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THE STRONG
ADVANTAGE FUND II
SEMI-ANNUAL REPORT o JUNE 30, 1997
TABLE OF CONTENTS
FINANCIAL INFORMATION
Schedule of Investments in Securities ...................2
Statement of Assets and Liabilities .....................2
Statement of Operations .................................3
Statement of Changes in Net Assets ......................3
Notes to Financial Statements ...........................4
FINANCIAL HIGHLIGHTS .........................................5
[STRONG LOGO]
STRONG FUNDS DISTRIBUTORS, INC.
P.O. Box 2936 o Milwaukee, Wisconsin 53201 5567G97
Strong Funds are offered by prospectus only.
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SCHEDULE OF INVESTMENTS IN SECURITIES June 30, 1997 (Unaudited)
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PRINCIPAL VALUE
AMOUNT (NOTE 2)
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CORPORATE BONDS 13.6%
Citicorp Floating Rate Notes, 6.50%, Due 5/01/04 $ 6,000 $ 6,055
First Bank System, Inc. Subordinated Floating Rate
Notes, 6.00%, Due 11/30/10 (Putable at 100
on 11/30/00) 20,000 20,181
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TOTAL CORPORATE BONDS (COST $25,895) 26,236
NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES 20.7%
Fund America Investors Corporation Variable Rate
Senior Pass-Thru Certificates, Series 1993-A,
Class A-1, 7.6226%, Due 6/25/23 19,422 20,187
Ryland Mortgage Securities Corporation Variable
Rate Mortgage Participation Securities,
Series 1992-3, Class A-2, 7.5274%, Due 6/25/20 19,435 19,629
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TOTAL NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES (COST $39,502) 39,816
SHORT-TERM INVESTMENTS (a) 67.4%
COMMERCIAL PAPER 3.0%
INTEREST BEARING, DUE UPON DEMAND
Johnson Controls, Inc., 5.31% 100 100
Wisconsin Electric Power Company, 5.33% 5,800 5,800
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5,900
UNITED STATES GOVERNMENT ISSUES 64.4%
United States Treasury Bills:
Due 7/24/97 60,000 59,812
Due 9/18/97 20,000 19,784
Due 9/25/97 45,000 44,459
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124,055
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TOTAL SHORT-TERM INVESTMENTS
(COST $129,954) 129,955
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TOTAL INVESTMENTS IN SECURITIES
(COST $195,351) 101.7% 196,007
Other Assets and Liabilities, Net (1.7%) (3,284)
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NET ASSETS 100.0% $192,723
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PERCENTAGE OF
INDUSTRY DIVERSIFICATION NET ASSETS
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U.S. Government .................................... 64.4%
Non-Agency Single Family ........................... 10.5
Bank - Regional .................................... 10.5
Non-Agency Asset Backed ............................ 10.2
Bank - Money Center ................................ 3.1
Electric Power ..................................... 3.0
Other Assets and Liabilities, Net .................. (1.7)
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Total 100.0%
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LEGEND
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(a) Short-term investments include any security which has a maturity of less
than one year.
Percentages are stated as a percent of net assets.
STATEMENT OF ASSETS AND LIABILITIES
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June 30, 1997 (Unaudited)
ASSETS:
Investments in Securities, at Value (Cost of $195,351) $196,007
Interest Receivable 813
Other Assets 50
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Total Assets 196,870
LIABILITIES:
Dividends Payable 641
Accrued Operating Expenses and Other Liabilities 3,506
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Total Liabilities 4,147
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NET ASSETS $192,723
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NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $189,607
Undistributed Net Realized Gain 2,460
Net Unrealized Appreciation 656
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Net Assets $192,723
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Capital Shares Outstanding (Unlimited Number Authorized) 19,176
NET ASSET VALUE PER SHARE $10.05
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See notes to financial statements.
