<PAGE>
- -------------------------------------------------------------------------------
THE STRONG
OPPORTUNITY FUND II
ANNUAL REPORT * DECEMBER 31, 1997
[PIE CHART OF ASSET DIVERSIFICATION EMPHASIZING STOCKS]
[STRONG FUNDS LOGO]
STRONG FUNDS
<PAGE>
- -------------------------------------------------------------------------------
THE STRONG
OPPORTUNITY FUND II
ANNUAL REPORT * DECEMBER 31, 1997
TABLE OF CONTENTS
INVESTMENT REVIEW
The Strong Opportunity Fund II...........................................2
FINANCIAL INFORMATION
Schedule of Investments in Securities....................................4
Statement of Assets and Liabilities......................................6
Statement of Operations..................................................7
Statements of Changes in Net Assets......................................8
Notes to Financial Statements............................................9
FINANCIAL HIGHLIGHTS.........................................................11
REPORT OF INDEPENDENT ACCOUNTANTS............................................12
[STRONG FUNDS LOGO]
STRONG FUNDS DISTRIBUTORS, INC.
P.O. Box 2936 * Milwaukee, Wisconsin 53201
Strong Funds are offered by prospectus only. 6912A98
<PAGE>
THE STRONG OPPORTUNITY FUND II
THE FUND BENEFITED FROM AN OUTPERFORMANCE BY MANY OF ITS MEDIA HOLDINGS, WHICH
WERE OVERWEIGHTED IN THE PORTFOLIO.
The Strong Opportunity Fund II seeks capital growth by investing at least 70%
of its assets in equity securities. The Fund emphasizes medium companies that
the Fund's advisor believes are under-researched and attractively valued.
==================================
ASSET ALLOCATION
==================================
Based on net assets as of 12-31-97
[PIE CHART]
Stocks 89.1%
Short-Term Investments 10.9%
==================================
For the fiscal year ended December 31, 1997, the U.S. stock market was stronger
than expected, largely driven by the 22 largest multinationals of the S&P 500
Index; stocks such as General Electric and Coca-Cola became "safe havens" for
investors concerned about the economic turmoil in Asia. While this narrow
market hindered small- and mid-cap stocks relative to large ones, the Fund
still delivered a 25.45% return for the year vs. a 32.25% return for its
benchmark, S&P Midcap 400 Stock Index, and 28.08% for the Lipper Growth Funds
Index.*
======================================
TOP FIVE SECTORS
======================================
As of 12-31-97
SECTOR % OF NET ASSETS
- --------------------------------------
Technology 20.6%
- --------------------------------------
Energy 12.7%
- --------------------------------------
Financial 11.4%
- --------------------------------------
Consumer Cyclical 9.6%
- --------------------------------------
Retail 7.6%
- --------------------------------------
Please see the Schedule of Investments
in Securities for a complete listing
of the Fund's portfolio.
======================================
STRONG RESULTS IN A MIXED MARKET
In the first quarter of 1997, small- and mid-sized companies lagged the
large-cap dominated market indices as the combination of earnings growth and
ready liquidity that large-caps offered proved attractive to investors. During
this period, earnings momentum played a larger role in the performance of many
stocks than did their underlying long-term fundamentals and valuation.
Eventually, the valuation gap between large and small stocks grew too large to
sustain, resulting in a substantial third-quarter rally for small- and mid-cap
stocks. A strong dollar also contributed to this rally, as large multinational
companies are susceptible to reduced earnings expectations when the dollar
rises in value against foreign currencies. However, the rally in small- and
mid-cap stocks was cut short in the fourth quarter as the Asia crisis drove
many investors to seek "safe-haven" stocks that could provide stability in
times of volatility. As a result, the S&P 500 outperformed the Russell
2000((reg.tm)) for the year.*
A momentum-driven and narrow market is not consistent with our disciplined
investment style. We believe our strength lies in a commitment to our private
value approach to stock selection. We evaluate a company as though we were
considering buying the entire firm, and compare the price we'd be willing to
pay with the current stock price. If the cost of the stock doesn't reflect
this private value--often because the stock is being ignored by analysts--we
will consider adding it to the portfolio.
