<PAGE>
===============================================================================
THE STRONG
GROWTH FUND II
SEMI-ANNUAL REPORT o JUNE 30, 1998
TABLE OF CONTENTS
INVESTMENT REVIEW
The Strong Growth Fund II................................................2
FINANCIAL INFORMATION
Schedule of Investments in Securities....................................4
Statement of Assets and Liabilities......................................5
Statement of Operations..................................................6
Statements of Changes in Net Assets......................................6
Notes to Financial Statements............................................7
FINANCIAL HIGHLIGHTS..........................................................8
[STRONG LOGO]
STRONG FUNDS DISTRIBUTORS, INC.
P.O. Box 2936 o Milwaukee, Wisconsin 53201
Strong Funds are offered by prospectus only. 8317H98
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=========================
THE STRONG GROWTH FUND II
=========================
DURING THE PERIOD, WE FOCUSED THE FUND'S HOLDINGS ON COMPANIES WITH LIMITED
ASIAN EXPOSURE.
The Strong Growth Fund II seeks capital growth. The Fund invests primarily in
equity securities that the Fund's Advisor believes have above-average growth
prospects. The Fund is able to invest in any company regardless of size.
=================================
ASSET ALLOCATION
=================================
Based on net assets as of 6-30-98
[PIE CHART]
Stocks 92.4%
Short-Term Investments 7.6%
=================================
For the six months ended June 30, 1998, the Strong Growth Fund II generated a
positive total return of 16.55% by maintaining a primarily mid-to-large cap
portfolio of growth stocks.(1)
======================================
TOP FIVE SECTORS
======================================
As of 6-30-98
SECTOR % OF NET ASSETS
- --------------------------------------
Technology 31.8%
......................................
Retail 21.2%
......................................
Healthcare 12.0%
......................................
Capital Equipment 10.6%
......................................
Financial 8.6%
......................................
Please see the Schedule of Investments
in Securities for a complete listing
of the Fund's portfolio.
======================================
LOOKING BACK
Over the past six months, the market for U.S. equities continued to rise, led by
the largest blue-chip stocks within the Standard & Poor's 500 Stock Index (S&P
500). By contrast, the Russell 2000(reg.tm) Index (composed of smaller cap
stocks) rose only 4.93% vs. 17.71% for the S&P 500 during the six months ended
June 30.*
Asian economic turmoil continued to dominate investor focus as analysts
struggled to determine its impact on earnings of companies which compete
within this region. During the period, we focused the Fund's holdings on
companies with limited Asian exposure. Some areas that we favored include:
o retailers Kohl's, Lowe's, and Dollar Tree.
o selected technology companies in areas such as networking (Cisco Systems),
software (Microsoft and America Online), and telecommunications (Lucent
Technologies and Tellabs).
o healthcare companies Warner-Lambert, McKesson, and Medtronic.
o service firms such as Robert Half International and Outdoor Systems.
We have done most of our recent buying in the mid- and small-cap area, where
many great growth companies became exceptional bargains.
WHERE WE ARE
The U.S. economy is in good condition and the consumer is benefiting. Real
disposable income has been growing at above trend-line and consumer confidence
is high. This is a great job market and Americans are employed at record levels.
For the first time since 1969, the United States has a budget surplus. Inflation
is low and corporations generally have a lack of pricing power. As a result,
companies still strive to increase productivity as a means to increase margins
and earnings.
We have a liquidity-driven market caused by foreign investment in the United
States, corporate share repurchases, corporate mergers and acquisitions, and
retirement plan contributions. This liquidity is the key reason that the big-cap
indices--the Dow Jones Industrial Average and the S&P 500--are performing so
well. Slowing corporate revenue and earnings growth is being offset by low
inflation and interest rates, and the strong U.S. dollar, which makes stocks
==============================================================================
FIVE LARGEST STOCK HOLDINGS
==============================================================================
As of 6-30-98
% OF NET
SECURITY INDUSTRY ASSETS
- ------------------------------------------------------------------------------
Kohl's Corporation Retail-Department Store 2.8%
...........................................................................
Microsoft Corporation Computer Software 2.4%
...........................................................................
Lowe's Companies, Inc. Retail-Specialty 2.2%
...........................................................................
General Electric Company Electrical Equipment 2.1%
...........................................................................
Cisco Systems, Inc. Computer Software 2.1%
...........................................................................
