THE STRONG
----------
SCHAFER
VALUE FUND II
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ANNUAL REPORT o DECEMBER 31, 1998
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Table of Contents
Investment Review
The Strong Schafer Value Fund II .......................................2
Financial Information
Schedule of Investments in Securities ..................................5
Statement of Assets and Liabilities ....................................6
Statement of Operations ................................................7
Statements of Changes in Net Assets ....................................8
Notes to Financial Statements ..........................................9
Financial Highlights .....................................................10
Report of Independent Accountants ........................................11
[STRONG LOGO]
STRONG INVESTMENTS, INC.
P.O. Box 2936 o Milwaukee, Wisconsin 53201
Strong Funds are offered by prospectus only. 10207A99
<PAGE>
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THE STRONG SCHAFER VALUE FUND II
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FUND
HIGHLIGHTS
o For the fiscal year ended December 31, 1998, the Strong Schafer Value Fund
II returned 2.18%, and the S&P 500 Stock Index (S&P 500) returned 28.58%.*
o The Fund bought more mid-cap stocks because they were generally cheaper
than their large-cap counterparts. However, investors seeking safety from
this year's uncertain market conditions favored large-cap stocks, which we
continued to sell as they got more expensive.
o The Fund's holdings in the financial sector were adversely affected by
exposure to weak foreign economies and sluggish earnings reports.
- ---------------------------------------
AVERAGE ANNUAL
TOTAL RETURN(1)
As of 12-31-98
1-year 2.18%
Since Inception 1.10%
(on 10-10-97)
- ---------------------------------------
FIVE LARGEST
STOCK HOLDINGS
As of 12-31-98
SECURITY % OF NET ASSETS
Petroleum Geo-Services
Sponsored ADR 2.9%
UCAR International, Inc. 2.7%
FDX Corporation 2.7%
Borg-Warner Automotive, Inc. 2.6%
Diamond Offshore Drilling, Inc. 2.6%
Please see the Schedule of Investments
in Securities for a complete listing of
the Fund's portfolio.
PERSPECTIVES
FROM THE MANAGER
/s/ David K. Schafer
David K. Schafer
Portfolio Manager
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Since beginning my career in the investment industry over 30 years ago, this is
the most difficult period I've experienced. We have stuck to our long-held
discipline of selling stocks when they reach a price-to-earnings (P/E) ratio
equal to or higher than that of the S&P 500. As investors fled to the perceived
"safe haven" of large-cap stocks, the prices and P/E ratios of those stocks rose
steadily. During the reporting period, we sold Progressive Corp., Northern
Trust, and SBC Communications--all large-caps--for that reason. As we sold our
large-cap holdings, we replaced them mostly with mid-cap stocks, which are
currently carrying P/Es well below market levels.
Not only do these mid-cap companies trade more cheaply than their large-cap
counterparts, they typically have better near-term earnings growth prospects
coupled with less exposure to foreign economies than most large-cap companies.
Unfortunately, thus far, low valuations haven't led to outperformance. It is
possible that struggling foreign economies may not get worse, but it could be a
long time before things really start improving for many of the involved
countries and the companies that do business there. We sold Cummins Engine and
Asia Pulp & Paper, both companies with significant sales to Asia, for this
reason. The changes we have made to our
-----------------------------------------
THE CHANGES WE HAVE
MADE TO OUR PORTFOLIO
LINK IT MUCH MORE
CLOSELY TO THE
ECONOMY OF THE U.S.,
ONE OF THE STRONGEST
IN THE WORLD.
-----------------------------------------
- --------------------------------------------------------------------------------
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
<PAGE>
portfolio link it much more closely to the economy of the U.S., one of the
strongest in the world.
Another factor that had significant influence on the Fund's performance was our
large holding in the energy sector. Our energy stocks were adversely affected by
a sharp decline in the demand for oil, coupled with the decline in the price of
the commodity.
Looking forward, we think the market will continue to react in a volatile manner
to economic news. We think the long-running neglect of small- and mid-cap stocks
by investors may soon begin to reverse. We are positioned very well to take
advantage of such a change in investor sentiment should it begin. The low prices
at which we now hold our stocks, combined with their strong forecast earnings
growth, make this one of the cheapest portfolios we have ever owned relative to
the market.
