<PAGE> 1
SEMIANNUAL REPORT
JUNE 30, 1995
THE STRONG
SPECIAL FUND II
[Photo of a father and son]
[Strong Funds Logo]
<PAGE> 2
TABLE OF CONTENTS
INVESTMENT REVIEW
The Strong Special Fund II . . . . . . . . . . . . . . . . . . 2
FINANCIAL INFORMATION
Schedule of Investments in Securities . . . . . . . . . . . . . 4
Statement of Operations . . . . . . . . . . . . . . . . . . . . 7
Statement of Assets and Liabilities . . . . . . . . . . . . . . 7
Statement of Changes in Net Assets . . . . . . . . . . . . . . 8
Notes to Financial Statements . . . . . . . . . . . . . . . . . 8
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . .12
<PAGE> 3
The Strong Special Fund II
In pursuit of capital growth, the Strong Special Fund II invests at least 70%
of its total assets in equity securities. It currently emphasizes medium-sized
companies that the Fund's Advisor believes are under-researched and
attractively valued.
STOCK PRICES RALLY IN
FIRST HALF OF 1995
The first six months of 1995 brought good news for investors in U.S. stocks
despite the dollar's slide versus several global currencies and Mexico's
devaluation of the peso. Continued healthy corporate earnings and the explosive
rally in long bonds helped catapult stocks to record highs. Ironically, the
dollar's weakness-and the turmoil in emerging markets that followed the peso's
devaluation-led to a shift in global capital flows back to the U.S. Investors
in the U.S. market particularly favored traditional large-cap growth stocks. As
a result, while mid-cap stocks-as measured by the S&P MidCap 400-did well (up
17.62%), they tended to slightly lag the stocks of big companies, as reflected
in the S&P 500's 20.21% gain for the first six months of 1995.(1)
For the six month period ended June 30, 1995, the Fund's total return was
13.12%.
A STRATEGY EMPHASIZING VALUE
Throughout the first half of 1995, we continued to stringently evaluate
existing and prospective holdings according to our analysis of their "private
value," which is a fancy term for a simple concept...basically, it means
evaluating companies as if we were a private buyer. We seek to determine how
much we'd be willing to pay to own the entire company. This gives us a
disciplined way to view the company's value and helps us impartially evaluate
potential winners and losers.
If we get an accurate private value, we generally have a good idea of where the
stock's going to trade for the year. We've discovered that most stocks usually
do not trade below 50% of private value, nor do they trade above the 80% mark.
Clearly, when we have a good idea of a company's trading range, we have a
tremendous advantage in determining the most appropriate time to buy or sell.
This analysis helped us identify several key additions to the portfolio, such
as CBS and Toys 'R' Us. Stocks sold because we believed they had become fully
valued included Eli Lilly and Circus Circus.
ASSET ALLOCATION
(as of 6/30/95)
[PIE CHART]
<TABLE>
<S> <C>
Short-Term Investments . . . . . . . . . . . . . . . . . . . . . . 10.8%
Convertible Corporate Bonds . . . . . . . . . . . . . . . . . . . . 0.6%
Common and Preferred Stocks including Convertibles . . . . . . . . 88.6%
</TABLE>
This allocation is presented as a percentage of net assets, and does not
reflect any options or futures positions held by the Fund. Please see the
Schedule of Investments in Securities for a complete listing of the Fund's
portfolio.
FIVE LARGEST HOLDINGS
(as of 6/30/95)
<TABLE>
<CAPTION>
% OF NET
COMPANY DESCRIPTION ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C>
Capital Cities/ Media - Radio/TV 1.4%
ABC, Inc.
Cox Communications, Inc. Media - Radio/TV 1.4%
Toys 'R' Us, Inc. Retail - Discount 1.4%
Paging Network, Inc. Telecommunication 1.4%
AirTouch Communications Telecommunication 1.4%
</TABLE>
Please see the Schedule of Investments in Securities for a complete listing of
the Fund's portfolio.
A FAVORABLE ENVIRONMENT FOR MID-CAP STOCKS
In the Fund's 1994 Annual Report, we stated, "should the Federal Reserve's
repeated rate hikes successfully curtail inflation without drastically slowing
economic growth, the market might then focus on the improving earnings picture,
especially for growth companies."
2
<PAGE> 4
This appeared to be exactly what happened in early 1995. Weaker-than-expected
economic figures indicated a slowing economy and fueled a powerful long-bond
rally. While large-cap stocks felt the positive effects first, we believe the
focus may now shift to mid-cap stocks. Mid-caps were laggards through most of
the 1980s, and are currently attractive based on their relative value and their
expected growth rates. The increased valuations of large-cap issues given the
1995 rally simply makes the argument for mid-cap stocks even more compelling.
