<PAGE>
[PHOTO]
[LOGO OF STRONG]
semi-annual report
The Strong
S C H A F E R V A L U E
Fund II
<TABLE>
<S> <C>
Investment Review
The Strong Schafer Value Fund II.................................. 2
Financial Information
Schedule of Investments in Securities............................. 4
Statement of Assets and Liabilities............................... 5
Statement of Operations........................................... 6
Statements of Changes in Net Assets............................... 7
Notes to Financial Statements..................................... 8
Financial Highlights................................................ 10
</TABLE>
Semi-Annual Report . June 30, 2000
<PAGE>
THE STRONG SCHAFER VALUE FUND II
--------------------------------
Fund Highlights
. For the six months ended June 30, 2000, the Strong Schafer Value Fund II
returned 0.00%, while the S&P 500 Stock Index (S&P 500) returned -0.42%./1/,*
. A narrow market driven by technology stocks prevailed for most of this
period, which led this fund to beat the S&P 500.
. We increased our weighting in high-quality pharmaceutical companies as their
stock prices declined to attractive buying levels. This group benefited our
investment performance, especially in March.
--------------------------------------------------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS/1/
As of 6-30-00
1-year -10.64%
Since Inception -0.57%
(on 10-10-97)
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 NetAssets
ECI Telecom, Ltd. 4.0%
Alza Corporation 3.8%
Cadence Design Systems, Inc. 3.8%
Schering-Plough Corporation 3.6%
Royal Group Technologies, Ltd. 3.4%
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
--------------------------------------------------------------------------------
Over the past six months, we made a few significant changes to the Fund's
portfolio. We increased our weighting in pharmaceutical stocks to nearly 20% of
assets. To make room for these new investments, we lightened up the financial
area. We also sold our two defense stocks, Lockheed Martin and Raytheon, as both
continued to post subpar quarterly earnings.
We are beginning to see some signs that the massive liquidation of value-style
stocks by individuals and institutions that has afflicted the market over the
past few years may be coming to an end. This observation comes from examining
the portfolios of value funds. Two trends come to light: First, the definition
of "value" has been thoroughly liberalized over the past few years, leading
investors to liquidate traditional value stocks in favor of higher-returning
"new value" stocks. Second, value-style mutual funds have seen their asset bases
fall to a small fraction of their former size. Poor investment results have
played a role in this decline, but the largest factor by far has been
shareholder redemptions of their value fund investments. The supply of value
stocks has greatly outweighed the demand for them during the past three years.
The Strong Schafer Value Fund II has not participated in the first trend--for
better or worse, we have stuck to our traditional definition of value.
It is in the aftermath of such an extended, difficult period that we form the
basis of our
--------------------------------------------------------------------------------
In time, we believe value stocks will pull out of this difficult part of the
cycle and then may perform relatively well over the years to come.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
/1/ The Fund's returns include the effect of deducting fund expenses, but do not
include charges and expenses attributable to any particular insurance
product. Excluding such fees and expenses from the Fund's return quotations
has the effect of increasing 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>
cautious optimism. It would appear that the only investors who still hold value
stocks are those who, like us, are dedicated to the style and to the
opportunities it presents. This should, at least somewhat, relieve the downward
selling pressure on value stocks, helping valuations to regain their footing. In
time, we believe value stocks will pull out of this difficult part of the cycle
and then may perform relatively well over the years to come.
We thank you for your continued patience and investments in the Strong Schafer
Value Fund II.
GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 10-10-97 to 6-30-00
Lipper
The Strong Multi-Cap
Schafer Value S&P 500 Value Funds
Fund II Stock Index* Index*
Sep 97 $10,000 $10,000 $10,000
Dec 97 $ 9,918 $10,071 $10,140
Mar 98 $10,720 $11,476 $11,299
Jun 98 $10,004 $11,855 $11,099
Sep 98 $ 7,817 $10,676 $ 9,411
Dec 98 $10,135 $12,950 $10,802
Mar 99 $10,176 $13,595 $10,880
Jun 99 $11,016 $14,553 $12,165
Sep 99 $ 9,202 $13,645 $10,857
Dec 99 $ 9,844 $15,675 $11,443
Mar 00 $10,092 $16,035 $11,470
Jun 00 $ 9,844 $15,608 $11,355
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 Multi-Cap Value
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. To equalize time periods, the indexes' performances were
prorated for the month of October 1997.
Your Fund's Approach
The Strong Schafer Value Fund II seeks long-term capital growth. Current income
is a secondary objective. It invests primarily in common stocks of medium- and
large-capitalization companies. The portfolio manager generally selects stocks
of companies that have a below-average price/earnings ratio as compared to that
of the Standard & Poor's 500 Stock Index and above-average projected earnings
growth. The Fund generally invests substantially all of its assets in stocks.
The Fund invests roughly similar amounts of its assets in each stock in the
portfolio. This approach avoids the overweighting of any individual security
being purchased.
--------------------------------------------------------------------------------
Market Highlights
. The U.S. economy was marked by increased volatility during the first half of
the year. On the international side, foreign economies, most notably those in
Asia, began to recover significantly.
. The two-tiered market in the U.S. has continued to attract the Federal
Reserve's attention. Should the Fed seek to curb the excesses in the
superheated Nasdaq stocks further, the result could be still-higher interest
rates and/or an increase in margin requirements for investors. Neither
condition would be positive for stocks in the near term.
--------------------------------------------------------------------------------
* The S&P 500 is an unmanaged index generally representative of the U.S. stock
market. The Lipper Multi-Cap Value 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>
SCHEDULE OF INVESTMENTS IN SECURITIES June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
STRONG SCHAFER VALUE FUND II
<TABLE>
<CAPTION>
Shares or
Principal Value
Amount (Note 2)
--------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock 93.5%
Auto/Truck - Original Equipment 2.5%
Borg-Warner Automotive, Inc. 12,600 $ 442,575
Banks - Money Center 5.5%
Bank of America Corporation 10,700 460,100
The Chase Manhattan Corporation 10,800 497,475
----------
957,575
Banks - Super Regional 6.1%
Mellon Financial Corporation 15,900 579,356
Wells Fargo Company 12,300 476,625
----------
1,055,981
Building - Cement/Concrete/Aggregate 2.6%
Lafarge Corporation 21,300 447,300
Building - Construction Products/Miscellaneous 3.4%
Royal Group Technologies, Ltd. (b) 24,400 582,550
Computer - Graphics 3.8%
Cadence Design Systems, Inc. (b) 32,200 656,075
Electronics - Parts Distributors 4.8%
Arrow Electronics, Inc. (b) 13,200 409,200
Avnet, Inc. 7,300 432,525
----------
841,725
Finance - Investment Management 3.0%
Franklin Resources, Inc. 16,900 513,337
Finance - Mortgage & Related Services 2.5%
Federal National Mortgage Association 8,300 433,156
Household - Appliances 3.3%
Maytag Corporation 15,400 567,875
Insurance - Property/Casualty/Title 5.8%
Chubb Corporation 8,000 492,000
PartnerRe, Ltd. 14,600 517,388
----------
1,009,388
Leisure - Gaming 3.7%
Harrahs Entertainment, Inc. (b) 4,700 98,406
MGM Grand, Inc. 17,200 552,550
650,956
Medical - Ethical Drugs 13.9%
Alza Corporation (b) 11,300 668,113
American Home Products Corporation 9,500 558,125
ICN Pharmaceuticals, Inc. 20,100 559,031
Schering-Plough Corporation 12,300 621,150
----------
2,406,419
Medical - Generic Drugs 2.2%
Mylan Laboratories, Inc. 20,500 374,125
Medical/Dental - Services 1.9%
Omnicare, Inc. 37,300 338,031
Oil & Gas - International Integrated 2.7%
Conoco, Inc. Class A 21,700 477,400