Thank you for your continued faith and perseverance during this very trying
period. We remain committed to helping you achieve your long term investment
goals.
GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 10-10-97 to 12-31-98
THE STRONG Lipper Growth
SCHAFER VALUE S&P 500 & Income Funds
FUND II Index* Index*
9-97 10,000 10,000 10,000
12-97 9,918 10,071 10,209
3-98 10,720 11,476 11,373
6-98 10,004 11,855 11,395
9-98 7,817 10,676 9,974
12-98 10,135 12,950 11,596
This graph, prepared 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 & Income
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 in the Fund.
- --------------------------------------------------------------------------------
* The S&P 500 is an unmanaged index generally representative of the U.S.
stock market, without regard to company size. The Lipper Growth & Income
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 SCHAFER VALUE FUND II USES A STRICT VALUE APPROACH. THIS DISCIPLINE
IS APPLIED TO BOTH BUYING AND SELLING. TO AVOID PERSONAL BIAS, EACH STOCK IS
PROPORTIONED EQUALLY IN THE FUND WHEN PURCHASED. THE PRICE PAID FOR A COMPANY,
RELATIVE TO ITS PROFITS, MUST BE BELOW THE AVERAGE OF THE S&P 500. STOCKS ARE
GENERALLY SOLD WHEN THEY BECOME "EXPENSIVE" RELATIVE TO THE S&P 500. THE COMPANY
ALSO MUST HAVE GOOD PROSPECTS FOR INCREASING PROFITS. THE MANAGER'S FOCUS IS TO
SCRUTINIZE THESE PROSPECTS CAREFULLY. THE FUND USES THIS APPROACH TO PURSUE
LONG-TERM CAPITAL APPRECIATION THROUGH INVESTMENTS IN STOCKS.
- --------------------------------------------------------------------------------
MARKET
HIGHLIGHTS
o An overall healthy domestic economy led to the strong performance of the
S&P 500 throughout the 12-month period.
o The S&P 500's return masks an important split in the market. Investors
pursued safety in well-known, large-cap companies while selling small- and
mid-cap stocks. In the last year, the largest 20 growth companies in the
S&P 500 comprised more than 50% of the index's total gains.
o Asian economic troubles that started during the fourth quarter of 1997 had
a negative affect in 1998 on stock markets and economies around the world,
including the U.S.
3
<PAGE>
<TABLE>
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PORTFOLIO HOLDINGS, EARNINGS PER SHARE ESTIMATES, AND PRICE/EARNINGS RATIOS OF 12-31-98 (UNAUDITED)
=============================================================================================================
<CAPTION>
CLOSING PRICE EARNINGS PER SHARE PRICE/EARNINGS RATIO
SECURITY (12-31-98) 1997A 1998E 1999E 1998E 1999E
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
R & B Falcon Corp $ 7.56 $1.29 $1.19 $1.11 6.4 6.8
National Bank Of Canada 16.12 1.89 2.09 2.28 7.7 7.1
Ucar International Inc 17.81 3.07 2.27 2.05 7.8 8.7
Owens Corning 35.44 3.00 3.55 4.00 10.0 8.9
New Holland 13.69 2.60 1.93 1.50 7.1 9.1
Cleveland-Cliffs Inc 40.31 4.80 4.67 4.21 8.6 9.6
Harman International 38.12 1.43 3.17 3.94 12.0 9.7
Northrop Grumman Corp 73.12 6.10 6.70 7.55 10.9 9.7
PartnerRe Ltd 45.75 4.48 4.08 4.60 11.2 9.9
Petroleum Geo-Svcs -Spon Adr 15.75 1.09 1.30 1.58 12.1 10.0
Armstrong World Inds Inc 60.31 5.22 5.40 5.90 11.2 10.2
Old Republic Intl Corp 22.50 1.88 2.10 2.20 10.7 10.2
Southdown Inc 59.19 3.90 4.70 5.40 12.6 11.0
Sunoco Inc 36.06 2.84 2.62 3.24 13.8 11.1
Ford Motor Company 58.69 4.86 5.20 5.16 11.3 11.4
Borg-Warner Automotive Inc 55.81 4.31 3.99 4.86 14.0 11.5
Sears Roebuck & Co 42.50 3.27 3.30 3.68 12.9 11.5
