<PAGE>
THE STRONG
INTERNATIONAL STOCK FUND II
ANNUAL REPORT o DECEMBER 31, 1996
[MAP OF WORLD]
[PHOTO OF FAMILY]
DESIGNED TO SEEK CAPITAL GROWTH
BY INVESTING PRIMARILY IN STOCKS
OF FOREIGN-BASED COMPANIES
[STRONG LOGO]
STRONG FUNDS
<PAGE>
THE STRONG
INTERNATIONAL STOCK FUND II
ANNUAL REPORT o DECEMBER 31, 1996
TABLE OF CONTENTS
INVESTMENT REVIEW
The Strong International Stock Fund II ............................. 2
FINANCIAL INFORMATION
Schedule of Investments in Securities .............................. 4
Statement of Operations ............................................ 8
Statement of Assets and Liabilities ................................ 8
Statement of Changes in Net Assets ................................. 9
Notes to Financial Statements ...................................... 9
FINANCIAL HIGHLIGHTS .................................................... 11
REPORT OF INDEPENDENT ACCOUNTANTS ....................................... 12
<PAGE>
THE STRONG INTERNATIONAL STOCK FUND II
WE TEND TO USE A "BOTTOM UP" APPROACH-WE PLACE MORE EMPHASIS ON THE STRENGTH AND
POTENTIAL OF INDIVIDUAL COMPANIES THAN ON THE TEMPORARY ENVIRONMENT OF THE
COUNTRIES IN WHICH WE INVEST.
By investing primarily in the stocks of companies based outside the United
States, the Strong International Stock Fund II pursues capital growth. The Fund
provides convenient access to growth opportunities worldwide that, when compared
to a U.S.-only portfolio, may increase return potential.
But from June through October, many international stock markets began to falter.
Asia was particularly hard hit, primarily due to political worries in Thailand
and Indonesia, and a cooling off of earnings and exports throughout the Pacific
Rim.
ASSET ALLOCATION
Based on net assets as of 12-31-96
[PIE CHART]
Stocks 86.0%
Short-Term Investments 11.6%
Bonds 1.2%
Convertible Securities 1.2%
INTERNATIONAL STOCKS END HIGHER
On the whole, 1996 was a decent year for international stocks. The Fund finished
the year with a return of 10.38%, which compared favorably with international
stocks in general, as measured by the MSCI EAFE(TM) Index's* 6.05% return for
the same period.(1)
This overall performance masks a somewhat difficult year for international
investors, however. During the first six months of the year, foreign stock
markets sustained a broad rally, particularly in Asia. The Fund's substantial
weighting in Asia contributed to a gain of 13.46% for the period, compared to a
gain of 4.52% for the MSCI EAFE(TM) Index.(1)
FIVE LARGEST HOLDINGS BY COUNTRY
Based on net assets as of 12-31-96
Japan 9.6%
- ------------------------------------------------
Australia 9.4%
- ------------------------------------------------
New Zealand 5.9%
- ------------------------------------------------
Indonesia 5.3%
- ------------------------------------------------
Malaysia 4.4%
- ------------------------------------------------
Please see the Schedule of Investments in Securities for a complete listing of
the Fund's portfolio.
WE STAYED TRUE TO OUR STRATEGY
As you may be aware, we tend to use a "bottom-up" approach to stock investing.
While global economic climates certainly play a part in our selection process,
we place more emphasis on the strength and potential of individual companies
than on the temporary environment of the countries in which we invest. This
approach helps us find attractive opportunities in places that others may
overlook.
o PACIFIC RIM - As stated earlier, Pacific Rim markets helped the Fund
outperform the benchmark during the first half of the fiscal year, and
hindered its performance during the second half. Concerns about these markets
arose when their annual growth rates declined from 8%-9% to approximately 6%.
We believe the downdraft in Asian markets will be short-lived, however...6%
annual growth is still attractive, and these markets now appear to represent
an even better value.
o EUROPE - While Europe certainly did not appear to have the growth potential of
the Pacific Rim, many of the portfolio's best performers were in Europe - an
illustration of our "bottom-up" approach in action. Such stocks held during
the year included Tomra, a Norway-based firm that manufactures recycling
machines for use by the public, and Simint, an Italian franchiser for Armani.
o LATIN AMERICA - We continue to underweight Mexico and some of the emerging
markets in Latin America. While a few of these markets performed well during
the fiscal year, we believe opportunities elsewhere remain just as attractive
and less potentially volatile.
