foreign securities, including both direct
investments and investments made through depositary receipts. Foreign
investments involve risks not normally formally found when investing in
securities of U.S. issues. (See "Implementation of Policies and Risks - Foreign
Securities and Currencies.")

Within the asset-allocation categories described above, the Advisor will
allocate the Fund's investments among countries (including developing
countries), geographic regions, and currencies in response to changing market
and economic trends. In making geographical allocations of investments, the
Advisor will consider such factors as the historical and prospective
relationships among currencies and governmental policies that influence
currency-exchange rates, current and anticipated interest rates, inflation
levels, and business conditions within various countries, as well as other
macroeconomic, social, and political factors.

IMPLEMENTATION OF POLICIES AND RISKS

DEBT OBLIGATIONS

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

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PROSPECTUS PAGE 5
<PAGE> 80

notes); (iv) repurchase agreements; (v) loan interests; (vi) foreign debt
obligations issued by foreign issuers traded either in foreign markets or in
domestic markets through depositary receipts; (vii) convertible securities -
debt obligations of corporations convertible into or exchangeable for equity
securities or debt obligations that carry with them the right to acquire equity
securities, as evidenced by warrants attached to such securities, or acquired as
part of units of the securities; (viii) preferred stocks - securities that
represent an ownership interest in a corporation and that give the owner a prior
claim over common stock on the company's earnings or assets; (ix) U.S.
government securities; (x) mortgage-backed securities, collateralized mortgage
obligations, and similar securities; and (xi) municipal obligations.

RATINGS. Investment-grade debt obligations include:

- - U.S. government securities (as defined below);

- - bonds or bank obligations rated in one of the four highest rating categories
(e.g., BBB or higher by Standard & Poor's Ratings Group or "S&P");

- - short-term notes rated in one of the two highest rating categories (e.g., SP-2
or higher by S&P);

- - short-term bank obligations rated in one of the three highest rating
categories (e.g., A-3 or higher by S&P), with respect to obligations maturing
in one year or less;

- - commercial paper rated in one of the three highest rating categories (e.g.,
A-3 or higher by S&P);

- - unrated debt obligations determined by the Advisor to be of comparable
quality; and

- - repurchase agreements involving investment-grade debt obligations.

All ratings are determined at the time of investment. Any subsequent rating
downgrade of a debt obligation will be monitored by the Advisor to consider what
action, if any, the Fund should take consistent with its investment objective.
Securities rated in the fourth-highest category (e.g., BBB by S&P), although
considered investment grade, have speculative characteristics and may be subject
to greater fluctuations in value than higher-rated securities. Non-
investment-grade debt obligations include:

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

HIGH-YIELD (HIGH-RISK) SECURITIES

High-yield (high-risk) securities, also referred to as "junk bonds" are those
securities that are rated lower than investment-grade and unrated securities of
comparable quality. Although these securities generally offer higher yields than
investment-grade securities with similar maturities, lower-quality securities
involve greater risks, including the possibility of default or bankruptcy. In

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

PROSPECTUS PAGE 6
<PAGE> 81

general, they are regarded to be predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal. Other potential risks
associated with investing in high-yield securities include:

- - greater sensitivity of highly-leveraged issuers to adverse economic changes
and individual-issuer developments;

- - subordination to the prior claims of other creditors;
- - additional Congressional attempts to restrict the use or limit the tax and
other advantages of these securities; and
- - adverse publicity and changing investor perceptions about these securities.

As with any other asset in the Fund's portfolio, any reduction in the value
of such securities as a result of the factors listed above would be reflected in
the net asset value of the Fund. In addition, a fund that invests in
lower-quality securities may incur additional expenses to the extent it is
required to seek recovery upon a default in the payment of principal and
interest on its holdings. As a result of the associated risks, successful
investments in high-yield (high-risk) securities will be more dependent on the
Advisor's credit analysis than generally would be the case with investments in
investment-grade securities.
It is uncertain how the high-yield market will perform during a prolonged
period of rising interest rates. A prolonged economic downturn or a prolonged
period of rising interest rates could adversely affect the market for these
securities, increase their volatility, and reduce their value and liquidity. In
addition, lower-quality securities tend to be less liquid than higher-quality
debt securities because the market for them is not as broad or active. If market
quotations are not available, these securities will be valued in accordance with
procedures established by the Corporation's Board of Directors. Judgment may,
therefore, play a greater role in valuing these securities. The lack of a liquid
secondary market may have an adverse effect on market price and the Fund's
ability to sell particular securities.

GOVERNMENT SECURITIES

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

PROSPECTUS PAGE 7
<PAGE> 82

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

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

WHEN-ISSUED SECURITIES

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

PROSPECTUS PAGE 8
<PAGE> 83

the market price lower than that obtained at the time of commitment. Although
the Fund may be able to sell these securities prior to the delivery date, it
will purchase when-issued securities for the purpose of actually acquiring the
securities, unless, after entering into the commitment, a sale appears desirable
for investment reasons. When required by SEC guidelines, the Fund will set aside
permissible liquid assets in a segregated account to secure its outstanding
commitments for when-issued securities.

FOREIGN SECURITIES AND CURRENCIES

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

The Fund may invest a significant portion of its assets in the foreign
securities of issuers in developing countries. The risks of foreign investments
are generally intensified for investments in developing countries. Risks of
investing in such markets include:

- - less social, political, and economic stability;
- - smaller securities markets and the lower trading volume, which may result in a
lack of liquidity and greater price volatility;

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

PROSPECTUS PAGE 9
<PAGE> 84

- - certain national policies that may restrict the Fund's investment
opportunities, including restrictions on investments in issuers or industries
deemed sensitive to national interests, or expropriation or confiscation of
assets or property, which could result in the Fund's loss of its entire
investment in that market; and
- - less developed legal structures governing private or foreign investment or
allowing for judicial redress for injury to private property.

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

DERIVATIVE INSTRUMENTS

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

PROSPECTUS PAGE 10
<PAGE> 85

securities or contracts whose values depend on (or "derive" from) the value of
one or more other assets, such as securities, currencies, or commodities. These
"other assets" are commonly referred to as "underlying assets."

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

PROSPECTUS PAGE 11
<PAGE> 86

exchange-traded derivatives since they often can only be closed out with the
other party to the transaction. Derivative instruments may include elements of
leverage and, accordingly, the fluctuation of the value of the derivative
instrument in relation to the underlying asset may be magnified. When required
by SEC guidelines, the Fund will set aside permissible liquid assets or
securities positions that substantially correlate to the market movements of the
derivative in a segregated account to secure its obligations under the
derivative. In order to maintain its required cover for a derivative, the Fund
may need to sell portfolio securities at disadvantageous prices or times since
it may not be possible to liquidate a derivative position.

MORTGAGE- AND ASSET-BACKED SECURITIES

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

PROSPECTUS PAGE 12
<PAGE> 87

Asset-backed securities have structural characteristics similar to mortgage-
backed securities. However, the underlying assets are not first-lien mortgage
loans or interests therein; rather, they include assets such as motor vehicle
installment sales contracts, other installment loan contracts, home equity
loans, leases of various types of property, and receivables from credit card or
other revolving credit arrangements. Payments or distributions of principal and
interest on asset-backed securities may be supported by non-governmental credit
enhancements similar to those utilized in connection with mortgage-backed
securities.
The yield characteristics of mortgage- and asset-backed securities differ
from those of traditional debt securities. Among the principal differences are
that interest and principal payments are made more frequently on mortgage-and
asset-backed securities, usually monthly, and that principal may be prepaid at
any time because the underlying mortgage loans or other assets generally may be
prepaid at any time. As a result, if the Fund purchases these securities at a
premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing the yield to maturity. Conversely, if the Fund
purchases these securities at a discount, a prepayment rate that is faster than
expected will increase yield to maturity, while a prepayment rate that is slower
than expected will reduce yield to maturity. Accelerated prepayments on
securities purchased by the Fund at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is prepaid in full. The market for privately issued mortgage- and
asset-backed securities is smaller and less liquid than the market for
government-sponsored mortgage-backed securities.

The Fund may invest in stripped mortgage- or asset-backed securities, which
receive differing proportions of the interest and principal payments from the
underlying assets. The market value of such securities generally is more
sensitive to changes in prepayment and interest rates than is the case with
traditional mortgage- and asset-backed securities, and in some cases such market
value may be extremely volatile. With respect to certain stripped securities,
such as interest-only ("IO") and principal-only ("PO") classes, a rate of
prepayment that is faster or slower than anticipated may result in the Fund
failing to recover all or a portion of its investment, even though the
securities are rated investment grade.

SMALL COMPANIES

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

PROSPECTUS PAGE 13
<PAGE> 88

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

ILLIQUID SECURITIES

The Fund may invest up to 15% of its net assets in illiquid securities.
Illiquid securities are those securities that are not readily marketable,
including restricted securities and repurchase obligations maturing in more than
seven days. Certain restricted securities that may be resold to institutional
investors under Rule 144A under the Securities Act and Section 4(2) commercial
paper may be determined to be liquid under guidelines adopted by the
Corporation's Board of Directors.

PORTFOLIO TURNOVER

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

SPECIAL CONSIDERATIONS

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

PROSPECTUS PAGE 14
<PAGE> 89

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

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

PROSPECTUS PAGE 15
<PAGE> 90

if such action is required by law or regulatory authority or is in the best
interest of the shareholders of the Fund.

MANAGEMENT

The Board of Directors of the Corporation is responsible for managing the
Fund's business and affairs. The Fund has entered into an investment advisory
agreement (an "Advisory Agreement") with the Advisor. Under the terms of the
Advisory Agreement, the Advisor manages the Fund's investments and business
affairs, subject to the supervision of the Board of Directors.

The Advisor began conducting business in 1974. Since then, its principal
business has been providing continuous investment supervision for individuals
and institutional accounts, such as pension funds and profit-sharing plans as
well as mutual funds, several of which are funding vehicles for variable
insurance products. As of April 15, 1996, the Advisor had over $19 billion under
management. The Advisor's principal mailing address is P.O. Box 2936, Milwaukee,
Wisconsin 53201. Mr. Richard S. Strong, the Chairman of the Board of the
Corporation, is the controlling shareholder of the Advisor.

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

Except for expenses assumed by the Advisor or Strong Funds Distributors,
Inc., the Fund is responsible for all its other expenses, including, without
limitation, interest charges, taxes, brokerage commissions and similar expenses;
expenses of issue, sale, repurchase or redemption of shares; expenses of
registering or qualifying shares for sale with the states and the SEC; expenses
of printing and distribution of prospectuses to existing shareholders; charges
of custodians (including fees as custodian for keeping books and similar
services for the Fund), transfer agents (including the printing and mailing of
reports and notices to shareholders), registrars, auditing and legal services,
and clerical services related to recordkeeping and shareholder relations;
printing of stock certificates; fees for directors who are not "interested
persons" of the Advisor; expenses of indemnification; extraordinary expenses;
and costs of shareholder and director meetings.

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

PROSPECTUS PAGE 16
<PAGE> 91

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

BRADLEY C. TANK. Mr. Tank leads the Fund's investment team and allocates the
Fund's assets among equities, bonds, and cash. In addition, Mr. Tank co-manages
the Fund's bond component. Before joining the Advisor in June 1990, he spent
eight years at Salomon Brothers, Inc., where he was a fixed income specialist
and, for the last six years, a vice president. Mr. Tank received his B.A. in
1980 from the University of Wisconsin-Eau Claire and his M.B.A. in 1982 from the
University of Wisconsin-Madison, where he also completed the Applied Securities
Analysis Program. Mr. Tank has co-managed the Fund since its inception in June
1995. In addition to his Fund duties, Mr. Tank chairs the Advisor's Fixed Income
Investment Committee.

Equity Component

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

RONALD C. OGNAR. Mr. Ognar co-manages the Fund. Mr. Ognar, a Chartered
Financial Analyst with more than 25 years of investment experience, joined the
Advisor in April 1993 after two years as a principal and portfolio manager with
RCM Capital Management. For approximately three years prior to that, he was a
portfolio manager at Kemper Financial Services in Chicago. Mr. Ognar began his
investment career in 1968 at LaSalle National Bank in Chicago after serving two
years in the U.S. Army. He received his bachelor's degree in accounting from the
University of Illinois in 1968. Mr. Ognar has co-managed the Fund since its
inception in June 1995.

RICHARD S. STRONG. Mr. Strong co-manages the Fund. Mr. Strong founded the
Advisor in 1974. He began his investment career at Employers Insurance of Wausau
in 1966, after receiving his master's degree in finance from the University of
Wisconsin-Madison that January. He received his undergraduate degree in 1963
from Baldwin-Wallace College. Mr. Strong has co-managed the Fund since its
inception in June 1995. In addition to his role as co-portfolio manager, he is
currently the Chairman of the Board, Director, Chief Investment Officer, and a
member of the Advisor's Executive Committee.

RICHARD T. WEISS. Mr. Weiss co-manages the Fund. Mr. Weiss joined the Advisor
in 1991 from Chicago-based Stein Roe & Farnham, where he began his career as a
research analyst in 1975. He was named a portfolio manager in 1981. Mr. Weiss
attended Harvard Graduate School of Business Administra-

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

PROSPECTUS PAGE 17
<PAGE> 92

tion, where he was awarded his M.B.A. in 1975, and the University of Southern
California, where he received his bachelor's degree in business administration
in 1973. Mr. Weiss has co-managed the Fund since its inception in June 1995. In
addition, Mr. Weiss is a member of the Advisor's Executive Committee.

Bond and Cash Component

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

SHIRISH T. MALEKAR. Mr. Malekar co-manages the Fund. Mr. Malekar joined the
Advisor in 1994. He was an international bond portfolio manager at Pacific
Investment Management Company in California for the previous three years. Prior
to that, he was a bond trader at Harris Bank in Chicago for one year and a bond
trader at PaineWebber Incorporated in New York and Tokyo for more than two
years. He has an M.S. in Management from the Massachusetts Institute of
Technology, an M.S. in Petroleum Engineering from the University of Pittsburgh,
and a B.S. in Chemical Engineering from the University of Bombay, India. Mr.
Malekar has co-managed the Fund since its inception in June 1995.

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

ADDITIONAL INFORMATION

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

PROSPECTUS PAGE 18
<PAGE> 93

judgment of the Advisor, it would not be in the best interest of the existing
shareholders to accept the order. Shares of the Fund will be sold at the net
asset value next determined after receipt by the Fund of a purchase order in
proper form placed by an insurance company investing in the Fund. Certificates
for shares in the Fund will not be issued.

CALCULATION OF NET ASSET VALUE. The net asset value ("NAV") per share for the
Fund is determined as of the close of trading on the New York Stock Exchange
(the "Exchange"), currently 3:00 p.m. Central Time, on days the Exchange is open
for business. The NAV will not be determined for the Fund on days during which
the Fund receives no orders to purchase shares and no shares are tendered for
redemption. The Fund's NAV is calculated by taking the fair value of the Fund's
total assets, subtracting all its liabilities, and dividing by the total number
of shares outstanding. Expenses are accrued daily and applied when determining
the NAV.

The Fund's portfolio securities are valued based on market quotations or at
fair value as determined by the method selected by the Fund's Board of
Directors. Equity securities traded on a national securities exchange or NASDAQ
are valued at the last sales price on the national securities exchange or NASDAQ
on which such securities are primarily traded. Securities traded on NASDAQ for
which there were no transactions on a given day or securities not listed on an
exchange or NASDAQ are valued at the average of the most recent bid and asked
prices. Other exchange-traded securities (generally foreign securities) will be
valued based on market quotations.

Debt securities are valued by a pricing service that utilizes electronic data
processing techniques to determine values for normal institutional-sized trading
units of debt securities without regard to sale or bid prices when such values
are believed to more accurately reflect the fair market value for such
securities. Otherwise, sale or bid prices are used. Any securities or other
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by the Board of Directors. Debt securities
having remaining maturities of 60 days or less are valued by the amortized cost
method when the Board of Directors determines that the fair value of such
securities is their amortized cost.

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

PROSPECTUS PAGE 19
<PAGE> 94

exchange rates occur during such period, the investments will be valued at their
fair value as determined in good faith by or under the direction of the Board of
Directors.

HOW TO REDEEM SHARES. Shares of the Fund may be redeemed on any business day.
The price received upon redemption will be the net asset value next determined
after the redemption request in proper form is received by the Fund. (See
"Calculation of Net Asset Value.") Contract owners should refer to the
withdrawal or surrender instructions in the prospectus of the separate account
for instructions on how to redeem shares. Once the redemption request is
received in proper form, the Fund will ordinarily forward payment to the
separate account no later than seven days after receipt.
The right of redemption may be suspended during any period in which: (i)
trading on the Exchange is restricted, as determined by the SEC, or the Exchange
is closed for other than weekends and holidays; (ii) the SEC has permitted such
suspension by order; or (iii) an emergency, as determined by the SEC, exists
which makes disposal of portfolio securities or valuation of net assets of the
Fund not reasonably practicable.

The Fund intends to continue to qualify for treatment as a Regulated
Investment Company or "RIC" under Subchapter M of the Code and, if so qualified,
will not be liable for federal income tax on earnings and gains distributed to
its shareholders in a timely manner. If the Fund does not so qualify, however,
it would be treated for tax purposes as an ordinary corporation and would
receive no tax deduction for distributions made to its shareholders. For more
information regarding tax implications for owners of variable annuity or
variable life insurance contracts investing in the Fund, please refer to the
prospectus of your insurance company's separate account. See "Special
Considerations" for a discussion of special tax considerations relating to the
Fund's compliance with Subchapter L of the Code, as an investment vehicle for
variable annuity and variable life insurance contracts of certain insurance
companies.

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

PROSPECTUS PAGE 20
<PAGE> 95

stock. All holders of shares of the Corporation would vote on each matter
presented to shareholders for action except with respect to any matter which
affects only one or more series or classes, in which case only the shares of the
affected series or class shall be entitled to vote.

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

PROSPECTUS PAGE 21
<PAGE> 96

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

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

PROSPECTUS PAGE 22
<PAGE> 97

APPENDIX A

RATINGS OF DEBT OBLIGATIONS:

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

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

PROSPECTUS PAGE A-1
<PAGE> 98

APPENDIX B

WEIGHTED AVERAGE RATINGS OF DEBT OBLIGATIONS1

<TABLE>
<CAPTION>
Average Percentage of Assets Held
During 19952 Percentage of Assets Held on
- ------------------------------------------------ December 31, 1995
------------------------------------------------
Asset Allocation Asset Allocation
Fund II Fund II
----------------------- -----------------------
Equivalent Equivalent
S&P Moody's Rated Unrated3 S&P Moody's Rated Unrated3
<S> <C> <C> <C> <C> <C> <C> <C>
AAA Aaa4 94.4% -- AAA Aaa4 94.4% --
AA Aa -- -- AA Aa -- --
A A -- -- A A -- --
BBB Baa -- -- BBB Baa -- --
BB Ba -- -- BB Ba -- --
B B -- -- B B -- --
CCC Caa -- -- CCC Caa -- --
CC Ca -- -- CC Ca -- --
C C -- -- C C -- --
D D -- -- D D -- --
Totals 94.4% 0% Totals 94.4% 0%
</TABLE>

(1) A security rated differently by the rating services is included in the
category representing the higher of the ratings assigned to the security.
Investment-grade debt obligations are those rated in one of the four highest
categories by an NRSRO. See "Fundamentals of Fixed Income Investing" in this
Prospectus for a discussion of the risks associated with
non-investment-grade debt obligations and Appendix and the SAI for a
description of credit ratings. For purposes of this table, the Fund's
short-term debt obligations have been assigned a long-term rating by the
Advisor.

(2) Based on a weighted average of the securities held at the end of each month.

(3) This category represents the comparable quality of unrated securities, as
determined by the Advisor.

(4) Includes all U.S. government obligations.

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

PROSPECTUS PAGE B-1
<PAGE> 99

STATEMENT OF ADDITIONAL INFORMATION

STRONG ASSET ALLOCATION FUND II
P.O. Box 2936
Milwaukee, Wisconsin 53201

Telephone: (414) 359-1400

Toll-Free: (800) 368-3863

Strong Asset Allocation Fund II (the "Fund") is a diversified series
of the Strong Variable Insurance Funds, Inc. (the "Corporation"), an open-end
management investment company designed to provide an investment vehicle for
variable annuity and variable life insurance contracts of certain insurance
companies. Shares in the Fund are only offered and sold to the separate
accounts of such insurance companies. The Fund is described herein and in the
Prospectus for the Fund dated May 1, 1996.

This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus for the Fund dated May 1,
1996 and the prospectus for the separate account of the specific insurance
product. Requests for copies of the Fund's Prospectus may be made by calling
one of the numbers listed above. The financial statements appearing in the
Fund's Annual Report, which accompanies this Statement of Additional
Information, are incorporated by reference.

This Statement of Additional Information is dated May 1, 1996.

<PAGE> 100
STRONG ASSET ALLOCATION FUND II

TABLE OF CONTENTS PAGE

INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . . . . . . . . . . . 5

Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Convertible Securities . . . . . . . . . . . . . . . . . . . . . . . . . 5
Debt Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Depositary Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . 7

Foreign Investment Companies . . . . . . . . . . . . . . . . . . . . . 16
Foreign Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 16
High-Yield (High-Risk) Securities . . . . . . . . . . . . . . . . . . 17
Illiquid Securities . . . . . . . . . . . . . . . . . . . . . . . . . 18
Lending of Portfolio Securities . . . . . . . . . . . . . . . . . . . 19

Mortgage- and Asset-Backed Securities . . . . . . . . . . . . . . . . 20

Mortgage Dollar Rolls and Reverse Repurchase Agreements . . . . . . . 21
Municipal Obligations . . . . . . . . . . . . . . . . . . . . . . . . 21
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . 22
Short Sales Against the Box . . . . . . . . . . . . . . . . . . . . . 22
Short-Term Cash Management . . . . . . . . . . . . . . . . . . . . . . 22
Small Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Sovereign Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Temporary Defensive Position . . . . . . . . . . . . . . . . . . . . . 24

Variable- or Floating-Rate Securities . . . . . . . . . . . . . . . . 24

Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
When-Issued Securities . . . . . . . . . . . . . . . . . . . . . . . . 26
Zero-Coupon, Step-Coupon and Pay-in-Kind Securities . . . . . . . . . 26

DIRECTORS AND OFFICERS OF THE CORPORATION . . . . . . . . . . . . . . . . 26
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . 29
INVESTMENT ADVISOR AND DISTRIBUTOR . . . . . . . . . . . . . . . . . . . 29
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . 31
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT . . . . . . . . . . . . . . 34
ADMINISTRATIVE SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . 34
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . 37
FUND ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 37
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
PORTFOLIO MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 42
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . 43
LEGAL COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 43

APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
- ------------------------------

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

2
<PAGE> 101
INVESTMENT RESTRICTIONS

The investment objective of the Fund is to seek high total return
consistent with reasonable risk over the long term. The Fund's investment
objective and policies are described in detail in the Prospectus under the
caption "Investment Objective and Policies." The following are the Fund's
fundamental investment limitations which cannot be changed without shareholder
approval.

The Fund:

1. May not with respect to 75% of its total assets, purchase the
securities of any issuer (except securities issued or guaranteed by
the U.S. government or its agencies or instrumentalities) if, as a
result, (i) more than 5% of the Fund's total assets would be invested
in the securities of that issuer, or (ii) the Fund would hold more
than 10% of the outstanding voting securities of that issuer.

2. May (i) borrow money from banks and (ii) make other investments or
engage in other transactions permissible under the Investment Company
Act of 1940 (the "1940 Act") which may involve a borrowing, provided
that the combination of (i) and (ii) shall not exceed 33 1/3% of the
value of the Fund's total assets (including the amount borrowed), less
the Fund's liabilities (other than borrowings), except that the Fund
may borrow up to an additional 5% of its total assets (not including
the amount borrowed) from a bank for temporary or emergency purposes
(but not for leverage or the purchase of investments). The Fund may
also borrow money from the other Strong Funds or other persons to the
extent permitted by applicable law.

3. May not issue senior securities, except as permitted under the 1940
Act.

4. May not act as an underwriter of another issuer's securities, except
to the extent that the Fund may be deemed to be an underwriter within
the meaning of the Securities Act of 1933 in connection with the
purchase and sale of portfolio securities.

5. May not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall
not prevent the Fund from purchasing or selling options, futures
contracts, or other derivative instruments, or from investing in
securities or other instruments backed by physical commodities).

6. May not make loans if, as a result, more than 33 1/3% of the Fund's
total assets would be lent to other persons, except through (i)
purchases of debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.

7. May not purchase the securities of any issuer if, as a result, more
than 25% of the Fund's total assets would be invested in the
securities of issuers, the principal business activities of which are
in the same industry.

8. May not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prohibit the Fund from purchasing or selling securities or other
instruments backed by real estate or of issuers engaged in real estate
activities).