Lafarge Corp 40.50 2.50 3.30 3.45 12.3 11.7
Diamond Offshore Drilling 23.69 1.93 2.63 2.00 9.0 11.8
KLM Royal Dutch Air 30.00 3.04 2.81 2.48 10.7 12.1
Philips Electronics 67.69 4.60 3.96 5.50 17.1 12.3
BankAmerica Corp 60.12 4.28 3.65 4.75 16.5 12.7
Champion Enterprises Inc 27.37 1.45 1.92 2.15 14.3 12.7
Kansas City Power & Light 29.62 1.77 2.19 2.29 13.5 12.9
Burlington Northern Santa Fe 34.25 2.00 2.40 2.60 14.3 13.2
Arrow Electronics Inc 26.69 2.05 1.60 2.00 16.7 13.3
DaimlerChrysler 96.06 NA 6.22 7.16 15.4 13.4
Storage Technology Corp 35.69 1.88 2.04 2.65 17.5 13.5
Berkley Corp 34.06 2.74 2.20 2.50 15.5 13.6
Chase Manhattan Corp 71.00 4.20 4.40 5.00 16.1 14.2
SLM Holding Corp 48.00 2.80 2.75 3.35 17.5 14.3
Paine Webber Group Inc 38.62 3.00 2.65 2.70 14.6 14.3
Avnet Inc 60.50 4.03 3.82 4.22 15.9 14.4
IBP Inc 29.12 1.25 2.04 1.90 14.3 15.3
Western Resources Inc 33.25 (0.48) 2.58 2.21 12.9 15.0
Summit Bancorp 43.69 2.09 2.65 2.85 16.5 15.3
May Department Stores Co 60.37 2.85 3.42 3.77 17.6 16.0
Merrill Lynch & Co 66.75 4.83 3.50 4.15 19.1 16.1
Wells Fargo Company 39.94 1.48 1.80 2.25 22.2 17.8
Mellon Bank Corp 68.75 2.90 3.25 3.60 21.2 19.1
Phillips Petroleum Co 42.62 3.46 1.66 2.20 25.7 19.4
FDX Corp. 89.19 2.25 3.88 4.31 23.0 20.7
Kansas City Southern Inds 49.19 1.30 1.85 2.10 26.6 23.4
S&P 500 INDEX: $1,229.00 $45.36 $45.46 $47.17 27.0 26.1
STRONG SCHAFER VALUE FUND II AVERAGES 14.3 12.9
% DISCOUNT -47.0% -50.5%
A=ACTUAL E=ESTIMATE
</TABLE>
4
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES DECEMBER 31, 1998
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================================================================================
STRONG SCHAFER VALUE FUND II
================================================================================
Shares or
Principal Value
Amount (Note 2)
- --------------------------------------------------------------------------------
COMMON STOCKS 97.4%
Aerospace & Defense 2.4%
Northrop Grumman Corporation 1,300 $ 95,062
Airline 5.1%
FDX Corporation (b) 1,200 106,800
KLM Royal Dutch Airlines 3,300 99,000
--------
205,800
Auto & Truck Parts 2.6%
Borg-Warner Automotive, Inc. 1,900 106,044
Automobile 3.8%
DaimlerChrysler AG (b) 900 86,456
Ford Motor Company 1,100 64,556
--------
151,012
Banks 12.9%
BankAmerica Corporation 1,200 72,150
The Chase Manhattan Corporation 1,350 91,884
Mellon Bank Corporation 1,300 89,375
National Bank of Canada 4,900 78,490
Summit Bancorp 2,100 91,744
Wells Fargo Company 2,400 95,850
--------
519,493
Brokerage 6.1%
Kansas City Southern Industries, Inc. 1,700 83,619
Merrill Lynch & Company, Inc. 1,000 66,750
Paine Webber Group, Inc. 2,500 96,562
--------
246,931
Building Materials 6.9%
Lafarge Corporation 2,400 97,200
Owens Corning 2,200 77,962
Southdown, Inc. 1,700 100,619
--------
275,781
Computer Equipment & Service 1.9%
Storage Technology Corporation (b) 2,100 74,681
Electric Utilities 4.7%
Kansas City Power & Light Company 3,300 97,762
Western Resources, Inc. 2,800 93,100
--------
190,862
Electronic Parts Distribution 6.4%
Arrow Electronics, Inc. (b) 3,100 82,731
Avnet, Inc. 1,300 78,650
Philips Electronics NV ADR 1,400 94,763
--------
256,144
Food 1.8%
IBP, Inc. 2,500 72,813
Housing Related 6.5%
Armstrong World Industries, Inc. 1,100 66,344
Champion Enterprises, Inc. (b) 3,500 95,813
Harman International Industries, Inc. 2,600 99,125
--------
261,282
Insurance 7.4%
W.R. Berkley Corporation 2,900 98,781