RESEARCH UNCOVERED OPPORTUNITIES
During the year, the Fund discovered a number of areas of opportunity. Our
investment universe tends to focus on undiscovered, largely ignored companies
that are selling at substantial discounts to their private value. To be
successful within this universe, an investor needs to adopt a very intensive
research process, of which direct company visits are important. In 1997, we
were able to add several promising holdings to the portfolio, such as Cadence
Design and American Power Conversion.
In particular, the Fund benefited from an outperformance by many of its media
holdings, which were overweighted in the portfolio. Increased merger and
acquisition activity led to attractive returns in cable and cellular stocks.
The Fund's overweighted energy sector--particularly the oil service group--also
performed well, as oil and gas prices have grown sharply in response to a
greater demand for resources.
==========================================================
FIVE LARGEST STOCK HOLDINGS
==========================================================
As of 12-31-97
% OF NET
SECURITY INDUSTRY ASSETS
- ----------------------------------------------------------
Tele-Communications, Inc. Media-Radio/TV 3.1%
- ----------------------------------------------------------
Comcast Corporation Media-Radio/TV 2.1%
Class A
- ----------------------------------------------------------
Cox Communications, Media-Radio/TV 1.9%
Inc. Class A
- ----------------------------------------------------------
Tenet Healthcare Healthcare-Patient Care 1.6%
Corporation
- ----------------------------------------------------------
Whitman Corporation Diversified Operations 1.5%
- ----------------------------------------------------------
Please see the Schedule of Investments in Securities for a
complete listing of the Fund's portfolio.
==========================================================
2
<PAGE>
We plan to avoid companies with products that may be in oversupply in
Asia--particularly products with high labor content. Going into 1998, we also
intend to focus on lowering the median market cap for the Fund.
LOOKING AHEAD TO 1998
We believe that as Asian economies struggle to recover, the turmoil will
continue to have an impact on the U.S. market. To mitigate the potential for
higher earnings growth risk in the U.S., we intend to carefully scrutinize
earnings estimates, paying close attention to good management.
The media sector continues to look positive, although much of its valuation
discount has disappeared. While a slowing of Asian demand has recently reduced
oil prices, we expect that suppliers of oil and gas will encounter an
increasingly positive environment. With stock prices lower, we plan to
overweight these sectors.
We're also taking advantage of selected opportunities in the technology
sector--an area whose stocks were the first to reflect the impact of the Asian
crisis. While this sector floundered during the fourth quarter of 1997, we're
cautiously reinvesting there now. As always, we're looking for well-managed,
securely positioned companies selling at values we'd be comfortable owning,
even during downturns.
Thank you for your investment in the Strong Opportunity Fund II. We appreciate
your confidence in our investment approach.
Sincerely,
/s/ Richard Trent Weiss
Richard T. Weiss
/s/ Marina Carlson
Marina Carlson
Portfolio Co-managers
[PHOTO OF RICHARD T. WEISS AND MARINA CARLSON]
==================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
==================================================================
From 5-8-92 to 12-31-97
[GRAPH]
THE STRONG S&P 500 Lipper Growth
OPPORTUNITY FUND II Stock Index* Funds Index*
4-92 10,000 10,000 10,000
12-92 11,617 10,680 10,922
12-93 14,541 11,756 12,230
12-94 15,064 11,912 12,038
12-95 18,953 16,388 15,969
12-96 22,393 20,151 18,760
12-97 28,093 26,874 24,027
This graph, provided in accordance with SEC regulations, compares
a $10,000 investment in the Fund, made at its inception, with a
similar investment in the Standard & Poor' s 500 Stock Index
("S&P 500") and the Lipper Growth 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 May 1992.
==================================================================
==================================
AVERAGE ANNUAL
TOTAL RETURNS(1)
==================================
As of 12-31-97
1-YEAR 25.45%
3-YEAR 23.09%
5-YEAR 19.32%
SINCE INCEPTION 20.07%
(on 5-8-92)
==================================
------------------------------------------------------------------------------
* The S& P 500 is an unmanaged index generally representative of the U.S.
stock market, without regard to company size. The S&P MidCap 400 Stock
Index is an unmanaged index generally representative of the U.S. market for
medium cap stocks. The Lipper Growth Funds Index is an equally-weighted
performance index of the largest qualifying funds in this Lipper category.