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

3
<PAGE> 102
The Fund may not:

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

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

3. Invest in illiquid securities if, as a result of such investment, more
than 15% of its net assets would be invested in illiquid securities,
or such other amounts as may be permitted under the 1940 Act.

4. Purchase securities of other investment companies except in compliance
with the 1940 Act and applicable state law.

5. Invest all of its assets in the securities of a single open-end
investment management company with substantially the same fundamental
investment objective, restrictions and policies as the Fund.

6. Purchase the securities of any issuer (other than securities issued or
guaranteed by domestic or foreign governments or political
subdivisions thereof) if, as a result, more than 5% of its total
assets would be invested in the securities of issuers that, including
predecessor or unconditional guarantors, have a record of less than
three years of continuous operation. This policy does not apply to
securities of pooled investment vehicles or mortgage or asset-backed
securities.

7. Invest in direct interests in oil, gas, or other mineral exploration
programs or leases; however, the Fund may invest in the securities of
issuers that engage in these activities.

8. Engage in futures or options on futures transactions which are
impermissible pursuant to Rule 4.5 under the Commodity Exchange Act
and, in accordance with Rule 4.5, will use futures or options on
futures transactions solely for bona fide hedging transactions (within
the meaning of the Commodity Exchange Act), provided, however, that
the Fund may, in addition to bona fide hedging transactions, use
futures and options on futures transactions if the aggregate initial
margin and premiums required to establish such positions, less the
amount by which any such options positions are in the money (within
the meaning of the Commodity Exchange Act), do not exceed 5% of the
Fund's net assets.

In addition, (i) the aggregate value of securities underlying call
options on securities written by the Fund or obligations underlying
put options on securities written by the Fund determined as of the
date the options are written will not exceed 50% of the Fund's net
assets; (ii) the aggregate premiums paid on all options purchased by
the Fund and which are being held will not exceed 20% of the Fund's
net assets; (iii) the Fund will not purchase put or call options,
other than hedging positions, if, as a result thereof, more than 5% of
its total assets would be so invested; and (iv) the aggregate margin
deposits required on all futures and options on futures transactions
being held will not exceed 5% of the Fund's total assets.

9. Pledge, mortgage or hypothecate any assets owned by the Fund except as
may be necessary in connection with permissible borrowings or
investments and then such pledging, mortgaging, or hypothecating may
not exceed 33 1/3% of the Fund's total assets at the time of the
borrowing or investment.

10. Purchase or retain the securities of any issuer if any officer or
director of the Fund or its investment advisor beneficially owns more
than 1/2 of 1% of the securities of such issuer and such officers and
directors together own beneficially more than 5% of the securities of
such issuer.

4
<PAGE> 103
11. Purchase warrants, valued at the lower of cost or market value, in
excess of 5% of the Fund's net assets. Included in that amount, but
not to exceed 2% of the Fund's net assets, may be warrants that are
not listed on any stock exchange. Warrants acquired by the Fund in
units or attached to securities are not subject to these restrictions.

12. Borrow money except (i) from banks or (ii) through reverse repurchase
agreements or mortgage dollar rolls, and will not purchase securities
when bank borrowings exceed 5% of its total assets.

13. Make any loans other than loans of portfolio securities, except
through (i) purchases of debt securities or other debt instruments, or
(ii) engaging in repurchase agreements.

Unless noted otherwise, if a percentage restriction is adhered to at
the time of investment, a later increase or decrease in percentage resulting
from a change in the Fund's assets (i.e., due to cash inflows or redemptions)
or in market value of the investment or the Fund's assets will not constitute a
violation of that restriction.

INVESTMENT POLICIES AND TECHNIQUES

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

BORROWING

The Fund may borrow money from banks and make other investments or
engage in other transactions permissible under the 1940 Act which may be
considered a borrowing (such as mortgage dollar rolls and reverse repurchase
agreements) as discussed under "Investment Restrictions." However, the Fund
may not purchase securities when bank borrowings exceed 5% of the Fund's total
assets. Presently, the Fund only intends to borrow from banks for temporary or
emergency purposes.

CONVERTIBLE SECURITIES

5
<PAGE> 104

convertible security is influenced by changes in interest rates, with
investment value declining as interest rates increase and increasing as
interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value. The
conversion value of a convertible security is determined by the market price of
the underlying common stock. If the conversion value is low relative to the
investment value, the price of the convertible security is governed principally
by its investment value. Generally, the conversion value decreases as the
convertible security approaches maturity. To the extent the market price of
the underlying common stock approaches or exceeds the conversion price, the
price of the convertible security will be increasingly influenced by its
conversion value. A convertible security generally will sell at a premium over
its conversion value by the extent to which investors place value on the right
to acquire the underlying common stock while holding a fixed income security.

A convertible security may be subject to redemption at the option of
the issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Fund is called for
redemption, the Fund will be required to permit the issuer to redeem the
security, convert it into the underlying common stock, or sell it to a third
party.

DEBT OBLIGATIONS

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

MATURITY. In general, the longer the maturity of a debt obligation,
the higher its yield and the greater its sensitivity to changes in interest
rates. Conversely, the shorter the maturity, the lower the yield but the
greater the price stability. Commercial paper is generally considered the
shortest form of debt obligation.

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

DEPOSITARY RECEIPTS

6
<PAGE> 105

ADR facilities may be established as either "unsponsored" or
"sponsored." While ADRs issued under these two types of facilities are in some
respects similar, there are distinctions between them relating to the rights
and obligations of ADR holders and the practices of market participants.

A depositary may establish an unsponsored facility without
participation by (or even necessarily the acquiescence of) the issuer of the
deposited securities, although typically the depositary requests a letter of
non-objection from such issuer prior to the establishment of the facility.
Holders of unsponsored ADRs generally bear all the costs of such facilities.
The depositary usually charges fees upon the deposit and withdrawal of the
deposited securities, the conversion of dividends into U.S. dollars, the
disposition of non-cash distributions, and the performance of other services.
The depositary of an unsponsored facility frequently is under no obligation to
pass through voting rights to ADR holders in respect of the deposited
securities. In addition, an unsponsored facility is generally not obligated to
distribute communications received from the issuer of the deposited securities
or to disclose material information about such issuer in the U.S. and thus
there may not be a correlation between such information and the market value of
the depositary receipts.

DERIVATIVE INSTRUMENTS

A derivative instrument generally consists of, is based upon, or
exhibits characteristics similar to options or forward contracts. Options and
forward contracts are considered to be the basic "building blocks" of
derivatives. For example, forward-based derivatives include forward contracts,
swap contracts, as well as exchange-traded futures. Option-based derivatives
include privately negotiated, over-the-counter (OTC) options (including caps,
floors, collars, and options on forward and swap contracts) and exchange-traded
options on futures. Diverse types of derivatives may be created by combining
options or forward contracts in different ways, and by applying these
structures to a wide range of underlying assets.

An option is a contract in which the "holder" (the buyer) pays a
certain amount (the "premium") to the "writer" (the seller) to obtain the
right, but not the obligation, to buy from the writer (in a "call") or sell to
the writer (in a "put") a specific asset at an agreed upon price at or before a
certain time. The holder pays the premium at inception and has no further
financial obligation. The holder of an option-based derivative generally will
benefit from favorable movements in the price of the underlying asset but is
not exposed to corresponding losses due to adverse movements in the value of
the underlying asset. The writer of an option-based derivative generally will
receive fees or premiums but generally is exposed to losses due to changes in
the value of the underlying asset.

A forward is a sales contract between a buyer (holding the "long"
position) and a seller (holding the "short" position) for an asset with
delivery deferred until a future date. The buyer agrees to pay a fixed price
at the agreed future date and the seller agrees to deliver the asset. The
seller hopes that the market price on the delivery date is less than the agreed
upon price, while the buyer hopes for the contrary. The change in value of a
forward-based derivative generally is roughly proportional to the change in
value of the underlying asset.

7
<PAGE> 106

being hedged. However, hedging strategies can also reduce the opportunity for
gain by offsetting the positive effect of favorable price movements in the
hedged investments.

MANAGING RISK. The Fund may also use derivative instruments to manage
the risks of the Fund's portfolio. Risk management strategies include, but are
not limited to, facilitating the sale of portfolio securities, managing the
effective maturity or duration of debt obligations in the Fund's portfolio,
establishing a position in the derivatives markets as a substitute for buying
or selling certain securities, or creating or altering exposure to certain
asset classes, such as equity, debt, and foreign securities. The use of
derivative instruments may provide a less expensive, more expedient or more
specifically focused way for the Fund to invest than "traditional" securities
(i.e., stocks or bonds) would.

(1) MARKET RISK. The primary risk of derivatives is the same as
the risk of the underlying assets, namely that the value of the underlying
asset may go up or down. Adverse movements in the value of an underlying asset
can expose the Fund to losses. Derivative instruments may include elements of
leverage and, accordingly, the fluctuation of the value of the derivative
instrument in relation to the underlying asset may be magnified. The
successful use of derivative instruments depends upon a variety of factors,
particularly the Advisor's ability to predict movements of the securities,
currencies, and commodity markets, which requires different skills than
predicting changes in the prices of individual securities. There can be no
assurance that any particular strategy adopted will succeed. The Advisor's
decision to engage in a derivative instrument will reflect the Advisor's
judgment that the derivative transaction will provide value to the Fund and its
shareholders and is consistent with the Fund's objectives, investment
limitations, and operating policies. In making such a judgment, the Advisor
will analyze the benefits and risks of the derivative transaction and weigh
them in the context of the Fund's entire portfolio and investment objective.

(2) CREDIT RISK. The Fund will be subject to the risk that a loss
may be sustained by the Fund as a result of the failure of a counterparty to
comply with the terms of a derivative instrument. The counterparty risk for
exchange-traded derivative instruments is generally less than for
privately-negotiated or OTC derivative instruments, since generally a clearing
agency, which is the issuer or counterparty to each exchange-traded instrument,
provides a guarantee of performance. For privately-negotiated instruments,
there is no similar clearing agency guarantee. In all transactions, the Fund
will bear the risk that the counterparty will default, and this could result in
a loss of the expected benefit of the derivative transaction and possibly other
losses to the Fund. The Fund will enter into transactions in derivative
instruments only with counterparties that the Advisor reasonably believes are
capable of performing under the contract.

(3) CORRELATION RISK. When a derivative transaction is used to
completely hedge another position, changes in the market value of the combined
position (the derivative instrument plus the position being hedged) result from
an imperfect correlation between the price movements of the two instruments.
With a perfect hedge, the value of the combined position remains unchanged for
any change in the price of the underlying asset. With an imperfect hedge, the
values of the derivative instrument and its hedge are not perfectly correlated.
Correlation risk is the risk that there might be imperfect correlation, or even
no correlation, between price movements of an instrument and price movements of
investments being hedged. For example, if the value of a derivative
instruments used in a short hedge (such as writing a call option, buying a put
option, or selling a futures contract) increased by less than the decline in
value of the hedged investments, the hedge would not be perfectly correlated.
Such a lack of correlation might occur due to factors unrelated to the value of
the investments being hedged, such as speculative or other pressures on the
markets in which these instruments are traded. The effectiveness of hedges
using instruments on indices will depend, in part, on the degree of correlation
between price movements in the index and price movements in the investments
being hedged.

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(4) LIQUIDITY RISK. Derivatives are also subject to liquidity
risk. Liquidity risk is the risk that a derivative instrument cannot be sold,
closed out, or replaced quickly at or very close to its fundamental value.
Generally, exchange contracts are very liquid because the exchange
clearinghouse is the counterparty of every contract. OTC transactions are less
liquid than exchange-traded derivatives since they often can only be closed out
with the other party to the transaction. The Fund might be required by
applicable regulatory requirement to maintain assets as "cover," maintain
segregated accounts, and/or make margin payments when it takes positions in
derivative instruments involving obligations to third parties (i.e.,
instruments other than purchased options). If the Fund was unable to close out
its positions in such instruments, it might be required to continue to maintain
such assets or accounts or make such payments until the position expired,
matured, or was closed out. The requirements might impair the Fund's ability
to sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time. The Fund's ability to sell or close out a
position in an instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a market, the
ability and willingness of the counterparty to enter into a transaction closing
out the position. Therefore, there is no assurance that any derivatives
position can be sold or closed out at a time and price that is favorable to the
Fund.

(5) LEGAL RISK. Legal risk is the risk of loss caused by the
legal unenforcibility of a party's obligations under the derivative. While a
party seeking price certainty agrees to surrender the potential upside in
exchange for downside protection, the party taking the risk is looking for a
positive payoff. Despite this voluntary assumption of risk, a counterparty
that has lost money in a derivative transaction may try to avoid payment by
exploiting various legal uncertainties about certain derivative products.

(6) SYSTEMIC OR "INTERCONNECTION" RISK. Interconnection risk is
the risk that a disruption in the financial markets will cause difficulties for
all market participants. In other words, a disruption in one market will spill
over into other markets, perhaps creating a chain reaction. Much of the OTC
derivatives market takes place among the OTC dealers themselves, thus creating
a large interconnected web of financial obligations. This interconnectedness
raises the possibility that a default by one large dealer could create losses
at other dealers and destabilize the entire market for OTC derivative
instruments.

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<PAGE> 108

of the Fund's assets, as defined under the 1940 Act, the SEC has stated that
the Fund may use coverage or the segregation of the Fund's assets. To the
extent required by SEC guidelines, the Fund will not enter into any such
transactions unless it owns either: (i) an offsetting ("covered") position in
securities, options, futures, or derivative instruments; or (ii) cash, liquid
high grade debt obligations, or securities positions that substantially
correlate to the market movements of the instrument, with a value sufficient at
all times to cover its potential obligations to the extent that the position is
not "covered". For this purpose, a high grade debt obligation shall include
any debt obligation rated A or better by an NRSRO. The Fund will also set
aside cash and/or appropriate liquid assets in a segregated custodial account
if required to do so by the SEC and CFTC regulations. Assets used as cover or
held in a segregated account cannot be sold while the derivative position is
open, unless they are replaced with similar assets. As a result, the
commitment of a large portion of the Fund's assets to segregated accounts could
impede portfolio management or the Fund's ability to meet redemption requests
or other current obligations.

In some cases the Fund may be required to maintain or limit exposure
to a specified percentage of its assets to a particular asset class. In such
cases, when the Fund uses a derivative instrument to increase or decrease
exposure to an asset class and is required by applicable SEC guidelines to set
aside liquid assets in a segregated account to secure its obligations under the
derivative instruments, the Advisor may, where reasonable in light of the
circumstances, measure compliance with the applicable percentage by reference
to the nature of the economic exposure created through the use of the
derivative instrument and not by reference to the nature of the exposure
arising from the liquid assets set aside in the segregated account (unless
another interpretation is specified by applicable regulatory requirements).

OPTIONS. The Fund may use options for any lawful purpose consistent
with the Fund's investment objective such as hedging or managing risk but not
for speculation. An option is a contract in which the "holder" (the buyer)
pays a certain amount (the "premium") to the "writer" (the seller) to obtain
the right, but not the obligation, to buy from the writer (in a "call") or sell
to the writer (in a "put") a specific asset at an agreed upon price (the
"strike price" or "exercise price") at or before a certain time (the
"expiration date"). The holder pays the premium at inception and has no
further financial obligation. The holder of an option will benefit from
favorable movements in the price of the underlying asset but is not exposed to
corresponding losses due to adverse movements in the value of the underlying
asset. The writer of an option will receive fees or premiums but is exposed to
losses due to changes in the value of the underlying asset. The Fund may buy
or write (sell) put and call options on assets, such as securities, currencies,
commodities, and indices of debt and equity securities ("underlying assets")
and enter into closing transactions with respect to such options to terminate
an existing position. Options used by the Fund may include European, American,
and Bermuda style options. If an option is exercisable only at maturity, it is
a "European" option; if it is also exercisable prior to maturity, it is an
"American" option. If it is exercisable only at certain times, it is a
"Bermuda" option.

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<PAGE> 109
option it had purchased by writing an identical put or call option; this is
known as a closing sale transaction. Closing transactions permit the Fund to
realize the profit or limit the loss on an option position prior to its
exercise or expiration.

The Fund's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. The Fund
intends to purchase or write only those exchange-traded options for which there
appears to be a liquid secondary market. However, there can be no assurance
that such a market will exist at any particular time. Closing transactions can
be made for OTC options only by negotiating directly with the counter party, or
by a transaction in the secondary market if any such market exists. Although
the Fund will enter into OTC options only with counter parties that are
expected to be capable of entering into closing transactions with the Fund,
there is no assurance that the Fund will in fact be able to close out an OTC
option at a favorable price prior to expiration. In the event of insolvency of
the counter party, the Fund might be unable to close out an OTC option position
at any time prior to its expiration. If the Fund were unable to effect a
closing transaction for an option it had purchased, it would have to exercise
the option to realize any profit.

The Fund may engage in options transactions on indices in much the
same manner as the options on securities discussed above, except the index
options may serve as a hedge against overall fluctuations in the securities
market in general.

SPREAD TRANSACTIONS. The Fund may use spread transactions for any
lawful purpose consistent with the Fund's investment objective such as hedging
or managing risk, but not for speculation. The Fund may purchase covered
spread options from securities dealers. Such covered spread options are not
presently exchange-listed or exchange-traded. The purchase of a spread option
gives the Fund the right to put, or sell, a security that it owns at a fixed
dollar spread or fixed yield spread in relationship to another security that
the Fund does not own, but which is used as a benchmark. The risk to the Fund
in purchasing covered spread options is the cost of the premium paid for the
spread option and any transaction costs. In addition, there is no assurance
that closing transactions will be available. The purchase of spread options
will be used to protect the Fund against adverse changes in prevailing credit
quality spreads, i.e., the yield spread between high quality and lower quality
securities. Such protection is only provided during the life of the spread
option.

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<PAGE> 110
are regulated under the CEA by the CFTC. Although techniques other than sales
and purchases of futures contracts could be used to reduce the Fund's exposure
to market, currency, or interest rate fluctuations, the Fund may be able to
hedge its exposure more effectively and perhaps at a lower cost through using
futures contracts.

Subsequent "variation margin" payments are made to and from the
futures broker daily as the value of the futures position varies, a process
known as "marking to market." Variation margin does not involve borrowing, but
rather represents a daily settlement of the Fund's obligations to or from a
futures broker. When the Fund purchases an option on a future, the premium
paid plus transaction costs is all that is at risk. In contrast, when the Fund
purchases or sells a futures contract or writes a call or put option thereon,
it is subject to daily variation margin calls that could be substantial in the
event of adverse price movements. If the Fund has insufficient cash to meet
daily variation margin requirements, it might need to sell securities at a time
when such sales are disadvantageous. Purchasers and sellers of futures
positions and options on futures can enter into offsetting closing transactions
by selling or purchasing, respectively, an instrument identical to the
instrument held or written. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary market.
The Fund intends to enter into futures transactions only on exchanges or boards
of trade where there appears to be a liquid secondary market. However, there
can be no assurance that such a market will exist for a particular contract at
a particular time.

Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a future or option on a futures contract
can vary from the previous day's settlement price; once that limit is reached,
no trades may be made that day at a price beyond the limit. Daily price limits
do not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.

If the Fund was unable to liquidate a futures or option on a futures
contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In
addition, except in the case of purchased options, the Fund would continue to
be required to make daily variation margin payments and might be required to
maintain the position being hedged by the future or option or to maintain cash
or securities in a segregated account.

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Certain characteristics of the futures market might increase the risk
that movements in the prices of futures contracts or options on futures
contracts might not correlate perfectly with movements in the prices of the
investments being hedged. For example, all participants in the futures and
options on futures contracts markets are subject to daily variation margin
calls and might be compelled to liquidate futures or options on futures
contracts positions whose prices are moving unfavorably to avoid being subject
to further calls. These liquidations could increase price volatility of the
instruments and distort the normal price relationship between the futures or
options and the investments being hedged. Also, because initial margin deposit
requirements in the futures markets are less onerous than margin requirements
in the securities markets, there might be increased participation by
speculators in the future markets. This participation also might cause
temporary price distortions. In addition, activities of large traders in both
the futures and securities markets involving arbitrage, "program trading" and
other investment strategies might result in temporary price distortions.

FOREIGN CURRENCIES. The Fund may purchase and sell foreign currency
on a spot basis, and may use currency-related derivatives instruments such as
options on foreign currencies, futures on foreign currencies, options on
futures on foreign currencies and forward currency contracts (i.e., an
obligation to purchase or sell a specific currency at a specified future date,
which may be any fixed number of days from the contract date agreed upon by the
parties, at a price set at the time the contract is entered into). The Fund
may use these instruments for hedging or any other lawful purpose consistent
with its investment objective, including transaction hedging, anticipatory
hedging, cross hedging, proxy hedging, and position hedging. The Fund's use of
currency-related derivative instruments will be directly related to the Fund's
current or anticipated portfolio securities, and the Fund may engage in
transactions in currency-related derivative instruments as a means to protect
against some or all of the effects of adverse changes in foreign currency
exchange rates on its portfolio investments. In general, if the currency in
which a portfolio investment is denominated appreciates against the U.S.
dollar, the dollar value of the security will increase. Conversely, a decline
in the exchange rate of the currency would adversely affect the value of the
portfolio investment expressed in U.S. dollars.

For example, the Fund might use currency-related derivative
instruments to "lock in" a U.S. dollar price for a portfolio investment,
thereby enabling the Fund to protect itself against a possible loss resulting
from an adverse change in the relationship between the U.S. dollar and the
subject foreign currency during the period between the date the security is
purchased or sold and the date on which payment is made or received. The Fund
also might use currency-related derivative instruments when the Advisor
believes that one currency may experience a substantial movement against
another currency, including the U.S. dollar, and it may use currency-related
derivative instruments to sell or buy the amount of the former foreign
currency, approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. Alternatively, where
appropriate, the Fund may use currency-related derivative instruments to hedge
all or part of its foreign currency exposure through the use of a basket of
currencies or a proxy currency where such currency or currencies act as an
effective proxy for other currencies. The use of this basket hedging technique
may be more efficient and economical than using separate currency-related
derivative instruments for each currency exposure held by the Fund.
Furthermore, currency-related derivative instruments may be used for short
hedges -- for example, the Fund may sell a forward currency contract to lock in
the U.S. dollar equivalent of the proceeds from the anticipated sale of a
security denominated in a foreign currency.

In addition, the Fund may use a currency-related derivative instrument
to shift exposure to foreign currency fluctuations from one foreign country to
another foreign country where the Advisor believes that the foreign currency
exposure purchased will appreciate relative to the U.S. dollar and thus better
protect the Fund against the expected decline in the foreign currency exposure
sold. For example, if the Fund owns securities denominated in a foreign
currency and the Advisor believes that currency will decline, it might enter
into a forward contract to sell an appropriate amount of the first foreign
currency, with payment to be made in a second foreign currency that the Advisor
believes would better protect the Fund against the decline in the first
security than would a U.S. dollar exposure. Hedging transactions that use two
foreign currencies are sometimes referred to as "cross hedges." The effective
use of currency-related derivative instruments by the Fund in a cross hedge is
dependent upon a correlation between price movements of the two currency
instruments and the underlying security involved, and the use of two currencies
magnifies the risk that movements in the price of one instrument may not
correlate or may correlate unfavorably with the foreign currency being hedged.
Such a lack of correlation might occur due to factors unrelated to the value of
the currency instruments used or investments being hedged, such as speculative
or other pressures on the markets in which these instruments are traded.

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The Fund also might seek to hedge against changes in the value of a
particular currency when no hedging instruments on that currency are available
or such hedging instruments are more expensive than certain other hedging
instruments. In such cases, the Fund may hedge against price movements in that
currency by entering into transactions using currency-related derivative
instruments on another foreign currency or a basket of currencies, the values
of which the Advisor believes will have a high degree of positive correlation
to the value of the currency being hedged. The risk that movements in the
price of the hedging instrument will not correlate perfectly with movements in
the price of the currency being hedged is magnified when this strategy is used.

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

Settlement of transactions in currency-related derivative instruments
might be required to take place within the country issuing the underlying
currency. Thus, the Fund might be required to accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign regulations
regarding the maintenance of foreign banking arrangements by U.S. residents and
might be required to pay any fees, taxes and charges associated with such
delivery assessed in the issuing country.

When the Fund engages in a transaction in a currency-related
derivative instrument, it relies on the counterparty to make or take delivery
of the underlying currency at the maturity of the contract or otherwise
complete the contract. In other words, the Fund will be subject to the risk
that a loss may be sustained by the Fund as a result of the failure of the
counterparty to comply with the terms of the transaction. The counterparty
risk for exchange--traded instruments is generally less than for
privately-negotiated or OTC currency instruments, since generally a clearing
agency, which is the issuer or counterparty to each instrument, provides a
guarantee of performance. For privately-negotiated instruments, there is no
similar clearing agency guarantee. In all transactions, the Fund will bear the
risk that the counterparty will default, and this could result in a loss of the
expected benefit of the transaction and possibly other losses to the Fund. The
Fund will enter into transactions in currency-related derivative instruments
only with counterparties that the Advisor reasonably believes are capable of
performing under the contract.

