<PAGE>
THE STRONG
----------
GROWTH
FUND II
==================================
ANNUAL REPORT o DECEMBER 31, 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 .....................................6
Statement of Operations .................................................7
Statements of Changes in Net Assets .....................................7
Notes to Financial Statements ...........................................8
FINANCIAL HIGHLIGHTS .....................................................10
REPORT OF INDEPENDENT ACCOUNTANTS ........................................11
[PHOTO OF STRONG FUNDS BUILDING]
[STRONG LOGO]
STRONG INVESTMENTS, INC.
P.O. Box 2936 o Milwaukee, Wisconsin 53201
Strong Funds are offered by prospectus only. 10090L98
<PAGE>
======
THE STRONG GROWTH FUND II
-----------======--------
FUND
HIGHLIGHTS
o The Strong Growth Fund II, which invests primarily in mid-cap stocks,
generated an annual return of 28.68% for the 12 months ended December 31,
1998.
o The S&P 500 Stock Index, which is primarily large-cap in nature, finished
the year with an annual return of 28.58%.*
o The Fund's performance was very strong when compared to the S&P MidCap 400
Stock Index which generated an annual return of 19.11% for the same
period.*
- ---------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS(1)
As of 12-31-98
1-year 28.68%
Since Inception 29.21%
(on 12-31-96)
- ---------------------------------------
FIVE LARGEST
STOCK HOLDINGS
As of 12-31-98
SECURITY % OF NET ASSETS
Kohl's Corporation 3.3%
Sepracor, Inc. 2.2%
Uniphase Corporation 2.1%
Bed Bath & Beyond,Inc. 2.0%
Legato Systems, Inc. 2.0%
Please see the Schedule of Investments
in Securities for a complete listing of
the Fund's portfolio.
PERSPECTIVES
FROM THE MANAGER
/s/ Ronald C. Ognar
Ronald C. Ognar
Portfolio Manager
- --------------------------------------------------------------------------------
True to form, 1998, the second year of the presidential cycle, was very volatile
and trended down for most stocks into early October. Small-company stocks were
down the most for the year, followed by many mid-cap stocks, as nervous markets
stressed liquidity and bid up the prices of only a handful of large-company
stocks.
As a result, the S&P 500 Stock Index, which is primarily large-cap in nature,
closed the year ahead of S&P MidCap 400 Stock Index with an annual return of
28.58% compared to 19.11%.* In this environment, we believe the Strong Growth
Fund II, with its emphasis on mid-cap stocks, did comparatively well. It
finished the year ahead of both indices with a very solid annual return of
28.68%.
During the year, many mid-cap stocks continued to show powerful earnings growth
and sold at very attractive prices, and we continued to invest new assets which
came into the Fund into stocks that fit this profile. Our largest holdings were
in the consumer-spending, healthcare, and technology sectors, with select
holdings in the financial services and communications sectors. We prefer to
invest in companies that are market leaders in high-growth industries and have
outstanding management teams at the helm.
Performance was especially helped by our investments in specialty retailers,
including Kohl's Corporation; Bed, Bath and Beyond; Abercrombie & Fitch; and
Staples. The Fund
-------------------------------------
DURING THE YEAR,
MANY MID-CAP
STOCKS CONTINUED
TO SHOW POWERFUL
EARNINGS GROWTH
AND SOLD AT VERY
ATTRACTIVE PRICES...
-------------------------------------
- --------------------------------------------------------------------------------
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.
2
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also benefited in particular from its investments in Legato Systems,
International Networks, and Broadcom in the technology sector.
When the Federal Reserve cut interest rates without warning on October 15, the
markets resumed their upward climb. The additional interest rate cut in
November, which was designed to stimulate consumer spending and keep corporate
earnings strong, provided more fuel for the market rally. The breadth of the
rally was broad, and small- and mid-cap stocks advanced along with the best of
the large-company stocks. The Strong Growth Fund II was well positioned to
benefit from this rally and closed 1998 on a very strong note.
Looking ahead to 1999, we foresee an economy characterized by stable, moderate
growth and very low inflation. We believe that the consumer-spending,
healthcare, and technology sectors will continue to lead the market, and we will
continue to favor them in the Fund's portfolio as we look for companies
demonstrating stable and rising earnings. The markets may continue to be nervous
and volatile during 1999. But with the rising money supply and easier policy of
the Federal Reserve, the expanding liquidity should be positive for U.S. stocks
and keep market prices pointed higher.
