<PAGE>
[PHOTO OF WOMEN WITH 3 KIDS]
[LOGO]
THE STRONG
MID CAP GROWTH
FUND II
- -------------------------------------------------------------------------------
INVESTMENT REVIEW
The Strong Mid Cap 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...................................8
Notes to Financial Statements.........................................9
FINANCIAL HIGHLIGHTS......................................................11
REPORT OF INDEPENDENT ACCOUNTANTS.........................................11
ANNUAL REPORT - DECEMBER 31, 1999
<PAGE>
THE STRONG MID CAP GROWTH FUND II
---------------------------------
PERSPECTIVES
FROM THE MANAGERS
/s/ Ronald C. Ognar /s/ Derek Felske
Ronald C. Ognar Derek Felske
Portfolio Co-manager Portfolio Co-manager
- -------------------------------------------------------------------------------
Upon assuming management of the Strong Mid Cap Growth Fund II, we
substantially altered the Fund's portfolio by selecting companies exhibiting
superior revenue growth led by high-quality management teams in industries
with dynamic growth potential.
The Fund's renewed emphasis on what we believe are high-quality mid-cap
growth companies has resulted in a significant increase in our technology
exposure. We focused these investments in direct beneficiaries of the growth
of the networked economy. Within the mid-cap universe, the fastest growth
rates continued to be produced by leading technology companies enjoying the
positive benefits of new product cycles, buttressed by the need of
corporations to enhance productivity to compete in a global economy. While
such returns may not be sustainable in the long run, the Fund certainly
benefited from this sector's performance. The growth of the Internet and its
growing role as an important source of competitive advantage should continue
to enhance the prospects of companies engaged in business-to-business
commerce, wireless connectivity, Internet content, bandwidth expansion, and a
host of other applications.
We continued to maintain a positive stance on energy service companies. In
1998, the deflationary impact of the Asian economic crises, coupled with an
unusually mild winter, led to sharply lower oil prices. With relative
valuations extremely attractive amid signs of
- -------------------------------------------------------------------------------
WE BELIEVE MID-CAP GROWTH STOCKS CONTINUE TO OFFER ATTRACTIVE RETURN POTENTIAL.
- -------------------------------------------------------------------------------
[SIDENOTE]
FUND
HIGHLIGHTS
- - Ronald Ognar and Derek Felske assumed portfolio management
responsibility of the Fund on January 31, 1999. Reflecting the managers'
investment philosophy, the Fund's technology exposure was increased
during the year.
- - The Fund returned 89.88% in 1999. This compared very favorably
with the Lipper Mid-Cap Growth Funds Index return of 73.72% and the
14.72% return of the S&P MidCap 400 Stock Index.*
- - Technology, energy services, and consumer cyclical holdings provided strong
relative performance results for the Fund. Exposure to interest-rate
sensitive issues was a negative contributor.
- -------------------------------------------------------------------------------
[SIDENOTE]
AVERAGE ANNUAL
TOTAL RETURNS(1)
As of 12-31-99
1-year 89.88%
Since Inception 46.90%
(on 12-31-96)
- -------------------------------------------------------------------------------
[SIDENOTE]
FIVE LARGEST
STOCK HOLDINGS
As of 12-31-99
Security % of Net Assets
- -------------------------------------------------------------------------------
Extreme Networks, Inc. 2.3%
Cooper Cameron Corp. 2.3%
Smith International, Inc. 2.0%
Peregrine Systems, Inc. 1.9%
Juniper Networks, Inc. 1.8%
Please see the Schedule of Investments in Securities for a complete listing of
the Fund's portfolio.
(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>
rebounding prices and increased drilling activity, we made an investment in
the sector. Thus far, the underlying fundamentals appear to be improving:
OPEC members are substantially complying with announced production quotas,
and economic conditions in Asia (an important source of incremental demand)
appear to have stabilized.
During the coming months, we expect the U.S. economy to continue to grow,
though we expect the growth to be more moderate than in the recent months. We
also expect the Federal Reserve to remain ready to nudge interest rates
higher should signs of inflationary pressure emerge. This environment, in our
view, strongly favors companies that are able to generate unit growth. This
is because without the ability to raise prices easily, it takes unit growth
to support the higher revenue run rates needed to offset cost pressures. For
this reason, we believe mid-cap growth stocks continue to offer attractive
return potential. Unlike their larger-cap brethren, mid-cap growth stocks
often offer pure exposure to dynamic niche markets, new product cycles, or
innovative new services. As growth investors, our investment team is
constantly on the lookout for companies exhibiting sustainable fundamental
improvement.