Purchasers and sellers of currency-related derivative instruments may
enter into offsetting closing transactions by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can
be no assurance that the Fund will in fact be able to close out a forward
currency contract (or any other currency--related derivative instrument) at a
time and price favorable to the Fund. In addition, in the event of insolvency
of the counterparty, the Fund might be unable to close out a forward currency
contract at any time prior to maturity. In the case of an exchange-traded
instrument, the Fund will be able to close the position out only on an exchange
which provides a market for the instruments. The ability to establish and
close out positions on an exchange is subject to the maintenance of a liquid
market, and there can be no assurance that a liquid market will exist for any
instrument at any specific time. In the case of a privately-negotiated
instrument, the Fund will be able to realize the value of the instrument only
by entering into a closing transaction with the issuer or finding a third party
buyer for the instrument. While the Fund will enter into privately-negotiated
transactions only with entities who are expected to be capable of entering into
a closing transaction, there can be no assurance that the Fund will in fact be
able to enter into such closing transactions.

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

Permissible foreign currency options will include options traded
primarily in the OTC market. Although options on foreign currencies are traded
primarily in the OTC market, the Fund will normally purchase or sell OTC
options on foreign currency only when the Advisor reasonably believes a liquid
secondary market will exist for a particular option at any specific time.

When required by the SEC guidelines, the Fund will set aside
permissible liquid assets in segregated accounts or otherwise cover its
potential obligations under currency-related derivatives instruments. To the
extent the Fund's assets are so set aside, they cannot be sold while the
corresponding currency position is open, unless they are replaced with similar
assets. As a result, if a large portion of the Fund's assets are so set aside,
this could impede portfolio management or the Fund's ability to meet redemption
requests or other current obligations.

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rates of return) earned or realized on particular predetermined investments or
instruments. The gross returns to be exchanged or "swapped" between the
parties are calculated with respect to a "notional amount," i.e., the return on
or increase in value of a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a "basket" of securities
representing a particular index. Swap agreements may include interest rate
caps, under which, in return for a premium, one party agrees to make payments
to the other to the extent that interest rates exceed a specified rate, or
"cap;" interest rate floors, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates fall
below a specified level, or "floor;" and interest rate collars, under which a
party sells a cap and purchases a floor, or vice versa, in an attempt to
protect itself against interest rate movements exceeding given minimum or
maximum levels.

The "notional amount" of the swap agreement is the agreed upon basis
for calculating the obligations that the parties to a swap agreement have
agreed to exchange. Under most swap agreements entered into by the Fund, the
obligations of the parties would be exchanged on a "net basis." Consequently,
the Fund's obligation (or rights) under a swap agreement will generally be
equal only to the net amount to be paid or received under the agreement based
on the relative values of the positions held by each party to the agreement
(the "net amount"). The Fund's obligation under a swap agreement will be
accrued daily (offset against amounts owed to the Fund) and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by the
maintenance of a segregated account consisting of cash, or liquid high grade
debt obligations.

Whether the Fund's use of swap agreements will be successful in
furthering its investment objective will depend, in part, on the Advisor's
ability to predict correctly whether certain types of investments are likely to
produce greater returns than other investments. Swap agreements may be
considered to be illiquid. Moreover, the Fund bears the risk of loss of the
amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counterparty. Certain restrictions
imposed on the Fund by the Internal Revenue Code may limit the Fund's ability
to use swap agreements. The swaps market is largely unregulated.

FOREIGN INVESTMENT COMPANIES

The Fund may invest, to a limited extent, in foreign investment
companies. Some of the countries in which the Fund invests may not permit
direct investment by outside investors. Investments in such countries may only
be permitted through foreign government-approved or -authorized investment
vehicles, which may include other investment companies. In addition, it may be
less expensive and more expedient for the Fund to invest in a foreign
investment company in a country which permits direct foreign investment.
Investing through such vehicles may involve frequent or layered fees or
expenses and may also be subject to limitation under the 1940 Act. Under the
1940 Act, the Fund may invest up to 10% of its assets in shares of other
investment companies and up to 5% of its assets in any one investment company
as long as the investment does not represent more than 3% of the voting stock
of the acquired investment company. The Fund does not intend to invest in such
investment companies unless, in the judgment of the Advisor, the potential
benefits of such investments justify the payment of any associated fees and
expenses.

FOREIGN SECURITIES

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regulatory standards in many respects are less stringent in emerging market
countries than in the U.S. and other major markets. There also may be a lower
level of monitoring and regulation of emerging markets and the activities of
investors in such markets, and enforcement of existing regulations may be
extremely limited. Foreign companies, and in particular, companies in smaller
and emerging capital markets are not generally subject to uniform accounting,
auditing and financial reporting standards, or to other regulatory requirements
comparable to those applicable to U.S. companies. The Fund's net investment
income and capital gains from its foreign investment activities may be subject
to non-U.S. withholding taxes.

Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
failed to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of the Fund are uninvested and no return is
earned thereon. The inability of the Fund to make intended security purchases
due to settlement problems could cause the Fund to miss investment
opportunities. Inability to dispose of a portfolio security due to settlement
problems could result either in losses to the Fund due to subsequent declines
in the value of such portfolio security or, if the Fund has entered into a
contract to sell the security, could result in possible liability to the
purchaser.

HIGH-YIELD (HIGH-RISK) SECURITIES

IN GENERAL. The Fund has the authority to invest up to 35% of its net
assets in non-investment grade debt obligations. Non-investment grade debt
obligations (hereinafter referred to as "lower-quality securities") include (i)
bonds rated as low as C by Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P"), or Fitch Investors Service, Inc.
("Fitch"), or CCC by Duff & Phelps, Inc. ("D&P"); (ii) commercial paper rated
as low as C by S&P, Not Prime by Moody's, or Fitch 4 by Fitch; and (iii)
unrated debt obligations of comparable quality. Lower-quality securities,
while generally offering higher yields than investment grade securities with
similar maturities, involve greater risks, including the possibility of default
or bankruptcy. They are regarded as predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal. The special risk
considerations in connection with investments in these securities are discussed
below. Refer to the Appendix for a discussion of securities ratings.

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

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economic uncertainty and changes would also generally result in increased
volatility in the market prices of these securities and thus in the Fund's net
asset value.

As previously stated, the value of a lower-quality or comparable
unrated security will decrease in a rising interest rate market and
accordingly, so will the Fund's net asset value. If the Fund experiences
unexpected net redemptions in such a market, it may be forced to liquidate a
portion of its portfolio securities without regard to their investment merits.
Due to the limited liquidity of lower-quality and comparable unrated securities
(discussed below), the Fund may be forced to liquidate these securities at a
substantial discount. Any such liquidation would force the Fund to sell the
more liquid portion of its portfolio.

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

LEGISLATION. Legislation may be adopted, from time to time designed
to limit the use of certain lower-quality and comparable unrated securities by
certain issuers. It is anticipated that if legislation is enacted or proposed,
it could have a material affect on the value of these securities and the
existence of a secondary trading market for the securities.

ILLIQUID SECURITIES

The Fund may invest in illiquid securities (i.e., securities that are
not readily marketable). However, the Fund will not acquire illiquid
securities if, as a result, they would comprise more than 15% of the value of
the Fund's net assets (or such other amounts as may be permitted under the 1940
Act). However, as a matter of internal policy, the Advisor intends to limit
the Fund's investments in illiquid securities to 10% of its net assets.

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The Board of Directors of the Fund has delegated to Strong Capital
Management, Inc. (the "Advisor") the day-to-day determination of the
liquidity of a security, although it has retained oversight and ultimate
responsibility for such determinations. The Board of Directors has directed
the Advisor to look to such factors as (i) the frequency of trades or quotes
for a security, (ii) the number of dealers willing to purchase or sell the
security and number of potential buyers, (iii) the willingness of dealers to
undertake to make a market in the security, (iv) the nature of the security and
nature of the marketplace trades, such as the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of transfer, (v)
the likelihood that the security's marketability will be maintained throughout
the anticipated holding period, and (vi) any other relevant factors. The
Advisor may determine 4(2) commercial paper to be liquid if (i) the 4(2)
commercial paper is not traded flat or in default as to principal and interest,
(ii) the 4(2) commercial paper is rated in one of the two highest rating
categories by at least two nationally rated statistical rating organizations
("NRSRO"), or if only one NRSRO rates the security, by that NRSRO, or is
determined by the Advisor to be of equivalent quality, and (iii) the Advisor
considers the trading market for the specific security taking into account all
relevant factors. With respect to the Fund's foreign holdings, a foreign
security may be considered liquid by the Advisor (despite its restricted nature
under the Securities Act) if the security can be freely traded in a foreign
securities market and all the facts and circumstances support a finding of
liquidity.

LENDING OF PORTFOLIO SECURITIES

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

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MORTGAGE- AND ASSET-BACKED SECURITIES

Mortgage-backed securities represent direct or indirect participations
in, or are secured by and payable from, mortgage loans secured by real
property, and include single- and multi-class pass-through securities and
collateralized mortgage obligations. Such securities may be issued or
guaranteed by U.S. government agencies or instrumentalities, such as the
Government National Mortgage Association and the Federal National Mortgage
Association, or by private issuers, generally originators and investors in
mortgage loans, including savings associations, mortgage bankers, commercial
banks, investment bankers, and special purpose entities (collectively, "private
lenders"). Mortgage-backed securities issued by private lenders may be
supported by pools of mortgage loans or other mortgage-backed securities that
are guaranteed, directly or indirectly, by the U.S. government or one of its
agencies or instrumentalities, or they may be issued without any governmental
guarantee of the underlying mortgage assets but with some form of non-
governmental credit enhancement.

Asset-backed securities have structural characteristics similar to
mortgage-backed securities. Asset-backed debt obligations represent direct or
indirect participation in, or secured by and payable from, assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property, and receivables from credit
card or other revolving credit arrangements. The credit quality of most asset-
backed securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement of the
securities. Payments or distributions of principal and interest on
asset-backed debt obligations may be supported by non-governmental credit
enhancements including letters of credit, reserve funds, overcollateralization,
and guarantees by third parties. The market for privately issued asset-backed
debt obligations is smaller and less liquid than the market for government
sponsored mortgage-backed securities.

The rate of principal payment on mortgage- and asset-backed securities
generally depends on the rate of principal payments received on the underlying
assets which in turn may be affected by a variety of economic and other
factors. As a result, the yield on any mortgage- and asset-backed security is
difficult to predict with precision and actual yield to maturity may be more or
less than the anticipated yield to maturity. The yield characteristics of
mortgage- and asset-backed securities differ from those of traditional debt
securities. Among the principal differences are that interest and principal
payments are made more frequently on mortgage- and asset-backed securities,
usually monthly, and that principal may be prepaid at any time because the
underlying mortgage loans or other assets generally may be prepaid at any time.
As a result, if the Fund purchases these securities at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing the yield to maturity. Conversely, if the Fund purchases these
securities at a discount, a prepayment rate that is faster than expected will
increase yield to maturity, while a prepayment rate that is slower than
expected will reduce yield to maturity. Accelerated prepayments on securities
purchased by the Fund at a premium also impose a risk of loss of principal
because the premium may not have been fully amortized at the time the principal
is prepaid in full.

While many mortgage- and asset-backed securities are issued with only
one class of security, many are issued in more than one class, each with
different payment terms. Multiple class mortgage- and asset-backed securities
are issued for two main reasons. First, multiple classes may be used as a
method of providing credit support. This is accomplished typically through
creation of one or more classes whose right to payments on the security is made
subordinate to the right to such payments of the remaining class or classes.
Second, multiple classes may permit the issuance of securities with payment
terms, interest rates, or other characteristics differing both from those of
each other and from those of the underlying assets. Examples include so-called
"strips" (mortgage- and asset-backed securities entitling the holder to
disproportionate interests with respect to the allocation of interest and
principal of the assets backing the security), and securities with class or
classes having characteristics which mimic the characteristics of non-mortgage-
or asset-backed securities, such as floating interest rates (i.e., interest
rates which adjust as a specified benchmark changes) or scheduled amortization
of principal.

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principal only classes, a rate of prepayment that is faster or slower than
anticipated may result in the Fund failing to recover all or a portion of its
investment, even though the securities are rated investment grade.

MORTGAGE DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS

The mortgage dollar rolls and reverse repurchase agreements entered
into by the Fund may be used as arbitrage transactions in which the Fund will
maintain an offsetting position in investment grade debt obligations or
repurchase agreements that mature on or before the settlement date on the
related mortgage dollar roll or reverse repurchase agreements. Since the Fund
will receive interest on the securities or repurchase agreements in which it
invests the transaction proceeds, such transactions may involve leverage.
However, since such securities or repurchase agreements will be high quality
and will mature on or before the settlement date of the mortgage dollar roll or
reverse repurchase agreement, the Advisor believes that such arbitrage
transactions do not present the risks to the Fund that are associated with
other types of leverage.

MUNICIPAL OBLIGATIONS

General obligation bonds are secured by the issuer's pledge of its
full faith, credit, and taxing power for the payment of interest and principal.
Revenue bonds are payable only from the revenues derived from a project or
facility or from the proceeds of a specified revenue source. Industrial
development bonds are generally revenue bonds secured by payments from and the
credit of private users. Municipal notes are issued to meet the short-term
funding requirements of state, regional, and local governments. Municipal
notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes, tax and revenue anticipation notes, construction loan
notes, short-term discount notes, tax-exempt commercial paper, demand notes,
and similar instruments. Municipal obligations include obligations, the
interest on which is exempt from federal income tax, that may become available
in the future as long as the Board of Directors of the Fund determines that an
investment in any such type of obligation is consistent with the Fund's
investment objective.

Municipal lease obligations may take the form of a lease, an
installment purchase, or a conditional sales contract. They are issued by
state and local governments and authorities to acquire land, equipment, and
facilities, such as state and municipal vehicles, telecommunications and
computer equipment, and other capital assets. The Fund may purchase these
obligations directly, or it may purchase participation interests in such
obligations. Municipal leases are generally subject to greater risks than
general obligation or revenue bonds. State constitutions and statutes set
forth requirements that states or municipalities must meet in order to issue
municipal obligations. Municipal leases may contain a covenant by the state or
municipality to budget for, appropriate, and make payments due under the
obligation. Certain municipal leases may, however, contain "non-appropriation"
clauses which provide that the issuer is not obligated to make payments on the
obligation in future

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years unless funds have been appropriated for this purpose each year.
Accordingly, such obligations are subject to "non-appropriation" risk. While
municipal leases are secured by the underlying capital asset, it may be
difficult to dispose of any such asset in the event of non-appropriation or
other default.

REPURCHASE AGREEMENTS

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

SHORT SALES AGAINST THE BOX

SHORT-TERM CASH MANAGEMENT

From time to time the Advisor may determine to use a non-affiliated
money market fund to manage some or all of the Fund's short-term cash
positions. The Advisor will do this only when the Advisor reasonably believes
that this action will result in a return to the Fund that is equal to, or
better than, the return that could be achieved by direct investments in money
market instruments. In such cases, to ensure no double charging of fees, the
Advisor will credit any management or other fees of the non-affiliated money
market fund against the Advisor's management fee.

SMALL COMPANIES

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

SOVEREIGN DEBT

Sovereign debt differs from debt obligations issued by private
entities in that, generally, remedies for defaults must be pursued in the
courts of the defaulting party. Legal recourse is therefore limited.
Political conditions, especially a sovereign entity's willingness to meet the
terms of its debt obligations, are of considerable significance. Also, there
can be no assurance

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that the holders of commercial bank loans to the same sovereign entity may not
contest payments to the holders of sovereign debt in the event of default under
commercial bank loan agreements.

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

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

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

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

Foreign investment in certain sovereign debt is restricted or
controlled to varying degrees. These restrictions or controls may at times
limit or preclude foreign investment in such sovereign debt and increase the
costs and expenses of the Fund. Certain countries in which the Fund may invest
require governmental approval prior to investments by foreign persons, limit
the amount of investment by foreign persons in a particular issuer, limit the
investment by foreign persons only to a specific class of securities of an
issuer that may have less advantageous rights than the classes available for
purchase by domiciliaries of the countries, or impose additional taxes on
foreign investors. Certain issuers may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in a
country's balance of payments, the country could impose temporary restrictions
on foreign capital remittances. The Fund could be adversely affected by delays
in, or a refusal to grant, any required governmental approval for repatriation
of capital, as well as by the application to the Fund of any restrictions on
investments. Investing in local markets may require the Fund to adopt special
procedures, seek local government approvals or take other actions, each of
which may involve additional costs to the Fund.

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

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

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

TEMPORARY DEFENSIVE POSITION

VARIABLE- OR FLOATING-RATE SECURITIES

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

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prime rate, the 90-day U.S. Treasury bill rate, the rate of return on
commercial paper or bank certificates of deposit, an index of short-term
interest rates, or some other objective measure.

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

Variable-rate demand notes include master demand notes which are
obligations that permit the Fund to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the Fund,
as lender, and the borrower. The interest rates on these notes fluctuate from
time to time. The issuer of such obligations normally has a corresponding
right, after a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of days' notice to the holders of such obligations. The interest rate
on a floating-rate demand obligation is based on a known lending rate, such as
a bank's prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable-rate demand obligation is adjusted
automatically at specified intervals. Frequently, such obligations are secured
by letters of credit or other credit support arrangements provided by banks.
Because these obligations are direct lending arrangements between the lender
and borrower, it is not contemplated that such instruments will generally be
traded. There generally is not an established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, the Fund's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. Such obligations frequently
are not rated by credit rating agencies and, if not so rated, the Fund may
invest in them only if the Advisor determines that at the time of investment
the obligations are of comparable quality to the other obligations in which the
Fund may invest. The Advisor, on behalf of the Fund, will consider on an
ongoing basis the creditworthiness of the issuers of the floating- and
variable-rate demand obligations in the Fund's portfolio.

The Fund will not invest more than 15% of its net assets in variable-
and floating-rate demand obligations that are not readily marketable (a
variable- or floating-rate demand obligation that may be disposed of on not
more than seven days notice will be deemed readily marketable and will not be
subject to this limitation). (See "Illiquid Securities" and "Investment
Restrictions.") In addition, each variable- or floating-rate obligation must
meet the credit quality requirements applicable to all the Fund's investments
at the time of purchase. When determining whether such an obligation meets the
Fund's credit quality requirements, the Fund may look to the credit quality of
the financial guarantor providing a letter of credit or other credit support
arrangement.

In determining the Fund's weighted average portfolio maturity, the
Fund will consider a floating or variable rate security to have a maturity
equal to its stated maturity (or redemption date if it has been called for
redemption), except that it may consider (i) variable rate securities to have a
maturity equal to the period remaining until the next readjustment in the
interest rate, unless subject to a demand feature, (ii) variable rate
securities subject to a demand feature to have a remaining maturity equal to
the longer of (a) the next readjustment in the interest rate or (b) the period
remaining until the principal can be recovered through demand, and (iii)
floating rate securities subject to a demand feature to have a maturity equal
to the period remaining until the principal can be recovered through demand.
Variable and floating rate securities generally are subject to less principal
fluctuation than securities without these attributes since the securities
usually trade at par following the readjustment in the interest rate.

WARRANTS

The Fund may acquire warrants. Warrants are securities giving the
holder the right, but not the obligation, to buy the stock of an issuer at a
given price (generally higher than the value of the stock at the time of
issuance) during a specified period or perpetually. Warrants may be acquired
separately or in connection with the acquisition of securities. The Fund will
not purchase warrants, valued at the lower of cost or market value, in excess
of 5% of the Fund's net assets. Included in that amount, but not to exceed 2%
of the Fund's net assets, may be warrants that are not listed on any stock
exchange. Warrants acquired by the Fund in units or attached to securities are
not subject to these restrictions. Warrants do not carry with them the right
to dividends or voting rights with respect to the securities that they entitle
their holder to purchase, and they do not

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represent any rights in the assets of the issuer. As a result, warrants may be
considered to have more speculative characteristics than certain other types of
investments. In addition, the value of a warrant does not necessarily change
with the value of the underlying securities, and a warrant ceases to have value
if it is not exercised prior to its expiration date.

WHEN-ISSUED SECURITIES

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

DIRECTORS AND OFFICERS OF THE CORPORATION

Directors and officers of the Corporation, together with information
as to their principal business occupations during the last five years, and
other information are shown below. Each director who is deemed an "interested
person," as defined in the 1940 Act, is indicated by an asterisk (*). Each
officer and director holds the same position with the 26 registered open-end
management investment companies consisting of 37 mutual funds, which are
managed by the Advisor (the "Strong Funds"). The Strong Funds, in the
aggregate, pays each Director who is not a director, officer, or employee of
the Advisor, or any affiliated company (a "disinterested director") an annual
fee of $50,000, plus $100 per Board meeting for each Strong Fund. In addition,
each disinterested director is reimbursed by the Strong Funds for travel and
other expenses incurred in connection with attendance at such meetings. Other
officers and directors of the Strong Funds receive no compensation or expense
reimbursement from the Strong Funds.

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

MARVIN E. NEVINS (DOB 7/9/18), Director of the Corporation.

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

WILLIE D. DAVIS (DOB 7/24/34), Director of the Corporation.

Mr. Davis has been director of Alliance Bank Since 1980, Sara Lee
Corporation (a food/consumer products company) since 1983, KMart Corporation (a
discount consumer products company) since 1985, YMCA Metropolitan--Los Angeles
since 1985, Dow Chemical Company since 1988, MGM Grand, Inc. (an
entertainment/hotel company) since 1990, WICOR, Inc. (a utility company) since
1990, Johnson Controls, Inc. (an industrial company) since 1992, L.A. Gear (a
footwear/sportswear company) since 1992, and Rally's Hamburger, Inc. since
1994. Mr. Davis has been a trustee of the University of Chicago since 1980,
Marquette University since 1988, and Occidental College since 1990. Since
1977, Mr. Davis has been President and Chief Executive Officer of All Pro
Broadcasting, Inc. Mr. Davis was a director of the Fireman's Fund (an
insurance company) from 1975 until 1990. Mr. Davis has served the Corporation
as a director since July 1994.

*JOHN DRAGISIC (DOB 11/26/40), President and Director of the Corporation.

Mr. Dragisic has been President of the Advisor since October 1995, and
a director of the Advisor and Distributor since July 1994. Mr. Dragisic served
as Vice Chairman of the Advisor from July 1994 until October 1995. Mr.
Dragisic was the President and Chief Executive Officer of Grunau Company, Inc.
(a mechanical contracting and engineering firm), Milwaukee, Wisconsin from 1987
until July 1994. From 1981 to 1987, he was an Executive Vice President with
Grunau Company, Inc. From 1969 until 1973, Mr. Dragisic worked for the
InterAmerican Development Bank. Mr. Dragisic received his Ph.D. in Economics
in 1971 from the University of Wisconsin - Madison and his B.A. degree in
Economics in 1962 from Lake Forest College. Mr. Dragisic has served the
Corporation as Vice Chairman from July 1994 until October 1995; as President
since October 1995; and as a director from July 1991 until July 1994, and since
April 1995.

STANLEY KRITZIK (DOB 1/9/30), Director of the Corporation.

Mr. Kritzik has been a Partner of Metropolitan Associates since 1962,
a Director of Aurora Health Care since 1987, and Health Network Ventures, Inc.
since 1992. Mr. Kritzik has served the Corporation as a director since April
1995.

WILLIAM F. VOGT (DOB 7/19/47), Director of the Corporation.

Mr. Vogt has been the President of Vogt Management Consulting, Inc.
since 1990. From 1982 until 1990, he served as Executive Director of
University Physicians of the University of Colorado. Mr. Vogt is the Past
President of the Medical Group Management Association and a Fellow of the
American College of Medical Practice Executives. Mr. Vogt has served the
Corporation as a director since April 1995.

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<PAGE> 126
LAWRENCE A. TOTSKY (DOB 5/6/59), C.P.A., Vice President of the Corporation.

Mr. Totsky has been Senior Vice President of the Advisor since
December 1994. Mr. Totsky acted as the Advisor's Manager of Shareholder
Accounting and Compliance from June 1987 to June 1991 when he was named
Director of Mutual Fund Administration. Mr. Totsky has served the Corporation
as a Vice President since May 1993.

THOMAS P. LEMKE (DOB 7/30/54), Vice President of the Corporation.

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

ANN E. OGLANIAN (DOB 12/7/61), Vice President and Secretary of the Corporation.

