<PAGE>
THE STRONG
SPECIAL FUND II
SEMI-ANNUAL REPORT o JUNE 30, 1996
[PHOTO OF FAMILY]
[pie chart]
[bar graph]
DESIGNED TO SEEK CAPITAL GROWTH
BY INVESTING PRIMARILY IN
MEDIUM-SIZED COMPANIES
[STRONG FUNDS LOGO]
STRONG FUNDS
<PAGE>
THE STRONG
SPECIAL FUND II
SEMI-ANNUAL REPORT o JUNE 30, 1996
Table of Contents
INVESTMENT REVIEWS
The Strong Special Fund II................................2
FINANCIAL INFORMATION
Schedule of Investments in Securities.....................4
Statement of Operations...................................7
Statement of Assets and Liabilities.......................8
Statement of Changes in Net Assets........................8
Notes to Financial Statements.............................9
FINANCIAL HIGHLIGHTS ...........................................11
<PAGE>
The Strong SPECIAL FUND II
================================================================================
In pursuit of capital growth, the Strong Special Fund II invests at least 80% 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.
6-MONTH
TOTAL RETURNS 1
as of 6-30-96
Special Fund II 7.26%
S&P Midcap 400 9.21%
S&P 500 Index 10.10%
FIVE LARGEST STOCK HOLDINGS
Based on net assets as of 6-30-96
................................................................................
Thrifty Payless Holdings, Inc. Retail - Drug Store 1.6%
Class B
................................................................................
Barrett Resources Oil - North American 1.6%
Corporation Exploration & Production
................................................................................
Intel Corporation Electronics - 1.5%
Semiconductor/Component
................................................................................
Halliburton Company Oil Well Equipment
& Service 1.5%
................................................................................
The E.W. Scripps Company Media-Publishing 1.5%
................................................................................
Please see the Schedule of Investments in Securities for a complete listing
of the Fund's portfolio.
STOCKS CONTINUED TO CLIMB . . .
Despite a difficult June, the stock market turned in a good performance over the
first half of the year. The broad market, as measured by the S&P 500 Index,
gained 10.10% for the six months ended June 30, while the S&P MidCap 400 Stock
Index posted a slightly lower gain of 9.21%. The Fund posted a total return of
7.26% over the same period. 1
WHILE THE ECONOMY HEATED UP
A slow-growing economy early in the year prompted the Federal Reserve Board to
lower short-term interest rates in January, but the announcement of February's
unexpectedly large increase in jobs set the slow-growth scenario on its head.
Other signs of renewed growth followed--including price increases in several key
commodities--and prompted some economists to predict the return of higher
inflation. The Fed, however, declined subsequent opportunities to increase rates
further, and signs of renewed inflation have been elusive.
Given this scenario, we entered the second quarter with a slightly more
defensive portfolio. Consequently, the Fund did not realize the gains that many
higher priced growth stocks produced in April and May--when small- and mid-cap
stocks produced some very impressive gains. However, our defensive stance
protected the Fund from some of the sharp price declines experienced in June.
The Fund also benefited from an overweighted position in the energy sector, as
many oil service and oil and gas exploration and production companies performed
well during this period.
OUR INVESTMENT APPROACH REMAINED UNCHANGED
We believe that much of this market's increase has been momentum-driven,
stimulated by a surge of cash into mutual funds. Despite the momentum, we remain
committed to a consistent investment approach and will continue to evaluate
existing and prospective holdings by analyzing their "private value." That
simply means that we evaluate companies as if we were private
buyers--determining how much we would be willing to pay to own the entire
company. In doing so, we have a disciplined way to view the company's inherent
value and impartially evaluate potential winners and losers.
We look at underfollowed stocks--those with low institutional ownership and low
analyst coverage--because we believe they tend to be undervalued by the market.
We look at unpopular, or "quiet," sectors because we think that, in a market
increasingly dominated by institutions, unpopular sectors can yield superior
returns. And now, more than ever--given higher stock valuations--we believe it
is essential to thoroughly understand the dynamics of each individual stock.
OUR OUTLOOK IS MIXED
We are somewhat cautious going into the second half of the year as the general
market appears to be fairly valued, and we don't expect to see stock valuations
rise across the board. We look for corporate profit margins to shrink, and
believe that only the best management teams will be rewarded with higher stock
prices.