FIVE LARGEST STOCK HOLDINGS
Based on net assets as of 12-31-96
SECURITY % OF NET ASSETS
- ------------------------------------------------
Gemina Spa 1.5%
- ------------------------------------------------
Cinema Plus, Ltd. 1.2%
- ------------------------------------------------
Malaysian Resources Corporation BHD 1.2%
- ------------------------------------------------
Trade House GUM Sponsored ADR 1.1%
- ------------------------------------------------
Games Workshop Group PLC 1.1%
- ------------------------------------------------
Please see the Schedule of Investments in Securities for a complete listing of
the Fund's portfolio.
In our selections, we tended to emphasize small and mid-sized companies. These
companies tend to be very good at their particular business, which gives them
outstanding growth potential. In addition, because they are relatively obscure,
we have an opportunity to buy them for less than a more widely-followed
company. Thus, our research can help add potential value to the portfolio.
2
<PAGE>
OPPORTUNITIES REMAIN IN GLOBAL MARKETS
Foreign stock markets as a whole have underperformed the U.S. market for nearly
two years. So a sense of impatience on the part of U.S. investors is
understandable. However, investors must remember that patience is a key
ingredient for success when investing in foreign markets. We don't know when
they may begin to outperform domestic markets, but we do know that there are
outstanding values now available internationally. We believe this is
particularly true for small and mid-cap stocks.
In addition, the reasons that make international investing compelling for
long-term investors remain in place:
o With the U.S. market at an all-time high, we believe investors both here and
abroad may be prompted to look elsewhere for greater growth potential, which
should help drive international stock prices higher.
o Many of these markets continue to grow more than twice as fast as mature
markets.
o Investors have the potential to increase returns and lower overall portfolio
volatility by diversifying a U.S.-only stock portfolio internationally.
As always, keep in mind that the Fund is likely to be more volatile than a
U.S.-only fund, owing to changes in stock market conditions, currency values,
interest rates, local regulations and economic and political conditions. But
given the value currently available in international markets, we believe foreign
equities offer long-term investors an attractive opportunity.
We thank you for your support and look forward to earning your continued
confidence.
Sincerely,
/s/ Anthony L.T. Cragg
Anthony L.T. Cragg
Portfolio Manager
[PHOTO OF ANTHONY L.T. CRAGG]
- --------------------------------------------------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS(1)
As of 12-31-96
1-year 10.38%
Since Inception 10.97%
(on 10-20-95)
GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 10-20-95 to 12-31-96
[GRAPH]
THE STRONG MSCI Lipper
INTERNATIONAL EAFE(TM) 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
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.
- --------------------------------------------------------------------------------
* 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 December 31, 1996
- --------------------------------------------------------------------------------
SHARES OR VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
COMMON STOCKS 82.6%
ARGENTINA 1.3%
Quilmes Industrial SA ADR 34,000 $ 310
YPF Sociedad Anonima ADR 25,000 631
------
941
AUSTRALIA 8.4%
Aberfoyle, Ltd. 122,618 314
Australian Tourism Group 500,000 334