The Russell 2000(reg.tm) Index is an unmanaged index generally
representative of the U.S. market for small cap stocks. Source of the S&P
index data and Russell data is Standard & Poor's Micropal. Source of the
Lipper index data is Lipper Analytical Services, Inc.
1 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 in the
Fund's return quotations has the effect of decreasing the performance
quoted.
3
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES DECEMBER 31, 1997
- -------------------------------------------------------------------------------
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
COMMON STOCKS 88.8%
AIRLINE 0.1%
Air New Zealand, Ltd. Class B 450,000 $ 901,537
AUTO & TRUCK PARTS 1.2%
Magna International, Inc. Class A 155,000 9,735,937
Pirelli Spa 150,000 397,698
-----------
10,133,635
BANK - MONEY CENTER 2.9%
BankAmerica Corporation 148,400 10,833,200
Grupo Financiero Banamex Accival SA de CV (b) 280,000 836,702
Standard Chartered PLC 140,000 1,527,593
Toronto-Dominion Bank 290,000 11,037,570
-----------
24,235,065
BANK - SUPER REGIONAL 2.6%
First Union Corporation 202,000 10,352,500
Mellon Bank Corporation 184,000 11,155,000
-----------
21,507,500
CHEMICAL - SPECIALTY 2.4%
Cabot Corporation 333,500 9,212,937
Solutia, Inc. 410,000 10,941,875
-----------
20,154,812
COMPUTER - PERIPHERAL EQUIPMENT 2.4%
American Power Conversion Corporation (b) 450,000 10,631,250
Quantum Corporation (b) 261,000 5,236,312
Seagate Technology, Inc. (b) 230,000 4,427,500
-----------
20,295,062
COMPUTER - PERSONAL & WORKSTATION 1.2%
Sun Microsystems, Inc. (b) 245,100 9,773,363
COMPUTER SERVICE 1.3%
Computer Sciences Corporation (b) 133,000 11,105,500
COMPUTER SOFTWARE 1.9%
Cadence Design Systems, Inc. (b) 215,000 5,267,500
Sybase, Inc. (b) 790,000 10,516,875
-----------
15,784,375
CONGLOMERATE 0.4%
General Electric Company PLC 440,000 2,858,863
DIVERSIFIED OPERATIONS 1.5%
Whitman Corporation 491,000 12,796,687
ELECTRIC POWER 1.5%
NIPSCO Industries, Inc. 254,600 12,586,787
ELECTRONIC PARTS DISTRIBUTION 1.8%
Arrow Electronics, Inc. (b) 290,000 9,406,875
Marshall Industries (b) 195,600 5,868,000
-----------
15,274,875
ELECTRONIC PRODUCTS - MISCELLANEOUS 2.4%
AVX Corporation 490,000 9,034,375
Hubbell, Inc. Class B 229,500 11,317,219
-----------
20,351,594
ELECTRONICS - SEMICONDUCTOR/COMPONENT 2.5%
KLA-Tencor Corporation (b) 255,000 9,849,375
Texas Instruments, Inc. 252,000 11,340,000
-----------
21,189,375
FOOD 2.8%
Nestle SA Sponsored ADR 150,700 11,274,244
Unilever NV 190,000 11,863,125
-----------
23,137,369
HEALTHCARE - DRUG/DIVERSIFIED 1.2%
Pharmacia & Upjohn, Inc. 262,000 9,595,750
HEALTHCARE - INSTRUMENTATION 1.4%
United States Surgical Corporation 400,000 11,725,000
HEALTHCARE - MEDICAL SUPPLY 2.0%
McKesson Corporation 44,000 4,760,250
Sybron International Corporation (b) 260,000 12,203,750
-----------
16,964,000
HEALTHCARE - PATIENT CARE 2.8%
Tenet Healthcare Corporation (b) 391,000 12,951,875
United Healthcare Corporation 210,000 10,434,375
-----------
23,386,250
HOUSEHOLD APPLIANCES & FURNISHINGS 0.1%
Philips Electronics NV ADR 14,000 847,000
INSURANCE - PROPERTY & CASUALTY 4.0%
ACE, Ltd. 123,000 11,869,500
American International Group, Inc. 97,100 10,559,625
Hartford Financial Services Group, Inc. 115,200 10,778,400
-----------
33,207,525
MACHINERY - MISCELLANEOUS 1.1%
Ingersoll-Rand Company 228,000 9,234,000
MEDIA - PUBLISHING 1.3%
The E.W. Scripps Company Class A 220,100 10,661,094
MEDIA - RADIO/TV 7.0%
Comcast Corporation Class A 550,000 17,359,375
Cox Communications, Inc. Class A (b) 390,000 15,624,375