Thank you for your investment in the Strong Growth Fund II. We appreciate the
opportunity to help you pursue your financial goals.
GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 12-31-96 to 12-31-98
[GRAPH]
STRONG GROWTH S&P 500 Lipper Growth
FUND II Index* Funds Index*
12-96 10,000 10,000 10,000
6-97 11,370 12,061 11,536
12-97 12,975 13,336 12,803
6-98 15,122 15,698 14,797
12-98 16,695 17,147 16,093
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with the performance of 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.
- --------------------------------------------------------------------------------
* The S&P 500 is an unmanaged index generally representative of the U.S.
stock market. S&P Midcap 400 Stock Index is an unmanaged index generally
representative of the U.S. stock 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. Source of the S&P index data is
Standard & Poor's Micropal. Source of the Lipper index data is Lipper, Inc.
YOUR FUND'S
APPROACH
THE STRONG GROWTH FUND II IS AN AGGRESSIVE GROWTH FUND WHICH SEEKS CAPITAL
GROWTH BY INVESTING PRIMARILY IN MEDIUM-SIZE COMPANIES, ALTHOUGH IT HAS THE
ABILITY TO INVEST IN COMPANIES OF ANY SIZE. WE BELIEVE THAT EARNINGS GROWTH
DRIVES STOCK PRICES AND THAT MANY GREAT, YOUNG AND VIBRANT COMPANIES ARE IN THE
MID-CAP SEGMENT OF THE STOCK MARKET. IN MAKING OUR STOCK SELECTIONS, WE LOOK FOR
COMPANIES THAT HAVE FAVORABLE PROSPECTS FOR ACCELERATING EARNINGS GROWTH AND ARE
SELLING AT REASONABLE PRICES. THE FUND IS DESIGNED FOR INVESTORS WILLING TO
ACCEPT SHARE-PRICE FLUCTUATION IN EXCHANGE FOR THE LONG-TERM GROWTH POTENTIAL
MID-CAP STOCKS HAVE TO OFFER.
- --------------------------------------------------------------------------------
MARKET
HIGHLIGHTS
o The U.S. economy continued along in a strong manner in 1998 with low
inflation and low unemployment. This created a generally strong environment
for U.S. stocks despite Asian weakness.
o Global financial turmoil, however, did make its presence felt in the U.S.
as larger, more liquid stocks dramatically outperformed the stocks of
smaller companies.
o The Federal Reserve unexpectedly cut interest rates this fall, ending the
weakness seen in stocks this summer and prompting a renewed rally.
3
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES DECEMBER 31, 1998
- --------------------------------------------------------------------------------
================================================================================
STRONG GROWTH FUND II
================================================================================
Shares or
Principal Value
Amount (Note 2)
- --------------------------------------------------------------------------------
COMMON STOCKS 92.4%
Airline 1.2%
Airborne Freight Corporation 4,700 $ 169,494
Midwest Express Holdings, Inc. (b) 1,500 39,469
----------
208,963
Bank - Regional 1.1%
Zions Bancorporation 3,000 187,125
Bank - Super Regional 1.3%
Northern Trust Company 2,500 218,281
Brokerage & Investment Management 1.1%
T. Rowe Price Associates, Inc. 3,100 106,175
The Charles Schwab Corporation 1,500 84,281
----------
190,456
Commercial Service 6.7%
Cintas Corporation 1,500 105,656
Lamar Advertising Company (b) 1,000 37,250
Lason Holdings, Inc. (b) 3,400 197,838
The Metzler Group, Inc. (b) 3,500 170,406
Outdoor Systems, Inc. (b) 9,000 270,000
Paychex, Inc. 1,500 77,156
Reynolds & Reynolds Company Class A 4,000 91,750
Robert Half International, Inc. (b) 1,700 75,969
Sykes Enterprises, Inc. (b) 3,000 91,500
----------
1,117,525
Computer - Peripheral Equipment 3.7%
American Power Conversion Corporation (b) 4,300 208,281
Network Appliance, Inc. (b) 6,000 270,000
SMART Modular Technologies, Inc. (b) 5,000 138,750
----------
617,031
Computer Service 7.0%
Acxiom Corporation (b) 9,000 279,000
CSG Systems International, Inc. (b) 3,000 237,000
Fiserv, Inc. (b) 2,100 108,019
IMS Health, Inc. 1,000 75,437
International Network Services (b) 4,000 266,000
UsWeb Corporation (b) 8,000 211,000