Bank of Melbourne, Ltd. 38,176 259
Cinema Plus, Ltd. (b) 1,313,000 918
MIM Holdings, Ltd. 281,618 394
Normandy Mining, Ltd. 440,000 608
Novus Petroleum, Ltd. 313,169 717
Oil Search, Ltd. 90,000 175
Orogen Minerals, Ltd. GDR (Acquired 10/31/96;
Cost $245) (b) (c) 15,500 360
Polartechnics, Ltd. (b) 251,000 509
Sea World Property Trust 213,000 281
Sydney Aquarium, Ltd. 223,900 640
Sydney Harbour Casino Holdings, Ltd. (b) 104,000 160
Western Mining Corporation, Ltd. 102,650 647
------
6,316
AUSTRIA 0.3%
Flughafen Wien AG 3,800 194
BELGIUM 0.8%
Algemene Maatschappij Voor
Nijverheidskredit Almanij 1,300 426
Audiofina 4,000 189
------
615
BRAZIL 0.8%
Companhia Vale do Rio Doce Sponsored ADR 29,000 562
Usinas Siderurgicas de Minas Gerais
Sponsored ADR 6,200 63
------
625
CANADA 0.5%
Chapters, Inc. (Acquired 12/17/96-12/24/96;
Cost $362) (b) (c) 30,200 386
CHILE 0.3%
Five Arrows Chile Investment Trust, Ltd. 92,000 258
CHINA 1.3%
The China Fund, Inc. 52,400 688
Ek Chor China Motorcycle Company, Ltd. 3,200 24
Shandong Huaneng Power Company, Ltd. ADR 29,000 283
------
995
EGYPT 2.2%
Egypt Investment Company, Ltd. (b) 50,000 644
Misr Oil & Soap Company (b) 33,000 284
Nile for Matches (b) 23,715 194
Suez Cement (b) 35,103 570
------
1,692
FRANCE 3.0%
Accor SA 4,300 544
Assurances Generales de France 3,000 97
Club Mediterranee SA 5,850 380
Europe 1 Communication 1,000 212
Louis Dreyfus Citrus (b) 11,000 360
Pathe SA (b) 1,700 410
Sabeton SA (b) 1,800 257
------
2,260
GERMANY 0.5%
Leica Camera AG (b) 11,000 343
GHANA 0.5%
Ashanti Goldfields Company, Ltd. GDR 28,500 353
HONG KONG 3.7%
CDL Hotels International, Ltd. 1,319,668 755
China Overseas Land & Investment, Ltd. 384,000 195
Hong Kong Land Holdings, Ltd. 254,398 707
Jardine Strategic Holdings, Ltd. 96,000 348
Peregrine Investment Holdings, Ltd. 198,000 339
Peregrine Investment Holdings, Ltd. Warrants,
Expire 5/15/98 (b) 9,500 3
C.P. Pokphand Company 700,000 274
VTech Holdings, Ltd. 108,000 194
------
2,815
HUNGARY 0.4%
Hungarian Investment Company, Ltd. (b) 3,600 313
INDIA 0.2%
Industrial Credit & Investment Corporation, Ltd.
GDR (Acquired 8/02/96; Cost $92)(b)(c) 8,000 78
IS Himilayan Fund NV (b) 7,200 93
------
171
INDONESIA 5.3%
Bank Bali PT (Fgn Reg) 94,000 235
Bank Tiara Asia PT (Fgn Reg) 167,000 180
Ciputra Development PT (Fgn Reg) 358,000 371
Davomas Abadi PT (Fgn Reg) 490,000 441
Daya Guna Samudera PT (Acquired 10/16/96;
Cost $110) (b) (c) 130,000 151
Jaya Real Property PT (Fgn Reg) 140,000 196
Kalbe Farma PT (Fgn Reg) 220,000 252
Komatsu Indonesia PT (Fgn Reg) 456,000 304
Lippo Life Insurance PT (Fgn Reg) 275,000 253
Modern Photo Film Company PT (Fgn Reg) 72,000 229
Semen Cibinong PT (Fgn Reg) 59,000 166
Semen Gresik PT (Fgn Reg) 199,000 641
Tambang Timah PT GDR 7,200 130
Tambang Timah PT GDR (Acquired
1/26/96-3/06/96; Cost $267) (c) 18,000 325
Van Der Horst, Ltd. (Fgn Reg) 70,000 71
------
3,945
IRELAND 0.3%
First Ireland Investment Company 100,000 217
ISRAEL 0.4%
Koor Industries, Ltd. ADR 18,000 306
ITALY 3.7%
Arnoldo Mondadori Editore Spa 19,800 162
De Rigo Spa ADR (b) 14,400 131
Gemina Spa (b) 2,350,000 1,154
Pininfarina Spa 14,000 148
STET - Societa' Finanziaria Telefonica PA 90,000 409
Simint Spa (b) 147,000 536
Zucchini Spa (b) 27,000 222
------
2,762
JAPAN 9.6%
Canon Sales Company, Inc. 11,000 245
Chubu Steel Plate Company, Ltd. 76,000 406
Daiwa House Industry Company, Ltd. Warrants,
Expire 10/30/97 (b) 360 20
Descente, Ltd. 30,000 173
Diamond City Company 24,000 179
Eiden Sakakiya Company, Ltd. Warrants,
Expire 11/30/99 (b) 120 53
See notes to financial statements.