Therefore, we believe the stage may be set for a longer-term cycle, during
which mid-cap stocks should outperform large-cap issues. Currently, the market
remains vulnerable if the economy slips into a recession. However, given that
many American companies presently possess fairly healthy balance sheets and the
Federal Reserve's growing bias toward easing credit, we believe any downturn
would be relatively minor in comparison to the recessions of the early 1980s.
Long term, we believe the market holds opportunity for investors with the
discipline to demand value as well as strong growth.
Thank you for your continued confidence,
Richard Trent Weiss
Richard T. Weiss
Portfolio Manager
Marina Carlson
Marina T. Carlson
Portfolio Manager
[Photo of Richard Weiss and Marina Carlson]
Growth of an assumed $10,000 Investment
From 5/8/92 TO 6/30/95
<TABLE>
<CAPTION>
The Strong S&P MidCap 400 S&P 500
Special Fund II Stock Index Stock Index
--------------- -------------- -----------
<S> <C> <C> <C>
5/92 10,000 10,000 10,000
6/92 9,480 9,705 9,857
12/92 11,617 11,267 10,680
6/93 13,149 11,907 11,201
12/93 14,541 12,839 11,756
6/94 14,664 11,901 11,358
12/94 15,064 12,378 11,912
6/95 17,041 14,559 14,319
</TABLE>
Average annual total returns(2)
through 6/30/95
<TABLE>
<S> <C>
Since inception on 5/8/92 18.45%
3-year 21.59%
1-year 16.21%
</TABLE>
This graph, prepared in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with similar investments in the
Standard & Poor's 500 Stock Index ("S&P 500") and the Standard & Poor's MidCap
400 Stock Index ("S&P 400"). Results include the reinvestment of all dividends
and capital gains distributions. The S&P 500 is an unmanaged index generally
representative of the U.S. stock market. The S&P 400 is an unmanaged index
generally representative of the market for the stocks of mid-sized U.S.
companies. Source for the index data is Micropal. 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.
(1) Source of index information: Micropal
(2) The Fund's returns include the effects of deducting the Fund's expenses,
but do not include changes and expenses attributable to any particular
insurance product. Excluding such fees and expenses from the Fund's
return quotations has the effect of increasing the performance quoted.
3
<PAGE> 5
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS IN SECURITIES June 30, 1995 (Unaudited)
SHARES OR VALUE
PRINCIPAL AMOUNT (NOTE 2)
- ---------------- ----------
<S> <C>
COMMON STOCKS 88.5%*
DOMESTIC STOCKS 75.9%*
AEROSPACE & DEFENSE 0.8%*
177,300 Coltec Industries, Inc.+ $3,058,425
AIRLINE 1.2%*
59,300 AMR Corporation+ 4,425,262
AUTO & TRUCK PARTS 1.0%*
92,000 The Goodyear Tire & Rubber Company 3,795,000
AUTOMOBILE 1.0%*
124,000 Ford Motor Company 3,689,000
BANK - REGIONAL 2.4%*
118,100 Old Kent Financial Corporation 4,015,400
151,900 West One Bancorp 5,069,663
----------
9,085,063
BANK - SUPER REGIONAL 1.2%*
90,200 Barnett Banks, Inc. 4,622,750
BROKERAGE & INVESTMENT MANAGEMENT 0.3%*
51,700 ROC Communities, Inc. 1,143,863
CHEMICAL - SPECIALTY 1.2%*
129,900 Nalco Chemical Company 4,725,112
COMMERCIAL SERVICE 0.8%*
265,000 Rollins Truck Leasing Corporation 2,848,750
COMPUTER - PERIPHERAL EQUIPMENT 1.2%*
117,800 Seagate Technology, Inc.+ 4,623,650
COMPUTER - PERSONAL & WORKSTATION 1.2%*
96,800 Sun Microsystems, Inc.+ 4,694,800
COMPUTER SOFTWARE 1.9%*
62,000 Legent Corporation+ 2,712,500
48,500 Microsoft Corporation+ 4,383,187
----------
7,095,687
CONSUMER - MISCELLANEOUS 1.4%*
