<PAGE>
- --------------------------------------------------------------------------------
THE STRONG
INTERNATIONAL
STOCK FUND II
SEMI-ANNUAL REPORT o JUNE 30, 1997
[PIE CHART OF ASSET DIVERSIFICATION EMPHASIZING STOCKS]
[STRONG LOGO]
STRONG FUNDS
<PAGE>
- --------------------------------------------------------------------------------
THE STRONG
INTERNATIONAL
STOCK FUND II
SEMI-ANNUAL REPORT o JUNE 30, 1997
TABLE OF CONTENTS
INVESTMENT REVIEW
The Strong International Stock Fund II ...............................2
FINANCIAL INFORMATION
Schedule of Investments in Securities ................................4
Statement of Assets and Liabilities ..................................8
Statement of Operations ..............................................8
Statement of Changes in Net Assets ...................................9
Notes to Financial Statements .......................................10
FINANCIAL HIGHLIGHTS ....................................................12
<PAGE>
THE STRONG INTERNATIONAL STOCK FUND II
Despite a rocky first quarter, the international markets finally delivered the
strong overall performance in the second quarter that we had been expecting for
quite a while.
The Strong International Stock Fund II pursues capital growth by investing
primarily in the stocks of companies based outside the United States. The Fund
provides access to growth opportunities worldwide that may offer greater return
potential than U.S. companies.
=================================
ASSET ALLOCATION
Based on net assets as of 6-30-97
[PIE CHART]
Stocks 85.5%
Short-Term Investments 14.5%
=================================
================================================
FIVE LARGEST HOLDINGS BY COUNTRY
As of 6-30-97
COUNTRY % OF NET ASSETS
- ------------------------------------------------
Japan 14.2%
................................................
Australia 6.7%
................................................
Singapore 4.6%
................................................
Italy 4.5%
................................................
United Kingdom 4.2%
................................................
Please see the Schedule of Investments in
Securities for a complete listing of the Fund's
portfolio.
================================================
MARKETS RECOVER BROAD STRENGTH
Despite a rocky first quarter, the international markets finally delivered the
strong overall performance in the second quarter that we had been expecting for
quite a while. The scope of this turnaround is evidenced by the returns on the
Morgan Stanley Capital International Europe, Australasia, and Far East (EAFE)
Index, which posted a negative return of 1.57% for the first quarter of the year
but gained 12.98% for the three months ended June 30, for a six-month gain of
11.21%. The International Stock Fund II posted a gain of 8.66% over the same
period.*(1)
The international rally has been patchy, however, with its strength coming
mainly from Europe, Latin America and the emerging markets in general. At the
end of the period, our Fund's largest country exposures in Europe were in the
United Kingdom, Italy, Switzerland, Germany and France, while we continued to
build up our investment in Latin America, which was the strongest general region
in the world during the second quarter of the year. In addition, the Fund had
significant investments in emerging markets around the world and most of these
emerging markets proved very rewarding, particularly Russia.
THE ASIAN MARKETS CONTINUED TO LAG
Once again, Asia--except for Japan--lagged the other international markets,
although Hong Kong and South Korea posted double-digit gains. Singapore and
Malaysia were both down for the period, but the real disappointment was once
again Thailand which continued its downward spiral. Australia and New Zealand
also performed well.
Our most important increase in country weightings during this period was in
Japan where the recovery in industrial production and the slightly stronger yen
finally brought this market back to life. We also increased our exposure in
South Korea, which we consider to be the most viable recovery candidate in Asia,
especially now that the yen--with which it is very competitive--has showed signs
of strength. We also increased the Fund's weighting in Mexico, reflecting our
positive stance toward Latin America as a region and our belief that Mexico has
some catching up to do in the region.
APPLYING OUR COMPANY-FOCUSED STRATEGY
Throughout this period we continued to apply our
bottom-up, stock picking approach. We focus primarily on the strength and
potential of individual companies when considering stocks, rather than the
positive or negative attributes of individual countries or industries. That
doesn't mean that we don't consider global economic climates in making our
decisions--and in as choppy an environment as international markets have been
facing, we have been paying somewhat more attention to them than is usually the
case.
================================================
FIVE LARGEST STOCK HOLDINGS
As of 6-30-97
SECURITY % OF NET ASSETS
- ------------------------------------------------
Games Workshop Group PLC 1.1%
................................................
Guinness Peat Group PLC 1.1%
................................................
Hong Kong Land Holdings, Ltd. 0.8%
................................................
Porsche AG Non-Voting Preferred 0.8%
................................................
IFI Istituto Finanziario Preferred 0.8%
................................................
Please see the Schedule of Investments in
Securities for a complete listing of the Fund's
portfolio.
================================================
2
<PAGE>
By and large, our individual company choices drive the Fund's overall country
allocation; we don't peg our country weightings to any index or benchmark.
Sometimes these choices do follow a strong theme, however. For example, while in
the past we trimmed our position in Japanese stocks, we have built up our
weighting there again which has paid off for the Fund.
OUTLOOK
Flows of investment dollars into foreign markets have been sporadic and
selective. We anticipate, however, that more consistent investor interest in
support of foreign markets will take hold in the future. As more investors gain
experience, they are likely to be more willing--even eager--to diversify.