Please see the Schedule of Investments in Securities for a complete listing of
the Fund's portfolio.
==============================================================================
2
<PAGE>
preferable over cash. Some of the best growth stocks, especially in the mid- and
large-cap areas, are where we have kept most of our weighting in the portfolio.
OUR OUTLOOK
Absent a rise in inflation and interest rates, the stock market can continue to
rise over the long term, but short-term corrections can come at any time as
valuations become too full or economic news makes investors nervous. While there
is the risk that the Federal Reserve could tighten, given the Asian crisis, low
inflation, and the higher dollar, the probability is that the Fed will remain on
the sidelines. This is a time to really focus on companies with the best
fundamentals, and solid earnings growth coupled with the best valuations.
Presently, the most attractive valuations are with the mid-to-small cap stocks
which have lagged the large-cap stocks. As always, it is our belief that
outstanding companies with superior earnings and revenue growth will outperform
the market over time, and our ability to buy the stocks of companies of all
sizes allows us to move to the most attractive areas.
Thank you for your investment in the Strong Growth Fund II. We appreciate the
opportunity to serve you, and look forward to helping you pursue your important
financial goals in the years ahead.
[PHOTO OF RONALD C. OGNAR]
Sincerely,
/s/ Ronald C. Ognar
Ronald C. Ognar
Portfolio Manager
===============================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
===============================================================================
From 12-31-96 to 6-30-98
[GRAPH]
STRONG GROWTH S&P 500 Lipper Growth
FUND II Index* Funds Index*
12-96 10,000 10,000 10,000
2-97 10,320 10,708 10,440
4-97 10,110 10,881 10,401
6-97 11,370 12,061 11,536
8-97 12,590 12,291 12,031
10-97 12,740 12,531 12,308
12-97 12,975 13,336 12,803
2-98 13,683 14,456 13,798
4-98 14,329 15,350 14,542
6-98 15,122 15,698 14,797
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.
=================================
AVERAGE ANNUAL
TOTAL RETURN(1)
=================================
As of 6-30-98
1-YEAR 32.99%
SINCE INCEPTION 31.74%
(on 12-31-96)
=================================
- -------------------------------------------------------------------------------
* The S&P 500 is an unmanaged index generally representative of the U.S.
stock market, without regard to company size. The Russell 2000(reg.tm) Index
is an unmanaged index generally representative of the U.S. stock market for
small cap stocks. The Lipper Growth Funds Index is an equally-weighted
performance index of the largest qualifying funds in this Lipper category.
Source of the S&P and the Russell index 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. 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.
3
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES JUNE 30, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
COMMON STOCKS 92.4%
AIRLINE 0.8%
Midwest Express Holdings, Inc. (b) 2,200 $ 79,613
BANK - REGIONAL 1.0%
Northern Trust Company 700 53,375
US Bancorp 900 38,700
----------
92,075
BEVERAGE - SOFT DRINK 1.0%
The Coca-Cola Company 1,100 94,050
BROKERAGE & INVESTMENT MANAGEMENT 0.9%
Morgan Stanley, Dean Witter & Company 900 82,238
COMMERCIAL SERVICE 6.3%
Accustaff, Inc. (b) 1,600 50,000
Lamar Advertising Company (b) 2,000 71,750
Lason Holdings, Inc. (b) 400 21,800
Outdoor Systems, Inc. (b) 4,000 112,000
Paychex, Inc. 2,250 91,547
Robert Half International, Inc. (b) 2,200 122,925
Romac International, Inc. (b) 2,500 75,937
Snyder Communications, Inc. (b) 1,000 44,000
----------
589,959
COMPUTER - PERSONAL & WORKSTATION 0.9%
Dell Computer Corporation (b) 900 83,531
COMPUTER SERVICE 2.9%
Acxiom Corporation (b) 1,000 24,938
Cambridge Technology Partners, Inc. (b) 1,600 87,400
Envoy Corporation (b) 800 37,900
Fiserv, Inc. (b) 1,650 70,073
Information Management Resources, Inc. (b) 1,500 50,719