2
<PAGE>
ASSET ALLOCATION
as of 6-30-96
Stocks 89.3%
Convertible Bonds 0.3%
Short-Term Investments 10.4%
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.
Consequently, the quality of management will be increasingly important to a
company's ability to perform well during the second half of the year. We intend
to focus on individual stock selection, and to place emphasis on underfollowed,
growing firms selling at significant discounts to their private-market values.
Thank you for your continued confidence,
/s/ Richard T. Weiss
Richard T. Weiss
Portfolio Manager
/s/ Marina T. Carlson
Marina T. Carlson
Portfolio Manager
[PHOTO OF RICHARD T. WEISS & MARINA T. CARLSON]
- --------------------------------------------------------------------------------
GROWTH OF AN ASSUMED $10,000 INVESTMENT AVERAGE ANNUAL
from 5-8-92 to 6-30-96 TOTAL RETURNS 1
as of 6-30-96
The Strong S&P 500
Special Fund II Stock Index 1-YEAR
4-92 10,000 10,000 19.30%
12-92 11,617 10,680
12-93 14,540 11,756 3-YEAR
12-94 15,064 11,911 15.63%
12-95 18,953 16,387
6-96 20,330 18,043 SINCE INCEPTION
(on 5-8-92)
18.66%
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with a similar investment in the
Standard & Poor's 500 Stock Index ("S&P 500"). The S&P 500 is an unmanaged index
generally representative of the U.S. stock market. Results include 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. Source of the S&P 500
index data is Micropal. To equalize time periods, the indexes' performance was
prorated for the month of May, 1992.
- --------------------------------------------------------------------------------
1 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. 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 from the Fund's return quotations has the
effect of decreasing the performance quoted. The S&P 500 Stock Index is an
unmanaged index generally representative of the U.S. stock market, without
regard to company size. The S&P MidCap 400 Stock Index is an unmanaged
index generally representative of the market for the stocks of mid-size
U.S. companies. Source of the index data is Micropal.
3
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
SHARES OR VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
COMMON STOCKS 89.2%
AEROSPACE & DEFENSE 1.2%
Litton Industries, Inc. (b) 148,000 $ 6,438
AIRLINE 1.3%
AMR Corporation (b) 66,000 6,006
Air New Zealand, Ltd. Class B 418,000 1,309
------
7,315
AUTO & TRUCK PARTS 0.4%
Magna International, Inc. Class A 42,150 1,939
BANK - MONEY CENTER 1.3%
The Bank of Tokyo - Mitsubishi 850 20
Hong Leong Finance, Ltd. (Fgn Reg) 141,000 494
Toronto-Dominion Bank 330,000 5,822
United Overseas Bank, Ltd. 62,000 593
------
6,929
BANK - REGIONAL 2.1%
Mercantile Bancorporation, Inc. 145,000 6,453
Old Kent Financial Corporation 136,085 5,324
------
11,777
BANK - SUPER REGIONAL 1.2%
Barnett Banks, Inc. 104,900 6,399
BEVERAGE - ALCOHOLIC 0.2%
Molson Companies, Ltd. Class A 83,000 1,349
BEVERAGE - SOFT DRINK 0.1%
Coca-Cola Amatil, Ltd. 72,000 801
BROKERAGE & INVESTMENT MANAGEMENT 1.9%
Equity Residential Properties Trust 80,000 2,630
Kay Hian James Capel Holdings, Ltd. 260,000 275
Kimco Realty Corporation 145,700 4,116
Security Capital Pacific, Inc. Share
Beneficial Interest 172,800 3,758