----------
1,176,456
Computer Software 12.5%
Advantage Learning Systems, Inc. (b) 2,300 151,225
Ascend Communications, Inc. (b) 2,000 131,500
At Home Corporation Series A (b) 2,000 148,500
Citrix Systems, Inc. (b) 1,500 145,594
Gemstar International Group, Ltd. (b) 1,000 57,250
GeoTel Communications Corporation (b) 1,500 55,875
I2 Technologies, Inc. (b) 1,000 30,375
Inktomi Corporation (b) 1,500 194,063
Keane, Inc. (b) 1,500 59,906
Legato Systems, Inc. (b) 5,000 329,688
Mindspring Enterprises, Inc. (b) 3,500 213,719
Siebel Systems, Inc. (b) 2,600 88,237
Synopsys, Inc. (b) 3,000 162,750
Veritas Software Corporation (b) 1,200 71,925
Visio Corporation (b) 5,000 182,812
Yahoo, Inc. (b) 300 70,519
----------
2,093,938
Container 0.5%
Sealed Air Corporation (b) 1,600 81,700
Electric Power 1.7%
Montana Power Company 5,000 282,812
Electronic Instrumentation 2.2%
Perkin Elmer Corporation 2,000 195,125
Waters Corporation (b) 2,000 174,500
----------
369,625
Electronics - Semiconductor/Component 8.5%
Altera Corporation (b) 3,200 194,800
Broadcom Corporation (b) 1,700 205,275
KLA-Tencor Corporation (b) 700 30,363
Rambus, Inc. (b) 2,800 269,500
Solectron Corporation (b) 1,400 130,112
Teradyne, Inc. (b) 4,000 169,500
Vitesse Semiconductor Corporation (b) 3,000 136,875
Xilinx, Inc. (b) 4,500 293,063
----------
1,429,488
Finance - Miscellaneous 2.7%
Concord EFS, Inc. (b) 7,000 296,625
Providian Financial Corporation 2,000 150,000
----------
446,625
Healthcare - Biomedical/Genetic 0.7%
Biogen, Inc. (b) 600 49,800
Genzyme Corporation (b) 1,200 59,700
----------
109,500
Healthcare - Drug/Diversified 3.3%
Forest Laboratories, Inc. (b) 5,000 265,938
Watson Pharmaceuticals, Inc. (b) 4,500 282,937
----------
548,875
Healthcare - Instrumentation 0.6%
IDEXX Laboratories, Inc. (b) 4,000 107,625
Healthcare - Medical Supply 3.2%
Bindley Western Industries, Inc. 1,600 78,800
Express Scripts, Inc. Class A (b) 3,000 201,375
PSS World Medical, Inc. (b) 7,500 172,500
Henry Schein, Inc. (b) 2,000 89,500
----------
542,175
Healthcare - Product 4.4%
Allergan, Inc. 3,500 226,625
MiniMed, Inc. (b) 1,300 136,175
Sepracor, Inc. (b) 4,200 367,762
----------
730,562
Housing Related 0.5%
Danaher Corporation 1,500 81,469
Insurance - Accident & Health 0.6%
AFLAC, Inc. 2,200 96,800
Leisure Product 0.6%
Harley-Davidson, Inc. 2,000 94,750
Media - Radio/TV 2.1%
Clear Channel Communications, Inc. (b) 1,500 81,750
Infinity Broadcasting Corporation (b) 4,000 109,500
Jacor Communications, Inc. (b) 2,400 154,500
----------
345,750
Retail - Department Store 3.3%
Kohl's Corporation (b) 9,000 552,938
Retail - Discount & Variety 3.0%
Dollar Tree Stores, Inc. (b) 6,000 262,125
99 Cents Only Stores (b) 5,000 245,625
----------
507,750
Retail - Food Chain 1.5%
Hannaford Brothers Company 1,200 63,600
Fred Meyer, Inc. (b) 3,000 180,750
----------
244,350
Retail - Major Chain 0.7%
BJ's Wholesale Club, Inc. (b) 2,700 125,044
Retail - Restaurant 1.2%
Starbucks Corporation (b) 3,500 196,437
4
<PAGE>
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================================================================================
STRONG GROWTH FUND II (continued)
================================================================================
Shares or
Principal Value
Amount (Note 2)
- --------------------------------------------------------------------------------
Retail - Specialty 10.3%
Abercrombie & Fitch Company Class A (b) 4,500 $ 318,375
American Eagle Outfitters, Inc. (b) 1,700 113,263
Bed Bath & Beyond, Inc. (b) 10,000 341,250
Best Buy Company, Inc. (b) 2,500 153,437
CDW Computer Centers, Inc. (b) 900 86,343
Linens `N Things, Inc. (b) 2,800 110,950
Lowe's Companies, Inc. 3,000 153,563
Office Depot, Inc. (b) 5,000 184,687
Staples, Inc. (b) 6,000 262,125
----------
1,723,993
Telecommunication Equipment 4.4%
Comverse Technology, Inc. (b) 4,000 284,000
Tellabs, Inc. (b) 1,500 102,844
Uniphase Corporation (b) 5,000 346,875
----------
733,719
