<PAGE> 1
THE STRONG ASSET ALLOCATION FUND II
ANNUAL REPORT - DECEMBER 31, 1995
Table of Contents
FINANCIAL INFORMATION
Schedule of Investments in Securities................2
Statement of Operations..............................2
Statement of Assets and Liabilities..................3
Statement of Changes in Net Assets...................3
Notes to Financial Statements........................4
FINANCIAL HIGHLIGHTS..........................................6
REPORT OF INDEPENDENT ACCOUNTANTS.............................6
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SCHEDULE OF INVESTMENTS IN SECURITIES December 31, 1995
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<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------------------------------------------------------
<S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY
ISSUES 10.3%
United States Treasury Notes, 5.875%,
Due 11/15/05 (Cost $50,615) $ 50,000 $ 51,141
CASH EQUIVALENTS (a) 87.0%
COMMERCIAL PAPER 2.8%
INTEREST BEARING, DUE UPON DEMAND
American Family Financial, 5.49% 5,100 5,100
General Mills, Inc., 5.58% 4,800 4,800
Sara Lee Corporation, 5.47% 2,800 2,800
Wisconsin Electric Power Company, 5.53% 1,600 1,600
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14,300
UNITED STATES GOVERNMENT ISSUES 84.2%
United States Treasury Bills:
Due 3/07/96, 5.30% (b) 10,000 9,904
Due 3/14/96, 5.33% (b) 10,000 9,895
Due 3/28/96, 4.95% 395,000 390,329
Due 5/02/96, 5.31% (b) 10,000 9,826
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419,954
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Total Cash Equivalents (Cost $434,254) 434,254
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TOTAL INVESTMENTS IN SECURITIES
(COST $484,869) 97.3% 485,395
Other Assets and Liabilities, Net 2.7% 13,526
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NET ASSETS 100.0% $498,921
</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 $110,406 $ 922
1 S&P 500 3/96 309,225 (2,513)
</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.
STATEMENT OF OPERATIONS
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For the Period from November 30, 1995 (inception) to December 31, 1995
<TABLE>
<S> <C>
INTEREST INCOME $ 2,598
EXPENSES:
Investment Advisory Fees 394
Custodian Fees 158
Shareholder Servicing Costs 40
Reports to Shareholders 37
Other 73
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Total Expenses 702
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NET INVESTMENT INCOME 1,896
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain on Futures Contracts 63
Change in Unrealized Appreciation/Depreciation on:
Investments 526
Futures Contracts (1,591)
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NET LOSS (1,002)
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 894
=======
</TABLE>
See notes to financial statements
2
<PAGE> 3
STATEMENT OF ASSETS AND LIABILITIES
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December 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments in Securities, at Value (Cost of $484,869) $ 485,395
Interest Receivable 494
Other Assets 13,311
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Total Assets 499,200
ACCRUED OPERATING EXPENSES AND OTHER LIABILITIES 279
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NET ASSETS $ 498,921
============
Capital Shares
Authorized 300,000,000
Outstanding 50,000
NET ASSET VALUE PER SHARE $ 9.98
============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
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For the Period from November 30, 1995 (inception) to December 31, 1995
<TABLE>
<S> <C>
OPERATIONS:
Net Investment Income $ 1,896
Net Realized Gain 63
Change in Unrealized Appreciation/Depreciation (1,065)
--------
Increase in Net Assets Resulting from Operations 894
CAPITAL SHARE TRANSACTIONS 500,000
DISTRIBUTIONS:
From Net Investment Income (1,896)
In Excess of Net Investment Income (77)
--------
TOTAL INCREASE IN NET ASSETS 498,921
NET ASSETS:
Beginning of Period -
--------
End of Period $498,921
========
</TABLE>
See notes to financial statements
3
<PAGE> 4
NOTES TO FINANCIAL STATEMENTS
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December 31, 1995
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.
The Fund may own certain investment securities which are
restricted as to resale. These securities are valued after giving due
consideration to pertinent factors, including recent private sales,
market conditions and the issuer's financial performance. The Fund
generally bears the costs, if any, associated with the disposition of
restricted securities.
(B) Federal Income and Excise Taxes and Distributions to
Shareholders - It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to
its shareholders in a manner which results in no tax cost to the Fund.