------
10,779
CLOSED-END FUND 0.1%
The Central European Growth Fund PLC 392,000 396
Five Arrows Chile Investment Trust, Ltd. (b) 35,000 102
Jardine Fleming Fund 490,000 168
------
666
COMMERCIAL SERVICE 1.7%
Reuters Holdings PLC ADR 92,500 6,706
Rollins Truck Leasing Corporation 229,000 2,376
------
9,082
COMPUTER - PERIPHERAL EQUIPMENT 1.0%
Seagate Technology, Inc. (b) 126,000 5,670
COMPUTER - PERSONAL & WORKSTATION 1.1%
Sun Microsystems, Inc. (b) 103,000 6,064
COMPUTER SOFTWARE 1.2%
Cabletron Systems, Inc. (b) 98,000 6,725
COMPUTER SYSTEMS 1.1%
Policy Management Systems Corporation (b) 119,400 5,970
CONGLOMERATE 0.3%
Guinness Peat Group PLC 441,650 227
Inchcape PLC 127,000 578
Lonrho PLC 283,000 813
------
1,618
COSMETIC & PERSONAL CARE 0.0%
Shinseido Company, Ltd. 16,000 204
DIVERSIFIED OPERATIONS 3.4%
ITT Industries, Inc. 221,000 5,553
Tyco International, Ltd. 139,000 5,664
Whitman Corporation 316,900 7,645
------
18,862
ELECTRIC POWER 1.4%
NIPSCO Industries, Inc. 184,200 7,414
ELECTRONIC INSTRUMENTATION 1.1%
Varian Associates, Inc. 111,000 5,744
ELECTRONIC PARTS DISTRIBUTION 2.1%
Arrow Electronics, Inc. (b) 154,500 6,663
Marshall Industries (b) 176,600 4,945
------
11,608
ELECTRONIC PRODUCTS - MISCELLANEOUS 2.2%
AVX Corporation 308,000 5,698
Hubbell, Inc. Class B 87,300 5,784
Sony Corporation 8,000 526
------
12,008
ELECTRONICS - SEMICONDUCTOR/
COMPONENT 4.4%
Altera Corporation (b) 157,000 5,966
Intel Corporation 114,000 8,372
LSI Logic Corporation (b) 160,000 4,160
SGS-Thomson Microelectronics (b) 160,000 5,740
------
24,238
ENGINEERING & CONSTRUCTION 0.3%
Ishikawajima Harima Heavy Industries
Company, Ltd. 45,000 220
Italian-Thai Development PLC 57,000 530
Ohmoto Gumi Company, Ltd. 17,800 360
The Siam Cement PCL (Fgn Reg) 11,000 540
Walker Corporation 340,000 119
------
1,769
FINANCE - MISCELLANEOUS 0.2%
Lend Lease Corporation, Ltd. 48,500 745
TA Enterprise BHD 340,000 532
------
1,277
FOOD 4.0%
CPC International, Inc. 105,700 7,610
Hershey Foods Corporation 97,000 7,117
Nestle SA Sponsored ADR 124,900 7,119
------
21,846
HEALTHCARE - DRUG/DIVERSIFIED 3.7%
Mallinckrodt Group, Inc. 168,000 6,531
Pharmacia & Upjohn, Inc. (b) 164,400 7,295
Rhone Poulenc Rorer, Inc. 99,000 6,645
------
20,471
HEALTHCARE - MEDICAL SUPPLY 2.4%
McKesson Corporation 139,000 6,620
Sybron International Corporation (b) 267,000 6,675
------
13,295
HEALTHCARE - PATIENT CARE 1.2%
Tenet Healthcare Corporation (b) 320,600 6,853
HOUSING RELATED 0.0%
Nichiha 8,000 162
4
See notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
SHARES OR VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
INSURANCE - PROPERTY & CASUALTY 2.4%
ACE, Ltd. ADR 130,300 $ 6,124
American International Group, Inc. 73,400 7,239
------
13,363
LEISURE PRODUCT 1.1%
De Rigo Spa ADR (b) 8,360 191
Eastman Kodak Company 76,800 5,971
------
6,162
MEDIA - PUBLISHING 3.3%
Arnoldo Mondadori Editore Spa 13,000 98
News Corporation, Ltd. 545,000 3,094
News Corporation, Ltd. ADR 132,600 3,116
The E.W. Scripps Company 172,400 8,038
Time Warner, Inc. 103,600 4,066
------
18,412
MEDIA - RADIO/TV 5.6%
Bell Cablemedia PLC ADR (b) 355,500 5,954
Cox Communications, Inc. Class A (b) 352,100 7,614
Tele-Communications, Inc. Class A (b) 348,700 6,320