We thank you for your interest in the Strong Mid Cap Growth Fund II and look
forward to continuing to help you pursue your vital financial goals.
GROWTH OF AN ASSUMED $10,000 INVESTMENT
FROM 12-31-96 TO 12-31-99
[GRAPH]
<TABLE>
<CAPTION>
THE STRONG S&P UPPER MID-CAP
MID CAP GROWTH MIDCAP 400 GROWTH FUNDS
FUND II STOCK INDEX INDEX*
-------------- ----------- -------------
<S> <C> <C> <C>
12-96 10,000 10,000 10,000
06-97 11,370 11,299 10,329
12-97 12,975 13,225 11,134
06-98 15,122 14,367 12,332
12-98 16,695 15,753 12,558
06-99 21,294 16,836 14,590
12-99 31,700 18,072 21,816
</TABLE>
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
S&P MidCap 400 Stock Index, and the Lipper Mid-Cap 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.
- -------------------------------------------------------------------------------
[SIDENOTE]
YOUR FUND'S
APPROACH
THE STRONG MID CAP GROWTH FUND II SEEKS CAPITAL GROWTH BY INVESTING IN
MEDIUM-CAPITALIZATION COMPANIES THAT THE MANAGERS BELIEVE HAVE FAVORABLE
PROSPECTS FOR ACCELERATING GROWTH OF EARNINGS BUT ARE SELLING AT REASONABLE
PRICES BASED ON EARNINGS, CASH FLOW, OR ASSET VALUE. "MEDIUM-CAPITALIZATION
COMPANIES" REFERS TO THOSE COMPANIES WITH MARKET CAPITALIZATIONS
SUBSTANTIALLY SIMILAR TO THAT OF COMPANIES IN THE S&P MIDCAP 400 INDEX AT THE
TIME OF INVESTMENT.
- -------------------------------------------------------------------------------
[SIDENOTE]
MARKET
HIGHLIGHTS
- - Although the stock market's advance was very narrow, companies generating
superior revenue growth performed extremely well throughout the period.
- - The Federal Reserve hiked short-term interest rates in response
to a strong domestic economy and signs of economic strength overseas. This
helped fuel market volatility. Even with the Federal Reserve's current
neutral stance on interest rates, further hikes appear likely if inflationary
pressures increase or foreign economies heat up.
- - Corporate earnings growth has begun to reaccelerate, belying earlier fears of
a significant slowdown in corporate profits. Given this improvement, as well
as improving prospects for a broad-based global economic recovery, many
analysts have ratcheted up their earnings estimates for cyclical sectors such
as technology.
- -------------------------------------------------------------------------------
* The S&P MidCap 400 Stock Index is an unmanaged index generally representative
of the U.S. stock market for medium capitalization stocks. The Lipper Mid-Cap
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.
3
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS IN SECURITIES December 31, 1999
- -----------------------------------------------------------------------------------------------
STRONG MID CAP GROWTH FUND II
- -----------------------------------------------------------------------------------------------
Shares or
Principal Value
Amount (Note 2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 89.0%
BANK - SUPER REGIONAL 1.2%
State Street Corporation 53,500 $ 3,908,844
BROKERAGE & INVESTMENT MANAGEMENT 4.5%
Donaldson, Lufkin & Jenrette, Inc. 51,000 2,467,125
Knight/Trimark Group, Inc. Class A (b) 84,000 3,864,000
Lehman Brothers Holdings, Inc. 54,500 4,615,469
PaineWebber Group, Inc. 96,000 3,726,000
---------
14,672,594
COMPUTER - PERIPHERAL EQUIPMENT 1.3%
SanDisk Corporation (b) 44,500 4,283,125
COMPUTER SOFTWARE 19.6%
Aspect Development, Inc. (b) 55,000 3,767,500
Brocade Communications Systems, Inc. (b) 30,000 5,310,000
Check Point Software Technologies, Ltd. (b) 28,500 5,664,375
Citrix Systems, Inc. (b) 12,500 1,537,500