176,300 American Greetings Corporation 5,178,812
DIVERSIFIED OPERATIONS 2.5%*
79,400 Tyco International, Ltd. 4,287,600
264,200 Whitman Corporation 5,118,875
----------
9,406,475
ELECTRIC POWER 1.2%*
138,600 NIPSCO Industries, Inc. 4,712,400
ELECTRONIC PART DISTRIBUTION 1.3%*
150,300 Marshall Industries+ 5,035,050
ELECTRONIC PRODUCTS - MISCELLANEOUS 2.3%*
83,100 Hubbell, Inc. Class B 4,695,150
107,500 Raychem Corporation 4,125,313
----------
8,820,463
SHARES OR VALUE
PRINCIPAL AMOUNT (NOTE 2)
- ---------------- --------
ELECTRONICS - SEMICONDUCTOR/
COMPONENT 2.4%*
220,000 Dallas Semiconductor Corporation $ 4,510,000
166,400 National Semiconductor Corporation+ 4,617,600
----------
9,127,600
FOOD 2.4%*
73,000 CPC International, Inc. 4,507,750
80,000 Hershey Foods Corporation 4,420,000
----------
8,927,750
HEALTHCARE - DRUG/DIVERSIFIED 1.1%*
121,700 Mallinckrodt Group, Inc. 4,320,350
HEALTHCARE - MEDICAL SUPPLY 2.3%*
95,800 McKesson Corporation 4,478,650
105,500 Sybron International Corporation+ 4,206,813
----------
8,685,463
HEALTHCARE - PATIENT CARE 3.1%*
93,800 Integrated Health Services, Inc. 2,814,000
300,000 Tenet Healthcare Corporation+ 4,312,500
114,900 United Healthcare Corporation 4,753,988
----------
11,880,488
INSURANCE - PROPERTY & CASUALTY 1.2%*
39,000 American International Group, Inc. 4,446,000
LEISURE SERVICE 1.0%*
124,000 Club Med, Inc. 3,952,500
MEDIA - PUBLISHING 1.3%*
155,000 The E.W. Scripps Company 4,998,750
MEDIA - RADIO/TV 6.3%*
57,400 CBS, Inc. 3,845,800
50,000 Capital Cities/ABC, Inc. 5,400,000
278,000 Cox Communications, Inc. Class A+ 5,386,250
214,000 Tele-Communications, Inc.+ 5,015,625
210,000 Turner Broadcasting System, Inc. Class B 4,305,000
----------
23,952,675
METALS & MINING 1.1%*
194,000 Freeport-McMoRan Copper & Gold, Inc. Class A 4,001,250
OIL - NORTH AMERICAN EXPLORATION & PRODUCTION 3.2%*
50,500 Barrett Resources Corporation+ 1,174,125
214,000 Devon Energy Corporation 4,601,000
265,000 H S Resources, Inc.+ 3,710,000
161,600 Seagull Energy Corporation+ 2,666,400
----------
12,151,525
OIL - NORTH AMERICAN INTEGRATED 2.2%*
122,200 Ashland, Inc. 4,292,275
125,000 Phillips Petroleum Company 4,171,875
----------
8,464,150
OIL WELL EQUIPMENT & SERVICE 2.5%*
225,000 BJ Services Company+ 5,118,750
161,400 Dual Drilling Company+ 1,593,825
194,400 Offshore Logistics, Inc.+ 2,721,600
----------
9,434,175
</TABLE>
See notes to financial statements.
4
<PAGE> 6
<TABLE>
<CAPTION>
SHARES OR VALUE
PRINCIPAL AMOUNT (NOTE 2)
- ---------------- -----------
<S> <C>
POLLUTION CONTROL 1.3%*
167,200 WMX Technologies, Inc. $ 4,744,300
PRECIOUS METAL/GEM/STONE 1.2%*
111,500 Newmont Mining Company 4,669,063
RETAIL - DEPARTMENT STORE 2.5%*
201,000 Federated Department Stores, Inc.+ 5,175,750
98,000 May Department Stores Company 4,079,250
----------
9,255,000
RETAIL - DISCOUNT & VARIETY 1.4%*
182,000 Toys 'R' Us, Inc.+ 5,323,500
RETAIL - FOOD CHAIN 4.2%*
62,100 Albertson's, Inc. 1,847,475
158,000 American Stores Company 4,443,750
188,000 The Kroger Company+ 5,052,500
177,000 The Stop & Shop Companies, Inc.+ 4,535,625
----------
15,879,350
RETAIL - MAJOR CHAIN 1.2%*
60,500 Dayton Hudson Corporation 4,340,875
RETAIL - SPECIALTY 2.5%*
224,000 The Limited, Inc. 4,928,000
382,000 Ross Stores, Inc. 4,488,500
----------
9,416,500
SAVINGS & LOAN 1.0%*
162,700 Washington Federal Savings & Loan Association 3,579,400
SHOE & APPAREL MANUFACTURING 1.3%*
238,000 Warnaco Group, Inc. Class A 4,760,000
TELECOMMUNICATION SERVICE 5.1%*