Furthermore, adding international investments to a US-focused portfolio offers
the potential to increase returns and lower overall portfolio volatility. The
leveling off of the strong dollar could also draw more money abroad, as currency
risk could become less acute.
Of course, this Fund is likely to be more volatile than a fund that invests
solely in U.S. stocks. Changes in market conditions, currency values, interest
rates, local regulations, and economic and political conditions can have a
quick, sharp impact on foreign markets. Given the value currently available
internationally, however, we believe foreign equities offer long-term investors
an attractive opportunity.
Thank you for your investment in the Strong International Stock Fund II. We look
forward to earning your continued confidence.
[PHOTO OF ANTHONY L.T. CRAGG]
Sincerely,
/s/Anthony L.T. Cragg
Anthony L.T. Cragg
Portfolio Manager
================================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 10-20-95 to 6-30-97
[GRAPH]
Strong MSCI Lipper
International EAFE International
Stock Fund II Index* Funds Index*
------ ------ ------
9-95 10,000 10,000 10,000
12-95 10,261 10,491 10,321
3-96 10,964 10,794 10,776
6-96 11,642 10,965 11,217
9-96 11,196 10,951 11,227
12-96 11,327 11,126 11,810
3-97 11,627 10,952 12,106
6-97 12,307 12,373 13,461
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with similar investments in the
Morgan Stanley Capital International Europe, Australasia, and Far East Index
("MSCI EAFE(TM)") and the Lipper International Funds Index. Results include the
reinvestment of all dividends and capital gains distributions. Performance is
historical and does not represent future results. Investment returns and
principal value vary, and you may have a gain or loss when you sell shares. To
equalize time periods, the indexes' performance was prorated for the month of
October 1995.
================================================================================
AVERAGE ANNUAL
TOTAL RETURNS(1)
As of 6-30-97
1-year 5.72%
Since Inception 13.01%
(on 10-20-95)
================================
* The MSCI EAFE(TM) is an unmanaged index generally representative of major
overseas stock markets. MSCI EAFE(TM) data is dollar-adjusted. The Lipper
International Funds Index is an equally-weighted performance index of the
largest qualifying funds in this category. Source of the MSCI index data is
Micropal. Source of the Lipper index data is Lipper Analytical Services,
Inc.
1 Average annual total return and total return measure change in the value of
an investment in the Fund, assuming reinvestment of all dividends and
capital gains. Average annual total return reflects annualized change,
while total return reflects aggregate change. The Fund's returns include
the effect of deducting the Fund's expenses, but do not include charges and
expenses attributable to any particular insurance product. Including such
insurance fees and expenses from the Fund's return quotations has the
effect of decreasing the performance quoted.
3
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
COMMON STOCKS 82.0%
ARGENTINA 0.5%
Dragados y Construcciones Argentina 64,000 $ 280,362
Sunshine Mining and Refining Company (b) 200,000 137,500
------------
417,862
AUSTRALIA 6.4%
AAPC, Ltd. 550,000 364,887
Australian Tourism Group 175,000 100,269
Cinema Plus, Ltd. (b) 413,000 311,361
Coca-Cola Amatil, Ltd. 28,000 363,078
Colonial, Ltd. (Acquired 5/19/97;
Cost $120,218) (b) (c) 50,000 127,409
David Jones, Ltd. 200,000 278,943
FAI Insurance, Ltd. 216,382 106,035
Foster's Brewing Group, Ltd. (b) 130,000 241,097
MIM Holdings, Ltd. 283,804 419,361
Normandy Mining, Ltd. 556,508 625,131
Novus Petroleum, Ltd. 59,169 202,964
Orogen Minerals, Ltd. GDR (Acquired 10/31/96;