4
<PAGE>
- --------------------------------------------------------------------------------
SHARES OR VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
Heiwa 14,000 $ 220
Higashi Nihon House 13,000 167
Horipro, Inc. 25,000 239
Imagineer Company, Ltd. (b) 6,000 362
Ishikawajima Harima Heavy Industries
Company, Ltd. 51,000 227
Japan Cash Machine Company, Ltd. 19,000 313
Japan Industrial Land Development 6,100 116
Marubeni Corporation 68,000 292
Mitsubishi Corporation 39,000 404
Mitsui Fudosan 42,000 420
Morgan Stanley Group, Inc. Nikkei 225 Index
Call Warrants, Expire 8/15/97 (b) 25,000 97
Nichiha 17,000 301
Nippon Felt Company, Ltd. 37,000 185
Nippon Shinpan Company 39,000 219
Nomura Securities Company, Ltd. 17,000 255
OJI Paper Company, Ltd. Warrants,
Expire 7/30/98 (b) 120 39
Ohmoto Gumi Company, Ltd. 9,700 145
Powdertech 22,000 239
Roland 15,000 255
SXL Corporation Warrants, Expire 2/26/99 (b) 1,100 44
Shinseido Company, Ltd. 22,000 173
Shiseido Company, Ltd. 22,000 254
Shochiku Warrants, Expire 12/29/99 (b) 170 72
Sony Music Entertainment, Inc. 6,300 249
TOC Company, Ltd. 36,000 320
Takihyo Company, Ltd. 14,000 169
Toho Company 2,700 391
------
7,243
MALAYSIA 4.4%
Batu Kawan BHD 106,000 222
Highlands & Lowlands BHD 211,000 353
IJM Corporation BHD `A' 183,000 431
Kumpulan Guthrie BHD 223,000 396
Malaysian Resources Corporation BHD 223,000 879
Rashid Hussain BHD 26,000 172
Sime UEP Properties BHD 100,000 257
TA Enterprise BHD 214,000 283
Technology Resources Industries BHD (b) 161,000 318
------
3,311
MEXICO 0.4%
Mexico Fund 22,000 330
NAMIBIA 0.1%
Namibia Breweries 175,300 97
NETHERLANDS 1.5%
KLM Royal Dutch Airlines 13,500 376
Philips Electronics NV ADR 18,600 744
------
1,120
NEW ZEALAND 3.7%
AFFCO Holdings, Ltd. 161,901 71
CDL Hotels New Zealand, Ltd. (b) 680,000 240
Corporate Investments, Ltd. (b) 766,000 357
Direct Capital Partners, Ltd. 156,000 85
Evergreen Forests, Ltd. (b) 1,326,000 557
Guinness Peat Group PLC 1,214,741 703
Shortland Properties, Ltd. 1,138,000 787
------
2,800
NORWAY 1.2%
Alvern Norway AS (b) 44,709 596
Schibsted Group AS 15,500 286
------
882
PAKISTAN 0.5%
Pakistan Investment Fund, Inc. 74,000 379
PERU 1.1%
Compania de Minas Buenaventura SA
Sponsored ADR 29,000 495
Minsur SA 88,396 307
------
802
PHILIPPINES 1.3%
Belle Corporation (b) 284,000 79
Benpres Holdings Corporation Sponsored GDR (b) 40,500 304
Solid Group, Inc. (b) 2,830,000 582
------
965
POLAND 0.5%
The Fleming Poland Fund, Ltd. Redeemable
Participating Preference `A' Shares(b) 39,500 400
PORTUGAL 0.8%
Cimpor-Cimentos de Portugal SA 17,000 366
Portugal Fund, Inc. 14,400 198
------
564
RUSSIA 3.1%
The Central European Growth Fund PLC 350,000 372
The Fleming Russia Securities Fund, Ltd.