Tele-Communications, Inc. Liberty Media Group
Series A (b) 310,000 11,237,500
Tele-Communications, Inc. TCI Group Series A (b) 515,000 14,387,799
-----------
58,609,049
METALS & MINING 0.7%
Freeport-McMoRan Copper & Gold, Inc. Class A 405,000 6,201,563
NATURAL GAS DISTRIBUTION 2.9%
Columbia Gas Systems, Inc. 145,000 11,391,563
Enron Corporation 300,000 12,468,750
-----------
23,860,313
OIL - NORTH AMERICAN EXPLORATION & PRODUCTION 7.5%
Barrett Resources Corporation (b) 335,000 10,133,750
Devon Energy Corporation 260,000 10,010,000
Noble Affiliates, Inc. 320,000 11,280,000
Oryx Energy Company (b) 420,000 10,710,000
Union Pacific Resources Group, Inc. 455,000 11,033,750
United Meridian Corporation (b) 340,000 9,562,500
-----------
62,730,000
OIL - NORTH AMERICAN INTEGRATED 1.3%
USX-Marathon Group 325,000 10,968,750
OIL WELL EQUIPMENT & SERVICE 3.9%
BJ Services Company (b) 142,700 10,265,480
Baker Hughes, Inc. 248,000 10,819,000
Falcon Drilling Company, Inc. (b) 330,000 11,570,625
-----------
32,655,105
PAPER & FOREST PRODUCTS 2.2%
The Mead Corporation 326,000 9,128,000
Willamette Industries, Inc. 287,000 9,237,812
-----------
18,365,812
4
<PAGE>
- -------------------------------------------------------------------------------
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
PRECIOUS METAL/GEM/STONE 0.6%
De Beers Consolidated Mines, Ltd. ADR 63,400 $ 1,295,738
Newmont Mining Company 132,000 3,877,500
------------
5,173,238
RAILROAD 1.9%
Burlington Northern Santa Fe Corporation 101,200 9,405,275
Canadian National Railway Company 130,000 6,142,500
------------
15,547,775
REAL ESTATE 1.3%
Ayala Land, Inc. B Shares 870,000 348,000
Equity Residential Properties Trust 105,400 5,329,287
Security Capital Pacific Trust 193,000 4,680,250
Shortland Properties, Ltd. 1,100,000 558,924
------------
10,916,461
RETAIL - DEPARTMENT STORE 2.2%
Federated Department Stores, Inc. (b) 212,000 9,129,250
May Department Stores Company 171,600 9,041,175
------------
18,170,425
RETAIL - FOOD CHAIN 1.3%
The Kroger Company (b) 288,000 10,638,000
RETAIL - MAJOR CHAIN 1.6%
Kmart Corporation (b) 940,000 10,868,750
Sears Canada, Inc. 191,000 2,639,229
------------
13,507,979
RETAIL - RESTAURANT 1.1%
Brinker International, Inc. (b) 580,000 9,280,000
RETAIL - SPECIALTY 1.4%
Office Depot, Inc. (b) 485,000 11,609,688
SAVINGS & LOAN 0.7%
Charter One Financial, Inc. 91,000 5,744,375
TELECOMMUNICATION SERVICE 7.0%
AirTouch Communications, Inc. (b) 300,000 12,468,750
Cable & Wireless PLC 155,000 1,375,986
Cable & Wireless Communications PLC (b) 450,000 1,956,636
Cable & Wireless Communications PLC
Sponsored ADR (b) 301,456 7,347,990
Cellular Communications International, Inc. (b) 25,500 1,192,125
Omnipoint Corporation (b) 524,000 12,183,000
Paging Network, Inc. (b) 845,000 9,083,750
U.S. West, Inc. Media Group (b) 439,300 12,684,788
------------
58,293,025
TELEPHONE 1.4%
Telephone & Data Systems, Inc. 256,600 11,947,938
- ------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $597,232,684) 741,926,514
- ------------------------------------------------------------------------------
PREFERRED STOCKS 0.3%
Henkel KGaA-Vorzug 22,000 1,388,765
Telecom Italia Spa 220,000 966,928
- ------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (COST $2,069,452) 2,355,693
- ------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 10.6%
COMMERCIAL PAPER 0.3%
INTEREST BEARING, DUE UPON DEMAND
American Family Financial Services, Inc., 5.49% $ 868,800 868,800
General Mills, Inc., 5.33% 87,800 87,800