Cost $71,266) (c) 4,500 125,437
Polartechnics, Ltd. (b) 207,500 438,016
Publishing & Broadcasting, Ltd. 58,000 333,631
Sydney Aquarium, Ltd. 223,900 666,753
Sydney Harbour Casino Holdings, Ltd. (b) 124,000 194,446
Western Mining Corporation, Ltd. 102,650 646,188
------------
5,545,006
AUSTRIA 0.6%
Flughafen Wien AG (b) 6,800 287,343
Wolford AG 2,700 262,104
------------
549,447
BELGIUM 0.7%
Audiofina 4,000 164,440
Credit Communal Holding Dexia 4,000 429,433
------------
593,873
BRAZIL 1.7%
Centrais Electricas Brasileiras SA 357,000 199,328
Companhia de Electricidade do Estado do
Rio de Janeiro 234,000,000 169,565
Companhia de Saneamento Basico do Estado
de Sao Paulo 1,400,142 426,650
Light Servicos de Electricidade SA 300,000 145,764
Uniao de Bancos Brasileiros SA Sponsored
GDR (b) 7,000 259,875
Usinas Siderurgicas de Minas Gerais
Sponsored ADR 24,000 264,000
------------
1,465,182
CHILE 2.2%
Embotelladora Andina SA ADR A 8,800 188,650
Embotelladora Andina SA ADR B 9,300 194,138
Five Arrows Chile Investment Trust, Ltd. 92,000 315,560
Quimica y Minera Chile SA Sponsored ADR 7,000 462,875
Quinenco SA ADR (b) 23,000 425,500
Santa Isabel SA Sponsored ADR 10,450 337,013
------------
1,923,736
CHINA 0.4%
Shandong Huaneng Power Company, Ltd. ADR 8,000 86,000
Shanghai Industrial Holdings, Ltd. (Acquired
4/10/97; Cost $186,497) (c) 42,000 261,331
------------
347,331
COLOMBIA 0.3%
Banco Ganadero SA ADS (representing Class C
Preference Shares) 9,800 256,025
EGYPT 3.0%
Al-Ahram Beverages Company SAE (b) 18,300 374,235
Egypt Investment Company, Ltd. (b) 43,000 650,375
The Foreign & Colonial Emerging Middle
East Fund, Inc. (b) 30,000 519,375
Misr International Bank SAE GDR (b) 23,000 388,700
Misr Oil & Soap Company (b) 33,000 262,252
Nile for Matches (b) 23,715 175,899
Suez Cement (b) 13,262 258,331
------------
2,629,167
FINLAND 0.4%
Amer Group, Ltd. (b) 18,000 329,017
FRANCE 2.6%
Accor SA 1,300 194,588
Club Mediterranee SA (b) 6,850 485,166
Europe 1 Communication 669 137,120
Genset SA Sponsored ADR (b) 19,900 385,563
Louis Dreyfus Citrus (b) 13,000 485,363
Rhone-Poulenc Rorer, Inc. 3,000 271,470
Sabeton SA (b) 1,769 252,452
SEFIMEG (Societe Francaise d'Investissements
Immobiliers et de Gestion) 1,400 89,299
------------
2,301,021
GERMANY 1.9%
Altana AG 200 213,181
BETA Systems Software AG (b) 500 59,026
Commerzbank AG 16,000 452,951
Leica Camera AG (b) 13,300 327,736
Volkswagen AG 800 606,074
------------
1,658,968
GHANA 0.5%
Ashanti Goldfields Company, Ltd. GDR 35,047 409,612
HONG KONG 3.4%
Amoy Properties, Ltd. 195,000 215,226
CDL Hotels International, Ltd. 1,393,072 566,472
Glorius Sun Enterprises (b) 377,000 178,852
Guoco Group, Ltd. (b) 62,000 326,547
Hong Kong Land Holdings, Ltd. 262,914 699,351
Jardine Strategic Holdings, Ltd. 75,000 283,500
Peregrine Investment Holdings, Ltd. 205,500 423,123
Swire Pacific, Ltd. 'A' 30,000 270,122
------------
2,963,193
HUNGARY 0.5%
Euronet Services, Inc. (b) 27,000 298,688
Zalakeramia Reszvenytarsasag GDR (Acquired
5/06/97; Cost $122,720) (b) (c) 16,000 125,600
------------
424,288
INDIA 0.4%
IS Himilayan Fund NV (b) 15,200 229,520
The Indian Smaller Companies Fund, Ltd. (b) 17,120 137,999
------------
367,519
INDONESIA 2.0%
Bank Bali PT (Fgn Reg) 62,000 165,775
Bank Negara Indonesia PT (Fgn Reg) 435,000 277,355
Bank Tiara Asia PT (Fgn Reg) (b) 136,000 162,238
Ciputra Development PT (Fgn Reg) 190,000 189,531
Jaya Real Property PT (Fgn Reg) (b) 140,000 188,606
Lippo Life Insurance PT (Fgn Reg) 225,000 266,094
Semen Cibinong PT (Fgn Reg) 45,000 118,007
Siloam Gleneagles Health Care PT (Acquired
3/12/97; Cost $265,776) (b) (c) 216,000 306,541
Van Der Horst Indonesia PT (Fgn Reg) 160,001 82,271
------------
1,756,418
IRELAND 0.1%
Ryanair Holdings PLC ADR (b) 3,000 81,375
See notes to financial statements.