----------
271,030
COMPUTER SOFTWARE 17.6%
America Online, Inc. (b) 1,700 180,200
Ascend Communications, Inc. (b) 2,500 123,906
BMC Software, Inc. (b) 800 41,550
CBT Group PLC Sponsored ADR (b) 2,500 133,750
Cisco Systems, Inc. (b) 2,100 193,331
Citrix Systems, Inc. (b) 1,000 68,375
Compuware Corporation (b) 1,500 76,688
J.D. Edwards & Company (b) 1,000 42,938
FORE Systems, Inc. (b) 3,000 79,500
HBO & Company 4,500 158,625
Legato Systems, Inc. (b) 1,000 39,000
Microsoft Corporation (b) 2,100 227,587
Network Associates, Inc. (b) 600 28,725
PeopleSoft, Inc. (b) 900 42,300
Saville Systems PLC Sponsored ADR (b) 2,500 125,312
Visio Corporation (b) 2,000 95,500
----------
1,657,287
COSMETIC & PERSONAL CARE 0.2%
The Gillette Company 400 22,675
DIVERSIFIED OPERATIONS 2.2%
Monsanto Company 1,500 83,813
Tyco International, Ltd. 2,000 126,000
----------
209,813
ELECTRICAL EQUIPMENT 2.1%
General Electric Company 2,200 200,200
ELECTRONICS - SEMICONDUCTOR/COMPONENT 1.9%
Uniphase Corporation (b) 1,200 75,338
Vitesse Semiconductor Corporation (b) 3,300 101,887
----------
177,225
FINANCE - MISCELLANEOUS 1.1%
American Express Company 900 102,600
HEALTHCARE - DRUG/DIVERSIFIED 6.0%
Bristol-Myers Squibb Company 800 91,950
Elan Corporation PLC ADR (b) 1,200 77,175
Pfizer, Inc. 1,200 130,425
Schering-Plough Corporation 1,500 137,437
Warner-Lambert Company 1,800 124,875
----------
561,862
HEALTHCARE - INSTRUMENTATION 1.0%
Medtronic, Inc. 1,500 95,625
HEALTHCARE - MEDICAL SUPPLY 3.0%
Cardinal Health, Inc. 1,000 93,750
McKesson Corporation 2,100 170,625
Sybron International Corporation (b) 800 20,200
----------
284,575
HEALTHCARE - PATIENT CARE 1.6%
Boron, LePore & Associates, Inc. (b) 2,000 76,000
Parexel International Corporation (b) 500 18,188
Quintiles Transnational Corporation (b) 400 19,675
Total Renal Care Holdings, Inc. (b) 1,200 41,400
----------
155,263
HEALTHCARE - PRODUCT 0.3%
Guidant Corporation 400 28,525
INSURANCE - DIVERSIFIED 1.4%
Travelers Group, Inc. 2,200 133,375
INSURANCE - PROPERTY & CASUALTY 1.1%
American International Group, Inc. 500 73,000
MGIC Investment Corporation 500 28,531
----------
101,531
LEISURE SERVICE 0.8%
Carnival Corporation 2,000 79,250
MEDIA - PUBLISHING 0.6%
Time Warner, Inc. 700 59,806
MEDIA - RADIO/TV 3.1%
Chancellor Media Corporation (b) 800 39,725
Clear Channel Communications, Inc. (b) 1,000 109,125
Jacor Communications, Inc. (b) 700 41,300
Tele-Communications, Inc. Liberty Media Group
Series A (b) 1,850 71,803
Viacom International, Inc. (b) 500 29,125
----------
291,078
MORTGAGE & RELATED SERVICE 1.0%
Federal Home Loan Mortgage Corporation 1,200 56,475
Federal National Mortgage Association 600 36,450
----------
92,925
OIL WELL EQUIPMENT & SERVICE 0.7%
Camco International, Inc. 800 62,300
PERSONAL & COMMERCIAL LENDING 1.8%
Associates First Capital Corporation 1,000 76,875
Beneficial Corporation 200 30,638
Household International, Inc. 1,200 59,700
----------
167,213
4
<PAGE>
- -------------------------------------------------------------------------------
Shares or
Principal Value
Amount (Note 2)
- -------------------------------------------------------------------------------
RETAIL - DEPARTMENT STORE 3.1%
Kohl's Corporation (b) 5,000 $ 259,375
Fred Meyer, Inc. (b) 800 34,000
----------
293,375
RETAIL - DISCOUNT & VARIETY 2.3%
Dollar Tree Stores, Inc. (b) 4,500 182,812
99 Cents Only Stores (b) 800 33,200
----------
216,012
RETAIL - DRUG STORE 2.1%
CVS Corporation 2,400 93,450
Walgreen Company 2,600 107,413
----------
200,863
RETAIL - FOOD CHAIN 1.2%
Safeway, Inc. (b) 2,800 113,925
RETAIL - MAJOR CHAIN 2.4%
Dayton Hudson Corporation 2,100 101,850
Wal-Mart Stores, Inc. 2,000 121,500
----------
223,350
RETAIL - RESTAURANT 1.6%
Outback Steakhouse, Inc. (b) 1,000 39,000
Starbucks Corporation (b) 2,000 106,875
----------
145,875
RETAIL - SPECIALTY 8.5%
Best Buy Company, Inc. (b) 1,500 54,188
Gap, Inc. 1,400 86,275
The Home Depot, Inc. 1,200 99,675
Lowe's Companies, Inc. 5,000 202,812
Michaels Stores, Inc. (b) 1,000 35,281
Office Depot, Inc. (b) 1,500 47,344