J.D. Edwards & Company (b) 184,500 5,511,937
Electronic Arts, Inc. (b) 16,500 1,386,000
Entrust Technologies, Inc. (b) 45,900 2,751,131
Extreme Networks, Inc. (b) 89,500 7,473,250
Finisar Corporation (b) 13,200 1,186,350
Foundry Networks, Inc. (b) 6,000 1,810,125
Intuit, Inc. (b) 39,000 2,337,562
MicroStrategy, Inc. (b) 12,300 2,583,000
Parametric Technology Corporation (b) 106,000 2,868,625
PeopleSoft, Inc. (b) 70,500 1,502,531
Peregrine Systems, Inc. (b) 75,000 6,196,875
SCM Microsystems, Inc. (b) 47,600 3,043,425
Sybase, Inc. (b) 93,000 1,581,000
Veritas Software Corporation (b) 28,500 4,079,063
Verity, Inc. (b) 67,500 2,872,969
---------
63,463,218
COMPUTER SYSTEMS 1.7%
VA Linux Systems, Inc. (b) 27,000 5,578,875
ELECTRONIC INSTRUMENTATION 1.5%
PE Corporation-PE Biosystems Group 39,500 4,752,344
ELECTRONICS - MISCELLANEOUS COMPONENTS 0.7%
Sawtek, Inc. (b) 32,500 2,163,281
ELECTRONICS - SEMICONDUCTOR EQUIPMENT 1.6%
ASM Lithography Holding NV (b) 13,700 1,558,375
Credence Systems Corporation (b) 42,000 3,633,000
----------
5,191,375
ELECTRONICS - SEMICONDUCTOR MANUFACTURING 3.1%
Conexant Systems, Inc. (b) 24,000 1,593,000
Genesis Microchip, Inc. (b) 182,000 3,844,750
HI/FN, Inc. (b) 65,500 2,538,125
PMC-Sierra, Inc. (b) 9,500 1,522,969
Triquint Semiconductor, Inc. (b) 5,000 556,250
----------
10,055,094
HEALTHCARE - BIOMEDICAL/GENETIC 4.3%
Chiron Corporation (b) 40,500 1,716,187
Genzyme Corporation (b) 72,500 3,262,500
Immunex Corporation (b) 20,500 2,244,750
Medimmune, Inc. (b) 30,500 5,059,187
Millennium Pharmaceuticals, Inc. (b) 13,500 1,647,000
----------
13,929,624
HEALTHCARE - INSTRUMENTATION 0.5%
Affymetrix, Inc. (b) 10,000 $1,696,875
HEALTHCARE - PATIENT CARE 3.2%
Health Management Associates, Inc. Class A (b) 308,000 4,119,500
Omnicare, Inc. 275,100 3,301,200
Tenet Healthcare Corporation (b) 133,000 3,125,500
----------
10,546,200
HEALTHCARE - PRODUCT 1.3%
Sepracor, Inc. (b) 44,500 4,413,844
INSURANCE - ACCIDENT & HEALTH 0.8%
AFLAC, Inc. 55,000 2,595,313
INTERNET - E*COMMERCE 3.5%
DoubleClick, Inc. (b) 10,500 2,657,156
Internet Capital Group, Inc. (b) 33,800 5,746,000
PurchasePro.com, Inc. (b) 22,000 3,025,000
----------
11,428,156
INTERNET - INTERNET SERVICE PROVIDER/CONTENT 4.7%
Akamai Technologies, Inc. (b) 9,200 3,014,150
Engage Technologies, Inc. (b) 29,500 1,770,000
MP3.com, Inc. (b) 81,500 2,582,531
USinternetworking, Inc. (b) 35,500 2,480,563
VerticalNet, Inc. (b) 32,000 5,248,000
----------
15,095,244
INTERNET - NETWORK SECURITY/SOLUTIONS 7.8%
CacheFlow, Inc. (b) 22,000 2,875,125
Digital Island, Inc. (b) 11,500 1,093,937
Exodus Communications, Inc. (b) 34,500 3,064,031
Juniper Networks, Inc. (b) 17,500 5,950,000
Open Market, Inc. (b) 73,000 3,294,125
Redback Networks, Inc. (b) 13,500 2,396,250
VeriSign, Inc. (b) 11,000 2,100,313
Viant Corporation (b) 47,000 4,653,000
----------
25,426,781
INTERNET - SOFTWARE 8.6%
Ariba, Inc. (b) 7,000 1,241,625
CMGI, Inc. (b) 12,000 3,322,500
F5 Networks, Inc. (b) 36,000 4,104,000
FreeMarkets, Inc. (b) 11,100 3,788,569
Media Metrix, Inc. (b) 76,000 2,717,000
Phone.com, Inc. (b) 34,200 3,965,062
Portal Software, Inc. (b) 32,500 3,343,438
Proxicom, Inc. (b) 26,000 3,232,125
Vignette Corporation (b) 12,500 2,037,500
----------
27,751,819
LEISURE PRODUCT 1.4%
Harley-Davidson, Inc. 69,500 4,452,344
MEDIA - RADIO/TV 0.8%
Westwood One, Inc.(b) 32,000 2,432,000
OIL WELL EQUIPMENT & SERVICE 7.9%
BJ Services Company (b) 79,500 3,324,094
Cooper Cameron Corporation (b) 152,500 7,462,969
ENSCO International, Inc. 131,000 2,996,625
Noble Drilling Corporation (b) 165,000 5,403,750