Ms. Oglanian has been an Associate Counsel of the Advisor since
January 1992. Ms. Oglanian acted as Associate Counsel for the Chicago-based
investment management firm, Kemper Financial Services, Inc.; from June 1988
until December 1991. Ms. Oglanian has served the Corporation as a Vice
President since January 1996 and as the Secretary since May 1994.

STEPHEN J. SHENKENBERG (DOB 6/14/58), Vice President of the Corporation.

JOHN S. WEITZER (DOB 10/31/67), Vice President of the Corporation.

Mr. Weitzer has been an Associate Counsel of the Advisor since July
1993. Mr. Weitzer has served the Corporation as a Vice President since January
1996.

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

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

Except for Messrs. Nevins, Davis, Kritzik and Vogt, the address of all
of the above persons is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr. Nevins'
address is 6075 Pelican Bay Boulevard, Naples, Florida 33963. Mr. Davis'
address is 161 North La Brea, Inglewood, California 90301. Mr. Kritzik's
address is 1123 North Astor Street, P.O. Box 92547, Milwaukee, Wisconsin
53202-0547. Mr. Vogt's address is 2830 East Third Avenue, Denver, Colorado
80206.

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Estate Holdings L.L.C., a Wisconsin Limited Liability Company and subsidiary of
the Advisor ("Real Estate Holdings") since February 1994; Chairman and a member
of the Managing Board of Fussville Development L.L.C., a Wisconsin Limited
Liability Company and subsidiary of the Advisor and Real Estate Holdings
("Fussville Development") since February 1994; and Chairman and a member of
the Managing Board of Sherwood Development L.L.C., a Wisconsin Limited
Liability Company and subsidiary of the Advisor ("Sherwood") since December
1995 and April 1995, respectively. In addition to the positions listed above,
Mr. Dragisic has been a director of Distributors since July 1994; President and
a director of Holdings since December 1995 and July 1994, respectively;
President and a director of SSC since November 1995; Vice Chairman and a
director of Heritage since August 1994; Vice Chairman and a member of the
Managing Board of Fussville Development since December 1995 and August 1994,
respectively; Vice Chairman and a member of the Managing Board of Real Estate
Holdings since December 1995 and August 1994, respectively; and Vice Chairman
and a member of the Managing Board of Sherwood since December 1995 and April
1995, respectively. In addition to the positions listed above, Mr. Lemke has
been President of Distributors since December 1995; Vice President of Holdings
since December 1995; Vice President of SSC since November 1995; Vice President
of Heritage since December 1995; Vice President of Fussville Development since
December 1995; Vice President of Real Estate Holdings since December 1995; and
Vice President of Sherwood since December 1995. In addition to the positions
listed above, Mr. Shenkenberg has been Vice President and Secretary of
Distributors since December 1995; Secretary of SSC since November 1995; and
Secretary of Holdings, Heritage, Fussville Development, Real Estate Holdings,
and Sherwood since December 1995. In addition to the positions listed above,
Mr. Neville has been Vice President of Distributors since December 1995; Vice
President of Holdings since December 1995; Vice President of SSC since November
1995; Vice President of Heritage since December 1995; Vice President of
Fussville Development since December 1995; Vice President of Real Estate
Holdings since December 1995; and Vice President of Sherwood since December
1995.

As of March 31, 1996, the officers and directors of the Corporation in
the aggregate beneficially owned 50,000 shares of common stock of the Fund
which was 99.87% of the Fund's outstanding shares.

PRINCIPAL SHAREHOLDERS

As of March 31, 1996, the Advisor owned both of record and
beneficially, and Mr. Strong, who controls the Advisor, owned beneficially,
50,000 shares (99.87%) of the then outstanding shares of the Fund.

INVESTMENT ADVISOR AND DISTRIBUTOR

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

The Fund's Advisory Agreement is dated July 10, 1995, and will remain
in effect as to the Fund for a period of two years. The Advisory Agreement was
approved by the Fund's initial shareholder on its first day of operations.
Thereafter, the Advisory Agreement is required to be approved annually by the
Board of Directors of the Corporation or by vote of a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). In either case,
each annual renewal must also be approved by the vote of a majority of the
Corporation's directors who are not parties to the Advisory Agreement or
interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval. The Advisory Agreement is terminable,
without penalty, on 60 days' written notice by the Board of Directors of the
Corporation, by vote of a majority of the Fund's outstanding voting securities,
or by the Advisor. In addition, the Advisory Agreement will terminate
automatically in the event of its assignment.

Under the terms of the Advisory Agreement, the Advisor manages the
Fund's investments subject to the supervision of the Corporation's Board of
Directors. The Advisor is responsible for investment decisions and supplies
investment research and portfolio management. At its expense, the Advisor
provides office space and all necessary office facilities, equipment, and

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personnel for servicing the investments of the Fund. The Advisor places all
orders for the purchase and sale of the Fund's securities at its expense.

Except for expenses assumed by the Advisor as set forth above or by
the Distributor as described below with respect to the distribution of the
Fund's shares, the Fund is responsible for all its other expenses, including,
without limitation, interest charges, taxes, brokerage commissions, and similar
expenses; expenses of issue, sale, repurchase, or redemption of shares;
expenses of registering or qualifying shares for sale; expenses for printing
and distribution costs of prospectuses and quarterly financial statements
mailed to existing shareholders; charges of custodians, transfer agent fees
(including the printing and mailing of reports and notices to shareholders),
fees of registrars, fees for auditing and legal services, fees for clerical
services related to recordkeeping and shareholder relations, the cost of stock
certificates and fees for directors who are not "interested persons" of the
Advisor; and its allocable share of the Corporation's expenses.

As compensation for its services, the Fund pays to the Advisor a
monthly management fee at the annual rate of .85% of the first $35,000,000 of
the Fund's average daily net asset value and at the annual rate of .80% of the
Fund's average daily net asset value in excess of $35,000,000. (See
"Additional Information -- Calculation of Net Asset Value" in the Prospectus.)
From time to time, the Advisor may voluntarily waive all or a portion of its
management fee for the Fund. In 1995, the Fund paid the Advisor $394 in
management fees.

The Advisory Agreement requires the Advisor to reimburse the Fund in
the event that the expenses and charges payable by the Fund in any fiscal year,
including the management fee but excluding taxes, interest, brokerage
commissions, and similar fees and to the extent permitted extraordinary
expenses, exceed that percentage of the average net asset value of the Fund for
such year, as determined by valuations made as of the close of each business
day of the year, which is the most restrictive percentage expense limitation
provided by the laws of the various states in which the Fund's shares are
qualified for sale; or if the states in which the Fund's shares are qualified
for sale impose no restrictions, then 2%. The most restrictive percentage
limitation currently applicable to the Fund is 2.5% of its average daily net
assets up to $30,000,000, 2% on the next $70,000,000 of its average daily net
assets and 1.5% of its average daily net assets in excess of $100,000,000.
Reimbursement of expenses in excess of the applicable limitation will be made
on a monthly basis and will be paid to the Fund by reduction of the Advisor's
fee, subject to later adjustment month by month for the remainder of the Fund's
fiscal year. The Advisor may from time to time absorb expenses for the Fund in
addition to the reimbursement of expenses in excess of applicable limitations.

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

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

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The Advisor has adopted a Code of Ethics (the "Code") which governs
the personal trading activities of all "Access Persons" of the Advisor. Access
Persons include every director and officer of the Advisor and the investment
companies managed by the Advisor, including the Fund, as well as certain
employees of the Advisor who have access to information relating to the
purchase or sale of securities by the Advisor on behalf of accounts managed by
it. The Code is based upon the principal that such Access Persons have a
fiduciary duty to place the interests of the Advisor's clients ahead of their
own.

Under a Distribution Agreement dated July 10, 1995 with the
Corporation (the "Distribution Agreement"), Strong Funds Distributors, Inc.
("Distributor"), a subsidiary of the Advisor, acts as underwriter of the Fund's
shares. The Distribution Agreement provides that the Distributor will use its
best efforts to distribute the Fund's shares. Shares are only offered and sold
to the separate accounts of certain insurance companies. Since the Fund is a
"no-load" fund, no sales commissions are charged on the purchase of Fund
shares. Certain sales charges may apply to the variable annuity or life
insurance contract, which should be described in the prospectus of the
insurance company's separate account. The Distribution Agreement further
provides that the Distributor will bear the additional costs of printing
prospectuses and shareholder reports which are used for selling purposes, as
well as advertising and other costs attributable to the distribution of the
Fund's shares. The Distributor is an indirect subsidiary of the Advisor and
controlled by the Advisor and Richard S. Strong. The Distribution Agreement is
subject to the same termination and renewal provisions as are described above
with respect to the Advisory Agreement.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Advisor is responsible for decisions to buy and sell securities
for the Fund and for the placement of the Fund's investment business and the
negotiation of the commissions to be paid on such transactions. It is the
policy of the Advisor to seek the best execution at the best security price
available with respect to each transaction, in light of the overall quality of
brokerage and research services provided to the Advisor or the Fund. In
over-the-counter transactions, orders are placed directly with a principal
market maker unless it is believed that a better price and execution can be
obtained using a broker. The best price to the Fund means the best net price
without regard to the mix between purchase or sale price and commission, if
any. In selecting broker-dealers and in negotiating commissions, the Advisor
considers a variety of factors, including best price and execution, the full
range of brokerage services provided by the broker, as well as its capital
strength and stability, and the quality of the research and research services
provided by the broker. Brokerage will not be allocated based on the sale of
any shares of the Strong Funds.

The Advisor has adopted procedures that provide generally for the
Advisor to seek to bunch orders for the purchase or sale of the same security
for the Fund, other mutual funds managed by the Advisor, and other advisory
clients (collectively, the "client accounts"). The Advisor will bunch orders
when it deems it to be appropriate and in the best interest of the client
accounts. When a bunched order is filled in its entirety, each participating
client account will participate at the average share price for the bunched
order on the same business day, and transaction costs shall be shared pro rata
based on each client's participation in the bunched order. When a bunched
order is only partially filled, the securities purchased will be allocated on a
pro rata basis to each client account participating in the bunched order based
upon the initial amount requested for the account, subject to certain
exceptions, and each participating account will participate at the average
share price for the bunched order on the same business day.

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Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment advisor, under certain circumstances, to cause an account
to pay a broker or dealer a commission for effecting a transaction in excess of
the amount of commission another broker or dealer would have charged for
effecting the transaction in recognition of the value of the brokerage and
research services provided by the broker or dealer. Brokerage and research
services include (a) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody).

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

Generally, research services provided by brokers may include
information on the economy, industries, groups of securities, individual
companies, statistical information, accounting and tax law interpretations,
political developments, legal developments affecting portfolio securities,
technical market action, pricing and appraisal services, credit analysis, risk
measurement analysis, performance analysis, and analysis of corporate
responsibility issues. Such research services are received primarily in the
form of written reports, telephone contacts, and personal meetings with
security analysts. In addition, such research services may be provided in the
form of access to various computer-generated data, computer hardware and
software, and meetings arranged with corporate and industry spokespersons,
economists, academicians, and government representatives. In some cases,
research services are generated by third parties but are provided to the
Advisor by or through brokers. Such brokers may pay for all or a portion of
computer hardware and software costs relating to the pricing of securities.

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

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<PAGE> 131

seeking best execution at the best security price available, as discussed
above. In no case will the Advisor make binding commitments as to the level of
brokerage commissions it will allocate to a broker, nor will it commit to pay
cash if any informal targets are not met. The Advisor anticipates it will
continue to enter into such brokerage arrangements.

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

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

Where more than one of the Advisor's portfolio manager team seeks to
have client accounts participate in a deal and the amount of deal securities
allocated to the Advisor by the underwriting syndicate is less than the
aggregate amount ordered by the Advisor (a "reduced allocation"), the deal
securities will be allocated among the portfolio manager teams based on all
relevant factors. The primary factor shall be assets under management,
although other factors that may be considered in the allocation decision
include, but are not limited to, the nature, size, and expected allocation of
the deal; the amount of brokerage commissions or other amounts generated by the
respective participating portfolio manager teams; and which portfolio manager
team is primarily responsible for the Advisor receiving securities in the deal.
Based on the relevant factors, the Advisor has established general allocation
percentages for its portfolio manager teams, and these percentages are reviewed
on a regular basis to determine whether asset growth or other factors make it
appropriate to use different general allocation percentages for reduced
allocations.

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<PAGE> 132

a regular basis, the Advisor reviews the allocation of deal securities to
ensure that they have been allocated in a fair and equitable manner that does
not unfairly discriminate in favor of certain clients or types of clients.

The Fund did not pay any brokerage commissions during 1995.

CUSTODIAN

As custodian of the Fund's assets, Firstar Trust Company, P.O. Box
761, Milwaukee, Wisconsin 53201, has custody of all securities and cash of the
Fund, delivers and receives payment for securities sold, receives and pays for
securities purchased, collects income from investments, and performs other
duties, all as directed by officers of the Corporation. The custodian is in no
way responsible for any of the investment policies or decisions of the Fund.

TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT

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

ADMINISTRATIVE SERVICES

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

TAXES

GENERAL

As indicated under "Additional Information -- Distributions and Taxes"
in the Prospectus, the Fund intends to continue to qualify annually for
treatment as a regulated investment company ("RIC") under the Internal Revenue
Code of 1986, as amended (the "Code"). This qualification does not involve
government supervision of the Fund's management practices or policies.

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<PAGE> 133

the Fund's taxable year, at least 50% of the value of its total assets must
be represented by cash and cash items, U.S. government securities, securities
of other RICs, and other securities, with these other securities limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value of
the Fund's total assets and that does not represent more than 10% of the
issuer's outstanding voting securities; and (4) at the close of each quarter of
the Fund's taxable year, not more than 25% of the value of its total assets may
be invested in securities (other than U.S. government securities or the
securities of other RICs) of any one issuer. From time to time the Advisor may
find it necessary to make certain types of investments for the purpose of
ensuring that the Fund continues to qualify for treatment as a RIC under the
Code.

If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.

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

FOREIGN TRANSACTIONS

The Fund maintains its accounts and calculates its income in U.S.
dollars. In general, gain or loss (1) from the disposition of foreign
currencies and forward currency contracts, (2) from the disposition of
foreign-currency-denominated debt securities that are attributable to
fluctuations in exchange rates between the date the securities are acquired and
their disposition date, and (3) attributable to fluctuations in exchange rates
between the time the Fund accrues interest or other receivables or expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects those receivables or pays those liabilities, will be treated
as ordinary income or loss. A foreign-currency-denominated debt security
acquired by the Fund may bear interest at a high normal rate that takes into
account expected decreases in the value of the principal amount of the security
due to anticipated currency devaluations; in that case, the Fund would be
required to include the interest in income as it accrues but generally would
realize a currency loss with respect to the principal only when the principal
was received (through disposition or upon maturity).

The Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, the Fund will be
subject to federal income tax on a portion of any "excess distribution"
received on the stock or of any gain on disposition of the stock (collectively,
"PFIC income"), plus interest thereon, even if the Fund distributes the PFIC
income to its shareholders. The balance of the PFIC income will be included in
the Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its shareholders. If
the Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund," then in lieu of the foregoing tax and interest obligation, the
Fund will be required to include in income each year its pro rata share of the
qualified electing fund's annual ordinary earnings and net capital gain (the
excess of net long-term capital gain over net short-term capital loss) -- which
probably would have to be distributed to its shareholders to satisfy the
Distribution Requirement -- even if those earnings and gain were not received
by the Fund. In most instances it will be very difficult, if not impossible,
to make this election because of certain requirements thereof.

35
<PAGE> 134
DERIVATIVE INSTRUMENTS

If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
30% Limitation. Thus, only the net gain (if any) from the designated hedge
will be included in gross income for purposes of that limitation. The Fund
intends that, when it engages in hedging strategies, the hedging transactions
will qualify for this treatment, but at the present time it is not clear
whether this treatment will be available for all of the Fund's hedging
transactions. To the extent this treatment is not available or is not elected
by the Fund, it may be forced to defer the closing out of certain options,
futures, or forward currency contracts beyond the time when it otherwise would
be advantageous to do so, in order for the Fund to continue to qualify as a
RIC.

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

The Fund may acquire zero-coupon, step-coupon, or other securities
issued with original issue discount. As a holder of those securities, the Fund
must include in its income the original issue discount that accrues on the
securities during the taxable year, even if the Fund receives no corresponding
payment on the securities during the year. Similarly, the Fund must include in
its income securities it receives as "interest" on pay-in-kind securities.
Because the Fund annually must distribute substantially all of its investment
company taxable income, including any original issue discount and other
non-cash income, to satisfy the Distribution Requirement, it may be required in
a particular year to distribute as a dividend an amount that is greater than
the total amount of cash it actually receives. Those distributions may be made
from the proceeds on sales of portfolio securities, if necessary. The Fund may
realize capital gains or losses from those sales, which would increase or
decrease its investment company taxable income or net capital gain, or both.
In addition, any such gains may be realized on the disposition of securities
held for less than three months. Because of the 30% Limitation, any such gains
would reduce the Fund's ability to sell other securities, or certain options,
futures, or forward currency contracts, held for less that three months that
it might wish to sell in the ordinary course of its portfolio management.

The foregoing federal tax discussion as well as the tax discussion
contained within the Prospectus under "Additional Information--Distributions
and Taxes" is intended to provide you with an overview of the impact of federal
income tax provisions on the Fund or its shareholders. These tax provisions
are subject to change by legislative or administrative action at the federal,
state, or local level, and any changes may be applied retroactively. Any such
action that limits or restricts the Fund's current ability to pass-through
earnings without taxation at the Fund level, or otherwise materially changes
the Fund's tax treatment, could adversely affect the value of a shareholder's
investment in the Fund. Because the Fund's taxes are a

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<PAGE> 135
complex matter, you should consult your tax adviser for more detailed
information concerning the taxation of the Fund and the federal, state, and
local tax consequences to shareholders of an investment in the Fund.

DETERMINATION OF NET ASSET VALUE

A more complete discussion of the Fund's determination of net asset
value is contained in the Prospectus. Generally, the net asset value of the
Fund will be determined as of the close of trading on each day the New York
Stock Exchange (the "NYSE") is open for trading. The NYSE is open for trading
Monday through Friday except New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Additionally, if any of the aforementioned holidays falls on a Saturday, the
NYSE will not be open for trading on the preceding Friday, and when any such
holiday falls on a Sunday, the NYSE will not be open for trading on the
succeeding Monday, unless unusual business conditions exist, such as the ending
of a monthly or the yearly accounting period.

FUND ORGANIZATION

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

PERFORMANCE INFORMATION

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<PAGE> 136
gaccounts of certain insurance companies, contracts owners should carefully
review the prospectus of the separate account for information on fees and
expenses. Excluding such fees and expenses from the Fund's total return
quotations has the effect of increasing the performance quoted.

AVERAGE ANNUAL TOTAL RETURN

The Fund's average annual total return quotation is computed in
accordance with a standardized method prescribed by rules of the SEC. The
average annual total return for the Fund for a specific period is found by
first taking a hypothetical $10,000 investment ("initial investment") in the
Fund's shares on the first day of the period and computing the "redeemable
value" of that investment at the end of the period. The redeemable value is
then divided by the initial investment, and this quotient is taken to the Nth
root (N representing the number of years in the period) and one is subtracted
from the result, which is then expressed as a percentage. The calculation
assumes that all income and capital gains dividends paid by the Fund have been
reinvested at net asset value on the reinvestment dates during the period.

TOTAL RETURN

Calculation of the Fund's total return is not subject to a
standardized formula. Total return performance for a specific period is
calculated by first taking an investment (assumed below to be $10,000)
("initial investment") in the Fund's shares on the first day of the period and
computing the "ending value" of that investment at the end of the period. The
total return percentage is then determined by subtracting the initial
investment from the ending value and dividing the remainder by the initial
investment and expressing the result as a percentage. The calculation assumes
that all income and capital gains dividends paid by the Fund have been
reinvested at net asset value on the reinvestment dates during the period.
Total return may also be shown as the increased dollar value of the
hypothetical investment over the period.

CUMULATIVE TOTAL RETURN

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

The Fund's performance figures are based upon historical results and
do not represent future performance. The Fund's shares are sold at net asset
value per share. The Fund's returns and net asset value will fluctuate and
shares are redeemable at the then current net asset value of the Fund, which
may be more or less than original cost. Factors affecting the Fund's
performance include general market conditions, operating expenses and
investment management. Any additional fees charged by a dealer or other
financial services firm would reduce the returns described in this section.

The table below shows performance information for various periods
ended December 31, 1995. Securities prices fluctuated during these periods.

ASSET ALLOCATION FUND II

<TABLE>
<CAPTION>
Average
Annual Total
Total Return Return
Initial $10,000 Ending Value Percentage Percentage
Investment December 31, 1995 Increase Increase
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Life of Fund* $10,000 $10,020 .20% -

</TABLE>

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

* Commenced operations on November 30, 1995.

The Fund's total return for the three months ending March 31, 1996,
was 2.29%.

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<PAGE> 137
COMPARISONS

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

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

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

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

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

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<PAGE> 138
(8) INDICES
The Fund may compare its performance to a wide variety of indices
including the following:

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

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

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

(10) STRONG VARIABLE INSURANCE FUNDS

The Strong Variable Insurance Funds offer a range of investment
options. All of the members of the Strong Variable Insurance Funds and their
investment objectives are listed below. The Fund is listed in ascending order
of risk and return, as determined by the Fund's Advisor.

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

40
<PAGE> 139
intended to position any Fund relative to other mutual funds or investment
products. Marketing materials may also discuss the relationship between risk
and reward as it relates to an individual investor's portfolio. Financial
goals vary from person to person. You may choose one or more of the Strong
Variable Insurance Funds to help you reach your financial goals.

The Advisor also serves as advisor to the Strong Family of Funds,
which is a retail fund complex composed of 26 open-end management investment
companies.

ADDITIONAL FUND INFORMATION

(1) PORTFOLIO CHARACTERISTICS

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

(2) MEASURES OF VOLATILITY AND RELATIVE PERFORMANCE

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

Standard deviation is calculated using the following formula:
2
Standard deviation = the square root of [Sigma] (x - x )
i m
------------------
n-1
where [Sigma] = "the sum of",
x(i) = each individual return during the time period,
x(m) = the average return over the time period, and
n = the number of individual returns during the time period.

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

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

GENERAL INFORMATION

BUSINESS PHILOSOPHY

The Advisor is an independent, Midwestern-based investment advisor,
owned by professionals active in its management. Recognizing that investors are
the focus of its business, the Advisor strives for excellence both in
investment management and in the service provided to investors. This commitment
affects many aspects of the business, including professional staffing, product
development, investment management, and service delivery.

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<PAGE> 140
The increasing complexity of the capital markets requires specialized
skills and processes for each asset class and style. Therefore, the Advisor
believes that active management should produce greater returns than a passively
managed index. The Advisor has brought together a group of top-flight
investment professionals with diverse product expertise, and each concentrates
on their investment specialty. The Advisor believes that people are the firm's
most important asset. For this reason, continuity of professionals is critical
to the firm's long-term success.

INVESTMENT ENVIRONMENT

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

EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING

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

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

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

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

4. Invest regularly. Investing is a process, not a one-time event. By
investing regularly over the long term, you reduce the impact of short-term
market gyrations, and you attend to your long-term plan before you're
tempted to spend those assets on short-term needs.

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

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

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

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

PORTFOLIO MANAGEMENT

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

The Advisor believes that active management is the best way to achieve
the Fund's objective. This policy is based on the fundamental belief that
economic and financial conditions create favorable and unfavorable investment
periods (or seasons)

42
<PAGE> 141
and that these different seasons require different investment approaches.
During favorable investment periods, the Fund seeks to generate real (inflation
plus) growth, and its portfolio may be more heavily weighted in equities.
During uncertain periods, income and capital preservation may be emphasized,
and the Fund's portfolio may be more heavily weighted in bonds or short-term
securities. Through their understanding and willingness to change with
investment cycles or periods, the co-managers of the Fund seek to achieve the
Fund's objectives throughout the seasons of investment.

The Fund's co-managers intend to employ an investment strategy which
will permit it to participate in a rising market in equities with less risk and
volatility and more income than a fund which concentrates its investments in
stocks. On the other hand, since the Fund's portfolio will generally have
significant holdings in equities, it will be subject to greater volatility and
produce less income than a fund which concentrates its investments solely in
bonds or money market instruments.

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

INDEPENDENT ACCOUNTANTS

Coopers & Lybrand L.L.P., 411 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, have been selected as the independent accountants for the
Fund, providing audit services and assistance and consultation with respect to
the preparation of filings with the SEC.

LEGAL COUNSEL

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

FINANCIAL STATEMENTS

The Annual Report that is attached hereto contains the following
financial information for the Fund:

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<PAGE> 142

In addition, the unaudited financial statements for the fiscal period
from January 1, 1996 to February 29, 1996 that is attached hereto contains the
following information:

(a) Schedule of Investments in Securities.
(b) Statements of Operations.
(c) Statements of Assets and Liabilities.
(d) Statements of Changes in Net Assets.
(e) Notes to Financial Statements.
(f) Financial Highlights.

