<PAGE>
- -------------------------------------------------------------------------------
THE STRONG
GROWTH FUND II
ANNUAL REPORT * DECEMBER 31, 1997
[PIE CHART OF ASSET DIVERSIFICATION EMPHASIZING STOCKS]
[STRONG FUNDS LOGO]
STRONG FUNDS
<PAGE>
- -------------------------------------------------------------------------------
THE STRONG
GROWTH FUND II
ANNUAL REPORT * DECEMBER 31, 1997
TABLE OF CONTENTS
INVESTMENT REVIEW
The Strong Growth Fund II................................................2
FINANCIAL INFORMATION
Schedule of Investments in Securities....................................4
Statement of Assets and Liabilities......................................6
Statement of Operations..................................................7
Statement 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. 6843A98
<PAGE>
THE STRONG GROWTH FUND II
WHILE WE ARE CAUTIOUS OVER THE NEAR TERM, WE REMAIN BULLISH FOR THE LONG RUN.
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.
For the year ended December 31, 1997, the Strong Growth Fund II generated a
positive total return of 29.75% by maintaining a primarily mid-to-small-cap
portfolio of promising growth stocks.
==================================
ASSET ALLOCATION
==================================
Based on net assets as of 12-31-97
[PIE CHART]
Stocks 89.6%
Short-Term Investments 10.4%
==================================
The S&P 500 Index*, a broad stock market index and benchmark, finished the year
with a 33.36% total return. We believe this difference in performance can be
primarily attributed to an investor preference for very large companies which
were not heavily represented in our portfolio. Illustrating the strength of
large caps is the fact that the average performance of the top 50 companies in
terms of market capitalization size in the S&P 500 was 35.29% for 1997 vs. the
average for the remaining 450 stocks which was only 19.7% for the year.
===========================================
TOP FIVE SECTORS
===========================================
As of 12-31-97
SECTOR % OF NET ASSETS
- ------------------------------------------
Technology 20.9%
- ------------------------------------------
Financial 14.2%
- ------------------------------------------
Retail 13.4%
- ------------------------------------------
Healthcare 11.5%
- ------------------------------------------
Consumer Cyclical 10.3%
- ------------------------------------------
Please see the Schedule of Investments in
Securities for a complete listing
of the Fund's portfolio.
==========================================
SEEKING GROWTH OPPORTUNITIES IN A CHALLENGING MARKET
The strong performance of large-cap equities early in the year was followed by
a brief correction in March and early April, and then followed by a market
rebound to new highs in the second quarter. Even though large-cap stocks led
this rebound, there was a gradual broadening out to small- and mid-cap issues
later in the quarter which favored this Fund's portfolio.
Also, in the second quarter, when it appeared that the Fed would not raise
interest rates any further, we used our modest cash reserves and boosted the
Fund's weightings in higher-growth technology and health care stocks. We also
added to our current positions in retail and media stocks, which typically
benefit from high levels of employment and consumer confidence. At the same
time, we pared back our positions in financial stocks to their market
weightings after their big run-up in the first quarter.
The Strong Growth Fund II only slightly underperformed the S&P 500 Index during
the second quarter with a quarterly return of 16.98% vs. 17.46%. And, as the
broadening of the market increased in the third quarter, the Fund's
small-to-mid-cap focus continued to generate strong results. The specific
sectors which performed well--and where the Fund was over-weighted--were
energy, technology, and consumer cyclicals.
In October, the world's major markets were forced to deal with concerns over
the economies in Southeast Asia. Those concerns eventually halted the summer
rally in small- and mid-cap stocks, and money flowed into the perceived safety
of U.S. bonds and larger-cap stocks, such as utilities, telephones, drugs and
consumer staples. As a result, the S&P 500 Index had an up quarter, while
small- and mid-cap stocks, the Fund's primary focus, came under heavy selling
pressure. This led to the Fund's underperformance in the fourth quarter.