Old Republic International Corporation 4,600 103,500
PartnerRe, Ltd. 2,100 96,075
--------
298,356
Machinery - Agriculture 2.5%
New Holland NV 7,400 101,288
Metals & Mining 4.4%
Cleveland-Cliffs, Inc. 1,700 68,531
UCAR International, Inc. (b) 6,100 108,656
--------
177,187
Oil 4.8%
Phillips Petroleum Company 2,200 93,775
Sunoco, Inc. 2,800 100,975
--------
194,750
Oil Well Equipment & Service 8.0%
Diamond Offshore Drilling, Inc. 4,400 104,225
Petroleum Geo-Services Sponsored ADR (b) 7,300 114,975
R&B Falcon Corporation (b) 13,400 102,175
--------
321,375
Personal & Commercial Lending 2.4%
SLM Holding Corporation 2,000 96,000
Railroad 2.4%
Burlington Northern Santa Fe Corporation 2,900 97,875
Retail - Department Store 4.4%
May Department Stores Company 1,300 78,488
Sears, Roebuck & Company 2,300 97,750
--------
176,238
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TOTAL COMMON STOCKS (COST $3,741,509) 3,918,974
- --------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 7.2%
COMMERCIAL PAPER
Interest Bearing, Due Upon Demand
American Family Financial Services, Inc., 5.17% $ 100 100
General Mills, Inc., 5.23% 119,600 119,600
Pitney Bowes Credit Corporation, 5.23% 14,100 14,100
Wisconsin Corporate Central Credit Union, 5.30% 155,200 155,200
- --------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $289,000) 289,000
- --------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST $4,030,509) 104.6% 4,207,974
Other Assets and Liabilities, Net (4.6%) (185,991)
- --------------------------------------------------------------------------
NET ASSETS 100.0% $4,021,983
==========================================================================
LEGEND
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(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 Schafer
Value Fund II
--------------
ASSETS:
Investments in Securities, at Value (Cost of $4,030,509) $4,207,974
Dividends and Interest Receivable 4,830
Other Assets 8,030
----------
Total Assets 4,220,834
LIABILITIES:
Payable for Securities Purchased 190,792
Accrued Operating Expenses and Other Liabilities 8,059
----------
Total Liabilities 198,851
----------
NET ASSETS $4,021,983
==========
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) $3,681,833
Accumulated Net Investment Income 292
Accumulated Net Realized Gain 162,386
Net Unrealized Appreciation 177,472
----------
Net Assets $4,021,983
==========
Capital Shares Outstanding (Unlimited Number Authorized) 399,191
NET ASSET VALUE PER SHARE $10.08
======
See Notes to Financial Statements.
6
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended December 31, 1998
Strong Schafer
Value Fund II
--------------
INCOME:
Interest $ 3,799
Dividends 22,188
--------
Total Income 25,987
EXPENSES:
Investment Advisory Fees 13,864
Custodian Fees 3,105
Shareholder Servicing Costs 3,172
Reports to Shareholders 2,446
Professional Fees 7,224
Other 1,567
--------
Total Expenses before Waivers 31,378
Expense Waivers by Advisor (14,782)
--------
Expenses, Net 16,596
--------
NET INVESTMENT INCOME 9,391
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 165,386
Foreign Currencies (3)
--------
Net Realized Gain 165,383
Change in Unrealized Appreciation/Depreciation on:
Investments 174,766
Foreign Currencies 7
--------
Net Change in Unrealized Appreciation/Depreciation 174,773
--------
NET GAIN 340,156
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $349,547
========
See Notes to Financial Statements.