182,000 AirTouch Communications+ 5,187,000
37,500 LIN Broadcasting Corporation+ 4,743,750
189,400 MCI Communications Corporation 4,166,800
153,000 Paging Network, Inc.+ 5,240,250
----------
19,337,800
TELEPHONE 1.2%*
121,500 Telephone & Data Systems, Inc. 4,419,562
----------
Total Domestic Stocks 287,028,588
FOREIGN STOCKS 12.6%*
Australia 0.6%*
ENGINEERING & CONSTRUCTION 0.1%*
488,000 Walker Corporation 155,740
FINANCE - MISCELLANEOUS 0.2%*
66,500 Lend Lease Corporation 847,969
METALS & MINING 0.3%*
636,700 Normandy Mining, Ltd. 785,693
285,000 Posgold, Ltd. 572,005
----------
1,357,698
----------
2,361,407
SHARES OR VALUE
PRINCIPAL AMOUNT (NOTE 2)
- ---------------- ----------
BERMUDA 1.2%*
INSURANCE - PROPERTY & CASUALTY
168,600 Partners RE Holdings, Ltd. ADR (USD) $4,404,675
CANADA 1.3%*
OIL - NORTH AMERICAN EXPLORATION &
PRODUCTION
255,000 Talisman Energy, Inc.+ 4,738,395
HONG KONG 1.0%*
BANK - MONEY CENTER 0.6%*
18,000 HSBC Holdings PLC ADR (USD) 2,308,882
PRECIOUS METAL/GEM/STONE 0.2%*
28,500 Western Deep Levels, Ltd. ADR (USD) 805,125
REAL ESTATE 0.2%*
46,000 Wharf Resources, Ltd. ADR (USD) 750,564
----------
3,864,571
INDIA 0.1%*
CLOSED-END FUND
16,000 Morgan Stanley India Investment Fund, Inc. 164,000
JAPAN 0.5%*
ELECTRONIC PRODUCTS - MISCELLANEOUS
39,500 Sony Corporation 1,900,296
LUXEMBURG 0.6%*
SHIPPING
171,000 Anangel American Shipholdings, Ltd. ADR (USD) 2,372,625
MEXICO 0.1%*
AUTOMOBILE
229,862 Consorcio G Grupo Dina S.A. de C.V.
Series L ADR (USD) 459,724
NEW ZEALAND 1.0%*
AIRLINE 0.5%*
623,000 Air New Zealand, Ltd. Class B 1,812,481
PAPER & FOREST PRODUCTS 0.5%*
695,000 Fletcher Challenge, Ltd. Forestry Division 915,688
301,000 Fletcher Challenge, Ltd. Ordinary Division 845,497
----------
1,761,185
----------
3,573,666
SINGAPORE 1.1%*
BANK - MONEY CENTER 0.4%*
126,000 The Development Bank Of Singapore, Ltd.
(Fgn Reg) 1,434,586
CONGLOMERATE 0.5%*
96,000 Jardine Matheson Holdings, Ltd. (USD) 705,600
157,000 Keppel Corporation, Ltd. 1,281,633
----------
1,987,233
REAL ESTATE 0.2%*
316,000 Hong Kong Land Holdings, Ltd. (USD) 575,120
----------
3,996,939
</TABLE>
See notes to financial statements.
5
<PAGE> 7
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS IN SECURITIES (continued) June 30, 1995 (Unaudited)
SHARES OR VALUE
PRINCIPAL AMOUNT (NOTE 2)
- ---------------- --------
<S> <C>
SOUTH AFRICA 1.0%*
PRECIOUS METAL/GEM/STONE
150,000 De Beers Consolidated Mines, Ltd. ADR (USD) $ 3,881,250
SWITZERLAND 1.2%*
FOOD
89,400 Nestle SA Sponsored ADR (USD) 4,651,902
TAIWAN 0.2%*
CLOSED-END FUND
581,000 Core Pacific Pioneer Fund 182,223
490,000 Jardine Fleming Fund+ 190,680
493,000 Kwang Hua Fortune Fund 184,212
449,000 NITC Fu-yuan Fund 190,372
476,000 Yuan Ta Duo Yuan Fund 192,604
------------
940,091
UNITED KINGDOM 2.7%*
COMMERCIAL SERVICE 1.2%*
86,000 Reuters Holdings PLC ADR (USD) 4,310,750
MEDIA - RADIO/TV 1.1%*
218,000 Bell Cablemedia PLC ADR (USD)+ 4,142,000
METALS & MINING 0.4%*
690,000 Lonrho PLC 1,627,282
------------
10,080,032
------------
Total Foreign Stocks 47,389,573
------------
TOTAL COMMON STOCKS
(COST $297,742,703) 334,418,161
CONVERTIBLE PREFERRED STOCK 0.1%*
18,467 The Times Mirror Company
(Cost $414,510) 440,910
CONVERTIBLE CORPORATE BONDS 0.6%*
$ 665,000 LSI Logic Corporation Convertible Subordinated
Notes, 5.50%, Due 3/15/01 (Acquired 3/16/94,
11/1/94; Cost $748,250) (r)
(Amortized Cost $738,146) 2,214,450
CASH EQUIVALENTS 11.0%*
COMMERCIAL PAPER 10.9%*
DISCOUNTED 10.6%*
4,000,000 Barnett Banks, Inc.