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<PAGE> 143
APPENDIX

BOND RATINGS

STANDARD & POOR'S DEBT RATINGS

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

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

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

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

2. Nature of and provisions of the obligation.

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

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

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

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

SPECULATIVE GRADE

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

A-1
<PAGE> 144
B Debt rated 'B' has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The 'B' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied 'BB' or 'BB-' rating.

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

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

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

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

MOODY'S LONG-TERM DEBT RATINGS

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

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

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

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

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

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

A-2
<PAGE> 145
Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.

Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.

C -- Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

FITCH INVESTORS SERVICE, INC. BOND RATINGS

Fitch ratings do not reflect any credit enhancement that may be
provided by insurance policies or financial guaranties unless otherwise
indicated.

Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.

Fitch ratings are not recommendations to buy, sell, or hold any
security. Ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt nature
or taxability of payments made in respect of any security.

AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely
to be affected by reasonably foreseeable events.

AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong
as bonds rated 'AAA'. Because bonds rated in the 'AAA' and
'AA' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of the
issuers is generally rated 'F-1+'.

A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes
in economic conditions and circumstances, however, are more
likely to have adverse impact on these bonds and, therefore,
impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than
for bonds with higher ratings.

A-3
<PAGE> 146
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
('BB' to 'C') represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ('DDD' to 'D') is an
assessment of the ultimate recovery value through reorganization or
liquidation.

Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories cannot fully reflect the
differences in the degrees of credit risk.

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

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

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

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

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

DUFF & PHELPS, INC. LONG-TERM DEBT RATINGS

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

A-4
<PAGE> 147
The Credit Rating Committee formally reviews all ratings once per
quarter (more frequently, if necessary). Ratings of 'BBB-' and higher fall
within the definition of investment grade securities, as defined by bank and
insurance supervisory authorities.

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

AAA Highest credit quality. The risk factors are negligible, being only slightly more
than for risk-free U.S. Treasury debt.
- ------------------------------------------------------------------------------------------------------------

AA+ High credit quality. Protection factors are strong. Risk is modest, but may
AA vary slightly from time to time because of economic conditions.
AA-
- ------------------------------------------------------------------------------------------------------------

A+ Protection factors are average but adequate. However, risk factors are more
A variable and greater in periods of economic stress.
A-
- ------------------------------------------------------------------------------------------------------------

BBB+ Below-average protection factors but still considered sufficient for prudent
BBB investment. Considerable variability in risk during economic cycles.
BBB-

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

BB+ Below investment grade but deemed likely to meet obligations when due.
BB Present or prospective financial protection factors fluctuate according to
BB- industry conditions or company fortunes. Overall quality may move up or
down frequently within this category.
- ------------------------------------------------------------------------------------------------------------

B+ Below investment grade and possessing risk that obligations will not be met
B when due. Financial protection factors will fluctuate widely according to
B- economic cycles, industry conditions and/or company fortunes. Potential
exists for frequent changes in the rating within this category or into a higher
or lower rating grade.
- ------------------------------------------------------------------------------------------------------------

CCC Well below investment grade securities. Considerable uncertainty exists as to
timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
- ------------------------------------------------------------------------------------------------------------

DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP Preferred stock with dividend arrearages.
- ------------------------------------------------------------------------------------------------------------
</TABLE>

A-5
<PAGE> 148
SHORT-TERM RATINGS

STANDARD & POOR'S COMMERCIAL PAPER RATINGS

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

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

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

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

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

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

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

STANDARD & POOR'S NOTE RATINGS

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

The following criteria will be used in making the assessment:

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

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

Note rating symbols and definitions are as follows:

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

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

SP-3 Speculative capacity to pay principal and interest.

A-6
<PAGE> 149

MOODY'S SHORT-TERM RATINGS

Moody's short-term debt ratings are opinions of the ability of issuers
to repay punctually senior debt obligations. These obligations have an
original maturity not exceeding one year, unless explicitly noted.

Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:

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

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

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

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

MOODY'S NOTE RATINGS

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

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

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

FITCH INVESTORS SERVICE, INC. SHORT-TERM RATINGS

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

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

A-7
<PAGE> 150

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

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

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

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

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

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

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

DUFF & PHELPS, INC. SHORT-TERM DEBT RATINGS

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

Rating Scale: Definition

High Grade

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

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

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

Good Grade

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

A-8
<PAGE> 151
Satisfactory Grade

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

Non-Investment Grade

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

Default

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

THOMSON BANKWATCH (TBW) SHORT-TERM RATINGS

The TBW Short-Term Ratings apply, unless otherwise noted, to specific
debt instruments of the rated entities with a maturity of one year or less.
TBW Short-Term Ratings are intended to assess the likelihood of an untimely or
incomplete payments of principal or interest.

TBW-1 The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.

TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1".

TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.

IBCA SHORT-TERM RATINGS

IBCA Short-Term Ratings assess the borrowing characteristics of banks
and corporations, and the capacity for timely repayment of debt obligations.
The Short-Term Ratings relate to debt which has a maturity of less than one
year.

A1+ Obligations supported by the highest capacity for timely
repayment and possess a particularly strong credit feature.

A1 Obligations supported by the highest capacity for timely
repayment.

A2 Obligations supported by a good capacity for timely repayment.

A3 Obligations supported by a satisfactory capacity for timely
repayment.

B Obligations for which there is an uncertainty as to the
capacity to ensure timely repayment.

C Obligations for which there is a high risk of default or which
are currently in default.

A-9
<PAGE> 152
SCHEDULE OF INVESTMENTS IN SECURITIES February 29, 1996 (Unaudited)

<TABLE>
<CAPTION>
PRINCIPAL VALUE
STRONG ASSET ALLOCATION FUND II AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY ISSUES 9.7%
United States Treasury Notes, 5.875%, Due 11/15/05
(COST $50,607) $50,000 $49,047

CASH EQUIVALENTS (A) 88.1%
COMMERCIAL PAPER 2.8%
INTEREST BEARING, DUE UPON DEMAND
American Family Financial Services, Inc., 4.94% 5,800 5,800
Wisconsin Electric Power Company, 4.98% 8,300 8,300
--------
14,100
UNITED STATES GOVERNMENT ISSUES 85.3%
United States Treasury Bills:
Due 3/07/96, 5.30% 10,000 9,991
Due 3/14/96, 5.33% (b) 10,000 9,981
Due 3/28/96, 4.95% 395,000 393,534
Due 4/25/96, 4.96% (b) 10,000 9,924
Due 5/02/96, 5.31% (b) 10,000 9,911
--------
433,341
--------
TOTAL CASH EQUIVALENTS (COST $447,441) 447,441
--------
TOTAL INVESTMENTS IN SECURITIES (COST $498,048) 97.8% 496,488
Other Assets and Liabilities, Net 2.2% 11,333
--------
NET ASSETS 100.0% $507,821
========
</TABLE>

FUTURES

<TABLE>
<CAPTION>
UNDERLYING UNREALIZED
EXPIRATION FACE AMOUNT APPRECIATION
DATE AT VALUE (DEPRECIATION)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchased:
1 Five-Year U.S. Treasury Note 3/96 $108,703 ($781)
1 S & P 500 3/96 319,12 7,387
</TABLE>

<TABLE>
<CAPTION>
PERCENTAGE OF
INDUSTRY DIVERSIFICATION NET ASSETS
--------------------------------------------------------------------
<S> <C>
United States Government 95.0%
Electric Power 1.6%
Finance -- Miscellaneous 1.2%
Other Assets and Liabilities, Net 2.2%
-----
100.0%
=====
</TABLE>

LEGEND
(a) Cash equivalents include any security which has a maturity of less than one
year.
(b) Security pledged to cover margin requirements for futures contracts.

Percentages are stated as a percent of net assets.

See notes to financial statements.

<PAGE> 153
STATEMENT OF OPERATIONS
For the Two Months Ended February 29, 1996 (Unaudited)

<TABLE>
<S> <C>
INTEREST INCOME $4,062

EXPENSES:
Investment Advisory Fees 692
Custodian Fees 320
Shareholder Servicing Costs 82
Federal and State Registration Fees 75
Other 146
------
Total Expenses 1,315
------
NET INVESTMENT INCOME 2,747

REALIZED AND UNREALIZED GAIN (LOSS):
Change in Unrealized Appreciation/Depreciation on:
Investments (2,086)
Futures Contracts 8,197
------
NET GAIN 6,111
------

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $8,858
======
</TABLE>

See notes to financial statements.

<PAGE> 154

STATEMENT OF ASSETS AND LIABILITIES
February 29, 1996 (Unaudited)

<TABLE>
<S> <C>
ASSETS:
Investments in Securities, at Value
(Cost of $498,048) $496,488
Dividends and Interest Receivable 936
Other Assets 11,014
--------
Total Assets 508,438

ACCRUED OPERATING EXPENSES AND OTHER LIABILITIES 617
--------
NET ASSETS $507,821
========

Capital Shares
Authorized 300,000
Outstanding 50,004

NET ASSET VALUE PER SHARE $10.16
========
</TABLE>

See notes to financial statements.

<PAGE> 155

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
TWO MONTHS PERIOD ENDED DEC.
ENDED FEB. 29, 31, 1995 (NOTE
1996 (UNAUDITED) 1)
---------------- -----------------
<S> <C> <C>
OPERATIONS:
Net Investment Income $ 2,747 $ 1,896
Net Realized Gain -- 63
Change in Unrealized Appreciation/Depreciation 6,111 (1,065)
-------- --------
Increase in Net Assets Resulting from Operations 8,858 894

CAPITAL SHARE TRANSACTIONS 42 500,000

DIVIDENDS PAID FROM:
From Net Investment Income -- (1,896)
In Excess of Net Investment Income -- (77)
-------- --------
TOTAL INCREASE IN NET ASSETS 8,900 498,921

NET ASSETS:
Beginning of Period 498,921 --
-------- --------
End of Period $507,821 $498,921
======== ========
</TABLE>

See notes to financial statements.

<PAGE> 156
NOTES TO FINANCIAL STATEMENTS
February 29, 1996 (Unaudited)

1. ORGANIZATION
The Strong Asset Allocation 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.

(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.

<PAGE> 157

(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.

3. NET ASSETS
Net assets as of February 29, 1996 were as follows:

<TABLE>
<S> <C>
Capital Stock $500,041
Undistributed Net Investment Income 2,671
Undistributed Net Realized Gain 63
Net Unrealized Appreciation 5,046
--------
$507,821
========
</TABLE>

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

4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the periods ended February 29, 1996
and December 31, 1995 were as follows:

<TABLE>
<CAPTION>
1996 1995
Shares Dollars Shares Dollars
------ ------- ------ -------
<S> <C> <C> <C> <C>
Shares Sold 5 $54 50,000 $500,000
Dividends Reinvested -- -- -- --
Shares Redeemed (1) (12) -- --
-- --- ------ --------
4 $42 50,000 $500,000
== === ====== ========
</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 0.85% of
the first $35 million and 0.80% thereafter 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 February 29, 1996 and Unaffiliated
Director's Fees for the two months ended February 29, 1996 were $367 and $375
respectively.

6. INVESTMENT TRANSACTIONS
The fund had no purchases and sales of long-term securities for the period
ended February 29, 1996.

<PAGE> 158

FINANCIAL HIGHLIGHTS
The following presents information relating to a share of capital stock
outstanding for the entire period.

<TABLE>
<CAPTION>
1996 (a) 1995 (b)
----------- -------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.98 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.05 0.04
Net Realized and Unrealized Gains (Losses) on Investments 0.13 (0.02)
---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 0.18 0.02
LESS DISTRIBUTIONS
From Net Investment Income -- (0.04)
---------- ----------
TOTAL DISTRIBUTIONS -- (0.04)
---------- ----------
NET ASSET VALUE, END OF PERIOD $ 10.16 $ 9.98
========== ==========
Total Return +2.0% +0.2%
Net Assets, End of Period (In Thousands) $ 508 $ 499
Ratio of Expenses to Average Net Assets 1.6%* 1.6%*
Ratio of Net Investment Income to Average Net Assets 3.3%* 4.3%*
Portfolio Turnover Rate 0.0% 0.0%
</TABLE>

* Calculated on an annualized basis.
(a) For the two months ended February 29, 1996 (Unaudited). Total return and
portfolio turnover rate are not annualized.
(b) Inception date is November 30, 1995. Total return and portfolio turnover
rate are not annualized.

<PAGE> 159

STRONG INTERNATIONAL STOCK FUND II

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

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

Dated May 1, 1996

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

PROSPECTUS PAGE 1
<PAGE> 160

TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
THE FUND................................. 2
FINANCIAL HIGHLIGHTS..................... 3
INVESTMENT OBJECTIVE AND POLICIES........ 4
IMPLEMENTATION OF POLICIES AND RISKS..... 5
SPECIAL CONSIDERATIONS................... 12
MANAGEMENT............................... 13
ADDITIONAL INFORMATION................... 14
</TABLE>

THE FUND

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

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

PROSPECTUS PAGE 2
<PAGE> 161

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
1995**
------
<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)
From Net Realized Gains (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.

**Inception date is October 20, 1995. Total return and portfolio turnover rate
are not annualized.

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

PROSPECTUS PAGE 3
<PAGE> 162

INVESTMENT OBJECTIVE AND POLICIES

Under normal market conditions, the Fund expects to invest at least 90% of
its net assets in foreign equity securities. The Fund may, however, invest up to
35% of its total assets in equity securities of U.S. issuers or debt
obligations, including debt obligations of U.S. issuers or foreign government
entities. When the Advisor determines that market conditions warrant a temporary
defensive position, the Fund may invest without limitation in cash (U.S.
dollars, foreign currencies, or multicurrency units) and short-term fixed income
securities. Although the debt obligations in which it invests will be primarily
investment grade, the Fund may invest up to 5% of its net assets in
non-investment-grade debt obligations. (See "Implementation of Policies and
Risks - Debt Obligations.")

The Fund will normally invest in securities of issuers located in at least
three different countries. As market and global conditions change, the Fund will
change its allocations among the countries of the world, and nothing herein will
limit the Fund's ability to invest in or avoid any particular countries or
regions. In allocating the Fund's assets among various countries, the Advisor
will seek economic and market environments favorable for capital appreciation
and, with respect to developing countries, economic, political, and stock-market
environments that show signs of stabilizing or improving. See "Implementation of
Policies and Risks - Foreign Securities and Currencies" for a discussion of the
special risks involved in investing in foreign securities.

In analyzing foreign companies for investment, the Advisor will ordinarily
look for one or more of the following characteristics in relation to the
company's prevailing stock price:

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

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PROSPECTUS PAGE 4
<PAGE> 163

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

- - stable, capable management; and

- - other general operating characteristics that will enable the company to
compete successfully in its marketplace.

IMPLEMENTATION OF POLICIES AND RISKS

FOREIGN SECURITIES AND CURRENCIES

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

Foreign investments involve special risks, including:

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PROSPECTUS PAGE 5
<PAGE> 164

Certain costs attributable to foreign investing, such as custody charges and
brokerage costs, may be higher than those attributable to domestic investing.

The Fund may invest a significant portion of its assets in securities of
issuers in developing or emerging markets and economies, including Asia and the
Pacific Basin. Investing in securities of issuers in Asia and the Pacific Basin
involves special risks. Risks of investing in developing or emerging markets
include:

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

FOREIGN INVESTMENT COMPANIES

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expensive and more expedient for the Fund to invest in a foreign investment
company in a country which permits direct foreign investment. Investing through
such vehicles may involve frequent or layered fees or expenses and may also be
subject to limitation under the Investment Company Act of 1940 (the "1940 Act").
The Fund does not intend to invest in such investment companies unless, in the
judgment of the Advisor, the potential benefits of such investments justify the
payment of any associated fees or expenses.

DERIVATIVE INSTRUMENTS

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<PAGE> 166

Derivatives may be exchange-traded or traded in OTC transactions between
private parties. OTC transactions are subject to additional risks, such as the
credit risk of the counterparty to the instrument and are less liquid than
exchange-traded derivatives since they often can only be closed out with the
other party to the transaction. Derivative instruments may include elements of
leverage and, accordingly, the fluctuation of the value of the derivative
instrument in relation to the underlying asset may be magnified. When required
by SEC guidelines, the Fund will set aside permissible liquid assets or
securities positions that substantially correlate to the market movements of the
derivative in a segregated account to secure its obligations under the
derivative. In order to maintain its required cover for a derivative, the Fund
may need to sell portfolio securities at disadvantageous prices or times since
it may not be possible to liquidate a derivative position.

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PROSPECTUS PAGE 8
<PAGE> 167

ILLIQUID SECURITIES

SMALL COMPANIES

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

DEBT OBLIGATIONS

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

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<PAGE> 168

Investment-grade debt obligations include:

- - U.S. government securities (as defined below),

- - bonds or bank obligations rated in one of the four highest rating categories
of any nationally recognized statistical rating organization or "NRSRO" (e.g.,
BBB or higher by Standard & Poor's Ratings Group or "S&P"),

- - short-term notes rated in one of the two highest rating categories (e.g., SP-2
or higher by S&P);

- - short-term bank obligations that are rated in one of the three highest
categories by any NRSRO (e.g., A-3 or higher by S&P), with respect to
obligations maturing in one year or less;

- - commercial paper rated in one of the three highest ratings categories by any
NRSRO (e.g., A-3 or higher by S&P);

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

- - repurchase agreements involving investment-grade debt obligations.

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

GOVERNMENT SECURITIES

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<PAGE> 169

- - the Federal National Mortgage Association, whose securities are supported by
the discretionary authority of the U.S. government to purchase certain
obligations of the agency or instrumentality; and
- - the Student Loan Marketing Association, the Interamerican Development Bank,
and International Bank for Reconstruction and Development, whose securities
are supported only by the credit of such agencies.

WHEN-ISSUED SECURITIES

PORTFOLIO TURNOVER

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PROSPECTUS PAGE 11
<PAGE> 170

SPECIAL CONSIDERATIONS

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

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PROSPECTUS PAGE 12
<PAGE> 171

accounts might at some time be in conflict. The Board of Directors of the
Corporation, however, will monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken in response to such conflicts. If such a conflict were
to occur, one or more insurance companies' separate accounts might be required
to withdraw its investments in the Fund, and shares of another Fund may be
substituted. This might force the Fund to sell securities at disadvantageous
prices. In addition, the Board of Directors may refuse to sell Fund shares to
any separate account or may suspend or terminate the offering of Fund shares if
such action is required by law or regulatory authority or is in the best
interest of the shareholders of the Fund.

Except for the organizational shares of the Fund, the Fund's shares may be
held of record only by insurance company separate accounts. As of March 31,
1996, Nationwide Life Insurance Company owned approximately 99.94% of the Fund.
Nationwide Life insurance Company's ownership of greater than 25% of the Fund's
shares may result in it being deemed to be the controlling entity of the Fund.
It may continue to be deemed as such until other insurance companies, if any,
selling significant numbers of variable annuity and variable life insurance
contracts, have made substantial investments in the Fund's shares.

MANAGEMENT

The Advisor began conducting business in 1974. Since then, its principal
business has been providing continuous investment supervision for individuals
and institutional accounts, such as pension funds and profit-sharing plans, as
well as mutual funds, several of which are funding vehicles for variable
insurance products. As of April 15, 1996, the Advisor had over $19 billion under
management. The Advisor's principal mailing address is P.O. Box 2936, Milwaukee,
Wisconsin 53201. Mr. Richard S. Strong, the Chairman of the Board of the
Corporation, is the controlling shareholder of the Advisor.

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PROSPECTUS PAGE 13
<PAGE> 172

increasing the Fund's return to investors at the time such amounts were waived
and/or absorbed.

Except for expenses assumed by the Advisor or Strong Funds Distributors,
Inc., the Fund is responsible for all its other expenses, including, without
limitation, interest charges, taxes, brokerage commissions and similar expenses;
expenses of issue, sale, repurchase, or redemption of shares; expenses of
registering or qualifying shares for sale with the states and the SEC; expenses
of printing and distribution of prospectuses to existing shareholders; charges
of custodians (including fees as custodian for keeping books and similar
services for the Fund), transfer agents (including the printing and mailing of
reports and notices to shareholders), registrars, auditing and legal services,
and clerical services related to recordkeeping and shareholder relations;
printing of stock certificates; fees for directors who are not "interested
persons" of the Advisor; expenses of indemnification; extraordinary expenses;
and costs of shareholder and director meetings.

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

ADDITIONAL INFORMATION

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

CALCULATION OF NET ASSET VALUE. The net asset value ("NAV") per share for the
Fund is determined as of the close of trading on the New York Stock

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PROSPECTUS PAGE 14
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Exchange (the "Exchange"), currently 3:00 p.m. Central Time, on days the
Exchange is open for business. The NAV will not be determined for the Fund on
days during which the Fund receives no orders to purchase shares and no shares
are tendered for redemption. The Fund's NAV is calculated by taking the fair
value of the Fund's total assets, subtracting all its liabilities, and dividing
by the total number of shares outstanding. Expenses are accrued daily and
applied when determining the NAV.

The Fund's portfolio securities are valued based on market quotations or at
fair value as determined by the method selected by the Corporation's Board of
Directors. Equity securities traded on a national securities exchange or NASDAQ
are valued at the last sales price on the national securities exchange or NASDAQ
on which such securities are primarily traded. Securities traded on NASDAQ for
which there were no transactions on a given day or securities not listed on an
exchange or NASDAQ are valued at the average of the most recent bid and asked
prices. Other exchange-traded securities (generally foreign securities) will be
valued based on market quotations.

Securities quoted in foreign currency are valued daily in U.S. dollars at the
foreign currency exchange rates that are prevailing at the time the daily NAV
per share is determined. Although the Fund values its foreign assets in U.S.
dollars on a daily basis, the Fund does not intend to convert its holdings of
foreign currencies into U.S. dollars on a daily basis. Foreign currency exchange
rates are generally determined prior to the close of trading on the Exchange.
Occasionally, events affecting the value of foreign investments and such
exchange rates occur between the time at which they are determined and the close
of trading on the Exchange. Such events would not normally be reflected in a
calculation of the Fund's NAV on that day. If events that materially affect the
value of the Fund's foreign investments or the foreign currency exchange rates
occur during such period, the investments will be valued at their fair value as
determined in good faith by or under the direction of the Board of Directors.
The Fund's portfolio securities, from time to time, may be listed primarily on
foreign exchanges that trade on other days than those on which the Exchange is
open for business, (e.g., Saturday). As a result, the NAV of the Fund may be
significantly affected by such trading on days when shareholders cannot effect
transactions on their accounts.

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PROSPECTUS PAGE 15
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Exchange is closed for other than weekends and holidays; (ii) the SEC has
permitted such suspension by order; or (iii) an emergency, as determined by the
SEC, exists which makes disposal of portfolio securities or valuation of net
assets of the Fund not reasonably practicable.

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PROSPECTUS PAGE 16
<PAGE> 175

which instructions were received. Contract owners should refer to the prospectus
of the insurance company's separate account for a complete description of their
voting rights.

PERFORMANCE INFORMATION. The Fund may advertise a variety of types of
performance information, including "average annual total return," "total
return," and "cumulative total return." Each of these figures is based upon
historical results and does not represent the future performance of the Fund.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in the Fund assuming
the reinvestment of all dividends and distributions. Total return figures are
not annualized and simply represent the aggregate change of the Fund's
investments over a specified period of time.

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PROSPECTUS PAGE 17
<PAGE> 176

STATEMENT OF ADDITIONAL INFORMATION

STRONG INTERNATIONAL STOCK FUND II
P.O. Box 2936
Milwaukee, Wisconsin 53201

Telephone: (414) 359-1400

Toll-Free: (800) 368-3863

Strong International Stock Fund II (the "Fund") is a diversified series
of the Strong Variable Insurance Funds, Inc. (the "Corporation"), an open-end
management investment company designed to provide an investment vehicle for
variable annuity and variable life insurance contracts of certain insurance
companies. Shares in the Fund are only offered and sold to the separate
accounts of such insurance companies. The Fund is described herein and in the
Prospectus for the Fund dated May 1, 1996.

This Statement of Additional Information is dated May 1, 1996.