7
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
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Strong Schafer Value Fund II
------------------------------------
<CAPTION>
Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997
------------- -------------
(Note 1)
<S> <C> <C>
OPERATIONS:
Net Investment Income $ 9,391 $ 890
Net Realized Gain (Loss) 165,383 (2,998)
Net Change in Unrealized Appreciation/Depreciation 174,773 2,699
---------- --------
Net Increase in Net Assets Resulting from Operations 349,547 591
DISTRIBUTIONS:
From Net Investment Income (9,099) (890)
In Excess of Net Investment Income -- (426)
---------- --------
Total Distributions (9,099) (1,316)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 3,118,810 705,151
Proceeds from Reinvestment of Distributions 9,099 1,316
Payment for Shares Redeemed (151,053) (1,063)
---------- --------
Net Increase in Net Assets from Capital Share Transactions 2,976,856 705,404
---------- --------
TOTAL INCREASE IN NET ASSETS 3,317,304 704,679
NET ASSETS:
Beginning of Year 704,679 --
---------- --------
End of Year $4,021,983 $704,679
========== ========
TRANSACTIONS IN SHARES OF THE FUND:
Sold 341,863 71,125
Issued in Reinvestment of Distributions 931 136
Redeemed (14,752) (112)
---------- --------
Net Increase in Shares of the Fund 328,042 71,149
========== ========
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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December 31, 1998
1. ORGANIZATION
Strong Schafer Value Fund II commenced operations on October 10, 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
70% 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 -- Securities of the Fund are valued through
valuations obtained from a commercial pricing service or the mean of
the bid and asked prices, when no last sales price is available.
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 calculated on a
first-in, first-out basis.
(D) 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.
(E) 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.
(F) 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 Fund's Advisor voluntarily waived
expenses of $10,506. 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. In addition, the Advisor is compensated for
certain other services related to costs incurred for reports to
shareholders.
Schafer Capital Management, Inc. ("Schafer") manages the investments of the
Fund under an agreement with the Advisor. Schafer is compensated by the
Advisor (not the Fund) and bears all of its own expenses in providing
subadvisory services.
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.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31, 1998
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 $7,932, $211 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 $3,887,959 and $1,012,175, respectively.
6. INCOME TAX INFORMATION
At December 31, 1998, the cost of investments in securities for federal
income tax purposes was $4,031,027. Net unrealized appreciation of
securities was $176,947, consisting of gross unrealized appreciation and
depreciation of $371,718 and $194,771, respectively.
<TABLE>
FINANCIAL HIGHLIGHTS
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STRONG SCHAFER VALUE FUND II
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended
-----------------
<S> <C> <C>
SELECTED PER-SHARE DATA(a) 1998 1997(b)
- -------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 9.90 $10.00
Income From Investment Operations
Net Investment Income 0.03 0.01
Net Realized and Unrealizes Gains (Losses) on Investments 0.18 (0.09)
-----------------------------------------------------------------------------------------------
Total from Investment Operations 0.21 (0.08)
Less Distributions
From Net Investment Income (0.03) (0.01)
In Excess of Net Investment Income -- (0.01)
-----------------------------------------------------------------------------------------------
Total Distributions (0.03) (0.02)
- -------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.08 $9.90
=================================================================================================
RATIOS AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------
Total Return +2.2% -0.8%
Net Assets, End of Period (In Thousands) $4,022 $705
Ratio of Expenses to Average Net Assets 1.2% 1.5%*
Ratio of Expenses to Average Net Assets Without Waivers and Absorptions 2.0% 1.5%*
Ratio of Net Investment Income to Average Net Assets 0.7% 0.7%*
Portfolio Turnover Rate 73.3% 3.1%
</TABLE>
* 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 period from October 10, 1997 (inception) to December 31, 1997.
Total return and portfolio turnover rate are not annualized.
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 Strong Schafer Value 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 Schafer Value Fund II
(the "Fund") (one of the portfolios constituting the Strong Variable Insurance
Funds, Inc.) at December 31, 1998, the results of its operations, the changes in
its net assets and the financial highlights for each of the periods indicated,
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 4, 1999
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