Stage Stores, Inc. (b) 1,500 67,875
Staples, Inc. (b) 4,000 115,750
Williams-Sonoma, Inc. (b) 3,000 95,437
----------
804,637
SAVINGS & LOAN 0.4%
Washington Mutual, Inc. 800 34,750
SOAP & CLEANING PREPARATION 1.0%
The Procter & Gamble Company 1,000 91,063
TELECOMMUNICATION EQUIPMENT 6.0%
Advanced Fibre Communications, Inc. (b) 2,500 100,156
CIENA Corporation (b) 1,500 104,438
Lucent Technologies, Inc. 2,000 166,375
RELTEC Corporation (b) 1,700 76,500
Tellabs, Inc. (b) 1,700 121,762
----------
569,231
TELECOMMUNICATION SERVICE 2.5%
Intermedia Communications, Inc. (b) 1,800 75,487
MCI Communications Corporation 700 40,688
WorldCom, Inc. (b) 2,400 116,250
----------
232,425
- ------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $7,589,789) 8,701,130
- ------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 10.9%
COMMERCIAL PAPER 10.9%
INTEREST BEARING, DUE UPON DEMAND
General Mills, Inc., 5.26% $365,600 365,600
Johnson Controls, Inc., 5.26% 391,700 391,700
Pitney Bowes Credit Corporation, 5.26% 266,700 266,700
- ------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $1,024,000) 1,024,000
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST $8,613,789) 103.3% 9,725,130
Other Assets and Liabilities, Net (3.3%) (306,331)
- ------------------------------------------------------------------------------
NET ASSETS 100.0% $9,418,799
==============================================================================
LEGEND
- -------------------------------------------------------------------------------
(a) Short-term investments include any security which has a maturity of less
than one year.
(b) Non-income producing security.
Percentages are stated as a percent of net assets.
See notes to financial statements.
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
June 30, 1998 (Unaudited)
ASSETS:
Investments in Securities, at Value (Cost of $8,613,789) $9,725,130
Dividends and Interest Receivable 4,817
Other Assets 11,820
----------
Total Assets 9,741,767
LIABILITIES:
Payable for Securities Purchased 310,739
Accrued Operating Expenses and Other Liabilities 12,229
----------
Total Liabilities 322,968
----------
NET ASSETS $9,418,799
==========
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) $8,431,805
Accumulated Net Investment Loss (2,642)
Accumulated Net Realized Loss (121,705)
Net Unrealized Appreciation 1,111,341
----------
Net Assets $9,418,799
==========
Capital Shares Outstanding (Unlimited Number Authorized) 648,941
NET ASSET VALUE PER SHARE $14.51
======
5
See notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
For the Six Months Ended June 30, 1998 (Unaudited)
INCOME:
Dividends (Net of withholding taxes of $4) $ 9,709
Interest 19,101
--------
Total Income 28,810
EXPENSES:
Investment Advisory Fees 26,228
Custodian Fees 7,121
Accounting Fees 6,407
Reports to Shareholders 30,366
Other 4,599
--------
Total Expenses before Waivers and Absorptions 74,721
Voluntary and Involuntary Expense Waivers and
Absorptions by Advisor (43,269)
--------
Expenses, Net 31,452
--------
NET INVESTMENT LOSS (2,642)
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Loss on Investments (59,859)
Net Change in Unrealized Appreciation/Depreciation on Investments 982,705
--------
NET GAIN 922,846
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $920,204
========
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DEC. 31, 1997
---------------- -------------
(UNAUDITED) (NOTE 1)
OPERATIONS:
Net Investment Income (Loss) ($ 2,642) $ 1,045
Net Realized Gain (Loss) (59,859) 23,906
Net Change in Unrealized Appreciation/
Depreciation 982,705 128,636
---------- ----------
Net Increase in Net Assets Resulting from
Operations 920,204 153,587
DISTRIBUTIONS:
From Net Investment Income (41) (1,045)
In Excess of Net Investment Income -- (26,514)
From Net Realized Gains -- (23,906)
In Excess of Net Realized Gains -- (35,291)
---------- ----------
Total Distributions (41) (86,756)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 6,772,893 2,457,283
Proceeds from Reinvestment of Distributions 41 86,756