<PAGE> 177

STRONG INTERNATIONAL STOCK FUND II

<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE

<S> <C>
INVESTMENT RESTRICTIONS ........................................... 3
INVESTMENT POLICIES AND TECHNIQUES ................................ 5
Borrowing ....................................................... 5
Convertible Securities .......................................... 5
Debt Obligations ................................................ 6
Depositary Receipts ............................................. 6
Derivative Instruments .......................................... 7
Foreign Investment Companies .................................... 16
Foreign Securities .............................................. 17
High-Yield (High-Risk) Securities ............................... 17
Illiquid Securities ............................................. 19
Lending of Portfolio Securities ................................. 19
Mortgage- and Asset-Backed Securities ........................... 20
Mortgage Dollar Rolls and Reverse Repurchase Agreements ......... 21
Repurchase Agreements ........................................... 21
Short Sales Against the Box ..................................... 22
Short-Term Cash Management ...................................... 22
Small Companies ................................................. 22
Temporary Defensive Position .................................... 22
Warrants ........................................................ 22
When-Issued Securities .......................................... 23
Zero-Coupon, Step-Coupon and Pay-in-Kind Securities ............. 23
DIRECTORS AND OFFICERS OF THE CORPORATION ......................... 23
PRINCIPAL SHAREHOLDERS ............................................ 26
INVESTMENT ADVISOR AND DISTRIBUTOR ................................ 26
PORTFOLIO TRANSACTIONS AND BROKERAGE .............................. 28
CUSTODIAN ......................................................... 31
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT ...................... 31
ADMINISTRATIVE SERVICES ........................................... 31
TAXES ............................................................. 32
DETERMINATION OF NET ASSET VALUE .................................. 34
FUND ORGANIZATION ................................................. 34
PERFORMANCE INFORMATION ........................................... 35
GENERAL INFORMATION ............................................... 40
PORTFOLIO MANAGEMENT .............................................. 41
INDEPENDENT ACCOUNTANTS ........................................... 41
LEGAL COUNSEL ..................................................... 41
FINANCIAL STATEMENTS .............................................. 41
APPENDIX .......................................................... A-1
</TABLE>

______________________________

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

<PAGE> 178

INVESTMENT RESTRICTIONS

The Fund:

3. May not issue senior securities, except as permitted under the 1940 Act.

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

<PAGE> 179

The Fund may not:

4. Purchase securities of other investment companies except in compliance
with the 1940 Act and applicable state law.

5. Invest all of its assets in the securities of a single open-end
investment management company with substantially the same fundamental
investment objective, restrictions and policies as the Fund.

7. Invest in direct interests in oil, gas, or other mineral exploration
programs or leases; however, the Fund may invest in the securities of
issuers that engage in these activities.

In addition, (i) the aggregate value of securities underlying call options
on securities written by the Fund or obligations underlying put options
on securities written by the Fund determined as of the date the options
are written will not exceed 50% of the Fund's net assets; (ii) the
aggregate premiums paid on all options purchased by the Fund and which are
being held will not exceed 20% of the Fund's net assets; (iii) the Fund
will not purchase put or call options, other than hedging positions, if,
as a result thereof, more than 5% of its total assets would be so
invested; and (iv) the aggregate margin deposits required on all futures
and options on futures transactions being held will not exceed 5% of the
Fund's total assets.

<PAGE> 180

12. Borrow money except (i) from banks or (ii) through reverse repurchase
agreements or mortgage dollar rolls, and will not purchase securities when
bank borrowings exceed 5% of its total assets.

13. Make any loans other than loans of portfolio securities, except through
(i) purchases of debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.

INVESTMENT POLICIES AND TECHNIQUES

BORROWING

CONVERTIBLE SECURITIES

<PAGE> 181

The value of a convertible security is a function of its "investment
value" (determined by its yield in comparison with the yields of other
securities of comparable maturity and quality that do not have a conversion
privilege) and its "conversion value" (the security's worth, at market value,
if converted into the underlying common stock). The investment value of a
convertible security is influenced by changes in interest rates, with
investment value declining as interest rates increase and increasing as
interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value. The
conversion value of a convertible security is determined by the market price of
the underlying common stock. If the conversion value is low relative to the
investment value, the price of the convertible security is governed principally
by its investment value. Generally, the conversion value decreases as the
convertible security approaches maturity. To the extent the market price of
the underlying common stock approaches or exceeds the conversion price, the
price of the convertible security will be increasingly influenced by its
conversion value. A convertible security generally will sell at a premium over
its conversion value by the extent to which investors place value on the right
to acquire the underlying common stock while holding a fixed income security.

DEBT OBLIGATIONS

DEPOSITARY RECEIPTS

<PAGE> 182

ADRs and EDRs are deemed to have the same classification as the underlying
securities they represent, except that ADRs and EDRs shall be treated as
indirect foreign investments. Thus, an ADR or EDR representing ownership of
common stock will be treated as common stock. ADR and EDR depositary receipts
do not eliminate all of the risks associated with directly investing in the
securities of foreign issuers.

DERIVATIVE INSTRUMENTS

A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to options or forward contracts. Options and forward
contracts are considered to be the basic "building blocks" of derivatives. For
example, forward-based derivatives include forward contracts, swap contracts,
as well as exchange-traded futures. Option-based derivatives include privately
negotiated, over-the-counter (OTC) options (including caps, floors, collars,
and options on forward and swap contracts) and exchange-traded options on
futures. Diverse types of derivatives may be created by combining options or
forward contracts in different ways, and by applying these structures to a wide
range of underlying assets.

An option is a contract in which the "holder" (the buyer) pays a certain
amount (the "premium") to the "writer" (the seller) to obtain the right, but
not the obligation, to buy from the writer (in a "call") or sell to the writer
(in a "put") a specific asset at an agreed upon price at or before a certain
time. The holder pays the premium at inception and has no further financial
obligation. The holder of an option-based derivative generally will benefit
from favorable movements in the price of the underlying asset but is not
exposed to corresponding losses due to adverse movements in the value of the
underlying asset. The writer of an option-based derivative generally will
receive fees or premiums but generally is exposed to losses due to changes in
the value of the underlying asset.

<PAGE> 183

while the buyer hopes for the contrary. The change in value of a forward-based
derivative generally is roughly proportional to the change in value of the
underlying asset.

<PAGE> 184

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

<PAGE> 185

purchased by the Fund and which are being held will not exceed 20% of the
Fund's net assets; (iii) the Fund will not purchase put or call options, other
than hedging positions, if, as a result thereof, more than 5% of its total
assets would be so invested; and (iv) the aggregate margin deposits required on
all futures and options on futures transactions being held will not exceed 5%
of the Fund's total assets.

<PAGE> 186

<PAGE> 187

Fund may also write put options on futures contracts while at the same time
purchasing call options on the same futures contracts in order to create
synthetically a long futures contract position. Such options would have the
same strike prices and expiration dates. The Fund will engage in this strategy
only when the Advisor believes it is more advantageous to the Fund than is
purchasing the futures contract.

<PAGE> 188

made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.

FOREIGN CURRENCIES. The Fund may purchase and sell foreign currency on a
spot basis, and may use currency-related derivatives instruments such as
options on foreign currencies, futures on foreign currencies, options on
futures on foreign currencies and forward currency contracts (i.e., an
obligation to purchase or sell a specific currency at a specified future date,
which may be any fixed number of days from the contract date agreed upon by the
parties, at a price set at the time the contract is entered into). The Fund
may use these instruments for hedging or any other lawful purpose consistent
with its investment objective, including transaction hedging, anticipatory
hedging, cross hedging, proxy hedging, and position hedging. The Fund's use of
currency-related derivative instruments will be directly related to the Fund's
current or anticipated portfolio securities, and the Fund may engage in
transactions in currency-related derivative instruments as a means to protect
against some or all of the effects of adverse changes in foreign currency
exchange rates on its portfolio investments. In general, if the currency in
which a portfolio investment is denominated appreciates against the U.S.
dollar, the dollar value of the security will increase. Conversely, a decline
in the exchange rate of the currency would adversely affect the value of the
portfolio investment expressed in U.S. dollars.

<PAGE> 189

referred to as "cross hedges." The effective use of currency-related
derivative instruments by the Fund in a cross hedge is dependent upon a
correlation between price movements of the two currency instruments and the
underlying security involved, and the use of two currencies magnifies the risk
that movements in the price of one instrument may not correlate or may
correlate unfavorably with the foreign currency being hedged. Such a lack of
correlation might occur due to factors unrelated to the value of the currency
instruments used or investments being hedged, such as speculative or other
pressures on the markets in which these instruments are traded.

<PAGE> 190

out only on an exchange which provides a market for the instruments. The
ability to establish and close out positions on an exchange is subject to the
maintenance of a liquid market, and there can be no assurance that a liquid
market will exist for any instrument at any specific time. In the case of a
privately-negotiated instrument, the Fund will be able to realize the value of
the instrument only by entering into a closing transaction with the issuer or
finding a third party buyer for the instrument. While the Fund will enter into
privately-negotiated transactions only with entities who are expected to be
capable of entering into a closing transaction, there can be no assurance that
the Fund will in fact be able to enter into such closing transactions.

When required by the SEC guidelines, the Fund will set aside permissible
liquid assets in segregated accounts or otherwise cover its potential
obligations under currency-related derivatives instruments. To the extent the
Fund's assets are so set aside, they cannot be sold while the corresponding
currency position is open, unless they are replaced with similar assets. As a
result, if a large portion of the Fund's assets are so set aside, this could
impede portfolio management or the Fund's ability to meet redemption requests
or other current obligations.

<PAGE> 191

FOREIGN INVESTMENT COMPANIES

<PAGE> 192

in such investment companies unless, in the judgment of the Advisor, the
potential benefits of such investments justify the payment of any associated
fees and expenses.

FOREIGN SECURITIES

HIGH-YIELD (HIGH-RISK) SECURITIES

IN GENERAL. The Fund has the authority to invest up to 5% of its net
assets in non-investment grade debt securities. Non-investment grade debt
obligations (hereinafter referred to as "lower-quality securities") include (i)
bonds rated as low as C by Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P"), or Fitch Investors Service, Inc.
("Fitch"), or CCC by Duff & Phelps, Inc. ("D&P"); (ii) commercial paper rated
as low as C by S&P, Not Prime by Moody's, or Fitch 4 by Fitch; and (iii)
unrated debt obligations of comparable quality. Lower-quality securities,
while generally offering higher yields than investment grade securities with
similar maturities, involve greater risks, including the possibility of default
or bankruptcy. They are regarded as predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal. The special risk
considerations in connection with investments in these securities are discussed
below. Refer to the Appendix for a discussion of securities ratings.

17
<PAGE> 193

<PAGE> 194

ILLIQUID SECURITIES

LENDING OF PORTFOLIO SECURITIES

<PAGE> 195

MORTGAGE- AND ASSET-BACKED SECURITIES

<PAGE> 196

payments of the remaining class or classes. Second, multiple classes may
permit the issuance of securities with payment terms, interest rates, or other
characteristics differing both from those of each other and from those of the
underlying assets. Examples include so-called "strips" (mortgage - and
asset-backed securities entitling the holder to disproportionate interests with
respect to the allocation of interest and principal of the assets backing the
security), and securities with class or classes having characteristics which
mimic the characteristics of non-mortgage- or asset-backed securities, such as
floating interest rates (i.e., interest rates which adjust as a specified
benchmark changes) or scheduled amortization of principal.

MORTGAGE DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS

REPURCHASE AGREEMENTS

21
<PAGE> 197

or insolvency of the other party to the agreement, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
Although no definitive creditworthiness criteria are used, the Advisor reviews
the creditworthiness of the banks and non-bank dealers with which the Fund
enters into repurchase agreements to evaluate those risks. The Fund may, under
certain circumstances, deem repurchase agreements collateralized by U.S.
government securities to be investments in U.S. government securities.

SHORT SALES AGAINST THE BOX

SHORT-TERM CASH MANAGEMENT

SMALL COMPANIES

TEMPORARY DEFENSIVE POSITION

When the Advisor determines that market conditions warrant a temporary
defensive position, the Fund may invest without limitation in cash (U.S.
dollars, foreign currencies, or multi-currency units) and short-term fixed
income securities, including U.S. government securities, commercial paper,
banker's acceptances, certificates of deposit, and time deposits.

WARRANTS

<PAGE> 198

WHEN-ISSUED SECURITIES

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

DIRECTORS AND OFFICERS OF THE CORPORATION

23
<PAGE> 199

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

Prior to August 1985, Mr. Strong was Chief Executive Officer of the
Advisor, which he founded in 1974. Since August 1985, Mr. Strong has been a
Security Analyst and Portfolio Manager of the Advisor. In October 1991, Mr.
Strong also became the Chairman of the Advisor. Strong is a director of the
Advisor. Mr. Strong has been in the investment management business since 1967.
Mr. Strong has served the Corporation as a director since December 1990 and
Chairman of the Board since January 1992.

MARVIN E. NEVINS (DOB 7/9/18), Director of the Corporation.

WILLIE D. DAVIS (DOB 7/24/34), Director of the Corporation.

*JOHN DRAGISIC (DOB 11/26/40), President and Director of the Corporation.

Mr. Dragisic has been President of the Advisor since October 1995, and a
director of the Advisor and Distributor since July 1994. Mr. Dragisic served
as Vice Chairman of the Advisor from July 1994 until October 1995. Mr.
Dragisic was the President and Chief Executive Officer of Grunau Company, Inc.
(a mechanical contracting and engineering firm), Milwaukee, Wisconsin from 1987
until July 1994. From 1981 to 1987, he was an Executive Vice President with
Grunau Company, Inc. From 1969 until 1973, Mr. Dragisic worked for the
InterAmerican Development Bank. Mr. Dragisic received his Ph.D. in Economics
in 1971 from the University of Wisconsin - Madison and his B.A. degree in
Economics in 1962 from Lake Forest College. Mr. Dragisic has served the
Corporation as Vice Chairman from July 1994 through October 1995; as President
since October 1995; and as a director from July 1991 until July 1994, and since
April 1995.

STANLEY KRITZIK (DOB 1/9/30), Director of the Corporation.

WILLIAM F. VOGT (DOB 7/19/47), Director of the Corporation.

<PAGE> 200

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

THOMAS P. LEMKE (DOB 7/30/54), Vice President of the Corporation.

ANN E. OGLANIAN (DOB 12/7/61), Vice President and Secretary of the Corporation.

Ms. Oglanian has been an Associate Counsel of the Advisor since January
1992. Ms. Oglanian acted as Associate Counsel for the Chicago-based investment
management firm, Kemper Financial Services, Inc.; from June 1988 until December
1991. Ms. Oglanian has served the Corporation as the Secretary since May 1994
and as a Vice President since January 1996.

STEPHEN J. SHENKENBERG (DOB 6/14/58), Vice President of the Corporation.

JOHN S. WEITZER (DOB 10/31/67), Vice President of the Corporation.

Mr. Weitzer has been an Associate Counsel to the Advisor since July 1993.
Mr. Weitzer has served the Corporation as a Vice President since January 1996.

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

<PAGE> 201

As of March 31, 1996, the officers and directors of the Corporation in the
aggregate beneficially owned less than 1% of the Fund's outstanding shares..

PRINCIPAL SHAREHOLDERS

<TABLE>
<CAPTION>
Name and Address Shares Percent of Class
<S> <C> <C>

Nationwide Insurance 1,798,155 99.94%
For Exclusive Benefit of Customers
P.O. Box 182029
Columbus, OH 43218
</TABLE>

INVESTMENT ADVISOR AND DISTRIBUTOR

<PAGE> 202

The Fund's Advisory Agreement is dated July 10, 1995, and will remain in
effect as to the Fund for a period of two years. The Advisory Agreement was
approved by the Fund's initial shareholder on its first day of operations.
Thereafter, the Advisory Agreement is required to be approved annually by the
Board of Directors of the Corporation or by vote of a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). In either case,
each annual renewal must also be approved by the vote of a majority of the
Corporation's directors who are not parties to the Advisory Agreement or
interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval. The Advisory Agreement is terminable,
without penalty, on 60 days' written notice by the Board of Directors of the
Corporation, by vote of a majority of the Fund's outstanding voting securities,
or by the Advisor. In addition, the Advisory Agreement will terminate
automatically in the event of its assignment.

Except for expenses assumed by the Advisor as set forth above or by the
Distributor as described below with respect to the distribution of the Fund's
shares, the Fund is responsible for all its other expenses, including, without
limitation, interest charges, taxes, brokerage commissions, and similar
expenses; expenses of issue, sale, repurchase, or redemption of shares;
expenses of registering or qualifying shares for sale; expenses for printing
and distribution costs of prospectuses and quarterly financial statements
mailed to existing shareholders; charges of custodians, transfer agent fees
(including the printing and mailing of reports and notices to shareholders),
fees of registrars, fees for auditing and legal services, fees for clerical
services related to recordkeeping and shareholder relations, the cost of stock
certificates and fees for directors who are not "interested persons" of the
Advisor; and its allocable share of the Corporation's expenses.

<PAGE> 203

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

Under a Distribution Agreement dated July 10, 1995 with the Corporation
(the "Distribution Agreement"), Strong Funds Distributors, Inc.
("Distributor"), a subsidiary of the Advisor, acts as underwriter of the Fund's
shares. The Distribution Agreement provides that the Distributor will use its
best efforts to distribute the Fund's shares. Shares are only offered and sold
to the separate accounts of certain insurance companies. Since the Fund is a
"no-load" fund, no sales commissions are charged on the purchase of Fund
shares. Certain sales charges may apply to the variable annuity or life
insurance contract, which should be described in the prospectus of the
insurance company's separate account. The Distribution Agreement further
provides that the Distributor will bear the additional costs of printing
prospectuses and shareholder reports which are used for selling purposes, as
well as advertising and other costs attributable to the distribution of the
Fund's shares. The Distributor is an indirect subsidiary of the Advisor and
controlled by the Advisor and Richard S. Strong. The Distribution Agreement is
subject to the same termination and renewal provisions as are described above
with respect to the Advisory Agreement.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Advisor is responsible for decisions to buy and sell securities for
the Fund and for the placement of the Fund's investment business and the
negotiation of the commissions to be paid on such transactions. It is the
policy of the Advisor to seek the best execution at the best security price
available with respect to each transaction, in light of the overall quality of
brokerage and research services provided to the Advisor or the Fund. In
over-the-counter transactions, orders are placed directly with a principal
market maker unless it is believed that a better price and execution can be
obtained using a broker. The best price to the Fund means the best net price
without regard to the mix between purchase or sale price and commission, if
any. In selecting broker-dealers and in negotiating commissions, the Advisor
considers a variety of factors, including best

<PAGE> 204

price and execution, the full range of brokerage services provided by the
broker, as well as its capital strength and stability, and the quality of the
research and research services provided by the broker. Brokerage will not be
allocated based on the sale of any shares of the Strong Funds.

<PAGE> 205

The Advisor is responsible for selecting brokers in connection with
foreign securities transactions. The fixed commissions paid in connection with
most foreign stock transactions are usually higher than negotiated commissions
on U.S. stock transactions. Foreign stock exchanges and brokers are subject to
less government supervision and regulation as compared with the U.S. exchanges
and brokers. In addition, foreign security settlements may in some instances
be subject to delays and related administrative uncertainties.

<PAGE> 206

During 1995, the Fund paid $7,627 in brokerage commissions.

CUSTODIAN

As custodian of the Fund's assets, Brown Brothers Harriman & Co., 40 Water
Street, Boston, Massachusetts 02109, has custody of all securities and cash of
the Fund, delivers and receives payment for securities sold, receives and pays
for securities purchased, collects income from investments, and performs other
duties, all as directed by officers of the Corporation. In addition, with the
approval of the Corporation's Board of Directors and subject to the rules of
the SEC, the Fund will have sub-custodians in those foreign countries in which
their respective assets may be invested. The custodian and, if applicable, the
sub-custodian are in no way responsible for any of the investment policies or
decisions of the Fund.

TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT

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

ADMINISTRATIVE SERVICES

<PAGE> 207

service charges. See the prospectus for the separate account of the insurance
company for additional information regarding such charges.

TAXES

GENERAL

FOREIGN TRANSACTIONS

<PAGE> 208

debt securities that are attributable to fluctuations in exchange rates between
the date the securities are acquired and their disposition date, and (3)
attributable to fluctuations in exchange rates between the time the Fund
accrues interest or other receivables or expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects those
receivables or pays those liabilities, will be treated as ordinary income or
loss. A foreign-currency-denominated debt security acquired by the Fund may
bear interest at a high normal rate that takes into account expected decreases
in the value of the principal amount of the security due to anticipated
currency devaluations; in that case, the Fund would be required to include the
interest in income as it accrues but generally would realize a currency loss
with respect to the principal only when the principal was received (through
disposition or upon maturity).

DERIVATIVE INSTRUMENTS

If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
30% Limitation. Thus, only the net gain (if any) from the designated hedge
will be included in gross income for purposes of that limitation. The Fund
intends that, when it engages in hedging strategies, the hedging transactions
will qualify for this treatment, but at the present time it is not clear
whether this treatment will be available for all of the Fund's hedging
transactions. To the extent this treatment is not available or is not elected
by the Fund, it may be forced to defer the closing out of certain options,
futures, or forward currency contracts beyond the time when it otherwise would
be advantageous to do so, in order for the Fund to continue to qualify as a
RIC.

<PAGE> 209

of its taxable year, and that are recognized for federal income tax purposes as
described above, will not be considered gains on investments held for less than
three months for purposes of the 30% Limitation.

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

DETERMINATION OF NET ASSET VALUE

Debt securities are valued by a pricing service that utilizes electronic
data processing techniques to determine values for normal institutional-sized
trading units of debt securities without regard to sale or bid prices when
such values are believed to more accurately reflect the fair market value for
such securities. Otherwise, sale or bid prices are used. Any securities or
other assets for which market quotations are not readily available are valued
at fair value as determined in good faith by the Board of Directors of each
Corporation. Debt securities having remaining maturities of 60 days are valued
by the amortized cost method when the Corporation's Board of Directors
determines that the fair value of such securities is their amortized cost.
Under this method of valuation, a security is initially valued at its
acquisition cost, and thereafter, amortization of any discount or premium is
assumed each day, regardless of the impact of the fluctuating rates on the
market value of the instrument.

FUND ORGANIZATION

The Fund is a series of common stock of Strong Variable Insurance Funds,
Inc., a Wisconsin corporation (the "Corporation"). The Corporation (formerly
known as Strong Discovery Fund II, Inc., formerly known as Strong D Fund, Inc.)
was organized on December 28, 1990 and is authorized to issue 10,000,000,000
shares of common stock and series and classes of series of shares of common
stock, with a par value of $.00001 per share. The Corporation is authorized to
issue 300,000,000

<PAGE> 210

shares of common stock of the Fund. Each share of the Corporation has one
vote, and all shares of a series participate equally in dividends and other
capital gains distributions and in the residual assets of that Fund in the
event of liquidation. Fractional shares have the same rights proportionately as
do full shares. Shares of the Corporation have no preemptive, conversion, or
subscription rights. The Corporation currently has seven series of common
stock outstanding. The assets belonging to each series of shares is held
separately by the custodian, and in effect each series is a separate fund. All
holders of shares of the Corporation would vote on each matter presented to
shareholders for action except with respect to any matter which affects only
one or more series or classes, in which case only the shares of the affected
series or class shall be entitled to vote. Because of current federal
securities law requirements the Corporation expects that its shareholders will
offer to owners of variable annuity and variable life insurance contracts the
opportunity to instruct them as to how shares allocable to their contracts will
be voted with respect to certain matters, such as approval of changes to the
investment advisory agreement.

PERFORMANCE INFORMATION

AVERAGE ANNUAL TOTAL RETURN

TOTAL RETURN

<PAGE> 211

paid by the Fund have been reinvested at net asset value on the reinvestment
dates during the period. Total return may also be shown as the increased
dollar value of the hypothetical investment over the period.

CUMULATIVE TOTAL RETURN

The table below shows performance information for various periods ended
December 31, 1995. Securities prices fluctuated during these periods.

INTERNATIONAL STOCK FUND II

<TABLE>
<CAPTION>
Average
Annual Total Return
Initial $10,000 Ending Value Total Return Percentage
Investment December 31, 1995 Percentage Increase Increase
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Life of Fund* $10,000 10,261 2.61% -
</TABLE>

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

* Commenced operations on October 20, 1995.

The Fund's total return for the three months ending March 31, 1996, was
6.85%.