=============================================================
FIVE LARGEST STOCK HOLDINGS
=============================================================
As of 12-31-97
% OF NET
SECURITY INDUSTRY ASSETS
- -------------------------------------------------------------
Cendant Corporation Retail-Speciality 3.5%
- -------------------------------------------------------------
MGIC Investment Insurance-Multi-Line 2.8%
Corporation
- -------------------------------------------------------------
Pfizer, Inc. Healthcare-Drug/Diversified 2.5%
- -------------------------------------------------------------
Cisco Systems, Inc. Computer Software 2.3%
- -------------------------------------------------------------
Outdoor Systems, Inc. Commercial Service 2.1%
- -------------------------------------------------------------
Please see the Schedule of Investments in Securities for a
complete listing of the Fund's portfolio.
=============================================================
2
<PAGE>
Specifically, while the Fund had previously sold its holdings in companies with
any significant Southeast Asian exposure early in the third quarter, the
portfolio was negatively impacted in the fourth quarter by the sell-off in most
of the technology and energy stocks. Overall, domestic-oriented groups, such as
media, regional banks, and retailers, were the top performers in the fourth
quarter.
A FOCUS ON FUNDAMENTALS GOING FORWARD
In our opinion, the market could remain in a set trading range over the next
six months until the full effects of the Asian crisis are understood, and we
are likely to see continued volatility in the meantime. Inflation and interest
rates should remain low as the economy and earnings show signs of slowing, and
should produce a better climate for investing in companies with solid assured
earnings growth.
Therefore, we will continue to pay strict attention to the fundamentals and
valuations of the companies in which we invest. While we are cautious over the
near term, we remain bullish for the long run. As always, it is our belief that
outstanding companies with superior earnings and revenue growth will outperform
the market over time.
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.
Sincerely,
/s/ Ronald C. Ognar
Ronald C. Ognar
Portfolio Manager
[PHOTO OF RONALD C. OGNAR]
===============================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
===============================================================================
From 12-31-96 to 12-31-97
[GRAPH]
STRONG GROWTH Lipper Growth
FUND II S & P 500 Index Funds Index
12-96 10,000 10,000 10,000
1-97 10,720 10,625 10,525
2-97 10,320 10,708 10,444
3-97 9,720 10,268 9,966
4-97 10,110 10,881 10,404
5-97 10,830 11,544 11,124
6-97 11,370 12,061 11,540
7-97 12,810 13,020 12,497
8-97 12,590 12,291 12,035
9-97 13,310 12,964 12,723
10-97 12,740 12,531 12,312
11-97 12,680 13,111 12,595
12-97 12,975 13,336 12,808
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.
===============================================================================
==================================
TOTAL RETURN(1)
==================================
As of 12-31-97
SINCE INCEPTION 29.75%
(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 Lipper Growth Funds Index
is an equally-weighted performance index of the largest qualifying funds in
this Lipper category. Source of the S&P 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.