(Acquired 8/08/96; Cost $315) (b) (c) 30,000 338
Morgan Stanley Russia & New Europe Fund, Inc. 20,000 360
RAO Gazprom ADS (Acquired 10/21/96;
Cost $220) (b) (c) 14,000 249
Red October Russian Depository Trust Certificates
(Acquired 8/14/96-8/27/96; Cost $144) (b)(c) 2 210
Trade House GUM Sponsored ADR (Acquired
8/12/96-8/29/96; Cost $584) (b) (c) 14,000 812
------
2,341
SINGAPORE 3.7%
FJ Benjamin Holdings, Ltd. (b) 262,000 184
GP Batteries International, Ltd. 92,000 305
Hong Leong Finance, Ltd. (Fgn Reg) 91,000 316
Kay Hian James Capel Holdings, Ltd. 238,000 216
Keppel Corporation, Ltd. 44,000 343
Robinson & Company, Ltd. 101,000 412
Singapore Airlines, Ltd. (Fgn Reg) 59,000 536
Singapore Land, Ltd. 22,000 122
Van Der Horst, Ltd. 83,000 347
------
2,781
SOUTH AFRICA 0.9%
Energy Africa, Ltd. GDR (Acquired 5/14/96-8/29/96;
Cost $444) (b) (c) 31,500 559
Morgan Stanley Africa Investment Fund, Inc. 9,000 123
------
682
SOUTH KOREA 2.0%
Hotel Shilla Company 15,000 119
Kookmin Bank 18,310 254
Korea Electric Power Corporation 6,000 175
Korea Electric Power Corporation Sponsored ADR 21,150 434
Korean Airline Company, Ltd. 19,800 306
Ssangyong Investment & Securities
Company, Ltd. (b) 20,000 192
------
1,480
SPAIN 1.4%
Construcciones y Auxiliar de Ferrocarriles SA 7,700 292
Sol Melia SA (b) 21,000 752
------
1,044
See notes to financial statements.
5
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES (continued) December 31, 1996
- --------------------------------------------------------------------------------
SHARES OR VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
SWEDEN 0.9%
Argonaut AB `B' Shares (b) 115,000 $ 230
Medical Invest Svenska AB `B' Shares (b) 8,000 216
Rottneros AB 178,000 225
-------
671
SWITZERLAND 3.0%
Crossair AG 300 96
Liechtenstein Global Trust AG 1,175 601
Magazine Zum Globus Registered Shares 345 179
Nestle AG 107 115
Oerlikon - Buehrle Holding AG `R' (b) 3,600 354
SGS (Societe Generale de Surveillance) Holdings SA 227 557
Schindler Holding AG 350 380
-------
2,282
TAIWAN 0.4%
The Taipei Fund IDR (b) 36 311
THAILAND 1.6%
Finance One PCL (Fgn Reg) 65,000 132
Italian-Thai Development PCL (Fgn Reg) 36,000 230
Land & House PCL (Fgn Reg) 31,000 226
Property Perfect PCL (Fgn Reg) 49,000 49
The Ruam Pattana Two Fund 302,000 124
The Ruam Pattana Two Fund (Fgn Reg) 24,000 10
Shinawatra Computer Company PCL (Fgn Reg) 5,000 60
Siam Cement PCL (Fgn Reg) 7,000 219
Siam City Cement PCL (Fgn Reg) 25,000 131
-------
1,181
TURKEY 0.2%
Turkish Investment Fund, Inc. 31,300 172
UNITED KINGDOM 3.7%
Allied Domecq PLC 18,374 144
Body Shop International PLC (b) 181,000 620
