<PAGE>
[PICTURE] [LOGO OF STRONG]
Semi-Annual Report
The Strong
M I D C A P G R O W T H
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
Semi - Annual Report . June 30, 2000
<PAGE>
THE STRONG MID CAP GROWTH FUND II
---------------------------------
Fund Highlights
. The Strong Mid Cap Growth Fund II returned 4.81% for the six months ended
June 30, 2000, while the S&P MidCap 400 Stock Index returned 8.97%./1/,*
. Semiconductor, networking, energy service,and biotechnology holdings
provided strong relative performance for the Fund. We added to our positions
in the semiconductor area but trimmed our networking holdings.
. The Fund's exposure to interest-rate sensitive and consumer cyclical issues
contributed negatively to the Fund's performance.
--------------------------------------------------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS/1/
As of 6-30-00
1-year 56.03%
3-year 42.97%
Since Inception 40.92%
(on 12-31-96)
Equity funds are volatile investments and should only be considered for long-
term goals.
--------------------------------------------------------------------------------
FIVE LARGEST
STOCK HOLDINGS
As of 6-30-00
Security % of Net Assets
Micron Technology, Inc. 2.9%
E-Tek Dynamics, Inc. 2.7%
The Charles Schwab Corporation 2.2%
Gemstar International Group, Ltd. 2.2%
ENSCO International, Inc. 2.0%
Please see the Schedule of Investments in Securities for a complete listing
of the Fund's portfolio.
Perspectives
from the Managers
/s/ Ronald C. Ognar /s/ Derek Felske
Ronald C. Ognar Derek Felske
Portfolio Co-manager Portfolio Co-manager
--------------------------------------------------------------------------------
Technology remains the Fund's largest single sector, consuming roughly half the
Fund's assets. We continue to focus our investments on the direct beneficiaries
of the networked economy. Within the mid-cap universe, the fastest growth rates
continue 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. With relative valuations of
technology companies at extreme levels, we have reduced our weighting in the
sector relative to prior periods
Although we believe the Fed has now moved to a neutral bias, signs of continued
strong growth in the coming months may trigger further tightening action. With
valuations in the technology area at high historical levels and the market's
overall technology weighting at record highs, we expect volatility to remain
high. It is our assessment that careful stock picking and more diversified
sector weightings will be rewarded.
Healthcare is an area of renewed emphasis for us. Although the race to map the
human genome is now over, the hard work is really just beginning. We
particularly like the companies that provide the "picks and shovels" of genomic
discovery. We have also invested in several drug distribution companies, as we
believe a possible government prescription program could drive incremental unit
growth in the sector.
------------------------
Although we believe
the Fed has now
moved to a neutral bias,
signs of continued
strong growth in the
coming months may
trigger further
tightening action.
------------------------
--------------------------------------------------------------------------------
/1/ The Fund's returns include the effect of deducting the Fund's expenses, but
do not include charges and expenses attributable to any particular insurance
product. Including such insurance fees and expenses in the Fund's return
quotations has the effect of decreasing the performance quoted. Average annual
total return and total return measure change in the value of an investment in
the Fund, assuming reinvestment of all dividends and capital gains. Average
annual total return reflects annualized change while total return reflects
aggregate change, and is not annualized.
2
<PAGE>
We believe the Federal Reserve's tightening cycle is near an end. Therefore,
consumer cyclicals are becoming increasingly attractive. We continue to
overweight category-killer retailers (Best Buy), unit growth stories (Kohl's),
and well-established consumer franchises (Tiffany). Another area we like, and to
which we added, is energy. Oil prices are high, OPEC members are more than 90%
compliant with production quotas, and economic conditions in Asia appear to have
stabilized.
As we assess the next six months, we expect the U.S. economy to grow at a more
moderate rate. Well-positioned growth companies able to generate unit growth, as
overall corporate profit growth begins to decelerate, will become increasingly
scarce. Fortunately, mid-cap stocks are often pure plays on dynamic niche
markets, new products, or innovative new services. Their fortunes are not as
closely tied to general economic factors as are those of larger companies. 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 financial goals.
GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 12-31-96 to 6-30-00
[GRAPH]
<TABLE>
<CAPTION>
Lipper
S & P Multi-Cap
The Strong MidCap MidCap 400 Growth Funds
Index Growth Fund II Stock Index* Index*
<S> <C> <C> <C>
Dec 96 $10,000 $10,000 $10,000
Jun 97 $11,370 $11,299 $11,223
Dec 97 $12,974 $13,225 $12,295
Jun 98 $15,121 $14,367 $14,353
Dec 98 $16,695 $15,752 $15,343
Jun 99 $21,293 $16,835 $17,536
Dec 99 $31,700 $18,072 $22,456
Jun 00 $33,224 $19,693 $24,117
</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 Multi-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.