Due 7/06/95 3,997,976
5,900,000 Burlington Northern Railroad Company
Due 7/03/95 5,900,000
13,000,000 Countrywide Funding Corporation
Due 7/07/95 12,991,290
6,000,000 Nissan Capital Of America, Inc.
Due 7/12/95 5,990,775
9,000,000 Ryder System, Inc.
Due 7/11/95 8,987,800
2,300,000 Tyson Foods, Inc.
Due 7/12/95 2,296,510
------------
40,164,351
SHARES OR VALUE
PRINCIPAL AMOUNT (NOTE 2)
- ---------------- --------
INTEREST BEARING, DUE UPON DEMAND 0.3%*
$ 11,300 General Mills, Inc., 5.71% $ 11,300
376,000 Pitney Bowes Credit Corporation, 5.73% 376,000
124,600 Southwestern Bell Telephone Company, 5.71% 124,600
379,700 Wisconsin Electric Power Company, 5.77% 379,700
------------
891,600
------------
Total Commercial Paper 41,055,951
UNITED STATES GOVERNMENT ISSUES 0.1%*
485,000 United States Treasury Bills
Due 7/27/95 483,170
------------
Total Cash Equivalents (Cost $41,539,122) 41,539,121
------------
TOTAL INVESTMENTS IN SECURITIES
(COST $340,434,481) 100.2%* 378,612,642
Other Assets And Liabilities, Net (0.2%*) (569,770)
------------
NET ASSETS 100.0%* $378,042,872
============
</TABLE>
* Percentages are calculated as a percentage of net assets.
(USD) U.S. Dollar-denominated.
(r) Restricted security.
+ Non-income producing.
See notes to financial statements.
6
<PAGE> 8
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1995 (Unaudited)
<TABLE>
<S> <C>
INCOME:
Dividends $ 2,538,586
Interest 1,190,560
---------------
Total Income 3,729,146
EXPENSES:
Investment Advisory Fees 1,669,289
Custodian Fees 66,855
Shareholder Servicing Costs 2,532
Reports To Shareholders 2,064
Federal and State Registration Fees 24,385
Other 29,672
---------------
Total Expenses 1,794,797
---------------
NET INVESTMENT INCOME 1,934,349
REALIZED AND UNREALIZED GAIN:
Net Realized Gain on:
Investments 6,468,066
Futures Contracts, Options, and Hedges 116,178
Foreign Currencies 316
Change in Unrealized Appreciation/Depreciation on:
Investments 34,007,096
Futures Contracts, Options, and Hedges 18,775
---------------
NET GAIN 40,610,431
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 42,544,780
===============
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
ASSETS:
Investments in Securities, at Value (Cost $340,434,481) $ 378,612,642
Receivable from Brokers for Securities Sold 1,105,364
Dividends and Interest Receivable 324,682
Other 77,125
---------------
Total Assets 380,119,813
LIABILITIES:
Payable to Brokers for Securities Purchased 1,705,248
Accrued Operating Expenses and Other Liabilities 371,693
---------------
Total Liabilities 2,076,941
---------------
NET ASSETS $ 378,042,872
===============
Capital Shares
Authorized 10,000,000,000
Outstanding 24,564,846
NET ASSET VALUE PER SHARE $ 15.39
===============
</TABLE>
See notes to financial statements.
7
<PAGE> 9
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1995 (Unaudited) and the Year Ended December
31, 1994
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
------------- -----------------
<S> <C> <C>
OPERATIONS:
Net Investment Income $ 1,934,349 $ 1,912,490
Net Realized Gain 6,584,560 12,782,103
Change in Unrealized Appreciation/
Depreciation 34,025,871 (10,293,538)
------------ ------------
Increase in Net Assets Resulting
from Operations 42,544,780 4,401,055
CAPITAL SHARE TRANSACTIONS 50,018,497 151,980,818
DISTRIBUTIONS:
From Net Investment Income (1,963,217) (1,900,181)
From Net Realized Gains (12,989,853) (5,255,061)
------------ ------------
TOTAL INCREASE IN NET ASSETS 77, 610,207 149,226,631
NET ASSETS:
Beginning of Period 300,432,665 151,206,034
------------ ------------
End of Period $378,042,872 $300,432,665
============ ============
</TABLE>
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 (Unaudited)
1. ORGANIZATION
The Strong Special Fund II, Inc. is a diversified, open-end
management investment company registered with the Securities and
Exchange Commission under the Investment Company Act of 1940.