Smith International, Inc. (b) 127,500 6,335,156
----------
25,522,594
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
STRONG MID CAP GROWTH FUND II (continued)
- -----------------------------------------------------------------------------------------------
Shares or
Principal Value
Amount (Note 2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
PAPER & FOREST PRODUCTS 0.6%
Champion International Corporation 30,000 $1,858,125
PRECIOUS METAL/GEM/STONE 0.7%
Newmont Mining Company 87,000 2,131,500
TELECOMMUNICATION EQUIPMENT 6.8%
Aware, Inc. (b) 76,000 2,764,500
E-Tek Dynamics, Inc. (b) 15,000 2,019,375
General Instrument Corporation (b) 27,500 2,337,500
Harmonic, Inc. (b) 45,500 4,319,656
JDS Uniphase Corporation (b) 24,000 3,871,500
Next Level Communications, Inc. (b) 62,000 4,642,250
Pair Gain Technologies, Inc. (b) 154,000 2,184,875
----------
22,139,656
TELECOMMUNICATIONS - SERVICES 0.9%
NEXTLINK Communications, Inc. (b) 34,000 2,824,125
- -----------------------------------------------------------------------------------------------
Total Common Stocks (Cost $235,103,279) 288,312,950
- -----------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (A) 13.6%
Commercial Paper 1.5%
Interest Bearing, Due Upon Demand
Pitney Bowes Credit Corporation, 6.10%$ 3,000,000 3,000,000
Warner Lambert Company, 6.08% 1,556,750 1,556,750
Wisconsin Electric Power Company, 6.04% 418,700 418,700
---------
4,975,450
REPURCHASE AGREEMENTS 12.1%
ABN-AMRO Inc. (Dated 12/31/99), 2.75%,
Due 1/03/00 (Repurchase proceeds $39,008,938);
Collateralized by: U.S. Government &
Agency Issues (c) 39,000,000 39,000,000
- -----------------------------------------------------------------------------------------------
Total Short-Term Investments (Cost $43,975,450) 43,975,450
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Total Investments in Securities (Cost $279,078,729)102.6% 332,288,400
Other Assets and Liabilities, Net (2.6%) (8,404,394)
- -----------------------------------------------------------------------------------------------
NET ASSETS 100% $323,884,006
================================================================================================
</TABLE>
- -------------------------------------------------------------------------------
LEGEND
- -------------------------------------------------------------------------------
(a) Short-term investments include any security which has a maturity of less
than one year.
(b) Non-income producing security.
(c) See Note 2(I) of Notes to Financial Statements.
Percentages are stated as a percent of net assets.
See Notes to Financial Statements.
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
December 31, 1999
<TABLE>
<CAPTION>
STRONG MID CAP
GROWTH FUND II
--------------
<S> <C>
ASSETS:
Investments in Securities, at Value
(Including Repurchase Agreements of $39,000,000)
(Cost of $279,078,729) $332,288,400
Receivable for Securities Sold 9,685,582
Dividends and Interest Receivable 58,642
Other Assets 5,563
------------
Total Assets 342,038,187
LIABILITIES:
Payable for Securities Purchased 18,122,410
Accrued Operating Expenses and Other Liabilities 31,771
------------
Total Liabilities 18,154,181
------------
NET ASSETS $323,884,006
============
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) $229,870,466
Undistributed Net Realized Gain 40,803,869
Net Unrealized Appreciation 53,209,671
------------
Net Assets $323,884,006
============
Capital Shares Outstanding (Unlimited Number Authorized) 10,662,947
NET ASSET VALUE PER SHARE $30.37
============
</TABLE>
6
See Notes to Financial Statements.