Your Fund's Approach
The Strong Mid Cap Growth Fund II seeks capital growth. It invests at least
65% of its assets in stocks of medium-capitalization companies that the Fund's
managers believe have favorable prospects for accelerating growth of earnings
but are selling at reasonable valuations based on earnings, cash flow, or asset
value. The Fund defines "medium-capitalization companies" as companies with a
market capitalization substantially similar to that of companies in the S&P
MidCap 400 Index at the time of investment. The Fund writes put and call
options.
Market Highlights
. After several years of unusually strong performance for technology-related
issues, the difference between the returns of technology stocks and those of
other growth stocks began to close.
. The Federal Reserve's interest-rate hikes in the face of a strong domestic
economy, heightening inflationary pressures, and signs of economic strength
overseas has helped to spur market volatility. Signs of continued strong
growth in the coming months may trigger further tightening action.
. High levels of corporate profitability continued to indirectly support the
technology sector. Despite their recent correction, the relative valuations
of new economy companies remain extremely rich.
--------------------------------------------------------------------------------
*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 Multi-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 June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------------
STRONG MID CAP GROWTH FUND II
Shares or
Principal Value
Amount (Note 2)
--------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 98.2%
Banks - Money Center 0.5%
The Bank of New York Company, Inc. 65,000 $ 3,022,500
Banks - Super Regional 3.6%
Comerica, Inc. 138,000 6,192,750
Northern Trust Company 113,000 7,352,062
State Street Corporation 69,000 7,318,313
-----------
20,863,125
Computer - Memory Devices 0.9%
Network Appliance, Inc. (b) 32,800 2,640,400
SanDisk Corporation (b) 41,500 2,539,281
-----------
5,179,681
Computer - Services 0.6%
Sungard Data Systems, Inc. (b) 120,000 3,720,000
Computer Software - Desktop 2.2%
Gemstar International Group, Ltd. (b) 203,000 12,474,984
Computer Software - Enterprise 4.7%
Business Objects SA Sponsored ADR (b) 32,000 2,820,000
I2 Technologies, Inc. (b) 35,000 3,649,297
Mercury Interactive Corporation (b) 32,000 3,096,000
TIBCO Software, Inc. (b) 87,000 9,329,391
Veritas Software Corporation (b) 73,000 8,250,140
-----------
27,144,828
Computer Software - Financial 0.5%
Intuit, Inc. (b) 75,000 3,103,125
Computer Software - Medical 0.5%
Cerner Corporation (b) 110,000 2,997,500
Computer Software - Security 0.9%
Check Point Software Technologies, Ltd. (b) 24,500 5,187,875
Electronics - Laser Systems/Components 1.7%
Coherent, Inc. (b) 64,600 5,418,325
VISX, Inc. (b) 155,500 4,363,719
-----------
9,782,044
Electronics - Measuring Instruments 0.6%
Tektronix, Inc. (b) 50,000 3,700,000
Electronics - Scientific Instruments 1.5%
PE Corporation-PE Biosystems Group 133,700 8,807,488
Electronics - Semiconductor Equipment 3.0%
Credence Systems Corporation (b) 106,000 5,849,875
KLA-Tencor Corporation (b) 130,000 7,613,125
Teradyne, Inc. (b) 53,000 3,895,500
-----------
17,358,500
Electronics - Semiconductor Manufacturing 14.0%
Analog Devices, Inc. (b) 99,500 7,562,000
Applied Micro Circuits Corporation (b) 103,000 10,171,250
Conexant Systems, Inc. (b) 105,000 5,105,625