COMPARISONS

(4) LIPPER ANALYTICAL SERVICES, INC. ("LIPPER") AND OTHER INDEPENDENT RANKING
ORGANIZATIONS

<PAGE> 212

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

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

(a) Consumer Price Index
(b) Dow Jones Average of 30 Industrials
(c) NASDAQ Over-the-Counter Composite Index
(d) Standard & Poor's 500 Stock Index
(e) Standard & Poor's 400 Mid-Cap Stock Index
(f) Standard & Poor's 600 Small-Cap Index
(g) Wilshire 4500 Index
(h) Wilshire 5000 Index
(i) Wilshire Small Cap Index
(j) Wilshire Small Cap Growth Index
(k) Wilshire Small Cap Value Index
(l) Wilshire Midcap 750 Index
(m) Wilshire Midcap Growth Index
(n) Wilshire Midcap Value Index
(o) Wilshire Large Cap Growth Index
(p) Russell 1000 Index
(q) Russell 1000 Growth Index
(r) Russell 2000 Index
(s) Russell 2000 Small Stock Index
(t) Russell 2000 Growth Index
(u) Russell 2000 Value Index
(v) Russell 2500 Index

<PAGE> 213

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

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

(9) HISTORICAL INFORMATION
Because the Fund's investments primarily are denominated in foreign
currencies, the strength or weakness of the U.S. dollar as against these
currencies may account for part of the Fund's investment performance.
Historical information regarding the value of the dollar versus foreign
currencies may be used from time to time in advertisements concerning the Fund.
Such historical information is not indicative of future fluctuations in the
value of the U.S. dollar against these currencies. Marketing materials may
cite country and economic statistics and historical stock market performance
for any of the countries in which the Fund invests, including, but not limited
to, the following: population growth, gross domestic product, inflation rate,
average stock market price earnings ratios and the total value of stock
markets. Sources for such statistics may include official publications of
various foreign governments, exchanges, or investment research firms. In
addition, marketing materials may cite the portfolio manager's views or
interpretations of such statistical data or historical performance.

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

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

<PAGE> 214

<TABLE>
<CAPTION>
FUND NAME INVESTMENT OBJECTIVE
- -------------------------------------------------------------------------------
<S> <C>
Strong Advantage Fund II Current income with a very low degree
of share-price fluctuation.

Strong Short-Term Bond Fund II Total return by investing for a
high level of current income with
a low degree of share-price fluctuation.

Strong Government Securities Fund II Total return by investing for a high
level of current income with a moderate
degree of share-price fluctuation.

Strong Asset Allocation Fund II High total return consistent with
reasonable risk over the long term.

Strong Special Fund II Capital growth.

Strong Growth Fund II Capital growth.

Strong Discovery Fund II Capital growth.

Strong International Stock Fund II Capital growth.
</TABLE>

Each Fund may from time to time be compared to the other Funds in the
Strong Variable Insurance Funds based on a risk/reward spectrum. In general,
the amount of risk associated with any investment product is commensurate with
that product's potential level of reward. The Strong Variable Insurance Funds'
risk/reward continuum or any Fund's position on the continuum may be described
or diagrammed in marketing materials. The Strong Variable Insurance Funds'
risk/reward continuum positions the risk and reward potential of each Fund
relative to the other Strong Variable Insurance Funds, but is not intended to
position any Fund relative to other mutual funds or investment products.
Marketing materials may also discuss the relationship between risk and reward
as it relates to an individual investor's portfolio. Financial goals vary from
person to person. You may choose one or more of the Strong Variable Insurance
Funds to help you reach your financial goals.

The Advisor also serves as advisor to the Strong Family of Funds, which is
a retail fund complex composed of 26 open-end management investment companies.

ADDITIONAL FUND INFORMATION

(1) PORTFOLIO CHARACTERISTICS

(2) MEASURES OF VOLATILITY AND RELATIVE PERFORMANCE

Standard deviation is calculated using the following formula:

2
Standard deviation = the square root of E(x - x )
i m
---------
n-1

where E = "the sum of",
x = each individual return during the time period,
i
x = the average return over the time period, and
m
n = the number of individual returns during the time period.

<PAGE> 215

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

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

GENERAL INFORMATION

BUSINESS PHILOSOPHY

INVESTMENT ENVIRONMENT

EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING

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

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

<PAGE> 216

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

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

PORTFOLIO MANAGEMENT

The Advisor's investment philosophy is that (i) active management with
focused security and country selection can generate superior returns over
passive benchmarks; (ii) local knowledge and local contacts are essential for
effective international investing; (iii) application of U.S. and non-U.S.
financial analysis techniques can be used to value certain international
securities; (iv) attractive investment opportunities exist in all areas -
established and developing markets, large and small companies; (v) seeking out
under-researched and undervalued companies is as valid in international
investing as in domestic investing; and (vi) risk can be reduced by
underweighting the least attractive markets, not overweighting volatile
markets, and making bold allocations to attractive markets and securities.

The Advisor's investment process includes (i) global market analysis to
determine which countries/currencies to emphasize and avoid; (ii) combining
U.S. and non-U.S. fundamental research techniques where possible; (iii)
utilizing local knowledge and local contacts to closely monitor companies and
unearth new candidates for investment opportunities; (iv) focusing on stock
selection in moderately attractive markets; (v) focusing on sector/industry
weightings in the most attractive markets; (vi) emphasizing growth companies in
smaller and emerging markets; (vii) emphasizing value plays and turnaround
situations in more mature equity markets; and (viii) utilizing hedging of
foreign currency risk on an opportunistic basis.

The Advisor considers selling a stock when there is a high price/cash flow
or price/earnings multiple relative to the country and/or industry,
deterioration in country policies towards investors, or deterioration in
company fundamentals and management.

INDEPENDENT ACCOUNTANTS

LEGAL COUNSEL

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

FINANCIAL STATEMENTS

The Annual Report that is attached hereto contains the following financial
information for the Fund:

(a) Schedule of Investments in Securities.

(b) Statement of Operations.

<PAGE> 217

(d) Statement of Changes in Net Assets.

(e) Notes to Financial Statements.

(f) Financial Highlights.

(g) Report of Independent Accountants.

In addition, the unaudited financial statements for the fiscal period from
January 1, 1996 to February 29, 1996 that is attached hereto contains the
following information:

(a) Schedule of Investments in Securities.

(b) Statement of Operations.

(d) Statement of Changes in Net Assets.

(e) Notes to Financial Statements.

(f) Financial Highlights.

<PAGE> 218

APPENDIX

BOND RATINGS

STANDARD & POOR'S DEBT RATINGS

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

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

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

2. Nature of and provisions of the obligation.

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

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

SPECULATIVE GRADE

A-1

<PAGE> 219

inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.

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

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

MOODY'S LONG-TERM DEBT RATINGS

A-2

<PAGE> 220

Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.

Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.

C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

FITCH INVESTORS SERVICE, INC. BOND RATINGS

Fitch ratings do not reflect any credit enhancement that may be provided
by insurance policies or financial guaranties unless otherwise indicated.

Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.

A-3

<PAGE> 221

circumstances, however, are more likely to have adverse impact on
these bonds and, therefore, impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade is
higher than for bonds with higher ratings.

Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories cannot fully reflect the
differences in the degrees of credit risk.

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

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

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

DUFF & PHELPS, INC. LONG-TERM DEBT RATINGS

A-4

<PAGE> 222

and the nature of covenant protection. Review of indenture restrictions is
important to the analysis of a company's operating and financial constraints.

<TABLE>
<CAPTION>
RATING SCALE DEFINITION

<S> <C>

AAA Highest credit quality. The risk factors are negligible, being only slightly more
than for risk-free U.S. Treasury debt.

AA+ High credit quality. Protection factors are strong. Risk is modest, but may
AA vary slightly from time to time because of economic conditions.
AA-

A+ Protection factors are average but adequate. However, risk factors are more
A variable and greater in periods of economic stress.
A-

BBB+ Below-average protection factors but still considered sufficient for prudent
BBB investment. Considerable variability in risk during economic cycles.
BBB-

CCC Well below investment grade securities. Considerable uncertainty exists as to
timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.

DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP Preferred stock with dividend arrearages.
</TABLE>

A-5

<PAGE> 223

SHORT-TERM RATINGS

STANDARD & POOR'S COMMERCIAL PAPER RATINGS

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

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

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

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

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

STANDARD & POOR'S NOTE RATINGS

The following criteria will be used in making the assessment:

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

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

Note rating symbols and definitions are as follows:

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

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

SP-3 Speculative capacity to pay principal and interest.

A-6

<PAGE> 224

MOODY'S SHORT-TERM RATINGS

Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:

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

MOODY'S NOTE RATINGS

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

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

A-7

<PAGE> 225

FITCH INVESTORS SERVICE, INC. SHORT-TERM RATINGS

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

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

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

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

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

DUFF & PHELPS, INC. SHORT-TERM DEBT RATINGS

<TABLE>
<CAPTION>
Rating Scale: Definition

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

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

</TABLE>

A-8

<PAGE> 226

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

Good Grade

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

Satisfactory Grade

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

Non-Investment Grade

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

Default

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

</TABLE>

THOMSON BANKWATCH (TBW) SHORT-TERM RATINGS

TBW-1 The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.

TBW-2 The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1".

TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.

A-9

<PAGE> 227

IBCA SHORT-TERM RATINGS

A1+ Obligations supported by the highest capacity for timely
repayment and possess a particularly strong credit feature.

A1 Obligations supported by the highest capacity for timely repayment.

A2 Obligations supported by a good capacity for timely repayment.

A3 Obligations supported by a satisfactory capacity for timely repayment.

B Obligations for which there is an uncertainty as to the capacity to
ensure timely repayment.

C Obligations for which there is a high risk of default or which are
currently in default.

A-10
<PAGE> 228
SCHEDULE OF INVESTMENTS IN SECURITIES February 29, 1996 (Unaudited)
Strong International Stock Fund II

<TABLE>
<CAPTION> SHARES OR
PRINCIPAL VALUE (NOTE 2)
AMOUNT (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 84.4%
AUSTRALIA 5.8%
Aberfoyle, Ltd. 25,000 $ 69
Boral, Ltd. 61,000 165
Email, Ltd. 40,000 106
John Fairfax Holdings, Ltd. 59,000 129
Newcrest Mining, Ltd. 35,000 168
Novus Petroleum, Ltd. (b) 180,000 219
Resolute Samantha, Ltd. 24,000 63
Sydney Aquarium, Ltd. 39,825 84
Western Mining Corporation, Ltd. 15,000 96
------
1,099
AUSTRIA 0.2%
Wolford AG 200 36
BRAZIL 2.0%
Telecommunicacoes Brasileiras S.A.-Telebras Sponsored ADR 3,600 189
Usinas Siderurgicas de Minas Gerais Sponsored ADR 16,900 192
------
381
CHINA 3.9%
The China Fund, Inc. 11,700 154
Ek Chor China Motorcycle Company, Ltd. 13,600 187
Shandong Huaneng Power Company, Ltd. ADR 20,000 193
Yizheng Chemical Fibre Company, Ltd. 758,000 211
------
745
FINLAND 1.0%
Pohjola Insurance Company 'B' 12,000 188
FRANCE 6.1%
Compagnie Fives-Lille 2,220 219
Compagnie Generale des Eaux 1,825 182
Grand Optical Photoservice 1,800 177
Remy Cointreau 6,000 171
Sabeton SA 950 167
Zodiac SA 1,307 248
------
1,164
GERMANY 2.1%
Daimler-Benz AG 160 88
Kiekert AG (b) 3,000 153
Wella AG 315 156
------
397
HONG KONG 2.5%
CDL Hotels International, Ltd. 378,000 203
Hong Kong Telecommunications, Ltd. Sponsored ADR 2,500 48
Peregrine Investment Holdings, Ltd. 130,000 222
------
473
INDIA 0.4%
IS Himalayan Fund NV (b) 5,000 70

</TABLE>

Page 1
<PAGE> 229
<TABLE>
<CAPTION>
<S> <C> <C>
INDONESIA 5.7%
Astra International PT (Fgn Reg) 17,000 28
Bank Tiara Asia PT (Fgn Reg) 161,000 196
Citra Marga Nusaphala Persada PT (Fgn Reg) 38,000 52
Dharmala Intiland PT (Fgn Reg) 210,000 127
Jaya Real Property PT 43,000 149
Kawasan Industries Jababeka PT (Fgn Reg) 96,000 152
Semen Cibinong PT (Fgn Reg) 65,000 203
Tambang Timah PT GDR
(Acquired 1/05/96 - 1/26/96; Cost $118) (b) (c) 9,100 131
Tambang Timah PT GDR (b) 3,200 46
------
1,084
ITALY 4.5%
Arnoldo Mondadori Editore Spa 7,300 64
De Rigo Spa ADR (b) 7,500 208
Gucci Group NV (b) 450 19
Pininfarina Spa 24,300 242
Simint Spa (b) 174,000 316
------
849
JAPAN 15.8%
Benesse Corporation (b) 1,200 169
Canon Sales Company, Inc. 7,000 172
Chubu Steel Plate Company, Ltd. (b) 32,000 186
Diamond City Company 21,000 180
Ishikawajima Harima Heavy Industries Company, Ltd. 48,000 207
Marubeni Corporation 37,000 200
Mitsubishi Motors Corporation 27,000 223
Nichiha 9,000 184
Nippon Shinpan Company 26,000 178
Nomura Securities Company, Ltd. 17,000 349
Ohmoto Gumi Company, Ltd. 7,000 173
Shiseido Company, Ltd. 16,000 181
TOC Company, Ltd. 19,000 193
Takeda Printing Company, Ltd. (b) 11,000 161
Trinity Industrial 13,000 79
Xebio Company, Ltd. 4,500 152
------
2,987
LEBANON 0.3%
Banque Audi S.A.L. GDR (b) 4,600 65
MALAYSIA 2.7%
Arab-Malaysian Corporation BHD 28,000 98
IJM Corporation BHD 'A' 106,000 173
Kentucky Fried Chicken BHD 9,000 47
Road Builder Holdings BHD 52,000 193
------
511
MEXICO 0.9%
Mexico Fund 12,200 171
NETHERLANDS 3.1%
Ceteco Holding NV 5,900 241
Koninklijke Boskalis Westminster NV 12,600 201
Philips Electronics NV ADR 3,600 149
------
</TABLE>

Page 2
<PAGE> 230

<TABLE>
<CAPTION>
<S> <C> <C>
591
NEW ZEALAND 3.9%
Air New Zealand, Ltd. Class B 27,600 87
Evergreen Forests, Ltd. (b) 355,000 160
Guinness Peat Group PLC (b) 383,000 227
Shortland Properties, Ltd. 415,500 257
------
731
NORWAY 1.0%
Helikopter Service A/S 8,000 89
Tomra Systems A/S 13,000 104
------
193
PHILIPPINES 1.7%
Benpres Holdings Corporation Sponsored GDR (b) 22,000 160
Philippine National Bank (b) 11,000 156
------
316
RUSSIA 1.3%
The Central European Growth Fund PLC 292,000 253
SINGAPORE 2.4%
Hong Leong Finance, Ltd. 19,000 83
Keppel Corporation, Ltd. 16,000 162
Singapore Land, Ltd. 28,000 212
------
457
SOUTH AFRICA 1.0%
Morgan Stanley Africa Investment Fund, Inc. 13,300 185
SOUTH KOREA 0.9%
Korea Electric Power Corporation Sponsored ADR 7,150 173
SPAIN 0.4%
Cortefiel, S.A. 2,900 66
SWEDEN 0.4%
Marieberg Tidnings AB 3,000 80
SWITZERLAND 2.2%
Nestle AG 197 215
SGS (Societe Generale de Surveillance) Holdings S.A. 106 203
------
418
THAILAND 1.9%
Krung Thai Bank Republic Company, Ltd. 27,000 128
Loxley PCL (Fgn Reg) 1,000 18
The Ruam Pattana Two Fund (Fgn Reg) 179,000 124
Sahavirya Steel Industries PCL (b) 12,000 14
Thai Prime Fund, Ltd. 4,000 75
------
359
TURKEY 3.7%
Ardem (b) 647,000 139
Enka Holding Yatirim 427,000 142
Tukas 761,000 187
Tumteks Tekstil (b) 861,000 166
Turkish Investment Fund, Inc. 11,600 77
------
711
UNITED KINGDOM 6.5%
Allied Domecq PLC 24,800 195
British Gas PLC 17,200 62

</TABLE>

Page 3
<PAGE> 231
<TABLE>
<S> <C> <C>
Cordiant PLC (b) 130,000 217
De La Rue PLC 9,800 111
Enterprise Oil PLC 23,000 135
Hanson PLC Sponsored ADR 3,500 52
Inchcape PLC 29,000 114
Royal Doulton PLC 40,000 172
Takare PLC 68,000 176
------
1,234
UNITED STATES 0.1%
United International Holdings, Inc. (b) 1,500 25
------
TOTAL COMMON STOCKS (COST $15,553) 16,012
PREFERRED STOCKS 1.4%
BRAZIL 0.2%
Companhia Antartica Paulista - Industria Brasileira de
Bebidas e Conexos (b) 360 44
GERMANY 1.2%
Puma AG Non-voting (b) 635 233
------
TOTAL PREFERRED STOCKS (COST $221) 277
CASH EQUIVALENTS (a) 14.2%
UNITED STATES
CERTIFICATES OF DEPOSIT 9.5%
Canadian Imperial Bank Yankee Dollar, 5.4375%, Due 3/01/96 $ 900,000 900
Sumitomo Bank, Ltd. Yankee Dollar, 5.50%, Due 3/01/96 900,000 900
------
1,800
COMMERCIAL PAPER 0.0%
INTEREST BEARING, DUE UPON DEMAND
United States Cayman Eurodollar Call Deposit, 4.25% 1,000 1
TIME DEPOSITS 4.7%
UNITED STATES
Societe Generale, 5.50%, Due 3/01/96 900,000 900
------
TOTAL CASH EQUIVALENTS (COST $2,701) 2,701
------
TOTAL INVESTMENTS IN SECURITIES (COST $18,475) 100.0% 18,990
Other Assets and Liabilities, Net (0.0%) (3)
------
NET ASSETS 100.0% $18,987
=======
</TABLE>

<TABLE>
<CAPTION>
PERCENTAGE OF
INDUSTRY DIVERSIFICATION NET ASSETS
- ---------------------------------------------------------------------------------------------------
<S> <C>
Yankee Corporation 9.5%
Engineering & Construction 7.9%
Conglomerate 7.0%
Real Estate 6.7%
Closed-End Fund 5.8%
Automobile 4.7%
Bank - Regional 4.7%
Media - Publishing 4.0%
Shoe & Apparel Manufacturing 3.9%
Bank - Money Center 3.8%
Brokerage & Investment Management 3.0%
Metals & Mining 3.0%
Leisure Service 2.4%
Retail - Specialty 2.2%

</TABLE>

Page 4
<PAGE> 232
<TABLE>
<S> <C>
Food 2.1%
Steel 2.1%
Consumer - Miscellaneous 2.0%
Finance - Miscellaneous 2.0%
Retail - Major Chain 2.0%
Electric Power 1.9%
Oil - International Integrated 1.9%
Cosmetic & Personal Care 1.8%
Leisure Product 1.3%
Retail - Food Chain 1.3%
Telecommunication Service 1.3%
Beverage - Alcoholic 1.1%
Chemical - Specialty 1.1%
Housing Related 1.0%
Insurance - Multi-Line 1.0%
Metal Products & Fabrication 1.0%
Electronic Products - Miscellaneous 0.9%
Healthcare - Patient Care 0.9%
Auto & Truck Parts 0.8%
Household Appliance & Furnishings 0.8%
Paper & Forest Products 0.8%
Machinery - Miscellaneous 0.6%
Transportation Service 0.5%
Airline 0.5%
Diversified Operations 0.3%
Natural Gas Distribution 0.3%
Media - Radio/TV 0.1%
-------
100.0%
=======
</TABLE>

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
- ------------------------------------------- Unrealized
Appreciation
Settlement Date Value in USD (Depreciation)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sold:
350,000 DEM 4/25/96 $ 238 $ (2)
210,900,000 JPY 4/25/96 (2,004) (4)

</TABLE>

LEGEND
- ------
a) Cash equivalents 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
- ----------------------
DEM German Marks
JPY Japanese Yen

See notes to financial statements.

Page 5
<PAGE> 233
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------
For the Two Months Ended February 29, 1996 (Unaudited)

<TABLE>
<S> <C>
INCOME:
Dividends $ 5,147
Interest 32,379
--------
Total Income 37,526

EXPENSES:
Investment Advisory Fees 18,416
Custodian Fees 13,076
Other 6,270
--------
Total Expenses 37,762
--------
NET INVESTMENT LOSS (236)

REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 1,580
Foreign Currencies (19)
Change in Unrealized Appreciation/Depreciation on:
Investments 482,306
Forward Currency Contracts (5,991)
Assets and Liabilities Denominated in Foreign Currencies (6)
--------
NET GAIN 477,870
--------

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $477,634
========

</TABLE>

See notes to financial statements.

<PAGE> 234
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
February 29, 1996 (Unaudited)

<TABLE>
<S> <C>
ASSETS:
Investments in Securities, at Value
(Cost of $18,474,560) $18,990,067
Dividends and Interest Receivable 4,133
Other 15,031
-----------
Total Assets 19,009,231

LIABILITIES:
Payable to Brokers for Securities and
Forward Foreign Currency Contracts Sold 5,991
Accrued Operating Expenses and Other Liabilities 16,586
-----------
Total Liabilities 22,577
-----------
NET ASSETS $18,986,654
===========
Capital Shares
Authorized 300,000,000
Outstanding 1,766,583

NET ASSET VALUE PER SHARE $ 10.75
===========
</TABLE>

See notes to financial statements.
<PAGE> 235
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TWO MONTHS PERIOD ENDED
ENDED FEB. 29, DEC. 31,1995
1996 (UNAUDITED) (NOTE 1)
---------------- --------------
<S> <C> <C>
OPERATIONS:
Net Investment Income (Loss) ($236) $2,214
Net Realized Gain 1,561 2,133
Change in Unrealized Appreciation/Depreciation 476,309 33,201
----------- ----------
Increase in Net Assets Resulting from Operations 477,634 37,548

CAPITAL SHARE TRANSACTIONS 16,704,007 1,774,607

DISTRIBUTIONS:
From Net Investment Income --- (2,214)
In Excess of Net Investment Income --- (4,928)
----------- ----------
TOTAL INCREASE IN NET ASSETS 17,181,641 1,805,013

NET ASSETS:
Beginning of Period 1,805,013 ---
----------- ----------
End of Period $18,986,654 $1,805,013
=========== ==========

</TABLE>

See notes to financial statements.
<PAGE> 236
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
February 29, 1996 (Unaudited)

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. Aggregate cost and fair value of these
restricted securities held at February 29, 1996 were $117,513 and
$131,040, respectively, representing 0.7% of the net assets of the
fund.

(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) 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 February 29, 1996 were as follows:

<TABLE>
<S> <C>
Capital Stock $18,478,614
Undistributed Net Investment Loss (5,164)
Undistributed Net Realized Gain 3,694
Net Unrealized Appreciation 509,510
-----------
$18,986,654
===========

</TABLE>

<PAGE> 237

4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the two months ended February 29,
1996 and the period ended December 31, 1995 were as follows:

<TABLE>
<CAPTION>
1996 1995
Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
Shares Sold 1,760,536 $18,524,986 242,355 $2,436,766
Dividends Reinvested --- --- 700 7,142
Shares Redeemed (170,516) (1,820,979) (66,492) (669,301)
---------- ---------- ------- ---------
1,590,020 $16,704,007 176,563 $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 FundGs operating expenses
exceed certain levels.

The amount payable to the Advisor at February 29, 1996 and Unaffiliated
Director's Fees for the two months ended February 29, 1996 were $12,881 and
$375, respectively.

6. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities for the two
months ended February 29, 1996 were $14,473,564 and $183,561, respectively.
<PAGE> 238
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The following presents information relating to a share of capital stock
outstanding for the entire period.

<TABLE>
<CAPTION>
1996 (b) 1995 (a)
-------- --------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 10.22 $ 10.00
Income from Investment Operations
Net Investment Income 0.02 0.01
Net Realized and Unrealized Gains on Investments 0.51 0.25
-------- -------
Total from Investment Operations 0.53 0.26
Less Distributions
From Net Investment Income 0.00 (0.01)
In Excess of Net Investment Income 0.00 (0.03)
-------- -------
Total Distributions 0.00 (0.04)
-------- -------
Net Asset Value, End of Period $ 10.75 $ 10.22
======== =======
Total Return +7.9% +2.6%
Net Assets, End of Period (In Thousands) $18,987 $ 1,805
Ratio of Expenses to Average Net Assets 2.0%* 2.0%*
Ratio of Net Investment Income to Average Net Assets 0.0%* 1.0%*
Portfolio Turnover Rate 1.8% 26.9%

</TABLE>
* Calculated on an annualized basis.
(a) Inception date is October 20,1995. Total return and portfolio turnover
rate are not annualized.
(b) For the two months ended February 29, 1996 (Unaudited). Total return
and portfolio turnover rate are not annualized.

<PAGE> 239

STRONG ADVANTAGE FUND II

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

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

Dated May 1, 1996

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

PROSPECTUS PAGE 1
<PAGE> 240

TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
THE FUND........................................ 2
FINANCIAL HIGHLIGHTS............................ 3
INVESTMENT OBJECTIVE AND POLICIES............... 4
FUNDAMENTALS OF FIXED INCOME INVESTING.......... 5
IMPLEMENTATION OF POLICIES AND RISKS............ 8
SPECIAL CONSIDERATIONS.......................... 16
MANAGEMENT...................................... 18
ADDITIONAL INFORMATION.......................... 19
APPENDIX A...................................... A-1
APPENDIX B...................................... B-1
</TABLE>

THE FUND

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

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FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
1995**
------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.05
Net Realized and Unrealized Gains
on Investments 0.03
------
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.

