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THE STRONG
----------
OPPORTUNITY FUND II
=================================
ANNUAL REPORT o DECEMBER 31, 1998
=================================
TABLE OF CONTENTS
INVESTMENT REVIEW
The Strong Opportunity Fund II ........................................2
FINANCIAL INFORMATION
Schedule of Investments in Securities .................................4
Statement of Assets and Liabilities ...................................6
Statement of Operations ...............................................6
Statements of Changes in Net Assets ...................................7
Notes to Financial Statements .........................................8
FINANCIAL HIGHLIGHTS .....................................................10
REPORT OF INDEPENDENT ACCOUNTANTS ........................................11
[PHOTO OF STRONG FUNDS BUILDING]
[STRONG LOGO]
STRONG INVESTMENTS, INC.
P.O. Box 2936 o Milwaukee, Wisconsin 53201
Strong Funds are offered by prospectus only. 10089L98
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===========
THE STRONG OPPORTUNITY FUND II
-----------===========--------
FUND
HIGHLIGHTS
o For the year ended December 31, 1998, the Strong Opportunity Fund II
returned 13.54% versus 19.11% for the S&P 400 Midcap Stock Index.*
o The two areas of outperformance this year were cable/media and technology.
o The price of cable/media stocks rose as investors recognized the area's
improved cash flow, and market potential for the services these companies
offer.
o During the fourth quarter, our investment methodology allowed us to find
areas of opportunity in the technology sector.
- -----------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS (1)
As of 12-31-98
1-year 13.54%
3-year 18.95%
5-year 17.01%
Since Inception 19.06%
(on 5-8-92)
- -----------------------------------------
FIVE LARGEST
STOCK HOLDINGS
As of 12-31-98
SECURITY % OF NET ASSETS
Tele-Communications, In 4.1%
Sun Microsystems, Inc. 2.0%
AirTouch Communications 1.9%
Corning, Inc. 1.9%
Whitman Corporation 1.9%
Please see the Schedule of Investments
in Securities for a complete listing of
the Fund's portfolio.
PERSPECTIVES
FROM THE MANAGERS
/s/Richard Trent Weiss /s/Marina Carlson
Richard T. Weiss Marina Carlson
Portfolio Co-manager Portfolio Co-manager
- --------------------------------------------------------------------------------
The successful overweight positions of the Strong Opportunity Fund II have been
in the areas of cable/media and technology. Some of our strongest stocks in 1998
included Cable & Wireless, Sun Microsystems and Texas Instruments. We still have
confidence in these areas, but have taken profits in both groups as valuations
have risen and the risk/reward profile that existed when we purchased our
positions has changed. Cable/media should continue to do well, because demand
for these services tends to remain strong even in a weakening economic
environment. We have begun to moderately reduce our exposure to technology, as
the area's valuations--measured by comparing a stock's price versus its earnings
potential--have risen to relatively high levels and company earnings prospects
are somewhat optimistic.
One area where we were overly optimistic during 1998 was energy. We felt stock
valuations were favorable given a reasonable forecast for oil prices after
factoring in marginally less demand from Asia. Unfortunately, the deflationary
effect from Asia, coupled with an exceptionally warm winter, led to a
deterioration of the supply/ demand balance and falling oil prices. We are
cautiously optimistic about the fundamentals for natural gas and energy, and
believe this group possesses reasonable value over the long term.
As we look out over the next six months we expect the economy to continue to
slow, along with the earnings prospects for most companies. This scenario would
seem to dictate that the narrowness of the market would continue for
------------------------------------
PRESENTLY, WE FIND
EXCEPTIONAL VALUE
IN SMALLER STOCKS
WHEN WE LOOK AT THE
COMBINATION OF PRICE
AND EARNINGS POTENTIAL,
AS COMPARED TO THOSE
OF LARGE CAP STOCKS.
------------------------------------
- --------------------------------------------------------------------------------
(1) The Fund's returns include the effect of deducting the Fund's expenses, but
do not include charges and expenses attributable to any particular
insurance product. Including such insurance fees and expenses in the Fund's
return quotations has the effect of decreasing the performance quoted.