Telecommunication Service 1.8%
Century Telephone Enterprises, Inc. 2,500 168,750
Global Crossing, Ltd. (b) 3,000 135,375
----------
304,125
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS (Cost $12,821,342) 15,465,887
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 9.0%
COMMERCIAL PAPER 9.0%
Interest Bearing, Due Upon Demand
American Family Financial Services, Inc., 5.17% 100 100
General Mills, Inc., 5.23% 87,100 87,100
Pitney Bowes Credit Corporation, 5.23% 510,500 510,500
Sara Lee Corporation, 5.23% 175,900 175,900
Warner Lambert Company, 5.18% 284,000 284,000
Wisconsin Corporate Central Credit Union, 5.30% 450,800 450,800
- --------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $1,508,400) 1,508,400
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (Cost $14,329,742) 101.4% 16,974,287
Other Assets and Liabilities, Net (1.4%) (244,515)
- --------------------------------------------------------------------------------
NET ASSETS 100.0% $16,729,772
================================================================================
- --------------------------------------------------------------------------------
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.
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1998
Strong Growth
Fund II
-------------
ASSETS:
Investments in Securities, at Value (Cost of $14,329,742) $16,974,287
Receivable for Securities Sold 635,057
Dividends and Interest Receivable 10,144
Other Assets 11,848
-----------
Total Assets 17,631,336
LIABILITIES:
Payable for Securities Purchased 889,491
Accrued Operating Expenses and Other Liabilities 12,073
-----------
Total Liabilities 901,564
-----------
NET ASSETS $16,729,772
===========
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) $14,179,240
Accumulated Net Realized Loss (94,013)
Net Unrealized Appreciation 2,644,545
-----------
Net Assets $16,729,772
===========
Capital Shares Outstanding (Unlimited Number Authorized) 1,044,272
NET ASSET VALUE PER SHARE $16.02
======
See Notes to Financial Statements.
6
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended December 31, 1998
Strong Growth
Fund II
-------------
INCOME:
Dividends $ 25,987
Interest 57,211
----------
Total Income 83,198
EXPENSES:
Investment Advisory Fees 90,090
Custodian Fees 15,610
Shareholder Servicing Costs 16,623
Reports to Shareholders 7,051
Other 10,109
----------
Total Expenses before Waivers 139,483
Expense Waivers by Advisor (31,481)
----------
Expenses, Net 108,002
----------
NET INVESTMENT LOSS (24,804)
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Loss on Investments (7,363)
Net Change in Unrealized Appreciation/Depreciation
on Investments 2,515,909
----------
NET GAIN ON INVESTMENTS 2,508,546
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,483,742
==========
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------
<CAPTION>
Strong Growth Fund II
------------------------------
Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net Investment Income (Loss) ($ 24,804) $ 1,045
Net Realized Gain (Loss) (7,363) 23,906
Net Change in Unrealized Appreciation/Depreciation 2,515,909 128,636
----------- ----------
Net Increase in Net Assets Resulting from Operations 2,483,742 153,587
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 16,440,591 2,457,283
Proceeds from Reinvestment of Distributions 41 86,756
Payment for Shares Redeemed (4,568,533) (236,898)
----------- ----------
Net Increase in Net Assets from Capital Share Transactions 11,872,099 2,307,141
----------- ----------
TOTAL INCREASE IN NET ASSETS 14,355,800 2,373,972
NET ASSETS:
Beginning of Year 2,373,972 --
----------- ----------
End of Year $16,729,772 $2,373,972
=========== ==========
TRANSACTIONS IN SHARES OF THE FUND:
Sold 1,194,214 204,701
Issued in Reinvestment of Distributions 3 7,212
Redeemed (340,700) (21,158)
----------- ----------
Net Increase in Shares of the Fund 853,517 190,755
=========== ==========
See Notes to Financial Statements.