Johnson Controls, Inc., 5.33% 914,500 914,500
Pitney Bowes Credit Corporation, 5.33% 541,000 541,000
Warner Lambert Company, 5.49% 87,100 87,100
------------
2,499,200
MONEY MARKET 2.4%
Strong Institutional Money Fund (d) 20,000,000 20,000,000
REPURCHASE AGREEMENTS 7.9%
ABN-AMRO Chicago Corporation (Dated 12/31/97),
6.82%, Due 1/02/98 (Repurchase proceeds
$13,004,926); Collateralized by: $22,652,000
United States Treasury Strips, Zero %, Due
11/15/05 - 5/15/09 (Market Value $13,280,266) (c) 13,000,000 13,000,000
Goldman, Sachs & Company (Dated 12/31/97), 6.35%,
Due 1/02/98 (Repurchase proceeds $52,818,627);
Collateralized by: $46,420,000 United States
Treasury Bonds, 7.125%, Due 2/15/23
(Market Value $53,893,620) (c) 52,800,000 52,800,000
------------
65,800,000
- ------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $88,299,200) 88,299,200
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST $687,601,336) 99.7% 832,581,407
Other Assets and Liabilities, Net 0.3% 2,627,315
- ------------------------------------------------------------------------------
NET ASSETS 100.0% $835,208,722
==============================================================================
COUNTRY DIVERSIFICATION
- ------------------------------------------------------------
Percentage of Net Assets
- ------------------------------------------------------------
United States....................................... 89.3%
Canada.............................................. 3.5
United Kingdom...................................... 1.8
Netherlands......................................... 1.5
Bermuda............................................. 1.4
Switzerland......................................... 1.4
Germany............................................. 0.2
New Zealand......................................... 0.2
Italy............................................... 0.2
South Africa........................................ 0.1
Mexico.............................................. 0.1
Other Assets and Liabilities, Net................... 0.3
- ------------------------------------------------------------
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) The Funds may engage in repurchase agreements where the underlying
collateral consists of U.S. Government securities which are maintained in a
segregated account with a custodian. The market value of the collateral
must exceed the principal amount by at least two percent on a daily basis.
(d) Affiliated issuer (See Note 6 of Notes to Financial Statements).
Percentages are stated as a percent of net assets.
See notes to financial statements.
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
December 31, 1997
ASSETS:
Investments in Securities, at Value
Unaffiliated Issuers (Cost of $667,601,336) $812,581,407
Affiliated Issuer (Cost of $20,000,000) 20,000,000
Receivable for Securities Sold 6,724,804
Dividends and Interest Receivable 487,746
Cash 763,963
Other Assets 9,950
------------
Total Assets 840,567,870
LIABILITIES:
Payable for Securities Purchased 5,308,301
Accrued Operating Expenses and Other Liabilities 50,847
------------
Total Liabilities 5,359,148
------------
NET ASSETS $835,208,722
============
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) $580,141,960
Undistributed Net Investment Income 303,495
Undistributed Net Realized Gain 109,925,308
Net Unrealized Appreciation 144,837,959
------------
Net Assets $835,208,722
============
Capital Shares Outstanding (Unlimited Number Authorized) 38,480,500
NET ASSET VALUE PER SHARE $21.70
======
See notes to financial statements.