2
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the near future. From a historical perspective, small- and mid-cap stocks are at
disproportionately low valuations compared to large-cap stocks. It is hard to
predict the point where small- and mid-cap stocks will begin to outperform, but
we have noted that under similar situations in the past, smaller stocks have
enjoyed a rally that resulted in solid outperformance. The present market
conditions are quite similar to the 1968 to 1973 market where we observed the
"Nifty Fifty" effect. It is our belief that the market will turn back to smaller
stocks, as it did during the 10-year period following the market top of 1973
when smaller stocks outperformed larger stocks by an average of 18% annually.
Presently, we find exceptional value in smaller stocks when we look at the
combination of price and earnings potential, as compared to those of large cap
stocks. As a result, from a fundamental valuation discipline we are very
optimistic. While investors may be tempted to sell mid-cap stocks because they
have been underperforming, in doing so they may miss the point of subsequent
outperformance.
We thank you for investing in the Strong Opportunity Fund II, and look forward
to continuing to help you achieve your financial goals.
GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 5-8-92 to 12-31-98
[GRAPH]
THE STRONG S&P 500 Lipper Growth
OPPORTUNITY FUND II Stock Index* Funds Index*
4-92 10,000 10,000 10,000
12-92 11,617 10,680 10,922
12-93 14,541 11,756 12,230
12-94 15,064 11,912 12,038
12-95 18,953 16,388 15,968
12-96 22,393 20,151 18,768
12-97 28,093 26,874 24,029
12-98 31,898 34,553 30,203
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with the performance of the
Standard & Poor's 500 Stock Index ("S&P 500") and the Lipper Growth Funds Index.
Results include the reinvestment of all dividends and capital gains
distributions. Performance is historical and does not represent future results.
Investment returns and principal value vary, and you may have a gain or loss
when you sell shares. To equalize time periods, the indexes' performance was
prorated for the month of May 1992.
- --------------------------------------------------------------------------------
* The S&P 500 is an unmanaged index generally representative of the U.S.
stock market. The S&P MidCap 400 Stock Index is an unmanaged index
generally representative of the U.S. market for medium cap stocks. The
Lipper Growth Funds Index is an equally-weighted performance index of the
largest qualifying funds in this Lipper category. Source of the S&P index
data is Standard & Poor's Micropal. Source of the Lipper index data is
Lipper, Inc.
YOUR FUND'S
APPROACH
THE STRONG OPPORTUNITY FUND II FOCUSES ON STOCKS OF MEDIUM-SIZE COMPANIES THAT
OFFER STRONG GROWTH POTENTIAL, BUT ARE UNDERPRICED. RATHER THAN RELY ON
TRADITIONAL WALL STREET RESEARCH, WE APPLY OUR PROPRIETARY PRIVATE MARKET VALUE
APPROACH TO FIND STOCKS FOR THE FUND. WE FIRST CONSIDER COMPANIES (AND
INDUSTRIES) THAT ARE OUT OF FAVOR. THEN WE DETERMINE THE PRICE WE BELIEVE AN
INVESTOR WOULD BE WILLING TO PAY FOR AN ENTIRE COMPANY--ITS PRIVATE MARKET
VALUE. A COMPANY WHOSE STOCK PRICE IS LOWER THAN ITS PRIVATE MARKET VALUE MAY BE
ADDED TO THE PORTFOLIO.
- --------------------------------------------------------------------------------
MARKET
HIGHLIGHTS
o The economy in 1998 remained relatively healthy as we enjoyed a moderate
gain in corporate earnings.
o We are in the seventh year of rising profits, the longest run in history.
o A majority of companies in the stock market have begun to experience a
deceleration in the rate of profit growth over the past few quarters,
resulting in a very narrow market where the 20 top growth stocks (by
capitalization) in the S&P 500 Stock Index (S&P 500)* are accounting for
the bulk of its gains. In fact, through mid-December, this group of 20
stocks accounted for 56.0% of total gain of the S&P 500--and 61% of the
return of all growth stocks.