7
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1998
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 December 31, 1998, approximately
69% 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 fair 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,
1998.
(B) Federal Income and Excise Taxes and Distributions to Shareholders --
The Fund intends 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 on a
first-in, first-out basis.
(D) Certain 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.
(E) 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. Additional securities held by
the Fund may be designated as collateral on open futures contracts.
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.
(F) 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.
8
<PAGE>
- --------------------------------------------------------------------------------
(G) 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.
(H) 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.
(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 in these financial statements. 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. Based on the terms of the Advisory Agreement, advisory fees and
other expenses will be waived by the Advisor if the Fund's operating
expenses exceed 2% of the average daily net assets of the Fund. In
addition, the Fund's Advisor may voluntarily waive certain expenses at
their discretion. During 1998, the Advisor voluntarily waived expenses of
$31,481. Shareholder recordkeeping and related service fees are based on
the lesser of various agreed-upon contractual percentages 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, 1998, shareholder
servicing and other expenses paid to the Advisor, and unaffiliated
directors' fees, excluding the effects of waivers and reimbursements, for
the year then ended were $11,544, $13,180 and $1,500, respectively.
4. LINE OF CREDIT
The Strong Funds have established a line of credit agreement ("LOC") with
certain financial institutions to be used for temporary or emergency
purposes, primarily for financing redemption payments. Combined borrowings
among all participating Strong Funds are subject to a $350 million cap on
the total line of credit. For individual Funds, borrowings under the LOC
are limited to either the lesser of 15% of the market value of total assets
or any explicit borrowing limits in the Fund's prospectus. Borrowings under
the LOC bear interest based on prevailing market rates as defined in the
LOC. A commitment fee of .07% per annum is incurred on the unused portion
of the line of credit and is allocated to all participating Strong Funds.
At December 31, 1998, there were no borrowings by the Funds outstanding
under the LOC.
5. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities for the year
ended December 31, 1998 were $37,056,108 and $26,225,362, respectively.
6. INCOME TAX INFORMATION
At December 31, 1998, the cost of investments in securities for federal
income tax purposes was $14,454,894. Net unrealized appreciation of
securities was $2,519,393, consisting of gross unrealized appreciation and
depreciation of $2,568,938 and $49,545, respectively.
9
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
STRONG GROWTH FUND II
- --------------------------------------------------------------------------------
Year Ended
--------------------
SELECTED PER-SHARE DATA(a) 1998 1997
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $12.45 $10.00
Income From Investment Operations
Net Investment Income (Loss) (0.02) 0.02
Net Realized and Unrealized Gains on Investments 3.59 2.94
- --------------------------------------------------------------------------------
Total from Investment Operations 3.57 2.96
Less Distributions
From Net Investment Income (0.00)(b) (0.01)
In Excess of Net Investment Income -- (0.15)
From Net Realized Gains -- (0.14)
In Excess of Net Realized Gains -- (0.21)
- --------------------------------------------------------------------------------
Total Distributions (0.00)(b) (0.51)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $16.02 $12.45
================================================================================
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Total Return +28.7% +29.8%
Net Assets, End of Period (In Thousands) $16,730 $2,374
Ratio of Expenses to Average Net Assets 1.2% 1.2%
Ration of Expenses to Average Net Assets Without Waivers 1.6% 2.0%
Ratio of Net Investment Income (Loss) to Average Net Assets (0.3%) 0.2%
Portfolio Turnover Rate 329.1% 541.3%
(a) Information presented relates to a share of capital stock of the Fund
outstanding for the entire period.
(b) Amount calculated is less than $0.00.
See Notes to Financial Statements.
10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors of the Strong Variable Insurance Funds, Inc.
and the Shareholders of the Strong Growth Fund II
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Strong Growth Fund II (the "Fund")
(one of the portfolios constituting the Strong Variable Insurance Funds, Inc.)
at December 31, 1998, the results of its operations for the year then ended, the
changes in its net assets and the financial highlights for each of the two years
in the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 1, 1999
11