6
<PAGE>
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
For the Year Ended December 31, 1997
INCOME:
Dividends $ 7,596,912
Interest - Unaffiliated Issuers 2,534,937
Interest - Affiliated Issuer 804,317
------------
Total Income 10,936,166
EXPENSES:
Investment Advisory Fees 7,255,725
Custodian Fees 82,106
Shareholder Servicing Costs 989,703
Other 37,602
------------
Total Expenses 8,365,136
------------
NET INVESTMENT INCOME 2,571,030
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 110,956,209
Foreign Currencies (5,058)
------------
Net Realized Gain 110,951,151
Change in Unrealized Appreciation/Depreciation on:
Investments 49,697,046
Foreign Currencies (138,319)
------------
Net Change in Unrealized Appreciation/Depreciation 49,558,727
------------
NET GAIN 160,509,878
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $163,080,908
============
See notes to financial statements.
7
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DEC. 31, 1997 DEC. 31, 1996
------------- -------------
OPERATIONS:
Net Investment Income $ 2,571,030 $ 4,127,461
Net Realized Gain 110,951,151 61,557,894
Change in Unrealized Appreciation/Depreciation 49,558,727 27,258,118
------------ ------------
Increase in Net Assets Resulting from Operations 163,080,908 92,943,473
DISTRIBUTIONS:
From Net Investment Income (2,571,030) (4,127,461)
In Excess of Net Investment Income (162,663) (27,914)
From Net Realized Gains (60,859,506) (19,321,839)
------------ ------------
Total Distributions (63,593,199) (23,477,214)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 210,554,869 209,745,337
Proceeds from Reinvestment of Dividends 63,573,723 23,469,211
Payment for Shares Redeemed (170,348,393) (123,112,902)
------------ ------------
Increase in Net Assets from Capital Share
Transactions 103,780,199 110,101,646
------------ ------------
TOTAL INCREASE IN NET ASSETS 203,267,908 179,567,905
NET ASSETS:
Beginning of Year 631,940,814 452,372,909
------------ ------------
End of Year $835,208,722 $631,940,814
============ ============
TRANSACTIONS IN SHARES OF THE FUND:
Sold 10,580,657 11,816,834
Issued in Reinvestment of Dividends 3,633,086 1,353,993
Redeemed (8,576,774) (6,881,124)
---------- ----------
Net Increase in Shares of the Fund 5,636,969 6,289,703
========== ==========
See notes to financial statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
December 31, 1997
1. ORGANIZATION
The Strong Opportunity Fund II, Inc. (formerly Strong Special Fund II, Inc.)
is a diversified, open-end management investment company registered under
the Investment Company Act of 1940. The Fund offers and sells its shares
only to separate accounts of insurance companies for the purpose of funding
variable annuity and variable life insurance contracts. At December 31,
1997, approximately 99.5% of the Fund's shares are owned by the separate
accounts of one insurance company.
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 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.
The Fund held no restricted securities at December 31, 1997.
(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 -- The Fund may write put or call options (none were written
during 1997). 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
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
December 31, 1997
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 Risks -- The Fund may utilize derivative
instruments including options, futures and other instruments with
similar characteristics to the extent that they are consistent with the
Fund's investment objectives and limitations. The Fund intends to use
such derivative instruments primarily to hedge or protect from adverse
movements in securities prices or interest rates. The use of these
instruments may involve risks such as the possibility of illiquid
markets or imperfect correlation between the value of the instruments
and the underlying securities, or that the counterparty will fail to
perform its obligations.
Foreign denominated assets and forward currency 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 and
shareholder recordkeeping and related 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. Shareholder recordkeeping
and related service fees are based on the lesser of 0.15% of the average
daily net assets of the Fund or a contractually established rate for each
participant account.
The Fund may invest cash reserves in money market funds sponsored and
managed by the Advisor, 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, advisory fees of the Fund are
reduced by an amount equal to advisory fees paid to the Advisor under its
investment advisory agreement with the money market funds.