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 -- Investments in securities for which market
quotations are readily available are valued at fair value as
determined by a pricing service on the basis of the average of the
most recent bid and asked prices in the principal market (closing
sales prices if the principal market is an exchange) in which such
securities are normally traded. Securities for which 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 Directors of the Fund.
Debt securities which are purchased within 60 days of their stated
maturity are valued at amortized cost, which approximates current
value.
The Fund owns 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 bears the costs, if any, associated with the disposition of
restricted securities. Where such disposition depends on a
security's registration under the Securities Act of 1933, the Fund
will bear such registration costs unless the Fund has registration
rights, in which case the issuer will bear such costs. Aggregate
cost and fair value of these restricted securities held at June
30, 1995 were $748,250 and $2,214,450, respectively, representing
0.6% of net assets of the Fund.
(B) Federal Income Taxes and Distributions to Shareholders -- It is
the Fund's policy 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 tax provision is required.
The character of distributions made during the year from net
investment income or net realized gains may differ from the
characterization for Federal tax purposes due to differences in
recognition of income and expense items for financial statement
and tax purposes.
(C) Realized Gains and Losses On Investment Transactions -- The Fund
determines the gain or loss realized on investment transactions by
comparing the identified cost of the security lot sold with the
net sales proceeds.
(D) Futures -- The Fund may enter into futures contracts for any
lawful purpose, including hedging, risk management, or enhancing
returns, but not for speculation. Upon entering into a futures
contract, the Fund deposits cash, U.S. government
8
<PAGE> 10
securities, or other liquid, high-grade debt obligations in a
segregated account with its custodian, in the name of the futures broker
through whom the transaction was effected, equal to the minimum "initial
margin" requirements of the applicable futures exchange. Additionally, the
Fund 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 by the Fund as unrealized
gains or losses. When the contract is closed, the Fund records a realized
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.
The use of futures contracts may involve, to varying degrees, elements
of market risk in excess of the amount recognized in the statement of
assets and liabilities. The successful use of futures contracts by the
Fund is dependent upon the ability of Strong Capital Management, Inc. (the
"Advisor") to correctly anticipate trends in the underlying assets of the
futures contracts. To the extent that the Fund is engaging in futures
contracts other than for hedging purposes, the Fund's successful use of
such transactions is more dependent upon the Advisor's ability to correctly
anticipate such trends, since losses in these transactions may not be
offset in gains in the Fund's portfolio or in lower purchase prices for
assets it intends to acquire. The Advisor's prediction of trends in
underlying assets may prove to be inaccurate, which could result in
substantial losses to the Fund. Hedging transactions are also subject to
risks. If the Advisor incorrectly anticipates trends in the underlying
asset, the Fund may be in a worse position than if no hedging had
occurred. In addition, there may be imperfect correlation between the
Fund's use of futures contracts and the assets being hedged.
Futures contracts open at June 30, 1995 were as follows:
<TABLE>
<CAPTION>
UNREALIZED
COLLATERAL (PAR VALUE) CONTRACTS CONTRACT VALUE EXPIRATION APPRECIATION
---------------------- --------- -------------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury Bills: 10 S&P 500 (Short) ($2,735,750) Sept. 1995 $675
$485,000 Due 7/27/95
</TABLE>
(E) Options -- The Fund may engage in options transactions for any
lawful purchase, including hedging, risk management, or enhancing returns,
but not for speculation. The fund may purchase or write put and call options
on securities, futures contracts, indices, and foreign currency, and enter
into closing transactions with respect to such options to terminate an
existing position.
Premiums received by the Fund upon writing put or call options are
recorded in the Fund's statement of assets and liabilities as an asset with
a corresponding liability which is subsequently adjusted to the current
market value of the option. When an option that is written by the Fund
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. The use of written option
contracts may involve elements of market risk in excess of the amount
recognized in the statement of assets and liabilities. The contract value
represents the Fund's involvement in these financial instruments. When
required by SEC guidelines, the Fund will set aside permissible liquid
assets in a segregated account to secure its potential obligations under its
written options positions.