British Aerospace PLC 137 3
British Biotech PLC (b) 32,620 116
Games Workshop Group PLC 87,000 804
General Cable PLC ADR (b) 18,000 297
Inchcape PLC 69,902 324
Trocadero PLC (b) 292,000 262
Vickers PLC 47,000 205
-------
2,775
UNITED STATES 0.5%
Showboat, Inc. 5,400 93
Sunshine Mining and Refining Company (b) 271,000 254
-------
347
VIETNAM 0.2%
Vietnam Frontier Fund (b) 11,000 113
ZIMBABWE 0.8%
Meikles Africa, Ltd. (Acquired 10/24/96;
Cost $264) (b) (c) 200,000 296
Trans Zambezi Industries, Ltd. GDR (Acquired
7/16/96; Cost $324) (c) 144,000 342
-------
638
OTHER 1.2%
The Foreign & Colonial Emerging Middle
East Fund, Inc. (b) 30,000 401
Morgan Stanley Emerging Markets Fund, Inc. 16,000 222
Schroder Asian Growth Fund, Inc. 21,000 249
-------
872
-------
TOTAL COMMON STOCKS (COST $63,394) 62,090
PREFERRED STOCKS 3.4%
AUSTRALIA 0.8%
The News Corporation, Ltd. 135,113 601
BRAZIL 0.6%
Companhia Antartica Paulista - Industria Brasileira
de Bebidas e Conexos 3,100 418
GERMANY 2.0%
BBS Kraftfahrzeugtechnik AG (b) 1,000 169
Friedrich Grohe AG 1,300 359
Hornbach Holding AG 3,900 278
KSB Group Non-Voting 1,940 300
Porsche AG Non-Voting (b) 510 450
-------
1,556
-------
TOTAL PREFERRED STOCKS (COST $2,370) 2,575
CONVERTIBLE BONDS 1.2%
NEW ZEALAND
Kiwi Income Property Trust Subordinated Notes,
9.00%, Due 9/30/03 (COST $819) 1,065 NZD 932
CORPORATE BONDS 0.2%
AUSTRALIA
UIH Australia/PAC, Inc. Senior Discount Notes,
Series B, Zero %, Due 5/15/06 (Rate Reset
Effective 5/15/01) (COST $110) 200 USD 106
GOVERNMENT & AGENCY ISSUES 1.0%
NEW ZEALAND
Government of New Zealand Notes, 8.00%,
Due 11/15/06 (COST $689) 1,000 NZD 743
SHORT-TERM INVESTMENTS (a) 11.1%
COMMERCIAL PAPER 0.0%
INTEREST BEARING DUE UPON DEMAND
UNITED STATES
United States Cayman Eurodollar
Call Deposit, 4.25% $ 6 6
TIME DEPOSITS 11.1%
UNITED STATES
Societe Generale Time Deposit, 6.25%, Due 1/01/97 3,700 3,700
Sumitomo Bank, Ltd. Yankee Dollar Certificate of
Deposit, 6.00%, Due 1/01/97 900 900
Wachovia Grand Cayman Time Deposit, 5.71%,
Due 1/01/97 3,700 3,700
-------
Total Time Deposits 8,300
-------
TOTAL SHORT-TERM INVESTMENTS (COST $8,306) 8,306
-------
TOTAL INVESTMENTS IN SECURITIES
(COST $75,688) 99.5% 74,752
Other Assets and Liabilities, Net 0.5% 399
-------
NET ASSETS 100.0% $75,151
=======
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
- --------------------------------------------------------------------------------
VALUE UNREALIZED
SETTLEMENT IN USD APPRECIATION
DATE (In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
Sold:
1,817,700 CHF 3/25/97 ($1,367) $133
1,212,800 DEM 4/25/97 (793) 7
See notes to financial statements.