<PAGE>
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
STRONG MID CAP
GROWTH FUND II
--------------
<S> <C>
INCOME:
Dividends $ 127,929
Interest 774,024
-------------
Total Income 901,953
EXPENSES:
Investment Advisory Fees 959,912
Custodian Fees 28,115
Shareholder Servicing Costs 108,107
Other 27,177
------------
Total Expenses before Waivers and Absorptions 1,123,311
Voluntary Expense Waivers and Absorptions by Advisor (22,959)
------------
Expenses, Net 1,100,352
------------
NET INVESTMENT LOSS (198,399)
REALIZED AND UNREALIZED GAIN:
Net Realized Gain on Investments 41,138,940
Net Change in Unrealized Appreciation/Depreciation on Investments 50,565,126
------------
NET GAIN ON INVESTMENTS 91,704,066
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $91,505,667
===========
</TABLE>
7
See Notes to Financial Statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRONG MID CAP GROWTH FUND II
-----------------------------
Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998
------------- -------------
<S> <C> <C>
OPERATIONS:
Net Investment Loss ($198,399) ($24,804)
Net Realized Gain/(Loss) 41,138,940 (7,363)
Net Change in Unrealized Appreciation/Depreciation 50,565,126 2,515,909
------------ -----------
Net Increase in Net Assets Resulting from Operations 91,505,667 2,483,742
DISTRIBUTIONS:
From Net Investment Income -- (41)
From Net Realized Gains (42,659) --
------------ -----------
Total Distributions (42,659) (41)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 231,717,793 16,440,591
Proceeds from Reinvestment of Distributions 42,659 41
Payment for Shares Redeemed (16,069,226) (4,568,533)
------------ -----------
Net Increase in Net Assets from Capital Share Transactions 215,691,226 11,872,099
------------ -----------
TOTAL INCREASE IN NET ASSETS 307,154,234 14,355,800
NET ASSETS:
Beginning of Year 16,729,772 2,373,972
------------ ------------
End of Year $323,884,006 $16,729,772
============ ===========
TRANSACTIONS IN SHARES OF THE FUND:
Sold 10,393,156 1,194,214
Issued in Reinvestment of Distributions 2,453 3
Redeemed (776,934) (340,700)
----------- -----------
Net Increase in Shares of the Fund 9,618,675 853,517
=========== ===========
</TABLE>
8
See Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
December 31, 1999
1. Organization
Strong Mid Cap Growth Fund II (formerly know as Strong Growth Fund II) is a
diversified series of Strong Variable Insurance Funds, Inc., an open-end
management investment company registered under the Investment Company Act
of 1940, as amended. 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, 1999, approximately
74% 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 at fair
value through valuations obtained by 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, 1999.
(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.
Net investment income or net realized gains for financial statement
purposes 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.
The Fund generally pays dividends from net investment income and
distributes any net capital gains that it realizes annually.
(C) Realized Gains and Losses on Investment Transactions -- Investment
security transactions are recorded as of the trade date. 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.
Investments in foreign denominated assets or forward currency
contracts may involve greater risks than domestic investments,
due to currency, political, 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. Changes between the initial premiums received and the current
market value of the options are recorded as unrealized gains or
losses. 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. Additional securities held by the Fund
may be designated as collateral on written options.
(G) Foreign Currency Translation -- Investment securities and other
assets and liabilities initially expressed in foreign currencies are
converted daily 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
December 31, 1999
(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) Repurchase Agreements -- The Fund may enter into repurchase agreements
with institutions that the Fund's investment advisor, Strong Capital
Management, Inc. ("the Advisor"), has determined are creditworthy
pursuant to criteria adopted by the Board of Directors. Each
repurchase agreement is recorded at cost. The Fund requires that the
collateral, represented by securities (primarily U.S. Government
securities), in a repurchase transaction be maintained in a
segregated account with a custodian bank in a manner sufficient to
enable the Fund to obtain those securities in the event of a default
of the repurchase agreement. On a daily basis, the Advisor monitors
the value of the collateral, including accrued interest, to ensure it
is at least equal to the amount owed to the Fund under each
repurchase agreement.