3
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SCHEDULE OF INVESTMENTS IN SECURITIES DECEMBER 31, 1998
- --------------------------------------------------------------------------------
================================================================================
STRONG OPPORTUNITY FUND II
================================================================================
Shares or
Principal Value
Amount (Note 2)
- --------------------------------------------------------------------------------
COMMON STOCKS 84.5%
Airline 0.3%
Air New Zealand, Ltd. Class B 1,158,700 $ 1,815,203
Delta Air Lines, Inc. 17,300 899,600
-----------
2,714,803
Auto & Truck Parts 1.2%
Magna International, Inc. Class A 171,000 10,602,000
Bank - Money Center 2.9%
BankAmerica Corporation 192,961 11,601,780
Chase Manhattan Corporation 187,000 12,727,687
ING Groep NV 30,000 1,827,614
UBS AG - Registered Shares (b) 1,400 430,142
-----------
26,587,223
Bank - Super Regional 2.2%
Mellon Bank Corporation 94,000 6,462,500
Wells Fargo Company 340,000 13,578,750
-----------
20,041,250
Beverage - Soft Drink 1.9%
Whitman Corporation 671,900 17,049,462
Chemical - Specialty 3.5%
Morton International, Inc. 445,000 10,902,500
Praxair, Inc. 288,000 10,152,000
Solutia, Inc. 470,000 10,516,250
-----------
31,570,750
Computer - Peripheral Equipment 3.3%
American Power Conversion Corporation (b) 244,000 11,818,750
Quantum Corporation (b) 590,000 12,537,500
Seagate Technology, Inc. (b) 197,800 5,983,450
-----------
30,339,700
Computer - Personal & Workstation 2.0%
Sun Microsystems, Inc. (b) 216,000 18,495,000
Computer Software 1.8%
Cadence Design Systems, Inc. (b) 510,500 15,187,375
Sybase, Inc. (b) 173,600 1,285,725
-----------
16,473,100
Diversified Operations 2.2%
Corning, Inc. 390,000 17,550,000
Siebe PLC 552,000 2,163,698
-----------
19,713,698
Electric Power 1.5%
NIPSCO Industries, Inc. 450,600 13,715,137
Electronic Parts Distribution 1.6%
Avnet, Inc. 190,000 11,495,000
Marshall Industries (b) 113,000 2,768,500
-----------
14,263,500
Electronic Products - Miscellaneous 3.1%
AVX Corporation 744,900 12,616,744
General Motors Corporation Class H (b) 385,500 15,299,531
-----------
27,916,275
Electronics - Semiconductor/Component 1.9%
Micron Technology, Inc. (b) 90,000 4,550,625
Texas Instruments, Inc. 148,000 12,663,250
-----------
17,213,875
Food 3.1%
ConAgra, Inc. 424,300 13,365,450
Unilever NV 173,700 14,406,244
-----------
27,771,694
Healthcare - Medical Supply 1.4%
Sybron International Corporation (b) 484,300 13,166,906
Healthcare - Patient Care 3.7%
Healthsouth Corporation (b) 740,700 11,434,556
Tenet Healthcare Corporation (b) 456,100 11,972,625
United Healthcare Corporation 249,800 10,757,013
-----------
34,164,194
Insurance - Diversified 1.5%
CIGNA Corporation 172,700 13,351,869
Insurance - Multi-Line 0.0%
Skandia Forsakrings AB 15,000 229,502
Insurance - Property & Casualty 4.4%
ACE, Ltd. 389,900 13,427,181
American International Group, Inc. 144,500 13,962,312
Hartford Financial Services Group, Inc. 223,700 12,275,538
-----------
39,665,031
Media - Publishing 2.8%
The E.W. Scripps Company Class A 264,100 13,138,975
Tribune Company 191,700 12,652,200
-----------
25,791,175
Media - Radio/TV 7.2%
Comcast Corporation Class A 235,000 13,791,562
Cox Communications, Inc. Class A (b) 211,000 14,585,375
Tele-Communications, Inc. Liberty Media Group
Series A (b) 405,000 18,655,313
Tele-Communications, Inc. TCI Group Series A (b) 340,000 18,806,250
-----------
65,838,500
Natural Gas Distribution 4.3%
Columbia Energy Group 219,300 12,664,575
Enron Corporation 251,900 14,374,044
The Williams Companies, Inc. 387,600 12,088,275
-----------
39,126,894
Oil - International Integrated 1.2%
Chevron Corporation 130,000 10,781,875