3
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES DECEMBER 31, 1997
- -------------------------------------------------------------------------------
Shares or
Principal Value
Amount (Note 2)
- ------------------------------------------------------------------------------
COMMON STOCKS 89.6%
AIRLINE 2.8%
Midwest Express Holdings, Inc. (b) 1,200 $ 46,575
Southwest Airlines Company 800 19,700
--------
66,275
BANK - REGIONAL 2.9%
Northern Trust Company 500 34,875
US Bancorp 300 33,581
--------
68,456
BANK - SUPER REGIONAL 1.0%
Norwest Corporation 600 23,175
BEVERAGE - SOFT DRINK 2.6%
The Coca-Cola Company 400 26,650
Coca-Cola Enterprises, Inc. 1,000 35,563
--------
62,213
BROKERAGE & INVESTMENT MANAGEMENT 1.3%
Franklin Resources, Inc. 200 17,388
The Charles Schwab Corporation 300 12,581
--------
29,969
COMMERCIAL SERVICE 7.0%
Apollo Group, Inc. Class A (b) 300 14,175
Corestaff, Inc. (b) 200 5,300
Outdoor Systems, Inc. (b) 1,300 49,887
Paychex, Inc. 500 25,313
Robert Half International, Inc. (b) 800 32,000
Romac International, Inc. (b) 1,600 39,100
--------
165,775
COMPUTER SERVICE 4.5%
Computer Sciences Corporation (b) 100 8,350
Fiserv, Inc. (b) 500 24,562
HBO & Company 1,000 48,000
Shared Medical Systems Corporation 400 26,400
--------
107,312
COMPUTER SOFTWARE 12.6%
CBT Group PLC ADR (b) 300 24,637
Cisco Systems, Inc. (b) 1,000 55,750
Computer Associates International, Inc. 300 15,863
Compuware Corporation (b) 100 3,200
Intuit, Inc. (b) 800 33,000
Keane, Inc. (b) 500 20,312
Microsoft Corporation (b) 200 25,850
Network Associates, Inc. (b) 300 15,863
PeopleSoft, Inc. (b) 1,000 39,000
Saville Systems PLC Sponsored ADR (b) 500 20,750
Veritas Software Corporation (b) 600 30,600
Visio Corporation (b) 400 15,350
--------
300,175
COSMETIC & PERSONAL CARE 1.3%
The Gillette Company 300 30,131
DIVERSIFIED OPERATIONS 1.0%
Tyco International, Ltd. 500 22,531
ELECTRICAL EQUIPMENT 1.9%
General Electric Company 600 44,025
ELECTRONICS - SEMICONDUCTOR/COMPONENT 0.5%
Uniphase Corporation (b) 300 12,413
HEALTHCARE - DRUG/DIVERSIFIED 3.7%
Eli Lilly & Company 400 27,850
Pfizer, Inc. 800 59,650
--------
87,500
HEALTHCARE - INSTRUMENTATION 1.5%
Medtronic, Inc. 700 36,619
HEALTHCARE - MEDICAL SUPPLY 3.4%
Cardinal Health, Inc. 400 30,050
McKesson Corporation 300 32,456
Parexel International Corporation (b) 100 3,700
Sybron International Corporation (b) 300 14,081
--------
80,287
HEALTHCARE - PATIENT CARE 1.6%
Atria Communities, Inc. (b) 800 13,700
Health Systems International, Inc. Class A (b) 300 7,575
HEALTHSOUTH Corporation (b) 600 16,650
--------
37,925
HEALTHCARE - PRODUCT 1.3%
Guidant Corporation 500 31,125
HOUSEHOLD APPLIANCES & FURNISHINGS 0.4%
Sunbeam Corporation 200 8,425
INSURANCE - DIVERSIFIED 1.8%
Travelers Group, Inc. 800 43,100
INSURANCE - LIFE 0.2%
Conseco, Inc. 100 4,544
INSURANCE - MULTI-LINE 2.8%
MGIC Investment Corporation 1,000 66,500
LEISURE SERVICE 2.1%
CapStar Hotel Company (b) 1,000 34,313
Wyndham Hotel Corporation (b) 400 16,150
--------
50,463
MEDIA - PUBLISHING 1.6%
Time Warner, Inc. 600 37,200
MEDIA - RADIO/TV 6.2%
Chancellor Media Corporation (b) 600 44,775
Clear Channel Communications, Inc. (b) 400 31,775
Heftel Broadcasting Corporation Class A (b) 600 28,050
Jacor Communications, Inc. (b) 400 21,250
Tele-Communications, Inc. Liberty Media Group
Series A (b) 600 21,750
--------
147,600
MORTGAGE & RELATED SERVICE 0.2%
Federal National Mortgage Association 100 5,706
OIL WELL EQUIPMENT & SERVICE 2.8%
Cooper Cameron Corporation (b) 700 42,700
Schlumberger, Ltd. 300 24,150
--------
66,850
REAL ESTATE 1.6%
Patriot American Hospitality, Inc. 500 14,406
Starwood Lodging Trust 400 23,150
--------
37,556
RETAIL - DEPARTMENT STORE 1.4%
Kohl's Corporation (b) 500 34,063
RETAIL - DISCOUNT & VARIETY 1.0%