6
<PAGE>
- --------------------------------------------------------------------------------
PERCENTAGE OF
INDUSTRY DIVERSIFICATION NET ASSETS
- --------------------------------------------------------------------------------
Closed-End Fund ....................................... 8.4%
Conglomerate .......................................... 8.0
Leisure Service ....................................... 7.5
Real Estate ........................................... 6.8
Engineering & Construction ............................ 5.9
Metals & Mining ....................................... 5.6
Finance - Miscellaneous ............................... 3.2
Oil - International Integrated ........................ 3.1
Bank - Money Center ................................... 3.0
Retail - Specialty .................................... 2.7
Food .................................................. 2.3
Airline ............................................... 1.7
Electronic Products - Miscellaneous ................... 1.7
Brokerage & Investment Management ..................... 1.6
Machinery - Miscellaneous ............................. 1.6
Retail - Department Store ............................. 1.6
Media - Publishing .................................... 1.4
Retail - Major Chain .................................. 1.4
Steel ................................................. 1.4
Telecommunication Service ............................. 1.4
Paper & Forest Products ............................... 1.3
Electric Power ........................................ 1.2
Shoe & Apparel Manufacturing .......................... 1.2
Agricultural Operations ............................... 1.1
Automobile ............................................ 1.1
Beverage - Alcoholic .................................. 1.1
Foreign Government .................................... 1.0
Household Appliance & Furnishings ..................... 1.0
Media - Radio/TV ...................................... 1.0
Consumer - Miscellaneous .............................. 0.8
Diversified Operations ................................ 0.8
Healthcare - Instrumentation .......................... 0.7
Cosmetic & Personal Care .............................. 0.6
Transportation Service ................................ 0.6
Computer Software ..................................... 0.5
Healthcare - Drug/Diversified ......................... 0.5
Leisure Product ....................................... 0.5
Housing Related ....................................... 0.4
Machinery - Construction & Mining ..................... 0.4
Machinery - Transportation Equipment & Parts .......... 0.4
Chemical .............................................. 0.3
Healthcare - Medical Supply ........................... 0.3
Insurance - Life ...................................... 0.3
Shipping .............................................. 0.3
Auto & Truck Parts .................................... 0.2
Housing ............................................... 0.2
Index Based ........................................... 0.1
Insurance - Diversified ............................... 0.1
Telecommunication Equipment ........................... 0.1
Short-Term Investments ................................11.1
Other Assets and Liabilities, Net ..................... 0.5
-----
Total 100.0%
=====
LEGEND
- ------
(a) Short-term investments include any security which has a maturity of less
than one year.
(b) Non-income producing security.
(c) Restricted security.
All principal amounts and costs are stated in thousands.
Percentages are stated as a percent of net assets.
CURRENCY ABBREVIATIONS
- ----------------------
CHF Swiss Franc
DEM German Mark
NZD New Zealand Dollar
USD United States Dollar
See notes to financial statements.
7
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended December 31, 1996
(In Thousands)
INCOME:
Dividends $ 660
Interest 437
--------
Total Income 1,097
EXPENSES:
Investment Advisory Fees 476
Custodian Fees 256
Shareholder Servicing Costs 62
Reports to Shareholders 82
Other 32
--------
Total Expenses 908
--------
NET INVESTMENT INCOME 189
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 2,233
Forward Foreign Currency Contracts 49
Foreign Currencies (2)
Change in Unrealized Appreciation/Depreciation on:
Investments (969)
Forward Foreign Currency Contracts 139
Foreign Currencies 1
--------
NET GAIN 1,451
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,640
========
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1996
(In Thousands, Except Per Share Amounts)
ASSETS:
Investments in Securities, at Value (Cost of $75,688) $74,752
Receivable from Brokers for Securities and
Forward Foreign Currency Contracts Sold 303
Dividends and Interest Receivable 299
Other Assets 1
--------
Total Assets 75,355
LIABILITIES:
Payable to Brokers for Securities Purchased 4
Accrued Operating Expenses and Other Liabilities 200
--------
Total Liabilities 204
--------
NET ASSETS $75,151
========
Capital Shares Outstanding (Unlimited Number Authorized) 6,689
NET ASSET VALUE PER SHARE $11.23
======
See notes to financial statements.
8
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<CAPTION>
YEAR ENDED PERIOD ENDED
DEC. 31, 1996 DEC. 31, 1995
------------- -------------
(NOTE 1)
OPERATIONS:
<S> <C> <C>
Net Investment Income $ 189 $ 2
Net Realized Gain 2,280 2
Change in Unrealized Appreciation/Depreciation (829) 33
-------- --------
Increase in Net Assets Resulting from Operations 1,640 37
CAPITAL SHARE TRANSACTIONS 72,006 1,775
DISTRIBUTIONS:
From Net Investment Income (189) (2)
In Excess of Net Investment Income (111) (5)
-------- --------
TOTAL INCREASE IN NET ASSETS 73,346 1,805
NET ASSETS:
Beginning of Period 1,805 --
-------- --------
End of Period $75,151 $1,805
======== ========
</TABLE>
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1996
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, 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 December 31, 1996 were (in thousands) $3,371 and
$4,106, respectively, representing 5.5% 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.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
December 31, 1996
(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, 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.