Integrated Device Technology, Inc. (b) 110,500 6,616,187
LSI Logic Corporation (b) 122,500 6,630,312
Micron Technology, Inc. (b) 190,000 16,731,875
National Semiconductor Corporation (b) 100,000 5,675,000
PMC-Sierra, Inc. (b) 30,000 5,330,625
Triquint Semiconductor, Inc. (b) 78,500 7,511,469
Varian Semiconductor Equipment Associates, Inc. (b) 29,000 1,821,563
Vitesse Semiconductor Corporation (b) 96,000 7,062,000
-----------
80,217,906
Electronics Products - Miscellaneous 1.7%
Celestica, Inc. (b) 116,500 5,781,312
Flextronics International, Ltd. (b) 62,000 4,258,625
-----------
10,039,937
Finance - Investment Brokers 7.2%
The Charles Schwab Corporation 381,000 $12,811,125
Donaldson, Lufkin & Jenrette, Inc. 78,000 3,310,125
The Goldman Sachs Group, Inc. 94,000 8,918,250
Legg Mason, Inc. 120,000 6,000,000
Lehman Brothers Holdings, Inc. 77,500 7,328,594
Paine Webber Group, Inc. 66,500 3,025,750
-----------
41,393,844
Finance - Investment Management 1.4%
Kansas City Southern Industries, Inc. (b) 90,500 8,026,219
Finance - Mortgage & Related Services 0.7%
Countrywide Credit Industries, Inc. 141,000 4,274,062
Finance - Savings & Loan 2.1%
Golden West Financial Corporation 147,000 5,999,437
Washington Mutual, Inc. 214,000 6,179,250
-----------
12,178,687
Financial Services - Miscellaneous 2.3%
Capital One Financial Corporation 128,000 5,712,000
First Data Corporation 146,500 7,270,063
-----------
12,982,063
Insurance - Property/Casualty/Title 0.6%
ACE, Ltd. 126,800 3,550,400
Internet- E*Commerce 0.5%
Internet Capital Group, Inc. (b) 83,000 3,072,297
Internet- Internet Service Provider/Content 1.3%
InfoSpace, Inc. (b) 132,500 7,320,625
Internet- Network Security/Solutions 3.1%
Exodus Communications, Inc. (b) 163,000 7,508,188
VeriSign, Inc. (b) 56,975 10,056,087
-----------
17,564,275
Internet- Software 3.8%
Ariba, Inc. (b) 25,000 2,451,172
BEA Systems, Inc. (b) 109,000 5,388,688
BroadVision, Inc. (b) 73,000 3,709,313
Phone.com, Inc. (b) 39,000 2,539,875
Portal Software, Inc. (b) 31,500 2,012,062
Vignette Corporation (b) 108,500 5,643,695
-----------
21,744,805
Media - Radio/TV 1.2%
Univision Communications, Inc. (b) 63,500 6,572,250
Medical - Biomedical/Genetics 2.0%
Chiron Corporation (b) 94,600 4,493,500
Genentech, Inc. (b) 42,000 7,224,000
-----------
11,717,500
Medical - Ethical Drugs 1.1%
Elan Corporation PLC Sponsored ADR (b) 124,000 6,006,250
Medical - Health Maintenance Organizations 1.0%
UnitedHealth Group, Inc. 67,000 5,745,250
Medical - Hospitals 1.2%
Health Management Associates, Inc. Class A (b) 531,000 6,936,187
Medical - Outpatient/Home Care 0.6%
HEALTHSOUTH Corporation (b) 445,000 3,198,438
Medical - Products 1.1%
Sepracor, Inc. (b) 51,000 6,151,875
</TABLE>
4
<PAGE>
-------------------------------------------------------------------------------
STRONG MID CAP GROWTH FUND II (continued)
Shares or
Principal Value
Amount (Note 2)
-------------------------------------------------------------------------------
Medical - Wholesale Drugs/Sundries 2.2%
AmeriSource Health Corporation Class A (b) 101,500 $ 3,146,500
Express Scripts, Inc. Class A (b) 66,000 4,100,250
McKesson HBOC, Inc. 244,000 5,108,750
------------
12,355,500
Oil & Gas - Drilling 5.1%
Diamond Offshore Drilling, Inc. 183,000 6,427,875
ENSCO International, Inc. 326,500 11,692,781
Noble Drilling Corporation (b) 277,000 11,408,938
------------
29,529,594
Oil & Gas - Field Services 1.9%
BJ Services Company (b) 74,000 4,625,000
Petroleum Geo-Services A/S Sponsored ADR (b) 350,000 5,971,875
------------