(J) 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.
(K) Other -- 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
The Advisor, with whom certain officers and directors of the Fund are
affiliated, provides investment advisory services 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 or absorbed 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 or absorb certain expenses at its
discretion. 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 Advisor also allocates to the Fund certain charges
or credits resulting from transfer agency banking activities based on the
Fund's level of subscription and redemption activity. Charges allocated to
the Fund by the Advisor for the year ended December 31, 1999 of $2,304 are
included in Other Expenses in the Fund's Statement of Operations. The
Advisor is also compensated for certain other services related to costs
incurred for reports to shareholders.
The Fund may invest cash 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, 1999, shareholder
servicing and other expenses paid to the Advisor, and unaffiliated
directors' fees, excluding the effect of waivers and absorbtions, for
the year then ended, were $23,753, $108,108 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 LOC. For an individual Fund, borrowings under the LOC are limited
to either the lesser of 15% of the market value of the Fund's total net
assets or any explicit borrowing limits in the Fund's prospectus. Principal
and interest of each borrowing on the LOC are due not more than 60 days
after the date of the borrowing. Borrowings under the LOC bear interest
based on prevailing market rates as defined in the LOC. A commitment fee of
.08% per annum is incurred on the unused portion of the LOC and is
allocated to all participating Strong Funds. At December 31, 1999, there
were no borrowings by the Fund outstanding under the LOC.
5. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities, other than
government securities, for the year ended December 31, 1999 were
$750,386,716 and $569,243,720, respectively. There were no purchases or
sales of long-term government securities during the year-ended December 31,
1999.
6. INCOME TAX INFORMATION
At December 31, 1999, the cost of investments in securities for
federal income tax purposes was $279,843,544. Net unrealized
appreciation of securities was $52,444,856, consisting of gross
unrealized appreciation and depreciation of $56,353,529 and
$3,908,673, respectively.
During the year ended December 31, 1999, the Fund paid a capital gain
distribution (taxable as long-term capital gains at 20%) to
shareholders of $24,547 (unaudited).
For corporate shareholders in the Fund, the percentage of dividend
income distributed for the year ended December 31, 1999, which is
designated as qualifying for the dividends-received deduction is 0%
(unaudited).
10
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
STRONG MID CAP GROWTH FUND II
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
------------------------
Dec. 31, Dec. 31, Dec. 31,
Selected Per-Share Data(a) 1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $16.02 $12.45 $10.00
Income From Investment Operations:
Net Investment Income (Loss) (0.02) (0.02) 0.02
Net Realized and Unrealized Gains on Investments 14.40 3.59 2.94
- -----------------------------------------------------------------------------------------------
Total from Investment Operations 14.38 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 (0.03) - (0.14)
In Excess of Net Realized Gains - - (0.21)
- -----------------------------------------------------------------------------------------------
Total Distributions (0.03) (0.00)(b) (0.51)
- -----------------------------------------------------------------------------------------------
Net Asset Value, End of Period $30.37 $16.02 $12.45
===============================================================================================
Ratios and Supplemental Data
- -----------------------------------------------------------------------------------------------
Total Return +89.9% +28.7% +29.8%
Net Assets, End of Period (In Thousands) $323,884 $16,730 $2,374
Ratio of Expenses to Average Net Assets
Without Waivers and Absorptions 1.2% 1.6% 2.0%
Ratio of Expenses to Average Net Assets 1.1% 1.2% 1.2%
Ratio of net investment income (loss) to average net assets (0.2%) (0.3%) 0.2%
Portfolio Turnover Rate 647.7% 329.1% 541.3%
</TABLE>
(a) Information presented relates to a share of capital stock of the Fund
outstanding for the entire period.
(b) Amount calculated is less than $0.01.
See Notes to Financial Statements.
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Board of Directors of Strong Variable Insurance Funds, Inc.
and the Shareholders of Strong Mid Cap Growth Fund II
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments in securities, and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the position of Strong
Mid Cap Growth Fund II (the "Fund") (one of the portfolios constituting the
Strong Variable Insurance Funds, Inc.) at December 31, 1999, the results of
its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended and the financial highlights
for the periods indicated, in conformity with accounting principles generally
accepted in the United States. 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 auditing standards
generally accepted in the United States 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 at December 31, 1999 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where broker confirmations were not received, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 3, 2000
11