Retail - Department Stores 5.5%
Family Dollar Stores, Inc. 26,000 508,625
May Department Stores Company 18,500 444,000
----------
952,625
Retail/Wholesale Office Supplies 1.7%
Office Depot, Inc. (b) 48,100 300,625
Steel - Specialty Alloys 3.0%
UCAR International, Inc. (b) 40,300 526,419
Telecommunications - Equipment 4.0%
ECI Telecom, Ltd. 19,200 686,400
Transportation - Air Freight 3.2%
FedEx Corporation (b) 14,700 558,600
Transportation - Rail 3.1%
Canadian National Railway Company 18,600 542,888
Trucks & Parts - Heavy Duty 2.3%
Dana Corporation 18,800 398,325
Utility - Telephone 3.0%
ALLTEL Corporation 8,400 520,275
--------------------------------------------------------------------------------------
Total Common Stocks (Cost $16,424,692) 16,240,625
--------------------------------------------------------------------------------------
Short-Term Investments (a) 6.4%
Commercial Paper
Interest Bearing, Due Upon Demand
Sara Lee Corporation, 6.27% $767,600 767,600
Wisconsin Electric Power Company, 6.31% 343,700 343,700
--------------------------------------------------------------------------------------
Total Short-Term Investments (Cost $1,111,300) 1,111,300
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Total Investments In Securities (Cost $17,535,992) 99.9% 17,351,925
Other Assets and Liabilities, Net 0.1% 14,236
--------------------------------------------------------------------------------------
Net Assets 100.0% $17,366,16
======================================================================================
LEGEND
--------------------------------------------------------------------------------------
</TABLE>
(a) Short-term investments include any security which has a remaining maturity
of less than one year.
(b) Non-income producing security.
Percentages are stated as a percent of net assets.
4 See Notes to Financial Statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
June 30, 2000 (Unaudited)
Strong Schafer
Value Fund II
--------------
Assets:
Investments in Securities,at Value (Cost of $17,535,992) $17,351,925
Dividends and Interest Receivable 14,035
Other Assets 4,016
--------------
Total Assets 17,369,976
Accrued Operating Expenses and Other Liabilities 3,815
--------------
Net Assets $17,366,161
==============
Net Assets Consist of:
Capital Stock (par value and paid-in capital) $18,181,485
Undistributed Net Investment Income 41,803
Accumulated Net Realized Loss (673,060)
Net Unrealized Depreciation (184,067)
--------------
Net Assets $17,366,161
==============
Capital Shares Outstanding (Unlimited Number Authorized) 1,903,236
Net Asset Value Per Share $9.12
====
See Notes to Financial Statements. 5
<PAGE>
STATEMENT OF OPERATIONS
-------------------------------------------------------------------------------
For the Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
Strong Schafer
Value Fund II
----------------
<S> <C>
Income:
Interest $ 24,022
Dividends (net of foreign withholding taxes of $1,123) 103,501
----------
Total Income 127,523
Expenses:
Investment Advisory Fees 71,189
Custodian Fees 1,067
Shareholder Servicing Costs 10,736
Reports to Shareholders 5,910
Other 5,741
----------
Total Expenses before Waivers and Absorptions 94,643
Voluntary Expense Waivers and Absorptions by Advisor (8,923)
----------
Expenses,Net 85,720
----------
Net Investment Income 41,803
Realized and Unrealized Gain (Loss):
Net Realized Loss on Investments (454,714)
Net Change in Unrealized Appreciation/Depreciation on Investments 284,715
----------
Net Loss on Investments (169,999)
----------
Net Decrease in Net Assets Resulting from Operations ($128,196)
==========
</TABLE>
6 See Notes to Financial Statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Strong Schafer Value Fund II
-----------------------------------------
Six Months Ended Year Ended
June 30, 2000 Dec. 31, 1999
---------------- -------------
(Unaudited)
<S> <C> <C>
Operations:
Net Investment Income $ 41,803 $ 72,551
Net Realized Gain (Loss) (454,714) 132,156
Net Change in Unrealized Appreciation/Depreciation 284,715 (646,254)
----------- -----------
Net Decrease in Net Assets Resulting from Operations (128,196) (441,547)