4
<PAGE>
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
ITALY 3.7%
Banca Commerciale Italiana 209,000 $ 435,627
Filatura del Brembo Spa 27,000 291,388
Finanziaria Autogrill Spa (b) 249,000 417,811
Holding di Partecipazioni Industriali Spa (b) 555,800 267,245
Industrie Natuzzi Spa Sponsored ADR 21,700 556,063
STET - Societa Finanziaria Telefonica PA 107,000 623,951
Simint Spa (b) 44,000 268,214
Zucchini Spa 53,000 323,388
------------
3,183,687
JAPAN 14.2%
The Bank of Tokyo - Mitsubishi 12,000 240,775
Chubu Steel Plate Company, Ltd. 53,000 245,049
Daiwa House Industry Company, Ltd. Warrants,
Expire 10/30/97 (b) 360 9,360
Diamond City Company 24,000 157,027
Fidelity Japan OTC and Regional Markets
Fund, Ltd. (b) 33,000 222,750
Fontaine Company, Ltd. 8,000 226,817
Fuji Bank, Ltd. 16,000 240,077
Heiwa 14,000 274,797
Higashi Nihon House 18,000 193,143
Horipro, Inc. 25,000 191,049
Imagineer Company, Ltd. 14,400 483,643
Japan Associated Finance 7,000 549,594
Japan Cash Machine Company, Ltd. 20,900 410,233
Japan Industrial Land Development 22,100 217,857
Japan OTC Equity Fund, Inc. (b) 130 100,750
Japan Tobacco, Inc. 55 434,223
Lion Corporation Warrants, Expire 6/18/99 (b) 2,000 145,106
Marubeni Corporation 41,000 185,990
Mikasa Coca-Cola Bottling Warrants,
Expire 1/05/00 (b) 1,000 26,009
Misawa Homes Warrants, Expire 10/29/99 (b) 2,000 114,990
Mitsubishi Corporation. 44,000 548,896
Mitsui Fudosan 27,000 372,154
Miyota Company, Ltd. 20,000 266,946
Morgan Stanley Group, Inc. Nikkei 225 Index
Call Warrants, Expire 8/15/97 (b) 64,000 384,000
Nippon Broadcasting System 5,000 553,956
Nippon Felt Company, Ltd. 37,000 177,850
Nippon Shinpan Company 77,000 278,095
Nippon Telegraph & Telephone Corporation 55 527,785
Nittetsu Mining 43,000 335,732
Nomura International PLC Warrants,
Expire 4/26/02 (b) 500 181,250
Ohmoto Gumi Company, Ltd. 9,700 79,543
Pioneer Electronic Corporation 22,000 533,543
Roland 11,000 270,610
SXL Corporation Warrants, Expire 2/26/99 (b) 3,100 78,508
Sanwa Bank, Ltd. 17,000 252,115
Shinseido Company, Ltd. 12,000 57,577
Shiseido Company, Ltd. 29,000 478,147
Shochiku Warrants, Expire 12/29/99 (b) 470 199,750
Takihyo Company, Ltd. 14,000 129,460
Tiemco, Ltd. 800 35,593
Toho Company 2,700 445,171
Tokio Marine & Fire Insurance Company 41,000 536,509
Tokushu Paper Manufacturing Company, Ltd.
Warrants, Expire 4/26/01 (b) 2,000 299,795
Tokyotokeiba 77,000 221,670
Tsutsumi Jewelry Company, Ltd. 9,000 227,689
Yasuda Trust & Banking, Ltd. 59,000 225,438
------------
12,367,021
<PAGE>
MALAYSIA 2.9%
Batu Kawan BHD 106,000 $ 233,082
Highlands & Lowlands BHD 211,000 322,686
IOI Properties BHD 75,000 142,631
Leader Universal Holdings BHD 122,000 219,445
Malaysia International Shipping BHD (Fgn Reg) 100,000 259,509
Malaysian Plantations BHD 140,000 188,590
Malaysian Resources Corporation BHD 53,000 145,939
Renong BHD 182,000 237,956
Sime UEP Properties BHD 114,000 246,157
TA Enterprise BHD 207,000 220,614
Technology Resources Industries BHD (b) 195,000 335,301
------------
2,551,910
MALI 0.4%
Randgold Resources, Ltd. GDR (Acquired 6/26/97;
Cost $313,500) (b) (c) 19,000 313,500
MEXICO 2.5%
Cifra SA de CV Unsponsored ADR B 149,000 267,455
Empresas ICA Sociedad Controladora SA de CV
Sponsored ADR 20,000 321,250
G Accion SA de CV Sponsored ADR
(Acquired 6/19/97; Cost $224,000) (b) (c) 14,000 204,750
Grupo Financiero Banamex Accival SA de CV (b) 154,000 404,854
Grupo Carso SA de CV 40,000 278,906
Grupo Televisa SA GDS (b) 10,000 303,750
Kimberly-Clark de Mexico SA de CV 19,000 368,125
------------
2,149,090
NAMIBIA 0.5%
Namibia Breweries (b) 175,300 135,696
Namibian Minerals Corporation (b) 75,000 328,125
------------
463,821
NETHERLANDS 0.6%
KLM Royal Dutch Airlines 10,500 324,188
Philips Electronics NV ADR 3,000 215,625
------------
539,813
NEW ZEALAND 3.9%
Air New Zealand, Ltd. Class B 182,000 556,756
CDL Hotels New Zealand, Ltd. 705,000 254,007
Corporate Investments, Ltd. (b) 600,000 334,462
Evergreen Forests, Ltd. (b) 1,326,000 522,821
Guinness Peat Group PLC 1,538,256 951,593
Kiwi Income Property Trust (b) 149,200 134,897
Restaurant Brands New Zealand, Ltd. (b) 102,000 177,509
Shortland Properties, Ltd. 727,900 494,826
------------
3,426,871
NORWAY 0.4%
Alvern Norway AS (b) 13,009 71,032
Norman Data Defense Systems (b) 12,000 73,713
Saga Petroleum AS - A Shares 12,000 227,692
------------
372,437
PAKISTAN 0.4%
Pakistan Investment Fund, Inc. (b) 24,000 126,000
Pakistan Telecommunications Corporation
Sponsored GDR (b) 3,100 234,050
------------
360,050
PERU 1.0%
Compania de Minas Buenaventura SA
Sponsored ADR 11,500 226,406
Telefonica del Peru SA Sponsored ADR
(representing Class B Shares) 11,000 288,062
Union de Cervecerias Perunas 327,532 341,976
------------
856,444
See notes to financial statements.