Tele-Communications, Inc. Liberty
Media Group Series A (b) 254,000 6,731
Turner Broadcasting System, Inc. Class B 151,500 4,166
------
30,785
METALS & MINING 1.3%
Freeport-McMoRan Copper & Gold, Inc. Class A 225,100 6,725
Minsur SA - Trabajo (b) 67,000 599
------
7,324
OIL - NORTH AMERICAN EXPLORATION &
PRODUCTION 4.9%
Barrett Resources Corporation (b) 292,800 8,711
Devon Energy Corporation 303,900 7,446
Enron Oil & Gas Company 261,000 7,275
H S Resources, Inc. (b) 297,600 3,459
------
26,891
OIL - NORTH AMERICAN INTEGRATED 1.1%
Phillips Petroleum Company 150,000 6,281
OIL WELL EQUIPMENT & SERVICE 3.9%
BJ Services Company (b) 189,500 6,656
Halliburton Company 148,000 8,214
Petroleum Geo-Services A/S ADR (b) 239,300 6,790
------
21,660
PAPER & FOREST PRODUCTS 2.5%
Fletcher Challenge, Ltd. Forestry Division 1,057,438 1,310
The Mead Corporation 113,000 5,862
Willamette Industries, Inc. 109,000 6,486
------
13,658
PRECIOUS METAL/GEM/STONE 2.6%
De Beers Consolidated Mines, Ltd. ADR 210,500 7,104
Newmont Mining Company 122,800 6,063
Western Deep Levels, Ltd. ADR 26,400 957
------
14,124
RAILROAD 0.4%
Canadian National Railway Company First
Installment Receipt 125,000 2,297
REAL ESTATE 0.1%
Land & House PCL (Fgn Reg) 37,800 476
TOC Company, Ltd. 28,000 332
------
808
RETAIL - DEPARTMENT STORE 1.0%
May Department Stores Company 125,000 5,469
RETAIL - DRUG STORE 1.6%
Thrifty Payless Holdings, Inc. Class B (b) 515,000 8,884
RETAIL - FOOD CHAIN 3.7%
Albertson's, Inc. 147,000 6,082
American Stores Company 183,400 7,565
FamilyMart 6,700 298
The Kroger Company (b) 166,000 6,557
------
20,502
RETAIL - MAJOR CHAIN 1.6%
Coles Myer, Ltd. 137,000 498
Sears CDA, Inc. 150,000 891
Toys 'R' Us, Inc. (b) 259,000 7,382
------
8,771
RETAIL - RESTAURANT 1.0%
Darden Restaurants, Inc. 520,000 5,590
RETAIL - SPECIALTY 1.3%
Cortefiel, SA 7,000 160
The Limited, Inc. 224,800 4,833
Ross Stores, Inc. 60,800 2,113
------
7,106
SHIPPING 0.4%
Anangel American Shipholdings, Ltd. ADR 211,200 2,059
Cosco Investments, Ltd. 47,000 49
------
2,108
SHOE & APPAREL MANUFACTURING 0.0%
Inner Mongolia Erdos Cashmere `B' 192,000 93
STEEL 0.1%
Companhia Vale do Rio Doce Sponsored ADR 30,000 604
TELECOMMUNICATION SERVICE 5.5%
AirTouch Communications (b) 195,000 5,509
MCI Communications Corporation 232,000 5,945
Mobilemedia Corporation (b) 402,500 4,880
Paging Network, Inc. (b) 289,100 6,938
Portugal Telecom SA Sponsored ADR 13,000 341
U.S. West, Inc. Media Group (b) 381,900 6,970
------
30,583
TELEPHONE 1.2%
Telephone & Data Systems, Inc. 148,700 6,692
-------
TOTAL COMMON STOCKS (COST $419,015) 493,439
PREFERRED STOCK 0.1%
Thai Prime Fund, Ltd. (COST $496) 28,000 493
CONVERTIBLE BONDS 0.3%
LSI Logic Corporation Subordinated Notes,
5.50%, Due 3/15/01 (Acquired 3/16/94 - 11/01/94;
Original Cost $748) (AMORTIZED COST $687) (d) $ 665 1,443
SHORT-TERM INVESTMENTS (a) 9.4%
COMMERCIAL PAPER 9.1%
DISCOUNTED 8.8%
Baxter International, Inc., Due 7/15/96 7,390 7,374
Cole Taylor Finance Company, Due 7/12/96 (c) 8,700 8,685
Conagra, Inc., Due 7/11/96 5,800 5,791
FMC Corporation, Due 7/08/96 15,571 15,554
Salomon, Inc., Due 7/11/96 10,340 10,325
Tupperware Corporation, Due 7/11/96 1,200 1,198
------
48,927
5
See notes to financial statements.