Fortum Corporation (b) 42,000 259,590
-----------
11,041,465
Oil - North American Exploration & Production 3.5%
Barrett Resources Corporation (b) 407,000 9,768,000
Devon Energy Corporation 386,500 11,860,719
Noble Affiliates, Inc. 435,000 10,711,875
-----------
32,340,594
Oil - North American Integrated 1.0%
USX-Marathon Group 308,400 9,290,550
Oil Well Equipment & Service 3.4%
BJ Services Company (b) 644,700 10,073,437
Cooper Cameron Corporation (b) 383,500 9,395,750
Weatherford International, Inc. (b) 583,000 11,295,625
-----------
30,764,812
Precious Metal/Gem/Stone 1.0%
Barrick Gold Corporation 461,500 8,999,250
Real Estate 1.5%
Archstone Communities Trust 274,700 5,562,675
Ayala Land, Inc. 1,184,600 336,273
Post Properties, Inc. 185,700 7,137,844
Shortland Properties, Ltd. 1,041,000 366,660
-----------
13,403,452
Retail - Department Store 1.2%
May Department Stores Company 185,500 11,199,562
Retail - Food Chain 1.2%
The Kroger Company (b) 185,700 11,234,850
4
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================================================================================
STRONG OPPORTUNITY FUND II (continued)
================================================================================
Shares or
Principal Value
Amount (Note 2)
- --------------------------------------------------------------------------------
Retail - Major Chain 1.4%
Kmart Corporation (b) 798,000 $ 12,219,375
Sears Canada, Inc. 65,300 747,140
------------
12,966,515
Retail - Specialty 1.7%
Office Depot, Inc. (b) 410,000 15,144,375
Telecommunication Equipment 0.1%
Alcatel SA ADR 55,000 1,344,063
Telecommunication Service 6.4%
AirTouch Communications, Inc. (b) 244,000 17,598,500
Cable & Wireless Communications PLC (b) 249,000 2,260,898
Cable & Wireless Communications PLC
Sponsored ADR (b) 234,400 10,635,900
MediaOne Group, Inc. 352,900 16,586,300
Omnipoint Corporation (b) 635,200 5,915,300
Paging Network, Inc. (b) 1,096,600 5,140,313
------------
58,137,211
Telephone 1.6%
Telephone & Data Systems, Inc. 319,800 14,371,013
Trucking 1.5%
CNF Transportation, Inc. 372,000 13,973,250
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS(Cost $616,595,780) 770,012,500
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (a) 15.1%
COMMERCIAL PAPER 0.2%
INTEREST BEARING, DUE UPON DEMAND
General Mills, Inc., 5.23% $ 396,000 396,000
Pitney Bowes Credit Corporation, 5.23% 675,700 675,700
Warner Lambert Company, 5.18% 203,800 203,800
Wisconsin Corporate Central Credit Union, 5.30% 819,100 819,100
------------
2,094,600
REPURCHASE AGREEMENTS 14.9%
Goldman Sachs Group, L.P. (Dated 12/31/98),
4.55%, Due 1/04/99 (Repurchase proceeds
$136,068,756); Collateralized by: $119,145,000
United States Treasury Bonds, 6.50%,
Due 11/15/26 (Market Value $138,803,925) (c) 136,000,000 136,000,000
- --------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $138,094,600) 138,094,600
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST $754,690,380) 99.6% 908,107,100
Other Assets and Liabilities, Net 0.4% 3,633,665
- --------------------------------------------------------------------------------
NET ASSETS 100.0% $911,740,765
================================================================================
WRITTEN OPTIONS ACTIVITY
- --------------------------------------------------------------------------------
Contracts Premiums
- --------------------------------------------------------------------------------
Options outstanding at beginning of period -- $ --
Options written during the period 4,115 1,830,896
Options closed (1,730) (907,183)
Options expired (2,385) (923,713)
Options exercised -- --
----- ----------
Options outstanding at end of period -- $ --
===== ==========
Closed options resulted in a capital gain of $1,510,652.