Payment for Shares Redeemed (648,270) (236,898)
---------- ----------
Increase in Net Assets from Capital Share
Transactions 6,124,664 2,307,141
---------- ----------
TOTAL INCREASE IN NET ASSETS 7,044,827 2,373,972
NET ASSETS:
Beginning of Period 2,373,972 --
---------- ----------
End of Period $9,418,799 $2,373,972
========== ==========
TRANSACTIONS IN SHARES OF THE FUND:
Sold 507,072 204,701
Issued in Reinvestment of Distributions 3 7,212
Redeemed (48,889) (21,158)
------- -------
Net Increase in Shares of the Fund 458,186 190,755
======= =======
6
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
June 30, 1998 (Unaudited)
1. ORGANIZATION
The Strong Growth Fund II commenced investment operations on January 2, 1997,
and is a diversified series of Strong Variable Insurance Funds, Inc., an
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 June 30, 1998, approximately 71%
of the Fund's shares were 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 of the latest bid and asked prices when no last sales price
is available. Securities traded over-the-counter are valued at the mean
of the latest bid and asked prices or at 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 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 June 30, 1998.
(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 calculated on a first-in,
first-out basis.
(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 the period). 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.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
June 30, 1998 (Unaudited)
(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. The investment
advisory fee, which is established by terms of the Advisory Agreement, is
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 June 30, 1998 and unaffiliated
directors' fees, excluding the effects of waivers and reimbursements, for
the six months then ended were $11,544 and $750, respectively.
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities for the six months
ended June 30, 1998 were $10,365,721 and $4,714,032, respectively.
5. INCOME TAX INFORMATION
At June 30, 1998, the cost of investments in securities for federal income
tax purposes was $8,627,488. Net unrealized appreciation of securities was
$1,097,642, consisting of gross unrealized appreciation and depreciation of
$1,147,586 and $49,944, respectively. Under current tax law, capital losses
of $52,250 which were realized during November and December 1997 are being
deferred and treated as occurring on the first day of the following fiscal
year.
<TABLE>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA (a)
-----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------- --------------------------------------------------------
<CAPTION>
Net Asset Net Realized Total In Excess In Excess Net Asset
Value, Net and Unrealized from From Net of Net From Net of Net Value,
Beginning Investment Gains on Investment Investment Investment Realized Realized Total End of
Period Ended of Period Income Investments Operations Income Income Gains Gains Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1998 (b) $12.45 -- $2.06 $2.06 $0.00(c) -- -- -- $0.00(c) $14.51
Dec. 31, 1997 10.00 $0.02 2.94 2.96 (0.01) ($0.15) ($0.14) ($0.21) (0.51) 12.45
</TABLE>
<TABLE>
RATIOS AND SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------
<CAPTION>
Net Ratio of Expenses Ratio of Net
Assets, Ratio of to Average Net Investment Average
End of Expenses Assets Without Income Portfolio Commission
Total Period (In to Average Voluntary Waivers to Average Turnover Rate
Period Ended Return Thousands) Net Assets and Absorptions Net Assets Rate Paid
<S> <C> <C> <C> <C> <C> <C> <C>
June 30, 1998 (b) +16.6% $9,419 1.2%* 2.0%* (0.1%)* 96.0% $0.0676
Dec. 31, 1997 +29.8% 2,374 1.2% 2.0% 0.2% 541.3% 0.0357
* 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, 1998. (Unaudited) Total return and portfolio turnover rate are not annualized.
(c) Amount calculated is less than $0.01 or 0.1%.
</TABLE>
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