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES(continued) June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
SHARES OR VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
- --------------------------------------------------------------------------------
INTEREST BEARING, DUE UPON DEMAND 0.3%
American Family Financial Services, Inc., 5.15% $ 586 $ 586
General Mills, Inc., 5.14% 438 438
Johnson Controls, Inc., 5.17% 102 102
Pitney Bowes Credit Corporation, 5.14% 37 37
Wisconsin Electric Power Company, 5.19% 584 584
------
1,747
-----
Total Commercial Paper 50,674
UNITED STATES GOVERNMENT ISSUES 0.3%
United States Treasury Bills:
Due 7/05/96 (c) 325 325
Due 7/25/96 (c) 435 434
Due 8/01/96 (c) 100 99
Due 8/08/96 (c) 600 597
-----
1,455
-----
TOTAL SHORT-TERM INVESTMENTS
(COST $52,129) 52,129
------
TOTAL INVESTMENTS IN SECURITIES
(COST $472,327) 99.0% 547,504
Other Assets and Liabilities, Net 1.0% 5,408
-------
NET ASSETS 100.0% $552,912
========
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
- -------------------------------------------
VALUE UNREALIZED
SETTLEMENT IN USD APPRECIATION
DATE (In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
Sold:
236,218,000 JPY 11/7/96 ($2,195) $105
FUTURES
- -------
UNDERLYING UNREALIZED
FACE AMOUNT APPRECIATION
EXPIRATION AT VALUE (DEPRECIATION)
DATE (In Thousands) (In Thousands)
- --------------------------------------------------------------------------------
Purchased:
17 S&P 500 Futures Sep. 96 $5,753 ($8)
PERCENTAGE OF
COUNTRY DIVERSIFICATION NET ASSETS
- --------------------------------------------------------------------------------
United States ....................................... 84.2%
United Kingdom ...................................... 2.6
Canada .............................................. 2.1
Australia ........................................... 1.5
South Africa ........................................ 1.3
Switzerland ......................................... 1.3
Norway .............................................. 1.2
Bermuda ............................................. 1.1
France .............................................. 1.0
New Zealand ......................................... 0.5
Japan ............................................... 0.4
Luxembourg .......................................... 0.4
Thailand ............................................ 0.4
Hong Kong ........................................... 0.2
Singapore ........................................... 0.2
Brazil .............................................. 0.1
Italy ............................................... 0.1
Malaysia ............................................ 0.1
Peru ................................................ 0.1
Portugal ............................................ 0.1
Russia .............................................. 0.1
Other Assets and Liabilities, Net ................... 1.0
---
Total 100.0%
=====
LEGEND
- ------
(a) Short-term investments include any security which has a maturity of less
than one year.
(b) Non-income producing security.
(c) Security pledged to cover margin requirements for futures contracts.
(d) Restricted security.
All principal amounts and costs are stated in thousands.
Percentages are stated as a percent of net assets.
CURRENCY ABBREVIATION
- ---------------------
JPY Japanese Yen
6
See notes to financial statements.