5
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES (continued) June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
PHILIPPINES 0.5%
Empire East Land Holdings, Inc. (b) 1,760,000 $ 267,173
Guoco Holdings (Philippines) 1,395,000 164,118
------------
431,291
POLAND 0.7%
Bank Handlowy W. Warszawie (b) 9,000 103,836
Best Series C (b) 20,000 237,443
The Fleming Poland Fund, Ltd. Redeemable
Participating Preference A Shares (b) 29,500 291,460
------------
632,739
PORTUGAL 0.3%
Electricidade de Portugal SA Sponsored ADR (b) 7,100 255,600
Portugal Fund, Inc. 2,000 35,000
------------
290,600
ROMANIA 0.6%
The Romanian Investment Fund, Ltd. (Acquired
5/08/97; Cost $400,000) (b) (c) 400 422,000
Societe Generale Romania Fund (Acquired 3/20/97;
Cost $49,500) (b) (c) 500 57,500
------------
479,500
RUSSIA 1.6%
The Central European Growth Fund PLC (b) 346,000 382,916
Morgan Stanley Russia & New Europe Fund, Inc. 20,000 607,500
Ramco Energy PLC 13,000 233,221
Red October Russian Depository Trust
Certificates (Acquired 8/14/96 - 8/27/96;
Cost $143,750)(b)(c) 2 210,000
------------
1,433,637
SINGAPORE 4.6%
Cycle & Carriage, Ltd. 39,000 403,778
DBS Land, Ltd. 32,000 101,182
FJ Benjamin Holdings, Ltd. (b) 452,000 208,688
Hong Leong Finance, Ltd. (Fgn Reg) 95,000 269,815
Hotel Properties, Ltd. 150,000 254,984
Kay Hian James Capel Holdings, Ltd. 2,300 2,236
Keppel Bank (b) 158,000 406,744
Keppel Corporation, Ltd. (b) 44,000 195,453
Kim Eng Holdings, Ltd. 367,000 308,080
Osprey Maritime, Ltd. 150,000 196,222
Robinson & Company, Ltd. 30,000 156,348
Sembawang Corporation, Ltd. 41,000 186,429
Singapore Airlines, Ltd. (Fgn Reg) 59,000 528,297
Singapore Land, Ltd. 71,000 322,840
United Overseas Land, Ltd. 208,000 282,281
Van Der Horst, Ltd. 83,000 152,704
------------
3,976,081
SOUTH AFRICA 0.9%
Baring Simba Fund Warrants, Expire 9/30/00 (b) 23,000 71,875
Energy Africa, Ltd. GDR (Acquired 7/18/96;
Cost $105,875) (b) (c) 7,000 185,500
Engen, Ltd. 64,000 319,612
Morgan Stanley Africa Investment Fund, Inc. 12,600 225,225
------------
802,212
SOUTH KOREA 3.3%
Fidelity Advisor Korea Fund (b) 25,000 218,750
Hotel Shilla Company (b) 15,000 135,609
Kookmin Bank 23,469 447,421
Korea Electric Power Corporation Sponsored ADR 21,150 395,241
Korea-Europe Fund IDR (b) 135 369,563
Korean Airline Company, Ltd. (b) 19,800 373,205
Ssangyong Investment & Securities
Company, Ltd. (b) 32,000 303,747
Yukong, Ltd. 26,000 630,926
------------
2,874,462
SPAIN 0.2%
Compania Espanola de Petroleos SA 3,000 101,743
Construcciones y Auxiliar de Ferrocarriles SA 1,700 76,911
------------
178,654
SRI LANKA 0.5%
John Keells Holdings, Ltd. (b) 52,000 271,834
Sri Lanka Growth Fund (b) 25,000 143,750
------------
415,584
SWEDEN 1.1%
Argonaut AB 'B' Shares (b) 55,000 99,793
Hemkopskedjan AB 'B' Shares (Acquired 6/18/97;
Cost $191,201) (b) (c) 19,000 195,762
Ortivus AB 'B' Shares (b) 5,000 204,769
Pricer AB 'B' Shares (b) 7,500 258,554
Prosolvia AB 'B' Shares (b) 3,600 55,521
Rottneros AB 141,000 155,327
------------
969,726
SWITZERLAND 3.1%
Liechtenstein Global Trust AG 75 45,945
Magazine Zum Globus Registered Shares (b) 600 368,788
Moevenpick Holding AG 900 271,355
Nestle SA 107 141,055
Novartis AG 200 319,507
Novartis AG Sponsored ADR 1,000 80,219
Oerlikon - Buehrle Holding AG 'R' 2,300 269,199
SGS (Societe Generale de Surveillance) Holdings SA 150 320,329
SMH (Suisse Microelectronique et d'Horlogerie) 900 513,758
Schindler Holding AG 125 156,143
Zurich Versicherungsgesellschaft 600 238,604
------------
2,724,902
TAIWAN 0.1%
The R.O.C. Taiwan Fund 5,884 68,769
THAILAND 0.8%
BEC World PCL 17,700 159,408
Matichon PCL (Fgn Reg) 82,000 154,686
Sermsuk PCL (Fgn Reg) 10,700 138,905
Siam City Cement PCL (Fgn Reg) 25,000 106,491
TelecomAsia Corporation PCL (b) 125,000 158,468
------------
717,958
UKRAINE 0.3%
Ukrainian Opportunity Fund (b) 29,700 303,178
UNITED KINGDOM 4.2%
Allied Domecq PLC 29,374 210,935
Caledonia Investments PLC 15,000 173,493
Celltech PLC (b) 36,000 159,963
De La Rue PLC 25,000 153,522
English China Clays PLC 46,586 160,096
Flextech PLC (b) 38,000 406,631
Games Workshop Group PLC 87,000 982,369
Inchcape PLC 103,902 489,346
LucasVarity PLC 121,000 418,846
Trocadero PLC (b) 371,000 154,355
Vickers PLC 101,000 345,413
------------
3,654,969
VENEZUELA 0.3%
CA La Electricidad de Caracas 114,000 181,990
Compania Anonima Nacional Telefonos
de Venezuela 2,000 86,250
------------
268,240
VIETNAM 0.1%
Vietnam Frontier Fund (b) 11,000 93,500
See notes to financial statements.