Therefore, no Federal income or excise tax provision is required.
The character of distributions made during the year from net
investment income or net realized gains may differ from the
characterization for Federal income tax purposes due to differences in
the recognition of income and expense items for financial statement and
tax purposes. Where appropriate, reclassifications between net asset
accounts are made for such differences that are permanent in nature.
(C) Realized Gains and Losses on Investment Transactions - Gains or
losses realized on investment transactions are determined by comparing
the identified cost of the security lot sold with the net sales
proceeds.
(D) Futures - Upon entering into a futures contract, the Fund
pledges to the broker cash, U.S. government securities or other liquid,
high-grade debt obligations equal to the minimum "initial margin"
requirements of the exchange. The Fund also receives from or pays to
the broker an amount of cash equal to the daily fluctuation in the
value of the contract. Such receipts or payments are known as
"variation margin," and are recorded as unrealized gains or losses.
When the futures contract is closed, a realized gain or loss is
recorded equal to the difference between the value of the contract at
the time it was opened and the value at the time it was closed.
(E) Options - Premiums received by the Fund upon writing put or
call options are recorded as an asset with a corresponding liability
which is subsequently adjusted to the current market value of the
option. When an option expires, is exercised, or is closed, the Fund
realizes a gain or loss, and the liability is eliminated. The Fund
continues to bear the risk of adverse movements in the price of
the underlying asset during the period of the option, although any
potential loss during the period would be reduced by the amount of the
option premium received.
(F) Foreign Currency Translation - Investment securities and other
assets and liabilities initially expressed in foreign currencies are
converted to U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investment securities and income are converted to
U.S. dollars based upon currency exchange rates prevailing on the
respective dates of such transactions. The effect of changes in
foreign exchange rates on realized and unrealized security gains or
losses is reflected as a component of such gains or losses.
(G) Forward Foreign Currency Exchange Contracts - Forward foreign
currency exchange contracts are valued at the forward rate and are
marked-to-market daily. The change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the Fund records
an exchange gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it was
closed.
4
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(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 December 31, 1995 were as follows:
<TABLE>
<S> <C>
Capital Stock $500,000
Undistributed Net Investment Loss (77)
Undistributed Net Realized Gain 63
Net Unrealized Depreciation (1,065)
--------
$498,921
========
</TABLE>
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the period ended December 31,
1995 were as follows :
<TABLE>
<S> <C> <C>
Shares Dollars
------ -------
Shares Sold 50,000 $500,000
Dividends Reinvested - -
Shares Redeemed - -
------ --------
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 Advisor owns all of the outstanding shares of the Fund as of
December 31, 1995. The amount payable to the Advisor at December 31, 1995
was $40.
6. INVESTMENT TRANSACTIONS
Aggregate purchases of long-term securities for the period ended
December 31, 1995 were $50,615.
7. INCOME TAX INFORMATION
At December 31, 1995, the investment cost, gross unrealized
appreciation and depreciation on investments and capital loss carryover
(expiring in 2003) for Federal income tax purposes were as follows:
<TABLE>
<S> <C>
Aggregate Investment Cost $484,869
========
Aggregate Unrealized:
Appreciation $ 526
Depreciation -
--------
$ 526
========
Capital Loss Carryover $ 1,528
========
</TABLE>
5
<PAGE> 6
FINANCIAL HIGHLIGHTS
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The following presents information relating to a share of capital stock of the
Fund, outstanding for the entire period.
<TABLE>
1995(a)
-------
<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.
(a) Inception date is November 30, 1995. Total return and portfolio
turnover rate are not annualized.
REPORT OF INDEPENDENT ACCOUNTANTS
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To the Shareholders and Board of Directors of the
Strong Asset Allocation Fund II
We have audited the accompanying statement of assets and liabilities of
Strong Asset Allocation Fund II (one of the portfolios constituting the Strong
Variable Insurance Funds, Inc.), including the schedule of investments in
securities, as of December 31, 1995, and the related statements of operations
and changes in net assets, and the financial highlights for the period from
November 30, 1995 (inception) to December 31, 1995. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Strong Asset Allocation Fund II as of December 31, 1995, the results
of its operations, the changes in its net assets, and the financial highlights
for the period from November 30, 1995 to December 31, 1995, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
February 8, 1996
6