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------
For the Six Months Ended June 30, 1996 (Unaudited) (In Thousands)
<CAPTION>
INCOME:
<S> <C>
Dividends $ 3,330
Interest 1,728
-----
Total Income 5,058
EXPENSES:
Investment Advisory Fees 2,580
Custodian Fees 61
Shareholder Servicing Costs 365
Other 59
--
Total Expenses 3,065
-----
NET INVESTMENT INCOME 1,993
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 27,453
Futures Contracts, Options and Forward Foreign Currency Contracts (2,295)
Foreign Currencies 2
Change in Unrealized Appreciation/Depreciation on:
Investments 7,392
Futures Contracts, Options and Forward Foreign Currency Contracts (139)
Foreign Currencies (4)
------
NET GAIN 32,409
------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $34,402
=======
7
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------------------------------------------------------------------
June 30, 1996 (Unaudited)
(In Thousands, Except Per Share Amounts)
<CAPTION>
ASSETS:
<S> <C>
Investments in Securities, at Value (Cost of $472,327) $ 547,504
Receivable from Brokers for Securities and
Forward Foreign Currency Contracts Sold 5,031
Dividends and Interest Receivable 639
Other Assets 716
---
Total Assets 553,890
LIABILITIES:
Payable to Brokers for Securities and
Forward Foreign Currency Contracts Purchased 356
Accrued Operating Expenses and Other Liabilities 622
---
Total Liabilities 978
---
NET ASSETS $ 552,912
===========
Capital Shares
Authorized 10,000,000
Outstanding 31,555
NET ASSET VALUE PER SHARE $ 17.52
==========
</TABLE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
For the Six Months Ended June 30, 1996 (Unaudited) and the Year Ended December 31, 1995
<CAPTION>
(In Thousands)
JUNE 30, 1996 DEC. 31, 1995
------------- -------------
OPERATIONS:
<S> <C> <C>
Net Investment Income $ 1,993 $ 2,865
Net Realized Gain 25,160 19,655
Change in Unrealized Appreciation/Depreciation 7,249 63,868
----- ------
Increase in Net Assets Resulting from Operations 34,402 86,388
CAPITAL SHARE TRANSACTIONS 87,800 82,495
DISTRIBUTIONS:
From Net Investment Income (2,341) (2,874)
In Excess of Net Investment Income -- (848)
From Net Realized Gains (19,322) (13,221)
------- -------
TOTAL INCREASE IN NET ASSETS 100,539 151,940
NET ASSETS:
Beginning of Period 452,373 300,433
------- -------
End of Period $552,912 $452,373
======== ========
</TABLE>
8
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1996 (Unaudited)
1. ORGANIZATION
The Strong Special Fund II, Inc. is a diversified, open-end management
investment company registered 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-- Portfolio securities traded primarily on a
principal securities exchange are valued at the last reported sales
price or the mean between the latest bid and asked prices where no
last sales price is available. Securities traded over-the-counter are
valued at the mean of the latest bid and asked prices or the last
reported sales price. Debt securities not traded on a principal
securities exchange are valued through valuations obtained from a
commercial pricing service, otherwise sale or bid prices are used.
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 current 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. Aggregate cost and fair value of these restricted
securities held at June 30, 1996 were (in thousands) $748 and $1,443,
respectively, representing 0.3% of the net assets of the Fund.
(B) Federal Income and Excise 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 or excise tax provision is required.
The character of distributions made during the year from net
investment income or net realized gains may differ from the
characterization for Federal income tax purposes due to differences in
the recognition of income and expense items for financial statement
and tax purposes. Where appropriate, reclassifications between net
asset accounts are made for such differences that are permanent in
nature.
(C) Realized Gains and Losses on Investment Transactions -- Gains or
losses realized on investment transactions are determined by comparing
the identified cost of the security lot sold with the net sales
proceeds.
(D) Futures -- Upon entering into a futures contract, the Fund pledges to
the broker cash, U.S. government securities or other liquid,
high-grade debt obligations equal to the minimum "initial margin"
requirements of the exchange. 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.
(E) Options -- 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.
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.
(F) Foreign Currency Translation -- Investment securities and other assets
and liabilities initially expressed in foreign currencies are
converted to U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investment securities and income are converted to
U.S. dollars based upon currency exchange rates prevailing on the
respective dates of such transactions. The effect of changes in
foreign exchange rates on realized and unrealized security gains or
losses is reflected as a component of such gains or losses.
(G) 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.