**Inception date is November 30, 1995. Total return and portfolio turnover rate
are not annualized.

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<PAGE> 242

INVESTMENT OBJECTIVE AND POLICIES

The Fund has adopted certain fundamental investment restrictions that are set
forth in the Fund's Statement of Additional Information ("SAI"). Those
restrictions, the Fund's investment objective and any other investment policies
identified as "fundamental" cannot be changed without shareholder approval. To
further guide investment activities, the Fund has also instituted a number of
non-fundamental operating policies, which are described throughout this
Prospectus and in the SAI. Although these additional policies may be changed by
the Corporation's Board of Directors without shareholder approval, the Fund will
promptly notify shareholders of any material change in operating policies.
The Fund seeks current income with a very low degree of share-price
fluctuation. The Fund invests primarily in ultra short-term investment-grade
debt obligations.
The Fund is designed for investors who seek higher yields than money market
funds generally offer and who are willing to accept some modest principal
fluctuation in order to achieve that objective. Because its share price will
vary, the Fund is not an appropriate investment for those whose primary
objective is absolute principal stability. The Fund's investments include a
combination of high-quality money market instruments, as well as securities with
longer maturities and debt obligations of lower quality. Under normal market
conditions, it is anticipated that the Fund will maintain an average effective
portfolio maturity of one year or less. When the Advisor determines market
conditions warrant a temporary defensive position, the Fund may invest without
limitation in cash and short-term fixed income securities.

Under normal market conditions, at least 75% of the Fund's net assets will be
invested in investment-grade debt obligations, which generally include a range
of obligations from those in the highest rating category to those rated
medium-quality (e.g., BBB or higher by Standard & Poor's Ratings Group or
"S&P"). The Fund may also invest up to 25% of its net assets in non-investment-
grade debt obligations that are rated in the fifth-highest rating category
(e.g., BB by S&P) or unrated securities of comparable quality. In general, non-
investment-grade securities are regarded as predominantly speculative with
respect to the capacity of the issuer to pay interest and repay principal.
However, because these securities compose the tier immediately below investment
grade, they are considered the least speculative non-investment-grade
securities. (See "Fundamentals of Fixed Income Investing - Credit Quality.")

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FUNDAMENTALS OF
FIXED INCOME INVESTING

The Fund may invest in a wide variety of debt obligations and other
securities. See "Implementation of Policies and Risks - Debt Obligations."
Issuers of debt obligations have a contractual obligation to pay interest at
a specified rate ("coupon rate") on specified dates and to repay principal
("face value" or "par value") on a specified maturity date. Certain debt
obligations (usually intermediate- and long-term obligations) have provisions
that allow the issuer to redeem or "call" the obligation before its maturity.
Issuers are most likely to call such debt obligations during periods of falling
interest rates. As a result, the Fund may be required to invest the
unanticipated proceeds of the called obligations at lower interest rates, which
may cause the Fund's income to decline.
Although the net asset value of the Fund is expected to fluctuate, the
Advisor actively manages the Fund's portfolio and adjusts its average portfolio
maturity according to the Advisor's interest rate outlook while seeking to avoid
or reduce, to the extent possible, any negative changes in net asset value.

PRICE VOLATILITY

The market value of debt obligations is affected by changes in prevailing
interest rates. The market value of a debt obligation generally reacts inversely
to interest-rate changes, meaning, when prevailing interest rates decline, an
obligation's price usually rises, and when prevailing interest rates rise, an
obligation's price usually declines. A fund portfolio consisting primarily of
debt obligations will react similarly to changes in interest rates.

MATURITY

In general, the longer the maturity of a debt obligation, the higher its
yield and the greater its sensitivity to changes in interest rates. Conversely,
the shorter the maturity, the lower the yield but the greater the price
stability. Commercial paper is generally considered the shortest form of debt
obligation. Notes, whose original maturities are two years or less, are
considered short-term obligations. The term "bond" generally refers to
securities with maturities longer than two years. Bonds with maturities of three
years or less are considered short-term, bonds with maturities between three and
seven years are considered intermediate-term, and bonds with maturities greater
than seven years are considered long-term.
The Fund's average portfolio maturity represents an average based on the
actual stated maturity dates of the debt securities in the Fund's portfolio,
except that (i) variable-rate securities are deemed to mature at the next
interest-rate adjustment date, (ii) debt securities with put features are deemed

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

CREDIT QUALITY

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

In conducting its credit research and analysis, the Advisor considers both
qualitative and quantitative factors to evaluate the creditworthiness of
individual issuers. The Advisor also relies, in part, on credit ratings compiled
by a number of Nationally Recognized Statistical Rating Organizations or
"NRSROs." "Appendix A - Ratings of Debt Obligations" presents a summary of
ratings of three well-known such organizations: S&P, Moody's Investors Service,
Inc., and Fitch Investors Service, Inc. Please refer to the Appendix in the
Fund's SAI for a detailed description of these ratings.

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

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- - short-term notes rated in one of the two highest rating categories (e.g., SP-2
or higher by S&P);

- - short-term bank obligations rated in one of the three highest rating
categories (e.g., A-3 or higher by S&P), with respect to obligations maturing
in one year or less;

- - commercial paper rated in one of the three highest rating categories (e.g.,
A-3 or higher by S&P);
- - unrated debt obligations determined by the Advisor to be of comparable
quality; and
- - repurchase agreements involving investment-grade debt obligations.

HIGH-YIELD (HIGH-RISK) SECURITIES. High-yield (high-risk) securities, also
referred to as "junk bonds," are those securities that are rated lower than
investment grade and unrated securities of comparable quality. Although these
securities generally offer higher yields than investment-grade securities with
similar maturities, lower-quality securities involve greater risks, including
the possibility of default or bankruptcy. In general, they are regarded to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. Other potential risks associated with investing in high-
yield securities include:

- - substantial market-price volatility resulting from changes in interest rates,
changes in or uncertainty about economic conditions, and changes in the actual
or perceived ability of the issuer to meet its obligations;
- - greater sensitivity of highly leveraged issuers to adverse economic changes
and individual-issuer developments;
- - subordination to the prior claims of other creditors;
- - additional Congressional attempts to restrict the use or limit the tax and
other advantages of these securities; and
- - adverse publicity and changing investor perceptions about these securities.

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risk securities will be more dependent on the Advisor's credit analysis than
generally would be the case with investments in investment-grade securities.

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

IMPLEMENTATION OF POLICIES AND RISKS

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

DEBT OBLIGATIONS

The Fund may invest in any debt obligations. The Fund's authority to invest
in certain types of debt obligations may be restricted or subject to objective
investment criteria. For additional information on these restrictions, see
"Investment Objective and Policies."

TYPES OF OBLIGATIONS. Debt obligations include (i) corporate debt securities,
including bonds, debentures, and notes; (ii) bank obligations, such as
certificates of deposit, banker's acceptances, and time deposits of domestic and
foreign banks and their subsidiaries and branches, and domestic savings and loan
associations (in amounts in excess of the insurance coverage (currently $100,000
per account) provided by the Federal Deposit Insurance Corporation); (iii)
commercial paper (including variable-amount master demand notes); (iv)
repurchase agreements; (v) loan interests; (vi) foreign debt obligations issued
by foreign issuers traded either in foreign markets or in domestic markets
through depositary receipts; (vii) convertible securities - debt obligations of
corporations convertible into or exchangeable for equity securities or debt
obligations that carry with them the right to acquire equity securities, as
evidenced by warrants attached to such securities, or acquired as part of units
of the securities; (viii) preferred stocks - securities that represent an owner-

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<PAGE> 247

ship interest in a corporation and that give the owner a prior claim over
common stock on the company's earnings or assets; (ix) U.S. government
securities; (x) mortgage-backed securities, collateralized mortgage obligations,
and similar securities; and (xi) municipal obligations.

GOVERNMENT SECURITIES

U.S. government securities are issued or guaranteed by the U.S. government or
its agencies or instrumentalities. Securities issued by the government include
U.S. Treasury obligations, such as Treasury bills, notes, and bonds. Securities
issued or guaranteed by government agencies or instrumentalities include the
following:

MORTGAGE- AND ASSET-BACKED SECURITIES

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PROSPECTUS PAGE 9
<PAGE> 248

securities that are guaranteed, directly or indirectly, by the U.S. government
or one of its agencies or instrumentalities, or they may be issued without any
governmental guarantee of the underlying mortgage assets but with some form of
non-governmental credit enhancement.
Asset-backed securities have structural characteristics similar to mortgage-
backed securities. However, the underlying assets are not first-lien mortgage
loans or interests therein; rather they include assets such as motor vehicle
installment sales contracts, other installment loan contracts, home equity
loans, leases of various types of property and receivables from credit card or
other revolving credit arrangements. Payments or distributions of principal and
interest on asset-backed securities may be supported by non-governmental credit
enhancements similar to those utilized in connection with mortgage-backed
securities.
The yield characteristics of mortgage- and asset-backed securities differ
from those of traditional debt obligations. Among the principal differences are
that interest and principal payments are made more frequently on mortgage-and
asset-backed securities, usually monthly, and that principal may be prepaid at
any time because the underlying mortgage loans or other assets generally may be
prepaid at any time. As a result, if the Fund purchases these securities at a
premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing the yield to maturity. Conversely, if the Fund
purchases these securities at a discount, a prepayment rate that is faster than
expected will increase yield to maturity, while a prepayment rate that is slower
than expected will reduce yield to maturity. Accelerated prepayments on
securities purchased by the Fund at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is prepaid in full. The market for privately issued mortgage- and
asset-backed securities is smaller and less liquid than the market for
government sponsored mortgage-backed securities.

The Fund may invest in stripped mortgage- or asset-backed securities, which
receive differing proportions of the interest and principal payments from the
underlying assets. The market value of such securities generally is more
sensitive to changes in prepayment and interest rates than is the case with
traditional mortgage- and asset-backed securities, and in some cases the market
value may be extremely volatile. With respect to certain stripped securities,
such as interest-only ("IO") and principal-only ("PO") classes, a rate of
prepayment that is faster or slower than anticipated may result in the Fund
failing to recover all or a portion of its investment, even though the
securities are rated investment grade.

LOAN INTERESTS

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a maturity of any number of days or years, and may be secured or unsecured.
Loan interests, which may take the form of participation interests in,
assignments of, or novations of a loan, may be acquired from U.S. and foreign
banks, insurance companies, finance companies or other financial institutions
that have made loans or are members of a lending syndicate or from the holders
of loan interests. Loan interests involve the risk of loss in case of default or
bankruptcy of the borrower and, in the case of participation interests, involve
a risk of insolvency of the agent lending bank or other financial intermediary.
Loan interests are not rated by any NRSROs and are, at present, not readily
marketable and may be subject to contractual restrictions on resale.

FOREIGN SECURITIES AND CURRENCIES

The Fund may invest up to 25% of its total assets directly or indirectly in
foreign securities. The Fund may invest in U.S. securities enhanced as to credit
quality or liquidity by foreign issuers without regard to this limit.

Foreign investments involve special risks, including:

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PROSPECTUS PAGE 11
<PAGE> 250

ments, governmental intervention, speculation, and other political and
economic conditions.
The Fund may purchase and sell foreign currency on a spot basis and may
engage in forward currency contracts, currency options, and futures transactions
for hedging or any other lawful purpose. (See "Derivative Instruments.")

REPURCHASE AGREEMENTS

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

DERIVATIVE INSTRUMENTS

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PROSPECTUS PAGE 13
<PAGE> 252

pates trends in the underlying asset, the Fund may be in a worse position than
if no hedging had occurred. In addition, there may be imperfect correlation
between the Fund's derivative transactions and the instruments being hedged. To
the extent that the Fund is engaging in derivative transactions for risk
management, 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.

WHEN-ISSUED SECURITIES

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

ILLIQUID SECURITIES

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PROSPECTUS PAGE 14
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tors under Rule 144A under the Securities Act of 1933 and Section 4(2)
commercial paper may be determined to be liquid under guidelines adopted by the
Corporation's Board of Directors.

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

MORTGAGE DOLLAR ROLLS AND
REVERSE REPURCHASE AGREEMENTS

The Fund may also enter into mortgage dollar rolls, in which the Fund would
sell mortgage-backed securities for delivery in the current month and
simultaneously contract to purchase substantially similar securities on a
specified future date. While the Fund would forego principal and interest paid
on the mortgage-backed securities during the roll period, the Fund would be
compensated by the difference between the current sale price and the lower price
for the future purchase as well as by any interest earned on the proceeds of the
initial sale. The Fund also could be compensated through the receipt of fee
income equivalent to a lower forward price. When required by SEC guidelines, the
Fund would set aside permissible liquid assets in a segregated account to secure
its obligation for the forward commitment to buy mortgage-backed securities.
Mortgage dollar roll transactions may be considered a borrowing by the Fund.

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The mortgage dollar rolls and reverse repurchase agreements entered into by
the Fund may be used as arbitrage transactions in which the Fund will maintain
an offsetting position in investment-grade debt obligations or repurchase
agreements that mature on or before the settlement date of the related mortgage
dollar roll or reverse repurchase agreement. Since the Fund will receive
interest on the securities or repurchase agreements in which it invests the
transaction proceeds, such transactions may involve leverage. However, since
such securities or repurchase agreements will be high quality and will mature on
or before the settlement date of the mortgage dollar roll or reverse repurchase
agreement, the Advisor believes that such arbitrage transactions do not present
the risks to the Fund that are associated with other types of leverage.

PORTFOLIO TURNOVER

The Fund's historical portfolio turnover rate is listed under "Financial
Highlights." The annual portfolio turnover rate indicates changes in the Fund's
portfolio. The turnover rate may vary from year to year, as well as within a
year. It may also be affected by sales of portfolio securities necessary to meet
cash requirements for redemption of shares. High portfolio turnover in any year
will result in the payment by the Fund of above-average amounts of transaction
costs. The annual portfolio turnover rate for the Fund is expected to be between
200% and 300%. However, the Fund's portfolio turnover rate may exceed 300% when
the Advisor believes the anticipated benefits of short-term investments outweigh
any increase in transaction costs or increase in capital gains. This rate should
not be considered as a limiting factor.

SPECIAL CONSIDERATIONS

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PROSPECTUS PAGE 16
<PAGE> 255

Since the shares of the Fund are currently sold to segregated asset accounts
underlying such variable annuity and variable life insurance contracts, the Fund
intends to comply with the diversification requirements as set forth in the
regulations. The Secretary of the Treasury may in the future issue additional
regulations or revenue rulings that may prescribe the circumstances in which a
contract owner's control of the investments of a separate account may cause the
contract owner, rather than the insurance company, to be treated as the owner of
assets of the separate account. Failure to comply with Section 817(h) of the
Code or any regulation thereunder, or with any future regulations or revenue
rulings on contract owner control, would cause earnings regarding a contract
owner's interest in an insurance company's separate account to be includible in
the contract owner's gross income in the year earned. Such standards may apply
only prospectively, although retroactive application is possible. In the event
that any such regulations or revenue rulings are adopted, the Fund may not be
able to continue to operate as currently described in this prospectus, or
maintain its investment program.
The Fund will be managed in such a manner as to comply with the requirements
of Subchapter L of the Code. It is possible that in order to comply with such
requirements, less desirable investment decisions may be made which would affect
the investment performance of the Fund.

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

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<PAGE> 256

MANAGEMENT

The Advisor began conducting business in 1974. Since then, its principal
business has been providing continuous investment supervision for individuals
and institutional accounts, such as pension funds and profit-sharing plans as
well as mutual funds, several of which are funding vehicles for variable
insurance products. As of April 15, 1996, the Advisor had over $19 billion under
management. The Advisor's principal mailing address is P.O. Box 2936, Milwaukee,
Wisconsin 53201. Mr. Richard S. Strong, the Chairman of the Board of the
Corporation, is the controlling shareholder of the Advisor.

As compensation for its services, the Fund pays the Advisor a monthly
management fee. The annual fee is .60% of the average daily net asset value of
the Fund. Under the terms of the Advisory Agreement, the Advisor provides office
space and all necessary office facilities, equipment, and personnel for
servicing the investments of the Fund. From time to time, the Advisor may
voluntarily waive all or a portion of its management fee and/or absorb certain
expenses for the Fund without further notification of the commencement or
termination of any such waiver or absorption. Any such waiver or absorption will
have the effect of lowering the overall expense ratio of the Fund and increasing
the Fund's return to investors at the time such amounts were waived and/or
absorbed.

Except for expenses assumed by the Advisor or Strong Funds Distributors,
Inc., the Fund is responsible for all its other expenses, including, without
limitation, interest charges, taxes, brokerage commissions and similar expenses;
expenses of issue, sale, repurchase, or redemption of shares; expenses of
registering or qualifying shares for sale with the states and the SEC; expenses
of printing and distribution of prospectuses to existing shareholders; charges
of custodians (including fees as custodian for keeping books and similar
services for the Fund), transfer agents (including the printing and mailing of
reports and notices to shareholders), registrars, auditing and legal services,
and clerical services related to recordkeeping and shareholder relations;
printing of stock certificates; fees for directors who are not "interested
persons" of the Advisor; expenses of indemnification; extraordinary expenses;
and costs of shareholder and director meetings.

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

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PROSPECTUS PAGE 18
<PAGE> 257

Minnesota-Morris. Mr. Koch is also a Chartered Financial Analyst. Mr. Koch has
managed the Fund since its inception in June 1995.

ADDITIONAL INFORMATION

CALCULATION OF NET ASSET VALUE. The net asset value ("NAV") per share for the
Fund is determined as of the close of trading on the New York Stock Exchange
(the "Exchange"), currently 3:00 p.m. Central Time, on days the Exchange is open
for business. The NAV will not be determined for the Fund on days during which
the Fund receives no orders to purchase shares and no shares are tendered for
redemption. The Fund's NAV is calculated by taking the fair value of the Fund's
total assets, subtracting all its liabilities, and dividing by the total number
of shares outstanding. Expenses are accrued and applied daily when determining
the NAV.

Debt securities are valued by a pricing service that utilizes electronic data
processing techniques to determine values for normal institutional size trading
units of debt securities without regard to the existence of sale or bid prices
when such values are believed to more accurately reflect the fair market value
of such securities. Otherwise, sale or bid prices are used. Any securities or
other assets for which market quotations are not readily available are valued at
fair value as determined in good faith by the Board of Directors. Debt
securities having remaining maturities of 60 days or less are valued by the
amortized cost method when the Board of Directors determines that the fair value
of such securities is their amortized cost.

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the withdrawal or surrender instructions in the prospectus of the separate
account for instructions on how to redeem shares. Once the redemption request is
received in proper form, the Fund will ordinarily forward payment to the
separate account no later than seven days after receipt.
The right of redemption may be suspended during any period in which: (i)
trading on the Exchange is restricted, as determined by the SEC, or the Exchange
is closed for other than weekends and holidays; (ii) the SEC has permitted such
suspension by order; or (iii) an emergency, as determined by the SEC, exists
which makes disposal of portfolio securities or valuation of net assets of the
Fund not reasonably practicable.

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PERFORMANCE INFORMATION. The Fund may advertise a variety of types of
performance information, including "yield," "average annual total return,"
"total return," and "cumulative total return." Each of these figures is based
upon historical results and does not represent the future performance of the
Fund.

Yield is an annualized figure, which means that it is assumed that the Fund
generates the same level of net investment income over a one-year period. The
Fund's yield is a measure of the net investment income per share earned by the
Fund over a specific 30-day period and is shown as a percentage of the net asset
value of the Fund's shares at the end of the period.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in the Fund assuming
the reinvestment of all dividends and distributions. Total return figures are
not annualized and simply represent the aggregate change of the Fund's
investments over a specified period of time.
The Fund's shares are sold at the net asset value per share of the Fund.
Returns and net asset value will fluctuate. Shares of the Fund are redeemable by
the separate accounts of insurance companies at the then current net asset value
per share for the Fund, which may be more or less than the original cost. TOTAL
RETURNS CONTAINED IN ADVERTISEMENTS INCLUDE THE EFFECT OF DEDUCTING THE FUND'S
EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY
PARTICULAR INSURANCE PRODUCT. SINCE SHARES MAY ONLY BE PURCHASED BY THE SEPARATE
ACCOUNTS OF CERTAIN INSURANCE COMPANIES, CONTRACT OWNERS SHOULD CAREFULLY REVIEW
THE PROSPECTUS OF THE SEPARATE ACCOUNT FOR INFORMATION ON FEES AND EXPENSES.
Excluding such fees and expenses from the Fund's total return quotations has the
effect of increasing the performance quoted. The Fund will not use information
concerning its investment performance in advertisements or sales materials
unless appropriate information concerning the relevant separate account is also
included. Additional information concerning the Fund's performance appears in
the SAI.

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

PROSPECTUS PAGE 21
<PAGE> 260

APPENDIX A

RATINGS OF DEBT OBLIGATIONS:

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

PROSPECTUS PAGE A-1
<PAGE> 261

APPENDIX B

WEIGHTED AVERAGE RATINGS OF DEBT OBLIGATIONS1

<TABLE>
<CAPTION>
Average Percentage of Assets Held
During 19952
- --------------------------------------------- Percentage of Assets Held on
December 31, 1995
---------------------------------------------
Advantage Fund II Advantage Fund II
-------------------- --------------------
Equivalent Equivalent
S&P Moody's Rated Unrated3 S&P Moody's Rated Unrated3
<S> <C> <C> <C> <C> <C> <C> <C>
AAA Aaa4 68.1 % -- AAA Aaa4 68.1 % --
AA Aa 4.9 -- AA Aa 4.9 --
A A 8.0 -- A A 8.0 --
BBB Baa 13.1 -- BBB Baa 13.1 --
BB Ba 21.7 -- BB Ba 21.7 --
B B -- -- B B -- --
CCC Caa -- -- CCC Caa -- --
CC Ca -- -- CC Ca -- --
C C -- -- C C -- --
D D -- -- D D -- --
Totals 115.8% 0% Totals 115.8% 0%
</TABLE>

(1) A security rated differently by the rating services is included in the
category representing the higher of the ratings assigned to the security.
Investment-grade debt obligations are those rated in one of the four highest
categories by an NRSRO. See "Fundamentals of Fixed Income Investing" in this
Prospectus for a discussion of the risks associated with
non-investment-grade debt obligations and Appendix. For purposes of this
table, the Fund's short-term debt obligations have been assigned a long-term
rating by the Advisor.

(2) Based on a weighted average of the securities held at the end of each month.

(3) This category represents the comparable quality of unrated securities, as
determined by the Advisor.

(4) Includes all U.S. governmental obligations.

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

PROSPECTUS PAGE B-1
<PAGE> 262

STATEMENT OF ADDITIONAL INFORMATION

STRONG ADVANTAGE FUND II
P.O. Box 2936
Milwaukee, Wisconsin 53201

Telephone: (414) 359-1400

Toll-Free: (800) 368-3863

Strong Advantage Fund II (the "Fund") is a diversified series of the
Strong Variable Insurance Funds, Inc. (the "Corporation"), an open-end
management investment company designed to provide an investment vehicle for
variable annuity and variable life insurance contracts of certain insurance
companies. Shares in the Fund are only offered and sold to the separate
accounts of such insurance companies. The Fund is described herein and in the
Prospectus for the Fund dated May 1, 1996

This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus for the Fund dated May 1,
1996 and the prospectus for the separate account of the specific insurance
product. Requests for copies of the Fund's Prospectus may be made by calling
one of the numbers listed above. The financial statements appearing in the
Fund's Annual Report, which accompanies this Statement of Additional
Information, are incorporated herein by reference.

This Statement of Additional Information is dated May 1, 1996.

<PAGE> 263
STRONG ADVANTAGE FUND II

<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Convertible Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Depositary Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Foreign Investment Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Foreign Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
High-Yield (High-Risk) Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Illiquid Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Lending of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Loan Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Mortgage- and Asset-Backed Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Mortgage Dollar Rolls and Reverse Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Municipal Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Short Sales Against the Box . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Short-Term Cash Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Temporary Defensive Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Variable- or Floating-Rate Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
When-Issued Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Zero-Coupon, Step-Coupon and Pay-in-Kind Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
DIRECTORS AND OFFICERS OF THE CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
INVESTMENT ADVISOR AND DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ADMINISTRATIVE SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
FUND ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
PORTFOLIO MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
LEGAL COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
- ------------------------------
</TABLE>

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

2
<PAGE> 264
INVESTMENT RESTRICTIONS

The investment objective of the Fund is to seek current income with a
very low degree of share-price fluctuation. The Fund's investment objective
and policies are described in detail in the Prospectus under the caption
"Investment Objective and Policies." The following are the Fund's fundamental
investment limitations which cannot be changed without shareholder approval.