10,596,875
Oil & Gas - Machinery/Equipment 2.8%
Cooper Cameron Corporation (b) 101,000 6,666,000
Smith International, Inc. (b) 124,500 9,065,156
-----------
15,731,156
Retail - Consumer Electronics 1.3%
Best Buy Company, Inc. (b) 117,000 7,400,250
Retail - Department Stores 0.9%
Kohl's Corporation (b) 92,000 5,117,500
Retail - Miscellaneous/Diversified 0.8%
Pier 1 Imports, Inc. 448,000 4,368,000
Retail/Wholesale - Computer/Cellular 1.0%
RadioShack Corporation 118,000 5,590,250
Retail/Wholesale - Jewelry 1.7%
Tiffany & Company 144,000 9,720,000
Telecommunications - Cellular 2.6%
United States Cellular Corporation (b) 100,000 6,300,000
VoiceStream Wireless Corporation (b) 73,000 8,489,672
------------
14,789,672
Telecommunications - Equipment 9.2%
American Tower Corporation Class A (b) 126,500 5,273,469
Andrew Corporation (b) 118,000 3,960,375
Comverse Technology, Inc. (b) 84,000 7,812,000
Copper Mountain Networks, Inc. (b) 63,800 5,622,375
E-Tek Dynamics, Inc. (b) 59,000 15,564,937
Scientific-Atlanta, Inc. 90,000 6,705,000
Sycamore Networks, Inc. (b) 31,000 3,421,625
Tekelec (b) 90,000 4,336,875
------------
52,696,656
Telecommunications - Services 0.6%
Montana Power Company 103,000 3,637,188
-------------------------------------------------------------------------------
Total Common Stocks (Cost $490,341,511) 563,567,161
-------------------------------------------------------------------------------
Short-Term Investments (a) 5.2%
Commercial Paper 1.1%
Interest Bearing, Due Upon Demand
Sara Lee Corporation, 6.27% $ 5,283,500 5,283,500
Wisconsin Electric Power Company, 6.31% 794,300 794,300
------------
6,077,800
Repurchase Agreements 3.0%
ABN-AMRO Inc. (Dated 6/30/00), 6.60%,
Due 7/03/00 (Repurchase proceeds
$17,009,350); Collateralized by:
U.S. Government & Agency Issues (c) 17,000,000 17,000,000
United States Government Issues 1.1%
United States Treasury Bills, Due 7/27/00
thru 9/14/00 6,600,000 $ 6,544,852
-------------------------------------------------------------------------------
Total Short-Term Investments (Cost $29,621,586) 29,622,652
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Total Investments in Securities (Cost $519,963,097) 103.4% 593,189,813
Other Assets and Liabilities, Net(3.4%) (19,232,878)
-------------------------------------------------------------------------------
Net Assets 100.0% $573,956,935
===============================================================================
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
--------------------------------------------------------------------------------
June 30, 2000 (Unaudited)
Strong Mid Cap
Growth Fund II
--------------
Assets:
Investments in Securities, at Value (Cost of $519,963,097) $593,189,813
Receivable for Securities Sold 16,821,522
Dividends and Interest Receivable 193,593
Other Assets 9,156
------------
Total Assets 610,214,084
Liabilities:
Payable for Securities Purchased 36,193,316
Accrued Operating Expenses and Other Liabilities 63,833
------------
Total Liabilities 36,257,149
------------
Net Assets $573,956,935
============
Net Assets Consist of:
Capital Stock (par value and paid-in capital) $481,444,587
Accumulated Net Investment Loss (1,368,156)
Undistributed Net Realized Gain 20,653,788
Net Unrealized Appreciation 73,226,716
------------
Net Assets $573,956,935
============
Capital Shares Outstanding (Unlimited Number Authorized) 18,030,272
Net Asset Value Per Share $ 31.83
============
See Notes to Financial Statements.