(H) Additional Investment Risk -- The use of futures contracts, options,
foreign denominated assets, forward foreign currency exchange
contracts and other similar investments for purposes of hedging the
Fund's investment portfolio involves, to varying degrees, elements of
market risk in excess of the amount recognized in the statement of
assets and liabilities. The predominant risk with futures contracts is
an imperfect correlation between the value of the contracts and the
underlying securities. Foreign denominated assets and forward foreign
currency exchange contracts may involve greater risks than domestic
transactions, including currency, political and economic, regulatory
and market risks.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
June 30, 1996 (Unaudited)
(I) Other -- Investment security transactions are recorded as of the trade
date. Dividend income and distributions to shareholders are recorded
on the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of premium and discounts.
3. NET ASSETS
Net assets as of June 30, 1996 were as follows (in thousands):
Capital Stock $454,060
Undistributed Net Investment Loss (712)
Undistributed Net Realized Gain 24,293
Net Unrealized Appreciation 75,271
------
$552,912
========
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the six months ended June 30, 1996
and year ended December 31, 1995 were as follows (in thousands):
1996 1995
---- ----
SHARES DOLLARS SHARES DOLLARS
------ ------- ------ -------
Shares Sold 7,808 $109,973 9,208 $141,211
Dividends Reinvested 1,255 21,655 1,159 16,936
Shares Redeemed (4,061) (43,828) (4,931) (75,652)
------ ------- ------ -------
5,002 $ 87,800 5,436 $ 82,495
===== ======== ===== ========
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 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. Advisory fees are subject to
reimbursement by the Advisor if the Fund's operating expenses exceed
certain levels.
The amount payable to the Advisor at June 30, 1996 was (in thousands) $440
and unaffiliated directors' fees were (in thousands) $4.
6. INVESTMENT TRANSACTIONS
Aggregate purchases and sales of long-term securities for the six months
ended June 30, 1996 were (in thousands) $273,600 and $202,030,
respectively.
7. INCOME TAX INFORMATION
At June 30, 1996, the investment cost and gross unrealized appreciation and
depreciation on investments for Federal income tax purposes were as follows
(in thousands):
Aggregate Investment Cost $472,883
========
Aggregate Unrealized:
Appreciation $ 90,091
Depreciation (15,470)
-------
$ 74,621
========
10
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------
The following presents information relating to a share of capital stock of the Fund, outstanding for the entire period.
<CAPTION>
1996(a) 1995 1994 1993 1992(b)
------- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.04 $ 14.23 $ 14.12 $ 11.33 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income 0.07 0.12 0.11 0.06 0.02
Net Realized and Unrealized Gains on Investments 1.16 3.42 0.41 2.79 1.57
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS 1.23 3.54 0.52 2.85 1.59
LESS DISTRIBUTIONS
- ------------------
From Net Investment Income (0.08) (0.12) (0.11) (0.06) (0.02)
In Excess of Net Investment Income -- (0.03) -- -- --
From Net Realized Gains (0.67) (0.58) (0.30) -- (0.24)
----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS (0.75) (0.73) (0.41) (0.06) (0.26)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $ 17.52 $ 17.04 $ 14.23 $ 14.12 $ 11.33
======== ======== ======== ======== ========
Total Return +7.3% +25.8% +3.6% +25.2% +16.2%
Net Assets, End of Period (In Thousands) $552,912 $452,373 $300,433 $151,206 $ 26,649
Ratio of Expenses to Average Net Assets 1.2%* 1.2% 1.1% 1.1% 1.6%*
Ratio of Net Investment Income to Average Net Assets 0.8%* 0.8% 0.9% 0.5% 0.3%*
Portfolio Turnover Rate 44.3% 91.1% 74.8% 103.1% 249.5%
Average Commission Rate Paid(c) 0.0499
</TABLE>
* Calculated on an annualized basis.
(a) For the six months ended June 30, 1996 (Unaudited). Total returns and
portfolio turnover rate are not annualized.
(b) Inception date is May 8, 1992. Total return and portfolio turnover rate are
not annualized.
(c) Disclosure required, effective for reporting periods beginning after
September 1, 1995.
11
<PAGE>
NOTES
- --------------------------------------------------------------------------------
12
<PAGE>
[STRONG FUNDS LOGO]
STRONG FUNDS DISTRIBUTORS, INC.
P.O. Box 2936
Milwaukee, Wisconsin 53201
http://www.strong-funds.com
Strong Funds offered by prospectus only
3238F960