6
<PAGE>
- --------------------------------------------------------------------------------
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------------------------------------------------------------------------------
OTHER 0.7%
Morgan Stanley Emerging Markets Fund, Inc. 34,000 $ 607,750
------------
TOTAL COMMON STOCKS (COST $70,950,445) 71,527,436
PREFERRED STOCKS 3.5%
AUSTRALIA 0.3%
The News Corporation, Ltd. 59,302 233,374
BRAZIL 0.7%
Companhia Antartica Paulista - Industria
Brasileira de Bebidas e Conexos 3,100 302,397
Telecomunicacoes de Sao Paulo SA 534,311 174,232
Telecomunicacoes do Rio de Janeiro SA - Telerj 1,129,744 168,979
------------
645,608
GERMANY 1.7%
BBS Kraftfahrzeugtechnik AG (b) 1,000 224,069
Friedrich Grohe AG 1,000 309,456
Porsche AG Non-Voting 510 678,051
Villeroy & Boch AG 2,000 324,355
------------
1,535,931
ITALY 0.8%
IFI Istituto Finanziario (Acquired
1/20/97 - 3/13/97; Cost $635,037) (c) 53,000 668,376
------------
TOTAL PREFERRED STOCKS (COST $2,729,756) 3,083,289
SHORT-TERM INVESTMENTS (A) 12.3%
COMMERCIAL PAPER 0.1%
INTEREST BEARING, DUE UPON DEMAND
United States Cayman Eurodollar
Call Deposit, 4.50% $ 95,000 95,000
TIME DEPOSITS 12.2%
UNITED STATES
Bank of Tokyo, Ltd. Time Deposit,
6.4375%, Due 7/01/97 2,000,000 2,000,000
Credite Agriculturale Time Deposit,
6.00%, Due 7/01/97 4,300,000 4,300,000
Sumitomo Bank, Ltd. Yankee Dollar
Certificate of Deposit, 6.375%, Due 7/01/97 4,300,000 4,300,000
------------
Total Time Deposits 10,600,000
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $10,695,000) 10,695,000
------------
TOTAL INVESTMENTS IN SECURITIES
(COST $84,375,201) 97.8% 85,305,725
Other Assets and Liabilities, Net 2.2% 1,956,149
------------
NET ASSETS 100.0% $87,261,874
============
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
- -------------------------------------------
SETTLEMENT VALUE UNREALIZED
DATE IN USD APPRECIATION
- --------------------------------------------------------------------------------
Sold:
1,361,360 DEM 7/25/97 $781,717 $18,283
PERCENTAGE OF
INDUSTRY DIVERSIFICATION NET ASSETS
- ---------------------------------------------------------------
Conglomerate ...........................................7.7%
Closed-end Fund ........................................7.1
Bank - Money Center ....................................5.4
Leisure Service ........................................5.2
Real Estate ............................................4.9
Metals & Mining ........................................3.1
Telecommunication Service ..............................3.0
Finance - Miscellaneous ................................2.9
Engineering & Construction .............................2.7
Media - Radio/TV .......................................2.6
Automobile .............................................2.3
Oil - International Integrated .........................2.2
Airline ................................................2.1
Electronic Products - Miscellaneous ....................1.8
Retail - Specialty .....................................1.8
Consumer - Miscellaneous ...............................1.7
Beverage - Alcoholic ...................................1.6
Electric Power .........................................1.6
Healthcare - Drug/Diversified ..........................1.6
Food ...................................................1.5
Household Appliances & Furnishings .....................1.4
Paper & Forest Products ................................1.3
Shoe & Apparel Manufacturing ...........................1.3
Brokerage & Investment Management ......................1.2
Cosmetic & Personal Care ...............................1.2
Precious Metal/Gem/Stone ...............................1.2
Auto & Truck Parts .....................................1.1
Beverage - Soft Drink ..................................1.0
Insurance - Diversified ................................1.0
Agricultural Operations ................................0.9
Shipping ...............................................0.9
Computer Software ......................................0.8
Machinery - Miscellaneous ..............................0.8
Retail - Major Chain ...................................0.7
Retail - Restaurant ....................................0.7
Machinery - Transportation Equipment & Parts ...........0.6
Retail - Food Chain ....................................0.6
Steel ..................................................0.6
Chemical ...............................................0.5
Healthcare - Instrumentation ...........................0.5
Retail - Department Store ..............................0.5
Tobacco ................................................0.5
Healthcare - Patient Care ..............................0.4
Index Based ............................................0.4
Insurance - Life .......................................0.4
Leisure Product ........................................0.4
Media - Publishing .....................................0.4
Metal Products & Fabrication ...........................0.3
Transportation Service .................................0.3
Healthcare - Medical Supply ............................0.2
Housing ................................................0.2
Insurance - Property & Casualty ........................0.2
Soap & Cleaning Preparation ............................0.2
Short-Term Investments ................................12.3
Other Assets and Liabilities, Net ......................2.2
------
Total 100.0%
======
LEGEND
- ------
(a) Short-term investments include any security which has a maturity of less
than one year.