The amount payable to the Advisor at December 31, 1997, other shareholder
servicing expenses paid to the Advisor, and unaffiliated directors' fees for
the year ended December 31, 1997 were $99, $132 and $8,633, respectively.
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities for the year ended
December 31, 1997 were $676,448,117 and $668,252,189, respectively.
5. INCOME TAX INFORMATION
At December 31, 1997, the cost of investments in securities for federal
income tax purposes was $688,905,000. Net unrealized appreciation of
securities was $143,676,407, consisting of gross unrealized appreciation and
depreciation of $172,512,288 and $28,835,881, respectively.
For corporate shareholders in the Fund, the percentage of dividend income
distributed for the period ended December 31, 1997 which is designated as
qualifying for the dividends-received deduction is 33.0% (unaudited).
6. INVESTMENTS IN AFFILIATES
Affiliated issuers, as defined under the Investment Company Act of 1940, are
those in which the Fund's holdings of an issuer represent 5% or more of the
outstanding voting securities of the issuer, or another Strong Fund. A
summary of transactions in the securities of these issuers during the period
ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
DIVIDEND/INTEREST
BALANCE OF GROSS GROSS SALES BALANCE OF VALUE INCOME
SHARES HELD PURCHASES AND SHARES HELD DEC. 31, JAN. 1 - DEC. 31,
JAN. 1, 1997 AND ADDITIONS REDUCTIONS DEC. 31, 1997 1997 1997
------------ ------------- ---------- ------------- -------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Strong Institutional
Money Fund __ 20,000,000 __ 20,000,000 $20,000,000 $804,317
</TABLE>
10
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<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 Value,
Beginning Investment Gains on Investment Investment Investment Realized Total End of
Year Ended of Period Income Investments Operations Income Income Gains Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dec. 31, 1997 $19.24 $0.07 $4.35 $4.42 ($0.07) ($0.01) ($1.88) ($1.96) $21.70
Dec. 31, 1996 17.04 0.13 2.87 3.00 (0.13) __ (0.67) (0.80) 19.24
Dec. 31, 1995 14.23 0.12 3.42 3.54 (0.12) (0.03) (0.58) (0.73) 17.04
Dec. 31, 1994 14.12 0.11 0.41 0.52 (0.11) __ (0.30) (0.41) 14.23
Dec. 31, 1993 11.33 0.06 2.79 2.85 (0.06) __ __ (0.06) 14.12
<CAPTION>
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
Year Ended Return Millions) Net Assets Net Assets Rate Paid(b)
<S> <C> <C> <C> <C> <C> <C>
Dec. 31, 1997 +25.5% $835 1.1% 0.4% 101.1% $0.0522
Dec. 31, 1996 +18.2% 632 1.2% 0.7% 89.8% 0.0505
Dec. 31, 1995 +25.8% 452 1.2% 0.8% 91.1%
Dec. 31, 1994 +3.6% 300 1.1% 0.9% 74.8%
Dec. 31, 1993 +25.2% 151 1.1% 0.5% 103.1%
(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.
11
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Shareholders and Board of Directors of the
Strong Opportunity Fund II, Inc.
We have audited the accompanying statement of assets and liabilities of Strong
Opportunity Fund II, Inc. (formerly Strong Special Fund II, Inc.), including
the schedule of investments in securities, as of December 31, 1997, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of two years in the period then ended, and the
financial highlights for each of the periods indicated. 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, 1997 by correspondence with the custodians. 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 Opportunity Fund II, Inc. as of December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the periods indicated, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
February 4, 1998
12
<PAGE>
DIRECTORS
Richard S. Strong
Willie D. Davis
Stanley Kritzik
Marvin E. Nevins
William F. Vogt
OFFICERS
Richard S. Strong, Chairman of the Board
Mary F. Hoppa, 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
<PAGE>
[STRONG FUNDS LOGO]
STRONG FUNDS DISTRIBUTORS, INC.
P.O. Box 2936 * Milwaukee, WI 53201 7031B98
Strong Funds are offered by prospectus only.