The successful use of option contracts by the Fund is dependent upon the
ability of the Advisor to correctly anticipate trends in the underlying
assets of the option contracts. To the extent that the Fund is engaging in
option contracts other than for hedging purposes, the Fund's successful use
of such transactions is more dependent upon the Advisor's ability to
correctly anticipate such trends, since losses in these transactions may not
be offset in gains in the Fund's portfolio or in lower purchase prices for
assets it intends to acquire. The Advisor's prediction of trends in
underlying assets may prove to be inaccurate, which could result in
substantial losses to the Fund. Hedging transactions are also subject to
risks. If the Advisor incorrectly anticipates trends in the underlying
asset, the Fund may be in a worse position than if no hedging had occurred.
In addition, there may be imperfect correlation between the Fund's use of
option contracts and the assets being hedged.
(F) Foreign Currency Translation -- Investment securities and other assets
and liabilities denominated in foreign currencies are converted to U.S.
dollars based upon current exchange rates. Purchases and sales of foreign
investment securities and income are converted to U.S. dollars based upon
currency exchange rates prevailing on the respective dates of such
transactions. The effect of changes in foreign exchange rates on realized
and unrealized security gains or losses is reflected as a component of such
gains or losses.
(G) When-Issued Securities -- The Fund may purchase securities on a
when-issued or delayed delivery basis. Although the payment and interest
terms of these securities are established at the time the purchaser enters
into the agreement, these securities may be delivered and paid for at a
future date, generally within 45 days. The Fund records purchases of
when-issued securities and reflects the values of such securities in
determining net asset value in the same manner as other portfolio
securities. The Fund segregates and maintains at all times permissible
liquid assets in an amount at least equal to the amount of outstanding
commitments for when-issued securities.
(H) Other -- Portfolio transactions are recorded on the trade date. Dividend
income and distributions to shareholders are recorded on the ex-dividend
date. Interest income is recorded on the accrual basis.
9
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1995 (Unaudited)
3. NET ASSETS
Net assets as of June 30, 1995 were as follows:
<TABLE>
<S> <C>
Capital Stock $333,784,858
Undistributed Net Investment Loss (19,880)
Undistributed Net Realized Gain 6,099,058
Net Unrealized Appreciation 38,178,836
------------
Net Assets $378,042,872
============
</TABLE>
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the six months ended June 30, 1995
and the year ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
JUNE 30, 1995 DECEMBER 31, 1994
---------------------------------- ----------------------------
SHARES DOLLARS SHARES DOLLARS
----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares Sold 5,287,465 $77,115,158 16,549,320 $240,046,708
Shares Issued in Reinvestment of Dividends 1,040,730 14,946,490 489,615 7,151,175
Shares Redeemed (2,880,221) (42,043,151) (6,630,857) (95,217,065)
----------- ------------ ----------- -------------
Net Increase 3,447,974 $50,018,497 10,408,078 $151,980,818
=========== ============ =========== =============
</TABLE>
5. RELATED PARTY TRANSACTIONS
Strong Capital Management, Inc. (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 an
Advisory Agreement, are based on an annualized rate of 1.00% of the average
daily net assets of the Fund. Advisory fees are subject to reimbursement by
the Advisor if the Fund's operating expenses exceed certain levels.
Shareholder recordkeeping and related service fees are based on
contractually established rates for each open and closed shareholder
account. In addition, the Advisor is compensated for certain other services
related to costs incurred for reports to shareholders.
Certain information regarding these transactions for the six months ended
June 30, 1995 is as follows:
Payable to Advisor at June 30, 1995 $329,140
Other Shareholder Servicing Expenses Paid to Advisor 30
Unaffiliated Directors' Fees 3,192
6. INVESTMENT TRANSACTIONS
Aggregate purchases and sales of long-term securities for the six months
ended June 30, 1995 were $137,320,992 and $99,668,091, respectively.
7. INCOME TAX INFORMATION
At June 30, 1995, based on investment cost for Federal income tax
purposes of $341,022,962.30, net unrealized appreciation was $37,589,725.72,
consisting of $47,831,021.94 in aggregate gross unrealized appreciation and
$10,241,296.22 in aggregate gross unrealized depreciation.
8. FOREIGN INVESTMENTS
Investments in foreign markets can pose more risks than U.S.
investments, and to the extent that the Fund invests in foreign securities,
the Fund's share price is expected to be more volatile than that of a U.S.
securities-only fund. The value of the Fund's foreign securities will
fluctuate with changes in stock market conditions, currency values, interest
rates, foreign government regulations, and economic and political conditions
in countries in which the Fund invests. These risks are generally
intensified for investments in emerging markets.
10
<PAGE> 12
9. ANNUAL MEETING
A shareholder meeting was held on April 13, 1995 in Milwaukee, Wisconsin.