(b) Non-income producing security.
(c) Restricted security.
Percentages are stated as a percent of net assets.
CURRENCY ABBREVIATIONS
- ----------------------
DEM German Mark
USD United States Dollar
See notes to financial statements.
7
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1997 (Unaudited)
ASSETS:
Investments in Securities, at Value (Cost of $84,375,201) $85,305,725
Receivable from Brokers for Securities and
Forward Foreign Currency Contracts Sold 901,155
Dividends and Interest Receivable 157,206
Other Assets 3,901,264
-----------
Total Assets 90,265,350
LIABILITIES:
Payable to Brokers for Securities Purchased 2,898,401
Accrued Operating Expenses and Other Liabilities 105,075
-----------
Total Liabilities 3,003,476
-----------
NET ASSETS $87,261,874
===========
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $82,416,907
Excess of Distribution Required for Federal Income Tax Purposes
over Net Investment Income (773,318)
Undistributed Net Realized Gain 4,784,026
Net Unrealized Appreciation 834,259
-----------
Net Assets $87,261,874
===========
Capital Shares Outstanding (Unlimited Number Authorized 7,449,958
NET ASSET VALUE PER SHARE $11.71
======
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Six Months Ended June 30, 1997 (Unaudited)
INCOME:
Dividends $ 736,296
Interest 247,634
-----------
Total Income 983,930
EXPENSES:
Investment Advisory Fees 395,479
Custodian Fees 98,525
Shareholder Servicing Costs 60,272
Other 2,243
-----------
Expenses, Net 556,519
-----------
NET INVESTMENT INCOME 427,411
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 3,893,330
Futures Contracts, Options and Forward Foreign
Currency Contracts 784,327
Foreign Currencies (3,873)
-----------
Net Realized Gain 4,673,784
Change in Unrealized Appreciation/Depreciation on:
Investments 1,866,030
Futures Contracts, Options and Forward Foreign
Currency Contracts (121,304)
Foreign Currencies (115,102)
-----------
Net Change in Unrealized Appreciation/Depreciation 1,629,624
-----------
NET GAIN 6,303,408
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,730,819
===========
See notes to financial statements.
8
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 1997 Dec. 31, 1996
(Unaudited)
---------- --------------
OPERATIONS:
Net Investment Income $ 427,411 $ 188,934
Net Realized Gain 4,673,784 2,279,627
Change in Unrealized
Appreciation/Depreciation 1,629,624 (828,567)
----------- -----------
Increase in Net Assets Resulting
from Operations 6,730,819 1,639,994
DISTRIBUTIONS:
From Net Investment Income (1,303,844) (188,934)
In Excess of Net Investment Income -- (111,137)
From Net Realized Gains (1,952,335) --
----------- -----------
Total Distributions (3,256,179) (300,071)
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold 35,075,104 118,715,984
Proceeds from Reinvestment of
Dividends 3,256,179 300,071
Payments for Shares Redeemed (29,695,307) (47,009,732)
----------- -----------
Increase in Net Assets from Capital
Share Transactions 8,635,976 72,006,323
----------- -----------
TOTAL INCREASE IN NET ASSETS 12,110,606 73,346,246
NET ASSETS:
Beginning of Period 75,151,258 1,805,012
----------- -----------
End of Period $87,261,874 $75,151,258
=========== ===========
TRANSACTIONS IN SHARES OF THE FUND:
Sold 3,042,802 10,737,059
Issued in Reinvestment of
Distributions 288,891 26,736
Redeemed (2,570,915) (4,251,177)
----------- -----------
Increase in Shares of the Fund 760,778 6,512,618
=========== ===========
See notes to financial statements.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1997 (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, depending on local convention or regulation.
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, when held by the Fund, are
valued at fair value as determined in good faith under consistently
applied procedures established by and under the general supervision of
the Board of Directors. Securities which are purchased within 60 days
of their stated maturity are valued at amortized cost, which
approximates current value.