- --------------------------------------------------------------------------------
LEGEND
- --------------------------------------------------------------------------------
(a) Short-term investments include any security which has a maturity of
less than one year.
(b) Non-income producing security.
(c) See Note 2(I) of Notes to Financial Statements.
Percentages are stated as a percent of net assets.
See Notes to Financial Statements.
5
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STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1998
Strong
Opportunity Fund II
-------------------
ASSETS:
Investments in Securities, at Value
(Cost of $754,690,380) $908,107,100
Receivable for Securities Sold 7,920,029
Dividends and Interest Receivable 550,513
Other Assets 55,250
------------
Total Assets 916,632,892
LIABILITIES:
Payable for Securities Purchased 4,737,068
Accrued Operating Expenses and Other Liabilities 155,059
------------
Total Liabilities 4,892,127
------------
NET ASSETS $911,740,765
============
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) $663,427,177
Accumulated Net Realized Gain 94,895,020
Net Unrealized Appreciation 153,418,568
------------
Net Assets $911,740,765
============
Capital Shares Outstanding (Unlimited Number Authorized) 41,980,342
NET ASSET VALUE PER SHARE $21.72
======
<TABLE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------------------
For the Year Ended December 31, 1998
<CAPTION>
Strong
Opportunity Fund II
-------------------
<S> <C>
INCOME:
Dividends - Unaffiliated Issuers $ 6,920,352
Dividends - Affiliated Issuers 359,349
Interest 5,120,011
------------
Total Income 12,399,712
EXPENSES:
Investment Advisory Fees 8,996,207
Custodian Fees 81,346
Shareholder Servicing Costs 1,285,940
Other 82,002
------------
Total Expenses 10,445,495
------------
NET INVESTMENT INCOME 1,954,217
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 95,165,650
Futures Contracts, Options and Forward Foreign Currency Contracts 1,507,766
Foreign Currencies (4,277)
------------
Net Realized Gain 96,669,139
Change in Unrealized Appreciation/Depreciation on:
Investments 8,436,649
Foreign Currencies 143,961
------------
Net Change in Unrealized Appreciation/Depreciation 8,580,610
------------
NET GAIN ON INVESTMENTS 105,249,749
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $107,203,966
============
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------
<CAPTION>
Strong
Opportunity Fund II
-----------------------------
Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net Investment Income $ 1,954,217 $ 2,571,030
Net Realized Gain 96,669,139 110,951,151
Net Change in Unrealized Appreciation/Depreciation 8,580,610 49,558,727
------------ ------------
Net Increase in Net Assets Resulting from Operations 107,203,966 163,080,908
DISTRIBUTIONS:
From Net Investment Income (2,125,999) (2,571,030)
In Excess of Net Investment Income -- (162,663)
From Net Realized Gains 11,831,141) (60,859,506)
------------ ------------
Total Distributions (113,957,140) (63,593,199)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 190,708,336 210,554,869
Proceeds from Reinvestment of Distributions 113,942,474 63,573,723
Payment for Shares Redeemed (221,365,593) (170,348,393)
------------ ------------
Net Increase in Net Assets from Capital Share Transactions 83,285,217 103,780,199
------------ ------------
TOTAL INCREASE IN NET ASSETS 76,532,043 203,267,908
NET ASSETS:
Beginning of Year 835,208,722 631,940,814
------------ ------------
End of Year $911,740,765 $835,208,722
============ ============
TRANSACTIONS IN SHARES OF THE FUND:
Sold 8,920,807 10,580,657
Issued in Reinvestment of Distributions 5,209,676 3,633,086
Redeemed (10,630,641) (8,576,774)
-------------- ------------
Net Increase in Shares of the Fund 3,499,842 5,636,969
============== ============
See Notes to Financial Statements
7
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1998
1. ORGANIZATION
Strong Opportunity Fund II, Inc. is a diversified, open-end management
investment company registered under the Investment Company Act of 1940. The
Fund offers and sells its shares only to separate accounts of insurance
companies for the purpose of funding variable annuity and variable life
insurance contracts. At December 31, 1998, approximately 96% 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 -- Portfolio securities traded primarily on a
principal securities exchange are valued at the last reported sales
price or the mean of 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 last 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 fair value.