Results of the shareholder vote, calculated as a percentage of total shares
voted, are as follows:
<TABLE>
<CAPTION>
SHARES VOTED 22,032,512.301
-------------------------------------------
PROPOSALS AFFIRMATIVE WITHHOLD
--------- ----------- --------
<S> <C> <C> <C>
1 Election of Directors
Richard S. Strong 97.59% 2.41%
John Dragisic 97.21 2.79
Marvin E. Nevins 96.98 3.02
Willie D. Davis 97.12 2.88
William F. Vogt 97.25 2.75
Stanley Kritzik 97.08 2.92
AFFIRMATIVE AGAINST ABSTAIN
----------- ------- -------
2 Ratify Selection of Auditors 95.02% 0.96% 4.02%
3 Adopt Advisory Agreement 91.71 2.66 5.63
4 Adopt Revised Articles 91.03 3.25 5.72
5 Amend Investment Objective 90.57 3.54 5.89
6 Amend or Adopt a Fundamental
Investment Limitation Concerning:
6A Diversification 91.90 1.44 6.66
6B Concentration 91.90 1.44 6.66
6C Lending 90.58 2.77 6.65
6D Purchasing and Selling Real Estate 90.79 2.55 6.66
6E Borrowing 89.99 3.35 6.66
6F Underwriting Securities 91.12 2.20 6.68
6G Purchasing or Selling Financial
Commodities 89.67 3.64 6.69
6H Issuing Senior Securities 91.56 1.75 6.69
6I Pooled Fund Structures 91.09 2.23 6.68
7 Eliminate a Fundamental Investment
Limitation Concerning:
7A Use of Margin 87.02 3.69 9.29
7B Purchase of Investment
Company Securities 88.53 2.18 9.29
7C Investing in Oil and Gas Interests 88.08 2.63 9.29
7D Pledging Assets 86.73 3.94 9.33
7E Securities Investments of Directors
and Officers 86.94 3.72 9.34
7F Fund Portfolio Transactions with
Directors and Officers 86.61 4.06 9.33
7G Investing in Securities for the
Purpose of Management or Control 87.33 3.32 9.35
</TABLE>
11
<PAGE> 13
FINANCIAL HIGHLIGHTS
The following presents information relating to a share of capital stock
outstanding for the entire period.
<TABLE>
<CAPTION>
1995*** 1994 1993 1992**
------- ---- ---- ------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.23 $ 14.12 $ 11.33 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.08 0.11 0.06 0.02
Net Realized and Unrealized Gains on Investments 1.73 0.41 2.79 1.57
-------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 1.81 0.52 2.85 1.59
LESS DISTRIBUTIONS
From Net Investment Income (0.08) (0.11) (0.06) (0.02)
From Net Realized Gains (0.57) (0.30) - (0.24)
-------- -------- -------- --------
TOTAL DISTRIBUTIONS (0.65) (0.41) (0.06) (0.26)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 15.39 $ 14.23 $ 14.12 $ 11.33
======== ======== ======== ========
Total Return + 13.1% + 3.6% + 25.2% + 16.2%
Net Assets, End of Period (In Thousands) $378,043 $300,433 $151,206 $ 26,649
Ratio of Expenses to Average Net Assets 1.1%* 1.1% 1.1% 1.6%*
Ratio of Net Investment Income to Average Net Assets 1.2%* 0.9% 0.5% 0.3%*
Portfolio Turnover Rate 33.6% 74.8% 103.1% 383.7%*
</TABLE>
* Calculated on an annualized basis.
** Inception date is May 8, 1992. Total return is not annualized.
*** For the six months ended June 30, 1995 (Unaudited). Total return and
portfolio turnover rate are not annualized.
12
<PAGE> 14
DIRECTORS OF THE FUND
Richard S. Strong John Dragisic
Marvin E. Nevins Stanley Kritzik
Willie D. Davis William F. Vogt
OFFICERS OF THE FUND
Richard S. Strong
Chairman of the Board
John Dragisic
Vice Chairman
Lawrence A. Totsky
Vice President
Thomas P. Lemke
Vice President
Ann E. Oglanian
Secretary
Ronald A. Neville
Treasurer
Investment Advisor
Strong Capital Management, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
Distributor
Strong Funds Distributors, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
Custodian
Firstar Trust Company
P.O. Box 701, Milwaukee, Wisconsin 53201
Transfer Agent and Dividend-Disbursing Agent
Strong Capital Management, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
Auditors
Coopers & Lybrand L.L.P.
411 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
Legal Counsel
Godfrey & Kahn, S.C.
780 North Water Street, Milwaukee, Wisconsin 53202
<PAGE> 15
This report must be preceded or accompanied by the prospectus for
the Strong Special Fund II.
[STRONG FUNDS LOGO]
STRONG FUNDS DISTRIBUTORS, INC.
P.O. Box 2936
Milwaukee, Wisconsin 53201