Consolidated Stores Corporation (b) 200 8,788
Dollar Tree Stores, Inc. (b) 350 14,481
--------
23,269
4
<PAGE>
- ------------------------------------------------------------------------------
Shares or
Principal Value
Amount (Note 2)
- ------------------------------------------------------------------------------
RETAIL - DRUG STORE 2.7%
CVS Corporation 600 $ 38,438
Walgreen Company 800 25,100
----------
63,538
RETAIL - FOOD CHAIN 0.5%
Safeway, Inc. (b) 200 12,650
RETAIL - RESTAURANT 0.7%
Landry's Seafood Restaurants, Inc. (b) 100 2,400
Outback Steakhouse, Inc. (b) 500 14,375
----------
16,775
RETAIL - SPECIALTY 7.0%
Cendant Corporation (b) 2,442 83,939
The Home Depot, Inc. 300 17,662
Lowe's Companies, Inc. 600 28,612
Office Depot, Inc. (b) 800 19,150
Stage Stores, Inc. (b) 100 3,738
Staples, Inc. (b) 500 13,875
----------
166,976
SAVINGS & LOAN 2.5%
TCF Financial Corporation 1,000 33,937
Washington Mutual, Inc. 400 25,525
----------
59,462
TELECOMMUNICATION EQUIPMENT 3.0%
ADC Telecommunications, Inc. (b) 600 25,050
CIENA Corporation (b) 500 30,562
Tellabs, Inc. (b) 300 15,863
----------
71,475
TELECOMMUNICATION SERVICE 0.2%
WorldCom, Inc. (b) 150 4,537
- ------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $1,997,959) 2,126,595
- ------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 19.2%
COMMERCIAL PAPER 10.8%
INTEREST BEARING, DUE UPON DEMAND
General Mills, Inc., 5.33% $ 65,900 65,900
Johnson Controls, Inc., 5.33% 69,400 69,400
Pitney Bowes Credit Corporation, 5.33% 82,600 82,600
Warner Lambert Company, 5.49% 38,200 38,200
----------
256,100
REPURCHASE AGREEMENT 8.4%
Goldman, Sachs & Company (Dated 12/31/97), 6.35%,
Due 1/02/98 (Repurchase proceeds $200,071);
Collateralized by: $130,000 United States
Treasury Bonds, 13.25%, Due 5/15/14
(Market Value $209,300) (c) 200,000 200,000
- ------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $456,100) 456,100
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST $2,454,059) 108.8% 2,582,695
Other Assets and Liabilities, Net (8.8)% (208,723)
- ------------------------------------------------------------------------------
NET ASSETS 100.0% $2,373,972
==============================================================================
- ------------------------------------------------------------------------------
COUNTRY DIVERSIFICATION
- -----------------------------------------------------------------------------
Percentage of Net Assets
- -----------------------------------------------------------------------------
United States..........................................................106.9%
Ireland................................................................ 1.9
Other Assets and Liabilities, Net...................................... (8.8)
- -----------------------------------------------------------------------------
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 Fund 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.
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 (Cost of $2,454,059) $2,582,695
Receivable for Securities Sold 22,447
Dividends and Interest Receivable 11,781
Other Assets 11,567
----------
Total Assets 2,628,490
LIABILITIES:
Payable for Securities Purchased 242,702
Accrued Operating Expenses and Other Liabilities 11,816
----------
Total Liabilities 254,518
----------
NET ASSETS $2,373,972
==========
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) $2,307,141
Undistributed Net Investment Income 41
Accumulated Distributions in Excess of Net Realized Gains (61,846)
Net Unrealized Appreciation 128,636
----------
Net Assets $2,373,972
==========
Capital Shares Outstanding (Unlimited Number Authorized) 190,755
NET ASSET VALUE PER SHARE $12.45
======
See notes to financial statements.