The Fund may own certain investment securities which are restricted as
to resale. These securities are valued after giving due consideration
to pertinent factors, including recent private sales, market
conditions and the issuer's financial performance. The Fund generally
bears the costs, if any, associated with the disposition of restricted
securities. The Fund held no restricted securities at December 31,
1998.
(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.
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 calculated on a
first-in, first-out basis.
(D) Certain Investment Risks -- The Fund may utilize derivative
instruments including options, futures and other instruments with
similar characteristics to the extent that they are consistent with
the Fund's investment objectives and limitations. The Fund intends to
use such derivative instruments primarily to hedge or protect from
adverse movements in securities prices or interest rates. The use of
these instruments may involve risks such as the possibility of
illiquid markets or imperfect correlation between the value of the
instruments and the underlying securities, or that the counterparty
will fail to perform its obligations.
Foreign denominated assets and forward currency contracts may involve
greater risks than domestic transactions, including currency,
political and economic, regulatory and market risks.
(E) Futures -- Upon entering into a futures contract, the Fund pledges to
the broker cash or other investments equal to the minimum "initial
margin" requirements of the exchange. Additional securities held by
the Fund may be designated as collateral on open futures contracts.
The Fund also receives from or pays to the broker an amount of cash
equal to the daily fluctuation in the value of the contract. Such
receipts or payments are known as "variation margin" and are recorded
as unrealized gains or losses. When the futures contract is closed, a
realized gain or loss is recorded equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed.
(F) Options -- The Fund may write put or call options. 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.
8
<PAGE>
- --------------------------------------------------------------------------------
(G) Foreign Currency Translation -- Investment securities and other assets
and liabilities initially expressed in foreign currencies and income
are converted to U.S. dollars based upon currency exchange rates
prevailing on the respective dates of such transactions. The effect of
changes in foreign exchange rates on realized and unrealized security
gains or losses is reflected as a component of such gains or losses.
(H) Forward Foreign Currency Exchange Contracts -- Forward foreign
currency exchange contracts are valued at the forward rate and are
marked-to-market daily. The change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the Fund records
an exchange gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed.
(I) Repurchase Agreements -- The Fund may enter into repurchase agreements
with institutions that the Fund's investment advisor, Strong Capital
Management, Inc. ("the Advisor"), has determined are creditworthy
pursuant to criteria adopted by the Board of Directors. Each
repurchase agreement is recorded at cost. The Fund requires that the
collateral, represented by securities (primarily U.S. Government
securities), purchased in a repurchase transaction be maintained in a
segregated account with a custodian in a manner sufficient to enable
the Fund to obtain those securities in the event of a default of the
issuer of the repurchase agreement. On a daily basis, the Advisor
monitors each repurchase agreement to ensure the value of the
collateral, including accrued interest, is at least equal to the
amount owed to the Fund under each repurchase agreement.
(J) Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts in these financial statements. Actual results could differ
from those estimates.
(K) Other -- 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. RELATED PARTY TRANSACTIONS
The Advisor, with whom certain officers and directors of the Fund are
affiliated, provides investment advisory and shareholder recordkeeping and
related services to the Fund. Investment advisory fees, which are
established by terms of the Advisory Agreement, are based on an annualized
rate of 1.00% of the average daily net assets of the Fund. Based on the
terms of the Advisory Agreement, advisory fees and other expenses will be
waived 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 certain expenses at their 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 Fund may invest cash reserves in money market funds sponsored and
managed by the Advisor, subject to certain limitations. The terms of such
transactions are identical to those of non-related entities except that, to
avoid duplicate investment advisory fees, advisory fees of the Fund are
reduced by an amount equal to advisory fees paid to the Advisor under its
investment advisory agreement with the money market funds.