2
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STATEMENT OF OPERATIONS
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For the Six Months Ended June 30, 1997 (Unaudited)
INTEREST INCOME $11,636
EXPENSES:
Investment Advisory Fees 1,109
Custodian Fees 520
Shareholder Servicing Costs 963
Professional Fees 2,042
Reports to Shareholders 850
Directors Fees 740
Other 11
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Total Expenses before Waivers & Absorptions 6,235
Involuntary Waivers & Absorptions by Advisor (2,494)
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Expenses, Net 3,741
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NET INVESTMENT INCOME 7,895
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain on Investments 2,552
Change in Unrealized Appreciation/Depreciation on Investments (1,700)
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NET GAIN 852
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 8,747
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STATEMENT OF CHANGES IN NET ASSETS
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<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DEC. 31, 1996
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(UNAUDITED)
OPERATIONS:
<S> <C> <C>
Net Investment Income $ 7,895 $ 25,696
Net Realized Gain 2,552 2,188
Change in Unrealized Appreciation/Depreciation (1,700) 1,097
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Increase in Net Assets Resulting from Operations 8,747 28,981
DISTRIBUTIONS:
From Net Investment Income (7,895) (25,696)
From Net Realized Gains __ (2,188)
In Excess of Net Realized Gains __ (92)
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Total Distributions (7,895) (27,976)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 49,824 1,380,639
Proceeds from Reinvestment of Dividends 5,781 6,608
Proceeds from Shares Redeemed (451,349) (1,301,896)
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Increase (Decrease) in Net Assets from Capital Share Transactions (395,744) 85,351
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TOTAL INCREASE (DECREASE) IN NET ASSETS (394,892) 86,356
NET ASSETS:
Beginning of Period 587,615 501,259
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End of Period $192,723 $ 587,615
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TRANSACTIONS IN SHARES OF THE FUND:
Sold 4,959 137,197
Issued in Reinvestment of Dividends 575 657
Redeemed (44,917) (129,295)
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Net Increase (Decrease) in Shares of the Fund (39,383) 8,559
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See notes to financial statements.
3
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NOTES TO FINANCIAL STATEMENTS
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June 30, 1997 (Unaudited)
1. ORGANIZATION
The Strong Advantage 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 last 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.
(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.
(H) Additional Investment Risk -- The use of futures contracts, options,
foreign denominated assets and 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.
4
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(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 0.60%
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 ended June 30, 1997, excluding the
effect of waivers and absorptions, were $20 and $750, respectively.
4. INVESTMENT TRANSACTIONS
The aggregate sales of long-term securities for the six months ended June
30, 1997 were $424,147.
5. INCOME TAX INFORMATION
At June 30, 1997, the cost of investments in securities for federal income
tax purposes was $195,351. Net unrealized appreciation of securities was
$656, consisting of gross unrealized appreciation and depreciation of $660
and $4, respectively.
FINANCIAL HIGHLIGHTS
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SELECTED PER-SHARE DATA (a)
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INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
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Net Realized
Net Asset and Unrealized Total From Net Asset
Value, Net Gains from From Net Net Value,
Beginning Investment (Losses)on Investment Investment Realized Total End of
of Period Income Investments Operations Income Gains Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1997 (b) $10.03 $0.21 $0.02 $0.23 ($0.21) -- ($0.21) $10.05
Dec. 31, 1996 10.03 0.44 0.04 0.48 (0.44) ($0.04) (0.48) 10.03
Dec. 31, 1995 (c) 10.00 0.05 0.03 0.08 (0.05) -- (0.05) 10.03
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FINANCIAL HIGHLIGHTS (continued)
RATIOS AND SUPPLEMENTAL DATA
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Net Ratio of Net
Assets, Ratio of Investment
End of Expenses Income Portfolio
Total Period(In to Average to Average Turnover
Return Thousands) Net Assets Net Assets Rate
June 30, 1997 (b) +2.3% $193 2.0%* 4.3%* 0.0%
Dec. 31, 1996 +4.9% 588 2.0% 4.3% 72.2%
Dec. 31, 1995 (c) +0.8% 501 1.0%* 5.2%* 0.0%
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the Fund
outstanding for the entire period.
(b) For the six months ended June 30, 1997 (Unaudited). Total return and
portfolio turnover rate are not annualized.
(c) Inception date is November 30, 1995. Total return and portfolio turnover
rate are not annualized.
5
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NOTES
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6
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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
Firstar Trust Company
P.O. Box 701, Milwaukee, Wisconsin 53201
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