The Fund may own certain investment securities which are restricted as
to resale. These securities are valued after giving due consideration
to pertinent factors, including recent private sales, market
conditions and the issuer's financial performance. The Fund generally
bears the costs, if any, associated with the disposition of restricted
securities. Aggregate cost and fair value of these restricted
securities held at June 30, 1997 were $2,829,340 and $3,203,706,
respectively, representing 3.7% 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) Futures -- Upon entering into a futures contract, the Fund pledges to
the broker cash or other investments 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.
10
<PAGE>
(H) Additional Investment Risk -- The use of futures contracts, options,
foreign denominated assets, forward foreign currency exchange
contracts and other similar instruments for purposes of hedging the
Fund's investment portfolio involves, to varying degrees, elements of
market risk in excess of the amount recognized in the statement of
assets and liabilities. The predominant risk with futures contracts is
an imperfect correlation between the value of the contracts and the
underlying securities. Foreign denominated assets and forward foreign
currency exchange contracts may involve greater risks than domestic
transactions, including currency, political and economic, regulatory
and market risks.
(I) Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements, and the
reported amounts of increases and decreases in net assets from
operations during the reporting period. Actual results could differ
from those estimates.
(J) 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. RELATED PARTY TRANSACTIONS
Strong Capital Management, Inc. (the "Advisor"), with whom certain officers
and directors of the Fund are affiliated, provides investment advisory
services to the Fund. Investment advisory fees, which are established by
terms of the Advisory Agreement, are based on an annualized rate of 1.00%
of the average daily net assets of the Fund. Advisory fees are subject to
reimbursement by the Advisor if the Fund's operating expenses exceed
certain levels.
The Fund may invest cash reserves in money market funds sponsored and
managed by Strong Capital Management, Inc., subject to certain limitations.
The terms of such transactions are identical to those of non-related
entities except that, to avoid duplicate investment advisory fees, the
Advisor remits to the Fund an amount equal to all fees otherwise due to
them under their investment advisory agreement for the assets invested in
such money market funds.
The amount payable to the Advisor at June 30, 1997 and unaffiliated
directors' fees for the six months then ended were $797 and $750,
respectively.
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities for the six
months ended June 30, 1997 were $55,144,017 and $52,788,936,
respectively.
5. INCOME TAX INFORMATION
At June 30, 1997, the cost of investments in securities for federal income
tax purposes was $84,375,201. Net unrealized appreciation of securities was
$930,524, consisting of gross unrealized appreciation and depreciation of
$8,115,805 and $7,185,281, respectively.
11
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SELECTED PER-SHARE DATA (a)
- ------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------------------- --------------------------------------------
Net Asset Net Realized Total In Excess Net Asset
Value, Net and Unrealized from From Net of Net From Net Total Value,
Beginning Investment Gains on Investment Investment Investment Realized Distribu- End of
of Period Income Investments Operations Income Income Gains tions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1997 (c) $11.23 $0.06 $0.89 $0.95 ($0.18) __ ($0.29) ($0.47) $11.71
Dec. 31, 1996 10.22 0.03 1.03 1.06 (0.03) ($0.02) __ (0.05) 11.23
Dec. 31, 1995 (d) 10.00 0.01 0.25 0.26 (0.01) (0.03) __ (0.04) 10.22
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (Continued)
RATIOS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------
Net Ratio of Net
Assets, Ratio of Investment Average
End of Expenses Income Portfolio Commission
Total Period (In to Average to Average Turnover Rate
Return Thousands) Net Assets Net Assets Rate Paid(b)
<S> <C> <C> <C> <C> <C> <C>
June 30, 1997 (c) +8.7% $87,261 1.4% 1.1%* 75.1% $0.0015
Dec. 31, 1996 +10.4% 75,151 1.9% 0.4% 126.0% 0.0100
Dec. 31, 1995 (d) +2.6% 1,805 2.0%* 1.0%* 26.9%
</TABLE>
* Calculated on an annualized basis.(a) Information presented relates to
a share of capital stock of the Fund outstanding for the entire period.
(b) Disclosure required, effective for reporting periods beginning after
September 1, 1995.
(c) For the six months ended June 30, 1997 (Unaudited). Total return and
portfolio turnover rate are not annualized.
(d) Inception date is October 20, 1995. Total return and portfolio turnover
rate are not annualized.
12
<PAGE>
DIRECTORS
Richard S. Strong
John Dragisic
Willie D. Davis
Stanley Kritzik
Marvin E. Nevins
William F. Vogt
OFFICERS
Richard S. Strong, Chairman Of The Board
John Dragisic, President
Lawrence A. Totsky, Vice President
Thomas P. Lemke, Vice President
John S. Weitzer, Vice President
Stephen J. Shenkenberg, Vice President And Secretary
John A. Flanagan, Treasurer
INVESTMENT ADVISOR
Strong Capital Management, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
CUSTODIAN
Brown Brothers Harriman & Company
40 Water Street, Boston, Massachusetts 02109
AUDITOR
Coopers & Lybrand L.L.P.
411 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Godfrey & Kahn, S.C.
780 North Water Street, Milwaukee, Wisconsin 53202
<PAGE>
[STRONG LOGO]
STRONG FUNDS DISTRIBUTORS, INC.
P.O. Box 2936 o Milwaukee, Wisconsin 53201 5524G97
Strong Funds are offered by prospectus only.
<PAGE>