The amount payable to the Advisor at December 31, 1998, shareholder
servicing and other expenses paid to the Advisor, and unaffiliated
directors' fees for the year then ended were $118,067, $1,449,584 and
$9,606, 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 line of credit. For individual Funds, borrowings under the LOC
are limited to either the lesser of 15% of the market value of total assets
or any explicit borrowing limits in the Fund's prospectus. Borrowings under
the LOC bear interest based on prevailing market rates as defined in the
LOC. A commitment fee of .07% per annum is incurred on the unused portion
of the line of credit and is allocated to all participating Strong Funds.
At December 31, 1998, there were no borrowings by the Funds outstanding
under the LOC.
5. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities for the year
ended December 31, 1998 were $696,378,691 and $774,420,658, respectively.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
December 31, 1998
6. INCOME TAX INFORMATION
At December 31, 1998, the cost of investments in securities for federal
income tax purposes was $759,387,029. Net unrealized appreciation of
securities was $148,720,071, consisting of gross unrealized appreciation
and depreciation of $204,480,672 and $55,760,601, respectively.
During the year ended December 31, 1998, the Fund paid a capital gain
distribution (taxable as long-term capital gains at 20%) to shareholders of
$66,819,951 (unaudited).
7. INVESTMENTS IN AFFILIATES
Affiliated issuers, as defined under the Investment Company Act of 1940,
are those in which the Fund's holdings of an issuer represent 5% or more of
the outstanding voting securities of the issuer, or another Strong Fund. A
summary of transactions in the securities of these issuers during the year
ended December 31, 1998 is as follows:
<TABLE>
<CAPTION> Dividend
Balance of Gross Gross Sales Balance of Value Income
Shares Held Purchases and Shares Held Dec. 31, Jan. 1 - Dec. 31,
Jan. 1, 1998 and Additions Reductions Dec. 31, 1998 1998 1998
------------ ------------- ----------- ------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Strong Institutional Money Fund 20,000,000 -- (20,000,000) -- -- $354,734
Strong Investors Money Fund -- 1,000,000 (1,000,000) -- -- 4,615
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
STRONG OPPORTUNITY FUND II
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA (a) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $21.70 $19.24 $17.04 $14.23 $14.12
Income From Investment Operations
Net Investment Income 0.05 0.07 0.13 0.12 0.11
Net Realized and Unrealized Gains on Investments 2.90 4.35 2.87 3.42 0.41
- ------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.95 4.42 3.00 3.54 0.52
Less Distributions
From Net Investment Income (0.05) (0.07) (0.13) (0.12) (0.11)
In Excess of Net Investment Income -- (0.01) -- (0.03) --
From Net Realized Gains (2.88) (1.88) (0.67) (0.58) (0.30)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.93) (1.96) (0.80) (0.73) (0.41)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $21.72 $21.70 $19.24 $17.04 $14.23
========================================================================================================================
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------
Total Return +13.5% +25.5% +18.2% +25.8% +3.6%
Net Assets, End of Period (In Millions) $912 $835 $632 $452 $300
Ratio of Expenses to Average Net Assets 1.2% 1.1% 1.2% 1.2% 1.1%
Ratio of Net Investment Income to Average Net Assets 0.2% 0.4% 0.7% 0.8% 0.9%
Portfolio Turnover Rate 88.5% 101.1% 89.8% 91.1% 74.8%
(a) Information presented relates to a share of capital stock of the Fund
outstanding for the entire period.
See Notes to Financial Statements.
</TABLE>
10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of the
Strong Opportunity Fund II, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Strong Opportunity Fund II, Inc.
(the "Fund") at December 31, 1998, the results of each of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities owned at
December 31, 1998 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 2, 1999
11