6
<PAGE>
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
For the Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
Strong Mid Cap
Growth Fund II
--------------
<S> <C>
Income:
Dividends $ 298,258
Interest 1,161,210
--------------
Total Income 1,459,468
Expenses:
Investment Advisory Fees 2,511,660
Custodian Fees 18,351
Shareholder Servicing Costs 308,637
Other 36,143
--------------
Total Expenses before Fees Paid Indirectly by Advisor 2,874,791
Fees Paid Indirectly by Advisor (Note 3) (47,168)
--------------
Expenses, Net 2,827,623
--------------
Net Investment Loss (1,368,155)
Realized and Unrealized Gain (Loss):
Net Realized Gain (Loss) on:
Investments (23,112,448)
Futures Contracts 2,962,366
--------------
Net Realized Loss (20,150,082)
Net Change in Unrealized Appreciation/Depreciation on Investments 20,017,045
--------------
Net Loss on Investments (133,037)
--------------
Net Decrease in Net Assets Resulting from Operations ($ 1,501,192)
==============
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Strong Mid Cap Growth Fund II
---------------------------------------
Six Months Ended Year Ended
June 30, 2000 Dec. 31, 1999
---------------- --------------
(Unaudited)
<S> <C> <C>
Operations:
Net Investment Loss ($ 1,368,155) ($ 198,399)
Net Realized Gain (Loss) (20,150,082) 41,138,940
Net Change in Unrealized Appreciation/Depreciation 20,017,045 50,565,126
------------- -------------
Net Increase (Decrease) in Net Assets Resulting from Operations (1,501,192) 91,505,667
Distributions From Net Realized Gains -- (42,659)
Capital Share Transactions:
Proceeds from Shares Sold 309,777,934 231,717,793
Proceeds from Reinvestment of Distributions -- 42,659
Payment for Shares Redeemed (58,203,813) (16,069,226)
------------- -------------
Net Increase in Net Assets from Capital Share Transactions 251,574,121 215,691,226
------------- -------------
Total Increase in Net Assets 250,072,929 307,154,234
Net Assets:
Beginning of Period 323,884,006 16,729,772
------------- -------------
End of Period $573,956,935 $323,884,006
============= =============
Transactions in Shares of the Fund:
Sold 9,253,082 10,393,156
Issued in Reinvestment of Distributions -- 2,453
Redeemed (1,885,757) (776,934)
------------- -------------
Net Increase in Shares of the Fund 7,367,325 9,618,675
============= =============
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
June 30, 2000 (Unaudited)
1. Organization
Strong Mid Cap Growth Fund II (formerly known 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 June 30, 2000, 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 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 June 30, 2000.
(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. Securities held
by the Fund may be designated as collateral on written options.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
June 30, 2000 (Unaudited)
(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.
(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 are included in Other Expenses in the Fund's Statement of Operations.
Credits allocated by the Advisor serve to reduce the shareholder servicing
expenses incurred by the Fund and are reported as Fees Paid Indirectly by
Advisor 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 June 30, 2000, shareholder servicing and
other expenses paid to the Advisor, transfer agency banking charges and
unaffiliated directors' fees, for the six months then ended, were $50,508,
$308,638, $47,168 and $5,520, 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 assets or
any explicit borrowing limits in the Fund's prospectus. Principal and
interest on each borrowing under 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 0.08% per
annum is incurred on the unused portion of the LOC and is allocated to all
participating Strong Funds. At June 30, 2000, there were no borrowings by the
Fund outstanding under the LOC.
10
<PAGE>
5. Investment Transactions
The aggregate purchases and sales of long-term securities, other than long-
term government securities, for the six months ended June 30, 2000 were
$1,431,237,448 and $1,152,886,769, respectively. There were no purchases
or sales of long-term government securities during the six months ended June
30, 2000.
6. Income Tax Information
At June 30, 2000, the cost of investments in securities for federal income
tax purposes was $531,449,832. Net unrealized appreciation of securities was
$61,739,981, consisting of gross unrealized appreciation and depreciation of
$72,913,722 and $11,173,741, respectively.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
STRONG MID CAP GROWTH FUND II
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period Ended
---------------------------------------------------------
June 30, Dec. 31, Dec. 31, Dec. 31,
Selected Per-Share Data/(a)/ 2000/(b)/ 1999 1998 1997
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 30.37 $ 16.02 $ 12.45 $ 10.00
Income From Investment Operations:
Net Investment Income (Loss) (0.08) (0.02) (0.02) 0.02
Net Realized and Unrealized Gains on Investments 1.54 14.40 3.59 2.94
------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.46 14.38 3.57 2.96
Less Distributions:
From Net Investment Income -- -- (0.00)/(c)/ (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)/(c)/ (0.51)
------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 31.83 $ 30.37 $ 16.02 $ 12.45
====================================================================================================================================
Ratios and Supplemental Data
------------------------------------------------------------------------------------------------------------------------------------
Total Return +4.8% +89.9% +28.7% +29.8%
Net Assets, End of Period (In Thousands) $573,957 $ 323,884 $16,730 $ 2,374
Ratio of Expenses to Average Net Assets Without
Waivers, Absorptions and Fees Paid Indirectly by Advisor 1.1%* 1.2% 1.6% 2.0%
Ratio of Expenses to Average Net Assets 1.1%* 1.1% 1.2% 1.2%
Ratio of Net Investment Income (Loss) to Average Net Assets (0.5%)* (0.2%) (0.3%) 0.2%
Portfolio Turnover Rate 244.7% 647.7% 329.1% 541.3%
</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 six months ended June 30, 2000 (unaudited).
(c) Amount calculated is less than $0.01.
See Notes to Financial Statements.
11
<PAGE>
RT5374-0700