6
<PAGE>
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
For the Year Ended December 31, 1997
INCOME:
Dividends $ 3,173
Interest 4,885
--------
Total Income 8,058
EXPENSES:
Investment Advisory Fees 5,786
Custodian Fees 12,500
Shareholder Servicing Costs 2,100
Legal Fees 3,025
Accounting Fees 5,037
Reports to Shareholders 7,060
Other 1,972
--------
Total Expenses before Waivers and Absorptions 37,480
Expense Waivers and Absorptions by Advisor:
Voluntary (4,652)
Involuntary (25,815)
--------
Expenses, Net 7,013
--------
NET INVESTMENT INCOME 1,045
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain on Investments 23,906
Change in Unrealized Appreciation/Depreciation on Investments 128,636
--------
NET GAIN 152,542
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $153,587
========
See notes to financial statements.
7
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
YEAR ENDED
DEC. 31, 1997
-------------
(NOTE 1)
OPERATIONS:
Net Investment Income $ 1,045
Net Realized Gain 23,906
Change in Unrealized Appreciation/Depreciation 128,636
----------
Increase in Net Assets Resulting from Operations 153,587
DISTRIBUTIONS:
From Net Investment Income (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 (86,756)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 2,457,283
Proceeds from Reinvestment of Dividends 86,756
Payment for Shares Redeemed (236,898)
----------
Increase in Net Assets from Capital Share Transactions 2,307,141
----------
TOTAL INCREASE IN NET ASSETS 2,373,972
NET ASSETS:
Beginning of Year --
----------
End of Year $2,373,972
==========
TRANSACTIONS IN SHARES OF THE FUND:
Sold 204,701
Issued in Reinvestment of Distributions 7,212
Redeemed (21,158)
-------
Increase in Shares of the Fund 190,755
=======
See notes to financial statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
December 31, 1997
1. ORGANIZATION
The Strong Growth Fund II commenced investment operations on January 2,
1997, 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. 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 62% 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 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, 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.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
December 31, 1997
(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 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 December 31, 1997 and unaffiliated
directors' fees, excluding the effects of waivers and reimbursements, for
the year then ended, were $11,544 and $1,500, respectively. The Advisor
owned 19.5% of the outstanding shares of the Fund at December 31, 1997.
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities for the year ended
December 31, 1997 were $5,029,080 and $3,028,473, respectively.
5. INCOME TAX INFORMATION
At December 31, 1997, the cost of investments in securities for federal
income tax purposes was $2,463,655. Net unrealized appreciation of
securities was $119,040, consisting of gross unrealized appreciation and
depreciation of $147,175 and $28,135, 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.
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 9.6% (unaudited).
10
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED PER-SHARE DATA (a)
---------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------- ---------------------------------------------------------
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
Year Ended of Period Income Investments Operations Income Income Gains Gains Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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>
<CAPTION>
RATIOS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------
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
Year Ended Return Thousands) Net Assets and Absorptions Net Assets Rate Paid
<S> <C> <C> <C> <C> <C> <C> <C>
Dec. 31, 1997 +29.8% $2,374 1.2% 2.0% 0.2% 541.3% $0.0357
(a) Information presented relates to a share of capital stock of the Fund outstanding for the entire period.
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REPORT OF INDEPENDENT ACCOUNTANTS
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To the Shareholders and Board of Directors of the
Strong Growth Fund II
We have audited the accompanying statement of assets and liabilities of Strong
Growth Fund II (one of the portfolios constituting the Strong Variable
Insurance Funds, Inc.), including the schedule of investments in securities, as
of December 31, 1997, and the related statement of operations, the statement of
changes in net assets, and the financial highlights for the year then ended.
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 audit.
We conducted our audit 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 custodian. 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 audit provides 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 Growth Fund II as of December 31, 1997, and the results of its
operations, the changes in its net assets, and the financial highlights for the
year then ended, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
February 4, 1998
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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
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[STRONG FUNDS LOGO]
STRONG FUNDS DISTRIBUTORS, INC.
P.O. Box 2936 * Milwaukee, WI 53201 7029B98
Strong Funds are offered by prospectus only.