(F) 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.
(G) 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, 1996 were as follows (in thousands):
Capital Stock $73,781
Undistributed Net Investment Income 103
Undistributed Net Realized Gain 2,062
Net Unrealized Depreciation (795)
--------
$75,151
========
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the year ended December 31, 1996 and
the period ended December 31, 1995 were as follows (in thousands):
1996 1995
------------------ -------------------
SHARES DOLLARS SHARES DOLLARS
------ -------- ------ -------
Shares Sold 10,737 $118,716 242 $2,437
Dividends Reinvested 27 300 1 7
Shares Redeemed (4,251) (47,010) (66) (669)
------ -------- ------ -------
6,513 $ 72,006 177 $1,775
====== ======== ====== =======
5. RELATED PARTY TRANSACTIONS
Strong Capital Management, Inc. (the "Advisor"), with whom certain officers
and directors of the Fund are affiliated, provides investment advisory
services to the Fund. Investment advisory fees, which are established by
terms of the Advisory Agreement, are based on an annualized rate of 1.00%
of the average daily net assets of the Fund. Advisory fees are subject to
reimbursement by the Advisor if the Fund's operating expenses exceed
certain levels.
The amount payable to the Advisor at December 31, 1996 and unaffiliated
directors' fees for 1996 were (in thousands) $62 and $2, respectively.
6. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities for the year
ended December 31, 1996 were (in thousands) $116,978 and $53,164,
respectively.
7. INCOME TAX INFORMATION
At December 31, 1996, the investment cost, gross unrealized appreciation
and depreciation on investments for Federal income tax purposes were as
follows (in thousands):
Aggregate Investment Cost $75,889
=======
Aggregate Unrealized:
Appreciation $ 5,189
Depreciation (6,326)
-------
($ 1,137)
=======
For corporate shareholders in the Fund, the percentage of dividend income
distributed for the year ended December 31, 1996, which are designated as
qualifying for the dividends-received deduction is 0.0%.
10
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
12-31-96 12-31-95(b)
-------- --------
SELECTED PER-SHARE DATA(a)
- -----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.22 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.03 0.01
Net Realized and Unrealized Gains on Investments 1.03 0.25
------- -------
Total from Investment Operations 1.06 0.26
LESS DISTRIBUTIONS:
From Net Investment Income (0.03) (0.01)
In Excess of Net Investment Income (0.02) (0.03)
------- -------
Total Distributions (0.05) (0.04)
------- -------
NET ASSET VALUE, END OF PERIOD $ 11.23 $ 10.22
======= =======
TOTAL RETURN +10.4% +2.6%
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------
Net Assets, End of Period (In Thousands) $75,151 $ 1,805
Ratio of Expenses to Average Net Assets 1.9% 2.0%*
Ratio of Net Investment Income to Average Net Assets 0.4% 1.0%*
Portfolio Turnover Rate 126.0% 26.9%
Average Commission Rate Paid(c) $0.0100
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the fund
outstanding for the entire period.
(b) Inception date is October 20, 1995. Total return and portfolio turnover
rate are not annualized.
(c) Disclosure required, effective for reporting periods beginning after
September 1, 1995.
11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of the
Strong International Stock Fund II
We have audited the accompanying statement of assets and liabilities of Strong
International Stock Fund II (one of the portfolios constituting the Strong
Variable Insurance Funds, Inc.), including the schedule of investments in
securities, as of December 31, 1996, and the related statement of operations for
the year then ended, and the statement of changes in net assets and financial
highlights for the year ended December 31, 1996 and for the period from October
20, 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 audits.
We conducted our audits 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, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide 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
International Stock Fund II as of December 31, 1996 and the results of its
operations for the year then ended, and the changes in its net assets and the
financial highlights for the year ended December 31, 1996 and for the period
from October 20, 1995 to December 31, 1995, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
February 3, 1997
12
<PAGE>
[STRONG LOGO]
STRONG FUNDS DISTRIBUTORS, INC.
P.O. Box 2936
Milwaukee, Wisconsin 53201
http://www.strong-funds.com
Strong Funds are offered by prospectus only.
4618A97