Distributions:
From Net Investment Income -- (74,365)
From Net Realized Gains -- (512,887)
----------- -----------
Total Distributions -- (587,252)
Capital Share Transactions:
Proceeds from Shares Sold 11,629,220 9,462,364
Proceeds from Reinvestment of Distributions -- 587,252
Payment for Shares Redeemed (5,019,126) (2,158,537)
----------- -----------
Net Increase in Net Assets from Capital Share Transactions 6,610,094 7,891,079
----------- -----------
Total Increase in Net Assets 6,481,898 6,862,280
Net Assets:
Beginning of Period 10,884,263 4,021,983
----------- -----------
End of Period $17,366,161 $10,884,263
=========== ===========
Transactions in Shares of the Fund:
Sold 1,243,936 953,267
Issued in Reinvestment of Distributions -- 64,576
Redeemed (534,743) (222,991)
--------- -------
Net Increase in Shares of the Fund 709,193 794,852
========= =======
</TABLE>
See Notes to Financial Statements. 7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
June 30, 2000 (Unaudited)
1. Organization
Strong Schafer Value 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 48% 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 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 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.
(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 -- 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,
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
8
<PAGE>
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.
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 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, excluding the effects of waivers and
absorptions, for the six months then ended were $3,700, $10,736, $704 and
$802, 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. Principle 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.
5. Investment Transactions
The aggregate purchases and sales of long-term securities, other than
government securities, for the six months ended June 30, 2000 were
$8,992,314 and $3,313,430, 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 $17,707,595. Net unrealized depreciation of securities was
$355,670 consisting of gross unrealized appreciation and depreciation of
$1,595,483 and $1,951,153, respectively.
9
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
STRONG SCHAFER VALUE FUND II
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period Ended
-----------------------------------------------
June 30, Dec. 31, Dec. 31, Dec. 31,
Selected Per-Share Data/(a)/ 2000/(b)/ 1999 1998 1997/(c)/
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.12 $ 10.08 $ 9.90 $10.00
Income From Investment Operations:
Net Investment Income 0.02 0.06 0.03 0.01
Net Realized and Unrealized Gains (Losses) on Investments (0.02) (0.35) 0.18 (0.09)
----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations -- (0.29) 0.21 (0.08)
Less Distributions:
From Net Investment Income -- (0.07) (0.03) (0.01)
In Excess of Net Investment Income -- -- -- (0.01)
From Net Realized Gains -- (0.60) -- --
----------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (0.67) (0.03) (0.02)
----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 9.12 $ 9.12 $10.08 $ 9.90
==================================================================================================================================
Ratios and Supplemental Data
----------------------------------------------------------------------------------------------------------------------------------
Total Return +0.0% -2.9% +2.2% -0.8%
Net Assets, End of Period (In Thousands) $17,366 $10,884 $4,022 $ 705
Ratio of Expenses to Average Net Assets without Waivers and Absorptions 1.3%* 1.6% 2.0% 1.5%*
Ratio of Expenses to Average Net Assets 1.2%* 1.2% 1.2% 1.5%*
Ratio of Net Investment Income to Average Net Assets 0.6%* 0.9% 0.7% 0.7%*
Portfolio Turnover Rate 24.4% 93.9% 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 six months ended June 30, 2000 (unaudited).
(c) For the period from October 10, 1997 (inception) to December 31, 1997.
10 See Notes to Financial Statements.
<PAGE>
NOTES
--------------------------------------------------------------------------------
11
<PAGE>
RT5375-0700
